Subtitle 1. Uniform Commercial Code

A.C.R.C. Notes. The Arkansas General Assembly adopted the original Uniform Commercial Code by Acts 1961, No. 185. There have been numerous amendments to the Uniform Commercial Code by the National Conference of Commissioners on Uniform State Laws (N.C.C.U.S.L.) since the original enactment. A majority of these amendments have been adopted in Arkansas. The A.C.R.C. notes following the commentary sections in the Commentaries volume specify which amendments were adopted in Arkansas and also set out other variations between the Uniform Commercial Code and the Arkansas enactment of the Uniform Commercial Code.

The following list specifies by year the sections of the U.C.C. which were amended by the N.C.C.U.S.L. The year referred to is the date of the Uniform Commercial Code amendment by the National Conference of Commissioners on Uniform State Laws and not the year it was adopted in Arkansas. The date a particular amendment was adopted in Arkansas will be reflected by the history notes following the amended section.

1962: 4-3-105, 4-3-112, 4-3-122 [Repealed], 4-3-412, 4-3-504, 4-4-106, 4-4-109 (new section added to U.C.C. by N.C.C.U.S.L. in 1962), 4-4-204, 4-6-103 [Repealed], 4-6-104 [Repealed], 4-6-106 (amended by N.C.C.U.S.L. in 1962, but Arkansas reserved this section) [Repealed], 4-6-107 [Repealed], 4-6-108 [Repealed], 4-8-102, 4-8-107 (new section added to U.C.C. by N.C.C.U.S.L. in 1962), 4-8-208, 4-8-306, 4-8-308 [Repealed], 4-8-313 [Repealed], 4-8-320 (new section added to U.C.C. by N.C.C.U.S.L. in 1962) [Repealed], 4-9-206

1966: 4-1-209 (new section added to U.C.C. by N.C.C.U.S.L. in 1966), 4-2-702, 4-3-501, 4-7-209

1972: 4-1-105, 4-1-201, 4-2-107, 4-5-116

1973: 4-8-102

1977: 4-1-201, 4-5-114, 4-8-101, 4-8-102, 4-8-103, 4-8-104, 4-8-105, 4-8-106, 4-8-107, 4-8-108, 4-8-201, 4-8-202, 4-8-203, 4-8-204, 4-8-205, 4-8-206, 4-8-207, 4-8-208, 4-8-301, 4-8-302, 4-8-303, 4-8-304, 4-8-305, 4-8-306, 4-8-307, 4-8-308 [Repealed], 4-8-309 [Repealed], 4-8-310 [Repealed], 4-8-311 [Repealed], 4-8-312 [Repealed], 4-8-313 [Repealed], 4-8-314 [Repealed], 4-8-315 [Repealed], 4-8-316 [Repealed], 4-8-317 [Repealed], 4-8-318 [Repealed], 4-8-319 [Repealed], 4-8-320 [Repealed], 4-8-321 (new section added to U.C.C. by N.C.C.U.S.L. in 1977) [Repealed], 4-8-401, 4-8-402, 4-8-403, 4-8-404, 4-8-405, 4-8-406, 4-8-407 (new section added to U.C.C. by N.C.C.U.S.L. in 1977), 4-8-408 (new section added to U.C.C. by N.C.C.U.S.L. in 1977) [Repealed], 4-9-103, 4-9-105, 4-9-203, 4-9-302, 4-9-304, 4-9-305, 4-9-309, 4-9-312

1987: Article 2A (new article created by N.C.C.U.S.L. in 1987).

1989: 4-1-105, 4-2-403, Article 4A (new article added to U.C.C. by N.C.C.U.S.L. in 1989), Article 6 (Article 6 totally revised by N.C.C.U.S.L. in 1989). Article 6 was repealed in Arkansas. The revised Article 6 has not been adopted.

1990: 4-1-201, 4-1-207, Article 3 (Article 3 rewritten by N.C.C.U.S.L. in 1990), 4-4-101 — 4-4-504 (Article 4 amended by N.C.C.U.S.L. in 1990 to conform to new Article 3).

1998: Article 9 (revised by N.C.C.U.S.L. in 1998).

Publisher's Notes. Article 9, as revised in 1998, was adopted in Arkansas effective July 1, 2001, by Acts 2001, No. 1439.

Research References

Ark. L. Rev.

Commercial Code in Arkansas, 14 Ark. L. Rev. 302.

Problems of Sources of Law Relationships Under the Uniform Commercial Code — Part I: The Methodological Problem and the Civil Law Approach, 31 Ark. L. Rev. 1.

U. Ark. Little Rock L.J.

Murphey, Twenty Years After: Reflections on the Uniform Commercial Code in Arkansas — Articles 3 and 4, 7 U. Ark. Little Rock L.J. 523.

Case Notes

Applicability.

Contract for excavation of a boot pit area for a rice dryer did not come within any category of transactions covered by this subtitle and provisions of the code would not govern admissibility of evidence in a suit under the contract. Venturi, Inc. v. Adkisson, 261 Ark. 855, 552 S.W.2d 643 (1977).

Cited: Ouachita Indus., Inc. v. Anderson, 236 Ark. 929, 370 S.W.2d 811 (1963); United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964); Peek v. Bank of Star City, 237 Ark. 967, 377 S.W.2d 158 (1964); City Nat'l Bank v. Vanderboom, 290 F. Supp. 592 (W.D. Ark. 1968); United States Fid. & Guar. Co. v. Wells, 246 Ark. 255, 437 S.W.2d 797 (1969); Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); United States v. Trigg, 465 F.2d 1264 (8th Cir. 1972); Smart Chevrolet Co. v. Davis, 262 Ark. 500, 558 S.W.2d 147 (1977); Wilkins v. M & H Fin., Inc., 476 F. Supp. 212 (E.D. Ark. 1979); Mayhew v. Loveless, 1 Ark. App. 69, 613 S.W.2d 118 (1981).

Chapter 1 General Provisions

Research References

Am. Jur. 15A Am. Jur. 2d, Comm. Code, § 1 et seq.

Ark. L. Rev.

Scope, Purposes and Functions of the Code: Article 1, 16 Ark. L. Rev. 1.

Part 1 — General Provisions

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 1973, No. 116, § 6: Jan. 1, 1974.

Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

4-1-101. Short titles.

  1. This subtitle may be cited as the Uniform Commercial Code.
  2. This chapter may be cited as Uniform Commercial Code — General Provisions.

History. Acts 1961, No. 185, § 1-101; reen. 1967, No. 303, § 1 (1-101); A.S.A. 1947, § 85-1-101; Acts 2005, No. 856, § 1.

Research References

Ark. L. Rev.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

Evolving Sales Law: Highlights of the Shifting Landscape of Arkansas Purchasing Law, 57 Ark. L. Rev. 835.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Usury.

Uniform Commercial Code does not affect Arkansas law on usury. Cooper v. Cherokee Village Dev. Co., 236 Ark. 37, 364 S.W.2d 158 (1963).

Cited: Myers v. Council Mfg. Corp., 276 F. Supp. 541 (W.D. Ark. 1967); Beverage Prods. Corp. v. Robinson, 27 Ark. App. 225, 769 S.W.2d 424 (1989); Herringer v. Mercantile Bank, 315 Ark. 218, 866 S.W.2d 390 (1993).

4-1-102. Scope of subtitle.

This chapter applies to a transaction to the extent that it is governed by another chapter of this subtitle.

History. Acts 1961, No. 185, § 1-102; reen. 1967, No. 303, § 1 (1-102); A.S.A. 1947, § 85-1-102; Acts 2005, No. 856, § 2.

4-1-103. Construction of subtitle to promote its purposes and policies — Applicability of supplemental principles of law.

  1. This subtitle shall be liberally construed and applied to promote its underlying purposes and policies, which are:
    1. to simplify, clarify, and modernize the law governing commercial transactions;
    2. to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and
    3. to make uniform the law among the various jurisdictions.
  2. Unless displaced by the particular provisions of this subtitle, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions.

History. Acts 1961, No. 185, § 1-103; reen. 1967, No. 303, § 1 (1-103); A.S.A. 1947, § 85-1-103; Acts 2005, No. 856, § 3.

Case Notes

Custom.

While the Uniform Commercial Code apparently did not directly contemplate the use of money orders and made no specific provision for them, it is the custom and practice of the business community to accept personal money orders as a pledge of the issuing bank's credit so that a court may consider this custom and practice in construing the legal effect of such instruments. Sequoyah State Bank v. Union Nat'l Bank, 274 Ark. 1, 621 S.W.2d 683 (1981).

Estoppel.

Buyer held to be prevented from asserting defense of statute of frauds under § 4-2-201 because of the doctrine of promissory estoppel. Ralston Purina Co. v. McCollum, 271 Ark. 840, 611 S.W.2d 201 (1981).

Executions.

The term “bill of debt” in the current execution statute, § 16-66-201(5), is meaningless because the law in this area is superseded by the provisions of the Uniform Commercial Code. In re Frazier, 136 B.R. 199 (Bankr. W.D. Ark. 1991).

Cited: Pachter, Gold & Schaffer v. Yantis, 742 F. Supp. 544 (W.D. Ark. 1990); TB of Blytheville, Inc. v. Little Rock Sign & Emblem, Inc., 328 Ark. 688, 946 S.W.2d 930 (1997); Metro. Nat'l Bank v. La Sher Oil Co., 81 Ark. App. 269, 101 S.W.3d 252 (2003).

4-1-104. Construction against implicit repeal.

This subtitle being a general act intended as a unified coverage of its subject matter, no part of it shall be deemed to be impliedly repealed by subsequent legislation if such construction can reasonably be avoided.

History. Acts 1961, No. 185, § 1-104; reen. 1967, No. 303, § 1 (1-104); A.S.A. 1947, § 85-1-104.

4-1-105. Severability.

If any provision or clause of this subtitle or its application thereof to any person or circumstances is held invalid, the invalidity does not affect other provisions or applications of the subtitle which can be given effect without the invalid provision or application, and to this end the provisions of this subtitle are severable.

History. Acts 1961, No. 185, § 1-108 as added by 1967, No. 303, § 1 (1-108); 2005, No. 856, § 5.

A.C.R.C. Notes. This section was formerly codified as § 4-1-108.

Publisher's Notes. Former § 4-1-105, concerning territorial application of subtitle and parties' power to choose applicable law, was repealed by Acts 2005, No. 856, § 4. The former section was derived from Acts 1961, No. 185, § 1-105; reen. 1967, No. 303, § 1 (1-105); 1973, No. 116, § 2; A.S.A. 1947, § 85-1-105; Acts 1991, No. 344, § 2; 1991, No. 540, § 2; 1993, No. 439, § 2; 1995, No. 425, § 2; 1997, No. 1070, § 2; 2001, No. 1439, § 2. For current law, see § 4-1-301.

4-1-106. Use of singular and plural — Gender.

In this subtitle, unless the statutory context otherwise requires:

  1. Words in the singular number include the plural, and those in the plural include the singular; and
  2. Words of any gender also refer to any other gender.

History. Acts 2005, No. 856, § 6.

Publisher's Notes. Former § 4-1-106, concerning administration of remedies, was repealed by Acts 2005, No. 856, § 4. The former section was derived from Acts 1961, No. 185, § 1-106; reen. 1967, No. 303, § 1 (1-106); A.S.A. 1947, § 85-1-106. For current law, see § 4-1-305.

4-1-107. Section captions.

Section captions are part of this subtitle.

History. Acts 1961, No. 185, § 1-109; as added by 1967, No. 303, § 1 (1-109); A.S.A. 1947, § 85-1-110; Acts 2005, No. 856, § 7.

A.C.R.C. Notes. This section was formerly codified as § 4-1-109.

Publisher's Notes. Former § 4-1-107, concerning waiver or renunciation of claim or right after breach, was repealed by Acts 2005, No. 856, § 4. The former section was derived from Acts 1961, No. 185, § 1-107; reen. 1967, No. 303, § 1 (1-107); A.S.A. 1947, § 85-1-107. For current law, see § 4-1-306.

4-1-108. Relation to Electronic Signatures in Global and National Commerce Act.

This subtitle modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 et seq., except that nothing in this subtitle modifies, limits, or supersedes 15 U.S.C. § 7001(c) or authorizes electronic delivery of any of the notices described in 15 U.S.C. § 7003(b).

History. Acts 2005, No. 856, § 8.

Publisher's Notes. Former § 4-1-108 has been renumbered by Acts 2005, No. 856, § 5 as § 4-1-105.

4-1-109. [Transferred.]

Publisher's Notes. Former § 4-1-109 has been renumbered by Acts 2005, No. 856, § 7 as § 4-1-107.

Part 2 — General Definitions and Principles of Interpretation

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 1973, No. 116, § 6: Jan. 1, 1974.

Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

Research References

ALR.

What constitutes “good faith” under UCC § 1-208 dealing with “insecure” or “at will” acceleration clauses. 85 A.L.R.4th 284.

Ark. L. Rev.

Mortgages — A Catalogue and Critique on the Role of Equity on the Enforcement of Modern-Day “Due-on-Sale” Clauses, 26 Ark. L. Rev. 485.

Note, Bowen v. Danna: Application of Uniform Commercial Code Section 1-208 to Acceleration Clauses in Real Property Transfers, 36 Ark. L. Rev. 643.

U. Ark. Little Rock L.J.

Survey of Arkansas Law, Business Law, 1 U. Ark. Little Rock L.J. 118.

Tyler, Survey of Business Law, 3 U. Ark. Little Rock L.J. 149.

Survey of Arkansas: Business Law, 6 U. Ark. Little Rock L.J. 73.

4-1-201. General definitions.

  1. Unless the context otherwise requires, words or phrases defined in this section, or in the additional definitions contained in other chapters of this subtitle that apply to particular chapters or parts thereof, have the meanings stated.
  2. Subject to definitions contained in other chapters of this subtitle that apply to particular chapters or parts thereof:
    1. “Action”, in the sense of a judicial proceeding, includes recoupment, counterclaim, set-off, suit in equity, and any other proceedings in which rights are determined.
    2. “Aggrieved party” means a party entitled to pursue a remedy.
    3. “Agreement”, as distinguished from “contract”, means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in § 4-1-303.
    4. “Bank” means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit union, and trust company.
    5. “Bearer” means a person in control of a negotiable electronic document of title or a person in possession of a negotiable instrument, negotiable tangible document of title, or certificated security that is payable to bearer or indorsed in blank.
    6. “Bill of lading” means a document of title evidencing the receipt of goods for shipment issued by a person engaged in the business of directly or indirectly transporting or forwarding goods. The term does not include a warehouse receipt.
    7. “Branch” includes a separately incorporated foreign branch of a bank.
    8. “Burden of establishing” a fact means the burden of persuading the trier of fact that the existence of the fact is more probable than its nonexistence.
    9. “Buyer in ordinary course of business” means a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller's own usual or customary practices. A person that sells oil, gas, or other minerals at the wellhead or minehead is a person in the business of selling goods of that kind. A buyer in ordinary course of business may buy for cash, by exchange of other property, or on secured or unsecured credit, and may acquire goods or documents of title under a preexisting contract for sale. Only a buyer that takes possession of the goods or has a right to recover the goods from the seller under Chapter 2 may be a buyer in ordinary course of business. “Buyer in ordinary course of business” does not include a person that acquires goods in a transfer in bulk or as security for or in total or partial satisfaction of a money debt.
    10. “Conspicuous”, with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. Whether a term is “conspicuous” or not is a decision for the court. Conspicuous terms include the following:
      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.
    11. “Consumer” means an individual who enters into a transaction primarily for personal, family, or household purposes.
    12. “Contract”, as distinguished from “agreement”, means the total legal obligation that results from the parties' agreement as determined by this subtitle as supplemented by any other applicable laws.
    13. “Creditor” includes a general creditor, a secured creditor, a lien creditor, and any representative of creditors, including an assignee for the benefit of creditors, a trustee in bankruptcy, a receiver in equity, and an executor or administrator of an insolvent debtor's or assignor's estate.
    14. “Defendant” includes a person in the position of defendant in a counterclaim, cross-claim, or third-party claim.
    15. “Delivery”, with respect to an electronic document of title means voluntary transfer of control and with respect to an instrument, a tangible document of title, or chattel paper, means voluntary transfer of possession.
    16. “Document of title” means a record (i) that in the regular course of business or financing is treated as adequately evidencing that the person in possession or control of the record is entitled to receive, control, hold, and dispose of the record and the goods the record covers and (ii) that purports to be issued by or addressed to a bailee and to cover goods in the bailee's possession which are either identified or are fungible portions of an identified mass. The term includes a bill of lading, transport document, dock warrant, dock receipt, warehouse receipt, and order for delivery of goods. An electronic document of title means a document of title evidenced by a record consisting of information stored in an electronic medium. A tangible document of title means a document of title evidenced by a record consisting of information that is inscribed on a tangible medium.
    17. “Fault” means a default, breach, or wrongful act or omission.
    18. “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.
    19. “Genuine” means free of forgery or counterfeiting.
    20. “Good faith,” except otherwise provided in Chapter 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing.
    21. “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;
      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 person in control of a negotiable electronic document of title.
    22. “Insolvency proceeding” includes an assignment for the benefit of creditors or other proceeding intended to liquidate or rehabilitate the estate of the person involved.
    23. “Insolvent” means:
      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.
    24. “Money” means a medium of exchange currently authorized or adopted by a domestic or foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two (2) or more countries.
    25. “Organization” means a person other than an individual.
    26. “Party”, as distinguished from a “third party”, means a person that has engaged in a transaction or made an agreement subject to this subtitle.
    27. “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.
    28. “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.
    29. “Purchase” means taking by sale, lease, discount, negotiation, mortgage, pledge, lien, security interest, issue or reissue, gift, or any other voluntary transaction creating an interest in property.
    30. “Purchaser” means a person that takes by purchase.
    31. “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
    32. “Remedy” means any remedial right to which an aggrieved party is entitled with or without resort to a tribunal.
    33. “Representative” means a person empowered to act for another, including an agent, an officer of a corporation or association, and a trustee, executor, or administrator of an estate.
    34. “Right” includes remedy.
    35. “Security interest” means an interest in personal property or fixtures which secures payment or performance of an obligation. “Security interest” includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible, or a promissory note in a transaction that is subject to Chapter 9. “Security interest” does not include the special property interest of a buyer of goods on identification of those goods to a contract for sale under § 4-2-401, but a buyer may also acquire a “security interest” by complying with Chapter 9. Except as otherwise provided in § 4-2-505, the right of a seller or lessor of goods under Chapter 2 or 2A to retain or acquire possession of the goods is not a “security interest”, but a seller or lessor may also acquire a “security interest” by complying with Chapter 9. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer under § 4-2-401 is limited in effect to a reservation of a “security interest.” Whether a transaction in the form of a lease creates a “security interest” is determined pursuant to § 4-1-203.
    36. “Send” in connection with a writing, record, or notice means:
      1. to deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and, in the case of an instrument, to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances; or
      2. in any other way to cause to be received any record or notice within the time it would have arrived if properly sent.
    37. “Signed” includes using any symbol executed or adopted with present intention to adopt or accept a writing.
    38. “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.
    39. “Surety” includes a guarantor or other secondary obligor.
    40. “Term” means a portion of an agreement that relates to a particular matter.
    41. “Unauthorized signature” means a signature made without actual, implied, or apparent authority. The term includes a forgery.
    42. “Warehouse receipt” means a document of title issued by a person engaged in the business of storing goods for hire.
    43. “Writing” includes printing, typewriting, or any other intentional reduction to tangible form. “Written” has a corresponding meaning.

History. Acts 1961, No. 185, § 1-201; 1967, No. 303, § 2 (1-201); 1973, No. 116, § 2; 1985, No. 514, § 1; A.S.A. 1947, § 85-1-201; Acts 1991, No. 572, §§ 1-3; 1993, No. 439, § 3; 2001, No. 1439, § 3; 2005, No. 856, § 9; 2007, No. 342, §§ 2-7.

Publisher's Notes. Acts 1973, No. 116, § 1, amended or reenacted the provisions of Acts 1961, No. 185, Art. 9, as amended (former chapter 9 of this title).

Acts 1973, No. 116, § 5, provided that all transactions which were subject to the provisions of Acts 1961, No. 185, Art. 9, as amended (former chapter 9 of this title), and which were executed prior to January 1, 1974 would be governed by Acts 1961, No. 185, Art. 9, as amended and in effect prior to January 1, 1974.

U.S. Code. The reference to the federal bankruptcy law in (23)(C) is probably a reference to the Bankruptcy Code of 1978, which is codified as 11 U.S.C. § 1 et seq.

Research References

Ark. L. Notes.

Copeland, A Statutory Primer: Article 2 of the U.C.C., — When Do Its Rules Apply?, 1990 Ark. L. Notes 39.

Laurence, Bona Fide Purchaser Analysis, Beverage Products Corporation v. Robinson and the Case Against Very Short Opinions, 1990 Ark. Law Notes 85.

Janet A. Flaccus, Counterfeit Checks — What Rules Should Cover These?, 2011 Ark. L. Notes 618.

Ark. L. Rev.

Note, Conditional Sales Contracts, True Leases, and the Lessee's Right to Terminate, 43 Ark. L. Rev. 899.

You've Got Mail … But Do You Have a Contract?: Does an E-Mail Satisfy the Arkansas Statute of Frauds?, 60 Ark. L. Rev. 707.

U. Ark. Little Rock L.J.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Buyer in Ordinary Course of Business.

“Buying” does not include a transaction in which the person claiming to be a “buyer in ordinary course of business” merely acts as an agent for another, such as an auctioneer. Commercial Bank v. Hales, 281 Ark. 439, 665 S.W.2d 857 (1984).

Buyer was not buyer in ordinary course of business. Merchants & Planters Bank & Trust Co. v. Phoenix Hous. Sys., 21 Ark. App. 153, 729 S.W.2d 433 (1987).

Circuit court erred in granting an inventory lienholder summary judgment in its action seeking a declaration that its certificate of title was free and clear of any lien claimed by a direct lienholder where material questions of fact remained as to whether the dealership owner acted in good faith in purchasing two vehicles from the dealership and whether he and the direct lienholder qualified as buyers in the ordinary course. Ford Motor Credit Co., LLC v. First Nat'l Bank of Crossett, 2016 Ark. App. 408, 500 S.W.3d 188 (2016).

Conspicuous.

The requirement that an exclusion or modification of implied warranties be conspicuous is to ensure that attention of the buyer can reasonably be expected to be brought to it. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

Disclaimer attempting to exclude or modify implied warranties was ineffective as a matter of law where it was in the body of the instrument and in the same size and color of type as other provisions. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

Express warranty which was actually in the nature of a disclaimer of all other warranties which did not mention merchantability and which first appeared inside an operation and maintenance manual which was not supplied until after delivery of the equipment in question was invalid as not mentioning merchantability and as not being conspicuous. Marion Power Shovel Co. v. Huntsman, 246 Ark. 152, 437 S.W.2d 784 (1969).

Where documents involved were before Supreme Court on appeal, Supreme Court was in a position to determine whether express warranty which purported to be in lieu of all others was conspicuous. Marion Power Shovel Co. v. Huntsman, 246 Ark. 152, 437 S.W.2d 784 (1969).

A disclaimer of warranty which, though in italics, was in smaller and lighter type than other portions of the contract failed to meet the statutory requirement of conspicuousness. DeLemar Motor Co. v. White, 249 Ark. 708, 460 S.W.2d 802 (1970).

Where a disclaimer of express and implied warranties was located among much small type on the back of a tractor sales agreement, and the disclaimer was not set out in brackets or readily identifiable in any other manner, the disclaimer was not conspicuous and was therefore ineffective. Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

Where the manufacturer's disclaimer appeared on the back of the dealer's purchase order, but in print larger than the surrounding writing, and writing in large print on the front of the form, directly above the line for the buyer's signature, directed the buyer to the controlling terms on the back, the writing was such that should have attracted the attention of a reasonable buyer and, therefore, satisfied the standard for conspicuousness. Hunter v. Texas Instruments, Inc., 798 F.2d 299 (8th Cir. 1986).

Whether disclaimers are conspicuous is a factual determination, requiring not only the submission of labels and pamphlets, but also submission of information concerning the placement of the labels on containers, and representations made to the buyers. Young v. American Cyanamid Co., 786 F. Supp. 781 (E.D. Ark. 1991).

Delivery.

Where an instrument is no longer in possession of a party whose signature is on it, there is a presumption of delivery. Bryan v. Bartlett, 435 F.2d 28 (8th Cir. 1970), cert. denied, 402 U.S. 915, 91 S. Ct. 1373, 28 L. Ed. 2d 658 (1971).

Good Faith.

Corporation held to be lacking in good faith so as to bar its enforcement of security agreement. Thompson v. United States, 408 F.2d 1075 (8th Cir. 1969).

The distributor failed to present evidence sufficient to set out a claim for violation of good faith performance by the oil company when it introduced a cap on its rebate program, where the distributor did not produce evidence of the pricing or rebate practices of other oil companies nor did it present evidence of retailer-wholesaler price margins, price rebates, or ceilings on price rebates. Richard Short Oil Co. v. Texaco, Inc., 799 F.2d 415 (8th Cir. 1986).

The fact that every contract imposes an obligation to act in good faith does not create a cause of action for a violation of that obligation. Country Corner Food & Drug, Inc. v. First State Bank & Trust Co., 332 Ark. 645, 966 S.W.2d 894 (1998).

Good Faith Purchasers for Value.

Bank held to be good faith purchaser for value of bonds fraudulently appropriated by debtor and pledged to bank as collateral. First Am. Nat'l Bank v. Christian Found. Life Ins. Co., 242 Ark. 678, 420 S.W.2d 912 (1967).

The defendant did not breach the warranty of title, notwithstanding that a car he sold to the plaintiff was confiscated as a stolen vehicle, since he was a good faith purchaser where (1) the defendant purchased the car from a third party who, before he purchased the car, contacted the licensing agency and was informed that the car's title was good, and (2) the third party related this information to the defendant before the defendant purchased the car. Midway Auto Sales, Inc. v. Clarkson, 71 Ark. App. 316, 29 S.W.3d 788 (2000).

Trial court's determination that the course of dealing in the used-car trade was that a seller would reimburse the buyer when the seller could not deliver clear title to the vehicle was supported by the evidence and public policy, and fell within the definitions of trade usage and good faith in § 4-1-303 and subdivision (b)(20) of this section. Therefore, a seller of a vehicle with an encumbered title was required to reimburse the buyer even though the seller was itself a good faith purchaser. Superior, Inc. v. Arrington, 2009 Ark. App. 875 (2009).

Purchaser.

An auctioneer is merely a selling agent, not a “purchaser.” Commercial Bank v. Hales, 281 Ark. 439, 665 S.W.2d 857 (1984).

Send.

The deposit of returned checks in the mail by midnight complies with the requirement that the checks be “sent” to the bank's transferor. Union Nat'l Bank v. Metropolitan Nat'l Bank, 265 Ark. 340, 578 S.W.2d 220 (1979).

Cited: United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964); Nicklaus v. Peoples Bank & Trust Co., 258 F. Supp. 482 (E.D. Ark. 1965); Commercial Credit Corp. v. Associates Discount Corp., 246 Ark. 118, 436 S.W.2d 809 (1969); Bailey v. Ford Motor Co., 246 Ark. 950, 440 S.W.2d 238 (1969); Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Starkey Constr., Inc. v. Elcon, Inc., 248 Ark. 958, 457 S.W.2d 509 (1970); Pine Bluff Prod. Credit Ass'n v. Lloyd, 252 Ark. 682, 480 S.W.2d 578 (1972); Planters' Prod. Credit Ass'n v. Bowles, 256 Ark. 1063, 511 S.W.2d 645 (1974); Pine Bluff Nat'l Bank v. Kesterson, 257 Ark. 813, 520 S.W.2d 253 (1975); Rex Fin. Corp. v. Marshall, 406 F. Supp. 567 (W.D. Ark. 1976); McMillan v. Meuser Material & Equip. Co., 260 Ark. 422, 541 S.W.2d 911 (1976); Bell v. Itek Leasing Corp., 262 Ark. 22, 555 S.W.2d 1 (1977); Walker Ford Sales v. Gaither, 265 Ark. 275, 578 S.W.2d 23 (1979); Swink & Co. v. Carroll McEntee & McGinley, Inc., 266 Ark. 279, 584 S.W.2d 393 (1979); Findley Mach. Co. v. Miller, 3 Ark. App. 264, 625 S.W.2d 542 (1981); Scholtes v. Signal Delivery Serv., Inc., 548 F. Supp. 487 (W.D. Ark. 1982); Rhodes v. Oaklawn Bank, 279 Ark. 51, 648 S.W.2d 470 (1983); Steele v. Murphy, 279 Ark. 235, 650 S.W.2d 573 (1983); Worthen Bank & Trust Co. v. Hilyard Drilling Co., 60 B.R. 500 (Bankr. W.D. Ark. 1986); Mooney v. Grant County Bank, 18 Ark. App. 224, 711 S.W.2d 841 (1986); In re Bearhouse, Inc., 84 B.R. 552 (Bankr. W.D. Ark. 1988); Hazen First State Bank v. Speight, 888 F.2d 574 (8th Cir. 1989); Niedermeier v. Central Prod. Credit Ass'n, 300 Ark. 116, 777 S.W.2d 210 (1989); Adams v. First State Bank, 300 Ark. 235, 778 S.W.2d 611 (1989); Reynolds v. Commodity Credit Corp., 300 Ark. 441, 780 S.W.2d 15 (1989); Miller v. First Nat'l Bank, 29 Ark. App. 247, 780 S.W.2d 589 (1989); In re Taylor, 130 B.R. 849 (Bankr. E.D. Ark. 1991); Galatia Community State Bank v. Kindy, 307 Ark. 467, 821 S.W.2d 765 (1991); Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 183 B.R. 848 (Bankr. E.D. Ark. 1995); Affiliated Foods S.W., Inc. v. Moran, 322 Ark. 808, 912 S.W.2d 8 (1995); Long v. Lampton, 324 Ark. 511, 922 S.W.2d 692 (1996); Lee County v. Volvo Constr. Equip. N. Am., Inc., No. 2:07-CV-00082 BSM, 2008 U.S. Dist. LEXIS 95745 (E.D. Ark. Nov. 20, 2008).

4-1-202. Notice — Knowledge.

  1. Subject to subsection (f), a person has “notice” of a fact if the person:
    1. has actual knowledge of it;
    2. has received a notice or notification of it; or
    3. from all the facts and circumstances known to the person at the time in question, has reason to know that it exists.
  2. “Knowledge” means actual knowledge. “Knows” has a corresponding meaning.
  3. “Discover”, “learn”, or words of similar import refer to knowledge rather than to reason to know.
  4. A person “notifies” or “gives” a notice or notification to another person by taking such steps as may be reasonably required to inform the other person in ordinary course, whether or not the other person actually comes to know of it.
  5. Subject to subsection (f), a person “receives” a notice or notification when:
    1. it comes to that person's attention; or
    2. it is duly delivered in a form reasonable under the circumstances at the place of business through which the contract was made or at another location held out by that person as the place for receipt of such communications.
  6. Notice, knowledge, or a notice or notification received by an organization is effective for a particular transaction from the time it is brought to the attention of the individual conducting that transaction and, in any event, from the time it would have been brought to the individual's attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for the organization to communicate information unless the communication is part of the individual's regular duties or the individual has reason to know of the transaction and that the transaction would be materially affected by the information.

History. Acts 2005, No. 856, § 11.

Publisher's Notes. Former § 4-1-202, concerning prima facie evidence by third party documents, was repealed by Acts 2005, No. 856, § 10. The former section was derived from Acts 1961, No. 185, § 1-201 [1-202]; reen. 1967, No. 303, § 2 (1-202); A.S.A. 1947, § 85-1-202. For current law, see § 4-1-307.

Case Notes

Lack of Notice.

Judgment was properly awarded to plaintiff in its action against defendant for payment of a cashier's check that was obtained with insufficient funds because plaintiff was a holder in due course under § 4-3-302(a)(2) when it accepted the cashier's check for payment of a home loan, an antecedent claim, after the homeowners refinanced the home; at the time plaintiff took the cashier's check, it did not have notice of the check's insufficiency, as it was not brought to plaintiff's attention until the day after the check was negotiated. Southern Bank of Commerce v. Union Planters Nat'l Bank, 375 Ark. 141, 289 S.W.3d 414 (2008).

Notice.

Filing in real estate records does not constitute notice as to personal property, and actual knowledge is required under this subtitle. In re King Furn. City, Inc., 240 F. Supp. 453 (E.D. Ark. 1965).

Notice held to be sufficient. Warren Co. v. Neel, 284 F. Supp. 203 (W.D. Ark. 1968), aff'd, Kimbell Milling Co. v. Warren Co., 406 F.2d 775 (8th Cir. 1969); Hudspeth Motors, Inc. v. Wilkinson, 238 Ark. 410, 382 S.W.2d 191 (1964), overruled on other grounds, Stimson Tractor Co. v. Heflin, 257 Ark. 263, 516 S.W.2d 379 (1974).

Notice mailed to debtor at his home was adequate where it was received by his wife even though he never saw it. Clark v. First Nat'l Bank, 24 Ark. App. 52, 748 S.W.2d 42 (1988).

For breach of warranty, no particular form of notice to the seller is required, and the notice need not be in writing. Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

Where material questions of fact remained regarding issue of whether defendant was given notice of its breach of warranty, defendant was not entitled to summary judgment on that issue. Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

4-1-203. Lease distinguished from security interest.

  1. Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case.
  2. A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to termination by the lessee, and:
    1. the original term of the lease is equal to or greater than the remaining economic life of the goods;
    2. the lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods;
    3. the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement; or
    4. the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.
  3. A transaction in the form of a lease does not create a security interest merely because:
    1. the present value of the consideration the lessee is obligated to pay the lessor for the right to possession and use of the goods is substantially equal to or is greater than the fair market value of the goods at the time the lease is entered into;
    2. the lessee assumes risk of loss of the goods;
    3. the lessee agrees to pay, with respect to the goods, taxes, insurance, filing, recording, or registration fees, or service or maintenance costs;
    4. the lessee has an option to renew the lease or to become the owner of the goods;
    5. the lessee has an option to renew the lease for a fixed rent that is equal to or greater than the reasonably predictable fair market rent for the use of the goods for the term of the renewal at the time the option is to be performed; or
    6. the lessee has an option to become the owner of the goods for a fixed price that is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is to be performed.
  4. Additional consideration is nominal if it is less than the lessee's reasonably predictable cost of performing under the lease agreement if the option is not exercised. Additional consideration is not nominal if:
    1. when the option to renew the lease is granted to the lessee, the rent is stated to be the fair market rent for the use of the goods for the term of the renewal determined at the time the option is to be performed; or
    2. when the option to become the owner of the goods is granted to the lessee, the price is stated to be the fair market value of the goods determined at the time the option is to be performed.
  5. The “remaining economic life of the goods” and “reasonably predictable” fair market rent, fair market value, or cost of performing under the lease agreement must be determined with reference to the facts and circumstances at the time the transaction is entered into.

History. Acts 2005, No. 856, § 12.

Publisher's Notes. Former § 4-1-203, concerning obligation of good faith, was repealed by Acts 2005, No. 856, § 10. The former section was derived from Acts 1961, No. 185, § 1-203; reen. 1967, No. 303, § 2 (1-203); A.S.A. 1947, § 85-1-203. For current law, see § 4-1-304.

Case Notes

Sale.

Where the debtor-in-possession asserted it had an option to purchase three tractors that was directly contradicted by the express terms of the parties' agreement, the debtor was required to accept or reject the lease under 11 U.S.C. § 365. A terminal rental adjustment clause did not create a purchase option under § 4-2A-110. Even the presence of a combination of the factors listed in subsection (c) of this section does not conclusively prove that an agreement is a sale instead of a lease. In re Double G Trucking of the Arklatex, Inc., 432 B.R. 789 (Bankr. W.D. Ark. 2010).

Security Interest.

Question of whether a lease of personal property is a conditional sale contract depends on the intent of the parties and inclusion of an option to purchase does not of itself make a sale contract. In re Shell, 390 F. Supp. 273 (E.D. Ark. 1975).

Lease with option to buy held to be security interest. In re Shell, 390 F. Supp. 273 (E.D. Ark. 1975); General Elec. Credit Corp. v. Bankers Com. Corp., 244 Ark. 984, 429 S.W.2d 60 (1968).

Factors which distinguish a lease from a secured transaction include: (1) whether the financing agent is also a manufacturer or dealer; (2) whether a down payment is required; (3) whether the lessee must bear the risk of loss; (4) whether the lessee has an option to purchase at the end of the lease term and, if so, whether the purchase may be for little or no additional consideration; (5) whether the lessor, upon the lessee's default under the lease, has a right to declare all lease payments due and payable (similar to a mortgagee's foreclosure rights); (6) whether the lessee must pay sales taxes; (7) whether financing statements or additional security instruments are completed regarding the transaction; and (8) whether a sales price for the purchase was established at the outset of the lease. Thus, agreement was not a lease, but a conditional sales contract and a secured transaction, where the agreement provided for a down payment at the start of the “lease”, the weekly payments included sales tax of approximately the current Arkansas sales tax rate, all risk of loss fell upon the “lessee”, the “lessee” was expressly provided an option to purchase which could be exercised only at a specific time, and, in the lease, the purchase price for the option was established at the outset, which precluded consideration of the actual fair market value of the television at the end of the term. In re Brown, 82 B.R. 68 (Bankr. W.D. Ark. 1987).

A transaction would be construed as a sale and security interest as a matter of law where there was no agreement that the debtor could terminate the lease and the debtor became the owner of the trailer at issue at the end of the lease term for the sum of one dollar. In re Macklin, 236 B.R. 403 (Bankr. E.D. Ark. 1999).

The statute does not require a finding as a matter of law that a transaction is a true lease based only on the fact that the lessee may terminate the lease at any time. In re Copeland, 238 B.R. 801 (Bankr. E.D. Ark. 1999).

A transaction by the debtor involving a portable warehouse was a lease, rather than a sale subject to a security interest, where the debtor invested little in the transaction at its inception and the supplier of the portable warehouse assumed the risk that the “sale” would be lost if the debtor terminated the lease, notwithstanding that the transaction involved a relatively small sum of money and after only a brief period, the debtor's investment in the building would make it economically foolish to terminate the lease. In re Copeland, 238 B.R. 801 (Bankr. E.D. Ark. 1999).

4-1-204. Value.

Except as otherwise provided in Chapters 3, 4, and 5, a person gives value for rights if the person acquires them:

  1. in return for a binding commitment to extend credit or for the extension of immediately available credit, whether or not drawn upon and whether or not a charge-back is provided for in the event of difficulties in collection;
  2. as security for, or in total or partial satisfaction of, a preexisting claim;
  3. by accepting delivery under a preexisting contract for purchase; or
  4. in return for any consideration sufficient to support a simple contract.

History. Acts 2005, No. 856, § 13.

Publisher's Notes. Former § 4-1-204, concerning reasonable time and “seasonably”, was repealed by Acts 2005, No. 856, § 10. The former section was derived from Acts 1961, No. 185, § 1-204; reen. 1967, No. 303, § 2 (1-204); A.S.A. 1947, § 85-1-204. For current law, see §§ 4-1-205 and 4-1-302.

Case Notes

Purchaser for Value.

Evidence held sufficient to show plaintiff was a purchaser for value. J.M. Prods., Inc. v. Ark. Capital Corp., 51 Ark. App. 85, 910 S.W.2d 702 (1995).

Value.

Promise to extend credit in return for security agreement was value given. Putnam Realty, Inc. v. Terminal Moving & Storage Co. (In re Terminal Moving & Storage Co.), 631 F.2d 547 (8th Cir. 1980).

4-1-205. Reasonable time — Seasonableness.

  1. Whether a time for taking an action required by this subtitle is reasonable depends on the nature, purpose, and circumstances of the action.
  2. An action is taken seasonably if it is taken at or within the time agreed or, if no time is agreed, at or within a reasonable time.

History. Acts 2005, No. 856, § 14.

Publisher's Notes. Former § 4-1-205, concerning course of dealing and usage of trade, was repealed by Acts 2005, No. 856, § 10. The former section was derived from Acts 1961, No. 185, § 1-205; 1967, No. 303, § 2 (1-205); A.S.A. 1947, § 85-1-205. For current law, see § 4-1-303.

Case Notes

Revocation of Acceptance.

Whether revocation of acceptance of nonconforming goods was given within a reasonable time was a question of fact. Frontier Mobile Home Sales, Inc. v. Trigleth, 256 Ark. 101, 505 S.W.2d 516 (1974).

The time for revocation of acceptance was reasonable. Hughes v. Brown, 1 Ark. App. 171, 613 S.W.2d 848 (1981).

Revocation of acceptance held to be within a reasonable time after nonconformity of goods was discovered. Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

4-1-206. Presumptions.

Whenever this subtitle creates a “presumption” with respect to a fact, or provides that a fact is “presumed,” the trier of fact must find the existence of the fact unless and until evidence is introduced that supports a finding of its nonexistence.

History. Acts 2005, No. 856, § 15.

Publisher's Notes. Former § 4-1-206, concerning statute of frauds for kinds of personal property not otherwise covered, was repealed by Acts 2005, No. 856, § 10. The former section was derived from Acts 1961, No. 185, § 1-206; reen. 1967, No. 303, § 2 (1-206); A.S.A. 1947, § 85-1-206; Acts 1995, No. 425, § 3.

Case Notes

Cited: Am. State Bank v. Union Planters Bank, N.A., 332 F.3d 533 (8th Cir. 2003).

4-1-207 — 4-1-209. [Repealed.]

Publisher's Notes. These sections, concerning performance or acceptance under reservation of rights, option to accelerate at will, and subordinated obligations, were repealed by Acts 2005, No. 856, § 10. The sections were derived from:

4-1-207. Acts 1961, No. 185, § 1-207; reen. 1967, No. 303, § 2 (1-207); A.S.A. 1947, § 85-1-207; Acts 1991, No. 572, § 4.

4-1-208. Acts 1961, No. 185, § 1-208; reen. 1967, No. 303, § 2 (1-208); A.S.A. 1947, § 85-1-208.

4-1-209. Acts 1961, No. 185, § 1-209, as added by 1967, No. 303, § 2 (1-209); A.S.A. 1947, § 85-1-209.

For current law, see §§ 4-1-3084-1-310.

Part 3 — Territorial Applicability and General Rules

4-1-301. Territorial application of the subtitle — Parties' power to choose applicable law.

  1. Except as provided in this section, when a transaction bears a reasonable relation to this state and also to another state or nation, the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties. Failing such agreement this subtitle applies to transactions bearing an appropriate relation to this state.
  2. Where one of the following provisions of this subtitle specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law (including the conflict of laws rules) so specified:

Rights of creditors against sold goods. Section 4-2-402.

Applicability of the chapter on leases. Sections 4-2A-105 and 4-2A-106.

Applicability of the chapter on bank deposits and collections. Section 4-4-102.

Governing law in the chapter on funds transfers. Section 4-4A-507.

Letters of Credit. Section 4-5-116.

Applicability of the chapter on Investment Securities. Section 4-8-110.

Law governing perfection, the effect of perfection or non-perfection, and the priority of security interests and agricultural liens. Sections 4-9-301 through 4-9-307.

History. Acts 2005, No. 856, § 16.

RESEARCH REFERENCES

Ark. L. Notes.

Watkins, A Guide to Choice of Law in Arkansas, 2005 Arkansas L. Notes 151.

Ark. L. Rev.

McDermott, Standard Leasing Corp. v. Schmidt Aviation: Analysis of Contract Choice of Law in Usury Cases, 34 Ark. L. Rev. 297.

Leflar, Conflict of Laws: Arkansas, 1978-82, 36 Ark. L. Rev. 191.

Leflar, Conflict of Laws: Arkansas, 1983-87, 41 Ark. L. Rev. 63.

U. Ark. Little Rock L.J.

Arkansas Law Survey, Greene, Civil Procedure, 7 U. Ark. Little Rock L.J. 167.

Arkansas Law Survey, Nelson, Conflicts of Law, 7 U. Ark. Little Rock L.J. 173.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Agreements of the Parties.

There is little difference, if any, between subsection (1) and Arkansas case law on usury regarding the test for determining when parties may agree that another state's law will govern an agreement. U.S. Manganese Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 576 F.2d 153 (8th Cir. 1978).

It was clear that the intent of the parties was that the note be governed by the laws of Mississippi. Wilkins v. M & H Fin., Inc., 476 F. Supp. 212 (E.D. Ark. 1979), aff'd, 621 F.2d 311 (8th Cir. 1980).

The parties agreeing in their lease agreement that the lease would be governed by and construed under the laws of Arkansas does not give an Arkansas court personal jurisdiction in and of itself, it does provide another contact with this state which goes to satisfy the minimum contacts requirement. SD Leasing, Inc. v. Al Spain & Assocs., 277 Ark. 178, 640 S.W.2d 451 (1982).

Where contract for purchase of machinery directly involved four states, the agreement that the law of the state where finance company was located would be the governing law was not unreasonable and was not a subterfuge to avoid Arkansas usury laws. Snow v. C.I.T. Corp. of South, Inc., 278 Ark. 554, 647 S.W.2d 465 (1983).

Parties chose to apply Texas law, and transaction bore a reasonable relation to Texas. Ark. Appliance Distrib. Co. v. Tandy Elecs., Inc., 292 Ark. 482, 730 S.W.2d 899 (1987).

A retail installment contract was valid, notwithstanding that it expressly stated that an interest rate of 18 percent per annum was to be charged, where the contract was assigned to a Texas entity and the contract stated that Texas law was to apply. Evans v. Harry Robinson Pontiac-Buick, Inc., 336 Ark. 155, 983 S.W.2d 946 (1999).

Choice of Law Provision Enforceable.

Although the communications corporations had home offices in Arkansas, they had a presence in and conducted business in each of the states in which putative class members resided, so both contracting parties were located in the respective state in which each transaction originated. By virtue of the choice-of-law provision in the agreement, the corporations and their customers agreed that their agreement would be governed by the laws of the state of the customer's billing address; therefore, because there was a reasonable relationship between the transaction and the state of the customer's billing address, that choice-of-law provision was enforceable pursuant to subdivision (1) of this section. Tyler v. Alltel Corp., 265 F.R.D. 415 (E.D. Ark. 2010).

Conflict of Laws.

Where the contract was made in Arkansas and provided that the time balance was payable in Arkansas and no other place of payment was ever designated, the fact that by indorsement the contract was assigned to a Tennessee bank did not take the transaction out of the provisions of the law of Arkansas and under Arkansas law the finance charge constituted usury although not under Tennessee law. Lyles v. Union Planters Nat'l Bank, 239 Ark. 738, 393 S.W.2d 867 (1965).

Where plaintiffs were residents of Arkansas, the injuries and damages sustained occurred in Arkansas, the suit was filed in Arkansas, and some of the cattle were delivered by defendants or their agents to plaintiffs in Arkansas, and, pursuant to § 2-40-101 [repealed], Arkansas has a state interest in preventing the bringing of diseased cattle into the state warranting finding that transactions in question bear an appropriate relation to the state, the application of the law of Arkansas to suit for breach of implied and express warranties and sale of diseased cattle where cattle were negotiated for and purchased in Missouri from Missouri defendants was proper. Threlkeld v. Worsham, 30 Ark. App. 251, 785 S.W.2d 249 (1990).

4-1-302. Variation by agreement.

  1. Except as otherwise provided in subsection (b) or elsewhere in this subtitle, the effect of provisions of this subtitle may be varied by agreement.
  2. The obligations of good faith, diligence, reasonableness, and care prescribed by this subtitle may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards are not manifestly unreasonable. Whenever this subtitle requires an action to be taken within a reasonable time, a time that is not manifestly unreasonable may be fixed by agreement.
  3. The presence in certain provisions of this subtitle of the phrase “unless otherwise agreed”, or words of similar import, does not imply that the effect of other provisions may not be varied by agreement under this section.

History. Acts 2005, No. 856, § 16.

Case Notes

Reasonable Time.

The plain meaning of former § 4-1-204(1) (now the third sentence of subsection (b) of this section) shows that if the Arkansas legislature wants an action to be taken in a reasonable time, they express it within the text of the statute, as they have done repeatedly throughout the Uniform Commercial Code. Landreth v. First Nat'l Bank, 45 F.3d 267 (8th Cir. 1995).

4-1-303. Course of performance — Course of dealing — Usage of trade.

  1. A “course of performance” is a sequence of conduct between the parties to a particular transaction that exists if:
    1. the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and
    2. the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.
  2. A “course of dealing” is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
  3. A “usage of trade” is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law.
  4. A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties' agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so utilized as to that part of the performance.
  5. Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:
    1. express terms prevail over course of performance, course of dealing, and usage of trade;
    2. course of performance prevails over course of dealing and usage of trade; and
    3. course of dealing prevails over usage of trade.
  6. Subject to § 4-2-209, a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance.
  7. Evidence of a relevant usage of trade offered by one party is not admissible unless that party has given the other party notice that the court finds sufficient to prevent unfair surprise to the other party.

History. Acts 2005, No. 856, § 16.

Research References

Ark. L. Rev.

Uniform Commercial Code — Course of Dealing and Usage of Trade, 20 Ark. L. Rev. 388.

U. Ark. Little Rock L.J.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

Case Notes

Course of Dealing.

Previous small contracts could not form the basis for a jury determination as to a “course of dealing” as to a large contract. Capital Steel Co. v. Foster & Creighton Co., 264 Ark. 683, 574 S.W.2d 256 (1978) (decision under prior law).

Evidence did not establish a course of dealing which would apply to disclaimer provisions in purchase agreement. Wilson v. Marquette Elecs., Inc., 630 F.2d 575 (8th Cir. 1980) (decision under prior law).

In the dealer's action against the bank for breach of contract to provide financing, where a bank provided recourse financing to a car dealer for 20 years, during that time had executed contracts establishing the terms for such financing and, though not provided in the contract, had always provided a delinquency list to the dealer, evidence that the bank had regularly provided the delinquency lists was admissible to show the previous conduct between the parties because that course of conduct could be regarded as establishing a common base of understanding for interpreting their expressions and other conduct. Bank of Am., N.A. v. C.D. Smith Motor Co., 353 Ark. 228, 106 S.W.3d 425 (2003) (decision under prior law).

Usage of Trade.

Where the evidence did not indicate that the buyer was the type of party who was or should be aware of the industry's trade customs, since it was entering a market in which it was relying on seller's expertise, the district court was not clearly erroneous in finding seller's implied warranties were not effectively disclaimed. Wilson v. Marquette Elecs., Inc., 630 F.2d 575 (8th Cir. 1980) (decision under prior law).

Trial court's determination that the course of dealing in the used-car trade was that a seller would reimburse the buyer when the seller could not deliver clear title to the vehicle was supported by the evidence and public policy, and fell within the definitions of trade usage and good faith in this section and § 4-1-201(b)(20). Therefore, a seller of a vehicle with an encumbered title was required to reimburse the buyer even though the seller was itself a good faith purchaser. Superior, Inc. v. Arrington, 2009 Ark. App. 875 (2009).

4-1-304. Obligation of good faith.

Every contract or duty within this subtitle imposes an obligation of good faith in its performance and enforcement.

History. Acts 2005, No. 856, § 16.

Research References

Ark. L. Rev.

Comment, Gordon v. Planters & Merchants Bancshares: Punitive Damages May Be Awarded For Bank's Wrongful Charge-Back, 51 Ark. L. Rev. 611.

Case Notes

Applicability.

Failure to exercise good faith under this section raises the issue of breach of contract but is not present in a case where the only contract at issue between the parties is a promissory note. Affiliated Foods S.W., Inc. v. Moran, 322 Ark. 808, 912 S.W.2d 8 (1995).

Bad Faith.

This section permits the consideration of the lack of good faith of party who first perfected security interest toward the second lienholder to alter priorities which otherwise would be determined under chapter 9 of this title. Thompson v. United States, 408 F.2d 1075 (8th Cir. 1969).

Bank had had a clear duty under § 4-4-215 to refrain from charging-back a check against customer's account once payment had become final; the Bank's breach of this duty could have been construed to be an exercise of bad faith strictly prohibited by this section. Gordon v. Planters & Merchants Bankshares, Inc., 326 Ark. 1046, 935 S.W.2d 544 (1996).

Breach.

To establish a breach of the obligation of good faith, the plaintiff must demonstrate that the defendant was not honest in fact and that he acted with a bad motive. Southern Implement Co. v. Deere & Co., 122 F.3d 503 (8th Cir. 1997).

Contractual Terms.

The UCC good faith provision may not be used to override explicit contractual terms. Frank Lyon Co. v. Maytag Corp., 715 F. Supp. 922 (E.D. Ark. 1989).

Demand Loans.

In the face of a demand note, there is no lack of good faith defense available, much less an action in tort for bad faith; a bank is entitled to terminate the loan for any reason or for no reason and it cannot be held liable for refusing to extend when it has no obligation to do so. Zeno Buick-GMC, Inc. v. GMC Truck & Coach, 844 F. Supp. 1340 (E.D. Ark. 1992), aff'd without op., 9 F.3d 115 (8th Cir. 1993), aff'd, 9 F.3d 115 (8th Cir. 1993).

Good Faith.

The Uniform Commercial Code places a general obligation of good faith on the parties to a contract. Ripplemeyer v. National Grape Coop. Ass'n, 807 F. Supp. 1439 (W.D. Ark. 1992).

Whether or not agreements are governed by the Uniform Commercial Code, it appears that there is an implied covenant of good faith and fair dealing; a breach of this implied covenant would constitute a breach of contract. Ripplemeyer v. National Grape Coop. Ass'n, 807 F. Supp. 1439 (W.D. Ark. 1992).

The fact that every contract imposes an obligation to act in good faith does not create a cause of action for a violation of that obligation. Country Corner Food & Drug, Inc. v. First State Bank & Trust Co., 332 Ark. 645, 966 S.W.2d 894 (1998).

Punitive Damages.

Punitive damages can be awarded for bad faith Article 4 violations, where the statute does not specifically prohibit them, without the necessity that an alternative, common law tort be pled. Gordon v. Planters & Merchants Bankshares, Inc., 326 Ark. 1046, 935 S.W.2d 544 (1996).

4-1-305. Remedies to be liberally administered.

  1. The remedies provided by this subtitle must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special damages nor penal damages may be had except as specifically provided in this subtitle or by other rule of law.
  2. Any right or obligation declared by this subtitle is enforceable by action unless the provision declaring it specifies a different and limited effect.

History. Acts 2005, No. 856, § 16.

Research References

Ark. L. Notes.

Flaccus, Update: Repossession and Sale under Arkansas' Article Nine, etc., 1987 Ark. L. Notes 90.

U. Ark. Little Rock L.J.

White, The Decline of the Contract Market Damage Model, 11 U. Ark. Little Rock L.J. 1.

4-1-306. Waiver or renunciation of claim or right after breach.

A claim or right arising out of an alleged breach may be discharged in whole or in part without consideration by agreement of the aggrieved party in an authenticated record.

History. Acts 2005, No. 856, § 16.

4-1-307. Prima facie evidence by third-party documents.

A document in due form purporting to be a bill of lading, policy or certificate of insurance, official weigher's or inspector's certificate, consular invoice, or any other document authorized or required by the contract to be issued by a third party is prima facie evidence of its own authenticity and genuineness and of the facts stated in the document by the third party.

History. Acts 2005, No. 856, § 16.

4-1-308. Performance or acceptance under reservation of rights.

  1. A party that with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as “without prejudice,” “under protest,” or the like are sufficient.
  2. Subsection (a) does not apply to an accord and satisfaction.

History. Acts 2005, No. 856, § 16.

Research References

U. Ark. Little Rock L.J.

Arkansas Law Survey, Harper, Business Law, 7 U. Ark. Little Rock L.J. 159.

Case Notes

Applicability.

This section is only applicable to transactions falling under the provisions of the Uniform Commercial Code. Peek Planting Co. v. W.H. Kennedy & Sons, 257 Ark. 669, 519 S.W.2d 49 (1975).

Accord and Satisfaction.

This section has not altered the common-law rule of accord and satisfaction. Pillow v. Thermogas Co., 6 Ark. App. 402, 644 S.W.2d 292 (1982).

4-1-309. Option to accelerate at will.

A term providing that one party or that party's successor in interest may accelerate payment or performance or require collateral or additional collateral “at will” or when the party “deems itself insecure,” or words of similar import, means that the party has power to do so only if that party in good faith believes that the prospect of payment or performance is impaired. The burden of establishing lack of good faith is on the party against which the power has been exercised.

History. Acts 2005, No. 856, § 16.

Research References

ALR.

What constitutes “good faith” under UCC § 1-208 dealing with “insecure” or “at will” acceleration clauses. 85 A.L.R.4th 284.

Ark. L. Rev.

Mortgages — A Catalogue and Critique on the Role of Equity on the Enforcement of Modern-Day “Due-on-Sale” Clauses, 26 Ark. L. Rev. 485.

Note, Bowen v. Danna: Application of Uniform Commercial Code Section 1-208 to Acceleration Clauses in Real Property Transfers, 36 Ark. L. Rev. 643.

U. Ark. Little Rock L.J.

Survey of Arkansas: Business Law, 6 U. Ark. Little Rock L.J. 73.

Case Notes

Applicability.

This section is inapplicable where the right to accelerate is conditional upon the occurrence of an event, such as a lapse of required insurance coverage, which is in the complete control of the debtor. Bowen v. Danna, 276 Ark. 528, 637 S.W.2d 560 (1982).

Due-on-Sale Clauses.

Even though the sale by the mortgagor of the mortgaged premises to a third party was the occurrence of an event exclusively within the control of the mortgagor, the creditor bank was subject to the good faith requirement of this section before accelerating the debt under a due-on-sale clause, because a state court decision restricted the enforceability of due-on-sale clauses to instances where the creditor proved a legitimate security ground for refusing to accept the transfer of title to a third party had become a rule of property in this state, at least for loans made prior to the effective date of 12 U.S.C. § 1701j-3 which eliminates restrictions on enforcement of due-on-sale clauses in real property loans. Abrego v. United Peoples Fed. Sav. & Loan Ass'n, 281 Ark. 308, 664 S.W.2d 858 (1984).

Exercise of Option.

Where the mortgagors are at fault for not paying and the mortgagees for giving them some reason to believe acceleration would not occur, the mortgagors should be given a reasonable time to make the overdue payments. Rawhide Farms, Inc. v. Darby, 267 Ark. 776, 589 S.W.2d 210 (1979).

Where there was no evidence of inequitable conduct, and there was a breach by the promisors of their repayment obligation on promissory note secured by mortgages, the promisees were entitled to exercise the acceleration clause. Westlund v. Melson, 7 Ark. App. 268, 647 S.W.2d 488 (1983).

Good Faith.

The good faith requirement of this section was not applicable where the promissory note did not provide that the holder could accelerate it at will or when he deemed himself insecure but instead provided that the holder could only accelerate it upon default by the debtor in making the payments or in keeping the premises insured or in paying the taxes. Bowen v. Danna, 276 Ark. 528, 637 S.W.2d 560 (1982).

Where a conditional sales agreement contained a default type acceleration clause rather than one providing for "acceleration at will," the trial court erred in applying the good faith requirements set forth in this section. Hickmon v. Beene, 6 Ark. App. 272, 640 S.W.2d 812 (1982).

The good faith requirement for acceleration does not apply to clauses which permit the acceleration of a debt upon the default of a specific condition which is in the exclusive control of the debtor. Abrego v. United Peoples Fed. Sav. & Loan Ass'n, 281 Ark. 308, 664 S.W.2d 858 (1984).

The good faith requirement of this section is applicable to clauses which place exclusive control in the creditor; however, should the acceleration clause provide for default upon occurrence of an event exclusively within the control of the debtor, then the creditor cannot bring about the occurrence of that specific event and there is no need for the protection by the good faith requirement of this section. Abrego v. United Peoples Fed. Sav. & Loan Ass'n, 281 Ark. 308, 664 S.W.2d 858 (1984).

The UCC good faith provision may not be used to override explicit contractual terms. Frank Lyon Co. v. Maytag Corp., 715 F. Supp. 922 (E.D. Ark. 1989).

Waiver.

Although acceptance of a late payment precludes acceleration because of the lateness of that payment, it is not a waiver of the right to accelerate when default occurs on a subsequent installment. Rawhide Farms, Inc. v. Darby, 267 Ark. 776, 589 S.W.2d 210 (1979); Westlund v. Melson, 7 Ark. App. 268, 647 S.W.2d 488 (1983).

4-1-310. Subordinated obligations.

An obligation may be issued as subordinated to performance of another obligation of the person obligated, or a creditor may subordinate its right to performance of an obligation by agreement with either the person obligated or another creditor of the person obligated. Subordination does not create a security interest as against either the common debtor or a subordinated creditor.

History. Acts 2005, No. 856, § 16.

Chapter 2 Sales

Research References

ALR.

Sales under Article 2, generally. 4 A.L.R.4th 85.

Pre-emption of strict liability in tort by provisions of UCC Article 2. 15 A.L.R.4th 791.

Computer sales and leases, time when cause of action for failure of performance accrues. 90 A.L.R.4th 298.

Ark. L. Notes.

Laurence, Some Practical Advice About Taking Security Interests in Gemstones, Accompanied by a Theoretical Discussion of the Negotiability of Goods, New and Used, 2004 Arkansas L. Notes 75.

Ark. L. Rev.

Sales: Article II, 16 Ark. L. Rev. 6.

Comments: The “Battle” of Contract Formation Under the UCC — Win, Lose or Draw?, Chaney, 32 Ark. L. Rev. 528.

Leflar, Conflict of Laws: Arkansas, 1983-87, 41 Ark. L. Rev. 63.

Evolving Sales Law: Highlights of the Shifting Landscape of Arkansas Purchasing Law, 57 Ark. L. Rev. 835.

U. Ark. Little Rock L.J.

Flaccus, The Lemon and Its Rejection: Code Language and Its Misconstruction, 9 U. Ark. Little Rock L.J. 303.

Case Notes

Cited: Equipment Supply Co. v. Smith, 255 Ark. 678, 502 S.W.2d 467 (1973); Unlaub Co. v. Sexton, 568 F.2d 72 (8th Cir. 1977); Jacob Hartz Seed Co. v. Coleman, 271 Ark. 756, 612 S.W.2d 91 (1981); Watson v. Miears, 612 F. Supp. 1235 (W.D. Ark. 1984); Watson v. Miears, 772 F.2d 433 (8th Cir. 1985).

Part 1 — Short Title, General Construction, and Subject Matter

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 1973, No. 116, § 6: Jan. 1, 1974.

Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

Research References

Am. Jur. 67 Am. Jur. 2d, Sales, § 1 et seq.

Ark. L. Notes.

Copeland, A Statutory Primer: Article 2 of the U.C.C. — When Do Its Rules Apply?, 1990 Ark. L. Notes 39.

C.J.S. 77A C.J.S., Sales, § 1 et seq.

4-2-101. Short title.

This chapter shall be known and may be cited as Uniform Commercial Code — Sales.

History. Acts 1961, No. 185, § 2-101; 1967, No. 303, § 3; A.S.A. 1947, § 85-2-101.

Research References

Ark. L. Rev.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

Evolving Sales Law: Highlights of the Shifting Landscape of Arkansas Purchasing Law, 57 Ark. L. Rev. 835.

4-2-102. Scope — Certain security and other transactions excluded from chapter.

Unless the context otherwise requires, this chapter applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this chapter impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.

History. Acts 1961, No. 185, § 2-102; A.S.A. 1947, § 85-2-102.

Research References

ALR.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Consumer Goods and Services. 1 A.L.R.7th Art. 3 (2015).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Goods and Services: Distributorship, Franchise, and Similar Business Contracts. 8 A.L.R.7th Art. 4 (2015).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Manufacturing, Construction, and Similar Contracts. 15 A.L.R.7th Art. 7 (2015).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Computer Software, Systems, and Similar Contracts. 19 A.L.R.7th Art. 6 (2018).

Sale of Business as Subject to Article 2 of Uniform Commercial Code. 20 A.L.R.7th Art. 1 (2018).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services Other Than Distributorship, Computer, Manufacturing, Construction, and Similar Contacts. 25 A.L.R.7th Art. 4 (2018).

Computer Software Sales and Licenses as Subject to Article 2 of Uniform Commercial Code. 26 A.L.R.7th Art. 10 (2018).

Case Notes

Contract for Services.

Since this section limits the application of § 4-2-210 to contracts involving the sale of goods, § 4-2-210 was not applicable to contract between general contractor and subcontractor for plumbing work. Newton v. Merchants & Farmers Bank, 11 Ark. App. 167, 668 S.W.2d 51 (1984).

Where the series of agreements at issue was not predominantly for the sale of goods, but was rather for services and the use of a trademark, the Uniform Commercial Code (as enacted by Arkansas) did not apply. JRT Inc. v. TCBY Sys., 52 F.3d 734 (8th Cir. 1995).

Lease Agreement.

Assuming that the provisions of the Uniform Commercial Code applied to the lease of a skid-steer loader used for landscaping, an exculpatory clause contained in the lease agreement stating that the leasing company was not responsible for injuries sustained in the use of the loader was not unconscionable. Jordan v. Diamond Equip. & Supply Co., 362 Ark. 142, 207 S.W.3d 525 (2005).

Cited: Sawyer v. Pioneer Leasing Corp., 244 Ark. 943, 428 S.W.2d 46 (1968); Unlaub Co. v. Sexton, 568 F.2d 72 (8th Cir. 1977); Walt Bennett Ford, Inc. v. Dyer, 4 Ark. App. 354, 631 S.W.2d 312 (1982); Heating & Air Specialists, Inc. v. Jones, 180 F.3d 923 (8th Cir. 1999).

4-2-103. Definitions and index of definitions.

  1. In this chapter unless the context otherwise requires:
    1. “Buyer” means a person who buys or contracts to buy goods.
    2. [Reserved.]
    3. “Receipt” of goods means taking physical possession of them.
    4. “Seller” means a person who sells or contracts to sell goods.
  2. Other definitions applying to this chapter or to specified parts thereof, and the sections in which they appear are: “Acceptance”. Section 4-2-606. “Banker's credit”. Section 4-2-325. “Between merchants”. Section 4-2-104. “Cancellation”. Section 4-2-106(4). “Commercial unit”. Section 4-2-105. “Confirmed credit”. Section 4-2-325. “Conforming to contract”. Section 4-2-106. “Contract for sale”. Section 4-2-106. “Cover”. Section 4-2-712. “Entrusting”. Section 4-2-403. “Financing agency”. Section 4-2-104. “Future goods”. Section 4-2-105. “Goods”. Section 4-2-105. “Identification”. Section 4-2-501. “Installment contract”. Section 4-2-612. “Letter of credit”. Section 4-2-325. “Lot”. Section 4-2-105. “Merchant”. Section 4-2-104. “Overseas”. Section 4-2-323. “Person in position of seller”. Section 4-2-707. “Present sale”. Section 4-2-106. “Sale”. Section 4-2-106. “Sale on approval”. Section 4-2-326. “Sale or return”. Section 4-2-326. “Termination”. Section 4-2-106.
  3. “Control” as provided in § 4-7-106 and the following definitions in other chapters apply to this chapter: “Check”. Section 4-3-104. “Consignee”. Section 4-7-102. “Consignor”. Section 4-7-102. “Consumer goods”. Section 4-9-102. “Dishonor”. Section 4-3-502.> “Draft”. Section 4-3-104.
  4. In addition, Chapter 1 of this title contains general definitions and principles of construction and interpretation applicable throughout this chapter.

History. Acts 1961, No. 185, § 2-103; A.S.A. 1947, § 85-2-103; 2001, No. 1439, § 4; 2005, No. 856, § 17; 2007, No. 342, § 8.

Research References

Ark. L. Rev.

McDermott, Standard Leasing Corp. v. Schmidt Aviation: Analysis of Contract Choice of Law in Usury Cases, 34 Ark. L. Rev. 297.

U. Ark. Little Rock L.J.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

4-2-104. Definitions — “Merchant” — “Between merchants” — “Financing agency”.

  1. “Merchant” means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
  2. “Financing agency” means a bank, finance company or other person who in the ordinary course of business makes advances against goods or documents of title or who by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect payment due or claimed under the contract for sale, as by purchasing or paying the seller's draft or making advances against it or by merely taking it for collection whether or not documents of title accompany or are associated with the draft. “Financing agency” includes also a bank or other person who similarly intervenes between persons who are in the position of seller and buyer in respect to the goods (§ 4-2-707).
  3. “Between merchants” means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.

History. Acts 1961, No. 185, § 2-104; A.S.A. 1947, § 85-2-104; Acts 2007, No. 342, § 9.

Research References

U. Ark. Little Rock L.J.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

Case Notes

Merchant.

Where appellee was a farmer and nothing else he was not a “merchant” as the term is used in the Uniform Commercial Code. Cook Grains, Inc. v. Fallis, 239 Ark. 962, 395 S.W.2d 555 (1965).

Cited: Cargill, Inc. v. Weston, 520 F.2d 669 (8th Cir. 1975).

4-2-105. Definitions — Transferability — “Goods” — “Future” goods — “Lot” — “Commercial unit”.

  1. “Goods” means all things (including specially manufactured goods) which are moveable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Chapter 8 of this title) and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (§ 4-2-107).
  2. Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are “future” goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.
  3. There may be a sale of a part interest in existing identified goods.
  4. An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold although the quantity of the bulk is not determined. Any agreed proportion of such a bulk or any quantity thereof agreed upon by number, weight or other measure may to the extent of the seller's interest in the bulk be sold to the buyer who then becomes an owner in common.
  5. “Lot” means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract.
  6. “Commercial unit” means such a unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article (as a machine) or a set of articles (as a suite of furniture or an assortment of sizes) or a quantity (as a bale, gross, or carload) or any other unit treated in use or in the relevant market as a single whole.

History. Acts 1961, No. 185, § 2-105; A.S.A. 1947, § 85-2-105.

Research References

ALR.

What Constitutes “Future Goods” Within Scope of U.C.C. Article 2. 48 A.L.R.6th 475.

Electricity, Gas, or Water Furnished by Public Utility or Alternative Supplier as “Goods” Within Provisions of Uniform Commercial Code, Article 2 on Sales. 97 A.L.R.6th 1 (2014).

Ark. L. Notes.

Looney, The Toothless Cow, the Little Bull That Couldn't, and Udder Matters: Livestock Warranties and the Uniform Commercial Code, 1990 Ark. L. Notes 75.

Case Notes

Commercial Unit.

Forty-pound carton of frozen chicken constituted a commercial unit because division of the product did not materially impair its character or value on the market or in use. Grand State Mktg. v. Eastern Poultry Distribs., 63 Ark. App. 123, 975 S.W.2d 439 (1998).

Cited: Robertson v. Ceola, 255 Ark. 703, 501 S.W.2d 764 (1973); In re Estate of Spann, 257 Ark. 857, 520 S.W.2d 286 (1975); Unlaub Co. v. Sexton, 568 F.2d 72 (8th Cir. 1977); Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980); Ralston Purina Co. v. McCollum, 271 Ark. 840, 611 S.W.2d 201 (1981); Walt Bennett Ford, Inc. v. Dyer, 4 Ark. App. 354, 631 S.W.2d 312 (1982); Montwood Corp. v. Hot Springs Theme Park Corp., 766 F.2d 359 (8th Cir. 1985).

4-2-106. Definitions — “Contract” — “Agreement” — “Contract for sale” — “Sale” — “Present sale” — “Conforming” to contract — “Termination” — “Cancellation”.

  1. In this chapter unless the context otherwise requires “contract” and “agreement” are limited to those relating to the present or future sale of goods. “Contract for sale” includes both a present sale of goods and a contract to sell goods at a future time. A “sale” consists in the passing of title from the seller to the buyer for a price (§ 4-2-401). A “present sale” means a sale which is accomplished by the making of the contract.
  2. Goods or conduct including any part of a performance are “conforming” or conform to the contract when they are in accordance with the obligations under the contract.
  3. “Termination” occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On “termination” all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives.
  4. “Cancellation” occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of “termination” except that the cancelling party also retains any remedy for breach of the whole contract or any unperformed balance.

History. Acts 1961, No. 185, § 2-106; A.S.A. 1947, § 85-2-106.

Research References

ALR.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Computer Software, Systems, and Similar Contracts. 19 A.L.R.7th Art. 6 (2018).

Sale of Business as Subject to Article 2 of Uniform Commercial Code. 20 A.L.R.7th Art. 1 (2018).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services Other Than Distributorship, Computer, Manufacturing, Construction, and Similar Contacts. 25 A.L.R.7th Art. 4 (2018).

Case Notes

Present Sale.

Contract which stated, “The undersigned seller of the grain indicated on this contract fully understands that he or she is transferring title of said grain to the buyer and is relinquishing all control of the grain to the buyer” was an explicit agreement by the parties that title would pass at the time the contract was executed rather than at delivery of the crops. Cullipher v. Lindsey Rice Mill, Inc., 730 F. Supp. 970 (W.D. Ark. 1990).

Sale.

Unless transfer of title of grain from the producer to the warehouseman has occurred, the grain is to be regarded as stored rather than sold. Tucker v. Durham, 285 Ark. 264, 686 S.W.2d 402 (1985).

Country club was not liable under § 16-126-104 to accident victims injured by a driver who had consumed alcohol at the country club's charitable fundraiser because there was no “sale” of alcohol to the driver by the country club; rather, the country club donated two bottles of wine for every table of 10 persons at the fundraiser. Under subdivision (1) of this section, a sale consisted in the passing of title from the seller to the buyer for a price. Mason v. Chenal Country Club, 2010 Ark. App. 180 (2010).

Cited: American Aviation, Inc. v. Aviation Ins. Managers, Inc., 244 Ark. 829, 427 S.W.2d 544 (1968); Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Marine Mart, Inc. v. Pearce, 252 Ark. 601, 480 S.W.2d 133 (1972); Southland Mobile Home Corp. v. Chyrchel, 255 Ark. 366, 500 S.W.2d 778 (1973); In re Estate of Spann, 257 Ark. 857, 520 S.W.2d 286 (1975); Unlaub Co. v. Sexton, 568 F.2d 72 (8th Cir. 1977); Pemberton v. Ark. State Hwy. Comm'n, 268 Ark. 929, 597 S.W.2d 605 (1980); In re Bearhouse, Inc., 84 B.R. 552 (Bankr. W.D. Ark. 1988); Midland Dev., Inc. v. Pine Truss, Inc., 24 Ark. App. 132, 750 S.W.2d 62 (1988); In re Barton, 132 B.R. 23 (Bankr. W.D. Ark. 1991).

4-2-107. Goods to be severed from realty — Recording.

  1. A contract for the sale of minerals or the like (including oil and gas) or a structure or its materials to be removed from realty is a contract for the sale of goods within this chapter if they are to be severed by the seller but until severance a purported present sale thereof which is not effective as a transfer of an interest in land is effective only as a contract to sell.
  2. A contract for the sale apart from the land of growing crops or other things attached to realty and capable of severance without material harm thereto but not described in subsection (1) or of timber to be cut is a contract for the sale of goods within this chapter whether the subject matter is to be severed by the buyer or by the seller even though it forms part of the realty at the time of contracting, and the parties can by identification effect a present sale before severance.
  3. The provisions of this section are subject to any third party rights provided by the law relating to realty records, and the contract for sale may be executed and recorded as a document transferring an interest in land, and shall then constitute notice to third parties of the buyer's rights under the contract for sale.

History. Acts 1961, No. 185, § 2-107; 1973, No. 116, § 3; A.S.A. 1947, § 85-2-107.

Publisher's Notes. Acts 1973, No. 116, § 1, amended or reenacted the provisions of Acts 1961, No. 185, Art. 9, as amended (former Chapter 9 of this title).

Acts 1973, No. 116, § 5, provided that all transactions which were subject to the provisions of Acts 1961, No. 185, Art. 9, as amended (former Chapter 9 of this title), and which were executed prior to January 1, 1974, would be governed by Acts 1961, No. 185, Art. 9, as amended and in effect prior to January 1, 1974.

Case Notes

Mineral Interests.

Errors in earlier decree regarding royalties and conveyance of mineral interests, which decree was not appealed, could not be relitigated or corrected by subsequent purchasers of those mineral interests. Phelps v. Justiss Oil Co., 291 Ark. 538, 726 S.W.2d 662 (1987).

Statute of Frauds.

Oral contract between the company and the contractor for excavation work was for the sale of services, not goods or an interest in land, and therefore was not subject to the statute of frauds; the company promised to pay the contractor to remove the dirt; thus, the contractor was the seller, the company the buyer, and services, not dirt, were sold. Hodges v. John F. Jenkins Contr., Inc., 98 Ark. App. 125, 252 S.W.3d 152 (2007).

Timber Sales.

The UCC is made applicable to timber sales by this section. Davis v. Kolb, 263 Ark. 158, 563 S.W.2d 438 (1978).

Cited: In re Estate of Spann, 257 Ark. 857, 520 S.W.2d 286 (1975); Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980); Williams v. J.W. Black Lumber Co., 275 Ark. 144, 628 S.W.2d 13 (1982); Montwood Corp. v. Hot Springs Theme Park Corp., 766 F.2d 359 (8th Cir. 1985).

Part 2 — Form, Formation, and Readjustment of Contract

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

Research References

ALR.

Conditional acceptance: Conversion to rejection and counteroffer under UCC § 2-207(1). 22 A.L.R.4th 939.

Promissory estoppel as basis for avoidance of UCC statute of frauds (UCC § 2-201). 29 A.L.R.4th 1006.

“Specially manufactured goods” statute of frauds exception in UCC § 2-201(3)(a). 45 A.L.R.4th 1126.

Am. Jur. 67 Am. Jur. 2d, Sales, § 111 et seq.

C.J.S. 77A C.J.S., Sales, § 26 et seq.

4-2-201. Formal requirements — Statute of frauds.

  1. Except as otherwise provided in this section a contract for the sale of goods for the price of five hundred dollars ($500) or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.
  2. Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within ten (10) days after it is received.
  3. A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable
    1. 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
    2. if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or
    3. with respect to goods for which payment has been made and accepted or which have been received and accepted (§ 4-2-606).

History. Acts 1961, No. 185, § 2-201; A.S.A. 1947, § 85-2-201.

Research References

ALR.

Construction of statute of frauds exception under UCC § 2-201(2) for confirmatory writing between merchants. 82 A.L.R.4th 709.

Satisfaction of Statute of Frauds by E-mail. 110 A.L.R.5th 277.

Ark. L. Rev.

Evolving Sales Law: Highlights of the Shifting Landscape of Arkansas Purchasing Law, 57 Ark. L. Rev. 835.

You've Got Mail … But Do You Have a Contract?: Does an E-Mail Satisfy the Arkansas Statute of Frauds?, 60 Ark. L. Rev. 707.

Case Notes

Applicability.

Oral agreement between real estate broker and builder whereby builder was to pay broker commission of five percent for any building contracts which broker might obtain for builder was not a contract for sale of goods so as to fall within the provisions of this section. Brown v. Lee, 242 Ark. 122, 412 S.W.2d 273 (1967).

The statute of frauds does not apply to contracts which may be completely performed on one side when nothing remains to be done during a period longer than one year, except for the payment of compensation. Lake Village Implement Co. v. Cox, 252 Ark. 224, 478 S.W.2d 36 (1972).

Since this section applies only to contracts for the sale of goods, where tiles to be installed were obtained by tile setter, contract was not for “sale of goods” but was primarily a personal service contract and thus this section was inapplicable. Robertson v. Ceola, 255 Ark. 703, 501 S.W.2d 764 (1973).

Where lessee paid lessor after sales contract was executed and lessor accepted payment, the contract was taken out of the statute of frauds. Montwood Corp. v. Hot Springs Theme Park Corp., 766 F.2d 359 (8th Cir. 1985).

Under Arkansas law a farmer is not a merchant, and since the Uniform Commercial Code specifically provides that a confirmation is valid only between merchants, it would not apply to take the contract out of the statute of frauds where the confirmation is between a farmer and a merchant. Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988).

The Arkansas Uniform Commercial Code contemplates that parties may enter into oral agreements that are subsequently confirmed in writing; hence, where a manufacturer had historically paid for materials supplied pursuant to purchase orders with a supplier, despite the supplier's failure to comply with the orders' term requiring written confirmation, it was reasonable to consider the purchase orders confirmed oral contracts. Bio-Tech Pharmacal, Inc. v. Int'l Bus. Connections, LLC, 86 Ark. App. 220, 184 S.W.3d 447 (2004).

Summary judgment was improperly granted in favor of company where buyer's report evinced a prior oral agreement between the buyer and the company; the report satisfied the merchants' exception as a writing in confirmation of the contract, which removed the alleged contract from the Statute of Frauds. Harvest Rice, Inc. v. Fritz & Mertice Lehman Elevator & Dryer, Inc., 365 Ark. 573, 231 S.W.3d 720 (2006).

Defenses.

A defense founded upon the statute of frauds cannot be raised for the first time on appeal. McMillan Feeder Fin. Corp. v. Stephens, 240 Ark. 167, 398 S.W.2d 535 (1966).

Electronic Mail.

Language in buyer's e-mail did not constitute a sufficient writing for purposes of the statute of frauds because it did not evince an agreement between retailer/buyer and importer/seller on price markdowns. General Trading Int'l, Inc. v. Wal-Mart Stores, Inc., 320 F.3d 831 (8th Cir. 2003).

Enforceable Contract.

Trial court erred under subdivision (3)(c) of this section in finding that no valid contract existed between a buyer and a machine seller because there was a meeting of the minds as to the basic terms of the contract; there were competent parties, subject matter, consideration, agreement, and mutual obligation. Bowen v. Gardner, 2013 Ark. App. 52, 425 S.W.3d 875 (2013).

Promissory Estoppel.

Buyer was prevented from asserting defense of statute of frauds because of the doctrine of promissory estoppel. Ralston Purina Co. v. McCollum, 271 Ark. 840, 611 S.W.2d 201 (1981).

Because the UCC states that the principles of law and equity, including estoppel, supplement the code unless displaced by a particular provision, the doctrine of promissory estoppel may be asserted by one party to an oral contract for the sale of goods, to prevent the other party from asserting the defense of the statute of frauds. Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988).

Cited: Cook Grains, Inc. v. Fallis, 239 Ark. 962, 395 S.W.2d 555 (1965); Cargill, Inc. v. Weston, 520 F.2d 669 (8th Cir. 1975).

4-2-202. Final written expression — Parol or extrinsic evidence.

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

  1. by course of performance, course of dealing, or usage of trade (§ 4-1-303); and
  2. by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

History. Acts 1961, No. 185, § 2-202; A.S.A. 1947, § 85-2-202; Acts 2005, No. 856, § 18.

Research References

U. Ark. Little Rock L.J.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Admissibility of Parol Evidence.

Under this section the parol evidence rule is not changed and such evidence is inadmissible to vary the terms of a written conditional sales contract. Green Chevrolet Co. v. Kemp, 241 Ark. 62, 406 S.W.2d 142 (1966).

The trial court erred when it admitted the oral testimony of an automobile buyer to the effect that the seller's salesman had represented to the buyer that the sales tax on the automobile had already been paid, because that testimony varied the terms of the written sales contract and violated the parol evidence rule. Walt Bennett Ford, Inc. v. Dyer, 4 Ark. App. 354, 631 S.W.2d 312 (1982).

The Arkansas parol evidence rule does not bar the admission of oral testimony offered to explain the ambiguity and show the parties' intent, but it does bar the admission of oral testimony that contradicts or varies the written terms. Bone v. Refco, Inc., 774 F.2d 235 (8th Cir. 1985).

In dealer's action against bank for breach of contract to provide financing, where a bank had provided recourse financing to a car dealer for 20 years, during that time had executed contracts establishing the terms for such financing and, though not provided in the contract, had always provided a delinquency list to the dealer, evidence that the bank had regularly provided the delinquency lists was admissible to show the previous conduct between the parties because it did not vary the terms of the written contract and despite the existence of a merger clause in the contract. Bank of Am., N.A. v. C.D. Smith Motor Co., 353 Ark. 228, 106 S.W.3d 425 (2003).

In reviewing wholesaler's claim that the parties did not intend certain poultry shipments to be subject to a cost, insurance, and freight shipment contract, the appellate court refused to consider prior shipment invoices showing the shipping terms as “free alongside” as they were offered to contradict the terms of the invoices at issue and, thus, the evidence was barred by the parol evidence rule. P & O Nedlloyd, Ltd. v. Sanderson Farms, Inc., 462 F.3d 1015 (8th Cir. 2006).

Finality of Agreement.

This section does not prevent buyer of farm equipment from testifying that such agreement was not intended to be final. Lake Village Implement Co. v. Cox, 252 Ark. 224, 478 S.W.2d 36 (1972).

The seller's oral express warranty of capacity for a system was not contradictory to terms in a written manual, where statements in the manual expressed only a theoretical range of capacity for the system, and where there was no evidence that indicated the parties intended the manual to be a final expression of their agreement. Wilson v. Marquette Elecs., Inc., 630 F.2d 575 (8th Cir. 1980).

Integrated Agreements.

When an integrated agreement exists, the Arkansas parol evidence rule bars the introduction into evidence of any prior agreement to contradict the terms of the agreement; however, a completely integrated agreement does not discharge prior agreements that do not fall within its scope, and a partially integrated agreement does not discharge prior agreements that supplement, but are not inconsistent with, the integrated agreement. Bone v. Refco, Inc., 774 F.2d 235 (8th Cir. 1985).

Cited: Sawyer v. Pioneer Leasing Corp., 244 Ark. 943, 428 S.W.2d 46 (1968); Precision Steel Whse., Inc. v. Anderson-Martin Mach. Co., 313 Ark. 258, 854 S.W.2d 321 (1993).

4-2-203. Seals inoperative.

The affixing of a seal to a writing evidencing a contract for sale or an offer to buy or sell goods does not constitute the writing a sealed instrument and the law with respect to sealed instruments does not apply to such a contract or offer.

History. Acts 1961, No. 185, § 2-203; A.S.A. 1947, § 85-2-203.

4-2-204. Formation in general.

  1. A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
  2. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
  3. Even though one (1) or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

History. Acts 1961, No. 185, § 2-204; A.S.A. 1947, § 85-2-204.

4-2-205. Firm offers.

An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three (3) months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

History. Acts 1961, No. 185, § 2-205; A.S.A. 1947, § 85-2-205.

4-2-206. Offer and acceptance in formation of contract.

  1. Unless otherwise unambiguously indicated by the language or circumstances
    1. an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;
    2. an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.
  2. Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

History. Acts 1961, No. 185, § 2-206; A.S.A. 1947, § 85-2-206.

Case Notes

Acceptance of Offer.

The Arkansas Uniform Commercial Code contemplates that parties may enter into oral agreements that are subsequently confirmed in writing; hence, where a manufacturer had historically paid for materials supplied pursuant to purchase orders with a supplier, despite the supplier's failure to comply with the orders' term requiring written confirmation, it was reasonable to consider the purchase orders confirmed oral contracts. Bio-Tech Pharmacal, Inc. v. Int'l Bus. Connections, LLC, 86 Ark. App. 220, 184 S.W.3d 447 (2004).

4-2-207. Additional terms in acceptance or confirmation.

  1. A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
  2. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
    1. the offer expressly limits acceptance to the terms of the offer;
    2. they materially alter it; or
    3. notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
  3. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this subtitle.

History. Acts 1961, No. 185, § 2-207; A.S.A. 1947, § 85-2-207.

Case Notes

Cited: Home Ice Co. v. Big “R” Ice Co., 41 Ark. App. 192, 850 S.W.2d 333 (1993).

4-2-208. [Repealed.]

Publisher's Notes. This section, concerning course of performance or practical construction, was repealed by Acts 2005, No. 856, § 19. The section was derived from Acts 1961, No. 185, § 2-208; A.S.A. 1947, § 85-2-208.

4-2-209. Modification, rescission, and waiver.

  1. An agreement modifying a contract within this chapter needs no consideration to be binding.
  2. A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
  3. The requirements of the statute of frauds section of this chapter (§ 4-2-201) must be satisfied if the contract as modified is within its provisions.
  4. Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
  5. A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

History. Acts 1961, No. 185, § 2-209; A.S.A. 1947, § 85-2-209.

Case Notes

Waiver Not Retracted.

Judgment was properly entered for a supplier in an action to recover for goods sold where (1) historically, the supplier phoned the manufacturer regarding the availability of materials desired by the manufacturer, (2) the manufacturer paid for materials supplied pursuant to purchase orders sent to the supplier, despite the supplier's failure to comply with the orders' term requiring written confirmation, and (3) there was no evidence that the manufacturer ever retracted its waiver of the written confirmation term on the purchase order pursuant to subdivision (5) of this section. Bio-Tech Pharmacal, Inc. v. Int'l Bus. Connections, LLC, 86 Ark. App. 220, 184 S.W.3d 447 (2004).

Cited: Barnwell & Hays, Inc. v. Sloan, 564 F.2d 254 (8th Cir. 1977).

4-2-210. Delegation of performance — Assignment of rights.

  1. A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.
  2. Except as otherwise provided in § 4-9-406, unless otherwise agreed, all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreement otherwise.
  3. The creation, attachment, perfection, or enforcement of a security interest in the seller's interest under a contract is not a transfer that materially changes the duty of or increases materially the burden or risk imposed on the buyer or impairs materially the buyer's chance of obtaining return performance within the purview of subsection (2) unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the seller. Even in that event, the creation, attachment, perfection, and enforcement of the security interest remain effective, but (i) the seller is liable to the buyer for damages caused by the delegation to the extent that the damages could not reasonably be prevented by the buyer, and (ii) a court having jurisdiction may grant other appropriate relief, including cancellation of the contract for sale or an injunction against enforcement of the security interest or consummation of the enforcement.
  4. Unless the circumstances indicate the contrary a prohibition of assignment of “the contract” is to be construed as barring only the delegation to the assignee of the assignor's performance.
  5. An assignment of “the contract” or of “all my rights under the contract” or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract.
  6. The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor demand assurances from the assignee (§ 4-2-609).

History. Acts 1961, No. 185, § 2-210; A.S.A. 1947, § 85-2-210; 2001, No. 1439, § 5.

Amendments. The 2001 amendment rewrote the section.

Case Notes

Applicability.

Since § 4-2-102 limits the application of this section to contracts involving the sale of goods, subsection (4) (now (5)) of this section was not applicable to contract between general contractor and subcontractor for plumbing work. Newton v. Merchants & Farmers Bank, 11 Ark. App. 167, 668 S.W.2d 51 (1984).

Assignment.

An assignment is essentially a delegation of the performance of the duties of an assignor to another who, by its acceptance, promises to perform those duties; this promise is enforceable by either the assignor or the other party to the original agreement. Pemberton v. Ark. State Hwy. Comm'n, 268 Ark. 929, 597 S.W.2d 605 (1980).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970).

Part 3 — General Obligation and Construction of Contract

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

Research References

ALR.

Output contracts under § 2-306(1) of Uniform Commercial Code. 30 A.L.R.4th 396.

Unconscionability of disclaimer of warranties or limitation or exclusion of damages, under UCC § 2-302 or § 2-719(3), in contract subject to UCC Article 2. 38 A.L.R.4th 25.

Auction sales under UCC § 2-328. 44 A.L.R.4th 110.

Affirmations or representations made after the sale is closed as basis of warranty under UCC § 2-313(1)(a). 47 A.L.R.4th 200.

Value of trade-in taken on sale of collateral for purposes of computing surplus or deficiency. 72 A.L.R.4th 1128.

Third-party beneficiaries of warranties under UCC § 2-318. 50 A.L.R.5th 327.

Am. Jur. 67 Am. Jur. 2d, Sales, § 102 et seq.

67A Am. Jur. 2d, Sales, § 627 et seq.

Ark. L. Rev.

The Return of Caveat Venditor as the Law of Products Liability, 23 Ark. L. Rev. 355.

Legislative Note — Act 462 of 1973: Three Day “Cooling-Off” Period for Home Solicitation Sales, 27 Ark. L. Rev. 571.

C.J.S. 77A C.J.S., Sales, §§ 129 et seq., 419 et seq.

4-2-301. General obligation of parties.

The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.

History. Acts 1961, No. 185, § 2-301; A.S.A. 1947, § 85-2-301.

Case Notes

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Smith v. Russ, 70 Ark. App. 23, 13 S.W.3d 920 (2000).

4-2-302. Unconscionable contract or clause.

  1. If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
  2. When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.

History. Acts 1961, No. 185, § 2-302; A.S.A. 1947, § 85-2-302.

Research References

Ark. L. Notes.

Copeland, The Implied Warranty of Habitability and the Use of the Uniform Commercial Code by Analogy, 1983 Ark. L. Notes 5.

Prettyman, The Landlord Protection Act, Arkansas Code § 18-17-101 et seq., 2008 Ark. L. Notes 71.

Ark. L. Rev.

Unconscionable Contracts and the Uniform Commercial Code, 20 Ark. L. Rev. 165.

Unconscionable Contracts: A New Approach for the Arkansas Lawyer, 21 Ark. L. Rev. 427.

U. Ark. Little Rock L.J.

Pasvogel, Mortgage Substitutes — The Law in Arkansas, 9 U. Ark. Little Rock L.J. 433.

Case Notes

Contract Not Unconscionable.

Assuming that the provisions of the Uniform Consumer Code applied to the lease of a skid-steer loader used for landscaping, an exculpatory clause contained in the lease agreement stating that the leasing company was not responsible for injuries sustained in the use of the loader was not unconscionable. Jordan v. Diamond Equip. & Supply Co., 362 Ark. 142, 207 S.W.3d 525 (2005).

Contract Unconscionable.

A finding of unconscionability was not clearly erroneous where: the agreement was a preprinted form; the provision relating to loss of future revenues was harsh in its operation; the contract was signed at a time when the defendant was already in default under its terms; and there appeared to be a substantial disparity in the relative bargaining power of the parties. Associated Press v. Southern Ark. Radio Co., 34 Ark. App. 211, 809 S.W.2d 695 (1991).

Evidence.

The issue of unconscionability is one requiring factual development and determination. Young v. American Cyanamid Co., 786 F. Supp. 781 (E.D. Ark. 1991).

Futures Contracts.

Contracts for sale of cotton to be raised in the future were not unconscionable because the price for cotton was much higher when the time came to sell the crop, since the contracts were to be reviewed as of the time made and at that time there was no way of knowing that prices would go up. J.L. McEntire & Sons v. Hart Cotton Co., 256 Ark. 937, 511 S.W.2d 179 (1974).

Misrepresentations.

A contract providing for the sale of timber would not be enforced where the first party misrepresented his experience and knowledge as a timber buyer to the second party, and where the party who was going to cut and remove the timber misrepresented the value of the timber to the other party. Davis v. Kolb, 263 Ark. 158, 563 S.W.2d 438 (1978).

Cited: In re Pettit, 18 B.R. 8 (Bankr. E.D. Ark. 1981); Structured Invs. Co., LLC v. Price (In re Price), 313 B.R. 805 (Bankr. E.D. Ark. 2004); Welsh v. Mid-South Bulk Servs., 2011 Ark. App. 728 (2011).

4-2-303. Allocation or division of risks.

Where this chapter allocates a risk or a burden as between the parties “unless otherwise agreed”, the agreement may not only shift the allocation but may also divide the risk or burden.

History. Acts 1961, No. 185, § 2-303; A.S.A. 1947, § 85-2-303.

4-2-304. Price payable in money, goods, realty, or otherwise.

  1. The price can be made payable in money or otherwise. If it is payable in whole or in part in goods each party is a seller of the goods which he is to transfer.
  2. Even though all or part of the price is payable in an interest in realty the transfer of the goods and the seller's obligations with reference to them are subject to this chapter, but not the transfer of the interest in realty or the transferor's obligations in connection therewith.

History. Acts 1961, No. 185, § 2-304; A.S.A. 1947, § 85-2-304.

4-2-305. Open price term.

  1. The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if
    1. nothing is said as to price; or
    2. the price is left to be agreed by the parties and they fail to agree; or
    3. the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.
  2. A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
  3. When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.
  4. Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.

History. Acts 1961, No. 185, § 2-305; A.S.A. 1947, § 85-2-305.

Case Notes

Good Faith.

The oil company did not act in bad faith when it introduced the cap on its rebate program, where its posted price, offered to all its distributors nationwide, satisfied subsection (2) of this section, and the distributor was free to buy from others if the oil company would not match prices offered by these other sellers, while the oil company was bound to fill the distributor's requirements whenever it so demanded. Richard Short Oil Co. v. Texaco, Inc., 799 F.2d 415 (8th Cir. 1986).

4-2-306. Output, requirements, and exclusive dealings.

  1. A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
  2. A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

History. Acts 1961, No. 185, § 2-306; A.S.A. 1947, § 85-2-306.

Research References

ALR.

Establishment and construction of requirements contracts under § 2-306(1) of Uniform Commercial Code. 94 A.L.R.5th 247.

Case Notes

Good Faith.

The fact that the exclusive purchase agreement left open the number of gallons of gasoline to be purchased monthly did not support invalidation of the agreement, since this section imposed the duty on the buyer to conduct his business in good faith so that his requirements would approximate a reasonably foreseeable figure. Stacks v. F & S Petro. Co., 6 Ark. App. 327, 641 S.W.2d 726 (1982).

Cited: Rocka v. Gipson, 3 Ark. App. 293, 625 S.W.2d 558 (1981).

4-2-307. Delivery in single lot or several lots.

Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.

History. Acts 1961, No. 185, § 2-307; A.S.A. 1947, § 85-2-307.

4-2-308. Absence of specified place for delivery.

Unless otherwise agreed

  1. the place for delivery of goods is the seller's place of business or if he has none his residence; but
  2. in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and
  3. documents of title may be delivered through customary banking channels.

History. Acts 1961, No. 185, § 2-308; A.S.A. 1947, § 85-2-308.

4-2-309. Absence of specific time provisions — Notice of termination.

  1. The time for shipment or delivery or any other action under a contract if not provided in this chapter or agreed upon shall be a reasonable time.
  2. Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.
  3. Termination of a contract by one (1) party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.

History. Acts 1961, No. 185, § 2-309; A.S.A. 1947, § 85-2-309.

Case Notes

Cited: Marine Mart, Inc. v. Pearce, 252 Ark. 601, 480 S.W.2d 133 (1972); Stacks v. F & S Petro. Co., 6 Ark. App. 327, 641 S.W.2d 726 (1982).

4-2-310. Open time for payment or running of credit — Authority to ship under reservation.

Unless otherwise agreed

  1. payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery; and
  2. if the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection is inconsistent with the terms of the contract (§ 4-2-513); and
  3. if delivery is authorized and made by way of documents of title otherwise than by subsection (b) then payment is due regardless of where the goods are to be received (i) at the time and place at which the buyer is to receive delivery of the tangible documents or (ii) at the time the buyer is to receive delivery of the electronic documents and at the seller's place of business or if none, the seller's residence; and
  4. where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but post-dating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.

History. Acts 1961, No. 185, § 2-310; A.S.A. 1947, § 85-2-310; Acts 2007, No. 342, § 10.

4-2-311. Options and cooperation respecting performance.

  1. An agreement for sale which is otherwise sufficiently definite (§ 4-2-204(3)) to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness.
  2. Unless otherwise agreed specifications relating to assortment of the goods are at the buyer's option and except otherwise provided in § 4-2-319(1)(c) and (3) specifications or arrangements relating to shipment are at the seller's option.
  3. Where such specification would materially affect the other party's performance but is not seasonably made or where one party's cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other remedies:
    1. is excused for any resulting delay in his own performance; and
    2. may also either proceed to perform in any reasonable manner or after the time for a material part of his own performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods.

History. Acts 1961, No. 185, § 2-311; A.S.A. 1947, § 85-2-311.

4-2-312. Warranty of title and against infringements — Buyer's obligation against infringement.

  1. Subject to subsection (2) there is in a contract for sale a warranty by the seller that
    1. the title conveyed shall be good, and its transfer rightful; and
    2. the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.

(2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.

(3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications.

History. Acts 1961, No. 185, § 2-312; A.S.A. 1947, § 85-2-312.

Research References

Ark. L. Rev.

For Whom the Bell Tolls — An Interpretation of the UCC's Exception as to Accrual of a Cause of Action for Future Performance Warranties, 28 Ark. L. Rev. 312.

Case Notes

Good Faith Purchaser.

The defendant did not breach the warranty of title, notwithstanding that a car he sold to the plaintiff was confiscated as a stolen vehicle, since he was a good faith purchaser where (1) the defendant purchased the car from a third party who, before he purchased the car, contacted the licensing agency and was informed that the car's title was good, and (2) the third party related this information to the defendant before the defendant purchased the car. Midway Auto Sales, Inc. v. Clarkson, 71 Ark. App. 316, 29 S.W.3d 788 (2000).

Holding Oneself Out to Be Owner.

Where the defendant held himself out as the owner of cattle to the buyer and participated in the negotiations, even though the actual owner was present at the sale, when it was subsequently discovered that a lien existed against the cattle, the defendant was liable for a breach of warranty. Fields v. Sugar, 251 Ark. 1062, 476 S.W.2d 814 (1972).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980); United States v. Rorex, 737 F.2d 753 (8th Cir. 1984); Smith v. Russ, 70 Ark. App. 23, 13 S.W.3d 920 (2000).

4-2-313. Express warranties by affirmation, promise, description, sample.

  1. Express warranties by the seller are created as follows:
    1. Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
    2. Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
    3. Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.

(2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.

History. Acts 1961, No. 185, § 2-313; A.S.A. 1947, § 85-2-313.

Research References

ALR.

Statement in Advertisements, Product Brochures or Other Promotional Materials as Constituting “Affirmation of Fact” Giving Rise to Express Warranty Under UCC § 2-313(1)(a). 83 A.L.R.6th 1.

Statement in Product Packaging, User Manuals, or Other Product Documentation as Constituting “Affirmation of Fact” Giving Rise to Express Warranty Under UCC § 2-313(1)(a). 84 A.L.R.6th 1.

Oral Statement as Constituting “Affirmation of Fact” Giving Rise to Express Warranty Under UCC § 2-313(1)(a). 88 A.L.R.6th 1.

Ark. L. Notes.

Looney, The Toothless Cow, the Little Bull That Couldn't, and Udder Matters: Livestock Warranties and the Uniform Commercial Code, 1990 Ark. L. Notes 75.

Ark. L. Rev.

The Legal Kaleidoscope — Products Liability, 21 Ark. L. Rev. 301.

For Whom the Bell Tolls — An Interpretation of the UCC's Exception as to Accrual of a Cause of Action for Future Performance Warranties, 28 Ark. L. Rev. 312.

Magnuson-Moss vs. State Protective Consumer Legislation: The Validity of a Stricter State Standard of Warranty Protection, 30 Ark. L. Rev. 21.

Case Notes

Advertisements.

Where defendant's literature stated that two-plies of its roofing material were equivalent to four-plies of conventional material, that buyers could be “assured of greater quality, weather protection and long life,” and that it was “bonded for up to 20 years” it could not be said as a matter of law that no express warranty had been made. Little Rock Sch. Dist. v. Celotex Corp., 264 Ark. 757, 574 S.W.2d 669 (1978).

Affirmations of Fact.

An affirmation of fact must be part of the basis of the parties' bargain to be an express warranty, so that when a buyer is not influenced by the statement in making his or her purchase, the statement is not a basis of the bargain. Ciba-Geigy Corp. v. Alter, 309 Ark. 426, 834 S.W.2d 136 (1992).

The evidence before the trial court supported the conclusion that statements by the defendant's agents that the defendant's herbicide was safe and would not injure a corn crop were affirmations of fact and not mere opinions, commendations, or “sales puffing”, and constituted specific express warranties that the goods would conform to the affirmations. Ciba-Geigy Corp. v. Alter, 309 Ark. 426, 834 S.W.2d 136 (1992).

Circuit court's conclusion that an employee's statements that a tractor would have approximately 500-550 hours on it created an express warranty was not error where the farmer made clear that he was only interested in tractors with low hours, the employee knew of the farmer's desire to purchase a low-hour tractor, and the farmer placed a deposit on the tractor based on the representations. Greenway Equip., Inc. v. Johnson, 2020 Ark. App. 336 (2020).

Information Required by Law.

Where state law requires a certificate on cotton seed sold for planting which will show the true percentage of germination, such certificate constitutes an express warranty as to the germination percentage stated. Walcott & Steele, Inc. v. Carpenter, 246 Ark. 95, 436 S.W.2d 820 (1969).

Waiver.

Buyer's exercise of ownership over car following an initial attempt to return it did not constitute a waiver of breach of warranty claims where seller refused to allow revocation. Currier v. Spencer, 299 Ark. 182, 772 S.W.2d 309 (1989).

Cited: Pearrow v. Huntsman, 248 Ark. 1146, 455 S.W.2d 128 (1970); Wilson v. Marquette Elecs., Inc., 630 F.2d 575 (8th Cir. 1980); DeLuryea v. Winthrop Lab., Div. of Sterling Drug, Inc., 697 F.2d 222 (8th Cir. 1983); Watson v. Miears, 772 F.2d 433 (8th Cir. 1985); Shaver v. Spann, 35 Ark. App. 118, 813 S.W.2d 280 (1991).

4-2-314. Implied warranty — Merchantability — Usage of trade.

  1. Unless excluded or modified (§ 4-2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
  2. Goods to be merchantable must be at least such as
    1. pass without objection in the trade under the contract description; and
    2. in the case of fungible goods, are of fair average quality within the description; and
    3. are fit for the ordinary purposes for which such goods are used; and
    4. run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and
    5. are adequately contained, packaged, and labeled as the agreement may require; and
    6. conform to the promises or affirmations of fact made on the container or label if any.

(3) Unless excluded or modified (§ 4-2-316), other implied warranties may arise from course of dealing or usage of trade.

History. Acts 1961, No. 185, § 2-314; A.S.A. 1947, § 85-2-314.

Research References

Ark. L. Notes.

Copeland, The Implied Warranty of Habitability and the Use of the Uniform Commercial Code by Analogy, 1983 Ark. L. Notes 5.

Looney, The Toothless Cow, the Little Bull That Couldn't, and Udder Matters: Livestock Warranties and the Uniform Commercial Code, 1990 Ark. L. Notes 75.

Ark. L. Rev.

The Return of Caveat Venditor as the Law of Products Liability, 23 Ark. L. Rev. 355.

Legislative Note — Act 111 of 1973: An Act to Impose Liability for Injury and Damages Done in Certain Circumstances by Defective Products, 27 Ark. L. Rev. 562.

For Whom the Bell Tolls — An Interpretation of the UCC's Exception as to Accrual of a Cause of Action for Future Performance Warranties, 28 Ark. L. Rev. 312.

The Personal Injury Action in Warranty — Has the Arkansas Strict Liability Statute Rendered It Obsolete? 28 Ark. L. Rev. 335.

Voucher to Products Liability: The Mechanics of U.C.C. § 2-607(5)(a), 29 Ark. L. Rev. 486.

Magnuson-Moss v. State Protective Consumer Legislation: The Validity of a Stricter State Standard of Warranty Protection, 30 Ark. L. Rev. 21.

Note, Liability of Builder-Vendor: Blagg v. Fred Hunt Co., 35 Ark. L. Rev. 654 (1982).

U. Ark. Little Rock L.J.

Arkansas Law Survey, Roberts and Deere, Torts, 8 U. Ark. Little Rock L.J. 207.

Case Notes

Applicability.

Where plaintiff brought tort and contract claims against defendant for dissatisfaction with a horse, remedies prescribed in this chapter for a buyer against a seller of goods were inapplicable since the positions of plaintiff and defendant were not those of buyer and seller, and since the agreement was for personal services and not for a sale. Mason v. Jackson, 323 Ark. 252, 914 S.W.2d 728 (1996).

Seller of a heat induction coil that triggered a fire in the buyer's furnace was not entitled to summary judgment with respect to the buyer's suit for breach of contract, negligence, and breach of warranties because, given that the buyer did not accept the seller's offer and terms, the gap-filling provisions of the Uniform Commercial Code (UCC) provided for the implied warranty of merchantability and the implied warranty of fitness for a particular purpose under this section and § 4-2-315. In addition, the UCC allowed for recovery of incidental and consequential damages under this section and § 4-2-715. Coorstek, Inc. v. Elec. Melting Servs. Co., No. 4:06CV001726 JMM, 2008 U.S. Dist. LEXIS 6092 (E.D. Ark. Jan. 15, 2008).

Breach.

Recovery on the theory of breach of implied warranty was denied where goods were fit for the intended purpose. Flippo v. Mode O'Day Frock Shops, 248 Ark. 1, 449 S.W.2d 692 (1970).

No breach of implied warranties of merchantability or fitness for particular use established. Equipment Supply Co. v. Smith, 255 Ark. 678, 502 S.W.2d 467 (1973).

In recovery for breach of implied warranty of merchantability, the plaintiff must prove (1) that he has sustained damages; (2) that the product sold to him was not merchantable, i.e., fit for the ordinary purpose for which such goods are used; (3) that this unmerchantable condition was a proximate cause of his damages; and (4) that he was a person whom the defendant might reasonably expect to use or be affected by the product. E.I. Du Pont de Nemours & Co. v. Dillaha, 280 Ark. 477, 659 S.W.2d 756 (1983); Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

No claim stated for breach of implied warranty of merchantability existed where there were no charges that the cigarettes were not properly labeled, or that the cigarettes smoked by the Fund's participants were of an inferior or atypical grade from those usually sold, or that they failed to live up to promises made on the container. A “generally defective” type of allegation was not adequate. Ark. Carpenters' Health & Welfare Fund v. Philip Morris, Inc., 75 F. Supp. 2d 936 (E.D. Ark. 1999).

Fit for Ordinary Purposes.

Feed that made cows sick was not fit for its ordinary purpose, and the trial court correctly instructed on the issue of breach of warranty of merchantability. Purina Mills, Inc. v. Askins, 317 Ark. 58, 875 S.W.2d 843 (1994).

Fitness for Use.

Where assignee of lease of television broadcasting equipment relied on an express warranty from lessor that the equipment would be put in first class condition, the statement amounted to a warranty that the goods were fit for the intended use. KLPR TV, Inc. v. Visual Elec. Corp., 327 F. Supp. 315 (W.D. Ark. 1971), aff'd in part, reversed in part on other grounds, 465 F.2d 1382 (8th Cir. 1972).

Merger of Warranties.

Motions for a directed verdict on the implied warranty of merchantability issue under this section, and on the issue of an implied warranty for a particular purpose under § 4-2-315, were properly denied where the particular purpose for which buyer purchased the product coincided with its ordinary use and purpose, and as a consequence the implied warranties of merchantability and fitness merged. F.L. Davis Bldrs. Supply, Inc. v. Knapp, 42 Ark. App. 52, 853 S.W.2d 288 (1993).

Waiver.

Buyer's exercise of ownership over car following an initial attempt to return it did not constitute a waiver of breach of warranty claims where seller refused to allow revocation. Currier v. Spencer, 299 Ark. 182, 772 S.W.2d 309 (1989).

Warnings.

The plaintiff originally has the burden of proving the warnings or instructions provided on a product's label were inadequate; once a plaintiff proves the lack of an adequate warning or instruction, a presumption arises that the user would have read and heeded adequate warnings or instructions, rebuttable by evidence which persuades the trier of fact that an adequate warning or instruction would have been futile under the circumstances. Bushong v. Garman Co., 311 Ark. 228, 843 S.W.2d 807 (1992).

Cited: Bailey v. Ford Motor Co., 246 Ark. 950, 440 S.W.2d 238 (1969); Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Gramling v. Baltz, 253 Ark. 352, 485 S.W.2d 183 (1972); Hubbard v. Moore, 537 F. Supp. 126 (W.D. Ark. 1982); Brewer v. Jeep Corp., 724 F.2d 653 (8th Cir. 1983); Stalter v. Coca-Cola Bottling Co., 282 Ark. 443, 669 S.W.2d 460 (1984); Shaver v. Spann, 35 Ark. App. 118, 813 S.W.2d 280 (1991); Campbell Soup Co. v. Gates, 319 Ark. 54, 889 S.W.2d 750 (1994); Cartillar v. Turbine Conversions, Ltd., 187 F.3d 858 (8th Cir. 1999).

4-2-315. Implied warranty — Fitness for particular purpose.

Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.

History. Acts 1961, No. 185, § 2-315; A.S.A. 1947, § 85-2-315.

Research References

Ark. L. Notes.

Copeland, The Implied Warranty of Habitability and the Use of the Uniform Commercial Code by Analogy, 1983 Ark. L. Notes 5.

Looney, The Toothless Cow, the Little Bull That Couldn't, and Udder Matters: Livestock Warranties and the Uniform Commercial Code, 1990 Ark. L. Notes 75.

Ark. L. Rev.

Torts — Strict Liability in Products Cases, 22 Ark. L. Rev. 796.

For Whom the Bell Tolls — An Interpretation of the UCC's Exception as to Accrual of a Cause of Action for Future Performance Warranties, 28 Ark. L. Rev. 312.

Voucher to Products Liability: The Mechanics of U.C.C. § 2-607(5)(a), 29 Ark. L. Rev. 486.

Magnuson-Moss vs. State Protective Consumer Legislation: The Validity of a Stricter State Standard of Warranty Protection, 30 Ark. L. Rev. 21.

Note, Liability of Builder-Vendor: Blagg v. Fred Hunt Co., 35 Ark. L. Rev. 654.

U. Ark. Little Rock L.J.

Tyler, Survey of Business Law, 3 U. Ark. Little Rock L.J. 149.

Arkansas Law Survey, Roberts and Deere, Torts, 8 U. Ark. Little Rock L.J. 207.

Case Notes

Applicability.

Where plaintiff brought tort and contract claims against defendant for dissatisfaction with a horse, remedies prescribed in this chapter for a buyer against a seller of goods were inapplicable since the positions of plaintiff and defendant were not those of buyer and seller, and since the agreement was for personal services and not for a sale. Mason v. Jackson, 323 Ark. 252, 914 S.W.2d 728 (1996).

Seller of a heat induction coil that triggered a fire in the buyer's furnace was not entitled to summary judgment with respect to the buyer's suit for breach of contract, negligence, and breach of warranties because, given that the buyer did not accept the seller's offer and terms, the gap-filling provisions of the Uniform Commercial Code (UCC) provided for the implied warranty of merchantability and the implied warranty of fitness for a particular purpose under § 4-2-314 and this section. In addition, the UCC allowed for recovery of incidental and consequential damages under § 4-2-714 and this section. Coorstek, Inc. v. Elec. Melting Servs. Co., No. 4:06CV001726 JMM, 2008 U.S. Dist. LEXIS 6092 (E.D. Ark. Jan. 15, 2008).

Breach.

Evidence insufficient to establish breach of warranty. Delta Oxygen Co. v. Scott, 238 Ark. 534, 383 S.W.2d 885 (1964); Equipment Supply Co. v. Smith, 255 Ark. 678, 502 S.W.2d 467 (1973).

To recover for breach of an implied warranty of fitness for a particular purpose, the plaintiff must prove (1) that he has sustained damages; (2) that at the time of contracting, the defendant had reason to know the particular purpose for which the product was required; (3) that defendant knew the buyer was relying on defendant's skill or judgment to select or furnish the product; (4) that the product was not fit for the purpose for which it was required; (5) that this unfitness was a proximate cause of plaintiff's damages; and (6) that plaintiff was a person whom defendant would reasonably have expected to use the product. E.I. Du Pont de Nemours & Co. v. Dillaha, 280 Ark. 477, 659 S.W.2d 756 (1983).

Creation of Warranty.

Implied warranty of fitness held established. Little Rock Land Co. v. Raper, 245 Ark. 641, 433 S.W.2d 836 (1968); DeLemar Motor Co. v. White, 249 Ark. 708, 460 S.W.2d 802 (1970); Lewis v. Mobil Oil Corp., 438 F.2d 500 (8th Cir. 1971); Wilson v. Marquette Elecs., Inc., 630 F.2d 575 (8th Cir. 1980).

Cross Complaint.

Since there was an implied warranty of fitness from the installer of a passenger elevator to the owner of the building the owner could bring the installer into an action by an injured passenger against such owner by a cross complaint alleging breach of warranty. Little Rock Land Co. v. Raper, 245 Ark. 641, 433 S.W.2d 836 (1968).

Exclusions, Modifications, Etc.

Exclusions or modifications of the implied warranty of fitness are not effective unless they are conspicuous. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

An attempted limitation or modification of an implied warranty long after the contract of purchase was signed was ineffective as amounting to a unilateral attempt of one party to limit its obligations. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

Disclaimer attempting to exclude or modify implied warranties was ineffective as a matter of law where it was in the body of the instrument and in the same size and color of type as other provisions. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

Knowledge of Purpose.

It is enough if the supplier is aware of the particular purpose a buyer has in mind and permits the buyer to make the purchase on the assumption that the goods are suitable for his needs; it is enough that under all the circumstances the supplier has reason to realize the purpose intended or that the reliance exists. Berkeley Pump Co. v. Reed-Joseph Land Co., 279 Ark. 384, 653 S.W.2d 128 (1983).

Plaintiffs' claim for a breach of implied warranty of fitness for a particular purpose failed where it made no allegation of any particular purpose for which it (or its participants) bought cigarettes, and no allegation that the Fund or its participants ever told the defendants of any such need. Ark. Carpenters' Health & Welfare Fund v. Philip Morris, Inc., 75 F. Supp. 2d 936 (E.D. Ark. 1999).

Lack of Privity.

Section 4-86-101 eliminated lack of privity as a defense in an action against the manufacturer or seller of goods for breach of warranty if the plaintiff was a person whom the manufacturer or seller might reasonably have expected to use, consume or be affected by the goods. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

Merger of Warranties.

Motions for a directed verdict on the implied warranty of merchantability issue under § 4-2-314, and on the issue of an implied warranty for a particular purpose under this section, were properly denied where the particular purpose for which buyer purchased the product coincided with its ordinary use and purpose, and as a consequence the implied warranties of merchantability and fitness merged. F.L. Davis Bldrs. Supply, Inc. v. Knapp, 42 Ark. App. 52, 853 S.W.2d 288 (1993).

Proof of Damages.

Whether breach of warranty of fitness in failing to provide proper product caused damage is a question of fact for jury. Lewis v. Mobil Oil Corp., 438 F.2d 500 (8th Cir. 1971).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Stalter v. Coca-Cola Bottling Co., 282 Ark. 443, 669 S.W.2d 460 (1984); Campbell Soup Co. v. Gates, 319 Ark. 54, 889 S.W.2d 750 (1994); Cartillar v. Turbine Conversions, Ltd., 187 F.3d 858 (8th Cir. 1999).

4-2-316. Exclusion or modification of warranties.

  1. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this chapter on parol or extrinsic evidence (§ 4-2-202) negation or limitation is inoperative to the extent that such construction is unreasonable.
  2. Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof.”
  3. Notwithstanding subsection (2)
    1. unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is”, “with all faults” or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and
    2. when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and
    3. an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.
      1. The implied warranties of merchantability and fitness shall not be applicable to a contract for the sale of human blood, blood plasma, or other human tissue or organs from a blood bank or reservoir of such other tissues or organs. Such blood, blood plasma, or tissue or organs shall not, for the purpose of this Chapter, be considered commodities subject to sale or barter but shall be considered as medical services.
      2. With respect to the sale of bovine, porcine, ovine, and equine animals, or poultry, there shall be no implied warranty that the animals are free from disease or sickness. This exemption shall not apply when the seller knowingly sells animals which are diseased or sick.
  4. Remedies for breach of warranty can be limited in accordance with the provisions of this chapter on liquidation or limitation of damages and on contractual modification of remedy (§§ 4-2-718, 4-2-719).

History. Acts 1961, No. 185, § 2-316; 1969, No. 41, § 1; 1981, No. 822, § 1; A.S.A. 1947, § 85-2-316.

Research References

Ark. L. Notes.

Copeland, the Implied Warranty of Habitability and the Use of the Uniform Commercial Code by Analogy, 1983 Ark. L. Notes 5.

Looney, The Toothless Cow, the Little Bull That Couldn't, and Udder Matters: Livestock Warranties and the Uniform Commercial Code, 1990 Ark. L. Notes 75.

Ark. L. Rev.

Unconscionable Contracts and the Uniform Commercial Code, 20 Ark. L. Rev. 165.

Unconscionable Contracts: A New Approach for the Arkansas Lawyer, 21 Ark. L. Rev. 427.

Torts — Strict Liability in Products Cases, 22 Ark. L. Rev. 796.

Legislative Note — Act 111 of 1973: An Act to Impose Liability for Injury and Damages Done in Certain Circumstances by Defective Products, 27 Ark. L. Rev. 562.

For Whom the Bell Tolls — An Interpretation of the UCC's Exception as to Accrual of a Cause of Action for Future Performance Warranties, 28 Ark. L. Rev. 312.

The Personal Injury Action in Warranty — Has the Arkansas Strict Liability Statute Rendered It Obsolete? 28 Ark. L. Rev. 335.

Voucher to Products Liability: The Mechanics of U.C.C. § 2-607(5)(a), 29 Ark. L. Rev. 486.

Magnuson-Moss vs. State Protective Consumer Legislation: The Validity of a Stricter State Standard of Warranty Protection, 30 Ark. L. Rev. 21.

Case Notes

Applicability.

Where plaintiff brought tort and contract claims against defendant for dissatisfaction with a horse, remedies prescribed in this chapter for a buyer against a seller of goods were inapplicable since the positions of plaintiff and defendant were not those of buyer and seller, and since the agreement was for personal services and not for a sale. Mason v. Jackson, 323 Ark. 252, 914 S.W.2d 728 (1996).

“As Is” Transactions.

Only implied, not express, warranties are excluded in “as is” transactions. Tenwick v. Byrd, 9 Ark. App. 340, 659 S.W.2d 950 (1983).

Summary judgment was properly granted to the sellers on the breach of warranty claims where the bill of sale indicated that the vehicle was sold “as is,” thereby disclaiming all implied warranties. Madden v. Mercedes-Benz USA, Inc., 2016 Ark. App. 45, 481 S.W.3d 455 (2016).

Consistency of Construction.

Where there was an express warranty on the sale of cotton seed required by law, an attempt to modify such warranty by a statement of “non-warranty” on the invoice was inconsistent with the express warranty and to that extent unreasonable. Walcott & Steele, Inc. v. Carpenter, 246 Ark. 95, 436 S.W.2d 820 (1969).

Conspicuous.

Exclusions or modifications of the implied warranty of fitness are not effective unless they are conspicuous. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

The requirement that an exclusion or modification of implied warranties be conspicuous is to insure that attention of the buyer can reasonably be expected to be brought to it. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

Disclaimer held to be insufficiently conspicuous. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977); Dessert Seed Co. v. Drew Farmers Supply, Inc., 248 Ark. 858, 454 S.W.2d 307 (1970); DeLemar Motor Co. v. White, 249 Ark. 708, 460 S.W.2d 802 (1970); Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

Where documents involved were before Supreme Court on appeal, Supreme Court was in a position to determine whether express warranty which purported to be in lieu of all others was conspicuous. Marion Power Shovel Co. v. Huntsman, 246 Ark. 152, 437 S.W.2d 784 (1969).

Where the manufacturer's disclaimer appeared on the back of the dealer's purchase order, but in print larger than the surrounding writing, and writing in large print on the front of the form, directly above the line for the buyer's signature, directed the buyer to the controlling terms on the back, the writing was such that should have attracted the attention of a reasonable buyer and, therefore, satisfied the standard for conspicuousness. Hunter v. Texas Instruments, Inc., 798 F.2d 299 (8th Cir. 1986).

Language contained on defendant's standard invoices, stating that all claims for losses had to be submitted in writing within 30 days of delivery, was insufficient to exclude or modify the implied warranty of merchantability. Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

Course of Dealing.

The relatively few sales of stress testing machines and patient carts accompanied by a standard warranty did not establish a course of dealing that would extend the disclaimer provisions to an agreement to purchase a computer-assisted electrocardiographic system, inasmuch as the different nature and magnitude of the complex system made any course of dealing which might have existed as to the sales of carts and stress testing machines inapplicable. Wilson v. Marquette Elecs., Inc., 630 F.2d 575 (8th Cir. 1980).

Effect of Disclaimer.

A disclaimer of warranties under this section limits the seller's liability by reducing the number of circumstances in which the seller will be in breach of the contract; it precludes the existence of a cause of action. Caterpillar Tractor Co. v. Waterson, 13 Ark. App. 77, 679 S.W.2d 814 (1984).

A clear manufacturer's disclaimer or limitation of remedy made in a dealer's contract may become part of the basis of the bargain and is not ineffective solely because the manufacturer is not a party to the contract. Hunter v. Texas Instruments, Inc., 798 F.2d 299 (8th Cir. 1986).

Where the disclaimer was in bold type on page five of the label and clearly mentioned merchantability, the label could have been effective to disclaim all implied warranties under subsection (2). Ciba-Geigy Corp. v. Alter, 309 Ark. 426, 834 S.W.2d 136 (1992).

Exclusions.

A fine print clause excluding express warranties did not comply with subsection (2) of this section. Sawyer v. Pioneer Leasing Corp., 244 Ark. 943, 428 S.W.2d 46 (1968).

Express warranty which was actually in the nature of a disclaimer of all other warranties was invalid as not mentioning merchantability and as not being conspicuous. Marion Power Shovel Co. v. Huntsman, 246 Ark. 152, 437 S.W.2d 784 (1969).

Implied warranties may be excluded by language or expressions which in common understanding call the buyer's attention to the exclusion of warranties and make plain that there is no implied warranty by course of dealings or course of performance or usage of trade. Bailey v. Ford Motor Co., 246 Ark. 950, 440 S.W.2d 238 (1969).

An express warranty may exclude an implied warranty of merchantability if the exclusion mentions the word “merchantability” and, if written, is conspicuous. Walker Ford Sales v. Gaither, 265 Ark. 275, 578 S.W.2d 23 (1979).

A manufacturer may disclaim implied warranties and limit the remedy for breach of warranty in a dealer's form contract to which it is not a party. Hunter v. Texas Instruments, Inc., 798 F.2d 299 (8th Cir. 1986).

In an action by the buyer of a used Hydro-Ax machine against the seller and two manufacturers, the trial court did not err in granting summary judgment against buyer on his claim of breach of implied warranties; the fact that there was no written exclusion of the implied warranty of fitness did not provide the buyer with relief because subdivision (3) of this section negated the necessity of a writing in an “as is” sale and any implied warranties were excluded because, prior to the sale, buyer was allowed to inspect and use the machine for two days. Pilcher v. Suttle Equip. Co., 365 Ark. 1, 223 S.W.3d 789 (2006).

Leases.

Subsection (2) of this section is applicable to leases that are analogous to sales. Sawyer v. Pioneer Leasing Corp., 244 Ark. 943, 428 S.W.2d 46 (1968).

Limitation of Remedies.

Subsection (4) of this section must be applied in accordance with the provisions of §§ 4-2-718 and 4-2-719. Dessert Seed Co. v. Drew Farmers Supply, Inc., 248 Ark. 858, 454 S.W.2d 307 (1970).

Where manufacturer intended the repair remedy to be exclusive, but did not state that intention in express language in the “general warranty provisions” which went to “obligations” and “warranties,” and not to remedies, instructions given to jury to find for the plaintiff the amount of damages if the warranty was breached and the breach resulted in damages to plaintiff, was correct. Ford Motor Co. v. Reid, 250 Ark. 176, 465 S.W.2d 80 (1971).

Where the buyer of the computer was college-educated with some background in commercial law who shopped extensively for computer equipment to suit his needs, the limited remedy clause, which committed the manufacturer to correcting defects in workmanship and equipment to ensure that the equipment conformed to the contract, was not unconscionably one-sided. Hunter v. Texas Instruments, Inc., 798 F.2d 299 (8th Cir. 1986).

Modifications.

An attempted limitation or modification of an implied warranty long after the contract of purchase was signed was ineffective as amounting to a unilateral attempt of one party to limit its obligations. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

Trade Usage.

Where the evidence did not indicate buyer was the type of party who was or should be aware of the industry's trade customs, since buyer was entering a market in which it was relying on seller's expertise, the district court was not clearly erroneous in finding seller's implied warranties were not effectively disclaimed. Wilson v. Marquette Elecs., Inc., 630 F.2d 575 (8th Cir. 1980).

Cited: Little Rock Land Co. v. Raper, 245 Ark. 641, 433 S.W.2d 836 (1968); Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Ark. Power & Light Co. v. Home Ins. Co., 602 F. Supp. 740 (E.D. Ark. 1985); Kirkendall v. Harbor Ins. Co., 698 F. Supp. 768 (W.D. Ark. 1988); Boren v. State, 297 Ark. 220, 761 S.W.2d 885 (1988); Kirkendall v. Harbor Ins. Co., 887 F.2d 857 (8th Cir. 1989); Shaver v. Spann, 35 Ark. App. 118, 813 S.W.2d 280 (1991); O'Mara v. Dykema, 328 Ark. 310, 942 S.W.2d 854 (1997); Lee County v. Volvo Constr. Equip. N. Am., Inc., No. 2:07-CV-00082 BSM, 2008 U.S. Dist. LEXIS 95745 (E.D. Ark. Nov. 20, 2008).

4-2-317. Cumulation and conflict of warranties express or implied.

Warranties whether express or implied shall be construed as consistent with each other and as cumulative, but if such construction is unreasonable the intention of the parties shall determine which warranty is dominant. In ascertaining that intention the following rules apply:

  1. Exact or technical specifications displace an inconsistent sample or model or general language of description.
  2. A sample from an existing bulk displaces inconsistent general language of description.
  3. Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose.

History. Acts 1961, No. 185, § 2-317; A.S.A. 1947, § 85-2-317.

Research References

Ark. L. Notes.

Copeland, The Implied Warranty of Habitability and the Use of the Uniform Commercial Code by Analogy, 1983 Ark. L. Notes 5.

Ark. L. Rev.

Chaney, Comments: Utilization of Disclaimer of Warranty Clauses Under the UCC, 32 Ark. L. Rev. 772.

Case Notes

Applicability.

This section was inapplicable to a contract involving the replacement of roofing material, although legal principles applied. Graham Constr. Co. v. Earl, 362 Ark. 220, 208 S.W.3d 106 (2005).

Merger of Warranties.

If the particular purpose for which goods are to be used coincides with their general functional use, the implied warranty of fitness for a particular purpose merges with the implied warranty of merchantability. Great Dane Trailer Sales, Inc. v. Malvern Pulpwood, Inc., 301 Ark. 436, 785 S.W.2d 13 (1990).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Wingfield v. Page, 278 Ark. 276, 644 S.W.2d 940 (1983).

4-2-318. Third party beneficiaries of warranties express or implied.

A seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.

History. Acts 1961, No. 185, § 2-318; A.S.A. 1947, § 85-2-318.

Research References

ALR.

Third-party beneficiaries of warranties under UCC § 2-318. 50 A.L.R.5th 327.

Ark. L. Notes.

Copeland, The Implied Warranty of Habitability and the Use of the Uniform Commercial Code by Analogy, 1983 Ark. L. Notes 5.

Ark. L. Rev.

The Legal Kaleidoscope — Products Liability, 21 Ark. L. Rev. 301.

Torts — Strict Liability in Products Cases, 22 Ark. L. Rev. 796.

Products Liability — Assumption of Risk and Contributory Negligence as Defense, 23 Ark. L. Rev. 297.

The Personal Injury Action in Warranty — Has the Arkansas Strict Liability Statute Rendered It Obsolete? 28 Ark. L. Rev. 335.

Voucher to Products Liability: The Mechanics of U.C.C. § 2-607(5)(a), 29 Ark. L. Rev. 486.

Brill, Harvey v. Eastman Kodak Company: Faculty Note, 34 Ark. L. Rev. 722.

Case Notes

Privity.

By virtue of this section the legislature has abolished the defense of privity in a breach of warranty action to a natural person who is in the family or household of the buyer or is a guest in his household. Delta Oxygen Co. v. Scott, 238 Ark. 534, 383 S.W.2d 885 (1964).

In a breach of warranty action where the cylinder of oxygen sold by the vendor was being used by an employee of the buyer, who was injured in such use, the action by the employee was not barred by lack of privity. Delta Oxygen Co. v. Scott, 238 Ark. 534, 383 S.W.2d 885 (1964).

The employee of the original purchaser is not barred by the defense of privity from bringing an action for breach of warranty against the original vendor. Delta Oxygen Co. v. Scott, 238 Ark. 534, 383 S.W.2d 885 (1964).

Seller's Liability.

The evidence presented by plaintiff in her effort to assign liability to the manufacturer was not substantial enough to negate the existence of other possibilities of sources of contamination such as negligence on the part of the seller. Campbell Soup Co. v. Gates, 319 Ark. 54, 889 S.W.2d 750 (1994).

Cited: Myers v. Council Mfg. Corp., 276 F. Supp. 541 (W.D. Ark. 1967); Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970).

4-2-319. F.O.B. and F.A.S. terms.

  1. Unless otherwise agreed the terms F.O.B. (which means “free on board”) at a named place, even though used only in connection with the stated price, is a delivery term under which
    1. when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this chapter (§ 4-2-504) and bear the expense and risk of putting them into the possession of the carrier; or
    2. when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this chapter (§ 4-2-503);
    3. when under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this chapter on the form of bill of lading (§ 4-2-323).
  2. Unless otherwise agreed the term F.A.S. vessel (which means “free alongside”) at a named port, even though used only in connection with the stated price, is a delivery term under which the seller must
    1. at his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer; and
    2. obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading.
  3. Unless otherwise agreed in any case falling within subsection (1)(a) or (c) or subsection (2) the buyer must seasonably give any needed instructions for making delivery, including when the term is F.A.S. or F.O.B. the loading berth of the vessel and in an appropriate case its name and sailing date. The seller may treat the failure of needed instructions as a failure of cooperation under this chapter (§ 4-2-311). He may also at his option move the goods in any reasonable manner preparatory to delivery or shipment.
  4. Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.

History. Acts 1961, No. 185, § 2-319; A.S.A. 1947, § 85-2-319.

Case Notes

F.O.B. Destination.

Where sand and gravel company hired independent haulers to deliver its product to purchasers as required by the company's F.O.B. destination contract, a gross receipts tax was properly collected on the full delivery price without any deduction therefrom for freight. Belvedere Sand & Gravel Co. v. Heath, 259 Ark. 767, 536 S.W.2d 312 (1976), overruled on other grounds, Foote's Dixie Dandy, Inc. v. McHenry, 270 Ark. 816, 607 S.W.2d 323 (1980).

Cited: Unlaub Co. v. Sexton, 568 F.2d 72 (8th Cir. 1977).

4-2-320. C.I.F. and C. & F. terms.

  1. The term C.I.F. means that the price includes in a lump sum the cost of the goods and the insurance and freight to the named destination. The term C. & F. or C.F. means that the price so includes cost and freight to the named destination.
  2. Unless otherwise agreed and even though used only in connection with the stated price and destination, the term C.I.F. destination or its equivalent requires the seller at his own expense and risk to
    1. put the goods into the possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading covering the entire transportation to the named destination; and
    2. load the goods and obtain a receipt from the carrier (which may be contained in the bill of lading) showing that the freight has been paid or provided for; and
    3. obtain a policy or certificate of insurance, including any war risk insurance, of a kind and on terms then current at the port of shipment in the usual amount, in the currency of the contract, shown to cover the same goods covered by the bill of lading and providing for payment of loss to the order of the buyer or for the account of whom it may concern; but the seller may add to the price the amount of the premium for any such war risk insurance; and
    4. prepare an invoice of the goods and procure any other documents required to effect shipment or to comply with the contract; and
    5. forward and tender with commercial promptness all the documents in due form and with any indorsement necessary to perfect the buyer's rights.
  3. Unless otherwise agreed the term C. & F. or its equivalent has the same effect and imposes upon the seller the same obligations and risks as a C.I.F. term except the obligation as to insurance.
  4. Under the term C.I.F. or C. & F. unless otherwise agreed the buyer must make payment against tender of the required documents, and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents.

History. Acts 1961, No. 185, § 2-320; A.S.A. 1947, § 85-2-320.

4-2-321. C.I.F. or C. & F. — “Net landed weights” — “Payment on arrival” — Warranty of condition on arrival.

Under a contract containing a term C.I.F. or C. & F.

  1. Where the price is based on or is to be adjusted according to “net landed weights”, “delivered weights”, “out turn” quantity or quality or the like, unless otherwise agreed the seller must reasonably estimate the price. The payment due on tender of the documents called for by the contract is the amount so estimated, but after final adjustment of the price a settlement must be made with commercial promptness.
  2. An agreement described in subsection (1) or any warranty of quality or condition of the goods on arrival places upon the seller the risk of ordinary deterioration, shrinkage and the like in transportation but has no effect on the place or time of identification to the contract for sale or delivery or on the passing of the risk of loss.
  3. Unless otherwise agreed where the contract provides for payment on or after arrival of the goods the seller must before payment allow such preliminary inspection as is feasible; but if the goods are lost delivery of the documents and payment are due when the goods should have arrived.

History. Acts 1961, No. 185, § 2-321; A.S.A. 1947, § 85-2-321.

4-2-322. Delivery “ex-ship”.

  1. Unless otherwise agreed a term for delivery of goods “ex-ship” (which means from the carrying vessel) or in equivalent language is not restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination where goods of the kind are usually discharged.
  2. Under such a term unless otherwise agreed
    1. the seller must discharge all liens arising out of the carriage and furnish the buyer with a direction which puts the carrier under a duty to deliver the goods; and
    2. the risk of loss does not pass to the buyer until the goods leave the ship's tackle or are otherwise properly unloaded.

History. Acts 1961, No. 185, § 2-322; A.S.A. 1947, § 85-2-322.

4-2-323. Form of bill of lading required in overseas shipment — “Overseas”.

  1. Where the contract contemplates overseas shipment and contains a term C.I.F. or C. & F. or F.O.B. vessel, the seller unless otherwise agreed must obtain a negotiable bill of lading stating that the goods have been loaded on board or, in the case of a term C.I.F. or C. & F., received for shipment.
  2. Where in a case within subsection (1) a tangible bill of lading has been issued in a set of parts, unless otherwise agreed if the documents are not to be sent from abroad the buyer may demand tender of the full set; otherwise only one part of the bill of lading need be tendered. Even if the agreement expressly requires a full set
    1. due tender of a single part is acceptable within the provisions of this chapter on cure of improper delivery (§ 4-2-508(1)); and
    2. even though the full set is demanded, if the documents are sent from abroad the person tendering an incomplete set may nevertheless require payment upon furnishing an indemnity which the buyer in good faith deems adequate.
  3. A shipment by water or by air or a contract contemplating such shipment is “overseas” insofar as by usage of trade or agreement it is subject to the commercial, financing or shipping practices characteristic of international deep water commerce.

History. Acts 1961, No. 185, § 2-323; A.S.A. 1947, § 85-2-323; Acts 2007, No. 342, § 11.

A.C.R.C. Notes. The amendment of § 4-2-323 by Acts 2007, No. 342, § 11 omitted subsection (3) in its entirety. As subsection (3) was omitted from § 4-2-323 without being stricken through in the act, it appeared that the omission of subsection (3) was inadvertent on the part of the General Assembly, and so subsection (3) remains in § 4-2-323.

4-2-324. “No arrival, no sale” term.

Under a term, “no arrival, no sale” or terms of like meaning, unless otherwise agreed,

  1. the seller must properly ship conforming goods and if they arrive by any means he must tender them on arrival but he assumes no obligation that the goods will arrive unless he has caused the non-arrival; and
  2. where without fault of the seller the goods are in part lost or have so deteriorated as no longer to conform to the contract or arrive after the contract time, the buyer may proceed as if there had been casualty to identified goods (§ 4-2-613).

History. Acts 1961, No. 185, § 2-324; A.S.A. 1947, § 85-2-324.

4-2-325. “Letter of credit” term — “Confirmed credit”.

  1. Failure of the buyer seasonably to furnish an agreed letter of credit is a breach of the contract for sale.
  2. The delivery to seller of a proper letter of credit suspends the buyer's obligation to pay. If the letter of credit is dishonored, the seller may on seasonable notification to the buyer require payment directly from him.
  3. Unless otherwise agreed the term “letter of credit” or “banker's credit” in a contract for sale means an irrevocable credit issued by a financing agency of good repute and, where the shipment is overseas, of good international repute. The term “confirmed credit” means that the credit must also carry the direct obligation of such an agency which does business in the seller's financial market.

History. Acts 1961, No. 185, § 2-325; A.S.A. 1947, § 85-2-325.

4-2-326. Sale on approval and sale or return — Rights of creditors.

  1. Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is
    1. a “sale on approval” if the goods are delivered primarily for use, and
    2. a “sale or return” if the goods are delivered primarily for resale.
  2. Goods held on approval are not subject to the claims of the buyer's creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer's possession.
  3. Any “or return” term of a contract for sale is to be treated as a separate contract for sale within the statute of frauds section of this chapter (§ 4-2-201) and as contradicting the sale aspect of the contract within the provisions of this chapter on parol or extrinsic evidence (§ 4-2-202).

History. Acts 1961, No. 185, § 2-326; 1983, No. 820, § 7; A.S.A. 1947, § 85-2-326; Acts 1997, No. 395, § 1; 2001, No. 1439, § 6.

Amendments. The 1997 amendment substituted “subsection (6) of this section” for “an applicable law” in (3)(a); and added (6).

The 2001 amendment rewrote the section.

Cross References. Artists' Consignment Act, § 4-73-201 et seq.

Research References

ALR.

“Sale on Approval” and “Sale or Return” Contracts under Uniform Commercial Code § 2-326. 44 A.L.R.6th 441.

Ark. L. Rev.

Note, Simmons First National Bank v. Wells: An Interpretation of the Uniform Commercial Code's Consignment Rule, 37 Ark. L. Rev. 312.

Case Notes

Applicability.

Even if a particular arrangement is found to constitute a bailment as opposed to a sale, that does not preclude a finding that there is also a consignment arrangement and, hence, that this section is applicable. Simmons First Nat'l Bank v. Wells, 279 Ark. 204, 650 S.W.2d 236 (1983) (decided under prior law).

Bailment.

Where farmers, who left their seed in storage with the debtor seed company, intended only a bailment contract with the debtor, but did not comply with the provisions of former subdivisions (3)(a)-(c), the stored seed was delivered for sale and was subject to the claims of the debtor's creditors. In re Miller, 119 B.R. 660 (W.D. Ark. 1990) (decided under prior law).

Goods Delivered for Sale.

Former subsection (3) of this section is construed so as to resolve all reasonable doubts as to the nature of the transaction in favor of the general creditors of the buyer. Medalist Forming Sys. v. Malvern Nat'l Bank, 309 Ark. 561, 832 S.W.2d 228 (1992) (decided under prior law).

If a delivering party does not avail itself of any of the options under former subsection (3), the goods at issue are subject to the claims of the receiving party's creditors even in a transaction that is not a true sale at all given that the uniqueness of this section is that it applies to transactions that do not fall within the everyday connotation of the word “sale.” Medalist Forming Sys. v. Malvern Nat'l Bank, 309 Ark. 561, 832 S.W.2d 228 (1992) (decided under prior law).

Failure of supplier of goods for sale to protect its interest by filing under Article 9 of the U.C.C. or by posting a sign evidencing its interest in the goods left the bank without knowledge of another claim to rights in debtor's inventory and accounts receivable; given that failure, the U.C.C. policy of protecting disclosed creditors dictates that the bank receive priority over a party claiming priority based on an undisclosed, private agreement with debtor. Medalist Forming Sys. v. Malvern Nat'l Bank, 309 Ark. 561, 832 S.W.2d 228 (1992) (decided under prior law).

Where invoice, inventory, and shipping evidence supported the conclusion that the raw materials delivered to debtor were delivered “for sale”, the bank should prevail regardless of whether the arrangement between debtor and supplier of goods constituted a bailment. Medalist Forming Sys. v. Malvern Nat'l Bank, 309 Ark. 561, 832 S.W.2d 228 (1992) (decided under prior law).

Transactions between a supplier and a debtor were on a sale or return basis as described in former subsection (3) of this section and, as the supplier did not comply with the statute, the security interest of a bank in all of the debtor's inventory was attached to the items supplied by the supplier. In re Truck Accessories Distrib., Inc., 238 B.R. 444 (E.D. Ark. 1999) (decided under prior law).

Priority of Claims.

If a transaction is deemed to constitute a consignment sale, the consignment seller may obtain priority over the consignment buyer's creditors only by complying with the notice requirements of former subsection (3) of this section. Simmons First Nat'l Bank v. Wells, 279 Ark. 204, 650 S.W.2d 236 (1983) (decided under prior law).

Cited: Exchange Bank & Trust Co. v. Glenn's Marine, Inc., 265 Ark. 508, 579 S.W.2d 358 (1979).

4-2-327. Special incidents of sale on approval and sale or return.

  1. Under a sale on approval unless otherwise agreed
    1. although the goods are identified to the contract the risk of loss and the title do not pass to the buyer until acceptance; and
    2. use of the goods consistent with the purpose of trial is not acceptance but failure seasonably to notify the seller of election to return the goods is acceptance, and if the goods conform to the contract acceptance of any part is acceptance of the whole; and
    3. after due notification of election to return, the return is at the seller's risk and expense but a merchant buyer must follow any reasonable instructions.
  2. Under a sale or return unless otherwise agreed
    1. the option to return extends to the whole or any commercial unit of the goods while in substantially their original condition, but must be exercised seasonably; and
    2. the return is at the buyer's risk and expense.

History. Acts 1961, No. 185, § 2-327; A.S.A. 1947, § 85-2-327.

Case Notes

Passage of Title.

On a sale on approval, unless otherwise agreed, title passes only at the time the buyer accepts. Exchange Bank & Trust Co. v. Glenn's Marine, Inc., 265 Ark. 508, 579 S.W.2d 358 (1979).

4-2-328. Sale by auction.

  1. In a sale by auction if goods are put up in lots each lot is the subject of a separate sale.
  2. A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling.
  3. Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case a bidder may retract his bid until the auctioneer's announcement of completion of the sale, but a bidder's retraction does not revive any previous bid.
  4. If the auctioneer knowingly receives a bid on the seller's behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale. This subsection shall not apply to any bid at a forced sale.

History. Acts 1961, No. 185, § 2-328; A.S.A. 1947, § 85-2-328.

Case Notes

Bankruptcy.

The fact that a sale may have been final under state law does not make the sale final for bankruptcy purposes. Razorback Moving & Storage, Inc. v. Rice (In re Allison Whse. & Transf., Inc.), 145 B.R. 293 (Bankr. E.D. Ark. 1992).

By-Bidding.

Although there is no specific statute in this state which forbids a person from acting as a “by-bidder” at an auction, which is someone employed by the seller to bid on the goods so as to drive up the prices, subsection (4) of this section appears to articulate the policy with respect to by-bidding and makes such alleged agreements illegal as a matter of public policy. Wade v. Ingram, 528 F. Supp. 495 (E.D. Ark. 1981).

Part 4 — Title, Creditors, and Good Faith Purchasers

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

ALR.

What constitutes entrusting goods to merchant dealer under UCC § 2-403. 59 A.L.R.4th 567.

Am. Jur. 67 Am. Jur. 2d, Sales, § 335 et seq.

4-2-401. Passing of title — Reservation for security — Limited application of section.

Each provision of this chapter with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title. Insofar as situations are not covered by the other provisions of this chapter and matters concerning title become material the following rules apply:

  1. Title to goods cannot pass under a contract for sale prior to their identification to the contract (§ 4-2-501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this subtitle. Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest. Subject to these provisions and to the provisions of the chapter on secured transactions (Chapter 9 of this title), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.
  2. Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading
    1. if the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but
    2. if the contract requires delivery at destination, title passes on tender there.
  3. Unless otherwise explicitly agreed where delivery is to be made without moving the goods:
    1. if the seller is to deliver a tangible document of title, title passes at the time when and the place where he delivers such documents and if the seller is to deliver an electronic document of title, title passes when the seller delivers the document; or
    2. if the goods are at the time of contracting already identified and no documents of title are to be delivered, title passes at the time and place of contracting.
  4. A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance revests title to the goods in the seller. Such revesting occurs by operation of law and is not a “sale”.

History. Acts 1961, No. 185, § 2-401; A.S.A. 1947, § 85-2-401; Acts 2007, No. 342, § 12.

Research References

Ark. L. Rev.

Commercial Law — Repossession of Chattels — Notice and Opportunity for Prior Hearings in Replevin, 26 Ark. L. Rev. 534.

Evolving Sales Law: Highlights of the Shifting Landscape of Arkansas Purchasing Law, 57 Ark. L. Rev. 835.

Case Notes

Evidence.

Trial court's finding as to when title passed was not clearly against preponderance of evidence. Merchants & Planters Bank & Trust Co. v. Phoenix Hous. Sys., 21 Ark. App. 153, 729 S.W.2d 433 (1987).

Execution of Contract.

Contract which stated that the seller fully understands that he or she is transferring title of the grain to the buyer and is relinquishing all control of the grain to the buyer was an explicit agreement by the parties that title would pass at the time the contract was excuted rather than at delivery of the crops. Cullipher v. Lindsey Rice Mill, Inc., 730 F. Supp. 970 (W.D. Ark. 1990).

In a Chapter 7 bankruptcy case, creditor did not convert the proceeds from the sale of two vacuum units when it credited the proceeds to an outstanding account, rather than forwarding the payment to debtor, and debtor should have pursued the case as a breach of contract because a sale was effectuated when an agreement was made since the units had already been delivered; creditor was entitled to exercise setoff under the circumstances, but was still liable for an amount that had not been credited or paid to debtor. Nat'l Hydro-Vac Indus. Servs., L.L.C. v. Fed. Signal Corp. (In re Nat'l Hydro-Vac Indus. Servs., L.L.C.), 314 B.R. 753 (Bankr. E.D. Ark. 2004).

Salvage Sale.

An insurance company's salvage sale of an aircraft passed title thereto to the buyer on delivery of the plane to him even though he was given no bill of sale, did not pay the purchase price, and did not obtain registration of the plane in his name with the Federal Aviation Agency. American Aviation, Inc. v. Aviation Ins. Managers, Inc., 244 Ark. 829, 427 S.W.2d 544 (1968).

Cited: Unlaub Co. v. Sexton, 568 F.2d 72 (8th Cir. 1977); Exchange Bank & Trust Co. v. Glenn's Marine, Inc., 265 Ark. 508, 579 S.W.2d 358 (1979); Hartford Fire Ins. Co. v. Stanley, 7 Ark. App. 94, 644 S.W.2d 628 (1983); In re Bearhouse, Inc., 84 B.R. 552 (Bankr. W.D. Ark. 1988); Reynolds v. Commodity Credit Corp., 300 Ark. 441, 780 S.W.2d 15 (1989); Beebe v. MacMillan Petro. (Ark.), Inc., 115 B.R. 175 (Bankr. W.D. Ark. 1990); Fraser Bros. v. Darragh Co., 316 Ark. 297, 871 S.W.2d 367 (1994); Mason v. Chenal Country Club, 2010 Ark. App. 180 (2010).

4-2-402. Rights of seller's creditors against sold goods.

  1. Except as provided in subsections (2) and (3), rights of unsecured creditors of the seller with respect to goods which have been identified to a contract for sale are subject to the buyer's rights to recover the goods under this chapter (§§ 4-2-502 and 4-2-716).
  2. A creditor of the seller may treat a sale or an identification of goods to a contract for sale as void if as against him a retention of possession by the seller is fraudulent under any rule of law of the state where the goods are situated, except that retention of possession in good faith and current course of trade by a merchant-seller for a commercially reasonable time after a sale or identification is not fraudulent.
  3. Nothing in this chapter shall be deemed to impair the rights of creditors of the seller
    1. under the provisions of the chapter on secured transactions (Chapter 9 of this title); or
    2. where identification to the contract or delivery is made not in current course of trade but in satisfaction of or as security for a pre-existing claim for money, security or the like and is made under circumstances which under any rule of law of the state where the goods are situated would apart from this chapter constitute the transaction a fraudulent transfer or voidable preference.

History. Acts 1961, No. 185, § 2-402; A.S.A. 1947, § 85-2-402.

4-2-403. Power to transfer — Good faith purchase of goods — “Entrusting”.

  1. A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though
    1. the transferor was deceived as to the identity of the purchaser; or
    2. the delivery was in exchange for a check which is later dishonored; or
    3. it was agreed that the transaction was to be a “cash sale”; or
    4. the delivery was procured through fraud punishable as larcenous under the criminal law.
  2. Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.
  3. “Entrusting” includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor's disposition of the goods has been such as to be larcenous under the criminal law.
  4. The rights of other purchasers of goods and of lien creditors are governed by the chapters on secured transactions (Chapter 9 of this title), and documents of title (Chapter 7 of this title).

History. Acts 1961, No. 185, § 2-403; A.S.A. 1947, § 85-2-403; Acts 1991, No. 344, § 3.

Research References

ALR.

What constitutes “entrusting goods” to merchant dealer under UCC § 2-403. 59 A.L.R.4th 567.

Ark. L. Notes.

Laurence, Bona Fide Purchaser Analysis, Beverage Products Corporation v. Robinson and the Case against Very Short Opinion, 1990 Ark. L. Notes 85.

Ark. L. Rev.

Note, Act 401 of the Public Grain Warehouse Law: An Exception to the U.C.C. Concept of Voidable Title, 37 Ark. L. Rev. 293.

Nickles and Adams, Pawnbrokers, Police, and Property Rights — A Proposed Constitutional Balance, 47 Ark. L. Rev. 793.

U. Ark. Little Rock L.J.

Survey of Arkansas: Business Law, 6 U. Ark. Little Rock L.J. 73.

Note, Storers of Grain — Arkansas Stands Alone in Protecting the Rights of Depositors of Grain in Public Warehouses, etc., 9 U. Ark. Little Rock L.J. 699.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

Case Notes

Entrustment.

The entrustment of possession provisions in subsections (2) and (3) of this section are most applicable to a repossessing lien holder with right of sale, and such a finance company had no right to complain as against the purchaser of a car it had repossessed and left in the hands of a dealer, whether it be considered as a consignor or a lender with a security interest. Commercial Credit Corp. v. Associates Discount Corp., 246 Ark. 118, 436 S.W.2d 809 (1969).

Although defendant-purchaser bought soft drink machine from seller in good faith, plaintiff was entitled to possession of the machine where plaintiff had originally entrusted the machine to a third party from whom it was seized and sold, in execution of a judgment against him, to seller, who sold it to defendant-purchaser; neither the third party or the subsequent purchasers had obtained title to the machine as plaintiff had never intended title to pass to the third party to whom the machine was originally loaned. Beverage Prods. Corp. v. Robinson, 27 Ark. App. 225, 769 S.W.2d 424 (1989).

Exceptions.

Four exceptions to the derivative title principle in subsection (1) have been recognized in this subtitle and at common law. Wood v. Corner Stone Bank, 315 Ark. 200, 866 S.W.2d 385 (1993).

The “preclusion exception” doctrine which is found at common law and equity, rather than in this subtitle, holds that irrespective of the property holder's actual title — void, voidable, or good — there will be times when the original owner's behavior does not justify allowing him to dispute the property holder's title; therefore, the purchaser of the property will win, not so much on his own behalf but rather due to the original owner's procedural inability to force the contrary results. Wood v. Corner Stone Bank, 315 Ark. 200, 866 S.W.2d 385 (1993).

Innocent Purchaser for Value.

Evidence was sufficient to support the trial court's finding that the defendant was not an innocent purchaser for value. Hollis v. Chamberlin, 243 Ark. 201, 419 S.W.2d 116 (1967).

Misconduct.

Defendants' conduct in removing trailer from bank's possession precluded them from disputing the bank's propriety interest in the trailer; thus, the trial court's finding of a conversion of property, and award of compensatory and punitive damages, was correct. Wood v. Corner Stone Bank, 315 Ark. 200, 866 S.W.2d 385 (1993).

Cited: Rex Fin. Corp. v. Marshall, 406 F. Supp. 567 (W.D. Ark. 1976); Sequoyah State Bank v. Union Nat'l Bank, 274 Ark. 1, 621 S.W.2d 683 (1981); Farm Bureau Mut. Ins. Co. v. Wright, 285 Ark. 228, 686 S.W.2d 778 (1985).

Part 5 — Performance

Effective Dates. Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

Research References

ALR.

Inspection of goods under UCC § 2-513. 34 A.L.R.4th 698.

Cure of improper tender or delivery by seller under UCC § 2-508. 36 A.L.R.4th 544.

Place of buyer's inspection of goods under UCC § 2-513. 36 A.L.R.4th 726.

Computer sales and leases, time when cause of action for failure of performance accrues. 90 A.L.R.4th 298.

Am. Jur. 67 Am. Jur. 2d, Sales, § 446 et seq.

C.J.S. 77A C.J.S., Sales, § 234 et seq.

4-2-501. Insurable interest in goods — Manner of identification of goods.

  1. The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs
    1. when the contract is made if it is for the sale of goods already existing and identified;
    2. if the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers;
    3. when the crops are planted or otherwise become growing crops or the young are conceived if the contract is for the sale of unborn young to be born within twelve (12) months after contracting or for the sale of crops to be harvested within twelve (12) months or the next normal harvest season after contracting whichever is longer.
  2. The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified.
  3. Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.

History. Acts 1961, No. 185, § 2-501; A.S.A. 1947, § 85-2-501.

Research References

Ark. L. Rev.

Evolving Sales Law: Highlights of the Shifting Landscape of Arkansas Purchasing Law, 57 Ark. L. Rev. 835.

Case Notes

Cited: In re Estate of Spann, 257 Ark. 857, 520 S.W.2d 286 (1975).

4-2-502. Buyer's right to goods on seller's repudiation, failure to deliver, or insolvency.

  1. Subject to subsections (2) and (3) and even though the goods have not been shipped a buyer who has paid a part or all of the price of goods in which he has a special property under the provisions of § 4-2-501 may on making and keeping good a tender of any unpaid portion of their price recover them from the seller if:
    1. in the case of goods bought for personal, family, or household purposes, the seller repudiates or fails to deliver as required by the contract; or
    2. in all cases, the seller becomes insolvent within ten days after receipt of the first installment on their price.
  2. The buyer's right to recover the goods under subsection (1) (a) vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver.
  3. If the identification creating his special property has been made by the buyer he acquires the right to recover the goods only if they conform to the contract for sale.

History. Acts 1961, No. 185, § 2-502; A.S.A. 1947, § 85-2-502; Acts 2001, No. 1439, § 7.

Amendments. The 2001 amendment rewrote the section.

4-2-503. Manner of seller's tender of delivery.

  1. Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this chapter, and in particular
    1. tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but
    2. unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods.
  2. Where the case is within § 4-2-504 respecting shipment tender requires that the seller comply with its provisions.
  3. Where the seller is required to deliver at a particular destination tender requires that he comply with subsection (1) and also in any appropriate case tender documents as described in subsections (4) and (5) of this section.
  4. Where goods are in the possession of a bailee and are to be delivered without being moved
    1. tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer's right to possession of the goods; but
    2. tender to the buyer of a non-negotiable document of title or of a record directing the bailee to deliver is sufficient tender unless the buyer seasonably objects, and except as otherwise provided in § 4-9-101 et seq., receipt by the bailee of notification of the buyer's rights fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the non-negotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender.
  5. Where the contract requires the seller to deliver documents
    1. he must tender all such documents in correct form, except as provided in this chapter with respect to bills of lading in a set (§ 4-2-323(2)); and
    2. tender through customary banking channels is sufficient and dishonor of a draft accompanying or associated with the documents constitutes non-acceptance or rejection.

History. Acts 1961, No. 185, § 2-503; A.S.A. 1947, § 85-2-503; Acts 2007, No. 342, § 13.

Research References

ALR.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Consumer Goods and Services. 1 A.L.R.7th Art. 3 (2015).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Goods and Services: Distributorship, Franchise, and Similar Business Contracts. 8 A.L.R.7th Art. 4 (2015).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Manufacturing, Construction, and Similar Contracts. 15 A.L.R.7th Art. 7 (2015).

Case Notes

Cited: Unlaub Co. v. Sexton, 568 F.2d 72 (8th Cir. 1977).

4-2-504. Shipment by seller.

Where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must

  1. put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case; and
  2. obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and
  3. promptly notify the buyer of the shipment.

Failure to notify the buyer under paragraph (c) or to make a proper contract under paragraph (a) is a ground for rejection only if material delay or loss ensues.

History. Acts 1961, No. 185, § 2-504; A.S.A. 1947, § 85-2-504.

Case Notes

Delivery Date.

In action for alleged breach of contract for sale, where buyer asserted his cancellation of the contract was valid because delivery was past due, it was for the trial court, sitting as a jury, to resolve conflicting versions as to the delivery date. McMillan v. Meuser Material & Equip. Co., 260 Ark. 422, 541 S.W.2d 911 (1976).

4-2-505. Seller's shipment under reservation.

  1. Where the seller has identified goods to the contract by or before shipment:
    1. his procurement of a negotiable bill of lading to his own order or otherwise reserves in him a security interest in the goods. His procurement of the bill to the order of a financing agency or of the buyer indicates in addition only the seller's expectation of transferring that interest to the person named.
    2. a non-negotiable bill of lading to himself or his nominee reserves possession of the goods as security but except in a case of conditional delivery (§ 4-2-507(2)) a non-negotiable bill of lading naming the buyer as consignee reserves no security interest even though the seller retains possession or control of the bill of lading.
  2. When shipment by the seller with reservation of a security interest is in violation of the contract for sale it constitutes an improper contract for transportation within the preceding section but impairs neither the rights given to the buyer by shipment and identification of the goods to the contract nor the seller's powers as a holder of a negotiable document of title.

History. Acts 1961, No. 185, § 2-505; A.S.A. 1947, § 85-2-505; Acts 2007, No. 342, § 14.

4-2-506. Rights of financing agency.

  1. A financing agency by paying or purchasing for value a draft which relates to a shipment of goods acquires to the extent of the payment or purchase and in addition to its own rights under the draft and any document of title securing it any rights of the shipper in the goods including the right to stop delivery and the shipper's right to have the draft honored by the buyer.
  2. The right to reimbursement of a financing agency which has in good faith honored or purchased the draft under commitment to or authority from the buyer is not impaired by subsequent discovery of defects with reference to any relevant document which was apparently regular.

History. Acts 1961, No. 185, § 2-506; A.S.A. 1947, § 85-2-506; Acts 2007, No. 342, § 15.

4-2-507. Effect of seller's tender — Delivery on condition.

  1. Tender of delivery is a condition to the buyer's duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract.
  2. Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due.

History. Acts 1961, No. 185, § 2-507; A.S.A. 1947, § 85-2-507.

4-2-508. Cure by seller of improper tender or delivery — Replacement.

  1. Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.
  2. Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

History. Acts 1961, No. 185, § 2-508; A.S.A. 1947, § 85-2-508.

Research References

Ark. L. Rev.

Commercial Law — The Effect of the Seller's Right to Cure on the Buyer's Remedy of Rescission, 28 Ark. L. Rev. 297.

Case Notes

Conforming Delivery.

Evidence that boat bought by buyer was not identical to the one contracted for and that seller failed to make a conforming delivery by making repairs was sufficient to rescind the contract. Marine Mart, Inc. v. Pearce, 252 Ark. 601, 480 S.W.2d 133 (1972).

Rescission.

Evidence was insufficient to support the buyer's claim that he rescinded the contract to purchase the inventory and business name. Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980).

4-2-509. Risk of loss in the absence of breach.

  1. Where the contract requires or authorizes the seller to ship the goods by carrier
    1. if it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation (§ 4-2-505); but
    2. if it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery.
  2. Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer:
    1. on his receipt of possession or control of a negotiable document of title covering the goods; or
    2. on acknowledgment by the bailee of the buyer's right to possession of the goods; or
    3. after his receipt of possession or control of a non-negotiable document of title or other directions to deliver in a record, as provided in § 4-2-503(4)(b).
  3. In any case not within subsection (1) or (2), the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery.
  4. The provisions of this section are subject to contrary agreement of the parties and to the provisions of this chapter on sale on approval (§ 4-2-327) and on effect of breach on risk of loss (§ 4-2-510).

History. Acts 1961, No. 185, § 2-509; A.S.A. 1947, § 85-2-509; Acts 2007, No. 342, § 16.

Research References

Ark. L. Rev.

Uniform Commercial Code — Risk of Loss, 28 Ark. L. Rev. 508.

Case Notes

Incomplete Performance by Seller.

Where mobile home was delivered to buyer under purchase agreement whereby price included installation of utilities by seller before buyer would accept and fire destroyed home before installation completed, risk of loss remained with seller due to incomplete performance. Southland Mobile Home Corp. v. Chyrchel, 255 Ark. 366, 500 S.W.2d 778 (1973).

4-2-510. Effect of breach on risk of loss.

  1. Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance.
  2. Where the buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning.
  3. Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk of their loss has passed to him, the seller may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable time.

History. Acts 1961, No. 185, § 2-510; A.S.A. 1947, § 85-2-510.

Research References

Ark. L. Rev.

Uniform Commercial Code — Risk of Loss, 28 Ark. L. Rev. 508.

Case Notes

Seller's Liability.

Where a mare is sold as being in foal when the seller knows that she is not, is returned to the seller to be bred in accordance with business custom, and dies while in seller's possession, this section would support a finding of liability on the seller for the purchase price. McKnight v. Bellamy, 248 Ark. 27, 449 S.W.2d 706 (1970).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Southland Mobile Home Corp. v. Chyrchel, 255 Ark. 366, 500 S.W.2d 778 (1973).

4-2-511. Tender of payment by buyer — Payment by check.

  1. Unless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery.
  2. Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.
  3. Subject to the provisions of this subtitle on the effect of an instrument on an obligation (§ 4-3-310), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.

History. Acts 1961, No. 185, § 2-511; A.S.A. 1947, § 85-2-511.

4-2-512. Payment by buyer before inspection.

  1. Where the contract requires payment before inspection non-conformity of the goods does not excuse the buyer from so making payment unless
    1. the non-conformity appears without inspection; or
    2. despite tender of the required documents the circumstances would justify injunction against honor under § 4-5-109(b).
  2. Payment pursuant to subsection (1) does not constitute an acceptance of goods or impair the buyer's right to inspect or any of his remedies.

History. Acts 1961, No. 185, § 2-512; A.S.A. 1947, § 85-2-512; Acts 1997, No. 1070, § 3.

Amendments. The 1997 amendment substituted “under § 5-109(b)” for “under the provisions of this Act (Section 5-114)” in (1)(b).

4-2-513. Buyer's right to inspection of goods.

  1. Unless otherwise agreed and subject to subsection (3), where goods are tendered or delivered or identified to the contract for sale, the buyer has a right before payment or acceptance to inspect them at any reasonable place and time and in any reasonable manner. When the seller is required or authorized to send the goods to the buyer, the inspection may be after their arrival.
  2. Expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected.
  3. Unless otherwise agreed and subject to the provisions of this chapter on C.I.F. contracts (§ 4-2-321(3)), the buyer is not entitled to inspect the goods before payment of the price when the contract provides
    1. for delivery “C.O.D.” or on other like terms; or
    2. for payment against documents of title, except where such payment is due only after the goods are to become available for inspection.
  4. A place or method of inspection fixed by the parties is presumed to be exclusive but unless otherwise expressly agreed it does not postpone identification or shift the place for delivery or for passing the risk of loss. If compliance becomes impossible, inspection shall be as provided in this section unless the place or method fixed was clearly intended as an indispensable condition failure of which avoids the contract.

History. Acts 1961, No. 185, § 2-513; A.S.A. 1947, § 85-2-513.

4-2-514. When documents deliverable on acceptance — When on payment.

Unless otherwise agreed documents against which a draft is drawn are to be delivered to the drawee on acceptance of the draft if it is payable more than three (3) days after presentment; otherwise, only on payment.

History. Acts 1961, No. 185, § 2-514; A.S.A. 1947, § 85-2-514.

4-2-515. Preserving evidence of goods in dispute.

In furtherance of the adjustment of any claim or dispute

  1. either party on reasonable notification to the other and for the purpose of ascertaining the facts and preserving evidence has the right to inspect, test and sample the goods including such of them as may be in the possession or control of the other; and
  2. the parties may agree to a third party inspection or survey to determine the conformity or condition of the goods and may agree that the findings shall be binding upon them in any subsequent litigation or adjustment.

History. Acts 1961, No. 185, § 2-515; A.S.A. 1947, § 85-2-515.

Case Notes

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970).

Part 6 — Breach, Repudiation, and Excuse

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 1969, No. 312, § 2: Mar. 24, 1969. Emergency clause provided: “It is hereby found and determined by the General Assembly of the State of Arkansas that this particular provision of the Arkansas Law is at variance with the Uniform Commercial Code, that this Section is ambiguous, and that this Act is immediately necessary to correct same. Therefore an emergency is hereby declared to exist, and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect from and after its passage.”

Research References

ALR.

Anticipatory repudiation of sales contract under UCC § 2-610. 1 A.L.R.4th 527.

“Commercial unit” of goods purchased under UCC § 2-601(c). 41 A.L.R.4th 396.

What constitutes “reasonable grounds for insecurity” justifying demand for adequate assurance of performance under UCC § 2-609. 37 A.L.R.5th 459.

Substantial impairment entitling buyer to revoke his acceptance of goods under UCC § 2-608(1). 38 A.L.R.5th 191.

Impracticability of performance of sales contract under UCC § 2-615. 55 A.L.R.5th 1.

Construction and application of UCC § 2-612(2), dealing with rejection of goods under installment contracts. 61 A.L.R.5th 611.

Am. Jur. 67 Am. Jur. 2d, Sales, § 449 et seq.

67A Am. Jur. 2d, Sales, § 760 et seq.

C.J.S. 77A C.J.S., Sales, § 234 et seq.

4-2-601. Buyer's rights on improper delivery.

Subject to the provisions of this chapter on breach in installment contracts (§ 4-2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (§§ 4-2-718 and 4-2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may

  1. reject the whole; or
  2. accept the whole; or
  3. accept any commercial unit or units and reject the rest.

History. Acts 1961, No. 185, § 2-601; A.S.A. 1947, § 85-2-601.

Research References

Ark. L. Rev.

Commercial Law — The Effect of the Seller's Right to Cure on the Buyer's Remedy of Rescission, 28 Ark. L. Rev. 297.

Evolving Sales Law: Highlights of the Shifting Landscape of Arkansas Purchasing Law, 57 Ark. L. Rev. 835.

Case Notes

Rejection.

The resale of seed without knowledge of the defect that the seed had a lower germination level than that certified was not an inconsistent act by buyer constituting acceptance under § 4-2-606, and the rejection of the nonconforming goods after the second test of the germination level was within a reasonable time and seasonably notified seller under § 4-2-602 and thus was a valid rejection under this section. Jacob Hartz Seed Co. v. Coleman, 271 Ark. 756, 612 S.W.2d 91 (1981).

Waiver of Breach of Warranty.

The buyer of a combine with tires too narrow for use in his fields which the seller assured him would give him satisfaction waived any breach of warranty by failure to reject it and continuing to attempt to use it upon assurance of the salesman that the seller would make it work. Ingle v. Marked Tree Equip. Co., 244 Ark. 1166, 428 S.W.2d 286 (1968).

Cited: Gramling v. Baltz, 253 Ark. 352, 485 S.W.2d 183 (1972); United States v. Rorex, 737 F.2d 753 (8th Cir. 1984).

4-2-602. Manner and effect of rightful rejection.

  1. Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller.
  2. Subject to the provisions of the two (2) following sections on rejected goods (§§ 4-2-603, 4-2-604),
    1. after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and
    2. if the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this chapter (§ 4-2-711(3)), he is under a duty after rejection to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them; but
    3. the buyer has no further obligations with regard to goods rightfully rejected.
  3. The seller's rights with respect to goods wrongfully rejected are governed by the provisions of this chapter on seller's remedies in general (§ 4-2-703).

History. Acts 1961, No. 185, § 2-602; A.S.A. 1947, § 85-2-602.

Research References

Ark. L. Rev.

Notes, Ozark Kenworth, Inc. v. Neidecker: A Buyer's Continued Use of Goods After Revocation of Acceptance, 38 Ark. L. Rev. 857.

U. Ark. Little Rock L.J.

Paulson, Survey of Arkansas Law: Business Law, 2 U. Ark. Little Rock L.J. 161.

Case Notes

Goods Previously Accepted.

In action by seller of panels for price of last shipment in which buyer counterclaimed for damages caused by the fact that the panels were of a lighter weight than that ordered, the issue was not acceptance or rejection, but revocation of acceptance, and use of the last shipment despite knowledge of its unsuitability did not bar counterclaim for damages for nonconformity of the original shipment. Jones v. Atkins, 254 Ark. 472, 494 S.W.2d 448 (1973).

Questions of Fact.

What constitutes a nonconforming delivery, acceptance, rejection, or revocation of acceptance are questions of fact to be determined within the framework of the facts of each particular case. Marine Mart, Inc. v. Pearce, 252 Ark. 601, 480 S.W.2d 133 (1972).

Reasonable Time for Rejection.

Under this section the buyer had a right to reject the car but this must be done within a reasonable time after delivery. Green Chevrolet Co. v. Kemp, 241 Ark. 62, 406 S.W.2d 142 (1966).

The trial court found that the buyer had not timely rescinded the transaction, the buyer was limited to the remedies available for a breach of contract in regard to the accepted goods, and the buyer was not entitled to an award of damages under either § 4-2-714 or § 4-2-715 since the buyer failed to give notice of the alleged breach to the seller within a reasonable time after the buyer discovered or should have discovered the breach. Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980).

Seasonable Notification.

The resale of seed without knowledge of the defect that the seed had a lower germination level than that certified was not an inconsistent act by buyer constituting acceptance under § 4-2-606, and the rejection of the nonconforming goods after the second test of the germination level was within a reasonable time and seasonably notified seller under this section and thus was a valid rejection under § 4-2-601. Jacob Hartz Seed Co. v. Coleman, 271 Ark. 756, 612 S.W.2d 91 (1981).

Use After Revocation.

It was error for the question of the buyer's use of a truck after revocation not to have been submitted to the jury as to its reasonableness. Ozark Kenworth, Inc. v. Neidecker, 283 Ark. 196, 672 S.W.2d 899 (1984).

Waiver of Breach of Warranty.

The buyer of a combine with tires too narrow for use in his fields, but which the seller assured him would give him satisfaction, waived any breach of warranty by failure to reject it and continuing to attempt to use it upon assurance of the salesman that the seller would make it work. Ingle v. Marked Tree Equip. Co., 244 Ark. 1166, 428 S.W.2d 286 (1968).

Cited: KLPR TV, Inc. v. Visual Elec. Corp., 327 F. Supp. 315 (W.D. Ark. 1971); Unlaub Co. v. Sexton, 568 F.2d 72 (8th Cir. 1977); McFall Chevrolet Co. v. Collins, 271 Ark. 469, 609 S.W.2d 118 (1980); United States v. Rorex, 737 F.2d 753 (8th Cir. 1984); Microsize, Inc. v. Ark. Microfilm, Inc., 29 Ark. App. 49, 780 S.W.2d 574 (1989).

4-2-603. Merchant buyer's duties as to rightfully rejected goods.

  1. Subject to any security interest in the buyer (§ 4-2-711(3)), when the seller has no agent or place of business at the market of rejection a merchant buyer is under a duty after rejection of goods in his possession or control to follow any reasonable instructions received from the seller with respect to the goods and in the absence of such instructions to make reasonable efforts to sell them for the seller's account if they are perishable or threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming.
  2. When the buyer sells goods under subsection (1), he is entitled to reimbursement from the seller or out of the proceeds for reasonable expenses of caring for and selling them, and if the expenses include no selling commission then to such commission as is usual in the trade or if there is none to a reasonable sum not exceeding ten percent (10%) on the gross proceeds.
  3. In complying with this section the buyer is held only to good faith and good faith conduct hereunder is neither acceptance nor conversion nor the basis of an action for damages.

History. Acts 1961, No. 185, § 2-603; A.S.A. 1947, § 85-2-603.

Research References

Ark. L. Rev.

Uniform Commercial Code — Disposition of Collateral, 20 Ark. L. Rev. 385.

4-2-604. Buyer's options as to salvage of rightfully rejected goods.

Subject to the provisions of the immediately preceding section on perishables if the seller gives no instructions within a reasonable time after notification of rejection the buyer may store the rejected goods for the seller's account or reship them to him or resell them for the seller's account with reimbursement as provided in the preceding section. Such action is not acceptance or conversion.

History. Acts 1961, No. 185, § 2-604; A.S.A. 1947, § 85-2-604.

Research References

Ark. L. Rev.

Uniform Commercial Code — Disposition of Collateral, 20 Ark. L. Rev. 385.

4-2-605. Waiver of buyer's objections by failure to particularize.

  1. The buyer's failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach
    1. where the seller could have cured it if stated seasonably; or
    2. between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely.
  2. Payment against documents made without reservation of rights precludes recovery of the payment for defects apparent in the documents.

History. Acts 1961, No. 185, § 2-605; A.S.A. 1947, § 85-2-605; Acts 2007, No. 342, § 17.

4-2-606. What constitutes acceptance of goods.

  1. Acceptance of goods occurs when the buyer
    1. after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or
    2. fails to make an effective rejection (§ 4-2-602(1)), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or
    3. does any act inconsistent with the seller's ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him.
  2. Acceptance of a part of any commercial unit is acceptance of that entire unit.

History. Acts 1961, No. 185, § 2-606; A.S.A. 1947, § 85-2-606.

Research References

Ark. L. Rev.

Commercial Law — The Effect of the Seller's Right to Cure on the Buyer's Remedy of Rescission, 28 Ark. L. Rev. 297.

U. Ark. Little Rock L.J.

Paulson, Survey of Arkansas Law: Business Law, 2 U. Ark. Little Rock L.J. 161.

Case Notes

Acts Inconsistent with Seller's Ownership.

The resale of seed without knowledge of the defect that the seed had a lower germination level than that certified was not an inconsistent act by buyer constituting acceptance under this section, and the rejection of the nonconforming goods after a second test of the seed's germination level was within a reasonable time and seasonably notified seller under § 4-2-602 and thus was a valid rejection under § 4-2-601. Jacob Hartz Seed Co. v. Coleman, 271 Ark. 756, 612 S.W.2d 91 (1981).

Failure to Reject.

Under this section after failure to make an effective rejection, buyer was bound by his acceptance of the automobile and unless it was rejected within a reasonable time with notification to the seller of his decision, he waived any warranties of defective condition of the car. Green Chevrolet Co. v. Kemp, 241 Ark. 62, 406 S.W.2d 142 (1966).

The failure of the conditional vendee of a used truck to notify the vendor of his rejection of the truck for defects and his continuing to drive it for several months after the purchase of it amounted to an acceptance of the truck under this section. Hudspeth Motors, Inc. v. Wilkinson, 238 Ark. 410, 382 S.W.2d 191 (1964), overruled on other grounds, Stimson Tractor Co. v. Heflin, 257 Ark. 263, 516 S.W.2d 379 (1974).

Goods held to have been accepted under subdivision (1)(b). Watson v. Miears, 612 F. Supp. 1235 (W.D. Ark. 1984), aff'd, 772 F.2d 433 (8th Cir. 1985).

Questions of Fact.

What constitutes a nonconforming delivery, acceptance, rejection, or revocation of acceptance are questions of fact to be determined within the framework of the facts of each particular case. Marine Mart, Inc. v. Pearce, 252 Ark. 601, 480 S.W.2d 133 (1972).

Use After Discovery of Unsuitability.

The buyer's use of a combine, after discovery that it would not work in his fields, constituted acceptance of the combine even though assured by the salesman that the seller would make it work in absence of evidence of authority of the salesman to make such statements. Ingle v. Marked Tree Equip. Co., 244 Ark. 1166, 428 S.W.2d 286 (1968).

In action by seller of panels for price of last shipment in which buyer counterclaimed for damages caused by the fact that the panels were of a lighter weight than that ordered, the issue was not acceptance or rejection, but revocation of acceptance, and use of the last shipment despite knowledge of its unsuitability did not bar counterclaim for damages for nonconformity of the original shipment. Jones v. Atkins, 254 Ark. 472, 494 S.W.2d 448 (1973).

Cited: KLPR TV, Inc. v. Visual Elec. Corp., 327 F. Supp. 315 (W.D. Ark. 1971); Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980).

4-2-607. Effect of acceptance — Notice of breach — Burden of establishing breach after acceptance — Notice of claim or litigation to person answerable over.

  1. The buyer must pay at the contract rate for any goods accepted.
  2. Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this chapter for non-conformity.
  3. Where a tender has been accepted
    1. the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and
    2. if the claim is one for infringement or the like (§ 4-2-312(3)) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation.
  4. The burden is on the buyer to establish any breach with respect to the goods accepted.
  5. Where the buyer is sued for breach of a warranty or other obligation for which the seller is answerable over
    1. he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two (2) litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound.
    2. if the claim is one for infringement or the like (§ 4-2-312(3)) the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred.
  6. The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like (§ 4-2-312(3)).

History. Acts 1961, No. 185, § 2-607; 1969, No. 312, § 1; A.S.A. 1947, § 85-2-607.

Research References

ALR.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Consumer Goods and Services. 1 A.L.R.7th Art. 3 (2015).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Goods and Services: Distributorship, Franchise, and Similar Business Contracts. 8 A.L.R.7th Art. 4 (2015).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Manufacturing, Construction, and Similar Contracts. 15 A.L.R.7th Art. 7 (2015).

Ark. L. Notes.

Copeland, The Implied Warranty of Habitability and the Use of the Uniform Commercial Code by Analogy, 1983 Ark. L. Notes 5.

Smolla, What Types of Losses Are Recoverable Under Arkansas's Products Liability Law, 1984 Ark. L. Notes 11.

Ark. L. Rev.

Uniform Commercial Code — Buyers' Remedies After Acceptance, 20 Ark. L. Rev. 409.

Torts — Strict Liability in Products Cases, 22 Ark. L. Rev. 796.

The Return of Caveat Venditor as the Law of Products Liability, 23 Ark. L. Rev. 355.

Legislative Note — Act 111 of 1973: An Act to Impose Liability for Injury and Damages Done in Certain Circumstances by Defective Products, 27 Ark. L. Rev. 562.

The Personal Injury Action in Warranty — Has the Arkansas Strict Liability Statute Rendered It Obsolete? 28 Ark. L. Rev. 335.

Voucher to Products Liability: The Mechanics of U.C.C. § 2-607(5)(a), 29 Ark. L. Rev. 486.

Case Notes

Purpose.

The purpose of the statutory notice requirement of a breach is twofold: first, it gives the seller an opportunity to minimize damages in some way, such as by correcting the defect; second, it gives immunity to a seller against stale claims. Williams v. Mozark Fire Extinguisher Co., 318 Ark. 792, 888 S.W.2d 303 (1994).

Goods Accepted.

Seller could not rely on this section to argue that buyer had the burden of proving that seller had not substantially performed under the contract where the goods at issue were not accepted by buyer. TEC Floor Corp. v. Wal-Mart Stores, Inc., 4 F.3d 599 (8th Cir. 1993).

Notice of Breach.

The buyer of a combine with tires too narrow for use in his fields but which the seller assured him would give him satisfaction, was barred from any remedy unless he notified the seller of the breach of warranty within a reasonable time after discovery that the combine would not work in his fields. Ingle v. Marked Tree Equip. Co., 244 Ark. 1166, 428 S.W.2d 286 (1968).

The purpose of the statutory requirement of notice to the seller of breach of warranty is to enable the seller to minimize damages in some way such as correcting the defect and also to give the seller some immunity against stale claims. L.A. Green Seed Co. v. Williams, 246 Ark. 463, 438 S.W.2d 717 (1969).

The sufficiency of notice to the seller of breach of warranty and what is considered a reasonable time to give such notice are ordinarily questions of fact for the jury based on the circumstances of each case. L.A. Green Seed Co. v. Williams, 246 Ark. 463, 438 S.W.2d 717 (1969).

Notice to the seller of breach of warranty is a condition precedent to recovery and must be alleged in the complaint. L.A. Green Seed Co. v. Williams, 246 Ark. 463, 438 S.W.2d 717 (1969).

Notice to seller held to be timely and sufficient. Lewis v. Mobil Oil Corp., 438 F.2d 500 (8th Cir. 1971); Wilson v. Marquette Elecs., Inc., 630 F.2d 575 (8th Cir. 1980).

Lessee of equipment failed to give lessor notification of breach of warranty within a reasonable time, and thereby lost rights under any express or implied warranty. KLPR TV, Inc. v. Visual Electronics Corp., 465 F.2d 1382 (8th Cir. 1972).

Written notice is not required for a breach of warranty claim by the Code. Smart Chevrolet Co. v. Davis, 262 Ark. 500, 558 S.W.2d 147 (1977).

The intent of subdivision (3)(a) of this section is that the seller be notified that the buyer proposes to look to him for damages, which notice must either directly or inferentially inform the seller that the buyer demands damages upon an asserted claim of breach of warranty. James A. Rogers Excavating, Inc. v. R.A. Young & Son, 3 Ark. App. 297, 625 S.W.2d 560 (1981).

The standard of notification set out in this section was a reasonable one to be applied in claims of breach of implied warranty of habitability as to new house; the buyer is not required to list each and every objection that he would rely on as constituting the breach; notification need only be with sufficient clarity to apprise the vendor-builder that a breach of implied warranty is being asserted and to give him sufficient opportunity to inspect the premises and correct the defects; the sufficiency of the notice and whether it was given within a reasonable time are ordinarily questions of fact for a jury to determine. Pickler v. Fisher, 7 Ark. App. 125, 644 S.W.2d 644 (1983).

Where the buyer pled notice of the seller's breach of warranty, and counsel for the seller conceded this point in oral argument, the seller was not entitled to a directed verdict on the basis of the buyer's alleged failure to provide notice. Greenfield Seed Co. v. Bland, 18 Ark. App. 48, 710 S.W.2d 833 (1986).

Where there was sufficient evidence that notice of damage was, at the very least, inferentially given by the seed buyer to the seller, and the buyer filed his counterclaim seeking damages in May following the harvest, which was possibly the first time that the buyer could, with any degree of certainty, ascertain his damages, whether such notice of the seller's breach of warranty was sufficient and reasonable as to time, form, and substance was a question of fact properly submitted to the jury for its determination, and the trial court did not abuse its discretion in denying the seller's motion for a directed verdict. Greenfield Seed Co. v. Bland, 18 Ark. App. 48, 710 S.W.2d 833 (1986).

Where material questions of fact remained regarding issue of whether defendant was given notice of its breach of warranty, defendant was not entitled to summary judgment on that issue. Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

For breach of warranty, no particular form of notice to the seller is required, and the notice need not be in writing. Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

The giving of reasonable notice is a condition precedent to recovery under the provisions of the commercial code, and the giving of notice must be alleged in the complaint in order to state a cause of action; the complaint cannot be the notice. Williams v. Mozark Fire Extinguisher Co., 318 Ark. 792, 888 S.W.2d 303 (1994).

Crop duster failed to give reasonable notice of the breach, as required by this section, to the seller after accepting the wrong fuel for the crop duster's airplane. Adams v. Wacaster Oil Co., 81 Ark. App. 150, 98 S.W.3d 832 (2003).

Trial court properly gave manufacturer a setoff on its counterclaim for breach of warranties as telephone calls from the manufacturer to the corporation were considered sufficient notice of the breach; notice is sufficient where it informs the seller that the transaction is claimed to involve a breach and, thus, to open the way for negotiation of a normal settlement. Indus. Elec. Supply, Inc. v. Lytle Mfg., L.L.C., 94 Ark. App. 81, 226 S.W.3d 1 (2006).

—Applicability to Contracts for Services.

Circuit court's ruling that a car owner's breach of warranty claims against a repair shop failed for lack of notice was not clearly erroneous. While it was premature to decide whether express or implied warranties attach as a matter of law to a contract for services, the Uniform Commercial Code notice requirements apply if such warranties do exist. Testimony at trial indicated that the first notice the shop received was in the complaint, which was filed 33 months after the owner picked up his car and had driven it for almost 1,000 miles. Hartness v. Nuckles, 2015 Ark. 444, 475 S.W.3d 558 (2015).

Remedy Barred.

Where buyer made payment on two remaining notes on purchase price after discovering alleged defect, used the machine for over three years and made no effort to return it and rescind the sale, he was not entitled to recover damages on the theory that the warranty was breached. Continental Moss-Gordin, Inc. v. Beaton, 247 Ark. 426, 446 S.W.2d 226 (1969).

Third-Party Actions.

In an action by a third party for damages resulting from an automobile collision alleged to have resulted from defective brakes on the automobile, any error in dismissing the action as to the dealer became harmless when the jury found for the manufacturer, where the defect was latent and could have been discovered only by complete disassembly of the defective brake. Smith v. Goble, 248 Ark. 415, 452 S.W.2d 336 (1970).

Voluntary Payment Rule.

Where there was a contract for the sale of goods and buyer accepted the goods, this section made buyer responsible for payment, and this legal duty to pay rendered the voluntary-payment rule inapplicable. TB of Blytheville, Inc. v. Little Rock Sign & Emblem, Inc., 328 Ark. 688, 946 S.W.2d 930 (1997).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Stimson Tractor Co. v. Heflin, 257 Ark. 263, 516 S.W.2d 379 (1974); Cotner v. International Harvester Co., 260 Ark. 885, 545 S.W.2d 627 (1977); Bailey v. Matthews, 279 Ark. 117, 649 S.W.2d 175 (1983); Microsize, Inc. v. Ark. Microfilm, Inc., 29 Ark. App. 49, 780 S.W.2d 574 (1989); Heating & Air Specialists, Inc. v. Jones, 180 F.3d 923 (8th Cir. 1999).

4-2-608. Revocation of acceptance in whole or in part.

  1. The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it
    1. on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or
    2. without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.
  2. Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.
  3. A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

History. Acts 1961, No. 185, § 2-608; A.S.A. 1947, § 85-2-608.

Research References

ALR.

Substantial impairment entitling buyer to revoke his acceptance of goods under UCC § 2-608(1). 38 A.L.R.5th 191.

Ark. L. Notes.

Looney, The Toothless Cow, the Little Bull That Couldn't, and Udder Matters: Livestock Warranties and the Uniform Commercial Code, 1990 Ark. L. Notes 75.

Ark. L. Rev.

Uniform Commercial Code — Buyers' Remedies After Acceptance, 20 Ark. L. Rev. 409.

Legislative Note — Act 462 of 1973: Three Day “Cooling-Off” Period for Home Solicitation Sales, 27 Ark. L. Rev. 571.

Commercial Law — The Effect of the Seller's Right to Cure on the Buyer's Remedy of Rescission, 28 Ark. L. Rev. 297.

Notes, Ozark Kenworth, Inc. v. Neidecker: A Buyer's Continued Use of Goods After Revocation of Acceptance, 38 Ark. L. Rev. 857.

U. Ark. Little Rock L.J.

Note, Arkansas's New Motor Vehicle Quality Assurance Act — A Branch of Hope For Lemon Owners, 16 U. Ark. Little Rock L.J. 493.

Case Notes

Cure of Defects.

The seller does not have an unlimited time within which to cure the nonconformity; it must be cured seasonably. Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

Evidence supported finding that the buyers had not afforded the manufacturer a reasonable time to cure defects in mobile home. Rhode v. Kremer, 280 Ark. 136, 655 S.W.2d 410 (1983).

Evidence.

Upon the evidence presented, there was no revocation of acceptance under this section. Hudspeth Motors, Inc. v. Wilkinson, 238 Ark. 410, 382 S.W.2d 191 (1964), overruled on other grounds, Stimson Tractor Co. v. Heflin, 257 Ark. 263, 516 S.W.2d 379 (1974).

Question of whether buyer was entitled to revoke acceptance of truck based on seller's assurances that any nonconformity would be seasonably cured should have been presented to jury where evidence presented factual issue as to the existence of a latent defect in the truck and the making of repairs and assurances by the seller to the effect that the truck was repairable. Gramling v. Baltz, 253 Ark. 352, 485 S.W.2d 183 (1972).

Evidence sufficient to support revocation of acceptance of a mobile home on nonconforming product grounds. Frontier Mobile Home Sales, Inc. v. Trigleth, 256 Ark. 101, 505 S.W.2d 516 (1974).

Guarantees.

A guarantee may have limited the seller's other warranties provided for by this chapter, but it in no way can be construed to have foreclosed a buyer's right to revoke her acceptance within a reasonable time of the discovery of nonconformity of the goods. O'Neal Ford, Inc. v. Early, 13 Ark. App. 189, 681 S.W.2d 414 (1985).

Nonconforming Goods.

The concept of nonconformity includes not only breaches of warranties but also any failure of the seller to perform according to his obligations under the contract; it is thus apparent that breach of warranty and nonconformity are not entirely congruent concepts, the former being a subset of the latter. Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

A buyer's right to revoke his acceptance of goods is conditioned upon the nonconforming character of the goods; if goods conform to the contract and the buyer has accepted them, the buyer does not have a right to revoke his acceptance. Watson v. Miears, 772 F.2d 433 (8th Cir. 1985).

The plaintiff properly revoked its acceptance of 521 out of 828 cases of frozen chicken where the plaintiff's representatives testified that the defendant assured them that the chicken was all split breasts and no more than 6 to 8 months old and it was later discovered that 521 of the cases were pieces, rather than split breasts, and were over a year old. Grand State Mktg. v. Eastern Poultry Distribs., 63 Ark. App. 123, 975 S.W.2d 439 (1998).

Questions of Fact.

The question whether goods are nonconforming and whether a revocation of acceptance was given within a reasonable time are questions of fact. O'Neal Ford, Inc. v. Early, 13 Ark. App. 189, 681 S.W.2d 414 (1985).

Whether goods are conforming is a question of fact. Watson v. Miears, 772 F.2d 433 (8th Cir. 1985).

Remedies.

A buyer is not required to elect between revocation of acceptance and recovery of damages for breach of warranty. Stimson Tractor Co. v. Heflin, 257 Ark. 263, 516 S.W.2d 379 (1974).

The buyer's options of revocation of acceptance under § 4-2-711 and recovery of damages for breach of warranty under § 4-2-714 are two separate and distinct strands of remedies under the UCC (subtitle 1 of this title) and the buyer may pursue either remedy or both since they offer separate forms of relief. Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

Buyer was not permitted the return of its purchase price in addition to retaining purchased equipment under a breach of contract or breach of warranty theory. Microsize, Inc. v. Ark. Microfilm, Inc., 29 Ark. App. 49, 780 S.W.2d 574 (1989).

If the buyer does not reject the goods or timely revoke acceptance, he will be obligated to pay the balance due on the contract price and will be limited to the recovery of damages for breach of warranty. Microsize, Inc. v. Ark. Microfilm, Inc., 29 Ark. App. 49, 780 S.W.2d 574 (1989).

Rescission.

The purchaser of a vending machine business upon the seller's representation as to past profits did not waive his right to rescind the purchase for fraud in such representations by making two installment payments on the purchase price after he discovered profits were substantially less than as represented by the seller where the seller assured him that business would improve if given time, especially with the arrival of summer. Parker v. Johnston, 244 Ark. 355, 426 S.W.2d 155 (1968).

Action to rescind contract on grounds of nonconformity should be treated as “revocation of acceptance” under this section, since the Uniform Commercial Code does not use, in most instances, the term “rescission” and the terms amount to the same thing under the Code. Hughes v. Brown, 1 Ark. App. 171, 613 S.W.2d 848 (1981).

Return of Defective Goods.

Buyer's refusal to tender return of drilling rig when he filed complaint to obtain revocation of sale and his continued refusal to return pipe and other accessories did not prevent him from revoking his acceptance, as tender of goods purchased is not a condition of rescission under this section. Snow v. C.I.T. Corp. of South, Inc., 278 Ark. 554, 647 S.W.2d 465 (1983).

This section does not specifically state that revoked goods are to be returned to the seller; however, the comments to this section assume the goods will be returned. Microsize, Inc. v. Ark. Microfilm, Inc., 29 Ark. App. 49, 780 S.W.2d 574 (1989).

Substantial Impairment of Value.

Where a farmer bought a tractor for use at certain times of the year and to cope with certain soil and weather conditions, but the farmer was deprived of the use of the tractor during those critical periods due to a combination of factory and service-related defects, the tractor's nonconformity under the sales contract substantially impaired the value of the tractor to the farmer and was sufficient to warrant the farmer's revocation of acceptance. Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

Where drilling rig, purchased upon seller's representation that it was superior to older model, proved to be slower than old model, was constantly in need of repairs and needed major modifications dealing with operational efficiency, buyer was entitled to revoke his acceptance of rig because its nonconformity substantially impaired its value to him. Snow v. C.I.T. Corp. of South, Inc., 278 Ark. 554, 647 S.W.2d 465 (1983).

Time of Revocation.

Revocation held to have been made within a reasonable time. Frontier Mobile Home Sales, Inc. v. Trigleth, 256 Ark. 101, 505 S.W.2d 516 (1974); Hughes v. Brown, 1 Ark. App. 171, 613 S.W.2d 848 (1981); Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

Revocation held not to be within a reasonable time. Stimson Tractor Co. v. Heflin, 257 Ark. 263, 516 S.W.2d 379 (1974).

Consumers rightfully revoked acceptance of an automobile purchase contract, and were properly awarded both compensatory and punitive damages, even though they had been driving the car almost two years, where the revocation occurred immediately after the consumers discovered that the car, sold as new, had previously been in a wreck and repainted. Wheeler Motor Co. v. Roth, 315 Ark. 318, 867 S.W.2d 446 (1993).

Use of Goods.

Continued attempts of a buyer to use a combine with tires too narrow for use in his fields, although assured by the seller that it would give him satisfaction, and procurement of repairs on the combine by the seller's employees after his discovery that the combine was not suited for use in his fields, amounted to an exercise of ownership over the combine inconsistent with revocation of his acceptance of the machine. Ingle v. Marked Tree Equip. Co., 244 Ark. 1166, 428 S.W.2d 286 (1968).

A waiver does not necessarily result when a buyer continues to use an article following repairs by the seller. Gramling v. Baltz, 253 Ark. 352, 485 S.W.2d 183 (1972).

In action by seller of panels for price of last shipment in which buyer counterclaimed for damages caused by the fact that the panels were of a lighter weight than that ordered, the issue was not acceptance or rejection, but revocation of acceptance, and use of the last shipment despite knowledge of its unsuitability did not bar counterclaim for damages for nonconformity of the original shipment. Jones v. Atkins, 254 Ark. 472, 494 S.W.2d 448 (1973).

The continued use of the goods by a buyer does not necessarily cancel a prior rejection where the seller had wrongfully refused to accept the buyer's rightful rejection; the issue of waiver of revocation is determined on a case by case basis, with the reasonableness of post-revocation use being the underlying consideration, taken in conjunction with a consideration of all the other elements necessary to effect a justifiable revocation. Ozark Kenworth, Inc. v. Neidecker, 283 Ark. 196, 672 S.W.2d 899 (1984).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Dopieralla v. Ark. La. Gas Co., 255 Ark. 150, 499 S.W.2d 610 (1973); Hanna Lumber Co. v. Neff, 265 Ark. 462, 579 S.W.2d 95 (1979); McFall Chevrolet Co. v. Collins, 271 Ark. 469, 609 S.W.2d 118 (1980); Mitcham v. First State Bank, 333 Ark. 598, 970 S.W.2d 267 (1998).

4-2-609. Right to adequate assurance of performance.

  1. A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.
  2. Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.
  3. Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.
  4. After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty (30) days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.

History. Acts 1961, No. 185, § 2-609; A.S.A. 1947, § 85-2-609.

Research References

ALR.

What constitutes “reasonable grounds for insecurity” justifying demand for adequate assurance of performance under UCC § 2-609. 37 A.L.R.5th 459.

Ark. L. Notes.

Flaccus, A Grab Bag of Recent Arkansas Cases, 1999 Ark. L. Notes 25.

Ark. L. Rev.

Recent Developments, Ford Motor Credit Co. v. Ellison, 334 Ark. 357, 974 S.W.2d 464 (1998), 51 Ark. L. Rev. 853.

Case Notes

Cure.

Summary judgment was premature as a question of material fact remained as to when, or if, the supplier cured the “quality” problems; the plain and unambiguous language of the parties' contract did not establish an outward limit of three days for the supplier to cure before the purchaser was released from the long-term supply agreement that was inextricably linked to a multi-million dollar plant purchase. Mt. Pure, L.L.C. v. Affiliated Foods Southwest, Inc., 96 Ark. App. 346, 241 S.W.3d 774 (2006).

Demand.

A demand for adequate assurance of performance may only be made by one party to a sales contract upon the other party if there are reasonable grounds for insecurity that the other party will not perform his or her contractual obligation. Ford Motor Credit Co. v. Ellison, 334 Ark. 357, 974 S.W.2d 464 (1998).

Vehicle Sales Contract.

The plaintiff lender did not have reasonable grounds to make a demand in connection with an automobile loan where (1) the automobile was seized in connection with the arrest of the owner's husband for a drug offense, but was then released to the plaintiff, (2) although the owner began making late payments after the seizure of the automobile, the plaintiff accepted the payments and merely added extra fees, and (3) the owner was only past due for one payment. Ford Motor Credit Co. v. Ellison, 334 Ark. 357, 974 S.W.2d 464 (1998).

4-2-610. Anticipatory repudiation.

When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may

  1. for a commercially reasonable time await performance by the repudiating party; or
  2. resort to any remedy for breach (§ 4-2-703 or § 4-2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and
  3. in either case suspend his own performance or proceed in accordance with the provisions of this chapter on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (§ 4-2-704).

History. Acts 1961, No. 185, § 2-610; A.S.A. 1947, § 85-2-610.

Case Notes

Construction.

The phrase “substantially impair” as used in this section requires the factfinder to look at the materiality of a party's repudiation as it relates to the entire contract. Cargill, Inc. v. Storms Agri Enters., Inc., 46 Ark. App. 237, 878 S.W.2d 786 (1994).

Partial Repudiation.

When a party repudiates as to a single installment or performance, it is incumbent on the party seeking damages under this section to prove the value of the contract as a whole was substantially impaired to justify his resort to his remedies for breach. Cargill, Inc. v. Storms Agri Enters., Inc., 46 Ark. App. 237, 878 S.W.2d 786 (1994).

Remedies.

Where contractor repudiated his contract with supplier, supplier pursuant to this section could resort to any available remedy for sellers, principally damages for nonacceptance under § 4-2-708, but subsection (1) of that section was unavailable where supplier could not have then tendered performance, leaving supplier its remedy for net profits under subsection (2) of § 4-2-708. Capital Steel Co. v. Foster & Creighton Co., 264 Ark. 683, 574 S.W.2d 256 (1978).

4-2-611. Retraction of anticipatory repudiation.

  1. Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final.
  2. Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this chapter (§ 4-2-609).
  3. Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

History. Acts 1961, No. 185, § 2-611; A.S.A. 1947, § 85-2-611.

4-2-612. “Installment contract” — Breach.

  1. An “installment contract” is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause “each delivery is a separate contract” or its equivalent.
  2. The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment.
  3. Whenever non-conformity or default with respect to one (1) or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments.

History. Acts 1961, No. 185, § 2-612; A.S.A. 1947, § 85-2-612.

Research References

ALR.

Construction and application of UCC § 2-612(2), dealing with rejection of goods under installment contracts. 61 A.L.R.5th 611.

Case Notes

Cited: Cargill, Inc. v. Storms Agri Enters., Inc., 46 Ark. App. 237, 878 S.W.2d 786 (1994).

4-2-613. Casualty to identified goods.

Where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer, or in a proper case under a “no arrival, no sale” term (§ 4-2-324) then

  1. if the loss is total the contract is avoided; and
  2. if the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller.

History. Acts 1961, No. 185, § 2-613; A.S.A. 1947, § 85-2-613.

4-2-614. Substituted performance.

  1. Where without fault of either party the agreed berthing, loading, or unloading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, such substitute performance must be tendered and accepted.
  2. If the agreed means or manner of payment fails because of domestic or foreign governmental regulation, the seller may withhold or stop delivery unless the buyer provides a means or manner of payment which is commercially a substantial equivalent. If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the buyer's obligation unless the regulation is discriminatory, oppressive or predatory.

History. Acts 1961, No. 185, § 2-614; A.S.A. 1947, § 85-2-614.

4-2-615. Excuse by failure of presupposed conditions.

Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:

  1. Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
  2. Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.
  3. The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.

History. Acts 1961, No. 185, § 2-615; A.S.A. 1947, § 85-2-615.

Research References

ALR.

Impracticability of performance of sales contract under UCC § 2-615. 55 A.L.R.5th 1.

Case Notes

Cited: Pete Smith Co. v. El Dorado, 258 Ark. 862, 529 S.W.2d 147 (1975); Jacob Hartz Seed Co. v. Coleman, 271 Ark. 756, 612 S.W.2d 91 (1981).

4-2-616. Procedure on notice claiming excuse.

  1. Where the buyer receives notification of a material or indefinite delay or an allocation justified under the preceding section he may by written notification to the seller as to any delivery concerned, and where the prospective deficiency substantially impairs the value of the whole contract under the provisions of this chapter relating to breach of installment contracts (§ 4-2-612), then also as to the whole,
    1. terminate and thereby discharge any unexecuted portion of the contract; or
    2. modify the contract by agreeing to take his available quota in substitution.
  2. If after receipt of such notification from the seller the buyer fails so to modify the contract within a reasonable time not exceeding thirty (30) days the contract lapses with respect to any deliveries affected.
  3. The provisions of this section may not be negated by agreement except insofar as the seller has assumed a greater obligation under the preceding section.

History. Acts 1961, No. 185, § 2-616; A.S.A. 1947, § 85-2-616.

Part 7 — Remedies

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

Research References

ALR.

Specific performance of sale of goods under UCC § 2-716. 26 A.L.R.4th 294.

Unconscionability of disclaimer of warranties or limitation or exclusion of damages, under UCC § 2-302 or § 2-719(3), in contract subject to UCC Article 2. 38 A.L.R.4th 25.

What constitutes cover upon breach by seller under UCC § 2-712(1). 79 A.L.R.4th 844.

Causes of action governed by limitations period in UCC § 2-725. 49 A.L.R.5th 1.

Am. Jur. 67A Am. Jur. 2d, Sales, § 760 et seq.

C.J.S. 77A C.J.S., Sales, § 527 et seq.

4-2-701. Remedies for breach of collateral contracts not impaired.

Remedies for breach of any obligation or promise collateral or ancillary to a contract for sale are not impaired by the provisions of this chapter.

History. Acts 1961, No. 185, § 2-701; A.S.A. 1947, § 85-2-701.

Research References

Ark. L. Rev.

Evolving Sales Law: Highlights of the Shifting Landscape of Arkansas Purchasing Law, 57 Ark. L. Rev. 835.

4-2-702. Seller's remedies on discovery of buyer's insolvency.

  1. Where the seller discovers the buyer to be insolvent he may refuse delivery except for cash including payment for all goods theretofore delivered under the contract, and stop delivery under this chapter (§ 4-2-705).
  2. Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within ten (10) days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three (3) months before delivery the ten day limitation does not apply. Except as provided in this subsection the seller may not base a right to reclaim goods on the buyer's fraudulent or innocent misrepresentation of solvency or of intent to pay.
  3. The seller's right to reclaim under subsection (2) is subject to the rights of a buyer in ordinary course or other good faith purchaser under this chapter (§ 4-2-403). Successful reclamation of goods excludes all other remedies with respect to them.

History. Acts 1961, No. 185, § 2-702; 1967, No. 303, § 4; A.S.A. 1947, § 85-2-702.

Research References

Ark. L. Rev.

The Trustee in Bankruptcy and the Secured Creditor, 17 Ark. L. Rev. 46.

Case Notes

Bankruptcy.

Where claimant's oral demand complied with state law and bankruptcy was filed after the 10 day time limit for demanding reclamation had expired, the additional requirement of the Bankruptcy Code became effective too late for the claimant to comply with it. To retroactively apply the written requirement of the Bankruptcy Code would result in subjecting the reclaiming seller to a procedure different from the procedure applicable at the time the act to be done was required to be done, and this would be inconsistent with fundamental principles of due process of law. Thus failure to make written demand as required by the Bankruptcy Code results only in claimant's right to reclaim being subject to the avoiding powers of the trustee. In re Bearhouse, Inc., 84 B.R. 552 (Bankr. W.D. Ark. 1988).

Security Interests.

If the secured party has all the prerequisites of a good faith purchaser for value with a valid security interest in the debtor's after-acquired inventory, the secured party's security interest defeats the equitable rights of the reclaiming sellers. Beebe v. MacMillan Petro. (Ark.), Inc., 115 B.R. 175 (Bankr. W.D. Ark. 1990).

4-2-703. Seller's remedies in general.

Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract (§ 4-2-612), then also with respect to the whole undelivered balance, the aggrieved seller may

  1. withhold delivery of such goods;
  2. stop delivery by any bailee as hereafter provided (§ 4-2-705);
  3. proceed under § 4-2-704 respecting goods still unidentified to the contract;
  4. resell and recover damages as hereafter provided (§ 4-2-706);
  5. recover damages for nonacceptance (§ 4-2-708) or in a proper case the price (§ 4-2-709);
  6. cancel.

History. Acts 1961, No. 185, § 2-703; A.S.A. 1947, § 85-2-703.

Research References

Ark. L. Rev.

Brill, The Election of Remedies Doctrine in Arkansas, 37 Ark. L. Rev. 385.

Case Notes

Cancellation.

The defendant had a statutory right to cancel any contract with the plaintiff to deliver goods for resale where the plaintiff was more than $200,000 in arrears on payments to the defendant for goods previously delivered. Heating & Air Specialists, Inc. v. Jones, 180 F.3d 923 (8th Cir. 1999).

Damages.

Where goods were accepted under § 4-2-606(1)(b), plaintiffs in breach of contract action were entitled to recover the unpaid balance of the contract price under provisions of § 4-2-709(1)(a) and defendant's breach of the contract which triggered seller's remedy under subsection (a) of this section included the right to recover damages for nonacceptance. Watson v. Miears, 612 F. Supp. 1235 (W.D. Ark. 1984), aff'd, 772 F.2d 433 (8th Cir. 1985).

Trial court did not err holding that a buyer was entitled to the return of $15,454 in a breach of contract action against a shaving mill seller; because the seller spent $10,406 in additional expenses to make the machine salable to another purchaser under subsection (d) of this section after the buyer declined to purchase it, that amount was properly subtracted from the buyer's $25,860 down payment. Bowen v. Gardner, 2013 Ark. App. 52, 425 S.W.3d 875 (2013).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Capital Steel Co. v. Foster & Creighton Co., 264 Ark. 683, 574 S.W.2d 256 (1978).

4-2-704. Seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods.

  1. An aggrieved seller under the preceding section may
    1. identify to the contract conforming goods not already identified if at the time he learned of the breach they are in his possession or control;
    2. treat as the subject of resale goods which have demonstrably been intended for the particular contract even though those goods are unfinished.

(2) Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner.

History. Acts 1961, No. 185, § 2-704; A.S.A. 1947, § 85-2-704.

4-2-705. Seller's stoppage of delivery in transit or otherwise.

  1. The seller may stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer to be insolvent (§ 4-2-702) and may stop delivery of carload, truckload, planeload or larger shipments of express or freight when the buyer repudiates or fails to make a payment due before delivery or if for any other reason the seller has a right to withhold or reclaim the goods.
  2. As against such buyer the seller may stop delivery until
    1. receipt of the goods by the buyer; or
    2. acknowledgment to the buyer by any bailee of the goods except a carrier that the bailee holds the goods for the buyer; or
    3. such acknowledgment to the buyer by a carrier by reshipment or as a warehouse; or
    4. negotiation to the buyer of any negotiable document of title covering the goods.
    1. To stop delivery the seller must so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods.
    2. After such notification the bailee must hold and deliver the goods according to the directions of the seller but the seller is liable to the bailee for any ensuing charges or damages.
    3. If a negotiable document of title has been issued for goods the bailee is not obliged to obey a notification to stop until surrender of possession or control of the document.
    4. A carrier who has issued a non-negotiable bill of lading is not obliged to obey a notification to stop received from a person other than the consignor.

History. Acts 1961, No. 185, § 2-705; A.S.A. 1947, § 85-2-705; Acts 2007, No. 342, § 18.

4-2-706. Seller's resale including contract for resale.

  1. Under the conditions stated in § 4-2-703 on seller's remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this chapter (§ 4-2-710), but less expenses saved in consequence of the buyer's breach.
  2. Except as otherwise provided in subsection (3) or unless otherwise agreed resale may be at a public or private sale including sale by way of one (1) or more contracts to sell or of identification to an existing contract of the seller. Sale may be as a unit or in parcels and at any time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be commercially reasonable. The resale must be reasonably identified as referring to the broken contract, but it is not necessary that the goods be in existence or that any or all of them have been identified to the contract before the breach.
  3. Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell.
  4. Where the resale is at public sale
    1. only identified goods can be sold except where there is a recognized market for a public sale of futures in goods of the kind; and
    2. it must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale; and
    3. if the goods are not to be within the view of those attending the sale the notification of sale must state the place where the goods are located and provide for their reasonable inspection by prospective bidders; and
    4. the seller may buy.
  5. A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one (1) or more of the requirements of this section.
  6. The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (§ 4-2-707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (§ 4-2-711(3)).

History. Acts 1961, No. 185, § 2-706; A.S.A. 1947, § 85-2-706.

Research References

ALR.

Resale of goods under UCC § 2-706. 101 A.L.R.5th 563.

U. Ark. Little Rock L.J.

White, The Decline of the Contract Market Damage Model, 11 U. Ark. Little Rock L.J. 1.

Case Notes

Commercial Reasonableness.

Where seller alleged in its complaint that it had made reasonable efforts to resell the bulldozer and where buyer in his motion for directed verdict stated that the resale was not commercially reasonable, the issue of commercial reasonableness of the resale was sufficiently raised at trial for determination of the issue on appeal. McMillan v. Meuser Material & Equip. Co., 260 Ark. 422, 541 S.W.2d 911 (1976).

Where, following buyer's alleged breach of contract for sale of a bulldozer, seller made no effort to resell the equipment for in excess of 14 months, the delay was commercially unreasonable. McMillan v. Meuser Material & Equip. Co., 260 Ark. 422, 541 S.W.2d 911 (1976).

Complaint.

Where seller, whose original complaint had sought recovery for the full purchase price and had alleged unsuccessful efforts to resell, was permitted to amend his complaint on the day before trial to the effect that the equipment was sold and seller sought damages, the trial court did not abuse its discretion in absence of proof that buyer's rights were materially prejudiced. McMillan v. Meuser Material & Equip. Co., 260 Ark. 422, 541 S.W.2d 911 (1976).

Damages.

Where, based on the evidence, the buyer had received notice of seller's intention to resell the equipment and thus the measure of damages provided in this section was applicable. McMillan v. Meuser Material & Equip. Co., 260 Ark. 422, 541 S.W.2d 911 (1976).

Trial court did not err holding that a buyer was entitled to the return of $15,454 in a breach of contract action against a shaving mill seller; because the seller spent $10,406 in additional expenses to make the machine salable to another purchaser after the buyer declined to purchase it, that amount was properly subtracted from the buyer's $25,860 down payment pursuant to subdivision (1) of this section. Bowen v. Gardner, 2013 Ark. App. 52, 425 S.W.3d 875 (2013).

Notice.

The purchaser was entitled to a reasonable notice of the seller's intention to resell a television placed in layaway upon a down payment with conflicting evidence as to when the purchaser was to take delivery of the set and where, long after the time when the seller testified delivery was to be taken, the purchaser informed the seller he was not yet ready for delivery and was assured by the seller that the set was in storage. Wood v. Downing, 243 Ark. 120, 418 S.W.2d 800 (1967).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970).

4-2-707. “Person in the position of a seller.”

  1. A “person in the position of a seller” includes as against a principal an agent who has paid or become responsible for the price of goods on behalf of his principal or anyone who otherwise holds a security interest or other right in goods similar to that of a seller.
  2. A person in the position of a seller may as provided in this chapter withhold or stop delivery (§ 4-2-705) and resell (§ 4-2-706) and recover incidental damages (§ 4-2-710).

History. Acts 1961, No. 185, § 2-707; A.S.A. 1947, § 85-2-707.

4-2-708. Seller's damages for non-acceptance or repudiation.

  1. Subject to subsection (2) and to the provisions of this chapter with respect to proof of market price (§ 4-2-723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this chapter (§ 4-2-710), but less expenses saved in consequence of the buyer's breach.
  2. If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this chapter (§ 4-2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.

History. Acts 1961, No. 185, § 2-708; A.S.A. 1947, § 85-2-708.

Research References

U. Ark. Little Rock L.J.

White, The Decline of the Contract Market Damage Model, 11 U. Ark. Little Rock L.J. 1.

Case Notes

Measure of Damages.

Where contractor repudiated his contract with supplier, supplier pursuant to § 4-2-610 could resort to any available remedy for sellers, principally damages for nonacceptance under this section, but subsection (1) of this section was unavailable where supplier could not have then tendered performance, leaving supplier its remedy for net profits under subsection (2) of this section. Capital Steel Co. v. Foster & Creighton Co., 264 Ark. 683, 574 S.W.2d 256 (1978).

Where a buyer repudiated a concrete supply contract, the seller was properly denied damages as a lost volume seller because testimony from the seller's general manager showed that the seller was not a lost volume seller; the seller would have had a limited capacity to perform other contracts if the buyer had not breached the contract upon learning that the concrete was substandard. Razorback Concrete Co. v. Dement Constr. Co., LLC, 688 F.3d 346 (8th Cir. 2012).

Cited: Unlaub Co. v. Sexton, 568 F.2d 72 (8th Cir. 1977).

4-2-709. Action for the price.

  1. When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section the price
    1. of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and
    2. of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.
  2. Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold.
  3. After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (§ 4-2-610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section.

History. Acts 1961, No. 185, § 2-709; A.S.A. 1947, § 85-2-709.

Research References

ALR.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Consumer Goods and Services. 1 A.L.R.7th Art. 3 (2015).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Goods and Services: Distributorship, Franchise, and Similar Business Contracts. 8 A.L.R.7th Art. 4 (2015).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Manufacturing, Construction, and Similar Contracts. 15 A.L.R.7th Art. 7 (2015).

Ark. L. Rev.

Paulson, Survey of Arkansas Law: Business Law, 2 U. Ark. Little Rock L.J. 161.

Case Notes

Accepted Goods.

Where the buyer had ample opportunity to inspect the goods and at no time indicated that the goods would not be accepted, the goods were deemed to have been accepted under § 4-2-606(1)(b) and the seller was therefore entitled to recover the unpaid balance of the contract price under subsection (1)(a) of this section. Unlaub Co. v. Sexton, 568 F.2d 72 (8th Cir. 1977).

Where defendant had an opportunity to inspect the goods and the goods were accepted under § 4-2-606(1)(b), plaintiffs in breach of contract action were entitled to recover the unpaid balance of the contract price under provisions of subdivision (1)(a) of this section, and defendant's breach of the contract which triggered seller's remedy under § 4-2-703(a) included the right to recover damages for nonacceptance. Watson v. Miears, 612 F. Supp. 1235 (W.D. Ark. 1984), aff'd, 772 F.2d 433 (8th Cir. 1985).

In a Chapter 7 bankruptcy case, creditor did not convert the proceeds from the sale of two vacuum units when it credited the proceeds to an outstanding account, rather than forwarding the payment to debtor, and debtor should have pursued the case as a breach of contract because a sale was effectuated when an agreement was made since the units had already been delivered; creditor was entitled to exercise setoff under the circumstances, but was still liable for an amount that had not been credited or paid to debtor. Nat'l Hydro-Vac Indus. Servs., L.L.C. v. Fed. Signal Corp. (In re Nat'l Hydro-Vac Indus. Servs., L.L.C.), 314 B.R. 753 (Bankr. E.D. Ark. 2004).

Complaint.

Where seller, whose original complaint had sought recovery for the full purchase price and had alleged unsuccessful efforts to resell, was permitted to amend his complaint on the day before trial to the effect that the equipment was sold and seller sought damages, the trial court did not abuse its discretion in absence of proof that buyer's rights were materially prejudiced. McMillan v. Meuser Material & Equip. Co., 260 Ark. 422, 541 S.W.2d 911 (1976).

4-2-710. Seller's incidental damages.

Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer's breach, in connection with return or resale of the goods or otherwise resulting from the breach.

History. Acts 1961, No. 185, § 2-710; A.S.A. 1947, § 85-2-710.

Research References

U. Ark. Little Rock L.J.

Survey—Business Law, 10 U. Ark. Little Rock L.J. 89.

4-2-711. Buyer's remedies in general — Buyer's security interest in rejected goods.

  1. Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (§ 4-2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid
    1. “cover” and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or
    2. recover damages for non-delivery as provided in this chapter (§ 4-2-713).
  2. Where the seller fails to deliver or repudiates the buyer may also
    1. if the goods have been identified recover them as provided in this chapter (§ 4-2-502); or
    2. in a proper case obtain specific performance or replevy the goods as provided in this chapter (§ 4-2-716).
  3. On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (§ 4-2-706).

History. Acts 1961, No. 185, § 2-711; A.S.A. 1947, § 85-2-711.

Research References

Ark. L. Rev.

Commercial Law — The Effect of the Seller's Right to Cure on the Buyer's Remedy of Rescission, 28 Ark. L. Rev. 297.

U. Ark. Little Rock L.J.

Note, Arkansas's New Motor Vehicle Quality Assurance Act — A Branch of Hope For Lemon Owners, 16 U. Ark. Little Rock L.J. 493.

Case Notes

In General.

The buyer's options of revocation of acceptance under this section and recovery of damages for breach of warranty under § 4-2-714 are two separate and distinct strands of remedies under the UCC and the buyer may pursue either remedy or both since they offer separate forms of relief. Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

When both fraud and breach of contract are pled, a buyer may pursue, but not recover, both revocation of acceptance and damages for breach of warranty. Roach v. Concord Boat Corp., 317 Ark. 474, 880 S.W.2d 305 (1994).

Cover.

Where buyer chooses to purchase substitute goods, its remedy is limited to that of § 4-2-712, unless the purchase does not constitute “cover.” Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988).

Damages.

Upon repudiation of contract for sale of farm equipment, party who did not repudiate was entitled to cancel the contract and recover his purchase price as well as incidental and consequential damages. Lake Village Implement Co. v. Cox, 252 Ark. 224, 478 S.W.2d 36 (1972).

The correct measure of damages on cancellation of a contract for nonconformity was a refund of payments made and not the difference between the value of the goods accepted and the value they would have had if they had been as warranted. Frontier Mobile Home Sales, Inc. v. Trigleth, 256 Ark. 101, 505 S.W.2d 516 (1974).

Justifiable Revocation.

Under the UCC, once goods are accepted buyer is entitled to cancel the contract and recover so much as has been paid only upon establishing that he has justifiably revoked his acceptance. Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

Where a farmer bought a tractor for use at certain times of the year and to cope with certain soil and weather conditions, but the farmer was deprived of the use of the tractor during those critical periods due to a combination of factory and service-related defects, the tractor's nonconformity under the sales contract substantially impaired the value of the tractor to the farmer and was sufficient to warrant the farmer's revocation of acceptance. Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Hanna Lumber Co. v. Neff, 265 Ark. 462, 579 S.W.2d 95 (1979); Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980); Microsize, Inc. v. Ark. Microfilm, Inc., 29 Ark. App. 49, 780 S.W.2d 574 (1989).

4-2-712. “Cover” — Buyer's procurement of substitute goods.

  1. After a breach within the preceding section the buyer may “cover” by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.
  2. The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (§ 4-2-715), but less expenses saved in consequence of the seller's breach.
  3. Failure of the buyer to effect cover within this section does not bar him from any other remedy.

History. Acts 1961, No. 185, § 2-712; A.S.A. 1947, § 85-2-712.

Research References

ALR.

What constitutes “cover” upon breach by seller under UCC § 2-712(1). 79 A.L.R.4th 844.

U. Ark. Little Rock L.J.

White, The Decline of the Contract Market Damage Model, 11 U. Ark. Little Rock L.J. 1.

Case Notes

Damages.

Any incidental and consequential damages stemming from a breach in regard to accepted goods may be recovered, and since the difference in the cost of the original and replacement trusses could be a proper element of such consequential damages, the court was correct in its admission of the evidence of cost of the replacements. Hanna Lumber Co. v. Neff, 265 Ark. 462, 579 S.W.2d 95 (1979).

Failure to Cover.

In an action upon repudiation of a contract for sale of farm equipment, failure to “cover” is not a bar to recovery of consequential damages unless the loss could have reasonably been prevented by cover or otherwise. Lake Village Implement Co. v. Cox, 252 Ark. 224, 478 S.W.2d 36 (1972).

Incidental or Consequential Damages.

Incidental or consequential damages are recoverable items of damages under both this section and § 4-2-713. Subject to the evidentiary rules of admissibility, evidence relating to both items is admissible. Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988).

Substitute Goods.

Where buyer chooses to purchase substitute goods, its remedy is limited to that of this section, unless the purchase does not constitute “cover.” Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Lewis v. Mobil Oil Corp., 438 F.2d 500 (8th Cir. 1971); Tenwick v. Byrd, 9 Ark. App. 340, 659 S.W.2d 950 (1983).

4-2-713. Buyer's damages for nondelivery or repudiation.

  1. Subject to the provisions of this chapter with respect to proof of market price (§ 4-2-723), the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this chapter (§ 4-2-715), but less expenses saved in consequence of the seller's breach.
  2. Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

History. Acts 1961, No. 185, § 2-713; A.S.A. 1947, § 85-2-713.

Research References

U. Ark. Little Rock L.J.

White, The Decline of the Contract Market Damage Model, 11 U. Ark. Little Rock L.J. 1.

Case Notes

Incidental or Consequential Damages.

Consequential damages would include loss resulting from the particular needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise. Lake Village Implement Co. v. Cox, 252 Ark. 224, 478 S.W.2d 36 (1972).

Incidental or consequential damages are recoverable items of damages under both § 4-2-712 and this section. Subject to the evidentiary rules of admissibility, evidence relating to both items is admissible. Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988).

Market Price.

When the current market price is difficult to prove or is not readily available, the court is granted reasonable leeway in receiving evidence of current prices in other comparable markets or at other times comparable to the one in question. Chappell Chevrolet, Inc. v. Strickland, 4 Ark. App. 108, 628 S.W.2d 25 (1982).

The trial court did not abuse its discretion in permitting the buyer to testify to a national price for limited issue automobile in order to establish the market price of the automobile at the time of the seller's breach, where the limited number of the automobiles made it difficult to prove a market price in a given geographic location, and where the buyer's national price was based on sales of those automobiles in at least nine states. Chappell Chevrolet, Inc. v. Strickland, 4 Ark. App. 108, 628 S.W.2d 25 (1982).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Paymaster Oil Mill Co. v. Weston, 610 F.2d 501 (8th Cir. 1979); Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980).

4-2-714. Buyer's damages for breach in regard to accepted goods.

  1. Where the buyer has accepted goods and given notification (§ 4-2-607(3)) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable.
  2. The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.
  3. In a proper case any incidental and consequential damages under the next section may also be recovered.

History. Acts 1961, No. 185, § 2-714; A.S.A. 1947, § 85-2-714.

Research References

Ark. L. Rev.

Unconscionable Contracts: A New Approach for the Arkansas Lawyer, 21 Ark. L. Rev. 427.

Voucher to Products Liability: The Mechanics of U.C.C. § 2-607(5)(a), 29 Ark. L. Rev. 486.

Notes, Ozark Kenworth, Inc. v. Neidecker: A Buyer's Continued Use of Goods After Revocation of Acceptance, 38 Ark. L. Rev. 857.

U. Ark. Little Rock L.J.

White, The Decline of the Contract Market Damage Model, 11 U. Ark. Little Rock L.J. 1.

Note, Arkansas's New Motor Vehicle Quality Assurance Act — A Branch of Hope For Lemon Owners, 16 U. Ark. Little Rock L.J. 493.

Case Notes

In General.

The buyer's options of revocation of acceptance under § 4-2-711 and recovery of damages for breach of warranty under this section are two separate and distinct strands of remedies under the UCC (subtitle 1 of this title), and the buyer may pursue either remedy or both since they offer separate forms of relief. Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

When both fraud and breach of contract are pled, a buyer may pursue, but not recover, both revocation of acceptance and damages for breach of warranty. Roach v. Concord Boat Corp., 317 Ark. 474, 880 S.W.2d 305 (1994).

Applicability.

This section is applicable to cases where breach is of an implied warranty of fitness for a particular purpose. Lewis v. Mobil Oil Corp., 438 F.2d 500 (8th Cir. 1971).

Causation.

In a case alleging negligence, breach of contract, breach of warranty, strict product liability, and violations of the Arkansas Deceptive Trade Practices Act based on a claim that a casket was defective, the complaint failed to include the elements of the causes of actions pled because it failed to state facts that linked the damages to the conduct or product supplied; there was no way of knowing the condition of the casket purchased since it had not been disinterred or inspected since its burial in 1996. Clayton v. Batesville Casket Co., 2015 Ark. App. 361, 465 S.W.3d 441 (2015).

Damages.

Where buyer made payment on two remaining notes on purchase price, after discovering alleged defect, and used machine for over three years and made no effort to return it and rescind sale, and offered no evidence of damages, he was not entitled to recover damages on theory that machine was defective and that warranty was breached. Continental Moss-Gordin, Inc. v. Beaton, 247 Ark. 426, 446 S.W.2d 226 (1969).

—Incidental and Consequential Damages.

Consequential damages or anticipated profits cannot be recovered, as in the instance of diminished crop yield, unless the evidence establishes the alleged damages with reasonable certainty. Traylor v. Huntsman, 253 Ark. 704, 488 S.W.2d 30 (1972).

Any incidental and consequential damages stemming from a breach in regard to accepted goods may be recovered, and since the difference in the cost of the original and replacement trusses could be a proper element of such consequential damages, the court was correct in its admission of the evidence of cost of the replacements. Hanna Lumber Co. v. Neff, 265 Ark. 462, 579 S.W.2d 95 (1979).

—Loss of Profits.

Damages, under this section and § 4-2-715, for supply of improper oil to use in hydraulic system in saw mill included direct expenses and loss of profits for period during which the oil was used but did not include loss of profits occurring after plaintiff stopped using the oil and where this loss was due to plaintiff's lack of capital resources. Lewis v. Mobil Oil Corp., 438 F.2d 500 (8th Cir. 1971).

—Lost Time.

The buyer of a computer-assisted electrocardiographic system was not entitled to an award of damages for “lost time” which represented the time an employee was away from his other duties because of the increased time spent with the computer system due to its failure to operate as warranted, where there was no evidence that the employee requested payment for the special services or that the parties intended such a payment to be made. Wilson v. Marquette Elecs., Inc., 630 F.2d 575 (8th Cir. 1980).

—Measure.

In a suit based on misrepresentation as to the condition of a purchased car, compensatory damages based on the difference in the market value of the car as warranted and its value as a wrecked car was the proper measure of damages. Union Motors, Inc. v. Phillips, 241 Ark. 857, 410 S.W.2d 747 (1967).

Where there was no substantial evidence in the record as to value of machinery as delivered, trial court did not err in holding that evidence was insufficient to award damages for breach of warranty based on difference between market value of machine and the price paid. Marion Power Shovel Co. v. Huntsman, 246 Ark. 152, 437 S.W.2d 784 (1969).

Where the trial court awarded damages on the basis of the difference at the time and place of acceptance between the value of goods accepted and the value which they would have had as warranted, the award was erroneous because the value to be considered was the reasonable market value of the goods delivered and not the value of the goods to a particular purchaser or for a particular purpose. KLPR TV, Inc. v. Visual Electronics Corp., 465 F.2d 1382 (8th Cir. 1972).

The measure of damages for a breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have if they had been as warranted. Smart Chevrolet Co. v. Davis, 262 Ark. 500, 558 S.W.2d 147 (1977); Walker Ford Sales v. Gaither, 265 Ark. 275, 578 S.W.2d 23 (1979).

Court properly determined damages in action on contract for sale of timber rights. Williams v. J.W. Black Lumber Co., 275 Ark. 144, 628 S.W.2d 13 (1982).

A buyer cannot recover his down payment under a breach of warranty claim. Microsize, Inc. v. Ark. Microfilm, Inc., 29 Ark. App. 49, 780 S.W.2d 574 (1989).

If the jury found for the buyer on the question of liability, they must fix the amount of money that would reasonably compensate him for the reasonable expense of necessary repairs to any property which was damaged, if the damage was proximately caused by the breach of the implied warranties by seller, given the relationship between subsections (2) and (3) of this section and § 4-2-715(1) and (2)(b). F.L. Davis Bldrs. Supply, Inc. v. Knapp, 42 Ark. App. 52, 853 S.W.2d 288 (1993).

Failure to Give Notice.

Buyer was not entitled to an award of damages under either this section or § 4-2-715 since the buyer failed to give notice of the alleged breach to the seller within a reasonable time after the buyer discovered or should have discovered the breach. Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980).

Nonconformities.

The concept of nonconformity includes not only breaches of warranties but also any failure of the seller to perform according to his obligations under the contract; it is thus apparent that breach of warranty and nonconformity are not entirely congruent concepts, the former being a subset of the latter. Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

The concept of nonconformity includes not only breaches of warranties but also any failure of the seller to perform according to his obligations under the contract. Microsize, Inc. v. Ark. Microfilm, Inc., 29 Ark. App. 49, 780 S.W.2d 574 (1989).

Use of Goods.

Use of the last shipment of goods despite knowledge of its unsuitability did not bar counterclaim for damages for nonconformity of the original shipment. Jones v. Atkins, 254 Ark. 472, 494 S.W.2d 448 (1973).

Cited: L.A. Green Seed Co. v. Williams, 246 Ark. 463, 438 S.W.2d 717 (1969); Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); McKnight v. Bellamy, 248 Ark. 27, 449 S.W.2d 706 (1970); Ford Motor Co. v. Reid, 250 Ark. 176, 465 S.W.2d 80 (1971); Stimson Tractor Co. v. Heflin, 257 Ark. 263, 516 S.W.2d 379 (1974); Ozark Kenworth, Inc. v. Neidecker, 283 Ark. 196, 672 S.W.2d 899 (1984); Caterpillar Tractor Co. v. Waterson, 13 Ark. App. 77, 679 S.W.2d 814 (1984); Precision Steel Whse., Inc. v. Anderson-Martin Mach. Co., 313 Ark. 258, 854 S.W.2d 321 (1993); Indus. Elec. Supply, Inc. v. Lytle Mfg., L.L.C., 94 Ark. App. 81, 226 S.W.3d 1 (2006).

4-2-715. Buyer's incidental and consequential damages.

  1. Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.
  2. Consequential damages resulting from the seller's breach include
    1. any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and
    2. injury to person or property proximately resulting from any breach of warranty.

History. Acts 1961, No. 185, § 2-715; A.S.A. 1947, § 85-2-715.

Research References

Ark. L. Notes.

Smolla, What Types of Losses are Recoverable Under Arkansas's Products Liability Law, 1984 Ark. L. Notes 11.

Ark. L. Rev.

Contracts — Damages — The Tacit Agreement Doctrine in Arkansas, 18 Ark. L. Rev. 169.

Voucher to Products Liability: The Mechanics of U.C.C. § 2-607(5)(a), 29 Ark. L. Rev. 486.

Notes, Ozark Kenworth, Inc. v. Neidecker: A Buyer's Continued Use of Goods After Revocation of Acceptance, 38 Ark. L. Rev. 857.

Case Note, Stifft's Jewelers v. Oliver: The Tacit Agreement Test, etc., 40 Ark. L. Rev. 403.

U. Ark. Little Rock L.J.

Survey of Arkansas Law, Business Law, 1 U. Ark. Little Rock L.J. 118.

Case Notes

Consequential Damages.

Where drainage machinery was not delivered and assembled until around May 1, 1965, purchaser was not entitled to consequential damages for failure of 1965 soybean crops because of alleged failure of machinery to perform, and there was no evidence vendor had reason to know purchaser was relying on this machinery for 1965 soybean crop. Marion Power Shovel Co. v. Huntsman, 246 Ark. 152, 437 S.W.2d 784 (1969).

Judgment granting consequential damages to lessee of television equipment could not stand where award was based in part on delay in furnishing equipment and nothing in the record supported finding that lessor had guaranteed or warranted that equipment would be in operating order by particular date. KLPR TV, Inc. v. Visual Electronics Corp., 465 F.2d 1382 (8th Cir. 1972).

In an action upon repudiation by seller of a contract for sale of farm equipment, consequential damages would include loss resulting from particular needs of which the seller at time of contracting had reason to know and which could not reasonably be prevented. Lake Village Implement Co. v. Cox, 252 Ark. 224, 478 S.W.2d 36 (1972).

Whether an item of damage falls within subdivision (2)(a) is dependent upon factual determinations which are to be made by the trier of fact. Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988).

Consequential damages or anticipated profits may be recovered if the evidence establishes the alleged damages with reasonable certainty. Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988).

Anticipated profits may be recoverable as consequential damages if the jury finds that the losses resulted from the buyer's general or particular requirements of which the seller had reason to know and could not have been prevented by cover. Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988).

Upon failure of seller's limited remedy's essential purpose, buyer was then entitled to any of the buyer's remedies provided by the Uniform Commercial Code, and included among them are consequential damages provided in this section. Great Dane Trailer Sales, Inc. v. Malvern Pulpwood, Inc., 301 Ark. 436, 785 S.W.2d 13 (1990).

Evidence.

Evidence that buyer purchased truck for a particular purpose, that he attempted to minimize damages by substituting truck, that he always had commercial loads available, that he had a lease contract during the time the truck was “down” due to the alleged malfunctioning and that he suffered loss of profits according to his business records, was competent and admissible on issue of consequential damages. Gramling v. Baltz, 253 Ark. 352, 485 S.W.2d 183 (1972).

Tractor buyer's proof of consequential damages resulting from tractor seller's alleged failure to deliver tractor hitch lacked the reasonable certainty necessary to recovery, since the evidence presented was insufficient to take the question of anticipated profits or consequential damages out of the realm of speculation and conjecture and would present to the jury an incomplete set of figures as to anticipated profits. Traylor v. Huntsman, 253 Ark. 704, 488 S.W.2d 30 (1972).

In action to revoke acceptance of drilling rig, wherein buyer did not show proof of past profits or explain failure to use other rig in order to minimize losses, denial of recovery of lost profits resulting from continual breakdowns of new drilling rig was not against the preponderance of the evidence. Snow v. C.I.T. Corp. of South, Inc., 278 Ark. 554, 647 S.W.2d 465 (1983).

Failure to Give Notice.

The trial court found that the buyer had not timely rescinded the transaction, the buyer was limited to the remedies available for a breach of contract in regard to the accepted goods, and the buyer was not entitled to an award of damages under either this section or § 4-2-714 since the buyer failed to give notice of the alleged breach to the seller within a reasonable time after the buyer discovered or should have discovered the breach. Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980).

Loss of Profits.

Recovery of loss of profits due to breach of warranty must take into account different market conditions, actual production capacity, type of operation, its efficiency and all other relevant factors influencing amount of profits during the period that profits are recoverable and the years used for comparative purposes. Lewis v. Mobil Oil Corp., 438 F.2d 500 (8th Cir. 1971).

Damages, under this section and § 4-2-714(2), and (3), for supply of improper oil to use in hydraulic system in saw mill included direct expenses and loss of profits for period during which the oil was used but did not include loss of profits which occurred after plaintiff stopped using the oil and where this loss was due to plaintiff's lack of capital resources. Lewis v. Mobil Oil Corp., 438 F.2d 500 (8th Cir. 1971).

Evidence supported an award for lost profits, where there was substantial evidence introduced showing that appellee suffered a loss in profits as a consequence of the breach, and there was substantial evidence presented as to the amount of its loss. The type of loss was also one that could be reasonably expected to flow from the breach. Tremco, Inc. v. Valley Aluminum Prods. Corp., 38 Ark. App. 143, 831 S.W.2d 156 (1992).

Lost Time.

The buyer of a computer-assisted electrocardiographic system was not entitled to an award of damages for “lost time” which represented the time an employee was away from his other duties because of the increased time spent with the computer system due to its failure to operate as warranted, where there was no evidence that the employee requested payment for the special services or that the parties intended such a payment to be made. Wilson v. Marquette Elecs., Inc., 630 F.2d 575 (8th Cir. 1980).

Particular Needs.

The plaintiff was not entitled to consequential damages arising from a breach of contract for the sale of a car where he never presented evidence that, at the time of the contract, the defendants had reason to know his particular needs for the car. Smith v. Russ, 70 Ark. App. 23, 13 S.W.3d 920 (2000).

Pleading.

In absence of an appropriate pleading setting out basis of claim for consequential damages or any specific findings supporting such damages and describing the time period in which they occurred, award must be set aside. KLPR TV, Inc. v. Visual Electronics Corp., 465 F.2d 1382 (8th Cir. 1972).

There was no need for purchaser to plead cover in action to recover consequential damages for breach of warranty. Kohlenberger, Inc. v. Tyson's Foods, Inc., 256 Ark. 584, 510 S.W.2d 555 (1974).

In the absence of allegations of any effective rejection or revocation of acceptance, purchaser was not entitled to recover purchase price and its damages were limited to the difference at the time of acceptance between the value of the merchandise had it been as warranted and its actual value. Kohlenberger, Inc. v. Tyson's Foods, Inc., 256 Ark. 584, 510 S.W.2d 555 (1974).

Repairs.

If the jury found for the buyer on the question of liability, they must fix the amount of money that would reasonably compensate him for the reasonable expense of necessary repairs to any property which was damaged, if the damage was proximately caused by the breach of the implied warranties by seller, given the relationship between § 4-2-714(2), (3), and subsections (1) and (2)(b) of this section. F.L. Davis Bldrs. Supply, Inc. v. Knapp, 42 Ark. App. 52, 853 S.W.2d 288 (1993).

Use of Goods.

A party is required to take reasonable steps to minimize damages, and under this principle lessee could not continue to use rejected equipment indefinitely and thereby build up consequential damages. KLPR TV, Inc. v. Visual Electronics Corp., 465 F.2d 1382 (8th Cir. 1972).

In action by seller of panels for price of last shipment in which buyer counterclaimed for damages caused by the fact that the panels were of a lighter weight than that ordered, the issue was not acceptance or rejection, but revocation of acceptance, and use of the last shipment despite knowledge of its unsuitability did not bar counterclaim for damages for nonconformity of the original shipment. Jones v. Atkins, 254 Ark. 472, 494 S.W.2d 448 (1973).

In a breach of warranty action when the buyer uses the nonconforming goods, the mere acceptance of the goods does not bar a claim for damages due to nonconformity, when it is reasonable to use the goods without inspection. Hanna Lumber Co. v. Neff, 265 Ark. 462, 579 S.W.2d 95 (1979).

Cited: L.A. Green Seed Co. v. Williams, 246 Ark. 463, 438 S.W.2d 717 (1969); Continental Moss-Gordin, Inc. v. Beaton, 247 Ark. 426, 446 S.W.2d 226 (1969); Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Ford Motor Co. v. Reid, 250 Ark. 176, 465 S.W.2d 80 (1971); Stimson Tractor Co. v. Heflin, 257 Ark. 263, 516 S.W.2d 379 (1974); Morrow v. First Nat'l Bank, 261 Ark. 568, 550 S.W.2d 429 (1977); Ozark Kenworth, Inc. v. Neidecker, 283 Ark. 196, 672 S.W.2d 899 (1984); Caterpillar Tractor Co. v. Waterson, 13 Ark. App. 77, 679 S.W.2d 814 (1984); Grand State Mktg. v. Eastern Poultry Distribs., 63 Ark. App. 123, 975 S.W.2d 439 (1998).

4-2-716. Buyer's right to specific performance or replevin.

  1. Specific performance may be decreed where the goods are unique or in other proper circumstances.
  2. The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just.
  3. The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered. In the case of goods bought for personal, family, or household purposes, the buyer's right of replevin vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver.

History. Acts 1961, No. 185, § 2-716; A.S.A. 1947, § 85-2-716; Acts 2001, No. 1439, § 8.

Amendments. The 2001 amendment added the last sentence in (3).

Research References

Ark. L. Notes.

Brill, Specific Performance in Arkansas, 1995 Ark. L. Notes 17.

Ark. L. Rev.

Remedies — Specific Performance and Long Term Supply Contracts: An Application of U.C.C. § 2-716, 30 Ark. L. Rev. 65.

Case Notes

Specific Performance.

The trial court's order of specific performance of a contract for the sale of a mobile home was improper since there were no allegations or proof by the purchasers that the particular mobile home in question had a unique or peculiar value or that there were any circumstances requiring specific performance of the contract; however, the purchasers were entitled to damages for the breach of the sales contract. Pierce-Odom, Inc. v. Evenson, 5 Ark. App. 67, 632 S.W.2d 247 (1982).

While it is generally true that in order to obtain a decree of specific performance of a contract for the sale of personal property, it must be shown that the property is “unique,” this rule has no applicability to real property because the law regards land as unique. Shelton v. Keller, 24 Ark. App. 68, 748 S.W.2d 153 (1988).

4-2-717. Deduction of damages from the price.

The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract.

History. Acts 1961, No. 185, § 2-717; A.S.A. 1947, § 85-2-717.

Case Notes

Proof of Damages.

In a debt-defense context, supplier was not required to prove vendor-specific damages with mathematical accuracy to defeat the vendors' motions for summary judgment but rather it simply had to offer evidence that it was damaged by defects in each of the vendor's products; accordingly, the circuit court erred in requiring the supplier to allocate an exact amount of damages to each vendor in the debt-offset context. Mt. Pure, L.L.C. v. Affiliated Foods Southwest, Inc., 96 Ark. App. 346, 241 S.W.3d 774 (2006).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970).

4-2-718. Liquidation or limitation of damages — Deposits.

  1. Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
  2. Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds
    1. the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1); or
    2. in the absence of such terms, twenty percent (20%) of the value of the total performance for which the buyer is obligated under the contract or five hundred dollars ($500), whichever is smaller.
  3. The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes
    1. a right to recover damages under the provisions of this chapter other than subsection (1); and
    2. the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.
  4. Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purpose of subsection (2); but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this chapter on resale by an aggrieved seller (§ 4-2-706).

History. Acts 1961, No. 185, § 2-718; A.S.A. 1947, § 85-2-718.

Research References

Ark. L. Rev.

Unconscionable Contracts and the Uniform Commercial Code, 20 Ark. L. Rev. 165.

Chaney, Comments: Utilization of Disclaimer of Warranty Clauses Under the UCC, 32 Ark. L. Rev. 772.

Case Notes

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Dessert Seed Co. v. Drew Farmers Supply, Inc., 248 Ark. 858, 454 S.W.2d 307 (1970).

4-2-719. Contractual modification or limitation of remedy.

  1. Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages,
    1. the agreement may provide for remedies in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts; and
    2. resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.
  2. Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this subtitle.
  3. Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.

History. Acts 1961, No. 185, § 2-719; A.S.A. 1947, § 85-2-719.

Research References

Ark. L. Notes.

Smolla, What Types of Losses are Recoverable Under Arkansas's Products Liability Law, 1984 Ark. L. Notes 11.

Ark. L. Rev.

Unconscionable Contracts and the Uniform Commercial Code, 20 Ark. L. Rev. 165.

The Legal Kaleidoscope — Products Liability, 21 Ark. L. Rev. 301.

Legislative Note — Act 111 of 1973: An Act to Impose Liability for Injury and Damages Done in Certain Circumstances by Defective Products, 27 Ark. L. Rev. 562.

The Personal Injury Action in Warranty — Has the Arkansas Strict Liability Statute Rendered It Obsolete? 28 Ark. L. Rev. 335.

Comments: The “Battle” of Contract Formation Under the UCC — Win, Lose or Draw?, Chaney, 32 Ark. L. Rev. 528.

Chaney, Comments: Utilization of Disclaimer of Warranty Clauses Under the UCC, 32 Ark. L. Rev. 772.

Case Notes

In General.

A limitation of remedies under this section restricts the remedies available to the buyer once a breach is established. Caterpillar Tractor Co. v. Waterson, 13 Ark. App. 77, 679 S.W.2d 814 (1984).

Evidence.

Provisions in sales contract limiting liability were admissible in breach of warranty suit not as a defense to the action, but to be considered in determining purchaser's right to consequential damages. Kohlenberger, Inc. v. Tyson's Foods, Inc., 256 Ark. 584, 510 S.W.2d 555 (1974).

Exclusive Remedy.

The purpose of an exclusive remedy of replacement or repair of defective parts is to give the seller an opportunity to make the goods conforming, while limiting the risks to which he is subject, by excluding direct and consequential damages that might otherwise arise. From the point of view of the buyer, the purpose of the exclusive remedy is to give him goods that conform to the contract within a reasonable time after a defective part is discovered. When the warrantor fails to correct the defect as promised within a reasonable time, he is liable for a breach of that warranty. Caterpillar Tractor Co. v. Waterson, 13 Ark. App. 77, 679 S.W.2d 814 (1984).

Failure of Essential Purpose.

Where the seller was given reasonable opportunity to correct the defect or defects, and the machinery nevertheless failed to operate as should new machinery free of defects, the limited remedy failed of its essential purpose. Caterpillar Tractor Co. v. Waterson, 13 Ark. App. 77, 679 S.W.2d 814 (1984).

Subsection (2) of this section is to apply whenever an exclusive remedy, which may have appeared fair and reasonable at the inception of the contract, as a result of later circumstances, operates to deprive a party of a substantial benefit of the bargain. Caterpillar Tractor Co. v. Waterson, 13 Ark. App. 77, 679 S.W.2d 814 (1984).

It was proper to instruct the jury on failure of essential purpose, where the evidence established that appellant was in breach of warranty. Caterpillar Tractor Co. v. Waterson, 13 Ark. App. 77, 679 S.W.2d 814 (1984).

A limitation of the remedy to the repair and replacement of nonconforming parts fails whenever the warrantor, given the opportunity to do so, fails to correct the defect within a reasonable period. Great Dane Trailer Sales, Inc. v. Malvern Pulpwood, Inc., 301 Ark. 436, 785 S.W.2d 13 (1990).

Upon failure of seller's limited remedy's essential purpose, buyer was then entitled to any of the buyer's remedies provided by the Uniform Commercial Code, and included among them are consequential damages provided in § 4-2-715. Great Dane Trailer Sales, Inc. v. Malvern Pulpwood, Inc., 301 Ark. 436, 785 S.W.2d 13 (1990).

The “failure of essential purpose” exception is most commonly applied when the buyer's remedy is exclusively limited to repair or replacement of defective goods, and the seller is unable to repair or replace the goods to conform to the warranty. The failure of essential purpose exception is not applicable, where the defendant has not limited plaintiff's remedy to repair or replacement of the defective goods and has only limited its liability for consequential damages. Ciba-Geigy Corp. v. Alter, 309 Ark. 426, 834 S.W.2d 136 (1992).

Unconscionable Limitations.

In an action for breach of implied warranty seeking damages for wrongful death of the driver-owner of a pickup truck alleged to have resulted from a defective axle, a warranty provision providing that the warranty should be fulfilled by the replacement or repair of the defective part was unconscionable within the meaning of subsection (3) of this section. Ford Motor Co. v. Tritt, 244 Ark. 883, 430 S.W.2d 778 (1968).

The only restriction on the limitation or exclusion of consequential damages is that such limitation or exclusion cannot be unconscionable. Gramling v. Baltz, 253 Ark. 352, 485 S.W.2d 183 (1972).

Absent disparity of bargaining power, and with both parties knowledgeable, a contract intentionally and clearly disclaiming liability for loss of profits was not unconscionable. Cryogenic Equip., Inc. v. Southern Nitrogen, Inc., 490 F.2d 696 (8th Cir. 1974).

The issue of unconscionability is one requiring factual development and determination. Young v. American Cyanamid Co., 786 F. Supp. 781 (E.D. Ark. 1991).

Unconscionability must be determined in light of general commercial background, commercial needs in the trade or the particular case, the relative bargaining position of the parties, and other circumstances existing when the contract was made. Ciba-Geigy Corp. v. Alter, 309 Ark. 426, 834 S.W.2d 136 (1992).

Validity of Limitations.

A statement in fine print on a tag attached to the containing bag that warranty of tomato seed was limited to the price of seed and disclaiming liability for the crop was no defense to an action against a seed distributor from whom “Pink Shipper” tomato seed had been ordered by telephone and who shipped seed of another unmarketable variety in a bag labelled in large letters on the tag, “Pink Shippers.” Dessert Seed Co. v. Drew Farmers Supply, Inc., 248 Ark. 858, 454 S.W.2d 307 (1970).

Disclaimer in paragraph dealing with “obligations” and “warranties” purporting to make the repair remedy exclusive was not sufficient as a limitation of remedies, since remedies are not “obligations,” and if manufacturer had intended the repair remedy to be exclusive, it should have stated that intention in express language. Ford Motor Co. v. Reid, 250 Ark. 176, 465 S.W.2d 80 (1971).

Warranty which provided that it was “in lieu of all other warranties, express or implied … and all other obligations or liabilities including liability for incidental and consequential damages” fell short of a limitation and exclusion. Gramling v. Baltz, 253 Ark. 352, 485 S.W.2d 183 (1972).

An otherwise valid limitation of remedy contained in a contract is avoided by the buyer if the limitation fails of its essential purpose or is unconscionable. Caterpillar Tractor Co. v. Waterson, 13 Ark. App. 77, 679 S.W.2d 814 (1984).

Where the contractual language clearly limited the buyer's remedies to the purchase price, and plaintiffs presented no argument that the warranty failed of its essential purpose or is unconscionable, the remedy limitation applied. Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970).

4-2-720. Effect of “cancellation” or “rescission” on claims for antecedent breach.

Unless the contrary intention clearly appears, expressions of “cancellation” or “rescission” of the contract or the like shall not be construed as a renunciation or discharge of any claim in damages for an antecedent breach.

History. Acts 1961, No. 185, § 2-720; A.S.A. 1947, § 85-2-720.

Case Notes

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980).

4-2-721. Remedies for fraud.

Remedies for material misrepresentation or fraud include all remedies available under this chapter for non-fraudulent breach. Neither rescission or a claim for rescission of the contract for sale nor rejection or return of the goods shall bar or be deemed inconsistent with a claim for damages or other remedy.

History. Acts 1961, No. 185, § 2-721; A.S.A. 1947, § 85-2-721.

Case Notes

In General.

Nothing in this section says one may recover both a restitutionary award based on rescission and damages for fraud; it is no more than a repudiation of the preliminary election of remedies doctrine. The fact that “claims” based on revocation of acceptance of goods or rescission (disaffirmance of contract) and deceit (contract affirmance) are not to be regarded as inconsistent does not mean that “recoveries” on both theories are to be permitted. Thomas Auto Co. v. Craft, 297 Ark. 492, 763 S.W.2d 651 (1989).

Elements of Deceit.

Deceit consists of five elements which must be proven by a preponderance of the evidence: (1) a false representation of a material fact, (2) knowledge that the representation is false or that there is insufficient evidence upon which to make the representation, (3) intent to induce action or inaction in reliance upon the representation, (4) justifiable reliance, and (5) damage suffered as a result of that reliance. Wheeler Motor Co. v. Roth, 315 Ark. 318, 867 S.W.2d 446 (1993).

Punitive Damages.

One cannot recover punitive damages if the sole cause of action is based in contract; however, one should not be prevented from receiving punitive damages in a contract action where the basis of revocation or rescission is conduct constituting the tort of deceit. Wheeler Motor Co. v. Roth, 315 Ark. 318, 867 S.W.2d 446 (1993).

Punitive damages are available in a deceit action even if restitution rather than compensatory damages is awarded. Wheeler Motor Co. v. Roth, 315 Ark. 318, 867 S.W.2d 446 (1993).

Rescission.

Although rescission of a contract is an equitable remedy, the right of restitution after rescission can be and has been asserted along with allegations of breach of warranty and the tort of deceit. Wheeler Motor Co. v. Roth, 315 Ark. 318, 867 S.W.2d 446 (1993).

Revocation.

An award of restitution for valid revocation in addition to punitive damages is acceptable if the elements of the tort of deceit are proven. Wheeler Motor Co. v. Roth, 315 Ark. 318, 867 S.W.2d 446 (1993).

Consumers rightfully revoked acceptance of an automobile purchase contract, and were properly awarded both compensatory and punitive damages, even though they had been driving the car almost two years, where the revocation occurred immediately after the consumers discovered that the car, sold as new, had previously been in a wreck and repainted. Wheeler Motor Co. v. Roth, 315 Ark. 318, 867 S.W.2d 446 (1993).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d 637 (1980); Ozark Kenworth, Inc. v. Neidecker, 283 Ark. 196, 672 S.W.2d 899 (1984).

4-2-722. Who can sue third parties for injury to goods.

Where a third party so deals with goods which have been identified to a contract for sale as to cause actionable injury to a party to that contract

  1. a right of action against the third party is in either party to the contract for sale who has title to or a security interest or a special property or an insurable interest in the goods; and if the goods have been destroyed or converted a right of action is also in the party who either bore the risk of loss under the contract for sale or has since the injury assumed that risk as against the other;
  2. if at the time of the injury the party plaintiff did not bear the risk of loss as against the other party to the contract for sale and there is no arrangement between them for disposition of the recovery, his suit or settlement is, subject to his own interest, as a fiduciary for the other party to the contract;
  3. either party may with the consent of the other sue for the benefit of whom it may concern.

History. Acts 1961, No. 185, § 2-722; A.S.A. 1947, § 85-2-722.

4-2-723. Proof of market price — Time and place.

  1. If an action based on anticipatory repudiation comes to trial before the time for performance with respect to some or all of the goods, any damages based on market price (§ 4-2-708 or § 4-2-713) shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation.
  2. If evidence of a price prevailing at the times or places described in this chapter is not readily available the price prevailing within any reasonable time before or after the time described or at any other place which in commercial judgment or under usage of trade would serve as a reasonable substitute for the one described may be used, making any proper allowance for the cost of transporting the goods to or from such other place.
  3. Evidence of a relevant price prevailing at a time or place other than the one described in this chapter offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise.

History. Acts 1961, No. 185, § 2-723; A.S.A. 1947, § 85-2-723.

Case Notes

Evidence.

The trial court did not abuse its discretion in permitting the automobile dealer to testify to a national price for the limited issue automobile in order to establish the market price of the automobile at the time of the defendant-seller's breach, where the limited number of the automobiles made it difficult to prove a market price in a given geographic location, and where the buyer's national price was based on sales of those limited edition automobiles that he had made in at least nine states. Chappell Chevrolet, Inc. v. Strickland, 4 Ark. App. 108, 628 S.W.2d 25 (1982).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970).

4-2-724. Admissibility of market quotations.

Whenever the prevailing price or value of any goods regularly bought and sold in any established commodity market is in issue, reports in official publications or trade journals or in newspapers or periodicals of general circulation published as the reports of such market shall be admissible in evidence. The circumstances of the preparation of such a report may be shown to affect its weight but not its admissibility.

History. Acts 1961, No. 185, § 2-724; A.S.A. 1947, § 85-2-724.

Case Notes

Applicability.

The provisions of this section concerning the admissibility of trade journals in evidence had no application to proof where the issue involved usury and truth in lending. Rowe Auto & Trailer Sales, Inc. v. King, 257 Ark. 484, 517 S.W.2d 946 (1975).

4-2-725. Statute of limitations in contracts for sale.

  1. An action for breach of any contract for sale must be commenced within four (4) years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one (1) year but may not extend it.
  2. A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.
  3. Where an action commenced within the time limited by subsection (1) is so terminated as to leave available a remedy by another action for the same breach such other action may be commenced after the expiration of the time limited and within six (6) months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute.
  4. This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action which have accrued before midnight, December 31, 1961.

History. Acts 1961, No. 185, § 2-725; A.S.A. 1947, § 85-2-725.

Research References

ALR.

Causes of action governed by limitations period in UCC § 2-725. 49 A.L.R.5th 1.

Applicability of UCC Article 2 to Mixed Contracts for Sale of Consumer Goods and Services. 1 A.L.R.7th Art. 3 (2015).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Goods and Services: Distributorship, Franchise, and Similar Business Contracts. 8 A.L.R.7th Art. 4 (2015).

Applicability of UCC Article 2 to Mixed Contracts for Sale of Business Goods and Services: Manufacturing, Construction, and Similar Contracts. 15 A.L.R.7th Art. 7 (2015).

Ark. L. Rev.

Unconscionable Contracts and the Uniform Commercial Code, 20 Ark. L. Rev. 165.

Legislative Note — Act 111 of 1973: An Act to Impose Liability for Injury and Damages Done in Certain Circumstances by Defective Products, 27 Ark. L. Rev. 562.

For Whom the Bell Tolls — An Interpretation of the UCC's Exception as to Accrual of a Cause of Action for Future Performance Warranties, 28 Ark. L. Rev. 312.

The Personal Injury Action in Warranty — Has the Arkansas Strict Liability Statute Rendered It Obsolete? 28 Ark. L. Rev. 335.

Note, The Arkansas Product Liability Act of 1979, 35 Ark. L. Rev. 364.

Case Notes

Applicability.

The Arkansas savings statutes, this section and § 16-56-126, apply to actions originally filed in a foreign state where the original action was commenced within the statute of limitations specified for similar causes of action under Arkansas law. LaBarge, Inc. v. Universal Circuits, Inc., 751 F. Supp. 807 (W.D. Ark. 1990).

The three-year statute of limitations found in § 16-116-103 of the Arkansas Product Liability Act of 1979, rather than the general four-year limitation in this section, governs a breach-of-warranty suit when damages for personal injury are sought; the Product Liability Act is both more specific and more recent than Arkansas's adoption of the Uniform Commercial Code. Follette v. Wal-Mart Stores, Inc., 41 F.3d 1234 (8th Cir. 1994).

Appellants' warranty claims were barred by the limitations period of the Arkansas Product Liability Act, § 16-116-103, instead of the limitations period of the Uniform Commercial Code in this section, because a claim for the costs of repairing the buses with corroded flooring would be a claim for property damage within the meaning of the Act, § 16-116-102(5). IC Corp. v. Hoover Treated Wood Prods., 2011 Ark. App. 589, 385 S.W.3d 880 (2011).

Court of appeals did not need to decide whether appellants' claims for “economic loss” were covered by this section, the Uniform Commercial Code, instead of the Arkansas Product Liability Act, § 16-116-103, because appellants failed to plead or present evidence as to lost profits or lost goodwill, matters that had to be specifically pled under Ark. R. Civ. P. 9(g). IC Corp. v. Hoover Treated Wood Prods., 2011 Ark. App. 589, 385 S.W.3d 880 (2011).

Even if the court interpreted the buyer's limited promotional duty as creating a “mixed” contract for the sale of goods and services, the agreement was fundamentally one for the sale of goods, and the Uniform Commercial Code governed; therefore, the four-year statute of limitations applied to the supplier's breach of contract claim. B & B Hardware, Inc. v. Fastenal Co., 688 F.3d 917 (8th Cir. 2012).

Trial court erred in granting summary judgment to a distributor in a manufacturer's breach of contract action and in dismissing a manufacturer's complaint as time-barred because a material fact question existed on whether the parties' transactions embodied a sale-of-goods relationship versus an oral sale-of-services contract. Lucci Corp. v. Breaux Mfg. Co., 2013 Ark. App. 705 (2013).

Claim Barred.

Warranty claim, based on goods delivered more than four years prior to the filing of plaintiff's action, was barred. Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

Statute of limitations began to run no later than June 2005, when the supplier alleged that the buyer failed to perform as required by the agreement; because the complaint was filed on May 3, 2010, well more than four years after the alleged breach in June 2005, the statute of limitations barred the breach-of-contract claim. B & B Hardware, Inc. v. Fastenal Co., 688 F.3d 917 (8th Cir. 2012).

Extension of Warranty.

Action for breach of warranty was barred by this section, where action was not brought until after the expiration of the statutory period, since an implied warranty could not be explicitly extended to future performance. General Motors Corp. v. Tate, 257 Ark. 347, 516 S.W.2d 602 (1974).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Trace X Chem., Inc. v. Gulf Oil Chem. Co., 724 F.2d 68 (8th Cir. 1983); Mobil Exploration & Producing N. Am., Inc. v. Graham Royalty Ltd., 910 F.2d 504 (8th Cir. 1990).

Chapter 2A Leases

Publisher's Notes. Acts 1993, No. 439, § 5, provided that:

“Transactions within the scope of this act and validly entered into before the effective date of this act, and the rights, duties, and interests flowing from them, remain valid thereafter and may be terminated, completed, consummated, or enforced as required or permitted by any statute or other law amended or repealed by this act as though such repeal or amendment had not occurred.”

Research References

ALR.

Computer sales and leases, time when cause of action for failure of performance accrues. 90 A.L.R.4th 298.

U. Ark. Little Rock L.J.

Legislative Survey, Lease Law, 16 U. Ark. Little Rock L.J. 153.

Am. Jur. 8A Am. Jur. 2d, Bailments, § 269 et seq.

Part 1 — General Provisions

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

4-2A-101. Short title.

This chapter shall be known and may be cited as the Uniform Commercial Code — Leases.

History. Acts 1993, No. 439, § 1.

Research References

Ark. L. Rev.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

4-2A-102. Scope.

This chapter applies to any transaction, regardless of form, that creates a lease.

History. Acts 1993, No. 439, § 1.

4-2A-103. Definitions and index of definitions.

  1. In this chapter unless the context otherwise requires:
    1. “Buyer in ordinary course of business” means a person who in good faith and without knowledge that the sale to him or her is in violation of the ownership rights or security interest or leasehold interest of a third party in the goods, buys in ordinary course from a person in the business of selling goods of that kind but does not include a pawnbroker. “Buying” may be for cash or by exchange of other property or on secured or unsecured credit and includes acquiring goods or documents of title under a pre-existing contract for sale but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.
    2. “Cancellation” occurs when either party puts an end to the lease contract for default by the other party.
    3. “Commercial unit” means such a unit of goods as by commercial usage is a single whole for purposes of lease and division of which materially impairs its character or value on the market or in use. A commercial unit may be a single article, as a machine, or a set of articles, as a suite of furniture or a line of machinery, or a quantity, as a gross or carload, or any other unit treated in use or in the relevant market as a single whole.
    4. “Conforming” goods or performance under a lease contract means goods or performance that are in accordance with the obligations under the lease contract.
    5. “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, if the total payments to be made under the lease contract, excluding payments for options to renew or buy, do not exceed twenty-five thousand dollars ($25,000).
    6. “Fault” means wrongful act, omission, breach, or default.
    7. “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 of the following occurs:
        1. 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;
        2. 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;
        3. 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
        4. if the lease is not a consumer lease, the lessor, before the lessee signs the lease contract, informs the lessee in writing (a) 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) that the lessee is entitled under this chapter 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) 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.
    8. “Goods” means all things that are movable at the time of identification to the lease contract, or are fixtures (§ 4-2A-309), but the term does not include money, documents, instruments, accounts, chattel paper, general intangibles, or minerals or the like, including oil and gas, before extraction. The term also includes the unborn young of animals.
    9. “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.
    10. “Lease” means a transfer of the right to possession and use of goods for a term in return for consideration, but a sale, including a sale on approval or a sale or return, or retention or creation of a security interest is not a lease. Unless the context clearly indicates otherwise, the term includes a sublease.
    11. “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 chapter. Unless the context clearly indicates otherwise, the term includes a sublease agreement.
    12. “Lease contract” means the total legal obligation that results from the lease agreement as affected by this chapter and any other applicable rules of law. Unless the context clearly indicates otherwise, the term includes a sublease contract.
    13. “Leasehold interest” means the interest of the lessor or the lessee under a lease contract.
    14. “Lessee” means a person who acquires the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessee.
    15. “Lessee in ordinary course of business” means a person who in good faith and without knowledge that the lease to him or her is in violation of the ownership rights or security interest or leasehold interest of a third party in the goods, leases in ordinary course from a person in the business of selling or leasing goods of that kind but does not include a pawnbroker. “Leasing” may be for cash or by exchange of other property or on secured or unsecured credit and includes acquiring goods or documents of title under a pre-existing lease contract but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.
    16. “Lessor” means a person who transfers the right to possession and use of goods under a lease. Unless the context clearly indicates otherwise, the term includes a sublessor.
    17. “Lessor's residual interest” means the lessor's interest in the goods after expiration, termination, or cancellation of the lease contract.
    18. “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.
    19. “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.
    20. “Merchant lessee” means a lessee that is a merchant with respect to goods of the kind subject to the lease.
    21. “Present value” means the amount as of a date certain of one or more sums payable in the future, discounted to the date certain. The discount is determined by the interest rate specified by the parties if the rate was not manifestly unreasonable at the time the transaction was entered into; otherwise, the discount is determined by a commercially reasonable rate that takes into account the facts and circumstances of each case at the time the transaction was entered into.
    22. “Purchase” includes taking by sale, lease, mortgage, security interest, pledge, gift, or any other voluntary transaction creating an interest in goods.
    23. “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.
    24. “Supplier” means a person from whom a lessor buys or leases goods to be leased under a finance lease.
    25. “Supply contract” means a contract under which a lessor buys or leases goods to be leased.
    26. “Termination” occurs when either party pursuant to a power created by agreement or law puts an end to the lease contract otherwise than for default.
  2. Other definitions applying to this chapter and the sections in which they appear are:
  3. The following definitions in other chapters apply to this chapter:
  4. In addition, Chapter 1 of this title contains general definitions and principles of construction and interpretation applicable throughout this chapter.

“Accessions”. Section 4-2A-310(1).

“Construction mortgage”. Section 4-2A-309(1)(d).

“Encumbrance”. Section 4-2A-309(1)(e).

“Fixtures”. Section 4-2A-309(1)(a).

“Fixture filing”. Section 4-2A-309(1)(b).

“Purchase money lease”. Section 4-2A-309(1)(c).

“Account”. Section 4-9-102(a)(2).

“Between merchants”. Section 4-2-104(3).

“Buyer”. Section 4-2-103(1)(a).

“Chattel paper”. Section 4-9-102(a)(11).

“Consumer goods”. Section 4-9-102(a)(23).

“Document”. Section 4-9-102(a)(30).

“Entrusting”. Section 4-2-403(3).

“General intangible”. Section 4-9-102(a)(42).

“Instrument”. Section 4-9-102(a)(47).

“Merchant”. Section 4-2-104(1).

“Mortgage”. Section 4-9-102(a)(55).

“Pursuant to commitment”. Section 4-9-102(a)(69).

“Receipt”. Section 4-2-103(1)(c).

“Sale”. Section 4-2-106(1).

“Sale on approval”. Section 4-2-326.

“Sale or return”. Section 4-2-326.

“Seller”. Section 4-2-103(1)(d).

History. Acts 1993, No. 439, § 1; 2001, No. 1439, § 9; 2005, No. 856, § 20; 2007, No. 342, §§ 19, 20.

Case Notes

In General.

Assuming that the provisions of the Uniform Commercial Code applied to the lease of a skid-steer loader used for landscaping, an exculpatory clause contained in the lease agreement stating that the leasing company was not responsible for injuries sustained in the use of the loader was not unconscionable; the exculpatory clause was available for the lessee to read when he signed and initialed the agreement and there was no evidence of gross inequality of bargaining power. Jordan v. Diamond Equip. & Supply Co., 362 Ark. 142, 207 S.W.3d 525 (2005).

4-2A-104. Leases subject to other law.

  1. A lease, although subject to this chapter, is also subject to any applicable:
    1. certificate of title statute of this state, including, but not limited to §§ 27-14-801 — 27-14-804 and §§ 27-101-1014 — 27-101-1019, concerning the filing of liens and encumbrances on motor vehicles and motorboats;
    2. certificate of title statute of another jurisdiction (§ 4-2A-105);
    3. consumer protection statute of this state, or final consumer protection decision of a court of this state existing on August 13, 1993.
    4. statute of this state creating conditions for the effectiveness and enforceability of the lease contract, including, but not limited to §§ 6-62-601; 6-62-602; 6-62-603 [Repealed]; 6-62-604 [Repealed]; 6-62-605 — 6-62-613; 12-8-301 — 12-8-310; 14-16-108 — 14-16-110; 14-94-110; 14-138-111; 14-169-1003 and 14-169-1011; 14-184-119; 14-219-101; 14-362-126; 19-1-213; 22-2-114 and 22-2-115; 22-3-1101; 22-4-105; 22-4-501; 23-11-314; 23-112-404; 27-65-114; 28-51-203 and 28-51-303; and 28-72-204; or
    5. statute of this state dealing with a person's capacity or authority to enter into a lease contract.
  2. In case of conflict between this chapter, other than §§ 4-2A-105, 4-2A-304(3), and 4-2A-305(3), and a statute or decision referred to in subsection (1), the statute or decision controls.
  3. Failure to comply with an applicable law has only the effect specified therein.

History. Acts 1993, No. 439, § 1; 2019, No. 733, § 1.

Amendments. The 2019 amendment inserted “and §§ 27-101-101427-101-1019” and “and motorboats” in (1)(a).

Research References

U. Ark. Little Rock L.J.

Note, Arkansas's New Motor Vehicle Quality Assurance Act — A Branch of Hope For Lemon Owners, 16 U. Ark. Little Rock L.J. 493.

4-2A-105. Territorial application of chapter to goods covered by certificate of title.

Subject to the provisions of §§ 4-2A-304(3) and 4-2A-305(3), with respect to goods covered by a certificate of title issued under a statute of this state or of another jurisdiction, compliance and the effect of compliance or noncompliance with a certificate of title statute are governed by the law (including the conflict of laws rules) of the jurisdiction issuing the certificate until the earlier of (a) surrender of the certificate, or (b) four months after the goods are removed from that jurisdiction and thereafter until a new certificate of title is issued by another jurisdiction.

History. Acts 1993, No. 439, § 1.

4-2A-106. Limitation on power of parties to consumer lease to choose applicable law and judicial forum.

  1. If the law chosen by the parties to a consumer lease is that of a jurisdiction other than a jurisdiction in which the lessee resides at the time the lease agreement becomes enforceable or within thirty (30) days thereafter or in which the goods are to be used, the choice is not enforceable.
  2. If the judicial forum chosen by the parties to a consumer lease is a forum that would not otherwise have jurisdiction over the lessee, the choice is not enforceable.

History. Acts 1993, No. 439, § 1.

4-2A-107. Waiver or renunciation of claim or right after default.

Any claim or right arising out of an alleged default or breach of warranty may be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party.

History. Acts 1993, No. 439, § 1.

4-2A-108. Unconscionability.

  1. If the court as a matter of law finds a lease contract or any clause of a lease contract to have been unconscionable at the time it was made the court may refuse to enforce the lease contract, or it may enforce the remainder of the lease contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
  2. With respect to a consumer lease, if the court as a matter of law finds that a lease contract or any clause of a lease contract has been induced by unconscionable conduct or that unconscionable conduct has occurred in the collection of a claim arising from a lease contract, the court may grant appropriate relief.
  3. Before making a finding of unconscionability under subsection (1) or (2), the court, on its own motion or that of a party, shall afford the parties a reasonable opportunity to present evidence as to the setting, purpose, and effect of the lease contract or clause thereof, or of the conduct.
  4. In an action in which the lessee claims unconscionability with respect to a consumer lease:
    1. If the court finds unconscionability under subsection (1) or (2), the court shall award reasonable attorney's fees to the lessee.
    2. If the court does not find unconscionability and the lessee claiming unconscionability has brought or maintained an action he or she knew to be groundless, the court shall award reasonable attorney's fees to the party against whom the claim is made.
    3. In determining attorney's fees, the amount of the recovery on behalf of the claimant under subsections (1) and (2) is not controlling.

History. Acts 1993, No. 439, § 1.

Research References

Ark. L. Notes.

Prettyman, The Landlord Protection Act, Arkansas Code § 18-17-101 et seq., 2008 Ark. L. Notes 71.

Case Notes

Exculpatory Clause.

Assuming that the provisions of the Uniform Commercial Code applied to the lease of a skid-steer loader used for landscaping, an exculpatory clause contained in the lease agreement stating that the leasing company was not responsible for injuries sustained in the use of the loader was not unconscionable; the exculpatory clause was available for the lessee to read when he signed and initialed the agreement and there was no evidence of gross inequality of bargaining power. Jordan v. Diamond Equip. & Supply Co., 362 Ark. 142, 207 S.W.3d 525 (2005).

4-2A-109. Option to accelerate at will.

  1. A term providing that one party or his or her successor in interest may accelerate payment or performance or require collateral or additional collateral “at will” or “when he or she deems himself or herself insecure” or in words of similar import must be construed to mean that he or she has power to do so only if he or she in good faith believes that the prospect of payment or performance is impaired.
  2. With respect to a consumer lease, the burden of establishing lack of good faith under subsection (1) is on the party who exercised the power; otherwise the burden of establishing lack of good faith is on the party against whom the power has been exercised.

History. Acts 1993, No. 439, § 1.

4-2A-110. Terminal rental adjustment clauses for vehicle leases — Not sales or security interests.

In the case of motor vehicles and trailers, notwithstanding any other provision of law, a leasing agreement involving a motor vehicle or trailer shall not create a sales transaction or a security interest in the vehicle merely because the lease contains provisions which provide that the rental price is permitted or required to be adjusted under the agreement either upward or downward based upon an amount which may be realized from a sale or other disposition of the vehicle after the end or termination of the lease period.

History. Acts 1997, No. 370, § 1.

Case Notes

Purchase Option.

Where the debtor-in-possession asserted it had an option to purchase three tractors based on parol evidence that was directly contradicted by the express terms of the parties' agreement, the debtor was required to accept or reject the lease under 11 U.S.C. § 365. A terminal rental adjustment clause did not create a purchase option under this section. In re Double G Trucking of the Arklatex, Inc., 432 B.R. 789 (Bankr. W.D. Ark. 2010).

Part 2 — Formation and Construction of Lease Contract

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

4-2A-201. Statute of frauds.

  1. A lease contract is not enforceable by way of action or defense unless:
    1. the total payments to be made under the lease contract, excluding payments for options to renew or buy, are less than one thousand dollars ($1,000); or
    2. there is a writing, signed by the party against whom enforcement is sought or by that party's authorized agent, sufficient to indicate that a lease contract has been made between the parties and to describe the goods leased and the lease term.
  2. Any description of leased goods or of the lease term is sufficient and satisfies subsection (1)(b), whether or not it is specific, if it reasonably identifies what is described.
  3. A writing is not insufficient because it omits or incorrectly states a term agreed upon, but the lease contract is not enforceable under subsection (1)(b) beyond the lease term and the quantity of goods shown in the writing.
  4. A lease contract that does not satisfy the requirements of subsection (1), but which is valid in other respects, is enforceable:
    1. 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;
    2. if the party against whom enforcement is sought admits in that party's pleading, testimony or otherwise in court that a lease contract was made, but the lease contract is not enforceable under this provision beyond the quantity of goods admitted; or
    3. with respect to goods that have been received and accepted by the lessee.
  5. The lease term under a lease contract referred to in subsection (4) is:
    1. if there is a writing signed by the party against whom enforcement is sought or by that party's authorized agent specifying the lease term, the term so specified;

(2 if the party against whom enforcement is sought admits in that party's pleading, testimony, or otherwise in court a lease term, the term so admitted; or

(3) a reasonable lease term.

History. Acts 1993, No. 439, § 1.

4-2A-202. Final written expression — Parol or extrinsic evidence.

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented:

  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 writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

History. Acts 1993, No. 439, § 1.

4-2A-203. Seals inoperative.

The affixing of a seal to a writing evidencing a lease contract or an offer to enter into a lease contract does not render the writing a sealed instrument and the law with respect to sealed instruments does not apply to the lease contract or offer.

History. Acts 1993, No. 439, § 1.

4-2A-204. Formation in general.

  1. A lease contract may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a lease contract.
  2. An agreement sufficient to constitute a lease contract may be found although the moment of its making is undetermined.
  3. Although one (1) or more terms are left open, a lease contract does not fail for indefiniteness if the parties have intended to make a lease contract and there is a reasonably certain basis for giving an appropriate remedy.

History. Acts 1993, No. 439, § 1.

4-2A-205. Firm offers.

An offer by a merchant to lease goods to or from another person in a signed writing that by its terms gives assurance it will be held open is not revocable, for lack of consideration, during the time stated or, if no time is stated, for a reasonable time, but in no event may the period of irrevocability exceed three (3) months. Any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

History. Acts 1993, No. 439, § 1.

4-2A-206. Offer and acceptance in formation of lease contract.

  1. Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a lease contract must be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.
  2. If the beginning of a requested performance is a reasonable mode of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

History. Acts 1993, No. 439, § 1.

4-2A-207. [Repealed.]

Publisher's Notes. This section, concerning course of performance or practical construction, was repealed by Acts 2005, No. 856, § 21. The section was derived from Acts 1993, No. 439, § 1.

4-2A-208. Modification — Rescission — Waiver.

  1. An agreement modifying a lease contract needs no consideration to be binding.
  2. A signed lease agreement that excludes modification or rescission except by a signed writing may not be otherwise modified or rescinded, but, except as between merchants, such a requirement on a form supplied by a merchant must be separately signed by the other party.
  3. Although an attempt at modification or rescission does not satisfy the requirements of subsection (2), it may operate as a waiver.
  4. A party who has made a waiver affecting an executory portion of a lease contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

History. Acts 1993, No. 439, § 1.

4-2A-209. Lessee under finance lease as beneficiary of supply contract.

  1. The benefit of a supplier's promises to the lessor under the supply contract and of all warranties, whether express or implied, including those of any third party provided in connection with or as part of the supply contract, extends to the lessee to the extent of the lessee's leasehold interest under a finance lease related to the supply contract, but is subject to the terms of the warranty and of the supply contract and all defenses or claims arising therefrom.
  2. The extension of the benefit of a supplier's promises and of warranties to the lessee (§ 4-2A-209(1)) does not: (i) modify the rights and obligations of the parties to the supply contract, whether arising therefrom or otherwise, or (ii) impose any duty or liability under the supply contract on the lessee.
  3. Any modification or rescission of the supply contract by the supplier and the lessor is effective between the supplier and the lessee unless, before the modification or rescission, the supplier has received notice that the lessee has entered into a finance lease related to the supply contract. If the modification or rescission is effective between the supplier and the lessee, the lessor is deemed to have assumed, in addition to the obligations of the lessor to the lessee under the lease contract, promises of the supplier to the lessor and warranties that were so modified or rescinded as they existed and were available to the lessee before modification or rescission.
  4. In addition to the extension of the benefit of the supplier's promises and of warranties to the lessee under subsection (1), the lessee retains all rights that the lessee may have against the supplier which arise from an agreement between the lessee and the supplier or under other law.

History. Acts 1993, No. 439, § 1.

4-2A-210. Express warranties.

  1. Express warranties by the lessor are created as follows:
    1. Any affirmation of fact or promise made by the lessor to the lessee which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods will conform to the affirmation or promise.
    2. Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods will conform to the description.
    3. Any sample or model that is made part of the basis of the bargain creates an express warranty that the whole of the goods will conform to the sample or model.
  2. It is not necessary to the creation of an express warranty that the lessor use formal words, such as “warrant” or “guarantee,” or that the lessor have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the lessor's opinion or commendation of the goods does not create a warranty.

History. Acts 1993, No. 439, § 1.

4-2A-211. Warranties against interference and against infringement — Lessee's obligation against infringement.

  1. There is in a lease contract a warranty that for the lease term no person holds a claim to or interest in the goods that arose from an act or omission of the lessor, other than a claim by way of infringement or the like, which will interfere with the lessee's enjoyment of its leasehold interest.
  2. Except in a finance lease there is in a lease contract by a lessor who is a merchant regularly dealing in goods of the kind a warranty that the goods are delivered free of the rightful claim of any person by way of infringement or the like.
  3. A lessee who furnishes specifications to a lessor or a supplier shall hold the lessor and the supplier harmless against any claim by way of infringement or the like that arises out of compliance with the specifications.

History. Acts 1993, No. 439, § 1.

4-2A-212. Implied warranty of merchantability.

  1. Except in a finance lease, a warranty that the goods will be merchantable is implied in a lease contract if the lessor is a merchant with respect to goods of that kind.
  2. Goods to be merchantable must be at least such as
    1. pass without objection in the trade under the description in the lease agreement;
    2. in the case of fungible goods, are of fair average quality within the description;
    3. are fit for the ordinary purposes for which goods of that type are used;
    4. run, within the variation permitted by the lease agreement, of even kind, quality, and quantity within each unit and among all units involved;
    5. are adequately contained, packaged, and labeled as the lease agreement may require; and
    6. conform to any promises or affirmations of fact made on the container or label.
  3. Other implied warranties may arise from course of dealing or usage of trade.

History. Acts 1993, No. 439, § 1.

4-2A-213. Implied warranty of fitness for particular purpose.

Except in a finance lease, if the lessor at the time the lease contract is made has reason to know of any particular purpose for which the goods are required and that the lessee is relying on the lessor's skill or judgment to select or furnish suitable goods, there is in the lease contract an implied warranty that the goods will be fit for that purpose.

History. Acts 1993, No. 439, § 1.

4-2A-214. Exclusion or modification of warranties.

  1. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit a warranty must be construed wherever reasonable as consistent with each other; but, subject to the provisions of § 4-2A-202 on parol or extrinsic evidence, negation or limitation is inoperative to the extent that the construction is unreasonable.
  2. Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention “merchantability”, be by a writing, and be conspicuous. Subject to subsection (3), to exclude or modify any implied warranty of fitness the exclusion must be by a writing and be conspicuous. Language to exclude all implied warranties of fitness is sufficient if it is in writing, is conspicuous and states, for example, “There is no warranty that the goods will be fit for a particular purpose”.
  3. Notwithstanding subsection (2), but subject to subsection (4),
    1. unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is,” or “with all faults,” or by other language that in common understanding calls the lessee's attention to the exclusion of warranties and makes plain that there is no implied warranty, if in writing and conspicuous;
    2. if the lessee before entering into the lease contract has examined the goods or the sample or model as fully as desired or has refused to examine the goods, there is no implied warranty with regard to defects that an examination ought in the circumstances to have revealed; and
    3. an implied warranty may also be excluded or modified by course of dealing, course of performance, or usage of trade.
  4. To exclude or modify a warranty against interference or against infringement (§ 4-2A-211) or any part of it, the language must be specific, be by a writing, and be conspicuous, unless the circumstances, including course of performance, course of dealing, or usage of trade, give the lessee reason to know that the goods are being leased subject to a claim or interest of any person.

History. Acts 1993, No. 439, § 1.

4-2A-215. Cumulation and conflict of warranties express or implied.

Warranties, whether express or implied, must be construed as consistent with each other and as cumulative, but if that construction is unreasonable, the intention of the parties determines which warranty is dominant. In ascertaining that intention the following rules apply:

  1. Exact or technical specifications displace an inconsistent sample or model or general language of description.
  2. A sample from an existing bulk displaces inconsistent general language of description.
  3. Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose.

History. Acts 1993, No. 439, § 1.

4-2A-216. Third-party beneficiaries of express and implied warranties.

A warranty to or for the benefit of a lessee under this chapter, whether express or implied, extends to any person who may reasonably be expected to use, consume, or be affected by the goods and who is injured by breach of the warranty. The operation of this section may not be excluded, modified, or limited with respect to injury to the person of an individual to whom the warranty extends, but an exclusion, modification, or limitation of the warranty, including any with respect to rights and remedies, effective against the lessee is also effective against the beneficiary designated under this section.

History. Acts 1993, No. 439, § 1.

4-2A-217. Identification.

Identification of goods as goods to which a lease contract refers may be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement, identification occurs:

  1. when the lease contract is made if the lease contract is for a lease of goods that are existing and identified;
  2. when the goods are shipped, marked, or otherwise designated by the lessor as goods to which the lease contract refers, if the lease contract is for a lease of goods that are not existing and identified; or
  3. when the young are conceived, if the lease contract is for a lease of unborn young of animals.

History. Acts 1993, No. 439, § 1.

4-2A-218. Insurance and proceeds.

  1. A lessee obtains an insurable interest when existing goods are identified to the lease contract even though the goods identified are nonconforming and the lessee has an option to reject them.
  2. If a lessee has an insurable interest only by reason of the lessor's identification of the goods, the lessor, until default or insolvency or notification to the lessee that identification is final, may substitute other goods for those identified.
  3. If a lessee has an insurable interest under subsections (1) and (2), the lessor retains an insurable interest until an option to buy has been exercised by the lessee and risk of loss has passed to the lessee.
  4. Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.
  5. The parties by agreement may determine that one (1) or more parties have an obligation to obtain and pay for insurance covering the goods and by agreement may determine the beneficiary of the proceeds of the insurance.

History. Acts 1993, No. 439, § 1.

4-2A-219. Risk of loss.

  1. Except in the case of a finance lease, risk of loss is retained by the lessor and does not pass to the lessee. In the case of a finance lease, risk of loss passes to the lessee.
  2. Subject to the provisions of this chapter on the effect of default on risk of loss (§ 4-2A-220), if risk of loss is to pass to the lessee and the time of passage is not stated, the following rules apply:
    1. If the lease contract requires or authorizes the goods to be shipped by carrier
      1. and it does not require delivery at a particular destination, the risk of loss passes to the lessee when the goods are duly delivered to the carrier; but
      2. if it does require delivery at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the lessee when the goods are there duly so tendered as to enable the lessee to take delivery.
    2. If the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the lessee on acknowledgment by the bailee of the lessee's right to possession of the goods.
    3. In any case not within subsection (a) or (b), the risk of loss passes to the lessee on the lessee's receipt of the goods if the lessor, or, in the case of a finance lease, the supplier, is a merchant; otherwise the risk passes to the lessee on tender of delivery.

History. Acts 1993, No. 439, § 1.

4-2A-220. Effect of default on risk of loss.

  1. Where risk of loss is to pass to the lessee and the time of passage is not stated:
    1. If a tender or delivery of goods so fails to conform to the lease contract as to give a right of rejection, the risk of their loss remains with the lessor, or, in the case of a finance lease, the supplier, until cure or acceptance.
    2. If the lessee rightfully revokes acceptance, he or she, to the extent of any deficiency in his or her effective insurance coverage, may treat the risk of loss as having remained with the lessor from the beginning.
  2. Whether or not risk of loss is to pass to the lessee, if the lessee as to conforming goods already identified to a lease contract repudiates or is otherwise in default under the lease contract, the lessor, or, in the case of a finance lease, the supplier, to the extent of any deficiency in his or her effective insurance coverage may treat the risk of loss as resting on the lessee for a commercially reasonable time.

History. Acts 1993, No. 439, § 1.

4-2A-221. Casualty to identified goods.

If a lease contract requires goods identified when the lease contract is made, and the goods suffer casualty without fault of the lessee, the lessor or the supplier before delivery, or the goods suffer casualty before risk of loss passes to the lessee pursuant to the lease agreement or § 4-2A-219, then:

  1. if the loss is total, the lease contract is avoided; and
  2. if the loss is partial or the goods have so deteriorated as to no longer conform to the lease contract, the lessee may nevertheless demand inspection and at his or her option either treat the lease contract as avoided or, except in a finance lease that is not a consumer lease, accept the goods with due allowance from the rent payable for the balance of the lease term for the deterioration or the deficiency in quantity but without further right against the lessor.

History. Acts 1993, No. 439, § 1.

Part 3 — Effect of Lease Contract

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

4-2A-301. Enforceability of lease contract.

Except as otherwise provided in this chapter, a lease contract is effective and enforceable according to its terms between the parties, against purchasers of the goods and against creditors of the parties.

History. Acts 1993, No. 439, § 1.

4-2A-302. Title to and possession of goods.

Except as otherwise provided in this chapter, each provision of this chapter applies whether the lessor or a third party has title to the goods, and whether the lessor, the lessee, or a third party has possession of the goods, notwithstanding any statute or rule of law that possession or the absence of possession is fraudulent.

History. Acts 1993, No. 439, § 1.

4-2A-303. Alienability of party's interest under lease contract or of lessor's residual interest in goods — Delegation of performance — Transfer of rights.

  1. As used in this section, “creation of a security interest” includes the sale of a lease contract that is subject to Chapter 9, secured transactions, by reason of § 4-9-109(a)(3).
  2. Except as provided in subsection (3) and § 4-9-407, a provision in a lease agreement which (i) prohibits the voluntary or involuntary transfer, including a transfer by sale, sublease, creation or enforcement of a security interest, or attachment, levy, or other judicial process, of an interest of a party under the lease contract or of the lessor's residual interest in the goods, or (ii) makes such a transfer an event of default, gives rise to the rights and remedies provided in subsection (4), but a transfer that is prohibited or is an event of default under the lease agreement is otherwise effective.
  3. A provision in a lease agreement which (i) prohibits a transfer of a right to damages for default with respect to the whole lease contract or of a right to payment arising out of the transferor's due performance of the transferor's entire obligation, or (ii) makes such a transfer an event of default, is not enforceable, and such a transfer is not a transfer that materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on, the other party to the lease contract within the purview of subsection (4).
  4. Subject to subsection (3) and § 4-9-407:
    1. if a transfer is made which is made an event of default under a lease agreement, the party to the lease contract not making the transfer, unless that party waives the default or otherwise agrees, has the rights and remedies described in § 4-2A-501(2);
    2. if paragraph (a) is not applicable and if a transfer is made that (i) is prohibited under a lease agreement or (ii) materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on, the other party to the lease contract, unless the party not making the transfer agrees at any time to the transfer in the lease contract or otherwise, then, except as limited by contract, (i) the transferor is liable to the party not making the transfer for damages caused by the transfer to the extent that the damages could not reasonably be prevented by the party not making the transfer and (ii) a court having jurisdiction may grant other appropriate relief, including cancellation of the lease contract or an injunction against the transfer.
  5. A transfer of “the lease” or of “all my rights under the lease”, or a transfer in similar general terms, is a transfer of rights and, unless the language or the circumstances, as in a transfer for security, indicate the contrary, the transfer is a delegation of duties by the transferor to the transferee. Acceptance by the transferee constitutes a promise by the transferee to perform those duties. The promise is enforceable by either the transferor or the other party to the lease contract.
  6. Unless otherwise agreed by the lessor and the lessee, a delegation of performance does not relieve the transferor as against the other party of any duty to perform or of any liability for default.
  7. In a consumer lease, to prohibit the transfer of an interest of a party under the lease contract or to make a transfer an event of default, the language must be specific, by a writing, and conspicuous.

History. Acts 1993, No. 439, § 1; 2001, No. 1439, § 10.

Amendments. The 2001 amendment rewrote the section.

4-2A-304. Subsequent lease of goods by lessor.

  1. Subject to § 4-2A-303, a subsequent lessee from a lessor of goods under an existing lease contract obtains, to the extent of the leasehold interest transferred, the leasehold interest in the goods that the lessor had or had power to transfer, and except as provided in subsection (2) and § 4-2A-527(4), takes subject to the existing lease contract. A lessor with voidable title has power to transfer a good leasehold interest to a good faith subsequent lessee for value, but only to the extent set forth in the preceding sentence. If goods have been delivered under a transaction of purchase, the lessor has that power even though:
    1. the lessor's transferor was deceived as to the identity of the lessor;
    2. the delivery was in exchange for a check which is later dishonored;
    3. it was agreed that the transaction was to be a “cash sale”; or
    4. the delivery was procured through fraud punishable as larcenous under the criminal law.
  2. A subsequent lessee in the ordinary course of business from a lessor who is a merchant dealing in goods of that kind to whom the goods were entrusted by the existing lessee before the interest of the subsequent lessee became enforceable against that lessor obtains, to the extent of the leasehold interest transferred, all of that lessor's and the existing lessee's rights to the goods, and takes free of the existing lease contract.
  3. A subsequent lessee from the lessor of goods that are subject to an existing lease contract and are covered by a certificate of title issued under a statute of this state or of another jurisdiction takes no greater rights than those provided both by this section and by the certificate of title statute.

History. Acts 1993, No. 439, § 1.

4-2A-305. Sale or sublease of goods by lessee.

  1. Subject to the provisions of § 4-2A-303, a buyer or sublessee from the lessee of goods under an existing lease contract obtains, to the extent of the interest transferred, the leasehold interest in the goods that the lessee had or had power to transfer, and except as provided in subsection (2) and § 4-2A-511(4), takes subject to the existing lease contract. A lessee with a voidable leasehold interest has power to transfer a good leasehold interest to a good faith buyer for value or a good faith sublessee for value, but only to the extent set forth in the preceding sentence. When goods have been delivered under a transaction of lease the lessee has that power even though:
    1. the lessor was deceived as to the identity of the lessee;
    2. the delivery was in exchange for a check which is later dishonored; or
    3. the delivery was procured through fraud punishable as larcenous under the criminal law.
  2. A buyer in the ordinary course of business or a sublessee in the ordinary course of business from a lessee who is a merchant dealing in goods of that kind to whom the goods were entrusted by the lessor obtains, to the extent of the interest transferred, all of the lessor's and lessee's rights to the goods, and takes free of the existing lease contract.
  3. A buyer or sublessee from the lessee of goods that are subject to an existing lease contract and are covered by a certificate of title issued under a statute of this state or of another jurisdiction takes no greater rights than those provided both by this section and by the certificate of title statute.

History. Acts 1993, No. 439, § 1.

4-2A-306. Priority of certain liens arising by operation of law.

If a person in the ordinary course of his or her business furnishes services or materials with respect to goods subject to a lease contract, a lien upon those goods in the possession of that person given by statute or rule of law for those materials or services takes priority over any interest of the lessor or lessee under the lease contract or this chapter unless the lien is created by statute and the statute provides otherwise or unless the lien is created by rule of law and the rule of law provides otherwise.

History. Acts 1993, No. 439, § 1.

4-2A-307. Priority of liens arising by attachment or levy on, security interests in, and other claims to goods.

  1. Except as otherwise provided in § 4-2A-306, a creditor of a lessee takes subject to the lease contract.
  2. Except as otherwise provided in subsection (3) and in §§ 4-2A-306 and 4-2A-308, a creditor of a lessor takes subject to the lease contract unless the creditor holds a lien that attached to the goods before the lease contract became enforceable.
  3. Except as otherwise provided in §§ 4-9-317, 4-9-321, and 4-9-323, a lessee takes a leasehold interest subject to a security interest held by a creditor of the lessor.

History. Acts 1993, No. 439, § 1; 2001, No. 1439, § 11.

Amendments. The 2001 amendment rewrote the section.

4-2A-308. Special rights of creditors.

  1. A creditor of a lessor in possession of goods subject to a lease contract may treat the lease contract as void if as against the creditor retention of possession by the lessor is fraudulent under any statute or rule of law, but retention of possession in good faith and current course of trade by the lessor for a commercially reasonable time after the lease contract becomes enforceable is not fraudulent.
  2. Nothing in this chapter impairs the rights of creditors of a lessor if the lease contract (a) becomes enforceable, not in current course of trade but in satisfaction of or as security for a pre-existing claim for money, security, or the like, and (b) is made under circumstances which under any statute or rule of law apart from this chapter would constitute the transaction a fraudulent transfer or voidable preference.
  3. A creditor of a seller may treat a sale or an identification of goods to a contract for sale as void if as against the creditor retention of possession by the seller is fraudulent under any statute or rule of law, but retention of possession of the goods pursuant to a lease contract entered into by the seller as lessee and the buyer as lessor in connection with the sale or identification of the goods is not fraudulent if the buyer bought for value and in good faith.

History. Acts 1993, No. 439, § 1.

4-2A-309. Lessor's and lessee's rights when goods become fixtures.

  1. In this section:
    1. goods are “fixtures” when they become so related to particular real estate that an interest in them arises under real estate law;
    2. a “fixture filing” is the filing, in the office where a record of a mortgage on the real estate would be filed or recorded, of a financing statement covering goods that are or are to become fixtures and conforming to the requirements of § 4-9-502(a) and (b);
    3. a lease is a “purchase money lease” unless the lessee has possession or use of the goods or the right to possession or use of the goods before the lease agreement is enforceable;
    4. a mortgage is a “construction mortgage” to the extent it secures an obligation incurred for the construction of an improvement on land including the acquisition cost of the land, if the recorded writing so indicates; and
    5. “encumbrance” includes real estate mortgages and other liens on real estate and all other rights in real estate that are not ownership interests.
  2. Under this chapter a lease may be of goods that are fixtures or may continue in goods that become fixtures, but no lease exists under this chapter of ordinary building materials incorporated into an improvement on land.
  3. This chapter does not prevent creation of a lease of fixtures pursuant to real estate law.
  4. The perfected interest of a lessor of fixtures has priority over a conflicting interest of an encumbrancer or owner of the real estate if:
    1. the lease is a purchase money lease, the conflicting interest of the encumbrancer or owner arises before the goods become fixtures, the interest of the lessor is perfected by a fixture filing before the goods become fixtures or within ten (10) days thereafter, and the lessee has an interest of record in the real estate or is in possession of the real estate; or
    2. the interest of the lessor is perfected by a fixture filing before the interest of the encumbrancer or owner is of record, the lessor's interest has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner, and the lessee has an interest of record in the real estate or is in possession of the real estate.
  5. The interest of a lessor of fixtures, whether or not perfected, has priority over the conflicting interest of an encumbrancer or owner of the real estate if:
    1. the fixtures are readily removable factory or office machines, readily removable equipment that is not primarily used or leased for use in the operation of the real estate, or readily removable replacements of domestic appliances that are goods subject to a consumer lease, and before the goods become fixtures the lease contract is enforceable; or
    2. the conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the lease contract is enforceable; or
    3. the encumbrancer or owner has consented in writing to the lease or has disclaimed an interest in the goods as fixtures; or
    4. the lessee has a right to remove the goods as against the encumbrancer or owner. If the lessee's right to remove terminates, the priority of the interest of the lessor continues for a reasonable time.
  6. Notwithstanding subsection (4)(a) but otherwise subject to subsections (4) and (5), the interest of a lessor of fixtures, including the lessor's residual interest, is subordinate to the conflicting interest of an encumbrancer of the real estate under a construction mortgage recorded before the goods become fixtures if the goods become fixtures before the completion of the construction. To the extent given to refinance a construction mortgage, the conflicting interest of an encumbrancer of the real estate under a mortgage has this priority to the same extent as the encumbrancer of the real estate under the construction mortgage.
  7. In cases not within the preceding subsections, priority between the interest of a lessor of fixtures, including the lessor's residual interest, and the conflicting interest of an encumbrancer or owner of the real estate who is not the lessee is determined by the priority rules governing conflicting interests in real estate.
  8. If the interest of a lessor of fixtures, including the lessor's residual interest, has priority over all conflicting interests of all owners and encumbrancers of the real estate, the lessor or the lessee may (i) on default, expiration, termination, or cancellation of the lease agreement but subject to the lease agreement and this chapter, or (ii) if necessary to enforce other rights and remedies of the lessor or lessee under this chapter, remove the goods from the real estate, free and clear of all conflicting interests of all owners and encumbrancers of the real estate, but the lessor or lessee must reimburse any encumbrancer or owner of the real estate who is not the lessee and who has not otherwise agreed for the cost of repair of any physical injury, but not for any diminution in value of the real estate caused by the absence of the goods removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the party seeking removal gives adequate security for the performance of this obligation.
  9. Even though the lease agreement does not create a security interest, the interest of a lessor of fixtures, including the lessor's residual interest, is perfected by filing a financing statement as a fixture filing for leased goods that are or are to become fixtures, including the lessor's residual interest, in accordance with the relevant provisions of the chapter on secured transactions, Chapter 9 of this title.

History. Acts 1993, No. 439, § 1; 2001, No. 1439, § 12.

Amendments. The 2001 amendment, in (1)(b), inserted “record of” and substituted “§ 4-9-502(a) and (b)” for “§ 4-9-402(5).”

Case Notes

Fixtures.

Arkansas courts have adopted a three-part test to determine whether an item is a fixture: (1) whether the item is annexed to the realty; (2) whether the item is appropriate and adapted to the use or purpose of that part of the realty to which the item is connected; and (3) whether the party making annexation intended to make it permanent. Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 169 B.R. 920 (Bankr. E.D. Ark. 1994).

Modular building held not to be a permanent fixture. Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 169 B.R. 920 (Bankr. E.D. Ark. 1994).

4-2A-310. Lessor's and lessee's rights when goods become accessions.

  1. Goods are “accessions” when they are installed in or affixed to other goods.
  2. The interest of a lessor or a lessee under a lease contract entered into before the goods became accessions is superior to all interests in the whole except as stated in subsection (4).
  3. The interest of a lessor or a lessee under a lease contract entered into at the time or after the goods became accessions is superior to all subsequently acquired interests in the whole except as stated in subsection (4) but is subordinate to interests in the whole existing at the time the lease contract was made unless the holders of such interests in the whole have in writing consented to the lease or disclaimed an interest in the goods as part of the whole.
  4. The interest of a lessor or a lessee under a lease contract described in subsection (2) or (3) is subordinate to the interest of
    1. a buyer in the ordinary course of business or a lessee in the ordinary course of business of any interest in the whole acquired after the goods became accessions; or
    2. a creditor with a security interest in the whole perfected before the lease contract was made to the extent that the creditor makes subsequent advances without knowledge of the lease contract.
  5. When under subsections (2) or (3) and (4) a lessor or a lessee of accessions holds an interest that is superior to all interests in the whole, the lessor or the lessee may (a) on default, expiration, termination, or cancellation of the lease contract by the other party but subject to the provisions of the lease contract and this chapter, or (b) if necessary to enforce his or her other rights and remedies under this chapter, remove the goods from the whole, free and clear of all interests in the whole, but he or she must reimburse any holder of an interest in the whole who is not the lessee and who has not otherwise agreed for the cost of repair of any physical injury but not for any diminution in value of the whole caused by the absence of the goods removed or by any necessity for replacing them. A person entitled to reimbursement may refuse permission to remove until the party seeking removal gives adequate security for the performance of this obligation.

History. Acts 1993, No. 439, § 1.

4-2A-311. Priority subject to subordination.

Nothing in this chapter prevents subordination by agreement by any person entitled to priority.

History. Acts 1993, No. 439, § 1.

Part 4 — Performance of Lease Contract: Repudiated, Substituted and Excused

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

4-2A-401. Insecurity — Adequate assurance of performance.

  1. A lease contract imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired.
  2. If reasonable grounds for insecurity arise with respect to the performance of either party, the insecure party may demand in writing adequate assurance of due performance. Until the insecure party receives that assurance, if commercially reasonable the insecure party may suspend any performance for which he or she has not already received the agreed return.
  3. A repudiation of the lease contract occurs if assurance of due performance adequate under the circumstances of the particular case is not provided to the insecure party within a reasonable time, not to exceed thirty (30) days after receipt of a demand by the other party.
  4. Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered must be determined according to commercial standards.
  5. Acceptance of any nonconforming delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.

History. Acts 1993, No. 439, § 1.

4-2A-402. Anticipatory repudiation.

If either party repudiates a lease contract with respect to a performance not yet due under the lease contract, the loss of which performance will substantially impair the value of the lease contract to the other, the aggrieved party may:

  1. for a commercially reasonable time, await retraction of repudiation and performance by the repudiating party;
  2. make demand pursuant to § 4-2A-401 and await assurance of future performance adequate under the circumstances of the particular case; or
  3. resort to any right or remedy upon default under the lease contract or this chapter, even though the aggrieved party has notified the repudiating party that the aggrieved party would await the repudiating party's performance and assurance and has urged retraction. In addition, whether or not the aggrieved party is pursuing one (1) of the foregoing remedies, the aggrieved party may suspend performance or, if the aggrieved party is the lessor, proceed in accordance with the provisions of this chapter on the lessor's right to identify goods to the lease contract notwithstanding default or to salvage unfinished goods (§ 4-2A-524).

History. Acts 1993, No. 439, § 1.

4-2A-403. Retraction of anticipatory repudiation.

  1. Until the repudiating party's next performance is due, the repudiating party can retract the repudiation unless, since the repudiation, the aggrieved party has cancelled the lease contract or materially changed the aggrieved party's position or otherwise indicated that the aggrieved party considers the repudiation final.
  2. Retraction may be by any method that clearly indicates to the aggrieved party that the repudiating party intends to perform under the lease contract and includes any assurance demanded under § 4-2A-401.
  3. Retraction reinstates a repudiating party's rights under a lease contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

History. Acts 1993, No. 439, § 1.

4-2A-404. Substituted performance.

  1. If without fault of the lessee, the lessor and the supplier, the agreed berthing, loading, or unloading facilities fail or the agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable, but a commercially reasonable substitute is available, the substitute performance must be tendered and accepted.
  2. If the agreed means or manner of payment fails because of domestic or foreign governmental regulation:
    1. the lessor may withhold or stop delivery or cause the supplier to withhold or stop delivery unless the lessee provides a means or manner of payment that is commercially a substantial equivalent; and
    2. if delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the lessee's obligation unless the regulation is discriminatory, oppressive, or predatory.

History. Acts 1993, No. 439, § 1.

4-2A-405. Excused performance.

Subject to § 4-2A-404 on substituted performance, the following rules apply:

  1. Delay in delivery or nondelivery in whole or in part by a lessor or a supplier who complies with paragraphs (b) and (c) is not a default under the lease contract if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the lease contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order, whether or not the regulation or order later proves to be invalid.
  2. If the causes mentioned in paragraph (a) affect only part of the lessor's or the supplier's capacity to perform, he or she shall allocate production and deliveries among his or her customers but at his or her option may include regular customers not then under contract for sale or lease as well as his or her own requirements for further manufacture. He or she may so allocate in any manner that is fair and reasonable.
  3. The lessor seasonably shall notify the lessee and in the case of a finance lease the supplier seasonably shall notify the lessor and the lessee, if known, that there will be delay or nondelivery and, if allocation is required under paragraph (b), of the estimated quota thus made available for the lessee.

History. Acts 1993, No. 439, § 1.

4-2A-406. Procedure on excused performance.

  1. If the lessee receives notification of a material or indefinite delay or an allocation justified under § 4-2A-405, the lessee may by written notification to the lessor as to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease contract is substantially impaired (§ 4-2A-510):
    1. terminate the lease contract (§ 4-2A-505(2)); or
    2. except in a finance lease that is not a consumer lease, modify the lease contract by accepting the available quota in substitution, with due allowance from the rent payable for the balance of the lease term for the deficiency but without further right against the lessor.
  2. If, after receipt of a notification from the lessor under § 4-2A-405, the lessee fails so to modify the lease agreement within a reasonable time not exceeding thirty (30) days, the lease contract lapses with respect to any deliveries affected.

History. Acts 1993, No. 439, § 1.

4-2A-407. Irrevocable promises — Finance leases.

  1. In the case of a finance lease that is not a consumer lease the lessee's promises under the lease contract become irrevocable and independent upon the lessee's acceptance of the goods.
  2. A promise that has become irrevocable and independent under subsection (1):
    1. is effective and enforceable between the parties, and by or against third parties including assignees of the parties; and
    2. is not subject to cancellation, termination, modification, repudiation, excuse, or substitution without the consent of the party to whom the promise runs.
  3. This section does not affect the validity under any other law of a covenant in any lease contract making the lessee's promises irrevocable and independent upon the lessee's acceptance of the goods.

History. Acts 1993, No. 439, § 1.

Part 5 — Default

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

ALR.

Computer sales and leases, time when cause of action for failure of performance accrues. 90 A.L.R.4th 298.

A In General

4-2A-501. Default — Procedure.

  1. Whether the lessor or the lessee is in default under a lease contract is determined by the lease agreement and this chapter.
  2. If the lessor or the lessee is in default under the lease contract, the party seeking enforcement has rights and remedies as provided in this chapter and, except as limited by this chapter, as provided in the lease agreement.
  3. If the lessor or the lessee is in default under the lease contract, the party seeking enforcement may reduce the party's claim to judgment, or otherwise enforce the lease contract by self-help or any available judicial procedure or nonjudicial procedure, including administrative proceeding, arbitration, or the like, in accordance with this chapter.
  4. Except as otherwise provided in § 4-1-305(a) or this chapter or the lease agreement, the rights and remedies referred to in subsections (2) and (3) are cumulative.
  5. If the lease agreement covers both real property and goods, the party seeking enforcement may proceed under this part as to the goods, or under other applicable law as to both the real property and the goods in accordance with that party's rights and remedies in respect of the real property, in which case this part does not apply.

History. Acts 1993, No. 439, § 1; 2005, No. 856, § 22.

4-2A-502. Notice after default.

Except as otherwise provided in this chapter or the lease agreement, the lessor or lessee in default under the lease contract is not entitled to notice of default or notice of enforcement from the other party to the lease agreement.

History. Acts 1993, No. 439, § 1.

4-2A-503. Modification or impairment of rights and remedies.

  1. Except as otherwise provided in this chapter, the lease agreement may include rights and remedies for default in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter.
  2. Resort to a remedy provided under this chapter or in the lease agreement is optional unless the remedy is expressly agreed to be exclusive. If circumstances cause an exclusive or limited remedy to fail of its essential purpose, or provision for an exclusive remedy is unconscionable, remedy may be had as provided in this chapter.
  3. Consequential damages may be liquidated under § 4-2A-504, or may otherwise be limited, altered, or excluded unless the limitation, alteration, or exclusion is unconscionable. Limitation, alteration, or exclusion of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation, alteration, or exclusion of damages where the loss is commercial is not prima facie unconscionable.
  4. Rights and remedies on default by the lessor or the lessee with respect to any obligation or promise collateral or ancillary to the lease contract are not impaired by this chapter.

History. Acts 1993, No. 439, § 1.

4-2A-504. Liquidation of damages.

  1. Damages payable by either party for default, or any other act or omission, including indemnity for loss or diminution of anticipated tax benefits or loss or damage to lessor's residual interest, may be liquidated in the lease agreement but only at an amount or by a formula that is reasonable in light of the then anticipated harm caused by the default or other act or omission.
  2. If the lease agreement provides for liquidation of damages, and such provision does not comply with subsection (1), or such provision is an exclusive or limited remedy that circumstances cause to fail of its essential purpose, remedy may be had as provided in this chapter.
  3. If the lessor justifiably withholds or stops delivery of goods because of the lessee's default or insolvency (§ 4-2A-525 or § 4-2A-526), the lessee is entitled to restitution of any amount by which the sum of his or her payments exceeds:
    1. the amount to which the lessor is entitled by virtue of terms liquidating the lessor's damages in accordance with subsection (1); or
    2. in the absence of those terms, 20 percent (20%) of the then present value of the total rent the lessee was obligated to pay for the balance of the lease term, or, in the case of a consumer lease, the lesser of such amount or five hundred dollars ($500).
  4. A lessee's right to restitution under subsection (3) is subject to offset to the extent the lessor establishes:
    1. a right to recover damages under the provisions of this chapter other than subsection (1); and
    2. the amount or value of any benefits received by the lessee directly or indirectly by reason of the lease contract.

History. Acts 1993, No. 439, § 1.

4-2A-505. Cancellation and termination and effect of cancellation, termination, rescission, or fraud on rights and remedies.

  1. On cancellation of the lease contract, all obligations that are still executory on both sides are discharged, but any right based on prior default or performance survives, and the cancelling party also retains any remedy for default of the whole lease contract or any unperformed balance.
  2. On termination of the lease contract, all obligations that are still executory on both sides are discharged but any right based on prior default or performance survives.
  3. Unless the contrary intention clearly appears, expressions of “cancellation,” “rescission,” or the like of the lease contract may not be construed as a renunciation or discharge of any claim in damages for an antecedent default.
  4. Rights and remedies for material misrepresentation or fraud include all rights and remedies available under this chapter for default.
  5. Neither rescission nor a claim for rescission of the lease contract nor rejection or return of the goods may bar or be deemed inconsistent with a claim for damages or other right or remedy.

History. Acts 1993, No. 439, § 1.

4-2A-506. Statute of limitations.

  1. An action for default under a lease contract, including breach of warranty or indemnity, must be commenced within four (4) years after the cause of action accrued. By the original lease contract the parties may reduce the period of limitation to not less than one year.
  2. A cause of action for default accrues when the act or omission on which the default or breach of warranty is based is or should have been discovered by the aggrieved party, or when the default occurs, whichever is later. A cause of action for indemnity accrues when the act or omission on which the claim for indemnity is based is or should have been discovered by the indemnified party, whichever is later.
  3. If an action commenced within the time limited by subsection (1) is so terminated as to leave available a remedy by another action for the same default or breach of warranty or indemnity, the other action may be commenced after the expiration of the time limited and within six (6) months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute.
  4. This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action that have accrued before this chapter becomes effective.

History. Acts 1993, No. 439, § 1.

Research References

ALR.

Computer sales and leases, time when cause of action for failure of performance accrues. 90 A.L.R.4th 298.

4-2A-507. Proof of market rent — Time and place.

  1. Damages based on market rent (§ 4-2A-519 or § 4-2A-528) are determined according to the rent for the use of the goods concerned for a lease term identical to the remaining lease term of the original lease agreement and prevailing at the times specified in §§ 4-2A-519 and 4-2A-528.
  2. If evidence of rent for the use of the goods concerned for a lease term identical to the remaining lease term of the original lease agreement and prevailing at the times or places described in this chapter is not readily available, the rent prevailing within any reasonable time before or after the time described or at any other place or for a different lease term which in commercial judgment or under usage of trade would serve as a reasonable substitute for the one described may be used, making any proper allowance for the difference, including the cost of transporting the goods to or from the other place.
  3. Evidence of a relevant rent prevailing at a time or place or for a lease term other than the one described in this chapter offered by one party is not admissible unless and until he or she has given the other party notice the court finds sufficient to prevent unfair surprise.
  4. If the prevailing rent or value of any goods regularly leased in any established market is in issue, reports in official publications or trade journals or in newspapers or periodicals of general circulation published as the reports of that market are admissible in evidence. The circumstances of the preparation of the report may be shown to affect its weight but not its admissibility.

History. Acts 1993, No. 439, § 1.

B Default by Lessor

4-2A-508. Lessee's remedies.

  1. If a lessor fails to deliver the goods in conformity to the lease contract (§ 4-2A-509) or repudiates the lease contract (§ 4-2A-402), or a lessee rightfully rejects the goods (§ 4-2A-509) or justifiably revokes acceptance of the goods (§ 4-2A-517), then with respect to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease contract is substantially impaired (§ 4-2A-510), the lessor is in default under the lease contract and the lessee may:
    1. cancel the lease contract (§ 4-2A-505(1));
    2. recover so much of the rent and security as has been paid and is just under the circumstances;
    3. cover and recover damages as to all goods affected whether or not they have been identified to the lease contract (§§ 4-2A-518 and 4-2A-520), or recover damages for nondelivery (§§ 4-2A-519 and 4-2A-520);
    4. exercise any other rights or pursue any other remedies provided in the lease contract.
  2. If a lessor fails to deliver the goods in conformity to the lease contract or repudiates the lease contract, the lessee may also:
  3. If a lessor is otherwise in default under a lease contract, the lessee may exercise the rights and pursue the remedies provided in the lease contract, which may include a right to cancel the lease, and in § 4-2A-519(3).
  4. If a lessor has breached a warranty, whether express or implied, the lessee may recover damages (§ 4-2A-519(4)).
  5. On rightful rejection or justifiable revocation of acceptance, a lessee has a security interest in goods in the lessee's possession or control for any rent and security that has been paid and any expenses reasonably incurred in their inspection, receipt, transportation, and care and custody and may hold those goods and dispose of them in good faith and in a commercially reasonable manner, subject to § 4-2A-527(5).
  6. Subject to the provisions of § 4-2A-407, a lessee, on notifying the lessor of the lessee's intention to do so, may deduct all or any part of the damages resulting from any default under the lease contract from any part of the rent still due under the same lease contract.

(5) if the goods have been identified, recover them (§ 4-2A-522); or

(6) in a proper case, obtain specific performance or replevy the goods (§ 4-2A-521).

History. Acts 1993, No. 439, § 1.

4-2A-509. Lessee's rights on improper delivery — Rightful rejection.

  1. Subject to the provisions of § 4-2A-510 on default in installment lease contracts, if the goods or the tender or delivery fail in any respect to conform to the lease contract, the lessee may reject or accept the goods or accept any commercial unit or units and reject the rest of the goods.
  2. Rejection of goods is ineffective unless it is within a reasonable time after tender or delivery of the goods and the lessee seasonably notifies the lessor.

History. Acts 1993, No. 439, § 1.

4-2A-510. Installment lease contracts — Rejection and default.

  1. Under an installment lease contract a lessee may reject any delivery that is nonconforming if the nonconformity substantially impairs the value of that delivery and cannot be cured or the nonconformity is a defect in the required documents; but if the nonconformity does not fall within subsection (2) and the lessor or the supplier gives adequate assurance of its cure, the lessee must accept that delivery.
  2. Whenever nonconformity or default with respect to one or more deliveries substantially impairs the value of the installment lease contract as a whole there is a default with respect to the whole. But, the aggrieved party reinstates the installment lease contract as a whole if the aggrieved party accepts a nonconforming delivery without seasonably notifying of cancellation or brings an action with respect only to past deliveries or demands performance as to future deliveries.

History. Acts 1993, No. 439, § 1.

4-2A-511. Merchant lessee's duties as to rightfully rejected goods.

  1. Subject to any security interest of a lessee (§ 4-2A-508(5)), if a lessor or a supplier has no agent or place of business at the market of rejection, a merchant lessee, after rejection of goods in his or her possession or control, shall follow any reasonable instructions received from the lessor or the supplier with respect to the goods. In the absence of those instructions, a merchant lessee shall make reasonable efforts to sell, lease, or otherwise dispose of the goods for the lessor's account if they threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming.
  2. If a merchant lessee (subsection (1)) or any other lessee (§ 4-2A-512) disposes of goods, he or she is entitled to reimbursement either from the lessor or the supplier or out of the proceeds for reasonable expenses of caring for and disposing of the goods and, if the expenses include no disposition commission, to such commission as is usual in the trade, or if there is none, to a reasonable sum not exceeding 10 percent (10%) of the gross proceeds.
  3. In complying with this section or § 4-2A-512, the lessee is held only to good faith. Good faith conduct hereunder is neither acceptance or conversion nor the basis of an action for damages.
  4. A purchaser who purchases in good faith from a lessee pursuant to this section or § 4-2A-512 takes the goods free of any rights of the lessor and the supplier even though the lessee fails to comply with one (1) or more of the requirements of this chapter.

History. Acts 1993, No. 439, § 1.

4-2A-512. Lessee's duties as to rightfully rejected goods.

  1. Except as otherwise provided with respect to goods that threaten to decline in value speedily (§ 4-2A-511) and subject to any security interest of a lessee (§ 4-2A-508(5)):
    1. the lessee, after rejection of goods in the lessee's possession, shall hold them with reasonable care at the lessor's or the supplier's disposition for a reasonable time after the lessee's seasonable notification of rejection;
    2. if the lessor or the supplier gives no instructions within a reasonable time after notification of rejection, the lessee may store the rejected goods for the lessor's or the supplier's account or ship them to the lessor or the supplier or dispose of them for the lessor's or the supplier's account with reimbursement in the manner provided in § 4-2A-511; but
    3. the lessee has no further obligations with regard to goods rightfully rejected.
  2. Action by the lessee pursuant to subsection (1) is not acceptance or conversion.

History. Acts 1993, No. 439, § 1.

4-2A-513. Cure by lessor of improper tender or delivery — Replacement.

  1. If any tender or delivery by the lessor or the supplier is rejected because nonconforming and the time for performance has not yet expired, the lessor or the supplier may seasonably notify the lessee of the lessor's or the supplier's intention to cure and may then make a conforming delivery within the time provided in the lease contract.
  2. If the lessee rejects a nonconforming tender that the lessor or the supplier had reasonable grounds to believe would be acceptable with or without money allowance, the lessor or the supplier may have a further reasonable time to substitute a conforming tender if he or she seasonably notifies the lessee.

History. Acts 1993, No. 439, § 1.

4-2A-514. Waiver of lessee's objections.

  1. In rejecting goods, a lessee's failure to state a particular defect that is ascertainable by reasonable inspection precludes the lessee from relying on the defect to justify rejection or to establish default:
    1. if, stated seasonably, the lessor or the supplier could have cured it (§ 4-2A-513); or
    2. between merchants if the lessor or the supplier after rejection has made a request in writing for a full and final written statement of all defects on which the lessee proposes to rely.
  2. A lessee's failure to reserve rights when paying rent or other consideration against documents precludes recovery of the payment for defects apparent in the documents.

History. Acts 1993, No. 439, § 1; 2007, No. 342, § 21.

4-2A-515. Acceptance of goods.

  1. Acceptance of goods occurs after the lessee has had a reasonable opportunity to inspect the goods and
    1. the lessee signifies or acts with respect to the goods in a manner that signifies to the lessor or the supplier that the goods are conforming or that the lessee will take or retain them in spite of their nonconformity; or
    2. the lessee fails to make an effective rejection of the goods (§ 4-2A-509(2)).
  2. Acceptance of a part of any commercial unit is acceptance of that entire unit.

History. Acts 1993, No. 439, § 1.

4-2A-516. Effect of acceptance of goods — Notice of default — Burden of establishing default after acceptance — Notice of claim or litigation to person answerable over.

  1. A lessee must pay rent for any goods accepted in accordance with the lease contract, with due allowance for goods rightfully rejected or not delivered.
  2. A lessee's acceptance of goods precludes rejection of the goods accepted. In the case of a finance lease, if made with knowledge of a nonconformity, acceptance cannot be revoked because of it. In any other case, if made with knowledge of a nonconformity, acceptance cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured. Acceptance does not of itself impair any other remedy provided by this chapter or the lease agreement for nonconformity.
  3. If a tender has been accepted:
    1. within a reasonable time after the lessee discovers or should have discovered any default, the lessee shall notify the lessor and the supplier, if any, or be barred from any remedy against the party not notified;
    2. except in the case of a consumer lease, within a reasonable time after the lessee receives notice of litigation for infringement or the like (§ 4-2A-211) the lessee shall notify the lessor or be barred from any remedy over for liability established by the litigation; and
    3. the burden is on the lessee to establish any default.
  4. If a lessee is sued for breach of a warranty or other obligation for which a lessor or a supplier is answerable over the following apply:
    1. The lessee may give the lessor or the supplier, or both, written notice of the litigation. If the notice states that the person notified may come in and defend and that if the person notified does not do so that person will be bound in any action against that person by the lessee by any determination of fact common to the two (2) litigations, then unless the person notified after seasonable receipt of the notice does come in and defend that person is so bound.
    2. The lessor or the supplier may demand in writing that the lessee turn over control of the litigation including settlement if the claim is one for infringement or the like (§ 4-2A-211) or else be barred from any remedy over. If the demand states that the lessor or the supplier agrees to bear all expense and to satisfy any adverse judgment, then unless the lessee after seasonable receipt of the demand does turn over control the lessee is so barred.
  5. Subsections (3) and (4) apply to any obligation of a lessee to hold the lessor or the supplier harmless against infringement or the like (§ 4-2A-211).

History. Acts 1993, No. 439, § 1.

4-2A-517. Revocation of acceptance of goods.

  1. A lessee may revoke acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to the lessee if the lessee has accepted it:
    1. except in the case of a finance lease, on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or
    2. without discovery of the nonconformity if the lessee's acceptance was reasonably induced either by the lessor's assurances or, except in the case of a finance lease, by the difficulty of discovery before acceptance.
  2. Except in the case of a finance lease that is not a consumer lease, a lessee may revoke acceptance of a lot or commercial unit if the lessor defaults under the lease contract and the default substantially impairs the value of that lot or commercial unit to the lessee.
  3. If the lease agreement so provides, the lessee may revoke acceptance of a lot or commercial unit because of other defaults by the lessor.
  4. Revocation of acceptance must occur within a reasonable time after the lessee discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by the nonconformity. Revocation is not effective until the lessee notifies the lessor.
  5. A lessee who so revokes has the same rights and duties with regard to the goods involved as if the lessee had rejected them.

History. Acts 1993, No. 439, § 1.

4-2A-518. Cover — Substitute goods.

  1. After a default by a lessor under the lease contract of the type described in § 4-2A-508(1), or, if agreed, after other default by the lessor, the lessee may cover by making any purchase or lease of or contract to purchase or lease goods in substitution for those due from the lessor.
  2. Except as otherwise provided with respect to damages liquidated in the lease agreement (§ 4-2A-504) or otherwise determined pursuant to agreement of the parties (§§ 4-1-302 and 4-2A-503), if a lessee's cover is by a lease agreement substantially similar to the original lease agreement and the new lease agreement is made in good faith and in a commercially reasonable manner, the lessee may recover from the lessor as damages (i) the present value, as of the date of the commencement of the term of the new lease agreement, of the rent under the new lease agreement applicable to that period of the new lease term which is comparable to the then remaining term of the original lease agreement minus the present value as of the same date of the total rent for the then remaining lease term of the original lease agreement, and (ii) any incidental or consequential damages, less expenses saved in consequence of the lessor's default.
  3. If a lessee's cover is by lease agreement that for any reason does not qualify for treatment under subsection (2), or is by purchase or otherwise, the lessee may recover from the lessor as if the lessee had elected not to cover and § 4-2A-519 governs.

History. Acts 1993, No. 439, § 1; 2005, No. 856, § 23.

4-2A-519. Lessee's damages for non-delivery, repudiation, default, and breach of warranty in regard to accepted goods.

  1. Except as otherwise provided with respect to damages liquidated in the lease agreement (§ 4-2A-504) or otherwise determined pursuant to agreement of the parties (§§ 4-1-302 and 4-2A-503), if a lessee elects not to cover or a lessee elects to cover and the cover is by lease agreement that for any reason does not qualify for treatment under § 4-2A-518(2), or is by purchase or otherwise, the measure of damages for non-delivery or repudiation by the lessor or for rejection or revocation of acceptance by the lessee is the present value, as of the date of the default, of the then market rent minus the present value as of the same date of the original rent, computed for the remaining lease term of the original lease agreement, together with incidental and consequential damages, less expenses saved in consequence of the lessor's default.
  2. Market rent is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.
  3. Except as otherwise agreed, if the lessee has accepted goods and given notification (§ 4-2A-516(3)), the measure of damages for non-conforming tender or delivery or other default by a lessor is the loss resulting in the ordinary course of events from the lessor's default as determined in any manner that is reasonable together with incidental and consequential damages, less expenses saved in consequence of the lessor's default.
  4. Except as otherwise agreed, the measure of damages for breach of warranty is the present value at the time and place of acceptance of the difference between the value of the use of the goods accepted and the value if they had been as warranted for the lease term, unless special circumstances show proximate damages of a different amount, together with incidental and consequential damages, less expenses saved in consequence of the lessor's default or breach of warranty.

History. Acts 1993, No. 439, § 1; 2005, No. 856, § 24.

4-2A-520. Lessee's incidental and consequential damages.

  1. Incidental damages resulting from a lessor's default include expenses reasonably incurred in inspection, receipt, transportation, and care and custody of goods rightfully rejected or goods the acceptance of which is justifiably revoked, any commercially reasonable charges, expenses or commissions in connection with effecting cover, and any other reasonable expense incident to the default.
  2. Consequential damages resulting from a lessor's default include:
    1. any loss resulting from general or particular requirements and needs of which the lessor at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and
    2. injury to person or property proximately resulting from any breach of warranty.

History. Acts 1993, No. 439, § 1.

4-2A-521. Lessee's right to specific performance or replevin.

  1. Specific performance may be decreed if the goods are unique or in other proper circumstances.
  2. A decree for specific performance may include any terms and conditions as to payment of the rent, damages, or other relief that the court deems just.
  3. A lessee has a right of replevin, detinue, sequestration, claim and delivery, or the like for goods identified to the lease contract if after reasonable effort the lessee is unable to effect cover for those goods or the circumstances reasonably indicate that the effort will be unavailing.

History. Acts 1993, No. 439, § 1.

Research References

Ark. L. Notes.

Brill, Specific Performance in Arkansas, 1995 Ark. L. Notes 17.

4-2A-522. Lessee's right to goods on lessor's insolvency.

  1. Subject to subsection (2) and even though the goods have not been shipped, a lessee who has paid a part or all of the rent and security for goods identified to a lease contract (§ 4-2A-217) on making and keeping good a tender of any unpaid portion of the rent and security due under the lease contract may recover the goods identified from the lessor if the lessor becomes insolvent within ten (10) days after receipt of the first installment of rent and security.
  2. A lessee acquires the right to recover goods identified to a lease contract only if they conform to the lease contract.

History. Acts 1993, No. 439, § 1.

C Default by Lessee

4-2A-523. Lessor's remedies.

  1. If a lessee wrongfully rejects or revokes acceptance of goods or fails to make a payment when due or repudiates with respect to a part or the whole, then, with respect to any goods involved, and with respect to all of the goods if under an installment lease contract the value of the whole lease contract is substantially impaired (§ 4-2A-510), the lessee is in default under the lease contract and the lessor may:
    1. cancel the lease contract (§ 4-2A-505(1));
    2. proceed respecting goods not identified to the lease contract (§ 4-2A-524);
    3. withhold delivery of the goods and take possession of goods previously delivered (§ 4-2A-525);
    4. stop delivery of the goods by any bailee (§ 4-2A-526);
    5. dispose of the goods and recover damages (§ 4-2A-527), or retain the goods and recover damages (§ 4-2A-528), or in a proper case recover rent (§ 4-2A-529);
    6. exercise any other rights or pursue any other remedies provided in the lease contract.
  2. If a lessor does not fully exercise a right or obtain a remedy to which the lessor is entitled under subsection (1), the lessor may recover the loss resulting in the ordinary course of events from the lessee's default as determined in any reasonable manner, together with incidental damages, less expenses saved in consequence of the lessee's default.
  3. If a lessee is otherwise in default under a lease contract, the lessor may exercise the rights and pursue the remedies provided in the lease contract, which may include a right to cancel the lease. In addition, unless otherwise provided in the lease contract:
    1. if the default substantially impairs the value of the lease contract to the lessor, the lessor may exercise the rights and pursue the remedies provided in subsections (1) or (2); or
    2. if the default does not substantially impair the value of the lease contract to the lessor, the lessor may recover as provided in subsection (2).

History. Acts 1993, No. 439, § 1.

4-2A-524. Lessor's right to identify goods to lease contract.

  1. After default by the lessee under the lease contract of the type described in § 4-2A-523(1) or § 4-2A-523(3)(a) or, if agreed, after other default by the lessee, the lessor may:
    1. identify to the lease contract conforming goods not already identified if at the time the lessor learned of the default they were in the lessor's or the supplier's possession or control; and
    2. dispose of goods (§ 4-2A-527(1)) that demonstrably have been intended for the particular lease contract even though those goods are unfinished.
  2. If the goods are unfinished, in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization, an aggrieved lessor or the supplier may either complete manufacture and wholly identify the goods to the lease contract or cease manufacture and lease, sell, or otherwise dispose of the goods for scrap or salvage value or proceed in any other reasonable manner.

History. Acts 1993, No. 439, § 1.

4-2A-525. Lessor's right to possession of goods.

  1. If a lessor discovers the lessee to be insolvent, the lessor may refuse to deliver the goods.
  2. After a default by the lessee under the lease contract of the type described in § 4-2A-523(1) or § 4-2A-523(3)(a) or, if agreed, after other default by the lessee, the lessor has the right to take possession of the goods. If the lease contract so provides, the lessor may require the lessee to assemble the goods and make them available to the lessor at a place to be designated by the lessor which is reasonably convenient to both parties. Without removal, the lessor may render unusable any goods employed in trade or business, and may dispose of goods on the lessee's premises (§ 4-2A-527).
  3. The lessor may proceed under subsection (2) without judicial process if it can be done without breach of the peace or the lessor may proceed by action.

History. Acts 1993, No. 439, § 1.

4-2A-526. Lessor's stoppage of delivery in transit or otherwise.

  1. A lessor may stop delivery of goods in the possession of a carrier or other bailee if the lessor discovers the lessee to be insolvent and may stop delivery of carload, truckload, planeload, or larger shipments of express or freight if the lessee repudiates or fails to make a payment due before delivery, whether for rent, security or otherwise under the lease contract, or for any other reason the lessor has a right to withhold or take possession of the goods.
  2. In pursuing its remedies under subsection (1), the lessor may stop delivery until
    1. receipt of the goods by the lessee;
    2. acknowledgment to the lessee by any bailee of the goods, except a carrier, that the bailee holds the goods for the lessee; or
    3. such an acknowledgment to the lessee by a carrier via reshipment or as a warehouse.
    1. To stop delivery, a lessor shall so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods.
    2. After notification, the bailee shall hold and deliver the goods according to the directions of the lessor, but the lessor is liable to the bailee for any ensuing charges or damages.
    3. A carrier who has issued a nonnegotiable bill of lading is not obliged to obey a notification to stop received from a person other than the consignor.

History. Acts 1993, No. 439, § 1; 2007, No. 342, § 22.

4-2A-527. Lessor's rights to dispose of goods.

  1. After a default by a lessee under the lease contract of the type described in § 4-2A-523(1) or § 4-2A-523(3)(a) or after the lessor refuses to deliver or takes possession of goods (§ 4-2A-525 or § 4-2A-526), or, if agreed, after other default by a lessee, the lessor may dispose of the goods concerned or the undelivered balance thereof by lease, sale, or otherwise.
  2. Except as otherwise provided with respect to damages liquidated in the lease agreement (§ 4-2A-504) or otherwise determined pursuant to agreement of the parties (§§ 4-1-302 and 4-2A-503), if the disposition is by lease agreement substantially similar to the original lease agreement and the new lease agreement is made in good faith and in a commercially reasonable manner, the lessor may recover from the lessee as damages (i) accrued and unpaid rent as of the date of the commencement of the term of the new lease agreement, (ii) the present value, as of the same date, of the total rent for the then remaining lease term of the original lease agreement minus the present value, as of the same date, of the rent under the new lease agreement applicable to that period of the new lease term which is comparable to the then remaining term of the original lease agreement, and (iii) any incidental damages allowed under § 4-2A-530, less expenses saved in consequence of the lessee's default.
  3. If the lessor's disposition is by lease agreement that for any reason does not qualify for treatment under subsection (2), or is by sale or otherwise, the lessor may recover from the lessee as if the lessor had elected not to dispose of the goods and § 4-2A-528 governs.
  4. A subsequent buyer or lessee who buys or leases from the lessor in good faith for value as a result of a disposition under this section takes the goods free of the original lease contract and any rights of the original lessee even though the lessor fails to comply with one (1) or more of the requirements of this chapter.
  5. The lessor is not accountable to the lessee for any profit made on any disposition. A lessee who has rightfully rejected or justifiably revoked acceptance shall account to the lessor for any excess over the amount of the lessee's security interest (§ 4-2A-508(5)).

History. Acts 1993, No. 439, § 1; 2005, No. 856, § 25.

4-2A-528. Lessor's damages for non-acceptance, failure to pay, repudiation, or other default.

  1. Except as otherwise provided with respect to damages liquidated in the lease agreement (§ 4-2A-504) or otherwise determined pursuant to agreement of the parties (§§ 4-1-302 and 4-2A-503), if a lessor elects to retain the goods or a lessor elects to dispose of the goods and the disposition is by lease agreement that for any reason does not qualify for treatment under § 4-2A-527(2), or is by sale or otherwise, the lessor may recover from the lessee as damages for a default of the type described in § 4-2A-523(1) or § 4-2A-523(3)(a), or, if agreed, for other default of the lessee, (i) accrued and unpaid rent as of the date of default if the lessee has never taken possession of the goods, or, if the lessee has taken possession of the goods, as of the date the lessor repossesses the goods or an earlier date on which the lessee makes a tender of the goods to the lessor, (ii) the present value as of the date determined under clause (i) of the total rent for the then remaining lease term of the original lease agreement minus the present value as of the same date of the market rent at the place computed for the same lease term, and (iii) any incidental damages allowed under § 4-2A-530, less expenses saved in consequence of the lessee's default.
  2. If the measure of damages provided in subsection (1) is inadequate to put a lessor in as good a position as performance would have, the measure of damages is the present value of the profit, including reasonable overhead, the lessor would have made from full performance by the lessee, together with any incidental damages allowed under § 4-2A-530, due allowance for costs reasonably incurred and due credit for payments or proceeds of disposition.

History. Acts 1993, No. 439, § 1; 2005, No. 856, § 26.

4-2A-529. Lessor's action for the rent.

  1. After default by the lessee under the lease contract of the type described in § 4-2A-523(1) or § 4-2A-523(3)(a) or, if agreed, after other default by the lessee, if the lessor complies with subsection (2), the lessor may recover from the lessee as damages:
    1. for goods accepted by the lessee and not repossessed by or tendered to the lessor, and for conforming goods lost or damaged within a commercially reasonable time after risk of loss passes to the lessee (§ 4-2A-219), (i) accrued and unpaid rent as of the date of entry of judgment in favor of the lessor, (ii) the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and (iii) any incidental damages allowed under § 4-2A-530, less expenses saved in consequence of the lessee's default; and
    2. for goods identified to the lease contract if the lessor is unable after reasonable effort to dispose of them at a reasonable price or the circumstances reasonably indicate that effort will be unavailing, (i) accrued and unpaid rent as of the date of entry of judgment in favor of the lessor, (ii) the present value as of the same date of the rent for the then remaining lease term of the lease agreement, and (iii) any incidental damages allowed under § 4-2A-530, less expenses saved in consequence of the lessee's default.
  2. Except as provided in subsection (3), the lessor shall hold for the lessee for the remaining lease term of the lease agreement any goods that have been identified to the lease contract and are in the lessor's control.
  3. The lessor may dispose of the goods at any time before collection of the judgment for damages obtained pursuant to subsection (1). If the disposition is before the end of the remaining lease term of the lease agreement, the lessor's recovery against the lessee for damages is governed by § 4-2A-527 or § 4-2A-528, and the lessor will cause an appropriate credit to be provided against a judgment for damages to the extent that the amount of the judgment exceeds the recovery available pursuant to § 4-2A-527 or § 4-2A-528.
  4. Payment of the judgment for damages obtained pursuant to subsection (1) entitles the lessee to the use and possession of the goods not then disposed of for the remaining lease term of and in accordance with the lease agreement.
  5. After default by the lessee under the lease contract of the type described in § 4-2A-523(1) or § 4-2A-523(3)(a) or, if agreed, after other default by the lessee, a lessor who is held not entitled to rent under this section must nevertheless be awarded damages for non-acceptance under § 4-2A-527 or § 4-2A-528.

History. Acts 1993, No. 439, § 1.

4-2A-530. Lessor's incidental damages.

Incidental damages to an aggrieved lessor include any commercially reasonable charges, expenses, or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the lessee's default, in connection with return or disposition of the goods, or otherwise resulting from the default.

History. Acts 1993, No. 439, § 1.

4-2A-531. Standing to sue third parties for injury to goods.

  1. If a third party so deals with goods that have been identified to a lease contract as to cause actionable injury to a party to the lease contract (a) the lessor has a right of action against the third party, and (b) the lessee also has a right of action against the third party if the lessee:
    1. has a security interest in the goods;
    2. has an insurable interest in the goods; or
    3. bears the risk of loss under the lease contract or has since the injury assumed that risk as against the lessor and the goods have been converted or destroyed.
  2. If at the time of the injury the party plaintiff did not bear the risk of loss as against the other party to the lease contract and there is no arrangement between them for disposition of the recovery, his or her suit or settlement, subject to his or her own interest, is as a fiduciary for the other party to the lease contract.
  3. Either party with the consent of the other may sue for the benefit of whom it may concern.

History. Acts 1993, No. 439, § 1.

4-2A-532. Lessor's rights to residual interest.

In addition to any other recovery permitted by this chapter or other law, the lessor may recover from the lessee an amount that will fully compensate the lessor for any loss of or damage to the lessor's residual interest in the goods caused by the default of the lessee.

History. Acts 1993, No. 439, § 1.

Chapter 3 Negotiable Instruments

A.C.R.C. Notes. Former Chapter 3, concerning commercial paper was repealed by Acts 1991, No. 572, § 9. Research references noted in Chapter 3 discuss that prior law but may be of some assistance in construing similar provisions in the present Chapter 3.

Publisher's Notes. Former Chapter 3, concerning commercial paper, was repealed by Acts 1991, No. 572, § 9. The former chapter was derived from the following sources:

§ 4-3-101. Acts 1961, No. 185, § 3-101; A.S.A. 1947, § 85-3-101.

§ 4-3-102. Acts 1961, No. 185, § 3-102; A.S.A. 1947, § 85-3-102.

§ 4-3-103. Acts 1961, No. 185, § 3-103; A.S.A. 1947, § 85-3-103.

§ 4-3-104. Acts 1961, No. 185, § 3-104; A.S.A. 1947, § 85-3-104.

§ 4-3-105. Acts 1961, No. 185, § 3-105; 1967, No. 303, § 5; A.S.A. 1947, § 85-3-105.

§ 4-3-106. Acts 1961, No. 185, § 3-106; A.S.A. 1947, § 85-3-106.

§ 4-3-107. Acts 1961, No. 185, § 3-107; A.S.A. 1947, § 85-3-107.

§ 4-3-108. Acts 1961, No. 185, § 3-108; A.S.A. 1947, § 85-3-108.

§ 4-3-109. Acts 1961, No. 185, § 3-109; A.S.A. 1947, § 85-3-109.

§ 4-3-110. Acts 1961, No. 185, § 3-110; A.S.A. 1947, § 85-3-110.

§ 4-3-111. Acts 1961, No. 185, § 3-111; A.S.A. 1947, § 85-3-111.

§ 4-3-112. Acts 1961, No. 185, § 3-112; 1967, No. 303, § 6; A.S.A. 1947, § 85-3-112.

§ 4-3-113. Acts 1961, No. 185, § 3-113; A.S.A. 1947, § 85-3-113.

§ 4-3-114. Acts 1961, No. 185, § 3-114; A.S.A. 1947, § 85-3-114.

§ 4-3-115. Acts 1961, No. 185, § 3-115; A.S.A. 1947, § 85-3-115.

§ 4-3-116. Acts 1961, No. 185, § 3-116; A.S.A. 1947, § 85-3-116.

§ 4-3-117. Acts 1961, No. 185, § 3-117; A.S.A. 1947, § 85-3-117.

§ 4-3-118. Acts 1961, No. 185, § 3-118; A.S.A. 1947, § 85-3-118.

§ 4-3-119. Acts 1961, No. 185, § 3-119; A.S.A. 1947, § 85-3-119.

§ 4-3-120. Acts 1961, No. 185, § 3-120; A.S.A. 1947, § 85-3-120.

§ 4-3-121. Acts 1961, No. 185, § 3-121; A.S.A. 1947, § 85-3-121.

§ 4-3-122. Acts 1961, No. 185, § 3-122; A.S.A. 1947, § 85-3-122.

§ 4-3-201. Acts 1961, No. 185, § 3-201; A.S.A. 1947, § 85-3-201.

§ 4-3-202. Acts 1961, No. 185, § 3-202; A.S.A. 1947, § 85-3-202.

§ 4-3-203. Acts 1961, No. 185, § 3-203; A.S.A. 1947, § 85-3-203.

§ 4-3-204. Acts 1961, No. 185, § 3-204; A.S.A. 1947, § 85-3-204.

§ 4-3-205. Acts 1961, No. 185, § 3-205; A.S.A. 1947, § 85-3-205.

§ 4-3-206. Acts 1961, No. 185, § 3-206; A.S.A. 1947, § 85-3-206.

§ 4-3-207. Acts 1961, No. 185, § 3-207; A.S.A. 1947, § 85-3-207.

§ 4-3-208. Acts 1961, No. 185, § 3-208; A.S.A. 1947, § 85-3-208.

§ 4-3-301. Acts 1961, No. 185, § 3-301; A.S.A. 1947, § 85-3-301.

§ 4-3-302. Acts 1961, No. 185, § 3-302; A.S.A. 1947, § 85-3-302.

§ 4-3-303. Acts 1961, No. 185, § 3-303; A.S.A. 1947, § 85-3-303.

§ 4-3-304. Acts 1961, No. 185, § 3-304; A.S.A. 1947, § 85-3-304.

§ 4-3-305. Acts 1961, No. 185, § 3-305; A.S.A. 1947, § 85-3-305.

§ 4-3-306. Acts 1961, No. 185, § 3-306; A.S.A. 1947, § 85-3-306.

§ 4-3-307. Acts 1961, No. 185, § 3-307; A.S.A. 1947, § 85-3-307.

§ 4-3-401. Acts 1961, No. 185, § 3-401; A.S.A. 1947, § 85-3-401.

§ 4-3-402. Acts 1961, No. 185, § 3-402; A.S.A. 1947, § 85-3-402.

§ 4-3-403. Acts 1961, No. 185, § 3-403; A.S.A. 1947, § 85-3-403.

§ 4-3-404. Acts 1961, No. 185, § 3-404; A.S.A. 1947, § 85-3-404.

§ 4-3-405. Acts 1961, No. 185, § 3-405; A.S.A. 1947, § 85-3-405.

§ 4-3-406. Acts 1961, No. 185, § 3-406; A.S.A. 1947, § 85-3-406.

§ 4-3-407. Acts 1961, No. 185, § 3-407; A.S.A. 1947, § 85-3-407.

§ 4-3-408. Acts 1961, No. 185, § 3-408; A.S.A. 1947, § 85-3-408.

§ 4-3-409. Acts 1961, No. 185, § 3-409; A.S.A. 1947, § 85-3-409.

§ 4-3-410. Acts 1961, No. 185, § 3-410; A.S.A. 1947, § 85-3-410.

§ 4-3-411. Acts 1961, No. 185, § 3-411; A.S.A. 1947, § 85-3-411.

§ 4-3-412. Acts 1961, No. 185, § 3-412; A.S.A. 1947, § 85-3-412.

§ 4-3-413. Acts 1961, No. 185, § 3-413; A.S.A. 1947, § 85-3-413.

§ 4-3-414. Acts 1961, No. 185, § 3-414; A.S.A. 1947, § 85-3-414.

§ 4-3-415. Acts 1961, No. 185, § 3-415; A.S.A. 1947, § 85-3-415.

§ 4-3-416. Acts 1961, No. 185, § 3-416; A.S.A. 1947, § 85-3-416.

§ 4-3-417. Acts 1961, No. 185, § 3-417; A.S.A. 1947, § 85-3-417.

§ 4-3-418. Acts 1961, No. 185, § 3-418; A.S.A. 1947, § 85-3-418.

§ 4-3-419. Acts 1961, No. 185, § 3-419; A.S.A. 1947, § 85-3-419.

§ 4-3-501. Acts 1961, No. 185, § 3-501; 1967, No. 303, § 10; A.S.A. 1947, § 85-3-501.

§ 4-3-502. Acts 1961, No. 185, § 3-502; A.S.A. 1947, § 85-3-502.

§ 4-3-503. Acts 1961, No. 185, § 3-503; A.S.A. 1947, § 85-3-503.

§ 4-3-504. Acts 1961, No. 185, § 3-504; 1967, No. 303, § 11; A.S.A. 1947, § 85-3-504.

§ 4-3-505. Acts 1961, No. 185, § 3-505; A.S.A. 1947, § 85-3-505.

§ 4-3-506. Acts 1961, No. 185, § 3-506; A.S.A. 1947, § 85-3-506.

§ 4-3-507. Acts 1961, No. 185, § 3-507; A.S.A. 1947, § 85-3-507.

§ 4-3-508. Acts 1961, No. 185, § 3-508; A.S.A. 1947, § 85-3-508.

§ 4-3-509. Acts 1961, No. 185, § 3-509; A.S.A. 1947, § 85-3-509.

§ 4-3-510. Acts 1961, No. 185, § 3-510; A.S.A. 1947, § 85-3-510.

§ 4-3-511. Acts 1961, No. 185, § 3-511; A.S.A. 1947, § 85-3-511.

§ 4-3-601. Acts 1961, No. 185, § 3-601; A.S.A. 1947, § 85-3-601.

§ 4-3-602. Acts 1961, No. 185, § 3-602; A.S.A. 1947, § 85-3-602.

§ 4-3-603. Acts 1961, No. 185, § 3-603; A.S.A. 1947, § 85-3-603.

§ 4-3-604. Acts 1961, No. 185, § 3-604; A.S.A. 1947, § 85-3-604.

§ 4-3-605. Acts 1961, No. 185, § 3-605; A.S.A. 1947, § 85-3-605.

§ 4-3-606. Acts 1961, No. 185, § 3-606; A.S.A. 1947, § 85-3-606.

§ 4-3-701. Acts 1961, No. 185, § 3-701; A.S.A. 1947, § 85-3-701.

§ 4-3-801. Acts 1961, No. 185, § 3-801; A.S.A. 1947, § 85-3-801.

§ 4-3-802. Acts 1961, No. 185, § 3-802; A.S.A. 1947, § 85-3-802.

§ 4-3-803. Acts 1961, No. 185, § 3-803; A.S.A. 1947, § 85-3-803.

§ 4-3-804. Acts 1961, No. 185, § 3-804; A.S.A. 1947, § 85-3-804.

§ 4-3-805. Acts 1961, No. 185, § 3-805; A.S.A. 1947, § 85-3-805.

Research References

ALR.

Unintentional cancellation of negotiable instrument under UCC Article 3. 59 A.L.R.4th 617.

Liability of bank for diversion to benefit of presenter or third party of proceeds of check drawn to bank's order by drawer not indebted to bank. 69 A.L.R.4th 778.

What constitutes “dealing” under UCC § 3-305(2), providing that holder in due course takes instrument free from all defenses of any party to instrument with whom holder has not dealt. 42 A.L.R.5th 137.

Construction and effect of “padded payroll” rule of UCC § 3-405. 45 A.L.R.5th 389.

What constitutes “fixed amount of money” for purposes of § 3-104 of Uniform Commercial Code providing that negotiable instrument must contain unconditional promise to pay fixed amount of money. 76 A.L.R.5th 289.

Am. Jur. 11 Am. Jur. 2d, Bills & Notes, § 3 et seq.

Ark. L. Notes.

Copeland, A Statutory Primer: Revised Article 3 of the U.C.C.—Negotiable Instruments, 1992 Ark. L. Notes 65.

Ark. L. Rev.

Commercial Paper: Article III, 16 Ark. L. Rev. 33.

The Uniform Commercial Code and the Arkansas Electronic Funds Transfer System, Hargis, 32 Ark. L. Rev. 470.

Murphey, Revised Article 3 and Amended Article 4 of the Uniform Commercial Code: Comments on the Changes They Will Make, 46 Ark. L. Rev. 501.

C.J.S. 10 C.J.S., Bills & Notes; Letters of Credit, § 1 et seq.

U. Ark. Little Rock L.J.

Murphey, Acceptance and Dishonor: “Payable Through” Drafts and Personal Money Orders, 5 U. Ark. Little Rock L.J. 519.

Verdun, Postdated checks: An old problem with a new solution in the revised U.C.C., 14 U. Ark. Little Rock L.J. 37.

Adams, Problems with the 1990 Revision of Articles 3 and 4 of the Uniform Commercial Code, 15 U. Ark. Little Rock L.J. 665.

Jenkins, Arkansas's Revised Article 3: User Caution Advised!!, 16 U. Ark. Little Rock L.J. 573.

Part 1 — General Provisions and Definitions

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

ALR.

Negotiability: Provision in draft or note directing payment “on acceptance” as affecting. 19 A.L.R.4th 1268.

U. Ark. Little Rock L.J.

Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.

4-3-101. Short title.

This chapter may be cited as Uniform Commercial Code — Negotiable Instruments.

History. Acts 1991, No. 572, § 5.

Research References

Ark. L. Rev.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

4-3-102. Subject matter.

  1. This chapter applies to negotiable instruments. It does not apply to money, to payment orders governed by § 4-4A-101 et seq., or to securities governed by § 4-8-101 et seq.
  2. If there is conflict between this chapter and Chapter 4 or Chapter 9, Chapter 4 and Chapter 9 govern.
  3. Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve banks supersede any inconsistent provision of this chapter to the extent of the inconsistency.

History. Acts 1991, No. 572, § 5.

Case Notes

Bills of Debt.

A bill of debt is a promissory note or a corporate debenture, not a bank account, and is governed by the provisions of this chapter. In re Frazier, 136 B.R. 199 (Bankr. W.D. Ark. 1991).

4-3-103. Definitions.

  1. In this chapter:
    1. “Acceptor” means a drawee who has accepted a draft.
    2. “Consumer transaction” means a transaction in which an individual incurs an obligation primarily for personal, family, or household purposes.
    3. “Drawee” means a person ordered in a draft to make payment.
    4. “Drawer” means a person who signs or is identified in a draft as a person ordering payment.
    5. “Good faith” means honesty in fact and the observance of reasonable commercial standards of fair dealing.
    6. “Maker” means a person who signs or is identified in a note as a person undertaking to pay.
    7. “Order” means a written instruction to pay money signed by the person giving the instruction. The instruction may be addressed to any person, including the person giving the instruction, or to one (1) or more persons jointly or in the alternative but not in succession. An authorization to pay is not an order unless the person authorized to pay is also instructed to pay.
    8. “Ordinary care” in the case of a person engaged in business means observance of reasonable commercial standards, prevailing in the area in which the person is located, with respect to the business in which the person is engaged. In the case of a bank that takes an instrument for processing for collection or payment by automated means, reasonable commercial standards do not require the bank to examine the instrument if the failure to examine does not violate the bank's prescribed procedures and the bank's procedures do not vary unreasonably from general banking usage not disapproved by this chapter or Chapter 4.
    9. “Party” means a party to an instrument.
    10. “Principal obligor,” with respect to an instrument, means the accommodated party or any other party to the instrument against whom a secondary obligor has recourse under this chapter.
    11. “Promise” means a written undertaking to pay money signed by the person undertaking to pay. An acknowledgment of an obligation by the obligor is not a promise unless the obligor also undertakes to pay the obligation.
    12. “Prove” with respect to a fact means to meet the burden of establishing the fact (§ 4-1-201(b)(8)).
    13. “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.
    14. “Remitter” means a person who purchases an instrument from its issuer if the instrument is payable to an identified person other than the purchaser.
    15. “Remotely-created item” means an item drawn on an account, which is not created by the payor bank and does not bear a handwritten or facsimile signature purporting to be the signature of the drawer.
    16. “Secondary obligor,” with respect to an instrument, means (a) an indorser or an accommodation party, (b) a drawer having the obligation described in § 4-3-414(d), or (c) any other party to the instrument that has recourse against another party to the instrument pursuant to § 4-3-116(b).
  2. Other definitions applying to this chapter and the sections in which they appear are:
  3. The following definitions in other chapters of this subtitle apply to this chapter:
  4. In addition, Chapter 1 of this subtitle contains general definitions and principles of construction and interpretation applicable throughout this chapter.

“Acceptance”. Section 4-3-409.

“Accommodated party”. Section 4-3-419.

“Accommodation party”. Section 4-3-419.

“Account”. Section 4-4-104.

“Alteration”. Section 4-3-407.

“Anomalous indorsement”. Section 4-3-205.

“Blank indorsement”. Section 4-3-205.

“Cashier's check”. Section 4-3-104.

“Certificate of deposit”. Section 4-3-104.

“Certified check”. Section 4-3-409.

“Check”. Section 4-3-104.

“Consideration”. Section 4-3-303.

“Draft”. Section 4-3-104.

“Holder in due course”. Section 4-3-302.

“Incomplete instrument”. Section 4-3-115.

“Indorsement”. Section 4-3-204.

“Indorser”. Section 4-3-204.

“Instrument”. Section 4-3-104.

“Issue”. Section 4-3-105.

“Issuer”. Section 4-3-105.

“Negotiable instrument”. Section 4-3-104.

“Negotiation”. Section 4-3-201.

“Note”. Section 4-3-104.

“Payable at a definite time”. Section 4-3-108.

“Payable on demand”. Section 4-3-108.

“Payable to bearer”. Section 4-3-109.

“Payable to order”. Section 4-3-109.

“Payment”. Section 4-3-602.

“Person entitled to enforce”. Section 4-3-301.

“Presentment”. Section 4-3-501.

“Reacquisition”. Section 4-3-207.

“Special indorsement”. Section 4-3-205.

“Teller's check”. Section 4-3-104.

“Transfer of instrument”. Section 4-3-203.

“Traveler's check”. Section 4-3-104.

“Value”. Section 4-3-303.

“Bank”. Section 4-4-105.

“Banking day”. Section 4-4-104.

“Clearinghouse”. Section 4-4-104.

“Collecting bank”. Section 4-4-105.

“Depositary bank”. Section 4-4-105.

“Documentary draft”. Section 4-4-104.

“Intermediary bank”. Section 4-4-105.

“Item”. Section 4-4-104.

“Payor bank”. Section 4-4-105.

“Suspends payments”. Section 4-4-104.

History. Acts 1991, No. 572, § 5; 2005, No. 856, § 27.

Research References

Ark. L. Notes.

Janet A. Flaccus, Counterfeit Checks — What Rules Should Cover These?, 2011 Ark. L. Notes 618.

U. Ark. Little Rock L.J.

Arkansas Law Survey, Harper, Business Law, 7 U. Ark. Little Rock L.J. 159.

Case Notes

Order.

Instrument that did not name a payee and was not payable to the bearer was neither a negotiable nor nonnegotiable note. Parker v. Pledger, 269 Ark. 925, 601 S.W.2d 897 (1980) (decision under prior law).

Cited: Mercantile Bank v. Vowell, 82 Ark. App. 421, 117 S.W.3d 603 (2003).

4-3-104. Negotiable instrument.

  1. Except as provided in subsections (c) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:
    1. is payable to bearer or to order at the time it is issued or first comes into possession of a holder;
    2. is payable on demand or at a definite time; and
    3. does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.
  2. “Instrument” means a negotiable instrument.
  3. An order that meets all of the requirements of subsection (a), except paragraph (1), and otherwise falls within the definition of “check” in subsection (f) is a negotiable instrument and a check.
  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 chapter.
  5. An instrument is a “note” if it is a promise and is a “draft” if it is an order. If an instrument falls within the definition of both “note” and “draft,” a person entitled to enforce the instrument may treat it as either.
  6. “Check” means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank or (ii) a cashier's check or teller's check. An instrument may be a check even though it is described on its face by another term, such as “money order.”
  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 (i) on another bank, or (ii) payable at or through a bank.
  9. “Traveler's check” means an instrument that (i) is payable on demand, (ii) is drawn on or payable at or through a bank, (iii) is designated by the term “traveler's check” or by a substantially similar term, and (iv) requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument.
  10. “Certificate of deposit” means an instrument containing an acknowledgment by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money. A certificate of deposit is a note of the bank.

History. Acts 1991, No. 572, § 5.

Research References

Ark. L. Notes.

Matthews, Interest Rate Provisions and the Negotiability of Commercial Paper, 1986 Ark. L. Notes 37.

U. Ark. Little Rock L.J.

Arkansas Law Survey, Harper, Business Law, 7 U. Ark. Little Rock L.J. 159.

Case Notes

Drafts.

Where a bill of exchange is drawn by the maker upon itself, the mere execution of the bill is deemed an acceptance of it and the holder has an option to treat the draft as an accepted bill or as a promissory note. Canal Ins. Co. v. First Nat'l Bank, 266 Ark. 1044, 596 S.W.2d 710 (Ct. App. 1979), aff'd, 268 Ark. 356, 596 S.W.2d 709 (1980) (decision under prior law).

Letter of Credit.

Letter of credit which did not contain an unconditional promise or order to pay, but, instead, payment was specifically conditioned upon receipt of a signed statement that the amount drawn was due in connection with a construction loan, was not a negotiable instrument. City Nat'l Bank v. First Nat'l Bank & Trust Co., 22 Ark. App. 5, 732 S.W.2d 489 (1987) (decision under prior law).

Mortgage Note.

The creditor, as an assignee of the defendant's mortgage note, could not sue on the underlying debt the defendants owed to the original mortgagor; and for the creditor to have prevailed in enforcing the note, it was required either to produce the original or satisfy the requirements for a lost negotiable instrument under § 4-3-309(a) and (b). McKay v. Capital Resources Co., 327 Ark. 737, 940 S.W.2d 869 (1997).

Signature.

No person is liable on a negotiable instrument unless his signature appears on it. Bank of Cave City v. Justice Farms, Inc., 297 Ark. 335, 761 S.W.2d 921 (1988) (decision under prior law).

One can be a holder in due course only of a negotiable instrument, and that instrument, among other things, must be signed by the maker or drawer. Bank of Cave City v. Justice Farms, Inc., 297 Ark. 335, 761 S.W.2d 921 (1988) (decision under prior law).

Where defendant, in signing two notes, added the handwritten title “V. Pres.” after his signatures on signature lines designated “individually”, appellate court held that, based on the language of the notes and other evidence introduced at trial, the added title was merely descriptive and did not insulate defendant from individual liability. Mollenhour v. State First Nat'l Bank, 27 Ark. App. 176, 769 S.W.2d 28 (1989) (decision under prior law).

Instrument executed by a company accountant constituted a check under subdivision (f)(i) of this section, and not a promissory note, because the owner of a company was the one who asked two creditors to delay presentment of the document for payment; therefore, summary judgment was properly granted in favor of the accountant, who was not personally liable for payment. Billingsley v. Smith, 85 Ark. App. 128, 147 S.W.3d 697 (2004).

Unconditional Promise to Pay.

An instrument cannot be a note unless it contains an absolute and unconditional promise to pay money; therefore, a contract for construction of a building was not a note where the promise to pay money was conditioned by its very terms upon the contractor's reciprocal promise to construct a metal building. Pack v. Hill, 18 Ark. App. 104, 710 S.W.2d 847 (1986) (decision under prior law).

Cited: A.C.E., Inc. v. Inland Mtg. Co., 333 Ark. 232, 969 S.W.2d 176 (1998).

4-3-105. Issue of instrument.

  1. “Issue” means the first delivery of an instrument by the maker or drawer, whether to a holder or nonholder, for the purpose of giving rights on the instrument to any person.
  2. An unissued instrument, or an unissued incomplete instrument that is completed, is binding on the maker or drawer, but nonissuance is a defense. An instrument that is conditionally issued or is issued for a special purpose is binding on the maker or drawer, but failure of the condition or special purpose to be fulfilled is a defense.
  3. “Issuer” applies to issued and unissued instruments and means a maker or drawer of an instrument.

History. Acts 1991, No. 572, § 5.

Case Notes

Unconditional Promise to Pay.

An instrument cannot be a note unless it contains an absolute and unconditional promise to pay money; therefore, a contract for construction of a building was not a note where the promise to pay money was conditioned by its very terms upon the contractor's reciprocal promise to construct a metal building. Pack v. Hill, 18 Ark. App. 104, 710 S.W.2d 847 (1986) (decision under prior law).

4-3-106. Unconditional promise or order.

  1. Except as provided in this section, for the purposes of § 4-3-104(a), a promise or order is unconditional unless it states (i) an express condition to payment, (ii) that the promise or order is subject to or governed by another record, or (iii) that rights or obligations with respect to the promise or order are stated in another record. A reference to another record does not of itself make the promise or order conditional.
  2. A promise or order is not made conditional (i) by a reference to another record for a statement of rights with respect to collateral, prepayment, or acceleration, or (ii) because payment is limited to resort to a particular fund or source.
  3. If a promise or order requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the promise or order, the condition does not make the promise or order conditional for the purposes of § 4-3-104(a). If the person whose specimen signature appears on an instrument fails to countersign the instrument, the failure to countersign is a defense to the obligation of the issuer, but the failure does not prevent a transferee of the instrument from becoming a holder of the instrument.
  4. If a promise or order at the time it is issued or first comes into possession of a holder contains a statement, required by applicable statutory or administrative law, to the effect that the rights of a holder or transferee are subject to claims or defenses that the issuer could assert against the original payee, the promise or order is not thereby made conditional for the purposes of § 4-3-104(a); but if the promise or order is an instrument, there cannot be a holder in due course of the instrument.

History. Acts 1991, No. 572, § 5; 2005, No. 856, § 28.

Research References

ALR.

What constitutes “fixed amount of money” for purposes of § 3-104 of Uniform Commercial Code providing that negotiable instrument must contain unconditional promise to pay fixed amount of money. 76 A.L.R.5th 289.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Bank Draft.

The inclusion of the words “Upon Acceptance” and “Payable Through” a specified bank in a draft drawn upon its maker did not make the draft conditional. Canal Ins. Co. v. First Nat'l Bank, 266 Ark. 1044, 596 S.W.2d 710 (Ct. App. 1979), aff'd, 268 Ark. 356, 596 S.W.2d 709 (1980) (decision under prior law).

Conditional Promise to Pay.

An instrument cannot be a note unless it contains an absolute and unconditional promise to pay money; therefore, a contract for construction of a building was not a note where the promise to pay money was conditioned by its very terms upon the contractor's reciprocal promise to construct a metal building. Pack v. Hill, 18 Ark. App. 104, 710 S.W.2d 847 (1986) (decision under prior law).

4-3-107. Instrument payable in foreign money.

Unless the instrument otherwise provides, an instrument that states the amount payable in foreign money may be paid in the foreign money or in an equivalent amount in dollars calculated by using the current bank-offered spot rate at the place of payment for the purchase of dollars on the day on which the instrument is paid.

History. Acts 1991, No. 572, § 5.

4-3-108. Payable on demand or at definite time.

  1. A promise or order is “payable on demand” if it (i) states that it is payable on demand or at sight, or otherwise indicates that it is payable at the will of the holder, or (ii) does not state any time of payment.
  2. A promise or order is “payable at a definite time” if it is payable on elapse of a definite period of time after sight or acceptance or at a fixed date or dates or at a time or times readily ascertainable at the time the promise or order is issued, subject to rights of (i) prepayment, (ii) acceleration, (iii) extension at the option of the holder, or (iv) extension to a further definite time at the option of the maker or acceptor or automatically upon or after a specified act or event.
  3. If an instrument, payable at a fixed date, is also payable upon demand made before the fixed date, the instrument is payable on demand until the fixed date and, if demand for payment is not made before that date, becomes payable at a definite time on the fixed date.

History. Acts 1991, No. 572, § 5.

Case Notes

Consent to Extension.

Provisions in note which read: “Each Signer Liable. If there is more than one person signing this note each will be jointly and individually liable for the whole obligation. Each will pay the note if you agree with the other to renew or extend it, revise its terms or release any security” could not reasonably be construed to unambiguously grant consent to unlimited extensions. “Each signer liable” provision in note was construed to mean that signers remain liable on the note even if they agree among themselves to release the other upon a renewal, extension, revision, or release of security, and signer who did not consent to extension was relieved of liability. In re Sanders, 75 B.R. 746 (Bankr. W.D. Ark. 1987) (decision under prior law).

“Endorsement — secured” clause which provides that “the time of payment of said note or of any of the security therefor may be extended, or the rate of interest changed without notice to or further assent from the undersigned, and that the undersigned will remain bound hereon notwithstanding such change, substitution, surrender or extension,” grants consent by signer to extension of the due date, but the provision cannot reasonably be construed to unambiguously grant consent to unlimited extensions. Because the extension term is ambiguous, this section limits the consent of the signer to one extension. In re Sanders, 75 B.R. 751 (Bankr. W.D. Ark. 1987) (decision under prior law).

“Obligations independent” provision which provides that “you may …. renew this … without affecting my obligation to pay the loan amount” can reasonably be construed to grant consent to renew the note. The language does not unambiguously grant consent to unlimited extensions, and the note contains no language such as “all extensions, extensions or extend the note from time to time” which would grant consent to unlimited extensions; therefore, consent to extend the note is limited to one extension pursuant to this section. In re Sanders, 75 B.R. 757 (Bankr. W.D. Ark. 1987) (decision under prior law).

Comaker's liability on note had to be found in note itself, and not accompanying mortgage, and where the due date of the note was extended without the comaker's consent, and the extension was not provided for in the note, that party was discharged from liability even though the comaker had signed the mortgage which provided that “This conveyance is given as a Mortgage for the purpose of securing: (a) The payment of 1 Promissory Note(s) of even date herewith and all extensions and renewals of the indebtedness.” In re Sanders, 75 B.R. 761 (Bankr. W.D. Ark. 1987) (decision under prior law).

An express provision for consent in a note would be binding on the accommodation maker and would authorize one extension for a period not longer than the term of the original note, unless otherwise specified. McIlroy Bank & Trust v. Maestri, 297 Ark. 130, 759 S.W.2d 808 (1988) (decision under prior law).

Where one extension of note was authorized by the guarantor or accommodation maker in between two extensions which were not authorized by him, the third extension, which he signed, did not have the effect of permitting an unauthorized fourth extension for the same period as the authorized third extension. Rogers v. Merchants & Planters Bank, 302 Ark. 353, 789 S.W.2d 463 (1990) (decision under prior law).

Where a bank chose to extend a loan obligation four times with only the accommodation maker's agreement, it effectively released the primary maker pursuant to former § 4-3-606(1)(a) (now see § 4-3-605). Mobley v. Harmon, 304 Ark. 500, 803 S.W.2d 900 (1991) (decision under prior law).

Cited: Landreth v. First Nat'l Bank, 45 F.3d 267 (8th Cir. 1995).

4-3-109. Payable to bearer or to order.

  1. A promise or order is payable to bearer if it:
    1. States that it is payable to bearer or to the order of bearer or otherwise indicates that the person in possession of the promise or order is entitled to payment;
    2. Does not state a payee; or
    3. States that it is payable to or to the order of cash or otherwise indicates that it is not payable to an identified person.
  2. A promise or order that is not payable to bearer is payable to order if it is payable (i) to the order of an identified person or (ii) to an identified person or order. A promise or order that is payable to order is payable to the identified person.
  3. An instrument payable to bearer may become payable to an identified person if it is specially indorsed pursuant to § 4-3-205(a). An instrument payable to an identified person may become payable to bearer if it is indorsed in blank pursuant to § 4-3-205(b).

History. Acts 1991, No. 572, § 5.

4-3-110. Identification of person to whom instrument is payable.

  1. The person to whom an instrument is initially payable is determined by the intent of the person, whether or not authorized, signing as, or in the name or behalf of, the issuer of the instrument. The instrument is payable to the person intended by the signer even if that person is identified in the instrument by a name or other identification that is not that of the intended person. If more than one (1) person signs in the name or behalf of the issuer of an instrument and all the signers do not intend the same person as payee, the instrument is payable to any person intended by one (1) or more of the signers.
  2. If the signature of the issuer of an instrument is made by automated means, such as a check-writing machine, the payee of the instrument is determined by the intent of the person who supplied the name or identification of the payee, whether or not authorized to do so.
  3. A person to whom an instrument is payable may be identified in any way, including by name, identifying number, office, or account number. For the purpose of determining the holder of an instrument, the following rules apply:
    1. If an instrument is payable to an account and the account is identified only by number, the instrument is payable to the person to whom the account is payable. If an instrument is payable to an account identified by number and by the name of a person, the instrument is payable to the named person, whether or not that person is the owner of the account identified by number.
    2. If an instrument is payable to:
      1. a trust, an estate, or a person described as trustee or representative of a trust or estate, the instrument is payable to the trustee, the representative, or a successor of either, whether or not the beneficiary or estate is also named;
      2. a person described as agent or similar representative of a named or identified person, the instrument is payable to the represented person, the representative, or a successor of the representative;
      3. a fund or organization that is not a legal entity, the instrument is payable to a representative of the members of the fund or organization; or
      4. an office or to a person described as holding an office, the instrument is payable to the named person, the incumbent of the office, or a successor to the incumbent.
  4. If an instrument is payable to two (2) or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to two (2) or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to two (2) or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.

History. Acts 1991, No. 572, § 5.

Case Notes

Cited: Am. State Bank v. Union Planters Bank, N.A., 332 F.3d 533 (8th Cir. 2003).

4-3-111. Place of payment.

Except as otherwise provided for items in Chapter 4, an instrument is payable at the place of payment stated in the instrument. If no place of payment is stated, an instrument is payable at the address of the drawee or maker stated in the instrument. If no address is stated, the place of payment is the place of business of the drawee or maker. If a drawee or maker has more than one (1) place of business, the place of payment is any place of business of the drawee or maker chosen by the person entitled to enforce the instrument. If the drawee or maker has no place of business, the place of payment is the residence of the drawee or maker.

History. Acts 1991, No. 572, § 5.

4-3-112. Interest.

  1. Unless otherwise provided in the instrument, (i) an instrument is not payable with interest, and (ii) interest on an interest-bearing instrument is payable from the date of the instrument.
  2. Interest may be stated in an instrument as a fixed or variable amount of money or it may be expressed as a fixed or variable rate or rates. The amount or rate of interest may be stated or described in the instrument in any manner and may require reference to information not contained in the instrument. If an instrument provides for interest, but the amount of interest payable cannot be ascertained from the description, interest is payable at the judgment rate in effect at the place of payment of the instrument and at the time interest first accrues.

History. Acts 1991, No. 572, § 5.

Research References

Ark. L. Notes.

Matthews, Interest Rate Provisions and the Negotiability of Commercial Paper, 1986 Ark. L. Notes 37.

4-3-113. Date of instrument.

  1. An instrument may be antedated or postdated. The date stated determines the time of payment if the instrument is payable at a fixed period after date. Except as provided in § 4-4-401(c), an instrument payable on demand is not payable before the date of the instrument.
  2. If an instrument is undated, its date is the date of its issue or, in the case of an unissued instrument, the date it first comes into possession of a holder.

History. Acts 1991, No. 572, § 5.

4-3-114. Contradictory terms of instrument.

If an instrument contains contradictory terms, typewritten terms prevail over printed terms, handwritten terms prevail over both, and words prevail over numbers.

History. Acts 1991, No. 572, § 5.

Case Notes

In General.

Words prevail over numbers. France v. Ford Motor Credit Co., 323 Ark. 167, 913 S.W.2d 770 (1996).

Check Imprinting Machine.

Because a check imprinting machine's purpose is to protect against alterations, the amount shown on the imprint should control whether the number is in words or figures. Galatia Community State Bank v. Kindy, 307 Ark. 467, 821 S.W.2d 765 (1991) (decision under prior law).

4-3-115. Incomplete instrument.

  1. “Incomplete instrument” means a signed writing, whether or not issued by the signer, the contents of which show at the time of signing that it is incomplete but that the signer intended it to be completed by the addition of words or numbers.
  2. Subject to subsection (c), if an incomplete instrument is an instrument under § 4-3-104, it may be enforced according to its terms if it is not completed, or according to its terms as augmented by completion. If an incomplete instrument is not an instrument under § 4-3-104, but, after completion, the requirements of § 4-3-104 are met, the instrument may be enforced according to its terms as augmented by completion.
  3. If words or numbers are added to an incomplete instrument without authority of the signer, there is an alteration of the incomplete instrument under § 4-3-407.
  4. The burden of establishing that words or numbers were added to an incomplete instrument without authority of the signer is on the person asserting the lack of authority.

History. Acts 1991, No. 572, § 5.

Case Notes

Authority.

Trial court properly determined that a decedent's companion did not convert the decedent's funds when she deposited a check into her account, as the decedent's estate failed to show that the check, which was an incomplete instrument under subsections (a) and (d) of this section, was completed without authority; as the change was deemed authorized, the check was not an altered instrument under § 4-3-407(a). Hankins v. Austin, 2012 Ark. App. 641, 425 S.W.3d 8 (2012).

Omissions.

A note was not incomplete merely because the amount of annual installment was left blank, but such omission simply indicates that annual installments were not contemplated and the entire amount of the note was due one year after the date. Bryan v. Bartlett, 435 F.2d 28 (8th Cir. 1970), cert. denied, 402 U.S. 915, 91 S. Ct. 1373, 28 L. Ed. 2d 658 (1971) (decision under prior law).

4-3-116. Joint and several liability — Contribution.

  1. Except as otherwise provided in the instrument, two (2) or more persons who have the same liability on an instrument as makers, drawers, acceptors, indorsers who indorse as joint payees, or anomalous indorsers are jointly and severally liable in the capacity in which they sign.
  2. Except as provided in § 4-3-419(e) or by agreement of the affected parties, a party having joint and several liability who pays the instrument is entitled to receive from any party having the same joint and several liability contribution in accordance with applicable law.
  3. [Repealed.]

History. Acts 1991, No. 572, § 5; 2005, No. 856, § 29.

Case Notes

Cited: Integon Indem. Corp. v. Bull, 311 Ark. 61, 842 S.W.2d 1 (1992).

4-3-117. Other agreements affecting instrument.

Subject to applicable law regarding exclusion of proof of contemporaneous or previous agreements, the obligation of a party to an instrument to pay the instrument may be modified, supplemented, or nullified by a separate agreement of the obligor and a person entitled to enforce the instrument, if the instrument is issued or the obligation is incurred in reliance on the agreement or as part of the same transaction giving rise to the agreement. To the extent an obligation is modified, supplemented, or nullified by an agreement under this section, the agreement is a defense to the obligation.

History. Acts 1991, No. 572, § 5.

Case Notes

Negotiability.

The mere reference to the transaction giving rise to the instruments does not affect negotiability. Federal Factors, Inc. v. Wellbanke, 241 Ark. 44, 406 S.W.2d 712 (1966) (decision under prior law).

4-3-118. Statute of limitations.

  1. Except as provided in subsection (e), an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within five (5) years after the due date or dates stated in the note or, if a due date is accelerated, within five (5) years after the accelerated due date.
  2. Except as provided in subsection (d) or (e), if demand for payment is made to the maker of a note payable on demand, an action to enforce the obligation of a party to pay the note must be commenced within five (5) years after the demand. If no demand for payment is made to the maker, an action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous period of ten (10) years.
  3. Except as provided in subsection (d), an action to enforce the obligation of a party to an unaccepted draft to pay the draft must be commenced within three (3) years after dishonor of the draft or ten (10) years after the date of the draft, whichever period expires first.
  4. An action to enforce the obligation of the acceptor of a certified check or the issuer of a teller's check, cashier's check, or traveler's check must be commenced within three (3) years after demand for payment is made to the acceptor or issuer, as the case may be.
  5. An action to enforce the obligation of a party to a certificate of deposit to pay the instrument must be commenced within five (5) years after demand for payment is made to the maker, but if the instrument states a due date and the maker is not required to pay before that date, the six-year period begins when a demand for payment is in effect and the due date has passed.
  6. An action to enforce the obligation of a party to pay an accepted draft, other than a certified check, must be commenced (i) within five (5) years after the due date or dates stated in the draft or acceptance if the obligation of the acceptor is payable at a definite time, or (ii) within six (6) years after the date of the acceptance if the obligation of the acceptor is payable on demand.
  7. Unless governed by other law regarding claims for indemnity or contribution, an action (i) for conversion of an instrument, for money had and received, or like action based on conversion, (ii) for breach of warranty, or (iii) to enforce an obligation, duty, or right arising under this chapter and not governed by this section must be commenced within three (3) years after the cause of action accrues.

History. Acts 1991, No. 572, § 5; 1997, No. 1164, § 1.

Amendments. The 1997 amendment substituted “five (5) years” for “six (6) years” throughout the section.

Case Notes

Applicability.

Finding against the relatives in an action stemming from the relatives' default on a promissory note and security agreement previously executed was proper because the appellate court agreed with the circuit court's interpretation of the provision in the agreement to mean that the final payment, due on January 30, 2004, was to be a balloon payment of any unpaid balance on the note. Accordingly, the term “principal balance” was to include everything that remained unpaid on the date the last balloon payment came due; therefore, the damage claim included everything that remained unpaid throughout the course of the note and the circuit court's finding that the claim was not barred by the statute of limitations was proper. Housley v. Hensley, 100 Ark. App. 118, 265 S.W.3d 136 (2007).

Certificate of Deposit.

Under § 4-3-104(j), a certificate of deposit is a negotiable instrument, and an action to enforce such an instrument under this chapter would be subject to the six-year limitation period under subsection (e) of this section, not the five-year limitation period under § 16-56-111. Ernest F. Loewer, Jr. Farms, Inc. v. National Bank, 316 Ark. 54, 870 S.W.2d 726 (1994).

A demand is required to trigger the statute of limitations for a certificate of deposit (CD), regardless of whether the CD is a demand or due date CD. Landreth v. First Nat'l Bank, 45 F.3d 267 (8th Cir. 1995).

The trial court erred by construing subsection (e) to require a demand for payment be within a reasonable amount of time. Landreth v. First Nat'l Bank, 45 F.3d 267 (8th Cir. 1995).

Whether a certificate of deposit (CD) is a demand or due date CD is immaterial for the purpose of determining when the statute of limitations begins to run; the dispositive fact is whether or not the instrument is a CD. Landreth v. First Nat'l Bank, 45 F.3d 267 (8th Cir. 1995).

Cited: United States Fid. & Guar. Co. v. Bank of Bentonville, 29 F. Supp. 2d 553 (W.D. Ark. 1998).

4-3-119. Notice of right to defend action.

In an action for breach of an obligation for which a third person is answerable over pursuant to this chapter or Chapter 4, the defendant may give the third person notice of the litigation in a record, and the person notified may then give similar notice to any other person who is answerable over. If the notice states (i) that the person notified may come in and defend and (ii) that failure to do so will bind the person notified in an action later brought by the person giving the notice as to any determination of fact common to the two litigations, the person notified is so bound unless after seasonable receipt of the notice the person notified does come in and defend.

History. Acts 1991, No. 572, § 5; 2005, No. 856, § 30.

Part 2 — Negotiation, Transfer, and Indorsement

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

U. Ark. Little Rock L.J.

Survey—Business Law, 10 U. Ark. Little Rock L.J. 89.

4-3-201. Negotiation.

  1. “Negotiation” means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.
  2. Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.

History. Acts 1991, No. 572, § 5.

Case Notes

Gifts.

While indorsement of a note payable “to order” is required to negotiate it in favor of one who becomes a holder in due course, a donor's rights in such an instrument may be transferred by gift without indorsement. Brown v. Bell, 291 Ark. 116, 722 S.W.2d 592 (1987) (decision under prior law).

Indorsement.

Assertion that indorsement was required before a promissory note could be transferred was erroneous, since negotiation of an instrument cannot be equated with mere transfer, as defined in this section. Tackett v. First Sav., 306 Ark. 15, 810 S.W.2d 927 (1991) (decision under prior law).

4-3-202. Negotiation subject to rescission.

  1. Negotiation is effective even if obtained (i) from an infant, a corporation exceeding its powers, or a person without capacity, (ii) by fraud, duress, or mistake, or (iii) in breach of duty or as part of an illegal transaction.
  2. To the extent permitted by other law, negotiation may be rescinded or may be subject to other remedies, but those remedies may not be asserted against a subsequent holder in due course or a person paying the instrument in good faith and without knowledge of facts that are a basis for rescission or other remedy.

History. Acts 1991, No. 572, § 5.

4-3-203. Transfer of instrument — Rights acquired by transfer.

  1. An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.
  2. Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument.
  3. Unless otherwise agreed, if an instrument is transferred for value and the transferee does not become a holder because of lack of indorsement by the transferor, the transferee has a specifically enforceable right to the unqualified indorsement of the transferor, but negotiation of the instrument does not occur until the indorsement is made.
  4. If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur. The transferee obtains no rights under this chapter and has only the rights of a partial assignee.

History. Acts 1991, No. 572, § 5.

Research References

U. Ark. Little Rock L.J.

Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.

Case Notes

Assignments.

The UCC does not permit assignments of negotiable instruments. McIlroy Bank v. First Nat'l Bank, 252 Ark. 558, 480 S.W.2d 127 (1972) (decision under prior law).

Gifts.

While indorsement of a note payable “to order” is required to negotiate it in favor of one who becomes a holder in due course, a donor's rights in such an instrument may be transferred by gift without indorsement. Brown v. Bell, 291 Ark. 116, 722 S.W.2d 592 (1987) (decision under prior law).

Decedent made an inter vivos gift and delivery of a promissory note to his wife where there was an indorsement on the back of the note in favor of the wife and where the decedent declared “to the world” that he had assigned the note and deed of trust to his wife by recording the assignment to her of the deed of trust. Chalmers v. Chalmers, 327 Ark. 141, 937 S.W.2d 171 (1997).

Indorsement.

Assertion that indorsement was required before a promissory note could be transferred was erroneous, since negotiation of an instrument cannot be equated with mere transfer, as defined in § 4-3-201. Tackett v. First Sav., 306 Ark. 15, 810 S.W.2d 927 (1991) (decision under prior law).

Notice of Defenses.

Where assignor knew that the makers of note had claims against him far in excess of the amount of the note and assignee had notice that payments on the note were overdue at the time he took the note, assignee was not a holder in due course; therefore, the note was subject to the defense by the makers against assignor, and it was proper for the court to allow set-off, cancel and satisfy the note, and dismiss assignee's claim. Richardson v. Girner, 282 Ark. 302, 668 S.W.2d 523 (1984) (decision under prior law).

Rights of Transferees.

Mother became transferee and possessed all the rights of the lender including right to foreclose on the mortgage, when she paid a debt owed by them and secured by a mortgage on their property and received from the lender's wife the unendorsed note and the mortgage. Griffith v. Griffith, 250 Ark. 845, 467 S.W.2d 737 (1971) (decision under prior law).

Cited: UMLIC 2 Funding Corp. v. Butcher, 333 Ark. 442, 970 S.W.2d 211 (1998); Federal Fin. Co. v. Noe, 335 Ark. 78, 983 S.W.2d 107 (1998).

4-3-204. Indorsement.

  1. “Indorsement” means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring indorser's liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words is an indorsement unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than indorsement. For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument.
  2. “Indorser” means a person who makes an indorsement.
  3. For the purpose of determining whether the transferee of an instrument is a holder, an indorsement that transfers a security interest in the instrument is effective as an unqualified indorsement of the instrument.
  4. If an instrument is payable to a holder under a name that is not the name of the holder, indorsement may be made by the holder in the name stated in the instrument or in the holder's name or both, but signature in both names may be required by a person paying or taking the instrument for value or collection.

History. Acts 1991, No. 572, § 5.

Case Notes

Failure to Indorse.

Pledgee of note was not “holder in due course” where the note pledged to it was never indorsed as required by this section. Lane v. Midwest Bancshares Corp., 337 F. Supp. 1200 (E.D. Ark. 1972) (decision under prior law).

Transfer Shown.

Decedent made an inter vivos gift and delivery of a promissory note to his wife where there was an indorsement on the back of the note in favor of the wife and where the decedent declared “to the world” that he had assigned the note and deed of trust to his wife by recording the assignment to her of the deed of trust. Chalmers v. Chalmers, 327 Ark. 141, 937 S.W.2d 171 (1997).

4-3-205. Special indorsement — Blank indorsement — Anomalous indorsement.

  1. If an indorsement is made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the indorsement identifies a person to whom it makes the instrument payable, it is a “special indorsement.” When specially indorsed, an instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person. The principles stated in § 4-3-110 apply to special indorsements.
  2. If an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a “blank indorsement.” When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed.
  3. The holder may convert a blank indorsement that consists only of a signature into a special indorsement by writing, above the signature of the indorser, words identifying the person to whom the instrument is made payable.
  4. “Anomalous indorsement” means an indorsement made by a person who is not the holder of the instrument. An anomalous indorsement does not affect the manner in which the instrument may be negotiated.

History. Acts 1991, No. 572, § 5.

4-3-206. Restrictive indorsement.

  1. An indorsement limiting payment to a particular person or otherwise prohibiting further transfer or negotiation of the instrument is not effective to prevent further transfer or negotiation of the instrument.
  2. An indorsement stating a condition to the right of the indorsee to receive payment does not affect the right of the indorsee to enforce the instrument. A person paying the instrument or taking it for value or collection may disregard the condition, and the rights and liabilities of that person are not affected by whether the condition has been fulfilled.
  3. If an instrument bears an indorsement (i) described in § 4-4-201(b), or (ii) in blank or to a particular bank using the words “for deposit,” “for collection,” or other words indicating a purpose of having the instrument collected by a bank for the indorser or for a particular account, the following rules apply:
    1. A person, other than a bank, who purchases the instrument when so indorsed converts the instrument unless the amount paid for the instrument is received by the indorser or applied consistently with the indorsement.
    2. A depositary bank that purchases the instrument or takes it for collection when so indorsed converts the instrument unless the amount paid by the bank with respect to the instrument is received by the indorser or applied consistently with the indorsement.
    3. A payor bank that is also the depositary bank or that takes the instrument for immediate payment over the counter from a person other than a collecting bank converts the instrument unless the proceeds of the instrument are received by the indorser or applied consistently with the indorsement.
    4. Except as otherwise provided in paragraph (3), a payor bank or intermediary bank may disregard the indorsement and is not liable if the proceeds of the instrument are not received by the indorser or applied consistently with the indorsement.
  4. Except for an indorsement covered by subsection (c), if an instrument bears an indorsement using words to the effect that payment is to be made to the indorsee as agent, trustee, or other fiduciary for the benefit of the indorser or another person, the following rules apply:
    1. Unless there is notice of breach of fiduciary duty as provided in § 4-3-307, a person who purchases the instrument from the indorsee or takes the instrument from the indorsee for collection or payment may pay the proceeds of payment or the value given for the instrument to the indorsee without regard to whether the indorsee violates a fiduciary duty to the indorser.
    2. A subsequent transferee of the instrument or person who pays the instrument is neither given notice nor otherwise affected by the restriction in the indorsement unless the transferee or payor knows that the fiduciary dealt with the instrument or its proceeds in breach of fiduciary duty.
  5. The presence on an instrument of an indorsement to which this section applies does not prevent a purchaser of the instrument from becoming a holder in due course of the instrument unless the purchaser is a converter under subsection (c) or has notice or knowledge of breach of fiduciary duty as stated in subsection (d).
  6. In an action to enforce the obligation of a party to pay the instrument, the obligor has a defense if payment would violate an indorsement to which this section applies and the payment is not permitted by this section.

History. Acts 1991, No. 572, § 5.

Case Notes

Negligence.

Bank was negligent in allowing cash withdrawals against checks deposited with the indorsement “For Deposit Only.” J.W. Reynolds Lumber Co. v. Smackover State Bank, 310 Ark. 342, 836 S.W.2d 853 (1992).

4-3-207. Reacquisition.

Reacquisition of an instrument occurs if it is transferred to a former holder, by negotiation or otherwise. A former holder who reacquires the instrument may cancel indorsements made after the reacquirer first became a holder of the instrument. If the cancellation causes the instrument to be payable to the reacquirer or to bearer, the reacquirer may negotiate the instrument. An indorser whose indorsement is cancelled is discharged, and the discharge is effective against any subsequent holder.

History. Acts 1991, No. 572, § 5.

Case Notes

Enforcement Against Maker.

When a former holder of a note reacquires the instrument, only intervening parties are discharged and the holder of the instrument may enforce payment against the maker. K. & S. Int'l, Inc. v. Howard, 249 Ark. 901, 462 S.W.2d 458 (1971) (decision under prior law).

Part 3 — Enforcement of Instruments

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

ALR.

Taking instrument in good faith, and without notice of infirmities or defenses: holder-in-due-course status, under UCC § 3-302. 36 A.L.R.4th 212.

What constitutes “dealing” under UCC § 3-305(2), providing that holder in due course takes instrument free from all defenses of any party to instrument with whom holder has not dealt. 42 A.L.R.5th 137.

U. Ark. Little Rock L.J.

Jenkins, Arkansas's Revised Article 3: User Caution Advised!!, 16 U. Ark. Little Rock L.J. 573.

4-3-301. Person entitled to enforce instrument.

“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to § 4-3-309 or § 4-3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

History. Acts 1991, No. 572, § 5.

Research References

Ark. L. Notes.

Janet A. Flaccus, Counterfeit Checks — What Rules Should Cover These?, 2011 Ark. L. Notes 618.

Case Notes

Defenses.

Where assignee was not a holder in due course, the note was subject to defense by the makers against assignor, and it was proper for the court to allow set-off, cancel and satisfy the note, and dismiss assignee's claim. Richardson v. Girner, 282 Ark. 302, 668 S.W.2d 523 (1984) (decision under prior law).

Lost Instrument.

Second priority lender's argument that the first lender could not meet the requirements of § 4-3-309 because it could not show that it was entitled to enforce the note at the time the note was lost failed because even so, the first mortgage was still enforceable and did not elevate the second priority lender to first priority. Arvest Bank v. Bank of Am., N.A., 2013 Ark. App. 112 (2013).

Reacquired Instruments.

When a former holder of a note reacquires the instrument, only intervening parties are discharged and the holder of the instrument may enforce payment against the maker. K. & S. Int'l, Inc. v. Howard, 249 Ark. 901, 462 S.W.2d 458 (1971) (decision under prior law).

Cited: McKay v. Capital Resources Co., 327 Ark. 737, 940 S.W.2d 869 (1997).

4-3-302. Holder in due course.

  1. Subject to subsection (c) and § 4-3-106(d), “holder in due course” means the holder of an instrument if:
    1. the instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and
    2. the holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in § 4-3-306, and (vi) without notice that any party has a defense or claim in recoupment described in § 4-3-305(a).
  2. Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subsection (a), but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment, or claim to the instrument.
  3. Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken (i) by legal process or by purchase in an execution, bankruptcy, or creditor's sale or similar proceeding, (ii) by purchase as part of a bulk transaction not in ordinary course of business of the transferor, or (iii) as the successor in interest to an estate or other organization.
  4. If, under § 4-3-303(a)(1), the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.
  5. If (i) the person entitled to enforce an instrument has only a security interest in the instrument and (ii) the person obliged to pay the instrument has a defense, claim in recoupment, or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.
  6. To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.
  7. This section is subject to any law limiting status as a holder in due course in particular classes of transactions.

History. Acts 1991, No. 572, § 5.

Research References

Ark. L. Notes.

Laurence, Bona Fide Purchaser Analysis, Beverage Products Corporation v. Robinson and the Case Against Very Short Opinions, 1990 Ark. L. Notes 85.

Ark. L. Rev.

Bills and Notes — The Original Payee's Non-Compliance With the Wingo Act as a Defense Against a Holder in Due Course, 25 Ark. L. Rev. 518.

Case Notes

Assignees of Notes.

The assignee of a note was a holder in due course. Rushton v. U.M. & M. Credit Corp., 245 Ark. 703, 434 S.W.2d 81 (1968) (decision under prior law).

Where the maker delivered blank notes to payee who assigned them to bank without maker's knowledge and these notes were neither overdue nor dishonored and received by bank in good faith, the bank was holder in due course. Byrd v. Security Bank, 250 Ark. 214, 464 S.W.2d 578 (1971) (decision under prior law).

Burden of Proof.

Surety had burden of proving that purported transactions concerning execution of note and mortgage which surety sought to foreclose were the genuine actions of corporate board before it could rely on this or any other provision of the UCC (subtitle 1 of this title). National Surety Corp. v. Crystal Springs Fishing Village, Inc., 326 F. Supp. 1171 (W.D. Ark. 1971) (decision under prior law).

Business Under Assumed Name.

Any violation of statutes restricting the transacting of business under an assumed name (§ 4-70-201 et seq.) was irrelevant to the issue of whether the holder receiving notes from company allegedly violating such sections was a holder in due course. Byrd v. Security Bank, 250 Ark. 214, 464 S.W.2d 578 (1971) (decision under prior law).

False Representations.

A bank payee was not disqualified from being a holder in due course by the fact that one of its vice-presidents induced the makers to borrow the money to purchase stock from him and others in a corporation which he falsely represented to be solvent and well-managed. City Nat'l Bank v. Vanderboom, 290 F. Supp. 592 (W.D. Ark. 1968), aff'd, 422 F.2d 221 (8th Cir.), cert. denied, 399 U.S. 905, 90 S. Ct. 2196, 26 L. Ed. 2d 560 (1970) (decision under prior law).

Good Faith.

Where a bank employee changed the handwritten amount portion on the check so that it was consistent with the sum set out by the impression of a check writing machine, the bank took the check in “good faith” and was a holder in due course because it was entitled to rely on the imprinted section of the check, and the “alteration” which reconciled the terms was not a sufficient basis to hold that the bank acted in other than good faith. Galatia Community State Bank v. Kindy, 307 Ark. 467, 821 S.W.2d 765 (1991) (decision under prior law).

Illegal or Void Transactions.

There can be no holder in due course of a negotiable instrument arising out of an illegal transaction. Pacific Nat'l Bank v. Hernreich, 240 Ark. 114, 398 S.W.2d 221 (1966) (decision under prior law).

Notice of Defenses.

The fact that one who accepts a cashier's check in satisfaction of an antecedent debt may suspect the creditor may be insolvent does not prevent the creditor's being a holder in due course. Nicklaus v. Peoples Bank & Trust Co., 258 F. Supp. 482 (E.D. Ark. 1965), aff'd, 369 F.2d 683 (8th Cir. 1966) (decision under prior law).

Where the defendant insurance company's draft contained all the elements of negotiability and was not drawn without recourse, and the evidence showed that the plaintiff bank did not have notice of any defense of the insurance company against the instrument, the bank was a holder in due course. Canal Ins. Co. v. First Nat'l Bank, 266 Ark. 1044, 596 S.W.2d 710 (Ct. App. 1979), aff'd, 268 Ark. 356, 596 S.W.2d 709 (1980) (decision under prior law).

Where assignor knew that the makers of note had claims against him far in excess of the amount of the note and assignee had notice that payments on the note were overdue at the time he took the note, assignee was not a holder in due course; therefore, the note was subject to the defense by the makers against assignor, and it was proper for the court to allow set-off, cancel and satisfy the note, and dismiss assignee's claim. Richardson v. Girner, 282 Ark. 302, 668 S.W.2d 523 (1984) (decision under prior law).

Assignee was not a holder in due course even though the note was not declared to be in default until after he contacted the maker; it is not necessary to have the holder of the note declare that it is in default when this fact is obvious in other ways. Richardson v. Girner, 282 Ark. 302, 668 S.W.2d 523 (1984) (decision under prior law).

Manner the holder came into possession of the bonds was so peculiar and out of the ordinary course of business as to put the holder on notice that he was not a holder in due course of the bonds under subsection (c) of this section, and the holder took possession of the bonds subject to any defenses that may have been raised. The holder could not have acquired any greater rights than what his predecessor-in-interest had, so any claims related to actions were waived before the holder acquired the bonds. Wilkins v. U.S. Bank, N.A., 514 F. Supp. 2d 1120 (W.D. Ark. 2007).

Payees.

A bank payee was not disqualified from being a holder in due course by the fact that one of its vice-presidents induced the makers to borrow the money to purchase stock from him and others in a corporation which he falsely represented to be solvent and well-managed. City Nat'l Bank v. Vanderboom, 290 F. Supp. 592 (W.D. Ark. 1968), aff'd, 422 F.2d 221 (8th Cir.), cert. denied, 399 U.S. 905, 90 S. Ct. 2196, 26 L. Ed. 2d 560 (1970) (decision under prior law).

Judgment was properly awarded to plaintiff in its action against defendant for payment of a cashier's check that was obtained with insufficient funds because plaintiff was a holder in due course under subdivision (a)(2) of this section when it accepted the cashier's check for payment of a home loan, an antecedent claim, after the homeowners refinanced the home. Southern Bank of Commerce v. Union Planters Nat'l Bank, 375 Ark. 141, 289 S.W.3d 414 (2008).

Pledgees.

Pledgees, in a securities transaction, were holders in due course and held their notes free from all defenses of any party with whom they had not dealt, except a defense based on illegality of the transaction which would render it a nullity. Lane v. Midwest Bancshares Corp., 337 F. Supp. 1200 (E.D. Ark. 1972) (decision under prior law).

Cited: Landreth v. First Nat'l Bank, 45 F.3d 267 (8th Cir. 1995); Terry v. Rice (In re Cheqnet Sys.), 246 B.R. 873 (Bankr. E.D. Ark. 2000).

4-3-303. Value and consideration.

  1. An instrument is issued or transferred for value if:
    1. the instrument is issued or transferred for a promise of performance, to the extent the promise has been performed;
    2. the transferee acquires a security interest or other lien in the instrument other than a lien obtained by judicial proceeding;
    3. the instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due;
    4. the instrument is issued or transferred in exchange for a negotiable instrument; or
    5. the instrument is issued or transferred in exchange for the incurring of an irrevocable obligation to a third party by the person taking the instrument.
  2. “Consideration” means any consideration sufficient to support a simple contract. The drawer or maker of an instrument has a defense if the instrument is issued without consideration. If an instrument is issued for a promise of performance, the issuer has a defense to the extent performance of the promise is due and the promise has not been performed. If an instrument is issued for value as stated in subsection (a), the instrument is also issued for consideration.

History. Acts 1991, No. 572, § 5.

Case Notes

Antecedent Debts.

Where bank takes a negotiated instrument in satisfaction of an antecedent debt, the bank is a holder for value and in due course. Citizens Bank v. National Bank of Commerce, 334 F.2d 257 (10th Cir. 1964) (decision under prior law).

Antecedent Obligations.

Where a promissory note and a deed of trust were executed by an individual to remove a lien created by a judgment obtained against him, but the evidence showed that the judgment was void ab initio for lack of proper service, the bank holding the note failed to demonstrate an antecedent obligation for which the promissory note and deed of trust were given and the transaction did not fit within the exception of the defense of want or failure of consideration. Federal Land Bank v. Wilson, 533 F. Supp. 301 (E.D. Ark. 1982), aff'd, 719 F.2d 1367 (8th Cir. 1983) (decision under prior law).

Blank Notes.

Where blank notes were delivered by maker to payee who filled in and assigned these notes to bank without knowledge or consent of maker, as consideration for release of prior notes, bank took them for value. Byrd v. Security Bank, 250 Ark. 214, 464 S.W.2d 578 (1971) (decision under prior law).

4-3-304. Overdue instrument.

  1. An instrument payable on demand becomes overdue at the earliest of the following times:
    1. on the day after the day demand for payment is duly made;
    2. if the instrument is a check, ninety (90) days after its date; or
    3. if the instrument is not a check, when the instrument has been outstanding for a period of time after its date which is unreasonably long under the circumstances of the particular case in light of the nature of the instrument and usage of the trade.
  2. With respect to an instrument payable at a definite time the following rules apply:
    1. If the principal is payable in installments and a due date has not been accelerated, the instrument becomes overdue upon default under the instrument for nonpayment of an installment, and the instrument remains overdue until the default is cured.
    2. If the principal is not payable in installments and the due date has not been accelerated, the instrument becomes overdue on the day after the due date.
    3. If a due date with respect to principal has been accelerated, the instrument becomes overdue on the day after the accelerated due date.
  3. Unless the due date of principal has been accelerated, an instrument does not become overdue if there is default in payment of interest but no default in payment of principal.

History. Acts 1991, No. 572, § 5.

4-3-305. Defenses and claims in recoupment.

  1. Except as otherwise provided in this section, the right to enforce the obligation of a party to pay an instrument is subject to the following:
    1. a defense of the obligor based on (i) infancy of the obligor to the extent it is a defense to a simple contract, (ii) duress, lack of legal capacity, or illegality of the transaction which, under other law, nullifies the obligation of the obligor, (iii) fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms, or (iv) discharge of the obligor in insolvency proceedings;
    2. a defense of the obligor stated in another section of this chapter or a defense of the obligor that would be available if the person entitled to enforce the instrument were enforcing a right to payment under a simple contract; and
    3. a claim in recoupment of the obligor against the original payee of the instrument if the claim arose from the transaction that gave rise to the instrument; but the claim of the obligor may be asserted against a transferee of the instrument only to reduce the amount owing on the instrument at the time the action is brought.
  2. The right of a holder in due course to enforce the obligation of a party to pay the instrument is subject to defenses of the obligor stated in subdivision (a)(1), but is not subject to defenses of the obligor stated in subdivision (a)(2) or claims in recoupment stated in subdivision (a)(3) against a person other than the holder.
  3. Except as stated in subsection (d), in an action to enforce the obligation of a party to pay the instrument, the obligor may not assert against the person entitled to enforce the instrument a defense, claim in recoupment, or claim to the instrument (§ 4-3-306) of another person, but the other person's claim to the instrument may be asserted by the obligor if the other person is joined in the action and personally asserts the claim against the person entitled to enforce the instrument. An obligor is not obliged to pay the instrument if the person seeking enforcement of the instrument does not have rights of a holder in due course and the obligor proves that the instrument is a lost or stolen instrument.
  4. In an action to enforce the obligation of an accommodation party to pay an instrument, the accommodation party may assert against the person entitled to enforce the instrument any defense or claim in recoupment under subsection (a) that the accommodated party could assert against the person entitled to enforce the instrument, except the defenses of discharge in insolvency proceedings, infancy, and lack of legal capacity.
  5. In a consumer transaction, if law other than this chapter requires that an instrument include a statement to the effect that the rights of a holder or transferee are subject to a claim or defense that the issuer could assert against the original payee, and the instrument does not include such a statement:
    1. the instrument has the same effect as if the instrument included such a statement;
    2. the issuer may assert against the holder or transferee all claims and defenses that would have been available if the instrument included such a statement; and
    3. the extent to which claims may be asserted against the holder or transferee is determined as if the instrument included such a statement.
  6. This section is subject to law other than this chapter that establishes a different rule for consumer transactions.

History. Acts 1991, No. 572, § 5; 2005, No. 856, §§ 31, 32.

Research References

ALR.

What constitutes “dealing” under UCC § 3-305(2), providing that holder in due course takes instrument free from all defenses of any party to instrument with whom holder has not dealt. 42 A.L.R.5th 137.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Completion of Instrument.

A purchaser of a commercial instrument is entitled to the status of a holder in due course even though he knows that the possessor of the signed instrument filled in the blanks, unless, as set out in this section, the purchaser has notice that the instrument was improperly completed. Cook v. Southern Credit Corp., 247 Ark. 981, 448 S.W.2d 634 (1970) (decision under prior law).

Cited: Terry v. Rice (In re Cheqnet Sys.), 246 B.R. 873 (Bankr. E.D. Ark. 2000).

4-3-306. Claims to an instrument.

A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim to the instrument.

History. Acts 1991, No. 572, § 5.

4-3-307. Notice of breach of fiduciary duty.

  1. In this section:
    1. “Fiduciary” means an agent, trustee, partner, corporate officer or director, or other representative owing a fiduciary duty with respect to an instrument.
    2. “Represented person” means the principal, beneficiary, partnership, corporation, or other person to whom the duty stated in paragraph (1) is owed.
  2. If (i) an instrument is taken from a fiduciary for payment or collection or for value, (ii) the taker has knowledge of the fiduciary status of the fiduciary, and (iii) the represented person makes a claim to the instrument or its proceeds on the basis that the transaction of the fiduciary is a breach of fiduciary duty, the following rules apply:
    1. Notice of breach of fiduciary duty by the fiduciary is notice of the claim of the represented person.
    2. In the case of an instrument payable to the represented person or the fiduciary, as such, the taker has notice of the breach of fiduciary duty if the instrument is (i) taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary, (ii) taken in a transaction known by the taker to be for the personal benefit of the fiduciary, or (iii) deposited to an account other than an account of the fiduciary, as such, or an account of the represented person.
    3. If an instrument is issued by the represented person or the fiduciary as such, and made payable to the fiduciary personally, the taker does not have notice of the breach of fiduciary duty unless the taker knows of the breach of fiduciary duty.
    4. If an instrument is issued by the represented person or the fiduciary, as such, to the taker as payee, the taker has notice of the breach of fiduciary duty if the instrument is (i) taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary, (ii) taken in a transaction known by the taker to be for the personal benefit of the fiduciary, or (iii) deposited to an account other than an account of the fiduciary, as such, or an account of the represented person.

History. Acts 1991, No. 572, § 5.

4-3-308. Proof of signatures and status as holder in due course.

  1. In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument is admitted unless specifically denied in the pleadings. If the validity of a signature is denied in the pleadings, the burden of establishing validity is on the person claiming validity, but the signature is presumed to be authentic and authorized unless the action is to enforce the liability of the purported signer and the signer is dead or incompetent at the time of trial of the issue of validity of the signature. If an action to enforce the instrument is brought against a person as the undisclosed principal of a person who signed the instrument as a party to the instrument, the plaintiff has the burden of establishing that the defendant is liable on the instrument as a represented person under § 4-3-402(a).
  2. If the validity of signatures is admitted or proved and there is compliance with subsection (a), a plaintiff producing the instrument is entitled to payment if the plaintiff proves entitlement to enforce the instrument under § 4-3-301, unless the defendant proves a defense or claim in recoupment. If a defense or claim in recoupment is proved, the right to payment of the plaintiff is subject to the defense or claim, except to the extent the plaintiff proves that the plaintiff has rights of a holder in due course which are not subject to the defense or claim.

History. Acts 1991, No. 572, § 5.

Research References

Ark. L. Notes.

Janet A. Flaccus, Counterfeit Checks — What Rules Should Cover These?, 2011 Ark. L. Notes 618.

Case Notes

Production of Instrument.

Where there was no evidence the note was accepted in payment of the debt, if the debt was not paid when the note became due, suit could be maintained on either the note or the account; however, it was necessary for the creditor to produce and surrender the note in court to be entitled to a judgment on the open account. Skelton v. Farm Serv. Coop., 266 Ark. 827, 587 S.W.2d 76 (Ct. App. 1979) (decision under prior law).

Signatures.

Where the signatures on the commercial instrument on which suit was brought were not specifically denied in the pleadings, they stood as admitted. BWH, Inc. v. Metropolitan Nat'l Bank, 267 Ark. 182, 590 S.W.2d 247 (1979) (decision under prior law).

4-3-309. Enforcement of lost, destroyed, or stolen instrument.

  1. A person not in possession of an instrument is entitled to enforce the instrument if:
      1. the person was entitled to enforce the instrument when loss of possession occurred, or
      2. the person has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred;
    1. the loss of possession was not the result of a transfer by the person or a lawful seizure; and
    2. the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.
  2. A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person's right to enforce the instrument. If that proof is made, § 4-3-308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means.

History. Acts 1991, No. 572, § 5; 2005, No. 856, § 33.

RESEARCH REFERENCES

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Joint Payee.

This section did not provide a remedy to a joint payee on a check where the joint payee gave the check to the other joint payee to indorse, and the other joint payee refused to return the check and later cashed it and retained the proceeds. A.C.E., Inc. v. Inland Mtg. Co., 333 Ark. 232, 969 S.W.2d 176 (1998).

Lost Note.

Second priority lender's argument that the first lender could not meet the requirements of this section because it could not show that it was entitled to enforce the note at the time the note was lost failed because even so, the first mortgage was still enforceable and did not elevate the second priority lender to first priority. Arvest Bank v. Bank of Am., N.A., 2013 Ark. App. 112 (2013).

Photocopy Held Insufficient.

The creditor, as an assignee of the defendant's mortgage note, could not sue on the underlying debt the defendants owed to the original mortgagor; and for the creditor to have prevailed in enforcing the note, it was required either to produce the original or satisfy the requirements for a lost negotiable instrument under subsections (a) and (b). McKay v. Capital Resources Co., 327 Ark. 737, 940 S.W.2d 869 (1997).

Tax Liens.

This section did not bar the enforcement of federal tax lien by the foreclosure on a note and mortgage where the United States presented convincing evidence as to the terms of the note and the fact that the debtor was the holder of the note when it was lost or destroyed. United States v. Jepsen, 268 F.3d 582 (8th Cir. 2001).

4-3-310. Effect of instrument on obligation for which taken.

  1. Unless otherwise agreed, if a certified check, cashier's check, or teller's check is taken for an obligation, the obligation is discharged to the same extent discharge would result if an amount of money equal to the amount of the instrument were taken in payment of the obligation. Discharge of the obligation does not affect any liability that the obligor may have as an indorser of the instrument.
  2. Unless otherwise agreed and except as provided in subsection (a), if a note or an uncertified check is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken, and the following rules apply:
    1. In the case of an uncertified check, suspension of the obligation continues until dishonor of the check or until it is paid or certified. Payment or certification of the check results in discharge of the obligation to the extent of the amount of the check.
    2. In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note results in discharge of the obligation to the extent of the payment.
    3. Except as provided in paragraph (4), if the check or note is dishonored and the obligee of the obligation for which the instrument was taken is the person entitled to enforce the instrument, the obligee may enforce either the instrument or the obligation. In the case of an instrument of a third person which is negotiated to the obligee by the obligor, discharge of the obligor on the instrument also discharges the obligation.
    4. If the person entitled to enforce the instrument taken for an obligation is a person other than the obligee, the obligee may not enforce the obligation to the extent the obligation is suspended. If the obligee is the person entitled to enforce the instrument but no longer has possession of it because it was lost, stolen, or destroyed, the obligation may not be enforced to the extent of the amount payable on the instrument, and to that extent the obligee's rights against the obligor are limited to enforcement of the instrument.
  3. If an instrument other than one described in subsection (a) or (b) is taken for an obligation, the effect is (i) that stated in subsection (a) if the instrument is one on which a bank is liable as maker or acceptor, or (ii) that stated in subsection (b) in any other case.

History. Acts 1991, No. 572, § 5.

Case Notes

In General.

This section does no more than recognize the uncertainty attendant upon an uncertified and unpaid check and suspends the obligation until that uncertainty is resolved. France v. Ford Motor Credit Co., 323 Ark. 167, 913 S.W.2d 770 (1996).

Effect of Transfer.

Under subdivision (b)(3), an obligee may enforce either the note or the debt; however, when the note is transferred to a third party the only right that survives is the right to enforce the note. McKay v. Capital Resources Co., 327 Ark. 737, 940 S.W.2d 869 (1997).

4-3-311. Accord and satisfaction by use of instrument.

  1. If a person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained payment of the instrument, the following subsections apply.
  2. Unless subsection (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.
  3. Subject to subsection (d), a claim is not discharged under subsection (b) if either of the following applies:
    1. The claimant, if an organization, proves that (i) within a reasonable time before the tender, the claimant sent a conspicuous statement to the person against whom the claim is asserted that communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to a designated person, office, or place, and (ii) the instrument or accompanying communication was not received by that designated person, office, or place.
    2. The claimant, whether or not an organization, proves that within ninety (90) days after payment of the instrument, the claimant tendered repayment of the amount of the instrument to the person against whom the claim is asserted. This subdivision does not apply if the claimant is an organization that sent a statement complying with (c)(1)(i).
  4. A claim is discharged if the person against whom the claim is asserted proves that within a reasonable time before collection of the instrument was initiated, the claimant, or an agent of the claimant having direct responsibility with respect to the disputed obligation, knew that the instrument was tendered in full satisfaction of the claim.

History. Acts 1991, No. 572, § 5.

Research References

U. Ark. Little Rock L.J.

Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.

Case Notes

Acceptance of Payment.

Generally, acceptance by a creditor of a check offered by the debtor in full payment of a disputed claim is an accord and satisfaction of the claim; a payee is estopped to deny an account has been paid in full where, after a dispute as to the amount due, a payee accepts and cashes a check that recites that it is in settlement of the account. Hardison v. Jackson, 45 Ark. App. 49, 871 S.W.2d 410 (1994).

Where the uncontroverted evidence plainly showed that defendants disputed the amount they owed plaintiff when plaintiff accepted defendants' check, the defendants proved their defense of accord and satisfaction and the chancellor's award of damages and attorney's fees in favor of plaintiff was clearly erroneous. Hardison v. Jackson, 45 Ark. App. 49, 871 S.W.2d 410 (1994).

In an action for breach of contract, the circuit court abused its discretion when it set aside its previous order granting appellant attorney's fees because an accord and satisfaction under this section did not take place when appellant cashed appellee's check; the note on the check did not say anything about attorney's fees — it simply stated that it was payment in full of the judgment. Therefore, appellee's check satisfied only the liquidated judgment and did not affect the collateral attorney's fee issue. Rouse v. Myers, 2013 Ark. App. 313 (2013).

Cited: Landreth v. First Nat'l Bank, 45 F.3d 267 (8th Cir. 1995).

4-3-312. Lost, destroyed, or stolen cashier's check, teller's check, or certified check.

  1. In this section:
    1. “Check” means a cashier's check, teller's check, or certified check.
    2. “Claimant” means a person who claims the right to receive the amount of a cashier's check, teller's check, or certified check that was lost, destroyed, or stolen.
    3. “Declaration of loss” means a written statement, made in a record under penalty of perjury, to the effect that (i) the declarer lost possession of a check, (ii) the declarer is the drawer or payee of the check, in the case of a certified check, or the remitter or payee of the check, in the case of a cashier's check or teller's check, (iii) the loss of possession was not the result of a transfer by the declarer or a lawful seizure, and (iv) the declarer cannot reasonably obtain possession of the check because the check was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.
    4. “Obligated bank” means the issuer of a cashier's check or teller's check or the acceptor of a certified check.
  2. A claimant may assert a claim to the amount of a check by a communication to the obligated bank describing the check with reasonable certainty and requesting payment of the amount of the check, if (i) the claimant is the drawer or payee of a certified check or the remitter or payee of a cashier's check or teller's check, (ii) the communication contains or is accompanied by a declaration of loss of the claimant with respect to the check, (iii) the communication is received at a time and in a manner affording the bank a reasonable time to act on it before the check is paid, and (iv) the claimant provides reasonable identification if requested by the obligated bank. Delivery of a declaration of loss is a warranty of the truth of the statements made in the declaration. If a claim is asserted in compliance with this subsection, the following rules apply:
    1. The claim becomes enforceable at the later of (i) the time the claim is asserted, or (ii) the 90th day following the date of the check, in the case of a cashier's check or teller's check, or the 90th day following the date of the acceptance, in the case of a certified check.
    2. Until the claim becomes enforceable, it has no legal effect and the obligated bank may pay the check or, in the case of a teller's check, may permit the drawee to pay the check. Payment to a person entitled to enforce the check discharges all liability of the obligated bank with respect to the check.
    3. If the claim becomes enforceable before the check is presented for payment, the obligated bank is not obliged to pay the check.
    4. When the claim becomes enforceable, the obligated bank becomes obliged to pay the amount of the check to the claimant if payment of the check has not been made to a person entitled to enforce the check. Subject to § 4-4-302(a)(1), payment to the claimant discharges all liability of the obligated bank with respect to the check.
  3. If the obligated bank pays the amount of a check to a claimant under subdivision (b)(4) and the check is presented for payment by a person having rights of a holder in due course, the claimant is obliged to (i) refund the payment to the obligated bank if the check is paid, or (ii) pay the amount of the check to the person having rights of a holder in due course if the check is dishonored.
  4. If a claimant has the right to assert a claim under subsection (b) and is also a person entitled to enforce a cashier's check, teller's check, or certified check which is lost, destroyed, or stolen, the claimant may assert rights with respect to the check either under this section or § 4-3-309.

History. Acts 2005, No. 856, § 34.

RESEARCH REFERENCES

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Part 4 — Liability of Parties

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

ALR.

Construction and effect of UCC § 3-416 governing guaranty contracts. 10 A.L.R.4th 897.

Construction and effect of “padded payroll” rule of UCC § 3-405. 45 A.L.R.5th 389.

Payee's and Drawer's Right of Recovery, in Conversion Under Pre-1990 UCC § 3-419, or Post-1990 UCC § 3-420, for Money Paid on Unauthorized Indorsement. 91 A.L.R.5th 89.

Ark. L. Rev.

Bank to Consumer Relations under the Uniform Commercial Code: Article IV, 16 Ark. L. Rev. 66.

U. Ark. Little Rock L.J.

Jenkins, Arkansas's Revised Article 3: User Caution Advised!!, 16 U. Ark. Little Rock L.J. 573.

4-3-401. Signature.

  1. A person is not liable on an instrument unless (i) the person signed the instrument, or (ii) the person is represented by an agent or representative who signed the instrument and the signature is binding on the represented person under § 4-3-402.
  2. A signature may be made (i) manually or by means of a device or machine, and (ii) by the use of any name, including a trade or assumed name, or by a word, mark, or symbol executed or adopted by a person with present intention to authenticate a writing.

History. Acts 1991, No. 572, § 5.

Research References

U. Ark. Little Rock L.J.

Survey of Arkansas: Business Law, 6 U. Ark. Little Rock L.J. 73.

Case Notes

Printed Names.

A bank which issues a personal money order cannot deny liability on the instrument based upon subsection (a) or (b) of this section, since the issuance of a money order with the bank's printed name evidences the bank's intent to be bound thereby. Sequoyah State Bank v. Union Nat'l Bank, 274 Ark. 1, 621 S.W.2d 683 (1981) (decision under prior law).

Signature.

No person is liable on a negotiable instrument unless his signature appears on it. Bank of Cave City v. Justice Farms, Inc., 297 Ark. 335, 761 S.W.2d 921 (1988) (decision under prior law).

One can be a holder in due course only of a negotiable instrument, and that instrument, among other things, must be signed by the maker or drawer. Bank of Cave City v. Justice Farms, Inc., 297 Ark. 335, 761 S.W.2d 921 (1988) (decision under prior law).

4-3-402. Signature by representative.

  1. If a person acting, or purporting to act, as a representative signs an instrument by signing either the name of the represented person or the name of the signer, the represented person is bound by the signature to the same extent the represented person would be bound if the signature were on a simple contract. If the represented person is bound, the signature of the representative is the “authorized signature of the represented person” and the represented person is liable on the instrument, whether or not identified in the instrument.
  2. If a representative signs the name of the representative to an instrument and the signature is an authorized signature of the represented person, the following rules apply:
    1. If the form of the signature shows unambiguously that the signature is made on behalf of the represented person who is identified in the instrument, the representative is not liable on the instrument.
    2. Subject to subsection (c), if (i) the form of the signature does not show unambiguously that the signature is made in a representative capacity or (ii) the represented person is not identified in the instrument, the representative is liable on the instrument to a holder in due course that took the instrument without notice that the representative was not intended to be liable on the instrument. With respect to any other person, the representative is liable on the instrument unless the representative proves that the original parties did not intend the representative to be liable on the instrument.
  3. If a representative signs the name of the representative as drawer of a check without indication of the representative status and the check is payable from an account of the represented person who is identified on the check, the signer is not liable on the check if the signature is an authorized signature of the represented person.

History. Acts 1991, No. 572, § 5.

Research References

U. Ark. Little Rock L.J.

Survey—Business Law, 10 U. Ark. Little Rock L.J. 89.

Case Notes

Corporate Officers.

The signature of a corporation secretary on a note with the name of the corporation typed above his signature, but with nothing on the note to indicate his office or the capacity in which he signed was insufficient to avoid personal liability on the part of such officer. Fanning v. Hembree Oil Co., 245 Ark. 825, 434 S.W.2d 822 (1968) (decision under prior law).

Where the president of a corporation signed a bank note for the corporation on the face of the note, and also personally signed the note on the reverse side, the president was an endorser of the note, not a co-maker, as there was no clear indication that the note was signed in some other capacity as required by this section. Merchants Nat'l Bank v. Blass, 282 Ark. 497, 669 S.W.2d 195 (1984) (decision under prior law).

Where defendant, in signing two notes, added the handwritten title “V. Pres.” after his signatures on signature lines designated “individually”, appellate court held that, based on the language of the notes and other evidence introduced at trial, the added title was merely descriptive and did not insulate defendant from individual liability. Mollenhour v. State First Nat'l Bank, 27 Ark. App. 176, 769 S.W.2d 28 (1989) (decision under prior law).

Failure to Name Person Represented.

One who co-signed a note and contract as “trustee” without disclosing on the instrument the identity of the trust was nevertheless personally obligated to an assignee of the note. Rushton v. U.M. & M. Credit Corp., 245 Ark. 703, 434 S.W.2d 81 (1968) (decision under prior law).

Failure to Show Representative Capacity.

A corporation secretary's typing the name of the corporation above his signature on a note without anything to indicate his office or the capacity in which he signed was insufficient to avoid personal liability on the part of such officer. Fanning v. Hembree Oil Co., 245 Ark. 825, 434 S.W.2d 822 (1968) (decision under prior law).

A signature is only in a representative capacity if the name of the organization is preceded or followed by the name and office of an authorized individual; thus, although the name of the corporation preceded an individual's name, the office held by the individual was not indicated and therefore the defendant could not avoid personal liability even though he did not sign in the individual guaranty space on the reverse side of the note. United Fasteners, Inc. v. First State Bank, 286 Ark. 202, 691 S.W.2d 126 (1985) (decision under prior law).

Harmless Error.

Although a part of the instructions could be construed to be in conflict with this section, the error was harmless where the court gave this section in another instruction. Peoples Bank & Trust Co. v. Wallace, 290 Ark. 589, 721 S.W.2d 659 (1986) (decision under prior law).

Liability.

Company was liable as an endorser where it gave a bondsman actual authority to endorse its name on a check; it was irrelevant that the bondsman later misappropriated the funds. Holt Bonding Co. v. First Fed. Bank, 82 Ark. App. 8, 110 S.W.3d 298 (2003).

Parol Evidence.

In an action between the immediate parties to the instrument, this section allows an agent who has signed a negotiable instrument to introduce parol evidence to establish that personal liability on his part was not intended. Evelyn Hills Pharmacy, Inc. v. First Nat'l Bank, 289 Ark. 351, 712 S.W.2d 291 (1986) (decision under prior law).

Parol evidence may be used to show that the immediate parties intended for the named principal to be liable; therefore, although the signature on a note by an owner with a one-half interest in the pharmacy did not clearly show that the signature was on behalf of the purported principal, the parol evidence showed that all parties to the transaction intended that the pharmacy be liable as principal because part of the proceeds were used to retire an earlier corporate note and the remaining $20,000 was deposited in the pharmacy's account, and the pharmacy was held liable as principal. Evelyn Hills Pharmacy, Inc. v. First Nat'l Bank, 289 Ark. 351, 712 S.W.2d 291 (1986) (decision under prior law).

Personal Liability.

Where the guarantor signed his name after the corporate name, but there was no evidence, other than the guarantor's own statement, that he intended to sign in a representative capacity and that his failure to indicate “President” after his name was an oversight, the guarantor was personally liable. Cleveland Chem. Co. v. Keller, 19 Ark. App. 7, 716 S.W.2d 204 (1986) (decision under prior law).

Where defendant, in signing two notes, added the handwritten title “V. Pres.” after his signatures on signature lines designated “individually”, appellate court held that, based on the language of the notes and other evidence introduced at trial, the added title was merely descriptive and did not insulate defendant from individual liability. Mollenhour v. State First Nat'l Bank, 27 Ark. App. 176, 769 S.W.2d 28 (1989) (decision under prior law).

Instrument executed by a company accountant constituted a check under § 4-3-104(f)(i), and not a promissory note, because the owner of a company was the one who asked two creditors to delay presentment of the document for payment; therefore, summary judgment was properly granted in favor of the accountant, who was not personally liable for payment. Billingsley v. Smith, 85 Ark. App. 128, 147 S.W.3d 697 (2004).

Pleading.

In a suit on a promissory note, a general denial foreclosed any claimed right defendant might have under this section to show the status under which he signed the note. Chiles v. Mann & Mann, Inc., 240 Ark. 527, 400 S.W.2d 667 (1966) (decision under prior law).

Cited: Am. State Bank v. Union Planters Bank, N.A., 332 F.3d 533 (8th Cir. 2003).

4-3-403. Unauthorized signature.

  1. Unless otherwise provided in this chapter or § 4-4-401 et seq., an unauthorized signature is ineffective except as the signature of the unauthorized signer in favor of a person who in good faith pays the instrument or takes it for value. An unauthorized signature may be ratified for all purposes of this chapter.
  2. If the signature of more than one (1) person is required to constitute the authorized signature of an organization, the signature of the organization is unauthorized if one (1) of the required signatures is lacking.
  3. The civil or criminal liability of a person who makes an unauthorized signature is not affected by any provision of this chapter which makes the unauthorized signature effective for the purposes of this chapter.

History. Acts 1991, No. 572, § 5.

Case Notes

Agents.

A signature by an agent in excess of his authority is an “unauthorized signature.” Pine Bluff Nat'l Bank v. Kesterson, 257 Ark. 813, 520 S.W.2d 253 (1975) (decision under prior law).

Ratification.

When the payees, whose endorsements had been forged, accepted payments due them from the proceeds of the checks, the unauthorized endorsements became ratified. Starkey Constr., Inc. v. Elcon, Inc., 248 Ark. 958, 457 S.W.2d 509 (1970) (decision under prior law).

Since this section does not define or explain ratification, it was not error for the court to go beyond this section to form the instruction. Peoples Bank & Trust Co. v. Wallace, 290 Ark. 589, 721 S.W.2d 659 (1986) (decision under prior law).

Unjust Enrichment.

Where husband forged wife's name on a promissory note and wife was unaware that her name had been signed to the note, and she accepted the benefits of what she thought was money her husband had obtained on a personal loan, and took no action that would indicate she intended to be bound by the note, finding that wife was not unjustly enriched was correct. Merchants & Planters Bank & Trust Co. v. Massey, 302 Ark. 421, 790 S.W.2d 889 (1990) (decision under prior law).

4-3-404. Impostors — Fictitious payees.

  1. If an impostor, by use of the mails or otherwise, induces the issuer of an instrument to issue the instrument to the impostor, or to a person acting in concert with the impostor, by impersonating the payee of the instrument or a person authorized to act for the payee, an indorsement of the instrument by any person in the name of the payee is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection.
  2. If (i) a person whose intent determines to whom an instrument is payable (§ 4-3-110(a) or (b)) does not intend the person identified as payee to have any interest in the instrument, or (ii) the person identified as payee of an instrument is a fictitious person, the following rules apply until the instrument is negotiated by special indorsement:
    1. Any person in possession of the instrument is its holder.
    2. An indorsement by any person in the name of the payee stated in the instrument is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection.
  3. Under subsection (a) or (b), an indorsement is made in the name of a payee if (i) it is made in a name substantially similar to that of the payee or (ii) the instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to that of the payee.
  4. With respect to an instrument to which subsection (a) or (b) applies, if a person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from payment of the instrument, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.

History. Acts 1991, No. 572, § 5.

4-3-405. Employer's responsibility for fraudulent indorsement by employee.

  1. In this section:
    1. “Employee” includes an independent contractor and employee of an independent contractor retained by the employer.
    2. “Fraudulent indorsement” means (i) in the case of an instrument payable to the employer, a forged indorsement purporting to be that of the employer, or (ii) in the case of an instrument with respect to which the employer is the issuer, a forged indorsement purporting to be that of the person identified as payee.
    3. “Responsibility” with respect to instruments means authority (i) to sign or indorse instruments on behalf of the employer, (ii) to process instruments received by the employer for bookkeeping purposes, for deposit to an account, or for other disposition, (iii) to prepare or process instruments for issue in the name of the employer, (iv) to supply information determining the names or addresses of payees of instruments to be issued in the name of the employer, (v) to control the disposition of instruments to be issued in the name of the employer, or (vi) to act otherwise with respect to instruments in a responsible capacity. “Responsibility” does not include authority that merely allows an employee to have access to instruments or blank or incomplete instrument forms that are being stored or transported or are part of incoming or outgoing mail, or similar access.
  2. For the purpose of determining the rights and liabilities of a person who, in good faith, pays an instrument or takes it for value or for collection, if an employer entrusted an employee with responsibility with respect to the instrument and the employee or a person acting in concert with the employee makes a fraudulent indorsement of the instrument, the indorsement is effective as the indorsement of the person to whom the instrument is payable if it is made in the name of that person. If the person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.
  3. Under subsection (b), an indorsement is made in the name of the person to whom an instrument is payable if (i) it is made in a name substantially similar to the name of that person or (ii) the instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to the name of that person.

History. Acts 1991, No. 572, § 5.

Research References

ALR.

Construction and effect of “padded payroll” rule of UCC § 3-405. 45 A.L.R.5th 389.

Case Notes

Good Faith of Bank.

A bank could assert that the statute relieved it of responsibility for checks improperly endorsed by an employee of a depositor only if it acted in good faith. United States Fid. & Guar. Co. v. Bank of Bentonville, 29 F. Supp. 2d 553 (W.D. Ark. 1998).

4-3-406. Negligence contributing to forged signature or alteration of instrument.

  1. A person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection.
  2. Under subsection (a), if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss.
  3. Under subsection (a), the burden of proving failure to exercise ordinary care is on the person asserting the preclusion. Under subsection (b), the burden of proving failure to exercise ordinary care is on the person precluded.

History. Acts 1991, No. 572, § 5.

Case Notes

Checks.

The alleged negligence of the issuer of a check in failing to timely stop payment on a check did not inure to the benefit of a joint payee of the check in its suit against the issuer, but instead could only be useful as a defense the bank might use as a defendant to the extent that the issuer's negligence contributed to a loss. A.C.E., Inc. v. Inland Mtg. Co., 333 Ark. 232, 969 S.W.2d 176 (1998).

Comparative Fault.

There was sufficient evidence to justify submitting to the jury the question of whether account holder's conduct after the forgery contributed to her loss, and trial court erroneously denied the instruction which would allow the jurors to compare the respective fault of the parties in causing the loss. Union Nat'l Bank v. Daneshvar, 33 Ark. App. 171, 803 S.W.2d 567 (1991) (decision under prior law).

Ordinary Care.

Bank customer attempted to take proper precautions to safeguard the checkbooks, ATM cards, and PIN from his daughter; thus, trial court did not err in concluding that the customer was not precluded from asserting the forgeries and unauthorized transactions against the bank pursuant to this section because the preclusion would only apply if the customer failed to exercise ordinary care that substantially contributed to the loss. Mercantile Bank v. Vowell, 82 Ark. App. 421, 117 S.W.3d 603 (2003).

4-3-407. Alteration.

  1. “Alteration” means (i) an unauthorized change in an instrument that purports to modify in any respect the obligation of a party, or (ii) an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party.
  2. Except as provided in subsection (c), an alteration fraudulently made discharges a party whose obligation is affected by the alteration unless that party assents or is precluded from asserting the alteration. No other alteration discharges a party, and the instrument may be enforced according to its original terms.
  3. A payor bank or drawee paying a fraudulently altered instrument or a person taking it for value, in good faith and without notice of the alteration, may enforce rights with respect to the instrument (i) according to its original terms, or (ii) in the case of an incomplete instrument altered by unauthorized completion, according to its terms as completed.

History. Acts 1991, No. 572, § 5.

Case Notes

Interest Rate.

Alteration of interest rate was material, but not fraudulent. In re Sanders, 75 B.R. 757 (Bankr. W.D. Ark. 1987) (decision under prior law).

Remedy.

Although bank attached a “limiting memorandum” to note, the drastic remedy of discharge of debtors' entire obligation was not appropriate where limiting memorandum reflected the final loan as it was actually approved, and defendant knew of this limitation and continued to operate under it. In re Slefco, 107 B.R. 628 (Bankr. E.D. Ark. 1989) (decision under prior law).

Validity Between Parties.

Where the changes made in a promissory note were the result of the borrowers' request for credit life insurance and were effected with their assent, and the subsequent correction in the amount of the monthly payments was merely for the purpose of conforming the payments to the actual agreement of the parties, the various errors, discrepancies and corrections rendered the note non-negotiable, but did not affect the validity of the note between the parties, even though none of the errors were directly attributable to the borrowers. Winkle v. Grand Nat'l Bank, 267 Ark. 123, 601 S.W.2d 559, cert. denied, 449 U.S. 880, 101 S. Ct. 230, 66 L. Ed. 2d 104 (1980) (decision under prior law).

Trial court properly determined that a decedent's companion did not convert the decedent's funds when she deposited a check into her account, as the decedent's estate failed to show that the check, which was an incomplete instrument under § 4-3-115(a) and (d), was completed without authority; as the change was deemed authorized, the check was not an altered instrument under subsection (a) of this section. Hankins v. Austin, 2012 Ark. App. 641, 425 S.W.3d 8 (2012).

4-3-408. Drawee not liable on unaccepted draft.

A check or other draft does not of itself operate as an assignment of funds in the hands of the drawee available for its payment, and the drawee is not liable on the instrument until the drawee accepts it.

History. Acts 1991, No. 572, § 5.

4-3-409. Acceptance of draft — Certified check.

  1. “Acceptance” means the drawee's signed agreement to pay a draft as presented. It must be written on the draft and may consist of the drawee's signature alone. Acceptance may be made at any time and becomes effective when notification pursuant to instructions is given or the accepted draft is delivered for the purpose of giving rights on the acceptance to any person.
  2. A draft may be accepted although it has not been signed by the drawer, is otherwise incomplete, is overdue, or has been dishonored.
  3. If a draft is payable at a fixed period after sight and the acceptor fails to date the acceptance, the holder may complete the acceptance by supplying a date in good faith.
  4. “Certified check” means a check accepted by the bank on which it is drawn. Acceptance may be made as stated in subsection (a) or by a writing on the check which indicates that the check is certified. The drawee of a check has no obligation to certify the check, and refusal to certify is not dishonor of the check.

History. Acts 1991, No. 572, § 5.

Research References

U. Ark. Little Rock L.J.

Survey of Arkansas: Business Law, 6 U. Ark. Little Rock L.J. 73.

Murphey, The Discontinuance of the Certified Check — An Arkansas Study, 16 U. Ark. Little Rock L.J. 555.

Case Notes

Bill of Exchange.

Where a bill of exchange was drawn upon the maker itself, the mere execution of it is deemed an acceptance of it. Canal Ins. Co. v. First Nat'l Bank, 266 Ark. 1044, 596 S.W.2d 710 (Ct. App. 1979), aff'd, 268 Ark. 356, 596 S.W.2d 709 (1980) (decision under prior law).

Issuance of Money Order.

Where a bank issues a personal money order in exchange for a “hot” check drawn on insufficient funds, it may not deny liability on the money order on a theory that under this section it did not accept the instrument, since the bank accepted the instrument in advance by the act of its issuance, because it was an obligation of the bank from the moment of its sale and issuance. Sequoyah State Bank v. Union Nat'l Bank, 274 Ark. 1, 621 S.W.2d 683 (1981) (decision under prior law).

4-3-410. Acceptance varying draft.

  1. If the terms of a drawee's acceptance vary from the terms of the draft as presented, the holder may refuse the acceptance and treat the draft as dishonored. In that case, the drawee may cancel the acceptance.
  2. The terms of a draft are not varied by an acceptance to pay at a particular bank or place in the United States, unless the acceptance states that the draft is to be paid only at that bank or place.
  3. If the holder assents to an acceptance varying the terms of a draft, the obligation of each drawer and indorser that does not expressly assent to the acceptance is discharged.

History. Acts 1991, No. 572, § 5.

Case Notes

Bill of Exchange.

Where a bill of exchange was drawn upon the maker itself, the mere execution of it is deemed an acceptance of it. Canal Ins. Co. v. First Nat'l Bank, 266 Ark. 1044, 596 S.W.2d 710 (Ct. App. 1979), aff'd, 268 Ark. 356, 596 S.W.2d 709 (1980) (decision under prior law).

Issuance of Money Order.

Where a bank issues a personal money order in exchange for a “hot” check drawn on insufficient funds, it may not deny liability on the money order on a theory that under this section it did not accept the instrument, since the bank accepted the instrument in advance by the act of its issuance, because it was an obligation of the bank from the moment of its sale and issuance. Sequoyah State Bank v. Union Nat'l Bank, 274 Ark. 1, 621 S.W.2d 683 (1981) (decision under prior law).

4-3-411. Refusal to pay cashier's checks, teller's checks, and certified checks.

  1. In this section, “obligated bank” means the acceptor of a certified check or the issuer of a cashier's check or teller's check bought from the issuer.
  2. If the obligated bank wrongfully (i) refuses to pay a cashier's check or certified check, (ii) stops payment of a teller's check, or (iii) refuses to pay a dishonored teller's check, the person asserting the right to enforce the check is entitled to compensation for expenses and loss of interest resulting from the nonpayment and may recover consequential damages if the obligated bank refuses to pay after receiving notice of particular circumstances giving rise to the damages.
  3. Expenses or consequential damages under subsection (b) are not recoverable if the refusal of the obligated bank to pay occurs because (i) the bank suspends payments, (ii) the obligated bank asserts a claim or defense of the bank that it has reasonable grounds to believe is available against the person entitled to enforce the instrument, (iii) the obligated bank has a reasonable doubt whether the person demanding payment is the person entitled to enforce the instrument, or (iv) payment is prohibited by law.

History. Acts 1991, No. 572, § 5.

Research References

U. Ark. Little Rock L.J.

Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.

Murphey, The Discontinuance of the Certified Check — An Arkansas Study, 16 U. Ark. Little Rock L.J. 555.

4-3-412. Obligation of issuer of note or cashier's check.

The issuer of a note or cashier's check or other draft drawn on the drawer is obliged to pay the instrument (i) according to its terms at the time it was issued or, if not issued, at the time it first came into possession of a holder, or (ii) if the issuer signed an incomplete instrument, according to its terms when completed, to the extent stated in §§ 4-3-115 and 4-3-407. The obligation is owed to a person entitled to enforce the instrument or to an indorser who paid the instrument under § 4-3-415.

History. Acts 1991, No. 572, § 5.

Case Notes

Issuance of Money Order.

Where a bank issues a personal money order in exchange for a “hot” check drawn on insufficient funds, it may not deny liability on the money order on a theory that under this section it did not accept the instrument, since the bank accepted the instrument in advance by the act of its issuance, because it was an obligation of the bank from the moment of its sale and issuance. Sequoyah State Bank v. Union Nat'l Bank, 274 Ark. 1, 621 S.W.2d 683 (1981) (decision under prior law).

4-3-413. Obligation of acceptor.

  1. The acceptor of a draft is obliged to pay the draft (i) according to its terms at the time it was accepted, even though the acceptance states that the draft is payable “as originally drawn” or equivalent terms, (ii) if the acceptance varies the terms of the draft, according to the terms of the draft as varied, or (iii) if the acceptance is of a draft that is an incomplete instrument, according to its terms when completed, to the extent stated in §§ 4-3-115 and 4-3-407. The obligation is owed to a person entitled to enforce the draft or to the drawer or an indorser who paid the draft under § 4-3-414 or § 4-3-415.
  2. If the certification of a check or other acceptance of a draft states the amount certified or accepted, the obligation of the acceptor is that amount. If (i) the certification or acceptance does not state an amount, (ii) the amount of the instrument is subsequently raised, and (iii) the instrument is then negotiated to a holder in due course, the obligation of the acceptor is the amount of the instrument at the time it was taken by the holder in due course.

History. Acts 1991, No. 572, § 5.

Research References

U. Ark. Little Rock L.J.

Murphey, The Discontinuance of the Certified Check — An Arkansas Study, 16 U. Ark. Little Rock L.J. 555.

4-3-414. Obligation of drawer.

  1. This section does not apply to cashier's checks or other drafts drawn on the drawer.
  2. If an unaccepted draft is dishonored, the drawer is obliged to pay the draft (i) according to its terms at the time it was issued or, if not issued, at the time it first came into possession of a holder, or (ii) if the drawer signed an incomplete instrument, according to its terms when completed, to the extent stated in §§ 4-3-115 and 4-3-407. The obligation is owed to a person entitled to enforce the draft or to an indorser who paid the draft under § 4-3-415.
  3. If a draft is accepted by a bank, the drawer is discharged, regardless of when or by whom acceptance was obtained.
  4. If a draft is accepted and the acceptor is not a bank, the obligation of the drawer to pay the draft if the draft is dishonored by the acceptor is the same as the obligation of an indorser under § 4-3-415(a) and (c).
  5. If a draft states that it is drawn “without recourse” or otherwise disclaims liability of the drawer to pay the draft, the drawer is not liable under subsection (b) to pay the draft if the draft is not a check. A disclaimer of the liability stated in subsection (b) is not effective if the draft is a check.
  6. If (i) a check is not presented for payment or given to a depositary bank for collection within thirty (30) days after its date, (ii) the drawee suspends payments after expiration of the thirty-day period without paying the check, and (iii) because of the suspension of payments, the drawer is deprived of funds maintained with the drawee to cover payment of the check, the drawer to the extent deprived of funds may discharge its obligation to pay the check by assigning to the person entitled to enforce the check the rights of the drawer against the drawee with respect to the funds.

History. Acts 1991, No. 572, § 5.

Case Notes

Discharge Upheld.

The obligation of the issuer of a check was discharged at the time of payment, notwithstanding that one of the joint payees cashed the check and refused to pay an amount due to the other joint payee. A.C.E., Inc. v. Inland Mtg. Co., 333 Ark. 232, 969 S.W.2d 176 (1998).

4-3-415. Obligation of indorser.

  1. Subject to subsections (b), (c), and (d) and to § 4-3-419(d), if an instrument is dishonored, an indorser is obliged to pay the amount due on the instrument (i) according to the terms of the instrument at the time it was indorsed, or (ii) if the indorser indorsed an incomplete instrument, according to its terms when completed, to the extent stated in §§ 4-3-115 and 4-3-407. The obligation of the indorser is owed to a person entitled to enforce the instrument or to a subsequent indorser who paid the instrument under this section.
  2. If an indorsement states that it is made “without recourse” or otherwise disclaims liability of the indorser, the indorser is not liable under subsection (a) to pay the instrument.
  3. If notice of dishonor of an instrument is required by § 4-3-503 and notice of dishonor complying with that section is not given to an indorser, the liability of the indorser under subsection (a) is discharged.
  4. If a draft is accepted by a bank after an indorsement is made, the liability of the indorser under subsection (a) is discharged.
  5. If an indorser of a check is liable under subsection (a) and the check is not presented for payment, or given to a depositary bank for collection, within thirty (30) days after the day the indorsement was made, the liability of the indorser under subsection (a) is discharged.

History. Acts 1991, No. 572, § 5.

Research References

Ark. L. Rev.

Bills and Notes — Qualified Indorsements, 18 Ark. L. Rev. 167.

Case Notes

Liability.

Company was liable as an endorser where it gave a bondsman actual authority to endorse its name on a check; it was irrelevant that the bondsman later misappropriated the funds. Holt Bonding Co. v. First Fed. Bank, 82 Ark. App. 8, 110 S.W.3d 298 (2003).

4-3-416. Transfer warranties.

  1. A person who transfers an instrument for consideration warrants to the transferee and, if the transfer is by indorsement, to any subsequent transferee that:
    1. the warrantor is a person entitled to enforce the instrument;
    2. all signatures on the instrument are authentic and authorized;
    3. the instrument has not been altered;
    4. the instrument is not subject to a defense or claim in recoupment of any party which can be asserted against the warrantor;
    5. the warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker or acceptor or, in the case of an unaccepted draft, the drawer; and
    6. with respect to a 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 person to whom the warranties under subsection (a) are made and who took the instrument in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, but not more than the amount of the instrument plus expenses and loss of interest incurred as a result of the breach.
  3. The warranties stated in subsection (a) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within 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 (b) is discharged to the extent of any loss caused by the delay in giving notice of the claim.
  4. A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.
  5. If the warranty in subdivision (a)(6) of this section is not given by a transferor under applicable conflict of laws rules, then the warranty in subdivision (a)(6) of this section is not given to that transferor when that transferor is a transferee.

History. Acts 1991, No. 572, § 5; 2005, No. 856, §§ 35, 36.

RESEARCH REFERENCES

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

4-3-417. Presentment warranties.

  1. If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that:
    1. the warrantor is, or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft;
    2. the draft has not been altered;
    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 drawee making payment may recover from any warrantor damages for breach of warranty equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer because of the payment. In addition, the drawee is entitled to compensation for expenses and loss of interest resulting from the breach. The right of the drawee to recover damages under this subsection is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft, breach of warranty is a defense to the obligation of the acceptor. If the acceptor makes payment with respect to the draft, the acceptor is entitled to recover from any warrantor for breach of warranty the amounts stated in this subsection.
  3. If a drawee asserts a claim for breach of warranty under subsection (a) based on an unauthorized indorsement of the draft or an alteration of the draft, the warrantor may defend by proving that the indorsement is effective under § 4-3-404 or § 4-3-405 or the drawer is precluded under § 4-3-406 or § 4-4-406 from asserting against the drawee the unauthorized indorsement or alteration.
  4. If (i) a dishonored draft is presented for payment to the drawer or an indorser or (ii) any other instrument is presented for payment to a party obliged to pay the instrument, and (iii) payment is received, the following rules apply:
    1. The person obtaining payment and a prior transferor of the instrument warrant to the person making payment in good faith that the warrantor is, or was, at the time the warrantor transferred the instrument, a person entitled to enforce the instrument or authorized to obtain payment on behalf of a person entitled to enforce the instrument;
    2. The person making payment may recover from any warrantor for breach of warranty an amount equal to the amount paid plus expenses and loss of interest resulting from the breach.
  5. The warranties stated in subsections (a) and (d) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within 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 (b) or (d) is discharged to the extent of any loss caused by the delay in giving notice of the claim.
  6. A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

History. Acts 1991, No. 572, § 5; 2005, No. 856, § 37.

RESEARCH REFERENCES

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

4-3-418. Payment or acceptance by mistake.

  1. Except as provided in subsection (c), if the drawee of a draft pays or accepts the draft and the drawee acted on the mistaken belief that (i) payment of the draft had not been stopped pursuant to § 4-4-403 or (ii) the signature of the drawer of the draft was authorized, the drawee may recover the amount of the draft from the person to whom or for whose benefit payment was made or, in the case of acceptance, may revoke the acceptance. Rights of the drawee under this subsection are not affected by failure of the drawee to exercise ordinary care in paying or accepting the draft.
  2. Except as provided in subsection (c), if an instrument has been paid or accepted by mistake and the case is not covered by subsection (a), the person paying or accepting may, to the extent permitted by the law governing mistake and restitution, (i) recover the payment from the person to whom or for whose benefit payment was made or (ii) in the case of acceptance, may revoke the acceptance.
  3. The remedies provided by subsection (a) or (b) may not be asserted against a person who took the instrument in good faith and for value or who in good faith changed position in reliance on the payment or acceptance. This subsection does not limit remedies provided by § 4-3-417 or § 4-4-407.
  4. Notwithstanding § 4-4-215, if an instrument is paid or accepted by mistake and the payor or acceptor recovers payment or revokes acceptance under subsection (a) or (b), the instrument is deemed not to have been paid or accepted and is treated as dishonored, and the person from whom payment is recovered has rights as a person entitled to enforce the dishonored instrument.

History. Acts 1991, No. 572, § 5.

4-3-419. Instruments signed for accommodation.

  1. If an instrument is issued for value given for the benefit of a party to the instrument (“accommodated party”) and another party to the instrument (“accommodation party”) signs the instrument for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for the instrument, the instrument is signed by the accommodation party “for accommodation.”
  2. An accommodation party may sign the instrument as maker, drawer, acceptor, or indorser and, subject to subsection (d), is obliged to pay the instrument in the capacity in which the accommodation party signs. The obligation of an accommodation party may be enforced notwithstanding any statute of frauds and whether or not the accommodation party receives consideration for the accommodation.
  3. A person signing an instrument is presumed to be an accommodation party and there is notice that the instrument is signed for accommodation if the signature is an anomalous indorsement or is accompanied by words indicating that the signer is acting as surety or guarantor with respect to the obligation of another party to the instrument. Except as provided in § 4-3-605, the obligation of an accommodation party to pay the instrument is not affected by the fact that the person enforcing the obligation had notice when the instrument was taken by that person that the accommodation party signed the instrument for accommodation.
  4. If the signature of a party to an instrument is accompanied by words indicating unambiguously that the party is guaranteeing collection rather than payment of the obligation of another party to the instrument, the signer is obliged to pay the amount due on the instrument to a person entitled to enforce the instrument only if (i) execution of judgment against the other party has been returned unsatisfied, (ii) the other party is insolvent or in an insolvency proceeding, (iii) the other party cannot be served with process, or (iv) it is otherwise apparent that payment cannot be obtained from the other party.
  5. If the signature of a party to an instrument is accompanied by words indicating that the party guarantees payment or the signer signs the instrument as an accommodation party in some other manner that does not unambiguously indicate an intention to guarantee collection rather than payment, the signer is obliged to pay the amount due on the instrument to a person entitled to enforce the instrument in the same circumstances as the accommodated party would be obliged, without prior resort to the accommodated party by the person entitled to enforce the instrument.
  6. An accommodation party who pays the instrument is entitled to reimbursement from the accommodated party and is entitled to enforce the instrument against the accommodated party. In proper circumstances, an accommodation party may obtain relief that requires the accommodated party to perform its obligations on the instrument. An accommodated party that pays the instrument has no right of recourse against, and is not entitled to contribution from, an accommodation party.

History. Acts 1991, No. 572, § 5; 2005, No. 856, §§ 38, 39.

RESEARCH REFERENCES

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Accommodation Party.

Whether party was an accommodation signer is an issue of fact. Womack v. First State Bank, 21 Ark. App. 33, 728 S.W.2d 194 (1987) (decision under prior law).

The intention of the parties is the most significant element in determining accommodation status, and where a person receives no direct benefit from an executed note, it is likely that he will be regarded as the accommodation party. Mobley v. Harmon, 304 Ark. 500, 803 S.W.2d 900 (1991) (decision under prior law).

Summary judgment was granted to a bank pursuant to Ark. R. Civ. P. 56 in its action seeking recovery under a guaranty agreement by a physician where it was determined that the physician received a direct and substantial benefit when he was released from a payment obligation to his medical practice purchaser and, accordingly, he was personally obligated rather than just being an accommodation party pursuant to this section. Cranfill v. Union Planters Bank, N.A., 86 Ark. App. 1, 158 S.W.3d 703 (2004).

Defenses.

Where before the surety has undertaken his obligation the creditor knows facts unknown to the surety that materially increase the risk beyond what the creditor has reason to believe the surety intends to assume, and the creditor also believes that these facts are unknown to the surety, and had reasonable opportunity to communicate them to the surety, creditor's failure to notify the surety of such facts is a defense to the surety. Camp v. First Fin. Fed. Sav. & Loan Ass'n, 299 Ark. 455, 772 S.W.2d 602 (1989) (decision under prior law).

Where the bank assigned the note to the accommodator, he became holder of the note, and though ordinarily a holder takes a note assignment subject to all defenses which the maker had against the bank, an accommodation maker has an independent cause of action against the party accommodated; consequently, maker's right of recourse was unencumbered by any defenses the accommodated party held against the bank. Mobley v. Harmon, 304 Ark. 500, 803 S.W.2d 900 (1991) (decision under prior law).

Instrument Taken for Value Before Due.

Although maker of note to secure payments on automobile alleged that he was an accommodation party, having signed to accommodate his mother, he was liable in any case, since when an instrument is taken for value before it is due, accommodation party is liable in the capacity in which he signed. Wheeless v. Eudora Bank, 256 Ark. 644, 509 S.W.2d 532 (1974) (decision under prior law).

Knowledge of Other Party.

It is no defense to an action on a note by an assignee thereof that the defendant was an accommodation endorser and that the assignee knew of that fact at the time of its purchase of the note. Rushton v. U.M. & M. Credit Corp., 245 Ark. 703, 434 S.W.2d 81 (1968) (decision under prior law).

Knowledge of the other party that defendant was an accommodation endorser did not relieve defendant of liability. National Surety Corp. v. Crystal Springs Fishing Village, Inc., 326 F. Supp. 1171 (W.D. Ark. 1971) (decision under prior law).

Purpose of Signature.

A wife who, with her husband, signed a note to obtain money to build a home which they owned as tenants by the entirety received benefits from the note and, therefore, could not be an accommodation signer. Riegler v. Riegler, 244 Ark. 483, 426 S.W.2d 789 (1968) (decision under prior law).

Nonshareholders of corporation which received money who signed the note on the back only when asked to do so by the bank were accommodation endorsers with right of recourse to recover, from the shareholders who executed the note, any payment made by them, even though they had a contract from the corporation to obtain financing for the project involved. Hanson v. Cheek, 251 Ark. 897, 475 S.W.2d 526 (1972) (decision under prior law).

Where the plaintiff's purpose in signing a mortgage note as security for a loan obtained by his corporation was not solely to lend his name as a surety to the other comakers, but was primarily to benefit his business interests, the plaintiff was not an accommodation endorser, and therefore, he was not entitled to foreclose the mortgage lien on the defendant's property. Nelson v. Cotham, 268 Ark. 622, 595 S.W.2d 693 (1980) (decision under prior law).

Release from Liability.

As to whether a guarantor is released from an obligation, unless the guarantor is notified and consents to material changes, the test is whether there was a “material alteration” of the agreement, so as to discharge the guarantor. Worthen Bank & Trust Co. v. Utley, 748 F.2d 1269 (8th Cir. 1984) (decision under prior law).

Where guarantor was liable to bank on three promissory notes, the actual terms of which were never materially altered, and it was clear from the evidence that nothing was done in this regard without guarantor's knowledge or consent; guarantor was not released from personal liability on notes. Worthen Bank & Trust Co. v. Utley, 748 F.2d 1269 (8th Cir. 1984) (decision under prior law).

Cited: Stevens v. Heritage Bank, 104 Ark. App. 56, 289 S.W.3d 147 (2008).

4-3-420. Conversion of instrument.

  1. The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may not be brought by (i) the issuer or acceptor of the instrument or (ii) a payee or indorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a co-payee.
  2. In an action under subsection (a), the measure of liability is presumed to be the amount payable on the instrument, but recovery may not exceed the amount of the plaintiff's interest in the instrument.
  3. A representative, other than a depositary bank, who has in good faith dealt with an instrument or its proceeds on behalf of one who was not the person entitled to enforce the instrument is not liable in conversion to that person beyond the amount of any proceeds that it has not paid out.

History. Acts 1991, No. 572, § 5.

Research References

ALR.

Drawer's right of recovery against depositary bank that accepts check with missing indorsement or in violation of restrictive covenant. 104 A.L.R.5th 459.

Ark. L. Rev.

Comment, Liabilities for Forged Indorsements, 35 Ark. L. Rev. 157.

Case Notes

Damages.

The drawee bank was not liable to the drawer for honoring checks on which payees' endorsements had been forged, where the money actually reached the parties intended by the drawer of the check. Starkey Constr., Inc. v. Elcon, Inc., 248 Ark. 958, 457 S.W.2d 509 (1970) (decision under prior law).

Where a bank honored checks payable jointly to a partnership and its creditor upon the endorsement of only one of the partners, the bank's liability to the creditor under subsection (b) of this section was the creditor's actual loss as reduced by later payments from the partnership rather than the full amount of the checks; evidence of the partnership's subsequent payments was legally sufficient to rebut the presumption that the bank's liability was the face value of the checks. Am. State Bank v. Union Planters Bank, N.A., 332 F.3d 533 (8th Cir. 2003).

Forged Endorsements.

There is a common law exception to this section, when the proceeds of the forged instrument are paid to the person whom the drawer intended to receive them and, consequently, where a husband forged his wife's signature on an insurance check that was payable to her and presented the check to their bank, the bank was not liable to the wife for having honored the check because the proceeds from the check were deposited in an account on which the wife was a co-signor, the money was available to her at all times and the money reached her although not in the manner she expected. Clemens v. First Nat'l Bank, 286 Ark. 290, 692 S.W.2d 222 (1985) (decision under prior law).

Depositor was liable for conversion when the depositor had the depositor's signature signed to a check as an endorsement, which had previously forged endorsements, because (1) the check's intended beneficiary gave value for the check, as the beneficiary was the beneficiary of an insurance policy, the proceeds of which gave rise to the check, even though the check was not in the beneficiary's name, (2) the check's payee denied authorizing the depositor to endorse the check, and (3) the check was negotiated in the depositor's name. Butler v. Finley, 2015 Ark. App. 48, 454 S.W.3d 766 (2015).

Joint Instrument.

Where check was given to one joint payee by the other joint payee, no conversion occurred, even though second payee refused to give any funds to the first payee. A.C.E., Inc. v. Inland Mtg. Co., 333 Ark. 232, 969 S.W.2d 176 (1998).

Reasonable Commercial Standards.

The question of the corporation's negligence in permitting the embezzling bookkeeper's forgeries to go undiscovered was irrelevant until the bank established it acted according to reasonable commercial standards. First Bank & Trust v. Vaccari, 288 Ark. 233, 703 S.W.2d 867 (1986) (decision under prior law).

The burden of proof is on the bank to show it acted in a commercially reasonable manner. First Bank & Trust v. Vaccari, 288 Ark. 233, 703 S.W.2d 867 (1986) (decision under prior law).

It was a jury question whether it was commercially unreasonable for a bank to accept for deposit in an individual account a check made payable to a corporation without first ascertaining, or at least making an inquiry, as to the authority of the depositor/endorser. First Bank & Trust v. Vaccari, 288 Ark. 233, 703 S.W.2d 867 (1986) (decision under prior law).

Bank's practice of paying cash to corporation's bookkeeper when she deposited company checks marked “For Deposit Only” was not commercially reasonable. J.W. Reynolds Lumber Co. v. Smackover State Bank, 310 Ark. 342, 836 S.W.2d 853 (1992).

Part 5 — Dishonor

4-3-501. Presentment.

  1. “Presentment” means a demand made by or on behalf of a person entitled to enforce an instrument (i) to pay the instrument made to the drawee or a party obliged to pay the instrument or, in the case of a note or accepted draft payable at a bank, to the bank, or (ii) to accept a draft made to the drawee.
  2. The following rules are subject to Chapter 4 of this subtitle, agreement of the parties, and clearing-house rules and the like:
    1. presentment may be made at the place of payment of the instrument and must be made at the place of payment if the instrument is payable at a bank in the United States; may be made by any commercially reasonable means, including an oral, written, or electronic communication; is effective when the demand for payment or acceptance is received by the person to whom presentment is made; and is effective if made to any one (1) of two (2) or more makers, acceptors, drawees, or other payors.
    2. upon demand of the person to whom presentment is made, the person making presentment must (i) exhibit the instrument, (ii) give reasonable identification and, if presentment is made on behalf of another person, reasonable evidence of authority to do so, and (iii) sign a receipt on the instrument for any payment made or surrender the instrument if full payment is made.
    3. without dishonoring the instrument, the party to whom presentment is made may (i) return the instrument for lack of a necessary indorsement, or (ii) refuse payment or acceptance for failure of the presentment to comply with the terms of the instrument, an agreement of the parties, or other applicable law or rule.
    4. the party to whom presentment is made may treat presentment as occurring on the next business day after the day of presentment if the party to whom presentment is made has established a cut-off hour not earlier than 2:00 p.m. for the receipt and processing of instruments presented for payment or acceptance and presentment is made after the cut-off hour.

History. Acts 1991, No. 572, § 5.

4-3-502. Dishonor.

  1. Dishonor of a note is governed by the following rules:
    1. If the note is payable on demand, the note is dishonored if presentment is duly made to the maker and the note is not paid on the day of presentment.
    2. If the note is not payable on demand and is payable at or through a bank or the terms of the note require presentment, the note is dishonored if presentment is duly made and the note is not paid on the day it becomes payable or the day of presentment, whichever is later.
    3. If the note is not payable on demand and paragraph (2) does not apply, the note is dishonored if it is not paid on the day it becomes payable.
  2. Dishonor of an unaccepted draft other than a documentary draft is governed by the following rules:
    1. if a check is duly presented for payment to the payor bank otherwise than for immediate payment over the counter, the check is dishonored if the payor bank makes timely return of the check or sends timely notice of dishonor or nonpayment under § 4-4-301 or § 4-4-302, or becomes accountable for the amount of the check under § 4-4-302.
    2. if a draft is payable on demand and paragraph (1) does not apply, the draft is dishonored if presentment for payment is duly made to the drawee and the draft is not paid on the day of presentment.
    3. if a draft is payable on a date stated in the draft, the draft is dishonored if (i) presentment for payment is duly made to the drawee and payment is not made on the day the draft becomes payable or the day of presentment, whichever is later, or (ii) presentment for acceptance is duly made before the day the draft becomes payable and the draft is not accepted on the day of presentment.
    4. if a draft is payable on elapse of a period of time after sight or acceptance, the draft is dishonored if presentment for acceptance is duly made and the draft is not accepted on the day of presentment.
  3. Dishonor of an unaccepted documentary draft occurs according to the rules stated in subsections (b)(2), (3), and (4), except that payment or acceptance may be delayed without dishonor until no later than the close of the third business day of the drawee following the day on which payment or acceptance is required by those paragraphs.
  4. Dishonor of an accepted draft is governed by the following rules:
    1. if the draft is payable on demand, the draft is dishonored if presentment for payment is duly made to the acceptor and the draft is not paid on the day of presentment.
    2. if the draft is not payable on demand, the draft is dishonored if presentment for payment is duly made to the acceptor and payment is not made on the day it becomes payable or the day of presentment, whichever is later.
  5. In any case in which presentment is otherwise required for dishonor under this section and presentment is excused under § 4-3-504, dishonor occurs without presentment if the instrument is not duly accepted or paid.
  6. If a draft is dishonored because timely acceptance of the draft was not made and the person entitled to demand acceptance consents to a late acceptance, from the time of acceptance the draft is treated as never having been dishonored.

History. Acts 1991, No. 572, § 5.

4-3-503. Notice of dishonor.

  1. The obligation of an indorser stated in § 4-3-415(a) and the obligation of a drawer stated in § 4-3-414(d) may not be enforced unless (i) the indorser or drawer is given notice of dishonor of the instrument complying with this section or (ii) notice of dishonor is excused under § 4-3-504(b).
  2. Notice of dishonor may be given by any person; may be given by any commercially reasonable means, including an oral, written, or electronic communication; and is sufficient if it reasonably identifies the instrument and indicates that the instrument has been dishonored or has not been paid or accepted. Return of an instrument given to a bank for collection is sufficient notice of dishonor.
  3. Subject to § 4-3-504(c), with respect to an instrument taken for collection by a collecting bank, notice of dishonor must be given (i) by the bank before midnight of the next banking day following the banking day on which the bank receives notice of dishonor of the instrument, or (ii) by any other person within thirty (30) days following the day on which the person receives notice of dishonor. With respect to any other instrument, notice of dishonor must be given within thirty (30) days following the day on which dishonor occurs.

History. Acts 1991, No. 572, § 5.

4-3-504. Excused presentment and notice of dishonor.

  1. Presentment for payment or acceptance of an instrument is excused if (i) the person entitled to present the instrument cannot with reasonable diligence make presentment, (ii) the maker or acceptor has repudiated an obligation to pay the instrument or is dead or in insolvency proceedings, (iii) by the terms of the instrument presentment is not necessary to enforce the obligation of indorsers or the drawer, (iv) the drawer or indorser whose obligation is being enforced has waived presentment or otherwise has no reason to expect or right to require that the instrument be paid or accepted, or (v) the drawer instructed the drawee not to pay or accept the draft or the drawee was not obligated to the drawer to pay the draft.
  2. Notice of dishonor is excused if (i) by the terms of the instrument notice of dishonor is not necessary to enforce the obligation of a party to pay the instrument, or (ii) the party whose obligation is being enforced waived notice of dishonor. A waiver of presentment is also a waiver of notice of dishonor.
  3. Delay in giving notice of dishonor is excused if the delay was caused by circumstances beyond the control of the person giving the notice and the person giving the notice exercised reasonable diligence after the cause of the delay ceased to operate.

History. Acts 1991, No. 572, § 5.

Case Notes

Stale Checks.

When presentment is delayed beyond the time when it is due, the drawer of an instrument is discharged only if the conditions provided for in this section are present; therefore, a check pledged as security and held for 17 months did not lose its negotiability by the mere passage of time. Wildman Stores, Inc. v. Carlisle Distrib. Co., 15 Ark. App. 11, 688 S.W.2d 748 (1985) (decision under prior law).

This section should not be read in conjunction with § 4-3-601, generally providing for a drawer's discharge from liability, so as to discharge the drawer of a check merely because it was stale; therefore, a check pledged as security and held for 17 months did not lose its negotiability by the mere passage of time. Wildman Stores, Inc. v. Carlisle Distrib. Co., 15 Ark. App. 11, 688 S.W.2d 748 (1985) (decision under prior law).

4-3-505. Evidence of dishonor.

  1. The following are admissible as evidence and create a presumption of dishonor and of any notice of dishonor stated:
    1. a document regular in form as provided in subsection (b) which purports to be a protest;
    2. a purported stamp or writing of the drawee, payor bank, or presenting bank on or accompanying the instrument stating that acceptance or payment has been refused unless reasons for the refusal are stated and the reasons are not consistent with dishonor;
    3. a book or record of the drawee, payor bank, or collecting bank, kept in the usual course of business which shows dishonor, even if there is no evidence of who made the entry.
  2. A protest is a certificate of dishonor made by a United States consul or vice consul, or a notary public or other person authorized to administer oaths by the law of the place where dishonor occurs. It may be made upon information satisfactory to that person. The protest must identify the instrument and certify either that presentment has been made or, if not made, the reason why it was not made, and that the instrument has been dishonored by nonacceptance or nonpayment. The protest may also certify that notice of dishonor has been given to some or all parties.

History. Acts 1991, No. 572, § 5.

Part 6 — Discharge and Payment

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

U. Ark. Little Rock L.J.

Jenkins, Arkansas's Revised Article 3: User Caution Advised!!, 16 U. Ark. Little Rock L.J. 573.

4-3-601. Discharge and effect of discharge.

  1. The obligation of a party to pay the instrument is discharged as stated in this chapter or by an act or agreement with the party which would discharge an obligation to pay money under a simple contract.
  2. Discharge of the obligation of a party is not effective against a person acquiring rights of a holder in due course of the instrument without notice of the discharge.

History. Acts 1991, No. 572, § 5.

Case Notes

Assignment.

The act of the assignee in marking a note “paid” upon payment by the assignor did not discharge the maker of the note, and the assignor could enforce the obligation against the maker. K. & S. Int'l, Inc. v. Howard, 249 Ark. 901, 462 S.W.2d 458 (1971) (decision under prior law).

Stale Checks.

Section 4-3-504 which prescribes the time limit for staleness should not be read in conjunction with this section, so as to discharge the drawer of a check merely because it was stale; therefore, a check pledged as security and held for 17 months did not lose its negotiability by the mere passage of time. Wildman Stores, Inc. v. Carlisle Distrib. Co., 15 Ark. App. 11, 688 S.W.2d 748 (1985) (decision under prior law).

4-3-602. Payment.

  1. Subject to subsection (e), an instrument is paid to the extent payment is made by or on behalf of a party obliged to pay the instrument, and to a person entitled to enforce the instrument.
  2. Subject to subsection (e), a note is paid to the extent payment is made by or on behalf of a party obliged to pay the note to a person that formerly was entitled to enforce the note only if at the time of the payment the party obliged to pay has not received adequate notification that the note has been transferred and that payment is to be made to the transferee. A notification is adequate only if it is signed by the transferor or the transferee; reasonably identifies the transferred note; and provides an address at which payments subsequently are to be made. Upon request, a transferee shall seasonably furnish reasonable proof that the note has been transferred. Unless the transferee complies with the request, a payment to the person that formerly was entitled to enforce the note is effective for purposes of subsection (c) even if the party obliged to pay the note has received a notification under this subsection (b).
  3. Subject to subsection (e), to the extent of the payment, a payment under subsections (a) and (b), the obligation of the party obliged to pay the instrument is discharged even though payment is made with knowledge of a claim to the instrument under § 4-3-306 by another person.
  4. Subject to subsection (e), a transferee, or any party that has acquired rights in the instrument directly or indirectly from a transferee, including any such party that has rights as a holder in due course, is deemed to have notice of any payment that is made under subsection (b) after the date that the note is transferred to the transferee but before the party obliged to pay the note receives adequate notification of the transfer.
  5. The obligation of a party to pay the instrument is not discharged under subsections (a) through (d) if:
    1. a claim to the instrument under § 4-3-306 is enforceable against the party receiving payment and (i) payment is made with knowledge by the payor that payment is prohibited by injunction or similar process of a court of competent jurisdiction, or (ii) in the case of an instrument other than a cashier's check, teller's check, or certified check, the party making payment accepted, from the person having a claim to the instrument, indemnity against loss resulting from refusal to pay the person entitled to enforce the instrument; or
    2. the person making payment knows that the instrument is a stolen instrument and pays a person it knows is in wrongful possession of the instrument.
  6. As used in this section, “signed,” with respect to a record that is not a 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.

History. Acts 1991, No. 572, § 5; 2005, No. 856, § 40.

Cross References. Payment due on holiday, § 1-5-105.

Research References

U. Ark. Little Rock L.J.

Murphey, The Discontinuance of the Certified Check — An Arkansas Study, 16 U. Ark. Little Rock L.J. 555.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Assignment.

The act of the assignee in marking a note “paid” upon payment by the assignor did not discharge the maker of the note, and the assignor could enforce the obligation against the maker. K. & S. Int'l, Inc. v. Howard, 249 Ark. 901, 462 S.W.2d 458 (1971) (decision under prior law).

Rights of Transferees.

Mother became transferee and possessed all the rights of the lender including right to foreclose on the mortgage when she paid a debt owed by her son and his wife which was secured by a mortgage on their property and thereafter received from the lender's wife the unendorsed note and the mortgage. Griffith v. Griffith, 250 Ark. 845, 467 S.W.2d 737 (1971) (decision under prior law).

Satisfaction to the Holder.

Maker of bad checks held not liable to bank for the amount of the bad checks where satisfaction was made to the holder of checks. Chenowith v. Bank of Dardanelle, 243 Ark. 310, 419 S.W.2d 792 (1967) (decision under prior law).

Stale Checks.

Section 4-3-504 which prescribes the time limit for staleness should not be read in conjunction with this section, so as to discharge the drawer of a check merely because it was stale; therefore, a check pledged as security and held for 17 months did not lose its negotiability by the mere passage of time. Wildman Stores, Inc. v. Carlisle Distrib. Co., 15 Ark. App. 11, 688 S.W.2d 748 (1985) (decision under prior law).

4-3-603. Tender of payment.

  1. If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument, the effect of tender is governed by principles of law applicable to tender of payment under a simple contract.
  2. If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument and the tender is refused, there is discharge, to the extent of the amount of the tender, of the obligation of an indorser or accommodation party having a right of recourse with respect to the obligation to which the tender relates.
  3. If tender of payment of an amount due on an instrument is made to a person entitled to enforce the instrument, the obligation of the obligor to pay interest after the due date on the amount tendered is discharged. If presentment is required with respect to an instrument and the obligor is able and ready to pay on the due date at every place of payment stated in the instrument, the obligor is deemed to have made tender of payment on the due date to the person entitled to enforce the instrument.

History. Acts 1991, No. 572, § 5.

Cross References. Payment due on holiday, § 1-5-105.

Case Notes

Inconsistencies of Payments.

Finding against the relatives in an action stemming from the relatives' default on a promissory note and security agreement previously executed was proper, in part because, as to the alleged tender of the remainder of the payments, there was no testimony as to exactly what amounts were tendered or when. Given the inconsistencies of the actual payments that were paid and received, which the relatives did not dispute, the appellate court did not assume that all of the full payments were actually tendered in a timely fashion. Housley v. Hensley, 100 Ark. App. 118, 265 S.W.3d 136 (2007).

Subsequent Liability.

Tender of amount due on note secured by a mortgage, which was wrongfully refused, discharged mortgagor from further interest accrual and attorneys' fees. First State Bank v. Gamble, 14 Ark. App. 53, 685 S.W.2d 173 (1985) (decision under prior law).

4-3-604. Discharge by cancellation or renunciation.

  1. A person entitled to enforce an instrument, with or without consideration, may discharge the obligation of a party to pay the instrument (i) by an intentional voluntary act, such as surrender of the instrument to the party, destruction, mutilation, or cancellation of the instrument, cancellation or striking out of the party's signature, or the addition of words to the instrument indicating discharge, or (ii) by agreeing not to sue or otherwise renouncing rights against the party by a signed record.
  2. Cancellation or striking out of an indorsement pursuant to subsection (a) does not affect the status and rights of a party derived from the indorsement.
  3. In this section, “signed,” with respect to a record that is not a 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.

History. Acts 1991, No. 572, § 5; 2005, No. 856, § 41.

4-3-605. Discharge of secondary obligors.

  1. If a person entitled to enforce an instrument releases the obligation of a principal obligor in whole or in part, and another party to the instrument is a secondary obligor with respect to the obligation of that principal obligor, the following rules apply:
    1. any obligations of the principal obligor to the secondary obligor with respect to any previous payment by the secondary obligor are not affected. Unless the terms of the release preserve the secondary obligor's recourse, the principal obligor is discharged, to the extent of the release, from any other duties to the secondary obligor under this chapter.
    2. unless the terms of the release provide that the person entitled to enforce the instrument retains the right to enforce the instrument against the secondary obligor, the secondary obligor is discharged to the same extent as the principal obligor from any unperformed portion of its obligation on the instrument. If the instrument is a check and the obligation of the secondary obligor is based on an indorsement of the check, the secondary obligor is discharged without regard to the language or circumstances of the discharge or other release.
    3. if the secondary obligor is not discharged under paragraph (2), the secondary obligor is discharged to the extent of the value of the consideration for the release, and to the extent that the release would otherwise cause the secondary obligor a loss.
  2. If a person entitled to enforce an instrument grants a principal obligor an extension of the time at which one or more payments are due on the instrument and another party to the instrument is a secondary obligor with respect to the obligation of that principal obligor, the following rules apply:
    1. any obligations of the principal obligor to the secondary obligor with respect to any previous payment by the secondary obligor are not affected. Unless the terms of the extension preserve the secondary obligor's recourse, the extension correspondingly extends the time for performance of any other duties owed to the secondary obligor by the principal obligor under this chapter.
    2. the secondary obligor is discharged to the extent that the extension would otherwise cause the secondary obligor a loss.
    3. to the extent that the secondary obligor is not discharged under paragraph (2), the secondary obligor may perform its obligations to a person entitled to enforce the instrument as if the time for payment had not been extended or, unless the terms of the extension provide that the person entitled to enforce the instrument retains the right to enforce the instrument against the secondary obligor as if the time for payment had not been extended, treat the time for performance of its obligations as having been extended correspondingly.
  3. If a person entitled to enforce an instrument agrees, with or without consideration, to a modification of the obligation of a principal obligor other than a complete or partial release or an extension of the due date and another party to the instrument is a secondary obligor with respect to the obligation of that principal obligor, the following rules apply:
    1. any obligations of the principal obligor to the secondary obligor with respect to any previous payment by the secondary obligor are not affected. The modification correspondingly modifies any other duties owed to the secondary obligor by the principal obligor under this chapter.
    2. the secondary obligor is discharged from any unperformed portion of its obligation to the extent that the modification would otherwise cause the secondary obligor a loss.
    3. to the extent that the secondary obligor is not discharged under paragraph (2), the secondary obligor may satisfy its obligation on the instrument as if the modification had not occurred, or treat its obligation on the instrument as having been modified correspondingly.
  4. If the obligation of a principal obligor is secured by an interest in collateral, another party to the instrument is a secondary obligor with respect to that obligation, and a person entitled to enforce the instrument impairs the value of the interest in collateral, the obligation of the secondary obligor is discharged to the extent of the impairment. The value of an interest in collateral is impaired to the extent the value of the interest is reduced to an amount less than the amount of the recourse of the secondary obligor, or the reduction in value of the interest causes an increase in the amount by which the amount of the recourse exceeds the value of the interest. For purposes of this subsection, impairing the value of an interest in collateral includes failure to obtain or maintain perfection or recordation of the interest in collateral, release of collateral without substitution of collateral of equal value or equivalent reduction of the underlying obligation, failure to perform a duty to preserve the value of collateral owed, under Chapter 9 or other law, to a debtor or other person secondarily liable, and failure to comply with applicable law in disposing of or otherwise enforcing the interest in collateral.
  5. A secondary obligor is not discharged under subdivision (a)(3) or subsections (b), (c), or (d) unless the person entitled to enforce the instrument knows that the person is a secondary obligor or has notice under § 4-3-419(c) that the instrument was signed for accommodation.
  6. A secondary obligor is not discharged under this section if the secondary obligor consents to the event or conduct that is the basis of the discharge, or the instrument or a separate agreement of the party provides for waiver of discharge under this section specifically or by general language indicating that parties waive defenses based on suretyship or impairment of collateral. Unless the circumstances indicate otherwise, consent by the principal obligor to an act that would lead to a discharge under this section constitutes consent to that act by the secondary obligor if the secondary obligor controls the principal obligor or deals with the person entitled to enforce the instrument on behalf of the principal obligor.
  7. A release or extension preserves a secondary obligor's recourse if the terms of the release or extension provide that:
    1. the person entitled to enforce the instrument retains the right to enforce the instrument against the secondary obligor; and
    2. the recourse of the secondary obligor continues as if the release or extension had not been granted.
  8. Except as otherwise provided in subsection (i), a secondary obligor asserting discharge under this section has the burden of persuasion both with respect to the occurrence of the acts alleged to harm the secondary obligor and loss or prejudice caused by those acts.
  9. If the secondary obligor demonstrates prejudice caused by an impairment of its recourse, and the circumstances of the case indicate that the amount of loss is not reasonably susceptible of calculation or requires proof of facts that are not ascertainable, it is presumed that the act impairing recourse caused a loss or impairment equal to the liability of the secondary obligor on the instrument. In that event, the burden of persuasion as to any lesser amount of the loss is on the person entitled to enforce the instrument.

History. Acts 1991, No. 572, § 5; 2005, No. 856, § 42.

Research References

U. Ark. Little Rock L.J.

Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Agreements Not to Sue.

The provision of this section that an agreement not to sue any person against whom the party has a right of recourse discharges a party to the instrument does not apply where the evidence does not show that an enforceable or binding agreement not to sue was made. Glover v. Nat'l Bank of Commerce, 258 Ark. 771, 529 S.W.2d 333 (1975) (decision under prior law).

This section applies where there is an enforceable contract not to sue a liable party. Ward v. Worthen Bank & Trust Co., 284 Ark. 355, 681 S.W.2d 365 (1984) (decision under prior law).

Where a bank did not make an enforceable contract not to sue the purchaser of a note, the original maker of the note was not discharged from liability on the note during the time the bank suspended collection efforts. Ward v. Worthen Bank & Trust Co., 284 Ark. 355, 681 S.W.2d 365 (1984) (decision under prior law).

Any Party to the Instrument.

The term “any party to the instrument” includes makers and endorsers. F & M Bank v. Poe, 19 Ark. App. 151, 718 S.W.2d 457 (1986) (decision under prior law).

The defenses under this section are available to both makers and accommodation parties. In re Sanders, 75 B.R. 746 (Bankr. W.D. Ark. 1987); In re Sanders, 75 B.R. 751 (Bankr. W.D. Ark. 1987); In re Sanders, 75 B.R. 757 (Bankr. W.D. Ark. 1987); In re Sanders, 75 B.R. 761 (Bankr. W.D. Ark. 1987) (decision under prior law).

This section only applies to “any party to the instrument,” and does not encompass a person who has signed a separate guaranty agreement. Myers v. First State Bank, 293 Ark. 82, 732 S.W.2d 459 (1987), modified, Myers v. First State Bank, 293 Ark. 82, 741 S.W.2d 624 (1987), supp. op., Myers v. First State Bank, 293 Ark. 82, 732 S.W.2d 459 (1987), modified, Myers v. First State Bank, 293 Ark. 82, 741 S.W.2d 624 (1987) (decision under prior law).

The words “agrees to suspend the right to enforce” signify the granting of an extension of time for payment. Hence, the holder of a note discharges any party to the instrument, including accommodation makers, to the extent that the holder grants an extension without the consent of the party or without an express reservation of rights. McIlroy Bank & Trust v. Maestri, 297 Ark. 130, 759 S.W.2d 808 (1988) (decision under prior law).

Where the bank assigned the note to the accommodator, he became holder of the note, and though ordinarily a holder takes a note assignment subject to all defenses which the maker had against the bank, an accommodation maker has an independent cause of action against the party accommodated; consequently, maker's right of recourse was unencumbered by any defenses the accommodated party held against the bank. Mobley v. Harmon, 304 Ark. 500, 803 S.W.2d 900 (1991) (decision under prior law).

Although the primary maker was automatically discharged against the bank when the note was extended without his consent, such discharge was not a defense available against an accommodation party suing the accommodated primary maker. Mobley v. Harmon, 304 Ark. 500, 803 S.W.2d 900 (1991) (decision under prior law).

Extensions.

Where a bank chose to extend a loan obligation four times with only the accommodation maker's agreement, it effectively released the primary maker. Mobley v. Harmon, 304 Ark. 500, 803 S.W.2d 900 (1991) (decision under prior law).

Impairment of Collateral.

It is no defense for one claiming to be an accommodation endorser of a note that the holder of the note impaired the collateral by failure to complete the proper filing of the financing statement, where the endorser could have seen to the filing himself. Rushton v. U.M. & M. Credit Corp., 245 Ark. 703, 434 S.W.2d 81 (1968) (decision under prior law).

Refusal of bank to accept certain collateral on reduction of its indebtedness did not constitute an impairment of collateral. Worthen Bank & Trust Co. v. Utley, 748 F.2d 1269 (8th Cir. 1984) (decision under prior law).

Where guarantor of loans failed to prove that bank, holder of the note, was responsible for the loss or impairment of the collateral and the extent to which that impairment resulted in loss, court correctly found no impairment of collateral on the part of the bank and was justified in refusing to so instruct the jury. Worthen Bank & Trust Co. v. Utley, 748 F.2d 1269 (8th Cir. 1984) (decision under prior law).

Where the collateral was impaired because of the creditor's failure to properly file its security agreement with the Secretary of State so as to perfect its security interest in the inventory, the creditor discharged the guarantor, and the creditor could not reserve its rights to personally sue the guarantor for the deficiency on the note by virtue of the settlement agreement. F & M Bank v. Poe, 19 Ark. App. 151, 718 S.W.2d 457 (1986) (decision under prior law).

Creditor who is not in possession of collateral has no obligation to repossess it for protection of its guarantor, and failure to do so is not impairment of collateral. Moore v. Luxor (N. Am.) Corp., 294 Ark. 326, 742 S.W.2d 916 (1988) (decision under prior law).

Impairment of recourse or collateral is not available to the maker of a note as a defense to a foreclosure action. Federal Land Bank v. McGinnis, 711 F. Supp. 952 (E.D. Ark. 1989) (decision under prior law).

Knowledge of Recourse.

This section is made to appear to be effective against a holder who releases an obligor with knowledge of recourse the holder may have against the obligor; the section contemplates knowledge of recourse the party may have had against the person discharged or released. Shinn v. First Nat'l Bank, 270 Ark. 774, 606 S.W.2d 154 (1980) (decision under prior law).

Release of Guarantors.

One of several guarantors on a note, each of which guaranteed a specific portion of the note and agreed to be liable notwithstanding the release of any other guarantor, was not released by failure of the holder to file a claim against the estate of a deceased guarantor within the statutory period for filing claims, which expired before the default of the maker on the note. Rauch v. First Nat'l Bank, 244 Ark. 941, 428 S.W.2d 89 (1968) (decision under prior law). (But see, Myers v. First State Bank of Sherwood, 293 Ark. 82, 732 S.W.2d 459, modified, 293 Ark. 82, 741 S.W.2d 624 (1987).).

A guarantor who pleads release has the burden of proving that release and, under this section, that burden requires that he prove that the collateral was impaired, and the extent to which the collateral was impaired. Van Balen v. Peoples Bank & Trust Co., 3 Ark. App. 243, 626 S.W.2d 205 (1981) (decision under prior law). (But see, Myers v. First State Bank of Sherwood, 293 Ark. 82, 732 S.W.2d 459, modified, 293 Ark. 82, 741 S.W.2d 624 (1987).).

The discharge of guaranty involves proof that (1) the holder of the note was responsible for the loss or impairment of the collateral, and (2) the extent to which that impairment results in loss; mere proof that the holder did not properly perfect its lien on a part of the collateral does not in and of itself show that any damage resulted. Van Balen v. Peoples Bank & Trust Co., 3 Ark. App. 243, 626 S.W.2d 205 (1981) (decision under prior law). (But see, Myers v. First State Bank, 293 Ark. 82, 732 S.W.2d 459, modified, 293 Ark. 82, 741 S.W.2d 624 (1987).).

Where there was no evidence in the record of the value of the collateral initially pledged, the guarantors of the debt could not meet the burden of proving the extent of the impairment of the collateral and their right to pro tanto release. Van Balen v. Peoples Bank & Trust Co., 3 Ark. App. 243, 626 S.W.2d 205 (1981) (decision under prior law).

A material alteration in the obligation assumed, made without the assent of the guarantor, discharges him. Merchants Nat'l Bank v. Blass, 282 Ark. 497, 669 S.W.2d 195 (1984) (decision under prior law). (But see, Myers v. State, 293 Ark. 82, 732 S.W.2d 459, modified, 293 Ark. 82, 741 S.W.2d 624 (1987).).

If the due date of a note is extended without the consent of a party eligible to rely on this section, that party is discharged from liability to the holder of the note. In re Sanders, 75 B.R. 746 (Bankr. W.D. Ark. 1987); In re Sanders, 75 B.R. 751 (Bankr. W.D. Ark. 1987); In re Sanders, 75 B.R. 757 (Bankr. W.D. Ark. 1987) (preceding decisions under prior law). (But see, Myers v. First State Bank, 293 Ark. 82, 732 S.W.2d 459, modified, 293 Ark. 82, 741 S.W.2d 624 (1987).).

When a material alteration in an obligation is made without the consent of the uncompensated guarantor, the guarantor is discharged from liability. An increase in the interest rate of the principal debt without the consent of the uncompensated guarantor increases the guarantor's obligation and therefore discharges the guarantor. In re Sanders, 75 B.R. 761 (Bankr. W.D. Ark. 1987) (decision under prior law). (But see, Myers v. First State Bank, 293 Ark. 82, 732 S.W.2d 459, modified, 293 Ark. 82, 741 S.W.2d 624 (1987).).

Comaker's liability on note had to be found in note itself, and not accompanying mortgage, and where the due date of the note was extended without the comaker's consent, and the extension was not provided for in the note, that party was discharged from liability even though the comaker had signed the mortgage which provided that “This conveyance is given as a Mortgage for the purpose of securing: (a) The payment of 1 Promissory Note(s) of even date herewith and all extensions and renewals of the indebtedness.” In re Sanders, 75 B.R. 761 (Bankr. W.D. Ark. 1987) (decision under prior law). (But see, Myers v. First State Bank, 293 Ark. 82, 732 S.W.2d 459, modified, 293 Ark. 82, 741 S.W.2d 624 (1987).).

Unauthorized Extensions.

An accommodation maker of a promissory note is discharged from liability on the note when the payee extends the time for payment four times, twice with the agreement of the accommodation maker and twice without such agreement, and each extension is for a time in excess of that prescribed for payment in the original note; the extensions which were not authorized by the accommodation maker discharged him from liability. Rogers v. Merchants & Planters Bank, 302 Ark. 353, 789 S.W.2d 463 (1990) (decision under prior law).

Chapter 4 Bank Deposits and Collections

Research References

ALR.

Documentary draft under UCC § 4-104(1)(f). 65 A.L.R.4th 1095.

Liability of bank for diversion to benefit of presenter or third party of proceeds of check drawn to bank's order by drawer not indebted to bank. 69 A.L.R.4th 778.

What constitutes wrongful dishonor of check rendering payor bank liable to drawer under UCC § 4-402. 88 A.L.R.4th 568.

Who may recover for wrongful dishonor of check under UCC § 4-402. 88 A.L.R.4th 613.

Damages recoverable for wrongful dishonor of check under UCC § 4-402. 88 A.L.R.4th 644.

Am. Jur. 10 Am. Jur. 2d, Banks, § 703 et seq. and 11 Am. Jur. 2d, Banks, § 953 et seq.

Ark. L. Rev.

Bank Deposits and Collections: Article IV — Letters of Credit: Article V, 16 Ark. L. Rev. 45.

Bank to Bank Relations under the Uniform Commercial Code: Article IV, 16 Ark. L. Rev. 61.

Bank to Consumer Relations under the Uniform Commercial Code: Article IV, 16 Ark. L. Rev. 66.

Electronic Funds Transfer and “Competitive Equality”: A Doctrine That Does Not Compute, 32 Ark. L. Rev. 347.

The Uniform Commercial Code and the Arkansas Electronic Funds Transfer System, Hargis, 32 Ark. L. Rev. 470.

Murphey, Revised Article 3 and Amended Article 4 of the Uniform Commercial Code: Comments on the Changes They Will Make, 46 Ark. L. Rev. 501.

C.J.S. 9 C.J.S., Banks & Banking, § 327 et seq.

U. Ark. Little Rock L.J.

Murphey, Acceptance and Dishonor: “Payable Through” Drafts and Personal Money Orders, 5 U. Ark. Little Rock L.J. 519.

Verdun, Postdated checks: An old problem with a new solution in the revised U.C.C., 14 U. Ark. Little Rock L.J. 37.

Adams, Problems with the 1990 Revision of Articles 3 and 4 of the Uniform Commercial Code, 15 U. Ark. Little Rock L.J. 665.

Case Notes

Punitive Damages.

Punitive damages can be awarded for bad faith Article 4 violations, where the statute does not specifically prohibit them, without the necessity that an alternative, common law tort be pled. Gordon v. Planters & Merchants Bankshares, Inc., 326 Ark. 1046, 935 S.W.2d 544 (1996).

Cited: Citizens Bank v. National Bank of Commerce, 334 F.2d 257 (10th Cir. 1964).

Part 1 — General Provisions and Definitions

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

ALR.

Documentary draft under UCC § 4-104(1)(f). 65 A.L.R.4th 1095.

U. Ark. Little Rock L.J.

Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.

4-4-101. Short title.

This chapter may be cited as Uniform Commercial Code — Bank Deposits and Collections.

History. Acts 1961, No. 185, § 4-101; reen. 1967, No. 303, § 12 (4-101); A.S.A. 1947, § 85-4-101; Acts 1991, No. 572, § 6.

Research References

Ark. L. Rev.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

4-4-102. Applicability.

  1. To the extent that items within this chapter are also within Chapters 3 and 8 of this subtitle, they are subject to those chapters. If there is conflict, this chapter governs Chapter 3, but Chapter 8 governs this chapter.
  2. The liability of a bank for action or non-action with respect to an item handled by it for purposes of presentment, payment, or collection is governed by the law of the place where the bank is located. In the case of action or non-action by or at a branch or separate office of a bank, its liability is governed by the law of the place where the branch or separate office is located.

History. Acts 1961, No. 185, § 4-102; reen. 1967, No. 303, § 12 (4-102); A.S.A. 1947, § 85-4-102; Acts 1991, No. 572, § 6.

4-4-103. Variation by agreement — Measure of damages — Action constituting ordinary care.

  1. The effect of the provisions of this chapter may be varied by agreement, but the parties to the agreement cannot disclaim a bank's responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank's responsibility is to be measured if those standards are not manifestly unreasonable.
  2. Federal Reserve regulations and operating circulars, clearinghouse rules, and the like have the effect of agreements under subsection (a), whether or not specifically assented to by all parties interested in items handled.
  3. Action or non-action approved by this chapter or pursuant to Federal Reserve regulations or operating circulars is the exercise of ordinary care and, in the absence of special instructions, action or non-action consistent with clearinghouse rules and the like or with a general banking usage not disapproved by this chapter, is prima facie the exercise of ordinary care.
  4. The specification or approval of certain procedures by this chapter is not disapproval of other procedures that may be reasonable under the circumstances.
  5. The measure of damages for failure to exercise ordinary care in handling an item is the amount of the item reduced by an amount that could not have been realized by the exercise of ordinary care. If there is also bad faith, it includes any other damages the party suffered as a proximate consequence.

History. Acts 1961, No. 185, § 4-103; reen. 1967, No. 303, § 12 (4-103); A.S.A. 1947, § 85-4-103; Acts 1991, No. 572, § 6.

Research References

Ark. L. Rev.

Comment, Gordon v. Planters & Merchants Bancshares: Punitive Damages May Be Awarded For Bank's Wrongful Charge-Back, 51 Ark. L. Rev. 611.

Case Notes

Disclaimer of Transfer Warranties.

Where a bank customer breached the transfer warranties under § 4-4-207 by depositing and receiving payment for a check with an altered payee line, an alleged agreement to disclaim transfer warranties would not have been valid because such a disclaimer was expressly prohibited with respect to checks by § 4-4-207(d). Talbert v. United States Bank, N.A., 372 Ark. 148, 271 S.W.3d 486 (2008).

Measure of Damages.

In a suit by a payee against a bank for negligence in failing to timely notify the payee that the checks had been dishonored, the amount of damages was limited, absent a showing of bad faith, by the amount of the dishonored items reduced by the amount which would not have been recovered even if the bank had exercised ordinary care. Citizens Bank v. Chitty, 285 Ark. 55, 684 S.W.2d 814 (1985).

Notice of Encoding Error.

Where supplier's bank wrongly encoded a check but the supplier did not notice the error for seven months, the account agreement, which required the supplier to notify the supplier's bank of “any other errors” within 60 days, did not bar supplier's negligence suit because the agreement applied only to the types of transactions or errors specifically identified in § 4-4-406 (unauthorized signatures and alterations) and not to encoding errors. Douglas Cos. v. Commercial Nat'l Bank of Texarkana, 419 F.3d 812 (8th Cir. 2005).

Cited: Gordon v. Planters & Merchants Bankshares, Inc., 326 Ark. 1046, 935 S.W.2d 544 (1996).

4-4-104. Definitions and index of definitions.

  1. In this chapter, unless the context otherwise requires:
    1. “Account” means any deposit or credit account with a bank, including a demand, time, savings, passbook, share draft, or like account, other than an account evidenced by a certificate of deposit;
    2. “Afternoon” means the period of a day between noon and midnight;
    3. “Banking day” means the part of a day on which a bank is open to the public for carrying on substantially all of its banking functions;
    4. “Clearinghouse” means an association of banks or other payors regularly clearing items;
    5. “Customer” means a person having an account with a bank or for whom a bank has agreed to collect items, including a bank that maintains an account at another bank;
    6. “Documentary draft” means a draft to be presented for acceptance or payment if specified documents, certificated securities (§ 4-8-102) or instructions for uncertificated securities (§ 4-8-102), or other certificates, statements, or the like are to be received by the drawee or other payor before acceptance or payment of the draft;
    7. “Draft” means a draft as defined in § 4-3-104 or an item, other than an instrument, that is an order;
    8. “Drawee” means a person ordered in a draft to make payment;
    9. “Item” means an instrument or a promise or order to pay money handled by a bank for collection or payment. The term does not include a payment order governed by Chapter 4A of this subtitle or a credit or debit card slip;
    10. “Midnight deadline” with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later;
    11. “Settle” means to pay in cash, by clearinghouse settlement, in a charge or credit or by remittance, or otherwise as agreed. A settlement may be either provisional or final;
    12. “Suspends payments” with respect to a bank means that it has been closed by order of the supervisory authorities, that a public officer has been appointed to take it over, or that it ceases or refuses to make payments in the ordinary course of business.
  2. Other definitions applying to this chapter and the sections in which they appear are:
  3. “Control” as provided in § 4-7-106 and the following definitions in other chapters of this subtitle apply to this chapter:
  4. In addition, Chapter 1 of this subtitle contains general definitions and principles of construction and interpretation applicable throughout this chapter.

“Agreement for electronic presentment”. Section 4-4-110.

[Reserved.]

“Collecting bank”. Section 4-4-105.

“Depositary bank”. Section 4-4-105.

“Intermediary bank”. Section 4-4-105.

“Payor bank”. Section 4-4-105.

“Presenting bank”. Section 4-4-105.

“Presentment notice”. Section 4-4-110.

“Acceptance”. Section 4-3-409.

“Alteration”. Section 4-3-407.

“Cashier's check”. Section 4-3-104.

“Certificate of deposit”. Section 4-3-104.

“Certified check”. Section 4-3-409.

“Check”. Section 4-3-104.

“Good faith”. Section 4-3-103.

“Holder in due course”. Section 4-3-302.

“Instrument”. Section 4-3-104.

“Notice of dishonor”. Section 4-3-503.

“Order”. Section 4-3-103.

“Ordinary care”. Section 4-3-103.

“Person entitled to enforce”. Section 4-3-301.

“Presentment”. Section 4-3-501.

“Promise”. Section 4-3-103.

“Prove”. Section 4-3-103.

“Record”. Section 4-3-103.

“Remotely-created item”. Section 4-3-103.

“Teller's check”. Section 4-3-104.

“Unauthorized signature”. Section 4-3-403.

History. Acts 1961, No. 185, § 4-104; reen. 1967, No. 303, § 12 (4-104); A.S.A. 1947, § 85-4-104; Acts 1991, No. 572, § 6; 1995, No. 425, § 4; 2005, No. 856, § 43; 2007, No. 342, § 23.

Case Notes

Customer.

Where the president of a corporate lessor and the lessee opened an account with the provision that checks on the account required signatures of both the president and his son-in-law who was the lessee, the president was a customer of the bank. First Nat'l Bank v. Hobbs, 248 Ark. 76, 450 S.W.2d 298 (1970).

Documentary Draft.

The drafts, which were written on the backs of envelopes and which were represented as containing car titles to be delivered against honor of the drafts, were documentary drafts. First State Bank v. Twin City Bank, 290 Ark. 399, 720 S.W.2d 295 (1986).

Cited: Citizens Bank v. Chitty, 285 Ark. 55, 684 S.W.2d 814 (1985); GMAC v. Union Bank & Trust Co., 329 F.3d 594 (8th Cir. 2003).

4-4-105. Definitions of types of banks.

In this chapter:

  1. “Bank” means a person engaged in the business of banking, including a savings bank, savings and loan association, credit union, or trust company;
  2. “Depositary bank” means the first bank to take an item even though it is also the payor bank, unless the item is presented for immediate payment over the counter;
  3. “Payor bank” means a bank that is the drawee of a draft;
  4. “Intermediary bank” means a bank to which an item is transferred in course of collection except the depositary or payor bank;
  5. “Collecting bank” means a bank handling an item for collection except the payor bank;
  6. “Presenting bank” means a bank presenting an item except a payor bank.

History. Acts 1961, No. 185, § 4-105; 1967, No. 303, § 12 (4-105); A.S.A. 1947, § 85-4-105; Acts 1991, No. 572, § 6; 2005, No. 856, § 44.

4-4-106. Payable through or payable at bank — Collecting bank.

  1. If an item states that it is “payable through” a bank identified in the item, (i) the item designates the bank as a collecting bank and does not by itself authorize the bank to pay the item, and (ii) the item may be presented for payment only by or through the bank.
  2. If an item states that it is “payable at” a bank identified in the item, (i) the item designates the bank as a collecting bank and does not by itself authorize the bank to pay the item, and (ii) the item may be presented for payment only by or through the bank.
  3. If a draft names a nonbank drawee and it is unclear whether a bank named in the draft is a co-drawee or a collecting bank, the bank is a collecting bank.

History. Acts 1991, No. 572, § 6.

A.C.R.C. Notes. Former § 4-4-106 has been renumbered as § 4-4-107.

4-4-107. Separate office of a bank.

A branch or separate office of a bank is a separate bank for the purpose of computing the time within which and determining the place at or to which action may be taken or notice or orders must be given under this chapter and under Chapter 3 of this subtitle.

History. Acts 1961, No. 185, § 4-106; 1967, No. 303, § 12 (4-106); A.S.A. 1947, § 85-4-106; Acts 1991, No. 572, § 6.

A.C.R.C. Notes. This section was formerly codified as § 4-4-106. Former § 4-4-107 has been renumbered as § 4-4-108.

4-4-108. Time of receipt of items.

  1. For the purpose of allowing time to process items, prove balances, and make the necessary entries on its books to determine its position for the day, a bank may fix an afternoon hour of 2:00 p.m. or later as a cutoff hour for the handling of money and items and the making of entries on its books.
  2. An item or deposit of money received on any day after a cutoff hour so fixed or after the close of the banking day may be treated as being received at the opening of the next banking day.

History. Acts 1961, No. 185, § 4-107; reen. 1967, No. 303, § 12 (4-107); A.S.A. 1947, § 85-4-107; Acts 1991, No. 572, § 6.

A.C.R.C. Notes. This section was formerly codified as § 4-4-107. Former § 4-4-108 has been renumbered as § 4-4-109.

4-4-109. Delays.

  1. Unless otherwise instructed, a collecting bank in a good faith effort to secure payment of a specific item drawn on a payor other than a bank, and with or without the approval of any person involved, may waive, modify, or extend time limits imposed or permitted by this subtitle for a period not exceeding two (2) additional banking days without discharge of drawers or indorsers or liability to its transferor or a prior party.
  2. Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by this subtitle or by instructions is excused if (i) the delay is caused by interruption of communication or computer facilities, suspension of payments by another bank, war, emergency conditions, failure of equipment, or other circumstances beyond the control of the bank, and (ii) the bank exercises such diligence as the circumstances require.

History. Acts 1961, No. 185, § 4-108; reen. 1967, No. 303, § 12 (4-108); A.S.A. 1947, § 85-4-108; Acts 1991, No. 572, § 6.

A.C.R.C. Notes. This section was formerly codified as § 4-4-108. Former § 4-4-109 concerning the process of posting was deleted by the amendment of this chapter by Acts 1991, No. 572, § 6. Former § 4-4-109 was derived from Acts 1961, No. 185, § 4-109, as added by Acts 1967, No. 303, § 12 (4-109); A.S.A. 1947, § 85-4-109.

Case Notes

Cited: First State Bank v. Twin City Bank, 290 Ark. 399, 720 S.W.2d 295 (1986).

4-4-110. Electronic presentment.

  1. “Agreement for electronic presentment” means an agreement, clearinghouse rule, or Federal Reserve regulation or operating circular, providing that presentment of an item may be made by transmission of an image of an item or information describing the item (“presentment notice”) rather than delivery of the item itself. The agreement may provide for procedures governing retention, presentment, payment, dishonor, and other matters concerning items subject to the agreement.
  2. Presentment of an item pursuant to an agreement for presentment is made when the presentment notice is received.
  3. If presentment is made by presentment notice, a reference to “item” or “check” in this chapter means the presentment notice unless the context otherwise indicates.

History. Acts 1991, No. 572, § 6.

4-4-111. Statute of limitations.

An action to enforce an obligation, duty, or right arising under this chapter must be commenced within three (3) years after the cause of action accrues.

History. Acts 1991, No. 572, § 6.

Part 2 — Collection of Items — Depositary and Collecting Banks

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

Research References

ALR.

Final payment under UCC § 4-213. 23 A.L.R.4th 203.

4-4-201. Status of collecting bank as agent and provisional status of credits — Applicability of chapter — Item indorsed “Pay Any Bank”.

  1. Unless a contrary intent clearly appears and before the time that a settlement given by a collecting bank for an item is or becomes final, the bank, with respect to the item, is an agent or sub-agent of the owner of the item and any settlement given for the item is provisional. This provision applies regardless of the form of indorsement or lack of indorsement and even though credit given for the item is subject to immediate withdrawal as of right or is in fact withdrawn; but the continuance of ownership of an item by its owner and any rights of the owner to proceeds of the item are subject to rights of a collecting bank, such as those resulting from outstanding advances on the item and rights of recoupment or setoff. If an item is handled by banks for purposes of presentment, payment, collection, or return, the relevant provisions of this chapter apply even though action of the parties clearly establishes that a particular bank has purchased the item and is the owner of it.
  2. After an item has been indorsed with the words “pay any bank” or the like, only a bank may acquire the rights of a holder until the item has been:
    1. returned to the customer initiating collection; or
    2. specially indorsed by a bank to a person who is not a bank.

History. Acts 1961, No. 185, § 4-201; A.S.A. 1947, § 85-4-201; Acts 1991, No. 572, § 6.

Case Notes

Holder in Due Course.

Under the scheme of this chapter of the Uniform Commercial Code (subtitle 1 of this title), an Arkansas bank may be a holder in due course of forged check while acting as a collecting agent for its customer. Citizens Bank v. National Bank of Commerce, 334 F.2d 257 (10th Cir. 1964).

Where bank takes a negotiated instrument in satisfaction of an antecedent debt, the bank is a holder for value and in due course. Citizens Bank v. National Bank of Commerce, 334 F.2d 257 (10th Cir. 1964).

Cited: Union Nat'l Bank v. Metropolitan Nat'l Bank, 265 Ark. 340, 578 S.W.2d 220 (1979).

4-4-202. Responsibility for collection or return — When action timely.

  1. A collecting bank must exercise ordinary care in:
    1. presenting an item or sending it for presentment;
    2. sending notice of dishonor or nonpayment or returning an item other than a documentary draft to the bank's transferor after learning that the item has not been paid or accepted, as the case may be;
    3. settling for an item when the bank receives final settlement; and
    4. notifying its transferor of any loss or delay in transit within a reasonable time after discovery thereof.
  2. A collecting bank exercises ordinary care under subsection (a) by taking proper action before its midnight deadline following receipt of an item, notice, or settlement. Taking proper action within a reasonably longer time may constitute the exercise of ordinary care, but the bank has the burden of establishing timeliness.
  3. Subject to subsection (a)(1), a bank is not liable for the insolvency, neglect, misconduct, mistake, or default of another bank or person or for loss or destruction of an item in the possession of others or in transit.

History. Acts 1961, No. 185, § 4-202; 1967, No. 303, § 13; A.S.A. 1947, § 85-4-202; Acts 1991, No. 572, § 6.

Case Notes

Attorney's Fees.

Where supplier's bank wrongly encoded a check and supplier's claim against the supplier's bank was premised on its failure to use ordinary care in complying with the Uniform Commercial Code, attorney's fees were warranted because the amount of the claim was readily ascertainable. Douglas Cos. v. Commercial Nat'l Bank of Texarkana, 419 F.3d 812 (8th Cir. 2005).

Evidence.

Where supplier's bank wrongly encoded a check but the supplier did not notice the error for seven months, although the supplier's bank argued that its procedures for encoding checks complied with the relevant regulations, the issue of the supplier's bank's negligence was for a jury to decide; further, supplier's failure to reconcile its bank statement and the store owner's insolvency were not intervening acts. Douglas Cos. v. Commercial Nat'l Bank of Texarkana, 419 F.3d 812 (8th Cir. 2005).

Notice of Dishonor.

A bank must use ordinary care in sending notice to the payee of dishonor of checks after learning that an item has not been paid or accepted and the burden is on the bank to establish the reasonableness of notice provided beyond its midnight deadline. Citizens Bank v. Chitty, 285 Ark. 55, 684 S.W.2d 814 (1985).

Notice of Encoding Error.

Where supplier's bank wrongly encoded a check but the supplier did not notice the error for seven months, the account agreement, which required the supplier to notify the supplier's bank of “any other errors” within 60 days, did not bar supplier's negligence suit because the agreement applied only to the types of transactions or errors specifically identified in § 4-4-406 (unauthorized signatures and alterations) and not to encoding errors. Douglas Cos. v. Commercial Nat'l Bank of Texarkana, 419 F.3d 812 (8th Cir. 2005).

4-4-203. Effect of instructions.

Subject to Chapter 3 of this subtitle concerning conversion of instruments (§ 4-3-420) and restrictive indorsements (§ 4-3-206), only a collecting bank's transferor can give instructions that affect the bank or constitute notice to it, and a collecting bank is not liable to prior parties for any action taken pursuant to the instructions or in accordance with any agreement with its transferor.

History. Acts 1961, No. 185, § 4-203; A.S.A. 1947, § 85-4-203; Acts 1991, No. 572, § 6.

4-4-204. Methods of sending and presenting — Sending directly to payor bank.

  1. A collecting bank shall send items by a reasonably prompt method, taking into consideration relevant instructions, the nature of the item, the number of those items on hand, the cost of collection involved, and the method generally used by it or others to present those items.
  2. A collecting bank may send:
    1. an item directly to the payor bank;
    2. an item to a nonbank payor if authorized by its transferor; and
    3. an item other than documentary drafts to a nonbank payor, if authorized by Federal Reserve regulation or operating circular, clearinghouse rule, or the like.
  3. Presentment may be made by a presenting bank at a place where the payor bank or other payor has requested that presentment be made.

History. Acts 1961, No. 185, § 4-204; 1967, No. 303, § 14; A.S.A. 1947, § 85-4-204; Acts 1991, No. 572, § 6.

4-4-205. Depositary bank holder of unindorsed item.

If a customer delivers an item to a depositary bank for collection:

  1. the depositary bank becomes a holder of the item at the time it receives the item for collection if the customer at the time of delivery was a holder of the item, whether or not the customer indorses the item, and, if the bank satisfies the other requirements of § 4-3-302, it is a holder in due course; and
  2. the depositary bank warrants to collecting banks, the payor bank or other payor, and the drawer that the amount of the item was paid to the customer or deposited to the customer's account.

History. Acts 1961, No. 185, § 4-205; A.S.A. 1947, § 85-4-205; Acts 1991, No. 572, § 6.

4-4-206. Transfer between banks.

Any agreed method that identifies the transferor bank is sufficient for the item's further transfer to another bank.

History. Acts 1961, No. 185, § 4-206; A.S.A. 1947, § 85-4-206; Acts 1991, No. 572, § 6.

4-4-207. Transfer warranties.

  1. A customer or collecting bank that transfers an item and receives a settlement or other consideration warrants to the transferee and to any subsequent collecting bank that:
    1. the warrantor is a person entitled to enforce the item;
    2. all signatures on the item are authentic and authorized;
    3. the item has not been altered;
    4. the item is not subject to a defense or claim in recoupment (§ 4-3-305(a)) of any party that can be asserted against the warrantor;
    5. the warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker or acceptor or, in the case of an unaccepted draft, the drawer; and
    6. 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. If an item is dishonored, a customer or collecting bank transferring the item and receiving settlement or other consideration is obliged to pay the amount due on the item (i) according to the terms of the item at the time it was transferred, or (ii) if the transfer was of an incomplete item, according to its terms when completed as stated in §§ 4-3-115 and 4-3-407. The obligation of a transferor is owed to the transferee and to any subsequent collecting bank that takes the item in good faith. A transferor cannot disclaim its obligation under this subsection by an indorsement stating that it is made “without recourse” or otherwise disclaiming liability.
  3. A person to whom the warranties under subsection (a) are made and who took the item in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, but not more than the amount of the item plus expenses and loss of interest incurred as a result of the breach.
  4. The warranties stated in subsection (a) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within 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.
  5. A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.
  6. If the warranty in paragraph (6) of subsection (a) of this section is not given by a transferor under applicable conflict of laws rules, then the warranty in paragraph (6) of subsection (a) of this section is not given to that transferor when that transferor is a transferee.

History. Acts 1961, No. 185, § 4-207; A.S.A. 1947, § 85-4-207; Acts 1991, No. 572, § 6; 2005, No. 856, §§ 45, 46.

A.C.R.C. Notes. Acts 1991, No. 572, § 6 divided the provision of § 4-4-207 into present §§ 4-4-207 and 4-4-208 and rewrote those provisions.

Research References

Ark. L. Notes.

Janet A. Flaccus, Counterfeit Checks — What Rules Should Cover These?, 2011 Ark. L. Notes 618.

U. Ark. Little Rock L.J.

Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Defenses.

Where a bank customer breached the transfer warranties by depositing and receiving payment for a check with an altered payee line, the alleged failure of the drawer of the check to promptly notify the bank of the alteration did not provide a defense to the customer under the bank statement rule, § 4-4-406. Talbert v. United States Bank, N.A., 372 Ark. 148, 271 S.W.3d 486 (2008).

4-4-208. Presentment warranties.

  1. If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee that pays or accepts the draft in good faith that:
    1. the warrantor is, or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft;
    2. the draft has not been altered;
    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 drawee making payment may recover from a warrantor damages for breach of warranty equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer because of the payment. In addition, the drawee is entitled to compensation for expenses and loss of interest resulting from the breach. The right of the drawee to recover damages under this subsection is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft (i) breach of warranty is a defense to the obligation of the acceptor, and (ii) if the acceptor makes payment with respect to the draft, the acceptor is entitled to recover from a warrantor for breach of warranty the amounts stated in this subsection.
  3. If a drawee asserts a claim for breach of warranty under subsection (a) based on an unauthorized indorsement of the draft or an alteration of the draft, the warrantor may defend by proving that the indorsement is effective under § 4-3-404 or § 4-3-405 or the drawer is precluded under § 4-3-406 or § 4-4-406 from asserting against the drawee the unauthorized indorsement or alteration.
  4. If (i) a dishonored draft is presented for payment to the drawer or an indorser or (ii) any other item is presented for payment to a party obliged to pay the item, and the item is paid, the person obtaining payment and a prior transferor of the item warrant to the person making payment in good faith that the warrantor is, or was, at the time the warrantor transferred the item, a person entitled to enforce the item or authorized to obtain payment on behalf of a person entitled to enforce the item. The person making payment may recover from any warrantor for breach of warranty an amount equal to the amount paid plus expenses and loss of interest resulting from the breach.
  5. The warranties stated in subsections (a) and (d) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within 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 cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

History. Acts 1961, No. 185, § 4-207; A.S.A. 1947, § 85-4-207; Acts 1991, No. 572, § 6; 2005, No. 856, § 47.

A.C.R.C. Notes. Acts 1991, No. 572, § 6 divided the provisions of § 4-4-207 into present §§ 4-4-207 and 4-4-208 and rewrote those provisions. Former § 4-4-208 has been renumbered as § 4-4-210.

RESEARCH REFERENCES

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

4-4-209. Encoding and retention warranties.

  1. A person who encodes information on or with respect to an item after issue warrants to any subsequent collecting bank and to the payor bank or other payor that the information is correctly encoded. If the customer of a depositary bank encodes, that bank also makes the warranty.
  2. A person who undertakes to retain an item pursuant to an agreement for electronic presentment warrants to any subsequent collecting bank and to the payor bank or other payor that retention and presentment of the item comply with the agreement. If a customer of a depositary bank undertakes to retain an item, that bank also makes this warranty.
  3. A person to whom warranties are made under this section and who took the item in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, plus expenses and loss of interest incurred as a result of the breach.

History. Acts 1991, No. 572, § 6.

A.C.R.C. Notes. Former § 4-4-209 has been renumbered as § 4-4-211.

Case Notes

Evidence.

Where supplier's bank wrongly encoded a check but supplier did not notice the error for seven months, although the supplier's bank argued that its procedures for encoding checks complied with the relevant regulations, the issue of the supplier's bank's negligence was for a jury to decide; further, supplier's failure to reconcile its bank statement and the store owner's insolvency were not intervening acts. Douglas Cos. v. Commercial Nat'l Bank of Texarkana, 419 F.3d 812 (8th Cir. 2005).

Parties Protected.

This section provides warranties to collecting banks and payors but not to a payee. France v. Ford Motor Credit Co., 323 Ark. 167, 913 S.W.2d 770 (1996).

4-4-210. Security interest of collecting bank in items, accompanying documents, and proceeds.

  1. A collecting bank has a security interest in an item and any accompanying documents or the proceeds of either:
    1. in case of an item deposited in an account, to the extent to which credit given for the item has been withdrawn or applied;
    2. in case of an item for which it has given credit available for withdrawal as of right, to the extent of the credit given, whether or not the credit is drawn upon or there is a right of charge-back; or
    3. if it makes an advance on or against the item.
  2. If credit given for several items received at one (1) time or pursuant to a single agreement is withdrawn or applied in part, the security interest remains upon all the items, any accompanying documents or the proceeds of either. For the purpose of this section, credits first given are first withdrawn.
  3. Receipt by a collecting bank of a final settlement for an item is a realization on its security interest in the item, accompanying documents, and proceeds. So long as the bank does not receive final settlement for the item or give up possession of the item or possession or control of the accompanying documents for purposes other than collection, the security interest continues to that extent and is subject to Chapter 9, but:
    1. no security agreement is necessary to make the security interest enforceable (§ 4-9-203(b)(3)(A));
    2. no filing is required to perfect the security interest; and
    3. the security interest has priority over conflicting perfected security interests in the item, accompanying documents, or proceeds.

History. Acts 1961, No. 185, § 4-208; A.S.A. 1947, § 85-4-208; Acts 1991, No. 572, § 6; 2001, No. 1439, § 13; 2007, No. 342, § 24.

A.C.R.C. Notes. This section was formerly codified as § 4-4-208. Former § 4-4-210 has been renumbered as § 4-4-212.

Case Notes

Attachment of Security Interest.

Where an automobile dealership deposited checks which were immediately credited but subsequently dishonored, and the dealership's bank entered the amount of the dishonored checks in its own general ledger cash items account, the bank had no security interest in the proceeds of the dealership's sale of vehicles in which a finance company had a perfected security interest; by depositing the proceeds in its cash items account to cover the dishonored checks, rather than exchanging the dishonored checks with the dealership or the drawer for value, the bank engaged in a separate transaction with the dealership which did not involve any interest of the bank in the dishonored checks. GMAC v. Union Bank & Trust Co., 329 F.3d 594 (8th Cir. 2003).

Proceeds.

For purposes of subsection (c) of this section, “proceeds” include funds paid out by a presenting bank to the payee or funds directly received in exchange for the item; thus, when a depository bank advances funds on checks that are never converted to proceeds because payment is stopped, the checks, returned to the depository bank, have had no proceeds created to which a security interest can attach. GMAC v. Union Bank & Trust Co., 329 F.3d 594 (8th Cir. 2003).

Cited: Citizens Bank v. National Bank of Commerce, 334 F.2d 257 (10th Cir. 1964).

4-4-211. When bank gives value for purposes of holder in due course.

For purposes of determining its status as a holder in due course, a bank has given value to the extent it has a security interest in an item, if the bank otherwise complies with the requirements of § 4-3-302 on what constitutes a holder in due course.

History. Acts 1961, No. 185, § 4-209; A.S.A. 1947, § 85-4-209; Acts 1991, No. 572, § 6.

A.C.R.C. Notes. This section was formerly codified as § 4-4-209. Former § 4-4-211 has been renumbered as § 4-4-213.

Case Notes

Cited: Citizens Bank v. National Bank of Commerce, 334 F.2d 257 (10th Cir. 1964).

4-4-212. Presentment by notice of item not payable by, through, or at bank — Liability of drawer or indorser.

  1. Unless otherwise instructed, a collecting bank may present an item not payable by, through, or at a bank by sending to the party to accept or pay a record providing notice that the bank holds the item for acceptance or payment. The notice must be sent in time to be received on or before the day when presentment is due and the bank must meet any requirement of the party to accept or pay under § 4-3-501 by the close of the bank's next banking day after it knows of the requirement.
  2. If presentment is made by notice and payment, acceptance, or request for compliance with a requirement under § 4-3-501 is not received by the close of business on the day after maturity or, in the case of demand items, by the close of business on the third banking day after notice was sent, the presenting bank may treat the item as dishonored and charge any drawer or indorser by sending it notice of the facts.

History. Acts 1961, No. 185, § 4-210; A.S.A. 1947, § 85-4-210; Acts 1991, No. 572, § 6; 2005, No. 856, § 48.

A.C.R.C. Notes. This section was formerly codified as § 4-4-210. Former § 4-4-212 has been renumbered as § 4-4-214.

RESEARCH REFERENCES

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Charge-Back.

The right of the collecting bank to charge back terminates when a settlement for the item becomes final. Gordon v. Planters & Merchants Bancshares, Inc., 310 Ark. 11, 832 S.W.2d 492 (1992).

There is a cause of action by the customer against a collecting bank when the collecting bank makes a charge-back for an item after it has received final settlement. Gordon v. Planters & Merchants Bancshares, Inc., 310 Ark. 11, 832 S.W.2d 492 (1992).

4-4-213. Medium and time of settlement by bank.

  1. With respect to settlement by a bank, the medium and time of settlement may be prescribed by Federal Reserve regulations or circulars, clearinghouse rules, and the like, or agreement. In the absence of such prescription:
    1. the medium of settlement is cash or credit to an account in a Federal Reserve bank of or specified by the person to receive settlement; and
    2. the time of settlement, is:
      1. with respect to tender of settlement by cash, a cashier's check, or teller's check, when the cash or check is sent or delivered;
      2. with respect to tender of settlement by credit in an account in a Federal Reserve bank, when the credit is made;
      3. with respect to tender of settlement by a credit or debit to an account in a bank, when the credit or debit is made or, in the case of tender of settlement by authority to charge an account, when the authority is sent or delivered; or
      4. with respect to tender of settlement by a funds transfer, when payment is made pursuant to § 4-4A-406(a) to the person receiving settlement.
  2. If the tender of settlement is not by a medium authorized by subsection (a) or the time of settlement is not fixed by subsection (a), no settlement occurs until the tender of settlement is accepted by the person receiving settlement.
  3. If settlement for an item is made by cashier's check or teller's check and the person receiving settlement, before its midnight deadline:
    1. presents or forwards the check for collection, settlement is final when the check is finally paid; or
    2. fails to present or forward the check for collection, settlement is final at the midnight deadline of the person receiving settlement.
  4. If settlement for an item is made by giving authority to charge the account of the bank giving settlement in the bank receiving settlement, settlement is final when the charge is made by the bank receiving settlement if there are funds available in the account for the amount of the item.

History. Acts 1961, No. 185, § 4-211; A.S.A. 1947, § 85-4-211; Acts 1991, No. 572, § 6.

A.C.R.C. Notes. This section was formerly codified as § 4-4-211. Former § 4-4-213 has been renumbered as § 4-4-215.

Case Notes

Cashier's Check.

Where an Arkansas bank presented to an Oklahoma bank a check drawn on Oklahoma bank, payable to debtor of Arkansas bank who had presented it in payment of an antecedent debt, and Oklahoma bank accepted the check and gave a cashier's check in exchange, payable to the Arkansas bank, the Arkansas bank was entitled to recover on the cashier's check, although it had been dishonored by Oklahoma bank on discovery that the check drawn on it was forged. Citizens Bank v. National Bank of Commerce, 334 F.2d 257 (10th Cir. 1964).

Charge-Back.

There is a cause of action by the customer against a collecting bank when the collecting bank makes a charge-back for an item after it has received final settlement. Gordon v. Planters & Merchants Bancshares, Inc., 310 Ark. 11, 832 S.W.2d 492 (1992).

4-4-214. Right of charge-back or refund — Liability of collecting bank — Return of item.

  1. If a collecting bank has made provisional settlement with its customer for an item and fails by reason of dishonor, suspension of payments by a bank, or otherwise to receive settlement for the item which is or becomes final, the bank may revoke the settlement given by it, charge back the amount of any credit given for the item to its customer's account, or obtain refund from its customer, whether or not it is able to return the items, if by its midnight deadline or within a longer reasonable time after it learns the facts it returns the item or sends notification of the facts. If the return or notice is delayed beyond the bank's midnight deadline or a longer reasonable time after it learns the facts, the bank may revoke the settlement, charge back the credit, or obtain refund from its customer, but it is liable for any loss resulting from the delay. These rights to revoke, charge back, and obtain refund terminate if and when a settlement for the item received by the bank is or becomes final.
  2. A collecting bank returns an item when it is sent or delivered to the bank's customer or transferor or pursuant to its instructions.
  3. A depositary bank that is also the payor may charge back the amount of an item to its customer's account or obtain refund in accordance with the section governing return of an item received by a payor bank for credit on its books (§ 4-4-301).
  4. The right to charge back is not affected by:
    1. previous use of a credit given for the item; or
    2. failure by any bank to exercise ordinary care with respect to the item, but a bank so failing remains liable.
  5. A failure to charge back or claim refund does not affect other rights of the bank against the customer or any other party.
  6. If credit is given in dollars as the equivalent of the value of an item payable in foreign money, the dollar amount of any charge-back or refund must be calculated on the basis of the bank-offered spot rate for the foreign money prevailing on the day when the person entitled to the charge-back or refund learns that it will not receive payment in ordinary course.

History. Acts 1961, No. 185, § 4-212; 1967, No. 303, § 15; A.S.A. 1947, § 85-4-212; Acts 1991, No. 572, § 6.

A.C.R.C. Notes. This section was formerly codified as § 4-4-212. Former § 4-4-214 has been renumbered as § 4-4-216.

Research References

Ark. L. Rev.

Comment, Gordon v. Planters & Merchants Bancshares: Punitive Damages May Be Awarded For Bank's Wrongful Charge-Back, 51 Ark. L. Rev. 611.

Case Notes

Charge-Back.

The stamp of the payor bank on a check deposited with it “Pay to any bank — P. E. G.” followed by the name of the bank did not constitute acceptance of the check for payment so as to preclude charging it back against the depositor's account when it was found not to be covered by sufficient funds in the drawer's account. Douglas v. Citizens Bank, 244 Ark. 168, 424 S.W.2d 532 (1968).

Cited: Citizens Bank v. National Bank of Commerce, 334 F.2d 257 (10th Cir. 1964).

4-4-215. Final payment of item by payor bank — When provisional debits and credits become final — When certain credits become available for withdrawal.

  1. An item is finally paid by a payor bank when the bank has first done any of the following:
    1. paid the item in cash;
    2. settled for the item without having a right to revoke the settlement under statute, clearinghouse rule, or agreement; or
    3. made a provisional settlement for the item and failed to revoke the settlement in the time and manner permitted by statute, clearinghouse rule, or agreement.
  2. If provisional settlement for an item does not become final, the item is not finally paid.
  3. If provisional settlement for an item between the presenting and payor banks is made through a clearinghouse or by debits or credits in an account between them, then to the extent that provisional debits or credits for the item are entered in accounts between the presenting and payor banks or between the presenting and successive prior collecting banks seriatim, they become final upon final payment of the items by the payor bank.
  4. If a collecting bank receives a settlement for an item which is or becomes final, the bank is accountable to its customer for the amount of the item and any provisional credit given for the item in an account with its customer becomes final.
  5. Subject to (i) applicable law stating a time for availability of funds and (ii) any right of the bank to apply the credit to an obligation of the customer, credit given by a bank for an item in a customer's account becomes available for withdrawal as of right:
    1. if the bank has received a provisional settlement for the item, when the settlement becomes final and the bank has had a reasonable time to receive return of the item and the item has not been received within that time;
    2. if the bank is both the depositary bank and the payor bank, and the item is finally paid, at the opening of the bank's second banking day following receipt of the item.
  6. Subject to applicable law stating a time for availability of funds and any right of a bank to apply a deposit to an obligation of the depositor, a deposit of money becomes available for withdrawal as of right at the opening of the bank's next banking day after receipt of the deposit.

History. Acts 1961, No. 185, § 4-213; 1967, No. 303, § 16; A.S.A. 1947, § 85-4-213; Acts 1991, No. 572, § 6.

A.C.R.C. Notes. This section was formerly codified as § 4-4-213.

Research References

Ark. L. Rev.

Comment, Gordon v. Planters & Merchants Bancshares: Punitive Damages May Be Awarded For Bank's Wrongful Charge-Back, 51 Ark. L. Rev. 611.

Case Notes

Bad Faith.

Bank had had a clear duty under this section to refrain from charging-back a check against customer's account once payment had become final; the Bank's breach of this duty could have been construed to be an exercise of bad faith strictly prohibited by § 4-1-203. Gordon v. Planters & Merchants Bankshares, Inc., 326 Ark. 1046, 935 S.W.2d 544 (1996).

Charge-Back.

A collecting bank's right to charge-back an account terminates when a settlement for the check becomes final. Gordon v. Planters & Merchants Bankshares, Inc., 326 Ark. 1046, 935 S.W.2d 544 (1996).

Damages.

Punitive damages can be awarded under subsection (d) of this section. Gordon v. Planters & Merchants Bankshares, Inc., 326 Ark. 1046, 935 S.W.2d 544 (1996).

Cited: Douglas v. Citizens Bank, 244 Ark. 168, 424 S.W.2d 532 (1968); Union Nat'l Bank v. Metropolitan Nat'l Bank, 265 Ark. 340, 578 S.W.2d 220 (1979).

4-4-216. Insolvency and preference.

  1. If an item is in or comes into the possession of a payor or collecting bank that suspends payment and the item has not been finally paid, the item must be returned by the receiver, trustee, or agent in charge of the closed bank to the presenting bank or the closed bank's customer.
  2. If a payor bank finally pays an item and suspends payments without making a settlement for the item with its customer or the presenting bank which settlement is or becomes final, the owner of the item has a preferred claim against the payor bank.
  3. If a payor bank gives or a collecting bank gives or receives a provisional settlement for an item and thereafter suspends payments, the suspension does not prevent or interfere with the settlement's becoming final if the finality occurs automatically upon the lapse of certain time or the happening of certain events.
  4. If a collecting bank receives from subsequent parties settlement for an item, which settlement is or becomes final and the bank suspends payments without making a settlement for the item with its customer which settlement is or becomes final, the owner of the item has a preferred claim against the collecting bank.

History. Acts 1961, No. 185, § 4-214; A.S.A. 1947, § 85-4-214; Acts 1991, No. 572, § 6.

A.C.R.C. Notes. This section was formerly codified as § 4-4-214.

Part 3 — Collection of Items — Payor Banks

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

ALR.

Construction and application of UCC §§ 4-301 and 4-302 making payor bank accountable for failure to act promptly on item presented for payment. 22 A.L.R.4th 10.

4-4-301. Deferred posting — Recovery of payment by return of items — Time of dishonor — Return of items by payor bank.

  1. If a payor bank settles for a demand item other than a documentary draft presented otherwise than for immediate payment over the counter before midnight of the banking day of receipt, the payor bank may revoke the settlement and recover the settlement if, before it has made final payment and before its midnight deadline, it
    1. returns the item;
    2. returns an image of the item, if the party to which the return is made has entered into an agreement to accept an image as a return of the item; and the image is returned in accordance with that agreement; or
    3. sends a record providing notice of dishonor or nonpayment if the item is unavailable for return.
  2. If a demand item is received by a payor bank for credit on its books, it may return the item or send notice of dishonor and may revoke any credit given or recover the amount thereof withdrawn by its customer, if it acts within the time limit and in the manner specified in subsection (a).
  3. Unless previous notice of dishonor has been sent, an item is dishonored at the time when for purposes of dishonor it is returned or notice sent in accordance with this section.
  4. An item is returned:
    1. as to an item presented through a clearinghouse, when it is delivered to the presenting or last collecting bank or to the clearinghouse or is sent or delivered in accordance with clearinghouse rules; or
    2. in all other cases, when it is sent or delivered to the bank's customer or transferor or pursuant to instructions.

History. Acts 1961, No. 185, § 4-301; 1967, No. 303, § 17; A.S.A. 1947, § 85-4-301; Acts 1991, No. 572, § 6; 2005, No. 856, § 49.

Research References

U. Ark. Little Rock L.J.

Tyler, Survey of Business Law, 3 U. Ark. Little Rock L.J. 149.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Charge-Back.

The stamp of the payor bank on a check deposited with it “Pay to any bank — P. E. G.” followed by the name of the bank did not constitute acceptance of the check for payment so as to preclude charging it back against the depositor's account when it was found not to be covered by sufficient funds in the drawer's account. Douglas v. Citizens Bank, 244 Ark. 168, 424 S.W.2d 532 (1968).

Sending Checks.

The deposit of returned checks in the mail by midnight complies with the requirement that the checks be “sent” to the bank's transferor. Union Nat'l Bank v. Metropolitan Nat'l Bank, 265 Ark. 340, 578 S.W.2d 220 (1979).

4-4-302. Payor bank's responsibility for late return of item.

  1. If an item is presented to and received by a payor bank, the bank is accountable for the amount of:
    1. a demand item, other than a documentary draft, whether properly payable or not, if the bank, in any case in which it is not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, whether or not it is also the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline; or
    2. any other properly payable item unless, within the time allowed for acceptance or payment of that item, the bank either accepts or pays the item or returns it and accompanying documents.
  2. The liability of a payor bank to pay an item pursuant to subsection (a) is subject to defenses based on breach of a presentment warranty (§ 4-4-208) or proof that the person seeking enforcement of the liability presented or transferred the item for the purpose of defrauding the payor bank.

History. Acts 1961, No. 185, § 4-302; A.S.A. 1947, § 85-4-302; Acts 1991, No. 572, § 6.

Research References

U. Ark. Little Rock L.J.

Survey—Business Law, 10 U. Ark. Little Rock L.J. 89.

Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.

Case Notes

Liability.

The liability created by subdivision (a)(2) of this section is a statutory liability and is independent of liability based upon negligence. First State Bank v. Twin City Bank, 290 Ark. 399, 720 S.W.2d 295 (1986).

Where the documentary drafts were not known by the depositary/collecting bank to be unauthorized until payor/drawee bank tardily sent notice of their fraudulent nature, the strict requirements of subdivision (a)(2) of this section applied and made the payor/drawee bank accountable for the drafts. First State Bank v. Twin City Bank, 290 Ark. 399, 720 S.W.2d 295 (1986).

4-4-303. When items subject to notice, stop-payment order, legal process, or setoff — Order in which items may be charged or certified.

  1. Any knowledge, notice, or stop-payment order received by, legal process served upon, or setoff exercised by a payor bank comes too late to terminate, suspend, or modify the bank's right or duty to pay an item or to charge its customer's account for the item if the knowledge, notice, stop-payment order, or legal process is received or served and a reasonable time for the bank to act thereon expires or the setoff is exercised after the earliest of the following:
    1. the bank accepts or certifies the item;
    2. the bank pays the item in cash;
    3. the bank settles for the item without having a right to revoke the settlement under statute, clearinghouse rule, or agreement;
    4. the bank becomes accountable for the amount of the item under § 4-4-302 dealing with the payor bank's responsibility for late return of items; or
    5. with respect to checks, a cutoff hour no earlier than one (1) hour after the opening of the next banking day after the banking day on which the bank received the check and no later than the close of that next banking day or, if no cutoff hour is fixed, the close of the next banking day after the banking day on which the bank received the check.
  2. Subject to subsection (a), items may be accepted, paid, certified, or charged to the indicated account of its customer in any order.

History. Acts 1961, No. 185, § 4-303; A.S.A. 1947, § 85-4-303; Acts 1991, No. 572, § 6.

Case Notes

Applicability.

In an action arising out of a state-chartered bank's practices regarding the order in which debit card transactions were posted to maximize overdraft fees, the bank's argument that the principles in this section should be extended to debit card transactions failed; nor did UCC Article 4A apply as debit card transactions are within the scope of the Electronic Fund Transfer Act, 15 U.S.C. § 1693a(7), and therefore expressly outside the scope of Article 4A. Hanjy v. Arvest Bank, 94 F. Supp. 3d 1012 (E.D. Ark. 2015).

Remedies.

Bank was entitled to pursue its rights of setoff and repossession and sale simultaneously. Neel v. Citizens First State Bank, 28 Ark. App. 116, 771 S.W.2d 303 (1989).

Part 4 — Relationship Between Payor Bank and Its Customer

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

ALR.

What constitutes wrongful dishonor of check rendering payor bank liable to drawer under UCC § 4-402. 88 A.L.R.4th 568.

Who may recover for wrongful dishonor of check under UCC § 4-402. 88 A.L.R.4th 613.

Damages recoverable for wrongful dishonor of check under UCC § 4-402. 88 A.L.R.4th 644.

4-4-401. When bank may charge customer's account.

  1. A bank may charge against the account of a customer an item that is properly payable from that account even though the charge creates an overdraft. An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and bank.
  2. A customer is not liable for the amount of an overdraft if the customer neither signed the item nor benefited from the proceeds of the item.
  3. A bank may charge against the account of a customer a check that is otherwise properly payable from the account, even though payment was made before the date of the check, unless the customer has given notice to the bank of the postdating describing the check with reasonable certainty. The notice is effective for the period stated in § 4-4-403(b) for stop-payment orders, and must be received at such time and in such manner as to afford the bank a reasonable opportunity to act on it before the bank takes any action with respect to the check described in § 4-4-303. If a bank charges against the account of a customer a check before the date stated in the notice of postdating, the bank is liable for damages for the loss resulting from its act. The loss may include damages for dishonor of subsequent items under § 4-4-402.
  4. A bank that in good faith makes payment to a holder may charge the indicated account of its customer according to:
    1. the original terms of the altered item; or
    2. the terms of the completed item, even though the bank knows the item has been completed, unless the bank has notice that the completion was improper.

History. Acts 1961, No. 185, § 4-401; 1967, No. 303, § 18; A.S.A. 1947, § 85-4-401; Acts 1991, No. 47, § 1; 1991, No. 572, § 6.

4-4-402. Bank's liability to customer for wrongful dishonor — Time of determining insufficiency of account.

  1. Except as otherwise provided in this chapter, a payor bank wrongfully dishonors an item if it dishonors an item that is properly payable, but a bank may dishonor an item that would create an overdraft unless it has agreed to pay the overdraft.
  2. A payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item. Liability is limited to actual damages proved and may include damages for an arrest or prosecution of the customer or other consequential damages. Whether any consequential damages are proximately caused by the wrongful dishonor is a question of fact to be determined in each case.
  3. A payor bank's determination of the customer's account balance on which a decision to dishonor for insufficiency of available funds is based may be made at any time between the time the item is received by the payor bank and the time that the payor bank returns the item or gives notice in lieu of return, and no more than one (1) determination need be made. If, at the election of the payor bank, a subsequent balance determination is made for the purpose of reevaluating the bank's decision to dishonor the item, the account balance at that time is determinative of whether a dishonor for insufficiency of available funds is wrongful.

History. Acts 1961, No. 185, § 4-402; A.S.A. 1947, § 85-4-402; Acts 1991, No. 572, § 6.

Research References

ALR.

What constitutes wrongful dishonor of check rendering payor bank liable to drawer under UCC § 4-402. 88 A.L.R.4th 568.

Who may recover for wrongful dishonor of check under UCC § 4-402. 88 A.L.R.4th 613.

Damages recoverable for wrongful dishonor of check under UCC § 4-402. 88 A.L.R.4th 644.

Ark. L. Rev.

Comment, Gordon v. Planters & Merchants Bancshares: Punitive Damages May Be Awarded For Bank's Wrongful Charge-Back, 51 Ark. L. Rev. 611.

U. Ark. Little Rock L.J.

Arkansas Law Survey, Looney, Business Law, 8 U. Ark. Little Rock L.J. 99.

Case Notes

Damages.

Although the general rule is that damages may not be allowed where they are speculative, resting only upon conjectural evidence, or the opinions of the parties or witnesses, there are instances where damages cannot be proven with exactness, and where the cause and existence of damages caused by a bank's wrongful dishonor have been established by the evidence, recovery will not be denied merely because the damages cannot be determined with exactness. Twin City Bank v. Isaacs, 283 Ark. 127, 672 S.W.2d 651 (1984).

Mental Suffering.

The language of this section impliedly recognizes mental suffering and other intangible injuries as recoverable. Twin City Bank v. Isaacs, 283 Ark. 127, 672 S.W.2d 651 (1984).

Cited: City Nat'l Bank v. Goodwin, 301 Ark. 182, 783 S.W.2d 335 (1990); Gordon v. Planters & Merchants Bankshares, Inc., 326 Ark. 1046, 935 S.W.2d 544 (1996).

4-4-403. Customer's right to stop payment — Burden of proof of loss.

  1. A customer or any person authorized to draw on the account if there is more than one person may stop payment of any item drawn on the customer's account or close the account by an order to the bank describing the item or account with reasonable certainty received at a time and in a manner that affords the bank a reasonable opportunity to act on it before any action by the bank with respect to the item described in this subsection. If the signature of more than one person is required to draw on an account, any of these persons may stop payment or close the account.
  2. A stop-payment order is effective for six months, but it lapses after 14 calendar days if the original order was oral and was not confirmed in a record within that period. A stop-payment order may be renewed for additional six-month periods by a record given to the bank within a period during which the stop-payment order is effective.
  3. The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a stop-payment order or order to close an account is on the customer. The loss from payment of an item contrary to a stop-payment order may include damages for dishonor of subsequent items under § 4-4-402.

History. Acts 1961, No. 185, § 4-403; A.S.A. 1947, § 85-4-403; Acts 1991, No. 572, § 6; 2005, No. 856, § 50.

RESEARCH REFERENCES

Ark. L. Rev.

Note, Vanished in the Blink of an Eye: Split-Second Garnishment Liability and Loan Manager Accounts in the Wake of In re Southwestern Glass, 58 Ark. L. Rev. 893.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Case Notes

Applicability.

Circuit court did not err in finding that a bank that had been served with a writ of garnishment was liable to the judgment creditor for the amount transferred from the judgment debtor's account after that account had been closed and then reopened; even assuming that the bank properly answered the writ of garnishment and was a payor bank under this section, § 16-110-406 controlled and required the bank to lien all money at the time the writ was served—immediately. As a result, the circuit court did not err in applying the garnishment statutes instead of Article 4 of the UCC. Eagle Bank & Trust Co. v. Raynor Mfg. Co., 2019 Ark. App. 168, 574 S.W.3d 196 (2019).

Opportunity to Act.

Stop-payment order was received in such manner as to afford defendant bank a reasonable opportunity to act upon it. First State Bank v. Dixon, 21 Ark. App. 17, 728 S.W.2d 192 (1987).

4-4-404. Bank not obliged to pay check more than six (6) months old.

A bank is under no obligation to a customer having a checking account to pay a check, other than a certified check, which is presented more than six (6) months after its date, but it may charge its customer's account for a payment made thereafter in good faith.

History. Acts 1961, No. 185, § 4-404; A.S.A. 1947, § 85-4-404; Acts 1991, No. 572, § 6.

Research References

U. Ark. Little Rock L.J.

Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.

Murphey, The Discontinuance of the Certified Check — An Arkansas Study, 16 U. Ark. Little Rock L.J. 555.

Case Notes

Liability of Maker.

This section was adopted for the protection of banks and does not extinguish the maker's liability on a valid check merely because it was more than six months past due or preclude a claim against an estate on the basis of such a check. Hartsook v. Owens, 236 Ark. 790, 370 S.W.2d 69 (1963).

Cited: United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964).

4-4-405. Death or incompetence of customer.

  1. A payor or collecting bank's authority to accept, pay, or collect an item or to account for proceeds of its collection, if otherwise effective, is not rendered ineffective by incompetence of a customer of either bank existing at the time the item is issued or its collection is undertaken if the bank does not know of an adjudication of incompetence. Neither death nor incompetence of a customer revokes the authority to accept, pay, collect, or account until the bank knows of the fact of death or of an adjudication of incompetence and has reasonable opportunity to act on it.
  2. Even with knowledge, a bank may for ten (10) days after the date of death pay or certify checks drawn on or before that date unless ordered to stop payment by a person claiming an interest in the account.

History. Acts 1961, No. 185, § 4-405; A.S.A. 1947, § 85-4-405; Acts 1991, No. 572, § 6.

4-4-406. Customer's duty to discover and report unauthorized signature or alteration — Comparative fault.

  1. A bank that sends or makes available to a customer a statement of account showing payment of items for the account shall either return or make available to the customer the items paid or provide information in the statement of account sufficient to allow the customer reasonably to identify the items paid. The statement of account provides sufficient information if the item is described by item number, amount, and date of payment.
  2. If the items are not returned to the customer, the person retaining the items shall either retain the items or, if the items are destroyed, maintain the capacity to furnish legible copies of the items until the expiration of seven (7) years after receipt of the items. A customer may request an item from the bank that paid the item, and that bank must provide in a reasonable time either the item or, if the item has been destroyed or is not otherwise obtainable, a legible copy of the item.
  3. If a bank sends or makes available a statement of account or items pursuant to subsection (a), the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.
  4. If the bank proves that the customer failed, with respect to an item, to comply with the duties imposed on the customer by subsection (c), the customer is precluded from asserting against the bank:
    1. the customer's unauthorized signature or any alteration on the item, if the bank also proves that it suffered a loss by reason of the failure; and
    2. the customer's unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding thirty (30) days, in which to examine the item or statement of account and notify the bank.
  5. If subsection (d) applies and the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure substantially contributed to loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the extent to which the failure of the customer to comply with subsection (c) and the failure of the bank to exercise ordinary care contributed to the loss. If the customer proves that the bank did not pay the item in good faith, the preclusion under subsection (d) does not apply.
  6. Without regard to care or lack of care of either the customer or the bank, a customer who does not within one (1) year after the statement or items are made available to the customer (subsection (a)) discover and report the customer's unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration. If there is a preclusion under this subsection, the payor bank may not recover for breach of warranty under § 4-4-208 with respect to the unauthorized signature or alteration to which the preclusion applies.

History. Acts 1961, No. 185, § 4-406; A.S.A. 1947, § 85-4-406; Acts 1987, No. 564, § 2; 1987, No. 565, § 1; Acts 1991, No. 572, § 6.

Research References

U. Ark. Little Rock L.J.

Survey—Uniform Commercial Code, 10 U. Ark. Little Rock L.J. 613.

Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.

Case Notes

Customer's Breach of Transfer Warranties.

Where a bank customer breached the transfer warranties under § 4-4-207 by depositing and receiving payment for a check with an altered payee line, the alleged failure of the drawer of the check to promptly notify the bank of the alteration did not provide a defense to the customer under the bank statement rule. Talbert v. United States Bank, N.A., 372 Ark. 148, 271 S.W.3d 486 (2008).

Laches and Estoppel.

Corporation could not recover from bank which allowed the corporation's bookkeeper to receive cash when she deposited checks marked “For Deposit Only,” even though allowing cash to be given on such deposits was a breach of an implied contract by the bank, since plaintiff had allowed this practice to go on for more than the statutory period of years without complaining. J.W. Reynolds Lumber Co. v. Smackover State Bank, 310 Ark. 342, 836 S.W.2d 853 (1992).

Lack of Ordinary Care.

A bank is precluded from using the defense that the customer did not promptly notify it of an unauthorized signature after statements were available to the customer, if the evidence establishes a lack of care on the part of the bank. First Nat'l Bank v. Hobbs, 248 Ark. 76, 450 S.W.2d 298 (1970).

Trial court's findings contained no suggestion that the bank was negligent or otherwise failed to exercise ordinary care when it made payments to an unauthorized customer as the bank could not have known that the transactions were a result of forgery or other unauthorized conduct. Mercantile Bank v. Vowell, 82 Ark. App. 421, 117 S.W.3d 603 (2003).

Statements of Accounts.

A depositor is not excused from his duty of examining his bank statement with reasonable dispatch and care and informing the bank of any errors by entrusting performance of this duty to an incompetent or dishonest agent in the absence of reasonable diligence in supervising his conduct. Pine Bluff Nat'l Bank v. Kesterson, 257 Ark. 813, 520 S.W.2d 253 (1975).

The usage and custom of a bank in delivering statements and cancelled checks to its depositors is competent evidence to prove delivery was effectuated. Cooley v. First Nat'l Bank, 276 Ark. 387, 635 S.W.2d 250 (1982).

Where bank statements are mailed to the address provided by the depositors as reflected on the signature card, they are “available” within the meaning of subsection (a) of this section. Cooley v. First Nat'l Bank, 276 Ark. 387, 635 S.W.2d 250 (1982) (decision under prior law).

Terms of the customer-account agreement did not preclude the customer from recovering on the items contained in the July savings, August checking, and August savings statements because the bank was notified before 30 days had elapsed following the deemed-receipt dates of those statements; allowing recovery for the items that the bank paid for before August 10, 1997, but precluding recovery for those items that were paid after August 10 was in keeping with the purpose of this section. Mercantile Bank v. Vowell, 82 Ark. App. 421, 117 S.W.3d 603 (2003).

Where supplier's bank wrongly encoded a check but the supplier did not notice the error for seven months, the account agreement, which required the supplier to notify the supplier's bank of “any other errors” within 60 days, did not bar supplier's negligence suit because the agreement applied only to the types of transactions or errors specifically identified in this section (unauthorized signatures and alterations) and not to encoding errors. Douglas Cos. v. Commercial Nat'l Bank of Texarkana, 419 F.3d 812 (8th Cir. 2005).

Statute of Limitations.

Subsection (f) of this section is not a statute of limitations, but rather, it creates an absolute bar as it is a rule of substantive law which is a condition precedent to an action. Pine Bluff Nat'l Bank v. Kesterson, 257 Ark. 813, 520 S.W.2d 253 (1975); Coast-to-Coast Stores, Inc. v. Citizens Bank, 676 F. Supp. 923 (E.D. Ark. 1987) (decision under prior law).

Evidence was sufficient to support conclusion that depositor had knowledge of unauthorized withdrawals and yet failed to act within the time allowed under subsection (f) of this section. Cooley v. First Nat'l Bank, 276 Ark. 387, 635 S.W.2d 250 (1982) (decision under prior law).

Depositor held to have acted within the time allowed under subsection (f) of this section where it notified bank within 4 months of the unauthorized withdrawal but did not file suit within the time allowed for discovering and reporting unauthorized signatures. Coast-to-Coast Stores, Inc. v. Citizens Bank, 676 F. Supp. 923 (E.D. Ark. 1987).

Unauthorized Signatures.

Where the authorized signature of a trust fund required the joint signatures of three trustees, any purported signature of less than three trustees was an “unauthorized signature.” Pine Bluff Nat'l Bank v. Kesterson, 257 Ark. 813, 520 S.W.2d 253 (1975).

The bank's payment of a check or withdrawal on less than the required number of signatures renders the signature “unauthorized” within the meaning of this section and requires the customer to discover and report it within one year from the time the statement and items are made available. Cooley v. First Nat'l Bank, 276 Ark. 387, 635 S.W.2d 250 (1982).

Cited: Carter v. Hartenstein, 248 Ark. 1172, 455 S.W.2d 918 (1970).

4-4-407. Payor bank's right to subrogation on improper payment.

If a payor bank has paid an item over the order of the drawer or maker to stop payment, or after an account has been closed, or otherwise under circumstances giving a basis for objection by the drawer or maker, to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of the item, the payor bank is subrogated to the rights

  1. of any holder in due course on the item against the drawer or maker;
  2. of the payee or any other holder of the item against the drawer or maker either on the item or under the transaction out of which the item arose; and
  3. of the drawer or maker against the payee or any other holder of the item with respect to the transaction out of which the item arose.

History. Acts 1961, No. 185, § 4-407; A.S.A. 1947, § 85-4-407; Acts 1991, No. 572, § 6.

Case Notes

Cited: Johnson v. Eudora Bank, 257 Ark. 518, 517 S.W.2d 957 (1975).

Part 5 — Collection of Documentary Drafts

4-4-501. Handling of documentary drafts — Duty to send for presentment and to notify customer of dishonor.

A bank that takes a documentary draft for collection shall present or send the draft and accompanying documents for presentment and, upon learning that the draft has not been paid or accepted in due course, shall seasonably notify its customer of the fact even though it may have discounted or bought the draft or extended credit available for withdrawal as of right.

History. Acts 1961, No. 185, § 4-501; A.S.A. 1947, § 85-4-501; Acts 1991, No. 572, § 6.

4-4-502. Presentment of “on arrival” drafts.

If a draft or the relevant instructions require presentment “on arrival”, “when goods arrive” or the like, the collecting bank need not present until in its judgment a reasonable time for arrival of the goods has expired. Refusal to pay or accept because the goods have not arrived is not dishonor; the bank must notify its transferor of the refusal but need not present the draft again until it is instructed to do so or learns of the arrival of the goods.

History. Acts 1961, No. 185, § 4-502; A.S.A. 1947, § 85-4-502; Acts 1991, No. 572, § 6.

4-4-503. Responsibility of presenting bank for documents and goods — Report of reasons for dishonor — Referee in case of need.

Unless otherwise instructed and except as provided in Chapter 5 of this subtitle, a bank presenting a documentary draft:

  1. must deliver the documents to the drawee on acceptance of the draft if it is payable more than three (3) days after presentment; otherwise, only on payment; and
  2. upon dishonor, either in the case of presentment for acceptance or presentment for payment, may seek and follow instructions from any referee in case of need designated in the draft or, if the presenting bank does not choose to utilize the referee's services, it must use diligence and good faith to ascertain the reason for dishonor, must notify its transferor of the dishonor and of the results of its effort to ascertain the reasons therefor, and must request instructions.

However, the presenting bank is under no obligation with respect to goods represented by the documents except to follow any reasonable instructions seasonably received; it has a right to reimbursement for any expense incurred in following instructions and to prepayment of or indemnity for those expenses.

History. Acts 1961, No. 185, § 4-503; A.S.A. 1947, § 85-4-503; Acts 1991, No. 572, § 6.

4-4-504. Privilege of presenting bank to deal with goods — Security interest for expenses.

  1. A presenting bank that, following the dishonor of a documentary draft, has seasonably requested instructions but does not receive them within a reasonable time may store, sell, or otherwise deal with the goods in any reasonable manner.
  2. For its reasonable expenses incurred by action under subsection (a), the presenting bank has a lien upon the goods or their proceeds, which may be foreclosed in the same manner as an unpaid seller's lien.

History. Acts 1961, No. 185, § 4-504; A.S.A. 1947, § 85-4-504; Acts 1991, No. 572, § 6.

Chapter 4A Funds Transfers

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

Am. Jur. 10 Am. Jur. 2d Banks, § 777 et seq.

Ark. L. Rev.

Murphey, Revised Article 3 and Amended Article 4 of the Uniform Commercial Code: Comments on the Changes They Will Make, 46 Ark. L. Rev. 501.

U. Ark. Little Rock L.J.

Survey—Business Law, 14 U. Ark. Little Rock L.J. 735.

Part 1 — Subject Matter and Definitions

Effective Dates. Acts 2013, No. 111, § 2: Feb. 19, 2013. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that an amendment to the federal Electronic Fund Transfer Act occasioned by the Dodd-Frank Wall Street Reform and Consumer Protection Act and its implementing rules will leave certain remittance transfers unregulated by either state or federal law; that the amendment and implementing rules take effect in 2013; and that this act is immediately necessary to provide state regulation of the remittance transfers and certainty to certain commercial transactions. Therefore, an emergency is declared to exist, and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

4-4A-101. Short title.

This chapter may be cited as Uniform Commercial Code — Funds Transfers.

History. Acts 1991, No. 540, § 1.

Research References

ALR.

Construction and Application to Immediate Parties of Uniform Commercial Code Article 4A Governing Funds Transfers. 62 A.L.R.6th 1.

Effect of Uniform Commercial Code Article 4A on Attachment, Garnishment, Forfeiture or Other Third-Party Process Against Funds Transfers. 66 A.L.R.6th 567.

Ark. L. Rev.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

4-4A-102. Subject matter.

Except as otherwise provided in § 4-4A-108, this chapter applies to funds transfers defined in § 4-4A-104.

History. Acts 1991, No. 540, § 1.

Research References

ALR.

Construction and Application to Immediate Parties of Uniform Commercial Code Article 4A Governing Funds Transfers. 62 A.L.R.6th 1.

Effect of Uniform Commercial Code Article 4A on Attachment, Garnishment, Forfeiture or Other Third-Party Process Against Funds Transfers. 66 A.L.R.6th 567.

4-4A-103. Payment order — Definitions.

  1. In this Chapter:
    1. “Payment order” means an instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, to pay, or to cause another bank to pay, a fixed or determinable amount of money to a beneficiary if:
      1. the instruction does not state a condition to payment to the beneficiary other than time of payment,
      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.
    2. “Beneficiary” means the person to be paid by the beneficiary's bank.
    3. “Beneficiary's bank” means the bank identified in a payment order in which an account of the beneficiary is to be credited pursuant to the order or which otherwise is to make payment to the beneficiary if the order does not provide for payment to an account.
    4. “Receiving bank” means the bank to which the sender's instruction is addressed.
    5. “Sender” means the person giving the instruction to the receiving bank.
  2. If an instruction complying with subsection (a)(1) 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.

History. Acts 1991, No. 540, § 1.

4-4A-104. Funds transfer — Definitions.

In this Chapter:

  1. “Funds transfer” means the series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order. The term includes any payment order issued by the originator's bank or an intermediary bank intended to carry out the originator's payment order. A funds transfer is completed by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary of the originator's payment order.
  2. “Intermediary bank” means a receiving bank other than the originator's bank or the beneficiary's bank.
  3. “Originator” means the sender of the first payment order in a funds transfer.
  4. “Originator's bank” means (i) the receiving bank to which the payment order of the originator is issued if the originator is not a bank, or (ii) the originator if the originator is a bank.

History. Acts 1991, No. 540, § 1.

4-4A-105. Other definitions.

  1. In this Chapter:
    1. “Authorized account” means a deposit account of a customer in a bank designated by the customer as a source of payment of payment orders issued by the customer to the bank. If a customer does not so designate an account, any account of the customer is an authorized account if payment of a payment order from that account is not inconsistent with a restriction on the use of that account.
    2. “Bank” means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit union, and trust company. A branch or separate office of a bank is a separate bank for purposes of this chapter.
    3. “Customer” means a person, including a bank, having an account with a bank or from whom a bank has agreed to receive payment orders.
    4. “Funds-transfer business day” of a receiving bank means the part of a day during which the receiving bank is open for the receipt, processing, and transmittal of payment orders and cancellations and amendments of payment orders.
    5. “Funds-transfer system” means a wire transfer network, automated clearinghouse, or other communication system of a clearinghouse or other association of banks through which a payment order by a bank may be transmitted to the bank to which the order is addressed.
    6. [Reserved.]
    7. “Prove” with respect to a fact means to meet the burden of establishing the fact (§ 4-1-201(b)(8)).
  2. Other definitions applying to this chapter and the sections in which they appear are:
  3. The following definitions in Chapter 4 apply to this chapter:
  4. In addition Chapter 1 of this title contains general definitions and principles of construction and interpretation applicable throughout this chapter.

“Acceptance”. Section 4-4A-209.

“Beneficiary”. Section 4-4A-103.

“Beneficiary's bank”. Section 4-4A-103.

“Executed”. Section 4-4A-301.

“Execution date”. Section 4-4A-301.

“Funds transfer”. Section 4-4A-104.

“Funds-transfer system rule”. Section 4-4A-501.

“Intermediary bank”. Section 4-4A-104.

“Originator”. Section 4-4A-104.

“Originator's bank”. Section 4-4A-104.

“Payment by beneficiary's bank to beneficiary”. Section 4-4A-405.

“Payment by originator to beneficiary”. Section 4-4A-406.

“Payment by sender to receiving bank”. Section 4-4A-403.

“Payment date”. Section 4-4A-401.

“Payment order”. Section 4-4A-103.

“Receiving bank”. Section 4-4A-103.

“Security procedure”. Section 4-4A-201.

“Sender”. Section 4-4A-103.

“Clearinghouse”. Section 4-4-104.

“Item”. Section 4-4-104.

“Suspends payments”. Section 4-4-104.

History. Acts 1991, No. 540, § 1; 2005, No. 856, § 51.

RESEARCH REFERENCES

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

4-4A-106. Time payment order is received.

  1. The time of receipt of a payment order or communication cancelling or amending a payment order is determined by the rules applicable to receipt of a notice stated in § 4-1-202. A receiving bank may fix a cut-off time or times on a funds-transfer business day for the receipt and processing of payment orders and communications cancelling or amending payment orders. Different cut-off times may apply to payment orders, cancellations, or amendments, or to different categories of payment orders, cancellations, or amendments. A cut-off time may apply to senders generally or different cut-off times may apply to different senders or categories of payment orders. If a payment order or communication cancelling or amending a payment order is received after the close of a funds-transfer business day or after the appropriate cut-off time on a funds-transfer business day, the receiving bank may treat the payment order or communication as received at the opening of the next funds-transfer business day.
  2. If this chapter refers to an execution date or payment date or states a day on which a receiving bank is required to take action, and the date or day does not fall on a funds-transfer business day, the next day that is a funds-transfer business day is treated as the date or day stated, unless the contrary is stated in this chapter.

History. Acts 1991, No. 540, § 1; 2005, No. 856, § 52.

RESEARCH REFERENCES

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

4-4A-107. Federal Reserve regulations and operating circulars.

Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve banks supersede any inconsistent provision of this chapter to the extent of the inconsistency.

History. Acts 1991, No. 540, § 1.

4-4A-108. Relationship to Electronic Fund Transfer Act.

  1. Except as provided in subsection (b), this chapter does not apply to a funds transfer any part of which is governed by the Electronic Fund Transfer Act of 1978 (Title XX, Public Law 95-630, 92 Stat. 3728, 15 U.S.C. § 1693 et seq.) as amended from time to time.
  2. This chapter applies to a funds transfer that is a remittance transfer as defined in the Electronic Fund Transfer Act (15 U.S.C. § 1693 et seq.) as amended from time to time, unless the remittance transfer is an electronic fund transfer as defined in the Electronic Fund Transfer Act (15 U.S.C. § 1693a) as amended from time to time.
  3. In a funds transfer to which this chapter applies, in the event of an inconsistency between an applicable provision of this chapter and an applicable provision of the Electronic Fund Transfer Act, the provision of the Electronic Fund Transfer Act governs to the extent of the inconsistency.

History. Acts 1991, No. 540, § 1; 2013, No. 111, § 1.

Amendments. The 2013 amendment rewrote the section heading and the section.

Research References

ALR.

Validity, Construction, and Application of Electronic Fund Transfer Act (EFTA), and Regulations Promulgated Thereunder, 15 U.S.C. §§ 1693 et seq.46 A.L.R. Fed. 2d 473.

Case Notes

Applicability.

In an action arising out of a state-chartered bank's practices regarding the order in which debit card transactions were posted to maximize overdraft fees, the bank's argument that UCC Article 4A approved of high-to-low posting based on, in particular, processing of payment orders, failed because debit card transactions were within the scope of the Electronic Fund Transfer Act, 15 U.S.C. § 1693a(7), and therefore expressly outside the scope of UCC Article 4A. Hanjy v. Arvest Bank, 94 F. Supp. 3d 1012 (E.D. Ark. 2015).

Part 2 — Issue and Acceptance of Payment Order

4-4A-201. Security procedure.

“Security procedure” means a procedure established by agreement of a customer and a receiving bank for the purpose of (i) verifying that a payment order or communication amending or cancelling a payment order is that of the customer, or (ii) detecting error in the transmission or the content of the payment order or communication. A security procedure may require the use of algorithms or other codes, identifying words or numbers, encryption, callback procedures, or similar security devices. Comparison of a signature on a payment order or communication with an authorized specimen signature of the customer is not by itself a security procedure.

History. Acts 1991, No. 540, § 1.

4-4A-202. Authorized and verified payment orders.

  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. If a bank and its customer have agreed that the authenticity of payment orders issued to the bank in the name of the customer as sender will be verified pursuant to a security procedure, a payment order received by the receiving bank is effective as the order of the customer, whether or not authorized, if (i) the security procedure is a commercially reasonable method of providing security against unauthorized payment orders, and (ii) the bank proves that it accepted the payment order in good faith and in compliance with the security procedure and any written agreement or instruction of the customer restricting acceptance of payment orders issued in the name of the customer. The bank is not required to follow an instruction that violates a written agreement with the customer or notice of which is not received at a time and in a manner affording the bank a reasonable opportunity to act on it before the payment order is accepted.
  3. Commercial reasonableness of a security procedure is a question of law to be determined by considering the wishes of the customer expressed to the bank, the circumstances of the customer known to the bank, including the size, type, and frequency of payment orders normally issued by the customer to the bank, alternative security procedures offered to the customer, and security procedures in general use by customers and receiving banks similarly situated. A security procedure is deemed to be commercially reasonable if (i) the security procedure was chosen by the customer after the bank offered, and the customer refused, a security procedure that was commercially reasonable for that customer, and (ii) the customer expressly agreed in writing to be bound by any payment order, whether or not authorized, issued in its name and accepted by the bank in compliance with the security procedure chosen by the customer.
  4. The term “sender” in this chapter includes the customer in whose name a payment order is issued if the order is the authorized order of the customer under subsection (a), or it is effective as the order of the customer under subsection (b).
  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 § 4-4A-203(a)(1), rights and obligations arising under this section or § 4-4A-203 may not be varied by agreement.

History. Acts 1991, No. 540, § 1.

4-4A-203. Unenforceability of certain verified payment orders.

  1. If an accepted payment order is not, under § 4-4A-202(a), an authorized order of a customer identified as sender, but is effective as an order of the customer pursuant to § 4-4A-202(b), the following rules apply:
    1. By express written agreement, the receiving bank may limit the extent to which it is entitled to enforce or retain payment of the payment order.
    2. The receiving bank is not entitled to enforce or retain payment of the payment order if the customer proves that the order was not caused, directly or indirectly, by a person (i) entrusted at any time with duties to act for the customer with respect to payment orders or the security procedure, or (ii) who obtained access to transmitting facilities of the customer or who obtained, from a source controlled by the customer and without authority of the receiving bank, information facilitating breach of the security procedure, regardless of how the information was obtained or whether the customer was at fault. Information includes any access device, computer software, or the like.
  2. This section applies to amendments of payment orders to the same extent it applies to payment orders.

History. Acts 1991, No. 540, § 1.

4-4A-204. Refund of payment and duty of customer to report with respect to unauthorized payment order.

  1. If a receiving bank accepts a payment order issued in the name of its customer as sender which is (i) not authorized and not effective as the order of the customer under § 4-4A-202, or (ii) not enforceable, in whole or in part, against the customer under § 4-4A-203, the bank shall refund any payment of the payment order received from the customer to the extent the bank is not entitled to enforce payment and shall pay interest on the refundable amount calculated from the date the bank received payment to the date of the refund. However, the customer is not entitled to interest from the bank on the amount to be refunded if the customer fails to exercise ordinary care to determine that the order was not authorized by the customer and to notify the bank of the relevant facts within a reasonable time not exceeding ninety (90) days after the date the customer received notification from the bank that the order was accepted or that the customer's account was debited with respect to the order. The bank is not entitled to any recovery from the customer on account of a failure by the customer to give notification as stated in this section.
  2. Reasonable time under subsection (a) may be fixed by agreement as stated in § 4-1-302(b), but the obligation of a receiving bank to refund payment as stated in subsection (a) may not otherwise be varied by agreement.

History. Acts 1991, No. 540, § 1; 2005, No. 856, § 53.

RESEARCH REFERENCES

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

4-4A-205. Erroneous payment orders.

  1. If an accepted payment order was transmitted pursuant to a security procedure for the detection of error and the payment order (i) erroneously instructed payment to a beneficiary not intended by the sender, (ii) erroneously instructed payment in an amount greater than the amount intended by the sender, or (iii) was an erroneously transmitted duplicate of a payment order previously sent by the sender, the following rules apply:
    1. If the sender proves that the sender or a person acting on behalf of the sender pursuant to § 4-4A-206 complied with the security procedure and that the error would have been detected if the receiving bank had also complied, the sender is not obliged to pay the order to the extent stated in paragraphs (2) and (3).
    2. If the funds transfer is completed on the basis of an erroneous payment order described in clause (i) or (iii) of subsection (a), the sender is not obliged to pay the order and the receiving bank is entitled to recover from the beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution.
    3. If the funds transfer is completed on the basis of a payment order described in clause (ii) of subsection (a), the sender is not obliged to pay the order to the extent the amount received by the beneficiary is greater than the amount intended by the sender. In that case, the receiving bank is entitled to recover from the beneficiary the excess amount received to the extent allowed by the law governing mistake and restitution.
  2. If (i) the sender of an erroneous payment order described in subsection (a) is not obliged to pay all or part of the order, and (ii) the sender receives notification from the receiving bank that the order was accepted by the bank or that the sender's account was debited with respect to the order, the sender has a duty to exercise ordinary care, on the basis of information available to the sender, to discover the error with respect to the order and to advise the bank of the relevant facts within a reasonable time, not exceeding ninety (90) days, after the bank's notification was received by the sender. If the bank proves that the sender failed to perform that duty, the sender is liable to the bank for the loss the bank proves it incurred as a result of the failure, but the liability of the sender may not exceed the amount of the sender's order.
  3. This section applies to amendments to payment orders to the same extent it applies to payment orders.

History. Acts 1991, No. 540, § 1.

4-4A-206. Transmission of payment order through funds-transfer or other communication system.

  1. If a payment order addressed to a receiving bank is transmitted to a funds-transfer system or other third-party communication system for transmittal to the bank, the system is deemed to be an agent of the sender for the purpose of transmitting the payment order to the bank. If there is a discrepancy between the terms of the payment order transmitted to the system and the terms of the payment order transmitted by the system to the bank, the terms of the payment order of the sender are those transmitted by the system. This section does not apply to a funds-transfer system of the Federal Reserve banks.
  2. This section applies to cancellations and amendments of payment orders to the same extent it applies to payment orders.

History. Acts 1991, No. 540, § 1.

4-4A-207. Misdescription of beneficiary.

  1. Subject to subsection (b), if, in a payment order received by the beneficiary's bank, the name, bank account number, or other identification of the beneficiary refers to a nonexistent or unidentifiable person or account, no person has rights as a beneficiary of the order and acceptance of the order cannot occur.
  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:
    1. Except as otherwise provided in subsection (c), if the beneficiary's bank does not know that the name and number refer to different persons, it may rely on the number as the proper identification of the beneficiary of the order. The beneficiary's bank need not determine whether the name and number refer to the same person.
    2. If the beneficiary's bank pays the person identified by name or knows that the name and number identify different persons, no person has rights as beneficiary except the person paid by the beneficiary's bank if that person was entitled to receive payment from the originator of the funds transfer. If no person has rights as beneficiary, acceptance of the order cannot occur.
  3. If (i) a payment order described in subsection (b) is accepted, (ii) the originator's payment order described the beneficiary inconsistently by name and number, and (iii) the beneficiary's bank pays the person identified by number as permitted by subsection (b)(1), the following rules apply:
    1. If the originator is a bank, the originator is obliged to pay its order.
    2. If the originator is not a bank and proves that the person identified by number was not entitled to receive payment from the originator, the originator is not obliged to pay its order unless the originator's bank proves that the originator, before acceptance of the originator's order, had notice that payment of a payment order issued by the originator might be made by the beneficiary's bank on the basis of an identifying or bank account number even if it identifies a person different from the named beneficiary. Proof of notice may be made by any admissible evidence. The originator's bank satisfies the burden of proof if it proves that the originator, before the payment order was accepted, signed a writing stating the information to which the notice relates.
  4. In a case governed by subsection (b)(1), if the beneficiary's bank rightfully pays the person identified by number and that person was not entitled to receive payment from the originator, the amount paid may be recovered from that person to the extent allowed by the law governing mistake and restitution as follows:
    1. If the originator is obliged to pay its payment order as stated in subsection (c), the originator has the right to recover.
    2. If the originator is not a bank and is not obliged to pay its payment order, the originator's bank has the right to recover.

History. Acts 1991, No. 540, § 1.

4-4A-208. Misdescription of intermediary bank or beneficiary's bank.

  1. This subsection applies to a payment order identifying an intermediary bank or the beneficiary's bank only by an identifying number.
    1. The receiving bank may rely on the number as the proper identification of the intermediary or beneficiary's bank and need not determine whether the number identifies a bank.
    2. The sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of its reliance on the number in executing or attempting to execute the order.
  2. This subsection applies to a payment order identifying an intermediary bank or the beneficiary's bank both by name and an identifying number if the name and number identify different persons.
    1. If the sender is a bank, the receiving bank may rely on the number as the proper identification of the intermediary or beneficiary's bank if the receiving bank, when it executes the sender's order, does not know that the name and number identify different persons. The receiving bank need not determine whether the name and number refer to the same person or whether the number refers to a bank. The sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of its reliance on the number in executing or attempting to execute the order.
    2. If the sender is not a bank and the receiving bank proves that the sender, before the payment order was accepted, had notice that the receiving bank might rely on the number as the proper identification of the intermediary or beneficiary's bank even if it identifies a person different from the bank identified by name, the rights and obligations of the sender and the receiving bank are governed by subsection (b)(1), as though the sender were a bank. Proof of notice may be made by any admissible evidence. The receiving bank satisfies the burden of proof if it proves that the sender, before the payment order was accepted, signed a writing stating the information to which the notice relates.
    3. Regardless of whether the sender is a bank, the receiving bank may rely on the name as the proper identification of the intermediary or beneficiary's bank if the receiving bank, at the time it executes the sender's order, does not know that the name and number identify different persons. The receiving bank need not determine whether the name and number refer to the same person.
    4. If the receiving bank knows that the name and number identify different persons, reliance on either the name or the number in executing the sender's payment order is a breach of the obligation stated in § 4-4A-302(a)(1).

History. Acts 1991, No. 540, § 1.

4-4A-209. Acceptance of payment order.

  1. Subject to subsection (d), a receiving bank other than the beneficiary's bank accepts a payment order when it executes the order.
  2. Subject to subsections (c) and (d), a beneficiary's bank accepts a payment order at the earliest of the following times:
    1. when the bank (i) pays the beneficiary as stated in § 4-4A-405(a) or § 4-4A-405(b), or (ii) notifies the beneficiary of receipt of the order or that the account of the beneficiary has been credited with respect to the order unless the notice indicates that the bank is rejecting the order or that funds with respect to the order may not be withdrawn or used until receipt of payment from the sender of the order;
    2. when the bank receives payment of the entire amount of the sender's order pursuant to § 4-4A-403(a)(1) or § 4-4A-403(a)(2); or
    3. the opening of the next funds-transfer business day of the bank following the payment date of the order if, at that time, the amount of the sender's order is fully covered by a withdrawable credit balance in an authorized account of the sender or the bank has otherwise received full payment from the sender, unless the order was rejected before that time or is rejected within (i) one (1) hour after that time, or (ii) one (1) hour after the opening of the next business day of the sender following the payment date if that time is later. If notice of rejection is received by the sender after the payment date and the authorized account of the sender does not bear interest, the bank is obliged to pay interest to the sender on the amount of the order for the number of days elapsing after the payment date to the day the sender receives notice or learns that the order was not accepted, counting that day as an elapsed day. If the withdrawable credit balance during that period falls below the amount of the order, the amount of interest payable is reduced accordingly.
  3. Acceptance of a payment order cannot occur before the order is received by the receiving bank. Acceptance does not occur under subsection (b)(2) or (b)(3) if the beneficiary of the payment order does not have an account with the receiving bank, the account has been closed, or the receiving bank is not permitted by law to receive credits for the beneficiary's account.
  4. A payment order issued to the originator's bank cannot be accepted until the payment date if the bank is the beneficiary's bank, or the execution date if the bank is not the beneficiary's bank. If the originator's bank executes the originator's payment order before the execution date or pays the beneficiary of the originator's payment order before the payment date and the payment order is subsequently cancelled pursuant to § 4-4A-211(b), the bank may recover from the beneficiary any payment received to the extent allowed by the law governing mistake and restitution.

History. Acts 1991, No. 540, § 1.

4-4A-210. Rejection of payment order.

  1. A payment order is rejected by the receiving bank by a notice of rejection transmitted to the sender orally, electronically, or in writing. A notice of rejection need not use any particular words and is sufficient if it indicates that the receiving bank is rejecting the order or will not execute or pay the order. Rejection is effective when the notice is given if transmission is by a means that is reasonable in the circumstances. If notice of rejection is given by a means that is not reasonable, rejection is effective when the notice is received. If an agreement of the sender and receiving bank establishes the means to be used to reject a payment order, (i) any means complying with the agreement is reasonable and (ii) any means not complying is not reasonable unless no significant delay in receipt of the notice resulted from the use of the noncomplying means.
  2. This subsection applies if a receiving bank other than the beneficiary's bank fails to execute a payment order despite the existence on the execution date of a withdrawable credit balance in an authorized account of the sender sufficient to cover the order. If the sender does not receive notice of rejection of the order on the execution date and the authorized account of the sender does not bear interest, the bank is obliged to pay interest to the sender on the amount of the order for the number of days elapsing after the execution date to the earlier of the day the order is cancelled pursuant to § 4-4A-211(d) or the day the sender receives notice or learns that the order was not executed, counting the final day of the period as an elapsed day. If the withdrawable credit balance during that period falls below the amount of the order, the amount of interest is reduced accordingly.
  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. Acceptance of a payment order precludes a later rejection of the order. Rejection of a payment order precludes a later acceptance of the order.

History. Acts 1991, No. 540, § 1.

4-4A-211. Cancellation and amendment of payment order.

  1. A communication of the sender of a payment order cancelling or amending the order may be transmitted to the receiving bank orally, electronically, or in writing. If a security procedure is in effect between the sender and the receiving bank, the communication is not effective to cancel or amend the order unless the communication is verified pursuant to the security procedure or the bank agrees to the cancellation or amendment.
  2. Subject to subsection (a), a communication by the sender cancelling or amending a payment order is effective to cancel or amend the order if notice of the communication is received at a time and in a manner affording the receiving bank a reasonable opportunity to act on the communication before the bank accepts the payment order.
  3. After a payment order has been accepted, cancellation or amendment of the order is not effective unless the receiving bank agrees or a funds-transfer system rule allows cancellation or amendment without agreement of the bank.
    1. With respect to a payment order accepted by a receiving bank other than the beneficiary's bank, cancellation or amendment is not effective unless a conforming cancellation or amendment of the payment order issued by the receiving bank is also made.
    2. With respect to a payment order accepted by the beneficiary's bank, cancellation or amendment is not effective unless the order was issued in execution of an unauthorized payment order, or because of a mistake by a sender in the funds transfer which resulted in the issuance of a payment order (i) that is a duplicate of a payment order previously issued by the sender, (ii) that orders payment to a beneficiary not entitled to receive payment from the originator, or (iii) that orders payment in an amount greater than the amount the beneficiary was entitled to receive from the originator. If the payment order is cancelled 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 cancelled 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 cancelled payment order cannot be accepted. If an accepted payment order is cancelled, the acceptance is nullified and no person has any right or obligation based on the acceptance. Amendment of a payment order is deemed to be cancellation of the original order at the time of amendment and issue of a new payment order in the amended form at the same time.
  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 (c)(2).

History. Acts 1991, No. 540, § 1.

4-4A-212. Liability and duty of receiving bank regarding unaccepted payment order.

If a receiving bank fails to accept a payment order that it is obliged by express agreement to accept, the bank is liable for breach of the agreement to the extent provided in the agreement or in this chapter, but does not otherwise have any duty to accept a payment order or, before acceptance, to take any action, or refrain from taking action, with respect to the order except as provided in this chapter or by express agreement. Liability based on acceptance arises only when acceptance occurs as stated in § 4-4A-209, and liability is limited to that provided in this chapter. A receiving bank is not the agent of the sender or beneficiary of the payment order it accepts, or of any other party to the funds transfer, and the bank owes no duty to any party to the funds transfer except as provided in this chapter or by express agreement.

History. Acts 1991, No. 540, § 1.

Part 3 — Execution of Sender's Payment Order by Receiving Bank

4-4A-301. Execution and execution date.

  1. A payment order is “executed” by the receiving bank when it issues a payment order intended to carry out the payment order received by the bank. A payment order received by the beneficiary's bank can be accepted but cannot be executed.
  2. “Execution date” of a payment order means the day on which the receiving bank may properly issue a payment order in execution of the sender's order. The execution date may be determined by instruction of the sender but cannot be earlier than the day the order is received and, unless otherwise determined, is the day the order is received. If the sender's instruction states a payment date, the execution date is the payment date or an earlier date on which execution is reasonably necessary to allow payment to the beneficiary on the payment date.

History. Acts 1991, No. 540, § 1.

4-4A-302. Obligations of receiving bank in execution of payment order.

  1. Except as provided in subsections (b) through (d), if the receiving bank accepts a payment order pursuant to § 4-4A-209(a), the bank has the following obligations in executing the order:
    1. The receiving bank is obliged to issue, on the execution date, a payment order complying with the sender's order and to follow the sender's instructions concerning (i) any intermediary bank or funds-transfer system to be used in carrying out the funds transfer, or (ii) the means by which payment orders are to be transmitted in the funds transfer. If the originator's bank issues a payment order to an intermediary bank, the originator's bank is obliged to instruct the intermediary bank according to the instruction of the originator. An intermediary bank in the funds transfer is similarly bound by an instruction given to it by the sender of the payment order it accepts.
    2. If the sender's instruction states that the funds transfer is to be carried out telephonically or by wire transfer or otherwise indicates that the funds transfer is to be carried out by the most expeditious means, the receiving bank is obliged to transmit its payment order by the most expeditious available means, and to instruct any intermediary bank accordingly. If a sender's instruction states a payment date, the receiving bank is obliged to transmit its payment order at a time and by means reasonably necessary to allow payment to the beneficiary on the payment date or as soon thereafter as is feasible.
  2. Unless otherwise instructed, a receiving bank executing a payment order may (i) use any funds-transfer system if use of that system is reasonable in the circumstances, and (ii) issue a payment order to the beneficiary's bank or to an intermediary bank through which a payment order conforming to the sender's order can expeditiously be issued to the beneficiary's bank if the receiving bank exercises ordinary care in the selection of the intermediary bank. A receiving bank is not required to follow an instruction of the sender designating a funds-transfer system to be used in carrying out the funds transfer if the receiving bank, in good faith, determines that it is not feasible to follow the instruction or that following the instruction would unduly delay completion of the funds transfer.
  3. Unless subsection (a)(2) applies or the receiving bank is otherwise instructed, the bank may execute a payment order by transmitting its payment order by first class mail or by any means reasonable in the circumstances. If the receiving bank is instructed to execute the sender's order by transmitting its payment order by a particular means, the receiving bank may issue its payment order by the means stated or by any means as expeditious as the means stated.
  4. Unless instructed by the sender, (i) the receiving bank may not obtain payment of its charges for services and expenses in connection with the execution of the sender's order by issuing a payment order in an amount equal to the amount of the sender's order less the amount of the charges, and (ii) may not instruct a subsequent receiving bank to obtain payment of its charges in the same manner.

History. Acts 1991, No. 540, § 1.

4-4A-303. Erroneous execution of payment order.

  1. A receiving bank that (i) executes the payment order of the sender by issuing a payment order in an amount greater than the amount of the sender's order, or (ii) issues a payment order in execution of the sender's order and then issues a duplicate order, is entitled to payment of the amount of the sender's order under § 4-4A-402(c) if that subsection is otherwise satisfied. The bank is entitled to recover from the beneficiary of the erroneous order the excess payment received to the extent allowed by the law governing mistake and restitution.
  2. A receiving bank that executes the payment order of the sender by issuing a payment order in an amount less than the amount of the sender's order is entitled to payment of the amount of the sender's order under § 4-4A-402(c) if (i) that subsection is otherwise satisfied and (ii) the bank corrects its mistake by issuing an additional payment order for the benefit of the beneficiary of the sender's order. If the error is not corrected, the issuer of the erroneous order is entitled to receive or retain payment from the sender of the order it accepted only to the extent of the amount of the erroneous order. This subsection does not apply if the receiving bank executes the sender's payment order by issuing a payment order in an amount less than the amount of the sender's order for the purpose of obtaining payment of its charges for services and expenses pursuant to instruction of the sender.
  3. If a receiving bank executes the payment order of the sender by issuing a payment order to a beneficiary different from the beneficiary of the sender's order and the funds transfer is completed on the basis of that error, the sender of the payment order that was erroneously executed and all previous senders in the funds transfer are not obliged to pay the payment orders they issued. The issuer of the erroneous order is entitled to recover from the beneficiary of the order the payment received to the extent allowed by the law governing mistake and restitution.

History. Acts 1991, No. 540, § 1.

4-4A-304. Duty of sender to report erroneously executed payment order.

If the sender of a payment order that is erroneously executed as stated in § 4-4A-303 receives notification from the receiving bank that the order was executed or that the sender's account was debited with respect to the order, the sender has a duty to exercise ordinary care to determine, on the basis of information available to the sender, that the order was erroneously executed and to notify the bank of the relevant facts within a reasonable time not exceeding ninety (90) days after the notification from the bank was received by the sender. If the sender fails to perform that duty, the bank is not obliged to pay interest on any amount refundable to the sender under § 4-4A-402(d) for the period before the bank learns of the execution error. The bank is not entitled to any recovery from the sender on account of a failure by the sender to perform the duty stated in this section.

History. Acts 1991, No. 540, § 1.

4-4A-305. Liability for late or improper execution or failure to execute payment order.

  1. If a funds transfer is completed but execution of a payment order by the receiving bank in breach of § 4-4A-302 results in delay in payment to the beneficiary, the bank is obliged to pay interest to either the originator or the beneficiary of the funds transfer for the period of delay caused by the improper execution. Except as provided in subsection (c), additional damages are not recoverable.
  2. If execution of a payment order by a receiving bank in breach of § 4-4A-302 results in (i) noncompletion of the funds transfer, (ii) failure to use an intermediary bank designated by the originator, or (iii) issuance of a payment order that does not comply with the terms of the payment order of the originator, the bank is liable to the originator for its expenses in the funds transfer and for incidental expenses and interest losses, to the extent not covered by subsection (a), resulting from the improper execution. Except as provided in subsection (c), additional damages are not recoverable.
  3. In addition to the amounts payable under subsections (a) and (b), damages, including consequential damages, are recoverable to the extent provided in an express written agreement of the receiving bank.
  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, but are not otherwise recoverable.
  5. Reasonable attorney's fees are recoverable if demand for compensation under subsection (a) or (b) is made and refused before an action is brought on the claim. If a claim is made for breach of an agreement under subsection (d) and the agreement does not provide for damages, reasonable attorney's fees are recoverable if demand for compensation under subsection (d) is made and refused before an action is brought on the claim.
  6. Except as stated in this section, the liability of a receiving bank under subsections (a) and (b) may not be varied by agreement.

History. Acts 1991, No. 540, § 1.

Part 4 — Payment

4-4A-401. Payment date.

“Payment date” of a payment order means the day on which the amount of the order is payable to the beneficiary by the beneficiary's bank. The payment date may be determined by instruction of the sender but cannot be earlier than the day the order is received by the beneficiary's bank and, unless otherwise determined, is the day the order is received by the beneficiary's bank.

History. Acts 1991, No. 540, § 1.

4-4A-402. Obligation of sender to pay receiving bank.

  1. This section is subject to §§ 4-4A-205 and 4-4A-207.
  2. With respect to a payment order issued to the beneficiary's bank, acceptance of the order by the bank obliges the sender to pay the bank the amount of the order, but payment is not due until the payment date of the order.
  3. This subsection is subject to subsection (e) and to § 4-4A-303. With respect to a payment order issued to a receiving bank other than the beneficiary's bank, acceptance of the order by the receiving bank obliges the sender to pay the bank the amount of the sender's order. Payment by the sender is not due until the execution date of the sender's order. The obligation of that sender to pay its payment order is excused if the funds transfer is not completed by acceptance by the beneficiary's bank of a payment order instructing payment to the beneficiary of that sender's payment order.
  4. If the sender of a payment order pays the order and was not obliged to pay all or part of the amount paid, the bank receiving payment is obliged to refund payment to the extent the sender was not obliged to pay. Except as provided in §§ 4-4A-204 and 4-4A-304, interest is payable on the refundable amount from the date of payment.
  5. If a funds transfer is not completed as stated in subsection (c) and an intermediary bank is obliged to refund payment as stated in subsection (d) but is unable to do so because not permitted by applicable law or because the bank suspends payments, a sender in the funds transfer that executed a payment order in compliance with an instruction, as stated in § 4-4A-302(a)(1), to route the funds transfer through that intermediary bank is entitled to receive or retain payment from the sender of the payment order that it accepted. The first sender in the funds transfer that issued an instruction requiring routing through that intermediary bank is subrogated to the right of the bank that paid the intermediary bank to refund as stated in subsection (d).
  6. The right of the sender of a payment order to be excused from the obligation to pay the order as stated in subsection (c) or to receive refund under subsection (d) may not be varied by agreement.

History. Acts 1991, No. 540, § 1.

4-4A-403. Payment by sender to receiving bank.

  1. Payment of the sender's obligation under § 4-4A-402 to pay the receiving bank occurs as follows:
    1. If the sender is a bank, payment occurs when the receiving bank receives final settlement of the obligation through a Federal Reserve bank or through a funds-transfer system.
    2. If the sender is a bank and the sender (i) credited an account of the receiving bank with the sender, or (ii) caused an account of the receiving bank in another bank to be credited, payment occurs when the credit is withdrawn or, if not withdrawn, at midnight of the day on which the credit is withdrawable and the receiving bank learns of that fact.
    3. If the receiving bank debits an account of the sender with the receiving bank, payment occurs when the debit is made to the extent the debit is covered by a withdrawable credit balance in the account.
  2. If the sender and receiving bank are members of a funds-transfer system that nets obligations multilaterally among participants, the receiving bank receives final settlement when settlement is complete in accordance with the rules of the system. The obligation of the sender to pay the amount of a payment order transmitted through the funds-transfer system may be satisfied, to the extent permitted by the rules of the system, by setting off and applying against the sender's obligation the right of the sender to receive payment from the receiving bank of the amount of any other payment order transmitted to the sender by the receiving bank through the funds-transfer system. The aggregate balance of obligations owed by each sender to each receiving bank in the funds-transfer system may be satisfied, to the extent permitted by the rules of the system, by setting off and applying against that balance the aggregate balance of obligations owed to the sender by other members of the system. The aggregate balance is determined after the right of setoff stated in the second sentence of this subsection has been exercised.
  3. If two (2) banks transmit payment orders to each other under an agreement that settlement of the obligations of each bank to the other under § 4-4A-402 will be made at the end of the day or other period, the total amount owed with respect to all orders transmitted by one (1) bank shall be set off against the total amount owed with respect to all orders transmitted by the other bank. To the extent of the setoff, each bank has made payment to the other.
  4. In a case not covered by subsection (a), the time when payment of the sender's obligation under § 4-4A-402(b) or § 4-4A-402(c) occurs is governed by applicable principles of law that determine when an obligation is satisfied.

History. Acts 1991, No. 540, § 1.

4-4A-404. Obligation of beneficiary's bank to pay and give notice to beneficiary.

  1. Subject to §§ 4-4A-211(e), 4-4A-405(d), and 4-4A-405(e), if a beneficiary's bank accepts a payment order, the bank is obliged to pay the amount of the order to the beneficiary of the order. Payment is due on the payment date of the order, but if acceptance occurs on the payment date after the close of the funds-transfer business day of the bank, payment is due on the next funds-transfer business day. If the bank refuses to pay after demand by the beneficiary and receipt of notice of particular circumstances that will give rise to consequential damages as a result of nonpayment, the beneficiary may recover damages resulting from the refusal to pay to the extent the bank had notice of the damages, unless the bank proves that it did not pay because of a reasonable doubt concerning the right of the beneficiary to payment.
  2. If a payment order accepted by the beneficiary's bank instructs payment to an account of the beneficiary, the bank is obliged to notify the beneficiary of receipt of the order before midnight of the next funds-transfer business day following the payment date. If the payment order does not instruct payment to an account of the beneficiary, the bank is required to notify the beneficiary only if notice is required by the order. Notice may be given by first class mail or any other means reasonable in the circumstances. If the bank fails to give the required notice, the bank is obliged to pay interest to the beneficiary on the amount of the payment order from the day notice should have been given until the day the beneficiary learned of receipt of the payment order by the bank. No other damages are recoverable. Reasonable attorney's fees are also recoverable if demand for interest is made and refused before an action is brought on the claim.
  3. The right of a beneficiary to receive payment and damages as stated in subsection (a) may not be varied by agreement or a funds-transfer system rule. The right of a beneficiary to be notified as stated in subsection (b) may be varied by agreement of the beneficiary or by a funds-transfer system rule if the beneficiary is notified of the rule before initiation of the funds transfer.

History. Acts 1991, No. 540, § 1.

4-4A-405. Payment by beneficiary's bank to beneficiary.

  1. If the beneficiary's bank credits an account of the beneficiary of a payment order, payment of the bank's obligation under § 4-4A-404(a) occurs when and to the extent (i) the beneficiary is notified of the right to withdraw the credit, (ii) the bank lawfully applies the credit to a debt of the beneficiary, or (iii) funds with respect to the order are otherwise made available to the beneficiary by the bank.
  2. If the beneficiary's bank does not credit an account of the beneficiary of a payment order, the time when payment of the bank's obligation under § 4-4A-404(a) occurs is governed by principles of law that determine when an obligation is satisfied.
  3. Except as stated in subsections (d) and (e), if the beneficiary's bank pays the beneficiary of a payment order under a condition to payment or agreement of the beneficiary giving the bank the right to recover payment from the beneficiary if the bank does not receive payment of the order, the condition to payment or agreement is not enforceable.
  4. A funds-transfer system rule may provide that payments made to beneficiaries of funds transfers made through the system are provisional until receipt of payment by the beneficiary's bank of the payment order it accepted. A beneficiary's bank that makes a payment that is provisional under the rule is entitled to refund from the beneficiary if (i) the rule requires that both the beneficiary and the originator be given notice of the provisional nature of the payment before the funds transfer is initiated, (ii) the beneficiary, the beneficiary's bank and the originator's bank agreed to be bound by the rule, and (iii) the beneficiary's bank did not receive payment of the payment order that it accepted. If the beneficiary is obliged to refund payment to the beneficiary's bank, acceptance of the payment order by the beneficiary's bank is nullified and no payment by the originator of the funds transfer to the beneficiary occurs under § 4-4A-406.
  5. This subsection applies to a funds transfer that includes a payment order transmitted over a funds-transfer system that (i) nets obligations multilaterally among participants, and (ii) has in effect a loss-sharing agreement among participants for the purpose of providing funds necessary to complete settlement of the obligations of one (1) or more participants that do not meet their settlement obligations. If the beneficiary's bank in the funds transfer accepts a payment order and the system fails to complete settlement pursuant to its rules with respect to any payment order in the funds transfer, (i) the acceptance by the beneficiary's bank is nullified and no person has any right or obligation based on the acceptance, (ii) the beneficiary's bank is entitled to recover payment from the beneficiary, (iii) no payment by the originator to the beneficiary occurs under § 4-4A-406, and (iv) subject to § 4-4A-402(e), each sender in the funds transfer is excused from its obligation to pay its payment order under § 4-4A-402(c) because the funds transfer has not been completed.

History. Acts 1991, No. 540, § 1.

4-4A-406. Payment by originator to beneficiary — Discharge of underlying obligation.

  1. Subject to §§ 4-4A-211(e), 4-4A-405(d), and 4-4A-405(e), the originator of a funds transfer pays the beneficiary of the originator's payment order (i) at the time a payment order for the benefit of the beneficiary is accepted by the beneficiary's bank in the funds transfer and (ii) in an amount equal to the amount of the order accepted by the beneficiary's bank, but not more than the amount of the originator's order.
  2. If payment under subsection (a) is made to satisfy an obligation, the obligation is discharged to the same extent discharge would result from payment to the beneficiary of the same amount in money, unless (i) the payment under subsection (a) was made by a means prohibited by the contract of the beneficiary with respect to the obligation, (ii) the beneficiary, within a reasonable time after receiving notice of receipt of the order by the beneficiary's bank, notified the originator of the beneficiary's refusal of the payment, (iii) funds with respect to the order were not withdrawn by the beneficiary or applied to a debt of the beneficiary, and (iv) the beneficiary would suffer a loss that could reasonably have been avoided if payment had been made by a means complying with the contract. If payment by the originator does not result in discharge under this section, the originator is subrogated to the rights of the beneficiary to receive payment from the beneficiary's bank under § 4-4A-404(a).
  3. For the purpose of determining whether discharge of an obligation occurs under subsection (b), if the beneficiary's bank accepts a payment order in an amount equal to the amount of the originator's payment order less charges of one (1) or more receiving banks in the funds transfer, payment to the beneficiary is deemed to be in the amount of the originator's order unless upon demand by the beneficiary the originator does not pay the beneficiary the amount of the deducted charges.
  4. Rights of the originator or of the beneficiary of a funds transfer under this section may be varied only by agreement of the originator and the beneficiary.

History. Acts 1991, No. 540, § 1.

Part 5 — Miscellaneous Provisions

4-4A-501. Variation by agreement and effect of funds-transfer system rule.

  1. Except as otherwise provided in this chapter, the rights and obligations of a party to a funds transfer may be varied by agreement of the affected party.
  2. “Funds-transfer system rule” means a rule of an association of banks (i) governing transmission of payment orders by means of a funds-transfer system of the association or rights and obligations with respect to those orders, or (ii) to the extent the rule governs rights and obligations between banks that are parties to a funds transfer in which a Federal Reserve bank, acting as an intermediary bank, sends a payment order to the beneficiary's bank. Except as otherwise provided in this chapter, a funds-transfer system rule governing rights and obligations between participating banks using the system may be effective even if the rule conflicts with this chapter and indirectly affects another party to the funds transfer who does not consent to the rule. A funds-transfer system rule may also govern rights and obligations of parties other than participating banks using the system to the extent stated in §§ 4-4A-404(c), 4-4A-405(d), and 4-4A-507(c).

History. Acts 1991, No. 540, § 1.

4-4A-502. Creditor process served on receiving bank — Setoff by beneficiary's bank.

  1. As used in this section, “creditor process” means levy, attachment, garnishment, notice of lien, sequestration, or similar process issued by or on behalf of a creditor or other claimant with respect to an account.
  2. This subsection applies to creditor process with respect to an authorized account of the sender of a payment order if the creditor process is served on the receiving bank. For the purpose of determining rights with respect to the creditor process, if the receiving bank accepts the payment order the balance in the authorized account is deemed to be reduced by the amount of the payment order to the extent the bank did not otherwise receive payment of the order, unless the creditor process is served at a time and in a manner affording the bank a reasonable opportunity to act on it before the bank accepts the payment order.
  3. If a beneficiary's bank has received a payment order for payment to the beneficiary's account in the bank, the following rules apply:
    1. The bank may credit the beneficiary's account. The amount credited may be set off against an obligation owed by the beneficiary to the bank or may be applied to satisfy creditor process served on the bank with respect to the account.
    2. The bank may credit the beneficiary's account and allow withdrawal of the amount credited unless creditor process with respect to the account is served at a time and in a manner affording the bank a reasonable opportunity to act to prevent withdrawal.
    3. If creditor process with respect to the beneficiary's account has been served and the bank has had a reasonable opportunity to act on it, the bank may not reject the payment order except for a reason unrelated to the service of process.
  4. Creditor process with respect to a payment by the originator to the beneficiary pursuant to a funds transfer may be served only on the beneficiary's bank with respect to the debt owed by that bank to the beneficiary. Any other bank served with the creditor process is not obliged to act with respect to the process.

History. Acts 1991, No. 540, § 1.

4-4A-503. Injunction or restraining order with respect to funds transfer.

For proper cause and in compliance with applicable law, a court may restrain (i) a person from issuing a payment order to initiate a funds transfer, (ii) an originator's bank from executing the payment order of the originator, or (iii) the beneficiary's bank from releasing funds to the beneficiary or the beneficiary from withdrawing the funds. A court may not otherwise restrain a person from issuing a payment order, paying or receiving payment of a payment order, or otherwise acting with respect to a funds transfer.

History. Acts 1991, No. 540, § 1.

4-4A-504. Order in which items and payment orders may be charged to account — Order of withdrawals from account.

  1. If a receiving bank has received more than one (1) payment order of the sender or one (1) or more payment orders and other items that are payable from the sender's account, the bank may charge the sender's account with respect to the various orders and items in any sequence.
  2. In determining whether a credit to an account has been withdrawn by the holder of the account or applied to a debt of the holder of the account, credits first made to the account are first withdrawn or applied.

History. Acts 1991, No. 540, § 1.

4-4A-505. Preclusion of objection to debit of customer's account.

If a receiving bank has received payment from its customer with respect to a payment order issued in the name of the customer as sender and accepted by the bank, and the customer received notification reasonably identifying the order, the customer is precluded from asserting that the bank is not entitled to retain the payment unless the customer notifies the bank of the customer's objection to the payment within one (1) year after the notification was received by the customer.

History. Acts 1991, No. 540, § 1.

4-4A-506. Rate of interest.

  1. If, under this chapter, a receiving bank is obliged to pay interest with respect to a payment order issued to the bank, the amount payable may be determined (i) by agreement of the sender and receiving bank, or (ii) by a funds-transfer system rule if the payment order is transmitted through a funds-transfer system.
  2. If the amount of interest is not determined by an agreement or rule as stated in subsection (a), the amount is calculated by multiplying the applicable Federal Funds rate by the amount on which interest is payable, and then multiplying the product by the number of days for which interest is payable. The applicable Federal Funds rate is the average of the Federal Funds rates published by the Federal Reserve Bank of New York for each of the days for which interest is payable divided by three hundred sixty (360). The Federal Funds rate for any day on which a published rate is not available is the same as the published rate for the next preceding day for which there is a published rate. If a receiving bank that accepted a payment order is required to refund payment to the sender of the order because the funds transfer was not completed, but the failure to complete was not due to any fault by the bank, the interest payable is reduced by a percentage equal to the reserve requirement on deposits of the receiving bank.

History. Acts 1991, No. 540, § 1.

4-4A-507. Choice of law.

  1. The following rules apply unless the affected parties otherwise agree or subsection (c) applies:
    1. The rights and obligations between the sender of a payment order and the receiving bank are governed by the law of the jurisdiction in which the receiving bank is located.
    2. The rights and obligations between the beneficiary's bank and the beneficiary are governed by the law of the jurisdiction in which the beneficiary's bank is located.
    3. The issue of when payment is made pursuant to a funds transfer by the originator to the beneficiary is governed by the law of the jurisdiction in which the beneficiary's bank is located.
  2. If the parties described in each paragraph of subsection (a) have made an agreement selecting the law of a particular jurisdiction to govern rights and obligations between each other, the law of that jurisdiction governs those rights and obligations, whether or not the payment order or the funds transfer bears a reasonable relation to that jurisdiction.
  3. A funds-transfer system rule may select the law of a particular jurisdiction to govern (i) rights and obligations between participating banks with respect to payment orders transmitted or processed through the system, or (ii) the rights and obligations of some or all parties to a funds transfer any part of which is carried out by means of the system. A choice of law made pursuant to clause (i) is binding on participating banks. A choice of law made pursuant to clause (ii) is binding on the originator, other sender, or a receiving bank having notice that the funds-transfer system might be used in the funds transfer and of the choice of law by the system when the originator, other sender, or receiving bank issued or accepted a payment order. The beneficiary of a funds transfer is bound by the choice of law if, when the funds transfer is initiated, the beneficiary has notice that the funds-transfer system might be used in the funds transfer and of the choice of law by the system. The law of a jurisdiction selected pursuant to this subsection may govern, whether or not that law bears a reasonable relation to the matter in issue.
  4. In the event of inconsistency between an agreement under subsection (b) and a choice-of-law rule under subsection (c), the agreement under subsection (b) prevails.
  5. If a funds transfer is made by use of more than one (1) funds-transfer system and there is inconsistency between choice-of-law rules of the systems, the matter in issue is governed by the law of the selected jurisdiction that has the most significant relationship to the matter in issue.

History. Acts 1991, No. 540, § 1.

Chapter 5 Letters of Credit

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Former Chapter 5, concerning letters of credit, was repealed by Acts 1997, No. 1070, § 1. The former chapter was derived from the following sources:

4-5-101. Acts 1961, No. 185, § 5-101; A.S.A. 1947, § 85-5-101.

4-5-102. Acts 1961, No. 185, § 5-102; A.S.A. 1947, § 85-5-102.

4-5-103. Acts 1961, No. 185, § 5-103; A.S.A. 1947, § 85-5-103.

4-5-104. Acts 1961, No. 185, § 5-104; A.S.A. 1947, § 85-5-104.

4-5-105. Acts 1961, No. 185, § 5-105; A.S.A. 1947, § 85-5-105.

4-5-106. Acts 1961, No. 185, § 5-106; A.S.A. 1947, § 85-5-106.

4-5-107. Acts 1961, No. 185, § 5-107; A.S.A. 1947, § 85-5-107.

4-5-108. Acts 1961, No. 185, § 5-108; A.S.A. 1947, § 85-5-108.

4-5-109. Acts 1961, No. 185, § 5-109; A.S.A. 1947, § 85-5-109.

4-5-110. Acts 1961, No. 185, § 5-110; A.S.A. 1947, § 85-5-110.

4-5-111. Acts 1961, No. 185, § 5-111; A.S.A. 1947, § 85-5-111.

4-5-112. Acts 1961, No. 185, § 5-112; A.S.A. 1947, § 85-5-112.

4-5-113. Acts 1961, No. 185, § 5-113; A.S.A. 1947, § 85-5-113.

4-5-114. Acts 1961, No. 185, § 5-114; 1985, No. 514, § 2; A.S.A. 1947, § 85-5-114; Acts 1995, No. 425, § 5.

4-5-115. Acts 1961, No. 185, § 5-115; A.S.A. 1947, § 85-5-115.

4-5-116. Acts 1961, No. 185, § 5-116; 1973, No. 116, § 4; A.S.A. 1947, § 85-5-116.

4-5-117. Acts 1961, No. 185, § 5-117; A.S.A. 1947, § 85-5-117.

Effective Dates. Acts 1973, No. 116, § 6: Jan. 1, 1974.

Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

Research References

ALR.

Letter of credit: What constitutes under UCC §§ 5-102, 5-103. 44 A.L.R.4th 172.

What constitutes compliance of documents presented with terms of letter of credit so as to require honor of draft under UCC § 5-114. 8 A.L.R.5th 463.

Applicability of waiver of estoppel to preclude claim of nonconformance of documents as ground for dishonor of presentment under letter of credit under UCC § 5-114. 53 A.L.R.5th 667.

Validity, construction, and application of Uniform Customs and Practice for Documentary Credits (UCP). 56 A.L.R.5th 565.

Am. Jur. 50 Am. Jur. 2d, Letter Cred., § 1 et seq.

Ark. L. Notes.

Laurence, A Statutory Primer: Article 5 of the Uniform Commercial Code—Letters of Credit, 1987 Ark. L. Notes 72.

Ark. L. Rev.

Bank Deposits and Collections: Article IV — Letters of Credit: Article V, 16 Ark. L. Rev. 45.

C.J.S. 10 C.J.S., Bills & Notes; Letters Cred., § 370 et seq.

Case Notes

Cited: Tradax Am., Inc. v. First Nat'l Bank, 934 F.2d 969 (8th Cir. 1991).

4-5-101. Short title.

This chapter may be cited as Uniform Commercial Code—Letters of Credit.

History. Acts 1997, No. 1070, § 1.

Research References

Ark. L. Rev.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

Case Notes

Cited: In re Sugarloaf Mining Co., 310 Ark. 772, 840 S.W.2d 172 (1992) (decision under prior law).

4-5-102. Definitions.

  1. In this chapter:
    1. “Adviser” means a person who, at the request of the issuer, a confirmer, or another adviser, notifies or requests another adviser to notify the beneficiary that a letter of credit has been issued, confirmed, or amended.
    2. “Applicant” means a person at whose request or for whose account a letter of credit is issued. The term includes a person who requests an issuer to issue a letter of credit on behalf of another if the person making the request undertakes an obligation to reimburse the issuer.
    3. “Beneficiary” means a person who under the terms of a letter of credit is entitled to have its complying presentation honored. The term includes a person to whom drawing rights have been transferred under a transferable letter of credit.
    4. “Confirmer” means a nominated person who undertakes, at the request or with the consent of the issuer, to honor a presentation under a letter of credit issued by another.
    5. “Dishonor” of a letter of credit means failure timely to honor or to take an interim action, such as acceptance of a draft, that may be required by the letter of credit.
    6. “Document” means a draft or other demand, document of title, investment security, certificate, invoice, or other record, statement, or representation of fact, law, right, or opinion (i) which is presented in a written or other medium permitted by the letter of credit or, unless prohibited by the letter of credit, by the standard practice referred to in § 4-5-108(e) and (ii) which is capable of being examined for compliance with the terms and conditions of the letter of credit. A document may not be oral.
    7. “Good faith” means honesty in fact in the conduct or transaction concerned.
    8. “Honor” of a letter of credit means performance of the issuer's undertaking in the letter of credit to pay or deliver an item of value. Unless the letter of credit otherwise provides, “honor” occurs (i) upon payment, (ii) if the letter of credit provides for acceptance, upon acceptance of a draft and, at maturity, its payment, or (iii) if the letter of credit provides for incurring a deferred obligation, upon incurring the obligation and, at maturity, its performance.
    9. “Issuer” means a bank or other person that issues a letter of credit, but does not include an individual who makes an engagement for personal, family, or household purposes.
    10. “Letter of credit” means a definite undertaking that satisfies the requirements of § 4-5-104 by an issuer to a beneficiary at the request or for the account of an applicant or, in the case of a financial institution, to itself or for its own account, to honor a documentary presentation by payment or delivery of an item of value.
    11. “Nominated person” means a person whom the issuer (i) designates or authorizes to pay, accept, negotiate, or otherwise give value under a letter of credit and (ii) undertakes by agreement or custom and practice to reimburse.
    12. “Presentation” means delivery of a document to an issuer or nominated person for honor or giving of value under a letter of credit.
    13. “Presenter” means a person making a presentation as or on behalf of a beneficiary or nominated person.
    14. “Record” means information that is inscribed on a tangible medium, or that is stored in an electronic or other medium and is retrievable in perceivable form.
    15. “Successor of a beneficiary” means a person who succeeds to substantially all of the rights of a beneficiary by operation of law, including a corporation with or into which the beneficiary has been merged or consolidated, an administrator, executor, personal representative, trustee in bankruptcy, debtor in possession, liquidator, and receiver.
  2. Definitions in other chapters applying to this chapter and the sections in which they appear are:
  3. Chapter 1 of this title contains certain additional general definitions and principles of construction and interpretation applicable throughout this chapter.

“Accept” or “acceptance” § 4-3-409

“Value” §§ 4-3-303, 4-4-211

History. Acts 1997, No. 1070, § 1.

4-5-103. Scope.

  1. This chapter applies to letters of credit and to certain rights and obligations arising out of transactions involving letters of credit.
  2. The statement of a rule in this chapter does not by itself require, imply, or negate application of the same or a different rule to a situation not provided for, or to a person not specified, in this chapter.
  3. With the exception of this subsection, subsections (a) and (d) of this section, § 4-5-102(a)(9) and (10) and §§ 4-5-106(d) and 4-5-114(d), and except to the extent prohibited in § 4-1-302 and § 4-5-117(d), the effect of this chapter may be varied by agreement or by a provision stated or incorporated by reference in an undertaking. A term in an agreement or undertaking generally excusing liability or generally limiting remedies for failure to perform obligations is not sufficient to vary obligations prescribed by this chapter.
  4. Rights and obligations of an issuer to a beneficiary or a nominated person under a letter of credit are independent of the existence, performance, or nonperformance of a contract or arrangement out of which the letter of credit arises or which underlies it, including contracts or arrangements between the issuer and the applicant and between the applicant and the beneficiary.

History. Acts 1997, No. 1070, § 1; 2005, No. 856, § 54.

4-5-104. Formal requirements.

A letter of credit, confirmation, advice, transfer, amendment, or cancellation may be issued in any form that is a record and is authenticated (i) by a signature or (ii) in accordance with the agreement of the parties or the standard practice referred to in § 4-5-108(e).

History. Acts 1997, No. 1070, § 1.

Case Notes

Modifications.

In the absence of the issuing bank's signature approving a renewal permit and authorizing coverage of the obligations it established, no forfeiture may occur based on customer's failure to meet those obligations. In re Sugarloaf Mining Co., 310 Ark. 772, 840 S.W.2d 172 (1992) (decision under prior law).

4-5-105. Consideration.

Consideration is not required to issue, amend, transfer, or cancel a letter of credit, advice, or confirmation.

History. Acts 1997, No. 1070, § 1.

4-5-106. Issuance, amendment, cancellation, and duration.

  1. A letter of credit is issued and becomes enforceable according to its terms against the issuer when the issuer sends or otherwise transmits it to the person requested to advise or to the beneficiary. A letter of credit is revocable only if it so provides.
  2. After a letter of credit is issued, rights and obligations of a beneficiary, applicant, confirmer, and issuer are not affected by an amendment or cancellation to which that person has not consented except to the extent the letter of credit provides that it is revocable or that the issuer may amend or cancel the letter of credit without that consent.
  3. If there is no stated expiration date or other provision that determines its duration, a letter of credit expires one (1) year after its stated date of issuance or, if none is stated, after the date on which it is issued.
  4. A letter of credit that states that it is perpetual expires five (5) years after its stated date of issuance, or if none is stated, after the date on which it is issued.
  5. The provisions of subsections (c) and (d) of this section shall not apply to letters of credit issued at any time to the Workers' Compensation Commission.

History. Acts 1997, No. 1070, § 1; 1999, No. 1265, § 1.

Amendments. The 1999 amendment added (e).

4-5-107. Confirmer, nominated person, and adviser.

  1. A confirmer is directly obligated on a letter of credit and has the rights and obligations of an issuer to the extent of its confirmation. The confirmer also has rights against and obligations to the issuer as if the issuer were an applicant and the confirmer had issued the letter of credit at the request and for the account of the issuer.
  2. A nominated person who is not a confirmer is not obligated to honor or otherwise give value for a presentation.
  3. A person requested to advise may decline to act as an adviser. An adviser that is not a confirmer is not obligated to honor or give value for a presentation. An adviser undertakes to the issuer and to the beneficiary accurately to advise the terms of the letter of credit, confirmation, amendment, or advice received by that person and undertakes to the beneficiary to check the apparent authenticity of the request to advise. Even if the advice is inaccurate, the letter of credit, confirmation, or amendment is enforceable as issued.
  4. A person who notifies a transferee beneficiary of the terms of a letter of credit, confirmation, amendment, or advice has the rights and obligations of an adviser under subsection (c) of this section. The terms in the notice to the transferee beneficiary may differ from the terms in any notice to the transferor beneficiary to the extent permitted by the letter of credit, confirmation, amendment, or advice received by the person who so notifies.

History. Acts 1997, No. 1070, § 1.

4-5-108. Issuer's rights and obligations.

  1. Except as otherwise provided in § 4-5-109, an issuer shall honor a presentation that, as determined by the standard practice referred to in subsection (e) of this section, appears on its face strictly to comply with the terms and conditions of the letter of credit. Except as otherwise provided in § 4-5-113 and unless otherwise agreed with the applicant, an issuer shall dishonor a presentation that does not appear so to comply.
  2. An issuer has a reasonable time after presentation, but not beyond the end of the seventh business day of the issuer after the day of its receipt of documents:
    1. to honor,
    2. if the letter of credit provides for honor to be completed more than seven (7) business days after presentation, to accept a draft or incur a deferred obligation, or
    3. to give notice to the presenter of discrepancies in the presentation.
  3. Except as otherwise provided in subsection (d) of this section, an issuer is precluded from asserting as a basis for dishonor any discrepancy if timely notice is not given, or any discrepancy not stated in the notice if timely notice is given.
  4. Failure to give the notice specified in subsection (b) of this section or to mention fraud, forgery, or expiration in the notice does not preclude the issuer from asserting as a basis for dishonor fraud or forgery as described in § 4-5-109(a) or expiration of the letter of credit before presentation.
  5. An issuer shall observe standard practice of financial institutions that regularly issue letters of credit. Determination of the issuer's observance of the standard practice is a matter of interpretation for the court. The court shall offer the parties a reasonable opportunity to present evidence of the standard practice.
  6. An issuer is not responsible for:
    1. the performance or nonperformance of the underlying contract, arrangement, or transaction;
    2. an act or omission of others; or
    3. observance or knowledge of the usage of a particular trade other than the standard practice referred to in subsection (e) of this section.
  7. If an undertaking constituting a letter of credit under § 4-5-102(a)(10) contains nondocumentary conditions, an issuer shall disregard the nondocumentary conditions and treat them as if they were not stated.
  8. An issuer that has dishonored a presentation shall return the documents or hold them at the disposal of, and send advice to that effect to, the presenter.
  9. An issuer that has honored a presentation as permitted or required by this chapter:
    1. is entitled to be reimbursed by the applicant in immediately available funds not later than the date of its payment of funds;
    2. takes the documents free of claims of the beneficiary or presenter;
    3. is precluded from asserting a right of recourse on a draft under §§ 4-3-414 and 4-3-415;
    4. except as otherwise provided in §§ 4-5-110 and 4-5-117, is precluded from restitution of money paid or other value given by mistake to the extent the mistake concerns discrepancies in the documents or tender which are apparent on the face of the presentation; and
    5. is discharged to the extent of its performance under the letter of credit unless the issuer honored a presentation in which a required signature of a beneficiary was forged.

History. Acts 1997, No. 1070, § 1.

Research References

ALR.

What constitutes compliance of documents presented with terms of letter of credit so as to require honor of draft under UCC § 5-114. 8 A.L.R.5th 463.

Applicability of waiver of estoppel to preclude claim of nonconformance of documents as ground for dishonor of presentment under letter of credit under UCC § 5-114. 53 A.L.R.5th 667.

Case Notes

Maturity of Obligation.

The letter of credit issuer's obligation matures when a draft is presented accompanied by any required documentation. The equities among the other parties have no bearing upon the obligation of the issuer. Universal Sec. Ins. Co. v. Ring, 298 Ark. 582, 769 S.W.2d 750 (1989) (decision under prior law).

Presentment.

Presentment of a letter of credit is governed by the terms of the letter itself. Unifirst Fed. Sav. Bank v. American Ins. Co., 905 F.2d 208 (8th Cir. 1990) (decision under prior law).

Cited: B.E.I. Int'l, Inc. v. Thai Military Bank, 978 F.2d 440 (8th Cir. 1992) (decision under prior law); In re Sugarloaf Mining Co., 310 Ark. 772, 840 S.W.2d 172 (1992) (decision under prior law).

4-5-109. Fraud and forgery.

  1. If a presentation is made that appears on its face strictly to comply with the terms and conditions of the letter of credit, but a required document is forged or materially fraudulent, or honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or applicant:
    1. the issuer shall honor the presentation, if honor is demanded by (i) a nominated person who has given value in good faith and without notice of forgery or material fraud, (ii) a confirmer who has honored its confirmation in good faith, (iii) a holder in due course of a draft drawn under the letter of credit which was taken after acceptance by the issuer or nominated person, or (iv) an assignee of the issuer's or nominated person's deferred obligation that was taken for value and without notice of forgery or material fraud after the obligation was incurred by the issuer or nominated person; and
    2. the issuer, acting in good faith, may honor or dishonor the presentation in any other case.
  2. If an applicant claims that a required document is forged or materially fraudulent or that honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or applicant, a court of competent jurisdiction may temporarily or permanently enjoin the issuer from honoring a presentation or grant similar relief against the issuer or other persons only if the court finds that:
    1. the relief is not prohibited under the law applicable to an accepted draft or deferred obligation incurred by the issuer;
    2. a beneficiary, issuer, or nominated person who may be adversely affected is adequately protected against loss that it may suffer because the relief is granted;
    3. all of the conditions to entitle a person to the relief under the law of this state have been met; and
    4. on the basis of the information submitted to the court, the applicant is more likely than not to succeed under its claim of forgery or material fraud and the person demanding honor does not qualify for protection under subdivision (a)(1) of this section.

History. Acts 1997, No. 1070, § 1.

Case Notes

Adversary Relationship.

Where the plaintiff buyers asserted that defendant sellers acted fraudulently in presenting drafts for payment, when in fact they had already been paid, there existed a truly adversary relationship between the plaintiffs and the issuing banks, because the issuing banks were free, before plaintiffs' successful application to the state court for a temporary restraining order, to honor the drafts and demand payment from the plaintiffs on the basis of plaintiffs' promissory notes to the banks executed to induce the banks to issue the letters of credit. W.O.A., Inc. v. City Nat'l Bank, 640 F. Supp. 1157 (W.D. Ark. 1986) (decision under prior law).

Fraud in the Transaction.

A beneficiary who tenders a draft knowing that its certification of nonpayment by the buyers is in fact false is guilty of “fraud in the transaction” within the meaning of the exception under the pre-1997 version of this chapter so as to relieve the issuer of a letter of credit from the duty of honoring a draft on it. W.O.A., Inc. v. City Nat'l Bank, 640 F. Supp. 1157 (W.D. Ark. 1986) (decision under prior law).

Existence of a small amount of back charges on a contract did not support a finding that developer committed fraud when it stated it had been very satisfied with the work of a contractor who later defaulted; therefore, it was error to grant permanent injunctive relief to issuer of irrevocable letter of credit and prevent the bank from honoring the draft drawn on the letter of credit. Rose Devs., Inc. v. Pearson Properties, Inc., 38 Ark. App. 215, 832 S.W.2d 286 (1992) (decision under prior law).

4-5-110. Warranties.

  1. If its presentation is honored, the beneficiary warrants:
    1. to the issuer, any other person to whom presentation is made, and the applicant that there is no fraud or forgery of the kind described in § 4-5-109(a); and
    2. to the applicant that the drawing does not violate any agreement between the applicant and beneficiary or any other agreement intended by them to be augmented by the letter of credit.
  2. The warranties in subsection (a) of this section are in addition to warranties arising under Chapters 3, 4, 7, and 8 because of the presentation or transfer of documents covered by any of those chapters.

History. Acts 1997, No. 1070, § 1.

4-5-111. Remedies.

  1. If an issuer wrongfully dishonors or repudiates its obligation to pay money under a letter of credit before presentation, the beneficiary, successor, or nominated person presenting on its own behalf may recover from the issuer the amount that is the subject of the dishonor or repudiation. If the issuer's obligation under the letter of credit is not for the payment of money, the claimant may obtain specific performance or, at the claimant's election, recover an amount equal to the value of performance from the issuer. In either case, the claimant may also recover incidental but not consequential damages. The claimant is not obligated to take action to avoid damages that might be due from the issuer under this subsection. If, although not obligated to do so, the claimant avoids damages, the claimant's recovery from the issuer must be reduced by the amount of damages avoided. The issuer has the burden of proving the amount of damages avoided. In the case of repudiation the claimant need not present any document.
  2. If an issuer wrongfully dishonors a draft or demand presented under a letter of credit or honors a draft or demand in breach of its obligation to the applicant, the applicant may recover damages resulting from the breach, including incidental but not consequential damages, less any amount saved as a result of the breach.
  3. If an adviser or nominated person other than a confirmer breaches an obligation under this chapter or an issuer breaches an obligation not covered in subsection (a) or (b) of this section, a person to whom the obligation is owed may recover damages resulting from the breach, including incidental but not consequential damages, less any amount saved as a result of the breach. To the extent of the confirmation, a confirmer has the liability of an issuer specified in this subsection and subsections (a) and (b) of this section.
  4. An issuer, nominated person, or adviser who is found liable under subsection (a), (b), or (c) of this section shall pay interest on the amount owed thereunder from the date of wrongful dishonor or other appropriate date.
  5. Reasonable attorney's fees and other expenses of litigation must be awarded to the prevailing party in an action in which a remedy is sought under this chapter.
  6. Damages that would otherwise be payable by a party for breach of an obligation under this chapter may be liquidated by agreement or undertaking, but only in an amount or by a formula that is reasonable in light of the harm anticipated.

History. Acts 1997, No. 1070, § 1.

4-5-112. Transfer of letter of credit.

  1. Except as otherwise provided in § 4-5-113, unless a letter of credit provides that it is transferable, the right of a beneficiary to draw or otherwise demand performance under a letter of credit may not be transferred.
  2. Even if a letter of credit provides that it is transferable, the issuer may refuse to recognize or carry out a transfer if:
    1. the transfer would violate applicable law; or
    2. the transferor or transferee has failed to comply with any requirement stated in the letter of credit or any other requirement relating to transfer imposed by the issuer which is within the standard practice referred to in § 4-5-108(e) or is otherwise reasonable under the circumstances.

History. Acts 1997, No. 1070, § 1.

4-5-113. Transfer by operation of law.

  1. A successor of a beneficiary may consent to amendments, sign and present documents, and receive payment or other items of value in the name of the beneficiary without disclosing its status as a successor.
  2. A successor of a beneficiary may consent to amendments, sign and present documents, and receive payment or other items of value in its own name as the disclosed successor of the beneficiary. Except as otherwise provided in subsection (e) of this section, an issuer shall recognize a disclosed successor of a beneficiary as beneficiary in full substitution for its predecessor upon compliance with the requirements for recognition by the issuer of a transfer of drawing rights by operation of law under the standard practice referred to in § 4-5-108(e) or, in the absence of such a practice, compliance with other reasonable procedures sufficient to protect the issuer.
  3. An issuer is not obliged to determine whether a purported successor is a successor of a beneficiary or whether the signature of a purported successor is genuine or authorized.
  4. Honor of a purported successor's apparently complying presentation under subsection (a) or (b) of this section has the consequences specified in § 4-5-108(i) even if the purported successor is not the successor of a beneficiary. Documents signed in the name of the beneficiary or of a disclosed successor by a person who is neither the beneficiary nor the successor of the beneficiary are forged documents for the purposes of § 4-5-109.
  5. An issuer whose rights of reimbursement are not covered by subsection (d) of this section or substantially similar law and any confirmer or nominated person may decline to recognize a presentation under subsection (b) of this section.
  6. A beneficiary whose name is changed after the issuance of a letter of credit has the same rights and obligations as a successor of a beneficiary under this section.

History. Acts 1997, No. 1070, § 1.

4-5-114. Assignment of proceeds.

  1. In this section, “proceeds of a letter of credit” means the cash, check, accepted draft, or other item of value paid or delivered upon honor or giving of value by the issuer or any nominated person under the letter of credit. The term does not include a beneficiary's drawing rights or documents presented by the beneficiary.
  2. A beneficiary may assign its right to part or all of the proceeds of a letter of credit. The beneficiary may do so before presentation as a present assignment of its right to receive proceeds contingent upon its compliance with the terms and conditions of the letter of credit.
  3. An issuer or nominated person need not recognize an assignment of proceeds of a letter of credit until it consents to the assignment.
  4. An issuer or nominated person has no obligation to give or withhold its consent to an assignment of proceeds of a letter of credit, but consent may not be unreasonably withheld if the assignee possesses and exhibits the letter of credit and presentation of the letter of credit is a condition to honor.
  5. Rights of a transferee beneficiary or nominated person are independent of the beneficiary's assignment of the proceeds of a letter of credit and are superior to the assignee's right to the proceeds.
  6. Neither the rights recognized by this section between an assignee and an issuer, transferee beneficiary, or nominated person nor the issuer's or nominated person's payment of proceeds to an assignee or a third person affect the rights between the assignee and any person other than the issuer, transferee beneficiary, or nominated person. The mode of creating and perfecting a security interest in or granting an assignment of a beneficiary's rights to proceeds is governed by Chapter 9 or other law. Against persons other than the issuer, transferee beneficiary, or nominated person, the rights and obligations arising upon the creation of a security interest or other assignment of a beneficiary's right to proceeds and its perfection are governed by Chapter 9 or other law.

History. Acts 1997, No. 1070, § 1.

Case Notes

Assignment.

In light of the evidence that the partial assignment preserved the original terms of the letter of credit, and that the letter of credit was in fact called under the terms specified in the original agreement, there was no error in finding that the right to call the letter of credit remained with bank which financed construction project, and that the assignment of an interest in the letter of credit to another bank did not release a third bank which participated in the letter of credit from its duty to honor the letter of credit. City Nat'l Bank v. First Nat'l Bank & Trust Co., 22 Ark. App. 5, 732 S.W.2d 489 (1987) (decision under prior law).

Cited: Unifirst Fed. Sav. Bank v. American Ins. Co., 905 F.2d 208 (8th Cir. 1990) (decision under prior law).

4-5-115. Statute of limitations.

An action to enforce a right or obligation arising under this chapter must be commenced within one (1) year after the expiration date of the relevant letter of credit or one (1) year after the cause of action accrues, whichever occurs later. A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach.

History. Acts 1997, No. 1070, § 1.

4-5-116. Choice of law and forum.

  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 § 4-5-104 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 (a) of this section applies, the liability of an issuer, nominated person, or adviser for action or omission is governed by the law of the jurisdiction in which the person is located. The person is considered to be located at the address indicated in the person's undertaking. If more than one (1) address is indicated, the person is considered to be located at the address from which the person's undertaking was issued. For the purpose of jurisdiction, choice of law, and recognition of interbranch letters of credit, but not enforcement of a judgment, all branches of a bank are considered separate juridical entities and a bank is considered to be located at the place where its relevant branch is considered to be located under this subsection.
  3. Except as otherwise provided in this subsection, the liability of an issuer, nominated person, or adviser is governed by any rules of custom or practice, such as the Uniform Customs and Practice for Documentary Credits, to which the letter of credit, confirmation, or other undertaking is expressly made subject. If (i) this chapter would govern the liability of an issuer, nominated person, or adviser under subsection (a) or (b) of this section, (ii) the relevant undertaking incorporates rules of custom or practice, and (iii) there is conflict between this chapter and those rules as applied to that undertaking, those rules govern except to the extent of any conflict with the nonvariable provisions specified in § 4-5-103(c).
  4. If there is conflict between this chapter and Chapter 3, 4, 4A, or 9, this chapter governs.
  5. The forum for settling disputes arising out of an undertaking within this chapter may be chosen in the manner and with the binding effect that governing law may be chosen in accordance with subsection (a) of this section.

History. Acts 1997, No. 1070, § 1.

Research References

ALR.

Validity, construction, and application of Uniform Customs and Practice for Documentary Credits (UCP). 56 A.L.R.5th 565.

4-5-117. Subrogation of issuer, applicant, and nominated person.

  1. An issuer that honors a beneficiary's presentation is subrogated to the rights of the beneficiary to the same extent as if the issuer were a secondary obligor of the underlying obligation owed to the beneficiary and of the applicant to the same extent as if the issuer were the secondary obligor of the underlying obligation owed to the applicant.
  2. An applicant that reimburses an issuer is subrogated to the rights of the issuer against any beneficiary, presenter, or nominated person to the same extent as if the applicant were the secondary obligor of the obligations owed to the issuer and has the rights of subrogation of the issuer to the rights of the beneficiary stated in subsection (a) of this section.
  3. A nominated person who pays or gives value against a draft or demand presented under a letter of credit is subrogated to the rights of:
    1. the issuer against the applicant to the same extent as if the nominated person were a secondary obligor of the obligation owed to the issuer by the applicant;
    2. the beneficiary to the same extent as if the nominated person were a secondary obligor of the underlying obligation owed to the beneficiary; and
    3. the applicant to same extent as if the nominated person were a secondary obligor of the underlying obligation owed to the applicant.
  4. Notwithstanding any agreement or term to the contrary, the rights of subrogation stated in subsections (a) and (b) of this section do not arise until the issuer honors the letter of credit or otherwise pays and the rights in subsection (c) of this section do not arise until the nominated person pays or otherwise gives value. Until then, the issuer, nominated person, and the applicant do not derive under this section present or prospective rights forming the basis of a claim, defense, or excuse.

History. Acts 1997, No. 1070, § 1.

4-5-118. Security interest of issuer or nominated person.

  1. An issuer or nominated person has a security interest in a document presented under a letter of credit to the extent that the issuer or nominated person honors or gives value for the presentation.
  2. So long as and to the extent that an issuer or nominated person has not been reimbursed or has not otherwise recovered the value given with respect to a security interest in a document under subsection (a), the security interest continues and is subject to Chapter 9, but:
    1. a security agreement is not necessary to make the security interest enforceable under § 4-9-203(b)(3);
    2. if the document is presented in a medium other than a written or other tangible medium, the security interest is perfected; and
    3. if the document is presented in a written or other tangible medium and is not a certificated security, chattel paper, a document of title, an instrument, or a letter of credit, the security interest is perfected and has priority over a conflicting security interest in the document so long as the debtor does not have possession of the document.

History. Acts 2001, No. 1439, § 14.

4-5-119. Applicability.

This chapter applies to a letter of credit that is issued on or after August 1, 1997. This chapter does not apply to a transaction, event, obligation, or duty arising out of or associated with a letter of credit that was issued before August 1, 1997.

History. Acts 1997, No. 1070, § 9; 2001, No. 1439, § 14.

A.C.R.C. Notes. This section was formerly codified as § 4-5-118.

4-5-120. Savings clause.

A transaction arising out of or associated with a letter of credit that was issued before August 1, 1997 and the rights, obligations, and interests flowing from that transaction are governed by any statute or other law amended or repealed by this chapter as if repeal or amendment had not occurred and may be terminated, completed, consummated, or enforced under that statute or other law.

History. Acts 1997, No. 1070, § 10; 2001, No. 1439, § 14.

A.C.R.C. Notes. This section was formerly codified as § 4-5-119.

Chapter 6 Bulk Transfers

[Repealed.]

A.C.R.C. Notes. Acts 1991, No. 344, § 4, provided: “Rights and obligations that arose under Chapter 6, Title 4, Arkansas Code Annotated, “BULK TRANSFERS” and 4-9-111 before the effective date of this act repealing same, remain valid and may be enforced as though those provisions had not been repealed.”

Although the Acts 1991, No. 344 apparently was intended to repeal § 4-9-111 as well as this chapter, the repeal of § 4-9-111 was not given effect by that act.

4-6-101 — 4-6-111. [Repealed.]

Publisher's Notes. This chapter was repealed by Acts 1991, No. 344, § 1. The chapter was derived from the following sources:

4-6-101. Acts 1961, No. 185, § 6-101; reen. 1967, No. 303, § 19 (6-101); A.S.A. 1947, § 85-6-101.

4-6-102. Acts 1961, No. 185, § 6-102; reen. 1967, No. 303, § 19 (6-102); A.S.A. 1947, § 85-6-102.

4-6-103. Acts 1961, No. 185, § 6-103; 1967, No. 303, § 19 (6-103); A.S.A. 1947, § 85-6-103.

4-6-104. Acts 1961, No. 185, § 6-104; 1967, No. 303, § 19 (6-104); A.S.A. 1947, § 85-6-104.

4-6-105. Acts 1961, No. 185, § 6-105; reen. 1967, No. 303, § 19 (6-105); A.S.A. 1947, § 85-6-105.

4-6-106. Reserved.

4-6-107. Acts 1961, No. 185, § 6-106; 1967, No. 303, § 19 (6-107); A.S.A. 1947, § 85-6-106.

4-6-108. Acts 1961, No. 185, § 6-107; 1967, No. 303, § 19 (6-108); A.S.A. 1947, § 85-6-107.

4-6-109. Acts 1961, No. 185, § 6-108; 1967, No. 303, § 19 (6-109); A.S.A. 1947, § 85-6-108.

4-6-110. Acts 1961, No. 185, § 6-109; reen. 1967, No. 303, § 19 (6-110); A.S.A. 1947, § 85-6-109.

4-6-111. Acts 1961, No. 185, § 6-111; as added by Acts 1967, No. 303, § 19 (6-111); A.S.A. 1947, § 85-6-110.

Chapter 7 Documents of Title

Publisher's Notes. Former Chapter 7, concerning warehouse receipts, bills of lading, and other documents of title, was repealed by Acts 2007, No. 342, § 1. The former chapter was derived from the following sources:

4-7-101. Acts 1961, No. 185, § 7-101; A.S.A. 1947, § 85-7-101.

4-7-102. Acts 1961, No. 185, § 7-102; A.S.A. 1947, § 85-7-102.

4-7-103. Acts 1961, No. 185, § 7-103; A.S.A. 1947, § 85-7-103.

4-7-104. Acts 1961, No. 185, § 7-104; A.S.A. 1947, § 85-7-104.

4-7-105. Acts 1961, No. 185, § 7-105; A.S.A. 1947, § 85-7-105.

4-7-201. Acts 1961, No. 185, § 7-201; A.S.A. 1947, § 85-7-201.

4-7-202. Acts 1961, No. 185, § 7-202; A.S.A. 1947, § 85-7-202.

4-7-203. Acts 1961, No. 185, § 7-203; A.S.A. 1947, § 85-7-203.

4-7-204. Acts 1961, No. 185, § 7-204; A.S.A. 1947, § 85-7-204.

4-7-205. Acts 1961, No. 185, § 7-205; 1981, No. 401, § 3; A.S.A. 1947, § 85-7-205.

4-7-206. Acts 1961, No. 185, § 7-206; A.S.A. 1947, § 85-7-206.

4-7-207. Acts 1961, No. 185, § 7-207; A.S.A. 1947, § 85-7-207.

4-7-208. Acts 1961, No. 185, § 7-208; A.S.A. 1947, § 85-7-208.

4-7-209. Acts 1961, No. 185, § 7-209; 1967, No. 303, § 20; A.S.A. 1947, § 85-7-209.

4-7-210. Acts 1961, No. 185, § 7-210; A.S.A. 1947, § 85-7-210.

4-7-301. Acts 1961, No. 185, § 7-301; 1967, No. 303, § 21; A.S.A. 1947, § 85-7-301.

4-7-302. Acts 1961, No. 185, § 7-302; A.S.A. 1947, § 85-7-302.

4-7-303. Acts 1961, No. 185, § 7-303; A.S.A. 1947, § 85-7-303.

4-7-304. Acts 1961, No. 185, § 7-304; A.S.A. 1947, § 85-7-304.

4-7-305. Acts 1961, No. 185, § 7-305; A.S.A. 1947, § 85-7-305.

4-7-306. Acts 1961, No. 185, § 7-306; A.S.A. 1947, § 85-7-306.

4-7-307. Acts 1961, No. 185, § 7-307; A.S.A. 1947, § 85-7-307.

4-7-308. Acts 1961, No. 185, § 7-308; 1967, No. 303, § 22; A.S.A. 1947, § 85-7-308.

4-7-309. Acts 1961, No. 185, § 7-309; A.S.A. 1947, § 85-7-309.

4-7-401. Acts 1961, No. 185, § 7-401; A.S.A. 1947, § 85-7-401.

4-7-402. Acts 1961, No. 185, § 7-402; A.S.A. 1947, § 85-7-402.

4-7-403. Acts 1961, No. 185, § 7-403; 1967, No. 303, § 23; A.S.A. 1947, § 85-7-403.

4-7-404. Acts 1961, No. 185, § 7-404; A.S.A. 1947, § 85-7-404.

4-7-501. Acts 1961, No. 185, § 7-501; 1967, No. 303, § 24; A.S.A. 1947, § 85-7-501.

4-7-502. Acts 1961, No. 185, § 7-502; 1967, No. 303, § 25; A.S.A. 1947, § 85-7-502.

4-7-503. Acts 1961, No. 185, § 7-503; A.S.A. 1947, § 85-7-503; Acts 2001, No. 1439, § 15.

4-7-504. Acts 1961, No. 185, § 7-504; A.S.A. 1947, § 85-7-504.

4-7-505. Acts 1961, No. 185, § 7-505; A.S.A. 1947, § 85-7-505.

4-7-506. Acts 1961, No. 185, § 7-506; A.S.A. 1947, § 85-7-506.

4-7-507. Acts 1961, No. 185, § 7-507; A.S.A. 1947, § 85-7-507.

4-7-508. Acts 1961, No. 185, § 7-508; A.S.A. 1947, § 85-7-508.

4-7-509. Acts 1961, No. 185, § 7-509; A.S.A. 1947, § 85-7-509.

4-7-601. Acts 1961, No. 185, § 7-601; A.S.A. 1947, § 85-7-601.

4-7-602. Acts 1961, No. 185, § 7-602; A.S.A. 1947, § 85-7-602.

4-7-603. Acts 1961, No. 185, § 7-603; A.S.A. 1947, § 85-7-603.

Research References

Am. Jur. 13 Am. Jur. 2d, Carriers, § 307 et seq.

15A Am. Jur. 2d, Comm. Code, § 34 et seq.

78 Am. Jur. 2d, Wareh., § 1 et seq.

Ark. L. Notes.

Laurence, A Statutory Primer: Article Seven of the U.C.C. — Documents of Title, 1989 Ark. L. Notes 43.

Ark. L. Rev.

Warehouse Receipts, Bills of Lading, and Other Documents of Title: Article VII, 16 Ark. L. Rev. 81.

Note, Act 401 of the Public Grain Warehouse Law: An Exception to the U.C.C. Concept of Voidable Title, 37 Ark. L. Rev. 293.

U. Ark. Little Rock L.J.

Note, Storers of Grain — Arkansas Stands Alone in Protecting the Rights of Depositors of Grain in Public Warehouses, etc., 9 U. Ark. Little Rock L.J. 699.

Part 1 — General

4-7-101. Short title.

This chapter may be cited as Uniform Commercial Code — Documents of Title.

History. Acts 2007, No. 342, § 1.

Research References

Ark. L. Rev.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

4-7-102. Definitions and index of definitions.

  1. In this Chapter, unless the context otherwise requires:
    1. “Bailee” means a person that by a warehouse receipt, bill of lading, or other document of title acknowledges possession of goods and contracts to deliver them.
    2. “Carrier” means a person that issues a bill of lading.
    3. “Consignee” means a person named in a bill of lading to which or to whose order the bill promises delivery.
    4. “Consignor” means a person named in a bill of lading as the person from which the goods have been received for shipment.
    5. “Delivery order” means a record that contains an order to deliver goods directed to a warehouse, carrier, or other person that in the ordinary course of business issues warehouse receipts or bills of lading.
    6. [Reserved.]
    7. “Goods” means all things that are treated as movable for the purposes of a contract for storage or transportation.
    8. “Issuer” means a bailee that issues a document of title or, in the case of an unaccepted delivery order, the person that orders the possessor of goods to deliver. The term includes a person for which an agent or employee purports to act in issuing a document if the agent or employee has real or apparent authority to issue documents, even if the issuer did not receive any goods, the goods were misdescribed, or in any other respect the agent or employee violated the issuer's instructions.
    9. “Person entitled under the document” means the holder, in the case of a negotiable document of title, or the person to which delivery of the goods is to be made by the terms of, or pursuant to instructions in a record under, a nonnegotiable document of title.
    10. [Reserved.]
    11. “Shipper” means a person that enters into a contract of transportation with a carrier.
    12. “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.
    13. “Warehouse” means a person engaged in the business of storing goods for hire.
  2. Definitions in other chapters applying to this chapter and the sections in which they appear are:
    1. “Contract for sale”, § 4-2-106.
    2. “Lessee in the ordinary course of business”, § 4-2A-103.
    3. “Receipt” of goods, § 4-2-103.
  3. In addition, Chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.

History. Acts 2007, No. 342, § 1.

4-7-103. Relation of chapter to treaty or statute.

  1. This chapter is subject to any treaty or statute of the United States or regulatory statute of this state to the extent the treaty, statute, or regulatory statute is applicable.
  2. This chapter does not modify or repeal any law prescribing the form or content of a document of title or the services or facilities to be afforded by a bailee, or otherwise regulating a bailee's business in respects not specifically treated in this chapter. However, violation of such a law does not affect the status of a document of title that otherwise is within the definition of a document of title.
  3. This chapter modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. § 7001 et. seq.) but does not modify, limit, or supersede § 101(c) of that act (15 U.S.C. § 7001(c)) or authorize electronic delivery of any of the notices described in section 103(b) of that act (15 U.S.C. § 7003(b)).
  4. To the extent there is a conflict between the Uniform Electronic Transactions Act, § 25-32-101 et seq., and this chapter, this chapter governs.

History. Acts 2007, No. 342, § 1.

Case Notes

Regulations.

There is no conflict between regulations promulgated by the Transportation Safety Agency and the Uniform Commercial Code (subtitle 1 of this title) inasmuch as this section provides that regulatory state statutes are controlling. Household Goods Carriers v. Ark. Transp. Comm'n, 262 Ark. 797, 562 S.W.2d 42 (1978).

4-7-104. Negotiable and nonnegotiable document of title.

  1. Except as otherwise provided in subsection (c), a document of title is negotiable if by its terms the goods are to be delivered to bearer or to the order of a named person.
  2. A document of title other than one described in subsection (a) is nonnegotiable. A bill of lading that states that the goods are consigned to a named person is not made negotiable by a provision that the goods are to be delivered only against an order in a record signed by the same or another named person.
  3. A document of title is nonnegotiable if, at the time it is issued, the document has a conspicuous legend, however expressed, that it is nonnegotiable.

History. Acts 2007, No. 342, § 1.

Cross References. Issuance of nonnegotiable bill of lading when not so marked, penalty, § 4-59-304.

4-7-105. Reissuance in alternative medium.

  1. Upon request of a person entitled under an electronic document of title, the issuer of the electronic document may issue a tangible document of title as a substitute for the electronic document if:
    1. the person entitled under the electronic document surrenders control of the document to the issuer; and
    2. the tangible document when issued contains a statement that it is issued in substitution for the electronic document.
  2. Upon issuance of a tangible document of title in substitution for an electronic document of title in accordance with subsection (a):
    1. the electronic document ceases to have any effect or validity; and
    2. the person that procured issuance of the tangible document warrants to all subsequent persons entitled under the tangible document that the warrantor was a person entitled under the electronic document when the warrantor surrendered control of the electronic document to the issuer.
  3. Upon request of a person entitled under a tangible document of title, the issuer of the tangible document may issue an electronic document of title as a substitute for the tangible document if:
    1. the person entitled under the tangible document surrenders possession of the document to the issuer; and
    2. the electronic document when issued contains a statement that it is issued in substitution for the tangible document.
  4. Upon issuance of an electronic document of title in substitution for a tangible document of title in accordance with subsection (c):
    1. the tangible document ceases to have any effect or validity; and
    2. the person that procured issuance of the electronic document warrants to all subsequent persons entitled under the electronic document that the warrantor was a person entitled under the tangible document when the warrantor surrendered possession of the tangible document to the issuer.

History. Acts 2007, No. 342, § 1.

4-7-106. Control of electronic document of title.

  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 (a), and a person is deemed to have control of an electronic document of title, if the document is created, stored, and assigned in such a manner that:
    1. a single authoritative copy of the document exists which is unique, identifiable, and, except as otherwise provided in paragraphs (4), (5), and (6), unalterable;
    2. the authoritative copy identifies the person asserting control as:
      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 document was most recently transferred;
    3. the authoritative copy is communicated to and maintained by the person asserting control or its designated custodian;
    4. copies or amendments that add or change an identified assignee of the authoritative copy can be made only with the consent of the person asserting control;
    5. each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy; and
    6. any amendment of the authoritative copy is readily identifiable as authorized or unauthorized.

History. Acts 2007, No. 342, § 1.

Part 2 — Warehouse Receipts: Special Provisions

4-7-201. Person that may issue a warehouse receipt — Storage under bond.

  1. A warehouse receipt may be issued by any warehouse.
  2. If goods, including distilled spirits and agricultural commodities, are stored under a statute requiring a bond against withdrawal or a license for the issuance of receipts in the nature of warehouse receipts, a receipt issued for the goods is deemed to be a warehouse receipt even if issued by a person that is the owner of the goods and is not a warehouse.

History. Acts 2007, No. 342, § 1.

4-7-202. Form of warehouse receipt — Effect of omission.

  1. A warehouse receipt need not be in any particular form.
  2. Unless a warehouse receipt provides for each of the following, the warehouse is liable for damages caused to a person injured by its omission:
    1. a statement of the location of the warehouse facility where the goods are stored;
    2. the date of issue of the receipt;
    3. the unique identification code of the receipt;
    4. a statement whether the goods received will be delivered to the bearer, to a named person, or to a named person or its order;
    5. the rate of storage and handling charges, unless goods are stored under a field warehousing arrangement, in which case a statement of that fact is sufficient on a nonnegotiable receipt;
    6. a description of the goods or the packages containing them;
    7. the signature of the warehouse or its agent;
    8. if the receipt is issued for goods that the warehouse owns, either solely, jointly, or in common with others, a statement of the fact of that ownership; and
    9. a statement of the amount of advances made and of liabilities incurred for which the warehouse claims a lien or security interest, unless the precise amount of advances made or liabilities incurred, at the time of the issue of the receipt, is unknown to the warehouse or to its agent that issued the receipt, in which case a statement of the fact that advances have been made or liabilities incurred and the purpose of the advances or liabilities is sufficient.
  3. A warehouse may insert in its receipt any terms that are not contrary to the Uniform Commercial Code and do not impair its obligation of delivery under § 4-7-403 or its duty of care under § 4-7-204. Any contrary provision is ineffective.

History. Acts 2007, No. 342, § 1.

4-7-203. Liability for nonreceipt or misdescription.

A party to or purchaser for value in good faith of a document of title, other than a bill of lading, that relies upon the description of the goods in the document may recover from the issuer damages caused by the nonreceipt or misdescription of the goods, except to the extent that:

  1. the document conspicuously indicates that the issuer does not know whether all or part of the goods in fact were received or conform to the description, such as a case in which the description is in terms of marks or labels or kind, quantity, or condition, or the receipt or description is qualified by “contents, condition, and quality unknown”, “said to contain”, or words of similar import, if the indication is true; or
  2. the party or purchaser otherwise has notice of the nonreceipt or misdescription.

History. Acts 2007, No. 342, § 1.

Cross References. Penalty, issuance of warehouse receipt containing false statement, § 4-59-402.

Penalty, issuance of warehouse receipt when goods not in possession or control, § 4-59-401.

4-7-204. Duty of care — Contractual limitation of warehouse's liability.

  1. A warehouse is liable for damages for loss of or injury to the goods caused by its failure to exercise care with regard to the goods that a reasonably careful person would exercise under similar circumstances. Unless otherwise agreed, the warehouse is not liable for damages that could not have been avoided by the exercise of that care.
  2. Damages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or damage beyond which the warehouse is not liable. Such a limitation is not effective with respect to the warehouse's liability for conversion to its own use. On request of the bailor in a record at the time of signing the storage agreement or within a reasonable time after receipt of the warehouse receipt, the warehouse's liability may be increased on part or all of the goods covered by the storage agreement or the warehouse receipt. In this event, increased rates may be charged based on an increased valuation of the goods.
  3. Reasonable provisions as to the time and manner of presenting claims and commencing actions based on the bailment may be included in the warehouse receipt or storage agreement.

History. Acts 2007, No. 342, § 1.

Case Notes

Exercise of Due Care.

A warehouseman is required to exercise due care or a reasonable degree of prudence for the protection and preservation of goods stored with him and is liable for a loss or injury for a failure to exercise such care. United States Borax & Chem. Co. v. Blackhawk Warehousing & Leasing Co., 266 Ark. 831, 586 S.W.2d 248 (1979).

4-7-205. Title under warehouse receipt defeated in certain cases.

A buyer in ordinary course of business of fungible goods sold and delivered by a warehouse that is also in the business of buying and selling such goods takes the goods free of any claim under a warehouse receipt even if the receipt is negotiable and has been duly negotiated.

History. Acts 2007, No. 342, § 1.

Research References

Ark. L. Notes.

Pedersen, Crop Financing: A Guide to Arkansas Law, 1988 Ark. L. Notes 31.

U. Ark. Little Rock L.J.

Legislative Survey, Business Law, 4 U. Ark. Little Rock L.J. 579.

Case Notes

Cited: Farm Bureau Mut. Ins. Co. v. Wright, 285 Ark. 228, 686 S.W.2d 778 (1985); In re Bearhouse, Inc., 84 B.R. 552 (Bankr. W.D. Ark. 1988).

4-7-206. Termination of storage at warehouse's option.

  1. A warehouse, by giving notice to the person on whose account the goods are held and any other person known to claim an interest in the goods, may require payment of any charges and removal of the goods from the warehouse at the termination of the period of storage fixed by the document of title or, if a period is not fixed, within a stated period not less than 30 days after the warehouse gives notice. If the goods are not removed before the date specified in the notice, the warehouse may sell them pursuant to § 4-7-210.
  2. If a warehouse in good faith believes that goods are about to deteriorate or decline in value to less than the amount of its lien within the time provided in subsection (a) and § 4-7-210, the warehouse may specify in the notice given under subsection (a) any reasonable shorter time for removal of the goods and, if the goods are not removed, may sell them at public sale held not less than one week after a single advertisement or posting.
  3. If, as a result of a quality or condition of the goods of which the warehouse did not have notice at the time of deposit, the goods are a hazard to other property, the warehouse facilities, or other persons, the warehouse may sell the goods at public or private sale without advertisement or posting on reasonable notification to all persons known to claim an interest in the goods. If the warehouse, after a reasonable effort, is unable to sell the goods, it may dispose of them in any lawful manner and does not incur liability by reason of that disposition.
  4. A warehouse shall deliver the goods to any person entitled to them under this chapter upon due demand made at any time before sale or other disposition under this section.
  5. A warehouse may satisfy its lien from the proceeds of any sale or disposition under this section but shall hold the balance for delivery on the demand of any person to which the warehouse would have been bound to deliver the goods.

History. Acts 2007, No. 342, § 1.

4-7-207. Goods must be kept separate — Fungible goods.

  1. Unless the warehouse receipt provides otherwise, a warehouse shall keep separate the goods covered by each receipt so as to permit at all times identification and delivery of those goods. However, different lots of fungible goods may be commingled.
  2. If different lots of fungible goods are commingled, the goods are owned in common by the persons entitled thereto and the warehouse is severally liable to each owner for that owner's share. If, because of overissue, a mass of fungible goods is insufficient to meet all the receipts the warehouse has issued against it, the persons entitled include all holders to which overissued receipts have been duly negotiated.

History. Acts 2007, No. 342, § 1.

Case Notes

In General.

This section establishes ownership priorities in fungible goods where the claims of ownership exceed the amount of available goods. It clearly states that all owners of commingled fungible goods are tenants in common and share pro rata in any distribution of grain when there is a shortage. In re Bearhouse, Inc., 84 B.R. 552 (Bankr. W.D. Ark. 1988).

4-7-208. Altered warehouse receipts.

If a blank in a negotiable tangible warehouse receipt has been filled in without authority, a good-faith purchaser for value and without notice of the lack of authority may treat the insertion as authorized. Any other unauthorized alteration leaves any tangible or electronic warehouse receipt enforceable against the issuer according to its original tenor.

History. Acts 2007, No. 342, § 1.

4-7-209. Lien of warehouse.

  1. A warehouse has a lien against the bailor on the goods covered by a warehouse receipt or storage agreement or on the proceeds thereof in its possession for charges for storage or transportation, including demurrage and terminal charges, insurance, labor, or other charges, present or future, in relation to the goods, and for expenses necessary for preservation of the goods or reasonably incurred in their sale pursuant to law. If the person on whose account the goods are held is liable for similar charges or expenses in relation to other goods whenever deposited and it is stated in the warehouse receipt or storage agreement that a lien is claimed for charges and expenses in relation to other goods, the warehouse also has a lien against the goods covered by the warehouse receipt or storage agreement or on the proceeds thereof in its possession for those charges and expenses, whether or not the other goods have been delivered by the warehouse. However, as against a person to which a negotiable warehouse receipt is duly negotiated, a warehouse's lien is limited to charges in an amount or at a rate specified in the warehouse receipt or, if no charges are so specified, to a reasonable charge for storage of the specific goods covered by the receipt subsequent to the date of the receipt.
  2. A warehouse may also reserve a security interest against the bailor for the maximum amount specified on the receipt for charges other than those specified in subsection (a), such as for money advanced and interest. The security interest is governed by Chapter 9 of this title (§ 4-9-101 et seq.).
  3. A warehouse's lien for charges and expenses under subsection (a) or a security interest under subsection (b) is also effective against any person that so entrusted the bailor with possession of the goods that a pledge of them by the bailor to a good-faith purchaser for value would have been valid. However, the lien or security interest is not effective against a person that before issuance of a document of title had a legal interest or a perfected security interest in the goods and that did not:
    1. deliver or entrust the goods or any document of title covering the goods to the bailor or the bailor's nominee with:
      1. actual or apparent authority to ship, store, or sell;
      2. power to obtain delivery under § 4-7-403; or
      3. power of disposition under § 4-2-403, § 4-2A-304(2), § 4-2A-305(2), § 4-9-320, or § 4-9-321(c) or other statute or rule of law; or
    2. acquiesce in the procurement by the bailor or its nominee of any document.
  4. A warehouse's lien on household goods for charges and expenses in relation to the goods under subsection (a) is also effective against all persons if the depositor was the legal possessor of the goods at the time of deposit. In this subsection, “household goods” means furniture, furnishings, or personal effects used by the depositor in a dwelling.
  5. A warehouse loses its lien on any goods that it voluntarily delivers or unjustifiably refuses to deliver.

History. Acts 2007, No. 342, § 1.

Research References

Ark. L. Notes.

Pedersen, Crop Financing: A Guide to Arkansas Law, 1988 Ark. L. Notes 31.

Ark. L. Rev.

Creditors' Provisional Remedies and Debtors' Due Process Rights: Statutory Liens In Arkansas, 32 Ark. L. Rev. 185.

U. Ark. Little Rock L.J.

Maltz, State Action and Statutory Liens in Arkansas — A Reply to Professor Nickles, 2 U. Ark. Little Rock L.J. 357.

4-7-210. Enforcement of warehouse's lien.

  1. Except as otherwise provided in subsection (b), a warehouse's lien may be enforced by public or private sale of the goods, in bulk or in packages, at any time or place and on any terms that are commercially reasonable, after notifying all persons known to claim an interest in the goods. The notification must include a statement of the amount due, the nature of the proposed sale, and the time and place of any public sale. The fact that a better price could have been obtained by a sale at a different time or in a method different from that selected by the warehouse is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. The warehouse sells in a commercially reasonable manner if the warehouse sells the goods in the usual manner in any recognized market therefor, sells at the price current in that market at the time of the sale, or otherwise sells in conformity with commercially reasonable practices among dealers in the type of goods sold. A sale of more goods than apparently necessary to be offered to ensure satisfaction of the obligation is not commercially reasonable, except in cases covered by the preceding sentence.
  2. A warehouse may enforce its lien on goods, other than goods stored by a merchant in the course of its business, only if the following requirements are satisfied:
    1. All persons known to claim an interest in the goods must be notified.
    2. The notification must include an itemized statement of the claim, a description of the goods subject to the lien, a demand for payment within a specified time not less than 10 days after receipt of the notification, and a conspicuous statement that unless the claim is paid within that time the goods will be advertised for sale and sold by auction at a specified time and place.
    3. The sale must conform to the terms of the notification.
    4. The sale must be held at the nearest suitable place to where the goods are held or stored.
    5. After the expiration of the time given in the notification, an advertisement of the sale must be published once a week for two weeks consecutively in a newspaper of general circulation where the sale is to be held. The advertisement must include a description of the goods, the name of the person on whose account the goods are being held, and the time and place of the sale. The sale must take place at least 15 days after the first publication. If there is no newspaper of general circulation where the sale is to be held, the advertisement must be posted at least 10 days before the sale in not fewer than six conspicuous places in the neighborhood of the proposed sale.
  3. Before any sale pursuant to this section, any person claiming a right in the goods may pay the amount necessary to satisfy the lien and the reasonable expenses incurred in complying with this section. In that event, the goods may not be sold but must be retained by the warehouse subject to the terms of the receipt and this Chapter.
  4. A warehouse may buy at any public sale held pursuant to this section.
  5. A purchaser in good faith of goods sold to enforce a warehouse's lien takes the goods free of any rights of persons against which the lien was valid, despite the warehouse's noncompliance with this section.
  6. A warehouse may satisfy its lien from the proceeds of any sale pursuant to this section but shall hold the balance, if any, for delivery on demand to any person to which the warehouse would have been bound to deliver the goods.
  7. The rights provided by this section are in addition to all other rights allowed by law to a creditor against a debtor.
  8. If a lien is on goods stored by a merchant in the course of its business, the lien may be enforced in accordance with subsection (a) or (b).
  9. A warehouse is liable for damages caused by failure to comply with the requirements for sale under this section and, in case of willful violation, is liable for conversion.

History. Acts 2007, No. 342, § 1.

Research References

Ark. L. Rev.

Creditors' Provisional Remedies and Debtors' Due Process Rights: Statutory Liens In Arkansas, 32 Ark. L. Rev. 185.

U. Ark. Little Rock L.J.

Maltz, State Action and Statutory Liens in Arkansas — A Reply to Professor Nickles, 2 U. Ark. Little Rock L.J. 357.

Part 3 — Bills of Lading: Special Provisions

4-7-301. Liability for nonreceipt or misdescription — “Said to contain” — “Shipper's weight, load, and count” — Improper handling.

  1. A consignee of a nonnegotiable bill of lading which has given value in good faith, or a holder to which a negotiable bill has been duly negotiated, relying upon the description of the goods in the bill or upon the date shown in the bill, may recover from the issuer damages caused by the misdating of the bill or the nonreceipt or misdescription of the goods, except to the extent that the bill indicates that the issuer does not know whether any part or all of the goods in fact were received or conform to the description, such as in a case in which the description is in terms of marks or labels or kind, quantity, or condition or the receipt or description is qualified by “contents or condition of contents of packages unknown”, “said to contain”, “shipper's weight, load, and count,” or words of similar import, if that indication is true.
  2. If goods are loaded by the issuer of a bill of lading:
    1. the issuer shall count the packages of goods if shipped in packages and ascertain the kind and quantity if shipped in bulk; and
    2. words such as “shipper's weight, load, and count,” or words of similar import indicating that the description was made by the shipper are ineffective except as to goods concealed in packages.
  3. If bulk goods are loaded by a shipper that makes available to the issuer of a bill of lading adequate facilities for weighing those goods, the issuer shall ascertain the kind and quantity within a reasonable time after receiving the shipper's request in a record to do so. In that case, “shipper's weight” or words of similar import are ineffective.
  4. The issuer of a bill of lading, by including in the bill the words “shipper's weight, load, and count,” or words of similar import, may indicate that the goods were loaded by the shipper, and, if that statement is true, the issuer is not liable for damages caused by the improper loading. However, omission of such words does not imply liability for damages caused by improper loading.
  5. A shipper guarantees to an issuer the accuracy at the time of shipment of the description, marks, labels, number, kind, quantity, condition, and weight, as furnished by the shipper, and the shipper shall indemnify the issuer against damage caused by inaccuracies in those particulars. This right of indemnity does not limit the issuer's responsibility or liability under the contract of carriage to any person other than the shipper.

History. Acts 2007, No. 342, § 1.

Cross References. Penalty, inducing carrier to issue bill when goods not in possession, § 4-59-305.

Penalty, issuance of bill containing false statement, § 4-59-302.

Penalty, issuance of bill when goods not received, § 4-59-301.

4-7-302. Through bills of lading and similar documents of title.

  1. The issuer of a through bill of lading, or other document of title embodying an undertaking to be performed in part by a person acting as its agent or by a performing carrier, is liable to any person entitled to recover on the bill or other document for any breach by the other person or the performing carrier of its obligation under the bill or other document. However, to the extent that the bill or other document covers an undertaking to be performed overseas or in territory not contiguous to the continental United States or an undertaking including matters other than transportation, this liability for breach by the other person or the performing carrier may be varied by agreement of the parties.
  2. If goods covered by a through bill of lading or other document of title embodying an undertaking to be performed in part by a person other than the issuer are received by that person, the person is subject, with respect to its own performance while the goods are in its possession, to the obligation of the issuer. The person's obligation is discharged by delivery of the goods to another person pursuant to the bill or other document and does not include liability for breach by any other person or by the issuer.
  3. The issuer of a through bill of lading or other document of title described in subsection (a) is entitled to recover from the performing carrier, or other person in possession of the goods when the breach of the obligation under the bill or other document occurred:
    1. the amount it may be required to pay to any person entitled to recover on the bill or other document for the breach, as may be evidenced by any receipt, judgment, or transcript of judgment; and
    2. the amount of any expense reasonably incurred by the issuer in defending any action commenced by any person entitled to recover on the bill or other document for the breach.

History. Acts 2007, No. 342, § 1.

4-7-303. Diversion — Reconsignment — Change of instructions.

  1. Unless the bill of lading otherwise provides, a carrier may deliver the goods to a person or destination other than that stated in the bill or may otherwise dispose of the goods, without liability for misdelivery, on instructions from:
    1. the holder of a negotiable bill;
    2. the consignor on a nonnegotiable bill, even if the consignee has given contrary instructions;
    3. the consignee on a nonnegotiable bill in the absence of contrary instructions from the consignor, if the goods have arrived at the billed destination or if the consignee is in possession of the tangible bill or in control of the electronic bill; or
    4. the consignee on a nonnegotiable bill, if the consignee is entitled as against the consignor to dispose of the goods.
  2. Unless instructions described in subsection (a) are included in a negotiable bill of lading, a person to which the bill is duly negotiated may hold the bailee according to the original terms.

History. Acts 2007, No. 342, § 1.

4-7-304. Tangible bills of lading in a set.

  1. Except as customary in international transportation, a tangible bill of lading may not be issued in a set of parts. The issuer is liable for damages caused by violation of this subsection.
  2. If a tangible bill of lading is lawfully issued in a set of parts, each of which contains an identification code and is expressed to be valid only if the goods have not been delivered against any other part, the whole of the parts constitutes one bill.
  3. If a tangible negotiable bill of lading is lawfully issued in a set of parts and different parts are negotiated to different persons, the title of the holder to which the first due negotiation is made prevails as to both the document of title and the goods even if any later holder may have received the goods from the carrier in good faith and discharged the carrier's obligation by surrendering its part.
  4. A person that negotiates or transfers a single part of a tangible bill of lading issued in a set is liable to holders of that part as if it were the whole set.
  5. The bailee shall deliver in accordance with Part 4 of this chapter (§ 4-7-401 et seq.) against the first presented part of a tangible bill of lading lawfully issued in a set. Delivery in this manner discharges the bailee's obligation on the whole bill.

History. Acts 2007, No. 342, § 1.

4-7-305. Destination bills.

  1. Instead of issuing a bill of lading to the consignor at the place of shipment, a carrier, at the request of the consignor, may procure the bill to be issued at destination or at any other place designated in the request.
  2. Upon request of any person entitled as against a carrier to control the goods while in transit and on surrender of possession or control of any outstanding bill of lading or other receipt covering the goods, the issuer, subject to § 4-7-105, may procure a substitute bill to be issued at any place designated in the request.

History. Acts 2007, No. 342, § 1.

4-7-306. Altered bills of lading.

An unauthorized alteration or filling in of a blank in a bill of lading leaves the bill enforceable according to its original tenor.

History. Acts 2007, No. 342, § 1.

4-7-307. Lien of carrier.

  1. A carrier has a lien on the goods covered by a bill of lading or on the proceeds thereof in its possession for charges after the date of the carrier's receipt of the goods for storage or transportation, including demurrage and terminal charges, and for expenses necessary for preservation of the goods incident to their transportation or reasonably incurred in their sale pursuant to law. However, against a purchaser for value of a negotiable bill of lading, a carrier's lien is limited to charges stated in the bill or the applicable tariffs or, if no charges are stated, a reasonable charge.
  2. A lien for charges and expenses under subsection (a) on goods that the carrier was required by law to receive for transportation is effective against the consignor or any person entitled to the goods unless the carrier had notice that the consignor lacked authority to subject the goods to those charges and expenses. Any other lien under subsection (a) is effective against the consignor and any person that permitted the bailor to have control or possession of the goods unless the carrier had notice that the bailor lacked authority.
  3. A carrier loses its lien on any goods that it voluntarily delivers or unjustifiably refuses to deliver.

History. Acts 2007, No. 342, § 1.

Research References

Ark. L. Rev.

Creditors' Provisional Remedies and Debtors' Due Process Rights: Statutory Liens In Arkansas, 32 Ark. L. Rev. 185.

Case Notes

Goods Transported for Prior Debt.

A lien on presently transported goods for a prior debt is not contemplated under the Uniform Commercial Code. Car Transp. v. Garden Spot Distribs., 305 Ark. 82, 805 S.W.2d 632 (1991).

Lien Not Shown.

Appellants had not established that they had acquired a valid carrier's lien because they had refused to surrender possession of the two trucks, had placed the trucks in secret storage, and had insisted upon payment of charges over and above those to which they would have been entitled, by demanding payment of all three invoices, despite the fact that only one of the invoices pertained to the transportation fees for the two trucks at issue. McQuillan v. Mercedes-Benz Credit Corp., 331 Ark. 242, 961 S.W.2d 729 (1998).

4-7-308. Enforcement of carrier's lien.

  1. A carrier's lien on goods may be enforced by public or private sale of the goods, in bulk or in packages, at any time or place and on any terms that are commercially reasonable, after notifying all persons known to claim an interest in the goods. The notification must include a statement of the amount due, the nature of the proposed sale, and the time and place of any public sale. The fact that a better price could have been obtained by a sale at a different time or in a method different from that selected by the carrier is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. The carrier sells goods in a commercially reasonable manner if the carrier sells the goods in the usual manner in any recognized market therefor, sells at the price current in that market at the time of the sale, or otherwise sells in conformity with commercially reasonable practices among dealers in the type of goods sold. A sale of more goods than apparently necessary to be offered to ensure satisfaction of the obligation is not commercially reasonable, except in cases covered by the preceding sentence.
  2. Before any sale pursuant to this section, any person claiming a right in the goods may pay the amount necessary to satisfy the lien and the reasonable expenses incurred in complying with this section. In that event, the goods may not be sold but must be retained by the carrier, subject to the terms of the bill of lading and this chapter.
  3. A carrier may buy at any public sale pursuant to this section.
  4. A purchaser in good faith of goods sold to enforce a carrier's lien takes the goods free of any rights of persons against which the lien was valid, despite the carrier's noncompliance with this section.
  5. A carrier may satisfy its lien from the proceeds of any sale pursuant to this section but shall hold the balance, if any, for delivery on demand to any person to which the carrier would have been bound to deliver the goods.
  6. The rights provided by this section are in addition to all other rights allowed by law to a creditor against a debtor.
  7. A carrier's lien may be enforced pursuant to either subsection (a) or the procedure set forth in § 4-7-210(b).
  8. A carrier is liable for damages caused by failure to comply with the requirements for sale under this section and, in case of willful violation, is liable for conversion.

History. Acts 2007, No. 342, § 1.

4-7-309. Duty of care — Contractual limitation of carrier's liability.

  1. A carrier that issues a bill of lading, whether negotiable or nonnegotiable, shall exercise the degree of care in relation to the goods which a reasonably careful person would exercise under similar circumstances. This subsection does not affect any statute, regulation, or rule of law that imposes liability upon a common carrier for damages not caused by its negligence.
  2. Damages may be limited by a term in the bill of lading or in a transportation agreement that the carrier's liability may not exceed a value stated in the bill or transportation agreement if the carrier's rates are dependent upon value and the consignor is afforded an opportunity to declare a higher value and the consignor is advised of the opportunity. However, such a limitation is not effective with respect to the carrier's liability for conversion to its own use.
  3. Reasonable provisions as to the time and manner of presenting claims and commencing actions based on the shipment may be included in a bill of lading or a transportation agreement.

History. Acts 2007, No. 342, § 1.

Part 4 — Warehouse Receipts and Bills of Lading: General Obligations

4-7-401. Irregularities in issue of receipt or bill or conduct of issuer.

The obligations imposed by this chapter on an issuer apply to a document of title even if:

  1. the document does not comply with the requirements of this chapter or of any other statute, rule, or regulation regarding its issuance, form, or content;
  2. the issuer violated laws regulating the conduct of its business;
  3. the goods covered by the document were owned by the bailee when the document was issued; or
  4. the person issuing the document is not a warehouse but the document purports to be a warehouse receipt.

History. Acts 2007, No. 342, § 1.

Cross References. Penalty, issuance of warehouse receipt covering goods of which warehouseman is owner, § 4-59-404.

4-7-402. Duplicate document of title — Overissue.

A duplicate or any other document of title purporting to cover goods already represented by an outstanding document of the same issuer does not confer any right in the goods, except as provided in the case of tangible bills of lading in a set of parts, overissue of documents for fungible goods, substitutes for lost, stolen, or destroyed documents, or substitute documents issued pursuant to § 4-7-105. The issuer is liable for damages caused by its overissue or failure to identify a duplicate document by a conspicuous notation.

History. Acts 2007, No. 342, § 1.

Cross References. Penalty, issuance of duplicate bill of lading when not so marked, § 4-59-303.

Penalty, issuance of duplicate warehouse receipt when not so marked, § 4-59-403.

4-7-403. Obligation of bailee to deliver — Excuse.

  1. A bailee shall deliver the goods to a person entitled under a document of title if the person complies with subsections (b) and (c), unless and to the extent that the bailee establishes any of the following:
    1. delivery of the goods to a person whose receipt was rightful as against the claimant;
    2. damage to or delay, loss, or destruction of the goods for which the bailee is not liable;
    3. previous sale or other disposition of the goods in lawful enforcement of a lien or on a warehouse's lawful termination of storage;
    4. the exercise by a seller of its right to stop delivery pursuant to § 4-2-705 or by a lessor of its right to stop delivery pursuant to § 4-2A-526;
    5. a diversion, reconsignment, or other disposition pursuant to § 4-7-303;
    6. release, satisfaction, or any other personal defense against the claimant; or
    7. any other lawful excuse.
  2. A person claiming goods covered by a document of title shall satisfy the bailee's lien if the bailee so requests or if the bailee is prohibited by law from delivering the goods until the charges are paid.
  3. Unless a person claiming the goods is a person against which the document of title does not confer a right under § 4-7-503(a):
    1. the person claiming under a document shall surrender possession or control of any outstanding negotiable document covering the goods for cancellation or indication of partial deliveries; and
    2. the bailee shall cancel the document or conspicuously indicate in the document the partial delivery or the bailee is liable to any person to which the document is duly negotiated.

History. Acts 2007, No. 342, § 1.

Cross References. Penalty, delivery of goods without obtaining receipt, § 4-59-405.

Case Notes

Cited: In re Bearhouse, Inc., 84 B.R. 552 (Bankr. W.D. Ark. 1988).

4-7-404. No liability for good-faith delivery pursuant to document of title.

A bailee that in good faith has received goods and delivered or otherwise disposed of the goods according to the terms of a document of title or pursuant to this chapter is not liable for the goods even if:

  1. the person from which the bailee received the goods did not have authority to procure the document or to dispose of the goods; or
  2. the person to which the bailee delivered the goods did not have authority to receive the goods.

History. Acts 2007, No. 342, § 1.

Part 5 — Warehouse Receipts and Bills of Lading: Negotiation and Transfer

Research References

Ark. L. Notes.

Pedersen, Crop Financing: A Guide to Arkansas Law, 1988 Ark. L. Notes 31.

4-7-501. Form of negotiation and requirements of due negotiation.

  1. The following rules apply to a negotiable tangible document of title:
    1. If the document's original terms run to the order of a named person, the document is negotiated by the named person's indorsement and delivery. After the named person's indorsement in blank or to bearer, any person may negotiate the document by delivery alone.
    2. If the document's original terms run to bearer, it is negotiated by delivery alone.
    3. If the document's original terms run to the order of a named person and it is delivered to the named person, the effect is the same as if the document had been negotiated.
    4. Negotiation of the document after it has been indorsed to a named person requires indorsement by the named person and delivery.
    5. A document is duly negotiated if it is negotiated in the manner stated in this subsection to a holder that purchases it in good faith, without notice of any defense against or claim to it on the part of any person, and for value, unless it is established that the negotiation is not in the regular course of business or financing or involves receiving the document in settlement or payment of a monetary obligation.
  2. The following rules apply to a negotiable electronic document of title:
    1. If the document's original terms run to the order of a named person or to bearer, the document is negotiated by delivery of the document to another person. Indorsement by the named person is not required to negotiate the document.
    2. If the document's original terms run to the order of a named person and the named person has control of the document, the effect is the same as if the document had been negotiated.
    3. A document is duly negotiated if it is negotiated in the manner stated in this subsection to a holder that purchases it in good faith, without notice of any defense against or claim to it on the part of any person, and for value, unless it is established that the negotiation is not in the regular course of business or financing or involves taking delivery of the document in settlement or payment of a monetary obligation.
  3. Indorsement of a nonnegotiable document of title neither makes it negotiable nor adds to the transferee's rights.
  4. The naming in a negotiable bill of lading of a person to be notified of the arrival of the goods does not limit the negotiability of the bill or constitute notice to a purchaser of the bill of any interest of that person in the goods.

History. Acts 2007, No. 342, § 1.

4-7-502. Rights acquired by due negotiation.

  1. Subject to §§ 4-7-205 and 4-7-503, a holder to which a negotiable document of title has been duly negotiated acquires thereby:
    1. title to the document;
    2. title to the goods;
    3. all rights accruing under the law of agency or estoppel, including rights to goods delivered to the bailee after the document was issued; and
    4. the direct obligation of the issuer to hold or deliver the goods according to the terms of the document free of any defense or claim by the issuer except those arising under the terms of the document or under this chapter, but in the case of a delivery order, the bailee's obligation accrues only upon the bailee's acceptance of the delivery order and the obligation acquired by the holder is that the issuer and any indorser will procure the acceptance of the bailee.
  2. Subject to § 4-7-503, title and rights acquired by due negotiation are not defeated by any stoppage of the goods represented by the document of title or by surrender of the goods by the bailee and are not impaired even if:
    1. the due negotiation or any prior due negotiation constituted a breach of duty;
    2. any person has been deprived of possession of a negotiable tangible document or control of a negotiable electronic document by misrepresentation, fraud, accident, mistake, duress, loss, theft, or conversion; or
    3. a previous sale or other transfer of the goods or document has been made to a third person.

History. Acts 2007, No. 342, § 1.

Cross References. Negotiation of bill when not in carrier's possession, penalty, § 4-59-307.

Case Notes

Transfer of Title.

Subdivision (1) of this section states that a holder to whom a negotiable document of title has been duly negotiated acquires title to the document and title to the goods. Title to the goods is also transferred when the negotiable warehouse receipt is negotiated to a holder as collateral for a loan. In re Bearhouse, Inc., 84 B.R. 552 (Bankr. W.D. Ark. 1988).

4-7-503. Document of title to goods defeated in certain cases.

  1. A document of title confers no right in goods against a person that before issuance of the document had a legal interest or a perfected security interest in the goods and that did not:
    1. deliver or entrust the goods or any document of title covering the goods to the bailor or the bailor's nominee with:
      1. actual or apparent authority to ship, store, or sell; (B) power to obtain delivery under § 4-7-403; or
    2. acquiesce in the procurement by the bailor or its nominee of any document.
  2. Title to goods based upon an unaccepted delivery order is subject to the rights of any person to which a negotiable warehouse receipt or bill of lading covering the goods has been duly negotiated. That title may be defeated under § 4-7-504 to the same extent as the rights of the issuer or a transferee from the issuer.
  3. Title to goods based upon a bill of lading issued to a freight forwarder is subject to the rights of any person to which a bill issued by the freight forwarder is duly negotiated. However, delivery by the carrier in accordance with Part 4 pursuant to its own bill of lading discharges the carrier's obligation to deliver.

(C) power of disposition under § 4-2-403, § 4-2A-304(2), § 4-2A-305(2), § 4-9-320, or § 4-9-321(c) or other statute or rule of law; or

History. Acts 2007, No. 342, § 1.

Amendments. The 2001 amendment substituted “4-9-320” for “4-9-307” in (1)(a); and made minor stylistic changes in (1)(b).

Cross References. Negotiation of bill of lading for mortgaged goods, penalty, § 4-59-306.

Negotiation of warehouse receipt covering encumbered property, penalty, § 4-59-406.

4-7-504. Rights acquired in absence of due negotiation — Effect of diversion — Stoppage of delivery.

  1. A transferee of a document of title, whether negotiable or nonnegotiable, to which the document has been delivered but not duly negotiated, acquires the title and rights that its transferor had or had actual authority to convey.
  2. In the case of a transfer of a nonnegotiable document of title, until but not after the bailee receives notice of the transfer, the rights of the transferee may be defeated:
    1. by those creditors of the transferor which could treat the transfer as void under § 4-2-402 or § 4-2A-308;
    2. by a buyer from the transferor in ordinary course of business if the bailee has delivered the goods to the buyer or received notification of the buyer's rights;
    3. by a lessee from the transferor in ordinary course of business if the bailee has delivered the goods to the lessee or received notification of the lessee's rights; or
    4. as against the bailee, by good-faith dealings of the bailee with the transferor.
  3. A diversion or other change of shipping instructions by the consignor in a nonnegotiable bill of lading which causes the bailee not to deliver the goods to the consignee defeats the consignee's title to the goods if the goods have been delivered to a buyer in ordinary course of business or a lessee in ordinary course of business and, in any event, defeats the consignee's rights against the bailee.
  4. Delivery of the goods pursuant to a nonnegotiable document of title may be stopped by a seller under § 4-2-705 or a lessor under § 4-2A-526, subject to the requirements of due notification in those sections. A bailee that honors the seller's or lessor's instructions is entitled to be indemnified by the seller or lessor against any resulting loss or expense.

History. Acts 2007, No. 342, § 1.

4-7-505. Indorser not guarantor for other parties.

The indorsement of a tangible document of title issued by a bailee does not make the indorser liable for any default by the bailee or previous indorsers.

History. Acts 2007, No. 342, § 1.

4-7-506. Delivery without indorsement — Right to compel indorsement.

The transferee of a negotiable tangible document of title has a specifically enforceable right to have its transferor supply any necessary indorsement, but the transfer becomes a negotiation only as of the time the indorsement is supplied.

History. Acts 2007, No. 342, § 1.

4-7-507. Warranties on negotiation or delivery of document of title.

If a person negotiates or delivers a document of title for value, otherwise than as a mere intermediary under § 4-7-508, unless otherwise agreed, the transferor, in addition to any warranty made in selling or leasing the goods, warrants to its immediate purchaser only that:

  1. the document is genuine;
  2. the transferor does not have knowledge of any fact that would impair the document's validity or worth; and
  3. the negotiation or delivery is rightful and fully effective with respect to the title to the document and the goods it represents.

History. Acts 2007, No. 342, § 1.

4-7-508. Warranties of collecting bank as to documents of title.

A collecting bank or other intermediary known to be entrusted with documents of title on behalf of another or with collection of a draft or other claim against delivery of documents warrants by the delivery of the documents only its own good faith and authority even if the collecting bank or other intermediary has purchased or made advances against the claim or draft to be collected.

History. Acts 2007, No. 342, § 1.

4-7-509. Adequate compliance with commercial contract.

Whether a document of title is adequate to fulfill the obligations of a contract for sale, a contract for lease, or the conditions of a letter of credit is determined by Chapter 2 of this title (§ 4-2-101 et seq.), Chapter 2A of this title (§ 4-2A-101 et seq.), or Chapter 5 of this title (§ 4-5-101 et seq.).

History. Acts 2007, No. 342, § 1.

Part 6 — Warehouse Receipts and Bills of Lading: Miscellaneous Provisions

4-7-601. Lost, stolen, or destroyed documents of title.

  1. If a document of title is lost, stolen, or destroyed, a court may order delivery of the goods or issuance of a substitute document and the bailee may without liability to any person comply with the order. If the document was negotiable, a court may not order delivery of the goods or issuance of a substitute document without the claimant's posting security unless it finds that any person that may suffer loss as a result of nonsurrender of possession or control of the document is adequately protected against the loss. If the document was nonnegotiable, the court may require security. The court may also order payment of the bailee's reasonable costs and attorney's fees in any action under this subsection.
  2. A bailee that, without a court order, delivers goods to a person claiming under a missing negotiable document of title is liable to any person injured thereby. If the delivery is not in good faith, the bailee is liable for conversion. Delivery in good faith is not conversion if the claimant posts security with the bailee in an amount at least double the value of the goods at the time of posting to indemnify any person injured by the delivery which files a notice of claim within one year after the delivery.

History. Acts 2007, No. 342, § 1.

4-7-602. Judicial process against goods covered by negotiable document of title.

Unless a document of title was originally issued upon delivery of the goods by a person that did not have power to dispose of them, a lien does not attach by virtue of any judicial process to goods in the possession of a bailee for which a negotiable document of title is outstanding unless possession or control of the document is first surrendered to the bailee or the document's negotiation is enjoined. The bailee may not be compelled to deliver the goods pursuant to process until possession or control of the document is surrendered to the bailee or to the court. A purchaser of the document for value without notice of the process or injunction takes free of the lien imposed by judicial process.

History. Acts 2007, No. 342, § 1.

4-7-603. Conflicting claims — Interpleader.

If more than one person claims title to or possession of the goods, the bailee is excused from delivery until the bailee has a reasonable time to ascertain the validity of the adverse claims or to commence an action for interpleader. The bailee may assert an interpleader either in defending an action for nondelivery of the goods or by original action.

History. Acts 2007, No. 342, § 1.

Part 7 — Miscellaneous Provisions

4-7-701. Effective Date.

This chapter takes effect on January 1, 2008.

History. Acts 2007, No. 342, § 1.

4-7-702. [Reserved.]

History. Acts 2007, No. 342, § 1.

4-7-703. Applicability.

This chapter applies to a document of title that is issued or a bailment that arises on or after January 1, 2008. This chapter does not apply to a document of title that is issued or a bailment that arises before January 1, 2008, even if the document of title or bailment would be subject to this chapter if the document of title had been issued or bailment had arisen on or after January 1, 2008. This chapter does not apply to a right of action that has accrued before January 1, 2008.

History. Acts 2007, No. 342, § 1.

4-7-704. Savings clause.

A document of title issued or a bailment that arises before January 1, 2008, and the rights, obligations, and interests flowing from that document or bailment are governed by any statute or other rule amended or repealed by this chapter as if amendment or repeal had not occurred and may be terminated, completed, consummated, or enforced under that statute or other rule.

History. Acts 2007, No. 342, § 1.

Chapter 8 Investment Securities

Research References

ALR.

What is a “security” under UCC Art. 8. 11 A.L.R.4th 1036.

Am. Jur. 15A Am. Jur. 2d, Comm. Code, § 68 et seq.

Ark. L. Rev.

Investment Securities: Article VIII, 16 Ark. L. Rev. 98.

U. Ark. Little Rock L.J.

Legislative Survey, Uniform Commercial Code, 8 U. Ark. Little Rock L.J. 609.

Martin, An Arkansas Practitioner's Guide to Perfecting Security Interests in Securities, Brokerage Accounts, and Other Forms of Investment Property under Revised Article 8 and Amended Article 9, 19 U. Ark. Little Rock L.J. 1.

Part 1 — Short Title and General Matters

Publisher's Notes. Former part 1, concerning the short title and general matters, was repealed by Acts 1995, No. 425, § 1. The former part was derived from the following sources:

4-8-101. Acts 1961, No. 185, § 8-101; reen. 1967, No. 303, § 26 (8-101); reen. 1985, No. 514, § 3 (8-101); A.S.A. 1947, § 85-8-101.

4-8-102. Acts 1961, No. 185, § 8-102; 1967, No. 303, § 26 (8-102); 1973, No. 259, § 1; 1985, No. 514, § 3 (8-102); A.S.A. 1947, § 85-8-102.

4-8-103. Acts 1961, No. 185, § 8-103; reen. 1967, No. 303, § 26 (8-103); 1985, No. 514, § 3 (8-103); A.S.A. 1947, § 85-8-103.

4-8-104. Acts 1961, No. 185, § 8-104; reen. 1967, No. 303, § 26 (8-104); 1985, No. 514, § 3 (8-104); A.S.A. 1947, § 85-8-104.

4-8-105. Acts 1961, No. 185, § 8-105; reen. 1967, No. 303, § 26 (8-105); 1985, No. 514, § 3 (8-105); A.S.A. 1947, § 85-8-105.

4-8-106. Acts 1961, No. 185, § 8-106; reen. 1967, No. 303, § 26 (8-106); 1985, No. 514, § 3 (8-106); A.S.A. 1947, § 85-8-106.

4-8-107. Acts 1961, No. 185, § 8-107, as added by Acts 1967, No. 303, § 26 (8-107); 1985, No. 514, § 3 (8-107); A.S.A. 1947, § 85-8-107.

4-8-108. Acts 1961, No. 185, § 8-108, as added by Acts 1985, No. 514, § 3; A.S.A. 1947, No. 85-8-108.

For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

4-8-101. Short title.

This chapter may be cited as Uniform Commercial Code — Investment Securities.

History. Acts 1995, No. 425, § 1.

Research References

Ark. L. Rev.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

4-8-102. Definitions.

  1. In this Chapter:
    1. “Adverse claim” means a claim that a claimant has a property interest in a financial asset and that it is a violation of the rights of the claimant for another person to hold, transfer, or deal with the financial asset.
    2. “Bearer form,” as applied to a certificated security, means a form in which the security is payable to the bearer of the security certificate according to its terms but not by reason of an indorsement.
    3. “Broker” means a person defined as a broker or dealer under the federal securities laws, but without excluding a bank acting in that capacity.
    4. “Certificated security” means a security that is represented by a certificate.
    5. “Clearing corporation” means:
      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.
    6. “Communicate” means to:
      1. send a signed writing; or
      2. transmit information by any mechanism agreed upon by the persons transmitting and receiving the information.
    7. “Entitlement holder” means a person identified in the records of a securities intermediary as the person having a security entitlement against the securities intermediary. If a person acquires a security entitlement by virtue of § 4-8-501(b)(2) or (3), that person is the entitlement holder.
    8. “Entitlement order” means a notification communicated to a securities intermediary directing transfer or redemption of a financial asset to which the entitlement holder has a security entitlement.
    9. “Financial asset,” except as otherwise provided in § 4-8-103, means:
      1. a security;
      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
      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 chapter.
    10. [Reserved.]
    11. “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.
    12. “Instruction” means a notification communicated to the issuer of an uncertificated security which directs that the transfer of the security be registered or that the security be redeemed.
    13. “Registered form,” as applied to a certificated security, means a form in which:
      1. the security certificate specifies a person entitled to the security; and
      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.
    14. “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.
    15. “Security,” except as otherwise provided in § 4-8-103, 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:
      1. is, or is of a type, dealt in or traded on securities exchanges or securities markets; or
      2. is a medium for investment and by its terms expressly provides that it is a security governed by this chapter.
    16. “Security certificate” means a certificate representing a security.
    17. “Security entitlement” means the rights and property interest of an entitlement holder with respect to a financial asset specified in Part 5 (§ 4-8-501 et seq.).
    18. “Uncertificated security” means a security that is not represented by a certificate.
  2. Other definitions applying to this chapter and the sections in which they appear are:
  3. In addition, Chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.
  4. The characterization of a person, business, or transaction for purposes of this chapter does not determine the characterization of the person, business, or transaction for purposes of any other law, regulation, or rule.

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.

Appropriate person § 4-8-107 Control § 4-8-106 Delivery § 4-8-301 Investment company security § 4-8-103 Issuer § 4-8-201 Overissue § 4-8-210 Protected purchaser § 4-8-303 Securities account § 4-8-501

Click to view table.

History. Acts 1995, No. 425, § 1; 2005, No. 856, § 55.

Research References

U. Ark. Little Rock L.J.

Martin, An Arkansas Practitioner's Guide to Perfecting Security Interests in Securities, Brokerage Accounts, and Other Forms of Investment Property under Revised Article 8 and Amended Article 9, 19 U. Ark. Little Rock L.J. 1.

Case Notes

Indorsement.

In an action concerning a stock transfer, plaintiff's conversion and replevin claims against a bank were properly dismissed where plaintiff, who contended that he meant for his shares to be transferred to a new revocable trust, argued that the indorsement on the stock certificate did not transfer his shares to the bank in its capacity as trustee of the existing irrevocable testamentary trust that his mother had created. Plaintiff's indorsement on the stock power was a proper indorsement; moreover, when the signed stock certificate was left in the bank's possession, the transfer as between plaintiff and the bank was complete and transferred the shares to the bank in its capacity as trustee of the irrevocable testamentary trust. Ash v. First Nat'l Bank of E. Ark., 2019 Ark. App. 147, 573 S.W.3d 584 (2019).

Security.

Where a delivery debenture issued to the debtors by a cooperative and later delivered to a credit association as security for a debt owed by the debtors to the credit association conferred rights upon its holder, was in registered form, was one of a series of documents issued by the cooperative, evidenced an obligation of the issuer, was recognized in the area as a medium for investment, and was assignable, the delivery debenture was held to be a “security”. In re Glass, 692 F.2d 55 (8th Cir. 1982) (decision prior to 1985 amendment).

The fact that stock issuer did not physically deliver the stock certificate to lender did not prevent the stock from being a “security”. J.M. Prods., Inc. v. Ark. Capital Corp., 51 Ark. App. 85, 910 S.W.2d 702 (1995).

4-8-103. Rules for determining whether certain obligations and interests are securities or financial assets.

  1. A share or similar equity interest issued by a corporation, business trust, joint stock company, or similar entity is a security.
  2. An “investment company security” is a security. “Investment company security” means a share or similar equity interest issued by an entity that is registered as an investment company under the federal investment company laws, an interest in a unit investment trust that is so registered, or a face-amount certificate issued by a face-amount certificate company that is so registered. Investment company security does not include an insurance policy or endowment policy or annuity contract issued by an insurance company.
  3. An interest in a partnership or limited liability company is not a security unless it is dealt in or traded on securities exchanges or in securities markets, its terms expressly provide that it is a security governed by this chapter, or it is an investment company security. However, an interest in a partnership or limited liability company is a financial asset if it is held in a securities account.
  4. A writing that is a security certificate is governed by this chapter and not by Chapter 3, even though it also meets the requirements of that chapter. However, a negotiable instrument governed by Chapter 3 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 § 4-9-102(a)(15), is not a security or a financial asset.
  7. A document of title is not a financial asset unless § 4-8-102(a)(9)(iii) applies.

History. Acts 1995, No. 425, § 1; 2001, No. 1439, § 16; 2007, No. 342, § 25.

Case Notes

Applicability.

Circuit court erred as a matter of law when it determined that the stock power, standing alone, effectively transferred the stock and foreclosed all of the share owner's claims under Arkansas law where the shares at issue were securities, and it was apparent that the circuit court had not decided the stock-power issue under the UCC. Ash v. First Nat'l Bank of E. Ark., 2017 Ark. App. 57, 513 S.W.3d 268 (2017).

4-8-104. Acquisition of security or financial asset or interest therein.

  1. A person acquires a security or an interest therein, under this chapter, if:
    1. the person is a purchaser to whom a security is delivered pursuant to § 4-8-301; or
    2. the person acquires a security entitlement to the security pursuant to § 4-8-501.
  2. A person acquires a financial asset, other than a security, or an interest therein, under this chapter, if the person acquires a security entitlement to the financial asset.
  3. A person who acquires a security entitlement to a security or other financial asset has the rights specified in Part 5, but is a purchaser of any security, security entitlement, or other financial asset held by the securities intermediary only to the extent provided in § 4-8-503.
  4. Unless the context shows that a different meaning is intended, a person who is required by other law, regulation, rule, or agreement to transfer, deliver, present, surrender, exchange, or otherwise put in the possession of another person a security or financial asset satisfies that requirement by causing the other person to acquire an interest in the security or financial asset pursuant to subsection (a) or (b).

History. Acts 1995, No. 425, § 1.

4-8-105. Notice of adverse claim.

  1. A person has notice of an adverse claim if:
    1. the person knows of the adverse claim;
    2. the person is aware of facts sufficient to indicate that there is a significant probability that the adverse claim exists and deliberately avoids information that would establish the existence of the adverse claim; or
    3. the person has a duty, imposed by statute or regulation, to investigate whether an adverse claim exists, and the investigation so required would establish the existence of the adverse claim.
  2. Having knowledge that a financial asset or interest therein is or has been transferred by a representative imposes no duty of inquiry into the rightfulness of a transaction and is not notice of an adverse claim. However, a person who knows that a representative has transferred a financial asset or interest therein in a transaction that is, or whose proceeds are being used, for the individual benefit of the representative or otherwise in breach of duty has notice of an adverse claim.
  3. An act or event that creates a right to immediate performance of the principal obligation represented by a security certificate or sets a date on or after which the certificate is to be presented or surrendered for redemption or exchange does not itself constitute notice of an adverse claim except in the case of a transfer more than:
    1. one (1) year after a date set for presentment or surrender for redemption or exchange; or
    2. six (6) months after a date set for payment of money against presentation or surrender of the certificate, if money was available for payment on that date.
  4. A purchaser of a certificated security has notice of an adverse claim if the security certificate:
    1. whether in bearer or registered form, has been indorsed “for collection” or “for surrender” or for some other purpose not involving transfer; or
    2. is in bearer form and has on it an unambiguous statement that it is the property of a person other than the transferor, but the mere writing of a name on the certificate is not such a statement.
  5. Filing of a financing statement under Chapter 9 of this title is not notice of an adverse claim to a financial asset.

History. Acts 1995, No. 425, § 1.

4-8-106. Control.

  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:
    1. the certificate is indorsed to the purchaser or in blank by an effective indorsement; or
    2. 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:
    1. the uncertificated security is delivered to the purchaser; or
    2. 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:
    1. the purchaser becomes the entitlement holder;
    2. the securities intermediary has agreed that it will comply with entitlement orders originated by the purchaser without further consent by the entitlement holder; or
    3. another person has control of the security entitlement on behalf of the purchaser or, having previously acquired control of the security entitlement, acknowledges that it has control on behalf of the purchaser.
  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 (c)(2) or (d)(2) has control, even if the registered owner in the case of subsection (c)(2) or the entitlement holder in the case of subsection (d)(2) 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 (c)(2) or (d)(2) 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.

History. Acts 1995, No. 425, § 1; 2001, No. 1439, § 17.

Amendments. The 2001 amendment added (d)(3); in (f), inserted “(2)” following “(c)” and inserted “(2)” following “(d)” throughout.

4-8-107. Whether indorsement, instruction, or entitlement order is effective.

  1. “Appropriate person” means:
    1. with respect to an indorsement, the person specified by a security certificate or by an effective special indorsement to be entitled to the security;
    2. with respect to an instruction, the registered owner of an uncertificated security;
    3. with respect to an entitlement order, the entitlement holder;
    4. if the person designated in subdivision (1), (2), or (3) is deceased, the designated person's successor taking under other law or the designated person's personal representative acting for the estate of the decedent; or
    5. if the person designated in subdivision (1), (2), or (3) lacks capacity, the designated person's guardian, conservator, or other similar representative who has power under other law to transfer the security or financial asset.
  2. An indorsement, instruction, or entitlement order is effective if:
    1. it is made by the appropriate person;
    2. it is made by a person who has power under the law of agency to transfer the security or financial asset on behalf of the appropriate person, including, in the case of an instruction or entitlement order, a person who has control under § 4-8-106(c)(2) or (d)(2); or
    3. the appropriate person has ratified it or is otherwise precluded from asserting its ineffectiveness.
  3. An indorsement, instruction, or entitlement order made by a representative is effective even if:
    1. the representative has failed to comply with a controlling instrument or with the law of the State having jurisdiction of the representative relationship, including any law requiring the representative to obtain court approval of the transaction; or
    2. the representative's action in making the indorsement, instruction, or entitlement order or using the proceeds of the transaction is otherwise a breach of duty.
  4. If a security is registered in the name of or specially indorsed to a person described as a representative, or if a securities account is maintained in the name of a person described as a representative, an indorsement, instruction, or entitlement order made by the person is effective even though the person is no longer serving in the described capacity.
  5. Effectiveness of an indorsement, instruction, or entitlement order is determined as of the date the indorsement, instruction, or entitlement order is made, and an indorsement, instruction, or entitlement order does not become ineffective by reason of any later change of circumstances.

History. Acts 1995, No. 425, § 1.

4-8-108. Warranties in direct holding.

  1. A person who transfers a certificated security to a purchaser for value warrants to the purchaser, and an indorser, if the transfer is by indorsement, warrants to any subsequent purchaser, that:
    1. the certificate is genuine and has not been materially altered;
    2. the transferor or indorser does not know of any fact that might impair the validity of the security;
    3. there is no adverse claim to the security;
    4. the transfer does not violate any restriction on transfer;
    5. if the transfer is by indorsement, the indorsement is made by an appropriate person, or if the indorsement is by an agent, the agent has actual authority to act on behalf of the appropriate person; and
    6. the transfer is otherwise effective and rightful.
  2. A person who originates an instruction for registration of transfer of an uncertificated security to a purchaser for value warrants to the purchaser that:
    1. the instruction is made by an appropriate person, or if the instruction is by an agent, the agent has actual authority to act on behalf of the appropriate person;
    2. the security is valid;
    3. there is no adverse claim to the security; and
    4. at the time the instruction is presented to the issuer:
      1. the purchaser will be entitled to the registration of transfer;
      2. the transfer will be registered by the issuer free from all liens, security interests, restrictions, and claims other than those specified in the instruction;
      3. the transfer will not violate any restriction on transfer; and
      4. the requested transfer will otherwise be effective and rightful.
  3. A person who transfers an uncertificated security to a purchaser for value and does not originate an instruction in connection with the transfer warrants that:
    1. the uncertificated security is valid;
    2. there is no adverse claim to the security;
    3. the transfer does not violate any restriction on transfer; and
    4. the transfer is otherwise effective and rightful.
  4. A person who indorses a security certificate warrants to the issuer that:
    1. there is no adverse claim to the security; and
    2. the indorsement is effective.
  5. A person who originates an instruction for registration of transfer of an uncertificated security warrants to the issuer that:
    1. the instruction is effective; and
    2. at the time the instruction is presented to the issuer the purchaser will be entitled to the registration of transfer.
  6. A person who presents a certificated security for registration of transfer or for payment or exchange warrants to the issuer that the person is entitled to the registration, payment, or exchange, but a purchaser for value and without notice of adverse claims to whom transfer is registered warrants only that the person has no knowledge of any unauthorized signature in a necessary indorsement.
  7. If a person acts as agent of another in delivering a certificated security to a purchaser, the identity of the principal was known to the person to whom the certificate was delivered, and the certificate delivered by the agent was received by the agent from the principal or received by the agent from another person at the direction of the principal, the person delivering the security certificate warrants only that the delivering person has authority to act for the principal and does not know of any adverse claim to the certificated security.
  8. A secured party who redelivers a security certificate received, or after payment and on order of the debtor delivers the security certificate to another person, makes only the warranties of an agent under subsection (g).
  9. Except as otherwise provided in subsection (g), a broker acting for a customer makes to the issuer and a purchaser the warranties provided in subsections (a) through (f). A broker that delivers a security certificate to its customer, or causes its customer to be registered as the owner of an uncertificated security, makes to the customer the warranties provided in subsection (a) or (b), and has the rights and privileges of a purchaser under this section. The warranties of and in favor of the broker acting as an agent are in addition to applicable warranties given by and in favor of the customer.

History. Acts 1995, No. 425, § 1.

4-8-109. Warranties in indirect holding.

  1. A person who originates an entitlement order to a securities intermediary warrants to the securities intermediary that:
    1. the entitlement order is made by an appropriate person, or if the entitlement order is by an agent, the agent has actual authority to act on behalf of the appropriate person; and
    2. there is no adverse claim to the security entitlement.
  2. A person who delivers a security certificate to a securities intermediary for credit to a securities account or originates an instruction with respect to an uncertificated security directing that the uncertificated security be credited to a securities account makes to the securities intermediary the warranties specified in § 4-8-108(a) or (b).
  3. If a securities intermediary delivers a security certificate to its entitlement holder or causes its entitlement holder to be registered as the owner of an uncertificated security, the securities intermediary makes to the entitlement holder the warranties specified in § 4-8-108(a) or (b).

History. Acts 1995, No. 425, § 1.

4-8-110. Applicability — Choice of law.

  1. The local law of the issuer's jurisdiction, as specified in subsection (d), governs:
    1. the validity of a security;
    2. the rights and duties of the issuer with respect to registration of transfer;
    3. the effectiveness of registration of transfer by the issuer;
    4. whether the issuer owes any duties to an adverse claimant to a security; and
    5. whether an adverse claim can be asserted against a person to whom transfer of a certificated or uncertificated security is registered or a person who obtains control of an uncertificated security.
  2. The local law of the securities intermediary's jurisdiction, as specified in subsection (e), governs:
    1. acquisition of a security entitlement from the securities intermediary;
    2. the rights and duties of the securities intermediary and entitlement holder arising out of a security entitlement;
    3. whether the securities intermediary owes any duties to an adverse claimant to a security entitlement; and
    4. whether an adverse claim can be asserted against a person who acquires a security entitlement from the securities intermediary or a person who purchases a security entitlement or interest therein from an entitlement holder.
  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. “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. An issuer organized under the law of this state may specify the law of another jurisdiction as the law governing the matters specified in subsection (a)(2)-(5).
  5. The following rules determine a “securities intermediary's jurisdiction” for purposes of this section:
    1. If an agreement between the securities intermediary and its entitlement holder governing the securities account expressly provides that a particular jurisdiction is the securities intermediary's jurisdiction for purposes of the Uniform Commercial Code, that jurisdiction is the securities intermediary's jurisdiction.
    2. If paragraph (1) does not apply and an agreement between the securities intermediary and its entitlement holder governing the securities account expressly provides that the agreement is governed by the law of a particular jurisdiction, that jurisdiction is the securities intermediary's jurisdiction.
    3. If neither paragraph (1) nor paragraph (2) applies and an agreement between the securities intermediary and its entitlement holder governing the securities account expressly provides that the securities account is maintained at an office in a particular jurisdiction, that jurisdiction is the securities intermediary's jurisdiction.
    4. If none of the preceding paragraphs apply, 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.
    5. If none of the preceding paragraphs apply, 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 physical location of certificates representing financial assets, or by the jurisdiction in which is organized the issuer of the financial asset with respect to which an entitlement holder has a security entitlement, or by the location of facilities for data processing or other record keeping concerning the account.

History. Acts 1995, No. 425, § 1; 2001, No. 1439, § 18.

Amendments. The 2001 amendment rewrote (e).

4-8-111. Clearing corporation rules.

A rule adopted by a clearing corporation governing rights and obligations among the clearing corporation and its participants in the clearing corporation is effective even if the rule conflicts with this subtitle and affects another party who does not consent to the rule.

History. Acts 1995, No. 425, § 1.

4-8-112. Creditor's legal process.

  1. The interest of a debtor in a certificated security may be reached by a creditor only by actual seizure of the security certificate by the officer making the attachment or levy, except as otherwise provided in subsection (d). However, a certificated security for which the certificate has been surrendered to the issuer may be reached by a creditor by legal process upon the issuer.
  2. The interest of a debtor in an uncertificated security may be reached by a creditor only by legal process upon the issuer at its chief executive office in the United States, except as otherwise provided in subsection (d).
  3. The interest of a debtor in a security entitlement may be reached by a creditor only by legal process upon the securities intermediary with whom the debtor's securities account is maintained, except as otherwise provided in subsection (d).
  4. The interest of a debtor in a certificated security for which the certificate is in the possession of a secured party, or in an uncertificated security registered in the name of a secured party, or a security entitlement maintained in the name of a secured party, may be reached by a creditor by legal process upon the secured party.
  5. A creditor whose debtor is the owner of a certificated security, uncertificated security, or security entitlement is entitled to aid from a court of competent jurisdiction, by injunction or otherwise, in reaching the certificated security, uncertificated security, or security entitlement or in satisfying the claim by means allowed at law or in equity in regard to property that cannot readily be reached by other legal process.

History. Acts 1995, No. 425, § 1.

Research References

Ark. L. Notes.

Laurence, Some Practical Advice on How to Create a Security Interest in a Deposit Account, 1997 Ark. L. Notes 39.

4-8-113. Statute of frauds inapplicable.

A contract or modification of a contract for the sale or purchase of a security is enforceable whether or not there is a writing signed or record authenticated by a party against whom enforcement is sought, even if the contract or modification is not capable of performance within one (1) year of its making.

History. Acts 1995, No. 425, § 1.

4-8-114. Evidentiary rules concerning certificated securities.

The following rules apply in an action on a certificated security against the issuer:

  1. Unless specifically denied in the pleadings, each signature on a security certificate or in a necessary indorsement is admitted.
  2. If the effectiveness of a signature is put in issue, the burden of establishing effectiveness is on the party claiming under the signature, but the signature is presumed to be genuine or authorized.
  3. If signatures on a security certificate are admitted or established, production of the certificate entitles a holder to recover on it unless the defendant establishes a defense or a defect going to the validity of the security.
  4. If it is shown that a defense or defect exists, the plaintiff has the burden of establishing that the plaintiff or some person under whom the plaintiff claims is a person against whom the defense or defect cannot be asserted.

History. Acts 1995, No. 425, § 1.

4-8-115. Securities intermediary and others not liable to adverse claimant.

A securities intermediary that has transferred a financial asset pursuant to an effective entitlement order, or a broker or other agent or bailee that has dealt with a financial asset at the direction of its customer or principal, is not liable to a person having an adverse claim to the financial asset, unless the securities intermediary, or broker or other agent or bailee:

  1. took the action after it had been served with an injunction, restraining order, or other legal process enjoining it from doing so, issued by a court of competent jurisdiction, and had a reasonable opportunity to act on the injunction, restraining order, or other legal process; or
  2. acted in collusion with the wrongdoer in violating the rights of the adverse claimant; or
  3. in the case of a security certificate that has been stolen, acted with notice of the adverse claim.

History. Acts 1995, No. 425, § 1.

4-8-116. Securities intermediary as purchaser for value.

A securities intermediary that receives a financial asset and establishes a security entitlement to the financial asset in favor of an entitlement holder is a purchaser for value of the financial asset. A securities intermediary that acquires a security entitlement to a financial asset from another securities intermediary acquires the security entitlement for value if the securities intermediary acquiring the security entitlement establishes a security entitlement to the financial asset in favor of an entitlement holder.

History. Acts 1995, No. 425, § 1.

Part 2 — Issue and Issuer

Publisher's Notes. Former part 2, concerning issue and issuer, was repealed by Acts 1995, No. 425, § 1. The former part was derived from the following sources:

4-8-201. Acts 1961, No. 185, § 8-201; 1985, No. 514, § 3 (8-201); A.S.A. 1947, § 85-8-201.

4-8-202. Acts 1961, No. 185, § 8-202; 1985, No. 514, § 3 (8-202); A.S.A. 1947, § 85-8-202.

4-8-203. Acts 1961, No. 185, § 8-203; 1985, No. 514, § 3 (8-203); A.S.A. 1947, § 85-8-203.

4-8-204. Acts 1961, No. 185, § 8-204; 1985, No. 514, § 3 (8-204); A.S.A. 1947, § 85-8-204.

4-8-205. Acts 1961, No. 185, § 8-205; 1985, No. 514, § 3 (8-205); A.S.A. 1947, § 85-8-205.

4-8-206. Acts 1961, No. 185, § 8-206; 1985, No. 514, § 3 (8-206); A.S.A. 1947, § 85-8-206.

4-8-207. Acts 1961, No. 185, § 8-207; 1985, No. 514, § 3 (8-207); A.S.A. 1947, § 85-8-207.

4-8-208. Acts 1961, No. 185, § 8-208; 1967, No. 303, § 27; 1985, No. 514, § 3 (8-208); A.S.A. 1947, § 85-8-208.

For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

ALR.

Construction and effect of UCC § 8-207(1) allowing issuer of investment security to treat registered owner as entitled to owner's rights until presentment for registration of transfer. 21 A.L.R.4th 879.

4-8-201. Issuer.

  1. With respect to an obligation on or a defense to a security, an “issuer” includes a person that:
    1. places or authorizes the placing of its name on a security certificate, other than as authenticating trustee, registrar, transfer agent, or the like, to evidence a share, participation, or other interest in its property or in an enterprise, or to evidence its duty to perform an obligation represented by the certificate;
    2. creates a share, participation, or other interest in its property or in an enterprise, or undertakes an obligation, that is an uncertificated security;
    3. directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a security certificate; or
    4. becomes responsible for, or in place of, another person described as an issuer in this section.
  2. With respect to an obligation on or defense to a security, a guarantor is an issuer to the extent of its guaranty, whether or not its obligation is noted on a security certificate.
  3. With respect to a registration of a transfer, issuer means a person on whose behalf transfer books are maintained.

History. Acts 1995, No. 425, § 1.

4-8-202. Issuer's responsibility and defenses — Notice of defect or defense.

  1. Even against a purchaser for value and without notice, the terms of a certificated security include terms stated on the certificate and terms made part of the security by reference on the certificate to another instrument, indenture, or document or to a constitution, statute, ordinance, rule, regulation, order, or the like, to the extent the terms referred to do not conflict with terms stated on the certificate. A reference under this subsection does not of itself charge a purchaser for value with notice of a defect going to the validity of the security, even if the certificate expressly states that a person accepting it admits notice. The terms of an uncertificated security include those stated in any instrument, indenture, or document or in a constitution, statute, ordinance, rule, regulation, order, or the like, pursuant to which the security is issued.
  2. The following rules apply if an issuer asserts that a security is not valid:
    1. A security other than one issued by a government or governmental subdivision, agency, or instrumentality, even though issued with a defect going to its validity, is valid in the hands of a purchaser for value and without notice of the particular defect unless the defect involves a violation of a constitutional provision. In that case, the security is valid in the hands of a purchaser for value and without notice of the defect, other than one who takes by original issue.
    2. Paragraph (1) applies to an issuer that is a government or governmental subdivision, agency, or instrumentality only if there has been substantial compliance with the legal requirements governing the issue or the issuer has received a substantial consideration for the issue as a whole or for the particular security and a stated purpose of the issue is one for which the issuer has power to borrow money or issue the security.
  3. Except as otherwise provided in § 4-8-205, lack of genuineness of a certificated security is a complete defense, even against a purchaser for value and without notice.
  4. All other defenses of the issuer of a security, including nondelivery and conditional delivery of a certificated security, are ineffective against a purchaser for value who has taken the certificated security without notice of the particular defense.
  5. This section does not affect the right of a party to cancel a contract for a security “when, as and if issued” or “when distributed” in the event of a material change in the character of the security that is the subject of the contract or in the plan or arrangement pursuant to which the security is to be issued or distributed.
  6. If a security is held by a securities intermediary against whom an entitlement holder has a security entitlement with respect to the security, the issuer may not assert any defense that the issuer could not assert if the entitlement holder held the security directly.

History. Acts 1995, No. 425, § 1.

Case Notes

Liability of Issuer.

Where a church issued bonds bearing a printed facsimile signature of its treasurer without requiring validation of the bonds by a manual signature, and the president of the corporation acting as fiscal agent for the bond issue fraudulently used some of the bonds as collateral for a personal loan upon which he subsequently defaulted and caused duplicates of such bonds to be printed and sold, the church was liable upon both sets of bonds. First Am. Nat'l Bank v. Christian Found. Life Ins. Co., 242 Ark. 678, 420 S.W.2d 912 (1967) (decision under prior law).

Cited: J.M. Prods., Inc. v. Ark. Capital Corp., 51 Ark. App. 85, 910 S.W.2d 702 (1995) (decision under prior law).

4-8-203. Staleness as notice of defect or defense.

After an act or event, other than a call that has been revoked, creating a right to immediate performance of the principal obligation represented by a certificated security or setting a date on or after which the security is to be presented or surrendered for redemption or exchange, a purchaser is charged with notice of any defect in its issue or defense of the issuer, if the act or event:

  1. requires the payment of money, the delivery of a certificated security, the registration of transfer of an uncertificated security, or any of them on presentation or surrender of the security certificate, the money or security is available on the date set for payment or exchange, and the purchaser takes the security more than one (1) year after that date; or
  2. is not covered by paragraph (1) and the purchaser takes the security more than two (2) years after the date set for surrender or presentation or the date on which performance became due.

History. Acts 1995, No. 425, § 1.

4-8-204. Effect of issuer's restriction on transfer.

A restriction on transfer of a security imposed by the issuer, even if otherwise lawful, is ineffective against a person without knowledge of the restriction unless:

  1. the security is certificated and the restriction is noted conspicuously on the security certificate; or
  2. the security is uncertificated and the registered owner has been notified of the restriction.

History. Acts 1995, No. 425, § 1.

Research References

Ark. L. Rev.

Corporations — Stock Transfer Restrictions Systematics, Inc. v. Mitchell and Act 409 of 1973, 27 Ark. L. Rev. 554.

Case Notes

Transfer Valid.

Plaintiff's argument failed that the stock transfer was void because it violated stock-transfer restrictions on the face of the certificate and in the corporate bylaws. The stock power was a valid indorsement under Arkansas securities law, plaintiff did not show why the stock power that he had signed failed to comply with the specific corporate bylaw provisions, and, more fundamentally, the issuer of the stock was not attempting to impose a restriction and was not even a party to the case. Ash v. First Nat'l Bank of E. Ark., 2019 Ark. App. 147, 573 S.W.3d 584 (2019).

4-8-205. Effect of unauthorized signature on security certificate.

An unauthorized signature placed on a security certificate before or in the course of issue is ineffective, but the signature is effective in favor of a purchaser for value of the certificated security if the purchaser is without notice of the lack of authority and the signing has been done by:

  1. an authenticating trustee, registrar, transfer agent, or other person entrusted by the issuer with the signing of the security certificate or of similar security certificates, or the immediate preparation for signing of any of them; or
  2. an employee of the issuer, or of any of the persons listed in paragraph (1), entrusted with responsible handling of the security certificate.

History. Acts 1995, No. 425, § 1.

Case Notes

Facsimile Signature.

Where a church issued bonds bearing a printed facsimile signature of its treasurer without requiring validation of the bonds by a manual signature, and the president of the corporation acting as fiscal agent for the bond issue fraudulently used some of the bonds as collateral for a personal loan upon which he subsequently defaulted and caused duplicates of the bonds to be printed and sold, the church was liable upon both sets of bonds in the hands of good faith purchasers for value. First Am. Nat'l Bank v. Christian Found. Life Ins. Co., 242 Ark. 678, 420 S.W.2d 912 (1967) (decision under prior law).

4-8-206. Completion or alteration of security certificate.

  1. If a security certificate contains the signatures necessary to its issue or transfer but is incomplete in any other respect:
    1. any person may complete it by filling in the blanks as authorized; and
    2. even if the blanks are incorrectly filled in, the security certificate as completed is enforceable by a purchaser who took it for value and without notice of the incorrectness.
  2. A complete security certificate that has been improperly altered, even if fraudulently, remains enforceable, but only according to its original terms.

History. Acts 1995, No. 425, § 1.

4-8-207. Rights and duties of issuer with respect to registered owners.

  1. Before due presentment for registration of transfer of a certificated security in registered form or of an instruction requesting registration of transfer of an uncertificated security, the issuer or indenture trustee may treat the registered owner as the person exclusively entitled to vote, receive notifications, and otherwise exercise all the rights and powers of an owner.
  2. This chapter does not affect the liability of the registered owner of a security for a call, assessment, or the like.

History. Acts 1995, No. 425, § 1.

4-8-208. Effect of signature of authenticating trustee, registrar, or transfer agent.

  1. A person signing a security certificate as authenticating trustee, registrar, transfer agent, or the like, warrants to a purchaser for value of the certificated security, if the purchaser is without notice of a particular defect, that:
    1. the certificate is genuine;
    2. the person's own participation in the issue of the security is within the person's capacity and within the scope of the authority received by the person from the issuer; and
    3. the person has reasonable grounds to believe that the certificated security is in the form and within the amount the issuer is authorized to issue.
  2. Unless otherwise agreed, a person signing under subsection (a) does not assume responsibility for the validity of the security in other respects.

History. Acts 1995, No. 425, § 1.

4-8-209. Issuer's lien.

A lien in favor of an issuer upon a certificated security is valid against a purchaser only if the right of the issuer to the lien is noted conspicuously on the security certificate.

History. Acts 1995, No. 425, § 1.

4-8-210. Overissue.

  1. In this section, “overissue” means the issue of securities in excess of the amount the issuer has corporate power to issue, but an overissue does not occur if appropriate action has cured the overissue.
  2. Except as otherwise provided in subsections (c) and (d), the provisions of this chapter which validate a security or compel its issue or reissue do not apply to the extent that validation, issue, or reissue would result in overissue.
  3. If an identical security not constituting an overissue is reasonably available for purchase, a person entitled to issue or validation may compel the issuer to purchase the security and deliver it if certificated or register its transfer if uncertificated, against surrender of any security certificate the person holds.
  4. If a security is not reasonably available for purchase, a person entitled to issue or validation may recover from the issuer the price the person or the last purchaser for value paid for it with interest from the date of the person's demand.

History. Acts 1995, No. 425, § 1.

Part 3 — Transfer of Certificated and Uncertificated Securities

Publisher's Notes. Former part 3, concerning purchase of security interests, was repealed by Acts 1995, No. 425, § 1. The former part was derived from the following sources:

4-8-301. Acts 1961, No. 185, § 8-301; reen. 1967, No. 303, § 28 (8-301); 1985, No. 514, § 3 (8-301); A.S.A. 1947, § 85-8-301.

4-8-302. Acts 1961, No. 185, § 8-302; reen. 1967, No. 303, § 28 (8-302); 1985, No. 514, § 3 (8-302); A.S.A. 1947, § 85-8-302.

4-8-303. Acts 1961, No. 185, § 8-303; reen. 1967, No. 303, § 28 (8-303); 1985, No. 514, § 3 (8-303); A.S.A. 1947, § 85-8-303.

4-8-304. Acts 1961, No. 185, § 8-304; reen. 1967, No. 303, § 28 (8-304); 1985, No. 514, § 3 (8-304); A.S.A. 1947, § 85-8-304.

4-8-305. Acts 1961, No. 185, § 8-305; reen. 1967, No. 303, § 28 (8-305); 1985, No. 514, § 3 (8-305); A.S.A. 1947, § 85-8-305.

4-8-306. Acts 1961, No. 185, § 8-306; 1967, No. 303, § 28 (8-306); 1985, No. 514, § 3 (8-306); A.S.A. 1947, § 85-8-306.

4-8-307. Acts 1961, No. 185, § 8-307; reen. 1967, No. 303, § 28 (8-307); 1985, No. 514, § 3 (8-307); A.S.A. 1947, § 85-8-307.

4-8-308. Acts 1961, No. 185, § 8-308; 1967, No. 303, § 28 (8-308); 1985, No. 514, § 3 (8-308); A.S.A. 1947, § 85-8-308.

4-8-309. Acts 1961, No. 185, § 8-309; reen. 1967, No. 303, § 28 (8-309); 1985, No. 514, § 3 (8-309); A.S.A. 1947, § 85-8-309.

4-8-310. Acts 1961, No. 185, § 8-310, as added by Acts 1967, No. 303, § 28 (8-310); 1985, No. 514, § 3 (8-310); A.S.A. 1947, § 85-8-310.

4-8-311. Acts 1961, No. 185, § 8-311; reen. 1967, No. 303, § 28 (8-311); 1985, No. 514, § 3 (8-311); A.S.A. 1947, § 85-8-311.

4-8-312. Acts 1961, No. 185, § 8-312; reen. 1967, No. 303, § 28 (8-312); 1985, No. 514, § 3 (8-312); A.S.A. 1947, § 85-8-312.

4-8-313. Acts 1961, No. 185, § 8-313; 1967, No. 303, § 28 (8-313); 1985, No. 514, § 3 (8-313); A.S.A. 1947, § 85-8-313.

4-8-314. Acts 1961, No. 185, § 8-314; reen. 1967, No. 303, § 28 (8-314); 1985, No. 514, § 3 (8-314); A.S.A. 1947, § 85-8-314.

4-8-315. Acts 1961, No. 185, § 8-315; reen. 1967, No. 303, § 28 (8-315); 1985, No. 514, § 3 (8-315); A.S.A. 1947, § 85-8-315.

4-8-316. Acts 1961, No. 185, § 8-316; reen. 1967, No. 303, § 28 (8-316); 1985, No. 514, § 3 (8-316); A.S.A. 1947, § 85-8-316.

4-8-317. Acts 1961, No. 185, § 8-317; reen. 1967, No. 303, § 28 (8-317); 1985, No. 514, § 3 (8-317); A.S.A. 1947, § 85-8-317.

4-8-318. Acts 1961, No. 185, § 8-318; reen. 1967, No. 303, § 28 (8-318); 1985, No. 514, § 3 (8-318); A.S.A. 1947, § 85-8-318.

4-8-319. Acts 1961, No. 185, § 8-319; reen. 1967, No. 303, § 28 (8-319); 1985, No. 514, § 3 (8-319); A.S.A. 1947, § 85-8-319.

4-8-320. Acts 1961, No. 185, § 8-320, as added by Acts 1967, No. 303, § 28 (8-320); 1985, No. 514, § 3 (8-320); A.S.A. 1947, § 85-8-320.

4-8-321. Acts 1961, No. 185, § 8-321, as added by Acts 1985, No. 514, § 3; A.S.A. 1947, § 85-8-321.

For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Cross References. Transfer of shares held by fiduciary or nominee of fiduciary, liability, § 28-69-204.

Transfer of stock by corporate officials upon certificate of purchase from execution sale, § 16-66-412.

Effective Dates. Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

4-8-301. Delivery.

  1. Delivery of a certificated security to a purchaser occurs when:
    1. the purchaser acquires possession of the security certificate;
    2. another person, other than a securities intermediary, either acquires possession of the security certificate on behalf of the purchaser or, having previously acquired possession of the certificate, acknowledges that it holds for the purchaser; or
    3. a securities intermediary acting on behalf of the purchaser acquires possession of the security certificate, only if the certificate is in registered form and is (i) registered in the name of the purchaser, (ii) payable to the order of the purchaser, or (iii) specially indorsed to the purchaser by an effective indorsement and has not been indorsed to the securities intermediary or in blank.
  2. Delivery of an uncertificated security to a purchaser occurs when:
    1. the issuer registers the purchaser as the registered owner, upon original issue or registration of transfer; or
    2. another person, other than a securities intermediary, either becomes the registered owner of the uncertificated security on behalf of the purchaser or, having previously become the registered owner, acknowledges that it holds for the purchaser.

History. Acts 1995, No. 425, § 1; 2001, No. 1439, § 19.

Amendments. The 2001 amendment rewrote (a)(3).

4-8-302. Rights of purchaser.

  1. Except as otherwise provided in subsections (b) and (c), a purchaser of a certificated or uncertificated security acquires all rights in the security that the transferor had or had power to transfer.
  2. A purchaser of a limited interest acquires rights only to the extent of the interest purchased.
  3. A purchaser of a certificated security who as a previous holder had notice of an adverse claim does not improve its position by taking from a protected purchaser.

History. Acts 1995, No. 425, § 1; 2001, No. 1439, § 20.

Amendments. The 2001 amendment substituted the present language in (a) for the previous language which read: “Except as otherwise provided in subsections (b) and (c), upon delivery of a certificated or uncertificated security to a purchaser, the purchaser acquires all rights in the security that the transferor had or had power to transfer.”

4-8-303. Protected purchaser.

  1. “Protected purchaser” means a purchaser of a certificated or uncertificated security, or of an interest therein, who:
    1. gives value;
    2. does not have notice of any adverse claim to the security; and
    3. obtains control of the certificated or uncertificated security.
  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.

History. Acts 1995, No. 425, § 1.

Case Notes

Evidence Held Sufficient.

Plaintiff made a prima facie case that it was a bona fide purchaser (now protected purchaser) by showing that defendant had possession of the stock certificate when it was given to plaintiff, that there was nothing on the face of the certificate to give plaintiff notice that it was invalid, that the signatures on the certificate were valid, and that defendant had copies of the audited financial statements supporting his claim that he was a shareholder. J.M. Prods., Inc. v. Ark. Capital Corp., 51 Ark. App. 85, 910 S.W.2d 702 (1995) (decision under prior law).

4-8-304. Indorsement.

  1. An indorsement may be in blank or special. An indorsement in blank includes an indorsement to bearer. A special indorsement specifies to whom a security is to be transferred or who has power to transfer it. A holder may convert a blank indorsement to a special indorsement.
  2. An indorsement purporting to be only of part of a security certificate representing units intended by the issuer to be separately transferable is effective to the extent of the indorsement.
  3. An indorsement, whether special or in blank, does not constitute a transfer until delivery of the certificate on which it appears or, if the indorsement is on a separate document, until delivery of both the document and the certificate.
  4. If a security certificate in registered form has been delivered to a purchaser without a necessary indorsement, the purchaser may become a protected purchaser only when the indorsement is supplied. However, against a transferor, a transfer is complete upon delivery and the purchaser has a specifically enforceable right to have any necessary indorsement supplied.
  5. An indorsement of a security certificate in bearer form may give notice of an adverse claim to the certificate, but it does not otherwise affect a right to registration that the holder possesses.
  6. Unless otherwise agreed, a person making an indorsement assumes only the obligations provided in § 4-8-108 and not an obligation that the security will be honored by the issuer.

History. Acts 1995, No. 425, § 1.

Case Notes

Transfer.

In an action concerning a stock transfer, plaintiff's conversion and replevin claims against a bank were properly dismissed where plaintiff, who contended that he meant for his shares to be transferred to a new revocable trust, argued that the indorsement on the stock certificate did not transfer his shares to the bank in its capacity as trustee of the existing irrevocable testamentary trust that his mother had created. Plaintiff's indorsement on the stock power was a proper indorsement; moreover, when the signed stock certificate was left in the bank's possession, the transfer as between plaintiff and the bank was complete and transferred the shares to the bank in its capacity as trustee of the irrevocable testamentary trust. Ash v. First Nat'l Bank of E. Ark., 2019 Ark. App. 147, 573 S.W.3d 584 (2019).

4-8-305. Instruction.

  1. If an instruction has been originated by an appropriate person but is incomplete in any other respect, any person may complete it as authorized and the issuer may rely on it as completed, even though it has been completed incorrectly.
  2. Unless otherwise agreed, a person initiating an instruction assumes only the obligations imposed by § 4-8-108 and not an obligation that the security will be honored by the issuer.

History. Acts 1995, No. 425, § 1.

Case Notes

Cited: J.M. Prods., Inc. v. Ark. Capital Corp., 51 Ark. App. 85, 910 S.W.2d 702 (1995) (decision under prior law).

4-8-306. Effect of guaranteeing signature, indorsement, or instruction.

  1. A person who guarantees a signature of an indorser of a security certificate warrants that at the time of signing:
    1. the signature was genuine;
    2. the signer was an appropriate person to indorse, or if the signature is by an agent, the agent had actual authority to act on behalf of the appropriate person; and
    3. the signer had legal capacity to sign.
  2. A person who guarantees a signature of the originator of an instruction warrants that at the time of signing:
    1. the signature was genuine;
    2. the signer was an appropriate person to originate the instruction, or if the signature is by an agent, the agent had actual authority to act on behalf of the appropriate person, if the person specified in the instruction as the registered owner was, in fact, the registered owner, as to which fact the signature guarantor does not make a warranty; and
    3. the signer had legal capacity to sign.
  3. A person who specially guarantees the signature of an originator of an instruction makes the warranties of a signature guarantor under subsection (b) and also warrants that at the time the instruction is presented to the issuer:
    1. the person specified in the instruction as the registered owner of the uncertificated security will be the registered owner; and
    2. the transfer of the uncertificated security requested in the instruction will be registered by the issuer free from all liens, security interests, restrictions, and claims other than those specified in the instruction.
  4. A guarantor under subsections (a) and (b) or a special guarantor under subsection (c) does not otherwise warrant the rightfulness of the transfer.
  5. A person who guarantees an indorsement of a security certificate makes the warranties of a signature guarantor under subsection (a) and also warrants the rightfulness of the transfer in all respects.
  6. A person who guarantees an instruction requesting the transfer of an uncertificated security makes the warranties of a special signature guarantor under subsection (c) and also warrants the rightfulness of the transfer in all respects.
  7. An issuer may not require a special guaranty of signature, a guaranty of indorsement, or a guaranty of instruction as a condition to registration of transfer.
  8. The warranties under this section are made to a person taking or dealing with the security in reliance on the guaranty, and the guarantor is liable to the person for loss resulting from their breach. An indorser or originator of an instruction whose signature, indorsement, or instruction has been guaranteed is liable to a guarantor for any loss suffered by the guarantor as a result of breach of the warranties of the guarantor.

History. Acts 1995, No. 425, § 1.

4-8-307. Purchaser's right to requisites for registration of transfer.

Unless otherwise agreed, the transferor of a security on due demand shall supply the purchaser with proof of authority to transfer or with any other requisite necessary to obtain registration of the transfer of the security, but if the transfer is not for value, a transferor need not comply unless the purchaser pays the necessary expenses. If the transferor fails within a reasonable time to comply with the demand, the purchaser may reject or rescind the transfer.

History. Acts 1995, No. 425, § 1.

Part 4 — Registration

Publisher's Notes. Former part 4, concerning registration of a certificated security, was repealed by Acts 1995, No. 425, § 1. The former part was derived from the following sources:

4-8-401. Acts 1961, No. 185, § 8-401; 1985, No. 514, § 3 (8-401); A.S.A. 1947, § 85-8-401.

4-8-402. Acts 1961, No. 185, § 8-402; 1985, No. 514, § 3 (8-402); A.S.A. 1947, § 85-8-402.

4-8-403. Acts 1961, No. 185, § 8-403; 1985, No. 514, § 3 (8-403); A.S.A. 1947, § 85-8-403.

4-8-404. Acts 1961, No. 185, § 8-404; 1985, No. 514, § 3 (8-404); A.S.A. 1947, § 85-8-404.

4-8-405. Acts 1961, No. 185, § 8-405; 1985, No. 514, § 3 (8-405); A.S.A. 1947, § 85-8-405.

4-8-406. Acts 1961, No. 185, § 8-406; 1985, No. 514, § 3 (8-406); A.S.A. 1947, § 85-8-406.

4-8-407. Acts 1961, No. 185, § 8-407, as added by Acts 1985, No. 514, § 3 (8-407); A.S.A. 1947, § 85-8-407.

4-8-408. Acts 1961, No. 185, § 8-408, as added by Acts 1985, No. 514, § 3 (8-408); A.S.A. 1947, § 85-8-408.

For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

4-8-401. Duty of issuer to register transfer.

  1. If a certificated security in registered form is presented to an issuer with a request to register transfer or an instruction is presented to an issuer with a request to register transfer of an uncertificated security, the issuer shall register the transfer as requested if:
    1. under the terms of the security the person seeking registration of transfer is eligible to have the security registered in its name;
    2. the indorsement or instruction is made by the appropriate person or by an agent who has actual authority to act on behalf of the appropriate person;
    3. reasonable assurance is given that the indorsement or instruction is genuine and authorized (§ 4-8-402);
    4. any applicable law relating to the collection of taxes has been complied with;
    5. the transfer does not violate any restriction on transfer imposed by the issuer in accordance with § 4-8-204;
    6. a demand that the issuer not register transfer has not become effective under § 4-8-403, or the issuer has complied with § 4-8-403(b) but no legal process or indemnity bond is obtained as provided in § 4-8-403(d); and
    7. the transfer is in fact rightful or is to a protected purchaser.
  2. If an issuer is under a duty to register a transfer of a security, the issuer is liable to a person presenting a certificated security or an instruction for registration or to the person's principal for loss resulting from unreasonable delay in registration or failure or refusal to register the transfer.

History. Acts 1995, No. 425, § 1.

4-8-402. Assurance that indorsement or instruction is effective.

  1. An issuer may require the following assurance that each necessary indorsement or each instruction is genuine and authorized:
    1. in all cases, a guaranty of the signature of the person making an indorsement or originating an instruction including, in the case of an instruction, reasonable assurance of identity;
    2. if the indorsement is made or the instruction is originated by an agent, appropriate assurance of actual authority to sign;
    3. if the indorsement is made or the instruction is originated by a fiduciary pursuant to § 4-8-107(a)(4) or (5), appropriate evidence of appointment or incumbency;
    4. if there is more than one (1) fiduciary, reasonable assurance that all who are required to sign have done so; and
    5. if the indorsement is made or the instruction is originated by a person not covered by another provision of this subsection, assurance appropriate to the case corresponding as nearly as may be to the provisions of this subsection.
  2. An issuer may elect to require reasonable assurance beyond that specified in this section.
  3. In this section:
    1. “Guaranty of the signature” means a guaranty signed by or on behalf of a person reasonably believed by the issuer to be responsible. An issuer may adopt standards with respect to responsibility if they are not manifestly unreasonable.
    2. “Appropriate evidence of appointment or incumbency” means:
      1. in the case of a fiduciary appointed or qualified by a court, a certificate issued by or under the direction or supervision of the court or an officer thereof and dated within sixty (60) days before the date of presentation for transfer; or
      2. in any other case, a copy of a document showing the appointment or a certificate issued by or on behalf of a person reasonably believed by an issuer to be responsible or, in the absence of that document or certificate, other evidence the issuer reasonably considers appropriate.

History. Acts 1995, No. 425, § 1.

4-8-403. Demand that issuer not register transfer.

  1. A person who is an appropriate person to make an indorsement or originate an instruction may demand that the issuer not register transfer of a security by communicating to the issuer a notification that identifies the registered owner and the issue of which the security is a part and provides an address for communications directed to the person making the demand. The demand is effective only if it is received by the issuer at a time and in a manner affording the issuer reasonable opportunity to act on it.
  2. If a certificated security in registered form is presented to an issuer with a request to register transfer or an instruction is presented to an issuer with a request to register transfer of an uncertificated security after a demand that the issuer not register transfer has become effective, the issuer shall promptly communicate to (i) the person who initiated the demand at the address provided in the demand and (ii) the person who presented the security for registration of transfer or initiated the instruction requesting registration of transfer a notification stating that:
    1. the certificated security has been presented for registration of transfer or the instruction for registration of transfer of the uncertificated security has been received;
    2. a demand that the issuer not register transfer had previously been received; and
    3. the issuer will withhold registration of transfer for a period of time stated in the notification in order to provide the person who initiated the demand an opportunity to obtain legal process or an indemnity bond.
  3. The period described in subsection (b)(3) may not exceed thirty (30) days after the date of communication of the notification. A shorter period may be specified by the issuer if it is not manifestly unreasonable.
  4. An issuer is not liable to a person who initiated a demand that the issuer not register transfer for any loss the person suffers as a result of registration of a transfer pursuant to an effective indorsement or instruction if the person who initiated the demand does not, within the time stated in the issuer's communication, either:
    1. obtain an appropriate restraining order, injunction, or other process from a court of competent jurisdiction enjoining the issuer from registering the transfer; or
    2. file with the issuer an indemnity bond, sufficient in the issuer's judgment to protect the issuer and any transfer agent, registrar, or other agent of the issuer involved from any loss it or they may suffer by refusing to register the transfer.
  5. This section does not relieve an issuer from liability for registering transfer pursuant to an indorsement or instruction that was not effective.

History. Acts 1995, No. 425, § 1.

4-8-404. Wrongful registration.

  1. Except as otherwise provided in § 4-8-406, an issuer is liable for wrongful registration of transfer if the issuer has registered a transfer of a security to a person not entitled to it, and the transfer was registered:
    1. pursuant to an ineffective indorsement or instruction;
    2. after a demand that the issuer not register transfer became effective under § 4-8-403(a) and the issuer did not comply with § 4-8-403(b);
    3. after the issuer had been served with an injunction, restraining order, or other legal process enjoining it from registering the transfer, issued by a court of competent jurisdiction, and the issuer had a reasonable opportunity to act on the injunction, restraining order, or other legal process; or
    4. by an issuer acting in collusion with the wrongdoer.
  2. An issuer that is liable for wrongful registration of transfer under subsection (a) on demand shall provide the person entitled to the security with a like certificated or uncertificated security, and any payments or distributions that the person did not receive as a result of the wrongful registration. If an overissue would result, the issuer's liability to provide the person with a like security is governed by § 4-8-210.
  3. Except as otherwise provided in subsection (a) or in a law relating to the collection of taxes, an issuer is not liable to an owner or other person suffering loss as a result of the registration of a transfer of a security if registration was made pursuant to an effective indorsement or instruction.

History. Acts 1995, No. 425, § 1.

4-8-405. Replacement of lost, destroyed, or wrongfully taken security certificate.

  1. If an owner of a certificated security, whether in registered or bearer form, claims that the certificate has been lost, destroyed, or wrongfully taken, the issuer shall issue a new certificate if the owner:
    1. so requests before the issuer has notice that the certificate has been acquired by a protected purchaser;
    2. files with the issuer a sufficient indemnity bond; and
    3. satisfies other reasonable requirements imposed by the issuer.
  2. If, after the issue of a new security certificate, a protected purchaser of the original certificate presents it for registration of transfer, the issuer shall register the transfer unless an overissue would result. In that case, the issuer's liability is governed by § 4-8-210. In addition to any rights on the indemnity bond, an issuer may recover the new certificate from a person to whom it was issued or any person taking under that person, except a protected purchaser.

History. Acts 1995, No. 425, § 1.

4-8-406. Obligation to notify issuer of lost, destroyed, or wrongfully taken security certificate.

If a security certificate has been lost, apparently destroyed, or wrongfully taken, and the owner fails to notify the issuer of that fact within a reasonable time after the owner has notice of it and the issuer registers a transfer of the security before receiving notification, the owner may not assert against the issuer a claim for registering the transfer under § 4-8-404 or a claim to a new security certificate under § 4-8-405.

History. Acts 1995, No. 425, § 1.

4-8-407. Authenticating trustee, transfer agent, and registrar.

A person acting as authenticating trustee, transfer agent, registrar, or other agent for an issuer in the registration of a transfer of its securities, in the issue of new security certificates or uncertificated securities, or in the cancellation of surrendered security certificates has the same obligation to the holder or owner of a certificated or uncertificated security with regard to the particular functions performed as the issuer has in regard to those functions.

History. Acts 1995, No. 425, § 1.

Part 5 — Security Entitlements

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

Research References

U. Ark. Little Rock L.J.

Martin, An Arkansas Practitioner's Guide to Perfecting Security Interests in Securities, Brokerage Accounts, and Other Forms of Investment Property under Revised Article 8 and Amended Article 9, 19 U. Ark. Little Rock L.J. 1.

4-8-501. Securities account — Acquisition of security entitlement from securities intermediary.

  1. “Securities account” means an account to which a financial asset is or may be credited in accordance with an agreement under which the person maintaining the account undertakes to treat the person for whom the account is maintained as entitled to exercise the rights that comprise the financial asset.
  2. Except as otherwise provided in subsections (d) and (e), a person acquires a security entitlement if a securities intermediary:
    1. indicates by book entry that a financial asset has been credited to the person's securities account;
    2. receives a financial asset from the person or acquires a financial asset for the person and, in either case, accepts it for credit to the person's securities account; or
    3. becomes obligated under other law, regulation, or rule to credit a financial asset to the person's securities account.
  3. If a condition of subsection (b) has been met, a person has a security entitlement even though the securities intermediary does not itself hold the financial asset.
  4. If a securities intermediary holds a financial asset for another person, and the financial asset is registered in the name of, payable to the order of, or specially indorsed to the other person, and has not been indorsed to the securities intermediary or in blank, the other person is treated as holding the financial asset directly rather than as having a security entitlement with respect to the financial asset.
  5. Issuance of a security is not establishment of a security entitlement.

History. Acts 1995, No. 425, § 1.

4-8-502. Assertion of adverse claim against entitlement holder.

An action based on an adverse claim to a financial asset, whether framed in conversion, replevin, constructive trust, equitable lien, or other theory, may not be asserted against a person who acquires a security entitlement under § 4-8-501 for value and without notice of the adverse claim.

History. Acts 1995, No. 425, § 1.

4-8-503. Property interest of entitlement holder in financial asset held by securities intermediary.

  1. To the extent necessary for a securities intermediary to satisfy all security entitlements with respect to a particular financial asset, all interests in that financial asset held by the securities intermediary are held by the securities intermediary for the entitlement holders, are not property of the securities intermediary, and are not subject to claims of creditors of the securities intermediary, except as otherwise provided in § 4-8-511.
  2. An entitlement holder's property interest with respect to a particular financial asset under subsection (a) is a pro rata property interest in all interests in that financial asset held by the securities intermediary, without regard to the time the entitlement holder acquired the security entitlement or the time the securities intermediary acquired the interest in that financial asset.
  3. An entitlement holder's property interest with respect to a particular financial asset under subsection (a) may be enforced against the securities intermediary only by exercise of the entitlement holder's rights under §§ 4-8-505 — 4-8-508.
  4. An entitlement holder's property interest with respect to a particular financial asset under subsection (a) may be enforced against a purchaser of the financial asset or interest therein only if:
    1. insolvency proceedings have been initiated by or against the securities intermediary;
    2. the securities intermediary does not have sufficient interests in the financial asset to satisfy the security entitlements of all of its entitlement holders to that financial asset;
    3. the securities intermediary violated its obligations under § 4-8-504 by transferring the financial asset or interest therein to the purchaser; and
    4. the purchaser is not protected under subsection (e).
  5. An action based on the entitlement holder's property interest with respect to a particular financial asset under subsection (a), whether framed in conversion, replevin, constructive trust, equitable lien, or other theory, may not be asserted against any purchaser of a financial asset or interest therein who gives value, obtains control, and does not act in collusion with the securities intermediary in violating the securities intermediary's obligations under § 4-8-504.

The trustee or other liquidator, acting on behalf of all entitlement holders having security entitlements with respect to a particular financial asset, may recover the financial asset, or interest therein, from the purchaser. If the trustee or other liquidator elects not to pursue that right, an entitlement holder whose security entitlement remains unsatisfied has the right to recover its interest in the financial asset from the purchaser.

History. Acts 1995, No. 425, § 1.

4-8-504. Duty of securities intermediary to maintain financial asset.

  1. A securities intermediary shall promptly obtain and thereafter maintain a financial asset in a quantity corresponding to the aggregate of all security entitlements it has established in favor of its entitlement holders with respect to that financial asset. The securities intermediary may maintain those financial assets directly or through one (1) or more other securities intermediaries.
  2. Except to the extent otherwise agreed by its entitlement holder, a securities intermediary may not grant any security interests in a financial asset it is obligated to maintain pursuant to subsection (a).
  3. A securities intermediary satisfies the duty in subsection (a) if:
    1. the securities intermediary acts with respect to the duty as agreed upon by the entitlement holder and the securities intermediary; or
    2. in the absence of agreement, the securities intermediary exercises due care in accordance with reasonable commercial standards to obtain and maintain the financial asset.
  4. This section does not apply to a clearing corporation that is itself the obligor of an option or similar obligation to which its entitlement holders have security entitlements.

History. Acts 1995, No. 425, § 1.

4-8-505. Duty of securities intermediary with respect to payments and distributions.

  1. A securities intermediary shall take action to obtain a payment or distribution made by the issuer of a financial asset. A securities intermediary satisfies the duty if:
    1. the securities intermediary acts with respect to the duty as agreed upon by the entitlement holder and the securities intermediary; or
    2. in the absence of agreement, the securities intermediary exercises due care in accordance with reasonable commercial standards to attempt to obtain the payment or distribution.
  2. A securities intermediary is obligated to its entitlement holder for a payment or distribution made by the issuer of a financial asset if the payment or distribution is received by the securities intermediary.

History. Acts 1995, No. 425, § 1.

4-8-506. Duty of securities intermediary to exercise rights as directed by entitlement holder.

A securities intermediary shall exercise rights with respect to a financial asset if directed to do so by an entitlement holder. A securities intermediary satisfies the duty if:

  1. the securities intermediary acts with respect to the duty as agreed upon by the entitlement holder and the securities intermediary; or
  2. in the absence of agreement, the securities intermediary either places the entitlement holder in a position to exercise the rights directly or exercises due care in accordance with reasonable commercial standards to follow the direction of the entitlement holder.

History. Acts 1995, No. 425, § 1.

4-8-507. Duty of securities intermediary to comply with entitlement order.

  1. A securities intermediary shall comply with an entitlement order if the entitlement order is originated by the appropriate person, the securities intermediary has had reasonable opportunity to assure itself that the entitlement order is genuine and authorized, and the securities intermediary has had reasonable opportunity to comply with the entitlement order. A securities intermediary satisfies the duty if:
    1. the securities intermediary acts with respect to the duty as agreed upon by the entitlement holder and the securities intermediary; or
    2. in the absence of agreement, the securities intermediary exercises due care in accordance with reasonable commercial standards to comply with the entitlement order.
  2. If a securities intermediary transfers a financial asset pursuant to an ineffective entitlement order, the securities intermediary shall reestablish a security entitlement in favor of the person entitled to it, and pay or credit any payments or distributions that the person did not receive as a result of the wrongful transfer. If the securities intermediary does not reestablish a security entitlement, the securities intermediary is liable to the entitlement holder for damages.

History. Acts 1995, No. 425, § 1.

4-8-508. Duty of securities intermediary to change entitlement holder's position to other form of security holding.

A securities intermediary shall act at the direction of an entitlement holder to change a security entitlement into another available form of holding for which the entitlement holder is eligible, or to cause the financial asset to be transferred to a securities account of the entitlement holder with another securities intermediary. A securities intermediary satisfies the duty if:

  1. the securities intermediary acts as agreed upon by the entitlement holder and the securities intermediary; or
  2. in the absence of agreement, the securities intermediary exercises due care in accordance with reasonable commercial standards to follow the direction of the entitlement holder.

History. Acts 1995, No. 425, § 1.

4-8-509. Specification of duties of securities intermediary by other statute or regulation — Manner of performance of duties of securities intermediary and exercise of rights of entitlement holder.

  1. If the substance of a duty imposed upon a securities intermediary by §§ 4-8-504 — 4-8-508 is the subject of other statute, regulation, or rule, compliance with that statute, regulation, or rule satisfies the duty.
  2. To the extent that specific standards for the performance of the duties of a securities intermediary or the exercise of the rights of an entitlement holder are not specified by other statute, regulation, or rule or by agreement between the securities intermediary and entitlement holder, the securities intermediary shall perform its duties and the entitlement holder shall exercise its rights in a commercially reasonable manner.
  3. The obligation of a securities intermediary to perform the duties imposed by §§ 4-8-504 — 4-8-508 is subject to:
    1. rights of the securities intermediary arising out of a security interest under a security agreement with the entitlement holder or otherwise; and
    2. rights of the securities intermediary under other law, regulation, rule, or agreement to withhold performance of its duties as a result of unfulfilled obligations of the entitlement holder to the securities intermediary.
  4. Sections 4-8-504 — 4-8-508 do not require a securities intermediary to take any action that is prohibited by other statute, regulation, or rule.

History. Acts 1995, No. 425, § 1.

4-8-510. Rights of purchaser of security entitlement from entitlement holder.

  1. In a case not covered by the priority rules in Chapter 9 or the rules stated in subsection (c), an action based on an adverse claim to a financial asset or security entitlement, whether framed in conversion, replevin, constructive trust, equitable lien, or other theory, may not be asserted against a person who purchases a security entitlement, or an interest therein, from an entitlement holder if the purchaser gives value, does not have notice of the adverse claim, and obtains control.
  2. If an adverse claim could not have been asserted against an entitlement holder under § 4-8-502, the adverse claim cannot be asserted against a person who purchases a security entitlement, or an interest therein, from the entitlement holder.
  3. In a case not covered by the priority rules in Chapter 9, a purchaser for value of a security entitlement, or an interest therein, who obtains control has priority over a purchaser of a security entitlement, or an interest therein, who does not obtain control. Except as otherwise provided in subsection (d), purchasers who have control rank according to priority in time of:
    1. the purchaser's becoming the person for whom the securities account, in which the security entitlement is carried, is maintained, if the purchaser obtained control under § 4-8-106(d)(1);
    2. the securities intermediary's agreement to comply with the purchaser's entitlement orders with respect to security entitlements carried or to be carried in the securities account in which the security entitlement is carried, if the purchaser obtained control under § 4-8-106(d)(2); or
    3. if the purchaser obtained control through another person under § 4-8-106(d)(3), the time on which priority would be based under this subsection if the other person were the secured party.
  4. A securities intermediary as purchaser has priority over a conflicting purchaser who has control unless otherwise agreed by the securities intermediary.

History. Acts 1995, No. 425, § 1; 2001, No. 1439, § 21.

Amendments. The 2001 amendment rewrote (a) and (c).

4-8-511. Priority among security interests and entitlement holders.

  1. Except as otherwise provided in subsections (b) and (c), if a securities intermediary does not have sufficient interests in a particular financial asset to satisfy both its obligations to entitlement holders who have security entitlements to that financial asset and its obligation to a creditor of the securities intermediary who has a security interest in that financial asset, the claims of entitlement holders, other than the creditor, have priority over the claim of the creditor.
  2. A claim of a creditor of a securities intermediary who has a security interest in a financial asset held by a securities intermediary has priority over claims of the securities intermediary's entitlement holders who have security entitlements with respect to that financial asset if the creditor has control over the financial asset.
  3. If a clearing corporation does not have sufficient financial assets to satisfy both its obligations to entitlement holders who have security entitlements with respect to a financial asset and its obligation to a creditor of the clearing corporation who has a security interest in that financial asset, the claim of the creditor has priority over the claims of entitlement holders.

History. Acts 1995, No. 425, § 1.

Part 6 — Applicability

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

4-8-601, 4-8-602. [Reserved.]

  1. This chapter does not affect an action or proceeding commenced before this chapter takes effect.
  2. If a security interest in a security is perfected on or before the date this chapter takes effect, and the action by which the security interest was perfected would suffice to perfect a security interest under this chapter, no further action is required to continue perfection. If a security interest in a security is perfected on or before the date this chapter takes effect but the action by which the security interest was perfected would not suffice to perfect a security interest under this chapter, the security interest remains perfected for a period of four (4) months after the effective date and continues perfected thereafter if appropriate action to perfect under this chapter is taken within that period. If a security interest is perfected at the date this chapter takes effect and the security interest can be perfected by filing under this chapter, a financing statement signed by the secured party instead of the debtor may be filed within that period to continue perfection or thereafter to perfect.

History. Acts 1995, No. 425, § 22.

A.C.R.C. Notes. Acts 1995, No. 425 became effective on the general effective date, July 28, 1995.

4-8-603. Savings clause.

Chapter 9 Secured Transactions

Publisher's Notes. Former Chapter 9 was repealed by Acts 2001, No. 1439, § 1. The former chapter was derived from the following sources:

4-9-101. Acts 1961, No. 185, § 9-101; reen. 1973, No. 116, § 1 (9-101); A.S.A. 1947, § 85-9-101.

4-9-102. Acts 1961, No. 185, § 9-102; 1973, No. 116, § 1 (9-102); A.S.A. 1947, § 85-9-102; Acts 1999, No. 1556, § 2.

4-9-103. Acts 1961, No. 185, § 9-103; 1967, No. 303, § 29; 1973, No. 116, § 1 (9-103); 1985, No. 514, §§ 4, 5; A.S.A. 1947, § 85-9-103; Acts 1995, No. 425, § 6; 1997, No. 1070, § 4; 1999, No. 1556, § 3.

4-9-104. Acts 1961, No. 185, § 9-104; 1973, No. 116, § 1 (9-104); A.S.A. 1947, § 85-9-104; Acts 1997, No. 1070, § 5.

4-9-105. Acts 1961, No. 185, § 9-105; 1973, No. 116, § 1 (9-105); 1985, No. 514, § 6; A.S.A. 1947, § 85-9-105; Acts 1995, No. 425, §§ 7, 8; 1997, No. 1070, § 6; 1997, No. 1253, § 1; 1999, No. 1556, § 4.

4-9-106. Acts 1961, No. 185, § 9-106; 1973, No. 116, § 1 (9-106); A.S.A. 1947, § 85-9-106; Acts 1995, No. 425, § 9; 1997, No. 1070, § 7.

4-9-107. Acts 1961, No. 185, § 9-107; reen. 1973, No. 116, § 1 (9-107); A.S.A. 1947, § 85-9-107.

4-9-108. Acts 1961, No. 185, § 9-108; reen. 1973, No. 116, § 1 (9-108); A.S.A. 1947, § 85-9-108.

4-9-109. Acts 1961, No. 185, § 9-109; 1971, No. 363, § 1; 1973, No. 116, § 1 (9-109); A.S.A. 1947, § 85-9-109.

4-9-110. Acts 1961, No. 185, § 9-110; reen. 1973, No. 116, § 1 (9-110); A.S.A. 1947, § 85-9-110.

4-9-111. Acts 1961, No. 185, § 9-111; reen. 1973, No. 116, § 1 (9-111); A.S.A. 1947, § 85-9-111.

4-9-112. Acts 1961, No. 185, § 9-112; reen. 1973, No. 116, § 1 (9-112); A.S.A. 1947, § 85-9-112.

4-9-113. Acts 1961, No. 185, § 9-113; reen. 1973, No. 116, § 1 (9-113); A.S.A. 1947, § 85-9-113; Acts 1993, No. 439, § 4.

4-9-114. Acts 1961, No. 185, § 9-114, as added by Acts 1973, No. 116, § 1 (9-114); A.S.A. 1947, § 85-9-114; Acts 1997, No. 395, § 2.

4-9-115. Acts 1995, No. 425, § 10.

4-9-116. Acts 1995, No. 425, § 10.

4-9-201. Acts 1961, No. 185, § 9-201; reen. 1973, No. 116, § 1 (9-201); A.S.A. 1947, § 85-9-201.

4-9-202. Acts 1961, No. 185, § 9-202; reen. 1973, No. 116, § 1 (9-202); A.S.A. 1947, § 85-9-202.

4-9-203. Acts 1961, No. 185, § 9-203; 1973, No. 116, § 1 (9-203); 1985, No. 514, § 7; A.S.A. 1947, § 85-9-203; Acts 1995, No. 425, § 11.

4-9-204. Acts 1961, No. 185, § 9-204; 1973, No. 116, § 1 (9-204); 1983, No. 561, § 1; A.S.A. 1947, § 85-9-204.

4-9-205. Acts 1961, No. 185, § 9-205; 1973, No. 116, § 1 (9-205); A.S.A. 1947, § 85-9-205.

4-9-206. Acts 1961, No. 185, § 9-206; 1967, No. 303, § 30; reen. 1973, No. 116, § 1 (9-206); A.S.A. 1947, § 85-9-206.

4-9-207. Acts 1961, No. 185, § 9-207; 1973, No. 116, § 1; A.S.A. 1947, § 85-9-207.

4-9-208. Acts 1961, No. 185, § 9-208; reen. 1973, No. 116, § 1 (9-208); A.S.A. 1947, § 85-9-208.

4-9-301. Acts 1961, No. 185, § 9-301; 1973, No. 116, § 1 (9-301); 1983, No. 561, § 2; A.S.A. 1947, § 85-9-301; Acts 1995, No. 425, § 12.

4-9-302. Acts 1961, No. 185, § 9-302; 1973, No. 116, § 1 (9-302); 1983, No. 561, § 3; 1985, No. 514, § 8; A.S.A. 1947, § 85-9-302; Acts 1993, No. 877, § 1; 1995, No. 425, § 13.

4-9-303. Acts 1961, No. 185, § 9-303; reen. 1973, No. 116, § 1 (9-303); A.S.A. 1947, § 85-9-303.

4-9-304. Acts 1961, No. 185, § 9-304; 1973, No. 116, § 1 (9-304); 1985, No. 514, § 9; A.S.A. 1947, § 85-9-304; Acts 1995, No. 425, §§ 14, 15; 1997, No. 1070, § 8.

4-9-305. Acts 1961, No. 185, § 9-305; 1973, No. 116, § 1 (9-305); 1985, No. 514, § 10; A.S.A. 1947, § 85-9-305; Acts 1995, No. 425, § 16.

4-9-306. Acts 1961, No. 185, § 9-306; 1973, No. 116, § 1 (9-306); 1975, No. 215, § 1; 1983, No. 561, § 4; A.S.A. 1947, § 85-9-306; Acts 1995, No. 425, §§ 17, 18.

4-9-307. Acts 1961, No. 185, § 9-307; 1973, No. 116, § 1 (9-307); 1986 (2nd Ex. Sess.), No. 16, § 1; A.S.A. 1947, § 85-9-307; Acts 1987, No. 108, § 6; 1989, No. 655, § 1.

4-9-308. Acts 1961, No. 185, § 9-308; 1973, No. 116, § 1 (9-308); A.S.A. 1947, § 85-9-308.

4-9-309. Acts 1961, No. 185, § 9-309; reen. 1973, No. 116, § 1 (9-309); 1985, No. 514, § 11; A.S.A. 1947, § 85-9-309; Acts 1995, No. 425, § 19.

4-9-310. Acts 1961, No. 185, § 9-310; reen. 1973, No. 116, § 1 (9-310); A.S.A. 1947, § 85-9-310.

4-9-311. Acts 1961, No. 185, § 9-311; reen. 1973, No. 116, § 1 (9-311); A.S.A. 1947, § 85-9-311.

4-9-312. Acts 1961, No. 185, § 9-312; 1973, No. 116, § 1 (9-312); 1983, No. 561, § 5; 1985, No. 514, § 12; A.S.A. 1947, § 85-9-312; Acts 1987, No. 560, § 1; 1989, No. 654, §§ 1, 3; 1995, No. 425, §§ 20, 21.

4-9-313. Acts 1961, No. 185, § 9-313; 1973, No. 116, § 1 (9-313); A.S.A. 1947, § 85-9-313.

4-9-314. Acts 1961, No. 185, § 9-314; 1967, No. 303, § 31; reen. 1973, No. 116, § 1 (9-314); A.S.A. 1947, § 85-9-314.

4-9-315. Acts 1961, No. 185, § 9-315; reen. 1973, No. 116, § 1 (9-315); A.S.A. 1947, § 85-9-315.

4-9-316. Acts 1961, No. 185, § 9-316; reen. 1973, No. 116, § 1 (9-316); A.S.A. 1947, § 85-9-316.

4-9-317. Acts 1961, No. 185, § 9-317; reen. 1973, No. 116, § 1 (9-318); A.S.A. 1947, § 85-9-317.

4-9-318. Acts 1961, No. 185, § 9-318; 1973, No. 116, § 1 (9-318); A.S.A. 1947, § 85-9-318.

4-9-401. Acts 1961, No. 185, § 9-401; 1973, No. 116, § 1 (9-401); A.S.A. 1947, § 85-9-401.

4-9-402. Acts 1961, No. 185, § 9-402; 1973, No. 116, § 1 (9-402); A.S.A. 1947, § 85-9-402; Acts 1993, No. 451, § 1.

4-9-403. Acts 1961, No. 185, § 9-403; 1967, No. 303, § 32; 1973, No. 116, § 1 (9-403); 1979, No. 998, § 1; A.S.A. 1947, §§ 85-9-401.1, 85-9-403; Acts 1989, No. 534, § 3; 1997, No. 395, § 3; 1997, No. 420, § 1; 1999, No. 1480, § 2; 1999, No. 1556, § 5.

4-9-404. Acts 1961, No. 185, § 9-404; 1967, No. 303, § 33; 1973, No. 116, § 1 (9-404); 1979, No. 998, § 1; A.S.A. 1947, §§ 85-9-401.1, 85-9-404; Acts 1989, No. 534, § 4; 1995, No. 104, § 1; 1997, No. 420, § 2; 1997, No. 1267, § 1; 1999, No. 1480, § 1.

4-9-405. Acts 1961, No. 185, § 9-405; 1973, No. 116, § 1 (9-405); 1979, No. 998, § 1; A.S.A. 1947, §§ 85-9-401.1, 85-9-405; Acts 1989, No. 534, § 5; 1997, No. 420, § 3; 1999, No. 1480, § 3.

4-9-406. Acts 1961, No. 185, § 9-406; 1973, No. 116, § 1 (9-406); 1979, No. 998, § 1; A.S.A. 1947, §§ 85-9-401.1, 85-9-406; Acts 1989, No. 534, § 6; 1995, No. 781, § 1; 1997, No. 420, § 4; 1999, No. 1480, § 4.

4-9-407. Acts 1961, No. 185, § 9-407; 1973, No. 116, § 1 (9-407); 1979, No. 998, § 1; 1986 (2nd Ex. Sess.), No. 16, § 2; A.S.A. 1947, §§ 85-9-401.1, 85-9-407; Acts 1987, No. 108, §§ 7, 11; 1989, No. 534, § 7; 1989, No. 655, § 2; 1997, No. 420, § 5; 1999, No. 1480, § 5.

4-9-408. Acts 1961, No. 185, § 9-408, as added by Acts 1973, No. 116, § 1 (9-408); A.S.A. 1947, § 85-9-408.

4-9-409. Acts 1961, No. 185, § 9-408; 1973, No. 116, § 1 (9-409); A.S.A. 1947, § 85-9-409.

4-9-501. Acts 1961, No. 185, § 9-501; 1973, No. 116, § 1 (9-501); A.S.A. 1947, § 85-9-501.

4-9-502. Acts 1961, No. 185, § 9-502; 1967, No. 303, § 35; 1973, No. 116, § 1 (9-502); A.S.A. 1947, § 85-9-502.

4-9-503. Acts 1961, No. 185, § 9-503; 1973, No. 116, § 1 (9-503); A.S.A. 1947, § 85-9-503.

4-9-504. Acts 1961, No. 185, § 9-504; 1973, No. 116, § 1 (9-504); A.S.A. 1947, § 85-9-504.

4-9-505. Acts 1961, No. 185, § 9-505; 1973, No. 116, § 1 (9-505); A.S.A. 1947, § 85-9-505.

4-9-506. Acts 1961, No. 185, § 9-506; 1973, No. 116, § 1 (9-506); A.S.A. 1947, § 85-9-506.

4-9-507. Acts 1961, No. 185, § 9-507; 1973, No. 116, § 1 (9-507); A.S.A. 1947, § 85-9-507.

Effective Dates. Acts 2001, No. 1439, § 23: July 1, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is obsolescent and is in need of significant expansion to cover new categories of collateral, to promote electronic filing, to reduce duplicate filing, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. For example, the proper place to perfect a security interest depends on the law of the state where the issue is litigated. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2001 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2001.”

Research References

ALR.

Effect of UCC Article 9 upon conflict, as to funds in debtor's bank account, between secured creditor and bank claiming right of setoff. 3 A.L.R.4th 998.

What constitutes public or private sale under UCC § 9-504(3). 60 A.L.R.4th 1012.

Applicability of Article 9 of Uniform Commercial Code to assignment of rights under real-estate sales contract, lease agreement, or mortgage as collateral for separate transaction. 76 A.L.R.4th 765.

Government agricultural program payments as proceeds of agricultural products under UCC § 9-306. 79 A.L.R.4th 903.

Construction and effect of future advances clauses under UCC Article 9. 90 A.L.R.4th 859.

Equitable estoppel of secured party's right to assert prior perfected security interest against another creditor or subsequent purchaser under Article 9 of UCC. 9 A.L.R.5th 708.

Right of secured party to take possession of collateral on default under UCC § 9-503. 25 A.L.R.5th 696.

Preferences and priorities, liability of secured creditor under the Uniform Commerical Code to third party on ground of unjust enrichment. 27 A.L.R.5th 719.

Am. Jur. 68A Am. Jur. 2d, Secured Trans., § 1 et seq.

Ark. L. Notes.

Flaccus, Update: Repossession and Sale Under Arkansas's Article Nine, 1984 Ark. L. Notes 1, 1987 Ark. L. Notes 90, 1994 Ark. L. Notes 73.

Pedersen, Crop Financing: A Guide to Arkansas Law, 1988 Ark. L. Notes 31.

Copeland, A Statutory Primer: Article 2 of the U.C.C., — When Do Its Rules Apply?, 1990 Ark. L. Notes 39.

Copeland, Recent Arkansas Cases Involving Article Nine of the U.C.C., 1995 Ark. L. Notes 31.

Laurence, Some Practical Advice on How to Create a Security Interest in a Deposit Account, 1997 Ark. L. Notes 39.

Laurence, An Annotated Conversion Table from the New Article 9 Back to the Old One, 2001 Ark. L. Notes 33.

Laurence, Update: Some Practical Advice on How to Create a Security Interest in a Deposit Account, 2002 Arkansas L. Notes 45.

Schneider, Notes on Agricultural Landlord's Liens Under Revised Article 9 of the Uniform Commercial Code, 2002 Arkansas L. Notes 53.

Laurence, Some Practical Advice About Taking Security Interests in Gemstones, Accompanied by a Theoretical Discussion of the Negotiability of Goods, New and Used, 2004 Arkansas L. Notes 75.

Ark. L. Rev.

Secured Transactions: Article IX: Part 1, 16 Ark. L. Rev. 108.

The Old and the New: Article IX, 16 Ark. L. Rev. 145.

Appendix I. Schematic Diagram of Article Nine, 16 Ark. L. Rev. 160.

Appendix II. Security Agreement Forms Under the UCC, 16 Ark. L. Rev. 163.

Appendix III, Digest of Secured Transactions: Article 9, Uniform Commercial Code, 16 Ark. L. Rev. 182.

Secured Transactions Under the Uniform Commercial Code, 18 Ark. L. Rev. 30.

Unconscionable Contracts and the Uniform Commercial Code, 20 Ark. L. Rev. 165.

Uniform Commercial Code — Disposition of Collateral, 20 Ark. L. Rev. 385.

Uniform Commercial Code — The Debtor Non-Debtor Problem, 20 Ark. L. Rev. 389.

Commercial Transactions — Secured Transactions Under the Uniform Commercial Code — Section 9-108, 22 Ark. L. Rev. 501.

Creditors' Provisional Remedies and Debtors' Due Process Rights: Attachment and Garnishment in Arkansas, 31 Ark. L. Rev. 607.

Creditors' Provisional Remedies and Debtors' Due Process Rights: Statutory Liens in Arkansas, 32 Ark. L. Rev. 185.

Nickles, A Localized Treatise on Secured Transactions — Part 1: Scope of Article 9, 34 Ark. L. Rev. 377.

Nickles, A Localized Treatise On Secured Transactions — Part II: Creating Security Interests, 34 Ark. L. Rev. 559.

Note, A Secured Party's Right to Recover Attorney's Fees and Expenses: Svestka v. First National Bank in Stuttgart, 35 Ark. L. Rev. 579.

Leflar, Conflict of Laws: Arkansas, 1978-82, 36 Ark. L. Rev. 191.

Note, Simmons First National Bank v. Wells: An Interpretation of the Uniform Commercial Code's Consignment Rule, 37 Ark. L. Rev. 312.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

Comment, Financing Statements, Descriptions, Collateral and Confusion: Arkansas Courts Tackle the New Article 9, 57 Ark. L. Rev. 951.

C.J.S. 79 C.J.S., Secured Trans., § 1 et seq.

U. Ark. Little Rock L.J.

Paulson, Survey of Arkansas Law: Business Law, 2 U. Ark. Little Rock L.J. 161.

Survey of Arkansas Law: Bankruptcy, 6 U. Ark. Little Rock L.J. 63.

Survey — Debtor-Creditor, 10 U. Ark. Little Rock L.J. 173.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

Martin, An Arkansas Practitioner's Guide to Perfecting Security Interests in Securities, Brokerage Accounts, and Other Forms of Investment Property under Revised Article 8 and Amended Article 9, 19 U. Ark. Little Rock L.J. 1.

Case Notes

Applicability.

Because former § 4-9-104(e) excepts from the operations of this chapter a transfer by a government or governmental subdivision or agency, this chapter is inapplicable to improvement districts. Quapaw Cent. Bus. Imp. Dist. v. Bond-Kinman, Inc., 315 Ark. 703, 870 S.W.2d 390 (1994) (decision under prior law).

Good Faith.

Former § 4-1-203 permits the lack of good faith of party who first perfected security interest toward the second lienholder to alter priorities which otherwise would be determined under this chapter. Thompson v. United States, 408 F.2d 1075 (8th Cir. 1969) (decision under prior law).

Cited: United States v. Thompson, 272 F. Supp. 774 (E.D. Ark. 1967); Toronto-Dominion Bank v. Hall, 367 F. Supp. 1009 (E.D. Ark. 1973); McIlroy Bank & Trust v. Federal Land Bank, 266 Ark. 481, 585 S.W.2d 947 (1979); United States v. Riceland Foods, Inc., 504 F. Supp. 1258 (E.D. Ark. 1981); Mayhew v. Loveless, 1 Ark. App. 69, 613 S.W.2d 118 (1981); Brown & Root, Inc. v. Hempstead County Sand & Gravel, Inc., 588 F. Supp. 1266 (E.D. Ark. 1984) (decisions under prior law).

Part 1 — General Provisions

A.C.R.C. Notes. Acts 2001, No. 1439, § 22, provided:

“(a) In this section: (1) “Local filing office” means a filing office other than the Secretary of State, that is designated as the proper place to file a financing statement under Arkansas Code 4-9-401(1) as it existed on June 30, 2001. The term applies only with respect to a record that covers a type of collateral as to which the filing office is designated in that section as the proper place to file. (2) “Former Chapter 9” means Chapter 9 of Title 4 of the Arkansas Code as it existed on June 30, 2001. (3)(A) “Former Chapter 9 records” means: (i) Financing statements and other records that have been filed in a local filing office before July 1, 2001, and that are, or upon processing and indexing will be, reflected in the index maintained, as of June 30, 2001, by the local filing office for financing statements and other records filed in the local filing office before July 1, 2001, and (ii) The index as of June 30, 2001. (B) The term does not include records presented to a local filing office for filing after June 30, 2001, whether or not the records relate to financing statements filed in the local filing office before July 1, 2001. (4) “Mortgage”, “as-extracted collateral”, “fixture filing”, “goods” and “fixtures” have the meanings set forth in Arkansas Code 4-9-102 for those terms.

“(b) A local filing office must not accept for filing a record presented after June 30, 2001, whether or not the record relates to a financing statement filed in the local filing office before July 1, 2001.

“(c) Until July 1, 2008, each local filing office must maintain all former Chapter 9 records in accordance with former Chapter 9. A former Chapter 9 record that is not reflected on the index maintained at June 30, 2001, by the local filing office must be processed and indexed, and reflected on the index as of June 30, 2001, as soon as practicable but in any event no later than July 30, 2001.

“(e) After June 30, 2008, each local filing office may remove and destroy, in accordance with any then applicable record retention law of this State, all former Chapter 9 records, including the related index.

“(f) This section does not apply, with respect to financing statements and other records, to a filing office in which mortgages or records of mortgages on real property are required to be filed or recorded, if: (1) The collateral is timber to be cut or as-extracted collateral, or (2) The record is or relates to a financing statement filed as a fixture filing and the collateral is goods that are or are to become fixtures.”

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 2003, No. 32, § 5: Feb. 3, 2003. Emergency clause provided: “It is found and determined by the General Assembly that inadvertent changes to the Uniform Commercial Code-Secured Transactions by the Eighty-Third General Assembly substantially altered the traditional method for establishing landlords' liens on crops which has been operating in this state for over one hundred years. The inadvertent changes have resulted in widespread confusion which threatens to seriously disrupt the traditional process of crop loans and farm land tenancy in this state's largest industry. This confusion and unintended result will continue until this act becomes effective. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Acts 2003, No. 204, § 19: Feb. 21, 2003. Emergency clause provided: “It is found and determined by the Eighty-fourth General Assembly that certain provisions of the Electric Consumer Choice Act of 1999, as amended by Act 324 of 2001, for the implementation of retail electric competition may take effect prior to ninety-one (91) days after the adjournment of this session; that this act is intended to prevent such implementation; and that unless this emergency clause is adopted, this act may not go into effect until further steps have been taken toward retail electric competition, which the General Assembly has found not to be in the public interest. The General Assembly further finds that uncertainty surrounding the implementation of the Electric Consumer Choice Act during the ninety (90) days following the adjournment of this session and uncertainty regarding the recovery of reasonable generation costs, could discourage electric utilities from acquiring additional generation resources; that retail electric customers will require such resources; and that this act, in Section 11 and elsewhere, provides procedures to facilitate the acquisition of these resources. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Acts 2013, No. 138, § 24: July 1, 2013. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is in need of important revisions to better identify debtors and secured collateral, to promote the efficiency of electronic filing, to reduce cost and time related to identifying debtors, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2013 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2013.”

Research References

Am. Jur. 68A Am. Jur. 2d, Secured Trans., § 1 et seq.

C.J.S. 79 C.J.S., Secured Trans., § 1 et seq.

U. Ark. Little Rock L.J.

Survey — Debtor-Creditor, 10 U. Ark. Little Rock L.J. 173.

Subpart 1 Short Title, Definitions, and General Concepts

4-9-101. Short title.

This chapter may be cited as Uniform Commercial Code — Secured Transactions.

History. Acts 2001, No. 1439, § 1.

Research References

ALR.

Consignment Transactions Under Uniform Commercial Code Article 9 on Secured Transactions. 58 A.L.R.6th 289.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Revised Article 9, 24 U. Ark. Little Rock L. Rev. 415.

4-9-102. Definitions and index of definitions.

  1. In this chapter:
    1. “Accession” means goods that are physically united with other goods in such a manner that the identity of the original goods is not lost.
    2. “Account”, except as used in “account for”, means a right to payment of a monetary obligation, whether or not earned by performance, (i) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (ii) for services rendered or to be rendered, (iii) for a policy of insurance issued or to be issued, (iv) for a secondary obligation incurred or to be incurred, (v) for energy provided or to be provided, (vi) for the use or hire of a vessel under a charter or other contract, (vii) arising out of the use of a credit or charge card or information contained on or for use with the card, or (viii) 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. The term includes health-care-insurance receivables. The term does not include (i) rights to payment evidenced by chattel paper or an instrument, (ii) commercial tort claims, (iii) deposit accounts, (iv) investment property, (v) letter-of-credit rights or letters of credit, or (vi) rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.
    3. “Account debtor” means a person obligated on an account, chattel paper, or general intangible. The term does not include persons obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper.
    4. “Accounting”, except as used in “accounting for”, means a record:
      1. 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.
    5. “Agricultural lien” means an interest, other than a security interest or a landlord's lien under § 18-41-101 or § 18-41-103, in farm products:
      1. which secures payment or performance of an obligation for:
        1. goods or services furnished in connection with a debtor's farming operation; or
        2. 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:
        1. in the ordinary course of its business furnished goods or services to a debtor in connection with a debtor's farming operation; or
        2. 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.
    6. “As-extracted collateral” means:
      1. oil, gas, or other minerals that are subject to a security interest that:
        1. is created by a debtor having an interest in the minerals before extraction; and
        2. 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.
    7. “Authenticate” means:
      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.
    8. “Bank” means an organization that is engaged in the business of banking. The term includes savings banks, savings and loan associations, credit unions, and trust companies.
    9. “Cash proceeds” means proceeds that are money, checks, deposit accounts, or the like.
    10. “Certificate of title” means a certificate of title with respect to which a statute provides for the security interest in question to be indicated on the certificate as a condition or result of the security interest's obtaining priority over the rights of a lien creditor with respect to the collateral. The term includes another record maintained as an alternative to a certificate of title by the governmental unit that issues certificates of title if a statute permits the security interest in question to be indicated on the record as a condition or result of the security interest's obtaining priority over the rights of a lien creditor with respect to the collateral.
    11. “Chattel paper” means a record or records that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, a security interest in specific goods and license of software used in the goods, a lease of specific goods, or a lease of specific goods and license of software used in the goods. In this paragraph, “monetary obligation” means a monetary obligation secured by the goods or owed under a lease of the goods and includes a monetary obligation with respect to software used in the goods. The term does not include (i) charters or other contracts involving the use or hire of a vessel or (ii) records that evidence a right to payment arising out of the use of a credit or charge card 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.
    12. “Collateral” means the property subject to a security interest or agricultural lien. The term includes:
      1. proceeds to which a security interest attaches;
      2. accounts, chattel paper, payment intangibles, and promissory notes that have been sold; and
      3. goods that are the subject of a consignment.
    13. “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:
        1. arose in the course of the claimant's business or profession; and
        2. does not include damages arising out of personal injury to or the death of an individual.
    14. “Commodity account” means an account maintained by a commodity intermediary in which a commodity contract is carried for a commodity customer.
    15. “Commodity contract” means a commodity futures contract, an option on a commodity futures contract, a commodity option, or another contract if the contract or option is:
      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.
    16. “Commodity customer” means a person for which a commodity intermediary carries a commodity contract on its books.
    17. “Commodity intermediary” means a person that:
      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.
    18. “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.
    19. “Consignee” means a merchant to which goods are delivered in a consignment.
    20. “Consignment” means a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale and:
      1. the merchant:
        1. deals in goods of that kind under a name other than the name of the person making delivery;
        2. is not an auctioneer; and
        3. 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
      4. the transaction does not create a security interest that secures an obligation.
    21. “Consignor” means a person that delivers goods to a consignee in a consignment.
    22. “Consumer debtor” means a debtor in a consumer transaction.
    23. “Consumer goods” means goods that are used or bought for use primarily for personal, family, or household purposes.
    24. “Consumer-goods transaction” means a consumer transaction in which:
      1. an individual incurs an obligation primarily for personal, family, or household purposes; and
      2. a security interest in consumer goods secures the obligation.
    25. “Consumer obligor” means an obligor who is an individual and who incurred the obligation as part of a transaction entered into primarily for personal, family, or household purposes.
    26. “Consumer transaction” means a transaction in which (i) an individual incurs an obligation primarily for personal, family, or household purposes, (ii) a security interest secures the obligation, and (iii) the collateral is held or acquired primarily for personal, family, or household purposes. The term includes consumer-goods transactions.
    27. “Continuation statement” means an amendment of a financing statement which:
      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.
    28. “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.
    29. “Deposit account” means a demand, time, savings, passbook, or similar account maintained with a bank. The term does not include investment property or accounts evidenced by an instrument.
    30. “Document” means a document of title or a receipt of the type described in § 4-7-201(b).
    31. “Electronic chattel paper” means chattel paper evidenced by a record or records consisting of information stored in an electronic medium.
    32. “Encumbrance” means a right, other than an ownership interest, in real property. The term includes mortgages and other liens on real property.
    33. “Equipment” means goods other than inventory, farm products, or consumer goods.
    34. “Farm products” means goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and which are:
      1. crops grown, growing, or to be grown, including:
        1. crops produced on trees, vines, and bushes; and
        2. aquatic goods produced in aquacultural operations;
      2. livestock, born or unborn, including aquatic goods produced in aquacultural operations;
      3. supplies used or produced in a farming operation; or
      4. products of crops or livestock in their unmanufactured states.
    35. “Farming operation” means raising, cultivating, propagating, fattening, grazing, or any other farming, livestock, or aquacultural operation.
    36. “File number” means the number assigned to an initial financing statement pursuant to § 4-9-519(a).
    37. “Filing office” means an office designated in § 4-9-501 as the place to file a financing statement.
    38. “Filing office rule” means a rule adopted pursuant to § 4-9-526.
    39. “Financing statement” means a record or records composed of an initial financing statement and any filed record relating to the initial financing statement.
    40. “Fixture filing” means the filing of a financing statement covering goods that are or are to become fixtures and satisfying § 4-9-502(a) and (b). The term includes the filing of a financing statement covering goods of a transmitting utility which are or are to become fixtures.
    41. “Fixtures” means goods that have become so related to particular real property that an interest in them arises under real property law.
    42. “General intangible” means any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. The term includes payment intangibles and software.
    43. [Reserved.]
    44. “Goods” means all things that are movable when a security interest attaches. The term includes (i) fixtures, (ii) standing timber that is to be cut and removed under a conveyance or contract for sale, (iii) the unborn young of animals, (iv) crops grown, growing, or to be grown, even if the crops are produced on trees, vines, or bushes, and (v) manufactured homes. The term also includes a computer program embedded in goods and any supporting information provided in connection with a transaction relating to the program if (i) the program is associated with the goods in such a manner that it customarily is considered part of the goods, or (ii) by becoming the owner of the goods, a person acquires a right to use the program in connection with the goods. The term does not include a computer program embedded in goods that consist solely of the medium in which the program is embedded. The term also does not include accounts, chattel paper, commercial tort claims, deposit accounts, documents, general intangibles, instruments, investment property, letter-of-credit rights, letters of credit, money, or oil, gas, or other minerals before extraction.
    45. “Governmental unit” means a subdivision, agency, department, county, parish, municipality, or other unit of the government of the United States, a state, or a foreign country. The term includes an organization having a separate corporate existence if the organization is eligible to issue debt on which interest is exempt from income taxation under the laws of the United States.
    46. “Health-care-insurance receivable” means an interest in or claim under a policy of insurance which is a right to payment of a monetary obligation for health-care goods or services provided.
    47. “Instrument” means a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement or assignment. The term does not include (i) investment property, (ii) letters of credit, or (iii) writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card.
    48. “Inventory” means goods, other than farm products, which:
      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.
    49. “Investment property” means a security, whether certificated or uncertificated, security entitlement, securities account, commodity contract, or commodity account.
    50. “Jurisdiction of organization”, with respect to a registered organization, means the jurisdiction under whose law the organization is organized.
    51. “Letter-of-credit right” means a right to payment or performance under a letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. The term does not include the right of a beneficiary to demand payment or performance under a letter of credit.
    52. “Lien creditor” means:
      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;
      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.
    53. “Manufactured home” means a structure, transportable in one (1) or more sections, which, in the traveling mode, is eight body feet or more in width or 40 body feet or more in length, or, when erected on site, is 320 or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air-conditioning, and electrical systems contained therein. The term includes any structure that meets all of the requirements of this paragraph except the size requirements and with respect to which the manufacturer voluntarily files a certification required by the United States Secretary of Housing and Urban Development and complies with the standards established under Title 42 of the United States Code.
    54. “Manufactured-home transaction” means a secured transaction:
      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.
    55. “Mortgage” means a consensual interest in real property, including fixtures, which secures payment or performance of an obligation.
    56. “New debtor” means a person that becomes bound as debtor under § 4-9-203(d) by a security agreement previously entered into by another person.
    57. “New value” means (i) money, (ii) money's worth in property, services, or new credit, or (iii) release by a transferee of an interest in property previously transferred to the transferee. The term does not include an obligation substituted for another obligation.
    58. “Noncash proceeds” means proceeds other than cash proceeds.
    59. “Obligor” means a person that, with respect to an obligation secured by a security interest in or an agricultural lien on the collateral, (i) owes payment or other performance of the obligation, (ii) has provided property other than the collateral to secure payment or other performance of the obligation, or (iii) is otherwise accountable in whole or in part for payment or other performance of the obligation. The term does not include issuers or nominated persons under a letter of credit.
    60. “Original debtor”, except as used in § 4-9-310(c), means a person that, as debtor, entered into a security agreement to which a new debtor has become bound under § 4-9-203(d).
    61. “Payment intangible” means a general intangible under which the account debtor's principal obligation is a monetary obligation.
    62. “Person related to”, with respect to an individual, means:
      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.
    63. “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 (A);
      4. the spouse of an individual described in subparagraph (A), (B), or (C); or
      5. an individual who is related by blood or marriage to an individual described in subparagraph (A), (B), (C), or (D) and shares the same home with the individual.
    64. “Proceeds”, except as used in § 4-9-609(b), 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.
    65. “Promissory note” means an instrument that evidences a promise to pay a monetary obligation, does not evidence an order to pay, and does not contain an acknowledgment by a bank that the bank has received for deposit a sum of money or funds.
    66. “Proposal” means a record authenticated by a secured party which includes the terms on which the secured party is willing to accept collateral in full or partial satisfaction of the obligation it secures pursuant to §§ 4-9-620, 4-9-621, and 4-9-622.
    67. “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.
    68. “Public organic record” means a record that is available to the public for inspection and 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 any record filed with or issued by the State or the United States which amends or restates the name of the organization.
    69. “Pursuant to commitment”, with respect to an advance made or other value given by a secured party, means pursuant to the secured party's obligation, whether or not a subsequent event of default or other event not within the secured party's control has relieved or may relieve the secured party from its obligation.
    70. [Repealed.]
    71. “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.
    72. “Registered organization” means an organization formed or organized solely under the law of a single State or the United States by the filing of a public organic record with, the issuance of a public organic record by, or the enactment of legislation by the State or the United States. The term includes a business trust that is formed or organized under the law of a single State if a statute of the State governing business trusts requires that the business trust's organic record be filed with the State.
    73. “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.
    74. “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 § 4-2-401, § 4-2-505, § 4-2-711(3), § 4-2A-508(5), § 4-4-210, or § 4-5-118.
    75. “Security agreement” means an agreement that creates or provides for a security interest.
    76. “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 (A).
    77. “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.
    78. “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.
    79. “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.
    80. “Tangible chattel paper” means chattel paper evidenced by a record or records consisting of information that is inscribed on a tangible medium.
    81. “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.
    82. “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. producing or transmitting electricity, steam, gas, or water.
  2. “Control” as provided in § 4-7-106 and the following definitions in other chapters apply to this chapter:
  3. Chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.

“Applicant”. Section 4-5-102.

“Beneficiary”. Section 4-5-102.

“Broker”. Section 4-8-102.

“Certificated security”. Section 4-8-102.

“Check”. Section 4-3-104.

“Clearing corporation”. Section 4-8-102.

“Contract for sale”. Section 4-2-106.

“Customer”. Section 4-4-104.

“Entitlement holder”. Section 4-8-102.

“Financial asset”. Section 4-8-102.

“Holder in due course”. Section 4-3-302.

“Issuer” (with respect to a letter of credit or letter-of-credit right). Section 4-5-102.

“Issuer” (with respect to a security). Section 4-8-201.

“Issuer” (with respect to documents of title). Section 4-7-102.

“Lease”. Section 4-2A-103.

“Lease agreement”. Section 4-2A-103.

“Lease contract”. Section 4-2A-103.

“Leasehold interest”. Section 4-2A-103.

“Lessee”. Section 4-2A-103.

“Lessee in ordinary course of business”. Section 4-2A-103.

“Lessor”. Section 4-2A-103.

“Lessor's residual interest”. Section 4-2A-103.

“Letter of credit”. Section 4-5-102.

“Merchant”. Section 4-2-104.

“Negotiable instrument”. Section 4-3-104.

“Nominated person”. Section 4-5-102.

“Note”. Section 4-3-104.

“Proceeds of a letter of credit”. Section 4-5-114.

“Prove”. Section 4-3-103.

“Sale”. Section 4-2-106.

“Securities account”. Section 4-8-501.

“Securities intermediary”. Section 4-8-102.

“Security”. Section 4-8-102.

“Security certificate”. Section 4-8-102.

“Security entitlement”. Section 4-8-102.

“Uncertificated security”. Section 4-8-102.

History. Acts 2001, No. 1439, § 1; 2003, No. 32, § 2; 2003, No. 204, § 3; 2005, No. 856, § 56; 2007, No. 342, §§ 26, 27; 2013, No. 138, §§ 1-4.

A.C.R.C. Notes. Acts 2003, No. 32, § 1, provided:

“The General Assembly has determined that by the enactment of Act 1439 of 2001 it inadvertently changed the law regarding landlords' liens on crops. It is the intent of this act to correct that inadvertent change, remove landlords' liens on crops from the application of the Uniform Commercial Code, reestablish Arkansas Code 18-41-101 and 18-41-103 as the law applicable to landlords' liens on crops, and thereby make landlords' liens under Arkansas Code 18-41-101 and 18-41-103 superior to all other liens on the same collateral.”

Acts 2003, No. 204, § 16, provided:

“Nothing in this act shall alter or diminish the Arkansas Public Service Commission's authority under otherwise applicable law.”

Amendments. The 2013 amendment rewrote (a)(7)(B); added the last sentence in (a)(10); added (a)(68); and rewrote (a)(71) (now (a)(72)).

Research References

ALR.

Consignment Transactions Under Uniform Commercial Code Article 9 on Secured Transactions. 58 A.L.R.6th 289.

Definition and Treatment of “General Intangibles” Under Revised Article 9 of Uniform Commercial Code. 33 A.L.R.7th Art. 4 (2018).

Definition and Treatment of “Accounts” Under Revised Article 9 of Uniform Commercial Code: Insurance Receivables. 36 A.L.R.7th Art. 3 (2018).

Definition and Treatment of “Instruments” Under Revised Article 9 of Uniform Commercial Code. 42 A.L.R.7th Art. 5 (2019).

Case Notes

Account.

Where the evidence established that out of the amount listed by the contractor as accounts receivable, approximately 50 percent constituted retainage on construction contracts which were listed on the contractor's balance sheet as accounts receivable, although successful completion of the job was a condition precedent to receiving payment, and where, since the contractor did not complete its work on any projects after it filed bankruptcy, the retainage proved to be uncollectible due to various counterclaims and setoffs, the district court correctly included the retainage in the contractor's total outstanding accounts. In re B. Hollis Knight Co., 605 F.2d 397 (8th Cir. 1979) (decision under prior law).

Letter of credit was not an account receivable where the particular letter of credit was never intended to be an account and was listed as such purely by happenstance. Tradax Am., Inc. v. First Nat'l Bank, 934 F.2d 969 (8th Cir. 1991) (decision under prior law).

Secured creditor of seller was entitled to recover that portion of a payment representing past due amounts that buyer already owed to seller, since this portion of the payment did not represent payment for raw materials but represented payment on a debt owed by buyer. Martin v. Amercable Corp., 990 F.2d 439 (8th Cir. 1993) (decision under prior law).

Debtor.

An automobile dealer, who sold a car in return for a promissory note and a conditional sales contract for the unpaid purchase price, and sold note and contract to a bank with provision that if car buyer should default he would repurchase the contract for the amount due thereon, was a debtor under former § 4-9-105 as one who owes “other performance” of the obligation secured. Norton v. National Bank of Commerce, 240 Ark. 143, 398 S.W.2d 538 (1966), overruled in part on other grounds, First State Bank v. Hallett, 291 Ark. 37, 722 S.W.2d 555 (1987) (decision under prior law).

Accommodation maker held to be a “debtor” as defined by former § 4-9-105 because of the “other performance owed” language. In re Long, 83 B.R. 579 (Bankr. E.D. Ark. 1987) (decision under prior law).

“Debtor” to whom notice is required includes one who is responsible for payment upon default of the principal obligor. Hallmark Cards, Inc. v. Peevy, 293 Ark. 594, 739 S.W.2d 691 (1987) (decision under prior law).

A guarantor is one who “owes payment or other performance of the obligation secured.” First Nat'l Bank v. Hess, 23 Ark. App. 129, 743 S.W.2d 825 (1988) (decision under prior law).

A corporation is an organization which may be a debtor under the pre-2001 version of Article 9 of the Uniform Commercial Code. Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 183 B.R. 848 (Bankr. E.D. Ark. 1995) (decision under prior law).

Instrument.

Where a delivery debenture issued to the debtors by a cooperative and later delivered to a credit association as security for a debt owed by the debtors to the credit association conferred rights upon its holder, was in registered form, was one of a series of documents issued by the cooperative, evidenced an obligation of the issuer, was recognized in the area as a medium for investment, and was assignable, the delivery debenture was a “security” and qualified as an “instrument” within the meaning of the former § 4-9-105; therefore, when the secured party (credit association) took possession of the delivery debenture, it perfected its security interest in the debenture. In re Glass, 692 F.2d 55 (8th Cir. 1982) (decision under prior law).

Certificates of deposit are “instruments” as defined in the UCC and security interests in such instruments may be perfected through possession. GE Co. v. M & C Mfg., Inc., 283 Ark. 110, 671 S.W.2d 189 (1984) (decision under prior law).

Where debtor assigned promissory note to his parents, but thereafter filed suit to collect the note, and transferred some of the proceeds to them, the parents did not “possess” the note while the debtor was enforcing it, and thus they did not have a perfected security interest in the note or its proceeds, and the trustee was entitled to avoid the preferential transfer of the proceeds. Luker v. Reeves, 65 F.3d 670 (8th Cir. 1995) (decision under prior law).

Secured Party.

Where the parties stipulated that the creditor held a properly perfected purchase money security interest in debtors' vehicle, under Arkansas law, the only conclusion was that the creditor was a secured party. In re Scruggs, 342 B.R. 571 (Bankr. E.D. Ark. 2006).

Security Agreement.

Instrument which is simply a promissory note and nothing more and does not purport to retain title or to create a lien cannot be relied on as a security agreement. Central Ark. Milk Producers Ass'n v. Arnold, 239 Ark. 799, 394 S.W.2d 126 (1965) (decision under prior law).

Any language that asserts that specific personal property is encumbered as security for a debt creates or provides for a security interest; language actually conveying a security interest is not necessary to create a security interest. Meeks v. First Bank of S. Ark., 264 B.R. 1 (Bankr. W.D. Ark. 2001).

A financing statement executed by the parties and filed with the county circuit clerk also served as a valid, enforceable security agreement where (1) the financing statement recited that “this note is secured by” the specified collateral and that “the loan secured by this lien” was made through an SBA program, (2) the document designated the debtor as “debtor” and the bank as “secured party,” and (3) the credit application submitted and signed by the debtor recited “briefly describe the property to be given as security … Property Description: Accounts Receivables Inv. fixtures, etc.” Meeks v. First Bank of S. Ark., 264 B.R. 1 (Bankr. W.D. Ark. 2001).

In a bank's suit to recover a judgment against debtors, the trial court did not err in holding that the bank's security interests in the debtors' crops and crop proceeds had priority over appellants' purchase money security interest because the bank had a first-in-time lien on the crops; appellants failed to cite any case law or statutory authority that defined crops as the identifiable proceeds, as defined in § 4-9-102(a)(64), of seeds. Searcy Farm Supply, LLC v. Merchs. & Planters Bank, 369 Ark. 487, 256 S.W.3d 496 (2007).

Creditor's claim was allowed as a secured claim because the guttering system at issue, which was purchased with funds provided by the creditor, was intended, as evidenced by the contract executed by the parties, to provide a purchase money security interest in consumer goods. The guttering system was easily removable from the residence and was thus not a fixture, which would have required the filing of a financing statement. In re Williams, 381 B.R. 742 (Bankr. W.D. Ark. 2008).

Timber as Inventory Goods.

Directed verdict, or motion to dismiss under Ark. R. Civ. P. 50(a), was properly granted because mills that purchased gatewood timber from an owner were buyers in the ordinary course of business under §§ 4-1-201(b)(9), 4-9-320, and timber, once cut, became inventory goods under § 4-9-102(a)(48); thus, the mills had no duty to conduct a lien search to find a creditor's perfected security interest in the timber. Fordyce Bank & Trust Co. v. Bean Timberland, Inc., 369 Ark. 90, 251 S.W.3d 267 (2007).

Cited: United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964); Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); McIlroy Bank v. First Nat'l Bank, 252 Ark. 558, 480 S.W.2d 127 (1972); Henson v. Government Employees Fin. & Indus. Loan Corp., 257 Ark. 273, 516 S.W.2d 1 (1974); In re B. Hollis Knight Co., 461 F. Supp. 1213 (E.D. Ark. 1978); Benton State Bank v. Warren, 263 Ark. 1, 562 S.W.2d 74 (1978); Putnam Realty, Inc. v. Terminal Moving & Storage Co. (In re Terminal Moving & Storage Co.), 631 F.2d 547 (8th Cir. 1980); Davidson v. Ark. River Valley Drain Drying Coop. (In re Glass), 26 B.R. 166 (E.D. Ark. 1982); Brown & Root, Inc. v. Hempstead County Sand & Gravel, Inc., 767 F.2d 464 (8th Cir. 1985); In re Russell, 101 B.R. 62 (Bankr. W.D. Ark. 1989); In re Howell Enterprises, Inc., 105 B.R. 494 (Bankr. E.D. Ark. 1989); United States v. Dawson, 929 F.2d 1336 (8th Cir. 1991); In re Barton, 132 B.R. 23 (Bankr. W.D. Ark. 1991); J.M. Prods., Inc. v. Ark. Capital Corp., 51 Ark. App. 85, 910 S.W.2d 702 (1995); Beal Bank, S.S.B. v. Fewell (In re Fewell), 352 B.R. 98 (Bankr. E.D. Ark. 2006).

4-9-103. Purchase-money security interest — Application of payments — Burden of establishing.

  1. In this section:
    1. “purchase-money collateral” means goods or software that secures a purchase-money obligation incurred with respect to that collateral; and
    2. “purchase-money obligation” means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.
  2. A security interest in goods is a purchase-money security interest:
    1. to the extent that the goods are purchase-money collateral with respect to that security interest;
    2. if the security interest is in inventory that is or was purchase-money collateral, also to the extent that the security interest secures a purchase-money obligation incurred with respect to other inventory in which the secured party holds or held a purchase-money security interest; and
    3. also to the extent that the security interest secures a purchase-money obligation incurred with respect to software in which the secured party holds or held a purchase-money security interest.
  3. A security interest in software is a purchase-money security interest to the extent that the security interest also secures a purchase-money obligation incurred with respect to goods in which the secured party holds or held a purchase-money security interest if:
    1. the debtor acquired its interest in the software in an integrated transaction in which it acquired an interest in the goods; and
    2. the debtor acquired its interest in the software for the principal purpose of using the software in the goods.
  4. The security interest of a consignor in goods that are the subject of a consignment is a purchase-money security interest in inventory.
  5. In a transaction other than a consumer-goods transaction, if the extent to which a security interest is a purchase-money security interest depends on the application of a payment to a particular obligation, the payment must be applied:
    1. in accordance with any reasonable method of application to which the parties agree;
    2. in the absence of the parties' agreement to a reasonable method, in accordance with any intention of the obligor manifested at or before the time of payment; or
    3. in the absence of an agreement to a reasonable method and a timely manifestation of the obligor's intention, in the following order:
      1. to obligations that are not secured; and
      2. if more than one (1) obligation is secured, to obligations secured by purchase-money security interests in the order in which those obligations were incurred.
  6. In a transaction other than a consumer-goods transaction, a purchase-money security interest does not lose its status as such, even if:
    1. the purchase-money collateral also secures an obligation that is not a purchase-money obligation;
    2. collateral that is not purchase-money collateral also secures the purchase-money obligation; or
    3. the purchase-money obligation has been renewed, refinanced, consolidated, or restructured.
  7. In a transaction other than a consumer-goods transaction, a secured party claiming a purchase-money security interest has the burden of establishing the extent to which the security interest is a purchase-money security interest.
  8. The limitation of the rules in subsections (e), (f), and (g) to transactions other than consumer-goods transactions is intended to leave to the court the determination of the proper rules in consumer-goods transactions. The court may not infer from that limitation the nature of the proper rule in consumer-goods transactions and may continue to apply established approaches.

History. Acts 2001, No. 1439, § 1.

Research References

ALR.

Consignment Transactions Under Uniform Commercial Code Article 9 on Secured Transactions. 58 A.L.R.6th 289.

Case Notes

Chattel Mortgages.

A chattel mortgage securing a note given for the purchase of farm machinery was a “purchase money security interest” within the meaning of former § 4-9-107. Lonoke Production Credit Ass'n v. Bohannon, 238 Ark. 206, 379 S.W.2d 17 (1964) (decision under prior law).

Landlord's Lien.

When the legislature adopted the landlord's lien in 1987 (§ 18-16-108), it was mindful of this state's longstanding aversion to a landlord's lien and of the strict construction that would be applied to such legislation, and was also aware of the law and policies embodied in the U.C.C.; the legislature never intended a landlord's lien which arose simultaneously with a purchase money security interest, under former § 4-9-107 and § 4-9-312(4), to have priority. Herringer v. Mercantile Bank, 315 Ark. 218, 866 S.W.2d 390 (1993) (decision under prior law).

Cited: United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964); Niedermeier v. Central Prod. Credit Ass'n, 300 Ark. 116, 777 S.W.2d 210 (1989); Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989); Meeks v. W. Mercedes Benz Credit Corp., 257 F.3d 843 (8th Cir. 2001).

4-9-104. Control of deposit account.

  1. A secured party has control of a deposit account if:
    1. the secured party is the bank with which the deposit account is maintained;
    2. the debtor, secured party, and bank have agreed in an authenticated record that the bank will comply with instructions originated by the secured party directing disposition of the funds in the deposit account without further consent by the debtor; or
    3. the secured party becomes the bank's customer with respect to the deposit account.
  2. A secured party that has satisfied subsection (a) has control, even if the debtor retains the right to direct the disposition of funds from the deposit account.

History. Acts 2001, No. 1439, § 1.

Case Notes

In General.

—Assignment.

Where (1) the creditor acquired, by assignment, a promissory note issued to a third party, the debtor's guaranties pertaining to the note, and an agreement pledging the CD as security on the debtor's guarantee obligations, (2) the assignor had perfected its security interest in the CD under § 4-9-312(b)(1) by obtaining “control” of the CD, and (3) § 4-9-313, which provided for perfection by possession, was not applicable to the CD, which was a “deposit account” as defined in § 4-9-102(a)(29), the creditor did not have to take any additional steps, such as obtaining control over the CD, to perfect its security interest in the CD because the assignor had perfected its security interest and the security interest remained perfected, through the assignment, as against the debtor. Beal Bank, S.S.B. v. Fewell (In re Fewell), 352 B.R. 98 (Bankr. E.D. Ark. 2006).

4-9-105. Control of electronic chattel paper.

  1. A secured party has control of electronic chattel paper if a system employed for evidencing the transfer of interests in the chattel paper reliably establishes the secured party as the person to which the chattel paper was assigned.
  2. A system satisfies subsection (a) if the record or records comprising the chattel paper are created, stored, and assigned in such a manner that:
    1. a single authoritative copy of the record or records exists which is unique, identifiable, and, except as otherwise provided in paragraphs (4), (5), and (6), unalterable;
    2. the authoritative copy identifies the secured party as the assignee of the record or records;
    3. the authoritative copy is communicated to and maintained by the secured party or its designated custodian;
    4. copies or amendments that add or change an identified assignee of the authoritative copy can be made only with the consent of the secured party;
    5. each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy; and
    6. any amendment of the authoritative copy is readily identifiable as authorized or unauthorized.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 5.

Amendments. The 2013 amendment redesignated the former introductory language as (a) and rewrote (a); added the introductory language of (b); in (b)(4), substituted “amendments” for “revisions” and “consent” for “participation”; in (a)(6), substituted “any amendment” for “any revision” and deleted “an” preceding “authorized” and “revision” following “unauthorized”.

Case Notes

Cited: McDonald Mobile Homes, Inc. v. BankAmerica Hous. Servs., 93 Ark. App. 256, 218 S.W.3d 376 (2005).

4-9-106. Control of investment property.

  1. A person has control of a certificated security, uncertificated security, or security entitlement as provided in § 4-8-106.
  2. A secured party has control of a commodity contract if:
    1. the secured party is the commodity intermediary with which the commodity contract is carried; or
    2. the commodity customer, secured party, and commodity intermediary have agreed that the commodity intermediary will apply any value distributed on account of the commodity contract as directed by the secured party without further consent by the commodity customer.
  3. A secured party having control of all security entitlements or commodity contracts carried in a securities account or commodity account has control over the securities account or commodity account.

History. Acts 2001, No. 1439, § 1.

4-9-107. Control of letter-of-credit right.

A secured party has control of a letter-of-credit right to the extent of any right to payment or performance by the issuer or any nominated person if the issuer or nominated person has consented to an assignment of proceeds of the letter of credit under § 4-5-114(c) or otherwise applicable law or practice.

History. Acts 2001, No. 1439, § 1.

4-9-108. Sufficiency of description.

  1. Except as otherwise provided in subsections (c), (d), and (e), a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.
  2. Except as otherwise provided in subsection (d), a description of collateral reasonably identifies the collateral if it identifies the collateral by:
    1. specific listing;
    2. category;
    3. except as otherwise provided in subsection (e), a type of collateral defined in the Uniform Commercial Code;
    4. quantity;
    5. computational or allocational formula or procedure; or
    6. except as otherwise provided in subsection (c), any other method, if the identity of the collateral is objectively determinable.
  3. A description of collateral as “all the debtor's assets” or “all the debtor's personal property” or using words of similar import does not reasonably identify the collateral.
  4. Except as otherwise provided in subsection (e), a description of a security entitlement, securities account, or commodity account is sufficient if it describes:
    1. the collateral by those terms or as investment property; or
    2. the underlying financial asset or commodity contract.
  5. A description only by type of collateral defined in the Uniform Commercial Code is an insufficient description of:
    1. a commercial tort claim; or
    2. in a consumer transaction, consumer goods, a security entitlement, a securities account, or a commodity account.

History. Acts 2001, No. 1439, § 1.

Case Notes

Insufficient Descriptions.

Descriptions in security agreements and financing statements establishing liens on growing crops were insufficient to identify the subject of the security agreement. Piggott State Bank v. Pollard Gin Co., 243 Ark. 159, 419 S.W.2d 120 (1967) (decision under prior law).

Description of crops was insufficient as to the real estate not described under this section, § 4-9-402, and § 4-9-203. People's Bank v. Pioneer Food Indus., Inc., 253 Ark. 277, 486 S.W.2d 24 (1972) (decision under prior law).

Where the only land description was the statement that the property would be located at the Greenway Elevator Company at Greenway, Arkansas, which was identified only by a post office box number, this was insufficient to meet Uniform Commercial Code requirements. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

Financing statement which neither indicated where equipment could be located nor disclosed the name of the business where the equipment was to be used fell short of the minimum requirement for collateral description. Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989) (decision under prior law).

A description that only describes the debtor's name and the county and state where the real estate is located is not a sufficient description. Schieffler v. First Nat'l Bank (In re Peeler), 145 B.R. 973 (Bankr. E.D. Ark. 1992) (decision under prior law).

Sufficient Descriptions.

A trial court erred in ruling that a description of the subject of a security agreement as “company owned inventory of” and giving the name and address of the company was insufficient as a matter of law. Security Tire & Rubber Co. v. Hlass, 246 Ark. 1113, 441 S.W.2d 91 (1969) (decision under prior law).

Description of crops and other plant products as collateral in security agreement and financial statement held sufficient. United States v. Oakley, 483 F. Supp. 762 (E.D. Ark. 1980) (decision under prior law).

Where financing statement contains a collateral description stating that “crops covered hereby are growing or are to be grown on” certain described real property, the use of the term “crops” is a sufficient description under this section to put third parties on notice that soybean crops are covered by the financing statement since third parties finding this term in a financing statement should reasonably construe it to include all crops on the subject property. United States v. Riceland Foods, Inc., 504 F. Supp. 1258 (E.D. Ark. 1981) (decision under prior law).

Description of crops was sufficient to notify third parties that crops grown after the 1974 crop year are covered, and it should reasonably notify third parties that after-acquired property is part of the subject matter of the financing statement. United States v. Riceland Foods, Inc., 504 F. Supp. 1258 (E.D. Ark. 1981) (decision under prior law).

Trial court did not err in concluding that the bank's financing statement was sufficiently specific to identify the covered goods, or in concluding that the lender failed to avail itself of the information on file to protect its interests; the bank's statement was short, simple, and concise, which was all that was needed to perfect its lien. First Nat'l Bank of Lewisville v. Bank of Bradley, 80 Ark. App. 368, 96 S.W.3d 773 (2003).

Lender's lien on Arkansas crops was properly perfected by a financing statement because it reasonably identified the Arkansas crops as collateral under this section where it indicated that the collateral consisted of crops produced by two entities, and it suggested that the crops were located in Arkansas; this, along with the name of the secured lender, would have provided a third party with sufficient inquiry notice to locate the Arkansas crops. There was no evidence that an unsuccessful inquiry was made by a farmer prior to providing funding, and there was no unjust enrichment that allowed the farmer's equitable lien to prime the lender's lien because the lender did not participate or encourage the farmer's efforts in providing his own resources in planting and growing the crops. Newsom v. Rabo Agrifinance, Inc., 2013 Ark. App. 259, 427 S.W.3d 688 (2013).

Test of Sufficiency.

The test is whether the description made possible the identification of the real estate. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

Nothing in the Arkansas statutes or case law indicates that a full legal description of real estate is required in a financing statement covering crops. United States v. Oakley, 483 F. Supp. 762 (E.D. Ark. 1980) (decision under prior law).

Where the information in the financing statement, together with inquiry suggested therein, would enable a stranger to the transaction to identify crops, the filing of the financing statement perfected the government's security interest in the crops. United States v. Oakley, 483 F. Supp. 762 (E.D. Ark. 1980) (decision under prior law).

Cited: United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964); Commercial Credit Corp. v. National Credit Corp., 251 Ark. 702, 473 S.W.2d 881 (1971) (decisions under prior law); Richardson v. United States, 358 F. Supp. 994 (E.D. Ark. 1973); Lawhon Farm Supply, Inc. v. Hayes, 316 Ark. 69, 870 S.W.2d 729 (1994).

Subpart 2 Applicability of Chapter

4-9-109. Scope.

  1. Except as otherwise provided in subsections (c) and (d) of this section, this chapter applies to:
    1. a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract;
    2. an agricultural lien;
    3. a sale of accounts, chattel paper, payment intangibles, or promissory notes;
    4. a consignment;
    5. a security interest arising under § 4-2-401, § 4-2-505, § 4-2-711(3), or § 4-2A-508(5), as provided in § 4-9-110; and
    6. a security interest arising under § 4-4-210 or § 4-5-118.
  2. The application of this chapter to a security interest in a secured obligation is not affected by the fact that the obligation is itself secured by a transaction or interest to which this chapter does not apply.
  3. This chapter does not apply to the extent that:
    1. a statute, regulation, or treaty of the United States preempts this chapter; or
    2. the rights of a transferee beneficiary or nominated person under a letter of credit are independent and superior under § 4-5-114.
  4. This chapter does not apply to:
    1. a landlord's lien, other than an agricultural lien;
    2. a lien, other than an agricultural lien, given by statute or other rule of law for services or materials, but § 4-9-333 applies with respect to priority of the lien;
    3. an assignment of a claim for wages, salary, or other compensation of an employee;
    4. a sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out of which they arose;
    5. an assignment of accounts, chattel paper, payment intangibles, or promissory notes which is for the purpose of collection only;
    6. an assignment of a right to payment under a contract to an assignee that is also obligated to perform under the contract;
    7. an assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a preexisting indebtedness;
    8. a transfer of an interest in or an assignment of a claim under a policy of insurance, other than an assignment by or to a health-care provider of a health-care-insurance receivable and any subsequent assignment of the right to payment, but §§ 4-9-315 and 4-9-322 apply with respect to proceeds and priorities in proceeds;
    9. an assignment of a right represented by a judgment, other than a judgment taken on a right to payment that was collateral;
    10. a right of recoupment or set-off, but:
      1. Section 4-9-340 applies with respect to the effectiveness of rights of recoupment or set-off against deposit accounts; and
      2. Section 4-9-404 applies with respect to defenses or claims of an account debtor;
    11. the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except to the extent that provision is made for:
      1. liens on real property in §§ 4-9-203 and 4-9-308;
      2. fixtures in § 4-9-334;
      3. fixture filings in §§ 4-9-501, 4-9-502, 4-9-512, 4-9-516, and 4-9-519; and
      4. security agreements covering personal and real property in § 4-9-604;
    12. an assignment of a claim arising in tort, other than a commercial tort claim, but §§ 4-9-315 and 4-9-322 apply with respect to proceeds and priorities in proceeds;
    13. an assignment of a deposit account in a consumer transaction, but §§ 4-9-315 and 4-9-322 apply with respect to proceeds and priorities in proceeds; or
    14. a transfer by a government or governmental unit.

History. Acts 2001, No. 1439, § 1; 2003, No. 204, § 1.

A.C.R.C. Notes. Acts 2003, No. 204, § 16, provided:

“Nothing in this act shall alter or diminish the Arkansas Public Service Commission's authority under otherwise applicable law.”

Research References

ALR.

Consignment Transactions Under Uniform Commercial Code Article 9 on Secured Transactions. 58 A.L.R.6th 289.

Remedies Available Under Revised U.C.C. § 9-625 for Secured Party's Failure to Comply with Article 9. 47 A.L.R.7th Art. 3 (2020).

Ark. L. Notes.

Laurence, Update: Some Practical Advice on How to Create a Security Interest in a Deposit Account, 2002 Arkansas L. Notes 45.

Case Notes

In General.

Former § 4-9-104 reinforces the conclusion that the law of Arkansas recognizes a mortgage of rent as a thing separate and distinct from a mortgage of land alone. First Fed. Sav. v. City Nat'l Bank, 87 B.R. 565 (W.D. Ark. 1988) (decision under prior law).

Applicability.

This section provides that the Uniform Commercial Code applies to conditional sales contracts and chattel mortgages and has the effect of relieving the court of the burden of construing instruments as either one or the other. United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964) (decision under prior law).

This chapter, covering secured transactions, does not apply to real property or the creation of a real estate mortgage; it instead provides for the regulation of security interests in personal property and fixtures. Ark. Iron & Metal Co. v. First Nat'l Bank, 16 Ark. App. 245, 701 S.W.2d 380 (1985) (decision under prior law).

The pre-2001 version of this chapter, covering secured transactions, does not apply to real property or the creation of a real estate mortgage; it instead provides for the regulation of security interests in personal property and fixtures. Ark. Iron & Metal Co. v. First Nat'l Bank, 16 Ark. App. 245, 701 S.W.2d 380 (1985) (decision under prior law).

Where secured party chose to commence separate actions against the personal property collateral and the real property collateral of the guarantor, former subsection (j) was not applicable because personal property was also involved, and the secured party was required to act in accordance with the notice requirements of the pre-2001 version of the Arkansas Commercial Code. United States v. Dawson, 929 F.2d 1336 (8th Cir. 1991) (decision under prior law).

Article 9 of the Uniform Commercial Code applies to the filing and perfection of security interest in proceeds from farm crops and is not preempted by federal law. Nef v. Ag Servs. of Am., Inc., 79 Ark. App. 100, 86 S.W.3d 4 (2002).

Attachment Sales.

This chapter does not apply to attachment sales pursuant to a judgment, by virtue of this section and former § 4-9-104(h). Citizens Bank v. Perrin & Sons, 253 Ark. 639, 488 S.W.2d 14 (1972) (decision under prior law).

This chapter does not apply to attachment sales pursuant to a judgment, by virtue of former § 4-9-102(2) and this section. Citizens Bank v. Perrin & Sons, 253 Ark. 639, 488 S.W.2d 14 (1972) (decision under prior law).

Chattel Mortgages.

A chattel mortgage is a secured transaction within the meaning of this subtitle. Lonoke Production Credit Ass'n v. Bohannon, 238 Ark. 206, 379 S.W.2d 17 (1964) (decision under prior law).

A chattel mortgage, as between the parties, is a secured transaction within the meaning of the Uniform Commercial Code. Anderson v. First Jacksonville Bank, 243 Ark. 977, 423 S.W.2d 273 (1968) (decision under prior law).

Improvement Districts.

Because former subsection (e) of this section excepts from the operations of this chapter a transfer by a government or governmental subdivision or agency, this chapter is inapplicable to improvement districts. Quapaw Cent. Bus. Imp. Dist. v. Bond-Kinman, Inc., 315 Ark. 703, 870 S.W.2d 390 (1994) (decision under prior law).

Insurance.

Assignment of unearned premiums and dividends to insurance premium financing company was a transaction exempt from the filing requirements of the pre-2001 version of this chapter. Premium Fin. Specialists, Inc. v. Lindsey, 11 B.R. 135 (E.D. Ark. 1981) (decision under prior law).

Judgments and Causes of Action.

Section 16-65-120, which relates specifically to the sale and assignment of judgments and causes of action, was not impliedly repealed by enactment of former § 4-9-102 and was the applicable local law. Brown & Root, Inc. v. Hempstead County Sand & Gravel, Inc., 767 F.2d 464 (8th Cir. 1985) (decision under prior law).

Landlord's Liens.

A lien set out in a lease does not become a “landlord's lien” under this section by virtue of the fact that the relationship of landlord and tenant exists between the parties. In re King Furn. City, Inc., 240 F. Supp. 453 (E.D. Ark. 1965) (decision under prior law).

Former subsection (b) of this section specifically excludes landlord's liens. Herringer v. Mercantile Bank, 315 Ark. 218, 866 S.W.2d 390 (1993) (decision under prior law).

Notes Subsequent to Judgment.

Where judgment was obtained upon a note subsequent to its surrender by a bank which had held it as security for a loan, UCC did not apply after date of that judgment. McIlroy Bank v. First Nat'l Bank, 252 Ark. 558, 480 S.W.2d 127 (1972) (decision under prior law).

Secured Transactions.

Factors which distinguish a lease from a secured transaction include: (1) whether the financing agent is also a manufacturer or dealer; (2) whether a down payment is required; (3) whether the lessee must bear the risk of loss; (4) whether the lessee has an option to purchase at the end of the lease term and, if so, whether the purchase may be for little or no additional consideration; (5) whether the lessor, upon the lessee's default under the lease, has a right to declare all lease payments due and payable (similar to a mortgagee's foreclosure rights); (6) whether the lessee must pay sales taxes; (7) whether financing statements or additional security instruments are completed regarding the transaction; and (8) whether a sales price for the purchase was established at the outset of the lease. Thus agreement was not a lease, but a conditional sales contract and a secured transaction, where the agreement provided for a down payment at the start of the “lease”, the weekly payments included sales tax of approximately the current Arkansas sales tax rate, all risk of loss fell upon the “lessee”, the “lessee” was expressly provided an option to purchase which could be exercised only at a specific time, and, in the lease, the purchase price for the option was established at the outset, which precluded consideration of the actual fair market value of the television at the end of the term. In re Brown, 82 B.R. 68 (Bankr. W.D. Ark. 1987) (decision under prior law).

Cited: Bond v. Dudley, 244 Ark. 568, 426 S.W.2d 780 (1968); National Bedding & Furn. Indus., Inc. v. Clark, 252 Ark. 780, 481 S.W.2d 690 (1972); Rex Fin. Corp. v. Marshall, 406 F. Supp. 567 (W.D. Ark. 1976); Bell v. Itek Leasing Corp., 262 Ark. 22, 555 S.W.2d 1 (1977); Benton State Bank v. Warren, 263 Ark. 1, 562 S.W.2d 74 (1978); Bragg's Elec. Constr. Co. v. Rebsamen Cos., 6 B.R. 619 (Bankr. E.D. Ark. 1980); Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989); Pachter, Gold & Schaffer v. Yantis, 742 F. Supp. 544 (W.D. Ark. 1990); Luker v. Reeves, 65 F.3d 670 (8th Cir. 1995) (decisions under prior law).

4-9-110. Security interests arising under Chapter 2 or Chapter 2A.

A security interest arising under § 4-2-401, § 4-2-505, § 4-2-711(3), or § 4-2A-508(5) is subject to this chapter. However, until the debtor obtains possession of the goods:

  1. the security interest is enforceable, even if § 4-9-203(b)(3) has not been satisfied;
  2. filing is not required to perfect the security interest;
  3. the rights of the secured party after default by the debtor are governed by Chapter 2 or Chapter 2A; and
  4. the security interest has priority over a conflicting security interest created by the debtor.

History. Acts 2001, No. 1439, § 1.

Case Notes

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970); Cullipher v. Lindsey Rice Mill, Inc., 730 F. Supp. 970 (W.D. Ark. 1990) (decisions under prior law).

Part 2 — Effectiveness of Security Agreement; Attachment of Security Interest; Rights of Parties to Security Agreement

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Research References

ALR.

Sufficiency of debtor's signature on security agreement or financing statement under UCC § 9-203 and § 9-402. 3 A.L.R.4th 502.

Improper sale, removal, concealment, or disposal of property subject to security interest under UCC. 48 A.L.R.4th 819.

Am. Jur. 68A Am. Jur. 2d, Secured Trans., § 123 et seq.

Ark. L. Notes.

Pedersen, Crop Financing: A Guide to Arkansas Law, 1988 Ark. L. Notes 31.

Laurence, The Shortest Article Ever on Secured Transactions, 1989 Ark. L. Notes 77.

Ark. L. Rev.

Secured Transactions: Article IX: Part 2, 16 Ark. L. Rev. 131.

McDermott, Standard Leasing Corp. v. Schmidt Aviation: Analysis of Contract Choice of Law in Usury Cases, 34 Ark. L. Rev. 297.

Leflar, Conflict of Laws: Arkansas, 1978-82, 36 Ark. L. Rev. 191.

Mortgage Provisions Extending the Lien to Future Advances and Antecedent Indebtedness, 26 Ark. L. Rev. 423.

C.J.S. 79 C.J.S., Secured Trans., § 27 et seq.

U. Ark. Little Rock L.J.

Martin, An Arkansas Practitioner's Guide to Perfecting Security Interests in Securities, Brokerage Accounts, and Other Forms of Investment Property under Revised Article 8 and Amended Article 9, 19 U. Ark. Little Rock L.J. 1.

Tyler, Survey of Business Law, 3 U. Ark. Little Rock L.J. 149.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

Survey, Debtor/Creditor Relations, 14 U. Ark. Little Rock L.J. 353.

Subpart 1 Effectiveness and Attachment

4-9-201. General effectiveness of security agreement.

  1. Except as otherwise provided in the Uniform Commercial Code, a security agreement is effective according to its terms between the parties, against purchasers of the collateral, and against creditors.
  2. A transaction subject to this chapter is subject to any applicable rule of law which establishes a different rule for consumers; to any other statute or rule of this state that regulates the rates, charges, agreements, and practices for loans, credit sales, or other extensions of credit; to rights for workers' compensation as provided in § 11-9-110(a); and to any consumer-protection statute or rule of this state.
  3. In case of conflict between this chapter and a rule of law, statute, or rule described in subsection (b), the rule of law, statute, or rule controls. Failure to comply with a statute or rule described in subsection (b) has only the effect the statute or rule specifies.
  4. This chapter does not:
    1. validate any rate, charge, agreement, or practice that violates a rule of law, statute, or rule described in subsection (b); or
    2. extend the application of the rule of law, statute, or rule to a transaction not otherwise subject to it.

History. Acts 2001, No. 1439, § 1; 2019, No. 315, § 108.

Amendments. The 2019 amendment substituted “or rule” for “or regulation” throughout (b) through (d).

Cross References. Artists' Consignment Act, § 4-73-201 et seq.

Case Notes

Assignment.

Even though an assignee took no further action after an assignment of a debt on mobile homes, it could still enforce the liens because it was not required to produce documents showing that the name of the lien holder changed every time the debt was transferred. Edgerly v. Vanderbilt Mortg. & Fin., Inc., 2016 Ark. App. 241, 492 S.W.3d 100 (2016).

Buyer in Ordinary Course of Business.

Directed verdict, or motion to dismiss under Ark. R. Civ. P. 50(a), was properly granted because mills that purchased gatewood timber from an owner were buyers in the ordinary course of business under §§ 4-1-201(b)(9), 4-9-320, and timber, once cut, became inventory goods under § 4-9-102(a)(48); thus, the mills had no duty to conduct a lien search to find a creditor's perfected security interest in the timber. Fordyce Bank & Trust Co. v. Bean Timberland, Inc., 369 Ark. 90, 251 S.W.3d 267 (2007).

Unperfected Interests.

The UCC provides some protection to holders of unperfected interests by making such interest enforceable as between the parties. United States v. Trigg, 465 F.2d 1264 (8th Cir. 1972), cert. denied, 410 U.S. 909, 93 S. Ct. 963, 35 L. Ed. 2d 270 (1973) (decision under prior law).

Usury.

Uniform Commercial Code does not affect the Arkansas law on usury. Cooper v. Cherokee Village Dev. Co., 236 Ark. 37, 364 S.W.2d 158 (1963) (decision under prior law).

Cited: Lyles v. Union Planters Nat'l Bank, 239 Ark. 738, 393 S.W.2d 867 (1965); Hill v. State, 253 Ark. 512, 487 S.W.2d 624 (1972); Wilkins v. M & H Fin., Inc., 476 F. Supp. 212 (E.D. Ark. 1979); Lawhon Farm Supply, Inc. v. Hayes, 316 Ark. 69, 870 S.W.2d 729 (1994) (decisions under prior law).

4-9-202. Title to collateral immaterial.

Except as otherwise provided with respect to consignments or sales of accounts, chattel paper, payment intangibles, or promissory notes, the provisions of this chapter with regard to rights and obligations apply whether title to collateral is in the secured party or the debtor.

History. Acts 2001, No. 1439, § 1.

Case Notes

In General.

The UCC focuses on rights and duties of the secured party, the debtor, and third parties, rather than on the location of title. United States v. Trigg, 465 F.2d 1264 (8th Cir. 1972), cert. denied, 410 U.S. 909, 93 S. Ct. 963, 35 L. Ed. 2d 270 (1973) (decision under prior law).

4-9-203. Attachment and enforceability of security interest — Proceeds — Supporting obligations — Formal requisites.

  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 (c) through (i), a security interest is enforceable against the debtor and third parties with respect to the collateral only if:
    1. value has been given;
    2. the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and
    3. one of the following conditions is met:
      1. the debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned;
      2. the collateral is not a certificated security and is in the possession of the secured party under § 4-9-313 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 § 4-8-301 pursuant to the debtor's security agreement; or
      4. the collateral is deposit accounts, electronic chattel paper, investment property, letter-of-credit rights, or electronic documents, and the secured party has control under § 4-7-106, § 4-9-104, § 4-9-105, § 4-9-106, or § 4-9-107 pursuant to the debtor's security agreement.
  3. Subsection (b) is subject to § 4-4-210 on the security interest of a collecting bank, § 4-5-118 on the security interest of a letter-of-credit issuer or nominated person, § 4-9-110 on a security interest arising under Chapter 2 or Chapter 2A, and § 4-9-206 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 chapter or by contract:
    1. the security agreement becomes effective to create a security interest in the person's property; or
    2. the person becomes generally obligated for the obligations of the other person, including the obligation secured under the security agreement, and acquires or succeeds to all or substantially all of the assets of the other person.
  5. If a new debtor becomes bound as debtor by a security agreement entered into by another person:
    1. the agreement satisfies subsection (b)(3) with respect to existing or after-acquired property of the new debtor to the extent the property is described in the agreement; and
    2. another agreement is not necessary to make a security interest in the property enforceable.
  6. The attachment of a security interest in collateral gives the secured party the rights to proceeds provided by § 4-9-315 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.

History. Acts 2001, No. 1439, § 1; 2007, No. 342, § 28.

Research References

Ark. L. Notes.

Schneider, Notes on Agricultural Landlord's Liens Under Revised Article 9 of the Uniform Commercial Code, 2002 Arkansas L. Notes 53.

Case Notes

In General.

For a creditor to have a perfected security interest in personal property, several requirements must be met under the pre-2001 version of this chapter: the debtor must have rights in the collateral; the debtor must sign a security agreement, which contains a description of the collateral, in favor of the secured party; and value must be given between the debtor and the secured party. Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 169 B.R. 920 (Bankr. E.D. Ark. 1994) (decision under prior law).

A financing statement, standing alone, does not create a security interest in the debtor's property under the pre-2001 version of this chapter. Rice v. Citizens First Bank (In re Cheqnet Sys.), 227 B.R. 166 (Bankr. E.D. Ark. 1998) (decision under prior law).

A note may constitute a security agreement because it grants a security interest, contains a description of the collateral, and is signed by the debtor; however, if the note is the security agreement, the bank's security is that collateral described in the note, and neither the composite document rule nor the parole evidence rule under the pre-2001 version of this chapter will apply to expand the items of collateral securing the note or to correct any error in the granting language of the security agreement. Rice v. Citizens First Bank (In re Cheqnet Sys.), 227 B.R. 166 (Bankr. E.D. Ark. 1998) (decision under prior law).

Description of Collateral.

Security agreements and financing statements establishing liens on growing crops were insufficient to identify the subject of the security agreements. Piggott State Bank v. Pollard Gin Co., 243 Ark. 159, 419 S.W.2d 120 (1967) (decision under prior law).

It made no difference that the security agreement stated the subject automobile was a Buick Electra when the automobile surrendered under the default was a Buick LeSabre. Commercial Credit Corp. v. National Credit Corp., 251 Ark. 702, 473 S.W.2d 881 (1971) (decision under prior law).

This section and former § 4-9-402(1) clearly require some type of a description of the land concerned, and a description in a combined financing statement and security agreement which omitted several parcels of land, was insufficient as to the real estate not described. People's Bank v. Pioneer Food Indus., Inc., 253 Ark. 277, 486 S.W.2d 24 (1972) (decision under prior law).

Duty of Care.

Where creditor failed to satisfy the requirements of former § 4-9-203 by omitting the signature of the debtor and by not providing a sufficient description of the land on which the crops were to be grown, creditor's security interest in debtor's goods did not attach, and, as the holder of an unattached security interest, creditor could not claim or enforce any duty of care that this chapter may place on a purchaser of farm products in the ordinary course of business. Lawhon Farm Supply, Inc. v. Hayes, 316 Ark. 69, 870 S.W.2d 729 (1994) (decision under prior law).

Failure to Create Security Interest.

Possession of tractor by alleged secured party was actually held pursuant to a sale and not a pledge even though a financing statement was filed where no security agreement was executed and alleged secured party did not take possession of the tractor at the time the financing statement was executed. Gibbs v. King, 263 Ark. 338, 564 S.W.2d 515 (1978) (decision under prior law).

Under the pre-2001 version of the U.C.C., an agent may not create a valid security interest by wrongfully converting the principal's property, even if the agent's creditors acted in good faith. Pachter, Gold & Schaffer v. Yantis, 742 F. Supp. 544 (W.D. Ark. 1990) (decision under prior law).

Forged Security Agreements.

The assignee of a forged security agreement from a creditor of doubtful solvency who failed to verify the debtor's signature could not assert estoppel against the holder of a genuine security agreement because of such holder's failure to file notice of its security interest. General Elec. Credit Corp. v. Bankers Com. Corp., 244 Ark. 984, 429 S.W.2d 60 (1968) (decision under prior law).

Lien Encumbrancers.

Having failed to comply with § 27-14-801 et seq., a creditor was not a lien encumbrancer in so far as third parties were concerned under the motor vehicle registration requirements when another creditor took possession of the subject automobile. Commercial Credit Corp. v. National Credit Corp., 251 Ark. 702, 473 S.W.2d 881 (1971) (decision under prior law).

Rights in Collateral.

Mere possession of a letter of credit is insufficient to establish a right to collateral upon which to base a security interest. Tradax Am., Inc. v. First Nat'l Bank, 934 F.2d 969 (8th Cir. 1991) (decision under prior law).

The fact the defendant booked the transaction as an account receivable did not make it an account receivable in law, where the defendant did not own, and could not legitimately encumber, any interest in the account, regardless of the bookkeeping procedure he chose. Tradax Am., Inc. v. First Nat'l Bank, 934 F.2d 969 (8th Cir. 1991) (decision under prior law).

Debtor had rights in the collateral under the pre-2001 version of this chapter at the time he took possession and began operating the business, and the security interest of the supplier attached even though sale to debtor was not completed until a later date. Wawak v. Affiliated Food Stores, Inc., 306 Ark. 186, 812 S.W.2d 679 (1991) (decision under prior law).

A partnership consisting of Chapter 7 debtors was the owner of the collateral used to secure debt owed to creditors and had sufficient rights in all of the collateral for the security interests to attach and become enforceable, as required by this section, at the time the security interests were granted because the debtors intended for the collateral to be owned by the partnership. In re Curtis, 363 B.R. 572 (Bankr. E.D. Ark. 2007) (decision under prior law).

Landlords' lien interest in the crop proceeds took priority over a perfected security interest that a creditor bank had in the same proceeds, regardless of when the bank's conflicting security interest was perfected. Bank of McCrory v. Morrison (In re James), 368 B.R. 800 (Bankr. E.D. Ark. 2007).

Bank's lien in stock pledged by bankruptcy debtors as security for loans was unperfected since the debtors conditionally relinquished their transfer rights, and thus the security interest could not attach to those rights and, without attachment, perfection could not be accomplished. Timberland Bancshares, Inc. v. Garrison (In re Lee), 462 B.R. 666 (Bankr. W.D. Ark. 2011).

Unperfected Title Holders.

Where a creditor was neither a lien encumbrancer, in so far as third parties are concerned, under the Motor Vehicle Registration Act, nor the holder of a perfected security interest, a “lien creditor” or a buyer in the ordinary course of business under the Uniform Commercial Code, even though it held the title its security interest did not have priority over the security interest another creditor had perfected by possession. Commercial Credit Corp. v. National Credit Corp., 251 Ark. 702, 473 S.W.2d 881 (1971) (decision under prior law).

Value Given.

Where the parent corporation promised to extend credit to a bankrupt moving company's sole shareholder, who executed a security agreement in favor of the parent corporation pledging all of the assets of the bankrupt company, there was consideration sufficient under the pre-2001 version of this chapter to support a simple contract and therefore the secured interest of the assignee of the security agreement was valid, and the fact that the benefit of the security agreement accrued to the sole stockholder and not the bankrupt company did not detract from the fact that the secured party gave value for the security interest. Putnam Realty, Inc. v. Terminal Moving & Storage Co. (In re Terminal Moving & Storage Co.), 631 F.2d 547 (8th Cir. 1980) (decision under prior law).

Cited: United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964); Hill v. State, 253 Ark. 512, 487 S.W.2d 624 (1972); Richardson v. United States, 358 F. Supp. 994 (E.D. Ark. 1973); Svestka v. First Nat'l Bank, 269 Ark. 237, 602 S.W.2d 604 (1980); Findley Mach. Co. v. Miller, 3 Ark. App. 264, 625 S.W.2d 542 (1981); Davidson v. Ark. River Valley Drain Drying Coop. (In re Glass), 26 B.R. 166 (E.D. Ark. 1982); In re Howell Enterprises, Inc., 105 B.R. 494 (Bankr. E.D. Ark. 1989); Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989); Cullipher v. Lindsey Rice Mill, Inc., 730 F. Supp. 970 (W.D. Ark. 1990); In re Miller, 119 B.R. 660 (W.D. Ark. 1990); Schieffler v. First Nat'l Bank (In re Peeler), 145 B.R. 973 (Bankr. E.D. Ark. 1992); Herringer v. Mercantile Bank, 315 Ark. 218, 866 S.W.2d 390 (1993) (decisions under prior law).

4-9-204. After-acquired property — Future advances.

  1. Except as otherwise provided in subsection (b), a security agreement may create or provide for a security interest in after-acquired collateral.
  2. A security interest does not attach under a term constituting an after-acquired property clause to:
    1. consumer goods, other than an accession when given as additional security, unless the debtor acquires rights in them within ten (10) days after the secured party gives value; or
    2. 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.

History. Acts 2001, No. 1439, § 1.

Case Notes

After-Acquired Collateral.

Plan proposed by Chapter 12 debtors which treated three security agreements they entered with a creditor separately by eliminating provisions in the agreements that provided cross-collateralization violated 11 U.S.C. § 1225(a)(5), and could not be confirmed. Although 11 U.S.C. § 1222(b)(2) authorized the debtors to modify the rights of holders of secured claims through their bankruptcy plan. that authorization was limited to modifications that complied with § 1225, and § 1225(a)(5)(B)(i)'s lien-retention requirement encompassed cross-collateralized property. In re Heath, 483 B.R. 708 (Bankr. E.D. Ark. 2012).

Attachment of Security Interests.

A security interest such as a chattel mortgage attaches when it has been executed, the secured creditor has given value, and the debtor has acquired some interest in the collateral which he can encumber. Lonoke Production Credit Ass'n v. Bohannon, 238 Ark. 206, 379 S.W.2d 17 (1964) (decision under prior law).

The creditor's security interest in an account receivable attached with the transfer of the account where no question was raised as to the agreement between the debtor and creditor concerning the transfer, as to value given or as to the debtor's rights in the collateral. Standard Lumber Co. v. Chamber Frames, Inc., 317 F. Supp. 837 (E.D. Ark. 1970) (decision under prior law).

Chattel Mortgages.

As between the parties, former §§ 4-9-2044-9-206 control the validity and enforcement of a chattel mortgage. Anderson v. First Jacksonville Bank, 243 Ark. 977, 423 S.W.2d 273 (1968) (decision under prior law).

Future Advances.

The trial court properly held the security agreement executed in 1993 by the debtors did not also secure the later, separate note executed by the wife in 2001, after the husband and wife had separated for the last time. First Nat'l Bank v. Garner, 86 Ark. App. 213, 167 S.W.3d 664 (2004).

Priority of Liens.

Properly perfected materialmen's liens took priority over the attached but unperfected lien of the supplier of an air conditioning unit, cooling tower, kitchen range and oven, and duct work in such goods only to the extent that labor or material was supplied after such goods became fixtures. House v. Long, 244 Ark. 718, 426 S.W.2d 814 (1968) (decision under prior law).

Where a bank loaned money with a financing statement and chattel mortgage covering future advances being filed, and subsequently others loaned debtor money acquiring liens, the bank had first priority when the debtor failed to meet payments and its property had to be sold, notwithstanding the debtor had payed off the first loan to bank, since it never was out of debt to bank. Associated Bus. Inv. Corp. v. First Nat'l Bank, 264 Ark. 611, 573 S.W.2d 328 (1978) (decision under prior law).

Cited: Hill v. State, 253 Ark. 512, 487 S.W.2d 624 (1972); United States v. Riceland Foods, Inc., 504 F. Supp. 1258 (E.D. Ark. 1981); In re Howell Enterprises, Inc., 105 B.R. 494 (Bankr. E.D. Ark. 1989); Beebe v. MacMillan Petro. (Ark.), Inc., 115 B.R. 175 (Bankr. W.D. Ark. 1990); Herringer v. Mercantile Bank, 315 Ark. 218, 866 S.W.2d 390 (1993); In re Russell, 165 B.R. 262 (Bankr. E.D. Ark. 1994) (decisions under prior law).

4-9-205. Use or disposition of collateral permissible.

  1. A security interest is not invalid or fraudulent against creditors solely because:
    1. the debtor has the right or ability to:
      1. use, commingle, or dispose of all or part of the collateral, including returned or repossessed goods;
      2. collect, compromise, enforce, or otherwise deal with collateral;
      3. accept the return of collateral or make repossessions; or
      4. use, commingle, or dispose of proceeds; or
    2. the secured party fails to require the debtor to account for proceeds or replace collateral.
  2. This section does not relax the requirements of possession if attachment, perfection, or enforcement of a security interest depends upon possession of the collateral by the secured party.

History. Acts 2001, No. 1439, § 1.

Case Notes

Chattel Mortgages.

As between the parties, former §§ 4-9-2044-9-206 control the validity and enforcement of a chattel mortgage. Anderson v. First Jacksonville Bank, 243 Ark. 977, 423 S.W.2d 273 (1968) (decision under prior law).

4-9-206. Security interest arising in purchase or delivery of financial asset.

  1. A security interest in favor of a securities intermediary attaches to a person's security entitlement if:
    1. the person buys a financial asset through the securities intermediary in a transaction in which the person is obligated to pay the purchase price to the securities intermediary at the time of the purchase; and
    2. the securities intermediary credits the financial asset to the buyer's securities account before the buyer pays the securities intermediary.
  2. The security interest described in subsection (a) secures the person's obligation to pay for the financial asset.
  3. A security interest in favor of a person that delivers a certificated security or other financial asset represented by a writing attaches to the security or other financial asset if:
    1. the security or other financial asset:
      1. in the ordinary course of business is transferred by delivery with any necessary indorsement or assignment; and
      2. is delivered under an agreement between persons in the business of dealing with such securities or financial assets; and
    2. the agreement calls for delivery against payment.
  4. The security interest described in subsection (c) secures the obligation to make payment for the delivery.

History. Acts 2001, No. 1439, § 1.

Subpart 2 Rights and Duties

4-9-207. Rights and duties of secured party having possession or control of collateral.

  1. Except as otherwise provided in subsection (d), a secured party shall use reasonable care in the custody and preservation of collateral in the secured party's possession. In the case of chattel paper or an instrument, reasonable care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.
  2. Except as otherwise provided in subsection (d), if a secured party has possession of collateral:
    1. reasonable expenses, including the cost of insurance and payment of taxes or other charges, incurred in the custody, preservation, use, or operation of the collateral are chargeable to the debtor and are secured by the collateral;
    2. the risk of accidental loss or damage is on the debtor to the extent of a deficiency in any effective insurance coverage;
    3. the secured party shall keep the collateral identifiable, but fungible collateral may be commingled; and
    4. the secured party may use or operate the collateral:
      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 (d), a secured party having possession of collateral or control of collateral under § 4-7-106, § 4-9-104, § 4-9-105, § 4-9-106, or § 4-9-107:
    1. may hold as additional security any proceeds, except money or funds, received from the collateral;
    2. shall apply money or funds received from the collateral to reduce the secured obligation, unless remitted to the debtor; and
    3. may create a security interest in the collateral.
  4. If the secured party is a buyer of accounts, chattel paper, payment intangibles, or promissory notes or a consignor:
    1. subsection (a) does not apply unless the secured party is entitled under an agreement:
      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
    2. subsections (b) and (c) do not apply.

History. Acts 2001, No. 1439, § 1; 2007, No. 342, § 29.

Case Notes

Commercially Reasonable Resale.

Where a secured party filed a replevin action to recover the collateral farming equipment and to obtain a deficiency judgment, the trial court erred in finding that the resale of the equipment was commercially reasonable under the pre-2001 version of this chpater, in view of the fact that the debtor was prevented from presenting evidence of commercial reasonableness of the equipment at the time of the sale, and the fact that the secured party did not give notice of the sale of the possessed items of property. Harper v. Wheatley Implement Co., 278 Ark. 27, 643 S.W.2d 537 (1982) (decision under prior law).

Possession.

The term “possession” in former § 4-9-207 requires more than the bare right to repossess the collateral; possession involves some level of physical control over the collateral. City Nat'l Bank v. Unique Structures, 49 F.3d 1330 (8th Cir. 1995) (decision under prior law).

Cited: Rushton v. U.M. & M. Credit Corp., 245 Ark. 703, 434 S.W.2d 81 (1968) (decision under prior law).

4-9-208. Additional duties of secured party having control of collateral.

  1. This section applies to cases in which there is no outstanding secured obligation and the secured party is not committed to make advances, incur obligations, or otherwise give value.
  2. Within ten (10) days after receiving an authenticated demand by the debtor:
    1. a secured party having control of a deposit account under § 4-9-104(a)(2) shall send to the bank with which the deposit account is maintained an authenticated statement that releases the bank from any further obligation to comply with instructions originated by the secured party;
    2. a secured party having control of a deposit account under § 4-9-104(a)(3) 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;
    3. a secured party, other than a buyer, having control of electronic chattel paper under § 4-9-105 shall:
      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;
    4. a secured party having control of investment property under § 4-8-106(d)(2) or § 4-9-106(b) shall send to the securities intermediary or commodity intermediary with which the security entitlement or commodity contract is maintained an authenticated record that releases the securities intermediary or commodity intermediary from any further obligation to comply with entitlement orders or directions originated by the secured party;
    5. a secured party having control of a letter-of-credit right under § 4-9-107 shall send to each person having an unfulfilled obligation to pay or deliver proceeds of the letter of credit to the secured party an authenticated release from any further obligation to pay or deliver proceeds of the letter of credit to the secured party; and
    6. a secured party having control of an electronic document shall:
      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.

History. Acts 2001, No. 1439, § 1; 2007, No. 342, § 30.

4-9-209. Duties of secured party if account debtor has been notified of assignment.

  1. Except as otherwise provided in subsection (c), this section applies if:
    1. there is no outstanding secured obligation; and
    2. the secured party is not committed to make advances, incur obligations, or otherwise give value.
  2. Within ten (10) days after receiving an authenticated demand by the debtor, a secured party shall send to an account debtor that has received notification of an assignment to the secured party as assignee under § 4-9-406(a) 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.

History. Acts 2001, No. 1439, § 1.

4-9-210. Request for accounting — Request regarding list of collateral or statement of account.

  1. In this section:
    1. “Request” means a record of a type described in paragraph (2), (3), or (4).
    2. “Request for an accounting” means a record authenticated by a debtor requesting that the recipient provide an accounting of the unpaid obligations secured by collateral and reasonably identifying the transaction or relationship that is the subject of the request.
    3. “Request regarding a list of collateral” means a record authenticated by a debtor requesting that the recipient approve or correct a list of what the debtor believes to be the collateral securing an obligation and reasonably identifying the transaction or relationship that is the subject of the request.
    4. “Request regarding a statement of account” means a record authenticated by a debtor requesting that the recipient approve or correct a statement indicating what the debtor believes to be the aggregate amount of unpaid obligations secured by collateral as of a specified date and reasonably identifying the transaction or relationship that is the subject of the request.
  2. Subject to subsections (c), (d), (e), and (f), a secured party, other than a buyer of accounts, chattel paper, payment intangibles, or promissory notes or a consignor, shall comply with a request within fourteen (14) days after receipt:
    1. in the case of a request for an accounting, by authenticating and sending to the debtor an accounting; and
    2. in the case of a request regarding a list of collateral or a request regarding a statement of account, by authenticating and sending to the debtor an approval or correction.
  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 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 an authenticated record:
    1. disclaiming any interest in the collateral; and
    2. if known to the recipient, providing the name and mailing address of any assignee of or successor to the recipient's interest in the collateral.
  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 an authenticated record:
    1. disclaiming any interest in the obligations; and
    2. if known to the recipient, providing the name and mailing address of any assignee of or successor to the recipient's interest in the obligations.
  6. A debtor is entitled without charge to one response to a request under this section during any six-month period. The secured party may require payment of a charge not exceeding twenty-five dollars ($25) for each additional response.

History. Acts 2001, No. 1439, § 1.

Case Notes

Cited: Associated Bus. Inv. Corp. v. First Nat'l Bank, 264 Ark. 611, 573 S.W.2d 328 (1978) (decision under prior law).

Part 3 — Perfection and Priority

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Cross References. Perfection of security interest, savings clause, in all securities, § 4-8-603.

Effective Dates. Acts 2003, No. 204, § 19: Feb. 21, 2003. Emergency clause provided: “It is found and determined by the Eighty-fourth General Assembly that certain provisions of the Electric Consumer Choice Act of 1999, as amended by Act 324 of 2001, for the implementation of retail electric competition may take effect prior to ninety-one (91) days after the adjournment of this session; that this act is intended to prevent such implementation; and that unless this emergency clause is adopted, this act may not go into effect until further steps have been taken toward retail electric competition, which the General Assembly has found not to be in the public interest. The General Assembly further finds that uncertainty surrounding the implementation of the Electric Consumer Choice Act during the ninety (90) days following the adjournment of this session and uncertainty regarding the recovery of reasonable generation costs, could discourage electric utilities from acquiring additional generation resources; that retail electric customers will require such resources; and that this act, in Section 11 and elsewhere, provides procedures to facilitate the acquisition of these resources. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Acts 2013, No. 138, § 24: July 1, 2013. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is in need of important revisions to better identify debtors and secured collateral, to promote the efficiency of electronic filing, to reduce cost and time related to identifying debtors, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2013 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2013.”

Research References

ALR.

Construction of UCC § 9-307(3) providing that under certain conditions a buyer, other than a buyer in the ordinary course of business, takes free of a security interest securing “future advances”. 35 A.L.R.4th 390.

Authorization to transfer collateral free of lien under UCC § 9-306(2). 37 A.L.R.4th 787.

Improper sale, removal, concealment, or disposal of property subject to security interest under the UCC. 48 A.L.R.4th 819.

Security interests in liquor licenses. 56 A.L.R.4th 1131.

Government agricultural program payments as proceeds of agricultural products under UCC § 9-306. 79 A.L.R.4th 903.

Am. Jur. 68A Am. Jur. 2d, Secured Trans., § 216 et seq.

Ark. L. Notes.

Pedersen, Crop Financing: A Guide to Arkansas Law, 1988 Ark. L. Notes 31.

Laurence, The Shortest Article Ever on Secured Transactions, 1989 Ark. L. Notes 77.

Flaccus, Baby Needs New Shoes: Child Support Collection and Bankruptcy, 1990 Ark. L. Notes 51.

Copeland, Recent Arkansas Cases Involving Article Nine of the U.C.C., 1995 Ark. L. Notes 31.

Laurence, Some Practical Advice on How to Perfect a Security Interest in an All-Terrain Vehicle, 1996 Ark. L. Notes 59.

Laurence, Some Practical Advice on How to Create a Security Interest in a Deposit Account, 1997 Ark. L. Notes 39.

Watkins, A Guide to Choice of Law in Arkansas, 2005 Arkansas L. Notes 151.

Ark. L. Rev.

The Trustee in Bankruptcy and the Secured Creditor, 17 Ark. L. Rev. 46.

Secured Transactions — Conflicting Priorities of Security Interests and Real Estate Interests in Fixtures Under Uniform Commercial Code Section 9-313, 23 Ark. L. Rev. 301.

The Ambiguous Statutory Machinery Pertaining to Fixtures Under the Uniform Commercial Code: Whether the New 9-313 Provision Effectively Eliminates Prior Criticism of the Old 9-313, 27 Ark. L. Rev. 482.

C.J.S. 79 C.J.S., Secured Trans., § 47 et seq.

U. Ark. Little Rock L.J.

Davis, Note: Commercial Law — Usury — Lease Construed as Installment Sale, 2 U. Ark. Little Rock L.J. 112.

Tyler, Survey of Business Law, 3 U. Ark. Little Rock L.J. 149.

Survey of Arkansas Law: Bankruptcy, 6 U. Ark. Little Rock L.J. 63.

Legislation of the 1983 General Assembly, Business Law, 6 U. Ark. Little Rock L.J. 607.

Survey—Family Law, 10 U. Ark. Little Rock L.J. 577.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

Survey, Debtor/Creditor Relations, 13 U. Ark. Little Rock L.J. 361.

Subpart 1 Law Governing Perfection and Priority

4-9-301. Law governing perfection and priority of security interests.

Except as otherwise provided in §§ 4-9-3034-9-306, the following rules determine the law governing perfection, the effect of perfection or nonperfection, and the priority of a security interest in collateral:

  1. Except as otherwise provided in this section, while a debtor is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in collateral.
  2. While collateral is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a possessory security interest in that collateral.
  3. Except as otherwise provided in paragraph (4) of this section, while tangible negotiable documents, goods, instruments, money, or tangible chattel paper is located in a jurisdiction, the local law of that jurisdiction governs:
    1. perfection of a security interest in the goods by filing a fixture filing;
    2. perfection of a security interest in timber to be cut; and
    3. the effect of perfection or nonperfection and the priority of a nonpossessory security interest in the collateral.
  4. The local law of the jurisdiction in which the wellhead or minehead is located governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in as-extracted collateral.

History. Acts 2001, No. 1439, § 1; 2003, No. 204, § 2; 2007, No. 342, § 31.

A.C.R.C. Notes. Acts 2003, No. 204, § 16, provided:

“Nothing in this act shall alter or diminish the Arkansas Public Service Commission's authority under otherwise applicable law.”

Case Notes

In General.

Former § 4-9-103 applied without regard to the debtor's residence, business address, or where the security agreement attached. Meeks v. Mercedes-Benz Credit Corp. (In re Stinnett), 241 B.R. 599 (Bankr. W.D. Ark. 1999), aff'd, No. 00-1011, 2000 U.S. Dist. LEXIS 14751 (W.D. Ark. Aug. 28, 2000), aff'd, 257 F.3d 843 (8th Cir. 2001) (decision under prior law).

Construction.

Although several provisions of Arkansas law may appear to conflict, a harmonious reading of the provisions of the Arkansas vehicle titling statutes and the pre-2001 version of the Uniform Commercial Code clearly demonstrates that it is the intention of the statutes to allow the security interest in a vehicle perfected in a state other than Arkansas, by required notation on a certificate of title issued by that state, to remain perfected in Arkansas for a period of four months, and so long thereafter as no certificate of title is issued by Arkansas. Meeks v. Mercedes-Benz Credit Corp. (In re Stinnett), 241 B.R. 599 (Bankr. W.D. Ark. 1999), aff'd, No. 00-1011, 2000 U.S. Dist. LEXIS 14751 (W.D. Ark. Aug. 28, 2000), aff'd, 257 F.3d 843 (8th Cir. 2001) (decision under prior law).

Purpose.

The purpose of the pre-2001 version of the commercial code is to promote the uniform recognition of security interests which have been noted on the certificate of title, and to provide notice to potential purchasers or creditors that the property is encumbered. Meeks v. Mercedes-Benz Credit Corp. (In re Stinnett), 241 B.R. 599 (Bankr. W.D. Ark. 1999), aff'd, No. 00-1011, 2000 U.S. Dist. LEXIS 14751 (W.D. Ark. Aug. 28, 2000), aff'd, 257 F.3d 843 (8th Cir. 2001) (decision under prior law).

Effect of Lapsed Filing.

A bank, rather than a judgment creditor, had priority with respect to objects of personal property, notwithstanding that the bank did not file a continuation statement when its security interest expired and that the judgment creditor obtained its judgment after the original filing by the bank, since the judgment creditor was not a purchaser or lien creditor within the meaning of the pre-2001 version of the statute. J-M Mfg. Co. v. First Nat'l Bank of Dewitt, 70 Ark. App. 60, 14 S.W.3d 534 (2000) (decision under prior law).

Foreign Titles.

The security interest that was properly noted on a currently effective foreign title also effective under the pre-2001 version of Arkansas law, was entitled to deference by the laws of the State of Arkansas. Meeks v. Mercedes-Benz Credit Corp. (In re Stinnett), 241 B.R. 599 (Bankr. W.D. Ark. 1999), aff'd, No. 00-1011, 2000 U.S. Dist. LEXIS 14751 (W.D. Ark. Aug. 28, 2000), aff'd, 257 F.3d 843 (8th Cir. 2001) (decision under prior law).

Purchasers of Farm Products.

Where a purchaser paid consideration and took delivery of a motor home several months before Louisiana and Arkansas issued the certificates of title that failed to show the bank's lien, the purchaser could not be considered a bona fide purchaser because he did not purchase relying on any certificate of title, since to allow him to retain the vehicle would defeat the general policy involved in certificate of title laws, which is that lien holders and third parties should be able to rely upon certificates of title. Commercial Nat'l Bank v. McWilliams, 270 Ark. 826, 606 S.W.2d 363 (1980) (decision under prior law).

An auctioneer is merely a selling agent, not a “purchaser,” and cannot claim the protection given to buyers of farm products in the ordinary course of business; accordingly, auctioneer who sold cattle in which bank had security interest to a buyer in another state was not a purchaser having priority over bank so as to avoid liability for conversion. Commercial Bank v. Hales, 281 Ark. 439, 665 S.W.2d 857 (1984) (decision under prior law).

Vendor's Lien.

Where the chancery court ordered the sale of a truck to satisfy a repairman's lien, but the truck had been subject to a finance company's perfected security interest when brought into the state, the interest acquired by the buyer at the judicial sale was subject to the finance company's vendor's lien, and a replevin action brought by the finance company was not a collateral attack on the chancery court order since the finance company was never made a party to that suit. Mack Fin. Corp. v. Chrestman, 270 Ark. 396, 605 S.W.2d 749 (1980) (decision under prior law).

The fact that the debtor may have avoided higher fees or taxes imposed by the State of Arkansas by registering and titling his vehicles in Oklahoma was of no consequence to the perfection question. Meeks v. Mercedes-Benz Credit Corp. (In re Stinnett), 241 B.R. 599 (Bankr. W.D. Ark. 1999), aff'd, No. 00-1011, 2000 U.S. Dist. LEXIS 14751 (W.D. Ark. Aug. 28, 2000), aff'd, 257 F.3d 843 (8th Cir. 2001) (decision under prior law).

4-9-302. Law governing perfection and priority of agricultural liens.

While farm products are located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of an agricultural lien on the farm products.

History. Acts 2001, No. 1439, § 1.

Research References

Ark. L. Notes.

Schneider, Notes on Agricultural Landlord's Liens Under Revised Article 9 of the Uniform Commercial Code, 2002 Arkansas L. Notes 53.

Case Notes

Cited: GMAC v. Union Bank & Trust Co., 329 F.3d 594 (8th Cir. 2003).

4-9-303. Law governing perfection and priority of security interests in goods covered by a certificate of title.

  1. This section applies to goods covered by a certificate of title, even if there is no other relationship between the jurisdiction under whose certificate of title the goods are covered and the goods or the debtor.
  2. Goods become covered by a certificate of title when a valid application for the certificate of title and the applicable fee are delivered to the appropriate authority. Goods cease to be covered by a certificate of title at the earlier of the time the certificate of title ceases to be effective under the law of the issuing jurisdiction or the time the goods become covered subsequently by a certificate of title issued by another jurisdiction.
  3. The local law of the jurisdiction under whose certificate of title the goods are covered governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in goods covered by a certificate of title from the time the goods become covered by the certificate of title until the goods cease to be covered by the certificate of title.

History. Acts 2001, No. 1439, § 1.

Case Notes

Certificates of Title.

This section continues in force the perfection of a security interest noted on a foreign certificate of title until a certificate has been issued by another jurisdiction. Strick Corp. v. Eldo-Craft Boat Co., 479 F. Supp. 720 (W.D. Ark. 1979) (decision under prior law).

It is the intention of this section and § 27-14-201 et seq. to allow the security interest in a vehicle perfected in a state other than Arkansas by required notation on a certificate of title issued by that state to remain perfected in this state for a period of four months, and so long thereafter as no certificate of title is issued by this state. Strick Corp. v. Eldo-Craft Boat Co., 479 F. Supp. 720 (W.D. Ark. 1979) (decision under prior law).

When this section speaks of “registration,” the language contemplates the issuance of an Arkansas title, not the procurement of a “nonnegotiable,” “nontitle” registration in connection with the issuance of a vehicle license. Strick Corp. v. Eldo-Craft Boat Co., 479 F. Supp. 720 (W.D. Ark. 1979) (decision under prior law).

Nowhere is there a requirement that vehicles must have been physically present when the certificates of titles perfecting the security interest were issued, only that the vehicles must have been in that jurisdiction when the security interest attached. Strick Corp. v. Eldo-Craft Boat Co., 479 F. Supp. 720 (W.D. Ark. 1979) (decision under prior law).

Where the certificate of title was properly issued and perfected in Oklahoma in accord with Oklahoma law, and Oklahoma is a jurisdiction which permits titling of foreign vehicles, the security agreement was perfected under the pre-2001 version of Arkansas law. Meeks v. Mercedes-Benz Credit Corp. (In re Stinnett), 241 B.R. 599 (Bankr. W.D. Ark. 1999), aff'd, No. 00-1011, 2000 U.S. Dist. LEXIS 14751 (W.D. Ark. Aug. 28, 2000), aff'd, 257 F.3d 843 (8th Cir. 2001) (decision under prior law).

Although an Arkansas resident has a duty under Arkansas law to seek the issuance of certificates of title in the appropriate forum, the creditor has no obligation to make a filing in another state to perfect or reperfect its security interest, and the creditor's interest continues to be perfected despite a resident's failure to comply with the pre-2001 version of Arkansas registration laws. Meeks v. Mercedes-Benz Credit Corp. (In re Stinnett), 241 B.R. 599 (Bankr. W.D. Ark. 1999), aff'd, No. 00-1011, 2000 U.S. Dist. LEXIS 14751 (W.D. Ark. Aug. 28, 2000), aff'd, 257 F.3d 843 (8th Cir. 2001) (decision under prior law).

The fact that the debtor may have avoided higher fees or taxes imposed by the State of Arkansas by registering and titling his vehicles in Oklahoma is of no consequence to the perfection question, and the appropriate outcome for debtor's failure to comply with the pre-2001 version of Arkansas state law is not to punish the creditor, but if the state chooses to enforce the relevant provisions of Arkansas law, the appropriate and existing remedies are prosecution of the debtor. Meeks v. Mercedes-Benz Credit Corp. (In re Stinnett), 241 B.R. 599 (Bankr. W.D. Ark. 1999), aff'd, No. 00-1011, 2000 U.S. Dist. LEXIS 14751 (W.D. Ark. Aug. 28, 2000), aff'd, 257 F.3d 843 (8th Cir. 2001) (decision under prior law).

In a replevin case, certificates of title were not material to the issue of whether a creditor could repossess mobile homes as a result of a debtor's default on her payments; the contract in which the debtor agreed to pay for the homes was the relevant document in the case, and the debtor did not dispute the veracity of that document. Edgerly v. Vanderbilt Mortg. & Fin., Inc., 2016 Ark. App. 241, 492 S.W.3d 100 (2016).

4-9-304. Law governing perfection and priority of security interests in deposit accounts.

  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.
  2. The following rules determine a bank's jurisdiction for purposes of this part:
    1. If an agreement between the bank and the debtor governing the deposit account expressly provides that a particular jurisdiction is the bank's jurisdiction for purposes of this part, this chapter, or this subtitle, that jurisdiction is the bank's jurisdiction.
    2. If paragraph (1) does not apply and an agreement between the bank and its customer governing the deposit account expressly provides that the agreement is governed by the law of a particular jurisdiction, that jurisdiction is the bank's jurisdiction.
    3. If neither paragraph (1) nor paragraph (2) applies and an agreement between the bank and its customer governing the deposit account expressly provides that the deposit account is maintained at an office in a particular jurisdiction, that jurisdiction is the bank's jurisdiction.
    4. If none of the preceding paragraphs applies, the bank's jurisdiction is the jurisdiction in which the office identified in an account statement as the office serving the customer's account is located.
    5. If none of the preceding paragraphs applies, the bank's jurisdiction is the jurisdiction in which the chief executive office of the bank is located.

History. Acts 2001, No. 1439, § 1.

Cross References. Perfection of security interest, savings clause, in all securities, § 4-8-603.

4-9-305. Law governing perfection and priority of security interests in investment property.

  1. Except as otherwise provided in subsection (c), the following rules apply:
    1. While a security certificate is located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in the certificated security represented thereby.
    2. The local law of the issuer's jurisdiction as specified in § 4-8-110(d) governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in an uncertificated security.
    3. The local law of the securities intermediary's jurisdiction as specified in § 4-8-110(e) governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in a security entitlement or securities account.
    4. The local law of the commodity intermediary's jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in a commodity contract or commodity account.
  2. The following rules determine a commodity intermediary's jurisdiction for purposes of this part:
    1. If an agreement between the commodity intermediary and commodity customer governing the commodity account expressly provides that a particular jurisdiction is the commodity intermediary's jurisdiction for purposes of this part, this chapter, or this subtitle, that jurisdiction is the commodity intermediary's jurisdiction.
    2. If paragraph (1) does not apply and an agreement between the commodity intermediary and commodity customer governing the commodity account expressly provides that the agreement is governed by the law of a particular jurisdiction, that jurisdiction is the commodity intermediary's jurisdiction.
    3. If neither paragraph (1) nor paragraph (2) applies and an agreement between the commodity intermediary and commodity customer governing the commodity account expressly provides that the commodity account is maintained at an office in a particular jurisdiction, that jurisdiction is the commodity intermediary's jurisdiction.
    4. If none of the preceding paragraphs applies, the commodity intermediary's jurisdiction is the jurisdiction in which the office identified in an account statement as the office serving the commodity customer's account is located.
    5. If none of the preceding paragraphs applies, the commodity intermediary's jurisdiction is the jurisdiction in which the chief executive office of the commodity intermediary is located.
  3. The local law of the jurisdiction in which the debtor is located governs:
    1. perfection of a security interest in investment property by filing;
    2. automatic perfection of a security interest in investment property created by a broker or securities intermediary; and
    3. automatic perfection of a security interest in a commodity contract or commodity account created by a commodity intermediary.

History. Acts 2001, No. 1439, § 1.

Cross References. Perfection of security interest, savings clause, in all securities, § 4-8-603.

4-9-306. Law governing perfection and priority of security interests in letter-of-credit rights.

  1. Subject to subsection (c), the local law of the issuer's jurisdiction or a nominated person's jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in a letter-of-credit right if the issuer's jurisdiction or nominated person's jurisdiction is a state.
  2. For purposes of this part, an issuer's jurisdiction or nominated person's jurisdiction is the jurisdiction whose law governs the liability of the issuer or nominated person with respect to the letter-of-credit right as provided in § 4-5-116.
  3. This section does not apply to a security interest that is perfected only under § 4-9-308(d).

History. Acts 2001, No. 1439, § 1.

Case Notes

Cited: GMAC v. Union Bank & Trust Co., 329 F.3d 594 (8th Cir. 2003).

4-9-307. Location of debtor.

  1. In this section, “place of business” means a place where a debtor conducts its affairs.
  2. Except as otherwise provided in this section, the following rules determine a debtor's location:
    1. A debtor who is an individual is located at the individual's principal residence.
    2. A debtor that is an organization and has only one (1) place of business is located at its place of business.
    3. A debtor that is an organization and has more than one (1) place of business is located at its chief executive office.
  3. Subsection (b) applies only if a debtor's residence, place of business, or chief executive office, as applicable, is located in a jurisdiction whose law generally requires information concerning the existence of a nonpossessory security interest to be made generally available in a filing, recording, or registration system as a condition or result of the security interest's obtaining priority over the rights of a lien creditor with respect to the collateral. If subsection (b) does not apply, the debtor is located in the District of Columbia.
  4. A person that ceases to exist, have a residence, or have a place of business continues to be located in the jurisdiction specified by subsections (b) and (c).
  5. A registered organization that is organized under the law of a state is located in that state.
  6. Except as otherwise provided in subsection (i), a registered organization that is organized under the law of the United States and a branch or agency of a bank that is not organized under the law of the United States or a state are located:
    1. in the state that the law of the United States designates, if the law designates a state of location;
    2. in the state that the registered organization, branch, or agency designates, if the law of the United States authorizes the registered organization, branch, or agency to designate its state of location, including by designating its main office, home office, or other comparable office; or
    3. in the District of Columbia, if neither paragraph (1) nor paragraph (2) applies.
  7. A registered organization continues to be located in the jurisdiction specified by subsection (e) or (f) notwithstanding:
    1. the suspension, revocation, forfeiture, or lapse of the registered organization's status as such in its jurisdiction of organization; or
    2. the dissolution, winding up, or cancellation of the existence of the registered organization.
  8. The United States is located in the District of Columbia.
  9. A branch or agency of a bank that is not organized under the law of the United States or a state is located in the state in which the branch or agency is licensed, if all branches and agencies of the bank are licensed in only one (1) state.
  10. A foreign air carrier under the Federal Aviation Act of 1958, as amended, is located at the designated office of the agent upon which service of process may be made on behalf of the carrier.
  11. This section applies only for purposes of this part.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 6.

Amendments. The 2013 amendment substituted “State” for “state” throughout (f); and inserted “including by designating its main office, home office, or other comparable office” in (f)(2).

U.S. Code. The Federal Aviation Act of 1958, referred to in this section, is codified primarily as 49 U.S.C. § 1301 et seq.

Case Notes

Places of Business.

Where a farming partnership had more than one place of business because it grew crops in more than one county, the farm equipment and crops had to be perfected in a county which was considered the partnership's chief executive office; all financing statements regarding the collateral at issue were filed in the proper county and were properly perfected because they were filed in the county where the partnership's executive office was located and where both partners resided. In re Curtis, 363 B.R. 572 (Bankr. E.D. Ark. 2007).

Creditor had a perfected security interest in a farming partnership's benefits from the United States Department of Agriculture because the creditor filed a financing statement with the office of the Secretary of State. In re Curtis, 363 B.R. 572 (Bankr. E.D. Ark. 2007).

Subpart 2 Perfection

4-9-308. When security interest or agricultural lien is perfected — Continuity of perfection.

  1. Except as otherwise provided in this section and § 4-9-309, a security interest is perfected if it has attached and all of the applicable requirements for perfection in §§ 4-9-310 — 4-9-316 have been satisfied. A security interest is perfected when it attaches if the applicable requirements are satisfied before the security interest attaches.
  2. An agricultural lien is perfected if it has become effective and all of the applicable requirements for perfection in § 4-9-310 have been satisfied. An agricultural lien is perfected when it becomes effective if the applicable requirements are satisfied before the agricultural lien becomes effective.
  3. A security interest or agricultural lien is perfected continuously if it is originally perfected by one (1) method under this chapter and is later perfected by another method under this chapter, without an intermediate period when it was unperfected.
  4. Perfection of a security interest in collateral also perfects a security interest in a supporting obligation for the collateral.
  5. Perfection of a security interest in a right to payment or performance also perfects a security interest in a security interest, mortgage, or other lien on personal or real property securing the right.
  6. Perfection of a security interest in a securities account also perfects a security interest in the security entitlements carried in the securities account.
  7. Perfection of a security interest in a commodity account also perfects a security interest in the commodity contracts carried in the commodity account.

History. Acts 2001, No. 1439, § 1.

Research References

Ark. L. Notes.

Schneider, Notes on Agricultural Landlord's Liens Under Revised Article 9 of the Uniform Commercial Code, 2002 Arkansas L. Notes 53.

Case Notes

Chattel Mortgages.

Former sections 4-9-301 — 4-9-304 concern priorities of perfected and unperfected security interests as against third persons and are not applicable to a chattel mortgage as between the parties. Anderson v. First Jacksonville Bank, 243 Ark. 977, 423 S.W.2d 273 (1968) (decision under prior law).

Continuous Perfection.

To interpret former § 4-9-303(2) as providing that a security interest can be continuously perfected by consecutively filed financing statements contradicts the express language of former § 4-9-403(2). Former § 4-9-303(2) is applicable to security interests that are originally perfected in one way and then subsequently perfected in some other way, without an intermediate unperfected period. Worthen Bank & Trust Co. v. Hilyard Drilling Co., 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

Cited: United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964); Standard Lumber Co. v. Chamber Frames, Inc., 317 F. Supp. 837 (E.D. Ark. 1970); In re Howell Enterprises, Inc., 105 B.R. 494 (Bankr. E.D. Ark. 1989); Wawak v. Affiliated Food Stores, Inc., 306 Ark. 186, 812 S.W.2d 679 (1991); Herringer v. Mercantile Bank, 315 Ark. 218, 866 S.W.2d 390 (1993) (decisions under prior law).

4-9-309. Security interest perfected upon attachment.

The following security interests are perfected when they attach:

  1. a purchase-money security interest in consumer goods, except as otherwise provided in § 4-9-311(b) with respect to consumer goods that are subject to a statute or treaty described in § 4-9-311(a);
  2. an assignment of accounts or payment intangibles which does not by itself or in conjunction with other assignments to the same assignee transfer a significant part of the assignor's outstanding accounts or payment intangibles;
  3. a sale of a payment intangible;
  4. a sale of a promissory note;
  5. a security interest created by the assignment of a health-care-insurance receivable to the provider of the health-care goods or services;
  6. a security interest arising under § 4-2-401, § 4-2-505, § 4-2-711(3), or § 4-2A-508(5), until the debtor obtains possession of the collateral;
  7. a security interest of a collecting bank arising under § 4-4-210;
  8. a security interest of an issuer or nominated person arising under § 4-5-118;
  9. a security interest arising in the delivery of a financial asset under § 4-9-206(c);
  10. a security interest in investment property created by a broker or securities intermediary;
  11. a security interest in a commodity contract or a commodity account created by a commodity intermediary;
  12. an assignment for the benefit of all creditors of the transferor and subsequent transfers by the assignee thereunder; and
  13. a security interest created by an assignment of a beneficial interest in a decedent's estate.

History. Acts 2001, No. 1439, § 1.

Research References

ALR.

Creation and Perfection of Security Interests in Insurance Proceeds under Article 9 of Uniform Commercial Code. 47 A.L.R.6th 347.

Case Notes

Purchase Money Mortgages.

A purchase money mortgage on farm machinery took priority over a properly filed financing statement and security agreement executed thereafter covering the same farm machinery although the purchase money mortgage was not filed until after the filing of the subsequent financing statement. Lonoke Production Credit Ass'n v. Bohannon, 238 Ark. 206, 379 S.W.2d 17 (1964) (decision under prior law).

Purchase Money Security Interest.

Where in the written purchase agreement between the parties, the defendant buyer affirmatively and unambiguously represented to the plaintiff seller that he was purchasing the collateral goods for personal, family, or household purposes and the buyer did not inform the seller that the goods were to be used in his rental property business, considerations of fairness under the pre-2001 version of this chapter dictated that the seller's security interest be regarded as a purchase money security interest in consumer goods and, therefore, perfected without the filing of any financing statement. In re Pettit, 18 B.R. 8 (Bankr. E.D. Ark. 1981) (decision under prior law).

Creditor's claim was allowed as a secured claim because the guttering system at issue, which was purchased with funds provided by the creditor, was intended, as evidenced by the contract executed by the parties, to provide a purchase money security interest in consumer goods. The guttering system was easily removable from the residence and was thus not a fixture, which would have required the filing of a financing statement. In re Williams, 381 B.R. 742 (Bankr. W.D. Ark. 2008).

4-9-310. When filing required to perfect security interest or agricultural lien — Security interests and agricultural liens to which filing provisions do not apply.

  1. Except as otherwise provided in subsection (b) and § 4-9-312(b), 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:
    1. that is perfected under § 4-9-308(d), (e), (f), or (g);
    2. that is perfected under § 4-9-309 when it attaches;
    3. in property subject to a statute, regulation, or treaty described in § 4-9-311(a);
    4. in goods in possession of a bailee which is perfected under § 4-9-312(d)(1) or (2);
    5. in certificated securities, documents, goods, or instruments which is perfected without filing or possession under § 4-9-312(e), (f), or (g);
    6. in collateral in the secured party's possession under § 4-9-313;
    7. in a certificated security which is perfected by delivery of the security certificate to the secured party under § 4-9-313;
    8. in deposit accounts, electronic chattel paper, electronic documents, investment property, or letter-of-credit rights which is perfected by control under § 4-9-314;
    9. in proceeds which is perfected under § 4-9-315; or
    10. that is perfected under § 4-9-316.
  3. If a secured party assigns a perfected security interest or agricultural lien, a filing under this chapter is not required to continue the perfected status of the security interest against creditors of and transferees from the original debtor.

History. Acts 2001, No. 1439, § 1; 2007, No. 342, § 32.

Research References

Ark. L. Notes.

Schneider, Notes on Agricultural Landlord's Liens Under Revised Article 9 of the Uniform Commercial Code, 2002 Arkansas L. Notes 53.

Case Notes

Agricultural Lien.

Lender's lien on Arkansas crops was properly perfected by a financing statement because it reasonably identified the Arkansas crops as collateral under § 4-9-108 where it indicated that the collateral consisted of crops produced by two entities, and it suggested that the crops were located in Arkansas; this, along with the name of the secured lender, would have provided a third party with sufficient inquiry notice to locate the Arkansas crops. There was no evidence that an unsuccessful inquiry was made by a farmer prior to providing funding, and there was no unjust enrichment that allowed the farmer's equitable lien to prime the lender's lien because the lender did not participate or encourage the farmer's efforts in providing his own resources in planting and growing the crops. Newsom v. Rabo Agrifinance, Inc., 2013 Ark. App. 259, 427 S.W.3d 688 (2013).

Assignment of Accounts.

In an action by a creditor, to which debtor had assigned accounts receivable, to recover on the accounts, where total accounts receivable assigned represented approximately 16% of debtor's total outstanding accounts receivable, such assignment was not a significant part of debtor's accounts receivable and, thus, no financing statement was required to be filed to perfect a security interest. Standard Lumber Co. v. Chamber Frames, Inc., 317 F. Supp. 837 (E.D. Ark. 1970) (decision under prior law).

In determining what is a significant part of the outstanding accounts of the assignor, a court must examine all of the facts and circumstances surrounding the transaction, including the relative size of the assignment and whether it was casual or isolated. In re B. Hollis Knight Co., 605 F.2d 397 (8th Cir. 1979) (decision under prior law).

Where the evidence established that out of the amount listed by the contractor as accounts receivable, approximately 50 percent of this amount constituted retainage on construction contracts and, where, since the contractor did not complete its work on any projects after it filed bankruptcy, the retainage proved to be uncollectible due to various counterclaims and setoffs, the district court correctly included the retainage in the contractor's total outstanding accounts. In re B. Hollis Knight Co., 605 F.2d 397 (8th Cir. 1979) (decision under prior law).

Where (1) the creditor acquired, by assignment, a promissory note issued to a third party, the debtor's guaranties pertaining to the note, and an agreement pledging the CD as security on the debtor's guarantee obligations, (2) the assignor had perfected its security interest in the CD under § 4-9-312(b)(1) by obtaining “control” of the CD, and (3) § 4-9-313, which provided for perfection by possession, was not applicable to the CD, which was a “deposit account” as defined in § 4-9-102(a)(29), the creditor did not have to take any additional steps, such as obtaining control over the CD, to perfect its security interest in the CD because the assignor had perfected its security interest and the security interest remained perfected, through the assignment, as against the debtor. Beal Bank, S.S.B. v. Fewell (In re Fewell), 352 B.R. 98 (Bankr. E.D. Ark. 2006).

Chattel Mortgages.

Former sections 4-9-301 — 4-9-304 concern priorities of perfected and unperfected security interests as against third persons and are not applicable to a chattel mortgage as between the parties. Anderson v. First Jacksonville Bank, 243 Ark. 977, 423 S.W.2d 273 (1968) (decision under prior law).

Conditional Sale.

Lease with a final option to purchase was a conditional sale and the lease was a security interest which should have been filed. In re Shell, 390 F. Supp. 273 (E.D. Ark. 1975) (decision under prior law).

Motor Vehicles.

Where finance company did not file a chattel mortgage on an automobile, its security interest was not perfected, so that the trial court erred in holding the finance company's claim to be prior to that of a garage owner who had possession of the car due to an unpaid repair bill. Henson v. Government Employees Fin. & Indus. Loan Corp., 257 Ark. 273, 516 S.W.2d 1 (1974) (decision under prior law).

Chapter 7 debtor maliciously injured farm equipment that was pledged as collateral for various bank loans within the meaning of 11 U.S.C. § 523(a)(6); even though the bank's security interest therein was not perfected by the placement of evidence of the lien on the certificate of title per subsection (b) of this section, § 4-9-311, and § 27-14-801 et seq., the security interest was still valid as between the parties to the agreement per § 4-9-317(a)(2)(A) and § 4-9-322. Southern Bancorp South v. Richmond (In re Richmond), 430 B.R. 846 (Bankr. E.D. Ark. 2010).

Possession of Collateral.

Bank which surrendered possession of note which it held as security for a loan lost its security interest in the note. McIlroy Bank v. First Nat'l Bank, 252 Ark. 558, 480 S.W.2d 127 (1972) (decision under prior law).

Cited: United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964); In re King Furn. City, Inc., 240 F. Supp. 453 (E.D. Ark. 1965); United States v. Trigg, 465 F.2d 1264 (8th Cir. 1972); Rex Fin. Corp. v. Marshall, 406 F. Supp. 567 (W.D. Ark. 1976); Findley Mach. Co. v. Miller, 3 Ark. App. 264, 625 S.W.2d 542 (1981); Davidson v. Ark. River Valley Drain Drying Coop. (In re Glass), 26 B.R. 166 (E.D. Ark. 1982); GE Co. v. M & C Mfg., Inc., 283 Ark. 110, 671 S.W.2d 189 (1984); In re Answerfone, Inc., 48 B.R. 24 (Bankr. E.D. Ark. 1985); Bassett v. Hobart Corp., 292 Ark. 592, 732 S.W.2d 133 (1987); First Nat'l Bank v. Massachusetts Gen. Life Ins. Co., 296 Ark. 28, 752 S.W.2d 1 (1988); Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989); Herringer v. Mercantile Bank, 315 Ark. 218, 866 S.W.2d 390 (1993) (decisions under prior law).

4-9-311. Perfection of security interests in property subject to certain statutes, regulations, and treaties.

  1. Except as otherwise provided in subsection (d) of this section, the filing of a financing statement is not necessary or effective to perfect a security interest in property subject to:
    1. a statute, regulation, or treaty of the United States whose requirements for a security interest's obtaining priority over the rights of a lien creditor with respect to the property preempt § 4-9-310(a);
    2. any other laws of this state which provide for central filing of security interests or which require indication on a certificate of title to property of such interest, including but not limited to §§ 27-14-801 — 27-14-807 and §§ 27-101-1014 — 27-101-1019; or
    3. a statute of another jurisdiction which provides for a security interest to be indicated on a certificate of title as a condition or result of the security interest's obtaining priority over the rights of a lien creditor with respect to the property.
  2. Compliance with the requirements of a statute, regulation, or treaty described in subsection (a) for obtaining priority over the rights of a lien creditor is equivalent to the filing of a financing statement under this chapter. Except as otherwise provided in subsection (d) and §§ 4-9-313 and 4-9-316(d) and (e) for goods covered by a certificate of title, a security interest in property subject to a statute, regulation, or treaty described in subsection (a) may be perfected only by compliance with those requirements, and a security interest so perfected remains perfected notwithstanding a change in the use or transfer of possession of the collateral.
  3. Except as otherwise provided in subsection (d) and § 4-9-316(d) and (e), duration and renewal of perfection of a security interest perfected by compliance with the requirements prescribed by a statute, regulation, or treaty described in subsection (a) are governed by the statute, regulation, or treaty. In other respects, the security interest is subject to this chapter.
  4. During any period in which collateral subject to a statute specified in subdivision (a)(2) is inventory held for sale or lease by a person or leased by that person as lessor and that person is in the business of selling goods of that kind, this section does not apply to a security interest in that collateral created by that person.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 7; 2019, No. 733, § 2.

Amendments. The 2013 amendment substituted “State” for “state” in (a)(2); and, in (a)(3), deleted “certificate-of-title” preceding “statute” and substituted “on a certificate of title” for “on the certificate”.

The 2019 amendment inserted “of this section” in the introductory language of (a); and inserted “and §§ 27-101-101427-101-1019” in (a)(2).

Case Notes

Applicability.

Article 9 of the Uniform Commercial Code applies to the filing and perfection of security interests in proceeds from farm crops and is not preempted by federal law. Nef v. Ag Servs. of Am., Inc., 79 Ark. App. 100, 86 S.W.3d 4 (2002).

There was no merit to a trustee's claim that he was allowed under 11 U.S.C. § 544 to avoid liens the U.S. Government and a bank held on farm equipment owned by debtors who declared Chapter 7 bankruptcy, and on rice the debtors had harvested that was in storage, because the debtors borrowed money and executed security agreements in the name of a joint venture they created; however, neither the Government nor the bank had a secured interest in vehicles the debtors owned which had titles that did not show a lien in favor of the Government or the bank because Arkansas law provided that creditors' security interests in registered vehicles had to be shown on the vehicle's title. Bank of Eng. v. Rice (In re Webb), 520 B.R. 748 (Bankr. E.D. Ark. 2014).

Judgments and Causes of Actions.

Section 16-65-120 was not impliedly repealed by enactment of former § 4-9-102 and was the applicable local law; therefore, cause of action assigned to bank as collateral for loan prior to filing of federal tax liens by federal government against assignor, and for which bank did not file a financing statement to perfect its interest under this section, took precedence over tax liens that arose out of unsecured obligation. Brown & Root, Inc. v. Hempstead County Sand & Gravel, Inc., 767 F.2d 464 (8th Cir. 1985) (decision under prior law).

Chapter 7 debtor maliciously injured farm equipment that was pledged as collateral for various bank loans within the meaning of 11 U.S.C. § 523(a)(6); even though the bank's security interest therein was not perfected by the placement of evidence of the lien on the certificate of title per § 4-9-310(b), this section, and § 27-14-801 et seq., the security interest was still valid as between the parties to the agreement per § 4-9-317(a)(2)(A) and § 4-9-322. Southern Bancorp South v. Richmond (In re Richmond), 430 B.R. 846 (Bankr. E.D. Ark. 2010).

4-9-312. Perfection of security interests in chattel paper, deposit accounts, documents, goods covered by documents, instruments, investment property, letter-of-credit rights, and money — Perfection by permissive filing — Temporary perfection without filing or transfer of possession.

  1. A security interest in chattel paper, negotiable documents, instruments, or investment property may be perfected by filing.
  2. Except as otherwise provided in § 4-9-315(c) and (d) for proceeds:
    1. a security interest in a deposit account may be perfected only by control under § 4-9-314;
    2. and except as otherwise provided in § 4-9-308(d), a security interest in a letter-of-credit right may be perfected only by control under § 4-9-314; and
    3. a security interest in money may be perfected only by the secured party's taking possession under § 4-9-313.
  3. While goods are in the possession of a bailee that has issued a negotiable document covering the goods:
    1. a security interest in the goods may be perfected by perfecting a security interest in the document; and
    2. a security interest perfected in the document has priority over any security interest that becomes perfected in the goods by another method during that time.
  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:
    1. issuance of a document in the name of the secured party;
    2. the bailee's receipt of notification of the secured party's interest; or
    3. filing as to the goods.
  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 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:
    1. ultimate sale or exchange; or
    2. loading, unloading, storing, shipping, transshipping, manufacturing, processing, or otherwise dealing with them in a manner preliminary to their sale or exchange.
  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:
    1. ultimate sale or exchange; or
    2. presentation, collection, enforcement, renewal, or registration of transfer.
  8. After the twenty-day period specified in subsection (e), (f), or (g) expires, perfection depends upon compliance with this chapter.

History. Acts 2001, No. 1439, § 1; 2007, No. 342, § 33.

Research References

ALR.

Perfection of Security Interests by Possession, Delivery, or Control under Revised Article 9 of Uniform Commercial Code. 53 A.L.R.6th 159.

Ark. L. Notes.

Laurence, Update: Some Practical Advice on How to Create a Security Interest in a Deposit Account, 2002 Arkansas L. Notes 45.

Case Notes

Chattel Mortgages.

Former sections 4-9-301 — 4-9-304 concern priorities of perfected and unperfected security interests as against third persons and are not applicable to a chattel mortgage as between the parties. Anderson v. First Jacksonville Bank, 243 Ark. 977, 423 S.W.2d 273 (1968) (decision under prior law).

Deposit Accounts.

Where (1) creditor acquired, by assignment, a promissory note issued to a third party, the debtor's guaranties pertaining to the note, and an agreement pledging the CD as security on the debtor's guarantee obligations, (2) the assignor had perfected its security interest in the CD by obtaining “control” of the CD, and (3) § 4-9-313, which provided for perfection by possession, was not applicable to the CD, which was a “deposit account” as defined in § 4-9-102(a)(29), creditor did not have to take any additional steps to perfect its security interest in the CD because the assignor had perfected its security interest, and the security interest remained perfected, through the assignment, as against the debtor. Beal Bank, S.S.B. v. Fewell (In re Fewell), 352 B.R. 98 (Bankr. E.D. Ark. 2006).

Instruments.

Where a delivery debenture was a “security” and qualified as an “instrument” within the meaning of former § 4-9-105(1)(i), when the secured party took possession of the delivery debenture, it perfected its security interest in the debenture. In re Glass, 692 F.2d 55 (8th Cir. 1982) (decision under prior law).

Where debtor assigned promissory note to his parents, but thereafter filed suit to collect the note, and transferred some of the proceeds to them, the parents did not “possess” the note while the debtor was enforcing it, and thus, under the pre-2001 version of this chapter, they did not have a perfected security interest in the note or its proceeds, and the trustee was entitled to avoid the preferential transfer of the proceeds. Luker v. Reeves, 65 F.3d 670 (8th Cir. 1995) (decision under prior law).

Stock.

No pre-2001 UCC provision prohibits junior creditors from asserting a security interest in stock already pledged to a senior secured party. In re Russell, 101 B.R. 62 (Bankr. W.D. Ark. 1989) (decision under prior law).

Surrender of Possession.

When bank surrendered possession of note which it held as security for a loan, it lost its security interest in the note. McIlroy Bank v. First Nat'l Bank, 252 Ark. 558, 480 S.W.2d 127 (1972) (decision under prior law).

Where the senior secured party in possession of the collateral acknowledges and accepts the instructions of the pledgor to deliver the collateral to the junior secured party after the debt to the senior secured party is satisfied under the pre-2001 version of this chapter, then the senior secured party is considered to possess the collateral as the agent or bailee of the junior secured party. In re Russell, 101 B.R. 62 (Bankr. W.D. Ark. 1989) (decision under prior law).

Cited: Affiliated Food Stores, Inc. v. F & M Bank, 300 Ark. 450, 780 S.W.2d 20 (1989) (decision under prior law).

4-9-313. When possession by or delivery to secured party perfects security interest without filing.

  1. Except as otherwise provided in subsection (b), a secured party may perfect a security interest in tangible negotiable documents, goods, instruments, money, or tangible chattel paper by taking possession of the collateral. A secured party may perfect a security interest in certificated securities by taking delivery of the certificated securities under § 4-8-301.
  2. With respect to goods covered by a certificate of title issued by this state, a secured party may perfect a security interest in the goods by taking possession of the goods only in the circumstances described in § 4-9-316(d).
  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:
    1. the person in possession authenticates a record acknowledging that it holds possession of the collateral for the secured party's benefit; or
    2. the person takes possession of the collateral after having authenticated a record acknowledging that it will hold possession of collateral for the secured party's benefit.
  4. If perfection of a security interest depends upon possession of the collateral by a secured party, perfection occurs no earlier than the time the secured party takes possession and continues only while the secured party retains possession.
  5. A security interest in a certificated security in registered form is perfected by delivery when delivery of the certificated security occurs under § 4-8-301 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:
    1. the acknowledgment is effective under subsection (c) or § 4-8-301(a), even if the acknowledgment violates the rights of a debtor; and
    2. unless the person otherwise agrees or law other than this chapter 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:
    1. to hold possession of the collateral for the secured party's benefit; or
    2. to redeliver the collateral to the secured party.
  9. A secured party does not relinquish possession, even if a delivery under subsection (h) violates the rights of a debtor. A person to which collateral is delivered under subsection (h) does not owe any duty to the secured party and is not required to confirm the delivery to another person unless the person otherwise agrees or law other than this chapter otherwise provides.

History. Acts 2001, No. 1439, § 1; 2007, No. 342, § 34.

Research References

ALR.

Perfection of Security Interests by Possession, Delivery, or Control under Revised Article 9 of Uniform Commercial Code. 53 A.L.R.6th 159.

Definition and Treatment of “Instruments” Under Revised Article 9 of Uniform Commercial Code. 42 A.L.R.7th Art. 5 (2019).

Case Notes

Certificates of Deposit.

Certificates of deposit are “instruments” as defined in the pre-2001 version of the UCC and security interests in such instruments may be perfected through possession. GE Co. v. M & C Mfg., Inc., 283 Ark. 110, 671 S.W.2d 189 (1984) (decision under prior law).

Where (1) the creditor acquired, by assignment, a promissory note issued to a third party, the debtor's guaranties pertaining to the note, and an agreement pledging the CD as security on the debtor's guarantee obligations, (2) the assignor had perfected its security interest in the CD under § 4-9-312(b)(1) by obtaining “control” of the CD, and (3) § 4-9-313, which provided for perfection by possession, was not applicable to the CD, which was a “deposit account” as defined in § 4-9-102(a)(29), the creditor did not have to take any additional steps, such as obtaining control over the CD, to perfect its security interest in the CD because the assignor had perfected its security interest and the security interest remained perfected, through the assignment, as against the debtor. Beal Bank, S.S.B. v. Fewell (In re Fewell), 352 B.R. 98 (Bankr. E.D. Ark. 2006).

Possession.

Having failed to comply with § 27-14-801 et seq., a creditor was not a lien encumbrancer in so far as third parties were concerned under the motor vehicle registration requirements when another creditor took possession of the subject automobile. Commercial Credit Corp. v. National Credit Corp., 251 Ark. 702, 473 S.W.2d 881 (1971) (decision under prior law).

Bank which surrendered possession of note which it held as security for a loan lost its security interest in the note. McIlroy Bank v. First Nat'l Bank, 252 Ark. 558, 480 S.W.2d 127 (1972) (decision under prior law).

Where the senior secured party in possession of the collateral acknowledges and accepts the instructions of the pledgor to deliver the collateral to the junior secured party after the debt to the senior secured party is satisfied, then the senior secured party is considered to possess the collateral as the agent or bailee of the junior secured party. In re Russell, 101 B.R. 62 (Bankr. W.D. Ark. 1989) (decision under prior law).

Where debtor assigned promissory note to his parents, but thereafter filed suit to collect the note, and transferred some of the proceeds to them, the parents did not “possess” the note while the debtor was enforcing it, and thus they did not have a perfected security interest in the note or its proceeds, and the trustee was entitled to avoid the preferential transfer of the proceeds. Luker v. Reeves, 65 F.3d 670 (8th Cir. 1995) (decision under prior law).

Priority.

Where a creditor was neither a lien encumbrancer, in so far as third parties are concerned under the Motor Vehicle Registration Act, nor the holder of a perfected security interest, a “lien creditor” or a buyer in the ordinary course of business under the Uniform Commercial Code, even though it held the title its security interest did not have priority over the security interest another creditor had perfected by possession. Commercial Credit Corp. v. National Credit Corp., 251 Ark. 702, 473 S.W.2d 881 (1971) (decision under prior law).

Stock.

No UCC provision prohibits junior creditors from asserting a security interest in stock already pledged to a senior secured party. In re Russell, 101 B.R. 62 (Bankr. W.D. Ark. 1989) (decision under prior law).

Cited: Henson v. Government Employees Fin. & Indus. Loan Corp., 257 Ark. 273, 516 S.W.2d 1 (1974); Integon Indem. Corp. v. Bull, 311 Ark. 61, 842 S.W.2d 1 (1992) (decisions under prior law).

4-9-314. Perfection by control.

  1. A security interest in investment property, deposit accounts, letter-of-credit rights, electronic chattel paper, or electronic documents may be perfected by control of the collateral under § 4-7-106, § 4-9-104, § 4-9-105, § 4-9-106, or § 4-9-107.
  2. A security interest in deposit accounts, electronic chattel paper, letter-of-credit rights, or electronic documents is perfected by control under § 4-7-106, § 4-9-104, § 4-9-105, § 4-9-106, or § 4-9-107 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 § 4-9-106 from the time the secured party obtains control and remains perfected by control until:
    1. the secured party does not have control; and
    2. one of the following occurs:
      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.

History. Acts 2001, No. 1439, § 1; 2007, No. 342, § 35.

A.C.R.C. Notes. The amendment of § 4-9-314 by Acts 2007, No. 342, § 35 includes a reference at subsection (b) to § 4-9-106. As the reference to § 4-9-106 was added to § 4-9-314(b) without being underlined as new language, and since the reference to § 4-9-106 in § 4-9-314(b) did not already exist in the Arkansas Code, it is not clear whether the inclusion of the reference to § 4-9-106 was intentional.

Research References

ALR.

Perfection of Security Interests by Possession, Delivery, or Control under Revised Article 9 of Uniform Commercial Code. 53 A.L.R.6th 159.

Ark. L. Notes.

Laurence, Update: Some Practical Advice on How to Create a Security Interest in a Deposit Account, 2002 Arkansas L. Notes 45.

4-9-315. Secured party's rights on disposition of collateral and in proceeds.

  1. Except as otherwise provided in this chapter and in § 4-2-403(2):
    1. a security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured party authorized the disposition free of the security interest or agricultural lien; and
    2. a security interest attaches to any identifiable proceeds of collateral.
  2. Proceeds that are commingled with other property are identifiable proceeds:
    1. if the proceeds are goods, to the extent provided by § 4-9-336; and
    2. if the proceeds are not goods, to the extent that the secured party identifies the proceeds by a method of tracing, including application of equitable principles, that is permitted under law other than this chapter with respect to commingled property of the type involved.
  3. A security interest in proceeds is a perfected security interest if the security interest in the original collateral was perfected.
  4. A perfected security interest in proceeds becomes unperfected on the twenty-first day after the security interest attaches to the proceeds unless:
    1. the following conditions are satisfied:
      1. a filed financing statement covers the original collateral;
      2. the proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement has been filed; and
      3. the proceeds are not acquired with cash proceeds;
    2. the proceeds are identifiable cash proceeds; or
    3. the security interest in the proceeds is perfected other than under subsection (c) when the security interest attaches to the proceeds or within twenty (20) days thereafter.
  5. If a filed financing statement covers the original collateral, a security interest in proceeds which remains perfected under subdivision (d)(1) becomes unperfected at the later of:
    1. when the effectiveness of the filed financing statement lapses under § 4-9-515 or is terminated under § 4-9-513; or
    2. the twenty-first day after the security interest attaches to the proceeds.

History. Acts 2001, No. 1439, § 1.

Research References

ALR.

Government agricultural program payments as proceeds of agricultural products under former UCC § 9-306. 79 A.L.R.4th 903.

Ark. L. Notes.

Laurence, Update: Some Practical Advice on How to Create a Security Interest in a Deposit Account, 2002 Arkansas L. Notes 45.

Case Notes

Assignment.

Where debtor has notice of assignment, payment to an assignor, or discharge or release by him, is no defense to the claim of the assignee under the pre-2001 version of this chapter. Pulpwood Suppliers, Inc. v. First Nat'l Bank, 21 Ark. App. 147, 729 S.W.2d 425 (1987) (decision under prior law).

Continuing Interest.

The plaintiff had security interest as a first preferred lien in mobile homes and could sell the mobile homes to satisfy the lien because the defendant buyer of these homes was not a buyer in “the ordinary course of business” and was not acting “in good faith and without knowledge” at the time of purchase of the mobile homes, where he was fully aware that the plaintiff had floorplanned and financed the homes and held a security in each of these mobile homes. Rex Fin. Corp. v. Marshall, 406 F. Supp. 567 (W.D. Ark. 1976) (decision under prior law).

Priority.

The plain meaning and logical implications of sections such as former §§ 4-9-306 and 4-9-504 may be preempted by a pervasive spirit of priority that supports giving a senior secured party a claim to the proceeds of a junior creditor's sale of collateral. Stotts v. Johnson, 302 Ark. 439, 791 S.W.2d 351 (1990) (decision under prior law).

Proceeds.

Where a creditor financed an automobile for a dealer who sold the automobile and sold the financing agreement to another creditor, the original creditor's interest would attach only to the proceeds of the sale. Commercial Credit Corp. v. National Credit Corp., 251 Ark. 702, 473 S.W.2d 881 (1971) (decision under prior law).

The claim of first bank to a lien in the account balances of persons and corporation who had filed bankruptcy petition was rejected because it was junior to the claim of setoff of second bank by the express provisions of the pre-2001 version of this chapter since the evidence was undisputed that cash proceeds from sale of first bank's collateral was commingled with other funds in the account at the second bank. In re Hoffman, 51 B.R. 42 (Bankr. W.D. Ark. 1985) (decision under prior law).

Payments to debtor under dairy termination program were not proceeds as defined in this section or as contemplated in note and security agreement. Bank of N. Ark. v. Owens, 76 B.R. 672 (E.D. Ark. 1987), aff'd, 884 F.2d 330 (8th Cir. 1989) (decision under prior law).

Dairy termination payments are not proceeds from the sale of dairy cattle. Bank of N. Ark. v. Owens, 884 F.2d 330 (8th Cir. 1989) (decision under prior law).

The rules employed to distinguish the “identifiable proceeds” from other funds are liberally construed in the creditor's favor by use of the “intermediate-balance rule”; if a presumption such as the lowest intermediate balance rule were not used, no funds placed in an account with funds from other sources could be “identified.” Metro. Nat'l Bank v. La Sher Oil Co., 81 Ark. App. 269, 101 S.W.3d 252 (2003).

Where a business served a writ of garnishment on a bank, but the bank had a secured interest in “proceeds” from the customer's accounts receivables, the bank could keep the money because the deposits in the customer's account were “identifiable proceeds.” Metro. Nat'l Bank v. La Sher Oil Co., 81 Ark. App. 269, 101 S.W.3d 252 (2003).

Ratification of Sale.

Delay in filing replevin suit until one and a half years after judicial sale alone did not amount to ratification of the sale. Brown v. Arkoma Coal Corp., 276 Ark. 322, 634 S.W.2d 390 (1982) (decision under prior law).

Repossession of Collateral.

Where finance company entered into financial agreement with seller of mobile homes to extend credit for the purchase of inventory in exchange for an assignment by the seller of all chattel paper arising from the sale of the inventory, and where, after purchaser of a mobile home defaulted, the seller repossessed the collateral and, subsequent to filing bankruptcy petition, sold the mobile home, the finance company had a perfected security interest superior to the seller's trustee in bankruptcy and was entitled to the sale proceeds since the financing company's initial perfected security interest in the mobile home as collateral became both a perfected security interest in the proceeds of the sale against the seller under former subsection (2) and an after-sale security interest in the collateral against the purchaser, due to the assignment of the chattel paper with the lien noted on the certificate of title. Upon default by the purchaser, the financing company's prior perfected security interest in the collateral reattached under former subsection (5)(a) as if in effect continuously and, thus, the financing company's chattel paper security interest supplemented and did not supplant its inventory security interest and the company did not abdicate or subrogate its inventory security interest in the chattel paper security interest. In re Frontier Mobile Home Sales, Inc., 635 F.2d 726 (8th Cir. 1980) (decision under prior law).

Setoff.

The provisions of former subdivision (4)(d) of this section were subject to the provisions of former subdivision (4)(d)(i) of this section, which provided that the perfected security interest in proceeds was subject to any right of setoff. Heckathorn Constr. Co. v. Bass Mechanical Contractors, 84 B.R. 1009 (Bankr. W.D. Ark. 1988) (decision under prior law).

Summary Judgment Denied.

Direct lienholder was not entitled to summary judgment pursuant to this section as there were material issues of fact as to whether the dealership was authorized to sell the vehicles at issue. Ford Motor Credit Co., LLC v. First Nat'l Bank of Crossett, 2016 Ark. App. 408, 500 S.W.3d 188 (2016).

Unperfected Interests.

Where one lender purchased the security instrument the buyer of an automobile gave to the automobile dealer and another lender held the title to the automobile as the result of a floor financing agreement with the dealer but neither lender had perfected its security interest, the lender who had purchased the buyer's contract was entitled to have the title registered to perfect its lien. Commercial Credit Corp. v. National Credit Corp., 251 Ark. 541, 473 S.W.2d 876 (1971) (decision under prior law).

Waiver of Security Interest.

Credit association whose members were planter-borrowers could not follow proceeds of crops to third-party purchasers, since its common practice was to let its members dispose of their crops at will and, thus, it had waived its security interest in the crops. Planters' Prod. Credit Ass'n v. Bowles, 256 Ark. 1063, 511 S.W.2d 645 (1974), superseded by statute as stated in, Holmes v. Riceland Foods, Inc., 261 Ark. 27, 546 S.W.2d 414 (1977) (decision under prior law).

Filing of petition seeking to stay the distribution of the proceeds of a judicial sale on certain property in which petitioner claimed a security interest did not constitute a waiver of the security interest. Brown v. Arkoma Coal Corp., 276 Ark. 322, 634 S.W.2d 390 (1982) (decision under prior law).

Cited: Holmes v. Riceland Foods, Inc., 261 Ark. 27, 546 S.W.2d 414 (1977); United States v. Riceland Foods, Inc., 504 F. Supp. 1258 (E.D. Ark. 1981); Honey v. United States, 963 F.2d 1083 (8th Cir. 1992); Lawhon Farm Supply, Inc. v. Hayes, 316 Ark. 69, 870 S.W.2d 729 (1994) (decisions under prior law).

4-9-316. Effect of change in governing law.

  1. A security interest perfected pursuant to the law of the jurisdiction designated in § 4-9-301(1) or § 4-9-305(c) remains perfected until the earliest of:
    1. the time perfection would have ceased under the law of that jurisdiction;
    2. the expiration of four (4) months after a change of the debtor's location to another jurisdiction; or
    3. 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 (a) becomes perfected under the law of the other jurisdiction before the earliest time or event described in that subsection, it remains perfected thereafter. If the security interest does not become perfected under the law of the other jurisdiction before the earliest time or event, it becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
  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:
    1. the collateral is located in one (1) jurisdiction and subject to a security interest perfected under the law of that jurisdiction;
    2. thereafter the collateral is brought into another jurisdiction; and
    3. upon entry into the other jurisdiction, the security interest is perfected under the law of the other jurisdiction.
  4. Except as otherwise provided in subsection (e), a security interest in goods covered by a certificate of title which is perfected by any method under the law of another jurisdiction when the goods become covered by a certificate of title from this state remains perfected until the security interest would have become unperfected under the law of the other jurisdiction had the goods not become so covered.
  5. A security interest described in subsection (d) becomes unperfected as against a purchaser of the goods for value and is deemed never to have been perfected as against a purchaser of the goods for value if the applicable requirements for perfection under § 4-9-311(b) or § 4-9-313 are not satisfied before the earlier of:
    1. the time the security interest would have become unperfected under the law of the other jurisdiction had the goods not become covered by a certificate of title from this state; or
    2. the expiration of four (4) months after the goods had become so covered.
  6. A security interest in deposit accounts, letter-of-credit rights, or investment property which is perfected under the law of the bank's jurisdiction, the issuer's jurisdiction, a nominated person's jurisdiction, the securities intermediary's jurisdiction, or the commodity intermediary's jurisdiction, as applicable, remains perfected until the earlier of:
    1. the time the security interest would have become unperfected under the law of that jurisdiction; or
    2. the expiration of four (4) months after a change of the applicable jurisdiction to another jurisdiction.
  7. If a security interest described in subsection (f) becomes perfected under the law of the other jurisdiction before the earlier of the time or the end of the period described in that subsection, it remains perfected thereafter. If the security interest does not become perfected under the law of the other jurisdiction before the earlier of that time or the end of that period, it becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
  8. The following rules apply to collateral to which a security interest attaches within four months after the debtor changes its location to another jurisdiction:
    1. A financing statement filed before the change pursuant to the law of the jurisdiction designated in § 4-9-301(1) or § 4-9-305(c) is effective to perfect a security interest in the collateral if the financing statement would have been effective to perfect a security interest in the collateral had the debtor not changed its location.
    2. If a security interest perfected by a financing statement that is effective under paragraph (1) becomes perfected under the law of the other jurisdiction before the earlier of the time the financing statement would have become ineffective under the law of the jurisdiction designated in § 4-9-301(1) or § 4-9-305(c) or the expiration of the four-month period, it remains perfected thereafter. If the security interest does not become perfected under the law of the other jurisdiction before the earlier time or event, it becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.
  9. If a financing statement naming an original debtor is filed pursuant to the law of the jurisdiction designated in § 4-9-301(1) or § 4-9-305(c) and the new debtor is located in another jurisdiction, the following rules apply:
    1. The financing statement is effective to perfect a security interest in collateral acquired by the new debtor before, and within four months after, the new debtor becomes bound under § 4-9-203(d), if the financing statement would have been effective to perfect a security interest in the collateral had the collateral been acquired by the original debtor.
    2. A security interest perfected by the financing statement and which becomes perfected under the law of the other jurisdiction before the earlier of the time the financing statement would have become ineffective under the law of the jurisdiction designated in § 4-9-301(1) or § 4-9-305(c) or the expiration of the four-month period remains perfected thereafter. A security interest that is perfected by the financing statement but which does not become perfected under the law of the other jurisdiction before the earlier time or event becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, §§ 8, 9.

Amendments. The 2013 amendment rewrote the section heading; and added (h) and (i).

Subpart 3 Priority

4-9-317. Interests that take priority over or take free of security interest or agricultural lien.

  1. A security interest or agricultural lien is subordinate to the rights of:
    1. a person entitled to priority under § 4-9-322; and
    2. except as otherwise provided in subsection (e), 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 of the conditions specified in § 4-9-203(b)(3) is met and a financing statement covering the collateral is filed.
  2. Except as otherwise provided in subsection (e), a buyer, other than a secured party, of tangible chattel paper, tangible documents, goods, instruments, or a certificated security takes free of a security interest or agricultural lien if the buyer gives value and receives delivery of the collateral without knowledge of the security interest or agricultural lien and before it is perfected.
  3. Except as otherwise provided in subsection (e), a lessee of goods takes free of a security interest or agricultural lien if the lessee gives value and receives delivery of the collateral without knowledge of the security interest or agricultural lien and before it is perfected.
  4. A licensee of a general intangible or a buyer, other than a secured party, of collateral other than tangible chattel paper, tangible documents, goods, instruments, or a certificated security takes free of a security interest if the licensee or buyer gives value without knowledge of the security interest and before it is perfected.
  5. Except as otherwise provided in §§ 4-9-320 and 4-9-321, 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.

History. Acts 2001, No. 1439, § 1; 2007, No. 342, § 36; 2013, No. 138, §§ 10, 11.

Amendments. The 2013 amendment substituted “certificated security” for “security certificate” in (b); and rewrote (d).

Case Notes

After-Acquired Property.

Where person furnishing equipment to an institution had only an unperfected security interest in such equipment, it was subordinate under the pre-2001 version of this chapter to a properly filed deed of trust in the real property with an after acquired property clause. United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964) (decision under prior law).

Since creditor did not file the financing statements centrally with the Arkansas Secretary of State, the security interest in the 2003 government payments was not properly perfected prior to the filing of the instant case; as consequence of creditor's failure to properly perfect its security interest in the 2003 government payments, the debtors could avoid the creditor's security interest in accordance with this section. In re Stevens, 307 B.R. 124 (Bankr. E.D. Ark. 2004).

Buyers of Farm Products.

An auctioneer is merely a selling agent, not a “purchaser,” under the pre-2001 version of this chapter and cannot claim the protection given to buyers of farm products in the ordinary course of business; accordingly, auctioneer who sold cattle in which bank had security interest was not a purchaser having priority over bank so as to avoid liability for conversion. Commercial Bank v. Hales, 281 Ark. 439, 665 S.W.2d 857 (1984) (decision under prior law).

Chattel Mortgages.

Former §§ 4-9-3014-9-304 concern priorities of perfected and unperfected security interests as against third persons and were not applicable to a chattel mortgage as between the parties. Anderson v. First Jacksonville Bank, 243 Ark. 977, 423 S.W.2d 273 (1968) (decision under prior law).

Federal Tax Liens.

Where bank failed to file its security interest, it held only an unperfected interest in contractor's accounts receivable and the contractor's assignment of such accounts receivable to the bank did not place the progress payments beyond the reach of the federal tax lien. United States v. Trigg, 465 F.2d 1264 (8th Cir. 1972), cert. denied, 410 U.S. 909, 93 S. Ct. 963, 35 L. Ed. 2d 270 (1973) (decision under prior law).

Where the guarantor of a bank loan failed to file his security interest in a chattel in accordance with the pre-2001 version of this chapter before the agent service, without knowledge of the security interest, perfected the government's tax lien, the federal tax lien took priority over the unperfected guarantor's security interest. Richardson v. United States, 358 F. Supp. 994 (E.D. Ark. 1973) (decision under prior law).

Judgments and Causes of Action.

Section 16-65-120, which relates specifically to the sale and assignment of judgments and causes of action, was not impliedly repealed by enactment of former § 4-9-102, and was the applicable local law; therefore, cause of action assigned to bank as collateral for loan prior to filing of federal tax liens by federal government against assignor took precedence over tax liens that arose out of unsecured obligation. Brown & Root, Inc. v. Hempstead County Sand & Gravel, Inc., 767 F.2d 464 (8th Cir. 1985) (decision under prior law).

Unperfected Security Interests.

Where the funds in a dealer reserve account were proceeds from the sale of inventory to which the Small Business Administration's (SBA's) security interest in accounts receivable attached, the SBA's perfected security interest took priority over a subsequent lien creditor; even assuming that the SBA's security interest did not attach until all the installment sales contracts had been paid out, a creditor's lien would, at best, attach the same time and would still be subject to the SBA's prior security interest. Sperry Corp. v. Farm Implement, Inc., 760 F.2d 196 (8th Cir. 1985) (decision under prior law).

Chapter 7 debtor maliciously injured farm equipment that was pledged as collateral for various bank loans within the meaning of 11 U.S.C. § 523(a)(6); even though the bank's security interest therein was not perfected by the placement of evidence of the lien on the certificate of title per § 4-9-310(b), § 4-9-311, and § 27-14-801 et seq., the security interest was still valid as between the parties to the agreement per subdivision (a)(2)(A) of this section and § 4-9-322. Southern Bancorp South v. Richmond (In re Richmond), 430 B.R. 846 (Bankr. E.D. Ark. 2010).

Cited: Rushton v. U.M. & M. Credit Corp., 245 Ark. 703, 434 S.W.2d 81 (1968); Commercial Credit Corp. v. National Credit Corp., 251 Ark. 702, 473 S.W.2d 881 (1971); National Bedding & Furn. Indus., Inc. v. Clark, 252 Ark. 780, 481 S.W.2d 690 (1972); Hill v. State, 253 Ark. 512, 487 S.W.2d 624 (1972); Hill v. Bank of N.E. Ark., 264 Ark. 412, 572 S.W.2d 150 (1978); Doyle v. Phillips Petro. Co., 527 F. Supp. 153 (E.D. Ark. 1981); Stotts v. Johnson, 302 Ark. 439, 791 S.W.2d 351 (1990); Lawhon Farm Supply, Inc. v. Hayes, 316 Ark. 69, 870 S.W.2d 729 (1994) (decisions under prior law).

4-9-318. No interest retained in right to payment that is sold — Rights and title of seller of account or chattel paper with respect to creditors and purchasers.

  1. A debtor that has sold an account, chattel paper, payment intangible, or promissory note does not retain a legal or equitable interest in the collateral sold.
  2. For purposes of determining the rights of creditors of, and purchasers for value of an account or chattel paper from, a debtor that has sold an account or chattel paper, while the buyer's security interest is unperfected, the debtor is deemed to have rights and title to the account or chattel paper identical to those the debtor sold.

History. Acts 2001, No. 1439, § 1.

4-9-319. Rights and title of consignee with respect to creditors and purchasers.

  1. Except as otherwise provided in subsection (b), for purposes of determining the rights of creditors of, and purchasers for value of goods from, a consignee, while the goods are in the possession of the consignee, the consignee is deemed to have rights and title to the goods identical to those the consignor had or had power to transfer.
  2. For purposes of determining the rights of a creditor of a consignee, law other than this chapter determines the rights and title of a consignee while goods are in the consignee's possession if, under this part, a perfected security interest held by the consignor would have priority over the rights of the creditor.

History. Acts 2001, No. 1439, § 1.

4-9-320. Buyer of goods.

  1. Except as otherwise provided in subsection (e), a buyer in ordinary course of business, other than a person buying farm products from a person engaged in farming operations, takes free of a security interest created by the buyer's seller, even if the security interest is perfected and the buyer knows of its existence.
  2. Except as otherwise provided in subsection (e), a buyer of goods from a person who used or bought the goods for use primarily for personal, family, or household purposes takes free of a security interest, even if perfected, if the buyer buys:
    1. without knowledge of the security interest;
    2. for value;
    3. primarily for the buyer's personal, family, or household purposes; and
    4. before the filing of a financing statement covering the goods.
  3. To the extent that it affects the priority of a security interest over a buyer of goods under subsection (b), the period of effectiveness of a filing made in the jurisdiction in which the seller is located is governed by § 4-9-316(a) and (b).
  4. A buyer in ordinary course of business buying oil, gas, or other minerals at the wellhead or minehead or after extraction takes free of an interest arising out of an encumbrance.
  5. Subsections (a) and (b) do not affect a security interest in goods in the possession of the secured party under § 4-9-313.

History. Acts 2001, No. 1439, § 1.

Case Notes

Buyer in Ordinary Course of Business.

The plaintiff had security interest as a first preferred lien in mobile homes and could sell the mobile homes to satisfy the lien because the defendant buyer of these homes was not a buyer in “the ordinary course of business” and was not acting “in good faith and without knowledge” at the time of purchase of the mobile homes, where he was fully aware that the plaintiff had floorplanned and financed the homes and held a security in each of these mobile homes. Rex Fin. Corp. v. Marshall, 406 F. Supp. 567 (W.D. Ark. 1976) (decision under prior law).

Buyer was not buyer in ordinary course of business under the pre-2001 version of this chapter. Merchants & Planters Bank & Trust Co. v. Phoenix Hous. Sys., 21 Ark. App. 153, 729 S.W.2d 433 (1987) (decision under prior law).

Directed verdict, or motion to dismiss under Ark. R. Civ. P. 50(a), was properly granted because mills that purchased gatewood timber from an owner were buyers in the ordinary course of business under §§ 4-1-201(b)(9), 4-9-320, and timber, once cut, became inventory goods under § 4-9-102(a)(48); thus, the mills had no duty to conduct a lien search to find a creditor's perfected security interest in the timber. Fordyce Bank & Trust Co. v. Bean Timberland, Inc., 369 Ark. 90, 251 S.W.3d 267 (2007).

Purchase of Security Instrument.

Where one lender purchased the security instrument the buyer of an automobile gave to the automobile dealer and another lender held the title to the automobile as the result of a floor financing agreement with the dealer but neither lender had perfected its security interest, the lender who had purchased the buyer's contract was entitled to have the title registered to perfect its lien. Commercial Credit Corp. v. National Credit Corp., 251 Ark. 541, 473 S.W.2d 876 (1971) (decision under prior law).

Cited: Commercial Credit Corp. v. Associates Discount Corp., 246 Ark. 118, 436 S.W.2d 809 (1969); United States v. Riceland Foods, Inc., 504 F. Supp. 1258 (E.D. Ark. 1981); Wawak v. Affiliated Food Stores, Inc., 306 Ark. 186, 812 S.W.2d 679 (1991); Lawhon Farm Supply, Inc. v. Hayes, 316 Ark. 69, 870 S.W.2d 729 (1994) (decisions under prior law).

4-9-321. Licensee of general intangible and lessee of goods in ordinary course of business.

  1. In this section, “licensee in ordinary course of business” means a person that becomes a licensee of a general intangible in good faith, without knowledge that the license violates the rights of another person in the general intangible, and in the ordinary course from a person in the business of licensing general intangibles of that kind. A person becomes a licensee in the ordinary course if the license to the person comports with the usual or customary practices in the kind of business in which the licensor is engaged or with the licensor's own usual or customary practices.
  2. A licensee in ordinary course of business takes its rights under a nonexclusive license free of a security interest in the general intangible created by the licensor, even if the security interest is perfected and the licensee knows of its existence.
  3. A lessee in ordinary course of business takes its leasehold interest free of a security interest in the goods created by the lessor, even if the security interest is perfected and the lessee knows of its existence.

History. Acts 2001, No. 1439, § 1.

4-9-322. Priorities among conflicting security interests in and agricultural liens on same collateral.

  1. Except as otherwise provided in this section, priority among conflicting security interests and agricultural liens in the same collateral is determined according to the following rules:
    1. Conflicting perfected security interests and agricultural liens rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest or agricultural lien is first perfected, if there is no period thereafter when there is neither filing nor perfection.
    2. A perfected security interest or agricultural lien has priority over a conflicting unperfected security interest or agricultural lien.
    3. The first security interest or agricultural lien to attach or become effective has priority if conflicting security interests and agricultural liens are unperfected.
  2. For the purposes of subsection (a)(1):
    1. the time of filing or perfection as to a security interest in collateral is also the time of filing or perfection as to a security interest in proceeds; and
    2. the time of filing or perfection as to a security interest in collateral supported by a supporting obligation is also the time of filing or perfection as to a security interest in the supporting obligation.
  3. Except as otherwise provided in subsection (f), a security interest in collateral which qualifies for priority over a conflicting security interest under § 4-9-327, § 4-9-328, § 4-9-329, § 4-9-330, or § 4-9-331 also has priority over a conflicting security interest in:
    1. any supporting obligation for the collateral; and
    2. proceeds of the collateral if:
      1. the security interest in proceeds is perfected;
      2. the proceeds are cash proceeds or of the same type as the collateral; and
      3. in the case of proceeds that are proceeds of proceeds, all intervening proceeds are cash proceeds, proceeds of the same type as the collateral, or an account relating to the collateral.
  4. Subject to subsection (e) and except as otherwise provided in subsection (f), if a security interest in chattel paper, deposit accounts, negotiable documents, instruments, investment property, or letter-of-credit rights is perfected by a method other than filing, conflicting perfected security interests in proceeds of the collateral rank according to priority in time of filing.
  5. Subsection (d) applies only if the proceeds of the collateral are not cash proceeds, chattel paper, negotiable documents, instruments, investment property, or letter-of-credit rights.
  6. Subsections (a)-(e) are subject to:
    1. subsection (g) and the other provisions of this part;
    2. § 4-4-210 with respect to a security interest of a collecting bank;
    3. § 4-5-118 with respect to a security interest of an issuer or nominated person; and
    4. § 4-9-110 with respect to a security interest arising under Chapter 2 or Chapter 2A.
  7. A perfected agricultural lien on collateral has priority over a conflicting security interest in or agricultural lien on the same collateral if the statute creating the agricultural lien so provides.

History. Acts 2001, No. 1439, § 1.

Research References

Ark. L. Notes.

Laurence, Update: Some Practical Advice on How to Create a Security Interest in a Deposit Account, 2002 Arkansas L. Notes 45.

Schneider, Notes on Agricultural Landlord's Liens Under Revised Article 9 of the Uniform Commercial Code, 2002 Arkansas L. Notes 53.

Case Notes

Attachment of Interest.

Where the funds in a dealer reserve account were proceeds from the sale of inventory to which the Small Business Administration's (SBA's) security interest in accounts receivable attached, the SBA's perfected security interest took priority over a subsequent lien creditor; even assuming that the SBA's security interest did not attach until all the installment sales contracts had been paid out, a creditor's lien would, at best, attach under the pre-2001 version of this chapter at the same time and would still be subject to the SBA's prior security interest. Sperry Corp. v. Farm Implement, Inc., 760 F.2d 196 (8th Cir. 1985) (decision under prior law).

Chapter 7 debtor maliciously injured farm equipment that was pledged as collateral for various bank loans within the meaning of 11 U.S.C. § 523(a)(6); even though the bank's security interest therein was not perfected by the placement of evidence of the lien on the certificate of title per § 4-9-310(b), § 4-9-311, and § 27-14-801 et seq., the security interest was still valid as between the parties to the agreement per § 4-9-317(a)(2)(A) and this section. Southern Bancorp South v. Richmond (In re Richmond), 430 B.R. 846 (Bankr. E.D. Ark. 2010).

Continuation Statements.

Where the second financing statement, filed just before the first financing statement expired, contained the signature of the secured party, but did not contain any of the other elements necessary for filing a continuation statement under the pre-2001 version of this chapter, it was not a continuation statement, and the second creditor who had filed a financing statement in the interim was entitled to priority. Worthen Bank & Trust Co. v. Hilyard Drilling Co., 60 B.R. 500 (Bankr. W.D. Ark.), aff'd, 74 B.R. 125 (W.D. Ark. 1986), aff'd, 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

Security interest had first priority pursuant to former § 4-9-312(5) where financing statement lapsed due to failure to file a continuation statement, leaving the underlying security interest unperfected. Worthen Bank & Trust Co. v. Hilyard Drilling Co., 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

Good Faith.

Where a partnership, which had executed a trust deed covering after-acquired property, executed a security agreement on after-acquired property, in violation of an agreement in connection with the trust deed, to a corporation controlled by the same persons, the corporation was lacking in good faith and was a participant in the breach so as to bar its enforcement of the security agreement in preference to the trust deed. Thompson v. United States, 408 F.2d 1075 (8th Cir. 1969) (decision under prior law).

Because former § 4-9-312(5) (now this section) is a “pure race” statute, mere knowledge of a competitor's claim does not affect priority of the security interest. Nef v. Ag Servs. of Am., Inc., 79 Ark. App. 100, 86 S.W.3d 4 (2002).

Growing Crops.

Where debtor's obligation to repay the Farmer's Home Administration (FmHA) was not more than six months overdue when debtor's 1981 rice crop became a growing crop, subsequent creditor's security interest was not entitled to priority under former § 4-9-312(2), and the FmHA's security interest, being the first to have been perfected, was entitled to priority under former subsection (5). In re Connor, 733 F.2d 523 (8th Cir. 1984) (decision under prior law).

Former § 4-9-312(2) is an accommodation to the special needs of the farming community, giving priority to the so-called “seed money lender” who lends money to a farmer to enable him to plant his crop. Niedermeier v. Central Prod. Credit Ass'n, 300 Ark. 116, 777 S.W.2d 210 (1989) (decision under prior law).

Under former § 4-9-312(2) new value arises where a secured party (1) makes an advance, (2) incurs an obligation, or (3) releases a perfected security interest. Niedermeier v. Central Prod. Credit Ass'n, 300 Ark. 116, 777 S.W.2d 210 (1989) (decision under prior law).

Under the circumstances of the case, the circuit court did not clearly err in concluding that partnerships were a row crop farmer's alter egos and that a bank held a priority lien against crop proceeds because both a creditor and the farmer engaged in inequitable conduct toward the bank; the creditor knew about the bank's lien on partnerships' crops, and to avoid that lien, it pursued subordination in a manner the circuit court characterized as unbusinesslike and imprudent. Agrifund, LLC v. Regions Bank, 2020 Ark. 246 (2020).

Time of Filing.

The seller of equipment to an institution, having a security interest on such equipment, would have had priority over the holder of a deed of trust to the real estate of such institution if he had perfected it by filing it within the statutory period after delivery of the equipment. United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964) (decision under prior law).

An FHA lien under a deed of trust covering an apartment house and its furniture given by a partnership has priority over the purchase money lien of the corporation which sold the furniture to the partnership where the corporation failed to file its financing statement contemporaneously with the delivery of the furniture or within the statutory period thereafter. United States v. Thompson, 272 F. Supp. 774 (E.D. Ark. 1967), aff'd, 408 F.2d 1075 (8th Cir. 1969) (decision under prior law).

Although bank filed first, it was not the first to file correctly, which was required under the pre-2001 version of this chapter in order for it to have priority. Affiliated Food Stores, Inc. v. F & M Bank, 300 Ark. 450, 780 S.W.2d 20 (1989) (decision under prior law).

Where one creditor bank filed its documents with the Circuit Clerk of Pulaski County and with the Secretary of State, and a second creditor bank later filed its documents with the Circuit Clerk of Saline County and with the Secretary of State, since the debtor had a place of business in more than one county, the security interest was perfected when the financing statement was filed with the Secretary of State's office; thus, the first bank's security interest had priority over the claim of the second bank in the proceeds from the sale of property determined to be property of the estate. Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 169 B.R. 920 (Bankr. E.D. Ark. 1994) (decision under prior law).

In a bank's suit to recover a judgment against debtors, the trial court did not err in holding that the bank's security interests in the debtors' crops and crop proceeds had priority over appellants' purchase money security interest because the bank had a first-in-time lien on the crops. Searcy Farm Supply, LLC v. Merchs. & Planters Bank, 369 Ark. 487, 256 S.W.3d 496 (2007).

Cited: Worthen Bank & Trust Co. v. Nat'l Bank of Commerce (In re Hilyard Drilling Co.), 74 B.R. 125 (W.D. Ark. 1986); First Nat'l Bank v. Massachusetts Gen. Life Ins. Co., 296 Ark. 28, 752 S.W.2d 1 (1988); Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989); Stotts v. Johnson, 302 Ark. 439, 791 S.W.2d 351 (1990) (decisions under prior law).

4-9-323. Future advances.

  1. Except as otherwise provided in subsection (c), for purposes of determining the priority of a perfected security interest under § 4-9-322(a)(1), perfection of the security interest dates from the time an advance is made to the extent that the security interest secures an advance that:
    1. is made while the security interest is perfected only:
      1. under § 4-9-309 when it attaches; or
      2. temporarily under § 4-9-312(e), (f), or (g); and
    2. is not made pursuant to a commitment entered into before or while the security interest is perfected by a method other than under § 4-9-309 or § 4-9-312(e), (f), or (g).
  2. Except as otherwise provided in subsection (c), a security interest is subordinate to the rights of a person that becomes a lien creditor to the extent that the security interest secures an advance made more than forty-five (45) days after the person becomes a lien creditor unless the advance is made:
    1. without knowledge of the lien; or
    2. pursuant to a commitment entered into without knowledge of the lien.
  3. Subsections (a) and (b) do not apply to a security interest held by a secured party that is a buyer of accounts, chattel paper, payment intangibles, or promissory notes or a consignor.
  4. Except as otherwise provided in subsection (e), a buyer of goods other than a buyer in ordinary course of business takes free of a security interest to the extent that it secures advances made after the earlier of:
    1. the time the secured party acquires knowledge of the buyer's purchase; or
    2. forty-five (45) days after the purchase.
  5. Subsection (d) does not apply if the advance is made pursuant to a commitment entered into without knowledge of the buyer's purchase and before the expiration of the forty-five-day period.
  6. Except as otherwise provided in subsection (g), a lessee of goods, other than a lessee in ordinary course of business, takes the leasehold interest free of a security interest to the extent that it secures advances made after the earlier of:
    1. the time the secured party acquires knowledge of the lease; or
    2. forty-five (45) days after the lease contract becomes enforceable.
  7. Subsection (f) does not apply if the advance is made pursuant to a commitment entered into without knowledge of the lease and before the expiration of the forty-five-day period.

History. Acts 2001, No. 1439, § 1.

4-9-324. Priority of purchase-money security interests.

  1. Except as otherwise provided in subsection (g), 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 § 4-9-327, 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 (c) and except as otherwise provided in subsection (g), a perfected purchase-money security interest in inventory has priority over a conflicting security interest in the same inventory, has priority over a conflicting security interest in chattel paper or an instrument constituting proceeds of the inventory and in proceeds of the chattel paper, if so provided in § 4-9-330, and, except as otherwise provided in § 4-9-327, also has priority in identifiable cash proceeds of the inventory to the extent the identifiable cash proceeds are received on or before the delivery of the inventory to a buyer, if:
    1. the purchase-money security interest is perfected when the debtor receives possession of the inventory;
    2. the purchase-money secured party sends an authenticated notification to the holder of the conflicting security interest;
    3. the holder of the conflicting security interest receives the notification within five (5) years before the debtor receives possession of the inventory; and
    4. the notification states that the person sending the notification has or expects to acquire a purchase-money security interest in inventory of the debtor and describes the inventory.
  3. Subdivisions (b)(2)-(4) apply only if the holder of the conflicting security interest had filed a financing statement covering the same types of inventory:
    1. if the purchase-money security interest is perfected by filing, before the date of the filing; or
    2. if the purchase-money security interest is temporarily perfected without filing or possession under § 4-9-312(f), before the beginning of the 20-day period thereunder.
  4. Subject to subsection (e) and except as otherwise provided in subsection (g), a perfected purchase-money security interest in livestock that are farm products has priority over a conflicting security interest in the same livestock, and, except as otherwise provided in § 4-9-327, a perfected security interest in their identifiable proceeds and identifiable products in their unmanufactured states also has priority, if:
    1. the purchase-money security interest is perfected when the debtor receives possession of the livestock;
    2. the purchase-money secured party sends an authenticated notification to the holder of the conflicting security interest;
    3. the holder of the conflicting security interest receives the notification within six months before the debtor receives possession of the livestock; and
    4. the notification states that the person sending the notification has or expects to acquire a purchase-money security interest in livestock of the debtor and describes the livestock.
  5. Subdivisions (d)(2)-(4) apply only if the holder of the conflicting security interest had filed a financing statement covering the same types of livestock:
    1. if the purchase-money security interest is perfected by filing, before the date of the filing; or
    2. if the purchase-money security interest is temporarily perfected without filing or possession under § 4-9-312(f), before the beginning of the twenty-day period thereunder.
  6. Except as otherwise provided in subsection (g), a perfected purchase-money security interest in software has priority over a conflicting security interest in the same collateral, and, except as otherwise provided in § 4-9-327, 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 security interest qualifies for priority in the same collateral under subsection (a), (b), (d), or (f):
    1. a security interest securing an obligation incurred as all or part of the price of the collateral has priority over a security interest securing an obligation incurred for value given to enable the debtor to acquire rights in or the use of collateral; and
    2. in all other cases, § 4-9-322(a) applies to the qualifying security interests.

History. Acts 2001, No. 1439, § 1.

Case Notes

Landlord's Lien.

When the legislature adopted the landlord's lien in 1987 (§ 18-16-108), it was mindful of this state's longstanding aversion to a landlord's lien and of the strict construction that would be applied to such legislation, and was also aware of the law and policies embodied in this subtitle; the legislature never intended a landlord's lien which arose simultaneously with a purchase money security interest (former § 4-9-107 and former § 4-9-312(4)) to have priority. Herringer v. Mercantile Bank, 315 Ark. 218, 866 S.W.2d 390 (1993) (decision under prior law).

While a landlord's lien under § 18-16-108 is not a security interest under this subtitle, and therefore not a “conflicting security interest” under this section, the landlord's lien operates, in effect, as a floating lien on after-acquired property (former § 4-9-204); it was exactly this kind of lien for which former § 4-9-312 was structured, in order to protect the purchase money lien creditor. Herringer v. Mercantile Bank, 315 Ark. 218, 866 S.W.2d 390 (1993) (decision under prior law).

Purchase Money Lien.

The purchase money lien of a vendor in an air conditioning unit, a cooling tower, a kitchen range and oven, and duct work supplied by such vendor, to have priority over conflicting liens had to be perfected within statutory period after delivery to the debtor under the pre-2001 version of this chapter. House v. Long, 244 Ark. 718, 426 S.W.2d 814 (1968) (decision under prior law).

Under the pre-2001 version of this chapter, the purchase money party must be one who gives value by making advances or incurring an obligation, excluding from the purchase money category any security interest taken as security or satisfaction for a preexisting claim or antecedent debt. Niedermeier v. Central Prod. Credit Ass'n, 300 Ark. 116, 777 S.W.2d 210 (1989) (decision under prior law).

Purchase-Money Security Interest.

In a bank's suit to recover a judgment against debtors, the trial court did not err in holding that the bank's security interests in the debtors' crops and crop proceeds had priority over appellants' purchase money security interest because the bank had a first-in-time lien on the crops; § 4-9-324 did not give a super priority to agricultural supplier liens. Searcy Farm Supply, LLC v. Merchs. & Planters Bank, 369 Ark. 487, 256 S.W.3d 496 (2007).

Direct lienholder was not entitled to summary judgment under subsection (a) of this section as there were material issues of fact as to whether the dealership was authorized to sell the vehicles at issue. Ford Motor Credit Co., LLC v. First Nat'l Bank of Crossett, 2016 Ark. App. 408, 500 S.W.3d 188 (2016).

4-9-325. Priority of security interests in transferred collateral.

  1. Except as otherwise provided in subsection (b), a security interest created by a debtor is subordinate to a security interest in the same collateral created by another person if:
    1. the debtor acquired the collateral subject to the security interest created by the other person;
    2. the security interest created by the other person was perfected when the debtor acquired the collateral; and
    3. there is no period thereafter when the security interest is unperfected.
  2. Subsection (a) subordinates a security interest only if the security interest:
    1. otherwise would have priority solely under § 4-9-322(a) or § 4-9-324; or
    2. arose solely under § 4-2-711(3) or § 4-2A-508(5).

History. Acts 2001, No. 1439, § 1.

4-9-326. Priority of security interests created by new debtor.

  1. Subject to subsection (b), a security interest that is created by a new debtor in collateral in which the new debtor has or acquires rights and is perfected solely by a filed financing statement that would be ineffective to perfect the security interest but for the application of § 4-9-316(i)(1) or § 4-9-508 is subordinate to a security interest in the same collateral which is perfected other than by such a filed financing statement.
  2. The other provisions of this part determine the priority among conflicting security interests in the same collateral perfected by filed financing statements described in subsection (a). However, if the security agreements to which a new debtor became bound as debtor were not entered into by the same original debtor, the conflicting security interests rank according to priority in time of the new debtor's having become bound.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 12.

Amendments. The 2013 amendment rewrote (a); and substituted “described in subsection (a)” for “that are effective solely under § 4-9-508” in the first sentence of (b).

4-9-327. Priority of security interests in deposit account.

The following rules govern priority among conflicting security interests in the same deposit account:

  1. A security interest held by a secured party having control of the deposit account under § 4-9-104 has priority over a conflicting security interest held by a secured party that does not have control.
  2. Except as otherwise provided in paragraphs (3) and (4), security interests perfected by control under § 4-9-314 rank according to priority in time of obtaining control.
  3. Except as otherwise provided in paragraph (4), a security interest held by the bank with which the deposit account is maintained has priority over a conflicting security interest held by another secured party.
  4. A security interest perfected by control under § 4-9-104(a)(3) has priority over a security interest held by the bank with which the deposit account is maintained.

History. Acts 2001, No. 1439, § 1.

Research References

Ark. L. Notes.

Laurence, Update: Some Practical Advice on How to Create a Security Interest in a Deposit Account, 2002 Arkansas L. Notes 45.

4-9-328. Priority of security interests in investment property.

The following rules govern priority among conflicting security interests in the same investment property:

  1. A security interest held by a secured party having control of investment property under § 4-9-106 has priority over a security interest held by a secured party that does not have control of the investment property.
  2. Except as otherwise provided in paragraphs (3) and (4), conflicting security interests held by secured parties each of which has control under § 4-9-106 rank according to priority in time of:
    1. if the collateral is a security, obtaining control;
    2. if the collateral is a security entitlement carried in a securities account and:
      1. if the secured party obtained control under § 4-8-106(d)(1), the secured party's becoming the person for which the securities account is maintained;
      2. if the secured party obtained control under § 4-8-106(d)(2), the securities intermediary's agreement to comply with the secured party's entitlement orders with respect to security entitlements carried or to be carried in the securities account; or
      3. if the secured party obtained control through another person under § 4-8-106(d)(3), the time on which priority would be based under this paragraph if the other person were the secured party; or
    3. if the collateral is a commodity contract carried with a commodity intermediary, the satisfaction of the requirement for control specified in § 4-9-106(b)(2) with respect to commodity contracts carried or to be carried with the commodity intermediary.
  3. A security interest held by a securities intermediary in a security entitlement or a securities account maintained with the securities intermediary has priority over a conflicting security interest held by another secured party.
  4. A security interest held by a commodity intermediary in a commodity contract or a commodity account maintained with the commodity intermediary has priority over a conflicting security interest held by another secured party.
  5. A security interest in a certificated security in registered form which is perfected by taking delivery under § 4-9-313(a) and not by control under § 4-9-314 has priority over a conflicting security interest perfected by a method other than control.
  6. Conflicting security interests created by a broker, securities intermediary, or commodity intermediary which are perfected without control under § 4-9-106 rank equally.
  7. In all other cases, priority among conflicting security interests in investment property is governed by §§ 4-9-322 and 4-9-323.

History. Acts 2001, No. 1439, § 1.

4-9-329. Priority of security interests in letter-of-credit right.

The following rules govern priority among conflicting security interests in the same letter-of-credit right:

  1. A security interest held by a secured party having control of the letter-of-credit right under § 4-9-107 has priority to the extent of its control over a conflicting security interest held by a secured party that does not have control.
  2. Security interests perfected by control under § 4-9-314 rank according to priority in time of obtaining control.

History. Acts 2001, No. 1439, § 1.

4-9-330. Priority of purchaser of chattel paper or instrument.

  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:
    1. in good faith and in the ordinary course of the purchaser's business, the purchaser gives new value and takes possession of the chattel paper or obtains control of the chattel paper under § 4-9-105; and
    2. the chattel paper does not indicate that 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 the chattel paper or obtains control of the chattel paper under § 4-9-105 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 § 4-9-327, a purchaser having priority in chattel paper under subsection (a) or (b) also has priority in proceeds of the chattel paper to the extent that:
    1. § 4-9-322 provides for priority in the proceeds; or
    2. the proceeds consist of the specific goods covered by the chattel paper or cash proceeds of the specific goods, even if the purchaser's security interest in the proceeds is unperfected.
  4. Except as otherwise provided in § 4-9-331(a), a purchaser of an instrument has priority over a security interest in the instrument perfected by a method other than possession if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party.
  5. For purposes of subsections (a) and (b), 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 (b) and (d), if chattel paper or an instrument indicates that it has been assigned to an identified secured party other than the purchaser, a purchaser of the chattel paper or instrument has knowledge that the purchase violates the rights of the secured party.

History. Acts 2001, No. 1439, § 1.

Case Notes

Proceeds.

Where a creditor financed an automobile for a dealer who sold the automobile and sold the financing agreement to another creditor, the original creditor's interest would attach only to the proceeds of the sale. Commercial Credit Corp. v. National Credit Corp., 251 Ark. 702, 473 S.W.2d 881 (1971) (decision under prior law).

Purchase of Security Instrument.

Where one lender purchased the security instrument the buyer of an automobile gave to the automobile dealer and another lender held the title to the automobile as the result of a floor financing agreement with the dealer but neither lender had perfected its security interest, the lender who had purchased the buyer's contract was entitled to have the title registered to perfect its lien. Commercial Credit Corp. v. National Credit Corp., 251 Ark. 541, 473 S.W.2d 876 (1971) (decision under prior law).

4-9-331. Priority of rights of purchasers of instruments, documents, and securities under other chapters — Priority of interests in financial assets and security entitlements under Chapter 8.

  1. This chapter does not limit the rights of a holder in due course of a negotiable instrument, a holder to which a negotiable document of title has been duly negotiated, or a protected purchaser of a security. These holders or purchasers take priority over an earlier security interest, even if perfected, to the extent provided in Chapter 3, Chapter 7, and Chapter 8.
  2. This chapter 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 Chapter 8.
  3. Filing under this chapter does not constitute notice of a claim or defense to the holders, or purchasers, or persons described in subsections (a) and (b).

History. Acts 2001, No. 1439, § 1.

Case Notes

Failure to Create Security Interest.

Under the U.C.C., an agent may not create a valid security interest by wrongfully converting the principal's property, even if the agent's creditors acted in good faith. Pachter, Gold & Schaffer v. Yantis, 742 F. Supp. 544 (W.D. Ark. 1990) (decision under prior law).

4-9-332. Transfer of money — Transfer of funds from deposit account.

  1. A transferee of money takes the money free of a security interest unless the transferee acts in collusion with the debtor in violating the rights of the secured party.
  2. A transferee of funds from a deposit account takes the funds free of a security interest in the deposit account unless the transferee acts in collusion with the debtor in violating the rights of the secured party.

History. Acts 2001, No. 1439, § 1.

4-9-333. Priority of certain liens arising by operation of law.

  1. In this section, “possessory lien” means an interest, other than a security interest or an agricultural lien:
    1. which secures payment or performance of an obligation for services or materials furnished with respect to goods by a person in the ordinary course of the person's business;
    2. which is created by statute or rule of law in favor of the person; and
    3. whose effectiveness depends on the person's possession of the goods.
  2. A possessory lien on goods has priority over a security interest in the goods unless the lien is created by a statute that expressly provides otherwise.

History. Acts 2001, No. 1439, § 1.

Case Notes

Attorney's Liens.

An attorney did not have a lien on the cash proceeds of a settlement agreement since such proceeds did not constitute “goods” within the meaning of this section. Grayson v. Bank of Little Rock, 334 Ark. 180, 971 S.W.2d 788 (1998) (decision under prior law).

Mechanic's Liens.

The lien of a mechanic repairing an automobile is a statutory lien within the meaning of this section and, therefore, does not have priority over the lien of the vendor of an automobile retaining title therein for the balance of purchase money owing thereon. Bond v. Dudley, 244 Ark. 568, 426 S.W.2d 780 (1968) (decision under prior law).

Cited: In re King Furn. City, Inc., 240 F. Supp. 453 (E.D. Ark. 1965); Bokker v. Hill, 327 Ark. 742, 940 S.W.2d 852 (1997) (decisions under prior law).

4-9-334. Priority of security interests in fixtures and crops.

  1. A security interest under this chapter may be created in goods that are fixtures or may continue in goods that become fixtures. A security interest does not exist under this chapter in ordinary building materials incorporated into an improvement on land.
  2. This chapter does not prevent creation of an encumbrance upon fixtures under real property law.
  3. In cases not governed by subsections (d)-(h), a security interest in fixtures is subordinate to a conflicting interest of an encumbrancer or owner of the related real property other than the debtor.
  4. Except as otherwise provided in subsection (h), a perfected security interest in fixtures has priority over a conflicting interest of an encumbrancer or owner of the real property if the debtor has an interest of record in or is in possession of the real property and:
    1. the security interest is a purchase-money security interest;
    2. the interest of the encumbrancer or owner arises before the goods become fixtures; and
    3. the security interest is perfected by a fixture filing before the goods become fixtures or within 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:
    1. 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;
    2. before the goods become fixtures, the security interest is perfected by any method permitted by this chapter 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;
    3. the conflicting interest is a lien on the real property obtained by legal or equitable proceedings after the security interest was perfected by any method permitted by this chapter; or
    4. the security interest is:
      1. created in a manufactured home in a manufactured-home transaction; and
      2. perfected pursuant to a statute described in § 4-9-311(a)(2).
  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:
    1. the encumbrancer or owner has, in an authenticated record, consented to the security interest or disclaimed an interest in the goods as fixtures; or
    2. the debtor has a right to remove the goods as against the encumbrancer or owner.
  7. The priority of the security interest under paragraph (f)(2) continues for a reasonable time if the debtor's right to remove the goods as against the encumbrancer or owner terminates.
  8. A mortgage is a construction mortgage to the extent that it secures an obligation incurred for the construction of an improvement on land, including the acquisition cost of the land, if a recorded record of the mortgage so indicates. Except as otherwise provided in subsections (e) and (f), a security interest in fixtures is subordinate to a construction mortgage if a record of the mortgage is recorded before the goods become fixtures and the goods become fixtures before the completion of the construction. A mortgage has this priority to the same extent as a construction mortgage to the extent that it is given to refinance a construction mortgage.
  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.

History. Acts 2001, No. 1439, § 1.

Case Notes

Encumbrances.

An encumbrancer is one who holds a burden, charge, or lien on property or an estate to the diminution of the value of the fee, but which does not prevent the passing of the fee by conveyance. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

Where the person making the annexation was the owner of the realty; the realty was being used as a grain storage facility and the chattels in question were grain storage bins; the bins were assembled and erected on the realty and this installation involved the pouring of a concrete slab with bolts imbedded in it, the facility had become a fixture. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

Filing.

A purchase money security interest in equipment which became fixtures must meet the filing requirements of former § 4-9-401(1)(b) to have priority over prior encumbrances of the real estate. United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964) (decision under prior law).

Fixtures.

Unless the facts are undisputed and reasonable minds could only reach one conclusion, the question whether particular property constitutes a fixture is sometimes one of fact only, but usually is a mixed question of law and fact. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

The basic rules under the pre-2001 version of this chapter for determining whether an article remains a chattel or becomes a fixture are: (1) real or constructive annexation to the realty in question; (2) appropriation or adaptation to the use or purpose of that part of the realty with which it is connected; and (3) the intention of the party making the annexation to make a permanent accession to the realty, this intention being inferred from the nature of the chattel, the relation and situation of the party making the annexation, the structure and mode of annexation, and the purpose for which the annexation has been made. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979); In re Hot Shots Burgers & Fries, Inc., 147 B.R. 484 (Bankr. E.D. Ark. 1992) (decisions under prior law).

The inference is strong, where the party attaching the “fixture” is the owner of the soil, that it was intended to become a part of the soil and not a removable fixture, and to overturn it, there must be strong evidence of a contrary intention manifested by some act or circumstance. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

A building constructed on the land of another with the owner's consent, may remain the property of the person annexing the building if there is an understanding, either expressed or implied, that the building under the pre-2001 version of this chapter shall remain personalty, or there is an express reservation of a right to remove the building. In re Hot Shots Burgers & Fries, Inc., 147 B.R. 484 (Bankr. E.D. Ark. 1992) (decision under prior law).

When no understanding exists as to the right of removal of the building, a determination must be made as to whether the building has become a “fixture”; a fixture is defined under the pre-2001 version of this chapter as property annexed to the freehold for use in connection therewith and so arranged that it cannot be removed without injury to the freehold. In re Hot Shots Burgers & Fries, Inc., 147 B.R. 484 (Bankr. E.D. Ark. 1992) (decision under prior law).

Where a debtor annexed a building on the real property for the sole purpose of operating his business, and the building was not annexed with the intention of making the building a permanent addition to the realty, under the pre-2001 version of this chapter the building also constituted a trade fixture and remained personal property. In re Hot Shots Burgers & Fries, Inc., 147 B.R. 484 (Bankr. E.D. Ark. 1992) (decision under prior law).

Arkansas courts have adopted a three-part test to determine whether an item is a fixture under the pre-2001 version of this chapter: (1) whether the item is annexed to the realty; (2) whether the item is appropriate and adapted to the use or purpose of that part of the realty to which the item is connected; and (3) whether the party making annexation intended to make it permanent. Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 169 B.R. 920 (Bankr. E.D. Ark. 1994) (decision under prior law).

Modular building held not to be a permanent fixture under the pre-2001 version of this chapter. Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 169 B.R. 920 (Bankr. E.D. Ark. 1994) (decision under prior law).

Preexisting Interests.

Although this section makes marked changes in the law of fixtures, where deed of trust was entered into and recorded prior to the effective date of this subtitle, its priority under former law was saved by § 4-10-102(4). Wilson v. Prudential Ins. Co. of Am., 239 Ark. 1071, 396 S.W.2d 300 (1965) (decision under prior law).

Priority.

The lien of the supplier of an air conditioning unit, cooling tower, kitchen range and oven, and duct work attaching before such goods became fixtures took priority over the lien of prior mortgages to the extent of funds advanced under such mortgage liens as to funds advanced afterward. House v. Long, 244 Ark. 718, 426 S.W.2d 814 (1968) (decision under prior law).

Cited: In re Factory Homes Corp., 333 F. Supp. 126 (W.D. Ark. 1971); Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989) (decisions under prior law).

4-9-335. Accessions.

  1. A security interest may be created in an accession and continues in collateral that becomes an accession.
  2. If a security interest is perfected when the collateral becomes an accession, the security interest remains perfected in the collateral.
  3. Except as otherwise provided in subsection (d), the other provisions of this part determine the priority of a security interest in an accession.
  4. A security interest in an accession is subordinate to a security interest in the whole which is perfected by compliance with the requirements of a certificate-of-title statute under § 4-9-311(b).
  5. After default, subject to § 4-9-601 et seq., a secured party may remove an accession from other goods if the security interest in the accession has priority over the claims of every person having an interest in the whole.
  6. A secured party that removes an accession from other goods under subsection (e) shall promptly reimburse any holder of a security interest or other lien on, or owner of, the whole or of the other goods, other than the debtor, for the cost of repair of any physical injury to the whole or the other goods. The secured party need not reimburse the holder or owner for any diminution in value of the whole or the other goods caused by the absence of the accession removed or by any necessity for replacing it. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate assurance for the performance of the obligation to reimburse.

History. Acts 2001, No. 1439, § 1.

4-9-336. Commingled goods.

  1. In this section, “commingled goods” means goods that are physically united with other goods in such a manner that their identity is lost in a product or mass.
  2. A security interest does not exist in commingled goods as such. However, a security interest may attach to a product or mass that results when goods become commingled goods.
  3. If collateral becomes commingled goods, a security interest attaches to the product or mass.
  4. If a security interest in collateral is perfected before the collateral becomes commingled goods, the security interest that attaches to the product or mass under subsection (c) is perfected.
  5. Except as otherwise provided in subsection (f), the other provisions of this part determine the priority of a security interest that attaches to the product or mass under subsection (c).
  6. If more than one (1) security interest attaches to the product or mass under subsection (c), the following rules determine priority:
    1. A security interest that is perfected under subsection (d) has priority over a security interest that is unperfected at the time the collateral becomes commingled goods.
    2. If more than one (1) security interest is perfected under subsection (d), the security interests rank equally in proportion to the value of the collateral at the time it became commingled goods.

History. Acts 2001, No. 1439, § 1.

4-9-337. Priority of security interests in goods covered by certificate of title.

If, while a security interest in goods is perfected by any method under the law of another jurisdiction, this state issues a certificate of title that does not show that the goods are subject to the security interest or contain a statement that they may be subject to security interests not shown on the certificate:

  1. a buyer of the goods, other than a person in the business of selling goods of that kind, takes free of the security interest if the buyer gives value and receives delivery of the goods after issuance of the certificate and without knowledge of the security interest; and
  2. the security interest is subordinate to a conflicting security interest in the goods that attaches, and is perfected under § 4-9-311(b), after issuance of the certificate and without the conflicting secured party's knowledge of the security interest.

History. Acts 2001, No. 1439, § 1.

4-9-338. Priority of security interest or agricultural lien perfected by filed financing statement providing certain incorrect information.

If a security interest or agricultural lien is perfected by a filed financing statement providing information described in § 4-9-516(b)(5) which is incorrect at the time the financing statement is filed:

  1. the security interest or agricultural lien is subordinate to a conflicting perfected security interest in the collateral to the extent that the holder of the conflicting security interest gives value in reasonable reliance upon the incorrect information; and
  2. a purchaser, other than a secured party, of the collateral takes free of the security interest or agricultural lien to the extent that, in reasonable reliance upon the incorrect information, the purchaser gives value and, in the case of tangible chattel paper, tangible documents, goods, instruments, or a security certificate, receives delivery of the collateral.

History. Acts 2001, No. 1439, § 1; 2007, No. 342, § 37.

4-9-339. Priority subject to subordination.

This chapter does not preclude subordination by agreement by a person entitled to priority.

History. Acts 2001, No. 1439, § 1.

Case Notes

No Agreement.

Finding that letter did not constitute a subordination agreement held not erroneous under former § 4-9-316. Worthen Bank & Trust Co. v. Hilyard Drilling Co., 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

Priority Interest.

Under former § 4-9-316, the party being subordinated must hold a priority interest. Worthen Bank & Trust Co. v. Nat'l Bank of Commerce (In re Hilyard Drilling Co.), 74 B.R. 125 (W.D. Ark. 1986), aff'd, 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

Cited: Planters' Prod. Credit Ass'n v. Bowles, 256 Ark. 1063, 511 S.W.2d 645 (1974); Worthen Bank & Trust Co. v. Hilyard Drilling Co., 60 B.R. 500 (Bankr. W.D. Ark.) (decisions under prior law).

Subpart 4 Rights of Bank

4-9-340. Effectiveness of right of recoupment or set-off against deposit account.

  1. Except as otherwise provided in subsection (c), a bank with which a deposit account is maintained may exercise any right of recoupment or set-off against a secured party that holds a security interest in the deposit account.
  2. Except as otherwise provided in subsection (c), the application of this chapter to a security interest in a deposit account does not affect a right of recoupment or set-off of the secured party as to a deposit account maintained with the secured party.
  3. The exercise by a bank of a set-off against a deposit account is ineffective against a secured party that holds a security interest in the deposit account which is perfected by control under § 4-9-104(a)(3), if the set-off is based on a claim against the debtor.

History. Acts 2001, No. 1439, § 1.

Research References

Ark. L. Notes.

Laurence, Update: Some Practical Advice on How to Create a Security Interest in a Deposit Account, 2002 Arkansas L. Notes 45.

4-9-341. Bank's rights and duties with respect to deposit account.

Except as otherwise provided in § 4-9-340(c), and unless the bank otherwise agrees in an authenticated record, a bank's rights and duties with respect to a deposit account maintained with the bank are not terminated, suspended, or modified by:

  1. the creation, attachment, or perfection of a security interest in the deposit account;
  2. the bank's knowledge of the security interest; or
  3. the bank's receipt of instructions from the secured party.

History. Acts 2001, No. 1439, § 1.

4-9-342. Bank's right to refuse to enter into or disclose existence of control agreement.

This chapter does not require a bank to enter into an agreement of the kind described in § 4-9-104(a)(2), even if its customer so requests or directs. A bank that has entered into such an agreement is not required to confirm the existence of the agreement to another person unless requested to do so by its customer.

History. Acts 2001, No. 1439, § 1.

Part 4 — Rights of Third Parties

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 2013, No. 138, § 24: July 1, 2013. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is in need of important revisions to better identify debtors and secured collateral, to promote the efficiency of electronic filing, to reduce cost and time related to identifying debtors, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2013 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2013.”

Research References

Ark. L. Notes.

Pedersen, Crop Financing: A Guide to Arkansas Law, 1988 Ark. L. Notes 31.

Laurence, Bona Fide Purchaser Analysis, Beverage Products Corporation v. Robinson and the Case Against Very Short Opinions, 1990 Ark. L. Notes 85.

U. Ark. Little Rock L.J.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

Survey, Agricultural Law, 12 U. Ark. Little Rock L.J. 597.

Survey, Debtor/Creditor Relations, 14 U. Ark. Little Rock L.J. 353.

Case Notes

Assignment.

“Assignment” language held to provide means of perfecting security interest in accounts receivable. Northwest Nat'l Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 25 Ark. App. 279, 757 S.W.2d 182 (1988) (decision under prior law).

One cannot obtain a superior property right than its assignor. First Nat'l Bank v. Massachusetts Gen. Life Ins. Co., 296 Ark. 28, 752 S.W.2d 1 (1988) (decision under prior law).

4-9-401. Alienability of debtor's rights.

  1. Except as otherwise provided in subsection (b) and §§ 4-9-406 — 4-9-409, whether a debtor's rights in collateral may be voluntarily or involuntarily transferred is governed by law other than this chapter.
  2. An agreement between the debtor and secured party which prohibits a transfer of the debtor's rights in collateral or makes the transfer a default does not prevent the transfer from taking effect.

History. Acts 2001, No. 1439, § 1.

Case Notes

Attachment.

Bank's action in merely causing encumbered tractor to be sold under attachment was not in itself wrongful and tractor seller, who perfected lien for the unpaid purchase price by taking a security agreement and filing financing statement, was not entitled to recover from bank on theory of “conversion.” Citizens Bank v. Perrin & Sons, 253 Ark. 639, 488 S.W.2d 14 (1972) (decision under prior law).

Cited: Commercial Credit Corp. v. National Credit Corp., 251 Ark. 541, 473 S.W.2d 876 (1971) (decision under prior law).

4-9-402. Secured party not obligated on contract of debtor or in tort.

The existence of a security interest, agricultural lien, or authority given to a debtor to dispose of or use collateral, without more, does not subject a secured party to liability in contract or tort for the debtor's acts or omissions.

History. Acts 2001, No. 1439, § 1.

4-9-403. Agreement not to assert defenses against assignee.

  1. In this section, “value” has the meaning provided in § 4-3-303(a).
  2. Except as otherwise provided in this section, an agreement between an account debtor and an assignor not to assert against an assignee any claim or defense that the account debtor may have against the assignor is enforceable by an assignee that takes an assignment:
    1. for value;
    2. in good faith;
    3. without notice of a claim of a property or possessory right to the property assigned; and
    4. without notice of a defense or claim in recoupment of the type that may be asserted against a person entitled to enforce a negotiable instrument under § 4-3-305(a).
  3. Subsection (b) does not apply to defenses of a type that may be asserted against a holder in due course of a negotiable instrument under § 4-3-305(b).
  4. In a consumer transaction, if a record evidences the account debtor's obligation, law other than this chapter requires that the record include a statement to the effect that the rights of an assignee are subject to claims or defenses that the account debtor could assert against the original obligee, and the record does not include such a statement:
    1. the record has the same effect as if the record included such a statement; and
    2. the account debtor may assert against an assignee those claims and defenses that would have been available if the record included such a statement.
  5. This section is subject to law other than this chapter 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.
  6. Except as otherwise provided in subsection (d), this section does not displace law other than this chapter which gives effect to an agreement by an account debtor not to assert a claim or defense against an assignee.

History. Acts 2001, No. 1439, § 1.

Case Notes

Chattel Mortgages.

As between the parties, §§ 4-9-2044-9-206 control the validity and enforcement of a chattel mortgage. Anderson v. First Jacksonville Bank, 243 Ark. 977, 423 S.W.2d 273 (1968) (decision under prior law).

Summary Judgment.

Where defendant signed a waiver clause that he would not use any claim against the seller as a defense, set-off, or counterclaim against a holder in due course of a note for the sale of consumer goods, under this section the case was a proper one for summary judgment. Beam v. John Deere Co., 240 Ark. 107, 398 S.W.2d 218 (1966) (decision under prior law).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970) (decision under prior law).

4-9-404. Rights acquired by assignee — Claims and defenses against assignee.

  1. Unless an account debtor has made an enforceable agreement not to assert defenses or claims, and subject to subsections (b)-(e), the rights of an assignee are subject to:
    1. all terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract; and
    2. any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives a notification of the assignment authenticated by the assignor or the assignee.
  2. Subject to subsection (c) and except as otherwise provided in subsection (d), the claim of an account debtor against an assignor may be asserted against an assignee under subsection (a) only to reduce the amount the account debtor owes.
  3. This section is subject to law other than this chapter 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 chapter 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.

History. Acts 2001, No. 1439, § 1.

Case Notes

Assignment.

“Assignment” language held to provide means of perfecting security interest in accounts receivable. Northwest Nat'l Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 25 Ark. App. 279, 757 S.W.2d 182 (1988) (decision under prior law).

Assignee of trucking companies stood in the companies' position and was subject to any defenses a transportation company had against the companies, including fraud, and the trial court erred in finding otherwise; in addition, because the assignee was no longer a prevailing party, the appellate court also reversed the award of attorney fees under § 16-22-308. Am. Transp. Corp. v. Exch. Capital Corp., 84 Ark. App. 28, 129 S.W.3d 312 (2003).

Knowledge of Secured Party.

Where bank-assignee was aware of subcontractor-assignor's financial difficulties, and financial loss resulted from failure to pay materialmen who had assisted in construction of apartment complex, owners-general contractors who had made progress payments jointly to subcontractor-assignor and bank-assignee which had loaned money to subcontractor, without making an effort to verify that all previous bills for labor and materials had been paid, were entitled to recover amount of loss from the bank. Benton State Bank v. Warren, 263 Ark. 1, 562 S.W.2d 74 (1978) (decision under prior law).

Setoff.

A bank did not assume responsibility for the performance of a construction contract between a contractor and a carpet manufacturing plant by setting off a deposit by the contractor against the contractor's mortgage indebtedness, for the setoff by the bank was not under its security interest but was an exercise of its common law right which was supplemented by an agreement set out in the note evidencing the contractor's indebtedness to the bank. Cherokee Carpet Mills, Inc. v. Worthen Bank & Trust Co., 262 Ark. 776, 561 S.W.2d 310 (1978) (decision under prior law).

Superiority of Rights.

One cannot obtain a superior property right than its assignor. First Nat'l Bank v. Massachusetts Gen. Life Ins. Co., 296 Ark. 28, 752 S.W.2d 1 (1988) (decision under prior law).

Cited: Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922 (1970) (decision under prior law).

4-9-405. Modification of assigned contract.

  1. A modification of or substitution for an assigned contract is effective against an assignee if made in good faith. The assignee acquires corresponding rights under the modified or substituted contract. The assignment may provide that the modification or substitution is a breach of contract by the assignor. This subsection is subject to subsections (b)-(d).
  2. Subsection (a) applies to the extent that:
    1. the right to payment or a part thereof under an assigned contract has not been fully earned by performance; or
    2. the right to payment or a part thereof has been fully earned by performance and the account debtor has not received notification of the assignment under § 4-9-406(a).
  3. This section is subject to law other than this chapter 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. This section does not apply to an assignment of a health-care-insurance receivable.

History. Acts 2001, No. 1439, § 1.

4-9-406. Discharge of account debtor — Notification of assignment — Identification and proof of assignment — Restrictions on assignment of accounts, chattel paper, payment intangibles, and promissory notes ineffective.

  1. Subject to subsections (b)-(i), an account debtor on an account, chattel paper, or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, authenticated by the assignor or the assignee, that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor.
  2. Subject to subsection (h), notification is ineffective under subsection (a):
    1. if it does not reasonably identify the rights assigned;
    2. to the extent that an agreement between an account debtor and a seller of a payment intangible limits the account debtor's duty to pay a person other than the seller and the limitation is effective under law other than this chapter; or
    3. at the option of an account debtor, if the notification notifies the account debtor to make less than the full amount of any installment or other periodic payment to the assignee, even if:
      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 subsection (h), if requested by the account debtor, an assignee shall seasonably furnish reasonable proof that the assignment has been made. Unless the assignee complies, the account debtor may discharge its obligation by paying the assignor, even if the account debtor has received a notification under subsection (a).
  4. Except as otherwise provided in subsection (e) and §§ 4-2A-303 and 4-9-407, and subject to subsection (h), a term in an agreement between an account debtor and an assignor or in a promissory note is ineffective to the extent that it:
    1. prohibits, restricts, or requires the consent of the account debtor or person obligated on the promissory note to the assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in, the account, chattel paper, payment intangible, or promissory note; or
    2. provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the account, chattel paper, payment intangible, or promissory note.
  5. Subsection (d) does not apply to the sale of a payment intangible or promissory note, other than a sale pursuant to a disposition under § 4-9-610 or an acceptance of collateral under § 4-9-620.
  6. Except as otherwise provided in §§ 4-2A-303 and 4-9-407 and subject to subsections (h) and (i), a rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, or account debtor to the assignment or transfer of, or creation of a security interest in, an account or chattel paper is ineffective to the extent that the rule of law, statute, or regulation:
    1. prohibits, restricts, or requires the consent of the government, governmental body or official, or account debtor to the assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in the account or chattel paper; or
    2. provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the account or chattel paper.
  7. Subject to subsection (h), an account debtor may not waive or vary its option under subsection (b)(3).
  8. This section is subject to law other than this chapter 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.
    1. This section does not apply to an assignment of a health-care- insurance receivable. Subsections (d) and (f) do not apply to assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in:
    1. a right the assignment or transfer of which is prohibited or restricted by § 11-9-110(a).
    2. a claim or right to receive amounts (whether by suit or agreement and whether as lump sums or as periodic payments) as damages (other than punitive damages) on account of personal physical injuries or physical sickness.
    3. a claim or right to receive benefits under a special needs trust as described in 42 U.S.C. § 1396p(d)(4).

(j) Except to the extent otherwise provided in subsection (i), this section prevails over any inconsistent provision of an existing or future statute, rule or regulation of this state unless the provision is contained in a statute of this state, refers expressly to this section and states that the provision prevails over this section.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 13.

Amendments. The 2013 amendment added “other than a sale pursuant to a disposition under § 4-9-610 or an acceptance of collateral under § 4-9-620” in (e).

Research References

ALR.

Construction and Application of U.C.C. § 9-406 and Former U.C.C. § 9-318(3) Providing that Account Debtor Is Authorized to Pay Assignor Until Receipt of Notification to Pay Assignee. 35 A.L.R.6th 437.

4-9-407. Restrictions on creation or enforcement of security interest in leasehold interest or in lessor's residual interest.

  1. Except as otherwise provided in subsection (b), a term in a lease agreement is ineffective to the extent that it:
    1. prohibits, restricts, or requires the consent of a party to the lease to the assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in, an interest of a party under the lease contract or in the lessor's residual interest in the goods; or
    2. provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the lease.
  2. Except as otherwise provided in § 4-2A-303(7), a term described in subsection (a)(2) is effective to the extent that there is:
    1. a transfer by the lessee of the lessee's right of possession or use of the goods in violation of the term; or
    2. a delegation of a material performance of either party to the lease contract in violation of the term.
  3. The creation, attachment, perfection, or enforcement of a security interest in the lessor's interest under the lease contract or the lessor's residual interest in the goods is not a transfer that materially impairs the lessee's prospect of obtaining return performance or materially changes the duty of or materially increases the burden or risk imposed on the lessee within the purview of § 4-2A-303(4) unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the lessor.

History. Acts 2001, No. 1439, § 1.

4-9-408. Restrictions on assignment of promissory notes, health-care-insurance receivables, and certain general intangibles ineffective.

  1. Except as otherwise provided in subsection (b), a term in a promissory note or in an agreement between an account debtor and a debtor which relates to a health-care-insurance receivable or a general intangible, including a contract, permit, license, or franchise, and which term prohibits, restricts, or requires the consent of the person obligated on the promissory note or the account debtor to, the assignment or transfer of, or creation, attachment, or perfection of a security interest in, the promissory note, health-care-insurance receivable, or general intangible, is ineffective to the extent that the term:
    1. would impair the creation, attachment, or perfection of a security interest; or
    2. provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, health-care-insurance receivable, or general intangible.
  2. Subsection (a) applies to a security interest in a payment intangible or promissory note only if the security interest arises out of a sale of the payment intangible or promissory note, other than a sale pursuant to a disposition under § 4-9-610 or an acceptance of collateral under § 4-9-620.
  3. A rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, person obligated on a promissory note, or account debtor to the assignment or transfer of, or creation of a security interest in, a promissory note, health-care-insurance receivable, or general intangible, including a contract, permit, license, or franchise between an account debtor and a debtor, is ineffective to the extent that the rule of law, statute, or regulation:
    1. would impair the creation, attachment, or perfection of a security interest; or
    2. provides that the assignment or transfer or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the promissory note, health-care-insurance receivable, or general intangible.
  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 (c) would be effective under law other than this chapter but is ineffective under subsection (a) or (c), the creation, attachment, or perfection of a security interest in the promissory note, health-care-insurance receivable, or general intangible:
    1. is not enforceable against the person obligated on the promissory note or the account debtor;
    2. does not impose a duty or obligation on the person obligated on the promissory note or the account debtor;
    3. does not require the person obligated on the promissory note or the account debtor to recognize the security interest, pay or render performance to the secured party, or accept payment or performance from the secured party;
    4. does not entitle the secured party to use or assign the debtor's rights under the promissory note, health-care-insurance receivable, or general intangible, including any related information or materials furnished to the debtor in the transaction giving rise to the promissory note, health-care-insurance receivable, or general intangible;
    5. does not entitle the secured party to use, assign, possess, or have access to any trade secrets or confidential information of the person obligated on the promissory note or the account debtor; and
    6. does not entitle the secured party to enforce the security interest in the promissory note, health-care-insurance receivable, or general intangible.
  5. Except to the extent otherwise provided in subsection (f), this section prevails over any inconsistent provision of an existing or future statute, rule or regulation of this state unless the provision is contained in a statute of this state, refers expressly to this section and states that the provision prevails over this section.
  6. Subsections (a) and (c) do not apply to an assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in:
    1. a right the assignment or transfer of which is prohibited or restricted by § 11-9-110(a).
    2. a claim or right to receive amounts (whether by suit or agreement and whether as lump sums or as periodic payments) as damages (other than punitive damages) on account of personal physical injuries or physical sickness.
    3. a claim or right to receive benefits under a special needs trust as described in 42 U.S.C. § 1396p(d)(4).

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 14.

Amendments. The 2013 amendment added “other than a sale pursuant to a disposition under § 4-9-610 or an acceptance of collateral under § 4-9-620” in (b).

4-9-409. Restrictions on assignment of letter-of-credit rights ineffective.

  1. A term in a letter of credit or a rule of law, statute, regulation, custom, or practice applicable to the letter of credit which prohibits, restricts, or requires the consent of an applicant, issuer, or nominated person to a beneficiary's assignment of or creation of a security interest in a letter-of-credit right is ineffective to the extent that the term or rule of law, statute, regulation, custom, or practice:
    1. would impair the creation, attachment, or perfection of a security interest in the letter-of-credit right; or
    2. provides that the assignment or the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the letter-of-credit right.
  2. To the extent that a term in a letter of credit is ineffective under subsection (a) but would be effective under law other than this chapter or a custom or practice applicable to the letter of credit, to the transfer of a right to draw or otherwise demand performance under the letter of credit, or to the assignment of a right to proceeds of the letter of credit, the creation, attachment, or perfection of a security interest in the letter-of-credit right:
    1. is not enforceable against the applicant, issuer, nominated person, or transferee beneficiary;
    2. imposes no duties or obligations on the applicant, issuer, nominated person, or transferee beneficiary; and
    3. does not require the applicant, issuer, nominated person, or transferee beneficiary to recognize the security interest, pay or render performance to the secured party, or accept payment or other performance from the secured party.

History. Acts 2001, No. 1439, § 1.

Part 5 — Filing

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Cross References. Filing requirements for transmitting utilities, § 4-19-101 et seq.

Effective Dates. Acts 2003, No. 1473, § 74: July 1, 2003. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that this act includes technical corrects to Act 923 of 2003 which establishes the classification and compensation levels of state employees covered by the provisions of the Uniform Classification and Compensation Act; that Act 923 of 2003 will become effective on July 1, 2003; and that to avoid confusion this act must also effective on July 1, 2003. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2003.”

Acts 2009, No. 942, § 4: Jan. 1, 2010.

Acts 2011, No. 1189, § 4: Jan. 1, 2012.

Acts 2013, No. 138, § 24: July 1, 2013. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is in need of important revisions to better identify debtors and secured collateral, to promote the efficiency of electronic filing, to reduce cost and time related to identifying debtors, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2013 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2013.”

Acts 2013, No. 1042, § 2: Apr. 10, 2013. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that lenders, secured parties and other parties need flexibility to use prepaid accounts for remitting payment for Uniform Commercial Code filing fees and transaction fees; and that the establishment of prepaid accounts for the payment of Uniform Commercial Code fees and charges will enhance the administration of Uniform Commercial Code filings and provide immediate benefits to the state. Therefore, an emergency is declared to exist, and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Research References

ALR.

Sufficiency of debtor's signature on security agreement or financing statement under UCC § 9-203 and § 9-402. 3 A.L.R.4th 502.

Am. Jur. 68A Am. Jur. 2d, Secured Trans., § 230 et seq.

Ark. L. Rev.

Note, Simmons First National Bank v. Wells: An Interpretation of the Uniform Commercial Code's Consignment Rule, 37 Ark. L. Rev. 312.

C.J.S. 79 C.J.S., Secured Trans., § 51 et seq.

Ark. L. Notes.

Pedersen, Crop Financing: A Guide to Arkansas Law, 1988 Ark. L. Notes 31.

U. Ark. Little Rock L.J.

Arkansas Law Survey, Harper, Business Law, 7 U. Ark. Little Rock L.J. 159.

Arkansas Law Survey, Greene, Civil Procedure, 7 U. Ark. Little Rock L.J. 167.

Survey — Debtor-Creditor, 10 U. Ark. Little Rock L.J. 173.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

Survey, Agricultural Law, 12 U. Ark. Little Rock L.J. 597.

Subpart 1 Filing Office — Contents and Effectiveness of Financing Statement

4-9-501. Filing office.

  1. Except as otherwise provided in subsection (b), if the local law of this state governs perfection of a security interest or agricultural lien, the office in which to file a financing statement to perfect the security interest or agricultural lien is:
    1. the office designated for the filing or recording of a record of a mortgage on the related real property, if:
      1. the collateral is as-extracted collateral or timber to be cut; or
      2. the financing statement is filed as a fixture filing and the collateral is goods that are or are to become fixtures; or
    2. through midnight, December 31, 2012, the office of the circuit clerk in the county in which the debtor is located in this state if the debtor is engaged in farming operations and the collateral is a farm-stored commodity financed by a loan through the Commodity Credit Corporation of the United States Department of Agriculture; or
    3. the office of the Secretary of State, in all other cases, including a case in which the collateral is goods that are or are to become fixtures and the financing statement is not filed as a fixture filing.
  2. The office in which to file a financing statement to perfect a security interest in collateral, including fixtures, of a transmitting utility is the office of the Secretary of State. The financing statement also constitutes a fixture filing as to the collateral indicated in the financing statement which is or is to become fixtures.

History. Acts 2001, No. 1439, § 1; 2009, No. 942, § 1.

Cross References. Filing requirements, § 4-19-104

Amendments. The 2009 amendment, in (a)(2), inserted “through midnight, December 31, 2012” and substituted “a farm-stored commodity financed by a loan through the Commodity Credit Corporation of the United States Department of Agriculture” for “equipment used in farming operations, or farm products, or accounts arising from the sale of farm products.”

Case Notes

Accounts.

Assignees of accounts receivable must file their interest both centrally with the secretary of state and locally with the clerk of the circuit court. United States v. Trigg, 465 F.2d 1264 (8th Cir. 1972), cert. denied, 410 U.S. 909, 93 S. Ct. 963, 35 L. Ed. 2d 270 (1973) (decision under prior law).

Where the evidence established that out of the amount listed by the contractor as accounts receivable, approximately 50 percent of this amount constituted retainage on construction contracts and which were listed on the contractor's balance sheet as accounts receivable, and where, since the contractor did not complete its work on any projects after it filed bankruptcy, the retainage proved to be uncollectible due to various counterclaims and setoffs, the district court correctly included the retainage in the contractor's total outstanding accounts. In re B. Hollis Knight Co., 605 F.2d 397 (8th Cir. 1979) (decision under prior law).

Bankruptcy.

Although creditor failed to perfect security interest by failing to comply with former § 4-9-401(1)(c), the security interest was a transfer by the debtor of an interest in property, and a preference which could be avoided in a bankruptcy action. International Ventures, Inc. v. Block Properties, 214 B.R. 590 (Bankr. E.D. Ark. 1997) (decision under prior law).

Conditional Sales Contracts.

The conditional sale contract for carpeting sold to a defendant for installation in real estate covered by a deed of trust should have been filed in the office where the deed of trust was recorded to be valid as against the interest of the holder of the deed of trust. United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964) (decision under prior law).

Where person who sold equipment to the defendant under a conditional sale contract did not record or file the contract as provided by this section, he had only an unperfected security interest in the equipment which did not take priority over the after-acquired property clause in a deed of trust to the real estate where the equipment was placed. United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964) (decision under prior law).

Consumer Goods.

Where a debtor's use of a video cassette recorder was primarily personal, even though the debtor made some business use of it, the recorder was properly classified as consumer goods such that the creditor's single filing of its security interest was sufficient to perfect its security interest under this chapter. Walloch TV & Appliances, Inc. v. McFadden, 18 B.R. 758 (Bankr. E.D. Ark. 1982) (decision under prior law).

Filing.

Large motel and restaurant signs anchored deep in concrete were so clearly fixtures that purchasers of the motel and restaurant had the right to rely on the records in the office of the circuit clerk of the county, where filings covering fixtures were to be made, to determine if a lien was in existence at the time of their purchase; under this chapter, a good faith filing made in the wrong place was not constructive notice to them, but only to any person who had knowledge of the contents of such financing statement. Cummings, Inc. v. Beardsley, 271 Ark. 596, 609 S.W.2d 66 (1980) (decision under prior law).

Although bank filed first, it was not the first to file correctly, which was required under this chapter in order for it to have priority. Affiliated Food Stores, Inc. v. F & M Bank, 300 Ark. 450, 780 S.W.2d 20 (1989) (decision under prior law).

Where creditor did not file the financing statements centrally with the Arkansas Secretary of State, the security interest in the 2003 government payments was not properly perfected prior to the filing of the instant case; as consequence of creditor's failure to properly perfect its security interest in the 2003 government payments, the debtors could avoid the creditor's security interest. In re Stevens, 307 B.R. 124 (Bankr. E.D. Ark. 2004).

In Arkansas, the applicable provision to determine the place of proper filing of a financing statement concerning certain government agricultural payments was § 4-9-501(a)(3), not § 4-9-501(a)(2). In re Stevens, 307 B.R. 124 (Bankr. E.D. Ark. 2004) (decided under former version of statute).

Fixtures.

A “fixture” is personal property which by reason of annexation to real property has become a part of the realty because of the nature of the surrounding structures or the impossibility of removal without substantial damage to the realty. In re Factory Homes Corp., 333 F. Supp. 126 (W.D. Ark. 1971) (decision under prior law).

The term “trade fixture” is an exception to the classification “fixture,” and in the cases in which the term is discussed it is generally stated under this chapter that a “trade fixture” remains the property of the business, not the owner of the real property, and is thus not a “fixture.” In re Factory Homes Corp., 333 F. Supp. 126 (W.D. Ark. 1971) (decision under prior law).

Referee in bankruptcy properly denied secured claim based upon times in security agreement which were trade fixtures and not fixtures within the meaning of this section where creditor filed security agreement with secretary of state in compliance with this section but subsequent to the filing of an involuntary petition in bankruptcy by debtor and thereby created no lien by virtue of such security interest. In re Factory Homes Corp., 333 F. Supp. 126 (W.D. Ark. 1971) (decision under prior law).

Where a debtor annexed a building on the real property for the sole purpose of operating his business, and the building was not annexed with the intention of making the building a permanent addition to the realty, the building also constituted a trade fixture and remained personal property under this chapter. In re Hot Shots Burgers & Fries, Inc., 147 B.R. 484 (Bankr. E.D. Ark. 1992) (decision under prior law).

Knowledge.

An FHA lien under a deed of trust not meeting filing requirements covering an apartment house and its furniture given by a partnership had priority over the purchase money lien of the corporation which sold the furniture to the partnership where one of the partners was also an officer of the corporation and the dominant figure in both the corporation and the partnership. United States v. Thompson, 272 F. Supp. 774 (E.D. Ark. 1967), aff'd, 408 F.2d 1075 (8th Cir. 1969) (decision under prior law).

“Knowledge of the contents” means actual rather than constructive knowledge. Affiliated Food Stores, Inc. v. F & M Bank, 300 Ark. 450, 780 S.W.2d 20 (1989) (decision under prior law).

Personal Property.

Filing in real estate records does not constitute notice as to personal property, and actual knowledge is required under this subtitle, § 4-1-201. In re King Furn. City, Inc., 240 F. Supp. 453 (E.D. Ark. 1965) (decision under prior law).

Places of Business.

Where a debtor farm supply business used a warehouse for over four years as its distribution center, the warehouse was listed as one of the company's business addresses in financing statements, and the warehouse performed an integral part of the debtor's business, the warehouse constituted a “place of business” within the meaning of former § 4-9-401(1)(c); accordingly, where the debtor owned two retail outlets in one county and the warehouse was located in a different county, the filing of the financing statements only with the Secretary of State was sufficient under former § 4-9-401(1)(c) to perfect the creditors' security interests. American Cyanamid v. McCrary's Farm Supply, Inc., 705 F.2d 330 (8th Cir. 1983) (decision under prior law).

A corporation is an organization which may be a debtor under this chapter. Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 183 B.R. 848 (Bankr. E.D. Ark. 1995) (decision under prior law).

Where individuals, rather than the corporation, were held to be the debtors, the proper place to file the financing statement under this chapter was in the office of the secretary of state and, because the individuals had no place of business, in the county in which the debtors resided. Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 183 B.R. 848 (Bankr. E.D. Ark. 1995) (decision under prior law).

Where a farming partnership had more than one place of business because it grew crops in more than one county, the farm equipment and crops had to be perfected in a county which was considered the partnership's chief executive office; all financing statements regarding the collateral at issue were filed in the proper county and were properly perfected because they were filed in the county where the partnership's executive office was located and where both partners resided. In re Curtis, 363 B.R. 572 (Bankr. E.D. Ark. 2007).

Timber as Inventory Goods.

Directed verdict, or motion to dismiss under Ark. R. Civ. P. 50(a), was properly granted because mills that purchased gatewood timber from an owner were buyers in the ordinary course of business under §§ 4-1-201(b)(9), 4-9-320, and timber, once cut, became inventory goods under § 4-9-102(a)(48); thus, the mills had no duty to conduct a lien search to find a creditor's perfected security interest in the timber. Fordyce Bank & Trust Co. v. Bean Timberland, Inc., 369 Ark. 90, 251 S.W.3d 267 (2007).

Cited: Caplinger v. Patty, 398 F.2d 471 (8th Cir. 1968); Thompson v. United States, 408 F.2d 1075 (8th Cir. 1969); Richardson v. United States, 358 F. Supp. 994 (E.D. Ark. 1973); Findley Mach. Co. v. Miller, 3 Ark. App. 264, 625 S.W.2d 542 (1981); In re Answerfone, Inc., 48 B.R. 24 (Bankr. E.D. Ark. 1985); Worthen Bank & Trust Co. v. Hilyard Drilling Co., 60 B.R. 500 (Bankr. W.D. Ark. 1986); Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989); Herringer v. Mercantile Bank, 315 Ark. 218, 866 S.W.2d 390 (1993); Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 169 B.R. 920 (Bankr. E.D. Ark. 1994); Lawhon Farm Supply, Inc. v. Hayes, 316 Ark. 69, 870 S.W.2d 729 (1994); In re Morrilton Plastics Prods., Inc., 177 B.R. 622 (Bankr. E.D. Ark. 1995); Nef v. Ag Servs. of Am., Inc., 79 Ark. App. 100, 86 S.W.3d 4 (2002) (decisions under prior law).

4-9-502. Contents of financing statement — Record of mortgage as financing statement — Time of filing financing statement.

  1. Subject to subsection (b), a financing statement is sufficient only if it:
    1. provides the name of the debtor;
    2. provides the name of the secured party or a representative of the secured party; and
    3. indicates the collateral covered by the financing statement.
  2. Except as otherwise provided in § 4-9-501(b), to be sufficient, a financing statement that covers as-extracted collateral or timber to be cut, or which is filed as a fixture filing and covers goods that are or are to become fixtures, must satisfy subsection (a) and also:
    1. indicate that it covers this type of collateral;
    2. indicate that it is to be filed for record in the real property records;
    3. provide a description of the real property to which the collateral is related sufficient to give constructive notice of a mortgage under the law of this state if the description were contained in a record of the mortgage of the real property; and
    4. if the debtor does not have an interest of record in the real property, provide the name of a record owner.
  3. A record of a mortgage is effective, from the date of recording, as a financing statement filed as a fixture filing or as a financing statement covering as-extracted collateral or timber to be cut only if:
    1. the record indicates the goods or accounts that it covers;
    2. the goods are or are to become fixtures related to the real property described in the record or the collateral is related to the real property described in the record and is as-extracted collateral or timber to be cut;
    3. the record satisfies the requirements for a financing statement in this section, but
      1. the record need not indicate that it is to be filed in the real property records; and
      2. the record sufficiently provides the name of a debtor who is an individual if it provides the individual name of the debtor or the surname and first personal name of the debtor, even if the debtor is an individual to whom § 4-9-503(a)(4) applies; and
    4. the record is recorded.
  4. A financing statement may be filed before a security agreement is made or a security interest otherwise attaches.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 15.

Amendments. The 2013 amendment rewrote (c)(3).

Case Notes

Description of Collateral.

Security agreements and financing statements establishing liens on growing crops which identified the subject of the liens as “7 acres of cotton and 53 acres of soybeans” to be produced on the lands of certain owners and similar designations of crops to be grown on other lands without describing the lands except by reference to the owners thereof, without specifying whether the debtor would grow exactly the specified acreage of specific crops, and whether or not there would be others growing similar crops on such lands, were insufficient to identify the subject of the security agreements. Piggott State Bank v. Pollard Gin Co., 243 Ark. 159, 419 S.W.2d 120 (1967) (decision under prior law).

A trial court erred in ruling that a description of the subject of a security agreement as “Company owned inventory of” and giving the name and address of the company was insufficient as a matter of law. Security Tire & Rubber Co. v. Hlass, 246 Ark. 1113, 441 S.W.2d 91 (1969) (decision under prior law).

This section and former § 4-9-203 clearly require some type of a description of the land concerned, and where the description in a combined financing statement and security agreement on crops contained an accurate legal description of certain farm lands but omitted other parcels of land on which the borrower planted crops, was insufficient as to the real estate not described. People's Bank v. Pioneer Food Indus., Inc., 253 Ark. 277, 486 S.W.2d 24 (1972) (decision under prior law).

Where the only land description was the statement that the property would be located at the Greenway Elevator Company at Greenway, Arkansas, which was identified only by a post office box number, the description was insufficient, to meet Uniform Commercial Code requirements for descriptions of real estate. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

Nothing in the statutes or case law indicates that a full legal description of real estate is required in a financing statement covering crops under the pre-2001 version of this chapter; thus where the information in the financing statement, together with inquiry suggested therein, would enable a stranger to the transaction to identify the crops, the filing of the financing statement perfected the government's security interest in the crops. United States v. Oakley, 483 F. Supp. 762 (E.D. Ark. 1980) (decision under prior law).

Description of collateral in security agreement and financial statement that it included all crops and other plant products planted or growing on the farm of Alois Ledwig of approximately 260 acres located in White County, Arkansas approximately 3½ miles southeast of the town of McRae was a sufficient description of the collateral under the pre-2001 version of this chapter. United States v. Oakley, 483 F. Supp. 762 (E.D. Ark. 1980) (decision under prior law).

Financing statement which neither indicated where equipment could be located nor disclosed the name of the business where equipment was to be used fell short of the minimum requirement for collateral description under the pre-2001 version of this chapter. Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989) (decision under prior law).

Where fixture company claimed that description of collateral contained in bank's financing statement was insufficient to give notice to a third party it was proper under the pre-2001 version of this chapter to consider fixture company's actual knowledge concerning the collateral in determining the sufficiency of the description. Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989) (decision under prior law).

A description that only describes the debtor's name and the county and state where the real estate is located is not a sufficient description. Schieffler v. First Nat'l Bank (In re Peeler), 145 B.R. 973 (Bankr. E.D. Ark. 1992) (decision under prior law).

Lender's lien on Arkansas crops was properly perfected by a financing statement because it reasonably identified the Arkansas crops as collateral under § 4-9-108 where it indicated that the collateral consisted of crops produced by two entities, and it suggested that the crops were located in Arkansas; this, along with the name of the secured lender, would have provided a third party with sufficient inquiry notice to locate the Arkansas crops. There was no evidence that an unsuccessful inquiry was made by a farmer prior to providing funding, and there was no unjust enrichment that allowed the farmer's equitable lien to prime the lender's lien because the lender did not participate or encourage the farmer's efforts in providing his own resources in planting and growing the crops. Newsom v. Rabo Agrifinance, Inc., 2013 Ark. App. 259, 427 S.W.3d 688 (2013).

Execution of Security Agreement.

Possession of tractor by alleged security party was actually held pursuant to a sale and not a pledge even though a financing statement was filed where no security agreement was executed and alleged secured party did not take possession of the tractor at the time the financing statement was executed. Gibbs v. King, 263 Ark. 338, 564 S.W.2d 515 (1978) (decision under prior law).

Financing Statements.

A financing statement, standing alone, does not create a security interest in the debtor's property under the pre-2001 version of this chapter, but merely serves notice that the named creditor may have such an interest. General Elec. Credit Corp. v. Bankers Com. Corp., 244 Ark. 984, 429 S.W.2d 60 (1968) (decision under prior law).

Where the financing statements identified the debtors by their business trade company names, and not by their individual names, the financing statements did not sufficiently identify the individual debtors under the pre-2001 version of this chapter. In re Wallace, 61 B.R. 54 (Bankr. W.D. Ark. 1986) (decision under prior law).

Substantial compliance under former § 4-9-402(8) pertains to the formal requisites of a financing statement, not a continuation statement. Worthen Bank & Trust Co. v. Nat'l Bank of Commerce (In re Hilyard Drilling Co.), 74 B.R. 125 (W.D. Ark. 1986), aff'd, 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

Statement filed failed significantly to adhere to requirements under the pre-2001 version of this chapter for continuation of its priority based upon prior statement. Worthen Bank & Trust Co. v. Nat'l Bank of Commerce (In re Hilyard Drilling Co.), 74 B.R. 125 (W.D. Ark. 1986), aff'd, 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

When a debtor's name is incorrectly listed on a financial statement, the test under the pre-2001 version of this chapter is whether a reasonable search under the debtor's true name would reveal the filing, and if so, then the person searching is on notice to inquire further to discover the debtor's correct identity. Heckathorn Constr. Co. v. Bass Mechanical Contractors, 84 B.R. 1009 (Bankr. W.D. Ark. 1988) (decision under prior law).

The determination of whether financing statements are seriously misleading is a question of fact which must be decided on a case-by-case basis. Heckathorn Constr. Co. v. Bass Mechanical Contractors, 84 B.R. 1009 (Bankr. W.D. Ark. 1988) (decision under prior law).

Financing statement held not to substantially comply with the requirements for a continuation statement under the pre-2001 version of this chapter. Worthen Bank & Trust Co. v. Hilyard Drilling Co., 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

Future Advances.

Where a bank loaned money with a financing statement and chattel mortgage covering future advances being filed, and subsequently others loaned debtor money acquiring liens, the bank had first priority when the debtor failed to meet payments and its property had to be sold, notwithstanding the debtor had payed off the first loan to bank, since it never was out of debt to bank. Associated Bus. Inv. Corp. v. First Nat'l Bank, 264 Ark. 611, 573 S.W.2d 328 (1978) (decision under prior law).

Requirements.

Court erred in awarding judgment to defendant in plaintiff's action for a determination of entitlement to proceeds of a foreclosure sale because defendant's financing statement was only signed by one of the two individual debtors, in violation of former § 4-9-402(1), despite the fact that both debtors held a personal interest in the five pieces of equipment. Farm Credit Midsouth, PCA v. Reece Contr., Inc., 359 Ark. 267, 196 S.W.3d 488 (2004).

Cited: In re King Furn. City, Inc., 240 F. Supp. 453 (E.D. Ark. 1965); Thompson v. United States, 408 F.2d 1075 (8th Cir. 1969); In re B. Hollis Knight Co., 605 F.2d 397 (8th Cir. 1979); United States v. Riceland Foods, Inc., 504 F. Supp. 1258 (E.D. Ark. 1981); Findley Mach. Co. v. Miller, 3 Ark. App. 264, 625 S.W.2d 542 (1981); Davidson v. Lonoke Prod. Credit Ass'n, 695 F.2d 1115 (8th Cir. 1982); United States v. Davidson, 14 Ark. App. 194, 686 S.W.2d 455 (1985); Worthen Bank & Trust Co. v. Hilyard Drilling Co., 60 B.R. 500 (Bankr. W.D. Ark. 1986) (decisions under prior law).

4-9-503. Name of debtor and secured party.

  1. A financing statement sufficiently provides the name of the debtor:
    1. except as otherwise provided in paragraph (3), if the debtor is a registered organization or the collateral is held in a trust that is a registered organization, only if the financing statement provides the name that is stated to be the registered organization's name on the public organic record most recently filed with or issued or enacted by the registered organization's jurisdiction of organization which purports to state, amend, or restate the registered organization's name;
    2. subject to subsection (f), if the collateral is being administered by the personal representative of a decedent, only if the financing statement provides, as the name of the debtor, the name of the decedent and, in a separate part of the financing statement, indicates that the collateral is being administered by a personal representative;
    3. if the collateral is held in a trust that is not a registered organization, only if the financing statement:
      1. provides, as the name of the debtor:
        1. if the organic record of the trust specifies a name for the trust, the name specified; or
        2. if the organic record of the trust does not specify a name for the trust, the name of the settlor or testator; and
      2. in a separate part of the financing statement:
        1. if the name is provided in accordance with subparagraph (A)(i), indicates that the collateral is held in a trust; or
        2. if the name is provided in accordance with subparagraph (A)(ii), provides additional information sufficient to distinguish the trust from other trusts having one or more of the same settlors or the same testator and indicates that the collateral is held in a trust, unless the additional information so indicates;
    4. subject to subsection (g), if the debtor is an individual to whom this state has issued a driver's license that has not expired, only if the financing statement provides the name of the individual which is indicated on the driver's license;
    5. if the debtor is an individual to whom paragraph (4) does not apply, only if the financing statement provides the individual name of the debtor or the surname and first personal name of the debtor; and
    6. in other cases:
      1. if the debtor has a name, only if the financing statement provides the organizational name of the debtor; and
      2. if the debtor does not have a name, only if it provides the names of the partners, members, associates, or other persons comprising the debtor, in a manner that each name provided would be sufficient if the person named were the debtor.
  2. A financing statement that provides the name of the debtor in accordance with subsection (a) is not rendered ineffective by the absence of:
    1. a trade name or other name of the debtor; or
    2. unless required under subsection (a)(6)(B), names of partners, members, associates, or other persons comprising the debtor.
  3. A financing statement that provides only the debtor's trade name does not sufficiently provide the name of the debtor.
  4. Failure to indicate the representative capacity of a secured party or representative of a secured party does not affect the sufficiency of a financing statement.
  5. A financing statement may provide the name of more than one (1) debtor and the name of more than one (1) secured party.
  6. The name of the decedent indicated on the order appointing the personal representative of the decedent issued by the court having jurisdiction over the collateral is sufficient as the name of the decedent under subdivision (a)(2).
  7. If this state has issued to an individual more than one driver's license of a kind described in subdivision (a)(4), the one that was issued most recently is the one to which subdivision (a)(4) refers.
  8. In this section, the name of the settlor or testator means:
    1. if the settlor is a registered organization, the name that is stated to be the settlor's name on the public organic record most recently filed with or issued or enacted by the settlor's jurisdiction of organization which purports to state, amend, or restate the settlor's name; or
    2. in other cases, the name of the settlor or testator indicated in the trust's organic record.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 16.

Amendments. The 2013 amendment rewrote (a); substituted “(a)(6)(B)” for “(a)(4)(B)” in (b)(2); and added (f) through (h).

Research References

ALR.

Sufficiency and Effectiveness of Designation of Debtor in Financing Statement under Uniform Commercial Code §§ 9-503 and 9-506 (Revised 2000). 28 A.L.R.6th 461.

4-9-504. Indication of collateral.

A financing statement sufficiently indicates the collateral that it covers if the financing statement provides:

  1. a description of the collateral pursuant to § 4-9-108; or
  2. an indication that the financing statement covers all assets or all personal property.

History. Acts 2001, No. 1439, § 1.

Case Notes

Notice.

Lender's lien on Arkansas crops was properly perfected by a financing statement because it reasonably identified the Arkansas crops as collateral under § 4-9-108 where it indicated that the collateral consisted of crops produced by two entities, and it suggested that the crops were located in Arkansas; this, along with the name of the secured lender, would have provided a third party with sufficient inquiry notice to locate the Arkansas crops. There was no evidence that an unsuccessful inquiry was made by a farmer prior to providing funding, and there was no unjust enrichment that allowed the farmer's equitable lien to prime the lender's lien because the lender did not participate or encourage the farmer's efforts in providing his own resources in planting and growing the crops. Newsom v. Rabo Agrifinance, Inc., 2013 Ark. App. 259, 427 S.W.3d 688 (2013).

Purpose.

The intent of this section is to permit a lessor, for example, to file a financing statement as a precautionary measure, even while contending that the lease is a true lease for which no financing statement is actually required. Bell v. Itek Leasing Corp., 262 Ark. 22, 555 S.W.2d 1 (1977) (decision under prior law).

4-9-505. Filing and compliance with other statutes and treaties for consignments, leases, other bailments, and other transactions.

  1. A consignor, lessor, or other bailor of goods, a licensor, or a buyer of a payment intangible or promissory note may file a financing statement, or may comply with a statute or treaty described in § 4-9-311(a), using the terms “consignor”, “consignee”, “lessor”, “lessee”, “bailor”, “bailee”, “licensor”, “licensee”, “owner”, “registered owner”, “buyer”, “seller”, or words of similar import, instead of the terms “secured party” and “debtor”.
  2. This part applies to the filing of a financing statement under subsection (a) and, as appropriate, to compliance that is equivalent to filing a financing statement under § 4-9-311(b), but the filing or compliance is not of itself a factor in determining whether the collateral secures an obligation. If it is determined for another reason that the collateral secures an obligation, a security interest held by the consignor, lessor, bailor, licensor, owner, or buyer which attaches to the collateral is perfected by the filing or compliance.

History. Acts 2001, No. 1439, § 1.

Case Notes

Purpose.

The intent of this section is to permit a lessor, for example, to file a financing statement as a precautionary measure, even while contending that the lease is a true lease for which no financing statement is actually required. Bell v. Itek Leasing Corp., 262 Ark. 22, 555 S.W.2d 1 (1977) (decision under prior law).

4-9-506. Effect of errors or omissions.

  1. A financing statement substantially satisfying the requirements of this part is effective, even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.
  2. Except as otherwise provided in subsection (c), a financing statement that fails sufficiently to provide the name of the debtor in accordance with § 4-9-503(a) is seriously misleading.
  3. If a search of the records of the filing office under the debtor's correct name, using the filing office's standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with § 4-9-503(a), the name provided does not make the financing statement seriously misleading.
  4. For purposes of § 4-9-508(b), the “debtor's correct name” in subsection (c) means the correct name of the new debtor.

History. Acts 2001, No. 1439, § 1.

Research References

ALR.

Sufficiency and Effectiveness of Designation of Debtor in Financing Statement under Uniform Commercial Code §§ 9-503 and 9-506 (Revised 2000). 28 A.L.R.6th 461.

Case Notes

Effect of Errors.

Financing statement containing error in debtor's address was sufficient under the pre-2001 version of this chapter because error was minor, collateral was described in terms of a general commercial code category, and party claiming insufficiency of description had actual knowledge concerning the collateral and the location of debtor's business that prevented it from being misled by the error. Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989) (decision under prior law).

It was a minor error, not seriously misleading commensurate with former § 4-9-402(8), when the name given for the debtor on a financing statement was “M.P.G. Enterprises/Al MacKenzie Const. Mgmt.” when in fact the name of the debtor was “M.P.G. Enterprises, Inc.” Scott Truck & Tractor Co. v. Alma Tractor & Equip., Inc., 72 Ark. App. 79, 35 S.W.3d 815 (2000) (decision under prior law).

The test under the pre-2001 version of this chapter of whether an error in the debtor's name in a financing statement is a minor error that is not seriously misleading is whether it would not prevent a reasonable diligent searcher from discovering the financing statement when the search is made under the correct name of the debtor, and each case must be decided on the basis of its own facts. Scott Truck & Tractor Co. v. Alma Tractor & Equip., Inc., 72 Ark. App. 79, 35 S.W.3d 815 (2000) (decision under prior law).

4-9-507. Effect of certain events on effectiveness of financing statement.

  1. A filed financing statement remains effective with respect to collateral that is sold, exchanged, leased, licensed, or otherwise disposed of and in which a security interest or agricultural lien continues, even if the secured party knows of or consents to the disposition.
  2. Except as otherwise provided in subsection (c) and § 4-9-508, a financing statement is not rendered ineffective if, after the financing statement is filed, the information provided in the financing statement becomes seriously misleading under § 4-9-506.
  3. If the name that a filed financing statement provides for a debtor becomes insufficient as the name of the debtor under § 4-9-503(a) so that the financing statement becomes seriously misleading under § 4-9-506:
    1. the financing statement is effective to perfect a security interest in collateral acquired by the debtor before, or within four months after, the filed financing statement becomes seriously misleading; and
    2. the financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the filed financing statement becomes seriously misleading, unless an amendment to the financing statement which renders the financing statement not seriously misleading is filed within four months after the financing statement became seriously misleading.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 17.

Amendments. The 2013 amendment rewrote the introductory language of (c); deleted “(4)” following “four” in (c)(1) and twice in (c)(2); substituted “filed financing statement becomes seriously misleading” for “change” in (c)(1) and (c)(2); and substituted “the financing statement became seriously misleading” for “the change” in (c)(2).

4-9-508. Effectiveness of financing statement if new debtor becomes bound by security agreement.

  1. Except as otherwise provided in this section, a filed financing statement naming an original debtor is effective to perfect a security interest in collateral in which a new debtor has or acquires rights to the extent that the financing statement would have been effective had the original debtor acquired rights in the collateral.
  2. If the difference between the name of the original debtor and that of the new debtor causes a filed financing statement that is effective under subsection (a) to be seriously misleading under § 4-9-506:
    1. the financing statement is effective to perfect a security interest in collateral acquired by the new debtor before, and within four (4) months after, the new debtor becomes bound under § 4-9-203(d); and
    2. the financing statement is not effective to perfect a security interest in collateral acquired by the new debtor more than four (4) months after the new debtor becomes bound under § 4-9-203(d) unless an initial financing statement providing the name of the new debtor is filed before the expiration of that time.
  3. This section does not apply to collateral as to which a filed financing statement remains effective against the new debtor under § 4-9-507(a).

History. Acts 2001, No. 1439, § 1.

4-9-509. Persons entitled to file a record.

  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:
    1. the debtor authorizes the filing in an authenticated record or pursuant to subsection (b) or (c); or
    2. the person holds an agricultural lien that has become effective at the time of filing and the financing statement covers only collateral in which the person holds an agricultural lien.
  2. By authenticating or becoming bound as debtor by a security agreement, a debtor or new debtor authorizes the filing of an initial financing statement, and an amendment, covering:
    1. the collateral described in the security agreement; and
    2. property that becomes collateral under § 4-9-315(a)(2), whether or not the security agreement expressly covers proceeds.
  3. By acquiring collateral in which a security interest or agricultural lien continues under § 4-9-315(a)(1), a debtor authorizes the filing of an initial financing statement, and an amendment, covering the collateral and property that becomes collateral under § 4-9-315(a)(2).
  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:
    1. the secured party of record authorizes the filing; or
    2. the amendment is a termination statement for a financing statement as to which the secured party of record has failed to file or send a termination statement as required by § 4-9-513(a) or (c), 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 (d).

History. Acts 2001, No. 1439, § 1.

4-9-510. Effectiveness of filed record.

  1. A filed record is effective only to the extent that it was filed by a person that may file it under § 4-9-509 or by the filing office under § 4-9-529.
  2. A record authorized by one (1) secured party of record does not affect the financing statement with respect to another secured party of record.
  3. A continuation statement that is not filed within the six-month period prescribed by § 4-9-515(d) is ineffective.
    1. Except as provided in subdivision (d)(2) of this section, if a debtor is engaged in farming operations and the collateral described in a financing statement is an agricultural lien or a security interest in equipment used in farming operations, farm products, or accounts arising from the sale of farm products, a filing with the circuit clerk of the county where a debtor is engaged in farming operations of a financing statement, a termination statement, or a continuation statement to extend the effectiveness of a financing statement is ineffective.
    2. If a debtor is engaged in farming operations and the collateral described in a financing statement is a farm-stored commodity financed by a loan through the Commodity Credit Corporation of the United States Department of Agriculture, a filing after midnight, December 31, 2012, with the circuit clerk of the county where a debtor is engaged in farming operations of the financing statement, a termination statement, or a continuation statement to extend the effectiveness of the financing statement is ineffective.
    3. The effectiveness of a financing statement that perfects an agricultural lien or a security interest in equipment used in farming operations, farm products, or accounts arising from the sale of farm products may be continued by filing a continuation statement with the Secretary of State before the financing statement expires.

History. Acts 2001, No. 1439, § 1; 2009, No. 942, § 2; 2017, No. 1114, § 1.

Amendments. The 2009 amendment added (d).

The 2017 amendment added “or by the filing office under § 4-9-529” in (a).

4-9-511. Secured party of record.

  1. A secured party of record with respect to a financing statement is a person whose name is provided as the name of the secured party or a representative of the secured party in an initial financing statement that has been filed. If an initial financing statement is filed under § 4-9-514(a), the assignee named in the initial financing statement is the secured party of record with respect to the financing statement.
  2. If an amendment of a financing statement which provides the name of a person as a secured party or a representative of a secured party is filed, the person named in the amendment is a secured party of record. If an amendment is filed under § 4-9-514(b), the assignee named in the amendment is a secured party of record.
  3. A person remains a secured party of record until the filing of an amendment of the financing statement which deletes the person.

History. Acts 2001, No. 1439, § 1.

4-9-512. Amendment of financing statement.

  1. Subject to § 4-9-509, a person may add or delete collateral covered by, continue or terminate the effectiveness of, or, subject to subsection (e), otherwise amend the information provided in, a financing statement by filing an amendment that:
    1. identifies, by its file number, the initial financing statement to which the amendment relates; and
    2. if the amendment relates to an initial financing statement filed in a filing office described in § 4-9-501(a) (1), provides the date and time that the initial financing statement was filed and the information specified in § 4-9-502(b).
  2. Except as otherwise provided in § 4-9-515, the filing of an amendment does not extend the period of effectiveness of the financing statement.
  3. A financing statement that is amended by an amendment that adds collateral is effective as to the added collateral only from the date of the filing of the amendment.
  4. A financing statement that is amended by an amendment that adds a debtor is effective as to the added debtor only from the date of the filing of the amendment.
  5. An amendment is ineffective to the extent it:
    1. purports to delete all debtors and fails to provide the name of a debtor to be covered by the financing statement; or
    2. purports to delete all secured parties of record and fails to provide the name of a new secured party of record.

History. Acts 2001, No. 1439, § 1.

4-9-513. Termination statement.

  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:
    1. there is no obligation secured by the collateral covered by the financing statement and no commitment to make an advance, incur an obligation, or otherwise give value; or
    2. the debtor did not authorize the filing of the initial financing statement.
  2. To comply with subsection (a), a secured party shall cause the secured party of record to file the termination statement:
    1. 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
    2. if earlier, within twenty (20) days after the secured party receives an authenticated demand from a debtor.
  3. In cases not governed by subsection (a), within twenty (20) days after a secured party receives an authenticated demand from a debtor, the secured party shall cause the secured party of record for a financing statement to send to the debtor a termination statement for the financing statement or file the termination statement in the filing office if:
    1. except in the case of a financing statement covering accounts or chattel paper that has been sold or goods that are the subject of a consignment, there is no obligation secured by the collateral covered by the financing statement and no commitment to make an advance, incur an obligation, or otherwise give value;
    2. the financing statement covers accounts or chattel paper that has been sold but as to which the account debtor or other person obligated has discharged its obligation;
    3. the financing statement covers goods that were the subject of a consignment to the debtor but are not in the debtor's possession; or
    4. the debtor did not authorize the filing of the initial financing statement.
  4. Except as otherwise provided in § 4-9-510, upon the filing of a termination statement with the filing office, the financing statement to which the termination statement relates ceases to be effective. Except as otherwise provided in § 4-9-510, for purposes of §§ 4-9-519(g), 4-9-522(a), and 4-9-523(c), the filing with the filing office of a termination statement relating to a financing statement that indicates that the debtor is a transmitting utility also causes the effectiveness of the financing statement to lapse.

History. Acts 2001, No. 1439, § 1.

Research References

ALR.

Consignment Transactions Under Uniform Commercial Code Article 9 on Secured Transactions. 58 A.L.R.6th 289.

Case Notes

Cited: General Elec. Credit Corp. v. Bankers Com. Corp., 244 Ark. 984, 429 S.W.2d 60 (1968); Hackworth v. First Nat'l Bank, 265 Ark. 668, 580 S.W.2d 465 (1979) (decisions under prior law).

4-9-514. Assignment of powers of secured party of record.

  1. Except as otherwise provided in subsection (c), an initial financing statement may reflect an assignment of all of the secured party's power to authorize an amendment to the financing statement by providing the name and mailing address of the assignee as the name and address of the secured party.
  2. Except as otherwise provided in subsection (c), a secured party of record may assign of record all or part of its power to authorize an amendment to a financing statement by filing in the filing office an amendment of the financing statement which:
    1. identifies, by its file number, the initial financing statement to which it relates;
    2. provides the name of the assignor; and
    3. provides the name and mailing address of the assignee.
  3. An assignment of record of a security interest in a fixture covered by a record of a mortgage which is effective as a financing statement filed as a fixture filing under § 4-9-502(c) may be made only by an assignment of record of the mortgage in the manner provided by law of this state other than this subtitle.

History. Acts 2001, No. 1439, § 1.

Case Notes

Noncompliance.

In an action to foreclose real estate mortgage and security agreement, the failure of the assignee or assignor of the security agreement to comply with this section did not affect the rights of the assignee's receiver against debtors. Ragge v. Bryan, 249 Ark. 164, 458 S.W.2d 403 (1970) (decision under prior law).

4-9-515. Duration and effectiveness of financing statement — Effect of lapsed financing statement.

  1. Except as otherwise provided in subsections (b), (e), (f), and (g), a filed financing statement is effective for a period of five (5) years after the date of filing.
  2. Except as otherwise provided in subsections (e), (f), and (g), an initial financing statement filed in connection with a public-finance transaction or manufactured-home transaction is effective for a period of thirty (30) years after the date of filing if it indicates that it is filed in connection with a public-finance transaction or manufactured-home transaction.
  3. The effectiveness of a filed financing statement lapses on the expiration of the period of its effectiveness unless before the lapse a continuation statement is filed pursuant to subsection (d). Upon lapse, a financing statement ceases to be effective and any security interest or agricultural lien that was perfected by the financing statement becomes unperfected, unless the security interest is perfected otherwise. If the security interest or agricultural lien becomes unperfected upon lapse, it is deemed never to have been perfected as against a purchaser of the collateral for value.
  4. A continuation statement may be filed only within six (6) months before the expiration of the five-year period specified in subsection (a) or the thirty-year period specified in subsection (b), whichever is applicable.
  5. Except as otherwise provided in § 4-9-510, upon timely filing of a continuation statement, the effectiveness of the initial financing statement continues for a period of five (5) years commencing on the day on which the financing statement would have become ineffective in the absence of the filing. Upon the expiration of the five-year period, the financing statement lapses in the same manner as provided in subsection (c), unless, before the lapse, another continuation statement is filed pursuant to subsection (d). Succeeding continuation statements may be filed in the same manner to continue the effectiveness of the initial financing statement.
  6. If a debtor is a transmitting utility and a filed initial financing statement so indicates, the financing statement is effective until a termination statement is filed.
  7. A record of a mortgage that is effective as a financing statement filed as a fixture filing under § 4-9-502(c) remains effective as a financing statement filed as a fixture filing until the mortgage is released or satisfied of record or its effectiveness otherwise terminates as to the real property.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 18.

Amendments. The 2013 amendment inserted “initial” in (f).

Case Notes

Continuation Statements.

Under former § 4-9-403, there are four basic elements for filing a continuation statement: (1) The continuation statement may be filed within six months prior to the expiration date of the original filing; (2) the continuation statement is to be signed by the secured party; (3) the continuation statement must identify the original statement by file number; and (4) the continuation statement must state that the original statement is still effective. Worthen Bank & Trust Co. v. Hilyard Drilling Co., 60 B.R. 500 (Bankr. W.D. Ark.), aff'd, 74 B.R. 125 (W.D. Ark. 1986), aff'd, 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

Where the second financing statement, filed just before the first financing statement expired, contained the signature of the secured party, but did not contain any of the other elements necessary for filing a continuation statement, it was not a continuation statement under former § 4-9-403, and the second creditor who had filed a financing statement in the interim was entitled to priority. Worthen Bank & Trust Co. v. Hilyard Drilling Co., 60 B.R. 500 (Bankr. W.D. Ark.), aff'd, 74 B.R. 125 (W.D. Ark. 1986), aff'd, 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

Where a continuation statement meets all of the requirements under former § 4-9-403, except the original document number was misstated by one number, the defect is not seriously misleading and is sufficient compliance with former § 4-9-403 to render the filing effective. Vincent Gaines Implement Co. v. United States, 71 B.R. 14 (Bankr. E.D. Ark. 1986) (decision under prior law).

Finding under former § 4-9-403 that financing statement and continuation statement are separate documents which cannot be substituted for one another is not clearly erroneous. Worthen Bank & Trust Co. v. Nat'l Bank of Commerce (In re Hilyard Drilling Co.), 74 B.R. 125 (W.D. Ark. 1986), aff'd, 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

To interpret former § 4-9-303(2) as providing that a security interest can be continuously perfected by consecutively filed financing statements contradicts the express language of former § 4-9-403(2). Former 4-9-303(2) is applicable to security interests that are originally perfected in one way and then subsequently perfected in some other way, without an intermediate unperfected period. Worthen Bank & Trust Co. v. Hilyard Drilling Co., 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

Financing statement held not to substantially comply with the requirements for a continuation statement under former § 4-9-403. Worthen Bank & Trust Co. v. Hilyard Drilling Co., 840 F.2d 596 (8th Cir. 1988) (decision under prior law).

Duration of Filing.

By virtue of the limitation period, a creditor did not have a perfected security interest under former § 4-9-403 in either an automobile or chattel paper after the expiration of the statutory period from the date the last financing statement was filed by the creditor. Commercial Credit Corp. v. National Credit Corp., 251 Ark. 702, 473 S.W.2d 881 (1971) (decision under prior law).

Where collateral description states that “crops covered hereby are growing or are to be grown on” certain described real property, such language in the financing statement was sufficient to notify third parties that crops grown after that crop year were covered, and it should have reasonably notified third parties that after-acquired property was part of the subject matter of the financing statement and further, that crops growing or to be grown on the real property would be subject to the security interest of the plaintiff for five years under former § 4-9-403, commencing on the date the financing statement was filed. United States v. Riceland Foods, Inc., 504 F. Supp. 1258 (E.D. Ark. 1981) (decision under prior law).

The crops grown each year by a debtor do not constitute separate items or types of collateral coming into existence so as to require designation on a financing statement of the years in which the crops are to be grown, since the time limits on the effectiveness of a financing statement found under former § 4-9-403 reasonably describe the years to which the financing statement, containing an after-acquired property clause dealing with crops, is applicable. United States v. Riceland Foods, Inc., 504 F. Supp. 1258 (E.D. Ark. 1981) (decision under prior law).

Cited: Barnett v. Borg-Warner Acceptance Corp., 488 F. Supp. 786 (E.D. Ark. 1980) (decision under prior law).

4-9-516. What constitutes filing — Effectiveness of filing.

  1. Except as otherwise provided in subsection (b), communication of a record to a filing office and tender of the filing fee or acceptance of the record by the filing office constitutes filing.
  2. Filing does not occur with respect to a record that a filing office refuses to accept because:
    1. the record is not communicated by a method or medium of communication authorized by the filing office;
    2. an amount equal to or greater than the applicable filing fee is not tendered;
    3. the filing office is unable to index the record because:
      1. in the case of an initial financing statement, the record does not provide a name for the debtor;
      2. in the case of an amendment or information statement, the record:
        1. does not identify the initial financing statement as required by § 4-9-512 or § 4-9-518, as applicable; or
        2. identifies an initial financing statement whose effectiveness has lapsed under § 4-9-515;
      3. in the case of an initial financing statement that provides the name of a debtor identified as an individual or an amendment that provides a name of a debtor identified as an individual which was not previously provided in the financing statement to which the record relates, the record does not identify the debtor's surname; or
      4. in the case of a record filed in the filing office described in § 4-9-501(a)(1), the record does not provide a sufficient description of the real property to which it relates;
    4. in the case of an initial financing statement or an amendment that adds a secured party of record, the record does not provide a name and mailing address for the secured party of record;
    5. in the case of an initial financing statement or an amendment that provides a name of a debtor which was not previously provided in the financing statement to which the amendment relates, the record does not:
      1. provide a mailing address for the debtor; or
      2. indicate whether the name provided as the name of the debtor is the name of an individual or an organization;
    6. in the case of an assignment reflected in an initial financing statement under § 4-9-514(a) or an amendment filed under § 4-9-514(b), the record does not provide a name and mailing address for the assignee;
    7. in the case of a continuation statement, the record is not filed within the six-month period prescribed by § 4-9-515(d); or
    8. in the case of a financing statement, the filing office determines that the financing statement is fraudulent under § 4-9-520(e).
  3. For purposes of subsection (b):
    1. a record does not provide information if the filing office is unable to read or decipher the information; and
    2. a record that does not indicate that it is an amendment or identify an initial financing statement to which it relates, as required by § 4-9-512, § 4-9-514, or § 4-9-518, is an initial financing statement.
  4. A record that is communicated to the filing office with tender of the filing fee, but which the filing office refuses to accept for a reason other than one set forth in subsection (b), is effective as a filed record except as against a purchaser of the collateral which gives value in reasonable reliance upon the absence of the record from the files.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 19; 2019, No. 707, § 1.

Amendments. The 2013 amendment substituted “information” for “correction” in (b)(3)(B); substituted “surname” for “last name” in (b)(3)(C); rewrote (b)(5)(B); and deleted (b)(5)(C).

The 2019 amendment added (b)(8).

Case Notes

Effect of Clerical Error on Perfection of Security Interest.

In a creditor's motion for summary judgment in the bankruptcy trustee's adversary proceeding to void liens held by the creditor, under former § 4-9-403(1) [see now subsection (a) of this section] the secured party did not bear the risk that the filing officer did not properly perform his duties; a mistake by the filing officer did not affect the perfection of the creditor's security interest where the financing statement presented was proper even though no notice was given to subsequent searchers. Luker v. United States (In re Masters), 273 B.R. 773 (Bankr. E.D. Ark. 2002) (decision under prior law).

4-9-517. Effect of indexing errors.

The failure of the filing office to index a record correctly does not affect the effectiveness of the filed record.

History. Acts 2001, No. 1439, § 1.

4-9-518. Claim concerning inaccurate or wrongfully filed record.

  1. A person may file in the filing office an information statement with respect to a record indexed there under the person's name if the person believes that the record is inaccurate or was wrongfully filed.
  2. An information statement under subsection (a) must:
    1. identify the record to which it relates by:
      1. the file number assigned to the initial financing statement to which the record relates; and
      2. if the information statement relates to a record filed in a filing office described in § 4-9-501(a)(1), the date that the initial financing statement was filed and the information specified in § 4-9-502(b);
    2. indicate that it is an information statement; and
    3. provide the basis for the person's belief that the record is inaccurate and indicate the manner in which the person believes the record should be amended to cure any inaccuracy or provide the basis for the person's belief that the record was wrongfully filed.
  3. A person may file in the filing office an information statement with respect to a record filed there if the person is a secured party of record with respect to the financing statement to which the record relates and believes that the person that filed the record was not entitled to do so under § 4-9-509(d).
  4. An information statement under subsection (c) must:
    1. identify the record to which it relates by:
      1. the file number assigned to the initial financing statement to which the record relates; and
      2. if the information statement relates to a record filed in a filing office described in § 4-9-501(a)(1), the date that the initial financing statement was filed and the information specified in § 4-9-502(b);
    2. indicate that it is an information statement; and
    3. provide the basis for the person's belief that the person that filed the record was not entitled to do so under § 4-9-509(d).
  5. The filing of an information statement does not affect the effectiveness of an initial financing statement or other filed record.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 20.

Amendments. The 2013 amendment substituted “information” for “correction” throughout; inserted “under subsection (a)” in the introductory language of (b); inserted present (c) and (d) and redesignated former (c) as (e).

Subpart 2 Duties and Operation of Filing Office

4-9-519. Numbering, maintaining, and indexing records — Communicating information provided in records.

  1. For each record filed in a filing office, the filing office shall:
    1. assign a unique number to the filed record;
    2. create a record that bears the number assigned to the filed record and the date and time of filing;
    3. maintain the filed record for public inspection; and
    4. index the filed record in accordance with subsections (c), (d), and (e).
  2. Except as provided in subsection (i), a file number must include a digit that:
    1. is mathematically derived from or related to the other digits of the file number; and
    2. aids the filing office in determining whether a number communicated as the file number includes a single-digit or transpositional error.
  3. Except as otherwise provided in subsections (d) and (e), the filing office shall:
    1. index an initial financing statement according to the name of the debtor and index all filed records relating to the initial financing statement in a manner that associates with one another an initial financing statement and all filed records relating to the initial financing statement; and
    2. index a record that provides a name of a debtor which was not previously provided in the financing statement to which the record relates also according to the name that was not previously provided.
  4. If a financing statement is filed as a fixture filing or covers as-extracted collateral or timber to be cut, it must be filed for record and the filing office shall index it:
    1. under the names of the debtor and of each owner of record shown on the financing statement as if they were the mortgagors under a mortgage of the real property described; and
    2. to the extent that the law of this state provides for indexing of records of mortgages under the name of the mortgagee, under the name of the secured party as if the secured party were the mortgagee thereunder, or, if indexing is by description, as if the financing statement were a record of a mortgage of the real property described.
  5. If a financing statement is filed as a fixture filing or covers as-extracted collateral or timber to be cut, the filing office shall index an assignment filed under § 4-9-514(a) or an amendment filed under § 4-9-514(b):
    1. under the name of the assignor as grantor; and
    2. to the extent that the law of this state provides for indexing a record of the assignment of a mortgage under the name of the assignee, under the name of the assignee.
  6. The filing office shall maintain a capability:
    1. to retrieve a record by the name of the debtor and:
      1. if the filing office is described in § 4-9-501(a)(1), by the file number assigned to the initial financing statement to which the record relates and the date and time that the record was filed; or
      2. if the filing office is described in § 4-9-501(a)(2), by the file number assigned to the initial financing statement to which the record relates; and
    2. to associate and retrieve with one another an initial financing statement and each filed record relating to the initial financing statement.
  7. The filing office may not remove a debtor's name from the index until one (1) year after the effectiveness of a financing statement naming the debtor lapses under § 4-9-515 with respect to all secured parties of record.
  8. Except as provided in subsection (i) the filing office shall perform the acts required by subsections (a)-(e) at the time and in the manner prescribed by filing office rule, but not later than two business days after the filing office receives the record in question.
  9. Subsections (b) and (h) do not apply to a filing office described in § 4-9-501(a) (1).

History. Acts 2001, No. 1439, § 1.

Case Notes

Duties of Filing Officer.

Where there was no recitation in the instrument that it was to be filed for record in the real estate records and it did not contain a description of the real estate sufficient to give constructive notice of a mortgage of the real estate, the circuit clerk was not called upon to index the instrument as he would have if it had been a real estate mortgage. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

4-9-520. Acceptance and refusal to accept record.

  1. A filing office shall refuse to accept a record for filing for a reason set forth in § 4-9-516(b) and may refuse to accept a record for filing only for a reason set forth in § 4-9-516(b).
  2. If a filing office refuses to accept a record for filing, it shall communicate to the person that presented the record the fact of and reason for the refusal and the date and time the record would have been filed had the filing office accepted it. The communication must be made at the time and in the manner prescribed by filing office rule but, in the case of a filing office described in § 4-9-501(a)(2), in no event more than two (2) business days after the filing office receives the record.
  3. Except as provided in subdivision (e)(4)(B), a filed financing statement satisfying § 4-9-502(a) and (b) is effective, even if the filing office is required to refuse to accept it for filing under subsection (a). However, § 4-9-338 applies to a filed financing statement providing information described in § 4-9-516(b)(5) which is incorrect at the time the financing statement is filed.
  4. If a record communicated to a filing office provides information that relates to more than one (1) debtor, this part applies as to each debtor separately.
      1. A filing officer may review a financing statement to determine if it should be refused for filing as fraudulent under this subsection.
      2. When reviewing a financing statement under subdivision (e)(1)(A) of this section, the filing officer shall consider the following factors, including without limitation whether:
        1. the financing statement is authorized under the Uniform Commercial Code;
        2. the financing statement cites performance or nonperformance of official duties by a current or former employee or officer of a federal, state, county, or other local government entity without an accompanying, properly executed security agreement or judgment from a court with jurisdiction;
        3. the financing statement identifies the secured party and debtor as being the same person;
        4. there is sufficient proof that a debtor identified as a transmitting utility meets the definition of a transmitting utility as specified in the Uniform Commercial Code;
        5. the financing statement is remitted by or on behalf of an inmate in a correction facility without being accompanied by a sworn notarized statement signed by the debtor acknowledging that the person entered into a security agreement with the inmate and authorized the filing;
        6. the financing statement is being filed for a purpose other than a transaction within the scope of the Uniform Commercial Code; and
        7. the text within the financing statement contains language indicative of past fraudulent filings.
    1. If a filing official acting in good faith has reason to believe that the financing statement is filed for a fraudulent purpose, to promote or conduct an illegitimate object or purpose, or for the purpose of defrauding or harassing a person or entity, the filing official shall provide the reason to refuse the filing to:
      1. the director of the Business and Commercial Services Division of the office of the Secretary of State; and
      2. the general counsel for the Secretary of State.
    2. If the director and the general counsel concur in the filing official's reasoning, then written notice under signature of the director shall be sent by certified mail, return receipt requested, to the mailing address provided for the secured party of record, stating:
      1. the fact of and reason for refusal to file the financing statement;
      2. the need for the secured party to submit, within thirty (30) days of the date of the certified letter, documentation as to why the financing statement should not be refused for filing, including without limitation a properly executed security agreement or a judgment from a court with jurisdiction authorizing the filing; and
      3. legal penalties for filing fraudulent financing statements.
      1. If the filing official determines that the secured party provided sufficient evidence within the thirty-day period specified in the certified letter demonstrating that the refused filing should have been accepted for filing, the filing office shall file the record with an effective date of the time that it was originally submitted for filing with an information statement indicating that the financing statement was filed under its initial filing date.
      2. If within the thirty-day period specified in the certified letter the secured party fails to respond or fails to provide sufficient evidence to support the effectiveness of the financing statement, then the filing office may refuse the record for filing. The financing statement record shall be void and have no force or effect on any person or persons named in the financing statement as related to the effectiveness of a record under this part.
    3. The filing office shall not return a fee paid for filing a statement which has been refused for filing as fraudulent.
    4. Neither the filing office nor an employee of the filing office shall be liable for the refusal to file financing statements in the lawful performance of the office or employee under this subsection.
    5. Regulated financial institutions, other lenders in the business of making loans or extending credit, and persons that regularly extend credit to agricultural producers are exempt from the requirements of this subsection.

History. Acts 2001, No. 1439, § 1; 2019, No. 707, §§ 2, 3.

Amendments. The 2019 amendment added “Except as provided in subdivision (e)(4)(B)” in the first sentence of (c); and added (e).

4-9-521. Uniform form of written financing statement and amendment.

  1. A filing office that accepts written records may not refuse to accept a written initial financing statement in the following form and format except for a reason set forth in § 4-9-516(b):
  2. A filing office that accepts written records may not refuse to accept a written record in the following form and format except for a reason set forth in § 4-9-516(b):

UCC FINANCING STATEMENT FOLLOW INSTRUCTIONS A. NAME & PHONE OF CONTACT AT FILER (optional) B. E-MAIL CONTACT AT FILER (optional) C. SEND ACKNOWLEDGMENT TO: (Name and Address) THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY 1. DEBTOR'S NAME: Provide only one Debtor name (1a or 1b) (use exact, full name; do not omit, modify, or abbreviate any part of the Debtor’s name); if any part of the Individual Debtor’s name will not fit in line 1b, leave all of item 1 blank, check here [ ] and provide the Individual Debtor information in item 10 of the Financing Statement Addendum (Form UCC1Ad) 1a. ORGANIZATION’S NAME OR 1b. INDIVIDUAL’S SURNAME FIRST PERSONAL NAME SUFFIX ADDITIONAL NAME(S)/INITIAL(S) THAT ARE PART OF THE NAME OF THIS DEBTOR 1c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 2. DEBTOR'S NAME: Provide only one Debtor name (2a or 2b) (use exact, full name; do not omit, modify, or abbreviate any part of the Debtor’s name); if any part of the Individual Debtor’s name will not fit in line 2b, leave all of item 2 blank, check here [ ] and provide the Individual Debtor information in item 10 of the Financing Statement Addendum (Form UCC1Ad) 2a. ORGANIZATION’S NAME OR 2b. INDIVIDUAL’S SURNAME FIRST PERSONAL NAME SUFFIX ADDITIONAL NAME(S)/INITIAL(S) THAT ARE PART OF THE NAME OF THIS DEBTOR 2c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 3. SECURED PARTY'S NAME (or NAME of ASSIGNEE of ASSIGNOR SECURED PARTY): Provide only one Secured Party name (3a or 3b) 3a. ORGANIZATION’S NAME OR 3b. INDIVIDUAL’S SURNAME FIRST PERSONAL NAME SUFFIX ADDITIONAL NAME(S)/INITIAL(S) 3c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 4. COLLATERAL: This financing statement covers the following collateral: 5. Check only if applicable and check only one box: Collateral is [ ] held in a Trust (see UCC1Ad, Item 17 and Instructions) [ ] being administered by a Decedent’s Personal Representative 6a. Check only if applicable and check only one box: [ ] Public-Finance Transaction [ ] Manufactured-Home Transaction [ ] A Debtor is a Transmitting Utility 6b. Check only if applicable and check only one box: [ ] Agricultural Lien [ ] Non-UCC Filing 7. ALTERNATIVE DESIGNATION (if applicable): [ ] Lessee/Lessor [ ] Consignee/Consignor [ ] Seller/Buyer [ ] Bailee/Bailor [ ] Licensee/Licensor 8. OPTIONAL FILER REFERENCE DATA: UCC FINANCING STATEMENT (Form UCC1) UCC FINANCING STATEMENT ADDENDUM FOLLOW INSTRUCTIONS 9. NAME OF FIRST DEBTOR: Same as item 1a or 1b on Financing Statement; if line 1b was left blank because Individual Debtor name did not fit, check here [ ] 9a. ORGANIZATION’S NAME OR 9b. INDIVIDUAL’S SURNAME FIRST PERSONAL NAME SUFFIX ADDITIONAL NAME(S)/INITIAL(S) THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY 10. DEBTOR’S NAME: Provide (10a or 10b) only one additional Debtor name or Debtor name that did not fit in line 1b or 2b of the Financing Statement (Form UCC1) (use exact, full name; do not omit, modify, or abbreviate any part of the Debtor’s name) and enter the mailing address in line 10c 10a. ORGANIZATION’S NAME OR 10b. INDIVIDUAL’S SURNAME FIRST PERSONAL NAME SUFFIX ADDITIONAL NAME(S)/INITIAL(S) THAT ARE PART OF THE NAME OF THIS DEBTOR 10c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 11. [ ] ADDITIONAL SECURED PARTY’S NAME or [ ] ASSIGNOR SECURED PARTY’S NAME: Provide only one name (11a or 11b) 11a. ORGANIZATION’S NAME OR 11b. INDIVIDUAL’S SURNAME FIRST PERSONAL NAME SUFFIX ADDITIONAL NAME(S)/INITIAL(S) 11c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 12. ADDITIONAL SPACE FOR ITEM 4 (Collateral) 13. [ ] This FINANCING STATEMENT is to be filed for record in the REAL ESTATE RECORDS (if applicable) 14. This FINANCING STATEMENT: [ ] covers timber to be cut [ ] covers as-extracted collateral [ ] is filed as a fixture filing 15. Name and address of a RECORD OWNER of real estate described in item 16 (if Debtor does not have a record interest): 16. Description of real estate: 17. MISCELLANEOUS: UCC FINANCING STATEMENT ADDENDUM (Form UCC1Ad)

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UCC FINANCING STATEMENT AMENDMENT FOLLOW INSTRUCTIONS A. NAME & PHONE OF CONTACT AT FILER (optional) B. E-MAIL CONTACT AT FILER (optional) C. SEND ACKNOWLEDGMENT TO: (Name and Address) THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY 1a. INITIAL FINANCING STATEMENT FILE NUMBER 1b. [ ] This FINANCING STATEMENT AMENDMENT is to be filed [for record] in the REAL ESTATE RECORDS Filer: attach Amendment Addendum (Form UCC3Ad) and provide Debtor’s name in item 13. 2. [ ] TERMINATION: Effectiveness of the Financing Statement identified above is terminated with respect to the security interest(s) of Secured Party authorizing this Termination Statement 3. [ ] ASSIGNMENT (full or partial): Provide name of Assignee in item 7a or 7b, and address of Assignee in item 7c and name of Assignor in item 9. For partial assignment, complete items 7 and 9 and also indicate affected collateral in item 8 4. [ ] CONTINUATION: Effectiveness of the Financing Statement identified above with respect to the security interest(s) of the Secured Party authorizing this Continuation Statement is continued for the additional period provided by applicable law 5. PARTY INFORMATION CHANGE: This Amendment affects [ ] Debtor or [ ] Secured Party of record. Check only one of these three boxes to: [ ] CHANGE name and/or address: Complete item 6a or 6b; and item 7a or 7b and item 7c [ ] ADD name: Complete item 7a or 7b, and item 7c [ ] DELETE name: Give record name to be deleted in item 6a or 6b 6. CURRENT RECORD INFORMATION: Complete for Party Information Change—provide only one name (6a or 6b) 6a. ORGANIZATION’S NAME OR 6b. INDIVIDUAL’S SURNAME FIRST PERSONAL NAME SUFFIX ADDITIONAL NAME(S)/INITIAL(S) 7. CHANGED OR ADDED INFORMATION: Complete for Assignment or Party Information Change—provide only one name (7a or 7b) (use exact full name; do not omit, modify, or abbreviate any part of the Debtor’s name) 7a. ORGANIZATION’S NAME OR 7b. INDIVIDUAL’S SURNAME FIRST PERSONAL NAME SUFFIX ADDITIONAL NAME(S)/INITIAL(S) THAT ARE PART OF THE NAME OF THIS DEBTOR 7c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 8. AMENDMENT (COLLATERAL CHANGE): Also check one of these four boxes: [ ] ADD collateral [ ] DELETE collateral [ ] RESTATE covered collateral [ ] ASSIGN collateral Indicate collateral: 9. NAME OF SECURED PARTY OF RECORD AUTHORIZING THIS AMENDMENT: Provide only one name (9a or 9b) (name of Assignor, if this is an Assignment) If this is an Amendment authorized by a DEBTOR, check here [ ] and provide name of authorizing Debtor 9a. ORGANIZATION’S NAME OR 9b. INDIVIDUAL’S SURNAME FIRST PERSONAL NAME SUFFIX ADDITIONAL NAME(S)/INITIAL(S) 10. OPTIONAL FILER REFERENCE DATA: UCC FINANCING STATEMENT AMENDMENT (Form UCC3) UCC FINANCING STATEMENT AMENDMENT ADDENDUM FOLLOW INSTRUCTIONS 11. INITIAL FINANCING STATEMENT FILE NUMBER: Same as item 1a on Amendment form 12. NAME OF PARTY AUTHORIZING THIS AMENDMENT: Same as item 9 on Amendment form 12a. ORGANIZATION’S NAME OR 12b. INDIVIDUAL’S SURNAME FIRST PERSONAL NAME SUFFIX ADDITIONAL NAME(S)/INITIAL(S) THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY 13. Name of DEBTOR on related financing statement (Name of a current Debtor of record required for indexing purposes only in some filing offices—see Instruction item 13): Provide only one Debtor name (13a or 13b) (use exact, full name; do not omit, modify, or abbreviate any part of the Debtor’s name); see Instructions if name does not fit 13a. ORGANIZATION’S NAME OR 13b. INDIVIDUAL’S SURNAME FIRST PERSONAL NAME SUFFIX ADDITIONAL NAME(S)/INITIAL(S) 14. ADDITIONAL SPACE FOR ITEM 8 (Collateral): 15. This FINANCING STATEMENT AMENDMENT: [ ] covers timber to be cut [ ] covers as-extracted collateral [ ] is filed as a fixture filing 16. Name and address of a RECORD OWNER of real estate described in item 17 (if Debtor does not have a record interest): 17. Description of real estate: 18. MISCELLANEOUS: UCC FINANCING STATEMENT AMENDMENT ADDENDUM (Form UCC3Ad)

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History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 21.

Amendments. The 2013 amendment rewrote the section.

4-9-522. Maintenance and destruction of records.

  1. The filing office shall maintain a record of the information provided in a filed financing statement for at least one (1) year after the effectiveness of the financing statement has lapsed under § 4-9-515 with respect to all secured parties of record. The record must be retrievable by using the name of the debtor and:
    1. if the record was filed in the filing office described in § 4-9-501(a)(1), by using the file number assigned to the initial financing statement to which the record relates and the date and time that the record was filed; or
    2. if the record was filed in the filing office described in § 4-9-501(a)(2), by using the file number assigned to the initial financing statement to which the record relates.
  2. Except to the extent that a statute governing disposition of public records provides otherwise, the filing office immediately may destroy any written record evidencing a financing statement. However, if the filing office destroys a written record, it shall maintain another record of the financing statement which complies with subsection (a).

History. Acts 2001, No. 1439, § 1.

4-9-523. Information from filing office — Sale or license of records.

  1. If a person that files a written record requests an acknowledgment of the filing, the filing office shall send to the person an image of the record showing the number assigned to the record pursuant to § 4-9-519(a)(1) and the date and time of the filing of the record. However, if the person furnishes a copy of the record to the filing office, the filing office may instead:
    1. note upon the copy the number assigned to the record pursuant to § 4-9-519(a)(1) and the date and time of the filing of the record; and
    2. send the copy to the person.
  2. If a person files a record other than a written record, the filing office shall communicate to the person an acknowledgment that provides:
    1. the information in the record;
    2. the number assigned to the record pursuant to § 4-9-519(a)(1); and
    3. the date and time of the filing of the record.
  3. The filing office shall communicate or otherwise make available in a record the following information to any person that requests it:
    1. whether there is on file on a date and time specified by the filing office, but not a date earlier than three (3) business days before the filing office receives the request, any financing statement that:
      1. designates a particular debtor or, if the request so states, designates a particular debtor at the address specified in the request;
      2. has not lapsed under § 4-9-515 with respect to all secured parties of record; and
      3. if the request so states, has lapsed under § 4-9-515 and a record of which is maintained by the filing office under § 4-9-522(a);
    2. the date and time of filing of each financing statement; and
    3. the information provided in each financing statement.
  4. In complying with its duty under subsection (c), the filing office may communicate information in any medium. However, if requested, the filing office shall communicate information by issuing a record that can be admitted into evidence in the courts of this state without extrinsic evidence of its authenticity.
  5. The filing office shall perform the acts required by subsections (a)-(d) at the time and in the manner prescribed by filing office rule, but not later than two (2) business days after the filing office receives the request.
  6. At least weekly, the Secretary of State shall offer to sell or license to the public on a nonexclusive basis, in bulk, copies of all records filed in it under this part, in every medium from time to time available to the filing office. This subsection shall apply only to records filed in a filing office described in § 4-9-501(a)(2).

History. Acts 2001, No. 1439, § 1.

4-9-524. Delay by filing office.

Delay by the filing office beyond a time limit prescribed by this part is excused if:

  1. the delay is caused by interruption of communication or computer facilities, war, emergency conditions, failure of equipment, or other circumstances beyond control of the filing office; and
  2. the filing office exercises reasonable diligence under the circumstances.

History. Acts 2001, No. 1439, § 1.

4-9-525. Fees.

  1. Except as otherwise provided in subsection (e), the fee for filing and indexing a record, whether by paper or electronically, under this part, other than an initial financing statement of the kind described in § 4-9-502(c), is:
    1. Records filed only with the Secretary of State pursuant to § 4-9-501(a)(3), sixteen dollars ($16.00) for filing and indexing the initial financing statement and termination statements, if the record consists of one (1) page;
    2. Records filed with the circuit clerks pursuant to § 4-9-501(a)(2) — twelve dollars ($12.00), for filing and indexing the initial financing statement and termination statements, if the record consists of one (1) page; and
    3. Fifty cents (50¢) per page up to a maximum of one hundred dollars ($100) if the record consists of more than one (1) page.
    1. The fee for filing a continuation is six dollars ($6.00).
    2. The fee for filing a termination statement is six dollars ($6.00) if it pertains to the filing of a financing statement before July 28, 1995.
    3. The fee for each separate search is six dollars ($6.00).
    4. The fee for filing an assignment is six dollars ($6.00).
    5. The fee for filing a release is six dollars ($6.00).
    6. The fee for filing an amendment is six dollars ($6.00).
  2. The number of names required to be indexed does not affect the amount of the fee in subsection (a).
  3. The fee for issuing a certificate or for furnishing a copy of any record on file naming a particular debtor, is:
    1. Six dollars ($6.00) if the record consists of one (1) page; and
    2. Fifty cents (50¢) per page for each page if the records supplied consist of more than one (1) page.
  4. This section does not fix the fee with respect to a record of a mortgage which is effective as a financing statement filed as a fixture filing or as a financing statement covering as-extracted collateral or timber to be cut under § 4-9-502(c). However, the recording and satisfaction fees that otherwise would be applicable to the record of the mortgage apply.

History. Acts 2001, No. 1439, § 1; 2003, No. 1473, § 2; 2009, No. 942, § 3; 2011, No. 1189, § 1; 2015, No. 1028, § 1.

Amendments. The 2009 amendment substituted “2015” for “2013” in two places in (a)(1) and made a minor stylistic change; in (b), deleted “whether with the Secretary of State or a circuit clerk” preceding “is six dollars” in (b)(1) - (b)(6), deleted “whether by the Secretary of State or a circuit clerk” preceding “is six dollars” in (b)(3), and made related changes.

The 2011 amendment, in (a)(1), deleted “from July 1, 2001, through June 30, 2015” following “pursuant to § 4-9-501(a)(3)” and deleted the former last sentence.

The 2015 amendment deleted “up to a maximum of one hundred dollars ($100)” following “each page” in (d)(2).

4-9-526. Filing office rules.

  1. The Secretary of State shall adopt and publish rules to implement this chapter. The filing office rules must be:
    1. consistent with this chapter; and
    2. adopted and published in accordance with the Arkansas Administrative Procedure Act, § 25-15-201 et seq.
  2. To keep the filing office rules and practices of the filing office in harmony with the rules and practices of filing offices in other jurisdictions that enact substantially this part, and to keep the technology used by the filing office compatible with the technology used by filing offices in other jurisdictions that enact substantially this part, the Secretary of State, so far as is consistent with the purposes, policies, and provisions of this chapter, in adopting, amending, and repealing filing office rules, shall:
    1. consult with filing offices in other jurisdictions that enact substantially this part; and
    2. consult the most recent version of the Model Rules promulgated by the International Association of Commercial Administrators or any successor organization; and
    3. take into consideration the rules and practices of, and the technology used by, filing offices in other jurisdictions that enact substantially this part.

History. Acts 2001, No. 1439, § 1.

4-9-527. Duty to report.

The Secretary of State shall report annually on or before October 1 to the Governor and General Assembly on the operation of the filing office. The report must contain a statement of the extent to which:

  1. the filing office rules are not in harmony with the rules of filing offices in other jurisdictions that enact substantially this part and the reasons for these variations; and
  2. the filing office rules are not in harmony with the most recent version of the Model Rules promulgated by the International Association of Commercial Administrators, or any successor organization, and the reasons for these variations.

History. Acts 2001, No. 1439, § 1.

4-9-528. Methods of payment.

  1. As used in this section:
    1. “Prepaid account” means an account:
      1. Established by a remitter with the Secretary of State by depositing at least one hundred dollars ($100);
      2. That may be used by the Secretary of State to obtain payment from a remitter for the payment of fees required by this subtitle; and
      3. That may be replenished by the remitter; and
    2. “Remitter” means a person that tenders payment of a filing fee or other charge or fee required by this subtitle.
  2. Filing fees, fees for public records services, and any other fees authorized by the Uniform Commercial Code, § 4-1-101 et seq., may be paid by:
    1. Cash;
    2. Checks made payable to the filing office;
    3. Credit cards; or
    4. A prepaid account under subsection (c) of this section.
    1. Upon application to the Secretary of State, the Secretary of State may permit a remitter to establish a prepaid account for the payment of fees required by this subtitle.
    2. The Secretary of State may deduct the amount of fees from a prepaid account to pay the fees required by this subtitle.
    3. The Secretary of State shall send a monthly statement of the deductions from and deposits into the account to a remitter that makes payment through a prepaid account.
    4. If requested to do so by the remitter, the Secretary of State may return to the remitter any portion of the unused funds from the prepaid account of the remitter.
  3. The Secretary of State is not required to accept payment from a prepaid account if the prepaid account does not have sufficient funds to pay all charges due.
  4. The Secretary of State may permit online filings and searches to be billed through a third-party provider that contracts with the State of Arkansas or Secretary of State to provide these services.

History. Acts 2013, No. 1042, § 1.

4-9-529. Unauthorized financing statement filings — Procedures — Remedies.

  1. An individual, representative of an organization, or other lender in the business of making loans or extending credit may file in the filing office a notarized affidavit or sworn affirmation, signed or attested to under penalty of perjury, that identifies a filed financing statement and states that:
    1. the individual, organization, or other lender is identified as a debtor in the financing statement;
    2. the financing statement was not filed by a bank or by a person that regularly extends credit to agricultural producers; and
    3. the financing statement was filed by a person not entitled to do so under § 4-9-509, § 4-9-708, or § 4-9-808.
  2. An affidavit or sworn affirmation filed under subsection (a) of this section shall include any pertinent information that the Secretary of State may reasonably require.
  3. An affidavit or sworn affirmation shall not be filed under subsection (a) of this section with respect to a financing statement filed by a bank or by a person that regularly extends credit to agricultural producers.
    1. If an affidavit or sworn affirmation is filed under subsection (a) of this section, the filing office may file a termination statement with respect to the financing statement identified in the affidavit.
    2. The termination statement shall indicate that it was filed under this section.
    3. Except as provided in subsections (g) and (h) of this section, a termination statement filed under subdivision (d)(1) of this section shall take effect thirty (30) days after it is filed.
    4. The Secretary of State shall maintain a record of all terminated financing statements.
    1. On the same day that the filing office files a termination statement under subdivision (d)(1) of this section, the filing office shall send to each secured party of record identified in the financing statement a notice advising the secured party of record that the termination statement has been filed.
    2. Notice shall be sent by certified mail, return receipt requested, to the mailing address provided for the secured party of record.
    1. A secured party of record identified in a financing statement as to which a termination statement has been filed under subdivision (d)(1) of this section may bring an action within twenty (20) days after the termination statement is filed against the individual who filed the affidavit under subsection (a) of this section seeking a determination as to whether the financing statement was filed by a person entitled to do so under § 4-9-509, § 4-9-708, or § 4-9-808.
    2. An action under subdivision (f)(1) of this section shall have priority on the court's calendar and shall proceed by expedited hearing.
    3. The action shall be brought in the circuit court of the county where the filing office in which the financing statement was filed.
    1. In an action brought under subdivision (f)(1) of this section, a court may order, in appropriate circumstances, preliminary relief, including an order:
      1. precluding the termination statement from taking effect; or
      2. directing a party to take action to prevent the termination statement from taking effect.
    2. If the court issues an order under subdivision (g)(1) of this section and the filing office receives a certified copy of the order before the termination statement takes effect, then:
      1. the termination statement shall not take effect; and
      2. the filing office shall promptly file an amendment to the financing statement that indicates that an order has prevented the termination statement from taking effect.
    3. If an order to preclude the termination statement ceases to be effective by reason of a subsequent order or a final judgment of the court or by an order issued by another court and the filing office receives a certified copy of the subsequent order or judgment or order, then:
      1. the termination statement shall become immediately effective upon receipt of the certified copy; and
      2. the filing office shall promptly file an amendment to the financing statement indicating that the termination statement is effective.
    1. If a court determines in an action brought under subdivision (f)(1) of this section that the financing statement was filed by a person entitled to do so under § 4-9-509, § 4-9-708, or § 4-9-808, and the filing office receives a certified copy of the court's final judgment or order before the termination statement takes effect, then:
      1. the termination statement shall not take effect; and
      2. the filing office shall remove the termination statement and any amendments filed under subsection (g) of this section from the files.
    2. If the filing office receives the certified copy of the final judgment of the court or order after the termination statement takes effect and within thirty (30) days after the final judgment or order was entered, the filing office shall promptly file an amendment to the financing statement that indicates that the financing statement has been reinstated.
  4. Except as provided in subsection (j) of this section, upon the filing of an amendment reinstating a financing statement under subdivision (h)(2) of this section, the effectiveness of the financing statement is retroactively reinstated and the financing statement shall be considered never to have been ineffective against all persons and for all purposes.
  5. A financing statement whose effectiveness was terminated under subdivision (d)(1) of this section and has been reinstated under subdivision (h)(2) of this section shall not be effective against a person who purchased the collateral in good faith between the time the termination statement was filed and the time of the filing of the amendment reinstating the financing statement to the extent that the person gave new value in reliance on the termination statement.
    1. The filing office shall not charge a fee for the filing of an affidavit or a termination statement under this section.
    2. The filing office shall not return any fee paid for filing the financing statement identified in the affidavit whether or not the financing statement is subsequently reinstated.
  6. The filing office or employees of the filing office shall not be subject to liability for the termination or amendment of a financing statement in the lawful performance of the duties of the filing office under this section.
  7. The Secretary of State shall adopt and make available a form of affidavit for use under this section.

History. Acts 2017, No. 1114, § 2; 2019, No. 707, § 4.

Amendments. The 2019 amendment inserted “or other lender in the business of making loans or extending credit” in the introductory language of (a) and “or other lender” in (a)(1).

Part 6 — Default

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

Effective Dates. Acts 2013, No. 138, § 24: July 1, 2013. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is in need of important revisions to better identify debtors and secured collateral, to promote the efficiency of electronic filing, to reduce cost and time related to identifying debtors, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2013 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2013.”

Research References

ALR.

“Commercially reasonable” disposition of collateral required by UCC § 9-504(3). 7 A.L.R.4th 308.

Loss or modification of right to notification of sale of repossessed collateral under Uniform Commercial Code § 9-504. 9 A.L.R.4th 552.

Failure of secured party to make “commercially reasonable” disposition of collateral under UCC § 9-504(3) as bar. 10 A.L.R.4th 413.

Nature of collateral which secured party may sell or otherwise dispose of without giving notice to defaulting debtor under UCC § 9-504(3). 11 A.L.R.4th 1060.

Improper sale, removal, concealment, or disposal of property subject to security interest under UCC. 48 A.L.R.4th 819.

Public or private sale under UCC § 9-504(3). 60 A.L.R.4th 1012.

Right of secured party to take possession of collateral on default under UCC § 9-503. 25 A.L.R.5th 696.

Am. Jur. 68A Am. Jur. 2d, Secured Trans., § 425 et seq.

Ark. L. Notes.

Flaccus, Update: Repossession and Sale Under Arkansas's Article Nine, 1984 Ark. L. Notes 1, 1987 Ark. L. Notes 90, 1994 Ark. L. Notes 73.

Ark. L. Rev.

Uniform Commercial Code — Measure of Damages, 20 Ark. L. Rev. 391.

Commercial Law — Repossession of Chattels — Notice and Opportunity for Prior Hearings in Replevin, 26 Ark. L. Rev. 534.

Note, Secured Transactions in Arkansas, Bank of Bearden v. Simpson: Living with Both the Rebuttable Presumption and the Absolute Bar, 46 Ark. L. Rev. 475.

Notes, Henry v. Trickey: Article IX and the Noncomplying Secured Party's Quest for a Deficiency Judgment, 38 Ark. L. Rev. 200.

Notes, Thrower v. Union Lincoln-Mercury, Inc.: Taking a Trade-in on the Sale of Collateral, 38 Ark. L. Rev. 640.

Recent Developments, 49 Ark. L. Rev. 661.

C.J.S. 79 C.J.S., Secured Trans., § 202 et seq.

U. Ark. Little Rock L.J.

Arkansas Law Survey, Looney, Business Law, 8 U. Ark. Little Rock L.J. 99.

Survey of Arkansas Law, Business Law, 1 U. Ark. Little Rock L.J. 118.

Notes, UCC Article 9 — Disposition of Repossessed Collateral Notice and Deficiency — A New Rule in Arkansas, Rhodes v. Oaklawn Bank, 279 Ark. 51, 648 S.W.2d 470, 6 U. Ark. Little Rock L.J. 585.

Adams, “Clear Title” for Farm Products: Congress and the Arkansas Legislature Attempt to Solve a Troublesome Problem, 10 U. Ark. Little Rock L.J. 619.

Survey, Debtor/Creditor Relations, 14 U. Ark. Little Rock L.J. 353.

Case Notes

Purpose.

One clear policy reason underlying the pre-2001 Article 9 default provisions was the protection of post-default debtors from overbearing tactics and intimidation by secured parties. To insure that the debtor is fully apprised of his rights and fully aware of the process for the disposition of his property, the code contemplates that agreements and notices and modifications relating to the sale be in writing. Walker v. Grant County Sav. & Loan Ass'n, 304 Ark. 571, 803 S.W.2d 913 (1991) (decision under prior law).

Applicability.

The provisions in the pre-2001 Article 9 default provisions were directed to those individuals who would have an interest in seeing that the collateral is disposed of in the most productive manner possible, so that a surplus might be realized, which is all a debtor and junior creditor would be entitled to. Stotts v. Johnson, 302 Ark. 439, 791 S.W.2d 351 (1990) (decision under prior law).

Subpart 1 Default and Enforcement of Security Interest

4-9-601. Rights after default — Judicial enforcement — Consignor or buyer of accounts, chattel paper, payment intangibles, or promissory notes.

  1. After default, a secured party has the rights provided in this part and, except as otherwise provided in § 4-9-602, those provided by agreement of the parties. A secured party:
    1. may reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available judicial procedure; and
    2. if the collateral is documents, may proceed either as to the documents or as to the goods they cover.
  2. A secured party in possession of collateral or control of collateral under § 4-7-106, § 4-9-104, § 4-9-105, § 4-9-106, or § 4-9-107 has the rights and duties provided in § 4-9-207.
  3. The rights under subsections (a) and (b) are cumulative and may be exercised simultaneously.
  4. Except as otherwise provided in subsection (g) and § 4-9-605, after default, a debtor and an obligor have the rights provided in this part 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:
    1. the date of perfection of the security interest or agricultural lien in the collateral;
    2. the date of filing a financing statement covering the collateral; or
    3. any date specified in a statute under which the agricultural lien was created.
  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 chapter.
  7. Except as otherwise provided in § 4-9-607(c), this part imposes no duties upon a secured party that is a consignor or is a buyer of accounts, chattel paper, payment intangibles, or promissory notes.

History. Acts 2001, No. 1439, § 1; 2007, No. 342, § 38.

Case Notes

Purpose.

This section is an apparent attempt by the drafters of the Uniform Commercial Code to require creditors to proceed either pursuant to the Uniform Commercial Code or pursuant to the equitable foreclosure laws and avoid any combination. Bank of Bearden v. Simpson, 305 Ark. 326, 808 S.W.2d 341 (1991) (decision under prior law).

Alternative Remedies.

Fact that plaintiff, in action for the unpaid balance on a house trailer, asked for a judgment and sale or in the alternative for possession was not an election of inconsistent remedies in view of the provision in this section that rights and remedies are cumulative. Williams v. Westinghouse Credit Corp., 250 Ark. 1065, 468 S.W.2d 761 (1971) (decision under prior law).

Bank was entitled to pursue its rights of set-off, repossession and sale simultaneously. Neel v. Citizens First State Bank, 28 Ark. App. 116, 771 S.W.2d 303 (1989) (decision under prior law).

Where a creditor sells personalty collateral in violation of the pre-2001 version of the Uniform Commercial Code, the creditor can pursue the remainder of the debt by foreclosing against real property which also served as collateral, but the amount of the remaining debt would be no more than the difference between the reasonable value of the personalty at the time of the sale and the amount of the obligation at the time the sale of the personalty occurred. Bank of Bearden v. Simpson, 305 Ark. 326, 808 S.W.2d 341 (1991) (decision under prior law).

Individual debtors' Chapter 11 plan did not comply with 11 U.S.C. § 1122(a) where a bank's so-called unsecured claim that they placed in Class VII along with an objecting creditor was actually secured by stock owned by the debtors in a corporation plus three life insurance policies owned by the debtors and thus, the bank's claim was not unsecured. Even if the stock should have been valued at zero, the bank's unsecured claim was not substantially similar to the unsecured claim of the objecting creditor because under § 4-9-601 et seq., the bank had the right to liquidate the stock upon any default of the debtors; this was a fundamental difference from the rights of the objecting creditor, whose claim to the debtors' assets, including the stock, was totally subordinate to the bank's rights. In re O'Neal, 490 B.R. 837 (Bankr. W.D. Ark. 2013).

Commercially Reasonable Sale.

Even if it could be said that the sales of limited partnership units were not commercially reasonable under the pre-2001 version of this chapter, debtor, after default, either waived the requirements of a commercially reasonable sale, or agreed that the sales proposed by each of the banks and the manner of making them were commercially reasonable, since neither the debtor nor his attorneys, all experts, suggested any other procedure for the sale, and that no action was taken by either debtor or his attorneys in his behalf to question either of the sales until some months later. Becknell v. Quinn, 592 F. Supp. 102 (E.D. Ark. 1983), aff'd sub nom. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984) (decision under prior law).

Notice.

Where bank has repossessed a car on default by the buyer of his conditional sales contract, the dealer who sold the promissory note and conditional sales contract to the bank with an agreement to repurchase the contract for the amount due thereon if buyer of car should default did not waive his right to notice of the sale of the car after repossession by the bank by signing a printed assignment of the conditional sales contract (prepared by the bank) which recited that the dealer waived all notices to which he might otherwise have been entitled under the pre-2001 version of this chapter. Norton v. National Bank of Commerce, 240 Ark. 143, 398 S.W.2d 538 (1966), overruled in part on other grounds, First State Bank v. Hallett, 291 Ark. 37, 722 S.W.2d 555 (1987) (decision under prior law).

Where defendant, who was in default under a new and used automobile financing agreement, signed a disposal of collateral agreement about nine days after repossession of automobiles by the bank, defendant waived notification of terms, times, and places of sale of the repossessed automobiles. Teeter Motor Co. v. First Nat'l Bank, 260 Ark. 764, 543 S.W.2d 938 (1976) (decision under prior law).

Where secured party commences separate actions against the personal property collateral and the real property collateral of the guarantor, the secured party is required to act in accordance with the notice requirements of the pre-2001 version of the Arkansas Commercial Code with respect to the personal property collateral and under former § 4-9-504(3), and failure to do so barred the secured party from foreclosing on the mortgage of the guarantor, securing the promissory note. United States v. Dawson, 929 F.2d 1336 (8th Cir. 1991) (decision under prior law).

Finding against the seller was improper under the pre-2001 version of this chapter where, although the company presented evidence of its usual procedure, which included sending notice to dealers, it offered no information about the advertising or solicitation of bids, the value of collateral, or whether the seller was notified. McDonald Mobile Homes, Inc. v. BankAmerica Hous. Servs., 93 Ark. App. 256, 218 S.W.3d 376 (2005) (decision under prior law).

Writ of Garnishment.

Writ of garnishment was not required by bank to take possession of collateral covered by a security agreement. Grayson v. Bank of Little Rock, 334 Ark. 180, 971 S.W.2d 788 (1998) (decision under prior law).

Written Agreement.

The only reasonable interpretation of the “agreement” contemplated by former § 4-9-501 is an agreement in writing. Walker v. Grant County Sav. & Loan Ass'n, 304 Ark. 571, 803 S.W.2d 913 (1991) (decision under prior law).

In order for a post-default agreement to establish the commercial reasonableness of a sale of collateral and to govern the notices relating to such sales as required by former § 4-9-501(3), it must be in writing. Walker v. Grant County Sav. & Loan Ass'n, 304 Ark. 571, 803 S.W.2d 913 (1991) (decision under prior law).

Cited: Rose's Mobile Homes, Inc. v. Rex Financial Corp., 383 F. Supp. 937 (W.D. Ark. 1974); Bawcom v. Allis-Chalmers Credit Corp., 256 Ark. 569, 508 S.W.2d 741 (1974); Everett v. Parts, Inc., 4 Ark. App. 213, 628 S.W.2d 875 (1982); Brown v. Ford, 280 Ark. 261, 658 S.W.2d 355 (1983); Thrower v. Union Lincoln-Mercury, Inc., 282 Ark. 585, 670 S.W.2d 430 (1984); Schieffler v. First Nat'l Bank (In re Peeler), 145 B.R. 973 (Bankr. E.D. Ark. 1992); Bill Fitts Auto Sales, Inc. v. Daniels, 325 Ark. 51, 922 S.W.2d 718 (1996) (decisions under prior law).

4-9-602. Waiver and variance of rights and duties.

Except as otherwise provided in § 4-9-624, to the extent that they give rights to a debtor or obligor and impose duties on a secured party, the debtor or obligor may not waive or vary the rules stated in the following listed sections:

  1. Section 4-9-207(b)(4)(C), which deals with use and operation of the collateral by the secured party;
  2. Section 4-9-210, which deals with requests for an accounting and requests concerning a list of collateral and statement of account;
  3. Section 4-9-607(c), which deals with collection and enforcement of collateral;
  4. Sections 4-9-608(a) and 4-9-615(c) to the extent that they deal with application or payment of noncash proceeds of collection, enforcement, or disposition;
  5. Sections 4-9-608(a) and 4-9-615(d) to the extent that they require accounting for or payment of surplus proceeds of collateral;
  6. Section 4-9-609 to the extent that it imposes upon a secured party that takes possession of collateral without judicial process the duty to do so without breach of the peace;
  7. Sections 4-9-610(b), 4-9-611, 4-9-613, and 4-9-614, which deal with disposition of collateral;
  8. Section 4-9-615(f), which deals with calculation of a deficiency or surplus when a disposition is made to the secured party, a person related to the secured party, or a secondary obligor;
  9. Section 4-9-616, which deals with explanation of the calculation of a surplus or deficiency;
  10. Sections 4-9-620, 4-9-621, and 4-9-622, which deal with acceptance of collateral in satisfaction of obligation;
  11. Section 4-9-623, which deals with redemption of collateral;
  12. Section 4-9-624, which deals with permissible waivers; and
  13. Sections 4-9-625 and 4-9-626, which deal with the secured party's liability for failure to comply with this chapter.

History. Acts 2001, No. 1439, § 1.

4-9-603. Agreement on standards concerning rights and duties.

  1. The parties may determine by agreement the standards measuring the fulfillment of the rights of a debtor or obligor and the duties of a secured party under a rule stated in § 4-9-602 if the standards are not manifestly unreasonable.
  2. Subsection (a) does not apply to the duty under § 4-9-609 to refrain from breaching the peace.

History. Acts 2001, No. 1439, § 1.

4-9-604. Procedure if security agreement covers real property or fixtures.

  1. If a security agreement covers both personal and real property, a secured party may proceed:
    1. under this part as to the personal property without prejudicing any rights with respect to the real property; or
    2. as to both the personal property and the real property in accordance with the rights with respect to the real property, in which case the other provisions of this part do not apply.
  2. Subject to subsection (c), if a security agreement covers goods that are or become fixtures, a secured party may proceed:
    1. under this part; or
    2. in accordance with the rights with respect to real property, in which case the other provisions of this part do not apply.
  3. Subject to the other provisions of this part, if a secured party holding a security interest in fixtures has priority over all owners and encumbrancers of the real property, the secured party, after default, may remove the collateral from the real property.
  4. A secured party that removes collateral shall promptly reimburse any encumbrancer or owner of the real property, other than the debtor, for the cost of repair of any physical injury caused by the removal. The secured party need not reimburse the encumbrancer or owner for any diminution in value of the real property caused by the absence of the goods removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate assurance for the performance of the obligation to reimburse.

History. Acts 2001, No. 1439, § 1.

Case Notes

Damage to Realty.

Where plaintiff was awarded judgment for possession of mining equipment located in mine owned by unsecured party, this section did not require plaintiff to post bond for damages which might occur during removal. Howe Coal Co. v. Prairie Coal Co., 362 F. Supp. 1117 (W.D. Ark. 1973) (decision under prior law).

4-9-605. Unknown debtor or secondary obligor.

A secured party does not owe a duty based on its status as secured party:

  1. to a person that is a debtor or obligor, unless the secured party knows:
    1. that the person is a debtor or obligor;
    2. the identity of the person; and
    3. how to communicate with the person; or
  2. to a secured party or lienholder that has filed a financing statement against a person, unless the secured party knows:
    1. that the person is a debtor; and
    2. the identity of the person.

History. Acts 2001, No. 1439, § 1.

4-9-606. Time of default for agricultural lien.

For purposes of this part, a default occurs in connection with an agricultural lien at the time the secured party becomes entitled to enforce the lien in accordance with the statute under which it was created.

History. Acts 2001, No. 1439, § 1.

4-9-607. Collection and enforcement by secured party.

  1. If so agreed, and in any event after default, a secured party:
    1. may notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to or for the benefit of the secured party;
    2. may take any proceeds to which the secured party is entitled under § 4-9-315;
    3. may enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with respect to the obligation of the account debtor or other person obligated on collateral to make payment or otherwise render performance to the debtor, and with respect to any property that secures the obligations of the account debtor or other person obligated on the collateral;
    4. if it holds a security interest in a deposit account perfected by control under § 4-9-104(a)(1), may apply the balance of the deposit account to the obligation secured by the deposit account; and
    5. if it holds a security interest in a deposit account perfected by control under § 4-9-104(a)(2) or (3), may instruct the bank to pay the balance of the deposit account to or for the benefit of the secured party.
  2. If necessary to enable a secured party to exercise under subsection (a)(3) the right of a debtor to enforce a mortgage nonjudicially, the secured party may record in the office in which a record of the mortgage is recorded:
    1. a copy of the security agreement that creates or provides for a security interest in the obligation secured by the mortgage; and
    2. the secured party's sworn affidavit in recordable form stating that:
      1. a default has occurred with respect to the obligation secured by the mortgage; and
      2. the secured party is entitled to enforce the mortgage nonjudicially.
  3. A secured party shall proceed in a commercially reasonable manner if the secured party:
    1. undertakes to collect from or enforce an obligation of an account debtor or other person obligated on collateral; and
    2. is entitled to charge back uncollected collateral or otherwise to full or limited recourse against the debtor or a secondary obligor.
  4. A secured party may deduct from the collections made pursuant to subsection (c) reasonable expenses of collection and enforcement, including reasonable attorney's fees and legal expenses incurred by the secured party.
  5. This section does not determine whether an account debtor, bank, or other person obligated on collateral owes a duty to a secured party.

History. Acts 2001, No. 1439, § 1; 2013, No. 138, § 22.

Amendments. The 2013 amendment inserted “with respect to the obligation secured by the mortgage” in (b)(2)(A).

Research References

Ark. L. Notes.

Laurence, Update: Some Practical Advice on How to Create a Security Interest in a Deposit Account, 2002 Arkansas L. Notes 45.

Case Notes

Assignment.

“Assignment” language held to provide means of perfecting security interest in accounts receivable under the pre-2001 version of this chapter. Northwest Nat'l Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 25 Ark. App. 279, 757 S.W.2d 182 (1988) (decision under prior law).

Costs.

The commercially reasonable and proper costs incurred by a secured creditor in reducing the collateral to possession and holding it and preparing it for sale were proper deductions from the proceeds of sale in arriving at the credit to be given on the debt evidenced by the note; the agreement of the accommodation maker was not required under the pre-2001 version of this chapter. Svestka v. First Nat'l Bank, 269 Ark. 237, 602 S.W.2d 604 (1980) (decision under prior law).

The allowance to a secured party of the expenses of preparing for sale personalty which is held as collateral, after default, including the costs of repairs reasonably necessary, is not error; accordingly, where a secured bank purchased insurance coverage on an airplane which was held as collateral, pending the sale of the plane, the cost of the insurance was an allowable expense and was commercially reasonable as affording protection, both to the bank and to the accommodation party under the pre-2001 version of this chapter, since loss or destruction of, or damage to, the plane would have deprived the accommodation party of credit for the proceeds from the plane which he might reasonably expect. Svestka v. First Nat'l Bank, 269 Ark. 237, 602 S.W.2d 604 (1980) (decision under prior law).

Cited: First State Bank v. Hallett, 291 Ark. 37, 722 S.W.2d 555 (1987) (decision under prior law).

4-9-608. Application of proceeds of collection or enforcement — Liability for deficiency and right to surplus.

  1. If a security interest or agricultural lien secures payment or performance of an obligation, the following rules apply:
    1. A secured party shall apply or pay over for application the cash proceeds of collection or enforcement under § 4-9-607 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 an authenticated demand for proceeds before distribution of the proceeds is completed.
    2. If requested by a secured party, a holder of a subordinate security interest or other lien shall furnish reasonable proof of the interest or lien within a reasonable time. Unless the holder complies, the secured party need not comply with the holder's demand under paragraph (1)(C).
    3. A secured party need not apply or pay over for application noncash proceeds of collection and enforcement under § 4-9-607 unless the failure to do so would be commercially unreasonable. A secured party that applies or pays over for application noncash proceeds shall do so in a commercially reasonable manner.
    4. A secured party shall account to and pay a debtor for any surplus, and the obligor is liable for any deficiency.
  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.

History. Acts 2001, No. 1439, § 1.

Research References

ALR.

Definition and Treatment of “Instruments” Under Revised Article 9 of Uniform Commercial Code. 42 A.L.R.7th Art. 5 (2019).

4-9-609. Secured party's right to take possession after default.

  1. After default, a secured party:
    1. may take possession of the collateral; and
    2. without removal, may render equipment unusable and dispose of collateral on a debtor's premises under § 4-9-610.
  2. A secured party may proceed under subsection (a):
    1. pursuant to judicial process; or
    2. without judicial process, if it proceeds without breach of the peace.
  3. If so agreed, and in any event after default, a secured party may require the debtor to assemble the collateral and make it available to the secured party at a place to be designated by the secured party which is reasonably convenient to both parties.

History. Acts 2001, No. 1439, § 1.

Case Notes

Constitutionality.

Former § 4-9-503 in authorizing a secured party to employ self-help in repossessing collateral is clear and unambiguous and does not deprive a debtor of constitutionally guaranteed rights, as long as the repossession is accomplished peacefully. Teeter Motor Co. v. First Nat'l Bank, 260 Ark. 764, 543 S.W.2d 938 (1976) (decision under prior law).

Alternative Remedies.

The self-help and replevin statutes under the pre-2001 version of this chapter are alternative methods for obtaining possession of collateral; the secured party is not required by his initial election of the judicial process to pursue that remedy to a conclusion if possession can in the meantime be otherwise obtained. McIlroy Bank & Trust v. Seven Day Bldrs. of Ark., Inc., 1 Ark. App. 121, 613 S.W.2d 837 (1981) (decision under prior law).

Assignment.

“Assignment” language under the pre-2001 version of this chapter held to provide means of perfecting security interest in accounts receivable. Northwest Nat'l Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 25 Ark. App. 279, 757 S.W.2d 182 (1988) (decision under prior law).

Breach of the Peace.

Issue whether repossession under the pre-2001 version of this chapter constituted a breach of the peace was properly submitted to and considered by the jury. Rogers v. Allis-Chalmers Credit Corp., 679 F.2d 138 (8th Cir. 1982) (decision under prior law).

Where the truck was repossessed from the owner's driveway, there was no evidence that the repossessor entered any gates, doors, or other barricades to reach the truck, and there was no confrontation with the owner, the repossession was accomplished without breaching the peace. Oaklawn Bank v. Baldwin, 289 Ark. 79, 709 S.W.2d 91 (1986) (decision under prior law).

Trial court correctly granted a bank summary judgment because there was no evidence of a disturbance in violation of this section as the limited liability company member was not present at the time of the repossession of the collateral, making the presence of the sheriff unnecessary; under this section, breach of the peace only becomes an issue if a secured party takes possession of the collateral without judicial process, but the bank obtained judicial process before repossessing the LLC's equipment. Carter v. First Nat'l Bank of Crossett, 2018 Ark. App. 341, 552 S.W.3d 40 (2018).

Conversion.

There was no evidence to establish conversion by creditor who repossessed vehicles. Ford Motor Credit Co. v. Herring, 267 Ark. 201, 589 S.W.2d 584 (1979) (decision under prior law).

Secured party who filed replevin action but then repossessed equipment by self-help under the pre-2001 version of this chapter did not convert the equipment since he was entitled to self-help under former § 4-9-503. McIlroy Bank & Trust v. Seven Day Bldrs. of Ark., Inc., 1 Ark. App. 121, 613 S.W.2d 837 (1981) (decision under prior law).

Notice.

Where prior to repossession of automobiles by bank, the owner of a motor company had negotiated with the bank concerning the company's financial difficulties, the motor company was not entitled to notice of the bank's intention to repossess the automobiles under the pre-2001 version of this chapter. Teeter Motor Co. v. First Nat'l Bank, 260 Ark. 764, 543 S.W.2d 938 (1976) (decision under prior law).

Under the pre-2001 version of this chapter, if a buyer makes only one timely payment of the fourteen monthly payments required prior to the seller repossessing the buyer's automobile, a jury could find that the seller, by its course of dealing, waived its right to repossession based on its having repeatedly accepted late payments; in order to reinstate its right under the parties' contract, the seller would be required to give the buyer notice of the seller's requirement of strict compliance in future dealings. If the seller failed to give such notice of these circumstances, it would then not have the right to declare a default or to reposses its collateral. Mercedes-Benz Credit Corp. v. Morgan, 312 Ark. 225, 850 S.W.2d 297 (1993) (decision under prior law).

Where substantial evidence was presented that the buyer never received notice from the seller that it would henceforth require prompt payments under the parties' contract, a jury could have readily determined that the seller wrongfully repossessed the buyer's vehicle. Mercedes-Benz Credit Corp. v. Morgan, 312 Ark. 225, 850 S.W.2d 297 (1993) (decision under prior law).

Property Attached to Collateral.

Although the contract specifically provided that “any personalty in or attached to the property when repossessed may be held by the seller without liability,” under the pre-2001 version of this chapter various pieces of concrete equipment and tools jointly owned and stored in the trucks at the time of the repossession could be held by the finance company only as long as it was necessary to secure possession of the trucks. Ford Motor Credit Co. v. Herring, 267 Ark. 201, 589 S.W.2d 584 (1979) (decision under prior law).

Where there was no evidence that the retention of the personal property, following a demand for its return, was necessary to the repossession of the trucks, under the pre-2001 version of this chapter the repossessor was not absolutely shielded from liability by the contract terms when it could reasonably be inferred that the repossessor intentionally withheld the property after a demand had been made for it. Ford Motor Credit Co. v. Herring, 267 Ark. 201, 589 S.W.2d 584 (1979) (decision under prior law).

Repossession Proper.

Where financing and security agreement between bank and owner of motor company authorized bank to remove the collateral following default and where the automobiles were repossessed by bank employees with the owner's assistance, the repossession was in conformity with this section. Teeter Motor Co. v. First Nat'l Bank, 260 Ark. 764, 543 S.W.2d 938 (1976) (decision under prior law).

Where the seller of a dump truck had assigned the conditional sales contract to a bank and had guaranteed payment to the bank in the event of the buyer's default, under the pre-2001 version of this chapter the seller was a secured creditor of the buyer and had a right to repossess the truck upon the buyer's default, even though the seller had not paid off the bank or any part of the balance due on the note at the time of the repossession. Tucker v. Scarbrough, 268 Ark. 736, 596 S.W.2d 4 (Ct. App. 1980) (decision under prior law).

In an action by a former wife to recover damages for conversion arising out of an alleged wrongful repossession of an automobile, the taking of the automobile was a legal repossession under the pre-2001 version of this chapter since the wife did not raise an objection to the taking and the repossession was accomplished without any incident which might have tended to provoke violence. Williams v. Ford Motor Credit Co., 674 F.2d 717 (8th Cir. 1982) (decision under prior law).

Tender of Collateral.

In replevin action for recovery of secured property under the pre-2001 version of this chapter, secured creditor was estopped from relying on its right to dispose of the property on debtor's premises as justification for refusing to accept tender of equipment and fixtures, where secured creditor did not raise the issue until after the equipment had been dismantled and removed from the premises. Affiliated Food Stores, Inc. v. Bank of N.E. Ark., 259 Ark. 690, 536 S.W.2d 693 (1976) (decision under prior law).

Writ of Garnishment.

Writ of garnishment was not required for bank to take possession of collateral covered by a security agreement under the pre-2001 version of this chapter. Grayson v. Bank of Little Rock, 334 Ark. 180, 971 S.W.2d 788 (1998) (decision under prior law).

Cited: Commercial Credit Corp. v. Associates Discount Corp., 246 Ark. 118, 436 S.W.2d 809 (1969); Rex Fin. Corp. v. Marshall, 406 F. Supp. 567 (W.D. Ark. 1976); Hubbard v. Moore, 537 F. Supp. 126 (W.D. Ark. 1982); Ozark Kenworth, Inc. v. Neidecker, 283 Ark. 196, 672 S.W.2d 899 (1984); Williams Tractor Inc. v. Venture, LLC, 2013 Ark. App. 354 (2013).

4-9-610. Disposition of collateral after default.

  1. After default, a secured party may sell, lease, license, or otherwise dispose of any or all of the collateral in its present condition or following any commercially reasonable preparation or processing.
  2. Every aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable. If commercially reasonable, a secured party may dispose of collateral by public or private proceedings, by one (1) or more contracts, as a unit or in parcels, and at any time and place and on any terms.
  3. A secured party may purchase collateral:
    1. at a public disposition; or
    2. at a private disposition only if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations.
  4. A contract for sale, lease, license, or other disposition includes the warranties relating to title, possession, quiet enjoyment, and the like which by operation of law accompany a voluntary disposition of property of the kind subject to the contract.
  5. A secured party may disclaim or modify warranties under subsection (d):
    1. in a manner that would be effective to disclaim or modify the warranties in a voluntary disposition of property of the kind subject to the contract of disposition; or
    2. by communicating to the purchaser a record evidencing the contract for disposition and including an express disclaimer or modification of the warranties.
  6. A record is sufficient to disclaim warranties under subsection (e) if it indicates “There is no warranty relating to title, possession, quiet enjoyment, or the like in this disposition” or uses words of similar import.

History. Acts 2001, No. 1439, § 1.

Case Notes

In General.

The doctrine of commercial reasonableness applies to possession as well as disposition. Marks v. Powell, 162 B.R. 820 (E.D. Ark. 1993) (decision under prior law).

Attachment Sales.

Rights under this section, of seller of tractor who perfected security interest for the unpaid purchase price, were not destroyed by attachment sale of the tractor effected by bank to satisfy judgment on unsecured debt owed bank by buyer of tractor, since this section relates only to the discharge of subordinate liens when property is sold under this subtitle. Citizens Bank v. Perrin & Sons, 253 Ark. 639, 488 S.W.2d 14 (1972) (decision under prior law).

Attorney's Fees.

A secured creditor is entitled to allowance of attorney fees as provided in an installment sales contract after the debtor has filed a bankruptcy petition. In re Morris, 602 F.2d 826 (8th Cir. 1979) (decision under prior law).

A secured creditor is entitled to recover reasonable attorney's fees for services rendered by an attorney in obtaining possession of collateral as a cost of reducing it to possession under the pre-2001 version of this chapter where the attorney's fees allowed to a secured creditor were not those of collecting the debt, or of conducting the sale of the collateral, the statutory provision requiring the agreement of the debtor had no application. Svestka v. First Nat'l Bank, 269 Ark. 237, 602 S.W.2d 604 (1980) (decision under prior law).

Provision under the pre-2001 version of this chapter allowing, to the extent provided for in the agreement and not prohibited by law, the reasonable attorney's fees and legal expenses incurred by a secured party in obtaining collateral subsequent to default by a purchaser, is limited by the requirement of § 4-56-101 that the underlying instrument be a promissory note. In cases not involving promissory notes, a secured party may not collect attorney's fees incurred for services rendered by an attorney in obtaining possession of collateral after default by the purchaser, even though the parties may have contracted for such fees. White v. Associates Com. Corp., 20 Ark. App. 140, 725 S.W.2d 7 (1987) (decision under prior law).

Care of Collateral.

The actions of the creditor bank with regard to the disposition of the collateral was shown to be recklessly, if not willfully, catastrophic under the pre-2001 version of this chapter; the bank destroyed valuable portions of the property, ignored advice on preserving the collateral, and destroyed equipment by attempting to dismantle it without any knowledge or care with regard to that equipment. Marks v. Powell, 162 B.R. 820 (E.D. Ark. 1993) (decision under prior law).

Commercially Reasonable Sale.

Proof that a better price could have been obtained by a sale at a different time and in a different method was insufficient to establish commercial unreasonableness under the pre-2001 version of this chapter. Goodin v. Farmers Tractor & Equip. Co., 249 Ark. 30, 458 S.W.2d 419 (1970); Jones v. Union Motor Co., 29 Ark. App. 166, 779 S.W.2d 537 (1989) (decisions under prior law).

Notes were extinguished by their acquisition by the maker where pledgor of notes was in default at the time the maker indirectly acquired them from the pledgees and the pledgor was given proper notice of the sale and the sales were conducted in a commercially permissible and reasonable manner. Lane v. Midwest Bancshares Corp., 337 F. Supp. 1200 (E.D. Ark. 1972) (decision under prior law).

When a debtor proceeds against a secured party, challenging the commercial reasonableness of a default sale, the debtor has the burden of proving the secured party's failure to proceed under the pre-2001 version of this chapter. Becknell v. Quinn, 592 F. Supp. 102 (E.D. Ark. 1983), aff'd sub nom. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984) (decision under prior law).

Whether a sale was conducted in a commercially reasonable manner under the pre-2001 version of this chapter is a fact question to be determined from the facts of the particular case under consideration. Becknell v. Quinn, 592 F. Supp. 102 (E.D. Ark. 1983), aff'd sub nom. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984); Farmers & Merchants Bank v. Barnes, 17 Ark. App. 139, 705 S.W.2d 450 (1986); Womack v. First State Bank, 21 Ark. App. 33, 728 S.W.2d 194 (1987); Beard v. Ford Motor Credit Co., 41 Ark. App. 174, 850 S.W.2d 23 (1993) (decisions under prior law).

Even if it could be said that the sales of limited partnership units were not commercially reasonable under the pre-2001 version of this chapter, debtor, after default, either waived the requirements of a commercially reasonable sale, or agreed that the sales proposed by each of the banks and the manner of making them were commercially reasonable, where neither the debtor nor his attorneys, all experts, suggested any procedure other than that proposed by each of the banks, and no action was taken by either debtor or his attorneys in his behalf to question either of the sales until some months after the sale. Becknell v. Quinn, 592 F. Supp. 102 (E.D. Ark. 1983), aff'd sub nom. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984) (decision under prior law).

Debtor failed to establish that the sales were not held in a commercially reasonable manner under the pre-2001 version of this chapter. Becknell v. Quinn, 592 F. Supp. 102 (E.D. Ark. 1983), aff'd sub nom. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984); Beard v. Ford Motor Credit Co., 41 Ark. App. 174, 850 S.W.2d 23 (1993) (decisions under prior law).

Where the uncontroverted testimony was that upon repossession the automobile dealer immediately began trying to sell the automobile to wholesalers and individual purchasers, and that the dealer apparently did everything it could to sell the vehicle as quickly as possible, including making extensive repairs on the badly damaged automobile, the delay in reselling the car was commercially reasonable under the pre-2001 version of this chapter. Brown v. Ford, 280 Ark. 261, 658 S.W.2d 355 (1983) (decision under prior law).

When the debtor defends upon the ground that the secured creditor did not proceed in accordance with the provisions of the Uniform Commercial Code in disposing of repossessed collateral under the pre-2001 version of this chapter, the creditor has the burden of proving that he proceeded in a commercially reasonable manner; whether a sale of collateral was conducted in a commercially reasonable manner is essentially a factual question. Henry v. Trickey, 9 Ark. App. 47, 653 S.W.2d 138 (1983) (decision under prior law).

The purchase of the repossessed mobile home by the secured party at its own private sale was improper, and the sale failed to meet the standard of commercial reasonableness in former § 4-9-504(3), where, although the secured party notified the debtors that a public sale of the repossessed property would be held, the sale was held at the secured party's offices, with only the secured party's employees present. Benton v. General Mobile Homes, Inc., 13 Ark. App. 8, 678 S.W.2d 774 (1984) (decision under prior law).

A creditor who repossesses chattels and resells them in a manner inconsistent with the provisions of the Uniform Commercial Code bears the responsibility to prove that the sale was commercially reasonable under the pre-2001 version of this chapter before he is entitled to a deficiency judgment. Farmers & Merchants Bank v. Barnes, 17 Ark. App. 139, 705 S.W.2d 450 (1986) (decision under prior law).

If a secured creditor sells collateral in a commercially unreasonable manner under the pre-2001 version of this chapter, a presumption arises that the value of the collateral is equal to the outstanding debt; the burden then shifts to the creditor to prove that the reasonable value of the collateral was less than the debt. Farmers & Merchants Bank v. Barnes, 17 Ark. App. 139, 705 S.W.2d 450 (1986) (decision under prior law).

The creditor did not proceed in a commercially reasonable manner under the pre-2001 version of this chapter where it retained the equipment for 19 months, sold it for $9,500 when two years before it had a value of $35,000, neglected to repair the excavator although repairs would have increased the sale price, and, most significantly, permitted its agent to use the equipment extensively, thus diminishing its value. Farmers & Merchants Bank v. Barnes, 17 Ark. App. 139, 705 S.W.2d 450 (1986) (decision under prior law).

Seller acted in a commercially reasonable manner under the pre-2001 version of this chapter. White v. Associates Com. Corp., 20 Ark. App. 140, 725 S.W.2d 7 (1987) (decision under prior law).

Sale was not conducted in a commercially reasonable manner under the pre-2001 version of this chapter. Womack v. First State Bank, 21 Ark. App. 33, 728 S.W.2d 194 (1987); Holiman v. Hagan's Motors, Inc., 32 Ark. App. 62, 796 S.W.2d 356 (1990) (decisions under prior law).

The burden is on the secured party, as the plaintiff to establish the deficiency, and if the secured party's handling of the disposition of the collateral is attacked, it has the burden of proving that every aspect of that disposition was commercially reasonable under the pre-2001 version of this chapter, including the value of a trade-in. Holiman v. Hagan's Motors, Inc., 32 Ark. App. 62, 796 S.W.2d 356 (1990) (decision under prior law).

Where creditor sent written notice that a sale of the collateral would take place at the offices of the creditor, but the sale actually took place at a dealer's-only auction at a later date, the sale was not commercially reasonable under the pre-2001 version of this chapter. AM Credit Corp. v. Riley, 35 Ark. App. 168, 815 S.W.2d 392 (1991) (decisions under prior law).

—In General.

Commercial reasonableness under the pre-2001 version of this chapter is a flexible concept, based upon a consideration of all relevant factors presented in each individual case; factors regarding disposition include the specific nature of the collateral, the nature of the special market, the length of time which elapsed between repossession and resale, and normal commercial practices in the trade. Marks v. Powell, 162 B.R. 820 (E.D. Ark. 1993) (decision under prior law).

A sale of collateral was not conducted in a commercially reasonable manner under the pre-2001 version of this chapter where (1) the price obtained for the collateral was inadequate, (2) an assistant vice-president for the defendant bank testified at trial that the collateral was worth $ 22,500 but stated in an earlier affidavit that the collateral had sufficient value to cover a $ 40,000 debt, and (3) the disposition of the collateral was actually a settlement of a lawsuit between the defendant bank and the purchaser of the collateral, rather than an actual sale. Eagle Bank & Trust Co. v. Dixon, 70 Ark. App. 146, 15 S.W.3d 695 (2000) (decision under prior law).

—Burden of Proof.

Once the debtor challenges the reasonableness of the disposition, the burden is upon the secured party to prove that the disposition was commercially reasonable. Marks v. Powell, 162 B.R. 820 (E.D. Ark. 1993) (decision under prior law).

The debtor may be required to prove a lack of commercial reasonableness when the debtor initiates an action for damages resulting from an unreasonable sale. City Nat'l Bank v. Unique Structures, 49 F.3d 1330 (8th Cir. 1995) (decision under prior law).

Where the debtor defended upon the ground that the secured creditor did not proceed to dispose of the collateral securing the indebtedness in accordance with the provisions of the UCC, the creditor then had the burden of proving that he proceeded in a commercially reasonable manner. Mercantile Bank v. B & H Associated, Inc., 330 Ark. 315, 954 S.W.2d 226 (1997) (decision under prior law).

Whether a sale of collateral was conducted in a commercially reasonable manner under this section is essentially a factual question; however, summary judgment granted where plaintiff established a prima facie case that the sale was conducted in a commercially reasonable manner and that defendant failed to “meet proof with proof” in response. Prince v. R & T Motors, Inc., 59 Ark. App. 16, 953 S.W.2d 62 (1997) (decision under prior law).

After debtor's car was repossessed and sold at auction, creditor was not entitled to a deficiency judgment against debtor where creditor failed to show the car's value, the car's condition, or that the manner of sale was reasonable. Greenlee v. Mazda Am. Credit, 92 Ark. App. 400, 214 S.W.3d 290 (2005).

Costs of Collection.

The commercially reasonable and proper costs incurred by a secured creditor in reducing the collateral to possession and holding it and preparing it for sale were proper deductions from the proceeds of sale in arriving at the credit to be given on the debt evidenced by the note; the agreement of the accommodation maker, was not required. Svestka v. First Nat'l Bank, 269 Ark. 237, 602 S.W.2d 604 (1980) (decision under prior law).

The allowance to a secured party of the expenses of preparing for sale personalty which is held as collateral, after default of the debtor, including the costs of repairs reasonably necessary, is not error; accordingly, where a secured bank purchased insurance coverage on an airplane which was held as collateral, pending the sale of the plane, the cost of such insurance was an allowable expense and was commercially reasonable as affording protection, both to the bank and to the accommodation party. Svestka v. First Nat'l Bank, 269 Ark. 237, 602 S.W.2d 604 (1980) (decision under prior law).

Recovery of any commercially reasonable cost in preparing a repossessed automobile for resale would be allowed under this section; accordingly, where the testimony given by the automobile dealer showed that there was extensive physical damage done to the vehicle, and that the carpet, tires, belts, and locks had to be replaced along with numerous other repairs and maintenance, the trial court did not err in awarding the full amount of repair and maintenance expense to the dealer. Brown v. Ford, 280 Ark. 261, 658 S.W.2d 355 (1983) (decision under prior law).

The difference between what the secured party gave on resale of the automobile as a trade-in allowance and what the secured party received as a wholesale price upon the resale of the collateral automobile was an integral part of the bargain and resale of the collateral, and was an allowable expense of the resale under the pre-2001 version of this chapter. Thrower v. Union Lincoln-Mercury, Inc., 282 Ark. 585, 670 S.W.2d 430 (1984) (decision under prior law).

Damages.

In permitting a secured party after default to sell or lease the collateral in any commercially reasonable manner, this section does not limit a secured party's damages to the legal rate of interest. Affiliated Food Stores, Inc. v. Bank of N.E. Ark., 259 Ark. 690, 536 S.W.2d 693 (1976) (decision under prior law).

Deficiency Judgments.

In action to recover deficiency judgment, prerequisite to recovery is that the secured party has the burden of proving either the actual value of the collateral at the time of its sale after repossession, or proving that reasonable notice was sent although receipt need not be proven. Leasing Assocs. v. Slaughter & Son, 450 F.2d 174 (8th Cir. 1971) (decision under prior law).

Where, in action against buyers of bulldozer by seller for deficiency owed after repossession and sale by seller, buyers defended action on grounds sale after repossession was not conducted properly in accord with this section and former § 4-1-203 (now § 4-1-304), seller had the burden of proving the amount of deficiency it was entitled to recover and that the sale was made in good faith and in a commercially reasonable manner. Farmers Equip. Co. v. Miller, 252 Ark. 1092, 482 S.W.2d 805 (1972) (decision under prior law).

Bank which sold repossessed cars at auction was not barred from seeking a deficiency judgment against a motor company, where the motor company was in default under a financing and security agreement where the automobiles were repossessed peacefully, and where the collateral was sold pursuant to an after default agreement. Teeter Motor Co. v. First Nat'l Bank, 260 Ark. 764, 543 S.W.2d 938 (1976) (decision under prior law).

When a creditor repossesses chattels and resells them in a manner not consistent with the pre-2001 version of this chapter, it is his responsibility to prove the sale was commercially reasonable before he is entitled to a deficiency judgment. Rhodes v. Oaklawn Bank, 279 Ark. 51, 648 S.W.2d 470 (1983) (decision under prior law).

If a secured creditor sells the repossessed collateral in a commercially unreasonable manner, a presumption arises under the pre-2001 version of this chapter that the value of the collateral is equal to the outstanding debt; however, the secured party can still recover a deficiency upon proving that the reasonable value of the collateral was less than the debt. Henry v. Trickey, 9 Ark. App. 47, 653 S.W.2d 138 (1983) (decision under prior law).

Once the trial court properly determined the sale of a repossessed combine by a secured creditor was not commercially reasonable under the pre-2001 version of this chapter, the legal presumption arose that the combine was worth the amount of the debt; consequently, the creditor was entitled to a deficiency judgment only if he proved the reasonable value of the combine was less than such amount. Thus, where the creditor offered no evidence as to the combine's reasonable value, he was not entitled to a deficiency judgment. Henry v. Trickey, 9 Ark. App. 47, 653 S.W.2d 138 (1983) (decision under prior law).

The creditor's right to deficiency is established by former § 4-9-504(2) and the burden is upon the secured party as the plaintiff to establish the amount to which it is entitled. When the secured party's handling of the disposition of repossessed property is attacked for want of commercial reasonableness, it then has the burden of proving it complied with the provisions of former §§ 4-9-5014-9-507; when the sale is conducted according to the requirements of those sections, the amount received is evidence of the collateral's true value in such an action. Thrower v. Union Lincoln-Mercury, Inc., 282 Ark. 585, 670 S.W.2d 430 (1984) (decision under prior law).

Evidence supported trial court's finding under the pre-2001 version of this chapter of commercial reasonableness of a delay between default of a lease and disposition of collateral equipment. Meachum v. Worthen Bank & Trust Co., 13 Ark. App. 229, 682 S.W.2d 763, cert. denied, 474 U.S. 844, 106 S. Ct. 132, 88 L. Ed. 2d 108 (1985) (decision under prior law).

The failure of the bank, as a secured party, to give proper notice to the debtor of the time and place of the sale of repossessed collateral, as required by former § 4-9-504(3), absolutely barred the bank's right to a deficiency judgment. First State Bank v. Hallett, 291 Ark. 37, 722 S.W.2d 555 (1987) (decision under prior law).

A secured creditor who has not complied with Commerical Code may still obtain a deficiency judgment if he can overcome the presumption created by his violation that the collateral was worth at least the amount of the debt, thus, under the pre-2001 version of this chapter the creditor has the burden of proving the amount that should reasonably have been obtained through a sale conducted according to law. Cheshire v. Walt Bennett Ford, Inc., 31 Ark. App. 90, 788 S.W.2d 490 (1990). See also City Nat'l Bank v. Unique Structures, 49 F.3d 1330 (8th Cir. 1995) (decisions under prior law).

The failure of the secured party to give written notice under former § 4-9-504(4) or otherwise to establish the commercial reasonableness of the sale by written agreement with the debtor will bar the secured party from any right to a deficiency. Walker v. Grant County Sav. & Loan Ass'n, 304 Ark. 571, 803 S.W.2d 913 (1991) (decision under prior law).

Where a statement in writing signed by the debtors did not exist, waiver of notice requirements could be established by secured party, and the debtors were not estopped to raise failure to give adequate notice as a bar to the deficiency judgment. Walker v. Grant County Sav. & Loan Ass'n, 304 Ark. 571, 803 S.W.2d 913 (1991) (decision under prior law).

Where the sale of collateral was not commercially reasonable pursuant to the requirements of former § 4-9-504(3), the creditor's claim for a deficiency judgment was barred. AM Credit Corp. v. Riley, 35 Ark. App. 168, 815 S.W.2d 392 (1991) (decision under prior law).

If the secured party does not carry its burden of proof on the “commercially reasonable” issue, the secured party is prohibited under the pre-2001 version of this chapter from recovering a deficiency judgment; the secured party may, however, recover a deficiency, even though the sale was unreasonable, if it proves that the reasonable value of the collateral was less than the debt. Marks v. Powell, 162 B.R. 820 (E.D. Ark. 1993) (decision under prior law).

Delay in disposing of the collateral, use of the collateral, or abuse of the collateral will affect the secured party's right to obtain a deficiency judgment under the pre-2001 version of this chapter. Marks v. Powell, 162 B.R. 820 (E.D. Ark. 1993) (decision under prior law).

Prior to 1987, the Arkansas courts presumed that a creditor who failed to dispose of collateral in a commercially reasonable manner was not entitled to a deficiency judgment, but allowed the creditor to rebut this presumption with evidence that a true deficiency existed; in 1987, Arkansas adopted the “absolute bar rule,” under which a creditor who failed to dispose of collateral in a commercially reasonable manner was barred from obtaining a deficiency judgment under the pre-2001 version of this chapter, and now the absolute bar rule applies generally to collateral sales in violation of the Uniform Commercial Code. City Nat'l Bank v. Unique Structures, 49 F.3d 1330 (8th Cir. 1995) (decision under prior law).

If the disposition of collateral is not conducted in a commercially reasonable manner under the pre-2001 version of this chapter, the creditor is entitled to a deficiency judgment. City Nat'l Bank v. Unique Structures, 49 F.3d 1330 (8th Cir. 1995) (decision under prior law).

After a default, a secured party has a right to repossess and dispose of its collateral, and the disposition may be made at public or private sale; if former § 4-9-504 is not complied with, the creditor is not entitled to a deficiency judgment unless the secured party proves that the reasonable value of the collateral was less than the debt. Nat'l Bank of Commerce v. McMullan, 196 B.R. 818 (Bankr. W.D. Ark. 1996), aff'd, 162 F.3d 1164 (8th Cir.), cert. denied, McMullan v. National Bank of Commerce, 525 U.S. 1019, 119 S. Ct. 546, 142 L. Ed. 2d 454 (1998) (decision under prior law).

Disposition of Collateral.

Disposition of the collateral did not satisfy the requirement of former § 4-9-504(3). First Nat'l Bank v. Hess, 23 Ark. App. 129, 743 S.W.2d 825 (1988) (decision under prior law).

This section requires that every aspect of the disposition be commercially reasonable. Marks v. Powell, 162 B.R. 820 (E.D. Ark. 1993) (decision under prior law).

When the secured property is sold to a third party, the property has been “disposed of” pursuant to former § 4-9-504(1), and the original debtor cannot be held liable for any subsequent costs. Bill Fitts Auto Sales, Inc. v. Daniels, 325 Ark. 51, 922 S.W.2d 718 (1996) (decision under prior law).

Trial court erred in dismissing a creditor's action against a debtor to recover the balance on an installment contract for the purchase of an automobile where it was a towing company's duty, as the holder of a first-priority possessory lien on the wrecked automobile, to notify the debtor of its intent to foreclose on the lien by selling the automobile. The creditor never possessed or disposed of the collateral and was therefore not required to give notice before a disposition was made. Primus Fin. Servs. v. Seitz, 102 Ark. App. 146, 283 S.W.3d 235 (2008).

Notice.

Finding against the seller was improper under the pre-2001 version of this chapter where, although the company presented evidence of its usual procedure, which included sending notice to dealers, it offered no information about the advertising or solicitation of bids, the value of collateral, or whether the seller was notified. McDonald Mobile Homes, Inc. v. BankAmerica Hous. Servs., 93 Ark. App. 256, 218 S.W.3d 376 (2005) (decision under prior law).

Public Sales.

The disposition of a repossessed mobile home is, for the purposes of the pre-2001 version of the Uniform Commercial Code, analogous to that of a car or truck, and if the secured party is to become the purchaser, a public sale is necessary to satisfy the requirements of this subtitle. Benton v. General Mobile Homes, Inc., 13 Ark. App. 8, 678 S.W.2d 774 (1984) (decision under prior law).

Where seller sent notice of private sale to buyer as required by former § 4-9-504(3), placed the vehicle on a used car lot, and sold it two months subsequent to the redeemable time to a member of the general public, the sale was not a public sale; the two-month period between notice and sale was commercially reasonable under the pre-2001 version of this chapter. Harold Gwatney Chevrolet Co. v. Cooper, 41 Ark. App. 133, 850 S.W.2d 19 (1993) (decision under prior law).

Sale Agreements.

Notice and commercial reasonableness of sale of hens was immaterial under the pre-2001 version of this chapter where borrower who owned hens and against which lender held a security interest either agreed to or made the sale. Pine Bluff Prod. Credit Ass'n v. Lloyd, 252 Ark. 682, 480 S.W.2d 578 (1972) (decision under prior law).

Where debtor and bank reached a specific agreement about how the sale was to be conducted, the question of commercial reasonableness was immaterial under the pre-2001 version of this chapter. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984) (decision under prior law).

Secured Parties.

Where the seller of a dump truck had assigned the conditional sales contract to a bank and had guaranteed payment to the bank in the event of the buyer's default, the seller was a secured creditor of the buyer within the meaning of the pre-2001 version of this chapter. Tucker v. Scarbrough, 268 Ark. 736, 596 S.W.2d 4 (Ct. App. 1980) (decision under prior law).

Senior Secured Parties' Rights.

Under the pre-2001 version of this chapter, the plain meaning and logical implications of certain provisions may be preempted by a pervasive spirit of priority that supports giving a senior secured party a claim to the proceeds of a junior creditor's sale of collateral. Stotts v. Johnson, 302 Ark. 439, 791 S.W.2d 351 (1990) (decision under prior law).

Standard Price.

A NADA book did not make a used automobile “the subject of widely distributed standard price quotations” under the pre-2001 version of this chapter where the evidence was that the book was merely a guide to the price of a vehicle of that year, make, and model in an average condition. Carter v. Ryburn Ford Sales, Inc., 248 Ark. 236, 451 S.W.2d 199 (1970), overruled in part on other grounds, First State Bank v. Hallett, 291 Ark. 37, 722 S.W.2d 555 (1987) (decision under prior law).

Value of Collateral.

The fair market value under the pre-2001 version of this chapter was what a willing purchaser, under no compulsion to purchase, would have paid for the limited partnership units, recognizing what he was getting, which was, by any rational view of the evidence, a probable controversy with other investors in the organization; thus, the fair market value for such units was no more than was received for them at the sale. Becknell v. Quinn, 592 F. Supp. 102 (E.D. Ark. 1983), aff'd sub nom. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984) (decision under prior law).

It is only when the sale of repossessed collateral is conducted according to the requirements of the Uniform Commercial Code that the amount received or bid at a sale of collateral is evidence of its true value in an action to recover a deficiency under the pre-2001 version of this chapter. Henry v. Trickey, 9 Ark. App. 47, 653 S.W.2d 138 (1983) (decision under prior law).

Large discrepancy between sales price and fair market value signals a need under the pre-2001 version of this chapter for close scrutiny of sale procedures. Womack v. First State Bank, 21 Ark. App. 33, 728 S.W.2d 194 (1987) (decision under prior law).

Under the pre-2001 version of this chapter the value of the collateral seized is presumed equal to the amount due on the debt. Marks v. Powell, 162 B.R. 820 (E.D. Ark. 1993) (decision under prior law).

Under the pre-2001 version of this chapter the burden is on the secured party to prove the value of the collateral at the time of repossession. Marks v. Powell, 162 B.R. 820 (E.D. Ark. 1993) (decision under prior law).

Cited: Whitson v. Yaffe Iron & Metal Corp., 385 F.2d 168 (8th Cir. 1967); Commercial Credit Corp. v. Associates Discount Corp., 246 Ark. 118, 436 S.W.2d 809 (1969); Williams v. Westinghouse Credit Corp., 250 Ark. 1065, 468 S.W.2d 761 (1971); Hubbard v. Moore, 537 F. Supp. 126 (W.D. Ark. 1982); Everett v. Parts, Inc., 4 Ark. App. 213, 628 S.W.2d 875 (1982); Thomas v. International Harvester Credit Corp., 5 Ark. App. 244, 636 S.W.2d 296 (1982); United States v. Dawson, 929 F.2d 1336 (8th Cir. 1991); Bank of Bearden v. Simpson, 305 Ark. 326, 808 S.W.2d 341 (1991) (decisions under prior law).

4-9-611. Notification before disposition of collateral.

  1. In this section, “notification date” means the earlier of the date on which:
    1. a secured party sends to the debtor and any secondary obligor an authenticated notification of disposition; or
    2. the debtor and any secondary obligor waive the right to notification.
  2. Except as otherwise provided in subsection (d), a secured party that disposes of collateral under § 4-9-610 shall send to the persons specified in subsection (c) a reasonable authenticated notification of disposition.
  3. To comply with subsection (b), the secured party shall send an authenticated notification of disposition to:
    1. the debtor;
    2. any secondary obligor; and
    3. if the collateral is other than consumer goods:
      1. any other person from which the secured party has received, before the notification date, an authenticated notification of a claim of an interest in the collateral;
      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:
        1. identified the collateral;
        2. was indexed under the debtor's name as of that date; and
        3. 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 § 4-9-311(a).
  4. Subsection (b) does not apply if the collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market.
  5. A secured party complies with the requirement for notification prescribed by subdivision (c)(3)(B) if:
    1. 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 subdivision (c)(3)(B); and
    2. 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 an authenticated notification of disposition to each secured party or other lienholder named in that response whose financing statement covered the collateral.

History. Acts 2001, No. 1439, § 1.

Research References

ALR.

Definition and Treatment of “Instruments” Under Revised Article 9 of Uniform Commercial Code. 42 A.L.R.7th Art. 5 (2019).

Case Notes

Attachment Sales.

Seller of tractor who perfected lien for the unpaid purchase price was not entitled, under this section, to notice of the proposed attachment sale of the tractor pursuant to judgment obtained by bank to collect unsecured debt from buyer of the tractor, since, under former §§ 4-9-102(2) and 4-9-104(h), this chapter does not apply to attachment sales pursuant to a judgment. Citizens Bank v. Perrin & Sons, 253 Ark. 639, 488 S.W.2d 14 (1972) (decision under prior law).

Notice of Sale.

Where conditional vendor after repossessing truck gave vendee more than a week's notice of the proposed resale by certified mail and the vendee, after he received a notice from the post office that it was holding a piece of certified mail for him, did not have it picked up until about two weeks after the sale, and want of notice was not pleaded and there was no evidence in the record to indicate that notice by certified mail was not reasonable, an instruction in action for deficiency that if vendee had no knowledge of the proposed sale before it took place vendee was entitled to verdict was erroneous. Hudspeth Motors, Inc. v. Wilkinson, 238 Ark. 410, 382 S.W.2d 191 (1964), overruled on other grounds, Stimson Tractor Co. v. Heflin, 257 Ark. 263, 516 S.W.2d 379 (1974) (decision under prior law).

Where, after repossession of an automobile, the debtor was notified that “we hereby give you seven days after receipt of this letter to pay off your contract and redeem the automobile, or we will sell it at private sale” it was a jury question as to whether this constituted reasonable notice under this section. Baber v. Williams Ford Co., 239 Ark. 1054, 396 S.W.2d 302 (1965) (decision under prior law).

An oral statement by the seller to the buyer that he was going to sell a repossessed automobile to the highest bidder, without stating the time or place, did not constitute a reasonable notice under this section. Barker v. Horn, 245 Ark. 315, 432 S.W.2d 21 (1968), overruled in part on other grounds, First State Bank v. Hallett, 291 Ark. 37, 722 S.W.2d 555 (1987) (decision under prior law).

Reasonable notice sent to debtor from whom creditor sought to recover deficiency following sale of collateral pursuant to this section where notice of time and place of sale was mailed. Leasing Assocs. v. Slaughter & Son, 450 F.2d 174 (8th Cir. 1971) (decision under prior law).

Debtor's knowledge that the automobile had been repossessed did not constitute notice of sale, and conflicting testimony as to whether debtor had prior knowledge of sale and waived his right to notice presented a jury question. Wheeless v. Eudora Bank, 256 Ark. 644, 509 S.W.2d 532 (1974) (decision under prior law).

Where defendant, who was in default under a new and used automobile financing agreement, signed a disposal of collateral agreement about nine days after repossession of automobiles by the bank, defendant waived notification of terms, times, and places of sale of the repossessed automobiles. Teeter Motor Co. v. First Nat'l Bank, 260 Ark. 764, 543 S.W.2d 938 (1976) (decision under prior law).

Where the evidence showed that the value of the collateral at the time of repossession was less than the amount due on the debt, the failure to comply with the notice requirements under the pre-2001 version of this chapter did not cause the debtor any loss and he could not recover. Mayhew v. Loveless, 1 Ark. App. 69, 613 S.W.2d 118 (1981) (decision under prior law).

Letter was not the written notice contemplated in former § 4-9-505, since it was not written by the secured party, it did not notify debtor that creditor intended to retain the collateral in satisfaction of the obligation, and the secured party was not in possession of the equipment; thus, the secured party was required to dispose of the collateral and account for any surplus to the debtor under former § 4-9-504, and, where it failed to do so, the debtor was entitled to recover from the secured party under former § 4-9-507 for failure to comply. McIlroy Bank & Trust v. Seven Day Bldrs. of Ark., Inc., 1 Ark. App. 121, 613 S.W.2d 837 (1981) (decision under prior law).

Where the holder of a security interest in a repossessed airplane notified the defaulting purchasers that the airplane would be sold any time after a three-week grace period, and the airplane was then sold five months later, the security interest holder provided the debtors' sufficient notice to protect their interests, and the security interest holder had no statutory obligation under the pre-2001 version of this chapter to notify the debtors of the exact time and date of sale. Piper Acceptance Corp. v. Yarbrough, 702 F.2d 733 (8th Cir. 1983) (decision under prior law).

When a creditor repossesses chattels and sells them without sending the debtor notice as to the time and date of sale, or as to a date after which the collateral will be sold, he is not entitled to a deficiency judgment, unless the debtor has specifically waived his rights to such notice; accordingly, where no notice was sent and no waiver by the debtor was proven, the creditor was not entitled to a deficiency judgment under the pre-2001 version of this chapter. Rhodes v. Oaklawn Bank, 279 Ark. 51, 648 S.W.2d 470 (1983) (decision under prior law).

A secured party has only a duty to give reasonable notice of the time after which any private sale will be made; a second notice is not required even though a significant period of time passes before resale; therefore, where a secured party gave a notice that a repossessed automobile would be sold at private sale anytime after ten days from the date of the notice, the notice was sufficient under the pre-2001 version of this chapter for a sale which occurred 16 months later. Brown v. Ford, 280 Ark. 261, 658 S.W.2d 355 (1983) (decision under prior law).

Persons who were not parties or debtors to a note evidencing a bank loan to a corporation were not entitled under the pre-2001 version of this chapter to notice prior to the bank's disposition of the collateral pledged by the corporation as security for the loan. United Fasteners, Inc. v. First State Bank, 286 Ark. 202, 691 S.W.2d 126 (1985) (decision under prior law).

The failure to give notice requested by former § 4-9-504 does not constitute an absolute defense to an action for deficiency judgment. However, when the sale of repossessed collateral is not sold in a commercially reasonable manner, a presumption arises that the collateral is equal to the amount of the outstanding debt; consequently, the creditor is entitled under the pre-2001 version of this chapter to a deficiency judgment only if it proves the reasonable value of the collateral was less than the amount of the debt. Mooney v. Grant County Bank, 18 Ark. App. 224, 711 S.W.2d 841 (1986) (decision under prior law).

Where it was undisputed that notice of sale of a repossessed truck by the secured bank was not sent to the debtor but rather to her husband, who was not an obligor on the note and who had no interest in the truck, and that although the debtor did sign for receipt of the registered letter addressed to her husband, there was no evidence that she read its contents or had knowledge thereof, nor was there any evidence that she saw the notice published in the newspapers, the trial court should have found that the bank did not proceed in a commercially reasonable manner in disposing of the truck, because it failed to send notice to the debtor as required by former § 4-9-504(3). Mooney v. Grant County Bank, 18 Ark. App. 224, 711 S.W.2d 841 (1986) (decision under prior law).

The purpose of notice under former § 4-9-504(3) is to permit a debtor to bid in at the sale or to protect himself from an inadequate sale price. In re Long, 83 B.R. 579 (Bankr. E.D. Ark. 1987) (decision under prior law).

A guarantor of a note secured by a security interest in collateral is entitled under the pre-2001 version of this chapter to notice prior to sale of the collateral. In re Long, 83 B.R. 579 (Bankr. E.D. Ark. 1987) (decision under prior law).

Although bank did not repossess the collateral and sell it, it was “otherwise disposing” of the collateral within the meaning of former § 4-9-504, and was therefore required to give notice to the debtor of the disposition. In re Long, 83 B.R. 579 (Bankr. E.D. Ark. 1987) (decision under prior law).

Failure to give notice under former § 4-9-504 bars a secured party from asserting a deficiency judgment against a debtor. In re Long, 83 B.R. 579 (Bankr. E.D. Ark. 1987); Bank of Dover v. Shipley, 299 Ark. 451, 773 S.W.2d 825 (1989); General Elec. Credit Auto Lease, Inc. v. Paty, 29 Ark. App. 30, 776 S.W.2d 829 (1989); Miller v. First Nat'l Bank, 29 Ark. App. 247, 780 S.W.2d 589 (1989) (decisions under prior law).

Secured party who has failed to comply with requirement under the pre-2001 version of this chapter that a debtor be notified of sale of collateral may not recover deficiency established between sale price and obligation owed to creditor by debtor. Hallmark Cards, Inc. v. Peevy, 293 Ark. 594, 739 S.W.2d 691 (1987) (decision under prior law).

Where debtor is not given written notice of the time and place of the sale, the sale is not conducted according to provisions of former § 4-9-504. Womack v. First State Bank, 21 Ark. App. 33, 728 S.W.2d 194 (1987); Pollack v. Pulaski Bank & Trust Co., 30 Ark. App. 20, 781 S.W.2d 497 (1989), overruled on other grounds, Walker v. Grant County Sav. & Loan Ass'n, 304 Ark. 571, 803 S.W.2d 913 (1991) (decisions under prior law).

Notice mailed to debtor at his home was adequate under the pre-2001 version of this chapter where it was received by his wife even though he never saw it. Clark v. First Nat'l Bank, 24 Ark. App. 52, 748 S.W.2d 42 (1988) (decision under prior law).

Failure to comply with provisions concerning notice to debtors and disposition of collateral results in a bar to recovery of a deficiency judgment. First Nat'l Bank v. Hess, 23 Ark. App. 129, 743 S.W.2d 825 (1988) (decision under prior law).

Obligations outlined in the guaranty agreement placed guarantor in the position of a debtor for purposes of the notice requirement. First Nat'l Bank v. Hess, 23 Ark. App. 129, 743 S.W.2d 825 (1988) (decision under prior law).

When disposition is to be made by public sale, notice of the place of the sale must be given to the debtors, but no such requirement exists for disposition by private sale. Anglin v. Chrysler Credit Corp., 27 Ark. App. 173, 768 S.W.2d 44 (1989) (decision under prior law).

Former § 4-9-504(3) does not specifically require that the words “public” or “private” be used in a notice of sale. Jones v. Union Motor Co., 29 Ark. App. 166, 779 S.W.2d 537 (1989) (decision under prior law).

Where notice does not provide the debtor with the time or the place of a public sale, the notice is not in compliance with the requirements of former § 4-9-504(3), and the secured creditor is barred from obtaining a deficiency judgment against the debtor. Miller v. First Nat'l Bank, 29 Ark. App. 247, 780 S.W.2d 589 (1989) (decision under prior law).

Failure by secured creditor to send notice to guarantor does not bar the right to obtain a deficiency judgment against the debtor; however, a secured party who has failed to comply with the requirement of former § 4-9-504 that a guarantor be notified of the sale of collateral may not recover a deficiency judgment against the guarantor. Miller v. First Nat'l Bank, 29 Ark. App. 247, 780 S.W.2d 589 (1989) (decision under prior law).

Former § 4-9-504(3) implies that written notice must be sent to the debtor and specifically requires a writing, signed by the debtor after default, before the debtor's right to such notice may be modified or renounced. Pollack v. Pulaski Bank & Trust Co., 30 Ark. App. 20, 781 S.W.2d 497 (1989), overruled on other grounds, Walker v. Grant County Sav. & Loan Ass'n, 304 Ark. 571, 803 S.W.2d 913 (1991) (decision under prior law).

Although former § 4-9-504(3) requires notice of the time and place of public sale, only reasonable notification of the time after which a private sale will be made is required. Pollack v. Pulaski Bank & Trust Co., 30 Ark. App. 20, 781 S.W.2d 497 (1989), overruled on other grounds, Walker v. Grant County Sav. & Loan Ass'n, 304 Ark. 571, 803 S.W.2d 913 (1991) (decision under prior law).

Where notice of private sale was sent to address from which the truck was repossessed, which was where debtor's wife lived, and not to address shown on contract of sale, trial court's finding that creditor sent reasonable notice in compliance with former § 4-9-504(3) was not clearly against a preponderance of the evidence. Cheshire v. Walt Bennett Ford, Inc., 31 Ark. App. 90, 788 S.W.2d 490 (1990). See also City Nat'l Bank v. Unique Structures, 49 F.3d 1330 (8th Cir. 1995) (decisions under prior law).

Notices which were thorough and clearly worded, and provided, in most instances, at least two weeks notice of the date after which the collateral would be sold, were adequate under the pre-2001 version of this chapter. City Nat'l Bank v. Unique Structures, Inc., 929 F.2d 1308 (8th Cir. 1991) (decision under prior law).

A secured party, who fails to notify a guarantor prior to the sale of the debtor's collateral, cannot proceed under the pre-2001 version of this chapter by in rem foreclosure of the guarantor's real estate pledged as collateral. United States v. Dawson, 929 F.2d 1336 (8th Cir. 1991) (decision under prior law).

Where secured party commences separate actions against the personal property collateral and the real property collateral of the guarantor, the secured party is required to act in accordance with the notice requirements of the Arkansas Commercial Code with respect to the personal property collateral and under former § 4-9-504(3). United States v. Dawson, 929 F.2d 1336 (8th Cir. 1991) (decision under prior law).

Handwritten message, delivered to debtor by secured party eleven days before sale, which referred to date and town of sale of collateral did not comply with notice requirements of former § 4-9-504 where there was no reference in the message to time of sale, specific location of sale, or to the method, manner, and terms of the sale other than the fact it was to be an auction. Walker v. Grant County Sav. & Loan Ass'n, 304 Ark. 571, 803 S.W.2d 913 (1991) (decision under prior law).

Dealers-only auction, which was restricted to the participation of other dealers, was a private sale; therefore the notice received by debtor of the sale of her car, although it did not state the place of the sale, satisfied the requirements of former § 4-9-504. Beard v. Ford Motor Credit Co., 41 Ark. App. 174, 850 S.W.2d 23 (1993) (decision under prior law).

Debtors, husband and wife, failed to establish any violation of former § 4-9-504 where the debtors argued simultaneously that: (1) wife owned no property interest in the oil and gas leases and equipment; (2) wife conveyed her interest in the oil and gas properties to creditor; and (3) wife owned an interest that was not mortgaged to creditor and that creditor disposed of her interest without giving her the notice required by former § 4-9-504. Nat'l Bank of Commerce v. McMullan, 196 B.R. 818 (Bankr. W.D. Ark. 1996), aff'd, 162 F.3d 1164 (8th Cir.), cert. denied, McMullan v. National Bank of Commerce, 525 U.S. 1019, 119 S. Ct. 546, 142 L. Ed. 2d 454 (1998) (decision under prior law).

The requirement set forth in former § 4-9-504(3) that the secured party give to the debtor reasonable notification of the time and place of the sale or other intended disposition of the collateral is a consideration in determining whether the sale is commercially reasonable. First Community Bank v. Paccio, 70 Ark. App. 313, 17 S.W.3d 510 (2000) (decision under prior law).

Where no evidence was presented as to the content of a notice of sale, the court could not say that the court erred in its conclusion that the bank failed to prove that it gave notice of the time and place of the sale to the debtors. First Community Bank v. Paccio, 70 Ark. App. 313, 17 S.W.3d 510 (2000) (decision under prior law).

Trial court erred in dismissing a creditor's action against a debtor to recover the balance on an installment contract for the purchase of an automobile where it was a towing company's duty, as the holder of a first-priority possessory lien on the wrecked automobile, to notify the debtor of its intent to foreclose on the lien by selling the automobile. The creditor had no duty to notify the debtor that the towing company intended to dispose of the collateral. Primus Fin. Servs. v. Seitz, 102 Ark. App. 146, 283 S.W.3d 235 (2008).

In cases where the sales are accomplished by either the Uniform Commercial Code debtor or the debtor's agent, the U.C.C. Article 9 rules requiring the secured party to give notice of disposition of collateral are not applicable because the secured party is not the person in charge of the disposition. In re Knight, 544 B.R. 141 (Bankr. E.D. Ark. 2016).

4-9-612. Timeliness of notification before disposition of collateral.

  1. Except as otherwise provided in subsection (b), whether a notification is sent within a reasonable time is a question of fact.
  2. In a transaction other than a consumer transaction, a notification of disposition sent after default and ten (10) days or more before the earliest time of disposition set forth in the notification is sent within a reasonable time before the disposition.

History. Acts 2001, No. 1439, § 1.

4-9-613. Contents and form of notification before disposition of collateral: General.

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

  1. The contents of a notification of disposition are sufficient if the notification:
    1. describes the debtor and the secured party;
    2. describes the collateral that is the subject of the intended disposition;
    3. states the method of intended disposition;
    4. states that the debtor is entitled to an accounting of the unpaid indebtedness and states the charge, if any, for an accounting; and
    5. states the time and place of a public disposition or the time after which any other disposition is to be made.
  2. Whether the contents of a notification that lacks any of the information specified in paragraph (1) are nevertheless sufficient is a question of fact.
  3. The contents of a notification providing substantially the information specified in paragraph (1) are sufficient, even if the notification includes:
    1. information not specified by that paragraph; or
    2. minor errors that are not seriously misleading.
  4. A particular phrasing of the notification is not required.
  5. The following form of notification and the form appearing in § 4-9-614(3), when completed, each provides sufficient information:

NOTIFICATION OF DISPOSITION OF COLLATERAL To: [ Name of debtor, obligor, or other person to which the notification is sent ] From: [ Name, address, and telephone number of secured party ] Name of Debtor(s): [ Include only if debtor(s) are not an addressee ] [ For a public disposition: ] We will sell [or lease or license, as applicable ] the [ describe collateral ] [to the highest qualified bidder] in public as follows: Day and Date: Time: Place: [ For a private disposition: ] We will sell [or lease or license, as applicable ] the [ describe collateral ] privately sometime after [ day and date ]. You are entitled to an accounting of the unpaid indebtedness secured by the property that we intend to sell [or lease or license, as applicable ] [for a charge of $ ]. You may request an accounting by calling us at [ telephone number ]

Click to view form.

History. Acts 2001, No. 1439, § 1.

4-9-614. Contents and form of notification before disposition of collateral: Consumer-goods transaction.

In a consumer-goods transaction, the following rules apply:

  1. A notification of disposition must provide the following information:
    1. the information specified in § 4-9-613(1);
    2. a description of any liability for a deficiency of the person to which the notification is sent;
    3. a telephone number from which the amount that must be paid to the secured party to redeem the collateral under § 4-9-623 is available; and
    4. a telephone number or mailing address from which additional information concerning the disposition and the obligation secured is available.
  2. A particular phrasing of the notification is not required.
  3. The following form of notification, when completed, provides sufficient information:
  4. A notification in the form of paragraph (3) is sufficient, even if additional information appears at the end of the form.
  5. A notification in the form of paragraph (3) is sufficient, even if it includes errors in information not required by paragraph (1), unless the error is misleading with respect to rights arising under this chapter.
  6. If a notification under this section is not in the form of paragraph (3), law other than this chapter determines the effect of including information not required by paragraph (1).

[ 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 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 ]

Click to view form.

History. Acts 2001, No. 1439, § 1.

4-9-615. Application of proceeds of disposition — Liability for deficiency and right to surplus.

  1. A secured party shall apply or pay over for application the cash proceeds of disposition under § 4-9-610 in the following order to:
    1. the reasonable expenses of retaking, holding, preparing for disposition, processing, and disposing, and, to the extent provided for by agreement and not prohibited by law, reasonable attorney's fees and legal expenses incurred by the secured party;
    2. the satisfaction of obligations secured by the security interest or agricultural lien under which the disposition is made;
    3. the satisfaction of obligations secured by any subordinate security interest in or other subordinate lien on the collateral if:
      1. the secured party receives from the holder of the subordinate security interest or other lien an authenticated demand for proceeds before distribution of the proceeds is completed; and
      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
    4. a secured party that is a consignor of the collateral if the secured party receives from the consignor an authenticated demand for proceeds before distribution of the proceeds is completed.
  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 (a)(3).
  3. A secured party need not apply or pay over for application noncash proceeds of disposition under § 4-9-610 unless the failure to do so would be commercially unreasonable. A secured party that applies or pays over for application noncash proceeds shall do so in a commercially reasonable manner.
  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 (a) and permitted by subsection (c):
    1. unless subsection (a)(4) requires the secured party to apply or pay over cash proceeds to a consignor, the secured party shall account to and pay a debtor for any surplus; and
    2. the obligor is liable for any deficiency.
  5. If the underlying transaction is a sale of accounts, chattel paper, payment intangibles, or promissory notes:
    1. the debtor is not entitled to any surplus; and
    2. the obligor is not liable for any deficiency.
  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 to a transferee other than the secured party, a person related to the secured party, or a secondary obligor if:
    1. the transferee in the disposition is the secured party, a person related to the secured party, or a secondary obligor; and
    2. the amount of proceeds of the disposition is significantly below the range of proceeds that a complying disposition to a person other than the secured party, a person related to the secured party, or a secondary obligor would have brought.
  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:
    1. takes the cash proceeds free of the security interest or other lien;
    2. is not obligated to apply the proceeds of the disposition to the satisfaction of obligations secured by the security interest or other lien; and
    3. is not obligated to account to or pay the holder of the security interest or other lien for any surplus.

History. Acts 2001, No. 1439, § 1.

Research References

ALR.

Definition and Treatment of “Instruments” Under Revised Article 9 of Uniform Commercial Code. 42 A.L.R.7th Art. 5 (2019).

Case Notes

Deficiency Judgment.

Bankruptcy court's confirmation of Chapter 13 debtors' amended plan proposing to surrender their 910-car in full satisfaction of a creditor's claim was reversed because (1) the “hanging paragraph” in 11 U.S.C. § 1325(a) made 11 U.S.C. § 506(a) inapplicable to 910-claims, and the 910-claim was still an “allowed secured claim” because it was secured under state law; (2) nothing in 11 U.S.C. § 1325(a)(5)(C) stated that a claim was considered paid in full when the debtor surrendered the vehicle, so the creditor was entitled to an unsecured deficiency claim if there was a right to a deficiency judgment under state law; (3) the parties' security agreement gave the creditor the right to repossess and sell the vehicle in case of default, and provided that if the money from the sale was not enough to pay all that was owed, the debtor had to pay the rest, plus interest; and (4) subdivision (d)(2) of this section allowed the creditor a deficiency judgment, so the creditor was entitled to an unsecured deficiency claim in the amount of the difference between the debt owed at the time of filing and the amount received from liquidation. AmeriCredit Fin. Servs. v. Moore, 517 F.3d 987 (8th Cir. 2008).

Surplus.

Where at the time of the repossession the debtor's payoff balance was less than the amount the vehicle sold for after repossession and where the trial court found that the surplus to be accounted for by the secured party was the sale price reduced by the payoff balance, further reduced by the repossession and resale expenses, the trial court was justified under the pre-2001 version of this chapter in finding that there was a surplus. Harrell Motors, Inc. v. Sweeten, 4 Ark. App. 230, 628 S.W.2d 878 (1982) (decision under prior law).

The requirement of former § 4-9-504 to account for any surplus includes the payment of the surplus to the debtor. Bill Fitts Auto Sales, Inc. v. Daniels, 325 Ark. 51, 922 S.W.2d 718 (1996) (decision under prior law).

The debtor's right to a surplus from the disposition of the collateral cannot be waived under the pre-2001 version of this chapter even by an express agreement. Bill Fitts Auto Sales, Inc. v. Daniels, 325 Ark. 51, 922 S.W.2d 718 (1996) (decision under prior law).

4-9-616. Explanation of calculation of surplus or deficiency.

  1. In this section:
    1. “Explanation” means a writing that:
      1. states the amount of the surplus or deficiency;
      2. provides an explanation in accordance with subsection (c) 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.
    2. “Request” means a record:
      1. authenticated by a debtor or consumer obligor;
      2. requesting that the recipient provide an explanation; and
      3. sent after disposition of the collateral under § 4-9-610.
  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 § 4-9-615, the secured party shall:
    1. 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 on the consumer obligor after the disposition for payment of the deficiency; and
      2. within fourteen (14) days after receipt of a request; or
    2. 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 (a)(1)(B), a writing must provide the following information in the following order:
    1. the aggregate amount of obligations secured by the security interest under which the disposition was made, and, if the amount reflects a rebate of unearned interest or credit service charge, an indication of that fact, calculated as of a specified date:
      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;
    2. the amount of proceeds of the disposition;
    3. the aggregate amount of the obligations after deducting the amount of proceeds;
    4. the amount, in the aggregate or by type, and types of expenses, including expenses of retaking, holding, preparing for disposition, processing, and disposing of the collateral, and attorney's fees secured by the collateral which are known to the secured party and relate to the current disposition;
    5. the amount, in the aggregate or by type, and types of credits, including rebates of interest or credit service charges, to which the obligor is known to be entitled and which are not reflected in the amount in paragraph (1); and
    6. the amount of the surplus or deficiency.
  4. A particular phrasing of the explanation is not required. An explanation complying substantially with the requirements of subsection (a) is sufficient, even if it includes minor errors that are not seriously misleading.
  5. A debtor or consumer obligor is entitled without charge to one (1) response to a request under this section during any six-month period in which the secured party did not send to the debtor or consumer obligor an explanation pursuant to subsection (b)(1). The secured party may require payment of a charge not exceeding twenty-five dollars ($25) for each additional response.

History. Acts 2001, No. 1439, § 1.

4-9-617. Rights of transferee of collateral.

  1. A secured party's disposition of collateral after default:
    1. transfers to a transferee for value all of the debtor's rights in the collateral;
    2. discharges the security interest under which the disposition is made; and
    3. discharges any subordinate security interest or other subordinate lien.
  2. A transferee that acts in good faith takes free of the rights and interests described in subsection (a), even if the secured party fails to comply with this chapter or the requirements of any judicial proceeding.
  3. If a transferee does not take free of the rights and interests described in subsection (a), the transferee takes the collateral subject to:
    1. the debtor's rights in the collateral;
    2. the security interest or agricultural lien under which the disposition is made; and
    3. any other security interest or other lien.

History. Acts 2001, No. 1439, § 1.

4-9-618. Rights and duties of certain secondary obligors.

  1. A secondary obligor acquires the rights and becomes obligated to perform the duties of the secured party after the secondary obligor:
    1. receives an assignment of a secured obligation from the secured party;
    2. receives a transfer of collateral from the secured party and agrees to accept the rights and assume the duties of the secured party; or
    3. is subrogated to the rights of a secured party with respect to collateral.
  2. An assignment, transfer, or subrogation described in subsection (a):
    1. is not a disposition of collateral under § 4-9-610; and
    2. relieves the secured party of further duties under this chapter.

History. Acts 2001, No. 1439, § 1.

4-9-619. Transfer of record or legal title.

  1. In this section, “transfer statement” means a record authenticated by a secured party stating:
    1. that the debtor has defaulted in connection with an obligation secured by specified collateral;
    2. that the secured party has exercised its post-default remedies with respect to the collateral;
    3. that, by reason of the exercise, a transferee has acquired the rights of the debtor in the collateral; and
    4. the name and mailing address of the secured party, debtor, and transferee.
  2. A transfer statement entitles the transferee to the transfer of record of all rights of the debtor in the collateral specified in the statement in any official filing, recording, registration, or certificate-of-title system covering the collateral. If a transfer statement is presented with the applicable fee and request form to the official or office responsible for maintaining the system, the official or office shall:
    1. accept the transfer statement;
    2. promptly amend its records to reflect the transfer; and
    3. if applicable, issue a new appropriate certificate of title in the name of the transferee.
  3. A transfer of the record or legal title to collateral to a secured party under subsection (b) or otherwise is not of itself a disposition of collateral under this chapter and does not of itself relieve the secured party of its duties under this chapter.

History. Acts 2001, No. 1439, § 1.

4-9-620. Acceptance of collateral in full or partial satisfaction of obligation — Compulsory disposition of collateral.

  1. Except as otherwise provided in subsection (g), a secured party may accept collateral in full or partial satisfaction of the obligation it secures only if:
    1. the debtor consents to the acceptance under subsection (c);
    2. the secured party does not receive, within the time set forth in subsection (d), a notification of objection to the proposal authenticated by:
      1. a person to which the secured party was required to send a proposal under § 4-9-621; 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;
    3. if the collateral is consumer goods, the collateral is not in the possession of the debtor when the debtor consents to the acceptance; and
    4. subsection (e) does not require the secured party to dispose of the collateral or the debtor waives the requirement pursuant to § 4-9-624.
  2. A purported or apparent acceptance of collateral under this section is ineffective unless:
    1. the secured party consents to the acceptance in an authenticated record or sends a proposal to the debtor; and
    2. the conditions of subsection (a) are met.
  3. For purposes of this section:
    1. a debtor consents to an acceptance of collateral in partial satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default; and
    2. a debtor consents to an acceptance of collateral in full satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default or the secured party:
      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 authenticated by the debtor within twenty (20) days after the proposal is sent.
  4. To be effective under subsection (a)(2), a notification of objection must be received by the secured party:
    1. in the case of a person to which the proposal was sent pursuant to § 4-9-621, within twenty (20) days after notification was sent to that person; and
    2. in other cases:
      1. within twenty (20) days after the last notification was sent pursuant to § 4-9-621; or
      2. if a notification was not sent, before the debtor consents to the acceptance under subsection (c).
  5. A secured party that has taken possession of collateral shall dispose of the collateral pursuant to § 4-9-610 within the time specified in subsection (f) if:
    1. sixty percent (60%) of the cash price has been paid in the case of a purchase-money security interest in consumer goods; or
    2. 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 (e), the secured party shall dispose of the collateral:
    1. within ninety (90) days after taking possession; or
    2. within any longer period to which the debtor and all secondary obligors have agreed in an agreement to that effect entered into and authenticated after default.
  7. In a consumer transaction, a secured party may not accept collateral in partial satisfaction of the obligation it secures.

History. Acts 2001, No. 1439, § 1.

4-9-621. Notification of proposal to accept collateral.

  1. A secured party that desires to accept collateral in full or partial satisfaction of the obligation it secures shall send its proposal to:
    1. any person from which the secured party has received, before the debtor consented to the acceptance, an authenticated notification of a claim of an interest in the collateral;
    2. any other secured party or lienholder that, 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
    3. 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 § 4-9-311(a).
  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 (a).

History. Acts 2001, No. 1439, § 1.

Case Notes

Notice.

Letter was not the written notice contemplated in this section, since it was not written by the secured party, it did not notify debtor that creditor intended to retain the collateral in satisfaction of the obligation, and the secured party was not in possession of the equipment; thus, the secured party was required to dispose of the collateral and account for any surplus to the debtor under former § 4-9-504, and, where it failed to do so, the debtor was entitled to recover from the secured party under former § 4-9-507 for failure to comply. McIlroy Bank & Trust v. Seven Day Bldrs. of Ark., Inc., 1 Ark. App. 121, 613 S.W.2d 837 (1981) (decision under prior law).

Cited: Everett v. Parts, Inc., 4 Ark. App. 213, 628 S.W.2d 875 (1982); Ark. Iron & Metal Co. v. First Nat'l Bank, 16 Ark. App. 245, 701 S.W.2d 380 (1985); Pollack v. Pulaski Bank & Trust Co., 30 Ark. App. 20, 781 S.W.2d 497 (1989); Smith v. Paul, 317 Ark. 182, 876 S.W.2d 266 (1994) (decisions under prior law).

4-9-622. Effect of acceptance of collateral.

  1. A secured party's acceptance of collateral in full or partial satisfaction of the obligation it secures:
    1. discharges the obligation to the extent consented to by the debtor;
    2. transfers to the secured party all of a debtor's rights in the collateral;
    3. discharges the security interest or agricultural lien that is the subject of the debtor's consent and any subordinate security interest or other subordinate lien; and
    4. terminates any other subordinate interest.
  2. A subordinate interest is discharged or terminated under subsection (a), even if the secured party fails to comply with this chapter.

History. Acts 2001, No. 1439, § 1.

4-9-623. Right to redeem collateral.

  1. A debtor, any secondary obligor, or any other secured party or lienholder may redeem collateral.
  2. To redeem collateral, a person shall tender:
    1. fulfillment of all obligations secured by the collateral; and
    2. the reasonable expenses and attorney's fees described in § 4-9-615(a)(1).
  3. A redemption may occur at any time before a secured party:
    1. has collected collateral under § 4-9-607;
    2. has disposed of collateral or entered into a contract for its disposition under § 4-9-610; or
    3. has accepted collateral in full or partial satisfaction of the obligation it secures under § 4-9-622.

History. Acts 2001, No. 1439, § 1.

Case Notes

Insufficient Tender.

Purchaser's tender of payment was insufficient to fulfill all OF the obligations secured by the collateral. White v. Associates Com. Corp., 20 Ark. App. 140, 725 S.W.2d 7 (1987) (decision under prior law).

Cited: Whitson v. Yaffe Iron & Metal Corp., 385 F.2d 168 (8th Cir. 1967); Walker v. Grant County Sav. & Loan Ass'n, 304 Ark. 571, 803 S.W.2d 913 (1991) (decisions under prior law).

4-9-624. Waiver.

  1. A debtor or secondary obligor may waive the right to notification of disposition of collateral under § 4-9-611 only by an agreement to that effect entered into and authenticated after default.
  2. A debtor may waive the right to require disposition of collateral under § 4-9-620(e) only by an agreement to that effect entered into and authenticated after default.
  3. Except in a consumer-goods transaction, a debtor or secondary obligor may waive the right to redeem collateral under § 4-9-623 only by an agreement to that effect entered into and authenticated after default.

History. Acts 2001, No. 1439, § 1.

Subpart 2 Noncompliance with Chapter

4-9-625. Remedies for secured party's failure to comply with chapter.

  1. If it is established that a secured party is not proceeding in accordance with this chapter, a court may order or restrain collection, enforcement, or disposition of collateral on appropriate terms and conditions.
  2. Subject to subsections (c), (d), and (f), a person is liable for damages in the amount of any loss caused by a failure to comply with this chapter. Loss caused by a failure to comply may include loss resulting from the debtor's inability to obtain, or increased costs of, alternative financing.
  3. Except as otherwise provided in § 4-9-628:
    1. a person that, at the time of the failure, was a debtor, was an obligor, or held a security interest in or other lien on the collateral may recover damages under subsection (b) for its loss; and
    2. if the collateral is consumer goods, a person that was a debtor or a secondary obligor at the time a secured party failed to comply with this part may recover for that failure in any event an amount not less than the credit service charge plus ten percent (10%) of the principal amount of the obligation or the time-price differential plus ten percent (10%) of the cash price.
  4. A debtor whose deficiency is eliminated under § 4-9-626 may recover damages for the loss of any surplus. However, a debtor or secondary obligor whose deficiency is eliminated or reduced under § 4-9-626 may not otherwise recover under subsection (b) for noncompliance with the provisions of this part relating to collection, enforcement, disposition, or acceptance.
  5. In addition to any damages recoverable under subsection (b), the debtor, consumer obligor, or person named as a debtor in a filed record, as applicable, may recover five hundred dollars ($500) in each case from a person that:
    1. fails to comply with § 4-9-208;
    2. fails to comply with § 4-9-209;
    3. files a record that the person is not entitled to file under § 4-9-509(a);
    4. fails to cause the secured party of record to file or send a termination statement as required by § 4-9-513(a) or (c);
    5. fails to comply with § 4-9-616(b)(1) and whose failure is part of a pattern, or consistent with a practice, of noncompliance; or
    6. fails to comply with § 4-9-616(b)(2).
  6. A debtor or consumer obligor may recover damages under subsection (b) and, in addition, five hundred dollars ($500) in each case from a person that, without reasonable cause, fails to comply with a request under § 4-9-210. A recipient of a request under § 4-9-210 which never claimed an interest in the collateral or obligations that are the subject of a request under that section has a reasonable excuse for failure to comply with the request within the meaning of this subsection.
  7. If a secured party fails to comply with a request regarding a list of collateral or a statement of account under § 4-9-210, the secured party may claim a security interest only as shown in the list or statement included in the request as against a person that is reasonably misled by the failure.

History. Acts 2001, No. 1439, § 1.

Research References

ALR.

Remedies Available Under Revised U.C.C. § 9-625 for Secured Party's Failure to Comply with Article 9. 47 A.L.R.7th Art. 3 (2020).

Case Notes

Damages.

Where debtor was behind in payments on tractor-trailer and creditor simply obtained peaceful possession of the rig and, without any attempt to comply with the notice provisions of former § 4-9-504, swapped the tractor for another tractor and the trailer for another trailer, the debtor had the right to recover any loss caused by failure to comply, under former § 4-9-507; however, where the evidence showed that the value of the collateral at the time of repossession was less than the amount due on the debt, the failure to comply with the notice requirements did not cause the debtor any loss and he could not recover. Mayhew v. Loveless, 1 Ark. App. 69, 613 S.W.2d 118 (1981) (decision under prior law).

Letter was not the written notice contemplated in former § 4-9-505, since it was not written by the secured party, it did not notify debtor that creditor intended to retain the collateral in satisfaction of the obligation, and the secured party was not in possession of the equipment; thus, the secured party was required to dispose of the collateral and account for any surplus to the debtor under former § 4-9-504, and, where it failed to do so, the debtor was entitled to recover from the secured party under former § 4-9-507 for failure to comply. McIlroy Bank & Trust v. Seven Day Bldrs. of Ark., Inc., 1 Ark. App. 121, 613 S.W.2d 837 (1981) (decision under prior law).

When the sale is conducted in a manner not in accordance with the U.C.C., the secured party does so at his own risk; however the secured party would be entitled to keep the proceeds received as a result of the sale even though they were inadequate; but, the debtor would not owe the difference between the price received and the commercially reasonable value of the property. Harper v. Wheatley Implement Co., 278 Ark. 27, 643 S.W.2d 537 (1982) (decision under prior law).

Former § 4-9-507 is not applicable to the creditor's action to recover a deficiency judgment, but is a separate affirmative action by the debtor to recover damages. The creditor's right to a deficiency judgment is not merely subject to whether the debtor has a right to damages under former § 4-9-507, but instead depends on whether he has complied with the statutory requirements under the pre-2001 version of this chapter concerning disposition and notice. First State Bank v. Hallett, 291 Ark. 37, 722 S.W.2d 555 (1987) (decision under prior law).

4-9-626. Action in which deficiency or surplus is in issue.

  1. In an action arising from a transaction, other than a consumer transaction, in which the amount of a deficiency or surplus is in issue, the following rules apply:
    1. A secured party need not prove compliance with the provisions of this part relating to collection, enforcement, disposition, or acceptance unless the debtor or a secondary obligor places the secured party's compliance in issue.
    2. If the secured party's compliance is placed in issue, the secured party has the burden of establishing that the collection, enforcement, disposition, or acceptance was conducted in accordance with this part.
    3. Except as otherwise provided in § 4-9-628, if a secured party fails to prove that the collection, enforcement, disposition, or acceptance was conducted in accordance with the provisions of this part relating to collection, enforcement, disposition, or acceptance, the liability of a debtor or a secondary obligor for a deficiency is limited to an amount by which the sum of the secured obligation, expenses, and attorney's fees exceeds the greater of:
      1. the proceeds of the collection, enforcement, disposition, or acceptance; or
      2. the amount of proceeds that would have been realized had the noncomplying secured party proceeded in accordance with the provisions of this part relating to collection, enforcement, disposition, or acceptance.
    4. For purposes of paragraph (3)(B), the amount of proceeds that would have been realized is equal to the sum of the secured obligation, expenses, and attorney's fees unless the secured party proves that the amount is less than that sum.
    5. If a deficiency or surplus is calculated under § 4-9-615(f), the debtor or obligor has the burden of establishing that the amount of proceeds of the disposition is significantly below the range of prices that a complying disposition to a person other than the secured party, a person related to the secured party, or a secondary obligor would have brought.
  2. The limitation of the rules in subsection (a) to transactions other than consumer transactions is intended to leave to the court the determination of the proper rules in consumer transactions. The court may not infer from that limitation the nature of the proper rule in consumer transactions and may continue to apply established approaches.

History. Acts 2001, No. 1439, § 1.

Case Notes

In General.

Although Arkansas courts have yet to apply this section, the identical provision has been construed by courts in other state and federal jurisdictions to permit the secured party to rebut a presumption of no deficiency when a sale of collateral was deemed commercially unreasonable. While not binding precedent, these decisions are persuasive that the rebuttable presumption has displaced the absolute bar rule in non-consumer cases governed by a revision of U.C.C. Article 9 that includes this section. In re Knight, 544 B.R. 141 (Bankr. E.D. Ark. 2016).

4-9-627. Determination of whether conduct was commercially reasonable.

  1. The fact that a greater amount could have been obtained by a collection, enforcement, disposition, or acceptance at a different time or in a different method from that selected by the secured party is not of itself sufficient to preclude the secured party from establishing that the collection, enforcement, disposition, or acceptance was made in a commercially reasonable manner.
  2. A disposition of collateral is made in a commercially reasonable manner if the disposition is made:
    1. in the usual manner on any recognized market;
    2. at the price current in any recognized market at the time of the disposition; or
    3. otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.
  3. A collection, enforcement, disposition, or acceptance is commercially reasonable if it has been approved:
    1. in a judicial proceeding;
    2. by a bona fide creditors' committee;
    3. by a representative of creditors; or
    4. by an assignee for the benefit of creditors.
  4. Approval under subsection (c) need not be obtained, and lack of approval does not mean that the collection, enforcement, disposition, or acceptance is not commercially reasonable.

History. Acts 2001, No. 1439, § 1.

Case Notes

Commercially Reasonable Sales.

Where tractor was allegedly in poor condition when repossessed and seller which repossessed gave notice of proposed sale of tractor by six newspaper publications, mere proof that a better price could have been obtained by a sale at a different time and in a different method was insufficient to establish commercial unreasonableness under the pre-2001 version of this chapter. Goodin v. Farmers Tractor & Equip. Co., 249 Ark. 30, 458 S.W.2d 419 (1970) (decision under prior law).

The trial court erred in finding that the resale of the equipment was commercially reasonable under the pre-2001 version of this chapter, in view of the fact that the debtor was prevented from presenting evidence of commercial reasonableness of the equipment at the time of the sale, and the fact that the secured party did not give notice of the sale of the repossessed items of property. Harper v. Wheatley Implement Co., 278 Ark. 27, 643 S.W.2d 537 (1982) (decision under prior law).

Where the holder of a security interest in a repossessed airplane sold the airplane wholesale to a dealer through a trade publication in accordance with the industry practice for aircraft finance companies, the sale method was commercially reasonable under the pre-2001 version of this chapter even though the repossessor never advertised or offered the plane for sale to retail buyers. Piper Acceptance Corp. v. Yarbrough, 702 F.2d 733 (8th Cir. 1983) (decision under prior law).

Whether a sale was conducted in a commercially reasonable manner under the pre-2001 version of this chapter is a fact question to be determined from the facts of the particular case under consideration. Becknell v. Quinn, 592 F. Supp. 102 (E.D. Ark. 1983), aff'd sub nom. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984) (decision under prior law).

When a debtor proceeds against a secured party challenging the commercial reasonableness of a default sale under the pre-2001 version of this chapter, the debtor has the burden of proving the secured party's failure to proceed pursuant to the pre-2001 version of this chapter. Becknell v. Quinn, 592 F. Supp. 102 (E.D. Ark. 1983), aff'd sub nom. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984) (decision under prior law).

Debtor failed to establish that the sales were not held in a commercially reasonable manner under the pre-2001 version of this chapter. Becknell v. Quinn, 592 F. Supp. 102 (E.D. Ark. 1983), aff'd sub nom. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984) (decision under prior law).

Even if it could be said that the sales of limited partnership units were not commercially reasonable under the pre-2001 version of this chapter, debtor, after default, either waived the requirements of a commercially reasonable sale, or agreed that the sales proposed by each of the banks and the manner of making them were commercially reasonable, where neither the debtor or his attorneys, all experts, suggested any procedure other than that proposed by each of the banks, and no action was taken by either debtor or his attorneys in his behalf to question either of the sale until some months after the sale had been made. Becknell v. Quinn, 592 F. Supp. 102 (E.D. Ark. 1983), aff'd sub nom. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984) (decision under prior law).

When the debtor defends upon the ground that the secured creditor did not proceed in accordance with the provisions of the Uniform Commercial Code in disposing of repossessed collateral, the creditor has the burden of proving that he proceeded in a commercially reasonable manner; whether a sale of collateral was conducted in a commercially reasonable manner under the pre-2001 version of this chapter is essentially a factual question. Henry v. Trickey, 9 Ark. App. 47, 653 S.W.2d 138 (1983) (decision under prior law).

Whether the repossessed collateral is sold wholesale instead of resale is not necessarily determinative of commercial unreasonableness under the pre-2001 version of this chapter; any difference between the fair market value and the price actually received is ordinarily a material consideration, but this fact must be examined in light of all aspects of the sale to determine commercial reasonableness. Thrower v. Union Lincoln-Mercury, Inc., 282 Ark. 585, 670 S.W.2d 430 (1984) (decision under prior law).

The creditor did not proceed in a commercially reasonable manner under the pre-2001 version of this chapter where it retained the equipment for 19 months, sold it for $9,500 when two years before it had a value of $35,000, neglected to repair the excavator although repairs would have increased the sale price, and, most significantly, permitted its agent to use the equipment extensively, thus diminishing its value. Farmers & Merchants Bank v. Barnes, 17 Ark. App. 139, 705 S.W.2d 450 (1986) (decision under prior law).

The fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the secured party is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner under the pre-2001 version of this chapter. Jones v. Union Motor Co., 29 Ark. App. 166, 779 S.W.2d 537 (1989) (decision under prior law).

Method of Sale.

There is no doubt that the secured party is not absolutely required to proceed by public sale when disposing of repossessed collateral. Harper v. Wheatley Implement Co., 278 Ark. 27, 643 S.W.2d 537 (1982) (decision under prior law).

Value of Collateral.

The fair market value was what a willing purchaser, under no compulsion to purchase, would have paid for the limited partnership units, recognizing what he was getting, which was, by any rational view of the evidence, a probable controversy with other investors in the organization; thus, the fair market value for such units was no more than was received for them at the sale. Becknell v. Quinn, 592 F. Supp. 102 (E.D. Ark. 1983), aff'd sub nom. Becknell v. First Nat'l Bank, 740 F.2d 609 (8th Cir. 1984) (decision under prior law).

It is only when the sale of repossessed collateral is conducted according to the requirements of the Uniform Commercial Code that the amount received or bid at a sale of collateral is evidence of its true value in an action to recover a deficiency. Henry v. Trickey, 9 Ark. App. 47, 653 S.W.2d 138 (1983) (decision under prior law).

If a secured creditor sells the repossessed collateral in a commercially unreasonable manner, a presumption arises that the value of the collateral is equal to the outstanding debt; however, the secured party can still recover a deficiency upon proving that the reasonable value of the collateral was less than the debt. Henry v. Trickey, 9 Ark. App. 47, 653 S.W.2d 138 (1983); Farmers & Merchants Bank v. Barnes, 17 Ark. App. 139, 705 S.W.2d 450 (1986) (decisions under prior law).

Once the trial court properly determined the sale of a repossessed combine by a secured creditor was not commercially reasonable, the legal assumption arose that the combine was worth the amount of the debt; consequently, the creditor was entitled to a deficiency judgment only if he proved the reasonable value of the combine was less than the amount of the debt; thus, where the creditor offered no evidence as to the combine's reasonable value, he was not entitled to a deficiency judgment. Henry v. Trickey, 9 Ark. App. 47, 653 S.W.2d 138 (1983) (decision under prior law).

Where the appraiser had an interest in purchasing the equipment, he was unaware that the excavator had a new motor at the time it was sold to the debtor, and he did not start or operate the machine, the chancellor was entitled to regard his opinion with a degree of skepticism; therefore, the finding of the chancellor that the creditor failed to meet its burden of proving that the value of the excavator was less than the debt of $35,000 was not clearly against the preponderance of the evidence and a deficiency judgment was properly denied. Farmers & Merchants Bank v. Barnes, 17 Ark. App. 139, 705 S.W.2d 450 (1986) (decision under prior law).

Cited: Farmers Equip. Co. v. Miller, 252 Ark. 1092, 482 S.W.2d 805 (1972); Bawcom v. Allis-Chalmers Credit Corp., 256 Ark. 569, 508 S.W.2d 741 (1974); Hubbard v. Moore, 537 F. Supp. 126 (W.D. Ark. 1982); Everett v. Parts, Inc., 4 Ark. App. 213, 628 S.W.2d 875 (1982); Brown v. Ford, 280 Ark. 261, 658 S.W.2d 355 (1983); Stotts v. Johnson, 302 Ark. 439, 791 S.W.2d 351 (1990); Prince v. R & T Motors, Inc., 59 Ark. App. 16, 953 S.W.2d 62 (1997) (decisions under prior law).

4-9-628. Nonliability and limitation on liability of secured party — Liability of secondary obligor.

  1. Unless a secured party knows that a person is a debtor or obligor, knows the identity of the person, and knows how to communicate with the person:
    1. the secured party is not liable to the person, or to a secured party or lienholder that has filed a financing statement against the person, for failure to comply with this chapter; and
    2. the secured party's failure to comply with this chapter does not affect the liability of the person for a deficiency.
  2. A secured party is not liable because of its status as secured party:
    1. to a person that is a debtor or obligor, unless the secured party knows:
      1. that the person is a debtor or obligor;
      2. the identity of the person; and
      3. how to communicate with the person; or
    2. to a secured party or lienholder that has filed a financing statement against a person, unless the secured party knows:
      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:
    1. a debtor's representation concerning the purpose for which collateral was to be used, acquired, or held; or
    2. an obligor's representation concerning the purpose for which a secured obligation was incurred.
  4. A secured party is not liable to any person under § 4-9-625(c)(2) for its failure to comply with § 4-9-616.
  5. A secured party is not liable under § 4-9-625(c)(2) more than once with respect to any one (1) secured obligation.

History. Acts 2001, No. 1439, § 1.

Part 7 — Transition

A.C.R.C. Notes. References to “Acts 2001, No. 1439”, “this act”, and any other similar references in part 7 refer to current Chapter 9 of the Uniform Commercial Code and amendments to §§ 4-1-105(2); 4-1-201(9), (32), and (37); 4-2-103(3); 4-2-210; 4-2-326; 4-2-502; 4-2-716; 4-2A-103(3); 4-2A-303; 4-2A-307; 4-2A-309(1)(b); 4-4-210(c); 4-5-118; 4-7-503(1); 4-8-103(f); 4-8-106; 4-8-110(e); 4-8-301(a); 4-8-302; and 4-8-510 enacted by Acts 2001, No. 1439.

Publisher's Notes. For Comments regarding the Uniform Commercial Code, see Commentaries Volume A.

4-9-701. Effective date.

Acts 2001, No. 1439, takes effect on July 1, 2001.

History. Acts 2001, No. 1439, § 1.

4-9-702. Savings clause.

  1. Except as otherwise provided in this part, Acts 2001, No. 1439, applies to a transaction or lien within its scope, even if the transaction or lien was entered into or created before this act takes effect on July 1, 2001.
  2. Except as otherwise provided in subsection (c) and §§ 4-9-703 — 4-9-709:
    1. transactions and liens that were not governed by former Chapter 9, were validly entered into or created before this act takes effect, and would be subject to this act if they had been entered into or created after this act takes effect, and the rights, duties, and interests flowing from those transactions and liens remain valid after this act takes effect; and
    2. the transactions and liens may be terminated, completed, consummated, and enforced as required or permitted by this act or by the law that otherwise would apply if this act had not taken effect.
  3. This act does not affect an action, case, or proceeding commenced before this act takes effect.

History. Acts 2001, No. 1439, § 1.

4-9-703. Security interest perfected before effective date.

  1. A security interest that is enforceable immediately before Acts 2001, No. 1439, takes effect on July 1, 2001, and would have priority over the rights of a person that becomes a lien creditor at that time is a perfected security interest under this act if, when this act takes effect, the applicable requirements for enforceability and perfection under this act are satisfied without further action.
  2. Except as otherwise provided in § 4-9-705, if, immediately before this act takes effect, a security interest is enforceable and would have priority over the rights of a person that becomes a lien creditor at that time, but the applicable requirements for enforceability or perfection under this act are not satisfied when this act takes effect, the security interest:
    1. is a perfected security interest for one (1) year after this act takes effect;
    2. remains enforceable thereafter only if the security interest becomes enforceable under § 4-9-203 before the year expires; and
    3. remains perfected thereafter only if the applicable requirements for perfection under this act are satisfied before the year expires.
  3. Notwithstanding any provision of this act, any financing statement referencing a transmitting utility as the debtor, which was sufficient for perfection of a security interest under former Chapter 9 under the Transmitting Utility Act, § 4-19-101 et seq., and which was deemed a continuous filing before the effective date of this act, shall be sufficient for perfection of a security interest and maintain such continuously perfected status after the effective date of this act.

History. Acts 2001, No. 1439, § 1.

4-9-704. Security interest unperfected before effective date.

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

  1. remains an enforceable security interest for one (1) year after this act takes effect;
  2. remains enforceable thereafter if the security interest becomes enforceable under § 4-9-203 when this act takes effect or within one (1) year thereafter; and
  3. becomes perfected:
    1. without further action, when this act takes effect if the applicable requirements for perfection under this act are satisfied before or at that time; or
    2. when the applicable requirements for perfection are satisfied if the requirements are satisfied after that time.

History. Acts 2001, No. 1439, § 1.

4-9-705. Effectiveness of action taken before effective date.

  1. If action, other than the filing of a financing statement, is taken before this act takes effect on July 1, 2001, and the action would have resulted in priority of a security interest over the rights of a person that becomes a lien creditor had the security interest become enforceable before this act takes effect, the action is effective to perfect a security interest that attaches under this act within one year after this act takes effect. An attached security interest becomes unperfected one (1) year after this act takes effect unless the security interest becomes a perfected security interest under this act before the expiration of that period.
  2. The filing of a financing statement before this act takes effect is effective to perfect a security interest to the extent the filing would satisfy the applicable requirements for perfection under this act.
  3. This act does not render ineffective an effective financing statement that, before this act takes effect, is filed and satisfies the applicable requirements for perfection under the law of the jurisdiction governing perfection as provided in former § 4-9-103 [repealed]. However, except as otherwise provided in subsections (d) and (e) and § 4-9-706, the financing statement ceases to be effective at the earlier of:
    1. the time the financing statement would have ceased to be effective under the law of the jurisdiction in which it is filed; or
    2. June 30, 2006.
  4. The filing of a continuation statement after this act takes effect does not continue the effectiveness of the financing statement filed before this act takes effect. However, upon the timely filing of a continuation statement after this act takes effect and in accordance with the law of the jurisdiction governing perfection as provided in part 3, the effectiveness of a financing statement filed in the same office in that jurisdiction before this act takes effect continues for the period provided by the law of that jurisdiction.
  5. Subdivision (c)(2) applies to a financing statement that, before this act takes effect, is filed against a transmitting utility and satisfies the applicable requirements for perfection under the law of the jurisdiction governing perfection as provided in former § 4-9-103 [repealed] only to the extent that part 3 provides that the law of a jurisdiction other than the jurisdiction in which the financing statement is filed governs perfection of a security interest in collateral covered by the financing statement.
  6. A financing statement that includes a financing statement filed before this act takes effect and a continuation statement filed after this act takes effect is effective only to the extent that it satisfies the requirements of part 5 for an initial financing statement.

History. Acts 2001, No. 1439, § 1.

4-9-706. When initial financing statement suffices to continue effectiveness of financing statement.

  1. The filing of an initial financing statement in the office specified in § 4-9-501 continues the effectiveness of a financing statement filed before this act takes effect on July 1, 2001, if:
    1. the filing of an initial financing statement in that office would be effective to perfect a security interest under this act;
    2. the pre-effective-date financing statement was filed in an office in another state or another office in this State; and
    3. the initial financing statement satisfies subsection (c).
  2. The filing of an initial financing statement under subsection (a) continues the effectiveness of the pre-effective-date financing statement:
    1. if the initial financing statement is filed before this act takes effect, for the period provided in former § 4-9-403 with respect to a financing statement; and
    2. if the initial financing statement is filed after this act takes effect, for the period provided in § 4-9-515 with respect to an initial financing statement.
  3. To be effective for purposes of subsection (a), an initial financing statement must:
    1. satisfy the requirements of part 5 for an initial financing statement;
    2. identify the pre-effective-date financing statement by indicating the office in which the financing statement was filed and providing the dates of filing and file numbers, if any, of the financing statement and of the most recent continuation statement filed with respect to the financing statement; and
    3. indicate that the pre-effective-date financing statement remains effective.

History. Acts 2001, No. 1439, § 1.

4-9-707. Amendment of pre-effective-date financing statement.

  1. In this section, “pre-effective-date financing statement” means a financing statement filed before this act takes effect on July 1, 2001.
  2. After this act takes effect, a person may add or delete collateral covered by, continue or terminate the effectiveness of, or otherwise amend the information provided in, a pre-effective-date financing statement only in accordance with the law of the jurisdiction governing perfection as provided in part 3. However, the effectiveness of a pre-effective-date financing statement also may be terminated in accordance with the law of the jurisdiction in which the financing statement is filed.
  3. Except as otherwise provided in subsection (d), if the law of this state governs perfection of a security interest, the information in a pre-effective-date financing statement may be amended after this act takes effect only if:
    1. the pre-effective-date financing statement and an amendment are filed in the office specified in § 4-9-501;
    2. an amendment is filed in the office specified in § 4-9-501 concurrently with, or after the filing in that office of, an initial financing statement that satisfies § 4-9-706(c); or
    3. an initial financing statement that provides the information as amended and satisfies § 4-9-706(c) is filed in the office specified in § 4-9-501.
  4. If the law of this state governs perfection of a security interest, the effectiveness of a pre-effective-date financing statement may be continued only under § 4-9-705(d) and (f) or § 4-9-706.
  5. Whether or not the law of this state governs perfection of a security interest, the effectiveness of a pre-effective-date financing statement filed in this state may be terminated after this act takes effect by filing a termination statement in the office in which the pre-effective-date financing statement is filed, unless an initial financing statement that satisfies § 4-9-706(c) has been filed in the office specified by the law of the jurisdiction governing perfection as provided in part 3 as the office in which to file a financing statement.

History. Acts 2001, No. 1439, § 1.

4-9-708. Persons entitled to file initial financing statement or continuation statement.

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

  1. the secured party of record authorizes the filing; and
  2. the filing is necessary under this part:
    1. to continue the effectiveness of a financing statement filed before this act takes effect on July 1, 2001; or
    2. to perfect or continue the perfection of a security interest.

History. Acts 2001, No. 1439, § 1.

4-9-709. Priority.

  1. This act determines the priority of conflicting claims to collateral. However, if the relative priorities of the claims were established before this act takes effect on July 1, 2001, former Chapter 9 determines priority.
  2. For purposes of § 4-9-322(a), the priority of a security interest that becomes enforceable under § 4-9-203 dates from the time this act takes effect if the security interest is perfected under this act by the filing of a financing statement before this act takes effect which would not have been effective to perfect the security interest under former Chapter 9. This subsection does not apply to conflicting security interests each of which is perfected by the filing of such a financing statement.

History. Acts 2001, No. 1439, § 1.

Part 8 — Transition Provisions for 2010 Amendments

Effective Dates. Acts 2013, No. 138, § 24: July 1, 2013. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present Article 9 of the Uniform Commercial Code which exists in all fifty states, the District of Columbia, and Puerto Rico is in need of important revisions to better identify debtors and secured collateral, to promote the efficiency of electronic filing, to reduce cost and time related to identifying debtors, and to resolve conflicting case law. The revisions contained in this Act will bring greater certainty to financing transactions, and will reduce both their cost and the cost of credit. Because current Article 9 is uniform throughout the United States, it becomes essential that the effective date for the substantial revisions contemplated by this Act be the same in every state. If Arkansas and all of the other states and territories do not act in concert and enact a common effective date, severe complications will arise. Therefore, the rules for filing must be uniform at all times. Because the several states are proposing that the revised Article 9 become effective on July 1, 2013 an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect on July 1, 2013.”

4-9-801. Effective date.

This act takes effect on July 1, 2013.

History. Acts 2013, No. 138, § 23.

Meaning of “this act”. Acts 2013, No. 138, codified as §§ 4-9-102, 4-9-105, 4-9-307, 4-9-311, 4-9-316, 4-9-317, 4-9-326, 4-9-406, 4-9-408, 4-9-502, 4-9-503, 4-9-507, 4-9-515, 4-9-516, 4-9-518, 4-9-521, 4-9-607, 4-9-8014-9-809.

4-9-802. Savings clause.

  1. Except as otherwise provided in this part, this act applies to a transaction or lien within its scope, even if the transaction or lien was entered into or created before this act takes effect.
  2. This act does not affect an action, case, or proceeding commenced before this act takes effect.

History. Acts 2013, No. 138, § 23.

Meaning of “this act”. See note to § 4-9-801.

4-9-803. Security interest perfected before effective date.

  1. A security interest that is a perfected security interest immediately before this act takes effect is a perfected security interest under this chapter as amended by this act if, when this act takes effect, the applicable requirements for attachment and perfection under this chapter as amended by this act are satisfied without further action.
  2. Except as otherwise provided in § 4-9-805, if, immediately before this act takes effect, a security interest is a perfected security interest, but the applicable requirements for perfection under this chapter as amended by this act are not satisfied when this act takes effect, the security interest remains perfected thereafter only if the applicable requirements for perfection under this chapter as amended by this act are satisfied within one year after this act takes effect.

History. Acts 2013, No. 138, § 23.

Meaning of “this act”. See note to § 4-9-801.

4-9-804. Security interest unperfected before effective date.

A security interest that is an unperfected security interest immediately before this act takes effect becomes a perfected security interest:

  1. without further action, when this act takes effect, if the applicable requirements for perfection under this chapter as amended by this act are satisfied before or at that time; or
  2. when the applicable requirements for perfection are satisfied if the requirements are satisfied after that time.

History. Acts 2013, No. 138, § 23.

Meaning of “this act”. See note to § 4-9-801.

4-9-805. Effectiveness of action taken before effective date.

  1. The filing of a financing statement before this act takes effect is effective to perfect a security interest to the extent the filing would satisfy the applicable requirements for perfection under this chapter as amended by this act.
  2. This act does not render ineffective an effective financing statement that, before this act takes effect, is filed and satisfies the applicable requirements for perfection under the law of the jurisdiction governing perfection as provided under the jurisdiction's Article 9 to its Uniform Commercial Code before the jurisdiction's amendments contained in this act. However, except as otherwise provided in subsections (c) and (d) and § 4-9-806, the financing statement ceases to be effective:
    1. if the financing statement is filed in this State, at the time the financing statement would have ceased to be effective had this act not taken effect; or
    2. if the financing statement is filed in another jurisdiction, at the earlier of:
      1. the time the financing statement would have ceased to be effective under the law of that jurisdiction; or
      2. June 30, 2018.
  3. The filing of a continuation statement after this act takes effect does not continue the effectiveness of a financing statement filed before this act takes effect. However, upon the timely filing of a continuation statement after this act takes effect and in accordance with the law of the jurisdiction governing perfection as provided in Article 9 as amended by this act, the effectiveness of a financing statement filed in the same office in that jurisdiction before this act takes effect continues for the period provided by the law of that jurisdiction.
  4. Subdivision (b)(2)(B) applies to a financing statement that, before this act takes effect, is filed against a transmitting utility and satisfies the applicable requirements for perfection under the law of the jurisdiction governing perfection as provided in the jurisdiction's Article 9 to its Uniform Commercial Code before the jurisdiction's amendments contained in this act only to the extent that the jurisdiction's Article 9 to its Uniform Commercial Code before the jurisdiction's amendments contained in this act provides that the law of a jurisdiction other than the jurisdiction in which the financing statement is filed governs perfection of a security interest in collateral covered by the financing statement.
  5. A financing statement that includes a financing statement filed before this act takes effect and a continuation statement filed after this act takes effect is effective only to the extent that it satisfies the requirements of part 5 as amended by this act for an initial financing statement. A financing statement that indicates that the debtor is a decedent's estate indicates that the collateral is being administered by a personal representative within the meaning of § 4-9-503(a)(2) as amended by this act. A financing statement that indicates that the debtor is a trust or is a trustee acting with respect to property held in trust indicates that the collateral is held in a trust within the meaning of § 4-9-503(a)(3) as amended by this act.

History. Acts 2013, No. 138, § 23; 2015, No. 1160, § 1.

Amendments. The 2015 amendment substituted “Article 9 as amended by this act” for “the jurisdiction’s Article 9 to its Uniform Commercial Code before the jurisdiction’s amendments contained in this act” in the second sentence of (c).

Meaning of “this act”. See note to § 4-9-801.

4-9-806. When initial financing statement suffices to continue effectiveness of financing statement.

  1. The filing of an initial financing statement in the office specified in § 4-9-501 continues the effectiveness of a financing statement filed before this act takes effect if:
    1. the filing of an initial financing statement in that office would be effective to perfect a security interest under this chapter as amended by this act;
    2. the pre-effective-date financing statement was filed in an office in another state; and
    3. the initial financing statement satisfies subsection (c).
  2. The filing of an initial financing statement under subsection (a) continues the effectiveness of the pre-effective-date financing statement:
    1. if the initial financing statement is filed before this act takes effect, for the period provided in § 4-9-515 with respect to an initial financing statement; and
    2. if the initial financing statement is filed after this act takes effect, for the period provided in § 4-9-515 as amended by this act with respect to an initial financing statement.
  3. To be effective for purposes of subsection (a), an initial financing statement must:
    1. satisfy the requirements of part 5 as amended by this act for an initial financing statement;
    2. identify the pre-effective-date financing statement by indicating the office in which the financing statement was filed and providing the dates of filing and file numbers, if any, of the financing statement and of the most recent continuation statement filed with respect to the financing statement; and
    3. indicate that the pre-effective-date financing statement remains effective.

History. Acts 2013, No. 138, § 23.

Meaning of “this act”. See note to § 4-9-801.

4-9-807. Amendment of pre-effective-date financing statement.

  1. In this section, “pre-effective-date financing statement” means a financing statement filed before this act takes effect.
  2. After this act takes effect, a person may add or delete collateral covered by, continue or terminate the effectiveness of, or otherwise amend the information provided in, a pre-effective-date financing statement only in accordance with the law of the jurisdiction governing perfection as provided in Chapter 9 as amended by this act. However, the effectiveness of a pre-effective-date financing statement also may be terminated in accordance with the law of the jurisdiction in which the financing statement is filed.
  3. Except as otherwise provided in subsection (d), if the law of this State governs perfection of a security interest, the information in a pre-effective-date financing statement may be amended after this act takes effect only if:
    1. the pre-effective-date financing statement and an amendment are filed in the office specified in § 4-9-501;
    2. an amendment is filed in the office specified in § 4-9-501 concurrently with, or after the filing in that office of, an initial financing statement that satisfies § 4-9-806(c); or
    3. an initial financing statement that provides the information as amended and satisfies § 4-9-806(c) is filed in the office specified in § 4-9-501.
  4. If the law of this state governs perfection of a security interest, the effectiveness of a pre-effective-date financing statement may be continued only under § 4-9-805(c) and (e) or § 4-9-806.
  5. Whether or not the law of this state governs perfection of a security interest, the effectiveness of a pre-effective-date financing statement filed in this state may be terminated after this act takes effect by filing a termination statement in the office in which the pre-effective-date financing statement is filed, unless an initial financing statement that satisfies § 4-9-806(c) has been filed in the office specified by the law of the jurisdiction governing perfection as provided in Chapter 9 as amended by this act as the office in which to file a financing statement.

History. Acts 2013, No. 138, § 23.

Meaning of “this act”. See note to § 4-9-801.

4-9-808. Persons entitled to file initial financing statement or continuation statement.

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

  1. the secured party of record authorizes the filing; and
  2. the filing is necessary under this part:
    1. to continue the effectiveness of a financing statement filed before this act takes effect; or
    2. to perfect or continue the perfection of a security interest.

History. Acts 2013, No. 138, § 23.

Meaning of “this act”. See note to § 4-9-801.

4-9-809. Priority.

This act determines the priority of conflicting claims to collateral. However, if the relative priorities of the claims were established before this act takes effect, Chapter 9 as it existed before its amendment by this act determines priority.

History. Acts 2013, No. 138, § 23.

Meaning of “this act”. See note to § 4-9-801.

Chapter 10 Effective Date and Repealer

4-10-101. Effective date.

This subtitle shall become effective at midnight on December 31, 1961.

History. Acts 1961, No. 185, § 10-101; A.S.A. 1947, § 85-1-101n.

4-10-102. Specific repealer and amendments — Provision for transition.

  1. The following statutes are hereby repealed:
  2. All the provisions of this subtitle shall apply to the issuance, transfer, and negotiation of and other dealings with warehouse certificates under Acts 1935, No. 281 [repealed] and warehouse receipts under Acts 1935, No. 83 [repealed], but Acts 1935, No. 281 [repealed] and Acts 1935, No. 83 [repealed] are not repealed except insofar as this subtitle is applicable to such certificates and receipts.
  3. In the Arkansas Statutes, all cross-references to the Uniform Negotiable Instruments Law [repealed], the Uniform Sales Act [repealed], the Uniform Stock Transfer Act [repealed], the Uniform Warehouse Receipts Act [repealed], the Uniform Bills of Lading Act [repealed], and the Uniform Trust Receipts Act [repealed], or to any particular section or sections thereof, shall hereafter be read as references to this subtitle and the appropriate sections hereof.
  4. Transactions validly entered into before the effective date specified in § 4-10-101 of this subtitle, and the rights, duties, and interests flowing from them, remain valid thereafter and may be terminated, completed, consummated, or enforced as required or permitted by any statute or other law amended or repealed by this subtitle as though such repeal or amendment had not occurred.

Arkansas Statutes (1957 Repl.) Sections 68-101 to 68-507, inclusive; Section 68-804; Sections 68-901 to 68-909, inclusive; Sections 68-1101 to 68-1143, inclusive, and 68-1151 to 68-1155, inclusive; Sections 68-1201 to 68-1249, inclusive; and 68-1256 to 68-1258, inclusive; Sections 68-1401 to 68-1480, inclusive; Sections 68-1501 to 68-1504, inclusive;

Arkansas Statutes (1959 Cum. Supp.) 68-1259, being Act 265 of 1959, Section 1; Arkansas Statutes (1959 Cum. Supp.) Sections 68-1701 to 68-1719, inclusive, being Act 63 of 1959;

Arkansas Statutes (1957 Repl.) Sections 64-214 and 64-301 to 64-325, inclusive;

Arkansas Statutes (1957 Repl.) Sections 67-532, 67-533, 67-534, 67-535, 67-537, 67-538, 67-539, and 67-544 to 67-546, inclusive;

Arkansas Statutes (1956 Repl.) Sections 16-201 to 16-207, inclusive; Arkansas Statutes (1947) Sections 51-1003, 51-1004, 51-1005, 51-1006, 51-1007 to 51-1009; Arkansas Statutes (1957 Repl.) Sections 73-734 and 77-1228.

History. Acts 1961, No. 185, § 10-102(1), (4), (5), and (6); A.S.A. 1947, §§ 85-1-101n, 85-1-108, 85-1-109.

Publisher's Notes. Subsections (2) and (3) of Acts 1961, No. 185, § 10-102, amended §§ 18-40-101 and 18-40-102, respectively, and are codified in those sections.

Case Notes

Preexisting Interests.

Although former § 4-9-313 (see now § 4-9-334) makes marked changes in the law of fixtures, where deed of trust was entered into and recorded prior to the effective date of this subtitle, its priority under former law was saved by this section. Wilson v. Prudential Ins. Co. of Am., 239 Ark. 1071, 396 S.W.2d 300 (1965).

4-10-103. General repealer.

Except as provided in the following section, all acts and parts of acts inconsistent with this subtitle are hereby repealed.

History. Acts 1961, No. 185, § 10-103; A.S.A. 1947, § 85-1-101n.

4-10-104. [Repealed.]

Publisher's Notes. This section, concerning laws not repealed, was repealed by Acts 2007, No. 342, § 39. The section was derived from Acts 1961, No. 185, § 10-104; A.S.A. 1947, § 85-7-106.

Chapters 11-15 [Reserved.]

[Reserved.]

Subtitle 2. Miscellaneous Commercial Law Provisions

Chapter 16 Alternative Nicotine Products Distribution to Minors Protection Act

[Repealed.]

Effective Dates. Acts 2015, No. 1235, § 34: Emergency clause failed to pass. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the state must be able to plan and give effective notice for the new comprehensive permits created by this act; that it is essential to the operation of Arkansas Tobacco Control and the tobacco, vapor product, and alternative nicotine product industry that this act be effective on the renewal date for permits issued by Arkansas Tobacco Control to ensure proper funding for the enforcement of the new regulations and requirements of this act; that a delay in the effectiveness of this act after the renewal date of permits and regulations issued by Arkansas Tobacco Control may cause irreparable harm upon the proper administration and provision of essential governmental programs; and that this act is necessary to ensure that the industry and the citizens of Arkansas are provided guidance regarding permits for vapor products and alternative nicotine products. Therefore, an emergency is declared to exist, and this act being necessary for the preservation of the public peace, health, and safety shall become effective on May 1, 2015.”

4-16-101. [Repealed.]

Publisher's Notes. This section, concerning the Alternative Nicotine Products Distribution to Minors Protection Act, was repealed by Acts 2015, No. 1235, § 31. The section was derived from Acts 2013, No. 1188, § 1.

For current law, see § 5-27-227.

Chapter 17 Currency

Research References

Am. Jur. 53A Am. Jur. 2d, Money, § 1 et seq.

4-17-101. Legal tender.

All accounts and other computations of money in the treasury and other public offices, whether state or local, and all accounts arising from proceedings in courts of justice, shall be kept and made out in the money account of the United States, that is to say, in dollars or units, dimes or tenths, cents or hundredths, mills or thousandths: a dime being the tenth part of a dollar; a cent, the hundredth part of a dollar; and a mill, the thousandth part of a dollar.

History. Rev. Stat., ch. 100, § 1; C. & M. Dig., § 7350; Pope's Dig., § 9389; A.S.A. 1947, § 68-601.

4-17-102. Notes, tickets, etc. — Creation or circulation as currency by individuals unlawful.

  1. No person unauthorized by law shall intentionally create or put in circulation, as a circulating medium, any note, bill, bond, check, or ticket, purporting that any money or bank notes will be paid to the receiver, holder, or bearer, or that it will be received in payment of debts or to be used as a currency or medium of trade in lieu of money.
  2. If any person issues, puts into circulation, signs, countersigns, or indorses any such note, bill, bond, check, or ticket, he or she shall be indicted, and upon conviction shall be fined not less than fifty dollars ($50.00) nor more than three hundred dollars ($300) and shall be imprisoned not exceeding twelve (12) months.
  3. If any person or company vends, passes, receives, or offers in payment any such note, bill, bond, check, or ticket, the offender shall forfeit the sum of fifty dollars ($50.00), to be recovered by a civil action, with costs to the use of any person who will sue for the same before any justice of the peace of the county in which the offending party may be found.

History. Rev. Stat., ch. 119, §§ 1-3; C. & M. Dig., §§ 1011-1013; Pope's Dig., §§ 1220-1222; A.S.A. 1947, §§ 68-701 — 68-703.

Publisher's Notes. This section may be obsolete.

Amendment 80 to the Arkansas Constitution, adopted by voter referendum and effective July 1, 2001, established circuit courts as the trial courts of original jurisdiction of all justiciable matters not otherwise assigned pursuant to the Constitution and specifically provided that “jurisdiction conferred on Circuit Courts established by this Amendment includes all matter previously cognizable by Circuit, Chancery, Probate and Juvenile Courts. …”

Case Notes

Applicability.

This section does not apply to checks issued by employer to employee and payable at former's store. Martin-Alexander Lumber Co. v. Johnson, 70 Ark. 215, 66 S.W. 924 (1902).

Corporations.

“Persons” includes corporations. Van Horne v. State, 5 Ark. 349 (1843).

4-17-103. Notes, tickets, etc. — Issuance by local subdivisions and corporations unlawful.

  1. It shall not be lawful for any city, town, or corporation whatever within the State of Arkansas to issue small bills or notes, commonly denominated change tickets, or shinplasters, unless specifically authorized by law.
  2. All persons, officers of the city, town, or corporation, or others, whose names shall be affixed to any such bills, notes, change tickets, or shinplasters issued in violation of this section shall be individually responsible for the same.
  3. The holders of any such bill, note, change ticket, or shinplaster issued in violation of this section may sue for and recover in gold and silver the amount for which they purport to be payable, from the individuals whose names shall be affixed thereto, before any justice of the peace residing in the city, town, or county in which the same may have been issued.

History. Acts 1838, §§ 1-3, p. 13; C. & M. Dig., §§ 1014-1016; Pope's Dig., §§ 1223-1225; A.S.A. 1947, §§ 68-704 — 68-706.

Publisher's Notes. This section may be obsolete.

Amendment 80 to the Arkansas Constitution, adopted by voter referendum and effective July 1, 2001, established circuit courts as the trial courts of original jurisdiction of all justiciable matters not otherwise assigned pursuant to the Constitution and specifically provided that “jurisdiction conferred on Circuit Courts established by this Amendment includes all matter previously cognizable by Circuit, Chancery, Probate and Juvenile Courts. …”

Case Notes

Constitutionality.

Former provision of this section making the decision of the justice of the peace final was unconstitutional. Ex parte Anthony, 5 Ark. 358 (1844), overruled on other grounds, Carnall v. Crawford County, 11 Ark. 604 (1851); Ex parte Marr, 12 Ark.84 (1851).

Authority to Issue.

No city in the state has authority to issue bills, bonds, or notes intended to circulate as money and a provision in a city charter empowering the city to pay bonds in payment of or as security for debts does not confer authority to issue bills, bonds, or notes to circulate as money. Jones v. City of Little Rock, 25 Ark. 301 (1868).

Forgery.

Issues of change tickets are not void or even voidable and person may be convicted of forging them. Van Horne v. State, 5 Ark. 349 (1843).

Illegal Issuance.

If a city issues its obligations in an illegal form, it may bind itself by bonds legally issued to the holder of notes in lieu thereof. Little Rock v. National Bank, 98 U.S. 308, 25 L. Ed. 108 (1878).

City is not liable on notes issued in violation of this section. Lindsey v. Rottaken, 32 Ark. 619 (1878).

The officers of any municipal corporation issuing illegal paper whose names shall be affixed thereon are individually liable thereon but no liability is imposed on the corporation. Lindsey v. Rottaken, 32 Ark. 619 (1878).

Recovery.

Change tickets issued in violation of law may be worthless, so that no action can be maintained on them and yet be capable of being received in evidence in suit for recovery of debt for which they were given. Iron Mountain & Helena R.R. v. Stansell, 43 Ark. 275 (1884).

4-17-104. Notes, tickets, etc. — Actions.

  1. The holder or owner of any change ticket, bill, or small note issued for the purpose of change, or otherwise, shall have the right to sue the drawer, issuer, or endorser of the change ticket or tickets, bill or bills, or small note or notes before any justice of the peace in this state.
  2. The justice of the peace before whom any suit may be brought under the provisions of this section, in all cases where he or she is satisfied that the defendant in the suit did draw, issue, sign, or endorse the change ticket, bill, or small note sued on and that the same is not paid, forthwith shall give judgment for the plaintiff for the amount of the change ticket, bill, or note sued on and shall forthwith grant the plaintiff an execution on the judgment if the plaintiff requires the execution.
  3. Any condition specified or set forth in any change ticket, bill, or note sued on that payment will be made when the sum of five dollars ($5.00) is presented shall not be a bar to any plaintiff obtaining a judgment on any change ticket, bill, or small note; however, the justice of the peace shall give judgment for the amount of the change ticket, bill, or small note sued on.

History. Rev. Stat., ch. 24, §§ 1-3; C. & M. Dig., §§ 1008-1010; Pope's Dig., §§ 1217-1219; A.S.A. 1947, §§ 68-709 — 68-711.

Publisher's Notes. This section may be obsolete.

Amendment 80 to the Arkansas Constitution, adopted by voter referendum and effective July 1, 2001, established circuit courts as the trial courts of original jurisdiction of all justiciable matters not otherwise assigned pursuant to the Constitution and specifically provided that “jurisdiction conferred on Circuit Courts established by this Amendment includes all matter previously cognizable by Circuit, Chancery, Probate and Juvenile Courts. …”

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

Chapter 18 Weights and Measures

Research References

Am. Jur. 79 Am. Jur. 2d, Wts. & Meas., § 1 et seq.

C.J.S. 94 C.J.S., Wts. & Meas., § 1 et seq.

Subchapter 1 — General Provisions

[Repealed.]

Effective Dates. Acts 2005, No. 914, § 8: Mar. 18, 2005. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the Arkansas Bureau of Standards of the State Plant Board performs valuable services for the consumers of the State of Arkansas; that the current law pertaining to weights and measures contains outdated and superseded language which hinders interpretation and enforcement by the Arkansas Bureau of Standards; and that these revisions are necessary to ensure the proper enforcement of weights and measures standards in the State of Arkansas. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

4-18-101 — 4-18-107. [Repealed.]

Publisher's Notes. These sections, concerning goods to weigh as marked — penalty; false or short weights and measures — penalty; fruit and commodities — packing, selling, pledging, etc., with fraudulent intent — penalty; millers to keep half-bushel measure and toll dishes; legal weight of bushel of specific commodities; bushel of apples — what constitutes; and “cord” defined, were repealed by Acts 2005, No. 914, § 6. The sections were derived from the following sources:

4-18-101. Acts 1913, No. 252, § 5; C. & M. Dig., § 10486; Pope's Dig., § 14504; A.S.A. 1947, § 79-112; Acts 2005, No. 1994, § 34.

4-18-102. Acts 1911, No. 283, § 1; C. & M. Dig., § 10489; Pope's Dig., § 14507; A.S.A. 1947, § 79-116; Acts 2005, No. 1994, § 34.

4-18-103. Acts 1911, No. 283, §§ 2, 3; C. & M. Dig., §§ 10490, 10491; Pope's Dig., §§ 14508, 14509; A.S.A. 1947, §§ 79-117, 79-118; Acts 2005, No. 1994, § 338.

4-18-104. Rev. Stat., ch. 99, §§ 9, 10; C. & M. Dig., §§ 7246, 7247; A.S.A. 1947, §§ 79-107, 79-108.

4-18-105. Acts 1887, No. 97, § 1, p. 191; C. & M. Dig., § 10480; Pope's Dig., § 14498; Acts 1953, No. 342, § 1; A.S.A. 1947, §§ 79-113, 79-126.

4-18-106. Acts 1903, No. 91, §§ 1, 2, p. 156; C. & M. Dig., § 10479; Pope's Dig., § 14497; A.S.A. 1947, §§ 79-114, 79-115; Acts 2005, No. 1994, § 35.

4-18-107. Acts 1939, No. 57, § 6; A.S.A. 1947, § 79-124.

Former §§ 4-18-101 and 4-18-102 were also amended by Acts 2005, No. 1994, § 34 which were superseded by this repeal.

Former § 4-18-103 was also amended by Acts 2005, No. 1994, § 338 which was superseded by this repeal.

Former § 4-18-106 was also amended by Acts 2005, No. 1994, § 35 which was superseded by this repeal.

4-18-108, 4-18-109. [Repealed.]

Publisher's Notes. These sections, concerning measurement of sawlogs and timber, were repealed by Acts 2003, No. 1049, § 1. The sections were derived from the following sources:

4-18-108. Acts 1901, No. 184, §§ 1, 2, p. 338; C. & M. Dig., §§ 6994, 10481; Pope's Dig., §§ 8974, 14499; A.S.A. 1947, §§ 79-119, 79-120.

4-18-109. Acts 1943, No. 262, §§ 1-3; A.S.A. 1947, §§ 79-121 — 79-123.

4-18-110. [Repealed.]

Publisher's Notes. This section, concerning cisterns and barrel capacity, was repealed by Acts 2005, No. 914, § 6. The section was derived from Acts 1885, No. 49, § 1, p. 54; C. & M. Dig., § 10478; Pope's Dig., § 14496; A.S.A. 1947, § 79-125.

Subchapter 2 — Standards of Weights and Measures

[Repealed.]

Publisher's Notes. Acts 1993, Nos. 610 and 624, § 1, provided:

“The Arkansas Bureau of Standards, created by Act 482 of 1963, as amended, the same being A.C.A. 4-18-201 et seq., and its functions, powers, duties, assets, properties, and appropriations are transferred by a type 2 transfer [see § 25-2-105] to the State Plant Board.”

Effective Dates. Acts 2005, No. 890, § 3: Mar. 16, 2005. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the state is one (1) of only six (6) in the nation which does not assess fees for certain tests and inspections; that recent reductions of the budget of the State Plant Board has complicated the board's efforts to protect the people of the State of Arkansas from products which violate weights and measures law; and that revenue garnered from fees assessed for certain tests and inspections would aid the operations of the State Plant Board, allow the board to be competitive with the practices of other states, and enhance its ability to protect Arkansas consumers from products that violate weights and measures law. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Acts 2005, No. 914, § 8: Mar. 18, 2005. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the Arkansas Bureau of Standards of the State Plant Board performs valuable services for the consumers of the State of Arkansas; that the current law pertaining to weights and measures contains outdated and superseded language which hinders interpretation and enforcement by the Arkansas Bureau of Standards; and that these revisions are necessary to ensure the proper enforcement of weights and measures standards in the State of Arkansas. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Research References

Ark. L. Rev.

The Southern Pulpcutter and the “Short Stick”: The Mississippi Uniform Pulpwood Scaling and Practices Act, 38 Ark. L. Rev. 359.

4-18-201 — 4-18-231. [Repealed.]

Publisher's Notes. This subchapter was repealed by Acts 2005, No. 914, § 7. The subchapter was derived from the following sources:

4-18-201. Acts 1963, No. 482, § 36; A.S.A. 1947, § 79-234.

4-18-202. Acts 1963, No. 482, §§ 1, 3, 24; A.S.A. 1947, §§ 79-201, 79-203, 79-224; 2003, No. 112, § 2.

4-18-203. Acts 1963, No. 482, § 29; A.S.A. 1947, § 79-229; Acts 1995, No. 1304, § 1; 2005, No. 1994, § 212.

4-18-204. Acts 1963, No. 482, §§ 6, 8; 1967, No. 157, §§ 1, 2; A.S.A. 1947, §§ 79-206, 79-208.

4-18-205. Acts 1963, No. 482, § 30; A.S.A. 1947, § 79-230.

4-18-206. Acts 1963, No. 482, § 32; A.S.A. 1947, § 79-232.

4-18-207. Acts 1963, No. 482, § 31; A.S.A. 1947, § 79-231.

4-18-208. Acts 1963, No. 482, §§ 8, 16; 1967, No. 157, § 2; 1983, No. 691, § 14; A.S.A. 1947, §§ 79-206.1, 79-208, 79-216.

4-18-209. Acts 1963, No. 482, §§ 6, 7, 17; 1967, No. 157, § 1; A.S.A. 1947, §§ 79-206, 79-207, 79-217.

4-18-210. Acts 1963, No. 482, § 27; A.S.A. 1947, § 79-227; Acts 1995, No. 1304, § 2; 2005, No. 1994, § 339.

4-18-211. Acts 1963, No. 482, § 28; A.S.A. 1947, § 79-228; Acts 1995, No. 1304, § 3; 2005, No. 1994, § 213.

4-18-212. Acts 1963, No. 482, § 2; A.S.A. 1947, § 79-202.

4-18-213. Acts 1963, No. 482, § 26; A.S.A. 1947, § 79-226.

4-18-214. Acts 1963, No. 482, § 4; A.S.A. 1947, § 79-204.

4-18-215. Acts 1963, No. 482, § 5; A.S.A. 1947, § 79-205.

4-18-216. Acts 1963, No. 482, § 9; 1967, No. 157, § 3; A.S.A. 1947, § 79-209; Acts 1999, No. 1504, § 1; 2001, No. 586, § 14; 2001, No. 587, § 29.

4-18-217. Acts 1963, No. 482, §§ 15, 18; A.S.A. 1947, §§ 79-215, 79-218.

4-18-218. Acts 1963, No. 482, § 12; A.S.A. 1947, § 79-212.

4-18-219. Acts 1963, No. 482, § 11; A.S.A. 1947, § 79-211; 2003, No. 112, § 1.

4-18-220. Acts 1963, No. 482, § 10; A.S.A. 1947, § 79-210.

4-18-221. Acts 1973, No. 591, §§ 1-3; 1975, No. 157, § 1; A.S.A. 1947, §§ 79-235 — 79-237; Acts 2005, No. 1994, § 36.

4-18-222. Acts 1963, No. 482, § 13; A.S.A. 1947, § 79-213.

4-18-223. Acts 1963, No. 482, § 9; 1967, No. 157, § 3; A.S.A. 1947, § 79-209; Acts 2005, No. 890, § 2.

4-18-224. Acts 1963, No. 482, § 14; A.S.A. 1947, § 79-214.

4-18-225. Acts 1963, No. 482, § 19; A.S.A. 1947, § 79-219.

4-18-226. Acts 1963, No. 482, §§ 20, 21; A.S.A. 1947, §§ 79-220, 79-221.

4-18-227. Acts 1963, No. 482, § 22; A.S.A. 1947, § 79-222.

4-18-228. Acts 1963, No. 482, § 23; A.S.A. 1947, § 79-223.

4-18-229. Acts 1963, No. 482, § 25; A.S.A. 1947, § 79-225.

4-18-230. Acts 1963, No. 482, § 25; A.S.A. 1947, § 79-225.

4-18-231. Acts 2003, No. 112, § 3.

Former §§ 4-18-203, 4-18-210, 4-18-211 and 4-18-221 were also amended by Acts 2005, No. 1994, §§ 212, 339, 213 and 36, respectively, which were superseded by this repeal.

Section 4-18-223 was also repealed by Acts 2005, No. 890, § 2.

Subchapter 3 — Uniform Weights and Measures Law

Effective Dates. Acts 2001, No. 587, § 30: Mar. 7, 2001. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present state laws and regulatory authority regarding weights and measures are outdated; that this act adopts modern standards and grants the Director of the State Plant Board appropriate authority to maintain up-to-date standards hereafter; and that until this act becomes effective the employees of the Arkansas Bureau of Standards will remain hampered in performing their lawful duties. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto.”

Acts 2003, No. 112, § 5: Feb. 13, 2003. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that current law requires the bureau to annually inspect all pumps, scales, and bulk or liquefied gas metering devices in this state; because of the number of devices in the state, the Arkansas Bureau of Standards' staff is not able to adequately test and inspect all of these devices; that this act will alleviate this burden on the bureau; and that this act is immediately necessary to protect the health and welfare of the citizens of this state that utilize these metering devices. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Acts 2005, No. 890, § 3: Mar. 16, 2005. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the state is one (1) of only six (6) in the nation which does not assess fees for certain tests and inspections; that recent reductions of the budget of the State Plant Board has complicated the board's efforts to protect the people of the State of Arkansas from products which violate weights and measures law; and that revenue garnered from fees assessed for certain tests and inspections would aid the operations of the State Plant Board, allow the board to be competitive with the practices of other states, and enhance its ability to protect Arkansas consumers from products that violate weights and measures law. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Acts 2005, No. 914, § 8: Mar. 18, 2005. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the Arkansas Bureau of Standards of the State Plant Board performs valuable services for the consumers of the State of Arkansas; that the current law pertaining to weights and measures contains outdated and superseded language which hinders interpretation and enforcement by the Arkansas Bureau of Standards; and that these revisions are necessary to ensure the proper enforcement of weights and measures standards in the State of Arkansas. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Acts 2019, No. 910, § 6346(b): July 1, 2019. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that this act revises the duties of certain state entities; that this act establishes new departments of the state; that these revisions impact the expenses and operations of state government; and that the sections of this act other than the two uncodified sections of this act preceding the emergency clause titled ‘Funding and classification of cabinet-level department secretaries’ and ‘Transformation and Efficiencies Act transition team’ should become effective at the beginning of the fiscal year to allow for implementation of the new provisions at the beginning of the fiscal year. Therefore, an emergency is declared to exist, and Sections 1 through 6343 of this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2019.”

4-18-301. Definitions.

For purposes of this subchapter:

  1. “Accurate” means a piece of equipment whose value or performance, including its indications, deliveries, records representations, capacity, or actual value, conforms to the standard within the applicable tolerances and other performance requirements.
  2. “Board” means the State Plant Board.
  3. “Commercial weighing and measuring equipment” means weights and measures and weighing and measuring devices commercially used or employed in establishing the size, quantity, extent, area, or measurement of quantities, things, produce, or articles for distribution or consumption, purchased, offered, or submitted for sale, hire, or award, or in computing any basic charge or payment for services rendered on the basis of weight or measure.
  4. “Commodity” means an article of commerce.
  5. “Correct” as used in connection with weights and measures means conformance to all applicable specification requirements of this subchapter.
  6. “Director” means the Director of the State Plant Board.
  7. “Investigator” means a state investigator of weights and measures.
  8. “Net mass” or “net weight” means the weight of a commodity excluding any materials, substances, or items not considered to be part of the commodity. Materials, substances, or items not considered to be part of the commodity include, but are not limited to, containers, conveyances, bags, wrappers, packaging materials, labels, individual piece coverings, decorative accompaniments, and coupons, except that, depending on the type of service rendered, packaging materials may be considered to be part of the service. For example, the service of shipping includes the weight of packing materials.
    1. “Package”, except as modified by Section 1 of the Application of the Uniform Packaging and Labeling Regulation, whether standard package or random package, means any commodity:
      1. Enclosed in a container or wrapped in any manner in advance of wholesale or retail sale; or
      2. Whose weight or measure has been determined in advance of wholesale or retail sale.
    2. An individual item or lot of any commodity on which there is marked a selling price based on an established price per unit of weight or of measure shall be considered a package.
  9. “Person” means both plural and the singular, as the case demands, and includes individuals, partnerships, corporations, companies, societies, and associations.
  10. “Primary standards” means the physical standards of the state that serve as the legal reference from which all other standards for weights and measures are derived.
  11. “Random weight package” means a package that is one (1) of a lot, shipment, or delivery of packages of the same commodity with no fixed pattern of weights.
  12. “Registered service agent” means any individual, agency, firm, company, or corporation that for hire, commission, or other payment of any kind installs, services, calibrates, repairs, or reconditions a commercial weighing or measuring device, and that registers with the Director of the Arkansas Bureau of Standards.
  13. “Sale from bulk” means the sale of commodities when the quantity is determined at the time of sale.
  14. “Secondary standards” means the physical standards that are traceable to the primary standards through comparisons, using acceptable laboratory procedures, and used in the enforcement of weights and measures laws and rules.
  15. “Sell” or “sale” means to barter or exchange.
  16. “Standard package” means a package that is one (1) of a lot, shipment, or delivery of packages of the same commodity with identical net contents declarations; for example, one (l) liter bottles or twelve (12) fluid ounce cans of carbonated soda; five hundred (500) gram or five (5) pound bags of sugar; one hundred (100) meters or three-hundred foot (300') packages of rope.
  17. “Weight” as used in connection with any commodity or service means net weight. When a commodity is sold by drained weight, the term means net drained weight.
    1. “Weight(s) and measure(s)” means all weights and measures of every kind, instruments and devices for weighing and measuring, and any appliance and accessories associated with any or all instruments and devices.
    2. The term “weight(s) and measure(s)” shall not be construed to include meters for the measurement of electricity, natural or manufactured gas, or water when they are operated in a public utility system. Electricity, gas, and water meters are specifically excluded from this section.

History. Acts 2001, No. 587, § 1; 2005, No. 914, § 1.

4-18-302. Systems of weights and measures.

The International System of Units (SI) and the system of weights and measures in customary use in the United States are jointly recognized, and either one (1) or both of these systems shall be used for all commercial purposes in the state. The definitions of basic units of weight and measure, the tables of weight and measure, and weights and measures equivalents as published by the National Institute of Standards and Technology are recognized and shall govern weighing and measuring equipment and transactions in the state.

History. Acts 2001, No. 587, § 2.

4-18-303. Physical standards.

Weights and measures that are traceable to the United States prototype standards supplied by the federal government, or approved as being satisfactory by the National Institute of Standards and Technology, shall be the state primary standards of weights and measures, and shall be maintained in such calibration as prescribed by the National Institute of Standards and Technology. All secondary standards may be prescribed by the State Plant Board and shall be verified upon their initial receipt, and as often thereafter as deemed necessary by the board.

History. Acts 2001, No. 587, § 3.

4-18-304. Technical requirements for weighing and measuring devices.

The specifications, tolerances, and other technical requirements for commercial, law enforcement, data gathering, and other weighing and measuring devices as adopted by the National Conference on Weights and Measures, published in the National Institute of Standards and Technology Handbook 44, “Specifications, Tolerances, and Other Technical Requirements for Weighing and Measuring Devices,” and supplements thereto or revisions thereof, shall apply to weighing and measuring devices in the state, as adopted, or amended and adopted, by rule of the State Plant Board.

History. Acts 2001, No. 587, § 4.

4-18-305. Requirements for packaging and labeling.

The Uniform Packaging and Labeling Regulation as adopted by the National Conference on Weights and Measures and published in the National Institute of Standards and Technology Handbook 130, “Uniform Laws and Regulations,” and supplements thereto or revisions thereof, shall apply to packaging and labeling in the state, as adopted, or amended and adopted, by rule of the State Plant Board.

History. Acts 2001, No. 587, § 5.

Publisher's Notes. The full title of Handbook 130 is “Uniform Laws and Regulations in the Areas of Legal Metrology and Engine Fuel Quality.”

4-18-306. Requirements for the method of sale of commodities.

The Uniform Regulation for the Method of Sale of Commodities as adopted by the National Conference on Weights and Measures and published in National Institute of Standards and Technology Handbook 130, “Uniform Laws and Regulations,” and supplements thereto or revisions thereof, shall apply to the method of sale of commodities in the state, as adopted, or amended and adopted, by rule of the State Plant Board.

History. Acts 2001, No. 587, § 6.

Publisher's Notes. The full title of Handbook 130 is “Uniform Laws and Regulations in the Areas of Legal Metrology and Engine Fuel Quality”.

4-18-307. Requirements for unit pricing.

The Uniform Unit Pricing Regulation as adopted by the National Conference on Weights and Measures and published in the National Institute of Standards and Technology Handbook 130, “Uniform Laws and Regulations,” and supplements thereto or revisions thereof, shall apply to unit pricing in the state, as adopted, or amended and adopted, by rule of the State Plant Board.

History. Acts 2001, No. 587, § 7.

Publisher's Notes. The full title of Handbook 130 is “Uniform Laws and Regulations in the Areas of Legal Metrology and Engine Fuel Quality”.

4-18-308. Requirements for the registration of servicepersons and service agencies for commercial weighing and measuring devices.

The Uniform Regulation for the Voluntary Registration of Servicepersons and Service Agencies for Commercial Weighing and Measuring Devices as adopted by the National Conference on Weights and Measures and published in the National Institute of Standards and Technology Handbook 130, “Uniform Laws and Regulations,” and supplements thereto or revisions thereof, shall apply to the registration of servicepersons and service agencies in the state, as adopted, or amended and adopted, by rule of the State Plant Board.

History. Acts 2001, No. 587, § 8.

Publisher's Notes. The full title of Handbook 130 is “Uniform Laws and Regulations in the Areas of Legal Metrology and Engine Fuel Quality”.

4-18-309. Requirements for open dating.

The Uniform Open Dating Regulation as adopted by the National Conference on Weights and Measures and published in the National Institute of Standards and Technology Handbook 130, “Uniform Laws and Regulations,” and supplements thereto or revisions thereof, shall apply to open dating in the state, as adopted, or amended and adopted, by rule of the State Plant Board.

History. Acts 2001, No. 587, § 9.

Publisher's Notes. The full title of Handbook 130 is “Uniform Laws and Regulations in the Areas of Legal Metrology and Engine Fuel Quality”.

4-18-310. Requirements for type evaluation.

The Uniform Regulation for National Type Evaluation as adopted by the National Conference on Weights and Measures and published in National Institute of Standards and Technology Handbook 130, “Uniform Laws and Regulations,” and supplements thereto or revisions thereof, shall apply to type evaluation in the state, as adopted, or amended and adopted, by rule of the State Plant Board.

History. Acts 2001, No. 587, § 10.

Publisher's Notes. The full title of Handbook 130 is “Uniform Laws and Regulations in the Areas of Legal Metrology and Engine Fuel Quality.”

4-18-311. State Division of Weights and Measures.

There is hereby created a State Division of Weights and Measures located for administrative purposes within the Arkansas Bureau of Standards administered by the Department of Agriculture. The division is charged with, but not limited to, performing the following functions on behalf of the citizens of the state:

  1. Assuring that weights and measures in commercial services within the state are suitable for their intended use, properly installed, and accurate, and are so maintained by their owner or user.
  2. Preventing unfair or deceptive dealing by weight or measure in any commodity or service advertised, packaged, sold, or purchased within the state.
  3. Making available to all users of physical standards or weighing and measuring equipment the precision calibration and related metrological certification capabilities of the weights and measures facilities of the division.
  4. Promoting uniformity, to the extent practicable and desirable, between weights and measures requirements of this state and those of other states and federal agencies.
  5. Encouraging desirable economic growth while protecting the consumer through the adoption by rule of weights and measures requirements as necessary to assure equity among buyers and sellers.

History. Acts 2001, No. 587, § 11; 2019, No. 910, § 33.

Amendments. The 2019 amendment added “administered by the Department of Agriculture” in the first sentence.

4-18-312. Powers and duties of the State Plant Board.

The State Plant Board shall:

  1. Maintain traceability of the state standards to the national standards in the possession of the National Institute of Standards and Technology.
  2. Enforce the provisions of this subchapter.
  3. Issue reasonable rules for the enforcement of this subchapter, which rules shall have the force and effect of law.
  4. Establish labeling requirements, establish requirements for the presentation of cost-per-unit information, establish standards of weight, measure, or count, and reasonable standards of fill for any packaged commodity; and may establish requirements for open dating information.
  5. Grant any exemptions from the provisions of this subchapter or any rules promulgated pursuant thereto when appropriate to the maintenance of good commercial practices within the state.
  6. Conduct investigations to ensure compliance with this subchapter.
  7. Delegate to the Department of Agriculture any of these responsibilities for the proper administration of the board.
  8. Test annually the standards for weights and measures used by any city or county within the state, and approve the same when found to be correct.
  9. Have the authority to inspect and test commercial weights and measures kept, offered, or exposed for sale.
  10. Inspect and test, to ascertain if they are correct, weights and measures commercially used:
    1. in determining the weight, measure, or count of commodities or things sold, or offered or exposed for sale, on the basis of weight, measure, or count; or
    2. in computing the basic charge or payment for services rendered on the basis of weight, measure, or count.
  11. Test all weights and measures used in checking the receipt or disbursement of supplies in every institution, for the maintenance of which funds are appropriated by the General Assembly.
  12. Approve for use, and may mark, such commercial weights and measures as are found to be correct, and shall reject and order to be corrected, replaced, or removed such commercial weights and measures as are found to be incorrect. Weights and measures that have been rejected may be seized if not corrected within the time specified or if used or disposed of in a manner not specifically authorized. The board shall remove from service and may seize the weights and measures found to be incorrect that are not capable of being made correct.
  13. Weigh, measure, or inspect packaged commodities kept, offered, or exposed for sale, sold, or in the process of delivery, to determine whether they contain the amounts represented and whether they are kept, offered, or exposed for sale in accordance with this subchapter or regulations promulgated pursuant thereto. In carrying out the provisions of this subsection, the board shall employ recognized sampling procedures, such as are adopted by the National Conference on Weights and Measures and are published in the National Institute of Standards and Technology Handbook 133, “Checking the Net Contents of Packaged Goods”.
  14. Prescribe, by rule, the appropriate term or unit of weight or measure to be used, whenever the board determines that an existing practice of declaring the quantity of a commodity or setting charges for a service by weight, measure, numerical count, time, or combination thereof, does not facilitate value comparisons by consumers, or offers an opportunity for consumer confusion.
  15. Allow reasonable variations from the stated quantity of contents, which shall include those caused by loss or gain of moisture during the course of good distribution practice or by unavoidable deviations in good manufacturing practice only after the commodity has entered intrastate commerce.
  16. Provide for the training of weights and measures personnel, and may also establish minimum training and performance requirements which shall then be met by all weights and measures personnel, whether county, municipal, or state. The State Plant Board may adopt the training standards of the National Conference on Weights and Measures' Professional Certification Program.
  17. Verify advertised prices, price representations, and point-of-sale systems, as deemed necessary, to determine: (1) the accuracy of prices and computations and the correct use of the equipment, and (2) if such system utilizes scanning or coding means in lieu of manual entry, the accuracy of prices printed or recalled from a database. In carrying out the provisions of this section, the board shall (i) employ recognized procedures, such as are designated in National Institute of Standards and Technology Handbook 130, Uniform Laws and Regulations, “Examination Procedures for Price Verification,” (ii) issue necessary rules and regulations regarding the accuracy of advertised prices and automated systems for retail price charging (referred to as “point-of-sale systems”) for the enforcement of this section, which rules shall have the force and effect of law; and (iii) conduct investigations to ensure compliance.

History. Acts 2001, No. 587, § 12; 2019, No. 910, §§ 34, 35.

Publisher's Notes. The full title of Handbook 130 is “Uniform Laws and Regulations in the Areas of Legal Metrology and Engine Fuel Quality.”

Amendments. The 2019 amendment substituted “the Department of Agriculture” for “appropriate personnel” in (g); and substituted “State Plant Board” for “Director of the State Plant Board” in the second sentence of (p).

4-18-313. Special police powers.

When necessary for the enforcement of this subchapter or rules promulgated pursuant thereto, personnel designated by the Department of Agriculture on behalf of the Arkansas Bureau of Standards are:

  1. Authorized to enter any commercial premises during normal business hours, except that in the event such premises are not open to the public, he/she shall first present his/her credentials and obtain consent before making entry thereto, unless a search warrant has previously been obtained.
  2. Empowered to issue stop-use, hold, and removal orders with respect to any weights and measures commercially used, stop-sale, hold, and removal orders with respect to any packaged commodities or bulk commodities kept, offered, or exposed for sale.
  3. Empowered to seize, for use as evidence, without formal warrant, any incorrect or unapproved weight, measure, package, or commodity found to be used, retained, offered, or exposed for sale or sold in violation of the provisions of this subchapter or rules promulgated pursuant thereto.
  4. Empowered to stop any commercial vehicle and, after presentation of his credentials, inspect the contents, require that the person in charge of that vehicle produce any documents in his or her possession concerning the contents, and require him or her to proceed with the vehicle to some specified place for inspection.
  5. With respect to the enforcement of this subchapter, the department is hereby vested with special police powers, and is authorized to arrest, with warrant, any violator of this subchapter.

History. Acts 2001, No. 587, § 13; 2019, No. 910, § 36.

Amendments. The 2019 amendment substituted “personnel designated by the Department of Agriculture on behalf of the Arkansas Bureau of Standards are” for “the State Plant Board is” in the introductory language; and substituted “department” for “board” in (e).

4-18-314. Powers and duties of local officials.

Any weights and measures official appointed for a county or city shall have the duties and powers enumerated in this subchapter, excepting those duties reserved to the state by law or regulation. These powers and duties shall extend to their respective jurisdictions, except that the jurisdiction of a county official shall not extend to any city for which a weights and measures official has been appointed. No requirement set forth by local agencies may be less stringent than or conflict with the requirements of the state.

History. Acts 2001, No. 587, § 14.

4-18-315. Misrepresentation of quantity.

No person shall:

  1. sell, offer, or expose for sale a quantity less than the quantity represented, nor
  2. take more than the represented quantity when, as buyer, he/she furnishes the weight or measure by means of which the quantity is determined, nor
  3. Represent the quantity in any manner calculated or tending to mislead or in any way deceive another person.

History. Acts 2001, No. 587, § 15.

4-18-316. Misrepresentation of pricing.

No person shall misrepresent the price of any commodity or service sold, offered, exposed, or advertised for sale by weight, measure, or count, nor represent the price in any manner calculated or tending to mislead or in any way deceive a person.

History. Acts 2001, No. 587, § 16.

4-18-317. Method of sale.

Except as otherwise provided by the State Plant Board, or by firmly established trade custom and practice:

  1. commodities in liquid form shall be sold by liquid measure or by weight, and
  2. commodities not in liquid form shall be sold by weight, by measure, or by count.

The method of sale shall provide accurate and adequate quantity information that permits the buyer to make price and quantity comparisons.

History. Acts 2001, No. 587, § 17.

4-18-318. Sale from bulk.

All bulk sales in which the buyer and seller are not both present to witness the measurement, all bulk deliveries of heating fuel, and all other bulk sales specified by rule or regulation of the State Plant Board, shall be accompanied by a delivery ticket containing the following information:

  1. the name and address of the buyer and seller;
  2. the date delivered;
  3. the quantity delivered and the quantity upon which the price is based, if this differs from the delivered quantity, for example, when temperature compensated sales are made;
  4. the unit price, unless otherwise agreed upon by both buyer and seller;
  5. the identity in the most descriptive terms commercially practicable, including any quality representation made in connection with the sale; and
  6. count of individually wrapped packages, if more than one (1), in the instance of commodities bought from bulk but delivered in packages.

History. Acts 2001, No. 587, § 18.

4-18-319. Information required on packages.

Except as otherwise provided in this subchapter or by regulations promulgated pursuant thereto, any package, whether a random package or a standard package, kept for the purpose of sale, or offered or exposed for sale shall bear on the outside of the package a definite, plain, and conspicuous declaration of:

  1. the identity of the commodity in the package, unless the same can easily be identified through the wrapper or container;
  2. the quantity of contents in terms of weight, measure, or count; and
  3. the name and place of business of the manufacturer, packer, or distributor, in the case of any package kept, offered, or exposed for sale, or sold in any place other than on the premises where packed.

History. Acts 2001, No. 587, § 19.

4-18-320. Declarations of unit price on random weight packages.

In addition to the declarations required by § 4-18-319, any package being one (1) of a lot containing random weights of the same commodity, at the time it is offered or exposed for sale at retail, shall bear on the outside of the package a plain and conspicuous declaration of the price per kilogram or pound and the total selling price of the package.

History. Acts 2001, No. 587, § 20.

4-18-321. Advertising packages for sale.

Whenever a packaged commodity is advertised in any manner with the retail price stated, there shall be closely and conspicuously associated with the retail price a declaration of quantity as is required by law or regulation to appear on the package.

History. Acts 2001, No. 587, § 21.

4-18-322. Prohibited acts.

  1. No person shall:
    1. Use or have in possession for use in commerce any incorrect weight or measure;
    2. Sell or offer for sale for use in commerce any incorrect weight or measure;
    3. Remove any tag, seal, decal, or mark from any weight or measure without specific written authorization from the proper authority;
    4. Hinder or obstruct any weights and measures official or registered service agent in the performance of his or her duties;
    5. Violate any provisions of this subchapter or regulations promulgated under it;
    6. Sell or offer for sale any weight or measure for use in commerce, unless it bears an Arkansas Bureau of Standards approved seal or decal, if the seal or decal is applicable to the weight or measure;
    7. Neglect or refuse to exhibit a weight or measure under the person's control or in the person's possession to any weights and measures official or a registered service agent for inspection, examination, or testing as required by law;
    8. Perform an annual inspection, examination, or test on a weight or measure if that person is not a weights and measures official or a registered service agent;
    9. Impersonate in any way the Director of the Arkansas Bureau of Standards, the Deputy Director of the Arkansas Bureau of Standards, any one of the investigators, or a registered agent of the bureau by the use of a seal or decal, or in any other manner; or
    10. Violate any provision of this subchapter or rules promulgated under § 4-18-328.
  2. A person may be prosecuted for a violation of this subchapter notwithstanding the existence of any other valid general or specific act of this state dealing with matters that may be the same as or similar to those covered by this subchapter.

History. Acts 2001, No. 587, § 22; 2003, No. 112, § 4; 2005, No. 914, § 2.

4-18-323. Civil penalties.

    1. Any person who by himself or herself, by his or her servant or agent, or as the servant or agent of another person, commits any of the acts enumerated in § 4-18-322 may be assessed by the State Plant Board a civil penalty of:
      1. Not less than one hundred dollars ($100) nor more than six hundred dollars ($600) for a first violation;
      2. Not less than four hundred dollars ($400) nor more than one thousand two hundred dollars ($1,200) for a second violation within three (3) years after the date of the first violation; and
      3. Not less than seven hundred dollars ($700) nor more than two thousand dollars ($2,000) for a third violation within three (3) years after the date of the first violation.
    2. For a violation to be considered as a second or subsequent offense, it must be a repeat of a violation as enumerated in § 4-18-322.
    1. Any person subject to a civil penalty shall have a right to request an administrative hearing within ten (10) calendar days after receipt of the notice of the penalty.
    2. The board or subcommittee thereof is authorized to conduct the hearing after giving appropriate notice to the respondent.
    3. The decision of the board is subject to appropriate judicial review.
    1. If the respondent has exhausted his or her administrative appeals and the civil penalty has been upheld, he or she shall pay the civil penalty within twenty (20) calendar days after the effective date of the final decision.
    2. If the respondent fails to pay the penalty, a civil action may be brought by the board in any court of competent jurisdiction to recover the penalty.
    3. Any civil penalty collected under this section shall be transmitted to the Plant Board Fund.

History. Acts 2001, No. 587, § 23; 2005, No. 914, § 3.

4-18-324. Criminal penalties.

Any person who intentionally commits any of the acts enumerated in § 4-18-322 is guilty of a Class A misdemeanor.

History. Acts 2001, No. 587, § 24; 2005, No. 914, § 4.

4-18-325. Restraining order and injunction.

The State Plant Board or its designee is authorized to apply to any court of competent jurisdiction for a restraining order, or a temporary or permanent injunction, restraining any person from violating any provision of this subchapter.

History. Acts 2001, No. 587, § 25; 2019, No. 910, § 37.

Amendments. The 2019 amendment substituted “State Plant Board or its designee” for “Director of the State Plant Board”.

4-18-326. Presumptive evidence.

Whenever there shall exist a weight or measure or weighing or measuring device in or about any place in which or from which buying or selling is commonly carried on, there shall be a rebuttable presumption that such weight or measure or weighing or measuring device is regularly used for the business purposes of that place.

History. Acts 2001, No. 587, § 26.

4-18-327. Rules to be unaffected by repeal of prior enabling statute.

The adoption of this subchapter or any of its provisions shall not affect any rules promulgated pursuant to the authority of any earlier enabling statute unless inconsistent with this subchapter or modified or revoked by the State Plant Board.

History. Acts 2001, No. 587, § 27.

4-18-328. Regulations.

The Arkansas Bureau of Standards may by regulation adopted pursuant to the Arkansas Administrative Procedure Act, § 25-15-201 et seq., adopt as a regulation of the bureau specifications, tolerances, and regulations for commercial weighing and measuring devices set out in the National Institute of Standards and Technology Handbooks 44 and 130, or in any similar publication issued by the National Institute of Standards and Technology. In drafting the regulations, the bureau shall consider whether the specifications, tolerances, and regulations published by the National Institute of Standards and Technology are consistent with the needs of Arkansas businesses and consumers and may modify, amend, or delete suggested language found in the National Institute of Standards and Technology handbooks.

History. Acts 2001, No. 587, § 28.

Publisher's Notes. The full title of Handbook 44 is “Specifications, Tolerances, and Other Technical Requirements for Weighing and Measuring Devices”, and the full title of Handbook 130 is “Uniform Laws and Regulations in the Areas of Legal Metrology and Engine Fuel Quality.”

4-18-329. Fees for tests or inspections.

  1. The Arkansas Bureau of Standards administered through the Department of Agriculture shall collect charges as provided in this section for the testing and certification of testing apparatus and for testing and inspection made under this subchapter.
  2. The bureau shall collect the following fees for testing and inspection and for no other purposes:
      1. For International Organization of Legal Metrology Class E1 and E2 and American National Standards Institute and ASTM International Class 1, weighing one kilogram (1 kg) or less, the bureau shall collect a fee for testing of not less than sixty dollars ($60.00) or more than one hundred eighty dollars ($180); and
      2. For International Organization of Legal Metrology Class E1 and E2 and American National Standards Institute and ASTM International Class 1, weighing more than one kilogram (1 kg) but not more than thirty kilograms (30 kg), the bureau shall collect a fee for testing of not less than one hundred dollars ($100) or more than three hundred dollars ($300);
      1. For International Organization of Legal Metrology Class E2, F1, F2, American National Standards Institute and ASTM International Class 1 and 1.1, 2, 3, and 4(5), and National Institute of Standards and Technology Class S, S-1, and P(Q), weighing two pounds (2 lbs.) or one kilogram (1 kg) or less, the bureau shall collect a fee for testing of not less than twenty dollars ($20.00) or more than sixty dollars ($60.00);
      2. For International Organization of Legal Metrology Class E2, F1, F2, American National Standards Institute and ASTM International Class 1 and 1.1, 2, 3, and 4(5), and National Institute of Standards and Technology Class S, S-1, and P(Q), weighing more than two pounds (2 lbs.) or one kilogram (1 kg), but not more than twenty pounds (20 lbs.) or ten kilograms (10 kg), the bureau shall collect a fee for testing of not less than forty dollars ($40.00) or more than one hundred twenty dollars ($120);
      3. For International Organization of Legal Metrology Class E2, F1, F2, American National Standards Institute and ASTM International Class 1 and 1.1, 2, 3, and 4(5), and National Institute of Standards and Technology Class S, S-1, and P(Q), weighing more than twenty pounds (20 lbs.) or ten kilograms (10 kg), but not more than fifty pounds (50 lbs.) or thirty kilograms (30 kg), the bureau shall collect a fee for testing of not less than eighty dollars ($80.00) or more than two hundred forty dollars ($240); and
      4. For International Organization of Legal Metrology Class E2, F1, F2, American National Standards Institute and ASTM International Class 1 and 1.1, 2, 3, and 4(5), and National Institute of Standards and Technology Class S, S-1, and P(Q), weighing more than fifty pounds (50 lbs.) or thirty kilograms (30 kg), but not more than twenty-five hundred pounds (2,500 lbs.) or one thousand two hundred fifty kilograms (1,250 kg), the bureau shall charge a fee for testing of not less than one hundred dollars ($100) or more than three hundred dollars ($300);
      1. For International Organization of Legal Metrology Class M1, M2, and M3, American National Standards Institute and ASTM International Class 6(5), and National Institute of Standards and Technology Class F and (Q), weighing ten pounds (10 lbs.) or five kilograms (5 kg) or less, the bureau shall charge a fee for testing of not less than seven dollars ($7.00) or more than twenty-one dollars ($21.00);
      2. For International Organization of Legal Metrology Class M1, M2, and M3, American National Standards Institute and ASTM International Class 6(5), and National Institute of Standards and Technology Class F and (Q), weighing more than ten pounds (10 lbs.) or five kilograms (5 kg), but not more than fifty pounds (50 lbs.) or thirty kilograms (30 kg), the bureau shall charge a fee for testing of not less than twelve dollars ($12.00) or more than thirty-six dollars ($36.00);
      3. For International Organization of Legal Metrology Class M1, M2, and M3, American National Standards Institute and ASTM International Class 6(5), and National Institute of Standards and Technology Class F and (Q), weighing more than fifty pounds (50 lbs.) or thirty kilograms (30 kg), but not more than one thousand pounds (1,000 lbs.) or five hundred kilograms (500 kg), the bureau shall charge a fee for testing of not less than eighteen dollars ($18.00) or more than fifty-four dollars ($54.00); and
      4. For International Organization of Legal Metrology Class M1, M2, and M3, American National Standards Institute and ASTM International Class 6(5), and National Institute of Standards and Technology Class F and (Q), weighing more than one thousand pounds (1,000 lbs.) or five hundred kilograms (500 kg), but not more than two thousand five hundred pounds (2,500 lbs.) or one thousand two hundred fifty kilograms (1,250 kg), the bureau shall charge a fee for testing of not less than forty dollars ($40.00) or more than one hundred twenty dollars ($120);
      1. For volume testing of five gallons (5 gal.) or twenty liters (20 l) or less, the bureau shall charge a fee of forty dollars ($40.00);
      2. For volume testing of more than five gallons (5 gal.) or twenty liters (20 l), but not more than fifty gallons (50 gal.) or two hundred liters (200 l), the bureau shall charge a fee of one hundred dollars ($100);
      3. For volume testing of more than fifty gallons (50 gal.) or two hundred liters (200 l), but not more than one hundred gallons (100 gal.) or four hundred liters (400 l), the bureau shall charge a fee of two hundred dollars ($200);
      4. For volume testing of more than one hundred gallons (100 gal.) or four hundred liters (400 l), but not more than one hundred fifty gallons (150 gal.) or six hundred liters (600 l), the bureau shall charge a fee of two hundred fifty dollars ($250);
      5. For volume testing of more than one hundred fifty gallons (150 gal.) or six hundred liters (600 l), but not more than two hundred gallons (200 gal.) or eight hundred liters (800 l), the bureau shall charge a fee of three hundred dollars ($300); and
      6. For volume testing of more than two hundred gallons (200 gal.) or eight hundred liters (800 l), but not more than three hundred seventy-five gallons (375 gal.) or one thousand five hundred liters (1,500 l), the bureau shall charge a fee for testing of four hundred fifty dollars ($450);
      1. For volume gravimetric testing of not more than one quart (1 qt.) or one liter (1 l), the bureau shall charge a fee for testing of seventy-five dollars ($75.00);
      2. For volume gravimetric testing of more than one quart (1 qt.) or one liter (1 l), but not more than five gallons (5 gal.) or twenty liters (20 l), the bureau shall charge a fee for testing of two hundred dollars ($200); and
      3. For volume gravimetric testing of more than five gallons (5 gal.) or twenty liters (20 l), but not more than fifty gallons (50 gal.) or two hundred liters (200 l), the bureau shall charge a fee of five hundred dollars ($500);
    1. For volume liquefied petroleum gas (LPG) provers of not more than one hundred gallons (100 gal.) or four hundred liters (400 l), the bureau shall charge a fee for testing of five hundred dollars ($500);
    2. For length testing of tapes and rigid rules, the bureau shall charge a fee of seven dollars ($7.00) per point tested;
      1. For annual inspection and testing of grain moisture meters, the bureau shall charge a fee of fifty dollars ($50.00);
      2. For calibration of grain moisture meters, the bureau shall charge a fee of fifty dollars ($50.00);
      3. For recertification of grain moisture meters, the bureau shall charge a fee of fifty dollars ($50.00);
      4. For placing new or rejected grain moisture meters in service, the bureau shall charge a fee of fifty dollars ($50.00); and
      5. For noncompliance reports for rejected grain moisture meters, the bureau shall charge a fee of fifty dollars ($50.00);
    3. For special testing or services not listed in the fee schedule, the bureau shall charge a fee of fifty dollars ($50.00) per hour; and
    4. For cleaning of standards, special handling, and packing, the bureau shall charge a fee of fifty dollars ($50.00) per hour.
  3. Funds collected under this section shall be deposited into the State Treasury as special revenue credited to the Plant Board Fund to be used exclusively for the maintenance of facilities and equipment of the bureau.
  4. If any provision of this section or its application to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of this section which can be given effect without the invalid provision or application, and to this end the provisions of this section are severable.

History. Acts 2005, No. 890, § 1; 2019, No. 910, § 38.

Amendments. The 2019 amendment, in (a), inserted “administered through the Department of Agriculture” and made a stylistic change.

4-18-330. Fruit and commodities — Packing, selling, pledging, etc., with fraudulent intent — Penalty.

  1. Any person who packs any fruit or other merchantable commodity with the fraudulent intent of misrepresenting the contents, either as to quality or quantity, shall on conviction be punished by a fine not exceeding one thousand dollars ($1,000) or imprisonment not exceeding one (1) year, or both.
  2. Any person who sells or pledges any commodity, knowing it to be packed in a fraudulent manner with the intent to cheat and deceive, shall on conviction be assessed a civil penalty as provided in § 4-18-323.

History. Acts 2005, No. 914, § 5.

4-18-331. Legal weight of bushel of specific commodities.

The legal weight per bushel of the following shall be:

  1. Corn, shelled 56 lbs.
  2. Corn in ear, husked 70 lbs.
  3. Corn in ear, unhusked 74 lbs.
  4. Wheat 60 lbs.
  5. Oats 32 lbs.
  6. Cottonseed 32 lbs.
  7. Cornmeal 48 lbs.
  8. Barley 48 lbs.
  9. Rye 56 lbs.
  10. Potatoes 60 lbs.
  11. Potatoes, sweet 50 lbs.
  12. Onions 57 lbs.
  13. White beans 60 lbs.
  14. Peas 60 lbs.
  15. Flax seed 56 lbs.
  16. Blue grass seed 14 lbs.
  17. Clover seed 60 lbs.
  18. Timothy seed 60 lbs.
  19. Millet seed 50 lbs.
  20. Buckwheat 52 lbs.
  21. Red top 14 lbs.
  22. Orchard grass 14 lbs.
  23. Sorghum 50 lbs.
  24. Green apples 50 lbs.
  25. Dried apples 24 lbs.
  26. Dried peaches 33 lbs.
  27. Bran 20 lbs.
  28. Salt 50 lbs.
  29. Turnips 57 lbs.
  30. Broom corn seed 48 lbs.
  31. Johnson grass 28 lbs.

History. Acts 2005, No. 914, § 5.

4-18-332. Bushel of apples — Lawful measure.

  1. A box nine inches (9") deep, twelve inches (12") wide, and twenty inches (20") long constitutes a lawful bushel measure for apples.
  2. Any person violating the provisions of this section is guilty of a misdemeanor and upon conviction shall be assessed a civil penalty consistent with § 4-18-323.

History. Acts 2005, No. 914, § 5.

4-18-333. “Cord” defined.

A cord shall be defined as containing one hundred twenty-eight cubic feet (128 cu. ft.), and a unit of pulpwood shall be defined as containing one hundred twenty-eight cubic feet (128 cu. ft.), and this shall be the basis for purchase of timber or payment of labor in severing timber if the production is handled on cordage basis.

History. Acts 2005, No. 914, § 5.

4-18-334. Director of the Arkansas Bureau of Standards.

    1. The Director of the Arkansas Bureau of Standards is appointed by the Governor and shall serve at the pleasure of the Governor.
    2. The director shall report to the Secretary of the Department of Agriculture.
  1. The director is vested with police powers and may:
    1. Arrest with warrant any violator of:
      1. This subchapter; or
      2. Any other act dealing with weights and measures; and
    2. Seize for use as evidence with warrant incorrect or unsealed weights and measures or amounts or packages of commodity found to be used, retained, offered, exposed for sale, or sold in violation of law.
  2. [Repealed.]
  3. The director shall:
    1. Have custody of the state standards of weights and measures and of the other standards and equipment provided under this subchapter;
    2. Keep accurate records of the standards and equipment;
    3. Maintain a general supervision over weights and measures offered for sale, sold, or in use in the state; and
    4. Make a report to the secretary on the activities of his or her office at the end of each fiscal year.

History. Acts 2005, No. 914, § 5; 2019, No. 910, §§ 39-41.

Amendments. The 2019 amendment redesignated (a) as (a)(1), and added (a)(2); repealed (c); and substituted “Secretary of the Department of Agriculture” for “Governor” in (d)(4).

4-18-335. [Repealed.]

Publisher's Notes. This section, concerning staff and equipment of the Arkansas Bureau of Standards, was repealed by Acts 2019, No. 910, § 42, effective July 1, 2019. The section was derived from Acts 2005, No. 914, § 5.

4-18-336. State standards — Certification.

  1. After certification for use by the National Institute of Standards and Technology, the weights and measures in conformity with federal standards shall be the state standards of weight and measure.
  2. The state standards shall:
    1. Be kept in a safe and suitable place in the office or laboratory of the Arkansas Bureau of Standards;
    2. Not be removed from the office or laboratory except for repairs or for certification;
    3. Be submitted at least one (1) time every ten (10) years to the National Institute of Standards and Technology for certification; and
    4. Be used only in verifying the office standards and for scientific purposes.

History. Acts 2005, No. 914, § 5.

4-18-337. Office and field standards — Verification.

  1. In addition to the state standards provided under § 4-18-336, the state shall supply at least one (1) complete set of copies of the state standards to be kept in the office or laboratory of the Arkansas Bureau of Standards, which shall be known as “office standards”, also “field standards”, and equipment as may be found necessary to carry out the provisions of this subchapter.
  2. The office standards and field standards shall be verified upon their initial receipt and verified at least one (1) time each following year by comparing the office standards with the state standards and comparing the field standards with the office standards.

History. Acts 2005, No. 914, § 5.

4-18-338. Rules — Correct and incorrect apparatus.

  1. The Arkansas Bureau of Standards shall issue from time to time reasonable rules for the enforcement of this subchapter.
  2. These rules may include:
    1. A system of determining the qualifications for registration of and issuing permits to sales and service personnel who for compensation place weighing and measuring devices into commercial use in this state;
    2. Standards of net weight, measure, or count and reasonable standards of fill for any commodity in package form;
    3. Rules governing the technical and reporting procedures to be followed and the report and record forms and marks of approval and rejection to be used by investigators of weights and measures in the discharge of their official duties;
    4. Rules governing the technical and reporting procedures to be followed and the report and record forms and marks of approval to be used by registered agents of weights and measures in the discharge of their official duties; and
    5. Exemptions from the sealing or marking requirements of § 4-18-341 with respect to weights and measures of character or size that sealing or marking would be inappropriate, impracticable, or damaging to the apparatus in question.
  3. The rules shall include specifications, tolerances, and regulations for weights and measures specified in § 4-18-341 designed to eliminate from use without prejudice to apparatus that conform as closely as practicable to the official standards apparatus that:
    1. Are not accurate and correct;
    2. Are constructed so that they are not reasonably permanent in their adjustment or will not repeat their indications correctly; or
    3. Facilitate the perpetration of fraud.
  4. As used in this subchapter, an apparatus shall be deemed to be correct when it conforms to all applicable requirements promulgated as specified in this section.

History. Acts 2005, No. 914, § 5.

4-18-339. Disposition of correct and incorrect apparatus.

    1. The Director of the Arkansas Bureau of Standards shall:
      1. Approve for use and seal or mark with appropriate devices, weights and measures as he or she finds upon inspection and testing to be correct as defined in § 4-18-338; and
      2. Reject and mark or tag as “rejected” weights and measures as he or she finds upon inspection or test to be incorrect as defined in § 4-18-338, but which in his or her best judgment are susceptible to satisfactory repair.
    2. However, the sealing or marking shall not be required with respect to weights and measures that are excepted under a rule of the director issued under § 4-18-338.
  1. The director shall condemn, seize, and destroy weights and measures found to be incorrect and that in his or her best judgment are not susceptible to satisfactory repair.
  2. Weights and measures that have been rejected may be confiscated and destroyed by the director if not corrected as required by subsections (d) and (e) of this section or if used or disposed of contrary to the requirements of subsection (f) of this section.
  3. Weights and measures that have been rejected under the authority of the director or a sealer shall remain subject to the control of the rejecting authority until suitable repair or disposition has been made as required by this section.
  4. The owners of rejected or noncompliant weights and measures shall cause the weights and measures to be made accurate and correct or may dispose of them in the manner specifically authorized by the director.
  5. Weights and measures that have been rejected shall not again be used commercially until they have been officially reexamined and found to be accurate and correct or until specific written permission for use is issued by the director.

History. Acts 2005, No. 914, § 5.

4-18-340. Investigations.

The Director of the Arkansas Bureau of Standards shall investigate complaints made to him or her concerning violations of this subchapter and upon his or her own initiative shall:

  1. Conduct investigations as he or she deems appropriate and advisable to develop information on prevailing procedures in commercial quantity determination and on possible violations of the provisions of this subchapter; and
  2. Promote the general objective of accuracy and correctness in the determination and representation of quantity in commercial transactions.

History. Acts 2005, No. 914, § 5.

4-18-341. Testing generally.

  1. When not otherwise provided by law, the Director of the Arkansas Bureau of Standards shall have the power to inspect and test to ascertain if all weights and measures kept, offered, or exposed for sale are accurate and correct.
  2. Within each calendar year, or less frequently if in accordance with a schedule issued by him or her or as otherwise determined, the director shall inspect and test to ascertain if all weights and measures commercially used in determining the weight, measurement, or count of commodities or things sold, offered, or exposed for sale on the basis of weight, measure, or count or in computing the basic charge or payment for services rendered on the basis of weight, measure, or count are accurate and correct.
    1. However, with respect to single-service devices designed to be used commercially only one (1) time and then to be discarded and to devices uniformly mass produced as by means of a mold or die and not susceptible to individual adjustment, tests may be made on representative samples of the devices.
    2. The lots of which the samples are representative shall be held to be correct or incorrect upon the basis of the results of the inspections and tests on the samples.

History. Acts 2005, No. 914, § 5.

4-18-342. Packages or amounts of commodities — Inspection — Disposition of nonconforming units.

    1. The Director of the Arkansas Bureau of Standards shall from time to time weigh or measure and inspect packages or amounts of commodities kept, offered, or exposed for sale, sold, or in the process of delivery to determine whether the packages or amounts of commodities contain the amounts represented and whether they are kept, offered, or exposed for sale or sold in accordance with law.
    2. When the packages or amounts of commodities are found not to contain the amounts represented or are found to be kept, offered, or exposed for sale in violation of law, the director may order them off sale and may so mark or tag them as to show them to be illegal.
  1. A person shall not:
    1. Sell, keep, offer, or expose for sale in intrastate commerce any package or amount of commodity that has been ordered off sale or marked or tagged as provided in this section unless the package or amount of commodity has been brought into full compliance with all legal requirements; or
    2. Dispose of any package or amount of commodity that has been ordered off sale or marked or tagged as provided in this section or that has not been brought into compliance with legal requirements in any manner except with the specific approval of the director.

History. Acts 2005, No. 914, § 5.

4-18-343. Display of price — Fractions.

Whenever an advertised, posted, or labeled price per unit of weight, measure, or count includes a fraction of a cent, all elements of the fraction shall be prominently displayed and the numerals expressing the fraction shall be immediately adjacent to, of the same general design and style as, and at least one-half (½) the height and width of the numerals representing the whole cents.

History. Acts 2005, No. 914, § 5.

4-18-344. Testing bulk meters or liquefied petroleum gas metering devices, pumps, and scales used for commercial transactions — Definitions.

    1. As used in this section, “pump” means a fuel pump that dispenses products used as motor vehicle fuels, including, but not limited to, gasoline, kerosene, or diesel.
    2. As used in this section, “bulk meter” includes, but is not limited to, a pipeline terminal meter, a rack meter, or a tank truck meter.
      1. A person who owns a bulk meter or liquefied petroleum gas metering device for a commercial transaction must engage a registered service agent to annually inspect and test for the accuracy and correctness of the device.
      2. The duty of the Director of the Arkansas Bureau of Standards to inspect and test bulk meters or liquefied petroleum gas metering devices used for commercial transactions is fulfilled by the registered service agent's annual inspection and test for accuracy.
      1. A person who owns a pump or scale for a commercial transaction must engage a registered service agent to annually inspect and test for the accuracy and correctness of the pump or scale.
      2. The director's duty to inspect and test pumps or scales used for commercial transactions is fulfilled by the registered service agent's annual inspection and test for accuracy.
  1. A registered service agent shall perform the recalibration if the inspection or test indicates the bulk meter or liquefied petroleum gas metering device, pump, or scale needs to be recalibrated.
    1. After the approval of a decal by the Arkansas Bureau of Standards, a registered service agent shall place an approved decal conspicuously on the bulk meter or liquefied petroleum gas metering device, pump, or scale which indicates that it is suitable for trade in accordance with the National Institute of Standards and Technology Handbooks 44 and 112, as adopted by the bureau.
    2. A registered service company shall provide security seals approved by the bureau to any individual employed as a registered technician authorized to perform inspections and tests.
    3. A registered technician shall place an approved security seal on the device to prevent any unauthorized access to the adjusting mechanism unless otherwise authorized by the bureau.
  2. The registered service agent shall provide a copy of all bureau-approved inspection and test reports to the bulk meter or liquefied petroleum gas metering device, pump, or scale owner and to the director.
    1. The registered service agent shall retain a copy of all inspection and test reports for a period of three (3) years.
    2. The owner of the device shall retain a copy of all inspection and test reports at the device location for a period of three (3) years.
  3. The director may adopt a system to periodically monitor, inspect, or test bulk meters or liquefied petroleum gas metering devices, pumps, and scales inspected and tested by a registered service agent to check the accuracy of the work of the service agent.
    1. The director may suspend or revoke the certificate of registration of a registered service agent for violating any provision of this subchapter.
    2. If the registration of a registered service agent has been suspended or revoked, then the service agent may not register with the bureau as a service agent for at least one (1) year.

History. Acts 2005, No. 914, § 5.

Publisher's Notes. The full title of Handbook 44 is “Specifications, Tolerances, and Other Technical Requirements for Weighing and Measuring Devices”, and the full title of Handbook 112 is “Examination Procedure Outlines for Commercial Weighing and Measuring Devices: A Manual for Weights and Measures Officials”.

Chapter 19 Transmitting Utility Act

4-19-101. Title.

This chapter shall be known and may be cited as the “Transmitting Utility Act”.

History. Acts 1965, No. 375, § 1; A.S.A. 1947, § 73-2301.

4-19-102. Definitions.

As used in this chapter, unless the context otherwise requires:

  1. “Transmitting utility” means any corporation or other entity primarily engaged in the railroad or street railway business, the furnishing of telephone or telegraph service, the transmission of oil, gas, or petroleum products by pipeline, or the production, transmission, or distribution of electricity, steam, gas, or water.
  2. “Uniform Commercial Code” means subtitle 1 of this title.

History. Acts 1965, No. 375, § 2; A.S.A. 1947, § 73-2302.

4-19-103. Chapter supplemental.

Subtitle 1 of this title and other applicable laws remain in full force and effect and supplement the provisions of this chapter, unless displaced by the specific provisions of this chapter.

History. Acts 1965, No. 375, § 4; A.S.A. 1947, § 73-2303n.

4-19-104. Filing requirements.

Notwithstanding §§ 4-9-302(3), 4-9-302(4), 4-9-401(1), and 4-9-4024-9-406:

  1. If filing is required under the Uniform Commercial Code, subtitle 1 of this title, the proper place to file statements pertaining to a security interest in personal property or fixtures of a transmitting utility is in the office of the Secretary of State;
  2. When the financing statement covers goods of a transmitting utility which are or are to become fixtures, no description of the real estate concerned is required;
  3. A security interest in rolling stock of a transmitting utility may be perfected either as provided in § 20(c) of the Interstate Commerce Act or by filing a financing statement pursuant to the Uniform Commercial Code as provided in subdivision (1) of this section; and
  4. A financing statement filed pursuant to subdivision (1) of this section shall remain effective until terminated without the need for filing a continuation statement under § 4-9-403.

History. Acts 1965, No. 375, § 3; A.S.A. 1947, § 73-2303.

U.S. Code. Section 20(c) of the Interstate Commerce Act, referred to in this section, was formerly codified as 49 U.S.C. § 11303. Section 11303, regarding equipment trusts, recordation, and evidence of indebtedness, was omitted in the general revision of Subtitle IV in 1995 by P.L. 104-88.

Chapter 20 Model Registered Agents Act

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

4-20-101. Short title.

This chapter may be cited as the Model Registered Agents Act.

History. Acts 2007, No. 638, § 1.

Research References

Ark. L. Notes.

Goforth, The Model Registered Agents Act — A Word (or two) to the Wise, 2008 Ark. L. Notes 43.

4-20-102. Definitions.

In this chapter:

  1. “Appointment of agent” means a statement appointing an agent for service of process filed by:
    1. a domestic or foreign unincorporated nonprofit association under § 4-28-510 [repealed] of the Uniform Unincorporated Nonprofit Association Act [repealed]; or
    2. a domestic entity that is not a filing entity or a nonqualified foreign entity under § 4-20-112 or a similar provision of the law under any jurisdiction.
  2. “Commercial registered agent” means an individual or a domestic or foreign entity that is listed under § 4-20-106.
  3. “Domestic entity” means an entity whose internal affairs are governed by the law of this state.
  4. “Entity” means a person that has a separate legal existence or has the power to acquire an interest in real property in its own name other than:
    1. an individual;
    2. a testamentary, inter vivos, or charitable trust, with the exception of a business trust, statutory trust, or similar trust;
    3. an association or relationship that is not a partnership by reason of § 4-46-202(c);
    4. a decedent's estate; or
    5. a public corporation, government or governmental subdivision, agency, or instrumentality, or a quasi-governmental instrumentality.
  5. “Filing entity” means an entity that is created by the filing of a public organic document.
  6. “Foreign entity” means an entity other than a domestic entity.
  7. “Foreign qualification document” means an application for a certificate of authority or other foreign qualification filing with the Secretary of State by a foreign entity.
  8. “Governance interest” means the right under the organic law or organic rules of an entity, other than as a governor, agent, assignee, or proxy, to:
    1. receive or demand access to information concerning, or the books and records of, the entity;
    2. vote for the election of the governors of the entity; or
    3. receive notice of or vote on any or all issues involving the internal affairs of the entity.
  9. “Governor” means a person by or under whose authority the powers of an entity are exercised and under whose direction the business and affairs of the entity are managed pursuant to the organic law and organic rules of the entity.
  10. “Interest” means:
    1. a governance interest in an unincorporated entity;
    2. a transferable interest in an unincorporated entity; or
    3. a share or membership in a corporation.
  11. “Interest holder” means a direct holder of an interest.
  12. “Jurisdiction of organization,” with respect to an entity, means the jurisdiction whose law includes the organic law of the entity.
  13. “Noncommercial registered agent” means a person that is not listed as a commercial registered agent under § 4-20-106 and that is:
    1. an individual or a domestic or foreign entity that serves in this state as the agent for service of process of an entity; or
    2. the individual who holds the office or other position in an entity that is designated as the agent for service of process pursuant to § 4-20-105(a)(2)(B).
  14. “Nonqualified foreign entity” means a foreign entity that is not authorized to transact business in this state pursuant to a filing with the Secretary of State.
  15. “Nonresident LLP statement” means:
    1. a statement of qualification of a domestic limited liability partnership that does not have an office in this state; or
    2. a statement of foreign qualification of a foreign limited liability partnership that does not have an office in this state.
  16. “Organic law” means the statutes, if any, other than this chapter, governing the internal affairs of an entity.
  17. “Organic rules” means the public organic document and private organic rules of an entity.
  18. “Person” means an individual, corporation, estate, trust, partnership, limited liability company, business or similar trust, association, joint venture, public corporation, government or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.
  19. “Private organic rules” mean the rules, whether or not in a record, that govern the internal affairs of an entity, are binding on all of its interest holders, and are not part of its public organic document, if any.
  20. “Public organic document” means the public record the filing of which creates an entity, and any amendment to or restatement of that record.
  21. “Qualified foreign entity” means a foreign entity that is authorized to transact business in this state pursuant to a filing with the Secretary of State.
  22. “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.
  23. “Registered agent” means a commercial registered agent or a noncommercial registered agent.
  24. “Registered agent filing” means:
    1. the public organic document of a domestic filing entity;
    2. a nonresident LLP statement;
    3. a foreign qualification document; or
    4. an appointment of agent.
  25. “Represented entity” means:
    1. a domestic filing entity;
    2. a domestic or qualified foreign limited liability partnership that does not have an office in this state;
    3. a qualified foreign entity;
    4. a domestic or foreign unincorporated nonprofit association for which an appointment of agent has been filed;
    5. a domestic entity that is not a filing entity for which an appointment of agent has been filed; or
    6. a nonqualified foreign entity for which an appointment of agent has been filed.
  26. “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.
  27. “Transferable interest” means the right under an entity's organic law to receive distributions from the entity.
  28. “Type,” with respect to an entity, means a generic form of entity:
    1. recognized at common law; or
    2. organized under an organic law, whether or not some entities organized under that organic law are subject to provisions of that law that create different categories of the form of entity.

History. Acts 2007, No. 638, § 1.

4-20-103. Fees.

  1. The Secretary of State shall collect the following fees when a filing is made under this chapter:
    1. commercial registered agent listing statement $50.00
    2. commercial registered agent termination statement 50.00
    3. statement of change no fee
    4. statement of resignation no fee
    5. statement appointing an agent for service of process no fee
  2. The Secretary of State shall collect the following fees for copying and certifying a copy of any document filed under this chapter:
    1. Fifty cents ($.50) a page for copying; and
    2. Five dollars ($5.00) for a certificate.

Document Fee

History. Acts 2007, No. 638, § 1.

4-20-104. Addresses in filings.

Whenever this chapter requires that a filing state an address, the filing must state:

  1. an actual street address or rural route box number in this state; and
  2. a mailing address in this state, if different from the address under paragraph (1).

History. Acts 2007, No. 638, § 1.

4-20-105. Appointment of registered agent.

  1. A registered agent filing must state:
    1. the name of the represented entity's commercial registered agent; or
    2. if the entity does not have a commercial registered agent, the name and address of the entity's noncommercial registered agent:
      1. the name and address of the entity's registered agent; or
      2. the title of an office or other position with the entity if service of process is to be sent to the person holding that office or position, and the address of the business office of that person.
  2. The appointment of a registered agent pursuant to subsection (a)(1) or (2) is an affirmation by the represented entity that the agent has consented to serve as such.
  3. The Secretary of State shall make available in a record as soon as practicable a daily list of filings that contain the name of a registered agent. The list must:
    1. be kept available for at least 14 calendar days;
    2. list in alphabetical order the names of the registered agents; and
    3. state the type of filing and name of the represented entity making the filing.

History. Acts 2007, No. 638, § 1.

Case Notes

Cited: Ladd v. PS Little Rock, Inc., 2016 Ark. App. 506 (2016).

4-20-106. Listing of commercial registered agent.

  1. An individual or a domestic or foreign entity may become listed as a commercial registered agent by filing with the Secretary of State a commercial registered agent listing statement signed by or on behalf of the person which states:
    1. the name of the individual or the name, type, and jurisdiction of organization of the entity;
    2. that the person is in the business of serving as a commercial registered agent in this state; and
    3. the address of a place of business of the person in this state to which service of process and other notice and documents being served on or sent to entities represented by it may be delivered.
  2. A commercial registered agent listing statement may include the information regarding acceptance of service of process in a record by the commercial registered agent provided for in § 4-20-113(d).
  3. If the name of a person filing a commercial registered agent listing statement is not distinguishable on the records of the Secretary of State from the name of another commercial registered agent listed under this section, the person must adopt a fictitious name that is so distinguishable and use that name in its statement and when it does business in this state as a commercial registered agent.
  4. A commercial registered agent listing statement takes effect on filing.
  5. The Secretary of State shall note the filing of the commercial registered agent listing statement in the index of filings maintained by the Secretary of State for each entity represented by the registered agent at the time of the filing. The statement has the effect of deleting the address of the registered agent from the registered agent filing of each of those entities.

History. Acts 2007, No. 638, § 1.

4-20-107. Termination of listing of commercial registered agent.

  1. A commercial registered agent may terminate its listing as a commercial registered agent by filing with the Secretary of State a commercial registered agent termination statement signed by or on behalf of the agent which states:
    1. the name of the agent as currently listed under § 4-20-106; and
    2. that the agent is no longer in the business of serving as a commercial registered agent in this state.
  2. A commercial registered agent termination statement takes effect on the 31st day after the day on which it is filed.
  3. The commercial registered agent shall promptly furnish each entity represented by it with notice in a record of the filing of the commercial registered agent termination statement.
  4. When a commercial registered agent termination statement takes effect, the registered agent ceases to be an agent for service of process on each entity formerly represented by it. Until an entity formerly represented by a terminated commercial registered agent appoints a new registered agent, service of process may be made on the entity as provided in § 4-20-113. Termination of the listing of a commercial registered agent under this section does not affect any contractual rights a represented entity may have against the agent or that the agent may have against the entity.

History. Acts 2007, No. 638, § 1.

4-20-108. Change of registered agent by entity.

  1. A represented entity may change the information currently on file under § 4-20-105(a) by filing with the Secretary of State a statement of change signed on behalf of the entity which states:
    1. the name of the entity; and
    2. the information that is to be in effect as a result of the filing of the statement of change.
  2. The interest holders or governors of a domestic entity need not approve the filing of:
    1. a statement of change under this section; or
    2. a similar filing changing the registered agent or registered office of the entity in any other jurisdiction.
  3. The appointment of a registered agent pursuant to subsection (a) is an affirmation by the represented entity that the agent has consented to serve as such.
  4. A statement of change filed under this section takes effect on filing.
  5. Instead of using the procedures in this section, a represented entity may change the information currently on file under § 4-20-105(a) by amending its most recent registered agent filing in the manner provided by the laws of this state other than this chapter for amending that filing.

History. Acts 2007, No. 638, § 1.

4-20-109. Change of name or address by noncommercial registered agent.

  1. If a noncommercial registered agent changes its name, its address as currently in effect with respect to a represented entity pursuant to § 4-20-105(a), the agent shall file with the Secretary of State, with respect to each entity represented by the agent, a statement of change signed by or on behalf of the agent which states:
    1. the name of the entity;
    2. the name and address of the agent as currently in effect with respect to the entity;
    3. if the name of the agent has changed, its new name; and
    4. if the address of the agent has changed, the new address.
  2. A statement of change filed under this section takes effect on filing.
  3. A noncommercial registered agent shall promptly furnish the represented entity with notice in a record of the filing of a statement of change and the changes made by the filing.

History. Acts 2007, No. 638, § 1.

4-20-110. Change of name, address, or type of organization by commercial registered agent.

  1. If a commercial registered agent changes its name, its address as currently listed under § 4-20-106(a), or its type or jurisdiction of organization, the agent shall file with the Secretary of State a statement of change signed by or on behalf of the agent which states:
    1. the name of the agent as currently listed under § 4-20-106(a);
    2. if the name of the agent has changed, its new name;
    3. if the address of the agent has changed, the new address; and
    4. if the type or jurisdiction of organization of the agent has changed, the new type or jurisdiction of organization.
  2. The filing of a statement of change under subsection (a) is effective to change the information regarding the commercial registered agent with respect to each entity represented by the agent.
  3. A statement of change filed under this section takes effect on filing.
  4. A commercial registered agent shall promptly furnish each entity represented by it with notice in a record of the filing of a statement of change relating to the name or address of the agent and the changes made by the filing.
  5. If a commercial registered agent changes its address without filing a statement of change as required by this section, the Secretary of State may cancel the listing of the agent under § 4-20-106. A cancellation under this subsection has the same effect as a termination under § 4-20-107. Promptly after canceling the listing of an agent, the Secretary of State shall serve notice in a record in the manner provided in § 4-20-113(b) or (c) on:
    1. each entity represented by the agent, stating that the agent has ceased to be an agent for service of process on the entity and that, until the entity appoints a new registered agent, service of process may be made on the entity as provided in § 4-20-113; and
    2. the agent, stating that the listing of the agent has been cancelled under this section.
  6. The Secretary of State shall note the filing of the commercial registered agent change statement in the index of filings maintained by the Secretary of State for each entity represented by the registered agent at the time of the filing.

History. Acts 2007, No. 638, § 1.

4-20-111. Resignation of registered agent.

  1. A registered agent may resign at any time with respect to a represented entity by filing with the Secretary of State a statement of resignation signed by or on behalf of the agent which states:
    1. the name of the entity;
    2. the name of the agent;
    3. that the agent resigns from serving as agent for service of process for the entity; and
    4. the name and address of the person to which the agent will send the notice required by subsection (c).
  2. A statement of resignation takes effect on the earlier of the 31st day after the day on which it is filed or the appointment of a new registered agent for the represented entity.
  3. The registered agent shall promptly furnish the represented entity with notice in a record of the date on which a statement of resignation was filed.
  4. When a statement of resignation takes effect, the registered agent ceases to have responsibility for any matter tendered to it as agent for the represented entity. A resignation under this section does not affect any contractual rights the entity may have against the agent or that the agent has against the entity.
  5. A registered agent may resign with respect to a represented entity whether or not the entity is in good standing.

History. Acts 2007, No. 638, § 1.

4-20-112. Appointment of agent by nonfiling or nonqualified foreign entity.

  1. A domestic entity that is not a filing entity or a nonqualified foreign entity may file with the Secretary of State a statement appointing an agent for service of process signed on behalf of the entity which states:
    1. the name, type, and jurisdiction of organization of the entity; and
    2. the information required by § 4-20-105(a).
  2. A statement appointing an agent for service of process takes effect on filing.
  3. The appointment of a registered agent under this section does not qualify a nonqualified foreign entity to do business in this state and is not sufficient alone to create personal jurisdiction over the nonqualified foreign entity in this state.
  4. A statement appointing an agent for service of process may not be rejected for filing because the name of the entity filing the statement is not distinguishable on the records of the Secretary of State from the name of another entity appearing in those records. The filing of a statement appointing an agent for service of process does not make the name of the entity filing the statement unavailable for use by another entity.
  5. An entity that has filed a statement appointing an agent for service of process may cancel the statement by filing a statement of cancellation, which shall take effect upon filing, and must state the name of the entity and that the entity is canceling its appointment of an agent for service of process in this state. A statement appointing an agent for service of process which has not been cancelled earlier is effective for a period of five (5) years after the date of filing.
  6. A statement appointing an agent for service of process for a nonqualified foreign entity terminates automatically on the date the entity becomes a qualified foreign entity.

History. Acts 2007, No. 638, § 1.

4-20-113. Service of process on entities.

  1. A registered agent is an agent of the represented entity authorized to receive service of any process, notice, or demand required or permitted by law to be served on the entity.
  2. If an entity fails to appoint an agent under this subchapter or if an entity that previously filed a registered agent filing with the Secretary of State no longer has a registered agent, or if its registered agent cannot with reasonable diligence be served, the entity may be served by registered or certified mail, return receipt requested, addressed to one or more of the governors of the entity by name at its principal office in accordance with any applicable judicial rules and procedures. The names of the governors and the address of the principal office shall be as shown in the most recent annual report filed with the Secretary of State. If the entity is not required to file an annual report with the Secretary of State, the names of the governors and the address of the principal office shall be as shown in the entity's public organic document. Service is perfected under this subsection at the earliest of:
    1. the date the entity receives the mail;
    2. the date shown on the return receipt, if signed on behalf of the entity; or
    3. five (5) days after its deposit with the United States Postal Service, if correctly addressed and with sufficient postage.
  3. If process, notice, or demand cannot be served on an entity pursuant to subsection (a) or (b), service of process may be made by handing a copy to the manager, clerk, or other person in charge of any regular place of business or activity of the entity if the person served is not a plaintiff in the action.
  4. Service of process, notice, or demand on a registered agent must be in the form of a written document, except that service may be made on a commercial registered agent in such other forms of a record, and subject to such requirements, as the agent has stated from time to time in its listing under § 4-20-106 that it will accept.
  5. Service of process, notice, or demand may be perfected by any other means prescribed by law other than this chapter.

History. Acts 2007, No. 638, § 1; 2009, No. 408, § 7; 2009, No. 814, § 1.

Amendments. The 2009 amendment by No. 408 inserted “fails to appoint an agent under this subchapter or if an entity” in (b).

The 2009 amendment by No. 814 inserted “fails to appoint an agent under this subchapter or if an entity” in (b).

4-20-114. Duties of registered agent.

The only duties under this chapter of a registered agent who has complied with this chapter are:

  1. to forward to the represented entity at the address most recently supplied to the agent by the entity any process, notice, or demand that is served on the agent;
  2. to provide the notices required by this chapter to the entity at the address most recently supplied to the agent by the entity;
  3. if the agent is a noncommercial registered agent, to keep current the information required by § 4-20-105(a) in the most recent registered agent filing for the entity; and
  4. if the agent is a commercial registered agent, to keep current the information listed for it under § 4-20-106(a).

History. Acts 2007, No. 638, § 1.

4-20-115. Jurisdiction and venue.

The appointment or maintenance in this state of a registered agent does not by itself create the basis for personal jurisdiction over the represented entity in this state. The address of the agent does not determine venue in an action or proceeding involving the entity.

History. Acts 2007, No. 638, § 1.

4-20-116. Consistency of application.

In applying and construing this chapter, consideration must be given to the need to promote consistency of the law with respect to its subject matter among states that enact it.

History. Acts 2007, No. 638, § 1.

4-20-117. Relation to Electronic Signatures in Global and National Commerce Act.

This chapter modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001, et seq., but does not modify, limit, or supersede Section 101(c) of that act, (15 U.S.C. Section 7001(c)), or authorize delivery of any of the notices described in Section 103(b) of that act, 15 U.S.C. Section 7003(b).

History. Acts 2007, No. 638, § 1.

4-20-118. Savings clause.

This chapter does not affect an action or proceeding commenced or right accrued before the effective date of this chapter.

History. Acts 2007, No. 638, § 1.

Chapters 21-24 [Reserved.]

[Reserved.]

Subtitle 3. Corporations and Associations

Research References

Am. Jur. 18 Am. Jur. 2d, Corp., § 1 et seq.

C.J.S. 18 C.J.S., Corp., § 1 et seq.

Chapter 25 General Provisions

Effective Dates. Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

4-25-101. Resignation of agent.

    1. Any person who has been designated by any corporation, either foreign or domestic, as its authorized agent for service of process, may file with the Secretary of State a signed statement that he or she is unwilling to continue to act as the agent of the corporation.
    2. Upon the expiration of sixty (60) days after the filing of the statement with the Secretary of State, the capacity of the person as agent shall terminate.
  1. Upon the filing of the statement, the Secretary of State forthwith shall give written notice, by mail, to the corporation of the filing of the statement and the effect thereof. The notice shall be addressed to the corporation at its principal office, as shown by the records of the Secretary of State's office, and the corporation shall immediately designate another agent for service of process.

History. Acts 1941, No. 54, § 1; A.S.A. 1947, § 64-1102.

Cross References. Model Registered Agents Act, resignation of agent, § 4-20-111.

4-25-102. Corporate security or surety bonds.

  1. Except as provided in § 23-37-314, § 23-37-511 [repealed], § 23-37-603, § 23-39-505, § 23-42-305, or § 23-55-204, if the laws of this state provide for the furnishing of a corporate security or surety bond to assure financial responsibility, the person, firm, or corporation required to provide the bond, in lieu of providing the corporate security or surety bond, may furnish the principal amount of at least the amount of the bond to be provided in the form of:
    1. Certificates of deposit issued by Arkansas banks and savings and loan associations; or
    2. Direct general obligation securities issued by:
      1. The State of Arkansas;
      2. An agency or instrumentality of the State of Arkansas;
      3. A political subdivision of this state;
      4. The United States; or
      5. An agency of the United States.
  2. It is not the intention of this section to prohibit the furnishing of personal bond or the furnishing of a property or other bond in any other such manner as is now provided by law.
  3. This section shall not apply to banks, savings and loan associations, any case where federal law requires a corporate surety bond, or in any case where performance of contractual obligations is required on the part of the person required to provide bond.
  4. Every governmental agency affected by this section is authorized and directed to issue such rules as are necessary and appropriate for the carrying out of this section.

History. Acts 1979, No. 634, §§ 1, 2; A.S.A. 1947, §§ 66-4105, 66-4106; Acts 2009, No. 535, § 1.

Amendments. The 2009 amendment subdivided (a), inserted “Except as provided in § 23-37-314, § 23-37-511, § 23-37-603, § 23-39-505, § 23-42-305, or § 23-55-404” in the introductory language, and made related and minor stylistic changes throughout the subsection.

4-25-103. Contributions authorized.

All business corporations, railroad corporations, banking corporations, insurance corporations, building and loan corporations, benevolent corporations, and cooperative associations shall have the power to make donations for the public welfare or for charitable, scientific, or educational purposes, subject to such limitations, if any, as may be contained in its articles of incorporation or any amendment thereto.

History. Acts 1951, No. 69, § 1; A.S.A. 1947, § 64-1101.

Publisher's Notes. This section may have been superseded as to business corporations by § 4-26-204, as to insurance corporations by § 23-69-111, and as to railroad corporations by § 23-11-209.

Research References

Ark. L. Rev.

Charitable Donations by Corporations, 5 Ark. L. Rev. 389.

4-25-104. [Repealed.]

Publisher's Notes. This section, concerning insolvent corporations, was repealed by Acts 1993, No. 444, § 1. The section was derived from Acts 1893, No. 189, §§ 1-4, p. 345; C. & M. Dig., §§ 1798-1801; Pope's Dig., §§ 2198-2201; A.S.A. 1947, §§ 64-1103 — 64-1106.

Acts 1993, No. 444, § 2, provided:

“The General Assembly determines that Arkansas Code § 4-25-104 is no longer necessary and should be repealed as the dissolution of insolvent corporations is now comprehensively covered by Arkansas Code §§ 4-26-1108, 4-27-1430, and 4-59-201 et seq.”

4-25-105. Joint tenancy in stock certificate.

  1. In any instance in which any corporation or cooperative association organized under the laws of the State of Arkansas may issue any stock certificate or other form of certificate of any character evidencing ownership or equity in the corporation or cooperative association in two (2) or more persons and shall use the word “or” between the names of the persons to whom it is issued so as to cause it to read in the alternative, the persons to whom the certificate is issued in this form shall hold and own the same as joint tenants and not as tenants in common, and full and complete ownership of the certificate so issued shall pass and belong to the last survivor of the persons so named.
  2. Any one (1) of the persons to whom any certificate may be issued in manner and form as provided in subsection (a) of this section may endorse, assign, or transfer the certificate as fully and as effectively as could all persons therein named joining together. The endorsement, assignment, or transfer so made shall be fully binding on all persons named therein.

History. Acts 1959, No. 161, §§ 1, 2; A.S.A. 1947, §§ 50-110, 50-111.

Publisher's Notes. Acts 1959, No. 161, §§ 1, 2, are also codified as § 18-27-101.

Research References

ALR.

Issuance of stock certificate to joint tenants as creating gift inter vivos. 5 A.L.R.4th 373.

Transfer on corporate books as sufficient for gift of stock. 6 A.L.R.4th 250.

Ark. L. Rev.

Joint Tenancy — Right of Survivorship — “Four Unities”, 23 Ark. L. Rev. 136.

Case Notes

Cited: Smith v. Paul, 317 Ark. 182, 876 S.W.2d 266 (1994).

4-25-106. Authorization for preexisting corporations to do business in state.

    1. Any corporation organized in this state under the provisions of Acts 1931, No. 255, §§ 77-80 [repealed], for the purpose of transacting business outside this state is authorized to transact business within the state by filing an amendment to its articles of incorporation to that effect if, upon filing the amendment, it pays, in addition to the fees required for filing the amendment, the difference between the amount of fees paid on its original incorporation for the transaction of business outside the state and the fees it would have been required to pay for incorporation under Acts 1931, No. 255 [repealed], as a domestic corporation formed for the purpose of doing intrastate business.
    2. Upon filing the amendment, the corporation shall thereafter be incorporated for all purposes as if it was incorporated under the terms of Acts 1931, No. 255, §§ 1-7, 38, 39, 68, and 69 [repealed], and the corporations are entitled to all the rights and privileges of corporations formed under Acts 1931, No. 255, §§ 1-7, 38, 39, 68, and 69 [repealed].
  1. Articles of original incorporation and the amendment as prescribed in this section shall be filed with the county clerk of the county in which the principal office of the corporation is to be located.

History. Acts 1959, No. 274, § 1.

4-25-107. Effect of certain contract provision upon determination of agency.

A person who requires by contract that another person comply with any state or federal law, regulation, or rule, including but not limited to, one relating to wages, benefits, or safety conditions, shall not be deemed to subject that person to his or her control for purposes of determining agency.

History. Acts 1989, No. 946, § 1.

4-25-108. Eligibility to receive county grants.

Before an unincorporated association is eligible to receive a grant administered by the county, the association shall provide the county judge a list of six (6) names and addresses of officers and directors of the association, along with a letter signed by the president and the secretary of the association authorizing a specific officer of the association to receive funds on behalf of the association.

History. Acts 1997, No. 534, § 1.

4-25-109. Corporation permitted to change its state of incorporation. [Effective until May 1, 2021.]

    1. Any business corporation may change its state of incorporation from this state to any other jurisdiction which authorizes this change.
    2. Any foreign corporation may change its jurisdiction of incorporation to this state from any other jurisdiction which authorizes this change.
    1. This change may be made by a business corporation:
      1. Only pursuant to authorization by a majority of the voting power present, or by a larger vote as the articles may require;
      2. At an annual or special meeting of shareholders; and
      3. If the notice sets forth the consideration of this action as the purpose of the meeting.
      1. There shall be filed with the Secretary of State a certificate as to the authorization by the shareholders, signed by the president or vice president and the secretary and acknowledged by the president or vice president.
      2. The certificate may be delivered to the Secretary of State for filing as of any specified date within thirty (30) days after the date of delivery.
    2. When all taxes, fees, and charges have been paid as required by law, the Secretary of State shall record the certificate in the office of the Secretary of State and issue to the corporation a certificate reciting that it has taken all action required under the laws of this state to change its state of incorporation to the other jurisdiction.
    3. The corporation shall, upon complying with the laws of the new jurisdiction, no longer be under the laws of this state.
    4. Certified copies of the certificate of incorporation or other official certificate evidencing the corporation's incorporation under the laws of the other jurisdiction shall be filed with the Secretary of State within thirty (30) days of receipt by the business corporation.
    1. The change may be made by a foreign corporation by filing with the Secretary of State:
      1. A certified copy of its original or restated articles and all amendments subsequent to the latest restatement, which were filed in the other jurisdiction;
      2. The original of a certificate of good standing from the state of original jurisdiction, dated not more than thirty (30) days earlier than the date of filing in this state;
      3. An application for incorporation pursuant to this section, signed for the corporation by its president or vice president and its secretary or assistant secretary, and acknowledged by one (1) of the signing officers, setting forth the requirements of § 4-27-202;
      4. A franchise tax contact sheet provided by the Secretary of State; and
      5. A certificate by the Secretary of State or other proper officer of the jurisdiction in which the corporation is incorporated, reciting that the corporation has taken all action required under the laws of the jurisdiction to become a corporation incorporated under the laws of this state.
      1. These documents may be delivered to the Secretary of State for filing as of any specified date within thirty (30) days after the date of delivery.
      2. When all fees and charges have been paid as required by law, the Secretary of State shall record the documents in the office of the Secretary of State and issue a certificate of incorporation of the corporation under the laws of this state.
    2. The certificate of incorporation shall be conclusive evidence of the fact that the corporation has been duly incorporated under the laws of this state.
    3. Effective as of the time of filing the documents with the Secretary of State, the corporation shall be incorporated solely under the laws of this state and no longer under the laws of the other jurisdiction.

History. Acts 2001, No. 454, § 1.

Publisher's Notes. For text of section effective May 1, 2021, see the following version.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Business Law, 24 U. Ark. Little Rock L. Rev. 407.

4-25-109. Corporation permitted to change its state of incorporation. [Effective May 1, 2021.]

    1. Any business corporation may change its state of incorporation from this state to any other jurisdiction which authorizes this change.
    2. Any foreign corporation may change its jurisdiction of incorporation to this state from any other jurisdiction which authorizes this change.
    1. This change may be made by a business corporation:
      1. Only pursuant to authorization by a majority of the voting power present, or by a larger vote as the articles may require;
      2. At an annual or special meeting of shareholders; and
      3. If the notice sets forth the consideration of this action as the purpose of the meeting.
      1. There shall be filed with the Secretary of State a certificate as to the authorization by the shareholders, signed by the president or vice president and the secretary and acknowledged by the president or vice president.
      2. The certificate may be delivered to the Secretary of State for filing as of any specified date within thirty (30) days after the date of delivery.
    2. When all taxes, fees, and charges have been paid as required by law, the Secretary of State shall record the certificate in the office of the Secretary of State and issue to the corporation a certificate reciting that it has taken all action required under the laws of this state to change its state of incorporation to the other jurisdiction.
    3. The corporation shall, upon complying with the laws of the new jurisdiction, no longer be under the laws of this state.
    4. Certified copies of the certificate of incorporation or other official certificate evidencing the corporation's incorporation under the laws of the other jurisdiction shall be filed with the Secretary of State within thirty (30) days of receipt by the business corporation.
    1. The change may be made by a foreign corporation by filing with the Secretary of State:
      1. A certified copy of its original or restated articles and all amendments subsequent to the latest restatement, which were filed in the other jurisdiction;
      2. The original of a certificate of good standing from the state of original jurisdiction, dated not more than thirty (30) days earlier than the date of filing in this state;
      3. An application for incorporation under this section, signed for the corporation by its president or vice president and its secretary or assistant secretary, and acknowledged by one (1) of the signing officers, setting forth the requirements of § 4-27-202;
        1. A franchise tax contact sheet provided by the Department of Finance and Administration.
        2. The Secretary of State shall send a copy of the franchise tax contact sheet required to be filed under this subdivision (c)(1)(D) to the department; and
      4. A certificate by the Secretary of State or other proper officer of the jurisdiction in which the corporation is incorporated, reciting that the corporation has taken all action required under the laws of the jurisdiction to become a corporation incorporated under the laws of this state.
      1. These documents may be delivered to the Secretary of State for filing as of any specified date within thirty (30) days after the date of delivery.
      2. When all fees and charges have been paid as required by law, the Secretary of State shall record the documents in the office of the Secretary of State and issue a certificate of incorporation of the corporation under the laws of this state.
    2. The certificate of incorporation shall be conclusive evidence of the fact that the corporation has been duly incorporated under the laws of this state.
    3. Effective as of the time of filing the documents with the Secretary of State, the corporation shall be incorporated solely under the laws of this state and no longer under the laws of the other jurisdiction.

History. Acts 2001, No. 454, § 1; 2019, No. 819, § 3.

A.C.R.C. Notes. Acts 2019, No. 819, § 1, provided: “Title. This act shall be known and may be cited as the ‘Arkansas Tax Reform Act of 2019'”.

Acts 2019, No. 819, § 2, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The Arkansas Tax Reform and Relief Legislative Task Force was charged with:

“(A) Examining and identifying areas of potential tax reform within the tax laws; and

“(B) Recommending legislation to the General Assembly, in part, to modernize and simplify the Arkansas tax code and ensure fairness to all taxpayers;

“(2) There are several areas of the tax code that should be amended to reform the state's tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(3) Any savings realized by the state through tax reforms should be dedicated to reducing the tax burden for Arkansas taxpayers.

“(b) It is the intent of the General Assembly to:

“(1) Reform Arkansas tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(2) Offset any revenue savings realized through tax reform with corresponding changes to reduce the tax burden for Arkansas taxpayers”.

Publisher's Notes. For text of section effective until May 1, 2021, see the preceding version.

Amendments. The 2019 amendment redesignated (c)(1)(D) as (c)(1)(D)(i); substituted “Department of Finance and Administration” for “Secretary of State” in (c)(1)(D)(i); and inserted (c)(1)(D)(ii).

Effective Dates. Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Business Law, 24 U. Ark. Little Rock L. Rev. 407.

Chapter 26 Business Corporations Generally

Publisher's Notes. This chapter applies to business corporations existing prior to midnight, December 31, 1987, which do not elect to be covered by Chapter 27 of this title. See § 4-27-1701.

Cross References. Arkansas Business Corporation Act of 1987, § 4-27-101 et seq.

Change of state of incorporation, § 4-25-109.

Research References

Ark. L. Notes.

Matthews, A Statutory Primer: The Arkansas Business Corporation Act of 1987, 1987 Ark. L. Notes 81.

Ark. L. Rev.

Organizing an Arkansas Business Corporation — A Primer, 21 Ark. L. Rev. 455.

Corporations — “Piercing the Corporate Veil” in Tort, 22 Ark. L. Rev. 531.

Professional Corporations — A Current Appraisal, 23 Ark. L. Rev. 215.

Some Legal and Other Problems of Professional Corporations in Arkansas, 24 Ark. L. Rev. 292.

Rosenzweig, Protecting the Rights of Minority Shareholders in Close Corporations Under the New Arkansas Business Corporation Act, 44 Ark. L. Rev. 1.

U. Ark. Little Rock L.J.

Brewer, An Overview of the 1987 Arkansas Business Corporation Act, 10 U. Ark. Little Rock L.J. 431.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

Case Notes

Foreign Corporations.

No provision in this chapter requires that a foreign corporation file amended articles of incorporation with the Secretary of State of Arkansas for tax computation purposes. Franklin Elec. Co. v. Heath, 261 Ark. 269, 547 S.W.2d 755 (1977).

Cited: Missouri Pac. R.R. v. W.S. Fox & Sons, Inc., 251 Ark. 247, 472 S.W.2d 726 (1971); Barnett v. Borg-Warner Acceptance Corp., 488 F. Supp. 786 (E.D. Ark. 1980).

Subchapter 1 — General Provisions

Cross References. Applicability to stock savings and loan associations, § 23-37-105.

General incorporation laws, Ark. Const., Art. 12, § 6.

Professional Corporation Act, § 4-29-201 et seq.

Effective Dates. Acts 1965, No. 576, § 98: effective at midnight on Dec. 31, 1965.

4-26-101. Title.

This chapter shall be known and may be cited as the “Arkansas Business Corporation Act”.

History. Acts 1965, No. 576, § 1; A.S.A. 1947, § 64-101.

Research References

Ark. L. Rev.

A License to Lie, Cheat, and Steal? Restriction or Elimination of Fiduciary Duties in Arkansas Limited Liability Companies, 60 Ark. L. Rev. 643.

U. Ark. Little Rock L.J.

Mathews, Corporate Statutes—Which One Applies?, 13 U. Ark. Little Rock L.J. 69.

4-26-102. Definitions.

As used in this chapter, unless the context otherwise requires:

  1. “Corporation” or “domestic corporation” means a corporation for profit subject to the provisions of this chapter, except a foreign corporation;
  2. “Foreign corporation” means a corporation for profit organized under laws other than the laws of this state for a purpose or purposes for which a corporation may be organized under this chapter;
  3. “Articles of incorporation” means the original or restated articles of incorporation and all amendments thereto;
  4. “Shares” means the units into which the proprietary interests in a corporation are divided;
  5. “Subscriber” means one who subscribes for shares in a corporation, whether before or after incorporation;
  6. “Shareholder” means one who is a holder of record of shares in a corporation;
  7. “Authorized shares” means the shares of all classes which the corporation is authorized to issue;
  8. “Treasury shares” means shares of a corporation which have been issued, have been subsequently acquired by and belong to the corporation, and have not been cancelled or restored to the status of authorized but unissued shares. Treasury shares shall be deemed to be “issued” shares, but shall not be considered as an asset of the corporation or as outstanding for dividend, quorum, voting, or other purposes;
  9. “Net assets” means the amount by which the total assets of a corporation, excluding treasury shares, exceed the total debts of the corporation;
  10. “Stated capital” means, at any particular time, the sum of:
    1. The par value of all shares, including treasury shares, of the corporation having a par value that have been issued and have not been cancelled or redeemed;
    2. The consideration fixed by the corporation in the manner provided by law for all shares, including treasury shares, of the corporation without par value that have been issued and have not been cancelled or redeemed, except that part of the consideration actually received therefor as may have been allocated to capital surplus in a manner permitted by law; and
    3. Such amounts not included in subdivisions (10)(A) and (B) of this section as have been transferred to stated capital of the corporation, whether upon the issue of shares as a share dividend or otherwise, minus all reductions from such sum as have been effected in a manner permitted by law;
  11. “Surplus” means the excess of the net assets of a corporation over its stated capital. “Surplus” shall be classified into “earned surplus” or “retained earnings” and “capital surplus”; and these classifications shall be shown separately on the books, balance sheets, and statements of the corporation;
  12. “Insolvent” means inability of a corporation to pay its debts as they become due in the usual course of its business;
  13. “Accrued preferential dividends” means the aggregate amount which, at any time, would be payable as dividends on shares having preference in respect to dividends before dividends can be paid to the holders of shares whose rights as to dividends are subordinate to this preference. For the purpose of this definition, a dividend is deemed paid if it has been declared, and funds for its payment have been set aside;
  14. “Principal place of business”, as used in this chapter, refers to the place in this state where the corporation maintains its principal business office; and the principal place of business may be different from the corporation's “registered office”.

History. Acts 1965, No. 576, § 2; A.S.A. 1947, § 64-102.

Case Notes

Cited: Franklin Elec. Co. v. Heath, 261 Ark. 269, 547 S.W.2d 755 (1977).

4-26-103. Applicability of chapter.

  1. Corporations may be organized under this chapter for any lawful purposes except that where another statute of this state, other than Acts 1931, No. 255, which is repealed by this chapter, requires that corporations of any designated class be organized thereunder, corporations of that designated class shall be organized under the other statute and shall be subject to the provisions thereof.
  2. In respect to all corporations of any designated class that could be organized under this chapter but which are subject to the provisions of any other statute or statutes placing restrictions or conditions on the organization of these corporations, or providing for the regulation of corporations after organization, the provisions of this chapter shall apply to corporations only to the extent that this chapter is not inconsistent with the provisions of the other statute or statutes. This chapter is not intended to repeal, amend, or qualify any statutes of such character.
  3. From and after midnight December 31, 1965, all corporations now existing and chartered under Acts 1931, No. 255 [repealed], or under Acts 1927, No. 250, or under Act April 12, 1869, shall be subject to the provisions of this chapter, subject, however, to the following:
    1. A corporation originally incorporated under a general business corporation statute of this state, but belonging to a class whereunder the organizational filing procedures have been transferred to some state office or agency other than the Secretary of State, will not be subjected to the provisions of this chapter;
    2. Previously chartered corporations brought under the provisions of this chapter will not be required to substitute new filings under this chapter for filings heretofore made with the Secretary of State and the county clerk in accordance with the requirements of the applicable antecedent statutes; and each designation of a resident agent and resident office made in accordance with the then applicable law by a previously chartered corporation brought under this chapter is declared a valid designation for the purposes of this chapter;
    3. Previously chartered corporations that are subject to regulation under other statutes shall remain subject to such regulation.
  4. To the extent that they were subject to the provisions of Acts 1931, No. 255, corporations created under the Dental Corporation Act, § 4-29-401 et seq., or under the Medical Corporation Act, § 4-29-301 et seq., shall be subject to the provisions of this chapter. However, corporations created under the Dental Corporation Act, § 4-29-401 et seq., or the Medical Corporation Act, § 4-29-301 et seq., prior to midnight December 31, 1965, will not be required to make new filings in lieu of lawful filings made by those corporations prior to midnight, December 31, 1965, and each lawful designation of resident agent or resident office made prior to midnight December 31, 1965, by the corporations shall be continued in effect as a valid designation under this chapter.

History. Acts 1965, No. 576, § 3; A.S.A. 1947, § 64-103.

Publisher's Notes. Acts 1927, No. 250, and Act April 12, 1869, referred to in this section, are deemed superseded by this chapter.

Research References

U. Ark. Little Rock L.J.

Mathews, Corporate Statutes—Which One Applies?, 13 U. Ark. Little Rock L.J. 69.

Case Notes

Cited: White County Guar. Sav. & Loan Ass'n v. Searcy Fed. Sav. & Loan Ass'n, 241 Ark. 878, 410 S.W.2d 760 (1967).

4-26-104. Administration by Secretary of State.

The Secretary of State shall have the power and authority reasonably necessary to enable him or her to administer this chapter efficiently and to perform the duties therein imposed upon him or her.

History. Acts 1965, No. 576, § 92; A.S.A. 1947, § 64-119.

4-26-105. Waiver of notice.

  1. Whenever any notice is required to be given to any shareholder or director of a corporation under the provisions of this chapter or under the provisions of the articles of incorporation or bylaws of the corporation, a waiver in writing signed by the person or persons entitled to the notice, whether before or after the time stated therein shall be equivalent to the giving of the notice.
  2. The attendance of any shareholder or director at a meeting without protesting, prior to or at the commencement of the meeting, the lack of proper notice shall be deemed to be a waiver by him or her of notice of the meeting.

History. Acts 1965, No. 576, § 43; A.S.A. 1947, § 64-116.

4-26-106. Certificates of Secretary of State to be received in evidence.

A certificate of the Secretary of State under the Great Seal of Arkansas, as to the existence or nonexistence of facts relating to corporations which would not appear from a certified copy of any documents on file in his or her office shall be taken and received in all courts, public offices, and official bodies as prima facie evidence of the existence or nonexistence of the facts therein stated.

History. Acts 1965, No. 576, § 94; A.S.A. 1947, § 64-118.

4-26-107. Disapproval of articles and other documents by Secretary of State — Appeals.

  1. If the Secretary of State shall fail to approve any articles of incorporation, amendment, merger, consolidation, or dissolution, or any other document required by this chapter to be approved by the Secretary of State before the same shall be filed in his or her office, he or she shall give, within ten (10) days after the delivery thereof to him or her, written notice of his or her disapproval to the person or corporation delivering the same, specifying the reasons therefor.
    1. From the disapproval of the Secretary of State the person or corporation may appeal to the Pulaski County Circuit Court by filing with the clerk of the court a petition setting forth:
      1. A copy of the articles or other document sought to be filed;
      2. A copy of the written disapproval by the Secretary of State; and
      3. The basis for challenging the legality of the ruling of the Secretary of State.
    2. Upon the filing of the petition, the matter shall be tried de novo by the court. The court shall either sustain the action of the Secretary of State or direct him or her to take such action as the court may deem proper.
  2. Appeals from all final orders and judgments entered by the circuit court under this section in review of any ruling or decision of the Secretary of State may be taken as in other civil actions.

History. Acts 1965, No. 576, § 93; A.S.A. 1947, § 64-120.

Subchapter 2 — Formation and Powers of Corporations

Cross References. Fairs and associations of public nature, § 4-28-101.

Effective Dates. Acts 1965, No. 576, § 98: effective at midnight on Dec. 31, 1965.

Acts 1968 (1st Ex. Sess.), No. 48, § 3: Feb. 21, 1968. Emergency clause provided: “It is hereby found and declared by the General Assembly of Arkansas that the existing statutory authorization for business corporations to make gifts and donations of corporate assets for public, governmental, scientific, educational and charitable purposes are unduly restrictive and are preventing corporations from making gifts and donations to governmental and charitable agencies; that there is an urgent need to encourage and authorize such gifts and donations for public and charitable purposes. Therefore, an emergency is declared to exist, and this Act being necessary for the preservation of the public peace, health and safety, shall take effect and be in force from the date of its approval.”

Research References

ALR.

Validity of variations from one share-one vote rule under modern corporate law. 3 A.L.R.4th 1204.

Validity of stockholders' agreement allegedly infringing on directors' management power. 15 A.L.R.4th 1078.

Attorney's liability for improper or ineffective incorporation of client. 40 A.L.R.4th 535.

Reinstatement of repealed, forfeited, expired, or suspended corporate charter as validating interim acts of corporation. 42 A.L.R.4th 392.

Validity, construction, and effect of provision in charter or bylaws requiring supermajority vote. 80 A.L.R.4th 667.

Am. Jur. 18A Am. Jur. 2d, Corp., § 150 et seq.

18B Am. Jur. 2d, Corp., § 1695 et seq.

Ark. L. Rev.

Organizing the Corporation with an Eye to the Tax Future, 17 Ark. L. Rev. 409.

De Facto Merger in the Corporate Partnership Context, 27 Ark. L. Rev. 737.

C.J.S. 18 C.J.S., Corp., § 47 et seq.

19 C.J.S., Corp., § 651 et seq.

4-26-201. Incorporators.

One (1) or more natural persons of the age of twenty-one (21) years or more may act as incorporators of a corporation by executing and filing in accordance with § 4-26-1201 articles of incorporation for the corporation.

History. Acts 1965, No. 576, § 54; A.S.A. 1947, § 64-501.

Case Notes

Compliance.

In order to exempt any association of persons from personal liability for the debts of a proposed corporation, they must comply fully with the act under which the corporation is created, a partial compliance is not sufficient, and unless they comply fully, business performed by them constitutes them a partnership. Gazette Publishing Co. v. Brady, 204 Ark. 396, 162 S.W.2d 494 (1942) (decision under prior law).

Contracts.

A corporation may adopt contracts made for it by its promoters in advance of organization as effectually as if made by it after organization and, after accepting the benefits of such contracts, cannot repudiate the accompanying burdens and obligations. Layton v. Central States Lead & Zinc Co., 147 Ark. 355, 227 S.W. 415 (1921) (decision under prior law).

Corporation accepting benefits of contract of promoters is liable under it. Brace v. Oil Fields Corp., 173 Ark. 1128, 293 S.W. 1041 (1927) (decision under prior law).

Promoters of an insurance corporation who executed a note and signed names thereto prior to its incorporation as officers without stating for whom or what company they were acting were personally liable for the payment of the note according to its terms. Shanks v. Clark, 175 Ark. 883, 300 S.W. 453 (1927) (decision under prior law).

Duties.

It is the duty of promoters to give correct information to prospective purchasers of stock. Porter v. Morris, 131 Ark. 382, 199 S.W. 106 (1917) (decision under prior law).

4-26-202. Articles of incorporation.

  1. The articles of incorporation, which shall be duly signed by all of the incorporators, shall set forth:
    1. The name of the corporation;
    2. The period of duration, which may be perpetual;
    3. The purpose for which the corporation is organized;
    4. The aggregate number of shares which the corporation shall have authority to issue; if the shares are to consist of one (1) class only, the par value of each of the shares or a statement that all of the shares are without par value; or, if the shares are to be divided into classes, the number of shares of each class and a statement of the par value of the shares of each class or that the shares are to be without par value;
    5. If the shares are to be divided into classes, the designation of each class and a statement of the preferences, limitations, and relative rights in respect to the shares of each class;
    6. If the corporation is to issue the shares of any preferred or special class in series, then the designation of each series and a statement of the variations in the relative rights and preferences as between series insofar as the series are to be fixed in the articles of incorporation and a statement of any authority to be vested in the board of directors to establish series and fix and determine the variations in the relative rights and preferences as between series;
    7. A statement that the corporation will not commence business until consideration of the value of at least three hundred dollars ($300) has been received for the issuance of shares;
    8. Any provisions limiting or denying to shareholders the preemptive right to acquire additional or treasury shares of the corporation;
    9. Any provision not inconsistent with law, which the incorporators elect to set forth in the articles of incorporation for the regulation of the internal affairs of the corporation, including any provision which under this chapter is required or permitted to be set forth in the bylaws;
    10. The address, including street and number, if any, of its initial registered office, and the name of its initial registered agent at the address;
    11. The number of directors constituting the initial board of directors who are to serve as directors until the next annual meeting of shareholders or until their successors be elected and qualify. If the number of directors constituting the initial board is either one (1) or two (2), then a statement shall also be included in the article specifying the number of directors to be elected at the annual meeting,or special meeting called for that purpose, of the shareholders next following the time when the shares of the corporation become owned of record by more than one (1) or two (2) shareholders as the case may be;
    12. The name and address of each incorporator.
  2. It shall not be necessary to set forth in the articles of incorporation any of the corporate powers enumerated in this chapter.

History. Acts 1965, No. 576, § 55; A.S.A. 1947, § 64-502.

Case Notes

Form.

No particular form of bylaws is required. Myar v. Poe, 79 Ark. 465, 95 S.W. 1005 (1906) (decision under prior law).

Residence.

The domestic corporation acquired a residence in a county by setting forth in its articles of incorporation the address of its initial registered office and the name of its initial registered agent at such address. Missouri Pac. R.R. v. W.S. Fox & Sons, Inc., 251 Ark. 247, 472 S.W.2d 726 (1971).

Cited: J.M. Prods., Inc. v. Ark. Capital Corp., 51 Ark. App. 85, 910 S.W.2d 702 (1995).

4-26-203. Organization meeting of incorporators.

  1. After the filing of the articles of incorporation with the Secretary of State as required in § 4-26-1201, an organization meeting of the incorporators shall be held either within or without this state, at the call of a majority of the incorporators, for the purpose of electing directors and the transaction of such other business as may come before the meeting.
  2. The incorporators calling the meeting shall give at least three (3) days' notice thereof by mail to the remaining incorporators. The notice shall state the time and place of the meeting. However, the giving of the notice may be waived by the incorporators entitled to receive the notice.

History. Acts 1965, No. 576, § 58; A.S.A. 1947, § 64-505.

4-26-204. General powers.

  1. Each corporation, by virtue of its existence as such, shall have power:
    1. To have perpetual succession by its corporate name unless a limited period of duration is stated in its articles of incorporation;
    2. To sue and be sued, in its corporate name;
    3. To have a corporate seal which may be altered at will and to use the seal by causing it or a facsimile to be impressed or affixed or in any other manner reproduced; but the use of a seal by the corporation will be optional and not mandatory;
    4. To elect or appoint officers and agents of the corporation and define their duties and fix their compensation;
    5. To make, alter, and repeal bylaws not inconsistent with its articles of incorporation or with the laws of this state for the administration and regulation of the affairs of the corporation;
    6. Subject to any restrictions in its articles of incorporation, to make contributions or gifts to corporations, trusts, community chests, funds, foundations, or associations organized and operated exclusively for religious, charitable, literary, scientific, or educational purposes or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, and may make contributions or gifts to governmental units and agencies to be used for any lawful purpose when these contributions or gifts are authorized or approved by its board of directors;
    7. In time of war or engagement of the United States Armed Forces in hostile military operations, to transact any lawful business in aid of the United States in connection therewith;
    8. Subject to any restrictions in its articles of incorporation, to invest its funds as it sees fit, including specifically and without limiting the generality of the foregoing, the power to acquire controlling interests in, or the entire ownership of, other corporations whether engaged in the same or different kinds of business;
    9. To cease its corporate activities and surrender its corporate franchise.
  2. To effectuate the purposes stated in its articles of incorporation, and subject to any limitation prescribed by this chapter or by its articles of incorporation, every corporation shall also have power:
    1. To acquire, by purchase, lease, gift, will, or otherwise, and to own, hold, improve, use, and otherwise deal in and with real and personal property, or any interest therein, wherever situated;
    2. To sell, convey, lease, exchange, transfer, and otherwise dispose of all or any part of its property and assets;
    3. To enter into contracts of guaranty or suretyship or make other financial arrangements for its customers, suppliers, subsidiaries, and others with whom it transacts business; also, where in the opinion of the directors action should be taken to promote good employer-employee relationships, it may make undertakings of such character for the benefit of any of its employees. The term “employees” is not to include any officer or director or any person holding as much as ten percent (10%) of the shares entitled to vote for the election of directors;
    4. To procure for its benefit insurance on the life of any employee or officer whose death might cause financial loss to the corporation, and to this end, the corporation is deemed to have an insurable interest in its employees and officers;
    5. To acquire, by purchase, subscription, gift, will, or otherwise, and to own, hold, vote, sell, mortgage, lend, pledge, or otherwise dispose of, and otherwise use and deal in and with any or all of the shares or other interests in, or obligations of, other domestic or foreign corporations or the obligations of any associations, partnerships, or individuals or any direct or indirect obligations of the United States or of any government, state, territory, governmental district, or municipality or of any instrumentality thereof;
    6. To enter into general partnership agreements with another corporation or corporations whether organized under the laws of this state or otherwise or with any individual, individuals, or partnerships but only on condition that the action is authorized by the articles of incorporation or, in the absence of such charter authorization, by the holders of at least a majority of the outstanding shares of each class entitled at that time to vote at an election of directors; and, even though no charter authority therefor exists, a corporation, without prior stockholders' approval and merely on the authorization of its board of directors, may:
      1. Become a limited partner; or
      2. Enter into a joint adventure arrangement with any domestic or foreign corporation or corporations or any individual, individuals, or partnership, provided the joint adventure contemplates:
        1. The joint prosecution of a single undertaking; or
        2. The prosecution of successive joint undertakings or business activities over a period not exceeding five (5) years; the joint activities after the expiration of this period to be restricted to acts of liquidation, including the completion of any projects commenced during the five-year period; and the joint arrangement not to be extended except under stockholders' authority as above provided;
    7. To make contracts and incur liabilities, borrow money, issue its notes, debentures, bonds, and other obligations, and secure any of its obligations by mortgage, pledge, security interest, or other form of encumbrance upon all or any of its property including after-acquired property, franchises, and income;
    8. To lend money for its corporate purposes, including the power to lend money to its employees where such action tends to promote good employer-employee relationship; to invest its funds from time to time in such manner as may be approved by the board;
    9. To pay pensions and establish pension plans, pension trusts, profit-sharing plans, stock bonus plans, stock option plans, and other incentive plans for any or all of its directors, officers, and employees;
    10. To conduct its business, carry on its operations, and have offices and exercise the powers granted by this chapter anywhere in the world;
    11. To have and exercise all additional powers necessary or convenient to effect any or all of the purposes for which the corporation is organized.
  3. It shall not be necessary to set forth in the articles of incorporation any of the powers enumerated in this section, but the powers shall exist and may be exercised by the corporation, whether or not set forth in the articles.

History. Acts 1965, No. 576, § 4; 1968 (1st Ex. Sess.), No. 48, § 1; A.S.A. 1947, § 64-104.

Cross References. Property, taking by corporation, compensation, Ark. Const., Art. 12, § 9.

Unfair Practices Act, § 4-75-201 et seq.

Research References

Ark. L. Rev.

Note, Hall v. Staha: Arkansas Courts Adopt the Business Judgment Rule as a Tool of Judicial Review and Analyze the Issue of Excessive Executive Compensation, 47 Ark. L. Rev. 959.

U. Ark. Little Rock L.J.

Webber, Arkansas Corporate Fiduciary Standards — Interested Directors' Contracts and the Doctrine of Corporate Opportunity, 5 U. Ark. Little Rock L.J. 39.

Case Notes

Accommodation Paper.

Private corporation, with the consent of all its stockholders and directors, may execute commercial paper as an accommodation. Murphy v. Ark. & La. Land & Improv. Co., 97 F. 723 (W.D. Ark. 1899) (decision under prior law).

Contracts.

The legislature is authorized to regulate the powers of corporations to enter into contracts when the regulation would not be subversive to any vested rights or the objects of the charter. Ark. Stave Co. v. State, 94 Ark. 27, 125 S.W. 1001 (1910) (decision under prior law).

Conveyances.

There is a presumption in favor of power of corporation to make conveyances. Cotton v. White, 131 Ark. 273, 199 S.W. 116 (1917) (decision under prior law).

Seal of corporation affixed to deed constituted a prima facie showing that corporation was regularly incorporated and that the officers were authorized to make the deed. Oliver v. Henry Quellmalz Lumber & Mfg. Co., 170 Ark. 1029, 282 S.W. 355 (1926) (decision under prior law).

Indebtedness.

The authority of the officers of a private corporation to execute a mortgage for valuable consideration conveying the corporate property to themselves individually could not be questioned by subsequent creditors of the corporation, where neither the stockholders nor existing creditors complained. Stallings v. Galloway-Kennedy Co., 171 Ark. 24, 283 S.W. 41 (1926) (decision under prior law).

Mergers.

Evidence that two corporations formed a partnership, sold their merchandise to the partnership, and appointed one person as manager of the partnership to handle all merchandising and accounting operations established a prima facie case of de facto merger of the corporations entitling minority stockholders to be paid for their stock. Pratt v. Ballman-Cummings Furn. Co., 254 Ark. 570, 495 S.W.2d 509 (1973).

Right to Sue.

Fact that two corporations have directors or other officers in common does not of itself prevent one from maintaining an action at law against the other. G.W. Jones Lumber Co. v. Wisarkana Lumber Co., 125 Ark. 65, 187 S.W. 1068 (1916) (decision under prior law).

Corporation which has failed to file report and pay franchise tax may sue so long as the attorney general has not proceeded to annul its charter. Jones v. Bank of Commerce, 131 Ark. 362, 199 S.W. 103 (1917) (decision under prior law).

Where an action is commenced by a corporation after its charter has been forfeited, subsequent reinstatement is not retroactive and does not vest the corporation with a right to prosecute the action. Sulphur Springs Recreational Park v. Camden, 247 Ark. 713, 447 S.W.2d 844 (1969) (decision under prior law).

Cited: James v. J.F.K. Carwash, Inc., 275 Ark. 141, 628 S.W.2d 299 (1982); First Commer. Bank, N.A. v. Walker, 333 Ark. 100, 969 S.W.2d 146 (1998); Marcum v. Wengert, 344 Ark. 153, 40 S.W.3d 230 (2001).

4-26-205. Defense of ultra vires.

  1. No act of a corporation and no conveyance or transfer of real or personal property to or by a corporation shall be invalid by reason of the fact that the corporation was without capacity or power to do the act or to make or receive the conveyance or transfer.
  2. However, the lack of capacity or power may be asserted:
    1. In a proceeding by a shareholder against the corporation to enjoin the doing of any act or acts or the transfer of real or personal property by or to the corporation. If the unauthorized acts or transfer sought to be enjoined are being, or are to be, performed or made pursuant to any contract to which the corporation is a party, the court may, if all of the parties to the contract are parties to the proceeding and if it deems the same to be equitable, set aside and enjoin the performance of the contract, and in so doing, may allow to the corporation or to the other parties to the contract, as the case may be, compensation for the loss or damage sustained by either of them which may result from the action of the court in setting aside and enjoining the performance of the contract; but anticipated profits to be derived from the performance of the contract shall not be awarded by the court as a loss or damage sustained;
    2. In a proceeding by the corporation, whether acting directly or through a receiver, trustee, or other legal representative or through shareholders in a representative or derivative suit against the incumbent or former officers or directors of the corporation;
    3. In a proceeding by the Attorney General, as provided in this chapter, to dissolve the corporation or in a proceeding by the Attorney General to enjoin the corporation from the transaction of unauthorized business.

History. Acts 1965, No. 576, § 6; A.S.A. 1947, § 64-106.

Case Notes

Applicability.

Ultra vires does not apply to torts. Sullivan v. Ark. Valley Bank, 176 Ark. 278, 2 S.W.2d 1096 (1928) (decision under prior law).

Actions Within Authority.

Where a corporation was authorized to buy, own, sell and lease real estate, its agreement to pay a debt of a contractor employed by it to paint a building it was occupying to prevent a materialman from filing a lien was not ultra vires. Becker Provision Co. v. Parker Hdwe. Co., 146 Ark. 539, 226 S.W. 177 (1920) (decision under prior law).

Benefits of Contract.

Where an ultra vires contract entered into by a corporation has been fully performed by the other party and the corporation has had the benefit thereof, the contract is binding on the corporation. Becker Provision Co. v. Parker Hdwe. Co., 146 Ark. 539, 226 S.W. 177 (1920) (decision under prior law).

Where an oil company purchased pipe and got the benefit of it, it is immaterial in an action on the note representing the purchase price, which it signed as surety, whether it had authority to make or endorse the note, since it would be liable for the purchase price regardless of such authority. El Dorado Pipe & Supply Co. v. Penguin Oil Co., 174 Ark. 843, 296 S.W. 713 (1927) (decision under prior law).

Defense.

Individuals who entered into a partnership agreement with a corporation are liable on a partnership debt contracted by it in furtherance of the purpose for which the corporation was organized and cannot take advantage of the fact that the contract was beyond the powers of the corporation. Hayes-Thomas Grain Co. v. A.F. Wilcox Contracting Co., 144 Ark. 621, 223 S.W. 357 (1920) (decision under prior law).

Where a corporation, sued on an alleged contract, seeks to avail itself of the defense of ultra vires, it must plead that defense; but where it relies on the lack of authority of its officer to make such a contract, it may deny that it made the contract and place upon the plaintiff the burden of showing the officer's authority. Anderson-Tully Co. v. Gillett Lumber Co., 155 Ark. 224, 244 S.W. 26 (1922) (decision under prior law).

Whether a corporation's contract is ultra vires will not be considered on appeal in the absence of evidence of its charter powers. Crow Oil & Gas Co. v. Drain, 171 Ark. 817, 286 S.W. 971 (1926) (decision under prior law).

A lumber corporation, seeking to avail itself of ultra vires of indemnity agreement executed by it in that it was not authorized by the articles of incorporation, must plead such want of power as a special defense. Lena Lumber Co. v. Brickhouse, 173 Ark. 348, 292 S.W. 1007 (1927) (decision under prior law).

The promissory note held not invalid as an ultra vires instrument since none of the statutory conditions were present for an assenting stockholder to assert the defense of ultra vires and, accordingly, the underlying personal guarantees were not invalid. James v. J.F.K. Carwash, Inc., 275 Ark. 141, 628 S.W.2d 299 (1982).

Standing.

Where the security agreement covering the pledge of all of a moving company's assets by the company's sole shareholder was properly filed and therefore gave constructive notice to all subsequent creditors, the trustee in bankruptcy lacked standing to assert an ultra vires defense against the assignee of the security agreement. Putnam Realty, Inc. v. Terminal Moving & Storage Co. (In re Terminal Moving & Storage Co.), 631 F.2d 547 (8th Cir. 1980).

Cited: National Surety Corp. v. Crystal Springs Fishing Village, Inc., 326 F. Supp. 1171 (W.D. Ark. 1971); Marcum v. Wengert, 344 Ark. 153, 40 S.W.3d 230 (2001).

4-26-206. Prerequisite to commencing business.

A corporation shall not transact any business or incur any indebtedness, except such as shall be incidental to its organization or to obtaining subscriptions to or payment for its shares until there has been paid in for the issuance of shares consideration of the value of at least three hundred dollars ($300).

History. Acts 1965, No. 576, § 57; A.S.A. 1947, § 64-504.

Research References

Ark. L. Rev.

Carnes and Banks, Capitalization Under the Financial Provisions of the Arkansas Business Corporation Act, 38 Ark. L. Rev. 802.

4-26-207. Certificate of corporate existence — Prima facie evidence.

  1. At any time after the incorporators have filed articles of incorporation with the Secretary of State, he or she shall, upon request and upon payment of the fee prescribed by law, certify whether, as disclosed by the records in his or her office, the existence of the corporation has terminated by reason of voluntary or involuntary dissolution, merger, consolidation, franchise tax default, or otherwise.
  2. If the certificate identifies the corporation by its corporate name, and by showing the names of the original incorporators and the date the original articles of incorporation were filed, it shall be admissible in evidence, and the certifications therein contained shall be deemed prima facie true.

History. Acts 1965, No. 576, § 56; A.S.A. 1947, § 64-503.

Case Notes

Collateral Attack.

A corporation's right to exist cannot be attacked collaterally. Searcy v. Yarnell, 47 Ark. 269, 1 S.W. 319 (1886); Cairo, T. & S.R.R. v. Ark. Short Line, 172 Ark. 317, 288 S.W. 715 (1926) (preceding decisions under prior law).

Sufficiency of Certificate.

Where the validity of certificate from the Secretary of State stating that plaintiff was a corporation in good standing at all times pertinent to the action was uncontroverted except for plaintiff's failure to file a change of address as to its registered office or agent, but defendants demonstrated no prejudice as a result of the change of address, certificate was sufficient to prove the corporation's legal existence and thus plaintiff had the legal capacity to sue. Delta Oil Co. v. Catalani, 276 Ark. 66, 633 S.W.2d 1 (1982).

Subchapter 3 — Amendment of Articles of Incorporation

Effective Dates. Acts 1965, No. 576, § 98: effective at midnight on Dec. 31, 1965.

Research References

C.J.S. 18 C.J.S., Corp., § 77 et seq.

4-26-301. Amendments authorized.

  1. A corporation may amend its articles of incorporation, from time to time, in any and as many respects as may be desired, so long as its articles of incorporation as amended contain only such provisions as might be lawfully contained in original articles of incorporation at the time of making the amendment, and, if a change in shares or the rights of shareholders or an exchange, reclassification, or cancellation of shares or rights of shareholders is to be made, such provisions as may be necessary to effect the change, exchange, reclassification, or cancellation.
  2. In particular, and without limitation upon the general power of amendment, a corporation may amend its articles of incorporation, from time to time, so as to:
    1. Change its corporate name;
    2. Change its period of duration;
    3. Change, enlarge, or diminish its corporate purposes;
    4. Increase or decrease the aggregate number of shares, or shares of any class, which the corporation has authority to issue;
    5. Increase or decrease the par value of the authorized shares of any class having a par value, whether issued or unissued;
    6. Exchange, classify, reclassify, or cancel all or any part of its shares, whether issued or unissued;
    7. Change the designation of all or any part of its shares, whether issued or unissued, and to change the preferences, limitations, and the relative rights in respect to all or any part of its shares, whether issued or unissued;
    8. Change shares having a par value, whether issued or unissued, into the same or a different number of shares without par value; and to change shares without par value, whether issued or unissued, into the same or a different number of shares having a par value;
    9. Change the shares of any class, whether issued or unissued, and whether with or without par value, into a different number of shares of the same class or into the same or a different number of shares, either with or without par value, of other classes;
    10. Create new classes of shares having rights and preferences either prior and superior or subordinate and inferior to the shares of any class then authorized, whether issued or unissued;
    11. Cancel or otherwise affect the right of the holders of the shares of any class to receive dividends which have accrued but have not been declared;
    12. Divide any preferred or special class of shares, whether issued or unissued, into series and fix and determine the designations of the series and the variations in the relative rights and preferences as between the shares of such series;
    13. Authorize the board of directors to establish, out of authorized but unissued shares, series of any preferred or special class of shares and fix and determine the relative rights and preferences of the shares of any series so established;
    14. Authorize the board of directors to fix and determine the relative rights and preferences of the authorized but unissued shares of series theretofore established in respect of which either the relative rights and preferences have not been fixed and determined or the relative rights and preferences theretofore fixed and determined are to be changed;
    15. Revoke, diminish, or enlarge the authority of the board of directors to establish series out of authorized but unissued shares of any preferred or special class and fix and determine the relative rights and preferences of the shares of any series so established;
    16. Limit, deny, or grant to shareholders of any class the preemptive right to acquire additional or treasury shares of the corporation, whether then or thereafter authorized;
    17. Restate, in the entirety, its articles of incorporation.

History. Acts 1965, No. 576, § 59; A.S.A. 1947, § 64-506.

Research References

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

Case Notes

Cited: Franklin Elec. Co. v. Heath, 261 Ark. 269, 547 S.W.2d 755 (1977).

4-26-302. Procedure.

  1. Amendments to the articles of incorporation shall be made in the following manner:
    1. The board of directors shall adopt a resolution setting forth the proposed amendment and directing that it be submitted to a vote at a meeting of shareholders, which may be either an annual or a special meeting;
    2. Written or printed notice setting forth the proposed amendment or a summary of the changes to be effected thereby shall be given to each shareholder of record entitled to vote thereon within the time and in the manner provided in this chapter for the giving of notice of meetings of shareholders. If the meeting is an annual meeting, the proposed amendment or a summary shall be included in the notice of the annual meeting;
    3. At this meeting a vote of the shareholders entitled to vote thereon shall be taken on the proposed amendment;
    4. The proposed amendment shall be adopted upon receiving the affirmative vote of the holders of at least two-thirds (2/3) of the shares entitled to vote thereon unless any class of shares is entitled to vote as a class, in which event the proposed amendment shall be adopted upon receiving the affirmative vote of the holders of at least two-thirds (2/3) of the shares of each class of shares entitled to vote as a class and of the total shares entitled to vote thereon.
  2. Any number of amendments may be submitted to the shareholders and voted upon by them at one (1) meeting.

History. Acts 1965, No. 576, § 60; A.S.A. 1947, § 64-507.

Research References

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

Case Notes

Cited: Franklin Elec. Co. v. Heath, 261 Ark. 269, 547 S.W.2d 755 (1977).

4-26-303. Voting by shareholder classes.

The holders of the outstanding shares of a class shall be entitled to vote as a class upon a proposed amendment, whether or not entitled to vote thereon by the provisions of the articles of incorporation, if the amendment would:

  1. Increase or decrease the aggregate number of authorized shares of the class;
  2. Increase or decrease the par value of the shares of the class;
  3. Effect an exchange, reclassification, or cancellation of all or part of the shares of the class;
  4. Effect an exchange or create a right of exchange of all or any part of the shares of another class into the shares of the class;
  5. Change the designations, preferences, limitations, or relative rights of the shares of the class;
  6. Change the shares of the class, whether with or without par value, into the same or a different number of shares, either with or without par value, of the same class or another class;
  7. Create a new class of shares having rights and preferences prior and superior to the shares of the class, or increase the rights and preferences of any class having rights and preferences prior or superior to the shares of the class;
  8. In the case of a preferred or special class of shares, divide the shares of the class into series and fix and determine the designation of the different series and the variations in the relative rights and preferences between the shares of the separate series or authorize the board of directors to do so;
  9. Limit or deny the existing preemptive rights of the shares of the class;
  10. Cancel or otherwise affect dividends on the shares of the class which have accrued but have not been declared.

History. Acts 1965, No. 576, § 61; A.S.A. 1947, § 64-508.

Research References

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

4-26-304. Articles of amendment.

The articles of amendment shall be verified by at least one (1) of the officials signing them and shall set forth:

  1. The name of the corporation;
  2. A copy of the amendment so adopted;
  3. The date of the adoption of the amendment by the shareholders;
  4. The number of shares outstanding and the number of shares entitled to vote thereon and, if the shares of any class are entitled to vote thereon as a class, the designation and number of outstanding shares entitled to vote thereon of each such class;
  5. The number of shares voted for and against the amendment, respectively, and if the shares of any class are entitled to vote thereon as a class, the number of shares of each class voted for and against the amendment, respectively;
  6. If the amendment provides for an exchange, reclassification, or cancellation of issued shares and if the manner in which the issued shares shall be effected is not set forth in the amendment, then a statement of the manner in which the issued shares shall be affected;
  7. If the amendment effects a change in the amount of stated capital, then a statement of the manner in which the same is effected and a statement, expressed in dollars, of the amount of stated capital as changed by the amendment.

History. Acts 1965, No. 576, § 62; A.S.A. 1947, § 64-509.

4-26-305. Filing of articles of amendment.

The articles of amendment shall be executed and filed in accordance with § 4-26-1201.

History. Acts 1965, No. 576, § 63; A.S.A. 1947, § 64-510.

Case Notes

Cited: Franklin Elec. Co. v. Heath, 261 Ark. 269, 547 S.W.2d 755 (1977).

4-26-306. Restatement of articles of incorporation.

Any restatement of the articles of incorporation effected through the amending procedure authorized in this subchapter shall supersede the original articles of incorporation and all antecedent amendments thereto.

History. Acts 1965, No. 576, § 64; A.S.A. 1947, § 64-511.

4-26-307. Amendment of articles of incorporation in reorganization proceedings.

  1. Whenever a plan of reorganization of a corporation has been confirmed by decree or order of a court of competent jurisdiction in proceedings for the reorganization of the corporation, pursuant to the provisions of any applicable statute of the United States relating to reorganizations of corporations, the articles of incorporation of the corporation may be amended in the manner provided in this section, in as many respects as may be necessary to carry out the plan and put it into effect, so long as the articles of incorporation as amended contain only such provisions as might be lawfully contained in original articles of incorporation at the time of making the amendment.
  2. In particular and without limitation upon the general power of amendment, the articles of incorporation may be amended for such purpose so as to:
    1. Change the corporate name, period of duration, or corporate purposes of the corporation;
    2. Repeal, alter, or amend the bylaws of the corporation;
    3. Change the aggregate number of shares, or shares of any class, which the corporation has authority to issue;
    4. Change the preferences, limitations, and relative rights in respect of all or any part of the shares of the corporation, and classify, reclassify, or cancel all or any part, whether issued or unissued;
    5. Authorize the issuance of bonds, debentures, or other obligations of the corporation, whether or not convertible into shares of any class or bearing warrants or other evidences of optional rights to purchase or subscribe for shares of any class, and fix the terms and conditions thereof; and
    6. Constitute or reconstitute the board of directors of the corporation and appoint directors and officers in place of or in addition to all or any of the directors or officers then in office.
  3. Amendments to the articles of incorporation pursuant to this section shall be made in the following manner:
    1. Articles of amendment approved by decree or order of the court shall be executed and verified in duplicate by such person as the court shall designate or appoint for the purpose;
    2. The articles of amendment shall set forth the name of the corporation, the amendments of the articles of incorporation approved by the court, the date of the decree or order approving the articles of amendment, the title of the proceedings in which the decree or order was entered, and a statement that the decree or order was entered by a court having jurisdiction of the proceedings for the reorganization of the corporation pursuant to the provisions of an applicable statute of the United States;
    3. The articles of amendment shall be filed in accordance with § 4-26-1201.
  4. An amendment effected under this section shall be binding and operative, without any action thereon by the directors or shareholders, and with the same effect as if the amendment had been adopted by unanimous action of the directors and shareholders of the corporation.

History. Acts 1965, No. 576, § 65; A.S.A. 1947, § 64-512.

Subchapter 4 — Corporate Name

Effective Dates. Acts 1965, No. 576, § 98: effective at midnight on Dec. 31, 1965.

Research References

ALR.

Statute prohibiting use of name descriptive of engineering by business organization not practicing profession of engineering. 13 A.L.R.4th 676.

Am. Jur. 18A Am. Jur. 2d, Corp., § 222 et seq.

C.J.S. 18 C.J.S., Corp., § 132 et seq.

4-26-401. Requirements and limitations.

The corporate name:

  1. Shall contain the word “Corporation”, “Company”, or “Incorporated”, or shall contain an abbreviation of one of those words; but the name may not end with the word “Company” nor the abbreviation “Co.” if the final word or abbreviation is immediately preceded by “and” or any symbol for “and”;
  2. Shall not contain any word or phrase which is prohibited by law for the corporation or which indicates or implies that it is organized for any purpose other than one (1) or more of the purposes contained in the articles of incorporation;
    1. Shall not be the same as or confusingly similar to the name of any domestic corporation existing under the laws of this state or any foreign corporation authorized to transact business in this state, or a name the exclusive right to which is, at the time, reserved under § 4-26-402, or the name of a corporation which has in effect a registration of its corporate name under § 4-26-403.
    2. No foreign corporation may be admitted to this state if its corporate name is identical with or confusingly similar to the name of any domestic corporation, or the name of any foreign corporation then admitted to this state, or any name then reserved or registered under § 4-26-402 or § 4-26-403.

History. Acts 1965, No. 576, § 7; A.S.A. 1947, § 64-107.

Case Notes

Cited: Venable v. Becker, 287 Ark. 236, 697 S.W.2d 903 (1985).

4-26-402. Reservation of name.

    1. The exclusive right to the use of a corporate name may be reserved by any person or corporation, foreign or domestic, by filing with the Secretary of State a written application to reserve a specified corporate name.
    2. If the Secretary of State finds that the name is not identical with or confusingly similar to any other name reserved or registered under either this section or § 4-26-403 or the name of any domestic corporation or any foreign corporation admitted to this state, he or she shall reserve it for the exclusive use of the applicant for a period of six (6) months provided the applicant pays the fee prescribed by law.
  1. The right to the exclusive use of a specified corporate name so reserved may be transferred to any other person or corporation by filing in the office of the Secretary of State a notice of such transfer, executed by the applicant for whom the name was reserved, specifying the name and address of the transferee.
  2. The Secretary of State may, however, revoke any reservation after hearing if of the opinion that the application or any transfer was not made in good faith.
  3. A name reservation under this section may not be renewed, nor shall the same name be reserved on any subsequent application filed by or for the benefit of the original applicant or any person, firm, or corporation identified with such applicant, or any transferee of the original applicant.

History. Acts 1965, No. 576, § 8; A.S.A. 1947, § 64-108.

4-26-403. Registration of foreign corporation's name.

  1. Any foreign corporation not authorized to transact business in this state may register its corporate name under this chapter, if its corporate name is not the same as or confusingly similar to the name of any domestic corporation existing under the laws of this state or the name of any foreign corporation authorized to transact business in this state or any corporate name reserved or registered under either this section or § 4-26-402.
  2. The registration shall be made by:
    1. Filing with the Secretary of State:
      1. An application for registration executed by the corporation by an officer thereof, setting forth the name of the corporation, the state or territory under the laws of which it is incorporated, the date of its incorporation, a statement that it is carrying on or doing business, and a brief statement of the business in which it is engaged; and
      2. A certificate setting forth that the corporation is in good standing under the laws of the state or territory wherein it is organized, executed by the secretary of state of the state or territory or by such other official as may have custody of the records pertaining to corporations; and
    2. Paying to the Secretary of State the fee prescribed by law.
  3. The registration shall be effective for a period of one (1) year from the date on which the application for registration is filed.

History. Acts 1965, No. 576, § 9; A.S.A. 1947, § 64-109.

4-26-404. Renewal of registered name.

Any foreign corporation which has in effect a registration of its corporate name may renew the registration from year to year by annually filing an application for renewal setting forth the facts required to be set forth in an original application for registration and a certificate of good standing as required for the original registration and by paying the fee prescribed by law. If the registration has expired, a new application for registration may be filed and granted under § 4-26-403.

History. Acts 1965, No. 576, § 10; A.S.A. 1947, § 64-110.

4-26-405. Use of fictitious names.

  1. No domestic or foreign corporation shall conduct any business in this state under a fictitious name unless it first files with the Secretary of State, and, in case of a domestic corporation, with the county clerk of the county in which the corporation's registered office is located unless it is located in Pulaski County, a form supplied or approved by the Secretary of State giving the following information:
    1. The fictitious name under which business is being or will be conducted by the applicant corporation;
    2. A brief statement of the character of business to be conducted under the fictitious name;
    3. The corporate name, state of incorporation and location, giving city and street address, of the registered office in this state of the applicant corporation.
    1. Each form shall be executed, without verification, in duplicate and filed with the Secretary of State.
    2. The Secretary of State shall retain one (1) counterpart; and the other counterpart, bearing the file marks of the Secretary of State, shall be returned to the corporation and, unless its registered office is in Pulaski County, the corporation will file it with the county clerk. An index of such filings shall be maintained in each office.
    3. However, the Secretary of State shall not accept such filing if the proposed fictitious name is the same as or confusingly similar to the name of any domestic corporation, or any foreign corporation admitted to this state, or any name reserved or registered under §§ 4-26-402 and 4-26-403.
  2. Copies of the filed forms, certified by the respective filing officers, shall be admitted in evidence where the question of filing may be material.
  3. A foreign corporation not admitted to this state and authorized to do business in this state may not file under this section.
    1. If, after a filing under this section, the applicant corporation is dissolved, or if a foreign corporation surrenders or forfeits its rights to do business in Arkansas, or if a domestic or foreign corporation ceases to do business in Arkansas under the specified fictitious name, the corporation shall be obligated to file in each of the offices aforesaid, a cancellation of its privilege under this section.
    2. If the cancellation is not filed, the Secretary of State, upon satisfactory evidence, may cancel the privilege. The cancellation shall be certified by the Secretary of State to the county clerk who will file the cancellation without fee.
    1. If a corporation which has not filed under this section becomes a party to any contract, deed, conveyance, assignment, or instrument of encumbrance in which the corporation is referred to exclusively by a fictitious name, the obligations imposed upon the corporation under the instrument and the rights sought to be conferred upon third parties thereunder may be enforced against it. However, the rights accruing to the corporation under the instrument may not be enforced by the corporation in the courts of this state until it complies with this section and pays to the Treasurer of State a civil penalty of three hundred dollars ($300).
    2. In any suit by a corporation upon an instrument executed after midnight, December 31, 1965, which identifies it exclusively by a fictitious name, the corporation shall be required to allege compliance with this section.
    1. Compliance with this section does not give a corporation an exclusive right to the use of the fictitious name; and the registration of a fictitious name hereunder will not bar the use of the same name as the corporate name of any domestic corporation or any foreign corporation admitted to this state.
    2. However, this chapter is not intended to bar any aggrieved party in such a situation from applying for equitable relief under principles of fair trade law.
  4. Where a communication, contract, deed, conveyance, assignment, or instrument of encumbrance executed by or in favor of a corporation refers to, or is executed by, the corporation under an assumed name, the assumed name will not be a fictitious name within the meaning of this section if it is reflected in the body of the instrument, or in connection with the signature, that the assumed name represents a division or department of the contracting corporation, or a name assumed by it, the contracting corporation being adequately identified by its true name.

History. Acts 1965, No. 576, § 95; A.S.A. 1947, § 64-111.

4-26-406. Unlawful use, reservation, or registration of name — Injunction.

Where the use, reservation, or registration of a corporate name is in violation of this chapter, it may, by court decree, be cancelled or enjoined, on the suit of the Attorney General or of any person or corporation injured by the unlawful use, reservation, or registration, notwithstanding the fact that such use, reservation, or registration has been approved by the Secretary of State.

History. Acts 1965, No. 576, § 11; A.S.A. 1947, § 64-112.

Subchapter 5 — Registered Offices and Agents

Effective Dates. Acts 1965, No. 576, § 98: effective at midnight on Dec. 31, 1965.

Acts 2007, No. 638, § 70: Sept. 1, 2007.

4-26-501 — 4-26-503. [Repealed.]

Publisher's Notes. These sections, concerning requirement for a registered office and agent, change of office or agent and resignation of agent, and service of process on a corporation, were repealed by Acts 2007, No. 638, § 2.

Section 4-26-501 was derived from Acts 1965, No. 576, § 12; A.S.A. 1947, § 64-113.

Section 4-26-502 was derived from Acts 1965, No. 576, § 13; 1973, No. 379, § 1; A.S.A. 1947, § 64-114.

Section 4-26-503 was derived from Acts 1965, No. 576, § 14; A.S.A. 1947, § 64-115.

Subchapter 6 — Corporate Finance

Cross References. Stocks and bonds, issuance, conditions and restrictions, Ark. Const., Art. 12, § 8.

Effective Dates. Acts 1965, No. 576, § 98: effective at midnight on Dec. 31, 1965.

Acts 1973, No. 409, § 5: became law without Governor's signature, Mar. 21, 1973. Emergency clause provided: “It is hereby found and determined by the General Assembly of the State of Arkansas that substantial confusion and uncertainty exists with respect to the interpretation of this provision of the aforesaid Act governing restrictive stock purchase agreements, restrictive redemption agreements and restrictive stock option agreements, and that the immediate passage of this act is necessary to provide further legislative guidance in this area. Therefore, an emergency is hereby declared to exist, and this Act, being necessary for the preservation of the public peace, health and safety, shall be in full force and effect from and after its passage.”

Acts 1987, No. 323, § 6: Mar. 19, 1987. Emergency clause provided: “It is found and declared that the authority of an executive committee of a business corporation to designate and price a series of shares of preferred or special classes of stock is a matter of uncertainty which requires immediate clarification. This Act is immediately necessary in order to facilitate such corporate action by an executive committee within limits prescribed by the board of directors. Therefore, an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

Research References

ALR.

Stock certificate issued to joint tenants as creating gift inter vivos. 5 A.L.R.4th 373.

Transfer on corporate books as sufficient for gift of stock. 6 A.L.R.4th 250.

Propriety of applying minority discount to value of shares purchased by corporation or its shareholders from minority shareholders. 13 A.L.R.5th 840.

Lis pendens in suit to compel stock transfer. 48 A.L.R.4th 731.

Am. Jur. 18A Am. Jur. 2d, Corp., § 349 et seq.

Ark. L. Rev.

Sources of Corporate Distributions, 17 Ark. L. Rev. 373.

Tax Considerations of Corporate Distributions, 17 Ark. L. Rev. 434.

Comments on the Dividend and Distribution Provisions of the Arkansas Business Corporation Act, 21 Ark. L. Rev. 476.

Carnes and Banks, Capitalization Under the Financial Provisions of the Arkansas Business Corporation Act, 38 Ark. L. Rev. 802.

C.J.S. 18 C.J.S., Corp., § 172 et seq.

4-26-601. Authorized shares generally — Preferred or special classes.

  1. Each corporation shall have power to create and issue the number of shares stated in its articles of incorporation.
  2. The shares may be divided into one (1) or more classes, any or all of which classes may consist of shares with par value or shares without par value, with such designations, preferences, limitations, and relative rights as shall be stated in the articles of incorporation.
  3. The articles of incorporation may limit or deny the voting rights of the shares of any class subject only to the following exceptions:
    1. The right of any stockholder entitled under Arkansas Constitution, Article 12, § 8, to vote on a proposal to increase stock or bond indebtedness shall not be denied or limited.
    2. In any instance where a provision of this chapter specifically preserves the right of any class or classes of stock to vote in respect to any corporate action, the right may not be denied or impaired by any provisions of the articles of incorporation.
  4. Without limiting the authority herein contained, a corporation, when so provided in its articles of incorporation, may issue shares of preferred or special classes:
    1. Subject to the right of the corporation to redeem any of those shares at the price fixed by the articles of incorporation for the redemption thereof;
    2. Entitling the holders thereof to cumulative, noncumulative, or partially cumulative dividends;
    3. Having preference over any other class or classes of shares as to the payment of dividends;
    4. Having preference in the assets of the corporation over any other class or classes of shares upon the voluntary or involuntary liquidation of the corporation;
    5. Convertible into shares of any other class, or into shares of any series of the same or any other class, except a class having prior or superior rights and preferences as to dividends or distribution of assets upon liquidation. However, shares without par value shall not be converted into shares with par value unless that part of the stated capital of the corporation represented by such shares without par value is, at the time of conversion, at least equal to the aggregate par value of the shares into which the shares without par value are to be converted.

History. Acts 1965, No. 576, § 16; A.S.A. 1947, § 64-201.

Research References

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

4-26-602. Shares of preferred or special classes — Issuance in series.

  1. If the articles of incorporation so provide, the shares of any preferred or special class may be divided into and issued in series.
  2. If the shares of any such class are to be issued in series, then each series shall be so designated as to distinguish the shares thereof from the shares of all other series and classes.
  3. Any or all of the series of any such class and the variations in the relative rights and preferences as between different series may be fixed and determined by the articles of incorporation, but all shares of the same class shall be identical except as to the following relative rights and preferences, as to which there may be variations between different series:
    1. The rate of dividend, the time of payment of dividends, and the date from which dividends shall be cumulative;
    2. The price at and the terms and conditions on which shares may be redeemed;
    3. The amount payable upon shares in event of involuntary liquidation;
    4. The amount payable upon shares in event of voluntary liquidation;
    5. Sinking fund provisions for the redemption or purchase of shares;
    6. The terms and conditions on which shares may be converted if the shares of any series are issued with the privilege of conversion.
    1. If the articles of incorporation expressly vest such authority in the board of directors, then to the extent that the articles of incorporation have not established series and fixed and determined the variations in the relative rights and preferences as between series, the board of directors shall have authority, in respect to shares to be issued, to divide any or all of such classes into series and, within the limitations set forth in this section and in the articles of incorporation, fix and determine the relative rights and preferences of the shares of any series so established.
    2. In order for the board of directors to establish a series where authority to do so is contained in the articles of incorporation, the board of directors shall adopt a resolution setting forth the designation of the series and fixing and determining the relative rights and preferences thereof, or so much thereof as shall not be fixed and determined by the articles of incorporation.
    3. Prior to the issue of any shares of a series established through resolution adopted by the board of directors, the corporation shall cause to be executed and filed in accordance with § 4-26-1201 a statement setting forth:
      1. The name of the corporation;
      2. A copy of the resolution establishing and designating the series, and fixing and determining the relative rights and preferences thereof;
      3. The date of adoption of the resolution;
      4. That the resolution was duly adopted by the board of directors.
    4. The resolution of the board of directors and the statement required to be filed pursuant to this section shall not be considered an amendment to the articles of incorporation of the corporation.

History. Acts 1965, No. 576, § 17; A.S.A. 1947, § 64-202; Acts 1987, No. 323, § 1.

Research References

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

4-26-603. Subscriptions for shares.

  1. No preincorporation or postincorporation subscription is valid unless in writing, signed, and delivered by the subscriber-purchaser.
    1. A valid preincorporation subscription shall be irrevocable for six (6) months unless the terms of the subscription otherwise provide or unless all of the subscribers consent to its earlier revocation.
    2. At any time while a preincorporation subscription is irrevocable or remains unrevoked, it may be accepted by the corporation and, if otherwise conforming to law, shall thereupon become enforceable. The acceptance by a corporation of a subscription shall be evidenced by resolution of the board of directors.
    1. Unless otherwise provided in the subscription agreement, subscriptions for shares, whether made before or after the organization of a corporation, shall be paid in full at such time or in such installments and at such times as shall be determined by the board of directors. Any call made by the board of directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series, as the case may be.
    2. In case of default in the payment of any installment or call when payment is due, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation or after twenty (20) days' demand as provided in this section, the board may declare the subscription and all previous payments thereon forfeited.
    3. The bylaws may prescribe other penalties for failure to pay installments or calls that may become due, but no penalty working a forfeiture of a subscription or of the amounts paid thereon shall be declared as against any subscriber unless the amount due thereon shall remain unpaid for a period of twenty (20) days after written demand has been made. If mailed, such written demand shall be deemed to be made when deposited in the United States mail in a sealed envelope addressed to the subscriber at his or her last post office address known to the corporation, with postage prepaid.
    4. In the event of the sale of any shares by reason of any forfeiture, the excess of proceeds realized over the amount due and unpaid on those shares shall be paid to the delinquent subscriber or to his or her legal representative.
    5. If a receiver of the corporation has been appointed, all unpaid subscriptions shall be paid at such times and in such installments as the receiver or the court may direct.
  2. Unless otherwise agreed in writing, it shall be no defense to the enforcement of a preincorporation subscription that no notice was given to the subscriber of his or her right to participate in selecting the first board of directors, in adopting the first bylaws, or in otherwise perfecting the organization.
    1. The board of directors shall have authority, unless otherwise restricted by the articles of incorporation or bylaws, to determine in good faith whether and upon what terms the obligation of any subscriber shall be released, settled, or compromised.
    2. The total or partial release of a subscription which has been accepted by the corporation is the equivalent of a purchase by the corporation, in whole or pro tanto as the case may be, of the shares in question and is subject to the restrictions set forth in § 4-26-611 relating to such a purchase.

History. Acts 1965, No. 576, § 18; A.S.A. 1947, § 64-203.

Case Notes

Applicability.

This section is not applicable when there is an outright purchase of an ongoing corporation's existing stock. Coyne v. Coyne, 9 Ark. App. 80, 654 S.W.2d 584 (1983).

Conditional Agreement.

An agreement to take shares in the capital stock of a corporation may depend on a condition precedent or subsequent, as the parties may agree, and they are bound to perform their contract according to their intention as it appears from the language of the contract. Nowlin v. Memphis Packing Corp., 161 Ark. 294, 255 S.W. 1092 (1923) (decision under prior law).

Default.

Under a subscription contract which provided “that default in any payment shall operate as a forfeiture to the company of all payments previously made and the stock issued therefor,” no other remedy for a default in payments is given except a forfeiture of instalments paid. Denman v. Country Club Realty Co., 143 Ark. 502, 220 S.W. 824 (1920) (decision under prior law).

Enforcement.

A preliminary stock subscription contract is a valid agreement to take preferred stock, and after formation of corporation and issuance of preferred stock, corporation can maintain action against subscribers for amount subscribed. Snodgrass v. E.A. Zander & Co., 106 Ark. 462, 154 S.W. 212 (1913) (decision under prior law).

Corporation cannot maintain action on subscription for preferred stock until it has issued or tendered its stock. Snodgrass v. E.A. Zander & Co., 106 Ark. 462, 154 S.W. 212 (1913) (decision under prior law).

Parol Evidence.

Where signed subscription contract does not express entire agreement, oral testimony may clarify the contract. Laney v. Faulkner County Hosp., 173 Ark. 402, 292 S.W. 364 (1927) (decision under prior law).

Releases.

A voluntary release of a stock subscription by an insolvent company is a fraud upon its creditors, whether their claims arose before or after the stock was issued. Carter v. Union Printing Co., 54 Ark. 576, 16 S.W. 579 (1891) (decision under prior law).

Where capital stock was to be limited to a certain amount but more than that amount was sold and where names of some subscribers were stricken from the subscription list, those who properly signed the list were not released from the payment of their subscription. Snodgrass v. E.A. Zander & Co., 106 Ark. 462, 154 S.W. 212 (1913) (decision under prior law).

4-26-604. Consideration for shares generally.

  1. Shares having a par value may be issued for such consideration expressed in dollars or as a formula or method for determining a price in dollars as shall be fixed or determined from time to time by the board of directors or by any person designated by the board of directors unless the articles of incorporation reserve to the shareholders the right to fix the consideration, however, the consideration shall not be less than the par value of the shares issued therefor. In the event that such right is reserved as to any shares, the shareholders shall, prior to the issuance of such shares, fix the consideration to be received for those shares by a vote of the holders of a majority of all shares entitled to vote thereon.
  2. Shares without par value may be issued for such consideration expressed in dollars or as a formula or method for determining a price in dollars as shall be fixed or determined from time to time by the board of directors or by any person or persons designated by the board of directors unless the articles of incorporation reserve to the shareholders the right to fix the consideration. In the event that such right is reserved as to any shares, the shareholders shall, prior to the issuance of those shares, fix the consideration to be received for those shares, by a vote of the holders of a majority of all shares entitled to vote thereon.
  3. Treasury shares may be disposed of by the corporation for such consideration expressed in dollars as may be fixed from time to time by the board of directors.
  4. That part of the surplus of a corporation which is transferred to stated capital upon the issuance of shares as a share dividend shall be deemed to be pro tanto the consideration for the issuance of the shares.
  5. In the event of a conversion of shares or in the event of an exchange of shares with or without par value for the same or a different number of shares with or without par value, whether of the same or a different class, the consideration for the shares so issued in exchange or conversion shall be deemed to be:
    1. The stated capital then represented by the shares so exchanged or converted; and
    2. That part of surplus, if any, transferred to stated capital upon the issuance of shares for the shares so exchanged or converted; and
    3. Any additional consideration paid to the corporation upon the issuance of shares for the shares so exchanged or converted.
  6. The board of directors, without shareholder approval, may authorize the issuance of shares or securities for the business owned by or for the shares or securities of another corporation in such manner as the board of directors may deem advisable and may cause the acquired business or the acquired shares or securities to be assigned, conveyed, or transferred directly to any subsidiary of the issuing parent corporation, provided the issuing parent corporation owns ninety percent (90%) or more of each class of the outstanding shares of the subsidiary after the transaction.

History. Acts 1965, No. 576, § 19; 1971, No. 240, § 1; 1983, No. 716, § 1; A.S.A. 1947, § 64-204.

4-26-605. Payment for shares.

    1. The consideration paid for the issuance of shares shall consist of money paid, labor done, or property actually received.
    2. Shares may not be issued until the full amount of the consideration, fixed as provided by law, has been paid.
    3. When payment of the consideration for which the shares are to be issued shall have been received by the corporation, the shares shall be deemed to be fully paid and nonassessable.
  1. Neither promissory notes nor the promise of future services shall constitute payment or part payment for shares of a corporation.
  2. In the absence of fraud in the transaction, the judgment of the board of directors or the shareholders, as the case may be, as to the value of the consideration received for shares shall be conclusive.

History. Acts 1965, No. 576, § 20; A.S.A. 1947, § 64-205.

Case Notes

Applicability.

This section did not apply where the sale of stock was not a new issue by the corporation but rather a sale of already issued and fully paid stock by the stockholders; the transfer of these shares of stock was simply a sale of personal property. Sitton v. Congleton, 11 Ark. App. 149, 667 S.W.2d 377 (1984).

Adequacy of Consideration.

In determining whether stock issued by a corporation is cancelable because of the inadequacy of consideration originally given for the shares, subsection (c) of this section applies, if the rights of creditors are not involved. Arkota Indus., Inc. v. Naekel, 274 Ark. 173, 623 S.W.2d 194 (1981).

Upon action to cancel stock on ground that shares had not been issued for money or property actually received or labor done, where corporation which was set up to perfect and manufacture poultry vaccine, issued stock to veterinarian in return for unperfected formula, directors' valuation of the formula was conclusive. Murray v. Murray Labs., Inc., 223 Ark. 907, 270 S.W.2d 927 (1954) (decision under prior law).

Where personal property had a cash value equal to the amount of capital stock of a corporation issued therefor, and was accepted in payment therefor by the stockholders and directors of the corporation, it was full payment therefor. Pollard v. F.W. Reisinger Co., 161 Ark. 427, 256 S.W. 382 (1923) (decision under prior law).

Presumptions.

Legal presumption is that sale of stock was free from fraud, deceit, misrepresentation, and abuse of fiduciary relation. Coats v. Barton, 25 F.2d 813 (8th Cir. 1928) (decision under prior law).

Cited: Coyne v. Coyne, 9 Ark. App. 80, 654 S.W.2d 584 (1983).

4-26-606. Payment of expenses of organization, reorganization, financing, etc.

The reasonable charges and expenses of organization or reorganization of a corporation and the reasonable expenses of and compensation for the sale or underwriting of its shares may be paid or allowed by the corporation out of the consideration received by it in payment for its shares without rendering such shares not fully paid and nonassessable.

History. Acts 1965, No. 576, § 22; A.S.A. 1947, § 64-207.

4-26-607. Stated capital — Capital surplus — Earned surplus.

  1. In case of the issuance by a corporation of shares having a par value, the consideration received shall constitute stated capital to the extent of the par value of such shares, and the excess, if any, of such consideration shall constitute capital surplus.
    1. In case of the issuance by a corporation of shares without par value, the entire consideration received shall constitute stated capital unless the corporation shall determine as provided in this section that only a part thereof shall be stated capital.
    2. Within a period of sixty (60) days after the issuance of any shares without par value, the board of directors may allocate to capital surplus not more than twenty-five percent (25%) of the consideration received for the issuance of the shares.
    3. However, no allocation shall be made of any portion of the consideration received for shares without par value having a preference in the assets of the corporation in the event of involuntary liquidation except the amount, if any, of the consideration in excess of the preference.
  2. If shares have been or shall be issued by a corporation in merger or consolidation or in acquisition of all or substantially all of the outstanding shares or of the property and assets of another corporation, whether domestic or foreign, any amount that would otherwise constitute capital surplus under the foregoing provisions of this section may instead be allocated to earned surplus by the board of directors of the issuing corporation except that its aggregate earned surplus shall not exceed the sum of the earned surpluses as defined in this chapter of the issuing corporation and of all other corporations, domestic or foreign, that were merged or consolidated or of which the shares or assets were acquired.
  3. The stated capital of a corporation may be increased from time to time by resolution of the board of directors directing that all or a part of the surplus of the corporation be transferred to stated capital. The board of directors may direct that the amount of the surplus so transferred shall be deemed to be stated capital in respect of any designated class of shares.

History. Acts 1965, No. 576, § 21; A.S.A. 1947, § 64-206.

4-26-608. Signed certificates representing shares.

    1. The shares of a corporation shall be represented by certificates signed by the president or a vice president and the secretary or an assistant secretary of the corporation and, if the corporation has adopted a seal, may be sealed with the seal of the corporation or a facsimile thereof.
    2. The signatures of the president or vice president and the secretary or assistant secretary upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the corporation itself or an employee of the corporation.
    3. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be that officer before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer at the date of its issue.
  1. Each certificate representing shares issued by a corporation which is authorized to issue shares of more than one (1) class shall set forth upon the face or back of the certificate, or shall state, that the corporation will furnish to any shareholder upon request and without charge a full statement of the designations, relative rights, preferences, and limitations of the shares of each class authorized to be issued; and if the corporation is authorized to issue any class of preferred shares in series, the designations, relative rights, preferences, and limitations of each such series so far as they have been fixed; and the authority of the board to designate and fix the relative rights, preferences, and limitations of other series.
  2. Each certificate representing shares shall state upon the face thereof:
    1. That the corporation is organized under the laws of this state;
    2. The name of the person to whom issued;
    3. The number and class of shares and the designation of the series, if any, which that certificate represents;
    4. The par value of each share represented by that certificate or a statement that the shares are without par value.
  3. No certificate shall be issued for any share until the consideration therefor, fixed as provided by law, has been fully paid.

History. Acts 1965, No. 576, § 23; A.S.A. 1947, § 64-208.

Case Notes

Nature of Certificate.

Stock certificates are mere evidence of title. Gates v. Bank of Commerce & Trust Co., 185 Ark. 502, 47 S.W.2d 806 (1931) (decision under prior law).

4-26-609. Issuance of fractional shares or scrip.

  1. A corporation may, but shall not be obliged to, issue a certificate for a fractional share and, by action of its board of directors, may issue, in lieu thereof, a scrip in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip aggregating a full share.
  2. A certificate for a fractional share shall, but scrip shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation.
  3. The board of directors may cause such scrip to be issued subject to the condition that it shall become void if not tendered to be exchanged for certificates representing full shares before a specified date, or subject to the condition that the shares for which the scrip is exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of the scrip, or subject to any other conditions which the board of directors may deem advisable.

History. Acts 1965, No. 576, § 24; A.S.A. 1947, § 64-209.

4-26-610. Restrictions on transfer of shares.

    1. A corporation may provide, in respect to any of its shares which are to be issued, that the future transfer, whether inter vivos, by inheritance, or testamentary gift, hypothecation, or other disposition of such shares, shall be subject to restrictions, including purchase options, that do not unreasonably restrain alienation.
    2. These restrictions, among other things, may require a prior offering to the corporation or to one (1) or more of its shareholders at a fair price before the shares may be otherwise transferred or hypothecated.
    3. The same restrictions may be placed by the corporation upon previously issued and outstanding shares but only with the consent of the holders thereof.
  1. No such restrictions shall be valid unless the authority therefor is prescribed in the articles of incorporation or bylaws. In addition to the foregoing, such restrictions on transfer shall not be valid, except as against a person with actual notice of them, unless they are conspicuously noted on each certificate covering the shares affected by these restrictions.
    1. Nothing in this chapter is intended to prevent the holder or holders of any or all of the shares of stock of a corporation, or the corporation in which the holder or holders own any or all of the shares of stock, from subjecting the shares owned by the aforesaid parties by written contract or written agreement to restrictions, including stock options.
    2. Any price or formula for determining the price set by the agreement or contract shall be deemed to be a fair price.
    3. No restriction on transfer shall be valid except as against a person with actual notice thereof unless the restrictions are conspicuously noted on each certificate covering the shares affected by such restrictions.
  2. From and after the date of enactment hereof, unreasonable restraint upon alienation shall have no effect upon the validity or enforceability of any written contract between or among those parties subject to the provisions of subsection (c) of this section.

History. Acts 1965, No. 576, § 26; 1973, No. 409, §§ 1, 2; A.S.A. 1947, §§ 64-211, 64-211.1.

Publisher's Notes. In reference to the term “date of enactment,” Acts 1973, No. 409, § 5, provided that the act would be in full force and effect from and after its passage, and the act became law without the Governor's signature on March 21, 1973.

Cross References. Transfer of corporate shares, § 4-8-301 et seq.

Research References

Ark. L. Rev.

Corporations — Stock Transfer Restrictions Systematics, Inc. v. Mitchell and Act 409 of 1973, 27 Ark. L. Rev. 554.

Case Notes

Enforceable Contracts.

Grant of summary judgment in favor of the employer in its action to recover interest on a promissory note used to purchase stock was proper where the employee admitted that he signed the note and did not contend that the note was invalid; further, he did not demonstrate that the provisions of the stockholders agreement were against public policy. Wingfield v. Contech Constr. Prods., 83 Ark. App. 16, 115 S.W.3d 336 (2003).

Stock Transfer.

Plaintiff's argument failed that the stock transfer was void because it violated stock-transfer restrictions on the face of the certificate and in the corporate bylaws. The stock power was a valid indorsement under Arkansas securities law, plaintiff did not show why the stock power that he had signed failed to comply with the specific corporate bylaw provisions, and, more fundamentally, the issuer of the stock was not attempting to impose a restriction and was not even a party to the case. Ash v. First Nat'l Bank of E. Ark., 2019 Ark. App. 147, 573 S.W.3d 584 (2019).

Unenforceable Contracts.

The contract which required the stockholder to retain an investment in the company even after being discharged and to resell his stock to the company at the original value rather than the fair market value was contrary to this section and unenforceable. Systematics, Inc. v. Mitchell, 253 Ark. 848, 491 S.W.2d 40 (1973).

4-26-611. Acquisition or disposition of corporation's own shares.

  1. A corporation shall not purchase directly or indirectly any of its own shares unless the purchase is authorized by this section and not prohibited by its articles of incorporation.
    1. A corporation may not purchase its own shares:
      1. If there is a reasonable ground for believing that the corporation is, or as a result of such purchase would be, unable to meet its obligations as they become due in the ordinary course of business or that the present fair value of the remaining assets of the corporation would be less than one and one-fourth (1¼) times the amount of its liabilities to creditors; or
      2. If the net assets remaining after the purchase would be less than the aggregate amount payable in the event of voluntary liquidation to the holders of shares having preferential rights to the assets of the corporation; or
      3. If, in respect to purchases out of earned surplus, there are unpaid accrued preferential dividends on shares entitled to priority in respect to dividends over the shares to be purchased.
    2. Subject to these three (3) restrictions, a corporation may purchase its own shares under the conditions set out in subsections (c)-(e) of this section next following.
    1. A corporation may purchase its own shares out of stated capital only in the following instances:
      1. Where the purchase is to eliminate fractional shares; or
      2. Where the purchase is to collect or compromise in good faith any indebtedness to the corporation; or
      3. Where the purchase is to pay dissenting shareholders entitled to payment of their shares under the provisions of this chapter; or
      4. Where the purchase is to effect, subject to the other provisions of this chapter, the retirement of its redeemable shares at not to exceed the redemption price and this purchase does not reduce the net assets below the stated capital remaining after giving effect to the cancellation of the purchased shares.
    2. The purchases permitted under this subsection may be made solely under the authority of the board of directors.
  2. A corporation may purchase its own shares out of unrestricted earned surplus, this purchase to be authorized by the board of directors, and no stockholders' authorization is required.
  3. If the articles of incorporation so permit, the corporation, acting through its directors, may purchase its own shares out of capital surplus other than revaluation surplus. If the articles contain no such authorization but do not prohibit the purchase of such shares from capital surplus, then the corporation, on the authorization of its board of directors and of the holders of at least two-thirds (2/3) of all shares of each class, whether or not entitled to vote, voting separately, may purchase the corporation's shares from capital surplus, other than revaluation surplus.
  4. In exercising the powers conferred by this section, it is not required that the shares purchased by the corporation must be purchased pro rata from all of its shareholders, or ratably from the holders of all the shares of any class or series. However, this section is not intended to validate stock purchases designed to effect fraudulent, improper, or unfair liquidating distributions to one (1) or more shareholders; or fraudulently, improperly, or unfairly designed to augment the voting power of any one (1) or more shareholders as against the voting power of other shareholders; or otherwise designed to effect any fraudulent, unfair, or improper discrimination in favor of any one (1) or more shareholders as against others.
  5. A corporation shall be bound by any restrictions contained in its articles of incorporation in respect to the purchase of its own shares, and such articles may wholly prohibit such purchase.
  6. Nonredeemable shares acquired by a corporation under the provisions of this section may be cancelled, held, pledged, sold, transferred, or otherwise disposed of by the corporation. The purchase by a corporation of its redeemable shares shall result in a cancellation of such shares according to § 4-26-614.
    1. Except to the extent permitted under subsection (c) of this section, the purchase by a corporation of its own shares shall not effect a reduction of stated capital unless in connection therewith the stated capital is reduced pursuant to § 4-26-614 or § 4-26-612.
    2. Upon the purchase by a corporation of its own shares out of earned or capital surplus, such surplus account shall be reduced in an amount equal to the purchase price paid therefrom.
    3. The impact upon the surplus accounts of the cancellation of treasury shares through a reduction of stated capital or from the resale of treasury shares is controlled by § 4-26-616(c).

History. Acts 1965, No. 576, § 5; A.S.A. 1947, § 64-105.

Case Notes

Closely Held Corporation.

A stockholder in a closely held family corporation did not breach his duty to the other shareholders when he gained majority control. Smith v. Paul, 317 Ark. 182, 876 S.W.2d 266 (1994).

Promissory Notes.

Where the defendant corporation gave a promissory note secured by the personal guarantees of its stockholders to one of its stockholders for the repurchase of the corporation's stock at a time when the corporation had no unrestricted earned surplus, the promissory note was not invalid as an ultra vires instrument since none of the statutory conditions were present for an assenting stockholder to assert the defense of ultra vires and, accordingly, the underlying personal guarantees were not invalid. James v. J.F.K. Carwash, Inc., 275 Ark. 141, 628 S.W.2d 299 (1982).

Solvency.

When a corporation purchases its own stock as treasury stock and gives notes or debentures as consideration, then it must remain solvent at the time the notes or debentures are sought to be enforced, and the fact that the shareholders and the corporation acted in good faith at the time the transaction was entered into does not change the rule; such obligations cannot be enforced against an insolvent corporation to the detriment of its general creditors. In re Peoples Loan & Inv. Co., 316 F. Supp. 13 (W.D. Ark. 1970).

4-26-612. Treasury shares — Cancellation.

  1. A corporation may at any time, by resolution of its board of directors, cancel all or any part of its treasury shares; and in such event, a statement of cancellation shall be filed as provided in this section.
  2. The statement of cancellation shall be executed and filed in accordance with § 4-26-1201 and verified by one (1) of the officers signing such statement and shall set forth:
    1. The name of the corporation;
    2. The number of treasury shares cancelled by resolution duly adopted by the board of directors, itemized by classes and series, and the date of its adoption;
    3. The aggregate number of issued shares, itemized by classes and series, after giving effect to such cancellation;
    4. The amount, expressed in dollars, of the stated capital of the corporation after giving effect to such cancellation;
    5. A copy of the resolution effecting the cancellation.
  3. When such statement of cancellation is filed in accordance with § 4-26-1201, the stated capital of the corporation shall be deemed to be reduced by that part of the stated capital which was, at the time of the cancellation, represented by the shares so cancelled, and the shares so cancelled shall be restored to the status of authorized but unissued shares.
  4. Nothing contained in this section shall be construed to forbid a cancellation of shares or a reduction of stated capital in any other manner permitted by this chapter.

History. Acts 1965, No. 576, § 68; A.S.A. 1947, § 64-603.

4-26-613. Redeemable shares — Restrictions on redemption or purchase.

A corporation shall not redeem its shares, or purchase its redeemable shares in lieu of redemption, if at the time of, or as a result of, such transaction:

  1. There is a reasonable ground for believing that the corporation would be unable to meet its obligations as they become due in the ordinary course of business; or
  2. The remaining assets of the corporation would be less than one and one-fourth (1¼) times the amount of its liabilities to creditors; or
  3. If by the redemption or purchase the net assets would be reduced below the aggregate amount payable to the holders of shares to remain outstanding which have prior or equal rights to the assets of the corporation upon dissolution; or
  4. If there exist any unpaid accrued preferential dividends with respect to any shares having priority as to dividends over the shares to be redeemed or purchased.

History. Acts 1965, No. 576, § 66; A.S.A. 1947, § 64-601.

4-26-614. Redeemable shares — Cancellation by redemption or purchase.

  1. When redeemable shares of a corporation are redeemed or purchased by the corporation, the redemption or purchase shall effect a cancellation of the shares, and a statement of cancellation shall be filed as provided in this section.
  2. Upon cancellation, the shares shall be restored to the status of authorized but unissued shares unless the articles of incorporation provide that such shares when redeemed or purchased shall not be reissued, in which case the filing of the statement of cancellation shall constitute an amendment to the articles of incorporation and shall reduce the number of shares of the class so cancelled which the corporation is authorized to issue by the number of shares so cancelled.
  3. The statement of cancellation shall be executed and filed in accordance with § 4-26-1201 and verified by one (1) of the officers signing such statement and shall set forth:
    1. The name of the corporation;
    2. The number of redeemable shares cancelled through redemption or purchase, itemized by classes and series;
    3. The aggregate number of issued shares, itemized by classes and series, after giving effect to such cancellation;
    4. The amount, expressed in dollars, of the stated capital of the corporation after giving effect to such cancellation;
    5. If the articles of incorporation provide that the cancelled shares shall not be reissued, then the number of shares which the corporation has authority to issue, itemized by classes and series, after giving effect to such cancellation.
  4. When this statement of cancellation is filed in accordance with § 4-26-1201, the stated capital of the corporation shall be deemed to be reduced by that part of the stated capital which was, at the time of the cancellation, represented by the shares so cancelled.
  5. Nothing contained in this section shall be construed to forbid a cancellation of shares or a reduction of stated capital in any other manner permitted by this chapter.

History. Acts 1965, No. 576, § 67; A.S.A. 1947, § 64-602.

4-26-615. Reduction of stated capital.

  1. If all or part of the stated capital of a corporation is represented by shares without par value, the stated capital of the corporation may be reduced in the following manner:
    1. The board of directors shall adopt a resolution setting forth the amount of the proposed reduction and the manner in which the reduction shall be effected and directing that the question of that reduction be submitted to a vote at a meeting of shareholders which may be either an annual or a special meeting;
    2. Written or printed notice stating that the purpose or one (1) of the purposes of the meeting is to consider the question of reducing the stated capital of the corporation in the amount and manner proposed by the board of directors shall be given to each shareholder of record entitled to vote thereon within the time and in the manner provided in this chapter for the giving of notice of meetings of shareholders;
    3. At such meeting a vote of the shareholders entitled to vote thereon shall be taken on the question of approving the proposed reduction of stated capital, which shall require for its adoption the affirmative vote of the holders of at least a majority of the shares entitled to vote thereon.
  2. When a reduction of the stated capital of a corporation has been approved as provided in this section, a statement shall be executed and filed in accordance with § 4-26-1201, which statement shall be verified by one (1) of the officers signing the statement and shall set forth:
    1. The name of the corporation;
    2. A copy of the resolution of the shareholders approving such reduction and the date of its adoption;
    3. The number of shares outstanding and the number of shares entitled to vote thereon;
    4. The number of shares voted for and against such reduction, respectively;
    5. A statement of the manner in which such reduction is effected, and a statement expressed in dollars of the amount of stated capital of the corporation after giving effect to such reduction.
  3. When the statement is filed in accordance with § 4-26-1201, the stated capital of the corporation shall be reduced as therein set forth.
  4. No reduction of stated capital shall be made under the provisions of this section which would reduce the amount of the aggregate stated capital of the corporation to an amount equal to or less than the aggregate preferential amounts payable upon all issued shares having a preferential right in the assets of the corporation in the event of involuntary liquidation, plus the aggregate par value of all issued shares having a par value but no preferential right in the assets of the corporation in the event of involuntary liquidation; and in no event shall the stated capital be reduced to a sum less than three hundred dollars ($300).

History. Acts 1965, No. 576, § 69; A.S.A. 1947, § 64-604.

4-26-616. Surplus, net profits, and valuation of assets.

    1. “Earned surplus” or “retained earnings” means the portion of the surplus of a corporation equal to the balance of its net profits, income, gains, and losses from the date of incorporation or from the latest date when a deficit was eliminated by an application of its capital surplus or otherwise, after deducting subsequent distributions to shareholders and transfers to stated capital and capital surplus to the extent the distributions and transfers are made out of earned surplus.
    2. The portion of earned surplus represented by gains derived from an exchange of assets shall be restricted and not available for dividends until these gains are realized in cash or unless the assets received are currently realizable in cash.
    3. The proceeds of insurance upon the life of a shareholder or officer, when collected by the corporation as beneficiary, and where the premiums on the insurance policy have been paid by the corporation, shall be classified as earned surplus.
    4. Earned surplus shall include also any portion of surplus allocated to earned surplus in mergers, consolidations, or acquisitions of all or substantially all of the outstanding shares or of the property and assets of another corporation, domestic or foreign.
    1. “Capital surplus” means the entire surplus of the corporation other than its earned surplus and includes paid-in surplus; surplus, hereinafter called “reduction surplus”, arising from reduction of stated capital; and surplus, hereinafter called “revaluation surplus”, arising from a revaluation of assets made in good faith upon demonstrably adequate bases of revaluation.
    2. Capital surplus shall be determined in accordance with generally accepted accounting principles and classified according to its derivation on the books, balance sheets, and statements of the corporation.
    1. Surplus created by the cancellation of treasury shares in connection with a stated capital reduction or by the purchase and cancellation of redeemable shares shall be capital surplus.
    2. When a corporation has applied its earned surplus to the acquisition of treasury shares and these shares are subsequently disposed of for a consideration, the corporation may, at its option, restore to earned surplus, out of the consideration received and on a pro rata basis per share, all or part of the amount by which earned surplus was reduced at the time of acquisition of such shares. If the consideration received exceeds the amount by which earned surplus was reduced with respect to such shares, the excess shall be capital surplus.
  1. Subject to § 4-26-619(3), in computing earned surplus or net profits deduction shall be made for such obsolescence, depletion, depreciation losses, bad debts, and other items as accords with generally accepted accounting principles.
  2. The capital surplus of a corporation may be increased from time to time by resolution of the board of directors directing that all or a part of the earned surplus of the corporation be transferred to capital surplus.
  3. A corporation may, by resolution of its board of directors, apply any part or all of its capital surplus, other than revaluation surplus not currently realizable in cash, to the reduction or elimination of any deficit arising from losses, however incurred, but only after first eliminating the earned surplus, if any, of the corporation by applying the losses against earned surplus and only to the extent that the losses exceed the earned surplus, if any. Each such application of capital surplus shall, to the extent thereof, effect a reduction of capital surplus.
  4. A corporation may, by resolution of its board of directors, create a reserve out of its earned surplus for any proper purpose and may abolish any such reserve in the same manner. Earned surplus of the corporation to the extent so reserved shall not be available for the payment of dividends or other distributions by the corporation except as expressly permitted by this chapter.

History. Acts 1965, No. 576, § 44; A.S.A. 1947, § 64-401.

4-26-617. Dividends — General powers of board.

The board of directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares, which dividends may be payable in cash or property or may be payable in the shares of the corporation. However, the declaration and payment of all dividends shall be subject to the provisions and restrictions contained in §§ 4-26-618 and 4-26-619.

History. Acts 1965, No. 576, § 45; A.S.A. 1947, § 64-402.

Case Notes

Declaration.

A private corporation's surplus may be divided among its stockholders without a formal declaration of a dividend where no creditors are injured. Freeman v. Rogers White Lime Co., 138 Ark. 312, 211 S.W. 146 (1919) (decision under prior law).

4-26-618. Share dividends.

  1. Subject to the restrictions provided in this subsection, the board of directors of a corporation may declare and pay dividends in its own authorized but unissued shares out of any unreserved and unrestricted surplus other than revaluation surplus of the corporation upon the following conditions:
    1. If a dividend is payable in its own shares having a par value, those shares shall be issued at not less than the par value, and there shall be transferred to stated capital at the time the dividend is paid an amount of surplus at least equal to the aggregate par value of the shares to be issued as a dividend;
    2. If a dividend is payable in its own shares without par value, such shares shall be issued at not less than the stated value, which shall not be more than the fair value, as determined by resolution of the board of directors adopted at the time the dividend is declared, and there shall be transferred to stated capital at the time dividend is paid an amount of surplus equal to the aggregate stated value of the shares to be issued as a dividend;
    3. If the fair value of the shares included in the share dividend, as determined by resolution of the board of directors, exceeds the stated value thereof at the time the dividend is paid, the difference between the stated value and the fair value shall be accounted for in accordance with generally accepted accounting principles.
  2. When any share dividend is paid out of capital surplus, the shareholders receiving the dividend shall be concurrently notified of the source thereof.
  3. No dividend payable in shares of any class shall be paid to the holders of shares of any other class unless the articles of incorporation so provide or payment is authorized by the affirmative vote or the written consent of the holders of at least a majority of the outstanding shares of the class in which the payment is to be made.
    1. Treasury shares that have been acquired by the corporation out of its surplus may, by authority of the board of directors, be ratably distributed among the shareholders.
    2. However, no distribution of the shares of one (1) class to the holders of shares of another class shall be made except under the conditions set out in subsection (c) of this section.
    3. Concurrently with the making of any such distribution, the corporation shall designate the transaction as a distribution of treasury shares and shall not represent it to be a share dividend.
    4. No transfer from surplus to stated capital is necessary in connection with a distribution of treasury shares.
  4. A split-up or division of the issued shares of any class into a greater number of shares of the same class without increasing the stated capital of the corporation shall not be construed to be a share dividend within the meaning of this section.

History. Acts 1965, No. 576, § 45; A.S.A. 1947, § 64-402.

4-26-619. Dividends other than in shares of the corporation.

In respect to all dividends payable by a corporation other than dividends payable in its own shares:

  1. Subject to subdivisions (3) and (4) of this section, these dividends shall be payable only:
    1. Out of the unreserved and unrestricted earned surplus of the corporation; or
    2. Out of the capital surplus other than revaluation surplus of the corporation, but dividends from capital surplus may be paid only if there is no unreserved and unrestricted earned surplus and then only to shares entitled to cumulative preferential dividends, and no capital surplus paid in by any class of stock may be used for the payment of dividends on any class junior thereto; or
    3. Out of the corporation's net profits for the fiscal year then current.
  2. No dividend may be declared or paid if there are reasonable grounds for believing that upon the payment:
    1. The liabilities of the corporation would exceed its assets; or
    2. The corporation would be unable to pay its obligations to creditors as they become due in the ordinary course of business; or
    3. The highest liquidation preferences of shares entitled to such preference over the shares receiving the dividend would exceed the corporation's net assets; or
    4. The payment of the dividend would be contrary to any provision of the articles of incorporation.
  3. Except to the extent prohibited by its articles of incorporation, a corporation engaged solely or substantially in the exploitation of mines, timber, oil wells, gas wells, patents, or other wasting assets, or organized solely or substantially for the liquidation of specific assets, may, for the purpose of determining its right to pay dividends, compute its earned surplus or net profits without deduction for the depletion of assets incidental to the exploitation or liquidation or lapse of time.
  4. Notwithstanding any provision of this chapter to the contrary, a corporation engaged primarily in the holding or sale of securities may, subject to the restriction contained in subdivision (2) of this section, pay to the holders of common or preferred stock a dividend from revaluation surplus represented by appreciation, readily ascertainable and realizable in cash, in the value of securities held by the corporation; but such dividend may be paid only after the board of directors shall have determined, with the determination to be included in the resolution authorizing the dividend, that the assets of the corporation remaining after the payment of such dividend have a fair value which is not less than one and one-fourth (1¼) times the amount of its liabilities to creditors.
  5. In respect to each dividend payable to the holders of preferred stock out of capital surplus as permitted under subdivision (1)(B) of this section, or payable without deduction for depletion as permitted under subdivision (3) of this section, or payable out of unrealized appreciation as permitted in subdivision (4) of this section, concurrently with the payment of the dividend, the corporation shall disclose to each shareholder receiving a dividend the source from which the dividend is paid; and the source from which the dividend is paid shall also be shown on all notices, reports, and statements which contain a reference to such dividend.
  6. Notwithstanding any other provision of this chapter, in any situation where as much as ninety-five percent (95%) of the capital stock of a corporation is owned by one (1) or more other corporations, the corporation whose stock is so owned may pay dividends out of its assets in excess of its liabilities to creditors regardless of the effect of such dividends upon the stated capital account, provided the assets remaining after such dividends shall have a value of at least one and one-fourth (1¼) times the amount of such corporation's liability to its creditors and provided further such dividends will not impair such corporation's ability to pay its debts as they mature.

History. Acts 1965, No. 576, § 45; A.S.A. 1947, § 64-402.

Research References

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

4-26-620. Distributions in partial liquidation.

The board of directors of a corporation may from time to time distribute to its shareholders in partial liquidation out of capital surplus, other than a revaluation surplus, of the corporation a portion of its assets, in cash or property, subject to the following provisions:

  1. No distribution shall be made if there is a reasonable ground for believing that as a result thereof the corporation would be unable to meet its obligations as they become due in the ordinary course of business or that the fair value of the remaining assets of the corporation would be less than one and one-fourth (1¼) times the amount of its liabilities to creditors.
  2. The distribution shall be made only upon a determination by the board of directors that the assets of the corporation are in excess of the needs of its business and upon authorization evidenced by resolution adopted by the holders of a majority of the shares of each class, whether or not otherwise entitled to vote.
  3. No distribution shall be made to the holders of any class of shares unless all cumulative dividends accrued on all preferred or special classes of shares entitled to preferential dividends shall have been fully paid.
  4. No distribution shall be made to the holders of any class of shares which would reduce the remaining net assets of the corporation below the aggregate preferential amount payable in event of voluntary liquidation to the holders of shares having preferential rights to the assets of the corporation in the event of liquidation.
  5. Each such distribution when made shall be identified as a distribution in partial liquidation and the amount per share disclosed to the shareholders receiving the same concurrently with the distribution thereof.

History. Acts 1965, No. 576, § 46; A.S.A. 1947, § 64-403.

4-26-621. Contractual restriction on dividends.

Nothing in this chapter shall impair the right of a corporation to restrict, through a valid loan agreement, the payment of dividends or the making of distributions in partial liquidation.

History. Acts 1965, No. 576, § 47; A.S.A. 1947, § 64-404.

Subchapter 7 — Shareholders

Cross References. Stockholder, state not to be, Ark. Const., Art. 12, § 7.

Effective Dates. Acts 1965, No. 576, § 98: effective at midnight on Dec. 31, 1965.

Acts 1971, No. 345, § 5: Mar. 22, 1971. Emergency clause provided: “It is hereby found and declared by the General Assembly that the existing laws with respect to stockholders voting in this state are causing undue hardship and imposing confusion upon the shareholders of corporations organized in this state. Therefore, an emergency is hereby declared to exist, and this Act being necessary for the immediate preservation of the public health, peace, safety and welfare, shall take effect and be in force from and after its passage and approval.”

Research References

ALR.

Propriety of actions by attorney who has represented corporation acting for corporation in controversy with officer, director, or stockholder. 1 A.L.R.4th 1124.

Validity of variations from one share-one vote rule under modern corporate law. 3 A.L.R.4th 1204.

Stockholders' agreement allegedly infringing on directors' management power. 15 A.L.R.4th 1078.

Misrepresentation in proxy solicitation — state cases. 20 A.L.R.4th 1287.

Personal liability of stockholder, officer, or agent for debt of foreign corporation doing business in the state. 27 A.L.R.4th 387.

Workers' compensation immunity as extending to one owning controlling interest in employer corporation. 30 A.L.R.4th 948.

Professional corporation stockholders nonmalpractice liability. 50 A.L.R.4th 1276.

Liability of shareholders, director, and officers where corporate business is continued after its dissolution. 72 A.L.R.4th 419.

Validity of voting trust created by will. 77 A.L.R.4th 1194.

Validity, construction and effect of provision in charter or bylaws requiring supermajority vote. 80 A.L.R.4th 667.

Propriety of applying minority discount to value of shares purchased by corporation or its shareholders from minority shareholders. 13 A.L.R.5th 840.

Employee's control or ownership of corporation as precluding receipt of benefits under state unemployment compensation provisions. 23 A.L.R.5th 176.

Independent accountant's liability to investors or shareholders. 48 A.L.R.5th 389.

Am. Jur. 18A Am. Jur. 2d, Corp., § 602 et seq.

Ark. L. Rev.

Proxy and Insider-Trading Regulation: Federal-State Cooperation in the Protection of Investors, 19 Ark. L. Rev. 308.

C.J.S. 18 C.J.S., Corp., § 372 et seq.

4-26-701. Shareholders' meetings generally.

  1. Meetings of shareholders may be held at such place, either within or without this state, as may be provided in the bylaws. In the absence of any such provision, all meetings shall be held at the registered office of the corporation.
  2. An annual meeting of the shareholders shall be held at such time as may be provided in the bylaws. Failure to hold the annual meeting at the designated time shall not work a forfeiture or dissolution of the corporation.
  3. Special meetings of the shareholders may be called by the president, the board of directors, the holders of not less than one-tenth (1/10) of all the shares entitled to vote at the meeting, or by such other officers or persons as may be given that power in the articles of incorporation or the bylaws.

History. Acts 1965, No. 576, § 30; A.S.A. 1947, § 64-214.

Case Notes

Call Bank Stock.

The owner of a majority of bank stock has the right to demand that a stockholders' meeting be held for the transaction of any business that may be properly brought before it; although the meeting cannot be held at the time provided by the bylaws, such meeting should be held. Rice v. Beavers, 213 Ark. 656, 212 S.W.2d 30 (1948) (decision under prior law).

4-26-702. Closing of transfer books and fixing record date.

    1. For the purpose of determining shareholders entitled to notice of or to vote at any meetings of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any proper purpose, the board of directors of a corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed in any case sixty-five (65) days.
    2. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, the books shall be closed for at least ten (10) days immediately preceding such meeting.
  1. In lieu of closing the stock transfer books, the bylaws, or in the absence of an applicable bylaw, the board of directors, may fix in advance a date as the record date for any such determination of shareholders, the date in any case to be not more than sixty-five (65) days and, in case of a meeting of shareholders, not fewer than ten (10) days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken.
  2. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring the dividend is adopted, as the case may be, shall be the record date for the determination of shareholders.
  3. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, the determination shall apply to any adjournment thereof.

History. Acts 1965, No. 576, § 32; A.S.A. 1947, § 64-216.

4-26-703. Shareholders' meetings — Notice — Special meetings.

    1. Written or printed notice stating the place, day, and hour of the meeting, and, in case of a special meeting, the purpose for which the meeting is called shall be delivered not less than sixty (60) nor more than seventy-five (75) days before the date of the meeting if a proposal to increase the authorized capital stock or bond indebtedness is to be submitted, and in all other cases not less than ten (10) nor more than fifty (50) days before the date of the meeting, either personally or by mail, by or at the direction of the president, the secretary, or any officer designated for that purpose in the bylaws or by the board of directors, or by the shareholder calling the meeting, to each shareholder of record entitled to vote at the meeting.
    2. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his or her address as it appears on the books of the corporation, with postage prepaid.
  1. If a proposal to increase authorized capital stock or bond indebtedness; or to dissolve or merge or consolidate; or to sell, lease, exchange, or otherwise dispose of all or substantially all of the corporate assets other than in the regular course of business; or to alter the capital structure; or to amend the articles of incorporation; or to effect any other fundamental change is to be submitted at an annual meeting of the shareholders, the annual meeting shall be deemed for that purpose a special meeting; and notice based upon a proper call shall be given accordingly.

History. Acts 1965, No. 576, § 31; A.S.A. 1947, § 64-215.

Case Notes

Notice.

A stockholders' meeting, of which absent stockholders had no proper notice, was illegal, and action then taken was not binding. Red Bud Realty Co. v. South, 96 Ark. 281, 131 S.W. 340 (1910) (decision under prior law).

4-26-704. Shareholders' meetings — List of shareholders entitled to vote.

    1. The officer or agent having charge of the stock transfer books for shares of a corporation shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at that meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each.
    2. This list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the corporation or at its principal place of business in this state and shall be subject to inspection by any shareholder at any time during usual business hours.
    3. This list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting.
    4. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine the list or transfer books or to vote at any meeting of shareholders.
  1. Failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting.
  2. An officer or agent having charge of the stock transfer books who shall fail to prepare the list of shareholders, or keep it on file for a period of ten (10) days, or produce and keep it open for inspection at the meeting, as provided in this section, shall be liable to any shareholder suffering damage on account of such failure to the extent of such damage.

History. Acts 1965, No. 576, § 33; A.S.A. 1947, § 64-217.

Case Notes

Evidence.

Record of stock of bank corporation constituted the best evidence as to who were stockholders in the bank. Berlin v. Rainwater, 174 Ark. 66, 294 S.W. 368 (1927) (decision under prior law).

4-26-705. Shareholders' meetings — Quorum — Adjournment.

    1. Unless otherwise provided in the articles of incorporation, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders, but in no event shall a quorum consist of less than one-third (1/3) of the shares entitled to vote at the meeting.
    2. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by this chapter or the articles of incorporation or bylaws.
      1. In the absence of a quorum at the opening of any meeting of the shareholders, the meeting may be adjourned by the vote of a majority of the shares entitled to vote at the meeting which are represented at the meeting by the holders thereof in person or by proxy.
      2. Any adjourned meeting may be readjourned in like manner.
      1. When any one (1) adjournment is for thirty (30) days or more, a fifteen-day notice of the adjourned meeting shall be given by mailing as provided in § 4-26-703.
      2. When any one (1) adjournment is for less than thirty (30) days, it is not necessary, unless the bylaws provide otherwise, to give notice of the time and place of the adjourned meeting or of the business to be transacted there other than by announcement at the meeting at which the adjournment is taken.

History. Acts 1965, No. 576, § 34; A.S.A. 1947, § 64-218.

4-26-706. Voting trusts.

  1. Any number of shareholders of a corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote or otherwise represent their shares, for a period of not to exceed ten (10) years, by entering into a written voting trust agreement specifying the terms and conditions of the voting trust, by depositing a counterpart of the agreement with the corporation at its registered office, and by transferring their shares to the trustee or trustees for the purposes of the agreement.
  2. The counterpart of the voting trust agreement so deposited with the corporation shall be subject to the same right of examination by a shareholder of the corporation, in person or by agent or attorney, as are the books and records of the corporation and shall be subject to examination by any holder of a beneficial interest in the voting trust, either in person or by agent or attorney, at any reasonable time for any proper purpose.

History. Acts 1965, No. 576, § 35.2; A.S.A. 1947, § 64-221.

Research References

Ark. L. Rev.

Note, Hall v. Staha: Arkansas Courts Adopt the Business Judgment Rule as a Tool of Judicial Review and Analyze the Issue of Excessive Executive Compensation, 47 Ark. L. Rev. 959.

Case Notes

Purpose.

The legislative purpose of this section is to avoid secret control and unlawful purpose. Hall v. Staha, 303 Ark. 673, 800 S.W.2d 396 (1990).

The main purpose of a voting trust statute is to avoid secret, uncontrolled combinations of stockholders formed to acquire voting control of a corporation to the possible detriment of the nonparticipating stockholders. Hall v. Staha, 303 Ark. 673, 800 S.W.2d 396 (1990).

Applicability.

This section is not applicable to insurance corporations. Bailey v. Jones, 242 Ark. 668, 419 S.W.2d 585 (1967) (decision under prior law).

Characteristics of limited partnership, formed for the purpose of gaining control of a specific corporation by acquiring more than 50 percent of its stock, came within the definition of a “voting trust” as provided in this section. Hall v. Staha, 303 Ark. 673, 800 S.W.2d 396 (1990).

Violation.

Partnership whose characteristics came within the definition of “voting trust” violated subsection (a) in that its term was longer than ten years, and a copy of the fully executed written agreement, including names of the limited partners, was not filed with the corporation. Hall v. Staha, 303 Ark. 673, 800 S.W.2d 396 (1990).

4-26-707. Class voting.

  1. In each instance where, under § 4-26-302(a)(4), § 4-26-303, § 4-26-611(e), § 4-26-705(a)(2), § 4-26-903(a)(3)(B), § 4-26-1007(e) and (f), or § 4-26-1101, a provision is made for the class voting of stock, thus requiring the votes of a certain percentage of each separate class of shares to authorize some specific corporate action, each class of shares to which a requirement of class voting is applicable shall be bound by the votes which are cast in person or by proxy of at least two-thirds (2/3) of those members of such class who are present in person or represented at the meeting by proxy if due and timely notice of the meeting has been given to all members of said class and at least fifty percent (50%) of the shares embraced in the class are present in person or by proxy.
  2. The certificate to articles of amendment under § 4-26-304, articles of merger or consolidation under § 4-26-1009, and articles of dissolution under § 4-26-1102 shall, in all situations to which this section applies, be amended and adjusted to show the manner in which the requirements of this section were met in respect to class voting.
  3. This section shall apply only to corporations having five hundred (500) or more shareholders.

History. Acts 1971, No. 345, §§ 1-3; A.S.A. 1947, §§ 64-225 — 64-227; Acts 2009, No. 408, § 8.

Amendments. The 2009 amendment substituted “§ 4-26-1007(e) and (f)” for “§ 4-26-1003(d)” in (a); substituted “§ 4-26-1009” for “§ 4-26-1004” in (b); and made minor stylistic changes.

4-26-708. Voting of shares — Consent to corporate action.

  1. Each outstanding share, regardless of class, shall be entitled to one (1) vote on each matter submitted to a vote at a meeting of the shareholders, except to the extent that the voting rights of the shares of any class are limited or denied by the articles of incorporation as permitted by this chapter.
  2. Neither treasury shares nor shares of its own stock held by a corporation in a fiduciary capacity nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation is held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time.
  3. A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his or her duly authorized attorney-in-fact. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted or the authority is exercised, written notice of the death or incapacity is given to the corporation.
  4. At each election for directors every shareholder entitled to vote at the election shall have the right to vote, in person or by proxy, the number of shares owned by him or her for as many persons as there are directors to be elected and for whose election he or she has a right to vote, or to cumulate his or her votes by giving one (1) candidate as many votes as the number of such directors multiplied by the number of his or her shares shall equal, or by distributing the votes on the same principle among any number of such candidates.
  5. Shares standing in the name of another corporation, domestic or foreign, may be voted by the president or a vice president of the other corporation or by such other officer, agent, or proxy as the bylaws of the other corporation may prescribe or as the board of directors of the other corporation may determine.
    1. Unless the bylaws provide to the contrary, shares held by an administrator, executor, guardian, or curator may be voted by him or her without a transfer of such shares on the books of the corporation into his or her name.
    2. No trustee shall be entitled to vote shares held by him or her without a transfer of the shares on the books of the corporation into his or her name as trustee.
  6. Shares standing in the name of a receiver may be voted by the receiver, and shares held by or under the control of a receiver may be voted by the receiver without the transfer thereof on the books of the corporation into his or her name as receiver if authority to do so is contained in an appropriate order of the court by which such receiver was appointed.
  7. A shareholder whose shares are pledged shall be entitled to vote the shares until the shares have been transferred on the books of the corporation into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.
  8. Except to the extent that the same may be prohibited by the terms of a controlling will or inter vivos trust instrument, and also, in the case of foreign fiduciaries, by the applicable laws of the foreign jurisdiction, trustees, whether they are under testamentary or inter vivos trusts, executors, administrators, guardians, and curators, shall have the following proxy and voting privileges in respect to the fiduciary shares:
    1. Each such fiduciary may vote in person or by his or her general or limited proxy; and in the case of joint fiduciaries, each of them may execute a separate proxy, or all or any two (2) or more of them may unite in a joint proxy;
    2. Concerning joint fiduciaries:
      1. If one (1) only of the joint fiduciaries is present or represented at the meeting, his or her vote cast in person or by his or her proxy binds all;
      2. If more than one (1) is present or represented by proxy at the meeting, whether the number present or represented be all or less than the total number of the joint fiduciaries, the vote, in person or by proxy, of a majority of those present or represented binds all of the joint fiduciaries;
      3. In the situation mentioned in subdivision (i)(2)(B), if those present or represented are evenly opposed as to the method of voting the fiduciary shares, each fiduciary so present or represented acting in person or by proxy may vote a number of the fiduciary shares determined by dividing the total number by the number of joint fiduciaries present or represented at the meeting.
  9. The voting and proxy rights of a custodian under the Arkansas Uniform Gifts to Minors Act, Acts 1967, No. 250 [repealed] shall be controlled by the provisions of that act.
  10. In respect to shares held by tenants in common, joint tenants, or tenants by the entirety:
    1. If less than the entire number of cotenants be present at the meeting, in person or by proxy, the cotenant thus attending or represented at the meeting, provided they act unanimously if more than one (1), may vote in person or by proxy all shares held in cotenancy.
    2. If the votes of all cotenants present at the meeting in person or by proxy, whether they are all of the cotenants or less than all, are not cast unanimously, each cotenant present or his or her proxy shall vote a number of votes determined by dividing the number of shares held in cotenancy by the number of cotenants unless in the case of a tenancy in common, written evidence is produced which shows that the shares are owned in different proportions.
  11. The right of every shareholder, whether a sole owner, cotenant, fiduciary, or cofiduciary, to consent to corporate action shall be coextensive with his or her right to vote.
  12. On and after the date on which written notice of redemption of redeemable shares has been mailed to the holders and a sum sufficient to redeem such shares has been deposited with a bank or trust company with irrevocable instructions and authority to pay the redemption price to the holders upon surrender of certificates therefor, the shares shall not be entitled to vote on any matter and shall not be deemed to be outstanding shares.

History. Acts 1965, No. 576, § 35; A.S.A. 1947, § 64-219.

Research References

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

4-26-709. Greater voting requirements.

Whenever, with respect to any action to be taken by the shareholders of a corporation, the articles of incorporation require the vote or concurrence of the holders of a greater proportion of the shares, or of any class or series thereof, than required by this chapter with respect to such action, the provisions of the articles of incorporation shall control.

History. Acts 1965, No. 576, § 35.3; A.S.A. 1947, § 64-222.

4-26-710. Action by shareholders without a meeting.

  1. Any action required by this chapter to be taken at a meeting of the shareholders of a corporation or any action which may be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof.
  2. The consent shall have the same force and effect as a unanimous vote of shareholders and may be stated as such in any articles or document filed with the Secretary of State under this chapter.

History. Acts 1965, No. 576, § 35.1; A.S.A. 1947, § 64-220.

Case Notes

Consent.

Where husband and wife owned majority of the stock in a corporation operating a taxicab company, and acted as president and secretary, a lease with option to buy of the assets of the taxicab company executed by the husband and wife as officers of the corporation was valid, even though minority stockholders received no notice of the meeting, as written consent by statutorily required percentage of the stockholders of a corporation makes sale valid. Dixie Cab Co. v. Black & White Cab Co., 214 Ark. 624, 217 S.W.2d 602 (1949) (decision under prior law).

4-26-711. Preemptive rights.

  1. The term “preemptive rights”, as used in this chapter, shall refer to the right, exercisable under the circumstances hereinafter set out, to purchase the shares or securities of a corporation.
  2. The term “voting rights”, as used in this section, shall mean the right, not dependent on the happening of an event specified in the articles of incorporation which would affect the voting rights of any class of stock, to vote for the election of one (1) or more directors.
    1. Unless otherwise provided in the articles of incorporation, the holders of the shares of any class, other than shares which are limited as to dividends and liquidation rights, in this section referred to as “such holders,” shall have the right, during a reasonable time and on reasonable terms to be fixed by the directors, to purchase the shares or securities so offered in proportion to their then-respective holdings at a lawful price substantially no less favorable than the price at which such shares or securities are to be offered to others; upon the offering for sale for cash of:
      1. Any shares that are either treasury shares or shares authorized to be issued of the same class as those held by such holders; or
      2. Any shares that are either treasury shares or shares authorized to be issued, whether or not of the same class as those held by such holders, having voting rights or dividend rights which would adversely affect the voting rights or dividend rights of such holders; or
      3. Any shares that are either treasury shares or shares authorized to be issued, notes, debentures, bonds, or other securities convertible into, or carrying options or warrants to purchase, shares coming within the description set out in subdivision (c)(1)(A) or (c)(1)(B) of this section.
    2. However, unless otherwise provided in the articles of incorporation, there shall be no preemptive right to purchase:
      1. Shares or other securities which are part of the shares or securities of the corporation authorized in the original articles of incorporation and are issued, sold, or optioned within two (2) years from the date of filing of the articles of incorporation; or
      2. Shares or other securities to be issued for considerations other than money; or
      3. Shares issued or to be issued to satisfy conversion rights or option rights theretofore lawfully granted by the corporation.
    1. The board of directors shall cause to be mailed by first class mail, which need not be registered or certified, to each shareholder of record entitled to purchase shares or securities in accordance with this section, a notice directed to him or her at his or her address as shown on the books of the corporation, setting forth the time within which and the terms and conditions under which the shareholder may purchase the shares or securities and also the apportionment made of the right to purchase among the shareholders entitled to preemptive rights.
    2. The notice shall be mailed at least ten (10) days, or such longer period as may be prescribed by the board, prior to the expiration of the period during which the shareholder shall have the right to purchase.
    3. All shareholders entitled to preemptive rights to whom notice shall have been mailed as aforesaid shall be deemed conclusively to have been given a reasonable time in which to exercise their preemptive rights; and upon the expiration of the time specified in the notice, the preemptive rights if not exercised shall expire.
  3. Shares or securities subject to preemptive rights may be released from the preemptive rights on the vote or written consent of the holders of two-thirds (2/3) of the shares to which such rights attach. However, if shares or securities so released are not sold in one (1) year from the date of the release, the preemptive rights shall be reinstated.

History. Acts 1965, No. 576, § 27; A.S.A. 1947, § 64-212.

4-26-712. Shares without preemptive rights — Corporate powers and limitations.

  1. In respect to shares or securities which are not subject to or which have been released from preemptive rights, or in respect to which preemptive rights have expired, and subject to subsection (b):
    1. The board of directors may grant options to subscribe for, or to purchase, such shares or securities; and it may fix the terms and consideration of such optional rights and of the purchase to be made thereunder. The optional rights may be evidenced in such form as the board may prescribe and may be made transferable.
    2. The board of directors, without the granting of options, may authorize the sale and issuance of the shares or securities; and the board may select the purchasers and fix the terms and consideration for the sale and issuance of the shares and securities.
    1. A corporation shall not issue or sell to any one (1) or more of its directors, officers, or employees or to any one (1) or more of the directors, officers, or employees of a subsidiary corporation any of its treasury or authorized shares which carry voting rights, as defined in § 4-26-711(b), or options to purchase shares, or securities convertible into or carrying options to purchase shares, unless such action, including the terms and consideration of the proposed issuance and sale, shall first be approved by the vote or written consent of the holders of at least a majority of the shares of the corporation which carry such voting rights.
    2. However, no corporation which is required by the laws of the United States to register with and file periodic reports with the United States Securities and Exchange Commission shall be subject to the provisions of this subsection.

History. Acts 1965, No. 576, § 28; 1973, No. 110, § 1; A.S.A. 1947, § 64-213.

4-26-713. Right to dissent no bar to other legal actions.

The fact that a shareholder may have, under this chapter, a potential right of dissent and appraisal in respect to any corporate action will not impair his or her right to challenge the legality of the corporate action and sue to enjoin the action or enforce any other legal remedy in connection therewith, provided the shareholder is guilty of no laches and acts with great promptitude before the rights of third parties have intervened.

History. Acts 1965, No. 576, § 82; A.S.A. 1947, § 64-224.

4-26-714. Shareholders' actions.

  1. No action shall be brought in this state by a shareholder in the right of a domestic corporation unless the plaintiff was a holder of shares or of voting trust certificates at the time of the transaction of which he or she complains, or his or her shares or voting trust certificates thereafter devolved upon him or her by operation of law from a person who was a holder at that time.
  2. In any action hereafter instituted in the right of any domestic corporation by the holder of shares of the corporation or of voting trust certificates therefor, the court having jurisdiction, upon final judgment and a finding that the action was brought without reasonable cause, may require the plaintiff to pay to the parties named as defendant the reasonable expenses, including fees of attorneys, incurred by them in the defense of such action.
    1. In any action instituted in the right of a domestic corporation by the holders of less than five percent (5%) of the outstanding shares of any class of the corporation or of voting trust certificates therefor, unless the shares or voting trust certificates so held have a market value in excess of twenty-five thousand dollars ($25,000), the corporation in whose right the action is brought or any defendant may move the court for an order, upon notice and hearing, requiring plaintiff to furnish security as provided in this section.
    2. The motion may be based upon one (1) or more of the following grounds:
      1. That there is no reasonable possibility that the prosecution of the cause of action alleged in the complaint against the moving party will benefit the corporation or its security holders.
      2. That the moving party, if other than the corporation, did not participate in the transaction complained of in any capacity.
    3. At the hearing upon the motion, the court shall consider such evidence, written or oral, by witnesses or affidavit, as may be material to the grounds upon which the motion is based, or to a determination of the probable reasonable expenses, including attorneys' fees, of the corporation and the moving party which will be incurred in the defense of the action.
    4. If the court determines, after hearing the evidence adduced by the parties at the hearing, that the moving party has established a probability in support of any of the grounds upon which the motion is based, the court shall fix the nature and amount of security to be furnished by the plaintiff for reasonable expenses, including attorneys' fees, which may be incurred by the moving party and the corporation in connection with such action, including, but without limiting, the foregoing expenses for which the corporation may become liable pursuant to § 4-26-814.
    5. A determination by the court that security either shall or shall not be furnished or shall be furnished as to one (1) or more defendants and not as to others shall not be deemed a determination of any one (1) or more issues in the action or of the merits thereof.
    6. The corporation and the moving party may have recourse to the security in such amount as the court shall determine upon the termination of the action.
    7. The amount of security may from time to time be increased or decreased in the discretion of the court upon showing that the security provided has or may become inadequate or is excessive.
    8. If the court makes a determination that security shall be furnished by the plaintiff for the benefit of any one (1) or more defendants, the action shall be dismissed as to such defendant unless the security required by the court shall have been furnished within such reasonable time as may be fixed by the court.
    9. If any such motion is filed, no pleadings need be filed by the corporation or any other defendant, and the prosecution of the action shall be stayed until ten (10) days after the motion shall have been disposed of.
  3. A suit filed by a shareholder in the right of a domestic corporation may not be dismissed or compromised without the approval of the court.

History. Acts 1965, No. 576, § 49; A.S.A. 1947, § 64-223.

Publisher's Notes. The Supreme Court of Arkansas stated in a per curiam order of Nov. 24, 1986, that subsection (d) of this section was deemed superseded by the Arkansas Rules of Civil Procedure.

Research References

Ark. L. Rev.

A Look at the Derivative Suit, 24 Ark. L. Rev. 89.

Matthews, The Shareholder Derivative Suit in Arkansas, 52 Ark. L. Rev. 353.

U. Ark. Little Rock L.J.

Webber, Arkansas Corporate Fiduciary Standards — Interested Directors' Contracts and the Doctrine of Corporate Opportunity, 5 U. Ark. Little Rock L.J. 39.

Case Notes

Actions Against Directors.

Courts will not ordinarily interfere at suit of a minority shareholder to control discretion of directors in management of affairs of corporation. Red Bud Realty Co. v. South, 96 Ark. 281, 131 S.W. 340 (1910) (decision under prior law).

Action in equity by stockholders of corporation against directors, for misconduct, must be brought within time in which corporation itself should have brought the suit. Magale v. Fomby, 132 Ark. 289, 201 S.W. 278 (1918) (decision under prior law).

Equity has jurisdiction in an action involving negligence of directors in discharge of their duties to afford redress to the corporation and in proper cases to its shareholders. Magale v. Fomby, 132 Ark. 289, 201 S.W. 278 (1918) (decision under prior law).

Cited: Taylor v. Terry, 279 Ark. 97, 649 S.W.2d 392 (1983); Robertson v. White, 633 F. Supp. 954 (W.D. Ark. 1986); Benton Window & Door, Little Rock Div., Inc. v. Garrett, 290 Ark. 244, 718 S.W.2d 438 (1986).

4-26-715. Books and records — Examination.

  1. Each corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its shareholders and board of directors and shall keep at its registered office or principal place of business in this state, or at the office of its transfer agent or registrar in this state, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of the shares held by each.
  2. Any person who shall have been a shareholder of record for at least six (6) months immediately preceding his or her demand, upon written demand stating the purpose thereof, shall have the right to examine, in person or by agent or attorney, at any reasonable time, for any proper purpose, its books and records of account, minutes, and record of shareholders and to make extracts therefrom.
    1. Upon refusal by the corporation or by an officer or agent of the corporation to permit an inspection of the corporation's books, records of account, minutes, or record of shareholders, the person making demand for inspection may file a civil action in the circuit court of the county in which the corporation maintains either its principal place of business or its registered office for the purpose of securing an order of the court directing the corporation, its officers, and agents to permit the requested inspection.
    2. The proceeding shall be advanced upon the docket of the court; and the court shall hear the parties summarily, by affidavit or otherwise.
    3. If the applicant establishes that he or she is qualified and entitled to the inspection, the court shall grant an order permitting the inspection, subject to any limitations which the court may prescribe; and the court may grant such other relief as to the court may seem just and proper.
    4. The court may deny or restrict inspection if it finds that the shareholder has improperly used information secured through any prior examination of the books and records of accounts or minutes or record of shareholders of the corporation or of any other corporation, or that he or she was not acting in good faith or for a proper purpose in making his or her demand.
  3. Upon the written request of any shareholder of a corporation, the corporation shall mail to the shareholder its most recent financial statements showing in reasonable detail its assets and liabilities and the results of its operations.

History. Acts 1965, No. 576, § 53; A.S.A. 1947, § 64-312.

Case Notes

Burden of Proof.

This section clearly and unambiguously provides that the shareholders bear the burden of proving entitlement to inspection. Ashley Bancstock Co. v. Meredith, 2017 Ark. App. 598, 534 S.W.3d 762 (2017).

This section includes no language requiring a shareholder to include specific allegations of wrongdoing in order to be entitled to records. Only a proper purpose must be established. Ashley Bancstock Co. v. Meredith, 2017 Ark. App. 598, 534 S.W.3d 762 (2017).

Shareholders proved a proper purpose to inspect requested records where their demand letter explained that the corporation had reported significant losses and expenses that they believed were from a subsidiary sale and significant loan write-offs, and this section did not require specific allegations of wrongdoing. Ashley Bancstock Co. v. Meredith, 2017 Ark. App. 598, 534 S.W.3d 762 (2017).

Evidence.

Entries upon books of corporation are prima facie evidence against it as admissions, and become conclusive evidence against it when the entries have been duly made by the recording officer. City Elec. S. Ry. v. First Nat'l Exch. Bank, 62 Ark. 33, 34 S.W. 89 (1896) (decision under prior law).

Record of stock of corporation constituted the best evidence as to who were stockholders. Berlin v. Rainwater, 174 Ark. 66, 294 S.W. 368 (1927) (decision under prior law).

The minute book of a corporation when identified, is competent evidence as to recitals therein and even though unsigned, the minutes may be used to prove what took place at the meeting and that a resolution was passed thereat. Grand Nat'l Bank v. Taylor, 176 Ark. 1, 1 S.W.2d 818 (1928) (decision under prior law).

Where the proposed minutes of the board of directors' meeting were not in the corporation record book, the plaintiff failed to carry its burden of proof as to the genuineness of the action of the board in providing apparent authority of its agent. National Surety Corp. v. Crystal Springs Fishing Village, Inc., 326 F. Supp. 1171 (W.D. Ark. 1971).

Minutes.

Where meeting was legal meeting, authority conferred thereby would not be impaired because proper minutes thereof were not written up. Engles v. Shaffer, 143 Ark. 31, 219 S.W. 343 (1920) (decision under prior law).

Records Subject to Inspection.

Court of Appeals of Arkansas, Division Four, concludes that a broad definition of the term books and records of account is proper for purposes of this section. Courts tend to broadly define the term so that shareholders' rights are protected. Adopting this approach, the Court of Appeals holds liability-insurance policies are books and records of account within the meaning of the statute. Insurance policies are contracts. And contracts are business records pertinent to the operations of a corporation. Ashley Bancstock Co. v. Meredith, 2017 Ark. App. 598, 534 S.W.3d 762 (2017).

Subsection (b) of this section provides that a corporation is required to produce its books and records of account after a proper demand from a shareholder. The Court of Appeals of Arkansas, Division Four, interprets this provision to mean that a corporation must provide to shareholders only the books and records it possesses. Ashley Bancstock Co. v. Meredith, 2017 Ark. App. 598, 534 S.W.3d 762 (2017).

Subsidiary Records.

Because subsidiaries are assets of a corporation, their books and records are corporate records. By the plain language of this section, they are subject to inspection. The Court of Appeals of Arkansas, Division Four, holds that this section authorizes a shareholder to inspect records of a corporation's subsidiaries. Ashley Bancstock Co. v. Meredith, 2017 Ark. App. 598, 534 S.W.3d 762 (2017).

Time Limit.

This section imposes no time limit on the inspection of records. The rules of statutory construction require that a time limit cannot be assumed. Ashley Bancstock Co. v. Meredith, 2017 Ark. App. 598, 534 S.W.3d 762 (2017).

4-26-716. Liability of subscribers and shareholders.

  1. A holder of or subscriber to shares of a corporation shall be under no obligation to the corporation or its creditors with respect to the shares other than the obligation to pay to the corporation the full consideration fixed as provided by law for which those shares were issued or to be issued.
    1. Every original holder of watered shares or of shares not fully paid as agreed shall continue liable thereon to the corporation notwithstanding any transfer of the shares.
    2. A transferee of the shares shall not be liable thereon if he or she acquired them in good faith without knowledge or notice that they were watered shares or shares not fully paid as agreed or if he or she acquired them from a transferor similarly free from liability. The burden of proof that the transferee did not so acquire the shares shall be upon the adverse party.
  2. An executor, administrator, conservator, guardian, trustee, assignee for the benefit of creditors, or receiver shall not be personally liable to the corporation as a holder of or subscriber to shares of a corporation, but the estate and funds in his or her hands shall be so liable.
  3. No pledgee or other holder of shares as collateral security shall be personally liable as a shareholder.

History. Acts 1965, No. 576, § 25; A.S.A. 1947, § 64-210.

Research References

Ark. L. Rev.

Note, Professional Corporations: Shareholder Liability and the Saving Clause, 42 Ark. L. Rev. 777.

Case Notes

Extent of Liability.

Subscribers held not liable as partners in business, when they signed no articles of association, incorporation, or partnership and where they did not know that anyone was attempting to run the business as a partnership. Rainwater v. Childress, 121 Ark. 541, 182 S.W. 280 (1915) (decision under prior law).

A transferee of stock from the original subscriber who takes with notice that the stock is not fully paid up is liable to creditors of the corporation to the extent of the unpaid amount. Davis v. Scott, 129 Ark. 226, 195 S.W. 383 (1917) (decision under prior law).

The purchaser of stock in a de facto corporation is not liable as a partner to one who dealt solely with a corporation as a corporation. Wesco Supply Co. v. Smith, 134 Ark. 23, 203 S.W. 6 (1918) (decision under prior law).

Subscribers required to share liability in proportion to the amount of subscription to the capital stock. Rhodes v. Carter, 181 Ark. 370, 26 S.W.2d 63 (1930) (decision under prior law).

A stockholder is liable only for the proportion of his unpaid subscription necessary to pay the debts of the corporation when its property is insufficient for the purpose. Wilson v. Lucas, 185 Ark. 183, 47 S.W.2d 8 (1932) (decision under prior law).

Stockholders held liable as joint trespassers with company. McGraw v. Berry, 170 Ark. 426, 280 S.W. 383 (1926) (decision under prior law).

Partial Payment.

Where directors issued paid-up stock upon payment of 50 percent thereof, the stockholders would be liable for the full amount of their stock subscriptions, notwithstanding the illegal credit. Wait v. McKee, 95 Ark. 124, 128 S.W. 1028 (1910) (decision under prior law).

Subchapter 8 — Directors and Officers

Effective Dates. Acts 1965, No. 576, § 98: effective at midnight on Dec. 31, 1965.

Acts 1973, No. 8, § 2: Jan. 26, 1973. Emergency clause provided: “It is hereby found and determined by the General Assembly that many corporations in the State of Arkansas are not now in compliance with the Corporation Code of the State of Arkansas due to the effect of Section 1 of Act 362 of 1971, and that the resulting confusion requires immediate correction; therefore, an emergency is declared to exist and this Act being necessary for the preservation of the public peace, health and safety shall take effect and be in force from the date of its approval.”

Acts 1973, No. 94, § 5: Feb. 12, 1973. Emergency clause provided: “It is hereby found and determined by the General Assembly that the provisions of Section 50 of Act 576 of 1965 relating to indemnification of corporate directors and officers are duly restrictive, a deterrent to the inducement of qualified persons to hold such positions, a deterrent to the incorporation of national corporations in Arkansas, and that it is immediately necessary to correct this undesirable situation. Therefore an emergency is hereby declared to exist and this Act being necessary for the immediate preservation of the public peace, health and safety shall be in effect from the date of its passage and approval.”

Acts 1977, No. 317, § 3: Mar. 1, 1977. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present laws governing corporations in which only one shareholder holds all the voting stock are in need of clarification with respect to the number of offices to be held by such person, and that the immediate passage of this Act is necessary to clarify the existing corporation laws in this respect. Therefore, an emergency is hereby declared to exist and this Act, being necessary for the immediate preservation of the public peace, health, and safety, shall be in full force and effect from and after its passage and approval.”

Acts 1987, No. 323, § 6: Mar. 19, 1987. Emergency clause provided: “It is found and declared that the authority of an executive committee of a business corporation to designate and price a series of shares of preferred or special classes of stock is a matter of uncertainty which requires immediate clarification. This Act is immediately necessary in order to facilitate such corporate action by an executive committee within limits prescribed by the board of directors. Therefore, an emergency is hereby declared to exist and this Act being necessary for the preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

Research References

ALR.

Propriety of actions by attorney who has represented corporation acting for corporation in controversy with officer, director, or stockholder. 1 A.L.R.4th 1124.

Stockholders' agreement allegedly infringing on directors' management powers. 15 A.L.R.4th 1078.

Purchase of shares of corporation by director or officer as usurpation of “corporate opportunity.” 16 A.L.R.4th 784.

Fairness to corporation where “corporate opportunity” is allegedly usurped by officer or director. 17 A.L.R.4th 479.

Action against former director, officer, or stockholder in dissolved corporation for personal injuries incurred after final dissolution. 20 A.L.R.4th 414.

Duty of corporate directors to exercise “informed” judgment in recommending responses to merger or tender offers. 46 A.L.R.4th 887.

Liability of corporate director, officer, or employee for tortious interference with corporation's contract with another. 72 A.L.R.4th 492.

Negligence, liability of corporate custodian for negligence in dealing with affairs or assets of corporation. 74 A.L.R.4th 770.

Propriety and effect of corporation's appearance pro se through agent who is not attorney. 8 A.L.R.5th 653.

In-house counsel's right to maintain action for wrongful discharge. 16 A.L.R.5th 239.

Validity, construction, and effect of “regulatory exclusion” in directors' and officers' liability insurance policy. 21 A.L.R.5th 292.

What corporate communications are entitled to attorney-client privilege — modern cases. 27 A.L.R.5th 76.

Am. Jur. 18B Am. Jur. 2d, Corp., § 1139 et seq.

Ark. L. Rev.

Tuohey, Corporate Director Resignation, 33 Ark. L. Rev. 106.

C.J.S. 19 C.J.S., Corp., § 518 et seq.

U. Ark. Little Rock L.J.

Webber, Arkansas Corporate Fiduciary Standards — Interested Directors' Contracts and the Doctrine of Corporate Opportunity, 5 U. Ark. Little Rock L.J. 39.

Case Notes

Cited: Marcum v. Wengert, 344 Ark. 153, 40 S.W.3d 230 (2001).

4-26-801. Board of directors generally.

  1. All corporate powers shall be exercised by or under the authority of, and the business and affairs of a corporation shall be managed under the direction of, its board of directors, subject to any limitation set forth in the articles of incorporation.
  2. Directors need not be residents of this state or shareholders of the corporation unless the articles of incorporation or bylaws so require. The articles of incorporation or bylaws may prescribe other qualifications for directors.
  3. The board of directors shall have authority to fix the compensation of directors unless otherwise provided in the articles of incorporation.
  4. Directors may not vote by proxy.

History. Acts 1965, No. 576, § 36; A.S.A. 1947, § 64-301; Acts 1987, No. 323, § 2.

Research References

Ark. L. Rev.

Note, Hall v. Staha: Arkansas Courts Adopt the Business Judgment Rule as a Tool of Judicial Review and Analyze the Issue of Excessive Executive Compensation, 47 Ark. L. Rev. 959.

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

Case Notes

Compensation.

Directors may earn and be paid money by the corporation for services rendered. Corning Custom Gin Co. v. Oliver, 171 Ark. 175, 283 S.W. 977 (1926); Oil Fields Corp. v. Hess, 186 Ark. 241, 53 S.W.2d 444 (1932) (preceding decisions under prior law).

Cited: Smith v. Paul, 317 Ark. 182, 876 S.W.2d 266 (1994).

4-26-802. Number, election, and term of directors.

  1. The number of directors of a corporation shall be not less than three (3) except that in cases where all the shares of a corporation are owned of record by either one (1) or two (2) shareholders, the number of directors may be one (1) or two (2) but not less than the number of shareholders. Subject to this limitation, the number of directors shall be fixed by the bylaws except as to the number constituting the initial board of directors, which number shall be fixed by the articles of incorporation.
  2. The number of directors may be increased or decreased from time to time by amendment to the bylaws, but no decrease shall have the effect of shortening the term of any incumbent director.
  3. In the absence of a bylaw fixing the number of directors, the number shall be the same as the number stated in the articles of incorporation.
  4. The number of directors who will constitute the initial board shall be stated in the articles of incorporation; and the members of the first board shall hold office until the first annual meeting of shareholders and until their successors shall have been elected and qualified.
  5. At the first annual meeting of shareholders and at each annual meeting thereafter, the shareholders shall elect directors to hold office until the next succeeding annual meeting.
  6. Each director shall hold office for the term for which he or she is elected and until his or her successor shall have been elected and qualified.

History. Acts 1965, No. 576, § 37; A.S.A. 1947, § 64-302.

4-26-803. Vacancies.

    1. A vacancy on the board of directors shall exist when a director dies or resigns or when he or she is removed by the shareholders or by virtue of newly created directorship resulting from any increase in the authorized number of directors.
    2. Any vacancy, other than a vacancy occurring through shareholders' action in removing a director, occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the board, unless it is otherwise provided in the articles of incorporation or bylaws, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, unless sooner displaced.
  1. If by reason of death, resignation, or other cause, a corporation should at any time have no directors in office, then any shareholder or the executor or administrator of a deceased shareholder may call a special meeting of shareholders and, over his or her own signature, give notice of the meeting according to § 4-26-703.

History. Acts 1965, No. 576, § 38; A.S.A. 1947, § 64-303.

4-26-804. Removal of directors.

    1. At a shareholders' meeting called expressly for that purpose, directors may be removed in the manner provided in this section.
    2. The entire board of directors or any one (1) or more of the directors may be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors.
    3. If less than the entire board is to be removed, no one of the directors may be removed if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the entire board of directors.
  1. Whenever the holders of the shares of any class are entitled to elect one (1) or more directors by the provisions of the articles of incorporation, the provisions of this section shall apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole.
  2. When a director shall be removed, the resulting vacancy shall be filled by the shareholders and may be filled at the same shareholders' meeting at which the vacancy is created or at a subsequent meeting.

History. Acts 1965, No. 576, § 39; A.S.A. 1947, § 64-304.

4-26-805. Directors' meetings.

  1. Meetings of the board of directors, regular or special, may be held either within or without this state.
    1. Regular meetings of the board of directors may be held with or without notice as prescribed in the bylaws.
    2. Special meetings of the board of directors shall be held upon such notice as is prescribed in the bylaws; but such notice may be waived as provided in § 4-26-105.
    3. Neither the business to be transacted at nor the purpose of any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of the meeting unless required by the bylaws.

History. Acts 1965, No. 576, § 42; A.S.A. 1947, § 64-307.

Case Notes

Notice.

Corporation's by-laws requirement that at least three days' written notice of special board meetings be given to each member follows the notice requirements found in this section. Marine Servs. Unlimited, Inc. v. Rakes, 323 Ark. 757, 918 S.W.2d 132 (1996).

4-26-806. Quorum of directors.

A majority of the number of directors fixed by the bylaws, or in the absence of a bylaw fixing the number of directors then of the number stated in the articles of incorporation, shall constitute a quorum for the transaction of business unless a greater number is required by the articles of incorporation or the bylaws.

History. Acts 1965, No. 576, § 40; A.S.A. 1947, § 64-305.

4-26-807. Action of board with or without meeting.

  1. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors unless the act of a greater number is required by the articles of incorporation or the bylaws.
  2. Where the articles of incorporation or bylaws expressly permit such procedure, an action taken by a majority of the directors without a meeting in respect to any corporate matter is nevertheless a valid board action if either before or after the action is taken, all members of the board sign and file with the secretary for inclusion in the corporate minute book a memorandum showing the nature of the action taken, showing that each member of the board consented to the board acting informally in respect to the matter, and showing the names of the directors who approved the action taken and the names of those who opposed it.

History. Acts 1965, No. 576, § 40; A.S.A. 1947, § 64-305.

Research References

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

4-26-808. Executive committee.

  1. The articles of incorporation or bylaws may provide for the creation, by the board of directors from its membership, of an executive committee, to consist of not less than three (3) directors. To the extent specified by the board of directors or in the articles of incorporation or bylaws, the executive committee may exercise the authority of the board of directors under § 4-26-801. The executive committee may not, however:
    1. Authorize distributions;
    2. Approve or propose to shareholders any action that this chapter requires to be approved by shareholders;
    3. Fill vacancies on the board of directors or on any of its committees;
    4. Amend the articles of incorporation;
    5. Adopt, amend, or repeal bylaws;
    6. Approve a plan of merger not requiring shareholder approval;
    7. Authorize or approve the reacquisition of shares, except according to a formula or method prescribed by the board of directors; or
    8. Authorize or approve the issuance, sale, or contract for sale of shares or determine the designation and relative rights, preferences, and limitations of a class or series of shares. However, the board of directors may authorize a committee or a senior executive officer of the corporation to do so within the limits specifically prescribed by the board of directors.
  2. The executive committee shall serve at the pleasure of the board of directors and shall act only in the intervals between the meetings of the board of directors and shall be subject to the control and direction of the board.
  3. Unless otherwise provided in the articles of incorporation or bylaws, the executive committee may act by a majority of its members at a meeting or informally without a meeting provided all members sign a writing reflecting such informal action.
  4. An act or authorization of an act by the executive committee with the authority lawfully delegated to it shall be as effective for all purposes as the act or authorization of the directors; however, the designation of the committee and the delegation thereto of authority shall not operate to relieve the board of directors, or any member thereof, of any responsibility imposed upon it or him or her by law.

History. Acts 1965, No. 576, § 41; A.S.A. 1947, § 64-306; Acts 1987, No. 323, § 3.

Research References

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

4-26-809. Bylaws.

    1. The initial bylaws of a corporation shall be adopted by its board of directors.
    2. The power to alter, amend, or repeal the bylaws or adopt new bylaws shall be vested in the board of directors except to the extent such power is reserved to the shareholders by the articles of incorporation.
    3. The bylaws may contain any provisions for the regulation and management of the affairs of the corporation not inconsistent with law or the articles of incorporation.
  1. The adoption, amendment, or repeal of a bylaw by the board of directors shall require the affirmative vote of a majority of the authorized membership of the board; and any such action taken by the shareholders under authority reserved in the articles shall require the affirmative vote of the holders of a majority of the shares having voting rights as defined in § 4-26-711(b) and also the affirmative vote of the holders of a majority of the shares of any other class which may be substantially adversely affected by such action.

History. Acts 1965, No. 576, § 29; A.S.A. 1947, § 64-513.

4-26-810. Emergency bylaws — Operations during emergency.

  1. The board of directors of any corporation may adopt emergency bylaws, subject to repeal or change by action of the shareholders, which shall, notwithstanding any different provision elsewhere in this chapter or in the articles of incorporation or bylaws, be operative during any emergency resulting from an attack on the United States or on a locality in which the corporation conducts its business or customarily holds meetings of its board of directors or its shareholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the board of directors or a standing committee cannot readily be convened for action.
  2. The emergency bylaws may make any provision that may be practical and necessary for the circumstances of the emergency, including without limitation provisions that:
    1. A meeting of the board of directors or a committee may be called by any officer or director in such manner and under such conditions as shall be prescribed in the emergency bylaws;
    2. The director or directors in attendance at the meeting or any greater number fixed by the emergency bylaws shall constitute a quorum; and
    3. The officers or other persons designated on a list approved by the board of directors before the emergency, all in such order of priority and subject to such conditions and for such period of time not longer than reasonably necessary after the termination of the emergency as may be provided in the emergency bylaws or in the resolution approving the list, to the extent required to provide a quorum at any meeting of the board of directors, shall be deemed directors for that meeting.
  3. The board of directors, either before or during any emergency, may provide and from time to time modify lines of succession in the event that during the emergency any or all officers or agents of the corporation shall, for any reason, be rendered incapable of discharging their duties.
  4. The board of directors, either before or during any emergency, may, effective in the emergency, change the head office or designate several alternative head offices or regional offices, or authorize the officers to do so.
  5. No officer, director, or employee acting in accordance with any emergency bylaws shall be liable except for willful misconduct.
  6. To the extent not inconsistent with any emergency bylaws so adopted, the bylaws of the corporation shall remain in effect during any emergency, and upon its termination, the emergency bylaws shall cease to be operative.
  7. Unless otherwise provided in emergency bylaws, notice of any meeting of the board of directors during an emergency may be given only to such of the directors as it may be feasible to reach at the time and by such means as may be feasible at the time, including publications or radio.
  8. To the extent required to constitute a quorum at any meeting of the board of directors during such an emergency, the officers of the corporation who are present shall, unless otherwise provided in emergency bylaws, be deemed, in order of rank and within the same rank in order of seniority, directors for such meeting.

History. Acts 1965, No. 576, § 35.4; A.S.A. 1947, § 64-514.

4-26-811. Liability of directors.

  1. In addition to any other liabilities imposed by law upon directors of a corporation:
    1. Directors of a corporation who vote for or assent to the declaration of any dividend or other distribution of the assets of a corporation to its shareholders contrary to the provisions of this chapter or contrary to any restrictions contained in the articles of incorporation shall be jointly and severally liable to the corporation for the amount of the dividend which is paid or the value of the assets which are distributed in excess of the amount of the dividend or distribution which could have been paid or distributed without a violation of the provisions of this chapter or the restrictions in the articles of incorporation;
    2. Directors of a corporation who vote for or assent to the purchase of its own shares contrary to the provisions of this chapter shall be jointly and severally liable to the corporation for the amount of consideration paid for the shares which is in excess of the maximum amount which could have been paid without a violation of the provisions of this chapter;
    3. The directors of a corporation who vote for or assent to any distribution of assets of a corporation to its shareholders during the liquidation of the corporation without the payment and discharge of, or making adequate provision for, all known debts, obligations, and liabilities of the corporation shall be jointly and severally liable to the corporation for the value of the assets which are distributed, to the extent that the debts, obligations, and liabilities of the corporation are not thereafter paid and discharged;
    4. The directors of a corporation who vote for or assent to the making of a loan secured by shares of the corporation shall be jointly and severally liable to the corporation for the amount of such loan until the repayment thereof;
    5. If a corporation commences business before it has received three hundred dollars ($300) as consideration for the issuance of shares, the directors who assent thereto shall be jointly and severally liable to the corporation for such part of three hundred dollars ($300) as shall not have been received before commencing business, but this liability shall be terminated when the corporation has actually received three hundred dollars ($300) as consideration for the issuance of shares.
    1. A director of a corporation who is present at a meeting of its board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his or her dissent is entered in the minutes of the meeting or unless he or she files his or her written dissent to the action with the person acting as the secretary of the meeting before the adjournment thereof or forwards the dissent by registered or certified mail to the secretary of the corporation immediately after the adjournment of the meeting.
    2. The right to dissent shall not apply to a director who voted in favor of the action.
  2. A director shall not be liable under subdivision (a)(1), (a)(2), or (a)(3) of this section if he or she relied and acted in good faith upon financial statements of the corporation represented to him or her to be correct by the president or the officer of the corporation having charge of its books of account, or stated in a written report by an independent public or certified public accountant or firm of such accountants fairly to reflect the financial condition of the corporation, nor shall he or she be so liable if in good faith in determining the amount available for any dividend or distribution he or she considered the assets to be of their book value.
  3. Any director against whom a claim shall be asserted under or pursuant to this section for the payment of a dividend or other distribution of assets of a corporation and who shall be held liable thereon shall be entitled to contribution from the shareholders who accepted or received any such dividend or assets, knowing the dividend or distribution to have been made in violation of this section, in proportion to the amounts received by them respectively.
  4. Any director against whom a claim shall be asserted under or pursuant to this section shall be entitled to contribution from the other directors who voted for or assented to the action upon which the claim is asserted.

History. Acts 1965, No. 576, § 48; A.S.A. 1947, § 64-308.

Research References

Ark. L. Rev.

Note, Professional Corporations: Shareholder Liability and the Saving Clause, 42 Ark. L. Rev. 777.

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

Case Notes

Applicability.

Subsection (a)(3) of this section was inapplicable where the chancellor set aside the disputed transfer and ordered assets sold, where the proceeds of the sale were used to pay other creditors, presumably in order of their priority. Smith v. Eastgate Properties, Inc., 312 Ark. 355, 849 S.W.2d 504 (1993).

Acceptance of Office.

There must be an acceptance of office of director before any liability can flow from failure to discharge the duties of the office. Zimmerman v. Western & S. Fire Ins. Co., 121 Ark. 408, 181 S.W. 283 (1915) (decision under prior law).

Delegation.

Duties of directors delegated to president may result in liability of directors. Fletcher v. Eagle, 74 Ark. 585, 86 S.W. 810 (1905); Bailey v. O'Neal, 92 Ark. 327, 122 S.W. 503 (1909) (preceding decisions under prior law).

Financial Statements.

An individual who endorsed a corporation's note was entitled to rely on the representation of the corporation's auditor regarding the firm's financial condition. Rice-Stix Dry Goods Co. v. Montgomery, 164 Ark. 161, 261 S.W. 325 (1924) (decision under prior law).

Standard of Care.

Directors are liable for failure to exercise diligence or good faith. Sternberg v. Blaine, 179 Ark. 448, 17 S.W.2d 286 (1929); Johnson v. Coleman, 179 Ark. 1087, 20 S.W.2d 186 (1929) (preceding decisions under prior law).

Ultra Vires Acts.

Where president and cashier of bank purchased stock in company without knowledge or consent of directors of bank, the act being ultra vires, directors cannot be held liable. Zimmerman v. Western & S. Fire Ins. Co., 121 Ark. 408, 181 S.W. 283 (1915) (decision under prior law).

4-26-812. Officers.

    1. The officers of a corporation shall consist of a president, one (1) or more vice presidents as may be prescribed by the bylaws, a secretary, and a treasurer, each of whom shall be elected by the board of directors at such time and in such manner as may be prescribed by the bylaws.
    2. Other officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the board of directors or chosen in such other manner as may be prescribed by the bylaws.
    3. Any two (2) or more offices may be held by the same person, except the offices of president and secretary; provided, however, in the case of a one-shareholder corporation or where all of the voting stock of a corporation shall be owned by only one (1) stockholder any two (2) or more offices may be held by the same person.
  1. All officers and agents of the corporation, as between themselves and the corporation, shall have such authority and perform such duties in the management of the corporation as may be provided in the bylaws, or as may be determined by resolution of the board of directors not inconsistent with the bylaws.

History. Acts 1965, No. 576, § 51; 1971, No. 362, § 1; 1973, No. 8, § 1; 1977, No. 317, § 1; A.S.A. 1947, § 64-310.

Case Notes

Powers.

There is no inherent power in a president and secretary to execute negotiable notes in the corporate name, and where such power has been exercised there is no presumption of authority for such authority must be specially delegated. City Elec. S. Ry. v. First Nat'l Exch. Bank, 62 Ark. 33, 34 S.W. 89 (1896) (decision under prior law).

The powers of officers are special and must be delegated to them by the charter and bylaws. Anderson-Tully Co. v. Gillett Lumber Co., 155 Ark. 224, 244 S.W. 26 (1922) (decision under prior law).

Cited: Robertson v. White, 635 F. Supp. 851 (W.D. Ark. 1986).

4-26-813. Removal of officers.

Any officer or agent may be removed by the board of directors whenever in its judgment the best interests of the corporation will be served thereby, but removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights.

History. Acts 1965, No. 576, § 52; A.S.A. 1947, § 64-311.

4-26-814. Indemnification of officers, directors, employees, and agents.

    1. A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed actions, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation by reason of the fact that he or she is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit, or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
    2. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.
  1. A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses, including attorneys' fees, actually and reasonably incurred by him or her in connection with the defense or settlement of the action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation. However, no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation unless, and only to the extent that, the court in which the action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.
  2. To the extent that a director, officer, employee, or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in subsection (a) or subsection (b) of this section or in defense of any claim, issue, or matter therein, he or she shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him or her in connection therewith.
  3. Any indemnification under subsection (a) or subsection (b) of this section, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he or she has met the applicable standards of conduct set forth in subsection (a) or subsection (b) of this section. The determination shall be made by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding, or, if such a quorum is not obtainable, or even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or by the shareholders.
  4. Expenses, including attorneys' fees, incurred in defending a civil or criminal action, suit, or proceeding may be paid by the corporation in advance of the final disposition of the action, suit, or proceeding as authorized in the manner provided in subsection (d) of this section upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay that amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation as authorized in this section.
  5. The indemnification provided by this section shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of shareholders, or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.
  6. A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against him or her and incurred by him or her in any capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against liability under the provisions of this section.
  7. The powers and duties of a corporation to indemnify any person under this section shall apply with equal force whether an action, suit, or proceeding is threatened or commenced in this state or outside this state.
  8. This section shall apply to any action, suit, or proceeding threatened or commenced prior to February 12, 1973, which had not been finally disposed of prior to February 12, 1973, and also shall apply to any action, suit, or proceeding threatened or commenced after February 12, 1973, but which is based in whole or in part on actions that occurred prior to February 12, 1973.

History. Acts 1965, No. 576, § 50; 1973, No. 94, §§ 1, 4; A.S.A. 1947, §§ 64-309, 64-309n.

Research References

Ark. L. Rev.

Legislative Note: Arkansas Adopts Model Act for Indemnification of Corporate Directors and Officers, 27 Ark. L. Rev. 754.

U. Ark. Little Rock L.J.

Survey of Arkansas Law: Business Organizations, 6 U. Ark. Little Rock L.J. 83.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

Case Notes

Cited: Robertson v. White, 633 F. Supp. 954 (W.D. Ark. 1986).

Subchapter 9 — Mortgage, Sale, Etc., of Assets

Effective Dates. Acts 1965, No. 576, § 98: effective at midnight on Dec. 31, 1965.

Research References

Am. Jur. 18B Am. Jur. 2d, Corp., § 1771 et seq.

C.J.S. 19 C.J.S., Corp., § 757 et seq.

4-26-901. Corporate indebtedness — Mortgage of assets authorized.

In authorizing the procurement of corporate loans, the creation of obligations under which the corporation is to be primarily or secondarily liable; the issuance of corporate notes, bonds, and other obligations; and the mortgage and pledge of all or any part of the corporate assets, including after-acquired property, as security for any obligation so incurred, the board of directors shall not be required to procure any consent from or authorization by the shareholders except in the instance of the increase of bonded indebtedness of the corporation. Where the bonded indebtedness is increased within the meaning of Arkansas Constitution, Article 12, § 8, shareholders' authorization of both the creation of the additional indebtedness and the lien securing the same shall be required in conformity with the constitutional provision.

History. Acts 1965, No. 576, § 78; A.S.A. 1947, § 64-801.

Case Notes

Mortgages.

Directors cannot mortgage corporate property to purchase stock of complaining stockholders. Consumers Ice & Coal Co. v. Security Bank & Trust Co., 170 Ark. 530, 280 S.W. 677 (1926) (decision under prior law).

Where corporation's resolution gave apparent authority to its president to negotiate and procure loans from mortgagee, to give security for any liabilities of the corporation by pledge, assignment or lien, and to execute instruments for such purposes, the mortgage executed by the corporation was valid. Ark. Iron & Metal Co. v. First Nat'l Bank, 16 Ark. App. 245, 701 S.W.2d 380 (1985).

Stockholder Ratification.

Where board of directors enters into transaction and minutes of meeting where transaction was presented to the stockholders does not show that vote was taken by stockholders to ratify or approve the action of board, the court can assume that stockholder ratification was not necessary and that board was authorized to enter into transaction, the articles of incorporation not being introduced into evidence. Ouachita Indus., Inc. v. Willingham, 179 F. Supp. 493 (W.D. Ark. 1959) (decision under prior law).

4-26-902. Sale, lease, or exchange of assets in regular course of business.

The sale, lease, or exchange of all or substantially all the property and assets of a corporation, when made in the usual and regular course of the business of the corporation, may be made upon such terms and conditions and for such considerations, which may consist in whole or in part of money or real or personal property including shares of any other domestic or foreign corporation, as shall be authorized by its board of directors. In this case, no authorization or consent of the shareholders shall be required.

History. Acts 1965, No. 576, § 79; A.S.A. 1947, § 64-802.

Case Notes

Purchase by Directors.

Purchase of all assets of corporation by directors is only to be voided for fraud at instance of some party in interest. Nedry v. Vaile, 109 Ark. 584, 160 S.W. 880 (1913) (decision under prior law).

4-26-903. Sale, lease, or exchange of assets other than in regular course of business.

  1. A sale, lease, or exchange of all or substantially all the property and assets, with or without the good will, of a corporation, if not made in the usual and regular course of its business, may be made upon such terms and conditions and for such consideration, which may consist in whole or in part of money or real or personal property including shares of any other domestic or foreign corporation as may be authorized in the following manner:
    1. The board of directors shall adopt a resolution recommending the sale, lease, or exchange and directing the submission of the sale, lease, or exchange to a vote at a meeting of shareholders which may be either an annual or a special meeting;
    2. Written or printed notice shall be given to each shareholder of record within the time and in the manner provided in this chapter for the giving of notice of special meetings of shareholders, and whether the meeting is an annual or a special meeting, the notice shall state that the purpose or one (1) of the purposes of the meeting is to consider the proposed sale, lease, or exchange;
      1. At the meeting the shareholders may authorize the sale, lease, or exchange and may fix, or may authorize the board of directors to fix, any or all of the terms and conditions thereof and the consideration to be received by the corporation. Each outstanding share of the corporation shall be entitled to vote thereon, whether or not entitled to vote by the provisions of the articles of incorporation.
      2. The authorization shall require the affirmative vote of the holders of at least two-thirds (2/3) of the outstanding shares of the corporation unless any class of shares is entitled to vote as a class, in which event this authorization shall require the affirmative vote of the holders of at least two-thirds (2/3) of the outstanding shares of each class of shares entitled to vote as a class and of the total outstanding shares.
  2. After the authorization by a vote of shareholders, the board of directors nevertheless, in its discretion, may abandon the sale, lease, or exchange of assets subject to the rights of third parties under any contracts relating thereto, without further action or approval by shareholders.

History. Acts 1965, No. 576, § 80; A.S.A. 1947, § 64-803.

Case Notes

Purchase by Directors.

Purchase of all assets of corporation by directors is only to be voided for fraud at instance of some party in interest. Nedry v. Vaile, 109 Ark. 584, 160 S.W. 880 (1913) (decision under prior law).

Stockholder's Consent.

Lease by corporate officers who owned four-fifths of stock was valid even though minority stockholders received no notice of the meeting. Dixie Cab Co. v. Black & White Cab Co., 214 Ark. 624, 217 S.W.2d 602 (1949) (decision under prior law).

Where board of directors enters into transaction and minutes of meeting where transaction was presented to the stockholders does not show that vote was taken by stockholders to ratify or approve the action of board, the court can assume that stockholder ratification was not necessary and that board was authorized to enter into transaction, the articles of incorporation not being introduced into evidence. Ouachita Indus., Inc. v. Willingham, 179 F. Supp. 493 (W.D. Ark. 1959) (decision under prior law).

4-26-904. Sale or exchange of assets — Rights of dissenting shareholders.

  1. In the event that a sale or exchange prior to dissolution of all or substantially all of the property and assets of a corporation otherwise than in the usual and regular course of its business is authorized by a vote of the shareholders of the corporation, any shareholder who shall have filed with the corporation a written objection thereto, prior to or at the meeting of shareholders at which the sale or exchange is authorized, and who shall not have voted in favor thereof may, within ten (10) days after the date on which the vote was taken, make written demand on the corporation for the payment to him or her of the fair value of his or her shares as of the day prior to the date on which the vote was taken.
  2. If the sale or exchange is effected, the corporation shall pay to such shareholder upon surrender of his or her certificate or certificates representing such shares the fair value thereof.
  3. The demand shall state the number and class of the shares owned by any dissenting shareholder.
  4. Any shareholder failing to make demand within the ten-day period shall be bound by the terms of the sale or exchange.
  5. Within ten (10) days after the sale or exchange is effected, the corporation shall give notice to each dissenting shareholder who has made demand as herein provided for the payment of the fair value of his or her shares.
    1. If within thirty (30) days after the date on which the sale or exchange was effected the value of the shares is agreed upon between the dissenting shareholder and the corporation, payment shall be made within ninety (90) days after the date on which the sale or exchange was effected upon the surrender of his or her certificate or certificates representing the shares. Upon payment of the agreed value, the dissenting shareholder shall cease to have any interest in the shares or in the corporation.
      1. If within such period of thirty (30) days the shareholder and the corporation do not so agree, then the dissenting shareholder, within sixty (60) days after the expiration of the thirty-day period, may file a petition in the circuit court of the county in which the registered office of the corporation is located asking for a finding and determination of the fair value of the shares and shall be entitled to judgment against the corporation for the amount of the fair value as of the day prior to the date on which the vote was taken approving the sale or exchange, together with interest thereon to the date of the judgment.
      2. The judgment shall be payable only upon and simultaneously with the surrender to the corporation of the certificate or certificates representing the shares.
      3. Upon payment of the judgment, the dissenting shareholder shall cease to have any interest in the shares or in the corporation.
      4. Unless the dissenting shareholder shall file a petition within the time herein limited, such shareholder and all persons claiming under him or her shall be bound by the terms of the sale or exchange.
  6. The right of a dissenting shareholder to be paid the fair value of his or her shares as provided herein shall cease if and when the corporation abandons the sale or exchange or the shareholders revoke the authority to make the sale or exchange.
  7. Shares acquired by the corporation pursuant to the payment of the agreed value thereof or to payment of the judgment entered therefor, as in this section provided, may be held and disposed of by the corporation as in the case of other treasury shares.

History. Acts 1965, No. 576, § 81; A.S.A. 1947, § 64-804.

Research References

ALR.

When is corporation close, or closely-held, corporation under common or statutory law. 111 A.L.R.5th 207.

Ark. L. Rev.

De Facto Merger in the Corporate Partnership Context, 27 Ark. L. Rev. 737.

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

Case Notes

De Facto Mergers.

Minority stockholders were entitled to a fair appraisal of their stock in corporation where de facto merger had occurred. Pratt v. Ballman-Cummings Furn. Co., 261 Ark. 396, 549 S.W.2d 270 (1977).

Fair Value.

The chancellor did not err by substituting the equitable remedy of foreclosure for the legal remedy of determining the fair value of the shares of a dissenting shareholder of a closely held corporation under subdivision (f)(2)(A) when acting pursuant to the clean-up doctrine. Smith v. Eastgate Properties, Inc., 312 Ark. 355, 849 S.W.2d 504 (1993).

There is no set formula or standard for determining fair value. Smith v. Eastgate Properties, Inc., 312 Ark. 355, 849 S.W.2d 504 (1993).

Written Demand.

Where the appellant failed to comply with subsection (a)'s requirement of a written demand to the corporation for payment of the fair market value of his shares of the corporation's stock, subsection (d) required denial of his complaint for an accounting of the proceeds of the sale of corporate property. Moon v. Moon Enters., Inc., 65 Ark. App. 246, 987 S.W.2d 284 (1999).

Subchapter 10 — Conversion and Merger

Publisher's Notes. Former subchapter 10, concerning merger and consolidation, was repealed by Acts 2009, No. 408, § 1. The subchapter was derived from the following sources:

4-26-1001. Acts 1965, No. 576, § 70; 1985, No. 416, § 1; 1985, No. 606, § 1; A.S.A. 1947, § 64-701.

4-26-1002. Acts 1965, No. 576, § 71; 1985, No. 416, § 2; 1985, No. 606, § 2; A.S.A. 1947, § 64-702.

4-26-1003. Acts 1965, No. 576, § 72; A.S.A. 1947, § 64-703.

4-26-1004. Acts 1965, No. 576, § 73; A.S.A. 1947, § 64-704.

4-26-1005. Acts 1965, No. 576, § 74; A.S.A. 1947, § 64-705.

4-26-1006. Acts 1965, No. 576, § 75; A.S.A. 1947, § 64-706.

4-26-1007. Acts 1965, No. 576, § 76; A.S.A. 1947, § 64-707.

4-26-1008. Acts 1965, No. 576, § 77; A.S.A. 1947, § 64-708.

4-26-1009. Acts 1965, No. 576, § 77.1; A.S.A. 1947, § 64-709.

Research References

ALR.

Products liability: form of business organization of successor. 32 A.L.R.4th 196.

Merger or consolidation of corporate lessee as breach of clause in lease prohibiting, conditioning, or restricting assignment of sublease. 39 A.L.R.4th 879.

Fidelity bond termination clause on taking over of insured by another business entity, construction and effect. 44 A.L.R.4th 1195.

Duty of corporate directors to exercise “informed” judgment in recommending responses to merger or tender offers. 46 A.L.R.4th 887.

“Golden parachute” defense to hostile corporate takeover. 66 A.L.R.4th 138.

Lock-up option defense to hostile corporate takeover. 66 A.L.R.4th 180.

Time when cause of action accrues for civil action under state antitrust, monopoly, or restraint of trade statutes. 90 A.L.R.4th 1102.

Liability of successor corporation for punitive damages for injury caused by predecessor's product. 55 A.L.R.4th 166.

Determination of Whether State or Federal Law Governs Corporate Successorship When Dispute Concerns Debts to National Government, 29 A.L.R. Fed. 3d Art. 2 (2018).

Am. Jur. 19 Am. Jur. 2d, Corp., § 2148 et seq.

Ark. L. Rev.

Tax Considerations of Fundamental Corporate Changes, 17 Ark. L. Rev. 444.

De Facto Merger in the Corporate Partnership Context, 27 Ark. L. Rev. 737.

C.J.S. 19 C.J.S., Corp., § 885 et seq.

4-26-1001. Definitions.

As used in this subchapter:

  1. “Constituent corporation” means a constituent organization that is a corporation;
  2. “Constituent organization” means an organization that is party to a merger;
  3. “Converted organization” means the organization into which a converting organization converts under §§ 4-26-1002 — 4-26-1005;
  4. “Converting corporation” means a converting organization that is a corporation;
  5. “Converting organization” means an organization that converts into another organization under § 4-26-1002;
  6. “Governing statute” of an organization means the statute that governs the organization's internal affairs;
  7. “In a record” means maintained or kept on file by the organization at an office of the organization or with the Secretary of State;
    1. “Organization” means:
      1. A partnership, including a limited liability partnership;
      2. A limited partnership, including a limited liability limited partnership;
      3. A limited liability company;
      4. A business trust;
      5. A corporation; or
      6. Any other entity that has a governing statute.
    2. “Organization” includes a domestic or foreign organization whether or not the organization is organized for profit;
  8. “Organizational documents” means:
    1. For a domestic or foreign general partnership, its partnership agreement and, if applicable, statement of qualification;
    2. For a domestic or foreign limited partnership, its certificate of limited partnership and partnership agreement;
    3. For a domestic or foreign limited liability company, its articles of organization and operating agreement or the comparable records provided for in its governing statute;
    4. For a business trust, its agreement of trust and declaration of trust;
    5. For a domestic or foreign corporation for profit, its articles of incorporation, bylaws, and agreements among its shareholders that are authorized by its governing statute or the comparable records provided for in its governing statute; and
    6. For any other organization, the records that:
      1. Create the organization;
      2. Determine the internal governance of the organization; and
      3. Determine the relations among the organization's owners, members, and interested parties; and
  9. “Surviving organization” means an organization into which one (1) or more other organizations are merged.

History. Acts 2009, No. 408, § 1.

Research References

ALR.

Validity, Construction, and Application of FDIC Prohibition of Golden Parachute Payments, 12 U.S.C. § 1828(k)(1). 79 A.L.R. Fed. 2d 409.

4-26-1002. Conversion.

  1. An organization other than a corporation may convert to a corporation, and a corporation may convert to another organization under this section and §§ 4-26-1003 — 4-26-1005 and a plan of conversion if the:
    1. Other organization's governing statute authorizes the conversion and is complied with; and
    2. Conversion is not prohibited by the law of the jurisdiction that enacted the governing statute.
  2. A plan of conversion must be in a record and must include the:
    1. Name and form of the organization before conversion;
    2. Name and form of the organization after conversion;
    3. Terms and conditions of the conversion, including the manner and basis for converting interests in the converting organization into any combination of money, interests in the converted organization, and other consideration; and
    4. Organizational documents of the converted organization.

History. Acts 2009, No. 408, § 1.

4-26-1003. Action on plan of conversion by converting corporation.

  1. A plan of conversion may be approved if the:
    1. Board of directors recommends the plan of conversion to the shareholders, unless the board of directors:
      1. Determines that because of a conflict of interest or other special circumstances it should make no recommendation; and
      2. Communicates the basis for its determination at the time the plan of conversion is submitted to the shareholders; and
    2. Shareholders approve the plan by the affirmative vote of the holders of at least two-thirds (2/3) of the outstanding shares entitled to vote.
  2. The board of directors may condition its submission of the proposed conversion on any basis.
    1. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting:
      1. Not less than twenty (20) days before the meeting; and
      2. In the manner provided in § 4-26-703 for giving notice of meetings of shareholders.
    2. The notice shall:
      1. State that a purpose of the meeting is to consider the plan of conversion; and
      2. Contain or be accompanied by a copy or summary of the plan.
  3. Unless this chapter, the articles of incorporation, or the board of directors acting under subsection (b) of this section require a greater vote or a vote by voting groups, the plan of conversion to be authorized must be approved by each voting group entitled to vote separately on the plan by at least two-thirds (2/3) of all the votes entitled to be cast on the plan by the voting group.
  4. Subject to any contractual rights, until a conversion is filed under § 4-26-1004, a converting corporation may amend the plan or abandon the planned conversion:
    1. As provided in the plan; and
    2. Except as prohibited by the plan, by the same consent required to approve the plan.

History. Acts 2009, No. 408, § 1.

4-26-1004. Filings required for conversion — Effective date.

    1. After a plan of conversion is approved a converting corporation shall file articles of conversion with the Secretary of State.
    2. The articles of conversion shall include:
      1. A statement that the corporation has been converted into another organization;
      2. The name and form of the converted organization and the jurisdiction of its governing statute;
      3. The date the conversion is effective under the governing statute of the converted organization;
      4. A statement that the conversion was approved as required by this chapter;
      5. A statement that the conversion was approved as required by the governing statute of the converted organization;
      6. A statement confirming that the converted organization has filed a statement appointing an agent for service of process under § 4-20-112 if the converted organization is a foreign organization not authorized to transact business in this state; and
        1. A copy of the plan of conversion; or
        2. A statement that:
          1. Contains the address of an office of the organization where the plan of conversion is on file; and
          2. A copy of the plan of conversion will be furnished by the converting corporation on request and without cost to any shareholder of the converting corporation.
    1. If the converting organization is not a converting corporation, the converting organization shall file articles of incorporation with the Secretary of State.
    2. The articles of incorporation shall include, in addition to the information required by § 4-26-202:
      1. A statement that the corporation was converted from another organization;
      2. The name and form of the converting organization and the jurisdiction of its governing statute; and
      3. A statement that the conversion was approved in a manner that complied with the converting organization's governing statute.
  1. A conversion becomes effective:
    1. If the converted organization is a corporation, when the articles of incorporation take effect; and
    2. If the converted organization is not a corporation, as provided by the governing statute of the converted organization.

History. Acts 2009, No. 408, § 1.

4-26-1005. Effect of conversion.

  1. An organization that has been converted under this subchapter is for all purposes the same entity that existed before the conversion.
  2. When a conversion takes effect:
    1. All property owned by the converting organization remains vested in the converted organization;
    2. All debts, liabilities, and other obligations of the converting organization continue as obligations of the converted organization;
    3. An action or proceeding pending by or against the converting organization may be continued as if the conversion had not occurred;
    4. Except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of the converting organization remain vested in the converted organization;
    5. Except as otherwise provided in the plan of conversion, the terms and conditions of the plan of conversion take effect; and
    6. Except as otherwise agreed, the conversion does not dissolve a converting corporation under § 4-26-1101 et seq.
    1. A converted organization that is a foreign organization consents to the jurisdiction of the courts of this state to enforce any obligation owed by the converting corporation if before the conversion the converting corporation was subject to suit in this state on the obligation.
    2. A converted organization that is a foreign organization and not authorized to transact business in this state may be served with process under § 4-20-113 if the converted organization:
      1. Fails to appoint an agent for service of process under § 4-20-112;
      2. No longer has an agent for service of process; or
      3. Has an agent for service of process that cannot with reasonable diligence be served.

History. Acts 2009, No. 408, § 1.

4-26-1006. Merger.

  1. A corporation may merge with one (1) or more other constituent organizations under this section and §§ 4-26-1007 — 4-26-1010 and a plan of merger if:
    1. The governing statute of each of the other organizations authorizes the merger;
    2. The merger is not prohibited by the law of a jurisdiction that enacted the governing statute; and
    3. Each of the other organizations complies with its governing statute in effecting the merger.
  2. A plan of merger shall be in a record and shall include:
    1. The name and form of each constituent organization;
    2. The name and form of the surviving organization;
    3. The terms and conditions of the merger, including the manner and basis for converting the interests in each constituent organization into any combination of money, interests in the surviving organization, and other consideration; and
    4. Any amendments to be made by the merger to the surviving organization's organizational documents.

History. Acts 2009, No. 408, § 1.

4-26-1007. Action on plan of merger by constituent corporation.

  1. Except as provided in subsection (g) of this section and after adopting a plan of merger, the board of directors of each corporation which is a party to the merger shall submit the plan of merger for approval by its shareholders.
  2. A plan of merger may be approved if the:
    1. Board of directors recommends the plan of merger to the shareholders, unless the board of directors:
      1. Determines that because of a conflict of interest or other special circumstances it should make no recommendation; and
      2. Communicates the basis for its determination at the time the plan of merger is submitted to the shareholders; and
    2. Shareholders entitled to vote approve the plan.
  3. The board of directors may condition its submission of the proposed merger on any basis.
    1. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting:
      1. Not less than twenty (20) days before the meeting; and
      2. In the manner provided in § 4-26-703 for giving notice of meetings of shareholders.
    2. The notice shall:
      1. State that a purpose of the meeting is to consider the plan of merger; and
      2. Contain or be accompanied by a copy or summary of the plan.
  4. Unless this chapter, the articles of incorporation, or the board of directors acting under subsection (c) of this section require a greater vote or a vote by voting groups, the plan of merger to be authorized must be approved by the affirmative vote of the holders of at least two-thirds (2/3) of the outstanding shares entitled to vote, and if by voting group, by each voting group entitled to vote separately on the plan by at least two-thirds (2/3) of all the votes entitled to be cast on the plan by the voting group.
  5. Separate voting by voting groups is required on a plan of merger if the plan contains a provision that, if contained in a proposed amendment to the articles of incorporation, would require action by one (1) or more separate voting groups on the proposed amendment under § 4-26-303.
  6. Action by the shareholders of the surviving corporation on a plan of merger is not required if:
    1. The articles of incorporation of the surviving corporation will not differ except for amendments enumerated in § 4-26-307 from its articles before the merger;
    2. Each shareholder of the surviving corporation whose shares were outstanding immediately before the effective date of the merger will hold the same number of shares or the interest comparable to shares in an entity other than a corporation, with identical designations, preferences, limitations, and relative rights, immediately after the merger;
    3. The number of voting shares outstanding immediately after the merger plus the number of voting shares issuable as a result of the merger either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than twenty percent (20%) the total number of voting shares of the surviving corporation outstanding immediately before the merger; and
    4. The number of participating shares outstanding immediately after the merger plus the number of participating shares issuable as a result of the merger either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than twenty percent (20%) the total number of participating shares outstanding immediately before the merger.
  7. As used in subsection (g) of this section:
    1. “Participating shares” means shares that entitle their holders to participate without limitation in distributions; and
    2. “Voting shares” means shares that entitle their holders to vote unconditionally in elections of directors.
  8. Subject to any contractual rights, at any time before articles of merger are filed the planned merger may be abandoned without further shareholder action in accordance with the procedure set forth in the plan of merger or, if none is set forth, in the manner determined by the board of directors.

History. Acts 2009, No. 408, § 1.

4-26-1008. Merger of subsidiary.

  1. A parent corporation owning at least ninety percent (90%) of the outstanding shares of each class of a subsidiary corporation may merge the subsidiary corporation into itself without approval of the shareholders of the parent corporation or subsidiary corporation.
  2. The board of directors of the parent corporation shall adopt a plan of merger that sets forth:
    1. The names of the parent corporation and the subsidiary corporation; and
    2. The manner and basis of converting the shares of the subsidiary corporation into:
      1. Shares, obligations, or other securities of the parent corporation or any other corporation; or
      2. Cash or other property.
  3. The parent corporation shall mail a copy or summary of the plan of merger to each shareholder of the subsidiary corporation who does not waive the mailing requirement in writing.
  4. The parent corporation may not deliver articles of merger to the Secretary of State for filing until at least thirty (30) days after the date the parent corporation mailed a copy of the plan of merger to each shareholder of the subsidiary corporation who did not waive the mailing requirement.
  5. Articles of merger under this section may not contain amendments to the articles of incorporation of the parent corporation except for amendments enumerated in § 4-26-307.

History. Acts 2009, No. 408, § 1.

4-26-1009. Filings required for merger — Effective date.

  1. After each constituent organization has approved a merger, articles of merger must be signed by an authorized representative of each constituent organization.
  2. The articles of merger shall include:
    1. The name and form of each constituent organization and the jurisdiction of its governing statute;
    2. The name and form of the surviving organization and the jurisdiction of its governing statute;
    3. The date the merger is effective under the governing statute of the surviving organization;
    4. Any amendments provided for in the plan of merger for the organizational document of the surviving organization;
    5. A statement as to each constituent organization that the merger was approved as required by the organization's governing statute;
    6. A statement confirming that the surviving organization has filed a statement appointing an agent for service of process under § 4-20-112 if the surviving organization is a foreign organization not authorized to transact business in this state;
      1. A copy of the plan of merger; or
      2. A statement that:
        1. Contains the address of an office of the surviving organization where the plan of merger is on file; and
        2. A copy of the plan of merger will be furnished by the surviving organization on request and without cost to any shareholder, member, partner, or other owner of any constituent organization; and
    7. Any additional information required by the governing statute of any constituent organization.
  3. Each constituent organization shall deliver the articles of merger for filing in the office of the Secretary of State.
  4. A merger becomes effective under this subchapter:
    1. If the surviving organization is a corporation, upon the later of:
      1. Compliance with subsection (c) of this section; or
      2. The date specified in the articles of merger; or
    2. If the surviving organization is not a corporation, as provided by the governing statute of the surviving organization.

History. Acts 2009, No. 408, § 1.

4-26-1010. Effect of merger.

  1. When a merger becomes effective:
    1. The surviving organization continues or comes into existence;
    2. Each constituent organization that merges into the surviving organization ceases to exist as a separate entity;
    3. All property owned by each constituent organization that ceases to exist vests in the surviving organization;
    4. All debts, liabilities, and other obligations of each constituent organization that ceases to exist continue as obligations of the surviving organization;
    5. An action or proceeding pending by or against a constituent organization that ceases to exist may continue as if the merger had not occurred;
    6. Except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of each constituent organization that ceases to exist vest in the surviving organization;
    7. Except as otherwise provided in the plan of merger, the terms and conditions of the plan of merger take effect;
    8. Except as otherwise agreed, if a constituent corporation ceases to exist, the merger does not dissolve the corporation for purposes of § 4-26-1101 et seq.; and
    9. Any amendments provided for in the articles of merger for the organizational documents of the surviving organization become effective.
    1. A surviving organization that is a foreign organization consents to the jurisdiction of the courts of this state to enforce any obligation owed by a constituent organization if before the merger the constituent organization was subject to suit in this state on the obligation.
    2. A surviving organization that is a foreign organization and not authorized to transact business in this state may be served with process under § 4-20-113 if the surviving organization:
      1. Fails to appoint an agent for service of process under § 4-20-112;
      2. No longer has an agent for service of process; or
      3. Has an agent for service of process that cannot with reasonable diligence be served.

History. Acts 2009, No. 408, § 1.

4-26-1011. Rights of dissenting shareholders.

  1. If a conversion or merger is effected under this subchapter, the surviving or new organization shall pay to a shareholder of a corporation that is a party to the conversion or merger the fair value of the shareholder's shares, upon surrender of his or her certificate or certificates representing the shares, if the shareholder:
    1. Files with the corporation before or at the meeting of shareholders at which the plan of conversion or merger is submitted to a vote, a written objection to the plan of conversion or merger;
    2. Does not vote in favor of the plan of conversion or merger; and
    3. Within ten (10) days after the date on which the vote was taken makes written demand on the surviving or new domestic or foreign organization for payment of the fair value of his or her shares as of the day before the date on which the vote was taken approving the conversion or merger.
  2. The demand shall state the number and class of the shares owned by the dissenting shareholder.
  3. A shareholder failing to make demand within the ten-day period shall be bound by the terms of the conversion or merger.
  4. Within ten (10) days after the conversion or merger is effected, the surviving or new organization shall give notice to each dissenting shareholder who has made demand under this section for the payment of the fair value of his or her shares.
    1. If within thirty (30) days after the date on which the conversion or merger was effected the value of the shares is agreed upon by the dissenting shareholder and the surviving or new organization, payment shall be made within ninety (90) days after the date on which the conversion or merger was effected upon the surrender of the shareholder's certificate or certificates representing the shares.
    2. Upon payment of the agreed value the dissenting shareholder shall cease to have any interest in the shares or in the corporation.
      1. If within the period of thirty (30) days the shareholder and the surviving or new organization do not agree to the value of the dissenting shareholder's shares, then the dissenting shareholder within sixty (60) days after the expiration of the thirty-day period may file a petition for a finding and determination of the fair value of the shares and shall be entitled to judgment against the surviving or new organization for the amount of the fair value as of the day before to the date on which the vote was taken approving such conversion or merger, together with interest thereon to the date of the judgment.
      2. The petition shall be filed:
        1. In the circuit court of the county in which the registered office of the surviving organization is located if the surviving organization is a domestic organization; or
        2. In the Pulaski County Circuit Court if the surviving organization is a foreign organization.
    1. The judgment shall be payable only upon and simultaneously with the surrender to the surviving or new organization of the certificate or certificates representing the shares.
    2. Upon payment of the judgment the dissenting shareholder shall cease to have any interest in the shares or in the surviving or new organization.
    3. If a dissenting shareholder does not file a petition within the time allowed by this section, the dissenting shareholder and all persons claiming under the dissenting shareholder are bound by the terms of the conversion or merger.
  5. Shares acquired by the surviving or new organization in payment of the agreed value of the shares or a judgment under this section may be held and disposed of by the organization as in the case of other treasury shares.
  6. This section does not apply to a conversion or merger if on the date of filing the articles of conversion or merger, the surviving organization is the owner of all outstanding shares of the other domestic or foreign organizations that are parties to the conversion or merger.

History. Acts 2009, No. 408, § 1.

4-26-1012. Chapter not exclusive.

This chapter does not preclude an organization from being converted or merged under other law.

History. Acts 2009, No. 408, § 1.

Subchapter 11 — Dissolution and Liquidation

Effective Dates. Acts 1965, No. 576, § 98: effective at midnight on Dec. 31, 1965.

Research References

ALR.

Insolvency of insurance company justifying state dissolution proceedings and the like. 17 A.L.R.4th 16.

Court-ordered dissolution: inability to operate at profit as justification for. 20 A.L.R.4th 122.

Action against former director, officer, or stockholder in dissolved corporation for personal injuries incurred after final dissolution. 20 A.L.R.4th 414.

Relief other than by dissolution in cases of intracorporate deadlock or dissension. 34 A.L.R.4th 13.

Reinstatement of repealed, forfeited, expired, or suspended corporate charter as validating interim acts of corporation. 42 A.L.R.4th 392.

Liability of shareholders, directors, and officers where corporate business is continued after its dissolution. 72 A.L.R.4th 419.

Liability of corporate custodian for negligence in dealing with affairs or assets of corporation. 74 A.L.R.4th 770.

Am. Jur. 19 Am. Jur. 2d, Corp., § 2334 et seq.

Ark. L. Rev.

Tax Considerations of Fundamental Corporate Changes, 17 Ark. L. Rev. 444.

Dissolution and Liquidation of Arkansas Corporations, 21 Ark. L. Rev. 490.

C.J.S. 19 C.J.S., Corp., § 914 et seq.

Case Notes

Cited: Schmidt v. Pearson, Evans, & Chadwick, 326 Ark. 499, 931 S.W.2d 774 (1996).

4-26-1101. Authorization of dissolution.

  1. A corporation may be dissolved.
  2. The dissolution shall be authorized at a meeting of shareholders which is held after notice to all shareholders, whether or not entitled to vote, by the vote of the holders of two-thirds (2/3) of all outstanding shares entitled to vote thereon unless any class of shares is entitled to vote as a class, in which event the resolution of dissolution shall be adopted upon receiving the affirmative vote of the holders of two-thirds (2/3) of the outstanding shares of each class entitled to vote thereon as a class and of the total outstanding shares.

History. Acts 1965, No. 576, § 83; A.S.A. 1947, § 64-901.

Research References

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

4-26-1102. Certificate of dissolution.

  1. After a dissolution has been voted by the shareholders, a certificate of dissolution shall be executed by the president or a vice president of the corporation and attested by the secretary or an assistant secretary of the corporation.
  2. This certificate shall be verified by at least one (1) of the officers signing it and shall show:
    1. The name of the corporation;
    2. The names and respective addresses of its officers;
    3. The names and respective addresses of its directors;
    4. A copy of the shareholders' resolution directing the dissolution of the corporation;
    5. The number of shares outstanding and, if the shares of any class are entitled to vote as a class, the designation and number of outstanding shares of each such class;
    6. The number of shares voted for and against the resolution, respectively, and, if the shares of any class are entitled to vote as a class, the number of shares of each class voted for and against the resolution.
  3. The certificate shall be executed and filed in accordance with § 4-26-1201.
  4. Upon the filing of the certificate with the Secretary of State, the corporation is dissolved. Franchise tax liability shall terminate as of the end of the tax year in which the dissolution is voted.

History. Acts 1965, No. 576, § 84; A.S.A. 1947, § 64-902.

Case Notes

Cited: Larey v. Mountain Valley Spring Co., 245 Ark. 689, 434 S.W.2d 820 (1968).

4-26-1103. Procedure after dissolution.

After dissolution:

  1. The corporation shall carry on no business except for the purpose of winding up its affairs;
  2. The corporation shall proceed to wind up its affairs, with power to fulfill or discharge its contracts, collect its assets, sell its assets at public or private sale, discharge or pay its liabilities, and do all other acts appropriate to liquidate its business;
  3. After paying or adequately providing for the payment of its liabilities:
      1. The corporation, if authorized at a meeting of shareholders which is to be held on notice to all shareholders, whether or not entitled to vote, by a vote of a majority of all outstanding shares entitled to vote thereon, may sell its remaining assets or any part thereof for cash or for shares, bonds, or other securities of another corporation, or partly for cash and partly for such securities, and distribute the same among the shareholders according to their respective rights.
      2. Unless the consideration for the sale is payable concurrently with the consummation thereof entirely in cash, any shareholder, whether or not entitled to vote thereon, if prior to the meeting or at the meeting but before a vote, he or she shall have given the corporation written notice of his or her objection to a sale except wholly upon a cash basis and, if a voting shareholder, did not vote for the proposed sale, within ten (10) days after the date on which the sale was voted by the shareholders, may make a written demand on the corporation for the payment to him or her in cash of the value of his or her shares determined as of the day immediately preceding the day on which the vote was taken. In this event, upon tendering his or her share certificates to the corporation, the shareholder shall be entitled to receive the cash payment after the sale is effected, the rights of the dissenting shareholder to be enforced under the procedure prescribed in § 4-26-904;
    1. The corporation, whether or not it has made a sale under subdivision (3)(A) of this section, may distribute its remaining assets, including the proceeds of any sale under subdivision (3)(A) of this section above, in cash or, subject to subdivision (3)(A) of this section, in kind, or partly each, among its shareholders according to their respective rights.

History. Acts 1965, No. 576, § 85; A.S.A. 1947, § 64-903.

Research References

U. Ark. Little Rock L.J.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

Case Notes

Cited: Winchel v. Craig, 55 Ark. App. 373, 934 S.W.2d 946 (1996); Longing Family Revocable Trust v. Snowden, 2013 Ark. App. 81, 426 S.W.3d 488 (2013).

4-26-1104. Corporate action and remedies after dissolution.

  1. A dissolved corporation, its directors, officers, and shareholders, may continue to function for the sole purpose of winding up the affairs of the corporation in the same manner as if the dissolution had not taken place. For this limited purpose, the existence of the corporation as a legal entity shall be preserved indefinitely without franchise tax liability.
  2. In particular, and without limiting the generality of the foregoing:
    1. The directors of a dissolved corporation shall not be deemed to be trustees of its assets; title to the assets shall not vest in them or in the shareholders but shall remain in the corporation until transferred by it in its corporate name;
    2. Dissolution shall not change quorum or voting requirements of the board or shareholders or provisions regarding election, appointment, resignation, removal of, or filling vacancies among directors or officers or provisions regarding amendment or repeal of bylaws or adoption of new bylaws. In other words, subject to the limitation that the activities of the corporation shall be restricted to winding up its affairs, all of the predissolution powers and procedures shall be preserved indefinitely;
    3. Shares of the corporation may be transferred;
    4. The corporation may sue or be sued in its corporate name in all courts and participate in actions and proceedings, whether judicial, administrative, or otherwise, in its corporate name. Process may be served upon it or upon its behalf in the same manner as if there had been no dissolution;
    5. The dissolution of a corporation shall not affect any remedy available to or against the corporation, its directors, officers, or shareholders, for any right or claim existing or any liability which is incurred before the dissolution except as provided in § 4-26-1105 (notice to creditors) or § 4-26-1106 (jurisdiction of court to supervise liquidation).

History. Acts 1965, No. 576, § 86; A.S.A. 1947, § 64-904.

Case Notes

Corporation with Forfeited Charter.

Since a corporation with a forfeited charter continues to have vitality as a dissolved corporation, its powers should be at least equivalent to those of a dissolved corporation winding up its affairs. Gibson v. Dennis (In re Russell), 123 B.R. 48 (Bankr. W.D. Ark. 1990).

A dissolved corporation retains legal title to its assets until a proper conveyance to the shareholders, and it follows that a corporation with a forfeited charter would likewise retain legal title. Gibson v. Dennis (In re Russell), 123 B.R. 48 (Bankr. W.D. Ark. 1990).

This section clearly provides that a dissolved corporation has the power to sue and defend, and no Arkansas case under the applicable statutory scheme has held that a corporation whose charter has been forfeited has lost its capacity to sue. Gibson v. Dennis (In re Russell), 123 B.R. 48 (Bankr. W.D. Ark. 1990).

Suits.

A corporation, even though dissolved, may continue the defense of a suit. Hirsch v. Walker, 212 Ark. 79, 204 S.W.2d 904 (1947) (decision under prior law).

A derivative action, brought by certain shareholders of company seeking to recover damages for injuries sustained by corporation against certain claimants survived the filing of the certificate of dissolution of the company. Raines v. Toney, 228 Ark. 1170, 313 S.W.2d 802 (1958) (decision under prior law).

Tax Liability.

The enactment of this section did not make the corporation liable for income tax on profit realized from the sale of its assets pursuant to liquidation for distribution to the shareholders, but such liability was upon the shareholders. Larey v. Mountain Valley Spring Co., 245 Ark. 689, 434 S.W.2d 820 (1968).

4-26-1105. Notice to creditors — Filing or barring claims.

    1. At any time after dissolution, the corporation may, at its option, give a notice requiring all creditors and claimants, including any with unliquidated or contingent claims and any with whom the corporation has unfulfilled contracts, to present their claims in writing and in detail at a specified place and in a specified manner within one hundred twenty (120) days after the first publication of the notice.
    2. The notice if given shall be published at least once a week for three (3) successive weeks in a newspaper of general circulation in the county in which the principal place of business or, if no principal place of business, the registered office of the corporation was located at the date of dissolution.
    3. On or before the date of the first publication of the notice, the corporation shall mail a copy thereof, postage prepaid and addressed to his or her last known address, to each person believed to be a creditor of or claimant against the corporation whose name and address are known to or can with due diligence be ascertained by the corporation.
    4. The giving of notice shall not constitute a recognition that any person is a proper creditor or claimant and shall not revive or make valid, or operate as a recognition of the validity of, or a waiver of any defense or counterclaim in respect of, any claim against the corporation, its assets, directors, officers, or shareholders, which has been barred by any statute of limitations or becomes invalid by any cause, or in respect of which the corporation, its directors, officers, or shareholders, has any defense or counterclaim.
    1. Any claims which shall have been filed as provided in the notice and which shall be disputed by the corporation may be submitted for determination to the court, if any, supervising the liquidation of the corporation. If no court is supervising the liquidation of the corporation, claims may be submitted to any court of competent jurisdiction.
    2. A claim filed by the trustee or paying agent for the holders of bonds or coupons shall have the same effect as if filed by the holder of any such bond or coupon.
    3. Any person whose claim is, at the date of the first publication of notice, barred by any statute of limitations is not a creditor or claimant entitled to any notice under this section or § 4-26-1106.
    4. The claim of any such person and all other claims which are not filed in a timely manner as provided in the notice except claims which are the subject of litigation on the date of the first publication of the notice, and all claims which are so filed but are disallowed by the court, shall be forever barred as against the corporation, its assets, directors, officers, and shareholders, except to such extent as the court, if any, supervising the liquidation of the corporation or any other court of competent jurisdiction may allow them against any remaining assets of the corporation in the case of a creditor who shows satisfactory reason for his or her failure to file his or her claim as so provided.
    5. If the court supervising the liquidation requires a further notice under § 4-26-1106, any reference to a notice in this section, to the extent that the court so orders, shall mean such further notice, except that a claim which has been filed in accordance with a notice under this section need not be refiled under such further notice.
  1. Notwithstanding this section and § 4-26-1106, tax claims and other claims of this state and of the United States shall not be required to be filed under those sections, and those claims shall not be barred because not so filed, and distribution of the assets of the corporation, or any part thereof, may be deferred until determination of any of these claims.
  2. Laborer's wages shall be preferred claims and entitled to payment before any other creditors out of the assets of the corporation in excess of valid prior liens or encumbrances.

History. Acts 1965, No. 576, § 87; A.S.A. 1947, § 64-905.

Research References

ALR.

Preservation, After Dissolution, of Remedy for or Against Corporation Under Corporate Survival or Winding Up Statute, 36 A.L.R.7th Art. 4 (2018).

Case Notes

Cited: Putnam Realty, Inc. v. Terminal Moving & Storage Co. (In re Terminal Moving & Storage Co.), 631 F.2d 547 (8th Cir. 1980).

4-26-1106. Jurisdiction of court to supervise liquidation.

  1. At any time after dissolution of a corporation, the circuit court, upon the petition of the corporation or, in a situation approved by the court, upon the petition of a creditor, claimant, director, officer, shareholder, subscriber for shares, incorporator, or the Attorney General, provided it makes an affirmative finding, if the petition is contested, that the corporate assets are being, or are about to be, misapplied or wasted and that the creditors or shareholders are threatened with irreparable damage, may supervise generally the liquidation of the corporation and make all such orders as it may deem proper in all matters in connection with the winding up of the affairs of the corporation and, without limiting the generality thereof, in respect to the following:
    1. The adequacy of the notice, if any, given to creditors and claimants; and if the court finds inadequate notice was given, it may require such additional notice as to the court may seem proper; or if no notice has been given, the court shall require the publication of a notice for three (3) consecutive weeks warning creditors and claimants to file their claims with the court within one hundred twenty (120) days following the first publication or else be barred;
    2. The determination of the validity and amount or invalidity of any claims which have been presented or may be presented to the corporation or to the court or its receiver;
    3. The barring of all creditors and claimants who have not filed claims in a timely manner as provided in any such notice or whose claims have been disallowed by the court, as against the corporation, its assets, directors, and shareholders;
    4. The determination and enforcement of the liability of any director, officer, shareholder, or subscriber for shares to the corporation or for the liabilities of the corporation;
    5. The payment, satisfaction, or compromise of claims against the corporation, the retention of assets for such purpose, and the determination of the adequacy of provisions made for the payment of the liabilities of the corporation;
    6. The appointment and removal of a receiver who may be a director, officer, shareholder, or other person; however, some official or substantial stockholder shall be preferred in appointing a receiver unless the court finds there are compelling reasons to the contrary;
    7. The return, where lawful, of subscription payments to subscribers for shares and the making of distributions, in cash or in kind or partly each, to the shareholders;
    8. The disposition or destruction of records, documents, and papers of the corporation;
    9. The issuance of injunctions against unauthorized or unlawful acts on the part of the corporation or its officials, restraining creditors from proceeding against the corporation in any other court, or issuing orders and injunctions for any other purpose which tends to safeguard the rights of the corporation, its shareholders, creditors, or claimants;
    10. Ordering and supervising the public or private sale of any or all assets of the corporation on terms approved by the court, which sale may be made by the corporation under the court's direction or by a receiver or commissioner appointed by the court;
    11. Extending the time, where equitable, for creditors and claimants to file their claims with the court and barring all creditors who have not filed their claims in a timely manner from participating in the distribution of the assets of the corporation.
    1. Orders under this section may be entered ex parte, except that the court may require notice to be given to the corporation and also to be given to other interested parties in such manner as the court may deem proper of any hearings and of the entry of any orders.
    2. All orders made by the court under this section shall be binding upon the Attorney General, the corporation, its officers, directors, shareholders, subscribers for shares, incorporators, creditors, and claimants but shall not be binding upon any party who has not received notice of the hearing if the court had directed that notice be given to such party.
  2. If the circuit court acquires jurisdiction to supervise the liquidation of a corporation, its jurisdiction will be exclusive.
  3. The venue of a proceeding under this section will be the county in which the corporation maintained on the date of dissolution its principal place of business or, if it had no such principal place of business, in the county wherein its registered office is located; otherwise the venue shall be Pulaski County.

History. Acts 1965, No. 576, § 88; A.S.A. 1947, § 64-906.

A.C.R.C. Notes. As originally enacted, subsection (c) provided:

“If the circuit court acquires jurisdiction to supervise the liquidation of a corporation, its jurisdiction will be exclusive, and the same jurisdiction may not thereafter be exercised by the chancery court of the same county, and vice versa.” Amendment 80 to the Arkansas Constitution was adopted by voter referendum and became effective July 1, 2001. Amendment 80 established circuit courts as the trial courts of original jurisdiction of all justiciable matters not otherwise assigned pursuant to the Constitution and specifically provided that “jurisdiction conferred on Circuit Courts established by this Amendment includes all matters previously cognizable by Circuit, Chancery, Probate and Juvenile Courts. …”.

Cross References. Appointment of receivers, Ark. R. Civ. P. 66.

Case Notes

Creditors' Claims.

Chancery Court was not wholly without jurisdiction to hear complaints by creditors against corporations and stockholders to set aside transfers made to defeat creditors' claims. Horne Bros. v. Ray Lewis Corp., 292 Ark. 477, 731 S.W.2d 190 (1987).

Judicial Sales.

The court is vendor in judicial sales; the court is vested with sound judicial discretion and may confirm or refuse to confirm a sale in the exercise of this discretion. Keirs v. Mt. Comfort Enterprises, Inc., 266 Ark. 523, 587 S.W.2d 8 (1979).

4-26-1107. Involuntary dissolution.

  1. A corporation may be dissolved involuntarily by a decree of the circuit court of the county in which its principal place of business is located or, if it has no principal place of business, in the county wherein its registered office is situated, otherwise in Pulaski County Circuit Court, in an action filed in the name of the state by the Attorney General when it is established that:
    1. The corporation procured its articles of incorporation through fraud; or
    2. The corporation has continued to exceed or abuse the authority conferred on it by law or has continued to transact business beyond the scope of the purpose expressed in its articles of incorporation; or
    3. The corporation has failed to comply with any of the provisions of this chapter in respect to the designation and maintenance in this state of a registered agent or registered office or in respect to any change of its registered agent or registered office; or
    4. A misrepresentation has been made of any material matter in any application, certificate, affidavit, or other document submitted by the corporation pursuant to this chapter.
    1. If the writ of summons, which shall be returnable in thirty (30) days, issued on the complaint in the action is returned by the sheriff unserved because no registered agent or other person eligible to receive service can be found in his or her jurisdiction, then upon the filing of the writ of summons with the clerk of the court, bearing the sheriff's return, the clerk shall issue and publish against the defendant corporation, for the time and in the manner prescribed by Rule 4 of the Arkansas Rules of Civil Procedure; and he or she shall appoint an attorney ad litem as provided by law.
    2. The Attorney General shall also cause a copy of the warning order and the complaint to be mailed to the defendant corporation at its registered office as shown on the records of the Secretary of State at least twenty (20) days prior to the trial of such suit or the entry of decree therein; and the certificate of the Attorney General as to the mailing shall be prima facie evidence thereof.
    3. Compliance with the jurisdictional requirements will confer on the court jurisdiction to decree the dissolution of the corporation.
  2. The court will cause certified copies of the decree of dissolution to be filed with the Secretary of State and the county clerk of the county, if other than Pulaski County, in which the corporation's registered office is located. No fee shall be charged by either of the officials for the filing.

History. Acts 1965, No. 576, § 89; A.S.A. 1947, § 64-907; Acts 2013, No. 1148, § 1.

Amendments. The 2013 amendment, in (b)(1), substituted “by Rule 4 of the Arkansas Rules of Civil Procedure” for “in § 16-58-130, a warning order” and ”as provided by law” for “pursuant to § 16-65-403(a)(1) [repealed]”.

Cross References. Proceedings to vacate charter, § 16-118-105.

Case Notes

Cited: Missouri Pac. R.R. v. W.S. Fox & Sons, Inc., 251 Ark. 247, 472 S.W.2d 726 (1971); Putnam Realty, Inc. v. Terminal Moving & Storage Co. (In re Terminal Moving & Storage Co.), 631 F.2d 547 (8th Cir. 1980).

4-26-1108. Jurisdiction of court to liquidate assets and business of corporation.

  1. The circuit court shall have full power to liquidate the assets and business of a corporation:
    1. In an action by a shareholder when it is established:
      1. That the directors are deadlocked in the management of the corporate affairs, and the shareholders are unable to break the deadlock and that irreparable injury to the corporation is being suffered or is threatened by reason thereof; or
      2. That the acts of the directors or those in control of the corporation are illegal, oppressive, or fraudulent; or
      3. That the shareholders are deadlocked in voting power and that irreparable injury to the corporation is being suffered or is threatened by reason thereof; or
      4. That the corporate assets are being misapplied or wasted.
    2. In an action by a creditor:
      1. When the claim of the creditor has been reduced to judgment and an execution thereon returned unsatisfied, and it is established that the corporation is insolvent; or
      2. When the corporation has admitted in writing that the claim of the creditor is due and owing, and it is established that the corporation is insolvent.
    3. When an action has been filed by the Attorney General to dissolve a corporation, and it is established that liquidation of its business and affairs should precede the entry of a decree of dissolution.
  2. It shall not be necessary to make shareholders parties to any such action or proceeding unless relief is sought against them personally.
  3. In such a liquidation proceeding, the court shall have all of the powers which are conferred upon the court under § 4-26-1106, and if the proceeding be pending in the circuit court, the court shall have jurisdiction after liquidation has been completed to enter a decree dissolving the corporation. In this last event the dissolution will be certified to the Secretary of State and the county clerk as provided in § 4-26-1107.
  4. A proceeding under this section shall be filed in the county in which the principal place of business of the corporation is located or, if it has no principal place of business, in the county wherein its registered office is situated; otherwise, it shall be filed in Pulaski County.

History. Acts 1965, No. 576, § 90; A.S.A. 1947, § 64-908.

Publisher's Notes. Acts 1993, No. 444, § 2, provided:

“The General Assembly determines that Arkansas Code § 4-25-104 is no longer necessary and should be repealed as to dissolution of insolvent corporations is now comprehensively covered by Arkansas Code §§ 4-26-1108, 4-27-1430, and 4-59-201 et seq.”

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

RESEARCH REFERENCES

ALR.

Use of marketability discount in valuing closely held corporation or its stock. 16 A.L.R.6th 693.

Case Notes

Bankruptcy Court.

Because the trustee's action to liquidate a close corporation in order to realize the value of the estate's shares under subdivision (a)(1)(B) was related to the underlying bankruptcy, the bankruptcy court had jurisdiction over the claim. Luker v. Reeves, 65 F.3d 670 (8th Cir. 1995).

Judicial Sales.

The court is the vendor in judicial sales; the court is vested with sound judicial discretion and may confirm or refuse to confirm a sale in the exercise of this discretion. Keirs v. Mt. Comfort Enterprises, Inc., 266 Ark. 523, 587 S.W.2d 8 (1979).

Mismanagement.

Chancery had jurisdiction to dissolve a corporation and order a sale of its assets where the president and majority stockholder was not managing the corporation for the benefit of the other stockholders but was merely using the corporation for his own private purposes. Red Bud Realty Co. v. South, 153 Ark. 380, 241 S.W. 21 (1922) (decision under prior law).

Oppressive Acts.

Disappointment in a corporate arrangement does not constitute “oppression” as that term is used in subdivision (a)(1)(B) of this section. Smith v. Paul, 317 Ark. 182, 876 S.W.2d 266 (1994).

Reasonable Expectation.

Minority shareholders had no “reasonable expectation” about the running of a car dealership where evidence showed that the majority shareholder only agreed to the deal based on the ability to control the operations. Taylor v. Hinkle, 360 Ark. 121, 200 S.W.3d 387 (2004).

Cited: Missouri Pac. R.R. v. W.S. Fox & Sons, Inc., 251 Ark. 247, 472 S.W.2d 726 (1971).

4-26-1109. Deposit with Treasurer of State of amount due certain creditors or shareholders.

Upon the liquidation of a corporation, whether before or after dissolution, the portion of the assets distributable to a creditor or shareholder who is unknown or cannot be found or who is under disability, and there is no person legally competent to receive such distributive portion, shall be reduced to cash and deposited with the Treasurer of State and shall be paid over to the creditor or shareholder or to his or her legal representative upon proof satisfactory to the Treasurer of State of his or her right thereto.

History. Acts 1965, No. 576, § 91; A.S.A. 1947, § 64-909.

Subchapter 12 — Filing and Fees

Cross References. Corporate franchise tax, § 26-54-101 et seq.

Fees charged corporations, § 4-27-122.

Income tax, §§ 26-51-205, 26-51-412, 26-51-804.

Effective Dates. Acts 1911, No. 87, § 16: approved Mar. 8, 1911. Emergency clause provided: “This Act shall not be deemed a repeal of any law now in force regulating corporations, or the payment of fees and taxes by corporations, except that Act 294, approved May 31, 1909, is hereby repealed. This law being necessary for the immediate preservation of the public peace, health and safety shall be in force from and after its passage.”

Acts 1965, No. 576, § 98: effective at midnight on Dec. 31, 1965.

4-26-1201. Filing of corporate documents.

  1. When any provision of this chapter requires that a corporate document of any character “be executed and filed in accordance with § 4-26-1201,” or “filed in accordance with § 4-26-1201,” the execution or filing of that document and the legal effect thereof shall be controlled by the following provisions:
    1. The document shall be executed in duplicate, and, if the document consists of the original articles of incorporation, it shall be signed by all of the incorporators; but every other document executed on behalf of a corporation, unless otherwise provided in this chapter, shall be signed by the president or a vice president of the corporation and by its secretary or an assistant secretary;
    2. Except where specifically required under some provision of this chapter, the execution of the document need not be acknowledged before an officer authorized to take oaths;
    3. The document so executed in duplicate shall be delivered to the Secretary of State. If he or she finds that it conforms to law and that in respect to the corporate name no violation of §§ 4-26-401 — 4-26-403 is indicated and that the document is tendered to effect a lawful purpose and is entitled to be filed, then upon the payment of the fees required under this chapter, he or she shall endorse upon each of the duplicates tendered for filing, over his or her signature and official seal, the word “Filed” followed by the date of the filing;
    4. The Secretary of State shall retain in his or her files one (1) executed copy of the document, the ribbon copy if the document is typewritten; and he or she shall attach to the other filed copy a certificate stating that the instrument is an executed counterpart of a document filed in his or her office, giving date of the filing, and return the other copy to the corporation or its representative;
    5. If the registered office of the corporation be situated in any county other than Pulaski County, the executed counterpart of the document filed with the Secretary of State, with his or her certificate annexed thereto, shall be filed, within sixty (60) days after the date of its filing with the Secretary of State, for record in the office of the county clerk of the county wherein the corporation's registered office is located. After recording the document, the county clerk shall return it to the corporation. In case of a consolidation or a merger, a counterpart of the articles of consolidation or merger with the annexed certificate of the Secretary of State shall be filed for record with the county clerk of the county, other than Pulaski County, wherein the registered office of the new corporation, the surviving corporation, and each constituent corporation is located.
    1. Upon the filing with the Secretary of State of the original articles of incorporation, corporate existence shall begin. Neither the corporate existence nor the right to do business as a corporation shall be postponed until a duplicate of the articles is filed with the county clerk, nor shall the shareholders incur any personal liability by reason of authorizing the corporation to do business as an incorporated entity prior to the filing with the county clerk.
    2. In like manner, and except in the instances where this chapter may specifically provide to the contrary, any other corporate document filed as prescribed in this section shall be completely effective when filed in the office of the Secretary of State, and the corporate act to be effected thereby shall be deemed completely consummated upon the filing with the Secretary of State.
    3. However, in each instance where there shall be a failure to file with the county clerk in the time and manner required by this chapter, the corporation or the surviving corporation, in case of a merger or consolidation, may be subjected to a penalty of not less than one hundred dollars ($100) nor more than one thousand dollars ($1,000) to be enforced through a civil proceeding filed in the name of the state by the Attorney General in Pulaski County Circuit Court, and, in case of a willful refusal to make the county filing, the Attorney General may sue to cancel or revoke the articles of incorporation of the corporation.
  2. A duplicate of the articles of incorporation filed with the Secretary of State as provided in subdivision (a)(3) of this section and carrying his or her filing endorsement, or a copy of such articles certified by the Secretary of State to be a true copy of articles filed in his or her office with his or her certificate, also showing the date of filing, or the record of the articles in the office of the county clerk or a copy of the record certified by the county clerk, when introduced in evidence shall be conclusive proof that all conditions precedent required to be performed by the incorporators have been complied with and that the corporation has been incorporated under this chapter, except as against the state in a direct proceeding to cancel or revoke the articles of incorporation or as against the plaintiff in a suit under § 4-26-406.
  3. In like manner, a duplicate carrying the filing endorsement of the Secretary of State of any other document filed with the Secretary of State pursuant to this section, or a copy of the document certified by the Secretary of State as provided in subsection (c) of this section, when introduced in evidence shall constitute prima facie proof of the facts therein recited and shall constitute prima facie evidence that the corporate purpose sought to be effected by the filing has been lawfully accomplished.
  4. Where a filing under any section of this chapter is required to be made in the county in which a corporation maintains a registered office, the word “county,” as applied to counties having two (2) judicial districts, shall mean the district in which such registered office is maintained.
  5. In any civil action filed by or against a corporation, it shall not be necessary to prove in the trial of the cause the existence of the corporation in its corporate capacity unless the defendant in his or her or its answer expressly avers under oath that the organization suing or being sued as a corporation does not in fact have a lawful corporate existence.

History. Acts 1965, No. 576, § 15; A.S.A. 1947, § 64-117.

Case Notes

Articles of Incorporation.

Filing of articles of agreement by partners organizing corporation was not notice of the dissolution of the partnership. Herring v. Mishawaka Rubber & Woolen Mfg. Co., 192 Ark. 1055, 95 S.W.2d 1141 (1936) (decision under prior law).

In order to become a corporation de jure the articles of incorporation must be filed with both the Secretary of State and the county clerk of the county in which the corporation's principal office or place of business is located, and failure to do so renders the proposed corporation a de facto corporation. Gazette Publishing Co. v. Brady, 204 Ark. 396, 162 S.W.2d 494 (1942) (decision under prior law).

Stockholders in corporation were individually liable as partners for debt where copy of articles of incorporation was not recorded with county clerk until date of trial, even though articles were filed with Secretary of State prior to date of debt. Whitaker v. Mitchell Mfg. Co., 219 Ark. 779, 244 S.W.2d 965 (1952) (decision under prior law).

Theory that in absence of filing of articles of incorporation of the corporation in the county, it did not have corporate status was completely contrary to subsection (b) of this section. Smith v. Estes, 259 Ark. 337, 533 S.W.2d 190 (1976).

Evidence.

Original charter is primary evidence and competent proof even though a certified copy could be admitted. Sturdivant v. Ka-Dene Medicine Co., 169 Ark. 535, 275 S.W. 921 (1925) (decision under prior law).

Since the validity of the certificate from the Secretary of State which stated that plaintiff was a corporation in good standing at all times pertinent to the action was uncontroverted except for plaintiff's failure to file a change of address as to its registered office or agent, and since defendants demonstrated no prejudice as a result of the change of address, certificate was sufficient to prove the corporation's legal existence and thus plaintiff had the legal capacity to sue. Delta Oil Co. v. Catalani, 276 Ark. 66, 633 S.W.2d 1 (1982).

Failure to File.

Where the committee failed to file its articles of incorporation with the Secretary of State and it elected to initiate a lawsuit as a corporation, the trial court correctly dismissed the complaint because a corporation not in existence could not initiate a lawsuit; the trial court was not required to allow the committee to proceed as a partnership or de facto corporation. Committee for Util. Trimming, Inc. v. Hamilton, 290 Ark. 283, 718 S.W.2d 933 (1986).

Cited: Missouri Pac. R.R. v. W.S. Fox & Sons, Inc., 251 Ark. 247, 472 S.W.2d 726 (1971); Franklin Elec. Co. v. Heath, 261 Ark. 269, 547 S.W.2d 755 (1977).

4-26-1202. [Repealed.]

Publisher's Notes. This section, concerning fees chargeable by the Secretary of State, was repealed by Acts 2019, No. 379, § 1, effective July 24, 2019. The section was derived from Acts 1965, No. 576, § 96; 1973, No. 379, § 2; A.S.A. 1947, § 64-1001; Acts 1987, No. 1068, § 1.

4-26-1203. Fees — County clerk.

The fees of the county clerk for services under this chapter shall be:

  1. For filing articles of incorporation, articles of amendment, or any other document he or she is required to file under this chapter, twenty-five dollars ($25.00);
  2. For recording any document he or she is required to record hereunder, one dollar ($1.00) per page for the first three (3) pages of the manuscript filed for record and fifty cents (50¢) for each additional page. The Secretary of State's certificate shall be considered as one (1) page; the fee for a partial page shall be the same as the fee for a full page;
  3. For every certificate, fifty cents (50¢);
  4. For indexing each record or file, ten cents (10¢);
  5. For any services under this chapter not covered by this section, the clerk's fees shall be governed by the then-applicable scale fixed by law for his or her office.

History. Acts 1965, No. 576, § 97; A.S.A. 1947, § 64-1002.

4-26-1204. Fees of mutual corporations.

Excepting insurance companies, all mutual corporations, foreign or domestic, having no capital stock, seeking to do business in this state, shall pay to the Treasurer of State for the filing of its articles of incorporation a fee of five hundred dollars ($500). However, nothing in this section shall apply to fraternal orders that write insurance or to any mutual corporation created for religious, literary, benevolent, or scientific purposes or any such mutual corporation formed for the advancement or betterment of agricultural purposes.

History. Acts 1911, No. 87, § 10; C. & M. Dig., § 1811; A.S.A. 1947, § 64-1003.

Chapter 27 Business Corporation Act of 1987

Publisher's Notes. Former chapter 27, concerning foreign corporations, was repealed by Acts 1987, No. 958, § 64-1705. Former § 4-27-107 was also amended by Acts 1987, No. 1068, § 2. However, such amendment expired at midnight, Dec. 31, 1987. The former chapter was derived from the following sources:

4-27-101. Acts 1973, No. 379, § 4; A.S.A. 1947, § 64-1223.

4-27-102. Acts 1973, No. 379, § 4; A.S.A. 1947, § 64-1223.

4-27-103. Acts 1973, No. 379, § 5; A.S.A. 1947, § 64-1224.

4-27-104. Acts 1907, No. 313, §§ 1, 2; 1919, No. 687, § 1 (par. 1); C. & M. Dig., §§ 1826, 1827, 1832; Pope's Dig., §§ 2247, 2248, 2251; Acts 1973, No. 379, § 3; A.S.A. 1947, §§ 64-1201, 64-1202.

4-27-105. Acts 1947, No. 131, §§ 1-5; A.S.A. 1947, §§ 64-1205 — 64-1209.

4-27-106. Acts 1911, No. 87, §§ 3, 14; C. & M. Dig., §§ 1804, 1815; Acts 1977, No. 475, § 1; A.S.A. 1947, §§ 64-1203, 64-1204.

4-27-107. Acts 1939, No. 187, § 1; 1947, No. 214, § 2; 1977, No. 475, § 2; A.S.A. 1947, § 64-1210; Acts 1987, No. 1068, § 2.

4-27-108. Acts 1967, No. 263, § 1; A.S.A. 1947, § 64-1216.

4-27-109. Acts 1967, No. 115, §§ 1-5; A.S.A. 1947, §§ 64-1211 — 64-1215.

4-27-201. Acts 1979, No. 118, § 6; A.S.A. 1947, § 64-1218.6.

4-27-202. Acts 1979, No. 118, § 4; A.S.A. 1947, § 64-1218.4.

4-27-203. Acts 1979, No. 118, § 1; A.S.A. 1947, § 64-1218.1.

4-27-204. Acts 1979, No. 118, § 3; A.S.A. 1947, § 64-1218.3.

4-27-205. Acts 1979, No. 118, § 2; A.S.A. 1947, § 64-1218.2.

4-27-206. Acts 1979, No. 118, § 5; A.S.A. 1947, § 64-1218.5.

4-27-301. Acts 1969, No. 336, §§ 3, 6; A.S.A. 1947, §§ 64-1219, 64-1222.

4-27-302. Acts 1969, No. 336, § 1; A.S.A. 1947, § 64-1217.

4-27-303. Acts 1969, No. 336, § 2; A.S.A. 1947, § 64-1218.

4-27-304. Acts 1969, No. 336, § 5; A.S.A. 1947, § 64-1221.

4-27-305. Acts 1969, No. 336, § 4; A.S.A. 1947, § 64-1220.

This chapter applies to all business corporations incorporated after midnight, December 31, 1987, and to preexisting corporations which elect to be covered by this chapter. See § 4-27-1701.

For Commentary regarding the Business Corporation Act of 1987, see Commentaries Volume A.

Cross References. Business corporations generally, § 4-26-101 et seq.

Change of state of incorporation, § 4-25-109.

Research References

Ark. L. Notes.

Matthews, A Statutory Primer: The Arkansas Business Corporation Act of 1987, 1987 Ark. L. Notes 81.

Ark. L. Rev.

Rosenzweig, Protecting the Rights of Minority Shareholders in Close Corporations Under the New Arkansas Business Corporation Act, 44 Ark. L. Rev. 1.

U. Ark. Little Rock L.J.

Brewer, An Overview of the 1987 Arkansas Business Corporation Act, 10 U. Ark. Little Rock L.J. 431.

Survey—Corporations, 10 U. Ark. Little Rock L.J. 549.

Note, Director-Exculpation Clauses Under the Arkansas Business Corporation Act of 1987, 15 U. Ark. Little Rock L.J. 337.

Subchapter 1 — General Provisions

Effective Dates. Acts 1989, No. 583, § 8: Mar. 15, 1989. Emergency clause provided: “It is hereby found and determined by the General Assembly that present law has no provisions for registered investment companies; that such laws are needed to properly govern investment companies and to clarify the status of investment companies; and that adoption of Subchapter M of the Internal Revenue Code of 1986 is necessary to provide uniform tax laws on both the State and Federal levels for investment companies. Therefore, an emergency is hereby declared to exist and this act being necessary for the preservation of public peace, health, and safety shall be in full force and effect from and after its passage and approval.”

Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2007, No. 646, § 14: July 1, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that business entities are presently paying different fees for similar services from the Secretary of State; that this act will alleviate any undue hardship to any entity by standardizing business and commercial filing fees; and that this act is immediately necessary to aid the recordkeeping and accounting functions of the Secretary of State and should take effect at the beginning of the state's fiscal year. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2007.”

Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

A.C.R.C. Notes. Acts 2001, No. 454, § 1, provided:

“(a)(1) Any business corporation may change its state of incorporation from this state to any other jurisdiction which authorizes this change. (2) Any foreign corporation may change its jurisdiction of incorporation to this state from any other jurisdiction which authorizes this change.”

“(b)(1) This change may be made by a business corporation: (A) Only pursuant to authorization by a majority of the voting power present, or by a larger vote as the articles may require; (B) At an annual or special meeting of shareholders; and (C) If the notice sets forth the consideration of this action as the purpose of the meeting. (2)(A) There shall be filed with the Secretary of State a certificate as to the authorization by the shareholders, signed by the president or vice president and the secretary and acknowledged by the president or vice president. (B) The certificate may be delivered to the Secretary of State for filing as of any specified date within thirty (30) days after the date of delivery. (3) When all taxes, fees, and charges have been paid as required by law, the Secretary of State shall record the certificate in the Secretary of State's office and issue to the corporation a certificate reciting that it has taken all action required under the laws of this state to change its state of incorporation to the other jurisdiction. (4) The corporation shall, upon complying with the laws of the new jurisdiction, no longer be under the laws of this state. (5) Certified copies of the certificate of incorporation or other official certificate evidencing the corporation's incorporation under the laws of the other jurisdiction shall be filed with the Secretary of State within thirty (30) days of receipt by the business corporation.”

“(c)(1) The change may be made by a foreign corporation by filing with the Secretary of State: (A) A certified copy of its original or restated articles and all amendments subsequent to the latest restatement, which were filed in the other jurisdiction; (B) The original of a Certificate of Good Standing from the state of original jurisdiction, dated not more than thirty (30) days earlier than the date of filing in this state; (C) An application for incorporation pursuant to this act, signed by the corporation, by its president or vice president, and its secretary or assistant secretary, and acknowledged by one of the signing officers, setting forth the requirements of Arkansas Code 4-27-202; (D) A franchise tax contact sheet provided by the Secretary of State; and (E) A certificate by the Secretary of State or other proper officer of the jurisdiction in which the corporation is incorporated, reciting that the corporation has taken all action required under the laws of the jurisdiction to become a corporation incorporated under the laws of this state. (2)(A) These documents may be delivered to the Secretary of State for filing as of any specified date within thirty (30) days after the date of delivery. (B) When all fees and charges have been paid as required by law, the Secretary of State shall record the documents in the Secretary of State's office and issue a certificate of incorporation of the corporation under the laws of this state. (3) The certificate of incorporation shall be conclusive evidence of the fact that the corporation has been duly incorporated under the laws of this state. (4) Effective as of the time of filing the documents with the Secretary of State, the corporation shall be incorporated solely under the laws of this state and no longer under the laws of the other jurisdiction.”

Research References

U. Ark. Little Rock L.J.

Mathews, Corporate Statutes—Which One Applies?, 13 U. Ark. Little Rock L.J. 69.

Part A: Short Title and Reservation of Power

4-27-101. Short title.

This chapter shall be known and may be cited as the “Arkansas Business Corporation Act of 1987.”

History. Acts 1987, No. 958, § 64-101.

Research References

Ark. L. Rev.

The Series LLC, and a Series of Difficult Questions, 60 Ark. L. Rev. 385.

Comment, Corporate Pre-Organization Liability in an LLC World, 61 Ark. L. Rev. 301.

Case Notes

Cited: Centennial Valley Ranch Management, Inc. v. Agri-Tech Ltd. Partnership, 38 Ark. App. 177, 832 S.W.2d 259 (1992); Terry v. Rice (In re Cheqnet Sys.), 246 B.R. 873 (Bankr. E.D. Ark. 2000).

4-27-102. Reservation of power to amend or repeal.

The General Assembly has power to amend or repeal all or part of this chapter at any time and all domestic and foreign corporations subject to this chapter are governed by the amendment or repeal.

History. Acts 1987, No. 958, § 64-102.

4-27-103 — 4-27-119. [Reserved.]

Part B: Filing Documents

4-27-120. Filing requirements. [Effective until May 1, 2021.]

  1. A document must satisfy the requirements of this section, and of any other section that adds to or varies these requirements, to be entitled to filing by the Secretary of State.
  2. This chapter must require or permit filing the document in the office of the Secretary of State.
  3. The document must contain the information required by this chapter. It may contain other information as well.
  4. The document must be typewritten or printed.
  5. The document must be in the English language. A corporate name need not be in English if written in English letters or Arabic or Roman numerals, and the certificate of existence required of foreign corporations need not be in English if accompanied by a reasonably authenticated English translation.
  6. The document must be executed:
    1. by the chairman of the board of directors of a domestic or foreign corporation, by its president, or by another of its officers;
    2. if directors have not been selected or the corporation has not been formed, by an incorporator; or
    3. if the corporation is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary.
  7. The person executing the document shall sign it and state beneath or opposite his signature his name and the capacity in which he signs. The document may but need not contain: (1) the corporate seal, (2) an attestation by the secretary or an assistant secretary, (3) an acknowledgement, verification, or proof.
  8. If the Secretary of State has prescribed a mandatory form for the document under § 4-27-121, the document must be in or on the prescribed form.
  9. The document must be delivered to the office of the Secretary of State for filing and must be accompanied by one (1) exact or conformed copy (except as provided in §§ 4-27-503 and 4-27-1509 [repealed]), the correct filing fee, and any franchise tax, license fee, or penalty required by this chapter or other law.

History. Acts 1987, No. 958, § 64-103.

Publisher's Notes. For text of section effective May 1, 2021, see the following version.

4-27-120. Filing requirements. [Effective May 1, 2021.]

  1. A document must satisfy the requirements of this section, and of any other section that adds to or varies these requirements, to be entitled to filing by the Secretary of State.
  2. This chapter must require or permit filing the document in the office of the Secretary of State.
  3. The document must contain the information required by this chapter. It may contain other information as well.
  4. The document must be typewritten or printed.
  5. The document must be in the English language. A corporate name need not be in English if written in English letters or Arabic or Roman numerals, and the certificate of existence required of foreign corporations need not be in English if accompanied by a reasonably authenticated English translation.
  6. The document must be executed:
    1. by the chairman of the board of directors of a domestic or foreign corporation, by its president, or by another of its officers;
    2. if directors have not been selected or the corporation has not been formed, by an incorporator; or
    3. if the corporation is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary.
  7. The person executing the document shall sign it and state beneath or opposite his signature his name and the capacity in which he signs. The document may but need not contain: (1) the corporate seal, (2) an attestation by the secretary or an assistant secretary, (3) an acknowledgement, verification, or proof.
  8. If the Secretary of State has prescribed a mandatory form for the document under § 4-27-121, the document must be in or on the prescribed form.
  9. The document must be delivered to the office of the Secretary of State for filing and must be accompanied by one (1) exact or conformed copy, the correct filing fee, and proof of payment of any franchise tax, license fee, or penalty required by this chapter or other law.

History. Acts 1987, No. 958, § 64-103; 2019, No. 819, § 4.

A.C.R.C. Notes. Acts 2019, No. 819, § 1, provided: “Title. This act shall be known and may be cited as the ‘Arkansas Tax Reform Act of 2019'”.

Acts 2019, No. 819, § 2, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The Arkansas Tax Reform and Relief Legislative Task Force was charged with:

“(A) Examining and identifying areas of potential tax reform within the tax laws; and

“(B) Recommending legislation to the General Assembly, in part, to modernize and simplify the Arkansas tax code and ensure fairness to all taxpayers;

“(2) There are several areas of the tax code that should be amended to reform the state's tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(3) Any savings realized by the state through tax reforms should be dedicated to reducing the tax burden for Arkansas taxpayers.

“(b) It is the intent of the General Assembly to:

“(1) Reform Arkansas tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(2) Offset any revenue savings realized through tax reform with corresponding changes to reduce the tax burden for Arkansas taxpayers”.

Publisher's Notes. For text of section effective until May 1, 2021, see the preceding version.

Amendments. The 2019 amendment, in (i), deleted “(except as provided in §§ 4-27-503 and 4-27-1509 [repealed])” following “copy” and inserted “proof of payment of”.

Effective Dates. Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

4-27-121. Forms. [Effective until May 1, 2021.]

  1. The Secretary of State may prescribe and furnish on request forms for: (1) an application for a certificate of existence, (2) a foreign corporation's application for a certificate of authority to transact business in this state, (3) a foreign corporation's application for a certificate of withdrawal, and (4) the annual franchise tax report. If the Secretary of State so requires, use of these forms is mandatory.
  2. The Secretary of State may prescribe and furnish on request forms for other documents required or permitted to be filed by this chapter but their use is not mandatory.

History. Acts 1987, No. 958, § 64-104.

Publisher's Notes. For text of section effective May 1, 2021, see the following version.

4-27-121. Forms. [Effective May 1, 2021.]

  1. The Secretary of State may prescribe and furnish on request forms for: (1) an application for a certificate of existence, (2) a foreign corporation's application for a certificate of authority to transact business in this state, and (3) a foreign corporation's application for a certificate of withdrawal. If the Secretary of State so requires, use of these forms is mandatory.
  2. The Secretary of State may prescribe and furnish on request forms for other documents required or permitted to be filed by this chapter but their use is not mandatory.

History. Acts 1987, No. 958, § 64-104; 2019, No. 819, § 5.

A.C.R.C. Notes. Acts 2019, No. 819, § 1, provided: “Title. This act shall be known and may be cited as the ‘Arkansas Tax Reform Act of 2019'”.

Acts 2019, No. 819, § 2, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The Arkansas Tax Reform and Relief Legislative Task Force was charged with:

“(A) Examining and identifying areas of potential tax reform within the tax laws; and

“(B) Recommending legislation to the General Assembly, in part, to modernize and simplify the Arkansas tax code and ensure fairness to all taxpayers;

“(2) There are several areas of the tax code that should be amended to reform the state's tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(3) Any savings realized by the state through tax reforms should be dedicated to reducing the tax burden for Arkansas taxpayers.

“(b) It is the intent of the General Assembly to:

“(1) Reform Arkansas tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(2) Offset any revenue savings realized through tax reform with corresponding changes to reduce the tax burden for Arkansas taxpayers”.

Publisher's Notes. For text of section effective until May 1, 2021, see the preceding version.

Amendments. The 2019 amendment, in (a), inserted “and” preceding “(3)” and deleted “and (4) the annual franchise tax report” at the end of the first sentence.

Effective Dates. Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

4-27-122. Filing, service, and copying fees.

  1. The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her for filing:
    1. The Secretary of State shall collect a fee of twenty-five dollars ($25.00) each time process is served on him or her under this chapter.
    2. The party to a proceeding causing service of process is entitled to recover the process fee as costs if the party prevails in the proceeding.
  2. The Secretary of State shall collect the following fees for copying and certifying the copy of any filed document relating to a domestic or foreign corporation:
    1. Fifty cents (50¢) a page for copying; and
    2. Five dollars ($5.00) for the certificate.
  3. The Secretary of State shall collect the following fees when the documents described in this subsection are delivered by electronic means:
    1. Four dollars ($4.00) for the processing fee when the filing fee is $0 to $50;
    2. Five dollars ($5.00) for the processing fee when the filing fee is $51 to $99;
    3. Ten dollars ($10.00) for the processing fee when the filing fee is $100 to $299; and
    4. Twelve dollars ($12.00) for the processing fee when the filing fee is $300 or more.

DOCUMENT FEE (1) Articles of incorporation $50.00 (2) Application for use of indistinguishable name No fee (3) Application for reserved name $25.00 (4) Notice of transfer of reserved name $25.00 (5) Application for registered name $50.00 (6) Application for renewal of registered name $25.00 (7) Amendment of articles of incorporation $50.00 (8) Restatement of articles of incorporation with amendment of articles $100.00 (9) Articles of merger or share exchange $100.00 (10) Articles of dissolution $50.00 (11) Articles of revocation of dissolution $150.00 (12) Certificate of administrative dissolution No fee (13) Application for reinstatement following administrative dissolution $50.00 (14) Certificate of reinstatement No fee (15) Certificate of judicial dissolution No fee (16) Application for certificate of authority $300.00 (17) Application for amended certificate of authority $300.00 (18) Application for certificate of withdrawal $300.00 (19) Certificate of revocation of authority to transact business No fee (20) Articles of correction $30.00 (21) Application for certificate of existence or authorization $15.00 (22) Application of domestic corporation to change domicile $50.00 (23) Application of foreign corporation to move domicile to Arkansas $300.00 (24) Any other document required or permitted to be filed by this chapter $25.00

Click to view table.

DOCUMENT FEE PROCESSING FEE (1) Articles of incorporation $40.00 $5.00 (2) Application for reservation of corporate name $18.50 $4.00 (3) Certificate of amendment (new code-no shares exchanged) $40.00 $5.00 (4) Notice of transfer of reserved name $18.50 $4.00 (5) Certificate of amendment (new code-shares exchanged) $80.00 $10.00 (6) Certificate of amendment $40.00 $5.00 (7) Notice of change of registered office or agent or both No fee No fee (8) Application for registration of fictitious name (old code) $18.50 $4.00 (9) Application for fictitious name for domestic corporation $18.50 $4.00 (10) Application for certificate of authority $258.00 $12.00

Click to view table.

(11) For any other document not listed above, the cost for electronic filing is:

History. Acts 1987, No. 958, § 64-105; 1987 (1st Ex. Sess.), No. 11, § 1; 2001, No. 1395, § 1; 2007, No. 638, § 3; 2007, No. 646, § 1.

A.C.R.C. Notes. Subsection (a) is set out above as amended by Acts 2007, No. 638, § 3, effective September 1, 2007. Subdivision (a) of this section was also amended by Acts 2007, No. 646, § 1, to read as follows: “(a) The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her for filing:

DOCUMENT FEE (1) Articles of incorporation $50.00 (2) Application for use of indistinguishable name No fee (3) Application for reserved name 25.00 (4) Notice of transfer of reserved name 25.00 (5) Application for registered name 50.00 (6) Application for renewal of registered name 25.00 (7) Corporation's statement of change of registered agent or registered office, or both No fee (8) Agent's statement of resignation No fee (9) Amendment of articles of incorporation 50.00 (10) Restatement of articles of incorporation with amendment of articles 100.00 (11) Articles of merger or share exchange 100.00 (12) Articles of dissolution 50.00 (13) Articles of revocation of dissolution 150.00 (14) Certificate of administrative dissolution No fee (15) Application for reinstatement following administrative dissolution 50.00 (16) Certificate of reinstatement No fee (17) Certificate of judicial dissolution No fee (18) Application for certificate of authority 300.00 (19) Application for amended certificate of authority 300.00 (20) Application for certificate of withdrawal 300.00 (21) Certificate of revocation of authority to transact business No fee (22) Articles of correction 30.00 (23) Application for certificate of existence or authorization 15.00 (24) Application of domestic corporation to change domicile 50.00 (25) Application of foreign corporation to move domicile to Arkansas 300.00 (26) Any other document required or permitted to be filed by this chapter 25.00”

Click to view table.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Business Law, 24 U. Ark. Little Rock L. Rev. 407.

4-27-123. Effective time and date of document.

  1. Except as provided in subsection (b) of this section and § 4-27-124(c), a document accepted for filing is effective:
    1. at the time of filing on the date it is filed, as evidenced by the Secretary of State's date and time endorsement on the original document; or
    2. at the time specified in the document as its effective time on the date it is filed.
  2. A document may specify a delayed effective time and date, and if it does so, the document becomes effective at the time and date specified. If a delayed effective date but no time is specified, the document is effective at the close of business on that date. A delayed effective date for a document may not be later than the 90th day after the date it is filed.

History. Acts 1987, No. 958, § 64-106.

4-27-124. Correcting filed document.

  1. A domestic or foreign corporation may correct a document filed by the Secretary of State if the document (1) contains an incorrect statement or (2) was defectively executed, attested, sealed, verified, or acknowledged.
  2. A document is corrected:
    1. by preparing articles of correction that
      1. describe the document (including its filing date) or attach a copy of it to the articles,
      2. specify the incorrect statement and the reason it is incorrect or the manner in which the execution was defective, and
      3. correct the incorrect statement or defective execution; and
    2. by delivering the articles to the Secretary of State for filing.
  3. Articles of correction are effective on the effective date of the document they correct except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, articles of correction are effective when filed.

History. Acts 1987, No. 958, § 64-107.

4-27-125. Filing duty of Secretary of State.

  1. If a document delivered to the office of the Secretary of State for filing satisfies the requirements of § 4-27-120, the Secretary of State shall file it.
    1. The Secretary of State files a document by stamping or otherwise endorsing “Filed,” together with his or her name and official title and the date and time of receipt, on both the original and the document copy and on the receipt for the filing fee.
    2. After filing a document, except as provided in § 4-27-1510, the Secretary of State shall deliver the document copy, with the filing fee receipt (or acknowledgement of receipt if no fee is required) attached, to the domestic or foreign corporation or its representative.
  2. If the Secretary of State refuses to file a document, he shall return it to the domestic or foreign corporation or its representative within five (5) days after the document was delivered, together with a brief, written explanation of the reason for his refusal.
  3. The Secretary of State's duty to file documents under this section is ministerial. His filing or refusing to file a document does not:
    1. affect the validity or invalidity of the document in whole or in part;
    2. relate to the correctness or incorrectness of information contained in the document;
    3. create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect.

History. Acts 1987, No. 958, § 64-108; 2007, No. 638, § 4.

4-27-126. Appeal from Secretary of State's refusal to file document.

  1. If the Secretary of State refuses to file a document delivered to his office for filing, the domestic or foreign corporation may appeal the refusal within thirty (30) days after the return of the document to the Pulaski County Circuit Court. The appeal is commenced by petitioning the court to compel filing the document and by attaching to the petition the document and the Secretary of State's explanation of his refusal to file.
  2. The court may summarily order the Secretary of State to file the document or take other action the court considers appropriate.
  3. The court's final decision may be appealed as in other civil proceedings.

History. Acts 1987, No. 958, § 64-109.

4-27-127. Evidentiary effect of copy of filed document.

A certificate attached to a copy of a document filed by the Secretary of State, bearing his signature (which may be in facsimile) and the seal of this state, is conclusive evidence that the original document is on file with the Secretary of State.

History. Acts 1987, No. 958, § 64-110.

4-27-128. Certificate of existence. [Effective until May 1, 2021.]

  1. Anyone may apply to the Secretary of State to furnish a certificate of existence for a domestic corporation or a certificate of authorization for a foreign corporation.
  2. A certificate of existence or authorization sets forth:
    1. the domestic corporation's corporate name or the foreign corporation's corporate name used in this state;
    2. that
      1. the domestic corporation is duly incorporated under the laws of this state, the date of its incorporation, and the period of its duration if less than perpetual; or
      2. that the foreign corporation is authorized to transact business in this state;
    3. that all fees, taxes, and penalties owed to this state have been paid, if
      1. payment is reflected in the records of the Secretary of State and
      2. nonpayment affects the existence or authorization of the domestic or foreign corporation;
    4. that its most recent annual franchise tax report required by § 4-27-1622 has been delivered to the Secretary of State;
    5. that articles of dissolution have not been filed; and
    6. other facts of record in the office of the Secretary of State that may be requested by the applicant.
  3. Subject to any qualification stated in the certificate, a certificate of existence or authorization issued by the Secretary of State may be relied upon as conclusive evidence that the domestic or foreign corporation is in existence or is authorized to transact business in this state.

History. Acts 1987, No. 958, § 64-111.

Publisher's Notes. For text of section effective May 1, 2021, see the following version.

4-27-128. Certificate of existence. [Effective May 1, 2021.]

  1. Anyone may apply to the Secretary of State to furnish a certificate of existence for a domestic corporation or a certificate of authorization for a foreign corporation.
  2. A certificate of existence or authorization sets forth:
    1. the domestic corporation's corporate name or the foreign corporation's corporate name used in this state;
    2. that
      1. the domestic corporation is duly incorporated under the laws of this state, the date of its incorporation, and the period of its duration if less than perpetual; or
      2. that the foreign corporation is authorized to transact business in this state;
    3. that all fees, taxes, and penalties owed to this state have been paid, if
      1. payment is reflected in the records of the Secretary of State and
      2. nonpayment affects the existence or authorization of the domestic or foreign corporation;
    4. that its most recent annual franchise tax report required by § 4-27-1622 has been delivered to the Department of Finance and Administration;
    5. that articles of dissolution have not been filed; and
    6. other facts of record in the office of the Secretary of State that may be requested by the applicant.
  3. Subject to any qualification stated in the certificate, a certificate of existence or authorization issued by the Secretary of State may be relied upon as conclusive evidence that the domestic or foreign corporation is in existence or is authorized to transact business in this state.

History. Acts 1987, No. 958, § 64-111; 2019, No. 819, § 6.

A.C.R.C. Notes. Acts 2019, No. 819, § 1, provided: “Title. This act shall be known and may be cited as the ‘Arkansas Tax Reform Act of 2019'”.

Acts 2019, No. 819, § 2, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The Arkansas Tax Reform and Relief Legislative Task Force was charged with:

“(A) Examining and identifying areas of potential tax reform within the tax laws; and

“(B) Recommending legislation to the General Assembly, in part, to modernize and simplify the Arkansas tax code and ensure fairness to all taxpayers;

“(2) There are several areas of the tax code that should be amended to reform the state's tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(3) Any savings realized by the state through tax reforms should be dedicated to reducing the tax burden for Arkansas taxpayers.

“(b) It is the intent of the General Assembly to:

“(1) Reform Arkansas tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(2) Offset any revenue savings realized through tax reform with corresponding changes to reduce the tax burden for Arkansas taxpayers”.

Publisher's Notes. For text of section effective until May 1, 2021, see the preceding version.

Amendments. The 2019 amendment substituted “Department of Finance and Administration” for “Secretary of State” in (b)(4).

Effective Dates. Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

4-27-129. Penalty for signing false document.

  1. A person commits an offense if he signs a document he knows is false in any material respect with intent that the document be delivered to the Secretary of State for filing.
  2. An offense under this section is a Class C misdemeanor.

History. Acts 1987, No. 958, § 64-112.

Part C: Secretary of State

4-27-130. Powers.

The Secretary of State has the power reasonably necessary to perform the duties required of him by this chapter.

History. Acts 1987, No. 958, § 64-113.

4-27-131 — 4-27-139. [Reserved.]

Part D: Definitions

4-27-140. Definitions.

In this chapter:

  1. “Articles of incorporation” include amended and restated articles of incorporation and articles of merger.
  2. “Authorized shares” means the shares of all classes a domestic or foreign corporation is authorized to issue.
  3. “Conspicuous” means so written that a reasonable person against whom the writing is to operate should have noticed it. For example, printing in italics or boldface or contrasting color, or typing in capitals or underlined, is conspicuous.
  4. “Corporation” or “domestic corporation” means a corporation for profit, which is not a foreign corporation, incorporated under or subject to the provisions of this chapter.
  5. “Deliver” includes mail.
  6. “Distribution” means a direct or indirect transfer of money or other property (except its own shares) or incurrence of indebtedness by a corporation to or for the benefit of its shareholders in respect of any of its shares. A distribution may be in the form of a declaration or payment of a dividend; a purchase, redemption, or other acquisition of shares; a distribution of indebtedness; or otherwise.
  7. “Effective date of notice” is defined in § 4-27-141.
  8. “Employee” includes an officer but not a director. A director may accept duties that make him also an employee.
  9. “Entity” includes corporation and foreign corporation; not-for-profit corporation; profit and not-for-profit unincorporated association; business trust, estate, partnership, trust, and two (2) or more persons having a joint or common economic interest; and state, United States, and foreign government.
  10. “Foreign corporation” means a corporation for profit incorporated under a law other than the law of this state.
  11. “Governmental subdivision” includes authority, county, district, and municipality.
  12. “Includes” denotes a partial definition.
  13. “Individual” includes the estate of an incompetent or deceased individual.
  14. “Means” denotes an exhaustive definition.
  15. “Notice” is defined in § 4-27-141.
  16. “Person” includes individual and entity.
  17. “Principal office” means the office (in or out of this state) so designated in the annual franchise tax report where the principal executive offices of a domestic or foreign corporation are located.
  18. “Proceeding” includes civil suit and criminal, administrative, and investigatory action.
  19. “Record date” means the date established under § 4-27-601 et seq. or § 4-27-701 et seq. on which a corporation determines the identity of its shareholders and their shareholdings for purposes of this chapter. The determinations shall be made as of the close of business on the record date unless another time for doing so is specified when the record date is fixed.
  20. “Secretary” means the corporate officer to whom the board of directors has delegated responsibility under § 4-27-840(c) for custody of the minutes of the meetings of the board of directors and of the shareholders and for authenticating records of the corporation.
  21. “Shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation.
  22. “Shares” means the units into which the proprietary interests in a corporation are divided.
  23. “State,” when referring to a part of the United States, includes a state and commonwealth (and their agencies and governmental subdivisions) and a territory and insular possession (and their agencies and governmental subdivisions) of the United States.
  24. “Subscriber” means a person who subscribes for shares in a corporation, whether before or after incorporation.
  25. “United States” includes district, authority, bureau, commission, department, and any other agency of the United States.
  26. “Voting group” means all shares of one (1) or more classes or series that under the articles of incorporation or this chapter are entitled to vote and be counted together collectively on a matter at a meeting of shareholders. All shares entitled by the articles of incorporation or this chapter to vote generally on the matter are for that purpose a single voting group.
  27. “Investment company” means any corporation registered with the United States Securities and Exchange Commission as an investment company under the Investment Company Act of 1940.

History. Acts 1987, No. 958, § 64-114; 1987 (1st Ex. Sess.), No. 11, § 2; 1989, No. 583, § 1.

U.S. Code. The Investment Company Act of 1940, referred to in this section, is codified as 15 U.S.C. §§ 80b-1 to 80b-21.

4-27-141. Notice.

  1. Notice under this chapter must be in writing unless oral notice is reasonable under the circumstances.
  2. Notice may be communicated in person; by telephone, telegraph, teletype, or other form of wire or wireless communication; or by mail or private carrier. If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published; or by radio, television, or other form of public broadcast communication.
  3. Written notice by a domestic or foreign corporation to its shareholder, if in a comprehensible form, is effective when mailed, if mailed postpaid and correctly addressed to the shareholder's address shown in the corporation's current record of shareholders.
  4. Written notice to a domestic or foreign corporation (authorized to transact business in this state) may be addressed to its registered agent or to the corporation or its secretary at its principal office shown in its most recent annual franchise tax report or, in the case of a foreign corporation that has not yet delivered an annual franchise tax report, in its application for a certificate of authority.
  5. Except as provided in subsection (c) of this section, written notice, if in a comprehensible form, is effective at the earliest of the following:
    1. when received;
    2. five (5) days after its deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed;
    3. on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee.
  6. Oral notice is effective when communicated if communicated in a comprehensible manner.
  7. If this chapter prescribes notice requirements for particular circumstances, those requirements govern. If articles of incorporation or bylaws prescribe notice requirements, not inconsistent with the section or other provisions of this chapter, those requirements govern.

History. Acts 1987, No. 958, § 64-115; 2007, No. 638, § 5.

4-27-142. Number of shareholders.

  1. For purposes of this chapter, the following identified as a shareholder in a corporation's current record of shareholders constitutes one (1) shareholder:
    1. three (3) or fewer coowners;
    2. a corporation, partnership, trust, estate, or other entity;
    3. the trustees, guardians, custodians, or other fiduciaries of a single trust, estate, or account.
  2. For purposes of this chapter, shareholdings registered in substantially similar names constitute one (1) shareholder if it is reasonable to believe that the names represent the same person.

History. Acts 1987, No. 958, § 64-116.

Subchapter 2 — Incorporation

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2019, No. 108, § 6: Feb. 13, 2019. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that a for-profit corporation could face severe adverse tax consequences for reorganizing as a nonprofit corporation that may result in being subjected to unwarranted penalties; that existing statutes relating to the process of converting to a nonprofit entity need amending to eliminate uncertainty and to prevent irreparable harm on businesses operating in this state; and that this act is immediately necessary to clarify state law governing conversion by a for-profit corporation to a nonprofit corporation and provide for timely administration of business procedures. Therefore, an emergency is declared to exist, and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto”.

Research References

U. Ark. Little Rock L.J.

Arey, Bank Directors' Duties Under the Common Law of Arkansas, 11 U. Ark. Little Rock L.J. 629.

Note, Director-Exculpation Clauses Under the Arkansas Business Corporation Act of 1987, 15 U. Ark. Little Rock L.J. 337.

4-27-201. Incorporators.

  1. One (1) or more persons may act as the incorporator or incorporators of a corporation by delivering articles of incorporation to the Secretary of State for filing.
  2. One (1) or more natural persons who are between the ages of sixteen (16) and eighteen (18) years of age shall have a person who is at least twenty-one (21) years of age or older to serve on his or her behalf as an incorporator of a corporation by executing and filing according to § 4-27-120 articles of incorporation for the corporation.

History. Acts 1987, No. 958, § 64-201; 2017, No. 992, § 1.

Amendments. The 2017 amendment designated the existing language as (a) and added (b).

4-27-202. Articles of incorporation.

  1. The articles of incorporation must set forth:
    1. a corporate name for the corporation that satisfies the requirements of § 4-27-401;
    2. the number of shares the corporation is authorized to issue and, if such shares are to consist of one (1) class only, the par value of each of such shares, or a statement that all of such shares are without par value; or, if such shares are to be divided into classes, the number of shares of each class, and a statement of the par value of the shares of each such class or that such shares are without par value;
    3. the information required by § 4-20-105(a);
    4. the name and address of each incorporator; and
    5. the primary purpose or purposes for which the corporation is organized, which is provided to the Secretary of State for informational purposes and shall not, unless specifically stated in the articles of incorporation, limit the broad purposes provided in § 4-27-301.
  2. The articles of incorporation may set forth:
    1. the names and addresses of the individuals who are to serve as the initial directors;
    2. provisions not inconsistent with law regarding:
      1. specific limitations on the purpose or purposes for which the corporation is organized;
      2. managing the business and regulating the affairs of the corporation;
      3. defining, limiting, and regulating the powers of the corporation, its board of directors, and shareholders; and
      4. the imposition of personal liability on shareholders for the debts of the corporation to a specified extent and upon specified conditions;
    3. a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director:
      1. for any breach of the director's duty of loyalty to the corporation or its stockholders;
      2. for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
      3. under § 4-27-833 of this chapter;
      4. for any transaction from which the director derived an improper personal benefit; or
      5. for any action, omission, transaction, or breach of a director's duty creating any third-party liability to any person or entity other than the corporation or stockholder.
    4. any provision that under this chapter is required or permitted to be set forth in the bylaws.
  3. The articles of incorporation need not set forth any of the corporate powers enumerated in this chapter.
    1. A for-profit corporation may convert to a nonprofit corporation under the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, or the Arkansas Nonprofit Corporation Act of 1993, § 4-33-101 et seq., upon the filing of an amendment to the corporation's articles of incorporation under either § 4-28-206 or § 4-33-202.
    2. After the filing and conversion have taken place, the converted corporation shall comply with either the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, or the Arkansas Nonprofit Corporation Act of 1993, § 4-33-101 et seq.

No such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective. All references in this subsection to a director shall also be deemed to refer to a member of the governing body of a corporation which is not authorized to issue capital stock; and

History. Acts 1987, No. 958, § 64-202; 2007, No. 638, § 6; 2019, No. 108, § 1.

Amendments. The 2019 amendment added (d).

Research References

Ark. L. Rev.

A License to Lie, Cheat, and Steal? Restriction or Elimination of Fiduciary Duties in Arkansas Limited Liability Companies, 60 Ark. L. Rev. 643.

4-27-203. Incorporation.

  1. Unless a delayed effective date is specified, the corporate existence begins when the articles of incorporation are filed.
  2. The Secretary of State's filing of the articles of incorporation is conclusive proof that the incorporators satisfied all conditions precedent to incorporation except in a proceeding by the state to cancel or revoke the incorporation or involuntarily dissolve the corporation.

History. Acts 1987, No. 958, § 64-203.

4-27-204. Liability for preincorporation transactions.

All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this chapter, are jointly and severally liable for all liabilities created while so acting.

History. Acts 1987, No. 958, § 64-204.

Research References

Ark. L. Rev.

Comment, Corporate Pre-Organization Liability in an LLC World, 61 Ark. L. Rev. 301.

Case Notes

Conduct Covered.

Where individuals purported to represent a nonexistent corporation which obtained a leasehold interest in real property located within Arkansas, this activity was conduct for which they could be personally liable under this section. Keene v. National Medical Care, Inc., 700 F. Supp. 458 (E.D. Ark. 1988).

In order to find liability under this section, there must be a finding that the persons sought to be charged acted as or on behalf of the corporation and knew there was no incorporation under this act. Harris v. Looney, 43 Ark. App. 127, 862 S.W.2d 282 (1993).

In a case arising from a performance bond in which a church moved for summary judgment on its claim to pierce the corporate veil, the church had not asserted claims against the officers and directors of insurance company, and there was no evidence as to whether other persons who acted on behalf of the insurance company knew that it was not incorporated. Old St. Paul Missionary Baptist Church v. First Nation Ins. Group, 707 F. Supp. 2d 811 (E.D. Ark. 2010).

Transfers.

This section did not support the company's argument that the warranty deed transferred the property to the individual as the business's principal, because the statute did not address the transfer of real property to people purporting to act on behalf of a corporation, while knowing that the corporation did not exist. Buckeye Ret. Co., LLC v. Walter, 2012 Ark. App. 257, 404 S.W.3d 173 (2012).

4-27-205. Organization of corporation.

  1. After incorporation:
    1. if initial directors are named in the articles of incorporation, the initial directors shall hold an organizational meeting, at the call of a majority of the directors, to complete the organization of the corporation by appointing officers, adopting bylaws, and carrying on any other business brought before the meeting;
    2. if initial directors are not named in the articles, the incorporator or incorporators shall hold an organizational meeting at the call of a majority of the incorporators:
      1. to elect directors and complete the organization of the corporation; or
      2. to elect a board of directors who shall complete the organization of the corporation.
  2. Action required or permitted by this chapter to be taken by incorporators at an organizational meeting may be taken without a meeting if the action taken is evidenced by one (1) or more written consents describing the action taken and signed by each incorporator.
  3. An organizational meeting may be held in or out of this state.

History. Acts 1987, No. 958, § 64-205.

4-27-206. Bylaws.

  1. The incorporators or board of directors of a corporation shall adopt initial bylaws for the corporation.
  2. The bylaws of a corporation may contain any provision for managing the business and regulating the affairs of the corporation that is not inconsistent with law or the articles of incorporation.

History. Acts 1987, No. 958, § 64-206.

4-27-207. Emergency bylaws.

  1. Unless the articles of incorporation provide otherwise, the board of directors of a corporation may adopt bylaws to be effective only in an emergency defined in subsection (d) of this section. The emergency bylaws, which are subject to amendment or repeal by the shareholders, may make all provisions necessary for managing the corporation during the emergency, including:
    1. procedures for calling a meeting of the board of directors;
    2. quorum requirements for the meeting; and
    3. designation of additional or substitute directors.
  2. All provisions of the regular bylaws consistent with the emergency bylaws remain effective during the emergency. The emergency bylaws are not effective after the emergency ends.
  3. Corporate action taken in good faith in accordance with the emergency bylaws:
    1. binds the corporation; and
    2. may not be used to impose liability on a corporate director, officer, employee, or agent.
  4. An emergency exists for purposes of this section if a quorum of the corporation's directors cannot readily be assembled because of some catastrophic event.

History. Acts 1987, No. 958, § 64-207.

Subchapter 3 — Purposes and Powers

4-27-301. Purposes.

  1. Every corporation incorporated under this chapter has the purpose of engaging in any lawful business unless a more limited purpose is specifically set forth in the articles of incorporation. A statement of a corporation's primary purpose or purposes made pursuant to § 4-27-202(a)(5) shall not be construed as a specific limitation of the broad purposes for which the corporation may be organized.
  2. A corporation engaging in a business that is subject to regulation under another statute of this state may incorporate under this chapter only if permitted by, and subject to all limitations of, the other statute.

History. Acts 1987, No. 958, § 64-301.

4-27-302. General powers.

Unless its articles of incorporation provide otherwise, every corporation has perpetual duration and succession in its corporate name and has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, including without limitation, power:

  1. to sue and be sued, complain and defend in its corporate name;
  2. to have a corporate seal, which may be altered at will, and to use it, or a facsimile of it, by impressing or affixing it or in any other manner reproducing it;
  3. to make and amend bylaws, not inconsistent with its articles of incorporation or with the laws of this state, for managing the business and regulating the affairs of the corporation;
  4. to purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located;
  5. to sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any part of its property;
  6. to purchase, receive, subscribe for, or otherwise acquire; own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of; and deal in and with shares or other interests in, or obligations of, any other entity;
  7. to make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations (which may be convertible into or include the option to purchase other securities of the corporation), and secure any of its obligations by mortgage or pledge of any of its property, franchises, or income;
  8. to lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment;
  9. to be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity;
  10. to conduct its business, locate offices, and exercise the powers granted by this chapter within or without this state;
  11. to elect directors and appoint officers, employees, and agents of the corporation, define their duties, fix their compensation, and lend them money and credit;
  12. to pay pensions and establish pension plans, pension trusts, profit sharing plans, share bonus plans, share option plans, and benefit or incentive plans for any or all of its current or former directors, officers, employees, and agents;
  13. to make donations for the public welfare or for charitable, scientific, or educational purposes;
  14. to transact any lawful business that will aid governmental policy;
  15. to make payments or donations, or do any other act, not inconsistent with law, that furthers the business and affairs of the corporation.

History. Acts 1987, No. 958, § 64-302.

Research References

Ark. L. Rev.

Note, Hall v. Staha: Arkansas Courts Adopt the Business Judgment Rule as a Tool of Judicial Review and Analyze the Issue of Excessive Executive Compensation, 47 Ark. L. Rev. 959.

4-27-303. Emergency powers.

  1. In anticipation of or during an emergency defined in subsection (d) of this section, the board of directors of a corporation may:
    1. modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent; and
    2. relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
  2. During an emergency defined in subsection (d) of this section, unless emergency bylaws provide otherwise:
    1. notice of a meeting of the board of directors need be given only to those directors whom it is practicable to reach and may be given in any practicable manner, including by publication and radio; and
    2. one (1) or more officers of the corporation present at a meeting of the board of directors may be deemed to be directors for the meeting, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum.
  3. Corporate action taken in good faith during an emergency under this section to further the ordinary affairs of the corporation:
    1. binds the corporation; and
    2. may not be used to impose liability on a corporate director, officer, employee, or agent.
  4. An emergency exists for purposes of this section if a quorum of the corporation's directors cannot readily be assembled because of some catastrophic event.

History. Acts 1987, No. 958, § 64-303.

4-27-304. Ultra vires.

  1. Except as provided in subsection (b) of this section, the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act.
  2. A corporation's power to act may be challenged:
    1. in a proceeding by a shareholder against the corporation to enjoin the act;
    2. in a proceeding by the corporation, directly, derivatively, or through a receiver, trustee, or other legal representative, against an incumbent or former director, officer, employee, or agent of the corporation; or
    3. in a proceeding by the Attorney General under § 4-27-1430.
  3. In a shareholder's proceeding under subsection (b)(1) of this section to enjoin an unauthorized corporate act, the court may enjoin or set aside the act, if equitable and if all affected persons are parties in the proceeding, and may award damages for loss (other than anticipated profits) suffered by the corporation or another party because of enjoining the unauthorized act.

History. Acts 1987, No. 958, § 64-304.

Subchapter 4 — Names

4-27-401. Corporate name.

  1. A corporate name:
    1. must contain the word “corporation,” “incorporated,” “company,” or “limited,” or the abbreviation “corp.,” “inc.,” “co.,” or “ltd.,” or words or abbreviations of like import in another language; and
    2. may not contain language stating or implying that the corporation is organized for a purpose other than that permitted by § 4-27-301 and its articles of incorporation.
  2. Except as authorized by subsections (c) and (d) of this section, a corporate name must be distinguishable upon the records of the Secretary of State from:
    1. the corporate name of a corporation incorporated or authorized to transact business in this state;
    2. a corporate name reserved or registered under § 4-27-402 or § 4-27-403;
    3. the fictitious name adopted by a foreign corporation authorized to transact business in this state because its real name is unavailable; and
    4. the corporate name of a not-for-profit corporation incorporated or authorized to transact business in this state.
  3. A corporation may apply to the Secretary of State for authorization to use a name that is not distinguishable upon his records from one (1) or more of the names described in subsection (b) of this section. The Secretary of State shall authorize use of the name applied for if:
    1. the other corporation consents to the use in writing and submits an undertaking in form satisfactory to the Secretary of State to change its name to a name that is distinguishable upon the records of the Secretary of State from the name of the applying corporation; or
    2. the applicant delivers to the Secretary of State a certified copy of the final judgment of a court of competent jurisdiction establishing the applicant's right to use the name applied for in this state.
  4. A corporation may use the name of another domestic or foreign corporation that is used in this state if the corporation is incorporated or authorized to transact business in this state and the proposed user corporation:
    1. has merged with the other corporation;
    2. has been formed by reorganization of the other corporation; or
    3. has acquired all or substantially all of the assets, including the corporate name, of the other corporation.

History. Acts 1987, No. 958, § 64-401.

4-27-402. Reserved name.

  1. A person may reserve the exclusive use of a corporate name by delivering an application to the Secretary of State for filing. The application must set forth the name and address of the applicant and the name proposed to be reserved. If the Secretary of State finds that the corporate name applied for is available, he shall reserve the name for the applicant's exclusive use for a nonrenewable one hundred twenty-day period.
  2. The owner of a reserved corporate name may transfer the reservation to another person by delivering to the Secretary of State a signed notice of the transfer that states the name and address of the transferee.

History. Acts 1987, No. 958, § 64-402.

4-27-403. Registered name.

  1. A foreign corporation may register its corporate name, or its corporate name with any addition required by § 4-27-1506, if the name is distinguishable upon the records of the Secretary of State from the corporate names that are not available under § 4-27-401(b)(3).
  2. A foreign corporation registers its corporate name, or its corporate name with any addition required by § 4-27-1506, by delivering it to the Secretary of State for filing an application:
    1. Setting forth its corporate name, or its corporate name with any addition required by § 4-27-1506, the state or country and date of its incorporation, and a brief description of the nature of the business in which it is engaged; and
    2. Accompanied by a certificate of existence (or a document of similar import) from the state or country of incorporation.
  3. The name is registered for the applicant's exclusive use upon the effective date of the application.
  4. A foreign corporation whose registration is effective may renew it for successive years by delivering to the Secretary of State for filing a renewal application, which complies with the requirements of subsection (b) of this section, between October 1 and December 31 of the preceding year. The renewal application when filed renews the registration for the following calendar year.
  5. A foreign corporation whose registration is effective may thereafter qualify as a foreign corporation under the registered name or consent in writing to the use of that name by a corporation thereafter incorporated under this chapter or by another foreign corporation thereafter authorized to transact business in this state. The registration terminates when the domestic corporation is incorporated or the foreign corporation qualifies or consents to the qualification of another foreign corporation under the registered name.

History. Acts 1987, No. 958, § 64-403.

4-27-404. Use of fictitious names.

  1. No corporation (domestic or foreign) shall conduct any business in this state under a fictitious name unless it first files with the Secretary of State, and, in case of a domestic corporation, with the county clerk of the county in which the corporation's registered office is located (unless it is located in Pulaski County), a form supplied or approved by the Secretary of State giving the following information:
    1. The fictitious name under which business is being or will be conducted by the applicant corporation;
    2. A brief statement of the character of business to be conducted under the fictitious name;
    3. The corporate name, state of incorporation, and location (giving city and street address) of the registered office in the state of the applicant corporation.
  2. Each such form shall be executed (without verification) in duplicate and filed with the Secretary of State. The Secretary of State shall retain one (1) counterpart; and the other counterpart, bearing the file marks of the Secretary of State, shall be returned to the corporation and, unless its registered office is in Pulaski County, filed by it with the county clerk. An index of such filings shall be maintained in each office. However, the Secretary of State shall not accept such filing unless the proposed fictitious name is distinguishable upon the records of the Secretary of State from the name of any domestic corporation, or any foreign corporation authorized to do business in the state or any name reserved or registered under §§ 4-27-402 and 4-27-403.
  3. Copies of such filed forms, certified by the respective filing officers, shall be admitted in evidence where the question of filing may be material.
  4. If, after a filing hereunder, the applicant corporation is dissolved, or (being a foreign corporation) surrenders or forfeits its rights to do business in Arkansas or (whether a domestic or foreign corporation) ceases to do business in Arkansas under the specified fictitious name, such corporation shall be obligated to file in each of the offices aforesaid a cancellation of its privilege hereunder. If such cancellation is not filed, the Secretary of State, upon satisfactory evidence, may cancel such privilege; in which event such cancellation shall be certified by the Secretary of State to the county clerk, who will file the same without fee.
  5. If a corporation which has not filed hereunder has heretofore or shall hereafter become a party to any contract, deed, conveyance, assignment or instrument of encumbrance in which such corporation is referred to exclusively by a fictitious name, the obligations imposed upon such corporation under said instrument and the right sought to be conferred upon third parties thereunder may be enforced against it; but the rights accruing to such corporation under said instrument may not be enforced by the corporation in the courts of this state until it complies with this section and pays to the Treasurer of State a civil penalty of three hundred dollars ($300); and in any suit by a corporation upon an instrument executed on or after midnight, December 31, 1987, which identifies it exclusively by a fictitious name, the corporation shall be required to allege compliance with this section.
  6. Compliance with this section does not give a corporation an exclusive right to the use of the fictitious name; and the registration of a fictitious name hereunder will not bar the use of the same name as the corporate name of any domestic corporation or any foreign corporation authorized to do business in this state. But this chapter is not intended to bar any aggrieved party, in such a situation, from applying for equitable relief under principles of fair trade law.

History. Acts 1987, No. 958, § 64-404; 1997, No. 399, § 2.

Amendments. The 1997 amendment substituted “unless the proposed fictitious name is distinguishable upon the records of the Secretary of State from” for “if the proposed fictitious name is the same as, or confusingly similar to” in the last sentence in (b).

Case Notes

Unregistered, Fictitious Names.

Circuit court erred in dismissing buyers' claim against partners because whether an exterminating company's failure to properly register and whether the partners were individually doing business or signing only in representative capacities could not be determined until the facts were further developed; because the unregistered, fictitious names of the company were referenced in the writing at issue, the buyers stated a claim against the partners. Gorman v. Gilliam, 2010 Ark. App. 118, 374 S.W.3d 117 (2010).

4-27-405. Injunction against use of unlawful name.

Where the use, reservation, or registration of a corporate name is in violation of this chapter, it may by court decree be cancelled or enjoined, on the suit of the Attorney General or of any person or corporation injured by such unlawful use, reservation, or registration, notwithstanding the fact that such use, reservation, or registration has been approved by the Secretary of State.

History. Acts 1987, No. 958, § 64-405.

4-27-406. Notice to registrant regarding use of corporate, fictitious, or assumed names in violation of trademark.

  1. Neither the reservation of any proposed name, nor the acceptance of the filing of any articles of incorporation, nor the registration of any foreign corporation's name, nor the registration of an assumed or fictitious name shall authorize the use of the corporate name, assumed name, or fictitious name in violation of any rights of another arising under the trademark laws of the United States, this state, or the common law or provide a defense to an action for violation of any such rights.
  2. Upon reserving any proposed corporate name, or upon accepting the filing of any articles of incorporation, or upon registering for any foreign corporation's name, or upon registering any assumed or fictitious name, the Secretary of State shall issue the following notice to the registrant (selecting the appropriate name from each bracket):

“The Secretary of State of Arkansas has [reserved your proposed corporate name; accepted the filing of your articles of incorporation; registered your corporate name; recorded your assumed or fictitious name]. However, this does not necessarily give you the right to use your [proposed corporate name; corporate name; assumed or fictitious name] in this state if the use violates someone else's trade name, trademark, or service mark rights under the trademark laws of the United States, this state, or the common law. Prior to your use of the name, you are encouraged to research the names and marks of other parties used or registered in this state, or registered in the United States Patent and Trademark Office, or consult an attorney to determine the existence of any conflicting rights.”

History. Acts 2007, No. 1008, § 1.

Subchapter 5 — Office and Agent

4-27-501 — 4-27-504. [Repealed.]

Publisher's Notes. These sections, concerning registered office and registered agent, change of registered office or registered agent, resignation of registered agent, and service on a corporation, were repealed by Acts 2007, No. 638, § 7.

Section 4-27-501 was derived from Acts 1987, No. 958, § 64-501.

Section 4-27-502 was derived from Acts 1987, No. 958, § 64-502.

Section 4-27-503 was derived from Acts 1987, No. 958, § 64-503.

Section 4-27-504 was derived from Acts 1987, No. 958, § 64-504; 2001, No. 1815, § 1.

Cross References. Model Registered Agents Act, § 4-20-101 et seq.

Subchapter 6 — Shares and Distributions

Effective Dates. Acts 1989, No. 583, § 8: Mar. 15, 1989. Emergency clause provided: “It is hereby found and determined by the General Assembly that present law has no provisions for registered investment companies; that such laws are needed to properly govern investment companies and to clarify the status of investment companies; and that adoption of Subchapter M of the Internal Revenue Code of 1986 is necessary to provide uniform tax laws on both the State and Federal levels for investment companies. Therefore, an emergency is hereby declared to exist and this act being necessary for the preservation of public peace, health, and safety shall be in full force and effect from and after its passage and approval.”

Part A: Shares

4-27-601. Authorized shares.

  1. The articles of incorporation must prescribe the classes of shares, the number of shares of each class that the corporation is authorized to issue, and a statement of the par value of the shares of each class or a statement that the shares of a class are to be without par value. If more than one (1) class of shares is authorized, the articles of incorporation must prescribe a distinguishing designation for each class, and, prior to the issuance of shares of a class, the preferences, limitations, and relative rights of that class must be described in the articles of incorporation. All shares of a class must have preferences, limitations, and relative rights identical with those of other shares of the same class except to the extent otherwise permitted by § 4-27-602.
  2. The articles of incorporation must authorize (1) one or more classes of shares that together have unlimited voting rights, and (2) one or more classes of shares (which may be the same class or classes as those with voting rights) that together are entitled to receive the net assets of the corporation upon dissolution.
  3. The articles of incorporation may authorize one (1) or more classes of shares that:
    1. have special, conditional, or limited voting rights, or no right to vote, except to the extent prohibited by this chapter, or by the Arkansas Constitution, Article 12, § 8, which guarantees the right of all stockholders to vote on a proposal to increase the capital stock or bond indebtedness of the corporation;
    2. are redeemable or convertible as specified in the articles of incorporation (i) at the option of the corporation, the shareholder, or another person, or upon the occurrence of a designated event; (ii) for cash, indebtedness, securities, or other property; (iii) in a designated amount or in an amount determined in accordance with a designated formula or by reference to extrinsic data or events;
    3. entitle the holders to distributions calculated in any manner, including dividends that may be cumulative, noncumulative, or partially cumulative;
    4. have preference over any other class of shares with respect to distributions, including dividends and distributions upon the dissolution of the corporation.
  4. The description of the designations, preferences, limitations, and relative rights of share classes in subsection (c) of this section is not exhaustive.
  5. The board of directors of an investment company may increase or decrease the aggregate number of shares of stock, or the number of shares of stock of any class, that the corporation has the authority to issue, unless a provision has been legally included in the articles of incorporation of the corporation after May 1, 1989, prohibiting an act by the board of directors to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class that the corporation has authority to issue.
    1. If the board of directors of an investment company increases or decreases the aggregate number of shares of stock or the number of shares of stock of any class that the corporation has the authority to issue in accordance with this subsection, the board of directors, before issuing any of the newly authorized stock, shall file articles supplementary for recording with the Secretary of State.
    2. Articles supplementary shall include:
      1. Both as of immediately before the increase or decrease and as increased or decreased: (1) The total number of shares of stock of all classes that the corporation has authority to issue; (2) The number of shares of stock of each class; (3) The par value of the shares of stock of each class or a statement that the shares are without par value; and (4) If there are any shares of stock with par value, the aggregate par value of all the shares of all classes;
      2. A statement that the corporation is registered as an investment company under the Investment Company Act of 1940; and
      3. A statement that the total number of shares of capital stock that the corporation has authority to issue has been increased or decreased by the board of directors in accordance with this subsection.
    3. In order to be filed, articles supplementary shall be accompanied by an opinion of legal counsel licensed in this state and familiar with the Investment Company Act of 1940 opining that the statements contained in subdivisions (e)(2)(ii) and (iii) of this section are correct to the best of such counsel's knowledge and said articles supplementary shall be executed in the manner required by § 4-27-120.

History. Acts 1987, No. 958, § 64-601; 1989, No. 583, § 2.

U.S. Code. The Investment Company Act of 1940, referred to in this section, is codified as 15 U.S.C. §§ 80b-1 to 80b-21.

4-27-602. Terms of class or series determined by board of directors.

  1. If the articles of incorporation so provide, the board of directors may determine, in whole or part, the preferences, limitations, and relative rights (within the limits set forth in § 4-27-601) of (1) any class of shares before the issuance of any shares of that class or (2) one or more series within a class before the issuance of any shares of that series.
  2. Each series of a class must be given a distinguishing designation.
  3. All shares of a series must have preferences, limitations, and relative rights identical with those of other shares of the same series and, except to the extent otherwise provided in the description of the series, with those of other series of the same class.
  4. Before issuing any shares of a class or series created under this section, the corporation must deliver to the Secretary of State for filing articles of amendment, which are effective without shareholder action, that set forth:
    1. the name of the corporation;
    2. the text of the amendment determining the terms of the class or series of shares;
    3. the date it was adopted; and
    4. a statement that the amendment was duly adopted by the board of directors.

History. Acts 1987, No. 958, § 64-602.

4-27-603. Issued and outstanding shares.

  1. A corporation may issue the number of shares of each class or series authorized by the articles of incorporation. Shares that are issued are outstanding shares until they are reacquired, redeemed, converted, or cancelled.
  2. The reacquisition, redemption, or conversion of outstanding shares is subject to the limitations of subsection (c) of this section and to § 4-27-640.
  3. At all times that shares of the corporation are outstanding, one or more shares that together have unlimited voting rights and one or more shares that together are entitled to receive the net assets of the corporation upon dissolution must be outstanding.

History. Acts 1987, No. 958, § 64-603.

4-27-604. Fractional shares.

  1. A corporation may:
    1. issue fractions of a share or pay in money the value of fractions of a share;
    2. arrange for disposition of fractional shares by the shareholders;
    3. issue scrip in registered or bearer form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share.
  2. Each certificate representing scrip must be conspicuously labeled “scrip” and must contain the information required by § 4-27-625(b).
  3. The holder of a fractional share is entitled to exercise the rights of a shareholder, including the right to vote, to receive dividends, and to participate in the assets of the corporation upon liquidation. The holder of scrip is not entitled to any of these rights unless the scrip provides for them.
  4. The board of directors may authorize the issuance of scrip subject to any condition considered desirable, including:
    1. that the scrip will become void if not exchanged for full shares before a specified date; and
    2. that the shares for which the scrip is exchangeable may be sold and the proceeds paid to the scripholders.

History. Acts 1987, No. 958, § 64-604.

4-27-605 — 4-27-619. [Reserved.]

Part B: Issuance of Shares

4-27-620. Subscription for shares before incorporation.

  1. A subscription for shares entered into before incorporation is irrevocable for six months unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation.
  2. The board of directors may determine the payment terms of subscription for shares that were entered into before incorporation, unless the subscription agreement specifies them. A call for payment by the board of directors must be uniform so far as practicable as to all shares of the same class or series, unless the subscription agreement specifies otherwise.
  3. Shares issued pursuant to subscriptions entered into before incorporation are fully paid and nonassessable when the corporation receives the consideration specified in the subscription agreement.
  4. If a subscriber defaults in payment of money or property under a subscription agreement entered into before incorporation, the corporation may collect the amount owed as any other debt. Alternatively, unless the subscription agreement provides otherwise, the corporation may rescind the agreement and may sell the shares if the debt remains unpaid for more than 20 days after the corporation sends written demand for payment to the subscriber.
  5. A corporation that issues shares pursuant to a subscription agreement entered into before incorporation must comply with § 4-27-621(b), (c), and (f). A subscription agreement entered into after incorporation is a contract between the subscriber and the corporation subject to all of the provisions of § 4-27-621.

History. Acts 1987, No. 958, § 64-605.

4-27-621. Issuance of shares.

  1. The powers granted in this section to the board of directors may be reserved to the shareholders by the articles of incorporation.
  2. The board of directors may authorize shares to be issued for consideration consisting of money paid, labor done, or property actually received. Neither promissory notes nor the promise of future services shall constitute valid consideration for the issuance of shares.
  3. Shares having a par value may not be issued for consideration less than the par value of such shares.
  4. Before the corporation issues shares, the board of directors must determine that the consideration received or to be received for shares to be issued is adequate. That determination by the board of directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid, and nonassessable.
  5. When the corporation receives the consideration for which the board of directors authorized the issuance of shares, the shares issued therefor are fully paid and nonassessable.
  6. Shares may not be issued until the full amount of the consideration for the shares, fixed as provided by law, has been paid.

History. Acts 1987, No. 958, § 64-606.

4-27-622. Liability of shareholders.

  1. A purchaser from a corporation of its own shares is not liable to the corporation or its creditors with respect to the shares except to pay the full consideration, fixed as provided by law, for which the shares were issued or were to be issued.
  2. Unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts or debts of the corporation except that he may become personally liable by reason of his own acts or conduct.

History. Acts 1987, No. 958, § 64-607.

Case Notes

Shareholder Not Liable.

Because the television network failed to allege any facts that would make the communications company liable for the broadcasting company's obligations under an intellectual property agreement, the district court properly dismissed the television network's claim against the communications company. Retro TV Network, Inc. v. Luken Communs., LLC, 696 F.3d 766 (8th Cir. 2012).

4-27-623. Share dividends.

  1. Unless the articles of incorporation provide otherwise, shares may be issued pro rata and without consideration to the corporation's shareholders or to the shareholders of one (1) or more classes or series. An issuance of shares under this subsection is a share dividend.
  2. Shares of one class or series may not be issued as a share dividend in respect of shares of another class or series unless (1) the articles of incorporation so authorize, (2) a majority of the votes entitled to be cast by the class or series to be issued approve the issue, or (3) there are no outstanding shares of the class or series to be issued.
  3. If the board of directors does not fix the record date for determining shareholders entitled to a share dividend, it is the date the board of directors authorizes the share dividend.

History. Acts 1987, No. 958, § 64-608.

4-27-624. Share options.

A corporation may issue rights, options, or warrants for the purchase of shares of the corporation. The board of directors shall determine the terms upon which the rights, options, or warrants are issued, their form and content, and the consideration for which the shares are to be issued.

History. Acts 1987, No. 958, § 64-609.

4-27-625. Form and content of certificates.

  1. Shares may but need not be represented by certificates. Unless this chapter or another statute expressly provides otherwise, the rights and obligations of shareholders are identical whether or not their shares are represented by certificates.
  2. At a minimum each share certificate must state on its face:
    1. the name of the issuing corporation and that it is organized under the law of this state;
    2. the name of the person to whom issued;
    3. the number and class of shares and the designation of the series, if any, the certificate represents; and
    4. the par value of the shares, or if the shares have no par value, a statement of such fact.
  3. If the issuing corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations for future series) must be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge.
  4. Each share certificate (1) must be signed (either manually or in facsimile) by two officers designated in the bylaws or by the board of directors and (2) must bear the corporate seal or its facsimile.
  5. If the person who signed (either manually or in facsimile) a share certificate no longer holds office when the certificate is issued, the certificate is nevertheless valid.

History. Acts 1987, No. 958, § 64-610.

4-27-626. Shares without certificates.

  1. Unless the articles of incorporation or bylaws provide otherwise, the board of directors of a corporation may authorize the issue of some or all the shares of any or all of its classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation.
  2. Within a reasonable time after the issue or transfer of shares without certificates, the corporation shall send the shareholder a written statement of the information required on certificates by § 4-27-625(b) and (c), and, if applicable, § 4-27-627.

History. Acts 1987, No. 958, § 64-611; 1987 (1st Ex. Sess.), No. 11, § 3.

4-27-627. Restriction on transfer of shares and other securities.

  1. The articles of incorporation, bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation. A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction.
  2. A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by § 4-27-626(b). Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction.
  3. A restriction on the transfer or registration of transfer of shares is authorized:
    1. to maintain the corporation's status when it is dependent on the number or identity of its shareholders;
    2. to preserve exemptions under federal or state securities law;
    3. for any other reasonable purpose.
  4. A restriction on the transfer or registration of transfer of shares may:
    1. obligate the shareholder first to offer the corporation or other persons (separately, consecutively, or simultaneously) an opportunity to acquire the restricted shares;
    2. obligate the corporation or other persons (separately, consecutively, or simultaneously) to acquire the restricted shares;
    3. require the corporation, the holders of any class of its shares, or another person to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable;
    4. prohibit the transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable.
  5. For purposes of this section, “shares” includes a security convertible into or carrying a right to subscribe for or acquire shares.

History. Acts 1987, No. 958, § 64-612; 1987 (1st Ex. Sess.), No. 11, § 4.

4-27-628. Expense of issue.

A corporation may pay the expenses of selling or underwriting its shares, and of organizing or reorganizing the corporation, from the consideration received for shares.

History. Acts 1987, No. 958, § 64-613.

4-27-629. [Reserved.]

Part C: Subsequent Acquisition of Shares by Shareholder and Corporation

4-27-630. Shareholders' preemptive rights.

  1. The shareholders of a corporation do not have a preemptive right to acquire the corporation's unissued shares except to the extent the articles of incorporation so provide.
  2. A statement included in the articles of incorporation that “the corporation elects to have preemptive rights” (or words of similar import) means that the following principles apply except to the extent the articles of incorporation expressly provide otherwise:
    1. The shareholders of the corporation have a preemptive right, granted on uniform terms and conditions prescribed by the board of directors to provide a fair and reasonable opportunity to exercise the right, to acquire proportional amounts of the corporation's unissued shares upon the decision of the board of directors to issue them.
    2. A shareholder may waive his preemptive right. A waiver evidenced by a writing is irrevocable even though it is not supported by consideration.
    3. There is no preemptive right with respect to:
      1. shares issued as compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates;
      2. shares issued to satisfy conversion or option rights created to provide compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates;
      3. shares authorized in articles of incorporation that are issued within six (6) months from the effective date of incorporation;
      4. shares sold otherwise than for money.
    4. Holders of shares of any class without general voting rights but with preferential rights to distributions or assets have no preemptive rights with respect to shares of any class.
    5. Holders of shares of any class with general voting rights but without preferential rights to distributions or assets have no preemptive rights with respect to shares of any class with preferential rights to distributions or assets unless the shares with preferential rights are convertible into or carry a right to subscribe for or acquire shares without preferential rights.
    6. Shares subject to preemptive rights that are not acquired by shareholders may be issued to any person for a period of one (1) year after being offered to shareholders at a consideration set by the board of directors that is not lower than the consideration set for the exercise of preemptive rights. An offer at a lower consideration or after the expiration of one year is subject to the shareholders' preemptive rights.
  3. For purposes of this section, “shares” includes a security convertible into or carrying a right to subscribe for or acquire shares.

History. Acts 1987, No. 958, § 64-614.

Research References

Ark. L. Rev.

Note, Hall v. Staha: Arkansas Courts Adopt the Business Judgment Rule as a Tool of Judicial Review and Analyze the Issue of Excessive Executive Compensation, 47 Ark. L. Rev. 959.

4-27-631. Corporation's acquisition of its own shares.

  1. A corporation may acquire its own shares, and shares so acquired constitute authorized but unissued shares.
  2. If the articles of incorporation prohibit the reissue of acquired shares, the number of authorized shares is reduced by the number of shares acquired, effective upon amendment of the articles of incorporation.
  3. The board of directors may adopt articles of amendment under this section without shareholder action and deliver them to the Secretary of State for filing. The articles must set forth:
    1. the name of the corporation;
    2. the reduction in the number of authorized shares, itemized by class and series; and
    3. the total number of authorized shares, itemized by class and series, remaining after reduction of the shares.

History. Acts 1987, No. 958, § 64-615.

4-27-632 — 4-27-639. [Reserved.]

Part D: Distributions

4-27-640. Distributions to shareholders.

  1. A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction by the articles of incorporation and the limitation in subsection (c) of this section.
  2. If the board of directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a repurchase or reacquisition of shares), it is the date the board of directors authorizes the distribution.
  3. No distribution may be made if, after giving it effect:
    1. The corporation would not be able to pay its debts as they become due in the usual course of business; or
    2. The corporation's total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
  4. The board of directors may base a determination that a distribution is not prohibited under subsection (c) of this section either on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.
  5. The effect of a distribution under subsection (c) of this section is measured:
    1. in the case of distribution by purchase, redemption, or other acquisition of the corporation's shares, as of the earlier of (i) the date money or other property is transferred or debt incurred by the corporation or (ii) the date the shareholder ceases to be a shareholder with respect to the acquired shares;
    2. in the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and
    3. in all other cases, as of (i) the date the distribution is authorized if the payment occurs within one hundred twenty (120) days after the date of authorization or (ii) the date the payment is made if it occurs more than one hundred twenty (120) days after the date of authorization.
  6. A corporation's indebtedness to a shareholder incurred by reason of a distribution made in accordance with this section is at parity with the corporation's indebtedness to its general, unsecured creditors except to the extent subordinated by agreement.
  7. If the articles of incorporation or bylaws of an investment company so provide, the board of directors may delegate to a committee of the board of directors, or to the officers of the corporation, the authority to determine the amount of, to declare, and to distribute dividends in accordance with the policies adopted by the board of directors.

History. Acts 1987, No. 958, § 64-616; 1989, No. 583, § 4.

Subchapter 7 — Shareholders

Effective Dates. Acts 1989, No. 583, § 8: Mar. 15, 1989. Emergency clause provided: “It is hereby found and determined by the General Assembly that present law has no provisions for registered investment companies; that such laws are needed to properly govern investment companies and to clarify the status of investment companies; and that adoption of Subchapter M of the Internal Revenue Code of 1986 is necessary to provide uniform tax laws on both the State and Federal levels for investment companies. Therefore, an emergency is hereby declared to exist and this act being necessary for the preservation of public peace, health, and safety shall be in full force and effect from and after its passage and approval.”

Acts 2007, No. 638, § 70: Sept. 1, 2007.

Part A: Meetings

4-27-701. Annual meeting.

  1. A corporation shall hold a meeting of shareholders annually at a time stated in or fixed in accordance with the bylaws.
  2. Annual shareholders' meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated in or fixed in accordance with the bylaws, annual meetings shall be held at the corporation's principal office.
  3. The failure to hold an annual meeting at the time stated in or fixed in accordance with a corporation's bylaws does not affect the validity of any corporate action.
  4. If the articles of incorporation or bylaws of an investment company so provide, the corporation is not required to hold an annual meeting in any year in which no action is to be taken which requires a vote of shareholders under the Investment Company Act of 1940, unless a meeting is called by more than fifty percent (50%) of the holders of all classes of shares of the corporation or by more than fifty percent (50%) of the board of directors.

History. Acts 1987, No. 958, § 64-701; 1989, No. 583, § 3.

U.S. Code. The Investment Company Act of 1940, referred to in this section, is codified as 15 U.S.C. §§ 80b-1 to 80b-21.

4-27-702. Special meeting.

  1. A corporation shall hold a special meeting of shareholders:
    1. on call of its board of directors or the person or persons authorized to do so by the articles of incorporation or bylaws; or
    2. if the holders of at least ten percent (10%) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date, and deliver to the corporation's secretary one (1) or more written demands for the meeting describing the purpose or purposes for which it is to be held.
  2. If not otherwise fixed under § 4-27-703 or § 4-27-707, the record date for determining shareholders entitled to demand a special meeting is the date the first shareholder signs the demand.
  3. Special shareholders' meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated or fixed in accordance with the bylaws, special meetings shall be held at the corporation's principal office.
  4. Only business within the purpose or purposes described in the meeting notice required by § 4-27-705(c) may be conducted at a special shareholders' meeting.

History. Acts 1987, No. 958, § 64-702.

4-27-703. Court-ordered meeting.

  1. The circuit court of the county where a corporation's principal office is located or the Pulaski County Circuit Court, if the corporation does not have a principal office in this state, may summarily order a meeting to be held:
    1. on application of any shareholder of the corporation entitled to participate in an annual meeting if an annual meeting was not held within the earlier of six (6) months after the end of the corporation's fiscal year or fifteen (15) months after its last annual meeting; or
    2. on application of a shareholder who signed a demand for a special meeting valid under § 4-27-702, if:
      1. notice of the special meeting was not given within thirty (30) days after the date the demand was delivered to the corporation's secretary; or
      2. the special meeting was not held in accordance with the notice.
  2. The court may fix the time and place of the meeting, determine the shares entitled to participate in the meeting, specify a record date for determining shareholders entitled to notice of and to vote at the meeting, prescribe the form and content of the meeting notice, fix the quorum required for specific matters to be considered at the meeting (or direct that the votes represented at the meeting constitute a quorum for action on those matters), and enter other orders necessary to accomplish the purpose or purposes of the meeting.

History. Acts 1987, No. 958, § 64-703; 2007, No. 638, § 8.

4-27-704. Action without meeting.

  1. Action on proposals to increase the capital stock or bond indebtedness of a corporation may be taken without a meeting of shareholders if one (1) or more written consents, setting forth the action so taken, shall be signed by all of the shareholders of the corporation. Any other action required or permitted by this chapter to be taken at a meeting of shareholders may be taken without a meeting if one (1) or more written consents, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Any written consent executed by one (1) or more shareholders pursuant to this section shall be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  2. If not otherwise fixed under § 4-27-703 or § 4-27-707, the record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent under subsection (a) of this section.
  3. A consent signed under this section has the effect of a meeting vote and may be described as such in any document.
  4. If this chapter requires that notice of proposed action be given to nonvoting shareholders and the action is to be taken by written consent of the voting shareholders, the corporation must give its nonvoting shareholders written notice of the proposed action at least ten (10) days before the action is taken. The notice must contain or be accompanied by the same material that, under this chapter, would have been required to be sent to nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted to the shareholders for action.

History. Acts 1987, No. 958, § 64-704.

4-27-705. Notice of meeting.

  1. A corporation shall notify shareholders of the date, time, and place of each annual and special shareholders' meeting no fewer than sixty (60) nor more than seventy-five (75) days before the meeting date if a proposal to increase the authorized capital stock or bond indebtedness of the corporation is to be submitted, and no fewer than ten (10) nor more than sixty (60) days before the meeting date in all other cases. Unless this chapter or the articles of incorporation require otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting.
  2. Unless this chapter or the articles of incorporation require otherwise, notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called.
  3. Notice of a special meeting must include a description of the purpose or purposes for which the meeting is called. For purposes of this section, an annual meeting at which a proposal to increase the authorized capital stock or bond indebtedness of the corporation is to be submitted shall be deemed a special meeting.
  4. If not otherwise fixed under § 4-27-703 or § 4-27-707, the record date for determining shareholders entitled to notice of and to vote at an annual or special shareholders' meeting is the day before the first notice is delivered to shareholders.
  5. Unless the bylaws require otherwise, if an annual or special shareholders' meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, or place if the new date, time, or place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed under § 4-27-707, however, notice of the adjourned meeting must be given under this section to persons who are shareholders as of the new record date.

History. Acts 1987, No. 958, § 64-705; 1987 (1st Ex. Sess.), No. 11, § 4[4A].

4-27-706. Waiver of notice.

  1. A shareholder may waive any notice required by this chapter, the articles of incorporation, or bylaws before or after the date and time stated in the notice. The waiver must be in writing, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  2. A shareholder's attendance at a meeting:
    1. waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting;
    2. waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.

History. Acts 1987, No. 958, § 64-706.

4-27-707. Record date.

  1. The bylaws may fix or provide the manner of fixing the record date for one (1) or more voting groups in order to determine the shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action. If the bylaws do not fix or provide for fixing a record date, the board of directors of the corporation may fix a future date as the record date.
  2. A record date fixed under this section may not be more than seventy (70) days before the meeting or action requiring a determination of shareholders.
  3. A determination of shareholders entitled to notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting.
  4. If a court orders a meeting adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting, it may provide that the original record date continues in effect or it may fix a new record date.

History. Acts 1987, No. 958, § 64-707.

4-27-708 — 4-27-719. [Reserved.]

Part B: Voting

4-27-720. Shareholders' list for meeting.

  1. After fixing a record date for a meeting, a corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of a shareholders' meeting. The list must be arranged by voting group (and within each voting group by class or series of shares) and show the address of and number of shares held by each shareholder.
  2. The shareholders' list must be available for inspection by any shareholder, beginning two (2) business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder, his agent, or attorney is entitled on written demand to inspect and, subject to the requirements of § 4-27-1602(c), to copy the list, during regular business hours and at his expense, during the period it is available for inspection.
  3. The corporation shall make the shareholders' list available at the meeting, and any shareholder, his agent, or attorney is entitled to inspect the list at any time during the meeting or any adjournment.
  4. If the corporation refuses to allow a shareholder, his or her agent, or attorney to inspect the shareholders' list before or at the meeting or copy the list as permitted by subsection (b) of this section, the circuit court of the county where a corporation's principal office is located or the Pulaski County Circuit Court, if the corporation does not have a principal office in this state, on application of the shareholder, may summarily order the inspection or copying at the corporation's expense and may postpone the meeting for which the list was prepared until the inspection or copying is complete.
  5. Refusal or failure to prepare or make available the shareholders' list does not affect the validity of action taken at the meeting.

History. Acts 1987, No. 958, § 64-708; 2007, No. 638, § 9.

4-27-721. Voting entitlement of shares.

  1. Except as provided in subsections (b) and (c) of this section or unless the articles of incorporation provide otherwise, each outstanding share, regardless of class, is entitled to one (1) vote on each matter voted on at a shareholders' meeting. Only shares are entitled to vote.
  2. Absent special circumstances, the shares of a corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and the first corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation.
  3. Subsection (b) of this section does not limit the power of a corporation to vote any shares, including its own shares, held by it in a fiduciary capacity.
  4. Redeemable shares are not entitled to vote after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares.

History. Acts 1987, No. 958, § 64-709.

4-27-722. Proxies.

  1. A shareholder may vote his shares in person or by proxy.
  2. A shareholder may appoint a proxy to vote or otherwise act for him by signing an appointment form, either personally or by his attorney-in-fact.
  3. An appointment of a proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes. An appointment is valid for eleven (11) months unless a longer period is expressly provided in the appointment form.
  4. An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. Appointments coupled with an interest include the appointment of:
    1. a pledgee;
    2. a person who purchased or agreed to purchase the shares;
    3. a creditor of the corporation who extended its credit under terms requiring the appointment;
    4. an employee of the corporation whose employment contract requires the appointment; or
    5. a party to a voting agreement created under § 4-27-731.
  5. The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment.
  6. An appointment made irrevocable under subsection (d) of this section is revoked when the interest with which it is coupled is extinguished.
  7. A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if he did not know of its existence when he acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares or on the information statement for shares without certificates.
  8. Subject to § 4-27-724 and to any express limitation on the proxy's authority appearing on the face of the appointment form, a corporation is entitled to accept the proxy's vote or other action as that of the shareholder making the appointment.

History. Acts 1987, No. 958, § 64-710; 1987 (1st Ex. Sess.), No. 11, § 5.

Case Notes

Cited: Reynolds Health Care Servs. v. HMNH, Inc., 364 Ark. 168, 217 S.W.3d 797 (2005).

4-27-723. Shares held by nominees.

  1. A corporation may establish a procedure by which the beneficial owner of shares that are registered in the name of a nominee is recognized by the corporation as the shareholder. The extent of this recognition may be determined in the procedure.
  2. The procedure may set forth:
    1. the types of nominees to which it applies;
    2. the rights or privileges that the corporation recognizes in a beneficial owner;
    3. the manner in which the procedure is selected by the nominee;
    4. the information that must be provided when the procedure is selected;
    5. the period for which selection of the procedure is effective; and
    6. other aspects of the rights and duties created.

History. Acts 1987, No. 958, § 64-711.

4-27-724. Corporation's acceptance of votes.

  1. If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a shareholder, the corporation if acting in good faith is entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder.
  2. If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the name of its shareholder, the corporation if acting in good faith is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder if:
    1. the shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;
    2. the name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
    3. the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
    4. the name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment;
    5. two (2) or more persons are the shareholder as cotenants or fiduciaries and the name signed purports to be the name of at least one (1) of the coowners and the person signing appears to be acting on behalf of all the coowners.
  3. The corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder.
  4. The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section are not liable in damages to the shareholder for the consequences of the acceptance or rejection.
  5. Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise.

History. Acts 1987, No. 958, § 64-712.

4-27-725. Quorum and voting requirements for voting groups.

  1. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the articles of incorporation or this chapter provide otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter.
  2. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
  3. If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the articles of incorporation or this chapter require a greater number of affirmative votes.
  4. An amendment of articles on incorporation adding, changing, or deleting a quorum or voting requirement for a voting group greater than specified in subsection (a) or (c) of this section is governed by § 4-27-727.
  5. The election of directors is governed by § 4-27-728.

History. Acts 1987, No. 958, § 64-713.

4-27-726. Action by single and multiple voting groups.

  1. If the articles of incorporation or this chapter provide for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group as provided in § 4-27-725.
  2. If the articles of incorporation or this chapter provide for voting by two (2) or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately as provided in § 4-27-725. Action may be taken by one (1) voting group on a matter even though no action is taken by another voting group entitled to vote on the matter.

History. Acts 1987, No. 958, § 64-714.

4-27-727. Greater quorum or voting requirements.

  1. The articles of incorporation may provide for a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is provided for by this chapter.
  2. An amendment to the articles of incorporation that adds, changes, or deletes a greater quorum or voting requirement must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever is greater.

History. Acts 1987, No. 958, § 64-715.

4-27-728. Voting for directors — Cumulative voting.

  1. Unless otherwise provided in the articles of incorporation, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.
  2. Shareholders do not have a right to cumulate their votes for directors unless the articles of incorporation so provide.
  3. A statement included in the articles of incorporation that “[all] [a designated voting group of] shareholders are entitled to cumulate their votes for directors” (or words of similar import) means that the shareholders designated are entitled to multiply the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote and cast the product for a single candidate or distribute the product among two (2) or more candidates.
  4. Shares otherwise entitled to vote cumulatively may not be voted cumulatively at a particular meeting unless:
    1. the meeting notice or proxy statement accompanying the notice states conspicuously that cumulative voting is authorized; or
    2. a shareholder who has the right to cumulate his votes gives notice to the corporation not less than forty-eight (48) hours before the time set for the meeting of his intent to cumulate his votes during the meeting, and if one (1) shareholder gives this notice all other shareholders in the same voting group participating in the election are entitled to cumulate their votes without giving further notice.

History. Acts 1987, No. 958, § 64-716; 1987 (1st Ex. Sess.), No. 11, § 6.

Case Notes

Cumulative Voting.

Bank holding company is not included within § 23-48-320, which governs cumulative voting; therefore, cumulative voting was not required in a bank holding company created under the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., because it was not mandated in the articles of incorporation. Bennett v. Lonoke Bancshares, Inc., 356 Ark. 371, 155 S.W.3d 15 (2004).

4-27-729. [Reserved.]

Part C: Voting Trusts and Agreements

4-27-730. Voting trusts.

  1. One (1) or more shareholders may create a voting trust, conferring on a trustee the right to vote or otherwise act for them, by signing an agreement setting out the provisions of the trust (which may include anything consistent with its purpose) and transferring their shares to the trustee. When a voting trust agreement is signed, the trustee shall prepare a list of the names and addresses of all owners of beneficial interests in the trust, together with the number and class of shares each transferred to the trust, and deliver copies of the list and agreement to the corporation's principal office.
  2. A voting trust becomes effective on the date the first shares subject to the trust are registered in the trustee's name. A voting trust is valid for not more than ten (10) years after its effective date unless extended under subsection (c) of this section.
  3. All or some of the parties to a voting trust may extend it for additional terms of not more than ten (10) years each by signing an extension agreement and obtaining the voting trustee's written consent to the extension. An extension is valid for ten (10) years from the date the first shareholder signs the extension agreement. The voting trustee must deliver copies of the extension agreement and list of beneficial owners to the corporation's principal office. An extension agreement binds only those parties signing it.

History. Acts 1987, No. 958, § 64-717.

4-27-731. Voting agreements.

  1. Two (2) or more shareholders may provide for the manner in which they will vote their shares by signing an agreement for that purpose. A voting agreement created under this section is not subject to the provisions of § 4-27-730.
  2. A voting agreement created under this section is specifically enforceable.

History. Acts 1987, No. 958, § 64-718.

Case Notes

Cited: Reynolds Health Care Servs. v. HMNH, Inc., 364 Ark. 168, 217 S.W.3d 797 (2005).

4-27-732 — 4-27-739. [Reserved.]

Part D: Derivative Proceedings

4-27-740. Procedure in derivative proceedings.

  1. A person may not commence a proceeding in the right of a domestic or foreign corporation unless he was a shareholder of the corporation when the transaction complained of occurred or unless he became a shareholder through transfer by operation of law from one who was a shareholder at that time.
  2. A complaint in a proceeding brought in the right of a corporation must be verified and allege with particularity the demand made, if any, to obtain action by the board of directors and either that the demand was refused or ignored or why he did not make the demand. Whether or not a demand for action was made, if the corporation commences an investigation of the changes made in the demand or complaint, the court may stay any proceeding until the investigation is completed.
  3. A proceeding commenced under this section may not be discontinued or settled without the court's approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interest of the corporation's shareholders or a class of shareholders, the court shall direct that notice be given the shareholders affected.
  4. On termination of the proceeding the court may require the plaintiff to pay any defendant's reasonable expenses (including counsel fees) incurred in defending the proceeding if it finds that the proceeding was commenced without reasonable cause.
  5. For purposes of this section, “shareholder” includes a beneficial owner whose shares are held in a voting trust or held by a nominee on his behalf.

History. Acts 1987, No. 958, § 64-719; 1987 (1st Ex. Sess.), No. 11, § 7.

Case Notes

In General.

Where the claims asserted in a derivative suit would, if proven, advance rather than threaten the interests of the corporation, then the corporation, as a nominal defendant, must remain neutral in the action; thus, an answer filed by defendant directors on behalf of the corporation was stricken. Sobba v. Elmen, 462 F. Supp. 2d 944 (E.D. Ark. 2006).

Subchapter 8 — Directors — Officers — Meetings — Standards of Conduct — Indemnification

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Research References

U. Ark. Little Rock L.J.

Note, Director-Exculpation Clauses Under the Arkansas Business Corporation Act of 1987, 15 U. Ark. Little Rock L.J. 337.

Case Notes

Cited: Hutchins v. Fordyce Bank & Trust Co. (In re Hutchins), 216 B.R. 11 (Bankr. E.D. Ark. 1997).

Part A: Board of Directors

4-27-801. Requirement for and duties of board of directors.

  1. Except as provided in subsection (c) of this section, each corporation must have a board of directors.
  2. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors, subject to any limitation set forth in the articles of incorporation.
  3. A corporation having fifty (50) or fewer shareholders may dispense with or limit the authority of a board of directors by describing in its articles of incorporation who will perform some or all of the duties of a board of directors.

History. Acts 1987, No. 958, § 64-801.

Case Notes

Fiduciary Duty.

Although this subchapter does not specifically address the fiduciary duty of a manager, a manager owes a fiduciary duty to his business. Pennington v. Harvest Foods, Inc., 326 Ark. 704, 934 S.W.2d 485 (1996).

4-27-802. Qualifications of directors.

The articles of incorporation or bylaws may prescribe qualifications for directors. A director need not be a resident of this state or a shareholder of the corporation unless the articles of incorporation or bylaws so prescribe.

History. Acts 1987, No. 958, § 64-802.

4-27-803. Number and election of directors.

  1. A board of directors must consist of one (1) or more individuals, with the number specified in or fixed in accordance with the articles of incorporation or bylaws.
  2. If a board of directors has power to fix or change the number of directors, the board may increase or decrease by thirty percent (30%) or less the number of directors last approved by the shareholders, but only the shareholders may increase or decrease by more than thirty percent (30%) the number of directors last approved by the shareholders.
  3. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa.
  4. Directors are elected at the first annual shareholders' meeting and at each annual meeting thereafter unless their terms are staggered under § 4-27-806.

History. Acts 1987, No. 958, § 64-803.

4-27-804. Election of directors by certain classes of shareholders.

If the articles of incorporation authorize dividing the shares into classes, the articles may also authorize the election of all or a specified number of directors by the holders of one (1) or more authorized classes of shares. A class (or classes) of shares entitled to elect one (1) or more directors is a separate voting group for purposes of the election of directors.

History. Acts 1987, No. 958, § 64-804.

4-27-805. Terms of directors generally.

  1. The terms of the initial directors of a corporation expire at the first shareholders' meeting at which directors are elected.
  2. The terms of all other directors expire at the next annual shareholders' meeting following their election unless their terms are staggered under § 4-27-806.
  3. A decrease in the number of directors does not shorten an incumbent director's term.
  4. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected.
  5. Despite the expiration of a director's term, he continues to serve until his successor is elected and qualifies or until there is a decrease in the number of directors.

History. Acts 1987, No. 958, § 64-805.

4-27-806. Staggered terms for directors.

If there are nine (9) or more directors, the articles of incorporation may provide for staggering their terms by dividing the total number of directors into two (2) or three (3) groups, with each group containing one-half (½) or one-third (1/3) of the total, as near as may be. In that event, the terms of directors in the first group expire at the first annual shareholders' meeting after their election, the terms of the second group expire at the second annual shareholders' meeting after their election, and the terms of the third group, if any, expire at the third annual shareholders' meeting after their election. At each annual shareholders' meeting held thereafter, directors shall be chosen for a term of two (2) years or three (3) years, as the case may be, to succeed those whose terms expire.

History. Acts 1987, No. 958, § 64-806.

4-27-807. Resignation of directors.

  1. A director may resign at any time by delivering written notice to the board of directors, its chairman, or to the corporation.
  2. A resignation is effective when the notice is delivered unless the notice specifies a later effective date.

History. Acts 1987, No. 958, § 64-807.

4-27-808. Removal of directors by shareholders.

  1. The shareholders may remove one (1) or more directors with or without cause unless the articles of incorporation provide that directors may be removed only for cause.
  2. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him.
  3. If cumulative voting is authorized, a director may not be removed if the number of votes sufficient to elect him under cumulative voting is voted against his removal. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him.
  4. A director may be removed by the shareholders only at a meeting called for the purpose of removing him and the meeting notice must state that the purpose, or one (1) of the purposes, of the meeting is removal of the director.

History. Acts 1987, No. 958, § 64-808.

4-27-809. Removal of directors by judicial proceeding.

  1. The circuit court of the county where a corporation's principal office is located or the Pulaski County Circuit Court, if the corporation does not have a principal office in this state, may remove a director of the corporation from office in a proceeding commenced either by the corporation or by its shareholder holding at least ten percent (10%) of the outstanding shares of any class if the court finds that:
    1. The director engaged in fraudulent or dishonest conduct, or gross abuse of authority or discretion, with respect to the corporation; and
    2. Removal is in the best interest of the corporation.
  2. The court that removes a director may bar the director from reelection for a period prescribed by the court.
  3. If shareholders commence a proceeding under subsection (a) of this section, they shall make the corporation a party defendant.

History. Acts 1987, No. 958, § 64-809; 2007, No. 638, § 10.

Case Notes

Gross Abuse of Discretion.

Minority shareholders were removed from the board of directors for gross abuse of discretion where evidence showed that they engaged in acts harmful to the corporation by removing another director in violation of a franchise agreement and attempting to control the finances of the corporation. Taylor v. Hinkle, 360 Ark. 121, 200 S.W.3d 387 (2004).

4-27-810. Vacancy on board.

  1. Unless the articles of incorporation provide otherwise, if a vacancy occurs on a board of directors, including a vacancy resulting from an increase in the number of directors:
    1. the shareholders may fill the vacancy;
    2. the board of directors may fill the vacancy; or
    3. if the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
  2. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders.
  3. A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date under § 4-27-807(b) or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.

History. Acts 1987, No. 958, § 64-810.

4-27-811. Compensation of directors.

Unless the articles of incorporation or bylaws provide otherwise, the board of directors may fix the compensation of directors.

History. Acts 1987, No. 958, § 64-811.

Research References

Ark. L. Rev.

Note, Hall v. Staha: Arkansas Courts Adopt the Business Judgment Rule as a Tool of Judicial Review and Analyze the Issue of Excessive Executive Compensation, 47 Ark. L. Rev. 959.

4-27-812 — 4-27-819. [Reserved.]

Part B: Meetings and Action of the Board

4-27-820. Meetings.

  1. The board of directors may hold regular or special meetings in or out of this state.
  2. Unless the articles of incorporation or bylaws provide otherwise, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.

History. Acts 1987, No. 958, § 64-812.

4-27-821. Action without meeting.

  1. Unless the articles of incorporation or bylaws provide otherwise, action required or permitted by this chapter to be taken at a board of directors' meeting may be taken without a meeting if the action is taken by all members of the board. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each director, and included in the minutes or filed with the corporate records reflecting the action taken.
  2. Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date.
  3. A consent signed under this section has the effect of a meeting vote and may be described as such in any document.

History. Acts 1987, No. 958, § 64-813.

4-27-822. Notice of meeting.

  1. Unless the articles of incorporation or bylaws provide otherwise, regular meetings of the board of directors may be held without notice of the date, time, place, or purpose of the meeting.
  2. Unless the articles of incorporation or bylaws provide for a longer or shorter period, a special meeting of the board of directors must be preceded by at least two (2) days' notice of the date, time, and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the articles of incorporation or bylaws.

History. Acts 1987, No. 958, § 64-814.

4-27-823. Waiver of notice.

  1. A director may waive any notice required by this chapter, the articles of incorporation, or bylaws before or after the date and time stated in the notice. Except as provided by subsection (b) of this section, the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records.
  2. A director's attendance at or participation in a meeting waives any required notice to him of the meeting unless the director at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

History. Acts 1987, No. 958, § 64-815.

4-27-824. Quorum and voting.

  1. Unless the articles of incorporation or bylaws require a greater number, a quorum of a board of directors consists of:
    1. a majority of the fixed number of directors if the corporation has a fixed board size; or
    2. a majority of the number of directors prescribed, or if no number is prescribed the number in office immediately before the meeting begins, if the corporation has a variable-range size board.
  2. The articles of incorporation or bylaws may authorize a quorum of a board of directors to consist of no fewer than one-third (1/3) of the fixed or prescribed number of directors determined under subsection (a) of this section.
  3. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the board of directors unless the articles of incorporation or bylaws require the vote of a greater number of directors.
  4. A director who is present at a meeting of the board of directors or a committee of the board of directors when corporate action is taken is deemed to have assented to the action taken unless: (1) he objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting business at the meeting; (2) his dissent or abstention from the action taken is entered in the minutes of the meeting; or (3) he delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.

History. Acts 1987, No. 958, § 64-816.

Case Notes

Cited: Hutchins v. Fordyce Bank & Trust Co. (In re Hutchins), 216 B.R. 11 (Bankr. E.D. Ark. 1997).

4-27-825. Committees.

  1. Unless the articles of incorporation or bylaws provide otherwise, a board of directors may create one (1) or more committees and appoint members of the board of directors to serve on them. Each committee must have two (2) or more members, who serve at the pleasure of the board of directors.
  2. The creation of a committee and appointment of members to it must be approved by the greater of (1) a majority of all the directors in office when the action is taken or (2) the number of directors required by the articles of incorporation or bylaws to take action under § 4-27-824.
  3. Sections 4-27-820 — 4-27-824, which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the board of directors, apply to committees and their members as well.
  4. To the extent specified by the board of directors or in the articles of incorporation or bylaws, each committee may exercise the authority of the board of directors under § 4-27-801.
  5. A committee may not, however:
    1. authorize distributions;
    2. approve or propose to shareholders action that this chapter requires be approved by shareholders;
    3. fill vacancies on the board of directors or on any of its committees;
    4. amend articles of incorporation pursuant to § 4-27-1002;
    5. adopt, amend, or repeal bylaws;
    6. approve a plan of merger not requiring shareholder approval;
    7. authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or
    8. authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the board of directors may authorize a committee (or a senior executive officer of the corporation) to do so within the limits specifically prescribed by the board of directors.
  6. The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct described in § 4-27-830.

History. Acts 1987, No. 958, § 64-817.

Research References

U. Ark. Little Rock L.J.

Arey, Bank Directors' Duties Under the Common Law of Arkansas, 11 U. Ark. Little Rock L.J. 629.

4-27-826 — 4-27-829. [Reserved.]

Part C: Standards of Conduct

4-27-830. General standards for directors.

  1. A director shall discharge his duties as a director, including his duties as a member of a committee:
    1. in good faith;
    2. with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
    3. in a manner he reasonably believes to be in the best interests of the corporation.
  2. In discharging his duties a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    1. one (1) or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented;
    2. legal counsel, public accountants, or other persons as to matters the director reasonably believes are within the person's professional or expert competence; or
    3. a committee of the board of directors of which he is not a member if the director reasonably believes the committee merits confidence.
  3. A director is not acting in good faith if he has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) of this section unwarranted.
  4. A director is not liable for any action taken as a director, or any failure to take any action, if he performed the duties of his office in compliance with this section.

History. Acts 1987, No. 958, § 64-818.

Research References

Ark. L. Rev.

A License to Lie, Cheat, and Steal? Restriction or Elimination of Fiduciary Duties in Arkansas Limited Liability Companies, 60 Ark. L. Rev. 643.

U. Ark. Little Rock L.J.

Arey, Bank Directors' Duties Under the Common Law of Arkansas, 11 U. Ark. Little Rock L.J. 629.

Case Notes

Attorney-Client Privilege.

While it is true that a corporation can only act through human beings, and the authority to assert and waive privilege rests with management, a dissident director is not management; such a director has no authority to frustrate the attorney-corporate client privilege when the privilege is asserted by the corporation, i.e., by the majority of directors. Hutchins v. Fordyce Bank & Trust Co. (In re Hutchins), 216 B.R. 11 (Bankr. E.D. Ark. 1997).

Breach of Fiduciary Duty.

Plaintiff, who was a shareholder, officer, director, and creditor of the parent company of a bank as well as a director and customer of the bank, failed to state a cause of action for breach of fiduciary duty because defendant, who was an officer and director of the bank and the parent company, owed no duty to inform plaintiff that plaintiff would have to pay his loans at the bank prematurely before a bank examination. The only damage was to plaintiff's personal financial situation, and defendant had no fiduciary duty to plaintiff as a customer; the bank was not so intimately involved in plaintiff's business as to create a fiduciary duty. Quinn v. O'Brien, 2020 Ark. App. 83, 596 S.W.3d 20 (2020).

Business-Judgment Rule.

Two elements must be satisfied in order for corporate officers to invoke the protection of the business-judgment rule: first, its protection can only be claimed by disinterested directors whose conduct otherwise meets the test of business judgment; and second, to invoke the rule the directors have a duty to inform themselves of all material information reasonably available to them prior to making a business decision. Long v. Lampton, 324 Ark. 511, 922 S.W.2d 692 (1996).

Closely Held Corporation.

A stockholder in a closely held family corporation did not breach his duty to the other shareholders when he gained majority control. Smith v. Paul, 317 Ark. 182, 876 S.W.2d 266 (1994).

Jury Instructions.

Trial court erred in instructing the jury that minority shareholders had the burden of proving that corporate director owed them a duty as a fiduciary; the issue of what duty is owed, if any, is always a question of law. Long v. Lampton, 324 Ark. 511, 922 S.W.2d 692 (1996).

Related Business Dealings.

Corporation's director breached no fiduciary duty by failing to help minority shareholders comply with the financing portion of a pre-incorporation agreement, in that loyalty and good faith did not compel him to assume that he knew more about minority shareholders' banking relationships than they did, nor that the minority shareholders, who were represented by an attorney in their dealings with bank, needed him to take over negotiations with the bank. Long v. Lampton, 324 Ark. 511, 922 S.W.2d 692 (1996).

Subpoena of Records.

Law firm's motion to quash a subpoena, which sought copies of its invoices for legal services rendered to three corporations, was denied. Plaintiff, who was seeking the records, was entitled to review them because he was a director of all three corporations, the records were relevant to the claims that he asserted in a derivative suit brought on the corporations' behalf, and reviewing the records was consistent with plaintiff's fiduciary duties under this section to exercise the care that an ordinarily prudent person would exercise under similar circumstances and to act in a manner that was in the corporations' best interests. Sobba v. Elmen, No. 4:06VCV00941 JLH, 2007 U.S. Dist. LEXIS 29172 (E.D. Ark. Apr. 19, 2007).

4-27-831. Director conflict of interest.

  1. A conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest. A conflict of interest transaction is not voidable by the corporation solely because of the director's interest in the transaction if any one of the following is true:
    1. the material facts of the transaction and the director's interest were disclosed or known to the board of directors or a committee of the board of directors and the board of directors or committee authorized, approved, or ratified the transaction;
    2. the material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote and they authorized, approved, or ratified the transaction; or
    3. the transaction was fair to the corporation.
  2. For purposes of this section, a director of the corporation has an indirect interest in a transaction and it should be considered by the board of directors of the corporation if:
    1. another entity in which he has a material financial interest or in which he is a general partner is a party to the transaction; or
    2. another entity of which he is a director, officer, or trustee is a party to the transaction.
  3. For purposes of subsection (a)(1) of this section, a conflict of interest transaction is authorized, approved, or ratified if it receives the affirmative vote of a majority of the directors on the board of directors (or on the committee) who have no direct or indirect interest in the transaction, but a transaction may not be authorized, approved, or ratified under this section by a single director. If a majority of the directors who have no direct or indirect interest in the transaction vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action under this section. The presence of, or a vote cast by, a director with a direct or indirect interest in the transaction does not affect the validity of any action taken under subsection (a)(1) of this section if the transaction is otherwise authorized, approved, or ratified as provided in that subsection.
  4. For purposes of subsection (a)(2) of this section, a conflict of interest transaction is authorized, approved, or ratified if it receives the vote of a majority of the shares entitled to be counted under this subsection. Shares owned by or voted under the control of a director who has a direct or indirect interest in the transaction, and shares owned by or voted under the control of an entity described in subsection (b)(1) of this section, may not be counted in a vote of shareholders to determine whether to authorize, approve, or ratify a conflict of interest transaction under subsection (a)(2) of this section. The vote of those shares, however, is counted in determining whether the transaction is approved under other sections of this chapter. A majority of the shares, whether or not present, that are entitled to be counted in a vote on the transaction under this subsection constitutes a quorum for the purpose of taking action under this section.

History. Acts 1987, No. 958, § 64-819.

4-27-832. Loans to directors.

  1. Except as provided by subsection (c) of this section, a corporation may not lend money to or guarantee the obligation of a director of the corporation unless:
    1. the particular loan or guarantee is approved by a majority of the votes represented by the outstanding voting shares of all classes, voting as a single voting group, except the votes of shares owned by or voted under the control of the benefited director; or
    2. the corporation's board of directors determines that the loan or guarantee benefits the corporation and either approves the specific loan or guarantee or a general plan authorizing loans and guarantees.
  2. The fact that a loan or guarantee is made in violation of this section does not affect the borrower's liability on the loan.
  3. This section does not apply to loans and guarantees authorized by statute regulating any special class of corporations.

History. Acts 1987, No. 958, § 64-820.

4-27-833. Liability for unlawful distributions.

  1. Unless he complies with the applicable standards of conduct described in § 4-27-830, a director who votes for or assents to a distribution made in violation of this chapter or the articles of incorporation is personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating this chapter or the articles of incorporation.
  2. A director held liable for an unlawful distribution under subsection (a) of this section is entitled to contribution:
    1. from every other director who voted for or assented to the distribution without complying with the applicable standards of conduct described in § 4-27-830; and
    2. from each shareholder for the amount the shareholder accepted knowing the distribution was made in violation of this chapter or the articles of incorporation.

History. Acts 1987, No. 958, § 64-821.

4-27-834 — 4-27-839. [Reserved.]

Part D: Officers

4-27-840. Required officers.

  1. A corporation has the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws.
  2. A duly appointed officer may appoint one (1) or more officers or assistant officers if authorized by the bylaws or the board of directors.
  3. The bylaws or the board of directors shall delegate to one (1) of the officers responsibility for preparing minutes of the directors' and shareholders' meetings and for authenticating records of the corporation.
  4. The same individual may simultaneously hold more than one (1) office in a corporation.

History. Acts 1987, No. 958, § 64-822.

4-27-841. Duties of officers.

Each officer has the authority and shall perform the duties set forth in the bylaws or, to the extent consistent with the bylaws, the duties prescribed by the board of directors or by direction of an officer authorized by the board of directors to prescribe the duties of other officers.

History. Acts 1987, No. 958, § 64-823.

Case Notes

Cited: Rogers v. Tudor Ins. Co., 325 Ark. 226, 925 S.W.2d 395 (1996).

4-27-842. Standards of conduct for officers.

  1. An officer with discretionary authority shall discharge his duties under that authority:
    1. in good faith;
    2. with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
    3. in a manner he reasonably believes to be in the best interests of the corporation.
  2. In discharging his duties an officer is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    1. one (1) or more officers or employees of the corporation whom the officer reasonably believes to be reliable and competent in the matters presented; or
    2. legal counsel, public accountants, or other persons as to matters the officer reasonably believes are within the person's professional or expert competence.
  3. An officer is not acting in good faith if he has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) of this section unwarranted.
  4. An officer is not liable for any action taken as an officer, or any failure to take any action, if he performed the duties of his office in compliance with this section.

History. Acts 1987, No. 958, § 64-824.

Case Notes

Motion to Dismiss.

Subsequent to entering into a release and retirement agreement with a store's employee, who was acting as a corporate officer, the store discovered that the employee allegedly misappropriated the store's cash and property; the allegations that the employee breached his fiduciary duty to the corporation, and that the agreement and the release were fraudulently induced, were sufficiently pleaded to withstand the employee's motion to dismiss. Wal-Mart Stores, Inc. v. Coughlin, 369 Ark. 365, 255 S.W.3d 424 (2007).

Plaintiff, who was a shareholder, officer, director, and creditor of the parent company of a bank as well as a director and customer of the bank, failed to state a cause of action for breach of fiduciary duty because defendant, who was an officer and director of the bank and the parent company, owed no duty to inform plaintiff that plaintiff would have to pay his loans at the bank prematurely before a bank examination. The only damage was to plaintiff's personal financial situation, and defendant had no fiduciary duty to plaintiff as a customer; the bank was not so intimately involved in plaintiff's business as to create a fiduciary duty. Quinn v. O'Brien, 2020 Ark. App. 83, 596 S.W.3d 20 (2020).

4-27-843. Resignation and removal of officers.

  1. An officer may resign at any time by delivering notice to the corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the corporation accepts the future effective date, its board of directors may fill the pending vacancy before the effective date if the board of directors provides that the successor does not take office until the effective date.
  2. A board of directors may remove any officer at any time with or without cause.

History. Acts 1987, No. 958, § 64-825.

4-27-844. Contract rights of officers.

  1. The appointment of an officer does not itself create contract rights.
  2. An officer's removal does not affect the officer's contract rights, if any, with the corporation. An officer's resignation does not affect the corporation's contract rights, if any, with the officer.

History. Acts 1987, No. 958, § 64-826.

4-27-845 — 4-27-849. [Reserved.]

  1. A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
  2. A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the circuit court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court of chancery or such other court shall deem proper.
  3. To the extent that a director, officer, employee, or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.
  4. Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) of this section. Such determination shall be made:
    1. by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit, or proceeding; or
    2. if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or
    3. by the stockholders.
  5. Expenses incurred by an officer or director in defending a civil or criminal action, suit, or proceeding may be paid by the corporation in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this section. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate.
  6. The indemnification and advancement of expenses provided by or granted pursuant to the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
  7. A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section.
  8. For purposes of this section, references to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee, or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, shall stand in the same position under the provisions of this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
  9. For purposes of this section, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee, or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this section.
  10. The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such person.

History. Acts 1987, No. 958, § 64-827; 1987 (1st Ex. Sess.), No. 11, § 8.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

Subchapter 9 [Reserved.]

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Part A: Amendment of Articles of Incorporation

4-27-1001. Authority to amend.

  1. A corporation may amend its articles of incorporation at any time to add or change a provision that is required or permitted in the articles of incorporation or to delete a provision not required in the articles of incorporation. Whether a provision is required or permitted in the articles of incorporation is determined as of the effective date of the amendment.
  2. A shareholder of the corporation does not have a vested property right resulting from any provision in the articles of incorporation, including provisions relating to management, control, capital structure, dividend entitlement, or purpose or duration of the corporation.

History. Acts 1987, No. 958, § 64-1001.

4-27-1002. Amendment by board of directors.

Unless the articles of incorporation provide otherwise, a corporation's board of directors may adopt one (1) or more amendments to the corporation's articles of incorporation without shareholder action:

  1. to extend the duration of the corporation if it was incorporated at a time when limited duration was required by law;
  2. to delete the names and addresses of the initial directors;
  3. to change the information required by § 4-20-105(a);
  4. to change each issued and unissued authorized share of an outstanding class into a greater number of whole shares if the corporation has only shares of that class outstanding;
  5. to change the corporate name by substituting the word “corporation”, “incorporated”, “company”, “limited”, or the abbreviation “corp.”, “inc.”, “co.”, or “ltd.”, for a similar word or abbreviation in the name, or by adding, deleting, or changing a geographical attribution for the name; or
  6. to make any other change expressly permitted by this chapter to be made without shareholder action.

History. Acts 1987, No. 958, § 64-1002; 2007, No. 638, § 11.

4-27-1003. Amendment by board of directors and shareholders.

  1. A corporation's board of directors may propose one (1) or more amendments to the articles of incorporation for submission to the shareholders.
  2. For the amendment to be adopted:
    1. the board of directors must recommend the amendment to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders with the amendment; and
    2. the shareholders entitled to vote on the amendment must approve the amendment as provided in subsection (e) of this section.
  3. The board of directors may condition its submission of the proposed amendment on any basis.
  4. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 4-27-705. The notice of meeting must also state that the purpose, or one of the purposes, of the meeting is to consider the proposed amendment and contain or be accompanied by a copy or summary of the amendment.
  5. Unless this chapter, the articles of incorporation, or the board of directors (acting pursuant to subsection (c) of this section) require a greater vote or a vote by voting groups, the amendment to be adopted must be approved by:
    1. a majority of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights; and
    2. the votes required by § 4-27-725 and § 4-27-726 by every other voting group entitled to vote on the amendment.

History. Acts 1987, No. 958, § 64-1003.

4-27-1004. Voting on amendments by voting groups.

  1. The holders of the outstanding shares of a class are entitled to vote as a separate voting group (if shareholder voting is otherwise required by this chapter) on a proposed amendment if the amendment would:
    1. increase or decrease the aggregate number of authorized shares of the class;
    2. effect an exchange or reclassification of all or part of the shares of the class into shares of another class;
    3. effect an exchange or reclassification, or create the right of exchange, of all or part of the shares of another class into shares of the class;
    4. change the designation, rights, preferences, or limitations of all or part of the shares of the class;
    5. change the shares of all or part of the class into a different number of shares of the same class;
    6. create a new class of shares having rights or preferences with respect to distributions or to dissolutions that are prior, superior, or substantially equal to the shares of the class;
    7. increase the rights, preferences, or number of authorized shares of any class that, after giving effect to the amendment, have rights or preferences with respect to distributions or to dissolutions that are prior, superior, or substantially equal to the shares of the class;
    8. limit or deny an existing preemptive right of all or part of the shares of the class; or
    9. cancel or otherwise affect rights to distributions or dividends that have accumulated but not yet been declared on all or part of the shares of the class.
  2. If a proposed amendment would affect a series of a class of shares in one (1) or more of the ways described in subsection (a) of this section, the shares of that series are entitled to vote as a separate voting group on the proposed amendment.
  3. If a proposed amendment that entitles two (2) or more series of shares to vote as separate voting groups under this section would affect those two (2) or more series in the same or a substantially similar way, the shares of all the series so affected must vote together as a single voting group on the proposed amendment.
  4. A class or series of shares is entitled to the voting rights granted by this section although the articles of incorporation provide that the shares are nonvoting shares.

History. Acts 1987, No. 958, § 64-1004.

4-27-1005. Amendment before issuance of shares.

If a corporation has not yet issued shares, its incorporators or board of directors may adopt one (1) or more amendments to the corporation's articles of incorporation.

History. Acts 1987, No. 958, § 64-1005.

4-27-1006. Articles of amendment.

A corporation amending its articles of incorporation shall deliver to the Secretary of State for filing articles of amendment setting forth:

  1. the name of the corporation;
  2. the text of each amendment adopted;
  3. if an amendment provides for an exchange, reclassification, or cancellation of issued shares, provisions for implementing the amendment if not contained in the amendment itself;
  4. the date of each amendment's adoption;
  5. if an amendment was adopted by the incorporators or board of directors without shareholder action, a statement to that effect and that shareholder action was not required;
  6. if an amendment was approved by the shareholders:
    1. the designation, number of outstanding shares, number of votes entitled to be cast by each voting group entitled to vote separately on the amendment, and number of votes of each voting group indisputably represented at the meeting;
    2. either the total number of votes cast for and against the amendment by each voting group entitled to vote separately on the amendment or the total number of undisputed votes cast for the amendment by each voting group and a statement that the number cast for the amendment by each voting group was sufficient for approval by that voting group.

History. Acts 1987, No. 958, § 64-1006.

4-27-1007. Restated articles of incorporation.

  1. A corporation's board of directors may restate its articles of incorporation at any time with or without shareholder action.
  2. The restatement may include one (1) or more amendments to the articles. If the restatement includes an amendment requiring shareholder approval, it must be adopted as provided in § 4-27-1003.
  3. If the board of directors submits a restatement for shareholder action, the corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 4-27-705. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the proposed restatement and contain or be accompanied by a copy of the restatement that identifies any amendment or other change it would make in the articles.
  4. A corporation restating its articles of incorporation shall deliver to the Secretary of State for filing articles of restatement setting forth the name of the corporation and the text of the restated articles of incorporation together with a certificate setting forth:
    1. whether the restatement contains an amendment to the articles requiring shareholder approval and, if it does not, that the board of directors adopted the restatement; or
    2. if the restatement contains an amendment to the articles requiring shareholder approval, the information required by § 4-27-1006.
  5. Duly adopted restated articles of incorporation supersede the original articles of incorporation and all amendments to them.
  6. The Secretary of State may certify restated articles of incorporation, as the articles of incorporation currently in effect, without including the certificate information required by subsection (d) of this section.

History. Acts 1987, No. 958, § 64-1007.

4-27-1008. Amendment pursuant to reorganization.

  1. A corporation's articles of incorporation may be amended without action by the board of directors or shareholders to carry out a plan of reorganization ordered or decreed by a court of competent jurisdiction under federal statute if the articles of incorporation after amendment contain only provisions required or permitted by § 4-27-202.
  2. The individual or individuals designated by the court shall deliver to the Secretary of State for filing articles of amendment setting forth:
    1. the name of the corporation;
    2. the text of each amendment approved by the court;
    3. the date of the court's order or decree approving the articles of amendment;
    4. the title of the reorganization proceeding in which the order or decree was entered; and
    5. a statement that the court had jurisdiction of the proceeding under federal statute.
  3. Shareholders of a corporation undergoing reorganization do not have dissenters' rights except as and to the extent provided in the reorganization plan.
  4. This section does not apply after entry of a final decree in the reorganization proceeding even though the court retains jurisdiction of the proceeding for limited purposes unrelated to consummation of the reorganization plan.

History. Acts 1987, No. 958, § 64-1008.

4-27-1009. Effect of amendment.

An amendment to articles of incorporation does not affect a cause of action existing against or in favor of the corporation, a proceeding to which the corporation is a party, or the existing rights of persons other than shareholders of the corporation. An amendment changing a corporation's name does not abate a proceeding brought by or against the corporation in its former name.

History. Acts 1987, No. 958, § 64-1009.

4-27-1010 — 4-27-1019. [Reserved.]

Part B: Amendment of Bylaws

4-27-1020. Amendment of the bylaws by board of directors or shareholders.

  1. A corporation's board of directors may amend or repeal the corporation's bylaws unless:
    1. the articles of incorporation or this chapter reserve this power exclusively to the shareholders in whole or part; or
    2. the shareholders in amending or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw.
  2. A corporation's shareholders may amend or repeal the corporation's bylaws even though the bylaws may also be amended or repealed by its board of directors.

History. Acts 1987, No. 958, § 64-1010.

4-27-1021. Bylaw increasing quorum or voting requirement for shareholders.

  1. If authorized by the articles of incorporation, the shareholders may adopt or amend a bylaw that fixes a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is required by this chapter. The adoption or amendment of a bylaw that adds, changes, or deletes a greater quorum or voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
  2. A bylaw that fixes a greater quorum or voting requirement for shareholders under subsection (a) of this section may not be adopted, amended, or repealed by the board of directors.

History. Acts 1987, No. 958, § 64-1011.

4-27-1022. Bylaw increasing quorum or voting requirement for directors.

  1. A bylaw that fixes a greater quorum or voting requirement for the board of directors may be amended or repealed:
    1. if originally adopted by the shareholders, only by the shareholders;
    2. if originally adopted by the board of directors, either by the shareholders or by the board of directors.
  2. A bylaw adopted or amended by the shareholders that fixes a greater quorum or voting requirement for the board of directors may provide that it may be amended or repealed only by a specified vote of either the shareholders or the board of directors.
  3. Action by the board of directors under subdivision (a)(2) of this section to adopt or amend a bylaw that changes the quorum or voting requirement for the board of directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.

History. Acts 1987, No. 958, § 64-1012.

Subchapter 11 — Conversion and Merger

Publisher's Notes. Former subchapter 11, concerning merger and share exchange, was repealed by Acts 2009, No. 408, § 2. The former subchapter was derived from the following sources:

4-27-1101. Acts 1987, No. 958, § 64-1101.

4-27-1102. Acts 1987, No. 958, § 64-1102.

4-27-1103. Acts 1987, No. 958, § 64-1103.

4-27-1104. Acts 1987, No. 958, § 64-1104.

4-27-1105. Acts 1987, No. 958, § 64-1105.

4-27-1106. Acts 1987, No. 958, § 64-1106; 1987 (1st Ex. Sess.), No. 11, § 9.

4-27-1107. Acts 1987, No. 958, § 64-1107; 2007, No. 638, § 12.

Research References

ALR.

Determination of Whether State or Federal Law Governs Corporate Successorship When Dispute Concerns Debts to National Government, 29 A.L.R. Fed. 3d Art. 2 (2018).

4-27-1101. Definitions.

In this subchapter:

  1. “Constituent corporation” means a constituent organization that is a corporation;
  2. “Constituent organization” means an organization that is party to a merger;
  3. “Converted organization” means the organization into which a converting organization converts pursuant to §§ 4-27-1102 — 4-27-1105;
  4. “Converting corporation” means a converting organization that is a corporation;
  5. “Converting organization” means an organization that converts into another organization pursuant to § 4-27-1102;
  6. “Governing statute” of an organization means the statute that governs the organization's internal affairs;
  7. “In a record” means maintained or kept on file by the organization at an office of the organization or with the Secretary of State;
    1. “Organization” means:
      1. A partnership, including a limited liability partnership;
      2. A limited partnership, including a limited liability limited partnership;
      3. A limited liability company;
      4. A business trust;
      5. A corporation; or
      6. Any other entity that has a governing statute.
    2. “Organization” includes a domestic or foreign organization whether or not the organization is organized for profit;
  8. “Organizational documents” means:
    1. For a domestic or foreign general partnership, its partnership agreement and, if applicable, statement of qualification;
    2. For a domestic or foreign limited partnership, its certificate of limited partnership and partnership agreement;
    3. For a domestic or foreign limited liability company, its articles of organization and operating agreement, or the comparable records provided for in its governing statute;
    4. For a business trust, its agreement of trust and declaration of trust;
    5. For a domestic or foreign corporation for profit, its articles of incorporation, bylaws, and other agreements among its shareholders which are authorized by its governing statute, or the comparable records provided for in its governing statute; and
    6. For any other organization, the records that:
      1. Create the organization;
      2. Determine the internal governance of the organization; and
      3. Determine the relations among the organization's owners, members, and interested parties; and
  9. “Surviving organization” means an organization into which one (1) or more other organizations are merged.

History. 2009, No. 408, § 2.

4-27-1102. Conversion.

  1. An organization other than a corporation may convert to a corporation, and a corporation may convert to another organization under this section and §§ 4-27-1103 — 4-27-1105 and a plan of conversion, if the:
    1. Other organization's governing statute authorizes the conversion and is complied with; and
    2. Conversion is not prohibited by the law of the jurisdiction that enacted the governing statute.
  2. A plan of conversion must be in a record and must include the:
    1. Name and form of the organization before conversion;
    2. Name and form of the organization after conversion;
    3. Terms and conditions of the conversion, including the manner and basis for converting interests in the converting organization into any combination of money, interests in the converted organization, and other consideration; and
    4. Organizational documents of the converted organization.

History. 2009, No. 408, § 2.

4-27-1103. Action on plan of conversion by converting corporation.

  1. A plan of conversion may be approved if the:
    1. Board of directors recommends the plan of conversion to the shareholders, unless the board of directors:
      1. Determines that because of a conflict of interest or other special circumstances it should make no recommendation; and
      2. Communicates the basis for its determination at the time the plan of conversion is submitted to the shareholders; and
    2. Shareholders entitled to vote approve the plan.
  2. The board of directors may condition its submission of the proposed conversion on any basis.
    1. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 4-27-705.
    2. The notice shall:
      1. State that a purpose of the meeting is to consider the plan of conversion; and
      2. Contain or be accompanied by a copy or summary of the plan.
  3. Unless this chapter, the articles of incorporation, or the board of directors acting under subsection (b) of this section require a greater vote or a vote by voting groups, the plan of conversion to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by the voting group.
  4. Subject to any contractual rights, until a conversion is filed under § 4-27-1104, a converting corporation may amend the plan or abandon the planned conversion:
    1. As provided in the plan; and
    2. Except as prohibited by the plan, by the same consent required to approve the plan.

History. 2009, No. 408, § 2.

4-27-1104. Filings required for conversion — Effective date.

    1. After a plan of conversion is approved a converting corporation shall file articles of conversion with the Secretary of State.
    2. The articles of conversion shall include:
      1. A statement that the corporation has been converted into another organization;
      2. The name and form of the organization and the jurisdiction of its governing statute;
      3. The date the conversion is effective under the governing statute of the converted organization;
      4. A statement that the conversion was approved as required by this chapter;
      5. A statement that the conversion was approved as required by the governing statute of the converted organization;
      6. A statement confirming that the converted organization has filed a statement appointing an agent for service of process under § 4-20-112 if the converted organization is a foreign organization not authorized to transact business in this state; and
        1. A copy of the plan of conversion; or
        2. A statement that:
          1. Contains the address of an office of the organization where the plan of conversion is on file; and
          2. A copy of the plan of conversion will be furnished by the converting corporation on request and without cost to any shareholder of the converting corporation.
    1. If the converting organization is not a converting corporation, the converting organization shall file articles of incorporation with the Secretary of State.
    2. The articles of incorporation shall include, in addition to the information required by § 4-27-202:
      1. A statement that the corporation was converted from another organization;
      2. The name and form of the organization and the jurisdiction of its governing statute; and
      3. A statement that the conversion was approved in a manner that complied with the organization's governing statute.
  1. A conversion becomes effective:
    1. If the converted organization is a corporation, when the articles of incorporation take effect; and
    2. If the converted organization is not a corporation, as provided by the governing statute of the converted organization.

History. 2009, No. 408, § 2.

4-27-1105. Effect of conversion.

  1. An organization that has been converted under this subchapter is for all purposes the same entity that existed before the conversion.
  2. When a conversion takes effect:
    1. All property owned by the converting organization remains vested in the converted organization;
    2. All debts, liabilities, and other obligations of the converting organization continue as obligations of the converted organization;
    3. An action or proceeding pending by or against the converting organization may be continued as if the conversion had not occurred;
    4. Except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of the converting organization remain vested in the converted organization;
    5. Except as otherwise provided in the plan of conversion, the terms and conditions of the plan of conversion take effect; and
    6. Except as otherwise agreed, the conversion does not dissolve a converting corporation under § 4-27-1401 et seq.
    1. A converted organization that is a foreign organization consents to the jurisdiction of the courts of this state to enforce any obligation owed by the converting corporation, if before the conversion the converting corporation was subject to suit in this state on the obligation.
    2. A converted organization that is a foreign organization and not authorized to transact business in this state may be served with process under § 4-20-113 if the converted organization:
      1. Fails to appoint an agent for service of process under § 4-20-112;
      2. No longer has an agent for service of process; or
      3. Has an agent for service of process that cannot with reasonable diligence be served.

History. 2009, No. 408, § 2.

4-27-1106. Merger.

  1. A corporation may merge with one (1) or more other constituent organizations under this section and §§ 4-27-1107 — 4-27-1110 and a plan of merger if:
    1. The governing statute of each of the other organizations authorizes the merger;
    2. The merger is not prohibited by the law of a jurisdiction that enacted any of the governing statutes; and
    3. Each of the other organizations complies with its governing statute in effecting the merger.
  2. A plan of merger shall be in a record and shall include:
    1. The name and form of each constituent organization;
    2. The name and form of the surviving organization;
    3. The terms and conditions of the merger, including the manner and basis for converting the interests in each constituent organization into any combination of money, interests in the surviving organization, and other consideration; and
    4. Any amendments to be made by the merger to the surviving organization's organizational documents.

History. 2009, No. 408, § 2.

4-27-1107. Action on plan of merger by constituent corporation.

  1. Except as provided in subsection (g) of this section and after adopting a plan of merger, the board of directors of each corporation that is a party to the merger shall submit the plan of merger for approval by its shareholders.
  2. A plan of merger may be approved if the:
    1. Board of directors recommends the plan of merger to the shareholders, unless the board of directors:
      1. Determines that because of a conflict of interest or other special circumstances it should make no recommendation; and
      2. Communicates the basis for its determination at the time the plan of merger is submitted to the shareholders; and
    2. Shareholders entitled to vote approve the plan.
  3. The board of directors may condition its submission of the proposed merger on any basis.
    1. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 4-27-705.
    2. The notice shall:
      1. State that a purpose of the meeting is to consider the plan of merger; and
      2. Contain or be accompanied by a copy or summary of the plan.
  4. Unless this chapter, the articles of incorporation, or the board of directors acting under subsection (c) of this section require a greater vote or a vote by voting groups, the plan of merger to be authorized must be approved by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote, and if by voting group, by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by the voting group.
  5. Separate voting by voting groups is required on a plan of merger if the plan contains a provision that, if contained in a proposed amendment to the articles of incorporation, would require action by one (1) or more separate voting groups on the proposed amendment under § 4-27-1004.
  6. Action by the shareholders of the surviving corporation on a plan of merger is not required if:
    1. The articles of incorporation of the surviving corporation will not differ except for amendments enumerated in § 4-27-1002 from its articles before the merger;
    2. Each shareholder of the surviving corporation whose shares were outstanding immediately before the effective date of the merger will hold the same number of shares or the interest comparable to shares in an entity other than a corporation, with identical designations, preferences, limitations, and relative rights immediately after the merger;
    3. The number of voting shares outstanding immediately after the merger plus the number of voting shares issuable as a result of the merger either by the conversion of securities issued pursuant to the merger or by the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than twenty percent (20%) the total number of voting shares of the surviving corporation outstanding immediately before the merger; and
    4. The number of participating shares outstanding immediately after the merger plus the number of participating shares issuable as a result of the merger either by the conversion of securities issued pursuant to the merger or by the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than twenty percent (20%) the total number of participating shares outstanding immediately before the merger.
  7. As used in subsection (g) of this section:
    1. “Participating shares” means shares that entitle their holders to participate without limitation in distributions; and
    2. “Voting shares” means shares that entitle their holders to vote unconditionally in elections of directors.
  8. Subject to any contractual rights, at any time before articles of merger are filed the planned merger may be abandoned without further shareholder action in accordance with the procedure set forth in the plan of merger or, if none is set forth, in the manner determined by the board of directors.

History. 2009, No. 408, § 2.

4-27-1108. Merger of subsidiary.

  1. A parent corporation owning at least ninety percent (90%) of the outstanding shares of each class of a subsidiary corporation may merge the subsidiary corporation into itself without approval of the shareholders of the parent corporation or subsidiary corporation.
  2. The board of directors of the parent corporation shall adopt a plan of merger that sets forth:
    1. The names of the parent corporation and the subsidiary corporation; and
    2. The manner and basis of converting the shares of the subsidiary corporation into:
      1. Shares, obligations, or other securities of the parent corporation or any other corporation; or
      2. Cash or other property.
  3. The parent corporation shall mail a copy or summary of the plan of merger to each shareholder of the subsidiary who does not waive the mailing requirement in writing.
  4. The parent corporation may not deliver articles of merger to the Secretary of State for filing until at least thirty (30) days after the date the parent corporation mailed a copy of the plan of merger to each shareholder of the subsidiary corporation who did not waive the mailing requirement.
  5. Articles of merger under this section may not contain amendments to the articles of incorporation of the parent corporation except for amendments enumerated in § 4-27-1002.

History. Acts 2009, No. 408, § 2.

4-27-1109. Filings required for merger — Effective date.

  1. After each constituent organization has approved a merger, articles of merger must be signed by an authorized representative of each constituent organization.
  2. The articles of merger shall include:
    1. The name and form of each constituent organization and the jurisdiction of its governing statute;
    2. The name and form of the surviving organization and the jurisdiction of its governing statute;
    3. The date the merger is effective under the governing statute of the surviving organization;
    4. Any amendments provided for in the plan of merger for the organizational document of the surviving organization;
    5. A statement as to each constituent organization that the merger was approved as required by the organization's governing statute;
    6. A statement confirming that the surviving organization has filed a statement appointing an agent for service of process under § 4-20-112 if the surviving organization is a foreign organization not authorized to transact business in this state;
      1. A copy of the plan of merger; or
      2. A statement that:
        1. Contains the address of an office of the surviving organization where the plan of merger is on file; and
        2. A copy of the plan of merger will be furnished by the surviving organization on request and without cost to any shareholder, member, partner, or other owner of any constituent organization; and
    7. Any additional information required by the governing statute of any constituent organization.
  3. Each constituent organization shall deliver the articles of merger for filing in the office of the Secretary of State.
  4. A merger becomes effective under this subchapter:
    1. If the surviving organization is a corporation, upon the later of:
      1. Compliance with subsection (c) of this section; or
      2. The date specified in the articles of merger; or
    2. If the surviving organization is not a corporation, as provided by the governing statute of the surviving organization.

History. Acts 2009, No. 408, § 2.

4-27-1110. Effect of merger.

  1. When a merger becomes effective:
    1. The surviving organization continues or comes into existence;
    2. Each constituent organization that merges into the surviving organization ceases to exist as a separate entity;
    3. All property owned by each constituent organization that ceases to exist vests in the surviving organization;
    4. All debts, liabilities, and other obligations of each constituent organization that ceases to exist continue as obligations of the surviving organization;
    5. An action or proceeding pending by or against a constituent organization that ceases to exist may continue as if the merger had not occurred;
    6. Except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of each constituent organization that ceases to exist vest in the surviving organization;
    7. Except as otherwise provided in the plan of merger, the terms and conditions of the plan of merger take effect;
    8. Except as otherwise agreed, if a constituent corporation ceases to exist, the merger does not dissolve the corporation for the purposes of § 4-27-1401 et seq.; and
    9. Any amendments provided for in the articles of merger for the organizational documents of the surviving organization become effective.
    1. A surviving organization that is a foreign organization consents to the jurisdiction of the courts of this state to enforce any obligation owed by a constituent organization if before the merger the constituent organization was subject to suit in this state on the obligation.
    2. A surviving organization that is a foreign organization and not authorized to transact business in this state may be served with process under § 4-20-113 if the surviving organization:
      1. Fails to appoint an agent for service of process under § 4-20-112;
      2. No longer has an agent for service of process; or
      3. Has an agent for service of process that cannot with reasonable diligence be served.

History. Acts 2009, No. 408, § 2.

4-27-1111. Chapter not exclusive.

This chapter does not preclude an organization from being converted or merged under other law.

History. Acts 2009, No. 408, § 2.

Subchapter 12 — Sale of Assets

4-27-1201. Sale of assets in regular course of business and mortgage of assets.

  1. A corporation may, on the terms and conditions and for the consideration determined by the board of directors:
    1. sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property in the usual and regular course of business;
    2. mortgage, pledge, dedicate to the repayment of indebtedness (whether with or without recourse), or otherwise encumber any or all of its property whether or not in the usual and regular course of business; or
    3. transfer any or all of its property to a corporation all the shares of which are owned by the corporation.
  2. Unless the articles of incorporation or another provision of this chapter so require, approval by the shareholders of a transaction described in subsection (a) of this section is not required.

History. Acts 1987, No. 958, § 64-1201.

4-27-1202. Sale of assets other than in regular course of business.

  1. A corporation may sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property (with or without the good will), otherwise than in the usual and regular course of business, on the terms and conditions and for the consideration determined by the corporation's board of directors, if the board of directors proposes and its shareholders approve the proposed transaction.
  2. For a transaction to be authorized:
    1. the board of directors must recommend the proposed transaction to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders with the submission of the proposed transaction; and
    2. the shareholders entitled to vote must approve the transaction.
  3. The board of directors may condition its submission of the proposed transaction on any basis.
  4. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 4-27-705. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the sale, lease, exchange, or other disposition of all, or substantially all, the property of the corporation and contain or be accompanied by a description of the transaction.
  5. Unless the articles of incorporation or the board of directors (acting pursuant to subsection (c) of this section) require a greater vote or a vote by voting groups, the transaction to be authorized must be approved by a majority of all the votes entitled to be cast on the transaction.
  6. After a sale, lease, exchange, or other disposition of property is authorized, the transaction may be abandoned (subject to any contractual rights) without further shareholder action.
  7. A transaction that constitutes a distribution is governed by § 4-27-640 and not by this section.

History. Acts 1987, No. 958, § 64-1202.

Subchapter 13 — Dissenters' Rights

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Part A: Right to Dissent and Obtain Payment for Shares

4-27-1301. Definitions.

In this subchapter:

  1. “Corporation” means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer.
  2. “Dissenter” means a shareholder who is entitled to dissent from corporate action under § 4-27-1302 and who exercises that right when and in the manner required by §§ 4-27-1320 — 4-27-1328.
  3. “Fair value”, with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable.
  4. “Interest” means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances.
  5. “Record shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation.
  6. “Beneficial shareholder” means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder.
  7. “Shareholder” means the record shareholder or the beneficial shareholder.

History. Acts 1987, No. 958, § 64-1301; 1987 (1st Ex. Sess.), No. 11, § 10.

4-27-1302. Right of dissent.

  1. A shareholder is entitled to dissent from and obtain payment of the fair value of the shareholder's shares in the event of any of the following corporate actions:
    1. Consummation of a plan of conversion to which the corporation is a party;
    2. Consummation of a plan of merger to which the corporation is a party if:
      1. Shareholder approval is required for the merger by § 4-27-1107 or the articles of incorporation and the shareholder is entitled to vote on the merger; or
      2. The corporation is a subsidiary that is merged with its parent under § 4-27-1108;
    3. Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan;
    4. Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution, but not including a sale under court order or a sale for cash under a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one (1) year after the date of sale;
    5. An amendment to the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it:
      1. Alters or abolishes a preferential right of the shares;
      2. Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase of the shares;
      3. Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities;
      4. Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or
      5. Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under § 4-27-604; or
    6. Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provide that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares.
  2. A shareholder entitled to dissent and obtain payment for the shareholder's shares under this subchapter may not challenge the corporate action creating the shareholder's entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.

History. Acts 1987, No. 958, § 64-1302; 1987 (1st Ex. Sess.), No. 11, § 11; 2009, No. 408, §§ 3, 9.

Amendments. The 2009 amendment, in (a), inserted (a)(1), redesignated the subsequent subdivisions, substituted “§ 4-27-1107” for “§ 4-27-1103” in (a)(2)(A), and substituted “§ 4-27-1108” for “§ 4-27-1104” in (a)(2)(B); and made minor punctuation and stylistic changes in (a) and (b).

4-27-1303. Dissent by nominees and beneficial owners.

  1. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one (1) person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders.
  2. A beneficial shareholder may assert dissenters' rights as to shares held on his behalf only if:
    1. he submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and
    2. he does so with respect to all shares of which he is the beneficial shareholder or over which he has power to direct the vote.

History. Acts 1987, No. 958, § 64-1303.

4-27-1304 — 4-27-1319. [Reserved.]

Part B: Procedure for Exercise of Dissenters' Rights

4-27-1320. Notice of dissenters' rights.

  1. If proposed corporate action creating dissenters' rights under § 4-27-1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this chapter and be accompanied by a copy of this chapter.
  2. If corporate action creating dissenters' rights under § 4-27-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in § 4-27-1322.

History. Acts 1987, No. 958, § 64-1304.

4-27-1321. Notice of intent to demand payment.

  1. If proposed corporate action creating dissenters' rights under § 4-27-1302 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights (1) must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated and (2) must not vote his shares in favor of the proposed action.
  2. A shareholder who does not satisfy the requirements of subsection (a) of this section is not entitled to payment for his shares under this subchapter.

History. Acts 1987, No. 958, § 64-1305.

4-27-1322. Dissenters' notice.

  1. If proposed corporate action creating dissenters' rights under § 4-27-1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of § 4-27-1321.
  2. The dissenters' notice must be sent no later than ten (10) days after the corporate action was taken, and must:
    1. state where the payment demand must be sent and where and when certificates for certificated shares must be deposited;
    2. inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received;
    3. supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters' rights certify whether or not he acquired beneficial ownership of the shares before that date;
    4. set a date by which the corporation must receive the payment demand, which date may not be fewer than thirty (30) nor more than sixty (60) days after the date the subsection (a) notice is delivered; and
    5. be accompanied by a copy of this subchapter.

History. Acts 1987, No. 958, § 64-1306.

4-27-1323. Duty to demand payment.

  1. A shareholder sent a dissenters' notice described in § 4-27-1322 must demand payment, certify whether he acquired beneficial ownership of the shares before the date required to be set forth in the dissenters' notice pursuant to § 4-27-1322(b)(3), and deposit his certificates in accordance with the terms of the notice.
  2. The shareholder who demands payment and deposits his share certificates under subsection (a) of this section retains all other rights of a shareholder until these rights are cancelled or modified by the taking of the proposed corporate action.
  3. A shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this subchapter.

History. Acts 1987, No. 958, § 64-1307.

4-27-1324. Share restrictions.

  1. The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under § 4-27-1326.
  2. The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are cancelled or modified by the taking of the proposed corporate action.

History. Acts 1987, No. 958, § 64-1308.

4-27-1325. Payment.

  1. Except as provided in § 4-27-1327, as soon as the proposed corporate action is taken, or upon receipt of a payment demand, the corporation shall pay each dissenter who complied with § 4-27-1323 the amount the corporation estimates to be the fair value of his shares, plus accrued interest.
  2. The payment must be accompanied by:
    1. the corporation's balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any;
    2. a statement of the corporation's estimate of the fair value of the shares;
    3. an explanation of how the interest was calculated;
    4. a statement of the dissenter's right to demand payment under § 4-27-1328; and
    5. a copy of this subchapter.

History. Acts 1987, No. 958, § 64-1309.

4-27-1326. Failure to take action.

  1. If the corporation does not take the proposed action within sixty (60) days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares.
  2. If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under § 4-27-1322 and repeat the payment demand procedure.

History. Acts 1987, No. 958, § 64-1310.

4-27-1327. After-acquired shares.

  1. A corporation may elect to withhold payment required by § 4-27-1325 from a dissenter unless he was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action.
  2. To the extent the corporation elects to withhold payment under subsection (a) of this section, after taking the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of his demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter's right to demand payment under § 4-27-1328.

History. Acts 1987, No. 958, § 64-1311.

4-27-1328. Procedure if shareholder dissatisfied with payment or offer.

  1. A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate (less any payment under § 4-27-1325), or reject the corporation's offer under § 4-27-1327 and demand payment of the fair value of his shares and interest due, if:
    1. the dissenter believes that the amount paid under § 4-27-1325 or offered under § 4-27-1327 is less than the fair value of his shares or that the interest due is incorrectly calculated;
    2. the corporation fails to make payment under § 4-27-1325 within sixty (60) days after the date set for demanding payment; or
    3. the corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within sixty (60) days after the date set for demanding payment.
  2. A dissenter waives his right to demand payment under this section unless he notifies the corporation of his demand in writing under subsection (a) of this section within thirty (30) days after the corporation made or offered payment for his shares.

History. Acts 1987, No. 958, § 64-1312.

4-27-1329. [Reserved.]

Part C: Judicial Appraisal of Shares

4-27-1330. Court action.

  1. If a demand for payment under § 4-27-1328 remains unsettled, the corporation shall commence a proceeding within sixty (60) days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the sixty-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded.
  2. The corporation shall commence the proceeding in the circuit court of the county where the corporation's principal office is located or the Pulaski County Circuit Court if the corporation does not have a principal office in this state. If the corporation is a foreign corporation, it shall commence the proceeding in the county in this state where the principal office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located.
  3. The corporation shall make all dissenters (whether or not residents of this state) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law.
  4. The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this section is plenary and exclusive. The court may appoint one (1) or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings.
  5. Each dissenter made a party to the proceeding is entitled to judgment (1) for the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation or (2) for the fair value, plus accrued interest, of his after-acquired shares for which the corporation elected to withhold payment under § 4-27-1327.

History. Acts 1987, No. 958, § 64-1313; 2007, No. 638, § 13.

4-27-1331. Court costs and counsel fees.

  1. The court in an appraisal proceeding commenced under § 4-27-1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under § 4-27-1328.
  2. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable:
    1. against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of §§ 4-27-1320 — 4-27-1328; or
    2. against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this chapter.
  3. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited.

History. Acts 1987, No. 958, § 64-1314.

Subchapter 14 — Dissolution

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

Part A: Voluntary Dissolution

4-27-1401. Dissolution by incorporators or initial directors.

A majority of the incorporators or initial directors of a corporation that has not issued shares or has not commenced business may dissolve the corporation by delivering to the Secretary of State for filing articles of dissolution that set forth:

  1. the name of the corporation;
  2. the date of its incorporation;
  3. either (i) that none of the corporation's shares has been issued or (ii) that the corporation has not commenced business;
  4. that no debt of the corporation remains unpaid;
  5. that the net assets of the corporation remaining after winding up have been distributed to the shareholders, if shares were issued; and
  6. that a majority of the incorporators or initial directors authorized the dissolution.

History. Acts 1987, No. 958, § 64-1401.

4-27-1402. Dissolution by board of directors and shareholders.

  1. A corporation's board of directors may propose dissolution for submission to the shareholders.
  2. For a proposal to dissolve to be adopted:
    1. the board of directors must recommend dissolution to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders; and
    2. the shareholders entitled to vote must approve the proposal to dissolve as provided in subsection (e) of this section.
  3. The board of directors may condition its submission of the proposal for dissolution on any basis.
  4. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 4-27-705. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider dissolving the corporation.
  5. Unless the articles of incorporation or the board of directors (acting pursuant to subsection (c) of this section) require a greater vote or a vote by voting groups, the proposal to dissolve to be adopted must be approved by a majority of all the votes entitled to be cast on that proposal.

History. Acts 1987, No. 958, § 64-1402.

4-27-1403. Articles of dissolution.

  1. At any time after dissolution is authorized, the corporation may dissolve by delivering to the Secretary of State for filing articles of dissolution setting forth:
    1. the name of the corporation;
    2. the date dissolution was authorized;
    3. if dissolution was approved by the shareholders:
      1. the number of votes entitled to be cast on the proposal to dissolve; and
      2. either the total number of votes cast for and against dissolution or the total number of undisputed votes cast for dissolution and a statement that the number cast for dissolution was sufficient for approval;
    4. if voting by voting groups was required, the information required by subdivision (3) of this subsection must be separately provided for each voting group entitled to vote separately on the plan to dissolve.
  2. A corporation is dissolved upon the effective date of its articles of dissolution.

History. Acts 1987, No. 958, § 64-1403.

4-27-1404. Revocation of dissolution.

  1. A corporation may revoke its dissolution within one hundred twenty (120) days of its effective date.
  2. Revocation of dissolution must be authorized in the same manner as the dissolution was authorized unless that authorization permitted revocation by action of the board of directors alone, in which event the board of directors may revoke the dissolution without shareholder action.
  3. After the revocation of dissolution is authorized, the corporation may revoke the dissolution by delivering to the Secretary of State for filing articles of revocation of dissolution, together with a copy of its articles of dissolution, that set forth:
    1. the name of the corporation;
    2. the effective date of the dissolution that was revoked;
    3. the date that the revocation of dissolution was authorized;
    4. if the corporation's board of directors (or incorporators) revoked the dissolution, a statement to that effect;
    5. if the corporation's board of directors revoked a dissolution authorized by the shareholders, a statement that revocation was permitted by action by the board of directors alone pursuant to that authorization; and
    6. if shareholder action was required to revoke the dissolution, the information required by § 4-27-1403(a)(3) or (a)(4).
  4. Revocation of dissolution is effective upon the effective date of the articles of revocation of dissolution.
  5. When the revocation of dissolution is effective, it relates back to and takes effect as of the effective date of the dissolution and the corporation resumes carrying on its business as if dissolution had never occurred.

History. Acts 1987, No. 958, § 64-1404.

4-27-1405. Effect of dissolution.

  1. A dissolved corporation continues its corporate existence but may not carry on any business except that appropriate to wind up and liquidate its business and affairs, including:
    1. collecting its assets;
    2. disposing of its properties that will not be distributed in kind to its shareholders;
    3. discharging or making provision for discharging its liabilities;
    4. distributing its remaining property among its shareholders according to their interests; and
    5. doing every other act necessary to wind up and liquidate its business and affairs.
  2. Dissolution of a corporation does not:
    1. transfer title to the corporation's property;
    2. prevent transfer of its shares or securities, although the authorization to dissolve may provide for closing the corporation's share transfer records;
    3. subject its directors or officers to standards of conduct different from those prescribed in § 4-27-801 et seq.;
    4. change quorum or voting requirements for its board of directors or shareholders; change provisions for selection, resignation, or removal of its directors or officers or both; or change provisions for amending its bylaws;
    5. prevent commencement of a proceeding by or against the corporation in its corporate name;
    6. abate or suspend a proceeding pending by or against the corporation on the effective date of dissolution; or
    7. terminate the authority of the registered agent of the corporation.

History. Acts 1987, No. 958, § 64-1405.

4-27-1406. Known claims against dissolved corporation.

  1. A dissolved corporation may dispose of the known claims against it by following the procedure described in this section.
  2. The dissolved corporation shall notify its known claimants in writing of the dissolution at any time after its effective date. The written notice must:
    1. describe information that must be included in a claim;
    2. provide a mailing address where a claim may be sent;
    3. state the deadline, which may not be fewer than one hundred twenty (120) days from the effective date of the written notice, by which the dissolved corporation must receive the claim; and
    4. state that the claim will be barred if not received by the deadline.
  3. A claim against the dissolved corporation is barred:
    1. if a claimant who was given written notice under subsection (b) of this section does not deliver the claim to the dissolved corporation by the deadline;
    2. if a claimant whose claim was rejected by the dissolved corporation does not commence a proceeding to enforce the claim within ninety (90) days from the effective date of the rejection notice.
  4. For purposes of this section, “claim” does not include a contingent liability or a claim based on an event occurring after the effective date of dissolution.

History. Acts 1987, No. 958, § 64-1406.

4-27-1407. Unknown claims against dissolved corporation.

  1. A dissolved corporation may also publish notice of its dissolution and request that persons with claims against the corporation present them in accordance with the notice.
  2. The notice must:
    1. be published one (1) time in a newspaper of general circulation in the county where the dissolved corporation's principal office is or was last located or in a newspaper of general circulation in Pulaski County if the corporation did not have a principal office in this state;
    2. describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and
    3. state that a claim against the corporation will be barred unless a proceeding to enforce the claim is commenced within five (5) years after the publication of the notice.
  3. If the dissolved corporation publishes a newspaper notice in accordance with subsection (b) of this section, the claim of each of the following claimants is barred unless the claimant commences a proceeding to enforce the claim against the dissolved corporation within five (5) years after the publication date of the newspaper notice:
    1. a claimant who did not receive written notice under § 4-27-1406;
    2. a claimant whose claim was timely sent to the dissolved corporation but not acted on;
    3. a claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
  4. A claim may be enforced under this section:
    1. against the dissolved corporation, to the extent of its undistributed assets; or
    2. if the assets have been distributed in liquidation, against a shareholder of the dissolved corporation to the extent of his pro rata share of the claim or the corporate assets distributed to him in liquidation, whichever is less, but a shareholder's total liability for all claims under this section may not exceed the total amount of assets distributed to him.

History. Acts 1987, No. 958, § 64-1407; 1987 (1st Ex. Sess.), No. 11, § 12; 2007, No. 638, § 14.

Case Notes

Liability Considered.

In a mineral rights case, a jury properly considered whether former shareholders could have been liable under this section because there was substantial evidence that a settlement agreement liquidated a corporation's assets and distributed them to individual shareholders and/or their assignees. Smith v. Mt. Pine Timber, Inc., 2016 Ark. App. 193, 487 S.W.3d 409 (2016).

4-27-1408 — 4-27-1419. [Reserved.]

Part B: Administrative Dissolution

4-27-1420. Grounds for administrative dissolution. [Effective until May 1, 2021.]

The Secretary of State may commence a proceeding under § 4-27-1421 to administratively dissolve a corporation if:

  1. the corporation does not pay within sixty (60) days after they are due any franchise taxes or penalties imposed by this chapter or other law;
  2. the corporation does not deliver its annual franchise tax report to the Secretary of State within sixty (60) days after it is due;
  3. the corporation is without a registered agent in this state for sixty (60) days or more;
  4. the corporation does not notify the Secretary of State within sixty (60) days that its registered agent has been changed or has resigned; or
  5. the corporation's period of duration stated in its articles of incorporation expires.

History. Acts 1987, No. 958, § 64-1408; 2007, No. 638, § 15.

Publisher's Notes. For text of section effective May 1, 2021, see the following version.

Research References

Ark. L. Notes.

Flaccus, A Grab Bag of Recent Arkansas Cases, 1999 Ark. L. Notes 25.

Case Notes

Corporation with Forfeited Charter.

This section, §§ 26-54-110 and 26-54-112 presuppose that a corporation whose charter has been forfeited has not yet been dissolved, and since a corporation with a forfeited charter has not been dissolved, the corporation continues to exist for limited purposes. Gibson v. Dennis (In re Russell), 123 B.R. 48 (Bankr. W.D. Ark. 1990).

4-27-1420. Grounds for administrative dissolution. [Effective May 1, 2021.]

The Secretary of State may commence a proceeding under § 4-27-1421 to administratively dissolve a corporation if:

  1. the corporation does not pay within sixty (60) days after they are due any franchise taxes or penalties imposed by this chapter or other law;
  2. the corporation does not deliver its annual franchise tax report to the Department of Finance and Administration within sixty (60) days after it is due;
  3. the corporation is without a registered agent in this state for sixty (60) days or more;
  4. the corporation does not notify the Secretary of State within sixty (60) days that its registered agent has been changed or has resigned; or
  5. the corporation's period of duration stated in its articles of incorporation expires.

History. Acts 1987, No. 958, § 64-1408; 2007, No. 638, § 15; 2019, No. 819, § 7.

A.C.R.C. Notes. Acts 2019, No. 819, § 1, provided: “Title. This act shall be known and may be cited as the ‘Arkansas Tax Reform Act of 2019'”.

Acts 2019, No. 819, § 2, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The Arkansas Tax Reform and Relief Legislative Task Force was charged with:

“(A) Examining and identifying areas of potential tax reform within the tax laws; and

“(B) Recommending legislation to the General Assembly, in part, to modernize and simplify the Arkansas tax code and ensure fairness to all taxpayers;

“(2) There are several areas of the tax code that should be amended to reform the state's tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(3) Any savings realized by the state through tax reforms should be dedicated to reducing the tax burden for Arkansas taxpayers.

“(b) It is the intent of the General Assembly to:

“(1) Reform Arkansas tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(2) Offset any revenue savings realized through tax reform with corresponding changes to reduce the tax burden for Arkansas taxpayers”.

Publisher's Notes. For text of section effective until May 1, 2021, see the preceding version.

Amendments. The 2019 amendment substituted “Department of Finance and Administration” for “Secretary of State” in (2).

Effective Dates. Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

Research References

Ark. L. Notes.

Flaccus, A Grab Bag of Recent Arkansas Cases, 1999 Ark. L. Notes 25.

Case Notes

Corporation with Forfeited Charter.

This section, §§ 26-54-110 and 26-54-112 presuppose that a corporation whose charter has been forfeited has not yet been dissolved, and since a corporation with a forfeited charter has not been dissolved, the corporation continues to exist for limited purposes. Gibson v. Dennis (In re Russell), 123 B.R. 48 (Bankr. W.D. Ark. 1990).

4-27-1421. Procedure for and effect of administrative dissolution.

  1. If the Secretary of State determines that one (1) or more grounds exist under § 4-27-1420 for dissolving a corporation, he or she shall serve the corporation with written notice of his or her determination.
  2. If the corporation does not correct each ground for dissolution or demonstrate to the reasonable satisfaction of the Secretary of State that each ground determined by the Secretary of State does not exist within sixty (60) days after service of the notice is perfected, the Secretary of State shall administratively dissolve the corporation by signing a certificate of dissolution that recites the ground or grounds for dissolution and its effective date. The Secretary of State shall file the original of the certificate and serve a copy on the corporation.
  3. A corporation administratively dissolved continues its corporate existence but may not carry on any business except that necessary to wind up and liquidate its business and affairs under § 4-27-1405 and notify claimants under §§ 4-27-1406 and 4-27-1407.
  4. The administrative dissolution of a corporation does not terminate the authority of its registered agent.

History. Acts 1987, No. 958, § 64-1409; 2007, No. 638, § 16.

4-27-1422. Reinstatement following administrative dissolution.

  1. A corporation administratively dissolved under § 4-27-1421 may apply to the Secretary of State for reinstatement within two (2) years after the effective date of dissolution. The application must:
    1. recite the name of the corporation and the effective date of its administrative dissolution;
    2. state that the ground or grounds for dissolution either did not exist or have been eliminated;
    3. state that the corporation's name satisfies the requirements of § 4-27-401; and
    4. contain one (1) or more certificates from appropriate state taxing authorities reciting that all taxes owed by the corporation have been paid.
  2. If the Secretary of State determines that the application contains the information required by subsection (a) of this section and that the information is correct, he or she shall cancel the certificate of dissolution and prepare a certificate of reinstatement that recites his or her determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the corporation.
  3. When the reinstatement is effective, it relates back to and takes effect as of the date of the administrative dissolution and the corporation resumes carrying on its business as if the administrative dissolution had never occurred.

History. Acts 1987, No. 958, § 64-1410; 2007, No. 638, § 17.

Case Notes

Cited: Larzelere v. Reed, 35 Ark. App. 174, 816 S.W.2d 614 (1991).

4-27-1423. Appeal from denial of reinstatement.

  1. If the Secretary of State denies a corporation's application for reinstatement following administrative dissolution, he or she shall serve the corporation with a written notice that explains the reason or reasons for denial.
  2. The corporation may appeal the denial of reinstatement to the Pulaski County Circuit Court within thirty (30) days after service of the notice of denial is perfected. The corporation appeals by petitioning the court to set aside the dissolution and attaching to the petition copies of the Secretary of State's certificate of dissolution, the corporation's application for reinstatement, and the Secretary of State's notice of denial.
  3. The court may summarily order the Secretary of State to reinstate the dissolved corporation or may take other action the court considers appropriate.
  4. The court's final decision may be appealed as in other civil proceedings.

History. Acts 1987, No. 958, § 64-1411; 2007, No. 638, § 18.

4-27-1424 — 4-27-1429. [Reserved.]

Part C: Judicial Dissolution

4-27-1430. Grounds for judicial dissolution.

The Pulaski County Circuit Court, in the case of a proceeding brought by the Attorney General, or the circuit court of the county in which the corporation's principal office (or, if none in this state, its registered office) is located in the case of a proceeding brought by a shareholder, may dissolve a corporation:

  1. in a proceeding by the Attorney General, if it is established that:
    1. the corporation obtained its articles of incorporation through fraud; or
    2. the corporation has continued to exceed or abuse the authority conferred upon it by law;
  2. In a proceeding by a shareholder, if it is established that:
    1. the directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered, or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally, because of the deadlock;
    2. the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent;
    3. the shareholders are deadlocked in voting power and have failed, for a period that includes at least two (2) consecutive annual meeting dates, to elect successors to directors whose terms have expired; or
    4. the corporate assets are being misapplied or wasted;
  3. In a proceeding by a creditor, if it is established that:
    1. the creditor's claim has been reduced to judgment, the execution on the judgment returned unsatisfied, and the corporation is insolvent; or
    2. the corporation has admitted in writing that the creditor's claim is due and owing and the corporation is insolvent; or
  4. In a proceeding by the corporation to have its voluntary dissolution continued under court supervision.

History. Acts 1987, No. 958, § 64-1412.

Publisher's Notes. Acts 1993, No. 444, § 2, provided:

“The General Assembly determines that Arkansas Code § 4-25-104 is no longer necessary and should be repealed as to dissolution of insolvent corporations is now comprehensively covered by Arkansas Code §§ 4-26-1108, 4-27-1430 and 4-59-201 et seq.”

4-27-1431. Procedure for judicial dissolution.

  1. Venue for a proceeding by the Attorney General to dissolve a corporation lies in the Pulaski County Circuit Court. Venue for a proceeding brought by any other party named in § 4-27-1430 lies in the county where a corporation's principal office is or was last located or the Pulaski County Circuit Court if the corporation does not have a principal office in this state.
  2. It is not necessary to make shareholders parties to a proceeding to dissolve a corporation unless relief is sought against them individually.
  3. A court in a proceeding brought to dissolve a corporation may issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs, take other action required to preserve the corporate assets wherever located, and carry on the business of the corporation until a full hearing can be held.

History. Acts 1987, No. 958, § 64-1413; 1987 (1st Ex. Sess.), No. 11, § 13; 2007, No. 638, § 19.

4-27-1432. Receivership or custodianship.

  1. A court in a judicial proceeding brought to dissolve a corporation may appoint one (1) or more receivers to wind up and liquidate, or one (1) or more custodians to manage, the business and affairs of the corporation. The court shall hold a hearing, after notifying all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian has exclusive jurisdiction over the corporation and all of its property wherever located.
  2. The court may appoint an individual or a domestic or foreign corporation (authorized to transact business in this state) as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.
  3. The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended from time to time. Among other powers:
    1. the receiver (i) may dispose of all or any part of the assets of the corporation wherever located, at a public or private sale, if authorized by the court; and (ii) may sue and defend in his own name as receiver of the corporation in all courts of this state;
    2. the custodian may exercise all of the powers of the corporation, through or in place of its board of directors or officers, to the extent necessary to manage the affairs of the corporation in the best interests of its shareholders and creditors.
  4. The court during a receivership may redesignate the receiver a custodian, and during a custodianship may redesignate the custodian a receiver, if doing so is in the best interests of the corporation, its shareholders, and creditors.
  5. The court from time to time during the receivership or custodianship may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and his counsel from the assets of the corporation or proceeds from the sale of the assets.

History. Acts 1987, No. 958, § 64-1414.

Case Notes

Powers of Receiver.

Trial court erred in dismissing claims against a corporation for lack of subject-matter jurisdiction, on the ground that the corporation was in a pending judicial dissolution and receivership, because under subdivision (c)(1)(ii) of this section, the receiver was authorized to defend in his or her own name as the corporation's receiver in all Arkansas courts. Reshel v. Moser, 101 Ark. App. 125, 270 S.W.3d 877 (2008).

Cited: Sims v. Circuit Court, 368 Ark. 498, 247 S.W.3d 493 (2007).

4-27-1433. Decree of dissolution.

  1. If after a hearing the court determines that one (1) or more grounds for judicial dissolution described in § 4-27-1430 exist, it may enter a decree dissolving the corporation and specifying the effective date of the dissolution, and the clerk of the court shall deliver a certified copy of the decree to the Secretary of State, who shall file it.
  2. After entering the decree of dissolution, the court shall direct the winding up and liquidation of the corporation's business and affairs in accordance with § 4-27-1405 and the notification of claimants in accordance with §§ 4-27-1406 and 4-27-1407.

History. Acts 1987, No. 958, § 64-1415.

4-27-1434 — 4-27-1439. [Reserved.]

Part D: Miscellaneous

4-27-1440. Deposit with Treasurer of State.

Assets of a dissolved corporation that should be transferred to a creditor, claimant, or shareholder of the corporation who cannot be found or who is not competent to receive them shall be reduced to cash and deposited with the Treasurer of State or other appropriate state official for safekeeping. When the creditor, claimant, or shareholder furnishes satisfactory proof of entitlement to the amount deposited, the Treasurer of State or other appropriate state official shall pay him or his representative that amount.

History. Acts 1987, No. 958, § 64-1416.

Subchapter 15 — Foreign Corporations

Cross References. Consolidation of foreign and domestic corporations, § 4-26-1006.

Foreign corporations prohibited from doing business in violation of Automobile Dealer's Anti-Coercion Act, § 4-75-406.

Foreign corporations subject to same regulations, limitations, and liabilities as domestic corporations, Ark. Const., Art. 12, § 11.

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

Research References

ALR.

In personam jurisdiction under long arm statute over nonresident banking institution. 9 A.L.R.4th 661.

Ownership of land by alien corporation. 21 A.L.R.4th 1329.

Personal liability of stockholder, officer, or agent for debt of foreign corporation doing business in the state. 27 A.L.R.4th 387.

Construction, complication, and operation of state retaliatory statutes imposing special taxes or fees on foreign insurers doing business within state. 30 A.L.R.4th 873.

Personal jurisdiction over nonresident manufacturer of component incorporated in another product. 69 A.L.R.4th 14.

What constitutes doing business within state for purposes of state closed-door statute barring unqualified or unregistered foreign corporation from local courts — modern cases. 88 A.L.R.4th 466.

Application of statute denying access to courts or invalidating contracts where corporation fails to comply with regulatory statute as affected by compliance after commencement of action. 23 A.L.R.5th 744 .

Doing business, place where corporation is doing business for purposes of state venue statute. 42 A.L.R.5th 221.

Sufficient nexus for state to require foreign entity to collect state's compensating, sales or use tax — post Complete Auto Transit cases. 71 A.L.R.5th 671.

Am. Jur. 36 Am. Jur. 2d, For. Corp., § 1 et seq.

Ark. L. Rev.

Regulation of Nonresident Lending Money in State, 7 Ark. L. Rev. 374.

Bills and Notes — The Original Payee's Non-Compliance with the Wingo Act as a Defense Against a Holder in Due Course, 25 Ark. L. Rev. 518.

Conflict of Laws: Arkansas, 32 Ark. L. Rev. 1.

Leflar, Conflict of Laws: Arkansas, 1978-82, 36 Ark. L. Rev. 191.

C.J.S. 19 C.J.S., Corp., § 968 et seq.

U. Ark. Little Rock L.J.

Tyler, Survey of Business Law, 3 U. Ark. Little Rock L.J. 149.

Survey — Business Law, 10 U. Ark. Little Rock L.J. 89.

Part A: Certificate of Authority

4-27-1501. Authority to transact business required.

  1. A foreign corporation may not transact business in this state until it obtains a certificate of authority from the Secretary of State.
  2. The following activities, among others, do not constitute transacting business within the meaning of subsection (a) of this section:
    1. Maintaining, defending, or settling any proceeding;
    2. Holding meetings of the board of directors or shareholders, or carrying on other activities concerning internal corporate affairs;
    3. Maintaining bank accounts;
    4. Maintaining offices or agencies for the transfer, exchange, and registration of the corporation's own securities or maintaining trustees or depositaries with respect to those securities;
    5. Selling through independent contractors;
    6. Soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts;
    7. Creating or acquiring indebtedness, mortgages, and security interests in real or personal property;
    8. Securing or collecting debts or enforcing mortgages and security interests in property securing the debts;
    9. Owning, without more, real or personal property;
    10. Conducting an isolated transaction that is completed within thirty (30) days and that is not one in the course of repeated transactions of a like nature;
    11. Transacting business in interstate commerce.
  3. The list of activities in subsection (b) of this section is not exhaustive.

History. Acts 1987, No. 958, § 64-1501; 1987 (1st Ex. Sess.), No. 11, § 14.

Research References

Ark. L. Rev.

Emily C. Goins, Case Note: Foreign Corporation Registration and the Ability to Perform Non-Judicial Foreclosures in Arkansas in Light of JPMorgan Chase Bank v. Johnson, 67 Ark. L. Rev. 435 (2014).

Case Notes

In General.

This section and § 4-27-1502 are not to be used to penalize, but to encourage foreign corporations to file for a certificate of authority. Johnny's Pizza House, Inc. v. Huntsman, 311 Ark. 346, 844 S.W.2d 320 (1992).

Arkansas Statutory Foreclosure Act in § 18-50-102(a)(2) provides that a bank may be authorized to do business in Arkansas either by state or federal law; the Wingo Act, § 4-27-1501 et seq., specifies that a foreign corporation may obtain authority to transact business in Arkansas by obtaining a certificate from the Arkansas Secretary of State; and the Arkansas banking statutes provide that in some instances an out-of-state bank must obtain a certificate from the Arkansas Bank Commissioner. JPMorgan Chase Bank, N.A. v. Johnson, 470 B.R. 829 (E.D. Ark. 2012), aff'd, 719 F.3d 1010 (8th Cir. 2013).

Certificate Not Required.

Trial court did not err in denying appellant's motion to dismiss for lack of standing on the ground that appellee's Louisiana corporate charter had been revoked at the time it filed its original complaint against appellant for unlawfully detaining property because appellee's activities in Arkansas involved the creation, securing, and collection of debts, as well as the ownership of real and personal property; thus, under subsection (b) of this section, appellee was not “transacting business” in Arkansas and its failure to obtain a certificate of authority did not prevent it from filing suit in Arkansas. Omni Holding & Dev. Corp. v. C.A.G. Invs., Inc., 370 Ark. 220, 258 S.W.3d 374 (2007).

State's Authority.

State may impose terms upon foreign corporations desiring to do business in the state. Western Union Tel. Co. v. State, 82 Ark. 309, 101 S.W. 748 (1907) (decision under prior law).

The state only has authority to permit foreign corporations to do business here and to regulate the manner in which their business is done. Missouri Pac. R.R. v. W.S. Fox & Sons, Inc., 251 Ark. 247, 472 S.W.2d 726 (1971) (decision under prior law).

Transacting Business in State.

—In General.

Corporation held to be doing business in state. Kansas City Structural Steel Co. v. State ex rel. Ashley County, 161 Ark. 483, 256 S.W. 845 (1923), aff'd, 269 U.S. 148, 46 S. Ct. 59, 70 L. Ed. 204 (1925); Eisenmayer Milling Co. v. George E. Shelton Produce Co., 176 Ark. 620, 3 S.W.2d 688 (1928); Vaccinol Prods. Corp. v. State ex rel. Phillips County, 203 Ark. 302, 156 S.W.2d 250 (1941); National Distribs., Inc. v. Simard, 246 Ark. 774, 440 S.W.2d 31 (1969); Uncle Ben's, Inc. v. Crowell, 482 F. Supp. 1149 (E.D. Ark. 1980) (preceding decisions under prior law).

When a foreign corporation transacts some substantial part of its ordinary business in this state, it is doing business therein within the meaning of the statute. Murray Tool & Supply Co. v. State ex rel. Crawford County, 203 Ark. 874, 159 S.W.2d 71 (1942); Uncle Ben's, Inc. v. Crowell, 482 F. Supp. 1149 (E.D. Ark. 1980) (preceding decisions under prior law).

In order for a foreign corporation to be “doing business,” the business must be such as to warrant an inference that the corporation has subjected itself to local jurisdiction and that the transactions were of an intrastate character. Sillin v. Hessig-Ellis Drug Co., 181 Ark. 386, 26 S.W.2d 122 (1930) (decision under prior law).

Corporation held not to be doing business in state. Scruggs v. Scottish-American Mtg. Co., 54 Ark. 566, 16 S.W. 563 (1891); Gunn v. White Sewing Mach. Co., 57 Ark. 24, 20 S.W. 591 (1892); Coblentz & Logsdon v. L.D. Powell Co., 148 Ark. 151, 229 S.W. 25 (1921); Davis & Worrell v. GMAC, 153 Ark. 626, 241 S.W. 44 (1922); Equitable Credit Co. v. Rogers, 175 Ark. 205, 299 S.W. 747 (1927); Security Trust Co. v. Martin, 178 Ark. 518, 12 S.W.2d 870 (1928); Chicago Title & Trust Co. v. Hagler Special School Dist. No. 27, 178 Ark. 443, 12 S.W.2d 881 (1928); H.J. Heinz Co. v. Duke, 196 Ark. 180, 116 S.W.2d 1039 (1938); Standard Mut. Benefit Corp. v. State, 197 Ark. 333, 122 S.W.2d 459 (1938); Murray Tool & Supply Co. v. State ex rel. Crawford County, 203 Ark. 874, 159 S.W.2d 71 (1942); McWhorter v. Anchor Serum Co., 72 F. Supp. 437 (W.D. Ark. 1947); Worthen Bank & Trust Co. v. United Underwriters Sales Corp., 251 Ark. 454, 474 S.W.2d 899 (1971), superseded by statute as stated in, Johnny's Pizza House, Inc. v. Huntsman, 311 Ark. 346, 844 S.W.2d 320 (1992); Pioneer Fin. Co. v. Lane, 255 Ark. 811, 502 S.W.2d 624 (1973); Taurus Leasing Corp. v. Howard, 272 Ark. 323, 614 S.W.2d 502 (1981) (preceding decisions under prior law).

Miscellaneous cases decided under prior law. W.T. Rawleigh Medical Co. v. Holcomb, 126 Ark. 597, 191 S.W. 215 (1917); Loose-Wiles Biscuit Co. v. Jolly, 152 Ark. 442, 238 S.W. 613 (1922); L.D. Powell Co. v. Rountree, 157 Ark. 121, 247 S.W. 389 (1923); Power Mfg. Co. v. Saunders, 274 U.S. 490, 47 S. Ct. 678, 71 L. Ed. 1165 (1927); American Trust Co. v. Vandertuuk, 175 Ark. 728, 1 S.W.2d 41 (1927); Austell v. Union Cent. Life Ins. Co., 175 Ark. 1143, 2 S.W.2d 22 (1928); Mercer v. Motor Wheel Corp., 178 Ark. 383, 10 S.W.2d 852 (1928); Stewart v. California Grape Juice Corp., 181 Ark. 1140, 29 S.W.2d 1077 (1930); Chapman & Dewey Lumber Co. v. Means, 191 Ark. 1066, 88 S.W.2d 829 (1935), overruled in part, Anheuser-Busch, Inc. v. Manion, 193 Ark. 405, 100 S.W.2d 672 (1937); Missouri Pacific Transp. Co. v. Norwood, 192 Ark. 170, 90 S.W.2d 480 (1936); Vaccinol Prods. Corp. v. State ex rel. Phillips County, 201 Ark. 1066, 148 S.W.2d 1069 (1941); Crown Cent. Petroleum Corp. v. Speer, 206 Ark. 216, 174 S.W.2d 547 (1943); Arkansas-Louisiana Elec. Coop. v. Ark. Pub. Serv. Comm'n, 210 Ark. 84, 194 S.W.2d 673 (1946); Consumers Coop. Ass'n v. Hill, 233 Ark. 59, 342 S.W.2d 657 (1961); National Sur. Corp. v. Inland Properties, Inc., 286 F. Supp. 173 (E.D. Ark. 1968), aff'd, National Surety Corp. v. Inland Properties, Inc., 416 F.2d 457 (8th Cir. Ark. 1969); Lane v. Midwest Bancshares Corp., 337 F. Supp. 1200 (E.D. Ark. 1972); Rayco Constr. Co. v. Vorsanger, 397 F. Supp. 1105 (E.D. Ark. 1975); Franklin Elec. Co. v. Heath, 261 Ark. 269, 547 S.W.2d 755 (1977); Calvert Fire Ins. Co. v. Carpet Mart of Texarkana, Inc., 266 Ark. 477, 587 S.W.2d 1 (1979); Wilkins v. M & H Fin., Inc., 621 F.2d 311 (8th Cir. 1980); Stewart Elec. Co. v. Meyer Sys. Corp., 276 Ark. 71, 632 S.W.2d 422 (1982); Clark Equip. Credit Corp. v. Martin Lumber Co., 731 F.2d 579 (8th Cir. 1984); Standard Abstract & Title Co. v. Rector-Phillips-Morse, Inc., 282 Ark. 138, 666 S.W.2d 696 (1984); Zolper v. AT&T Info. Sys., 289 Ark. 27, 709 S.W.2d 74 (1986).

—Agents.

Statute applied where a foreign corporation employed an agent who did business for it within the state. Clark v. J.R. Watkins Medical Co., 115 Ark. 166, 171 S.W. 136 (1914); American Hardwood Lumber Co. v. T.J. Ellis & Co., 115 Ark. 524, 171 S.W. 899 (1914) (preceding decisions under prior law).

Where president of foreign corporation accepted contracts involving sales in his representative capacity in Louisiana but did not conduct any activities in Arkansas, statute was not applicable. Frank v. Steel, 253 Ark. 338, 485 S.W.2d 737 (1972) (decision under prior law).

—Certificate of Authority.

The authority of a foreign corporation to do business in this state may be proved by the certificate of authority issued to such corporation by the Secretary of State. J.R. Watkins Medical Co. v. Martin, 132 Ark. 108, 200 S.W. 283 (1917) (decision under prior law).

Where a foreign corporation introduced into evidence the certificate of authority to do business issued by the Secretary of State and also receipts for annual franchise taxes paid, its corporate existence was established, and a certified copy of the charter of a foreign corporation as filed in the office of the Secretary of State which recited that it had complied with the laws and paid the necessary fees therefor was sufficient to prove its authority to do business in the state. American Trust Co. v. Netherlands-American Mtg. Bank, 169 Ark. 867, 276 S.W. 1010 (1925) (decision under prior law).

A certificate of authority to do business issued by the Secretary of State was sufficient evidence of corporate existence and where a defendant appears and answers by a corporate name and did not show it was not incorporated, it thereby admitted its incorporation. Sakaba Oil Co. v. Parish, 175 Ark. 618, 299 S.W. 1016 (1927) (decision under prior law).

—Executed Contracts.

Where payment under contract had not been made, such contract was not an executed contract and therefore not relieved from the provisions of statute as an executed contract. Pratt Lab., Inc. v. Teague, 160 F. Supp. 176 (W.D. Ark. 1958) (decision under prior law).

—Independent Contractors.

Corporation under contract with federal government was an independent contractor and not exempted from statute. E.E. Morgan Co. v. State ex rel. Phillips County, 202 Ark. 404, 150 S.W.2d 736, appeal dismissed, 314 U.S. 571, 62 S. Ct. 77, 86 L. Ed. 463 (1941) (decision under prior law).

—Interstate Commerce.

Former statute does not apply to foreign corporations engaged in interstate commerce. W.T. Rawleigh Medical Co. v. Rose, 133 Ark. 505, 202 S.W. 849 (1918); Coblentz & Logsdon v. L.D. Powell Co., 148 Ark. 151, 229 S.W. 25 (1921); White River Valley Broadcasters, Inc. v. William B. Tanner Co., 487 F. Supp. 725 (E.D. Ark. 1979); Johnson v. Stuckey & Speer, Inc., 11 Ark. App. 33, 665 S.W.2d 904 (1984) (preceding decisions under prior law).

Corporation held not to be engaged in interstate commerce. Sunlight Produce Co. v. State, 183 Ark. 64, 35 S.W.2d 342 (1931) (decision under prior law).

A foreign corporation cannot engage in interstate business along with intrastate business so as to avoid the penalty imposed on foreign corporations for doing business within the state without complying with the law. Sunlight Produce Co. v. State, 183 Ark. 64, 35 S.W.2d 342 (1931); State ex rel. Independence County v. Tad Screen Adv. Co., 199 Ark. 205, 133 S.W.2d 1 (1939) (preceding decisions under prior law).

Statute did not apply to contracts relating solely to interstate commerce. Pratt Lab., Inc. v. Teague, 160 F. Supp. 176 (W.D. Ark. 1958); Rose's Mobile Homes, Inc. v. Rex Financial Corp., 383 F. Supp. 937 (W.D. Ark. 1974) (preceding decisions under prior law).

If note involved in suit was based entirely on an intrastate transaction, statute would have applied even though the plaintiff was a foreign corporation engaged in interstate commerce, and conversely, even if plaintiff had done intrastate business in Arkansas without being qualified to do so, it could nevertheless have recovered on a note if the note was based on transactions which were entirely interstate in character. Pratt Lab., Inc. v. Teague, 160 F. Supp. 176 (W.D. Ark. 1958) (decision under prior law).

Contract of noncomplying foreign corporation held enforceable as being interstate commerce. Goode v. Universal Plastics, Inc., 247 Ark. 442, 445 S.W.2d 893 (1969); Unlaub Co. v. Sexton, 568 F.2d 72 (8th Cir. 1977) (preceding decisions under prior law).

Corporation held to be engaged in interstate commerce. Uncle Ben's, Inc. v. Crowell, 482 F. Supp. 1149 (E.D. Ark. 1980) (decision under prior law).

Foreign corporation's employment of resident soliciting agents and physical presence of its employees in the state were not sufficient circumstances to change the predominantly interstate nature of its business. Uncle Ben's, Inc. v. Crowell, 482 F. Supp. 1149 (E.D. Ark. 1980) (decision under prior law).

Former statute was not applicable to contracts in which the transaction was wholly in interstate commerce. Hough v. Continental Leasing Corp., 275 Ark. 340, 630 S.W.2d 19 (1982) (decision under prior law).

—Law Suits.

Institution and prosecution of suit is “doing business.” Buffalo Zinc & Copper Co. v. Crump, 70 Ark. 525, 69 S.W. 572 (1902) (decision under prior law).

—Mortgages.

Taking mortgage to secure past-due debt is not “doing business.” Florsheim Bros. Dry Goods Co. v. Lester, 60 Ark. 120, 29 S.W. 34 (1895); British & Am. Mtg. Co. v. Winchell, 62 Ark. 160, 34 S.W. 891 (1896); Simmons-Burks Clothing Co. v. Linton, 90 Ark. 73, 117 S.W. 775 (1909) (preceding decisions under prior law).

—Sales Agreements.

Where a bank, acting for a foreign corporation, prepares and delivers various papers within the state according to a sales agreement made without the state, the foreign corporation is not “doing business.” Linograph Co. v. Logan, 175 Ark. 194, 299 S.W. 609 (1927) (decision under prior law).

—Sales by Correspondence.

A sale by written correspondence does not constitute “doing business” within the state. Rose City Bottling Works v. Godchaux Sugars, Inc., 151 Ark. 269, 236 S.W. 825 (1922); S.B. Wilson Tel. Co. v. John A. Roebling's Sons Co., 159 Ark. 634, 252 S.W. 919 (1923) (preceding decisions under prior law).

—Shipping Merchandise.

A contract for the sale of merchandise to be shipped from the foreign corporation's place of business in another state to a purchaser within the state does not constitute “doing business.” Robertson v. Southwestern Co., 136 Ark. 417, 206 S.W. 755 (1918) (decision under prior law).

—Verbal Agreements.

Verbal agreement incorporating printed form was not covered by statute. Bragg's Elec. Constr. Co. v. Rebsamen Cos., 6 B.R. 619 (Bankr. E.D. Ark. 1980) (decision under prior law).

—Withdrawal from State.

Where a foreign corporation discontinues doing business within the state and ceases to comply with the statutory provisions, it withdraws from the state and loses its legal identity therein. In order to again do business, it must qualify by paying the regular filing fee required of foreign corporations. Phoenix Assurance Co. v. Ludwig, 87 Ark. 465, 113 S.W. 34 (1908) (decision under prior law).

A foreign corporation cannot, by withdrawing, defeat obligations already incurred; consequently a foreign corporation could not escape from the jurisdiction of the state courts over action brought by residents with whom it had contracted by revoking the power of attorney it had given for service of process in Arkansas and ceasing to do business within the state. Sydeman Bros. v. Wofford, 185 Ark. 775, 49 S.W.2d 363 (1932) (decision under prior law).

Cited: Steinbuch v. Cutler, 518 F.3d 580 (8th Cir. 2008).

4-27-1502. Consequences of transacting business without authority.

  1. A foreign corporation transacting business in this state without a certificate of authority may not maintain a proceeding in any court in this state until it obtains a certificate of authority.
  2. The successor to a foreign corporation that transacted business in this state without a certificate of authority and the assignee of a cause of action arising out of that business may not maintain a proceeding based on that cause of action in any court in this state until the foreign corporation or its successor obtains a certificate of authority.
  3. A court may stay a proceeding commenced by a foreign corporation, its successor, or assignee until it determines whether the foreign corporation or its successor requires a certificate of authority. If it so determines, the court may further stay the proceeding until the foreign corporation or its successor obtains the certificate.
      1. A foreign corporation that transacts business in this state without a certificate of authority shall pay a civil penalty to the state for each year and partial year during which it transacts business in this state without a certificate of authority.
      2. The penalty shall be the total of all fees imposed by this chapter upon a foreign corporation that properly obtains and renews a certificate of authority and all penalties imposed by this chapter for the failure to obtain or renew a certificate of authority.
    1. In addition to the penalty imposed under subdivision (d)(1) of this section, a foreign corporation that transacts business in this state without a certificate of authority shall pay a civil penalty to the state not to exceed five thousand dollars ($5,000) for each year and partial year during which it transacted business without a certificate of authority, beginning with the date it began transacting business in this state and ending on the date it obtains a certificate of authority.
      1. The penalties imposed by this subsection may be recovered in a suit brought by the Secretary of State.
        1. In addition to any civil penalty, if the court finds that a foreign corporation has transacted business in violation of this chapter, then the court shall issue an injunction restraining the foreign corporation from any further transactions or the exercise of any rights and privileges in this state.
        2. The injunction shall remain in effect until:
          1. All civil penalties and any interest and court costs assessed by the court have been paid; and
          2. The foreign corporation has complied with the provisions of this subchapter.
  4. The failure of a foreign corporation to obtain a certificate of authority does not impair the validity of its corporate acts or prevent it from defending any proceeding in this state.

History. Acts 1987, No. 958, § 64-1502; 2005, No. 1925, § 1.

Research References

Ark. L. Rev.

Emily C. Goins, Case Note: Foreign Corporation Registration and the Ability to Perform Non-Judicial Foreclosures in Arkansas in Light of JPMorgan Chase Bank v. Johnson, 67 Ark. L. Rev. 435 (2014).

Case Notes

Constitutionality.

Statute concerning filing and penalties for noncompliance was constitutional. Roberts v. Chatwin, 108 Ark. 562, 158 S.W. 497 (1913); Republic Power & Serv. Co. v. Gus Blass Co., 165 Ark. 163, 263 S.W. 785 (1924) (preceding decisions under prior law).

Statute concerning filing and penalties for noncompliance, if applied to foreign corporations shipping goods into the state to fill orders, was invalid as repugnant to the commerce clause of the federal Constitution. American Ry. Express Co. v. H. Rouw Co., 173 Ark. 810, 294 S.W. 401 (1927); Furst & Thomas v. Brewster, 282 U.S. 493, 51 S. Ct. 295, 75 L. Ed. 478 (1931) (preceding decisions under prior law).

Where soliciting agent of foreign corporation solicited and obtained from local merchants contracts for advertising films which were manufactured outside the state, main purpose of the contracts being the exhibition or screening of the films in this state, and shipment of the films being merely incidental to such purpose, imposition of penalty provided by statute was not an interference with interstate commerce. State ex rel. Independence County v. Tad Screen Adv. Co., 199 Ark. 205, 133 S.W.2d 1 (1939) (decision under prior law).

Applicability of statute to foreign corporation engaged in the construction of a levee under contract with the federal government was not repugnant to either the commerce clause or the due process clause of the federal Constitution.E.E. Morgan Co. v. State ex rel. Phillips County, 202 Ark. 404, 150 S.W.2d 736, appeal dismissed, 314 U.S. 571, 62 S. Ct. 77, 86 L. Ed. 463 (1941) (decision under prior law).

Statute could not constitutionally be applied to an action by a news gathering organization to recover on a contract with an Arkansas broadcasting company, where the nature of the news gathering organization's business required a finding that interstate commerce was involved. Associated Press v. Riddle, 496 F. Supp. 119 (E.D. Ark. 1980) (decision under prior law).

In General.

Statute did not confer a local residence upon foreign corporations; it only provided a remedy for those who may have causes of action against them in this state. Central Coal & Coke Co. v. Orwig, 150 Ark. 635, 235 S.W. 390 (1921) (decision under prior law).

Statute, if applicable, had to be enforced by the court even though to enforce it would cause a forfeiture. Pratt Lab., Inc. v. Teague, 160 F. Supp. 176 (W.D. Ark. 1958) (decision under prior law).

State law of Arkansas is applied to determine the “threshold” application of statute to activities. Uncle Ben's, Inc. v. Crowell, 482 F. Supp. 1149 (E.D. Ark. 1980) (decision under prior law).

Construction.

Statute was a penal statute and to be strictly construed in favor of those against whom the penalty was sought. Alexander Film Co. v. State, 201 Ark. 1052, 147 S.W.2d 1011 (1941); Widmer v. J.I. Case Credit Corp., 243 Ark. 149, 419 S.W.2d 617 (1967); Wilkins v. M & H Fin., Inc., 476 F. Supp. 212 (E.D. Ark. 1979), aff'd, 621 F.2d 311 (8th Cir. 1980) (preceding decisions under prior law).

Penal statute was not to be invoked except in cases where the evidence warranted a belief that the corporation was, in fact, doing business within the state. Murray Tool & Supply Co. v. State ex rel. Crawford County, 203 Ark. 874, 159 S.W.2d 71 (1942) (preceding decisions under prior law).

Purpose.

The sole purpose of the penalty imposed under statute was to secure compliance with the provisions requiring foreign corporations to secure a certificate of authority to do business in this state before doing any such business. Alexander Film Co. v. State, 201 Ark. 1052, 147 S.W.2d 1011 (1941) (decision under prior law).

The lawmakers by increasing the fine (in former law) did not intend to declare by implication that the state's long-standing policy of supplementing the monetary penalty by the additional provision that the contracts of unlicensed foreign corporations should be unenforceable was being abandoned. Ark. Airmotive Div. of Currey Aerial Sprayers, Inc. v. Ark. Aviation Sales, Inc., 232 Ark. 354, 335 S.W.2d 813 (1960) (decision under prior law).

This section and § 4-27-1501 are not to be used to penalize, but to encourage foreign corporations to file for a certificate of authority. Johnny's Pizza House, Inc. v. Huntsman, 311 Ark. 346, 844 S.W.2d 320 (1992).

Applicability.

Statute had no application to defendant's motion that a matter be stayed pending arbitration of disputes which arose as a result of two separate contracts entered into between plaintiffs and defendant. Consolidated Naturals, Inc. v. Wm. T. Thompson Co., 623 F. Supp. 458 (W.D. Ark. 1985) (decision under prior law).

Statute prevented an unregistered foreign corporation from enforcing its contracts; however, where the relief being awarded the claimants was restitutionary in nature and was based upon the theory of quasi-contract, statute was inapplicable. Dews v. Halliburton Indus., Inc., 288 Ark. 532, 708 S.W.2d 67 (1986) (decision under prior law).

Where the foreign corporation did not demonstrate that the contract fell within the protection of the Commerce Clause of the United States Constitution, this state was not precluded from exercising its right to require the corporation to comply with former statute. North Am. Phillips Com. Elecs. Corp. v. Gaytri Corp., 291 Ark. 11, 722 S.W.2d 270 (1987) (decision under prior law).

The test to determine whether the threshold requirements for applicability of the penalty provisions of the Wingo Act have been met consists of two parts: first, it must be demonstrated that the contract was made by a nonqualifying foreign corporation which was “doing business” in the state; and second, it must be shown that the particular contract in question was made in this state. North Am. Phillips Com. Elecs. Corp. v. Gaytri Corp., 291 Ark. 11, 722 S.W.2d 270 (1987) (decision under prior law).

Defense.

Where the defendant attacks the right of a foreign corporation to do business, he must set up this defense in his answer, and when the defendant, by his answer, does attack the corporation's compliance, the burden of proof is upon the foreign corporation to show that it has met the statutory requirements. Miellmier v. Toledo Scale Co., 128 Ark. 211, 193 S.W. 497 (1917); Johnson v. Stuckey & Speer, Inc., 11 Ark. App. 33, 665 S.W.2d 904 (1984) (preceding decisions under prior law).

The defense that a contract is in violation of statute and thus void ab initio is an affirmative one required to be raised and pleaded. Leasing Assocs. v. Slaughter & Son, 450 F.2d 174 (8th Cir. 1971) (decision under prior law).

Doing Business.

In order to set up the Wingo Act as a defense, the party had to show that the foreign corporation was doing business in Arkansas. Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988) (decision under prior law).

A corporation was doing business in Arkansas within the meaning of the Wingo Act when it transacted some substantial part of its ordinary business in this state. Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988) (decision under prior law).

Enforcement of Contracts.

—In General.

Contract of noncomplying foreign corporation held unenforceable. J.R. Watkins Medical Co. v. Williams, 124 Ark. 539, 187 S.W. 653 (1916); Republic Power & Serv. Co. v. Gus Blass Co., 165 Ark. 163, 263 S.W. 785 (1924); S. Gumpert Co. v. Hernreich, 199 Ark. 376, 134 S.W.2d 568 (1939); B. & P., Inc. v. Norment, 241 Ark. 1092, 411 S.W.2d 506 (1967); S. & L. Painting Contractors v. Vickers, 267 Ark. 109, 589 S.W.2d 196 (1979); Snow v. C.I.T. Corp. of South, Inc., 278 Ark. 554, 647 S.W.2d 465 (1983) (preceding decisions under prior law).

A foreign corporation not qualified to do business in the state can enforce a contract in this state if the contract is made outside the state or if the contract calls for a transaction that is wholly within interstate commerce. Goode v. Universal Plastics, Inc., 247 Ark. 442, 445 S.W.2d 893 (1969); Consolidated Naturals, Inc. v. Wm. T. Thompson Co., 623 F. Supp. 458 (W.D. Ark. 1985); Germer v. Missouri Portland Cement Co., 301 Ark. 277, 783 S.W.2d 359 (1990).

Former statute was a “penal statute” which punished doing business without certification by creating an absolute defense against recovery on contracts which were deemed illegal if made in contravention thereof. Leasing Assocs. v. Slaughter & Son, 450 F.2d 174 (8th Cir. 1971) (decision under prior law).

In order for a contract to fall within the sanction of statute, the contracts must be made by a nonqualifying foreign corporation which has “done business” in the State, and must be made in Arkansas. Uncle Ben's, Inc. v. Crowell, 482 F. Supp. 1149 (E.D. Ark. 1980); Johnson v. Stuckey & Speer, Inc., 11 Ark. App. 33, 665 S.W.2d 904 (1984) (preceding decisions under prior law).

Failure of corporation to register to do business in the state did not bar the enforcement of contract where the contract provided it had to be accepted in another state. Bassett v. Hobart Corp., 292 Ark. 592, 732 S.W.2d 133 (1987) (decision under prior law).

Where the defendant was doing business in Arkansas in violation of the Wingo Act, and its operation was sufficiently localized in nature as to allow state regulation, the contract between the parties was unenforceable, and the related note and mortgage were invalid. Brogdon v. Exterior Design, 781 F. Supp. 1396 (W.D. Ark. 1992) (decision under prior law).

—Alternative Remedies.

Although the defendant was an unqualified corporation, and was therefore prohibited by statute from suing to enforce its contract, it was nevertheless entitled to rescind the contract and seek restitution. C.B. Int'l, Inc. v. Cook, 659 F.2d 862 (8th Cir. 1981) (decision under prior law).

Foreign corporations operating in violation of the Wingo Act have been allowed to recover in Arkansas based upon theories such as quasi-contract, which do not require use of the unenforceable contract to prove their case. Midland Dev., Inc. v. Pine Truss, Inc., 24 Ark. App. 132, 750 S.W.2d 62 (1988) (decision under prior law).

An assignee of a foreign corporation which failed to comply with the terms of the Wingo Act could recover under a theory of quantum meruit, because the court would not allow the plaintiffs to be unjustly enriched. Brogdon v. Exterior Design, 781 F. Supp. 1396 (W.D. Ark. 1992) (decision under prior law).

—Place of Making.

A foreign corporation may sue in the state to enforce contracts made in other states without complying with the statutory requirements for doing business. Graysonia, Nashville & Ashdown R.R. v. Newberger Cotton Co., 170 Ark. 1039, 282 S.W. 975 (1926) (decision under prior law).

Former statute applied only to contracts made in this state. United Press Int'l, Inc. v. Hernreich, 241 Ark. 36, 406 S.W.2d 317 (1966); United Press Int'l, Inc. v. Hernreich, 241 Ark. 33, 406 S.W.2d 322 (1966); Widmer v. J.I. Case Credit Corp., 243 Ark. 149, 419 S.W.2d 617 (1967); Wilkins v. M & H Fin., Inc., 476 F. Supp. 212 (E.D. Ark. 1979), aff'd, 621 F.2d 311 (8th Cir. 1980); Stacy v. St. Charles Custom Kitchens of Memphis, Inc., 284 Ark. 441, 683 S.W.2d 225 (1985) (preceding decisions under prior law).

A foreign corporation not admitted to do business in the state was not precluded from suing in the courts of the state on a contract made outside the state. Brown Broadcast, Inc. v. Pepper Sound Studios, Inc., 242 Ark. 701, 416 S.W.2d 284 (1967) (decision under prior law).

Statute did not apply to the making of a loan in a foreign state by a foreign corporation secured by a mortgage on Arkansas real estate with the foreign corporation having no Arkansas contracts other than those incidental to such loan. National Sur. Corp. v. Inland Properties, Inc., 286 F. Supp. 173 (E.D. Ark. 1968), aff'd, National Surety Corp. v. Inland Properties, Inc., 416 F.2d 457 (8th Cir. Ark. 1969) (decision under former law).

Where last act necessary for the completion of a contract was performed in another state, the contract was a foreign contract that could be enforced in Arkansas even though the foreign corporation was not qualified to do business in Arkansas under the statute. Rose's Mobile Homes, Inc. v. Rex Financial Corp., 383 F. Supp. 937 (W.D. Ark. 1974) (decision under prior law).

Statute did not apply to contracts where last act necessary to make the contracts binding occurred in other state. White River Valley Broadcasters, Inc. v. William B. Tanner Co., 487 F. Supp. 725 (E.D. Ark. 1979); Moore v. Luxor (N. Am.) Corp., 294 Ark. 326, 742 S.W.2d 916 (1988) (preceding decisions under prior law).

The fact that the contract for purchase of the real estate was to be closed in Arkansas would not make a contract entered into out of the State of Arkansas invalid. Leenerts Farms, Inc. v. Cranco, 265 Ark. 359, 578 S.W.2d 229 (1979) (decision under prior law).

Where final acceptance of a contract was made in another state, the contract was a foreign contract in interstate commerce and a foreign corporation could enforce it in the courts of Arkansas despite its status as a nonqualifying corporation. Hough v. Continental Leasing Corp., 275 Ark. 340, 630 S.W.2d 19 (1982) (decision under prior law).

—Subsequent Compliance.

Fact that a foreign corporation, which executed a contract in the state, without complying with state laws as to doing business, subsequently complied with statute gave it no right to enforce such contract. Republic Power & Serv. Co. v. Gus Blass Co., 165 Ark. 163, 263 S.W. 785 (1924) (decision under prior law).

Where a contract, complete in itself, had been entered into between a resident and a foreign corporation after the date of its domestication, it was valid and enforceable, even though an unenforceable but valid contract between the resident and undomesticated foreign corporation provided the basis for the contract. Jack Tar of Ark., Inc. v. National Wells Television, Inc., 234 Ark. 306, 351 S.W.2d 848 (1961) (decision under prior law).

—Subsequent Holders.

Where an unqualified foreign corporation accepts notes and mortgages, its assignee cannot sue on such notes and mortgages, the defect is inherent and all subsequent purchasers take with notice of the defect. Hogan v. Intertype Corp., 136 Ark. 52, 206 S.W. 58 (1918); Dean v. Caldwell, 141 Ark. 38, 216 S.W. 31 (1919) (preceding decisions under prior law).

Former statute had to be complied with to enable even an assignee to enforce an executory contract. Republic Power & Serv. Co. v. Gus Blass Co., 165 Ark. 163, 263 S.W. 785 (1924) (decision under prior law).

There can be no holder in due course of a negotiable instrument arising out of an illegal transaction under state law. Pacific Nat'l Bank v. Hernreich, 240 Ark. 114, 398 S.W.2d 221 (1966) (decision under prior law).

Statute was applicable to assignees of unenforceable contracts entered into in the state by foreign corporations not qualified to do business in the state. Union Planters Nat'l Bank v. Moore, 250 Ark. 272, 464 S.W.2d 786 (1971) (decision under prior law).

—Validity of Contract.

Where a foreign corporation doing business in the state failed to comply with former statute, any contracts made by it were not void but merely unenforceable. Hicks Body Co. v. Ward Body Works, Inc., 233 F.2d 481 (8th Cir. 1956); Pratt Lab., Inc. v. Teague, 160 F. Supp. 176 (W.D. Ark. 1958); Pellerin Laundry Mach. Sales Co. v. Hogue, 219 F. Supp. 629 (W.D. Ark. 1963). But see Pacific Nat'l Bank v. Hernreich, 240 Ark. 114, 398 S.W.2d 221 (1966); Union Planters Nat'l Bank v. Moore, 250 Ark. 272, 464 S.W.2d 786 (1971); Worthen Bank & Trust Co. v. United Underwriters Sales Corp., 251 Ark. 454, 474 S.W.2d 899 (1971), superseded by statute as stated in, Johnny's Pizza House, Inc. v. Huntsman, 311 Ark. 346, 844 S.W.2d 320 (1992) (preceding decisions under prior law).

Contracts entered into in the state by foreign corporation doing business in contravention of former statute were not merely unenforceable but are void ab initio. Pacific Nat'l Bank v. Hernreich, 240 Ark. 114, 398 S.W.2d 221 (1966); Union Planters Nat'l Bank v. Moore, 250 Ark. 272, 464 S.W.2d 786 (1971); Worthen Bank & Trust Co. v. United Underwriters Sales Corp., 251 Ark. 454, 474 S.W.2d 899 (1971), superseded by statute as stated in, Johnny's Pizza House, Inc. v. Huntsman, 311 Ark. 346, 844 S.W.2d 320 (1992) (preceding decisions under prior law).

Jurisdiction.

Service upon president of foreign corporation authorized to do business in state but not in fact doing business in the state did not give federal district court jurisdiction of suit by foreign corporation against defendant corporation where suit was based on contract between parties arising in another state. Groves, Lundin & Cox, Inc. v. Oklahoma-Arkansas Tel. Co., 104 F. Supp. 381 (W.D. Ark. 1952) (decision under prior law).

Where action which was brought in one county against foreign corporations authorized to do business in this state had arisen in Oklahoma and summonses were served upon agents designated by such corporations as those upon whom summons could be served, the circuit court had jurisdiction over the subject matter of the action. Deason v. Groendyke Transp., Inc., 176 F. Supp. 346 (W.D. Ark. 1959) (decision under prior law).

Equity will not take jurisdiction to grant relief when there is an adequate and complete remedy at law. Certiorari in the circuit court was the available remedy to review the decision of an administrative board where it was claimed that the board had exceeded its jurisdiction or proceeded illegally and when there was no appeal provided by statute. Consumers Coop. Ass'n v. Hill, 233 Ark. 59, 342 S.W.2d 657 (1961) (decision under prior law).

Penalty.

There was a two-part test to determine whether the threshold requirements for application of the penalty provisions of the Wingo Act had been met: first, it had to be demonstrated that the contract was made by a nonqualifying foreign corporation which was “doing business” in the state; and second, it had to be shown that the particular contract in question was made in Arkansas. Further, if it was raised as a defense, the court had to consider whether the commerce clause of the United States Constitution precluded application of the sanctions of the penalty provision. Dickson v. Delhi Seed Co., 26 Ark. App. 83, 760 S.W.2d 382 (1988) (decision under prior law).

Permissible Suits.

A foreign corporation has the right to sue for damages to its property even though such property may have been acquired by the corporation in the transaction of business without complying with the statutory requirements. St. Louis, Ark. & Tex. Ry. v. Fire Ass'n of Philadelphia, 60 Ark. 325, 30 S.W. 350 (1895) (decision under prior law).

Former similar provision held not applicable to suit to quiet title since in so doing the noncomplying corporation was not seeking to enforce any demand growing out of a contract with or tort committed by the other party to the action. Rachels v. Stecher Cooperage Works, 95 Ark. 6, 128 S.W. 348 (1910) (decision under prior law).

A foreign corporation authorized to do business in the state may maintain an action for the benefit of one not having such authority. Graysonia, Nashville & Ashdown R.R. v. Newberger Cotton Co., 170 Ark. 1039, 282 S.W. 975 (1926) (decision under prior law).

A foreign corporation, even though unlicensed, is nevertheless permitted to bring suit to protect its property as long as the suit does not unavoidably involve the enforcement of a prohibited contract. Ark. Airmotive Div. of Currey Aerial Sprayers, Inc. v. Ark. Aviation Sales, Inc., 232 Ark. 354, 335 S.W.2d 813 (1960); Pellerin Laundry Mach. Sales Co. v. Hogue, 219 F. Supp. 629 (W.D. Ark. 1963) (preceding decisions under prior law).

The test to determine whether an unlimited foreign corporation is entitled to recover or not, is its ability to establish its case without any aid from illegal transaction; if its right to recover depends on the contract which is prohibited by statute, and that contract must necessarily be proved to make out its case, there can be no recovery. Ark. Airmotive Div. of Currey Aerial Sprayers, Inc. v. Ark. Aviation Sales, Inc., 232 Ark. 354, 335 S.W.2d 813 (1960) (decision under prior law).

There was no authority to support the proposition that a foreign corporation could not enforce a valid obligation of a resident corporation on a note and mortgage simply because the foreign corporation no longer was a registered foreign corporation doing business in Arkansas. Wild Turkey Ranch, Inc. v. Wilhelm Nursing Home, Inc., 12 Ark. App. 392, 677 S.W.2d 871 (1984) (decision under prior law).

Where foreign corporation, at time of filing suit, was transacting business in the state without a certificate of authority, it was necessary for corporation to obtain a certificate of authority to transact business in this state before it could maintain suit. Centennial Valley Ranch Management, Inc. v. Agri-Tech Ltd. Partnership, 38 Ark. App. 177, 832 S.W.2d 259 (1992).

Presumptions.

Until the contrary appears, the law will presume a foreign corporation doing business in the state has complied with the law. St. Louis, Ark. & Tex. Ry. v. Fire Ass'n of Philadelphia, 55 Ark. 163, 18 S.W. 43 (1891) (decision under prior law).

Stay of Proceedings.

A stay of proceedings to permit a foreign corporation which should have obtained a certificate of authority but failed to do so is to be liberally granted. Johnny's Pizza House, Inc. v. Huntsman, 311 Ark. 346, 844 S.W.2d 320 (1992).

4-27-1503. Application for certificate of authority.

  1. A foreign corporation may apply for a certificate of authority to transact business in this state by delivering an application to the Secretary of State for filing. The application must set forth:
    1. the name of the foreign corporation or, if its name is unavailable for use in this state, a corporate name that satisfies the requirements of § 4-27-1506;
    2. the name of the state or country under whose law it is incorporated;
    3. its date of incorporation and period of duration;
    4. the street address of its principal office;
    5. the information required by § 4-20-105(a); and
    6. the number and par value, if any, of shares of the corporation's capital stock owned or to be owned by residents of this state.
  2. The foreign corporation shall deliver with the completed application a certificate of existence (or a document of similar import) duly authenticated by the Secretary of State or other official having custody of corporate records in the state or country under whose law it is incorporated.

History. Acts 1987, No. 958, § 64-1503; 2007, No. 638, § 20.

4-27-1504. Amended certificate of authority.

  1. A foreign corporation authorized to transact business in this state must obtain an amended certificate of authority from the Secretary of State if it changes:
    1. its corporate name;
    2. the period of its duration;
    3. any of the information required by § 4-20-105(a); or
    4. the state or country of its incorporation.
  2. The requirements of § 4-27-1503 for obtaining an original certificate of authority apply to obtaining an amended certificate under this section.

History. Acts 1987, No. 958, § 64-1504; 2007, No. 638, § 21.

4-27-1505. Effect of certificate of authority.

  1. A certificate of authority authorizes the foreign corporation to which it is issued to transact business in this state subject, however, to the right of the state to revoke the certificate as provided in this chapter.
  2. A foreign corporation with a valid certificate of authority has the same but no greater rights and has the same but no greater privileges as, and except as otherwise provided by this chapter, is subject to the same duties, restrictions, penalties, and liabilities now or later imposed on, a domestic corporation of like character.
  3. This chapter does not authorize this state to regulate the organization or internal affairs of a foreign corporation authorized to transact business in this state.

History. Acts 1987, No. 958, § 64-1505.

Case Notes

Cited: Citicorp Indus. Credit, Inc. v. Wal-Mart Stores, Inc., 305 Ark. 530, 809 S.W.2d 815 (1991).

4-27-1506. Corporate name of foreign corporation.

  1. If the corporate name of a foreign corporation does not satisfy the requirements of § 4-27-401, the foreign corporation to obtain or maintain a certificate of authority to transact business in this state:
    1. may add the word “corporation”, “incorporated”, “company”, or “limited”, or the abbreviation “corp.”, “inc.”, “co.”, or “ltd.”, to its corporate name for use in this state; or
    2. may use a fictitious name to transact business in this state if its real name is unavailable and it delivers to the Secretary of State for filing a copy of the resolution of its board of directors, certified by its secretary, adopting the fictitious name.
  2. Except as authorized by subsections (c) and (d) of this section, the corporate name (including a fictitious name adopted because its real name is unavailable) of a foreign corporation must be distinguished upon the records of the Secretary of State from:
    1. the corporate name of a corporation incorporated or authorized to transact business in this state;
    2. a corporate name reserved or registered under § 4-27-402 or § 4-27-403;
    3. the fictitious name, adopted because its real name was unavailable, of another foreign corporation authorized to transact business in this state; and
    4. the corporate name of a not-for-profit corporation incorporated or authorized to transact business in this state.
  3. A foreign corporation may apply to the Secretary of State for authorization to use in this state the name of another corporation (incorporated or authorized to transact business in this state) that is not distinguishable upon his records from the name applied for. The Secretary of State shall authorize use of the name applied for if:
    1. the other corporation consents to the use in writing and submits an undertaking in form satisfactory to the Secretary of State to change its name to a name that is distinguishable upon the records of the Secretary of State from the name of the applying corporation; or
    2. the applicant delivers to the Secretary of State a certified copy of a final judgment of a court of competent jurisdiction establishing the applicant's right to use the name applied for in this state.
  4. A foreign corporation may use in this state the name (including the fictitious name) of another domestic or foreign corporation that is used in this state if the other corporation is incorporated or authorized to transact business in this state and the foreign corporation:
    1. has merged with the other corporation;
    2. has been formed by reorganization of the other corporation; or
    3. has acquired all or substantially all of the assets, including the corporate name, of the other corporation.
  5. If a foreign corporation authorized to transact business in this state changes its corporate name to one that does not satisfy the requirements of § 4-27-401, it may not transact business in this state under the changed name until it adopts a name satisfying the requirements of § 4-27-401 and obtains an amended certificate of authority under § 4-27-1504.

History. Acts 1987, No. 958, § 64-1506; 1987 (1st Ex. Sess.), No. 11, § 15.

4-27-1507 — 4-27-1509. [Repealed.]

Publisher's Notes. These sections, concerning the registered office and registered agent, change of registered office or registered agent, and resignation of the registered agent of a foreign corporation, were repealed by Acts 2007, No. 638, § 22. They were derived from the following sources:

4-27-1507. Acts 1987, No. 958, § 64-1507.

4-27-1508. Acts 1987, No. 958, § 64-1508; 1987 (1st Ex. Sess.), No. 11, § 16.

4-27-1509. Acts 1987, No. 958, § 64-1509.

4-27-1510. Service on foreign corporation.

  1. The registered agent of a foreign corporation authorized to transact business in this state is the corporation's agent for service of process, notice, or demand required or permitted by law to be served on the foreign corporation.
  2. A foreign corporation may be served by registered or certified mail, return receipt requested, addressed to the secretary of the foreign corporation at its principal office shown in its application for a certificate of authority or in its most recent annual franchise tax report if the foreign corporation:
    1. has no registered agent or its registered agent cannot with reasonable diligence be served;
    2. has withdrawn from transacting business in this state under § 4-27-1520; or
    3. has had its certificate of authority revoked under § 4-27-1531.
  3. Service is perfected under subsection (b) of this section at the earliest of:
    1. the date the foreign corporation receives the mail;
    2. the date shown on the return receipt, if signed on behalf of the foreign corporation; or
    3. five (5) days after its deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed.
  4. This section does not prescribe the only means, or necessarily the required means, of serving a foreign corporation.

History. Acts 1987, No. 958, § 64-1510.

Cross References. Service of process on entities, § 4-20-113.

Research References

ALR.

In personam jurisdiction under long-arm statute of nonresident banking institution. 9 A.L.R.4th 661.

Case Notes

Construction.

Subsection (a) of this section does not limit suits against nonresident corporations to claims arising from in-state activities, but rather, it provides for service of process on out-of-state corporations through its registered agent. Hicks v. American Heritage Life Ins. Co., 332 F. Supp. 2d 1193 (W.D. Ark. 2004).

Fed. R. Bankr. P. 7004 does not require an acknowledgement of receipt of service for service of summons and a complaint in an adversary proceeding as required by this section. Weston v. Ed Fin. Servs., LLC (In re Weston), 398 B.R. 325 (Bankr. E.D. Ark. 2008).

Personal Jurisdiction.

Court denied insurer's motion to dismiss for lack of personal jurisdiction wife's action to recover husband's life insurance benefits because subsection (a) of this section demonstrated that the service agent appointed by the insurer had the authority to receive service for causes of action arising outside of the State of Arkansas; insurer's designation of an agent, therefore, conferred personal jurisdiction in Arkansas. Hicks v. American Heritage Life Ins. Co., 332 F. Supp. 2d 1193 (W.D. Ark. 2004).

4-27-1511 — 4-27-1519. [Reserved.]

Part B: Withdrawal

4-27-1520. Withdrawal of foreign corporation.

  1. A foreign corporation authorized to transact business in this state may not withdraw from this state until it obtains a certificate of withdrawal from the Secretary of State.
  2. A foreign corporation authorized to transact business in this state may apply for a certificate of withdrawal by delivering an application to the Secretary of State for filing. The application must set forth:
    1. the name of the foreign corporation and the name of the state or country under whose law it is incorporated;
    2. that it is not transacting business in this state and that it surrenders its authority to transact business in this state;
    3. that it revokes the authority of its registered agent to accept service on its behalf and appoints the Secretary of State as its agent for service of process in any proceeding based on a cause of action arising during the time it was authorized to transact business in this state;
    4. a mailing address to which the Secretary of State may mail a copy of any process served on him under subdivision (b)(3) of this section; and
    5. a commitment to notify the Secretary of State in the future of any change in its mailing address.
  3. After the withdrawal of the corporation is effective, service of process on the Secretary of State under this section is service on the foreign corporation. Upon receipt of process, the Secretary of State shall mail a copy of the process to the foreign corporation at the mailing address set forth under subsection (b) of this section.

History. Acts 1987, No. 958, § 64-1511.

4-27-1521 — 4-27-1529. [Reserved.]

Part C: Revocation of Certificate of Authority

4-27-1530. Grounds for revocation. [Effective until May 1, 2021.]

The Secretary of State may commence a proceeding under § 4-27-1531 to revoke the certificate of authority of a foreign corporation authorized to transact business in this state if:

  1. the foreign corporation does not deliver its annual franchise tax report to the Secretary of State within sixty (60) days after it is due;
  2. the foreign corporation does not pay within sixty (60) days after they are due any franchise taxes or penalties imposed by this chapter or other law;
  3. the foreign corporation is without a registered agent in this state for sixty (60) days or more;
  4. the foreign corporation does not file an appropriate notice with the Secretary of State within sixty (60) days of the change or resignation of the foreign corporation's registered agent;
  5. an incorporator, director, officer, or agent of the foreign corporation signed a document he or she knew was false in any material respect with intent that the document be delivered to the Secretary of State for filing;
  6. the Secretary of State receives a duly authenticated certificate from the Secretary of State or other official having custody of corporate records in the state or country under whose law the foreign corporation is incorporated stating that it has been dissolved or disappeared as the result of a merger.

History. Acts 1987, No. 958, § 64-1512; 1987 (1st Ex. Sess.), No. 11, § 17; 2007, No. 638, § 23.

Publisher's Notes. For text of section effective May 1, 2021, see the following version.

4-27-1530. Grounds for revocation. [Effective May 1, 2021.]

The Secretary of State may commence a proceeding under § 4-27-1531 to revoke the certificate of authority of a foreign corporation authorized to transact business in this state if:

  1. the foreign corporation does not deliver its annual franchise tax report to the Department of Finance and Administration within sixty (60) days after it is due;
  2. the foreign corporation does not pay within sixty (60) days after they are due any franchise taxes or penalties imposed by this chapter or other law;
  3. the foreign corporation is without a registered agent in this state for sixty (60) days or more;
  4. the foreign corporation does not file an appropriate notice with the Secretary of State within sixty (60) days of the change or resignation of the foreign corporation's registered agent;
  5. an incorporator, director, officer, or agent of the foreign corporation signed a document he or she knew was false in any material respect with intent that the document be delivered to the Secretary of State for filing;
  6. the Secretary of State receives a duly authenticated certificate from the Secretary of State or other official having custody of corporate records in the state or country under whose law the foreign corporation is incorporated stating that it has been dissolved or disappeared as the result of a merger.

History. Acts 1987, No. 958, § 64-1512; 1987 (1st Ex. Sess.), No. 11, § 17; 2007, No. 638, § 23; 2019, No. 819, § 8.

A.C.R.C. Notes. Acts 2019, No. 819, § 1, provided: “Title. This act shall be known and may be cited as the ‘Arkansas Tax Reform Act of 2019'”.

Acts 2019, No. 819, § 2, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The Arkansas Tax Reform and Relief Legislative Task Force was charged with:

“(A) Examining and identifying areas of potential tax reform within the tax laws; and

“(B) Recommending legislation to the General Assembly, in part, to modernize and simplify the Arkansas tax code and ensure fairness to all taxpayers;

“(2) There are several areas of the tax code that should be amended to reform the state's tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(3) Any savings realized by the state through tax reforms should be dedicated to reducing the tax burden for Arkansas taxpayers.

“(b) It is the intent of the General Assembly to:

“(1) Reform Arkansas tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(2) Offset any revenue savings realized through tax reform with corresponding changes to reduce the tax burden for Arkansas taxpayers”.

Publisher's Notes. For text of section effective until May 1, 2021, see the preceding version.

Amendments. The 2019 amendment substituted “Department of Finance and Administration” for “Secretary of State” in (1).

Effective Dates. Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

4-27-1531. Procedure for and effect of revocation.

  1. If the Secretary of State determines that one (1) or more grounds exist under § 4-27-1530 for revocation of a certificate of authority, he shall serve the foreign corporation with written notice of his determination under § 4-27-1510.
  2. If the foreign corporation does not correct each ground for revocation or demonstrate to the reasonable satisfaction of the Secretary of State that each ground determined by the Secretary of State does not exist within sixty (60) days after service of the notice is perfected under § 4-27-1510, the Secretary of State may revoke the foreign corporation's certificate of authority by signing a certificate of revocation that recites the ground or grounds for revocation and its effective date. The Secretary of State shall file the original of the certificate and serve a copy on the foreign corporation under § 4-27-1510.
  3. The authority of a foreign corporation to transact business in this state ceases on the date shown on the certificate revoking its certificate of authority.
  4. The Secretary of State's revocation of a foreign corporation's certificate of authority appoints the Secretary of State the foreign corporation's agent for service of process in any proceeding based on a cause of action which arose during the time the foreign corporation was authorized to transact business in this state. Service of process on the Secretary of State under this subsection is service on the foreign corporation. Upon receipt of process, the Secretary of State shall mail a copy of the process to the secretary of the foreign corporation at its principal office shown in its most recent annual franchise tax report or in any subsequent communication received from the corporation stating the current mailing address of its principal office, or, if none are on file, in its application for a certificate of authority.
  5. Revocation of a foreign corporation's certificate of authority does not terminate the authority of the registered agent of the corporation.

History. Acts 1987, No. 958, § 64-1513.

Case Notes

Service of Process.

In a case based on § 4-60-103, which permits recovery on checks written on accounts with insufficient funds, appellant's service through the Secretary of State did not effect proper service on an LLC, whose certificate of authority in Arkansas had been revoked, despite appellant's contention that service was properly effected based on this section; appellant neither alleged nor produced evidence that the cause of action arose while the LLC was authorized to conduct business in Arkansas. Eliasnik v. Y&S Pine Bluff, LLC, 2018 Ark. App. 138, 546 S.W.3d 497 (2018).

4-27-1532. Appeal from revocation.

  1. A foreign corporation may appeal the Secretary of State's revocation of its certificate of authority to the Pulaski County Circuit Court within thirty (30) days after service of the certificate of revocation is perfected under § 4-27-1510. The foreign corporation appeals by petitioning the court to set aside the revocation and attaching to the petition copies of its certificate of authority and the Secretary of State's certificate of revocation.
  2. The court may summarily order the Secretary of State to reinstate the certificate of authority or may take any other action the court considers appropriate.
  3. The court's final decision may be appealed as in other civil proceedings.

History. Acts 1987, No. 958, § 64-1514.

Subchapter 16 — Records and Reports

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

Part A: Records

4-27-1601. Corporate records. [Effective until May 1, 2021.]

  1. A corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation.
  2. A corporation shall maintain appropriate accounting records.
  3. A corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each.
  4. A corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.
  5. A corporation shall keep a copy of the following records at its principal office:
    1. its articles or restated articles of incorporation and all amendments to them currently in effect;
    2. its bylaws or restated bylaws and all amendments to them currently in effect;
    3. resolutions adopted by its board of directors creating one (1) or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding;
    4. the minutes of all shareholders' meetings, and records of all action taken by shareholders without a meeting, for the past three (3) years;
    5. all written communications to shareholders generally within the past three (3) years, including the financial statements furnished for the past three (3) years under § 4-27-1620;
    6. a list of the names and business addresses of its current directors and officers; and
    7. its most recent annual franchise tax report delivered to the Secretary of State under § 4-27-1622.

History. Acts 1987, No. 958, § 64-1601.

Publisher's Notes. For text of section effective May 1, 2021, see the following version.

4-27-1601. Corporate records. [Effective May 1, 2021.]

  1. A corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation.
  2. A corporation shall maintain appropriate accounting records.
  3. A corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each.
  4. A corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.
  5. A corporation shall keep a copy of the following records at its principal office:
    1. its articles or restated articles of incorporation and all amendments to them currently in effect;
    2. its bylaws or restated bylaws and all amendments to them currently in effect;
    3. resolutions adopted by its board of directors creating one (1) or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding;
    4. the minutes of all shareholders' meetings, and records of all action taken by shareholders without a meeting, for the past three (3) years;
    5. all written communications to shareholders generally within the past three (3) years, including the financial statements furnished for the past three (3) years under § 4-27-1620;
    6. a list of the names and business addresses of its current directors and officers; and
    7. its most recent annual franchise tax report delivered to the Department of Finance and Administration under § 4-27-1622.

History. Acts 1987, No. 958, § 64-1601; 2019, No. 819, § 9.

A.C.R.C. Notes. Acts 2019, No. 819, § 1, provided: “Title. This act shall be known and may be cited as the ‘Arkansas Tax Reform Act of 2019'”.

Acts 2019, No. 819, § 2, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The Arkansas Tax Reform and Relief Legislative Task Force was charged with:

“(A) Examining and identifying areas of potential tax reform within the tax laws; and

“(B) Recommending legislation to the General Assembly, in part, to modernize and simplify the Arkansas tax code and ensure fairness to all taxpayers;

“(2) There are several areas of the tax code that should be amended to reform the state's tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(3) Any savings realized by the state through tax reforms should be dedicated to reducing the tax burden for Arkansas taxpayers.

“(b) It is the intent of the General Assembly to:

“(1) Reform Arkansas tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(2) Offset any revenue savings realized through tax reform with corresponding changes to reduce the tax burden for Arkansas taxpayers”.

Publisher's Notes. For text of section effective until May 1, 2021, see the preceding version.

Amendments. The 2019 amendment substituted “Department of Finance and Administration” for “Secretary of State” in (e)(7).

Effective Dates. Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

4-27-1602. Inspection of records by shareholders.

  1. A shareholder of a corporation is entitled to inspect and copy, during regular business hours at the corporation's principal office, any of the records of the corporation described in § 4-27-1601(e) if he gives the corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy.
  2. A shareholder of a corporation is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation if the shareholder meets the requirements of subsection (c) of this section and gives the corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy:
    1. excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or board of directors without a meeting, to the extent not subject to inspection under subsection (a) of this section;
    2. accounting records of the corporation; and
    3. the record of shareholders.
  3. A shareholder may inspect and copy the records described in subsection (b) of this section only if:
    1. his demand is made in good faith and for a proper purpose;
    2. he describes with reasonable particularity his purpose and the records he desires to inspect; and
    3. the records are directly connected with his purpose.
  4. The right of inspection granted by this section may not be abolished or limited by a corporation's articles of incorporation or bylaws.
  5. This section does not affect:
    1. the right of a shareholder to inspect records under § 4-27-720 or, if the shareholder is in litigation with the corporation, to the same extent as any other litigant;
    2. the power of a court, independently of this chapter, to compel the production of corporate records for examination.
  6. For purposes of this section, “shareholder” includes a beneficial owner whose shares are held in a voting trust or by a nominee on his behalf.

History. Acts 1987, No. 958, § 64-1602; 1987 (1st Ex. Sess.), No. 11, § 18.

Case Notes

Inspection Allowed.

Law firm's motion to quash a subpoena, which sought copies of its invoices for legal services rendered to three corporations, was denied. As a shareholder of the corporations, the party seeking the records was entitled to examine them pursuant to subsections (b) and (c) of this section. Sobba v. Elmen, No. 4:06VCV00941 JLH, 2007 U.S. Dist. LEXIS 29172 (E.D. Ark. Apr. 19, 2007).

4-27-1603. Scope of inspection right.

  1. A shareholder's agent or attorney has the same inspection and copying rights as the shareholder he represents.
  2. The right to copy records under § 4-27-1602 includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means.
  3. The corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records.
  4. The corporation may comply with a shareholder's demand to inspect the record of shareholders under § 4-27-1602(b)(3) by providing him with a list of its shareholders that was compiled no earlier than the date of the shareholder's demand.

History. Acts 1987, No. 958, § 64-1603.

4-27-1604. Court-ordered inspection.

  1. If a corporation does not allow a shareholder who complies with § 4-27-1602(a) to inspect and copy any records required by that subsection to be available for inspection, the circuit court of the county where the corporation's principal office is located or the Pulaski County Circuit Court, if the corporation does not have a principal office in this state, may summarily order inspection and copying of the records demanded at the corporation's expense upon application of the shareholder.
  2. If a corporation does not within a reasonable time allow a shareholder to inspect and copy any other record, the shareholder who complies with § 4-27-1602(b) and (c) may apply to the circuit court in the county where the corporation's principal office is located or the Pulaski County Circuit Court, if the corporation does not have a principal office in this state, for an order to permit inspection and copying of the records demanded. The court shall dispose of an application under this subsection on an expedited basis.
  3. If the court orders inspection and copying of the records demanded, it shall also order the corporation to pay the shareholder's costs (including reasonable counsel fees) incurred to obtain the order unless the corporation proves that it refused inspection in good faith because it had a reasonable basis for doubt about the right of the shareholder to inspect the records demanded.
  4. If the court orders inspection and copying of the records demanded, it may impose reasonable restrictions on the use or distribution of the records by the demanding shareholder.

History. Acts 1987, No. 958, § 64-1604; 2007, No. 638, § 24.

4-27-1605 — 4-27-1619. [Reserved.]

Part B: Reports

4-27-1620. Financial statements for shareholders.

  1. A corporation shall furnish its shareholders annual financial statements, which may be consolidated or combined statements of the corporation and one (1) or more of its subsidiaries, as appropriate, that include a balance sheet as of the end of the fiscal year, an income statement for that year, and a statement of changes in shareholders' equity for the year unless that information appears elsewhere in the financial statements. If financial statements are prepared for the corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared on that basis.
  2. If the annual financial statements are reported upon by a public accountant, his report must accompany them. If not, the statements must be accompanied by a statement of the president or the person responsible for the corporation's accounting records:
    1. stating his or her reasonable belief whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and
    2. describing any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year.
  3. A corporation shall furnish the annual financial statements to each shareholder within one hundred twenty (120) days after the close of each fiscal year. Thereafter, on written request from a shareholder who was not furnished the statements, the corporation shall furnish the shareholder the latest financial statements.
    1. The requirement to furnish annual financial statements as described in subsection (c) of this section may be satisfied by sending annual financial statements to the shareholder's last known address as shown in the corporation's records by mail or, if a shareholder has provided an appropriate address for sending notices to the shareholder, by electronic mail or facsimile transmission.
    2. So long as a corporation has an outstanding class of securities registered under section 12 of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., the requirement to furnish annual financial statements may also be satisfied by the corporation's compliance with 17 C.F.R. § 240.14a-16, as it existed on January 1, 2017, with respect to the obligation of a corporation to furnish an annual financial report to shareholders in accordance with 17 C.F.R. § 240.14a-3(b), as it existed on January 1, 2017.

History. Acts 1987, No. 958, § 64-1605; 2017, No. 553, §§ 1, 2.

Amendments. The 2017 amendment, in (c), substituted “furnish” for “mail”, “furnished” for “mailed”, and “furnish the shareholder” for “mail him”; and added (d).

4-27-1621. Other reports to shareholders.

If a corporation indemnifies or advances expenses to a director under § 4-27-850 in connection with a proceeding by or in the right of the corporation, the corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting.

History. Acts 1987, No. 958, § 64-1606.

4-27-1622. Annual franchise tax report for Secretary of State. [Effective until May 1, 2021.]

  1. Each domestic corporation, and each foreign corporation authorized to transact business in this state, shall deliver to the Secretary of State for filing an annual franchise tax report that sets forth:
    1. the name of the corporation;
    2. the jurisdiction under which the corporation is incorporated;
    3. the information required by § 4-20-105(a);
    4. the address of its principal office, wherever it is located;
    5. the names of its principal officers;
    6. the total number of authorized shares, itemized by class and series, if any, within each class;
    7. the total number of issued and outstanding shares, itemized by class and series, if any, within each class; and
    8. such other information as the Secretary of State may specify in a form promulgated pursuant to § 4-27-121(a).
  2. The requirements as to the applicability, use, and filing of the annual franchise tax report shall be as set forth in the Arkansas Corporate Franchise Tax Act of 1979, § 26-54-101 et seq.

History. Acts 1987, No. 958, § 64-1607; 2007, No. 638, § 25.

Publisher's Notes. For text of section effective May 1, 2021, see the following version.

4-27-1622. Annual franchise tax report for Department of Finance and Administration. [Effective May 1, 2021.]

  1. Each domestic corporation, and each foreign corporation authorized to transact business in this state, shall deliver to the Department of Finance and Administration for filing an annual franchise tax report that sets forth:
    1. the name of the corporation;
    2. the jurisdiction under which the corporation is incorporated;
    3. the information required by § 4-20-105(a);
    4. the address of its principal office, wherever it is located;
    5. the names of its principal officers;
    6. the total number of authorized shares, itemized by class and series, if any, within each class;
    7. the total number of issued and outstanding shares, itemized by class and series, if any, within each class; and
    8. such other information as the Secretary of the Department of Finance and Administration may specify in a form promulgated under the Arkansas Corporate Franchise Tax Act of 1979, § 26-54-101 et seq.
  2. The requirements as to the applicability, use, and filing of the annual franchise tax report shall be as set forth in the Arkansas Corporate Franchise Tax Act of 1979, § 26-54-101 et seq.

History. Acts 1987, No. 958, § 64-1607; 2007, No. 638, § 25; 2019, No. 819, § 10.

A.C.R.C. Notes. Acts 2019, No. 819, § 1, provided: “Title. This act shall be known and may be cited as the ‘Arkansas Tax Reform Act of 2019'”.

Acts 2019, No. 819, § 2, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The Arkansas Tax Reform and Relief Legislative Task Force was charged with:

“(A) Examining and identifying areas of potential tax reform within the tax laws; and

“(B) Recommending legislation to the General Assembly, in part, to modernize and simplify the Arkansas tax code and ensure fairness to all taxpayers;

“(2) There are several areas of the tax code that should be amended to reform the state's tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(3) Any savings realized by the state through tax reforms should be dedicated to reducing the tax burden for Arkansas taxpayers.

“(b) It is the intent of the General Assembly to:

“(1) Reform Arkansas tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(2) Offset any revenue savings realized through tax reform with corresponding changes to reduce the tax burden for Arkansas taxpayers”.

Publisher's Notes. For text of section effective until May 1, 2021, see the preceding version.

Amendments. The 2019 amendment substituted “Department of Finance and Administration” for “Secretary of State” in the section heading and in the introductory language of (a); and substituted “Secretary of the Department of Finance and Administration may specify in a form promulgated under the Arkansas Corporate Franchise Tax Act of 1979, § 26-54-101 et seq.” for “Secretary of State may specify in a form promulgated pursuant to § 4-27-121(a)” in (a)(8).

Effective Dates. Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

Subchapter 17 — Transition Provisions

A.C.R.C. Notes. Acts 1987 (1st Ex. Sess.), No. 11, § 19, provided, in part, that § 4-27-1705 is amended to provide that, except as applicable to those existing domestic corporations not irrevocably electing to be governed by the provisions of Acts 1987, No. 958, this act repeals all laws or parts of laws contained in the acts enumerated in § 19.

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2007, No. 646, § 14: July 1, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that business entities are presently paying different fees for similar services from the Secretary of State; that this act will alleviate any undue hardship to any entity by standardizing business and commercial filing fees; and that this act is immediately necessary to aid the recordkeeping and accounting functions of the Secretary of State and should take effect at the beginning of the state's fiscal year. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2007.”

4-27-1701. Application to existing domestic corporations.

This chapter applies to all domestic corporations incorporated on or after its effective date as specified in § 4-27-1706. A corporation incorporated prior to such effective date under any general statute of this state providing for incorporation of corporations for profit may elect to be governed by the provisions of this chapter by amending its articles of incorporation to provide that it shall be so governed. Such election may be made at any time on or after midnight, December 31, 1987, but once made shall be irrevocable. The amendment to the articles of incorporation effecting such election must be approved by the affirmative vote of the holders of at least two-thirds (2/3) of the shares of each outstanding class of the corporation's capital stock. Domestic corporations existing prior to midnight, December 31, 1987, which do not elect to be governed by its provisions shall continue to be governed by preexisting law.

History. Acts 1987, No. 958, § 64-1701.

4-27-1702. Application to qualified foreign corporations.

A foreign corporation authorized to transact business in this state at midnight, December 31, 1987, is subject to this chapter but is not required to obtain a new certificate of authority to transact business under this chapter.

History. Acts 1987, No. 958, § 64-1702.

4-27-1703. Saving provisions.

  1. Except as provided in subsection (b) of this section, the repeal of a statute by this chapter does not affect:
    1. the operation of the statute or any action taken under it before its repeal;
    2. any ratification, right, remedy, privilege, obligation, or liability acquired, accrued, or incurred under the statute before its repeal;
    3. any violation of the statute, or any penalty, forfeiture, or punishment incurred because of the violation, before its repeal;
    4. any proceeding, reorganization, or dissolution commenced under the statute before its repeal, and the proceeding, reorganization, or dissolution may be completed in accordance with the statute as if it had not been repealed.
  2. If a penalty or punishment imposed for violation of a statute repealed by this chapter is reduced by this chapter, the penalty or punishment, if not already imposed, shall be imposed in accordance with this chapter.

History. Acts 1987, No. 958, § 64-1703.

4-27-1704. Severability.

If any provision of this chapter or its application to any person or circumstance is held invalid by a court of competent jurisdiction, the invalidity does not affect other provisions or applications of this chapter that can be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable.

History. Acts 1987, No. 958, § 64-1704.

4-27-1705. Fees.

The fees chargeable by the Secretary of State for services under the Arkansas Business Corporation Act, § 4-26-101 et seq. shall be as follows:

  1. Articles of incorporation $50.00 (2) Amendment to articles of incorporation 50.00 (3) Articles of merger or consolidation 100.00 (4) Articles of dissolution 50.00 (5) Application for fictitious name 25.00 (6) Application for reserved name 25.00 (7) For any other filing under this chapter with annexed certificate 25.00 (8) For any certificate pursuant to § 4-26-106 or § 4-26-207 or any other certificate 25.00 (9) For furnishing a certified copy of any document, fifty cents (50¢) per page and five dollars ($5.00) for the certificate thereto (10) For receiving service of process on behalf of a corporation 25.00 (11) For receiving service of process on behalf of individuals 10.00

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History. Acts 1987, No. 958, § 64-1705; 1987 (1st Ex. Sess.), No. 11, § 19; 2007, No. 638, § 26; 2007, No. 646, § 2.

A.C.R.C. Notes. This section is set out above as amended by Acts 2007, No. 638, § 26, effective September 1, 2007. This section was also amended by Acts 2007, No. 646, § 2 to read:

“The fees chargeable by the Secretary of State for services under § 4-26-101 et seq. shall be as follows:

(1) Articles of incorporation $50.00 (2) Amendment to articles of in- corporation 50.00 (3) Articles of merger or consolida- tion 100.00 (4) Corporation's statement of change of registered agent or office, or both No Fee (5) Articles of dissolution 50.00 (6) Application for fictitious name 25.00 (7) Application for reserved name 25.00 (8) For any other filing under this chapter with annexed certifi- cate 25.00 (9) For any certificate pursuant to § 4-26-106 or § 4-26-207 or any other certificate 25.00 (10) For furnishing a certified copy of any document, fifty cents (50¢) per page and five dollars ($5.00) for the certificate thereto (11) For receiving service of process on behalf of a corporation 25.00 (12) For receiving service of process on behalf of individuals 10.00”

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Publisher's Notes. Subdivision (10) is printed as enacted.

4-27-1706. Effective date.

This chapter shall be effective on and after midnight, December 31, 1987.

History. Acts 1987, No. 958, § 64-1706.

Subchapter 18 — Share Exchange

4-27-1801. Share exchange.

  1. A corporation may acquire all of the outstanding shares of one (1) or more classes or series of another corporation if the board of directors and shareholders if required by § 4-27-1802 of each corporation approve the exchange.
  2. The plan of exchange shall set forth:
    1. The name of the corporation whose shares will be acquired and the name of the acquiring corporation;
    2. The terms and conditions of the exchange; and
    3. The manner and basis of exchanging the shares to be acquired for:
      1. Shares, obligations, or other securities of the acquiring corporation or any other corporation; or
      2. Cash or other property.
  3. The plan of exchange may set forth other provisions relating to the exchange.
  4. This section does not limit the power of a corporation to acquire all or part of the shares of one (1) or more classes or series of another corporation through a voluntary exchange or otherwise.

History. Acts 2009, No. 408, § 4.

4-27-1802. Action on plan of share exchange.

  1. After adopting a plan of share exchange, the board of directors of each corporation whose shares will be acquired in the share exchange shall submit the plan of share exchange for approval by its shareholders.
  2. A plan of share exchange may be approved if the:
    1. Board of directors recommends the plan of share exchange to the shareholders, unless the board of directors:
      1. Determines that because of a conflict of interest or other special circumstances it should make no recommendation; and
      2. Communicates the basis for its determination at the time the plan of share exchange is submitted to the shareholders; and
    2. Shareholders entitled to vote approve the plan.
  3. The board of directors may condition its submission of the proposed plan of share exchange on any basis.
    1. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 4-27-705.
    2. The notice shall:
      1. State that a purpose of the meeting is to consider the plan of share exchange; and
      2. Contain or be accompanied by a copy or summary of the plan.
  4. Unless this chapter, the articles of incorporation, or the board of directors acting under subsection (c) of this section require a greater vote or a vote by voting groups, the plan of share exchange to be authorized must be approved by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote and, if by voting group, by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by the voting group.
    1. Separate voting by voting groups is required on a plan of share exchange by each class or series of shares included in the exchange.
    2. Each class or series constitutes a separate voting group.
  5. Subject to any contractual rights, until articles of share exchange are filed the planned share exchange may be abandoned without further shareholder action in accordance with the procedure set forth in the plan of share exchange or, if none is set forth, in the manner determined by the board of directors.

History. Acts 2009, No. 408, § 4.

4-27-1803. Articles of share exchange.

  1. After a plan of share exchange is approved by the shareholders or adopted by the board of directors if shareholder approval is not required, the surviving or acquiring corporation shall file articles of share exchange with the Secretary of State.
  2. The articles of share exchange shall include:
      1. A copy of the plan of share exchange; or
      2. A statement that:
        1. Contains the address of an office of the surviving corporation where the plan of share exchange is on file; and
        2. A copy of the plan of share exchange will be furnished by the surviving corporation on request and without cost to any shareholder, member, partner, or other owner of any constituent organization;
    1. If shareholder approval was not required, a statement that shareholder approval was required;
    2. If the approval of the shareholders of one (1) or more corporations to the share exchange was required:
      1. The designation, number of outstanding shares, and number of votes entitled to be cast by each voting group entitled to vote separately on the plan as to each corporation; and
        1. The total number of votes cast for and against the plan by each voting group entitled to vote separately on the plan; or
        2. The total number of undisputed votes cast for the plan separately by each voting group; and
    3. A statement that the number of votes cast for the plan by each voting group was sufficient for approval by that voting group.
  3. A share exchange takes effect upon the effective date of the articles of share exchange.

History. Acts 2009, No. 408, § 4.

4-27-1804. Effect of share exchange.

When a share exchange takes effect, the shares of each acquired corporation are exchanged as provided in the plan and the former holders of the shares are entitled only to:

  1. The exchange rights provided in the articles of share exchange; or
  2. The rights of the former holders of the shares under § 4-27-1301 et seq.

History. Acts 2009, No. 408, § 4.

Subchapter 19 — Arkansas Business Portal Act

A.C.R.C. Notes. Act 2015, No. 1190, § 1, provided: “Legislative findings. The General Assembly finds that:

“(1) Historically, a business has been required to submit various applications to numerous state and local governmental agencies to obtain necessary licenses, permits, and approvals to conduct business in this state;

“(2) State and local governmental agencies do not use a uniform application system to authorize or issue a license, permit, or approval to conduct business;

“(3) A business may submit the same basic information through the use of numerous forms, formats, and multiple websites as required by those separate agencies;

“(4) Advances in information technology should enable governmental agencies to make the exchange of information from business to government, from government to business, and across governmental agencies more efficient and effective for the parties;

“(5) States that make required transactions among businesses and governmental agencies faster, easier, and cheaper than compared to other states will provide a competitive advantage for businesses and encourage economic development within the state; and

“(6) The State of Arkansas should strive to become a national leader for online interaction between business and government through the establishment of a state business portal within the office of the Secretary of State to provide a single, secure portal to transact business with the intent to improve efficiency, eliminate redundancy, streamline the establishment of businesses, improve accountability, and enhance economic development within this state.”

4-27-1901. Title.

This subchapter shall be known and may be cited as the “Arkansas Business Portal Act”.

History. Acts 2015, No. 1190, § 2.

4-27-1902. Purpose.

It is the purpose of this subchapter to provide access for a state business portal to facilitate interaction among businesses and governmental agencies located in this state by allowing businesses to conduct necessary transactions with various governmental agencies through use of a state business portal.

History. Acts 2015, No. 1190, § 2.

4-27-1903. Definitions.

As used in this subchapter:

  1. “Business” means a person or entity that:
    1. Performs a service or engages in a trade for profit and is required by the Internal Revenue Service to file a:
      1. Schedule C, Form 1040, Profit or Loss From Business, or its equivalent or successor form;
      2. Schedule E, Form 1040, Supplemental Income and Loss, or its equivalent or successor form; or
      3. Schedule F, Form 1040, Profit or Loss From Farming, or its equivalent or successor form, for that activity; or
    2. Is organized as a business under this chapter, including an entity that is required to file an annual report with the Secretary of State, whether or not the entity performs a service or engages in a trade or business for profit;
  2. “State business license” means any license issued to a business in this state; and
  3. “Wages” means any remuneration paid for personal services, including commissions and bonuses, and payable in any medium other than cash.

History. Acts 2015, No. 1190, § 2.

4-27-1904. Administration — Duties of the Secretary of State.

The Secretary of State shall:

  1. Administer this subchapter;
  2. Establish, through cooperative efforts, the standards and requirements necessary to design, build, and implement the State Business Portal;
  3. Establish the standards and requirements necessary for a state or local agency to participate in the portal;
  4. Authorize a state or local agency to participate in the portal if the Secretary of State determines that the agency meets the standards and requirements necessary to participate;
  5. Determine the appropriate requirements to be used by businesses and governmental agencies conducting transactions through use of the portal;
  6. Adopt procedures to administer this subchapter; and
    1. Establish a unique identifier for each business entity registered to do business in this state.
    2. The unique identifier shall be:
      1. Alphabetical, alphanumeric, or numeric as determined by the Secretary of State;
      2. Unique to each registered business entity;
      3. The statewide business identifier for each business entity; and
      4. Recognized by all state, county, city, and local governments as the unique business identifier for each business entity registered in this state.

History. Acts 2015, No. 1190, § 2.

4-27-1905. Funding.

  1. The Secretary of State shall use cash funds of the office of the Secretary of State to administer this subchapter.
  2. The Secretary of State may use cash funds to:
    1. Enter into contracts or agreements with private or public entities to assist the Secretary of State in establishing, operating, or maintaining the State Business Portal; and
    2. Apply for and accept a gift, donation, bequest, grant, or other source of money to carry out this subchapter.

History. Acts 2015, No. 1190, § 2.

4-27-1906. Applications for licenses — Initial — Renewal.

  1. A business may submit an application to the Secretary of State on a form prescribed by the Secretary of State for a state business license under this subchapter.
    1. A business shall renew the state business license annually as long as the business is operating within this state.
    2. A business shall apply for renewal of a license issued under this subchapter by submitting an application for renewal on the form prescribed by the Secretary of State.
  2. An application for a state business license under this subchapter shall:
    1. Be made using an online form as determined by the Secretary of State;
      1. State the name under which the applicant transacts or intends to transact business.
      2. If the applicant is an entity organized under this chapter and on file with the Secretary of State, the applicant shall state the exact name on file with the Secretary of State, including the entity number as assigned by the Secretary of State, if known, and all the applicant's places of business;
    2. Be accompanied by a fee in the amount of one hundred fifty dollars ($150); and
    3. Include any other information that the Secretary of State deems necessary.
  3. If an applicant is an entity organized under this chapter and on file with the Secretary of State and the applicant does not have an established principal place of business located within the state, the address of the applicant's registered agent is the location of the applicant's principal place of business within this state.
  4. The application shall be signed by:
    1. The owner of a business that is owned by a natural person;
    2. A member or partner of an association or partnership;
    3. A general partner of a limited partnership;
    4. A managing partner of a limited-liability partnership;
    5. A manager or managing member of a limited-liability company; or
    6. An officer of a corporation or an individual specifically authorized by the corporation to sign the application.
  5. If the application for a state business license is defective or incomplete, the Secretary of State may return the incomplete application to the applicant to complete or to submit proper payment.
  6. A state business license under this subchapter does not replace or substitute an authorization or license required to conduct business from a local jurisdiction where the business activity is conducted.
  7. A person may apply for a license under this subchapter if a business for which a person is responsible:
    1. Is organized under this chapter;
    2. Has an office or other base of operations within this state;
    3. Has a registered agent that is located within this state; and
    4. Pays wages or other remuneration to an individual who performs any duties associated with the business within this state.

History. Acts 2015, No. 1190, § 2.

4-27-1907. Rules.

The Secretary of State shall adopt rules to implement and administer this subchapter.

History. Acts 2015, No. 1190, § 2.

4-27-1908. Noncompliance.

  1. If a person that holds a state business license fails to comply with this subchapter or any rule of the Secretary of State adopted under this subchapter, the Secretary of State may revoke or suspend the state business license of the person as determined by the Secretary of State.
  2. If a state business license is suspended or revoked, the Secretary of State shall provide written notice of the action to the licensee.
  3. The Secretary of State shall not issue a new license to the former holder of a revoked state business license unless the Secretary of State finds that the applicant is complying with this subchapter and the rules of the Secretary of State adopted under this subchapter.

History. Acts 2015, No. 1190, § 2.

4-27-850. Indemnification of officers, directors, employees, and agents — Insurance.

Subchapter 10 — Amendment of Articles of Incorporation and Bylaws

Chapter 28 Nonprofit Organizations

A.C.R.C. Notes. References to “this chapter” in §§ 4-28-1014-28-103 and subchapters 2 — 4 may not apply to § 4-28-104 which was enacted subsequently.

Subchapter 1 — General Provisions

Cross References. Arkansas Nonprofit Corporation Act of 1933, § 4-33-101 et seq.

Business Corporation Act of 1987, § 4-27-101 et seq.

Immunity from tort liability, § 16-120-101 et seq.

Effective Dates. Acts 1875, No. 77, § 53: effective on passage.

Acts 1875 (Adj. Sess.), No. 77, § 3: effective on passage.

Acts 1881, No. 40, § 3: effective on passage.

Acts 1987, No. 240, § 4: Oct. 1, 1987.

Acts 1993, No. 1147, § 1705: January 1, 1994.

4-28-101. Fairs and associations of public nature.

  1. Agricultural and mechanical fair associations and other associations of a public nature and designed to promote the public good may be constituted bodies politic and corporate in the manner provided by law for business corporations, and the capital stock may be divided and held in shares of two dollars ($2.00) each.
  2. No profits or dividends shall ever be declared or paid under this section; however, dividends may be paid to the amount of money paid in by the stockholders on their respective shares.
  3. This section shall not be construed to prohibit the associations from being chartered and incorporated with the powers and privileges and in the manner provided by law.

History. Acts 1875 (Adj. Sess.), No. 77, §§ 1-3, p. 152; C. & M. Dig., §§ 1796, 1797; Pope's Dig., §§ 2260, 2261; A.S.A. 1947, §§ 64-1309 — 64-1311.

Case Notes

Stock.

No permit is necessary to sell stock of a corporation organized under this section. Saxon v. Ark. State Fair Ass'n, 181 Ark. 750, 27 S.W.2d 505 (1930).

4-28-102. Religious, literary, benevolent, etc., corporations — Fees.

There shall be allowed and collected by the Secretary of State, and accounted for by him or her to the State Treasury in the same manner as all other fees are or shall be directed to be accounted for by state officers, a fee for receiving each draft of articles, or charter, of a private incorporation created for religious, literary, benevolent, or scientific purposes and not for purposes of pecuniary profit, directly or indirectly, of two dollars and fifty cents ($2.50).

History. Acts 1875, No. 77, § 1, p. 167; 1881, No. 40, § 1, p. 73; C. & M. Dig., § 1818; A.S.A. 1947, § 64-1312.

Cross References. Fees to be paid to Secretary of State, § 4-28-223.

4-28-103. Statutory life insurance beneficiaries.

  1. For the purposes of this section, “public funds” means all federal, state, county, municipal, or other funds received from any taxing unit.
    1. Nonprofit corporations shall not use public funds to purchase key-man life insurance as a form of deferred compensation.
    2. The insured employee shall not receive any cash values or other benefits from the purchase of key-man life insurance with public funds.
    3. Nonprofit corporations purchasing key-man life insurance with public funds shall not transfer ownership or any other rights under such policies directly or indirectly to the insured.
  2. Nonprofit corporations violating subsection (b) of this section shall not be eligible to receive any public funds for a period of two (2) years from the date the violations are discovered.
      1. Notwithstanding any other law or rule to the contrary, any religious, educational, charitable, or benevolent institution, organization, corporation, association, or trust, including, but not limited to, charitable remainder trusts, may be named beneficiary or owner, or both, of the policy or contract by any applicant for insurance upon his or her own life in any policy of life insurance issued by any life insurance company authorized to do business in this state or in the state of domicile of the applicant for insurance.
      2. The applicant for insurance shall be deemed to have an unlimited insurable interest in his or her own life and is entitled to name any of the institutions as beneficiary of the insurance, and the beneficiaries or owners, or both, shall have the right to receive all death benefits provided for by the policy and to exercise the rights of ownership if granted ownership.
    1. As to any life insurance policies heretofore issued by insurers naming any of the aforementioned institutions as beneficiaries or owners, or both, if the applicant for insurance was also the insured, the beneficiaries or owners, or both, shall be entitled to receive all death benefits provided by the policy and to exercise the rights of ownership if granted ownership.

History. Acts 1987, No. 240, §§ 1-3; 1993, No. 1147, § 1803; 2019, No. 315, § 109.

Amendments. The 2019 amendment substituted “rule” for “regulation” in (d)(1)(A).

4-28-104. Audit of nonprofit organization.

  1. For purposes of this section:
    1. “Nonprofit organization” means an organization exempt from taxation under § 26 U.S.C. 501(c)(3); and
    2. “State financial assistance” means all state funds given, granted, or disbursed to a nonprofit organization pursuant to appropriation laws to provide services for the citizens of this state or for capital projects.
    1. Any nonprofit organization receiving state financial assistance shall be subject to audit of its receipt and expenditure of state financial assistance by Arkansas Legislative Audit.
    2. An audit shall be conducted by Arkansas Legislative Audit only after approval by the Legislative Joint Auditing Committee.

History. Acts 2001, No. 958, § 1.

A.C.R.C. Notes. References to “this chapter” in §§ 4-28-1014-28-103 and subchapters 2 — 4 may not apply to this section which was enacted subsequently.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Business Law, 24 U. Ark. Little Rock L. Rev. 407.

4-28-105. Capacity to assert and defend — Standing.

  1. A nonprofit organization may, in its own name, institute, defend, intervene, or participate in a judicial, administrative, or other governmental proceeding or in an arbitration, mediation, or any other form of alternative dispute resolution.
  2. A nonprofit organization may, in its own name, assert a claim on behalf of its members if:
    1. One (1) or more members of the nonprofit organization have standing to assert a claim in their own rights;
    2. The interests the nonprofit organization seeks to protect are germane to its purpose; and
    3. Neither the claim asserted nor the relief requested requires the participation of a member.

History. Acts 2017, No. 822, § 1; 2019, No. 379, § 2.

Amendments. The 2019 amendment substituted “own rights” for “own right” in (b)(1).

Subchapter 2 — Arkansas Nonprofit Corporation Act

A.C.R.C. Notes. Acts 1987, No. 406, § 1, provided that any nonprofit corporation organized prior to March 7, 1963, which wishes to exist and function under the provisions of this subchapter shall, within one (1) year after March 25, 1987, file with the Secretary of State a copy of the court order or action whereby it was granted corporate status and pay to the Secretary of State a filing fee of $10.00.

Acts 1989 (3rd Ex. Sess.), No. 57, § 1, provided: “Any nonprofit corporation organized prior to March 7, 1963, which wishes to exist and function under the provisions of Arkansas Code 4-28-201 through 4-28-409, and laws amendatory or supplemental thereto shall on or before July 1, 1990, file with the Secretary of State a copy of the court order or action whereby it was granted corporate status and shall pay to the Secretary of State a filing fee of fifty dollars ($50.00).”

Cross References. Arkansas Nonprofit Corporation Act of 1933, § 4-33-101 et seq.

Registration of public obligations, § 19-9-401 et seq.

Effective Dates. Acts 1963, No. 176, § 24: Mar. 7, 1963. Emergency clause provided: “It has been found and is declared by the General Assembly of the State of Arkansas that nonprofit corporations are not required to register with the Secretary of State, keep proper accounting records, and are subject to no state regulation, thereby giving rise to the unfettered practices of fraud upon the public of Arkansas and the degradation of the purposes for which such corporations might be formed; that there is an urgent need for protection of the public and encouragement of worthy organizations. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health and safety, shall take effect and be in force from the date of its approval.”

Acts 1971, No. 728, § 6: Apr. 28, 1971. Emergency clause provided: “The General Assembly finding that private foundations immediately and urgently need the amendments to their governing instruments contained in this Act in order to remain exempt from federal taxation, an emergency, therefore, is hereby declared to exist, and this Act being necessary for the preservation of the public peace and welfare, shall be effective from and after its passage and approval.”

Acts 1973, No. 42, § 3: Jan. 31, 1973. Emergency clause provided: “It is hereby found and determined by the General Assembly that uncertainty exists concerning the status of nonprofit corporations chartered prior to Act 176 of 1963, and that this Act is immediately necessary to clarify the same. Therefore, an emergency is declared to exist and this Act being necessary for the preservation of the public peace, health and safety shall take effect and be in force from the date of its approval.”

Acts 1987, No. 406, § 3: Mar. 25, 1987. Emergency clause provided: “It is hereby found and determined by the General Assembly that uncertainty and confusion exist concerning the status of some nonprofit corporations which were created prior to 1963 and which have not qualified to exist and function under Act 176 of 1963, as amended; that many of such organizations are worthy charitable and civic organizations and it is urgent that this act be given effect immediately to enable such organizations to file appropriate documents with the Secretary of State and thereby clarify their status as a nonprofit corporation. Therefore, an emergency is hereby declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall be in full force and effect from and after its passage and approval.”

Acts 1987, No. 1068, § 6: Apr. 17, 1987. Emergency clause provided: “It is hereby found and determined by the Arkansas General Assembly that the fees charged by the Secretary of State for the filing of corporation and limited partnership applications and other papers are inadequate to compensate the State for the proper record keeping required and therefore these fees should be raised sufficiently as set forth herein to pay for this proper record keeping. Therefore, an emergency is hereby declared to exist and this Act, being necessary for the preservation of the public peace, health, and safety, shall be in effect from and after its passage and approval.”

Acts 1993, No. 1147, § 1705: Jan. 1, 1994.

Acts 2003, No. 1330, § 5: Apr. 14, 2003. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the statutes relating to water authorities and related laws need amending in order to better reflect the intent and operation of those laws as originally drafted and to be consistent with current trends. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Acts 2007, No. 646, § 14: July 1, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that business entities are presently paying different fees for similar services from the Secretary of State; that this act will alleviate any undue hardship to any entity by standardizing business and commercial filing fees; and that this act is immediately necessary to aid the recordkeeping and accounting functions of the Secretary of State and should take effect at the beginning of the state's fiscal year. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2007.”

Acts 2019, No. 108, § 6: Feb. 13, 2019. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that a for-profit corporation could face severe adverse tax consequences for reorganizing as a nonprofit corporation that may result in being subjected to unwarranted penalties; that existing statutes relating to the process of converting to a nonprofit entity need amending to eliminate uncertainty and to prevent irreparable harm on businesses operating in this state; and that this act is immediately necessary to clarify state law governing conversion by a for-profit corporation to a nonprofit corporation and provide for timely administration of business procedures. Therefore, an emergency is declared to exist, and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto”.

Research References

ALR.

Restrictions on right of legal services corporation or “public interest” law firm to practice. 26 A.L.R.4th 614.

Right of member of nonprofit association or corporation to possession, inspection, or use of membership lists. 37 A.L.R.4th 1206.

Exemption of nonprofit theater or concert hall from local property taxation. 42 A.L.R.4th 614.

Exemption from real property taxation of residential facilities maintained by hospitals for patients, staff, or others. 61 A.L.R.4th 1105.

Attorney's obligation to share fee award with party representing public interest. 43 A.L.R.5th 793.

Exemption of charitable or educational organization from sales or use tax. 69 A.L.R.5th 477.

Ark. L. Rev.

Charitable Immunity — Contracts, Torts, Rule of Property and Prospective Overruling, 16 Ark. L. Rev. 289.

U. Ark. Little Rock L.J.

Mathews, Corporate Statutes—Which One Applies?, 13 U. Ark. Little Rock L.J. 87.

Harris, The Nonprofit Corporation Act of 1993: Considering the Election to Apply the New Law to Old Corporations, 16 U. Ark. Little Rock L.J. 1.

Case Notes

Cited: Vincent v. United States, 383 F. Supp. 471 (E.D. Ark. 1974); Gilbreath v. East Ark. Planning & Dev. Dist., Inc., 471 F. Supp. 912 (E.D. Ark. 1979); J.W. Resort, Inc. v. First Am. Nat'l Bank, 3 Ark. App. 290, 625 S.W.2d 557 (1981).

4-28-201. Title.

Sections 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224 shall be known as the “Arkansas Nonprofit Corporation Act”.

History. Acts 1963, No. 176, § 1; A.S.A. 1947, § 64-1901.

4-28-202. Definitions.

As used in §§ 4-28-2014-28-206 and 4-28-2094-28-224, unless the context otherwise requires:

  1. “Board of directors” means the group of persons vested with the management of the affairs of the corporation;
  2. “Corporation” means a domestic corporation not for profit subject to the provisions of §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224;
  3. “Foreign corporation” means a corporation not for profit organized under laws other than the laws of this state; and
  4. “Not-for-profit corporation” means a corporation no part of the income of which is distributable to its members, directors, or officers. Sections 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224 shall apply only to corporations organized under the laws of this state authorizing organization of nonprofit corporations.

History. Acts 1963, No. 176, § 2; A.S.A. 1947, § 64-1902.

Case Notes

Cited: Allen v. Malvern Country Club, 295 Ark. 65, 746 S.W.2d 546 (1988).

4-28-203. Applicability of subchapter.

  1. The provisions of §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224 relating to domestic corporations shall apply to:
    1. All corporations organized hereunder; and
    2. All not-for-profit corporations heretofore organized under any act hereby repealed, for the purposes for which a corporation might be organized under §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224.
  2. The provisions of §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224 relating to foreign corporations shall apply to all foreign not-for-profit corporations conducting affairs in this state for purposes for which a corporation might be organized under §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224. However, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224 shall not apply to any corporation whose membership is composed of corporations which file annual statements with a department or agency of this or some other state.

History. Acts 1963, No. 176, § 3; A.S.A. 1947, § 64-1903.

Case Notes

Cited: Giss v. Apple, 239 Ark. 1124, 396 S.W.2d 813 (1965); Allen v. Malvern Country Club, 295 Ark. 65, 746 S.W.2d 546 (1988).

4-28-204. Effect on preexisting corporations.

  1. The provisions of §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224 shall in no way affect any nonprofit corporation chartered under and in accordance with the laws of this state existing prior to March 7, 1963.
  2. Any such nonprofit corporation organized prior to March 7, 1963, and which has not filed a copy of the order or action whereby it was granted corporate status under the then existing law may file a certified copy of the order or action from the clerk of the court wherein the authority was granted, together with a filing fee of ten dollars ($10.00), with the Secretary of State, and the filing shall evidence the incorporation and shall entitle the organization to recognition of its legal status, the same as one formed under the provisions of §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224.

History. Acts 1963, No. 176, § 22; 1973, No. 42, § 1; A.S.A. 1947, § 64-1921.

Case Notes

In General.

Although section 2 of the 1973 amendment used the mandatory wording “shall” when providing for a two year filing period, it did so only in reference to preexisting corporations “wishing to take advantage of” the provisions of this section; by implication, this fact also means that those not wishing to take advantage of those provisions are not required to file. A similar act was passed in 1987; so had the legislature intended termination of corporations that failed to file within two years of the 1973 amendment, there would be no corporations in existence to which Act 406 of 1987 could apply, since it applies only to pre-1963 corporations which had not yet filed with the Secretary of State. Wye Community Club, Inc. v. Harmon, 26 Ark. App. 247, 764 S.W.2d 55 (1989).

Country Clubs.

There is not now, nor has there ever been, statutory authority for the issuance of stock by a country club. Allen v. Malvern Country Club, 295 Ark. 65, 746 S.W.2d 546 (1988).

4-28-205. Lawful purposes.

Corporations may be organized under §§ 4-28-2014-28-206 and 4-28-2094-28-224 for any lawful purpose including, without being limited to any one (1) or more of the following purposes: charitable; benevolent; eleemosynary; educational; civic; patriotic; political; religious; social; fraternal; literary; cultural; athletic; scientific; agricultural; horticultural; animal husbandry; and professional, commercial, industrial, or trade association. However, labor unions, rural electric corporations, cooperative agricultural or marketing associations, etc., organized for either direct or indirect financial gain or advantage, and any cooperative associations coming within the purview of §§ 4-30-1014-30-117, 4-30-201, 4-30-202, and 4-30-2044-30-207 shall be governed by the particular acts applicable to such associations.

History. Acts 1963, No. 176, § 4; A.S.A. 1947, § 64-1904.

Case Notes

Members.

Business corporations and persons engaged in commercial ventures are not precluded from membership in nonprofit corporations. Rohrscheib v. Barton-Lexa Water Ass'n, 246 Ark. 145, 437 S.W.2d 230 (1969).

4-28-206. Articles of incorporation generally.

  1. Any association of persons or for-profit corporation organized under the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., desirous of becoming incorporated under the provisions of the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, shall file with the circuit court of the county in which the main office or principal place of business of the proposed corporation is located or proposed to be located signed and verified articles of incorporation, which shall set forth the following:
    1. The name of the corporation;
    2. The period of duration, which may be perpetual;
    3. The purposes for which the corporation is organized;
    4. Any provisions, not inconsistent with law, which the incorporators elect to set forth in the articles of incorporation for the regulation of the internal affairs of the corporation, including any provision for distribution of assets on dissolution or final liquidation;
    5. The address of its main office or principal place of business, and the name of its registered agent at that address;
    6. The number of directors constituting the initial board of directors and the names and addresses of the persons who are to serve as the initial directors;
    7. The name and address of each incorporator;
    8. A statement that the corporation:
      1. Is a nonprofit corporation; and
      2. Has converted under the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224; and
      1. A description of the treatment of shares of stock.
      2. The description of the treatment of shares of stock:
        1. May provide for the exchange of shares of stock for certificates of membership if the corporation has members; or
        2. Shall provide that the shares of stock be canceled by the board of directors if the corporation does not have members.
  2. If the circuit court finds that the articles of incorporation conform to law and that the incorporation is for a lawful purpose and is in the best interests of the public, the court may issue an order approving the incorporation of the proposed association of persons.
  3. If the court approves the incorporation, the articles of incorporation in duplicate, signed and verified, and a copy of the order of the court approving the incorporation shall be transmitted to the Secretary of State, who shall, when all fees have been paid as prescribed in the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224:
    1. File the original of the articles in his or her office; and
    2. Issue a certificate of incorporation to which he or she shall affix the other copy of the articles endorsed with the word “Filed” and the month, day, and year of the filing and return the certificate of incorporation to the incorporators or their representative.
  4. A corporation may amend its articles of incorporation from time to time, provided that the amendments are lawful under the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224. A copy of all amendments shall be filed with the Secretary of State within thirty (30) days after their passage.
    1. A for-profit corporation may convert to a nonprofit corporation under the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, or the Arkansas Nonprofit Corporation Act of 1993, § 4-33-101 et seq., upon the filing of an amendment to the corporation's articles of incorporation with the information required under this section.
    2. If an entity is a for-profit corporation that is converting to a nonprofit corporation, the conversion shall be approved by a three-fourths (¾) vote of the shareholders of the business corporation.
  5. A conversion to a nonprofit corporation under this chapter is effective when an amendment to the articles of incorporation is filed with the Secretary of State and the Secretary of State has collected the filing fees, service fees, and copying fees required under § 4-33-122.
  6. A conversion to a nonprofit corporation under this chapter is not a dissolution.

History. Acts 1963, No. 176, §§ 5, 6; A.S.A. 1947, §§ 64-1905, 64-1906; Acts 2019, No. 108, § 2.

Amendments. The 2019 amendment inserted “or for-profit corporation organized under the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq.” in the introductory language of (a); and added (a)(8), (a)(9), and (e) through (g).

Case Notes

Jurisdiction.

The chancery court properly had jurisdiction in injunction proceedings by one non-profit organization against another since the injunction was an equitable remedy; the circuit court did not have jurisdiction simply because that is where non-profit organizations file their articles of incorporation. Fort Smith Symphony Orchestra, Inc. v. Fort Smith Symphony Ass'n, 285 Ark. 284, 686 S.W.2d 418 (1985).

Members.

Membership in nonprofit corporations is not restricted to natural persons. Rohrscheib v. Barton-Lexa Water Ass'n, 246 Ark. 145, 437 S.W.2d 230 (1969).

Cited: Wye Community Club, Inc. v. Harmon, 26 Ark. App. 247, 764 S.W.2d 55 (1989).

4-28-207. Charitable, religious, etc., organizations — Amendment of articles of incorporation by operation of law.

Notwithstanding any provision of Arkansas law or in the articles of incorporation to the contrary, the articles of incorporation of each nonprofit corporation organized under the laws of this state which is an exempt charitable, religious, literary, educational, or scientific organization as described in section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. § 501(c)(3), shall be deemed to contain the following provisions:

“Upon the dissolution of the corporation, the board of trustees shall, after paying or making provision for the payment of all of the liabilities of the corporation, dispose of all of the assets of the corporation exclusively for the purposes of the corporation in such manner, or to such charitable, educational, religious, literary, or scientific purposes as shall at the time qualify as an exempt organization or organizations under section 501(c)(3) of the Internal Revenue Code of 1954, or the corresponding provision of any future United States Internal Revenue Law, as the board of trustees shall determine. Any such assets not so disposed of shall be disposed of by the circuit court of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said court shall determine, which are organized and operated exclusively for such purposes.”

History. Acts 1977, No. 181, § 1; A.S.A. 1947, § 64-1924.

Research References

U. Ark. Little Rock L.J.

Survey of Arkansas Law, Business Law, 1 U. Ark. Little Rock L.J. 118.

Case Notes

Cited: Ark. Uniform & Linen Supply Co. v. Institutional Servs. Corp., 287 Ark. 370, 287 Ark. 370, 700 S.W.2d 358 (1985).

4-28-208. Private foundations — Amendment of articles of incorporation by operation of law.

  1. Notwithstanding any provision in the laws of this state, including the provisions of the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, or in the articles of incorporation to the contrary, except as provided in subsection (c) of this section, the articles of incorporation of each corporation which is a “private foundation” as defined in section 509 of the Internal Revenue Code of 1954, 26 U.S.C. § 509, shall be deemed to contain the following provisions:
  2. With respect to any such corporation organized prior to January 1, 1970, subsection (a) of this section shall apply only for its taxable years beginning on or after January 1, 1972.
  3. The articles of incorporation of any corporation described in subsection (a) of this section may be amended to expressly exclude the application of this section, and in the event of amendment, this section shall not apply to that corporation.
  4. Nothing contained in this section shall impair the rights and powers of the courts or any officer, agency, or department of this state with respect to any corporation.
  5. As used in this section, unless the context requires otherwise, all references to “the Code” are to the Internal Revenue Code of 1954, 26 U.S.C. § 1 et seq., and all references to specific sections of the Code include future amendments to the sections and corresponding provisions of any future federal tax laws.

“The corporation shall make distributions at such time and in such manner as not to become subject to the tax on undistributed income imposed by section 4942 of the Internal Revenue Code of 1954; the corporation shall not engage in any act of self-dealing (as defined in section 4941(d) of the Code) which would subject it to tax under section 4941 of the Code; the corporation shall not retain any excess business holdings (as defined in section 4943(c) of the Code) which would subject it to tax under section 4943 of the Code; the corporation shall not make any investments in such manner as to subject it to tax under section 4944 of the Code; and the corporation shall not make any taxable expenditures (as defined in section 4945(d) of the Code) which would subject it to tax under section 4945 of the Code.”

History. Acts 1971, No. 728, §§ 1, 3; A.S.A. 1947, §§ 64-1922, 64-1923.

Publisher's Notes. Acts 1971, No. 728, § 3, is also codified as § 28-72-301.

U.S. Code. Sections 4941, 4941(d), 4942, 4943, 4943(c), 4944, 4945, and 4945(d) of the Internal Revenue Code of 1954 referred to in this section are codified as 26 U.S.C. §§ 4941, 4941(d), 4942, 4943, 4943(c), 4944, 4945, and 4945(d), respectively.

4-28-209. Powers.

Each corporation shall have power:

  1. To have perpetual succession by its corporate name unless a limited period of duration is stated in its articles of incorporation;
  2. To sue and be sued, complain, and defend in its corporate name;
  3. To purchase, take, receive, lease, take by gift, devise, or bequest, or otherwise acquire, own, hold, improve, use, and otherwise deal in and with real or personal property or any interest therein, wherever situated;
  4. To sell, convey, mortgage, pledge, lease, exchange, transfer, and otherwise dispose of all or any part of its property and assets;
  5. To make contracts and incur liabilities, borrow money, issue its notes, bonds, and other obligations, act as a trustee, and secure any of its obligations by mortgage or pledge of all or any of its property, franchises, and income;
  6. To manage its internal affairs in any desired manner so long as the provisions of the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, or other law are not violated; and
  7. To do any and all things necessary, convenient, useful, or incidental to the attainment of its purposes as fully and to the same extent as natural persons lawfully might or could do so long as consistent with the provisions of the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224.

History. Acts 1963, No. 176, § 7; A.S.A. 1947, § 64-1907; Acts 1993, No. 1147, § 1801.

Case Notes

Sale, Exchange, Etc., of Property.

In the absence of corporate rules to the contrary it is necessary that a majority of the members of a nonprofit corporation, having voting rights, approve the sale and exchange of all its property and facilities. Giss v. Apple, 239 Ark. 1124, 396 S.W.2d 813 (1965).

Cited: Rohrscheib v. Barton-Lexa Water Ass'n, 246 Ark. 145, 437 S.W.2d 230 (1969); Cammack v. Chalmers, 284 Ark. 161, 680 S.W.2d 689 (1984).

4-28-210. Members.

  1. A corporation may have one (1) or more classes of members, or may have no members, as provided in the articles of incorporation.
    1. If a membership fee is collected, a serially numbered certificate evidencing the membership fee shall be issued.
    2. The records of the corporation shall clearly indicate the amount of the fee collected for each serially numbered certificate of membership.
    3. If honorary membership certificates are issued, the records of the corporation shall reflect each and every one (1) issued.

History. Acts 1963, No. 176, § 14; A.S.A. 1947, § 64-1914.

Case Notes

In General.

Trial court did not err in ordering county fair and livestock show association, a nonprofit corporation, to revise its bylaws to set forth the process for membership where there was a conflict between the articles and the bylaws regarding classes of membership. Dunaway v. Garland County Fair & Livestock Show Ass'n, 97 Ark. App. 181, 245 S.W.3d 678 (2006).

Eligibility.

Business corporations and persons engaged in commercial ventures for profit are not precluded from membership in nonprofit corporations. Rohrscheib v. Barton-Lexa Water Ass'n, 246 Ark. 145, 437 S.W.2d 230 (1969).

Membership in nonprofit corporations organized under this subchapter is not limited to natural persons. Rohrscheib v. Barton-Lexa Water Ass'n, 246 Ark. 145, 437 S.W.2d 230 (1969).

Cited: Corner, Inc. v. State, 257 Ark. 525, 518 S.W.2d 506 (1975).

4-28-211. Board of directors.

  1. The directors constituting the first board of directors shall be named in the articles of incorporation and shall hold office until their successors have been elected and qualified. Thereafter, the board of directors shall be elected by vote of the entire membership of the corporation.
  2. The number of directors shall be fixed by the articles of incorporation except that they shall not be fewer than three (3).
  3. The terms of office of the board of directors shall be fixed by the articles of incorporation. However, the terms of office for a perpetually existing corporation shall be not less than one (1) year nor more than six (6) years, and the terms of office for a corporation of limited duration shall be for not more than one-third (1/3) of the stated period of duration.
  4. Nothing contained in this section shall prevent the staggering of the terms of office of the board of directors, but in no case may a director or directors hold office for longer than his or her specified term, except by reelection as provided in the articles of incorporation and in a manner consistent with the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224.

History. Acts 1963, No. 176, § 10; A.S.A. 1947, § 64-1910.

4-28-212. Voting.

  1. Each member shall be entitled to one (1) vote in the election of the board of directors. Where more than one (1) membership is held by a single entity, the member shall be entitled to one (1) vote for each such membership.
  2. On such other matters as may be subject to vote of the members, the voting right shall be as provided in the articles of incorporation or bylaws.
    1. In all matters as may be subject to the vote of the members, a member may vote in person or by proxy, unless the articles of incorporation or bylaws require such votes to be cast in person at a meeting of the membership held for such purposes.
    2. A member may appoint a proxy to vote or otherwise act for him or her by signing an appointment form, either personally or by his or her attorney-in-fact.
    3. An appointment of a proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes. An appointment is valid for eleven (11) months unless the member expressly provides for a longer term in the appointment form.
    4. An appointment of a proxy is revocable by the member at any time by written notice regular on its face to the secretary or other officer or agent authorized to tabulate votes.
    5. Subject to § 4-28-224 and to any express limitation on the proxy's authority appearing on the face of the appointment form, a corporation is entitled to accept the proxy's vote or other action as that of the member making the appointment.

History. Acts 1963, No. 176, § 11; A.S.A. 1947, § 64-1911; Acts 1989, No. 672, § 1.

Case Notes

Construction.

The 1989 amendment, which added the second sentence in subsection (a) of this section, modified the “one man, one vote” rule, and this section now clearly allows multiple votes to be cast where more than one “membership” is held. Morris v. Medin, 43 Ark. App. 29, 858 S.W.2d 142 (1993).

Proxies.

While a member's proxy may be expressly limited on the face of the appointment form, the statutory law does not provide that an association's board can arbitrarily impose such limitations on a member's proxy. Glover v. Overstreet, 336 Ark. 1, 984 S.W.2d 406 (1999).

Cited: Dunaway v. Garland County Fair & Livestock Show Ass'n, 97 Ark. App. 181, 245 S.W.3d 678 (2006).

4-28-213. Officers.

  1. The officers of a corporation shall consist of a president, vice president, secretary, treasurer, and such other officers and assistant officers as may be deemed necessary.
  2. The officers shall be elected or appointed in such manner and for such terms, not exceeding three (3) years, as may be prescribed in the articles of incorporation or bylaws.
  3. The articles of incorporation or bylaws may provide that one (1) or more officers of the corporation shall be ex officio members of the board of directors.

History. Acts 1963, No. 176, § 12; A.S.A. 1947, § 64-1912.

4-28-214. Registered agent — Service of process.

  1. Each corporation shall maintain a registered agent at its principal office or place of business upon whom may be served any process, notice, or demand required or permitted by law to be served upon the corporation. The registered agent may be changed upon the filing of proper notice in the office of the Secretary of State.
    1. Whenever a corporation fails to appoint or maintain a registered agent in this state or whenever its registered agent cannot with reasonable diligence be found at the registered office, then the Secretary of State shall be an agent of the corporation upon whom any such process, notice, or demand may be served.
    2. Service on the Secretary of State shall be made by delivering to and leaving with him or her, or with any clerk having charge of the corporation department of his or her office, duplicate copies of the process, notice, or demand.
    3. The Secretary of State shall cause one (1) of the copies of the process, notice, or demand to be forwarded by registered mail or certified mail with a return receipt requested to the corporation at its last known principal office or place of business.
    4. Any service so had on the Secretary of State shall be returnable in not less than thirty (30) days.
  2. Nothing contained in this section shall limit or affect the right to serve any process, notice, or demand required or permitted by law to be served upon a corporation in any manner permitted by law.

History. Acts 1963, No. 176, § 15; A.S.A. 1947, § 64-1915.

4-28-215. Compensation and reimbursement to members, directors, officers, etc.

  1. A corporation may pay compensation in a reasonable amount to its members, directors, or officers for services rendered and may confer benefits upon its members in conformity with its purposes.
  2. A corporation may make reimbursement to its members, directors, officers, or employees for expenses incurred in attending to their authorized duties, the expenses to be evidenced by receipt or other proper document.

History. Acts 1963, No. 176, § 8; A.S.A. 1947, § 64-1908.

4-28-216. Powers of Secretary of State.

  1. The Secretary of State may propound to any corporation, domestic or foreign, subject to the provisions of the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, and to any officer or director thereof, such interrogatories as may be reasonably necessary and proper to enable him or her to ascertain whether the corporation has complied with all the provisions of the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224.
  2. The Secretary of State shall have such other power and authority reasonably necessary to enable him or her to administer the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, efficiently and to perform the duties imposed upon him or her by the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224.

History. Acts 1963, No. 176, § 17; A.S.A. 1947, § 64-1917.

4-28-217. Rules by state agencies applicable.

  1. If any nonprofit corporation established under the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, engages in any activity controlled or regulated by any officer, agency, or department of this state, the activity shall be conducted in compliance with the laws and such rules as may be promulgated by the officer, agency, or department.
  2. For the purpose of furthering the organization and operation of any nonprofit corporation as authorized by the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, any such officer, agency, or department of this state may issue necessary permits and licenses to the corporations and regulate the use of the permits and licenses as may be required for the operation of the corporations.

History. Acts 1963, No. 176, § 16; A.S.A. 1947, § 64-1916; Acts 2019, No. 315, § 110.

Amendments. The 2019 amendment substituted “Rules” for “Regulations” in the section heading; and deleted “and regulations” following “rules” in (a).

4-28-218. Books and accounting records.

  1. Each corporation shall keep correct and complete books and records of account.
  2. All receipts of moneys and expenditures shall be properly recorded according to accepted accounting principles.
  3. A record of the proceedings of its members, board of directors, and committees shall be kept.
  4. A record of the names and addresses of its members entitled to vote shall be maintained at the principal office or place of business of the corporation.
  5. All books and records of a corporation may be inspected by any member for any proper purpose at any reasonable time.

History. Acts 1963, No. 176, § 13; A.S.A. 1947, § 64-1913.

Research References

U. Ark. Little Rock L.J.

Note, Constitutional Law — Religious Freedom — Forced Disclosure of Church Records Pursuant to State Nonprofit Corporation Statute Prohibited, 12 U. Ark. Little Rock L.J. 75.

Case Notes

Churches.

Applying this section to church held to interfere with the religious doctrine and practice of the church in violation of the First and Fourteenth Amendments to the United States Constitution and Ark. Const., Art. 2, §§ 24 and 25. Gipson v. Brown, 295 Ark. 371, 749 S.W.2d 297 (1988).

4-28-219. Shares of stock and dividends prohibited.

  1. A corporation shall not have or issue shares of stock.
  2. No dividend shall be paid and no part of the income of a corporation shall be distributed to its members, directors, or officers.

History. Acts 1963, No. 176, § 8; A.S.A. 1947, § 64-1908.

Case Notes

Country Clubs.

Neither under prior statutes nor under the statutes which now govern nonprofit corporations is there any statutory authority for the issuance of stock by entities such as a country club. This result is in accordance with the general rule that nonprofit corporations simply do not issue stock and therefore have members rather than stockholders. Allen v. Malvern Country Club, 295 Ark. 65, 746 S.W.2d 546 (1988).

4-28-220. Loans to directors and officers prohibited.

  1. No loans shall be made by a corporation to its directors or officers.
  2. The directors of a corporation who vote for or assent to the making of a loan to a director or officer and any officers participating in the making of the loan shall be jointly and severally liable to the corporation for the amount of the loan until repayment thereof.

History. Acts 1963, No. 176, § 9; A.S.A. 1947, § 64-1909.

4-28-221. Admission of foreign corporation.

  1. Prior to conducting affairs in this state, a foreign corporation shall first procure a certificate of authority from the Secretary of State.
  2. Application for the certificate of authority shall contain the following information:
    1. The name of the corporation and the state or country under the laws of which it is incorporated;
    2. The date of incorporation and the period of duration of the corporation;
    3. The address of its principal office or place of business;
    4. The name and address of its proposed registered agent for service of process in this state;
    5. Such additional information as may be necessary or appropriate in order to enable the Secretary of State to determine whether that corporation is entitled to a certificate of authority to conduct affairs in this state; and
    6. The purpose or purposes of the corporation which it proposes to pursue in this state.
  3. A foreign corporation upon receiving a certificate of authority under the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, shall enjoy the same, but no greater, rights and privileges as a domestic corporation subject to the provisions of the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, and shall be subject to the same duties, restrictions, penalties, and liabilities now or hereafter imposed upon a domestic corporation of like character.

History. Acts 1963, No. 176, § 19; A.S.A. 1947, § 64-1919.

4-28-222. Involuntary dissolution.

A corporation incorporated under the provisions of the Arkansas Nonprofit Corporation Act, §§ 4-28-2014-28-206 and 4-28-2094-28-224, may be dissolved involuntarily by a decree of the Pulaski County Circuit Court in an action filed by the Attorney General or by a decree of the circuit court of the county in which that corporation is domiciled in an action filed by the prosecuting attorney when it is established that:

  1. The corporation procured its articles of incorporation through fraud;
  2. The corporation has continued to exceed or abuse the authority conferred upon it by law;
  3. The corporation has failed for ninety (90) days to appoint and maintain a registered agent in this state;
  4. The corporation has failed to keep proper accounting records as provided in the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224;
  5. The corporation constitutes a public nuisance; or
  6. The corporation has violated the laws of this state or the rules of any state regulatory board or commission having jurisdiction of any activity of the corporation.

History. Acts 1963, No. 176, § 18; A.S.A. 1947, § 64-1918; Acts 2019, No. 315, § 111.

Amendments. The 2019 amendment deleted “and regulations” following “rules” in (6).

4-28-223. Fees to be paid to Secretary of State.

The Secretary of State shall charge and collect the fees provided under § 4-33-122 for filing the articles of incorporation, amendments, and other filings or certificates under this subchapter.

History. Acts 1963, No. 176, § 20; A.S.A. 1947, § 64-1920; Acts 1987, No. 1068, § 4; 2007, No. 646, § 3.

Cross References. Religious, literary, benevolent, etc., corporations — Fees, § 4-28-102.

4-28-224. Corporation's acceptance of votes.

  1. If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a member, the corporation, if acting in good faith, is entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the member.
  2. If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the name of a member, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the member if:
    1. The member is an entity and the name signed purports to be that of an officer or agent of the entity;
    2. The name signed purports to be that of an administrator, executor, guardian, or conservator representing the member and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
    3. The name signed purports to be that of an attorney-in-fact of the member and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the member has been presented with respect to the vote, consent, waiver, or proxy appointment; or
    4. Two (2) or more persons are the member as cotenants or fiduciaries and the name signed purports to be the name of at least one (1) of the co-owners and the person signing appears to be acting on behalf of all the co-owners.
  3. The corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the member.
  4. The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section are not liable in damages to the member for the consequences of the acceptance or rejection.
  5. Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise.

History. Acts 1989, No. 672, § 2.

4-28-225. Conversion to public water authority.

  1. A corporation which meets the definition of a qualified corporation, as defined by § 4-35-103, may adopt a plan to convert its entity status from that of a nonprofit corporation to a water authority pursuant to the Water Authority Act, § 4-35-101 et seq., unless the articles or bylaws require otherwise, if the conversion is approved:
    1. By a majority of the members of the board of directors of the corporation; and
    2. If the corporation has members, by two-thirds (2/3) of the votes cast by the members, in person or by proxy, at a regular or special meeting of the members at which a quorum is present.
  2. For purposes of this section and unless the articles or bylaws provide for a higher or lower quorum, ten percent (10%) of the votes entitled to be cast on a matter must be represented in person or by proxy at a meeting of members to constitute a quorum.

History. Acts 2003, No. 1330, § 1.

Case Notes

In General.

Although the striking of an amendment to a complaint resulted in a loss of the claim that a conversion vote to convert from an association to a public water authority did not pass by the requisite majority, the trial court did not abuse its discretion since allowing the new allegations so close to trial would have resulted in prejudice. Williams v. Brushy Island Pub. Water Auth., 368 Ark. 219, 243 S.W.3d 903 (2006).

Subchapter 3 — Merger or Consolidation of Nonprofit Corporations

A.C.R.C. Notes. Acts 1989 (3rd Ex. Sess.), No. 57, § 1, provided:

“Any nonprofit corporation organized prior to March 7, 1963, which wishes to exist and function under the provisions of Arkansas Code 4-28-201 through 4-28-409, and laws amendatory or supplemental thereto shall on or before July 1, 1990, file with the Secretary of State a copy of the court order or action whereby it was granted corporate status and shall pay to the Secretary of State a filing fee of fifty dollars ($50.00).”

Research References

U. Ark. Little Rock L.J.

Mathews, Corporate Statutes—Which One Applies?, 13 U. Ark. Little Rock L.J. 90.

4-28-301. Definition.

As used in this subchapter, the terms “corporation”, “foreign corporation”, “not-for-profit corporation”, and “board of directors” shall have the same meaning as stated in the definition of those terms in § 4-28-202.

History. Acts 1983, No. 614, § 9; A.S.A. 1947, § 64-1933.

Research References

Ark. L. Notes.

Sampson, Nonprofit Risk; Nonprofit Insurance, 2008 Ark. L. Notes 83.

4-28-302. Domestic corporations — Merger pursuant to plan.

  1. Any two (2) or more domestic corporations may merge into one (1) of such corporations pursuant to a plan of merger approved in the manner provided in this subchapter.
  2. Each corporation shall adopt a plan of merger setting forth:
    1. The name of the corporations proposing to merge;
    2. The name of the corporation into which they propose to merge, which is hereinafter designated as the surviving corporation;
    3. The terms and conditions of the proposed merger;
    4. A statement of any changes in the articles of incorporation of the surviving corporation to be affected by the merger; and
    5. Any other provisions with respect to the proposed merger as are deemed necessary or desirable.

History. Acts 1983, No. 614, § 1; A.S.A. 1947, § 64-1925.

4-28-303. Domestic corporations — Consolidation pursuant to plan.

  1. Any two (2) or more domestic corporations may consolidate into a new corporation pursuant to a plan of consolidation approved in the manner provided in this subchapter.
  2. Each corporation shall adopt a plan of consolidation setting forth:
    1. The names of the corporations proposing to consolidate;
    2. The name of the new corporation into which they propose to consolidate, which is hereinafter designated as the new corporation;
    3. The terms and conditions of the proposed consolidation;
    4. With respect to the new corporation, all of the statements required to be set forth in articles of incorporation for corporations organized under the Arkansas Nonprofit Corporation Act, § 4-28-201 et seq.; and
    5. Any other provisions with respect to the proposed consolidation as are deemed necessary or desirable.

History. Acts 1983, No. 614, § 2; A.S.A. 1947, § 64-1926.

4-28-304. Domestic corporations — Adoption of plan of merger or consolidation — Abandonment.

  1. A plan of merger or consolidation of domestic corporations shall be adopted in the following manner:
      1. Where the members of any merging or consolidating corporation have voting rights, the board of directors of the corporations shall adopt a resolution approving the proposed plan and directing that it be submitted to a vote at the meeting of members having voting rights, which may be either an annual or a special meeting.
      2. Written or printed notice setting forth the proposed plan or a summary thereof shall be given within a reasonable time before the meeting to each member entitled to a vote at the meeting.
      3. The proposed plan shall be adopted upon receiving at least two-thirds (2/3) of the votes which members present at the meeting in person or by proxy are entitled to cast, unless any class of members is entitled to vote as a class thereon by the terms of the articles of incorporation or of the bylaws, in which event as to such corporations the proposed plan shall not be adopted unless it also receives at least two-thirds (2/3) of the votes which members of each such class who are present at the meeting in person or by proxy are entitled to cast; and
    1. Where any merging or consolidating corporation has no members or no members having voting rights, a plan of merger or consolidation shall be adopted at a meeting of the board of directors of that corporation upon receiving the vote of a majority of the directors in office.
  2. After approval, and at any time prior to the filing of the articles of merger or consolidation, the merger or consolidation may be abandoned pursuant to provisions therefor, if any, set forth in the plan of merger or consolidation.

History. Acts 1983, No. 614, § 3; A.S.A. 1947, § 64-1927.

4-28-305. Domestic corporations — Articles of merger or consolidation.

  1. Upon approval, articles of merger or articles of consolidation shall be executed by each corporation by its president or a vice president and by its secretary or an assistant secretary and verified by one (1) of the officers of each corporation signing the articles.
  2. The articles of merger or consolidation shall set forth:
    1. The plan of merger or the plan of consolidation;
    2. Where the members of any merging or consolidating corporation have voting rights, then as to each corporation:
      1. A statement setting forth the date of the meeting of members at which the plan was adopted, that a quorum was present at the meeting, and that the plan received at least two-thirds (2/3) of the votes which members present at the meeting in person or by proxy were entitled to cast, as well as, in the case of any class entitled to vote as a class thereon by the terms of the articles of incorporation or of the bylaws, at least two-thirds (2/3) of the votes which members of any such class who were present at the meeting in person or by proxy were entitled to cast; or
      2. A statement that the amendment was adopted by a consent in writing signed by all members entitled to vote with respect thereto; and
    3. Where any merging or consolidating corporation has no members or no members having voting rights, then as to each corporation a statement of that fact, the date of the meeting of the board of directors at which the plan was adopted, and a statement of the fact that the plan received the vote of a majority of the directors in office.
  3. The original and a copy of the articles of merger or articles of consolidation shall be delivered to the Secretary of State.
  4. If the Secretary of State finds that the articles conform to law, he or she shall, when all fees have been paid, including a fee of ten dollars ($10.00) for filing articles of merger or consolidation and issuing a certificate therefor:
    1. Endorse on the original and the copy the word “Filed” and the month, day, and year of the filing thereof;
    2. File the original in his or her office; and
    3. Issue a certificate of merger or a certificate of consolidation to which he or she shall affix the copy.

History. Acts 1983, No. 614, § 4; A.S.A. 1947, § 64-1928.

4-28-306. Domestic corporations — Certificate of merger or consolidation — Merger or consolidation effected upon issuance.

  1. Upon the issuance of the certificate of merger or the certificate of consolidation by the Secretary of State, the merger or consolidation of domestic corporations shall be effected.
  2. The certificate of merger or certificate of consolidation, together with the copy of the articles of merger or articles of consolidation affixed thereto by the Secretary of State, shall be returned to the surviving or new corporation, as the case may be, or its representative.

History. Acts 1983, No. 614, §§ 4, 5; A.S.A. 1947, §§ 64-1928, 64-1929.

4-28-307. Domestic corporations — Effect of merger or consolidation.

When the merger or consolidation of domestic corporations has been effected:

  1. The several corporations parties to the plan of merger or consolidation shall be a single corporation, which in the case of a merger shall be that corporation designated in the plan of merger as the surviving corporation and, in the case of consolidation, shall be the new corporation provided for in the plan of consolidation;
  2. Subject to § 4-28-308, the separate existence of all corporations party to the plan of merger or consolidation, except the surviving or new corporation, shall cease;
  3. The surviving or new corporation shall have all the rights, privileges, immunities, and powers and shall be subject to all the duties and liabilities of a corporation organized under the Arkansas Nonprofit Corporation Act, § 4-28-201 et seq.;
  4. The surviving or new corporation shall possess all the rights, privileges, immunities, and franchises, of a public as well as of a private nature, of each of the merging or consolidating corporations;
  5. All real, personal, and mixed property, all debts due on whatever account, all other choses in action, and all and every other interest of or belonging to or due to each of the corporations so merged or consolidated shall be taken and deemed to be transferred to and vested in the single corporation without further act or deed;
  6. The surviving or new corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the corporations so merged or consolidated, and any claim existing or action or proceeding pending by or against any of the corporations may be prosecuted as if the merger or consolidation had not taken place or the surviving or new corporation may be substituted in its place. Neither the rights of creditors nor any liens upon the property of any such corporations shall be impaired by merger or consolidation; and
  7. In the case of a merger, the articles of incorporation of the surviving corporation shall be deemed to be amended to the extent, if any, that changes in its articles of incorporation are stated in the plan of merger, and, in the case of a consolidation, the statements set forth in the articles of consolidation and which are required or are permitted to be set forth in the articles of incorporation of corporations organized under the Arkansas Nonprofit Corporation Act, § 4-28-201 et seq., shall be deemed to be the articles of incorporation of the new corporation.

History. Acts 1983, No. 614, § 6; A.S.A. 1947, § 64-1930.

4-28-308. Merger or consolidation of foreign with domestic corporations.

  1. One (1) or more foreign corporations and one (1) or more domestic corporations may be merged or consolidated if the merger or consolidation is permitted by the laws of the state under which each such foreign corporation is organized.
    1. In the case of merger, the surviving corporation may be any one (1) of the constituent corporations and shall be deemed to continue to exist under the laws of the state of its incorporation.
    2. In the case of consolidation, the new corporation may be a corporation organized under the laws of any state under which any of the constituent corporations was organized.
  2. The merger or consolidation shall be carried out in the following manner:
      1. Each domestic corporation shall comply with the provisions of this subchapter with respect to merger or consolidation, as the case may be, of domestic corporations, except that if the surviving or new corporation is to be a foreign corporation, the plan of merger or consolidation shall specify the state under the laws of which the surviving or new corporation is to be governed and the post office address of the registered or principal office of the surviving or new corporation in the state under the laws of which it is to be governed.
      2. However, no domestic corporation shall be merged or consolidated with a foreign corporation unless and until a resolution authorizing the merger or consolidation shall receive, at a meeting of members of the domestic corporation called and conducted in the same manner as provided by § 4-28-304, at least two-thirds (2/3) of the votes which members present at the meeting in person or by proxy are entitled to cast, and if any class of members is entitled to vote as a class thereon by the terms of the articles of incorporation or of the bylaws, as to the corporation the resolution shall not be adopted unless it shall also receive at least two-thirds (2/3) of the votes which members of each such class who are present at the meeting in person or by proxy are entitled to cast. If a domestic corporation has no members or no members having voting rights, the plan of merger or consolidation shall be adopted at a meeting of the board of directors of the corporation upon receiving the vote of a majority of the directors in office;
    1. Each foreign corporation, if it is to transact business in this state, shall file with the Secretary of State of this state within thirty (30) days after the merger or consolidation, as the case may be, shall become effective, a copy of the plan, articles, or other document filed in the state of its incorporation for the purpose of effecting the merger or consolidation, certified by the public officer having custody of the original;
    2. If the surviving or new corporation, as the case may be, is a foreign corporation, it shall comply with the provisions of the Arkansas Nonprofit Corporation Act, § 4-28-201 et seq., with respect to foreign corporations if it is to transact business in this state, and in every case it shall file with the Secretary of State of this state a statement confirming that the foreign corporation has filed a statement appointing an agent for service of process under § 4-20-112 and may be served with process under § 4-20-113 if the foreign corporation fails to appoint or maintain a registered agent for service of process; and
    3. Upon compliance by each domestic and foreign corporation which is a party to the merger or consolidation with the provisions of this subchapter with respect to merger or consolidation, and upon issuance by the Secretary of State of this state of the certificate of merger or the certificate of consolidation provided for in this subchapter, the merger or consolidation shall be effected in this state.
  3. The effect of the merger or consolidation shall be the same as in the case of the merger or consolidation of domestic corporations if the surviving or new corporation is a domestic corporation. If the surviving or new corporation is a foreign corporation, the effect of the merger or consolidation shall be the same as in the case of the merger or consolidation of domestic corporations except insofar as the laws of such other states provide otherwise.

History. Acts 1983, No. 614, § 7; A.S.A. 1947, § 64-1931; Acts 2009, No. 814, § 2.

Amendments. The 2009 amendment, in (c)(3), deleted (c)(3)(A), rewrote (c)(3)(B), and made a related change.

4-28-309. Continuation of prior corporate existence for limited purpose.

  1. The corporate existence of each constituent corporation which has been dissolved through merger or consolidation shall be continued indefinitely for the limited purpose of enabling the constituent corporation to execute through its own officers formal deeds, conveyances, assignments, and other instruments evidencing the transfer from the constituent to the surviving corporation, or new corporation created by consolidation, of any or all real and personal properties which have passed from the constituent to the surviving or consolidated corporation by operation of law.
  2. The execution of the instruments shall not be essential to effect the transfer of title from the constituent to the surviving or consolidated corporation, inasmuch as the transfer will take effect through operation of law, but the power to execute such instruments is given to the end that it may be exercised:
    1. In respect to properties located in foreign jurisdictions which may not recognize a transmittal of title by operation of law under the merger and consolidation statutes of this state; and
    2. In any other situation where the directors of the surviving or consolidated corporation consider the execution of the instruments desirable.

History. Acts 1983, No. 614, § 8; A.S.A. 1947, § 64-1932.

Subchapter 4 — Solicitation of Charitable Contributions

Publisher's Notes. Former subchapter 4, concerning solicitation of contributions, was repealed by Acts 1999, No. 1198, § 17. The sections were derived from the following sources:

4-28-401. Acts 1959, No. 251, § 1; A.S.A. 1947, § 64-1601; Acts 1991, No. 841, § 1; 1991, No. 1177, § 2.

4-28-402. Acts 1959, No. 251, § 5; A.S.A. 1947, § 64-1605; Acts 1991, No. 841, § 2; 1991, No. 1177, § 2.

4-28-403. Acts 1959, No. 251, § 5; A.S.A. 1947, § 64-1605; Acts 1991, No. 841, § 3; 1991, No. 1177, § 2.

4-28-404. Acts 1959, No. 251, § 2; A.S.A. 1947, § 64-1602; Acts 1991, No. 841, § 4; 1991, No. 1177, § 2.

4-28-405. Acts 1959, No. 251, § 7; A.S.A. 1947, § 64-1607; Acts 1991, No. 841, § 5; 1991, No. 1177, § 2.

4-28-406. Acts 1959, No. 251, § 3; A.S.A. 1947, § 64-1603; Acts 1991, No. 841, § 6; 1991, No. 1177, § 2; 1997, No. 708, § 1.

4-28-407. Acts 1959, No. 251, § 4; A.S.A. 1947, § 64-1604; Acts 1991, No. 841, § 7; 1991, No. 1177, § 2.

4-28-408. Acts 1959, No. 251, § 4; A.S.A. 1947, § 64-1604; Acts 1991, No. 1177, § 2.

4-28-409. Acts 1959, No. 251, § 6; A.S.A. 1947, § 64-1606; Acts 1991, No. 841, § 8; 1991, No. 1177, § 2.

4-28-410. Acts 1969, No. 240, § 1; A.S.A. 1947, § 64-1616; Acts 1991, No. 841, § 9; 1991, No. 1177, § 2.

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

4-28-401. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Charitable organization” means any person:
    1. Who is or holds himself or herself out to be established for:
      1. Any benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare or advocacy, public health, environmental conservation, civic, or other eleemosynary purpose; or
      2. The benefit of law enforcement personnel, fire fighters, or other persons who protect the public safety; or
    2. Who in any manner employs a charitable appeal as the basis of any solicitation or an appeal which has a tendency to suggest there is a charitable purpose to any solicitation;
  2. “Charitable purpose” means any benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare or advocacy, public health, environmental conservation, civic, or eleemosynary objective;
  3. “Charitable sales promotion” means an advertising or sales campaign conducted by a commercial coventurer which represents that the purchase or use of goods or services offered by the commercial coventurer will benefit a charitable organization or purpose;
  4. “Commercial coventurer” means any person who for profit or other consideration is regularly and primarily engaged in trade or commerce other than in connection with the raising of funds or any other thing of value for a charitable organization and who advertises that the purchase or use of his or her goods, services, entertainment, or any other thing of value normally sold without a charitable appeal will benefit a charitable organization during a charitable sales promotion;
  5. “Contribution” means the grant, promise, or pledge of money, credit, property, financial assistance, or other thing of value in response to a solicitation;
    1. “Fund-raising counsel” means any person who for a flat fixed fee or fixed hourly rate under a written agreement plans, conducts, manages, carries on, advises, or acts as a consultant, whether directly or indirectly, in connection with soliciting contributions for or on behalf of any charitable organization, but who actually solicits no contributions as a part of the services.
    2. Fund-raising counsel do not receive or control funds or assets solicited for charitable purposes, nor do they procure or employ any compensated person to do so.
    3. No lawyer, investment counselor, or banker who advises a person to make a contribution shall be deemed, as a result of that advice, to be a fund-raising counsel.
    4. A bona fide salaried officer or employee of a registered or exempt charitable organization shall not be deemed to be a fund-raising counsel;
  6. “Gross revenue” means income of any kind from all sources, including all amounts received as the result of any solicitation by a paid solicitor;
    1. “Membership” means those persons to whom, for payment of fees, dues, assessments, etc., an organization provides services and confers a bona fide right, privilege, professional standing, honor, or other direct benefit in addition to the right to vote, elect officers, or hold offices.
    2. The term “membership” shall not include those persons who are granted a membership upon making a contribution as the result of solicitation;
    1. “Paid solicitor” means a person who for compensation, other than any nonmonetary gift of nominal value awarded to a volunteer solicitor as an incentive or token of appreciation, performs for a charitable organization any service in connection with which contributions are solicited by the person or by any other person he or she employs, procures, or engages to solicit for compensation.
    2. A lawyer, investment counselor, or banker who advises a person to make a contribution is not a paid solicitor as a result of that advice.
    3. A bona fide nontemporary salaried officer or employee of a charitable organization is not a paid solicitor;
  7. “Parent organization” means that part of a charitable organization which supervises and exercises control over the solicitation and expenditure activities of one (1) or more chapters, branches, or affiliates;
  8. “Person” means:
    1. An individual;
    2. A corporation;
    3. A limited liability corporation;
    4. An association;
    5. A partnership;
    6. A foundation; or
    7. Any other entity, however styled;
  9. “Professional telemarketer” means any person who is employed or retained for compensation by a paid solicitor to solicit contributions in this state for charitable purposes; and
    1. “Solicitation” means each request, either directly or indirectly, for a contribution on the plea or representation that the contribution will be used for a charitable purpose.
    2. “Solicitation” shall be deemed to occur when the request is made, at the place the request is received, whether or not the person making the request actually receives any contribution and includes, without limitation, the following methods of requesting a contribution:
      1. Any oral or written request;
      2. Any announcement concerning an appeal or campaign to which the public is requested to make a contribution for any charitable purpose connected therewith:
        1. To the press;
        2. Over radio or television; or
        3. By telephone or telegraph;
      3. The distribution, circulation, posting, or publishing of any handbill, written advertisement, or other publication which directly or by implication seeks to obtain public support; or
      4. The sale of, offer of, or attempt to sell any advertisement, advertising space, subscription, ticket, or any service or tangible item:
        1. In connection with which any appeal is made for any charitable purpose or where the name of any charitable organization is used or referred to in the appeal as an inducement or reason for making the sale; or
        2. When or where, in connection with any sale, any statement is made that the whole or any part of the proceeds from the sale will be donated to any charitable purpose.

History. Acts 1999, No. 1198, § 1; 2017, No. 629, § 1.

Amendments. The 2017 amendment removed the (9)(A)(i) designation and deleted (9)(A)(ii); in (9)(B), substituted “A lawyer” for “No lawyer” and “is not a paid solicitor” for “shall be deemed”, and deleted “to be a paid solicitor” at the end; and substituted “is not” for “shall not be deemed” in (9)(c).

4-28-402. Registration of charitable organizations prior to solicitation.

    1. A charitable organization, in or out of the state, shall not solicit contributions from persons in this state by any means whatsoever until the charitable organization has:
      1. Registered; and
      2. Provided certain information concerning the charitable organization and its solicitation activity, as required by this subchapter, on forms to be provided by the Secretary of State, and has filed the information with the Secretary of State.
    2. The information so filed shall be available to the general public as a matter of public record, except and to the extent the records would otherwise be exempt from disclosure under the Freedom of Information Act of 1967, § 25-19-101 et seq.
  1. The information required under subdivision (a)(1)(B) of this section shall be submitted in writing, sworn to under oath, and provided on a registration form provided by the Secretary of State, to include without limitation:
    1. The identity of the charitable organization by or for whom the solicitation is to be conducted, including without limitation:
      1. The federal Taxpayer Identification Number;
      2. Fictitious names or aliases under which the charitable organization operates;
      3. Program names under which the charitable organization solicits; and
      4. All chapters, branches, or affiliates that will operate, if any, under the registration of the parent charitable organization;
    2. The mailing address and physical address of the charitable organization;
    3. The charitable purpose of the charitable organization;
    4. The individual or officer who will have custody of the contributions;
    5. The individuals responsible for the distribution of the contributions;
    6. The period of time during which the solicitation or promotion is to be conducted;
    7. A description of the method or methods of solicitation or promotion, in such detail as may from time to time be determined by the Secretary of State;
    8. Whether any solicitation or promotion is to be conducted by voluntary unpaid solicitors, by paid solicitors, or both;
    9. If in whole or in part by paid solicitors:
      1. The name and address of each paid solicitor;
      2. The basis of payment;
      3. The nature of the arrangement; and
      4. A copy of the contract for services; and
    10. A copy of the appropriate Internal Revenue Service tax-exempt status form.
  2. A chapter, branch, or affiliate in this state of a registered parent charitable organization is not required to register provided the parent charitable organization files a consolidated financial report or tax information form for itself and the chapter, branch, or affiliate.

History. Acts 1999, No. 1198, § 2; 2017, No. 727, § 1.

Amendments. The 2017 amendment substituted “Secretary of State” for “Attorney General” throughout the section; substituted “charitable organization and its solicitation activity” for “solicitation” in (a)(1)(B); rewrote the introductory language of (b); added “including without limitation” in the introductory language of (b)(1); added (b)(1)(A)-(D); in (b)(2), inserted “mailing” and “and physical address”; rewrote (b)(3); inserted “solicitation or” in (b)(6) and (b)(8); inserted “or promotion” in (b)(7); in (c), inserted “charitable” twice and substituted “is not” for “shall not be”; and made stylistic changes.

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

Case Notes

Failure to Register.

Refusal to grant defendant's motion for a directed verdict was proper in a suit by a charity concert promoter against a booking agent where the plaintiff promoter failed to register with the Secretary of State as a professional fund raiser. Jim Halsey Co. v. Bonar, 284 Ark. 461, 683 S.W.2d 898 (1985).

Requirement to Register.

A concert promoter was not a “professional fund raiser” and was thus not required to register with the Secretary of State. Jim Halsey Co. v. Bonar, 284 Ark. 461, 683 S.W.2d 898 (1985).

4-28-403. Annual financial reports and fiscal records.

      1. Each charitable organization subject to this subchapter shall file with the Secretary of State an annual financial report on forms prescribed by the Secretary of State no later than one hundred eighty (180) days after the last date of the charitable organization's fiscal year.
      2. The annual financial report described in subdivision (a)(1)(A) of this section shall be accompanied by a copy of all tax or information returns, including all schedules and amendments, submitted by the charitable organization to the Internal Revenue Service for the previous reporting year, except any schedules of contributors to the organization.
    1. A charitable organization which maintains its books on other than a calendar-year basis, upon application to the Secretary of State, may be permitted to file the annual financial report described in subdivision (a)(1)(A) of this section with its tax or information returns referred to in subdivision (a)(1)(B) of this section within six (6) months after the close of its fiscal year.
    1. A charitable organization with gross revenue in excess of five hundred thousand dollars ($500,000) in any fiscal year it is registered shall include with its submission of the annual financial report and tax records referred to in subdivision (a)(1) of this section an audit report of a certified public accountant.
    2. For purposes of this section, “gross revenue” does not include grants or fees from government agencies.
  1. Charitable organizations that are required to register with the Secretary of State but are not required to file an information or tax return with the Internal Revenue Service should submit in lieu of the information or tax return an annual report on forms to be provided by the Secretary of State.
  2. The Secretary of State may grant an extension of time not to exceed six (6) months for the filing of the tax records and other reports required by this section upon the charitable organization's filing a notice that states the need for an extension.
    1. Every charitable organization subject to the provisions of this subchapter shall keep a full and true record in such form as will enable the charitable organization accurately to provide the information required by this subchapter.
    2. All the records shall be open to inspection and copying at all times by the Secretary of State and the Attorney General.
    3. The charitable organization shall retain records for at least five (5) years after the end of the fiscal year to which they relate.
      1. Any donor lists obtained under this subsection are not subject to disclosure under the Freedom of Information Act of 1967, § 25-19-101 et seq., without a court order authorizing the disclosure.
      2. However, donor lists and other records obtained under this subsection may be disclosed to other law enforcement agencies.

History. Acts 1999, No. 1198, § 3; 2017, No. 727, § 2; 2019, No. 137, § 1.

Amendments. The 2017 amendment substituted “Secretary of State” for “Attorney General” throughout the section; rewrote (a); in (b)(1), inserted “annual financial report and” and substituted “subdivision (a)(1)” for “subsection (a)”; substituted “Charitable organizations” for “Charities” in (c); in (d), deleted “upon written request and for good cause shown” preceding “may grant” and added “upon the charitable organization's filing a notice that states the need for an extension”; inserted “Secretary of State and the” in (e)(2); substituted “at least five (5) years” for “no less than three (3) years” in (e)(3); and made stylistic changes.

The 2019 amendment, in (a)(1)(A), deleted “On or before August 1 of each year” preceding “Each charitable organization” and added “no later than one hundred eighty (180) days after the last date of the charitable organization's fiscal year”.

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

4-28-404. Charitable organizations exempted from registration and financial disclosure requirements.

The following charitable organizations are not subject to the reporting requirement under §§ 4-28-403 and 4-28-405, provided each organization shall submit an application for a reporting exemption to the Secretary of State, on forms prescribed by the Secretary of State, together with any information as the Secretary of State may require to substantiate a reporting exemption under this section:

  1. Religious organizations, i.e., any bona fide, duly constituted religious entity if the entity satisfies each of the following criteria:
    1. The entity is exempt from taxation pursuant to the Internal Revenue Code; and
    2. No part of the entity's net income inures to the direct benefit of any individual;
  2. Educational institutions, i.e., any parent-teacher association or educational institution, the curricula of which in whole or in part are registered or approved by any state or the United States either directly or by acceptance of accreditation by an accrediting body;
  3. Political candidates and organizations, i.e., any candidate for national, state, or local elective office or a political party or other committee required to file information with the Federal Election Commission or any state election commission or its equivalent agency;
  4. Governmental organizations, i.e., any department branch or other instrumentality of the federal, state, or local governments;
  5. Nonprofit hospitals, i.e., any nonprofit hospital licensed by this state or in any other state;
  6. Any charitable organization which does not intend to solicit and receive, and does not actually receive, contributions in excess of twenty-five thousand dollars ($25,000) during a calendar year:
    1. If all of its functions, including its fund-raising functions, are carried on by persons who are unpaid for their services; and
    2. Provided that no part of its assets or income inures to the benefit of or is paid to any officer or member; and
  7. Any person who solicits solely for the benefit of organizations described in subdivisions (1)-(6) of this section.

History. Acts 1999, No. 1198, § 4; 2017, No. 727, § 3.

Amendments. The 2017 amendment rewrote the introductory language of the section.

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

U.S. Code. The Internal Revenue Code referred to in this section is codified as 26 U.S.C. § 1 et seq.

4-28-405. Charitable organization — Filing of contracts.

  1. Each contract between a charitable organization and a fund-raising counsel shall be in writing and shall be filed by the charitable organization with the Secretary of State before the performance by the fund-raising counsel of any material services under the contract.
  2. The contract shall contain any information that will enable the Secretary of State to identify the services the fund-raising counsel is to provide and the manner of his or her compensation.

History. Acts 1999, No. 1198, § 5; 2017, No. 727, § 4.

Amendments. The 2017 amendment substituted “Secretary of State before” for “Attorney General prior to” in (a); in (b), substituted “any information that” for “such information as” and “Secretary of State” for “Attorney General”; and made a stylistic change.

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

4-28-406. Fund-raising counsel — Registration — Fees.

  1. A person shall not act as a fund-raising counsel until he or she has first registered with the Secretary of State.
  2. Applications for registration shall be submitted:
    1. In writing;
    2. Under oath;
    3. In the form prescribed by the Secretary of State; and
    4. Accompanied by an annual fee in the sum of one hundred dollars ($100).
    1. Registrations are valid for a period of one (1) year.
    2. Registrations may be renewed upon the filing of a new application and the tendering of the fee previously prescribed for registration.

History. Acts 1999, No. 1198, § 6; 2017, No. 727, § 5.

Amendments. The 2017 amendment substituted “Secretary of State” for “Attorney General” in (a) and (b)(3); inserted the (b)(1)-(4) designations; added “submitted” in the introductory language of (b); redesignated former (c) as (c)(1) and (2); inserted “valid” in (c)(1); and made stylistic changes.

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

4-28-407. Paid solicitors — Registration, fees, and bond — Filing of contracts — Solicitation notice — Contract requirements — Prohibited practices — Records — Deposit of funds.

    1. A person shall not act as a paid solicitor unless he or she has first registered with the Secretary of State.
    2. Applications for registration shall be submitted:
      1. In writing;
      2. In the form prescribed by the Secretary of State; and
      3. Accompanied by a fee in the amount of two hundred dollars ($200) at the time of registration.
    3. Each registration is valid for one (1) year and may be renewed for additional one-year periods.
    1. An applicant for registration as a paid solicitor at the time of making the application shall file with and have approved by the Secretary of State a bond in which the applicant shall be the principal obligor in the sum of ten thousand dollars ($10,000), with one (1) or more responsible sureties whose liability in the aggregate as the sureties shall be no less than that sum.
      1. The bond shall run to the Secretary of State and the Attorney General for the use of the state and to any person, including a charitable organization, that may have a cause of action against the paid solicitor for any liabilities resulting from the paid solicitor's conduct of any activities in violation of this subchapter or arising out of a violation of this subchapter or any rule adopted under this subchapter, including any actions arising under this subchapter that give rise to a violation of the Deceptive Trade Practices Act, § 4-88-101 et seq.
      2. However, the aggregate liability of the surety to the state and to all other persons, including charitable organizations, shall not exceed the sum of the bond.
  1. At least fifteen (15) days before the commencement of each solicitation campaign, a paid solicitor shall file with the Secretary of State a copy of the contract described in subsection (d) of this section.
  2. A contract between a paid solicitor and a charitable organization shall:
    1. Be in writing;
    2. Clearly state the respective obligations of the paid solicitor and the charitable organization, including the compensation or remuneration to be paid by the charitable organization to the paid solicitor; and
    3. Require delivery of the names and addresses of all persons making contributions and the amounts thereof to the charitable organization.
    1. A paid solicitor shall not represent that any part of the contributions received will be given or donated to any charitable organization unless the organization has consented in writing to the use of its name before the solicitation campaign.
    2. The written consent shall be signed by an authorized officer, director, or trustee of the charitable organization.
    1. A paid solicitor shall not represent that tickets to an event are to be donated for use by another person unless the paid solicitor has first obtained a commitment in writing from a charitable organization stating that it will accept donated tickets and specifying the number of tickets that it will accept and provided no more contributions for donated tickets shall be solicited than the number of ticket commitments received from the charitable organization.
    2. A charitable organization shall not commit to accept more donated tickets than it can reasonably expect to use.
    3. Donated tickets shall be used according to the representations made to the consumer at the time of solicitation.
  3. A paid solicitor shall require any person he or she employs, procures, or engages to solicit to comply with the provisions of subsections (e) and (f) of this section.
    1. A paid solicitor shall file a financial report for a solicitation campaign with the Secretary of State no more than ninety (90) days after a solicitation campaign has been completed and on the anniversary of the commencement of any solicitation campaign which lasts more than one (1) year.
    2. The financial report shall include gross revenue and an itemization of all expenditures incurred and the amount of moneys ultimately remitted to the charitable organization absent payment of any fees or costs to the paid solicitor.
    3. The report shall be completed on a form prescribed by the Secretary of State.
    4. An authorized official of the paid solicitor and two (2) authorized officials of the charitable organization shall sign the report, and they shall certify, under oath, that the report is true and complete to the best of their knowledge.
  4. A paid solicitor shall maintain during each solicitation campaign and for at least five (5) years after the completion of each solicitation campaign the following records, which shall be available to the Secretary of State and the Attorney General for inspection upon request:
    1. The name and residence of each employee, agent, or other person involved in the solicitation campaign;
    2. Records of all income received and expenses incurred in the course of the solicitation campaign; and
    3. The names and addresses of all persons making contributions and the amounts thereof.
  5. If a paid solicitor sells tickets to an event and represents that tickets will be donated for use by another, the paid solicitor shall maintain for at least five (5) years after the completion of the event the following record, which shall be available to the Secretary of State and the Attorney General for inspection upon request:
    1. The name and address of all organizations receiving donated tickets for use by others; and
    2. The number of tickets received by each organization.
  6. Each contribution in the control or custody of the paid solicitor shall, in its entirety and within five (5) days of its receipt, be deposited, maintained, and administered in an account in a bank or other federally insured financial institution that shall be in the name of the charitable organization and over which that charitable organization has sole control over all withdrawals.
  7. Any material change in any information filed with the Secretary of State pursuant to this section shall be reported in writing by the paid solicitor to the Secretary of State not more than thirty (30) days after the change occurs.
  8. All records required under this section shall be open to inspection, examination, and copying during usual and customary business hours by the Secretary of State and the Attorney General or other authorized agencies.

History. Acts 1999, No. 1198, § 7; 2017, No. 727, § 6.

Amendments. The 2017 amendment substituted “Secretary of State” for “Attorney General” throughout the section; inserted “Secretary of State and the” preceding “Attorney General” in (b)(2)(A), (i), and (j); added “submitted” in the introductory language of (a)(2); inserted the (a)(2)(A)-(C) designations; substituted “rule” for “regulation” in (b)(2)(A); substituted “not” for “in no event” in (b)(2)(B); inserted “person” in (f)(1); substituted “shall” for “will” in (f)(3); substituted “charitable organization” for “charity” in (h)(2); substituted “at least five (5) years” for “not less than three (3) years” in the introductory language of (i) and (j); inserted the (j)(1) and (2) designations; and made stylistic changes.

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

4-28-408. Commercial coventurers — Filing of contracts — Terms — Accounting — Disclosures required in advertising.

    1. Every charitable organization subject to the registration requirements of this subchapter that agrees to permit a charitable sales promotion to be conducted in its behalf shall obtain a written agreement from the commercial coventurer and file a copy of the agreement with the Secretary of State before the commencement of the charitable sales promotion within this state.
    2. An authorized representative of the charitable organization and the commercial coventurer shall sign the agreement, and the terms of the agreement shall include at a minimum the following:
      1. The goods or services to be offered to the public;
      2. The geographic area where, and the starting and final date when, the offering is to be made;
      3. The manner in which the name of the charitable organization is to be used, including any representation to be made to the public as to the amount or percent per unit of goods or service purchased or used that is to benefit the charitable organization;
      4. A provision for an accounting on a per unit basis to be given by the commercial coventurer to the charitable organization and the date on which it is to be made; and
      5. The date when and the manner in which the benefit is to be conferred on the charitable organization.
  1. A commercial coventurer shall keep the final accounting for each charitable sales promotion for three (3) years after the accounting date, and the accounting shall be available to the Secretary of State and the Attorney General upon reasonable request.
    1. A commercial coventurer shall disclose in each advertisement for a charitable sales promotion the amount per unit of goods or services purchased or used that is to benefit the charitable organization or purpose.
    2. The amount may be expressed as a dollar amount or as a percentage of the value of the goods or services purchased or used.

History. Acts 1999, No. 1198, § 8; 2017, No. 727, §§ 7, 8.

Amendments. The 2017 amendment, in (a)(1), substituted “that” for “which”, substituted “Secretary of State before” for “Attorney General prior to”, and substituted “of the charitable sales promotion within this state” for “within this state of the charitable sales promotion”; and inserted “Secretary of State and the” in (b).

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

4-28-409. Disclosures.

  1. It is an unlawful practice for any person to solicit or request contributions when any part of the proceeds is pledged to be given to a charitable organization or solicited for a charitable purpose unless:
    1. The person discloses to each party solicited and to every purchaser, prior to accepting funds, the identity of the person responsible for soliciting the funds and whether any compensation is received for those services;
    2. Whether soliciting by telephone, by mail, or by any other means, the person clearly and unambiguously discloses to each party and every purchaser, at the time or point of solicitation, his or her professional status; and
    3. Upon request by a solicited party, the person truthfully and accurately discloses the percentage of funds raised which is being paid to the solicitor, either directly or as reimbursement of costs, and what percentage will be ultimately retained by the charity.
    1. The provisions of this section shall not apply to any bona fide full-time employee of a charitable organization or to any volunteer who donates or gives all of the gross proceeds from sales or all contributions to the organizations for which the funds or things of value were solicited.
    2. However, this exemption shall not apply to any person who directly or indirectly receives a commission as compensation for services in relation to fund-raising activities performed for the charitable organization.

History. Acts 1999, No. 1198, § 9.

4-28-410. Documents.

  1. All contracts, scripts, pamphlets, handouts, and other materials used by paid solicitors shall be in writing, and true and correct copies of all documents used in any promotion shall be kept on file in the offices of the paid solicitor and in the offices of the charitable organization on whose behalf the promotion is conducted for a period of five (5) years from the date the solicitation of contributions for the promotion commences.
  2. The documents shall be available for inspection, examination, and copying by the Secretary of State and the Attorney General and other authorized agencies during usual and customary business hours.

History. Acts 1999, No. 1198, § 10; 2017, No. 727, § 9.

Amendments. The 2017 amendment substituted “five (5) years” for “three (3) years” in (a); and inserted “Secretary of State and the” in (b).

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

4-28-411. Professional telemarketers — Registration and renewal.

  1. Every professional telemarketer shall be employed in a principal-agent relationship by a paid solicitor registered under this subchapter and shall, within seventy-two (72) hours after accepting employment, register with the Secretary of State.
  2. An application for registration under this section shall be in writing, under oath, in the form prescribed by the Secretary of State, and shall be accompanied by a fee in the sum of ten dollars ($10.00).
  3. When effected, the registration shall be for a period of one (1) year and may be renewed upon the payment of the fee prescribed in this section for additional one-year periods.

History. Acts 1999, No. 1198, § 11; 2017, No. 727, § 10.

Amendments. The 2017 amendment substituted “Secretary of State” for “Attorney General” in (a) and (b); in (a), substituted “shall” for “must” and “under” for “pursuant to”; and substituted “An application for registration under this section” for “Application for registration” in (b).

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

4-28-412. Prohibited acts.

It shall be a violation of this subchapter for:

  1. Any person to make any misrepresentation, either express or implied, during the course of soliciting funds for a charitable organization;
  2. Any charitable organization to engage in any financial transaction that knowingly jeopardizes or interferes with the ability of the charitable organization to accomplish its charitable purpose;
  3. Any person to knowingly use or exploit the fact of registration so as to lead the public to believe that such registration constitutes an endorsement or approval by the state;
  4. Any person to knowingly misrepresent that any other person sponsors or endorses a solicitation;
  5. Any person to knowingly either use the name of a charitable organization or display any emblem, device, or printed matter belonging to or associated with a charitable organization without the express written permission of the charitable organization;
  6. Any charitable organization to knowingly use a name that is the same as or confusingly similar to the name of another charitable organization unless the latter organization consents in writing to its use;
  7. Any charitable organization to represent itself as being associated with another charitable organization without the express written acknowledgment and endorsement of the other charitable organization;
  8. Any person to knowingly make any false or misleading statements on any document required to be filed with the Secretary of State;
  9. Any person to fail to substantially comply with the requirements of this subchapter;
  10. Any charitable organization to use the services of an unregistered paid solicitor who is required to register pursuant to this subchapter;
  11. Any paid solicitor to solicit contributions from citizens or entities located in this state on behalf of an unregistered charitable organization; and
  12. Any person to use an Arkansas address, including a return address, in any solicitation unless the:
    1. Charitable organization maintains and staffs an office at that address;
    2. Solicitation discloses in writing immediately proximate to the address located in this state both the address of the charitable organization's actual headquarters and the fact that the address is that of a mail drop box or is located in a mail-handling facility; or
    3. Person, if soliciting by phone, discloses the address of the organization's actual headquarters in addition to any address maintained in this state.

History. Acts 1999, No. 1198, § 12; 2005, No. 257, § 1; 2017, No. 727, §§ 11, 12.

Amendments. The 2017 amendment substituted “subchapter” for “section” in the introductory language; and substituted “Secretary of State” for “Attorney General” in (8).

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

Case Notes

In General.

Trial court properly dismissed appellants' claim against a county fair and livestock show association challenging the association's purchase of property and the relocation of its fairground as the association's board did not violate subdivision (2) of this section; there was no showing that the estimates obtained by the association were not reasonable or accurate. Dunaway v. Garland County Fair & Livestock Show Ass'n, 97 Ark. App. 181, 245 S.W.3d 678 (2006).

4-28-413. Nonresident organization — Service of process.

  1. A nonresident charitable organization, paid solicitor, fund-raising counsel, or professional telemarketer desiring to solicit funds within the State of Arkansas shall file with the Secretary of State an irrevocable written consent that in suits, proceedings, and actions growing out of the violation of this subchapter, or as a result of any activities conducted within this state giving rise to a cause of action, service on the Secretary of State shall be as valid and binding as if due service had been made on the charitable organization, paid solicitor, fund-raising counsel, or professional telemarketer.
    1. In case any process or pleadings are served upon the Secretary of State, they shall be in triplicate, one (1) copy of which shall be filed with the Secretary of State, one (1) copy of which shall be forwarded by the Secretary of State to the Attorney General, and the other immediately forwarded by the Secretary of State by registered or certified mail to the principal office or place of business of the nonresident charitable organization, paid solicitor, fund-raising counsel, or professional telemarketer.
    2. Service placed upon the Secretary of State shall be returned no later than thirty (30) days.

History. Acts 1999, No. 1198, § 13; 2017, No. 727, § 13.

Amendments. The 2017 amendment substituted “Secretary of State” for “Attorney General” twice in (a) and (b)(1); deleted “any provision of” following “violation of” in (a); in (b)(1), substituted “triplicate” for “duplicate”, and substituted “with the Secretary of State, one (1) copy of which shall be forwarded by the Secretary of State to the Attorney General” for “in the office of the Attorney General”; and rewrote (b)(2).

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

4-28-414. City ordinances provisionally authorized.

Nothing contained in the provisions of this subchapter shall prohibit any city or incorporated town in the State of Arkansas from enacting otherwise lawful ordinances regulating a solicitation of contributions within the limits of the city.

History. Acts 1999, No. 1198, § 14.

4-28-415. Disposition of fees.

All registration fees collected by the Secretary of State under this subchapter shall be deposited into the State Treasury, and the Treasurer of State shall credit them as general revenues to the various funds in the respective amounts to each and to be used as provided in the Revenue Stabilization Law, § 19-5-101 et seq.

History. Acts 1999, No. 1198, § 15; 2017, No. 727, § 14.

Amendments. The 2017 amendment inserted “registration”, substituted “Secretary of State” for “Attorney General”, and “into” for “in” following “deposited”, and deleted “for the purposes” preceding “as provided”.

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

4-28-416. Violation of the Deceptive Trade Practices Act.

    1. A violation of the provisions of this section shall constitute an unfair and deceptive act or practice, as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    2. All remedies, penalties, and authority granted to the Attorney General or other persons under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General or other persons for the enforcement of this subchapter.
  1. Nothing in this section limits the rights or remedies which are otherwise available to a consumer under any other law.
  2. The obligations under this section are cumulative and should in no way be deemed to limit the obligations imposed under any other law.

History. Acts 1999, No. 1198, § 16.

4-28-417. Access to records.

The Attorney General shall have access to all records filed with the Secretary of State under this subchapter.

History. Acts 2017, No. 727, § 15.

Effective Dates. Acts 2017, No. 727, § 16: “effective on and after January 1, 2018”.

Subchapter 5 — Uniform Unincorporated Nonprofit Association Act

4-28-501 — 4-28-517. [Repealed.]

Publisher's Notes. This subchapter was repealed by Acts 2011, No. 202, § 1. The subchapter was derived from the following sources:

4-28-501. Acts 1997, No. 858, § 1.

4-28-502. Acts 1997, No. 858, § 2.

4-28-503. Acts 1997, No. 858, § 3.

4-28-504. Acts 1997, No. 858, § 4.

4-28-505. Acts 1997, No. 858, § 5.

4-28-506. Acts 1997, No. 858, § 6.

4-28-507. Acts 1997, No. 858, § 7.

4-28-508. Acts 1997, No. 858, § 8.

4-28-509. Acts 1997, No. 858, § 9.

4-28-510. Acts 1997, No. 858, § 10; 2007, No. 638, § 27.

4-28-511. Acts 1997, No. 858, § 11.

4-28-512. Acts 1997, No. 858, § 12.

4-28-513. Acts 1997, No. 858, § 13.

4-28-514. Acts 1997, No. 858, § 14.

4-28-515. Acts 1997, No. 858, § 15.

4-28-516. Acts 1997, No. 858, § 16.

4-28-517. Acts 1997, No. 858, § 17

Subchapter 6 — Revised Uniform Unincorporated Nonprofit Association Act

Effective Dates. Acts 2011, No. 202, § 2: Jan. 1, 2012, by its own terms.

4-28-601. Short title.

This subchapter may be cited as the Revised Uniform Unincorporated Nonprofit Association Act.

History. Acts 2011, No. 202, § 2.

4-28-602. Definitions.

In this subchapter:

  1. “Established practices” means the practices used by an unincorporated nonprofit association without material change during the most recent five years of its existence, or if it has existed for less than five years, during its entire existence.
  2. “Governing principles” means the agreements, whether oral, in a record, or implied from its established practices, that govern the purpose or operation of an unincorporated nonprofit association and the rights and obligations of its members and managers. The term includes any amendment or restatement of the agreements constituting the governing principles.
  3. “Manager” means a person that is responsible, alone or in concert with others, for the management of an unincorporated nonprofit association.
  4. “Member” means a person that, under the governing principles, may participate in the selection of persons authorized to manage the affairs of the unincorporated nonprofit association or in the development of the policies and activities of the association.
  5. “Person” means an individual, corporation, business trust, statutory entity trust, estate, trust, partnership, limited liability company, cooperative, association, joint venture, public corporation, government or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.
  6. “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.
  7. “State” means a state of the United States, the District of Columbia, Puerto Rico, United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.
  8. “Unincorporated nonprofit association” means an unincorporated organization consisting of two or more members joined under an agreement that is oral, in a record, or implied from conduct, for one or more common, nonprofit purposes. The term does not include:
    1. a trust;
    2. a marriage, domestic partnership, common law domestic relationship, civil union, or other domestic living arrangement;
    3. an organization formed under any other statute that governs the organization and operation of unincorporated associations;
    4. a joint tenancy, tenancy in common, or tenancy by the entireties even if the co-owners share use of the property for a nonprofit purpose; or
    5. a relationship under an agreement in a record that expressly provides that the relationship between the parties does not create an unincorporated nonprofit association.

History. Acts 2011, No. 202, § 2.

4-28-603. Relation to other law.

  1. Principles of law and equity supplement this subchapter unless displaced by a particular provision of it.
  2. A statute governing a specific type of unincorporated nonprofit association prevails over an inconsistent provision in this subchapter, to the extent of the inconsistency.
  3. This subchapter supplements the law of this state that applies to nonprofit associations operating in this state. If a conflict exists, that law applies.

History. Acts 2011, No. 202, § 2.

4-28-604. Governing law.

  1. Except as otherwise provided in subsection (b), the law of this state governs the operation in this state of all unincorporated nonprofit associations formed or operating in this state.
  2. Unless the governing principles specify a different jurisdiction, the law of the jurisdiction in which an unincorporated nonprofit association has its main place of activities governs the internal affairs of the association.

History. Acts 2011, No. 202, § 2.

4-28-605. Legal entity; Perpetual existence; Powers.

  1. An unincorporated nonprofit association is a legal entity distinct from its members and managers.
  2. An unincorporated nonprofit association has perpetual duration unless the governing principles specify otherwise.
  3. An unincorporated nonprofit association has the same powers as an individual to do all things necessary or convenient to carry on its purposes.
  4. An unincorporated nonprofit association may engage in profit-making activities but profits from any activities must be used or set aside for the association's nonprofit purposes.

History. Acts 2011, No. 202, § 2.

4-28-606. Ownership and transfer of property.

  1. An unincorporated nonprofit association may acquire, hold, encumber, or transfer in its name an interest in real or personal property.
  2. An unincorporated nonprofit association may be a beneficiary of a trust or contract, a legatee or a devisee.

History. Acts 2011, No. 202, § 2.

4-28-607. Statement of authority as to real property.

  1. In this section, “statement of authority” means a statement authorizing a person to transfer an interest in real property held in the name of an unincorporated nonprofit association.
  2. An interest in real property held in the name of an unincorporated nonprofit association may be transferred by a person authorized to do so in a statement of authority recorded by the association in the office in the county in which a transfer of the property would be recorded.
  3. A statement of authority must set forth:
    1. the name of the unincorporated nonprofit association;
    2. the address in this state, including the street address, if any, of the association or, if the association does not have an address in this state, its out-of-state address;
    3. that the association is an unincorporated nonprofit association; and
    4. the name, title, or position of a person authorized to transfer an interest in real property held in the name of the association.
  4. A statement of authority must be executed in the same manner as an affidavit by a person other than the person authorized in the statement to transfer the interest.
  5. A filing officer may collect a fee for recording a statement of authority in the amount authorized for recording a transfer of real property.
  6. A document amending, revoking, or canceling a statement of authority or stating that the statement is unauthorized or erroneous must meet the requirements for executing and recording an original statement.
  7. Unless canceled earlier, a recorded statement of authority and its most recent amendment expire five years after the date of the most recent recording.
  8. If the record title to real property is in the name of an unincorporated nonprofit association and the statement of authority is recorded in the office of the county in which a transfer of the property would be recorded, the authority of the person named in the statement to transfer is conclusive in favor of a person that gives value without notice that the person lacks authority.

History. Acts 2011, No. 202, § 2.

4-28-608. Liability.

  1. A debt, obligation, or other liability of an unincorporated nonprofit association, whether arising in contract, tort, or otherwise:
    1. is solely the debt, obligation, or other liability of the association; and
    2. does not become a debt, obligation, or other liability of a member or manager solely because the member acts as a member or the manager acts as a manager.
  2. A person's status as a member or manager does not prevent or restrict law other than this subchapter from imposing liability on the person or the association because of the person's conduct.

History. Acts 2011, No. 202, § 2.

4-28-609. Assertion and defense of claims.

  1. An unincorporated nonprofit association may sue or be sued in its own name.
  2. A member or manager may assert a claim the member or manager has against the unincorporated nonprofit association. An association may assert a claim it has against a member or manager.

History. Acts 2011, No. 202, § 2.

4-28-610. Effect of judgment or order.

A judgment or order against an unincorporated nonprofit association is not by itself a judgment or order against a member or manager.

History. Acts 2011, No. 202, § 2.

4-28-611. Appointment of agent to receive service of process.

  1. An unincorporated nonprofit association may file in the office of the Secretary of State a statement appointing an agent authorized to receive service of process.
  2. A statement appointing an agent must set forth:
    1. the name of the unincorporated nonprofit association; and
    2. the name of the person in this state authorized to receive service of process and the person's address, including the street address, in this state.
  3. A statement appointing an agent must be signed and acknowledged by a person authorized to manage the affairs of the unincorporated nonprofit association and by the person appointed as the agent. By signing and acknowledging the statement the person becomes the agent.
  4. An amendment to or cancellation of a statement appointing an agent to receive service of process must meet the requirements for executing of an original statement. An agent may resign by filing a resignation in the office of the Secretary of State and giving notice to the association.
  5. The Secretary of State may collect a fee for filing a statement appointing an agent to receive service of process, an amendment, a cancellation, or a resignation in the amount charged for filing similar documents.

History. Acts 2011, No. 202, § 2.

4-28-612. Service of process.

In an action or proceeding against an unincorporated nonprofit association, process may be served on an agent authorized by appointment to receive service of process, on a manager of the association, or in any other manner authorized by the law of this state.

History. Acts 2011, No. 202, § 2.

4-28-613. Action or proceeding not abated by change.

An action or proceeding against an unincorporated nonprofit association does not abate merely because of a change in its members or managers.

History. Acts 2011, No. 202, § 2.

4-28-614. Venue.

Unless otherwise provided by law other than this subchapter, venue of an action against an unincorporated nonprofit association brought in this state is determined under the statutes applicable to an action brought in this state against a corporation.

History. Acts 2011, No. 202, § 2.

4-28-615. Member not agent.

A member is not an agent of the association solely by reason of being a member.

History. Acts 2011, No. 202, § 2.

4-28-616. Approval by members.

  1. Except as otherwise provided in the governing principles, an unincorporated nonprofit association must have the approval of its members to:
    1. admit, suspend, dismiss, or expel a member;
    2. select or dismiss a manager;
    3. adopt, amend, or repeal the governing principles;
    4. sell, lease, exchange, or otherwise dispose of all, or substantially all, of the association's property, with or without the association's goodwill, outside the ordinary course of its activities;
    5. dissolve under § 4-28-628(a)(2) or merge under § 4-28-630;
    6. undertake any other act outside the ordinary course of the association's activities; or
    7. determine the policy and purposes of the association.
  2. An unincorporated nonprofit association must have the approval of the members to do any other act or exercise a right that the governing principles require to be approved by members.

History. Acts 2011, No. 202, § 2.

4-28-617. Meetings of members; Voting, notice, and quorum requirements.

  1. Unless the governing principles provide otherwise:
    1. approval of a matter by members requires an affirmative majority of the votes cast at a meeting of members; and
    2. each member is entitled to one vote on each matter that is submitted for approval by members.
  2. Notice and quorum requirements for member meetings and the conduct of meetings of members are determined by the governing principles.

History. Acts 2011, No. 202, § 2.

4-28-618. Duties of member.

  1. A member does not have a fiduciary duty to an unincorporated nonprofit association or to another member solely by being a member.
  2. A member shall discharge the duties to the unincorporated nonprofit association and the other members and exercise any rights under this subchapter consistent with the governing principles and the obligation of good faith and fair dealing.

History. Acts 2011, No. 202, § 2.

4-28-619. Admission, suspension, dismissal, or expulsion of members.

  1. A person becomes a member and may be suspended, dismissed, or expelled in accordance with the association's governing principles. If there are no applicable governing principles, a person may become a member or be suspended, dismissed, or expelled from an association only by a vote of its members. A person may not be admitted as a member without the person's consent.
  2. Unless the governing principles provide otherwise, the suspension, dismissal, or expulsion of a member does not relieve the member from any unpaid capital contribution, dues, assessments, fees, or other obligation incurred or commitment made by the member before the suspension, dismissal, or expulsion.

History. Acts 2011, No. 202, § 2.

4-28-620. Member's resignation.

  1. A member may resign as a member in accordance with the governing principles. In the absence of applicable governing principles, a member may resign at any time.
  2. Unless the governing principles provide otherwise, resignation of a member does not relieve the member from any unpaid capital contribution, dues, assessments, fees, or other obligation incurred or commitment made by the member before resignation.

History. Acts 2011, No. 202, § 2.

4-28-621. Membership interest not transferable.

Except as otherwise provided in the governing principles, a member's interest or any right under the governing principles is not transferable.

History. Acts 2011, No. 202, § 2.

4-28-622. Selection of managers; Management rights of managers.

Except as otherwise provided in this subchapter or the governing principles:

  1. only the members may select a manager or managers;
  2. a manager may be a member or a nonmember;
  3. if a manager is not selected, all members are managers;
  4. each manager has equal rights in the management and conduct of the association's activities;
  5. all matters relating to the association's activities are decided by its managers except for matters reserved for approval by members in § 4-28-616; and
  6. a difference among managers is decided by a majority of the managers.

History. Acts 2011, No. 202, § 2.

4-28-623. Duties of managers.

  1. A manager owes to the unincorporated nonprofit association and to its members the fiduciary duties of loyalty and care.
  2. A manager shall manage the unincorporated nonprofit association in good faith, in a manner the manager reasonably believes to be in the best interests of the association, and with such care, including reasonable inquiry, as a prudent person would reasonably exercise in a similar position and under similar circumstances. A manager may rely in good faith upon any opinion, report, statement, or other information provided by another person that the manager reasonably believes is a competent and reliable source for the information.
  3. After full disclosure of all material facts, a specific act or transaction that would otherwise violate the duty of loyalty by a manager may be authorized or ratified by a majority of the members that are not interested directly or indirectly in the act or transaction.
  4. A manager that makes a business judgment in good faith satisfies the duties specified in subsection (a) if the manager:
    1. is not interested, directly or indirectly, in the subject of the business judgment and is otherwise able to exercise independent judgment;
    2. is informed with respect to the subject of the business judgment to the extent the manager reasonably believes to be appropriate under the circumstances; and
    3. believes that the business judgment is in the best interests of the unincorporated nonprofit association and in accordance with its purposes.
  5. The governing principles in a record may limit or eliminate the liability of a manager to the unincorporated nonprofit association or its members for damages for any action taken, or for failure to take any action, as a manager, except liability for:
    1. the amount of financial benefit improperly received by a manager;
    2. an intentional infliction of harm on the association or one or more of its members;
    3. an intentional violation of criminal law;
    4. breach of the duty of loyalty; or
    5. improper distributions.

History. Acts 2011, No. 202, § 2.

4-28-624. Notice and quorum requirements for meetings of managers.

Notice and quorum requirements for meetings of managers and the conduct of meetings of managers are determined by the governing principles.

History. Acts 2011, No. 202, § 2.

4-28-625. Right of member or manager to information.

  1. On reasonable notice, a member or manager of an unincorporated nonprofit association may inspect and copy during the unincorporated nonprofit association's regular operating hours, at a reasonable location specified by the association, any record maintained by the association regarding its activities, financial condition, and other circumstances, to the extent the information is material to the member's or manager's rights and duties under the governing principles.
  2. An unincorporated nonprofit association may impose reasonable restrictions on access to and use of information to be furnished under this section, including designating the information confidential and imposing obligations of nondisclosure and safeguarding on the recipient.
  3. An unincorporated nonprofit association may charge a person that makes a demand under this section reasonable copying costs, limited to the costs of labor and materials.
  4. A former member or manager is entitled to information to which the member or manager was entitled while a member or manager if the information pertains to the period during which the person was a member or manager, the former member or manager seeks the information in good faith, and the former member or manager satisfies subsections (a) through (c) of this section.
  5. This section shall not affect a record or information that may be accessed by the public under the Freedom of Information Act of 1967, § 25-19-101 et seq.

History. Acts 2011, No. 202, § 2.

4-28-626. Distributions prohibited; Compensation and other permitted payments.

  1. Except as otherwise provided in subsection (b), an unincorporated nonprofit association may not pay dividends or make distributions to a member or manager.
  2. An unincorporated nonprofit association may:
    1. pay reasonable compensation or reimburse reasonable expenses to a member or manager for services rendered;
    2. confer benefits on a member or manager in conformity with its nonprofit purposes;
    3. repurchase a membership and repay a capital contribution made by a member to the extent authorized by its governing principles; or
    4. make distributions of property to members upon winding up and termination to the extent permitted by § 4-28-629.

History. Acts 2011, No. 202, § 2.

4-28-627. Reimbursement; Indemnification; Advancement of expenses.

  1. Except as otherwise provided in the governing principles, an unincorporated nonprofit association shall reimburse a member or manager for authorized expenses reasonably incurred in the course of the member's or manager's activities on behalf of the association.
  2. An unincorporated nonprofit association may indemnify a member or manager for any debt, obligation, or other liability incurred in the course of the member's or manager's activities on behalf of the association if the person seeking indemnification has complied with §§ 4-28-618 and 4-28-623. Governing principles in a record may broaden or limit indemnification.
  3. If a person is made or threatened to be made a party in an action based on that person's activities on behalf of an unincorporated nonprofit association and the person makes a request in a record to the association, a majority of the disinterested managers may approve in a record advance payment, or reimbursement, by the association, of all or a part of the reasonable expenses, including attorney's fees and costs, incurred by the person before the final disposition of the proceeding. To be entitled to an advance payment or reimbursement, the person must state in a record that the person has a good faith belief that the criteria for indemnification in subsection (b) have been satisfied and that the person will repay the amounts advanced or reimbursed if the criteria for payment have not been satisfied. The governing principles in a record may broaden or limit the advance payments or reimbursements.
  4. An unincorporated nonprofit association may purchase insurance on behalf of a member or manager for liability asserted against or incurred by the member or manager in the capacity of a member or manager, whether or not the association has authority under this subchapter to reimburse, indemnify, or advance expenses to the member or manager against the liability.
  5. The rights of reimbursement, indemnification, and advancement of expenses under this section apply to a former member or manager for an activity undertaken on behalf of the unincorporated nonprofit association while a member or manager.

History. Acts 2011, No. 202, § 2.

4-28-628. Dissolution.

  1. An unincorporated nonprofit association may be dissolved as follows:
    1. if the governing principles provide a time or method for dissolution, at that time or by that method;
    2. if the governing principles do not provide a time or method for dissolution, upon approval by the members;
    3. if no member can be located and the association's operations have been discontinued for at least three years, by the managers or, if the association has no current manager, by its last manager;
    4. by court order; or
    5. under law other than this subchapter.
  2. After dissolution, an unincorporated nonprofit association continues in existence until its activities have been wound up and it is terminated pursuant to § 4-28-629.

History. Acts 2011, No. 202, § 2.

4-28-629. Winding up and termination.

Winding up and termination of an unincorporated nonprofit association must proceed in accordance with the following rules:

  1. All known debts and liabilities must be paid or adequately provided for.
  2. Any property subject to a condition requiring return to the person designated by the donor must be transferred to that person.
  3. Any property subject to a trust must be distributed in accordance with the trust agreement.
  4. Any remaining property must be distributed as follows:
    1. as required by law other than this subchapter that requires assets of an association to be distributed to another person with similar nonprofit purposes;
    2. in accordance with the association's governing principles or in the absence of applicable governing principles, to the members of the association per capita or as the members direct; or
    3. if neither subparagraph (A) nor (B) applies, under the Unclaimed Property Act, § 18-28-201 et seq.

History. Acts 2011, No. 202, § 2.

4-28-630. Mergers.

  1. In this section:
    1. “Constituent organization” means an organization that is merged with one or more other organizations including the surviving organization.
    2. “Nonsurviving organization” means a constituent organization that is not the surviving organization.
    3. “Organization” means an unincorporated nonprofit association, a general partnership, including a limited liability partnership, limited partnership, including a limited liability limited partnership, limited liability company, business or statutory trust, corporation, or any other legal or commercial entity having a statute governing its formation and operation. The term includes a for-profit or nonprofit organization.
    4. “Surviving organization” means an organization into which one or more other organizations are merged.
  2. An unincorporated nonprofit association may merge with any organization that is authorized by law to merge with an unincorporated nonprofit association.
  3. A merger involving an unincorporated nonprofit association is subject to the following rules:
    1. Each constituent organization shall comply with its governing law.
    2. Each party to the merger shall approve a plan of merger. The plan, which must be in a record, must include the following provisions:
      1. the name and form of each organization that is a party to the merger;
      2. the name and form of the surviving organization and, if the surviving organization is to be created by the merger, a statement to that effect;
      3. if the surviving organization is to be created by the merger, the surviving organization's organizational documents that are proposed to be in a record;
      4. if the surviving organization is not to be created by the merger, any amendments to be made by the merger to the surviving organization's organizational documents that are, or are proposed to be, in a record; and
      5. the terms and conditions of the merger, including the manner and basis for converting the interests in each constituent organization into any combination of money, interests in the surviving organization, and other consideration except that the plan of merger may not permit members of an unincorporated nonprofit association to receive merger consideration if a distribution of such consideration would not be permitted in the absence of a merger under §§ 4-28-626 and 4-28-629.
    3. The plan of merger must be approved by the members of each unincorporated nonprofit association that is a constituent organization in the merger. If a plan of merger would impose personal liability for an obligation of a constituent or surviving organization on a member of an association that is a party to the merger, the plan may not take effect unless it is approved in a record by the member.
    4. Subject to the contractual rights of third parties, after a plan of merger is approved and at any time before the merger is effective, a constituent organization may amend the plan or abandon the merger as provided in the plan, or except as otherwise prohibited in the plan, with the same consent as was required to approve the plan.
    5. Following approval of the plan, a merger under this section is effective:
      1. if a constituent organization is required to give notice to or obtain the approval of a governmental agency or officer in order to be a party to a merger, when the notice has been given and the approval has been obtained; and
      2. if the surviving organization:
        1. is an unincorporated nonprofit association, as specified in the plan of merger and upon compliance by any constituent organization that is not an association with any requirements, including any required filings in the office of the Secretary of State, of the organization's governing statute; or
        2. is not an unincorporated nonprofit association, as provided by the statute governing the surviving organization.
  4. When a merger becomes effective:
    1. the surviving organization continues or comes into existence;
    2. each constituent organization that merges into the surviving organization ceases to exist as a separate entity;
    3. all property owned by each constituent organization that ceases to exist vests in the surviving organization;
    4. all debts, obligations, or other liabilities of each nonsurviving organization continue as debts, obligations, or other liabilities of the surviving organization;
    5. an action or proceeding pending by or against any nonsurviving organization may be continued as if the merger had not occurred;
    6. except as prohibited by law other than this subchapter, all of the rights, privileges, immunities, powers, and purposes of each constituent organization that ceases to exist vest in the surviving organization;
    7. except as otherwise provided in the plan of merger, the terms and conditions of the plan of merger take effect;
    8. the merger does not affect the personal liability, if any, of a member or manager of a constituent organization for a debt, obligation, or other liability incurred before the merger is effective; and
    9. a surviving organization that is not organized in this state is subject to the jurisdiction of the courts of this state to enforce any debt, obligation, or other liability owed by a constituent organization, if before the merger the constituent organization was subject to suit in this state for the debt, obligation, or other liability.
  5. Property held for a charitable purpose under the law of this state by a constituent organization immediately before a merger under this section becomes effective may not, as a result of the merger, be diverted from the objects for which it was given, unless, to the extent required by or pursuant to the law of this state concerning cy pres or other law dealing with nondiversion of charitable assets, the organization obtains an appropriate order of the Pulaski County Circuit Court specifying the disposition of the property.
  6. A bequest, devise, gift, grant, or promise contained in a will or other instrument of donation, subscription, or conveyance that is made to a nonsurviving organization and that takes effect or remains payable after the merger inures to the surviving organization. A trust obligation that would govern property if transferred to the nonsurviving organization applies to property that is transferred to the surviving organization under this section.

History. Acts 2011, No. 202, § 2.

4-28-631. Transition concerning real and personal property.

  1. If, before January 1, 2012, an interest in property was by terms of a transfer purportedly transferred to an unincorporated nonprofit association but under the law of this state the interest did not vest in the association, or in one or more persons on behalf of his or her association under subsection (b) on January 1, 2012, the interest vests in the association, unless the parties to the transfer have treated the transfer as ineffective.
  2. If before January 1, 2012, an interest in property was by terms of a transfer purportedly transferred to an unincorporated nonprofit association but the interest was vested in one or more persons to hold the interest for members of the association, on or after January 1, 2012, the persons, or their successors in interest, may transfer the interest to the association in its name, or the association may require the interest be transferred to it in its name.

History. Acts 2011, No. 202, § 2.

4-28-632. Uniformity of application and construction.

In applying and construing this uniform act, consideration must be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.

History. Acts 2011, No. 202, § 2.

4-28-633. Relation to Electronic Signatures in Global and National Commerce Act.

This subchapter modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001, et seq., but does not modify, limit, or supersede section 101(c) of that act, 15 U.S.C. § 7001(c), or authorize electronic delivery of any of the notices described in section 103(b) of that act, 15 U.S.C. § 7003(b).

History. Acts 2011, No. 202, § 2.

4-28-634. Savings clause.

This subchapter does not affect an action or proceeding commenced or right accrued before this subchapter takes effect.

History. Acts 2011, No. 202, § 2.

4-28-635. [Reserved.]

This subchapter takes effect January 1, 2012.

History. Acts 2011, No. 202, § 2.

4-28-636. Effective date.

Chapter 29 Professional Corporations

Research References

Ark. L. Notes.

Mathews, A Review of Arkansas Statutes Affecting Business and Other Organizations Enacted Since 1990, 1998 Ark. L. Notes 65.

ALR.

Professional services within meaning of statute preserving individual liability of professional employees of professional corporation, association, or partnership. 31 A.L.R.4th 898.

Issues pertaining to ownership affected by resignation from corporate practice by active shareholder. 32 A.L.R.4th 921.

Liability of professional corporation of lawyers, or individual members thereof, for malpractice or other tort of another member. 39 A.L.R.4th 556.

Corporate stock and stockholders, nonmalpractice liability. 50 A.L.R.4th 1276.

Tort liability of medical society or professional association for failure to discipline or investigate negligent or otherwise incompetent medical practitioner. 72 A.L.R.4th 1148.

Ark. L. Rev.

Professional Corporations — A Current Appraisal, 23 Ark. L. Rev. 215.

Some Legal and Other Problems of Professional Corporations in Arkansas, 24 Ark. L. Rev. 292.

Note, Is the Professional Association Dead after TEFRA? — The Continuing Saga of Hunter and Hunted, 36 Ark. L. Rev. 508.

Case Notes

Cited: Sturgis v. Skokos, 335 Ark. 41, 977 S.W.2d 217 (1998).

Subchapter 1 — General Provisions

4-29-101. Persons associated with professional corporations — Limitations on personal liability.

  1. No person shall be personally liable for any obligation or liability of any shareholder, director, officer, agent, or employee of a professional corporation solely because the person is a shareholder, director, officer, agent, or employee of the professional corporation.
  2. In addition, no person shall be personally liable for any obligations or liabilities of a professional corporation solely because the person is a shareholder, director, officer, agent, or employee of the professional corporation.

History. Acts 1991, No. 1146, § 1.

Subchapter 2 — Arkansas Professional Corporation Act

Effective Dates. Acts 1963, No. 155, § 20: Mar. 5, 1963. Emergency clause provided: “It is hereby determined that it is expedient immediately to amend the corporation laws of this State, in order to provide necessary correlation between them and the practice of professions, in corporate form, so that adequate regulation, safeguards, and supervision may be provided for the public peace, health, safety and welfare. An emergency is therefore declared to exist and this act being necessary therefor, the same shall be effective from and after its passage and approval.”

Research References

ALR.

Statute prohibiting use of name descriptive of engineering by business organization not practicing profession of engineering. 13 A.L.R.4th 676.

Liability of professional corporation of lawyers, or individual members thereof, for malpractice or other tort of another member. 39 A.L.R.4th 556.

U. Ark. Little Rock L.J.

Mathews, Corporate Statutes—Which One Applies?, 13 U. Ark. Little Rock L.J. 82.

4-29-201. Title.

This subchapter may be cited as the “Arkansas Professional Corporation Act”.

History. Acts 1963, No. 155, § 1; A.S.A. 1947, § 64-2001.

4-29-202. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Beneficial owner” means an individual who is the grantor and sole trustee of a revocable living trust wherein the individual reserves the unrestricted right to revoke the trust;
  2. “Professional service” means any type of professional service which may be legally performed only pursuant to a license or other legal personal authorization for example, the personal service rendered by certified public accountants, architects, engineers, dentists, doctors, and attorneys at law; and
  3. “Shareholder” means either:
    1. The person in whose name shares are registered in the records of a corporation; or
    2. The beneficial owner of shares of a revocable living trust where the shares are registered in the records of the corporation in the name of the revocable living trust.

History. Acts 1963, No. 155, § 2; 1970 (1st Ex. Sess.), No. 13, § 1; A.S.A. 1947, § 64-2002; Acts 1997, No. 306, § 1.

Publisher's Notes. Acts 1970 (1st Ex. Sess.), No. 13, § 7 provided that the purpose and intent of the act was to permit the formation of a professional corporation by one or more persons under this subchapter.

Amendments. The 1997 amendment added (a) and (c) and the subsection (b) designation.

4-29-203. Subchapter optional.

  1. Nothing in this subchapter shall be construed to amend, repeal, or supersede all or any part of the Medical Corporation Act, § 4-29-301 et seq., or Dental Corporation Act, § 4-29-401 et seq., and insofar as those acts are concerned in relation to this subchapter, this subchapter shall be construed as being optional.
  2. This subchapter shall also be optional to other professional corporations now legally doing business in the State of Arkansas.

History. Acts 1963, No. 155, § 18; A.S.A. 1947, § 64-2018.

4-29-204. Application of Arkansas Business Corporation Act.

  1. The Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., shall be applicable to such professional corporations, including their organization, and they shall enjoy the powers and privileges and be subject to the duties, restrictions, and liabilities of other corporations except so far as they may be limited or enlarged by this subchapter.
  2. If any provision of this subchapter conflicts with the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., this subchapter shall take precedence.
  3. If any person incorporating under the Arkansas Professional Corporation Act, § 4-29-201 et seq., the Medical Corporation Act, § 4-29-301 et seq., or the Dental Corporation Act, § 4-29-401 et seq., needs to convert to a business corporation as governed by the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., that professional association may do so by filing an amendment in accordance with § 4-27-1006, provided that the relevant licensing agency allows.

History. Acts 1963, No. 155, § 3; 1970 (1st Ex. Sess.), No. 13, § 2; A.S.A. 1947, § 64-2003; Acts 1999, No. 481, § 1.

Publisher's Notes. Acts 1970 (1st Ex. Sess.), No. 13, § 7 provided that the purpose and intent of the act was to permit the formation of a professional corporation by one or more persons under this subchapter.

Amendments. The 1999 amendment added (c) and made stylistic changes.

Research References

Ark. L. Rev.

Note, Professional Corporations: Shareholder Liability and the Saving Clause, 42 Ark. L. Rev. 777.

4-29-205. Professional relationships unaltered.

This subchapter does not alter any law applicable to the relationship between a person furnishing professional service and a person receiving the service, including liability arising out of the professional service.

History. Acts 1963, No. 155, § 15; A.S.A. 1947, § 64-2015.

Research References

Ark. L. Rev.

Note, Professional Corporations: Shareholder Liability and the Saving Clause, 42 Ark. L. Rev. 777.

4-29-206. Formation of corporation.

  1. One (1) or more persons duly and properly licensed under and pursuant to the laws of the State of Arkansas to render the same type of professional services, as defined in § 4-29-202, may form a corporation, pursuant to the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., to own, operate, and maintain a professional corporation and to engage in the professional services thereby authorized, by and through its licensed shareholders, directors, officers, and employees only.
  2. It is mandatory that such professional services be rendered by or through persons who are duly and properly licensed, individually, to engage in the profession.

History. Acts 1963, No. 155, § 2; 1970 (1st Ex. Sess.), No. 13, § 1; A.S.A. 1947, § 64-2002; Acts 2001, No. 728, § 2.

Publisher's Notes. Acts 1970 (1st Ex. Sess.), No. 13, § 7 provided that the purpose and intent of the act was to permit the formation of a professional corporation by one or more persons under this subchapter.

Amendments. The 2001 amendment designated the section as (a) and (b); and in (a), inserted “of 1987” and substituted “§ 4-27-101 et seq.” for “§ 4-26-101 et seq.”

4-29-207. Corporate name.

  1. The corporate name shall contain either:
    1. The names of one (1) or more of the shareholders;
    2. The names of one (1) or more deceased former shareholders or deceased members of a predecessor organization; or
    3. Any combination of the names specified in subdivisions (a)(1) and (2) of this section.
  2. The name of a person who is not employed by the corporation shall not be included in the corporate name, except that the name of a deceased former shareholder or deceased member of a predecessor organization may continue to be included in the corporate name.
  3. The corporate name shall end with the word “Chartered”, or “Limited”, or the abbreviation “Ltd.”, or the words “Professional Association”, or the abbreviation “P.A.”.

History. Acts 1963, No. 155, § 4; 1973, No. 76, § 1; A.S.A. 1947, § 64-2004.

4-29-208. Officers, directors, and shareholders.

All of the officers, directors, and shareholders of a corporation subject to this subchapter shall be, at all times, persons licensed pursuant to the laws of this state governing their profession. No person who is not so licensed shall have any part in the ownership, management, or control of the corporation, nor may any proxy to vote any shares of the corporation be given to a person who is not so licensed.

History. Acts 1963, No. 155, § 14; A.S.A. 1947, § 64-2014.

Case Notes

Cited: Leonard v. Leonard, 22 Ark. App. 279, 739 S.W.2d 697 (1987).

4-29-209. Employees.

Each individual employee licensed pursuant to the laws of this state to engage in his or her profession who is employed by a corporation subject to this subchapter shall remain subject to reprimand or discipline for his or her conduct under the provisions of the laws or rules governing or applicable to his or her profession.

History. Acts 1963, No. 155, § 16; A.S.A. 1947, § 64-2016; Acts 2019, No. 315, § 112.

Amendments. The 2019 amendment substituted “rules” for “regulations”.

4-29-210. Certificate of registration — Issuance, renewal, etc.

  1. No corporation shall open, operate, or maintain an establishment for any of the purposes set forth in §§ 4-29-202 and 4-29-206 without a certificate of registration from the state board, department, or agency, as the case may be, authorized by law to license individuals to engage in the profession concerned.
  2. Applications for registration shall be made in writing and shall contain the name and address of the corporation and such other information as may be required by the board, department, or agency.
    1. Upon receipt of the application, the board, department, or agency shall make an investigation of the corporation.
    2. If it finds that the incorporators, officers, directors, and shareholders are each licensed pursuant to the laws of Arkansas to engage in the particular profession involved, and if no disciplinary action is pending before it against any of them, and if it appears that the corporation will be conducted in compliance with the law and the rules of the board, department, or agency, it shall issue, upon payment of a registration fee of twenty-five dollars ($25.00), a certificate of registration which shall remain effective until January 1 following the date of the registration.
  3. Upon written application of the holder, accompanied by a fee of ten dollars ($10.00), the board, department, or agency which originally issued the certificate of registration shall annually renew the certificate of registration if it finds that the corporation has complied with its rules and the provisions of this subchapter.
  4. The certificate of registration shall be conspicuously posted upon the premises to which it is applicable.
  5. In the event of a change of location of the registered establishment, the board, department, or agency, in accordance with its rules, shall amend the certificate of registration so that it shall apply to the new location.
  6. No certificate of registration shall be assignable.

History. Acts 1963, No. 155, §§ 5-9; A.S.A. 1947, §§ 64-2005 — 64-2009; Acts 2019, No. 315, §§ 113-115.

Amendments. The 2019 amendment substituted “rules” for “regulations” in (c)(2), (d), and (f).

4-29-211. Certificate of registration — Suspension or revocation.

  1. The state board, department, or agency which issued the certificate of registration may suspend or revoke it for any of the following reasons:
    1. The revocation or suspension of the license to practice the profession of any officer, director, shareholder, or employee not promptly removed or discharged by the corporation;
    2. Unethical professional conduct on the part of any officer, director, shareholder, or employee not promptly removed or discharged by the corporation;
    3. The death of the last remaining shareholder; or
    4. Upon finding that the holder of a certificate has failed to comply with the provisions of this subchapter or the rules prescribed by the state board, department, or agency that issued it.
  2. Before any certificate of registration is suspended or revoked, the holder shall be given written notice of the proposed action and the reasons therefor and shall be given a public hearing by the state board, department, or agency giving the notice, with the right to produce testimony and other evidence concerning the charges made. The notice shall also state the place and date of the hearing, which shall be at least ten (10) days after service of the notice.

History. Acts 1963, No. 155, §§ 10, 11; A.S.A. 1947, §§ 64-2010, 64-2011; Acts 2019, No. 315, § 116.

Amendments. The 2019 amendment substituted “rules” for “regulations” in (a)(4).

4-29-212. Certificate of registration — Appeal from denial, suspension, or revocation.

  1. Any corporation, save and except attorneys at law, whose application for a certificate of registration has been denied or whose registration has been suspended or revoked may appeal within thirty (30) days after notice of the action by the board, department, or agency to the Pulaski County Circuit Court.
  2. The court shall inquire into the cause of the board, department, or agency action and may affirm or reverse the decision and order a further hearing by the board, or may order the board to grant the appellant a certificate of registration.
  3. The appeal shall be in the manner provided by law.
  4. Notice of appeal shall be served upon the secretary of the board, department, or agency by serving the secretary a copy thereof within thirty (30) days after it has notified the appellant of its decision. The service may be by registered or certified mail.

History. Acts 1963, No. 155, §§ 12, 13; A.S.A. 1947, §§ 64-2012, 64-2013.

4-29-213. Shares of deceased or disqualified shareholder — Price.

If the articles of incorporation or bylaws of a corporation subject to this subchapter fail to state a price or method of determining a fixed price at which the corporation or its shareholders may purchase the shares of a deceased shareholder or a shareholder no longer qualified to own shares in the corporation, then the price for the shares shall be the book value as of the end of the month immediately preceding the death or disqualification of the shareholder. Book value shall be determined from the books and records of the corporation in accordance with the regular method of accounting used by the corporation.

History. Acts 1963, No. 155, § 17; A.S.A. 1947, § 64-2017.

Subchapter 3 — Medical Corporation Act

Cross References. As to limited liability companies that will engage in the practice of medicine, see § 4-32-1401 et seq.

Preambles. Acts 1965, No. 435, contained a preamble which read:

“Whereas, Section 4 of Act No. 179 of the Acts of 1961 requires that the corporate name of a medical corporation shall contain the names of one or more of the shareholders;

“Whereas, the law does not take into consideration the problem created when a medical corporation is composed of shareholders too numerous to include all names in the corporate name and there is inequity in preferring some shareholders over others by including some names of shareholders in the corporate name and excluding others; and

“Whereas, a medical corporation should be afforded the opportunity and convenience of organizing without the necessity of including the name of one or more of its shareholders in the corporate name;

“Now, therefore … .”

Effective Dates. Acts 1961, No. 179, § 19: Mar. 6, 1961. Emergency clause provided: “It is hereby determined that it is expedient immediately to amend the corporation laws of this State in order to provide necessary correlation between them and the practice of medicine, in corporate form, so that adequate regulation, safeguards, and supervision may be provided for the public peace, health, safety and welfare. An emergency is therefore declared to exist and this Act being necessary therefor, the same shall be effective from and after its passage and approval.”

Acts 1965, No. 435, § 3: Mar. 26, 1965. Emergency clause provided: “It is hereby found and determined by the General Assembly that the provisions of Section 4 of Act 179 of 1961 which requires that the corporate name of a medical corporation contain the names of one or more of the shareholders is unduly restrictive and is a deterrent to the organization of such corporations and that this act is immediately necessary to correct this undesirable situation by making the inclusion of the name or names of shareholders in the corporate name permissive. Therefore, an emergency is hereby declared to exist and this act being necessary for the immediate preservation of the public peace, health and safety shall be in effect from the date of its passage and approval.”

Acts 2013, No. 135, § 3: Feb. 20, 2013. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that access to medical care is becoming increasingly more difficulty in this state; that difficulties with access to medical care may reach crisis levels as recent changes in federal law increase the demand for medical care without an accompanying increase in the number of medical providers in the state; and that this act is immediately necessary to ensure broad access to medical care by reducing disincentives to the entry of medical care providers into Arkansas. Therefore, an emergency is declared to exist, and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.

Research References

ALR.

Tort liability of medical society or professional association for failure to discipline or investigate negligent or otherwise incompetent medical practitioner. 72 A.L.R.4th 1148.

Ark. L. Rev.

Medical and Dental Corporations: A Step Toward Tax Equality, 15 Ark. L. Rev. 366.

U. Ark. Little Rock L.J.

Mathews, Corporate Statutes—Which One Applies?, 13 U. Ark. Little Rock L.J. 79.

4-29-301. Title.

This subchapter may be cited as the “Medical Corporation Act”.

History. Acts 1961, No. 179, § 1; A.S.A. 1947, § 64-1701; Acts 1997, No. 306, § 2.

A.C.R.C. Notes. Former (b) of this section, relating to definitions, was recodified as § 4-29-302 in 1999 by the Arkansas Code Revision Commission.

Amendments. The 1997 amendment added former subsection (b).

4-29-302. Definitions.

As used in this subchapter:

  1. “Beneficial owner” means an individual who is the grantor and sole trustee of a revocable living trust wherein the individual reserves the unrestricted right to revoke the trust;
  2. “Foreign medical corporation” means a corporation:
    1. Organized under laws other than the laws of this state; and
    2. In which all officers, directors, and shareholders of the corporation are licensed to practice medicine in the state of incorporation;
  3. “Professional service” means any type of professional service that may be legally performed only pursuant to a license or other legal personal authorization, for example: the personal service rendered by certified public accountants, architects, engineers, dentists, doctors, and attorneys at law; and
  4. “Shareholder” means either:
    1. The person in whose name shares are registered in the records of a corporation; or
    2. The beneficial owner of shares of a revocable living trust where the shares are registered in the records of the corporation in the names of the revocable living trust.

History. Acts 1961, No. 179, § 1; A.S.A. 1947, § 64-1701; Acts 1997, No. 306, § 2; 2013, No. 135, § 1.

A.C.R.C. Notes. Section was formerly § 4-29-301(b) and was redesignated as § 4-29-302 in 1999 by the Arkansas Code Revision Commission.

Amendments. The 2013 amendment deleted “unless the context otherwise requires” at the end of the introductory language; and inserted present (2) and redesignated the remaining subsections accordingly.

4-29-303. Application of Arkansas Business Corporation Act.

  1. The Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., shall be applicable to such corporations, including their organization, except that the required number of incorporators of a medical corporation shall be one (1) or more, and they shall enjoy the powers and privileges and be subject to the duties, restrictions, and liabilities of other corporations, except so far as the same may be limited or enlarged by this subchapter.
  2. If any provision of this subchapter conflicts with the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., this subchapter shall take precedence.

History. Acts 1961, No. 179, § 3; 1970 (1st Ex. Sess.), No. 13, § 4; A.S.A. 1947, § 64-1703; Acts 1999, No. 480, § 1.

A.C.R.C. Notes. Section was formerly § 4-29-302 and was renumbered as § 4-29-303 in 1999 by the Arkansas Code Revision Commission.

Publisher's Notes. Acts 1970 (1st Ex. Sess.), No. 13, § 7 provided that the purpose and intent of the act was to permit the formation of a professional corporation by one or more persons under § 4-29-201 et seq.

Amendments. The 1999 amendment made stylistic changes.

4-29-304. Physician-patient relationship unaltered.

This subchapter does not alter any law applicable to the relationship between a physician furnishing medical service and a person receiving the service, including liability arising out of the service.

History. Acts 1961, No. 179, § 15; A.S.A. 1947, § 64-1715.

A.C.R.C. Notes. Section was formerly § 4-29-303 and was renumbered as § 4-29-304 in 1999 by the Arkansas Code Revision Commission.

4-29-305. Formation of corporation — Employee licensing required.

  1. One (1) or more persons licensed pursuant to the Arkansas Medical Practices Act, § 17-95-201 et seq., § 17-95-301 et seq., and § 17-95-401 et seq., may associate to form a corporation pursuant to the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., to own, operate, and maintain an establishment for the study, diagnosis, and treatment of human ailments and injuries, whether physical or mental, and to promote medical, surgical, and scientific research and knowledge.
  2. However, medical or surgical treatment, consultation, or advice may be given by employees of the corporation only if they are licensed pursuant to the Arkansas Medical Practices Act, § 17-95-201 et seq., § 17-95-301 et seq., and § 17-95-401 et seq.

History. Acts 1961, No. 179, § 2; 1970 (1st Ex. Sess.), No. 13, § 3; A.S.A. 1947, § 64-1702; Acts 2001, No. 728, § 3.

A.C.R.C. Notes. Section was formerly § 4-29-304 and was renumbered as § 4-29-305 in 1999 by the Arkansas Code Revision Commission.

Publisher's Notes. Acts 1970 (1st Ex. Sess.), No. 13, § 7 provided that the purpose and intent of the act was to permit the formation of a professional corporation by one or more persons under § 4-29-201 et seq.

Amendments. The 2001 amendment inserted “of 1987” and substituted “§ 4-27-101 et seq.,” for “§ 4-26-101 et seq.,” in (a).

4-29-306. Corporate name.

    1. The corporate name may contain the names of one (1) or more of the shareholders.
    2. However, the name of a person who is not employed by the corporation shall not be included in the corporate name, except that the name of a deceased shareholder may continue to be included in the corporate name for one (1) year following the decease of the shareholder.
  1. The corporate name shall end with the word “Chartered”, or the word “Limited”, or the abbreviation “Ltd.”, or the words “Professional Association”, or the abbreviation “P.A.”.

History. Acts 1961, No. 179, § 4; 1965, No. 435, § 1; A.S.A. 1947, § 64-1704.

A.C.R.C. Notes. Section was formerly § 4-29-305 and was renumbered as § 4-29-306 in 1999 by the Arkansas Code Revision Commission.

Case Notes

Cited: Venable v. Becker, 287 Ark. 236, 697 S.W.2d 903 (1985).

4-29-307. Officers, directors, and shareholders.

  1. All of the officers, directors, and shareholders of a corporation subject to this subchapter shall at all times be persons licensed pursuant to the Arkansas Medical Practices Act, § 17-95-201 et seq., § 17-95-301 et seq., and § 17-95-401 et seq.
  2. No person who is not so licensed shall have any part in the ownership, management, or control of the corporation, nor may any proxy to vote any shares of the corporation be given to a person who is not so licensed.

History. Acts 1961, No. 179, § 14; A.S.A. 1947, § 64-1714.

A.C.R.C. Notes. Section was formerly § 4-29-306 and was renumbered as § 4-29-307 in 1999 by the Arkansas Code Revision Commission.

4-29-308. Employees.

Each individual employee licensed pursuant to the Arkansas Medical Practices Act, § 17-95-201 et seq., § 17-95-301 et seq., and § 17-95-401 et seq., who is employed by a corporation subject to this subchapter shall remain subject to reprimand or discipline for his or her conduct under the provisions of the Arkansas Medical Practices Act, § 17-95-201 et seq., § 17-95-301 et seq., and § 17-95-401 et seq.

History. Acts 1961, No. 179, § 16; A.S.A. 1947, § 64-1716.

A.C.R.C. Notes. Section was formerly § 4-29-307 and was renumbered as § 4-29-308 in 1999 by the Arkansas Code Revision Commission.

4-29-309. Certificate of registration — Issuance, renewal, etc.

  1. No corporation shall open, operate, or maintain an establishment for any of the purposes set forth in § 4-29-305 without a certificate of registration from the Arkansas State Medical Board.
  2. Application for the registration shall be made to the board in writing and shall contain the name and address of the corporation and such other information as may be required by the board.
    1. Upon receipt of the application, the board shall make an investigation of the corporation.
    2. If the board finds that the incorporators, officers, directors, and shareholders are each licensed pursuant to the Arkansas Medical Practices Act, § 17-95-201 et seq., § 17-95-301 et seq., and § 17-95-401 et seq., and if no disciplinary action is pending before the board against any of them, and if it appears that the corporation will be conducted in compliance with law and the regulations of the board, the board shall issue, upon payment of a registration fee of twenty-five dollars ($25.00), a certificate of registration which shall remain effective until January 1 following the date of the registration.
  3. Upon written application of the holder, accompanied by a fee of ten dollars ($10.00), the board shall annually renew the certificate of registration if the board finds that the corporation has complied with its rules and the provisions of this subchapter.
  4. The certificate of registration shall be conspicuously posted upon the premises to which it is applicable.
  5. In the event of a change of location of the registered establishment, the board, in accordance with its rules, shall amend the certificate of registration so that it shall apply to the new location.
  6. No certificate of registration shall be assignable.

History. Acts 1961, No. 179, §§ 5-9; A.S.A. 1947, §§ 64-1705 — 64-1709; Acts 2019, No. 315, §§ 117, 118.

A.C.R.C. Notes. Section was formerly § 4-29-308 and was renumbered as § 4-29-309 in 1999 by the Arkansas Code Revision Commission.

Amendments. The 2019 amendment substituted “rules” for “regulations” in (d) and (f).

Case Notes

Board Members As Government Officers

Defendant was properly given a six-level sentencing enhancement for the bombing and arson charges because the doctor/victim was an official victim under U.S. Sentencing Guidelines Manual § 3A1.2(a), in that the doctor was a member of a state medical board, was targeted by defendant for his participation on the board, and under this section, the board had been assigned its powers by the state legislature. United States v. Mann, 701 F.3d 274 (8th Cir. 2012), cert. denied, — U.S. —, 134 S. Ct. 470, 187 L. Ed. 2d 316 (2013).

4-29-310. Certificate of registration — Suspension or revocation.

  1. The Arkansas State Medical Board may suspend or revoke any certificate of registration for any of the following reasons:
    1. The revocation or suspension of the license to practice medicine of any officer, director, shareholder, or employee not promptly removed or discharged by the corporation;
    2. Unethical professional conduct on the part of any officer, director, shareholder, or employee not promptly removed or discharged by the corporation;
    3. The death of the last remaining shareholder; or
    4. Upon finding that the holder of a certificate has failed to comply with the provisions of this subchapter or the rules prescribed by the board.
    1. Before any certificate of registration is suspended or revoked, the holder shall be given written notice of the proposed action and the reasons therefor and shall be given a public hearing by the board with the right to produce testimony concerning the charges made.
    2. The notice shall also state the place and date of the hearing which shall be at least five (5) days after service of the notice.

History. Acts 1961, No. 179, §§ 10, 11; A.S.A. 1947, §§ 64-1710, 64-1711; Acts 2019, No. 315, § 119.

A.C.R.C. Notes. Section was formerly § 4-29-309 and was renumbered as § 4-29-310 in 1999 by the Arkansas Code Revision Commission.

Amendments. The 2019 amendment substituted “rules” for “regulations” in (a)(4).

4-29-311. Certificate of registration — Appeal from denial, suspension, or revocation.

  1. Any corporation whose application for a certificate of registration has been denied or whose registration has been suspended or revoked may appeal to the Pulaski County Circuit Court within thirty (30) days after notice of the action by the Arkansas State Medical Board.
  2. The court shall inquire into the cause of the board's action and may affirm or reverse the decision and order a further hearing by the board or may order the board to grant the appellant a certificate of registration.
  3. Appeal shall be in the manner provided by law.
    1. Notice of appeal shall be served upon the secretary of the board by serving the secretary a copy thereof within thirty (30) days after the board has notified the appellant of its decision.
    2. The service may be by registered or certified mail.

History. Acts 1961, No. 179, §§ 12, 13; A.S.A. 1947, §§ 64-1712, 64-1713.

A.C.R.C. Notes. Section was formerly § 4-29-310 and was renumbered as § 4-29-311 in 1999 by the Arkansas Code Revision Commission.

4-29-312. Shares of deceased or disqualified shareholder — Price.

  1. If the articles of incorporation or bylaws of a corporation subject to this subchapter fail to state a price or method of determining a fixed price at which the corporation or its shareholders may purchase the shares of a deceased shareholder or a shareholder no longer qualified to own shares in the corporation, then the price for the shares shall be the book value as of the end of the month immediately preceding the death or disqualification of the shareholder.
  2. Book value shall be determined from the books and records of the corporation in accordance with the regular method of accounting used by the corporation.

History. Acts 1961, No. 179, § 17; A.S.A. 1947, § 64-1717.

A.C.R.C. Notes. Section was formerly § 4-29-311 and was renumbered as § 4-29-312 in 1999 by the Arkansas Code Revision Commission.

4-29-313. Foreign medical corporations — Certificates of registration — Governance — Licensure.

  1. If a foreign medical corporation complies with this subchapter, the Arkansas State Medical Board may issue a certificate of registration to the foreign medical corporation.
  2. A person who is not licensed to practice medicine shall not participate in the ownership, management, or control of a foreign medical corporation.
  3. A proxy to vote shares of a foreign medical corporation shall not be given to a person who is not licensed to practice medicine.
  4. A physician who is affiliated with a foreign medical corporation shall obtain a license to practice medicine from the board before practicing medicine in Arkansas.

History. Acts 2013, No. 135, § 2.

Subchapter 4 — Dental Corporation Act

Cross References. Unlawful practice, § 17-82-104.

As to limited liability companies that will engage in the practice of dentistry, see § 4-32-1401.

Effective Dates. Acts 1961, No. 471, § 19: Mar. 16, 1961. Emergency clause provided: “It is hereby determined that it is expedient immediately to amend the corporation laws of this State in order to provide necessary correlation between them and the practice of dentistry, in corporate form, so that adequate regulation, safeguards, and supervision may be provided for the public peace, health, safety and welfare. An emergency is therefore declared to exist and this Act being necessary therefor, the same shall be effective from and after its passage and approval.”

Research References

ALR.

Tort liability of medical society or professional association for failure to discipline or investigate negligent or otherwise incompetent medical practitioner. 72 A.L.R.4th 1148.

Ark. L. Rev.

Medical and Dental Corporations: A Step Toward Tax Equality, 15 Ark. L. Rev. 366.

U. Ark. Little Rock L.J.

Mathews, Corporate Statutes—Which One Applies?, 13 U. Ark. Little Rock L.J. 79.

Case Notes

Legislative Intent.

The legislature, in enacting this subchapter, clearly intended to restrict trade competition in the dentistry field. Brazil v. Ark. Bd. of Dental Exam'rs, 593 F. Supp. 1354 (E.D. Ark. 1984), aff'd, 759 F.2d 674 (8th Cir. 1985).

State Action Immunity.

Actions of the dental board and its officers which prohibited competition fell within the state action immunity doctrine and did not give rise to liability under the Sherman Antitrust Act. Brazil v. Ark. Bd. of Dental Exam'rs, 593 F. Supp. 1354 (E.D. Ark. 1984), aff'd, 759 F.2d 674 (8th Cir. 1985).

4-29-401. Title and definitions.

  1. This subchapter may be cited as the “Dental Corporation Act”.
  2. As used in this subchapter, unless the context otherwise requires:
    1. “Beneficial owner” means an individual who is the grantor and sole trustee of a revocable living trust wherein the individual reserves the unrestricted right to revoke the trust;
    2. “Professional service” means any type of professional service which may be legally performed only pursuant to license or other legal personal authorization, for example: the personal service rendered by certified public accountants, architects, engineers, dentists, doctors, and attorneys at law; and
    3. “Shareholder” means either the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares of a revocable living trust where the shares are registered in the records of the corporation in the name of the revocable living trust.

History. Acts 1961, No. 471, § 1; A.S.A. 1947, § 64-1801; Acts 1997, No. 306, § 3.

Amendments. The 1997 amendment added (b).

Cross References. Dentists, dental hygienists, and dental assistants, § 17-82-101 et seq.

4-29-402. Application of Arkansas Business Corporation Act.

  1. The Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., shall be applicable to such corporations, including their organization, except that the required number of incorporators of a dental corporation shall be one (1) or more, and they shall enjoy the powers and privileges and be subject to the duties, restrictions, and liabilities of other corporations, except so far as the same may be limited or enlarged by this subchapter.
  2. If any provision of this subchapter conflicts with the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., this subchapter shall take precedence.

History. Acts 1961, No. 471, § 3; 1970 (1st Ex. Sess.), No. 13, § 6; A.S.A. 1947, § 64-1803; Acts 2001, No. 728, § 1.

Publisher's Notes. Acts 1970 (1st Ex. Sess.), No. 13, § 7 provided that the purpose and intent of the act was to permit the formation of a professional corporation by one or more persons under § 4-29-201 et seq.

Amendments. The 2001 amendment inserted “of 1987” throughout and substituted “§ 4-27-101 et seq.” for “§ 4-26-101 et seq.” throughout.

4-29-403. Dentist-patient relationship unaltered.

This subchapter does not alter any law applicable to the relationship between a dentist furnishing dental service and a person receiving the service, including liability arising out of the service.

History. Acts 1961, No. 471, § 15; A.S.A. 1947, § 64-1815.

4-29-404. Formation of corporation — Employee licensing required.

One (1) or more persons licensed pursuant to the Arkansas Dental Practice Act, § 17-82-101 et seq., may associate to form a corporation pursuant to the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., to own, operate, and maintain an establishment for the study, diagnosis, and treatment of dental ailments and injuries and to promote dental and scientific research and knowledge. However, treatment, consultation, or advice may be given by employees of the corporation only if they are licensed pursuant to the Arkansas Dental Practice Act, § 17-82-101 et seq.

History. Acts 1961, No. 471, § 2; 1970 (1st Ex. Sess.), No. 13, § 5, A.S.A. 1947, § 64-1802; Acts 2001, No. 728, § 4.

Publisher's Notes. Acts 1970 (1st Ex. Sess.), No. 13, § 7 provided that the purpose and intent of the act was to permit the formation of a professional corporation by one or more persons under § 4-29-201 et seq.

Amendments. The 2001 amendment inserted “of 1987” and substituted “§ 4-27-101 et seq.,” for “§ 4-26-101 et seq.,” and made minor punctuation changes.

Case Notes

Denturists.

The General Assembly meant to preclude mere denturists, acting in concert with licensed dentists, from owning or managing dental facilities where nonlicensed persons would make impressions for dentures. Brazil v. Ark. Bd. of Dental Exam'rs, 593 F. Supp. 1354 (E.D. Ark. 1984), aff'd, 759 F.2d 674 (8th Cir. 1985).

Nonlicensed Persons.

Nonlicensed persons may not form a dental corporation, whether they seek to do so individually, with other nonlicensed persons, or with licensed persons. Brazil v. Ark. Bd. of Dental Exam'rs, 593 F. Supp. 1354 (E.D. Ark. 1984), aff'd, 759 F.2d 674 (8th Cir. 1985).

4-29-405. Corporate name.

  1. The corporate name shall contain the names of one (1) or more of the shareholders. However, the name of a person who is not employed by the corporation shall not be included in the corporate name, except that the name of a deceased shareholder may continue to be included in the corporate name for one (1) year following the decease of the shareholder.
  2. A corporation organized under this subchapter need not include in its name the reference to corporation, incorporation, company, or the abbreviations “Co.” or “Inc.” as is now required of business corporations.

History. Acts 1961, No. 471, § 4; A.S.A. 1947, § 64-1804.

4-29-406. Officers, directors, and shareholders.

All of the officers, directors, and shareholders of a corporation subject to this subchapter shall at all times be persons licensed pursuant to the Arkansas Dental Practice Act, § 17-82-101 et seq. No person who is not so licensed shall have any part in the ownership, management, or control of the corporation, nor may any proxy to vote any shares of the corporation be given to a person who is not so licensed.

History. Acts 1961, No. 471, § 14; A.S.A. 1947, § 64-1814.

Case Notes

Denturists.

The General Assembly meant to preclude mere denturists, acting in concert with licensed dentists, from owning or managing dental facilities where nonlicensed persons would make impressions for dentures. Brazil v. Ark. Bd. of Dental Exam'rs, 593 F. Supp. 1354 (E.D. Ark. 1984), aff'd, 759 F.2d 674 (8th Cir. 1985).

Nonlicensed Persons.

Nonlicensed persons may not form a dental corporation, whether they seek to do so individually, with other nonlicensed persons, or with licensed persons. Brazil v. Ark. Bd. of Dental Exam'rs, 593 F. Supp. 1354 (E.D. Ark. 1984), aff'd, 759 F.2d 674 (8th Cir. 1985).

4-29-407. Employees.

Each individual employee licensed pursuant to the Arkansas Dental Practice Act, § 17-82-101 et seq., who is employed by a corporation subject to this subchapter shall remain subject to reprimand or discipline for his or her conduct under the provisions of the Arkansas Dental Practice Act, § 17-82-101 et seq.

History. Acts 1961, No. 471, § 16; A.S.A. 1947, § 64-1816.

Case Notes

Cited: Brazil v. Ark. Bd. of Dental Exam'rs, 593 F. Supp. 1354 (E.D. Ark. 1984).

4-29-408. Certificate of registration — Issuance, renewal, etc.

  1. No corporation shall open, operate, or maintain an establishment for any of the purposes set forth in § 4-29-404 without a certificate of registration from the Arkansas State Board of Dental Examiners.
  2. Application for the registration shall be made to the board in writing and shall contain the name and address of the corporation and such other information as may be required by the board.
    1. Upon receipt of the application, the board shall make an investigation of the corporation.
    2. If the board finds that the incorporators, officers, directors, and shareholders are each licensed pursuant to the Arkansas Dental Practice Act, § 17-82-101 et seq., and if no disciplinary action is pending before the board against any of them, and if it appears that the corporation will be conducted in compliance with law and the rules of the board, the board shall issue upon payment of a registration fee of twenty-five dollars ($25.00) a certificate of registration which shall remain effective until January 1 following the date of the registration.
  3. Upon written application of the holder, accompanied by a fee of ten dollars ($10.00), the board shall annually renew the certificate of registration if the board finds that the corporation has complied with its rules and the provisions of this subchapter.
  4. The certificate of registration shall be conspicuously posted upon the premises to which it is applicable.
  5. In the event of a change of location of the registered establishment, the board, in accordance with its rules, shall amend the certificate of registration so that it shall apply to the new location.
  6. No certificate of registration shall be assignable.

History. Acts 1961, No. 471, §§ 5-9; A.S.A. 1947, §§ 64-1805 — 64-1809; Acts 2019, No. 315, §§ 120-122.

Amendments. The 2019 amendment substituted “rules” for “regulations” in (c)(2), (d), and (f).

Case Notes

Cited: Brazil v. Ark. Bd. of Dental Exam'rs, 593 F. Supp. 1354 (E.D. Ark. 1984).

4-29-409. Certificate of registration — Suspension or revocation.

  1. The Arkansas State Board of Dental Examiners may suspend or revoke any certificate of registration for any of the following reasons:
    1. The revocation or suspension of the license to practice dentistry of any officer, director, shareholder, or employee not promptly removed or discharged by the corporation;
    2. Unethical professional conduct on the part of any officer, director, shareholder, or employee not promptly removed or discharged by the corporation;
    3. The death of the last remaining shareholder; or
    4. Upon finding that the holder of a certificate has failed to comply with the provisions of this subchapter or the rules prescribed by the board.
  2. Before any certificate of registration is suspended or revoked, the holder shall be given written notice of the proposed action and the reasons therefor and shall be given a public hearing by the board with the right to produce testimony concerning the charges made. The notice shall also state the place and date of the hearing, which shall be at least five (5) days after service of the notice.

History. Acts 1961, No. 471, §§ 10, 11; A.S.A. 1947, §§ 64-1810, 64-1811; 2019, No. 315, § 123.

Amendments. The 2019 amendment substituted “rules” for “regulations” in (a)(4).

Case Notes

Cited: Brazil v. Ark. Bd. of Dental Exam'rs, 593 F. Supp. 1354 (E.D. Ark. 1984).

4-29-410. Certificate of registration — Appeal from denial, suspension, or revocation.

  1. Any corporation whose application for a certificate of registration has been denied or whose registration has been suspended or revoked may appeal within thirty (30) days after notice of the action by the Arkansas State Board of Dental Examiners to the Pulaski County Circuit Court.
  2. The court shall inquire into the cause of the board's action and may affirm or reverse the decision and order a further hearing by the board, or may order the board to grant the appellant a certificate of registration.
  3. The appeal shall be in the manner provided by law.
  4. Notice of appeal shall be served upon the secretary of the board by serving the secretary a copy thereof within thirty (30) days after the board has notified the appellant of its decision. The service may be by registered or certified mail.

History. Acts 1961, No. 471, §§ 12, 13; A.S.A. 1947, §§ 64-1812, 64-1813.

4-29-411. Shares of deceased or disqualified shareholder — Price.

If the articles of incorporation or bylaws of a corporation subject to this subchapter fail to state a price or method of determining a fixed price at which the corporation or its shareholders may purchase the shares of a deceased shareholder or a shareholder no longer qualified to own shares in the corporation, then the price for the shares shall be the book value as of the end of the month immediately preceding the death or disqualification of the shareholder. Book value shall be determined from the books and records of the corporation in accordance with the regular method of accounting used by the corporation.

History. Acts 1961, No. 471, § 17; A.S.A. 1947, § 64-1817.

Chapter 30 Cooperative Associations

Case Notes

Purpose.

The purpose of the legislature in passing this chapter was to supply a legal agency to take the place of the former almost futile and more dangerous voluntary association and not to destroy that unity producing the groups nor the beneficial effect of voluntary associations of allied interests. Stuttgart Coop. Buyers Ass'n v. Louisiana Oil Ref. Corp., 194 Ark. 779, 109 S.W.2d 682 (1937).

Subchapter 1 — General Provisions

A.C.R.C. Notes. Acts 1989, No. 493, § 5 provided:

“The provisions of the general corporation laws of this State, and all powers and rights thereunder, shall apply to the cooperative corporations created under Subchapters 1 and 2 of Chapter 30 of Title 4 of the Arkansas Code, except where such provisions are in conflict with or inconsistent with the express provisions of Subchapter 1 and 2 of Chapter 30 of Title 4 of the Arkansas Code.”

Cross References. Contributions for charitable, scientific, or educational purposes authorized, § 4-25-103.

Corporate franchise tax, § 26-54-101 et seq.

Effective Dates. Acts 1947, No. 362, § 3: approved Mar. 28, 1947. Emergency clause provided: “By reason of the fact that cooperatives are engaged in the operation of various rural electrification systems, and various other activities, and, there being no remedy for recovery of injury to person or damage to property caused by the negligent, careless, wrongful or wanton acts of the agents, servants and employees of the said cooperatives, an emergency is declared to exist and this act being necessary for the immediate preservation of the public peace, health and safety, and giving to the people the right of redress for wrongs committed upon their person and property, this act shall take effect and be in force from and after its passage.”

Acts 1989, No. 493, § 8: Mar. 13, 1989. Emergency clause provided: “It is hereby found and determined by the General Assembly that the cooperative corporation statutes of 1921 are in need of updating and an emergency is hereby declared to exist and this Act being immediately necessary for the preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

Research References

Am. Jur. 18 Am. Jur. 2d, Coop. Ass'ns, § 1 et seq.

Ark. L. Rev.

Organization of Agricultural Marketing Cooperatives, 5 Ark. L. Rev. 173.

Fee and Hoberg, Potential Liability of Directors of Agricultural Cooperatives, 37 Ark. L. Rev. 60.

U. Ark. Little Rock L.J.

Mathews, Corporate Statutes—Which One Applies?, 13 U. Ark. Little Rock L.J. 83.

4-30-101. Definition.

As used in this chapter, unless the context otherwise requires, the “cooperative plan” shall be construed to mean a business concern that distributes the net profits of its business by:

  1. The payment of a fixed dividend upon its stock; and
  2. The remainder prorated to its several stockholders upon their purchases from or sales to the concern or both such purchases and sales.

History. Acts 1921, No. 632, § 2; Pope's Dig., § 2263; A.S.A. 1947, § 64-1503.

4-30-102. Purpose of chapter.

The purpose of this chapter is to provide for the formation and carrying on of cooperative associations and to provide for the rights, powers, liabilities, and duties of such cooperative associations.

History. Acts 1921, No. 632, § 1; Pope's Dig., § 2262; A.S.A. 1947, § 64-1501.

Case Notes

Cited: Robertson v. White, 635 F. Supp. 851 (W.D. Ark. 1986).

4-30-103. Effect of chapter upon § 2-2-401 et seq.

The provisions of this chapter shall not be construed in any manner to limit, restrict, enlarge, modify, change, conflict with, or in any manner whatever affect the provisions of the Cooperative Marketing Act, § 2-2-401 et seq., it being the intent of the General Assembly that each of those sections and this chapter shall be independent of each other.

History. Acts 1921, No. 632, § 17; Pope's Dig., § 2278; A.S.A. 1947, § 64-1517.

4-30-104. Acceptance of benefits of chapter.

  1. All cooperative corporations, companies, or associations organized and doing business under prior statutes, or which have attempted to so organize and do business, shall have the benefit of all the provisions of this chapter and may be bound thereby on paying the fees provided for in this chapter and filing with the Secretary of State a written declaration signed and sworn to by its president and secretary, to the effect that the cooperative company or association has by a majority vote of its stockholders decided to accept the benefits of and be bound by the provisions of this chapter.
  2. No association organized under this chapter shall be required to do or perform anything not specifically required herein in order to become a corporation or to continue its business as such.

History. Acts 1921, No. 632, § 11; Pope's Dig., § 2272; A.S.A. 1947, § 64-1512.

4-30-105. Administration of chapter.

The provisions of this chapter shall be administered by the Secretary of State, who shall have power to employ such help as in his or her judgment is necessary to carry into effect the provisions of this chapter.

History. Acts 1921, No. 632, § 1; Pope's Dig., § 2262; A.S.A. 1947, §§ 64-1501, 64-1502.

Case Notes

Banking Associations.

Bank commissioner has no supervision over a banking association organized under this chapter. McDonald v. Wasson, 188 Ark. 782, 67 S.W.2d 722 (1934) (decision prior to enactment of § 4-30-201 et seq.).

Cited: Robertson v. White, 635 F. Supp. 851 (W.D. Ark. 1986).

4-30-106. Corporate title.

The title of the corporation may begin with “The” and shall end with “Association”, “Company”, “Corporation”, “Exchange”, “Society”, “Union”, or “Incorporated” or its abbreviation “Inc.”.

History. Acts 1921, No. 632, § 2; Pope's Dig., § 2263; A.S.A. 1947, § 64-1503; Acts 1989, No. 493, § 1.

4-30-107. Membership — Purposes — Powers.

  1. Any number of persons, corporations, or entities may associate themselves together as a cooperative corporation for any one (1) or more of the following purposes under the cooperative plan of the cooperative corporation:
    1. Conducting an agricultural, dairy, mercantile, mining, manufacturing, mechanical, marketing, warehousing, transportation, construction, building, or property management business;
    2. Conducting the business of the cooperative corporation; or
    3. Accomplishing a purpose of the cooperative corporation.
  2. A cooperative corporation may:
    1. Buy, sell, or deal in products:
      1. Produced or owned by the following:
        1. The cooperative corporation;
        2. The individual members or patrons of the cooperative corporation;
        3. Another cooperative corporation;
        4. The individual members or patrons of another cooperative corporation; and
      2. Available in the open market;
    2. Negotiate the price at which the products of the cooperative corporation may be sold;
    3. Enter into a contract between the cooperative corporation and the individual members and patrons of the cooperative corporation or on behalf of the cooperative corporation or the individual members and patrons of the cooperative corporation;
    4. Purchase, hold, lease, mortgage, encumber, sell, exchange, and convey real and personal property;
    5. Erect buildings, structures, and other facilities on:
      1. Property owned or leased by the cooperative corporation; and
      2. A right-of-way legally acquired by the cooperative corporation;
    6. Issue bonds and other evidence of indebtedness and borrow money to finance the business of the cooperative corporation;
    7. Make an advance to the individual members and patrons of the cooperative corporation on products delivered by the individual members and patrons to the cooperative corporation;
    8. Loan money to an individual member of the cooperative corporation or a corporation or association from which the cooperative corporation is constituted, with security that the cooperative corporation considers sufficient;
    9. Purchase, acquire, hold, or dispose of stock of another association or corporation and assume all rights, interests, privileges, responsibilities, and obligations arising out of the ownership of the stock;
    10. Purchase, own, and hold shares of capital stock, memberships, interests in nonstock capital, and evidences of indebtedness of a corporation if the purchase, ownership, or holding of the shares of capital stock, memberships, interests in nonstock capital, and evidences of indebtedness of the corporation is necessary or incidental to accomplishing a purpose stated in the articles of incorporation of the cooperative corporation;
    11. Exercise fiduciary powers in relation to the members, cooperatives, or associations from which the cooperative corporation is constituted;
    12. Take, receive, and hold real and personal property, including without limitation the principal and interest of money or other funds and rights in a contract, in trust for any purpose not inconsistent with the purposes of the cooperative corporation as determined by the articles of incorporation of the cooperative corporation; and
    13. Exercise fiduciary powers in relation to taking, receiving, and holding real and personal property.

History. Acts 1921, No. 632, § 2; Pope's Dig., § 2263; A.S.A. 1947, § 64-1503; Acts 1989, No. 493, § 2; 2017, No. 748, § 2.

A.C.R.C. Notes. Acts 2017, No. 748, § 1, provided: “Legislative intent.

The General Assembly finds that:

“(1) Many rural and small communities in Arkansas are losing residents and are struggling to preserve their unique local identity;

“(2) Many former residents of the state maintain an emotional attachment to their hometowns after they have moved and are interested in investing financially in their hometowns;

“(3) Local communities around this state often need capital injection; however, most struggle to attract capital investors to fund hometown and small town ventures;

“(4) It is the public policy of this state to:

“(A) Promote capitalism and democracy; and

“(B) Enable and encourage residents and citizens to:

“(i) Become entrepreneurs;

“(ii) Be more commercially productive;

“(iii) Create more jobs; and

“(iv) Create organic growth of business; and

“(5) Deregulation of cooperatives will open the door to investment of capital in Arkansas's most vulnerable places.”

Amendments. The 2017 amendment added “— Powers” to the section heading; and rewrote the section.

Case Notes

Cited: Stuttgart Coop. Buyers Ass'n v. Louisiana Oil Ref. Corp., 194 Ark. 779, 109 S.W.2d 682 (1937).

4-30-108. Articles of incorporation.

  1. The members shall sign and acknowledge written articles of incorporation which shall contain:
    1. The name of the cooperative corporation;
    2. The name and residences of the persons forming the cooperative corporation;
    3. The purpose of the organization;
    4. The principal place of business;
    5. The amount of capital stock;
    6. The number of shares and the par value of each share;
    7. The number of directors and the names of those selected for the first term; and
    8. The time for which the cooperative corporation is to continue if the cooperative corporation is not of perpetual duration.
  2. The original articles of incorporation or a certified copy of them shall be filed with the Secretary of State, who shall return to the cooperative corporation a certified copy of them, with the date of filing and attested with the seal of his or her office.
  3. For filing the articles of incorporation and amendments thereto under this subchapter, the same fees shall be paid to the Secretary of State as are now required under the general corporation law.

History. Acts 1921, No. 632, §§ 3-5; Pope's Dig., §§ 2264 — 2266; A.S.A. 1947, §§ 64-1504 — 64-1506; Acts 2017, No. 748, § 3.

A.C.R.C. Notes. Acts 2017, No. 748, § 1, provided: “Legislative intent.

The General Assembly finds that:

“(1) Many rural and small communities in Arkansas are losing residents and are struggling to preserve their unique local identity;

“(2) Many former residents of the state maintain an emotional attachment to their hometowns after they have moved and are interested in investing financially in their hometowns;

“(3) Local communities around this state often need capital injection; however, most struggle to attract capital investors to fund hometown and small town ventures;

“(4) It is the public policy of this state to:

“(A) Promote capitalism and democracy; and

“(B) Enable and encourage residents and citizens to:

“(i) Become entrepreneurs;

“(ii) Be more commercially productive;

“(iii) Create more jobs; and

“(iv) Create organic growth of business; and

“(5) Deregulation of cooperatives will open the door to investment of capital in Arkansas's most vulnerable places.”

Amendments. The 2017 amendment inserted “cooperative” preceding “corporation” in (a)(1), (a)(2), (a)(8), and (b); and substituted “if the cooperative corporation is not of perpetual duration” for “not to exceed fifty (50) years” in (a)(8).

4-30-109. Bylaws.

  1. Each corporation shall formulate bylaws prescribing the duties of the directors and officials, the manner of distributing the profits of its business, the manner of becoming a member, and such other rules and instructions to its officials and members as will tend to make the corporation an effective business organization.
  2. Any association formed under this chapter may pass bylaws to govern itself in the carrying out of the provisions of this chapter which are not inconsistent with the provisions of this chapter.

History. Acts 1921, No. 632, §§ 9, 13; Pope's Dig., §§ 2269, 2274; A.S.A. 1947, §§ 64-1510, 64-1514.

4-30-110. Board of directors — Officers.

  1. Every association shall be managed by a board of not fewer than five (5) directors.
  2. The directors shall be elected by the stockholders of the association at such times and for such terms of office as the bylaws may prescribe and shall hold office for the time for which elected and until their successors are elected and shall enter upon the discharge of their duties.
  3. A majority of the stockholders shall have power at any regular or special stockholders' meeting legally called to remove any director or official for cause and fill the vacancy, and thereupon the director so removed shall cease to be a director of the association.
    1. The officers of every association shall be a president, one (1) or more vice presidents, a secretary, and a treasurer and such other officers as may be deemed necessary by the board of directors.
    2. The offices of secretary and treasurer may be combined into the office of secretary-treasurer.

History. Acts 1921, No. 632, § 7; Pope's Dig., § 2268; A.S.A. 1947, § 64-1508; Acts 1989, No. 493, § 3.

4-30-111. Prerequisite for commencing business.

No corporation organized under the provisions of this chapter shall commence business until at least twenty percent (20%) of its capital stock has been paid for in actual cash and a sworn statement to that effect has been filed with the Secretary of State, and his or her receipt for the statement shall be construed as a permit to do business.

History. Acts 1921, No. 632, § 6; Pope's Dig., § 2267; A.S.A. 1947, § 64-1507.

4-30-112. Percentage of stock ownership limited — Voting by members.

  1. No person shall be allowed to own or have an interest in more than ten percent (10%) of the capital stock of the corporation.
  2. Voting upon all questions shall be by members and not by stock.

History. Acts 1921, No. 632, § 8; Pope's Dig., § 2270; A.S.A. 1947, § 64-1509.

Case Notes

Stock Certificates.

Certificates of stock in corporations organized under this chapter are not negotiable; for any kind of transfer or negotiation to be effective, it must be made with the consent of the association. Stuttgart Coop. Buyers Ass'n v. Louisiana Oil Ref. Corp., 194 Ark. 779, 109 S.W.2d 682 (1937).

4-30-113. Books and records — Right of inspection.

  1. Each corporation organized under the provisions of this chapter shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its shareholders and board of directors and shall keep at its registered office or principal place of business in this state a record of its shareholders, giving the names and addresses of all shareholders and the number and class of the shares held by each.
    1. Any person who shall have been a shareholder of record for at least six (6) months immediately preceding his or her demand shall, upon written demand therefor, be furnished a full itemized accounting of all expenditures of the funds of the corporation during the preceding six-month period and shall have the right to examine, in person or by agent or attorney, at any reasonable time, for any proper purpose, its books and records of account, minutes, and record of shareholders and to make extracts therefrom.
    2. Upon refusal by the corporation or by an officer or agent of the corporation to furnish an accounting or to permit an inspection of the corporation's books, records of account, minutes, or record of shareholders as provided in subdivision (b)(1) of this section, the person making demand therefor may file a civil action in the circuit court of the county in which the corporation maintains either its principal place of business or its registered office for the purpose of securing an order of the court directing the corporation, its officers, and agents to comply with the request.
    3. The preceding shall be advanced upon the docket of the court, and the court shall hear the parties summarily, by affidavit or otherwise; and if the applicant establishes that he or she is qualified and entitled to the accounting or the inspection, the court shall grant an order for the accounting or the inspection, subject to any limitations which the court may prescribe; and the court may grant such other relief as to the court may seem just and proper.
    4. The court may deny or restrict inspection or the request for information if it finds that the shareholder has improperly used information secured through any prior accounting or examination of the books and records of accounts or minutes, or record of shareholders, of the corporation or of any other corporation, or that he or she was not acting in good faith or for a proper purpose in making his or her demand.
  2. Upon the written request of any shareholder of a corporation, the corporation shall mail to the shareholder its most recent financial statements showing in reasonable detail its assets and liabilities and the results of its operations.

History. Acts 1921, No. 632, § 10; Pope's Dig., § 2271; Acts 1969, No. 39, § 1; A.S.A. 1947, § 64-1511.

4-30-114. Annual reports.

Each corporation organized under the provisions of this chapter shall make an annual report to the Secretary of State, as is required of other corporations. However, the cooperative corporation shall be required to report the names of its stockholders and the amount of the stock owned by each for such years only as may be required by the Secretary of State.

History. Acts 1921, No. 632, § 10; Pope's Dig., § 2271; Acts 1969, No. 39, § 1; A.S.A. 1947, § 64-1511.

4-30-115. Forms prescribed by Secretary of State.

The form for receipts and any other papers necessary for carrying into effect the provisions of this chapter shall be prescribed by the Secretary of State.

History. Acts 1921, No. 632, § 12; Pope's Dig., § 2273; A.S.A. 1947, § 64-1513.

4-30-116. Organization, ownership, control, etc., of other corporations or associations.

An association organized or existing hereunder may organize, form, operate, own, control, have an interest in, own stock of, or be a member of any corporation or association, with or without capital stock, engaged in any of the activities authorized under this chapter, whether formed under this or any other act of this or any other state. This chapter permits the federation of cooperative business enterprise in Arkansas.

History. Acts 1921, No. 632, § 14; Pope's Dig., § 2275; A.S.A. 1947, § 64-1515; Acts 1989, No. 493, § 4.

4-30-117. Liability of members for association's debts.

Except for debts lawfully contracted between him or her and the association, no member shall be liable for the debts of the association to an amount exceeding the sum remaining unpaid on his or her membership fee or subscription to the capital stock, including any unpaid balance on any promissory notes given in payment thereof.

History. Acts 1921, No. 632, § 16; Pope's Dig., § 2277; A.S.A. 1947, § 64-1516.

4-30-118. Tort liability of cooperative.

All cooperative corporations and associations organized under the laws of the State of Arkansas shall be liable and subject to being sued in the courts of the state for their torts resulting from the negligent acts of their agents, servants, and employees committed in the scope of their employment for the cooperatives.

History. Acts 1947, No. 362, § 1; A.S.A. 1947, § 64-1525.

Case Notes

Cited: Michael v. St. Paul Mercury Indem. Co., 92 F. Supp. 140 (W.D. Ark. 1950).

Subchapter 2 — Cooperative Banks

A.C.R.C. Notes. Acts 1989, No. 493, § 5 provided: “The provisions of the general corporation laws of this State, and all powers and rights thereunder, shall apply to the cooperative corporations created under Subchapters 1 and 2 of Chapter 30 of Title 4 of the Arkansas Code, except where such provisions are in conflict with or inconsistent with the express provisions of Subchapter 1 and 2 of Chapter 30 of Title 4 of the Arkansas Code.”

Preambles. Acts 1937, No. 287 contained a preamble which read:

“Whereas, there have been incorporated under the provisions of Act No. 632 of the Acts of the General Assembly of Arkansas of 1921 a number of so-called “cooperative banks,” which are now engaged in performing various banking functions with only nominal capital and without any supervision of any department of the State, some being located in cities, towns and communities where adequate banking facilities are being provided by a state or national bank; and

“Whereas, such associations are erroneously regarded by the public as banking institutions with adequate capital and supervision to protect their depositors against loss; and

“Whereas, there is no necessity for the continued existence of those associations which are located in communities in which a bank is situated or doing business; and

“Whereas, those so-called cooperative banks located in communities which are not provided with the services of a banking institution should make such changes in their corporate names so that the public will clearly understand that they are not banks and that they should be brought under proper supervision;

“Therefore … .”

Effective Dates. Acts 1937, No. 287, § 4: Mar. 22, 1937. Emergency clause provided: “Since there is necessity for the immediate initiation of the measures and things hereby required in order to prevent unsound and dangerous banking practices which might result in widespread losses to the people of this State, an emergency is therefore hereby declared and this act shall become operative and shall be in full force and effect from and after its passage and approval.”

Acts 2019, No. 910, § 6346(b): July 1, 2019. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that this act revises the duties of certain state entities; that this act establishes new departments of the state; that these revisions impact the expenses and operations of state government; and that the sections of this act other than the two uncodified sections of this act preceding the emergency clause titled ‘Funding and classification of cabinet-level department secretaries’ and ‘Transformation and Efficiencies Act transition team’ should become effective at the beginning of the fiscal year to allow for implementation of the new provisions at the beginning of the fiscal year. Therefore, an emergency is declared to exist, and Sections 1 through 6343 of this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2019”.

Research References

Am. Jur. 18 Am. Jur. 2d, Coop. Assoc., § 9.

4-30-201. Definition.

As used in this subchapter, unless the context otherwise requires, “cooperative bank” means a corporation or association organized under the provisions of this chapter which receives deposits and forwards checks, drafts, or orders for collection.

History. Acts 1921, No. 632, § 18 as added by Acts 1937, No. 287, § 1; Pope's Dig., § 2279; A.S.A. 1947, § 64-1518.

4-30-202. Applicability of subchapter.

Nothing in this subchapter shall apply to or affect in any manner the so-called agricultural credit corporations or any other type of association organized under this chapter which does not receive deposits or forward checks, drafts, or orders for collection.

History. Acts 1921, No. 632, § 18 as added by Acts 1937, No. 287, § 1; Pope's Dig., § 2279; A.S.A. 1947, § 64-1518.

4-30-203. Subchapter cumulative.

All parts and portions of this subchapter which confer authority or jurisdiction upon the Bank Commissioner or which are in aid or furtherance of such authority or jurisdiction are declared to be cumulative to all laws and parts of laws relating to investment companies, and these portions shall be interpreted and construed accordingly.

History. Acts 1937, No. 287, § 3; A.S.A. 1947, § 64-1524.

4-30-204. Future incorporation of cooperative banks prohibited.

After March 22, 1937, it shall not be lawful to organize or create and there shall not be organized or created any cooperative bank as defined in § 4-30-201, and the Secretary of State shall issue no certificates of incorporation or charters for cooperative banks.

History. Acts 1921, No. 632, § 19 as added by Acts 1937, No. 287, § 1; Pope's Dig., § 2280; A.S.A. 1947, § 64-1519.

4-30-205. Conditional termination of corporate existence.

The corporate existence of all of such cooperative banks organized under this chapter prior to March 22, 1937, which are situated in cities, towns, and communities in which there is established and placed in operation a state or national bank or a teller's window branch thereof after March 22, 1937, shall expire and terminate not later than eighteen (18) months from the date that the state or national bank or a teller's window branch thereof opens or opened for business. However, no teller's window branch of any bank shall be placed in any incorporated town where a cooperative bank is in existence in the event a majority of the real property owners within the incorporated limits of the town or city shall protest by petition the State Bank Department's granting its permission to place a teller's window in the city or town.

History. Acts 1921, No. 632, § 21 as added by Acts 1937, No. 287, § 1; Pope's Dig., § 2282; A.S.A. 1947, § 64-1521.

4-30-206. Noncomplying banks — Supervision by commissioner.

On failure of any cooperative bank organized under this chapter prior to March 22, 1937, to comply with the provisions of § 4-30-205, it shall become the duty of the Bank Commissioner to take charge of the cooperative bank under the provisions of Acts 1931, No. 109, § 8 [repealed].

History. Acts 1921, No. 632, § 22 as added by Acts 1937, No. 287, § 1; Pope's Dig., § 2283; A.S.A. 1947, § 64-1522.

4-30-207. Banks declared investment companies — Penalty — Exception.

  1. Every cooperative bank organized under this chapter prior to March 22, 1937, which is not situated in a city, town, or community in which there is also situated a state or national bank or a teller's window branch thereof is declared to be an investment company and shall be placed under the regulation and supervision of the State Securities Department, in the same manner as now provided by law for other investment companies. The Securities Commissioner, in consultation with the Secretary of the Department of Commerce, is authorized, empowered, and directed to make and promulgate all such rules not inconsistent herewith as shall be necessary or convenient for the administration and carrying out of this subchapter and for the supervision and control of all such organizations.
  2. Failure to comply with any of the requirements of this section subjects the cooperative bank which is guilty of the failure and its president, its secretary, and its directors to the penalties provided for violation of the Arkansas Securities Act, § 23-42-101 et seq.
  3. However, nothing in this subchapter shall apply to or affect any cooperative bank organized under this chapter prior to March 22, 1937, and situated on the campus of a school, college, or university and employed by the school as a means of instruction.

History. Acts 1921, No. 632, § 23 as added by Acts 1937, No. 287, § 1; Pope's Dig., § 2284; A.S.A. 1947, § 64-1523; Acts 2019, No. 315, § 124; 2019, No. 910, § 128.

Amendments. The 2019 amendment by No. 315 deleted “and regulations” following “rules” in the second sentence of (a).

The 2019 amendment by No. 910 inserted “in consultation with the Secretary of the Department of Commerce” in the second sentence of (a).

Chapter 31 Foreign Investors

Research References

Ark. L. Notes.

Mathews, A Review of Arkansas Statutes Affecting Business and Other Organizations Enacted Since 1990, 1998 Ark. L. Notes 65.

Subchapter 1 — General Provisions

[Reserved.]

Subchapter 2 — Qualification to Do Business

Effective Dates. Acts 1995, No. 495, § 4: applicable for taxable years beginning on or after January 1, 1996.

4-31-201. Permitted activities generally.

Any foreign mutual savings bank, foreign mutual savings fund society, national banking association, foreign bank and trust company, or foreign insurance company, or any foreign corporation of which all the capital stock, except directors' qualifying shares, is owned by one (1) or more of the above-named organizations, shall not be considered to be transacting or engaging in business in this state by reason of carrying on in this state any of the following activities if the organization is not organized under the laws of this state and does not maintain a place of business within this state:

  1. The acquisition or making of loans, or participation or interests therein, secured by deeds of trust, mortgages, or mortgage notes on real property situated in Arkansas pursuant to commitment agreements or arrangements made prior to or following the origination or creation of the loans;
  2. The making, directly or through or in participation with national or state banks having their banking offices in this state or other Arkansas concerns engaged within this state in the business of making or servicing such loans, of loans secured by such mortgages or mortgage notes, or loans secured by assignments or pledges of obligations secured by such mortgages or mortgage notes;
  3. The ownership, modification, renewals, extensions, transfers, or foreclosure of those loans, mortgages, or mortgage notes, or the acceptance of substitute or additional obligators thereon;
  4. The maintenance of bank accounts in national or state banks having their banking offices within this state in connection with the collection or servicing of those loans, mortgages, or mortgage notes;
  5. The maintenance of depositary or pledge-holder agreements or arrangements with national or state banks having their banking offices within this state in connection with the taking of assignments or pledges of such loans, mortgages, or mortgage notes;
  6. The making, collection, and servicing of those loans, mortgages, or mortgage notes directly or through an Arkansas concern engaged in the business within this state of servicing real estate loans;
  7. The taking of deeds to the mortgaged property for a reasonable period of time either in lieu of foreclosure or for the purpose of transferring title either to the Federal Housing Administration or to the Department of Veterans Affairs as the insurer or guarantor;
  8. The acquisition of title to real property for a reasonable period of time under foreclosure sale or from the owner in lieu of foreclosure;
  9. The management, rental, maintenance, and sale, or the operating, maintaining, renting, or otherwise dealing with, selling, or disposing of real property acquired under foreclosure sale or by agreement in lieu thereof;
  10. The maintaining or defending of any actions or suits relating to those loans, deeds of trust, mortgages, mortgage notes, agreements, or other arrangements or activities referred to herein or incidental thereto; and
  11. The physical inspection and appraisal of real property in Arkansas as security for mortgage notes or mortgages and negotiations for those loans.

History. Acts 1989, No. 947, § 2.

4-31-202. Activities as fiduciary, trustee, or agent of trust.

  1. The following shall likewise not be considered to be transacting or engaging in business in this state:
    1. The acquisition or making of loans or participation or interest therein which is secured by mortgages or mortgage notes on real property located in this state; or
    2. The doing of any or all the other acts or things with respect thereto enumerated in this subchapter by:
      1. Any such bank, trust company, or any foreign corporation when acting as fiduciary, trustee, or agent of any trust, whether testamentary or inter vivos, including foundations and trusts established for the purpose of funding pension, profit-sharing, or employee benefit plans;
      2. An endowed institution, foundation, or eleemosynary corporation;
      3. Any corporation chartered under the laws of another state as a group insurance and annuity association and engaged in the business of insurance, annuities, pensions, and retirement plans for any group of persons, educational institutions, and others; or
      4. Any foreign corporation all the capital stock of which, except directors' qualifying shares, is owned by one (1) or more of the entities referred to in subdivisions (a)(2)(A)-(C) of this section.
  2. Any foreign corporation when so acting as fiduciary, trustee, or agent and any such trust, endowed institution, foundation, eleemosynary corporation, or group insurance and annuity association shall be entitled to all the rights, privileges, and exceptions set forth in this subchapter.

History. Acts 1989, No. 947, § 3.

4-31-203. Extent of benefits and application of subchapter.

  1. Nothing in this subchapter shall be construed as limiting the benefits and application of this subchapter to loans insured or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, or any other governmental agency or department.
  2. The benefits of this subchapter shall extend to and include all loans or participations or interests therein secured by mortgages or mortgage notes on real property situated in Arkansas, whether or not insured or guaranteed.
  3. Nothing in this subchapter shall be construed to permit any foreign corporation to do business in violation of the small loan law of the State of Arkansas nor of the laws of Arkansas governing the organization and operation of building and loan associations or societies, or savings and loan associations or societies, or any insurance company, nor to limit the authority of foreign corporations authorized to do unlimited business under the general laws of Arkansas, or to qualify to be so authorized.

History. Acts 1989, No. 947, § 1.

4-31-204. Actions — Service of process — Venue.

    1. Any bank, trust company, foreign mutual savings bank, pension fund, foreign mutual savings fund society, mutual banking association, foreign insurance company, or any other type of organization defined in this subchapter and investing funds in Arkansas may sue or be sued within this state in relation to such mortgages or deeds of trust on real properties, securities, or debts, and service of process may be performed by service upon any custodian or agent appointed within the state.
    2. If no custodian or agent has been appointed, the bank, trust company, foreign mutual savings bank, pension fund, foreign mutual savings fund society, mutual banking association, foreign insurance company, or other type of organization may be served with process under § 4-20-113.
  1. The venue of an action under subsection (a) of this section is:
    1. In the county of the residence of a plaintiff; or
    2. If a subject of the action is land, in the county in which any part of the land is located.

History. Acts 1989, No. 947, § 4; 2009, No. 814, § 3.

Amendments. The 2009 amendment rewrote (a)(2), deleted (b), redesignated the subsequent subsection, and rewrote present (b).

4-31-205. Taxes.

  1. No corporation, institution, or entity coming under the provisions of this subchapter and confining its business operations in Arkansas within the limits herein provided shall be required to qualify to do business in this state by filing its charter in the office of the Secretary of State or to pay any tax or fee required to be paid by foreign corporations under any law of this state.
  2. However, the exemption shall not include:
    1. Ad valorem taxes assessed against any real property which the corporation, institution, or entity may own in the State of Arkansas;
    2. Arkansas income, franchise, and privilege tax which may result from the sale, ownership, or control after acquisition of the property by foreclosure, or acquisition in lieu of foreclosure, either by virtue of the value of the specific piece of property so foreclosed or to which title is taken in lieu of foreclosure, or by virtue of the rental or other income realized from the property; or
    3. Arkansas income taxes which may be levied upon financial institutions pursuant to § 26-51-1401 et seq.

History. Acts 1989, No. 947, § 5; 1995, No. 495, § 2.

Subchapter 3 — Service as Fiduciary

Effective Dates. Acts 1991, No. 402, § 6: Mar. 8, 1991. Emergency clause provided: “It is hereby found and determined by the General Assembly that the reciprocal authority for foreign banks and trust companies to act as fiduciaries within the State of Arkansas was inadvertently repealed by the enactment of the Arkansas Business Corporation Act of 1987; that this Act reenacts such authority; and that until this Act becomes effective the authority of foreign banks and trust companies to act as fiduciaries within this State is questionable. Therefore, an emergency is declared to exist and this Act being immediately necessary for the preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

4-31-301. Intent.

The General Assembly has determined that Acts 1979, No. 118 [repealed], authorized foreign banks and trust companies to act as fiduciaries within this state if the state under which they were organized and have their principal office grants reciprocal authority to Arkansas banks and trust companies, and that such authority was inadvertently repealed by the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq. It is the intent of this section and §§ 4-31-302 and 4-31-303 to reestablish that reciprocal authority and to ratify any transactions that have occurred since the enactment of the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., and which would have been valid under Acts 1979, No. 118 [repealed].

History. Acts 1991, No. 402, § 1.

4-31-302. Definitions.

For purposes of this section and §§ 4-31-301 and 4-31-303, “foreign bank or trust company with fiduciary powers” means a bank or trust company organized under the laws of and having its principal office in the District of Columbia or any territory or state of the United States other than the State of Arkansas, and any national bank having its principal office in the District of Columbia or a territory or another state, which bank or trust company is empowered to act as a fiduciary.

History. Acts 1991, No. 402, § 2.

4-31-303. Appointment authorized.

Any foreign bank or trust company with fiduciary powers may be appointed and may serve in the State of Arkansas as trustee of a personal or corporate trust, executor, administrator, guardian of the estate, or in any other fiduciary capacity, whether the appointment is by will, deed, agreement, declaration, indenture, court order, or decree, or otherwise, when and to the extent that the District of Columbia, territory, or other state in which the foreign bank or trust company is organized and has its principal office grants such fiduciary authority to a bank or trust company organized under the laws of and having its principal office in the State of Arkansas, or to a national bank having its principal office in the State of Arkansas.

History. Acts 1991, No. 402, § 2.

Subchapter 4 — Filing Procedure for Foreign Business Trusts

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2007, No. 646, § 14: July 1, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that business entities are presently paying different fees for similar services from the Secretary of State; that this act will alleviate any undue hardship to any entity by standardizing business and commercial filing fees; and that this act is immediately necessary to aid the recordkeeping and accounting functions of the Secretary of State and should take effect at the beginning of the state's fiscal year. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2007.”

4-31-401. Definition.

For purposes of this subchapter, “business trust” means a foreign unincorporated association or trust created by an instrument under which property is held and managed by trustees for the benefit and profit of such persons as are or may become the holders of a transferable certificate evidencing beneficial interest in the trust.

History. Acts 1999, No. 1366, § 1.

4-31-402. Filing requirements.

    1. A business trust, for the purpose of this subchapter, shall be foreign.
    2. A foreign business trust includes every foreign business trust.
  1. Any foreign business trust desiring to transact business in this state shall deliver to the Secretary of State:
    1. A form provided by the Secretary of State's office or an executed copy of the articles, declaration of trust, or trust agreement by which the trust was created and all amendments thereto, or a true copy thereof certified to be such by a trustee of the trust before a notary or by a public official of another state territory or country in whose office an executed copy thereof is on file;
    2. A verified list of the names, residences, and post office addresses of its trustees;
    3. An affidavit setting forth its assumed business name, if any; and
    4. A foreign business trust shall deliver to the Secretary of State the location of its principal office, the information required by § 4-20-105(a), and its irrevocable consent to service of process duly signed by a majority of its trustees to bind the business trust by such irrevocable consent.
  2. When a foreign business trust has complied with the delivery requirements as provided in this section, the Secretary of State, after determining that all requirements have been met, shall file the delivered documents of foreign business trusts and the foreign business trusts may thereupon commence business.
  3. Upon the filing of the form provided by the Secretary of State or the copy of articles, declaration of trust, or trust agreement and the payment of a filing fee in compliance with the laws of the State of Arkansas, the Secretary of State shall issue to the trustee named in the form or articles, declaration of trust, or trust agreement, a certificate showing that the declaration of trust has been on file in the office, whereupon such association shall be authorized to transact business in this state provided that all other applicable laws have been followed.
    1. The articles, declaration of trust, or trust agreement by which any foreign business trust was created may be amended in the manner specified therein or in such manner as is valid under the law applicable to the foreign business trust.
    2. Provided, that no amendment shall be legally effected in the state until a copy thereof has been filed with the Secretary of State.

History. Acts 1999, No. 1366, § 2; 2007, No. 638, § 28.

4-31-403. Applicability of law.

  1. Any foreign business trust shall be subject to such applicable provisions of law from time to time in effect with respect to foreign corporations doing business in Arkansas.
  2. These shall include, without limitation, applicable provisions of law as relate to the issuance of securities, filing the required statements or reports, service of process, general grants of power to act, withdrawal, right to sue and be sued, limitation of individual liability of shareholders, and rights to acquire, mortgage, sell, lease, operate, and otherwise deal in or with real and personal property.

History. Acts 1999, No. 1366, § 3.

4-31-404. Discontinuing trust business.

  1. Any foreign business trust that desires to withdraw from or discontinue doing trust business shall furnish to the Secretary of State satisfactory evidence of its release and discharge from all obligation undertaken by it and after the foreign business trust has furnished that evidence to the Secretary of State, the Secretary of State shall withdraw any authority to do a trust business previously issued to that foreign business trust, and thereafter the foreign business trust shall not be permitted to use and shall not undertake the administration of any trust business in the State of Arkansas.
  2. No person may transact or conduct business within the state under any articles, declaration of trust, or trust agreement without first complying with the provisions and requirements of this subchapter, and no person organized to do business under any articles, declaration of trust, or trust agreement may offer to sell, barter, or exchange any unit, share, contact, notes, bond, mortgage, oil or mineral lease, or other securities, without first having to comply with the provisions and requirements of this subchapter.

History. Acts 1999, No. 1366, § 4.

4-31-405. Merger or consolidation.

    1. Pursuant to an agreement of merger or consolidation, a foreign business trust may merge or consolidate with or into one (1) or more foreign business trusts or other business entities formed or organized or existing under the laws of the state or any other state or the United States or any foreign country or other foreign jurisdiction, with the foreign business trust or other business entity, as the agreement shall provide, being the surviving or resulting business trust or other business entity unless otherwise provided in the governing instrument of a foreign business trust.
    2. A merger or consolidation shall be approved by each business trust which is to merge or consolidate by all of the trustees and the beneficial owners of the business trust.
    1. If a business trust is merging or consolidating under this section, the business trust or other business entity surviving or resulting in or from the merger or consolidation shall file a certificate of merger or consolidation in the office of the Secretary of State.
    2. The certificate of merger or consolidation shall state:
      1. The name and jurisdiction of formation or organization of each of the business trusts or other business entities which are to merge or consolidate;
      2. That an agreement of merger or consolidation has been approved and executed by each of the business trusts or other business entities which are to merge or consolidate;
      3. The name of the surviving or resulting business trust or other business entity;
        1. The future effective date or time, which shall be a date or time certain, of the merger or consolidation if it is not to be effective upon the certificate of merger or consolidation.
        2. The effective date can be no later than ninety (90) days after the filing of the original documents;
      4. That the executed agreement of merger or consolidation is on file at the principal place of business of the surviving or resulting business trust or other business entity and shall state the address thereof;
      5. That a copy of the agreement of merger or consolidation will be furnished by the surviving or resulting business trust or other business entity on request and without cost to any beneficial owner of any business trust or any person holding an interest in any other business entity which is to merge or consolidate; and
      6. If the surviving or resulting entity is not a business trust or other business entity formed or organized or existing under the laws of the State of Arkansas, that the surviving or resulting entity has filed a statement appointing an agent for service of process under § 4-20-112 and may be served with process under § 4-20-113 if the surviving or resulting entity fails to appoint or maintain a registered agent for service of process.
  1. Unless a future effective date or time is provided in a certificate of merger or consolidation, in which event a merger or consolidation shall be effective at any such future effective date or time, a merger or consolidation shall be effective upon the filing in the office of the Secretary of State of a certificate of merger or consolidation.
  2. A certificate of merger or consolidation shall act as a certificate of cancellation for a foreign business trust which is not the surviving or resulting entity in the merger or consolidation.
  3. When any merger or consolidation shall have become effective under this section, for all purposes of the laws of the state, all of the rights, privileges, and powers of each of the business trusts and other business entities that have merged or consolidated, and all property, real, personal, and mixed, and all debts due to any business trusts and other business entities, as well as all other things and causes of action belonging to each of the business trusts and other business entities, shall be vested in the surviving or resulting business trust or other business entity, and shall thereafter be the property of the surviving or resulting business trust or other business entity as they were of each of the business trusts and other business entities that have merged or consolidated, and the title to any real property vested by deed or otherwise, under the laws of the state, in any of the business trusts and other business entities, shall not revert or be in any way impaired by reason of this chapter, but all rights of creditors and all liens upon any property of any of the business trusts and other business entities shall be preserved unimpaired, and all debts, liabilities, and duties of each of the business trusts and other business entities that have merged or consolidated shall thenceforth attach to the surviving or resulting business trust or other business entity and may be enforced against it to the same extent as if debts, liabilities, and duties had been incurred or contracted by it.

History. Acts 1999, No. 1366, § 5; 2009, No. 814, § 4.

Amendments. The 2009 amendment rewrote (b)(2)(G).

4-31-406. Filing fees.

  1. The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her for filing:
    1. The Secretary of State shall collect a fee of twenty-five dollars ($25.00) each time process is served on him or her under this subchapter.
    2. The party to a proceeding causing service of process is entitled to recover the process fee as costs if the party prevails in the proceeding.
  2. The Secretary of State shall collect the following fees for copying and certifying the copy of any filed document relating to a domestic or foreign business trust:
    1. Fifty cents (50¢) a page for copying; and
    2. Five dollars ($5.00) for the certificate.

DOCUMENT FEE (1) Articles of business trust $300.00 (2) Amendment of articles of business trust 300.00 (3) Articles of merger 100.00 (4) Articles of dissolution 300.00 (5) Application for amended certificate of authority 300.00 (6) Application for certificate of withdrawal 300.00 (7) Any other document required or permitted to be filed by this subchapter 25.00

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History. Acts 1999, No. 1366, § 6; 2007, No. 638, § 29; 2007, No. 646, § 4.

A.C.R.C. Notes. This section is set out above as amended by Acts 2007, No. 638, § 29, effective September 1, 2007. Subdivision (a) of this section was also amended by Acts 2007, No. 646, § 4 to read: “The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her for filing:

DOCUMENT FEE (1) Articles of business trust $300.00 (2) Business trust's statement of change of registered agent or registered office, or both No Fee (3) Agent's statement of resigna- tion No Fee (4) Amendment of articles of business trust 300.00 (5) Articles of merger 100.00 (6) Articles of dissolution 300.00 (7) Application for amended cer- tificate of authority 300.00 (8) Application for certificate of withdrawal 300.00 (9) Any other document required or permitted to be filed by this subchapter 25.00”

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Chapter 32 Small Business Entity Tax Pass Through Act

Effective Dates. Acts 1993, No. 1003, § 1318: April 12, 1993. Emergency clause provided: “It is hereby found and determined by the Seventy-Ninth General Assembly that there is a public need for adoption of this Act, and that the immediate passage of this Act is necessary. Therefore, an emergency is hereby declared to exist and this Act shall be in full force and effect from and after its passage and approval.”

Research References

Am. Jur. 51 Am. Jur. 2d, Limited Liability Cos., § 1 et seq.

Ark. L. Notes.

Beard, The Small Business Tax Entity Pass Through Act—The Birth of a Duck, 1993 Ark. L. Notes 15.

Goforth, The Arkansas Limited Liability Company: A Call for Clarification, 1994 Ark. L. Notes 19.

Goforth, Limited Liability Partnerships: Does Arkansas Need Another Form of Business Enterprise?, 1995 Ark. L. Notes 57.

Goforth, An Update on Arkansas Limited Liability Companies: New Tax Regulations and New State Laws, 1997 Ark. L. Notes 11.

Ark. L. Rev.

Matthews, The Arkansas Limited Liability Company: A New Business Entity is Born, 46 Ark. L. Rev. 791.

C.J.S. 54 C.J.S., Limited Liability Cos., § 1 et seq.

U. Ark. Little Rock L.J.

Note, Limited Liability Companies in Arkansas: The Knowns and the Unknowns, 16 U. Ark. Little Rock L.J. 27.

Subchapter 1 — General Provisions

Effective Dates. Acts 1997, No. 479, § 16: March 13, 1997. Emergency clause provided: “It is hereby found and determined by the General Assembly of the State of Arkansas that the limited liability company statute and other acts relating to pass through entities and related laws need amending in order to better reflect the intent and operation of those laws as originally drafted and to be consistent with current trends. Therefore an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto. Notwithstanding the foregoing, SECTION 10 of this act (§ 4-32-802(c)) shall only apply to limited liability companies in exsitence [sic] on the effective date of this act in the event an election is made with the Secretary of State to have this provision apply; otherwise, the original § 4-32-802(c) shall apply to limited liabilty companies existing on the effective date of this act.”

Acts 1999, No. 1528, § 13: Apr. 15, 1999. Emergency clause provided: “It is hereby found and determined by the Eighty-second General Assembly that the Small Business Entity Tax Pass Through Act and the Revised Limited Partnership Act of 1991 and other related acts and related laws need amending in order to better reflect the intent and operation of those laws. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto. Notwithstanding the foregoing, Section 4 of this act shall only apply to limited liability companies in existence on the effective date of this act in the event an election is made with the Secretary of State to have this provision apply; otherwise, the original § 4-32-802, as amended, shall apply to limited liability companies existing on the effective date of this act.”

Acts 2007, No. 638, § 70: Sept. 1, 2007.

4-32-101. Title.

This chapter shall be known and may be cited as the “Small Business Entity Tax Pass Through Act”.

History. Acts 1993, No. 1003, § 101.

Research References

Ark. L. Rev.

A License to Lie, Cheat, and Steal? Restriction or Elimination of Fiduciary Duties in Arkansas Limited Liability Companies, 60 Ark. L. Rev. 643.

Comment, Corporate Pre-Organization Liability in an LLC World, 61 Ark. L. Rev. 301.

U. Ark. Little Rock L. Rev.

Goforth, Why Arkansas Should Adopt the Revised Uniform Limited Liability Company Act, 30 U. Ark. Little Rock L. Rev. 31.

4-32-102. Definitions.

As used in this chapter, unless the context otherwise requires:

  1. “Articles of organization” means articles filed under § 4-32-201, and those articles as amended and restated;
  2. “Corporation” means a corporation formed under the laws of any state or foreign country, including professional corporations or associations;
  3. “Court” includes every court having jurisdiction in the case;
  4. “Event of dissociation” means an event that causes a person to cease to be a member as provided in § 4-32-802;
  5. “Foreign limited liability company” means an organization that is:
    1. An unincorporated association;
    2. Organized under laws of a state other than the laws of this state, or under the laws of any foreign country;
    3. Organized under a statute pursuant to which an association may be formed that affords to each of its members limited liability with respect to the liabilities of the entity; and
    4. Not required to be registered or organized under any statute of this state other than this chapter;
  6. “Limited liability company” or “domestic limited liability company” means an organization formed under this chapter;
  7. “Limited liability company interest” or “interest in the limited liability company” means the interest that can be assigned under § 4-32-704 and charged under § 4-32-705;
  8. “Limited partnership” means a limited partnership formed under the laws of any state or foreign country;
  9. “Manager” or “managers” means, with respect to a limited liability company that has set forth in its articles of organization that it is to be managed by managers, the person or persons designated in accordance with § 4-32-401;
  10. “Member” or “members” means a person or persons who have been admitted to membership in a limited liability company as provided in § 4-32-801 and who have not ceased to be members as provided in § 4-32-802;
  11. “Operating agreement” means the written agreement which shall be entered into among all of the members as to the conduct of the business and affairs of a limited liability company;
    1. “Person” means an individual, a general partnership, a limited partnership, a domestic or foreign limited liability company, a trust, an estate, an association, a corporation, a custodian, a nominee and other individual entity in its own or representative capacity, or any other legal entity.
    2. “Person” includes a protected series;
  12. “Professional service” means any type of professional service which may be legally performed only pursuant to a license or other legally mandated personal authorization. For example: the personal service rendered by certified public accountants, architects, engineers, dentists, doctors, and attorneys at law; and
  13. “State” means a state, territory, or possession of the United States, the District of Columbia, or the Commonwealth of Puerto Rico.

History. Acts 1993, No. 1003, § 102; 2019, No. 665, § 2.

Publisher's Notes. Section 4-37-805, enacted by Acts 2019, No. 655, § 1, provides that the effective date of Acts 2019, No. 655, which amended this section, is October 1, 2019.

Amendments. The 2019 amendment redesignated (12) as (12)(A); and added (12)(B).

Research References

Ark. L. Rev.

Matthews, The Arkansas Limited Liability Company: A New Business Entity is Born, 46 Ark. L. Rev. 791.

4-32-103. Name.

  1. The name of each limited liability company as set forth in its articles of organization must contain the words “Limited Liability Company” or “Limited Company” or the abbreviations “L.L.C.”, “L.C.”, “LLC”, or “LC”. The word “Limited” may be abbreviated as “Ltd.” and the word “Company” may be abbreviated as “Co.”.
  2. A limited liability company name must be distinguishable upon the records of the Secretary of State from:
    1. The name of any limited liability company, limited partnership, or corporation existing under the laws of this state or authorized to transact business in this state; or
    2. Any name reserved under § 4-32-104.
  3. The provisions of subsection (b) of this section shall not apply if the applicant files with the Secretary of State a certified copy of a final decree of a court of competent jurisdiction establishing the prior right of the applicant to the use of the name in this state.
  4. The name of a limited liability company which performs professional service shall in addition contain the words “Professional Limited Liability Company” or “Professional Limited Company” or the abbreviations “P.L.L.C.”, “P.L.C.”, “PLLC”, “PLC”, and the words “Limited” and “Company” may be abbreviated as “Ltd.” or “Co.” and may not contain the name of any person who is not a member, except that the name of a former member or member of a predecessor organization may continue to be included in the name.

History. Acts 1993, No. 1003, § 103; 1997, No. 479, §§ 1, 11; 1999, No. 1528, § 8.

Amendments. The 1997 amendment substituted “name must be distinguishable upon the records of the Secretary of State from” for “name may not be the same or deceptively similar to” and substituted “must” for “may not” in (b); deleted “either of the following” from the end of (c); and deleted (c)(1); and the (c)(2) designation.

The 1999 amendment deleted “deceased” preceding “former member” and “member” in (d).

4-32-104. Reservation of name.

  1. The exclusive right to use a name may be reserved by:
    1. Any person intending to organize a limited liability company and to adopt that name;
    2. Any limited liability company or any foreign limited liability company registered in this state that intends to adopt that name;
    3. Any foreign limited liability company intending to register in this state and to adopt that name; or
    4. Any person intending to organize a foreign limited liability company and to have it registered in this state and to adopt that name.
  2. The reservation shall be made by filing with the Secretary of State an application, executed by the applicant, to reserve a specified name. If the Secretary of State finds that the name is available for use by a domestic or foreign limited liability company, the Secretary of State shall reserve the name of the exclusive use of the applicant for a period of one hundred twenty (120) days from and after the date the application is filed with the Secretary of State.
  3. The holder of a reserved limited liability company name may renew the reservation for two (2) successive periods of one hundred twenty (120) days each from the date of the first renewal.
  4. The right to the exclusive use of a reserved name may be transferred to another person by filing with the Secretary of State a notice of the transfer, executed by the applicant for whom the name was reserved, and specifying the name to be transferred and the name and address of the transferee. The transfer shall not extend the term during which the name is reserved.

History. Acts 1993, No. 1003, § 104.

4-32-105. [Repealed.]

Publisher's Notes. This section, concerning registered office, registered agent, and service of process, was repealed by Acts 2007, No. 638, § 30. The section was derived from Acts 1993, No. 1003, § 105.

4-32-106. Nature of business — Powers.

  1. A limited liability company may be organized under this chapter for any lawful purpose, including the performance of professional services and related activities. If the purpose for which a limited liability company is organized or its activities make it subject to a special provision of law, the limited liability company shall also comply with that provision.
  2. A limited liability company shall possess and may exercise all powers and privileges granted by this chapter or by any other law or by its operating agreement, together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion, or attainment of the business, purposes, or activities of the limited liability company.

History. Acts 1993, No. 1003, § 106.

4-32-107. [Repealed.]

Publisher's Notes. This section, concerning service of process, was repealed by Acts 2007, No. 638, § 31. The section was derived from Acts 1993, No. 1003, § 107.

4-32-108. Use of fictitious names.

  1. No limited liability company, domestic or foreign, shall conduct any business in this state under a fictitious name unless it first files with the Secretary of State a form supplied or approved by the Secretary of State giving the following information:
    1. The fictitious name under which business is being or will be conducted by the applicant limited liability company;
    2. A brief statement of the character of business to be conducted under the fictitious name; and
    3. The name of the limited liability company, the state of organization, and location, giving the city and street address, of the registered office in the state of the applicant limited liability company.
  2. Each such form shall be executed, without verification, in duplicate and filed with the Secretary of State. The Secretary of State shall retain one (1) counterpart; and the other counterpart, bearing the file marks of the Secretary of State, shall be returned to the limited liability company. However, the Secretary of State shall not accept such filing if the proposed fictitious name is the same as, or confusingly similar to, the name of any domestic corporation, limited liability company, limited partnership, limited liability partnership or any other entity registered with the Secretary of State, or any foreign entity authorized to do business in the state or any name reserved or registered under §§ 4-27-402, 4-27-403, 4-32-104, or 4-47-109.
  3. Copies of such filed forms, certified by the respective filing officers, shall be admitted in evidence where the question of filing may be material.
  4. If, after a filing under this section, the applicant limited liability company is dissolved, or, being a foreign limited liability company, surrenders or forfeits its rights to do business in Arkansas or, whether a domestic or foreign limited liability company, ceases to do business in Arkansas under the specified fictitious name, such limited liability company shall be obligated to file with the Secretary of State a cancellation of its privilege hereunder. If such cancellation is not filed, the Secretary of State, upon satisfactory evidence, may cancel such privilege.
  5. If a limited liability company which has not filed under this section has heretofore or shall hereafter become a party to any contract, deed, conveyance, assignment, or instrument of encumbrance in which such limited liability company is referred to exclusively by a fictitious name, the obligations imposed upon the limited liability company under said instrument and the right sought to be conferred upon third parties thereunder may be enforced against it, but the rights accruing to the limited liability company under said instrument may not be enforced by the limited liability company in the courts of this state until it complies with this section and pays to the Treasurer of State a civil penalty of three hundred dollars ($300), and in any suit by a limited liability company upon an instrument which identified it exclusively by a fictitious name, the limited liability company shall be required to allege compliance with this section.
  6. Compliance with this section does not give a limited liability company an exclusive right to the use of the fictitious name, and the registration of a fictitious name under this section will not bar the use of the same name as the name of any domestic entity or any foreign entity authorized to do business in this state, but this chapter is not intended to bar any aggrieved party in such a situation from applying for equitable relief under principles of fair trade law.

History. Acts 1999, No. 1528, § 1; 2007, No. 15, § 3.

Publisher's Notes. Acts 1999, No. 1528, § 9, provided:

“The fictitious name provisions for limited liability companies, limited partnerships, and limited liability partnerships in Sections 1, 3 and 5 of this act [codified as §§ 4-32-108, 4-43-108, 4-42-707] shall not be applicable to any name for which an assumed name filing has been made under § 4-70-203 prior to the effective date of this act.”

4-32-109. Registered name.

  1. A foreign limited liability company may register its name, if the name is distinguishable upon the records of the Secretary of State from the names of any limited liability company, limited partnership, partnership, or corporation existing under the laws of this state or authorized to transact business in this state.
  2. A foreign limited liability company registers its name by delivering it to the Secretary of State for filing an application:
    1. Setting forth its name, or its name with any addition required by § 4-32-103, the state or country and date of its formation, and a brief description of the nature of the business in which it is engaged; and
    2. Accompanied by a certificate of existence or a document of similar import from the state or country in which it was formed.
  3. The name is registered for the applicant's exclusive use upon the effective date of the application.
    1. A foreign limited liability company whose registration is effective may renew the registration for successive years by delivering to the Secretary of State for filing a renewal application, which complies with the requirements of subsection (b) of this section, between October 1 and December 31 of the preceding year.
    2. The renewal application when filed renews the registration for the following calendar year.
    1. A foreign limited liability company whose registration is effective may thereafter qualify as a foreign limited liability company under the registered name or consent in writing to the use of that name by a limited liability company thereafter incorporated under this chapter, or by another foreign limited liability company thereafter authorized to transact business in this state.
    2. The registration terminates when the domestic limited liability company is incorporated or the foreign limited liability company qualifies or consents to the qualification of another foreign limited liability company under the registered name.

History. Acts 2001, No. 830, § 1.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Business Law, 24 U. Ark. Little Rock L. Rev. 407.

Subchapter 2 — Formation

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Research References

Am. Jur. 51 Am. Jur. 2d, Limited Liability Cos., § 1 et seq.

Ark. L. Notes.

Beard, The Small Business Tax Entity Pass Through Act—The Birth of a Duck, 1993 Ark. L. Notes 15.

C.J.S. 54 C.J.S., Limited Liability Cos., § 1 et seq.

4-32-201. Formation.

One (1) or more persons may form a limited liability company by signing or causing to be signed articles of organization and delivering the signed articles to the Secretary of State for filing. The person or persons who sign the articles of organization causing the formation of a limited liability company need not be members of the limited liability company at the time of formation or after formation has occurred.

History. Acts 1993, No. 1003, § 201.

Research References

ALR.

Construction and Application of Limited Liability Company Acts — Issues Relating to Formation of Limited Liability Company and Addition or Disassociation of Members Thereto. 43 A.L.R.6th 611.

4-32-202. Articles of organization.

The articles of organization shall set forth:

  1. A name for the limited liability company that satisfies the requirements of § 4-32-103;
  2. The information required by § 4-20-105(a); and
  3. If management of the limited liability company is vested in a manager or managers, a statement to that effect.

History. Acts 1993, No. 1003, § 202; 2001, No. 829, § 1; 2007, No. 638, § 32.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Business Law, 24 U. Ark. Little Rock L. Rev. 407.

4-32-203. Amendment of articles of organization — Restatement.

  1. The articles of organization of a limited liability company may be amended by filing articles of amendment with the Secretary of State. The articles of amendment shall set forth:
    1. The name of the limited liability company;
    2. The date the articles of organization were filed; and
    3. The amendment to the articles of organization.
  2. The articles of organization may be amended in any respects as may be desired, so long as the articles of organization as amended contain only provisions that may be lawfully contained in articles of organization at the time of making the amendment.
  3. Articles of organization may be restated at any time. Restated articles of organization shall be filed with the Secretary of State and shall be specifically designated as such in the heading and shall state either in the heading or in an introductory paragraph the limited liability company's present name and, if it has been changed, all of its former names and the date of the filing of its articles of organization.

History. Acts 1993, No. 1003, § 204.

4-32-204. Execution of documents.

  1. Unless otherwise provided in any other section of this chapter, any document required by this chapter to be filed with the Secretary of State shall be executed:
    1. By any manager if management of the limited liability company is vested in one (1) or more managers;
    2. By any member if management of the limited liability company is reserved to the members;
    3. If the limited liability company has not been formed, by the person or persons forming the limited liability company; or
    4. If the limited liability company is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary.
  2. The person executing the document shall sign it and state beneath or opposite his or her signature the person's name and the capacity in which he or she signs.
  3. The person executing the document may do so as an attorney-in-fact. Powers of attorney relating to the execution of the document need not be provided to or filed with the Secretary of State.

History. Acts 1993, No. 1003, § 310.

4-32-205. Filing with Secretary of State.

  1. The original signed copy, together with a duplicate copy that may be either a signed, photocopied, or conformed copy of the articles of organization or any other document required to be filed pursuant to this chapter, shall be delivered to the Secretary of State. If the Secretary of State determines that the documents conform to the filing provisions of this chapter, the Secretary of State shall, when all required filing fees have been paid:
    1. Endorse on each signed original and duplicate copy the word “filed” and the date and time of the document's acceptance for filing;
    2. Retain the signed original in the Secretary of State's files; and
    3. Return the duplicate copy to the person who filed it or the person's representative.
  2. If at the time any documents are delivered for filing, the Secretary of State is unable to make the determination required for filing by subsection (a) of this section, the documents are deemed to have been filed at the time of delivery if the Secretary of State subsequently determines that:
    1. The documents as delivered conform to the filing provisions of this chapter; or
    2. The documents have been brought into conformance within twenty (20) days after notification of nonconformance is given by the Secretary of State to the person who delivered the documents for filing or the person's representative.
  3. If the filing and determination requirements of this chapter are not satisfied within the time prescribed in subdivision (b)(2) of this section, the documents shall not be filed.

History. Acts 1993, No. 1003, § 311.

4-32-206. Effect of delivery or filing of articles of organization.

  1. Unless a delayed effective date is recited in the articles of organization, a limited liability company is formed when the articles of organization are delivered to the Secretary of State for filing, even if the Secretary of State is unable at the time of delivery to make the determination required for filing by § 4-32-1308. If the articles of organization, as delivered to the Secretary of State, do not conform to the filing provisions of this chapter and are not brought into conformance within the time period prescribed by § 4-32-1308, the existence of the limited liability company terminates at the end of such time period.
  2. Each copy of the articles of organization stamped “filed” and marked with the filing date is conclusive evidence that all conditions precedent required to be performed by the organizers have been complied with and that the limited liability company has been legally organized and formed under this chapter.

History. Acts 1993, No. 1003, § 203.

Subchapter 3 — Relations of Members and Managers to Persons Dealing with the Limited Liability Company

Research References

Ark. L. Notes.

Beard, The Small Business Tax Entity Pass Through Act—The Birth of a Duck, 1993 Ark. L. Notes 15.

Goforth, The Arkansas Limited Liability Company: A Call for Clarification, 1994 Ark. L. Notes 19.

Goforth, Limited Liability Partnerships: Does Arkansas Need Another Form of Business Enterprise?, 1995 Ark. L. Notes 57.

Goforth, An Update on Arkansas Limited Liability Companies: New Tax Regulations and New State Laws, 1997 Ark. L. Notes 11.

C.J.S. 54 C.J.S., Limited Liability Cos., § 1 et seq.

4-32-301. Agency power of members and managers.

  1. Except as provided in subsection (b) of this section, every member is an agent of the limited liability company for the purpose of its business or affairs, and the act of any member, including, but not limited to, the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business or affairs of the limited liability company of which he or she is a member, binds the limited liability company, unless the member so acting has, in fact, no authority to act for the limited liability company in the particular matter, and the person with whom the member is dealing has knowledge of the fact that the member has no such authority.
  2. If the articles of organization provide that management of the limited liability company is vested in a manager or managers:
    1. No member solely by reason of being a member is an agent of the limited liability company; and
    2. Every manager is an agent of the limited liability company for the purpose of its business or affairs, and the act of any manager, including, but not limited to, the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business or affairs of the limited liability company of which he or she is a manager binds the limited liability company, unless the manager so acting has, in fact, no authority to act for the limited liability company in the particular matter, and the person with whom the manager is dealing has knowledge of the fact that the manager has no such authority.
  3. An act of a manager or a member which is not apparently for the carrying on in the usual way the business or affairs of the limited liability company does not bind the limited liability company unless authorized in accordance with an operating agreement, at the time of the transaction or at any other time.
  4. No act of a manager or member in contravention of a restriction on authority shall bind the limited liability company to persons having knowledge of the restriction.

History. Acts 1993, No. 1003, § 301.

Case Notes

Liability.

In a case alleging breach of contract and breach of fiduciary duty, summary judgment was properly granted to a managing limited liability company's members and the members' respective limited liability companies since there was no privity of contract; the persons and companies at issue were not parties to the operating agreement for a water park limited liability company, and several signatures were as agents for other entities. There was no authority for the proposition that the actions of one corporation could have been imputed to another solely by their common membership and management. K.C. Props. of N.W. Ark., Inc. v. Lowell Inv. Partners, LLC, 373 Ark. 14, 280 S.W.3d 1 (2008).

4-32-302. Admissions by members and managers.

  1. Except as provided in subsection (b) of this section, an admission or representation made by any member concerning the business or affairs of a limited liability company within the scope of his or her authority as provided for by this chapter is evidence against the limited liability company.
  2. If the articles of organization provide that management of the limited liability company is vested in a manager or managers:
    1. An admission or representation made by a manager concerning the business or affairs of a limited liability company within the scope of the manager's authority as provided for by this chapter is evidence against the limited liability company; and
    2. The admission or representation of any member, acting solely in the capacity of a member, shall not constitute evidence against the limited liability company.

History. Acts 1993, No. 1003, § 302.

4-32-303. Limited liability company charged with knowledge of or notice to member or manager.

  1. Except as provided in subsection (b) of this section, notice to any member of any matter relating to the business or affairs of the limited liability company, and the knowledge of the member acting in the particular matter, acquired while a member or known at the time of becoming a member, and the knowledge of any other member who reasonably could and should have communicated the knowledge to the acting member, operate as notice to or knowledge of the limited liability company, except in the case of a fraud on the limited liability company committed by or with the consent of that member.
  2. If the articles of organization provide that management of the limited liability company is vested in a manager or managers:
    1. Notice to any manager of any matter relating to the business or affairs of the limited liability company, and the knowledge of the manager acting in the particular matter, acquired while a manager or known at the time of becoming a manager, and the knowledge of any other manager who reasonably could and should have communicated the knowledge to the acting manager, operate as notice to or knowledge of the limited liability company, except in the case of a fraud on the limited liability company committed by or with the consent of that manager; and
    2. Notice to or knowledge of any member of a limited liability company while the member is acting solely in the capacity of a member is not notice to or knowledge of the limited liability company.

History. Acts 1993, No. 1003, § 303.

Research References

ALR.

Construction and Application of Limited Liability Company Acts — Issues Relating to Liability of Limited Liability Company for Acts of Its Members, Managers, Officers, and Agents. 46 A.L.R.6th 1.

4-32-304. Liability of members to third parties.

Except for the personal liability for acts or omissions of those providing professional service as set forth in § 4-32-308, a person who is a member, manager, agent, or employee of a limited liability company is not liable for a debt, obligation, or liability of the limited liability company, whether arising in contract, tort, or otherwise or for the acts or omissions of any other member, manager, agent, or employee of the limited liability company.

History. Acts 1993, No. 1003, § 304.

Research References

ALR.

Construction and Application of Limited Liability Company Acts — Issues Relating to Personal Liability of Individual Members and Managers of Limited Liability Company as to Third Parties. 47 A.L.R.6th 1.

Ark. L. Rev.

Comment, Corporate Pre-Organization Liability in an LLC World, 61 Ark. L. Rev. 301.

Case Notes

Fraud.

Generally, the owner or agent of a limited liability company is not liable for the debts of that company under this section; however, the protections afforded to a limited liability company do not shield the owner or agent from liability for conduct that would justify a finding of fraud against that person individually. Under Arkansas law, a cause of action for fraud requires proof of five elements: (1) a false representation of material fact; (2) knowledge that the representation is false or that there is insufficient evidence upon which to make the representation; (3) intent to induce action or inaction in reliance upon the representation; (4) justifiable reliance on the representation; and (5) damage suffered as a result of the reliance. Myers v. Dewese (In re Dewese), 469 B.R. 314 (Bankr. E.D. Ark. 2012).

Member Liability.

Limited liability company and its member were bound by their pleadings, and because they admitted that both the company and its member were placing conditions on the release of insurance proceeds, they both were held liable for conversion. The circuit court did not clearly err in finding the member personally liable because the member exercised dominion and control over insurance checks in both the member's personal and business capacities as the member was personally obligated to maintain insurance on the damaged property under a lease. DWB, LLC v. D&T Pure Trust, 2018 Ark. App. 283, 550 S.W.3d 420 (2018).

Suit Against Other Members.

When both the language of this section and its title are read together, it is clear that the Arkansas Legislature has intended to prohibit suit by a third party against one member of a limited-liability company for another member's actions. K.C. Props. of N.W. Ark., Inc. v. Lowell Inv. Partners, LLC, 373 Ark. 14, 280 S.W.3d 1 (2008).

Although this section only prohibited a suit by a third party against one member of a limited liability company for another member's actions, a first member of a water park limited liability company had no cause of action against a second member or a manager where they did not commit gross negligence or willful misconduct. The sale of certain property in dispute was not effectuated by the member or the manager of the water park limited liability company. K.C. Props. of N.W. Ark., Inc. v. Lowell Inv. Partners, LLC, 373 Ark. 14, 280 S.W.3d 1 (2008).

Mere fact that a chief operating officer pursued other business ventures did not constitute a breach of the duty of loyalty and the employee's consulting business did not compete with the company in the trucking business or in any way injure the company; the evidence did not support the company's allegation that the damages they sought were proximately caused by the employee's conduct. DC Xpress, L.L.C. v. Briggs, 2009 Ark. App. 651, 343 S.W.3d 603 (2009).

4-32-305. Parties to actions.

A member of a limited liability company is not a proper party to a proceeding by or against a limited liability company, by reason of being a member of the limited liability company, except where the object of the proceeding is to enforce a member's right against or liability to the limited liability company or as otherwise provided in an operating agreement.

History. Acts 1993, No. 1003, § 305.

4-32-306. Limited liability company may render professional service — Nonprofessional employees and agents — Members and managers need not be employees, etc.

No limited liability company organized under this chapter may render professional service within this state except through its members, employees of its members, managers, employees, and agents who are duly licensed or otherwise legally authorized to render those professional services. However, this provision shall not be interpreted to preclude clerks, secretaries, bookkeepers, technicians, and other assistants who are not usually and ordinarily considered by custom and practice to be rendering professional service to the public for which a license or other legal authorization is required from acting as employees, managers, or agents of a professional limited liability company.

History. Acts 1993, No. 1003, § 306.

4-32-307. Limited liability company may qualify as executor or administrator, or in other fiduciary capacity.

A limited liability company engaged in the practice of law, as a part of the practice of law, may act as an executor, trustee, or administrator of an estate, guardian for an infant, or in any other fiduciary capacity. Any member, employee of a member, manager, employee, or agent of a limited liability company engaged in the practice of law who is duly licensed as an attorney in this state may perform necessary fiduciary responsibilities on behalf of the limited liability company.

History. Acts 1993, No. 1003, § 307.

4-32-308. Professional relationship — Personal liability.

All individuals rendering professional service may be personally liable for any results of that individual's acts or omissions. No member, employee of a member, manager, or employee of a limited liability company shall be personally liable for the acts or omission of any other member, employee of a member, manager, or employee of the limited liability company.

History. Acts 1993, No. 1003, § 308.

Research References

Ark. L. Rev.

Comment, Corporate Pre-Organization Liability in an LLC World, 61 Ark. L. Rev. 301.

4-32-309. Liability of limited liability company to third parties.

Notwithstanding the limitations on liability contained in this subchapter for members and managers, a limited liability company shall be liable to third parties for its valid obligations.

History. Acts 1993, No. 1003, § 309.

Research References

ALR.

Construction and Application of Limited Liability Company Acts — Issues Relating to Liability of Limited Liability Company for Acts of Its Members, Managers, Officers, and Agents. 46 A.L.R.6th 1.

Construction and Application of Limited Liability Company Acts — Issues Relating to Personal Liability of Individual Members and Managers of Limited Liability Company as to Third Parties. 47 A.L.R.6th 1.

Subchapter 4 — Rights and Duties of Members and Managers

Effective Dates. Acts 1997, No. 479, § 16: March 13, 1997. Emergency clause provided: “It is hereby found and determined by the General Assembly of the State of Arkansas that the limited liability company statute and other acts relating to pass through entities and related laws need amending in order to better reflect the intent and operation of those laws as originally drafted and to be consistent with current trends. Therefore an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto. Notwithstanding the foregoing, SECTION 10 of this act (§ 4-32-802(c)) shall only apply to limited liability companies in exsitence [sic] on the effective date of this act in the event an election is made with the Secretary of State to have this provision apply; otherwise, the original § 4-32-802(c) shall apply to limited liabilty companies existing on the effective date of this act.”

Research References

Am. Jur. 51 Am. Jur. 2d, Limited Liability Cos., § 1 et seq.

Ark. L. Notes.

Beard, The Small Business Tax Entity Pass Through Act—The Birth of a Duck, 1993 Ark. L. Notes 15.

Goforth, The Arkansas Limited Liability Company: A Call for Clarification, 1994 Ark. L. Notes 19.

C.J.S. 54 C.J.S., Limited Liability Cos., § 1 et seq.

4-32-401. Management.

  1. With respect to persons other than members, management of the affairs of the limited liability company shall be governed by § 4-32-301.
  2. Unless otherwise provided in an operating agreement, with respect to members, management of the affairs of the limited liability company shall be governed by § 4-32-301.
  3. Unless otherwise provided in an operating agreement, managers:
    1. Shall be designated, appointed, elected, removed, or replaced by a vote, approval, or consent of more than one-half (½) by number of the members;
    2. Need not be members of the limited liability company or natural persons; and
    3. Unless they are sooner removed or sooner resign, shall hold office until their successors shall have been elected and qualified.

History. Acts 1993, No. 1003, § 401; 1997, No. 479, § 6.

Amendments. The 1997 amendment added (a); redesignated former (a) and (b) as present (b) and (c); and rewrote present (b).

Research References

Ark. L. Notes.

Goforth, An Update on Arkansas Limited Liability Companies: New Tax Regulations and New State Laws, 1997 Ark. L. Notes 11.

4-32-402. Duties of managers and members.

Unless otherwise provided in an operating agreement:

  1. A member or manager shall not be liable, responsible, or accountable in damages or otherwise to the limited liability company or to the members of the limited liability company for any action taken or failure to act on behalf of the limited liability company unless the act or omission constitutes gross negligence or willful misconduct;
  2. Every member and manager must account to the limited liability company and hold as trustee for it any profit or benefit derived by that person without the consent of more than one-half (½) by number of the disinterested managers or members, or other persons participating in the management of the business or affairs of the limited liability company, from any transaction connected with the conduct or winding up of the limited liability company or any use by the member or manager of its property, including, but not limited to, confidential or proprietary information of the limited liability company or other matters entrusted to the person as a result of his or her status as manager or member; and
  3. One who is a member of a limited liability company in which management is vested in managers under § 4-32-401 and who is not a manager shall have no duties to the limited liability company or to the other members solely by reason of acting in the capacity of a member.

History. Acts 1993, No. 1003, § 402.

Research References

ALR.

Construction and Application of Limited Liability Company Acts — Issues Relating to Derivative Actions and Actions Between Members of Limited Liability Company. 48 A.L.R.6th 1.

Ark. L. Rev.

A License to Lie, Cheat, and Steal? Restriction or Elimination of Fiduciary Duties in Arkansas Limited Liability Companies, 60 Ark. L. Rev. 643.

Case Notes

Fiduciary Duty of Loyalty.

Duty of loyalty that Chapter 7 debtor owed to his LLC and its other member under Arkansas law pre-existed and was independent of wrongful conduct that gave rise to state court judgment against him. Bankruptcy court erred by failing to give collateral estoppel effect to finding that debtor acted in fiduciary capacity, as his fiduciary duty of loyalty as determined by state court was equivalent to finding that he acted in fiduciary capacity as required for nondischargeability. Clear Sky Props. LLC v. Roussel (In re Roussel), 504 B.R. 510 (E.D. Ark. 2013).

Suit Against Other Members

Although § 4-32-304 only prohibited a suit by a third party against one member of a limited liability company for another member's actions, a first member of a water park limited liability company had no cause of action against a second member or a manager where they did not commit gross negligence or willful misconduct. The sale of certain property in dispute was not effectuated by the member or the manager of the water park limited liability company. K.C. Props. of N.W. Ark., Inc. v. Lowell Inv. Partners, LLC, 373 Ark. 14, 280 S.W.3d 1 (2008).

Where the creditors and debtors were members of a limited liability company (LLC), although both Arkansas case law and subdivision (2) of this section supported the creation of a fiduciary relationship between members of the LLC and the LLC even in the absence of an express or technical trust, that relationship did not necessarily extend to other members of the LLC. Although the payment by the LLC of the debtor wife's professional dues was not authorized by the operating agreement, the creditors could not, in their own right, claim a fraudulent appropriation that would give rise to embezzlement under 11 U.S.C. § 523(a)(4), as they failed to assert a direct injury separate and distinct from any injury suffered by the LLC. Lewis v. Spivey (In re Spivey), 440 B.R. 539 (Bankr. W.D. Ark. 2010).

4-32-403. Voting.

  1. Unless otherwise provided in an operating agreement or this chapter, and subject to subsection (b) of this section, the affirmative vote, approval or consent of more than one-half (½) by number of the members, if management of the limited liability company is vested in the members, or of the managers if the management of the limited liability company is vested in managers, shall be required to decide any matter connected with the business of the limited liability company.
  2. Unless otherwise provided in writing in an operating agreement, the affirmative vote, approval, or consent of all members shall be required to:
    1. Amend a written operating agreement; or
    2. Authorize a manager or member to do any act on behalf of the limited liability company that contravenes a written operating agreement, including any written provision thereof which expressly limits the purpose, business, or affairs of the limited liability company or the conduct thereof.

History. Acts 1993, No. 1003, § 403.

4-32-404. Limitation of liability and indemnification of members and managers.

An operating agreement which is in writing may:

  1. Eliminate or limit the personal liability of a member or manager for monetary damages for breach of any duty provided for in § 4-32-402; and
  2. Provide for indemnification of a member or manager for judgments, settlements, penalties, fines, or expenses incurred in a proceeding to which a person is a party because the person is or was a member or manager.

History. Acts 1993, No. 1003, § 404.

Research References

Ark. L. Rev.

A License to Lie, Cheat, and Steal? Restriction or Elimination of Fiduciary Duties in Arkansas Limited Liability Companies, 60 Ark. L. Rev. 643.

4-32-405. Records and information.

  1. Unless otherwise provided in writing in an operating agreement, a limited liability company shall keep at its principal place of business the following:
    1. A current and a past list, setting forth the full name and last known mailing address of each member and manager, if any, set forth in alphabetical order;
    2. A copy of the articles of organization and all amendments thereto, together with executed copies of any powers of attorney pursuant to which the articles of amendment have been executed;
    3. Copies of the limited liability company's federal, state, and local income tax returns and financial statements, if any, for the three (3) most recent years or, if those returns and statements were not prepared for any reason, copies of the information and statements provided to, or which should have been provided to, the members to enable them to prepare their federal, state, and local tax returns for the period;
    4. Copies of any effective written operating agreements, and all amendments thereto, and copies of any written operating agreements no longer in effect; and
    5. Unless contained in writing in an operating agreement:
      1. A writing, if any, setting forth the amount of cash and a statement of the agreed value of other property or services contributed by each member and the times at which or events upon the happening of which any additional contributions are to be made by each member;
      2. A writing, if any, stating events upon the happening of which the limited liability company is to be dissolved and its affairs wound up; and
      3. Other writings, if any, prepared pursuant to a requirement in an operating agreement.
  2. Upon reasonable request, a member may, at the member's own expense, inspect and copy during ordinary business hours any limited liability company record, wherever the record is located.
  3. Members, if the management of the limited liability company is vested in the members, or managers, if management of the limited liability company is vested in managers, shall render, to the extent the circumstances render it just and reasonable, true and full information of all things affecting the members to any member and to the legal representative of any deceased member or of any member under legal disability.
  4. Failure of the limited liability company to keep or maintain any of the records or information required pursuant to this section shall not be grounds for imposing liability on any member or manager for the debts and obligations of the limited liability company.

History. Acts 1993, No. 1003, § 405.

Subchapter 5 — Finance

4-32-501. Contributions to capital.

A limited liability company interest may be issued in exchange for property, services rendered, or a promissory note or other obligation to contribute cash or property or to perform services.

History. Acts 1993, No. 1003, § 501.

4-32-502. Liability for contributions.

  1. A promise by a member to contribute to the limited liability company is not enforceable unless set forth in a writing signed by the member.
  2. Unless otherwise provided in an operating agreement, a member is obligated to the limited liability company to perform any enforceable promise to contribute cash or property or to perform services, even if the member is unable to perform because of death, disability, or other reason.
  3. If a member does not make the required contribution of property or services, the member is obligated, at the option of the limited liability company, to contribute cash equal to that portion of value of the stated contribution that has not been made.
  4. Unless otherwise provided in an operating agreement, the obligation of a member to make a contribution may be compromised only with the unanimous consent of the members.
  5. Only a creditor of a limited liability company who extends credit in reliance on an obligation to contribute or otherwise acts in reliance on that obligation to contribute after the member signs a writing which reflects the obligation to contribute pursuant to subsection (d) of this section may enforce any obligation to contribute.

History. Acts 1993, No. 1003, § 502.

4-32-503. Sharing of profits.

Unless otherwise provided in writing in an operating agreement, each member shall be repaid that member's contributions to capital and share equally in the profits and assets remaining after all liabilities, including those to members, are satisfied.

History. Acts 1993, No. 1003, § 503.

Subchapter 6 — Distributions and Withdrawal

Research References

Am. Jur. 51 Am. Jur. 2d, Limited Liability Cos., § 1 et seq.

4-32-601. Sharing of interim distributions.

Except as otherwise provided in §§ 4-32-602 and 4-32-905, distributions of cash or other assets of a limited liability company shall be shared among the members and among classes of members in the manner provided in writing in an operating agreement. If an operating agreement does not so provide in writing, each member shall share equally in any distribution. A member is entitled to receive distributions described in this section from a limited liability company to the extent and at the times or upon the happening of the events specified in an operating agreement or at the times determined by the members or managers pursuant to § 4-32-403.

History. Acts 1993, No. 1003, § 601.

4-32-602. Distributions on an event of dissociation.

Upon the occurrence of an event of dissociation under § 4-32-802 which does not cause dissolution, other than an event of dissociation described in § 4-32-802(a)(3)(B), a dissociating member is entitled to receive any distribution which the member was entitled to receive prior to the event of dissociation. If an operating agreement does not provide the amount of or a method for determining the distribution to a dissociating member, the member shall receive within a reasonable time after dissociation the fair value of the member's interest in the limited liability company as of the date of dissociation based upon the member's right to share in distributions from the limited liability company.

History. Acts 1993, No. 1003, § 602.

4-32-603. Distribution in kind.

Unless otherwise provided in an operating agreement:

  1. A member, regardless of the nature of the member's contribution, has no right to demand and receive any distribution from the limited liability company in any form other than cash; and
  2. A member may not be compelled to accept from the limited liability company a distribution of any asset in kind to the extent that the percentage of the asset distributed to the member exceeds the percentage that the member would have shared in a cash distribution equal to the value of the property at the time of distribution.

History. Acts 1993, No. 1003, § 603.

4-32-604. Right to distribution.

At the time a member becomes entitled to receive a distribution, the member has the status of and is entitled to all remedies available to a creditor of the limited liability company with respect to that distribution.

History. Acts 1993, No. 1003, § 604.

Subchapter 7 — Ownership and Transfer of Property

Research References

Ark. L. Notes.

Beard, The Small Business Tax Entity Pass Through Act—The Birth of a Duck, 1993 Ark. L. Notes 15.

Goforth, Limited Liability Partnerships: Does Arkansas Need Another Form of Business Enterprise?, 1995 Ark. L. Notes 57.

C.J.S. 54 C.J.S., Limited Liability Cos., § 1 et seq.

4-32-701. Ownership of limited liability company property.

  1. Property transferred to or otherwise acquired by a limited liability company is property of the limited liability company and not of the members individually.
  2. Property may be acquired, held, and conveyed in the name of the limited liability company. Any interest in real property may be acquired in the name of the limited liability company, and title to any interest so acquired shall vest in the limited liability company rather than in the members individually.

History. Acts 1993, No. 1003, § 701.

4-32-702. Transfer of real property.

  1. If the articles of organization do not provide that management is vested in a manager or managers, then property of the limited liability company held in the name of the limited liability company may be transferred by an instrument of transfer executed by any member in the name of the limited liability company.
  2. Property of the limited liability company that is held in the name of one (1) or more members or managers with an indication in the instrument transferring the property to them of their capacity as members or managers of a limited liability company or of the existence of a limited liability company, if the name of the limited liability company is not indicated, may be transferred by an instrument of transfer executed by the persons in whose name title is held.
  3. Property transferred under subsections (a) and (b) of this section may be recovered by the limited liability company only if it proves that the person executing the instrument had no authority to do so, and the initial transferee had knowledge of the lack of authority unless the property has been transferred by the initial transferee or a person claiming through the initial transferee to a subsequent transferee who gives value without having notice that the person who executed the instrument of initial transfer lacked authority to bind the limited liability company.
  4. Property of the limited liability company held in the name of one (1) or more persons other than the limited liability company without an indication in the instrument transferring title to the property to them of their capacity as members or managers of a limited liability company or of the existence of a limited liability company may be transferred free of any claims of the limited liability company or the members by the persons in whose name title is held to a transferee who gives value without having notice that it is property of the limited liability company.
  5. If the articles of organization provide that management of the limited liability company is vested in a manager or managers:
    1. Title to property of the limited liability company that is held in the name of the limited liability company may be transferred by an instrument of transfer executed by any manager in the name of the limited liability company; and
    2. A member, solely by reason of being a member, shall not have authority to transfer property of the limited liability company.

History. Acts 1993, No. 1003, § 702.

4-32-703. Nature of limited liability company interest.

A limited liability company interest is personal property.

History. Acts 1993, No. 1003, § 703.

4-32-704. Assignment of interest.

  1. Unless otherwise provided in writing in an operating agreement:
    1. A limited liability company interest is assignable in whole or in part;
    2. An assignment entitles the assignee to receive, to the extent assigned, only the distributions to which the assignor would be entitled;
    3. An assignment of a limited liability company interest does not dissolve the limited liability company or entitle the assignee to participate in the management and affairs of the limited liability company or to become or exercise any rights of a member;
    4. Until the assignee of a limited liability company interest becomes a member, the assignor continues to be a member and to have the power to exercise any rights of a member, subject to the member's right to remove the assignor pursuant to § 4-32-802(a)(3)(B);
    5. Until an assignee of a limited liability company interest becomes a member, the assignee has no liability, if any, as a member solely as a result of the assignment; and
    6. The assignor of a limited liability company interest is not released from his or her liability as a member solely as a result of the assignment.
  2. An operating agreement may provide that a member's limited liability company interest may be evidenced by a certificate of limited liability company interest issued by the limited liability company and may also provide for the assignment or transfer of any interest represented by the certificate.

History. Acts 1993, No. 1003, § 704.

4-32-705. Rights of judgment creditor.

    1. On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member's limited liability company interest with payment of the unsatisfied amount of judgment with interest.
    2. To the extent so charged, the judgment creditor has only the rights of an assignee of the member's limited liability company interest.
    3. This chapter does not deprive any member of the benefit of any exemption laws applicable to his or her limited liability company interest.
  1. Upon the filing of a charging application by a judgment creditor of a member under subdivision (a)(1) of this section and the recording of the charging application in the register of the Secretary of State as required under subsection (c) of this section, a temporary lien is created in favor of the judgment creditor against the member's membership interest in the limited liability company interest until a ruling by the court is entered on the record or the application is dismissed.
  2. The Secretary of State shall:
    1. Create a register within the Uniform Commercial Code lien filings for charging applications received under subsection (b) of this section; and
    2. Maintain the register so that the register can be searched in the same manner as the lien filings of the Uniform Commercial Code, § 4-1-101 et seq.

History. Acts 1993, No. 1003, § 705; 2019, No. 622, § 1.

Amendments. The 2019 amendment added the (a)(1) through (a)(3) designations; and added (b) and (c).

4-32-706. Right of assignee to become member.

  1. Unless otherwise provided in writing in an operating agreement, an assignee of a limited liability company interest may become a member only if the other members unanimously consent. The consent of a member may be evidenced in any manner specified in writing in an operating agreement, but in the absence of specification, consent shall be evidenced by a written instrument dated and signed by the member.
  2. An assignee who becomes a member has to the extent assigned the rights and powers and is subject to the restrictions and liabilities of a member under the articles of organization, any operating agreement, and this chapter. An assignee who becomes a member also is liable for any obligations of the assignor to make contributions under § 4-32-502. However, the assignee is not obligated for liabilities of which the assignee had no knowledge at the time he or she became a member and which could not be ascertained from the written records of the limited liability company kept pursuant to § 4-32-405.
  3. Whether or not an assignee of a limited liability company interest becomes a member, the assignor is not released from his or her liability, if any, to the limited liability company under § 4-32-502.
  4. Unless otherwise provided in writing in an operating agreement, a member who assigns his or her entire limited liability company interest ceases to be a member or to have the power to exercise any rights of a member when the assignee becomes a member with respect to the entire assigned interest.

History. Acts 1993, No. 1003, § 706.

4-32-707. Powers of estate of deceased or incompetent member.

If a member who is an individual dies or a court of competent jurisdiction adjudges the member to be incompetent to manage his or her person or property, the member's executor, administrator, guardian, conservator, or other legal representative shall have all of the rights of an assignee of the member's interest.

History. Acts 1993, No. 1003, § 707.

Subchapter 8 — Admission and Withdrawal of Members

Effective Dates. Acts 1997, No. 479, § 16: March 13, 1997. Emergency clause provided: “It is hereby found and determined by the General Assembly of the State of Arkansas that the limited liability company statute and other acts relating to pass through entities and related laws need amending in order to better reflect the intent and operation of those laws as originally drafted and to be consistent with current trends. Therefore an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto. Notwithstanding the foregoing, SECTION 10 of this act (§ 4-32-802(c)) shall only apply to limited liability companies in exsitence [sic] on the effective date of this act in the event an election is made with the Secretary of State to have this provision apply; otherwise, the original § 4-32-802(c) shall apply to limited liabilty companies existing on the effective date of this act.”

Acts 1999, No. 1528, § 13: Apr. 15, 1999. Emergency clause provided: “It is hereby found and determined by the Eighty-second General Assembly that the Small Business Entity Tax Pass Through Act and the Revised Limited Partnership Act of 1991 and other related acts and related laws need amending in order to better reflect the intent and operation of those laws. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto. Notwithstanding the foregoing, Section 4 of this act shall only apply to limited liability companies in existence on the effective date of this act in the event an election is made with the Secretary of State to have this provision apply; otherwise, the original § 4-32-802, as amended, shall apply to limited liability companies existing on the effective date of this act.”

Research References

Ark. L. Notes.

Beard, The Small Business Tax Entity Pass Through Act—The Birth of a Duck, 1993 Ark. L. Notes 15.

Goforth, An Update on Arkansas Limited Liability Companies: New Tax Regulations and New State Laws, 1997 Ark. L. Notes 11.

4-32-801. Admission of members.

  1. Subject to subsection (b) of this section, a person may become a member in a limited liability company:
    1. In the case of a person acquiring a limited liability company interest directly from the limited liability company, upon compliance with an operating agreement or, if an operating agreement does not so provide in writing, upon the written consent of all members; and
    2. In the case of an assignee of a limited liability company interest, as provided in § 4-32-706.
  2. The effective time of admission of a member to a limited liability company shall be the later of:
    1. The date the limited liability company is formed; or
    2. The time provided in an operating agreement or, if no such time is provided therein, then when the person's admission is reflected in the records of the limited liability company.

History. Acts 1993, No. 1003, § 801.

Research References

ALR.

Construction and Application of Limited Liability Company Acts — Issues Relating to Formation of Limited Liability Company and Addition or Disassociation of Members Thereto. 43 A.L.R.6th 611.

4-32-802. Events of dissociation.

  1. A person ceases to be a member of a limited liability company upon the occurrence of one (1) or more of the following events:
    1. The member withdraws by voluntary act from the limited liability company as provided in subsection (c) of this section;
    2. The member ceases to be a member of the limited liability company as provided in § 4-32-706;
    3. The member is removed as a member:
      1. In accordance with an operating agreement; or
      2. Unless otherwise provided in writing in an operating agreement, when the member assigns all of his or her interest in the limited liability company, by an affirmative vote of a majority of the members who have not assigned their interests;
    4. Unless otherwise provided in writing in an operating agreement or by the written consent of all members at the time, the member:
      1. Makes an assignment for the benefit of creditors;
      2. Files a voluntary petition in bankruptcy;
      3. Is adjudicated a bankrupt or insolvent;
      4. Files a petition or answer seeking for the member any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or rule;
      5. Files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the member in any proceeding of the nature described in subdivision (a)(4)(D) of this section; or
      6. Seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of the member or of all or any substantial part of the member's properties;
    5. Unless otherwise provided in writing in an operating agreement or by the written consent of all members at the time, if:
      1. Within one hundred twenty (120) days after the commencement of any proceeding against the member seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or rule, the proceeding has not been dismissed; or
        1. Within one hundred twenty (120) days after the appointment without his or her consent or acquiescence of a trustee, receiver, or liquidator of the member or of all or any substantial part of his or her properties, the appointment is not vacated or stayed; or
        2. Within one hundred twenty (120) days after the expiration of any stay, the appointment is not vacated;
    6. Unless otherwise provided in writing in an operating agreement or by the written consent of all members at the time, in the case of a member who is an individual:
      1. The member's death; or
      2. The entry of an order by a court of competent jurisdiction adjudicating the member incompetent to manage his or her person or estate;
    7. Unless otherwise provided in writing in an operating agreement or by the written consent of all members at the time, in the case of a member who is a trust or is acting as a member by virtue of being a trustee of a trust, the termination of the trust, but not merely the substitution of a new trustee;
    8. Unless otherwise provided in writing in an operating agreement or by the written consent of all members at the time, in the case of a member that is a separate limited liability company, the dissolution and commencement of winding up of the separate limited liability company;
    9. Unless otherwise provided in writing in an operating agreement or by the written consent of all members at the time, in the case of a member that is a corporation, the filing of a certificate of its dissolution or the equivalent for the corporation or the revocation of its charter and the lapse of ninety (90) days after notice to the corporation of revocation without reinstatement of its charter; or
    10. Unless otherwise provided in writing in an operating agreement or by the written consent of all members at the time, in the case of an estate, the distribution by the fiduciary of the estate's entire interest in the limited liability company.
  2. The members may provide in writing in an operating agreement for other events, the occurrence of which shall result in a person's ceasing to be a member of the limited liability company.
  3. A member may withdraw from a limited liability company only at the time or upon the happening of an event specified in the articles of organization or an operating agreement. Unless the articles of organization or an operating agreement provides otherwise, a member may not withdraw from a limited liability company prior to the dissolution and winding up of the limited liability company.

History. Acts 1993, No. 1003, § 802; 1997, No. 479, § 10; 1999, No. 1528, § 4; 2019, No. 315, §§ 125, 126.

Publisher's Notes. Acts 1999, No. 1528, § 13, provided, in part:

“Section 4 of this act shall only apply to limited liability companies in existence on the effective date of this act in the event an election is made with the Secretary of State to have this provision apply; otherwise, the original § 4-32-802, as amended, shall apply to limited liability companies existing on the effective date of this act.”

Acts 1999, No. 1528, § 4 amended only subsection (c) of this section. Prior to its 1999 amendment, subsection (c) of this section read as follows:

“(c) Unless an operating agreement provides in writing that a member has no power to withdraw by voluntary act from a limited liability company, the member may do so at any time by giving thirty (30) days' written notice to the other members, or such other notice as is provided for in an operating agreement. If the member has the power to withdraw but the withdrawal is a breach of an operating agreement, or the withdrawal occurs as a result of otherwise wrongful conduct of the member, the limited liability company may recover from the withdrawing member damages for breach of the operating agreement or as a result of the wrongful conduct, including the reasonable cost of obtaining replacement of the services the withdrawn member was obligated to perform and may offset the damages against the amount otherwise distributable to him, in addition to pursuing any remedies provided for in an operating agreement or otherwise available under applicable law. Unless otherwise provided in an operating agreement, in the case of a limited liability company for a definite term or particular undertaking, a member may not withdraw from the limited liability company before the expiration of that term or undertaking.”

Amendments. The 1997 amendment substituted “a member may not withdraw from the limited liability company before the expiration of that term or undertaking” for “a withdrawal by a member before the expiration of that term is a breach of the operating agreement” in the last sentence in (c).

The 1999 amendment rewrote (c).

The 2019 amendment substituted “rule” for “regulation” in (a)(4)(D) and (a)(5)(A).

Research References

ALR.

Construction and Application of Limited Liability Company Acts — Issues Relating to Formation of Limited Liability Company and Addition or Disassociation of Members Thereto. 43 A.L.R.6th 611.

Case Notes

Bankruptcy.

Provision of subdivision (a)(4)(B) of this section did not automatically terminate a bankruptcy debtor's membership in a limited liability company (LLC) due to the debtor's bankruptcy since, under 11 U.S.C. § 541(c)(1), the debtor's interest in the LLC was bankruptcy estate property regardless of any nonbankruptcy law providing for such termination conditioned upon the debtor's bankruptcy, and thus subdivision (a)(4)(B) was unenforceable as conflicting with federal law. Duncan v. Dixie Mgmt. & Inv., Ltd. Partners (In re Dixie Mgmt. & Inv. Ltd. Partners), 474 B.R. 698 (Bankr. W.D. Ark. 2011).

Subchapter 9 — Dissolution

Effective Dates. Acts 1999, No. 1528, § 13: Apr. 15, 1999. Emergency clause provided: “It is hereby found and determined by the Eighty-second General Assembly that the Small Business Entity Tax Pass Through Act and the Revised Limited Partnership Act of 1991 and other related acts and related laws need amending in order to better reflect the intent and operation of those laws. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto. Notwithstanding the foregoing, Section 4 of this act shall only apply to limited liability companies in existence on the effective date of this act in the event an election is made with the Secretary of State to have this provision apply; otherwise, the original § 4-32-802, as amended, shall apply to limited liability companies existing on the effective date of this act.”

Acts 2007, No. 638, § 70: Sept. 1, 2007.

Research References

Am. Jur. 51 Am. Jur. 2d, Limited Liability Cos., § 35 et seq.

59A Am. Jur. 2d, Partn., §§ 1402-1407.

Ark. L. Notes.

Beard, The Small Business Tax Entity Pass Through Act—The Birth of a Duck, 1993 Ark. L. Notes 15.

C.J.S. 54 C.J.S., Limited Liability Cos., § 75 et seq.

68 C.J.S., Partn., §§ 440, 441.

4-32-901. Dissolution.

A limited liability company is dissolved and its affairs shall be wound up upon the happening of the first to occur of the following:

  1. At the time or upon the occurrence of events specified in writing in the articles of organization or an operating agreement, but if no such time is set forth in either of the foregoing, then the limited liability company shall have a perpetual existence;
  2. The written consent of all members;
  3. At any time there are no members, provided that, unless otherwise provided in the articles of organization or an operating agreement, the limited liability company is not dissolved and is not required to be wound up if within ninety (90) days or such other period as is provided for in the articles of organization or an operating agreement after the occurrence of the event that terminated the continued membership of the last remaining member, the personal representative of the last remaining member agrees in writing to continue the limited liability company and to the admission of the personal representative of the member or its nominee or designee to the limited liability company as a member, effective as of the occurrence of the event that terminated the continued membership of the last remaining member; and
  4. The entry of a decree of judicial dissolution under § 4-32-902.

History. Acts 1993, No. 1003, § 901; 1999, No. 1528, § 2.

Amendments. The 1999 amendment rewrote this section.

Research References

ALR.

Construction and Application of Limited Liability Company Acts — Issues Relating to Dissolution and Winding Up of Affairs of Limited Liability Company. 49 A.L.R.6th 1.

Case Notes

Dissolution Denied.

Bankruptcy court could neither recognize the dissolution of an LLC nor judicially dissolve the LLC because dissolution of an Arkansas LLC occurred upon the happening of one of four enumerated events, none of which had occurred. Further, judicial dissolution was reserved by statute for a circuit court within the state of Arkansas, and the court would not expand the definition of circuit court to include a federal bankruptcy court. Caldwell v. Powell (In re Powell), 580 B.R. 822 (Bankr. E.D. Ark. 2018).

4-32-902. Judicial dissolution.

On application by or for a member, a circuit court may decree dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business of the limited liability company in conformity with the operating agreement.

History. Acts 1993, No. 1003, § 902.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

Research References

ALR.

Construction and Application of Limited Liability Company Acts — Issues Relating to Dissolution and Winding Up of Affairs of Limited Liability Company. 49 A.L.R.6th 1.

Case Notes

Bankruptcy Court Could Not Dissolve LLC.

Bankruptcy court could neither recognize the dissolution of an LLC nor judicially dissolve the LLC because dissolution of an Arkansas LLC occurred upon the happening of one of four enumerated events, none of which had occurred. Further, judicial dissolution was reserved by statute for a circuit court within the state of Arkansas, and the court would not expand the definition of circuit court to include a federal bankruptcy court. Caldwell v. Powell (In re Powell), 580 B.R. 822 (Bankr. E.D. Ark. 2018).

4-32-903. Winding up.

Unless otherwise provided in writing in an operating agreement:

  1. The business or affairs of the limited liability company may be wound up:
    1. By the members or managers who have authority to manage the limited liability company prior to dissolution pursuant to § 4-32-401; or
    2. If one (1) or more of such members or managers have engaged in wrongful conduct, or upon other cause shown, by a circuit court on application of any member or any member's legal representative or assignee.
  2. The persons winding up the business or affairs of the limited liability company may, in the name of, and for and on behalf of, the limited liability company:
    1. Prosecute and defend suits;
    2. Settle and close the business of the limited liability company;
    3. Dispose of and transfer the property of the limited liability company;
    4. Discharge the liabilities of the limited liability company; and
    5. Distribute to the members any remaining assets of the limited liability company.

History. Acts 1993, No. 1003, § 903.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

Research References

ALR.

Construction and Application of Limited Liability Company Acts — Issues Relating to Dissolution and Winding Up of Affairs of Limited Liability Company. 49 A.L.R.6th 1.

Case Notes

Cited: Longing Family Revocable Trust v. Snowden, 2013 Ark. App. 81, 426 S.W.3d 488 (2013).

4-32-904. Agency power of managers or members after dissolution.

  1. Except as provided in subsections (c)-(e) of this section, after dissolution of the limited liability company, each of the members having authority to wind up the limited liability company's business and affairs can bind the limited liability company:
    1. By any act appropriate for winding up the limited liability company's affairs or completing transactions unfinished at dissolution; and
    2. By any transaction that would have bound the limited liability company if it had not been dissolved, if the other party to the transaction does not have notice of the dissolution.
  2. The filing of the articles of dissolution shall be presumed to constitute notice of dissolution for purposes of subdivision (a)(2) of this section.
  3. An act of a member which is not binding on the limited liability company pursuant to subsection (a) of this section is binding if it is otherwise authorized by the limited liability company.
  4. An act of a member which would be binding under subsection (a) of this section or would be otherwise authorized but which is in contravention of a restriction on authority shall not bind the limited liability company to persons having knowledge of the restriction.
  5. If the articles of organization vest management of the limited liability company in managers, a manager shall have the authority of a member provided for in subsection (a) of this section, and no member shall have such authority if the member is acting solely in the capacity of a member.

History. Acts 1993, No. 1003, § 904.

4-32-905. Distribution of assets.

Upon the winding up of a limited liability company, the assets shall be distributed as follows:

  1. Payment, or adequate provision for payment, shall be made to creditors, including, to the extent permitted by law, members who are creditors in satisfaction of liabilities of the limited liability company;
  2. Unless otherwise provided in writing in an operating agreement, to members or former members in satisfaction of liabilities for distributions under §§ 4-32-601 and 4-32-602; and
  3. Unless otherwise provided in writing in an operating agreement, to members and former members first for the return of their contribution and second in proportion to the members' respective rights to share in distributions from the limited liability company prior to dissolution.

History. Acts 1993, No. 1003, § 905.

4-32-906. Articles of dissolution.

After the dissolution of the limited liability company pursuant to § 4-32-901, the limited liability company may file articles of dissolution with the Secretary of State which set forth:

  1. The name of the limited liability company;
  2. The date of filing of its articles of organization and all amendments thereto;
  3. The reason for filing the articles of dissolution;
  4. The effective date, which shall be a date certain, of the articles of dissolution if they are not to be effective upon the filing; and
  5. Any other information the members or managers filing the certificate shall deem proper.

History. Acts 1993, No. 1003, § 906.

4-32-907. Known claims against dissolved limited liability company.

  1. Upon dissolution, a limited liability company may dispose of the known claims against it by filing articles of dissolution pursuant to § 4-32-906 and following the procedures described in this section.
  2. The limited liability company shall notify its known claimants in writing of the dissolution at any time after the effective date of dissolution. The written notice must:
    1. Describe information that must be included in a claim;
    2. Provide a mailing address where a claim may be sent;
    3. State the deadline, which may not be less than one hundred twenty (120) days after the later of the date of the written notice or the filing of articles of dissolution pursuant to § 4-32-906, by which the limited liability company must receive the claim; and
    4. State that the claim will be barred if not received by the deadline.
  3. A claim against the limited liability company is barred:
    1. If a claimant who was given written notice under subsection (b) of this section does not deliver the claim to the limited liability company by the deadline; or
    2. If a claimant whose claim was rejected by the limited liability company does not commence a proceeding to enforce the claim within ninety (90) days after the date of the rejection notice or deemed rejection.
  4. For purposes of this section, “claim” does not include a contingent liability or a claim based on an event occurring after the effective date of dissolution.
  5. Provided, that any claim not responded to by the limited liability company within thirty (30) days after receipt shall be deemed to have been rejected.

History. Acts 1993, No. 1003, § 907.

4-32-908. Unknown claims against dissolved limited liability company.

  1. A limited liability company may publish notice of its dissolution pursuant to this section which requests that persons with claims against the limited liability company present them in accordance with the notice.
  2. The notice must:
    1. Be published one (1) time in a newspaper of general circulation in the county where the limited liability company's principal office is located or in a newspaper of general circulation in Pulaski County if the company does not have a principal office in this state;
    2. Describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and
    3. State that a claim against the limited liability company will be barred unless a proceeding to enforce the claim is commenced within the earlier of five (5) years after the publication of the notice or the expiration of the applicable period of limitations otherwise provided under law.
  3. If the limited liability company publishes a newspaper notice in accordance with subsection (b) of this section and files articles of dissolution pursuant to § 4-32-906, the claim of each of the following claimants is barred unless the claimant commences a proceeding to enforce the claim against the limited liability company within the earlier of the applicable period of limitations otherwise provided under law or five (5) years after the later of the publication date of the newspaper notice or the filing of the articles of dissolution:
    1. A claimant who did not receive written notice under § 4-32-907; or
    2. A claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
  4. A claim may be enforced under this section:
    1. Against the limited liability company, to the extent of its undistributed assets; or
    2. If the assets have been distributed in liquidation, against a member of the limited liability company to the extent of his or her pro rata share of the claim or the assets of the limited liability company distributed to him or her in liquidation, whichever is less, but a member's total liability for all claims under this section may not exceed the total amount of assets distributed to him or her in liquidation.

History. Acts 1993, No. 1003, § 908; 2007, No. 638, § 33.

Subchapter 10 — Foreign Limited Liability Companies

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2007, No. 646, § 14: July 1, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that business entities are presently paying different fees for similar services from the Secretary of State; that this act will alleviate any undue hardship to any entity by standardizing business and commercial filing fees; and that this act is immediately necessary to aid the recordkeeping and accounting functions of the Secretary of State and should take effect at the beginning of the state's fiscal year. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2007.”

Research References

Ark. L. Notes.

Goforth, Limited Liability Partnerships: Does Arkansas Need Another Form of Business Enterprise?, 1995 Ark. L. Notes 57.

4-32-1001. Law governing.

Subject to the Arkansas Constitution, the laws of the state or other jurisdiction under which a foreign limited liability company is organized shall govern its organization and internal affairs and the liability and authority of its managers and members. A foreign limited liability company may not be denied registration by reason of any difference between those laws and the laws of this state.

History. Acts 1993, No. 1003, § 1001.

4-32-1002. Registration.

Before transacting business in this state, a foreign limited liability company shall register with the Secretary of State by submitting to the Secretary of State an original signed copy of an application for registration as a foreign limited liability company executed by a person with authority to do so under the laws of the state or other jurisdiction of its formation. The application shall set forth:

  1. The name of the foreign limited liability company and if the company's name is unavailable for use in this state, the name under which it proposes to transact business in this state;
  2. The state or other jurisdiction where formed and the date of its formation;
  3. The information required by § 4-20-105(a);
  4. A statement confirming that the foreign limited liability company has filed a statement appointing an agent for service of process under § 4-20-112 and may be served with process under § 4-20-113 if the foreign limited liability company fails to appoint or maintain a registered agent for service of process;
  5. The address of the office required to be maintained in the state or other jurisdiction of its formation by the laws of that state or jurisdiction or, if not so required, of the principal office of the foreign limited liability company; and
  6. A statement evidencing that the foreign limited liability company is a “foreign limited liability company” as defined in § 4-32-102(5).

History. Acts 1993, No. 1003, § 1002; 2007, No. 638, § 34; 2007, No. 646, § 5; 2009, No. 814, § 5.

Amendments. The 2009 amendment rewrote (4).

4-32-1003. Issuance of registration.

  1. If the Secretary of State finds that an application for registration conforms to the provisions of this chapter and all requisite fees have been paid, the Secretary of State shall:
    1. Endorse on each signed original and duplicate copy the word “filed” and the date and time of its acceptance for filing;
    2. Retain the signed original in the Secretary of State's files; and
    3. Return the duplicate copy to the person who filed it or the person's representative.
  2. If the Secretary of State is unable to make the determination required for filing by subsection (a) of this section at the time any documents are delivered for filing, the documents are deemed to have been filed at the time of delivery if the Secretary of State subsequently determines that:
    1. The documents as delivered conform to the filing provisions of this chapter; or
    2. Within twenty (20) days after notification of nonconformance is given by the Secretary of State to the person who delivered the documents for filing or the person's representative, the documents are brought into conformance.
  3. If the filing and determination requirements of this chapter are not satisfied within the time prescribed in subdivision (b)(2) of this section, the documents shall not be filed.

History. Acts 1993, No. 1003, § 1003.

4-32-1004. Name.

No certificate of registration shall be issued to a foreign limited liability company unless the name of the company satisfies the requirements of § 4-32-103. If the name under which a foreign limited liability company is registered in the jurisdiction of its formation does not satisfy the requirements of § 4-32-103, to obtain or maintain a certificate of registration the foreign limited liability company may use a designated name that is available and which satisfies the requirements of § 4-32-103.

History. Acts 1993, No. 1003, § 1004.

4-32-1005. Amendments.

  1. The application for registration of a foreign limited liability company is amended by filing articles of amendment with the Secretary of State signed by a person with authority to do so under the laws of the state or other jurisdiction of its formation. The articles of amendment shall set forth:
    1. The name of the foreign limited liability company;
    2. The date the original application for registration was filed; and
    3. The amendment to the application for registration.
  2. The application for registration may be amended in any way, provided that the application for registration as amended contains only provisions that may be lawfully contained in an application for registration at the time of the amendment.

History. Acts 1993, No. 1003, § 1005.

4-32-1006. Cancellation of registration.

  1. A foreign limited liability company authorized to transact business in this state may cancel its registration upon procuring from the Secretary of State a certificate of cancellation. In order to procure a certificate, the foreign limited liability company shall deliver to the Secretary of State an application for cancellation, which shall set forth:
    1. The name of the foreign limited liability company and the state or other jurisdiction under the laws of which it is formed;
    2. That the foreign limited liability company is not transacting business in this state;
    3. That the foreign limited liability company surrenders its certificate of registration to transact business in this state;
    4. That the foreign limited liability company revokes the authority of its registered agent for service of process in this state and consents that service of process in any action, suit, or proceeding based upon any cause of action arising in this state during the time the foreign limited liability company was authorized to transact business in this state may thereafter be made on the foreign limited liability company by service thereof upon the Secretary of State; and
    5. An address to which a person may mail a copy of any process against the foreign limited liability company.
  2. The application for cancellation shall be in the form and manner designated by the Secretary of State and shall be executed on behalf of the foreign limited liability company by a person with authority to do so under the laws of the state or other jurisdiction of its formation, or, if the foreign limited liability company is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary.
  3. A cancellation does not terminate the authority of the Secretary of State to accept service of process on the foreign limited liability company with respect to causes of action arising out of the doing of business in this state.

History. Acts 1993, No. 1003, § 1006.

4-32-1007. Transaction of business without registration.

  1. A foreign limited liability company transacting business in this state may not maintain an action, suit, or proceeding in a court of this state until it has registered in this state.
  2. The failure of a foreign limited liability company to register in this state does not:
    1. Impair the validity of any contract or act of the foreign limited liability company;
    2. Affect the right of any other party to the contract to maintain any action, suit, or proceeding on the contract; or
    3. Prevent the foreign limited liability company from defending any action, suit, or proceeding in any court of this state.
  3. A foreign limited liability company transacting business in this state without registration may be served with process under § 4-20-113 if the foreign limited liability company:
    1. Fails to appoint an agent for service of process under § 4-20-112;
    2. No longer has an agent for service of process; or
    3. Has an agent for service of process that cannot with reasonable diligence be served.
  4. A foreign limited liability company which transacts business in this state without registration shall be liable to the state for the years or parts thereof during which it transacted business in this state without registration in an amount equal to all fees which would have been imposed by this chapter upon that foreign limited liability company had it duly registered and all penalties imposed by this chapter. The Attorney General may bring proceedings to recover all amounts due this state under the provisions of this section.
  5. A foreign limited liability company which transacts business in this state without registration shall be subject to a civil penalty, payable to the state, not to exceed five thousand dollars ($5,000) for each twelve-month period or part thereof, beginning with the date it began transacting business in this state and ending on the date it becomes registered.
  6. The civil penalty set forth in subsection (e) of this section may be recovered in an action brought within a court by the Attorney General. Upon a finding by the court that a foreign limited liability company has transacted business in this state in violation of this chapter, the court shall issue, in addition to the imposition of a civil penalty, an injunction restraining further transactions of the business of the foreign limited liability company and the further exercise of any limited liability company's rights and privileges in this state. The foreign limited liability company shall be enjoined from transacting business in this state until all civil penalties plus any interest and court costs which the court may assess have been paid and until the foreign limited liability company has otherwise complied with the provisions of this subchapter.
  7. A member or manager of a foreign limited liability company is not liable for the debts and obligations of the limited liability company solely because the limited liability company transacted business in this state without registration.

History. Acts 1993, No. 1003, § 1007; 2009, No. 814, § 6.

Amendments. The 2009 amendment rewrote (c).

Case Notes

Transacting Business.

Purported buyer of real estate was not entitled to partial summary judgment because there was a material issue of fact as to whether the buyer, a foreign limited liability company that was not registered to do business in Arkansas, was transacting business in Arkansas and thus statutorily barred from maintaining suit for breach of a real estate contract. Specifically, a material issue of fact existed as to whether the company was engaged in the business of buying land for investment or profit, as opposed to merely owning land without more under § 4-32-1008. Serio v. Copeland Holdings, LLC, 2017 Ark. App. 280, 521 S.W.3d 131 (2017).

4-32-1008. Transactions not constituting transacting business.

  1. The following activities of a foreign limited liability company, among others, do not constitute transacting business within the meaning of this subchapter:
    1. Maintaining, defending, or settling any proceeding;
    2. Holding meetings of its members or managers or carrying on any other activities concerning its internal affairs;
    3. Maintaining bank accounts;
    4. Maintaining offices or agencies for the transfer, exchange, and registration of the foreign limited liability company's own securities or interests or maintaining trustees or depositories with respect to those securities or interests;
    5. Selling through independent contractors;
    6. Soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts;
    7. Creating or acquiring indebtedness, mortgages, and security interests in real or personal property;
    8. Securing or collecting debts or enforcing mortgages and security interests in property securing debts;
    9. Owning, without more, real or personal property;
    10. Conducting an isolated transaction that is completed within thirty (30) days and that is not one in the course of repeated transactions of a like nature; or
    11. Transacting business in interstate commerce.
  2. The foreign limited liability company shall not be considered to be transacting business solely because it:
    1. Owns a controlling interest in a corporation that is transacting business;
    2. Is a limited partner of a limited partnership that is transacting business; or
    3. Is a member or manager of a limited liability company or foreign limited liability company that is transacting business.
  3. This section does not apply in determining the contacts or activities that may subject a foreign limited liability company to service of process or taxation in this state or to other law or to regulation under any other law of this state.

History. Acts 1993, No. 1003, § 1008.

Case Notes

Transacting Business.

Purported buyer of real estate was not entitled to partial summary judgment because there was a material issue of fact as to whether the buyer, a foreign limited liability company that was not registered to do business in Arkansas, was transacting business in Arkansas and thus statutorily barred from maintaining suit for breach of a real estate contract under § 4-32-1007. Specifically, a material issue of fact existed as to whether the company was engaged in the business of buying land for investment or profit, as opposed to merely owning land under this section. Serio v. Copeland Holdings, LLC, 2017 Ark. App. 280, 521 S.W.3d 131 (2017).

Subchapter 11 — Suits by and Against the Limited Liability Company

Research References

Am. Jur. 51 Am. Jur. 2d, Limited Liability Cos., § 1 et seq.

59A Am. Jur. 2d, Partn., §§ 1379-1401.

Ark. L. Notes.

Goforth, Limited Liability Partnerships: Does Arkansas Need Another Form of Business Enterprise?, 1995 Ark. L. Notes 57.

C.J.S. 54 C.J.S., Limited Liability Cos., § 1 et seq.

68 C.J.S., Partn., §§ 437-439.

4-32-1101. Suits by and against the limited liability company.

Suit may be brought by or against a limited liability company in its own name.

History. Acts 1993, No. 1003, § 1101.

4-32-1102. Authority to sue on behalf of limited liability company.

Unless otherwise provided in an operating agreement, a suit on behalf of the limited liability company may be brought only in the name of the limited liability company by:

  1. One (1) or more members of a limited liability company, whether or not an operating agreement vests management of the limited liability company in one (1) or more managers, who are authorized to sue by the vote of more than one-half (½) by number of the members eligible to vote thereon, unless the vote of all members shall be required pursuant to § 4-32-403(b), provided that in determining the vote required under § 4-32-403, the vote of any member who has an interest in the outcome of the suit that is adverse to the interest of the limited liability company shall be excluded; or
  2. One (1) or more managers of a limited liability company, if an operating agreement vests management of the limited liability company in one (1) or more managers, who are authorized to do so by the vote required pursuant to § 4-32-403 of the members eligible to vote thereon, provided that in determining the required vote, the vote of any manager who has an interest in the outcome of the suit that is adverse to the interest of the limited liability company shall be excluded.

History. Acts 1993, No. 1003, § 1102.

Research References

ALR.

Construction and Application of Limited Liability Company Acts — Issues Relating to Derivative Actions and Actions Between Members of Limited Liability Company. 48 A.L.R.6th 1.

4-32-1103. Effect of lack of authority to sue.

The lack of authority of a member or manager to sue on behalf of the limited liability company may not be asserted as a defense to an action by the limited liability company or by the limited liability company as a basis for bringing a subsequent suit on the same cause of action.

History. Acts 1993, No. 1003, § 1103.

Subchapter 12 — Conversion and Merger

Publisher's Notes. Former subchapter 12, concerning merger and consolidation, was repealed by Acts 2009, No. 408, § 5. The former subchapter was derived from the following sources:

4-32-1201. Acts 1993, No. 1003, § 1201; 1997, No. 479, § 2; 1997, No. 912, § 1.

4-32-1202. Acts 1993, No. 1003, § 1202; 1997, No. 479, § 3.

4-32-1203. Acts 1993, No. 1003, § 1203.

4-32-1204. Acts 1993, No. 1003, § 1204.

Research References

Ark. L. Notes.

Goforth, An Update on Arkansas Limited Liability Companies: New Tax Regulations and New State Laws, 1997 Ark. L. Notes 11.

4-32-1201. Definitions.

In this subchapter:

  1. “Constituent limited liability company” means a constituent organization that is a limited liability company;
  2. “Constituent organization” means an organization that is party to a merger;
  3. “Converted organization” means the organization into which a converting organization converts under §§ 4-32-1202 — 4-32-1205;
  4. “Converting limited liability company” means a converting organization that is a limited liability company;
  5. “Converting organization” means an organization that converts into another organization under § 4-32-1202;
  6. “Governing statute” of an organization means the statute that governs the organization's internal affairs;
  7. “In a record” means maintained or kept on file by the organization at an office of the organization or with the Secretary of State;
    1. “Organization” means:
      1. A partnership, including a limited liability partnership;
      2. A limited partnership, including a limited liability limited partnership;
      3. A limited liability company;
      4. A business trust;
      5. A corporation; or
      6. Any other entity that has a governing statute.
    2. “Organization” includes a domestic or foreign organization whether or not the organization is organized for profit;
  8. “Organizational documents” means:
    1. For a domestic or foreign general partnership, its partnership agreement and if applicable statement of qualification;
    2. For a domestic or foreign limited partnership, its certificate of limited partnership and partnership agreement;
    3. For a domestic or foreign limited liability company, its articles of organization and operating agreement or the comparable records provided for in its governing statute;
    4. For a business trust, its agreement of trust and declaration of trust;
    5. For a domestic or foreign corporation for profit, its articles of incorporation, bylaws, and other agreements among its shareholders which are authorized by its governing statute or the comparable records provided for in its governing statute; and
    6. For any other organization, the records that:
      1. Create the organization;
      2. Determine the internal governance of the organization; and
      3. Determine the relations among the organization's owners, members, and interested parties; and
  9. “Surviving organization” means an organization into which one or more other organizations are merged.

History. Acts 2009, No. 408, § 5.

4-32-1202. Conversion.

  1. An organization other than a limited liability company may convert to a limited liability company, and a limited liability company may convert to another organization under this section and §§ 4-32-1203 — 4-32-1205 and a plan of conversion, if the:
    1. Other organization's governing statute authorizes the conversion and is complied with; and
    2. Conversion is not prohibited by the law of the jurisdiction that enacted the governing statute.
  2. A plan of conversion must be in a record and must include the:
    1. Name and form of the organization before conversion;
    2. Name and form of the organization after conversion;
    3. Terms and conditions of the conversion, including the manner and basis for converting interests in the converting organization into any combination of money, interests in the converted organization, and other consideration; and
    4. Organizational documents of the converted organization.

History. Acts 2009, No. 408, § 5.

4-32-1203. Action on plan of conversion by converting limited liability company.

  1. Unless otherwise provided in writing in an operating agreement, a plan of conversion must be consented to by more than one-half (½) by number of the members of a converting limited liability company.
  2. Subject to any contractual rights, until a conversion is filed under § 4-32-1204, a converting limited liability company may amend the plan or abandon the planned conversion:
    1. As provided in the plan; and
    2. Except as prohibited by the plan, by the same consent required to approve the plan.

History. Acts 2009, No. 408, § 5.

4-32-1204. Filings required for conversion — Effective date.

    1. After a plan of conversion is approved, a converting limited liability company shall file articles of conversion with the Secretary of State.
    2. The articles of conversion shall include:
      1. A statement that the limited liability company has been converted into another organization;
      2. The name and form of the converted organization and the jurisdiction of its governing statute;
      3. The date the conversion is effective under the governing statute of the converted organization;
      4. A statement that the conversion was approved as required by this chapter;
      5. A statement that the conversion was approved as required by the governing statute of the converted organization;
      6. A statement confirming that the converted organization has filed a statement appointing an agent for service of process under § 4-20-112 if the converted organization is a foreign organization not authorized to transact business in this state; and
        1. A copy of the plan of conversion; or
        2. A statement that:
          1. Contains the address of an office of the organization where the plan of conversion is on file; and
          2. A copy of the plan of conversion will be furnished by the converting organization on request and without cost to any shareholder of the converting organization.
    1. If the converting organization is not a converting limited liability company, the converting organization shall file articles of organization with the Secretary of State.
    2. The articles of organization shall include, in addition to the information required by § 4-32-202:
      1. A statement that the limited liability company was converted from another organization;
      2. The name and form of the converting organization and the jurisdiction of its governing statute; and
      3. A statement that the conversion was approved in a manner that complied with the converting organization's governing statute.
  1. A conversion becomes effective:
    1. If the converted organization is a limited liability company, when the articles of organization take effect; and
    2. If the converted organization is not a limited liability company, as provided by the governing statute of the converted organization.

History. Acts 2009, No. 408, § 5.

4-32-1205. Effect of conversion.

  1. An organization that has been converted under this subchapter is for all purposes the same entity that existed before the conversion.
  2. When a conversion takes effect:
    1. All property owned by the converting organization remains vested in the converted organization;
    2. All debts, liabilities, and other obligations of the converting organization continue as obligations of the converted organization;
    3. An action or proceeding pending by or against the converting organization may be continued as if the conversion had not occurred;
    4. Except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of the converting organization remain vested in the converted organization;
    5. Except as otherwise provided in the plan of conversion, the terms and conditions of the plan of conversion take effect; and
    6. Except as otherwise agreed, the conversion does not dissolve a converting limited liability company under § 4-32-901 et seq.
    1. A converted organization that is a foreign organization consents to the jurisdiction of the courts of this state to enforce any obligation owed by the converting limited liability company, if before the conversion the converting limited liability company was subject to suit in this state on the obligation.
    2. A converted organization that is a foreign organization and not authorized to transact business in this state may be served with process under § 4-20-113 if the converted organization:
      1. Fails to appoint an agent for service of process under § 4-20-112;
      2. No longer has an agent for service of process; or
      3. Has an agent for service of process that cannot with reasonable diligence be served.

History. Acts 2009, No. 408, § 5.

4-32-1206. Merger.

  1. A limited liability company may merge with one (1) or more other constituent organizations under this section and §§ 4-32-1207 — 4-32-1209 and a plan of merger, if:
    1. The governing statute of each of the other organizations authorizes the merger;
    2. The merger is not prohibited by the law of a jurisdiction that enacted any of the governing statutes; and
    3. Each of the other organizations complies with its governing statute in effecting the merger.
  2. A plan of merger shall be in a record and shall include:
    1. The name and form of each constituent organization;
    2. The name and form of the surviving organization;
    3. The terms and conditions of the merger, including the manner and basis for converting the interests in each constituent organization into any combination of money, interests in the surviving organization, and other consideration; and
    4. Any amendments to be made by the merger to the surviving organization's organizational documents.

History. Acts 2009, No. 408, § 5.

4-32-1207. Action on plan of merger by constituent limited liability company.

  1. Unless otherwise provided in writing in an operating agreement, a plan of merger must be consented to by more than one-half (1/2) by number of the members of a constituent limited liability company.
  2. Subject to any contractual rights, until articles of merger are filed under § 4-32-1208 a constituent limited liability company may amend the plan or abandon the planned merger:
    1. As provided in the plan; and
    2. Except as prohibited by the plan, with the same consent required to approve the plan.

History. Acts 2009, No. 408, § 5.

4-32-1208. Filings required for merger — Effective date.

  1. After each constituent organization has approved a merger, articles of merger must be signed by an authorized representative of each constituent organization and filed with the Secretary of State.
  2. The articles of merger shall include:
    1. The name and form of each constituent organization and the jurisdiction of its governing statute;
    2. The name and form of the surviving organization and the jurisdiction of its governing statute;
    3. The date the merger is effective under the governing statute of the surviving organization;
    4. Any amendments provided for in the plan of merger for the organizational document of the surviving organization;
    5. A statement as to each constituent organization that the merger was approved as required by the organization's governing statute;
    6. A statement confirming that the surviving organization has filed a statement appointing an agent for service of process under § 4-20-112 if the surviving organization is a foreign organization not authorized to transact business in this state;
    7. Either:
      1. A copy of the plan of merger; or
      2. A statement that:
        1. Contains the address of an office of the surviving organization where the plan of merger is on file; and
        2. A copy of the plan of merger will be furnished by the surviving organization on request and without cost to any shareholder, member, partner, or other owner of any constituent organization; and
    8. Any additional information required by the governing statute of any constituent organization.
  3. A merger becomes effective under this subchapter:
    1. If the surviving organization is a limited liability company, upon the later of:
      1. Compliance with subsection (a) of this section; or
      2. The date specified in the articles of merger; or
    2. If the surviving organization is not a limited liability company, as provided by the governing statute of the surviving organization.

History. Acts 2009, No. 408, § 5.

4-32-1209. Effect of merger.

  1. When a merger becomes effective:
    1. The surviving organization continues or comes into existence;
    2. Each constituent organization that merges into the surviving organization ceases to exist as a separate entity;
    3. All property owned by each constituent organization that ceases to exist vests in the surviving organization;
    4. All debts, liabilities, and other obligations of each constituent organization that ceases to exist continue as obligations of the surviving organization;
    5. An action or proceeding pending by or against a constituent organization that ceases to exist may continue as if the merger had not occurred;
    6. Except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of each constituent organization that ceases to exist vest in the surviving organization;
    7. Except as otherwise provided in the plan of merger, the terms and conditions of the plan of merger take effect;
    8. Except as otherwise agreed, if a constituent limited liability company ceases to exist, the merger does not dissolve the limited liability company under § 4-32-901 et seq.; and
    9. Any amendments provided for in the articles of merger for the organizational documents of the surviving organization become effective.
    1. A surviving organization that is a foreign organization consents to the jurisdiction of the courts of this state to enforce any obligation owed by a constituent organization if before the merger the constituent organization was subject to suit in this state on the obligation.
    2. A surviving organization that is a foreign organization and not authorized to transact business in this state may be served with process under § 4-20-113 if the surviving organization:
      1. Fails to appoint an agent for service of process under § 4-20-112;
      2. No longer has an agent for service of process; or
      3. Has an agent for service of process that cannot with reasonable diligence be served.

History. Acts 2009, No. 408, § 5.

4-32-1210. Chapter not exclusive.

This chapter does not preclude an entity from being converted or merged under other law.

History. Acts 2009, No. 408, § 5.

Subchapter 13 — Miscellaneous

Effective Dates. Acts 2003, No. 965, § 3: effective for tax years beginning on and after January 1, 2003.

Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2007, No. 646, § 14: July 1, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that business entities are presently paying different fees for similar services from the Secretary of State; that this act will alleviate any undue hardship to any entity by standardizing business and commercial filing fees; and that this act is immediately necessary to aid the recordkeeping and accounting functions of the Secretary of State and should take effect at the beginning of the state's fiscal year. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2007.”

Research References

C.J.S. 54 C.J.S., Limited Liability Cos., § 1 et seq.

4-32-1301. Filing, service, and copying fees.

  1. The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her for filing:
    1. The Secretary of State shall collect a fee of twenty-five dollars ($25.00) each time process is served on him or her under this chapter.
    2. The party to a proceeding causing service of process is entitled to recover the process fee as costs if the party prevails in the proceeding.
  2. The Secretary of State shall collect the following fees for copying and certifying the copy of any filed document relating to a domestic or foreign limited liability company:
    1. Fifty cents (50¢) a page for copying; and
    2. Five dollars ($5.00) for the certificate.
  3. The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her by electronic means:

DOCUMENT FEE (1) Articles of organization $50.00 (2) Application for use of indistinguishable name 25.00 (3) Application for reserved name 25.00 (4) Notice of transfer of reserved name 25.00 (5) Amendment of articles of organization 25.00 (6) Restatement of articles of organization with amendment of articles of organization 25.00 (7) Articles of merger or share exchange 50.00 (8) Articles of dissolution 50.00 (9) Certificate of judicial dissolution No fee (10) Application for certificate of authority by foreign limited liability company 300.00 (11) Application for amended certificate of authority by foreign limited liability company 300.00 (12) Application for certificate of withdrawal by foreign limited liability company No fee (13) Certificate of revocation of authority to transact business No fee (14) Articles of correction 30.00 (15) Application for certificate of existence or authorization by domestic limited liability company 15.00 (16) Any other document required or permitted to be filed by this chapter 25.00

Click to view table.

DOCUMENT FEE PROCESSING FEE (1) Articles of organization for domestic limited liability company $40.00 $5.00 (2) Certificate of amendment to articles of organization for a domestic limited liability company $18.50 $4.00 (3) Application for reservation of limited liability company name No Fee No Fee (4) Notice of transfer of reserved name $18.50 $4.00 (5) Application for certificate of registration of foreign limited liability company $258.00 $12.00 (6) Application for amended certificate of authority by foreign limited liability company $258.00 $12.00 (7) Application for fictitious name for foreign limited liability company $18.50 $4.00 (8) For any other document not listed above, the cost for electronic filing is: (A) Four dollars ($4.00) for the processing fee when the filing fee is zero dollars ($0.00) to fifty dollars ($50.00); (B) Five dollars ($5.00) for the processing fee when the filing fee is fifty-one dollars ($51.00) to ninety-nine dollars ($99.00); (C) Ten dollars ($10.00) for the processing fee when the filing fee is one hundred dollars ($100) to two hundred ninety-nine dollars ($299); and (D) Twelve dollars ($12.00) for the processing fee when the filing fee is three hundred dollars ($300) or more.

Click to view table.

History. Acts 1993, No. 1003, § 1302; 2001, No. 1395, § 2; 2007, No. 638, § 35; 2007, No. 646, § 6.

A.C.R.C. Notes. This section is set out above as amended by Acts 2007, No. 638, § 35, effective September 1, 2007. Subdivisions (a) and (d) were also amended by Acts 2007, No. 646, § 6 to read as follows:“(a) The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her for filing:

DOCUMENT FEE (1) Articles of organization $50.00 (2) Application for use of in- distinguishable name 25.00 (3) Application for reserved name 25.00 (4) Notice of transfer of re- served name 25.00 (5) Statement of change of registered agent or regis- tered office, or both No Fee (6) Agent's statement of resig- nation No Fee (7) Amendment of articles of organization 25.00 (8) Restatement of articles of organization with amend- ment of articles of organi- zation 25.00 (9) Articles of merger or share exchange 50.00 (10) Articles of dissolution 50.00 (11) Certificate of judicial disso- lution No fee (12) Application for certificate of authority by foreign lim- ited liability company 300.00 (13) Application for amended certificate of authority by foreign limited liability company 300.00 (14) Application for certificate of withdrawal by foreign limited liability company No fee (15) Certificate of revocation of authority to transact busi- ness No fee (16) Articles of correction 30.00 (17) Application for certificate of existence or authoriza- tion by domestic limited liability company 15.00 (18) Any other document re- quired or permitted to be filed by this chapter 25.00

Click to view table.“(d) The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her by electronic means:

PROC- ESS- ING DOCUMENT FEE FEE (1) Articles of organization for domestic limited li- ability company $40.00 $5.00 (2) Certificate of amend- ment to articles of orga- nization for a domestic limited liability com- pany $18.50 $4.00 (3) Notice of change of reg- istered office or agent or both for limited liability company No Fee No Fee (4) Application for reserva- tion of limited liability company name $18.50 $4.00 (5) Notice of transfer of re- served name $18.50 $4.00 (6) Application for certifi- cate of registration of foreign limited liability company $258.00 $12.00 (7) Application for amended certificate of authority by foreign limited liabil- ity company $258.00 $12.00 (8) Application for fictitious name for foreign limited liability company $18.50 $4.00 (9) For any other document not listed above, the cost for electronic filing is: (A) Four dollars ($4.00) for the processing fee when the filing fee is $0 to $50; (B) Five dollars ($5.00) for the processing fee when the filing fee is $51 to $99; (C) Ten dollars ($10.00) for the processing fee when the filing fee is $100 to $299; and (D) Twelve dollars ($12.00) for the processing fee when the filing fee is $300 or more.”

Click to view table.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Business Law, 24 U. Ark. Little Rock L. Rev. 407.

4-32-1302. Appeal from Secretary of State's refusal to file document.

  1. If the Secretary of State refused to file a document delivered to his or her office for filing, the domestic or foreign limited liability company may appeal the refusal within thirty (30) days after the return of the document to the Pulaski County Circuit Court. The appeal is commenced by petitioning the court to compel filing the document and by attaching to the petition the document and the Secretary of State's explanation of his or her refusal to file.
  2. The court may summarily order the Secretary of State to file the document or take other action the court considers appropriate.
  3. The court's final decision may be appealed as in other civil proceedings.

History. Acts 1993, No. 1003, § 1304.

4-32-1303. Definition of knowledge.

A person has “knowledge” of a fact within the meaning of this chapter not only when he or she has actual knowledge thereof, but also when he or she has knowledge of such other facts as in the circumstances shows bad faith.

History. Acts 1993, No. 1003, § 1309.

4-32-1304. Rules of construction.

  1. It is the policy of this chapter to give maximum effect to the principle of freedom of contract and to the enforceability of operating agreements.
  2. Unless displaced by particular provisions of this chapter, the principles of law and equity supplement this chapter.
  3. Rules that statutes in derogation of the common law are to be strictly construed shall have no application to this chapter.
  4. Neither this chapter nor any amendment of this chapter shall be construed so as to impair the obligations of any contract existing when the chapter or amendment goes into effect, nor to affect any action or proceedings begun or right accrued before the chapter or amendment takes effect.

History. Acts 1993, No. 1003, § 1310.

Research References

Ark. L. Rev.

A License to Lie, Cheat, and Steal? Restriction or Elimination of Fiduciary Duties in Arkansas Limited Liability Companies, 60 Ark. L. Rev. 643.

4-32-1305. Powers of Secretary of State.

The Secretary of State has the power reasonably necessary to perform the duties required of him or her by this chapter.

History. Acts 1993, No. 1003, § 1308.

4-32-1306. Severability.

If any provision of this chapter or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this chapter which can be given effect without the invalid provision or application. To this end, the provisions of this chapter are severable.

History. Acts 1993, No. 1003, § 1311.

4-32-1307. Interstate application.

A limited liability company organized and existing under this chapter may conduct its business, carry on its operations, and have and exercise the powers granted by this chapter in any state or foreign country.

History. Acts 1993, No. 1003, § 1312.

4-32-1308. Filing requirements.

  1. A document must satisfy the requirements of this section, and of any other section that adds to or varies from these requirements, to be entitled to filing by the Secretary of State.
  2. This chapter must require or permit filing the document in the office of the Secretary of State.
  3. The document must contain the information required by this chapter. It may contain other information as well.
  4. The document must be typewritten or printed.
  5. The document must be in the English language. A limited liability company or foreign limited liability company name need not be in English if written in English letters or Arabic or Roman numerals, and the certificate of existence required of foreign limited liability companies need not be in English if accompanied by a reasonably authenticated English translation.
  6. The document must be executed:
    1. The original signed copy, together with a duplicate copy that may either be a signed, photocopied, or conformed copy, of any document required to be filed pursuant to this chapter, shall be delivered to the Secretary of State. When the Secretary of State determines that the documents conform to the filing provisions of this chapter and when all required filing fees, taxes, license fees, or penalties required by this chapter or other law have been paid, the Secretary of State shall:
      1. Have endorsed on each signed original and duplicate copy the word “filed” and the date and time of the documents' acceptance for filing;
      2. Retain the signed original in the Secretary of State's file; and
      3. Return the duplicate copy to the person who filed it or the person's representative.
    2. If at the time any documents are delivered for filing, the Secretary of State is unable to make the determination required for filing, the documents are deemed to have been filed at the time of delivery if the Secretary of State subsequently determines that:
      1. The documents as delivered conform to the filing provisions of this chapter; and
      2. The documents have been brought into conformance within twenty (20) days after notification of nonperformance is given by the Secretary of State to the person who delivered the documents for filing or that person's representative.
    3. If the filing and determination requirements of this chapter are not satisfied within the time prescribed in subdivision (f)(2)(B) of this section, the documents shall not be filed.
    4. A document may specify a delayed effective time and date, and if it does so the document becomes effective at the time and date specified. If a delayed effective date but no time is specified, the document is effective at the close of business on that date. A delayed effective date for a document may not be later than the ninetieth day after the date it is filed.

History. Acts 1993, No. 1003, § 1301.

4-32-1309. Correcting filed document.

  1. A domestic or foreign limited liability company may correct a document filed by the Secretary of State if the document:
    1. Contains an incorrect statement; or
    2. Was defectively executed, attested, sealed, verified, or acknowledged.
  2. A document is corrected:
    1. By preparing articles of correction that:
      1. Describe the document, including its filing date, or attach a copy of it to the articles;
      2. Specify the incorrect statement and the reason it is incorrect or the manner in which the execution was defective; and
      3. Correct the incorrect statement or defective execution; and
    2. By delivering the articles to the Secretary of State for filing.
  3. Articles of correction are effective on the effective date of the document they correct except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, articles of correction are effective when filed.

History. Acts 1993, No. 1003, § 1303.

4-32-1310. Evidentiary effect of copy of filed document.

A certificate attached to a copy of a document filed by the Secretary of State, bearing his or her signature, which may be in facsimile, and the seal of this state, is conclusive evidence that the original document is on file with the Secretary of State.

History. Acts 1993, No. 1003, § 1305.

4-32-1311. Certificate of existence.

  1. Anyone may apply to the Secretary of State to furnish a certificate of existence for a domestic limited liability company or a certificate of authorization for a foreign limited liability company.
  2. A certificate of existence or authorization sets forth:
    1. The domestic limited liability company name or the foreign limited liability company's corporate name used in this state;
    2. Either:
      1. That the domestic limited liability company is duly formed under the laws of this state, the date of its formation, and the period of its duration; or
      2. That the foreign limited liability company is authorized to transact business in this state;
    3. That all fees, taxes, and penalties owed to this state have been paid if:
      1. Payment is reflected in the records of the Secretary of State; and
      2. Nonpayment affects the existence or authorization of the domestic or foreign limited liability company.
    4. That articles of dissolution have not been filed; and
    5. Other facts of record in the office of the Secretary of State that may be requested by the applicant.
  3. Subject to any qualification stated in the certificate, a certificate of existence or authorization issued by the Secretary of State may be relied upon as conclusive evidence that the domestic or foreign limited liability company is in existence or is authorized to transact business in this state.

History. Acts 1993, No. 1003, § 1306.

4-32-1312. Penalty for signing false documents.

  1. A person commits an offense if he or she signs a document he or she knows is false in any material respect with intent that the document be delivered to the Secretary of State for filing.
  2. An offense under this section is a Class C misdemeanor.

History. Acts 1993, No. 1003, § 1307.

4-32-1313. Tax status.

A limited liability company and its member or members shall be classified and taxed for Arkansas income tax purposes in the same manner as the limited liability company and its member or members are classified and taxed for federal income tax purposes.

History. Acts 1993, No. 1003, § 1313; 2003, No. 965, § 1.

Amendments. The 2003 amendment rewrote this section.

4-32-1314. Governing law.

  1. The liability of members, managers, employees, and agents of a limited liability company organized and existing under this chapter shall at all times be determined solely and exclusively by this chapter and the laws of this state.
  2. If a conflict arises between the law of this state and the laws of any other jurisdiction with regard to the liability of a member, manager, employee, or agent of a limited liability company organized and existing under this chapter for the debts, obligations, and liabilities of the limited liability company, or for the acts or omissions of another member, manager, employee, or agent of the limited liability company, this chapter and the laws of this state shall govern in determining such liability.

History. Acts 1993, No. 1003, § 1314.

4-32-1315. Full faith and credit.

It is the intent of the legislature that the legal existence of limited liability companies organized under this chapter be recognized outside the boundaries of this state and that, subject to any reasonable requirement of registration, a domestic limited liability company transacting business outside this state be granted full faith and credit under the United States Constitution, Article IV, § 1.

History. Acts 1993, No. 1003, § 1315.

4-32-1316. Repealer.

All laws and parts of laws in conflict with the provisions of this chapter are hereby repealed. Furthermore, the laws of this state relating to the establishment and regulation of professional service are hereby amended and superseded to the extent such laws are inconsistent as to form of organization with the provisions of this chapter, and are deemed amended to permit the provisions of professional service within this state by limited liability companies. By way of example and not by way of limitation of the foregoing, §§ 17-12-702 and 16-114-302 presently apply to persons, partnerships, and corporations and shall hereafter be deemed to apply to persons, partnerships, corporations, and limited liability companies.

History. Acts 1993, No. 1003, § 1316.

Subchapter 14 — Medical or Dental Limited Liability Company

Cross References. As to medical corporations, see § 4-29-301 et seq.

As to dental corporations, see § 4-29-401 et seq.

4-32-1401. Certification of registration.

  1. A limited liability company formed under this chapter and that will engage in the practice of medicine must obtain a certificate of registration from the Arkansas State Medical Board and must comply with the statutes of the Medical Corporation Act, § 4-29-301 et seq.
  2. A limited liability company formed under this chapter and that will engage in the practice of dentistry must obtain a certificate of registration and comply with the statutes in the Dental Corporation Act, § 4-29-401 et seq.
  3. Subchapter 3 means Sections 301 through Section 304 of this act.
  4. Subchapter 4 means Sections 401 through Section 403 of this act.
  5. Subchapter 5 means Sections 501 through Section 504 of this act.
  6. Subchapter 6 means Sections 601 through Section 630 of this act.
  7. Subchapter 7 means Sections 701 through Section 730 of this act.
  8. Subchapter 8 means Sections 801 through Section 858 of this act.
  9. Subchapter 10 means Sections 1001 through Section 1031 of this act.
  10. Subchapter 11 means Sections 1101 through Section 1108 of this act.
  11. Subchapter 12 means Sections 1201 through Section 1202 of this act.
  12. Subchapter 13 means Sections 1301 through Section 1302 of this act.
  13. Subchapter 14 means Sections 1401 through Section 1440 of this act.
  14. Subchapter 15 means Sections 1501 through Section 1532 of this act.
  15. Subchapter 17 means Sections 1701 through Section 1706 of this act.
  16. Subchapter 18 means Sections 1801 through Section 1809 of this act.”

History. Acts 1997, No. 338, § 1.

Chapter 33 The Arkansas Nonprofit Corporation Act of 1993

Publisher's Notes. Acts 1993, No. 1147, § 103 provided:

“(a) Subchapter 1 means Sections 101 through Section 170 of this act.

(b) Subchapter 2 means Sections 201 through Section 207 of this act.

For Commentary regarding the Revised Model Nonprofit Corporation Act, see Commentaries Volume A.

Effective Dates. Acts 1993, No. 1147, § 1705: January 1, 1994.

Cross References. Public bodies and bodies corporate and politic, § 4-34-101 et seq.

Water provider corporations, § 4-35-101 et seq.

Research References

ALR.

Restrictions on right of legal services corporation or “public interest” law firm to practice. 26 A.L.R.4th 614.

Right of member of nonprofit association or corporation to possession, inspection, or use of membership lists. 37 A.L.R.4th 1206.

Exemption of nonprofit theater or concert hall from local property taxation. 42 A.L.R.4th 614.

Exemption from real property taxation of residential facilities maintained by hospitals for patients, staff, or others. 61 A.L.R.4th 1105.

Attorney's obligation to share fee award with party representing public interest. 43 A.L.R.5th 793.

Exemption of charitable or educational organization from sales or use tax. 69 A.L.R.5th 477.

Ark. L. Notes.

Mathews, A Review of Arkansas Statutes Affecting Business and Other Organizations Enacted Since 1990, 1998 Ark. L. Notes 65.

Am. Jur. 18 Am. Jur. 2d, Corp. §§ 33-37 .

C.J.S. 18 C.J.S., Corp., § 10.

U. Ark. Little Rock L.J.

Harris, The Nonprofit Corporation Act of 1993: Considering the Election to Apply the New Law to Old Corporations, 16 U. Ark. Little Rock L.J. 1.

Subchapter 1 — General Provisions

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2007, No. 646, § 14: July 1, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that business entities are presently paying different fees for similar services from the Secretary of State; that this act will alleviate any undue hardship to any entity by standardizing business and commercial filing fees; and that this act is immediately necessary to aid the recordkeeping and accounting functions of the Secretary of State and should take effect at the beginning of the state's fiscal year. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2007.”

Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

Part A: Short Title and Applications

4-33-101. Short title.

This chapter shall be known and may be cited as the “Arkansas Nonprofit Corporation Act of 1993”.

History. Acts 1993, No. 1147, § 101.

Research References

Ark. L. Notes.

Sampson, Nonprofit Risk; Nonprofit Insurance, 2008 Ark. L. Notes 83.

4-33-102. Reservation of power to amend or repeal.

The General Assembly has power to amend or repeal all or part of this chapter at any time and all domestic and foreign corporations subject to this chapter are governed by the amendment or repeal.

History. Acts 1993, No. 1147, § 102.

4-33-103 — 4-33-119. [Reserved.]

Part B: Filing Documents

4-33-120. Filing requirements. [Effective until May 1, 2021.]

  1. A document must satisfy the requirements of this section, and of any other section that adds to or varies these requirements, to be entitled to filing by the Secretary of State.
  2. This chapter must require or permit filing the document in the office of the Secretary of State.
  3. The document must contain the information required by this chapter. It may contain other information as well.
  4. The document must be typewritten or printed.
  5. The document must be in the English language. However, a corporate name need not be in English if written in English letters or Arabic or Roman numerals, and the certificate of existence required of foreign corporations need not be in English if accompanied by a reasonably authenticated English translation.
  6. The document must be executed:
    1. by the presiding officer of its board of directors of a domestic or foreign corporation, its president, or by another of its officers;
    2. if directors have not been selected or the corporation has not been formed, by an incorporator; or
    3. if the corporation is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary.
  7. The person executing a document shall sign it and state beneath or opposite the signature his or her name and the capacity in which he or she signs. The document may, but need not, contain:
    1. the corporate seal;
    2. an attestation by the secretary or an assistant secretary; or
    3. an acknowledgment, verification, or proof.
  8. If the Secretary of State has prescribed a mandatory form for a document under § 4-33-121, the document must be in or on the prescribed form.
  9. The document must be delivered to the office of the Secretary of State for filing and must be accompanied by one (1) exact or conformed copy (except as provided in §§ 4-33-503 and 4-33-1509), the correct filing fee, and any franchise tax, license fee, or penalty required by this chapter or other law.

History. Acts 1993, No. 1147, § 120.

Publisher's Notes. For text of section effective May 1, 2021, see the following version.

4-33-120. Filing requirements. [Effective May 1, 2021.]

  1. A document must satisfy the requirements of this section, and of any other section that adds to or varies these requirements, to be entitled to filing by the Secretary of State.
  2. This chapter must require or permit filing the document in the office of the Secretary of State.
  3. The document must contain the information required by this chapter. It may contain other information as well.
  4. The document must be typewritten or printed.
  5. The document must be in the English language. However, a corporate name need not be in English if written in English letters or Arabic or Roman numerals, and the certificate of existence required of foreign corporations need not be in English if accompanied by a reasonably authenticated English translation.
  6. The document must be executed:
    1. by the presiding officer of its board of directors of a domestic or foreign corporation, its president, or by another of its officers;
    2. if directors have not been selected or the corporation has not been formed, by an incorporator; or
    3. if the corporation is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary.
  7. The person executing a document shall sign it and state beneath or opposite the signature his or her name and the capacity in which he or she signs. The document may, but need not, contain:
    1. the corporate seal;
    2. an attestation by the secretary or an assistant secretary; or
    3. an acknowledgment, verification, or proof.
  8. If the Secretary of State has prescribed a mandatory form for a document under § 4-33-121, the document must be in or on the prescribed form.
  9. The document must be delivered to the office of the Secretary of State for filing and must be accompanied by one (1) exact or conformed copy (except as provided in §§ 4-33-503 [repealed] and 4-33-1509), the correct filing fee, and proof of payment of any franchise tax, license fee, or penalty required by this chapter or other law.

History. Acts 1993, No. 1147, § 120; 2019, No. 819, § 11.

A.C.R.C. Notes. Acts 2019, No. 819, § 1, provided: “Title. This act shall be known and may be cited as the ‘Arkansas Tax Reform Act of 2019'”.

Acts 2019, No. 819, § 2, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The Arkansas Tax Reform and Relief Legislative Task Force was charged with:

“(A) Examining and identifying areas of potential tax reform within the tax laws; and

“(B) Recommending legislation to the General Assembly, in part, to modernize and simplify the Arkansas tax code and ensure fairness to all taxpayers;

“(2) There are several areas of the tax code that should be amended to reform the state's tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(3) Any savings realized by the state through tax reforms should be dedicated to reducing the tax burden for Arkansas taxpayers.

“(b) It is the intent of the General Assembly to:

“(1) Reform Arkansas tax laws to modernize and simplify the tax code and ensure fairness to all taxpayers; and

“(2) Offset any revenue savings realized through tax reform with corresponding changes to reduce the tax burden for Arkansas taxpayers”.

Publisher's Notes. For text of section effective until May 1, 2021, see the preceding version.

Amendments. The 2019 amendment inserted “proof of payment of” in (i).

Effective Dates. Acts 2019, No. 819, § 26(a): May 1, 2021. Effective date clause provided: “Sections 3-17 and 20-24 of this act are effective on and after May 1, 2021”.

4-33-121. Forms.

The Secretary of State may prescribe and furnish on request, forms for: (1) an application for a certificate of existence; (2) a foreign corporation's application for a certificate of authority to transact business in this state; and (3) a foreign corporation's application for a certificate of withdrawal. If the Secretary of State so requires, use of these forms is mandatory.

History. Acts 1993, No. 1147, § 121.

4-33-122. Filing, service, and copying fees.

  1. The Secretary of State shall collect the following fees when the documents described in this subsection are delivered for filing:
    1. The Secretary of State shall collect a fee of twenty-five dollars ($25.00) upon being served with process under this chapter.
    2. The party to a proceeding causing service of process is entitled to recover the fee paid the Secretary of State as costs if the party prevails in the proceeding.
  2. The Secretary of State shall collect the following fees for copying and certifying the copy of any filed document relating to a domestic or foreign corporation:
    1. Fifty cents (50¢) a page for copying; and
    2. Five dollars ($5.00) for the certificate.
  3. The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her by electronic means:

DOCUMENT FEE (1) Articles of incorporation $50.00 (2) Application for use of indistinguishable name No fee (3) Application for reserved name $25.00 (4) Notice of transfer of reserved name $25.00 (5) Application for registered name $50.00 (6) Application for renewal of registered name $25.00 (7) Amendment of articles of incorporation $50.00 (8) Restatement of articles of incorporation with amendments $100.00 (9) Articles of merger $100.00 (10) Articles of dissolution $50.00 (11) Articles of revocation of dissolution $150.00 (12) Certificate of administrative dissolution No fee (13) Application for reinstatement following administrative dissolution $50.00 (14) Certificate of reinstatement No fee (15) Certificate of judicial dissolution No fee (16) Application for certificate of authority $300.00 (17) Application for amended certificate of authority $300.00 (18) Application for certificate of withdrawal $300.00 (19) Certificate of revocation of authority to transact business No fee (20) Articles of correction $30.00 (21) Application for certificate of existence or authorization $15.00 (22) Any other document required or permitted to be filed by this chapter $25.00

Click to view table.

DOCUMENT FEE PROCESS- ING FEE (1) Articles of incorporation for domestic non-profit corporation $40.00 $5.00 (2) Certificate of amendment of a non-profit corporation $40.00 $5.00 (3) Articles of dissolution of a non-profit corporation $40.00 $5.00 (4) Notice of change of registered office or agent or both No Fee No Fee (5) Application for foreign non-profit corporation seeking to do business in Arkansas $258.00 $12.00 (6) For any other document not listed above, the cost for electronic filing is: (A) Four dollars ($4.00) for the processing fee when the filing fee is $0 to $50; (B) Five dollars ($5.00) for the processing fee when the filing fee is $51 to $99; (C) Ten dollars ($10.00) for the processing fee when the filing fee is $100 to $299; and (D) Twelve dollars ($12.00) for the processing fee when the filing fee is $300 or more.

Click to view table.

History. Acts 1993, No. 1147, § 122; 2001, No. 1395, § 4; 2007, No. 638, § 36; 2007, No. 646, § 7.

A.C.R.C. Notes. Subsection (a) is set out above as amended by Acts 2007, No. 638, § 36, effective September 1, 2007. Subdivision (a) was also amended by Acts 2007, No. 646, § 7, to read as follows:

“(a) The Secretary of State shall collect the following fees when the documents described in this subsection are delivered for filing:

DOCUMENT FEE (1) Articles of incorporation $50.00 (2) Application for use of in- distinguishable name No fee (3) Application for reserved name $25.00 (4) Notice of transfer of re- served name $25.00 (5) Application for registered name $50.00 (6) Application for renewal of registered name $25.00 (7) Corporation's statement of change of registered agent or registered office, or both No Fee (8) Agent's statement of resignation No Fee (9) Amendment of articles of incorporation $50.00 (10) Restatement of articles of incorporation with amend- ments $100.00 (11) Articles of merger $100.00 (12) Articles of dissolution $50.00 (13) Articles of revocation of dissolution $150.00 (14) Certificate of administra- tive dissolution No fee (15) Application for reinstate- ment following adminis- trative dissolution $50.00 (16) Certificate of reinstate- ment No fee (17) Certificate of judicial dis- solution No fee (18) Application for certificate of authority $300.00 (19) Application for amended certificate of authority $300.00 (20) Application for certificate of withdrawal $300.00 (21) Certificate of revocation of authority to transact busi- ness No fee (22) Articles of correction $30.00 (23) Application for certificate of existence or authoriza- tion $15.00 (24) Any other document re- quired or permitted to be filed by this chapter. $25.00”

Click to view table.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Business Law, 24 U. Ark. Little Rock L. Rev. 407.

4-33-123. Effective date of document.

  1. Except as provided in subsection (b) of this section, a document is effective:
    1. at the time of filing on the date it is filed, as evidenced by the Secretary of State's endorsement on the original document; or
    2. at the time specified in the document as its effective time on the date it is filed.
  2. A document may specify a delayed effective time and date, and if it does so the document becomes effective at the time and date specified. If a delayed effective date but no time is specified, the document is effective at the close of business on that date. A delayed effective date for a document may not be later than the ninetieth day after the date filed.

History. Acts 1993, No. 1147, § 123.

4-33-124. Correcting filed document.

  1. A domestic or foreign corporation may correct a document filed by the Secretary of State if the document contains an incorrect statement, or was defectively executed, attested, sealed, verified, or acknowledged.
  2. A document is corrected:
    1. by preparing articles of correction that (i) describe the document (including its filing date) or attach a copy of it to the articles, (ii) specify the incorrect statement and the reason it is incorrect or the manner in which the execution was defective, and (iii) correct the incorrect statement or defective execution; and
    2. by delivering the articles of correction to the Secretary of State.
  3. Articles of correction are effective on the effective date of the document they correct except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, articles of correction are effective when filed.

History. Acts 1993, No. 1147, § 124.

4-33-125. Filing duty of Secretary of State.

  1. If a document delivered to the office of the Secretary of State for filing satisfies the requirements of § 4-33-120, the Secretary of State shall file it.
  2. The Secretary of State files a document by stamping or otherwise endorsing “Filed,” together with the Secretary of State's name and official title and the date and time of receipt, on both the original and the document copy and on the receipt for the filing fee. After filing a document, except as provided in § 4-33-1510, the Secretary of State shall deliver the document copy, with the filing fee receipt (or acknowledgement of receipt if no fee is required) attached, to the domestic or foreign corporation or its representative.
  3. Upon refusing to file a document, the Secretary of State shall return it to the domestic or foreign corporation or its representative within five (5) days after the document was delivered, together with a brief, written explanation of the reason or reasons for the refusal.
  4. The Secretary of State's duty to file documents under this section is ministerial. Filing or refusal to file a document does not:
    1. affect the validity or invalidity of the document in whole or in part;
    2. relate to the correctness or incorrectness of information contained in the document; or
    3. create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect.

History. Acts 1993, No. 1147, § 125; 2007, No. 638, § 37.

4-33-126. Appeal from Secretary of State's refusal to file document.

  1. If the Secretary of State refuses to file a document delivered for filing to the Secretary of State's office, the domestic or foreign corporation may appeal the refusal to the circuit court in the county where the corporation's principal office is located or the Pulaski County Circuit Court if the corporation does not have a principal office in this state. The appeal is commenced by petitioning the court to compel filing the document and by attaching to the petition the document and the Secretary of State's explanation of the refusal to file.
  2. The court may summarily order the Secretary of State to file the document or take other action the court considers appropriate.
  3. The court's final decision may be appealed as in other civil proceedings.

History. Acts 1993, No. 1147, § 126; 2007, No. 638, § 38.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-33-127. Evidentiary effect of copy of filed document.

A certificate attached to a copy of a document bearing the Secretary of State's signature (which may be in facsimile) and the seal of this state, is conclusive evidence that the original document is on file with the Secretary of State.

History. Acts 1993, No. 1147, § 127.

4-33-128. Certificate of existence.

  1. Any person may apply to the Secretary of State to furnish a certificate of existence for a domestic or foreign corporation.
  2. The certificate of existence sets forth:
    1. the domestic corporation's corporate name or the foreign corporation's corporate name used in this state;
    2. that (i) the domestic corporation is duly incorporated under the law of this state, the date of its incorporation, and the period of its duration if less than perpetual; or (ii) that the foreign corporation is authorized to transact business in this state;
    3. that all fees, taxes, and penalties owed to this state have been paid, if (i) payment is reflected in the records of the Secretary of State and (ii) nonpayment affects the good standing of the domestic or foreign corporation;
    4. that articles of dissolution have not been filed; and
    5. other facts of record in the office of the Secretary of State that may be requested by the applicant.
  3. Subject to any qualification stated in the certificate, a certificate of existence issued by the Secretary of State may be relied upon as conclusive evidence that the domestic or foreign corporation is in good standing in this state.

History. Acts 1993, No. 1147, § 128.

4-33-129. Penalty for signing false document.

  1. A person commits an offense by signing a document such person knows is false in any material respect with intent that the document be delivered to the Secretary of State for filing.
  2. An offense under this section is a Class C misdemeanor.

History. Acts 1993, No. 1147, § 129.

Part C: Secretary of State

4-33-130. Powers.

The Secretary of State has the power reasonably necessary to perform the duties required of him or her by this chapter.

History. Acts 1993, No. 1147, § 130.

4-33-131. Annual disclosure of information.

Each nonprofit domestic corporation, nonprofit foreign corporation, and nonprofit corporation organized under § 4-28-101 et seq., authorized to transact business in this state shall annually file with the Secretary of State by August 1 a statement that sets forth:

  1. The name of the corporation;
  2. The corporation's jurisdiction of incorporation;
  3. The name and address of the corporation's registered agent for service of process;
  4. The address of the corporation's principal office;
  5. The names of the corporation's principal officers; and
  6. The names and addresses of the corporation's directors.

History. Acts 2007, No. 569, § 1.

4-33-132 — 4-33-139. [Reserved.]

Part D: Definitions

4-33-140. Chapter definitions.

Unless the context otherwise requires in this chapter:

  1. “Approved by (or approval by) the members” means approved or ratified by the affirmative vote of a majority of the votes represented and voting at a duly held meeting at which a quorum is present (which affirmative votes also constitute a majority of the required quorum) or by a written ballot or written consent in conformity with this chapter or by the affirmative vote, written ballot or written consent of such greater proportion, including the votes of all the members of any class, unit or grouping as may be provided in the articles, bylaws or this chapter for any specified member action.
  2. “Articles of incorporation” or “articles” include amended and restated articles of incorporation and articles of merger.
  3. “Board” or “board of directors” means the board of directors except that no person or group of persons are the board of directors because of powers delegated to that person or group pursuant to § 4-33-801.
  4. “Bylaws” means the code or codes of rules (other than the articles) adopted pursuant to this chapter for the regulation or management of the affairs of the corporation irrespective of the name or names by which such rules are designated.
  5. “Class” refers to a group of memberships which have the same rights with respect to voting, dissolution, redemption and transfer. For the purpose of this section, rights shall be considered the same if they are determined by a formula applied uniformly.
  6. “Corporation” means public benefit, mutual benefit and religious corporation.
  7. “Delegates” means those persons elected or appointed to vote in a representative assembly for the election of a director or directors or on other matters.
  8. “Deliver” includes mail.
  9. “Designated director” means a director who is authorized by the articles or bylaws of a corporation to be appointed by any person, corporation, or entity to a position as one (1) or more of the directors of the corporation.
  10. “Directors” means individuals, designated in the articles or bylaws or elected by the incorporators, and their successors and individuals elected or appointed by any other name or title to act as members of the board.
  11. “Distribution” means the payment of a dividend or any part of the income or profit of a corporation to its members, directors or officers.
  12. “Domestic corporation” means a corporation organized under the laws of this state.
  13. “Effective date of notice” is defined in § 4-33-141.
  14. “Employee” does not include an officer or director who is not otherwise employed by the corporation.
  15. “Entity” includes corporation and foreign corporation; business corporation and foreign business corporation; profit and nonprofit unincorporated association; corporation sole; business trust, estate, partnership, trust, and two (2) or more persons having a joint or common economic interest; and state, United States, and foreign government.
  16. “File,” “filed,” or “filing” means filed in the office of the Secretary of State.
  17. “Foreign corporation” means a corporation organized under a law other than the law of this state which would be a nonprofit corporation if formed under the laws of this state.
  18. “Governmental subdivision” includes authority, county, district, and municipality.
  19. “Includes” denotes a partial definition.
  20. “Individual” includes the estate of an incompetent individual.
  21. “Means” denotes a complete definition.
  22. “Member” means (without regard to what a person is called in the articles or bylaws) any person or persons who on more than one (1) occasion, pursuant to a provision of a corporation's articles or bylaws, have the right to vote for the election of a director or directors.
    1. any rights such person has as a delegate;
    2. any rights such person has to designate a director or directors; or
    3. any rights such person has as a director.
  23. “Membership” refers to the rights and obligations a member or members have pursuant to a corporation's articles, bylaws and this chapter.
  24. “Mutual benefit corporation” means a domestic corporation which is formed as a mutual benefit corporation pursuant to §§ 4-33-201 et seq., or is required to be a mutual benefit corporation pursuant to § 4-33-1707, formed to benefit, represent and serve a group of individuals or entities.
  25. “Notice” is defined in § 4-33-141.
  26. “Person” includes any individual or entity.
  27. “Principal office” means the office (in or out of this state) so designated in the bylaws or, if none, the registered office of a domestic or foreign corporation.
  28. “Proceeding” includes civil suit and criminal, administrative, and investigatory action.
  29. “Public benefit corporation” means a domestic corporation which is formed as a public benefit corporation pursuant to §§ 4-33-201 et seq., or is required to be a public benefit corporation pursuant to § 4-33-1707 to perform good works, to benefit society or improve the human condition.
  30. “Record date” means the date established under §§ 4-33-701 et seq. on which a corporation determines the identity of its members for the purposes of this chapter.
  31. “Religious corporation” means a domestic corporation which is formed as a religious corporation pursuant to §§ 4-33-201 et seq., or is required to be a religious corporation pursuant to § 4-33-1707 for religious purposes.
  32. “Secretary” means the corporate officer to whom the bylaws or the board of directors has delegated responsibility under § 4-33-840(b) for custody of the minutes of the directors' and members' meetings and for authenticating the records of the corporation.
  33. “State,” when referring to a part of the United States, includes a state and commonwealth (and their agencies and governmental subdivisions) and a territory, and insular possession (and their agencies and governmental subdivisions) of the United States.
  34. “United States” includes any district, authority, bureau, commission, department, and any other agency of the United States.
  35. “Vote” includes authorization by written ballot and written consent.
  36. “Voting power” means the total number of votes entitled to be cast for the election of directors at the time the determination of voting power is made, excluding a vote which is contingent upon the happening of a condition or event that has not occurred at the time. Where a class is entitled to vote as a class for directors, the determination of voting power of the class shall be based on the percentage of the number of directors the class is entitled to elect out of the total number of authorized directors.

A person is not a member by virtue of any of the following:

History. Acts 1993, No. 1147, § 140.

4-33-141. Notice.

  1. Notice may be oral or written.
  2. Notice may be communicated in person; by telephone, telegraph, teletype, telecopier, facsimile, or other form of wire or wireless communication; or by mail or private carrier; if these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published; or by radio, television, or other form of public broadcast communication.
  3. Oral notice is effective when communicated, if communicated in a comprehensible manner.
  4. Written notice, if in a comprehensible form, is effective at the earliest of the following:
    1. when received;
    2. five (5) days after its deposit in the United States mail, as evidenced by the postmark, if mailed correctly addressed and with first class postage affixed;
    3. on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee;
    4. thirty (30) days after its deposit in the United States mail, as evidenced by the postmark, if mailed correctly addressed and with other than first class, registered or certified postage affixed.
  5. Written notice is correctly addressed to a member of a domestic or foreign corporation if addressed to the member's address shown in the corporation's current list of members.
  6. A written notice or report delivered as part of a newsletter, magazine or other publication regularly sent to members shall constitute a written notice or report if addressed or delivered to the member's address shown in the corporation's current list of members, or in the case of members who are residents of the same household and who have the same address in the corporation's current list of members, if addressed or delivered to one (1) of such members, at the address appearing on the current list of members.
  7. Written notice is correctly addressed to a domestic or foreign corporation (authorized to transact business in this state), other than in its capacity as a member, if addressed to its registered agent or to its secretary at its principal office.
  8. If § 4-33-705(b) or any other provision of this chapter prescribes notice requirements for particular circumstances, those requirements govern. If articles or bylaws prescribe notice requirements, not inconsistent with this section or other provisions of this chapter, those requirements govern.

History. Acts 1993, No. 1147, § 141.

4-33-142 — 4-33-149. [Reserved.]

Part E: Private Foundations

4-33-150. Internal Revenue section 501(c)(3) — Organizations and private foundations.

  1. Notwithstanding any provision of Arkansas law or in the articles of incorporation to the contrary, the articles of incorporation of each corporation organized under this chapter which is an exempt charitable, religious, literary, educational, or scientific organization as described in section 501(c)(3) of the Internal Revenue Code of 1986 shall be deemed to contain the following provisions:
  2. Notwithstanding any provision of Arkansas law or in the articles of incorporation to the contrary, the articles of incorporation of each corporation which is subject to this chapter and which is a private foundation as defined in section 509(a) of the Internal Revenue Code of 1986 shall be deemed to contain the following provisions:
    1. shall distribute such amounts for each taxable year at such time and in such manner as not to subject the corporation to tax under section 4942 of the Code.
    2. shall not engage in any act of self-dealing as defined in section 4941(d) of the Code.
    3. shall not retain any excess business holdings as defined in section 4943(c) of the Code.
    4. shall not make any taxable expenditures as defined in section 4944 of the Code.
    5. shall not make any taxable expenditures as defined in section 4945(d) of the Code.
  3. The articles of incorporation of any corporation described in subsection (b) of this section may be amended to expressly exclude the application of subsection (b) and in the event of such amendment, subsection (b) shall not apply to that corporation.

“Upon the dissolution of the corporation, the board of directors shall, after paying or making provision for the payment of all of the liabilities of the corporation, dispose of all of the assets of the corporation exclusively for the purposes of the corporation in such manner, or to such charitable, educational, religious, literary, or scientific purposes as shall at the time qualify as an exempt organization or organizations under section 501(c)(3) of the Internal Revenue Code of 1986, or the corresponding provision of any future United States Internal Revenue Law, as the board of trustees shall determine. Any such assets not so disposed of shall be disposed of by the circuit court of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said court shall determine, which are organized and operated exclusively for such purposes.”

All references in this section to sections of the Code shall be to such sections of the Internal Revenue Code of 1986 as amended from time to time, or to corresponding provisions of subsequent internal revenue laws of the United States.

History. Acts 1993, No. 1147, § 150.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

U.S. Code. The Internal Revenue Code of 1986, referred to in this section, is codified throughout Title 26 of the U.S. Code. Sections 501(c)(3), 509(a), 4941(d), 4942, 4943(c), 4944 and 4945(d) of the Internal Revenue Code of 1986 are codified as 26 U.S.C. §§ 501(c)(3), 509(a), 4941(d), 4942, 4943(c), 4944 and 4945(d), respectively.

4-33-151 — 4-33-159. [Reserved.]

Part F: Judicial Relief

4-33-160. Judicial relief.

  1. If for any reason it is impractical or impossible for any corporation to call or conduct a meeting of its members, delegates, or directors, or otherwise obtain their consent, in the manner prescribed by its articles, bylaws, or this chapter, then upon petition of a director, officer, delegate, or member, a circuit court sitting in the county of the principal office of the corporation may order that such a meeting be called or that a written ballot or other form of obtaining the vote of members, delegates, or directors be authorized, in such a manner as the court finds fair and equitable under the circumstances.
  2. The court shall, in an order issued pursuant to this section, provide for a method of notice reasonably designed to give actual notice to all persons who would be entitled to notice of a meeting held pursuant to the articles, bylaws and this chapter, whether or not the method results in actual notice to all such persons or conforms to the notice requirements that would otherwise apply. In a proceeding under this section the court may determine who the members or directors are.
  3. The order issued pursuant to this section may dispense with any requirement relating to the holding of or voting at meetings or obtaining votes, including any requirement as to quorums or as to the number or percentage of votes needed for approval, that would otherwise be imposed by the articles, bylaws, or this chapter.
  4. Whenever practical any order issued pursuant to this section shall limit the subject matter of meetings or other forms of consent authorized to items, including amendments to the articles or bylaws, the resolution of which will or may enable the corporation to continue managing its affairs without further resort to this section; provided, however, that an order under this section may also authorize the obtaining of whatever votes and approvals are necessary for the dissolution, merger or sale of assets.
  5. Any meeting or other method of obtaining the vote of members, delegates, or directors conducted pursuant to an order issued under this section, and that complies with all the provisions of such order, is for all purposes a valid meeting or vote, as the case may be, and shall have the same force and effect as if it complied with every requirement imposed by the articles, bylaws and this chapter.

History. Acts 1993, No. 1147, § 160.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-33-161 — 4-33-169. [Reserved.]

Part G: Attorney General

4-33-170 — 4-33-179. [Reserved.]

Part H: Religious Corporations — Constitutional Protections

4-33-180. Religious corporations — Constitutional protections.

If religious doctrine governing the affairs of a religious corporation is inconsistent with the provisions of this chapter on the same subject, the religious doctrine shall control to the extent required by the Constitution of the United States or the constitution of this state or both.

History. Acts 1993, No. 1147, § 170.

Subchapter 2 — Organization

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2019, No. 108, § 6: Feb. 13, 2019. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that a for-profit corporation could face severe adverse tax consequences for reorganizing as a nonprofit corporation that may result in being subjected to unwarranted penalties; that existing statutes relating to the process of converting to a nonprofit entity need amending to eliminate uncertainty and to prevent irreparable harm on businesses operating in this state; and that this act is immediately necessary to clarify state law governing conversion by a for-profit corporation to a nonprofit corporation and provide for timely administration of business procedures. Therefore, an emergency is declared to exist, and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto”.

Research References

Am. Jur. 18A Am. Jur. 2d, Corp., § 150 et seq.

C.J.S. 18 C.J.S., Corp., § 47 et seq.

4-33-201. Incorporators.

One (1) or more persons may act as the incorporator or incorporators of a corporation by delivering articles of incorporation to the Secretary of State for filing.

History. Acts 1993, No. 1147, § 201.

4-33-202. Articles of incorporation.

  1. The articles of incorporation must set forth:
    1. a corporate name for the corporation that satisfies the requirements of § 4-33-401;
    2. one (1) of the following statements:
      1. this corporation is a public benefit corporation;
      2. this corporation is a mutual benefit corporation; or
      3. this corporation is a religious corporation.
    3. the information required by § 4-20-105(a);
    4. the name and address of each incorporator;
    5. whether or not the corporation will have members;
    6. provisions not inconsistent with law regarding the distribution of assets on dissolution; and
    7. if converting to a nonprofit corporation from another form of entity, then the articles of incorporation shall include:
      1. a statement that the corporation:
        1. is a nonprofit corporation; and
        2. has converted under the Arkansas Nonprofit Corporation Act of 1993, § 4-33-101 et seq.;
        1. a description of the treatment of shares of stock.
        2. the description of the treatment of shares of stock:
          1. may provide for the repurchase or exchange of shares of stock for certificates of membership if the corporation has members, and if the shares are repurchased, then the nonprofit corporation shall cancel the shares; or
          2. shall provide that the shares of stock be canceled by the board of directors if the corporation does not have members; and
      2. a statement that the Internal Revenue Service has been notified or will be notified within a reasonable time of the conversion and federal regulations were followed regarding the conversion.
  2. The articles of incorporation may set forth:
    1. the purpose or purposes for which the corporation is organized, which may be, either alone or in combination with other purposes, the transaction of any lawful activity;
    2. the names and addresses of the individuals who are to serve as the initial directors;
    3. provisions not inconsistent with law regarding:
      1. managing and regulating the affairs of the corporation;
      2. defining, limiting, and regulating the powers of the corporation, its board of directors and members (or any class of members); and
      3. the characteristics, qualifications, rights, limitations and obligations attaching to each or any class of members.
    4. any provision that under this chapter is required or permitted to be set forth in the bylaws.
    1. Each incorporator named in the articles must sign the articles.
    2. If an entity is a for-profit corporation that is converting to a nonprofit corporation, the conversion shall be approved by a three-fourths (¾) vote of the shareholders of the business corporation.
  3. The articles of incorporation need not set forth any of the corporate powers enumerated in this chapter.
  4. A for-profit corporation may convert to a nonprofit corporation under the Arkansas Nonprofit Corporation Act, §§ 4-28-201 — 4-28-206 and 4-28-209 — 4-28-224, or the Arkansas Nonprofit Corporation Act of 1993, § 4-33-101 et seq., upon the filing of an amendment to the corporation's articles of incorporation with the information required under this section.
  5. A conversion to a nonprofit corporation under this chapter is effective when an amendment to the articles of incorporation is filed with the Secretary of State and the Secretary of State has collected the filing fees, service fees, and copying fees required under § 4-33-122.

History. Acts 1993, No. 1147, § 202; 2007, No. 638, § 39; 2019, No. 108, §§ 3-5.

Amendments. The 2019 amendment added (a)(7); redesignated (c) as (c)(1); and added (c)(2), (e), and (f).

4-33-203. Incorporation.

  1. Unless a delayed effective date is specified, the corporate existence begins when the articles of incorporation are filed.
  2. The Secretary of State's filing of the articles of incorporation is conclusive proof that the incorporation satisfied all conditions precedent to incorporation except in a proceeding by the state to cancel or revoke the incorporation or involuntarily dissolve the corporation.

History. Acts 1993, No. 1147, § 203.

4-33-204. Liability for preincorporation transactions.

All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this chapter, are jointly and severally liable for all liabilities created while so acting.

History. Acts 1993, No. 1147, § 204.

4-33-205. Organization of corporation.

  1. After incorporation:
    1. if initial directors are named in the articles of incorporation, the initial directors shall hold an organizational meeting, at the call of a majority of the directors, to complete the organization of the corporation by appointing officers, adopting bylaws, and carrying on any other business brought before the meeting;
    2. if initial directors are not named in the articles, the incorporator or incorporators shall hold an organizational meeting at the call of a majority of the incorporators:
      1. to elect directors and complete the organization of the corporation; or
      2. to elect a board of directors who shall complete the organization of the corporation.
  2. Action required or permitted by this chapter to be taken by incorporators at an organizational meeting may be taken without a meeting if the action taken is evidenced by one (1) or more written consents describing the action taken and signed by each incorporator.
  3. An organizational meeting may be held in or out of this state in accordance with § 4-33-820.

History. Acts 1993, No. 1147, § 205.

4-33-206. Bylaws.

  1. The incorporators or board of directors of a corporation shall adopt bylaws for the corporation.
  2. The bylaws may contain any provision for regulating and managing the affairs of the corporation that is not inconsistent with law or the articles of incorporation.

History. Acts 1993, No. 1147, § 206.

4-33-207. Emergency bylaws and powers.

  1. Unless the articles provide otherwise the directors of a corporation may adopt, amend or repeal bylaws to be effective only in an emergency defined in subsection (d) of this section. The emergency bylaws, which are subject to amendment or repeal by the members, may provide special procedures necessary for managing the corporation during the emergency, including:
    1. how to call a meeting of the board;
    2. quorum requirements for the meeting; and
    3. designation of additional or substitute directors.
  2. All provisions of the regular bylaws consistent with the emergency bylaws remain effective during the emergency. The emergency bylaws are not effective after the emergency ends.
  3. Corporate action taken in good faith in accordance with the emergency bylaws:
    1. binds the corporation; and
    2. may not be used to impose liability on a corporate director, officer, employee, or agent.
  4. An emergency exists for purposes of this section if a quorum of the corporation's directors cannot readily be assembled because of some catastrophic event.

History. Acts 1993, No. 1147, § 207.

Subchapter 3 — Purposes and Powers

Research References

C.J.S. 18B Am. Jur. 2d, Corp., § 1695 et seq.

19 C.J.S., Corp., § 651 et seq.

4-33-301. Purposes.

  1. Every corporation incorporated under this chapter has the purpose of engaging in any lawful activity unless a more limited purpose is set forth in the articles of incorporation.
  2. A corporation engaging in an activity that is subject to regulation under another statute of this state may incorporate under this chapter only if incorporation under this chapter is not prohibited by the other statute. The corporation shall be subject to all limitations of the other statute.

History. Acts 1993, No. 1147, § 301.

4-33-302. General powers.

Unless its articles of incorporation provide otherwise, every corporation has perpetual duration and succession in its corporate name and has the same powers as an individual to do all things necessary or convenient to carry out its affairs including, without limitation, power:

  1. to sue and be sued, complain and defend in its corporate names;
  2. to have a corporate seal, which may be altered at will, and to use it, or a facsimile of it, by impressing or affixing or in any other manner reproducing it;
  3. to make and amend bylaws not inconsistent with its articles of incorporation or with the laws of this state, for regulating and managing the affairs of the corporation;
  4. to purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located;
  5. to sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any part of its property;
  6. to purchase, receive, subscribe for, or otherwise acquire, own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of, and deal in and with, shares or other interests in, or obligations of any entity;
  7. to make contracts and guaranties, incur liabilities, borrow money, issue notes, bonds, and other obligations, and secure any of its obligations by mortgage or pledge of any of its property, franchises, or income;
  8. to lend money, invest and revest its funds, and receive and hold real and personal property as security for repayment, except as limited by § 4-33-832;
  9. to be a promoter, partner, member, associate or manager of any partnership, joint venture, trust or other entity;
  10. to conduct its activities, locate offices, and exercise the powers granted by this chapter within or without this state;
  11. to elect or appoint directors, officers, employees, and agents of the corporation, define their duties, and fix their compensation;
  12. to pay pensions and establish pension plans, pension trusts, and other benefit and incentive plans for any or all of its current or former directors, officers, employees, and agents;
  13. to make donations not inconsistent with law for the public welfare or for charitable, religious, scientific, or educational purposes and for other purposes that further the corporate interest;
  14. to impose dues, assessments, admission and transfer fees upon its members;
  15. to establish conditions for admission of members, admit members and issue memberships;
  16. to carry on a business;
  17. to serve as a trustee of a trust in which it or an entity affiliated by common program or purpose has a beneficial interest; and
  18. to do all things necessary or convenient, not inconsistent with law, to further the activities and affairs of the corporation.

History. Acts 1993, No. 1147, § 302.

Research References

Ark. L. Notes.

Sampson, Nonprofit Risk; Nonprofit Insurance, 2008 Ark. L. Notes 83.

4-33-303. Emergency powers.

  1. In anticipation of or during an emergency defined in subsection (d) of this section, the board of directors of a corporation may:
    1. modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent; and
    2. relocate the principal office, designate alternative principal offices or regional offices, or authorize the officer to do so.
  2. During an emergency defined in subsection (d) of this section, unless emergency bylaws provide otherwise:
    1. notice of a meeting of the board of directors need be given only to those directors it is practicable to reach and may be given in any practicable manner, including by publication and radio; and
    2. one (1) or more officers of the corporation present at a meeting of the board of directors may be deemed to be directors for the meeting, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum.
  3. Corporate action taken in good faith during an emergency under this section to further the ordinary affairs of the corporation:
    1. binds the corporation; and
    2. may not be used to impose liability on a corporate director, officer, employee, or agent.
  4. An emergency exists for purposes of this section if a quorum of the corporation's directors cannot readily be assembled because of some catastrophic event.

History. Acts 1993, No. 1147, § 303.

4-33-304. Ultra vires.

  1. Except as provided in subsection (b) of this section, the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act.
  2. A corporation's power to act may be challenged in a proceeding against the corporation to enjoin an act where a third party has not acquired rights. The proceeding may be brought by the Attorney General, a director, or by a member or members in a derivative proceeding.
  3. A corporation's power to act may be challenged in a proceeding against an incumbent or former director, officer, employee or agent of the corporation. The proceeding may be brought by a director, the corporation, directly, derivatively, or through a receiver, a trustee or other legal representative, or in the case of a public benefit corporation, by the Attorney General.

History. Acts 1993, No. 1147, § 304.

Subchapter 4 — Names

Research References

Am. Jur. 18A Am. Jur. 2d, Corp., § 222 et seq.

C.J.S. 18 C.J.S., Corp., § 132 et seq.

4-33-401. Corporate name.

  1. A corporate name may not contain language stating or implying that the corporation is organized for a purpose other than that permitted by § 4-33-301 and its articles of incorporation.
  2. Except as authorized by subsections (c) and (d) of this section, a corporate name must be distinguishable upon the records of the Secretary of State from:
    1. the corporate name of a nonprofit or business corporation incorporated or authorized to do business in this state;
    2. a corporate name reserved or registered under § 4-33-402 or § 4-33-403 of this chapter or § 4-26-402 or § 4-27-402; or
    3. the fictitious name of a foreign business or nonprofit corporation authorized to transact business in this state because its real name is unavailable;
  3. A corporation may apply to the Secretary of State for authorization to use a name that is not distinguishable upon the Secretary of State's records from one (1) or more of the names described in subsection (b) of this section. The Secretary of State shall authorize use of the name applied for if:
    1. the other corporation consents to the use in writing and submits an undertaking in form satisfactory to the Secretary of State to change its name to a name that is distinguishable upon the records of the Secretary of State from the name of the applying corporation; or
    2. the applicant delivers to the Secretary of State a certified copy of a final judgment of a court of competent jurisdiction establishing the applicant's right to use the name applied for in this state.
  4. A corporation may use the name (including the fictitious name) of another domestic or foreign business or nonprofit corporation that is used in this state if the other corporation is incorporated or authorized to do business in this state and the proposed user corporation:
    1. has merged with the other corporation;
    2. has been formed by reorganization of the other corporation; or
    3. has acquired all or substantially all of the assets, including the corporate name, of the other corporation.
  5. This chapter does not control the use of fictitious names.

History. Acts 1993, No. 1147, § 401.

4-33-402. Reserved name.

  1. A person may reserve the exclusive use of a corporate name, including a fictitious name for a foreign corporation whose corporate name is not available by delivering an application to the Secretary of State for filing. Upon finding that the corporate name applied for is available, the Secretary of State shall reserve the name for the applicant's exclusive use for a nonrenewable one hundred twenty-day period.
  2. The owner of a reserved corporate name may transfer the reservation to another person by delivering to the Secretary of State a signed notice of the transfer that states the name and address of the transferee.

History. Acts 1993, No. 1147, § 402.

4-33-403. Registered name.

  1. A foreign corporation may register its corporate name, or its corporate name with any change required by § 4-33-1506, if the name is distinguishable upon the records of the Secretary of State from:
    1. the corporate name of a nonprofit or business corporation incorporated or authorized to do business in this state; and
    2. a corporate name reserved under § 4-33-402 or § 4-26-402 or § 4-27-402 or registered under this section.
  2. A foreign corporation registers its corporate name, or its corporate name with any change required by § 4-33-1506 by delivering to the Secretary of State an application:
    1. setting forth its corporate name, or its corporate name with any change required by § 4-33-1506, the state or country and date of its incorporation, and a brief description of the nature of the activities in which it is engaged; and
    2. accompanied by a certificate of existence (or a document of similar import) from the state or country of incorporation.
  3. The name is registered for the applicant's exclusive use upon the effective date of the application.
  4. A foreign corporation whose registration is effective may renew it for successive years by delivering to the Secretary of State for filing a renewal application, which complies with the requirements of subsection (b) of this section, between October 1 and December 31 of the preceding year. The renewal application renews the registration for the following calendar year.
  5. A foreign corporation whose registration is effective may thereafter qualify as a foreign corporation under that name or consent in writing to the use of that name by a corporation thereafter incorporated under this chapter or by another foreign corporation thereafter authorized to transact business in this state. The registration terminates when the domestic corporation is incorporated or the foreign corporation qualifies or consents to the qualification of another foreign corporation under the registered name.

History. Acts 1993, No. 1147, § 403.

Subchapter 5 — Office and Agent

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

4-33-501 — 4-33-504. [Repealed.]

Publisher's Notes. These sections, concerning registered office and registered agent, change of registered office or registered agent, resignation of a registered agent, and service on a corporation, were repealed by the Model Registered Agents Act, Acts 2007, No. 638, § 40.

Section 4-33-501 was derived from Acts 1993, No. 1147, § 501.

Section 4-33-502 was derived from Acts 1993, No. 1147, § 502.

Section 4-33-503 was derived from Acts 1993, No. 1147, § 503.

Section 4-33-504 was derived from Acts 1993, No. 1147, § 504; 2001, No. 749, § 1.

Subchapter 6 — Members and Membership

Part A — Admission of Members

4-33-601. Admission.

  1. The articles or bylaws may establish criteria or procedures for admission of members.
  2. No person shall be admitted as a member without his or her consent.

History. Acts 1993, No. 1147, § 601.

4-33-602. Consideration.

Except as provided in its articles or bylaws, a corporation may admit members for no consideration or for such consideration as is determined by the board.

History. Acts 1993, No. 1147, § 602.

4-33-603. No requirement of members.

A corporation is not required to have members.

History. Acts 1993, No. 1147, § 603.

4-33-604 — 4-33-609. [Reserved.]

Part B — Types of Memberships — Members' Rights and Obligations

4-33-610. Differences in rights and obligations of members.

All members shall have the same rights and obligations with respect to voting, dissolution, redemption and transfer, unless the articles or bylaws establish classes of membership with different rights or obligations. All members shall have the same rights and obligations with respect to any other matters, except as set forth in or authorized by the articles or bylaws.

History. Acts 1993, No. 1147, § 610.

4-33-611. Transfers.

  1. Except as set forth in or authorized by the articles or bylaws, no member of a mutual benefit corporation may transfer a membership or any right arising therefrom.
  2. No member of a public benefit or religious corporation may transfer a membership or any right arising therefrom.
  3. Where transfer rights have been provided, no restriction on them shall be binding with respect to a member holding a membership issued prior to the adoption of the restriction unless the restriction is approved by the members and the affected member.

History. Acts 1993, No. 1147, § 611.

4-33-612. Member's liability to third parties.

A member of a corporation is not, as such, personally liable for the acts, debts, liabilities, or obligations of the corporation.

History. Acts 1993, No. 1147, § 612.

4-33-613. Member's liability for dues, assessments and fees.

A member may become liable to the corporation for dues, assessments or fees; provided, however, that an article or bylaw provision or a resolution adopted by the board authorizing or imposing dues, assessments or fees does not, of itself, create liability.

History. Acts 1993, No. 1147, § 613.

4-33-614. Creditor's action against member.

  1. No proceeding may be brought by a creditor to reach the liability, if any, of a member to the corporation unless final judgment has been rendered in favor of the creditor against the corporation and execution has been returned unsatisfied in whole or in part or unless such proceeding would be useless.
  2. All creditors of the corporation, with or without reducing their claims to judgment, may intervene in any creditor's proceeding brought under subdivision (a) of this section to reach and apply unpaid amounts due the corporation. Any or all members who owe amounts to the corporation may be joined in such proceeding.

History. Acts 1993, No. 1147, § 614.

4-33-615 — 4-33-619. [Reserved.]

Part C — Resignation and Termination

4-33-620. Resignation.

  1. A member may resign at any time.
  2. The resignation of a member does not relieve the member from any obligations the member may have to the corporation as a result of obligations incurred or commitments made prior to resignation.

History. Acts 1993, No. 1147, § 620.

4-33-621. Termination, expulsion and suspension.

  1. No member of a public benefit or mutual benefit corporation may be expelled or suspended, and no membership or memberships in such corporations may be terminated or suspended except pursuant to a procedure that is fair and reasonable and is carried out in good faith.
  2. A procedure is fair and reasonable when either:
    1. the articles or bylaws set forth a procedure that provides:
      1. not less than fifteen (15) days prior written notice of the expulsion, suspension or termination and the reasons therefor; and
      2. an opportunity for the member to be heard, orally or in writing, not less than five (5) days before the effective date of the expulsion, suspension or termination by a person or persons authorized to decide that the proposed expulsion, termination or suspension not take place; or
    2. it is fair and reasonable taking into consideration all of the relevant facts and circumstances.
  3. Any written notice given by mail must be given by first-class or certified mail sent to the last address of the member shown on the corporation's records.
  4. Any proceeding challenging an expulsion, suspension or termination, including a proceeding in which defective notice is alleged, must be commenced within one (1) year after the effective date of the expulsion, suspension or termination.
  5. A member who has been expelled or suspended may be liable to the corporation for dues, assessments or fees as a result of obligations incurred or commitments made prior to expulsion or suspension.

History. Acts 1993, No. 1147, § 621.

4-33-622. Purchase of memberships.

  1. A public benefit or religious corporation may not purchase any of its memberships or any right arising therefrom.
  2. A mutual benefit corporation may purchase the membership of a member who resigns or whose membership is terminated for the amount and pursuant to the conditions set forth in or authorized by its articles or bylaws. No payment shall be made in violation of §§ 4-33-1301 et seq.

History. Acts 1993, No. 1147, § 622.

4-33-623 — 4-33-629. [Reserved.]

Part D — Derivative Suits

4-33-630 — 4-33-639. [Reserved.]

Part E — Delegates

4-33-640. Delegates.

  1. A corporation may provide in its articles or bylaws for delegates having some or all of the authority of members.
  2. The articles or bylaws may set forth provisions relating to:
    1. the characteristics, qualifications, rights, limitation and obligations of delegates including their selection and removal;
    2. calling, noticing, holding and conducting meetings of delegates; and
    3. carrying on corporate activities during and between meetings of delegates.

History. Acts 1993, No. 1147, § 630.

Subchapter 7 — Members' Meetings and Voting

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Part A — Meetings and Action Without Meetings

4-33-701. Annual and regular meetings.

  1. A corporation with members shall hold a membership meeting annually at a time stated in or fixed in accordance with the bylaws.
  2. A corporation with members may hold regular membership meetings at times stated in or fixed in accordance with the bylaws.
  3. Annual and regular membership meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated in or fixed in accordance with the bylaws, annual and regular meetings shall be held at the corporation's principal office.
  4. At the annual meeting:
    1. The president and chief financial officer shall report on the activities and financial condition of the corporation; and
    2. The members shall consider and act upon such other matters as may be raised consistent with the notice requirements of § 4-33-705.
  5. At regular meetings the members shall consider and act upon such matters as may be raised consistent with the notice requirements of § 4-33-705.
  6. The failure to hold an annual or regular meeting at a time stated in or fixed in accordance with a corporation's bylaws does not affect the validity of any corporate action.

History. Acts 1993, No. 1147, § 701.

4-33-702. Special meeting.

  1. A corporation with members shall hold a special meeting of members:
    1. on call of its board or the person or persons authorized to do so by the articles or bylaws; or
    2. except as provided in the articles or bylaws of a religious corporation if the holders of at least five percent (5%) of the voting power of any corporation sign, date, and deliver to any corporate officer one (1) or more written demands for the meeting describing the purpose or purposes for which it is to be held.
  2. The close of business on the thirtieth day before delivery of the demand or demands for a special meeting to any corporate officer is the record date for the purpose of determining whether the five percent (5%) requirement of subsection (a) has been met.
  3. If a notice for a special meeting demanded under subsection (a)(2) of this section is not given pursuant to § 4-33-705 within thirty days after the date the written demand or demands are delivered to a corporate officer, regardless of the requirements of subsection (d) of this section, a person signing the demand or demands may set the time and place of the meeting and give notice pursuant to § 4-33-705.
  4. Special meetings of members may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated or fixed in accordance with the bylaws, special meetings shall be held at the corporation's principal office.
  5. Only those matters that are within the purpose or purposes described in the meeting notice required by § 4-33-705 may be conducted at a special meeting of members.

History. Acts 1993, No. 1147, § 702.

4-33-703. Court-ordered meeting.

  1. The circuit court of the county where a corporation's principal office is located or the Pulaski County Circuit Court, if the corporation does not have a principal office in this state, may summarily order a meeting to be held:
    1. on application of any member or other person entitled to participate in an annual or regular meeting, if an annual meeting was not held within the earlier of six (6) months after the end of the corporation's fiscal year or fifteen (15) months after its last annual meeting; or
    2. on application of any member or other person entitled to participate in a regular meeting, if a regular meeting is not held within forty (40) days after the date it was required to be held; or
    3. on application of a member who signed a demand for a special meeting valid under § 4-33-702 or a person or persons entitled to call a special meeting, if:
      1. notice of the special meeting was not given within thirty (30) days after the date the demand was delivered to a corporate officer; or
      2. the special meeting was not held in accordance with the notice.
  2. The court may fix the time and place of the meeting, specify a record date for determining members entitled to notice of and to vote at the meeting, prescribe the form and content of the meeting notice, fix the quorum required for specific matters to be considered at the meeting (or direct that the votes represented at the meeting constitute a quorum for action on those matters), and enter other orders necessary to accomplish the purpose or purposes of the meeting.
  3. If the court orders a meeting, it may also order the corporation to pay the member's costs (including reasonable counsel fees) incurred to obtain the order.

History. Acts 1993, No. 1147, § 703; 2007, No. 638, § 41.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-33-704. Action by written consent.

    1. Unless limited or prohibited by the articles or bylaws, action required or permitted by this chapter to be approved by the members may be approved without a meeting of members if the action is approved by members holding at least eighty percent (80%) of the voting power.
    2. The action must be evidenced by one (1) or more written consents describing the action taken, signed by those members representing at least eighty percent (80%) of the voting power, and delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  1. If not otherwise determined under § 4-33-703 or § 4-33-707, the record date for determining members entitled to take action without a meeting is the date the first member signs the consent under subsection (a) of this section.
  2. A consent signed under this section has the effect of a meeting vote and may be described as such in any document filed with the Secretary of State.
    1. Written notice of member approval pursuant to this section shall be given to all members who have not signed the written consent.
    2. If written notice is required, member approval pursuant to this section shall be effective ten (10) days after such written notice is given.
    1. The signature of a member may be affixed to a written consent by any reasonable means, including without limitation facsimile signature or electronic image.
    2. The written consent may be delivered to the corporation by electronic communication, including without limitation facsimile transmission or electronic mail.

History. Acts 1993, No. 1147, § 704; 2009, No. 167, § 1.

Amendments. The 2009 amendment subdivided (a) and (d); and added (e).

4-33-705. Notice of meeting.

  1. A corporation shall give notice consistent with its bylaws of meetings of members in a fair and reasonable manner.
  2. Any notice that conforms to the requirements of subsection (c) of this section is fair and reasonable, but other means of giving notice may also be fair and reasonable when all the circumstances are considered; provided, however, that notice of matters referred to in subsection (c)(2) of this section must be given as provided in subsection (c) of this section.
  3. Notice is fair and reasonable if:
    1. the corporation notifies its members of the place, date, and time of each annual, regular and special meeting of members no fewer than ten (10) (or if notice is mailed by other than first class or registered mail, thirty (30)) nor more than sixty (60) days before the meeting date;
    2. notice of an annual or regular meeting includes a description of any matter or matters that must be approved by the members under §§ 4-33-831, 4-33-856, 4-33-1003, 4-33-1021, 4-33-1104, 4-33-1202, 4-33-1401, or 4-33-1402; and
    3. notice of a special meeting includes a description of the matter or matters for which the meeting is called.
  4. Unless the bylaws require otherwise, if an annual, regular or special meeting of members is adjourned to a different date, time or place, notice need not be given of the new date, time or place, if the new date, time or place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed under § 4-33-707, however, notice of the adjourned meeting must be given under this section to the members of record as of the new record date.
  5. When giving notice of an annual, regular or special meeting of members, a corporation shall give notice of a matter a member intends to raise at the meeting if: (1) requested in writing to do so by a person entitled to call a special meeting; and (2) the request is received by the secretary or president of the corporation at least ten (10) days before the corporation gives notice of the meeting.

History. Acts 1993, No. 1147, § 705.

4-33-706. Waiver of notice.

    1. A member may waive any notice required by this chapter, the articles, or bylaws before or after the date and time stated in the notice.
    2. The waiver must be in writing, be signed by the member entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  1. A member's attendance at a meeting:
    1. Waives objection to lack of notice or defective notice of the meeting, unless the member at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and
    2. Waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the member objects to considering the matter when it is presented.
    1. The signature of a member may be affixed to a waiver of notice by any reasonable means, including without limitation facsimile signature or electronic image.
    2. The waiver of notice may be delivered to the corporation by electronic communication, including without limitation facsimile transmission or electronic mail.

History. Acts 1993, No. 1147, § 706; 2009, No. 167, § 2.

Amendments. The 2009 amendment subdivided (a); made minor capitalization changes in (b); and added (c).

4-33-707. Record date — Determining members entitled to notice and vote.

  1. The bylaws of a corporation may fix or provide the manner of fixing a date as the record date for determining the members entitled to notice of a members' meeting. If the bylaws do not fix or provide for fixing such a record date, the board may fix a future date as such a record date. If no such record date is fixed, members at the close of business on the business day preceding the day on which notice is given, or if notice is waived, at the close of business on the business day preceding the day on which the meeting is held, are entitled to notice of the meeting.
  2. The bylaws of a corporation may fix or provide the manner of fixing a date as the record date for determining the members entitled to vote at a members' meeting. If the bylaws do not fix or provide for fixing such a record date, the board may fix a future date as such a record date. If no such record date is fixed, members on the date of the meeting who are otherwise eligible to vote are entitled to vote at the meeting.
  3. The bylaws may fix or provide the manner for determining a date as the record date for the purpose of determining the members entitled to exercise any rights in respect of any other lawful action. If the bylaws do not fix or provide for fixing such a record date, the board may fix in advance such a record date. If no such record date is fixed, members at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth day prior to the date of such other action, whichever is later, are entitled to exercise such rights.
  4. A record date fixed under this section may not be more than seventy (70) days before the meeting or action requiring a determination of members occurs.
  5. A determination of members entitled to notice of or to vote at a membership meeting is effective for any adjournment of the meeting unless the board fixes a new date for determining the right to notice or the right to vote, which it must do if the meeting is adjourned to a date more than seventy (70) days after the record date for determining members entitled to notice of the original meeting.
  6. If a court orders a meeting adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting, it may provide that the original record date for notice or voting continues in effect or it may fix a new record date for notice or voting.

History. Acts 1993, No. 1147, § 707.

4-33-708. Action by written ballot.

  1. Unless prohibited or limited by the articles or bylaws, any action that may be taken at any annual, regular, or special meeting of members may be taken without a meeting if the corporation delivers a written ballot to every member entitled to vote on the matter.
  2. A written ballot shall:
    1. set forth each proposed action; and
    2. provide an opportunity to vote for or against each proposed action.
  3. Approval by written ballot pursuant to this section shall be valid only when the number of votes cast by ballot equals or exceeds the quorum required to be present at a meeting authorizing the action and the number of approvals equals or exceeds the number of votes that would be required to approve the matter at a meeting at which the total number of votes cast was the same as the number of votes cast by ballot.
  4. All solicitations for votes by written ballot shall:
    1. indicate the number of responses needed to meet the quorum requirements;
    2. state the percentage of approvals necessary to approve each matter other than election of directors; and
    3. specify the time by which a ballot must be received by the corporation in order to be counted.
  5. Except as otherwise provided in the articles or bylaws, a written ballot may not be revoked.
    1. The signature of a member may be affixed to a written ballot by any reasonable means, including without limitation facsimile signature or electronic image.
    2. The written ballot may be delivered to the corporation by electronic communication, including without limitation facsimile transmission or electronic mail.

History. Acts 1993, No. 1147, § 708; 2009, No. 167, § 3.

Amendments. The 2009 amendment made minor capitalization changes in (b) and (d); and added (f).

4-33-709 — 4-33-719. [Reserved.]

Part B — Voting

4-33-720. Members' list for meeting.

  1. After fixing a record date for a notice of a meeting, a corporation shall prepare an alphabetical list of the names of all its members who are entitled to notice of the meeting. The list must show the address and number of votes each member is entitled to vote at the meeting. The corporation shall prepare on a current basis through the time of the membership meeting a list of members, if any, who are entitled to vote at the meeting, but not entitled to notice of the meeting. This list shall be prepared on the same basis and be part of the list of members.
  2. The list of members must be available for inspection by any member for the purpose of communication with other members concerning the meeting, beginning two (2) business days after notice is given of the meeting for which the list was prepared and continuing through the meeting, at the corporation's principal office or at a reasonable place identified in the meeting notice in the city where the meeting will be held. A member, a member's agent, or attorney is entitled on written demand to inspect and, subject to the limitations of subsection (d) of this section, to copy the list, at a reasonable time and at the member's expense, during the period it is available for inspection.
  3. The corporation shall make the list of members available at the meeting, and any member, a member's agent, or attorney is entitled to inspect the list at any time during the meeting or any adjournment.
  4. Without consent of the board, a membership list or any part thereof may not be obtained or used by any person for any purpose unrelated to a member's interest as a member. Without limiting the generality of the foregoing, or without the consent of the board a membership list or any part thereof may not be:
    1. used to solicit money or property unless such money or property will be used solely to solicit the votes of the members in an election to be held by the corporation;
    2. used for any commercial purpose; or
    3. sold to or purchased by any person.
  5. The articles or bylaws of a religious corporation may limit or abolish the rights of a member under this section to inspect and copy any corporate record.

History. Acts 1993, No. 1147, § 720.

4-33-721. Voting entitlement generally.

  1. Unless the articles or bylaws provide otherwise, each member is entitled to one (1) vote on each matter voted on by the members. When more than one (1) membership is held by a single entity, the member shall be entitled to one (1) vote for each such membership.
  2. Unless the articles or bylaws provide otherwise, if a membership stands of record in the names of two (2) or more persons, their acts with respect to voting shall have the following effect:
    1. if only one (1) votes, such act binds all; and
    2. if more than one (1) votes, the vote shall be divided on a prorata basis.

History. Acts 1993, No. 1147, § 721.

4-33-722. Quorum requirements.

  1. Unless this chapter, the articles, or bylaws provide for a higher or lower quorum, ten percent (10%) of the votes entitled to be cast on a matter must be represented at a meeting of members to constitute a quorum on that matter.
  2. A bylaw amendment to decrease the quorum for any member action may be approved by the members or, unless prohibited by the bylaws, by the board.
  3. A bylaw amendment to increase the quorum required for any member action must be approved by the members.
  4. Unless one-third (1/3) or more of the voting power is present in person or by proxy, the only matters that may be voted upon at an annual or regular meeting of members are those matters that are described in the meeting notice.

History. Acts 1993, No. 1147, § 722.

4-33-723. Voting requirements.

  1. Unless this chapter, the articles, or the bylaws require a greater vote or voting by class, if a quorum is present, the affirmative vote of the votes represented and voting (which affirmative votes also constitute a majority of the required quorum) is the act of the members.
  2. A bylaw amendment to increase or decrease the vote required for any member action must be approved by the members.

History. Acts 1993, No. 1147, § 723.

4-33-724. Proxies.

  1. Unless the articles or bylaws prohibit or limit proxy voting, a member may appoint a proxy to vote or otherwise act for the member by signing an appointment form either personally or by an attorney-in-fact.
    1. An appointment of a proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes.
    2. An appointment is valid for eleven (11) months unless a different period is expressly provided in the appointment form; provided however, that no proxy shall be valid for more than three (3) years from its date of execution.
  2. An appointment of a proxy is revocable by the member.
  3. The death or incapacity of the member appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises authority under the appointment.
  4. Appointment of a proxy is revoked by the person appointing the proxy:
    1. attending any meeting and voting in person; or
    2. signing and delivering to the secretary or other officer or agent authorized to tabulate proxy votes either a writing stating that the appointment of the proxy is revoked or a subsequent appointment form.
  5. Subject to § 4-33-727 and any express limitation on the proxy's authority appearing on the face of the appointment form, a corporation is entitled to accept the proxy's vote or other action as that of the member making the appointment.
    1. The signature of a member or the member's attorney-in-fact may be affixed to a proxy appointment form, a proxy revocation, or a subsequent appointment by any reasonable means, including without limitation facsimile signature or electronic image.
    2. The written ballot may be delivered to the secretary or other officer or agent authorized to tabulate votes by electronic communication, including without limitation facsimile transmission or electronic mail.

History. Acts 1993, No. 1147, § 724; 2009, No. 167, § 4.

Amendments. The 2009 amendment subdivided (b); made minor capitalization changes in (e); and added (g).

4-33-725. Cumulative voting for directors.

  1. If the articles or bylaws provide for cumulative voting by members, members may so vote, by multiplying the number of votes the members are entitled to cast by the number of directors for whom they are entitled to vote, and cast the product for a single candidate or distribute the product among two (2) or more candidates.
  2. Cumulative voting is not authorized at a particular meeting unless:
    1. the meeting notice or statement accompanying the notice states that cumulative voting will take place; or
    2. a member gives notice during the meeting and before the vote is taken of the member's intent to cumulate votes, and if one (1) member gives this notice all other members participating in the election are entitled to cumulate their votes without giving further notice.
  3. A director elected by cumulative voting may be removed by the members without cause if the requirements of § 4-33-808 are met unless the votes cast against removal, or not consenting in writing in such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written ballot, all memberships entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected.
  4. Members may not cumulatively vote if the directors and members are identical.

History. Acts 1993, No. 1147, § 725.

4-33-726. Other methods of electing directors.

A corporation may provide in its articles or bylaws for election of directors by members or delegates: (1) on the basis of chapter or other organizational unit; (2) by region or other geographic unit; (3) by preferential voting; or (4) by any other reasonable method.

History. Acts 1993, No. 1147, § 726.

4-33-727. Corporation's acceptance of votes.

  1. If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a member, the corporation if acting in good faith is entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the member.
  2. If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the record name of a member, the corporation if acting in good faith is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the member if:
    1. the member is an entity and the name signed purports to be that of an officer or agent of the entity;
    2. the name signed purports to be that of an attorney-in-fact of the member and if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the member has been presented with respect to the vote, consent, waiver, or proxy appointment;
    3. two (2) or more persons hold the membership as cotenants or fiduciaries and the name signed purports to be the name of at least one (1) of the coholders and the person signing appears to be acting on behalf of all the coholders; and
    4. in the case of a mutual benefit corporation:
      1. the name signed purports to be that of an administrator, executor, guardian, or conservator representing the member and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
      2. the name signed purports to be that of a receiver or trustee in bankruptcy of the member, and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment.
  3. The corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the member.
  4. The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section are not liable in damages to the member for the consequences of the acceptance or rejection.
  5. Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise.

History. Acts 1993, No. 1147, § 727.

4-33-728, 4-33-729. [Reserved.]

Part C — Voting Agreements

4-33-730. Voting agreements.

  1. Two (2) or more members may provide for the manner in which they will vote by signing an agreement for that purpose. Such agreements may be valid for a period of up to ten (10) years. For public benefit corporations such agreements must have a reasonable purpose not inconsistent with the corporation's public or charitable purposes.
  2. A voting agreement created under this section is specifically enforceable.

History. Acts 1993, No. 1147, § 730.

Subchapter 8 — Directors and Officers

Research References

Am. Jur. 18B Am. Jur. 2d, Corp., § 1139 et seq.

C.J.S. 19 C.J.S., Corp., § 518 et seq.

Part A — Board of Directors

4-33-801. Requirement for and duties of board.

  1. Each corporation must have a board of directors.
  2. Except as provided in this chapter or subsection (c) of this section, all corporate powers shall be exercised by or under the authority of, and the affairs of the corporation managed under the direction of, its board.
  3. The articles may authorize a person or persons to exercise some or all of the powers which would otherwise be exercised by a board. To the extent so authorized any such person or persons shall have the duties and responsibilities of the directors, and the directors shall be relieved to that extent from such duties and responsibilities.

History. Acts 1993, No. 1147, § 801.

Case Notes

Cited: Rogers v. Tudor Ins. Co., 325 Ark. 226, 925 S.W.2d 395 (1996).

4-33-802. Qualification of directors.

All directors must be individuals. The articles or bylaws may prescribe other qualifications for directors.

History. Acts 1993, No. 1147, § 802.

4-33-803. Number of directors.

  1. A board of directors must consist of three (3) or more individuals, with the number specified in or fixed in accordance with the articles or bylaws.
  2. The number of directors may be increased or decreased (but to no fewer than three (3)) from time to time by amendment to or in the manner prescribed in the articles or bylaws.

History. Acts 1993, No. 1147, § 803.

4-33-804. Election, designation and appointment of directors.

  1. If the corporation has members, all the directors (except the initial directors) shall be elected at the first annual meeting of members, and at each annual meeting thereafter, unless the articles or bylaws provide some other time or method of election, or provide that some of the directors are appointed by some other person or are designated. Designation occurs when the articles or bylaws name an individual as a director or designate the holder of some office or position as a director.
  2. If the corporation does not have members, all the directors (except the initial directors) shall be elected, appointed or designated as provided in the articles or bylaws. If no method of designation or appointment is set forth in the articles or bylaws, the directors (other than the initial directors) shall be elected by the board.

History. Acts 1993, No. 1147, § 804.

4-33-805. Terms of directors generally.

  1. The articles or bylaws must specify the term of directors. Except for designated or appointed directors, the terms of directors may not exceed the lesser of six (6) years or the stated duration of the corporation. In the absence of any term specified in the articles or bylaws, the term of each director shall be one (1) year. Directors may be elected for successive terms, unless otherwise provided in the articles or bylaws.
  2. A decrease in the number of directors or term of office does not shorten an incumbent director's term.
  3. Except as provided in the articles or bylaws:
    1. the term of a director filling a vacancy in the office of a director elected by members expires at the next election of directors by members; and
    2. the term of a director filling any other vacancy expires at the end of the unexpired term that such director is filling.
  4. Despite the expiration of a director's term, the director continues to serve until the director's successor is elected, designated or appointed and qualifies, or until there is a decrease in the number of directors.

History. Acts 1993, No. 1147, § 805.

4-33-806. Staggered terms for directors.

The articles or bylaws may provide for staggering the terms of directors by dividing the total number of directors into groups. The terms of office of the several groups need not be uniform.

History. Acts 1993, No. 1147, § 806.

4-33-807. Resignation of directors.

  1. A director may resign at any time by delivering written notice to the board of directors, its presiding officer or to the president or secretary.
  2. A resignation is effective when the notice is effective unless the notice specifies a later effective date. If a resignation is made effective at a later date, the board may fill the pending vacancy before the effective date if the board provides that the successor does not take office until the effective date.

History. Acts 1993, No. 1147, § 807.

4-33-808. Removal of directors elected by members or directors.

  1. The members may remove one (1) or more directors elected by them without cause.
  2. If a director is elected by a class, chapter or other organizational unit or by region or other geographic grouping, the director may be removed only by the members of that class, chapter, unit or grouping.
  3. Except as provided in subsection (i) of this section, a director may be removed under subsection (a) of this section or (b) of this section only if the number of votes cast to remove the director would be sufficient to elect the director at a meeting to elect directors.
  4. If cumulative voting is authorized, a director may not be removed if the number of votes, or if the director was elected by a class, chapter, unit or grouping of members, the number of votes of that class, chapter, unit or grouping, sufficient to elect the director under cumulative voting is voted against the director's removal.
  5. A director elected by members may be removed by the members only at a meeting called for the purpose of removing the director and the meeting notice must state that the purpose, or one of the purposes, of the meeting is removal of the director.
  6. In computing whether a director is protected from removal under subsections (b)-(d) of this section, it should be assumed that the votes against removal are cast in an election for the number of directors of the class to which the director to be removed belonged on the date of that director's election.
  7. An entire board of directors may be removed under subsections (a)-(e) of this section.
  8. A director elected by the board may be removed without cause by the vote of a majority of the directors present at a meeting which is called for the purpose of removing the director and for which the meeting notice stated that the purpose, or one of the purposes, of the meeting is removal of the director, or by the vote of such greater number as is set forth in the articles or bylaws; provided, however, that a director elected by the board to fill the vacancy of a director elected by the members may be removed without cause by the members, but not the board.
  9. If, at the beginning of a director's term on the board, the articles or bylaws provide that the director may be removed for missing a specified number of board meetings, the board may remove the director for failing to attend the specified number of meetings. The director may be removed only if a majority of the directors present at a meeting which is called for the purpose of removing the director and for which the meeting notice stated that the purpose, or one of the purposes, of the meeting is removal of the director, vote for the removal.
  10. The articles or bylaws of a religious corporation may:
    1. limit the application of this section; and
    2. set forth the vote and procedures by which the board or any person may remove with or without cause a director elected by the members or the board.

History. Acts 1993, No. 1147, § 808.

4-33-809. Removal of designated or appointed directors.

  1. A designated director may be removed by an amendment to the articles or bylaws deleting or changing the designation.
  2. Appointed directors:
    1. except as otherwise provided in the articles or bylaws, an appointed director may be removed without cause by the person appointing the director;
    2. the person removing the director shall do so by giving written notice of the removal to the director and either the presiding officer of the board or the corporation's president or secretary; and
    3. a removal is effective when the notice is effective unless the notice specifies a future effective date.

History. Acts 1993, No. 1147, § 809.

4-33-810. Removal of directors by judicial proceeding.

  1. The circuit court of the county where a corporation's principal office is located may remove any director of the corporation from office in a proceeding commenced either by the corporation or its members holding at least ten percent (10%) of the voting power of any class, if the court finds that (1) the director engaged in fraudulent or dishonest conduct, or gross abuse of authority or discretion, with respect to the corporation, or a final judgment has been entered finding that the director has violated a duty set forth in §§ 4-33-830 — 4-33-833, and (2) removal is in the best interest of the corporation.
  2. The court that removes a director may bar the director from serving on the board for a period prescribed by the court.
  3. The articles or bylaws of a religious corporation may limit or prohibit the application of this section.

History. Acts 1993, No. 1147, § 810.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-33-811. Vacancy on board.

  1. Unless the articles or bylaws provide otherwise, and except as provided in subsections (b) and (c) of this section, if a vacancy occurs on a board of directors, including a vacancy resulting from an increase in the number of directors:
    1. the members, if any, may fill the vacancy; if the vacant office was held by a director elected by a class, chapter or other organizational unit or by region or other geographic grouping, only members of the class, chapter, unit or grouping are entitled to vote to fill the vacancy if it is filled by the members;
    2. the board of directors may fill the vacancy; or
    3. if the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
  2. Unless the articles or bylaws provide otherwise, if a vacant office was held by an appointed director, only the person who appointed the director may fill the vacancy.
  3. If a vacant office was held by a designated director, the vacancy shall be filled as provided in the articles or bylaws. In the absence of an applicable article or bylaw provision, the vacancy may not be filled by the board.
  4. A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date under § 4-33-807(b) or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.

History. Acts 1993, No. 1147, § 811.

4-33-812. Compensation of directors.

Unless the articles or bylaws provide otherwise, a board of directors may fix the compensation of directors.

History. Acts 1993, No. 1147, § 812.

4-33-813 — 4-33-819. [Reserved.]

Part B — Meetings and Action of the Board

4-33-820. Regular and special meetings.

  1. If the time and place of a directors' meeting is fixed by the bylaws or the board, the meeting is a regular meeting. All other meetings are special meetings.
  2. A board of directors may hold regular or special meetings in or out of this state.
  3. Unless the articles or bylaws provide otherwise, a board may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.

History. Acts 1993, No. 1147, § 820.

4-33-821. Action without meeting.

    1. Unless the articles or bylaws provide otherwise, action required or permitted by this chapter to be taken at a board of directors' meeting may be taken without a meeting if the action is taken by all members of the board.
    2. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each director, and included in the minutes filed with the corporate records reflecting the action taken.
  1. Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date.
  2. The written consent may be delivered to the corporation by electronic communication, including without limitation facsimile transmission or electronic mail.
  3. A consent signed under this section has the effect of a meeting vote and may be described as such in any document.
  4. The signature of a director may be affixed to a written consent by any reasonable means, including without limitation facsimile signature or electronic image.

History. Acts 1993, No. 1147, § 821; 2009, No. 167, § 5.

Amendments. The 2009 amendment subdivided (a); rewrote (c), which read: “A consent delivered by facsimile transmittal shall constitute a valid signed consent under this section”; and added (e).

4-33-822. Call and notice of meetings.

  1. Unless the articles, bylaws or subsection (c) of this section provide otherwise, regular meetings of the board may be held without notice.
  2. Unless the articles, bylaws or subsection (c) of this section provide otherwise, special meetings of the board must be preceded by at least two (2) days' notice to each director of the date, time, and place, but not the purpose, of the meeting.
  3. In corporations without members any board action to remove a director or to approve a matter that would require approval by the members if the corporation had members, shall not be valid unless each director is given at least seven (7) days' written notice that the matter will be voted upon at a directors' meeting or unless notice is waived pursuant to § 4-33-823.
  4. Unless the articles or bylaws provide otherwise, the presiding officer of the board, the president or twenty percent (20%) of the directors then in office may call and give notice of a meeting of the board.

History. Acts 1993, No. 1147, § 822.

4-33-823. Waiver of notice.

    1. A director may at any time waive any notice required by this chapter, the articles, or bylaws.
    2. Except as provided in subsection (b) of this section, the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes of the corporate records.
    3. A signed waiver delivered by facsimile transmittal or other electronic communication bearing an image of the signature shall constitute a valid waiver of notice under this section.
  1. A director's attendance at or participation in a meeting waives any required notice of the meeting unless the director upon arriving at the meeting or prior to the vote on a matter not noticed in conformity with this chapter, the articles, or bylaws objects to lack of notice and does not thereafter vote for or assent to the objected to action.

History. Acts 1993, No. 1147, § 823; 2009, No. 167, § 6.

Amendments. The 2009 amendment subdivided (a) and inserted “or other electronic communication bearing an image of the signature” in (a)(3).

4-33-824. Quorum and voting.

  1. Except as otherwise provided in this chapter, the articles or bylaws, a quorum of a board of directors consists of a majority of the directors in office immediately before a meeting begins.
  2. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the board unless this chapter, the articles or bylaws require the vote of a greater number of directors.

History. Acts 1993, No. 1147, § 824.

4-33-825. Committees of the board.

  1. Unless prohibited or limited by the articles or bylaws, a board of directors may create one (1) or more committees of the board and appoint members of the board to serve on them. Each committee shall have two (2) or more directors, who serve at the pleasure of the board.
  2. The creation of a committee and appointment of members to it must be approved by the greater of:
    1. a majority of a quorum of the directors when the action is taken; or
    2. the number of directors required by the articles or bylaws to take action under § 4-33-824.
  3. Sections 4-33-820 — 4-33-824, which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the board, apply to committees of the board and their members as well.
  4. To the extent specified by the board of directors or in the articles or bylaws, each committee of the board may exercise the board's authority under § 4-33-801.
  5. A committee of the board may not, however:
    1. authorize distributions;
    2. approve or recommend to members dissolution, merger or the sale, pledge or transfer of all or substantially all of the corporation's assets;
    3. elect, appoint or remove directors or fill vacancies on the board or on any of its committees; or
    4. adopt, amend or repeal the articles or bylaws.
  6. The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct described in § 4-33-830.

History. Acts 1993, No. 1147, § 825.

4-33-826 — 4-33-829. [Reserved.]

Part C — Standards of Conduct

4-33-830. General standards for directors.

  1. A director shall discharge his or her duties as a director, including his or her duties as a member of a committee:
    1. in good faith;
    2. with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
    3. in a manner the director reasonably believes to be in the best interests of the corporation.
  2. In discharging his or her duties, a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    1. one (1) or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented;
    2. legal counsel, public accountants or other persons as to matters the director reasonably believes are within the person's professional or expert competence;
    3. a committee of the board of which the director is not a member, as to matters within its jurisdiction, if the director reasonably believes the committee merits confidence; or
    4. in the case of religious corporations, religious authorities and ministers, priests, rabbis or other persons whose position or duties in the religious organization the director believes justify reliance and confidence and whom the director believes to be reliable and competent in the matters presented.
  3. A director is not acting in good faith if the director has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) of this section unwarranted.
  4. A director is not liable to the corporation, any member, or any other person for any action taken or not taken as a director, if the director acted in compliance with this section.
  5. A director shall not be deemed to be a trustee with respect to the corporation or with respect to any property held or administered by the corporation, including without limit, property that may be subject to restrictions imposed by the donor or transferor of such property.

History. Acts 1993, No. 1147, § 830.

4-33-831. Director conflict of interest.

  1. A conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest. A conflict of interest transaction is not voidable or the basis for imposing liability on the director if any of the following is true:
    1. the transaction was fair to the corporation at the time it was entered into;
    2. the material facts of the transaction and the director's interest were disclosed or known to the board of directors and the board authorized, approved, or ratified the transaction; or
    3. the material facts of the transaction and the director's interest were disclosed or known to the members and they authorized, approved, or ratified the transaction.
  2. For purposes of this section, a director of the corporation has an indirect interest in a transaction if (1) another entity in which the director has a material interest or in which the director is a general partner is a party to the transaction or (2) another entity of which the director is a director, officer, or trustee is a party to the transaction.
  3. For purposes of subsection (a)(2) of this section a conflict of interest transaction is authorized, approved, or ratified, if it receives the affirmative vote of a majority of the directors on the board, who have no direct or indirect interest in the transaction, but a transaction may not be authorized, approved, or ratified under this section by less than a majority of the entire board of directors.
  4. For purposes of subsection (a)(3) of this section, a conflict of interest transaction is authorized, approved, or ratified by the members if it receives a majority of the votes entitled to be counted under this subsection. Votes cast by or voted under the control of a director who has a direct or indirect interest in the transaction, and votes cast by or voted under the control of an entity described in subsection (b)(1) of this section, may not be counted in a vote of members to determine whether to authorize, approve, or ratify a conflict of interest transaction under subsection (a)(3) of this section. The vote of these members, however, is counted in determining whether the transaction is approved under other sections of this chapter. A majority of the voting power, whether or not present, that are entitled to be counted in a vote on the transaction under this subsection constitutes a quorum for the purpose of taking action under this section.
  5. The articles, bylaws, or a resolution of the board may impose additional requirements on conflict of interest transactions.

History. Acts 1993, No. 1147, § 831.

4-33-832. Loans to or guaranties for directors and officers.

  1. A corporation may not lend money to or guaranty the obligation of a director or officer of the corporation.
  2. The fact that a loan or guaranty is made in violation of this section does not affect the borrower's liability on the loan.

History. Acts 1993, No. 1147, § 832.

4-33-833. Liability for unlawful distributions.

  1. Unless a director complies with the applicable standards of conduct described in § 4-33-830, a director who votes for or assents to a distribution made in violation of this chapter is personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating this chapter.
  2. A director held liable for an unlawful distribution under subsection (a) of this section is entitled to contribution:
    1. from every other director who voted for or assented to the distribution without complying with the applicable standards of conduct described in § 4-33-830; and
    2. from each person who received an unlawful distribution for the amount of the distribution whether or not the person receiving the distribution knew it was made in violation of this chapter.

History. Acts 1993, No. 1147, § 833.

4-33-834 — 4-33-839. [Reserved.]

Part D — Officers

4-33-840. Required officers.

  1. Unless otherwise provided in the articles or bylaws, a corporation shall have a president, a secretary, a treasurer and such other officers as are appointed by the board.
  2. The bylaws or the board shall delegate to one (1) of the officers responsibility for preparing minutes of the directors' and members' meetings and for authenticating records of the corporation.
  3. The same individual may simultaneously hold more than one (1) office in a corporation.

History. Acts 1993, No. 1147, § 840.

4-33-841. [Reserved.]

  1. An officer with discretionary authority shall discharge his or her duties under that authority:
    1. in good faith;
    2. with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
    3. in a manner the officer reasonably believes to be in the best interests of the corporation and its members, if any.
  2. In discharging his or her duties an officer is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    1. one (1) or more officers or employees of the corporation who the officer reasonably believes to be reliable and competent in the matters presented;
    2. legal counsel, public accountants or other persons as to matters the officer reasonably believes are within the person's professional or expert competence; or
    3. in the case of religious corporations, religious authorities and ministers, priests, rabbis or other persons whose position or duties in the religious organization the officer believes justify reliance and confidence and who the officer believes to be reliable and competent in the matters presented.
  3. An officer is not acting in good faith if the officer has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) of this section unwarranted.
  4. An officer is not liable to the corporation, any member, or other person for any action taken or not taken as an officer, if the officer acted in compliance with this section.

History. Acts 1993, No. 1147, § 842.

4-33-843. Resignation and removal of officers.

  1. An officer may resign at any time by delivering notice to the corporation. A resignation is effective when the notice is effective unless the notice specifies a future effective date. If a resignation is made effective at a future date and the corporation accepts the future effective date, its board of directors may fill the pending vacancy before the effective date if the board provides that the successor does not take office until the effective date.
  2. A board may remove any officer at any time with or without cause.

History. Acts 1993, No. 1147, § 843.

4-33-844. Contract rights of officers.

  1. The appointment of an officer does not itself create contract rights.
  2. An officer's removal does not affect the officer's contract rights, if any, with the corporation. An officer's resignation does not affect the corporation's contract rights, if any, with the officer.

History. Acts 1993, No. 1147, § 844.

4-33-845. Officers' authority to execute documents.

Any contract or other instrument in writing executed or entered into between a corporation and any other person is not invalidated as to the corporation by any lack of authority of the signing officers in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the contract or other instrument if it is signed by any two (2) officers in Category 1 below or by one (1) officer in Category 1 below and one (1) officer in Category 2 below.

Category 1 — The presiding officer of the board and the president.

Category 2 — A vice president, the secretary, treasurer and executive director.

History. Acts 1993, No. 1147, § 845.

4-33-846 — 4-33-849. [Reserved.]

Part E — Indemnification

4-33-850. Part definitions.

In this part:

  1. “Corporation” includes any domestic or foreign predecessor entity of a corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction.
  2. “Director” means an individual who is or was a director of a corporation or an individual who, while a director of a corporation, is or was serving at the corporation's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic business or nonprofit corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A director is considered to be serving an employee benefit plan at the corporation's request if the director's duties to the corporation also impose duties on, or otherwise involve services by, the director to the plan or to participants in or beneficiaries of the plan. “Director” includes, unless the context requires otherwise, the estate or personal representative of a director.
  3. “Expenses” include counsel fees.
  4. “Liability” means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses actually incurred with respect to a proceeding.
  5. “Official capacity” means: (i) when used with respect to a director, the office of director in a corporation; and (ii) when used with respect to an individual other than a director, as contemplated in § 4-33-856, the office in a corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation. “Official capacity” does not include service for any other foreign or domestic business or nonprofit corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise.
  6. “Party” includes an individual who was, is or is threatened to be made a named defendant or respondent in a proceeding.
  7. “Proceeding” means any threatened, pending, or completed action, suit or proceeding whether civil, criminal, administrative, or investigative and whether formal or informal.

History. Acts 1993, No. 1147, § 850.

4-33-851. Authority to indemnify.

  1. Except as provided in subsection (d) of this section, a corporation may indemnify an individual made a party to a proceeding because the individual is or was a director against liability incurred in the proceeding if the individual:
    1. conducted himself or herself in good faith; and
    2. reasonably believed:
      1. in the case of conduct in his or her official capacity with the corporation, that his or her conduct was in its best interests; and
      2. in all other cases, that his or her conduct was at least not opposed to its best interests; and
    3. in the case of any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.
  2. A director's conduct with respect to an employee benefit plan for a purpose the director reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirements of subsection (a)(2)(ii) of this section.
  3. The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct described in this section.
  4. A corporation may not indemnify a director under this section:
    1. in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or
    2. in connection with any other proceeding charging improper personal benefit to the director, whether or not involving action in his or her official capacity, in which the director was adjudged liable on the basis that personal benefit was improperly received by the director.
  5. Indemnification permitted under this section in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding.

History. Acts 1993, No. 1147, § 851.

Research References

Ark. L. Notes.

Sampson, Nonprofit Risk; Nonprofit Insurance, 2008 Ark. L. Notes 83.

4-33-852. Mandatory indemnification.

Unless limited by its articles of incorporation, a corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the director was a party because he or she is or was a director of the corporation against reasonable expenses actually incurred by the director in connection with the proceeding.

History. Acts 1993, No. 1147, § 852.

4-33-853. Advance for expenses.

  1. A corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if:
    1. the director furnishes the corporation a written affirmation of his or her good faith belief that he or she has met the standard of conduct described in § 4-33-851;
    2. the director furnishes the corporation a written undertaking, executed personally or on the director's behalf, to repay the advance if it is ultimately determined that the director did not meet the standard of conduct; and
    3. a determination is made that the facts then known to those making the determination would not preclude indemnification under this part.
  2. The undertaking required by subsection (a)(2) of this section must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment.
  3. Determinations and authorizations of payments under this section shall be made in the manner specified in § 4-33-855.

History. Acts 1993, No. 1147, § 853.

4-33-854. Court-ordered indemnification.

Unless limited by a corporation's articles of incorporation, a director of the corporation who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court after giving any notice the court considers necessary may order indemnification in the amount it considers proper if it determines:

  1. the director is entitled to mandatory indemnification under § 4-33-852, in which case the court shall also order the corporation to pay the director's reasonable expenses incurred to obtain court-ordered indemnification; or
  2. the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director met the standard of conduct set forth in § 4-33-851(a) or was adjudged liable as described in § 4-33-851(d), but if the director was adjudged so liable indemnification is limited to reasonable expenses incurred.

History. Acts 1993, No. 1147, § 854.

4-33-855. Determination and authorization of indemnification.

  1. A corporation may not indemnify a director under § 4-33-851 unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because the director has met the standards of conduct set forth in § 4-33-851.
  2. The determination shall be made:
    1. by the board of directors by majority vote of a quorum consisting of directors not at the time parties to the proceeding;
    2. if a quorum cannot be obtained under subdivision (b)(1) of this section, by majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two (2) or more directors not at the time parties to the proceeding;
    3. by special legal counsel:
      1. selected by the board of directors or its committee in the manner prescribed in subdivision (b)(1) or (b)(2) of this section; or
      2. if a quorum of the board cannot be obtained under subdivision (b)(1) of this section and a committee cannot be designated under subdivision (b)(2) of this section, selected by majority vote of the full board (in which selection directors who are parties may participate); or
    4. by the members of a mutual benefit corporation, but directors who are at the time parties to the proceeding may not vote on the determination.
  3. Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subsection (b)(3) of this section to select counsel.
  4. A director of a public benefit corporation may not be indemnified until twenty (20) days after the effective date of written notice to the Attorney General of the proposed indemnification.

History. Acts 1993, No. 1147, § 855.

4-33-856. Indemnification of officers, employees and agents.

Unless limited by a corporation's articles of incorporation:

  1. an officer of the corporation who is not a director is entitled to mandatory indemnification under § 4-33-852, and is entitled to apply for court-ordered indemnification under § 4-33-854 in each case, to the same extent as a director;
  2. the corporation may indemnify and advance expenses under this part to an officer, employee, or agent of the corporation who is not a director to the same extent as to a director; and
  3. a corporation may also indemnify and advance expenses to an officer, employee, or agent who is not a director to the extent, consistent with public policy, that may be provided by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract.

History. Acts 1993, No. 1147, § 856.

4-33-857. Insurance.

A corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation, or who, while a director, officer, employee, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic business or nonprofit corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by him or her in that capacity or arising from his or her status as a director, officer, employee, or agent, whether or not the corporation would have power to indemnify the person against the same liability under § 4-33-851 or § 4-33-852.

History. Acts 1993, No. 1147, § 857.

Research References

Ark. L. Notes.

Sampson, Nonprofit Risk; Nonprofit Insurance, 2008 Ark. L. Notes 83.

4-33-858. Application of part.

  1. A provision treating a corporation's indemnification of or advance for expenses to directors that is contained in its articles of incorporation, bylaws, a resolution of its members or board of directors, or in a contract or otherwise, is valid only if and to the extent the provision is consistent with this part. If articles of incorporation limit indemnification or advance for expenses, indemnification and advance for expenses are valid only to the extent consistent with the articles.
  2. This part does not limit a corporation's power to pay or reimburse expenses incurred by a director in connection with appearing as a witness in a proceeding at a time when the director has not been made a named defendant or respondent to the proceeding.

History. Acts 1993, No. 1147, § 858.

Subchapter 9 [Reserved.]

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Part A — Articles of Incorporation

4-33-1001. Authority to amend.

A corporation may amend its articles of incorporation at any time to add or change a provision that is required or permitted in the articles or to delete a provision not required in the articles. Whether a provision is required or permitted in the articles is determined as of the effective date of the amendment.

History. Acts 1993, No. 1147, § 1001.

4-33-1002. Amendment by directors.

  1. Unless the articles provide otherwise, a corporation's board of directors may adopt one (1) or more amendments to the corporation's articles without member approval:
    1. to extend the duration of the corporation if it was incorporated at a time when limited duration was required by law;
    2. to delete the names and addresses of the initial directors;
    3. to change the information required by § 4-20-105(a);
    4. to change the corporate name by substituting the word “corporation,” “incorporated,” “company,” “limited,” or the abbreviation “corp.,” “inc.,” “co.,” or “ltd.,” for a similar word or abbreviation in the name, or by adding, deleting or changing a geographical attribution to the name; or
    5. to make any other change expressly permitted by this chapter to be made by director action.
  2. If a corporation has no members, its incorporators, until directors have been chosen, and thereafter its board of directors, may adopt one (1) or more amendments to the corporation's articles subject to any approval required pursuant to § 4-33-1030. The corporation shall provide notice of any meeting at which an amendment is to be voted upon. The notice shall be in accordance with § 4-33-822(c). The notice must also state that the purpose, or one of the purposes, of the meeting is to consider a proposed amendment to the articles and contain or be accompanied by a copy or summary of the amendment or state the general nature of the amendment. The amendment must be approved by a majority of the directors in office at the time the amendment is adopted.

History. Acts 1993, No. 1147, § 1002; 2007, No. 638, § 42.

4-33-1003. Amendment by directors and members.

  1. Unless this chapter, the articles, bylaws, the members (acting pursuant to subsection (b) of this section), or the board of directors (acting pursuant to subsection (c) of this section) require a greater vote or voting by class, an amendment to a corporation's articles to be adopted must be approved:
    1. by the board if the corporation is a public benefit or religious corporation and the amendment does not relate to the number of directors, the composition of the board, the term of office of directors, or the method or way in which directors are elected or selected;
    2. except as provided in § 4-33-1002(a), by the members by two-thirds (2/3) of the votes cast or a majority of the voting power, whichever is less; and
    3. in writing by a person or persons whose approval is required by a provision of the articles authorized by § 4-33-1030.
  2. The members may condition the amendment's adoption on receipt of a higher percentage of affirmative votes or on any other basis.
  3. If the board initiates an amendment to the articles or board approval is required by subsection (a) of this section to adopt an amendment to the articles, the board may condition the amendment's adoption on receipt of a higher percentage of affirmative votes or any other basis.
  4. If the board or the members seek to have the amendment approved by the members at a membership meeting, the corporation shall give notice to its members of the proposed membership meeting in writing in accordance with § 4-33-705. The notice must state that the purpose, or one of the purposes, of the meeting is to consider the proposed amendment and contain or be accompanied by a copy or summary of the amendment.
  5. If the board or the members seek to have the amendment approved by the members by written consent or written ballot, the material soliciting the approval shall contain or be accompanied by a copy or summary of the amendment.

History. Acts 1993, No. 1147, § 1003.

4-33-1004. Class voting by members on amendments.

  1. The members of a class in a public benefit corporation are entitled to vote as a class on a proposed amendment to the articles if the amendment would change the rights of that class as to voting in a manner different than such amendment affects another class or members of another class.
  2. The members of a class in a mutual benefit corporation are entitled to vote as a class on a proposed amendment to the articles if the amendment would:
    1. affect the rights, privileges, preferences, restrictions or conditions of that class as to voting, dissolution, redemption or transfer of memberships in a manner different than such amendment would affect another class;
    2. change the rights, privileges, preferences, restrictions or conditions of that class as to voting, dissolution, redemption or transfer by changing the rights, privileges, preferences, restrictions or conditions of another class.
    3. increase or decrease the number of memberships authorized for that class;
    4. increase the number of memberships authorized for another class;
    5. effect an exchange, reclassification or termination of the memberships of that class; or
    6. authorize a new class of memberships.
  3. The members of a class of a religious corporation are entitled to vote as a class on a proposed amendment to the articles only if a class vote is provided for in the articles or bylaws.
  4. If a class is to be divided into two (2) or more classes as a result of an amendment to the articles of a public benefit or mutual benefit corporation, the amendment must be approved by the members of each class that would be created by the amendment.
  5. Except as provided in the articles or bylaws of a religious corporation, if a class vote is required to approve an amendment to the articles of a corporation, the amendment must be approved by the members of the class by two-thirds (2/3) of the votes cast by the class or a majority of the voting power of the class, whichever is less.
  6. A class of members of a public benefit or mutual benefit corporation is entitled to the voting rights granted by this section although the articles and bylaws provide that the class may not vote on the proposed amendment.

History. Acts 1993, No. 1147, § 1004.

4-33-1005. Articles of amendment.

A corporation amending its articles shall deliver to the Secretary of State articles of amendment setting forth:

  1. the name of the corporation;
  2. the text of each amendment adopted;
  3. the date of each amendment's adoption;
  4. if approval of members was not required, a statement to that effect and a statement that the amendment was approved by a sufficient vote of the board of directors or incorporators;
  5. if approval by members was required:
    1. the designation, number of memberships outstanding, number of votes entitled to be cast by each class entitled to vote separately on the amendment, and number of votes of each class indisputably voting on the amendment; and
    2. either the total number of votes cast for and against the amendment by each class entitled to vote separately on the amendment or the total number of undisputed votes cast for the amendment by each class and a statement that the number cast for the amendment by each class was sufficient for approval by that class.
  6. if approval of the amendment by some person or persons other than the members, the board or the incorporators is required pursuant to § 4-33-1030, a statement that the approval was obtained.

History. Acts 1993, No. 1147, § 1005.

4-33-1006. Restated articles of incorporation.

  1. A corporation's board of directors may restate its articles of incorporation at any time with or without approval by members or any other person.
  2. The restatement may include one (1) or more amendments to the articles. If the restatement includes an amendment requiring approval by the members or any other person, it must be adopted as provided in § 4-33-1003.
  3. If the restatement includes an amendment requiring approval by members, the board must submit the restatement to the members for their approval.
  4. If the board seeks to have the restatement approved by the members at a membership meeting, the corporation shall notify each of its members of the proposed membership meeting in writing in accordance with § 4-33-705. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the proposed restatement and contain or be accompanied by a copy or summary of the restatement that identifies any amendments or other change it would make in the articles.
  5. If the board seeks to have the restatement approved by the members by written ballot or written consent, the material soliciting the approval shall contain or be accompanied by a copy or summary of the restatement that identifies any amendments or other change it would make in the articles.
  6. A restatement requiring approval by the members must be approved by the same vote as an amendment to articles under § 4-33-1003.
  7. If the restatement includes an amendment requiring approval pursuant to § 4-33-1030, the board must submit the restatement for such approval.
  8. A corporation restating its articles shall deliver to the Secretary of State articles of restatement setting forth the name of the corporation and the text of the restated articles of incorporation together with a certificate setting forth:
    1. whether the restatement contains an amendment to the articles requiring approval by the members or any other person other than the board of directors and, if it does not, that the board of directors adopted the restatement; or
    2. if the restatement contains an amendment to the articles requiring approval by the members, the information required in § 4-33-1005; and
    3. if the restatement contains an amendment to the articles requiring approval by a person whose approval is required pursuant to § 4-33-1030, a statement that such approval was obtained.
  9. Duly adopted restated articles of incorporation supersede the original articles of incorporation and all amendments to them.
  10. The Secretary of State may certify restated articles of incorporation, as the articles of incorporation currently in effect, without including the certificate information required by subsection (h) of this section.

History. Acts 1993, No. 1147, § 1006.

4-33-1007. Amendment pursuant to judicial reorganization.

  1. A corporation's articles may be amended without board approval or approval by the members or approval required pursuant to § 4-33-1030 to carry out a plan of reorganization ordered or decreed by a court of competent jurisdiction under federal statute if the articles after amendment contain only provisions required or permitted by § 4-33-202.
  2. The individual or individuals designated by the court shall deliver to the Secretary of State articles of amendment setting forth:
    1. the name of the corporation;
    2. the text of each amendment approved by the court;
    3. the date of the court's order or decree approving the articles of amendment;
    4. the title of the reorganization proceeding in which the order or decree was entered; and
    5. a statement that the court had jurisdiction of the proceeding under federal statute.
  3. This section does not apply after entry of a final decree in the reorganization proceeding even though the court retains jurisdiction of the proceeding for limited purposes unrelated to consummation of the reorganization plan.

History. Acts 1993, No. 1147, § 1007.

4-33-1008. Effect of amendment and restatement.

An amendment to articles of incorporation does not affect a cause of action existing against or in favor of the corporation, a proceeding to which the corporation is a party, any requirement or limitation imposed upon the corporation or any property held by it by virtue of any trust upon which such property is held by the corporation or the existing rights of persons other than members of the corporation. An amendment changing a corporation's name does not abate a proceeding brought by or against the corporation in its former name.

History. Acts 1993, No. 1147, § 1008.

4-33-1009 — 4-33-1019. [Reserved.]

Part B — Bylaws

4-33-1020. Amendment by directors.

If a corporation has no members, its incorporators, until directors have been chosen, and thereafter its board of directors, may adopt one (1) or more amendments to the corporation's bylaws subject to any approval required pursuant to § 4-33-1030. The corporation shall provide notice of any meeting of directors at which an amendment is to be approved. The notice shall be in accordance with § 4-33-822(c). The notice must also state that the purpose, or one of the purposes, of the meeting is to consider a proposed amendment of the bylaws and contain or be accompanied by a copy or summary of the amendment or state the general nature of the amendment. The amendment must be approved by a majority of the directors in office at the time the amendment is adopted.

History. Acts 1993, No. 1147, § 1020.

4-33-1021. Amendment by directors and members.

  1. Unless this chapter, the articles, bylaws, the members (acting pursuant to subsection (b) of this section), or the board of directors (acting pursuant to subsection (c) of this section) require a greater vote or voting by class, an amendment to a corporation's bylaws to be adopted must be approved:
    1. by the board if the corporation is a public benefit or religious corporation and the amendment does not relate to the number of directors, the composition of the board, the term of office of directors, or the method or way in which directors are elected or selected;
    2. by the members by two-thirds (2/3) of the votes cast or a majority of the voting power, whichever is less; and
    3. in writing by any person or persons whose approval is required by a provision of the articles authorized by § 4-33-1030.
  2. The members may condition the amendment's adoption on its receipt of a higher percentage of affirmative votes or on any other basis.
  3. If the board initiates an amendment to the bylaws or board approval is required by subsection (a) of this section to adopt an amendment to the bylaws, the board may condition the amendment's adoption on receipt of a higher percentage of affirmative votes or on any other basis.
  4. If the board or the members seek to have the amendment approved by the members at a membership meeting, the corporation shall give notice to its members of the proposed membership meeting in writing in accordance with § 4-33-705. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the proposed amendment and contain or be accompanied by a copy or summary of the amendment.
  5. If the board or the members seek to have the amendment approved by the members by written consent or written ballot, the material soliciting the approval shall contain or be accompanied by a copy or summary of the amendment.

History. Acts 1993, No. 1147, § 1021.

4-33-1022. Class voting by members on amendments.

  1. The members of a class in a public benefit corporation are entitled to vote as a class on a proposed amendment to the bylaws if the amendment would change the rights of that class as to voting in a manner different than such amendment affects another class or members of another class.
  2. The members of a class in a mutual benefit corporation are entitled to vote as a class on a proposed amendment to the bylaws if the amendment would:
    1. affect the rights, privileges, preferences, restrictions or conditions of that class as to voting, dissolution, redemption or transfer of memberships in a manner different than such amendment would affect another class;
    2. change the rights, privileges, preferences, restrictions or conditions of that class as to voting, dissolution, redemption or transfer by changing the rights, privileges, preferences, restrictions or conditions of another class;
    3. increase or decrease the number of memberships authorized for that class;
    4. increase the number of memberships authorized for another class;
    5. effect an exchange, reclassification or termination of all or part of the memberships of that class; or
    6. authorize a new class of memberships.
  3. The members of a class of a religious corporation are entitled to vote as a class on a proposed amendment to the bylaws only if a class vote is provided for in the articles or bylaws.
  4. If a class is to be divided into two (2) or more classes as a result of an amendment to the bylaws, the amendment must be approved by the members of each class that would be created by the amendment; and
  5. If a class vote is required to approve an amendment to the bylaws, the amendment must be approved by the members of the class by two-thirds (2/3) of the votes cast by the class or a majority of the voting power of the class, whichever is less.
  6. A class of members is entitled to the voting rights granted by this section although the articles and bylaws provide that the class may not vote on the proposed amendment.

History. Acts 1993, No. 1147, § 1022.

4-33-1023 — 4-33-1029. [Reserved.]

Part C — Articles of Incorporation and Bylaws

4-33-1030. Approval by third persons.

The articles may require an amendment to the articles or bylaws to be approved in writing by a specified person or persons other than the board. Such an article provision may only be amended with the approval in writing of such person or persons.

History. Acts 1993, No. 1147, § 1030.

4-33-1031. Amendment terminating members or redeeming or cancelling memberships.

  1. Any amendment to the articles or bylaws of a public benefit or mutual benefit corporation that would terminate all members or any class of members or redeem or cancel all memberships or any class of memberships must meet the requirements of this chapter and this section, unless otherwise provided in the articles or bylaws.
  2. Before adopting a resolution proposing such an amendment, the board of a mutual benefit corporation shall give notice of the general nature of the amendment to the members.
  3. After adopting a resolution proposing such an amendment, the notice to members proposing such amendment shall include one (1) statement of up to five hundred (500) words opposing the proposed amendment if such statement is submitted by any five (5) members or members having three percent (3%) or more of the voting power, whichever is less, not later than twenty (20) days after the board has voted to submit such amendment to the members for their approval. In public benefit corporations the production and mailing costs shall be paid by the requesting members. In mutual benefit corporations the production and mailing costs shall be paid by the corporation.
  4. Any such amendment shall be approved by the members by two-thirds (2/3) of the votes cast by each class.
  5. The provisions of § 4-33-621 shall not apply to any amendment meeting the requirements of this chapter and this section.

History. Acts 1993, No. 1147, § 1031.

Subchapter 11 — Merger

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Research References

Am. Jur. 19 Am. Jur. 2d, Corp., § 2255 et seq.

C.J.S. 19 C.J.S., Corp., § 885 et seq.

4-33-1101. Approval of plan of merger.

  1. Subject to the limitations set forth in § 4-33-1102, two (2) or more nonprofit corporations may merge, if the plan of merger is approved or provided in § 4-33-1103.
  2. The plan of merger must set forth:
    1. the name of each corporation planning to merge and the name of the surviving corporation into which each plans to merge;
    2. the terms and conditions of the planned merger;
    3. the manner and basis, if any, of converting the memberships of each public benefit or religious corporation into memberships of the surviving corporation; and
    4. if the merger involves a mutual benefit corporation, the manner and basis, if any, of converting memberships of each merging corporation into memberships, obligations or securities of the surviving or any other corporation or into cash or other property in whole or in part.
  3. The plan of merger may set forth:
    1. any amendments to the articles of incorporation or bylaws of the surviving corporation to be effected by the planned merger; and
    2. other provisions relating to the planned merger.

History. Acts 1993, No. 1147, § 1101.

4-33-1102. Limitations on mergers by public benefit or religious corporations.

  1. Without the prior approval of the circuit court of the county in which the corporation's principal office (or, if none in this state, its registered office) is located, a public benefit or religious corporation may merge only with:
    1. a public benefit or religious corporation;
    2. a foreign corporation that would qualify under this chapter as a public benefit or religious corporation; or
    3. a mutual benefit corporation, provided the public benefit or religious corporation is the surviving corporation and continues to be a public benefit corporation or religious corporation after the merger.
  2. Without an order of the circuit court of the county in which the corporation's principal office (or, if none in this state, its registered office) is located, no member of a public benefit or religious corporation may receive or keep anything as a result of a merger other than a membership or membership in the surviving public benefit or religious corporation. The court shall approve the transaction if it is in the public interest.

History. Acts 1993, No. 1147, § 1102.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-33-1103. Action on plan by board, members and third persons.

  1. Unless this chapter, the articles, bylaws or the board of directors or members (acting pursuant to subsection (c) of this section) require a greater vote or voting by class, a plan of merger to be adopted must be approved:
    1. by the board;
    2. by the members, if any, by two-thirds (2/3) of the votes cast or a majority of the voting power, whichever is less; and
    3. in writing by any person or persons whose approval is required by a provision of the articles authorized by § 4-33-1030 for an amendment to the articles or bylaws.
  2. If the corporation does not have members, the merger must be approved by a majority of the directors in office at the time the merger is approved. In addition the corporation shall provide notice of any directors' meeting at which such approval is to be obtained in accordance with § 4-33-822(c). The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the proposed merger.
  3. The board may condition its submission of the proposed merger, and the members may condition their approval of the merger, on receipt of a higher percentage of affirmative votes or on any other basis.
  4. If the board seeks to have the plan approved by the members at a membership meeting, the corporation shall give notice to its members of the proposed membership meeting in accordance with § 4-33-705. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the plan of merger and contain or be accompanied by a copy or summary of the plan. The copy or summary of the plan for members of the surviving corporation shall include any provision that, if contained in a proposed amendment of the articles of incorporation or bylaws, would entitle members to vote on the provision. The copy or summary of the plan for members of the disappearing corporation shall include a copy or summary of the articles and bylaws that will be in effect immediately after the merger takes effect.
  5. If the board seeks to have the plan approved by the members by written consent or written ballot, the material soliciting the approval shall contain or be accompanied by a copy or summary of the plan. The copy or summary of the plan for members of the surviving corporation shall include any provision that, if contained in a proposed amendment to the articles of incorporation or bylaws, would entitle members to vote on the provision. The copy or summary of the plan for members of the disappearing corporation shall include a copy or summary of the articles and bylaws that will be in effect immediately after the merger takes effect.
  6. Voting by a class of members is required on a plan of merger if the plan contains a provision that, if contained in a proposed amendment to articles of incorporation or bylaws, would entitle the class of members to vote as a class on the proposed amendment under §§ 4-33-1004 or 4-33-1022. The plan is approved by a class of members by two-thirds (2/3) of the votes cast by the class or a majority of the voting power of the class, whichever is less.
  7. After a merger is adopted, and at any time before articles of merger are filed, the planned merger may be abandoned (subject to any contractual rights) without further action by members or other persons who approved the plan in accordance with the procedure set forth in the plan of merger or, if none is set forth, in the manner determined by the board of directors.

History. Acts 1993, No. 1147, § 1103.

4-33-1104. Articles of merger.

After a plan of merger is approved by the board of directors, and if required by § 4-33-1103, by the members and any other persons, the surviving or acquiring corporation shall deliver to the Secretary of State articles of merger setting forth:

  1. the plan of merger;
  2. if approval of members was not required, a statement to that effect and a statement that the plan was approved by a sufficient vote of the board of directors;
  3. if approval by members was required:
    1. the designation, number of memberships outstanding, number of votes entitled to be cast by each class entitled to vote separately on the plan, and number of votes of each class indisputably voting on the plan; and
    2. either the total number of votes cast for and against the plan by each class entitled to vote separately on the plan or the total number of undisputed votes cast for the plan by each class and a statement that the number cast for the plan by each class was sufficient for approval by that class;
  4. if approval of the plan by some person or persons other than the members or the board is required pursuant to § 4-33-1103(a)(3), a statement that the approval was obtained.

History. Acts 1993, No. 1147, § 1104.

4-33-1105. Effect of merger.

When a merger takes effect:

  1. every other corporation party to the merger merges into the surviving corporation and the separate existence of every corporation except the surviving corporation ceases;
  2. the title to all real estate and other property owned by each corporation party to the merger is vested in the surviving corporation without reversion or impairment subject to any and all conditions to which the property was subject prior to the merger;
  3. the surviving corporation has all liabilities and obligations of each corporation party to the merger;
  4. a proceeding pending against any corporation party to the merger may be continued as if the merger did not occur or the surviving corporation may be substituted in the proceeding for the corporation whose existence ceased; and
  5. the articles of incorporation and bylaws of the surviving corporation are amended to the extent provided in the plan of merger.

History. Acts 1993, No. 1147, § 1105.

4-33-1106. Merger with foreign corporation.

  1. Except as provided in § 4-33-1102, one (1) or more foreign nonprofit corporations may merge with one (1) or more domestic nonprofit corporations if:
    1. the merger is permitted by the law of the state or country under whose law each foreign corporation is incorporated and each foreign corporation complies with that law in effecting the merger;
    2. the foreign corporation complies with § 4-33-1104 if it is the surviving corporation of the merger; and
    3. each domestic nonprofit corporation complies with the applicable provisions of §§ 4-33-1101 — 4-33-1103 and, if it is the surviving corporation of the merger, with § 4-33-1104.
  2. Upon the merger taking effect, the surviving foreign business or nonprofit corporation may be served with process in any proceeding brought against it as provided in § 4-20-113.

History. Acts 1993, No. 1147, § 1106; 2007, No. 638, § 43.

4-33-1107. Bequests, devises and gifts.

Any bequest, devise, gift, grant, or promise contained in a will or other instrument of donation, subscription, or conveyance, that is made to a constituent corporation and that takes effect or remains payable after the merger, inures to the surviving corporation unless the will or other instrument otherwise specifically provides.

History. Acts 1993, No. 1147, § 1107.

4-33-1108. Continuation of prior corporate existence for limited purpose.

  1. The corporate existence of each constituent corporation which has been dissolved through merger or consolidation shall be continued indefinitely for the limited purpose of enabling the constituent corporation to execute through its own officers formal deeds, conveyances, assignments, and other instruments evidencing the transfer from the constituent to the surviving corporation, or new corporation created by consolidation, of any or all real and personal properties which have passed from the constituent to the surviving or consolidated corporation by operation of law.
  2. The execution of the instruments shall not be essential to effect the transfer of title from the constituent to the surviving or consolidated corporation, inasmuch as the transfer will take effect through operation of law; but the power to execute such instruments is given to the end that it may be exercised:
    1. In respect to properties located in foreign jurisdictions which may not recognize a transmittal of title by operation of law under the merger and consolidation statutes of this state; and
    2. In any other situation where the directors of the surviving or consolidated corporation consider the execution of the instruments desirable.

History. Acts 1993, No. 1147, § 1108.

Subchapter 12 — Sale of Assets

4-33-1201. Sale of assets in regular course of activities and mortgage of assets.

  1. A corporation may on the terms and conditions and for the consideration determined by the board of directors:
    1. sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property in the usual and regular course of its activities; or
    2. mortgage, pledge, dedicate to the repayment of indebtedness (whether with or without recourse), or otherwise encumber any or all of its property whether or not in the usual and regular course of its activities.
  2. Unless the articles require it, approval of the members or any other person of a transaction described in subsection (a) of this section is not required.

History. Acts 1993, No. 1147, § 1201.

4-33-1202. Sale of assets other than in regular course of activities.

  1. A corporation may sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property (with or without the goodwill) other than in the usual and regular course of its activities on the terms and conditions and for the consideration determined by the corporation's board if the proposed transaction is authorized by subsection (b) of this section.
  2. Unless this chapter, the articles, bylaws, or the board of directors or members (acting pursuant to subsection (d) of this section) require a greater vote or voting by class, the proposed transaction to be authorized must be approved:
    1. by the board;
    2. by the members by two-thirds (2/3) of the votes cast or a majority of the voting power, whichever is less; and
    3. in writing by any person or persons whose approval is required by a provision of the articles authorized by § 4-33-1030 for an amendment to the articles or bylaws.
  3. If the corporation does not have members the transaction must be approved by a vote of a majority of the directors in office at the time the transaction is approved. In addition the corporation shall provide notice of any directors' meeting at which such approval is to be obtained in accordance with § 4-33-822(c) of this section. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the sale, lease, exchange, or other disposition of all, or substantially all, of the property or assets of the corporation and contain or be accompanied by a copy or summary of a description of the transaction.
  4. The board may condition its submission of the proposed transaction, and the members may condition their approval of the transaction, on receipt of a higher percentage of affirmative votes or on any other basis.
  5. If the corporation seeks to have the transaction approved by the members at a membership meeting, the corporation shall give notice to its members of the proposed membership meeting in accordance with § 4-33-705. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the sale, lease, exchange, or other disposition of all, or substantially all, of the property or assets of the corporation and contain or be accompanied by a copy or summary of a description of the transaction.
  6. If the board needs to have the transaction approved by the members by written consent or written ballot, the material soliciting the approval shall contain or be accompanied by a copy or summary of a description of the transaction.
  7. After a sale, lease, exchange, or other disposition of property is authorized, the transaction may be abandoned (subject to any contractual rights), without further action by the members or any other person who approved the transaction in accordance with the procedure set forth in the resolution proposing the transaction or, if none is set forth, in the manner determined by the board of directors.

History. Acts 1993, No. 1147, § 1202.

Subchapter 13 — Distributions

4-33-1301. Prohibited distributions.

Except as authorized by § 4-33-1302, a corporation shall not make any distributions.

History. Acts 1993, No. 1147, § 1301.

4-33-1302. Authorized distributions.

  1. A mutual benefit corporation may purchase its memberships if after the purchase is completed:
    1. the corporation would be able to pay its debts as they become due in the usual course of its activities; and
    2. the corporation's total assets would at least equal the sum of its total liabilities.
  2. Corporations may make distributions upon dissolution in conformity with §§ 4-33-1401 et seq.
  3. Corporations that are organized and operated as cooperative within the meaning of Subchapter T of the Internal Revenue Code of 1986, as amended, Internal Revenue Code §§ 1381 — 1388, may make distributions to their members in accordance with Subchapter T.

History. Acts 1993, No. 1147, § 1302; 1999, No. 980, § 1.

Amendments. The 1999 amendment added (c).

U.S. Code. Sections 1381 through 1388 of Subchapter T of the Internal Revenue Code of 1986 are codified as 26 U.S.C. §§ 1381 through 1388.

Subchapter 14 — Dissolution

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Research References

Am. Jur. 19 Am. Jur. 2d, Corp., § 2334 et seq.

C.J.S. 19 C.J.S., Corp., § 914 et seq.

Part A — Voluntary Dissolution

4-33-1401. Dissolution by incorporators or directors and third persons.

  1. A majority of the incorporators or directors of a corporation that has no members may, subject to any approval required by the articles or bylaws, dissolve the corporation by delivering to the Secretary of State articles of dissolution.
  2. The corporation shall give notice of any meeting at which dissolution will be approved. The notice shall be in accordance with § 4-33-822(c). The notice must also state that the purpose, or one of the purposes, of the meeting is to consider dissolution of the corporation.
  3. The incorporators or directors in approving dissolution shall adopt a plan of dissolution indicating to whom the assets owned or held by the corporation will be distributed after all creditors have been paid.

History. Acts 1993, No. 1147, § 1401.

4-33-1402. Dissolution by directors, members and third persons.

  1. Unless this chapter, the articles, bylaws or the board of directors or members (acting pursuant to subsection (c) of this section) require a greater vote or voting by class, dissolution is authorized if it is approved:
    1. by the board;
    2. by the members, if any, by two-thirds (2/3) of the votes cast or a majority of the voting power, whichever is less; and
    3. in writing by any person or persons whose approval is required by a provision of the articles authorized by § 4-33-1030 for an amendment to the articles or bylaws.
  2. If the corporation does not have members, dissolution must be approved by a vote of a majority of the directors in office at the time the transaction is approved. In addition, the corporation shall provide notice of any directors' meeting at which such approval is to be obtained in accordance with § 4-33-822(c). The notice must also state that the purpose, or one of the purposes, of the meeting is to consider dissolution of the corporation and contain or be accompanied by a copy or summary of the plan of dissolution.
  3. The board may condition its submission of the proposed dissolution, and the members may condition their approval of the dissolution on receipt of a higher percentage of affirmative votes or on any other basis.
  4. If the board seeks to have dissolution approved by the members at a membership meeting, the corporation shall give notice to its members of the proposed membership meeting in accordance with § 4-33-705. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider dissolving the corporation and contain or be accompanied by a copy or summary of the plan of dissolution.
  5. If the board seeks to have dissolution approved by the members by written consent or written ballot, the material soliciting the approval shall contain or be accompanied by a copy or summary of the plan of dissolution.
  6. The plan of dissolution shall indicate to whom the assets owned or held by the corporation will be distributed after all creditors have been paid.

History. Acts 1993, No. 1147, § 1402.

4-33-1403. [Reserved.]

  1. At any time after dissolution is authorized, the corporation may dissolve by delivering to the Secretary of State articles of dissolution setting forth:
    1. the name of the corporation;
    2. the date dissolution was authorized;
    3. a statement that dissolution was approved by a sufficient vote of the board;
    4. if approval of members was not required, a statement to that effect and a statement that dissolution was approved by a sufficient vote of the board of directors or incorporators;
    5. if approval by members was required:
      1. the designation, number of memberships outstanding, number of votes entitled to be cast by each class entitled to vote separately on dissolution, and number of votes of each class indisputably voting on dissolution; and
      2. either the total number of votes cast for and against dissolution by each class entitled to vote separately on dissolution or the total number of undisputed votes cast for dissolution by each class and a statement that the number cast for dissolution by each class was sufficient for approval by that class.
    6. if approval of dissolution by some person or persons other than the members, the board or the incorporators is required pursuant to § 4-33-1402(a)(3), a statement that the approval was obtained.
  2. A corporation is dissolved upon the effective date of its articles of dissolution.

History. Acts 1993, No. 1147, § 1403.

4-33-1405. [Reserved.]

  1. A dissolved corporation continues its corporate existence but may not carry on any activities except those appropriate to wind up and liquidate its affairs, including:
    1. preserving and protecting its assets and minimizing its liabilities;
    2. discharging or making provision for discharging its liabilities and obligations;
    3. disposing of its properties that will not be distributed in kind;
    4. returning, transferring or conveying assets held by the corporation upon a condition requiring return, transfer or conveyance, which condition occurs by reason of the dissolution, in accordance with such condition;
    5. transferring, subject to any contractual or legal requirements, its assets as provided in or authorized by its articles of incorporation or bylaws;
    6. if the corporation is a public benefit or religious corporation, and no provision has been made in its articles or bylaws for distribution of assets on dissolution, transferring, subject to any contractual or legal requirement, its assets: (i) to one (1) or more persons described in section 501(c)(3) of the Internal Revenue Code, or (ii) if the dissolved corporation is not described in section 501(c)(3) of the Internal Revenue Code, to one (1) or more public benefit or religious corporations;
    7. if the corporation is a mutual benefit corporation and no provision has been made in its articles or bylaws for distribution of assets on dissolution, transferring its assets to its members or, if it has no members, to those persons whom the corporation holds itself out as benefitting or serving; and
    8. doing every other act necessary to wind up and liquidate its assets and affairs.
  2. Dissolution of a corporation does not:
    1. transfer title to the corporation's property;
    2. subject its directors or officers to standards of conduct different from those prescribed in §§ 4-33-801 et seq.;
    3. change quorum or voting requirements for its board or members; change provision for selection, resignation, or removal of its directors or officers or both; or change provisions for amending its bylaws;
    4. prevent commencement of a proceeding by or against the corporation in its corporate name;
    5. abate or suspend a proceeding pending by or against the corporation on the effective date of dissolution; or
    6. terminate the authority of the registered agent.

History. Acts 1993, No. 1147, § 1404.

U.S. Code. Section 501(c)(3) of the Internal Revenue Code, referred to in this section, is codified as 26 U.S.C. § 501(c)(3).

4-33-1407. Known claims against dissolved corporation.

  1. A dissolved corporation may dispose of the known claims against it by following the procedure described in this section.
  2. The dissolved corporation shall notify its known claimants in writing of the dissolution at any time after its effective date. The written notice must:
    1. describe information that must be included in a claim;
    2. provide a mailing address where a claim may be sent;
    3. state the deadline, which may not be fewer than one hundred twenty (120) days from the effective date of the written notice, by which the dissolved corporation must receive the claim; and
    4. state that the claim will be barred if not received by the deadline.
  3. A claim against the dissolved corporation is barred:
    1. if a claimant who was given written notice under subsection (b) of this section does not deliver the claim to the dissolved corporation by the deadline;
    2. if a claimant whose claim was rejected by the dissolved corporation does not commence a proceeding to enforce the claim within ninety (90) days from the effective date of the rejection notice.
  4. For purposes of this section “claim” does not include a contingent liability or a claim based on an event occurring after the effective date of dissolution.

History. Acts 1993, No. 1147, § 1405.

4-33-1408. Unknown claims against dissolved corporation.

  1. At any time after dissolution is authorized, a corporation may also publish notice of its dissolution and request that persons with claims against the corporation present them in accordance with the notice.
  2. The notice must:
    1. be published one (1) time in a newspaper of general circulation in the county where the corporation's principal office is or was last located or in a newspaper of general circulation in Pulaski County if the corporation does not have a principal office in this state;
    2. describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and
    3. state that a claim against the corporation will be barred unless a proceeding to enforce the claim is commenced within one (1) year after publication of the notice.
  3. If the corporation publishes a newspaper notice in accordance with subsection (b) of this section, the claim of each of the following claimants is barred unless the claimant commences a proceeding to enforce the claim against the corporation within one (1) year after the publication date of the newspaper notice:
    1. a claimant who did not receive written notice under § 4-33-1407;
    2. a claimant whose claim was timely sent to the corporation but not acted on; and
    3. a claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
  4. A claim may be enforced under this section:
    1. against the corporation, to the extent of its undistributed assets; or
    2. if the assets have been distributed in liquidation, against any person, other than a creditor of the corporation, to whom the corporation distributed its property to the extent of the distributee's pro rata share of the claim or the corporate assets distributed to such person in liquidation, whichever is less, but the distributee's total liability for all claims under this section may not exceed the total amount of assets distributed to the distributee.

History. Acts 1993, No. 1147, § 1406; 2007, No. 638, § 44.

4-33-1409 — 4-33-1419. [Reserved.]

Part B — Administrative Dissolution

4-33-1420. Grounds for administrative dissolution.

The Secretary of State may commence a proceeding under § 4-33-1421 to administratively dissolve a corporation if:

  1. the corporation does not pay within sixty (60) days after they are due any taxes or penalties imposed by this chapter;
  2. the corporation is without a registered agent in this state for one hundred twenty (120) days or more;
  3. the corporation does not notify the Secretary of State within one hundred twenty (120) days that its registered agent has been changed or has resigned;
  4. the corporation's period of duration, if any, stated in its articles of incorporation expires; or
  5. the corporation does not file the annual disclosure statement required under § 4-33-131 within sixty (60) days after it is due.

History. Acts 1993, No. 1147, § 1420; 2007, No. 569, § 2; 2007, No. 638, § 45.

4-33-1421. Procedure for and effect of administrative dissolution.

  1. Upon determining that one (1) or more grounds exist under § 4-33-1420 for dissolving a corporation, the Secretary of State shall serve the corporation with written notice of that determination.
  2. If the corporation does not correct each ground for dissolution or demonstrate to the reasonable satisfaction of the Secretary of State that each ground determined by the Secretary of State does not exist within at least sixty (60) days after service of the notice is perfected, the Secretary of State may administratively dissolve the corporation by signing a certificate of dissolution that recites the ground or grounds for dissolution and its effective date. The Secretary of State shall file the original of the certificate and serve a copy on the corporation.
  3. A corporation administratively dissolved continues its corporate existence but may not carry on any activities except those necessary to wind up and liquidate its affairs under § 4-33-1406 and notify its claimants under §§ 4-33-1407 and 4-33-1408.
  4. The administrative dissolution of a corporation does not terminate the authority of its registered agent.

History. Acts 1993, No. 1147, § 1421; 2007, No. 638, § 46.

4-33-1422. Reinstatement following administrative dissolution.

  1. A corporation administratively dissolved under § 4-33-1421 may apply to the Secretary of State for reinstatement within two (2) years after the effective date of dissolution. The application must:
    1. recite the name of the corporation and the effective date of its administrative dissolution;
    2. state that the ground or grounds for dissolution either did not exist or have been eliminated;
    3. state that the corporation's name satisfies the requirements of § 4-33-401; and
    4. contain an affidavit or a certificate from the Department of Finance and Administration reciting that all state taxes owed by the corporation have been paid.
  2. If the Secretary of State determines that the application contains the information required by subsection (a) of this section and that the information is correct, the Secretary of State shall cancel the certificate of dissolution and prepare a certificate of reinstatement reciting that determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the corporation.
  3. When reinstatement is effective, it relates back to and takes effect as of the effective date of the administrative dissolution and the corporation shall resume carrying on its activities as if the administrative dissolution had never occurred.

History. Acts 1993, No. 1147, § 1422; 2007, No. 638, § 47.

4-33-1423. Appeal from denial of reinstatement.

  1. The Secretary of State, upon denying a corporation's application for reinstatement following administrative dissolution, shall serve the corporation with a written notice that explains the reasons for denial.
  2. The corporation may appeal the denial of reinstatement to the Pulaski County Circuit Court within ninety (90) days after service of the notice of denial is perfected. The corporation appeals by petitioning the court to set aside the dissolution and attaching to the petition copies of the Secretary of State's certificate of dissolution, the corporation's application for reinstatement, and the Secretary of State's notice of denial.
  3. The court may summarily order the Secretary of State to reinstate the dissolved corporation or may take other action the court considers appropriate.
  4. The court's final decision may be appealed as in other civil proceedings.

History. Acts 1993, No. 1147, § 1423; 2007, No. 638, § 48.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-33-1424 — 4-33-1429. [Reserved.]

Part C — Judicial Dissolution

4-33-1430. Grounds for judicial dissolution.

  1. The circuit court may dissolve a corporation:
    1. in a proceeding by the attorney general if it is established that:
      1. the corporation obtained its articles of incorporation through fraud;
      2. the corporation has continued to exceed or abuse the authority conferred upon it by law; or
      3. the corporation is a public benefit corporation and the corporate assets are being fraudulently misapplied or wasted.
    2. except as provided in the articles or bylaws of a religious corporation, in a proceeding by fifty (50) members or members holding five percent (5%) of the voting power, whichever is less, or by a director or any person specified in the articles, if it is established that:
      1. the directors are deadlocked in the management of the corporate affairs, and the members, if any, are unable to breach the deadlock;
      2. the directors or those in control of the corporation have acted, are acting or will act in a manner that is illegal or fraudulent;
      3. the members are deadlocked in voting power and have failed, for a period that includes at least two (2) consecutive annual meeting dates, to elect successors to directors whose terms have, or would otherwise have, expired; or
      4. the corporate assets are being fraudulently misapplied or wasted.
    3. in a proceeding by a creditor if it is established that:
      1. the creditor's claim has been reduced to judgment, the execution on the judgment returned unsatisfied and the corporation is insolvent; or
      2. the corporation has admitted in writing that the creditor's claim is due and owing and the corporation is insolvent.
    4. in a proceeding by the corporation to have its voluntary dissolution continued under court supervision.
  2. Prior to dissolving a corporation, the court shall consider whether:
    1. there are reasonable alternatives to dissolution;
    2. dissolution is in the public interest, if the corporation is a public benefit corporation; and
    3. dissolution is the best way of protecting the interests of members, if the corporation is a mutual benefit corporation.

History. Acts 1993, No. 1147, § 1430.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-33-1431. Procedure for judicial dissolution.

  1. Venue for a proceeding by the Attorney General to dissolve a corporation lies in the Pulaski County Circuit Court. Venue for a proceeding brought by any other party named in § 4-33-1430 lies in the circuit court of the county where a corporation's principal office is or was last located or the Pulaski County Circuit Court if the corporation does not have a principal office in this state.
  2. It is not necessary to make directors or members parties to a proceeding to dissolve a corporation unless relief is sought against them individually.
  3. A court in a proceeding brought to dissolve a corporation may issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs, take other action required to preserve the corporate assets wherever located, and carry on the activities of the corporation until a full hearing can be held.

History. Acts 1993, No. 1147, § 1431; 2007, No. 638, § 49.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-33-1432. Receivership or custodianship.

  1. A court in a judicial proceeding brought to dissolve a public benefit or mutual benefit corporation may appoint one (1) or more receivers to wind up and liquidate, or one (1) or more custodians to manage, the affairs of the corporation. The court shall hold a hearing, after notifying all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian has exclusive jurisdiction over the corporation and all of its property wherever located.
  2. The court may appoint an individual, or a domestic or foreign business or nonprofit corporation (authorized to transact business in this state) as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.
  3. The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended from time to time. Among other powers:
    1. the receiver (i) may dispose of all or any part of the assets of the corporation wherever located, at a public or private sale, if authorized by the court; provided, however, that the receiver's power to dispose of the assets of the corporation is subject to any trust and other restrictions that would be applicable to the corporation; and (ii) may sue and defend in the receiver's or custodian's name as receiver or custodian of the corporation in all courts of this state;
    2. the custodian may exercise all of the powers of the corporation, through or in place of its board of directors or officers, to the extent necessary to manage the affairs of the corporation in the best interests of its members and creditors.
  4. The court during a receivership may redesignate the receiver a custodian, and during a custodianship may redesignate the custodian a receiver, if doing so is in the best interests of the corporation, its members, and creditors.
  5. The court from time to time during the receivership or custodianship may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and the receiver or custodian's counsel from the assets of the corporation or proceeds from the sale of the assets.

History. Acts 1993, No. 1147, § 1432.

4-33-1433. Decree of dissolution.

  1. If after a hearing the court determines that one (1) or more grounds for judicial dissolution described in § 4-33-1430 exist, it may enter a decree dissolving the corporation and specifying the effective date of the dissolution, and the clerk of the court shall deliver a certified copy of the decree to the Secretary of State, who shall file it.
  2. After entering the decree of dissolution, the court shall direct the winding up and liquidation of the corporation's affairs in accordance with § 4-33-1406 and the notification of its claimants in accordance with §§ 4-33-1407 and 4-33-1408.

History. Acts 1993, No. 1147, § 1433.

4-33-1434 — 4-33-1439. [Reserved.]

Part D — Miscellaneous

4-33-1440. Deposit with Treasurer of State.

Assets of a dissolved corporation that should be transferred to a creditor, claimant, or member of the corporation who cannot be found or who is not competent to receive them, shall be reduced to cash subject to known trust restrictions and deposited with the Treasurer of State for safekeeping; provided, however, that in the Treasurer of State's discretion property may be received and held in kind. When the creditor, claimant, or member furnishes satisfactory proof of entitlement to the amount deposited or property held in kind, the Treasurer of State shall deliver to the creditor, member or other person or his or her representative that amount or property.

History. Acts 1993, No. 1147, § 1440.

Subchapter 15 — Foreign Corporations

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Research References

Am. Jur. 36 Am. Jur. 2d, For. Corp., § 1 et seq.

C.J.S. 19 C.J.S., Corp., § 968 et seq.

Part A — Certificate of Authority

4-33-1501. Authority to transact business required.

  1. A foreign corporation may not transact business in this state until it obtains a certificate of authority from the Secretary of State.
  2. The following activities, among others, do not constitute transacting business within the meaning of subsection (a) of this section:
    1. maintaining, defending, or settling any proceeding;
    2. holding meetings of the board of directors or members or carrying on other activities concerning internal corporate affairs;
    3. maintaining bank accounts;
    4. maintaining offices or agencies for the transfer, exchange, and registration of memberships or securities or maintaining trustees or depositaries with respect to those securities;
    5. selling through independent contractors;
    6. soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts;
    7. creating or acquiring indebtedness, mortgages, and security interests in real or personal property;
    8. securing or collecting debts or enforcing mortgages and security interests in property securing the debts;
    9. owning, without more, real or personal property;
    10. conducting an isolated transaction that is completed within thirty (30) days and that is not one in the course of repeated transactions of a like nature;
    11. transacting business in interstate commerce.
  3. The list of activities in subsection (b) of this section is not exhaustive.

History. Acts 1993, No. 1147, § 1501.

4-33-1502. Consequences of transacting business without authority.

  1. A foreign corporation transacting business in this state without a certificate of authority may not maintain a proceeding in any court in this state until it obtains a certificate of authority.
  2. The successor to a foreign corporation that transacted business in this state without a certificate of authority and the assignee of a cause of action arising out of that business may not maintain a proceeding on that cause of action in any court in this state until the foreign corporation or its successor obtains a certificate of authority.
  3. A court may stay a proceeding commenced by a foreign corporation, its successor, or assignee until it determines whether the foreign corporation or its successor requires a certificate of authority. If it so determines, the court may further stay the proceeding until the foreign corporation or its successor obtains the certificate.
    1. A foreign corporation that transacts business in this state without a certificate of authority shall pay a civil penalty to the state not to exceed five thousand dollars ($5,000) for each year and partial year during which it transacted business without a certificate of authority, beginning with the date it began transacting business in this state and ending on the date it obtains a certificate of authority.
      1. The civil penalty imposed by this subsection may be recovered in a suit brought by the Secretary of State.
        1. In addition to any civil penalty, if the court finds that a foreign corporation has transacted business in violation of this chapter, the court shall issue an injunction restraining the foreign corporation from any further transactions or the exercise of any rights and privileges in this state.
        2. The injunction shall remain in effect until:
          1. All civil penalties and any interest and court costs assessed by the court have been paid; and
          2. The foreign corporation has complied with the provisions of this subchapter.
  4. The failure of a foreign corporation to obtain a certificate of authority does not impair the validity of its corporate acts or prevent it from defending any proceeding in this state.

History. Acts 1993, No. 1147, § 1502; 2005, No. 1925, § 2.

A.C.R.C. Notes. As originally enacted, the third sentence of subsection (d) provided:

“The Secretary of State may institute proceedings in the Chancery Court of Pulaski County to collect all penalties due under this subsection.”

Amendment 80 to the Arkansas Constitution, adopted by voter referendum and effective July 1, 2001, established circuit courts as the trial courts of original jurisdiction of all justiciable matters not otherwise assigned pursuant to the Constitution and specifically provided that “jurisdiction conferred on Circuit Courts established by this Amendment includes all matters previously cognizable by Circuit, Chancery, Probate and Juvenile Court ….”

4-33-1503. Application for certificate of authority.

  1. A foreign corporation may apply for a certificate of authority to transact business in this state by delivering an application to the Secretary of State. The application must set forth:
    1. the name of the foreign corporation or, if its name is unavailable for use in this state, a corporate name that satisfies the requirements of § 4-33-1506;
    2. the name of the state or country under whose law it is incorporated;
    3. the date of incorporation and period of duration;
    4. the street address of its principal office;
    5. the information required by § 4-20-105(a);
    6. the names and usual business or home addresses of its current directors and officers;
    7. whether the foreign corporation has members; and
    8. whether the corporation, if it had been incorporated in this state, would be a public benefit, mutual benefit or religious corporation.
  2. The foreign corporation shall deliver with the completed application a certificate of existence (or a document of similar import) duly authenticated by the Secretary of State or other official having custody of corporate records in the state or country under whose law it is incorporated.

History. Acts 1993, No. 1147, § 1503; 2007, No. 638, § 50.

4-33-1504. Amended certificate of authority.

  1. A foreign corporation authorized to transact business in this state must obtain an amended certificate of authority from the Secretary of State if it changes:
    1. its corporate name;
    2. the period of its duration;
    3. any of the information required by § 4-20-105(a); or
    4. the state or country of its incorporation.
  2. The requirements of § 4-33-1503 for obtaining an original certificate of authority apply to obtaining an amended certificate under this section.

History. Acts 1993, No. 1147, § 1504; 2007, No. 638, § 51.

4-33-1505. Effect of certificate of authority.

  1. A certificate of authority authorizes the foreign corporation to which it is issued to transact business in this state subject, however, to the right of the state to revoke the certificate as provided in this chapter.
  2. A foreign corporation with a valid certificate of authority has the same rights and enjoys the same privileges as and, except as otherwise provided by this chapter, is subject to the same duties, restrictions, penalties, and liabilities now or later imposed on, a domestic corporation of like character.
  3. This chapter does not authorize this state to regulate the organization or internal affairs of a foreign corporation authorized to transact business in this state.

History. Acts 1993, No. 1147, § 1505.

4-33-1506. Corporate name of foreign corporation.

  1. If the corporate name of a foreign corporation does not satisfy the requirements of § 4-33-401, the foreign corporation, to obtain or maintain a certificate of authority to transact business in this state, may use a fictitious name to transact business in this state if its real name is unavailable and it delivers to the Secretary of State for filing a copy of the resolution of its board of directors, certified by its secretary, adopting the fictitious name.
  2. Except as authorized by subsections (c) and (d) of this section, the corporate name (including a fictitious name) of a foreign corporation must be distinguishable upon the records of the Secretary of State from:
    1. the corporate name of a nonprofit or business corporation incorporated or authorized to transact business in this state;
    2. a corporate name reserved or registered under § 4-33-402 or § 4-33-403 of this chapter or § 4-27-402 or § 4-27-403; and
    3. the fictitious name of another foreign business or nonprofit corporation authorized to transact business in this state.
  3. A foreign corporation may apply to the Secretary of State for authorization to use in this state the name of another corporation (incorporated or authorized to transact business in this state) that is not distinguishable upon the records of the Secretary of State from the name applied for. The Secretary of State shall authorize use of the name applied for if:
    1. the other corporation consents to the use in writing and submits an undertaking in form satisfactory to the Secretary of State to change its name to a name that is distinguishable upon the records of the Secretary of State from the name of the applying corporation; or
    2. the applicant delivers to the Secretary of State a certified copy of a final judgment of a court of competent jurisdiction establishing the applicant's right to use the name applied for in this state.
  4. A foreign corporation may use in this state the name (including the fictitious name) of another domestic or foreign business or nonprofit corporation that is used in this state if the other corporation is incorporated or authorized to transact business in this state and the foreign corporation:
    1. has merged with the other corporation;
    2. has been formed by reorganization of the other corporation; or
    3. has acquired all or substantially all of the assets, including the corporate name, of the other corporation.
  5. If a foreign corporation authorized to transact business in this state changes its corporate name to one that does not satisfy the requirements of § 4-33-401, it shall not transact business in this state under the changed name until it adopts a name satisfying the requirements of § 4-33-401 and obtains an amended certificate of authority under § 4-33-1504.

History. Acts 1993, No. 1147, § 1506.

4-33-1507. Registered office and registered agent of foreign corporation.

Each foreign corporation authorized to transact business in this state must continuously maintain in this state:

  1. a registered office with the same address as that of its registered agent; and
  2. a registered agent, who may be:
    1. an individual who resides in this state and whose office is identical with the registered office;
    2. a domestic business or nonprofit corporation whose office is identical with the registered office; or
    3. a foreign business or nonprofit corporation authorized to transact business in this state whose office is identical with the registered office.

History. Acts 1993, No. 1147, § 1507.

4-33-1508. Change of registered office or registered agent of foreign corporation.

  1. A foreign corporation authorized to transact business in this state may change its registered office or registered agent by delivering to the Secretary of State for filing a statement of change that sets forth:
    1. its name;
    2. the street address of its current registered office;
    3. if the current registered office is to be changed, the street address of its new registered office;
    4. the name of its current registered agent;
    5. if the current registered agent is to be changed, the name of its new registered agent and the new agent's written consent (either on the statement or attached to it) to the appointment; and
    6. that after the change or changes are made, the street addresses of its registered office and the office of its registered agent will be identical.
  2. If a registered agent changes the street address of its business office, the agent may change the address of the registered office of any foreign corporation for which the agent is the registered agent by notifying the corporation in writing of the change and signing (either manually or in facsimile) and delivering to the Secretary of State for filing a statement of change that complies with the requirements of subsection (a) of this section and recites that the corporation has been notified of the change.

History. Acts 1993, No. 1147, § 1508.

4-33-1509. Resignation of registered agent of foreign corporation.

  1. The registered agent of a foreign corporation may resign as agent by signing and delivering to the Secretary of State for filing the original and two (2) exact or conformed copies of a statement of resignation. The statement of resignation may include a statement that the registered office is also discontinued.
  2. After filing the statement, the Secretary of State shall attach the filing receipt to one (1) copy and mail the copy and receipt to the registered office if not discontinued. The Secretary of State shall mail the other copy to the foreign corporation at its principal office address, if known.
  3. The agency is terminated, and the registered office discontinued if so provided, on the thirty-first day after the date on which the statement was filed.

History. Acts 1993, No. 1147, § 1509.

4-33-1510. Service on foreign corporation.

  1. The registered agent of a foreign corporation authorized to transact business in this state is the corporation's agent for service of process, notice, or demand required or permitted by law to be served on the foreign corporation.
  2. A foreign corporation may be served by registered or certified mail, return receipt requested, addressed to the secretary of the foreign corporation at its principal office shown in its application for a certificate of authority if the foreign corporation:
    1. has no registered agent or its registered agent cannot with reasonable diligence be served;
    2. has withdrawn from transacting business in this state under § 4-33-1520; or
    3. has had its certificate of authority revoked under § 4-33-1531.
  3. Service is perfected under subsection (b) of this section at the earliest of:
    1. the date the foreign corporation receives the mail;
    2. the date shown on the return receipt, if signed on behalf of the foreign corporation; or
    3. five (5) days after its deposit in the United States mail, as evidenced by the postmark if mailed postpaid and correctly addressed.
  4. This section does not prescribe the only means, or necessarily the required means, of serving a foreign corporation.

History. Acts 1993, No. 1147, § 1510.

4-33-1511 — 4-33-1519. [Reserved.]

Part B — Withdrawal

4-33-1520. Withdrawal of foreign corporation.

  1. A foreign corporation authorized to transact business in this state may not withdraw from this state until it obtains a certificate of withdrawal from the Secretary of State.
  2. A foreign corporation authorized to transact business in this state may apply for a certificate of withdrawal by delivering an application to the Secretary of State for filing. The application must set forth:
    1. the name of the foreign corporation and the name of the state or country under whose law it is incorporated;
    2. that it is not transacting business in this state and that it surrenders its authority to transact business in this state;
    3. that it revokes the authority of its registered agent to accept service on its behalf and appoints the Secretary of State as its agent for service of process in any proceeding based on a cause of action arising during the time it was authorized to do business in this state;
    4. a mailing address to which the Secretary of State may mail a copy of any process served on him or her under subdivision (b)(3) of this section; and
    5. a commitment to notify the Secretary of State in the future of any change in the mailing address.
  3. After the withdrawal of the corporation is effective, service of process on the Secretary of State under this section is service on the foreign corporation. Upon receipt of process, the Secretary of State shall mail a copy of the process to the foreign corporation at the post office address set forth in its application for withdrawal.

History. Acts 1993, No. 1147, § 1520.

4-33-1521 — 4-33-1529. [Reserved.]

Part C — Revocation of Certificate of Authority

4-33-1530. Grounds for revocation.

  1. The Secretary of State may commence a proceeding under § 4-33-1531 to revoke the certificate of authority of a foreign corporation authorized to transact business in this state if:
    1. the foreign corporation does not pay within one hundred twenty (120) days after they are due any franchise taxes or penalties imposed by this chapter or other law;
    2. the foreign corporation is without a registered agent or registered office in this state for one hundred twenty (120) days or more;
    3. the foreign corporation does not inform the Secretary of State under § 4-33-1508 or § 4-33-1509 that its registered agent or registered office has changed, that its registered agent has resigned, or that its registered office has been discontinued within ninety (90) days of the change, resignation, or discontinuance;
    4. an incorporator, director, officer, or agent of the foreign corporation signed a document such person knew was false in any material respect with intent that the document be delivered to the Secretary of State for filing;
    5. the Secretary of State receives a duly authenticated certificate from the Secretary of State or other official having custody of corporate records in the state or country under whose law the foreign corporation is incorporated stating that it has been dissolved or disappeared as the result of a merger; or
    6. the corporation does not file the annual disclosure statement required under § 4-33-131 within sixty (60) days after it is due.
  2. The Attorney General may commence a proceeding under § 4-33-1531 to revoke the certificate of authority of a foreign corporation authorized to transact business in this state if:
    1. the corporation has continued to exceed or abuse the authority conferred upon it by law; or
    2. the corporation would have been a public benefit corporation had it been incorporated in this state and that its corporate assets in this state are being fraudulently misapplied or wasted.

History. Acts 1993, No. 1147, § 1530; 2007, No. 569, § 3.

4-33-1531. Procedure and effect of revocation.

  1. The Secretary of State upon determining that one (1) or more grounds exist under § 4-33-1530 for revocation of a certificate of authority shall serve the foreign corporation with written notice of that determination under § 4-33-1510.
  2. The Attorney General upon determining that one or more grounds exist under § 4-33-1530(b) for revocation of a certificate of authority shall request the Secretary of State to serve, and the Secretary of State shall serve the foreign corporation with written notice of that determination under § 4-33-1510.
  3. If the foreign corporation does not correct each ground for revocation or demonstrate to the reasonable satisfaction of the Secretary of State that each ground for revocation determined by the Secretary of State does not exist within sixty (60) days after service of the notice is perfected under § 4-33-1510, the Secretary of State may revoke the foreign corporation's certificate of authority by signing a certificate of revocation that recites the ground or grounds for revocation and its effective date. The Secretary of State shall file the original of the certificate and serve a copy on the foreign corporation under § 4-33-1510.
  4. The authority of a foreign corporation to transact business in this state ceases on the date shown on the certificate revoking its certificate of authority.
  5. The Secretary of State's revocation of a foreign corporation's certificate of authority appoints the Secretary of State the foreign corporation's agent for service of process in any proceeding based on a cause of action that arose during the time the foreign corporation was authorized to transact business in this state. Service of process on the Secretary of State under this subsection is service on the foreign corporation. Upon receipt of process, the Secretary of State shall mail a copy of the process to the secretary of the foreign corporation at its principal office shown in its application for a certificate of authority or in any subsequent communications received from the corporation stating the current mailing address of its principal office.
  6. Revocation of a foreign corporation's certificate of authority does not terminate the authority of the registered agent of the corporation.

History. Acts 1993, No. 1147, § 1531.

4-33-1532. Appeal from revocation.

  1. A foreign corporation may appeal the Secretary of State's revocation of its certificate of authority to the Circuit Court of Pulaski County within thirty (30) days after the service of the certificate of revocation is perfected under § 4-33-1510. The foreign corporation appeals by petitioning the court to set aside the revocation and attaching to the petition copies of its certificate of authority and the Secretary of State's certificate of revocation.
  2. The court may summarily order the Secretary of State to reinstate the certificate of authority or may take any other action the court considers appropriate.
  3. The court's final decision may be appealed as in other civil proceedings.

History. Acts 1993, No. 1147, § 1532.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

Subchapter 16 — Conversion to a Public Water Authority

Effective Dates. Acts 2003, No. 1330, § 5: Apr. 14, 2003. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the statutes relating to water authorities and related laws need amending in order to better reflect the intent and operation of those laws as originally drafted and to be consistent with current trends. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

4-33-1601. Conversion to a public water authority.

A corporation which meets the definition of a qualified corporation, as defined by § 4-35-103, may adopt a plan to convert its entity status from that of a nonprofit corporation to a water authority pursuant to § 4-35-101 et seq., unless the articles or bylaws require otherwise, if the conversion is approved:

  1. By a majority of the members of the board of directors of the corporation; and
  2. If the corporation has members, by the lesser of:
    1. Two-thirds (2/3) of the votes cast by the members in person or by proxy at a regular or special meeting of the members at which a quorum as defined in § 4-33-722 is present; or
    2. A majority of the members.

History. Acts 2003, No. 1330, § 2.

Subchapter 17 — Transition Provisions

Research References

U. Ark. Little Rock L.J.

Harris, The Nonprofit Corporation Act of 1993: Considering the Election to Apply the New Law to Old Corporations, 16 U. Ark. Little Rock L.J. 1.

4-33-1701. Application to existing domestic corporations.

All provisions of this chapter shall apply to all domestic corporations incorporated on or after January 1, 1994, as specified in § 4-33-1706. A corporation incorporated prior to January 1, 1994, under any general statute of this state providing for incorporation of nonprofit corporations may elect to be governed by the provisions of this chapter by amending its articles of incorporation to provide that it shall be so governed. Such election may be made at any time on or after midnight, December 31, 1993, but once made shall be irrevocable. The amendment to the articles of incorporation effecting such election must be approved by the affirmative vote of at least a majority of the members of the corporation or if such corporation has no members, by the affirmative vote of at least a majority of the directors of the corporation. Domestic corporations existing prior to midnight, December 31, 1993, which do not elect to be governed by its provisions shall continue to be governed by preexisting law. Except for any applicable corporate franchise tax laws or any applicable income tax exemption laws referenced herein, nothing in this chapter shall be deemed to apply to domestic corporations or associations regulated by the Insurance Commissioner under title 23 of the Arkansas Code or related laws as nonprofit corporations including but not limited to hospital or medical service corporations, health maintenance organizations, and fraternal benefit societies.

History. Acts 1993, No. 1147, § 1701; 1999, No. 26, § 1.

Amendments. The 1999 amendment substituted “a majority” for “two-thirds (2/3)” twice in the fourth sentence.

Research References

Ark. L. Notes.

Sampson, Nonprofit Risk; Nonprofit Insurance, 2008 Ark. L. Notes 83.

4-33-1702. Application to qualified foreign corporations.

A foreign corporation authorized to transact business in this state on January 1, 1994, is subject to this chapter but is not required to obtain a new certificate of authority to transact business under this chapter. Except for any applicable corporate franchise tax laws or any applicable income tax exemption laws referenced herein, nothing in this chapter shall be deemed to apply to foreign corporations and associations regulated by the Insurance Commissioner under title 23 of the Arkansas Code or related laws as nonprofit foreign corporations including but not limited to foreign hospital or medical service corporations, health maintenance organizations, and fraternal benefit societies.

History. Acts 1993, No. 1147, § 1702.

4-33-1703. Saving provisions.

  1. Except as provided in subsection (b) of this section, the repeal of a statute by this chapter does not affect:
    1. the operation of the statute or any action taken under it before its repeal;
    2. any ratification, right, remedy, privilege, obligation, or liability acquired, accrued, or incurred under the statute before its repeal;
    3. any violation of the statute or any penalty, forfeiture, or punishment incurred because of the violation, before its repeal;
    4. any proceeding, reorganization, or dissolution commenced under the statute before its repeal, and the proceeding, reorganization, or dissolution may be completed in accordance with the statute as if it had not been repealed; or
    5. any meeting of members or directors or action by written consent noticed or any action taken before its repeal as a result of a meeting of members or directors or action by written consent.
  2. If a penalty or punishment imposed for violation of a statute repealed by this chapter is reduced by this chapter, the penalty or punishment if not already imposed shall be imposed in accordance with this chapter.

History. Acts 1993, No. 1147, § 1703.

4-33-1704. Severability.

If any provision of this chapter or its application to any person or circumstance is held invalid by a court of competent jurisdiction, the invalidity does not affect other provisions or applications of this chapter that can be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable.

History. Acts 1993, No. 1147, § 1704.

4-33-1705. Repeal.

All laws and parts of laws in conflict with this chapter are hereby repealed.

History. Acts 1993, No. 1147, § 1809.

4-33-1706. Effective date.

This chapter takes effect January 1, 1994.

History. Acts 1993, No. 1147, § 1705.

4-33-1707. Public benefit, mutual benefit and religious corporations.

Upon electing to be governed by the provisions of this chapter, each domestic corporation existing on January 1, 1994, that becomes subject to this chapter shall be designated as a public benefit, mutual benefit or religious corporation as follows:

  1. Any corporation designated by statute as a public benefit corporation, a mutual benefit corporation or a religious corporation is the type of corporation designated by statute;
  2. Any corporation that does not come within subsection (1) of this section but is organized primarily or exclusively for religious purposes is a religious corporation;
  3. Any corporation that does not come within subsection (1) or (2) of this section but that is recognized as exempt under section 501(c)(3) of the Internal Revenue Code, or any successor section, is a public benefit corporation;
  4. Any corporation that does not come within subsection (1), (2), or (3) of this section, but that is organized for a public or charitable purpose and that upon dissolution must distribute its assets to a public benefit corporation, the United States, a state or a person that is recognized as exempt under section 501(c)(3) of the Internal Revenue Code, or any successor section, is a public benefit corporation; and
  5. Any corporation that does not come within subsection (1), (2), (3), or (4) of this section is a mutual benefit corporation.

History. Acts 1993, No. 1147, § 1706.

U.S. Code. Section 501(c)(3) of the Internal Revenue Code, referred to in this section, is codified as 26 U.S.C. § 501(c)(3).

4-33-842. Standards of conduct for officers.

Subchapter 10 — Amendment of Articles of Incorporation and Bylaws

4-33-1404. Articles of dissolution.

4-33-1406. Effect of dissolution.

Chapter 34 Rehabilitative Services Corporations, Habilitative Services Corporations, and Rural Fire Protection Corporations

4-34-101. Rehabilitative services corporations.

  1. There is authorized the creation of rehabilitative services corporations.
  2. A rehabilitative services corporation shall be a public body and a body corporate and politic.
  3. A rehabilitative services corporation shall be organized to assist the state in carrying out specialized and regular rehabilitative services for Arkansans in need of rehabilitative services.

History. Acts 1999, No. 880, § 1.

4-34-102. Habilitative services corporations.

  1. There is authorized the creation of habilitative services corporations.
  2. A habilitative services corporation shall be a public body and a body corporate and politic.
  3. A habilitative services corporation shall be organized to provide habilitative services and other services for individuals with special educational or training needs.

History. Acts 1999, No. 880, § 2.

4-34-103. Rural fire protection corporations.

  1. There is authorized the creation of rural fire protection corporations.
  2. A rural fire protection corporation shall be a public body and a body corporate and politic.
  3. A rural fire protection corporation shall be organized to provide fire protection to rural areas of the state.

History. Acts 1999, No. 880, § 3.

4-34-104. Filing for incorporation.

One (1) or more persons may act as the incorporator or incorporators of a corporation authorized by this chapter by filing for incorporation in the same manner as for nonprofit corporations under the Arkansas Nonprofit Corporation Act of 1993, § 4-33-101 et seq.

History. Acts 1999, No. 880, § 4.

4-34-105. Conversion of nonprofit corporations.

  1. A corporation organized under the Arkansas Nonprofit Corporation Act of 1993, § 4-33-101 et seq., or the Arkansas Nonprofit Corporation Act, § 4-28-201 et seq., may convert to a corporation authorized by this chapter by filing with the circuit court of the county in which the main office or principal place of business of the corporation is located signed and verified articles of incorporation and a statement that the nonprofit corporation desires to convert to a corporation authorized by this chapter.
  2. If the circuit court finds that the articles of incorporation conform to law and that the incorporation is for a lawful purpose and is in the best interests of the public, the court may issue an order approving conversion to a corporation authorized by this chapter.
  3. If the court approves the conversion, the articles of incorporation in duplicate, signed and verified, and a copy of the order of the court approving the conversion shall be transmitted to the Secretary of State, who shall, when a fee of one hundred dollars ($100) has been paid:
    1. File the original of the articles in his or her office; and
    2. Issue a certificate of incorporation to which he or she shall affix the other copy of the articles endorsed with the word “filed” and the month, day, and year of the filing and return the certificate of incorporation to the incorporators or their representative.
  4. The new corporation shall obtain all the assets, liabilities, and obligations of the nonprofit corporation, and the obligations of the nonprofit corporation shall cease to exist on the date that the Secretary of State issues the certificate of incorporation.

History. Acts 1999, No. 880, § 5.

4-34-106. Applicability of laws.

  1. A corporation authorized by this chapter shall be subject to the provisions of the Arkansas Nonprofit Corporation Act of 1993, § 4-33-101 et seq., except to the extent that the provisions of the Arkansas Nonprofit Corporation Act of 1993, § 4-33-101 et seq., are in conflict with this chapter.
  2. A corporation authorized by this chapter shall have the right to perpetual succession as a body politic and corporate.

History. Acts 1999, No. 880, § 6.

4-34-107. Property taxes.

Nothing in this chapter shall be construed to affect the corporation's obligation to pay property taxes.

History. Acts 1999, No. 880, § 7.

Chapter 35 Water Authority Act

A.C.R.C. Notes. Acts 2003, No. 1330, § 4, provided:

“Transitional Rules. With respect to those entities formed pursuant to the provisions of Act 1003 of 1999 or Act 115 of 2001 prior to the effective date of this act:

“(1) They shall immediately be governed by the provisions of Arkansas Code §§ 4-35-101 through 4-35-306 at the time this act becomes effective; and

“(2) They shall be deemed to have complied with all organizational provisions of this act including, where applicable, Arkansas Code §§ 4-28-225, 4-33-1601, 4-35-201, and 4-35-202.”

Publisher's Notes. Former chapter 35, regarding the Water Authority Act, was repealed by Acts 2003, No. 1330, § 3. The former chapter was derived from the following sources:

4-35-101. Acts 1999, No. 1003, § 1.

4-35-102. Acts 1999, No. 1003, § 2.

4-35-103. Acts 1999, No. 1003, § 3.

4-35-104. Acts 1999, No. 1003, § 4.

4-35-201. Acts 2001, No. 115, § 1.

4-35-202. Acts 2001, No. 115, § 2.

4-35-203. Acts 2001, No. 115, § 3.

4-35-204. Acts 2001, No. 115, § 4.

4-35-205. Acts 2001, No. 115, § 5.

4-35-206. Acts 2001, No. 115, § 6.

4-35-207. Acts 2001, No. 115, § 7.

4-35-208. Acts 2001, No. 115, § 8.

4-35-209. Acts 2001, No. 115, § 9.

4-35-210. Acts 2001, No. 115, § 10.

4-35-211. Acts 2001, No. 115, § 11.

4-35-212. Acts 2001, No. 115, § 12.

4-35-213. Acts 2001, No. 115, § 13.

4-35-214. Acts 2001, No. 115, § 14.

4-35-215. Acts 2001, No. 115, § 15.

4-35-216. Acts 2001, No. 115, § 16.

4-35-217. Acts 2001, No. 115, § 17.

Effective Dates. Acts 2003, No. 1330, § 5: Apr. 14, 2003. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the statutes relating to water authorities and related laws need amending in order to better reflect the intent and operation of those laws as originally drafted and to be consistent with current trends. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Cross References. Conversion to public water authority, § 4-28-225.

Subchapter 1 — General Provisions

4-35-101. Legislative intent.

It is the intent of the General Assembly to provide a means by which a nonprofit corporation involved in the sale, transmission, and distribution of potable water to members of the general public and commercial, industrial, and other users may form or convert its entity status from that of a body corporate to that of a public body politic and governmental entity, thereby allowing the entity the opportunity to access the tax-exempt capital markets and assuring the State of Arkansas and the customers of the entity of the lowest water rates possible.

History. Acts 2003, No. 1330, § 3.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Public Agencies, 24 U. Ark. Little Rock L. Rev. 601.

4-35-102. Title.

This chapter shall be known and may be cited as the “Water Authority Act”.

History. Acts 2003, No. 1330, § 3.

4-35-103. Definitions.

As used in this chapter:

  1. “Articles” means the articles of constitution or the articles of conversion and reconstitution of a water authority;
  2. “Board” means the board of directors of a qualified corporation or a water authority;
  3. “Bond” means any bond, promissory note, lease-purchase agreement, or other evidence of indebtedness issued, incurred, or entered into by a water authority;
  4. “Commission” means the Arkansas Natural Resources Commission;
  5. “Indenture” means a mortgage, indenture of mortgage, deed of trust, trust agreement, loan agreement, security agreement, or trust indenture executed by the water authority as security for any bonds;
    1. “Project” means any raw or potable water intake, treatment, distribution, transmission, storage, pumping, well site, well field, or other facility, or any combination of the foregoing, which has as its purpose the provision of raw or potable water to members of the general public and commercial, industrial, or other users along with any and all other appurtenances, equipment, betterments, or improvements related thereto.
      1. A project may include any lands or interest in land deemed by the board to be desirable in connection with the project and necessary equipment for the proper functioning and operation of the buildings or facilities involved.
      2. A project may include the construction, expansion, operation, or maintenance of a wastewater project or wastewater treatment plant;
    1. “Qualified corporation” means any nonprofit corporation originally formed pursuant to the Arkansas Nonprofit Corporation Act of 1993, § 4-33-101 et seq., the Arkansas Nonprofit Corporation Act, § 4-28-201 et seq., or a predecessor statute, which among other things provides, distributes, transmits, treats, pumps, or stores raw or potable water to or for the benefit of members of the general public and commercial, industrial, and other users or which proposes to accomplish, develop, or construct any of the foregoing.
    2. A qualified corporation includes a nonprofit corporation that constructs, expands, operates, or maintains a wastewater project or wastewater treatment plant;
  6. “State” means the State of Arkansas;
  7. “United States” means the United States of America or any of its agencies or instrumentalities;
  8. “Wastewater project” means sewage collection systems and treatment plants, including, without limitation, intercepting sewers, outfall sewers, force mains, pumping stations, instrumentation and control systems, and other appurtenances necessary or useful for the collection, removal, reduction, treatment, purification, disposal, and handling of liquid and solid waste, sewage and industrial waste, and refuse;
  9. “Wastewater treatment plant” means any plant, disposal field, lagoon, pumping station, or other works:
    1. That use chemical or biological processes for:
      1. The treatment, stabilization, or disposal of sewage, industrial wastewaters, or other wastewaters; or
      2. The reduction and handling of sludge removed from wastewater; and
    2. From which:
      1. A discharge to the waters of the state occurs; or
      2. Municipal wastewater is land-applied;
  10. “Water authority” means the public body politic and governmental entity organized pursuant to the provisions of this chapter; and
  11. “Water users” means members of the public and commercial, industrial, and other users who purchase their raw or potable water directly from the water authority.

History. Acts 2003, No. 1330, § 3; 2005, No. 1653, § 1.

4-35-104. Construction.

    1. This chapter shall be liberally construed in conformity with its intent.
    2. To this end, it shall not be necessary to comply with the general provisions of other laws dealing with public facilities, their acquisition, construction, leasing, encumbering, or disposition, including particularly, without limitation, bidding and appraisal requirements.
  1. All acts and activities of a water authority performed pursuant to the authority of this chapter are legislatively determined and declared to be essential governmental functions.

History. Acts 2003, No. 1330, § 3.

4-35-105. Authority generally.

  1. There is conferred upon a water authority the authority to take action and to do or cause to be done the things that shall be necessary or desirable to accomplish and implement the purposes and intent of this chapter according to the import of this chapter.
  2. It is specifically understood that, except for the provisions of this chapter or the provisions of any other chapter which authorizes the conversion of a qualified corporation to a water authority, no other statutes shall govern or pertain to the creation of a water authority under this chapter or the issuance of bonds by a water authority.
  3. A water authority authorized by this chapter shall have the right to perpetual succession as a public body politic and governmental entity.
  4. The Arkansas Natural Resources Commission shall have the authority, including the powers set forth in § 15-20-206, to promulgate rules for carrying out the intent of this chapter.

History. Acts 2003, No. 1330, § 3.

4-35-106. Members.

A water authority shall not have members.

History. Acts 2003, No. 1330, § 3.

4-35-107. Freedom of Information Act of 1967 applicable.

All meetings and records of a water authority shall be subject to the Freedom of Information Act of 1967, § 25-19-101 et seq.

History. Acts 2003, No. 1330, § 3.

4-35-108. Tax exemption of projects.

Each project by a water authority and all income from each project is determined and declared by the General Assembly to be public property used exclusively for a public purpose and shall be exempt from ad valorem taxation by all taxing authorities.

History. Acts 2003, No. 1330, § 3.

4-35-109. Arkansas Public Service Commission — Exemption from jurisdiction.

Water authorities organized under this chapter shall be exempt in any and all respects from the jurisdiction and control of the Arkansas Public Service Commission.

History. Acts 2003, No. 1330, § 3.

4-35-110. Revenues.

  1. A water authority formed pursuant to this chapter shall be operated without profit, but the rates, fees, rents, or other charges for water or wastewater collection, disposal, and treatment and other facilities, supplies, equipment, or services furnished by the water authority shall be sufficient at all times:
    1. To pay all operating and maintenance expenses necessary or desirable for the prudent conduct of its affairs and the principal of and interest on the obligations issued or assumed by the water authority in the performance of the purposes for which it was organized; and
    2. For the creation of adequate reserves.
  2. The revenues of the water authority shall be devoted first to the payment of operating and maintenance expenses and the principal and interest on outstanding obligations, and thereafter to reserves for improvements, new construction, depreciation, and contingencies as the board of directors may prescribe from time to time and to other purposes approved by the board, including rebates to water users.

History. Acts 2003, No. 1330, § 3; 2005, No. 1653, § 2.

4-35-111. Dissolution.

    1. A water authority shall be dissolved upon the expiration of its term of existence as set forth in the water authority's articles if the term of existence is less than perpetual in nature.
    2. Upon the dissolution, a notice shall be filed with both the Arkansas Natural Resources Commission and the Secretary of State.
    1. A water authority may also be dissolved upon filing articles of dissolution with the approval in writing by the commission.
    2. If approved by the commission, articles of dissolution shall also be filed with the Secretary of State.
  1. Upon dissolution, any assets of a water authority remaining after payment of claims and liabilities of the water authority shall be transferred to another water authority with approval of the commission or to the State of Arkansas or a subdivision of the state, including the commission.

History. Acts 2003, No. 1330, § 3.

Subchapter 2 — Formation of and Conversion to a Public Water Authority

Cross References. Public Water System Service Act, § 20-28-101 et seq.

Waterworks operators, § 17-51-101 et seq.

4-35-201. Authority and procedure to form a water authority.

Two (2) or more persons, which may include cities, counties, or other public bodies, may form a water authority authorized by this chapter by presenting to and filing with the Arkansas Natural Resources Commission the following:

  1. Articles of constitution which shall state and include the following information:
    1. The name of the water authority, which shall include the words “public water authority”, it being understood that the water authority may adopt a fictitious operational name upon written request to and approval by the commission and the Secretary of State;
    2. The location of the water authority's principal office;
    3. The number of directors of the water authority, which shall be at least five (5) and shall be subject to change as provided in this chapter or in the water authority's bylaws;
    4. The names and addresses of the proposed initial board of directors of the water authority;
    5. The name and address of the agent for service of process of the water authority;
    6. The proposed geographic service area over which the water authority will have jurisdiction; and
    7. Any other matters that the proposed initial board of directors of the water authority may deem necessary and appropriate;
  2. A copy of the water authority's proposed bylaws, along with any other information which the proposed initial board of directors of the water authority may deem necessary and appropriate;
  3. A statement and certification from the Secretary of State that the proposed name of the water authority is not identical to that of any other water authority in the state or so nearly similar as to lead to confusion and uncertainty;
  4. The filing and review fee that the commission may designate and determine from time to time; and
  5. Any other information and documents which the commission may designate and require.

History. Acts 2003, No. 1330, § 3.

4-35-202. Authority and procedure to convert to a water authority.

  1. Whenever a qualified corporation desires to convert to and become reconstituted as a water authority under and pursuant to this chapter, the qualified corporation shall present to and file with the Arkansas Natural Resources Commission:
    1. A resolution adopted by the board of directors of the qualified corporation and, if the qualified corporation has members, the members of the qualified corporation, which evidences the desire of the qualified corporation to convert to and become reconstituted as a water authority and which shall additionally certify that the qualified corporation:
      1. Was initially formed as a nonprofit corporation;
      2. Does not have the ability to directly access the tax-exempt capital markets other than through a conduit issuer; and
      3. Desires to realize interest rate savings as a result of its conversion to and reconstitution as a water authority pursuant to this chapter;
    2. Articles of conversion and reconstitution which shall be signed by a majority of the water authority's proposed initial board of directors and which shall state and include the following information:
      1. The name of the water authority, which shall include the words “public water authority”, it being understood that the water authority may adopt a fictitious operational name upon written request to and approval by the commission and the Secretary of State;
      2. The location of the water authority's principal office;
      3. The number of directors of the water authority, which number shall be at least five (5) and shall be subject to change as provided in this chapter or in the water authority's bylaws;
      4. The names and addresses of the proposed initial board of directors of the water authority;
      5. The name and address of the agent for service of process of the water authority;
      6. The proposed geographic service area over which the water authority will have jurisdiction; and
      7. Any other matters that the proposed initial board of directors of the water authority may deem necessary and appropriate;
    3. A copy of the water authority's proposed bylaws along with any other information which the proposed initial board of directors of the water authority may deem necessary and appropriate;
    4. A statement and certification from the Secretary of State that the proposed name of the water authority is not identical to that of any other water authority in the state or so nearly similar as to lead to confusion and uncertainty;
    5. The filing and review fee that the commission may designate and determine from time to time; and
    6. Any other information and documents which the commission may designate and require.
  2. In the event the qualified corporation has members:
      1. Membership approval is required for the qualified corporation to convert into and become reconstituted as a water authority.
      2. Approval shall be obtained in the manner determined prior to conversion under the qualified corporation's articles, bylaws, or applicable statutes; and
    1. After conversion, the water authority shall have no members.

History. Acts 2003, No. 1330, § 3.

4-35-203. Effect of formation — Filing with Secretary of State.

    1. When articles of constitution or articles of conversion and reconstitution and other required documents have been filed with and accepted by the Arkansas Natural Resources Commission, as evidenced by the issuance by the commission of its certificate of existence in that form that the commission may deem appropriate, the water authority referred to in the articles shall come into existence and shall constitute a public body politic and governmental entity of the State of Arkansas under the name set forth in the certificate of existence, whereupon the water authority shall be vested with the rights and powers granted in this chapter.
    2. Contemporaneously therewith, with respect to a conversion, the qualified corporation shall cease to exist and all assets and liabilities of every nature, including, without limitation, all real property, personal property, contractual obligations, lending obligations outstanding, rights afforded borrowers of federal and state funds, and other tangible and intangible assets and liabilities of every nature, without need for further action or approval by any third party, shall be vested in and shall accrue to the benefit of the water authority.
      1. A copy of a water authority's articles of constitution or articles of conversion and reconstitution shall additionally be filed in the office of the Secretary of State after its receipt, acceptance, and approval by the commission.
      2. The Secretary of State may require the payment of a reasonable filing and receipt fee not in excess of the filing fee charged by the Secretary of State in connection with the receipt and filing of a corporation's articles of incorporation.
    1. Filing a copy of the articles of constitution or articles of conversion and reconstitution, as accepted and approved by the commission, with the Secretary of State shall serve to terminate and dissolve the previous corporate existence of the qualified corporation, effective as of the date of the issuance of the certificate of existence.

History. Acts 2003, No. 1330, § 3.

4-35-204. Board of directors.

    1. A water authority shall have a board of directors composed of at least five (5) members.
    2. The specific number of initial directors and their terms of office shall be provided in its articles filed with the Arkansas Natural Resources Commission.
    3. Changes to the number and terms of directors may be provided in the articles or bylaws.
    1. The initial directors of a water authority shall be approved by the commission, and they shall serve in accordance with those procedures that a water authority may specify in its bylaws.
      1. A director shall continue in office until the director's successor is properly elected and accepts office.
      2. Successor directors shall be elected either by the board or by the water users as set forth in the bylaws.
      3. A director may serve successive terms.
    2. It is permissible for the bylaws of a water authority to provide that directors shall be selected from specific geographic areas within the total geographic area serviced by a water authority.
    3. In the event a water authority wants to modify or amend the procedures for election of directors, approval shall be expressly granted in writing by the commission.
  1. Unless otherwise provided in the articles or bylaws, the following shall apply to meetings of the board:
        1. If the time and place of a directors' meeting is fixed by the bylaws or the board, the meeting is a regular meeting.
        2. All other meetings are special meetings.
        1. A board may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through, the use of any means of communication by which all directors participating may simultaneously hear each other during the meeting.
        2. A director participating in a meeting by this means is deemed to be present in person at the meeting;
      1. Except as provided in subdivision (c)(2)(C) of this section, regular meetings of the board may be held without notice.
      2. Except as provided in subdivision (c)(2)(C) of this section, special meetings of the board shall be preceded by at least two (2) days' written notice to each director of the date, time, and place, but not the purpose, of the meeting.
      3. Any board action to remove a director shall not be valid unless each director is given at least seven (7) days' written notice that the matter will be voted upon at a directors' meeting or unless notice is waived.
      4. The presiding officer of the board, the president, or twenty percent (20%) of the directors then in office may call and give notice of a meeting of the board;
        1. A director may at any time waive any notice required by this chapter, the articles, or bylaws.
          1. Except as provided in subdivision (c)(3)(B) of this section, the waiver shall be in writing, signed by the director entitled to the notice, and filed with the minutes of the water authority's records.
          2. A signed waiver delivered by facsimile transmittal shall constitute a valid waiver of notice under this section.
      1. A director's attendance at or participation in a meeting waives any required notice of the meeting unless the director, upon arriving at the meeting or prior to the vote on a matter not noticed in conformity with this chapter or the articles or bylaws, objects to lack of notice and does not thereafter vote for or assent to the objected to action; and
      1. Except as provided in the bylaws, a majority of the members of a board shall constitute a quorum for the transaction of business, and a vote of a majority of a quorum shall constitute an act of the board.
      2. No vacancy in the membership of a board shall impair the right of a quorum to exercise all the powers and duties of a water authority.
      3. All powers of a water authority shall be exercised by its board of directors or pursuant to its authorization.
      1. Unless prohibited or limited by the articles or bylaws, a board of directors may create one (1) or more committees of the board and appoint members of the board to serve on them.
      2. Each committee shall have two (2) or more directors who shall serve at the direction of the board.
    1. A committee of the board may not:
      1. Authorize the issuance of bonds or any related matters;
      2. Approve or recommend dissolution or the sale, pledge, or transfer of all or substantially all of the water authority's assets;
      3. Elect, appoint, or remove directors or fill vacancies on the board or on any of its committees; or
      4. Adopt, amend, or repeal the articles or bylaws.
    1. A director shall discharge his or her duties as a director, including his or her duties as a member of a committee:
      1. In good faith;
      2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
      3. In a manner the director reasonably believes to be in the best interests of the water authority.
    2. In discharging his or her duties, a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data if prepared or presented by:
      1. One (1) or more officers or employees of the water authority whom the director reasonably believes to be reliable and competent in the matters presented;
      2. Legal counsel, public accountants, or other persons as to matters the director reasonably believes are within the person's professional or expert competence; or
      3. A committee of the board of which the director is not a member, as to matters within its jurisdiction, if the director reasonably believes the committee merits confidence.
  2. A member of the board of a water authority shall serve without compensation except that he or she may be reimbursed for actual expenses incurred in the performance of his or her duties.
  3. All proceedings of a board shall be reduced to writing by the secretary of the water authority and appropriately recorded and maintained.
    1. The board of directors of a public water authority may elect by majority vote to:
      1. Participate in the Arkansas Public Employees' Retirement System; and
      2. Allow full-time employees of a public water authority to become members of the Arkansas Public Employees' Retirement System.
    2. The public water authority shall pay the contributions required by the Board of Trustees of the Arkansas Public Employees' Retirement System in accordance with § 24-4-101 et seq.

History. Acts 2003, No. 1330, § 3; 2019, No. 449, § 1.

Amendments. The 2019 amendment added (h).

4-35-205. Officers.

  1. The officers of a water authority shall consist of a president, vice president, secretary, treasurer, and such other officers as the board of directors shall deem necessary to accomplish the purposes for which a water authority is organized.
  2. The offices of secretary and treasurer may be held by the same person.
  3. All officers of a water authority shall be elected by the board and shall serve for those terms of office as specified in the bylaws.
    1. An officer may resign at any time by delivering notice to the water authority.
      1. A resignation is effective when the notice is effective unless the notice specifies a future effective date.
      2. If a resignation is made effective at a future date and the water authority accepts the future effective date, its board may fill the pending vacancy before the effective date if the board provides that the successor does not take office until the effective date.
  4. A board may remove any officer at any time with or without cause.

History. Acts 2003, No. 1330, § 3.

4-35-206. Notice.

  1. Notice may be communicated:
    1. In person;
    2. By telegraph, teletype, telecopier, facsimile, or other similar form of wire or wireless communication; or
    3. By mail or private carrier.
  2. Written notice, if in a comprehensible form, is effective at the earliest of the following:
    1. When received;
    2. Two (2) days after its deposit in the United States mail, as evidenced by the postmark, if mailed correctly addressed and with first class postage affixed; or
    3. On the date shown on the return receipt if sent by registered or certificated mail, return receipt requested, and the receipt is signed by or on behalf of the addressee.

History. Acts 2003, No. 1330, § 3.

4-35-207. Bylaws.

  1. The persons forming the water authority or the initial board of directors shall adopt bylaws for the water authority and shall file a copy of the executed bylaws with the Arkansas Natural Resources Commission.
  2. The bylaws may contain any provision for regulating and managing the affairs of the water authority that is not inconsistent with law or the articles.

History. Acts 2003, No. 1330, § 3.

4-35-208. Amendment to articles or bylaws.

  1. Subject to subdivision (c)(2) and subsection (d) of this section, a water authority may amend its articles or bylaws at any time by a majority of the members of the board of directors at any regular or special meeting at which a quorum is present.
  2. Any amendment to the articles of a water authority shall be delivered to and filed with both the Arkansas Natural Resources Commission and the Secretary of State setting forth:
    1. The name of the water authority;
    2. The text of each amendment adopted;
    3. The date of each amendment's adoption; and
    4. A statement that the amendment was approved by a sufficient vote of the board.
    1. Any amendment to the bylaws shall be filed by the secretary of the water authority with the books and records of the water authority.
    2. However, any change with respect to the number of directors or the procedure for electing or nominating directors shall first be approved in writing by the commission and, if approved, shall be filed with the commission.
  3. The commission shall approve in writing any amendment to the articles or bylaws which changes the geographic service area over which the water authority has jurisdiction.

History. Acts 2003, No. 1330, § 3.

4-35-209. Registered office and registered agent.

  1. Each water authority shall continuously maintain in this state:
    1. A registered office with the same address, which must include a street address, as that of the registered agent; and
    2. A registered agent, who is an individual residing in this state and whose office is identical with the registered office.
  2. A water authority may change its registered office or registered agent by delivering to the Arkansas Natural Resources Commission and the Secretary of State for filing a statement of change that sets forth:
    1. The name of the water authority;
    2. The street address of its current registered office;
    3. If the current registered office is to be changed, the street address of the new registered office;
    4. The name of its current registered agent; and
    5. If the current registered agent is to be changed, the name of the new registered agent.

History. Acts 2003, No. 1330, § 3.

4-35-210. Powers generally.

A water authority shall have the following powers, together with all powers incidental thereto or necessary to the discharge thereof:

  1. To have succession in its designated name;
  2. To sue and be sued and to prosecute and defend suits in any court having jurisdiction of the subject matter and of the parties;
  3. To make use of a seal and to alter it at pleasure;
  4. To adopt and alter bylaws for the regulation and conduct of its affairs and business;
  5. To acquire, whether by purchase, gift, lease, devise, or otherwise, property of every description that a board of directors may deem necessary to the acquisition, construction, equipment, improvement, enlargement, operation, administration, or maintenance of a project and to hold title thereto;
  6. To construct, enlarge, equip, improve, maintain, administer, and operate one (1) or more projects;
  7. To borrow money for any of its purposes;
  8. To sell and issue its interest-bearing bonds;
  9. To sell and issue refunding bonds;
  10. To secure any of its bonds by pledge and indenture as provided in this subchapter;
  11. To appoint, employ, and compensate such general managers, executive directors, agents, architects, engineers, attorneys, accountants, and other persons and employees as the business of the water authority may require;
  12. To provide for such insurance as the board may deem advisable;
  13. To invest any of its funds that the board may determine are not presently needed for its operational purposes in obligations that are direct or guaranteed obligations of the United States or other securities in which public funds may be invested under the laws of this state;
  14. To invest the proceeds of bonds or any debt service reserves or sinking funds securing the payment of the bonds in any obligations, securities, repurchase agreements, or investment agreements authorized or permitted by the resolution of the water authority authorizing the same or the indenture securing the same;
  15. To contract, lease, and make lease agreements respecting its properties or any part thereof as lessor or lessee, including financing lease agreements;
  16. To exercise the power of eminent domain in accordance with the procedures prescribed by § 18-15-301 et seq.;
  17. To sell and convey, mortgage, pledge, or otherwise dispose of any of its:
    1. Properties;
    2. Assets;
    3. Franchises;
    4. Rights;
    5. Privileges;
    6. Licenses;
    7. Rights-of-way; and
    8. Easements;
  18. To own and operate facilities necessary to provide potable water and associated services and to provide wastewater collection, disposal, and treatment to Arkansas residents;
  19. To fix, regulate, and collect rates, fees, and rents or other charges for water and wastewater collection, disposal, and treatment and any other facilities, supplies, equipment, or services furnished by the water authority;
  20. To do and perform all acts and things and have and exercise any power as may be convenient or appropriate to effectuate the purposes for which the water authority is formed;
  21. To purchase, receive, or in any manner acquire, own, hold, and use any real and personal property or any interest on the property on the terms as determined by the board of the water authority to be in the best interest of the water authority; and
  22. To enter into water contracts for the purchase or sale of water on a wholesale basis on the terms and conditions the board determines are in the best interest of the water authority.

History. Acts 2003, No. 1330, § 3; 2005, No. 1653, § 3.

Subchapter 3 — Bond Provisions

Effective Dates. Acts 2005, No. 1927, § 2: Apr. 11, 2005. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the ability of local entities to issue bonds is an important component to the state economy; that laws concerning local bonds issued by water authorities are in need of immediate clarification in order to allow those authorities to properly issue bonds for the benefit of the authority and the state. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

4-35-301. Issuance of bonds.

  1. A water authority is authorized at any time and from time to time to issue its interest-bearing bonds for the purpose of acquiring, constructing, improving, enlarging, completing, and equipping one (1) or more projects.
      1. Prior to a water authority's proposed issuance of bonds, the water authority shall publish one (1) time in a newspaper of general circulation in the affected county or counties in which the project or projects are or will be located:
        1. Notice of the proposed issuance of bonds;
        2. The maximum principal amount of bonds contemplated to be sold;
        3. A general description of the project contemplated to be financed or refinanced with bond proceeds; and
        4. The date, time, and location of a public meeting at which members of the public may obtain further information regarding the bonds and the development of the project.
      2. Notice under subdivision (b)(1)(A) of this section shall be published at least ten (10) days prior to the date of the hearing described in subdivision (b)(1)(A)(iv) of this section.
    1. A water authority president or his or her designee shall be responsible for conducting the hearing and shall require all public comments that might pertain to the proposed issuance of bonds by the water authority.
      1. Upon compliance with the provisions of this section, no other notice, hearing, or approval by any other entity or governmental unit shall be required as a condition to the issuance by a water authority of its contemplated bonds.
      2. The provisions of the Revenue Bond Act of 1987, § 19-9-601 et seq., do not apply to this section.
    2. The requirements of this subsection shall not apply to the issuance of bonds to refund bonds of the water authority for which a public hearing was held.
  2. The principal of and the interest on any bonds may be payable out of the revenues derived from the projects with respect to which the bonds are issued or from any other source available to a water authority.
  3. None of the bonds of a water authority shall ever constitute an obligation or debt of the state, the city, the county in which the water authority operates, the Arkansas Natural Resources Commission, or any officer or director of the water authority or a charge against the credit or taxing powers of the state.
  4. As the water authority shall determine, bonds of the water authority may:
    1. Be issued at any time and from time to time as may be appropriate and necessary;
    2. Be in such form and denominations as may be appropriate and necessary;
    3. Have such date or dates as may be appropriate and necessary;
    4. Mature at such time or times and in such amount or amounts as may be appropriate and necessary, provided that no bonds may mature more than forty (40) years after the date of issuance;
    5. Bear interest payable at such times and at such rate or rates as may be established by the board, as may be appropriate and necessary;
    6. Be payable at such place or places within or without the State of Arkansas as may be appropriate and necessary;
    7. Be subject to such terms of redemption in advance of maturity at such prices, including such premiums, as may be appropriate and necessary; and
    8. Contain other terms and provisions as may be appropriate or necessary.
    1. Bonds of a water authority may be sold at either public or private sale in such manner and from time to time as may be determined by the board to be most advantageous.
    2. The water authority may pay all expenses, premiums, and commissions that the board may deem necessary or advantageous in connection with the authorization, sale, and issuance of its bonds.
    1. All bonds shall contain a recital that they are issued pursuant to the provisions of this chapter.
    2. The recital shall be conclusive that the bonds have been authorized pursuant to the provisions of this chapter.
  5. Other than financing leases, all bonds issued under the provisions of this chapter shall be negotiable instruments within the meaning of the negotiable instruments law of the state and shall be in registered form.
  6. All bonds issued under this chapter shall be approved by resolution adopted by the board of the water authority.

History. Acts 2003, No. 1330, § 3; 2005, No. 1927, § 1.

4-35-302. Execution of bonds.

  1. Bonds shall be executed by the manual or facsimile signature of the president of the water authority and by the manual or facsimile signature of the secretary of the water authority.
  2. In case an officer whose signature appears on the bonds shall cease to be an officer before the delivery of the bonds, his or her signature shall nevertheless be valid and sufficient for all purposes.
  3. If there is a seal, the bonds shall be sealed with the seal of the water authority.

History. Acts 2003, No. 1330, § 3.

4-35-303. Security for bonds.

  1. The principal of and interest on bonds may be secured by a pledge of the revenues of a water authority of that project financed by the water authority through its issuance of bonds or from any other source that the water authority may deem necessary and appropriate and may be secured by the creation of a forecloseable mortgage and security interest encumbering the real property of the water authority or security interest in all personal property and revenues of the water authority as set forth in the indenture.
  2. The trustee under any indenture may be a trust company or bank having trust powers, whether located within or without the state.
  3. The bond resolution of the water authority authorizing the bonds or indenture may contain, all as the board of directors shall deem advisable and as shall not be in conflict with the provisions of this subchapter, any agreements and provisions customarily contained in instruments securing evidences of indebtedness, including, without limiting the generality of the foregoing:
    1. Provisions respecting the nature and extent of the security;
    2. The collection, segregation, and application of the revenues generated from the operation of any project covered by the bonds, the resolution, or the indenture;
    3. Covenants to always operate the project as a revenue-producing undertaking and to charge and collect, including the obligation to increase from time to time, sufficient revenue to maintain income at required levels;
    4. The maintenance and insurance of the project;
    5. The creation and maintenance of reserve and other special funds; and
    6. The rights and remedies available in the event of default to the holders of the bonds or the trustees under the indenture, bond, or resolution.
  4. If there is any default by a water authority in payment of the principal of or the interest on the bonds or in any of the agreements on the part of the water authority that may properly be included in any indenture, bond, or resolution securing the bonds, the bondholders or the trustee under any bond, resolution, or indenture, as authorized in the bond, resolution, or indenture may either in law or in equity, by suit, action, mandamus, or other proceeding enforce payment of the principal or interest and compel performance of all duties of the board and officers of the water authority and shall be entitled as a matter of right and regardless of the sufficiency of any such security to the appointment of a receiver in equity with all the powers of the receiver for the operation and maintenance of the project covered by the indenture, bond, or resolution and the collection, segregation, and applications of income and revenues therefrom.
  5. The indenture, bond, or resolution may contain provisions regarding the rights and remedies of any trustee thereunder and the holders of the bonds and the coupons and restricting the individual rights of action of the holders of the bonds and coupons.
    1. In the event of a default in the payment of the principal of or interest on any bonds issued under the provisions of this chapter, any court having jurisdiction may appoint a receiver to take charge of the facilities upon or in which there is a mortgage lien or security interest securing the bonds in default.
    2. The receiver shall have the power and authority to operate and maintain the facilities in receivership, to charge and collect payments, fees, rents, and charges sufficient to provide for the payment of any costs of receivership and operating expenses of the project in receivership, and to apply the revenues derived from the facilities in receivership in conformity with this chapter and the resolution or trust indenture securing the bonds in default.
    3. When the default has been cured, the receivership shall be ended and the facilities returned to the water authority.
  6. The relief provided in this section shall be construed to be in addition and supplemental to the other remedies provided in this chapter and the remedies that may be provided in the resolution or trust indenture authorizing or securing the bonds and shall be so granted and administered as to accord full recognition to priority rights of bondholders as to the pledge of revenues from and mortgage lien on or security interest in facilities as specified in and fixed by the resolution or trust indenture authorizing or securing successive issues of bonds.

History. Acts 2003, No. 1330, § 3.

4-35-304. Bonds — Tax exemption.

  1. The principal of and interest on bonds issued under the authority of this subchapter shall be exempt from all state, county, and municipal taxes.
  2. This exemption shall include income, inheritance, and estate taxes.

History. Acts 2003, No. 1330, § 3.

4-35-305. Proceeds from issuance of bonds.

  1. The proceeds derived from all of the bonds other than refunding bonds may be used only to pay the costs of acquiring, constructing, improving, enlarging, and equipping the project with respect to which they were issued, as may be specified in the proceedings in which the bonds are authorized to be issued and all costs incidental thereto, including, without limitation:
    1. The costs of any land forming a part of the project and all easements which may pertain to or be associated with any project;
    2. The costs of the labor, materials, and supplies used in any construction, improvement, and enlargement, including architect's and engineer's fees and the cost of preparing contract documents and advertising for bids along with all other reasonable and necessary project costs;
    3. The purchase price of and the cost of installing equipment for the project;
    4. Legal, fiscal, accounting, and recording fees and expenses incurred in connection with the authorization, sale, and issuance of the bonds issued in connection with the project;
    5. Interest on bonds for a reasonable period prior to, during, and after the time required for the construction and equipment;
    6. The amount necessary to fund a debt service reserve in an amount deemed appropriate by the water authority;
    7. Costs associated with the obtaining of default insurance, ratings, and other credit enhancements of every nature; and
    8. Other operational expenses, reserves, and other accounts of every nature.
  2. If any of the proceeds derived from the issuance of bonds remains undisbursed after completion of the project and the making of all such expenditures, the balance shall be used to pay principal of and interest on the bonds to fund a debt service reserve or for the redemption of bonds of the same issue.

History. Acts 2003, No. 1330, § 3.

4-35-306. Refunding bonds.

  1. A water authority, at any time and from time to time, may issue refunding bonds for the purpose of refunding the principal of and interest on any bonds of the water authority theretofore issued under this subchapter or bonds originally issued by the qualified corporation and then outstanding, whether or not the principal and interest shall have matured at the time of the refunding under this subchapter, and for the payment of any expenses incurred in connection with the refunding and any premium necessary to be paid in order to redeem or retire the bonds to be refunded.
  2. The proceeds derived from the sale of any refunding bonds shall be used only for the purposes for which the refunding bonds were authorized to be issued.
    1. Any of the refunding may be effected either by sale of the refunding bonds and the application of the proceeds by immediate application or by escrow deposit, with the right to invest moneys in the escrow deposit until needed for the redemption, or by exchange of the refunding bonds for the bonds or interest coupons to be refunded thereby.
    2. However, the holders of any bonds to be refunded shall not be compelled without their consent to surrender their bonds for payment or exchange prior to the date on which they may be paid or redeemed by the water authority under their respective provisions.
  3. Any refunding bonds of the water authority shall be payable solely from the revenues out of which the bonds to be refunded were payable or from those other sources or other revenues which might be identified in the indenture or resolution authorizing the bonds.
  4. All provisions of this chapter pertaining to bonds of the water authority that are not inconsistent with the provisions of this section shall apply also to refunding bonds issued by the water authority to the extent applicable.

History. Acts 2003, No. 1330, § 3.

Chapter 36 Arkansas Benefit Corporation Act

Subchapter 1 — Preliminary Provisions

4-36-101. Title.

This chapter shall be known and may be cited as the “Arkansas Benefit Corporation Act”.

History. Acts 2013, No. 1388, § 1.

Research References

Ark. L. Notes.

Carol Goforth, I understand C and S Corporations, but what are B Corporations?, 2018 Ark. L. Notes 1987.

4-36-102. Application of chapter.

  1. This chapter shall apply to all benefit corporations.
  2. This chapter does not imply that a contrary statute or rule of law applies to a business corporation that is not a benefit corporation.
    1. Except as otherwise provided in this chapter, the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., is generally applicable to a benefit corporation.
    2. Specific provisions of this chapter shall control over the general provisions of the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq.
    3. A benefit corporation may be simultaneously subject to this chapter and other statutes that provide for the incorporation of a specific type of business corporation.
  3. The articles of incorporation or bylaws of a benefit corporation shall not limit, relax, be inconsistent with, or supersede this chapter.

History. Acts 2013, No. 1388, § 1.

4-36-103. Definitions.

  1. As used in this chapter:
    1. “Benefit corporation” means a business corporation that is subject to this chapter;
    2. “Benefit director” means the director designated as the benefit director of a benefit corporation under § 4-36-302;
    3. “Benefit enforcement proceeding” means a claim or action for:
      1. Failure of a benefit corporation to pursue or create a general public benefit or a specific public benefit purpose as stated in its articles of incorporation; or
      2. Violation of an obligation, duty, or standard of conduct under this chapter;
    4. “Benefit officer” means the individual designated as the benefit officer of a benefit corporation under § 4-36-304;
    5. “General public benefit” means a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard, from the business and operations of a benefit corporation;
      1. “Independent” means having no material relationship with a benefit corporation or a subsidiary of the benefit corporation.
      2. A person shall be independent even if serving as benefit director or benefit officer.
      3. A material relationship between a person and a benefit corporation or its subsidiaries is conclusively presumed to exist if:
        1. The person is, or has been in the last three (3) years, an employee other than a benefit officer of the benefit corporation or a subsidiary of the benefit corporation;
        2. An immediate family member of the person is, or has been in the last three (3) years, an executive officer other than a benefit officer of the benefit corporation or its subsidiary; or
        3. There is beneficial or record ownership of five percent (5%) or more of the outstanding shares of the benefit corporation by the person or an association:
          1. Of which the person is a director, an officer, or a manager; or
          2. In which the person owns beneficially or of record five percent (5%) or more of the outstanding equity interests;
    6. “Minimum status vote” means:
      1. In the case of a business corporation, in addition to any other required approval or vote, the satisfaction of the following conditions:
        1. The shareholders of a class or series may vote as a class on the corporate action regardless of a limitation stated in the articles of incorporation or bylaws on the voting rights of the class or series; and
        2. The corporate action shall be approved by vote of the shareholders of each class or series entitled to cast at least two-thirds (2/3) of the votes that all shareholders of the class or series are entitled to cast on the action.
      2. In the case of a domestic entity other than a business corporation, in addition to any other required approval, vote, or consent, the satisfaction of the following conditions:
        1. The holders of a class or series of equity interest in the entity that are entitled to receive a distribution from the entity may vote on or consent to the action regardless of an otherwise applicable limitation on the voting or consent rights of the class or series; and
        2. The action shall be approved by vote or consent of the holders described in subdivision (7)(B)(i) of this section entitled to cast at least two-thirds (2/3) of the votes or consents that all of those holders are entitled to cast on the action;
    7. “Specific public benefit” means:
      1. Providing low-income or underserved individuals or communities with beneficial products or services;
      2. Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;
      3. Preserving the environment;
      4. Improving human health;
      5. Promoting the arts, sciences, or advancement of knowledge;
      6. Increasing the flow of capital to entities with a public benefit purpose; and
      7. Conferring any other particular benefit on society or the environment;
    8. “Subsidiary” means in relation to a person, an association in which the person owns beneficially or of record fifty percent (50%) or more of the outstanding equity interests; and
    9. “Third-party standard” means a recognized standard for defining, reporting, and assessing corporate social and environmental performance that is:
      1. Comprehensive in that it assesses the effect of the business and its operations on the interests listed in § 4-36-301(a)(1)(B)-(E);
      2. Developed by an organization that is independent of the benefit corporation and satisfies the following:
        1. Not more than one-third (1/3) of the members of the governing body of the organization are representatives of:
          1. An association of businesses operating in a specific industry, the performance of whose members is measured by the standard;
          2. Businesses from a specific industry or an association of businesses in that industry; or
          3. A business whose performance is assessed against the standard; and
        2. The organization is not materially financed by an association or business described in subdivision (10)(B)(i) of this section;
      3. Credible because the standard is developed by a person that both:
        1. Has access to necessary expertise to assess overall corporate social and environmental performance; and
        2. Uses a balanced multistakeholder approach, including a public comment period of at least thirty (30) days to develop the standard; and
      4. Transparent because the following information is publicly available:
        1. The standard criteria considered if measuring the overall social and environmental performance of a business;
        2. The relative weighting factor of those criteria;
        3. The development and revision of the standard, including:
          1. The identity of the directors, officers, material owners, and the governing body of the organization that developed and controls revisions to the standard; and
          2. The process by which revisions to the standard and changes to the membership of the governing body are made; and
        4. An accounting of the sources of financial support for the organization, with sufficient detail to disclose a relationship that could reasonably be considered to present a potential conflict of interest.
  2. For purposes of the definitions of “independent” and “subsidiary” in subsection (a) of this section, a percentage of ownership in an entity is computed as if all outstanding rights to acquire equity interests in the association had been exercised.

History. Acts 2013, No. 1388, § 1.

4-36-104. Formation — Fees.

  1. A benefit corporation shall be formed under the Arkansas Business Corporation Act of 1987, § 4-27-101 et seq., and its articles of incorporation shall state that it is a benefit corporation.
  2. The Secretary of State shall collect filing fees, service fees, and fees for copying when documents are delivered to him or her to be filed under this subchapter and under § 4-27-122.

History. Acts 2013, No. 1388, § 1.

Research References

Ark. L. Notes.

Carol Goforth, I understand C and S Corporations, but what are B Corporations?, 2018 Ark. L. Notes 1987.

4-36-105. Election of status.

  1. An existing business corporation may become a benefit corporation under this chapter by amending its articles of incorporation so that they contain, in addition to the requirements of § 4-27-202, a statement that the corporation is a benefit corporation.
  2. To be effective, an amendment shall be adopted by at least the minimum status vote.
  3. If an entity is not a benefit corporation but is a constituent corporation or organization in a merger or conversion with a benefit corporation, the merger or conversion shall be approved by at least the minimum status vote.

History. Acts 2013, No. 1388, § 1.

4-36-106. Termination of status.

  1. A benefit corporation may end its benefit corporation status and not be subject to this chapter by amending its articles of incorporation to delete the statement in the articles of incorporation required by § 4-36-104 or § 4-36-105 to be stated in the articles of incorporation of a benefit corporation.
  2. To be effective, the amendment shall be adopted by at least the minimum status vote.
  3. If a merger or conversion would have the effect of terminating the status of a business corporation as a benefit corporation, to be effective, the merger or conversion shall be approved by at least the minimum status vote.
  4. A sale, lease, exchange, or other disposition of all or a substantial part of the assets of a benefit corporation, unless the transaction is in the usual and regular course of business, shall not be effective unless the transaction is approved by at least the minimum status vote.

History. Acts 2013, No. 1388, § 1.

Subchapter 2 — Corporate Purposes

4-36-201. Corporate purposes.

  1. A benefit corporation shall have a purpose of creating a general public benefit and it is in addition to its purpose under § 4-36-103(a)(5).
    1. The articles of incorporation of a benefit corporation may identify one (1) or more specific public benefits that it is the purpose of the benefit corporation to pursue in addition to its purposes under § 4-36-103(a)(5) and subsection (a) of this section.
    2. The identification of a specific public benefit under this subsection does not limit the obligation of a benefit corporation under subsection (a) of this section.
  2. The creation of a general public benefit and a specific public benefit under subsections (a) and (b) of this section is in the best interests of the benefit corporation.
    1. A benefit corporation may amend its articles of incorporation to add, amend, or delete the identification of a specific public benefit that it is the purpose of the benefit corporation to pursue.
    2. To be effective, the amendment shall be adopted by at least the minimum status vote.
  3. A professional corporation that is a benefit corporation does not violate the Arkansas Professional Corporation Act, § 4-29-201 et seq., by having the purpose to pursue a general public benefit or a specific public benefit.

History. Acts 2013, No. 1388, § 1.

Research References

Ark. L. Notes.

Carol Goforth, I understand C and S Corporations, but what are B Corporations?, 2018 Ark. L. Notes 1987.

Subchapter 3 — Accountability

4-36-301. Standard of conduct for directors.

  1. In discharging the duties of their respective positions and in considering the best interests of the benefit corporation, the board of directors, committees of the board, and individual directors of a benefit corporation:
    1. Shall consider the effects of an action or inaction on:
      1. The shareholders of the benefit corporation;
      2. The employees and work force of the benefit corporation, its subsidiaries, and its suppliers;
      3. The interests of customers as beneficiaries of the general public benefit or specific public benefit purposes of the benefit corporation;
      4. Community and societal factors, including those of each community in which offices or facilities of the benefit corporation, its subsidiaries, or its suppliers are located;
      5. The local and global environment;
      6. The short-term and long-term interests of the benefit corporation, including benefits that may accrue to the benefit corporation from its long-term plans and the possibility that these interests may be best served by the continued independence of the benefit corporation; and
      7. The ability of the benefit corporation to accomplish its general public benefit purpose and a specific public benefit purpose;
    2. May consider other pertinent factors or the interests of a group that they consider appropriate; and
    3. Need not give priority to the interests of a particular person or group referred to in subdivision (a)(1) or subdivision (a)(2) of this section over the interests of another person or group unless the benefit corporation has stated in its articles of incorporation its intention to give priority to certain interests related to its accomplishment of its general public benefit purpose or of a specific public benefit purpose identified in its articles of incorporation.
  2. The consideration of interests and factors required by subsection (a) of this section does not constitute a violation of § 4-27-801.
  3. A director is not personally liable for monetary damages for:
    1. Action taken as a director if the director performed the duties of office in compliance with § 4-27-801; or
    2. Failure of the benefit corporation to pursue a general public benefit or a specific public benefit.
  4. A director does not have a duty to a person that is a beneficiary of a general public benefit purpose or a specific public benefit purpose of a benefit corporation arising from the status of the person as a beneficiary.

History. Acts 2013, No. 1388, § 1.

Research References

Ark. L. Notes.

Carol Goforth, I understand C and S Corporations, but what are B Corporations?, 2018 Ark. L. Notes 1987.

4-36-302. Benefit director.

  1. The board of directors of a benefit corporation may include a director who:
    1. Is designated the benefit director; and
    2. Has the powers, duties, rights, and immunities provided in this subchapter in addition to the powers, duties, rights, and immunities of the other directors of the benefit corporation.
    1. The benefit director is elected and may be removed under § 4-27-803.
    2. The benefit director shall be an independent individual.
  2. The benefit director may serve concurrently as the benefit officer and the benefit director.
  3. The articles of incorporation or bylaws of a benefit corporation may prescribe additional qualifications of the benefit director not inconsistent with this section.
  4. The benefit director shall prepare and the benefit corporation shall include in the annual benefit report to shareholders as required by § 4-36-401 the opinion of the benefit director on:
    1. Whether the benefit corporation acted under its general public benefit purpose and a specific public benefit purpose in all material respects during the period covered by the report;
    2. Whether the directors complied with § 4-36-301(a) and the officers complied with § 4-36-303(a); and
    3. Whether the benefit corporation or its directors or officers failed to comply with this section, including a description of the ways in which the benefit corporation or its directors or officers failed to comply.
  5. The action or inaction of an individual in the capacity of a benefit director is an action or inaction of that individual in the capacity of a director of the benefit corporation.
  6. Regardless of whether the bylaws of a benefit corporation include a provision eliminating or limiting the personal liability of directors authorized by § 4-26-811, a benefit director shall not be personally liable for an act or omission in the capacity of a benefit director unless the act or omission constitutes self-dealing, willful misconduct, or a knowing violation of law.
  7. The benefit director of a professional corporation does not need to be independent.

History. Acts 2013, No. 1388, § 1.

Research References

Ark. L. Notes.

Carol Goforth, I understand C and S Corporations, but what are B Corporations?, 2018 Ark. L. Notes 1987.

4-36-303. Standard of conduct for officers.

  1. An officer of a benefit corporation shall consider the interests and factors described in § 4-36-301 if:
    1. The officer has discretion to act with respect to a matter; and
    2. It reasonably appears to the officer that the matter may have a material effect on the creation by the benefit corporation of a general public benefit or a specific public benefit identified in the articles of incorporation of the benefit corporation.
  2. The consideration of interests and factors described in subsection (a) of this section shall not constitute a violation of § 4-27-841.
  3. An officer is not personally liable for monetary damages for:
    1. An action or omission as an officer if the officer performed the duties of the position in compliance with § 4-27-841 and this section; or
    2. Failure of the benefit corporation to pursue a general public benefit or a specific public benefit.
  4. An officer does not have a duty to a person that is a beneficiary of a general public benefit purpose or a specific public benefit purpose of a benefit corporation arising from the status of the person as a beneficiary.

History. Acts 2013, No. 1388, § 1.

4-36-304. Benefit officer.

  1. A benefit corporation may have an officer designated as the benefit officer.
  2. A benefit officer shall have:
    1. The powers and duties relating to the purpose of the corporation to pursue a general public benefit or a specific public benefit provided:
      1. By the bylaws; or
      2. Absent controlling provisions in the bylaws, by resolutions or orders of the board of directors; and
    2. The duty to prepare the benefit report required by § 4-36-401.

History. Acts 2013, No. 1388, § 1.

Research References

Ark. L. Notes.

Carol Goforth, I understand C and S Corporations, but what are B Corporations?, 2018 Ark. L. Notes 1987.

4-36-305. Right of action.

  1. Except in a benefit enforcement proceeding, a person may not bring an action or assert a claim against a benefit corporation or its directors or officers with respect to:
    1. Failure to pursue or create a general public benefit or a specific public benefit stated in its articles of incorporation; or
    2. Violation of a duty or standard of conduct under this chapter.
  2. A benefit corporation shall not be liable for monetary damages under this chapter for the failure of the benefit corporation to pursue a general public benefit or a specific public benefit.
  3. A benefit enforcement proceeding may begin and be maintained only:
    1. Directly by the benefit corporation; or
    2. Derivatively by:
      1. A shareholder;
      2. A director;
      3. A person or group of persons that owns beneficially or of record five percent (5%) or more of the equity interest in an entity of which the benefit corporation is a subsidiary at the time of the action or inaction complained of; or
      4. Other persons as named in the articles of incorporation or bylaws of the benefit corporation.

History. Acts 2013, No. 1388, § 1.

Subchapter 4 — Transparency

4-36-401. Annual reports.

    1. A benefit corporation shall prepare an annual benefit report and an annual franchise tax report under § 26-54-104.
    2. An annual benefit report shall include:
      1. A narrative description of:
        1. The ways in which the benefit corporation pursued the general public benefit during the year and the extent to which the general public benefit was pursued;
        2. Both:
          1. The ways in which the benefit corporation pursued a specific public benefit that the articles of incorporation state is the purpose of the benefit corporation to pursue; and
          2. The extent to which that specific public benefit was pursued;
        3. Circumstances that have hindered the creation by the benefit corporation of a general public benefit or a specific public benefit; and
        4. The process and rationale for selecting or changing the third-party standard used to prepare the benefit report;
        1. An assessment of the overall social and environmental performance of the benefit corporation against a third-party standard:
          1. Applied consistently with an application of that standard in earlier benefit reports; or
          2. Accompanied by an explanation of the reasons for an inconsistent application.
        2. The assessment does not need to be performed, audited, or certified by a third-party standards provider;
      2. The name of the benefit director and the benefit officer and the address to which correspondence to each of them may be directed;
      3. The compensation paid by the benefit corporation during the year to each director for serving in the capacity of a director;
      4. The statement of the benefit director described in § 4-36-302; and
      5. A statement of the connection between the organization that established the third-party standard or its directors, officers, or a holder of five percent (5%) or more of the governance interests in the organization, and the benefit corporation or its directors, officers, or a holder of five percent (5%) or more of the outstanding shares of the benefit corporation, including a financial or governance relationship that may materially affect the credibility of the use of the third-party standard.
  1. A benefit corporation shall send a benefit report to each shareholder annually:
    1. Before the stated due date of an annual franchise tax under § 26-54-104; or
    2. When the benefit corporation delivers an annual financial report to its shareholders.
    1. A benefit corporation shall post all of its benefit reports on the public part of its Internet website.
    2. The compensation paid to a director and a financial or proprietary informationist included in the benefit reports may be omitted from the benefit reports as posted.
    1. If a benefit corporation does not have a website, the benefit corporation shall provide a copy of its most recent benefit report, without charge, to a person who requests a copy.
    2. The compensation paid to directors and the financial or proprietary informationist included in the benefit report may be omitted from the copy of the benefit report provided.
    1. Concurrently with the delivery of the benefit report to shareholders under subsection (b) of this section, the benefit corporation shall deliver a copy of the benefit report to the Secretary of State for filing.
    2. The compensation paid to directors and the financial or proprietary informationist included in the benefit report may be omitted from the benefit report as delivered to the Secretary of State.
    3. The Secretary of State shall charge a fee of seventy dollars ($70.00) for filing a benefit report.

History. Acts 2013, No. 1388, § 1.

Research References

Ark. L. Notes.

Carol Goforth, I understand C and S Corporations, but what are B Corporations?, 2018 Ark. L. Notes 1987.

Chapter 37 Uniform Protected Series Act

Subchapter 1 — General Provisions

4-37-101. Short title.

This chapter may be cited as the “Uniform Protected Series Act”.

History. Acts 2019, No. 665, § 1.

4-37-102. Definitions.

In this chapter:

  1. “Acquired entity” means the entity, all of one or more classes or series of interests of which are acquired in an interest exchange.
  2. “Acquiring entity” means the entity that acquires all of one or more classes or series of interests of the acquired entity in an interest exchange.
  3. “Asset” means property:
    1. in which a series limited liability company or protected series has rights; or
    2. as to which the company or protected series has the power to transfer rights.
  4. “Associated asset” means an asset that meets the requirements of § 4-37-301.
  5. “Associated member” means a member that meets the requirements of § 4-37-302.
  6. “Converted entity” means the converting entity as it continues in existence after a conversion.
  7. “Converting entity” means the domestic entity that approves a plan of conversion pursuant to § 4-37-601 et seq., or the foreign entity that approves a conversion pursuant to the law of its jurisdiction of formation.
  8. “Foreign limited liability company” means an organization that is:
    1. an unincorporated association;
    2. organized under laws of a state other than the laws of this state, or under the laws of any foreign country;
    3. organized under a statute pursuant to which an association may be formed that affords to each of its members limited liability with respect to the liabilities of the entity; and
    4. not required to be registered or organized under any statute of this state other than the Small Business Entity Tax Pass Through Act, § 4-32-101 et seq.
  9. “Foreign protected series” means an arrangement, configuration, or other structure established by a foreign limited liability company which has attributes comparable to a protected series established under this chapter. The term applies whether or not the law under which the foreign company is organized refers to “protected series”.
  10. “Foreign series limited liability company” means a foreign limited liability company that has at least one foreign protected series.
  11. “Jurisdiction of formation” means the jurisdiction whose law governs the internal affairs of an entity.
  12. “Limited liability company” means an organization formed under the Small Business Entity Tax Pass Through Act, § 4-32-101 et seq.
  13. “Manager” or “managers” means, with respect to a limited liability company that has set forth in its articles of organization that it is to be managed by managers, the person or persons designated in accordance with § 4-32-401.
  14. “Member” or “members” means a person or persons who have been admitted to membership in a limited liability company as provided in § 4-32-801 and who have not ceased to be members as provided in § 4-32-802.
  15. “Non-associated asset” means:
    1. an asset of a series limited liability company which is not an associated asset of the company; or
    2. an asset of a protected series of the company which is not an associated asset of the protected series.
  16. “Operating agreement” means the written agreement which shall be entered into among all of the members as to the conduct of the business and affairs of a limited liability company.
    1. “Person” means an individual, a general partnership, a limited partnership, a domestic or foreign limited liability company, a trust, an estate, an association, a corporation, a custodian, a nominee and other individual entity in its own or representative capacity, or any other legal entity.
    2. “Person” includes a protected series.
  17. “Property” means all property, whether real, personal, or mixed or tangible or intangible, or any right or interest therein.
  18. “Protected series”, except in the phrase “foreign protected series”, means a protected series established under § 4-37-201.
  19. “Protected-series manager” means a person under whose authority the powers of a protected series are exercised and under whose direction the activities and affairs of the protected series are managed under the operating agreement, this chapter, and the Small Business Entity Tax Pass Through Act, § 4-32-101 et seq.
  20. “Protected-series transferable interest” means a right to receive a distribution from a protected series.
  21. “Protected-series transferee” means a person to which all or part of a protected series transferable interest of a protected series of a series limited liability company has been transferred, other than the company. The term includes a person that owns a protected-series transferable interest as a result of ceasing to be an associated member of a protected series.
  22. “Record”, used as a noun, 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.
  23. “Series limited liability company”, except in the phrase “foreign series limited liability company”, means a limited liability company that has at least one protected series.
  24. “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 symbol, sound, or process.
  25. “State” means a state, territory, or possession of the United States, the District of Columbia, or the Commonwealth of Puerto Rico.
  26. “Transfer” includes:
    1. an assignment;
    2. a conveyance;
    3. a sale;
    4. a lease;
    5. an encumbrance, including a mortgage or security interest;
    6. a gift; and
    7. a transfer by operation of law.
  27. “Transferable interest” means the right, as initially owned by a person in the person's capacity as a member, to receive distributions from a limited liability company, whether or not the person remains a member or continues to own any part of the right. The term applies to any fraction of the interest, by whomever owned.
  28. “Transferee” means a person to which all or part of a transferable interest has been transferred, whether or not the transferor is a member.

History. Acts 2019, No. 665, § 1.

4-37-103. Nature of protected series.

A protected series of a series limited liability company is a person distinct from:

  1. the company, subject to § 4-37-104(c), § 4-37-501(1), and § 4-37-502(d);
  2. another protected series of the company;
  3. a member of the company, whether or not the member is an associated member of the protected series;
  4. a protected-series transferee of a protected series of the company; and
  5. a transferee of a transferable interest of the company.

History. Acts 2019, No. 665, § 1.

4-37-104. Powers and duration of protected series.

  1. A protected series of a series limited liability company has the capacity to sue and be sued in its own name.
  2. Except as otherwise provided in subsections (c) and (d), a protected series of a series limited liability company has the same powers and purposes as the company.
  3. A protected series of a series limited liability company ceases to exist not later than when the company completes its winding up.
  4. A protected series of a series limited liability company may not:
    1. be a member of the company;
    2. establish a protected series; or
    3. except as permitted by law of this state other than this chapter, have a purpose or power that the law of this state other than this chapter prohibits a limited liability company from doing or having.

History. Acts 2019, No. 665, § 1.

4-37-105. Governing law.

The law of this state governs:

  1. the internal affairs of a protected series of a series limited liability company, including:
    1. relations among any associated members of the protected series;
    2. relations among the protected series and:
      1. any associated member;
      2. the protected-series manager; or
      3. any protected-series transferee;
    3. relations between any associated member and:
      1. the protected-series manager: or
      2. any protected-series transferee;
    4. the rights and duties of a protected-series manager;
    5. governance decisions affecting the activities and affairs of the protected series and the conduct of those activities and affairs; and
    6. procedures and conditions for becoming an associated member or protected-series transferee;
  2. the relations between a protected series of a series limited liability company and each of the following:
    1. the company;
    2. another protected series of the company;
    3. a member of the company which is not an associated member of the protected series;
    4. a protected-series manager that is not a protected-series manager of the protected series; and
    5. a protected-series transferee that is not a protected-series transferee of the protected series;
  3. the liability of a person for a debt, obligation, or other liability of a protected series of a series limited liability company if the debt, obligation, or liability is asserted solely by reason of the person being or acting as:
    1. an associated member, protected-series transferee, or protected-series manager of the protected series;
    2. a member of the company which is not an associated member of the protected series;
    3. a protected-series manager that is not a protected-series manager of the protected series;
    4. a protected-series transferee that is not a protected-series transferee of the protected series;
    5. a manager of the company; or
    6. a transferee of a transferable interest of the company;
  4. the liability of a series limited liability company for a debt, obligation, or other liability of a protected series of the company if the debt, obligation, or liability is asserted solely by reason of the company:
    1. having delivered to the Secretary of State for filing under § 4-37-201(b) a protected series designation pertaining to the protected series or under § 4-37-201(d) or § 4-37-202(c) a statement of designation change pertaining to the protected series;
    2. being or acting as a protected-series manager of the protected series;
    3. having the protected series be or act as a manager of the company; or
    4. owning a protected-series transferable interest of the protected series; and
  5. the liability of a protected series of a series limited liability company for a debt, obligation, or other liability of the company or of another protected series of the company if the debt, obligation, or liability is asserted solely by reason of:
    1. the protected series:
      1. being a protected series of the company or having as a protected-series manager the company or another protected series of the company; or
      2. being or acting as a protected-series manager of another protected series of the company or a manager of the company; or
    2. the company owning a protected-series transferable interest of the protected series.

History. Acts 2019, No. 665, § 1.

4-37-106. Relation of operating agreement, this chapter, and the Small Business Entity Tax Pass Through Act.

  1. Except as otherwise provided in this section and subject to § 4-37-107 and § 4-37-108, the operating agreement of a series limited liability company governs:
    1. the internal affairs of a protected series, including:
      1. relations among any associated members of the protected series;
      2. relations among the protected series and:
        1. any associated member;
        2. the protected-series manager; or
        3. any protected-series transferee;
      3. relations between any associated member and:
        1. the protected-series manager: or
        2. any protected-series transferee;
      4. the rights and duties of a protected-series manager;
      5. governance decisions affecting the activities and affairs of the protected series and the conduct of those activities and affairs; and
      6. procedures and conditions for becoming an associated member or protected-series transferee;
    2. relations among the protected series, the company, and any other protected series of the company;
    3. relations between:
      1. the protected series, its protected-series manager, any associated member of the protected series, or any protected-series transferee of the protected series; and
      2. a person in the person's capacity as:
        1. a member of the company which is not an associated member of the protected series;
        2. a protected-series transferee or protected-series manager of another protected series; or
        3. a transferee of the company.
  2. If the Small Business Entity Tax Pass Through Act, § 4-32-101 et seq., restricts the power of an operating agreement to affect a matter, the restriction applies to a matter under this chapter in accordance with § 4-37-108.
  3. If law of this state other than this chapter imposes a prohibition, limitation, requirement, condition, obligation, liability, or other restriction on a limited liability company, a member, manager, or other agent of the company, or a transferee of the company, except as otherwise provided in law of this state other than this chapter, the restriction applies in accordance with § 4-37-108.
  4. Except as otherwise provided in § 4-37-107, if the operating agreement of a series limited liability company does not provide for a matter described in subsection (a) in a manner permitted by this chapter, the matter is determined in accordance with the following rules:
    1. To the extent this chapter addresses the matter, this chapter governs.
    2. To the extent this chapter does not address the matter, the Small Business Entity Tax Pass Through Act, § 4-32-101 et seq., governs the matter in accordance with § 4-37-108.

History. Acts 2019, No. 665, § 1.

4-37-107. Additional limitations on operating agreement.

  1. An operating agreement may not vary the effect of:
    1. this section;
    2. section 4-37-103;
    3. section 4-37-104(a);
    4. section 4-37-104(b) to provide a protected series a power beyond the powers the Small Business Entity Tax Pass Through Act, § 4-32-101 et seq., provides a limited liability company;
    5. section 4-37-104(c) or § 4-37-104(d);
    6. section 4-37-105;
    7. section 4-37-106;
    8. section 4-37-108;
    9. section 4-37-201, except to vary the manner in which a limited liability company approves establishing a protected series;
    10. section 4-37-202;
    11. section 4-37-301;
    12. section 4-37-302;
    13. section 4-37-303(a) or § 4-37-303(b);
    14. section 4-37-304(c), § 4-37-304(f), or § 4-37-304(g);
    15. section 4-37-401, except to decrease or eliminate a limitation of liability stated in § 4-37-401;
    16. section 4-37-402;
    17. section 4-37-403;
    18. section 4-37-404;
    19. section 4-37-501(1), § 4-37-501(4), and § 4-37-501(5);
    20. section 4-37-502, except to designate a different person to manage winding up;
    21. section 4-37-503;
    22. sections 4-37-601 et seq.;
    23. sections 4-37-701 et seq.;
    24. sections 4-37-801 et seq., except to vary:
      1. the manner in which a series limited liability company may elect under § 4-37-803(a)(2) to be subject to this chapter; or
      2. the person that has the right to sign and deliver to the Secretary of State for filing a record under § 4-37-803(b)(2); or
    25. a provision of this chapter pertaining to:
      1. registered agents; or
      2. the Secretary of State, including provisions pertaining to records authorized or required to be delivered to the Secretary of State for filing under this chapter.
  2. An operating agreement may not unreasonably restrict the duties and rights under § 4-37-305 but may impose reasonable restrictions on the availability and use of information obtained under § 4-37-305 and may provide appropriate remedies, including liquidated damages, for a breach of any reasonable restriction on use.

History. Acts 2019, No. 665, § 1.

4-37-108. Rules for applying Small Business Entity Tax Pass Through Act to specified provisions of chapter.

  1. Except as otherwise provided in subsection (b) and § 4-37-107, the following rules apply in applying § 4-37-106, § 4-37-304(c) and § 4-37-304(f), § 4-37-501(4)(A), § 4-37-502(a), and § 4-37-503(2):
    1. a protected series of a series limited liability company is deemed to be a limited liability company that is formed separately from the series limited liability company and is distinct from the series limited liability company and any other protected series of the series limited liability company.
    2. an associated member of the protected series is deemed to be a member of the company deemed to exist under subdivision (a)(1).
    3. a protected-series transferee of the protected series is deemed to be a transferee of the company deemed to exist under subdivision (a)(1).
    4. a protected-series transferable interest of the protected series is deemed to be a transferable interest of the company deemed to exist under subdivision (a)(1).
    5. a protected-series manager is deemed to be a manager of the company deemed to exist under subdivision (a)(1).
    6. an asset of the protected series is deemed to be an asset of the company deemed to exist under subdivision (a)(1), whether or not the asset is an associated asset of the protected series.
    7. any creditor or other obligee of the protected series is deemed to be a creditor or obligee of the company deemed to exist under subdivision (a)(1).
  2. Subsection (a) does not apply if its application would:
    1. contravene § 4-32-404; or
    2. authorize or require the Secretary of State to:
      1. accept for filing a type of record that neither this chapter nor the Small Business Entity Tax Pass Through Act, § 4-32-101 et seq., authorizes or requires a person to deliver to the Secretary of State for filing; or
      2. make or deliver a record that neither this chapter nor the Small Business Entity Tax Pass Through Act, § 4-32-101 et seq., authorizes or requires the Secretary of State to make or deliver.

History. Acts 2019, No. 665, § 1.

Subchapter 2 — Establishing Protected Series

4-37-201. Protected series designation — Amendment.

  1. With the affirmative vote or consent of all members of a limited liability company, the company may establish a protected series.
  2. To establish a protected series, a limited liability company shall deliver to the Secretary of State for filing a protected series designation, signed by the company, stating the name of the company and the name of the protected series to be established.
  3. A protected series is established when the protected series designation takes effect under § 4-32-206.
  4. To amend a protected series designation, a series limited liability company shall deliver to the Secretary of State for filing a statement of designation change, signed by the company, that changes the name of the company, the name of the protected series to which the designation applies, or both. The change takes effect when the statement of designation change takes effect under § 4-32-206.
  5. A record signed by a limited liability company must be signed by a person authorized by the company.

History. Acts 2019, No. 665, § 1.

4-37-202. Name.

  1. Except as otherwise provided in subsection (b), the name of a protected series must comply with § 4-32-103.
  2. The name of a protected series of a series limited liability company must:
    1. begin with the name of the company, including any word or abbreviation required by § 4-32-103; and
    2. contain the phrase “Protected Series” or “protected series” or the abbreviation “P.S.” or “PS”.
  3. If a series limited liability company changes its name, the company shall deliver to the Secretary of State for filing a statement of designation change for each of the company's protected series, changing the name of each protected series to comply with this section.

History. Acts 2019, No. 665, § 1.

4-37-203. Registered agent.

  1. The registered agent in this state for a series limited liability company is the registered agent in this state for each protected series of the company.
  2. Before delivering a protected series designation to the Secretary of State for filing, a limited liability company shall agree with a registered agent that the agent will serve as the registered agent in this state for both the company and the protected series.
  3. A person that signs a protected series designation delivered to the Secretary of State for filing affirms as a fact that the limited liability company on whose behalf the designation is delivered has complied with subsection (b).
  4. A person that ceases to be the registered agent for a series limited liability company ceases to be the registered agent for each protected series of the company.
  5. A person that ceases to be the registered agent for a protected series of a series limited liability company, other than as a result of the termination of the protected series, ceases to be the registered agent of the company and any other protected series of the company.
  6. Except as otherwise agreed by a series limited liability company and its registered agent, the agent is not obligated to distinguish between a process, notice, demand, or other record concerning the company and a process, notice, demand, or other record concerning a protected series of the company.

History. Acts 2019, No. 665, § 1.

4-37-204. Service of process, notice, demand, or other record.

  1. A protected series of a series limited liability company may be served with a process, notice, demand, or other record required or permitted by law by:
    1. serving the company;
    2. serving the registered agent of the protected series; or
    3. other means authorized by law of this state other than the Small Business Entity Tax Pass Through Act, § 4-32-101 et seq.
  2. Service of a summons and complaint on a series limited liability company is notice to each protected series of the company of service of the summons and complaint and the contents of the complaint.
  3. Service of a summons and complaint on a protected series of a series limited liability company is notice to the company and any other protected series of the company of service of the summons and complaint and the contents of the complaint.
  4. Service of a summons and complaint on a foreign series limited liability company is notice to each foreign protected series of the foreign company of service of the summons and complaint and the contents of the complaint.
  5. Service of a summons and complaint on a foreign protected series of a foreign series limited liability company is notice to the foreign company and any other foreign protected series of the company of service of the summons and complaint and the contents of the complaint.
  6. Notice to a person under subsection (b), (c), (d), or (e) is effective whether or not the summons and complaint identify the person if the summons and complaint name as a party and identify:
    1. the series limited liability company or a protected series of the company; or
    2. the foreign series limited liability company or a foreign protected series of the foreign company.

History. Acts 2019, No. 665, § 1.

4-37-205. Certificate of good standing for protected series.

  1. On request of any person, the Secretary of State shall issue a certificate of good standing for a protected series of a series limited liability company or a certificate of registration for a foreign protected series if:
    1. in the case of a protected series:
      1. no statement of dissolution, termination, or relocation pertaining to the protected series has been filed; and
      2. the company has delivered to the Secretary of State for filing the most recent annual report required by § 26-54-105 and the report includes the name of the protected series, unless:
        1. when the company delivered the report for filing, the protected series designation pertaining to the protected series had not yet taken effect; or
        2. after the company delivered the report for filing, the company delivered to the Secretary of State for filing a statement of designation change changing the name of the protected series; or
    2. in the case of a foreign protected series, it is registered to do business in this state.
  2. A certificate issued under subsection (a) must state:
    1. in the case of a protected series:
      1. the name of the protected series of the series limited liability company and the name of the company;
      2. that the requirements of subsection (a) are met;
      3. the date the protected series designation pertaining to the protected series took effect; and
      4. if a statement of designation change pertaining to the protected series has been filed, the effective date and contents of the statement;
    2. in the case of a foreign protected series, that it is registered to do business in this state;
    3. that the fees, taxes, interest, and penalties owed to this state by the protected series or foreign protected series and collected through the Secretary of State have been paid, if:
      1. payment is reflected in the records of the Secretary of State; and
      2. nonpayment affects the existence of the protected series; and
    4. other facts reflected in the records of the Secretary of State pertaining to the protected series or foreign protected series which the person requesting the certificate reasonably requests.
  3. Subject to any qualification stated by the Secretary of State in a certificate issued under subsection (a), the certificate may be relied on as conclusive evidence of the facts stated in the certificate.

History. Acts 2019, No. 665, § 1.

4-37-206. Information required in annual report — Effect of failure to provide.

  1. In the annual report required by § 26-54-105, a series limited liability company shall include the name of each protected series of the company:
    1. for which the company has previously delivered to the Secretary of State for filing a protected series designation; and
    2. which has not dissolved and completed winding up.
  2. A failure by a series limited liability company to comply with subsection (a) with regard to a protected series prevents issuance of a certificate of good standing pertaining to the protected series but does not otherwise affect the protected series.

History. Acts 2019, No. 665, § 1.

Subchapter 3 — Associated Asset; Associated Member; Protected-Series Transferable Interest; Management; Right of Information

4-37-301. Associated asset.

  1. Only an asset of a protected series may be an associated asset of the protected series. Only an asset of a series limited liability company may be an associated asset of the company.
  2. An asset of a protected series of a series limited liability company is an associated asset of the protected series only if the protected series creates and maintains records that state the name of the protected series and describe the asset with sufficient specificity to permit a disinterested, reasonable individual to:
    1. identify the asset and distinguish it from any other asset of the protected series, any asset of the company, and any asset of any other protected series of the company;
    2. determine when and from what person the protected series acquired the asset or how the asset otherwise became an asset of the protected series; and
    3. if the protected series acquired the asset from the company or another protected series of the company, determine any consideration paid, the payor, and the payee.
  3. An asset of a series limited liability company is an associated asset of the company only if the company creates and maintains records that state the name of the company and describe the asset with sufficient specificity to permit a disinterested, reasonable individual to:
    1. identify the asset and distinguish it from any other asset of the company and any asset of any protected series of the company;
    2. determine when and from what person the company acquired the asset or how the asset otherwise became an asset of the company; and
    3. if the company acquired the asset from a protected series of the company, determine any consideration paid, the payor, and the payee.
  4. The records and recordkeeping required by subsections (b) and (c) may be organized by specific listing, category, type, quantity, or computational or allocational formula or procedure, including a percentage or share of any asset, or in any other reasonable manner.
  5. To the extent permitted by this section and law of this state other than this chapter, a series limited liability company or protected series of the company may hold an associated asset directly or indirectly, through a representative, nominee, or similar arrangement, except that:
    1. a protected series may not hold an associated asset in the name of the company or another protected series of the company; and
    2. the company may not hold an associated asset in the name of a protected series of the company.

History. Acts 2019, No. 665, § 1.

4-37-302. Associated member.

  1. Only a member of a series limited liability company may be an associated member of a protected series of the company.
  2. A member of a series limited liability company becomes an associated member of a protected series of the company if the operating agreement or a procedure established by the agreement states:
    1. that the member is an associated member of the protected series;
    2. the date on which the member became an associated member; and
    3. any protected-series transferable interest the associated member has in connection with becoming or being an associated member.
  3. If a person that is an associated member of a protected series of a series limited liability company is dissociated from the company, the person ceases to be an associated member of the protected series.

History. Acts 2019, No. 665, § 1.

4-37-303. Protected-Series transferable interest.

  1. A protected-series transferable interest of a protected series of a series limited liability company must be owned initially by an associated member of the protected series or the company.
  2. If a protected series of a series limited liability company has no associated members when established, the company owns the protected-series transferable interests in the protected series.
  3. In addition to acquiring a protected series transferable series interest under subsection (b), a series limited liability company may acquire a series transferable interest through a transfer from another person or as provided in the operating agreement.
  4. Except for § 4-37-108(a)(3), a provision of this chapter which applies to a protected series transferee of a protected series of a series limited liability company applies to the company in its capacity as an owner of a protected-series transferable interest of the protected series. A provision of the operating agreement of a series limited liability company which applies to a protected-series transferee of a protected series of the company applies to the company in its capacity as an owner of a protected-series transferable interest of the protected series.

History. Acts 2019, No. 665, § 1.

4-37-304. Management.

  1. A protected series may have more than one protected-series manager.
  2. If a protected series has no associated members, the series limited liability company is the protected-series manager.
  3. Section 4-37-108 applies to determine any duties of a protected-series manager of a protected series of a series limited liability company to:
    1. the protected series;
    2. any associated member of the protected series; and
    3. any protected-series transferee of the protected series.
  4. Solely by reason of being or acting as a protected-series manager of a protected series of a series limited liability company, a person owes no duty to:
    1. the company;
    2. another protected series of the company; or
    3. another person in that person's capacity as:
      1. a member of the company which is not an associated member of the protected series;
      2. a protected-series transferee or protected-series manager of another protected series; or
      3. a transferee of the company.
  5. An associated member of a protected series of a series limited liability company has the same rights as any other member of the company to vote on or consent to an amendment to the company's operating agreement or any other matter being decided by the members, whether or not the amendment or matter affects the interests of the protected series or the associated member.
  6. Section 4-32-1102 applies to a protected series in accordance with § 4-37-108.
  7. An associated member of a protected series is an agent for the protected series with power to bind the protected series to the same extent that a member of a limited liability company is an agent for the company with power to bind the company under § 4-32-301.

History. Acts 2019, No. 665, § 1.

4-37-305. Right of person not associated member of protected series to information concerning protected series.

  1. A member of a series limited liability company which is not an associated member of a protected series of the company has a right to information concerning the protected series to the same extent, in the same manner, and under the same conditions that a member that is not a manager of a manager-managed limited liability company has a right to information concerning the company under § 4-32-405(b).
  2. A person formerly an associated member of a protected series has a right to information concerning the protected series to the same extent, in the same manner, and under the same conditions that a person dissociated as a member of a manager-managed limited liability company has a right to information concerning the company under § 4-32-405(b).
  3. If an associated member of a protected series dies, the legal representative of the deceased associated member has a right to information concerning the protected series to the same extent, in the same manner, and under the same conditions that the legal representative of a deceased member of a limited liability company has a right to information concerning the company under § 4-32-405(c).
  4. A protected-series manager of a protected series has a right to information concerning the protected series to the same extent, in the same manner, and under the same conditions that a manager of a manager-managed limited liability company has a right to information concerning the company under § 4-32-405(b).

History. Acts 2019, No. 665, § 1.

Subchapter 4 — Limitation on Liability and Enforcement of Claims

4-37-401. Limitations on liability.

  1. A person is not liable, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or other liability of:
    1. a protected series of a series limited liability company solely by reason of being or acting as:
      1. an associated member, series manager, or protected-series transferee of the protected series; or
      2. a member, manager, or a transferee of the company; or
    2. a series limited liability company solely by reason of being or acting as an associated member, protected-series manager, or protected-series transferee of a protected series of the company.
  2. Subject to § 4-37-404, the following rules apply:
    1. A debt, obligation, or other liability of a series limited liability company is solely the debt, obligation, or liability of the company.
    2. A debt, obligation, or other liability of a protected series is solely the debt, obligation, or liability of the protected series.
    3. A series limited liability company is not liable, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or other liability of a protected series of the company solely by reason of the protected series being a protected series of the company or the company:
      1. being or acting as a protected-series manager of the protected series;
      2. having the protected series manage the company; or
      3. owning a protected-series transferable interest of the protected series.
    4. A protected series of a series limited liability company is not liable, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or other liability of the company or another protected series of the company solely by reason of:
      1. being a protected series of the company;
      2. being or acting as a manager of the company or a protected-series manager of another protected series of the company; or
      3. having the company or another protected series of the company be or act as a protected-series manager of the protected series.

History. Acts 2019, No. 665, § 1.

4-37-402. Claim seeking to disregard limitation of liability.

  1. Except as otherwise provided in subsection (b), a claim seeking to disregard a limitation in § 4-37-401 is governed by the principles of law and equity, including a principle providing a right to a creditor or holding a person liable for a debt, obligation, or other liability of another person, which would apply if each protected series of a series limited liability company were a limited liability company formed separately from the series limited liability company and distinct from the series limited liability company and any other protected series of the series limited liability company.
  2. The failure of a limited liability company or a protected series to observe formalities relating to the exercise of its powers or management of its activities and affairs is not a ground to disregard a limitation in § 4-37-401(a) but may be a ground to disregard a limitation in § 4-37-401(b) for monetary damages under § 4-32-404.
  3. This section applies to a claim seeking to disregard a limitation of liability applicable to a foreign series limited liability company or foreign protected series and comparable to a limitation stated in § 4-37-401, if:
    1. the claimant is a resident of this state or doing business or registered to do business in this state; or
    2. the claim is to establish or enforce a liability arising under law of this state other than this chapter or from an act or omission in this state.

History. Acts 2019, No. 665, § 1.

4-37-403. Remedies of judgment creditor of associated member of protected-series transferee.

Section 4-32-705 applies to a judgment creditor of:

  1. an associated member or protected-series transferee of a protected series; or
  2. a series limited liability company, to the extent the company owns a protected-series transferable interest of a protected series.

History. Acts 2019, No. 665, § 1.

4-37-404. Enforcement against non-associated asset.

  1. In this section:
    1. “Enforcement date” means 12:01 a.m. on the date on which a claimant first serves process on a series limited liability company or protected series in an action seeking to enforce under this section a claim against an asset of the company or protected series by attachment, levy, or the like.
    2. Subject to § 4-37-608(b), “incurrence date” means the date on which a series limited liability company or protected series incurred the liability giving rise to a claim that a claimant seeks to enforce under this section.
  2. If a claim against a series limited liability company or a protected series of the company has been reduced to judgment, in addition to any other remedy provided by law or equity, the judgment may be enforced in accordance with the following rules:
    1. A judgment against the company may be enforced against an asset of a protected series of the company if the asset:
      1. was a non-associated asset of the protected series on the incurrence date; or
      2. is a non-associated asset of the protected series on the enforcement date.
    2. A judgment against a protected series may be enforced against an asset of the company if the asset:
      1. was a non-associated asset of the company on the incurrence date; or
      2. is a non-associated asset of the company on the enforcement date.
    3. A judgment against a protected series may be enforced against an asset of another protected series of the company if the asset:
      1. was a non-associated asset of the other protected series on the incurrence date; or
      2. is a non-associated asset of the other protected series on the enforcement date.
  3. In addition to any other remedy provided by law or equity, if a claim against a series limited liability company or a protected series has not been reduced to a judgment and law other than this chapter permits a prejudgment remedy by attachment, levy, or the like, the court may apply subsection (b) as a prejudgment remedy.
  4. In a proceeding under this section, the party asserting that an asset is or was an associated asset of a series limited liability company or a protected series of the company has the burden of proof on the issue.
  5. This section applies to an asset of a foreign series limited liability company or foreign protected series if:
    1. the asset is real or tangible property located in this state;
    2. the claimant is a resident of this state or doing business or registered to do business in this state, or the claim under § 4-37-404 is to enforce a judgment, or to seek a prejudgment remedy, pertaining to a liability arising from law of this state other than this chapter or an act or omission in this state; and
    3. the asset is not identified in the records of the foreign series limited liability company or foreign protected series in a manner comparable to the manner required by § 4-37-301.

History. Acts 2019, No. 665, § 1.

Subchapter 5 — Dissolution and Winding Up of Protected Series

4-37-501. Events causing dissolution of protected series.

A protected series of a series limited liability company is dissolved, and its activities and affairs must be wound up, only on the:

  1. dissolution of the company;
  2. occurrence of an event or circumstance the operating agreement states causes dissolution of the protected series;
  3. affirmative vote or consent of all members; or
  4. entry by the court of an order dissolving the protected series on application by an associated member or protected-series manager of the protected series:
    1. in accordance with § 4-37-108; and
    2. to the same extent, in the same manner, and on the same grounds the court would enter an order dissolving a limited liability company on application by a member or manager of the company; or
  5. entry by the court of an order dissolving the protected series on application by the company or a member of the company on the ground that the conduct of all or substantially all the activities and affairs of the protected series is illegal.

History. Acts 2019, No. 665, § 1.

4-37-502. Winding up dissolved protected series.

  1. Subject to subsections (b) and (c) and in accordance with § 4-37-108:
    1. a dissolved protected series shall wind up its activities and affairs in the same manner that a limited liability company winds up its activities and affairs under § 4-32-903, subject to the same requirements and conditions and with the same effects; and
    2. judicial supervision or another judicial remedy is available in the winding up of the protected series to the same extent, in the same manner, under the same conditions, and with the same effects that apply under § 4-32-902.
  2. When a protected series of a series limited liability company dissolves, the company may deliver to the Secretary of State for filing a statement of protected series dissolution stating the name of the company and the protected series and that the protected series is dissolved. The filing of the statement by the Secretary of State has the same effect as the filing by the Secretary of State of a statement of dissolution under § 4-32-906.
  3. When a protected series of a series limited liability company has completed winding up, the company may deliver to the Secretary of State for filing a statement of designation cancellation stating the name of the company and the protected series and that the protected series is terminated. The filing of the statement by the Secretary of State has the same effect as the filing by the Secretary of State of a statement of termination under § 4-32-906.
  4. A series limited liability company has not completed its winding up until each of the protected series of the company has completed its winding up.

History. Acts 2019, No. 665, § 1.

4-37-503. Effect of reinstatement of series limited liability company or revocation of voluntary dissolution.

If a series limited liability company that has been administratively dissolved is reinstated, or a series limited liability company that voluntarily dissolved rescinds its dissolution:

  1. each protected series of the company ceases winding up; and
  2. section 4-32-203 applies to each protected series of the company in accordance with § 4-37-108.

History. Acts 2019, No. 665, § 1.

Subchapter 6 — Entity Transactions Restricted

4-37-601. Definitions.

In this subchapter:

  1. “After a merger” or “after the merger” means when a merger under § 4-37-604 becomes effective and afterwards.
  2. “Before a merger” or “before the merger” means before a merger under § 4-37-604 becomes effective.
  3. “Continuing protected series” means a protected series of a surviving company which continues in uninterrupted existence after a merger under § 4-37-604.
  4. “Merging company” means a limited liability company that is party to a merger under § 4-37-604.
  5. “Non-surviving company” means a merging company that does not continue in existence after a merger under § 4-37-604.
  6. “Relocated protected series” means a protected series of a non-surviving company which, after a merger under § 4-37-604, continues in uninterrupted existence as a protected series of the surviving company.
  7. “Surviving company” means a merging company that continues in existence after a merger under § 4-37-604.

History. Acts 2019, No. 665, § 1.

4-37-602. Protected series may not be party to entity transaction.

A protected series may not:

  1. be an acquiring, acquired, converting, converted, merging, or surviving entity;
  2. participate in a domestication; or
  3. be a party to or be formed, organized, established, or created in a transaction substantially like a merger, interest exchange, conversion, or domestication.

History. Acts 2019, No. 665, § 1.

4-37-603. Restriction on entity transaction involving protected series.

A series limited liability company may not be:

  1. an acquiring, acquired, converting, converted, domesticating, or domesticated entity; or
  2. except as otherwise provided in § 4-37-604, a party to or the surviving company of a merger.

History. Acts 2019, No. 665, § 1.

4-37-604. Merger authorized — Parties restricted.

A series limited liability company may be party to a merger in accordance with § 4-32-1206, this section, and § 4-37-605 through 4-37-608 only if:

  1. each other party to the merger is a domestic limited liability company; and
  2. the surviving company is not created in the merger.

History. Acts 2019, No. 665, § 1.

4-37-605. Plan of merger.

In a merger under § 4-37-604, the plan of merger must:

  1. comply with § 4-32-1206; and
  2. state in a record:
    1. for any protected series of a non-surviving company, whether after the merger the protected series will be a relocated protected series or be dissolved, wound up, and terminated;
    2. for any protected series of the surviving company which exists before the merger, whether after the merger the protected series will be a continuing protected series or be dissolved, wound up, and terminated;
    3. for each relocated protected series or continuing protected series:
      1. the name of any person that becomes an associated member or protected-series transferee of the protected series after the merger, any consideration to be paid by, on behalf of, or in respect of the person, the name of the payor, and the name of the payee;
      2. the name of any person whose rights or obligations in the person's capacity as an associated member or protected-series transferee will change after the merger;
      3. any consideration to be paid to a person who before the merger was an associated member or protected-series transferee of the protected series and the name of the payor; and
      4. if after the merger the protected series will be a relocated protected series, its new name;
    4. for any protected series to be established by the surviving company as a result of the merger:
      1. the name of the protected series;
      2. any protected-series transferable interest to be owned by the surviving company when the protected series is established; and
      3. the name of and any protected-series transferable interest owned by any person that will be an associated member of the protected series when the protected series is established; and
    5. for any person that is an associated member of a relocated protected series and will remain a member after the merger, any amendment to the operating agreement of the surviving company which:

(1) is or is proposed to be in a record; and

(2) is necessary or appropriate to state the rights and obligations of the person as a member of the surviving company.

History. Acts 2019, No. 665, § 1.

4-37-606. Statement of merger.

In a merger under § 4-37-604, the statement of merger must:

  1. comply with § 4-32-1208; and
  2. include as an attachment the following records, each to become effective when the merger becomes effective:
    1. for a protected series of a merging company being terminated as a result of the merger, a statement of termination signed by the company;
    2. for a protected series of a non-surviving company which after the merger will be a relocated protected series:
      1. a statement of relocation signed by the non-surviving company which contains the name of the company and the name of the protected series before and after the merger; and
      2. a statement of protected series designation signed by the surviving company; and
    3. for a protected series being established by the surviving company as a result of the merger, a statement of designation signed by the company.

History. Acts 2019, No. 665, § 1.

4-37-607. Effect of merger.

When a merger under § 4-37-604 becomes effective, in addition to the effects stated in § 4-32-1209:

  1. as provided in the plan of merger, each protected series of each merging company which was established before the merger:
    1. is a relocated protected series or continuing protected series; or
    2. is dissolved, wound up, and terminated;
  2. any protected series to be established as a result of the merger is established;
  3. any relocated protected series or continuing protected series is the same person without interruption as it was before the merger;
  4. all property of a relocated protected series or continuing protected series continues to be vested in the protected series without transfer, reversion, or impairment;
  5. all debts, obligations, and other liabilities of a relocated protected series or continuing protected series continue as debts, obligations, and other liabilities of the protected series;
  6. except as otherwise provided by law or the plan of merger, all the rights, privileges, immunities, powers, and purposes of a relocated protected series or continuing protected series remain in the protected series;
  7. the new name of a relocated protected series may be substituted for the former name of the protected series in any pending action or proceeding;
  8. if provided in the plan of merger:
    1. a person becomes an associated member or protected-series transferee of a relocated protected series or continuing protected series;
    2. a person becomes an associated member of a protected series established by the surviving company as a result of the merger;
    3. any change in the rights or obligations of a person in the person's capacity as an associated member or protected-series transferee of a relocated protected series or continuing protected series take effect; and
    4. any consideration to be paid to a person that before the merger was an associated member or protected-series transferee of a relocated protected series or continuing protected series is due; and
  9. any person that is a member of a relocated protected series becomes a member of the surviving company, if not already a member.

History. Acts 2019, No. 665, § 1.

4-37-608. Application of § 4-37-404 after merger.

  1. A creditor's right that existed under § 4-37-404 immediately before a merger under § 4-37-604 may be enforced after the merger in accordance with the following rules:
    1. A creditor's right that existed immediately before the merger against the surviving company, a continuing protected series, or a relocated protected series continues without change after the merger.
    2. A creditor's right that existed immediately before the merger against a nonsurviving company:
      1. may be asserted against an asset of the non-surviving company which vested in the surviving company as a result of the merger; and
      2. does not otherwise change.
    3. Subject to subsection (b), the following rules apply:
      1. In addition to the remedy stated in subdivision (a)(1), a creditor with a right under § 4-37-404 which existed immediately before the merger against a non-surviving company or a relocated protected series may assert the right against:
        1. an asset of the surviving company, other than an asset of the non-surviving company which vested in the surviving company as a result of the merger;
        2. an asset of a continuing protected series; or
        3. an asset of a protected series established by the surviving company as a result of the merger;
        4. if the creditor's right was against an asset of the non-surviving company, an asset of a relocated series; or
        5. if the creditor's right was against an asset of a relocated protected series, an asset of another relocated protected series.
      2. In addition to the remedy stated in subdivision (a)(2), a creditor with a right that existed immediately before the merger against the surviving company or a continuing protected series may assert the right against:
        1. an asset of a relocated protected series; or
        2. an asset of a non-surviving company which vested in the surviving company as a result of the merger.
  2. For the purposes of subdivision (a)(3) and § 4-37-404(b)(1)(A), § 4-37-404(b)(2)(A), and § 4-37-404(b)(3)(A), the incurrence date is deemed be the date on which the merger becomes effective.
  3. A merger under § 4-37-604 does not affect the manner in which § 4-37-404 applies to a liability incurred after the merger.

History. Acts 2019, No. 665, § 1.

Subchapter 7 — Foreign Protected Series

4-37-701. Governing law.

The law of the jurisdiction of formation of a foreign series limited liability company governs:

  1. the internal affairs of a foreign protected series of the company, including:
    1. relations among any associated members of the foreign protected series;
    2. relations between the foreign protected series and:
      1. any associated member;
      2. the protected-series manager; or
      3. any protected-series transferee;
    3. relations between any associated member and:
      1. the protected-series manager:
      2. any protected-series transferee;
    4. the rights and duties of a protected-series manager;
    5. governance decisions affecting the activities and affairs of the foreign protected series and the conduct of those activities and affairs; and
    6. procedures and conditions for becoming an associated member or protected-series transferee;
  2. relations between the foreign protected series and:
    1. the company;
    2. another foreign protected series of the company;
    3. a member of the company which is not an associated member of the foreign protected series;
    4. a foreign protected-series manager that is not a protected-series manager of the protected series;
    5. a foreign protected-series transferee that is not a foreign protected-series transferee of the protected series; and
    6. a transferee of a transferable interest of the company;
  3. except as otherwise provided in § 4-37-402 and § 4-37-404, the liability of a person for a debt, obligation, or other liability of a foreign protected series of a foreign series limited liability company if the debt, obligation, or liability is asserted solely by reason of the person being or acting as:
    1. an associated member, protected-series transferee, or protected-series manager of the foreign protected series;
    2. a member of the company which is not an associated member of the foreign protected series;
    3. a protected-series manager of another foreign protected series of the company;
    4. a protected-series transferee of another foreign protected series of the company;
    5. a manager of the company; or
    6. a transferee of a transferable interest of the company; and
  4. except as otherwise provided in § 4-37-402 and § 4-37-404:
    1. the liability of the foreign series limited liability company for a debt, obligation, or other liability of a foreign protected series of the company if the debt, obligation, or liability is asserted solely by reason of the foreign protected series being a foreign protected series of the company or the company:
      1. being or acting as a foreign protected-series manager of the foreign protected series;
      2. having the foreign protected series manage the company; or
      3. owning a protected-series transferable interest of the foreign protected series; and
    2. the liability of a foreign protected series for a debt, obligation, or other liability of the company or another foreign protected series of the company if the debt, obligation, or liability is asserted solely by reason of the foreign protected series:
      1. being a foreign protected series of the company or having the company or another foreign protected series of the company be or act as foreign protected-series manager of the foreign protected series; or
      2. managing the company or being or acting as a foreign protected-series manager of another foreign protected series of the company.

History. Acts 2019, No. 665, § 1.

4-37-702. No attribution of activities constituting doing business or for establishing jurisdiction.

In determining whether a foreign series limited liability company or foreign protected series of the company does business in this state or is subject to the personal jurisdiction of the courts of this state:

  1. the activities and affairs of the company are not attributable to a foreign protected series of the company solely by reason of the foreign protected series being a foreign protected series of the company; and
  2. the activities and affairs of a foreign protected series are not attributable to the company or another foreign protected series of the company solely by reason of the foreign protected series being a foreign protected series of the company.

History. Acts 2019, No. 665, § 1.

4-37-703. Registration of foreign protected series.

  1. Except as otherwise provided in this section and subject to § 4-37-402 and § 4-37-404, the law of this state governing the registration of a foreign limited liability company to do business in this state, including the consequences of not complying with that law, applies to a foreign protected series of a foreign series limited liability company as if the foreign protected series were a foreign limited liability company formed separately from the foreign series limited liability company and distinct from the foreign series limited liability company and any other foreign protected series of the foreign series limited liability company.
  2. An application by a foreign protected series of a foreign series limited liability company for registration to do business in this state must include:
    1. the name and jurisdiction of formation of the foreign series limited liability company; and
    2. if the company has other foreign protected series, the name and street and mailing address of an individual who knows the name and street and mailing address of:
      1. each other foreign protected series of the foreign series limited liability company; and
      2. the foreign protected-series manager of and agent for service of process for each other foreign protected series of the foreign series limited liability company.
  3. The name of a foreign protected series applying for registration or registered to do business in this state must comply with § 4-37-202 and may do so using § 4-32-108, if the fictitious name complies with § 4-37-202.
  4. The requirement in § 4-32-1309 to amend a statement of registration to update information applies to the information required by subsection (b).

History. Acts 2019, No. 665, § 1.

4-37-704. Disclosure required when foreign series limited liability company or foreign protected series party to proceeding.

  1. Not later than 30 days after becoming a party to a proceeding before a civil, administrative, or other adjudicative tribunal of or located in this state or a tribunal of the United States located in this state:
    1. a foreign series limited liability company shall disclose to each other party the name and street and mailing address of:
      1. each foreign protected series of the company; and
      2. each foreign protected-series manager of and a registered agent for service of process for each foreign protected series of the company; and
    2. a foreign protected series of a foreign series limited liability company shall disclose to each other party the name and street and mailing address of:
      1. the company and each manager of the company and an agent for service of process for the company; and
      2. any other foreign protected series of the company and each foreign protected-series manager of and an agent for service of process for the other foreign protected series.
  2. If a foreign series limited liability company or foreign protected series challenges the personal jurisdiction of the tribunal, the requirement that the foreign company or foreign protected series make disclosure under subsection (a) is tolled until the tribunal determines whether it has personal jurisdiction.
  3. If a foreign series limited liability company or foreign protected series does not comply with subsection (a), a party to the proceeding may:
    1. request the tribunal to treat the noncompliance as a failure to comply with the tribunal's discovery rules; or
    2. bring a separate proceeding in the court to enforce subsection (a).

History. Acts 2019, No. 665, § 1.

Subchapter 8 — Miscellaneous Provisions

4-37-801. Uniformity of application and construction.

In applying and construing this uniform act, consideration must be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.

History. Acts 2019, No. 665, § 1.

4-37-802. Relation to Electronic Signatures in Global and National Commerce Act.

This chapter modifies, limits, or supersedes the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq., but does not modify, limit, or supersede Section 101(c) of that act, 15 U.S.C. Section 7001(c), or authorize electronic delivery of any of the notices described in Section 103(b) of that act, 15 U.S.C. Section 7003(b).

History. Acts 2019, No. 665, § 1.

4-37-803. Transitional provisions.

  1. Before January 1, 2020, this chapter governs only:
    1. a series limited liability company formed, or a protected series established, on or after October 1, 2019; and
    2. a limited liability company that is a series limited liability company before October 1, 2019, and elects, in the manner provided in its operating agreement or by law for amending the operating agreement, to be subject to this chapter.
  2. If a series limited liability company elects under subdivision (a)(2) to be subject to this chapter:
    1. the election applies to each protected series of the company, whenever established; and
    2. a manager of the company has the right to sign and deliver to the Secretary of State for filing any record necessary to comply with this chapter, whether the record pertains to the company, a protected series of the company, or both.
  3. On and after January 1, 2020, this chapter governs all series limited liability companies and protected series.
  4. Until October 1, 2020, § 4-37-402 and § 4-37-404 do not apply to a foreign protected series that was established before October 1, 2019, or a foreign limited liability company that became a foreign series limited liability company before October 1, 2019.

History. Acts 2019, No. 665, § 1.

4-37-804. Savings clause.

This chapter does not affect an action commenced, proceeding brought, or right accrued before October 1, 2019.

History. Acts 2019, No. 665, § 1.

4-37-805. Effective date.

This chapter takes effect on October 1, 2019.

History. Acts 2019, No. 665, § 1.

Chapters 38-40 [Reserved.]

[Reserved.]

Subtitle 4. Partnerships

Chapter 41 [Reserved.]

[Reserved.]

Chapter 42 Uniform Partnership Act

Publisher's Notes. For Commentary regarding the Uniform Partnership Act, see Commentaries Volume A.

Acts 1999, No. 1518, § 1204, provided:

“Effective January 1, 2005, the following sections of the Arkansas Code are repealed: A.C.A. §§ 4-42-101 through 4-42-702.”

Acts 1999, No. 1518, § 1205, provided:

“(a) Before January 1, 2005, this chapter governs only a partnership formed:

“(1) after the effective date of this Act, unless that partnership is continuing the business of a dissolved partnership under Section 41 of the prior Uniform Partnership Act; and

“(2) before the effective date of this Act, that elects, as provided by subsection (c), to be governed by this Act.

“(b) Beginning January 1, 2005, this Act governs all partnerships.

“(c) Before January 1, 2005, a partnership voluntarily may elect, in the manner provided in its partnership agreement or by law for amending the partnership agreement, to be governed by this Act. The provisions of this Act relating to the liability of the partnership's partners to third parties apply to limit those partners' liability to a third party who had done business with the partnership within one year preceding the partnership's election to be governed by this Act, only if the third party knows or has received a notification of the partnership's election to be governed by this Act.”

Effective Dates. Acts 1997, No. 912, § 16: Mar. 28, 1997. Emergency clause provided: “It is hereby found and determined by the General Assembly of the State of Arkansas that the general and limited partners statues [sic] need amending in order to be consistent with current trends. Therefore, an emergency is hereby declared to exist and this Act being immediately necessary for the immediate preservation of the public peace, health, and safety, shall be in full force and effect from and after its passage and approval.”

Research References

ALR.

Multi-state law partnership of professional service corporation, propriety of formation. 6 A.L.R.4th 1251.

Right of partners to assert personal privilege against self-incrimination with respect to production of partnership books or records. 17 A.L.R.4th 1039.

Joint venture's capacity to sue. 56 A.L.R.4th 1234.

Ownership interest in employer business as affecting status as employee for workers' compensation purposes. 78 A.L.R.4th 973.

Ark. L. Notes.

Matthews, Procedural Considerations in Bringing Suit Against a General Partnership in Arkansas, 1989 Ark. L. Notes 57.

Mathews, A Review of Arkansas Statutes Affecting Business and Other Organizations Enacted Since 1990, 1998 Ark. L. Notes 65.

Goforth, The Revised Uniform Partnership Act: Ready or Not, Here It Comes 1999 Ark. L. Notes 47.

Ark. L. Rev.

Uniform Limited Partnership Act, 7 Ark. L. Rev. 283.

Looney, Legal and Economic Considerations in Drafting Arkansas Farm Leases, 35 Ark. L. Rev. 395.

Rosin, The Entity-Aggregate Dispute: Conceptualism and Functionalism in Partnership Law, 42 Ark. L. Rev. 395.

Case Notes

Cited: Stoutt v. Ridgway, 9 Ark. App. 315, 658 S.W.2d 420 (1983); Pate v. Martin, 13 Ark. App. 182, 681 S.W.2d 410 (1985).

Subchapter 1 — Preliminary Provisions

Cross References. Venue of actions where more than one office maintained, § 16-60-105.

Research References

Am. Jur. 59A Am. Jur. 2d, Partn., § 1 et seq.

C.J.S. 68 C.J.S., Partn., § 1 et seq.

4-42-101 — 4-42-105. [Repealed.]

Publisher's Notes. Acts 1999, No. 1518, § 1204, provided:

“Effective January 1, 2005, the following sections of the Arkansas Code are repealed: A.C.A. §§ 4-42-101 through 4-42-702.”

These sections, concerning preliminary provisions, were repealed by Acts 1999, No. 1518, § 1204. The sections were derived from the following sources:

4-42-101. Acts 1941, No. 263, § 1; A.S.A. 1947, § 65-101.

4-42-102. Acts 1941, No. 263, § 2; A.S.A. 1947, § 65-102; Acts 1997, No. 912, § 2.

4-42-103. Acts 1941, No. 263, § 3; A.S.A. 1947, § 65-103.

4-42-104. Acts 1941, No. 263, § 4; A.S.A. 1947, § 65-104.

4-42-105. Acts 1941, No. 263, § 5; A.S.A. 1947, § 65-105.

Subchapter 2 — Nature of Partnership

Research References

Am. Jur. 59A Am. Jur. 2d, Partn., § 1 et seq.

C.J.S. 68 C.J.S., Partn., § 1 et seq.

4-42-201 — 4-42-203. [Repealed.]

Publisher's Notes. Acts 1999, No. 1518, § 1204, provided:

“Effective January 1, 2005, the following sections of the Arkansas Code are repealed: A.C.A. §§ 4-42-101 through 4-42-702.”

These sections, concerning nature of partnership, were repealed by Acts 1999, No. 1518, § 1204. The sections were derived from the following sources:

4-42-201. Acts 1941, No. 263, § 6; A.S.A. 1947, § 65-106; Acts 1997, No. 912, § 3.

4-42-202. Acts 1941, No. 263, § 7; A.S.A. 1947, § 65-107.

4-42-203. Acts 1941, No. 263, § 8; A.S.A. 1947, § 65-108.

Subchapter 3 — Relations of Partners to Persons Dealing with the Partnership

Research References

ALR.

Rights of attorneys leaving firm with respect to firm clients. 1 A.L.R.4th 1164.

Derivative liability of partner for punitive damages for wrongful act. 14 A.L.R.4th 1335.

Right of partner to assert privilege against self-incrimination with respect to production of partnership books or records. 17 A.L.R.4th 1039.

Professional services within meaning of statute preserving individual liability of professional employees of professional corporation, association, or partnership. 31 A.L.R.4th 898.

Form of business organization of successor or predecessor as affecting successor liability. 32 A.L.R.4th 196.

Ownership interest in employer business as affecting status as employee for worker's compensation purposes. 78 A.L.R.4th 973.

Am. Jur. 59A Am. Jur. 2d, Partn., § 247 et seq., § 633 et seq.

C.J.S. 68 C.J.S., Partn., § 133 et seq.

4-42-301 — 4-42-309. [Repealed.]

Publisher's Notes. Acts 1999, No. 1518, § 1204, provided:

“Effective January 1, 2005, the following sections of the Arkansas Code are repealed: A.C.A. §§ 4-42-101 through 4-42-702.”

These sections, concerning relations of partners to persons dealing with the partnership, were repealed by Acts 1999, No. 1518, § 1204. The sections were derived from the following sources:

4-42-301. Acts 1941, No. 263, § 9; A.S.A. 1947, § 65-109.

4-42-302. Acts 1941, No. 263, § 10; A.S.A. 1947, § 65-110.

4-42-303. Acts 1941, No. 263, § 11; A.S.A. 1947, § 65-111.

4-42-304. Acts 1941, No 263, § 12; A.S.A. 1947, § 65-112.

4-42-305. Acts 1941, No 263, § 13; A.S.A. 1947, § 65-113.

4-42-306. Acts 1941, No 263, § 14; A.S.A. 1947, § 65-114.

4-42-307. Acts 1941, No 263, § 15; A.S.A. 1947, § 65-115; Acts 1997, No. 912, § 4.

4-42-308. Acts 1941, No 263, § 16; A.S.A. 1947, § 65-116.

4-42-309. Acts 1941, No. 263, § 17; A.S.A. 1947, § 65-117.

Subchapter 4 — Relations of Partners to One Another

Research References

ALR.

Breach of fiduciary duty to copartner on sale of partnership interest to another partner. 4 A.L.R.4th 1122.

Contractual restriction on right of accountant to practice, incident to sale or withdraw from accountancy partnership. 13 A.L.R.4th 661.

Derivative liability of partner for punitive damages for wrongful act. 14 A.L.R.4th 1335.

Right of partner to assert privilege against self-incrimination with respect to production of partnership books or records. 17 A.L.R.4th 1039.

Civil liability of one partner to another or to the partnership based on partner's personal purchase of partnership property during existence of partnership. 37 A.L.R.4th 494.

Tort action for personal injury or property damage by partner against another partner or the partnership. 39 A.L.R.4th 139.

When statute of limitations commences to run on right of partnership accounting. 44 A.L.R.4th 678.

Enforceability of agreement restricting right of attorney to compete with former law firm. 28 A.L.R.5th 420.

Am. Jur. 59A Am. Jur. 2d, Partn., § 409 et seq.

C.J.S. 68 C.J.S., Partn., § 77 et seq.

U. Ark. Little Rock L.J.

Tyler, Survey of Business Law, 3 U. Ark. Little Rock L.J. 149.

4-42-401 — 4-42-406. [Repealed.]

Publisher's Notes. Acts 1999, No. 1518, § 1204, provided:

“Effective January 1, 2005, the following sections of the Arkansas Code are repealed: A.C.A. §§ 4-42-101 through 4-42-702.”

These sections, concerning relations of partners to one another, were repealed by Acts 1999, No. 1518, § 1204. The sections were derived from the following sources:

4-42-401. Acts 1941, No. 263, § 18; A.S.A. 1947, § 65-118; Acts 1997, No. 912, § 5.

4-42-402. Acts 1941, No. 263, § 19; A.S.A. 1947, § 65-119.

4-42-403. Acts 1941, No. 263, § 20; A.S.A. 1947, § 65-120.

4-42-404. Acts 1941, No. 263, § 21; A.S.A. 1947, § 65-121.

4-42-405. Acts 1941, No. 263, § 22; A.S.A. 1947, § 65-122.

4-42-406. Acts 1941, No. 263, § 23; A.S.A. 1947, § 65-123.

Subchapter 5 — Property Rights of a Partner

Research References

ALR.

Civil liability of one partner to another or to the partnership based on partner's personal purchase of partnership property during existence of partnership. 37 A.L.R.4th 494.

Am. Jur. 59A Am. Jur. 2d, Partn., § 383 et seq.

Ark. L. Rev.

Case Notes — Taxation — Federal Income Tax — Sale of a Partnership, 11 Ark. L. Rev. 193.

C.J.S. 68 C.J.S., Partn., § 77 et seq.

4-42-501 — 4-42-505. [Repealed.]

Publisher's Notes. Acts 1999, No. 1518, § 1204, provided:

“Effective January 1, 2005, the following sections of the Arkansas Code are repealed: A.C.A. §§ 4-42-101 through 4-42-702.”

These sections, concerning property rights of a partner, were repealed by Acts 1999, No. 1518, § 1204. The sections were derived from the following sources:

4-42-501. Acts 1941, No. 263, § 24; A.S.A. 1947, § 65-124.

4-42-502. Acts 1941, No. 263, § 25; A.S.A. 1947, § 65-125.

4-42-503. Acts 1941, No. 263, § 26; A.S.A. 1947, § 65-126.

4-42-504. Acts 1941, No. 263, § 27; A.S.A. 1947, § 65-127.

4-42-505. Acts 1941, No. 263, § 28; A.S.A. 1947, § 65-128.

Subchapter 6 — Dissolution and Winding Up

Effective Dates. Acts 1961, No. 421, § 4: Mar. 15, 1961. Emergency clause provided: “It is hereby found and declared by the General Assembly that much confusion exists regarding the dissolution of partnerships upon certain events, and that a clarification of such laws is necessary to the orderly administration of business in this State. Therefore, an emergency is hereby declared to exist and this Act being necessary for the immediate preservation of the public peace, health and safety shall be in full force and effect from the date of its passage and approval.”

Research References

ALR.

Dissolution of partnership: inability of partnership to operate at profit as justification. 20 A.L.R.4th 122.

Necessity that divorce court value property before distributing it. 51 A.L.R.4th 11.

Am. Jur. 59A Am. Jur. 2d, Partn., § 808 et seq.

Ark. L. Rev.

Federal Tax Aspects of Partnership “Survival Insurance” Arrangements, 4 Ark. L. Rev. 187.

Legislation — No. 421 — Partnership — Agreement to Continue Beyond Death or Bankruptcy, 15 Ark. L. Rev. 440.

C.J.S. 68 C.J.S., Partn., § 302 et seq.

U. Ark. Little Rock L.J.

Tyler, Survey of Business Law, 3 U. Ark. Little Rock L.J. 149.

Survey of Arkansas Law: Business Organizations, 6 U. Ark. Little Rock L.J. 83.

4-42-601 — 4-42-615. [Repealed.]

Publisher's Notes. Acts 1999, No. 1518, § 1204, provided:

“Effective January 1, 2005, the following sections of the Arkansas Code are repealed: A.C.A. §§ 4-42-101 through 4-42-702.”

These sections, concerning dissolution and winding up, were repealed by Acts 1999, No. 1518, § 1204. The sections were derived from the following sources:

4-42-601. Acts 1941, No. 263, § 29; 1961, No. 421, § 1; A.S.A. 1947, § 65-129.

4-42-602. Acts 1941, No. 263, § 30; A.S.A. 1947, § 65-130.

4-42-603. Acts 1941, No. 263, § 31; 1961, No. 421, § 2; A.S.A. 1947, § 65-131.

4-42-604. Acts 1941, No. 263, § 32; A.S.A. 1947, § 65-132.

4-42-605. Acts 1941, No. 263, § 33; A.S.A. 1947, § 65-133.

4-42-606. Acts 1941, No. 263, § 34; A.S.A. 1947, § 65-134; Acts 1997, No. 912, § 6.

4-42-607. Acts 1941, No. 263, § 35; A.S.A. 1947, § 65-135.

4-42-608. Acts 1941, No. 263, § 36; A.S.A. 1947, § 65-136; Acts 1997, No. 912, § 7.

4-42-609. Acts 1941, No. 263, § 37; A.S.A. 1947, § 65-137.

4-42-610. Acts 1941, No. 263, § 38; A.S.A. 1947, § 65-138.

4-42-611. Acts 1941, No. 263, § 39; A.S.A. 1947, § 65-139.

4-42-612. Acts 1941, No. 263, § 40; A.S.A. 1947, § 65-140; Acts 1997, No. 912, § 8.

4-42-613. Acts 1941, No. 263, § 41; A.S.A. 1947, § 65-141.

4-42-614. Acts 1941, No. 263, § 42; A.S.A. 1947, § 65-142.

4-42-615. Acts 1941, No. 263, § 43; A.S.A. 1947, § 65-143.

Subchapter 7 — Miscellaneous Provisions

Effective Dates. Acts 1999, No. 1528, § 13: Apr. 15, 1999. Emergency clause provided: “It is hereby found and determined by the Eighty-second General Assembly that the Small Business Entity Tax Pass Through Act and the Revised Limited Partnership Act of 1991 and other related acts and related laws need amending in order to better reflect the intent and operation of those laws. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto. Notwithstanding the foregoing, Section 4 of this act shall only apply to limited liability companies in existence on the effective date of this act in the event an election is made with the Secretary of State to have this provision apply; otherwise, the original § 4-32-802, as amended, shall apply to limited liability companies existing on the effective date of this act.”

Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2007, No. 646, § 14: July 1, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that business entities are presently paying different fees for similar services from the Secretary of State; that this act will alleviate any undue hardship to any entity by standardizing business and commercial filing fees; and that this act is immediately necessary to aid the recordkeeping and accounting functions of the Secretary of State and should take effect at the beginning of the state's fiscal year. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2007.”

RESEARCH REFERENCES

Ark. L. Notes.

Flaccus, Joint and Several Liability and Partnership Law, 2003 Arkansas L. Notes 79.

4-42-701. [Reserved.]

Publisher's Notes. Uniform Partnership Act (U.L.A.) § 44, which was not adopted in Arkansas, is an effective date provision.

4-42-702. [Repealed.]

Publisher's Notes. Acts 1999, No. 1518, § 1204, provided:

“Effective January 1, 2005, the following sections of the Arkansas Code are repealed: A.C.A. §§ 4-42-101 through 4-42-702.”

This section, concerning legislation repealed, was repealed by Acts 1999, No. 1518, § 1204. The section was derived from Acts 1941, No. 263, § 44; A.S.A. 1947, § 65-143n.

4-42-703 — 4-42-706. [Repealed.]

A.C.R.C. Notes. The amendment to § 4-42-703 by Acts 2007, No. 646 was superseded by the repeal of § 4-42-703 by Acts 2007, No. 15. As amended by Acts 2007, No. 646, § 8, subdivision (a)(1)(C) of § 4-42-703 read as follows:“(C) The name and street address of a registered agent for service of process in this state, which the partnership shall be required to maintain”.

The amendment to § 4-42-705(d) and (e) by Acts 2007, No. 638, § 52 was superseded by the repeal of § 4-42-705 by Acts 2007, No. 15. As amended by Acts 2007, No. 638, § 52, subdivisions (d) and (e) of § 4-42-705 read as follows:“(d) Before transacting business in this state, a foreign registered limited liability partnership shall file a notice with the Secretary of State, on such forms as the Secretary of State shall provide, stating the name of the partnership, the jurisdiction the laws of which govern its partnership agreement and under which it is registered as a limited liability partnership, the address of its principal office, if the partnership's principal office is not located in this state, the information required by § 4-20-105(a), a brief statement of the business in which the partnership engages, any other information that the partnership determines to include, and a statement that the partnership is a registered limited liability partnership. Such notice shall be accompanied by a fee of three hundred dollars ($300). Such notice shall be effective until withdrawn or cancelled. The filing of such notice with the Secretary of State shall make it unnecessary to file any other documents under § 4-70-201 et seq.(e) A foreign registered limited liability partnership shall file an amended notice within ninety (90) days of a change in its name, its registered office, or any of the information required by § 4-20-105(a). The amended notice shall be accompanied by a fee of fifty dollars ($50.00).”

Publisher's Notes. These sections, concerning registered limited liability partnerships, name of registered limited liability partnership, applicability of chapter to foreign and interstate commerce, and limited partnerships as registered limited liability limited partnerships, were repealed by Acts 2007, No. 15, § 8. The sections were derived from the following sources:

4-42-703. Acts 1997, No. 912, § 9.

4-42-704. Acts 1997, No. 912, § 9.

4-42-705. Acts 1997, No. 912, § 9.

4-42-706. Acts 1997, No. 912, § 9.

Effective Dates. Acts 2007, No. 638 § 70 provided: “Effective date. This act takes effect September 1, 2007.”

4-42-707. Use of fictitious names.

  1. No domestic or foreign registered limited liability partnership shall conduct any business in this state under a fictitious name unless it first files with the Secretary of State a form supplied or approved by the Secretary of State giving the following information:
    1. The fictitious name under which business is being or will be conducted by the applicant registered limited liability partnership;
    2. A brief statement of the character of business to be conducted under the fictitious name; and
    3. The name of the registered limited liability partnership, state of organization, and location, giving city and street address, of the registered office in the state of the applicant registered limited liability partnership.
  2. Each such form shall be executed, without verification, in duplicate and filed with the Secretary of State. The Secretary of State shall retain one (1) counterpart and the other counterpart, bearing the file marks of the Secretary of State, shall be returned to the registered limited liability partnership. However, the Secretary of State shall not accept such filing if the proposed fictitious name is the same as, or confusingly similar to, the name of any domestic corporation, limited liability company, limited partnership, limited liability partnership, or any other entity registered with the Secretary of State, or any such foreign entity authorized to do business in the state or any name reserved or registered under § 4-27-402, § 4-27-403, § 4-32-104 or § 4-47-109.
  3. Copies of such filed forms, certified by the respective filing officers, shall be admitted in evidence where the question of filing may be material.
  4. If, after a filing under this section, the applicant registered limited liability partnership is dissolved, or, being a foreign registered limited liability partnership, surrenders or forfeits its rights to do business in Arkansas or, whether a domestic or foreign registered limited liability partnership, ceases to do business in Arkansas under the specified fictitious name, such registered limited liability partnership shall be obligated to file with the Secretary of State a cancellation of its privilege under this section. If such cancellation is not filed, the Secretary of State, upon satisfactory evidence, may cancel such privilege.
  5. If a registered limited liability partnership which has not filed under this section has heretofore or shall hereafter become a party to any contract, deed, conveyance, assignment, or instrument of encumbrance in which such registered limited liability partnership is referred to exclusively by a fictitious name, the obligations imposed upon such registered limited liability partnership under said instrument and the right sought to be conferred upon third parties thereunder may be enforced against it; but the rights accruing to such registered limited liability partnership under said instrument may not be enforced by the registered limited liability partnership in the courts of this state until it complies with this section and pays to the Treasurer of State a civil penalty of three hundred dollars ($300), and in any suit by a registered limited liability partnership upon an instrument which identified it exclusively by a fictitious name, the registered limited liability partnership shall be required to allege compliance with this section.
  6. Compliance with this section does not give a registered limited liability partnership an exclusive right to the use of the fictitious name, and the registration of a fictitious name under this section will not bar the use of the same name as the name of any domestic entity or any foreign entity authorized to do business in this state. But this chapter is not intended to bar any aggrieved party, in such a situation, from applying for equitable relief under principles of fair trade law.

History. Acts 1999, No. 1528, § 5; 2007, No. 15, § 4.

Publisher's Notes. Acts 1999, No. 1528, § 9, provided:

“The fictitious name provisions for limited liability companies, limited partnerships, and limited liability partnerships in Sections 1, 3 and 5 of this act [codified as §§ 4-32-108, 4-43-108, 4-42-707] shall not be applicable to any name for which an assumed name filing has been made under § 4-70-203 prior to the effective date of this act.”

Amendments. The 2007 amendment substituted “4-47-109” for “4-43-103” in (b).

4-42-708. Fees.

The Secretary of State shall collect the following fees when the documents described in this section are delivered to him or her by electronic means:

DOCUMENT FEE PROCESSING FEE (1) Application for fictitious name for domestic limited liability partnership $9.50 $4.00 (2) Application for fictitious name for foreign limited liability partnership $9.50 $4.00 (3) Notice of change of registered office or agent or both No Fee (4) For any other document not listed above, the cost for electronic filing is: (A) Four dollars ($4.00) for the processing fee when the filing fee is $0 to $50; (B) Five dollars ($5.00) for the processing fee when the filing fee is $51 to $99; (C) Ten dollars ($10.00) for the processing fee when the filing fee is $100 to $299; and (D) Twelve dollars ($12.00) for the processing fee when the filing fee is $300 or more.

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History. Acts 2001, No. 1395, § 5; 2007, No. 646, § 9.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Business Law, 24 U. Ark. Little Rock L. Rev. 407.

Subchapter 8 — Conversions, Mergers, and Consolidations

4-42-801 — 4-42-806. [Repealed.]

Publisher's Notes. Former subchapter 8, concerning conversions, mergers, and consolidations, was repealed by Acts 2007, No. 15, § 9. The subchapter was derived from the following sources:

4-42-801. Acts 1997, No. 479, § 4.

4-42-802. Acts 1997, No. 479, § 4.

4-42-803. Acts 1997, No. 479, § 4.

4-42-804. Acts 1997, No. 479, § 4.

4-42-805. Acts 1997, No. 479, § 4.

4-42-806. Acts 1997, No. 479, § 4.

Effective Dates. Acts 2007, No. 15, § 9 states that §§ 4-42-801 — 806 are repealed effective September 1, 2007.

Chapter 43 Revised Limited Partnership Act of 1991 [Repealed.]

Effective Dates. Acts 2007, No. 646, § 14: July 1, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that business entities are presently paying different fees for similar services from the Secretary of State; that this act will alleviate any undue hardship to any entity by standardizing business and commercial filing fees; and that this act is immediately necessary to aid the recordkeeping and accounting functions of the Secretary of State and should take effect at the beginning of the state's fiscal year. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2007.”

4-43-101 — 4-43-1206. [Repealed.]

A.C.R.C. Notes. The amendment to § 4-43-1104 by Acts 2007, No. 646 was superseded by the repeal of § 4-43-1104 by Acts 2007, No. 15. Acts 2007, No. 15, § 1, reenacted former § 4-43-1104 as § 4-47-1301. As amended by Acts 2007, No. 646, § 10, former § 4-43-1104 would read as follows:

“(a) The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her for filing:

DOCUMENT FEE (1) Registration of certificate of limited partnership $ 50.00 (2) Amendment of certificate of limited partnership 15.00 (3) Change of agent for service No Fee (4) Cancellation of certificate of limited partnership 15.00 (5) Assignment of limited partnership interest 15.00 (6) Withdrawal of general partner 15.00 (7) Admission of new general partner 15.00 (8) Merger or consolidation of limited partnership with limited liability company 15.00 (9) Dissolution of limited partnership 15.00 (10) Registration of certificate of foreign limited partnership 300.00 (11) Amendment of certificate of foreign limited partnership 15.00 (12) Change of agent for service by foreign limited partnership No Fee (13) Cancellation of certificate of foreign limited partnership 15.00 (14) Assignment of foreign limited partnership interest 15.00 (15) Withdrawal of general partner by foreign limited partnership 15.00 (16) Admission of new general partner by foreign limited partnership 15.00 (17) Merger or consolidation of foreign limited partnership with limited liability company 15.00 (18) Withdrawal of foreign limited partnership No Fee

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“(b)(1) The Secretary of State shall collect a fee of twenty-five dollars ($25.00) each time process is served on him or her under this chapter.

“(2) The party to a proceeding causing service of process is entitled to recover the process fee as costs if the party prevails in the proceeding.

“(c) The Secretary of State shall collect the following fees for copying and certifying the copy of any filed document relating to a domestic or foreign limited liability limited partnership:

“(1) Fifty cents ($.50) a page for copying; and

“(2)Five dollars ($5.00) for the certificate.

“(d) The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her by electronic means:

  1. Application for fictitious name for domestic limited partnership $9.50 4.00 (2) Application for fictitious name of foreign limited partnership 9.50 4.00 (3) Notice of change of registered office or agent or both No Fee”

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The amendment to § 4-43-1111 by Acts 2007, No. 646 was superseded by the repeal of § 4-43-1111 by Acts 2007, No. 15. Acts 2007, No. 15, § 1, reenacted former § 4-43-1111 as § 4-47-1302. As amended by Acts 2007, No. 646, § 11, former § 4-43-1111 would read as follows:

“(a) The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her for filing:

(1) Application for Registration of Limited Liability Limited Partnership $ 50.00 (2) Amendment of Certificate of Limited Liability Limited Partnership (includes change or withdrawal of general partner) 25.00 (3) Change of registered agent or office No Fee (4) Restatement of Certificate of Limited Liability Limited Partnership 25.00 (5) Withdrawal of Domestic Limited Liability Limited Partnership 25.00 (6) Application for Certificate of Authority by Foreign Limited Liability Limited Partnership 300.00 (7) Application for Amended Certificate of Authority by Foreign Limited Liability Limited Partnership (includes change or withdrawal of general partner) 300.00 (8) Change of registered agent or office No Fee (9) Application for Certificate of Withdrawal by Foreign Limited Liability Limited Partnership 25.00 (10) Application for Certificate of Existence or Authorization by Domestic Limited Liability Limited Partnership 15.00 (11) Application for Registration as a Domestic Limited Partnership and Domestic Limited Liability Limited Partnership 50.00 (12) Application for Registration as a Foreign Limited Partnership and Foreign Limited Liability Limited Partnership 300.00 (13) Any other document required or permitted to be filed by this chapter 15.00

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“(b)(1) The Secretary of State shall collect a fee of twenty-five dollars ($25.00) each time process is served on him or her under this section.

“(2) The party to a proceeding causing service of process is entitled to recover the process fee as costs if the party prevails in the proceeding.

“(c) The Secretary of State shall collect the following fees for copying and certifying the copy of any filed document relating to a domestic or foreign limited liability limited partnership:

“(1) Fifty cents (50¢) a page for copying; and

“(2) Five dollars ($5.00) for the certificate.”

Publisher's Notes. Former chapter 43, the Revised Limited Partnership Act of 1991, was repealed by Acts 2007, No. 15, § 10. The chapter was derived from the following sources:

4-43-101. Acts 1979, No. 657, Art. 1, § 101; A.S.A. 1947, § 65-501; Acts 1991, No. 1175, §§ 1, 2; 1997, No. 912, § 10.

4-43-102. Acts 1979, No. 657, Art. 1, § 102; A.S.A. 1947, § 65-502; Acts 1991, No. 1175, § 3; 1997, No. 399, § 1; 1997, No. 479, § 12.

4-43-103. Acts 1979, No. 657, Art. 1, § 103; A.S.A. 1947, § 65-503.

4-43-104. Acts 1979, No. 657, Art. 1, § 104; A.S.A. 1947, § 65-504.

4-43-105. Acts 1979, No. 657, Art. 1, § 105; A.S.A. 1947, § 65-505; Acts 1991, No. 1175, § 4.

4-43-106. Acts 1979, No. 657, Art. 1, § 106; A.S.A. 1947, § 65-506.

4-43-107. Acts 1979, No. 657, Art. 1, § 107; A.S.A. 1947, § 65-507.

4-43-108. Acts 1999, No. 1528, § 3.

4-43-201. Acts 1979, No. 657, Art. 2, § 201; A.S.A. 1947, § 65-508; Acts 1991, No. 1175, § 5.

4-43-202. Acts 1979, No. 657, Art. 2, § 202; A.S.A. 1947, § 65-509; Acts 1991, No. 1175, § 6.

4-43-203. Acts 1979, No. 657, Art. 2, § 203; A.S.A. 1947, § 65-510.

4-43-204. Acts 1979, No. 657, Art. 2, § 204; A.S.A. 1947, § 65-511; Acts 1991, No. 1175, § 7.

4-43-205. Acts 1979, No. 657, Art. 2, § 205; A.S.A. 1947, § 65-512; Acts 1991, No. 1175, § 8.

4-43-206. Acts 1979, No. 657, Art. 2, § 206; A.S.A. 1947, § 65-513.

4-43-207. Acts 1979, No. 657, Art. 2, § 207; A.S.A. 1947, § 65-514.

4-43-208. Acts 1979, No. 657, Art. 2, § 208; A.S.A. 1947, § 65-515; Acts 1991, No. 1175, § 9.

4-43-209. Acts 1979, No. 657, Art. 2, § 209; A.S.A. 1947, § 65-516; Acts 1991, No. 1175, § 10.

4-43-301. Acts 1979, No. 657, Art. 3, § 301; A.S.A. 1947, § 65-517; Acts 1991, No. 1175, § 11.

4-43-302. Acts 1979, No. 657, Art. 3, § 302; A.S.A. 1947, § 65-518; Acts 1993, No. 693, § 1.

4-43-303. Acts 1979, No. 657, Art. 3, § 303; A.S.A. 1947, § 65-519; Acts 1991, No. 1175, § 12.

4-43-304. Acts 1979, No. 657, Art. 3, § 304; 1985, No. 361, § 1; A.S.A. 1947, § 65-520; Acts 1991, No. 1175, § 13.

4-43-305. Acts 1979, No. 657, Art. 3, § 305; A.S.A. 1947, § 65-521.

4-43-401. Acts 1979, No. 657, Art. 4, § 401; A.S.A. 1947, § 65-522; Acts 1991, No. 1175, § 14.

4-43-402. Acts 1979, No. 657, Art. 4, § 402; A.S.A. 1947, § 65-523; Acts 1991, No. 1175, § 15.

4-43-403. Acts 1979, No. 657, Art. 4, § 403; 1985, No. 361, § 2; A.S.A. 1947, § 65-524.

4-43-404. Acts 1979, No. 657, Art. 4, § 404; A.S.A. 1947, § 65-525.

4-43-405. Acts 1979, No. 657, Art. 4, § 405; A.S.A. 1947, § 65-526.

4-43-501. Acts 1979, No. 657, Art. 5, § 501; A.S.A. 1947, § 65-527.

4-43-502. Acts 1979, No. 657, Art. 5, § 502; A.S.A. 1947, § 65-528; Acts 1991, No. 1175, § 16.

4-43-503. Acts 1979, No. 657, Art. 5, § 503; A.S.A. 1947, § 65-529; Acts 1991, No. 1175, § 17.

4-43-504. Acts 1979, No. 657, Art. 5, § 504; A.S.A. 1947, § 65-530; Acts 1991, No. 1175, § 18.

4-43-601. Acts 1979, No. 657, Art. 6, § 601; A.S.A. 1947, § 65-531; Acts 1991, No. 1175, § 19.

4-43-602. Acts 1979, No. 657, Art. 6, § 602; A.S.A. 1947, § 65-532.

4-43-603. Acts 1979, No. 657, Art. 6, § 603; A.S.A. 1947, § 65-533; Acts 1991, No. 1175, § 20.

4-43-604. Acts 1979, No. 657, Art. 6, § 604; A.S.A. 1947, § 65-534.

4-43-605. Acts 1979, No. 657, Art. 6, § 605; A.S.A. 1947, § 65-535; Acts 1991, No. 1175, § 21.

4-43-606. Acts 1979, No. 657, Art. 6, § 606; A.S.A. 1947, § 65-536.

4-43-607. Acts 1979, No. 657, Art. 6, § 607; A.S.A. 1947, § 65-537.

4-43-608. Acts 1979, No. 657, Art. 6, § 608; A.S.A. 1947, § 65-538; Acts 1991, No. 1175, § 22.

4-43-701. Acts 1979, No. 657, Art. 7, § 701; A.S.A. 1947, § 65-539.

4-43-702. Acts 1979, No. 657, Art. 7, § 702; A.S.A. 1947, § 65-540.

4-43-703. Acts 1979, No. 657, Art. 7, § 703; A.S.A. 1947, § 65-541.

4-43-704. Acts 1979, No. 657, Art. 7, § 704; A.S.A. 1947, § 65-542; Acts 1991, No. 1175, § 23.

4-43-705. Acts 1979, No. 657, Art. 7, § 705; A.S.A. 1947, § 65-543.

4-43-801. Acts 1979, No. 657, Art. 8, § 801; A.S.A. 1947, § 65-544; Acts 1991, No. 1175, § 24.

4-43-802. Acts 1979, No. 657, Art. 8, § 802; A.S.A. 1947, § 65-545.

4-43-803. Acts 1979, No. 657, Art. 8, § 803; A.S.A. 1947, § 65-546.

4-43-804. Acts 1979, No. 657, Art. 8, § 804; A.S.A. 1947, § 65-547.

4-43-901. Acts 1979, No. 657, Art. 9, § 901; A.S.A. 1947, § 65-548.

4-43-902. Acts 1979, No. 657, Art. 9, § 902; A.S.A. 1947, § 65-549; Acts 1991, No. 1175, § 25.

4-43-903. Acts 1979, No. 657, Art. 9, § 903; A.S.A. 1947, § 65-550.

4-43-904. Acts 1979, No. 657, Art. 9, § 904; A.S.A. 1947, § 65-551.

4-43-905. Acts 1979, No. 657, Art. 9, § 905; A.S.A. 1947, § 65-552.

4-43-906. Acts 1979, No. 657, Art. 9, § 906; A.S.A. 1947, § 65-553.

4-43-907. Acts 1979, No. 657, Art. 9, § 907; A.S.A. 1947, § 65-554.

4-43-908. Acts 1979, No. 657, Art. 9, § 908; A.S.A. 1947, § 65-555.

4-43-1001. Acts 1979, No. 657, Art. 10, § 1001; A.S.A. 1947, § 65-556.

4-43-1002. Acts 1979, No. 657, Art. 10, § 1002; A.S.A. 1947, § 65-557; Acts 1991, No. 1175, § 26.

4-43-1003. Acts 1979, No. 657, Art. 10, § 1003; A.S.A. 1947, § 65-558.

4-43-1004. Acts 1979, No. 657, Art. 10, § 1004; A.S.A. 1947, § 65-559.

4-43-1101. Acts 1979, No. 657, Art. 11, § 1101; A.S.A. 1947, § 65-560.

4-43-1102. Acts 1979, No. 657, Art. 11, § 1102; A.S.A. 1947, § 65-561; Acts 1991, No. 1175, § 27.

4-43-1103. Acts 1979, No. 657, Art. 11, § 1103; A.S.A. 1947, § 65-565n.

4-43-1104. Acts 1979, No. 657, Art. 11, § 1104; A.S.A. 1947, § 65-562; Acts 1987, No. 1068, § 3; 1999, No. 886, § 1; 2001, No. 1395, § 3.

4-43-1105. Acts 1979, No. 657, Art. 11, § 1105; A.S.A. 1947, § 65-563.

4-43-1106. Acts 1979, No. 657, Art. 11, § 1106; A.S.A. 1947, § 65-564.

4-43-1107. Acts 1979, No. 657, Art. 11, § 1107; A.S.A. 1947, § 65-565; Acts 2005, No. 1158, § 2.

4-43-1108. Acts 1979, No. 657, Art. 11, § 1108; A.S.A. 1947, § 65-566.

4-43-1109. Acts 1979, No. 657, Art. 11, § 1109; A.S.A. 1947, § 65-565n.

4-43-1110. Acts 1997, No. 912, § 11; 1999, No. 1528, § 6; 2005, No. 1158, § 3.

4-43-1111. Acts 1999, No. 887, § 1.

4-43-1201. Acts 1997, No. 479, § 5.

4-43-1202. Acts 1997, No. 479, § 5.

4-43-1203. Acts 1997, No. 479, § 5.

4-43-1204. Acts 1997, No. 479, § 5.

4-43-1205. Acts 1997, No. 479, § 5.

4-43-1206. Acts 1997, No. 479, § 5.

For present law, see Chapter 47, the Uniform Limited Partnership Act (2001), § 4-47-101 et seq.

Effective Dates. Acts 2007, No. 15, § 10 provides that §§ 4-43-101—4-43-1206 are repealed effective September 1, 2007.

Chapter 44 Uniform Limited Partnership Act

A.C.R.C. Notes. Former chapter 44, the Uniform Limited Partnership Act, regulated domestic limited partnerships. Chapter 43 of this title contains the Revised Limited Partnership Act, which became effective on July 1, 1979. Subchapters 1-8, 10 and 11 of chapter 43 also regulate domestic limited partnerships.

Section 4-43-1106 provides that a limited partnership formed under preexisting laws shall continue to be governed by the Uniform Limited Partnership Act [repealed] or Rev. Stat. Ch. 108 [repealed] unless it becomes a limited partnership under the Revised Limited Partnership Act [§ 4-43-101 et seq.]. However, the Revised Limited Partnership Act does not otherwise refer to nor specifically repeal the Uniform Limited Partnership Act [repealed].

Acts 1991, No. 1175, § 28, provided, in part, that the repeal of this chapter does not impair, or otherwise affect, the organization or the continued existence of domestic limited partnerships existing on April 10, 1991, nor does the repeal of any existing code provision by that act impair any contract or affect any right accrued before April 10, 1991.

Acts 1991, No. 1175, § 29, provided that, unless otherwise agreed by the partners, the provisions of law in effect prior to the effective date (July 1, 1979) of the Revised Limited Partnership Act of 1979 governing (i) allocation of profits and losses, (ii) distributions to a withdrawing partner, and (iii) distributions upon the winding up of a limited partnership shall govern limited partnerships formed prior to the effective date of the Revised Limited Partnership Act of 1979.

4-44-101 — 4-44-131. [Repealed.]

Publisher's Notes. This chapter was repealed by Acts 1991, No. 1175, § 28. The chapter was derived from the following sources:

§ 4-44-101. Acts 1953, No. 243, § 1; A.S.A. 1947, § 65-301.

§ 4-44-102. Acts 1953, No. 243, § 2; 1977, No. 874, § 1; A.S.A. 1947, § 65-302.

§ 4-44-103. Acts 1953, No. 243, § 3; A.S.A. 1947, § 65-303.

§ 4-44-104. Acts 1953, No. 243, § 4; A.S.A. 1947, § 65-304.

§ 4-44-105. Acts 1953, No. 243, § 5; A.S.A. 1947, § 65-305.

§ 4-44-106. Acts 1953, No. 243, § 6; A.S.A. 1947, § 65-306.

§ 4-44-107. Acts 1953, No. 243, § 7; A.S.A. 1947, § 65-307.

§ 4-44-108. Acts 1953, No. 243, § 8; A.S.A. 1947, § 65-308.

§ 4-44-109. Acts 1953, No. 243, § 9; A.S.A. 1947, § 65-309.

§ 4-44-110. Acts 1953, No. 243, § 10; A.S.A. 1947, § 65-310.

§ 4-44-111. Acts 1953, No. 243, § 11; A.S.A. 1947, § 65-311.

§ 4-44-112. Acts 1953, No. 243, § 12; A.S.A. 1947, § 65-312.

§ 4-44-113. Acts 1953, No. 243, § 13; A.S.A. 1947, § 65-313.

§ 4-44-114. Acts 1953, No. 243, § 14; A.S.A. 1947, § 65-314.

§ 4-44-115. Acts 1953, No. 243, § 15; A.S.A. 1947, § 65-315.

§ 4-44-116. Acts 1953, No. 243, § 16; A.S.A. 1947, § 65-316.

§ 4-44-117. Acts 1953, No. 243, § 17; A.S.A. 1947, § 65-317.

§ 4-44-118. Acts 1953, No. 243, § 18; A.S.A. 1947, § 65-318.

§ 4-44-119. Acts 1953, No. 243, § 19; A.S.A. 1947, § 65-319.

§ 4-44-120. Acts 1953, No. 243, § 20; A.S.A. 1947, § 65-320.

§ 4-44-121. Acts 1953, No. 243, § 21; A.S.A. 1947, § 65-321.

§ 4-44-122. Acts 1953, No. 243, § 22; A.S.A. 1947, § 65-322.

§ 4-44-123. Acts 1953, No. 243, § 23; A.S.A. 1947, § 65-323.

§ 4-44-124. Acts 1953, No. 243, § 24; A.S.A. 1947, § 65-324.

§ 4-44-125. Acts 1953, No. 243, § 25; 1977, No. 874, § 2; A.S.A. 1947, § 65-325.

§ 4-44-126. Acts 1953, No. 243, § 26; A.S.A. 1947, § 65-326.

§ 4-44-127. Acts 1953, No. 243, § 27; A.S.A. 1947, § 65-327.

§ 4-44-128. Acts 1953, No. 243, § 28; A.S.A. 1947, § 65-328.

§ 4-44-129. Acts 1953, No. 243, § 29; A.S.A. 1947, § 65-329.

§ 4-44-130. Acts 1953, No. 243, § 30; A.S.A. 1947, § 65-330.

§ 4-44-131. Acts 1953, No. 243, § 31; A.S.A. 1947, § 65-331.

Chapter 45 Foreign Limited Partnership Act

A.C.R.C. Notes. This chapter, which became effective on March 27, 1979, contained the Foreign Limited Partnership Act which regulated foreign limited partnerships. Chapter 43 of this title contains the Revised Limited Partnership Act which became effective on July 1, 1979. Subchapter 9 of Chapter 43 also regulates foreign limited partnerships.

Acts 1991, No. 1175, § 28 provided, in part, that the repeal of this chapter does not impair, or otherwise affect, the organization or the continued existence of foreign limited partnerships existing on April 10, 1991, nor does the repeal of any existing Code provision by that act impair any contract or affect any right accrued before April 10, 1991.

Acts 1991, No. 1175, § 29 provided that, unless otherwise agreed by the partners, the provisions of law in effect prior to the effective date (July 1, 1979) of the Revised Limited Partnership Act of 1979 governing (i) allocation of profits and losses, (ii) distributions to a withdrawing partner, and (iii) distributions upon the winding up of a limited partnership shall govern limited partnerships formed prior to the effective date of the Revised Limited Partnership Act of 1979.

4-45-101 — 4-45-110. [Repealed.]

Publisher's Notes. This chapter was repealed by Acts 1991, No. 1175, § 28. The chapter was derived from the following sources:

§ 4-45-101. Acts 1979, No. 588, § 1; A.S.A. 1947, § 65-401.

§ 4-45-102. Acts 1979, No. 588, § 1; A.S.A. 1947, § 65-401.

§ 4-45-103. Acts 1979, No. 588, § 9; A.S.A. 1947, § 65-409.

§ 4-45-104. Acts 1979. No. 588, § 4; A.S.A. 1947, § 65-404.

§ 4-45-105. Acts 1979, No. 588, § 2; A.S.A. 1947, § 65-402.

§ 4-45-106. Acts 1979, No. 588, § 3; A.S.A. 1947, § 65-403.

§ 4-45-107. Acts 1979, No. 588, § 5; A.S.A. 1947, § 65-405.

§ 4-45-108. Acts 1979, No. 588, § 6; A.S.A. 1947, § 65-406.

§ 4-45-109. Acts 1979, No. 588, § 7; A.S.A. 1947, § 65-407.

§ 4-45-110. Acts 1979, No. 588, § 8; A.S.A. 1947, § 65-408.

Chapter 46 Uniform Partnership Act (1996)

Publisher's Notes. Acts 1999, No. 1518, § 1204, provided:

“Effective January 1, 2005, the following sections of the Arkansas Code are repealed: A.C.A. §§ 4-42-101 through 4-42-702.”

Acts 1999, No. 1518, § 1205, provided:

“(a) Before January 1, 2005, this chapter governs only a partnership formed:

“(1) after the effective date of this Act, unless that partnership is continuing the business of a dissolved partnership under Section 41 of the prior Uniform Partnership Act; and

“(2) before the effective date of this Act, that elects, as provided by subsection (c), to be governed by this Act.

“(b) Beginning January 1, 2005, this Act governs all partnerships.

“(c) Before January 1, 2005, a partnership voluntarily may elect, in the manner provided in its partnership agreement or by law for amending the partnership agreement, to be governed by this Act. The provisions of this Act relating to the liability of the partnership's partners to third parties apply to limit those partners' liability to a third party who had done business with the partnership within one year preceding the partnership's election to be governed by this Act, only if the third party knows or has received a notification of the partnership's election to be governed by this Act.”

Research References

ALR.

Multi-state law partnership of professional service corporation, propriety of formation. 6 A.L.R.4th 1251.

Right of partners to assert personal privilege against self-incrimination with respect to production of partnership books or records. 17 A.L.R.4th 1039.

Joint venture's capacity to sue. 56 A.L.R.4th 1234.

Ownership interest in employer business as affecting status as employee for workers' compensation purposes. 78 A.L.R.4th 973.

Ark. L. Notes.

Goforth, Limited Liability for General Partners in Arkansas LLLP's (Limited Liability Limited Partnerships), 2001 Ark. L. Notes 1.

Goforth, Time for Another New Business Statute: The Case for the Uniform Limited Partnership Act, 2004 Arkansas L. Notes 55.

Subchapter 1 — General Provisions

4-46-101. Definitions.

  1. “Business” includes every trade, occupation, and profession.
  2. “Debtor in bankruptcy” means a person who is the subject of:
    1. an order for relief under Title 11 of the United States Code or a comparable order under a successor statute of general application; or
    2. a comparable order under federal, state, or foreign law governing insolvency.
  3. “Distribution” means a transfer of money or other property from a partnership to a partner in the partner's capacity as a partner or to the partner's transferee.
  4. “Foreign limited liability partnership” means a partnership that:
    1. is formed under laws other than the laws of this state; and
    2. has the status of a limited liability partnership under those laws.
  5. “Limited liability partnership” means a partnership that has filed a statement of qualification under § 4-46-1001 and does not have a similar statement in effect in any other jurisdiction.
  6. “Partnership” means an association of two (2) or more persons to carry on as co-owners a business for profit formed under § 4-46-202, predecessor law, or comparable law of another jurisdiction.
  7. “Partnership agreement” means the agreement, whether written, oral, or implied, among the partners concerning the partnership, including amendments to the partnership agreement.
  8. “Partnership at will” means a partnership in which the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking.
  9. “Partnership interest” or “partner's interest in the partnership” means all of a partner's interests in the partnership, including the partner's transferable interest and all management and other rights.
  10. “Person” means an individual, corporation, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.
  11. “Property” means all property, real, personal, or mixed, tangible or intangible, or any interest therein.
  12. “State” means a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or insular possession subject to the jurisdiction of the United States.
  13. “Statement” means a statement of partnership authority under § 4-46-303, a statement of denial under § 4-46-304, a statement of dissociation under § 4-46-704, a statement of dissolution under § 4-46-805, a statement of merger under § 4-46-908, a statement of qualification under § 4-46-1001, a statement of foreign qualification under § 4-46-1102, or an amendment or cancellation of any of the foregoing.
  14. “Transfer” includes an assignment, conveyance, lease, mortgage, deed, and encumbrance.

History. Acts 1999, No. 1518, § 101; 2009, No. 408, § 10.

Amendments. The 2009 amendment substituted “§ 4-46-908” for “§ 4-46-907” in (13).

Research References

ALR.

Construction and Application of Revised Uniform Partnership Act. 70 A.L.R.6th 209.

Ark. L. Rev.

A License to Lie, Cheat, and Steal? Restriction or Elimination of Fiduciary Duties in Arkansas Limited Liability Companies, 60 Ark. L. Rev. 643.

4-46-102. Knowledge and notice.

  1. A person knows a fact if the person has actual knowledge of it.
  2. A person has notice of a fact if the person:
    1. knows of it;
    2. has received a notification of it; or
    3. has reason to know it exists from all of the facts known to the person at the time in question.
  3. A person notifies or gives a notification to another by taking steps reasonably required to inform the other person in ordinary course, whether or not the other person learns of it.
  4. A person receives a notification when the notification:
    1. comes to the person's attention; or
    2. is duly delivered at the person's place of business or at any other place held out by the person as a place for receiving communications.
  5. Except as otherwise provided in subsection (f) of this section, a person other than an individual knows, has notice, or receives a notification of a fact for purposes of a particular transaction when the individual conducting the transaction knows, has notice, or receives a notification of the fact, or in any event when the fact would have been brought to the individual's attention if the person had exercised reasonable diligence. The person exercises reasonable diligence if it maintains reasonable routines for communicating significant information to the individual conducting the transaction and there is reasonable compliance with the routines. Reasonable diligence does not require an individual acting for the person to communicate information unless the communication is part of the individual's regular duties or the individual has reason to know of the transaction and that the transaction would be materially affected by the information.
  6. A partner's knowledge, notice, or receipt of a notification of a fact relating to the partnership is effective immediately as knowledge by, notice to, or receipt of a notification by the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner.

History. Acts 1999, No. 1518, § 102.

4-46-103. Effect of partnership agreement — Nonwaivable provisions.

  1. Except as otherwise provided in subsection (b) of this section, relations among the partners and between the partners and the partnership are governed by the partnership agreement. To the extent the partnership agreement does not otherwise provide, this chapter governs relations among the partners and between the partners and the partnership.
  2. The partnership agreement may not:
    1. vary the rights and duties under § 4-46-105 except to eliminate the duty to provide copies of statements to all of the partners;
    2. unreasonably restrict the right of access to books and records under § 4-46-403(b);
    3. eliminate the duty of loyalty under § 4-46-404(b) or § 4-46-603(b)(3), but:
      1. the partnership agreement may identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable; or
      2. all of the partners or a number or percentage specified in the partnership agreement may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty;
    4. unreasonably reduce the duty of care under § 4-46-404(c) or § 4-46-603(b)(3);
    5. eliminate the obligation of good faith and fair dealing under § 4-46-404(d), but the partnership agreement may prescribe the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable;
    6. vary the power to dissociate as a partner under § 4-46-602(a), except to require the notice under § 4-46-601(1) to be in writing;
    7. vary the right of a court to expel a partner in the events specified in § 4-46-601(5);
    8. vary the requirement to wind up the partnership business in cases specified in § 4-46-801(4), (5), or (6);
    9. vary the law applicable to a limited liability partnership under § 4-46-106(b); or
    10. restrict rights of third parties under this chapter.

History. Acts 1999, No. 1518, § 103.

4-46-104. Supplemental principles of law.

  1. Unless displaced by particular provisions of this chapter, the principles of law and equity supplement this chapter.
  2. If an obligation to pay interest arises under this chapter and the rate is not specified, the rate shall be six percent (6%).

History. Acts 1999, No. 1518, § 104.

4-46-105. Execution, filing, and recording of statements.

  1. A statement may be filed in the office of the Secretary of State. A certified copy of a statement that is filed in an office in another State may be filed in the office of the Secretary of State. Either filing has the effect provided in this chapter with respect to partnership property located in or transactions that occur in this State.
  2. A certified copy of a statement that has been filed in the office of the Secretary of State and recorded in the office for recording transfers of real property has the effect provided for recorded statements in this chapter. A recorded statement that is not a certified copy of a statement filed in the office of the Secretary of State does not have the effect provided for recorded statements in this chapter.
  3. A statement filed by a partnership must be executed by at least two (2) partners. Other statements must be executed by a partner or other person authorized by this chapter. An individual who executes a statement as, or on behalf of, a partner or other person named as a partner in a statement shall personally declare under penalty of perjury that the contents of the statement are accurate.
  4. A person authorized by this chapter to file a statement may amend or cancel the statement by filing an amendment or cancellation that names the partnership, identifies the statement, and states the substance of the amendment or cancellation.
  5. A person who files a statement pursuant to this section shall promptly send a copy of the statement to every nonfiling partner and to any other person named as a partner in the statement. Failure to send a copy of a statement to a partner or other person does not limit the effectiveness of the statement as to a person not a partner.
  6. The Secretary of State shall collect a fee for filing or providing a certified copy of a statement. The officer responsible for recording transfers of real property may collect a fee for recording a statement.

History. Acts 1999, No. 1518, § 105.

4-46-106. Governing law.

  1. Except as otherwise provided in subsection (b) of this section, the law of the jurisdiction in which a partnership has its chief executive office governs relations among the partners and between the partners and the partnership.
  2. The law of this State governs relations among the partners and between the partners and the partnership and the liability of partners for an obligation of a limited liability partnership.

History. Acts 1999, No. 1518, § 106.

4-46-107. Partnership subject to amendment or repeal of chapter.

A partnership governed by this chapter is subject to any amendment to or repeal of this chapter.

History. Acts 1999, No. 1518, § 107.

Subchapter 2 — Nature of Partnership

Research References

ALR.

Civil liability of one partner to another or to the partnership based on partner's personal purchase of partnership property during existence of partnership. 37 A.L.R.4th 494.

4-46-201. Partnership as entity.

  1. A partnership is an entity distinct from its partners.
  2. A limited liability partnership continues to be the same entity that existed before the filing of a statement of qualification under § 4-46-1001.

History. Acts 1999, No. 1518, § 201.

4-46-202. Formation of partnership.

  1. Except as otherwise provided in subsection (b) of this section, the association of two (2) or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.
  2. An association formed under a statute other than this chapter, a predecessor statute, or a comparable statute of another jurisdiction is not a partnership under this chapter.
  3. In determining whether a partnership is formed, the following rules apply:
    1. Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not by itself establish a partnership, even if the co-owners share profits made by the use of the property.
    2. The sharing of gross returns does not by itself establish a partnership, even if the persons sharing them have a joint or common right or interest in property from which the returns are derived.
    3. A person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received in payment:
      1. of a debt by installments or otherwise;
      2. for services as an independent contractor or of wages or other compensation to an employee;
      3. of rent;
      4. of an annuity or other retirement or health benefit to a beneficiary, representative, or designee of a deceased or retired partner;
      5. of interest or other charge on a loan, even if the amount of payment varies with the profits of the business, including a direct or indirect present or future ownership of the collateral, or rights to income, proceeds, or increase in value derived from the collateral; or
      6. for the sale of the goodwill of a business or other property by installments or otherwise.

History. Acts 1999, No. 1518, § 202.

Case Notes

Joint Venture.

Grain, collateral for a creditor's loan, belonged to debtors' estate and not the debtors' joint venture because the joint venture was not a separate legal entity. There was no evidence the joint venture was registered as a separate entity with Secretary of State's office, and there was no evidence the joint venture created separate balance sheets or inventories. Rice v. Carlton Farms, LLC (In re Webb), 474 B.R. 891 (Bankr. E.D. Ark. 2012), aff'd, Bank of England v. Rice, No. 4:12–cv-578–DPM, 2013 U.S. Dist. LEXIS 14531 (E.D. Ark. Feb. 4, 2013), aff'd, Bank of England v. Rice (In re Webb), 742 F.3d 824 (8th Cir. 2014).

4-46-203. Partnership property.

Property acquired by a partnership is property of the partnership and not of the partners individually.

History. Acts 1999, No. 1518, § 203.

4-46-204. When property is partnership property.

  1. Property is partnership property if acquired in the name of:
    1. the partnership; or
    2. one (1) or more partners with an indication in the instrument transferring title to the property of the person's capacity as a partner or of the existence of a partnership but without an indication of the name of the partnership.
  2. Property is acquired in the name of the partnership by a transfer to:
    1. the partnership in its name; or
    2. one (1) or more partners in their capacity as partners in the partnership, if the name of the partnership is indicated in the instrument transferring title to the property.
  3. Property is presumed to be partnership property if purchased with partnership assets, even if not acquired in the name of the partnership or of one (1) or more partners with an indication in the instrument transferring title to the property of the person's capacity as a partner or of the existence of a partnership.
  4. Property acquired in the name of one (1) or more of the partners, without an indication in the instrument transferring title to the property of the person's capacity as a partner or of the existence of a partnership and without use of partnership assets, is presumed to be separate property, even if used for partnership purposes.

History. Acts 1999, No. 1518, § 204.

Case Notes

Intent of Partners.

A partnership consisting of Chapter 7 debtors was the owner of the collateral used to secure debt owed to creditors and had sufficient rights in all of the collateral for the security interests to attach and become enforceable, as required by § 4-9-203(a), at the time the security interests were granted because the debtors intended for the collateral to be owned by the partnership. In re Curtis, 363 B.R. 572 (Bankr. E.D. Ark. 2007).

Partnership Property.

Land that was owned by the individual partners, all members of the same family, that was never formally deeded to the partnership did not preclude the partnership from acting as a landlord for the property with the ability to enter into a lease agreement and to enforce a lien for rent under § 18-41-101 when the evidence established the owners' intent to have the partnership act accordingly. Bank of McCrory v. Morrison (In re James), 368 B.R. 800 (Bankr. E.D. Ark. 2007).

Where sister filed suit to dissolve a family farming partnership, the circuit court clearly erred in awarding a 273-acre farm parcel to the brother as his separate property where the testimony and records showed that it had been operated as if it was partnership property for over 20 years, it was used as collateral for partnership loans, and each of the partners had contributed land, capital, equipment, labor, and management for the farm; the evidence in support of the presumption in subsection (c) of this section was overwhelming and the brother did not sufficiently rebut the presumption. Hitt v. Lyle, 2020 Ark. App. 124 (2020).

Where sister filed suit to dissolve a family farming partnership, the circuit court did not clearly err by finding that a 15-acre plot was one partner's individual property and not partnership property where the evidence showed that the land was a gift to the partner alone, evidenced by the plain language of the deed, which was executed by all partners. Hitt v. Lyle, 2020 Ark. App. 124 (2020).

Subchapter 3 — Relations of Partners to Persons Dealing with Partnership

Research References

ALR.

Rights of attorneys leaving firm with respect to firm clients. 1 A.L.R.4th 1164.

Derivative liability of partner for punitive damages for wrongful act. 14 A.L.R.4th 1335.

Right of partner to assert privilege against self-incrimination with respect to production of partnership books or records. 17 A.L.R.4th 1039.

Professional services within meaning of statute preserving individual liability of professional employees of professional corporation, association, or partnership. 31 A.L.R.4th 898.

Form of business organization of successor or predecessor as affecting successor liability. 32 A.L.R.4th 196.

Ownership interest in employer business as affecting status as employee for worker's compensation purposes. 78 A.L.R.4th 973.

4-46-301. Partner agent of partnership.

Subject to the effect of a statement of partnership authority under § 4-46-303:

  1. Each partner is an agent of the partnership for the purpose of its business. An act of a partner, including the execution of an instrument in the partnership name, for apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership, unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority.
  2. An act of a partner which is not apparently for carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership only if the act was authorized by the other partners.

History. Acts 1999, No. 1518, § 301.

4-46-302. Transfer of partnership property.

  1. Partnership property may be transferred as follows:
    1. Subject to the effect of a statement of partnership authority under § 4-46-303, partnership property held in the name of the partnership may be transferred by an instrument of transfer executed by a partner in the partnership name.
    2. Partnership property held in the name of one (1) or more partners with an indication in the instrument transferring the property to them of their capacity as partners or of the existence of a partnership, but without an indication of the name of the partnership, may be transferred by an instrument of transfer executed by the persons in whose name the property is held.
    3. Partnership property held in the name of one (1) or more persons other than the partnership, without an indication in the instrument transferring the property to them of their capacity as partners or of the existence of a partnership, may be transferred by an instrument of transfer executed by the persons in whose name the property is held.
  2. A partnership may recover partnership property from a transferee only if it proves that execution of the instrument of initial transfer did not bind the partnership under § 4-46-301 and:
    1. as to a subsequent transferee who gave value for property transferred under subdivision (a)(1) and (2) of this section, proves that the subsequent transferee knew or had received a notification that the person who executed the instrument of initial transfer lacked authority to bind the partnership; or
    2. as to a transferee who gave value for property transferred under subdivision (a)(3) of this section, proves that the transferee knew or had received a notification that the property was partnership property and that the person who executed the instrument of initial transfer lacked authority to bind the partnership.
  3. A partnership may not recover partnership property from a subsequent transferee if the partnership would not have been entitled to recover the property, under subsection (b) of this section, from any earlier transferee of the property.
  4. If a person holds all of the partners' interests in the partnership, all of the partnership property vests in that person. The person may execute a document in the name of the partnership to evidence vesting of the property in that person and may file or record the document.

History. Acts 1999, No. 1518, § 302.

4-46-303. Statement of partnership authority.

  1. A partnership may file a statement of partnership authority, which:
    1. must include:
      1. the name of the partnership;
      2. the street address of its chief executive office and of one (1) office in this State, if there is one;
      3. the names and mailing addresses of all of the partners or of an agent appointed and maintained by the partnership for the purpose of subsection (b) of this section; and
      4. the names of the partners authorized to execute an instrument transferring real property held in the name of the partnership; and
    2. may state the authority, or limitations on the authority, of some or all of the partners to enter into other transactions on behalf of the partnership and any other matter.
  2. If a statement of partnership authority names an agent, the agent shall maintain a list of the names and mailing addresses of all of the partners and make it available to any person on request for good cause shown.
  3. If a filed statement of partnership authority is executed pursuant to § 4-46-105(c) and states the name of the partnership but does not contain all of the other information required by subsection (a) of this section, the statement nevertheless operates with respect to a person not a partner as provided in subsections (d) and (e) of this section.
  4. Except as otherwise provided in subsection (g) of this section, a filed statement of partnership authority supplements the authority of a partner to enter into transactions on behalf of the partnership as follows:
    1. Except for transfers of real property, a grant of authority contained in a filed statement of partnership authority is conclusive in favor of a person who gives value without knowledge to the contrary, so long as and to the extent that a limitation on that authority is not then contained in another filed statement. A filed cancellation of a limitation on authority revives the previous grant of authority.
    2. A grant of authority to transfer real property held in the name of the partnership contained in a certified copy of a filed statement of partnership authority recorded in the office for recording transfers of that real property is conclusive in favor of a person who gives value without knowledge to the contrary, so long as and to the extent that a certified copy of a filed statement containing a limitation on that authority is not then of record in the office for recording transfers of that real property. The recording in the office for recording transfers of that real property of a certified copy of a filed cancellation of a limitation on authority revives the previous grant of authority.
  5. A person not a partner is deemed to know of a limitation on the authority of a partner to transfer real property held in the name of the partnership if a certified copy of the filed statement containing the limitation on authority is of record in the office for recording transfers of that real property.
  6. Except as otherwise provided in subsections (d) and (e) of this section and §§ 4-46-704 and 4-46-805, a person not a partner is not deemed to know of a limitation on the authority of a partner merely because the limitation is contained in a filed statement.
  7. Unless earlier canceled, a filed statement of partnership authority is canceled by operation of law five (5) years after the date on which the statement, or the most recent amendment, was filed with the Secretary of State.

History. Acts 1999, No. 1518, § 303.

4-46-304. Statement of denial.

A partner or other person named as a partner in a filed statement of partnership authority or in a list maintained by an agent pursuant to § 4-46-303(b) may file a statement of denial stating:

  1. The name of the partnership;
  2. The name of the person filing the denial; and
  3. The fact that is being denied which may include denial of a person's authority or status as a partner. A statement of denial is a limitation on authority as provided in § 4-46-303(d) and (e).

History. Acts 1999, No. 1518, § 304.

4-46-305. Partnership liable for partner's actionable conduct.

  1. A partnership is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a partner acting in the ordinary course of business of the partnership or with authority of the partnership.
  2. If, in the course of the partnership's business or while acting with authority of the partnership, a partner receives or causes the partnership to receive money or property of a person not a partner, and the money or property is misapplied by a partner, the partnership is liable for the loss.

History. Acts 1999, No. 1518, § 305.

4-46-306. Partner's liability.

  1. Except as otherwise provided in subsections (b) and (c) of this section, all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.
  2. A person admitted as a partner into an existing partnership is not personally liable for any partnership obligation incurred before the person's admission as a partner.
  3. An obligation of a partnership incurred while the partnership is a limited liability partnership, whether arising in contract, tort, or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such a partnership obligation solely by reason of being or so acting as a partner. This subsection applies notwithstanding anything inconsistent in the partnership agreement that existed immediately before the vote required to become a limited liability partnership under § 4-46-1001(b).

History. Acts 1999, No. 1518, § 306.

Research References

Ark. L. Notes.

Flaccus, Joint and Several Liability and Partnership Law, 2003 Arkansas L. Notes 79.

Case Notes

Joint and Several Liability.

Alter ego theory was rejected as a basis for a finding of personal liability on the part of a Chapter 7 debtor who allegedly controlled certain entities organized as partnerships under Arkansas law because state law already provided that the partners, pursuant to subsection (a) of this section, were individually liable for partnership debts in any case. Southern Bancorp South v. Richmond (In re Richmond), 430 B.R. 846 (Bankr. E.D. Ark. 2010).

4-46-307. Actions by and against partnership and partners.

  1. A partnership may sue and be sued in the name of the partnership.
  2. An action may be brought against the partnership and, to the extent not inconsistent with § 4-46-306, any or all of the partners in the same action or in separate actions.
  3. A judgment against a partnership is not by itself a judgment against a partner. A judgment against a partnership may not be satisfied from a partner's assets unless there is also a judgment against the partner.
  4. A judgment creditor of a partner may not levy execution against the assets of the partner to satisfy a judgment based on a claim against the partnership unless the partner is personally liable for the claim under § 4-46-306 and:
    1. a judgment based on the same claim has been obtained against the partnership and a writ of execution on the judgment has been returned unsatisfied in whole or in part;
    2. the partnership is a debtor in bankruptcy;
    3. the partner has agreed that the creditor need not exhaust partnership assets;
    4. a court grants permission to the judgment creditor to levy execution against the assets of a partner based on a finding that partnership assets subject to execution are clearly insufficient to satisfy the judgment, that exhaustion of partnership assets is excessively burdensome, or that the grant of permission is an appropriate exercise of the court's equitable powers; or
    5. liability is imposed on the partner by law or contract independent of the existence of the partnership.
  5. This section applies to any partnership liability or obligation resulting from a representation by a partner or purported partner under § 4-46-308.

History. Acts 1999, No. 1518, § 307.

4-46-308. Liability of purported partner.

  1. If a person, by words or conduct, purports to be a partner, or consents to being represented by another as a partner, in a partnership or with one (1) or more persons not partners, the purported partner is liable to a person to whom the representation is made, if that person, relying on the representation, enters into a transaction with the actual or purported partnership. If the representation, either by the purported partner or by a person with the purported partner's consent, is made in a public manner, the purported partner is liable to a person who relies upon the purported partnership even if the purported partner is not aware of being held out as a partner to the claimant. If partnership liability results, the purported partner is liable with respect to that liability as if the purported partner were a partner. If no partnership liability results, the purported partner is liable with respect to that liability jointly and severally with any other person consenting to the representation.
  2. If a person is thus represented to be a partner in an existing partnership, or with one or more persons not partners, the purported partner is an agent of persons consenting to the representation to bind them to the same extent and in the same manner as if the purported partner were a partner, with respect to persons who enter into transactions in reliance upon the representation. If all of the partners of the existing partnership consent to the representation, a partnership act or obligation results. If fewer than all of the partners of the existing partnership consent to the representation, the person acting and the partners consenting to the representation are jointly and severally liable.
  3. A person is not liable as a partner merely because the person is named by another in a statement of partnership authority.
  4. A person does not continue to be liable as a partner merely because of a failure to file a statement of dissociation or to amend a statement of partnership authority to indicate the partner's dissociation from the partnership.
  5. Except as otherwise provided in subsections (a) and (b) of this section, persons who are not partners as to each other are not liable as partners to other persons.

History. Acts 1999, No. 1518, § 308.

Case Notes

Liability.

This section did not require that a Chapter 7 debtor be considered a de facto partner of a partnership and thus liable on the partnership's debt to a creditor because the creditor knew from the inception of the loan that the debtor was not a partner of the partnership and accepted the risk that the partnership, not the debtor, would repay the loan. Southern Bancorp South v. Richmond (In re Richmond), 430 B.R. 846 (Bankr. E.D. Ark. 2010).

Subchapter 4 — Relations of Partners to Each Other and to Partnership

Research References

ALR.

Breach of fiduciary duty to copartner on sale of partnership interest to another partner. 4 A.L.R.4th 1122.

Contractual restriction on right of accountant to practice, incident to sale or withdraw from accountancy partnership. 13 A.L.R.4th 661.

Derivative liability of partner for punitive damages for wrongful act. 14 A.L.R.4th 1335.

Right of partner to assert privilege against self-incrimination with respect to production of partnership books or records. 17 A.L.R.4th 1039.

Civil liability of one partner to another or to the partnership based on partner's personal purchase of partnership property during existence of partnership. 37 A.L.R.4th 494.

Tort action for personal injury or property damage by partner against another partner or the partnership. 39 A.L.R.4th 139.

When statute of limitations commences to run on right of partnership accounting. 44 A.L.R.4th 678.

Enforceability of agreement restricting right of attorney to compete with former law firm. 28 A.L.R.5th 420.

4-46-401. Partner's rights and duties.

  1. Each partner is deemed to have an account that is:
    1. credited with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, the partner contributes to the partnership and the partner's share of the partnership profits; and
    2. charged with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, distributed by the partnership to the partner and the partner's share of the partnership losses.
  2. Each partner is entitled to an equal share of the partnership profits and is chargeable with a share of the partnership losses in proportion to the partner's share of the profits.
  3. A partnership shall reimburse a partner for payments made and indemnify a partner for liabilities incurred by the partner in the ordinary course of the business of the partnership or for the preservation of its business or property.
  4. A partnership shall reimburse a partner for an advance to the partnership beyond the amount of capital the partner agreed to contribute.
  5. A payment or advance made by a partner which gives rise to a partnership obligation under subsection (c) or (d) of this section constitutes a loan to the partnership which accrues interest from the date of the payment or advance.
  6. Each partner has equal rights in the management and conduct of the partnership business.
  7. A partner may use or possess partnership property only on behalf of the partnership.
  8. A partner is not entitled to remuneration for services performed for the partnership, except for reasonable compensation for services rendered in winding up the business of the partnership.
  9. A person may become a partner only with the consent of all of the partners.
  10. A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the consent of all of the partners.
  11. This section does not affect the obligations of a partnership to other persons under § 4-46-301.

History. Acts 1999, No. 1518, § 401.

4-46-402. Distributions in kind.

A partner has no right to receive, and may not be required to accept, a distribution in kind.

History. Acts 1999, No. 1518, § 402.

4-46-403. Partner's rights and duties with respect to information.

  1. A partnership shall keep its books and records, if any, at its chief executive office.
  2. A partnership shall provide partners and their agents and attorneys access to its books and records. It shall provide former partners and their agents and attorneys access to books and records pertaining to the period during which they were partners. The right of access provides the opportunity to inspect and copy books and records during ordinary business hours. A partnership may impose a reasonable charge, covering the costs of labor and material, for copies of documents furnished.
  3. Each partner and the partnership shall furnish to a partner, and to the legal representative of a deceased partner or partner under legal disability:
    1. without demand, any information concerning the partnership's business and affairs reasonably required for the proper exercise of the partner's rights and duties under the partnership agreement or this chapter; and
    2. on demand, any other information concerning the partnership's business and affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances.

History. Acts 1999, No. 1518, § 403.

4-46-404. General standards of partner's conduct.

  1. The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subsections (b) and (c) of this section.
  2. A partner's duty of loyalty to the partnership and the other partners is limited to the following:
    1. to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity;
    2. to refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership; and
    3. to refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.
  3. A partner's duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
  4. A partner shall discharge the duties to the partnership and the other partners under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.
  5. A partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the partner's conduct furthers the partner's own interest.
  6. A partner may lend money to and transact other business with the partnership, and as to each loan or transaction the rights and obligations of the partner are the same as those of a person who is not a partner, subject to other applicable law.
  7. This section applies to a person winding up the partnership business as the personal or legal representative of the last surviving partner as if the person were a partner.

History. Acts 1999, No. 1518, § 404.

4-46-405. Actions by partnership and partners.

  1. A partnership may maintain an action against a partner for a breach of the partnership agreement, or for the violation of a duty to the partnership, causing harm to the partnership.
  2. A partner may maintain an action against the partnership or another partner for legal or equitable relief, with or without an accounting as to partnership business, to:
    1. enforce the partner's rights under the partnership agreement;
    2. enforce the partner's rights under this chapter, including:
      1. the partner's rights under §§ 4-46-401, 4-46-403, or 4-46-404;
      2. the partner's right on dissociation to have the partner's interest in the partnership purchased pursuant to § 4-46-701 or enforce any other right under § 4-46-601 et seq. or § 4-46-701 et seq.; or
      3. the partner's right to compel a dissolution and winding up of the partnership business under § 4-46-801 or enforce any other right under § 4-46-801 et seq.; or
    3. enforce the rights and otherwise protect the interests of the partner, including rights and interests arising independently of the partnership relationship.
  3. The accrual of, and any time limitation on, a right of action for a remedy under this section is governed by other law. A right to an accounting upon a dissolution and winding up does not revive a claim barred by law.

History. Acts 1999, No. 1518, § 405.

4-46-406. Continuation of partnership beyond definite term or particular undertaking.

  1. If a partnership for a definite term or particular undertaking is continued, without an express agreement, after the expiration of the term or completion of the undertaking, the rights and duties of the partners remain the same as they were at the expiration or completion, so far as is consistent with a partnership at will.
  2. If the partners, or those of them who habitually acted in the business during the term or undertaking, continue the business without any settlement or liquidation of the partnership, they are presumed to have agreed that the partnership will continue.

History. Acts 1999, No. 1518, § 406.

Subchapter 5 — Transferees and Creditors of Partner

4-46-501. Partner not co-owner of partnership property.

A partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred, either voluntarily or involuntarily.

History. Acts 1999, No. 1518, § 501.

4-46-502. Partner's transferable interest in partnership.

The only transferable interest of a partner in the partnership is the partner's share of the profits and losses of the partnership and the partner's right to receive distributions. The interest is personal property.

History. Acts 1999, No. 1518, § 502.

4-46-503. Transfer of partner's transferable interest.

  1. A transfer, in whole or in part, of a partner's transferable interest in the partnership:
    1. is permissible;
    2. does not by itself cause the partner's dissociation or a dissolution and winding up of the partnership business; and
    3. does not, as against the other partners or the partnership, entitle the transferee, during the continuance of the partnership, to participate in the management or conduct of the partnership business, to require access to information concerning partnership transactions, or to inspect or copy the partnership books or records.
  2. A transferee of a partner's transferable interest in the partnership has a right:
    1. to receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled;
    2. to receive upon the dissolution and winding up of the partnership business, in accordance with the transfer, the net amount otherwise distributable to the transferor; and
    3. to seek under § 4-46-801(6) a judicial determination that it is equitable to wind up the partnership business.
  3. In a dissolution and winding up, a transferee is entitled to an account of partnership transactions only from the date of the latest account agreed to by all of the partners.
  4. Upon transfer, the transferor retains the rights and duties of a partner other than the interest in distributions transferred.
  5. A partnership need not give effect to a transferee's rights under this section until it has notice of the transfer.
  6. A transfer of a partner's transferable interest in the partnership in violation of a restriction on transfer contained in the partnership agreement is ineffective as to a person having notice of the restriction at the time of transfer.

History. Acts 1999, No. 1518, § 503.

4-46-504. Partner's transferable interest subject to charging order.

  1. On application by a judgment creditor of a partner or of a partner's transferee, a court having jurisdiction may charge the transferable interest of the judgment debtor to satisfy the judgment. The court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor in respect of the partnership and make all other orders, directions, accounts, and inquiries the judgment debtor might have made or which the circumstances of the case may require.
  2. A charging order constitutes a lien on the judgment debtor's transferable interest in the partnership. The court may order a foreclosure of the interest subject to the charging order at any time. The purchaser at the foreclosure sale has the rights of a transferee.
  3. At any time before foreclosure, an interest charged may be redeemed:
    1. by the judgment debtor;
    2. with property other than partnership property, by one (1) or more of the other partners; or
    3. with partnership property, by one (1) or more of the other partners with the consent of all of the partners whose interests are not so charged.
  4. This chapter does not deprive a partner of a right under exemption laws with respect to the partner's interest in the partnership.
  5. This section provides the exclusive remedy by which a judgment creditor of a partner or partner's transferee may satisfy a judgment out of the judgment debtor's transferable interest in the partnership.

History. Acts 1999, No. 1518, § 504.

Case Notes

Cited: Patton v. TPI Petroleum, Inc., 356 F. Supp. 2d 921 (E.D. Ark. 2005).

Subchapter 6 — Partner's Dissociation

Research References

ALR.

Rights of attorneys leaving firm with respect to firm clients. 1 A.L.R.4th 1164.

Sale of partnership interest, breach of duty to copartner. 4 A.L.R.4th 1122.

Contractual restriction on right of accountant to practice, incident to sale or withdraw from accountancy partnership. 13 A.L.R.4th 661.

Enforceability of agreement restricting right of attorney to compete with former law firm. 28 A.L.R.5th 420.

4-46-601. Events causing partner's dissociation.

A partner is dissociated from a partnership upon the occurrence of any of the following events:

  1. the partnership's having notice of the partner's express will to withdraw as a partner or on a later date specified by the partner;
  2. an event agreed to in the partnership agreement as causing the partner's dissociation;
  3. the partner's expulsion pursuant to the partnership agreement;
  4. the partner's expulsion by the unanimous vote of the other partners if:
    1. it is unlawful to carry on the partnership business with that partner;
    2. there has been a transfer of all or substantially all of that partner's transferable interest in the partnership, other than a transfer for security purposes, or a court order charging the partner's interest, which has not been foreclosed;
    3. within ninety (90) days after the partnership notifies a corporate partner that it will be expelled because it has filed a certificate of dissolution or the equivalent, its charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation, there is no revocation of the certificate of dissolution or no reinstatement of its charter or its right to conduct business; or
    4. a partnership that is a partner has been dissolved and its business is being wound up;
  5. on application by the partnership or another partner, the partner's expulsion by judicial determination because:
    1. the partner engaged in wrongful conduct that adversely and materially affected the partnership business;
    2. the partner willfully or persistently committed a material breach of the partnership agreement or of a duty owed to the partnership or the other partners under § 4-46-404; or
    3. the partner engaged in conduct relating to the partnership business which makes it not reasonably practicable to carry on the business in partnership with the partner;
  6. the partner's:
    1. becoming a debtor in bankruptcy;
    2. executing an assignment for the benefit of creditors;
    3. seeking, consenting to, or acquiescing in the appointment of a trustee, receiver, or liquidator of that partner or of all or substantially all of that partner's property; or
    4. failing, within ninety (90) days after the appointment, to have vacated or stayed the appointment of a trustee, receiver, or liquidator of the partner or of all or substantially all of the partner's property obtained without the partner's consent or acquiescence, or failing within ninety (90) days after the expiration of a stay to have the appointment vacated;
  7. in the case of a partner who is an individual:
    1. the partner's death;
    2. the appointment of a guardian or general conservator for the partner; or
    3. a judicial determination that the partner has otherwise become incapable of performing the partner's duties under the partnership agreement;
  8. in the case of a partner that is a trust or is acting as a partner by virtue of being a trustee of a trust, distribution of the trust's entire transferable interest in the partnership, but not merely by reason of the substitution of a successor trustee;
  9. in the case of a partner that is an estate or is acting as a partner by virtue of being a personal representative of an estate, distribution of the estate's entire transferable interest in the partnership, but not merely by reason of the substitution of a successor personal representative; or
  10. termination of a partner who is not an individual, partnership, corporation, trust, or estate.

History. Acts 1999, No. 1518, § 601.

4-46-602. Partner's power to dissociate — Wrongful dissociation.

  1. A partner has the power to dissociate at any time, rightfully or wrongfully, by express will pursuant to § 4-46-601(1).
  2. A partner's dissociation is wrongful only if:
    1. it is in breach of an express provision of the partnership agreement; or
    2. in the case of a partnership for a definite term or particular undertaking, before the expiration of the term or the completion of the undertaking:
      1. the partner withdraws by express will, unless the withdrawal follows within ninety (90) days after another partner's dissociation by death or otherwise under § 4-46-601(6)-(10) or wrongful dissociation under this subsection;
      2. the partner is expelled by judicial determination under § 4-46-601(5);
      3. the partner is dissociated by becoming a debtor in bankruptcy; or
      4. in the case of a partner who is not an individual, trust other than a business trust, or estate, the partner is expelled or otherwise dissociated because it willfully dissolved or terminated.
  3. A partner who wrongfully dissociates is liable to the partnership and to the other partners for damages caused by the dissociation. The liability is in addition to any other obligation of the partner to the partnership or to the other partners.

History. Acts 1999, No. 1518, § 602.

4-46-603. Effect of partner's dissociation.

  1. If a partner's dissociation results in a dissolution and winding up of the partnership business, § 4-46-801 et seq. applies; otherwise, § 4-46-701 et seq. applies.
  2. Upon a partner's dissociation:
    1. the partner's right to participate in the management and conduct of the partnership business terminates, except as otherwise provided in § 4-46-803;
    2. the partner's duty of loyalty under § 4-46-404(b)(3) terminates; and
    3. the partner's duty of loyalty under § 4-46-404(b)(1) and (2) and duty of care under § 4-46-404(c) continue only with regard to matters arising and events occurring before the partner's dissociation, unless the partner participates in winding up the partnership's business pursuant to § 4-46-803.

History. Acts 1999, No. 1518, § 603.

Subchapter 7 — Partner's Dissociation When Business Not Wound Up

4-46-701. Purchase of dissociated partner's interest.

  1. If a partner is dissociated from a partnership without resulting in a dissolution and winding up of the partnership business under § 4-46-801, the partnership shall cause the dissociated partner's interest in the partnership to be purchased for a buyout price determined pursuant to subsection (b) of this section.
  2. The buyout price of a dissociated partner's interest is the amount that would have been distributable to the dissociating partner under § 4-46-807(b) if, on the date of dissociation, the assets of the partnership were sold at a price equal to the greater of the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partner and the partnership were wound up as of that date. Interest must be paid from the date of dissociation to the date of payment.
  3. Damages for wrongful dissociation under § 4-46-602(b), and all other amounts owing, whether or not presently due, from the dissociated partner to the partnership, must be offset against the buyout price. Interest must be paid from the date the amount owed becomes due to the date of payment.
  4. A partnership shall indemnify a dissociated partner whose interest is being purchased against all partnership liabilities, whether incurred before or after the dissociation, except liabilities incurred by an act of the dissociated partner under § 4-46-702.
  5. If no agreement for the purchase of a dissociated partner's interest is reached within one hundred twenty (120) days after a written demand for payment, the partnership shall pay, or cause to be paid, in cash to the dissociated partner the amount the partnership estimates to be the buyout price and accrued interest, reduced by any offsets and accrued interest under subsection (c) of this section.
  6. If a deferred payment is authorized under subsection (h) of this section, the partnership may tender a written offer to pay the amount it estimates to be the buyout price and accrued interest, reduced by any offsets under subsection (c) of this section, stating the time of payment, the amount and type of security for payment, and the other terms and conditions of the obligation.
  7. The payment or tender required by subsection (e) or (f) of this section must be accompanied by the following:
    1. a statement of partnership assets and liabilities as of the date of dissociation;
    2. the latest available partnership balance sheet and income statement, if any;
    3. an explanation of how the estimated amount of the payment was calculated; and
    4. written notice that the payment is in full satisfaction of the obligation to purchase unless, within one hundred twenty (120) days after the written notice, the dissociated partner commences an action to determine the buyout price, any offsets under subsection (c) of this section, or other terms of the obligation to purchase.
  8. A partner who wrongfully dissociates before the expiration of a definite term or the completion of a particular undertaking is not entitled to payment of any portion of the buyout price until the expiration of the term or completion of the undertaking, unless the partner establishes to the satisfaction of the court that earlier payment will not cause undue hardship to the business of the partnership. A deferred payment must be adequately secured and bear interest.
  9. A dissociated partner may maintain an action against the partnership, pursuant to § 4-46-405(b)(2)(ii), to determine the buyout price of that partner's interest, any offsets under subsection (c) of this section, or other terms of the obligation to purchase. The action must be commenced within one hundred twenty (120) days after the partnership has tendered payment or an offer to pay or within one (1) year after written demand for payment if no payment or offer to pay is tendered. The court shall determine the buyout price of the dissociated partner's interest, any offset due under subsection (c) of this section, and accrued interest, and enter judgment for any additional payment or refund. If deferred payment is authorized under subsection (h) of this section, the court shall also determine the security for payment and other terms of the obligation to purchase. The court may assess reasonable attorney's fees and the fees and expenses of appraisers or other experts for a party to the action, in amounts the court finds equitable, against a party that the court finds acted arbitrarily, vexatiously, or not in good faith. The finding may be based on the partnership's failure to tender payment or an offer to pay or to comply with subsection (g) of this section.

History. Acts 1999, No. 1518, § 701.

4-46-702. Dissociated partner's power to bind and liability to partnership.

  1. For two (2) years after a partner dissociates without resulting in a dissolution and winding up of the partnership business, the partnership, including a converted or surviving organization under § 4-46-901 et seq., is bound by an act of the dissociated partner which would have bound the partnership under § 4-46-301 before dissociation only if at the time of entering into the transaction the other party:
    1. reasonably believed that the dissociated partner was then a partner;
    2. did not have notice of the partner's dissociation; and
    3. is not deemed to have had knowledge under § 4-46-303(e) or notice under § 4-46-704(c).
  2. A dissociated partner is liable to the partnership for any damage caused to the partnership arising from an obligation incurred by the dissociated partner after dissociation for which the partnership is liable under subsection (a) of this section.

History. Acts 1999, No. 1518, § 702; 2009, No. 408, § 11.

Amendments. The 2009 amendment substituted “converted or surviving organization” for “surviving partnership” in (a).

4-46-703. Dissociated partner's liability to other persons.

  1. A partner's dissociation does not of itself discharge the partner's liability for a partnership obligation incurred before dissociation. A dissociated partner is not liable for a partnership obligation incurred after dissociation, except as otherwise provided in subsection (b) of this section.
  2. A partner who dissociates without resulting in a dissolution and winding up of the partnership business is liable as a partner to the other party in a transaction entered into by the partnership, or a converted or surviving organization under § 4-46-901 et seq., within two (2) years after the partner's dissociation, only if the partner is liable for the obligation under § 4-46-306 and at the time of entering into the transaction the other party:
    1. reasonably believed that the dissociated partner was then a partner;
    2. did not have notice of the partner's dissociation; and
    3. is not deemed to have had knowledge under § 4-46-303(e) or notice under § 4-46-704(c).
  3. By agreement with the partnership creditor and the partners continuing the business, a dissociated partner may be released from liability for a partnership obligation.
  4. A dissociated partner is released from liability for a partnership obligation if a partnership creditor, with notice of the partner's dissociation but without the partner's consent, agrees to a material alteration in the nature or time of payment of a partnership obligation.

History. Acts 1999, No. 1518, § 703; 2009, No. 408, § 11.

Amendments. The 2009 amendment substituted “converted or surviving organization” for “surviving partnership” in (b); and inserted “dissociation but without the partner's consent, agrees to a material alteration in the nature or time of payment of a partnership obligation” in (d).

Case Notes

Cited: Hitt v. Lyle, 2020 Ark. App. 124 (2020).

4-46-704. Statement of dissociation.

  1. A dissociated partner or the partnership may file a statement of dissociation stating:
    1. The name of the partnership;
    2. The name and mailing address of the dissociated partner;
    3. That the partner is dissociated from the partnership; and
    4. The date the dissociation is effective.
  2. A statement of dissociation is a limitation on the authority of a dissociated partner for the purposes of § 4-46-303(d) and (e).
  3. For the purposes of §§ 4-46-702(a)(3) and 4-46-703(b)(3), a person not a partner is deemed to have notice of the dissociation ninety (90) days after the statement of dissociation is filed.

History. Acts 1999, No. 1518, § 704.

4-46-705. Continued use of partnership name.

Continued use of a partnership name, or a dissociated partner's name as part thereof, by partners continuing the business does not of itself make the dissociated partner liable for an obligation of the partners or the partnership continuing the business.

History. Acts 1999, No. 1518, § 705.

Subchapter 8 — Winding Up Partnership Business

Research References

ALR.

Dissolution of partnership: inability of partnership to operate at profit as justification. 20 A.L.R.4th 122.

Necessity that divorce court value property before distributing it. 51 A.L.R.4th 11.

4-46-801. Events causing dissolution and winding up of partnership business.

A partnership is dissolved, and its business must be wound up, only upon the occurrence of any of the following events:

  1. in a partnership at will, the partnership's having notice from a partner, other than a partner who is dissociated under § 4-46-601(2)-(10), of that partner's express will to withdraw as a partner, or on a later date specified by the partner;
  2. in a partnership for a definite term or particular undertaking:
    1. within ninety (90) days after a partner's dissociation by death or otherwise under § 4-46-601(6)-(10) or wrongful dissociation under § 4-46-602(b), the express will of at least half of the remaining partners to wind up the partnership business, for which purpose a partner's rightful dissociation pursuant to § 4-46-602(b)(2)(i) constitutes the expression of that partner's will to wind up the partnership business;
    2. the express will of all of the partners to wind up the partnership business; or
    3. the expiration of the term or the completion of the undertaking;
  3. an event agreed to in the partnership agreement resulting in the winding up of the partnership business;
  4. an event that makes it unlawful for all or substantially all of the business of the partnership to be continued, but a cure of illegality within ninety (90) days after notice to the partnership of the event is effective retroactively to the date of the event for purposes of this section;
  5. on application by a partner, a judicial determination that:
    1. the economic purpose of the partnership is likely to be unreasonably frustrated;
    2. another partner has engaged in conduct relating to the partnership business which makes it not reasonably practicable to carry on the business in partnership with that partner; or
    3. it is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement; or
  6. on application by a transferee of a partner's transferable interest, a judicial determination that it is equitable to wind up the partnership business:
    1. after the expiration of the term or completion of the undertaking, if the partnership was for a definite term or particular undertaking at the time of the transfer or entry of the charging order that gave rise to the transfer; or
    2. at any time, if the partnership was a partnership at will at the time of the transfer or entry of the charging order that gave rise to the transfer.

History. Acts 1999, No. 1518, § 801.

4-46-802. Partnership continues after dissolution.

  1. Subject to subsection (b) of this section, a partnership continues after dissolution only for the purpose of winding up its business. The partnership is terminated when the winding up of its business is completed.
  2. At any time after the dissolution of a partnership and before the winding up of its business is completed, all of the partners, including any dissociating partner other than a wrongfully dissociating partner, may waive the right to have the partnership's business wound up and the partnership terminated. In that event:
    1. the partnership resumes carrying on its business as if dissolution had never occurred, and any liability incurred by the partnership or a partner after the dissolution and before the waiver is determined as if dissolution had never occurred; and
    2. the rights of a third party accruing under § 4-46-804(1) or arising out of conduct in reliance on the dissolution before the third party knew or received a notification of the waiver may not be adversely affected.

History. Acts 1999, No. 1518, § 802.

4-46-803. Right to wind up partnership business.

  1. After dissolution, a partner who has not wrongfully dissociated may participate in winding up the partnership's business, but on application of any partner, partner's legal representative, or transferee, the court, for good cause shown, may order judicial supervision of the winding up.
  2. The legal representative of the last surviving partner may wind up a partnership's business.
  3. A person winding up a partnership's business may preserve the partnership business or property as a going concern for a reasonable time, prosecute and defend actions and proceedings, whether civil, criminal, or administrative, settle and close the partnership's business, dispose of and transfer the partnership's property, discharge the partnership's liabilities, distribute the assets of the partnership pursuant to § 4-46-807, settle disputes by mediation or arbitration, and perform other necessary acts.

History. Acts 1999, No. 1518, § 803.

Case Notes

Preservation Appropriate.

Where sister filed suit to dissolve a family farming partnership, the assigning of 25% of certain debts to the sister was not clear error under the specific circumstances of the case, even though the debts were incurred after the sister gave notice of her dissolution; the circuit court found that the debts were incurred to maintain the farming operation, and it was likely that the farm would have gone into foreclosure without the loans. Hitt v. Lyle, 2020 Ark. App. 124 (2020).

4-46-804. Partner's power to bind partnership after dissolution.

Subject to § 4-46-805, a partnership is bound by a partner's act after dissolution that:

  1. is appropriate for winding up the partnership business; or
  2. would have bound the partnership under § 4-46-301 before dissolution, if the other party to the transaction did not have notice of the dissolution.

History. Acts 1999, No. 1518, § 804.

Case Notes

Preservation.

Where sister filed suit to dissolve a family farming partnership, the assigning of 25% of certain debts to the sister was not clear error under the specific circumstances of the case, even though the debts were incurred after the sister gave notice of her dissolution; the circuit court found that the debts were incurred to maintain the farming operation, and it was likely that the farm would have gone into foreclosure without the loans. Hitt v. Lyle, 2020 Ark. App. 124 (2020).

4-46-805. Statement of dissolution.

  1. After dissolution, a partner who has not wrongfully dissociated may file a statement of dissolution stating the name of the partnership and that the partnership has dissolved and is winding up its business.
  2. A statement of dissolution cancels a filed statement of partnership authority for the purposes of § 4-46-303(d) and is a limitation on authority for the purposes of § 4-46-303(e).
  3. For the purposes of §§ 4-46-301 and 4-46-804, a person not a partner is deemed to have notice of the dissolution and the limitation on the partners' authority as a result of the statement of dissolution ninety (90) days after it is filed.
  4. After filing and, if appropriate, recording a statement of dissolution, a dissolved partnership may file and, if appropriate, record a statement of partnership authority which will operate with respect to a person not a partner as provided in § 4-46-303(d) and (e) in any transaction, whether or not the transaction is appropriate for winding up the partnership business.

History. Acts 1999, No. 1518, § 805.

4-46-806. Partner's liability to other partners after dissolution.

  1. Except as otherwise provided in subsection (b) of this section and § 4-46-306, after dissolution a partner is liable to the other partners for the partner's share of any partnership liability incurred under § 4-46-804.
  2. A partner who, with knowledge of the dissolution, incurs a partnership liability under § 4-46-804(2) by an act that is not appropriate for winding up the partnership business is liable to the partnership for any damage caused to the partnership arising from the liability.

History. Acts 1999, No. 1518, § 806.

4-46-807. Settlement of accounts and contributions among partners.

  1. In winding up a partnership's business, the assets of the partnership, including the contributions of the partners required by this section, must be applied to discharge its obligations to creditors, including, to the extent permitted by law, partners who are creditors. Any surplus must be applied to pay in cash the net amount distributable to partners in accordance with their right to distributions under subsection (b) of this section.
  2. Each partner is entitled to a settlement of all partnership accounts upon winding up the partnership business. In settling accounts among the partners, profits and losses that result from the liquidation of the partnership assets must be credited and charged to the partners' accounts. The partnership shall make a distribution to a partner in an amount equal to any excess of the credits over the charges in the partner's account. A partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner's account but excluding from the calculation charges attributable to an obligation for which the partner is not personally liable under § 4-46-306.
  3. If a partner fails to contribute the full amount required under subsection (b) of this section, all of the other partners shall contribute, in the proportions in which those partners share partnership losses, the additional amount necessary to satisfy the partnership obligations for which they are personally liable under § 4-46-306. A partner or partner's legal representative may recover from the other partners any contributions the partner makes to the extent the amount contributed exceeds that partner's share of the partnership obligations for which the partner is personally liable under § 4-46-306.
  4. After the settlement of accounts, each partner shall contribute, in the proportion in which the partner shares partnership losses, the amount necessary to satisfy partnership obligations that were not known at the time of the settlement and for which the partner is personally liable under § 4-46-306.
  5. The estate of a deceased partner is liable for the partner's obligation to contribute to the partnership.
  6. An assignee for the benefit of creditors of a partnership or a partner, or a person appointed by a court to represent creditors of a partnership or a partner, may enforce a partner's obligation to contribute to the partnership.

History. Acts 1999, No. 1518, § 807.

Subchapter 9 — Conversion and Merger

Publisher's Notes. This subchapter was repealed and reenacted by Acts 2009, No. 408, § 6. The former subchapter, concerning conversions and mergers, was derived from the following sources:

4-46-901. Acts 1999, No. 1518, § 901; 2007, No. 15, § 5.

4-46-902. Acts 1999, No. 1518, § 902; 2007, No. 15, § 6.

4-46-903. Acts 1999, No. 1518, § 903.

4-46-904. Acts 1999, No. 1518, § 904.

4-46-905. Acts 1999, No. 1518, § 905.

4-46-906. Acts 1999, No. 1518, § 906.

4-46-907. Acts 1999, No. 1518, § 907.

4-46-908. Acts 1999, No. 1518, § 908.

4-46-901. Definitions.

In this subchapter:

  1. “Constituent partnership” means a constituent organization that is a partnership (including a limited liability partnership);
  2. “Constituent organization” means an organization that is party to a merger;
  3. “Converted organization” means the organization into which a converting organization converts under §§ 4-46-902 — 4-46-905;
  4. “Converting partnership” means a converting organization that is a partnership (including a limited liability partnership);
  5. “Converting organization” means an organization that converts into another organization under § 4-46-902;
  6. “Governing statute” of an organization means the statute that governs the organization's internal affairs;
  7. “In a record” means maintained or kept on file by the organization at an office of the organization or with the Secretary of State;
    1. “Organization” means:
      1. A partnership, including a limited liability partnership;
      2. A limited partnership, including a limited liability limited partnership;
      3. A limited liability company;
      4. A business trust;
      5. A corporation; or
      6. Any other entity that has a governing statute.
    2. “Organization” includes a domestic or foreign organization whether or not the organization is organized for profit;
  8. “Organizational documents” means:
    1. For a domestic or foreign general partnership, its partnership agreement and if applicable statement of qualification;
    2. For a domestic or foreign limited partnership, its certificate of limited partnership and partnership agreement;
    3. For a domestic or foreign limited liability company, its articles of organization and operating agreement, or the comparable records provided for in its governing statute;
    4. For a business trust, its agreement of trust and declaration of trust;
    5. For a domestic or foreign corporation for profit, its articles of incorporation, bylaws, and other agreements among its shareholders which are authorized by its governing statute or the comparable records provided for in its governing statute; and
    6. For any other organization, the records that:
      1. Create the organization;
      2. Determine the internal governance of the organization; and
      3. Determine the relations among the organization's owners, members, and interested parties; and
  9. “Personal liability” means individual financial responsibility for a debt, liability, or other obligation of an organization that is imposed on a person that co-owns, has an interest in, or is a member of the organization:
    1. By the organization's governing statute solely because the person co-owns, has an interest in, or is a member of the organization; or
    2. By the organization's organizational documents under a provision of the organization's governing statute authorizing the documents to make one (1) or more specified persons liable for all or specified debts, liabilities, and other obligations of the organization solely because the person or persons co-own, have an interest in, or are members of the organization; and
  10. “Surviving organization” means an organization into which one (1) or more other organizations are merged.

History. Acts 2009, No. 408, § 6.

4-46-902. Conversion.

  1. An organization other than a partnership may convert to a partnership, and a partnership may convert to another organization under this section and §§ 4-46-903 — 4-46-905 and a plan of conversion, if the:
    1. Other organization's governing statute authorizes the conversion and is complied with; and
    2. Conversion is not prohibited by the law of the jurisdiction that enacted the governing statute.
  2. A plan of conversion must be in a record and must include the:
    1. Name and form of the organization before conversion;
    2. Name and form of the organization after conversion; and
    3. Terms and conditions of the conversion, including the manner and basis for converting interests in the converting organization into any combination of money, interests in the converted organization, and other consideration; and
    4. Organizational documents of the converted organization.

History. Acts 2009, No. 408, § 6.

4-46-903. Action on plan of conversion by converting partnership.

  1. Subject to § 4-46-910, a plan of conversion must be consented to by all of the partners of a converting partnership.
  2. Subject to § 4-46-910 and any contractual rights, until a conversion is filed under § 4-46-904, a converting partnership may amend the plan or abandon the planned conversion:
    1. As provided in the plan; and
    2. Except as prohibited by the plan, by the same consent required to approve the plan.

History. Acts 2009, No. 408, § 6.

4-46-904. Filings required for conversion — Effective date.

    1. After a plan of conversion is approved a converting partnership shall file articles of conversion with the Secretary of State.
    2. The articles of conversion shall include:
      1. A statement that the partnership has been converted into another organization;
      2. The name and form of the converted organization and the jurisdiction of its governing statute;
      3. The date the conversion is effective under the governing statute of the converted organization;
      4. A statement that the conversion was approved as required by this subchapter;
      5. A statement that the conversion was approved as required by the governing statute of the converted organization;
      6. A statement confirming that the converted organization has filed a statement appointing an agent for service of process under § 4-20-112 if the converted organization is a foreign organization not authorized to transact business in this state; and
        1. A copy of the plan of conversion; or
        2. A statement that:
          1. Contains the address of an office of the organization where the plan of conversion is on file; and
          2. A copy of the plan of conversion will be furnished by the converting partnership on request and without cost to any partner of the converting partnership.
    1. If the converting organization is not a converting partnership, the converting organization shall file a statement of qualification with the Secretary of State.
    2. The statement of qualification shall include, in addition to the information required by § 4-46-1001:
      1. A statement that the partnership was converted from another organization;
      2. The name and form of the converting organization and the jurisdiction of its governing statute; and
      3. A statement that the conversion was approved in a manner that complied with the converting organization's governing statute.
  1. A conversion becomes effective:
    1. If the converted organization is a partnership, when the articles of conversion indicate that the conversion takes effect; and
    2. If the converted organization is not a partnership, as provided by the governing statute of the converted organization.

History. Acts 2009, No. 408, § 6.

4-46-905. Effect of conversion.

  1. An organization that has been converted under this subchapter is for all purposes the same entity that existed before the conversion.
  2. When a conversion takes effect:
    1. All property owned by the converting organization remains vested in the converted organization;
    2. All debts, liabilities, and other obligations of the converting organization continue as obligations of the converted organization;
    3. An action or proceeding pending by or against the converting organization may be continued as if the conversion had not occurred;
    4. Except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of the converting organization remain vested in the converted organization;
    5. Except as otherwise provided in the plan of conversion, the terms and conditions of the plan of conversion take effect; and
    6. Except as otherwise agreed, the conversion does not dissolve a converting partnership under § 4-46-801 et seq.
    1. A converted organization that is a foreign organization consents to the jurisdiction of the courts of this state to enforce any obligation owed by the converting partnership, if before the conversion the converting partnership was subject to suit in this state on the obligation.
    2. A converted organization that is a foreign organization and not authorized to transact business in this state may be served with process under § 4-20-113 if the converted organization:
      1. Fails to appoint an agent for service of process under § 4-20-112;
      2. No longer has an agent for service of process; or
      3. Has an agent for service of process that cannot with reasonable diligence be served.

History. Acts 2009, No. 408, § 6.

4-46-906. Merger.

  1. A partnership may merge with one (1) or more other constituent organizations under this section and §§ 4-46-907 — 4-46-909 and a plan of merger if:
    1. The governing statute of each of the other organizations authorizes the merger;
    2. The merger is not prohibited by the law of a jurisdiction that enacted any of the governing statutes; and
    3. Each of the other organizations complies with its governing statute in effecting the merger.
  2. A plan of merger must be in a record and must include:
    1. The name and form of each constituent organization;
    2. The name and form of the surviving organization;
    3. The terms and conditions of the merger, including the manner and basis for converting the interests in each constituent organization into any combination of money, interests in the surviving organization, and other consideration; and
    4. Any amendments to be made by the merger to the surviving organization's organizational documents.

History. Acts 2009, No. 408, § 6.

4-46-907. Action on plan of merger by constituent partnership.

  1. Subject to § 4-46-910, a plan of merger must be consented to by all of the partners of a constituent partnership.
  2. Subject to § 4-46-910 and to any contractual rights, until a merger is filed under § 4-46-908, a constituent partnership may amend the plan or abandon the planned merger:
    1. As provided in the plan; and
    2. Except as prohibited by the plan, with the same consent required to approve the plan.

History. Acts 2009, No. 408, § 6.

4-46-908. Filings required for merger — Effective date.

  1. After each constituent organization has approved a merger, articles of merger must be signed by an authorized representative of each constituent organization and filed with the Secretary of State.
  2. The articles of merger shall include:
    1. The name and form of each constituent organization and the jurisdiction of its governing statute;
    2. The name and form of the surviving organization and the jurisdiction of its governing statute;
    3. The date the merger is effective under the governing statute of the surviving organization;
    4. Any amendments provided for in the plan of merger for the organizational document of the surviving organization if the organizational document is required to be filed by the governing statute of the surviving organization;
    5. A statement as to each constituent organization that the merger was approved as required by the organization's governing statute;
    6. A statement confirming that the surviving organization has filed a statement appointing an agent for service of process under § 4-20-112 if the surviving organization is a foreign organization not authorized to transact business in this state; and
      1. A copy of the plan of merger; or
      2. A statement that:
        1. Contains the address of an office of the organization where the plan of merger is on file; and
        2. A copy of the plan of merger will be furnished by the surviving organization on request and without cost to any shareholder, member, partner, or other owner of any constituent organization; and
    7. Any additional information required by the governing statute of any constituent organization.
  3. A merger becomes effective under this subchapter:
    1. If the surviving organization is a partnership, upon the later of:
      1. Compliance with subsection (a) of this section; or
      2. As specified in the articles of merger; or
    2. If the surviving organization is not a partnership, as provided by the governing statute of the surviving organization.

History. Acts 2009, No. 408, § 6.

4-46-909. Effect of merger.

  1. When a merger becomes effective:
    1. The surviving organization continues or comes into existence;
    2. Each constituent organization that merges into the surviving organization ceases to exist as a separate entity;
    3. All property owned by each constituent organization that ceases to exist vests in the surviving organization;
    4. All debts, liabilities, and other obligations of each constituent organization that ceases to exist continue as obligations of the surviving organization;
    5. An action or proceeding pending by or against a constituent organization that ceases to exist may continue as if the merger had not occurred;
    6. Except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of each constituent organization that ceases to exist vest in the surviving organization;
    7. Except as otherwise provided in the plan of merger, the terms and conditions of the plan of merger take effect;
    8. Except as otherwise agreed, if a constituent partnership ceases to exist, the merger does not dissolve the partnership under § 4-46-801 et seq.; and
    9. Any amendments provided for in the articles of merger for the organizational documents of the surviving organization become effective.
    1. A surviving organization that is a foreign organization consents to the jurisdiction of the courts of this state to enforce any obligation owed by a constituent organization, if before the merger the constituent organization was subject to suit in this state on the obligation.
    2. A surviving organization that is a foreign organization and not authorized to transact business in this state may be served with process under § 4-20-113 if the surviving organization:
      1. Fails to appoint an agent for service of process under § 4-20-112;
      2. No longer has an agent for service of process; or
      3. Has an agent for service of process that cannot with reasonable diligence be served.

History. Acts 2009, No. 408, § 6.

4-46-910. Restrictions on approval of conversions and mergers and on relinquishing limited liability partnership status.

  1. If a partner of a converting or constituent partnership will have personal liability with respect to a converted or surviving organization, approval and amendment of a plan of conversion or merger are ineffective without the consent of the partner unless:
    1. The partnership's partnership agreement provides for the approval of the conversion or merger with the consent of fewer than all of the partners; and
    2. The partner has consented to the provision of the partnership agreement.
  2. An amendment to a statement of qualification of a limited liability partnership which deletes a statement that the partnership is a limited liability partnership is ineffective without the consent of each partner unless:
    1. The partnership's partnership agreement provides for the amendment with the consent of less than all of the partners; and
    2. Each partner that does not consent to the amendment has consented to the provision of the partnership agreement.
  3. A partner does not give the consent required by subsection (a) or subsection (b) of this section merely by consenting to a provision of the partnership agreement that permits the partnership agreement to be amended with the consent of fewer than all the partners.

History. Acts 2009, No. 408, § 6.

4-46-911. Liability of partner after conversion or merger.

  1. A conversion or merger under this chapter does not discharge any liability under § 4-46-306 or § 4-46-703 of a person that was a partner in or dissociated as a partner from a converting or constituent partnership, but:
    1. The provisions of this chapter pertaining to the collection or discharge of the liability continue to apply to the liability;
    2. The converted or surviving organization is deemed to be the converting or constituent partnership under § 4-46-306 or § 4-46-703; and
    3. If a person is required to pay any amount under this subsection:
      1. The person has a right of contribution from each other person that was liable as a partner under § 4-46-306 when the obligation was incurred and has not been released from the obligation under § 4-46-703; and
      2. The contribution due from each other person is in proportion to the right to receive distributions in the capacity of partner in effect for each other person when the obligation was incurred.
  2. In addition to any other liability provided by law:
    1. A person that immediately before a conversion or merger became effective was a partner in a converting or constituent partnership that was not a limited liability partnership is personally liable for each obligation of the converted or surviving organization arising from a transaction with a third party after the conversion or merger becomes effective if at the time the third party enters into the transaction, the third party:
      1. Does not have notice of the conversion or merger; and
      2. Reasonably believes that:
        1. The converted or surviving organization is the converting or constituent partnership;
        2. The converting or constituent partnership is not a limited liability partnership; and
        3. The person is a partner in the converting or constituent partnership; and
    2. A person that was dissociated as a partner from a converting or constituent partnership before the conversion or merger became effective is personally liable for each obligation of the converted or surviving organization arising from a transaction with a third party after the conversion or merger becomes effective if:
      1. Immediately before the conversion or merger became effective the converting or surviving partnership was not a limited liability partnership; and
      2. At the time the third party enters into the transaction less than two (2) years have passed since the person dissociated as a partner and the third party:
        1. Does not have notice of the dissociation;
        2. Does not have notice of the conversion or merger; and
        3. Reasonably believes that:
          1. The converted or surviving organization is the converting or constituent partnership;
          2. The converting or constituent partnership is not a constituent limited liability partnership; and
          3. The person is a partner in the converting or constituent partnership.

History. Acts 2009, No. 408, § 6.

4-46-912. Power of partners and persons dissociated as partners to bind organization after conversion or merger.

  1. An act of a person that immediately before a conversion or merger became effective was a partner in a converting or constituent partnership binds the converted or surviving organization after the conversion or merger becomes effective if:
    1. Before the conversion or merger became effective the act would have bound the converting or constituent partnership under § 4-46-301; and
    2. At the time the third party enters into the transaction the third party:
      1. Does not have notice of the conversion or merger; and
      2. Reasonably believes that the converted or surviving business is the converting or constituent partnership and that the person is a partner in the converting or constituent partnership.
  2. An act of a person that before a conversion or merger became effective was dissociated as a partner from a converting or constituent partnership binds the converted or surviving organization after the conversion or merger becomes effective if:
    1. Before the conversion or merger became effective the act would have bound the converting or constituent partnership under § 4-46-301 if the person had been a partner; and
    2. At the time the third party enters into the transaction, less than two (2) years have passed since the person dissociated as a general partner and the third party:
      1. Does not have notice of the dissociation;
      2. Does not have notice of the conversion or merger; and
      3. Reasonably believes that the converted or surviving organization is the converting or constituent partnership and that the person is a partner in the converting or constituent partnership.
  3. If a person with knowledge of the conversion or merger causes a converted or surviving organization to incur an obligation under subsection (a) or subsection (b) of this section the person is liable:
    1. To the converted or surviving organization for any damage caused to the organization arising from the obligation; and
    2. If another person is liable for the obligation, to the other person for any damage caused to the other person arising from the liability.

History. Acts 2009, No. 408, § 6.

4-46-913. Chapter not exclusive.

This chapter does not preclude an entity from being converted or merged under other law.

History. Acts 2009, No. 408, § 6.

Subchapter 10 — Limited Liability Partnership

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

4-46-1001. Statement of qualification.

  1. A partnership may become a limited liability partnership pursuant to this section.
  2. The terms and conditions on which a partnership becomes a limited liability partnership must be approved by the vote necessary to amend the partnership agreement except, in the case of a partnership agreement that expressly considers contribution obligations, the vote necessary to amend those provisions.
  3. After the approval required by subsection (b) of this section, a partnership may become a limited liability partnership by filing a statement of qualification. The statement must contain:
    1. the name of the partnership;
    2. the street address of the partnership's chief executive office and, if different, the street address of an office in this State, if any;
    3. if there is no office in this State, the information required by § 4-20-105(a);
    4. a statement that the partnership elects to be a limited liability partnership; and
    5. a deferred effective date, if any.
  4. [Reserved.]
  5. The status of a partnership as a limited liability partnership is effective on the later of the filing of the statement or a date specified in the statement. The status remains effective, regardless of changes in the partnership, until it is canceled pursuant to § 4-46-105(d) or revoked pursuant to § 4-46-1003.
  6. The status of a partnership as a limited liability partnership and the liability of its partners is not affected by errors or later changes in the information required to be contained in the statement of qualification under subsection (c) of this section.
  7. The filing of a statement of qualification establishes that a partnership has satisfied all conditions precedent to the qualification of the partnership as a limited liability partnership.
  8. An amendment or cancellation of a statement of qualification is effective when it is filed or on a deferred effective date specified in the amendment or cancellation.

History. Acts 1999, No. 1518, § 1001; 2007, No. 638, § 53.

A.C.R.C. Notes. Subsections (d) through (g) were redesignated as (e) through (h) at the direction of the Arkansas Code Revision Commission. Former subsection (d) has been reserved to comply with the subsection designations within the Uniform Partnership Act.

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-46-1002. Name.

The name of a limited liability partnership must end with “Registered Limited Liability Partnership”, “Limited Liability Partnership”, “R.L.L.P.”, “L.L.P.”, “RLLP,” or “LLP”.

History. Acts 1999, No. 1518, § 1002.

4-46-1003. Annual report.

  1. A limited liability partnership, and a foreign limited liability partnership authorized to transact business in this State, shall file an annual report in the office of the Secretary of State which contains:
    1. the name of the limited liability partnership and the state or other jurisdiction under whose laws the foreign limited liability partnership is formed;
    2. the current street address of the partnership's chief executive office and, if different, the current street address of an office in this State, if any; and
    3. if there is no current office in this State, the information required by § 4-20-105(a).
  2. An annual report must be filed between January 1 and April 1 of each year following the calendar year in which a partnership files a statement of qualification or a foreign partnership becomes authorized to transact business in this State.
  3. The Secretary of State may administratively revoke the statement of qualification of a partnership that fails to file an annual report when due or to pay the required filing fee. The Secretary of State shall provide the partnership at least sixty (60) days' written notice of intent to revoke the statement. The notice must be mailed to the partnership at its chief executive office set forth in the last filed statement of qualification or annual report. The notice must specify the annual report that has not been filed, the fee that has not been paid, and the effective date of the revocation. The revocation is not effective if the annual report is filed and the fee is paid before the effective date of the revocation.
  4. A revocation under subsection (c) of this section only affects a partnership's status as a limited liability partnership and is not an event of dissolution of the partnership.
  5. A partnership whose statement of qualification has been administratively revoked may apply to the Secretary of State for reinstatement within two (2) years after the effective date of the revocation. The application must state:
    1. the name of the partnership and the effective date of the revocation; and
    2. that the ground for revocation either did not exist or has been corrected.
  6. A reinstatement under subsection (e) of this section relates back to and takes effect as of the effective date of the revocation, and the partnership's status as a limited liability partnership continues as if the revocation had never occurred.

History. Acts 1999, No. 1518, § 1003; 2007, No. 638, § 54.

Amendments. The 2007 amendment substituted “the information required by § 4-20-105 (a)” for “the name and street address of the partnership's agent for service of process who must be an individual resident of this State or any other person authorized to do business in this State” in (c)(3).

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

Subchapter 11 — Foreign Limited Liability Partnership

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

4-46-1101. Law governing foreign limited liability partnership.

  1. The laws under which a foreign limited liability partnership is formed govern relations among the partners and between the partners and the partnership and the liability of partners for obligations of the partnership.
  2. A foreign limited liability partnership may not be denied a statement of foreign qualification by reason of any difference between the laws under which the partnership was formed and the laws of this State.
  3. A statement of foreign qualification does not authorize a foreign limited liability partnership to engage in any business or exercise any power that a partnership may not engage in or exercise in this State as a limited liability partnership.

History. Acts 1999, No. 1518, § 1101.

4-46-1102. Statement of foreign qualification.

  1. Before transacting business in this State, a foreign limited liability partnership must file a statement of foreign qualification. The statement must contain:
    1. the name of the foreign limited liability partnership which satisfies the requirements of the State or other jurisdiction under whose laws it is formed and ends with “Registered Limited Liability Partnership”, “Limited Liability Partnership”, “R.L.L.P.”, “L.L.P.”, “RLLP,” or “LLP”;
    2. the street address of the partnership's chief executive office;
    3. the information required by § 4-20-105(a); and
    4. a deferred effective date, if any.
  2. [Reserved.]
  3. The status of a partnership as a foreign limited liability partnership is effective on the later of the filing of the statement of foreign qualification or a date specified in the statement. The status remains effective, regardless of changes in the partnership, until it is canceled pursuant to § 4-46-105(d) or revoked pursuant to § 4-46-1003.
  4. An amendment or cancellation of a statement of foreign qualification is effective when it is filed or on a deferred effective date specified in the amendment or cancellation.

History. Acts 1999, No. 1518, § 1102; 2007, No. 638, § 55.

A.C.R.C. Notes. Subsections (b) and (c) were redesignated as (c) and (d) at the direction of the Arkansas Code Revision Commission. Former subsection (b) has been reserved to comply with the subsection designations within the Uniform Partnership Act.

Amendments. The 2007 amendment, in (a), deleted “and, if different, the street address of an office in this State, if any” at the end of (2), and substituted “the information required by § 4-20-105(a)” for “if there is no office in this State, the name and street address of the partnership's agent for service of process who must be an individual resident of this State or any other person authorized to do business in this State” in (3).

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-46-1103. Effect of failure to qualify.

  1. A foreign limited liability partnership transacting business in this State may not maintain an action or proceeding in this State unless it has in effect a statement of foreign qualification.
  2. The failure of a foreign limited liability partnership to have in effect a statement of foreign qualification does not impair the validity of a contract or act of the foreign limited liability partnership or preclude it from defending an action or proceeding in this State.
  3. Limitations on personal liability of partners are not waived solely by transacting business in this State without a statement of foreign qualification.
  4. If a foreign limited liability partnership transacts business in this State without a statement of foreign qualification, the Secretary of State is its agent for service of process with respect to claims for relief arising out of the transaction of business in this State.

History. Acts 1999, No. 1518, § 1103.

4-46-1104. Activities not constituting transacting business.

  1. Activities of a foreign limited liability partnership which do not constitute transacting business within the meaning of this subchapter include:
    1. maintaining, defending, or settling an action or proceeding;
    2. holding meetings of its partners or carrying on any other activity concerning its internal affairs;
    3. maintaining bank accounts;
    4. maintaining offices or agencies for the transfer, exchange, and registration of the partnership's own securities or maintaining trustees or depositories with respect to those securities;
    5. selling through independent contractors;
    6. soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this State before they become contracts;
    7. creating or acquiring indebtedness, mortgages, or security interests in real or personal property;
    8. securing or collecting debts or foreclosing mortgages or other security interests in property securing the debts, and holding, protecting, and maintaining property so acquired;
    9. conducting an isolated transaction that is completed within thirty (30) days and is not one in the course of similar transactions of like nature; and
    10. transacting business in interstate commerce.
  2. For purposes of this subchapter, the ownership in this State of income-producing real property or tangible personal property, other than property excluded under subsection (a) of this section, constitutes transacting business in this State.
  3. This section does not apply in determining the contacts or activities that may subject a foreign limited liability partnership to service of process, taxation, or regulation under any other law of this State.

History. Acts 1999, No. 1518, § 1104.

4-46-1105. Action by Attorney General.

The Attorney General may maintain an action to restrain a foreign limited liability partnership from transacting business in this State in violation of this subchapter.

History. Acts 1999, No. 1518, § 1105.

Subchapter 12 — Miscellaneous Provisions

Effective Dates. Acts 2007, No. 646, § 14: July 1, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that business entities are presently paying different fees for similar services from the Secretary of State; that this act will alleviate any undue hardship to any entity by standardizing business and commercial filing fees; and that this act is immediately necessary to aid the recordkeeping and accounting functions of the Secretary of State and should take effect at the beginning of the state's fiscal year. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2007.”

4-46-1201. Uniformity of application and construction.

This chapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among states enacting it.

History. Acts 1999, No. 1518, § 1201.

4-46-1202. Short title.

This chapter may be cited as the Uniform Partnership Act (1996).

History. Acts 1999, No. 1518, § 1202.

4-46-1203. Effective date.

This chapter takes effect January 1, 2000.

History. Acts 1999, No. 1518, § 1203.

4-46-1204, 4-46-1205. [Reserved.]

This chapter does not affect an action or proceeding commenced or right accrued before this chapter takes effect.

History. Acts 1999, No. 1518, § 1206.

4-46-1207. Fees.

  1. The Secretary of State shall collect the following fees when the documents described in this chapter are delivered to him or her for filing:
    1. Statement of partnership authority $ 50.00 (2) Amendment of statement partnership authority 15.00 (3) Change of agent for service 15.00 (4) Cancellation of statement of partnership authority 15.00 (5) Statement of conversion or merger 15.00 (6) Statement of dissolution 15.00 (7) Statement of dissociation 15.00 (8) Statement of denial 15.00 (9) Statement of foreign partnership authority 300.00 (10) Amendment of statement of foreign partnership authority 15.00 (11) Change of foreign partnership agent for service No Fee (12) Cancellation of statement of foreign partnership authority 15.00 (13) Any other document required or permitted to be filed by this chapter 15.00
    1. The Secretary of State shall collect a fee of twenty-five dollars ($25.00) each time process is served on him or her under this chapter.
    2. The party to a proceeding causing service of process is entitled to recover the process fee as costs if the party prevails in the proceeding.
  2. The Secretary of State shall collect the following fees for copying and certifying the copy of any filed document relating to a domestic or foreign partnership:
    1. Fifty cents (50¢) a page for copying; and
    2. Five dollars ($5.00) for the certificate.
  3. The Secretary of State shall collect the following fees when the documents described in this chapter are delivered to him or her by electronic means:
    1. Four dollars ($4.00) for the processing fee when the filing fee is $0 to $50;
    2. Five dollars ($5.00) for the processing fee when the filing fee is $51 to $99;
    3. Ten dollars ($10.00) for the processing fee when the filing fee is $100 to $299; and
    4. Twelve dollars ($12.00) for the processing fee when the filing fee is $300 or more.

Click to view table.

History. Acts 1999, No. 1518, § 1207; 2007, No. 646, § 12.

Amendments. The 2007 amendment rewrote the section.

4-46-1206. Savings clause.

Chapter 47 Uniform Limited Partnership Act (2001)

Subchapter 1 — General Provisions

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

4-47-101. Short title.

This chapter may be cited as the Uniform Limited Partnership Act (2001).

History. Acts 2007, No. 15, § 1.

Research References

Ark. L. Rev.

A License to Lie, Cheat, and Steal? Restriction or Elimination of Fiduciary Duties in Arkansas Limited Liability Companies, 60 Ark. L. Rev. 643.

4-47-102. Definitions.

In this chapter:

  1. “Certificate of limited partnership” means the certificate required by § 4-47-201. The term includes the certificate as amended or restated.
  2. “Contribution”, except in the phrase “right of contribution,” means any benefit provided by a person to a limited partnership in order to become a partner or in the person's capacity as a partner.
  3. “Debtor in bankruptcy” means a person that is the subject of:
    1. an order for relief under Title 11 of the United States Code or a comparable order under a successor statute of general application; or
    2. a comparable order under federal, state, or foreign law governing insolvency.
  4. “Designated office” means:
    1. with respect to a limited partnership, the office that the limited partnership is required to designate and maintain under § 4-47-114; and
    2. with respect to a foreign limited partnership, its principal office.
  5. “Distribution” means a transfer of money or other property from a limited partnership to a partner in the partner's capacity as a partner or to a transferee on account of a transferable interest owned by the transferee.
  6. “Foreign limited liability limited partnership” means a foreign limited partnership whose general partners have limited liability for the obligations of the foreign limited partnership under a provision similar to § 4-47-404(c).
  7. “Foreign limited partnership” means a partnership formed under the laws of a jurisdiction other than this State and required by those laws to have one or more general partners and one or more limited partners. The term includes a foreign limited liability limited partnership.
  8. “General partner” means:
    1. with respect to a limited partnership, a person that:
      1. becomes a general partner under § 4-47-401; or
      2. was a general partner in a limited partnership when the limited partnership became subject to this chapter under § 4-47-1206(a) or (b); and
    2. with respect to a foreign limited partnership, a person that has rights, powers, and obligations similar to those of a general partner in a limited partnership.
  9. “Limited liability limited partnership”, except in the phrase “foreign limited liability limited partnership”, means a limited partnership whose certificate of limited partnership states that the limited partnership is a limited liability limited partnership.
  10. “Limited partner” means:
    1. with respect to a limited partnership, a person that:
      1. becomes a limited partner under § 4-47-301; or
      2. was a limited partner in a limited partnership when the limited partnership became subject to this chapter under § 4-47-1206(a) or (b); and
    2. with respect to a foreign limited partnership, a person that has rights, powers, and obligations similar to those of a limited partner in a limited partnership.
  11. “Limited partnership”, except in the phrases “foreign limited partnership” and “foreign limited liability limited partnership”, means an entity, having one or more general partners and one or more limited partners, which is formed under this chapter by two or more persons or becomes subject to this chapter under subchapter 11 or § 4-47-1206(a) or (b). The term includes a limited liability limited partnership.
  12. “Partner” means a limited partner or general partner.
  13. “Partnership agreement” means the partners' agreement, whether oral, implied, in a record, or in any combination, concerning the limited partnership. The term includes the agreement as amended.
  14. “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.
  15. “Person dissociated as a general partner” means a person dissociated as a general partner of a limited partnership.
  16. “Principal office” means the office where the principal executive office of a limited partnership or foreign limited partnership is located, whether or not the office is located in this State.
  17. “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.
  18. “Required information” means the information that a limited partnership is required to maintain under § 4-47-111.
  19. “Sign” means:
    1. to execute or adopt a tangible symbol with the present intent to authenticate a record; or
    2. to attach or logically associate an electronic symbol, sound, or process to or with a record with the present intent to authenticate the record.
  20. “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.
  21. “Transfer” includes an assignment, conveyance, deed, bill of sale, lease, mortgage, security interest, encumbrance, gift, and transfer by operation of law.
  22. “Transferable interest” means a partner's right to receive distributions.
  23. “Transferee” means a person to which all or part of a transferable interest has been transferred, whether or not the transferor is a partner.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 56; 2009, No. 814, § 7.

Amendments. The 2007 amendment by No. 638 deleted former (4) and redesignated the remaining subdivisions accordingly.

The 2009 amendment inserted (4) and redesignated the subsequent subdivisions accordingly.

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-47-103. Knowledge and notice.

  1. A person knows a fact if the person has actual knowledge of it.
  2. A person has notice of a fact if the person:
    1. knows of it;
    2. has received a notification of it;
    3. has reason to know it exists from all of the facts known to the person at the time in question; or
    4. has notice of it under subsection (c) or (d).
  3. A certificate of limited partnership on file in the office of the Secretary of State is notice that the partnership is a limited partnership and the persons designated in the certificate as general partners are general partners. Except as otherwise provided in subsection (d), the certificate is not notice of any other fact.
  4. A person has notice of:
    1. another person's dissociation as a general partner, 90 days after the effective date of an amendment to the certificate of limited partnership which states that the other person has dissociated or 90 days after the effective date of a statement of dissociation pertaining to the other person, whichever occurs first;
    2. a limited partnership's dissolution, 90 days after the effective date of an amendment to the certificate of limited partnership stating that the limited partnership is dissolved;
    3. a limited partnership's termination, 90 days after the effective date of a statement of termination;
    4. a limited partnership's conversion under subchapter 11, 90 days after the effective date of the articles of conversion; or
    5. a merger under subchapter 11, 90 days after the effective date of the articles of merger.
  5. A person notifies or gives a notification to another person by taking steps reasonably required to inform the other person in ordinary course, whether or not the other person learns of it.
  6. A person receives a notification when the notification:
    1. comes to the person's attention; or
    2. is delivered at the person's place of business or at any other place held out by the person as a place for receiving communications.
  7. Except as otherwise provided in subsection (h), a person other than an individual knows, has notice, or receives a notification of a fact for purposes of a particular transaction when the individual conducting the transaction for the person knows, has notice, or receives a notification of the fact, or in any event when the fact would have been brought to the individual's attention if the person had exercised reasonable diligence. A person other than an individual exercises reasonable diligence if it maintains reasonable routines for communicating significant information to the individual conducting the transaction for the person and there is reasonable compliance with the routines. Reasonable diligence does not require an individual acting for the person to communicate information unless the communication is part of the individual's regular duties or the individual has reason to know of the transaction and that the transaction would be materially affected by the information.
  8. A general partner's knowledge, notice, or receipt of a notification of a fact relating to the limited partnership is effective immediately as knowledge of, notice to, or receipt of a notification by the limited partnership, except in the case of a fraud on the limited partnership committed by or with the consent of the general partner. A limited partner's knowledge, notice, or receipt of a notification of a fact relating to the limited partnership is not effective as knowledge of, notice to, or receipt of a notification by the limited partnership.

History. Acts 2007, No. 15, § 1.

4-47-104. Nature, purpose, and duration of entity.

  1. A limited partnership is an entity distinct from its partners. A limited partnership is the same entity regardless of whether its certificate states that the limited partnership is a limited liability limited partnership.
  2. A limited partnership may be organized under this chapter for any lawful purpose.
  3. A limited partnership has a perpetual duration.

History. Acts 2007, No. 15, § 1.

4-47-105. Powers.

A limited partnership has the powers to do all things necessary or convenient to carry on its activities, including the power to sue, be sued, and defend in its own name and to maintain an action against a partner for harm caused to the limited partnership by a breach of the partnership agreement or violation of a duty to the partnership.

History. Acts 2007, No. 15, § 1.

4-47-106. Governing law.

The law of this State governs relations among the partners of a limited partnership and between the partners and the limited partnership and the liability of partners as partners for an obligation of the limited partnership.

History. Acts 2007, No. 15, § 1.

4-47-107. Supplemental principles of law — Rate of interest.

Unless displaced by particular provisions of this chapter, the principles of law and equity supplement this chapter.

History. Acts 2007, No. 15, § 1; 2013, No. 1124, § 1.

Amendments. The 2013 amendment deleted (b).

4-47-108. Name.

  1. The name of a limited partnership may contain the name of any partner.
  2. The name of a limited partnership that is not a limited liability limited partnership must contain the phrase “limited partnership” or the abbreviation “L.P.” or “LP” and may not contain the phrase “limited liability limited partnership” or the abbreviation “LLLP” or “L.L.L.P.”.
  3. The name of a limited liability limited partnership must contain the phrase “limited liability limited partnership” or the abbreviation “LLLP” or “L.L.L.P.” and must not contain the abbreviation “L.P.” or “LP.”
  4. Unless authorized by subsection (e), the name of a limited partnership must be distinguishable in the records of the Secretary of State from:
    1. the name of each person other than an individual incorporated, organized, or authorized to transact business in this State; and
    2. each name reserved under § 4-47-109 or other state laws allowing the reservation or registration of business names, including fictitious name statutes.
  5. A limited partnership may apply to the Secretary of State for authorization to use a name that does not comply with subsection (d). The Secretary of State shall authorize use of the name applied for if, as to each conflicting name:
    1. the present user, registrant, or owner of the conflicting name consents in a signed record to the use and submits an undertaking in a form satisfactory to the Secretary of State to change the conflicting name to a name that complies with subsection (d) and is distinguishable in the records of the Secretary of State from the name applied for;
    2. the applicant delivers to the Secretary of State a certified copy of the final judgment of a court of competent jurisdiction establishing the applicant's right to use in this State the name applied for; or
    3. the applicant delivers to the Secretary of State proof satisfactory to the Secretary of State that the present user, registrant, or owner of the conflicting name:
      1. has merged into the applicant;
      2. has been converted into the applicant; or
      3. has transferred substantially all of its assets, including the conflicting name, to the applicant.
  6. Subject to § 4-47-905, this section applies to any foreign limited partnership transacting business in this State, having a certificate of authority to transact business in this State, or applying for a certificate of authority.

History. Acts 2007, No. 15, § 1.

4-47-109. Reservation of name.

  1. The exclusive right to the use of a name that complies with § 4-47-108 may be reserved by:
    1. a person intending to organize a limited partnership under this chapter and to adopt the name;
    2. a limited partnership or a foreign limited partnership authorized to transact business in this State intending to adopt the name;
    3. a foreign limited partnership intending to obtain a certificate of authority to transact business in this State and adopt the name;
    4. a person intending to organize a foreign limited partnership and intending to have it obtain a certificate of authority to transact business in this State and adopt the name;
    5. a foreign limited partnership formed under the name; or
    6. a foreign limited partnership formed under a name that does not comply with § 4-47-108(b) or (c), but the name reserved under this paragraph may differ from the foreign limited partnership's name only to the extent necessary to comply with § 4-47-108(b) and (c).
  2. A person may apply to reserve a name under subsection (a) by delivering to the Secretary of State for filing an application that states the name to be reserved and the paragraph of subsection (a) which applies. If the Secretary of State finds that the name is available for use by the applicant, the Secretary of State shall file a statement of name reservation and thereby reserve the name for the exclusive use of the applicant for 120 days.
  3. An applicant that has reserved a name pursuant to subsection (b) may reserve the same name for additional 120-day periods. A person having a current reservation for a name may not apply for another 120-day period for the same name until 90 days have elapsed in the current reservation.
  4. A person that has reserved a name under this section may deliver to the Secretary of State for filing a notice of transfer that states the reserved name, the name and street and mailing address of some other person to which the reservation is to be transferred, and the paragraph of subsection (a) which applies to the other person. Subject to § 4-47-206(c), the transfer is effective when the Secretary of State files the notice of transfer.

History. Acts 2007, No. 15, § 1.

4-47-110. Effect of partnership agreement — Nonwaivable provisions.

  1. Except as otherwise provided in subsection (b), the partnership agreement governs relations among the partners and between the partners and the partnership. To the extent the partnership agreement does not otherwise provide, this chapter governs relations among the partners and between the partners and the partnership.
  2. A partnership agreement may not:
    1. vary a limited partnership's power under § 4-47-105 to sue, be sued, and defend in its own name;
    2. vary the law applicable to a limited partnership under § 4-47-106;
    3. vary the requirements of § 4-47-204;
    4. vary the information required under § 4-47-111 or unreasonably restrict the right to information under § 4-47-304 or § 4-47-407, but the partnership agreement may impose reasonable restrictions on the availability and use of information obtained under those sections and may define appropriate remedies, including liquidated damages, for a breach of any reasonable restriction on use;
    5. eliminate the duty of loyalty under § 4-47-408, but the partnership agreement may:
      1. identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable; and
      2. specify the number or percentage of partners which may authorize or ratify, after full disclosure to all partners of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty;
    6. unreasonably reduce the duty of care under § 4-47-408(c);
    7. eliminate the obligation of good faith and fair dealing under §§ 4-47-305(b) and 4-47-408(d), but the partnership agreement may prescribe the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable;
    8. vary the power of a person to dissociate as a general partner under § 4-47-604(a) except to require that the notice under § 4-47-603(1) be in a record;
    9. vary the power of a court to decree dissolution in the circumstances specified in § 4-47-802;
    10. vary the requirement to wind up the partnership's business as specified in § 4-47-803;
    11. unreasonably restrict the right to maintain an action under subchapter 10;
    12. restrict the right of a partner under § 4-47-1110(a) to approve a conversion or merger or the right of a general partner under § 4-47-1110(b) to consent to an amendment to the certificate of limited partnership which deletes a statement that the limited partnership is a limited liability limited partnership; or
    13. restrict rights under this chapter of a person other than a partner or a transferee.

History. Acts 2007, No. 15, § 1.

4-47-111. Required information.

A limited partnership shall maintain at its designated office the following information:

  1. a current list showing the full name and last known street and mailing address of each partner, separately identifying the general partners, in alphabetical order, and the limited partners, in alphabetical order;
  2. a copy of the initial certificate of limited partnership and all amendments to and restatements of the certificate, together with signed copies of any powers of attorney under which any certificate, amendment, or restatement has been signed;
  3. a copy of any filed articles of conversion or merger;
  4. a copy of the limited partnership's federal, state, and local income tax returns and reports, if any, for the three most recent years;
  5. a copy of any partnership agreement made in a record and any amendment made in a record to any partnership agreement;
  6. a copy of any financial statement of the limited partnership for the three most recent years;
  7. a copy of the three most recent annual reports delivered by the limited partnership to the Secretary of State pursuant to § 4-47-210;
  8. a copy of any record made by the limited partnership during the past three years of any consent given by or vote taken of any partner pursuant to this chapter or the partnership agreement; and
  9. unless contained in a partnership agreement made in a record, a record stating:
    1. the amount of cash, and a description and statement of the agreed value of the other benefits, contributed and agreed to be contributed by each partner;
    2. the times at which, or events on the happening of which, any additional contributions agreed to be made by each partner are to be made;
    3. for any person that is both a general partner and a limited partner, a specification of what transferable interest the person owns in each capacity; and
    4. any events upon the happening of which the limited partnership is to be dissolved and its activities wound up.

History. Acts 2007, No. 15, § 1.

4-47-112. Business transactions of partner with partnership.

A partner may lend money to and transact other business with the limited partnership and has the same rights and obligations with respect to the loan or other transaction as a person that is not a partner.

History. Acts 2007, No. 15, § 1.

4-47-113. Dual capacity.

A person may be both a general partner and a limited partner. A person that is both a general and limited partner has the rights, powers, duties, and obligations provided by this chapter and the partnership agreement in each of those capacities. When the person acts as a general partner, the person is subject to the obligations, duties and restrictions under this chapter and the partnership agreement for general partners. When the person acts as a limited partner, the person is subject to the obligations, duties and restrictions under this chapter and the partnership agreement for limited partners.

History. Acts 2007, No. 15, § 1.

4-47-114. Office and agent for service of process.

  1. A limited partnership shall designate and continuously maintain in this State:
    1. an office, which need not be a place of its activity in this State; and
    2. an agent for service of process.
  2. A foreign limited partnership shall designate and continuously maintain in this State an agent for service of process.
  3. The Model Registered Agents Act, § 4-20-101 et seq.:
    1. Governs the appointment, authority, powers, duties, termination of appointment, and all other provisions concerning an agent for service of process of a limited partnership or foreign limited partnership; and
    2. May be used to obtain service of process upon a limited partnership or foreign limited partnership.

History. Acts 2009, No. 814, § 8.

A.C.R.C. Notes. Pursuant to § 1-2-207, the repeal of § 4-47-114 by Acts 2007, No. 638, § 57, supersedes its enactment by Acts 2007, No. 15. Section 4-47-114 was enacted by Acts 2007, No. 15, § 1, to read as follows:

“4-47-114. Office and agent for service of process.

“(a) A limited partnership shall designate and continuously maintain in this State:

“(1) an office, which need not be a place of its activity in this State; and

“(2) an agent for service of process.

“(b) A foreign limited partnership shall designate and continuously maintain in this State an agent for service of process.

“(c) An agent for service of process of a limited partnership or foreign limited partnership must be an individual who is a resident of this State or other person authorized to do business in this State.”

Pursuant to § 1-2-207, the repeal of § 4-47-115 by Acts 2007, No. 638, § 57 supersedes its enactment by Acts 2007, No. 15, § 1. Section 4-47-115 was enacted by Acts 2007, No. 15, § 1 to read as follows:

“4-47-115. Change of designated office or agent for service of process.

“(a) In order to change its designated office, agent for service of process, or the address of its agent for service of process, a limited partnership or a foreign limited partnership may deliver to the Secretary of State for filing a statement of change containing:

“(1) the name of the limited partnership or foreign limited partnership;

“(2) the street and mailing address of its current designated office;

“(3) if the current designated office is to be changed, the street and mailing address of the new designated office;

“(4) the name and street and mailing address of its current agent for service of process; and

“(5) if the current agent for service of process or an address of the agent is to be changed, the new information.

“(b) Subject to § 4-47-206(c), a statement of change is effective when filed by the Secretary of State.”

Pursuant to § 1-2-207, the repeal of § 4-47-116 by Acts 2007, No. 638, § 57 supersedes its enactment by Acts 2007, No. 15, § 1. Section 4-47-116 was enacted by Acts 2007, No. 15, § 1 to read as follows:

“4-47-116. Resignation of agent for service of process.

“(a) In order to resign as an agent for service of process of a limited partnership or foreign limited partnership, the agent must deliver to the Secretary of State for filing a statement of resignation containing the name of the limited partnership or foreign limited partnership.

“(b) After receiving a statement of resignation, the Secretary of State shall file it and mail a copy to the designated office of the limited partnership or foreign limited partnership and another copy to the principal office if the address of the office appears in the records of the Secretary of State and is different from the address of the designated office.

“(c) An agency for service of process is terminated on the 31st day after the Secretary of State files the statement of resignation.”

Pursuant to § 1-2-207, the repeal of § 4-47-117 by Acts 2007, No. 638, § 57 supersedes its enactment by Acts 2007, No. 15, § 1. Section 4-47-117 was enacted by Acts 2007, No. 15, § 1 to read as follows:

“4-47-117. Service of process.

“(a) An agent for service of process appointed by a limited partnership or foreign limited partnership is an agent of the limited partnership or foreign limited partnership for service of any process, notice, or demand required or permitted by law to be served upon the limited partnership or foreign limited partnership.

“(b) If a limited partnership or foreign limited partnership does not appoint or maintain an agent for service of process in this State or the agent for service of process cannot with reasonable diligence be found at the agent's address, the Secretary of State is an agent of the limited partnership or foreign limited partnership upon whom process, notice, or demand may be served.

“(c) Service of any process, notice, or demand on the Secretary of State may be made by delivering to and leaving with the Secretary of State duplicate copies of the process, notice, or demand. If a process, notice, or demand is served on the Secretary of State, the Secretary of State shall forward one of the copies by registered or certified mail, return receipt requested, to the limited partnership or foreign limited partnership at its designated office.

“(d) Service is effected under subsection (c) at the earliest of:

“(1) the date the limited partnership or foreign limited partnership receives the process, notice, or demand;

“(2) the date shown on the return receipt, if signed on behalf of the limited partnership or foreign limited partnership; or

“(3) five days after the process, notice, or demand is deposited in the mail, if mailed postpaid and correctly addressed.

“(e) The Secretary of State shall keep a record of each process, notice, and demand served pursuant to this section and record the time of, and the action taken regarding, the service.

“(f) This section does not affect the right to serve process, notice, or demand in any other manner provided by law.”

Publisher's Notes. These sections, concerning agents for service of process, were repealed by Acts 2007, No. 638, § 57. They were derived from the following sources:

4-47-114. Acts 2007, No. 15, § 1.

4-47-115. Acts 2007, No. 15, § 1.

4-47-116. Acts 2007, No. 15, § 1.

4-47-117. Acts 2007, No. 15, § 1.

Effective Dates. Acts 2007, No. 638 § 70 provided: “Effective date. This act takes effect September 1, 2007.”

4-47-115. Change of designated office.

  1. In order to change its designated office, a limited partnership or a foreign limited partnership may deliver to the Secretary of State for filing a statement of change containing:
    1. the name of the limited partnership or foreign limited partnership;
    2. the street and mailing address of its current designated office; and
    3. if the current designated office is to be changed, the street and mailing address of the new designated office.
    4. [Reserved.]
    5. [Reserved.]
  2. Subject to § 4-47-206(c), a statement of change is effective when filed by the Secretary of State.

History. Acts 2009, No. 814, § 8.

4-47-116, 4-47-117. [Reserved.]

Action requiring the consent of partners under this chapter may be taken without a meeting, and a partner may appoint a proxy to consent or otherwise act for the partner by signing an appointment record, either personally or by the partner's attorney in fact.

History. Acts 2007, No. 15, § 1.

Subchapter 2 — Formation — Certificate of Limited Partnership and Other Filings

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

4-47-201. Formation of limited partnership — Certificate of limited partnership.

  1. In order for a limited partnership to be formed, a certificate of limited partnership must be delivered to the Secretary of State for filing. The certificate must state:
    1. the name of the limited partnership, which must comply with § 4-47-108;
    2. the street and mailing address of the initial designated office and the information concerning the limited partnership's agent for service of process required by § 4-20-105(a);
    3. the name and the street and mailing address of each general partner;
    4. whether the limited partnership is a limited liability limited partnership; and
    5. any additional information required by subchapter 11.
  2. A certificate of limited partnership may also contain any other matters but may not vary or otherwise affect the provisions specified in § 4-47-110(b) in a manner inconsistent with that section.
  3. If there has been substantial compliance with subsection (a), subject to § 4-47-206(c) a limited partnership is formed when the Secretary of State files the certificate of limited partnership.
  4. Subject to subsection (b), if any provision of a partnership agreement is inconsistent with the filed certificate of limited partnership or with a filed statement of dissociation, termination, or change or filed articles of conversion or merger:
    1. the partnership agreement prevails as to partners and transferees; and
    2. the filed certificate of limited partnership, statement of dissociation, termination, or change or articles of conversion or merger prevail as to persons, other than partners and transferees, that reasonably rely on the filed record to their detriment.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 58; 2009, No. 814, § 9.

Amendments. The 2007 amendment by No 638 substituted “the information required by § 4-20-105(a)” for “the street and mailing address of the initial designated office and the name and street and mailing address of the initial agent for service of process” in (a)(2).

The 2009 amendment rewrote (a)(2), which read: “the information required by § 4-20-105(a).”

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-47-202. Amendment or restatement of certificate.

  1. In order to amend its certificate of limited partnership, a limited partnership must deliver to the Secretary of State for filing an amendment or, pursuant to subchapter 11, articles of merger stating:
    1. the name of the limited partnership;
    2. the date of filing of its initial certificate; and
    3. the changes the amendment makes to the certificate as most recently amended or restated.
  2. A limited partnership shall promptly deliver to the Secretary of State for filing an amendment to a certificate of limited partnership to reflect:
    1. the admission of a new general partner;
    2. the dissociation of a person as a general partner; or
    3. the appointment of a person to wind up the limited partnership's activities under § 4-47-803(c) or (d).
  3. A general partner that knows that any information in a filed certificate of limited partnership was false when the certificate was filed or has become false due to changed circumstances shall promptly:
    1. cause the certificate to be amended; or
    2. if appropriate, deliver to the Secretary of State for filing a statement of correction pursuant to § 4-47-207 or § 4-20-108.
  4. A certificate of limited partnership may be amended at any time for any other proper purpose as determined by the limited partnership.
  5. A restated certificate of limited partnership may be delivered to the Secretary of State for filing in the same manner as an amendment.
  6. Subject to § 4-47-206(c), an amendment or restated certificate is effective when filed by the Secretary of State.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 59.

Amendments. The 2007 amendment by No. 638, in (c)(2), deleted “a statement of change pursuant to § 4-47-115 or” following “filing,” and added “or § 4-20-108.”

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-47-203. Statement of termination.

A dissolved limited partnership that has completed winding up may deliver to the Secretary of State for filing a statement of termination that states:

  1. the name of the limited partnership;
  2. the date of filing of its initial certificate of limited partnership; and
  3. any other information as determined by the general partners filing the statement or by a person appointed pursuant to § 4-47-803(c) or (d).

History. Acts 2007, No. 15, § 1.

4-47-204. Signing of records.

  1. Each record delivered to the Secretary of State for filing pursuant to this chapter must be signed in the following manner:
    1. An initial certificate of limited partnership must be signed by all general partners listed in the certificate.
    2. An amendment adding or deleting a statement that the limited partnership is a limited liability limited partnership must be signed by all general partners listed in the certificate.
    3. An amendment designating as general partner a person admitted under § 4-47-801(3)(B) following the dissociation of a limited partnership's last general partner must be signed by that person.
    4. An amendment required by § 4-47-803(c) following the appointment of a person to wind up the dissolved limited partnership's activities must be signed by that person.
    5. Any other amendment must be signed by:
      1. at least one general partner listed in the certificate;
      2. each other person designated in the amendment as a new general partner; and
      3. each person that the amendment indicates has dissociated as a general partner, unless:
        1. the person is deceased or a guardian or general conservator has been appointed for the person and the amendment so states; or
        2. the person has previously delivered to the Secretary of State for filing a statement of dissociation.
    6. A restated certificate of limited partnership must be signed by at least one general partner listed in the certificate, and, to the extent the restated certificate effects a change under any other paragraph of this subsection, the certificate must be signed in a manner that satisfies that paragraph.
    7. A statement of termination must be signed by all general partners listed in the certificate or, if the certificate of a dissolved limited partnership lists no general partners, by the person appointed pursuant to § 4-47-803(c) or (d) to wind up the dissolved limited partnership's activities.
    8. Articles of conversion must be signed by each general partner listed in the certificate of limited partnership.
    9. Articles of merger must be signed as provided in § 4-47-1108(a).
    10. Any other record delivered on behalf of a limited partnership to the Secretary of State for filing must be signed by at least one general partner listed in the certificate.
    11. A statement by a person pursuant to § 4-47-605(a)(4) stating that the person has dissociated as a general partner must be signed by that person.
    12. A statement of withdrawal by a person pursuant to § 4-47-306 must be signed by that person.
    13. A record delivered on behalf of a foreign limited partnership to the Secretary of State for filing must be signed by at least one general partner of the foreign limited partnership.
    14. Any other record delivered on behalf of any person to the Secretary of State for filing must be signed by that person.
  2. Any person may sign by an attorney in fact any record to be filed pursuant to this chapter.

History. Acts 2007, No. 15, § 1.

4-47-205. Signing and filing pursuant to judicial order.

  1. If a person required by this chapter to sign a record or deliver a record to the Secretary of State for filing does not do so, any other person that is aggrieved may petition the circuit court to order:
    1. the person to sign the record;
    2. deliver the record to the Secretary of State for filing; or
    3. the Secretary of State to file the record unsigned.
  2. If the person aggrieved under subsection (a) is not the limited partnership or foreign limited partnership to which the record pertains, the aggrieved person shall make the limited partnership or foreign limited partnership a party to the action. A person aggrieved under subsection (a) may seek the remedies provided in subsection (a) in the same action in combination or in the alternative.
  3. A record filed unsigned pursuant to this section is effective without being signed.

History. Acts 2007, No. 15, § 1.

4-47-206. Delivery to and filing of records by Secretary of State — Effective time and date.

  1. A record authorized or required to be delivered to the Secretary of State for filing under this chapter must be captioned to describe the record's purpose, be in a medium permitted by the Secretary of State, and be delivered to the Secretary of State. Unless the Secretary of State determines that a record does not comply with the filing requirements of this chapter, and if all filing fees have been paid, the Secretary of State shall file the record and:
    1. for a statement of dissociation, send:
      1. a copy of the filed statement and a receipt for the fees to the person which the statement indicates has dissociated as a general partner; and
      2. a copy of the filed statement and receipt to the limited partnership;
    2. for a statement of withdrawal, send:
      1. a copy of the filed statement and a receipt for the fees to the person on whose behalf the record was filed; and
      2. if the statement refers to an existing limited partnership, a copy of the filed statement and receipt to the limited partnership; and
    3. for all other records, send a copy of the filed record and a receipt for the fees to the person on whose behalf the record was filed.
  2. Upon request and payment of a fee, the Secretary of State shall send to the requester a certified copy of the requested record.
  3. Except as otherwise provided in § 4-47-207, a record delivered to the Secretary of State for filing under this chapter may specify an effective time and a delayed effective date. Except as otherwise provided in this chapter, a record filed by the Secretary of State is effective:
    1. if the record does not specify an effective time and does not specify a delayed effective date, on the date and at the time the record is filed as evidenced by the Secretary of State's endorsement of the date and time on the record;
    2. if the record specifies an effective time but not a delayed effective date, on the date the record is filed at the time specified in the record;
    3. if the record specifies a delayed effective date but not an effective time, at 12:01 a.m. on the earlier of:
      1. the specified date; or
      2. the 90th day after the record is filed; or
    4. if the record specifies an effective time and a delayed effective date, at the specified time on the earlier of:
      1. the specified date; or
      2. the 90th day after the record is filed.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 60.

Amendments. The 2007 amendment by No. 638 deleted “4-47-116” preceding “§ 4-47-207” in (c), and made related changes.

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-47-207. Correcting filed record.

  1. A limited partnership or foreign limited partnership may deliver to the Secretary of State for filing a statement of correction to correct a record previously delivered by the limited partnership or foreign limited partnership to the Secretary of State and filed by the Secretary of State, if at the time of filing the record contained false or erroneous information or was defectively signed.
  2. A statement of correction may not state a delayed effective date and must:
    1. describe the record to be corrected, including its filing date, or attach a copy of the record as filed;
    2. specify the incorrect information and the reason it is incorrect or the manner in which the signing was defective; and
    3. correct the incorrect information or defective signature.
  3. When filed by the Secretary of State, a statement of correction is effective retroactively as of the effective date of the record the statement corrects, but the statement is effective when filed:
    1. for the purposes of § 4-47-103(c) and (d); and
    2. as to persons relying on the uncorrected record and adversely affected by the correction.

History. Acts 2007, No. 15, § 1.

4-47-208. Liability for false information in filed record.

  1. If a record delivered to the Secretary of State for filing under this chapter and filed by the Secretary of State contains false information, a person that suffers loss by reliance on the information may recover damages for the loss from:
    1. a person that signed the record, or caused another to sign it on the person's behalf, and knew the information to be false at the time the record was signed; and
    2. a general partner that has notice that the information was false when the record was filed or has become false because of changed circumstances, if the general partner has notice for a reasonably sufficient time before the information is relied upon to enable the general partner to effect an amendment under § 4-47-202, file a petition pursuant to § 4-47-205, or deliver to the Secretary of State for filing a statement of change pursuant to § 4-20-108 or a statement of correction pursuant to § 4-47-207.
  2. Signing a record authorized or required to be filed under this chapter constitutes an affirmation under the penalties of perjury that the facts stated in the record are true.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 61.

Amendments. The 2007 amendment by No. 638 substituted “§ 4-47-115” in (a)(2).

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-47-209. Certificate of existence or authorization.

  1. The Secretary of State, upon request and payment of the requisite fee, shall furnish a certificate of existence for a limited partnership if the records filed in the office of the Secretary of State show that the Secretary of State has filed a certificate of limited partnership and has not filed a statement of termination. A certificate of existence must state:
    1. the limited partnership's name;
    2. that it was duly formed under the laws of this State and the date of formation;
    3. whether all fees, taxes, and penalties due to the Secretary of State under this chapter or other law have been paid;
    4. whether the limited partnership's most recent annual report required by § 4-47-210 has been filed by the Secretary of State;
    5. whether the Secretary of State has administratively dissolved the limited partnership;
    6. whether the limited partnership's certificate of limited partnership has been amended to state that the limited partnership is dissolved;
    7. that a statement of termination has not been filed by the Secretary of State; and
    8. other facts of record in the office of the Secretary of State which may be requested by the applicant.
  2. The Secretary of State, upon request and payment of the requisite fee, shall furnish a certificate of authorization for a foreign limited partnership if the records filed in the office of the Secretary of State show that the Secretary of State has filed a certificate of authority, has not revoked the certificate of authority, and has not filed a notice of cancellation. A certificate of authorization must state:
    1. the foreign limited partnership's name and any alternate name adopted under § 4-47-905(a) for use in this State;
    2. that it is authorized to transact business in this State;
    3. whether all fees, taxes, and penalties due to the Secretary of State under this chapter or other law have been paid;
    4. whether the foreign limited partnership's most recent annual report required by § 4-47-210 has been filed by the Secretary of State;
    5. that the Secretary of State has not revoked its certificate of authority and has not filed a notice of cancellation; and
    6. other facts of record in the office of the Secretary of State which may be requested by the applicant.
  3. Subject to any qualification stated in the certificate, a certificate of existence or authorization issued by the Secretary of State may be relied upon as conclusive evidence that the limited partnership or foreign limited partnership is in existence or is authorized to transact business in this State.

History. Acts 2007, No. 15, § 1.

4-47-210. Annual report for Secretary of State.

  1. A limited partnership or a foreign limited partnership authorized to transact business in this State shall deliver to the Secretary of State for filing an annual report that states:
    1. the name of the limited partnership or foreign limited partnership;
    2. the street and mailing address of its designated office and the information concerning its agent for service of process required by § 4-20-105(a);
    3. in the case of a foreign limited partnership, the street and mailing address of its principal office; and
    4. in the case of a foreign limited partnership, the State or other jurisdiction under whose law the foreign limited partnership is formed and any alternate name adopted under § 4-47-905(a).
  2. Information in an annual report must be current as of the date the annual report is delivered to the Secretary of State for filing.
  3. The first annual report must be delivered to the Secretary of State between January 1 and May 1 of the year following the calendar year in which a limited partnership was formed or a foreign limited partnership was authorized to transact business. An annual report must be delivered to the Secretary of State between January 1 and May 1 of each subsequent calendar year.
  4. If an annual report does not contain the information required in subsection (a), the Secretary of State shall promptly notify the reporting limited partnership or foreign limited partnership and return the report to it for correction. If the report is corrected to contain the information required in subsection (a) and delivered to the Secretary of State within 30 days after the effective date of the notice, it is timely delivered.
  5. If a filed annual report contains an address of the designated office or information provided under subdivision (a)(2) of this section which differs from the information shown in the records of the Secretary of State immediately before the filing, the differing information in the annual report is considered a statement of change under § 4-20-108.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 62; 2009, No. 814, § 10.

Amendments. The 2007 amendment by No. 638 substituted “the information required by § 4-20-105(a)” for “the street and mailing address of its designated office and the name and street and mailing address of its agent for service of process in this State” in (a)(2) of this section for “an address of a designated office or the name or address of an agent for service of process,” and substituted “§ 4-20-108” for “§ 4-47-115.”

The 2009 amendment, in (a), rewrote (a)(2), which read: “the information required by § 4-20-105(a),” and inserted “foreign” in (a)(3); and inserted “an address of the designated office or” in (e).

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

Subchapter 3 — Limited Partners

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

4-47-301. Becoming limited partner.

A person becomes a limited partner:

  1. as provided in the partnership agreement;
  2. as the result of a conversion or merger under subchapter 11; or
  3. with the consent of all the partners.

History. Acts 2007, No. 15, § 1.

4-47-302. No right or power as limited partner to bind limited partnership.

A limited partner does not have the right or the power as a limited partner to act for or bind the limited partnership.

History. Acts 2007, No. 15, § 1.

4-47-303. No liability as limited partner for limited partnership obligations.

An obligation of a limited partnership, whether arising in contract, tort, or otherwise, is not the obligation of a limited partner. A limited partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for an obligation of the limited partnership solely by reason of being a limited partner, even if the limited partner participates in the management and control of the limited partnership.

History. Acts 2007, No. 15, § 1.

4-47-304. Right of limited partner and former limited partner to information.

  1. On 10 days' demand, made in a record received by the limited partnership, a limited partner may inspect and copy required information during regular business hours in the limited partnership's designated office. The limited partner need not have any particular purpose for seeking the information.
  2. During regular business hours and at a reasonable location specified by the limited partnership, a limited partner may obtain from the limited partnership and inspect and copy true and full information regarding the state of the activities and financial condition of the limited partnership and other information regarding the activities of the limited partnership as is just and reasonable if:
    1. the limited partner seeks the information for a purpose reasonably related to the partner's interest as a limited partner;
    2. the limited partner makes a demand in a record received by the limited partnership, describing with reasonable particularity the information sought and the purpose for seeking the information; and
    3. the information sought is directly connected to the limited partner's purpose.
  3. Within 10 days after receiving a demand pursuant to subsection (b), the limited partnership in a record shall inform the limited partner that made the demand:
    1. what information the limited partnership will provide in response to the demand;
    2. when and where the limited partnership will provide the information; and
    3. if the limited partnership declines to provide any demanded information, the limited partnership's reasons for declining.
  4. Subject to subsection (f), a person dissociated as a limited partner may inspect and copy required information during regular business hours in the limited partnership's designated office if:
    1. the information pertains to the period during which the person was a limited partner;
    2. the person seeks the information in good faith; and
    3. the person meets the requirements of subsection (b).
  5. The limited partnership shall respond to a demand made pursuant to subsection (d) in the same manner as provided in subsection (c).
  6. If a limited partner dies, § 4-47-704 applies.
  7. The limited partnership may impose reasonable restrictions on the use of information obtained under this section. In a dispute concerning the reasonableness of a restriction under this subsection, the limited partnership has the burden of proving reasonableness.
  8. A limited partnership may charge a person that makes a demand under this section reasonable costs of copying, limited to the costs of labor and material.
  9. Whenever this chapter or a partnership agreement provides for a limited partner to give or withhold consent to a matter, before the consent is given or withheld, the limited partnership shall, without demand, provide the limited partner with all information material to the limited partner's decision that the limited partnership knows.
  10. A limited partner or person dissociated as a limited partner may exercise the rights under this section through an attorney or other agent. Any restriction imposed under subsection (g) or by the partnership agreement applies both to the attorney or other agent and to the limited partner or person dissociated as a limited partner.
  11. The rights stated in this section do not extend to a person as transferee, but may be exercised by the legal representative of an individual under legal disability who is a limited partner or person dissociated as a limited partner.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 63; 2009, No. 814, §§ 11, 12.

Amendments. The 2007 amendment by No. 638 substituted “principal office” for “designated office” in (a) and (d).

The 2009 amendment substituted “designated office” for “principal office” in (a) and (d).

Effective Dates. Acts 2007, No. 638, § 70, provided: “Effective date. This act takes effect September 1, 2007.”

4-47-305. Limited duties of limited partners.

  1. A limited partner does not have any fiduciary duty to the limited partnership or to any other partner solely by reason of being a limited partner.
  2. A limited partner shall discharge the duties to the partnership and the other partners under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.
  3. A limited partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the limited partner's conduct furthers the limited partner's own interest.

History. Acts 2007, No. 15, § 1.

4-47-306. Person erroneously believing self to be limited partner.

  1. Except as otherwise provided in subsection (b), a person that makes an investment in a business enterprise and erroneously but in good faith believes that the person has become a limited partner in the enterprise is not liable for the enterprise's obligations by reason of making the investment, receiving distributions from the enterprise, or exercising any rights of or appropriate to a limited partner, if, on ascertaining the mistake, the person:
    1. causes an appropriate certificate of limited partnership, amendment, or statement of correction to be signed and delivered to the Secretary of State for filing; or
    2. withdraws from future participation as an owner in the enterprise by signing and delivering to the Secretary of State for filing a statement of withdrawal under this section.
  2. A person that makes an investment described in subsection (a) is liable to the same extent as a general partner to any third party that enters into a transaction with the enterprise, believing in good faith that the person is a general partner, before the Secretary of State files a statement of withdrawal, certificate of limited partnership, amendment, or statement of correction to show that the person is not a general partner.
  3. If a person makes a diligent effort in good faith to comply with subsection (a)(1) and is unable to cause the appropriate certificate of limited partnership, amendment, or statement of correction to be signed and delivered to the Secretary of State for filing, the person has the right to withdraw from the enterprise pursuant to subsection (a)(2) even if the withdrawal would otherwise breach an agreement with others that are or have agreed to become co-owners of the enterprise.

History. Acts 2007, No. 15, § 1.

Subchapter 4 — General Partners

4-47-401. Becoming general partner.

A person becomes a general partner:

  1. as provided in the partnership agreement;
  2. under § 4-47-801(3)(B) following the dissociation of a limited partnership's last general partner;
  3. as the result of a conversion or merger under subchapter 11; or
  4. with the consent of all the partners.

History. Acts 2007, No. 15, § 1.

4-47-402. General partner agent of limited partnership.

  1. Each general partner is an agent of the limited partnership for the purposes of its activities. An act of a general partner, including the signing of a record in the partnership's name, for apparently carrying on in the ordinary course the limited partnership's activities or activities of the kind carried on by the limited partnership binds the limited partnership, unless the general partner did not have authority to act for the limited partnership in the particular matter and the person with which the general partner was dealing knew, had received a notification, or had notice under § 4-47-103(d) that the general partner lacked authority.
  2. An act of a general partner which is not apparently for carrying on in the ordinary course the limited partnership's activities or activities of the kind carried on by the limited partnership binds the limited partnership only if the act was actually authorized by all the other partners.

History. Acts 2007, No. 15, § 1.

4-47-403. Limited partnership liable for general partner's actionable conduct.

  1. A limited partnership is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a general partner acting in the ordinary course of activities of the limited partnership or with authority of the limited partnership.
  2. If, in the course of the limited partnership's activities or while acting with authority of the limited partnership, a general partner receives or causes the limited partnership to receive money or property of a person not a partner, and the money or property is misapplied by a general partner, the limited partnership is liable for the loss.

History. Acts 2007, No. 15, § 1.

4-47-404. General partner's liability.

  1. Except as otherwise provided in subsections (b) and (c), all general partners are liable jointly and severally for all obligations of the limited partnership unless otherwise agreed by the claimant or provided by law.
  2. A person that becomes a general partner of an existing limited partnership is not personally liable for an obligation of a limited partnership incurred before the person became a general partner.
  3. An obligation of a limited partnership incurred while the limited partnership is a limited liability limited partnership, whether arising in contract, tort, or otherwise, is solely the obligation of the limited partnership. A general partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such an obligation solely by reason of being or acting as a general partner. This subsection applies despite anything inconsistent in the partnership agreement that existed immediately before the consent required to become a limited liability limited partnership under § 4-47-406(b)(2).

History. Acts 2007, No. 15, § 1.

4-47-405. Actions by and against partnership and partners.

  1. To the extent not inconsistent with § 4-47-404, a general partner may be joined in an action against the limited partnership or named in a separate action.
  2. A judgment against a limited partnership is not by itself a judgment against a general partner. A judgment against a limited partnership may not be satisfied from a general partner's assets unless there is also a judgment against the general partner.
  3. A judgment creditor of a general partner may not levy execution against the assets of the general partner to satisfy a judgment based on a claim against the limited partnership, unless the partner is personally liable for the claim under § 4-47-404 and:
    1. a judgment based on the same claim has been obtained against the limited partnership and a writ of execution on the judgment has been returned unsatisfied in whole or in part;
    2. the limited partnership is a debtor in bankruptcy;
    3. the general partner has agreed that the creditor need not exhaust limited partnership assets;
    4. a court grants permission to the judgment creditor to levy execution against the assets of a general partner based on a finding that limited partnership assets subject to execution are clearly insufficient to satisfy the judgment, that exhaustion of limited partnership assets is excessively burdensome, or that the grant of permission is an appropriate exercise of the court's equitable powers; or
    5. liability is imposed on the general partner by law or contract independent of the existence of the limited partnership.

History. Acts 2007, No. 15, § 1.

4-47-406. Management rights of general partner.

  1. Each general partner has equal rights in the management and conduct of the limited partnership's activities. Except as expressly provided in this chapter, any matter relating to the activities of the limited partnership may be exclusively decided by the general partner or, if there is more than one general partner, by a majority of the general partners.
  2. The consent of each partner is necessary to:
    1. amend the partnership agreement;
    2. amend the certificate of limited partnership to add or, subject to § 4-47-1110, delete a statement that the limited partnership is a limited liability limited partnership; and
    3. sell, lease, exchange, or otherwise dispose of all, or substantially all, of the limited partnership's property, with or without the good will, other than in the usual and regular course of the limited partnership's activities.
  3. A limited partnership shall reimburse a general partner for payments made and indemnify a general partner for liabilities incurred by the general partner in the ordinary course of the activities of the partnership or for the preservation of its activities or property.
  4. A limited partnership shall reimburse a general partner for an advance to the limited partnership beyond the amount of capital the general partner agreed to contribute.
  5. A payment or advance made by a general partner which gives rise to an obligation of the limited partnership under subsection (c) or (d) constitutes a loan to the limited partnership which accrues interest from the date of the payment or advance.
  6. A general partner is not entitled to remuneration for services performed for the partnership.

History. Acts 2007, No. 15, § 1.

Case Notes

General Partner Had Control Over Activities.

Under settlement proposed by trustee, which was not approved, bankruptcy trustee would not only be conveying 49 percent of stock but also giving up a potential cause of action for fraudulent conveyance for the other 51 percent under both bankruptcy law and Arkansas law. Court noted that company was sole general partner of a limited partnership and thus, had 100 percent control over the activities of that partnership under Arkansas law; therefore, if trustee recovered the stock, he would control the entity that conducted most of the farming business of debtor and her family and related entities. In re Caubble, 505 B.R. 857 (Bankr. E.D. Ark. 2014).

4-47-407. Right of general partner and former general partner to information.

  1. A general partner, without having any particular purpose for seeking the information, may inspect and copy during regular business hours:
    1. in the limited partnership's designated office, required information; and
    2. at a reasonable location specified by the limited partnership, any other records maintained by the limited partnership regarding the limited partnership's activities and financial condition.
  2. Each general partner and the limited partnership shall furnish to a general partner:
    1. without demand, any information concerning the limited partnership's activities and activities reasonably required for the proper exercise of the general partner's rights and duties under the partnership agreement or this chapter; and
    2. on demand, any other information concerning the limited partnership's activities, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances.
  3. Subject to subsection (e), on 10 days' demand made in a record received by the limited partnership, a person dissociated as a general partner may have access to the information and records described in subsection (a) at the location specified in subsection (a) if:
    1. the information or record pertains to the period during which the person was a general partner;
    2. the person seeks the information or record in good faith; and
    3. the person satisfies the requirements imposed on a limited partner by § 4-47-304(b).
  4. The limited partnership shall respond to a demand made pursuant to subsection (c) in the same manner as provided in § 4-47-304(c).
  5. If a general partner dies, § 4-47-704 applies.
  6. The limited partnership may impose reasonable restrictions on the use of information under this section. In any dispute concerning the reasonableness of a restriction under this subsection, the limited partnership has the burden of proving reasonableness.
  7. A limited partnership may charge a person dissociated as a general partner that makes a demand under this section reasonable costs of copying, limited to the costs of labor and material.
  8. A general partner or person dissociated as a general partner may exercise the rights under this section through an attorney or other agent. Any restriction imposed under subsection (f) or by the partnership agreement applies both to the attorney or other agent and to the general partner or person dissociated as a general partner.
  9. The rights under this section do not extend to a person as transferee, but the rights under subsection (c) of a person dissociated as a general partner may be exercised by the legal representative of an individual who dissociated as a general partner under § 4-47-603(7)(B) or (C).

History. Acts 2007, No. 15, § 1.

4-47-408. General standards of general partner's conduct.

  1. The only fiduciary duties that a general partner has to the limited partnership and the other partners are the duties of loyalty and care under subsections (b) and (c).
  2. A general partner's duty of loyalty to the limited partnership and the other partners is limited to the following:
    1. to account to the limited partnership and hold as trustee for it any property, profit, or benefit derived by the general partner in the conduct and winding up of the limited partnership's activities or derived from a use by the general partner of limited partnership property, including the appropriation of a limited partnership opportunity;
    2. to refrain from dealing with the limited partnership in the conduct or winding up of the limited partnership's activities as or on behalf of a party having an interest adverse to the limited partnership; and
    3. to refrain from competing with the limited partnership in the conduct or winding up of the limited partnership's activities.
  3. A general partner's duty of care to the limited partnership and the other partners in the conduct and winding up of the limited partnership's activities is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
  4. A general partner shall discharge the duties to the partnership and the other partners under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.
  5. A general partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the general partner's conduct furthers the general partner's own interests.

History. Acts 2007, No. 15, § 1.

Subchapter 5 — Contributions and Distributions

4-47-501. Form of contribution.

A contribution of a partner may consist of tangible or intangible property or other benefit to the limited partnership, including money, services performed, promissory notes, other agreements to contribute cash or property, and contracts for services to be performed.

History. Acts 2007, No. 15, § 1.

4-47-502. Liability for contribution.

  1. A partner's obligation to contribute money or other property or other benefit to, or to perform services for, a limited partnership is not excused by the partner's death, disability, or other inability to perform personally.
  2. If a partner does not make a promised non-monetary contribution, the partner is obligated at the option of the limited partnership to contribute money equal to that portion of the value, as stated in the required information, of the stated contribution which has not been made.
  3. The obligation of a partner to make a contribution or return money or other property paid or distributed in violation of this chapter may be compromised only by consent of all partners. A creditor of a limited partnership which extends credit or otherwise acts in reliance on an obligation described in subsection (a), without notice of any compromise under this subsection, may enforce the original obligation.

History. Acts 2007, No. 15, § 1.

4-47-503. Sharing of distributions.

A distribution by a limited partnership must be shared among the partners on the basis of the value, as stated in the required records when the limited partnership decides to make the distribution, of the contributions the limited partnership has received from each partner.

History. Acts 2007, No. 15, § 1.

4-47-504. Interim distributions.

A partner does not have a right to any distribution before the dissolution and winding up of the limited partnership unless the limited partnership decides to make an interim distribution.

History. Acts 2007, No. 15, § 1.

4-47-505. No distribution on account of dissociation.

A person does not have a right to receive a distribution on account of dissociation.

History. Acts 2007, No. 15, § 1.

4-47-506. Distribution in kind.

A partner does not have a right to demand or receive any distribution from a limited partnership in any form other than cash. Subject to § 4-47-812(b), a limited partnership may distribute an asset in kind to the extent each partner receives a percentage of the asset equal to the partner's share of distributions.

History. Acts 2007, No. 15, § 1.

4-47-507. Right to distribution.

When a partner or transferee becomes entitled to receive a distribution, the partner or transferee has the status of, and is entitled to all remedies available to, a creditor of the limited partnership with respect to the distribution. However, the limited partnership's obligation to make a distribution is subject to offset for any amount owed to the limited partnership by the partner or dissociated partner on whose account the distribution is made.

History. Acts 2007, No. 15, § 1.

4-47-508. Limitations on distribution.

  1. A limited partnership may not make a distribution in violation of the partnership agreement.
  2. A limited partnership may not make a distribution if after the distribution:
    1. the limited partnership would not be able to pay its debts as they become due in the ordinary course of the limited partnership's activities; or
    2. the limited partnership's total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the limited partnership were to be dissolved, wound up, and terminated at the time of the distribution, to satisfy the preferential rights upon dissolution, winding up, and termination of partners whose preferential rights are superior to those of persons receiving the distribution.
  3. A limited partnership may base a determination that a distribution is not prohibited under subsection (b) on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.
  4. Except as otherwise provided in subsection (g), the effect of a distribution under subsection (b) is measured:
    1. in the case of distribution by purchase, redemption, or other acquisition of a transferable interest in the limited partnership, as of the date money or other property is transferred or debt incurred by the limited partnership; and
    2. in all other cases, as of the date:
      1. the distribution is authorized, if the payment occurs within 120 days after that date; or
      2. the payment is made, if payment occurs more than 120 days after the distribution is authorized.
  5. A limited partnership's indebtedness to a partner incurred by reason of a distribution made in accordance with this section is at parity with the limited partnership's indebtedness to its general, unsecured creditors.
  6. A limited partnership's indebtedness, including indebtedness issued in connection with or as part of a distribution, is not considered a liability for purposes of subsection (b) if the terms of the indebtedness provide that payment of principal and interest are made only to the extent that a distribution could then be made to partners under this section.
  7. If indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is made.

History. Acts 2007, No. 15, § 1.

4-47-509. Liability for improper distributions.

  1. A general partner that consents to a distribution made in violation of § 4-47-508 is personally liable to the limited partnership for the amount of the distribution which exceeds the amount that could have been distributed without the violation if it is established that in consenting to the distribution the general partner failed to comply with § 4-47-408.
  2. A partner or transferee that received a distribution knowing that the distribution to that partner or transferee was made in violation of § 4-47-508 is personally liable to the limited partnership but only to the extent that the distribution received by the partner or transferee exceeded the amount that could have been properly paid under § 4-47-508.
  3. A general partner against which an action is commenced under subsection (a) may:
    1. implead in the action any other person that is liable under subsection (a) and compel contribution from the person; and
    2. implead in the action any person that received a distribution in violation of subsection (b) and compel contribution from the person in the amount the person received in violation of subsection (b).
  4. An action under this section is barred if it is not commenced within two years after the distribution.

History. Acts 2007, No. 15, § 1.

Subchapter 6 — Dissociation

4-47-601. Dissociation as limited partner.

  1. A person does not have a right to dissociate as a limited partner before the termination of the limited partnership.
  2. A person is dissociated from a limited partnership as a limited partner upon the occurrence of any of the following events:
    1. the limited partnership's having notice of the person's express will to withdraw as a limited partner or on a later date specified by the person;
    2. an event agreed to in the partnership agreement as causing the person's dissociation as a limited partner;
    3. the person's expulsion as a limited partner pursuant to the partnership agreement;
    4. the person's expulsion as a limited partner by the unanimous consent of the other partners if:
      1. it is unlawful to carry on the limited partnership's activities with the person as a limited partner;
      2. there has been a transfer of all of the person's transferable interest in the limited partnership, other than a transfer for security purposes, or a court order charging the person's interest, which has not been foreclosed;
      3. the person is a corporation and, within 90 days after the limited partnership notifies the person that it will be expelled as a limited partner because it has filed a certificate of dissolution or the equivalent, its charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation, there is no revocation of the certificate of dissolution or no reinstatement of its charter or its right to conduct business; or
      4. the person is a limited liability company or partnership that has been dissolved and whose business is being wound up;
    5. on application by the limited partnership, the person's expulsion as a limited partner by judicial order because:
      1. the person engaged in wrongful conduct that adversely and materially affected the limited partnership's activities;
      2. the person willfully or persistently committed a material breach of the partnership agreement or of the obligation of good faith and fair dealing under § 4-47-305(b); or
      3. the person engaged in conduct relating to the limited partnership's activities which makes it not reasonably practicable to carry on the activities with the person as limited partner;
    6. in the case of a person who is an individual, the person's death;
    7. in the case of a person that is a trust or is acting as a limited partner by virtue of being a trustee of a trust, distribution of the trust's entire transferable interest in the limited partnership, but not merely by reason of the substitution of a successor trustee;
    8. in the case of a person that is an estate or is acting as a limited partner by virtue of being a personal representative of an estate, distribution of the estate's entire transferable interest in the limited partnership, but not merely by reason of the substitution of a successor personal representative;
    9. termination of a limited partner that is not an individual, partnership, limited liability company, corporation, trust, or estate;
    10. the limited partnership's participation in a conversion or merger under subchapter 11, if the limited partnership:
      1. is not the converted or surviving entity; or
      2. is the converted or surviving entity but, as a result of the conversion or merger, the person ceases to be a limited partner.

History. Acts 2007, No. 15, § 1.

4-47-602. Effect of dissociation as limited partner.

  1. Upon a person's dissociation as a limited partner:
    1. subject to § 4-47-704, the person does not have further rights as a limited partner;
    2. the person's obligation of good faith and fair dealing as a limited partner under § 4-47-305(b) continues only as to matters arising and events occurring before the dissociation; and
    3. subject to § 4-47-704 and subchapter 11, any transferable interest owned by the person in the person's capacity as a limited partner immediately before dissociation is owned by the person as a mere transferee.
  2. A person's dissociation as a limited partner does not of itself discharge the person from any obligation to the limited partnership or the other partners which the person incurred while a limited partner.

History. Acts 2007, No. 15, § 1.

4-47-603. Dissociation as general partner.

A person is dissociated from a limited partnership as a general partner upon the occurrence of any of the following events:

  1. the limited partnership's having notice of the person's express will to withdraw as a general partner or on a later date specified by the person;
  2. an event agreed to in the partnership agreement as causing the person's dissociation as a general partner;
  3. the person's expulsion as a general partner pursuant to the partnership agreement;
  4. the person's expulsion as a general partner by the unanimous consent of the other partners if:
    1. it is unlawful to carry on the limited partnership's activities with the person as a general partner;
    2. there has been a transfer of all or substantially all of the person's transferable interest in the limited partnership, other than a transfer for security purposes, or a court order charging the person's interest, which has not been foreclosed;
    3. the person is a corporation and, within 90 days after the limited partnership notifies the person that it will be expelled as a general partner because it has filed a certificate of dissolution or the equivalent, its charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation, there is no revocation of the certificate of dissolution or no reinstatement of its charter or its right to conduct business; or
    4. the person is a limited liability company or partnership that has been dissolved and whose business is being wound up;
  5. on application by the limited partnership, the person's expulsion as a general partner by judicial determination because:
    1. the person engaged in wrongful conduct that adversely and materially affected the limited partnership activities;
    2. the person willfully or persistently committed a material breach of the partnership agreement or of a duty owed to the partnership or the other partners under § 4-47-408; or
    3. the person engaged in conduct relating to the limited partnership's activities which makes it not reasonably practicable to carry on the activities of the limited partnership with the person as a general partner;
  6. the person's:
    1. becoming a debtor in bankruptcy;
    2. execution of an assignment for the benefit of creditors;
    3. seeking, consenting to, or acquiescing in the appointment of a trustee, receiver, or liquidator of the person or of all or substantially all of the person's property; or
    4. failure, within 90 days after the appointment, to have vacated or stayed the appointment of a trustee, receiver, or liquidator of the general partner or of all or substantially all of the person's property obtained without the person's consent or acquiescence, or failing within 90 days after the expiration of a stay to have the appointment vacated;
  7. in the case of a person who is an individual:
    1. the person's death;
    2. the appointment of a guardian or general conservator for the person; or
    3. a judicial determination that the person has otherwise become incapable of performing the person's duties as a general partner under the partnership agreement;
  8. in the case of a person that is a trust or is acting as a general partner by virtue of being a trustee of a trust, distribution of the trust's entire transferable interest in the limited partnership, but not merely by reason of the substitution of a successor trustee;
  9. in the case of a person that is an estate or is acting as a general partner by virtue of being a personal representative of an estate, distribution of the estate's entire transferable interest in the limited partnership, but not merely by reason of the substitution of a successor personal representative;
  10. termination of a general partner that is not an individual, partnership, limited liability company, corporation, trust, or estate; or
  11. the limited partnership's participation in a conversion or merger under subchapter 11, if the limited partnership:
    1. is not the converted or surviving entity; or
    2. is the converted or surviving entity but, as a result of the conversion or merger, the person ceases to be a general partner.

History. Acts 2007, No. 15, § 1.

4-47-604. Person's power to dissociate as general partner — Wrongful dissociation.

  1. A person has the power to dissociate as a general partner at any time, rightfully or wrongfully, by express will pursuant to § 4-47-603(1).
  2. A person's dissociation as a general partner is wrongful only if:
    1. it is in breach of an express provision of the partnership agreement; or
    2. it occurs before the termination of the limited partnership, and:
      1. the person withdraws as a general partner by express will;
      2. the person is expelled as a general partner by judicial determination under § 4-47-603(5);
      3. the person is dissociated as a general partner by becoming a debtor in bankruptcy; or
      4. in the case of a person that is not an individual, trust other than a business trust, or estate, the person is expelled or otherwise dissociated as a general partner because it willfully dissolved or terminated.
  3. A person that wrongfully dissociates as a general partner is liable to the limited partnership and, subject to § 4-47-1001, to the other partners for damages caused by the dissociation. The liability is in addition to any other obligation of the general partner to the limited partnership or to the other partners.

History. Acts 2007, No. 15, § 1.

4-47-605. Effect of dissociation as general partner.

  1. Upon a person's dissociation as a general partner:
    1. the person's right to participate as a general partner in the management and conduct of the partnership's activities terminates;
    2. the person's duty of loyalty as a general partner under § 4-47-408(b)(3) terminates;
    3. the person's duty of loyalty as a general partner under § 4-47-408(b)(1) and (2) and duty of care under § 4-47-408(c) continue only with regard to matters arising and events occurring before the person's dissociation as a general partner;
    4. the person may sign and deliver to the Secretary of State for filing a statement of dissociation pertaining to the person and, at the request of the limited partnership, shall sign an amendment to the certificate of limited partnership which states that the person has dissociated; and
    5. subject to § 4-47-704 and subchapter 11, any transferable interest owned by the person immediately before dissociation in the person's capacity as a general partner is owned by the person as a mere transferee.
  2. A person's dissociation as a general partner does not of itself discharge the person from any obligation to the limited partnership or the other partners which the person incurred while a general partner.

History. Acts 2007, No. 15, § 1.

4-47-606. Power to bind and liability to limited partnership before dissolution of partnership of person dissociated as general partner.

  1. After a person is dissociated as a general partner and before the limited partnership is dissolved, converted under subchapter 11, or merged out of existence under subchapter 11, the limited partnership is bound by an act of the person only if:
    1. the act would have bound the limited partnership under § 4-47-402 before the dissociation; and
    2. at the time the other party enters into the transaction:
      1. less than two years has passed since the dissociation; and
      2. the other party does not have notice of the dissociation and reasonably believes that the person is a general partner.
  2. If a limited partnership is bound under subsection (a), the person dissociated as a general partner which caused the limited partnership to be bound is liable:
    1. to the limited partnership for any damage caused to the limited partnership arising from the obligation incurred under subsection (a); and
    2. if a general partner or another person dissociated as a general partner is liable for the obligation, to the general partner or other person for any damage caused to the general partner or other person arising from the liability.

History. Acts 2007, No. 15, § 1.

4-47-607. Liability to other persons of person dissociated as general partner.

  1. A person's dissociation as a general partner does not of itself discharge the person's liability as a general partner for an obligation of the limited partnership incurred before dissociation. Except as otherwise provided in subsections (b) and (c), the person is not liable for a limited partnership's obligation incurred after dissociation.
  2. A person whose dissociation as a general partner resulted in a dissolution and winding up of the limited partnership's activities is liable to the same extent as a general partner under § 4-47-404 on an obligation incurred by the limited partnership under § 4-47-804.
  3. A person that has dissociated as a general partner but whose dissociation did not result in a dissolution and winding up of the limited partnership's activities is liable on a transaction entered into by the limited partnership after the dissociation only if:
    1. a general partner would be liable on the transaction; and
    2. at the time the other party enters into the transaction:
      1. less than two years has passed since the dissociation; and
      2. the other party does not have notice of the dissociation and reasonably believes that the person is a general partner.
  4. By agreement with a creditor of a limited partnership and the limited partnership, a person dissociated as a general partner may be released from liability for an obligation of the limited partnership.
  5. A person dissociated as a general partner is released from liability for an obligation of the limited partnership if the limited partnership's creditor, with notice of the person's dissociation as a general partner but without the person's consent, agrees to a material alteration in the nature or time of payment of the obligation.

History. Acts 2007, No. 15, § 1.

Subchapter 7 — Transferable Interests and Rights of Transferees and Creditors

4-47-701. Partner's transferable interest.

The only interest of a partner which is transferable is the partner's transferable interest. A transferable interest is personal property.

History. Acts 2007, No. 15, § 1.

4-47-702. Transfer of partner's transferable interest.

  1. A transfer, in whole or in part, of a partner's transferable interest:
    1. is permissible;
    2. does not by itself cause the partner's dissociation or a dissolution and winding up of the limited partnership's activities; and
    3. does not, as against the other partners or the limited partnership, entitle the transferee to participate in the management or conduct of the limited partnership's activities, to require access to information concerning the limited partnership's transactions except as otherwise provided in subsection (c), or to inspect or copy the required information or the limited partnership's other records.
  2. A transferee has a right to receive, in accordance with the transfer:
    1. distributions to which the transferor would otherwise be entitled; and
    2. upon the dissolution and winding up of the limited partnership's activities the net amount otherwise distributable to the transferor.
  3. In a dissolution and winding up, a transferee is entitled to an account of the limited partnership's transactions only from the date of dissolution.
  4. Upon transfer, the transferor retains the rights of a partner other than the interest in distributions transferred and retains all duties and obligations of a partner.
  5. A limited partnership need not give effect to a transferee's rights under this section until the limited partnership has notice of the transfer.
  6. A transfer of a partner's transferable interest in the limited partnership in violation of a restriction on transfer contained in the partnership agreement is ineffective as to a person having notice of the restriction at the time of transfer.
  7. A transferee that becomes a partner with respect to a transferable interest is liable for the transferor's obligations under §§ 4-47-502 and 4-47-509. However, the transferee is not obligated for liabilities unknown to the transferee at the time the transferee became a partner.

History. Acts 2007, No. 15, § 1.

4-47-703. Rights of creditor of partner or transferee.

  1. On application to a court of competent jurisdiction by any judgment creditor of a partner or transferee, the court may charge the transferable interest of the judgment debtor with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of a transferee. The court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor in respect of the partnership and make all other orders, directions, accounts, and inquiries the judgment debtor might have made or which the circumstances of the case may require to give effect to the charging order.
  2. A charging order constitutes a lien on the judgment debtor's transferable interest. The court may order a foreclosure upon the interest subject to the charging order at any time. The purchaser at the foreclosure sale has the rights of a transferee.
  3. At any time before foreclosure, an interest charged may be redeemed:
    1. by the judgment debtor;
    2. with property other than limited partnership property, by one or more of the other partners; or
    3. with limited partnership property, by the limited partnership with the consent of all partners whose interests are not so charged.
  4. This chapter does not deprive any partner or transferee of the benefit of any exemption laws applicable to the partner's or transferee's transferable interest.
  5. This section provides the exclusive remedy by which a judgment creditor of a partner or transferee may satisfy a judgment out of the judgment debtor's transferable interest.

History. Acts 2007, No. 15, § 1.

4-47-704. Power of estate of deceased partner.

If a partner dies, the deceased partner's personal representative or other legal representative may exercise the rights of a transferee as provided in § 4-47-702 and, for the purposes of settling the estate, may exercise the rights of a current limited partner under § 4-47-304.

History. Acts 2007, No. 15, § 1.

Subchapter 8 — Dissolution

4-47-801. Nonjudicial dissolution.

Except as otherwise provided in § 4-47-802, a limited partnership is dissolved, and its activities must be wound up, only upon the occurrence of any of the following:

  1. the happening of an event specified in the partnership agreement;
  2. the consent of all general partners and of limited partners owning a majority of the rights to receive distributions as limited partners at the time the consent is to be effective;
  3. after the dissociation of a person as a general partner:
    1. if the limited partnership has at least one remaining general partner, the consent to dissolve the limited partnership given within 90 days after the dissociation by partners owning a majority of the rights to receive distributions as partners at the time the consent is to be effective; or
    2. if the limited partnership does not have a remaining general partner, the passage of 90 days after the dissociation, unless before the end of the period:
      1. consent to continue the activities of the limited partnership and admit at least one general partner is given by limited partners owning a majority of the rights to receive distributions as limited partners at the time the consent is to be effective; and
      2. at least one person is admitted as a general partner in accordance with the consent;
  4. the passage of 90 days after the dissociation of the limited partnership's last limited partner, unless before the end of the period the limited partnership admits at least one limited partner; or
  5. the signing and filing of a declaration of dissolution by the Secretary of State under § 4-47-809(c).

History. Acts 2007, No. 15, § 1.

4-47-802. Judicial dissolution.

On application by a partner the circuit court may order dissolution of a limited partnership if it is not reasonably practicable to carry on the activities of the limited partnership in conformity with the partnership agreement.

History. Acts 2007, No. 15, § 1.

4-47-803. Winding up.

  1. A limited partnership continues after dissolution only for the purpose of winding up its activities.
  2. In winding up its activities, the limited partnership:
    1. may amend its certificate of limited partnership to state that the limited partnership is dissolved, preserve the limited partnership business or property as a going concern for a reasonable time, prosecute and defend actions and proceedings, whether civil, criminal, or administrative, transfer the limited partnership's property, settle disputes by mediation or arbitration, file a statement of termination as provided in § 4-47-203, and perform other necessary acts; and
    2. shall discharge the limited partnership's liabilities, settle and close the limited partnership's activities, and marshal and distribute the assets of the partnership.
  3. If a dissolved limited partnership does not have a general partner, a person to wind up the dissolved limited partnership's activities may be appointed by the consent of limited partners owning a majority of the rights to receive distributions as limited partners at the time the consent is to be effective. A person appointed under this subsection:
    1. has the powers of a general partner under § 4-47-804; and
    2. shall promptly amend the certificate of limited partnership to state:
      1. that the limited partnership does not have a general partner;
      2. the name of the person that has been appointed to wind up the limited partnership; and
      3. the street and mailing address of the person.
  4. On the application of any partner, the circuit court may order judicial supervision of the winding up, including the appointment of a person to wind up the dissolved limited partnership's activities, if:
    1. a limited partnership does not have a general partner and within a reasonable time following the dissolution no person has been appointed pursuant to subsection (c); or
    2. the applicant establishes other good cause.

History. Acts 2007, No. 15, § 1.

4-47-804. Power of general partner and person dissociated as general partner to bind partnership after dissolution.

  1. A limited partnership is bound by a general partner's act after dissolution which:
    1. is appropriate for winding up the limited partnership's activities; or
    2. would have bound the limited partnership under § 4-47-402 before dissolution, if, at the time the other party enters into the transaction, the other party does not have notice of the dissolution.
  2. A person dissociated as a general partner binds a limited partnership through an act occurring after dissolution if:
    1. at the time the other party enters into the transaction:
      1. less than two years has passed since the dissociation; and
      2. the other party does not have notice of the dissociation and reasonably believes that the person is a general partner; and
    2. the act:
      1. is appropriate for winding up the limited partnership's activities; or
      2. would have bound the limited partnership under § 4-47-402 before dissolution and at the time the other party enters into the transaction the other party does not have notice of the dissolution.

History. Acts 2007, No. 15, § 1.

4-47-805. Liability after dissolution of general partner and person dissociated as general partner to limited partnership, other general partners, and persons dissociated as general partner.

  1. If a general partner having knowledge of the dissolution causes a limited partnership to incur an obligation under § 4-47-804(a) by an act that is not appropriate for winding up the partnership's activities, the general partner is liable:
    1. to the limited partnership for any damage caused to the limited partnership arising from the obligation; and
    2. if another general partner or a person dissociated as a general partner is liable for the obligation, to that other general partner or person for any damage caused to that other general partner or person arising from the liability.
  2. If a person dissociated as a general partner causes a limited partnership to incur an obligation under § 4-47-804(b), the person is liable:
    1. to the limited partnership for any damage caused to the limited partnership arising from the obligation; and
    2. if a general partner or another person dissociated as a general partner is liable for the obligation, to the general partner or other person for any damage caused to the general partner or other person arising from the liability.

History. Acts 2007, No. 15, § 1.

4-47-806. Known claims against dissolved limited partnership.

  1. A dissolved limited partnership may dispose of the known claims against it by following the procedure described in subsection (b).
  2. A dissolved limited partnership may notify its known claimants of the dissolution in a record. The notice must:
    1. specify the information required to be included in a claim;
    2. provide a mailing address to which the claim is to be sent;
    3. state the deadline for receipt of the claim, which may not be less than 120 days after the date the notice is received by the claimant;
    4. state that the claim will be barred if not received by the deadline; and
    5. unless the limited partnership has been throughout its existence a limited liability limited partnership, state that the barring of a claim against the limited partnership will also bar any corresponding claim against any general partner or person dissociated as a general partner which is based on § 4-47-404.
  3. A claim against a dissolved limited partnership is barred if the requirements of subsection (b) are met and:
    1. the claim is not received by the specified deadline; or
    2. in the case of a claim that is timely received but rejected by the dissolved limited partnership, the claimant does not commence an action to enforce the claim against the limited partnership within 90 days after the receipt of the notice of the rejection.
  4. This section does not apply to a claim based on an event occurring after the effective date of dissolution or a liability that is contingent on that date.

History. Acts 2007, No. 15, § 1.

4-47-807. Other claims against dissolved limited partnership.

  1. A dissolved limited partnership may publish notice of its dissolution and request persons having claims against the limited partnership to present them in accordance with the notice.
  2. The notice must:
    1. be published at least once in a newspaper of general circulation in the county in which the dissolved limited partnership's designated office is located or, if it has none in this State, in the county in which the limited partnership's designated office is or was last located;
    2. describe the information required to be contained in a claim and provide a mailing address to which the claim is to be sent;
    3. state that a claim against the limited partnership is barred unless an action to enforce the claim is commenced within five years after publication of the notice; and
    4. unless the limited partnership has been throughout its existence a limited liability limited partnership, state that the barring of a claim against the limited partnership will also bar any corresponding claim against any general partner or person dissociated as a general partner which is based on § 4-47-404.
  3. If a dissolved limited partnership publishes a notice in accordance with subsection (b), the claim of each of the following claimants is barred unless the claimant commences an action to enforce the claim against the dissolved limited partnership within five years after the publication date of the notice:
    1. a claimant that did not receive notice in a record under § 4-47-806;
    2. a claimant whose claim was timely sent to the dissolved limited partnership but not acted on; and
    3. a claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
  4. A claim not barred under this section may be enforced:
    1. against the dissolved limited partnership, to the extent of its undistributed assets;
    2. if the assets have been distributed in liquidation, against a partner or transferee to the extent of that person's proportionate share of the claim or the limited partnership's assets distributed to the partner or transferee in liquidation, whichever is less, but a person's total liability for all claims under this paragraph does not exceed the total amount of assets distributed to the person as part of the winding up of the dissolved limited partnership; or
    3. against any person liable on the claim under § 4-47-404.

History. Acts 2007, No. 15, § 1; 2009, No. 814, § 13.

Amendments. The 2009 amendment substituted “designated office” for “principal office” in (b)(1).

4-47-808. Liability of general partner and person dissociated as general partner when claim against limited partnership barred.

If a claim against a dissolved limited partnership is barred under § 4-47-806 or § 4-47-807, any corresponding claim under § 4-47-404 is also barred.

History. Acts 2007, No. 15, § 1.

4-47-809. Administrative dissolution.

  1. The Secretary of State may dissolve a limited partnership administratively if the limited partnership does not, within 60 days after the due date:
    1. pay any fee, tax, or penalty due to the Secretary of State under this chapter or other law; or
    2. deliver its annual report to the Secretary of State.
  2. If the Secretary of State determines that a ground exists for administratively dissolving a limited partnership, the Secretary of State shall file a record of the determination and serve the limited partnership with a copy of the filed record.
  3. If within 60 days after service of the copy the limited partnership does not correct each ground for dissolution or demonstrate to the reasonable satisfaction of the Secretary of State that each ground determined by the Secretary of State does not exist, the Secretary of State shall administratively dissolve the limited partnership by preparing, signing and filing a declaration of dissolution that states the grounds for dissolution. The Secretary of State shall serve the limited partnership with a copy of the filed declaration.
  4. A limited partnership administratively dissolved continues its existence but may carry on only activities necessary to wind up its activities and liquidate its assets under §§ 4-47-803 and 4-47-812 and to notify claimants under §§ 4-47-806 and 4-47-807.
  5. The administrative dissolution of a limited partnership does not terminate the authority of its agent for service of process.

History. Acts 2007, No. 15, § 1.

4-47-810. Reinstatement following administrative dissolution.

  1. A limited partnership that has been administratively dissolved may apply to the Secretary of State for reinstatement within two years after the effective date of dissolution. The application must be delivered to the Secretary of State for filing and state:
    1. the name of the limited partnership and the effective date of its administrative dissolution;
    2. that the grounds for dissolution either did not exist or have been eliminated; and
    3. that the limited partnership's name satisfies the requirements of § 4-47-108.
  2. If the Secretary of State determines that an application contains the information required by subsection (a) and that the information is correct, the Secretary of State shall prepare a declaration of reinstatement that states this determination, sign, and file the original of the declaration of reinstatement, and serve the limited partnership with a copy.
  3. When reinstatement becomes effective, it relates back to and takes effect as of the effective date of the administrative dissolution and the limited partnership may resume its activities as if the administrative dissolution had never occurred.

History. Acts 2007, No. 15, § 1.

4-47-811. Appeal from denial of reinstatement.

  1. If the Secretary of State denies a limited partnership's application for reinstatement following administrative dissolution, the Secretary of State shall prepare, sign and file a notice that explains the reason or reasons for denial and serve the limited partnership with a copy of the notice.
  2. Within 30 days after service of the notice of denial, the limited partnership may appeal from the denial of reinstatement by petitioning the circuit court to set aside the dissolution. The petition must be served on the Secretary of State and contain a copy of the Secretary of State's declaration of dissolution, the limited partnership's application for reinstatement, and the Secretary of State's notice of denial.
  3. The court may summarily order the Secretary of State to reinstate the dissolved limited partnership or may take other action the court considers appropriate.

History. Acts 2007, No. 15, § 1.

4-47-812. Disposition of assets — When contributions required.

  1. In winding up a limited partnership's activities, the assets of the limited partnership, including the contributions required by this section, must be applied to satisfy the limited partnership's obligations to creditors, including, to the extent permitted by law, partners that are creditors.
  2. Any surplus remaining after the limited partnership complies with subsection (a) must be paid in cash as a distribution.
  3. If a limited partnership's assets are insufficient to satisfy all of its obligations under subsection (a), with respect to each unsatisfied obligation incurred when the limited partnership was not a limited liability limited partnership, the following rules apply:
    1. Each person that was a general partner when the obligation was incurred and that has not been released from the obligation under § 4-47-607 shall contribute to the limited partnership for the purpose of enabling the limited partnership to satisfy the obligation. The contribution due from each of those persons is in proportion to the right to receive distributions in the capacity of general partner in effect for each of those persons when the obligation was incurred.
    2. If a person does not contribute the full amount required under subdivision (c)(1) with respect to an unsatisfied obligation of the limited partnership, the other persons required to contribute by subdivision (c)(1) on account of the obligation shall contribute the additional amount necessary to discharge the obligation. The additional contribution due from each of those other persons is in proportion to the right to receive distributions in the capacity of general partner in effect for each of those other persons when the obligation was incurred.
    3. If a person does not make the additional contribution required by subdivision (c)(2), further additional contributions are determined and due in the same manner as provided in that paragraph.
  4. A person that makes an additional contribution under subsection (c)(2) or (3) may recover from any person whose failure to contribute under subsection (c)(1) or (2) necessitated the additional contribution. A person may not recover under this subsection more than the amount additionally contributed. A person's liability under this subsection may not exceed the amount the person failed to contribute.
  5. The estate of a deceased individual is liable for the person's obligations under this section.
  6. An assignee for the benefit of creditors of a limited partnership or a partner, or a person appointed by a court to represent creditors of a limited partnership or a partner, may enforce a person's obligation to contribute under subsection (c).

History. Acts 2007, No. 15, § 1.

Subchapter 9 — Foreign Limited Partnerships

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

4-47-901. Governing law.

  1. The laws of the State or other jurisdiction under which a foreign limited partnership is organized govern relations among the partners of the foreign limited partnership and between the partners and the foreign limited partnership and the liability of partners as partners for an obligation of the foreign limited partnership.
  2. A foreign limited partnership may not be denied a certificate of authority by reason of any difference between the laws of the jurisdiction under which the foreign limited partnership is organized and the laws of this State.
  3. A certificate of authority does not authorize a foreign limited partnership to engage in any business or exercise any power that a limited partnership may not engage in or exercise in this State.

History. Acts 2007, No. 15, § 1.

4-47-902. Application for certificate of authority.

  1. Before transacting business in this State, a foreign limited partnership shall apply for a certificate of authority to transact business in this State by delivering an application to the Secretary of State for filing. The application must state:
    1. the name of the foreign limited partnership and, if the name does not comply with § 4-47-108, an alternate name adopted pursuant to § 4-47-905(a);
    2. the name of the State or other jurisdiction under whose law the foreign limited partnership is organized;
    3. the street and mailing address of the foreign limited partnership's principal office and, if the laws of the jurisdiction under which the foreign limited partnership is organized require the foreign limited partnership to maintain an office in that jurisdiction, the street and mailing address of the required office;
    4. the information required by § 4-20-105(a) concerning the foreign limited partnership's initial agent for service of process in this State;
    5. the name and street and mailing address of each of the foreign limited partnership's general partners; and
    6. whether the foreign limited partnership is a foreign limited liability limited partnership.
  2. A foreign limited partnership shall deliver with the completed application a certificate of existence or a record of similar import signed by the Secretary of State or other official having custody of the foreign limited partnership's publicly filed records in the State or other jurisdiction under whose law the foreign limited partnership is organized.

History. Acts 2007, No. 15, § 1; 2009, No. 814, § 14.

Amendments. The 2009 amendment, in (a), inserted “Before transacting business in this State” and substituted “shall” for “may” in the introductory language, and substituted “information required by § 4-20-105(a) concerning” for “name and street and mailing address of” in (a)(4).

4-47-903. Activities not constituting transacting business.

  1. Activities of a foreign limited partnership which do not constitute transacting business in this State within the meaning of this chapter include:
    1. maintaining, defending, and settling an action or proceeding;
    2. holding meetings of its partners or carrying on any other activity concerning its internal affairs;
    3. maintaining accounts in financial institutions;
    4. maintaining offices or agencies for the transfer, exchange, and registration of the foreign limited partnership's own securities or maintaining trustees or depositories with respect to those securities;
    5. selling through independent contractors;
    6. soliciting or obtaining orders, whether by mail or electronic means or through employees or agents or otherwise, if the orders require acceptance outside this State before they become contracts;
    7. creating or acquiring indebtedness, mortgages, or security interests in real or personal property;
    8. securing or collecting debts or enforcing mortgages or other security interests in property securing the debts, and holding, protecting, and maintaining property so acquired;
    9. conducting an isolated transaction that is completed within 30 days and is not one in the course of similar transactions of a like manner; and
    10. transacting business in interstate commerce.
  2. For purposes of this chapter, the ownership in this State of income-producing real property or tangible personal property, other than property excluded under subsection (a), constitutes transacting business in this State.
  3. This section does not apply in determining the contacts or activities that may subject a foreign limited partnership to service of process, taxation, or regulation under any other law of this State.

History. Acts 2007, No. 15, § 1.

4-47-904. Filing of certificate of authority.

Unless the Secretary of State determines that an application for a certificate of authority does not comply with the filing requirements of this chapter, the Secretary of State, upon payment of all filing fees, shall file the application, prepare, sign and file a certificate of authority to transact business in this State, and send a copy of the filed certificate, together with a receipt for the fees, to the foreign limited partnership or its representative.

History. Acts 2007, No. 15, § 1.

4-47-905. Noncomplying name of foreign limited partnership.

  1. A foreign limited partnership whose name does not comply with § 4-47-108 may not obtain a certificate of authority until it adopts, for the purpose of transacting business in this State, an alternate name that complies with § 4-47-108. A foreign limited partnership that adopts an alternate name under this subsection and then obtains a certificate of authority with the name need not comply with § 4-32-108. After obtaining a certificate of authority with an alternate name, a foreign limited partnership shall transact business in this State under the name unless the foreign limited partnership is authorized under § 4-32-108 to transact business in this State under another name.
  2. If a foreign limited partnership authorized to transact business in this State changes its name to one that does not comply with § 4-47-108, it may not thereafter transact business in this State until it complies with subsection (a) and obtains an amended certificate of authority.

History. Acts 2007, No. 15, § 1.

4-47-906. Revocation of certificate of authority.

  1. A certificate of authority of a foreign limited partnership to transact business in this State may be revoked by the Secretary of State in the manner provided in subsections (b) and (c) if the foreign limited partnership does not:
    1. pay, within 60 days after the due date, any fee, tax or penalty due to the Secretary of State under this chapter or other law;
    2. deliver, within 60 days after the due date, its annual report required under § 4-47-210;
    3. appoint and maintain an agent for service of process under the Model Registered Agents Act, § 4-20-101 et seq.; or
    4. deliver for filing a statement of a change under § 4-20-108 within 30 days after a change has occurred in the name or address of the agent.
  2. In order to revoke a certificate of authority, the Secretary of State must prepare, sign, and file a notice of revocation and send a copy to the foreign limited partnership's agent for service of process in this State, or if the foreign limited partnership does not appoint and maintain a proper agent in this State, to the foreign limited partnership's principal office. The notice must state:
    1. the revocation's effective date, which must be at least 60 days after the date the Secretary of State sends the copy; and
    2. the foreign limited partnership's failures to comply with subsection (a) which are the reason for the revocation.
  3. The authority of the foreign limited partnership to transact business in this State ceases on the effective date of the notice of revocation unless before that date the foreign limited partnership cures each failure to comply with subsection (a) stated in the notice. If the foreign limited partnership cures the failures, the Secretary of State shall so indicate on the filed notice.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 64; 2009, No. 814, § 15.

Amendments. The 2007 amendment by No. 638, in (a), substituted “4-20-108” for “4-47-114” in (3) and for “4-47-115” in (4); substituted “principal office” for “designated office” in (b); and made a minor stylistic change.

The 2009 amendment substituted “under the Model Registered Agents Act, § 4-20-101 et seq.” for “as required by § 4-20-108” in (a)(3).

Effective Dates. Acts 2007, No. 638, § 70, provided: “Effective date. This act takes effect September 1, 2007.”

4-47-907. Cancellation of certificate of authority — Effect of failure to have certificate.

  1. In order to cancel its certificate of authority to transact business in this State, a foreign limited partnership must deliver to the Secretary of State for filing a notice of cancellation. The certificate is canceled when the notice becomes effective under § 4-47-206.
  2. A foreign limited partnership transacting business in this State may not maintain an action or proceeding in this State unless it has a certificate of authority to transact business in this State.
  3. The failure of a foreign limited partnership to have a certificate of authority to transact business in this State does not impair the validity of a contract or act of the foreign limited partnership or prevent the foreign limited partnership from defending an action or proceeding in this State.
  4. A partner of a foreign limited partnership is not liable for the obligations of the foreign limited partnership solely by reason of the foreign limited partnership's having transacted business in this State without a certificate of authority.
  5. If a foreign limited partnership transacts business in this State without a certificate of authority or cancels its certificate of authority, it appoints the Secretary of State as its agent for service of process for rights of action arising out of the transaction of business in this State.

History. Acts 2007, No. 15, § 1.

4-47-908. Action by Secretary of State.

The Secretary of State may maintain an action to restrain a foreign limited partnership from transacting business in this State in violation of this chapter.

History. Acts 2007, No. 15, § 1.

Subchapter 10 — Actions by Partners

4-47-1001. Direct action by partner.

  1. Subject to subsection (b), a partner may maintain a direct action against the limited partnership or another partner for legal or equitable relief, with or without an accounting as to the partnership's activities, to enforce the rights and otherwise protect the interests of the partner, including rights and interests under the partnership agreement or this chapter or arising independently of the partnership relationship.
  2. A partner commencing a direct action under this section is required to plead and prove an actual or threatened injury that is not solely the result of an injury suffered or threatened to be suffered by the limited partnership.
  3. The accrual of, and any time limitation on, a right of action for a remedy under this section is governed by other law. A right to an accounting upon a dissolution and winding up does not revive a claim barred by law.

History. Acts 2007, No. 15, § 1.

4-47-1002. Derivative action.

A partner may maintain a derivative action to enforce a right of a limited partnership if:

  1. the partner first makes a demand on the general partners, requesting that they cause the limited partnership to bring an action to enforce the right, and the general partners do not bring the action within a reasonable time; or
  2. a demand would be futile.

History. Acts 2007, No. 15, § 1.

4-47-1003. Proper plaintiff.

A derivative action may be maintained only by a person that is a partner at the time the action is commenced and:

  1. that was a partner when the conduct giving rise to the action occurred; or
  2. whose status as a partner devolved upon the person by operation of law or pursuant to the terms of the partnership agreement from a person that was a partner at the time of the conduct.

History. Acts 2007, No. 15, § 1.

4-47-1004. Pleading.

In a derivative action, the complaint must state with particularity:

  1. the date and content of plaintiff's demand and the general partners' response to the demand; or
  2. why demand should be excused as futile.

History. Acts 2007, No. 15, § 1.

4-47-1005. Proceeds and expenses.

  1. Except as otherwise provided in subsection (b):
    1. any proceeds or other benefits of a derivative action, whether by judgment, compromise, or settlement, belong to the limited partnership and not to the derivative plaintiff;
    2. if the derivative plaintiff receives any proceeds, the derivative plaintiff shall immediately remit them to the limited partnership.
  2. If a derivative action is successful in whole or in part, the court may award the plaintiff reasonable expenses, including reasonable attorney's fees, from the recovery of the limited partnership.

History. Acts 2007, No. 15, § 1.

Subchapter 11 — Conversion and Merger

Effective Dates. Acts 2007, No. 638, § 70, Sept. 1, 2007.

4-47-1101. Definitions.

In this subchapter:

  1. “Constituent limited partnership” means a constituent organization that is a limited partnership.
  2. “Constituent organization” means an organization that is party to a merger.
  3. “Converted organization” means the organization into which a converting organization converts pursuant to §§ 4-47-1102 through 4-47-1105.
  4. “Converting limited partnership” means a converting organization that is a limited partnership.
  5. “Converting organization” means an organization that converts into another organization pursuant to § 4-47-1102.
  6. “General partner” means a general partner of a limited partnership.
  7. “Governing statute” of an organization means the statute that governs the organization's internal affairs.
  8. “Organization” means a general partnership, including a limited liability partnership; limited partnership, including a limited liability limited partnership; limited liability company; business trust; corporation; or any other person having a governing statute. The term includes domestic and foreign organizations whether or not organized for profit.
  9. “Organizational documents” means:
    1. for a domestic or foreign general partnership, its partnership agreement;
    2. for a limited partnership or foreign limited partnership, its certificate of limited partnership and partnership agreement;
    3. for a domestic or foreign limited liability company, its articles of organization and operating agreement, or comparable records as provided in its governing statute;
    4. for a business trust, its agreement of trust and declaration of trust;
    5. for a domestic or foreign corporation for profit, its articles of incorporation, bylaws, and other agreements among its shareholders which are authorized by its governing statute, or comparable records as provided in its governing statute; and
    6. for any other organization, the basic records that create the organization and determine its internal governance and the relations among the persons that own it, have an interest in it, or are members of it.
  10. “Personal liability” means personal liability for a debt, liability, or other obligation of an organization which is imposed on a person that co-owns, has an interest in, or is a member of the organization:
    1. by the organization's governing statute solely by reason of the person co-owning, having an interest in, or being a member of the organization; or
    2. by the organization's organizational documents under a provision of the organization's governing statute authorizing those documents to make one or more specified persons liable for all or specified debts, liabilities, and other obligations of the organization solely by reason of the person or persons co-owning, having an interest in, or being a member of the organization.
  11. “Surviving organization” means an organization into which one or more other organizations are merged. A surviving organization may preexist the merger or be created by the merger.

History. Acts 2007, No. 15, § 1.

4-47-1102. Conversion.

  1. An organization other than a limited partnership may convert to a limited partnership, and a limited partnership may convert to another organization pursuant to this section and §§ 4-47-1103 through 4-47-1105 and a plan of conversion, if:
    1. the other organization's governing statute authorizes the conversion;
    2. the conversion is not prohibited by the law of the jurisdiction that enacted the governing statute; and
    3. the other organization complies with its governing statute in effecting the conversion.
  2. A plan of conversion must be in a record and must include:
    1. the name and form of the organization before conversion;
    2. the name and form of the organization after conversion; and
    3. the terms and conditions of the conversion, including the manner and basis for converting interests in the converting organization into any combination of money, interests in the converted organization, and other consideration; and
    4. the organizational documents of the converted organization.

History. Acts 2007, No. 15, § 1.

4-47-1103. Action on plan of conversion by converting limited partnership.

  1. Subject to § 4-47-1110, a plan of conversion must be consented to by all the partners of a converting limited partnership.
  2. Subject to § 4-47-1110 and any contractual rights, after a conversion is approved, and at any time before a filing is made under § 4-47-1104, a converting limited partnership may amend the plan or abandon the planned conversion:
    1. as provided in the plan; and
    2. except as prohibited by the plan, by the same consent as was required to approve the plan.

History. Acts 2007, No. 15, § 1.

4-47-1104. Filings required for conversion — Effective date.

  1. After a plan of conversion is approved:
    1. a converting limited partnership shall deliver to the Secretary of State for filing articles of conversion, which must include:
      1. a statement that the limited partnership has been converted into another organization;
      2. the name and form of the organization and the jurisdiction of its governing statute;
      3. the date the conversion is effective under the governing statute of the converted organization;
      4. a statement that the conversion was approved as required by this chapter;
      5. a statement that the conversion was approved as required by the governing statute of the converted organization; and
      6. a statement confirming that the converted organization has filed a statement appointing an agent for service of process under § 4-20-112 if the converted organization is a foreign organization not authorized to transact business in this State, the street and mailing address of an office which may be used for service of process under § 4-47-1105(c); and
    2. if the converting organization is not a converting limited partnership, the converting organization shall deliver to the Secretary of State for filing a certificate of limited partnership, which must include, in addition to the information required by § 4-47-201:
      1. a statement that the limited partnership was converted from another organization;
      2. the name and form of the organization and the jurisdiction of its governing statute; and
      3. a statement that the conversion was approved in a manner that complied with the organization's governing statute.
  2. A conversion becomes effective:
    1. if the converted organization is a limited partnership, when the certificate of limited partnership takes effect; and
    2. if the converted organization is not a limited partnership, as provided by the governing statute of the converted organization.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 65; 2009, No. 814, § 16.

Amendments. The 2007 amendment by No. 638 substituted “may be used for service of process under” for “the Secretary of State may use for the purposes of” in (a)(1)(F).

The 2009 amendment inserted “a statement confirming that the converted organization has filed a statement appointing an agent for service of process under § 4-20-112” in (a)(1)(F).

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-47-1105. Effect of conversion.

  1. An organization that has been converted pursuant to this subchapter is for all purposes the same entity that existed before the conversion.
  2. When a conversion takes effect:
    1. all property owned by the converting organization remains vested in the converted organization;
    2. all debts, liabilities, and other obligations of the converting organization continue as obligations of the converted organization;
    3. an action or proceeding pending by or against the converting organization may be continued as if the conversion had not occurred;
    4. except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of the converting organization remain vested in the converted organization;
    5. except as otherwise provided in the plan of conversion, the terms and conditions of the plan of conversion take effect; and
    6. except as otherwise agreed, the conversion does not dissolve a converting limited partnership for the purposes of subchapter 8.
  3. A converted organization that is a foreign organization consents to the jurisdiction of the courts of this State to enforce any obligation owed by the converting limited partnership, if before the conversion the converting limited partnership was subject to suit in this State on the obligation. A converted organization that is a foreign organization and not authorized to transact business in this State may be served with process under § 4-20-113 if the converted organization:
    1. fails to appoint an agent for service of process under § 4-20-112;
    2. no longer has an agent for service of process; or
    3. has an agent for service of process that cannot with reasonable diligence be served.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 66; 2009, No. 814, § 17.

Amendments. The 2007 amendment by No. 638 substituted “may be served with process at the address required in the articles of conversion under § 4-47-1104(a)(1)(F)” for “appoints the Secretary of State as its agent for service of process for purposes of enforcing an obligation under this subsection. Service on the Secretary of State under this subsection is made in the same manner and with the same consequences as in § 4-47-117(c) and (d)” in (c).

The 2009 amendment, in (c), substituted “under § 4-20-113 if the converted organization” for “at the address required in the articles of conversion under § 4-47-1104(a)(1)(F)” in the introductory language, added (c)(1) through (c)(3), and made a related change.

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-47-1106. Merger.

  1. A limited partnership may merge with one or more other constituent organizations pursuant to this section and §§ 4-47-1107 through 4-47-1109 and a plan of merger, if:
    1. the governing statute of each of the other organizations authorizes the merger;
    2. the merger is not prohibited by the law of a jurisdiction that enacted any of those governing statutes; and
    3. each of the other organizations complies with its governing statute in effecting the merger.
  2. A plan of merger must be in a record and must include:
    1. the name and form of each constituent organization;
    2. the name and form of the surviving organization and, if the surviving organization is to be created by the merger, a statement to that effect;
    3. the terms and conditions of the merger, including the manner and basis for converting the interests in each constituent organization into any combination of money, interests in the surviving organization, and other consideration;
    4. if the surviving organization is to be created by the merger, the surviving organization's organizational documents; and
    5. if the surviving organization is not to be created by the merger, any amendments to be made by the merger to the surviving organization's organizational documents.

History. Acts 2007, No. 15, § 1.

4-47-1107. Action on plan of merger by constituent limited partnership.

  1. Subject to § 4-47-1110, a plan of merger must be consented to by all the partners of a constituent limited partnership.
  2. Subject to § 4-47-1110 and any contractual rights, after a merger is approved, and at any time before a filing is made under § 4-47-1108, a constituent limited partnership may amend the plan or abandon the planned merger:
    1. as provided in the plan; and
    2. except as prohibited by the plan, with the same consent as was required to approve the plan.

History. Acts 2007, No. 15, § 1.

4-47-1108. Filings required for merger — Effective date.

  1. After each constituent organization has approved a merger, articles of merger must be signed on behalf of:
    1. each preexisting constituent limited partnership, by each general partner listed in the certificate of limited partnership; and
    2. each other preexisting constituent organization, by an authorized representative.
  2. The articles of merger must include:
    1. the name and form of each constituent organization and the jurisdiction of its governing statute;
    2. the name and form of the surviving organization, the jurisdiction of its governing statute, and, if the surviving organization is created by the merger, a statement to that effect;
    3. the date the merger is effective under the governing statute of the surviving organization;
    4. if the surviving organization is to be created by the merger:
      1. if it will be a limited partnership, the limited partnership's certificate of limited partnership; or
      2. if it will be an organization other than a limited partnership, the organizational document that creates the organization;
    5. if the surviving organization preexists the merger, any amendments provided for in the plan of merger for the organizational document that created the organization;
    6. a statement as to each constituent organization that the merger was approved as required by the organization's governing statute;
    7. a statement confirming that the surviving organization has filed a statement appointing an agent for service of process under § 4-20-112 if the surviving organization is a foreign organization not authorized to transact business in this State; and
    8. any additional information required by the governing statute of any constituent organization.
  3. Each constituent limited partnership shall deliver the articles of merger for filing in the office of the Secretary of State.
  4. A merger becomes effective under this subchapter:
    1. if the surviving organization is a limited partnership, upon the later of:
      1. compliance with subsection (c); or
      2. subject to § 4-47-206(c), as specified in the articles of merger;
    2. if the surviving organization is not a limited partnership, as provided by the governing statute of the surviving organization.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 67; 2009, No. 814, § 18.

Amendments. The 2007 amendment by No. 638 substituted “may be used for service of process under” for “the Secretary of State may use for the purposes of” in (b)(7).

The 2009 amendment, in (7), inserted “a statement confirming that the surviving organization has filed a statement appointing an agent for service of process under § 4-20-112,” deleted “the street and mailing address of an office which may be used for service of process under § 4-47-1109(b)” following “this State,” and made a related change.

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-47-1109. Effect of merger.

  1. When a merger becomes effective:
    1. the surviving organization continues or comes into existence;
    2. each constituent organization that merges into the surviving organization ceases to exist as a separate entity;
    3. all property owned by each constituent organization that ceases to exist vests in the surviving organization;
    4. all debts, liabilities, and other obligations of each constituent organization that ceases to exist continue as obligations of the surviving organization;
    5. an action or proceeding pending by or against any constituent organization that ceases to exist may be continued as if the merger had not occurred;
    6. except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of each constituent organization that ceases to exist vest in the surviving organization;
    7. except as otherwise provided in the plan of merger, the terms and conditions of the plan of merger take effect;
    8. except as otherwise agreed, if a constituent limited partnership ceases to exist, the merger does not dissolve the limited partnership for the purposes of subchapter 8;
    9. if the surviving organization is created by the merger:
      1. if it is a limited partnership, the certificate of limited partnership becomes effective; or
      2. if it is an organization other than a limited partnership, the organizational document that creates the organization becomes effective; and
    10. if the surviving organization preexists the merger, any amendments provided for in the articles of merger for the organizational document that created the organization become effective.
  2. A surviving organization that is a foreign organization consents to the jurisdiction of the courts of this State to enforce any obligation owed by a constituent organization, if before the merger the constituent organization was subject to suit in this State on the obligation. A surviving organization that is a foreign organization and not authorized to transact business in this State may be served with process under § 4-20-113 if the surviving organization:
    1. Fails to appoint an agent for service of process under § 4-20-112;
    2. No longer has an agent for service of process; or
    3. Has an agent for service of process that cannot with reasonable diligence be served.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 68; 2009, No. 814, § 19.

Amendments. The 2007 amendment by No. 638 substituted “may be served with process at the address required in the articles of merger under § 4-47-1108(b)(7)” for “appoints the Secretary of State as its agent for service of process for the purposes of enforcing an obligation under this subsection. Service on the Secretary of State under this subsection is made in the same manner and with the same consequences as in § 4-47-117(c) and (d)” in (b).

The 2009 amendment, in (b), substituted “under § 4-20-113 if the surviving organization” for “at the address required in the articles of merger under § 4-47-1108(b)(7)” in the introductory language, added (b)(1), (b)(2), and (b)(3), and made a related change.

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-47-1110. Restrictions on approval of conversions and mergers and on relinquishing limited liability limited partnership status.

  1. If a partner of a converting or constituent limited partnership will have personal liability with respect to a converted or surviving organization, approval and amendment of a plan of conversion or merger are ineffective without the consent of the partner, unless:
    1. the limited partnership's partnership agreement provides for the approval of the conversion or merger with the consent of fewer than all the partners; and
    2. the partner has consented to the provision of the partnership agreement.
  2. An amendment to a certificate of limited partnership which deletes a statement that the limited partnership is a limited liability limited partnership is ineffective without the consent of each general partner unless:
    1. the limited partnership's partnership agreement provides for the amendment with the consent of less than all the general partners; and
    2. each general partner that does not consent to the amendment has consented to the provision of the partnership agreement.
  3. A partner does not give the consent required by subsection (a) or (b) merely by consenting to a provision of the partnership agreement which permits the partnership agreement to be amended with the consent of fewer than all the partners.

History. Acts 2007, No. 15, § 1.

4-47-1111. Liability of general partner after conversion or merger.

  1. A conversion or merger under this chapter does not discharge any liability under §§ 4-47-404 and 4-47-607 of a person that was a general partner in or dissociated as a general partner from a converting or constituent limited partnership, but:
    1. the provisions of this chapter pertaining to the collection or discharge of the liability continue to apply to the liability;
    2. for the purposes of applying those provisions, the converted or surviving organization is deemed to be the converting or constituent limited partnership; and
    3. if a person is required to pay any amount under this subsection:
      1. the person has a right of contribution from each other person that was liable as a general partner under § 4-47-404 when the obligation was incurred and has not been released from the obligation under § 4-47-607; and
      2. the contribution due from each of those persons is in proportion to the right to receive distributions in the capacity of general partner in effect for each of those persons when the obligation was incurred.
  2. In addition to any other liability provided by law:
    1. a person that immediately before a conversion or merger became effective was a general partner in a converting or constituent limited partnership that was not a limited liability limited partnership is personally liable for each obligation of the converted or surviving organization arising from a transaction with a third party after the conversion or merger becomes effective, if, at the time the third party enters into the transaction, the third party:
      1. does not have notice of the conversion or merger; and
      2. reasonably believes that:
        1. the converted or surviving business is the converting or constituent limited partnership;
        2. the converting or constituent limited partnership is not a limited liability limited partnership; and
        3. the person is a general partner in the converting or constituent limited partnership; and
    2. a person that was dissociated as a general partner from a converting or constituent limited partnership before the conversion or merger became effective is personally liable for each obligation of the converted or surviving organization arising from a transaction with a third party after the conversion or merger becomes effective, if:
      1. immediately before the conversion or merger became effective the converting or surviving limited partnership was not a limited liability limited partnership; and
      2. at the time the third party enters into the transaction less than two years have passed since the person dissociated as a general partner and the third party:
        1. does not have notice of the dissociation;
        2. does not have notice of the conversion or merger; and
        3. reasonably believes that the converted or surviving organization is the converting or constituent limited partnership, the converting or constituent limited partnership is not a limited liability limited partnership, and the person is a general partner in the converting or constituent limited partnership.

History. Acts 2007, No. 15, § 1.

4-47-1112. Power of general partners and persons dissociated as general partners to bind organization after conversion or merger.

  1. An act of a person that immediately before a conversion or merger became effective was a general partner in a converting or constituent limited partnership binds the converted or surviving organization after the conversion or merger becomes effective, if:
    1. before the conversion or merger became effective, the act would have bound the converting or constituent limited partnership under § 4-47-402; and
    2. at the time the third party enters into the transaction, the third party:
      1. does not have notice of the conversion or merger; and
      2. reasonably believes that the converted or surviving business is the converting or constituent limited partnership and that the person is a general partner in the converting or constituent limited partnership.
  2. An act of a person that before a conversion or merger became effective was dissociated as a general partner from a converting or constituent limited partnership binds the converted or surviving organization after the conversion or merger becomes effective, if:
    1. before the conversion or merger became effective, the act would have bound the converting or constituent limited partnership under § 4-47-402 if the person had been a general partner; and
    2. at the time the third party enters into the transaction, less than two years have passed since the person dissociated as a general partner and the third party:
      1. does not have notice of the dissociation;
      2. does not have notice of the conversion or merger; and
      3. reasonably believes that the converted or surviving organization is the converting or constituent limited partnership and that the person is a general partner in the converting or constituent limited partnership.
  3. If a person having knowledge of the conversion or merger causes a converted or surviving organization to incur an obligation under subsection (a) or (b), the person is liable:
    1. to the converted or surviving organization for any damage caused to the organization arising from the obligation; and
    2. if another person is liable for the obligation, to that other person for any damage caused to that other person arising from the liability.

History. Acts 2007, No. 15, § 1.

4-47-1113. Chapter not exclusive.

This chapter does not preclude an entity from being converted or merged under other law.

History. Acts 2007, No. 15, § 1.

Subchapter 12 — Miscellaneous Provisions

4-47-1201. Uniformity of application and construction.

In applying and construing this Uniform Act, consideration must be given to the need to promote uniformity of the law with respect to its subject matter among States that enact it.

History. Acts 2007, No. 15, § 1.

4-47-1202. Severability clause.

If any provision of this chapter or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this chapter which can be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable.

History. Acts 2007, No. 15, § 1.

4-47-1203. Relation to Electronic Signatures in Global and National Commerce Act.

This chapter modifies, limits, or supersedes the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001 et seq., but this chapter does not modify, limit, or supersede § 101(c) of that Act or authorize electronic delivery of any of the notices described in § 103(b) of that Act.

History. Acts 2007, No. 15, § 1.

4-47-1204. Effective date.

This chapter takes effect on September 1, 2007.

History. Acts 2007, No. 15, § 1.

4-47-1205. [Reserved.]

  1. Except as otherwise provided in subsection (b), on and after September 1, 2007, this chapter governs all limited partnerships.
  2. With respect to a limited partnership formed before this chapter takes effect, the following rules apply except as the partners otherwise elect in the manner provided in the partnership agreement or by law for amending the partnership agreement:
    1. section 4-47-104(c) does not apply and the limited partnership has whatever duration it had under the law applicable immediately before the limited partnership became subject to this chapter;
    2. the limited partnership is not required to amend its certificate of limited partnership to comply with § 4-47-201(a)(4);
    3. sections 4-47-601 and 4-47-602 do not apply and a limited partner has the same right and power to dissociate from the limited partnership, with the same consequences, as existed immediately before the limited partnership became subject to this chapter;
    4. section 4-47-603(4) does not apply;
    5. section 4-47-603(5) does not apply and a court has the same power to expel a general partner as the court had immediately before the limited partnership became subject to this chapter; and
    6. section 4-47-801(3) does not apply and the connection between a person's dissociation as a general partner and the dissolution of the limited partnership is the same as existed immediately before the limited partnership became subject to this chapter.
  3. If subsection (a) causes a limited partnership that was a limited liability limited partnership under § 4-43-1110 [repealed] to become subject to this chapter:
    1. if immediately before it became subject to this chapter its name complied with § 4-43-1110 [repealed], the affected limited partnership may maintain its name even if the name does not comply with § 4-47-108(c); and
    2. the application to register the limited partnership that was a limited liability limited partnership under § 4-43-1110 [repealed] on file with the Secretary of State pursuant to § 4-43-1110 [repealed] is deemed to amend the limited partnership's certificate of limited partnership to state that the limited partnership is a limited liability limited partnership.

History. Acts 2007, No. 15, § 1.

4-47-1207. Savings clause.

This chapter does not affect an action commenced, proceeding brought, or right accrued before this chapter takes effect.

History. Acts 2007, No. 15, § 1.

4-47-1208. Effect of designation.

Except as otherwise provided in this chapter, a limited partnership remains the same entity for purposes of holding title to or conveying an interest in real or personal property and for all other purposes:

  1. During the winding up of the limited partnership following its dissolution;
  2. Whether the certificate of limited partnership is amended to add or delete a statement that the limited partnership is a limited liability limited partnership pursuant to § 4-47-406(b)(2); and
  3. Regardless of whether the words “limited partnership”, “limited liability limited partnership”, or the designation “LP”, “L.P.”, “LLLP”, or “L.L.L.P.” are used in an instrument conveying an interest in real or personal property to or from the limited partnership or in any other writing.

History. Acts 2007, No. 15, § 1.

4-47-1209. Formation of future limited partnerships.

Beginning on September 1, 2007, no person may form an entity under the Revised Limited Partnership Act of 1991, § 4-43-101 et seq. [repealed].

History. Acts 2007, No. 15, § 1.

Subchapter 13 — Filing Fees

Effective Dates. Acts 2007, No. 638, § 70: Sept. 1, 2007.

Acts 2007, No. 646, § 14: July 1, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that business entities are presently paying different fees for similar services from the Secretary of State; that this act will alleviate any undue hardship to any entity by standardizing business and commercial filing fees; and that this act is immediately necessary to aid the recordkeeping and accounting functions of the Secretary of State and should take effect at the beginning of the state's fiscal year. Therefore, an emergency is declared to exist and this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2007.”

4-47-1301. Fees for limited partnerships.

  1. The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her for filing by a domestic or foreign limited partnership:
  2. The Secretary of State shall collect a fee of twenty-five dollars ($25.00) each time process is served on him or her under this chapter. The party to a proceeding causing service of process is entitled to recover the service of process fee as costs if the party prevails in the proceeding.
  3. The Secretary of State shall collect the following fees for copying and certifying the copy of any filed document relating to a domestic or foreign limited liability limited partnership:
    1. Fifty cents (50¢) per page for copying; and
    2. Five dollars ($5.00) for the certificate.
  4. The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him or her by electronic means:

Document Fee (1) Registration of certificate of domestic limited partnership $50.00 (2) Registration of certificate of foreign limited partnership 300.00 (3) Amendment of certificate of limited partnership 15.00 (4) Change of agent for service No Fee (5) Cancellation or dissolution of certificate of limited partnership 15.00 (6) Assignment of limited partnership interest 15.00 (7) Withdrawal of general partner 15.00 (8) Admission of new general partner 15.00 (9) Merger or consolidation of limited partnership with limited liability company 15.00

Click to view table.

Document Fee Processing Fee (1) Application for fictitious name for domestic limited partnership $ 9.50 $ 4.00 (2) Application for fictitious name of foreign limited partnership $ 9.50 $ 4.00

Click to view table.

History. Acts 2007, No. 15, § 1; 2007, No. 638, § 69; 2007, No. 646, § 13.

A.C.R.C. Notes. Pursuant to § 1-2-207, this section is set out as amended by Acts 2007, No. 646, § 13. Acts 2007, No. 638 also amended this section by deleting the provisions of (a)(4) entirely.

Amendments. The 2007 amendment by No. 638 deleted (a)(4) and redesignated the remaining subdivisions accordingly.

The 2007 amendment by No. 646 substituted “No Fee” for “15.00” in (a)(4).

Effective Dates. Acts 2007, No. 638, § 70: Effective date clause provided: “Effective date. This act takes effect September 1, 2007.”

4-47-1302. Fees for limited liability limited partnerships.

  1. The Secretary of State shall collect the following fees when the documents described in this subsection (a) are delivered to him or her for filing:
  2. The Secretary of State shall collect a fee of twenty-five dollars ($25.00) each time process is served on him or her under this section. The party to a proceeding causing service of process is entitled to recover the service of process fee as costs if the party prevails in the proceeding.
  3. The Secretary of State shall collect the following fees for copying and certifying the copy of any filed document relating to a domestic or foreign limited liability limited partnership:
    1. Fifty cents (50¢) per page for copying; and
    2. Five dollars ($5.00) for the certificate.

Document Fee (1) Application for Registration of Limited Liability Limited Partnership $50.00 (2) Amendment of Certificate of Limited Liability Limited Partnership (includes change or withdrawal of general partner) 25.00 (3) Restatement of Certificate of Limited Liability Limited Partnership. 25.00 (4) Withdrawal of Domestic Limited Liability Limited Partnership 25.00 (5) Application for Certificate of Authority by Foreign Limited Liability Limited Partnership 300.00 (6) Application for Amended Certificate of Authority by Foreign Limited Liability Limited Partnership (includes change or withdrawal or general partner) 300.00 (7) Application for Certificate of Withdrawal by Foreign Limited Liability Limited Partnership 25.00 (8) Application for Certificate of Existence or Authorization by Domestic Limited Liability Limited Partnership 15.00 (9) Application for Registration as a Limited Partnership and Limited Liability Limited Partnership 50.00 (10) Any other document required or permitted to be filed by this chapter 15.00

Click to view table.

History. Acts 2007, No. 15, § 1.

4-47-118. Consent and proxies of partners.

4-47-1206. Application to existing relationships.

Subtitle 5. Contracts, Notes, and Other Commercial Instruments

Chapter 56 General Provisions

4-56-101. Attorney's fees.

  1. A provision in a promissory note for the payment of reasonable attorney's fees, not to exceed ten percent (10%) of the amount of principal due, plus accrued interest, for services actually rendered in accordance with its terms is enforceable as a contract of indemnity.
  2. This section shall apply only to notes executed from and after June 7, 1951.

History. Acts 1951, No. 350, §§ 1, 2; A.S.A. 1947, §§ 68-910, 68-910n.

Research References

Ark. L. Rev.

Taxability of Attorneys' Fees as Costs, 9 Ark. L. Rev. 70.

Note, A Secured Party's Right to Recover Attorney's Fees and Expenses: Svestka v. First National Bank in Stuttgart, 35 Ark. L. Rev. 579.

Case Notes

Constitutionality.

Provision permitting the parties to a note to agree upon a reasonable attorney's fee for the creditor, is not unconstitutional. Hollaway v. Pocahontas Fed. Sav. & Loan Ass'n, 230 Ark. 310, 323 S.W.2d 204 (1959); Hughes v. Lee, 238 Ark. 547, 383 S.W.2d 97 (1964).

In General.

Notwithstanding that the parties have contracted for the recovery of attorney's fees, a party cannot recover attorney's fees unless such fees are expressly provided for by statute. White v. Associates Com. Corp., 20 Ark. App. 140, 725 S.W.2d 7 (1987).

Applicability.

This section provides for attorney's fees only where the underlying instrument is a promissory note. White v. Associates Com. Corp., 20 Ark. App. 140, 725 S.W.2d 7 (1987).

Section 4-9-504 allowing, to the extent provided for in the agreement and not prohibited by law, the reasonable attorney's fees and legal expenses incurred by a secured party in obtaining collateral subsequent to default by a purchaser, is limited by the requirement of this section that the underlying instrument be a promissory note. White v. Associates Com. Corp., 20 Ark. App. 140, 725 S.W.2d 7 (1987).

Agreements Other Than Notes.

A provision in a security instrument for allowance of attorney's fees cannot be enforced under this section since the section limits enforcement of such provisions to those contained in promissory notes. National Bank v. Blankenship, 177 F. Supp. 667 (E.D. Ark. 1959), aff'd, National Bank of Eastern Arkansas v. General Mills, Inc., 283 F.2d 574 (8th Cir. Ark. 1960).

Trial court could not award attorney's fees on the basis of percentage of both unpaid balance of a note and unpaid open account, since this section limits enforcement of provisions for attorney's fees to those contained in promissory note. Bleidt v. 555, Inc., 253 Ark. 766, 489 S.W.2d 235 (1973).

A secured creditor was entitled to allowance of attorney fees as provided in an installment sales contract after the debtor filed a petition for bankruptcy. In re Morris, 602 F.2d 826 (8th Cir. 1979). But see Harper v. Wheatley Implement Co., 278 Ark. 27, 643 S.W.2d 537 (1982).

Attorney's fees are not allowed except when expressly provided for by statute; accordingly, since this section provides for attorney's fees only on promissory notes, the trial court erred in allowing attorney's fees in an action brought on an installment sales contract. Harper v. Wheatley Implement Co., 278 Ark. 27, 643 S.W.2d 537 (1982). But see In re Morris, 602 F.2d 826 (8th Cir. 1979).

In cases not involving promissory notes, a secured party may not collect attorney's fees incurred for services rendered by an attorney in obtaining possession of collateral after default by the purchaser, even though the parties may have contracted for such fees. White v. Associates Com. Corp., 20 Ark. App. 140, 725 S.W.2d 7 (1987).

Allowance.

Fee allowed where attorney's services were necessary in order to recover on note. American-Canadian Oil & Drilling Corp. v. Aldridge & Stroud, Inc., 237 Ark. 407, 373 S.W.2d 148 (1963); Hughes v. Lee, 238 Ark. 547, 383 S.W.2d 97 (1964).

The holder of a note was entitled to attorney's fee even though he failed to recover the full amount claimed. Hughes v. Lee, 238 Ark. 547, 383 S.W.2d 97 (1964).

Amount.

Where collateral note contained a provision for attorney's fees as authorized by law if not paid when due and placed in the hands of an attorney for collection, an attorney's fee of the maximum statutorily allowed percentage could be allowed for services actually rendered in accordance with the terms of the note which is enforceable as a contract of indemnity. May v. National Bank, 231 Ark. 588, 331 S.W.2d 697 (1960).

The court properly allowed a maximum statutory attorney's fee on note, although the same attorneys represented both the maker and the payee, where the maker admitted the validity of the note and that it was due and payable, but its validity was challenged by other parties to the action not represented by these attorneys. American-Canadian Oil & Drilling Corp. v. Aldridge & Stroud, Inc., 237 Ark. 407, 373 S.W.2d 148 (1963).

The time spent and labor required, the novelty and difficulty of the questions involved and the skill required and exercised by the attorneys indicate that the fee allowed by this section is a reasonable fee in this case. First Nat'l Bank v. Magnolia Steel Corp., 261 F. Supp. 283 (W.D. Ark. 1966).

Where promissory notes provided that upon default and collection the promissor must pay ten percent attorney's fees, an award of five percent on the past due principal and interest on the notes as attorney's fees was proper. Although the fee may not exceed the percentage specified in this section, it is within the court's province to determine if the percentage to which the parties agreed is reasonable in view of time and labor involved, the novelty of the question, the necessary skill involved, the customary charges of the bar, the amount in controversy and the benefit resulting to the client for the services. First Nat'l Bank v. Nash, 2 Ark. App. 135, 617 S.W.2d 24 (1981).

This section cannot be interpreted to limit the amount of attorney's fees which can be awarded in an action to recover on a promissory note. Loewer v. National Bank, 311 Ark. 354, 844 S.W.2d 329 (1992).

Priority.

Federal tax liens were entitled to priority over the mortgagee's claim for an attorney's fee because the latter was inchoate when the federal tax liens were filed, inasmuch as at that time the amount of the attorney's fee was uncertain, and there was no showing that the mortgagee had become obligated to pay and had paid any sum for legal services performed prior to the filing of the federal tax lien. United States v. Pioneer Am. Ins. Co., 374 U.S. 84, 83 S. Ct. 1651, 10 L. Ed. 2d 770 (1963), superseded by statute as stated in, Hayden v. Prevatte, 327 F. Supp. 635 (D.S.C. 1971), superseded by statute as stated in, Aetna Ins. Co. v. United States, 456 F.2d 773 (1972), superseded by statute as stated in, United States v. California-Oregon Plywood, Inc., 527 F.2d 687 (9th Cir. Cal. 1975), superseded by statute as stated in, United States v. Crittenden, 563 F.2d 678 (5th Cir. Ga. 1977), superseded by statute as stated in, Shawnee State Bank v. United States, 735 F.2d 308 (8th Cir. Mo. 1984).

Terms of Note.

Failure of a note to provide for attorney's fees was supplied by incorporating in such note by reference a deed of trust which contained a provision for attorney's fees. Geyer v. First Ark. Dev. Fin. Corp., 245 Ark. 694, 434 S.W.2d 301 (1968).

Where promissory note defined “default” in terms of failure to pay a monthly installment when due and attorney's fees were provided for only in case of “default,” the note did not provide for attorneys' fees in an action to collect on the note in event of acceleration based on a due on sale clause. Schulte v. Benton Sav. & Loan Ass'n, 279 Ark. 275, 651 S.W.2d 71 (1983).

Cited: Lewallen v. Bethune, 267 Ark. 976, 593 S.W.2d 64 (1980); Hough v. Continental Leasing Corp., 275 Ark. 340, 630 S.W.2d 19 (1982); Halford v. Southern Capital Corp., 279 Ark. 261, 650 S.W.2d 580 (1983); Damron v. University Estates, Phase II, Inc., 295 Ark. 533, 750 S.W.2d 402 (1988); First Nat'l Bank v. Griffin, 310 Ark. 164, 832 S.W.2d 816 (1992).

4-56-102. Unlawful acts relating to secured interests on certain farm products.

  1. It shall be unlawful for any person who buys soybeans, corn, wheat, rice, or milo from a person engaged in farming operations, or for any commission merchant or selling agent who sells soybeans, corn, wheat, rice, or milo for a person engaged in farming operations for a fee or commission, to knowingly fail to include as joint payee on the check or other instrument issued in payment for the farm products the name of any person disclosed by the seller as having a security interest in the farm products.
  2. It shall be unlawful for any person engaged in farming operations who sells soybeans, corn, wheat, rice, or milo to knowingly fail to disclose the names of any parties having a security interest in the farm products before accepting payment of the proceeds of the sale.
    1. It shall be unlawful for a person who owes payment or other performance of an obligation under a security agreement to sell or otherwise dispose of soybeans, corn, wheat, rice, or milo used as collateral or any part thereof and to knowingly fail to pay to the secured party the amount of the proceeds from such sale or other disposition if the person:
      1. Has no right to sell or otherwise dispose of the farm products used as collateral; or
      2. Has the right to sell or otherwise dispose of the farm products used as collateral, provided that the secured party receives the proceeds from such sale or other disposition.
    2. Failure to pay the proceeds to the secured party within ten (10) days after the sale or other disposition of the collateral shall be prima facie evidence of a knowing failure to pay under this section.
  3. A violation of this section shall be a Class C felony.
  4. The terms used in this section shall have the same meaning as used in the Uniform Commercial Code, Acts 1961, No. 185, as amended.

History. Acts 1985, No. 1067, §§ 1, 2; 1985, No. 1085, §§ 1, 2; A.S.A. 1947, §§ 41-2304.1, 41-2304.2; Acts 2005, No. 1994, § 415.

Publisher's Notes. The Uniform Commercial Code, Acts 1961, No. 185, referred to in this section, is codified as subtitle 1 of this title.

Research References

Ark. L. Notes.

Pedersen, Crop Financing: A Guide to Arkansas Law, 1988 Ark. L. Notes 31.

4-56-103. Reimbursement for taxes.

    1. If a contract requires one (1) party to reimburse another party for the federal excise tax imposed by 26 U.S.C. § 4081 or 26 U.S.C. § 4091, whether as a separate item or as part of the contract price, the reimbursing party at its option and notwithstanding contrary terms of the contract shall not be required to make the reimbursement more than one (1) business day before the day on which the reimbursed party must remit the taxes to the Internal Revenue Service.
    2. Exercise of the option provided by subdivision (a)(1) of this section shall not relieve the reimbursing party of its obligation to make the reimbursement as required by the contract but shall affect only the timing of that reimbursement.
    1. Written notice of the reimbursing party's intent to exercise the option provided in subsection (a) of this section shall be given to the reimbursed party.
    2. The notice shall state the effective date of the exercise of the option which shall be no earlier than thirty (30) days after the notice of intent is received by the reimbursed party or the beginning of the reimbursed party's next federal tax quarter, whichever is later.
    1. If a reimbursing party exercises the option provided in subsection (a) of this section, the reimbursed party may demand security for the payment of the taxes in proportion to the amount the taxes represent compared to the security demanded on the contract as a whole.
    2. The reimbursed party may also require reimbursement to be made by electronic transfer of funds but may not change the other payment terms of the contract without a valid business reason.
    1. This section shall apply to all contracts that are:
      1. Continuing contracts with no fixed expiration date and in effect on August 12, 2005; or
      2. Entered into or renewed after August 12, 2005.
    2. All contracts in effect on August 12, 2005, that contain a fixed expiration date shall be governed by the law as it existed prior to August 12, 2005.

History. Acts 2005, No. 254, § 1.

U.S. Code. Section 4081 of the Internal Revenue Code, Chapter 32, referred to in (a)(1), provides for the imposition of an excise tax on motor fuels. Section 4091 of the Internal Revenue Code, also referred to in (a)(1), provided for the imposition of tax on commercial aviation fuel and was repealed on October 22, 2004, by Pub. L. 108-357.

4-56-104. Hold harmless clause in construction contracts unenforceable — Definitions.

  1. As used in this section:
    1. “Construction” means any of the following services, functions, or combination of the following services or functions to construct a building, building site, or structure, to construct a permanent improvement to a building, building site, or structure, including sitework:
      1. Alteration;
      2. Design;
      3. Erection;
      4. Reconditioning;
      5. Renovation;
      6. Repair; or
      7. Replacement;
      1. “Construction agreement” means the bargain of the parties in fact, as found in the language of the parties or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in § 4-1-303.
      2. “Construction agreement” does not include an insurance contract, a construction bond, or a contract to defend a party against liability;
      1. “Construction contract” means the total legal obligation that results from the parties' agreement as supplemented by any other applicable law.
      2. “Construction contract” does not include an insurance contract, a construction bond, or a contract to defend a party against liability;
    2. “Gas” means natural gas, including casing-head gas and all other hydrocarbons that are not oil under subdivision (a)(5) of this section;
    3. “Oil” means crude petroleum oil and other hydrocarbons regardless of gravity that are produced at the well in liquid form by ordinary production methods and are not the result of condensation of gas after it leaves the reservoir; and
    4. “Operator” means a person that has the right as a landowner or by agreement with a landowner to enter on the land of another to explore, drill, and develop for the production of brine, oil, gas, and any other petroleum hydrocarbons.
  2. A provision in a construction agreement or construction contract is void and unenforceable as against public policy if it requires an entity or that entity's insurer to indemnify, defend, or hold harmless another entity against liability for damage arising out of the death of or bodily injury to a person or persons or damage to property, which arises out of the negligence or fault of the indemnitee, its agents, representatives, subcontractors, or suppliers.
  3. A provision, covenant, clause, or understanding written in a construction agreement or construction contract that conflicts with the provisions and intent of this section or attempts to circumvent this section by making the construction agreement or construction contract subject to the laws of another state, or that requires any litigation, arbitration, or other alternative dispute resolution proceeding arising from the construction agreement or construction contract to be conducted in another state, is void and unenforceable.
  4. A clause described under subsections (b) and (c) of this section is severable from the construction agreement or construction contract and shall not cause the entire construction agreement or construction contract to become unenforceable.
  5. The provisions of this section do not affect any provision in a construction agreement or construction contract:
    1. That requires an entity or that entity's insurer to indemnify another entity against liability for damage arising out of the death of or bodily injury to persons, or damage to property, but the indemnification shall not exceed any amounts that are greater than that represented by the degree or percentage of negligence or fault attributable to the indemnitors, its agents, representatives, subcontractors, or suppliers; or
    2. To provide construction work or services to an operator or other person directly related to activities or operations stemming from the exploration, drilling, production, processing, gathering, or movement of oil or gas, including without limitation the planning, construction, site preparation, or installation of equipment, facilities, or structures, on or off at least one (1) site where any exploration or production operations have occurred, are occurring, or will occur.

History. Acts 2007, No. 874, § 2; 2009, No. 540, § 2; 2011, No. 719, § 1; 2015, No. 1110, §§ 1-4; 2015, No. 1120, §§ 1-4.

A.C.R.C. Notes. Pursuant to § 1-2-207, this section is set out above as amended by Acts 2015, No. 1120. The section heading, subdivisions (a)(4) through (6), subsection (b), and subsection (f) of this section were also amended by Acts 2015, No. 1110, §§ 1-4, to read as follows:

“4-56-104. Unenforceable provisions in construction agreements and construction contracts.

“(a) ***

“(4) ‘Gas’ means natural gas, including casing-head gas and all other hydrocarbons that are not oil under subdivision (a)(5) of this section;

“(5) ‘Oil’ means crude petroleum oil and other hydrocarbons regardless of gravity that are produced at the well in liquid form by ordinary production methods and is not the result of condensation of gas after it leaves the reservoir; and

“(6) ‘Operator’ means a person that has the right as a landowner or by agreement with a landowner to enter on the land of another to explore, drill, and develop for the production of brine, oil, gas, and any other petroleum hydrocarbons.

“(b) A clause or provision in a construction agreement or construction contract is void and unenforceable as against public policy to the extent that:

“(1) A party to the construction agreement or construction contract is required to indemnify, defend, or hold harmless another party against:

“(A) Damage from death or bodily injury to a person arising out of the sole negligence of the indemnitee, its agent, representative, subcontractor, or supplier; or

“(B) Damage to property arising out of the sole negligence of the indemnitee, its agent, representative, subcontractor, or supplier; or

“(2) The clause or provision requires any litigation, arbitration, or other alternative dispute resolution proceeding arising under the construction agreement or construction contract to be conducted in another state.

“(f) The provisions of this section do not affect any provision in a construction agreement or construction contract that requires for the provision of construction work or services to an operator or other person directly related to activities or operations stemming from the exploration, drilling, production, processing, gathering, or movement of oil or gas, including without limitation the planning, construction, site preparation, or installation of equipment, facilities, or structures, on or off at least one (1) site where any exploration or production operations have occurred, are occurring, or will occur.”

Amendments. The 2009 amendment, in (a)(1), deleted “or” preceding “functions,” substituted “to construct a” for “or” preceding “permanent,” and added “including sitework” at the end; deleted “or fault” following “negligence” in (b)(1) and (2); rewrote the introductory language of (e); and made minor stylistic changes.

The 2011 amendment substituted “the language of the parties” for “their language” in (a)(2)(A).

The 2015 amendment by No. 1110 rewrote the section heading; added (a)(4) through (6); rewrote (b); and added (f).

The 2015 amendment by No. 1120 added (a)(4) through (6); rewrote (b); in (c), inserted “covenant, clause,” inserted “written,” inserted “conflicts with the provisions and intent of this section or,” inserted “or that requires any litigation arbitration, or other alternative dispute resolution proceeding arising from the construction agreement or construction contract to be conducted in another state,” and substituted “void and unenforceable” for “unenforceable as against public policy”; and rewrote (e).

Research References

Ark. L. Notes.

Carl Circo, Selected Construction Contract Clauses: From the Routine to the Cutting Edge, 2015 Ark. L. Notes 1800.

Chapter 57 Interest and Usury

Cross References. Maximum lawful rates of interest, Ark. Const. Amend. 60.

Preambles. Acts 1953, No. 330, contained a preamble which read:

“Whereas, since the passage of the Act set forth in Section 9394 of Pope's Digest and in Section 68-604 of Arkansas Statutes (1947) Annotated limiting the reserving of or discounting interest upon commercial paper, mortgages or other securities for periods in excess of 12 months, substantial changes have taken place in our economy, beneficial to our people; and

“Whereas, many loans are being made to the citizens of this State for property improvement under Title I of the National Housing Act, discounted for periods up to 36 months by banks, trust companies, mortgage loan and other companies; and

“Whereas, automobiles, refrigerators, radios, stoves, freezers, farm equipment, tractors, and other items are being financed for purchasers over periods extending to 36 months; Now Therefore,

“In order to eliminate any question as to the legality of reserving or discounting interest upon commercial paper, mortgages or other securities for periods in excess of 12 months….”

Effective Dates. Acts 1868, No. 9, § 9: effective on passage.

Acts 1875, No. 56, § 7: effective on passage.

Acts 1887, No. 39, § 4: effective on passage and applicable to all usurious contracts and securities whether executed before or after its passage.

Acts 1895, No. 150, § 2: effective on passage.

Research References

ALR.

Variable interest rate: usury in connection with loan calling for. 18 A.L.R.4th 1068.

Validity and construction of state statute or rule allowing or changing rate of prejudgment interest in tort actions. 40 A.L.R.4th 147.

Retrospective application and effect of state statute or rule allowing interest or changing rate of interest on judgments or verdicts. 41 A.L.R.4th 694.

Am. Jur. 45 Am. Jur. 2d, Interest & U., § 1 et seq.

Ark. L. Rev.

Survey of Usury Laws, 6 Ark. L. Rev. 26.

The Usury Law in Arkansas — A Study in Evasion, 8 Ark. L. Rev. 399.

The Impact of Usury Law on Banks in Arkansas, 8 Ark. L. Rev. 420.

Recent Developments: Usury: A “Commitment Fee” or “Service Charge” Disbursed From Principal After Closing Is Interest, Arkansas Sav. & Loan Asso. v. Mack Trucks of Arkansas, Inc., 263 Ark. 264, 566 S.W.2d 128 (1978), 32 Ark. L. Rev. 608.

Clark, Interpretation of the Arkansas Usury Law: A Continuation of a Conservative Trend, 33 Ark. L. Rev. 518.

Comments, Usury: Issues in Calculation, 34 Ark. L. Rev. 442.

Note, Conditional Sales Contracts, True Leases, and the Lessee's Right to Terminate, 43 Ark. L. Rev. 899.

Note, Compound Pre-Judgment Interest as an Element of Just Compensation: Wilson v. City of Fayetteville, 47 Ark. L. Rev. 937.

C.J.S. 47 C.J.S., Interest & U., § 1 et seq.

U. Ark. Little Rock L.J.

Note: Cagle v. Boyle Mortgage Co., 1 U. Ark. Little Rock L.J. 86.

Davis, Note: Commercial Law — Usury — Lease Construed as Installment Sale, 2 U. Ark. Little Rock L.J. 112.

Mitchell and Barrier, Usury in Arkansas — Revisited, Revised and Reaffirmed, 2 U. Ark. Little Rock L.J. 323.

A Continuing History of Arkansas's Usury Law: On the Verge of Extinction?, 25 U. Ark. Little Rock L. Rev. 819.

4-57-101. Calculation of interest — Definition.

  1. Whenever in any statute, deed, written or verbal contract, or in any public or private instrument whatever, any certain interest is or may be mentioned, and no period of time is stated for the rate of interest to be calculated, interest shall be calculated at the rate mentioned by the year, in the same manner as if the words “per annum” or “by the year” had been added to the rate.
    1. For the purpose of calculating interest, a month shall be considered the twelfth part of a year, and as consisting of thirty (30) days.
    2. Interest for any number of days less than a month shall be estimated by the proportion which the number of days shall bear to thirty (30).
        1. In calculating interest for a partial payment that is made on a consumer loan, the interest shall be calculated to the time when the partial payment was made, and the partial payment shall first be applied to the payment of the interest.
        2. If the partial payment exceeds the interest due on a consumer loan, the balance of the partial payment shall be applied to reduce the principal of the debt.
      1. The method for calculating interest and applying payments under subdivision (c)(1)(A) of this section shall apply to all subsequent payments.
    1. Interest shall not be added to the principal balance of a consumer loan if a payment falls short of paying the interest due.
    2. Subdivisions (c)(1) and (2) of this section do not apply to commercial credit, including without limitation commercial real estate financing transactions.
    3. As used in this subsection, “consumer loan” means an extension of credit for personal, family, or household purposes but does not include credit card debt, open account debt, or installment loans.
  2. The rate of interest under a contract in which a rate of interest is not specified is six percent (6%) per annum.

History. Rev. Stat., ch. 80, §§ 10-12; C. & M. Dig., §§ 7357-7359; Pope's Dig., §§ 9396-9398; A.S.A. 1947, §§ 68-605 — 68-607; Acts 2013, No. 1214, § 1; 2013, No. 1223, § 1.

Amendments. The 2013 amendment by No. 1214 rewrote subsection (c).

The 2013 amendment by No. 1223 added subsection (d).

Research References

U. Ark. Little Rock L.J.

Note: Cagle v. Boyle Mortgage Co., 1 U. Ark. Little Rock L.J. 86.

Case Notes

Applicability.

This section does not apply to payments made on advancements in a “building and loan” company contract. Reeve v. Ladies Bldg. Ass'n, 56 Ark. 335, 19 S.W. 917 (1892).

Court applied six percent rate of prejudgment interest to a contract that was silent about the interest rate for unpaid indemnity obligations because, in part, the General Assembly's restoration of the 6% rate through this statute reflected Arkansas's public policy on this question. Mo. & N. Ark. R.R. v. Entergy Ark., Inc., No. 1:10-cv-8-DPM, 2013 U.S. Dist. LEXIS 139204 (E.D. Ark. Sept. 27, 2013).

Compound Interest.

This section does not prevent probate courts from compounding interest in cases of abuse of trust by fiduciaries. Price v. Peterson, 38 Ark. 494 (1882).

Where act providing for settlement of indebtedness between counties provided that indebtedness should “bear interest at 5 per cent per annum from date till paid,” if the interest was not paid annually, the installments of interest would not bear interest. State ex rel. Chicot County v. Desha County, 82 Ark. 360, 99 S.W. 1108 (1907).

Where note provided “if interest be not paid annually, to become as principal and bear the same rate of interest” it was clear that it was intention of parties that interest mature annually instead of at maturity of note. McNeil v. Harris, 188 Ark. 706, 67 S.W.2d 602 (1934).

Payments.

Under partial payment rule, fact that money was received by borrower on ninth day of month did not make agreement usurious. Matthews v. Georgia State Sav. Ass'n, 132 Ark. 219, 200 S.W. 130 (1918).

Where monthly payments exceed interest on purchase money for a month the payments must be credited as provided in this section. Rose v. Howell, 171 Ark. 529, 284 S.W. 776 (1926).

Usury.

Contract for loan repayable in monthly installments was not usurious as interest would not be in excess of maximum legal rate. Lyttle v. Mathews Inv. Co., 193 Ark. 849, 103 S.W.2d 47 (1937).

In class action suit against lender for violating usury laws where lender argued that the arbitration clause in its deferred presentment agreement was not a separate agreement, but rather simply part of the whole agreement, and that mutuality had to be analyzed as to the whole agreement, the Supreme Court held that mutuality within the arbitration agreement itself was required. The Money Place, LLC v. Barnes, 349 Ark. 411, 78 S.W.3d 714 (2002).

Cited: Gunther v. Cotner, 192 Ark. 498, 92 S.W.2d 865 (1936); Hoobler v. Holder, 239 Ark. 5, 386 S.W.2d 699 (1965); Davidson v. Commercial Credit Equip. Corp., 255 Ark. 127, 499 S.W.2d 68 (1973); Martin v. Moore, 269 Ark. 375, 601 S.W.2d 838 (1980); Svestka v. First Nat'l Bank, 269 Ark. 237, 602 S.W.2d 604 (1980); Ford Motor Credit Co. v. Hutcherson, 277 Ark. 102, 640 S.W.2d 96 (1982).

4-57-102. Reservation or discounting of interest permitted.

It is lawful for a party to loan money in this state by reserving or discounting interest upon commercial paper, mortgages, or other securities for any period authorized by a rule or regulation of the Federal Housing Administration or its successor or for a period of at least thirty-six (36) months, whichever is greater, at any rate of interest agreed upon by the parties not to exceed the applicable rate of interest, if any, prescribed by Arkansas Constitution, Amendment 89, whether the papers or securities for principal or interest are payable in this state, or in any other state, territory, kingdom, or country.

History. Acts 1868, No. 9, § 7, p. 32; 1875, No. 56, § 5, p. 145; 1895, No. 150, § 1, p. 235; C. & M. Dig., § 7355; Pope's Dig., § 9394; Acts 1953, No. 330, § 1; 1961, No. 71, § 1; A.S.A. 1947, § 68-604; Acts 2013, No. 1124, § 2.

Amendments. The 2013 amendment substituted “is” for “shall be,” “a party to loan” for “all parties loaning,” “by reserving or discounting” for “to reserve or discount,” and “Amendment 89” for “Article 19, § 13”; deleted “any” following “interest upon”; deleted “the rate of interest” following “by the parties”; and inserted “of interest, if any” and “in” following “in this state, or.”

Research References

Ark. L. Rev.

Discounting of Commercial Paper, 7 Ark. L. Rev. 341.

Case Notes

Constitutionality.

This section is not repugnant to the Constitution and is valid so far as it relates to transactions of a commercial kind in short-time paper. Vahlberg v. Keaton, 51 Ark. 534, 11 S.W. 878 (1889); Baird v. Millwood, 51 Ark. 548, 11 S.W. 881 (1889).

Conflict of Laws.

A note and mortgage negotiated, executed, and payable in another state, although on real estate in Arkansas, calling for interest at a rate legal in the other state, but illegal in Arkansas, was governed by the law of the other state on the question of usury. National Sur. Corp. v. Inland Properties, Inc., 286 F. Supp. 173 (E.D. Ark. 1968), aff'd, National Surety Corp. v. Inland Properties, Inc., 416 F.2d 457 (8th Cir. Ark. 1969).

Discount Rate.

Where party to whom promissory note is negotiated, by agreement with maker, obtains note at greater discount than interest would amount to at maximum statutory rate, the transaction was usurious and void. German Bank v. DeShon, 41 Ark. 331 (1883).

Length of Contract.

Discounting paper running for statutory period was not usury. Bank of Newport v. Cook, 60 Ark. 288, 30 S.W. 35 (1895), overruled in part, Fausett & Co. v. G & P Real Estate, Inc., 269 Ark. 481, 602 S.W.2d 669 (1980).

It is usurious to discount paper if the paper runs more than statutory period. Ellis v. Terrell, 109 Ark. 69, 158 S.W. 957 (1913); Castleberry v. Weil, 142 Ark. 627, 219 S.W. 739 (1920) (preceding decisions prior to 1953 amendment).

This section allows discounting of a note to extend up to statutory period under certain circumstances. Arkansas Sav. & Loan Asso. v. Mack Trucks of Arkansas, Inc., 263 Ark. 264, 566 S.W.2d 128 (1978).

Cited: Bridgeman v. Gateway Ford Truck Sales, 296 F. Supp. 233 (E.D. Ark. 1969); Bice Constr. Co. v. CIT Corp., 700 F.2d 465 (8th Cir. 1983); Aetna Life Ins. Co. v. Great Nat'l Corp., 818 F.2d 19 (8th Cir. 1987).

4-57-103. Statement of principal and interest.

  1. Upon written request of the borrower or debtor, any seller, lender, or any other person, corporation, or legal entity extending credit in this state shall furnish the borrower or debtor at the time of extending credit or of making the sale with a statement separately stating the principal and interest charged for any goods, property, or services sold to the borrower or debtor.
    1. Any creditor willfully refusing to furnish the statement of principal and interest as required in this section or who upon furnishing the statement of principal and interest to the borrower or debtor fraudulently misrepresents the amount of principal or interest paid shall be guilty of a violation and upon conviction shall be subject to a fine of not less than fifty dollars ($50.00) nor more than five hundred dollars ($500).
    2. Each violation of this section shall constitute a separate offense.

History. Acts 1969, No. 259, §§ 1, 2; A.S.A. 1947, §§ 68-612, 68-613; Acts 2005, No. 1994, § 37.

4-57-104. Maximum rate of interest permitted.

The parties to a contract may agree in writing to the payment of interest not exceeding the applicable rate of interest, if any, set forth in Arkansas Constitution, Amendment 89, on money due or to become due.

History. Acts 1875, No. 56, § 1, p. 145; C. & M. Dig., § 7353; Pope's Dig., § 9392; A.S.A. 1947, § 68-602; Acts 2013, No. 1124, § 3.

Amendments. The 2013 amendment deleted “whether the contract is under seal or not” preceding “may agree”; inserted “of interest, if any”; and substituted “by Amendment 89” for “Article 19, § 13.”

Research References

Ark. L. Rev.

Legal Control of Business in Arkansas, 5 Ark. L. Rev. 137.

Clark, The Close-Connectedness Doctrine: Preserving Consumer Rights in Credit Transactions, 33 Ark. L. Rev. 490.

U. Ark. Little Rock L.J.

Paulson, Survey of Arkansas Law: Business Law, 2 U. Ark. Little Rock L.J. 161.

Henderson, The Broadened Power of National Banks Regarding Interest Rates on Credit Card Transactions, 3 U. Ark. Little Rock L.J. 115.

Case Notes

Accrual of Interest.

Interest is stopped by a lawful tender. Hamlett v. Tallman & Graves, 30 Ark. 505 (1875); Cole v. Moore, 34 Ark. 582 (1879).

A promissory note payable at a future day, and bearing a specified rate of interest from date, without “until paid,” bears only that rate of interest after maturity. Newton v. Kennerly, 31 Ark. 626 (1876); Pettigrew v. Summers, 32 Ark. 571 (1877); Woodruff v. Webb, 32 Ark. 612 (1877); Gardner v. Barnett, 36 Ark. 476 (1880); Johnson v. Meyer, 54 Ark. 437, 16 S.W. 121 (1891); Harbison v. Hammons, 113 Ark. 120, 167 S.W. 849 (1914); Jewell Realty Co. v. Kansas City Life Ins. Co., 182 Ark. 397, 31 S.W.2d 521 (1930).

Money due by contract shall bear interest at lawful rate from the time it is due. Roberts v. Wilcoxson & Rose, 36 Ark. 355 (1880); Texas & St. L.R.R. v. Donnelly, 46 Ark. 87 (1885).

Where payments are to be made in instalments, when not paid they will draw lawful interest from time payment was due. Iron Mountain & Helena R.R. v. Stansell, 43 Ark. 275 (1884).

Interest is recoverable on insurance policy from time loss is made payable. Southern Ins. Co. v. White, 58 Ark. 277, 24 S.W. 425 (1893); Phoenix Ins. Co. v. Public Parks Amusement Co., 63 Ark. 187, 37 S.W. 959 (1896).

Where there was contest over right to proceeds of certain property and it was agreed that property should be sold and proceeds deposited to await court's action, interest was recoverable only from date of judgment. Citizens Bank v. Arkansas Compress & Whse. Co., 80 Ark. 601, 96 S.W. 997 (1906).

Where person would not have been required to turn over money until demand was made, fact that he improperly paid money to wrong person would not cause interest to run from such payment, but interest would run from date of demand. Wood & Henderson v. Claiborne, 82 Ark. 514, 102 S.W. 219 (1907), superseded by statute as stated in, Walker v. Stephens, 3 Ark. App. 205, 626 S.W.2d 200 (1981).

Obligation to pay money on a designated future date bears interest from maturity. Powhatan Zinc & Lead Mining Co. v. Hill, 98 Ark. 519, 136 S.W. 669 (1911).

Increased rate of interest after maturity, not above the maximum fixed by law, is enforceable. Red Bud Realty Co. v. South, 153 Ark. 380, 241 S.W. 21 (1922).

Where note stipulated interest maturity at specific rate and thereafter until paid at same rate per annum, whether it bore interest from date or from maturity was a question for jury. Heard v. Farmers' Bank, 174 Ark. 194, 295 S.W. 38 (1927).

Where a note and mortgage provided for a specified rate of interest until maturity and a higher rate thereafter and that upon default before maturity in paying interest or taxes that mortgagee might declare the whole debt due, in such case the mortgagee could recover only the original specified rate of interest from the filing of the suit until the date of the decree. Jewell Realty Co. v. Kansas City Life Ins. Co., 182 Ark. 397, 31 S.W.2d 521 (1930).

Burden of Proof.

The burden of proof of usury is upon the party pleading it. Holt v. Kirby, 57 Ark. 251, 21 S.W. 432 (1893).

Computation.

Where mortgage given to secure account provided that items of account which were for money advanced should bear maximum legal rate of interest while other items should bear lesser rate of interest, interest would be allowed at lesser rate of interest only in a suit to foreclose mortgage if plaintiff failed to separate the items. Honnett v. Williams, 66 Ark. 148, 49 S.W. 495 (1899).

Computation of interest at maximum legal rate times borrowed amount on specified date each year regardless of period of time money had been borrowed constituted usury and mortgage securing note was void even though lender thought he was following law since it was not an excusable mistake, such as a mathematical error. Brooks v. Burgess, 228 Ark. 150, 306 S.W.2d 104 (1957).

A carrying charge of a straight rate less than maximum legal rate on all sums advanced regardless of the date when the lender actually parted with the money was usurious when the actual interest computed thereon would exceed maximum legal rate per annum. Harris v. McCann, 229 Ark. 972, 319 S.W.2d 832 (1959).

Evasion.

A contract to pay at a future date a sum larger than the actual debt with lawful interest, but dischargeable by payment of the debt and lawful interest before that time, is not usurious, unless it is a mere device to evade the usury laws. Chaffe & Sons v. Landers, 46 Ark. 364 (1885).

There can be no usury in a sale, but if the sale is a device to cover an usurious loan, it will not be protected by its false cover. Tillar v. Cleveland, 47 Ark. 287, 1 S.W. 516 (1886); Ellenbogen v. Griffey, 55 Ark. 268, 18 S.W. 126 (1892).

In a suit to enforce a note and mortgage securing it, an allegation in the answer that a lease contract was a part of the transaction of borrowing the money and that the consideration of the lease added to the interest in the note made the transaction usurious was insufficient in the absence of any allegation that the lease was a device to cloak usury. Leavitt v. Marathon Oil Co., 186 Ark. 1077, 57 S.W.2d 814 (1933).

Where the evidence showed that a second loan was a device intended to conceal first loan which was admittedly usurious, the second loan was canceled. Pacific Fin. Corp. v. Slayton, 222 Ark. 745, 262 S.W.2d 452 (1953).

Governing Law.

Validity of rate as to usury must be determined by usury statutes of state where made unless it designates another place of payment. Bowles v. Eddy, 33 Ark. 645 (1878).

Laws of another state held to govern on the question of usury. White v. Friedlander, 35 Ark. 52 (1879); National Sur. Corp. v. Inland Properties, Inc., 286 F. Supp. 173 (E.D. Ark. 1968), aff'd, National Surety Corp. v. Inland Properties, Inc., 416 F.2d 457 (8th Cir. Ark. 1969); Bridgeman v. Gateway Ford Truck Sales, 296 F. Supp. 233 (E.D. Ark. 1969), modified, 311 F. Supp. 695 (E.D. Ark. 1970); Bice Constr. Co. v. CIT Corp., 700 F.2d 465 (8th Cir. 1983).

Loan valid where made is valid in Arkansas. Bank of Harrison v. Gibson, 60 Ark. 269, 30 S.W. 39 (1895); Farmers & Mechanics Sav. Co. v. Bazore, 67 Ark. 252, 54 S.W. 339 (1899).

Place of payment controls as to rate of interest. Farmers' Sav. & Bldg. & Loan Ass'n v. Ferguson, 69 Ark. 352, 63 S.W. 797 (1901); Clarke v. Taylor, 69 Ark. 612, 65 S.W. 110 (1901); Crebbin v. Delony, 70 Ark. 493, 69 S.W. 312 (1902).

Law of Arkansas held to govern legality of interest rate. Ellis v. Crowe, 193 Ark. 255, 99 S.W.2d 568 (1936).

In view of fact that Congress had constitutional authority under the commerce clause to set the maximum interest rate that could be charged by FDIC-insured state banks, federal legislation preempted state usury laws, and a promissory note executed and delivered to a state banking association by defendant corporation which agreed to pay interest at a rate allowable under the federal legislation but greater than the state's maximum legal rate was not usurious. Stephens Sec. Bank v. Eppivic Corp., 411 F. Supp. 61 (W.D. Ark. 1976).

Intent.

If it was the intention of the parties to reserve or pay more than maximum legal rate, the agreement is void whether the parties knew the interest was usurious or not. German Bank v. DeShon, 41 Ark. 331 (1883).

A concurrence of the intent of both parties is not essential. Garvin v. Linton, 62 Ark. 370, 35 S.W. 430 (1896), rehearing denied, 62 Ark. 381, 37 S.W. 569 (1896).

There is no usury in contract in which excessive interest is reserved through mistake of fact, but such excess is not recoverable. Garvin v. Linton, 62 Ark. 370, 35 S.W. 430 (1896), rehearing denied, 62 Ark. 381, 37 S.W. 569 (1896); Jarvis v. Southern Grocery Co., 63 Ark. 225, 38 S.W. 148 (1896).

The form of the contract is not material and a contract will be held usurious if from all the facts and circumstances in the case it appears that an intent existed at the time of the making of the contract to take and receive, by way of interest, sum of money in excess of that allowed by law. Habach v. Johnson, 132 Ark. 374, 201 S.W. 286 (1918).

Multiple Transactions.

Note is not usurious because given for money advanced by payee at maker's request to pay off a usurious debt to third person. Lanier v. Union Mtg., Banking & Trust Co., 64 Ark. 39, 40 S.W. 466 (1897).

Taking a new note for the principal and interest of an old one is not usury. Grider v. Driver, 46 Ark. 50 (1885); Morgan v. Rogers, 166 Ark. 327, 266 S.W. 273 (1924).

An agreement for a loan is not rendered usurious because the lender refused to make it unless the borrower would enter into another contract from which the lender might gain advantage, if the collateral agreement was fair and legal. Leavitt v. Marathon Oil Co., 186 Ark. 1077, 57 S.W.2d 814 (1933).

Where original usurious loan was paid off with proceeds of two subsequent loans, evidence was sufficient to find that the three loans were so inextricably linked together that the usurious nature of the original loan extended to the others. Public Loan Corp. v. Weaver, 223 Ark. 902, 270 S.W.2d 888 (1954).

The taint of usury in a subsequent usurious contract does not invalidate a prior lawful contract and the original contract may be enforced if clearly separated from the usury of the subsequent contract. Hughes v. Holden, 229 Ark. 15, 316 S.W.2d 710 (1958).

Oral Agreements.

An agreement to pay more than six per cent interest on a loan of money would not be enforced unless it is in writing. Johnson v. Hull, 57 Ark. 550, 22 S.W. 176 (1893).

One seeking to have a deed declared a mortgage under parol contract to reconvey on repayment of money received with ten per cent interest could not object to recovery of interest at that rate because agreement was not in writing. Walter v. Adams, 138 Ark. 411, 211 S.W. 365 (1919).

Parol Evidence.

Parol testimony held admissible. Kyser v. T.M. Bragg & Sons, 228 Ark. 578, 309 S.W.2d 198 (1958).

Ordinarily parol evidence is not admissible to vary the terms of a written contract, but there is an exception when such evidence is for the purpose of showing usury. Heidelberg S. Sales Co. v. Tudor, 229 Ark. 500, 316 S.W.2d 716 (1958).

Prepayment.

Note bearing interest at highest rate for entire year was not invalidated by fact that money was not loaned until June if there was an agreement of the parties that when loan was closed the note should be reduced by a credit which would bring it within limits of lawful interest. Scruggs v. Scottish-American Mtg. Co., 54 Ark. 566, 16 S.W. 563 (1891).

Involuntary prepayment of principal will make a contract usurious if it results in the interest exceeding the constitutional limitation. Foster v. Universal C.I.T. Credit Corp., 231 Ark. 230, 330 S.W.2d 288 (1959).

A contract, otherwise legal, was not rendered usurious by the makers paying monthly payments in advance. Green v. Mid-State Homes, Inc., 245 Ark. 866, 435 S.W.2d 436 (1968).

The taking of the highest legal rate of interest in advance amounts to usury, if the advance withholding of a one-year loan causes the interest rate to actually exceed the constitutional limitation in Ark. Const., Art. 19, § 13. Fausett & Co. v. G & P Real Estate, Inc., 269 Ark. 481, 602 S.W.2d 669 (1980).

Presumptions.

In the absence of proof of the laws of another state, they will not be presumed to be the same as of this state in regard to usury. Grider v. Driver, 46 Ark. 50 (1885).

Verbal contract entered into in another state to pay certain percentage rate on account is presumed valid. Everton v. Day, 66 Ark. 73, 48 S.W. 900 (1898).

There is no presumption that foreign loan contract is usurious. Sawyer v. Dickson, 66 Ark. 77, 48 S.W. 903 (1898).

Usury is not inferred if the opposite conclusion can be reached. Leonhard v. Flood, 68 Ark. 162, 56 S.W. 781 (1900); Moore v. Owens, 268 Ark. 324, 597 S.W.2d 65 (1980).

Property.

Loan of money at highest lawful rate of interest, made under endorsement of a promise by borrower that he would make a valuable gift of personal property to lender, was usurious. Hendrickson v. Godsey, 54 Ark. 155, 15 S.W. 193 (1891).

Acceptance, in payment of interest on loan, of property which is known to be of greater value than the maximum legal rate of interest on loan renders the note usurious. Sapp v. Cobb, 60 Ark. 367, 30 S.W. 349 (1895).

Remedies.

Where seller of automobile charged usurious interest on contract of sale and made no offer to remit excessive interest or to defend allegations when matter was brought to his attention by defense of usury and evidence showed that excessive interest was charged either because seller did not know how to figure interest or carelessly figured it, such charge was legally inexcusable and buyer was entitled to cancelation of the contract. Holland v. Doan, 228 Ark. 340, 307 S.W.2d 538 (1957).

There can be no recovery of money voluntarily paid on an account, where a usurious rate of interest was charged, except the recovery of the excessive interest. Harris v. McCann, 229 Ark. 972, 319 S.W.2d 832 (1959).

When a contract of sale is set aside for usury the purchaser is entitled to keep the property. Universal C.I.T. Credit Corp. v. Hudgens, 234 Ark. 668, 356 S.W.2d 658 (1962), rev'd, Universal CIT Credit Corp. v. Hudgens, 234 Ark. 1127, 356 S.W.2d 658 (Ark. 1962).

One who had pledged articles to a pawnbroker, contracting to pay a usurious charge on the loan, was entitled to replevin the articles pawned. Miller v. Test, 243 Ark. 694, 421 S.W.2d 345 (1967).

Service Charges, Fees, Etc.

—In General.

Borrower may be required to pay for an abstract of title, for recording mortgage, preparing papers, incidental fees, etc., without violating usury prohibition since those costs are not chargeable as interest. Richardson v. Shattuck, 57 Ark. 347, 21 S.W. 478 (1893); Sidway v. Harris, 66 Ark. 387, 50 S.W. 1002 (1899); Matthews v. Georgia State Sav. Ass'n, 132 Ark. 219, 200 S.W. 130 (1918).

Usury cannot be predicated upon the charge of a profit of maximum legal rate for interest to the cash price of goods sold on credit. Starling v. Hamner, 185 Ark. 930, 50 S.W.2d 612 (1932).

Service or other charges held to make contract usurious. Public Loan Corp. v. Weaver, 223 Ark. 902, 270 S.W.2d 888 (1954); Kyser v. T.M. Bragg & Sons, 228 Ark. 578, 309 S.W.2d 198 (1958); Miller v. Test, 243 Ark. 694, 421 S.W.2d 345 (1967); First Nat'l Bank v. Nowlin, 509 F.2d 872 (8th Cir. 1975); Fausett & Co. v. G & P Real Estate, Inc., 269 Ark. 481, 602 S.W.2d 669 (1980).

When contract gives borrower no information about deferred charges being exacted by the lender, the trier of facts is justified in assuming, until convinced by proof to the contrary, that the difference between the principal of the loan and the face amount of the contract represents interest on the debt. Jones v. Jones, 227 Ark. 836, 301 S.W.2d 737 (1957).

Where contract for sale of merchandise includes some hidden or unitemized charge or other item with a meaningless label as a part of the carrying charges, the lender has the burden of explaining in detail such mysterious hidden charge or it will be considered as part of the interest. Kyser v. T.M. Bragg & Sons, 228 Ark. 578, 309 S.W.2d 198 (1958).

A provision for attorneys' fees, although void, does not per se render an otherwise valid contract usurious. Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964).

Finance charge or time price differential is an amount exacted for the forbearance or extension of time for the payment of the principal balance; therefore, it is interest, as contemplated by Arkansas Constitution and statutes concerning maximum interest charges. Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964).

—Bonus or Commission.

Where lender or agent receives a bonus and loan if for highest rate of interest, the note is usurious. Thompson v. Ingram, 51 Ark. 546, 11 S.W. 881 (1889); Humphrey v. McCauley, 55 Ark. 143, 17 S.W. 713 (1891); Dickey v. Phoenix Fin. Co., 193 Ark. 1145, 104 S.W.2d 806 (1937).

Commissions paid to agent of borrower by the borrower, form no part of the sum paid in determining interest. Baird v. Millwood, 51 Ark. 548, 11 S.W. 881 (1889); May v. Flint, 54 Ark. 573, 16 S.W. 575 (1891); Holt v. Kirby, 57 Ark. 251, 21 S.W. 432 (1893); Sherwood v. Wilkins, 65 Ark. 312, 45 S.W. 988 (1898); Martin v. Adams, 66 Ark. 10, 48 S.W. 494 (1898); Johnson v. Shattuck, 67 Ark. 159, 53 S.W. 888 (1899); McDougall v. Hachmeister, 184 Ark. 28, 41 S.W.2d 1088 (1931).

Loan held not to be usurious despite payment of bonus. Hendrickson v. Godsey, 54 Ark. 155, 15 S.W. 193 (1891).

A loan of money at the highest rate of interest is not rendered usurious by reason of exactions of commission by subagent employed by lender's agent without the lender's authority. Scruggs v. Scottish-American Mtg. Co., 54 Ark. 566, 16 S.W. 563 (1891).

Bonus held to render loan usurious. Jones v. Phillippe, 135 Ark. 578, 206 S.W. 40 (1918); Dickey v. Phoenix Fin. Co., 193 Ark. 1145, 104 S.W.2d 806 (1937).

—Insurance.

An agreement by a borrower to take out insurance on the property which secures the loan does not constitute usury in the absence of a showing that the policy was taken out as a cloak or device to evade the statutes. Matthews v. Georgia State Sav. Ass'n, 132 Ark. 219, 200 S.W. 130 (1918).

Where overcharge on premium on insurance policy in connection with sale of automobile was attributable to an honest mistake which was corrected, it was not a cloak for usury. Griffin v. Murdock Acceptance Corp., 227 Ark. 1018, 303 S.W.2d 242 (1957).

Although amount listed as finance charge in instalment sale of automobile would have been usurious, where it was shown that such amount included actual premiums paid on insurance policies which were signed for by purchaser in separate agreement and that the finance charge was not usurious when such premiums were deducted, the lender sustained the burden of explaining the additional charge. Universal C.I.T. Credit Corp. v. Lackey, 228 Ark. 101, 305 S.W.2d 858 (1957).

In conditional sales contract the signing of voluntary election to purchase credit life and personal accident insurance did not render the contract usurious. Lowrey v. General Contract Corp., 228 Ark. 685, 309 S.W.2d 736 (1958).

Taxes.

Taxes do not bear interest except as specified by statute. Texarkana Water Co. v. State, 62 Ark. 188, 35 S.W. 788 (1896).

When conduct of conditional seller in not remitting sales tax to state did not create presumption of bad faith, the court will not infer that seller's lack of diligence in paying the tax due under Arkansas law was a subterfuge to collect charges in excess of the lawful interest rate. Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964).

For usury purposes, collection by the conditional seller of an amount designated and labeled “sales tax,” for which seller was unquestionably liable to the state of Arkansas, normally should not be computed as part of the interest or an exaction for forbearance. Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964).

Usurious Contracts Generally.

Where usurious interest is carried in a general account for which a note is given, it taints the whole transaction. Pickett v. Merchants Nat'l Bank, 32 Ark. 346 (1877).

Contract held to be usurious. White v. Friedlander, 35 Ark. 52 (1879); Daniels v. Johnson, 234 Ark. 315, 351 S.W.2d 853 (1961).

Contract held not to be usurious. Wallis & Bros. v. Lehman, 36 Ark. 569 (1880); Starling v. Hamner, 185 Ark. 930, 50 S.W.2d 612 (1932); Universal C.I.T. Credit Corp. v. Hudgens, 234 Ark. 668, 356 S.W.2d 658 (1962), rev'd, Universal CIT Credit Corp. v. Hudgens, 234 Ark. 1127, 356 S.W.2d 658 (Ark. 1962); Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964).

There is no usury in a building and loan company contract in the usual form. Reeve v. Ladies Bldg. Ass'n, 56 Ark. 335, 19 S.W. 917 (1892); Taylor v. Van Buren Bldg. & Loan Ass'n, 56 Ark. 340, 19 S.W. 918 (1892); Black v. Tompkins, 63 Ark. 502, 39 S.W. 553 (1897); Farmers' Sav. & Bldg. & Loan Ass'n v. Ferguson, 69 Ark. 352, 63 S.W. 797 (1901).

There can be no usury in a contract which expressly provides that no unlawful interest shall be paid. Taylor v. Van Buren Bldg. & Loan Ass'n, 56 Ark. 340, 19 S.W. 918 (1892).

Where interest at a higher rate than the maximum legal rate was charged on an account, the account was void as to the items as to which the usurious rate of interest was charged. Hall Bros. Co. v. Johnson, 111 Ark. 593, 164 S.W. 278 (1914).

Test whether a contract is usurious is whether the total amount payable by borrower exceeds principal received plus maximum legal rate of interest. McDougall v. Hachmeister, 184 Ark. 28, 41 S.W.2d 1088 (1931).

To constitute usury, there must be an agreement requiring the borrower to pay and entitling the lender to receive a higher rate of interest than the maximum legal rate. Starling v. Hamner, 185 Ark. 930, 50 S.W.2d 612 (1932); Moore v. Owens, 268 Ark. 324, 597 S.W.2d 65 (1980).

Rule that contracts financing sale of merchandise on credit could be attacked for usury where return was more than maximum legal interest rate was not limited to transactions where a loan of money was involved but applied also between the seller and buyer where a credit sale is involved. Sloan v. Sears, Roebuck & Co., 228 Ark. 464, 308 S.W.2d 802 (1957).

A conditional sales contract falls within constitutional and statutory provisions of Arkansas relating to usury. Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964).

A note, with the exception of a short term single payment note, that is usurious under state law is also usurious when made to a national bank. First Nat'l Bank v. Nowlin, 509 F.2d 872 (8th Cir. 1975).

Where a lender violated Arkansas' usury laws, the lender's surety became liable under a bond to satisfy a judgment that a customer won against the lender because the bond's language was not limited to violations of the Check-Cashers Act, §§ 23-52-10123-52-117. Ark. Bd. of Collection Agencies v. McGhee, 372 Ark. 136, 271 S.W.3d 512 (2008).

Cited: Rector v. Collins, 46 Ark. 167 (1885); Garland County v. Hot Spring County, 68 Ark. 83, 56 S.W. 636 (1900); Crisco v. Murdock Acceptance Corp., 222 Ark. 127, 258 S.W.2d 551 (1953); Smith v. Eason, 223 Ark. 747, 268 S.W.2d 389 (1954); Rebsamen Motors, Inc. v. Morris, 229 Ark. 483, 317 S.W.2d 141 (1958); U.S. Manganese Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 576 F.2d 153 (8th Cir. 1978); Barnett v. Borg-Warner Acceptance Corp., 488 F. Supp. 786 (E.D. Ark. 1980); Aetna Life Ins. Co. v. Great Nat'l Corp., 818 F.2d 19 (8th Cir. 1987).

4-57-105. Usurious interest prohibited.

No person or corporation shall, directly or indirectly, take or receive in money, goods, things in action, or any other valuable thing, any greater sum or value for the loan or forbearance of money or goods, things in action, or any other valuable thing, than is prescribed in § 4-57-104.

History. Acts 1875, No. 56, § 2, p. 145; C. & M. Dig., § 7354; Pope's Dig., § 9393; A.S.A. 1947, § 68-603.

Research References

Ark. L. Rev.

Clark, The Close-Connectedness Doctrine: Preserving Consumer Rights in Credit Transactions, 33 Ark. L. Rev. 490.

Case Notes

Applicability.

A conditional sales contract falls within constitutional and statutory provisions relating to usury. Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964).

Where a lender violated Arkansas' usury laws, the lender's surety became liable under a bond to satisfy a judgment that a customer won against the lender because the bond's language was not limited to violations of the Check-Cashers Act, §§ 23-52-10123-52-117 [repealed]. Ark. Bd. of Collection Agencies v. McGhee, 372 Ark. 136, 271 S.W.3d 512 (2008).

Attorney's Fees.

A provision for attorney's fees, although void, does not per se render an otherwise valid contract usurious. Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964).

Preemption.

In view of fact that Congress had constitutional authority under the commerce clause to set the maximum interest rate that could be charged by FDIC-insured state banks, federal legislation, preempted state usury laws and, a promissory note executed and delivered to a state banking association by defendant corporation which agreed to pay interest at a rate allowable under the federal legislation but greater than the state's maximum legal rate was not usurious. Stephens Sec. Bank v. Eppivic Corp., 411 F. Supp. 61 (W.D. Ark. 1976).

Service Charges, Etc.

Finance charge or time price differential is an amount exacted for the forbearance or extension of time for the payment of the principal balance; therefore, it is interest, as contemplated by Arkansas Constitution and statutes concerning maximum interest charges. Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964).

Service or other charge held to render agreement usurious. Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964); Miller v. Test, 243 Ark. 694, 421 S.W.2d 345 (1967); Fausett & Co. v. G & P Real Estate, Inc., 269 Ark. 481, 602 S.W.2d 669 (1980).

Taxes.

When conduct of conditional seller in not remitting sales tax to state Revenue Department (now Department of Finance and Administration) did not create presumption of bad faith, the court will not infer that seller's lack of diligence in paying the tax due under Arkansas law was a subterfuge to collect charges in excess of the lawful interest rate. Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964).

For usury purposes, collection by the conditional seller of an amount designated and labeled “sales tax,” for which seller was unquestionably liable to the state of Arkansas, normally should not be computed as part of the interest or an exaction for forbearance. Pacific Indus., Inc. v. Mountain Inn, Inc., 232 F. Supp. 801 (W.D. Ark. 1964).

Cited: Barnett v. Borg-Warner Acceptance Corp., 488 F. Supp. 786 (E.D. Ark. 1980).

4-57-106. [Repealed.]

Publisher's Notes. This section, concerning usurious bonds, bills, conveyances, etc. being void, was repealed by Acts 2005, No. 1962, § 3, due its having been held repealed by implication in Henslee v. Madison Guar. Sav. & Loan Ass'n , 297 Ark. 183, 760 S.W.2d 842 (1989). The section was derived from Acts 1875, No. 56, § 3, p. 145; C. & M. Dig., § 7363; Pope's Dig., § 9402; A.S.A. 1947, § 68-608.

4-57-107. [Repealed.]

Publisher's Notes. This section, concerning usurious contracts, liens, and conveyances, was repealed by Acts 2005, No. 1962, § 4, due to its having been held repealed by implication in Henslee v. Madison Guar. Sav. & Loan Ass'n , 297 Ark. 183, 760 S.W.2d 842 (1989). The section was derived from Acts 1887, No. 39, §§ 1-3, p. 50; C. & M. Dig., §§ 7364-7366; Pope's Dig., §§ 9403-9405; A.S.A. 1947, §§ 68-609 — 68-611.

4-57-108. [Repealed.]

Publisher's Notes. This section, concerning usurious consumer loans or credit sales and award of attorney's fees, was repealed by Acts 2013, No. 1124, § 4. The section was derived from Acts 1985, No. 245, § 1; A.S.A. 1947, § 68-614.

4-57-109. Consumer lawsuit lending — Definitions.

  1. As used in this section:
    1. “Consumer” means an individual who is or may become a plaintiff or claimant in a dispute;
    2. “Consumer lawsuit lender” means an individual or entity that engages in consumer lawsuit lending;
    3. “Consumer lawsuit lending” means:
      1. Providing money to a consumer to use for any purpose other than prosecuting the consumer's dispute, the repayment of which is conditioned upon and sourced from the consumer's proceeds from the outcome of the dispute by judgment, settlement, or otherwise; and
      2. Purchasing from a consumer a contingent right to receive a share of the proceeds of the consumer's dispute by judgment, settlement, or otherwise; and
    4. “Dispute” means:
      1. A civil action;
      2. An alternative dispute resolution proceeding; or
      3. An administrative proceeding before an agency or instrumentality of the government of this state.
    1. The maximum rate of interest provided by § 4-57-104 applies to a consumer lawsuit lending transaction.
    2. Any amount paid or payable to a consumer lawsuit lender under a consumer lawsuit lending transaction that exceeds the amount provided by the consumer lawsuit lender to the consumer in connection with a consumer's dispute shall be included as interest for purposes of § 4-57-104.
  2. A contract or agreement governing a consumer lawsuit lending transaction shall:
    1. Be in writing; and
      1. Prominently disclose the annual percentage rate applicable to the consumer lawsuit lending transaction.
      2. The annual percentage rate shall be included in bold, 20-point type and Arial font surrounded by a black rectangle border of line weight one point five (1.5), as follows:
  3. A violation of this section is:
    1. A deceptive and unconscionable trade practice under § 4-88-107; and
    2. Subject to the penalties, remedies, and enforcement provided by § 4-88-101 et seq.

“ APR

Click to view table.

History. Acts 2015, No. 915, § 1; 2017, No. 261, § 1.

Amendments. The 2017 amendment substituted “black rectangle border of line weight one point five (1.5)” for “1.5 point rectangle” in (c)(2)(B).

Chapter 58 Assignments

Research References

ALR.

Assignability of proceeds of claim for personal injury or death. 33 A.L.R.4th 82.

Malpractice by attorney: assignability of claim for. 40 A.L.R.4th 684.

Applicability of Article 9 of Uniform Commercial Code to assignment of rights under real-estate sales contracts, lease agreements, or mortgage as collateral for separate transaction. 76 A.L.R.4th 765.

Enforceability, by purchaser or successor of business, of covenant not to compete entered into by predecessor and its employees. 12 A.L.R.5th 847.

Am. Jur. 6 Am. Jur. 2d, Assign., § 1 et seq.

Ark. L. Rev.

Transmissibility of Certain Contingent Future Interests, 5 Ark. L. Rev. 111.

C.J.S. 6A C.J.S., Assign., § 1 et seq.

4-58-101. Remedies unaltered by chapter.

Nothing contained in this chapter shall change the nature of the defense or prevent the allowance of discounts or offsets, either in law or equity, that any defendant may have against the original assignor previous to the assignment or against the plaintiff or assignee after the assignment.

History. Rev. Stat., ch. 11, § 3; C. & M. Dig., § 477; Pope's Dig., § 514; A.S.A. 1947, § 68-803.

Cross References. Note for gambling debt, assignment does not affect defense, § 16-118-103.

Case Notes

In General.

The maker of a note is not, by an assignment, deprived of any defense which he had as against the assignor previous to the assignment. Tatum v. Kelley, 25 Ark. 209 (1868); Union Trust Co. v. Pocahontas Special School Dist., 189 Ark. 1019, 76 S.W.2d 60 (1934).

Consideration.

The maker has the same right to set up the defense of illegality of the consideration against the assignee as he had against the payee, where it did not appear that note had been assigned before maturity. Ruddell v. Landers, 25 Ark. 238 (1868).

Where note was executed as a compromise and part settlement of decree but thereafter decree was set aside, assignee of note obtaining note before decree was set aside was not prejudiced by the setting aside of the decree. Sayre v. Thompson, 28 Ark. 336 (1873).

Discounts or Set-Offs.

Assignee of an open account takes subject to all rights of set-off held by debtor against assignor. Jones v. Model Laundry, 180 Ark. 616, 22 S.W.2d 19 (1929).

Where a contractor makes an assignment to a subcontractor of debts due it from a city, the city can assert any discounts or set-offs it has against the contractor, in a suit by the subcontractor against the city. Robinson v. City of Pine Bluff, 224 Ark. 791, 276 S.W.2d 419 (1955).

Cited: Jones v. State, 40 Ark. 344, 1883 Ark. LEXIS 10 (1883); Roberts v. Feltman, 55 Ark. App. 142, 932 S.W.2d 781 (1996).

4-58-102. Assignment of certain instruments authorized.

All bonds, bills, notes, agreements, and contracts in writing for the payment of money or property, or for both money and property, shall be assignable.

History. Rev. Stat., ch. 11, § 1; C. & M. Dig., § 475; Pope's Dig., § 512; A.S.A. 1947, § 68-801.

Research References

U. Ark. Little Rock L.J.

Arkansas Law Survey, Looney, Business Law, 8 U. Ark. Little Rock L.J. 99.

Case Notes

Construction.

There was not an irreconcilable conflict between § 23-85-114(b)(2) and this section and the insurance code provisions did not repeal the general law on assignments. American Medical Int'l, Inc. v. Arkansas Blue Cross & Blue Shield, 299 Ark. 514, 773 S.W.2d 831 (1989).

Applicability.

The Employee Retirement Income Security Act of 1974 (ERISA) does not preempt the Arkansas assignment statute, as the assignment statute applies to welfare benefits payable under ERISA plans. Arkansas Blue Cross & Blue Shield v. St. Mary's Hosp., 947 F.2d 1341 (8th Cir. 1991), cert. denied, 504 U.S. 957, 112 S. Ct. 2305 (1992).

Acknowledgments of Debt.

A written acknowledgment of a debt, signed by the maker, is assignable, and may be sued on by the holder, without making his assignor a party, although there is no written assignment upon it. St. Louis, I. M. & S. Ry. v. Camden Bank, 47 Ark. 541, 1 S.W. 704 (1886).

Automobile Insurance Benefits.

Automobile insurer's payment of med-pay benefits to a medical center over the insured's objections was upheld where: the policy stated that benefits can be paid “to or for” the insured; sections 23-89-202 and 23-89-204 do not mandate payment only to the insured; section 4-58-102 allows an insured to assign the right to receive insurance proceeds, as the insured had done in this case, and the insurer was obligated by law to honor the assignment and lien; section 23-85-114(b) does not apply to automobile insurance; and there was no evidence that the insured had advised either the insurer or the medical center of a revocation of the specific assignment of benefits to the medical center. United Servs. Auto. Ass'n v. Norton, 2020 Ark. App. 100, 596 S.W.3d 522 (2020).

Bill of Lading.

Bill of lading was assignable. Price v. New York, C. & S. L. R. Co., 175 Ark. 688, 300 S.W. 373 (1927).

Causes of Action.

In an action by the insurer against the person whose negligence is alleged to have caused a fire loss which the insurer paid, the insured was a necessary party as the cause of action was not assignable at law. National Fire Ins. Co. v. Pettit-Galloway Co., 157 Ark. 333, 248 S.W. 262 (1923).

Contracts.

A contract for the sale of chattels which involves no personal relation of confidence between the parties and no personal skill or science may be assigned. Roberts Cotton Oil Co. v. F.E. Morse & Co., 97 Ark. 513, 135 S.W. 334 (1911).

Where purchaser of a mercantile business, as part of the price agreed to pay certain of seller's debts, the purchaser was liable to the assignee of seller's creditor. National Trust & Credit Co. v. Polk, 123 Ark. 24, 183 S.W. 195 (1916).

An executory contract for the purchase of land is assignable. Corcorren v. Sharum, 141 Ark. 572, 217 S.W. 803 (1920).

Contract of sale providing for retention of deed and abstract conditional on making of periodic payments can be assigned by vendor. Lancaster v. Robinson, 221 Ark. 767, 256 S.W.2d 330 (1953).

A letter stating that if a contractor does not pay a subcontractor, he can deliver the letter to a city commission as an assignment of money due the contractor under a valid contract, constitutes an equitable assignment with or without the debtors acceptance, since no particular words are necessary and since it is the transfer of an interest under the assignor's express intention. Robinson v. City of Pine Bluff, 224 Ark. 791, 276 S.W.2d 419 (1955).

Principal stockholder who in contract of sale agreed to pay all liabilities of corporation that were then outstanding, assumed corporate liabilities, and was responsible for a claim that existed under a certain contract, and where the corporation discharged obligation to the creditor's satisfaction, the principal stockholder had received the benefit of the transaction and was required to satisfy the record of the mortgage indebtedness. Harris v. Helena Rice Drier, Inc., 227 Ark. 205, 297 S.W.2d 652 (1957).

Escrow Agreements.

Where the original buyer of corporate stock under escrow agreement did not assign to assignee any more than he was entitled to under the escrow agreement, i.e., the right to pay off the price of the stock in annual installments, such assignment was valid and upon fulfillment of the condition, the assignee would then be entitled to whatever rights the assignor would have had upon the fulfillment of the condition. Estate of Ingram v. Kochtitzky, 282 Ark. 203, 668 S.W.2d 1 (1984), rehearing denied, 282 Ark. 206a, 671 S.W.2d 162 (1984).

Garnishment of Proceeds.

Where debtor-employee had assigned the proceeds of a service contract to a bank, the trial court did not err in quashing a garnishment on the employer and paying the money to the bank. Watkins v. Hadamek, 48 Ark. App. 78, 892 S.W.2d 515 (1994).

Open Accounts.

An open account is not an assignable instrument. St. Louis, I. M. & S. Ry. v. Camden Bank, 47 Ark. 541, 1 S.W. 704 (1886); Oberste Bros. v. Crabtree, 175 Ark. 107, 299 S.W. 6 (1927); Maryland Cas. Co. v. People's Lumber & Supply Co., 181 Ark. 761, 27 S.W.2d 1023 (1930).

Promissory Notes.

Promissory note is assignable. Higginbotham v. Ritter, 200 Ark. 376, 139 S.W.2d 27 (1940).

Although debtor executed a back-dated assignment purporting to convey all of his right, title, and interest in a promissory note to his parents, their interest in its proceeds was superior to that of debtor's creditors under this section and § 4-58-105, where the parties to the assignment did not intend an absolute transfer of the note, but merely the creation of a security interest. Luker v. Reeves, 65 F.3d 670 (8th Cir. 1995).

Warrants.

Where a county court made an order of allowance and issued warrants based thereon, the warrants were assignable and the assignee could appeal from a subsequent order of the county court canceling the warrants as improperly issued. Woodruff County v. Road Improv. Dist., 159 Ark. 374, 252 S.W. 930 (1923).

Writing Required.

Only agreements or contracts in writing are assignable. Chicago, Rock Island & Pac. Ry. v. Cobbs, 151 Ark. 207, 235 S.W. 995 (1921).

Cited: Estate of Ingram v. Kochtitzky, 282 Ark. 206a, 671 S.W.2d 162 (1984).

4-58-103. Consideration.

It shall not be necessary for any assignee to set forth the consideration of any of the assignments on any such assigned paper.

History. Rev. Stat., ch. 11, § 5; C. & M. Dig., § 480; Pope's Dig., § 517; A.S.A. 1947, § 68-807.

Case Notes

Pleading.

It is not necessary that the assignee set forth the consideration for the assignment in his motion to be made sole plaintiff. Higginbotham v. Ritter, 200 Ark. 376, 139 S.W.2d 27 (1940).

Cited: Smith v. National Cashflow Sys., 309 Ark. 101, 827 S.W.2d 146 (1992).

4-58-104. Date of assignment.

  1. All assignments of any instruments of writing shall bear the date upon which the assignment was made.
  2. All blank assignments shall be taken to have been made on the day most to the advantage of the defendant.

History. Rev. Stat., ch. 11, §§ 6, 7; C. & M. Dig., §§ 481, 482; Pope's Dig., §§ 518, 519; A.S.A. 1947, §§ 68-808, 68-809.

Case Notes

Blank Assignments.

Subsection (b) applies only where there is no evidence as to date of assignment. Trieber v. Commercial Bank, 31 Ark. 128 (1876). See also Trader v. Chidester, 41 Ark. 242 (1883).

The rule of subsection (b) may be overcome by proof that the assignment was made before maturity of the note. Tabor v. Merchants Nat'l Bank, 48 Ark. 454, 3 S.W. 805 (1886).

4-58-105. Completion of assignments — Rights and remedies of debtor and subsequent assignees.

  1. Every written assignment made in good faith, whether in the nature of a sale, pledge, or other transfer, or on account receivable or any moneys due or to become due on an open account or on a contract, except for wages and salaries, all of which shall be hereinafter referred to as “account”, with or without the giving of notice of the assignment to the debtor, shall be valid and complete at the time of the making of the assignment and shall be deemed to have been fully perfected at that time.
    1. After an assignment made in good faith is complete, no bona fide purchaser from the assignor, no creditor of the assignor, and no other assignee or transferee of the assignor in any event shall have or be deemed to have acquired any right or interest in the account so assigned or transferred or in the proceeds thereof or in any obligation substituted therefor, superior to the rights and interest therein of the assignee.
    2. In any case where, acting without knowledge of the assignment or transfer, the debtor in good faith pays all or part of such account to the assignor or to the creditor, subsequent purchaser, or other assignee and transferee, all payments so made shall be acquittance to the debtor to the extent thereof, and the assignor, creditor, subsequent purchaser, or other assignee and transferee shall be a trustee of any sums so paid and shall be accountable and liable to the prior assignee thereof.
    3. However, any defense of the debtor against any account so assigned or transferred shall be good as against any subsequent purchaser or other assignee and transferee.

History. Acts 1945, No. 118, § 1; A.S.A. 1947, § 68-805.

Case Notes

Applicability.

This section is not intended to apply to assignments of rent. A lease is not a contract but a conveyance, and rent is not a mere income stream, and thus personalty, but an interest in realty subject to all the rules of conveyancing. First Fed. Sav. v. City Nat'l Bank, 87 B.R. 565 (W.D. Ark. 1988).

Relationship to Other Laws.

Subdivision (b)(2) of this section simply prescribed the legal effect when a party to an assigned account in good faith paid the assignor rather than the unknown assignee; the mere use of the word “trustee,” when viewed in the context of the statute as a whole, did not reflect a legislative intent to create the kind of express or technical trust required in the strict and narrow sense under 11 U.S.C. § 523(a)(4), and therefore, the $65,000 debt was not nondischargeable under 11 U.S.C. § 523(a)(4). Arvest Mortg. Co. v. Nail (In re Nail), 680 F.3d 1036 (8th Cir. 2012).

Assignment provision in the mortgage documents merely served as a collection device for miscellaneous proceeds (funds owned by debtor that she was contractually obligated to remit to the mortgage company); thus, even if the settlement proceeds from the builder were miscellaneous proceeds, debtor's alleged failure to comply with the assignment provision was a dischargeable breach of contract, not a nondischargeable embezzlement. Arvest Mortg. Co. v. Nail (In re Nail), 680 F.3d 1036 (8th Cir. 2012).

Security Interest Created.

Although debtor executed a back-dated assignment purporting to convey all of his right, title, and interest in a promissory note to his parents, their interest in its proceeds was superior to that of debtor's creditors under this section and § 4-58-102, where the parties to the assignment did not intend an absolute transfer of the note, but merely the creation of a security interest. Luker v. Reeves, 65 F.3d 670 (8th Cir. 1995).

Sureties.

The rights of a surety to funds in the hands of the owner, when a contractor defaults, are superior to the rights of an assignee of the contractor, as the assignee stands in the contractor's position. Exchange Bank & Trust Co. v. Texarkana School Dist., 227 Ark. 759, 301 S.W.2d 453 (1957).

Unauthorized Practice of Law.

If an assignee was engaged in the unauthorized practice of law by bringing an action on the assigned list, it would not extinguish or invalidate a just debt. Smith v. National Cashflow Sys., 309 Ark. 101, 827 S.W.2d 146 (1992).

Cited: Newton v. Merchants & Farmers Bank, 11 Ark. App. 167, 668 S.W.2d 51 (1984).

4-58-106. Powers of assignor after assignment.

No assignor shall be able to release any part of the consideration of the instrument by him or her assigned after the assignment thereof.

History. Rev. Stat., ch. 11, § 8; C. & M. Dig., § 483; Pope's Dig., § 520; A.S.A. 1947, § 68-810.

Case Notes

Cited: Mammoth Vein Coal Co. v. Bishop, 113 Ark. 585, 168 S.W. 1086 (1914); United Servs. Auto. Ass'n v. Norton, 2020 Ark. App. 100, 596 S.W.3d 522 (2020).

4-58-107. Vendor's lien inures to benefit of assignee.

The lien or equity held or possessed by the vendor of any real estate for the sale of the real estate shall inure to the benefit of any assignee of the notes or obligations given for the purchase money of the real estate, and the lien or equity shall be assignable and payable by endorsement or otherwise, in the hands of the assignee, and any such assignee may maintain an action or suit to enforce the lien or equity if the lien or equity is expressed upon or appears from the face of the deed of conveyance.

History. Civil Code, § 28; Acts 1873, No. 88, § 1[28], p. 213; C. & M. Dig., § 476; Pope's Dig., § 513; A.S.A. 1947, § 68-802.

Case Notes

Applicability.

This section only applies to assignments made after the passage of the Civil Code. Campbell v. Rankin, 28 Ark. 401 (1873).

Assignee's Rights.

When it appeared on the face of the deed that the land was sold on time and notes were given for the purchase money, the vendor's lien passed to his assignee of the notes. Stephens v. Anthony, 37 Ark. 571 (1881); Beard v. Bank of Osceola, 126 Ark. 420, 190 S.W. 849 (1916).

Bona Fide Purchasers.

A vendor's lien reserved in a deed as security for the purchase notes of land is analogous to a mortgage and passes with the transfer of the notes to a bona fide purchaser freed from any defenses which the grantee had against the grantor. Pullen v. Ward, 60 Ark. 90, 28 S.W. 1084 (1894); Fullerton v. Storthz, 182 Ark. 751, 33 S.W.2d 714 (1930).

Where a purchaser of land gave a series of negotiable notes in payment therefor and deed was recorded and recited the retention of a vendor's lien to secure payment of the notes, an innocent purchaser of the notes was entitled to enforce the lien retained for their payment and the right was not defeated by a subsequent reconveyance by the buyer to the seller. Hebert v. Fellheimer, 115 Ark. 366, 171 S.W. 144 (1914).

Where a bank took certain notes reciting a vendor's lien as collateral security for a note, the maker of the note, defaulted in payment, the bank was an innocent purchaser entitled to a foreclosure of the vendor's lien as against a judgment creditor of the maker of note who had secured a sale of the property on execution. Harrison v. Caddo Valley Bank, 128 Ark. 462, 194 S.W. 854 (1917).

An endorsement of a vendor's lien “without recourse” to a bona fide purchaser does not release the lien. Hankins v. Merchants & Planters Bank, 161 Ark. 221, 255 S.W. 916 (1923).

Mortgages.

Where agreement was to take mortgage instead of retaining vendor's lien, although mortgage was never issued, the vendor or his assignee would have same rights as if mortgage had been issued. Richardson & May v. Hamlett, 33 Ark. 237 (1878).

Cited: Campbell v. Rankin, 28 Ark. 401 (1873); Talieferro v. Barnett, 37 Ark. 511 (1881).

4-58-108. Liability of assignors upon nonpayment or protest of instrument.

All endorsers or assignors of any instrument in writing assignable by law for the payment of money alone, on receiving due notice of the nonpayment or protest of any endorsed or assigned instrument in writing, shall be equally liable with the maker, obligor, or payee of the instrument, and may be sued for the same at the same time with the maker, obligor, or payee thereof, or may be sued separately.

History. Rev. Stat., ch. 11, § 9; C. & M. Dig., § 484; Pope's Dig., § 521; A.S.A. 1947, § 68-811.

Case Notes

Applicability.

This section is expressly limited to instruments for the payment of money alone. Jones v. State, 40 Ark. 344, 1883 Ark. LEXIS 10 (1883).

Waiver.

Where promissory note contains an express waiver of notice, this section would apply although no notice is given and maker may be sued with endorser in county of endorser's residence. Gibson v. Talley, 206 Ark. 1, 174 S.W.2d 551 (1943).

Waiver of notice and protest accompanied by an unqualified endorsement renders the endorser equally liable to the holder of the note. Haley v. Greenhaw, 235 Ark. 481, 360 S.W.2d 753 (1962).

Cited: Jones v. State, 40 Ark. 344, 1883 Ark. LEXIS 10 (1883); Barr v. Cockrill, 224 Ark. 570, 275 S.W.2d 6 (1955).

4-58-109. Proof of assignment — Pleadings.

The assignee of any instrument in writing made assignable by law, on bringing suit on any assigned paper, shall not be required to prove the assignment unless the defendant annexes to his or her answer an affidavit denying the assignment and stating in the affidavit that he or she verily believes that one (1) or more of the assignments on the instrument of writing was forged.

History. Rev. Stat., ch. 11, § 4; C. & M. Dig., § 479; Pope's Dig., § 516; A.S.A. 1947, § 68-806.

Case Notes

In General.

An assignment need not be proved unless denied. Winer v. Bank of Blytheville, 89 Ark. 435, 117 S.W. 232 (1909); Webb v. Alma Cash Store, 160 Ark. 290, 254 S.W. 670 (1923).

Applicability.

This section applies only to assignments in writing. School-District v. Reeve, 56 Ark. 68, 19 S.W. 106 (1892).

This section only applies if written documentation of an assignment has been produced by the plaintiff. Beal Bank v. Thornton, 70 Ark. App. 336, 19 S.W.3d 48 (2000).

Cited: Smith v. National Cashflow Sys., 309 Ark. 101, 827 S.W.2d 146 (1992).

4-58-110. Recovery by plaintiff.

The plaintiff in the several actions shall collect only the amount of his or her demand, with interest due thereon, and the costs on only one (1) of the actions.

History. Rev. Stat., ch. 11, § 10; C. & M. Dig., § 485; Pope's Dig., § 522; A.S.A. 1947, § 68-812.

Chapter 59 Fraud

Subchapter 1 — Statute of Frauds

Publisher's Notes. For Commentary regarding the Uniform Fraudulent Transfer Act, see Commentaries Volume A.

Commentary regarding the Uniform Warehouse Receipts Act, see Commentaries Volume A.

Effective Dates. Acts 1989, No. 530, § 4: Mar. 14, 1989. Emergency clause provided: “It is hereby found and determined that this Act protects the public and lenders from fraud and misunderstandings related to credit transactions. Therefore, in order to insure that the State possesses adequate authority under this Act to protect the citizens of the State of Arkansas from fraud and misunderstandings related to credit transactions, an emergency is hereby declared to exist and this Act being immediately necessary for the preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

Research References

ALR.

Promise by one other than principal to indemnify one agreeing to become surety or a guarantor as within statute of frauds. 13 A.L.R.4th 1153.

Enforceability, by landowner, of subdivision developer's oral promise to construct or improve roads. 41 A.L.R.4th 573.

Sufficiency of showing, in establishing boundary by parol agreement, that boundary was uncertain or in dispute before agreement. 74 A.L.R.4th 132.

Applicability of Statute of Frauds to promise to pay for legal services furnished to another. 84 A.L.R.4th 994.

Enforceability of contract to share winnings from legal lottery ticket. 90 A.L.R.4th 784.

Am. Jur. 72 Am. Jur. 2d, Stat. of Frauds, § 1 et seq.

Ark. L. Rev.

Change of Possession and the Statute of Frauds, 1 Ark. L. Rev. 269.

Equity — Personal Services as Part Performance Under the Statute of Frauds, 3 Ark. L. Rev. 468.

Contracts — Executed Agreements Under the Statute of Frauds, 4 Ark. L. Rev. 225.

Drafting Instruments for Purchase and Conveyancing of Land, 13 Ark. L. Rev. 26.

Wills: Oral Agreement for Joint or Mutual Wills and the Statute of Frauds, 22 Ark. L. Rev. 398.

Contents of Writings, Recordings and Photographs, 27 Ark. L. Rev. 357.

Looney, Legal and Economic Considerations in Drafting Arkansas Farm Leases, 35 Ark. L. Rev. 395.

C.J.S. 37 C.J.S., Stat. of Frauds, § 2 et seq.

4-59-101. Contracts, agreements, or promises required to be in writing — Definitions.

  1. Unless the agreement, promise, or contract, or some memorandum or note thereof, upon which an action is brought is made in writing and signed by the party to be charged therewith, or signed by some other person properly authorized by the person sought to be charged, no action shall be brought to charge any:
    1. Executor or administrator, upon any special promise, to answer for any debt or damage out of his or her own estate;
    2. Person, upon any special promise, to answer for the debt, default, or miscarriage of another;
    3. Person upon an agreement made in consideration of marriage;
    4. Person upon any contract for the sale of lands, tenements, or hereditaments, or any interest in or concerning them;
    5. Person upon any lease of lands, tenements, or hereditaments for a longer term than one (1) year;
    6. Person upon a contract, promise, or agreement that is not to be performed within one (1) year from the making of the contract, promise, or agreement; or
    7. Person upon a contract, promise, or agreement that results in a waiver of a right protected by the Arkansas Constitution or the United States Constitution.
  2. No promise to pay a debt or obligation which has been discharged in bankruptcy shall be valid unless the promise is in writing.
  3. No action may be maintained to charge any person upon any promise made after full age to pay any debt contracted during infancy, unless the promise or ratification is made by some writing signed by the party to be charged with the promise or ratification.
    1. No action may be maintained by or against any person or entity on any agreement to extend credit or to renew or modify existing credit in an amount greater than ten thousand dollars ($10,000) or to make any other accommodation relating to such credit, unless the agreement is in writing and is signed by the party to be charged with the agreement, or the duly authorized agent of such party.
    2. For the purpose of this section:
      1. “Agreement” means any agreement, contract, promise, undertaking, or commitment, or any modification thereof; and
      2. “Credit” means the loaning of money, the right granted to defer payment of a debt, or to incur debt and defer its payment.
    3. However, nothing in this section shall in any way limit recovery of moneys or collateral which represents or relates to credit actually extended.

History. Rev. Stat., ch. 30, § 1; Rev. Stat., ch. 91, § 34; Acts 1901, No. 169, § 1, p. 322; C. & M. Dig., §§ 4862, 4863, 4869; Pope's Dig., §§ 6059, 6060, 6066; A.S.A. 1947, §§ 38-101 — 38-103; Acts 1989, No. 530, § 1; 2017, No. 980, § 3.

A.C.R.C. Notes. Acts 2017, No. 980, § 1, provided: “Legislative intent.

“(a) The General Assembly intends that it shall be the public policy of this state to protect its citizens from the application of foreign laws when the application of a foreign law will result in the violation of one (1) or more of the following fundamental rights, liberties, and privileges guaranteed by the Arkansas Constitution or the United States Constitution:

“(1) The right to due process;

“(2) The right to equal protection;

“(3) Freedom of religion;

“(4) Freedom of speech;

“(5) Freedom of the press;

“(6) The right to keep and bear arms;

“(7) The right to privacy; or

“(8) The right to marry, as ‘marriage’ is defined by the Arkansas Constitution, to the extent that the definition of marriage does not conflict with federal law or a holding by the United States Supreme Court.

“(b) The General Assembly fully recognizes the right to contract freely under the laws of this state, and also recognizes that this right may be reasonably and rationally circumscribed pursuant to the state's interest to protect and promote the following fundamental rights, liberties, and privileges granted under the Arkansas Constitution or the United States Constitution:

“(1) The right to due process;

“(2) The right to equal protection;

“(3) Freedom of religion;

“(4) Freedom of speech;

“(5) Freedom of the press;

“(6) The right to keep and bear arms;

“(7) The right to privacy; or

“(8) The right to marry, as ‘marriage’ is defined by the Arkansas Constitution, to the extent that the definition of marriage does not conflict with federal law or a holding by the United States Supreme Court.”

Amendments. The 2017 amendment added (a)(7); and made a stylistic change.

Cross References. Statute of frauds, Uniform Commercial Code, § 4-2-201 et seq.

Research References

ALR.

Action for Fraud or Deceit Predicated upon Oral Contract Within Statute of Frauds or Transaction of Which Oral Contract Was a Part, 30 A.L.R.7th Art. 4 (2018).

Ark. L. Notes.

Copeland, A Statutory Primer: Article 2 of the U.C.C., — When Do Its Rules Apply?, 1990 Ark. L. Notes 39.

Brill, Specific Performance in Arkansas, 1995 Ark. L. Notes 17.

Circo, Why is This Boilerplate in My Real Estate Contract?, 2005 Arkansas L. Notes 1.

Ark. L. Rev.

You've Got Mail … But Do You Have a Contract?: Does an E-Mail Satisfy the Arkansas Statute of Frauds?, 60 Ark. L. Rev. 707.

U. Ark. Little Rock L.J.

Survey, Contracts, 12 U. Ark. Little Rock L.J. 611.

Case Notes

In General.

This section will not be allowed to operate as an instrument of fraud either in permitting one guilty of fraud to shelter himself behind it or in allowing its use as a means of perpetrating a fraud. Neil v. Neil, 172 Ark. 381, 288 S.W. 890 (1926); Bolin v. Drainage Dist. No. 17, 206 Ark. 459, 176 S.W.2d 143 (1943).

Where business owners acknowledged in their depositions that the bank held a lien on the business inventory and assets, the $20,000 insurance proceeds were from coverage of the business's inventory that was destroyed by fire, and that the promissory note for the money that was borrowed from the bank was also individually guaranteed by the owners, the owners were obligated on the loan pursuant to either the promissory note or the guaranty agreement, and their payment of the insurance proceeds to the bank was not solely referable to the alleged oral contract and did not constitute partial performance to take the alleged oral agreement out of the statute of frauds. Moore v. Wallace, 90 Ark. App. 298, 205 S.W.3d 824 (2005).

Applicability.

This section does not apply to contracts which may be completely performed on one side when nothing remains to be done during a period longer than one year, except for the payment of compensation. Johnson v. Harrywell, Inc., 47 Ark. App. 61, 885 S.W.2d 25 (1994).

Where a cashier's check was issued for the amount of the loan from the lender to the borrower, and the borrower made partial payments on the loan through direct deposits to the lender's account, the appellate court held that the statute of frauds did not apply. Cobb v. Leyendecker, 89 Ark. App. 167, 200 S.W.3d 924 (2005).

Husband's argument that the trial court had enforced an oral contract, contrary to subsection (d) of this section, was rejected where the trial court was clearly enforcing its order and the parties' written property settlement agreement when it found the husband in contempt. Peace v. Peace, 2016 Ark. App. 406, 500 S.W.3d 169 (2016).

Agreement in Consideration of Marriage.

A marriage contract must be reduced to writing and acknowledged. Galbreath, Stewart & Co. v. Cook, 30 Ark. 417 (1875).

An oral marriage settlement entered into before marriage being reduced to writing, signed and acknowledged after marriage, followed by substantial part performance, is valid and enforceable after the husband's death against his administrator. Sims v. Roberts, 188 Ark. 1030, 68 S.W.2d 1001 (1934).

Buildings.

Houses erected by a lumber company on leased land which, under written contract, were to remain the property of the company as trade fixtures, never became part of the realty but remained personal property and the only provision of the statute of frauds applicable thereto would be that which relates to the sale of chattels. Cameron v. Robbins, 141 Ark. 607, 218 S.W. 173 (1920).

Where the grantor of timber to a lumber company contracted in writing that houses erected on the grantor's land by the company should belong to the grantor at the end of the period allowed for removal of the timber, and a subsequent verbal contract that buildings erected by the company on lands of a third person should also belong to the grantor was entered into, the part of the contract not in writing was one not within the statute of frauds. Cameron v. Robbins, 141 Ark. 607, 218 S.W. 173 (1920).

Statute of frauds did not apply to building contract nor prevent the recovery of an additional sum on account of alteration in the plans. Petrie v. Spooner, 145 Ark. 138, 223 S.W. 383 (1920).

Contracts Concerning Land.

To take an oral contract out of the statute of frauds under subdivision (a)(5) of this section, the making of the oral contract and its performance had to be proven by clear and convincing evidence; the trial court was not clearly erroneous in finding that all of the terms of the lease claimed in this case had not been proven by clear and convincing evidence. Grisanti v. Zanone, 2009 Ark. App. 545, 336 S.W.3d 886 (2009).

When a party alleged the existence of a constructive trust, the trial court may admit parol evidence of an oral promise to determine if a constructive trust should be imposed by a court of equity, and the statute of frauds does not apply. Acuff v. Bumgarner, 2009 Ark. App. 854, 371 S.W.3d 709 (2009), review denied, Acuff v. Donald, — Ark. —, — S.W.3d —, 2010 Ark. LEXIS 186 (Apr. 1, 2010).

Real estate prong of this section, the Arkansas Statute of Frauds, did not bar enforcement of an estoppel certificate signed by a seller, who held a first mortgage, where the certificate obligated the second mortgage holder to pay off the first mortgage in the event of the debtor's default in the bridge loan from the second mortgage holder, because the certificate did not convey or create an estate in land. Shelton v. Kennedy Funding, Inc., 622 F.3d 943 (8th Cir. 2010).

While there was no written contract between the parties for the sale of land, there were other unresolved factual and legal issues as to whether an oral contract existed and if a partial payment was sufficient to take it out of the statute of frauds in subdivision (a)(4) of this section; therefore, summary judgment for the buyers was inappropriate. Vicentic v. Bishop, 2011 Ark. App. 149 (2011).

—In General.

A mere parol agreement by the purchaser of land at execution sale to reconvey the land to the execution defendants upon their reimbursing him for expenses incurred is void within the statute of frauds unless there is established an element of positive fraud whereby the title was wrongfully acquired. Eason v. Wheeler, 167 Ark. 320, 268 S.W. 29 (1925).

An oral agreement for the partition of lands including the right of one party to use a private road across another's land is not within the statute of frauds. Neil v. Neil, 172 Ark. 381, 288 S.W. 890 (1926).

Oral contract for sale of realty is barred by statute of frauds unless there is convincing evidence both in the making of the contract and the performance of the contract. Hudspeth v. Thomas, 214 Ark. 347, 216 S.W.2d 389 (1949); Pfeifer v. Raper, 253 Ark. 438, 486 S.W.2d 524 (1972).

Contracts in violation of subdivision (a)(4) are merely unenforceable, but not void. Betnar v. Rose, 259 Ark. 820, 536 S.W.2d 719 (1976).

Vendor's breach of contract action against purchasers of real estate properly dismissed where the purchasers did not sign a sales contract. Blackmon v. Berry, 57 Ark. App. 1, 939 S.W.2d 863 (1997).

—Adverse Possession.

A parol agreement to divest title acquired by adverse possession comes within the statute. Parham v. Dedman, 66 Ark. 26, 48 S.W. 673 (1898).

In a suit by the owner of land seeking specific performance of a verbal contract to sell the land, defended on the ground of adverse possession, the plaintiff could not use its oral and unenforceable agreement with the defendant to purchase the land as breaking the continuity of adverse possession by recognition of his title without being obliged to abide by such agreement if the defendant elected to purchase it. Chicago Mill & Lumber Co. v. Matthews, 163 Ark. 571, 260 S.W. 963 (1924).

—Agreements to Buy and Resell.

A verbal contract to divide the proceeds of the sale of land to be thereafter made is not within the statute of frauds. Sullivan v. Winters, 91 Ark. 149, 120 S.W. 843 (1909).

A verbal agreement between two persons whereby they agree to buy certain lands jointly and to divide the profits from a resale thereof is not within the statute of frauds. Beebe v. Olentine, 97 Ark. 390, 134 S.W. 936 (1911).

An oral partnership agreement for the purpose of buying and selling lands, leases and royalties for speculation, entered into before any property was purchased, was not within this statute. Russell v. Williams, 197 Ark. 1086, 126 S.W.2d 614 (1939).

The statute of frauds does not apply to an oral contract of partnership formed for the purpose of buying and selling land. Quinn v. Stuckey, 229 Ark. 956, 319 S.W.2d 839 (1959).

Trial court erred in concluding that the daughter was bound by the terms of the property sale agreement between two divorcing parties where the daughter was not a party to the original divorce action, she was not represented by counsel during the divorce proceedings before the trial court, and she was not asked by the court as part of the record of the divorce proceedings if she heard the agreement and agreed to its terms. Baker v. Daves, 83 Ark. App. 145, 119 S.W.3d 53 (2003).

—Delivery of Deed or Title.

The rule that the delivery of a deed in escrow takes the case out of the statute of frauds applies only in favor of the grantee therein. Barr v. Johnson, 102 Ark. 377, 144 S.W. 527 (1912).

A contract to purchase land is not within the statute of frauds where a check for the purchase money was given, an abstract title furnished and a deed executed and placed in escrow. Hollabaugh v. Taylor, 134 Ark. 415, 204 S.W. 628 (1918).

Where there was no delivery of a deed signed by the owner of the land to the alleged purchaser, the requirements of the statute of frauds were not performed and specific performance was denied. Wyatt v. Yingling, 213 Ark. 160, 210 S.W.2d 122 (1948).

Complaint for specific performance by vendor of a contract for sale of land was insufficient, though down payment made, and deed delivered by vendor in escrow with third party for delivery to vendee, as rule that delivery of deed takes case out of statute of frauds applies only in favor of the vendee. Faith v. Epperson, 213 Ark. 1002, 214 S.W.2d 223 (1948).

—Easements.

An easement is a liberty, privilege or advantage which one man may have in the lands of another without profit and must be held under a deed or other instrument in writing or by prescription. Wynn v. Garland, 19 Ark. 23 (1857).

The conveyance of an easement comes within the statute. Belser v. Moore, 73 Ark. 296, 84 S.W. 219 (1904).

Though a grant of an easement is embraced within the operation of the statute of frauds and must therefore be in writing, a parol grant, when executed as by building a wall, will be upheld and sustained under the same circumstances and on the same principle that a parol contract for the sale of land would be. Allison v. Schweitzer, 144 Ark. 123, 221 S.W. 454 (1920).

An individual asserting an easement by prescription has the burden of proof to show by a preponderance of the evidence that use of the roadway has been adverse to the owner and his predecessors in title under claim of right for the statutory period. Fields v. Ginger, 54 Ark. App. 216, 925 S.W.2d 794 (1996).

—Essential Terms.

Circuit court did not err in determining that the real estate contract satisfied the statute of frauds. The warranty deed that the parties executed on the same day as the real-estate contract named the Kiker trusts as grantors and provided a formal, legal description of the property. Also, the contract's designation of the premises by street address provided a sufficient key to the property's location to satisfy the statute of frauds. Sloop v. Kiker, 2016 Ark. App. 125, 484 S.W.3d 696 (2016).

Circuit court's order discussed and ruled on appellants' statute-of-frauds argument without deciding whether a $350,000 down payment constituted a penalty. Therefore, appellants' penalty argument was not reviewable by the appellate court. Sloop v. Kiker, 2016 Ark. App. 125, 484 S.W.3d 696 (2016).

Although the circuit court did not specifically rule on whether the contract satisfied the statute of frauds, the contract satisfied the statute of frauds and was enforceable by the seller where the written terms and conditions of the online auction were sufficient to put the LLC on notice as to how the auction would be conducted and the obligations imposed on it by placing a bid. Freeman Holdings of Ark., LLC v. FNBC Bancorp, Inc., 2019 Ark. App. 165, 574 S.W.3d 181 (2019).

—Estoppel.

Where wife joined in oral contract with her husband to sell homestead land and purchaser was immediately placed in possession, wife was held estopped to set up alleged invalidity of oral contract. Nicholas v. Ward, 205 Ark. 318, 168 S.W.2d 1095 (1943).

—Miscellaneous Contracts.

Parol contract to purchase an interest in rented land and entry thereunder was within the statute of frauds. Anthony v. Hunt, 31 Ark. 481 (1876).

A parol promise to reconvey land comes within the statute of frauds. Holt v. Moore, 37 Ark. 145 (1881); Patton v. Randolph, 197 Ark. 653, 124 S.W.2d 823 (1939).

An agreement to dig a well is not a contract for an interest in land. Plunkett v. Meredith, 72 Ark. 3, 77 S.W. 600 (1903).

A verbal contract conveying the right to redeem land sold for taxes is void. Henry v. Knod, 74 Ark. 390, 85 S.W. 1130 (1905).

An oral promise to renew a bond for title after cancellation of the original is void. King v. Crone, 114 Ark. 121, 169 S.W. 238 (1914).

Statute of frauds was not applicable to subscription agreement by which subscriber was to be deeded certain land. Byington v. Little Rock Chamber of Commerce, 132 Ark. 361, 201 S.W. 122 (1918).

An oral agreement to settle suit by alleged purchaser at tax sale for possession of property was not within this statute. Hastings v. Westfall, 194 Ark. 1139, 110 S.W.2d 513 (1937).

An oral family settlement in a dispute over land was held unenforceable as being within this statute. Eckles v. Whitehead, 196 Ark. 680, 119 S.W.2d 550 (1938).

Oral contracts to devise real property are invalid unless there is such part performance as will take the case out of the statute of frauds. Janes v. Rogers, 224 Ark. 116, 271 S.W.2d 930 (1954).

An oral contract to make an enforceable contract covering the sale of real estate and the sale of personalty was within the purview of the statute of frauds. Lee Wilson & Co. v. Springfield, 230 Ark. 257, 321 S.W.2d 775 (1959).

There was a binding contract where an agreement was made for the appellee to buy the appellant's share in a parcel of property, the appellee made all payments under this agreement, and the only reason a note and mortgage were not prepared was because the appellant asked the attorney who handled mutual affairs for the parties not to prepare the documents. Stewart v. Stewart, 72 Ark. App. 405, 37 S.W.3d 667 (2001).

Debtor/tenant had not provided evidence that the agreement between the debtor and the creditor for rental use of the property with an option to purchase was taken out of the purview of the Statute of Frauds because the debtor had not actually taken steps toward the purchase of the property. Lott v. Sponer Land, Ltd., — F. Supp. 2d —, 2007 U.S. Dist. LEXIS 7874 (W.D. Ark. Feb. 2, 2007).

Debtor had established that she had an equitable interest in the land where the debtor had a trailer parked because the debtor claimed she had an oral rent-to-own agreement with the property owner, the debtor had made payments to the owner for substantially all of the agreed-upon purchase price, the debtor had made improvements on the property. The debtor's actions took the oral agreement out of the purview of the Statute of Frauds, § 4-59-101. In re Paro, 362 B.R. 419 (Bankr. E.D. Ark. 2007).

—Mortgages.

When the debt secured by a mortgage has been paid, a contract that the mortgage shall thereafter serve as security for another debt must be in writing. Ross v. Hodges, 108 Ark. 270, 157 S.W. 391 (1913).

Where the mortgagor of land was in possession after foreclosure sale with the right to redeem, an oral agreement to extend the part of the redemption on specified terms, followed by acceptance of part of the redemption money pursuant to this agreement, is sufficient to take the transaction out of the operation of the statute of frauds. Coates v. Dortch, 145 Ark. 82, 224 S.W. 721 (1920).

An oral agreement to satisfy a mortgage does not fall within the statute of frauds. Riley v. Atherton, 185 Ark. 425, 47 S.W.2d 568 (1932).

A mortgagee's oral agreement to protect the homestead of the mortgagor's wife from foreclosure of the mortgage including it was held not within the statute of frauds. City Nat'l Bank v. Riggs, 188 Ark. 420, 66 S.W.2d 293 (1933).

As long as the right to defeat the purchase by the mortgagor by redemption exists, agreements with mortgagee to extend the time or modify the conditions for redemption are not within this statute. Williams v. Dumas, 197 Ark. 1011, 126 S.W.2d 934 (1939).

Although a parol agreement to satisfy a mortgage is not void by reason of this statute, the proof relating to the discharge or release thereof must be clear, satisfactory and convincing. Watts v. Martin, 202 Ark. 626, 151 S.W.2d 986 (1941).

—Part Performance.

The statute of frauds did not apply to an oral modification of a contract for the purchase of real property, which modification reduced the price of the property, since there was part performance of the contract where the defendant purchasers took possession of the home and tendered a check to the plaintiff sellers for $ 500. Johnston v. Curtis, 70 Ark. App. 195, 16 S.W.3d 283 (2000).

—Real Estate Agents.

A contract employing a real estate agent need not be in writing. Kempner v. Gans, 87 Ark. 221, 111 S.W. 1123 (1908), rehearing denied, 87 Ark. 221, 112 S.W. 1087 (1908); Forrester-Duncan Land Co. v. Evatt, 90 Ark. 301, 119 S.W. 282 (1909); Vaught v. Paddock, 98 Ark. 10, 135 S.W. 331 (1911); Blanton v. Jonesboro Bldg. & Loan Ass'n, 176 Ark. 315, 3 S.W.2d 964 (1928); Vanemburg v. Duffey, 177 Ark. 663, 7 S.W.2d 336 (1928).

Oral agreement between real estate broker and builder whereby builder was to pay broker commission for any building contracts which broker might obtain for builder was not a sale of interest in land so as to fall within the provisions of this section. Brown v. Lee, 242 Ark. 122, 412 S.W.2d 273 (1967).

—Recovery of Money or Property.

Where a party has paid money or delivered property on a parol contract for the purchase of land, which is void by the statute of frauds, he cannot maintain an action for the money or property so paid or delivered, so long as the other party is able and willing to perform the contract. Venable v. Brown, 31 Ark. 564 (1876).

Where a contract is unenforceable under the statute of frauds, a party who has paid anything of value to the other party who refuses to perform is entitled to recover amounts paid to the other in good faith. Gilton v. Chapman, 217 Ark. 390, 230 S.W.2d 37 (1950).

In view of fact that this section protects the rights of the vendor only, a vendee seeking to recover the purchase price or a portion thereof paid in consideration of an oral contract cannot set up the statute against a vendor who is ready and willing to perform. Betnar v. Rose, 259 Ark. 820, 536 S.W.2d 719 (1976).

Where homebuilder was willing and able to perform in connection with oral real estate sales agreement, purchaser could not maintain an action to recover money held in escrow as payment upon the purchase price. Betnar v. Rose, 259 Ark. 820, 536 S.W.2d 719 (1976).

—Rescission.

An agreement to rescind a written contract as to land is within the statute of frauds. Carter v. Munn, 55 Ark. 73, 17 S.W. 445 (1891); Friar v. Baldridge, 91 Ark. 133, 120 S.W. 989 (1909); Barrett v. Durbin, 106 Ark. 332, 153 S.W. 265 (1913).

A verbal rescission of an option contract to purchase land is available in equity to repel a claim upon that contract. Atkinson v. Thomas, 138 Ark. 47, 210 S.W. 779 (1919).

An oral agreement to rescind a contract, whereby an owner of land conveyed by deed the standing timber on the land together with a note for an additional sum in exchange for an automobile, was held not in contravention of the statute of frauds where the automobile was returned pursuant to the agreement to rescind and where the grantee had never taken possession of the timber. Robertson v. Lain, 168 Ark. 210, 269 S.W. 574 (1925).

—Specific Performance.

Specific performance was granted on oral contract for sale of land. Sebold v. Williamson, 203 Ark. 741, 158 S.W.2d 667 (1942); Marsh v. Marsh, 213 Ark. 366, 210 S.W.2d 811 (1948).

A purchaser of realty who holds a receipt for a down payment but who was never placed in possession, was not entitled to specific performance of the contract but was entitled to the return of his money plus interest; however, a purchaser of realty who was placed in possession of the realty mutually understood to be conveyed, and whose subsequent payments were accepted, was entitled to a reformation of a deed, and specific performance as it was taken out of the statute of frauds. Kromray v. Stobaugh, 212 Ark. 377, 206 S.W.2d 171 (1947).

A court of equity may grant specific performance of a parol contract to convey land, but only where the evidence of the agreement is clear, satisfactory and convincing of something to take it out of the statute of frauds. McNutt v. Carnes, 213 Ark. 346, 210 S.W.2d 290 (1948).

In order to remove an oral contract to convey land from the statute of frauds, improvements made pursuant to the alleged contract must have been so valuable and substantial in nature that refusal of specific performance would have been inequitable. Pfeifer v. Raper, 253 Ark. 438, 486 S.W.2d 524 (1972).

—Timber.

Delivery of timber sold and payment of the price thereof takes the contract out of the statute of frauds. Robinson v. Wynne, 97 Ark. 366, 134 S.W. 319 (1911).

Growing timber as real estate can be conveyed by deed only; any other mode of transfer would be within the statute of frauds and void. Griffith v. Ayer-Lord Tie Co., 109 Ark. 223, 159 S.W. 218 (1913); Carnahan v. Terrall Bros., 137 Ark. 407, 209 S.W. 64 (1919).

A contract to purchase timber land, plaintiff to take title, and defendant to advance the purchase price and take a mortgage as security, is not within the statute of frauds. Bonner v. Kimball-Lacy Lumber Co., 114 Ark. 42, 169 S.W. 242 (1914).

A sale of growing trees is within the statute of frauds. Broderick v. McRae Box Co., 138 Ark. 215, 210 S.W. 935 (1919).

An oral contract for the sale of timber was taken out of the statute of frauds where the seller furnished the buyer money with which to erect a mill and where the buyer entered the land and did erect the mill with the money. J.D. Kilgore Lumber Co. v. Halley, 140 Ark. 448, 215 S.W. 653 (1919).

Where the vendor of standing timber received payment and the purchaser entered into possession, this took the contract out of the statute of frauds, though it was oral. Beattie v. Smith, 146 Ark. 532, 226 S.W. 168 (1920).

A contract for the cutting and removal of timber which was signed by a lumber company and was delivered to the land owner, who did not sign it until an addenda was added fixing the starting time for the contract, the addenda being pasted to the original, was binding on the company and was not void under the provisions of the statute of frauds. Standridge v. Rice, 212 Ark. 703, 207 S.W.2d 598 (1948).

Oral contract to sell timber violated statute of frauds. Ozan Lumber Co. v. Price, 219 Ark. 709, 244 S.W.2d 486 (1951).

Specific performance of an oral contract to convey timber where the price agreed upon had been paid and accepted by the seller and the buyer had started cutting the timber, but the seller had not signed the deed to the timber. Poore v. Slaughter, 245 Ark. 203, 431 S.W.2d 837 (1968).

Standing timber is a part of the realty and sales of it constitute sales of an interest in the realty within the meaning of the statute of frauds. Sterling v. Landis, 9 Ark. App. 290, 658 S.W.2d 429 (1983).

Contract for Employment.

The fact that the commissions might be paid to employee for a period of time longer than one year did not bring the employment contract within the statute of frauds. Johnson v. Harrywell, Inc., 47 Ark. App. 61, 885 S.W.2d 25 (1994).

Contracts Not Performed Within Year.

A promise to pay a debt, without fixing a time therefor, is an immediate contract, and not within the statute. Lanagin v. Nowland, 44 Ark. 84 (1884); Arkansas M. Ry. v. Whitley, 54 Ark. 199, 15 S.W. 465 (1891); Sweet v. Desha Lumber & Planing Co., 56 Ark. 629, 20 S.W. 514 (1892).

Parol contracts for personal services for a longer period than one year are void; part performance does not take them without the statute, nor does a contingency that subjects them to a sooner termination. Meyer v. Roberts, 46 Ark. 80 (1885); Henry v. Wells, 48 Ark. 485, 3 S.W. 637 (1886); Oak Leaf Mill Co. v. Cooper, 103 Ark. 79, 146 S.W. 130 (1912); Izard v. Connecticut Fire Ins. Co., 128 Ark. 433, 194 S.W. 1032 (1917).

In order to bring a contract within the statute of frauds as one not to be performed within a year, it must be one that by its terms is not to be performed within a year. Sullivan v. Winters, 91 Ark. 149, 120 S.W. 843 (1909).

Contract held to be performable within one year. Valley Planting Co. v. Wise, 93 Ark. 1, 123 S.W. 768 (1909); Brickey v. Continental Gin Co., 113 Ark. 15, 166 S.W. 744 (1914).

Contract held to be performable within one year where events might terminate its operation within that period. Hampton v. Caldwell & Hall, 95 Ark. 387, 129 S.W. 816 (1910); Graham v. Jonesboro, L. C. & E. R. Co., 111 Ark. 598, 164 S.W. 729 (1914); Moon v. Gilliam, 187 Ark. 581, 61 S.W.2d 64 (1933).

A verbal contract entered into in one year for employment for the whole next year was within the statute of frauds and could not be taken outside the operation of the statute either by part performance or by an acknowledgment thereof by the defendant within the next year. Oak Leaf Mill Co. v. Cooper, 103 Ark. 79, 146 S.W. 130 (1912).

An oral contract for the erection of a building which may be performed within a year is not prohibited by the statute of frauds. Friedman v. Schleuter, 105 Ark. 580, 151 S.W. 696 (1912).

Where the consideration of buyer's signing certain notes due more than one year after their making was that the seller would turn over to him certain insurance business which the seller failed to do, it was held that although this agreement was still within the statute of frauds in a suit on the notes, it could not be availed of as a defense to the notes, being a partial failure of the consideration thereof. Hamburg Bank v. Ahrens, 118 Ark. 548, 177 S.W. 14 (1915).

Contracts held not to be performable within one year. Harrower v. Insurance Co. of N. Am., 144 Ark. 279, 222 S.W. 39 (1920); McPhail v. Laughrun, 214 Ark. 476, 217 S.W.2d 244 (1949); Peters v. Hubbard, 242 Ark. 839, 416 S.W.2d 300 (1967).

A contract that may be performed within a year from the making thereof is not within the statute, though the fruition of such a contract does not accrue until after the expiration of that time. Reed Oil Co. v. Cain, 169 Ark. 309, 275 S.W. 333 (1925).

Where there was a conflict of testimony as to whether a contract of employment was to be performed within a year, the question was properly left to the jury. Blanton Co. v. Stewart, 182 Ark. 934, 33 S.W.2d 50 (1930).

An oral contract for one year's employment made retroactive is valid under the statute. Blanton Co. v. Burke, 183 Ark. 797, 38 S.W.2d 1086 (1931).

While an oral contract for personal services in excess of one year was void and part performance would not remove it from operation of statute of frauds, the employer was liable for whatever service was rendered. Swafford v. Sealtest Foods Div. of Nat'l Dairy Prods. Corp., 252 Ark. 1182, 483 S.W.2d 202 (1972).

Statute of frauds was not applicable to employment contract because it was for an indefinite duration and was terminable at the will of either party; hence, the possibility existed that the contract could be performed within one year of its inception. Country Corner Food & Drug, Inc. v. Reiss, 22 Ark. App. 222, 737 S.W.2d 672 (1987).

A contract does not come within the statute of frauds where the testimony shows it could be performed within a year, although there was a possibility or even a probability that it might require a longer time. Chadwell v. Pannell, 27 Ark. App. 59, 766 S.W.2d 38 (1989).

Verbal agreement between the parties was enforceable because Arkansas courts recognized lease agreements between a landlord and tenant that were not in writing, and a month-to-month lease was not subject to the one-year provision of the statute of frauds. Ferrell v. Ferrell (In re Ferrell), No. 1:12-CV-1018, 2012 U.S. Dist. LEXIS 154679 (W.D. Ark. Oct. 29, 2012).

Debts Contracted During Infancy.

Installment buyer of second-hand automobile is estopped from disaffirming contract on ground that he was a minor at time contract was signed, where he knew that it was necessary to be at or over age of majority at the time of the sale and where, inter alia, after reaching full age, he made a number of payments, drove the car 35,000 miles, and collected for claims on the automobile's collision coverage, since these acts show that he affirmed the contract after his majority had been reached. Haydon v. Hillhouse, 223 Ark. 957, 270 S.W.2d 910 (1954).

Debts Discharged in Bankruptcy.

A partial payment of debt discharged in bankruptcy is not sufficient evidence of a new promise to pay to revive the debt. Polk v. Stephens, 118 Ark. 438, 176 S.W. 689 (1915).

No particular form of words is necessary but the promise to pay a debt discharged in bankruptcy must be clear, distinct and unequivocal and there must be a clear and certain identification of the particular debt intended to be revived. Bank of Searcy v. Kroh, 195 Ark. 785, 114 S.W.2d 26 (1938).

Lease for Longer Than a Year.

An oral agreement altering a written lease for a term of years, though unenforceable as a contract under the statute of frauds, will operate as an estoppel as against the lessor and his grantee, where the lessor by his conduct led the lessee to act upon such oral agreement and the grantee took with notice thereof. Conley v. Johnson, 69 Ark. 513, 64 S.W. 277 (1901).

An agreement for a lease of land for a year to begin at a future date whose consideration was an agreement of the lessees to make certain improvement and do certain work upon the land during the lease, though not in writing, does not fall within the statute of frauds. Thomas v. Croom, 102 Ark. 108, 143 S.W. 88 (1912).

An oral contract to lease land for one year to commence at a date subsequent to the contract is not within the statute. Alexander-Amberg & Co. v. Hollis, 115 Ark. 589, 171 S.W. 915 (1914); Boddy v. Thompson, 179 Ark. 71, 14 S.W.2d 240 (1929).

If the provision for renewal of a lease contains no requirement that the option be exercised in writing, notice may be given orally. Neal v. Harris, 140 Ark. 619, 216 S.W. 6 (1919).

A parol agreement by a landlord to reduce the rent of his tenant from date if the tenant will agree to renew her lease for another year which period is to begin at a time which is more than a year away is valid under the statute. Cook v. Cave, 163 Ark. 407, 260 S.W. 49 (1924).

A contract by which the plaintiff was to obtain a lease for a period of less than a year with an option to renew for a period of more than a year, in consideration of cash payment and of further payments during the period of the lease and renewal, was held not within the statute of frauds where the contract was completely executed on the plaintiff's side within a year and nothing remained on the other side but the payment of compensation during a period of more than a year. Manufacturers' Furn. Co. v. Cantrell, 172 Ark. 642, 290 S.W. 353 (1927).

Subdivision (a)(5) had no application to unlawful detainer action against tenant who had been in possession under oral contract providing for free rental for the first three years. Bolin v. Drainage Dist. No. 17, 206 Ark. 459, 176 S.W.2d 143 (1943).

This statute will not be allowed to so operate as to permit one to enter upon the lands of another, as a tenant, and after so occupying for more than a year, say that he may neither be dispossessed, nor required to pay rent because of the statute. Bolin v. Drainage Dist. No. 17, 206 Ark. 459, 176 S.W.2d 143 (1943).

A stipulation in a lease for renewal was in effect a provision for mutual extension of the term, and oral testimony was proper to show that the provision had been invoked. Beasley v. Boren, 210 Ark. 608, 197 S.W.2d 287 (1946).

An oral lease of land for one year evidenced by a receipt for one year's rent, and a similar receipt for the next year did not violate this section. Scott v. Altom, 240 Ark. 710, 401 S.W.2d 734 (1966).

A year-to-year periodic tenancy does not violate subsection (a)(5). Smith v. Campbell, 71 Ark. App. 23, 26 S.W.3d 139 (2000).

Modification of Contracts.

A contract required to be in writing cannot be changed, modified or contradicted by a subsequent parol contract. Arkmo Lumber Co. v. Cantrell, 159 Ark. 445, 252 S.W. 901 (1923).

The general rule that a material modification of a contract within the statute of frauds must be in writing to be valid has no application where the charge does not affect an essential part of the contract but merely substitutes a mode of performance thereof not within the statute. Valley Planing Mill Co. v. Lena Lumber Co., 168 Ark. 1133, 272 S.W. 860 (1925).

Parol evidence is competent to establish an oral modification of agreements contained in an instrument required to be in writing by the statute of frauds when offered by a stranger to the written instrument. Sterling v. Landis, 9 Ark. App. 290, 658 S.W.2d 429 (1983).

A contract for the transfer of an interest in real estate is required to be in writing under the statute of frauds and cannot be modified in essential parts by parol agreement and be held valid against a plea that it is invalid under that statute; thus oral modifications to contract for transfer of interest in real estate are changes to the essential elements of the agreement which if not evidenced by the required memorandum, could not be held valid against a plea of invalidity under the statute of frauds. Davis v. Patel, 32 Ark. App. 1, 794 S.W.2d 158 (1990).

Finding against the relatives in an action stemming from the relatives' default on a promissory note and security agreement previously executed was proper pursuant to subdivision (a)(6) of this section because any agreement such as alleged by the relatives to substitute services for money owed was a material modification and, in order to be effective, the modification would have to have been in writing, which the relatives failed to produce. Housley v. Hensley, 100 Ark. App. 118, 265 S.W.3d 136 (2007).

Partial or Full Performance.

Payment of purchase price alone is not part performance sufficient to take oral contract for sale of land out of the statute of frauds. Underhill v. Allen, 18 Ark. 466 (1857); Bromley v. Aday, 70 Ark. 351, 68 S.W. 32 (1902); Fryer v. Mabin, 158 Ark. 579, 250 S.W. 877 (1923); French v. Castleberry, 238 Ark. 1038, 386 S.W.2d 482 (1965). But see Ferguson v. C. H. Triplett Co., 199 Ark. 546, 134 S.W.2d 538 (1939).

Part performance of a parol contract for a life tenancy takes it out of the statute. Saint Louis, A. & T. Ry. v. Graham, 55 Ark. 294, 18 S.W. 56 (1892).

Payment of the purchase price in full and making of valuable improvements on the land bought takes a verbal sale out of the statute of frauds. Pembroke v. Logan, 71 Ark. 364, 74 S.W. 297 (1903).

Performance held sufficient to take oral contract for conveyance of land or interest in land out of statute of frauds. Ellis v. Campbell, 84 Ark. 584, 106 S.W. 939 (1907); Dyer v. Dyer, 116 Ark. 487, 173 S.W. 394 (1915); Swift v. Swift, 121 Ark. 197, 180 S.W. 742 (1915); Bostleman v. Henkle, 152 Ark. 628, 239 S.W. 30 (1922); Hollowoa v. Buck, 174 Ark. 497, 296 S.W. 74 (1927); Southwestern Veneer Co. v. Dennison, 174 Ark. 560, 298 S.W. 30 (1927); Minich v. Bass, 183 Ark. 350, 36 S.W.2d 66 (1931); Person v. Miller Levee Dist., 202 Ark. 876, 154 S.W.2d 15 (1941); Henneberger v. Duncan, 204 Ark. 4, 161 S.W.2d 380 (1942); Baker v. Taylor & Co., 218 Ark. 538, 237 S.W.2d 471 (1951); Kinney v. Patterson, 225 Ark. 393, 282 S.W.2d 809 (1955); Carpenter v. Franklin, 228 Ark. 512, 308 S.W.2d 829 (1958); Harper v. Albright, 228 Ark. 760, 310 S.W.2d 475 (1958); Harrison v. Oates, 234 Ark. 259, 351 S.W.2d 431 (1961); Marshall v. McCray, 241 Ark. 184, 406 S.W.2d 863 (1966); Pfeifer v. Raper, 253 Ark. 438, 486 S.W.2d 524 (1972); White v. White, 254 Ark. 257, 493 S.W.2d 133 (1973); Bramlett v. Selman, 268 Ark. 457, 597 S.W.2d 80 (1980).

A parol sale of land is taken without the statute of frauds where the vendee pays the purchase money, takes possession under his contract of purchase and makes valuable and permanent improvements. Lee v. Foushee, 91 Ark. 468, 120 S.W. 160 (1909); Carpenter v. Franklin, 228 Ark. 512, 308 S.W.2d 829 (1958).

A verbal lease of land for a term of years is taken outside the statute of frauds where the lessee is in possession, pays the rent and valuable improvements at his own expense. Reichardt v. Howe, 91 Ark. 280, 121 S.W. 347 (1909); Phillips v. Grubbs, 112 Ark. 562, 167 S.W. 101 (1914); Garner v. Starling, 137 Ark. 464, 208 S.W. 593 (1919); City Nat'l Bank v. Fite, 186 Ark. 266, 53 S.W.2d 440 (1932).

Lease for more than one year held to be removed from statute of frauds by part or full performance. Reichardt v. Howe, 91 Ark. 280, 121 S.W. 347 (1909); Phillips v. Grubbs, 112 Ark. 562, 167 S.W. 101 (1914); Grant v. Burrows, 139 Ark. 16, 212 S.W. 95 (1919); Newton v. Mathis, 140 Ark. 252, 215 S.W. 615 (1919); City Nat'l Bank v. Fite, 186 Ark. 266, 53 S.W.2d 440 (1932).

Where a defendant joined the wall of his building to the wall of the plaintiff's building under an oral agreement to pay part of the cost of plaintiff's wall, he could not defend an action for part of the cost of the wall upon the ground that the contract was within the statute of frauds; performance of the contract having taken it without the statute. Salyers v. Legate, 93 Ark. 606, 125 S.W. 1010 (1910).

Part performance of agreement to provide services in exchange for devise of real property held sufficient to take agreement out of the statute of frauds. Fred v. Asbury, 105 Ark. 494, 152 S.W. 155 (1912); Janes v. Rogers, 224 Ark. 116, 271 S.W.2d 930 (1954).

The taking possession of land in pursuance of a contract of sale, together with payment in full or in part of the purchase price, is a sufficient part performance to take the contract out of the statute of frauds. State Bank v. Sanders, 114 Ark. 440, 170 S.W. 86 (1914); Branstetter v. Branstetter, 115 Ark. 154, 170 S.W. 989 (1914); Ferguson v. C. H. Triplett Co., 199 Ark. 546, 134 S.W.2d 538 (1939); Harper v. Albright, 228 Ark. 760, 310 S.W.2d 475 (1958).

Performance held to be insufficient to take oral contract for conveyance of land or interest in land out of statute of frauds. Dyer v. Dyer, 116 Ark. 487, 173 S.W. 394 (1915); Starrett v. Dickson, 136 Ark. 326, 206 S.W. 441 (1918); Purvis v. Erwin, 167 Ark. 345, 268 S.W. 355 (1925); Hudspeth v. Thomas, 214 Ark. 347, 216 S.W.2d 389 (1949); Ozan Lumber Co. v. Price, 219 Ark. 709, 244 S.W.2d 486 (1951); Hyder v. Newcomb, 236 Ark. 231, 365 S.W.2d 271 (1963); French v. Castleberry, 238 Ark. 1038, 386 S.W.2d 482 (1965).

Part performance of agreement to answer for the debts of another held sufficient to take the agreement out of the statute of frauds. Martin v. State ex rel. Saline County, 171 Ark. 576, 286 S.W. 873 (1926).

Proof of payments made under oral contract for the sale of land held a part performance of the contract sufficient to take contract out of the statute of frauds. Ferguson v. C. H. Triplett Co., 199 Ark. 546, 134 S.W.2d 538 (1939). But see Underhill v. Allen, 18 Ark. 466 (1857) and following cases.

Part performance is a question of proof under the statute of frauds. Amisano v. Shaw, 214 Ark. 874, 218 S.W.2d 707 (1949).

The argument of the plaintiff that part performance of the contract, even if the statute of frauds is otherwise applicable, would satisfy the statute and render it inapplicable to this case could not be maintained in as much as the contract was not to be performed within one year. Cobb v. Southern Plaswood Corp., 171 F. Supp. 691 (W.D. Ark. 1959). But see Young v. Young, 238 Ark. 795, 929, 384 S.W.2d 469 (1964); Talley v. Blackmon, 271 Ark. 494, 609 S.W.2d 113 (Ct. App. 1980).

Part or full performance of contract not to be performed within a year held sufficient to take agreement out of statute of frauds. Young v. Young, 238 Ark. 795, 929, 384 S.W.2d 469 (1964); Talley v. Blackmon, 271 Ark. 494, 609 S.W.2d 113 (Ct. App. 1980). But see Cobb v. Southern Plaswood Corp., 171 F. Supp. 691 (W.D. Ark. 1959).

Part performance takes an oral contract for the sale of land out of the statute of frauds. Marshall v. McCray, 241 Ark. 184, 406 S.W.2d 863 (1966).

Part payment of the purchase price and delivery of the merchandise is usually sufficient to take an otherwise valid contract out of the statute of frauds. Lake Village Implement Co. v. Cox, 249 Ark. 733, 461 S.W.2d 108 (1970).

Partial performance of a contract for personal services does not take a verbal contract out of the operation of the statute of frauds, except for that part which was performed. Country Corner Food & Drug, Inc. v. Reiss, 22 Ark. App. 222, 737 S.W.2d 672 (1987).

Evidence sufficient to find sufficient detrimental reliance on the part of plaintiff to take the contract out of the operation of the statute of frauds. Country Corner Food & Drug, Inc. v. Reiss, 22 Ark. App. 222, 737 S.W.2d 672 (1987).

Partial or full payment of consideration together with taking of possession by the purchaser is sufficient to remove an oral contract from the statute of frauds. Chadwell v. Pannell, 27 Ark. App. 59, 766 S.W.2d 38 (1989).

—Actions.

The evidence was sufficient to support a jury finding of an oral contract and sufficient performance to take it out of the statute of frauds where (1) the former manager for the defendant testified that it was common in his industry for business to be done with a hand shake and no written contract and that he honored his agreement and intended a long term agreement with the plaintiff, and (2) the plaintiff also intended a long term agreement and purchased equipment based on representations made by the former manager. Mann Bros. Logging, Inc. v. Potlatch Corp., 149 F.3d 790 (8th Cir. 1998).

—Possession.

The delivery of possession under a verbal contract for the sale of real estate will take the case out of the statute of frauds. Pindall v. Trevor & Colgate, 30 Ark. 249 (1875); Pledger v. Garrison, 42 Ark. 246 (1883).

Between tenants in common the rule of delivery of possession taking the contract out of the statute is inapplicable. Haines v. McGlone, 44 Ark. 79 (1884).

Where possession is relied upon as part performance to take a verbal sale out of the statute of frauds, it must be clearly shown that such possession was taken under the contract of purchase. Lay v. Lay, 75 Ark. 526, 87 S.W. 1026 (1905).

Delivery of possession of land before an offer had been accepted by the owners and acts merely preparatory or ancillary to the agreement did not constitute part performance. Stanford v. Sager, 141 Ark. 458, 217 S.W. 458 (1920).

Continuance in possession of land by a lessee after an oral purchase is insufficient to take the contract out of the statute of frauds. Rugen v. Vaughan, 142 Ark. 176, 218 S.W. 205 (1920).

Where a purchaser of a farm, who finding that he could not pay for it, surrendered its possession to his vendor by directing his son-in-law in possession to attorn to the vendor, which the son-in-law did, and died without executing a reconveyance, the surrender was effective. Freer v. Less, 159 Ark. 509, 252 S.W. 354 (1923).

It is sufficient part performance to take an oral exchange of land out of the statute where one party went into possession and caused the land given in exchange to be conveyed to the other party and it is immaterial that the party going into possession did not retain actual, continuous or adverse possession. Hays v. Goodwin, 167 Ark. 131, 266 S.W. 933 (1924).

A parol agreement to convey land is valid against the statute of frauds where the grantor surrendered possession but died before making a deed. McKenzie v. Rumph, 171 Ark. 791, 286 S.W. 1022 (1926).

Where the plaintiff is in possession and sues for breach of contract to convey the land and the defendant denies the making of such an agreement, and no part of the purchase price has been paid, the defense of the statute of frauds is available. Stooksberry v. Pigg, 172 Ark. 763, 290 S.W. 355 (1927).

Under an oral contract to convey land, this statute is met by surrendering possession to the purchaser. Nicholas v. Ward, 205 Ark. 318, 168 S.W.2d 1095 (1943).

Delivery of possession under an oral contract for the sale of real estate will take the case out of the statute of frauds. Harrison v. Oates, 234 Ark. 259, 351 S.W.2d 431 (1961).

Although two writings entered into for the construction of a house were not valid contracts, once the house was built and the debtors moved in, that took the contract out of subdivision (a)(4) of this section, the statute of frauds, and based on the debtors' testimony regarding the parties' oral agreement with respect to the price to be paid, which the court found credible, the creditors' proof of claim for an additional amount was disallowed. Although the debtors were the prevailing party, they were not entitled to attorneys fees under § 16-22-308, as both parties were responsible for an incoherent agreement with no agreed upon purchase price. In re Cameron, 452 B.R. 754 (Bankr. E.D. Ark. 2011).

Pleadings.

The defense of the statute of frauds is waived unless specifically pleaded. El Dorado Ice & Planing Mill Co. v. Kinard, 96 Ark. 184, 131 S.W. 460 (1910).

Where the defense of the statute of frauds was not pleaded in the lower court, it cannot be interjected into the case for the first time on appeal. Dierks Lumber & Coal Co. v. Coffman, 96 Ark. 505, 132 S.W. 654 (1910); Smith v. Milam, 195 Ark. 157, 110 S.W.2d 1062 (1937).

The statute of frauds cannot be availed unless pleaded. S.H. Kress Co. v. Moscowitz, 105 Ark. 638, 152 S.W. 298 (1912).

An oral contract for the conveyance of land raises a moral obligation and the vendor need not plead the statute of frauds in an action for specific performance. Skinner v. Fisher, 120 Ark. 91, 178 S.W. 922 (1915).

Where the personal representative of a decedent cannot plead the statute of frauds, a judgment creditor cannot do so. Arkansas Valley Trust Co. v. Young, 128 Ark. 42, 195 S.W. 36 (1917).

In an action to charge the defendant on his oral promise to answer for another's debt, an allegation of the complaint that the plaintiff would not have made the loan except for the defendant's personal guaranty did not prevent the statute of frauds from applying. Elm Springs State Bank v. Bradley, 179 Ark. 437, 16 S.W.2d 585 (1929).

Complaint for specific performance of a contract for sale of land was insufficient to take case out of statute of frauds, where the complaint failed to allege any writing signed by the vendee, or that vendee had taken possession of land. Faith v. Epperson, 213 Ark. 1002, 214 S.W.2d 223 (1948).

Contention of plaintiff that oral cancellation of sale of property was insufficient because within statute of frauds was unavailing where neither party pleaded the statute of frauds. Rogers v. Moss, 216 Ark. 838, 227 S.W.2d 630 (1950).

General denial to complaint to recover damages on oral contract to sell timber raised defense of statute of frauds though not affirmatively pleaded, since answer denied existence of a valid contract. Ozan Lumber Co. v. Price, 219 Ark. 709, 244 S.W.2d 486 (1951).

Promises to Answer for Debts of Another.

Surety prong of this section, the Arkansas Statute of Frauds, did not bar enforcement of an estoppel certificate signed by a first mortgage holder because the second mortgage holder received new consideration for its promises contained in the certificate in the form of assurances from the first mortgage holder, including a concession that the value of the first mortgage did not exceed a stated amount, and waiver of the first mortgage's non-prepayment clause. Shelton v. Kennedy Funding, Inc., 622 F.3d 943 (8th Cir. 2010).

Contractor filed a counterclaim against a supplier for breach of a cost-overrun provision of the parties' oral agreement. As the evidence established that the cost-overrun provision was part of the original agreement, and not for the primary benefit of a subcontractor, the court did not abuse its discretion in finding there was insufficient evidence to support the supplier's request for a jury instruction on the statute of frauds. Forever Green Ath. Fields, Inc. v. Lasiter Constr., Inc., 2011 Ark. App. 347, 384 S.W.3d 540 (2011).

—Collateral or Original Obligations.

Agreements held to be original, not collateral, undertakings and not subject to statute of frauds. Cauthron Lumber Co. v. Hall, 76 Ark. 1, 88 S.W. 594 (1905); Burgie v. Bailey, 91 Ark. 383, 121 S.W. 266 (1909); Brinkley Car Works & Mfg. Co. v. Cook, 110 Ark. 325, 161 S.W. 1065 (1913); Smith v. J.M. Taylor & Co., 144 Ark. 569, 222 S.W. 1062 (1920); Layton v. Central States Lead & Zinc Co., 147 Ark. 355, 227 S.W. 415 (1921); Cleveland v. Maddox, 152 Ark. 538, 239 S.W. 370 (1922); Guild v. Whitlow, 162 Ark. 108, 257 S.W. 383 (1924); Moraz v. Melton, 167 Ark. 629, 268 S.W. 41 (1925); Powell v. Jones & Son, 170 Ark. 809, 281 S.W. 366 (1926); Nakdimen v. First Nat'l Bank, 177 Ark. 303, 6 S.W.2d 505 (1928), cert. denied, 278 U.S. 635, 49 S. Ct. 32 (1928); United States Fid. & Guar. Co. v. Wilson, 41 F.2d 319 (8th Cir. 1930); Foster-Grayson Lumber Co. v. Talley, 190 Ark. 37, 76 S.W.2d 950 (1934); Vincent v. Wesson, 204 Ark. 1108, 166 S.W.2d 1023 (1942); Barnett v. Hughey Auto Parts, Inc., 5 Ark. App. 1, 631 S.W.2d 623 (1982); Jones v. Innkeepers, Inc., 12 Ark. App. 364, 676 S.W.2d 761 (1984).

Where an oral promise is made to pay the debt of another out of property placed in the hands of the promisor for that purpose, it is an original promise and not governed by the statute of frauds. United Walnut Co. v. Courtney, 96 Ark. 46, 130 S.W. 566 (1910).

Agreements held to be collateral and subject to statute of frauds. Zimmerman v. Holt, 102 Ark. 407, 144 S.W. 222 (1912); Perry v. Jarman, 125 Ark. 240, 188 S.W. 544 (1916); Grady v. Dierks Lumber & Coal Co., 154 Ark. 255, 242 S.W. 548 (1922).

In determining whether an oral contract is original or collateral, the intention of the parties at the time it was made must be regarded and in determining such intention the words of the promise, the situation of the parties and all the circumstances attending the transaction should be taken into consideration. Millsaps, Hatchett & Co. v. Nixon, 102 Ark. 435, 144 S.W. 915 (1912); Barnett v. Hughey Auto Parts, Inc., 5 Ark. App. 1, 631 S.W.2d 623 (1982); Landmark Sav. Bank v. Weaver-Bailey Contractors, Inc., 22 Ark. App. 258, 739 S.W.2d 166 (1987).

Evidence held sufficient to make it a jury question whether promise was original or collateral and within the statute of frauds. Hinson v. Gillespie, 131 Ark. 240, 199 S.W. 97 (1917); Arkadelphia Milling Co. v. Green, 142 Ark. 565, 219 S.W. 319 (1920); Grady v. Dierks Lumber & Coal Co., 149 Ark. 306, 232 S.W. 23 (1921); Saul v. Bass, 152 Ark. 584, 239 S.W. 369 (1922).

Evidence sufficient to present an issue as to whether there was a new and original undertaking by the shopping center owner which would not come within the statute of frauds. Fausett Co. v. Rand, 2 Ark. App. 216, 619 S.W.2d 683 (1981).

Original undertakings are not within the statute of frauds and need not be in writing. Barnett v. Hughey Auto Parts, Inc., 5 Ark. App. 1, 631 S.W.2d 623 (1982).

Every collateral undertaking or promise to answer for the debt of another is within this statute and void if not in writing and signed by the person to be charged. Barnett v. Hughey Auto Parts, Inc., 5 Ark. App. 1, 631 S.W.2d 623 (1982); Rohrscheib v. Helena Hosp. Ass'n, 12 Ark. App. 6, 670 S.W.2d 812 (1984).

Original undertaking under which benefits are initially obtained, is enforceable and deemed to be outside this statute. Rohrscheib v. Helena Hosp. Ass'n, 12 Ark. App. 6, 670 S.W.2d 812 (1984).

All oral undertakings to answer for debt of another are not unenforceable under statute of frauds; promise by a third party to discharge a preexisting debt of another, without any new consideration or benefit passing to him, is a “collateral” understanding and unenforceable under the statute of frauds; however, notwithstanding the statute of frauds, such a contract is an “original” one and enforceable if founded on new consideration or benefit moving to the promisor. Landmark Sav. Bank v. Weaver-Bailey Contractors, Inc., 22 Ark. App. 258, 739 S.W.2d 166 (1987).

Finding that undertaking was an original one based on valid consideration was not clearly erroneous; therefore, notwithstanding statute of frauds, agreement was enforceable. Landmark Sav. Bank v. Weaver-Bailey Contractors, Inc., 22 Ark. App. 258, 739 S.W.2d 166 (1987).

—Corporations.

The parol promise of a corporation to pay debts contracted before its incorporation is within the statute. Little Rock & Fort Smith Ry. v. Perry, 37 Ark. 164 (1881).

A contract on behalf of a prospective corporation made for its benefit by promoters, though not in writing, is not within the statute of frauds as being a contract to answer for the debt, default or miscarriage of another since, on its adoption by the corporation, it became, in toto, an original undertaking of the corporation. Layton v. Central States Lead & Zinc Co., 147 Ark. 355, 227 S.W. 415 (1921).

In order for an officer of a corporation to bind such corporation by a guaranty of the debt of some other person or corporation it is necessary for him to sign some writing to that effect. Hutson v. T.M. Dover Mercantile Co., 170 Ark. 984, 282 S.W. 371 (1926).

—Debt of Another.

An agreement by a third party to accept for a creditor his debtor's draft stands upon the same footing as a promise to pay the debt. Chapline v. Atkinson & Co., 45 Ark. 67 (1885); Killough v. Payne, 52 Ark. 174, 12 S.W. 327 (1889); Neal v. Brandon, 70 Ark. 79, 66 S.W. 200 (1902).

Where person did not agree to pay the debt of another but did promise to pay his own, the promise was not within the statute of frauds and the oral agreement was enforceable. Faulkner v. Crawford, 119 Ark. 6, 177 S.W. 35 (1915).

The statute of frauds does not apply where plaintiffs are suing defendants for defendants' own debt, not for the debt of another. Park v. Burge, 5 Ark. App. 252, 635 S.W.2d 279 (1982).

—Estoppel.

Though one had made an oral promise to pay and failed to pay the debt of another, he is not estopped from pleading the statute where his failure to pay worked no fraud on the party to whom the promise was made. Goldsmith v. First Nat'l Bank, 169 Ark. 1162, 278 S.W. 22 (1925).

—Guaranty.

In an action to charge the defendant on his oral guaranty of another's note, the fact that the defendant's promise to pay the other's note, if renewed, was a mere renewal of his original oral promise of guaranty and was not made on any consideration to the defendant, so that such parol promise was as much within the statute of frauds as the original promise. Elm Springs State Bank v. Bradley, 179 Ark. 437, 16 S.W.2d 585 (1929).

A special oral indemnity agreement which agreed to hold the surety on a cost bond harmless was held a direct and not a collateral promise and not within the statute of frauds. United States Fid. & Guar. Co. v. Wilson, 41 F.2d 319 (8th Cir. 1930).

An oral guaranty is within the statute of frauds. Washum v. Lester, 183 Ark. 298, 36 S.W.2d 76 (1931).

—Medical Services.

Particular agreements for payment for medical services for third person held to be original undertaking not subject to the statute of frauds. Cleveland v. Maddox, 152 Ark. 538, 239 S.W. 370 (1922); Guild v. Whitlow, 162 Ark. 108, 257 S.W. 383 (1924); Vincent v. Wesson, 204 Ark. 1108, 166 S.W.2d 1023 (1942).

Particular agreement for payment of medical services for third person held to be subject to the statute of frauds. Yaffe v. Pickett, 196 Ark. 1139, 121 S.W.2d 93 (1938).

—Miscellaneous Agreements.

A verbal promise by the drawee of a check, after the check had been deposited in the bank by the payee, to pay if the bank failed was not binding. Burns v. Yocum, 81 Ark. 127, 98 S.W. 956 (1906).

Promise to pay prisoner's fine and costs was within the statute of frauds. Flenniken v. Harmon, 113 Ark. 542, 168 S.W. 1081 (1914).

In absence of a trust impressed on insurance proceeds from death of borrower, promise of wife of deceased borrower to pay debt after his death was no more than a moral obligation and clearly within the statute of frauds. Moore v. Lawrence, 252 Ark. 759, 480 S.W.2d 941 (1972).

—New Consideration.

An agreement on a new consideration is not within the statute. Conger v. Cotton, 37 Ark. 286 (1881); Jonesboro Hdwe. Co. v. Western Tie & Timber Co., 134 Ark. 543, 204 S.W. 418 (1918).

A promise to pay a debt of another antecedently contracted, where the primary debt still subsists, is original and not within the statute of frauds when it is founded on a new consideration moving to the promisor and beneficial to him and is such that the promisor thereby comes under an independent duty of payment irrespective of the ability of the principal debtor. Long v. McDaniel, 76 Ark. 292, 88 S.W. 964 (1905).

A parol promise to pay the debt of another is not within the statute of frauds when it arises from a new and original consideration of benefit or harm moving between the newly contracting parties. Hunt v. Taggett, 160 Ark. 617, 255 S.W. 8 (1923); Burkhart Mfg. Co. v. Berry, 162 Ark. 123, 257 S.W. 723 (1924).

Defendant's promise to pay the note of a purchaser of a car in consideration that the seller would not retake it was not within the statute of frauds, being supported by a new and independent consideration. Frame v. Whittam, 181 Ark. 768, 27 S.W.2d 990 (1930).

—Payment.

Payment for land and maintenance of the property were not sufficient to take an oral contract for the sale of land out of the operation of the statute of frauds. Dolphin v. Wilson, 328 Ark. 1, 942 S.W.2d 815 (1997).

—Preexisting Debts.

An agreement between promisor and debtor that the former will assume the indebtedness of the latter already incurred is an original undertaking and is not within the statute of frauds. Burgie v. Bailey, 91 Ark. 383, 121 S.W. 266 (1909).

Where the primary debt for services rendered to a person rests against him and a promise of a third person to pay it is made subsequent to the time it was incurred, such promise is not an original undertaking and is within the statute of frauds. Zimmerman v. Holt, 102 Ark. 407, 144 S.W. 222 (1912).

An oral agreement to stand as surety for an existing debt of another is void. Savage v. Craig, 105 Ark. 697, 150 S.W. 146 (1912).

Where the debt has already been incurred, a promise by a third party to discharge the preexisting debt of another without any new consideration or benefit passing to him, is a collateral promise and within the statute; however, even if the debt preexists, a subsequent promise of a third party to pay it is deemed original and enforceable if founded on a new consideration of benefit moving to the promisor. Barnett v. Hughey Auto Parts, Inc., 5 Ark. App. 1, 631 S.W.2d 623 (1982).

Where the original debt has already been incurred, an oral promise by a third party to discharge a preexisting debt without new consideration is a collateral promise and within this statute. Rohrscheib v. Helena Hosp. Ass'n, 12 Ark. App. 6, 670 S.W.2d 812 (1984).

A promise to discharge a preexisting debt which is founded on new consideration is enforceable and deemed to be outside this statute. Rohrscheib v. Helena Hosp. Ass'n, 12 Ark. App. 6, 670 S.W.2d 812 (1984).

—Promisor's Benefit.

An oral promise by a grantee of land to pay a debt of the grantor to a third person as part of the consideration for the conveyance is not within the statute of frauds. Scott v. Moore, 89 Ark. 321, 116 S.W. 660 (1909); Curlee v. Morris, 196 Ark. 779, 120 S.W.2d 10 (1938).

A verbal promise by a principal contractor that he would reimburse a certain bank for money advanced to a subcontractor upon time checks issued by the subcontractor in completing the contract work is not within the statute of frauds. S.R.H. Robinson & Son Contracting Co. v. Twin City Bank, 103 Ark. 219, 146 S.W. 523 (1912).

A finding that a promise by the vendor of an oil drilling rig to see that laborers employed in drilling an oil well were paid their wages was independent and not collateral is sustained by proof that the vendor was interested in having the well drilled in order that it might collect the price of the rig. Oil City Iron Works v. Bradley, 171 Ark. 45, 283 S.W. 362 (1926).

The statute forbidding the bringing of an action to charge any person upon an oral promise to answer for the debt, default or miscarriage of another does not apply to a promise to pay debts contracted by an agent at the instance of and for the promisor's benefit. Lesser-Goldman Cotton Co. v. Merchants & Planters Bank, 182 Ark. 150, 30 S.W.2d 215 (1930).

—Supplies Furnished to Another.

Agreements to pay for supplies furnished to another held to be an original undertaking and not statute of frauds. Cauthron Lumber Co. v. Hall, 76 Ark. 1, 88 S.W. 594 (1905); Smith v. J.M. Taylor & Co., 144 Ark. 569, 222 S.W. 1062 (1920); Barnett v. Hughey Auto Parts, Inc., 5 Ark. App. 1, 631 S.W.2d 623 (1982).

Agreement to furnish supplies held to be a collateral and not an original undertaking and within the statute of frauds. Perry v. Jarman, 125 Ark. 240, 188 S.W. 544 (1916).

Where a corporation promises to pay for supplies furnished to another as an original undertaking, the undertaking is not within the statute of frauds, but if the corporation is merely surety for the purchaser, the case is within the statute and must be evidenced by writing. Black Bros. Lumber Co. v. Varner, 164 Ark. 103, 261 S.W. 312 (1924).

The statute of frauds does not apply to a contract for the sale of material to one person, to be delivered to another. Colum v. Imboden, 185 Ark. 890, 50 S.W.2d 235 (1932).

Proof.

To remove an oral contract from the statute of frauds, it is necessary that the quantum of proof be clear and convincing both as to the making of the oral contract and its performance. Pfeifer v. Raper, 253 Ark. 438, 486 S.W.2d 524 (1972); Bramlett v. Selman, 268 Ark. 457, 597 S.W.2d 80 (1980).

Ratification of Agent's Act.

It is not essential that the ratification of an agent's act in accepting a contract within the statute of frauds should be in writing, though the acceptance must have been in writing to comply with the statute of frauds. Arkansas Light & Power Co. v. City of Paragould, 146 Ark. 1, 225 S.W. 435 (1920).

Unenforceable Agreements.

An oral agreement to reduce to writing a contract which is within the scope of the operation of the statute of frauds or to sign an agreement which the statute of frauds requires to be in writing is invalid and unenforceable. Lee Wilson & Co. v. Springfield, 230 Ark. 257, 321 S.W.2d 775 (1959).

Writing or Memorandum.

—In General.

Agreements to repair or build are not required to be in writing. Halbut v. Forrest City, 34 Ark. 246 (1879).

An agreement for the conveyance of an undivided interest in a partition fence which is an estate in the land must be in writing. Rudisill v. Cross, 54 Ark. 519, 16 S.W. 575 (1891).

Where a written contract for the sale of land is valid under the statute of frauds, its performance will not be defeated because there was another agreement not embraced in the writing. Davis v. Davis, 171 Ark. 168, 283 S.W. 360 (1926).

A suit by a purchaser for specific performance of a contract to convey real estate could not be based on a letter from a real estate agent to the vendors where, although the letter satisfied the statute of frauds, it was never delivered to the purchaser. Harris v. Dacus, 209 Ark. 1031, 193 S.W.2d 1006 (1946).

A contract in writing which leaves some essential term thereof to be shown by parol is only a parol contract, and not enforceable under the statute of frauds. Wyatt v. Yingling, 213 Ark. 160, 210 S.W.2d 122 (1948).

—Extrinsic or Parol Evidence.

Although designation of the premises in contract or memorandum by street number is ordinarily sufficient to satisfy the statute even though parol evidence must be used where the vendor owns two parcels of land the prospective purchaser could not by parol evidence show that vendor had agreed to also convey part of the other parcel in the transaction. Creighton v. Huggins, 227 Ark. 1096, 303 S.W.2d 893 (1957).

While extrinsic evidence may not be used to add to or change a deficient description, it may be used to decipher or make intelligible the terms of the contract to determine compliance with the statute of frauds. Boensch v. Cornett, 267 Ark. 671, 590 S.W.2d 55 (Ark. App. 1979).

Description sufficient to find that the writing was sufficient to satisfy the statute of frauds and allow extrinsic evidence to show facts rendering the description intelligible. Boensch v. Cornett, 267 Ark. 671, 590 S.W.2d 55 (Ark. App. 1979).

Where terms used in a deed to create an easement, specifically the word “across,” were definite and unambiguous, it was error for the chancellor to admit extrinsic evidence to contradict the terms used in the deed. Niemeyer v. Griffin, 309 Ark. 97, 826 S.W.2d 821 (1992).

—Incorporation of Instruments.

Different writings may be considered together to meet the requirements of the statute of frauds, where they on their face are connected together. Arkansas Light & Power Co. v. City of Paragould, 146 Ark. 1, 225 S.W. 435 (1920).

To permit consideration of two or more instruments together in a transaction for the sale of real estate to meet the requirements of the statute of frauds there must be some incorporation by one of the other or some reference to the other found in the instrument. Sorrells v. Bailey Cattle Co., 268 Ark. 800, 595 S.W.2d 950 (Ct. App. 1980).

Instruments could not be combined since one party to the alleged sale of land was not a party to the offer and acceptance and there was no provision in that instrument for any conveyance to her. Sorrells v. Bailey Cattle Co., 268 Ark. 800, 595 S.W.2d 950 (Ct. App. 1980).

—Sufficiency.

A writing which is dependent upon oral proof to disclose the terms of the contract is not sufficient to answer the requirements of the statute of frauds. Littell v. Jones, 56 Ark. 139, 19 S.W. 497 (1892).

Writing regarding promise to answer for the debt of another was sufficient to take case out of statute of frauds. Clinton v. Ross, 108 Ark. 442, 159 S.W. 1103 (1912); Scranton Mercantile Co. v. E. Schneider & Co., 163 Ark. 536, 260 S.W. 426 (1924); Jones v. Innkeepers, Inc., 12 Ark. App. 364, 676 S.W.2d 761 (1984).

It is sufficient if the memorandum is signed by the party sought to be charged. Jones v. School Dist., 137 Ark. 414, 208 S.W. 798 (1919).

Description of land to be sold held insufficient to take agreement out of the statute of frauds. Hotopp v. Adair, 144 Ark. 629, 223 S.W. 393 (1920); Kromray v. Stobaugh, 212 Ark. 377, 206 S.W.2d 171 (1947); Sorrells v. Bailey Cattle Co., 268 Ark. 800, 595 S.W.2d 950 (Ct. App. 1980).

Writing held sufficient to take contract concerning land out of the statute of frauds. Wilson v. Spry, 145 Ark. 21, 223 S.W. 564 (1920); Rawls v. Free, 184 Ark. 737, 43 S.W.2d 540 (1931); Coley v. Hall, 206 Ark. 419, 175 S.W.2d 979 (1943); Hale v. Hays, 251 Ark. 759, 475 S.W.2d 145 (1972).

Writing held insufficient to take contract concerning land out of statute of frauds. Briggs v. Frazer, 157 Ark. 518, 249 S.W. 9 (1923); Cobb v. Southern Plaswood Corp., 171 F. Supp. 691 (W.D. Ark. 1959); Dooley v. West, 210 F. Supp. 239 (W.D. Ark. 1962); Hyder v. Newcomb, 236 Ark. 231, 365 S.W.2d 271 (1963); Shipp v. Bell & Ross Enters., Inc., 256 Ark. 89, 505 S.W.2d 509 (1974).

Writing held sufficient to take contract not to be performed in one year out of statute of frauds. Central Clay Drainage Dist. v. Hunter, 174 Ark. 293, 295 S.W. 19 (1927).

To meet the essential and necessary requirements of a valid contract for the sale of real estate, within this statute, contract must embrace the terms and conditions of the sale and it must be a mutual contract. Tate v. Clark, 203 Ark. 231, 156 S.W.2d 218 (1941).

Receipt or memorandum not embracing the terms and conditions of alleged sale of land and the time and method of payment being not sufficient to satisfy the requirement of this section cannot be relied upon to enforce specific performance of alleged contract. Schuman v. Hughes, 203 Ark. 395, 156 S.W.2d 804 (1941).

A memorandum uncertain as to the time for and method and conditions of payment was insufficient. Perrin v. Price, 210 Ark. 535, 196 S.W.2d 766 (1946).

Writing regarding lease for more than a year insufficient to take the transaction out of the statute of frauds. Norton v. Hindsley, 245 Ark. 966, 435 S.W.2d 788 (1969).

A description of the land to be conveyed is an essential term of a contract for the sale of land; however, if the memorandum required by this section furnishes a means by which the realty to be conveyed can be identified, it need not describe the property with the particularity required for deeds. Boensch v. Cornett, 267 Ark. 671, 590 S.W.2d 55 (Ark. App. 1979).

Cited: Robinson v. Florence Sanitarium, 149 Ark. 355, 232 S.W. 590 (1921); Smith v. Westlake, 152 Ark. 384, 238 S.W. 34 (1922); Miles v. Scales, 174 Ark. 412, 295 S.W. 375 (1927); Thompson v. Phillips, 225 Ark. 736, 284 S.W.2d 842 (1955); Carroll v. Kessinger, 228 Ark. 450, 307 S.W.2d 880 (1957); Lee Wilson & Co. v. Springfield, 230 Ark. 257, 321 S.W.2d 775 (1959); Kelly v. Weir, 243 F. Supp. 588 (E.D. Ark. 1965); Benton v. Fultz, 241 Ark. 163, 406 S.W.2d 699 (1966); Farmers Coop. Ass'n v. Webb, 249 Ark. 277, 459 S.W.2d 815 (1970); Hyde Wholesale Dry Goods Co. v. Edwards, 255 Ark. 211, 500 S.W.2d 85 (1973); Robertson v. Ceola, 255 Ark. 703, 501 S.W.2d 764 (1973); Mikel v. Development Co., 269 Ark. 365, 602 S.W.2d 630 (1980); Gray v. Davis, 270 Ark. 917, 606 S.W.2d 607 (1980); Pierce-Odom, Inc. v. Evenson, 5 Ark. App. 67, 632 S.W.2d 247 (1982); Graves v. Graves, 7 Ark. App. 202, 646 S.W.2d 26 (1983); Township Bldrs., Inc. v. Kraus Constr. Co., 286 Ark. 487, 696 S.W.2d 308 (1985); McKay & Co. v. Garland, 17 Ark. App. 1, 701 S.W.2d 392 (1986); Western Auto Supply Co. v. Bank of Imboden, 17 Ark. App. 4, 701 S.W.2d 394 (1986); Hoffius v. Maestri, 31 Ark. App. 13, 786 S.W.2d 846 (1990); First Nat'l Bank v. Adair, 42 Ark. App. 84, 854 S.W.2d 358 (1993); Van Dyke v. Glover, 326 Ark. 736, 934 S.W.2d 204 (1996); Beavers v. Ark. State Bd. of Dental Exam'rs, 151 F.3d 838 (8th Cir. 1998); Powhatan Cemetery Ass'n v. Phillips, 90 Ark. App. 424, 206 S.W.3d 277 (2005).

4-59-102. Leases, estates, etc.

  1. All leases, estates, interests of freeholds, or lease of years, or any uncertain interests of, in, to, or out of any messuages, lands, or tenements made or created by livery and seisin only, or by parol, and not put in writing and signed by the parties or their agents lawfully authorized by writing so making or creating the leases, estates, interests of freehold, lease of years, or any uncertain interests, shall have the force and effect of leases or estates at will only, and shall not, either in law or equity, be deemed or taken to have any other or greater effect or force than as leases not exceeding the term of one (1) year.
  2. No leases, estates, or interest, either of freehold or of term of years in, to, or out of any messuages, lands, or tenements, except leases for a term not exceeding one (1) year, shall at any time be assigned, granted, or surrendered unless it is by deed or notice in writing, signed by the party so assigning, granting, or surrendering the leases, estates, interests of freeholds, lease of years, or any uncertain interests, or by their agents lawfully authorized by writing or by operation of law.

History. Rev. Stat., ch. 65, §§ 8, 9; C. & M. Dig., §§ 4865, 4866; Pope's Dig., §§ 6062, 6063; A.S.A. 1947, §§ 38-104, 38-105.

RESEARCH REFERENCES

ALR.

Sufficiency of description of terms and conditions of lease, or lease provision, so as to comply with statute of frauds. 12 A.L.R.6th 123.

Case Notes

Assignments.

A lease contract for five years containing no provision against assignment may be assigned. Keith v. McGregor, 163 Ark. 203, 259 S.W. 725 (1924).

Landlord could not object to assignment of lease executed by wife of tenant on the ground that she did not have authority to execute assignment, since only parties to assignment could object. Pardue v. Bryant, 219 Ark. 727, 244 S.W.2d 135 (1951).

Assignment of a lease to a third party by deed meeting all of the requirements of this section, the assignment of such lease was not violative of § 4-59-101. Jones v. Innkeepers, Inc., 12 Ark. App. 364, 676 S.W.2d 761 (1984).

Cancellation.

A parol agreement to cancel a lease does not of itself constitute a surrender of the lease; but when such an agreement has been executed, parol proof thereof may be made. Ford v. Miller, 149 Ark. 443, 232 S.W. 604 (1921).

Sufficiency of Writing.

Writing held insufficient to create binding lease. Holt v. Ames, 240 Ark. 218, 398 S.W.2d 687 (1966).

Execution and acceptance of notes for three years' rent, signed only by the tenant and containing nothing to identify the land leased, were insufficient to create a binding three-year lease, notwithstanding the statute of frauds, such notes might be valid evidence of an oral lease for the first of the three years. Norton v. Hindsley, 245 Ark. 966, 435 S.W.2d 788 (1969).

Where lease was in writing, signed by the lessor and lessee, and in all respects complied with § 4-59-101, it was an enforceable contract between those parties. Jones v. Innkeepers, Inc., 12 Ark. App. 364, 676 S.W.2d 761 (1984).

Cited: Jones v. Innkeepers, Inc., 12 Ark. App. 364, 676 S.W.2d 761 (1984).

4-59-103. Trusts or confidences.

    1. All declarations or creations of trusts or confidences of any lands or tenements shall be manifested and proved by some writing signed by the party who is or shall be by law enabled to declare the trusts, or by his or her last will in writing, or else they shall be void.
    2. All grants and assignments of any trusts or confidences shall be in writing signed by the party granting or assigning them, or by his or her last will in writing, or else they shall be void.
  1. Where any conveyance shall be made of any lands or tenements, by which a trust or confidence may arise or result by implication of law, the trust or confidence shall not be affected by anything contained in this section, § 4-59-102, and § 4-59-201 et seq.
  2. (i) a person that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor, other than a person that holds the securities:

History. Rev. Stat., ch. 65, §§ 10, 11; C. & M. Dig., §§ 4867, 4868; Pope's Dig., §§ 6064, 6065; A.S.A. 1947, §§ 38-106, 38-107.

Case Notes

Bases of Trusts.

A parol agreement that another shall be interested in the purchase of land without the advance of money by the other person, there being no element in case other than that of broken promise to reconvey, cannot be made the basis of a trust, either express or implied. W.B. Worthen Co. v. Vogler, 145 Ark. 161, 224 S.W. 626 (1920).

Burden of Proof.

In an action to compel defendant to convey a lot purchased at an execution sale in conformity with an agreement for that purpose, the burden was on the plaintiff to establish a trust ex maleficio. Eason v. Wheeler, 167 Ark. 320, 268 S.W. 29 (1925).

Burden is upon the party who asserts the existence of a constructive trust based on a parol agreement to establish it by evidence which is clear, cogent and convincing. Kelly v. Weir, 243 F. Supp. 588 (E.D. Ark. 1965).

Estoppel.

Wife of farm owner who knew of the agreement of her husband that his brother purchase one half of his land and that the farm be operated as a partnership was estopped to claim the statute of frauds. White v. White, 254 Ark. 257, 493 S.W.2d 133 (1973).

Evidence.

—In General.

An orally created trust cannot be found upon mere preponderance of the evidence but must be established by clear, satisfactory and convincing evidence. American Bonding Co. v. Hord, 98 F.2d 350 (8th Cir. 1938).

A resulting trust must be established by evidence that is clear, cogent and convincing. Harbour v. Harbour, 207 Ark. 551, 181 S.W.2d 805 (1944).

To engraft resulting trust upon deed absolute in form, evidence must be clear and convincing. Crain v. Keenan, 218 Ark. 375, 236 S.W.2d 731 (1951).

Testimony may be sufficient to establish resulting trust in land, even though not undisputed. Crain v. Keenan, 218 Ark. 375, 236 S.W.2d 731 (1951).

There must be clear, cogent and convincing evidence of fraud, or a confidential relationship to establish a constructive trust. Bottenfield v. Wood, 264 Ark. 505, 573 S.W.2d 307 (1978).

Evidence insufficient to support a finding that there was either an express oral trust or a resulting or constructive trust. Bottenfield v. Wood, 264 Ark. 505, 573 S.W.2d 307 (1978).

—Parol Evidence.

Parol evidence not admissible to establish an express trust, as to an interest in land. Salyers v. Smith, 67 Ark. 526, 55 S.W. 936 (1900); Morris v. Nowlin Lumber Co., 100 Ark. 253, 140 S.W. 1 (1911); Harbour v. Harbour, 103 Ark. 273, 146 S.W. 867 (1912); Carpenter v. Gibson, 104 Ark. 32, 148 S.W. 508 (1912); Veasey v. Veasey, 110 Ark. 389, 162 S.W. 45 (1913); Bray v. Timms, 162 Ark. 247, 258 S.W. 338 (1924); Hunt v. Hunt, 202 Ark. 130, 149 S.W.2d 930 (1941); Harbour v. Harbour, 207 Ark. 551, 181 S.W.2d 805 (1944); Hawkins v. Scanlon, 212 Ark. 180, 206 S.W.2d 179 (1947).

Parol evidence is admissible to establish a resulting trust. Lasker-Morris Bank & Trust Co. v. Gans, 132 Ark. 402, 200 S.W. 1029 (1918); Bray v. Timms, 162 Ark. 247, 258 S.W. 338 (1924); Hunt v. Hunt, 202 Ark. 130, 149 S.W.2d 930 (1941); Harbour v. Harbour, 207 Ark. 551, 181 S.W.2d 805 (1944); Stewart v. Bowen, 224 Ark. 275, 273 S.W.2d 540 (1954).

Parol evidence is admissible to establish an implied trust. Pharr v. Fink, 151 Ark. 305, 237 S.W. 728 (1922); Harbour v. Harbour, 207 Ark. 551, 181 S.W.2d 805 (1944); Bramlett v. Selman, 268 Ark. 457, 597 S.W.2d 80 (1980).

A trust in personal property may be created and proved by parol. Scott v. Miller, 179 Ark. 7, 13 S.W.2d 819 (1929); Oliver v. Oliver, 182 Ark. 1025, 34 S.W.2d 226 (1931).

Parol evidence is admissible to establish a constructive trust. Harbour v. Harbour, 207 Ark. 551, 181 S.W.2d 805 (1944); Bramlett v. Selman, 268 Ark. 457, 597 S.W.2d 80 (1980).

Parol evidence admissible to establish an express oral trust in personalty. Hawkins v. Scanlon, 212 Ark. 180, 206 S.W.2d 179 (1947).

Express Trusts.

This section refers to express trusts. McDonald v. Tyner, 84 Ark. 189, 105 S.W. 74 (1907); Barron v. Stuart, 136 Ark. 481, 207 S.W. 22 (1918).

Express trust cannot be engrafted on written instrument by parol. Morris v. Nowlin Lumber Co., 100 Ark. 253, 140 S.W. 1 (1911); Harbour v. Harbour, 103 Ark. 273, 146 S.W. 867 (1912); Carpenter v. Gibson, 104 Ark. 32, 148 S.W. 508 (1912); Veasey v. Veasey, 110 Ark. 389, 162 S.W. 45 (1913); O'Connor v. Patton, 171 Ark. 626, 286 S.W. 822 (1926); Umberger v. Westmoreland, 218 Ark. 632, 238 S.W.2d 495 (1951).

Where a trust in land is sought to be established by the agreement of the parties or from the declaration of the beneficial owner of the property, made to establish a trust, it is within the statute of frauds and must be proved by writing. Spradling v. Spradling, 101 Ark. 451, 142 S.W. 848 (1911); Pharr v. Fink, 151 Ark. 305, 237 S.W. 728 (1922); Hawkins v. Scanlon, 212 Ark. 180, 206 S.W.2d 179 (1947).

To establish an express trust it is necessary to show that before or after the time land was purchased, the one holding title thereto executed and delivered some writing declaring that he held it in trust. Stacy v. Stacy, 175 Ark. 763, 300 S.W. 437 (1927).

Invalidity of an express trust agreement, clearly established, does not convert a transfer into a gift where such transfer was not intended to be a gift, but an oral agreement and surrounding circumstances will be taken into consideration and where a breach of the fiduciary obligation is shown, restitution will be enforced. American Bonding Co. v. Hord, 98 F.2d 350 (8th Cir. 1938).

An express trust can be proved only by some instrument in writing signed by the party enabled by law to declare the trust. Hunt v. Hunt, 202 Ark. 130, 149 S.W.2d 930 (1941).

Suit to impress trust on realty which was conveyed from aunt to nephews on ground that grantees agreed to hold land as trustees was an effort to establish an express trust by oral evidence and within the interdiction of this section. Jones v. Gachot, 217 Ark. 462, 230 S.W.2d 937 (1950).

Where both parties admit the existence of the oral agreement which constituted the express trust it prevents the application of the statute of frauds to an express oral trust of an interest in land. Arnett v. Lillard, 245 Ark. 939, 436 S.W.2d 106 (1969).

A quitclaim deed, signed by the grantor, but giving no instructions to the grantees, fails as an express trust. Bottenfield v. Wood, 264 Ark. 505, 573 S.W.2d 307 (1978).

Fraud.

A mere refusal to perform a parol agreement, void under the statute of frauds, is not of itself fraud. Davidson v. Edwards, 168 Ark. 306, 270 S.W. 94 (1925).

Where there is fraud in procuring conveyance, though absolute upon its face, it may be shown to create a trust. O'Connor v. Patton, 171 Ark. 626, 286 S.W. 822 (1926).

Implied Trusts.

—In General.

The term “implied trusts,” includes resulting and constructive trusts, they arise by implication of law and may be established by parol testimony. Stacy v. Stacy, 175 Ark. 763, 300 S.W. 437 (1927).

A trust created by a purchase of land at a mortgage foreclosure sale by one to whom money was furnished by mortgagor and his wife, without any instrument in writing, was an implied trust, since an implied trust includes a resulting trust. Hunt v. Hunt, 202 Ark. 130, 149 S.W.2d 930 (1941).

A constructive trust may be imposed despite the statute of frauds, because implied trusts, such as constructive trusts or resulting trusts, are specifically exempted from the application of this section. Cole v. Rivers, 43 Ark. App. 123, 861 S.W.2d 551 (1993).

—Constructive Trusts.

The rule that a mere verbal agreement by which one party thereto promises to buy in at a judicial sale lands of the other party and to hold the same for his benefit does not create a constructive trust, the agreement being within the statute of frauds, is subject to the exception that where the purchaser buys lands of another, under such a state of facts as would make it a fraud to permit him to hold on to his bargain, a trust will be raised. Strasner v. Carroll, 125 Ark. 34, 187 S.W. 1057 (1916).

Oral transaction held to create a constructive trust to which the statute of frauds did not apply. Edlin v. Moser, 176 Ark. 1107, 5 S.W.2d 923 (1928); Armstrong v. Armstrong, 181 Ark. 597, 27 S.W.2d 88 (1930); Walker v. Biddle, 225 Ark. 654, 284 S.W.2d 840 (1955); Davidson v. Sanders, 235 Ark. 161, 357 S.W.2d 510 (1962); White v. White, 254 Ark. 257, 493 S.W.2d 133 (1973); Bramlett v. Selman, 268 Ark. 457, 597 S.W.2d 80 (1980).

This section does not apply to a constructive trust between mother and daughter. Grissom v. Bunch, 227 Ark. 696, 301 S.W.2d 462 (1957).

Proof of fraud is not essential to the establishment of a constructive trust. Davidson v. Sanders, 235 Ark. 161, 357 S.W.2d 510 (1962).

Before a constructive trust will be declared it must appear either that the promisor who later obtains title to the property never intended to perform his promise, or that there was a confidential relationship between the promisor and promisee. Kelly v. Weir, 243 F. Supp. 588 (E.D. Ark. 1965).

A constructive trust on lands may be based upon a parol agreement. Kelly v. Weir, 243 F. Supp. 588 (E.D. Ark. 1965).

Simply because the grantees were related to the grantor could not, alone, create a confidential relationship imposing a constructive trust on the land. Bottenfield v. Wood, 264 Ark. 505, 573 S.W.2d 307 (1978).

Although a grantee's oral promise to hold the title to land for a third person is unenforceable, a constructive trust will be imposed if it is shown by clear, cogent and convincing evidence that the grantee's promise was intentionally fraudulent or that the parties were in a confidential relationship. Bramlett v. Selman, 268 Ark. 457, 597 S.W.2d 80 (1980).

—Resulting Trusts.

Where title to land purchased and paid for by a minor son was taken by his father on account of the son's supposed incapacity to take title, an express oral agreement of the father to hold as trustee for the son did not change the nature of the transaction from a resulting trust to an express trust which would be within the statute of frauds. Grayson v. Bowlin, 70 Ark. 145, 66 S.W. 658 (1902).

Transactions between the parties subsequent to the purchase of certain lands cannot create a resulting trust, but if such a trust arises out of the purchase of the land, its character as a resulting trust is not altered by a writing subsequently executed, which acknowledges the existence of the trust; nor does the fact the writing acknowledges the existence of the trust change the character of the transaction from a resulting trust which may be established by parol to an express trust which is within the statute of frauds. Lasker-Morris Bank & Trust Co. v. Gans, 132 Ark. 402, 200 S.W. 1029 (1918).

Resulting trust, exempt from this section, held to be established. Davis v. Dickerson, 137 Ark. 14, 207 S.W. 436 (1918); Lisko v. Hicks, 195 Ark. 705, 114 S.W.2d 9 (1938); Harbour v. Harbour, 207 Ark. 551, 181 S.W.2d 805 (1944); Crain v. Keenan, 218 Ark. 375, 236 S.W.2d 731 (1951); Gorenflo v. Brown, 233 Ark. 221, 343 S.W.2d 564 (1961).

A parol agreement that another shall be interested in the purchase of lands or a parol declaration by a purchaser that he buys for another without an advance of money by that other falls within the statute of frauds and cannot give birth to a resulting trust. Roberts v. Pratt, 147 Ark. 575, 228 S.W. 379 (1921).

Wife may show by oral testimony that her money went into purchase of land held in husband's name, that she had a beneficial interest therein, so as to establish a resulting trust. Harbour v. Harbour, 207 Ark. 551, 181 S.W.2d 805 (1944).

Resulting trusts, such as that created when a husband purchases property with his cash in his wife's name because he believes that he is dying, with the understanding that if he lives the deed will be reformed to create an estate by the entirety, but where the wife dies soon afterward, are excepted from the statute of frauds and may be established by parol evidence. Phillips v. Tramble, 224 Ark. 359, 273 S.W.2d 400 (1954).

A resulting trust arises in one of the following situations: where a private or charitable trust fails in whole or in part; where a private or charitable trust is fully performed without exhausting the trust estate; and, where property is purchased and the purchase price is paid by one person and at his direction the vendor transfers the property to another person. Bottenfield v. Wood, 264 Ark. 505, 573 S.W.2d 307 (1978).

Pleading.

This section is not applicable where neither party, in the trial below, pleaded or relied on the statute of frauds as a basis for affirmative relief or as a defense. Arnett v. Lillard, 245 Ark. 939, 436 S.W.2d 106 (1969).

Secret Trusts.

There is a strong presumption against the existence of any secret orally created trust. American Bonding Co. v. Hord, 98 F.2d 350 (8th Cir. 1938).

Sufficiency of Memorandum.

Memorandum which was susceptible to several interpretations was not clear, unequivocal and convincing evidence which was required to show that husband's deed to his subsequently deceased wife was mere mortgage, where husband's testimony relating to transaction was indefinite. Umberger v. Westmoreland, 218 Ark. 632, 238 S.W.2d 495 (1951).

Cited: Payne v. Box, 231 Ark. 301, 329 S.W.2d 181 (1959).

Subchapter 2 — Uniform Voidable Transactions Act

Publisher's Notes. Former subchapter 2, concerning fraudulent conveyances, was repealed by Acts 1987, No. 967, § 13. The former subchapter was derived from the following sources:

4-59-201. Rev. Stat., ch. 65, § 7; C. & M. Dig., § 4879; Pope's Dig., § 6076; A.S.A. 1947, § 68-1307.

4-59-202. Rev. Stat., ch. 65, § 6; C. & M. Dig., § 4878; Pope's Dig., § 6075; A.S.A. 1947, § 68-1306.

4-59-203. Rev. Stat., ch. 65, § 1; C. & M. Dig., § 4873; Pope's Dig., § 6070; A.S.A. 1947, § 68-1301.

4-59-204. Rev. Stat., ch. 65, §§ 2, 3; C. & M. Dig., §§ 4874, 4875; Pope's Dig., §§ 6071, 6072; A.S.A. 1947, §§ 68-1302, 68-1303.

4-59-205. Rev. Stat., ch. 65, § 4; C. & M. Dig., § 4876; Pope's Dig., § 6073; A.S.A. 1947, § 68-1304.

4-59-206. Acts 1965 (1st Ex. Sess.), No. 24, § 1; A.S.A. 1947, § 68-1309.

4-59-207. Rev. Stat., ch. 65, § 5; C. & M. Dig., § 4877; Pope's Dig., § 6074; A.S.A. 1947, § 68-1305.

4-59-208. Acts 1887, No. 99, § 1, p. 193; C. & M. Dig., §§ 4367, 4880; Pope's Dig., §§ 5379, 6077; A.S.A. 1947, § 68-1308.

Acts 1993, No. 444, § 2, provided:

“The General Assembly determines that Arkansas Code § 4-25-104 is no longer necessary and should be repealed as to dissolution of insolvent corporations is now comprehensively covered by Arkansas Code §§ 4-26-1108, 4-27-1430, and 4-59-201 et seq. ”

For Commentary regarding the Uniform Fraudulent Transfer Act, see Commentaries Volume A.

Amendments. Acts 2017, No. 1086, § 1 substituted “Uniform Voidable Transactions Act” for “Fraudulent Transfers” in the subchapter heading.

Cross References. Insolvent corporations, preferences, §§ 4-26-1108 and 4-27-1430.

Research References

ALR.

Rule denying recovery of property to one who conveyed to defraud creditors as applicable where the claim which motivated the conveyance was never established. 6 A.L.R.4th 862.

Right of secured creditor to have set aside fraudulent transfer of other property by his debtor. 8 A.L.R.4th 1123.

Sufficiency of showing, in establishing boundary by parol agreement, that boundary was uncertain or in dispute before agreement. 74 A.L.R.4th 132.

Am. Jur. 37 Am. Jur. 2d, Fraud. Conv., § 1 et seq.

Ark. L. Notes.

Flaccus, Baby Needs New Shoes: Child Support Collection and Bankruptcy, 1990 Ark. L. Notes 51.

Ark. L. Rev.

Equity — Clean-Up Doctrine — Tort Claims for Damages Appended to Suit to Restrain Fraudulent Conveyances (John P. Cobb), 18 Ark. L. Rev. 172.

Fraudulent Conveyances in Arkansas, 19 Ark. L. Rev. 149.

Notes, McCune v. Brown, Allowing a Fraudulent Conveyor to Revoke a “Gift” Despite Unclean Hands, 38 Ark. L. Rev. 446.

Scott, The Revocable-Irrevocable Trust — The Way Out?, 42 Ark. L. Rev. 713.

Comment, Recent Applications of the Arkansas Fraudulent Transfer Act, 51 Ark. L.Rev. 489.

C.J.S. 37 C.J.S. Fraud. Conv., § 2 et seq.

U. Ark. Little Rock L.J.

Note, Debtor—Creditor Relations—Arkansas Fraudulent Transfer Act, 10 U. Ark. Little Rock L.J. 497.

Survey—Debtor—Creditor, 10 U. Ark. Little Rock L.J. 573.

Hardin, Conversion of Nonexempt Property to Exempt Property on the Eve of Bankruptcy in Arkansas, 10 U. Ark. Little Rock L.J. 719.

4-59-201. Definitions.

As used in this subchapter:

  1. “Affiliate” means:
    1. as a fiduciary or agent without sole discretionary power to vote the securities; or
    2. solely to secure a debt, if the person has not in fact exercised the power to vote;
      1. property to the extent it is encumbered by a valid lien;
      2. property to the extent it is generally exempt under nonbankruptcy law; or
      3. an interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only one tenant.
    3. a general partner in a partnership described in clause (B); or
    4. a corporation of which the debtor is a director, officer, or person in control;
    5. a general partner in a partnership described in clause (D); or
    6. a relative of a general partner, director, officer, or person in control of the debtor;
      1. to execute or adopt a tangible symbol; or
      2. to attach to or logically associate with the record an electronic symbol, sound, or process.

(ii) a corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the debtor or a person that directly or indirectly owns, controls, or holds, with power to vote, 20 percent or more of the outstanding voting securities of the debtor, other than a person that holds the securities:

(A) as a fiduciary or agent without sole discretionary power to vote the securities; or

(B) solely to secure a debt, if the person has not in fact exercised the power to vote;

(iii) a person whose business is operated by the debtor under a lease or other agreement, or a person substantially all of whose assets are controlled by the debtor; or

(iv) a person that operates the debtor's business under a lease or other agreement or controls substantially all of the debtor's assets.

(2) “Asset” means property of a debtor, but the term does not include:

(3) “Claim”, except as used in “claim for relief”, means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.

(4) “Creditor” means a person that has a claim.

(5) “Debt” means liability on a claim.

(6) “Debtor” means a person that is liable on a claim.

(7) “Electronic” means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

(8) “Insider” includes:

(i) if the debtor is an individual:

(A) a relative of the debtor or of a general partner of the debtor;

(B) a partnership in which the debtor is a general partner;

(ii) if the debtor is a corporation:

(A) a director of the debtor;

(B) an officer of the debtor;

(C) a person in control of the debtor;

(D) a partnership in which the debtor is a general partner;

(iii) if the debtor is a partnership:

(A) a general partner in the debtor;

(B) a relative of a general partner in, a general partner of, or a person in control of the debtor;

(C) another partnership in which the debtor is a general partner;

(D) a general partner in a partnership described in clause (C); or

(E) a person in control of the debtor;

(iv) an affiliate, or an insider of an affiliate as if the affiliate were the debtor; and

(v) a managing agent of the debtor.

(9) “Lien” means a charge against or an interest in property to secure payment of a debt or performance of an obligation, and includes a security interest created by agreement, a judicial lien obtained by legal or equitable process or proceedings, a common-law lien, or a statutory lien, including child support liens arising under §§ 9-14-230 and 9-14-231.

(10) “Organization” means a person other than an individual.

(11) “Person” means an individual, estate, partnership, association, trust, business or nonprofit entity, public corporation, government or governmental subdivision, agency, or instrumentality, or other legal or commercial entity.

(12) “Property” means anything that may be the subject of ownership.

(13) “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.

(14) “Relative” means an individual related by consanguinity within the third degree as determined by the common law, a spouse, or an individual related to a spouse within the third degree as so determined, and includes an individual in an adoptive relationship within the third degree.

(15) “Sign” means, with present intent to authenticate or adopt a record:

(16) “Transfer” means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, license, and creation of a lien or other encumbrance.

(17) “Valid lien” means a lien that is effective against the holder of a judicial lien subsequently obtained by legal or equitable process or proceedings.

History. Acts 1987, No. 967, § 1; 1997, No. 1296, § 1; 2017, No. 1086, § 1.

Amendments. The 2017 amendment inserted the definitions for “Electronic”, “Organization”, “Record”, and “Sign” and redesignated the remaining subdivisions accordingly; inserted “in fact” in (1)(i)(B); inserted “discretionary” in (1)(ii)(A); inserted “except as used in ‘claim for relief'” in (3); rewrote (11); inserted “license” in (16); and made stylistic changes.

Research References

Ark. L. Rev.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

Case Notes

Applicability.

Since creditor could enforce his judgment with a remedy of a resulting trust, the district court erred in finding that his claim was time-barred by this subchapter; the allegations were sufficient to argue that a resulting trust was formed, and the creditor, who was entitled to step into the debtor's shoes, timely filed his claim within the 10 years for enforcing a judgment pursuant to § 16-56-114 against defendant, the trustee/title holder of real property held for the benefit of the debtor. Imperato v. McMinn, 406 F.3d 987 (8th Cir. 2005).

Creditor.

In creditor's action to set aside an alleged fraudulent conveyance arising from a transfer-on-death (TOD) beneficiary designation, the creditor of the deceased had standing to pursue its claim under the Fraudulent Transfers Act, § 4-59-201 et seq., against the transferee beneficiary. Heritage Props. Ltd. P'ship v. Walt & Lee Keenihan Found., Inc., 2019 Ark. 371, 584 S.W.3d 685 (2019) (decided under pre-2017 version of § 4-59-201 et seq.).

Insider.

Motion for judgment notwithstanding the verdict was denied in a case involving fraudulent transfers to a wife, as an insider, by a judgment debtor under § 4-59-204(a)(1) because the debtor and the wife were unable to substantiate the claim that wife purchased the stocks with money won at a horse race or that a transfer was due to the debtor's poor health. Laird v. Weigh Sys. South II, Inc., 98 Ark. App. 393, 255 S.W.3d 900 (2007).

Transfer.

This subchapter’s definition of “transfer” was similar to the definition in the Bankruptcy Code. While the Bankruptcy Code afforded the trustee the ability to avoid transfers made within two years of filing bankruptcy, the Arkansas statute allowed three years from the date of transfer. Despite the one-year difference in the look-back period, however, the statutes were in pari materia and the same analysis applied under both laws. Jacoway v. Svetc (In re Svetc), 521 B.R. 892 (Bankr. W.D. Ark. 2014) (decision under prior law).

Cited: Halliburton Co. v. E.H. Owen Family Trust, 28 Ark. App. 314, 773 S.W.2d 453 (1989); FDIC v. Bell, 106 F.3d 258 (8th Cir. 1997); United States Fid. & Guar. Co. v. Hogan, 208 B.R. 459 (Bankr. E.D. Ark. 1997).

4-59-202. Insolvency.

  1. A debtor is insolvent if, at a fair valuation, the sum of the debtor's debts is greater than the sum of the debtor's assets.
  2. A debtor that is generally not paying the debtor's debts as they become due, other than as a result of a bona fide dispute, is presumed to be insolvent. The presumption imposes on the party against which the presumption is directed the burden of proving that the nonexistence of insolvency is more probable than its existence.
  3. Assets under this section do not include property that has been transferred, concealed, or removed with intent to hinder, delay, or defraud creditors or that has been transferred in a manner making the transfer voidable under this subchapter.
  4. Debts under this section do not include an obligation to the extent it is secured by a valid lien on property of the debtor not included as an asset.

History. Acts 1987, No. 967, § 2; 2017, No. 1086, § 1.

Amendments. The 2017 amendment, in (a), inserted “at a fair valuation”, substituted “the sum” for “all” preceding “of the debtor's assets”, and deleted “at a fair valuation” at the end; in (b), inserted “other than as a result of a bona fide dispute” in the first sentence and added the second sentence; deleted former (c) and redesignated the remaining subsections accordingly; and made stylistic changes.

4-59-203. Value.

  1. Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise made otherwise than in the ordinary course of the promisor's business to furnish support to the debtor or other person.
  2. For the purposes of § 4-59-204(a)(2) and § 4-59-205, a person gives a reasonably equivalent value if the person acquires an interest of the debtor in an asset pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale for the acquisition or disposition of the interest of the debtor upon default under a mortgage, deed of trust, or security agreement.
  3. A transfer is made for present value if the exchange between the debtor and the transferee is intended by them to be contemporaneous and is in fact substantially contemporaneous.

History. Acts 1987, No. 967, § 3; 2017, No. 1086, § 1.

Amendments. The 2017 amendment, in (b), substituted “purposes” for “purpose” and added “deed of trust, or security agreement”.

Case Notes

Burden of Proof.

Every gift is presumptively fraudulent as to existing creditors, and the burden is on the donee to show that donor's intentions were innocent and that he had abundant means left to pay his debt. Norton v. Elk Horn Bank, 55 Ark. 59, 17 S.W. 362 (1891) (decision under prior law).

Consideration.

A party claiming under a deed which is attacked as fraudulent cannot support it by showing a different consideration than that expressed on its face. Carmack v. Lovett, 44 Ark. 180 (1884) (decision under prior law).

A wife's relinquishment of dower, or her cession of any other rights of property, is a sufficient consideration for a settlement upon her by her husband out of his own property. Hershy v. Latham, 46 Ark. 542 (1885) (decision under prior law).

Consideration of blood or love and affection are not sufficient to support a promise to make a gift in the future. Stifft v. W.B. Worthen Co., 176 Ark. 585, 3 S.W.2d 316 (1928) (decision under prior law).

A gift inter vivos cannot be made to take effect in the future, as such a transaction would only be a promise or agreement to make a gift, and, being without consideration, would be unenforceable and void. Krickerberg v. Hoff, 201 Ark. 63, 143 S.W.2d 560 (1940) (decision under prior law).

Gifts and conveyances not for good consideration. Smith v. Clark, 219 Ark. 751, 244 S.W.2d 776 (1952); Burks v. Burks, 222 Ark. 97, 257 S.W.2d 369 (1953); Schneider v. O'Neal, 243 F.2d 914 (8th Cir. 1957) (preceding decisions under prior law).

Fraud.

That a gift is binding on the donor will not preclude his creditors from attacking it for fraud. Norton v. Elk Horn Bank, 55 Ark. 59, 17 S.W. 362 (1891) (decision under prior law).

Where the bankruptcy court determined that a spendthrift provision in a trust was invalid as to a debtor such that the entire trust corpus was included in his bankruptcy estate and the debtor did not object to this determination at trial, the debtor's subsequent argument, on a motion to alter and amend that the Chapter 7 trustee was required to file a fraudulent conveyance action to set aside the debtor's transfer of assets into the trust was without merit; because the debtor's interest in the entire trust corpus was already included in his bankruptcy estate, the trustee had no reason to attempt to set aside the entire trust as a fraudulent transfer. In re Schultz, 324 B.R. 722 (Bankr. E.D. Ark. 2005).

Subsequent Creditors.

A conveyance by one who is not indebted cannot be attacked by a subsequent creditor as fraudulent because it was voluntary. Stix v. Chaytor, 55 Ark. 116, 17 S.W. 707 (1891) (decision under prior law).

Cited: Halliburton Co. v. E.H. Owen Family Trust, 28 Ark. App. 314, 773 S.W.2d 453 (1989); Brown v. Brown, 265 B.R. 167 (Bankr. E.D. Ark. 2001).

4-59-204. Transfer or obligation voidable as to present or future creditor.

  1. A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
    1. with actual intent to hinder, delay, or defraud any creditor of the debtor; or
    2. without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
      1. was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
      2. intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.
  2. In determining actual intent under subdivision (a)(1) of this section, consideration may be given, among other factors, as to whether:
    1. the transfer or obligation was to an insider;
    2. the debtor retained possession or control of the property transferred after the transfer;
    3. the transfer or obligation was disclosed or concealed;
    4. before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
    5. the transfer was of substantially all the debtor's assets;
    6. the debtor absconded;
    7. the debtor removed or concealed assets;
    8. the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
    9. the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
    10. the transfer occurred shortly before or shortly after a substantial debt was incurred; and
    11. the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.
  3. A creditor making a claim for relief under subsection (a) of this section has the burden of proving the elements of the claim for relief by a preponderance of the evidence.

History. Acts 1987, No. 967, § 4; 2017, No. 1086, § 1.

A.C.R.C. Notes. Acts 2017, No. 1086, § 2, provided:

“The General Assembly finds that although the text of this act is in agreement with and will improve Arkansas law, the 2014 Official Uniform Law Commission comment no. 2 and comment no. 8 to Section 4 of the uniform act, which is codified at § 4-59-204, is intended to be persuasive authority but does not represent Arkansas law and should not be considered when interpreting this act.”

Amendments. The 2017 amendment substituted “Transfer or obligation voidable as to present or future creditor” for “Transfers fraudulent as to present and future creditors” in the section heading; substituted “voidable” for “fraudulent” in the introductory language of (a); added (c); and made stylistic changes.

Research References

ALR.

Purchase of Annuity by Debtor as Fraud on Creditors. 74 A.L.R.6th 549.

Ark. L. Rev.

Note: Middleton v. Lockhart: Rule 41(b), a Fraudulent Transfer, a Homestead, and a Homicide — Did This Hard Case Make Bad Law?, 56 Ark. L. Rev. 113.

U. Ark. Little Rock L.J.

Note, Bankruptcy — A Fraudulent Conveyance Action and a Lis Pendens May Create a Lien Which Survives a Bankruptcy Discharge, 15 U. Ark. Little Rock L.J. 319.

Case Notes

In General.

Conveyances or legal actions to defraud creditors. Davis v. Cramer, 133 Ark. 224, 202 S.W. 239 (1918); Scrape v. Robinson, 202 Ark. 264, 149 S.W.2d 943 (1941); Spitzer v. Barnhill, 237 Ark. 525, 374 S.W.2d 811 (1964); United States v. Johnston, 245 F. Supp. 433 (W.D. Ark. 1965); Rees v. Craighead Inv. Co., 251 Ark. 336, 472 S.W.2d 92 (1971); Udey v. District Dir., I.R.S., 534 F. Supp. 219 (W.D. Ark. 1982); In re Locke, 50 B.R. 443 (Bankr. E.D. Ark. 1985) (preceding decisions under prior law).

Applicability.

Former statute, concerning gifts and conveyances in trust to use of person making, held might not apply to creditors of a stockholder in a corporation. A.H. Scoggin & Co. v. City Nat'l Bank, 175 Ark. 461, 299 S.W. 1033 (1927) (decision under prior law).

Assignments.

The assignee in a fraudulent assignment is chargeable with notice of its contents. Hunt v. Weiner, 39 Ark. 70 (1882) (decision under prior law).

Bankruptcy Proceedings.

If transfers by bankrupt were in fraud of any of the bankrupt's creditors and avoidable as to them, the trustee in bankruptcy would be entitled to judgment against transferee for property wrongfully transferred. Schneider v. O'Neal, 243 F.2d 914 (8th Cir. 1957) (decision under prior law).

The open conversion of nonexempt assets into exempt assets was not considered fraudulent as this practice has been long permitted under the bankruptcy code. Federal Sav. & Loan Ins. Corp. v. Holt, 97 B.R. 997 (W.D. Ark. 1988), aff'd, 894 F.2d 1005 (8th Cir. 1990) (decision under prior law).

To prove a fraudulent transfer under this section, the trustee must show that the debtor received less than reasonably equivalent value for the property and that he was insolvent on the date of the transfer or became insolvent as a result of the transfer. Williams v. Marlar, 246 B.R. 606 (Bankr. W.D. Ark. 2000), aff'd, Williams v. Marlar (In re Marlar), 252 B.R. 743 (B.A.P. 8th Cir. 2000).

Where corporation gave a promissory note to a trust in exchange for a physician's interest in his practice (the physician previously transferred his interest to the trust), the debtor's payments on the note were fraudulent transfers because the debtor received no value for the payments and the corporation never transferred the physician's interest to the debtor. Meeks v. Healthcorp of Tenn., Inc. (In re Southern Health Care of Ark.), 299 B.R. 918 (Bankr. E.D. Ark. 2003), aff'd, Meeks v. Don Howard Charitable Remainder Trust (In re S. Health Care of Ark., Inc.), 309 B.R. 314 (B.A.P. 8th Cir. 2004).

Chapter 7 debtor was not entitled to a homestead exemption under Ark. Const. Art. IX, § 3 on a house she owned because she committed fraud, in violation of this section and § 4-59-205, when she transferred money out of a trust she managed and used the money to buy the house while the trust was indebted to a bank, and because the debtor was not entitled to a homestead exemption in the house, the bank's judgment lien on the house did not impair the debtor's interest in the house and the debtor's claim seeking an order avoiding the bank's lien under 11 U.S.C. § 522(f) had to be denied. In re Gaddy, No. 5:12-bk-72648, 2013 Bankr. LEXIS 2326 (Bankr. W.D. Ark. June 7, 2013).

Debtor fraudulently transferred and concealed his true interest by titling property in other people's names in order to place it beyond his creditors' reach and thus, transfers were avoided and property was returned to his estate under various provisions of the Bankruptcy Code and this subchapter. Despite serpentine chain of title, debtor continuously possessed and exercised uninterrupted control over property. Jacoway v. Svetc (In re Svetc), 521 B.R. 892 (Bankr. W.D. Ark. 2014).

Divorce Proceedings.

Transfer held fraudulent as to creditor bank, where debtor husband, after transferring business assets to his ex-wife, retained considerably less assets than he transferred to the wife, and thus did not receive the reasonably equivalent value for the transferred property. FDIC v. Bell, 106 F.3d 258 (8th Cir. 1997), cert. denied, 523 U.S. 1022, 118 S. Ct. 1304, 140 L. Ed. 2d 470 (1998).

Divorce Property Settlement.

In a federal diversity action by a judgment creditor to recover fraudulently transferred assets, the district court was under no obligation to consider that a state court approved a property settlement agreement as equally dividing the divorcing parties' assets. FDIC v. Bell, 106 F.3d 258 (8th Cir. 1997), cert. denied, 523 U.S. 1022, 118 S. Ct. 1304, 140 L. Ed. 2d 470 (1998).

Estoppel.

Where a wife permitted her husband to retain title to her land knowing that his creditors were dealing with him under the belief that it belonged to him, she was estopped as to them to claim it as hers, and a conveyance by the husband to the wife to prevent its seizure by his creditors was fraudulent and void. Cowling v. Hill, 69 Ark. 350, 63 S.W. 800 (1901) (decision under prior law).

Evidence sufficient to find that creditor was estopped from maintaining that the transfer of the property was fraudulent. A.H. Scoggin & Co. v. City Nat'l Bank, 175 Ark. 461, 299 S.W. 1033 (1927) (decision under prior law).

Exemptions.

Creditors cannot set aside as fraudulent a conveyance by their debtor of his homestead. Stanley v. Snyder, 43 Ark. 429 (1884); Carmack v. Lovett, 44 Ark. 180 (1884); Gray v. Patterson, 65 Ark. 373, 46 S.W. 730 (1898); White Sewing-Machine Co. v. Wooster, 66 Ark. 382, 50 S.W. 1000 (1899); Sieb's Hatcheries, Inc. v. Lindley, 111 F. Supp. 705 (W.D. Ark. 1953), aff'd, 209 F.2d 674 (8th Cir. 1954) (preceding decisions under prior law).

Creditors cannot set aside as fraudulent a conveyance of the debtor's personal property less than the value that he could claim as exempt. Sannoner v. King, 49 Ark. 299, 5 S.W. 327 (1887); Simms v. Phillips, 54 Ark. 193, 15 S.W. 461 (1891) (preceding decisions under prior law).

In a suit by creditors of an insolvent debtor to subject land which he had fraudulently procured to be conveyed to his wife, it was no defense that the consideration for the land was the exchange of the debtor's homestead. Reeves v. Slade, 71 Ark. 611, 77 S.W. 54 (1903) (decision under prior law).

Federal Law.

Federal courts use the same factors as Arkansas courts to determine whether transfers were made with fraudulent intent. United States Fid. & Guar. Co. v. Hogan, 208 B.R. 459 (Bankr. E.D. Ark. 1997).

Fraudulent Intent.

United States' request to set aside a conveyance of real property by a taxpayer and his wife to their private trust was granted because the conveyance was fraudulent under subdivision (a)(1) of this section: (1) the conveyance was made shortly after the taxpayer received his first notice of assessment from the Internal Revenue Service; (2) the $10 that the trust purportedly paid for the property was grossly disproportionate to its value; (3) the taxpayer and his wife continued to live on the property without the benefit of a lease and without paying any rent to the trust; and (4) the taxpayer and his wife continued to pay all of the expenses connected with the property, including mortgage and property tax payments. United States v. Tolbert, 2007 U.S. Dist. LEXIS 68041 (W.D. Ark. Sept. 13, 2007), aff'd, 326 Fed. Appx. 412 (8th Cir. 2009).

Taxpayer fraudulently transferred his acreage and his home to his sons and other purchasers under subdivision (a)(1) of this section for inadequate consideration of $1 and $10 after becoming aware of his tax liability because the properties were transferred to entities controlled by the taxpayer and consisted of substantially all of his assets, the taxpayer never moved out of his home, and the purchasers did not believe that they owned the home, did not finish paying for it, and had no knowledge that they conveyed it to a foundation that was an alter ego of the taxpayer who controlled its bank account. United States v. Muncy, 2008 U.S. Dist. LEXIS 37343 (E.D. Ark. May 7, 2008).

—In General.

Intent that makes a conveyance fraudulent as to creditors must be participated in by both parties, grantor and grantee. Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (decision under prior law).

Indicia of fraudulent intent include insolvency or indebtedness of the transferor, inadequate or fictitious consideration, retention by the debtor of the property, pendency or threat of litigation, secrecy or concealment, and fact that disputed transactions were conducted in a manner differing from the usual business practice. Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963); Tipp v. United Bank, 23 Ark. App. 176, 745 S.W.2d 141 (1988) (preceding decisions under prior law); Clark v. Bank of Bentonville, 308 Ark. 241, 824 S.W.2d 358 (1992) (decision under prior law).

Fraudulent intent was necessary to bring a conveyance within the purview of former statute. Tipp v. United Bank, 23 Ark. App. 176, 745 S.W.2d 141 (1988) (decision under prior law); Clark v. Bank of Bentonville, 308 Ark. 241, 824 S.W.2d 358 (1992) (decision under prior law).

Both vendor and vendee must act with fraudulent intent before conveyance will be regarded as fraudulent. Tipp v. United Bank, 23 Ark. App. 176, 745 S.W.2d 141 (1988).

—Adequacy of Consideration.

Where a debtor conveyed his property to his son and to a family-owned corporation, there was a presumption of fraud casting upon him the burden of showing a consideration, and the deed's recitals were not competent to show a consideration. Leonhard v. Flood, 68 Ark. 162, 56 S.W. 781 (1900) (decision under prior law).

The assignment by an embarassed debtor to his brother-in-law of his interest under his uncle's will, although it expressed a consideration, was void as to existing creditors where there was no evidence offered that the stated consideration was, in fact, paid. Wasson v. Greig, 194 Ark. 420, 108 S.W.2d 463 (1937) (decision under prior law).

Transactions between husband and wife are closely scrutinized for fraud, but when made in good faith for a fair consideration they are upheld the same as transactions between strangers. Sieb's Hatcheries, Inc. v. Lindley, 111 F. Supp. 705 (W.D. Ark. 1953), aff'd, 209 F.2d 674 (8th Cir. 1954) (decision under prior law).

Where the husband conveys to the wife certain property without consideration, such transaction will be deemed fraudulent as to a prior creditor, though no actual fraud was intended. Sieb's Hatcheries, Inc. v. Lindley, 111 F. Supp. 705 (W.D. Ark. 1953), aff'd, 209 F.2d 674 (8th Cir. 1954) (decision under prior law).

In determining whether the consideration in an alleged fraudulent transfer of property is adequate, inadequate or grossly inadequate, conveyance by a debtor to a third party of mortgaged property is supported by adequate consideration if the third party grantee agrees to pay debts owed by grantor which are secured by the property. Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (decision under prior law).

Under the evidence, in action to set aside alleged fraudulent transfer of property, consideration for the conveyance as a matter of law appeared adequate, and, if there was any disparity at all between consideration and value received by transferee, it was slight and far from being “grossly inadequate.” Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (decision under prior law).

In determining fraudulent intent on the part of the parties to a transaction, mere inadequacy of price for consideration is insufficient; it is only when the inadequacy of price is so gross that it shocks the conscience, and furnishes satisfactory and decisive evidence of fraud, that it will be sufficient proof that the purchase is not bona fide. Ouachita Elec. Coop. Corp. v. Evans-St. Clair, 12 Ark. App. 171, 672 S.W.2d 660 (1984) (decision under prior law).

For a transfer to withstand attack as fraudulent, it must be for adequate consideration and made in good faith. In re Baugh, 60 B.R. 102 (Bankr. E.D. Ark. 1986) (decision under prior law).

—Debtor's Retention of Property.

A mortgage of articles of merchandise left in possession of mortgagor with power to sell in ordinary course of business was void except as between the parties. Lund v. Fletcher, 39 Ark. 325 (1882); Martin v. Ogden, 41 Ark. 186 (1883); Fink v. Ehrman Bros., 44 Ark. 310 (1884); Gauss Sons v. Doyle & Co., 46 Ark. 122 (1885); Collins v. Lightle, 50 Ark. 97, 6 S.W. 596 (1887); Felner v. Wilson, 55 Ark. 77, 17 S.W. 587 (1891); Adler-Goldman Comm'n Co. v. Phillips, 63 Ark. 40, 37 S.W. 297 (1896) (preceding decisions under prior law).

Where certain goods were sold to customer but not separated from other goods in store although entered on its books and thereafter entire stock of store was mortgaged to another, such sale was invalid as against subsequent purchasers and attaching creditors. Davis v. Meyer, 47 Ark. 210, 1 S.W. 95 (1886) (decision under prior law).

The continuance of the vendor in the possession of the goods after the sale was prima facie evidence of a secret trust, fraudulent as to creditors, and the burden of proof was upon the vendee to overcome the presumption of fraud arising from such possession by proving the payment of a sufficient consideration to support the sale. Valley Distilling Co. v. Atkins, 50 Ark. 289, 7 S.W. 137 (1887) (decision under prior law).

Failure to make actual delivery raises only a rebuttable presumption of fraud. Shaul v. Harrington, 54 Ark. 305, 15 S.W. 835 (1891) (decision under prior law).

Where there is a completed contract of sale and an agreement by the vendor to hold as bailee for the vendee in lieu of actual delivery, the sale is valid against the vendor's creditors if it is not otherwise fraudulent. Shaul v. Harrington, 54 Ark. 305, 15 S.W. 835 (1891) (decision under prior law).

Where mortgagors hold possession of goods and make sales as agents of mortgagees, the mortgage is valid. Felner v. Wilson, 55 Ark. 77, 17 S.W. 587 (1891); Adler-Goldman Comm'n Co. v. Phillips, 63 Ark. 40, 37 S.W. 297 (1896) (preceding decisions under prior law).

Where vendors, charged with fraudulent transfer, remained on the premises as managers of tourist accommodations on the land did not affect the transaction, since their corporate employer could terminate their position at any time. Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (decision under prior law).

Evidence that debtor continued in possession of transferred property was sufficient to set aside the transfer as fraudulent. Weatherly v. Massey-Ferguson, Inc., 245 Ark. 317, 432 S.W.2d 18 (1968) (decision under prior law).

Debtors, who gave their daughter a 1986 Pontiac as a high school graduation present, but maintained, for insurance reasons, title and insurance in the father's name, recovery under the fraudulent transfer statutes must fail because the transfer of value was made to the daughter in 1986 when the debtors gave her the 1986 Pontiac. At that time, although the debtor retained legal title to the vehicle, the equitable interest in the vehicle was given to daughter, so that a subsequent change in nominal title did not constitute a “transfer of interest.” Luker v. McCall, 188 B.R. 402 (Bankr. E.D. Ark. 1995).

—Indebtedness or Insolvency.

When an embarrassed debtor makes a voluntary conveyance of his property, his indebtedness raises a presumption of fraud against existing creditors, and such presumption becomes conclusive upon insolvency; but a voluntary conveyance by a person in debt is not per se fraudulent as to subsequent creditors, and to impeach it, they must prove actual or intentional fraud. Driggs & Co.'s Bank v. Norwood, 50 Ark. 42, 6 S.W. 323 (1887) (decision under prior law).

A voluntary conveyance by one who is indebted raises a prima facie presumption of fraud which becomes conclusive if evidence fails to show that he had other property. Stix v. Chaytor, 55 Ark. 116, 17 S.W. 707 (1891) (decision under prior law).

A voluntary conveyance of property by insolvent debtor is fraudulent as to subsequent as well as existing creditors if debtor reasonably had in contemplation the contracting of such future debt at time conveyance was made. Rudy v. Austin, 56 Ark. 73, 19 S.W. 111 (1892); May v. State Nat'l Bank, 59 Ark. 614, 28 S.W. 431 (1894); Semmes v. Underwood, 64 Ark. 415, 42 S.W. 1069 (1897); Slayden-Kirksey Woolen Mills v. Anderson, 66 Ark. 419, 50 S.W. 994 (1899); Buchanan v. Williams, 110 Ark. 335, 160 S.W. 190 (1913); Renn v. Renn, 207 Ark. 147, 179 S.W.2d 657 (1944) (preceding decisions under prior law).

Where grantor in voluntary conveyance was not insolvent, fact that he was in debt raised no presumption of fraud as to subsequent creditors. Crampton v. Schaap, 56 Ark. 253, 19 S.W. 669 (1892) (decision under prior law).

Where land was purchased and paid for by the embarrassed husband who subsequently became insolvent and title taken in the name of his wife with the actual intent to hinder and delay his creditors, the land was subject to debts of his creditors both prior and subsequent. Slayden-Kirksey Woolen Mills v. Anderson, 66 Ark. 419, 50 S.W. 994 (1899) (decision under prior law).

Where a husband, owning the reversionary estate in lands of which his wife owned a life estate, conveyed his interest to her, thereby depriving himself of the means of paying his debts, his conveyance was a fraud upon the rights of his creditors. Morris v. Fletcher, 67 Ark. 105, 56 S.W. 1072 (1899) (decision under prior law).

It is error to instruct the jury that a transfer of property by an embarrassed debtor to a member of his family is to be looked at with suspicion; such an instruction is upon the weight of the evidence. Smith v. Jackson, 133 Ark. 334, 202 S.W. 227 (1918) (decision under prior law).

Where debtor was indebted for an attorney's fee, and being insolvent sold a piece of property which he had acquired thereby rendering the fee uncollectable, the sale was fraudulent and was properly set aside. Fromholtz v. Trimble, 140 Ark. 282, 215 S.W. 623 (1919) (decision under prior law).

A voluntary transfer of property to near relatives is presumptively fraudulent as to existing creditors, and if made by one who at the time is embarrassed, it is looked upon with suspicion and scrutinized with care. Crill v. Trites, 186 Ark. 354, 53 S.W.2d 577 (1932) (decision under prior law).

A gift of property to his child by his father who is largely indebted places the burden on the father to show that his intentions were innocent and that he had at the time ample means to pay his debts. Crill v. Trites, 186 Ark. 354, 53 S.W.2d 577 (1932) (decision under prior law).

While conveyances from an insolvent debtor to near relatives are not sufficient of themselves to establish fraud, yet, when added to other suspicious circumstances, they may be sufficient evidence of fraud to justify the court in setting them aside. Wasson v. Lightle, 188 Ark. 440, 66 S.W.2d 652 (1933); Parrish v. Parrish, 191 Ark. 443, 86 S.W.2d 557 (1935) (preceding decisions under prior law).

Although fraud is never presumed against existing creditors, when an embarrassed debtor conveys property to a near relative, the conveyance must be scrutinized closely, and if found voluntary, it is prima facie fraudulent; where the debtor becomes insolvent the presumption becomes conclusive. Rice v. Rice, 125 F. Supp. 900 (W.D. Ark. 1954) (decision under prior law) Clark v. Bank of Bentonville, 308 Ark. 241, 824 S.W.2d 358 (1992) (decision under prior law).

Under definition of insolvency as a lack of means to pay one's debts, or that if assets were made immediately they would be insufficient to discharge the liabilities, it appeared from the evidence that, at time of alleged fraudulent transfer, the debtor was solvent. Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (decision under prior law).

Before presumption of fraud on part of grantor may be found, there must be clear distinction made between actual insolvency and mere indebtedness on his part, as mere circumstances of indebtedness is no evidence of fraud. Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (decision under prior law).

Where plaintiff failed to prove insolvency of defendants at time of the transaction, court could not assume that there were insufficient nonexempt assets of defendants which plaintiff was able to attach to satisfy the judgment. Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (decision under prior law).

Former statute was not applicable where husband's indebtedness did not exist at the time of conveyance to his wife, nor was it contracted shortly afterwards, and there was no evidence that quitclaiming his interest in the property caused him to be insolvent at that time, nor was he insolvent at the time he contracted with the creditor. Hanna v. Miller, 9 Ark. App. 255, 657 S.W.2d 563 (1983) (decision under prior law).

The question of a debtor's solvency for purposes of determining fraudulent intent is not the ultimate question but is simply a matter for consideration in determining whether a conveyance was made with intent to delay, hinder, or defraud creditors. Clark v. Bank of Bentonville, 308 Ark. 241, 824 S.W.2d 358 (1992).

Debtors did not commit actual fraud, but, given the circumstances at the time of the transfer, specifically a lack of consideration for the transfer to a family member and the balance sheet insolvency of the debtors, the transfer was constructively fraudulent under 11 U.S.C.S. § 548(a)(1)(B) and subdivision (a)(2) of this section. Luker v. Eubanks (In re Eubanks), 444 B.R. 415 (Bankr. E.D. Ark. 2010).

In creditor's action to set aside an alleged fraudulent conveyance arising from a transfer-on-death (TOD) beneficiary designation, summary judgment was improperly granted to the beneficiary as there was a factual issue as to whether the decedent “reasonably should have believed that she would incur debts beyond her ability to pay as they became due”; this section does not require the creditor to demonstrate the debtor's actual intent. Heritage Props. Ltd. P'ship v. Walt & Lee Keenihan Found., Inc., 2019 Ark. 371, 584 S.W.3d 685 (2019) (decided under pre-2017 version of § 4-59-201 et seq.).

In creditor's action to set aside an alleged fraudulent conveyance arising from a transfer-on-death (TOD) beneficiary designation, summary judgment for the transferee beneficiary was reversed where the creditor presented proof that the IRS had a claim for tax deficiencies dating back several years, that the decedent had multiple creditors, and that her estate was likely insolvent. Heritage Props. Ltd. P'ship v. Walt & Lee Keenihan Found., Inc., 2019 Ark. 371, 584 S.W.3d 685 (2019) (decided under pre-2017 version of § 4-59-201 et seq.).

—Pendency or Threat of Litigation.

Conveyance by judgment debtor of all his property to wife after service of summons will be viewed with suspicion, and the burden is upon the wife to show that the conveyance was not executed for a fraudulent purpose. Papan v. Nahay, 106 Ark. 230, 152 S.W. 107 (1913) (decision under prior law).

Transfer pending, or under threat of, litigation held fraudulent. Robinson v. Bigger, 199 Ark. 1152, 137 S.W.2d 738 (1940); Murphy v. Marshall, 203 Ark. 986, 159 S.W.2d 741 (1942) (preceding decisions under prior law).

Transfer pending, or under threat of, litigation held not fraudulent. Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963); Ralston Purina Co. v. Davis, 256 Ark. 972, 511 S.W.2d 482 (1974) (preceding decisions under prior law).

Generally, intent to defraud or knowledge on part of purchaser that vendor has committed fraud may be established by fact of pendency of litigation, and trier of facts may properly consider this circumstance in determining whether purchaser bought with notice; however, such knowledge of purchaser does not of itself establish fraudulent intent on his part, and adverse evidentiary effect thereof may be overcome in good faith, paying a valuable consideration. Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (decision under prior law).

Intent to defraud on the part of the vendor may be established by evidence of the pendency of litigation against the vendor. In re Baugh, 60 B.R. 102 (Bankr. E.D. Ark. 1986) (decision under prior law).

—Proof.

Fraud is never presumed. Toney v. McGehee, 38 Ark. 419 (1882) (decision under prior law).

A voluntary postnuptial settlement upon a wife is presumptively fraudulent against existing creditors and casts upon those holding under it the onus of proving the entire good faith of the transaction. Adams v. Edgerton, 48 Ark. 419, 3 S.W. 628 (1886) (decision under prior law).

Where a conveyance is made under such circumstances that the result must necessarily be to hinder and delay creditors, it will be presumed that such was the intent of the transferor. Evans v. Cheatham, 183 Ark. 82, 34 S.W.2d 1076 (1931); Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (preceding decisions under prior law).

Fraud is never presumed, but must be affirmatively proved by a clear preponderance of the evidence by the party who alleges and relies on it. Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963); Ouachita Elec. Coop. Corp. v. Evans-St. Clair, 12 Ark. App. 171, 672 S.W.2d 660 (1984) (preceding decisions under prior law).

In an action by a creditor to set aside as fraudulent real estate conveyance by the debtor to his wife, there was not burden upon the creditor to show by evidence that the debtor had equity in the properties conveyed. Allis v. Jones, 403 F.2d 707 (8th Cir. 1968) (decision under prior law).

An intent to defraud a subsequent creditor must be shown before a voluntary conveyance will be avoided; such a subsequent creditor must prove fraudulent intent by evidence which is clear, cogent, and convincing. Hanna v. Miller, 9 Ark. App. 255, 657 S.W.2d 563 (1983) (decision under prior law).

In a suit to set aside a fraudulent conveyance, the allegation of fraud must be shown by a preponderance of the evidence, and while fraud may be established by circumstantial evidence, the circumstances must be so strong and well connected as to clearly show fraud. Ouachita Elec. Coop. Corp. v. Evans-St. Clair, 12 Ark. App. 171, 672 S.W.2d 660 (1984); Tipp v. United Bank, 23 Ark. App. 176, 745 S.W.2d 141 (1988) (preceding decisions under prior law).

The creditor who seeks to set aside a conveyance as fraudulent must show that his debtor has disposed of property that might otherwise have been subjected to the satisfaction of his debt. Ouachita Elec. Coop. Corp. v. Evans-St. Clair, 12 Ark. App. 171, 672 S.W.2d 660 (1984) (decision under prior law).

The questions of whether the debtor must be solvent and whether the date to use in determining intent is when the conveyance is executed or when it is filed for record are not ultimate questions but are simply matters for consideration in making the determination of whether the conveyance was made with intent to delay, hinder, or defraud creditors. Lessman v. Dawson, 14 Ark. App. 285, 687 S.W.2d 860 (1985) (decision under prior law).

The burden of proof is on the party alleging a fraudulent conveyance, and the fraud must be proved by clear and convincing evidence. In re Baugh, 60 B.R. 102 (Bankr. E.D. Ark. 1986) (decision under prior law).

Factors typically attendant to a fraudulent conveyance are the insolvency of the transferor, inadequate or fictitious consideration, retention by the debtor of the property transferred, secrecy or concealment, and the fact that the disputed transaction was conducted in a manner differing from the usual transaction. In re Baugh, 60 B.R. 102 (Bankr. E.D. Ark. 1986) (decision under prior law).

The party who alleges and relies upon fraud bears the burden of proving fraud by a preponderance of the evidence. Tipp v. United Bank, 23 Ark. App. 176, 745 S.W.2d 141 (1988) (decision under prior law); Clark v. Bank of Bentonville, 308 Ark. 241, 824 S.W.2d 358 (1992) (decision under prior law).

A conveyance to a trust was determined to be fraudulent where: 1) On the date of the conveyance, the defendants were without sufficient liquid assets to make payments to the plaintiff; 2) the consideration was nominal; 3) the trust agreement allowed defendants to retain certain incidents of ownership over the property; and 4) the conveyance at issue was made after the plaintiff made demands on the defendants and advised them that their obligations were under-collateralized. Clark v. Bank of Bentonville, 308 Ark. 241, 824 S.W.2d 358 (1992).

Gambling Debt.

Arkansas public policy does not necessarily preclude enforcement of valid and legal gambling debts incurred in another state. In re Armstrong, 217 B.R. 569 (Bankr. E.D. Ark. 1998).

Good-Faith Purchasers.

Purchaser's good faith must exist both at the time of the purchase and at the time the consideration is paid. Purchasers would not be treated as good-faith purchasers where, although there was no evidence that they had notice of the debtor's financial difficulties or the pendency of litigation at the time that they entered into a land-sale contract, there was evidence that they had such notice at the time the consideration was paid. Tipp v. United Bank, 23 Ark. App. 176, 745 S.W.2d 141 (1988) (decision under prior law).

Leases.

Unacknowledged long term lease, given by a husband to his mother for a nominal consideration and which was intended to prevent the wife from recovering her statutory interest in the land subsequent to a divorce, was not valid against purchasers who had no actual knowledge of the lease and could not be charged with constructive notice; accordingly lease was properly cancelled. George v. George, 267 Ark. 823, 591 S.W.2d 655 (Ct. App. 1979) (decision under prior law).

Miscellaneous Transfers.

Purchase of assets of corporation by director is voidable at instance of creditor. Jones, McDowell & Co. v. Arkansas Mechanical & Agric. Co., 38 Ark. 17 (1881) (decision under prior law).

There is no fraud in taking goods in satisfaction of a mortgage on a homestead. Flask, Preston & Co. v. Tindall, 39 Ark. 571 (1882) (decision under prior law).

A voluntary settlement by a husband of all his property upon his wife is absolutely void, not only as to existing creditors but also as to subsequent purchasers without notice. Adams v. Edgerton, 48 Ark. 419, 3 S.W. 628 (1886) (decision under prior law).

Transfers held fraudulent. Catchings v. Harcrow, 49 Ark. 20, 3 S.W. 884 (1886); Alkire Grocery Co. v. Jackson, 66 Ark. 455, 51 S.W. 459 (1899); Sumpter v. Arkansas Nat'l Bank, 69 Ark. 224, 62 S.W. 577 (1901); McTighe v. McKee, 70 Ark. 293, 67 S.W. 754 (1902); Reeves v. Slade, 71 Ark. 611, 77 S.W. 54 (1903); Robinson v. Bigger, 199 Ark. 1152, 137 S.W.2d 738 (1940); Renn v. Renn, 207 Ark. 147, 179 S.W.2d 657 (1944); Harris v. Shaw, 224 Ark. 150, 272 S.W.2d 53 (1954); Kelker v. Hendricks, 228 Ark. 222, 306 S.W.2d 691 (1957); Connelly v. Thomas, 234 Ark. 1024, 356 S.W.2d 430 (1962); Lessman v. Dawson, 14 Ark. App. 285, 687 S.W.2d 860 (1985); Pults v. City of Springdale, 23 Ark. App. 182, 745 S.W.2d 144 (1988) (preceding decisions under prior law).

Transfers held not fraudulent. Davis v. Arkansas Fire Ins. Co., 63 Ark. 412, 39 S.W. 258 (1897); Crill v. Trites, 186 Ark. 354, 53 S.W.2d 577 (1932); Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963); American Insurers' Life Ins. Co. v. First Nat'l Bank, 236 Ark. 361, 367 S.W.2d 97 (1963); Saunders v. Adcock, 249 Ark. 856, 462 S.W.2d 219 (1971); Ralston Purina Co. v. Davis, 256 Ark. 972, 511 S.W.2d 482 (1974) (preceding decisions under prior law).

No formal assignment of a contract to build is necessary in order to constitute a fraudulent transfer where the other elements of a fraudulent transfer of property are present. Southern Lumber Co. v. Riley, 224 Ark. 298, 273 S.W.2d 848 (1954) (decision under prior law).

An assignment of an oral contract to build made to near relatives and members of the household is scrutinized with care where the assignor continues the work, and when the assignment is voluntary it is prima facie fraudulent; if the assignor becomes insolvent, it is conclusively presumed fraudulent regardless of the motive behind the transfer. Southern Lumber Co. v. Riley, 224 Ark. 298, 273 S.W.2d 848 (1954) (decision under prior law).

Where evidence has shown that circumstances surrounding the original conveyance by judgment debtor were innocent and not fraudulent, succeeding transfer of lands, fixtures, etc., to final grantee could not be attacked by judgment creditor as to fraudulent conveyance. Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (decision under prior law).

A preference of one creditor over another does not in itself make the transfer to the preferred creditor void or voidable as a fraudulent conveyance. Nicklaus v. Peoples Bank & Trust Co., 258 F. Supp. 482 (E.D. Ark. 1965), aff'd, 369 F.2d 683 (8th Cir. 1966); Ouachita Elec. Coop. Corp. v. Evans-St. Clair, 12 Ark. App. 171, 672 S.W.2d 660 (1984) (preceding decisions under prior law).

Payment of an antecedent debt accepted by a bank in good faith is not a fraudulent conveyance. Nicklaus v. Peoples Bank & Trust Co., 369 F.2d 683 (8th Cir. 1966) (decision under prior law).

Although fraud is never presumed, where it is shown that the debtor, while insolvent, voluntarily conveyed property to a near relative, such conveyance is prima facie evidence of a fraudulent conveyance; the burden of coming forward with the evidence to show that the transfer was not fraudulent shifts to the debtor. In re Baugh, 60 B.R. 102 (Bankr. E.D. Ark. 1986) (decision under prior law).

Although the debtor's father had previously given the debtor over $100,000, the debtor's transfer of $86,000 to his father was a fraudulent conveyance where there was no evidence that the previous payments were loans or that the father ever intended that he be paid back, the money was removed from the reach of the debtor's creditors, and the transfer allowed the debtor the use of the money as he needed it while he was insolvent. In re Baugh, 60 B.R. 102 (Bankr. E.D. Ark. 1986).

Transfer of real estate from the debtor to her parents set aside. Schieffler v. Beshears, 182 B.R. 235 (Bankr. E.D. Ark. 1995).

Federal government and a judgment creditor were entitled to set aside debtors' transfer of certain real estate into trusts because the trust transfers were made with the intent to defraud creditors, including the government, which had a tax assessment against the creditors, and the judgment creditor, since the trusts were shams, used to shelter assets from creditors as they lacked adequate consideration, rendered the debtors insolvent, and the debtors retained the use and enjoyment of the real estate and were the beneficial owners of the real estate. United States v. Neal, 255 F.R.D. 638 (W.D. Ark. 2008), aff'd, 391 Fed. Appx. 569 (8th Cir. 2010).

Defendant's presentencing conveyance of 120 acres of real property to defendant's daughters, with a reservation of a life estate for defendant and his wife, was a fraudulent conveyance under this section. The evidence showed that defendant was trying to divest himself of the property to that it would be unavailable to pay a criminal fine, and the quitclaim deed recited nominal consideration and stated that the transfer was by gift. United States v. Fincher, 593 F.3d 702 (8th Cir. 2010).

In a case under this subchapter, there were genuine issues of material fact regarding whether a debtor received a reasonably equivalent value as a result of a transfer to her attorney; at the time of the transfer, the debtor believed or reasonably should have believed that she was incurring debts beyond her ability to pay as they became due. Druyvestein v. Gean, 2014 Ark. App. 559, 445 S.W.3d 529 (2014).

Parol Evidence.

A mortgage may be shown by parol to have been executed for fraudulent purposes. Stephens v. Stephens, 66 Ark. 356, 50 S.W. 874 (1899) (decision under prior law).

Protected Parties.

The law will not relieve either party from an executed contract, or aid either to enforce an executory contract, made to defraud creditors. Payne v. Bruton, 10 Ark. 53 (1849) (decision under prior law).

One who is not a creditor is not in position to ask chancery to set aside an alleged fraudulent conveyance. King v. Clay, 34 Ark. 291 (1879); Townsly-Myrick Dry Goods Co. v. Fuller, 58 Ark. 181, 24 S.W. 108 (1893) (preceding decisions under prior law).

If creditors condone fraud, conveyance will stand against all comers. Millington v. Hill, 47 Ark. 301, 1 S.W. 547 (1886) (decision under prior law).

A party bargaining with debtor with fraudulent intent does so at peril of having that which he receives taken from him by creditors of debtors, without having any remedy to recover what he parts with in carrying out bargain. Millington v. Hill, 47 Ark. 301, 1 S.W. 547 (1886) (decision under prior law).

A conveyance to defraud creditors is good between the parties and against all persons except creditors of the grantor who are in a position to assail it. Knight v. Glasscock, 51 Ark. 390, 11 S.W. 580 (1888); Bell v. Wilson, 52 Ark. 173, 12 S.W. 1135 (1889); Doster v. Manistee Nat'l Bank, 67 Ark. 325, 55 S.W. 137 (1900) (preceding decisions under prior law).

A widow has no dowable interest in lands bought by her husband when he takes title in the name of a third party in order to defraud creditors for the reason that he had no estate of inheritance in the same. Johnson v. Johnson, 106 Ark. 9, 152 S.W. 1017 (1912) (decision under prior law).

A conveyance in fraud of creditors is void only at the instance of the injured creditor, and where transferor conveyed a note of the debtor could not defeat payment, in a suit by the transferee, on the ground that transferor made the transfer to the transferee in order to defraud the debtor's creditors. Segraves v. Brooks, 123 Ark. 261, 185 S.W. 260 (1916) (decision under prior law).

Former statute protected both prior and subsequent creditors. Home Life & Accident Co. v. Schichtl, 172 Ark. 31, 287 S.W. 769 (1926) (decision under prior law).

A wife obtaining a decree for divorce, alimony, maintenance, and dower was a creditor of the husband from the time the decree was rendered and entitled to interest in land which the husband fraudulently allowed to be sold for taxes and conveyed to his brother. Renn v. Renn, 207 Ark. 147, 179 S.W.2d 657 (1944) (decision under prior law).

Before a creditor can complain of a conveyance by a debtor, he must show that he was injured by the conveyance. Sieb's Hatcheries, Inc. v. Lindley, 111 F. Supp. 705 (W.D. Ark. 1953), aff'd, 209 F.2d 674 (8th Cir. 1954); Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (preceding decisions under prior law).

A conveyance by one tenant by the entirety, or an execution against such tenant, cannot in any manner affect the interest of the other tenant. Sieb's Hatcheries, Inc. v. Lindley, 111 F. Supp. 705 (W.D. Ark. 1953), aff'd, 209 F.2d 674 (8th Cir. 1954) (decision under prior law).

Purchasers.

A mortgagee was a purchaser within former statute. Adams v. Edgerton, 48 Ark. 419, 3 S.W. 628 (1886) (decision under prior law).

Remedies.

Where voluntary conveyance was made in fraud of prior creditors, subsequent creditors whose means were used to pay off prior debts will be subrogated to rights of prior creditors. Rudy v. Austin, 56 Ark. 73, 19 S.W. 111 (1892) (decision under prior law).

Where endorser of a note without consideration transferred stock in corporation to another, payee could follow such stock and subject it to endorser's debts. A.H. Scoggin & Co. v. City Nat'l Bank, 175 Ark. 461, 299 S.W. 1033 (1927) (decision under prior law).

Garnishment is available against the payments due on a contract which is fraudulently assigned to defraud creditors where the action is in equity and all interested parties are before the court. Southern Lumber Co. v. Riley, 224 Ark. 298, 273 S.W.2d 848 (1954) (decision under prior law).

Spouses.

The sale of diamonds by the plaintiff's wife to a jeweler did not constitute a fraudulent conveyance since the plaintiff was not a creditor of his wife. McAdams v. Ellington, 333 Ark. 362, 970 S.W.2d 203 (1998).

Motion for judgment notwithstanding the verdict was denied in a case involving fraudulent transfers to a wife, as an insider, by a judgment debtor under § 4-59-204(a)(1) because the debtor and the wife were unable to substantiate the claim that wife purchased the stocks with money won at a horse race or that a transfer was due to the debtor's poor health. Laird v. Weigh Sys. South II, Inc., 98 Ark. App. 393, 255 S.W.3d 900 (2007).

Transfer to Creditors.

An embarrassed debtor may convey his property to a creditor in satisfaction of a debt, even though the effect of the transfer would defeat the rest of his creditors, but such transfer must be in good faith and for a valid debt. Sieb's Hatcheries, Inc. v. Lindley, 111 F. Supp. 705 (W.D. Ark. 1953), aff'd, 209 F.2d 674 (8th Cir. 1954) (preceding decisions under prior law).

Value.

In determining that the ex-husband did not receive a reasonably equivalent value for business assets transferred to his ex-wife, the trial court did not err in failing to diminish the net value of assets transferred to the wife by a contingent liability associated with the business assets where the wife never submitted any evidence regarding the likelihood that the contingent liability would materialize. FDIC v. Bell, 106 F.3d 258 (8th Cir. 1997), cert. denied, 523 U.S. 1022, 118 S. Ct. 1304, 140 L. Ed. 2d 470 (1998).

Cited: Roberts v. Feltman, 55 Ark. App. 142, 932 S.W.2d 781 (1996); Brown v. Brown, 265 B.R. 167 (Bankr. E.D. Ark. 2001).

4-59-205. Transfer or obligation voidable as to present creditor.

  1. A transfer made or obligation incurred by a debtor is voidable as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
  2. A transfer made by a debtor is voidable as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.
  3. Except as provided under § 4-59-202(b), a creditor making a claim for relief under subsection (a) or subsection (b) of this section has the burden of proving the elements of the claim for relief by a preponderance of the evidence.

History. Acts 1987, No. 967, § 5; 2017, No. 1086, § 1.

Amendments. The 2017 amendment substituted “Transfer or obligation voidable as to present creditor” for “Transfers fraudulent as to present creditors” in the section heading; substituted “voidable” for “fraudulent” in (a) and (b); and added (c).

Research References

ALR.

Purchase of Annuity by Debtor as Fraud on Creditors. 74 A.L.R.6th 549.

Case Notes

Bankruptcy.

Chapter 7 debtor was not entitled to a homestead exemption under Ark. Const. Art. IX, § 3 on a house she owned because she committed fraud, in violation of § 4-59-204 and this section, when she transferred money out of a trust she managed and used the money to buy the house while the trust was indebted to a bank, and because the debtor was not entitled to a homestead exemption in the house, the bank's judgment lien on the house did not impair the debtor's interest in the house and the debtor's claim seeking an order avoiding the bank's lien under 11 U.S.C. § 522(f) had to be denied. In re Gaddy, No. 5:12-bk-72648, 2013 Bankr. LEXIS 2326 (Bankr. W.D. Ark. June 7, 2013).

Insolvency.

In creditor's action to set aside an alleged fraudulent conveyance arising from a transfer-on-death (TOD) beneficiary designation, summary judgment was improperly granted to the beneficiary as this section does not require the creditor to demonstrate the debtor's actual intent; the creditor presented proof that the IRS had a claim for tax deficiencies dating back several years, that the decedent had multiple creditors, and that her estate was likely insolvent. Heritage Props. Ltd. P'ship v. Walt & Lee Keenihan Found., Inc., 2019 Ark. 371, 584 S.W.3d 685 (2019) (decided under pre-2017 version of § 4-59-201 et seq.).

Miscellaneous Transfers.

In a case under this subchapter, there were genuine issues of material fact regarding whether a debtor received a reasonably equivalent value as a result of a transfer to her attorney; at the time of the transfer, the debtor believed or reasonably should have believed that she was incurring debts beyond her ability to pay as they became due. Druyvestein v. Gean, 2014 Ark. App. 559, 445 S.W.3d 529 (2014).

Cited: Luker v. McCall, 188 B.R. 402 (Bankr. E.D. Ark. 1995).

4-59-206. When transfer is made or obligation is incurred.

For the purposes of this subchapter:

  1. a transfer is made:
    1. with respect to an asset that is real property other than a fixture, but including the interest of a seller or purchaser under a contract for the sale of the asset, when the transfer is so far perfected that a good-faith purchaser of the asset from the debtor against which applicable law permits the transfer to be perfected cannot acquire an interest in the asset that is superior to the interest of the transferee; and
    2. with respect to an asset that is not real property or that is a fixture, when the transfer is so far perfected that a creditor on a simple contract cannot acquire a judicial lien otherwise than under this subchapter that is superior to the interest of the transferee;
  2. if applicable law permits the transfer to be perfected as provided in subdivision (1) of this section and the transfer is not so perfected before the commencement of an action for relief under this subchapter, the transfer is deemed made immediately before the commencement of the action;
  3. if applicable law does not permit the transfer to be perfected as provided in subdivision (1) of this section, the transfer is made when it becomes effective between the debtor and the transferee;
  4. a transfer is not made until the debtor has acquired rights in the asset transferred; and
  5. an obligation is incurred:
    1. if oral, when it becomes effective between the parties; or
    2. if evidenced by a record, when the record signed by the obligor is delivered to or for the benefit of the obligee.

No court order or judgment of a court shall be an obligation incurred under this subchapter.

History. Acts 1987, No. 967, § 6; 1993, No. 1279, § 2; 2017, No. 1086, § 1.

Amendments. The 2017 amendment substituted “which” for “whom” in (1)(i); and substituted “a record, when the record signed” for “a writing, when the writing executed” in (5)(ii).

Case Notes

Debtors in Bankruptcy.

Although the transfer of the land allegedly occurred in 1986, for purposes of this subchapter, the transfer and the effect upon the debtor and his insolvency status must be analyzed at the time the deed was recorded in 1995. Williams v. Marlar, 246 B.R. 606 (Bankr. W.D. Ark. 2000), aff'd, Williams v. Marlar (In re Marlar), 252 B.R. 743 (B.A.P. 8th Cir. 2000).

Deeds.

Even though deed was executed and delivered prior to investigation and recorded while audit was in progress, evidence found sufficient to hold transfer fraudulent and void. Murphy v. Marshall, 203 Ark. 986, 159 S.W.2d 741 (1942) (decision under prior law).

4-59-207. Remedies of creditor.

  1. In an action for relief against a transfer or obligation under this subchapter, a creditor, subject to the limitations in § 4-59-208, may obtain:
    1. avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim;
    2. an attachment or other provisional remedy against the asset transferred or other property of the transferee if available under applicable law;
    3. subject to applicable principles of equity and in accordance with applicable rules of civil procedure:
      1. an injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property;
      2. appointment of a receiver to take charge of the asset transferred or of other property of the transferee; or
      3. any other relief the circumstances may require; and
    4. a settlement agreement with the transferee or a child support creditor or the Office of Child Support Enforcement in Title IV-D cases.
  2. If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds.

History. Acts 1987, No. 967, § 7; 1997, No. 1296, § 2; 2017, No. 1086, § 1.

Amendments. The 2017 amendment substituted “creditor” for “creditors” in the section heading; substituted “if available under applicable law” for “in accordance with the procedure prescribed by §§ 16-110-20116-110-211” in (a)(2); and made stylistic changes.

U.S. Code. Title IV-D, referred to in this section, is a reference to Title IV-D of the Social Security Act, codified as 42 U.S.C. § 651 et seq.

Research References

Ark. L. Rev.

Corporations — Internal Dissension as a Ground for Equity's Appointing a Receiver for a Solvent Corporation, 4 Ark. L. Rev. 228.

Case Notes

In General.

Setting aside fraudulent conveyances — Proof of insolvency. Rudy v. Austin, 56 Ark. 73, 19 S.W. 111 (1892); Davis v. Beauchamp, 99 Ark. 404, 138 S.W. 636 (1911) (preceding decisions under prior law).

The statute did not apply so as to allow a judgment creditor to recover either from a family farming corporation in which the judgment debtor owned stock or from the majority shareholder in that corporation after the judgment debtor transferred that stock to a family-owned limited partnership. Thomsen Family Trust v. Peterson Family Enters., Inc., 66 Ark. App. 294, 989 S.W.2d 934 (1999).

Avoidance of the Transfer.

Transfer of real estate from the debtor to her parents set aside. Schieffler v. Beshears, 182 B.R. 235 (Bankr. E.D. Ark. 1995).

In a case under this subchapter, there were genuine issues of material fact regarding whether a debtor received a reasonably equivalent value as a result of a transfer to her attorney; at the time of the transfer, the debtor believed or reasonably should have believed that she was incurring debts beyond her ability to pay as they became due. Druyvestein v. Gean, 2014 Ark. App. 559, 445 S.W.3d 529 (2014).

Equitable Garnishments.

A suit in equity to subject the debt of a third person to the extinguishment of plaintiff's demand against his debtor was an equitable garnishment within the meaning of former statute. Riggin v. Hilliard, 56 Ark. 476, 20 S.W. 402 (1892) (decision under prior law).

Garnishment was available against the payments due on a contract which was fraudulently assigned to defraud creditors where the action was in equity and all interested parties were before the court. Southern Lumber Co. v. Riley, 224 Ark. 298, 273 S.W.2d 848 (1954) (decision under prior law).

Jurisdiction.

Where there was personal service of the defendant's person, sequestration of his property was unnecessary to give the court jurisdiction to cancel a conveyance as fraudulent. Smith v. Arkadelphia Milling Co., 143 Ark. 214, 220 S.W. 49 (1920) (decision under prior law).

In order that relief be granted under former statute, it was necessary that the chancery court have jurisdiction of the subject matter. Horstmann v. La Fargue, 140 Ark. 558, 215 S.W. 729 (1919), overruled, Spitzer v. Barnhill, 237 Ark. 525, 374 S.W.2d 811 (1964) (decision under prior law).

Former statute was concerned only with the avoidance of fraudulent conveyances; and consequently, where a tort claimant sought a restraining order in chancery court to enjoin the alleged tort feasor from denuding himself of his assets and amended her complaint to assert also her cause of action in tort, the tort action should have been transferred to a court of law. Spitzer v. Barnhill, 237 Ark. 525, 374 S.W.2d 811 (1964) (decision under prior law).

Persons Protected.

The benefits of former statute were conferred upon anyone who, before the statute, would have had the right after his cause of action had been reduced to judgment, to sue to set aside a fraudulent conveyance. Horstmann v. La Fargue, 140 Ark. 558, 215 S.W. 729 (1919), overruled, Spitzer v. Barnhill, 237 Ark. 525, 374 S.W.2d 811 (1964) (decision under prior law).

Proof of Insolvency.

Former statute did not dispense with the necessity of proving the debtor's insolvency under the rule that equity would not lend its aid when the remedy at law was full and adequate. Davis v. Arkansas Fire Ins. Co., 63 Ark. 412, 39 S.W. 258 (1897); Euclid Ave. Nat'l Bank v. Judkins, 66 Ark. 486, 51 S.W. 632 (1899) (preceding decisions under prior law).

A bill in equity to set aside a conveyance by a joint debtor, alleged to be insolvent, was insufficient if it failed to allege that other debtors, jointly bound with him, were likewise insolvent. Euclid Ave. Nat'l Bank v. Judkins, 66 Ark. 486, 51 S.W. 632 (1899) (decision under prior law).

Where defendant is admittedly insolvent, it is not necessary to show an execution issued on the judgment with a nulla bona return. Fluke v. Sharum, 118 Ark. 229, 176 S.W. 684 (1915) (decision under prior law).

Where a complaint alleged that the defendant was insolvent and the answer did not deny the allegation, it was unnecessary to prove it. Horstmann v. La Fargue, 140 Ark. 558, 215 S.W. 729 (1919), overruled, Spitzer v. Barnhill, 237 Ark. 525, 374 S.W.2d 811 (1964) (decision under prior law).

Transfer on Death.

In creditor's action to set aside an alleged fraudulent conveyance arising from a transfer-on-death (TOD) beneficiary designation, the circuit court erroneously ruled that the probate court had exclusive jurisdiction and that the circuit court lacked jurisdiction; under Ark. Const. Amend. 80, § 6, and the fact that, under the Uniform Transfer on Death Security Registration Act, § 28-14-101 et seq., the money transferred from the TOD account did not become part of the estate, the circuit court clearly had jurisdiction. Heritage Props. Ltd. P'ship v. Walt & Lee Keenihan Found., Inc., 2019 Ark. 371, 584 S.W.3d 685 (2019).

In creditor's action to set aside an alleged fraudulent conveyance arising from a transfer-on-death (TOD) beneficiary designation, the transferee's argument failed that the personal representative of the estate and not the creditor had standing for such an action; while there are procedures within the probate code that would allow for the challenge of an alleged fraudulent conveyance, § 28-14-109 concerning TODs plainly allows creditors to pursue their claims against transferees under other Arkansas laws, and thus a creditor also may pursue its claim under the Fraudulent Transfers Act, § 4-59-201 et seq.Heritage Props. Ltd. P'ship v. Walt & Lee Keenihan Found., Inc., 2019 Ark. 371, 584 S.W.3d 685 (2019) (decided under pre-2017 version of § 4-59-201 et seq.).

In creditor's action to set aside an alleged fraudulent conveyance arising from a transfer-on-death (TOD) beneficiary designation, the creditor of the deceased had standing to pursue its claim under the Fraudulent Transfers Act, § 4-59-201 et seq., against the transferee beneficiary. Heritage Props. Ltd. P'ship v. Walt & Lee Keenihan Found., Inc., 2019 Ark. 371, 584 S.W.3d 685 (2019) (decided under pre-2017 version of § 4-59-201 et seq.).

Cited: Helm v. Mid-America Indus., Inc., 305 Ark. 12, 804 S.W.2d 727 (1991); FDIC v. Bell, 106 F.3d 258 (8th Cir. 1997); In re Hogan, 214 B.R. 1022 (Bankr. E.D. Ark. 1997); In re Armstrong, 217 B.R. 569 (Bankr. E.D. Ark. 1998); Williams v. Marlar, 246 B.R. 606 (Bankr. W.D. Ark. 2000).

4-59-208. Defenses, liability, and protection of transferee or obligee.

  1. A transfer or obligation is not voidable under § 4-59-204(a)(1) against a person that took in good faith and for a reasonably equivalent value given the debtor, or against any subsequent transferee or obligee.
  2. To the extent a transfer is voidable in an action by a creditor under § 4-59-207(a)(1), the following rules apply:
    1. except as otherwise provided in this section, the creditor may recover judgment for the value of the asset transferred, as adjusted under subsection (c), or the amount necessary to satisfy the creditor's claim, whichever is less. The judgment may be entered against:
      1. the first transferee of the asset or the person for whose benefit the transfer was made; or
      2. an immediate or mediate transferee of the first transferee, other than:
      1. a good-faith transferee that took for value; or
      2. an immediate or mediate good-faith transferee of a person described in subdivision (b)(1)(ii)(A) of this section.
    2. recovery pursuant to § 4-59-207(a)(1) or § 4-59-207(b) of or from the asset transferred or its proceeds, by levy or otherwise, is available only against a person described in subdivision (b)(1)(i) or subdivision (b)(1)(ii) of this section.
  3. If the judgment under subsection (b) of this section is based upon the value of the asset transferred, the judgment must be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require.
  4. Notwithstanding voidability of a transfer or an obligation under this subchapter, a good-faith transferee or obligee is entitled, to the extent of the value given the debtor for the transfer or obligation, to:
    1. a lien on or a right to retain an interest in the asset transferred;
    2. enforcement of an obligation incurred; or
    3. a reduction in the amount of the liability on the judgment.
  5. A transfer is not voidable under § 4-59-204(a)(2) or § 4-59-205 if the transfer results from:
    1. termination of a lease upon default by the debtor when the termination is pursuant to the lease and applicable law; or
    2. enforcement of a security interest in compliance with chapter 9 of the Uniform Commercial Code § 4-9-101 et seq., other than acceptance of collateral in full or partial satisfaction of the obligation it secures.
  6. A transfer is not voidable under § 4-59-205(b):
    1. to the extent the insider gave new value to or for the benefit of the debtor after the transfer was made, except to the extent the new value was secured by a valid lien;
    2. if made in the ordinary course of business or financial affairs of the debtor and the insider; or
    3. if made pursuant to a good-faith effort to rehabilitate the debtor and the transfer secured present value given for that purpose as well as an antecedent debt of the debtor.
  7. The following rules determine the burden of proving matters referred to in this section:
    1. A party that seeks to invoke subsection (a), (d), (e), or (f) has the burden of proving the applicability of that subsection.
    2. Except as otherwise provided in subdivisions (g)(3) and (g)(4), the creditor has the burden of proving each applicable element of subsection (b) or (c).
    3. The transferee has the burden of proving the applicability to the transferee of subdivision (b)(1)(ii)(A) or (b)(1)(ii)(B).
    4. A party that seeks adjustment under subsection (c) has the burden of proving the adjustment.
  8. The standard of proof required to establish matters referred to in this section is preponderance of the evidence.

History. Acts 1987, No. 967, § 8; 2017, No. 1086, § 1.

Amendments. The 2017 amendment added “or obligee” in the section heading; inserted “given the debtor” in (a); rewrote (b); in (e)(2), substituted “Article 9” for “chapter 9” and “other than acceptance of collateral in full or partial satisfaction of the obligation it secures” for “§ 4-9-101 et seq.”; substituted “except to the extent” for “unless” in (f)(1); added (g) and (h); and made stylistic changes.

Case Notes

In General.

Pretended loans — Rights of creditors of persons in possession of property. Martin v. Vaught, 128 Ark. 293, 194 S.W. 10 (1917) (decision under prior law).

The statute did not apply so as to allow a judgment creditor to recover either from a family farming corporation in which the judgment debtor owned stock or from the majority shareholder in that corporation after the judgment debtor transferred that stock to a family-owned limited partnership. Thomsen Family Trust v. Peterson Family Enters., Inc., 66 Ark. App. 294, 989 S.W.2d 934 (1999).

Conditional Sales.

If former statute applied to conditional sales, it had no application unless the possession continued for the statutory period. Blackwell, Thompson & Co. v. Walker Bros. & Co., 5 F. 419 (C.C.E.D. Ark. 1880) (decision under prior law).

Notice of Fraud.

Purchaser from fraudulent grantee, having sufficient notice to put him on inquiry, as a man of ordinary prudence and experience in business transactions, will not be allowed to protect himself by want of notice, as an innocent purchaser. Ringgold v. Waggoner, 14 Ark. 69 (1853) (decision under prior law).

Persons Protected.

Former statute conferred the absolute right of property by uninterrupted possession only in favor of creditors and purchasers, and not to the possessor for statutory period. State Bank v. Williams, 6 Ark. 156 (1845) (decision under prior law).

Where corporation gave a promissory note to a trust in exchange for a physician's interest in his practice (the physician previously transferred his interest to the trust), although the bankruptcy court determined that the debtor's payments on the note were fraudulent transfers, the court determined that the physician's receipt of distributions from the trust were received in good faith and for value where (1) the physician clearly was unaware that he was accepting payments that might be subject to a subsequent avoidance proceeding in bankruptcy, (2) there was no evidence that he acted in any manner other than in good faith, and (3) the principal, if not sole, asset of the trust — the promissory note from the corporation — represented an asset arising from transfers made to the trust by the physician. Meeks v. Healthcorp of Tenn., Inc. (In re Southern Health Care of Ark.), 299 B.R. 918 (Bankr. E.D. Ark. 2003), aff'd, Meeks v. Don Howard Charitable Remainder Trust (In re S. Health Care of Ark., Inc.), 309 B.R. 314 (B.A.P. 8th Cir. 2004).

Purchaser.

To avoid fraudulent conveyance, proof of grantee's participation in fraud is unnecessary where the grantee is a voluntary donee, but where he is a purchaser for a valuable consideration, such proof is necessary. Hershy v. Latham, 46 Ark. 542 (1885) (decision under prior law).

Reasonably Equivalent Value.

In a case under this subchapter, there were genuine issues of material fact regarding whether a debtor received a reasonably equivalent value as a result of a transfer to her attorney; at the time of the transfer, the debtor believed or reasonably should have believed that she was incurring debts beyond her ability to pay as they became due. Druyvestein v. Gean, 2014 Ark. App. 559, 445 S.W.3d 529 (2014).

Cited: Helm v. Mid-America Indus., Inc., 305 Ark. 12, 804 S.W.2d 727 (1991); First Nat'l Bank & Trust Co. v. Hollingsworth, 931 F.2d 1295 (8th Cir. 1991); In re Armstrong, 217 B.R. 569 (Bankr. E.D. Ark. 1998); Meeks v. Red River Entm't, 231 B.R. 739 (E.D. Ark. 1999).

4-59-209. Extinguishment of claim for relief.

A claim for relief with respect to a transfer or obligation under this subchapter is extinguished unless action is brought:

  1. under § 4-59-204(a)(1), not later than four years after the transfer was made or the obligation was incurred or, if later, not later than one year after the transfer or obligation was or could reasonably have been discovered by the claimant;
  2. under § 4-59-204(a)(2) or § 4-59-205(a), not later than four years after the transfer was made or the obligation was incurred; or
  3. under § 4-59-205(b), not later than one year after the transfer was made.

History. Acts 1987, No. 967, § 9; 1993, No. 1279, § 3; 2017, No. 1086, § 1.

Amendments. The 2017 amendment substituted “claim for relief” for “cause of action” in the section heading; substituted “A claim for relief with respect to a transfer” for “A cause of action with respect to a fraudulent transfer” in the introductory language; in (a), substituted “not later than four (4) years” for “within three (3) years” and added “or, if later, not later than one year after the transfer or obligation was or could reasonably have been discovered by the claimant”; substituted “not later than four (4) years” for “within three (3) years” in (b); and, in (c), substituted “not later than one year” for “within one (1) year” and deleted “or the obligation was incurred” at the end.

Case Notes

Applicability.

In a will contest, the three-year statute of limitations for claims under the Arkansas Fraudulent Transfers Act did not apply because appellee who sought a constructive trust was not a creditor seeking a remedy under that Act; rather, the facts alleged in the petition sounded in tort based on appellant's alleged breach of fiduciary duty and alleged use of undue influence over the decedent, and thus the three-year statute of limitations for torts in § 16-56-105 more aptly applied. Smith v. Smith (In re Estate of Smith), 2020 Ark. App. 113 (2020) (decided under prior version of statute).

Three-Year Look-Back.

This subchapter’s definition of “transfer” was similar to the definition in the Bankruptcy Code. While the Bankruptcy Code afforded the trustee the ability to avoid transfers made within two years of filing bankruptcy, the Arkansas statute allowed three years from the date of transfer. Despite the one-year difference in the look-back period, however, the statutes were in pari materia and the same analysis applied under both laws. Jacoway v. Svetc (In re Svetc), 521 B.R. 892 (Bankr. W.D. Ark. 2014) (decision under prior law).

Three-year limitations period of this section barred a judgment creditor from setting aside a husband's quitclaim deed to a wife because (1) the deed was transferred from the husband to the wife over three years before the creditor obtained and filed of record a judgment against the husband, and (2) the equitable doctrine of laches did not apply under § 4-59-210 (now § 4-59-212), since the limitations period passed before the creditor obtained a judgment against the husband. McMahen v. Robinson, 2017 Ark. App. 270, 521 S.W.3d 510 (2017) (decision under prior law).

4-59-210. Governing law.

  1. In this section, the following rules determine a debtor's location:
    1. A debtor who is an individual is located at the individual's principal residence.
    2. A debtor that is an organization and has only one place of business is located at its place of business.
    3. A debtor that is an organization and has more than one place of business is located at its chief executive office.
  2. A claim for relief in the nature of a claim for relief under this subchapter is governed by the local law of the jurisdiction in which the debtor is located when the transfer is made or the obligation is incurred.

History. Acts 2017, No. 1086, § 1.

Publisher's Notes. Former § 4-59-210 has been renumbered by Acts 2017, No. 1086 § 1, as § 4-59-212.

4-59-211. Application to series organization.

  1. In this section:
    1. “Protected series” means an arrangement, however denominated, created by a series organization that, pursuant to the law under which the series organization is organized, has the characteristics set forth in subdivision (a)(2) of this section.
    2. “Series organization” means an organization that, pursuant to the law under which it is organized, has the following characteristics:
      1. the organic record of the organization provides for creation by the organization of one or more protected series, however denominated, with respect to specified property of the organization, and for records to be maintained for each protected series that identify the property of or associated with the protected series.
      2. debt incurred or existing with respect to the activities of, or property of or associated with, a particular protected series is enforceable against the property of or associated with the protected series only, and not against the property of or associated with the organization or other protected series of the organization.
      3. debt incurred or existing with respect to the activities or property of the organization is enforceable against the property of the organization only, and not against the property of or associated with a protected series of the organization.
  2. A series organization and each protected series of the organization is a separate person for purposes of this subchapter, even if for other purposes a protected series is not a person separate from the organization or other protected series of the organization.

History. Acts 2017, No. 1086, § 1.

Publisher's Notes. Former § 4-59-211 has been renumbered by Acts 2017, No. 1086, § 1, as § 4-59-213.

4-59-212. Supplementary provisions.

Unless displaced by the provisions of this subchapter, the principles of law and equity, including the law merchant and the law relating to principal and agent, estoppel, laches, fraud, misrepresentation, duress, coercion, mistake, insolvency, or other validating or invalidating cause, supplement its provisions.

History. Acts 1987, No. 967, § 10; 2017, No. 1086, § 1.

Publisher's Notes. This section was formerly codified as § 4-59-210.

Former § 4-59-212, concerning short title of the former act, was derived from Acts 1987, No. 967, § 12.

Case Notes

Applicability.

Three-year limitations period of § 4-59-209 barred a judgment creditor from setting aside a husband's quitclaim deed to a wife because (1) the deed was transferred from the husband to the wife over three years before the creditor obtained and filed of record a judgment against the husband, and (2) the equitable doctrine of laches did not apply under this section, since the limitations period passed before the creditor obtained a judgment against the husband. McMahen v. Robinson, 2017 Ark. App. 270, 521 S.W.3d 510 (2017) (decision under prior law).

4-59-213. Uniformity of application and construction.

This subchapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this subchapter among states enacting it.

History. Acts 1987, No. 967, § 11; 2017, No. 1086, § 1.

Publisher's Notes. This section was formerly codified as § 4-59-211.

Former 4-59-213, concerning acts and parts of acts repealed, was derived from Acts 1987, No. 967, § 13.

4-59-214. Relation to Electronic Signatures in Global and National Commerce Act.

This subchapter modifies, limits, or supersedes the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq., but does not modify, limit, or supersede Section 101(c) of that act, 15 U.S.C. Section 7001(c), or authorize electronic delivery of any of the notices described in Section 103(b) of that act, 15 U.S.C. Section 7003(b).

History. Acts 2017, No. 1086, § 1.

4-59-215. Short title.

This subchapter, which was formerly cited as the Uniform Fraudulent Transfer Act, may be cited as the Uniform Voidable Transactions Act.

History. Acts 2017, No. 1086, § 1.

Subchapter 3 — Bills of Lading

4-59-301. Issuance of bill for goods not received.

Any officer, agent, or servant of a carrier who with intent to defraud issues or aids in issuing a bill, knowing that all or any part of the goods for which the bill is issued have not been received by the carrier or by an agent of the carrier or by a connecting carrier or are not under the carrier's control at the time of issuing the bill, shall be guilty of a Class D felony.

History. Acts 1941, No. 264, § 44; A.S.A. 1947, § 68-1144; Acts 2005, No. 1994, § 421.

Case Notes

Refusal to Receive Property.

Former similar provision did not relieve a carrier from liability to the penalty prescribed in § 23-4-705 for a violation of § 23-4-702 by a refusal to receive property tendered to it for shipment. St. Louis, Iron Mountain & S. Ry. v. State, 84 Ark. 150, 104 S.W. 1106 (1907) (decision under prior law).

4-59-302. Issuance of bill containing false statement.

Any officer, agent, or servant of a carrier who with intent to defraud issues or aids in issuing a bill for goods, knowing that it contains any false statement, shall be guilty of a Class A misdemeanor.

History. Acts 1941, No. 264, § 45; A.S.A. 1947, § 68-1145; Acts 2005, No. 1994, § 214.

4-59-303. Issuance of duplicate bills not so marked.

Any officer, agent, or servant of a carrier who with intent to defraud issues or aids in issuing a duplicate or additional negotiable bill for goods, knowing that a former negotiable bill for the same goods or any part of them is outstanding and uncancelled, shall be guilty of a crime and upon conviction shall be punished for each offense by imprisonment not exceeding five (5) years or by a fine not exceeding five thousand dollars ($5,000), or by both.

History. Acts 1941, No. 264, § 46; A.S.A. 1947, § 68-1146.

4-59-304. Issuance of nonnegotiable bill not so marked.

Any person who with intent to defraud issues or aids in issuing a nonnegotiable bill without the words “not negotiable” placed plainly upon the face thereof shall be guilty of a crime and upon conviction shall be punished for each offense by imprisonment not exceeding five (5) years or by a fine not exceeding five thousand dollars ($5,000), or by both.

History. Acts 1941, No. 264, § 50; A.S.A. 1947, § 68-1150.

4-59-305. Inducing carrier to issue bill when goods have not been received.

Any person who with intent to defraud secures the issue by a carrier of a bill, knowing that at the time of the issue any or all of the goods described in the bill as received for transportation have not been received by the carrier, or an agent of the carrier or a connecting carrier, or are not under the carrier's control, by inducing an officer, agent, or servant of the carrier falsely to believe that the goods have been received by the carrier or are under its control, shall be guilty of a crime and upon conviction shall be punished for each offense by imprisonment not exceeding five (5) years or by a fine not exceeding five thousand dollars ($5,000), or by both.

History. Acts 1941, No. 264, § 49; A.S.A. 1947, § 68-1149.

4-59-306. Negotiation of bill for unowned or mortgaged goods.

Any person who ships goods to which he or she does not have title or upon which there is a lien or mortgage and who takes for such goods a negotiable bill which he or she afterwards negotiates for value with intent to deceive and without disclosing his or her want of title or the existence of the lien or mortgage shall be guilty of a Class A misdemeanor.

History. Acts 1941, No. 264, § 47; A.S.A. 1947, § 68-1147; Acts 2005, No. 1994, § 215.

4-59-307. Negotiation of bill when goods are not in carrier's possession.

Any person who with intent to deceive negotiates or transfers for value a bill, knowing that any or all of the goods which by the terms of the bill appear to have been received for transportation by the carrier which issued the bill are not in the possession or control of the carrier or of a connecting carrier, without disclosing this fact, shall be guilty of a crime and upon conviction shall be punished for each offense by imprisonment not exceeding five (5) years or by a fine not exceeding five thousand dollars ($5,000), or by both.

History. Acts 1941, No. 264, § 48; A.S.A. 1947, § 68-1148.

Subchapter 4 — Warehouse Receipts

Publisher's Notes. Commentary regarding the Uniform Warehouse Receipts Act, see Commentaries Volume A.

Effective Dates. Acts 1915, No. 273, § 61: Sept. 1, 1915.

4-59-401. Issuance of receipt for goods not received or controlled.

A warehouseman or any officer, agent, or servant of a warehouseman, who issues or aids in issuing a receipt, knowing that the goods for which the receipt is issued have not been actually received by the warehouseman or are not under his actual control at the time of issuing the receipt, shall be guilty of a crime and upon conviction shall be punished for each offense by imprisonment not exceeding five (5) years or by a fine not exceeding five thousand dollars ($5,000), or by both.

History. Acts 1915, No. 273, § 50; C. & M. Dig., § 10394; Pope's Dig., § 14462; A.S.A. 1947, § 68-1250.

4-59-402. Fraudulent issuance of receipt containing false statement.

A warehouseman or any officer, agent, or servant of a warehouseman, who fraudulently issues or aids in fraudulently issuing a receipt for goods, knowing that it contains any false statement, shall be guilty of a Class A misdemeanor.

History. Acts 1915, No. 273, § 51; C. & M. Dig., § 10395; Pope's Dig., § 14463; A.S.A. 1947, § 68-1251; Acts 2005, No. 1994, § 216.

4-59-403. Issuance of duplicate receipt not so marked.

A warehouseman or any officer, agent, or servant of a warehouseman who issues or aids in issuing a duplicate or additional negotiable receipt for goods, knowing that a former negotiable receipt for the same goods or any part of them is outstanding and uncancelled, without plainly placing upon the face thereof the word “Duplicate” shall be guilty of a crime, and upon conviction shall be punished for each offense by imprisonment not exceeding five (5) years or by a fine not exceeding five thousand dollars ($5,000), or by both.

History. Acts 1915, No. 273, § 52; C. & M. Dig., § 10396; Pope's Dig., § 14464; A.S.A. 1947, § 68-1252.

4-59-404. Issuance of receipt for goods owned by warehouseman without statement of ownership.

Where there are deposited with or held by a warehouseman goods of which he or she is owner, either solely, jointly, or in common with others, the warehouseman or any of his or her officers, agents, or servants who knowing of his or her ownership issue or aid in issuing a negotiable receipt for the goods which does not state the ownership, shall be guilty of a Class A misdemeanor.

History. Acts 1915, No. 273, § 53; C. & M. Dig., § 10397; Pope's Dig., § 14465; A.S.A. 1947, § 68-1253; Acts 2005, No. 1994, § 217.

4-59-405. Delivering goods without obtaining negotiable receipt.

A warehouseman or any officer, agent, or servant of a warehouseman who delivers goods out of the possession of the warehouseman without obtaining the possession of the receipt at or before the time of the delivery, knowing that a negotiable receipt, the negotiation of which would transfer the right to the possession of the goods, is outstanding and uncancelled shall be guilty of a Class A misdemeanor.

History. Acts 1915, No. 273, § 54; C. & M. Dig., § 10398; Pope's Dig., § 14466; A.S.A. 1947, § 68-1254; Acts 2005, No. 1994, § 217.

4-59-406. Negotiation of receipt by depositor of encumbered or another's goods without disclosing facts.

Any person who deposits goods to which he or she has no title or upon which there is a lien or mortgage, and who takes for the goods a negotiable receipt which he or she afterward negotiates for value with intent to deceive and without disclosing his or her want of title or the existence of the lien or mortgage, shall be guilty of a Class A misdemeanor.

History. Acts 1915, No. 273, § 55; C. & M. Dig., § 10399; Pope's Dig., § 14467; A.S.A. 1947, § 68-1255; Acts 2005, No. 1994, § 217.

Subchapter 5 — Factoring of Financial Transaction Card Records of Sale

4-59-501. Definitions.

The following words and phrases as used in this subchapter, unless a different meaning is plainly required by the context, shall have the following meanings:

  1. “Acquirer” means a business organization, financial institution, or an agent of a business organization or financial institution that authorizes a merchant to accept payment by financial transaction card for money, goods, services, or anything else of value;
  2. “Cardholder” means the person or organization named on the face of a financial transaction card to whom or for whose benefit the financial transaction card is issued by an issuer;
  3. “Financial transaction card” means any instrument or device, whether known as a credit card, credit plate, bank services card, banking card, check guarantee card, debit card, or by any other name, issued with or without fee by an issuer for the use of the cardholder:
    1. In obtaining money, goods, services, or anything else of value on credit; or
    2. In certifying or guaranteeing to a person or business the availability to the cardholder of funds on deposit that are equal to or greater than the amount necessary to honor a draft or check payable to the order of such person or business; or
    3. In providing the cardholder access to a demand deposit account or time deposit account for the purpose of:
      1. Making deposits of money or checks therein; or
      2. Withdrawing funds in the form of money, money orders, or traveler's checks therefrom; or
      3. Transferring funds from any demand deposit account or time deposit account to any other demand deposit account or time deposit account; or
      4. Transferring funds from any demand deposit account or time deposit account to any credit card accounts, overdraft privilege accounts, loan accounts, or any other credit accounts in full or partial satisfaction of any outstanding balance owed existing therein; or
      5. For the purchase of goods, services, or anything else of value; or
      6. Obtaining information pertaining to any demand deposit account or time deposit account; and
  4. “Issuer” means the business organization or financial institution or its duly authorized agent which issues a financial transaction card.

History. Acts 1991, No. 785, § 1.

4-59-502. Remission to acquirer of record of sale not made by remitter.

  1. A person authorized by an acquirer to furnish money, goods, services, or anything else of value upon presentation of a financial transaction card or a financial transaction card account number by a cardholder, or any agent or employee of such person, who, with intent to defraud the issuer, acquirer, or cardholder, remits to an issuer or acquirer, for payment, a financial transaction card record of a sale, which sale was not made by such person, his or her agent or employee, is guilty of financial transaction card fraud.
  2. Any person violating this section is guilty of a Class C felony.

History. Acts 1991, No. 785, § 2.

4-59-503. Solicitation of merchant to remit record of sale not made by merchant.

Any person who, without the acquirer's express authorization, employs or solicits an authorized merchant, or any agent or employee of such merchant, to remit to an issuer or acquirer, for payment, a financial transaction card record of sale, which sale was not made by such merchant, his or her agent, or employee, is guilty of a Class C felony.

History. Acts 1991, No. 785, § 3.

Chapter 60 Checks

Cross References. Negotiable instruments, generally, § 4-3-101 et seq.

Effective Dates. Acts 2001, No. 996, § 5: Mar. 21, 2001. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the incidents of people writing ‘hot checks’ continue to increase; that the costs associated with the processing of and collecting on ‘hot checks’ have continued to increase; that the holders of those ‘hot checks’ are entitled to recover those increasing costs; that current law does not allow adequate recovery of the costs associated with ‘hot checks’ by their holders. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto.”

Acts 2019, No. 910, § 6346(b): July 1, 2019. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that this act revises the duties of certain state entities; that this act establishes new departments of the state; that these revisions impact the expenses and operations of state government; and that the sections of this act other than the two uncodified sections of this act preceding the emergency clause titled ‘Funding and classification of cabinet-level department secretaries’ and ‘Transformation and Efficiencies Act transition team’ should become effective at the beginning of the fiscal year to allow for implementation of the new provisions at the beginning of the fiscal year. Therefore, an emergency is declared to exist, and Sections 1 through 6343 of this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2019”.

Research References

U. Ark. Little Rock L.J.

Survey—Miscellaneous, 10 U. Ark. Little Rock L.J. 593.

4-60-101. Definitions.

As used in this chapter, unless the context otherwise requires:

  1. “Check” means a written unconditional order to pay a sum certain in money drawn on a bank payable on demand and signed by the drawer;
  2. “Drawee” means the bank or purported bank upon which a check is drawn;
  3. “Drawer” means a person, either real or fictitious, whose name appears on a check as the primary obligor, whether the actual signature is that of himself or herself or a person authorized to draw the check in his or her behalf; and
  4. “Issue” means make, draw, deliver, or pass a check.

History. Acts 1987, No. 66, § 1.

Cross References. Arkansas Hot Check Law, § 5-37-301 et seq.

4-60-102. Applicability.

This chapter does not apply to the laws governing the imposition of a penalty for checks written on accounts which have insufficient funds and which checks are payable to either the Secretary of the Department of Finance and Administration or to the Department of Finance and Administration for any taxes, licenses, or fees imposed by any laws of this state.

History. Acts 1987, No. 66, § 3; 2019, No. 910, § 3355.

Amendments. The 2019 amendment substituted “Secretary of the Department of Finance and Administration” for “Director of the Department of Finance and Administration”.

4-60-103. Liability for restitution.

  1. A person who issues a check that is not paid because the check was written on an account with insufficient funds has fifteen (15) days following the date of a written demand mailed or delivered to the drawer of the check at the address shown on the check or his or her last known address to pay to the holder of the check or his or her agent the amount of the check and a collection fee not to exceed thirty dollars ($30.00), plus the amount of any fees charged to the holder of the check by a financial institution as a result of the check's not being honored.
    1. A person who fails to make restitution as set forth in subsection (a) of this section and who fails to pay the amount of the check and a collection fee not to exceed thirty dollars ($30.00), plus the amount of any fees charged to the holder of the check by a financial institution as a result of the check's not being honored, within thirty (30) days following the date of a written demand mailed to the drawer by certified mail, return receipt requested, to the address shown on the check or his or her last known address is liable to the holder of the check or his or her agent for:
      1. Twice the amount of the check, but in no case less than fifty dollars ($50.00); and
      2. A collection fee not to exceed thirty dollars ($30.00), plus the amount of any fees charged to the holder of the check by any financial institution as a result of the check's not being honored.
    2. The prevailing party may recover court costs and reasonable attorney's fees after suit has been filed.
    1. This section does not prevent the criminal prosecution of the person who issues the check.
    2. However, any payment made by the defendant to a victim under an order for restitution entered in a criminal prosecution shall be set off against any judgment in favor of the victim in a civil action brought under this section arising out of the same facts or event.

History. Acts 1987, No. 66, § 2; 1995, No. 335, § 1; 1995, No. 1004, § 1; 2001, No. 996, § 1; 2011, No. 1012, § 1.

Amendments. The 2011 amendment substituted “thirty dollars ($30.00)” for “twenty-five-dollars ($25.00) in (a), (b)(1), and (b)(1)(B); deleted (b)(1)(C); substituted “This section does not” for “Nothing in this section” in (c)(1); and substituted “under” for “pursuant to” in (c)(2).

Case Notes

Arkansas Deceptive Trade Practices Act.

Because a law firm and its attorneys were attorneys engaged in the practice of law at the time of their alleged collection of amounts in excess of those set forth in this section by a holder of a dishonored check, the Arkansas Deceptive Trade Practices Act (ADTPA), §§ 4-88-101 to 4-88-804, had no applicability to their actions. The law firm was engaged in the practice of law by engaging in settlement negotiations for its clients. Bennett & Deloney, P.C. v. State ex rel. McDaniel, 2012 Ark. 119, 388 S.W.3d 12 (2012).

Restitution in Cash.

The restitution contemplated in this section is in cash. Sturgis v. Lee Apparel Co., 304 Ark. 235, 800 S.W.2d 719 (1990).

Where merchandise was returned to a seller because the buyer was going out of business, not in restitution of the dishonored check buyer used to pay seller for merchandise, there was no restitution in cash as contemplated by this section. Sturgis v. Lee Apparel Co., 304 Ark. 235, 800 S.W.2d 719 (1990).

Cited: Cheqnet Sys. v. Montgomery, 322 Ark. 742, 911 S.W.2d 956 (1995); Eliasnik v. Y&S Pine Bluff, LLC, 2018 Ark. App. 138, 546 S.W.3d 497 (2018).

Chapters 61-69 [Reserved.]

[Reserved]

Subtitle 6. Business Practices

Chapter 70 General Provisions

Subchapter 1 — Rights Generally

Effective Dates. Acts 1959, No. 169, § 5: Mar. 4, 1959. Emergency clause provided: “It has been found and is declared by the General Assembly of Arkansas that there is an urgent need to provide a more effective method of preserving the public peace in various business and professional establishments in the State, and that enactment of this bill will provide for a more efficient method. Therefore, an emergency is declared to exist, and this act being necessary for the preservation of the public peace, health and safety, shall take effect and be in force from the date of its approval.”

Acts 2017, No. 394, § 2: Jan. 1, 2018.

4-70-101. [Repealed.]

Publisher's Notes. This section, concerning the right to select customers and the penalty for a customer's failure to comply, was repealed by Acts 2005, No. 1994, § 534. The section was derived from Acts 1959, No. 169, §§ 1-3; A.S.A. 1947, §§ 71-1801 — 71-1803.

Research References

Ark. L. Notes.

Brill, Arkansas Law of Damages, Fifth Edition, Chapter 30: Real Property, 2004 Arkansas L. Notes 9.

4-70-102. Advertisement by giving away prizes lawful.

The method of business advertising conducted in this state by the giving away of prizes consisting of money or other thing of value where no payment of money or other thing of value is required of participants in the awards, whether the advertising plan is entitled “Bank Night”, “Buck Night”, or any other name whatsoever, is declared to be a legal form of advertising.

History. Acts 1937, No. 238, § 1; Pope's Dig., § 13396; A.S.A. 1947, § 71-1804.

Case Notes

Cited: Casteel v. K. Lee Williams Theatres, Inc., 221 Ark. 935, 256 S.W.2d 732 (1953).

4-70-103. Tickets sold over the internet — Definition.

  1. Tickets of admission to a live entertainment event, theatre, musical performance, or place of public entertainment or amusement of any kind shall not be offered for sale by any person over the internet until the tickets have been placed on sale by the venue or entity hosting the event or its authorized agent.
  2. Internet portals or websites shall not allow a person to offer for resale a ticket of admission to a live entertainment event, theatre, musical performance, or place of public entertainment or amusement of any kind until the tickets have been placed on sale by the venue or entity hosting the event or its authorized agent.
  3. This section does not apply to sporting or athletic events.
  4. As used in this section, “placed on sale” means the date and time when tickets are made available for sale to the general public, including without limitation to fan clubs, businesses, and persons for promotional activities.

History. Acts 2009, No. 573, § 1; 2015, No. 860, § 1.

Amendments. The 2015 amendment substituted “been placed on sale by the venue or entity hosting the event or its authorized agent” for “first been offered for sale to the public via an event-authorized outlet or offering” in (a) and (b); substituted “does not apply” for “shall not apply” in (c); and added (d).

4-70-104. Heavy equipment rental recovery fee — Definitions.

  1. As used in this section:
    1. “Heavy equipment property” means personal property owned by a business classified within sectors 532310 or 532412 of the North American Industry Classification System, as in effect on January 1, 2017;
    2. “Rental” or “renting” means the rental by a dealer of heavy equipment property:
      1. For a period of less than one (1) year or for an undefined period; or
      2. Under a contract with unlimited terms; and
    3. “Rental charge” means the total charge for the rental of heavy equipment property, excluding any separately itemized costs representing charges for related nonrental items, including without limitation pickup and delivery, fuel, or a damage waiver.
  2. Except as provided in subsection (c) of this section, a person in the business of renting heavy equipment property in this state may include in a rental agreement or on a rental invoice a recovery fee of one and twenty-five-hundredths percent (1.25%) of the rental charge for the rental of an item of heavy equipment property to a customer located in the state.
  3. The recovery fee provided for in this section shall:
    1. Not be collected on a rental of heavy equipment property to the United States or this state, including without limitation a county, city, town, agency, board, commission, or institution of this state; and
    2. Be exempt from state and local sales and use taxes.
  4. A business that collects a recovery fee as provided in this section shall:
    1. Account for and hold the recovery fees separately from all other business receipts;
    2. Use the amount of the recovery fee collected under this section solely to pay ad valorem taxes levied on the business's tangible personal property located in this state; and
      1. By February 15 of each year, remit to the county in which the business was assessed ad valorem taxes on heavy equipment property any recovery fees collected in the immediately preceding calendar year that exceed the aggregate ad valorem taxes that the business actually paid in that calendar year on the heavy equipment property of the business.
      2. If a business that collects a recovery fee under this section pays ad valorem taxes on heavy equipment property in more than one (1) county, the business shall remit any excess recovery fees not used to pay ad valorem taxes on heavy equipment property of the business to each county based on the ratio of ad valorem taxes paid to the county in the immediately preceding calendar year on the heavy equipment property of the business to the total of all ad valorem taxes paid in any county in the immediately preceding calendar year on heavy equipment property of the business.
  5. This section does not exempt heavy equipment property from ad valorem taxes.

History. Acts 2017, No. 394, § 1.

Effective Dates. Acts 2017, No. 394, § 2: Jan. 1, 2018.

Subchapter 2 — Business Under Assumed Name

Effective Dates. Acts 1997, No. 479, § 16: Mar. 13, 1997. Emergency clause provided: “It is hereby found and determined by the General Assembly of the State of Arkansas that the limited liability company statute and other acts relating to pass through entities and related laws need amending in order to better reflect the intent and operation of those laws as originally drafted and to be consistent with current trends. Therefore an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto. Notwithstanding the foregoing, SECTION 10 of this act (§ 4-32-802(c)) shall only apply to limited liability companies in exsitence [sic] on the effective date of this act in the event an election is made with the Secretary of State to have this provision apply; otherwise, the original § 4-32-802(c) shall apply to limited liabilty companies existing on the effective date of this act.”

Acts 1997, No. 912, § 16: March 28, 1997. Emergency clause provided: “It is hereby found and determined by the General Assembly of the State of Arkansas that the general and limited partners statues [sic] need amending in order to be consistent with current trends. Therefore, an emergency is hereby declared to exist and this Act being immediately necessary for the immediate preservation of the public peace, health, and safety, shall be in full force and effect from and after its passage and approval.”

Acts 1999, No. 1528, § 13: Apr. 15, 1999. Emergency clause provided: “It is hereby found and determined by the Eighty-second General Assembly that the Small Business Entity Tax Pass Through Act and the Revised Limited Partnership Act of 1991 and other related acts and related laws need amending in order to better reflect the intent and operation of those laws. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto. Notwithstanding the foregoing, Section 4 of this act shall only apply to limited liability companies in existence on the effective date of this act in the event an election is made with the Secretary of State to have this provision apply; otherwise, the original § 4-32-802, as amended, shall apply to limited liability companies existing on the effective date of this act.”

Research References

ALR.

Use of assumed or trade name as ground for disciplining attorney. 26 A.L.R.4th 1083.

Validity and construction of state statute or rule allowing or changing rate of prejudgment interest in tort actions. 40 A.L.R.4th 147.

Retrospective application and effect of state statute or rule allowing interest or changing rate of interest on judgments or verdicts. 41 A.L.R.4th 694.

Right to sue for infringement of tradename as affected by violation of statute as to doing business under an assumed or fictitious name or designation not showing the names of the persons interested. 42 ALR 4th 542.

Applicability of Article 9 of Uniform Commercial Code to assignment of rights under real-estate sales contracts, lease agreements, or mortgage as collateral for separate transaction. 76 A.L.R.4th 765.

Enforceability of contract to share winnings from legal lottery ticket. 90 A.L.R.4th 784.

Enforceability, by purchaser or successor of business, of covenant not to compete entered into by predecessor and its employees. 12 A.L.R.5th 847.

4-70-201. Applicability of subchapter.

  1. This subchapter shall not apply to any limited partnership which has filed its certificate of limited partnership with the Secretary of State pursuant to § 4-47-201 or any successor law.
  2. This subchapter shall not apply to any domestic or foreign corporation or to any domestic or foreign limited partnership or limited liability company lawfully doing business in this state.
  3. This subchapter shall not apply to any limited liability company which has filed its articles of organization with the Secretary of State pursuant to § 4-32-202.

History. Acts 1943, No. 11, § 4; 1977, No. 874, § 3; A.S.A. 1947, §§ 70-404, 70-406; Acts 1997, No. 479, § 7; 1997, No. 549, § 1; 1997, No. 912, § 12; 1999, No. 1528, § 7; 2007, No. 15, § 7.

Amendments. The 2007 amendment substituted “4-47-201” for “4-43-201” in (a); and deleted (d).

4-70-202. Penalties.

  1. Any person owning, carrying on, or transacting business as designated in this subchapter who fails to comply with any provision of this subchapter shall be guilty of a violation and fined not less than twenty-five dollars ($25.00) nor more than one hundred dollars ($100).
  2. Each day of the violation shall be a separate offense.

History. Acts 1943, No. 11, § 5; A.S.A. 1947, § 70-405; Acts 2005, No. 1994, § 38.

Case Notes

Civil Actions.

Failure of partnership to record trade name does not bar partner from maintaining suit for damages for commission of tort, since only a fine is imposed for failure to record trade name. Arnold Barber & Beauty Supply Co. v. Provance, 221 Ark. 385, 253 S.W.2d 367 (1952).

4-70-203. Doing business under assumed name — Certificate.

  1. No person shall conduct or transact business in this state under an assumed name or under any designated name or style, corporate or otherwise, other than the real name of the individual conducting or transacting such business, unless the person files a certificate in the office of the county clerk of the counties in which the person conducts or transacts or intends to conduct the business. The certificate shall set forth the name under which the business is, or is to be, conducted or transacted and the full name or names of each person conducting or transacting the business, with the post office address of each.
  2. The certificate shall be executed and duly acknowledged by the persons so conducting or intending to conduct the business in the manner provided for in acknowledgment of conveyances of real estate.

History. Acts 1943, No. 11, § 1; A.S.A. 1947, § 70-401.

Publisher's Notes. Acts 1999, No. 1528, § 9, provided:

“The fictitious name provisions for limited liability companies, limited partnerships, and limited liability partnerships in Sections 1, 3 and 5 of this act [codified as §§ 4-32-108, 4-43-108, 4-42-707] shall not be applicable to any name for which an assumed name filing has been made under § 4-70-203 prior to the effective date of this act.”

Cross References. Going out of business sales, § 4-74-101 et seq.

4-70-204. Certificate of withdrawal from or disposition of interest in business.

Wherever there is a change in ownership of any business operated under an assumed name, each person disposing of his or her interest in the business or withdrawing therefrom shall file a certificate with the county clerk of each county in which the business is being conducted. This certificate shall set forth the fact of the withdrawal from or disposition of interest in the business and shall be executed and duly acknowledged as directed in § 4-70-203.

History. Acts 1943, No. 11, § 2; A.S.A. 1947, § 70-402.

4-70-205. Certified copy of certificate as presumptive evidence.

A copy of the certificate duly certified by the county clerk in whose office the certificate was filed shall be presumptive evidence in all courts in this state of the facts therein contained.

History. Acts 1943, No. 11, § 3; A.S.A. 1947, § 70-403.

4-70-206. Clerk's index and filing fees.

  1. Each county clerk shall keep an alphabetical index of persons filing certificates provided for in this subchapter.
  2. For indexing and filing the certificate, the clerk shall receive a fee of one dollar ($1.00).

History. Acts 1943, No. 11, § 3; A.S.A. 1947, § 70-403.

Subchapter 3 — Sales Representatives

4-70-301. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Commission” means compensation paid a sales representative by a principal in an amount based on a percentage of the dollar amount of certain orders for, or sales of, the principal's product;
  2. “Principal” means a person who:
    1. Does not have a permanent or fixed place of business in this state;
    2. Manufactures, produces, imports, or distributes a product for sale to customers who purchase the product for resale;
    3. Uses a sales representative to solicit orders for the product; and
    4. Compensates the sales representative in whole or in part by commission; and
  3. “Sales representative” means a person who solicits on behalf of a principal orders for the purchase at wholesale of the principal's product. The term “sales representative” does not include a person who places orders for or purchases the product for his or her own account for resale, or is engaged in door-to-door sales regulated by § 4-89-101 et seq.

History. Acts 1989, No. 464, § 1.

4-70-302. Sales representatives' contracts — Limitation.

  1. A contract between a principal and a sales representative under which the sales representative is to solicit wholesale orders within this state must be in writing and set forth the method by which the sales representative's commission is to be computed and paid.
  2. The principal shall provide the sales representative with a copy of the contract.
  3. A provision in the contract establishing venue for an action arising under the contract in a state other than this state is void.

History. Acts 1989, No. 464, § 1.

4-70-303. Payment in absence of contract.

If a compensation agreement between a sales representative and a principal that is not in writing is terminated, the principal shall pay all commissions due the sales representative within thirty (30) working days after the date of the termination.

History. Acts 1989, No. 464, § 1.

4-70-304. Jurisdiction.

A principal who is not a resident of this state and who enters into a contract subject to this subchapter is considered to be doing business in this state for purposes of the exercise of personal jurisdiction over the principal.

History. Acts 1989, No. 464, § 1.

4-70-305. Waivers prohibited.

A provision of this subchapter may not be waived, whether by express waiver or by attempt to make a contract or agreement subject to the laws of another state. A waiver of a provision of this subchapter is void.

History. Acts 1989, No. 464, § 1.

4-70-306. Damages and attorney's fees.

A principal who fails to comply with a provision of a contract under § 4-70-302 relating to payment of a commission or fails to pay a commission as required by § 4-70-303 is liable to the sales representative in a civil action for three (3) times the damages sustained by the sales representative, plus reasonable attorney's fees and costs.

History. Acts 1989, No. 464, § 1.

Chapter 71 Trademarks and Labels

Research References

Am. Jur. 74 Am. Jur. 2d, Trademark, § 1 et seq.

ALR.

Trademark licensor's liability for injury or death allegedly due to defect in licensed product, 90 A.L.R.4th 981.

C.J.S. 87 C.J.S., Trademarks, etc., § 2 et seq.

Subchapter 1 — General Provisions

4-71-101 — 4-71-114. [Repealed.]

Publisher's Notes. This subchapter was repealed by Acts 2001, No. 1553, § 4. The subchapter was derived from the following sources:

4-71-101. Acts 1967, No. 81, § 1; A.S.A. 1947, § 70-539.

4-71-102. Acts 1967, No. 81, § 14; A.S.A. 1947, § 70-552.

4-71-103. Acts 1967, No. 81, § 9; A.S.A. 1947, § 70-547.

4-71-104. Acts 1967, No. 81, § 2; A.S.A. 1947, § 70-540.

4-71-105. Acts 1967, No. 81, § 3; A.S.A. 1947, § 70-541; 1989, No. 894, § 1.

4-71-106. Acts 1967, No. 81, § 4; A.S.A. 1947, § 70-542.

4-71-107. Acts 1967, No. 81, § 10; A.S.A. 1947, § 70-548.

4-71-108. Acts 1967, No. 81, § 5; A.S.A. 1947, § 70-543; 1989, No. 894, § 2.

4-71-109. Acts 1967, No. 81, § 8; A.S.A. 1947, § 70-546.

4-71-110. Acts 1967, No. 81, § 6; A.S.A. 1947, § 70-544.

4-71-111. Acts 1967, No. 81, § 7; A.S.A. 1947, § 70-545.

4-71-112. Acts 1967, No. 81, § 11; A.S.A. 1947, § 70-549.

4-71-113. Acts 1967, No. 81, § 12; A.S.A. 1947, § 70-550.

4-71-114. Acts 1967, No. 81, § 13; A.S.A. 1947, § 70-551.

For present law, see § 4-71-201 et seq.

Subchapter 2 — Registration and Protection

Research References

Ark. L. Rev.

Lyon & Look, How Intellectual Property Impacts a Commercial Law Practice: Trademarks and Service Marks, 51 Ark. L. Rev. 459.

4-71-201. Definitions.

As used in this subchapter:

  1. A mark shall be deemed to be “abandoned” when either of the following occurs:
        1. When its use has been discontinued with intent not to resume such use.
        2. Intent not to resume may be inferred from circumstances.
      1. Nonuse for two (2) consecutive years shall constitute prima facie evidence of abandonment; or
    1. When any course of conduct of the owner, including acts of omission as well as commission, causes the mark to lose its significance as a mark;
  2. “Applicant” means the person filing an application for registration of a mark under this subchapter and the legal representatives, successors, or assigns of such person;
  3. “Dilution” means the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of:
    1. Competition between the owner of the famous mark and other parties; or
    2. A likelihood of confusion, mistake, or deception;
  4. “Mark” includes any trademark or service mark entitled to registration under this subchapter whether registered or not;
    1. “Person” and any other word or term used to designate the applicant or other party entitled to a benefit or privilege or rendered liable under the provisions of this subchapter includes a juristic person as well as a natural person.
    2. The term “juristic person” includes a firm, partnership, corporation, union, association, or other organization capable of suing and being sued in a court of law;
  5. “Registrant” means the person to whom the registration of a mark under this subchapter is issued and the legal representatives, successors, or assigns of such person;
  6. “Secretary” means the Secretary of State or the designee of the Secretary of State charged with the administration of this subchapter;
    1. “Service mark” means any word, name, symbol, or device or any combination thereof used by a person to identify and distinguish the services of one (1) person, including a unique service, from the services of others, and to indicate the source of the services, even if that source is unknown.
    2. Titles, character names used by a person, and other distinctive features of radio or television programs may be registered as service marks notwithstanding that they, or the programs, may advertise the goods of the sponsor;
  7. “Trade name” means any name used by a person to identify a business or vocation of such person;
  8. “Trademark” means any word, name, symbol, or device or any combination thereof used by a person to identify and distinguish the goods of such person, including a unique product, from those manufactured or sold by others, and to indicate the source of the goods, even if that source is unknown; and
    1. “Use” means the bona fide use of a mark in the ordinary course of trade and not made merely to reserve a right in a mark.
    2. For the purposes of this subchapter, a mark shall be deemed to be in use:
      1. On goods when it is placed in any manner on the goods or other containers or the displays associated therewith or on the tags or labels affixed thereto, or if the nature of the goods makes such placement impracticable, then on documents associated with the goods or their sale and the goods are sold or transported in commerce in this state; and
      2. On services when it is used or displayed in the sale or advertising of services and the services are rendered in this state.

History. Acts 1997, No. 1109, § 1.

Research References

U. Ark. Little Rock L. Rev.

Resolving the Circuit Split on Standing in False Advertising Claims and Incorporation of Prudential Standing in State Deceptive Trade Practices Law: The Quest for Optimal Levels of Accurate Information in the Marketplace, 29 U. Ark. Little Rock L. Rev. 283.

4-71-202. Registrability.

A mark by which the goods or services of any applicant for registration may be distinguished from the goods or services of others shall not be registered if it:

  1. Consists of or comprises immoral, deceptive, or scandalous matter;
  2. Consists of or comprises matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt or disrepute;
  3. Consists of or comprises the flag or coat of arms or other insignia of the United States, any state or municipality, or any foreign nation, or any simulation;
  4. Consists of or comprises the name, signature, or portrait identifying a particular living individual, except by the individual's written consent;
    1. Consists of a mark which:
      1. When used on or in connection with the goods or services of the applicant, is merely descriptive or deceptively misdescriptive of them;
      2. When used on or in connection with the goods or services of the applicant is primarily geographically descriptive or deceptively misdescriptive of them; or
      3. Is primarily merely a surname.
      1. Provided, however, that nothing in this subdivision (5) shall prevent the registration of a mark used by the applicant which has become distinctive of the applicant's goods or services.
      2. The Secretary of State may accept as evidence that the mark has become distinctive, as used on or in connection with the applicant's goods or services, proof of continuous use as a mark by the applicant in this state for the five (5) years before the date on which the claim of distinctiveness is made; or
  5. Consists of or comprises a mark which so resembles a mark registered in this state or a mark or trade name previously used by another and not abandoned as to be likely, when used on or in connection with the goods or services of the applicant, to cause confusion or mistake or to deceive.

History. Acts 1997, No. 1109, § 2.

Research References

ALR.

Reverse confusion doctrine under state trademark law. 114 A.L.R.5th 129.

Construction and Application of Trademark Registration Prohibition on Disparaging Marks Under 15 U.S.C. § 1052(a). 15 A.L.R. Fed. 3d Art. 8 (2016).

4-71-203. Application for registration.

  1. Subject to the limitations set forth in this subchapter, any person who uses a mark may file in the office of the Secretary of State, in a manner complying with the requirements of the Secretary of State, an application for registration of that mark setting forth, but not limited to, the following information:
    1. The name and business address of the person applying for such registration and, if a corporation, the state of incorporation, or if a partnership, the state in which the partnership is organized and the names of the general partners, as specified by the Secretary of State;
    2. The goods or services on or in connection with which the mark is used and the mode or manner in which the mark is used on or in connection with such goods or services and the class in which such goods or services fall;
    3. The date when the mark was first used anywhere and the date when it was first used in this state by the applicant or predecessor in interest; and
    4. A statement that the applicant is the owner of the mark, that the mark is in use, and that, to the knowledge of the person verifying the application, no other person has registered, either federally or in this state, or has the right to use such mark either in the identical form thereof or in such near resemblance thereto as to be likely, when applied to the goods or services of such other person, to cause confusion or mistake or to deceive.
    1. The Secretary of State may also require a statement as to whether an application to register the mark, or portions or a composite thereof, has been filed by the applicant or a predecessor in interest in the United States Patent and Trademark Office and, if so, the applicant shall provide full particulars with respect thereto, including the filing date and serial number of each application, the status thereof, and, if any application was finally refused registration or has otherwise not resulted in registration, the reasons therefor.
    2. The Secretary of State may also require that a drawing of the mark, complying with such requirements as the Secretary of State may specify, accompany the application.
    3. The application shall be signed and verified by oath, affirmation, or declaration subject to perjury laws by the applicant or by a member of the firm or an officer of the corporation or association applying.
    4. The application shall be accompanied by three (3) specimens showing the mark as actually used.
    5. The application shall be accompanied by the application fee payable to the Secretary of State.

History. Acts 1997, No. 1109, § 3.

Case Notes

“In This State”.

Former § 4-71-105 (see now subdivision (a)(4) of this section) does not empower the Secretary of State to register trademarks or service marks for a limited geographical area within, but smaller than, the entire state. Worthen Nat'l Bank v. McCuen, 317 Ark. 195, 876 S.W.2d 567 (1994).

Legislative Intent.

The intent of the drafters of former § 4-71-105 (see now subdivision (a)(4) of this section) was that a registered mark be one to which the owner has exclusive rights in the entire state. Worthen Nat'l Bank v. McCuen, 317 Ark. 195, 876 S.W.2d 567 (1994).

4-71-204. Filing of applications.

  1. Upon the filing of an application for registration and payment of the application fee, the Secretary of State may cause the application to be examined for conformity with this subchapter.
  2. The applicant shall provide any additional pertinent information requested by the Secretary of State, including a description of a design mark, and may make or authorize the Secretary of State to make such amendments to the application as may be reasonably requested by the Secretary of State or deemed by the applicant to be advisable to respond to any rejection or objection.
    1. The Secretary of State may require the applicant to disclaim an unregisterable component of a mark otherwise registerable, and an applicant may voluntarily disclaim a component of a mark sought to be registered.
    2. No disclaimer shall prejudice or affect the applicant's or registrant's rights then existing or thereafter arising in the disclaimed matter or the applicant's or registrant's rights of registration on another application if the disclaimed matter is or shall have become distinctive of the applicant's or registrant's goods or services.
  3. Amendments may be made by the Secretary of State upon the application submitted by the applicant upon the applicant's agreement or a fresh application may be required to be submitted.
    1. If the applicant is found not to be entitled to registration, the Secretary of State shall advise the applicant thereof and of the reasons therefor.
      1. The applicant shall have a reasonable period of time specified by the Secretary of State in which to reply or to amend the application, in which event the application shall then be reexamined.
      2. This procedure may be repeated until:
        1. The Secretary of State finally refuses registration of the mark; or
        2. The applicant fails to reply or amend within the specified period, whereupon the application shall be deemed to have been abandoned.
    1. If the Secretary of State finally refuses registration of the mark, the applicant may seek a writ of mandamus to compel such registration.
    2. Such writ may be granted, but without costs to the Secretary of State, on proof that all the statements in the application are true and that the mark is otherwise entitled to registration.
    1. In the instance of applications concurrently being processed by the Secretary of State seeking registration of the same or confusingly similar marks for the same or related goods or services, the Secretary of State shall grant priority to the applications in order of filing.
      1. If a prior-filed application is granted a registration, the other application or applications shall then be rejected.
      2. Any rejected applicant may bring an action for cancellation of the registration upon grounds of prior or superior rights to the mark, in accordance with the provisions of § 4-71-209.

History. Acts 1997, No. 1109, § 4.

4-71-205. Certificate of registration.

  1. Upon compliance by the applicant with the requirements of this subchapter, the Secretary of State shall cause a certificate of registration to be issued and delivered to the applicant.
  2. The certificate of registration shall be issued under the signature of the Secretary of State and the seal of the state, and it shall show the name and business address and, if a corporation, the state of incorporation, or if a partnership, the state in which the partnership is organized and the names of the general partners, as specified by the Secretary of State, of the person claiming ownership of the mark, the date claimed for the first use of the mark anywhere and the date claimed for the first use of the mark in this state, the class of goods or services and a description of the goods or services on or in connection with which the mark is used, a reproduction of the mark, the registration date, and the term of the registration.
  3. Any certificate of registration issued by the Secretary of State under the provisions hereof or a copy thereof duly certified by the Secretary of State shall be admissible in evidence as competent and sufficient proof of the registration of a mark in any actions or judicial proceedings in any court of this state.

History. Acts 1997, No. 1109, § 5.

4-71-206. Duration and renewal.

    1. A registration of a mark under this subchapter shall be effective for a term of five (5) years from the date of registration and, upon application filed within six (6) months prior to the expiration of that term, in a manner complying with the requirements of the Secretary of State, the registration may be renewed for a like term from the end of the expiring term.
    2. A renewal fee, payable to the Secretary of State, shall accompany the application for renewal of the registration.
    3. A registration may be renewed for successive periods of five (5) years in like manner.
  1. Any registration in force on August 1, 1997, shall continue in full force and effect for the unexpired term and may be renewed by filing an application for renewal with the Secretary of State complying with the requirements of the Secretary of State and paying the renewal fee within six (6) months prior to the expiration of the registration.
  2. All applications for renewal under this subchapter, whether of registrations made under this subchapter or of registrations effected under any prior act, shall include a verified statement that the mark has been and is still in use and include a specimen showing actual use of the mark on or in connection with the goods or services.

History. Acts 1997, No. 1109, § 6.

4-71-207. Assignments, changes of name, and other instruments.

    1. Any mark and its registration under this subchapter shall be assignable with the goodwill of the business in which the mark is used, or with that part of the goodwill of the business connected with the use of and symbolized by the mark.
    2. Assignment shall be by instruments in writing duly executed and shall be recorded with the Secretary of State upon the payment of the recording fee payable to the Secretary of State, who, upon recording of the assignment, shall issue in the name of the assignee a new certificate for the remainder of the term of the registration or of the last renewal thereof.
    3. An assignment of any registration under this subchapter shall be void as against any subsequent purchaser for valuable consideration without notice, unless it is recorded with the Secretary of State within three (3) months after the date thereof or prior to such subsequent purchase.
    1. Any registrant or applicant effecting a change of the name of the person to whom the mark was issued or for whom an application was filed may record a certificate of change of name of the registrant or applicant with the Secretary of State upon payment of the recording fee.
      1. The Secretary of State may issue in the name of the assignee a certificate of registration of an assigned application.
      2. The Secretary of State may issue in the name of the assignee a new certificate or registration for the remainder of the term of the registration or last renewal thereof.
  1. Other instruments which relate to a mark registered or application pending pursuant to this subchapter such as, by way of example, licenses, security interests, or mortgages, may be recorded in the discretion of the Secretary of State provided that such instrument is in writing and duly executed.
  2. Acknowledgement shall be prima facie evidence of the execution of an assignment or other instrument and, when recorded by the Secretary of State, the record shall be prima facie evidence of execution.
  3. A photocopy of any instrument referred to in subsections (a), (b), or (c) of this section shall be accepted for recording if it is certified by any of the parties thereto, or their successors, to be a true and correct copy of the original.

History. Acts 1997, No. 1109, § 7.

4-71-208. Records.

The Secretary of State shall keep for public examination a record of all marks registered or renewed under this subchapter, as well as a record of all documents recorded pursuant to § 4-71-207.

History. Acts 1997, No. 1109, § 8.

4-71-209. Cancellation.

The Secretary of State shall cancel from the register, in whole or in part:

  1. Any registration concerning which the Secretary of State shall receive a voluntary request for cancellation from the registrant or the assignee of record;
  2. All registrations granted under this subchapter and not renewed in accordance with the provisions of this subchapter;
  3. Any registration concerning which a court of competent jurisdiction shall find that:
    1. The registered mark has been abandoned;
    2. The registrant is not the owner of the mark;
    3. The registration was granted improperly;
    4. The registration was obtained fraudulently;
    5. The mark is or has become the generic name for the goods or services, or a portion thereof, for which it has been registered; or
      1. The registered mark is so similar to a mark registered by another person in the United States Patent and Trademark Office prior to the date of the filing of the application for registration by the registrant under this subchapter, and not abandoned, as to be likely to cause confusion or mistake or to deceive.
      2. Provided, however, that should the registrant prove that the registrant is the owner of a concurrent registration of a mark in the United States Patent and Trademark Office covering an area including this state, the registration under this subchapter shall not be cancelled for that area of the state; or
  4. Any registration that a court of competent jurisdiction shall order cancelled on any ground.

History. Acts 1997, No. 1109, § 9.

Research References

ALR.

Reverse confusion doctrine under state trademark law. 114 A.L.R.5th 129.

Application of Defense of Laches in Action to Cancel Trademark. 64 A.L.R. Fed. 2d 255.

4-71-210. Classification.

  1. The Secretary of State shall by rule establish a classification of goods and services for convenience of administration of this subchapter, but not to limit or extend the applicant's or registrant's rights, and a single application for registration of a mark may include any or all goods upon which, or services with which, the mark is actually being used indicating the appropriate class or classes of goods or services.
  2. When a single application includes goods or services which fall within multiple classes, the Secretary of State may require payment of a fee for each class.
  3. To the extent practical, the classification of goods and services should conform to the classification adopted by the United States Patent and Trademark Office.

History. Acts 1997, No. 1109, § 10; 2019, No. 315, § 127.

Amendments. The 2019 amendment substituted “rule” for “regulation” in (a).

4-71-211. Fraudulent registration.

Any person who shall for himself or herself, or on behalf of any other person, procure the filing or registration of any mark in the office of the Secretary of State under the provisions of this subchapter by knowingly making any false or fraudulent representation or declaration orally or in writing or by any other fraudulent means shall be liable to pay all damages sustained in consequence of such filing or registration to be recovered by or on behalf of the party injured thereby in any court of competent jurisdiction.

History. Acts 1997, No. 1109, § 11.

Research References

ALR.

Reverse confusion doctrine under state trademark law. 114 A.L.R.5th 129.

Award of Damages or Profits Under § 35(a) of Lanham Act (15 U.S.C. § 1117(a)) for False Designation of Origin and False Descriptions (15 U.S.C. § 1125(a)), 31 A.L.R. Fed. 3d Art. 13 (2018).

4-71-212. Infringement.

Subject to the provisions of § 4-71-216, any person who shall commit the following acts shall be liable in a civil action by the registrant for any and all of the remedies provided in § 4-71-214, except that under this section the registrant shall not be entitled to recover profits or damages unless the acts have been committed with the intent to cause confusion or mistake or to deceive:

  1. To use, without the consent of the registrant, any reproduction, counterfeit, copy, or colorable imitation of a mark registered under this subchapter in connection with the sale, distribution, offering for sale, or advertising of any goods or services on or in connection with which such use is likely to cause confusion or mistake or to deceive as to the source of origin of such goods or services; or
  2. To reproduce, counterfeit, copy, or colorably imitate any such mark and apply such reproduction, counterfeit, copy, or colorable imitation to labels, signs, prints, packages, wrappers, receptacles, or advertisements intended to be used upon or in connection with the sale or other distribution in this state of such goods or services.

History. Acts 1997, No. 1109, § 12.

Research References

ALR.

World wide web domain as violating state trademark protection statute or state unfair trade practices act. 96 A.L.R.5th 1.

Reverse confusion doctrine under state trademark law. 114 A.L.R.5th 129.

Validity, Construction, and Application of State Trademark Counterfeiting Statutes. 63 A.L.R.6th 303.

Case Notes

Descriptive Marks.

Even though protection under this section did not apply to descriptive marks, and the name for which defendant had obtained certificates from the Arkansas Secretary of State were for a descriptive mark, the district court would not address whether or not the mark was protectible under state law because plaintiff had not asked the district court to cancel the state trademark registrations, nor had it engaged in the proper procedures for mounting a challenge to the registrations under state law. Ark. Trophy Hunters Ass'n v. Tex. Trophy Hunters Ass'n, 506 F. Supp. 2d 277 (W.D. Ark. 2007).

Dominant Feature.

To constitute infringement under former § 4-71-112, it is not necessary that the defendants appropriate the whole of plaintiff's mark; imitation need only be slight if it attaches to the salient features of the plaintiff's mark. Gaston's White River Resort v. Rush, 701 F. Supp. 1431 (W.D. Ark. 1988) (decision under prior law).

Although the court must consider the design as a unit, the court may analyze each feature to determine its significance to the unit as a whole and to ascertain the dominant feature of the mark. There is no flat rule as to what will prove to be the dominant feature of a composite design; however, the dominant feature is that which is most noticeable and most unavoidably attracts the attention of the public. Gaston's White River Resort v. Rush, 701 F. Supp. 1431 (W.D. Ark. 1988) (decision under prior law).

Evidence.

Cause sounding in Arkansas trademark infringement must meet the test required by the federal Lanham Trade-Mark Act provisions for unfair competition and trademark infringement. In order to establish its claim that the defendant has competed unfairly and infringed its rights in the design mark, plaintiff must show that: (1) it owns the design mark and has used the mark in a trademark sense, (2) the design was used without its consent, and (3) such use is likely to cause confusion. Gaston's White River Resort v. Rush, 701 F. Supp. 1431 (W.D. Ark. 1988) (decision under prior law).

Defendant's trademark infringement counterclaim under this section was dismissed with prejudice because even though the Arkansas Secretary of State had granted it trademark certificates, allowing it to use a name that was the same name that plaintiff, an informal hunting club, used, defendant did not provide any evidence showing that plaintiff planned to use the name in competing trade shows or magazines or that plaintiff had any intent to cause consumer confusion, mistake, or deception. Ark. Trophy Hunters Ass'n v. Tex. Trophy Hunters Ass'n, 506 F. Supp. 2d 277 (W.D. Ark. 2007).

Injunctions.

A nonprofit Arkansas corporation had superior common law rights in its six county region and was a state-registered user of a service mark and, therefore, was entitled to an injunction against infringement of its service mark by a national association within such region; however, the nonprofit Arkansas corporation was not entitled to a statewide injunction because it presented no evidence of concrete plans to expand elsewhere in the state and there was no evidence to support the possibility of donor confusion. Nat'l Ass'n for Healthcare Communs. v. Cent. Ark. Area Agency on Aging, Inc., 257 F.3d 732 (8th Cir. 2001).

4-71-213. Injury to business reputation — Dilution.

    1. The owner of a mark which is famous in this state shall be entitled, subject to the principles of equity and upon such terms as the court deems reasonable, to an injunction against another person's commercial use of a mark or trade name if such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark, and to obtain such other relief as is provided in this section.
    2. In determining whether a mark is distinctive and famous, a court may consider factors such as, but not limited to:
      1. The degree of inherent or acquired distinctiveness of the mark in this state;
      2. The duration and extent of use of the mark in connection with the goods and services with which the mark is used;
      3. The duration and extent of advertising and publicity of the mark in this state;
      4. The geographical extent of the trading area in which the mark is used;
      5. The channels of trade for the goods or services with which the mark is used;
      6. The degree of recognition of the mark in the trading areas and channels of trade in this state used by the mark's owner and the person against whom the injunction is sought;
      7. The nature and extent of use of the same or similar mark by third parties; and
      8. Whether the mark is the subject of a state registration in this state, or a federal registration under the act of March 3, 1881, or under the act of February 20, 1905, or on the principal register.
    1. In an action brought under this section, the owner of a famous mark shall be entitled only to injunctive relief in this state, unless the person against whom the injunctive relief is sought willfully intended to trade on the owner's reputation or to cause dilution of the famous mark.
    2. If such willful intent is proven, the owner shall also be entitled to the remedies set forth in this subchapter, subject to the discretion of the court and the principles of equity.
  1. The following shall not be actionable under this section:
    1. Fair use of a famous mark by another person in comparative commercial advertising or promotion to identify the competing goods or services of the owner of the famous mark;
    2. Noncommercial use of the mark; and
    3. All forms of news reporting and news commentary.

History. Acts 1997, No. 1109, § 13.

Publisher's Notes. The phrase “under the act of March 3, 1881, or under the act of February 20, 1905” may possibly be interpreted to mean “in the Patent Office.”

U.S. Code. The act of March 3, 1881, and the act of February 20, 1905 were repealed by the Trademark Act of 1946, insofar as they were inconsistent with that act. The act of February 20, 1905 was formerly codified as 15 U.S.C. § 81 et seq. The Trademark Act of 1946, also known as the Lanham Act, is codified as 15 U.S.C. § 1051 et seq.

Case Notes

Dismissal of Claim.

Defendant's dilution of trademark counterclaim under this section, arising out of the fact that it and plaintiff used the same trophy hunters association name, was dismissed with prejudice because the name was merely descriptive, it had not acquired a secondary meaning, and it was not a “famous” mark. The name was used only in a very narrow channel of trade, or niche market, and it did not have such powerful consumer associations that even non-competing uses could impinge on its value. Ark. Trophy Hunters Ass'n v. Tex. Trophy Hunters Ass'n, 506 F. Supp. 2d 277 (W.D. Ark. 2007).

4-71-214. Remedies.

      1. Any owner of a mark registered under this subchapter may proceed by suit to enjoin the manufacture, use, display, or sale of any counterfeits or imitations of that mark and any court of competent jurisdiction may grant injunctions to restrain any manufacture, use, display, or sale as may be by the court deemed just and reasonable, and may require the defendants to pay to the owner all profits derived from or all damages suffered by reason of, or both, such wrongful manufacture, use, display, or sale.
      2. The court may also order that any such counterfeits or imitations in the possession or under the control of any defendant in such case be delivered to an officer of the court or to the complainant to be destroyed.
    1. The court, in its discretion, may enter judgment for an amount not to exceed three (3) times such profits and damages or reasonable attorney's fees of the prevailing party, or both, in cases where the court finds the other party committed wrongful acts with knowledge or in bad faith or otherwise as according to the circumstances of the case.
  1. The enumeration of any right or remedy in this section shall not affect a registrant's right to prosecute under any penal law of this state.

History. Acts 1997, No. 1109, § 14.

Case Notes

Applicability.

The clear meaning of former § 4-71-113 comprehended cases in which the parties directly compete; such a meaning is logically inferred from the use of the word “notwithstanding.” This section applies obviously to competitors who directly compete and also to those who do not compete directly. Gaston's White River Resort v. Rush, 701 F. Supp. 1431 (W.D. Ark. 1988) (decided under prior law).

Former § 4-71-113 recognized the value of a trade name in its own right and affords protection to the owner against its unauthorized use, and neither competition nor confusion on the part of customers is required; the issue is not one of competition, but of the likelihood of dilution of the value of the trade name as an asset by its use by someone other than the owner. Williams v. Spelic, 311 Ark. 279, 844 S.W.2d 305 (1992) (decision under prior law).

Other states' anti-dilution laws, nearly identical to this section, have been held to be enforceable nationwide against defendants over whom a court has jurisdiction. Champions Golf Club, Inc. v. Sunrise Land Corp., 846 F. Supp. 742 (W.D. Ark. 1994) (decision under prior law).

There was no basis for contending that former § 4-71-113 required a showing that the mark in question was registered under this chapter. Champions Golf Club, Inc. v. Sunrise Land Corp., 846 F. Supp. 742 (W.D. Ark. 1994).

Authority of Court.

Where the wrongful use of a trade name has begun to eat away at and dilute and weaken the value of plaintiff's name, the federal court has the power and the duty, using its equity powers, to prevent and terminate such irreparable harm; even if the court did not have such inherent power, it believes that the provisions of this section gives it such power. Champions Golf Club, Inc. v. Sunrise Land Corp., 846 F. Supp. 742 (W.D. Ark. 1994) (decision under prior law).

Injunction Denied.

Broad injunctive relief sought by manufacturer and distributor of hair care products not granted where there was no evidence of poor results or injuries arising from consumers' uncounseled use of products purchased in retail outlet and there was no indication of lost sales or other economic damage; even if court assumed that some salons would stop selling hair care products if they were available in retail stores, there was no basis for concluding that these lost sales would be greater than the increased revenue resulting from the availability of the product in ordinary retail outlets. Graham Webb Int'l Ltd. Partnership v. Emporium Drug Mart, Inc., 916 F. Supp. 909 (E.D. Ark. 1995) (decision under prior law).

Trade Names.

The words “shear pleasure” used in the names of two hair care businesses had not acquired a secondary meaning and did not constitute a valid trade name subject to injunctive protection under former § 4-71-113. Pullan v. Fulbright, 287 Ark. 21, 695 S.W.2d 830 (1985) (decision under prior law).

Where purchaser of business also purchased the trade name containing seller's maiden name, the purchaser acquired a valuable property right to inform the public that it possessed the experience and skill symbolized by the original concern, and an injunction against the use of the maiden name by the sellers could validly be issued. Williams v. Spelic, 311 Ark. 279, 844 S.W.2d 305 (1992) (decision under prior law).

Where a name had been an accepted and acknowledged local synonym for a particular business, and, as such, the name had a special significance and meaning, that the continued use of the name in sellers' subsequent business could only result in hopeless confusion for the general public. Williams v. Spelic, 311 Ark. 279, 844 S.W.2d 305 (1992) (decision under prior law).

Tri-County Funeral Service, Inc., which does business as “Howard Funeral Home” in Melbourne, successfully enjoined Eddie Howard Funeral Home, Inc., also located in Melbourne, from using the name “Howard” in connection with its funeral business. Tri-County Funeral Serv., Inc. v. Eddie Howard Funeral Home, 330 Ark. 789, 957 S.W.2d 694 (1997) (decision under prior law).

4-71-215. Forum for actions regarding registration — Service on out-of-state registrants.

    1. Actions to require cancellation of a mark registered pursuant to this subchapter or in mandamus to compel registration of a mark pursuant to this subchapter shall be brought in the circuit court.
      1. In an action in mandamus, the proceeding shall be based solely upon the record before the Secretary of State.
      2. In an action for cancellation, the Secretary of State shall not be made a party to the proceeding but shall be notified of the filing of the complaint by the clerk of the court in which it is filed and shall be given the right to intervene in the action.
  1. In any action brought against a nonresident registrant, service may be effected upon the Secretary of State as agent for service of the registrant in accordance with the procedures established for service upon nonresident corporations and business entities under §§ 16-58-126 and 16-58-127.

History. Acts 1997, No. 1109, § 15.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-71-216. Common law rights.

Nothing in this subchapter shall adversely affect the rights or the enforcement of rights in marks acquired in good faith at any time at common law.

History. Acts 1997, No. 1109, § 16.

4-71-217. Fees.

  1. The Secretary of State shall by rule prescribe the fees payable for the various applications and recording fees and for related services.
  2. Unless specified by the Secretary of State, the fees payable in this subchapter are not refundable.

History. Acts 1997, No. 1109, § 17; 2019, No. 315, § 128.

Amendments. The 2019 amendment substituted “rule” for “regulation” in (a).

4-71-218. Repeal of prior acts — Intent of subchapter.

    1. This subchapter shall not affect any suit, proceeding, or appeal pending prior to August 1, 1997.
      1. All acts relating to marks and parts of any other acts inconsistent herewith are hereby repealed on August 1, 1997.
      2. Provided, that as to any application, suit, proceeding, or appeal pending at the time this subchapter takes effect, and for that purpose only, such repeal shall be deemed not to be effective until final determination of said pending application, suit, proceeding, or appeal.
    1. The intent of this subchapter is to provide a system of state trademark registration and protection substantially consistent with the federal system of trademark registration and protection under the Trademark Act of 1946, as amended.
    2. To that end, the construction given the federal act should be examined as persuasive authority for interpreting and construing this subchapter.

History. Acts 1997, No. 1109, § 20.

U.S. Code. The Trademark Act of 1946, referred to in this section, is primarily codified as 15 U.S.C. § 1051 et seq.

Chapter 72 Franchises

Research References

Am. Jur. 36 Am. Jur. 2d, Franch., § 1 et seq.

C.J.S. 37 C.J.S., Franch., § 2 et seq.

Subchapter 1 — General Provisions

[Reserved]

Subchapter 2 — Arkansas Franchise Practices Act

Effective Dates. Acts 1977, No. 355, § 13: Mar. 4, 1977. Emergency clause provided: “The Legislature finds and declares that distribution and sale of franchise agreements in the State of Arkansas vitally affects the general economy of the State, public interest and public welfare; that franchisors as described in this Act, for adequate fees have licensed Arkansas corporations and citizens to use the trade names and formulas; and that in some instances, franchisors collect advertising fees from franchisees which are not expended for advertising purposes; and that some franchisors have, without good cause and to the great prejudice and harm of the citizens of the State of Arkansas, cancelled existing franchise agreements and that other such cancellations are threatened; and that only by the immediate passage of this Act can this situation be remedied and it is therefore necessary in the public interest to define the relationship and responsibilities of franchisors and franchisees in connection with franchise agreements. Therefore, an emergency is declared to exist and this Act being necessary for the preservation of public peace, health and safety, shall be in full force and effect from and after its passage and approval.”

Acts 1979, No. 424, § 3: Mar. 20, 1979. Emergency clause provided: “It is hereby found and determined by the Seventy-Second General Assembly of the State of Arkansas that the definition of franchise contained in the Arkansas Franchise Practices Act is in need of immediate clarification to clearly indicate that a franchise is not created by a lease, license or concession granted by a retailer to sell goods or furnish services on or from the premises occupied by the retailer primarily for its own merchandising activities, and that this Act is immediately necessary to accomplish such clarification. Therefore, an emergency is hereby declared to exist and this Act being immediately necessary for the preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

Research References

ALR.

Interference with franchise. 6 A.L.R.4th 195.

Primary liability of private chain franchisor for injury or death caused by franchised premises or equipment, 59 A.L.R.4th 1142.

Wrongful termination of franchise other than automobile dealership contracts, 40 A.L.R.5th 57.

Existence of fiduciary duty between franchisor and franchisee, 52 A.L.R.5th 613.

U. Ark. Little Rock L.J.

Survey of Arkansas Law, Business Law, 1 U. Ark. Little Rock L.J. 118.

Case Notes

Applicability.

This subchapter only applies if the franchisee is required to do business in Arkansas. JRT Inc. v. TCBY Sys., 52 F.3d 734 (8th Cir. 1995).

Choice of Law.

The parties' limited choice of Texas law had no impact on the determination of whether the plaintiff could claim protection under the act where the parties' agreement stated in relevant part, “This Agreement is executed in duplicate on the above date and the laws of the State of Texas shall govern its interpretation;” such language was in sharp contrast with the more broad choice of law clauses scattered throughout the cases, providing that the law of a particular state would “govern the contract.” Heating & Air Specialists, Inc. v. Jones, 180 F.3d 923 (8th Cir. 1999).

The substantive laws of Arkansas generally governed the parties' rights and responsibilities under their agreements and the act applied to those agreements, notwithstanding that the agreements by their express terms did not become effective until signed by the defendant in Texas, the plaintiff communicated by mail or telephone with the defendant's office in Texas periodically throughout their relationship, and the plaintiff performed its part of the agreement by mailing payments to the defendant's Texas address; the plaintiff had executed the agreements in Arkansas, the defendant shipped its goods to the plaintiff in Arkansas, the agreements themselves indicated that the franchise at issue would operate in Arkansas, the plaintiff's right to advertise and sell the defendant's products under the agreements was geographically restricted to Arkansas, the defendant actively sought the plaintiff's participation in the franchise by sending its representatives to Arkansas, and the bulk of the parties' negotiations took place in Arkansas. Heating & Air Specialists, Inc. v. Jones, 180 F.3d 923 (8th Cir. 1999).

Franchises.

A contractual provision that clearly and explicitly provided that the arrangement between the parties would be that of a nonexclusive distributor did not create a franchisor-franchisee relationship between the parties covered by the Arkansas Franchise Practices Act. Consolidated Naturals, Inc. v. Wm. T. Thompson Co., 623 F. Supp. 458 (W.D. Ark. 1985).

4-72-201. Title.

This subchapter shall be known and may be cited as the “Arkansas Franchise Practices Act”.

History. Acts 1977, No. 355, § 1; A.S.A. 1947, § 70-807.

RESEARCH REFERENCES

Ark. L. Rev.

Recent Developments: Robinson-Patman Price Discrimination Act - Special Order Products, 59 Ark. L. Rev. 199.

Case Notes

Applicability.

Where a truck dealer and franchisee asserted that a truck manufacturer and franchisor granted greater price concessions to the dealer's competitors, the dealer was not limited to the remedies provided by the Arkansas Motor Vehicle Commission Act, § 23-112-101 et seq., and could pursue remedies under the Arkansas Franchise Practices Act, § 4-72-201 et seq.Reeder-Simco GMC, Inc. v. Volvo GM Heavy Truck Corp., 374 F.3d 701 (8th Cir. 2004), rev'd, Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006).

Arbitration.

Parties' arbitration agreement did not limit or waive any substantive rights a distributor had under the Arkansas Franchise Practices Act, should it be found to apply. Instead, the claims under the Act could be resolved in the arbitral forum, as well as any other issues and claims raised by the distributor. Gruma Corp. v. Morrison, 2010 Ark. 151, 362 S.W.3d 898 (2010).

Cited: Kent Jenkins Sales, Inc. v. Angelo Bros. Co., 804 F.2d 482 (8th Cir. 1986); Morgan Distrib. Co. v. Unidynamic Corp., 868 F.2d 992 (8th Cir. 1989); Chrysler Motors Corp. v. Thomas Auto Co., 939 F.2d 538 (8th Cir. 1991); Dr. Pepper Bottling Co. v. Frantz, 311 Ark. 136, 842 S.W.2d 37 (1992); Arkcom Digital Corp. v. Xerox Corp., 289 F.3d 536 (8th Cir. 2002).

4-72-202. Definitions.

As used in this subchapter, unless the context otherwise requires:

    1. “Franchise” means a written or oral agreement for a definite or indefinite period in which a person grants to another person a license to use a trade name, trademark, service mark, or related characteristic within an exclusive or nonexclusive territory or to sell or distribute goods or services within an exclusive or nonexclusive territory at wholesale or retail, by lease agreement, or otherwise.
    2. However, a franchise is not created by a lease, license, or concession granted by a retailer to sell goods or furnish services on or from premises which are occupied by the retailer-grantor primarily for its own merchandising activities and a franchise is not created by door-to-door sales complying with § 4-89-101 et seq.;
  1. “Person” means a natural person, corporation, partnership, trust, or other entity, and, in case of an entity, “person” shall include any other entity which has a majority interest in such entity or effectively controls such other entity as well as the individual officers, directors, and other persons in active control of the activities of each entity;
  2. “Franchisor” means a person who grants a franchise to another person;
  3. “Franchisee” means a person to whom a franchise is offered or granted;
  4. “Sale, transfer, or assignment” means any disposition of a franchise or any interest therein, with or without consideration, to include, but not be limited to, a bequest, inheritance, gift, exchange, lease, or license;
  5. “Place of business” means a fixed geographical location at which the franchisee displays for sale and sells the franchisor's goods or offers for sale and sells the franchisor's services;
  6. “Good cause” means:
    1. Failure by a franchisee to comply substantially with the requirements imposed upon him or her by the franchisor, or sought to be imposed by the franchisor, which requirements are not discriminatory as compared with the requirements imposed on other similarly situated franchisees, either by their terms or in the manner of their enforcement; or
    2. The failure by the franchisee to act in good faith and in a commercially reasonable manner in carrying out the terms of the franchise; or
    3. Voluntary abandonment of the franchise; or
    4. Conviction of the franchisee in a court of competent jurisdiction of an offense, punishable by a term of imprisonment in excess of one (1) year, substantially related to the business conducted pursuant to the franchise; or
    5. Any act by a franchisee which substantially impairs the franchisor's trademark or trade name; or
    6. The institution of insolvency or bankruptcy proceedings by or against a franchisee, or any assignment or attempted assignment by a franchisee of the franchise or the assets of the franchise for the benefit of the creditors; or
    7. Loss of the franchisor's or franchisee's right to occupy the premises from which the franchise business is operated; or
    8. Failure of the franchisee to pay to the franchisor within ten (10) days after receipt of notice of any sums past due the franchisor and relating to the franchise; and
  7. “Good faith” means honesty in fact in the conduct or transaction concerned.

History. Acts 1977, No. 355, § 2; 1979, No. 424, § 1; A.S.A. 1947, § 70-808; Acts 1991, No. 411, § 5; 1991, No. 760, § 1; 1997, No. 1128, § 1.

Publisher's Notes. The provisions of subdivision (7)(F) of this section may be in conflict with the federal bankruptcy laws.

Case Notes

Good Cause.

The defendant had good cause to cancel the plaintiff's franchise where the uncontroverted evidence adduced at trial showed that, on the date of the termination notice, the plaintiff's account was past due, and where the plaintiff further admitted that it did not repay any part of the amount owed within the ten-day grace period provided by the defendant. Heating & Air Specialists, Inc. v. Jones, 180 F.3d 923 (8th Cir. 1999).

Enumerated occurrences in the statute are the exclusive means by which a franchisor can terminate a franchise for “good cause.” Larry Hobbs Farm Equip., Inc. v. CNH Am., LLC, 375 Ark. 379, 291 S.W.3d 190 (2009).

Franchisee was entitled to relief in its action against a franchisor for violation of the Arkansas Franchise Practices Act because under subdivision (7) of this section, neither the market withdrawal of a product nor the withdrawal of a trademark or trade name for a product constituted “good cause” to terminate a franchise. Larry Hobbs Farm Equip., Inc. v. CNH Am., LLC, 375 Ark. 379, 291 S.W.3d 190 (2009).

Franchise.

Where the manufacturer's representative did not take title and possession of any of the manufacturer's products, and although the representative had some authority to negotiate price, he did not have an unqualified authorization to transfer the product at the point and moment of the agreement to sell, the representative was a promoter or solicitor of sales rather than an actual seller of goods; therefore, he did not have a cause of action based on the Franchise Practices Act. Kent Jenkins Sales, Inc. v. Angelo Bros. Co., 804 F.2d 482 (8th Cir. 1986).

The business relationship created by the contract between the parties was not a franchise where the plaintiff maintained no inventory, had no authority to set prices, and could not enter into a binding contract of insurance, and where his authority went no further than to solicit and procure applications for insurance. Stockton v. Sentry Ins., 337 Ark. 507, 989 S.W.2d 914 (1999).

Trial court properly determined that an insurance agent was not a franchisee under the Arkansas Franchise Practices Act, subdivision (1)(A) of this section, because the agent did not have the unqualified authority to sell policies or commit the insurance company to an insurance contract other than a temporary binder, which, by definition, could have been cancelled at any time at the discretion of the company. Gunn v. Farmers Ins. Exch., 2010 Ark. 434, 372 S.W.3d 346 (2010).

Place of Business.

A multi-county sales area was not a place of business at a fixed geographical location. Bridgman v. Cornwell Quality Tools Co., 831 F.2d 174 (8th Cir. 1987).

The Franchise Practices Act did not apply to an agreement between the parties whereby the plaintiff became an independent distributor for the defendant since no fixed geographical location for selling products or services was ever contemplated, much less required, by the parties' agreement. Mary Kay, Inc. v. Isbell, 338 Ark. 556, 999 S.W.2d 669 (1999), appeal dismissed, Isbell v. Mary Kay Cosmetics, 338 Ark. 580, 999 S.W.2d 673 (Ark. 1999).

Arkansas Franchise Practices Act, § 4-72-201 et seq., applied to protect a beverage distributor from the wrongful termination of its agreement by the manufacturer since the parties clearly contemplated that there would be a “place of business” in Arkansas and the distributor's planned satellite warehouse would have qualified as one under subdivision (6) as it would have had a telephone, forklift, the beverages for distribution, and personnel to run operations; further, the distributor already had an outlet for the beverages in Arkansas with a different beverage manufacturer. S. Beach Bev. Co. v. Harris Brands, Inc., 355 Ark. 347, 138 S.W.3d 102 (2003).

Cited: Chrysler Motors Corp. v. Thomas Auto Co., 939 F.2d 538 (8th Cir. 1991); Fisher v. Jones, 306 Ark. 577, 816 S.W.2d 865 (1991); Dr. Pepper Bottling Co. v. Frantz, 311 Ark. 136, 842 S.W.2d 37 (1992).

4-72-203. Applicability of subchapter.

This subchapter applies only to a franchise entered into, renewed, or transferred after March 4, 1977, the performance of which contemplates or requires the franchise to establish or maintain a place of business within the State of Arkansas. However, the provisions of this subchapter shall not apply to those business relations, actions, transactions, or franchises subject to the provisions of § 4-72-401 et seq. and § 4-72-501 et seq., or which are subject to the Federal Trade Commission regulations, “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures”, 16 C.F.R. 436.1 et seq.

History. Acts 1977, No. 355, § 3; A.S.A. 1947, § 70-809; Acts 1991, No. 760, § 2.

Case Notes

Illustrative Cases.

Where the manufacturer's representative did not take title and possession of any of the manufacturer's products, and although the representative had some authority to negotiate price, he did not have an unqualified authorization to transfer the product at the point and moment of the agreement to sell, the representative was a promoter or solicitor of sales rather than an actual seller of goods; therefore, he did not have a cause of action based on the Franchise Practices Act. Kent Jenkins Sales, Inc. v. Angelo Bros. Co., 804 F.2d 482 (8th Cir. 1986).

Where franchise agreements entered into Arkansas contemplated yogurt stores in Michigan only, this subchapter did not apply. JRT Inc. v. TCBY Sys., 52 F.3d 734 (8th Cir. 1995).

The Franchise Practices Act did not apply to an agreement between the parties whereby the plaintiff became an independent distributor for the defendant since no fixed geographical location for selling products or services was ever contemplated, much less required, by the parties' agreement. Mary Kay, Inc. v. Isbell, 338 Ark. 556, 999 S.W.2d 669 (1999), appeal dismissed, Isbell v. Mary Kay Cosmetics, 338 Ark. 580, 999 S.W.2d 673 (Ark. 1999).

Restaurant owners's claim under the Arkansas Franchises Practices Act against restaurant chain was dismissed because the AFPA did not apply to franchises subject to the Federal Trade Commission's regulations and it was clear that the franchises at issues were subject to those regulations; the franchise agreements were contracts in or affecting commerce, granted the owners the right to use trade names, trademarks, and service marks in exchange for a fee, gave the restaurant chain significant control over the owners' operations, including the right to inspect the franchised restaurants, and the owners were obligated to report financial results to the chain. J.K.P. Foods, Inc. v. McDonald's Corp., 420 F. Supp. 2d 966 (E.D. Ark. 2006).

Cited: Bridgman v. Cornwell Quality Tools Co., 831 F.2d 174 (8th Cir. 1987); Dr. Pepper Bottling Co. v. Frantz, 311 Ark. 136, 842 S.W.2d 37 (1992); Reeder-Simco GMC, Inc. v. Volvo GM Heavy Truck Corp., 374 F.3d 701 (8th Cir. 2004).

4-72-204. Termination, cancellation, or failure to renew.

  1. It shall be a violation of this subchapter for a franchisor to:
    1. Terminate or cancel a franchise without good cause; or
    2. Fail to renew a franchise except for good cause or except in accordance with the current policies, practices, and standards established by the franchisor which in their establishment, operation, or application are not arbitrary or capricious.
  2. No franchisor shall directly or indirectly terminate, cancel, or fail to renew a franchise without first giving written notice to the franchisee at least ninety (90) days in advance of such action, setting forth the reasons for the termination, cancellation, or intention not to renew, and, in the case of terminations, shall provide the franchisee with thirty (30) days in which to rectify any claimed deficiency.
  3. The notice provisions of this section shall not apply where the reason for termination or cancellation is good cause under § 4-72-202(7)(C)-(H).
  4. If the reason for termination, cancellation, or failure to renew is for repeated deficiencies within a twelve-month period giving rise to good cause under § 4-72-202 (7)(A) or (B), the franchisee shall have ten (10) days to rectify the repeated deficiencies and thereby void the notice.

History. Acts 1977, No. 355, §§ 4, 5; A.S.A. 1947, §§ 70-810, 70-811.

Case Notes

Constructive Termination.

Summary judgment was inappropriate on claims brought under the Arkansas Franchise Practices Act, §§ 4-72-204(a)(1), 4-72-206(6), and 4-72-207(a)(3); significant issues remained as to the damages available to the franchisee and to the defenses the franchisor might be able to raise. Capital Equip., Inc. v. CNH America, LLC, 471 F. Supp. 2d 951 (E.D. Ark. 2006).

Good Cause.

Where there was evidence from which the jury could readily have found that termination of distributorship was attributable to franchisor having acquired a competing bottling company, rather than from the actions of the franchisee, the issue was one for the jury. Dr. Pepper Bottling Co. v. Frantz, 311 Ark. 136, 842 S.W.2d 37 (1992).

Arkansas Franchise Practices Act, § 4-72-201 et seq., applied to protect a beverage distributor from the wrongful termination of its agreement by the manufacturer since the parties clearly contemplated that there would be a “place of business” in Arkansas and the distributor's planned satellite warehouse would have qualified as one under § 4-72-202(6) as it would have had a telephone, forklift, the beverages for distribution, and personnel to run operations; further, the distributor already had an outlet for the beverages in Arkansas with a different beverage manufacturer. S. Beach Bev. Co. v. Harris Brands, Inc., 355 Ark. 347, 138 S.W.3d 102 (2003).

Franchisee was entitled to relief in its action against a franchisor for violation of the Arkansas Franchise Practices Act because under subdivision (a)(1) of this section, neither the market withdrawal of a product nor the withdrawal of a trademark or trade name for a product constituted “good cause” to terminate a franchise. Larry Hobbs Farm Equip., Inc. v. CNH Am., LLC, 375 Ark. 379, 291 S.W.3d 190 (2009).

Cited: Kent Jenkins Sales, Inc. v. Angelo Bros. Co., 804 F.2d 482 (8th Cir. 1986).

4-72-205. Transfer, assignment, or sale of franchise.

  1. It shall be a violation of this subchapter for any franchisee to transfer, assign, or sell a franchise or interest therein to another person unless the franchisee first notifies the franchisor of that intention by written notice, setting forth in the notice of intent the prospective transferee's name, address, statement of financial qualification, and business experience during the previous five (5) years.
    1. The franchisor shall within sixty (60) days after receipt of the notice either approve in writing to the franchisee the sale to the proposed transferee or by written notice advise the franchisee of the unacceptability of the proposed transferee, setting forth a material reason relating to the character, financial ability, or business experience of the proposed transferee.
    2. If the franchisor does not reply within the specified sixty (60) days, his or her approval is deemed granted.
  2. No transfer, assignment, or sale pursuant to this section shall be valid unless the transferee agrees in writing to comply with all of the requirements of the franchise then in effect.

History. Acts 1977, No. 355, § 6; A.S.A. 1947, § 70-812.

4-72-206. Unlawful practices of franchisors.

  1. It is a violation of this subchapter for a franchisor, through an officer, agent, or employee to engage directly or indirectly in any of the following practices:
    1. To require a franchisee at the time of entering into a franchise arrangement to assent to a release, assignment, novation, waiver, or estoppel which would relieve a person from liability imposed by this subchapter;
    2. To prohibit directly or indirectly the right of free association among franchisees for a lawful purpose;
    3. To require or prohibit a change in management of a franchisee unless the requirement or prohibition of change is for a reasonable cause, which cause shall be stated in writing by the franchisor;
    4. To restrict the sale of any equity or debenture issue or the transfer of any security of a franchisee or in any way prevent or attempt to prevent the transfer, sale, or issuance of shares of stock or debentures to employees, personnel of the franchisee, or heirs of the principal owner as long as basic financial requirements of the franchisor are complied with, if the sale, transfer, or issuance does not have the effect of accomplishing a sale of the franchise;
    5. To provide any term or condition in a lease or other agreement ancillary or collateral to a franchise, which term or condition directly or indirectly violates this subchapter;
    6. To refuse to deal with a franchise in a commercially reasonable manner and in good faith; or
    7. To collect a percentage of the franchisee's sales as an advertising fee and not use these funds for the purpose of advertising the business conducted by the franchisee.
  2. A condition, stipulation, or provision requiring the application of the law of another state in lieu of this subchapter is void.

History. Acts 1977, No. 355, § 7; A.S.A. 1947, § 70-813; Acts 2019, No. 835, § 1.

Amendments. The 2019 amendment added (b) and designated the former section as (a); and made stylistic changes.

Case Notes

Commercially Reasonable Manner.

Summary judgment was inappropriate on claims brought under the Arkansas Franchise Practices Act, §§ 4-72-204(a)(1), 4-72-206(6), and 4-72-207(a)(3); significant issues remained as to the damages available to the franchisee and to the defenses the franchisor might be able to raise. Capital Equip., Inc. v. CNH America, LLC, 471 F. Supp. 2d 951 (E.D. Ark. 2006).

Substantial evidence supported the jury's finding that the company refused to deal with its franchise with the distributor in a commercially reasonable manner and in good faith; there was evidence that witnesses knew of the company's plan to force the distributor out of business and that the sale of one franchise to another was executed in furtherance of the company's overall plan to eliminate the distributor as a distributor. Miller Brewing Co. v. Ed Roleson, Jr., Inc., 365 Ark. 38, 223 S.W.3d 806 (2006).

Distributor presented proof demonstrating the existence of a material issue of fact as to whether the brewing company's actions constituted a refusal to deal with a franchise in a commercially reasonable manner and in good faith; it was therefore entitled to submit this claim to a jury. Southeastern Distrib. Co. v. Miller Brewing Co., 366 Ark. 560, 237 S.W.3d 63 (2006).

Duty of Franchisor.

Section 4-1-203 states that every contract imposes an obligation of good faith in the performance of the contract, and to establish a breach of that obligation, the plaintiff must demonstrate that the defendant was not honest in fact and that he acted with a bad motive; similarly, this section requires a franchisor to act in a commercially-reasonable manner and in good faith in its relationship with a franchisee. Southern Implement Co. v. Deere & Co., 122 F.3d 503 (8th Cir. 1997).

Whether franchisor had an obligation, contractual or otherwise, to prevent an unauthorized competitor from operating a facility in plaintiff's franchise region, was a question of fact for the jury. Southern Implement Co. v. Deere & Co., 122 F.3d 503 (8th Cir. 1997).

Cited: Coast-to-Coast Stores, Inc. v. Womack-Bowers, Inc., 818 F.2d 1398 (8th Cir. 1987); Reeder-Simco GMC, Inc. v. Volvo GM Heavy Truck Corp., 374 F.3d 701 (8th Cir. 2004).

4-72-207. Misleading and fraudulent schemes — Penalty — Prosecutions.

  1. It shall be unlawful for any person, directly or indirectly, in connection with the offer, sale, purchase, transfer, or assignment of any franchise in this state to knowingly:
    1. Employ any device, scheme, or artifice to defraud;
    2. Make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; or
    3. Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
  2. Any violation of this section shall be a Class B felony.
  3. Prosecutions for offenses committed in violation of this section must be commenced within five (5) years from the date of the crime or within five (5) years from the date of the commission of the last overt act in furtherance of the scheme to defraud.

History. Acts 1977, No. 355, § 8; A.S.A. 1947, § 70-814.

Cross References. Class B felony, penalty, §§ 5-4-201, 5-4-401.

Case Notes

False or Misleading Statements.

Where “questionnaire” given to prospective distributor by agent of franchisor stated that an exclusive territory would be violative of the Sherman Anti-Trust Act, that there might be other distributors selected or currently established in prospect's area and prospective distributor would be expected to develop sales beyond his immediate area, it could not be held that the agent had made untrue statements or misrepresentations under the Securities Act or the Franchise Practice Act, in order to induce prospect into entering into distributorship agreement. Kern v. Sells Enters., Inc., 271 Ark. 904, 612 S.W.2d 94 (1981).

Fraud.

Projections related to franchise profits are not representations of pre-existing material fact, but are representations related to future events, and absent actual knowledge of falsity, do not constitute fraud. Morrison v. Back Yard Burgers, Inc., 91 F.3d 1184 (8th Cir. 1996).

Summary judgment was inappropriate on claims brought under the Arkansas Franchise Practices Act, §§ 4-72-204(a)(1), 4-72-206(6), and 4-72-207(a)(3); significant issues remained as to the damages available to the franchisee and to the defenses the franchisor might be able to raise. Capital Equip., Inc. v. CNH America, LLC, 471 F. Supp. 2d 951 (E.D. Ark. 2006).

Cited: Coast-to-Coast Stores, Inc. v. Womack-Bowers, Inc., 818 F.2d 1398 (8th Cir. 1987); Arkcom Digital Corp. v. Xerox Corp., 289 F.3d 536 (8th Cir. 2002).

4-72-208. Franchisee's remedies.

  1. Any franchisee who is harmed by a violation or violations of § 4-72-207 shall be entitled to recover treble damages in a civil action and, where appropriate, obtain injunctive relief in addition to reasonable attorney's fees and costs of litigation.
  2. Any franchisee who is harmed by a violation of any other section of this subchapter shall be entitled to recover actual damages in a civil action and, where appropriate, obtain injunctive relief in addition to reasonable attorney's fees and costs of litigation.
  3. In addition to the other remedies provided for in this subchapter, the Attorney General shall have authority to file a petition in the circuit court of the county in which the State Capitol is located, seeking an injunction prohibiting any person, firm, corporation, partnership, or other entity from engaging in any of the practices prohibited by this subchapter. However, nothing shall prohibit the Securities Commissioner from taking appropriate action whenever a franchise constitutes a security under the Arkansas Securities Act, § 23-42-101 et seq.

History. Acts 1977, No. 355, §§ 10, 11; A.S.A. 1947, §§ 70-816, 70-817.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80 §§ 6, 19.

Case Notes

In General.

Distributor failed to present sufficient proof to demonstrate the existence of a material fact on the issue of fraud as, even if the Court accepted as true the distributor's allegation that an executive told another that the brewing company would not approve any prospective purchaser other than the one who bought the distributorship, this was not a false statement of act but, rather, a promise or prediction of future conduct. Southeastern Distrib. Co. v. Miller Brewing Co., 366 Ark. 560, 237 S.W.3d 63 (2006).

Attorney's Fees.

In awarding attorney's fees to a franchisee for the franchiser's wrongful termination of the franchise agreement, the trial court erred by not applying the Chrisco factors in deciding what were reasonable attorney's fees. S. Beach Bev. Co. v. Harris Brands, Inc., 355 Ark. 347, 138 S.W.3d 102 (2003).

Cited: Kent Jenkins Sales, Inc. v. Angelo Bros. Co., 804 F.2d 482 (8th Cir. 1986); Arkcom Digital Corp. v. Xerox Corp., 289 F.3d 536 (8th Cir. 2002); Reeder-Simco GMC, Inc. v. Volvo GM Heavy Truck Corp., 374 F.3d 701 (8th Cir. 2004).

4-72-209. Franchisee's right of repurchase.

Upon termination of any franchise by a franchisor without good cause, the franchisor shall, at the franchisee's option, repurchase at franchisee's net cost, less a reasonable allowance for depreciation or obsolescence, the franchisee's inventory, supplies, equipment, and furnishings purchased by the franchisee from the franchisor or its approved sources; however, no compensation shall be allowed for the personalized items which have no value to the franchisor.

History. Acts 1977, No. 355, § 9; A.S.A. 1947, § 70-815.

Case Notes

Exercise of Remedies.

The Arkansas Franchise Practices Act does not require that the right to the auxiliary remedy of repurchase be exercised only after the right to some initial remedies is exercised, and there is no language implying such a legislative intent. American Std., Inc. v. Miller Eng'g, Inc., 299 Ark. 347, 772 S.W.2d 344 (1989).

Cited: Kent Jenkins Sales, Inc. v. Angelo Bros. Co., 804 F.2d 482 (8th Cir. 1986).

4-72-210. Immunity granted those furnishing information.

No liability on the part of, and no cause of action of any nature other than as provided by this subchapter, shall arise against any franchisor, its officers, agents, or employees furnishing information as to reasons for termination, cancellation, intent not to renew, failure to renew, refusal to do business, or substantial change in competitive circumstances, unacceptability of a proposed transferee or relating to the character, financial ability, or business experience of a proposed transferee, or for statements made or evidence submitted at any hearing or trial conducted in connection therewith.

History. Acts 1977, No. 355, § 12; A.S.A. 1947, § 70-818.

Subchapter 3 — Farm Equipment Retailer Franchise Protection

Effective Dates. Acts 1979, No. 810, § 10: Apr. 10, 1979. Emergency clause provided: “It is hereby found and determined by the General Assembly that the present laws do not clearly prescribe the rights and responsibilities of retailers, wholesalers, manufacturers and distributors of farm implements, machinery, utility and industrial equipment, and parts, when a contract or franchise is terminated; that the absence of a specific law on the subject has created serious hardships in certain cases; that this Act is designed to clearly define the relative rights and responsibilities of parties involved in such matters and should be given effect immediately. Therefore, an emergency is hereby declared to exist and this Act, being necessary for the immediate preservation of the public peace, health, and safety, shall be in full force and effect from and after its passage and approval.”

Acts 1991, No. 996, § 7: Apr. 8, 1991. Emergency clause provided: “It is hereby found and determined by the Seventy-Eighth General Assembly that the present laws are not clear as to the rights and responsibilities of certain retailers of farm equipment when a contract or franchise is terminated; that certain terms should be defined for clarity; that this act is needed to clearly define the rights and responsibilities when terminating a contract or franchise and should be effective immediately. Therefore, an emergency is hereby declared to exist and this act being necessary for the immediate preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

4-72-301. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Current model” means a model listed in the wholesaler's, manufacturer's, or distributor's current sales manual or any supplements thereto;
  2. “Current net price” means the price listed in the wholesaler's, manufacturer's, or distributor's price list or catalogue in effect at the time the contract is canceled or discontinued, less any applicable trade and cash discounts;
  3. “Retailer” means any person, firm, or corporation engaged in the business of selling and retailing farm implements, machinery, utility and industrial equipment, lawn and garden outdoor powered machinery and equipment, attachments, or repair parts but shall not include retailers of petroleum and motor vehicle and related automobile care and replacement products normally sold by those retailers;
  4. “Inventory” means farm implements, machinery, utility and industrial equipment, lawn and garden outdoor powered machinery and equipment, attachments, and repair parts;
  5. “Net cost” means the price the retailer paid for the merchandise to the wholesaler, manufacturer, or distributor, less all applicable discounts allowed;
  6. “Manufacturer, wholesaler, or distributor” means a person, partnership, corporation, association, or other form of business enterprise engaged in the manufacturing, assembly, or wholesale distribution of farm implements, machinery, utility and industrial equipment, lawn and garden outdoor powered machinery and equipment, and attachments. The term also includes any successor in interest of the farm implements, machinery, utility and industrial equipment, lawn and garden outdoor powered machinery and equipment, and attachments manufacturer, including any purchaser of assets or stock, any surviving corporation resulting from merger or liquidation, any receiver or assignee, or any trustee of the original farm implements, machinery, utility and industrial equipment and attachments manufacturer; and
  7. “Dealership agreement” means an oral or written agreement of definite or indefinite duration between a farm implements, machinery, utility and industrial equipment and attachments manufacturer, and a dealer which provides for the rights and obligations of the parties with respect to the purchase or sale of that equipment.

History. Acts 1979, No. 810, § 1; A.S.A. 1947, § 70-819; Acts 1991, No. 996, § 1.

4-72-302. Applicability of subchapter — Subchapter cumulative.

  1. The provisions of this subchapter shall apply to all contracts which have no expiration date and are continuing contracts and all other contracts entered into or renewed after July 1, 1979.
  2. Any contract in force and effect on June 1, 1977, which by its own terms will terminate on a date subsequent thereto, shall be governed by the law as it existed prior to this subchapter.
  3. The provisions of this subchapter shall apply only to inventory purchased after April 10, 1979.
  4. This subchapter is not intended and shall not be construed to repeal any provision of the Arkansas Franchise Practices Act, § 4-72-201 et seq.

History. Acts 1979, No. 810, § 9; A.S.A. 1947, § 70-826n.

4-72-303. Security interests unaffected by subchapter — Bulk sales law inapplicable.

The provisions of this subchapter shall not be construed to affect in any way any security interest which the wholesaler, manufacturer, or distributor may have in the inventory of the retailer, and any repurchase under the provisions of this subchapter shall not be subject to the provisions of the bulk sales law. The retailer, wholesaler, manufacturer, or distributor may furnish a representative to inspect all parts and certify their acceptability when packed for shipment.

History. Acts 1979, No. 810, § 8; A.S.A. 1947, § 70-826.

4-72-304. Wholesaler, manufacturer, or distributor to repurchase undamaged goods and cover cost of return.

  1. The wholesaler, manufacturer, or distributor shall repurchase that inventory previously purchased from him or her and held by the retailer on the date of termination of the contract.
  2. The wholesaler, manufacturer, or distributor shall pay one hundred percent (100%) of the net cost of all new, unsold, undamaged, and complete farm implements, machinery, utility and industrial equipment, and attachments, and one hundred percent (100%) of the current net price of all new, unused, and undamaged repair parts.
    1. The wholesaler, manufacturer, or distributor shall pay the retailer five percent (5%) of the current net price on all new, unused, and undamaged repair parts returned to cover the cost of handling, packing, and loading.
    2. The wholesaler, manufacturer, or distributor shall have the option of performing the handling, packing, and loading in lieu of paying the five percent (5%) for these services.

History. Acts 1979, No. 810, § 3; A.S.A. 1947, § 70-821.

Case Notes

Applicability.

Circuit court properly concluded that a retailer had sufficiently stated a claim under the Arkansas Farm Equipment Retailer Franchise Protection Act where the retailer asserted a violation under this section, not § 4-72-309, and thus, it was not required to allege that it shipped the inventory back to the mower distributor. R.W. Distribs., Inc. v. Texarkana Tractor Co., 2018 Ark. App. 345, 553 S.W.3d 187 (2018).

Allegations Sufficient.

Retailer's allegations that it had obtained a number of mowers from the distributor for sale in its facilities, it had not sold the items, it demanded that the distributor take the items back pursuant to this section, and the distributor refused to repurchase the goods were sufficient to state a claim. R.W. Distribs., Inc. v. Texarkana Tractor Co., 2018 Ark. App. 345, 553 S.W.3d 187 (2018).

Retailer's allegations that the distributor had provided the equipment within the past 24 months and the retailer had not sold them were sufficient to allege that the inventory was new, unsold, undamaged, and complete. R.W. Distribs., Inc. v. Texarkana Tractor Co., 2018 Ark. App. 345, 553 S.W.3d 187 (2018).

4-72-305. Retailer's option on merchandise at termination of franchise.

Whenever any retailer enters into a franchise agreement, evidenced by a written contract with a wholesaler, manufacturer, or distributor wherein the retailer agrees to maintain an inventory, and the contract is terminated, then the wholesaler, manufacturer, or distributor shall repurchase the inventory as provided in this subchapter. The retailer may keep the inventory if he or she desires. If the retailer has any outstanding debts to the wholesaler, manufacturer, or distributor, then the repurchase amount may be credited to the retailer's account.

History. Acts 1979, No. 810, § 2; A.S.A. 1947, § 70-820.

4-72-306. Death of retailer equivalent to termination.

  1. In the event of the death of the retailer or the majority stockholder of a corporation operating as a retailer, the wholesaler, manufacturer, or distributor shall, at the option of the heir or heirs, repurchase the inventory from the heir or heirs of the retailer or majority stockholder as if the wholesaler, manufacturer, or distributor had terminated the contract. The heir or heirs shall have one (1) year from the date of the death of the retailer or majority stockholder to exercise their options under this subchapter.
  2. Nothing in this subchapter shall require the repurchase of any inventory if the heir or heirs and the wholesaler, manufacturer, or distributor enter into a new contract to operate the retail dealership.

History. Acts 1979, No. 810, § 7; A.S.A. 1947, § 70-825.

4-72-307. Inventory not required to be repurchased.

The provisions of this subchapter shall not require the repurchase from a retailer of:

  1. Any repair part which has a limited storage life or is otherwise subject to deterioration, such as rubber items, gaskets, or batteries;
  2. Any repair part which is in a broken or damaged package;
  3. Any single repair part which is priced as a set of two (2) or more items;
  4. Any repair part which because of its condition is not resalable as a new part without repackaging or reconditioning;
  5. Any inventory for which the retailer is unable to furnish satisfactory evidence to the wholesaler, manufacturer, or distributor of clear title, free and clear of all claims, liens, and encumbrances;
  6. Any inventory which the retailer desires to keep, provided the retailer has a contractual right to do so;
  7. Any farm implements, machinery, utility and industrial equipment, lawn and garden outdoor powered machinery and equipment, and attachments which are not current models or which are not in new, unused, undamaged, complete condition;
  8. Any repair parts which are not in new, unused, undamaged condition;
  9. Any farm implements, machinery, utility and industrial equipment, lawn and garden outdoor powered machinery and equipment, or attachments which were purchased twenty-four (24) months or more prior to notice of termination of the contract;
  10. Any inventory which was ordered by the retailer on or after the date of notification of termination of the contract; or
  11. Any inventory which was acquired by the retailer from any source other than the wholesaler, manufacturer, or distributor.

History. Acts 1979, No. 810, § 5; A.S.A. 1947, § 70-823; Acts 1991, No. 996, § 2.

4-72-308. Title and possession of inventory.

Upon payment of the repurchase amount to the retailer, the title and right of possession to the repurchased inventory shall transfer to the wholesaler, manufacturer, or distributor.

History. Acts 1979, No. 810, § 4; A.S.A. 1947, § 70-822.

4-72-309. Liability for failure to repurchase.

If any wholesaler, manufacturer, or distributor fails or refuses to repurchase any inventory covered under the provisions of this subchapter within sixty (60) days after shipment of the inventory, he or she shall be civilly liable for one hundred percent (100%) of the current net price of the inventory, plus any freight charges paid by the retailer, the retailer's attorney's fees, court costs, and interest on the current net price computed at the legal interest rate from the sixty-first day after shipment.

History. Acts 1979, No. 810, § 6; A.S.A. 1947, § 70-824.

Case Notes

Applicability.

Circuit court properly concluded that a retailer had sufficiently stated a claim under the Arkansas Farm Equipment Retailer Franchise Protection Act where the retailer asserted a violation under § 4-72-304, not this section, and thus, it was not required to allege that it shipped the inventory back to the mower distributor. R.W. Distribs., Inc. v. Texarkana Tractor Co., 2018 Ark. App. 345, 553 S.W.3d 187 (2018).

4-72-310. Violations.

  1. It is a violation of this subchapter for a manufacturer, wholesaler, or distributor to coerce a dealer to accept delivery of parts, accessories, or specialized tools which the dealer has not voluntarily ordered.
  2. It is a violation of this subchapter for a manufacturer to:
      1. Condition or attempt to condition the sale of farm implements, machinery, utility and industrial equipment, lawn and garden outdoor powered machinery and equipment, and attachments on a dealer also purchasing other goods or services, except that a manufacturer may require the dealer to purchase those parts reasonably necessary to maintain the quality of operation in the field of the equipment used in the trade area and to purchase or lease such telecommunication equipment, including computer software, as is substantially and reasonably necessary to communicate with the manufacturer.
      2. Provided, however, that upon termination, nonrenewal, or cancellation of an equipment dealer franchise, the equipment manufacturer must reimburse the equipment dealer for all telecommunications equipment, including computer software, purchased by the equipment dealer in order to comply with the requirements of the equipment manufacturer that the dealer returns or offers to return to the equipment manufacturer, subject to a reasonable reduction for depreciation;
    1. Coerce or attempt to coerce a dealer into refusing to purchase the equipment manufactured by another equipment manufacturer;
      1. Discriminate in the prices charged for equipment of like grade and quality sold by the equipment manufacturer to similarly situated equipment dealers.
      2. This does not prevent the use of volume discount or a differential which makes only due allowance for differences in the cost of manufacture, sale, or delivery, or for the differing methods by which or quantities in which the equipment is sold or delivered by the equipment manufacturer; or
    2. Attempt or threaten to terminate, cancel, fail to renew, or substantially change the competitive circumstances of the dealership agreement based on the result of a natural disaster, including a sustained drought in the dealership market area, labor dispute, or other circumstances beyond the dealer's control.

History. Acts 1991, No. 996, § 3.

Case Notes

Applicability.

Franchisee was not entitled to relief under subdivision (b)(4) of this section from a franchisor for termination of the parties' franchise agreement because actual termination, cancellation, failure to renew, or substantially changing the circumstances of a dealership agreement were not addressed in subdivision (b)(4). Larry Hobbs Farm Equip., Inc. v. CNH Am., LLC, 375 Ark. 379, 291 S.W.3d 190 (2009).

No liability under subdivision (b)(4) of this section is created when a manufacturer terminates, cancels, fails to renew, or substantially changes the competitive circumstances of a dealership agreement based on re-branding of the product or ceasing to use a particular trade name or trademark for a product while selling it under a different trade name or trademark. Larry Hobbs Farm Equip., Inc. v. CNH Am., LLC, 375 Ark. 379, 291 S.W.3d 190 (2009).

Natural Disaster.

While the law includes “labor disputes” as natural disasters and “other circumstances beyond the dealer's control” is rather broad, defendant's business relationship with plaintiff's unauthorized competitor did not qualify as a natural disaster for the purposes of subdivision (b)(4) of this section. Southern Implement Co. v. Deere & Co., 122 F.3d 503 (8th Cir. 1997).

4-72-311. Warranties.

  1. This section applies to a warranty claim submitted by a dealer.
    1. Claims filed for payment under warranty agreements shall either be approved or disapproved within thirty (30) days of receipt by a manufacturer, wholesaler, or distributor.
    2. All claims for payment shall be paid within thirty (30) days of their approval.
      1. If a claim is disapproved, the manufacturer, wholesaler, or distributor shall notify the dealer within thirty (30) days stating the specific grounds upon which the disapproval is based.
      2. If a claim is not specifically disapproved within thirty (30) days of receipt, it shall be deemed approved and payment by the manufacturer, wholesaler, or distributor shall follow within thirty (30) days.
    3. If, after termination of a contract, the dealer submits a claim to the manufacturer, wholesaler, or distributor for warranty work performed prior to the effective date of the termination, the manufacturer, wholesaler, or distributor shall accept or reject the claim within thirty (30) days of receipt.
    4. If a claim is not paid within the time allowed under this subsection, interest shall accrue at the maximum lawful interest rate.
      1. Warranty work performed by the dealer shall be compensated in accordance with the reasonable and customary amount of time required to complete the work, expressed in hours and fractions of hours.
      2. The time shall be multiplied by the dealer's established customer hourly retail labor rate, which shall have previously been made known to the manufacturer, wholesaler, or distributor.
    1. Expenses expressly excluded under the warranty of the manufacturer, wholesaler, or distributor to the customer shall not be included nor required to be paid on requests for compensation from the dealer for warranty work performed.
      1. All parts used by the dealer in performing the warranty work shall be paid to the dealer in the amount equal to the dealer's net price for the parts, plus a minimum of fifteen percent (15%).
      2. The additional amount is to reimburse the dealer for reasonable costs of doing business in performing the warranty service on behalf of the manufacturer, wholesaler, or distributor, including, but not limited to, freight and handling costs incurred.
    2. The manufacturer, wholesaler, or distributor has the right to adjust compensation for errors discovered during audit, and if necessary, to adjust claims paid in error.
  2. The dealer shall have the right to accept the reimbursement terms and conditions of the manufacturer, wholesaler, or distributor in lieu of the terms and conditions of this section.

History. Acts 2001, No. 633, § 1.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Business Law, 24 U. Ark. Little Rock L. Rev. 407.

Subchapter 4 — Petroleum Products Suppliers and Distributors

Effective Dates. Acts 1975, No. 470, § 6: Mar. 19, 1975. Emergency clause provided: “It is hereby found and determined by the General Assembly that it is essential to the best interests of the consumers of petroleum products in this State, and to the best interest of petroleum products distributors that the supply of petroleum products be stable; that appropriate legislation should be enacted immediately to prohibit the indiscriminate and arbitrary cancellation of petroleum products franchises of distributors; that this Act is designed to accomplish this purpose, and should be given effect immediately. Therefore, an emergency is hereby declared to exist and this Act being necessary for the immediate preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

4-72-401. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Petroleum products supplier” means and includes any person, firm, corporation, subsidiary company, or other business entity engaged in the business of manufacturing, producing, or refining of petroleum products for sale or consignment to a petroleum products distributor;
  2. “Petroleum products distributor” means and includes any person, firm, corporation, or other business entity engaged in the business of selling petroleum products at wholesale as a jobber, distributor, consignee, agent, or in any other capacity; and
  3. “Franchise” means any agreement or contract between a petroleum products supplier and a petroleum products distributor whereby the supplier agrees to furnish or supply petroleum products to the distributor and the distributor agrees to purchase or accept on consignment or otherwise receive petroleum products from the supplier for sale at wholesale.

History. Acts 1975, No. 470, § 1; A.S.A. 1947, § 53-1001.

4-72-402. Franchise — Cancellation or termination.

  1. A petroleum products supplier shall not cancel, or otherwise terminate, a franchise with a petroleum products distributor, except for such specific reasons as shall be prescribed in the franchise.
    1. If a petroleum products supplier proposes to cancel, fail to renew, or otherwise terminate a franchise with any distributor, he or she shall so notify the distributor by certified mail at least six (6) months prior to the date on which he or she proposes to cancel, fail to renew, or terminate the franchise.
    2. The notice shall include a statement of the grounds upon which the supplier bases his or her right to cancel or terminate the franchise.
  2. Only the following matters shall be included in the franchise as grounds for a petroleum products supplier to cancel or terminate the franchise of a petroleum products distributor:
    1. Criminal misconduct or willful violation of law relating to the business or premises of the supplier;
    2. Fraud;
    3. Failure of the distributor to pay taxes and to obtain and maintain all licenses, permits, and other authority necessary to conduct business as a distributor;
    4. Abandonment or unattendance of the business or premises of the supplier for such a period of time as may be specified in the franchise;
    5. Bankruptcy or insolvency of the distributor;
    6. The failure by the distributor to pay the supplier for petroleum products purchased or received on consignment from the supplier within the time and in the manner prescribed in the franchise;
    7. Nonpayment of rent or the loss by the refiner of its legal right to grant a distributor possession of the leased premises at which the business is located, if applicable, in which case, the supplier may terminate a distributor's marketing agreement upon a thirty-day notice of intent to terminate the agreement;
    8. Death or incapacity of the distributor or the termination or dissolution of a partnership or corporation;
    9. Adulteration or misrepresentation of products, provided that adulteration or misrepresentation which results from accident or circumstance beyond the control of the distributor shall not be grounds for termination;
    10. Force majeure, condemnation, or other public taking; or
    11. Failure of the distributor to substantially comply with any reasonable provisions of any lease agreement on bulk plant property between the supplier as lessor and the distributor as lessee.
  3. However, if a distributor violates subdivisions (c)(1), (2), or (4)-(6) of this section, the supplier having the right to terminate the marketing agreement may immediately terminate the agreement.

History. Acts 1975, No. 470, § 2; A.S.A. 1947, § 53-1002.

4-72-403. Remedies for cancellation, termination, etc., of contract.

If any petroleum products supplier shall cancel or otherwise terminate any franchise in violation of the provisions of this subchapter, the petroleum products distributor whose franchise is cancelled, or otherwise terminated, shall have a cause of action against the petroleum products supplier for specific performance, injunctive relief, or for actual damages sustained by the plaintiff as a result of the termination of the franchise, including ascertainable loss of good will as a result of the termination of the franchise. However, any action brought by a petroleum products distributor against a supplier for wrongful termination of a franchise shall be commenced within two (2) years after the wrongful termination.

History. Acts 1975, No. 470, § 3; A.S.A. 1947, § 53-1003.

Subchapter 5 — Petroleum Products Suppliers, Dealers, and Distributors

Effective Dates. Acts 1975, No. 471, § 6: Mar. 19, 1975. Emergency clause provided: “It is hereby found and determined by the General Assembly that it is essential to the best interests of the consumers of petroleum products in this State, and to the best interests of petroleum products dealers that the supply of petroleum products be stable; that appropriate legislation should be enacted immediately to prohibit the indiscriminate and arbitrary cancellation of petroleum products franchises of dealers; that this Act is designed to accomplish this purpose, and should be given effect immediately. Therefore, an emergency is hereby declared to exist and this Act being necessary for the immediate preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

4-72-501. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Petroleum products supplier” means and includes any person, firm, corporation, subsidiary company, or other business entity engaged in the business of manufacturing, producing, or refining of petroleum products for sale or consignment to a petroleum products dealer;
  2. “Petroleum products dealer” means and includes any person, firm, corporation, or other business entity engaged in the business of selling petroleum products at retail;
  3. “Petroleum products distributor” means and includes any person, firm, corporation, or other business entity engaged in the business of selling petroleum products at wholesale as a jobber, distributor, consignee, agent, or in any other capacity; and
  4. “Franchise” means any agreement or contract between a petroleum products supplier or a petroleum products distributor and a petroleum products dealer whereby the supplier or distributor agrees to furnish or supply petroleum products to the dealer and the dealer agrees to purchase or accept on consignment or otherwise receive petroleum products from the supplier or distributor for retail sale.

History. Acts 1975, No. 471, § 1; A.S.A. 1947, § 53-1101.

4-72-502. Franchise — Cancellation or termination.

  1. A petroleum products supplier or a petroleum products distributor shall not cancel, refuse to renew, or otherwise terminate a franchise with a petroleum products dealer except as prescribed in this section.
    1. If a petroleum products supplier or a petroleum products distributor proposes to cancel, to fail to renew, or to otherwise terminate a franchise with any petroleum products dealer, he shall so notify the dealer by certified mail at least thirty (30) days prior to the date on which he proposes to cancel, to fail to renew, or to terminate the franchise.
    2. The notice shall include a statement of the grounds upon which the supplier or distributor bases his right to cancel, refuse to renew, or terminate the franchise.
  2. Only the following matters shall be included in the franchise as grounds for a petroleum products supplier or petroleum products distributor to cancel or terminate the franchise of a petroleum products dealer:
    1. Criminal misconduct or violation of law relating to the business or premises of the dealer;
    2. Fraud;
    3. Failure of the dealer to pay taxes and to obtain and maintain all licenses, permits, and other authority necessary to conduct business as a dealer;
    4. Abandonment or unattendance of the business or premises of the dealer for such period of time as may be specified in the franchise;
    5. Bankruptcy or insolvency of the dealer;
    6. The failure by the dealer to pay the supplier or distributor for petroleum products purchased or received on consignment from the supplier or distributor within the time and in the manner prescribed in the franchise;
    7. Nonpayment of rent or the loss by the refiner or distributor of its legal right to grant a dealer possession of the leased premises at which the business is located;
    8. Death or incapacity of the dealer or the termination or dissolution of a partnership or corporation;
    9. Adulteration or misrepresentation of products;
    10. Force majeure, condemnation, or other public taking; or
    11. Failure to comply with the provisions of the marketing agreement regarding the responsibility of the dealer to maintain the premises in a safe, clean, and attractive condition.
  3. However, if a dealer abandons the business or premises for a period of time specified in the marketing agreement or violates one (1) or more provisions of subdivisions (c)(1)-(9) of this section, the supplier or distributor having the right to terminate the marketing agreement may do so immediately.
  4. A petroleum products supplier or distributor may not fail to renew a franchise unless:
    1. One (1) or more provisions of subsection (c) of this section are met; or
    2. The supplier or distributor and the dealer fail to agree to reasonable changes or reasonable additions to the terms of the franchise; or
    3. The supplier or distributor withdraws from the sale of motor fuels for sale other than resell in the state, one (1) or more counties thereof, or metropolitan areas; or
    4. The supplier or distributor intends to relinquish ownership or leasehold interest in the real estate premises on which the dealer conducts business; however, where two (2) or more separate noncontiguous real estate premises are involved, the franchise shall not be renewed as to the operations of the franchise related to the premises to be relinquished; or
    5. The real estate premises are to be used for purposes other than the sale or distribution of motor fuels; or
    6. The supplier or distributor intends to materially alter, add to, or replace improvements on the real estate premises; or
    7. The supplier or distributor received repeated consumer complaints concerning the conduct of a dealer's operation of a retail outlet; or
    8. The supplier and dealer agree to mutually terminate the franchise.

History. Acts 1975, No. 471, § 2; A.S.A. 1947, § 53-1102.

4-72-503. Remedies for cancellation, termination, etc., of franchise.

  1. If any petroleum products supplier or distributor cancels, refuses to renew, or otherwise terminates any franchise in violation of the provisions of this subchapter, the petroleum products dealer whose franchise is cancelled, not renewed, or otherwise terminated shall have a cause of action against the petroleum products supplier or petroleum products distributor for specific performance or injunctive relief, or for actual damages sustained by the plaintiff, as a result of the termination of the franchise, including ascertainable loss of goodwill as a result of the termination of the franchise.
  2. However, any action brought by a petroleum products dealer against a supplier or distributor for wrongful termination of a franchise shall be commenced within two (2) years after the wrongful termination.

History. Acts 1975, No. 471, § 3; A.S.A. 1947, § 53-1103.

Subchapter 6 — Procedural Fairness for Restaurant Franchisees

Research References

Am. Jur. 62B Am. Jur. 2d, Priv. Fran. Cont., §§ 2, 3, 5, 756-891.

4-72-601. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Franchisee” means a person to whom a restaurant franchise is granted;
  2. “Franchisor” means a person who grants or has granted a restaurant franchise; and
  3. “Restaurant franchise” means a contract or agreement, either express or implied, whether oral or written, between two (2) or more persons, by which:
    1. A franchisee is granted the right to engage in the business of offering, selling, or distributing food or beverages intended or suitable for immediate consumption on or off the premises of the franchisee under a marketing plan or system prescribed in substantial part by a franchisor; and
    2. Operation of the franchisee's business pursuant to that plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate; and
    3. The franchisee pays or is required to pay, directly or indirectly, a franchise fee.

History. Acts 1993, No. 310, § 1.

4-72-602. Commencement of civil action or arbitration proceeding.

  1. A party to a restaurant franchise may commence a civil action or, if the restaurant franchise allows or compels arbitration of disputes, may initiate an arbitration proceeding, including an action or proceeding for violation of this subchapter, in Arkansas if either party to the restaurant franchise is a resident of Arkansas.
  2. Such action may be brought or arbitration initiated in the county in which the franchised restaurant is located or expected to be located or in which the principal place of business of the franchisee or franchisor is located.

History. Acts 1993, No. 310, § 2.

Research References

ALR.

Breach of Contract with Respect to Restaurant Franchise Agreements. 14 A.L.R.7th Art. 3 (2015).

4-72-603. Applicability.

  1. This subchapter applies to a restaurant franchise operated in whole or in part in Arkansas and to the parties to the restaurant franchise.
  2. This subchapter may not be waived, and its application to a restaurant franchise or a party to a restaurant franchise may not be avoided, in whole or in part by agreement or by conduct, except as part of a settlement of a bona fide dispute.
  3. Neither a franchisee nor a franchisor shall be deprived of the application and benefits of this subchapter by a provision of a franchise purporting to designate the law of another jurisdiction as governing or interpreting the franchise, or to designate a venue outside of Arkansas for the resolution of disputes.
  4. To the extent permitted by the Constitution of the United States and the Constitution of the State of Arkansas, this subchapter is intended to apply to franchises granted, transferred, renewed, amended, replaced, or in existence on and after August 13, 1993.

History. Acts 1993, No. 310, §§ 3, 4.

Chapter 73 Sales and Exhibitions of Art

Subchapter 1 — General Provisions

[Reserved]

Subchapter 2 — Artists' Consignment Act

Cross References. Uniform Commercial Code, consignment sales provision not applicable, § 4-2-326.

Uniform Commercial Code, secured transactions, §§ 4-9-1014-9-709.

Research References

Ark. L. Rev.

Note, Simmons First National Bank v. Wells: An Interpretation of the Uniform Commercial Code's Consignment Rule, 37 Ark. L. Rev. 312.

4-73-201. Title.

This subchapter may be cited as the “Artists' Consignment Act”.

History. Acts 1983, No. 820, § 1; A.S.A. 1947, § 68-1806.

4-73-202. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Art” means a painting, sculpture, drawing, work of graphic art, pottery, weaving, batik, macrame, quilt, or other commonly recognized art form;
  2. “Artist” means the creator of a work of art or, if he or she is deceased, his or her estate;
  3. “Art dealer” means a person engaged in the business of selling works of art; and
  4. “On consignment” means that no title to, or estate in, the goods or right to possession thereof superior to that of the consignor vests in the consignee, notwithstanding the consignee's power or authority to transfer and convey all of the right, title, and interest of the consignor in and to such goods to a third person.

History. Acts 1983, No. 820, § 2; A.S.A. 1947, § 68-1807.

4-73-203. Applicability of subchapter.

This subchapter shall not apply to any contract or arrangement in existence prior to July 4, 1983, nor to any extensions or renewals thereof; except that the parties to such contract or arrangement may thereafter elect to be governed by the provisions of this subchapter.

History. Acts 1983, No. 820, § 6; A.S.A. 1947, § 68-1811.

4-73-204. Liability of art dealer for violation of subchapter.

A violation by an art dealer of any of the provisions of this subchapter shall render the art dealer liable for damages to the artist in an amount equal to fifty dollars ($50.00) plus the actual damages sustained by the artist, including incidental and consequential damages. In such actions, reasonable attorney's fees and court costs shall be paid to the prevailing party.

History. Acts 1983, No. 820, § 5; A.S.A. 1947, § 68-1810.

4-73-205. Waiver of subchapter's provisions void.

Any provision, whether oral or written, in or pertaining to the placing of a work of fine art on consignment whereby any provision of this subchapter is waived shall be deemed to be against public policy and shall be void.

History. Acts 1983, No. 820, § 6; A.S.A. 1947, § 68-1811.

4-73-206. Consigned artworks exempt from liens and security interests.

A work of art delivered to an art dealer for the purpose of exhibition or sale and the proceeds from the sale of the work by the dealer, whether to the dealer on his or her own account or to a third person, are not subject to the claims, liens, or security interests of the creditors of the art dealer, notwithstanding any law to the contrary.

History. Acts 1983, No. 820, § 3; A.S.A. 1947, § 68-1808.

4-73-207. Delivery of work of fine art for exhibition or sale — Effects — Liability of dealer for damage or loss.

Notwithstanding any custom, practice, or usage of the trade or any provision of law to the contrary:

  1. Whenever an artist delivers or causes to be delivered a work of fine art of his or her own creation to an art dealer for the purpose of exhibition or sale on a commission, fee, or other basis of compensation, the delivery to, and acceptance thereof by, the art dealer is deemed to place the work on consignment; and:
    1. The art dealer shall thereafter, with respect to the work, be deemed to be the agent of such artist;
    2. The work is trust property in the hands of the consignee for the benefit of the consignor; and
    3. Any proceeds from the sale of the work are trust funds in the hands of the consignee for the benefit of the consignor;
  2. Notwithstanding the subsequent purchase of a work of fine art by the consignee directly or indirectly for his or her own account, the work initially received on consignment shall be deemed to remain trust property until the price is paid in full to the consignor. If the work is thereafter resold to a bona fide third party before the consignor has been paid in full, the proceeds of the resale are trust funds in the hands of the consignee for the benefit of the consignor to the extent necessary to pay any balance still due to the consignor, and the trusteeship shall continue until the fiduciary obligation of the consignee with respect to the transaction is discharged in full; and
  3. Notwithstanding any law to the contrary, no such trust property or trust funds shall be subject to or subordinate to any claims, liens, or security interests of the consignee's creditors;
    1. An art dealer is liable for negligent acts causing the loss of or damage to a work of fine art while it is in his possession.
    2. The value of the work of fine art is, for the purposes of this subdivision (4), the value established in a written agreement between the artist and the art dealer prior to the loss or damage of the work or, if no written agreement regarding the value of the work exists, the fair market value of the work less the art dealer's commission or fee.

History. Acts 1983, No. 820, § 4; A.S.A. 1947, § 68-1809.

Subchapter 3 — Sales of Fine Prints

4-73-301. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Artist” means the person who conceived or created or conceived and created the master image for, or which served as a model for, the print;
    1. “Fine print” includes, but is not limited to, an engraving, etching, woodcut, lithograph, monoprint, or serigraph;
    2. A fine print is “signed” if the artist autographs the finished print, irrespective of whether it was signed or unsigned in the plate;
  2. “Impression” means the printed image on suitable material, whether paper or any other substance, made off the plate by printing, stamping, casting, or any other process commonly used in the graphic arts;
  3. “Plate” means the plate, stone, block, or other material used for the purpose of creating the print from which the impression or impressions were taken; and
  4. “Reproduction” means a copy of an original print made by a commercial mechanical process, but not a unique print made from the original plate.

History. Acts 1983, No. 819, § 1; A.S.A. 1947, § 68-1801.

4-73-302. Applicability of subchapter.

This subchapter applies only to fine prints printed after July 4, 1983.

History. Acts 1983, No. 819, § 4; A.S.A. 1947, § 68-1804.

4-73-303. Liability of seller for violation of subchapter.

  1. A person who offers or sells a fine print in violation of this subchapter shall be liable to the person purchasing the fine print. The purchaser may recover the consideration paid for the print with interest at the legal rate upon the tender of the print.
  2. In any case in which a person willfully offers or sells a fine print in violation of this subchapter, the person purchasing the fine print may recover from the person who offers or sells the fine print an amount equal to three (3) times the amount required under subsection (a) of this section.

History. Acts 1983, No. 819, § 5; A.S.A. 1947, § 68-1805.

4-73-304. Certificate of information to be furnished purchaser.

  1. No person engaged in the business of selling fine prints shall sell a fine print, at wholesale or at retail, unless the person furnishes the purchaser a certificate or a written invoice or receipt for the purchase price which clearly and conspicuously discloses and warrants all of the applicable information about a fine print set forth in § 4-73-305.
  2. If the seller disclaims knowledge as to any applicable item of information set forth in § 4-73-305, the seller shall so state specifically and categorically with regard to each such item.
  3. If the seller describes a fine print as a reproduction, the seller need not furnish any further information, unless the edition was allegedly published in a signed, numbered, or limited edition, or any combination thereof, in which case all of the informational details are required to be furnished.

History. Acts 1983, No. 819, § 2; A.S.A. 1947, § 68-1802.

4-73-305. Information required on certificate.

The following information about a fine print shall be furnished as provided in § 4-73-304:

  1. The name of the artist and the year when printed;
  2. Exclusive of trial proofs, whether the edition is being offered as a limited edition, and, if so:
    1. The authorized maximum number of signed or numbered impressions, or both, in the edition;
    2. The authorized maximum number of unsigned or unnumbered impressions, or both, in the edition;
    3. The authorized maximum number of artist's, publisher's, printer's, or other proofs, if any, outside of the regular edition; and
    4. The total size of the edition;
  3. Whether the plate has been destroyed, effaced, altered, defaced, or cancelled after the current edition;
  4. If there were any prior states of the same impression, the total number of states, and a designation of the state to which the subject print relates;
  5. If there were any prior or later editions from the same plate, the series number of the subject edition, and the total size of all other editions;
  6. Whether the edition is a posthumous edition or restrike and, if so, whether the plate has been reworked; and
  7. The name of the workshop, if any, where the edition was printed.

History. Acts 1983, No. 819, § 3; A.S.A. 1947, § 68-1803.

Chapter 74 Going-Out-of-Business Sales

4-74-101. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Going-out-of-business sale” means and includes all sales advertised, represented, or held under the designation of “going out of business”, “discontinuance of business”, “selling out”, “closing out”, “liquidation”, “lost our lease”, “must vacate”, “forced out”, or any other designation of similar meaning; and
  2. “Person” means any individual, corporation, partnership, association, or other entity.

History. Acts 1983, No. 297, § 1; A.S.A. 1947, § 71-5501.

4-74-102. Penalty.

Any person conducting a going-out-of-business sale contrary to the provisions of this chapter who shall fail or refuse to comply with the requirements of this chapter or who shall violate any provision of this chapter shall be guilty of a Class A misdemeanor.

History. Acts 1983, No. 297, § 8; A.S.A. 1947, § 71-5508.

4-74-103. Sales excepted from chapter.

The provisions of this chapter shall not be applicable to any sale of goods, wares, or merchandise pursuant to any court order or direction nor to the sale of any goods, wares, or merchandise by any sheriff or other public official in the course of his or her official duties.

History. Acts 1983, No. 297, § 9; A.S.A. 1947, § 71-5509.

4-74-104. Enforcement of chapter.

It is the duty of the sheriff and other law enforcement officers in each county and the prosecuting attorney for each county to enforce the provisions of this chapter.

History. Acts 1983, No. 297, § 10; A.S.A. 1947, § 71-5510.

4-74-105. License requirement.

No person shall advertise or offer for sale a stock of goods, wares, or merchandise as a going-out-of-business sale unless that person has first obtained a license to conduct the sale from the county clerk of the county in which he or she proposes to conduct the sale.

History. Acts 1983, No. 297, § 2; A.S.A. 1947, § 71-5502.

4-74-106. Application for license.

  1. The application for the license shall be in writing and under oath and shall be filed with the clerk at least fourteen (14) days prior to the opening date of the proposed sale.
  2. The application shall show all the facts relating to the reasons and character of the sale, including the opening and closing dates of the proposed sale.
  3. The application for a license to conduct a going-out-of-business sale shall be accompanied by a fee of two hundred fifty dollars ($250). However, if the applicant has been in business for a period of at least one (1) year at the location where the proposed going out of business sale is to be conducted, the license fee shall be twenty-five dollars ($25.00).

History. Acts 1983, No. 297, §§ 2, 3; A.S.A. 1947, §§ 71-5502, 71-5503.

4-74-107. Bond.

  1. The application shall also be accompanied by a cash bond or a corporate surety bond in the amount of two thousand dollars ($2,000) or five percent (5%) of the wholesale value of the goods proposed to be offered at the sale, whichever is lesser, and shall be in favor of the State of Arkansas.
  2. The proceeds of the bond shall be available to assure compliance with the provisions of this chapter and the payment of any and all taxes due the State of Arkansas or any political subdivision of the state as the result of the sale and shall also be available to satisfy any judgment which may be rendered against the merchant in favor of any purchaser of goods, wares, or merchandise at the sale based upon the sale of such merchandise, and which judgment is rendered pursuant to an action which is filed within one (1) year after the date on which the going-out-of-business sale is completed.
  3. The bond shall be maintained for at least one (1) year and shall be released by the clerk only upon proof being submitted by the licensee that the licensee has complied with all provisions of this chapter, has paid all taxes and penalties due the State of Arkansas or any political subdivision thereof, and that all judgments, if any, rendered against the applicant as a result of the sale have been paid and that no action is pending against the licensee as a result of the sale.

History. Acts 1983, No. 297, § 3; A.S.A. 1947, § 71-5503.

4-74-108. Duration of license — Extension — Display.

    1. Each license issued for the conduct of a going-out-of-business sale shall be valid for a period of sixty (60) days, but the county clerk may extend the license for an additional period, not to exceed thirty (30) days, upon proof by the licensee that the licensee has been unable to complete the sale within the sixty-day period.
    2. If the county clerk grants an extension, the clerk shall issue a new license certificate.
  1. A person licensed under this chapter to conduct a going-out-of-business sale shall post a copy of the license certificate on each entrance door to the business.

History. Acts 1983, No. 297, § 5; A.S.A. 1947, § 71-5505; Acts 2007, No. 348, § 1.

Amendments. The 2007 amendment added “Display” to the section heading; and added (a)(2) and (b) and made related change.

4-74-109. Clerk's duties — Forms for applications and licenses.

    1. The county clerk in each county shall design and cause to be printed appropriate forms for applications for licenses and for the license certificates to be issued to applicants under this chapter.
    2. The license certificate shall prominently display the beginning date and the ending date of the going-out-of-business sale.
  1. The county clerk to whom application is made for a license under the provisions of this chapter shall preserve such application and all information accompanying the application for a period of one (1) year from the date the license is issued.

History. Acts 1983, No. 297, § 4; A.S.A. 1947, § 71-5504; Acts 2007, No. 348, § 2.

Amendments. The 2007 amendment added (a)(2) and made a related change.

4-74-110. Seller may not continue business after sale.

A person conducting a going-out-of-business sale licensed under the provisions of this chapter shall not, upon conclusion of the sale, continue to conduct a similar business at the same location or address at which the going-out-of-business sale was conducted.

History. Acts 1983, No. 297, § 6; A.S.A. 1947, § 71-5506.

4-74-111. False representation concerning sale unlawful.

  1. It is unlawful for any person, firm, corporation, association, or other business entity to falsely represent that the person or entity is going out of business or for any person or entity to misrepresent the ownership of a business for the purpose of or in connection with the conduct of a going-out-of-business sale.
    1. Any going-out-of-business sale conducted in violation of this chapter shall constitute an unfair or deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this chapter.

History. Acts 1983, No. 297, § 7; A.S.A. 1947, § 71-5507; Acts 1993, No. 1057, § 1.

Chapter 75 Unfair Practices

Publisher's Notes. Acts 1993, No. 380, §§ 1-18 provided:

“SECTION 1. SHORT TITLE. This part shall be known and may be cited as the “Arkansas Petroleum Trade Practices Act.”

“SECTION 2. DEFINITIONS. As used in this act, unless the context specifically requires otherwise, the term:

“(a) “Affiliate” shall mean any person who (other than by means of franchise) is controlled by, or is under common control with, any other person.

“(b) “Competition” shall mean the vying for motor fuel sales between two or more sellers in the same market area and at the same level of distribution.

“(c) “Cost of overhead” shall mean and include all costs incurred in the conduct of business at that retail location, including but not limited to labor, rent (which rent must be fair market value based on current use), interest on borrowed capital, depreciation, selling cost, maintenance of equipment, loss due to breakage or damage, credit card fees or other charges, credit losses and all types of licenses, taxes, insurance, advertising and environmental reporting and compliance, but does not include the cost of environmental clean up or remediation.

“(d) “Cost to the retailer” means the sum of:

“(i) The lower of:

“(A) The purchase price of motor fuel to the retailer, less all trade discounts, allowances, or rebates actually granted to the retailer; or

“(B) The replacement cost of motor fuel at the time of retail sale in the quantity last purchased by the retailer; plus

“(ii) The cost of transportation of motor fuel from the point of purchase by the retailer to the retail location;

“(iii) All applicable federal, state, or local motor fuel or sales taxes not already included in the purchase price to the retailer; and

“(iv) The reasonable cost of overhead for motor fuel at that location.

“(e) “Dealer” shall mean any person, firm, corporation, or partnership, including a vertically integrated refiner, engaged in the sale of motor fuel to the public at retail.

“(f) “Distributor” shall mean any person engaged in the sale of motor fuel at wholesale to dealers.

“(g) “Exempt” shall mean those sales at retail exempted by Subsection (c) or (d) of Section 4.

“(h) “Motor fuel” shall mean gasoline, diesel fuel, alcohol or any mixture of these fuels, or any other fuel sold for use in automobiles and related vehicles. Each separate grade or blend of motor fuel shall be considered an individual item, product, and commodity.

“(i) “Person” shall mean any person, firm, association, organization, partnership, business trust, joint stock company, corporation, or legal entity, except that it does not include any public utility as that term is defined in Act 324 of 1935, as amended.

“(j) “Refiner” shall mean any person, including an affiliate, who is engaged directly or indirectly in the refining of motor fuel.

“(k) “Retailer” shall mean a dealer as defined in this act.

“(l) “Sale” includes, but is not limited to, a transfer, gift, sale, offer for sale, or advertisement for sale in any manner or by any means whatsoever, including a transfer of motor fuel from a person to itself or an affiliate at another level of distribution.

“(m) “Sale at retail,” “sales at retail” or “retail sale” mean and include any transfer, made in the ordinary course of trade or in the usual pursuit of the seller's business, of title to tangible personal property to the purchaser for use or consumption and for valuable consideration. The above terms include any transfer of such property where title is retained as a security for the purchase price but is intended to be transferred later.

“(n) “Transfer price” shall mean the price used by a refiner in transferring motor fuel to its own or an affiliate for resale to another marketing level.

“(o) “Transportation cost” shall mean the actual cost of transportation of motor fuel or, in the absence of proof of actual cost, the common carrier rates fixed by the Arkansas Highway & Transportation Department for the immediate market area covered.

“(p) “Vertical integration” shall mean the ownership or control of the production of motor fuel including the refining, distribution, and resale of such motor fuel by a person, firm, partnership or corporation or from the refinery to the gasoline pump.

“(q) “Vertically integrated refiner” shall mean a refiner controlling all phases of petroleum production and sale from the refinery through distribution to dealers as defined herein.

“SECTION 3. PURPOSE.

  1. The purpose of this act is to regulate vertical integration of the petroleum industry in Arkansas, it being the conclusion of the General Assembly hereby expressed that certain vertical integration may tend to operate in restraint of free trade and may inhibit full and free competition and therefore may tend to increase the price of motor fuel and services as prohibited in this act. It is also the purpose of this act to safeguard the public against the creation or perpetuation of monopolies in the marketing segment of the petroleum industry.

“(b) Independent and small dealers and distributors of motor fuel are vital to a healthy, competitive marketplace, but are unable to survive subsidized below-cost pricing at the retail level by others who have other sources of income. Fair and healthy competition in the marketing of motor fuel provides maximum benefits to consumers in this state, and certain marketing practices which impair such competition are contrary to the public interest. Predatory pricing practices are unfair trade practices and restraints which adversely affect motor fuel competition. Subsidized pricing is inherently predatory because it is unfair and destructive to, and reduces competition in, the motor fuel marketing industry. Below-cost selling and related laws have been effective in preserving independent and small retailers and wholesalers in other trades and businesses from subsidized and predatory pricing related to unfair practices.

“(c) Recovery under the federal antitrust laws has become increasingly difficult due to the requirement of establishing an “antitrust injury.” The legislature has determined that subsidized and predatory pricing presumptively injure competition by damaging independent dealers and distributors of motor fuel. Proof of an “antitrust injury” is unnecessary for recovery under this act.

“SECTION 4. SALES BELOW COST TO RETAILER.

  1. No dealer shall make, or offer or advertise to make, sales at retail at below cost to the retailer of motor fuel, where the effect may injure competition, unless such sales at retail are exempt under Subsection (c) or (d) of this Section. In calculating the cost to the retailer as defined in Subsection (d) of Section 2, it is the intention of the General Assembly that each separate grade or blend be considered an individual item, product, or commodity. The entire line or array of complimentary products need not be considered in calculating the cost to the retailer.

“(b) No vertically integrated refiner may sell or transfer motor fuel to its own or an affiliate retail outlet at a price which is less, after making adjustment for credit card and on-site retail outlet brand imaging fees, if any, than the price at which that motor fuel is offered for sale by the vertically integrated refiner to a dealer operating in the same class of trade and within the same competitive area as the retail outlet of the vertically integrated refiner.

“(c) Nothing in this section shall prohibit a dealer from making, or offering or advertising to make, sales at retail of motor fuel which are made in good faith to compete with the equally low or lower retail price of a competitor. However, while the previous sentence allows a dealer to make, offer or advertise, sales at a price equal to the retail price of a competitor, it does not authorize such dealer to make, offer or advertise to make, sales at retail at a price below such competitor if such sales would be in contravention with the provisions of this section.

“(d) The provisions of this section shall not apply:

“(i) Where motor fuel is advertised, offered for sale, or sold in a bona fide clearance sale for the purpose of discontinuing trade in such motor fuel, and said advertising, offer to sell, or sale shall state the reason thereafter and the quantity of such motor fuel advertised, offered for sale, or to be sold;

“(ii) Where motor fuel is sold upon the final liquidation of a business; or

“(iii) Where motor fuel is advertised, offered for sale, or sold by any fiduciary or other officer under the order or direction of any court; or

“(iv) Where motor fuel is sold during a grand opening to introduce a new or remodeled business. However, such grand opening shall not exceed 3 days and shall be held within 60 days from the date the new or remodeled business begins operations.

“(e) Nothing contained within the provisions of this section shall be construed to regulate the price of motor fuel purchased from a refiner or a distributor:

“(i) By a person solely for use in agricultural production activities on the farm of such person;

“(ii) By an employer for the business use of his employees;

“(iii) By any common carrier regulated by the Arkansas Transportation Commission; or

“(iv) By a person for industrial and commercial purposes which do not include the sale of motor fuel to the public.

“(f) The burden of proving an exemption from the provisions of this section shall be upon the dealer claiming its sales are exempt.

“SECTION 5. DISCRIMINATORY ALLOCATIONS.

  1. It is unlawful for a refiner to limit or allocate the quantity of motor fuel available to a dealer, distributor or other reseller purchasing under contract from such refiner unless the limitations or allocations are applied in a reasonable and nondiscriminatory manner among all resellers supplied by such refiner under contract in a general trade area and the refiner's own affiliate retail outlets.

“(b) It is also unlawful for a refiner to limit or allocate for more than five (5) days the quantity of motor fuel available to a dealer, distributor or other reseller purchasing under contract from such refiner, unless the limitations or allocations are applied in a reasonable and nondiscriminatory manner among all resellers supplied by such refiner under contract in a general trade area and the refiner's own retail outlets.

“SECTION 6. CERTAIN REBATES UNLAWFUL. It is unlawful for a refiner to offer or give a rebate or concession of any kind in connection with the sale of motor fuel for resale to a person when the refiner does not provide, on proportionately equal terms, the same rebate or concession to all persons purchasing for resale in a market area, where the effect may injure competition. However, a rebate or concession made in good faith to meet the same or an equivalent rebate or concession of a competitor shall not be a violation of this act. Such rebates or concessions made pursuant to the authority in the previous sentence may equal, but not be greater than, the rebate or concession of a competitor.

“SECTION 7. DISCLOSURE.

  1. All refiners doing business in this state are required to establish and publicly disclose upon request their “transfer prices” on all grades of motor fuel transferred or sold to itself or an affiliate for resale in this state at another marketing level of distribution.

“(b) In the absence of proof of the actual cost to a dealer, such cost may be presumed to be the lowest cost to the dealer within the same market area as determined by a cost survey.

“(c) Where a cost survey pursuant to recognized statistical and cost accounting practices has been made for a market area in which a violation of this act has been alleged to have been committed, to determine and establish on the basis of existing conditions the lowest cost to dealers within the said area, the said cost survey shall be deemed competent evidence in any proceeding or action under this act as tending to prove actual cost to the dealer. The party against whom such cost survey may be introduced in evidence shall have the right to offer to evidence tending to prove any inaccuracy of such cost survey or any state of facts which would impair the cost survey's probative value.

“SECTION 8. ENFORCEMENT.

  1. Any person who violates this act shall be subject to a civil penalty not to exceed One Thousand Dollars ($1,000.00) per day for each day during which the act or omission continues or occurs.

“(b) The Attorney General may investigate any complaints regarding any violations of this act.

“(c) The Attorney General may bring an action in the name of the state in a court as described in Subsection (g) of Section 8, if there is a reasonable basis for believing that a violation of this act has occurred or is occurring, for appropriate relief, including civil penalties, a temporary restraining order, temporary injunction, or permanent injunction, against any person who has violated or is violating this section. All funds recovered by the Attorney General shall be paid to the state Treasury.

“(d) Any person having an interest which is or may be adversely affected by a violation or threatened violation of this act may commence a civil action on his own behalf against any dealer who is alleged to be in violation of this act, to recover actual and special damages, for payment of civil penalties, and to enjoin the dealer who has violated, is violating or who is otherwise likely to violate this section.

“(e) No action may be commenced under Subsection (d) of Section 8 prior to ten (10) days after the plaintiff has given notice by certified mail of the alleged violation to any alleged violator and to the Attorney General.

“(f) If the court finds that the violations were willful or knowing violations, the court may award three (3) times the actual damage sustained and may provide such other relief as it considers necessary and proper. It shall be presumed that retail sales below cost by a dealer after he has received the notice required in Subsection (e) of Section 8 are willful and knowing.

“(g) An action pursuant to the provisions of this section shall be brought in a court of competent jurisdiction in the county where the alleged or threatened violation of this act took place, is taking place, or in the county in which such dealer or refiner resides, has his principal place of business, or can be found.

“(h) In any action filed under this act, the prevailing party may be allowed a reasonable attorney fee to be assessed by the court and collected as costs. However, an attorney fee shall not be assessed against the Attorney General or the state.

“SECTION 9. PRIVATE ACTION PRESUMPTION.

  1. In any action brought under this chapter, upon a prima facie showing of a violation, the burden of rebutting the prima facie case thus made shall shift to the defendant. A prima facie showing of a violation shall be constituted if the plaintiff shows:

“(i) That the plaintiff's purchase price from a refiner or distributor is greater than said refiner's transfer price; or,

“(ii) That the plaintiff's purchase price from a refiner or distributor plus the plaintiff's cost of doing business is greater than said refiner's or distributor's retail posted sales price; or,

“(iii) That the plaintiff's basic cost of motor fuel plus the plaintiff's cost of doing business is greater than the posted sales price at a retail location of a competitor, within plaintiff's marketing area, suspected of selling motor fuel in violation of this chapter.

“(b) A plaintiff may utilize the presumption created by this section only if the plaintiff notifies the alleged violator by certified mail ten (10) days prior to commencing an action of the cost data the plaintiff has knowledge of at the time that the plaintiff reasonably believes gives rise to a violation under this act.

“(c) A party may rebut the presumption created by this section by presenting evidence to establish his cost of the grade, brand or blend of motor fuel in question, or by qualifying for an exception under § 4(c) and (d).

“SECTION 10. Provisions of this act shall expire four (4) years after its effective date.

“SECTION 11. SEVERABILITY. If any provision of this act or the application thereof to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications of the act which can be given effect without the invalid provision or application, and to this end the provisions of this act are declared to be severable.

“SECTION 12. CONFLICT WITH FEDERAL LAWS. If any provision of this act is found to conflict with federal requirements which are a prescribed condition to the allocation of federal funds to the state, the conflicting part of this act is hereby declared to be inoperative solely to the extent of the conflict, and such finding or determination shall not affect the operation of the remainder of this act.

“SECTION 13. CONSTRUCTION OF THE ACT. This act is remedial legislation and shall be liberally construed to promote its purposes. The powers and remedies in this section shall be cumulative and supplementary to all other powers and remedies otherwise provided by law.

“SECTION 14. REMEDIES CUMULATIVE. Nothing in this act shall be construed as repealing any other legislation, or portion thereof, but the remedies herein provided shall be cumulative to all other remedies provided by law.

“SECTION 15. All provisions of this act of a general and permanent nature are amendatory to the Arkansas Code of 1987 Annotated and the Arkansas Code Revision Commission shall incorporate the same in the Code.

“SECTION 16. If any provision of this act or the application thereof to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications of the act which can be given effect without the invalid provision or application, and to this end the provisions of this act are declared to be severable.

“SECTION 17. All laws and parts of laws in conflict with this act are hereby repealed.

“SECTION 18. EMERGENCY. It is hereby found and determined by the Seventy-Eighth General Assembly of the State of Arkansas that subsidized below cost pricing, discriminatory allocations, and other unfair trade practices in the marketing segment of the petroleum industry are threatening small and independent petroleum marketers and therefore, free and healthy competition. Therefore, in order to address this serious issue, an emergency is hereby declared to exist, and this act being necessary for the immediate preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

For Commentary regarding the Uniform Trade Secrets Acts, see Commentaries Volume A.

Case Notes

Constitutionality of Acts 1993, No. 380.

Acts 1993, No. 380, held constitutionally infirm because of its failure to include an element of predatory intent for a violation; as a consequence, the act is overbroad in its effect and impermissibly impinges on the due process rights of a petroleum company. Ports Petro. Co. v. Tucker, 323 Ark. 680, 916 S.W.2d 749 (1996).

Acts 1993, No. 380, § 4 violates the due process clause of the Arkansas Constitution and is void and of no effect; to the extent § 4 is independent from the balance of the act, its invalidity shall not affect the other provisions and applications of the act. Ports Petro. Co. v. Tucker, 323 Ark. 680, 916 S.W.2d 749 (1996).

Subchapter 1 — General Provisions

4-75-101. Covenant not to compete agreements.

  1. A covenant not to compete agreement is enforceable if the agreement is ancillary to an employment relationship or part of an otherwise enforceable employment agreement or contract to the extent that:
    1. The employer has a protectable business interest; and
    2. The covenant not to compete agreement is limited with respect to time and scope in a manner that is not greater than necessary to defend the protectable business interest of the employer.
  2. For the purposes of subsection (a) of this section, the protectable business interest of the employer includes the employer's:
    1. Trade secrets;
    2. Intellectual property;
    3. Customer lists;
    4. Goodwill with customers;
    5. Knowledge of his or her business practices;
    6. Methods;
    7. Profit margins;
    8. Costs;
    9. Other confidential business information that is confidential, proprietary, and increases in value from not being known by a competitor;
    10. Training and education of the employer's employees; and
    11. Other valuable employer data that the employer has provided to an employee that an employer would reasonably seek to protect or safeguard from a competitor in the interest of fairness.
    1. The lack of a specific or defined geographic descriptive restriction in a covenant not to compete agreement does not make the covenant not to compete agreement overly broad under subdivision (a)(2) of this section if the covenant not to compete agreement is limited with respect to time and scope in a manner that is not greater than necessary to defend the protectable business interest of the employer.
    2. The reasonableness of a covenant not to compete agreement shall be determined after considering:
      1. The nature of the employer's protectable business interest;
      2. The geographic scope of the employer's business and whether or not a geographic limitation is feasible under the circumstances;
      3. Whether or not the restriction placed on the employee is limited to a specific group of customers or other individuals or entities associated with the employer's business; and
      4. The nature of the employer's business.
  3. A post-termination restriction of two (2) years is presumptively reasonable as to length of time under subdivision (a)(2) of this section unless the facts and circumstances of a particular case clearly demonstrate that two (2) years is unreasonable compared to the employer's protectable business interest.
    1. In a private court action, a court may award the employer damages for a breach of a covenant not to compete agreement, appropriate injunctive relief, or both, if appropriate.
    2. The immediate harm associated with the breach of a covenant not to compete agreement shall be considered irreparable to establish the appropriateness of a preliminary injunction.
    3. This subsection does not limit:
      1. Any other defense available to a party against a claim for preliminary injunctive relief; or
      2. An employer's right to monetary damages for breach of a covenant not to compete agreement.
    1. If restrictions in a covenant not to compete agreement are found to be unreasonable and impose a greater restraint than is necessary to protect the protectable business interest of the employer under subdivision (a)(1) of this section, the court shall reform the covenant not to compete agreement to the extent necessary to:
      1. Cause the limitations contained in the covenant not to compete agreement to be reasonable; and
      2. Impose a restraint that is not greater than necessary to protect the protectable business interest.
    2. The court shall enforce the covenant not to compete agreement under the reformed terms and conditions.
  4. An employee's continued employment is sufficient consideration for a covenant not to compete agreement.
    1. This subsection does not apply to a covenant not to compete agreement that is ancillary to other contractual relationships, including any type of agreement for the sale and purchase of a business, franchise agreement, and any other agreement not ancillary to an employment relationship or employment contract.
    2. Existing common law standards governing a covenant not to compete agreement outside the employment background shall remain in effect.
    1. This section shall not apply to other types of agreements between employers and employees that do not concern competition or competitive work, including:
      1. Agreements not to solicit, recruit, or hire employees;
      2. Confidentiality agreements;
      3. Nondisclosure agreements; and
      4. The terms and conditions of an employment or employment agreement.
    2. Existing common law standards governing these types of agreements shall remain in effect.
  5. This section shall not:
    1. Be read to impair, limit, or change a party's protections and rights under the Arkansas Trade Secrets Act, § 4-75-601 et seq.; or
    2. Apply to a person holding a professional license under Arkansas Code Title 17, Subtitle 3.

History. Acts 2015, No. 921, § 1.

Research References

Ark. L. Notes.

Jessica Weltge, Blue Penciling Noncompete Agreements in Arkansas and the Need for a Public Policy Exception, 2017 Ark. L. Notes 1954.

Case Notes

Enforceability.

Noncompetition clause was unenforceable as there was no restriction that prevented other employees from resigning and using some of the employer company's confidential information to start a digital printing business or work for another corrugated-box converter, and thus the company's information was not a protectable business interest that warranted enforcing the clause against the former employee office manager. The clause as applied to the facts presented was too broad to be enforced and any information obtained by the employee did not create an unfair competitive advantage. Lamb & Assocs. Packaging v. Best, 2020 Ark. App. 62, 595 S.W.3d 378 (2020).

Subchapter 2 — Unfair Practices Act

Cross References. Going-out-of-business sales, § 4-74-101 et seq.

Effective Dates. Acts 1937, No. 253, § 15: Mar. 17, 1937. Emergency clause provided: “This act is hereby declared to be an emergency measure necessary for the immediate preservation of the public peace, health and safety, within the meaning of section 1 of Article V of the Constitution, and shall therefore go into immediate effect. The facts constituting the necessity are as follows: “The sale at less than cost of goods obtained at forced, bankrupted, close out, and other sales outside of the ordinary channels of trade is destroying healthy competition and thereby forestalling recovery. If such practices are not immediately stopped many more businesses will be forced into bankruptcy, this increasing the prevailing condition of depression. In order to prevent such occurrences it is necessary that this act go into effect immediately.”

Acts 2003, No. 1172, § 5: Apr. 8, 2003. Emergency clause provided: “It is found and determined by the Eighty-fourth General Assembly that without the amendments herein, the Attorney General is unable to adequately protect the interests of the consumers of the State of Arkansas under the provisions of the Unfair Trade Practices Act and the chapter on Monopolies Generally for harm they have suffered as indirect purchasers. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Research References

ALR.

Failure to deliver ordered merchandise to customer on date promised as unfair or deceptive trade practice. 7 A.L.R.4th 1257.

Award of attorneys' fees in actions under state deceptive trade practice and consumer protection acts. 35 A.L.R.4th 12.

State statute forbidding unfair trade practice or competition by discriminatory allowance of rebates, commissions, discounts, or the like. 41 A.L.R.4th 675.

Impugning quality or worth of merchandise or products. 42 A.L.R.4th 318.

Implied warranty coverage for service transactions under state consumer protection and deceptive trade statutes. 72 A.L.R.4th 282.

Coverage of insurance transactions under state consumer protection statutes. 77 A.L.R.4th 991.

Coverage of leases under state consumer protection statutes. 89 A.L.R.4th 854.

Trademark licensor's liability for injury or death allegedly due to defect in licensed product. 90 A.L.R.4th 981.

Constitutional right to jury trial in cause of action under state unfair or deceptive trade practices law. 54 A.L.R.5th 631.

Am. Jur. 54A Am. Jur. 2d, Monop., §§ 781 et seq., 1069 et seq.

C.J.S. 58 C.J.S., Monop., § 56 et seq.

87 C.J.S., Trademarks, etc., § 380 et seq.

Case Notes

Constitutionality.

The complaint that the Unfair Practices Act is void under the constitution because it fails to define with reasonable certainty the acts it declares unlawful, the particular language complained of as being vague and indefinite being “to discriminate between different sections, communities or cities or portions thereof, or between different locations in such sections, communities, cities or portions thereof in this state” was not tenable, the language sets forth as definite a standard as the evil to be regulated will permit. Concrete, Inc. v. Arkhola Sand & Gravel Co., 230 Ark. 315, 322 S.W.2d 452 (1959).

In General.

The reasoning and interpretation of the court decisions under the Robinson-Patman Act also apply to the Arkansas Unfair Practices Act. Ideal Plumbing Co. v. Benco, Inc., 382 F. Supp. 1161 (W.D. Ark. 1974), aff'd, 529 F.2d 972 (8th Cir. 1976).

Construction.

The Unfair Practices Act is penal in nature and imposes liabilities unknown at common law; therefore it must be strictly construed in favor of those upon whom the burden is sought to be imposed and that which is not clearly expressed will not be taken as intended. Beam v. Monsanto Co., 259 Ark. 253, 532 S.W.2d 175 (1976).

Applicability.

A competitor that has been injured by legitimate competitive pricing should not be permitted to use this subchapter as a fountain for recouping its losses. Wal-Mart Stores, Inc. v. American Drugs, Inc., 319 Ark. 214, 891 S.W.2d 30 (1995).

Cited: Energy Oil Co. v. Rose Oil Co., 250 Ark. 484, 465 S.W.2d 690 (1971); Arkota Indus., Inc. v. Naekel, 274 Ark. 173, 623 S.W.2d 194 (1981); Baxley-Delamar Monuments, Inc. v. American Cem. Ass'n, 843 F.2d 1154 (8th Cir. 1988).

4-75-201. Title.

This subchapter shall be known and designated as the “Unfair Practices Act”.

History. Acts 1937, No. 253, § 14; A.S.A. 1947, § 70-314.

Case Notes

Jurisdiction.

Circuit court erred when it determined that a claim of an illegal tying arrangement based on an alleged forced purchase by a franchisee could not have fallen under state statutes; federal jurisdiction was not exclusive in these matters under the Sherman Act, 15 U.S.C.S. § 1 et seq., moreover, a finding that a state claim could not have prevailed or that defenses existed was improper at the class certification stage because the only permissible inquiry was whether the elements of this rule had been satisfied. Carquest of Hot Springs, Inc. v. General Parts, Inc., 367 Ark. 218, 238 S.W.3d 916 (2006).

Under 28 U.S.C.S. § 1491, the court lacked jurisdiction over a direct attack on the propriety of a federal bid; thus, Veterans Administration outpatient clinic operator's claims under the Arkansas Unfair Practices Act against the healthcare provider based on the provider's receipt of a federal contract were denied. Valor Healthcare, Inc. v. Pinkerton, 620 F. Supp. 2d 974 (W.D. Ark. 2009).

Cited: Laidlaw Waste Sys. v. City of Ft. Smith, 742 F. Supp. 540 (W.D. Ark. 1990); Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

4-75-202. Purpose.

The General Assembly declares that the purpose of this subchapter is to safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition by prohibiting unfair and discriminatory practices by which fair and honest competition is destroyed or prevented.

History. Acts 1937, No. 253, § 13; Pope's Dig., § 14323; A.S.A. 1947, § 70-313.

Case Notes

Competition.

This subchapter is intended to foster competition for the primary benefit of the general public by protecting dealers, especially small dealers, from unfair competition by large dealers. Beam v. Monsanto Co., 259 Ark. 253, 532 S.W.2d 175 (1976).

Comparative pricing appears to foster and encourage competition which is one of the purposes of the Arkansas Unfair Practices Act. Wal-Mart Stores, Inc. v. American Drugs, Inc., 319 Ark. 214, 891 S.W.2d 30 (1995).

Persons Protected.

This subchapter is intended primarily to afford protection to the competitor of a seller. Concrete, Inc. v. Arkhola Sand & Gravel Co., 230 Ark. 315, 322 S.W.2d 452 (1959).

Cited: Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

4-75-203. Construction.

This subchapter shall be literally construed so that its beneficial purposes may be subserved.

History. Acts 1937, No. 253, § 13; Pope's Dig., § 14323; A.S.A. 1947, § 70-313.

Case Notes

Statute of Limitations.

This subchapter contains no limitation period, which results in the application of the general catch-all five year statute found in § 16-56-115. Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

Cited: Concrete, Inc. v. Arkhola Sand & Gravel Co., 230 Ark. 315, 322 S.W.2d 452 (1959).

4-75-204. Penalties.

Any person, firm, or corporation, whether as principal, agent, officer, or director for himself or herself or itself, for another person, or for any firm or corporation, that shall violate any of the provisions of this subchapter is guilty of a Class A misdemeanor for each single violation.

History. Acts 1937, No. 253, § 11; Pope's Dig., § 14321; A.S.A. 1947, § 70-311; Acts 2005, No. 1994, § 340.

4-75-205. Forfeiture of charter, rights, etc. — Proceedings.

  1. Upon the third violation of any of the provisions of this subchapter by any corporation, it shall be the duty of the Attorney General to institute proper suits or quo warranto proceedings in any court of competent jurisdiction for the forfeiture of its charter, rights, franchises, or privileges and powers exercised by the corporation, and to permanently enjoin it from transacting business in this state.
  2. If in such action the court finds that the corporation is violating or has violated any of the provisions of this subchapter, it must enjoin the corporation from doing business in this state permanently or for such time as the court shall order, or must annul the charter or revoke the franchise of the corporation.

History. Acts 1937, No. 253, § 8; Pope's Dig., § 14318; A.S.A. 1947, § 70-308.

4-75-206. Contracts violating subchapter illegal.

Any contract, express or implied, made by any person, firm, or corporation in violation of any of the provisions of this subchapter is declared to be an illegal contract and no recovery thereon shall be had.

History. Acts 1937, No. 253, § 9; Pope's Dig., § 14319; A.S.A. 1947, § 70-309.

4-75-207. Destruction of competition by price discrimination prohibited.

  1. It shall be unlawful for any person, firm, or corporation doing business in the State of Arkansas and engaged in the production, manufacture, distribution, or sale of any commodity or product or of service or output of a service trade of general use or consumption or of the product or service of any public utility with the intent to destroy the competition of any regular established dealer in the commodity, product, or service, or to prevent the competition of any person, firm, private corporation, or municipal or other public corporation who or which in good faith intends and attempts to become a dealer to discriminate between different sections, communities, or cities or portions thereof, or between different locations in the sections, communities, cities, or portions thereof in this state, by selling or furnishing the commodity, product, or service at a lower rate in one (1) section, community, or city or any portion thereof, or in one (1) location in the section, community, or city or any portion thereof, than in another, after making allowance for difference, if any, in the grade, quality, or quantity and in the actual cost of transportation from the point of production, if a raw product or commodity, or from the point of manufacture, if a manufactured product or commodity.
  2. The inhibition of this section against locality discrimination shall include any scheme of special rebates, collateral contracts, or any device of any nature whereby such discrimination is, in substance or fact, effected in violation of the spirit and intent of this subchapter.
  3. This subchapter shall not be construed to prohibit the meeting in good faith of a competitive rate, or to prevent a reasonable classification of service by public utilities for the purpose of establishing rates.

History. Acts 1937, No. 253, § 1; Pope's Dig., § 14311; A.S.A. 1947, § 70-301.

Case Notes

Constitutionality.

The complaint that the Unfair Practices Act is void under the constitution because it fails to define with reasonable certainty the acts it declares unlawful, the particular language complained of as being vague and indefinite being “to discriminate between different sections, communities or cities or portions thereof, or between different locations in such sections, communities, cities or portions thereof in this state” was not tenable, the language sets forth as definite a standard as the evil to be regulated will permit. Concrete, Inc. v. Arkhola Sand & Gravel Co., 230 Ark. 315, 322 S.W.2d 452 (1959).

Applicability.

This subchapter does not apply to interstate price discrimination; this subchapter, by its very terms, applies only to price discrimination between one area in Arkansas and another area in Arkansas. Chalmers v. Toyota Motor Sales, USA, Inc., 326 Ark. 895, 935 S.W.2d 258 (1996).

Remedy in Seller Only.

Photographer could not recover triple damages from school district under the Unfair Practices Act for entering into a contract with another photographer which required payment of “commission” in return for the exclusive right to take pictures, since the act only provides a remedy in favor of one seller against another seller and the school district was either a buyer of photographs or an agent of the student or parent buyers. Burge v. Pulaski County Special Sch. Dist., 272 Ark. 67, 612 S.W.2d 108 (1981).

4-75-208. Secret payments or allowance of rebates, refunds, etc. — Penalty.

  1. The secret payment or allowance of rebates, refunds, commissions, or unearned discounts is an unfair trade practice, whether in the form of money or otherwise or secretly extending to certain purchasers special services or privileges not extended to all purchasers purchasing upon like terms and conditions to the injury of a competitor and where the payment or allowance tends to destroy competition.
  2. Any person, firm, partnership, corporation, or association resorting to such trade practice shall be guilty of a Class A misdemeanor.

History. Acts 1937, No. 253, § 7; Pope's Dig., § 14317; A.S.A. 1947, § 70-307; Acts 2005, No. 1994, § 341.

RESEARCH REFERENCES

Ark. L. Rev.

Recent Development: Arkansas Unfair Trade Practices Act — Tortious Interference, 58 Ark. L. Rev. 1005.

Case Notes

Purpose.

The purpose of this section is to regulate hard bargaining between a general contractor and its subcontractor especially in the absence of any evidence of commercial bribery or secret payments given or extracted. Ideal Plumbing Co. v. Benco, Inc., 529 F.2d 972 (8th Cir. 1976).

Destruction of Competition.

This section requires proof “that the payment of allowance must tend to destroy competition.” Ideal Plumbing Co. v. Benco, Inc., 529 F.2d 972 (8th Cir. 1976).

Price Reductions.

Where reductions were made in a bid by a bargaining potential seller to arrive at an agreed contract price and there was no evidence of any adverse effect on competition and such reductions were reflected in the final subcontract and not secret in any way, then there were no violations. Ideal Plumbing Co. v. Benco, Inc., 382 F. Supp. 1161 (W.D. Ark. 1974), aff'd, 529 F.2d 972 (8th Cir. 1976).

Public Use.

This business of operating a public cotton gin is impressed with a public interest and this section constitutes a valid exercise of legislative power to regulate any business dedicated to a public use. Baratti v. Koser Gin Co., 206 Ark. 813, 177 S.W.2d 750 (1944).

Rebates.

Where defense was based upon this section, defendant had burden to show that rebate was secret, not paid to all patrons upon like terms and conditions, and it tended to destroy competition. Baratti v. Koser Gin Co., 206 Ark. 813, 177 S.W.2d 750 (1944).

Where there was testimony indicating that the fact that gin company was paying rebates on ginning charges was known to numerous farmers, whether agreement for rebate was a secret one, was a question of fact for the jury. Baratti v. Koser Gin Co., 206 Ark. 813, 177 S.W.2d 750 (1944).

Alleged “kickbacks” did not violate this section where charges were the same to all customers and did not tend to destroy competition. Ark. State Bd. of Optometry v. Keller, 218 Ark. 820, 239 S.W.2d 14 (1951).

Secret Payments.

Where a high school annually entered into informal open bidding with photographers to take senior class pictures and openly received a “commission” on the sales of the photographs, which were applied to school purposes, there was no “secret” payment of kickbacks as prohibited by this section and no violation of the Unfair Practices Act by the school district. Burge v. Pulaski County Special Sch. Dist., 272 Ark. 67, 612 S.W.2d 108 (1981).

4-75-209. Sale at less than cost or with intent to injure competitors.

    1. It shall be unlawful for any person, partnership, firm, corporation, joint-stock company, or other association engaged in business within this state to:
      1. Sell, offer for sale, or advertise for sale any article or product or service or output of a service trade at less than the cost thereof to the vendor; or
      2. Give, offer to give, or advertise the intent to give away any article or product or service or output of a service trade for the purpose of injuring competitors and destroying competition.
    2. Any person or entity so doing shall be guilty of a Class A misdemeanor.
    1. The term “cost” as applied to production is defined as including the cost of raw materials, labor, and all overhead expenses of the producer and as applied to the distribution, “cost” shall mean the invoice or replacement cost, whichever is lower, of the article or product to the distributor and vendor plus the cost of doing business by the distributor and vendor.
    2. The “cost of doing business” or “overhead expense” is defined as all costs of doing business incurred in the conduct of the business and must include without limitation the following items of expense: labor, which includes salaries of executives and officers, rent, interest on borrowed capital, depreciation, selling cost, maintenance of equipment, delivery cost, credit losses, all types of licenses, taxes, insurance, and advertising.
  1. In establishing the cost of a given article or product to the distributor and vendor, the invoice cost of the article or product purchased at a forced, bankrupt, closeout sale, or other sale outside of the ordinary channels of trade may not be used as a basis for justifying a price lower than one based upon the replacement cost as of the date of the sale of the article or product replaced through the ordinary channels of trade, unless:
    1. The article or product is kept separate from goods purchased in the ordinary channels of trade; and
    2. The article or product is advertised and sold as merchandise purchased at a forced, bankrupt, or closeout sale, or by means other than through the ordinary channels of trade, and the advertising states the conditions under which the goods were so purchased and the quantity of the merchandise to be sold or offered for sale.
  2. In any injunction proceeding or in the prosecution of any person as officer, director, or agent, it shall be sufficient to allege and prove the unlawful intent of the person, firm, or corporation for whom or which he or she acts.
  3. Where a particular trade or industry of which the person, firm, or corporation complained against is a member has an established cost survey for the locality and vicinity in which the offense is committed, the cost survey shall be deemed competent evidence to be used in proving the costs of the person, firm, or corporation complained against within the provisions of this subchapter.
  4. The provisions of this section shall not apply to any sale made:
    1. In closing out in good faith the owner's stock or any part thereof for the purpose of discontinuing his or her trade in the stock or commodity, and in the case of the sale of seasonal goods or to the bona fide sale of perishable goods, to prevent loss to the vendor by spoilage or depreciation, if notice is given to the public thereof;
    2. When the goods are damaged or deteriorated in quality, and notice is given to the public thereof;
    3. By an officer acting under the orders of any court; or
    4. In an endeavor made in good faith to meet the legal prices of a competitor as herein defined selling the same article or product or service or output of a service trade, in the same locality or trade area.
  5. Any person, firm, or corporation who performs work upon, renovates, alters, or improves any personal property belonging to another person, firm, or corporation shall be construed to be a vendor within the meaning of this subchapter.

History. Acts 1937, No. 253, §§ 3-6; Pope's Dig., §§ 14313-14316; A.S.A. 1947, §§ 70-303 — 70-306; Acts 2005, No. 1994, § 342.

Research References

Ark. L. Rev.

Wal-Mart Stores Inc. v. American Drugs, Inc: Drawing the Line Between Predatory and Competitive Pricing, 50 Ark. L. Rev. 103.

Case Notes

Construction.

This section is penal in nature and must be strictly construed in favor of those upon whom the burden of the penalty is sought to be imposed. Wal-Mart Stores, Inc. v. American Drugs, Inc., 319 Ark. 214, 891 S.W.2d 30 (1995).

The strategy of selling below the competitors' price, and even below seller's own cost, is markedly different from a sustained effort to destroy competition in one article by selling below cost over a prolonged period of time: subdivision (a)(1) of this section does not make loss leaders illegal, and plainly does not contemplate a prima facie case of predation based on loss-leader sales. Wal-Mart Stores, Inc. v. American Drugs, Inc., 319 Ark. 214, 891 S.W.2d 30 (1995).

Burden of Proof.

For a violation to occur under subdivision (a)(1) of this section, below-cost sales must be made for the purpose of destroying competition; mere proof of below-cost sales is not sufficient. Wal-Mart Stores, Inc. v. American Drugs, Inc., 319 Ark. 214, 891 S.W.2d 30 (1995).

Cited: McLane Co. v. Weiss, 332 Ark. 284, 965 S.W.2d 109 (1998).

4-75-210. Liability of directors, officers, agents, etc. — Proof of unlawful intent.

  1. Any person who, either as director, officer, or agent of any firm or corporation or as agent of any person violating the provisions of this subchapter, assists or aids, directly or indirectly, in the violation shall be responsible therefor equally with the person, firm, or corporation for whom or which he or she acts.
  2. In the prosecution of any person as officer, director, or agent, it shall be sufficient to allege and prove the unlawful intent of the person, firm, or corporation for whom or which he or she acts.

History. Acts 1937, No. 253, § 2; Pope's Dig., § 14312; A.S.A. 1947, § 70-302.

4-75-211. Remedies — Witnesses and documents — Immunity.

  1. Any person, firm, private corporation, or municipal or other public corporation, or trade association, may maintain an action to enjoin a continuance of any act or acts in violation of this subchapter and, if injured thereby, for the recovery of damages.
    1. If, in such action, the court shall find that the defendant is violating or has violated any of the provisions of this subchapter, it shall enjoin the defendant from a continuance thereof.
    2. It shall not be necessary that actual damages to the plaintiff be alleged or proved.
    3. In addition to injunctive relief, the plaintiff in the action shall be entitled to recover from the defendant three (3) times the amount of the actual damages, if any, sustained.
    1. Any defendant in an action brought under the provisions of this section or any witness desired by the state may be required to testify under § 16-43-211 and as otherwise provided by law.
    2. In addition, the books and records of any such defendant may be brought into court and introduced, by reference, into evidence.
    3. However, no information so obtained may be used against the defendant as a basis for a misdemeanor prosecution under the provisions of §§ 4-75-204 and 4-75-207 — 4-75-210.
  2. The remedies prescribed in this subchapter are cumulative and in addition to the remedies prescribed in the Public Utilities Act, § 23-1-101 et seq., for discrimination by public utilities. If any conflict shall arise between this subchapter and the Public Utilities Act, § 23-1-101 et seq., the latter shall prevail.

History. Acts 1937, No. 253, §§ 10, 12; Pope's Dig., §§ 14320, 14322; A.S.A. 1947, §§ 70-310, 70-312; Acts 2013, No. 1148, § 2.

Amendments. The 2013 amendment substituted “§ 16-43-211 and as otherwise provided by law” for “the provisions of § 16-43-701” in (c)(1).

Case Notes

Statute of Limitations.

This subchapter contains no limitation period, which results in the application of the general catch-all five year statute found in § 16-56-115. Jackson v. Swift-Eckrich, 830 F. Supp. 486 (W.D. Ark. 1993).

4-75-212. Civil actions and settlements by the Attorney General.

  1. In addition to the other remedies provided in this subchapter, whenever the Attorney General has reason to believe that any person is engaging, has engaged, or is about to engage in any act or practice declared unlawful by this subchapter, the Attorney General may bring an action in the name of the state against that person:
    1. To obtain a declaratory judgment that the act or practice violates the provisions of this subchapter;
    2. To enjoin any act or practice that violates the provisions of this subchapter by issuance of a temporary restraining order or preliminary or permanent injunction, without bond, upon the giving of appropriate notice;
    3. To recover on behalf of the state and its agencies actual damages or restitution for loss incurred either directly or indirectly; and
    4. To recover civil penalties of up to one thousand dollars ($1,000) per violation of this subchapter, or any injunction, judgment or consent order issued or entered into under the provisions of this subchapter and reasonable expenses, investigative costs, and attorney's fees.
  2. The Attorney General may also bring a civil action in the name of the state, as parens patriae on behalf of natural persons residing in this state, to secure monetary relief as provided under this section for injury, directly or indirectly sustained by those persons because of any violation of this subchapter, in accordance with the following provisions:
      1. The circuit court shall award the Attorney General as monetary relief actual damages sustained or restitution for loss incurred as a result of the violations of this subchapter, and the cost of suit, including a reasonable attorney's fee.
      2. The court shall exclude from the amount of monetary relief awarded in the action any amount which duplicates amounts that have been awarded for the same injury already or which are allocable to persons who have excluded their claims under subdivision (b)(3)(A) of this section.
      3. The treble damages recoverable under § 4-75-211(b)(3) are not recoverable under a parens patriae action brought under this section.
      1. In any action brought under this section, the Attorney General shall, at the time, in the manner, and with the content as the court may direct, cause notice of the parens patriae action to be given by publication.
      2. If the court finds that notice given solely by publication would deny due process of law to any person, the court shall direct the Attorney General to give the notice as may be required by due process of law.
      1. Any person on whose behalf an action is brought under this section may elect to exclude from the adjudication the portion of the Attorney General's claim for monetary relief attributable to him or her by filing notice of the election with the court, within the time period specified in the notice of the action given to the persons to be benefited by the action.
      2. Any person failing to give the notice shall be barred during the pendency of the action from commencing an action in his or her own name for the injury alleged in the action and the final judgment in the action shall be res judicata as to any claim which could be brought by the person under this act based on the facts alleged or proven in the action.
        1. The provisions of §§ 4-75-212 — 4-75-216 of this subchapter shall apply only to actions instituted by the Attorney General.
        2. Nothing contained in the provisions set forth in §§ 4-75-212 — 4-75-216 should be deemed to expand the rights or remedies available to persons proceeding under any action instituted by one (1) or more persons or an entity other than the Attorney General, for violations of the provisions of this subchapter.
    1. All damages shall be distributed in a manner that will afford each person a reasonable opportunity to secure his or her appropriate portion of the net monetary relief, including a distribution under the theory of cy pres, subject to approval by the court.
    1. In lieu of instigating or continuing an action or proceeding, or to conclude an investigation commenced or contemplated under this subchapter, the Attorney General may accept a consent decree with respect to any act or practice alleged to be a violation of this subchapter.
    2. The consent decree may include a stipulation for the payment of civil penalties, the Attorney General's reasonable expenses, investigative costs and attorney's fees, an agreement to pay damages or to allow for restitution of money, property, or other things received in connection with a violation of this act, and agreed to injunctive provisions.
    3. Before any consent decree entered into under this section is effective, it must be approved by the circuit court, the federal district court, or if an action has already been commenced, the court in which the action is pending and an entry made in that court in the manner required for making an entry of judgment.
      1. If the consent decree submitted to the court is to settle an action brought under subsection (b) of this section, notice of the proposed settlement shall be given in the manner as the court directs.
      2. Once court approval is received, any breach of the conditions of the consent decree shall be treated as a violation of a court order, and shall be subject to all penalties provided by law for violation of court orders.
  3. In addition to actions under state law, the Attorney General may proceed under any antitrust laws in the federal courts on behalf of this state or any of its agencies, or as parens patriae on behalf of natural persons in this state.

History. Acts 2003, No. 1172, § 1.

Meaning of “this act”. Acts 2003, No. 1172, codified as §§ 4-75-2124-75-217, 4-75-3154-75-320.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

4-75-213. Person defined.

Unless otherwise defined, for purposes of this subchapter, “person” means any natural person, corporation, firm, partnership, limited partnership, trust, association, or any other legal or commercial entity.

History. Acts 2003, No. 1172, § 1.

4-75-214. Awards to the Attorney General — Use of moneys.

  1. There shall be established within the office of the Attorney General an Antitrust Enforcement Account into which all costs and fees recovered by the Attorney General under the terms of this subchapter or the federal antitrust laws shall be remitted.
  2. The costs and fees deposited into the account shall be used for the furtherance of the Attorney General's duties and activities under this subchapter.

History. Acts 2003, No. 1172, § 1.

Cross References. Awards to the Attorney General and use of moneys, § 4-75-317.

4-75-215. Action not barred because it affects interstate or foreign commerce.

  1. This subchapter is to apply to any economic activity occurring wholly or partly within the State of Arkansas, or which affects economic activity within the State of Arkansas.
  2. No action instituted by the Attorney General under this subchapter shall be barred on the ground that the activity or conduct complained of in any way affects or involves interstate or foreign commerce.

History. Acts 2003, No. 1172, § 1.

4-75-216. Venue.

Any action, application, or motion brought by the Attorney General against a person under this subchapter shall be filed in Pulaski County Circuit Court unless the action, application, or motion is brought as part of an action containing claims of federal law violations, in which event the action shall be brought in the appropriate federal court.

History. Acts 2003, No. 1172, § 1.

4-75-217. Statute of limitations.

  1. Any action brought by the Attorney General pursuant to this subchapter is barred if it is not commenced within five (5) years after the cause of action accrues.
  2. The statute of limitations described in subsection (a) of this section shall be tolled during any period when the defendant in any action fraudulently concealed the events upon which the cause of action is based.
  3. This section is not intended to allow for the commencement of any action by the Attorney General under the provisions of this subchapter for events occurring prior to the enactment of this section of which the Attorney General had actual knowledge.

History. Acts 2003, No. 1172, § 1.

Subchapter 3 — Monopolies Generally

Effective Dates. Acts 1905, No. 1, § 12: effective 60 days after passage.

Acts 2003, No. 1172, § 5: Apr. 8, 2003. Emergency clause provided: “It is found and determined by the Eighty-fourth General Assembly that without the amendments herein, the Attorney General is unable to adequately protect the interests of the consumers of the State of Arkansas under the provisions of the Unfair Trade Practices Act and the chapter on Monopolies Generally for harm they have suffered as indirect purchasers. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Research References

ALR.

Time when cause of action accrues for civil action under state antitrust, monopoly, or restraint or trade statutes. 90 A.L.R.4th 1102.

Am. Jur. 54A Am. Jur. 2d, Monop., § 781 et seq.

Ark. L. Rev.

Contracts in Restraint of Trade, Employee Covenants Not to Compete, 21 Ark. L. Rev. 214.

C.J.S. 58 C.J.S., Monop., § 56 et seq.

Case Notes

Constitutionality.

Section 4-75-314 [repealed] contemplates no more than that defendant shall make an honest effort to produce the testimony and is valid. Hammond Packing Co. v. State, 81 Ark. 519, 100 S.W. 407 (1907), aff'd, 212 U.S. 322, 29 S. Ct. 370, 53 L. Ed. 530 (1909); Hammond Packing Co. v. Arkansas, 212 U.S. 322, 29 S. Ct. 370, 53 L. Ed. 530 (1909).

Nature of Action.

The action under § 4-75-304 [repealed] is not a criminal proceeding within Ark. Const., Art. 2, § 8 requiring indictment by grand jury. Hammond Packing Co. v. State, 81 Ark. 519, 100 S.W. 407 (1907), aff'd, 212 U.S. 322, 29 S. Ct. 370, 53 L. Ed. 530 (1909); Hammond Packing Co. v. Arkansas, 212 U.S. 322, 29 S. Ct. 370, 53 L. Ed. 530 (1909).

Pleading.

Defendant pleading act in bar to enforce forfeiture must state every fact necessary to show that he is entitled to it. Frank A. Menne Factory v. Harback Bros., 85 Ark. 278, 107 S.W. 991 (1908).

Production of Documents.

The state, in a proper action, may require of either a foreign or domestic corporation doing business under authority of its laws the production of books, papers and documents in order that it may be determined whether the corporation is violating the antitrust act, provided the order is reasonable in its terms. Hammond Packing Co. v. State, 81 Ark. 519, 100 S.W. 407 (1907), aff'd, 212 U.S. 322, 29 S. Ct. 370, 53 L. Ed. 530 (1909); Hammond Packing Co. v. Arkansas, 212 U.S. 322, 29 S. Ct. 370, 53 L. Ed. 530 (1909).

Surrender of Articles of Incorporation.

An action against a corporation to recover penalties for alleged violation of antitrust statutes will be abated when the corporation, during the pendency of the action, surrenders its charter (now articles of incorporation). State ex rel. Moose v. Arkansas Cotton Oil Co., 116 Ark. 74, 171 S.W. 1192 (1914).

4-75-301. Definition.

As used in this subchapter, unless the context otherwise requires, “monopoly” means any union or combination or consolidation or affiliation of capital, credit, property, assets, trade, customs, skill, or acts of any other valuable thing or possession, by or between persons, firms, or corporations, or association of persons, firms, or corporations, whereby any one (1) of the purposes or objects mentioned in this subchapter is accomplished or sought to be accomplished, or whereby any one (1) or more of the purposes are promoted or attempted to be executed or carried out, or whereby the several results described herein are reasonably calculated to be produced. A monopoly, as thus defined and contemplated, includes not merely a combination by and between two (2) or more persons, firms, and corporations, acting for themselves, but is especially defined and intended to include all aggregations, amalgamations, affiliations, consolidations, or incorporations of capital, skill, credit, assets, property, custom, trade, or other valuable things or possessions, whether effected by the ordinary methods of partnership or by actual union under the legal form of a corporation or any incorporated body resulting from the union of one (1) or more distinct firms or corporations, or by the purchase, acquisition, or control of shares or certificates of stock or bonds or other corporate property or franchises; and all partnerships and corporations that have been or may be created by the consolidation or amalgamation of the separate capital, stock, bonds, assets, credit, property, customs, trade, corporate, or firm belongings of two (2) or more firms or corporations or companies are especially declared to constitute monopolies within the meaning of this subchapter, if so created or entered into for any one (1) or more of the purposes named in this subchapter.

History. Acts 1905, No. 1, § 5, p. 1; C. & M. Dig., § 7373; Pope's Dig., § 9412; A.S.A. 1947, § 70-105.

Case Notes

Cited: Elizabeth Hosp. v. Richardson, 167 F. Supp. 155 (W.D. Ark. 1958).

4-75-302. Monopolies unlawful.

A monopoly, as defined in § 4-75-301, is declared to be unlawful and against public policy, and any and all persons, firms, corporations, or association of persons engaged therein shall be deemed and adjudged to be guilty of a conspiracy to defraud and shall be subject to the penalties prescribed in this subchapter.

History. Acts 1905, No. 1, § 5, p. 1; C. & M. Dig., § 7373; Pope's Dig., § 9412; A.S.A. 1947, § 70-105.

Research References

ALR.

Construction and Application of Public Interest Requirement of Antitrust Procedures and Penalties Act, 15 U.S.C. § 16(e)(1) (Tunney Act). 2 A.L.R. Fed. 3d Art. 4 (2016).

Case Notes

Cited: Elizabeth Hosp. v. Richardson, 167 F. Supp. 155 (W.D. Ark. 1958).

4-75-303. Lawful commerce excepted.

The purchase, sale, delivery, or disposition of any article of commerce in a lawful manner within this state shall not be deemed an act done in pursuance of, or for the purpose of carrying into effect, any conspiracy prohibited by this subchapter.

History. Acts 1905, No. 1, § 4, p. 1; 1913, No. 161, § 1; C. & M. Dig., § 7372; Pope's Dig., § 9411; A.S.A. 1947, § 70-104.

4-75-304 — 4-75-307. [Repealed.]

Publisher's Notes. These sections, concerning monetary penalties, disposition of funds, forfeiture of corporate rights for violations, overt act necessary to incur penalty, enforcement by Attorney General, and compensation, were repealed by Acts 2003, No. 1172, § 3. The sections were derived from:

4-75-304. Acts 1905, No. 1, § 2, p. 1; 1913, No. 161, § 1; C. & M. Dig., § 7370; Pope's Dig., § 9409; A.S.A. 1947, § 70-102.

4-75-305. Acts 1905, No. 1, §§ 3, 11, p. 1; 1913, No. 161, § 1; C. & M. Dig., §§ 7371, 7379; Pope's Dig., §§ 9410, 9418; A.S.A. 1947, §§ 70-103, 70-111.

4-75-306. Acts 1905, No. 1, § 4, p. 1; 1913, No. 161, § 1; C. & M. Dig., § 7372; Pope's Dig., § 9411; A.S.A. 1947, § 70-104.

4-75-307. Acts 1905, No. 1, § 10, p. 1; 1913, No. 161, § 1; C. & M. Dig., § 7378; Pope's Dig., § 9417; A.S.A. 1947, § 70-110.

4-75-308. Precedence of actions under subchapter.

All actions authorized and brought under this subchapter shall have precedence on motion of the Attorney General, of all other business, civil and criminal, except criminal cases where the defendants are in jail.

History. Acts 1905, No. 1, § 11, p. 1; 1913, No. 161, § 1; C. & M. Dig., § 7379; Pope's Dig., § 9418; A.S.A. 1947, § 70-111.

4-75-309. Fixing prices or quantities of products.

Any corporation organized under the laws of this or any other state or country and transacting or conducting any kind of business in this state, or any partnership or individual, or other association or persons whatsoever, who is, or creates, enters into, or becomes a member of, or a party to, any pool, trust, agreement, combination, confederation, or understanding, whether it is made in this state or elsewhere, with any other corporation, partnership, individual, or any other person or association of persons, to regulate or fix, either in this state or elsewhere, the price of any article of manufacture, mechanism, merchandise, commodity, convenience, repair, any product of mining, or any article or thing whatsoever, or the price or premium to be paid for insuring property against loss or damage by fire, lightning, or tornado, or to maintain the price when so regulated or fixed, or who is, or enters into, or becomes a member of, or a party to any pool, agreement, contract, combination, association, or confederation, whether made in this state or elsewhere, to fix or limit in this state or elsewhere, the amount or quantity of any article of manufacture, mechanism, merchandise, commodity, convenience, repair, any product of mining, or any article or thing whatsoever, or the price or premium to be paid for insuring property against loss or damage by fire, lightning, storm, cyclone, or tornado or any other kind of policy issued by any corporation, partnership, individual, or association of persons aforesaid, shall be deemed and adjudged guilty of a conspiracy to defraud and be subject to the penalties as provided by this subchapter.

History. Acts 1905, No. 1, § 1, p. 1; C. & M. Dig., § 7368; Pope's Dig., § 9407; A.S.A. 1947, § 70-101.

Cross References. Agricultural cooperative associations exempt, § 2-2-122.

Cooperative marketing association, exempt, § 2-2-426.

Oil and gas, agreements for production not in violation of law, §§ 15-72-301, 15-72-504.

Case Notes

Constitutionality.

Legislature could constitutionally provide that foreign insurance companies should not do business within state if they were members of any pool, trust or combination which would affect insurance rates anywhere. Hartford Fire Ins. Co. v. State, 76 Ark. 303, 89 S.W. 42 (1905).

Applicability.

This subchapter prohibits any foreign or domestic corporation, partnership or individual from doing business in the state while a member of a pool, trust or combination, whether made in this state or elsewhere to fix or regulate in this state or elsewhere, the price of any article. Hartford Fire Ins. Co. v. State, 76 Ark. 303, 89 S.W. 42 (1905); Frank A. Menne Factory v. Harback Bros., 85 Ark. 278, 107 S.W. 991 (1908).

This section does not apply to combinations among railroad companies to fix passenger and freight rates. State ex rel. Means v. Chicago, R.I. & P. Ry., 95 Ark. 114, 128 S.W. 555 (1910).

An agreement to fix the price of laundering is not prohibited by this subchapter. State ex rel. Moose v. Frank, 114 Ark. 47, 169 S.W. 333 (1914).

Collusive Bidding.

A citizen and taxpayer may bring an action to compel an accounting for moneys alleged to have been illegally paid to corporations charged with collusive bidding on public contracts and with furnishing material of a grade inferior to that purchased. Nelson v. Berry Petroleum Co., 242 Ark. 273, 413 S.W.2d 46 (1967).

Competition.

Contract which gave supplier of natural gas power to fix rate for gas charged by distributor was not in violation of this section when there was no competition in the sale of such gas. Ft. Smith Light & Traction Co. v. Kelley, 94 Ark. 461, 127 S.W. 975 (1910).

Criminal Conspiracy.

The offense defined by this act does not constitute the common law crime of criminal conspiracy. Hammond Packing Co. v. State, 81 Ark. 519, 100 S.W. 407 (1907), aff'd, 212 U.S. 322, 29 S. Ct. 370, 53 L. Ed. 530 (1909).

Fixing Rates Outside State.

A foreign insurance corporation is prohibited from doing business in Arkansas while a member of a pool, trust, or combination to fix fire insurance rates anywhere, although such pool, trust or combination was not created or maintained in Arkansas and did not attempt to fix prices in this state. Hartford Fire Ins. Co. v. State, 76 Ark. 303, 89 S.W. 42 (1905).

Pleading.

Complaint did not charge a violation of this section where no allegations were made tending to show the creation of a monopoly or any attempt or intention to fix or regulate prices. Elizabeth Hosp. v. Richardson, 167 F. Supp. 155 (W.D. Ark. 1958), aff'd, 269 F.2d 167 (8th Cir.), cert. denied, 361 U.S. 884, 80 S. Ct. 155, 4 L. Ed. 2d 120 (1959).

Validity of Contract.

Where contract is severable, fact that it contains provisions in violation of this section will not avoid whole contract. Ft. Smith Light & Traction Co. v. Kelley, 94 Ark. 461, 127 S.W. 975 (1910).

Cited: Midland Valley R.R. v. Hoffman Coal Co., 91 Ark. 180, 120 S.W. 380 (1909).

4-75-310. Driving out or financially injuring competition.

If any person, company, partnership, association, corporation, or agent engaged in the manufacture or sale of any article of commerce or consumption produced, manufactured, or mined in this state or elsewhere shall, with the intent and purpose of driving out competition or for the purpose of financially injuring competitors, sell within this state at less than cost of manufacture or production or sell in such a way, or give away, in this state their productions for the purpose of driving out competition or financially injuring competitors engaged in similar business, then the person, or persons, company, partnership, association, corporation, or agent resorting to this method of securing a monopoly within this state in such business shall be deemed guilty of a conspiracy to form or secure a trust or monopoly in restraint of trade and on conviction shall be subjected to the penalties of this subchapter.

History. Acts 1905, No. 1, § 6, p. 1; C. & M. Dig., § 7374; Pope's Dig., § 9413; A.S.A. 1947, § 70-106.

4-75-311, 4-75-312. [Repealed.]

Publisher's Notes. These sections, concerning an affidavit of nonparticipation in monopolies, letter of inquiry, and penalties for noncompliance, were repealed by Acts 1997, No. 898, §§ 1, 2. They were derived from the following sources:

4-75-311. Acts 1905, No. 1, § 7, p. 1; 1913, No. 161, § 1; C. & M. Dig., § 7375; Pope's Dig., § 9414; A.S.A. 1947, § 70-107.

4-75-312. Acts 1905, No. 1, § 7, p. 1; 1913, No. 161, § 1; C. & M. Dig., § 7375; Pope's Dig., § 9414; A.S.A. 1947, § 70-107.

4-75-313, 4-75-314. [Repealed.]

Publisher's Notes. These sections, concerning proceedings to dissolve or restrain monopolies or to recover penalties, depositions and production of documents, and judgment by default upon failure to testify, were repealed by Acts 2003, No. 1172, § 4. The sections were derived from:

4-75-313. Acts 1905, No. 1, § 8, p. 1; 1913, No. 161, § 1; C. & M. Dig., § 7376; Pope's Dig., § 9415; A.S.A. 1947, § 70-108.

4-75-314. Acts 1905, No. 1, § 9, p. 1; 1913, No. 161, § 1; C. & M. Dig., § 7377; Pope's Dig., § 9416; A.S.A. 1947, § 70-109.

4-75-315. Civil actions and settlements by the Attorney General.

  1. In addition to the other remedies provided in this subchapter, whenever the Attorney General has reason to believe that any person is engaging, has engaged, or is about to engage in any act or practice declared unlawful by this subchapter, the Attorney General may bring an action in the name of the state against that person:
    1. To obtain a declaratory judgment that the act or practice violates the provisions of this subchapter;
    2. To enjoin any act or practice that violates the provisions of this subchapter by issuance of a temporary restraining order or preliminary or permanent injunction, without bond, upon the giving of appropriate notice;
    3. To recover on behalf of the state and its agencies actual damages or restitution for loss incurred either directly or indirectly; and
    4. To recover civil penalties of up to one thousand dollars ($1,000) per violation of this subchapter, or any injunction, judgment, or consent order issued or entered into under the provisions of this subchapter and reasonable expenses, investigative costs, and attorney's fees.
  2. The Attorney General also may bring a civil action in the name of the state, as parens patriae on behalf of natural persons residing in this state, to secure monetary relief as provided under this section for injury, directly or indirectly sustained by those persons because of any violation of this subchapter, in accordance with the following provisions:
    1. The court in which the action is commenced shall award the Attorney General as monetary relief the actual damages sustained or restitution for loss incurred as a result of the violations of this subchapter and the cost of suit, including a reasonable attorney's fee. The court shall exclude from the amount of monetary relief awarded in the action any amount which duplicates amounts that have been awarded for the same injury already or which are allocable to persons who have excluded their claims under subdivision (b)(3)(A) of this section.
      1. In any action brought under this section, the Attorney General shall, at the time, in the manner, and with the content as the circuit court may direct, cause notice of the parens patriae action to be given by publication.
      2. If the court finds that notice given solely by publication would deny due process of law to any person, the court shall direct the Attorney General to give the notice as may be required by due process of law.
      1. Any person on whose behalf an action is brought under this section may elect to exclude from the adjudication the portion of the Attorney General's claim for monetary relief attributable to him or her by filing notice of the election with the court, within the time period specified, in the notice of the action given to the persons to be benefited by the action.
      2. Any person failing to give the notice shall be barred during the pendency of the action from commencing an action in his or her own name for the injury alleged in the action and the final judgment in the action shall be res judicata as to any claim which could be brought by the person under this subchapter based on the facts alleged or proven in the action.
        1. The provisions set forth in this section and in §§ 4-75-316 — 4-75-319 shall apply only to actions instituted by the Attorney General.
        2. Nothing in the provisions set forth in this section and in §§ 4-75-316 — 4-75-319 shall be deemed to expand or create additional rights or remedies available to persons proceeding under any action instituted by one (1) or more persons or an entity other than the Attorney General for violations of the provisions of this subchapter.
    2. All damages shall be distributed in a manner that will afford each person a reasonable opportunity to secure his or her appropriate portion of the net monetary relief, including a distribution under the theory of cy pres, subject to approval by the court.
    1. In lieu of instigating or continuing an action or proceeding, or to conclude an investigation commenced or contemplated by this subchapter, the Attorney General may accept a consent decree with respect to any act or practice alleged to be a violation of this subchapter.
    2. The consent decree may include a stipulation for the payment of civil penalties, the Attorney General's reasonable expenses, investigative costs and attorney's fees, an agreement to pay damages or to allow for restitution of money, property, or other things received in connection with a violation of this act, and agreed to injunctive provisions.
    3. Before any consent decree entered into under this section is effective, it must be approved by the circuit court, the federal district court, or if an action has already been commenced, the court in which the action is pending and an entry made in that court in the manner required for making an entry of judgment.
    4. If the consent decree submitted to the court is to settle an action brought under subsection (b) of this section, notice of the proposed settlement shall be given in the manner as the court directs.
    5. Once court approval is received, any breach of the conditions of the consent decree shall be treated as a violation of a court order, and shall be subject to all penalties provided by law for violation of court orders.
  3. In addition to actions under state law, the Attorney General may proceed under any antitrust laws in the federal courts on behalf of this state or any of its agencies, or as parens patriae on behalf of natural persons in this state.

History. Acts 2003, No. 1172, § 2.

Meaning of “this act”. Acts 2003, No. 1172, codified as §§ 4-75-2124-75-217, 4-75-3154-75-320.

Research References

ALR.

Right of Retail Buyer of Price-Fixed Product to Sue Manufacturer on State Antitrust Claim. 35 A.L.R.6th 245.

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

4-75-316. Person defined.

Unless otherwise defined, for purposes of this subchapter, “person” means any natural person, corporation, firm, partnership, limited partnership, trust, association, or any other legal or commercial entity.

History. Acts 2003, No. 1172, § 2.

4-75-317. Awards to the Attorney General — Use of moneys.

  1. There shall be established within the office of the Attorney General an Antitrust Enforcement Account into which all costs and fees recovered by the Attorney General under the terms of this subchapter or the federal antitrust laws shall be remitted.
  2. The costs and fees deposited into the account of the Attorney General's Office shall be used for the furtherance of the Attorney General's duties and activities under this subchapter.

History. Acts 2003, No. 1172, § 2.

Cross References. Awards to the Attorney General and use of moneys, § 4-75-214.

4-75-318. Action not barred because it affects interstate or foreign commerce.

  1. This subchapter is to apply to any economic activity occurring wholly or partly within the State of Arkansas, or which affects economic activity within the State of Arkansas.
  2. No action instituted by the Attorney General under this subchapter shall be barred on the ground that the activity or conduct complained of in any way affects or involves interstate or foreign commerce.

History. Acts 2003, No. 1172, § 2.

4-75-319. Venue.

Any action, application, or motion brought by the Attorney General against a person under this subchapter shall be filed in the Pulaski County Circuit Court unless the action, application, or motion is brought as part of an action containing claims of federal law violations, in which event the action shall be brought in the appropriate federal court.

History. Acts 2003, No. 1172, § 2.

4-75-320. Statute of limitations.

  1. Any action brought by the Attorney General pursuant to this subchapter is barred if it is not commenced within five (5) years after the cause of action accrues.
  2. The foregoing statute of limitations shall be tolled during any period when the defendant in any action fraudulently conceals the events upon which the cause of action is based.
  3. This section is not intended to allow for the commencement of any action by the Attorney General under the provisions of this subchapter for events occurring prior to the enactment of this section of which the Attorney General had actual knowledge.

History. Acts 2003, No. 1172, § 1.

Research References

ALR.

Right of Retail Buyer of Price-Fixed Product to Sue Manufacturer on State Antitrust Claim. 35 A.L.R.6th 245.

Subchapter 4 — Automobile Dealer's Anti-Coercion Act

Effective Dates. Acts 1937, No. 205, § 16: effective on passage.

4-75-401. Title.

This subchapter shall be known and shall be cited as the “Automobile Dealer's Anti-Coercion Act”.

History. Acts 1937, No. 205, § 14; Pope's Dig., § 9432; A.S.A. 1947, § 70-143.

4-75-402. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Person” means any individual, firm, corporation, partnership, association, trustee, receiver, or assignee for the benefit of creditors;
  2. “Sell”, “sold”, “buy”, and “purchase” include exchange, barter, gift, and offer of contract to sell or buy; and
  3. “Wholesale distribution” means the sale or distribution of motor vehicles, or any interest therein, by the manufacturer thereof or by any person, directly or indirectly owned by the manufacturer.

History. Acts 1937, No. 205, § 13; Pope's Dig., § 9431; A.S.A. 1947, § 70-142.

4-75-403. Subchapter cumulative.

The provisions of this subchapter shall be held cumulative to each other and all other laws of this state in force as of June 10, 1937, in any way affecting them.

History. Acts 1937, No. 205, § 11; Pope's Dig., § 9429; A.S.A. 1947, § 70-140.

4-75-404. Penalties — Persons subject to penalties.

  1. Any person shall be guilty of a Class B misdemeanor if the person:
    1. Shall violate any of the provisions of this subchapter;
    2. Is a party to any agreement or understanding or to any contract prescribing any condition prohibited by this subchapter;
    3. Is any employee, agent, or officer of any person that shall participate in any manner in making, executing, enforcing, performing, or in urging, aiding, or abetting in the performance of any such contract, condition, agreement, or understanding;
    4. Shall pay or give or contract to pay or give any thing or service of value prohibited by this subchapter; and
    5. Shall receive or accept or contract to receive or accept any thing or service of value prohibited by this subchapter.
  2. Each day's violation of this subchapter shall constitute a separate offense.

History. Acts 1937, No. 205, § 9; Pope's Dig., § 9427; A.S.A. 1947, § 70-138; Acts 2005, No. 1994, § 378.

4-75-405. Forfeiture of charter rights, etc., and dissolution for violations — Proceedings.

For a violation of any of the provisions of this subchapter by any corporation or association mentioned in this subchapter, it shall be the duty of the Attorney General or the prosecuting attorney of the proper county to institute proper suits or quo warranto proceedings in any court of competent jurisdiction for the forfeiture of its charter rights, franchises, or privileges and powers exercised by the corporation or association, and for the dissolution of the corporation or association under the general statutes of this state.

History. Acts 1937, No. 205, § 7; Pope's Dig., § 9425; A.S.A. 1947, § 70-136.

Cross References. Proceedings for vacation of charter, § 16-118-105.

4-75-406. Foreign corporations violating subchapter prohibited from doing business.

Every foreign corporation, as well as every foreign association, exercising any of the powers, franchises, or functions of a corporation in this state, violating any of the provisions of this subchapter, is denied the right and prohibited from doing any business in this state. It shall be the duty of the Attorney General to enforce this provision by bringing proper proceedings by injunction or otherwise. The Secretary of State shall be authorized to revoke the license of any such corporation or association authorized by him or her to do business in this state.

History. Acts 1937, No. 205, § 8; Pope's Dig., § 9426; A.S.A. 1947, § 70-137.

4-75-407. Contracts violating subchapter void.

Any contract or agreement in violation of the provisions of this subchapter shall be absolutely void and shall not be enforceable either in law or equity.

History. Acts 1937, No. 205, § 10; Pope's Dig., § 9428; A.S.A. 1947, § 70-139.

4-75-408. Exclusive financing agreements — Prohibition.

It shall be unlawful for any person who is engaged, either directly or indirectly, in the manufacture or wholesale distribution of motor vehicles to sell, or enter into a contract to sell, motor vehicles to any person who is engaged or intends to engage in the business of selling such motor vehicles at retail in this state, on the condition or with an agreement or understanding, either express or implied, that the person so engaged in selling motor vehicles at retail shall in any manner finance the purchase or sale of any one (1) or number of motor vehicles only with or through a designated person or class of persons or shall sell and assign the conditional sales contract, chattel mortgages, or leases arising from the sale of motor vehicles, or any one (1) or number thereof only to a designated person or class of persons, when the effect of the condition, agreement, or understanding so entered into may be to lessen or eliminate competition, or create or tend to create a monopoly in the person or class of persons who are designated, by virtue of the condition, agreement, or understanding to finance the purchase or sale of motor vehicles or to purchase such conditional sales contracts, chattel mortgages, or leases. Any such condition, agreement, or understanding is void and against the public policy of this state.

History. Acts 1937, No. 205, § 1; Pope's Dig., § 9419; A.S.A. 1947, § 70-130.

4-75-409. Exclusive financing agreements — Threats as prima facie evidence.

Any threat, expressed or implied, made to any person engaged in the business of selling motor vehicles at retail in this state by any person engaged, either directly or indirectly, in the manufacture or distribution of motor vehicles, that the person will discontinue or cease to sell, or refuse to enter into a contract to sell, or will terminate a contract to sell motor vehicles, to the person who is so engaged in the business of selling motor vehicles at retail, unless the person finances the purchase or sale of any one (1) or number of motor vehicles only with or through a designated person or class of persons or sells and assigns the conditional sales contracts, chattel mortgages, or leases arising from his or her retail sales of motor vehicles or any one (1) or number thereof only to a designated person or class of persons shall be prima facie evidence of the fact that such person so engaged in the manufacture or distribution of motor vehicles has sold or intends to sell them on the condition or with the agreement or understanding prohibited in § 4-75-408.

History. Acts 1937, No. 205, § 2; Pope's Dig., § 9420; A.S.A. 1947, § 70-131.

4-75-410. Exclusive financing agreements — Threats presumed made at direction of manufacturer or distributor.

Any threat, expressed or implied, made to any person engaged in the business of selling motor vehicles at retail in this state by any person, or any agent of any such person, who is engaged in the business of financing the purchase or sale of motor vehicles or of buying conditional sales contracts, chattel mortgages, or leases on motor vehicles in this state and is affiliated with or controlled by any person engaged, directly or indirectly, in the manufacture or distribution of motor vehicles, that the person so engaged in such manufacture or distribution shall terminate his or her contract with or cease to sell motor vehicles to such person engaged in the sale of motor vehicles at retail in this state unless such person finances the purchase or sale of any one (1) or number of motor vehicles only with or through a designated person or class of persons or sells and assigns the conditional sales contracts, chattel mortgages, or leases arising from his or her retail sale of motor vehicles or any one (1) or any number thereof only to such person so engaged in financing the purchase or sale of motor vehicles or in buying conditional sales contracts, chattel mortgages, or leases on motor vehicles shall be presumed to be made at the direction of and with the authority of the person so engaged in the manufacture or distribution of motor vehicles, and shall be prima facie evidence of the fact that the person so engaged in the manufacture or distribution of motor vehicles has sold or intends to sell them on the condition or with the agreement or understanding prohibited in § 4-75-408.

History. Acts 1937, No. 205, § 3; Pope's Dig., § 9421; A.S.A. 1947, § 70-132.

4-75-411. Unlawful subsidies or discrimination.

  1. It shall be unlawful for any person who is engaged, directly or indirectly, in the manufacture or wholesale distribution of motor vehicles to pay or give or to contract to pay or give any subsidy to any person, other than an automobile dealer or automobile distributor, who is engaged in the business of financing the purchase or sale of motor vehicles or of buying conditional sales contracts, chattel mortgages, or leases on motor vehicles sold at retail within this state or to discriminate in favor of or against any person, other than an automobile dealer or automobile distributor engaged in the business of financing the purchase or sale of motor vehicles or of buying conditional sales contracts, chattel mortgages, or leases on motor vehicles sold at retail within this state, if the effect of any such subsidy or discrimination may be to lessen or eliminate competition or to create or tend to create a monopoly in the person or class of persons who receive the subsidy or who are benefited by the discrimination.
  2. It shall be unlawful for any person other than an automobile dealer or automobile distributor who is engaged in the business of financing the purchase or sale of motor vehicles or of buying conditional sales contracts, chattel mortgages, or leases on motor vehicles sold at retail within this state to accept or receive or contract or agree to accept or receive, either directly or indirectly, any subsidy or the benefit resulting from any discrimination as set forth in subsection (a) of this section from any person engaged, directly or indirectly, in the manufacture or wholesale distribution of motor vehicles if the effect of the acceptance or receipt of any such subsidy or benefit may be to lessen or eliminate competition or to create or tend to create a monopoly in the person or class of persons who receives the subsidy or who is benefited by the discrimination.
  3. It shall be unlawful for any person other than an automobile dealer or automobile distributor who accepts or receives, either directly or indirectly, any subsidy or the benefit resulting from any discrimination as set forth in subsection (b) of this section or contracts, either directly or indirectly, to receive any such subsidy or benefit to thereafter finance or attempt to finance the purchase or sale of any motor vehicles or buy or attempt to buy any conditional sales contracts, chattel mortgages, or leases on motor vehicles sold at retail in this state.

History. Acts 1937, No. 205, §§ 4-6; Pope's Dig., §§ 9422-9424; A.S.A. 1947, §§ 70-133 — 70-135.

4-75-412. Actions by injured parties.

  1. In addition to the criminal and civil penalties provided in this subchapter, any person who shall be injured in his or her business or property by any other person or corporation or association or partnership, by reason of anything forbidden or declared to be unlawful by this subchapter, may sue therefor in any court having jurisdiction thereof in the county where the defendant resides or is found, or any agent resides or is found, or where service may be obtained, without respect to the amount in controversy, and recover twofold the damages by him or her sustained and the costs of suit.
  2. Whenever it shall appear to the court before which any proceedings under this subchapter may be pending that the ends of justice require that other parties shall be brought before the court, the court may cause them to be made parties defendant and summoned, whether they reside in the county where the action is pending or not.

History. Acts 1937, No. 205, § 12; Pope's Dig., § 9430; A.S.A. 1947, § 70-141.

4-75-413. Arbitration and forum selection clauses in the sale of motor vehicles.

  1. Except as provided in subsection (b) of this section, no new or used automobile dealer shall include in the contract for the sale of a motor vehicle a provision requiring the purchaser to submit a disputed matter to:
    1. Binding arbitration; or
    2. A forum outside the county in which the dealer resides or does business.
      1. The purchaser of a motor vehicle may knowingly and voluntarily agree to submit to binding arbitration only by signing a separate document entitled in bold print “Waiver of Purchaser's Right to Sue” containing a written waiver specifically acknowledging the purchaser's relinquishment of the right to have any dispute over the sale or operation of the motor vehicle decided by a court of law.
      2. The purchaser of a motor vehicle may knowingly and voluntarily agree to submit to a forum outside the dealer's residence or place of business only by signing a separate document entitled in bold print “Waiver of Purchaser's Choice of Forum” containing a written waiver specifically acknowledging the purchaser's relinquishment of the right to have any dispute over the sale or operation of the motor vehicle decided by a court or arbitrator in the county in which the seller resides or does business.
    1. A waiver described in subdivision (b)(1)(A) or (B) of this section shall not be enforceable unless contained in a separate document.
  2. A purchaser who refuses to sign a waiver described in subsection (b) of this section shall not be denied the right to purchase a motor vehicle at the price agreed upon by the purchaser and the seller.

History. Acts 2005, No. 1239, § 1.

RESEARCH REFERENCES

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

Subchapter 5 — Price Discrimination

Effective Dates. Acts 1903, No. 183, § 5: effective on passage.

Acts 1913, No. 51, § 5: approved Feb. 13, 1913. Emergency declared.

Acts 1923, No. 616, § 4: approved Mar. 23, 1923. Emergency clause provided: “There being no adequate law in Arkansas to prevent unfair discrimination in the purchase of the commodities mentioned in this act, and there being a necessity for the immediate protection of the people of Arkansas against such unfair discrimination, and this act being necessary for the immediate preservation of the public health, peace and safety, an emergency is hereby declared to exist, and this act shall take effect and be in force from and after its passage.”

Acts 2017, No. 850, § 4: Apr. 3, 2017. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that discount and rebate programs are not available to all Arkansas consumers; that requiring discount and rebate programs to be available to all eligible consumers is important to the economic stimulation of the state; and that this act is necessary because Arkansas consumers will benefit from immediate access to discount and rebate programs. Therefore, an emergency is declared to exist, and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Research References

Am. Jur. 54 Am. Jur. 2d, Trademarks, § 205 et seq.

C.J.S. 87 C.J.S., Trademarks, etc., § 382 et seq.

4-75-501. Manufactured products, coal oil, or dressed beef.

  1. It is unlawful for any person, company, corporation, or association engaged in the sale of any manufactured product, coal oil, or dressed beef, to:
    1. Sell any such manufactured product, coal oil, or dressed beef at a greater cash price at any place in this state than the person, company, corporation, or association sells the manufactured product, coal oil, or dressed beef at other points in this state, after making due allowance for difference in cost of carriage or other necessary cost; or
    2. Willfully refuse or fail to allow to any person, corporation, or company making purchases of the manufactured product, coal oil, or dressed beef all rebates and discounts that are granted by them to other purchasers, for cash, of like quantities of the manufactured product, coal oil, or dressed beef.
  2. This section does not apply to:
    1. A discount or rebate that is offered without charge to all purchasers on an equal basis, regardless of whether the purchaser chooses to accept or fulfill any of the nonmonetary conditions for receiving the discount or rebate; or
    2. A discount or rebate that is offered without charge to all members of a specified group, including without limitation senior citizens, students, or current or former members of the United States Armed Forces, if that group is not defined by race, color, sex, religion, or national origin of the purchaser.
    1. A person, company, corporation, or association that violates this section shall forfeit not less than two hundred dollars ($200) nor more than one thousand dollars ($1,000) for each offense.
    2. Each unlawful sale or refusal or failure to allow the rebate or discount constitutes a separate offense.
    1. The penalty in cases under this section is to be recovered by an action in the name of the person, company, corporation, or association damaged by the greater price or refusal of, or failure to allow, the rebate or discount or in the name of the state at the relation of any prosecuting attorney in this state.
      1. The moneys collected under subdivision (d)(1) of this section shall be paid to the person, company, corporation, or association bringing the suit.
      2. If a suit is brought in the name of the state, one-fourth (¼) of the moneys collected shall be paid to the prosecuting attorney bringing the suit and three-fourths (¾) of the moneys collected shall be paid to the Public School Fund.
    2. An action or suit under this section may be brought in any county in which the offense was committed by action at law or suit in equity in the circuit court.
      1. If a defendant is a person, corporation, or association, the service of summons upon the defendant in any county of this state shall be a sufficient service.
      2. If the defendant is a corporation, the service of summons upon any agent of the corporation in this state shall be a lawful service.
    3. Several offenses under this section may be joined in one (1) action or suit.

History. Acts 1903, No. 183, §§ 1-3, p. 349; C. & M. Dig., §§ 10324g-10324i; Pope's Dig., §§ 14304-14306; A.S.A. 1947, §§ 70-120 — 70-122; Acts 2017, No. 850, § 2.

A.C.R.C. Notes. Acts 2017, No. 850, § 1, provided: “Legislative findings and purpose.

“(a) The General Assembly finds that:

“(1) Arkansas consumers benefit from discount programs that retailers provide to consumers, such as coupons, loyalty programs, and discounts to members of certain groups, such as students, senior citizens, or members of the United States Armed Forces;

“(2) Arkansas retailers should have the right to design discount programs for their customers that offer discounts without charge on a nondiscriminatory basis to all members of the public or on a nondiscriminatory basis to all members of a particular group of consumers;

“(3) Arkansas retailers that have implemented such discount programs in the past should not be held liable for penalties by those persons who chose not to participate in such programs or who were not eligible for such programs; and

“(4) It is in the best interests of the consumers of this state to allow retailers to design and implement discount programs for consumers without fear of liability.

“(b) The purpose of this act is to clarify that current Arkansas law does not prohibit a retailer from offering discounts without charge on a nondiscriminatory basis to all members of the public or on a nondiscriminatory basis to all members of a particular group of consumers.”

Acts 2017, No. 850, § 3, provided: “RETROACTIVITY. This act is retroactive to January 1, 2012.”

Amendments. The 2017 amendment inserted present (b) and redesignated the remaining subsections accordingly; rewrote and redesignated (d)(2) as (d)(2)(A) and (B); redesignated (d)(4) as (d)(4)(A) and (B); and made stylistic changes.

Case Notes

Construction.

Focus of this section is not to bestow a right on the public, but to prevent injurious conduct. Rhodes v. Kroger Co., 2019 Ark. 174, 575 S.W.3d 387 (2019).

Acts 2017, No. 850, which amended this section, is substantive law in that it defines the parameters of this section in a way that was not previously set forth in the section; accordingly, it cannot be given retroactive application. Rhodes v. Kroger Co., 2019 Ark. 174, 575 S.W.3d 387 (2019).

Failure to State Cause of Action.

Customers failed to state a viable cause of action as a matter of law in their class action alleging that a grocery store company had violated this section through its reward card policies and procedures. Because the grocery store company consistently and uniformly offered its reward card to all customers, and it was only the customers' willful refusal to take part in the program that created the situation that was the primary focus of the complaint, the company did not violate this section by willfully refusing or failing to give the discounts afforded to card holders to all persons. Rhodes v. Kroger Co., 2019 Ark. 174, 575 S.W.3d 387 (2019).

Circuit court did not abuse its discretion in granting judgment on the pleadings on customers' claims concerning the grocery store company's senior-citizen discount because the focus of this section was on the conduct of the company, and the absence of any factual allegation regarding the mens rea was fatal to customers' cause of action; completely absent was any allegation that the customers asserted that they wished to receive the senior-citizen discount and that the company, through its employees or agents, willfully refused or failed to allow the discount. Rhodes v. Kroger Co., 2019 Ark. 174, 575 S.W.3d 387 (2019).

Functional Availability.

Rationale underlying the functional-availability doctrine, which provides that a plaintiff cannot recover for price discrimination when the plaintiff failed to take advantage of a price concession that was realistically and functionally available, is relevant to cases under this section; the functional-availability doctrine operates to keep the focus of an anti-price-discrimination statute on the actions of the seller, not the result that may be affected by the conduct of the buyer. Rhodes v. Kroger Co., 2019 Ark. 174, 575 S.W.3d 387 (2019).

Venue.

Contention that plaintiff was damaged because defendant charged a lower price in one county than elsewhere did not fix the venue of action in that county. Concrete, Inc. v. Arkhola Sand & Gravel Co., 228 Ark. 1016, 311 S.W.2d 770 (1958).

4-75-502. Purchase of commodities.

  1. Any person, firm, company, association, or corporation, foreign or domestic, doing business in the State of Arkansas and engaged in the business of buying milk, cream, butter, butter fat, poultry, eggs, grain, or cottonseed who, for the purpose of destroying or injuring the business of a competitor, shall discriminate between different sections, localities, communities, cities, or towns of this state by purchasing the commodity at a higher price or rate in one section, locality, community, city, or town than is paid for the same commodity by the person, firm, company, association, or corporation in another section, locality, community, city, or town, after making due allowance, if any, in the grade or quality of the commodity, and in the actual cost of transportation from the point of purchase to the point of manufacture, sale, or storage, shall be deemed guilty of unfair discrimination, which is prohibited and declared to be unlawful. However, the fact that any person, firm, company, association, or corporation purchases any of the above-mentioned commodities at a higher price or rate in the one section, locality, community, city, or town than is paid at the time for the same commodity by the same person, firm, company, association, or corporation in another section, locality, community, city, or town, after making due allowance for the difference, if any, in the grade or quality and in the actual cost of transportation from the point of purchase, sale, or storage, shall be prima facie evidence that the higher price or rate was paid for the purpose of destroying or injuring the business of a competitor and that the person, firm, company, association, or corporation is guilty of unfair discrimination.
  2. Any person, firm, company, association, or corporation who shall be convicted of unfair discrimination, as defined by this section, shall be fined for each offense not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000).
    1. In addition thereto, any person, firm, company, association, or corporation so convicted shall be enjoined upon the application of the State of Arkansas or any person, firm, or corporation injured by the discrimination from engaging directly or indirectly in the business of purchasing in any such commodities.
    2. It is the duty of the Attorney General of the State of Arkansas, upon being informed that any person, firm, company, association, or corporation has been convicted of unfair discrimination as defined in this section, immediately to institute suit in the name of the State of Arkansas in any circuit court of this state where service may be had upon the defendant against the person, firm, company, association, or corporation to enjoin the person, firm, company, association, or corporation from engaging directly or indirectly in the business of buying any such commodities.
    3. Upon proof that any such person, firm, company, association, or corporation has been convicted of unfair discrimination, the court shall issue the injunction.

History. Acts 1923, No. 616, §§ 1-3; Pope's Dig., §§ 14308-14310; A.S.A. 1947, §§ 70-123 — 70-125.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

Sale of milk at less than cost prohibited, § 4-75-801 et seq.

4-75-503. Furnishing or transmitting news.

      1. All corporations, companies, individuals, associations, or persons associated for the purpose of furnishing news for publication in newspapers and engaged in furnishing news for publication shall furnish the service to all newspapers, persons, companies, or corporations authorized to do business under the laws of this state at uniform rates and without discrimination.
      2. The service shall be given in the same manner and at the same cost to all.
    1. No increase in the rate charged for such news service shall apply in this state unless the increased rates shall be made in conformity with the uniform increased rates made for all other points wherever the news service may be furnished by the persons, companies, corporations, associations, or companies associated.
    1. Any person, association, company, or corporation associated violating the provisions of this section shall be guilty of a violation and fined in any sum not less than one thousand dollars ($1,000) nor more than five thousand dollars ($5,000).
    2. Each day's violation shall constitute a separate offense and shall be punished as such.
    1. Any telegraph company or telephone company transmitting or permitting to be transmitted over its lines, by lease or otherwise, or which shall receive for transmission over any of its lines from any persons, companies, corporations, associations, or persons associated, any news item, the transmission of which is prohibited by this section, shall be guilty of a violation and punished by a fine of not less than five hundred dollars ($500) nor more than five thousand dollars ($5,000).
    2. The Attorney General or any prosecuting attorney of the state is empowered, authorized, and directed to bring suit in the name of the State of Arkansas for the recovery of the penalty prescribed by subdivision (c)(1) of this section.
  1. Any person, company, corporation, or any association of persons against whom a discrimination shall be made in the rate charged or of services rendered by any association, company, corporation, or persons associated in the furnishing of news service or to whom such news service is refused shall be entitled to recover damages in any sum not less than one thousand dollars ($1,000) per day for each day of the discrimination or refusal.

History. Acts 1913, No. 51, §§ 1-4; C. & M. Dig., §§ 7965½-7968; Pope's Dig., §§ 10358-10361; A.S.A. 1947, §§ 70-126 — 70-129; Acts 2005, No. 1994, § 39.

Subchapter 6 — Theft of Trade Secrets

Publisher's Notes. For Commentary regarding the Uniform Trade Secrets Acts, see Commentaries Volume A.

Effective Dates. Acts 1981, No. 439, § 8: Mar. 12, 1981. Emergency clause provided: “Because of the uncertainty with regard to a substantial number of patents and because of the commercial importance of trade secrets law to industry in the State of Arkansas, it is necessary to have the doubtful and confused status of the common law and statutory remedies for trade secrets clarified and an emergency is therefore declared to exist so that this Act shall become effective immediately upon its approval.”

Research References

ALR.

Damages for misappropriation of trade secret. 11 A.L.R.4th 12.

Exemption of “trade secrets” from disclosure under state freedom of information act. 27 A.L.R.4th 773.

Disclosure or use of computer application software as misappropriation of trade secret. 30 A.L.R.4th 1250.

What is computer “trade secret” under state law. 53 A.L.R.4th 1046.

What is “trade secret” so as to render actionable under state law its use or disclosure by. 59 A.L.R.4th 641.

Discovery of trade secret in state court action. 75 A.L.R.4th 1009.

Actions Under Defend Trade Secrets Act, 18 U.S.C. § 1836, 30 A.L.R. Fed. 3d Art. 9 (2018).

Am. Jur. 54A Am. Jur. 2d, Monop., § 1114 et seq.

Ark. L. Notes.

Bozzo, Can You Keep a Secret? A primer on the Arkansas Trade Secrets Act, 1997 Ark. L. Notes 103.

Ark. L. Rev.

Watkins, Access to Public Records under the Arkansas Freedom of Information Act, 38 Ark. L. Rev. 741.

Beckerman-Rodau, Are Ideas Within the Traditional Definition of Property?: A Jurisprudential Analysis, 47 Ark. L. Rev. 603.

C.J.S. 87 C.J.S., Trademarks, etc., §§ 128, 133.

U. Ark. Little Rock L.J.

Commercial Torts—Trade Secrets—Arkansas Extends Trade Secret Protection to Customer Lists Under the Arkansas Trade Secrets Act. Allen v. Johar, Inc., 308 Ark. 45, 823 S.W.2d 824 (1992), 14 U. Ark. Little Rock L.J. 693.

Fifteenth Annual Survey of Arkansas Law, 15 U. Ark. Little Rock L.J. 427.

Case Notes

Construction.

This subchapter must necessarily be read as attempting to prevent one from unfairly using a trade secret of another in an anti-competitive manner or disclosing it so that others could use it; thus, the “use” prong of the misappropriation definition requires that the use be for competitive reasons in order to give rise to a cause of action under this subchapter. Southwestern Energy Co. v. Eickenhorst, 955 F. Supp. 1078 (W.D. Ark. 1997), aff'd, 175 F.3d 1025 (8th Cir. 1999).

Purpose.

The aim of trade secrets law is to encourage businesses to invest resources in invention and discovering more efficient methods of production. Southwestern Energy Co. v. Eickenhorst, 955 F. Supp. 1078 (W.D. Ark. 1997), aff'd, 175 F.3d 1025 (8th Cir. 1999).

4-75-601. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means;
  2. “Misappropriation” means:
    1. Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
    2. Disclosure or use of a trade secret of another without express or implied consent by a person who:
      1. Used improper means to acquire knowledge of the trade secret; or
      2. At the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was:
        1. Derived from or through a person who had utilized improper means to acquire it;
        2. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
        3. Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
      3. Before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake;
  3. “Person” means a natural person, corporation, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision or agency, or any other legal or commercial entity;
  4. “Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
    1. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
    2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

History. Acts 1981, No. 439, § 1; A.S.A. 1947, § 70-1001.

Research References

ALR.

Applicability of Inevitable Disclosure Doctrine Barring Employment of Competitor's Former Employee. 36 A.L.R.6th 537.

Ark. L. Rev.

Carroll, Uniform Laws in Arkansas, 52 Ark. L. Rev. 313.

Cate, Saforo & Associates, Inc. v. Porocel Corp.: The Failure of the Uniform Trade Secrets Act to Clarify the Doubtful and Confused Status of Common Law Trade Secret Principles, 53 Ark. L. Rev. 687.

U. Ark. Little Rock L. Rev.

Annual Survey of Caselaw, Business Law, 24 U. Ark. Little Rock L. Rev. 883.

Note: Intellectual Property-Trade Secret Law-Is the Arkansas Supreme Court Following Other Jurisdictions Down the Wrong Road in Analyzing Combination Trade Secrets? Wal-Mart Stores v. P.O. Mkt., 347 Ark. 651, 66 S.W.3d 620 (2002), 25 U. Ark. Little Rock L. Rev. 407.

Annual Survey of Caselaw, Intellectual Property, 25 U. Ark. Little Rock L. Rev. 1014, 1016.

Case Notes

In General.

The distinction between information which is written down and that which is memorized has little materiality under Arkansas law; the critical issue is whether the information, whether written or memorized, is entitled to protection as a trade secret. Vigoro Indus., Inc. v. Cleveland Chem. Co., 866 F. Supp. 1150 (E.D. Ark. 1994), aff'd in part, reversed in part, Vigoro Indus., Inc. v. Crisp, 82 F.3d 785 (8th Cir. 1996).

Cause of action for misappropriation of a trade secret accrued when the trade secrets were acquired; thus, the statute of limitations began to run in January 1999, when defendant started his new business with the knowledge of having worked at plaintiff's business and induced plaintiff's employees and customers to leave plaintiff's business. Quality Optical of Jonesboro, Inc. v. Trusty Optical, L.L.C., 365 Ark. 106, 225 S.W.3d 369 (2006).

In a nursing care services provider's suit against a competing company, a damages award in favor of the provider was proper as the fair market value of the misappropriated trade secrets was an appropriate measure of unjust enrichment for purposes of the Arkansas Trade Secrets Act, §§ 4-75-6014-75-607, and these trade secrets (the provider's computer program and databases) benefitted the competitor in its first-year's profits. The development and labor costs for the various lists and databases were properly calculated for unjust-enrichment damages as the competitor did not have to contribute to the time, effort, and cost of their development. R.K. Enters., LLC v. Pro-Comp Mgmt., 372 Ark. 199, 272 S.W.3d 85 (2008).

Applicability.

Where invention or its components, together or singly, were either generally known by virtue of extant patents or readily ascertainable, by proper means contrary to the requirement of subdivision (4)(A), and where plaintiff further failed to demonstrate that it took reasonable, if any, efforts to maintain any secrecy on the subject matter as required by subdivision (4)(B), the evidence failed, as a matter of law, to prompt application of the Arkansas Trade Secrets Act. Coenco, Inc. v. Coenco Sales, Inc., 940 F.2d 1176 (8th Cir. 1991).

Section 4-75-602 applied where plaintiff's tort claims of conversion and conspiracy stemmed from the same acts constituting a violation of the Arkansas Trade Secrets Act, § 4-75-601 et seq.; thus, the statutory language of the Act displaced or preempted the award of damages based upon plaintiff's tort claims for conversion of trade secrets, as well as other tort claims such as conspiracy, that might have arisen under a claim for misappropriation of trade secrets, and the trial court committed reversible error in its award of damages based on tort law, for tortious conversion and conspiracy. R.K. Enter., L.L.C. v. Pro-Comp Mgmt., 356 Ark. 565, 158 S.W.3d 685 (2004).

Defendants were not entitled to a protective order because defendants' bald assertion that certain phone records constituted trade secrets under § 4-75-601(4) failed to satisfy defendants' burden to show that the records contained the type of sensitive information that would merit protection under Fed. R. Civ. P. 26(c)(7). Rotoworks Int'l Ltd. v. Grassworks USA, LLC, — F. Supp. 2d —, 2007 U.S. Dist. LEXIS 27097 (W.D. Ark. Apr. 11, 2007).

Determinative Factors.

An important factor in determining whether a customer list was a trade secret is whether the employer took actions to guard the secrecy or preserve the confidentiality of the list. Whether the customer information used was written down or memorized is immaterial. Allen v. Johar, Inc., 308 Ark. 45, 823 S.W.2d 824 (1992).

In determining whether any particular information constitutes a trade secret, several statutory factors must be analyzed: first, it must be determined if the information has economic value from not being generally known; then, it must be determined whether the information was not generally known; next, it must be determined whether the information was “readily ascertainable by proper means”; and finally, the court must ascertain whether the information was subject to reasonable efforts to maintain its secrecy. Vigoro Indus., Inc. v. Cleveland Chem. Co., 866 F. Supp. 1150 (E.D. Ark. 1994), aff'd in part, reversed in part, Vigoro Indus., Inc. v. Crisp, 82 F.3d 785 (8th Cir. 1996).

The issue of whether information constitutes a trade secret under the Arkansas Trade Secrets Act is governed by six factors: 1) the extent to which the information is known outside the business; 2) the extent to which the information is known by employees and others in the business; 3) the extent of measures taken to guard the secrecy of the information; 4) the value of the information to the party and competitors; 5) the amount of money or effort expended by the party in developing the information; and 6) the ease or difficulty with which the information could be properly acquired by others. Wal-Mart Stores v. P.O. Mkt., Inc., 347 Ark. 651, 66 S.W.3d 620 (2002).

Generally Known.

Appellee claimed that the mere fact that appellant's formulas were capable of being reverse engineered made them generally known to, and readily ascertainable by, third persons; however, a formula or product may maintain its status as a trade secret, even though it can be reverse engineered, if the process of reverse engineering is too difficult or costly, and a fact question remained as to the cost or difficulty of reverse engineering the formulas; therefore, summary judgment was improper. Gibraltar Lubricating Servs. v. Pinnacle Resources, Inc., 2016 Ark. App. 156, 486 S.W.3d 224 (2016).

Appellee pointed to publications and patents attached to an expert's affidavit as evidence that the ingredients in appellant's formulas were generally known, but none of those items purported to contain the actual formulas of appellant, and there was testimony that appellant's lubricants had years of proven success and the formulation of the additive package was considered a trade secret; summary judgment was improper. Gibraltar Lubricating Servs. v. Pinnacle Resources, Inc., 2016 Ark. App. 156, 486 S.W.3d 224 (2016).

Information Not Protected.

The following types of customer information, belonging to a farm products supplier, were not protectable as trade secrets under this subchapter: the fact that the farmer was a customer of the supplier; the farmer's history of crops planted, timing of planting, crop rotation schedule, and plans for future planting; the history of supplier's product sales to the farmer; the farmer's history of having his crop scouted for insects by supplier's salesmen; the farmer's history of having soil samples analyzed at supplier's expense; and the farmer's creditworthiness for farm-supply purchases. Vigoro Indus., Inc. v. Cleveland Chem. Co., 866 F. Supp. 1150 (E.D. Ark. 1994), aff'd in part, reversed in part, Vigoro Indus., Inc. v. Crisp, 82 F.3d 785 (8th Cir. 1996).

Identity of farm supply store customers was not entitled to trade secret protection because it could be easily discovered as they farmed in small geographic area; interested farmers would readily provide other types of information because that helped them purchase the most appropriate farm supplies. Vigoro Indus., Inc. v. Crisp, 82 F.3d 785 (8th Cir. 1996), rehearing denied, Vigoro Indus. v. Cleveland Chem., — F.3d —, 1996 U.S. App. LEXIS 14845 (8th Cir. June 17, 1996).

Information at issue did not qualify as a trade secret where there were no efforts on the plaintiff's part to restrain disclosure of information postemployment, such as with a noncompetition agreement. ConAgra Poultry Co. v. Tyson Foods, Inc., 342 Ark. 672, 30 S.W.3d 725 (2000).

A plan to have a separate company bill large bulk credit buyers' of retailer's goods and earn the credit markup of the cost of the retailer's goods was not a trade secret in that, even with looking at the combination of ideas instead of the ideas individually, the concept was not unique. Wal-Mart Stores v. P.O. Mkt., Inc., 347 Ark. 651, 66 S.W.3d 620 (2002).

Employer's proprietary information was not a trade secret when it was either available on the internet or in hard copy or readily available to employees, and the secrecy of its software was compromised by frequently allowing access to it without the use of a password known only to the employer. Weigh Sys. S., Inc. v. Mark's Scales & Equip., Inc., 347 Ark. 868, 68 S.W.3d 299 (2002).

Food corporation's nutrient profile was not a trade secret because hundreds of managers were educated about the profile and there was no proof that the corporation took any steps to swear them to secrecy or warn them of the confidential nature of the profile; relying on an ethical guide like the Corporate Code which failed to identify what was a trade secret, or to mention the nutrient profile, was not enough for the corporation to invoke trade-secret protection. Tyson Foods, Inc. v. ConAgra, Inc., 349 Ark. 469, 79 S.W.3d 326 (2002).

Telephone records that defendants wanted to make subject to a Fed. R. Civ. P. 26(c)(7) protective order were not trade secrets as defined in § 4-75-601(4) because they were simply a list of customer telephone numbers, with the dates and times of various phone calls noted. The records did not contain any unique information about the customers that was difficult to ascertain. Rotoworks Int'l Limited v. Grassworks USA, LLC, — F. Supp. 2d —, 2007 U.S. Dist. LEXIS 30713 (W.D. Ark. Apr. 25, 2007).

Information Protected.

Evidence clearly established that defendant's machines fit under the definition of trade secret. Allen v. Johar, Inc., 308 Ark. 45, 823 S.W.2d 824 (1992).

This subchapter may, to a limited extent, be applied to prevent an attorney from breaching confidentiality agreements with a non-client in order to use information obtained from such agreements to establish a class action lawsuit against the non-client. Southwestern Energy Co. v. Eickenhorst, 955 F. Supp. 1078 (W.D. Ark. 1997), aff'd, 175 F.3d 1025 (8th Cir. 1999).

A trucking company's methods, processes, operations, marketing programs, computer programs, future plans, and customers, encompassed confidential information and were protected by the Trade Secrets Act. Cardinal Freight Carriers, Inc. v. J.B. Hunt Transp. Servs., Inc., 336 Ark. 143, 987 S.W.2d 642 (1999).

A wash water system used in processing a raw material referred to as “Bayer Scale” constituted a trade secret where (1) although the system was a combination of components, each of which was in the public domain, the unified process afforded a competitive advantage, (2) the system was not generally known to either the plaintiff's or defendant's employees, (3) the plaintiff employed reasonable security measures to guard the configuration of the system, (4) the value of the system was its efficiency and inexpensive installation, (5) the engineer who designed the system spent some weeks on the problem solved by the system, and (6) no witness testified that he had ever seen Bayer Scale washed in a similar fashion. Saforo & Assocs. v. Porocel Corp., 337 Ark. 553, 991 S.W.2d 117 (1999).

Where a former employer alleged that a former employee copied trade secrets and solicited the former employer's clients to move their business to the current employer, and the former employer was granted a preliminary injunction based on nondisclosure and noncompetition provisions, although it would have been appropriate for the circuit court to enjoin the employee and the current employer under the Arkansas Trade Secrets Act also because the former employer's customer information came within the protection of the Act, this was a matter of discretion for the circuit court and the relief obtained would have been no broader. Freeman v. Brown Hiller, Inc., 102 Ark. App. 76, 281 S.W.3d 749 (2008), rehearing denied, — Ark. App. —, — S.W.3d —, 2008 Ark. App. LEXIS 361 (May 7, 2008), review denied, — Ark. —, — S.W.3d —, 2008 Ark. LEXIS 584 (Sept. 4, 2008).

Jury could reasonably have concluded that a company division's customer, pricing, ongoing project, and profit information, which appeared in a new firm's business plan, met the necessary criteria of a trade secret, as the information possessed independent economic value from not being known to or readily ascertainable by a competitor, as shown by the testimony of those who financed the new business; the company's president testified that a competitor could “kill our entire company” with that type of information. Bradshaw v. Alpha Packaging, Inc., 2010 Ark. App. 659, 379 S.W.3d 536 (2010), review denied, — Ark. —, — S.W.3d —, 2011 Ark. LEXIS 387 (Ark. Apr. 21, 2011).

Trial court properly granted a corporation a preliminary injunction to prevent an employee from using or disclosing trade secrets because it did not clearly err in finding that, as a director and an officer, the employee had a fiduciary duty to the corporation, and it did not abuse its discretion in finding the requisite irreparable harm and likelihood of success on the merits; the confidential information constituted trade secrets for the closely held corporation with few employees. LaPointe v. New Tech., Inc., 2014 Ark. App. 346, 437 S.W.3d 126 (2014).

Misappropriation.

The test of whether the “improper acquisition” and “disclosure” aspects of the definition of misappropriation are met is inherently different from that of “use.” Southwestern Energy Co. v. Eickenhorst, 955 F. Supp. 1078 (W.D. Ark. 1997), aff'd, 175 F.3d 1025 (8th Cir. 1999).Use of a misappropriated trade secret gives rise to liability under subdivision (2)(B) of this section. Pro-Comp Mgmt. v. R.K. Enters., LLC, 366 Ark. 463, 237 S.W.3d 20 (2006).

Trial court properly determined that a company was liable for the misappropriation of trade secrets where it used the illegally obtained trade secrets and benefitted from the appropriation. Pro-Comp Mgmt. v. R.K. Enters., LLC, 366 Ark. 463, 237 S.W.3d 20 (2006).

Defendants' motion to dismiss plaintiffs' claims for trade secret misappropriation under this section, intentional interference with contractual relationships or business expectancies, fraud, unjust enrichment, and civil conspiracy was denied because there were fact issues as to whether plaintiffs' claims accrued within the applicable three-year statute of limitations set forth in § 4-75-603 and § 16-56-105 and whether the application of the doctrine of fraudulent concealment was appropriate, and further, plaintiffs' allegations were sufficient to withstand a motion to dismiss. Roach Mfg. Corp. v. Northstar Indus., 630 F. Supp. 2d 1004 (E.D. Ark. 2009).

It was error to dismiss a firm's trade secrets claim because (1) it was alleged that an employer used the firm's trade secrets acquired by the employer's employee's brother to compete with the firm, and (2) misappropriation included use of a trade secret acquired by another. Ballard Group, Inc. v. BP Lubricants USA, Inc., 2014 Ark. 276, 436 S.W.3d 445 (2014).

In a trade secrets action, brought by a foam producer against a former customer/competitor, after a consultant and manager left the producer and helped the competitor develop its own foam, there was a material factual dispute as to whether the competitor used “improper means” to acquire the producer's trade secrets; there was a reasonable inference that the competitor used information from the consultant and manager that it knew they had a duty not to disclose. 3A Composites USA, Inc. v. United Indus., No. 5:14-CV-5147, 2015 U.S. Dist. LEXIS 122745 (W.D. Ark. Sept. 15, 2015).

Jury's award of $2,788,690 in damages for a retailer's misappropriation of trade secret source files was significantly reduced; although sufficient evidence at trial supported the jury's finding that the source files met the statutory definition of “trade secret” and that they were misappropriated, there was no evidence at trial that the source files actually played any role in any other firms' work for the retailer. Wal-Mart Stores, Inc. v. Cuker Interactive, LLC, No. 5:14-CV-5262, 2018 U.S. Dist. LEXIS 55242 (W.D. Ark. Mar. 31, 2018).

Preemption.

Not all claims asserted against a former employee were preempted by the Arkansas Trade Secrets Act; as to a tortious interference claim, an amended complaint alleged that, in addition to a theft of information, former clients were contacted to solicit their business. Moreover, an allegation that confidential information was deleted fell within the definition of criminal trespass, which was not based on misappropriation of a trade secret. Jenkins v. APS Ins., LLC, 2013 Ark. App. 746, 431 S.W.3d 356 (2013).

Readily Ascertainable.

The plaintiff's customer information was “readily ascertainable” and thus not trade secrets within the definition set forth in subdivision (4) of this section. Hi-Line Elec. Co. v. Moore, 775 F.2d 996 (8th Cir. 1985).

It is not necessary that employer's customer information be capable of exact and precise duplication in order to be readily ascertainable, especially in a market where customers do business with more than one sales company or are open to the possibility of shifting business from one company to another. Vigoro Indus., Inc. v. Cleveland Chem. Co., 866 F. Supp. 1150 (E.D. Ark. 1994), aff'd in part, reversed in part, Vigoro Indus., Inc. v. Crisp, 82 F.3d 785 (8th Cir. 1996).

A finding that the information was readily accessible to competitors indicated that the plaintiff did not reasonably spend a great deal of time or effort compiling that information, and that the plaintiff suffered no injury when a former employee used the information since he or his new employer could easily discover it from other sources. Vigoro Indus., Inc. v. Cleveland Chem. Co., 866 F. Supp. 1150 (E.D. Ark. 1994), aff'd in part, reversed in part, Vigoro Indus., Inc. v. Crisp, 82 F.3d 785 (8th Cir. 1996).

Where employer's customer list consisted of fewer than 200 farmers, all of whom were located within a twenty-five to fifty-mile radius of the store, the names of these farmers were “readily ascertainable.” Vigoro Indus., Inc. v. Cleveland Chem. Co., 866 F. Supp. 1150 (E.D. Ark. 1994), aff'd in part, reversed in part, Vigoro Indus., Inc. v. Crisp, 82 F.3d 785 (8th Cir. 1996).

A trucking company's methods, processes, operations, marketing programs, computer programs, future plans, and customers were not readily ascertainable where the company's employees signed a confidentiality agreement, passwords and pass codes were issued to employees who were privy to such information, and only two specific employees were allowed to talk to the media. Cardinal Freight Carriers, Inc. v. J.B. Hunt Transp. Servs., Inc., 336 Ark. 143, 987 S.W.2d 642 (1999).

Remedy.

In a case where it was alleged that an employee took electronic business data from an employer, the Arkansas Theft of Trade Secrets Act preempted a tort claim for the conversion of electronic data; the Act was the exclusive remedy for the alleged misappropriation of trade secrets. Infinity Headwear & Apparel, LLC v. Coughlin, 2014 Ark. App. 609, 447 S.W.3d 139 (2014).

Summary Judgment.

In this trade secrets case, the issue was whether appellant's formulas were readily ascertainable, such that they did not qualify as trade secrets; as the circuit court placed significant weight on appellee's expert's credibility, summary judgment was improperly granted. Gibraltar Lubricating Servs. v. Pinnacle Resources, Inc., 2016 Ark. App. 156, 486 S.W.3d 224 (2016).

Trade Secret.

There was insufficient evidence to support the jury's finding that a website contractor undertook reasonable efforts to maintain the secrecy of its Phased Release Support Technique, CMS Tweak Development Tool, and Zoning Tools as required by the definition of “trade secret” in this section. The jury's verdict was reversed as to those three alleged trade secrets. Wal-Mart Stores, Inc. v. Cuker Interactive, LLC, No. 5:14-CV-5262, 2018 U.S. Dist. LEXIS 55242 (W.D. Ark. Mar. 31, 2018).

Supplier did not undertake reasonable efforts to maintain the secrecy of three of the four alleged trade secrets from a buyer because the supplier never told the buyer that the technologies at issue were trade secrets and its broad declaration that everything except 13 specific templates was its exclusive property was insufficient to identify the techniques as trade secrets under Arkansas law. Walmart Inc. v. Cuker Interactive, LLC, 949 F.3d 1101 (8th Cir. 2020).

Where the buyer knew that the supplier's source files contained confidential materials and trade secrets, and the supplier took steps to protect them and did not acquiesce to the buyer's demands for them until compelled to do so, this was sufficient to identify the techniques as trade secrets under Arkansas law. Walmart Inc. v. Cuker Interactive, LLC, 949 F.3d 1101 (8th Cir. 2020).

Cited: United Centrifugal Pumps v. Cusimano, 708 F. Supp. 1038 (W.D. Ark. 1988); Swink v. Griffin, 333 Ark. 400, 970 S.W.2d 207 (1998); Statco Wireless, L.L.C. v. Southwestern Bell Wireless, L.L.C., 80 Ark. App. 284, 95 S.W.3d 13 (2003); Pro-Comp Mgmt. v. R.K. Enters., LLC, 365 Ark. 111, 225 S.W.3d 389 (2006).

4-75-602. Effect of subchapter on other law.

  1. This subchapter displaces conflicting tort, restitutionary, and other law of this state pertaining to civil liability for misappropriation of a trade secret.
  2. This subchapter does not affect:
    1. Contractual or other civil liability or relief that is not based upon misappropriation of a trade secret; or
    2. Criminal liability for misappropriation of a trade secret.

History. Acts 1981, No. 439, § 7; A.S.A. 1947, § 70-1007.

Research References

ALR.

Uniform Trade Secrets Act (UTSA) as Preempting Civil Action Not Sounding in Contract and Based on Misappropriation of Confidential Information Other than Trade Secret, and UTSA as Precluding Plaintiff's Assertion that Claim Does Not Constitute Trade Secret in Order to Circumvent Preemption Bar, 29 A.L.R.7th Art. 4 (2018).

Case Notes

Applicability.

Were the court to determine that the information employer seeks to protect as a trade secret qualified as such, and that the employees misappropriated those trade secrets, then employer's exclusive remedy for improper use of that information would be pursuant to this subchapter. Vigoro Indus., Inc. v. Cleveland Chem. Co., 866 F. Supp. 1150 (E.D. Ark. 1994), aff'd in part, reversed in part, Vigoro Indus., Inc. v. Crisp, 82 F.3d 785 (8th Cir. 1996).

This section applied where plaintiff's tort claims of conversion and conspiracy stemmed from the same acts constituting a violation of the Arkansas Trade Secrets Act, § 4-75-601 et seq.; thus, the statutory language of the Act displaced or preempted the award of damages based upon plaintiff's tort claims for conversion of trade secrets, as well as other tort claims such as conspiracy, that might have arisen under a claim for misappropriation of trade secrets, and the trial court committed reversible error in its award of damages based on tort law, for tortious conversion and conspiracy. R.K. Enter., L.L.C. v. Pro-Comp Mgmt., 356 Ark. 565, 158 S.W.3d 685 (2004).

In a trade secrets action, brought by a foam producer against a former customer/competitor, after a consultant and manager left the producer and helped the competitor develop its own foam, the producer's tortious interference and deceptive trade practices claims, which relied on the same acts that constituted alleged misappropriation, were preempted by the Arkansas Trade Secrets Act. 3A Composites USA, Inc. v. United Indus., No. 5:14-CV-5147, 2015 U.S. Dist. LEXIS 122745 (W.D. Ark. Sept. 15, 2015).

In a trade secrets action, brought by a foam producer against a former customer/competitor, after a consultant and manager left the producer and helped the competitor develop its own foam, the producer's breach of contract claims were not preempted by the Arkansas Trade Secrets Act, regardless of whether the claims were premised on alleged misappropriation. 3A Composites USA, Inc. v. United Indus., No. 5:14-CV-5147, 2015 U.S. Dist. LEXIS 122745 (W.D. Ark. Sept. 15, 2015).

Computer Crime.

Not all claims asserted against a former employee were preempted by the Arkansas Trade Secrets Act; as to a tortious interference claim, an amended complaint alleged that, in addition to a theft of information, former clients were contacted to solicit their business. Moreover, an allegation that confidential information was deleted fell within the definition of criminal trespass, which was not based on misappropriation of a trade secret. Jenkins v. APS Ins., LLC, 2013 Ark. App. 746, 431 S.W.3d 356 (2013).

4-75-603. Statute of limitations.

An action for misappropriation must be brought within three (3) years after the misappropriation is discovered or, by the exercise of reasonable diligence, should have been discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim.

History. Acts 1981, No. 439, § 6; A.S.A. 1947, § 70-1006.

Case Notes

In General.

Trial court did not err in dismissing plaintiff's complaint for misappropriation of trade secrets as the statute of limitations was three years under this section; the cause of action arose in January 1999, when defendant left plaintiff's employment, started a directly competing business and induced plaintiff's employees and customers to leave plaintiff's business, but the complaint was not filed until August 2002. Quality Optical of Jonesboro, Inc. v. Trusty Optical, L.L.C., 365 Ark. 106, 225 S.W.3d 369 (2006).

Defendants' motion to dismiss plaintiffs' claims for trade secret misappropriation under § 4-75-601, intentional interference with contractual relationships or business expectancies, fraud, unjust enrichment, and civil conspiracy was denied because there were fact issues as to whether plaintiffs' claims accrued within the applicable three-year statute of limitations set forth in this section and § 16-56-105 and whether the application of the doctrine of fraudulent concealment was appropriate, and further, plaintiffs' allegations were sufficient to withstand a motion to dismiss. Roach Mfg. Corp. v. Northstar Indus., 630 F. Supp. 2d 1004 (E.D. Ark. 2009).

4-75-604. Injunctive relief.

  1. Actual or threatened misappropriation may be enjoined.
  2. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist; however, the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.
  3. If the court determines that it would be unreasonable to prohibit future use, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time the use could have been prohibited.
  4. In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.

History. Acts 1981, No. 439, § 2; A.S.A. 1947, § 70-1002.

Research References

ALR.

Applicability of Inevitable Disclosure Doctrine Barring Employment of Competitor's Former Employee. 36 A.L.R.6th 537.

Case Notes

Evidence.

There was no evidence of any actual, threatened, or inevitable misappropriation where (1) the defendant had only a general working knowledge of his former employer's machines and processes and did not have in his possession any of the company's machine designs or blueprints, (2) the defendant candidly requested “guidance” from the chancellor as to what was his former employer's proprietary information so that he could avoid violating the parties' employment agreement, and (3) the defendant's vast general knowledge of the industry, as opposed to his engineering expertise, was of far greater value to his new employer than any knowledge of his former employer's trade secrets. Bendinger v. Marshalltown Trowell Co., 338 Ark. 410, 994 S.W.2d 468 (1999).

Agent gave no indication that it would disclose trade secrets after it terminated its relationship with a company, nor was there any evidence that it had to necessarily do so to conduct its business; thus, there was not enough evidence to support a finding of inevitable misappropriation pursuant to § 4-75-601(2). Statco Wireless, L.L.C. v. Southwestern Bell Wireless, L.L.C., 80 Ark. App. 284, 95 S.W.3d 13 (2003).

Scope of Relief.

Where a buyer knew that the supplier's source files contained confidential materials and trade secrets, and the supplier took steps to protect them and where the record showed that the buyer misappropriated them, injunctive relief ordering the buyer to delete the supplier's source files was warranted under this section of the Arkansas Trade Secrets Act because the supplier testified that the files were a years-long compilation of technical know-how it continually drew from, and if allowed to keep the files in its possession, the buyer could use them, or share them, in connection with another project, and there was nothing to suggest that the files' usefulness to the buyer had expired or would expire. Walmart Inc. v. Cuker Interactive, LLC, 949 F.3d 1101 (8th Cir. 2020).

When Granted.

The actual or threatened misappropriation of a trade secret may be enjoined under the statute; the injunction will be terminated when the trade secret has ceased to exist or after an additional reasonable period of time in order to eliminate a commercial advantage that otherwise would be derived from the misappropriation. Cardinal Freight Carriers, Inc. v. J.B. Hunt Transp. Servs., Inc., 336 Ark. 143, 987 S.W.2d 642 (1999).

Scope of Relief.

Allowing plaintiffs to prevent disclosure through an injunction fits with the purposes of this subchapter; in order to provide the plaintiffs true security, they must not only be protected from the defendant's anti-competitive use of the secrets, but also from the defendant's ability to publicly disclose such secrets, since public disclosure of the plaintiffs' secrets would render the protections under this subchapter meaningless. Southwestern Energy Co. v. Eickenhorst, 955 F. Supp. 1078 (W.D. Ark. 1997), aff'd, 175 F.3d 1025 (8th Cir. 1999).

Misappropriation may be proven and an injunction granted by demonstrating that the individual or entity will inevitably disclose the trade secrets if not enjoined. Southwestern Energy Co. v. Eickenhorst, 955 F. Supp. 1078 (W.D. Ark. 1997), aff'd, 175 F.3d 1025 (8th Cir. 1999).

Where a former employer alleged that a former employee copied trade secrets and solicited the former employer's clients to move their business to the current employer, and the former employer was granted a preliminary injunction based on nondisclosure and noncompetition provisions, although it would have been appropriate for the circuit court to enjoin the employee and the current employer under the Arkansas Trade Secrets Act also because the former employer's customer information came within the protection of the Act, this was a matter of discretion for the circuit court and the relief obtained would have been no broader. Freeman v. Brown Hiller, Inc., 102 Ark. App. 76, 281 S.W.3d 749 (2008), rehearing denied, — Ark. App. —, — S.W.3d —, 2008 Ark. App. LEXIS 361 (May 7, 2008), review denied, — Ark. —, — S.W.3d —, 2008 Ark. LEXIS 584 (Sept. 4, 2008).

Cited: Allen v. Johar, Inc., 308 Ark. 45, 823 S.W.2d 824 (1992).

4-75-605. Preservation of secrecy.

In an action under this subchapter, a court shall preserve the secrecy of an alleged trade secret by reasonable means, which may include granting protective orders in connection with discovery proceedings, holding in camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.

History. Acts 1981, No. 439, § 5; A.S.A. 1947, § 70-1005.

Case Notes

In Camera Hearings.

The decision to hold an in camera proceeding under the statute is discretionary with the chancellor. Bendinger v. Marshalltown Trowell Co., 338 Ark. 410, 994 S.W.2d 468 (1999).

Cited: Ark. Dep't of Human Servs. v. Hardy, 316 Ark. 119, 871 S.W.2d 352 (1994); Ark. Best Corp. v. General Elec. Capital Corp., 317 Ark. 238, 878 S.W.2d 708 (1994).

4-75-606. Damages.

  1. In addition to or in lieu of injunctive relief, a complainant may recover damages for the actual loss caused by misappropriation.
  2. A complainant also may recover for the unjust enrichment caused by misappropriation that is not taken into account in computing damages for actual loss.

History. Acts 1981, No. 439, § 3; A.S.A. 1947, § 70-1003.

Research References

ALR.

Proper Measure and Elements of Damages for Misappropriation of Trade Secret — Royalties, 28 A.L.R.7th Art. 6 (2018).

U. Ark. Little Rock L. Rev.

Annual Survey of Caselaw, Business Law, 24 U. Ark. Little Rock L. Rev. 883.

Annual Survey of Caselaw: Business Law, 27 U. Ark. Little Rock L. Rev. 593.

Case Notes

Measure of Damages.

In an action for theft of a trade secret, the plaintiff may recover either his own lost profits or the defendant's profits, whichever affords the greater recovery. Saforo & Assocs. v. Porocel Corp., 337 Ark. 553, 991 S.W.2d 117 (1999); Brown v. Ruallam Enters., Inc., 73 Ark. App. 296, 44 S.W.3d 740 (2001), overruled in part, Pro-Comp Mgmt. v. R.K. Enters., LLC, 366 Ark. 463, 237 S.W.3d 20 (2006).

The proper method for the calculation of damages is on the basis of net profit, whether lost by the injured party or gained by the wrongdoer. Brown v. Ruallam Enters., Inc., 73 Ark. App. 296, 44 S.W.3d 740 (2001), overruled in part, Pro-Comp Mgmt. v. R.K. Enters., LLC, 366 Ark. 463, 237 S.W.3d 20 (2006).

This section does not permit a figure determined to be the profit earned by the wrongdoer to be doubled and also does not permit such profit to be rounded off to an even number. Brown v. Ruallam Enters., Inc., 73 Ark. App. 296, 44 S.W.3d 740 (2001), overruled in part, Pro-Comp Mgmt. v. R.K. Enters., LLC, 366 Ark. 463, 237 S.W.3d 20 (2006).

Plaintiff's testimony, coupled with plaintiff's experience in the field, supported an award of $262,312, but such a computation of damages did not address the measure of lost profits suffered by plaintiff or the gain realized by defendants as result of the misappropriation of trade secrets as required by this section; thus, the case was reversed and remanded for a determination of damages under the statutory provisions of the Arkansas Trade Secrets Act, § 4-75-601 et seq.. R.K. Enter., L.L.C. v. Pro-Comp Mgmt., 356 Ark. 565, 158 S.W.3d 685 (2004).

Complainants could recover their actual loss, as may be shown by profits, along with any unjust enrichment damages caused by the misappropriation of trade secrets and, to the extent that Brown v. Ruallam, 73 Ark. App. 296, 44 S.W.3d 740 (2001) was inconsistent with this ruling, it was overruled. Pro-Comp Mgmt. v. R.K. Enters., LLC, 366 Ark. 463, 237 S.W.3d 20 (2006).

Trial court did not err in finding that, although appellees' liability for the misappropriation of trade secrets had been proven, the evidence presented was too speculative to prove the actual damages incurred by corporations as the abstract presented did not establish either the corporations' lost profits or appellees' gains. Pro-Comp Mgmt. v. R.K. Enters., LLC, 366 Ark. 463, 237 S.W.3d 20 (2006).

Because the fair market value of appellants' trade secrets, as determined by the circuit court, had no relation to the value of the trade secrets at the time of the misappropriation because it involved the cost of developing and maintaining those secrets and not their exact value at the time of misappropriation, prejudgment interest was properly denied. Pro-Comp Mgmt. v. R.K. Enters., LLC, 372 Ark. 190, 272 S.W.3d 91 (2008).

Circuit court did not err in holding that the judgment was to apply to the corporation only because the appropriate remedy of damages was to disgorge profits, and the individuals had no profits to disgorge; the individuals were not unjustly enriched such that an award would have been proper under subsection (b) of this section. Pro-Comp Mgmt. v. R.K. Enters., LLC, 372 Ark. 190, 272 S.W.3d 91 (2008).

Proximate Cause.

In a trade secrets action, brought by a foam producer against a former customer/competitor, after a consultant and manager left the producer and helped the competitor develop its own foam, there were material factual disputes regarding misappropriation and the consultant's duty to preserve the trade secret; given the disputed material facts, reasonable minds could differ on the issue of proximate cause for purposes of damages. 3A Composites USA, Inc. v. United Indus., No. 5:14-CV-5147, 2015 U.S. Dist. LEXIS 122745 (W.D. Ark. Sept. 15, 2015).

4-75-607. Attorney's fees.

The court may award reasonable attorneys' fees to the prevailing party if:

  1. A claim of misappropriation is made in bad faith;
  2. A motion to terminate an injunction is made or resisted in bad faith; or
  3. Willful and malicious misappropriation exists.

History. Acts 1981, No. 439, § 4; A.S.A. 1947, § 70-1004.

Research References

Ark. L. Rev.

Speed, Attorney's Fees Awards in Federal Court: An Arkansas Study, 39 Ark. L. Rev. 99 (1985).

Case Notes

Appellate review.

The denial of fees and costs under this provision is reviewed on appeal under the clearly erroneous standard. Hardwick Airmasters v. Lennox Indus., Inc., 78 F.3d 1332 (8th Cir. 1996).

Because an employee voluntarily paid a corporation the amount of attorney's fees ordered, his appeal of the attorney's fees award was moot. LaPointe v. New Tech., Inc., 2014 Ark. App. 346, 437 S.W.3d 126 (2014).

Calculation of Fees.

Counter-claimant was entitled to attorney's fees under § 16-22-308 for the portion of a lawsuit primarily driven by the contract claims, as well as fees for work primarily driven by the trade secret claims, pursuant to this section. The trial court determined that the counter-claimant was entitled to $2,174,073.11 in attorney's fees. Wal-Mart Stores, Inc. v. Cuker Interactive, LLC, No. 5:14-CV-5262, 2018 U.S. Dist. LEXIS 55242 (W.D. Ark. Mar. 31, 2018).

Evidence.

Evidence was sufficient to show willful misappropriation of the plaintiff's trade secret and, therefore, attorneys' fees were properly awarded, where one of the parties involved in the use of the plaintiff's trade secret required the defendant to indemnify it for any liability it might incur for theft of the trade secret. Saforo & Assocs. v. Porocel Corp., 337 Ark. 553, 991 S.W.2d 117 (1999).

Cited: Pro-Comp Mgmt. v. R.K. Enters., LLC, 372 Ark. 190, 272 S.W.3d 91 (2008).

Subchapter 7 — Unfair Cigarette Sales Act

Preambles. Acts 1951, No. 101, contained a preamble which read:

“Whereas, unfair, dishonest, deceptive, destructive and fraudulent business practices existing in transactions involving the sale of, offer to sell, or inducement to sell, cigarettes in the wholesale and retail trades in this State have been and are demoralizing and disorganizing said trades; and

“Whereas, the advertising, offering for sale, or sale of cigarettes below cost in the wholesale or retail trades with the intent of injuring competitors or destroying or substantially lessening competition, is an unfair and deceptive business practice; and

“Whereas, it is hereby declared to be the policy of this State to promote the public welfare by prohibiting such sales, and to foster and encourage competition by prohibiting unfair, dishonest, deceptive, destructive, fraudulent discriminatory practices by which fair and honest competition is destroyed or prohibited, and it is the purpose of this act to carry out that policy in the public and in the State's interest … .”

Effective Dates. Acts 1999, No. 1237, § 8: Apr. 8, 1999. Emergency clause provided: “It is hereby found and determined by the Eighty-second General Assembly that the Arkansas Unfair Cigarette Sales Act, 4-75-701, sets minimum selling prices for wholesale and retail sales of cigarettes in Arkansas. Although the Unfair Cigarette Sales Act contains a licensing requirement for wholesalers and retailers, its main purpose is to establish fair and lawful competition in the wholesale and retail sale of cigarettes in Arkansas. Prior to the creation of the Tobacco Control Board in 1997, the Revenue Division of the Department of Finance and Administration has been responsible for administering the Unfair Cigarette Sales Act. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto.”

Acts 2003, No. 627, § 6: Mar. 24, 2003. Emergency clause provided: “It is found and determined by the Eighty-Fourth General Assembly of the State of Arkansas that the Arkansas Unfair Cigarette Sales Act, § 4-75-701 et seq., sets minimum selling prices for wholesale and retail sales of cigarettes in Arkansas; that the purpose of the Unfair Cigarette Sales Act is to promote the fair and lawful competition in the wholesale and retail sale of cigarettes in the State of Arkansas; that confusion has arisen as to the proper application of the Unfair Cigarette Sales Act in light of certain promotional activities of cigarette manufacturers; that the confusion threatens to negatively impact fair and lawful competition in the wholesale and retail sale of cigarettes in the State of Arkansas; and that the confusion threatens to negatively impact the proper and lawful collection of the gross receipts tax. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Acts 2003, No. 1808, § 2: May 6, 2003. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the provisions of Arkansas Code § 4-75-709(b) and (c) were added by Act 627 of 2003; that that act is now in effect; that certain provisions of those two subsections are incapable of being properly administered; that this act removes those provisions; and that until this act goes into effect, the law will contain an impossible mandate. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Acts 2015, No. 1235, § 34: Emergency clause failed to pass. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the state must be able to plan and give effective notice for the new comprehensive permits created by this act; that it is essential to the operation of Arkansas Tobacco Control and the tobacco, vapor product, and alternative nicotine product industry that this act be effective on the renewal date for permits issued by Arkansas Tobacco Control to ensure proper funding for the enforcement of the new regulations and requirements of this act; that a delay in the effectiveness of this act after the renewal date of permits and regulations issued by Arkansas Tobacco Control may cause irreparable harm upon the proper administration and provision of essential governmental programs; and that this act is necessary to ensure that the industry and the citizens of Arkansas are provided guidance regarding permits for vapor products and alternative nicotine products. Therefore, an emergency is declared to exist, and this act being necessary for the preservation of the public peace, health, and safety shall become effective on May 1, 2015.”

Acts 2019, No. 1071, § 31: Emergency clause failed to pass. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that renewals of permits under the Arkansas Tobacco Products Tax Act of 1977 are due on June 30 of each year; that changes in the permitting process should be effective before the date for renewals to ensure the efficient and effective administration of the Arkansas Tobacco Products Tax Act of 1977; and that this act is necessary because the implementation of the new permit types and permit fees included in the act requires that the effective date be before the due date for renewals. Therefore, an emergency is declared to exist, and this act being necessary for the preservation of the public peace, health, and safety shall become effective on May 1, 2019”.

Case Notes

Constitutionality.

The statutory scheme under this subchapter is not unconstitutional since it provides for the rational connection between the presumed cost-of-doing business and minimizing-price amounts in this subchapter and Miscellaneous Tax Regulation 1988-2 and the presumed fact of predatory intent provided. McLane Co. v. Weiss, 332 Ark. 284, 965 S.W.2d 109 (1998).

Construction With Other Law.

Section 26-57-256(a)(5)(A) clearly permits the Arkansas Tobacco Control Board to conduct hearings regarding any permit or license in violation of the Unfair Cigarette Sales Act. H.T. Hackney Co. v. Davis, 353 Ark. 797, 120 S.W.3d 79 (2003).

Costs of Doing Business.

Finding against a cigarette wholesaler with regard to the cost of doing business was improper in part where the Arkansas Tobacco Control Board's regulation did not fall within the Unfair Cigarette Sales Act's provision, thus, the four percent cost of doing business was improper; however, the two percent presumptive cost of doing business would then govern, thereby triggering the other valid remaining provisions of the regulation. McLane Co. v. Davis, 353 Ark. 539, 110 S.W.3d 251 (2003).

4-75-701. Title.

This subchapter shall be known and may be cited as the “Unfair Cigarette Sales Act”.

History. Acts 1951, No. 101, § 1; A.S.A. 1947, § 70-601.

Publisher's Notes. In regard to the Cigarette Tax Law [repealed], cigarettes are now taxed pursuant to the Arkansas Tobacco Products Tax Act of 1977, § 26-57-201 et seq.

Case Notes

Constitutionality.

Terms “trade discount” and “rebate” were unclear under existing Unfair Cigarette Sales Act, § 4-75-701 et seq., and the tobacco control board's regulations as to what was an allowed “trade discount” as opposed to a prohibited “rebate” were unclear; thus, the law was unconstitutionally vague under due process standards because it did not give a person of ordinary intelligence fair notice of what was prohibited, i.e., of whether payments to the retailer were permitted “trade discounts” or prohibited “rebates.” Ark. Tobacco Control Bd. v. Sitton, 357 Ark. 357, 166 S.W.3d 550 (2004).

In General.

Neither “trade discounts” nor “rebates” are defined in the Unfair Cigarette Sales Act, § 4-75-701 et seq.; however, the Arkansas Tobacco Control Board defines “rebates,” under Ark Tobacco Control Board Rules and Regs., § 9.1 (A). Ark. Tobacco Control Bd. v. Sitton, 357 Ark. 357, 166 S.W.3d 550 (2004)

Arkansas Tobacco Control Board's consideration of cooperative organizations as buying pools exempt from the anti-rebating provision, § 4-75-708, of the Unfair Cigarette Sales Act, § 4-75-701 et seq., was clearly wrong because a cooperative was considered a retailer under § 4-75-702(8) and, as such, was prohibited from providing rebates. McLane Southern, Inc. v. Ark. Tobacco Control Bd., 2010 Ark. 498, 375 S.W.3d 628 (2010).

Cited: Wometco Servs., Inc. v. Gaddy, 272 Ark. 452, 616 S.W.2d 466 (1981).

4-75-702. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Basic cost of cigarettes” means whichever of the two (2) following amounts is lower, namely, the gross invoice cost of cigarettes to the wholesaler or retailer, as the case may be, or the lowest gross replacement cost of cigarettes to the wholesaler or retailer, as the case may be, within thirty (30) days prior to the date of sale, in the quantity last purchased, whether within or before the thirty-day period, plus the full face value of any stamps or any tax which may be required by any cigarette tax act of this state or political subdivision thereof, now in effect or hereafter enacted, if not already included in the gross invoice cost of cigarettes to the wholesaler or retailer, as the case may be;
  2. “Buying pool” means and includes any combination, corporation, association, affiliation, or group of retail dealers operating jointly in the purchase, sale, exchange, or barter of cigarettes, the profits of which accrue directly or indirectly to the retail dealers;
  3. “Cigarettes” means and includes any roll for smoking made wholly or in part of tobacco, irrespective of size or shape and whether or not the tobacco is flavored, adulterated, or mixed with any other ingredient, the wrapper or cover of which is made of paper or any other substance or material, except tobacco;
    1. “Cost to the retailer” means the basic cost of the cigarettes involved to the retailer plus the cost of doing business by the retailer as evidenced by the standards and methods of accounting regularly employed by him or her and must include, without limitation, labor including salaries of executives and officers, rent, depreciation, selling costs, maintenance of equipment, delivery costs, all types of licenses, taxes, insurance, and advertising.
    2. In the absence of the filing with the Arkansas Tobacco Control Board of proof satisfactory to the board of a lesser or higher cost of doing business by the retailer making the sale, the cost of doing business by the retailer shall be presumed to be nine and five-tenths percent (9.5%) of the basic cost of cigarettes to the retailer.
    3. In the case of any retail dealer who in connection with the retail dealer's purchase of any cigarettes shall receive not only the discounts ordinarily allowed upon purchases by a retail dealer but also in whole or in part the discounts ordinarily allowed upon purchases by a wholesale dealer, the cost of doing business by the retail dealer with respect to the said cigarettes shall be, in the absence of proof of a lesser or higher cost of doing business by the retail dealer, the sum of the cost of doing business by the retail dealer and, to the extent that he or she shall have received the full discounts ordinarily allowed to a wholesale dealer, the cost of doing business by a wholesale dealer as defined in subdivision (5)(B) of this section;
    1. “Cost to wholesaler” means the basic cost of the cigarettes involved to the wholesaler plus the cost of doing business by the wholesaler as evidenced by the standards and methods of accounting regularly employed by him or her and must include, without limitation, labor costs, including salaries of executives and officers, rent, depreciation, selling costs, maintenance of equipment, delivery costs, all types of licenses, taxes, insurance, and advertising.
    2. In the absence of the filing with the board of proof satisfactory to the board of a lesser or higher cost of doing business by the wholesale dealer making the sale, the cost of doing business by the wholesale dealer shall be presumed to be four percent (4%) of the basic cost of the cigarettes to the wholesale dealer;
  4. “Director” means the Director of Arkansas Tobacco Control;
  5. “Gross invoice cost” means the manufacturer's or wholesaler's price for the product sold as listed on the invoice to the wholesaler or retailer, as the case may be, before any deduction for allowances, whether manufacturer promotional allowances or otherwise, or for discounts of any kind;
  6. “Manufacturer promotional allowance” means any payment or compensation given by a manufacturer of cigarettes to wholesalers or to retailers to promote the sale of cigarettes and which the manufacturer requires the wholesaler to pass on to the retailer and the retailer to pass on to the retailer's customer;
  7. “Person” means and includes any individual, firm, association, company, partnership, corporation, joint-stock company, club, agency, syndicate, the State of Arkansas, county, municipal corporation, or other political subdivision of this state, receiver, trustee, fiduciary, or trade association;
  8. “Retailer” means and includes any person who is engaged in this state in the business of selling cigarettes at retail and includes any group of persons, cooperative organizations, buying pools, and any other person or group of retailers purchasing cigarettes on a cooperative basis from licensed distributors or wholesalers. Any person placing a cigarette vending machine at, on, or in any premises shall be deemed to be a retailer for each such vending machine;
  9. “Sale” or “sell” means any transfer for a consideration, exchange, barter, gift, offer for sale, advertising for sale, soliciting an order for cigarettes, and distribution in any manner or by any means whatsoever;
  10. “Sell at retail”, “sale at retail”, or “retail sales” means and includes any sale for consumption or use made in the ordinary course of trade or usual conduct of the seller's business;
  11. “Sell at wholesale”, “sale at wholesale”, and “wholesale sales” mean and include any sale made in the ordinary course of trade or usual conduct of the wholesaler's business to a retailer for the purpose of resale; and
  12. “Wholesaler” means and includes:
    1. Any person other than a buying pool as defined in subdivision (2) of this section, wherever resident or located, who brings or causes to be brought into this state unstamped cigarettes purchased directly from the manufacturer thereof and who maintains an established place of business where substantially all of the business is the sale of cigarettes and related merchandise at wholesale to cigarette licensees and where at all times a substantial stock of cigarettes and related merchandise is available for resale, if seventy-five percent (75%) thereof are sold to retailers or other wholesalers not connected with the wholesaler by reason of any business connection or otherwise;
    2. Any person retailing cigarettes to consumers, if at least seventy-five percent (75%) of his or her purchases are made directly from the manufacturers thereof;
    3. Any person in this state other than a buying pool, as defined in subdivision (2) of this section, who purchases cigarettes from any other person who purchases from a manufacturer, at least seventy-five percent (75%) of which are for purposes of resale to retailers in this state not connected with the wholesaler by reason of any business connection or otherwise and who maintains an established place of business where cigarettes and related merchandise are sold at wholesale to persons licensed under this subchapter, and where at all times a substantial stock of cigarettes and related merchandise is available to all retailers for resale; and
    4. Any person in this state who acquires cigarettes solely for the purpose of resale in cigarette vending machines, provided the person operates thirty (30) or more machines;

History. Acts 1951, No. 101, § 2; A.S.A. 1947, § 70-602; Acts 1999, No. 1237, § 1; 2003, No. 627, §§ 1-4; 2009, No. 785, § 1; 2019, No. 580, § 1.

Amendments. The 2009 amendment substituted “Director of Arkansas Tobacco Control” for “Director of the Arkansas Tobacco Control Board” in (6).

The 2019 amendment substituted “nine and five-tenths percent (9.5%)” for “seven and one-half percent (7½%)” in (4)(B).

Case Notes

Constitutionality.

Amendment to subdivisions (1) and (5)(B) of this section that increased the presumed “cost of doing business” from two and three quarters percent to four percent of the basic cost of the cigarettes to a wholesaler was constitutional; there was a rational basis for the amendment as the legislature could have found that changed market conditions supported an increase in the cost of doing business. McLane S., Inc. v. Davis, 366 Ark. 164, 233 S.W.3d 674 (2006).

The 2003 amendment to subdivision (5)(B) of this section merely clarified where and generally what type of proof a wholesaler must file in order to make a below-cost sale of cigarettes; these changes do not cause the subdivision to violate the due process protections of the Arkansas or U.S. Constitutions. McLane S., Inc. v. Davis, 366 Ark. 164, 233 S.W.3d 674 (2006).

Costs.

Finding against a cigarette wholesaler with regard to the cost of doing business was improper in part where the Arkansas Tobacco Control Board's regulation did not fall within the Unfair Cigarette Sales Act's provision, thus, the four percent cost of doing business was improper; however, the two percent presumptive cost of doing business would then govern, thereby triggering the other valid remaining provisions of the regulation. McLane Co. v. Davis, 353 Ark. 539, 110 S.W.3d 251 (2003).

Retailer.

Arkansas Tobacco Control Board's consideration of cooperative organizations as buying pools exempt from the anti-rebating provision, § 4-75-708, of the Unfair Cigarette Sales Act, § 4-75-701 et seq., was clearly wrong because a cooperative was considered a retailer under subdivision (8) of this section and, as such, was prohibited from providing rebates. McLane Southern, Inc. v. Ark. Tobacco Control Bd., 2010 Ark. 498, 375 S.W.3d 628 (2010).

Cited: McLane Co. v. Weiss, 332 Ark. 284, 965 S.W.2d 109 (1998).

4-75-703. Sales excepted from subchapter.

  1. This subchapter does not apply to a sale at wholesale or a sale at retail made:
    1. In an isolated transaction and not in the usual course of business;
    2. Where cigarettes are advertised, offered for sale, or sold in a bona fide clearance sale for the purpose of discontinuing trade in the cigarettes, and the advertising, offer to sell, or sale shall state the reason for the sale and the quantity of the cigarettes advertised, offered for sale, or to be sold;
    3. Where cigarettes are advertised, offered for sale, or sold as imperfect or damaged, and the advertising, offer to sell, or sale shall state the reason for the sale and the quantity of the cigarettes advertised, offered for sale, or to be sold;
    4. Where cigarettes are sold upon the final liquidation of a business; or
    5. Where cigarettes are advertised, offered for sale, or sold by any fiduciary or other officer acting under the order or direction of any court.
  2. For sales that are exempt under subsection (a) of this section, the seller shall:
    1. Notify Arkansas Tobacco Control of the sale at least one (1) business day before the sale occurs; and
    2. For sales that are below cost, submit the information required by the Director of Arkansas Tobacco Control on the form prescribed by the director.

History. Acts 1951, No. 101, § 6; A.S.A. 1947, § 70-606; Acts 2019, No. 1071, § 1.

Amendments. The 2019 amendment added the designation (a); substituted “does” for “shall” in the introductory language of (a); added (b); and made stylistic changes.

Case Notes

Cited: McLane Co. v. Weiss, 332 Ark. 284, 965 S.W.2d 109 (1998).

4-75-704. Transactions permitted to meet lawful competition.

    1. Any wholesaler may advertise, offer to sell, or sell cigarettes at a price made in good faith to meet the price of a competitor who is rendering the same type of service and is selling the same article at cost to the competing wholesaler as defined by this subchapter.
    2. Any retailer may advertise, offer to sell, or sell cigarettes at a price made in good faith to meet the price of a competitor who is selling the same article at cost to the competing retailer as defined in this subchapter.
  1. The price of cigarettes advertised, offered for sale, or sold under the exceptions specified in § 4-75-703 shall not be considered the price of a competitor and shall not be used as a basis for establishing prices below cost, nor shall the price established at a bankrupt sale be considered the price of a competitor within the purview of this section.
  2. In the absence of proof of the actual cost to the competing wholesaler or to the competing retailer, as the case may be, the cost may be presumed to be the lowest cost to wholesalers or the lowest cost to retailers, as the case may be, within the same trading area as determined by a cost survey made pursuant to § 4-75-711(b).

History. Acts 1951, No. 101, § 7; A.S.A. 1947, § 70-607.

Case Notes

Made in Good Faith.

Because patronage dividends paid to retailers by cooperatives constituted illegal rebates under § 4-75-708(b), any attempt by a wholesaler to match that price could in no way be made in good faith where the plain language of subdivision (a)(1) of this section allowed a wholesaler to sell at a price made in good faith to meet the price of a competitor. McLane Southern, Inc. v. Ark. Tobacco Control Bd., 2010 Ark. 498, 375 S.W.3d 628 (2010).

Cited: McLane Co. v. Weiss, 332 Ark. 284, 965 S.W.2d 109 (1998).

4-75-705. Contracts in violation of subchapter void.

Any contract, express or implied, made by any person in violation of any of the provisions of this subchapter is illegal and void and no recovery shall be had thereon.

History. Acts 1951, No. 101, § 8; A.S.A. 1947, § 70-608.

4-75-706. Director of Arkansas Tobacco Control — Powers and duties.

    1. The Director of Arkansas Tobacco Control may prescribe, adopt, and enforce rules relating to the administration and enforcement of this subchapter.
      1. The director may undertake and make or cause to be made one (1) or more cost surveys for the state or a trading area as he or she shall define, and when the cost survey is made by or approved by the director, it is permissible to use the cost survey as provided in § 4-75-711(b).
      2. The director may also investigate price fixing.
    2. The director may revoke or suspend the permit issued under this subchapter of any person who refuses or neglects to comply with this subchapter or any rule of the director prescribed under this subchapter.
  1. Whenever any person fails to comply with this subchapter or any rule of the director promulgated under this subchapter, the Arkansas Tobacco Control Board, upon a hearing, after giving the person ten (10) days' notice in writing specifying the time and place of the hearing and requiring the person to show cause why his or her permit should not be revoked, may revoke or suspend the permit held by the person.
  2. Any ruling, order, or decision of the board shall be subject to review, as provided by law, in the Pulaski County Circuit Court or any court of competent jurisdiction in the county in which the person affected resides or does business.

History. Acts 1951, No. 101, § 12; A.S.A. 1947, § 70-612; Acts 1999, No. 1237, § 2; 2009, No. 785, § 2; 2019, No. 1071, § 2.

Amendments. The 2009 amendment substituted “Director of Arkansas Tobacco Control” for “Director of the Arkansas Tobacco Control Board” in (a)(1); and deleted “and regulations” following “rules” or variant in (a)(1) and (b).

The 2019 amendment substituted “may” for “shall” in (a)(1); in (a)(2)(A), substituted “may” for “is empowered to and may from time to time”; substituted “may also” for “is also empowered to” in (a)(2)(B); substituted “permit” for “license” in (a)(3), and twice in (b); substituted “Arkansas Tobacco Control Board” for “director” in (b); in (c), substituted “board” for “director”, inserted “Pulaski County Circuit Court or”, and added “or does business”; and made stylistic changes.

Case Notes

Costs.

Finding against a cigarette wholesaler with regard to the cost of doing business was improper in part where the Arkansas Tobacco Control Board's regulation did not fall within the Unfair Cigarette Sales Act's provision, thus, the four percent cost of doing business was improper; however, the two percent presumptive cost of doing business would then govern, thereby triggering the other valid remaining provisions of the regulation. McLane Co. v. Davis, 353 Ark. 539, 110 S.W.3d 251 (2003).

Cited: McLane Co. v. Weiss, 332 Ark. 284, 965 S.W.2d 109 (1998).

4-75-707. Permit requirement.

  1. A person shall not engage in or conduct the business of purchasing for resale or selling cigarettes without having first obtained the appropriate permit for that purpose.
  2. All permits for the purchasing for resale or the sale of cigarettes shall be issued by the Director of Arkansas Tobacco Control, who shall make rules respecting applications for and issuance of permits under this section.
  3. A wholesaler or retailer who sells or intends to sell cigarettes at one (1) or more places of business shall be required to obtain a separate permit for each place of business.
  4. A person permitted only as a wholesaler shall not operate as a retailer unless the appropriate permit is first secured, and a person permitted only as a retailer shall not operate as a wholesaler unless the appropriate permit is first secured.

History. Acts 1951, No. 101, § 13; A.S.A. 1947, § 70-613; Acts 1999, No. 1237, § 3; 2009, No. 785, § 3; 2019, No. 1071, § 2.

Amendments. The 2009 amendment, in (b), substituted “Director of Arkansas Tobacco Control” for “Director of the Arkansas Tobacco Control Board,” and deleted “and regulations” following “rules.”

The 2019 amendment substituted “Permit” for “License” in the section heading; substituted “permit” for “license” throughout the section; rewrote (b); substituted “permitted” for “licensed” twice in (d); and made stylistic changes.

4-75-708. Sales at less than cost, rebates, concessions, etc. — Penalty.

  1. It shall be unlawful for any wholesaler, retailer, or salesperson with intent to injure competitors or destroy or substantially lessen competition to advertise, offer to sell, or sell, at retail or wholesale, cigarettes at less than cost to the wholesaler or retailer, as the case may be.
  2. It shall be unlawful for any wholesaler, retailer, or salesperson to offer a rebate in price, to give a rebate in price, to offer a concession of any kind, or to give a concession of any kind or nature whatsoever in connection with the sale of cigarettes with intent to injure competitors or destroy or substantially lessen competition.
  3. It shall be unlawful for any retail dealer to induce or attempt to induce or to procure or attempt to procure:
    1. The purchase of cigarettes at a price less than cost to the wholesaler; or
    2. Any rebate or concession of any kind in connection with the purchase of cigarettes.
  4. Any wholesaler, retailer, or salesperson who violates this section shall be guilty of a violation and upon conviction shall be subject to a fine of not more than five hundred dollars ($500).
  5. The following shall be prima facie evidence of intent to injure competitors and destroy or substantially limit competition:
    1. The advertisement, offer for sale, or sale of cigarettes by any wholesaler, retailer, or salesperson at less than cost to him or her;
    2. Any offer of a rebate in price or the giving of a rebate in price or an offer of a concession or the giving of a concession of any kind in connection with the sale of cigarettes; or
    3. Inducing or attempting to induce or procuring or attempting to procure the purchase of cigarettes at a price less than cost to the wholesaler or the retailer.

History. Acts 1951, No. 101, § 3; A.S.A. 1947, § 70-603; Acts 2003, No. 373, § 1; 2005, No. 1994, § 40.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

Case Notes

Constitutionality.

Terms “trade discount” and “rebate” were unclear under existing Unfair Cigarette Sales Act, § 4-75-701 et seq., and the tobacco control board's regulations as to what was an allowed “trade discount” as opposed to a prohibited “rebate” were unclear; thus, the law was unconstitutionally vague under due process standards because it did not give a person of ordinary intelligence fair notice of what was prohibited, specifically, whether payments to the retailer were permitted “trade discounts” or prohibited “rebates.” Ark. Tobacco Control Bd. v. Sitton, 357 Ark. 357, 166 S.W.3d 550 (2004).

Because rebates make it more difficult to enforce and administer the Arkansas Unfair Cigarette Sales Act, § 4-75-701 et seq., the legislature may have decided to prohibit them; thus, the anti-rebate provisions found in subsection (e) of this section do not violate the due process protections of the Arkansas or U.S. Constitutions. McLane S., Inc. v. Davis, 366 Ark. 164, 233 S.W.3d 674 (2006).

Administrative Remedies.

Where the Arkansas Tobacco Control Board charged company with violating the anti-rebating provisions of the Arkansas Unfair Cigarette Sales Act, subsection (b) of this section, the company was required to exhaust its administrative remedies before seeking declaratory relief in the form of preliminary and permanent injunctions in the circuit court; moreover, company's constitutional argument could be raised and developed at the administrative level. McLane S., Inc. v. Davis, 80 Ark. App. 30, 90 S.W.3d 16 (2002).

Anti-Rebating.

Arkansas Tobacco Control Board's consideration of cooperative organizations as buying pools exempt from the anti-rebating provision, this section of the Unfair Cigarette Sales Act, § 4-75-701 et seq., was clearly wrong because a cooperative was considered a retailer under § 4-75-702(8) and, as such, was prohibited from providing rebates. McLane Southern, Inc. v. Ark. Tobacco Control Bd., 2010 Ark. 498, 375 S.W.3d 628 (2010).

Construction With Other Law.

Section 26-57-256(a)(5)(A) clearly permits the Arkansas Tobacco Control Board to conduct hearings regarding any permit or license in violation of the Unfair Cigarette Sales Act. H.T. Hackney Co. v. Davis, 353 Ark. 797, 120 S.W.3d 79 (2003).

Costs.

Finding against a cigarette wholesaler with regard to the cost of doing business was improper in part where the Arkansas Tobacco Control Board's regulation did not fall within the Unfair Cigarette Sales Act's provision, thus, the four percent cost of doing business was improper; however, the two percent presumptive cost of doing business would then govern, thereby triggering the other valid remaining provisions of the regulation. McLane Co. v. Davis, 353 Ark. 539, 110 S.W.3d 251 (2003).

Patronage Dividends.

Because patronage dividends paid to retailers by cooperatives constituted illegal rebates under subsection (b) of this section, any attempt by a wholesaler to match that price could in no way be made in good faith where the plain language of § 4-75-704(a)(1) allowed a wholesaler to sell at a price made in good faith to meet the price of a competitor. McLane Southern, Inc. v. Ark. Tobacco Control Bd., 2010 Ark. 498, 375 S.W.3d 628 (2010).

Cited: McLane Co. v. Weiss, 332 Ark. 284, 965 S.W.2d 109 (1998).

4-75-709. Combination sales.

    1. In all advertisements, offers for sale, or sales involving two (2) or more items, at least one (1) of which items is cigarettes, at a combined price, and in all advertisements, offers for sale, or sales involving the giving of any gift or concession of any kind, whether coupons or otherwise, the wholesaler's or retailer's combined selling price shall not be below the cost to the wholesaler or the cost to the retailer, respectively, of the total of all articles, products, commodities, gifts, and concessions included in the transactions.
    2. If any such articles, products, commodities, gifts, or concessions shall not be cigarettes, the basic cost thereof shall be determined in the manner provided in § 4-75-702(1).
  1. The redemption by a retailer of coupons supplied to consumers by manufacturers and redeemable from the retailer by the manufacturers is not a violation of this subchapter if the sum of the coupon and other consideration paid by the consumer is not below the cost to the retailer.
  2. Any manufacturer's promotional allowance provided to a wholesaler or retailer may be passed on to the purchaser by the wholesaler or retailer without violating this subchapter if the sum of the manufacturer's promotional allowance and other consideration paid by the purchaser is not below the cost to the wholesaler or retailer, as the case may be.

History. Acts 1951, No. 101, § 4; A.S.A. 1947, § 70-604; Acts 2003, No. 627, § 5; 2003, No. 1808, § 1.

4-75-710. Sales by a wholesaler to a wholesaler.

When one wholesaler sells cigarettes to any other wholesaler, the former shall not be required to include in his or her selling price to the latter the cost to the wholesaler, as provided by § 4-75-702, but the latter wholesaler, upon resale to a retailer, shall be subject to the provisions of that section.

History. Acts 1951, No. 101, § 5; A.S.A. 1947, § 70-605.

4-75-711. Determination of cost generally — Cost surveys.

  1. In determining cost to the wholesaler and cost to the retailer, the court shall receive, and consider as bearing on the bona fides of the cost, evidence tending to show that any person complained against under any of the provisions of this subchapter purchased the cigarettes involved in the complaint before the court at a fictitious price or upon terms or in such manner or under such invoices as to conceal the true cost, discounts, or terms of purchase, and shall also receive and consider as bearing on the bona fides of the costs, evidence of the normal, customary, and prevailing terms and discounts in connection with other sales of a similar nature in the trade area or state.
  2. Where a cost survey pursuant to recognized statistical and cost accounting practices has been made for the trading area in which a violation of this subchapter is committed or charged to determine and establish on the basis of actual existing conditions the lowest cost to wholesalers or the lowest cost to retailers within the area, the cost survey shall be deemed competent evidence in any action or proceeding under this subchapter as tending to prove actual cost to the wholesaler or actual cost to the retailer complained against, but any party against whom any such cost survey may be introduced in evidence shall have the right to offer evidence tending to prove any inaccuracy of the cost survey or any state of facts which would impair its probative value.

History. Acts 1951, No. 101, § 9; A.S.A. 1947, § 70-609.

Case Notes

Costs.

Finding against a cigarette wholesaler with regard to the cost of doing business was improper in part where the Arkansas Tobacco Control Board's regulation did not fall within the Unfair Cigarette Sales Act's provision, thus, the four percent cost of doing business was improper; however, the two percent presumptive cost of doing business would then govern, thereby triggering the other valid remaining provisions of the regulation. McLane Co. v. Davis, 353 Ark. 539, 110 S.W.3d 251 (2003).

Cited: McLane Co. v. Weiss, 332 Ark. 284, 965 S.W.2d 109 (1998).

4-75-712. Determination of cost — Sales outside ordinary channels of business.

In establishing the basic cost of cigarettes to a wholesaler or a retailer, it shall not be permissible to use the invoice cost or the actual cost of any cigarettes purchased at a forced, bankrupt, or closeout sale, or other sale outside of the ordinary channels of trade.

History. Acts 1951, No. 101, § 10; A.S.A. 1947, § 70-610.

4-75-713. Remedies.

  1. The Director of Arkansas Tobacco Control or any person injured by any violation or who would suffer injury from any threatened violation of this subchapter may maintain an action in any court of equitable jurisdiction to prevent, restrain, or enjoin the violation or threatened violation.
    1. If, in such action, a violation or threatened violation of this subchapter is established, the court shall enjoin and restrain, or otherwise prohibit, the violation or threatened violation, and in addition thereto, the court shall assess in favor of the plaintiff and against the defendant the costs of suit including reasonable attorney's fees.
    2. In the action it is not necessary that actual damages to the plaintiff be alleged or proved, but where alleged or proved, the plaintiff in the action, in addition to the injunctive relief and costs of suit, including reasonable attorney's fees, shall be entitled to recover from the defendant the actual damages sustained by him or her.
  2. In the event that no injunctive relief is sought or required, any person injured by a violation of this subchapter may maintain an action for damages and costs of suit in any court of general jurisdiction.

History. Acts 1951, No. 101, § 11; A.S.A. 1947, § 70-611; Acts 1999, No. 1237, § 4; 2009, No. 785, § 4.

Amendments. The 2009 amendment substituted “Director of Arkansas Tobacco Control” for “Director of the Arkansas Tobacco Control Board” in (a).

Research References

Ark. L. Rev.

Speed, Attorney's Fees Awards in Federal Court: An Arkansas Study, 39 Ark. L. Rev. 99.

Case Notes

Cited: McLane Co. v. Davis, 353 Ark. 539, 110 S.W.3d 251 (2003).

4-75-714. [Repealed.]

Amendments. This section, concerning enforcement agents, was repealed by Acts 2015, No. 1235, § 32. The section was derived from Acts 2001, No. 1699, § 1; 2009, No. 785, § 5; 2013, No. 1273, § 1.

For current law, see § 26-57-266.

Subchapter 8 — Milk and Other Dairy Products

Cross References. Arkansas Grade ‘A’ Milk Program Act of 1981, § 20-59-401 et seq.

Preambles. Acts 1955, No. 380, contained a preamble which read:

“Whereas, It is recognized and determined by the General Assembly of the State of Arkansas that fresh wholesome milk is an essential food item upon which the health and welfare of the people of this State depend to a large extent; and

“Whereas, It is determined that price wars in the milk processing and/or distributing industry, or acts that tend to cause price wars in this industry have the effect of endangering the availability of an adequate supply of fresh wholesome milk at all times, and tend to reduce the quality of milk sold for human consumption in this State; and

“Whereas, It is determined that in order to assure an adequate supply of fresh wholesome milk of high quality this act is necessary….”

Effective Dates. Acts 1963, No. 268, § 3: Mar. 18, 1963. Emergency clause provided: “It is hereby found and determined by the general assembly that a number of vendors of fresh dairy products are engaging in unfair practices regarding the sale of such products; that such unfair practices are injurious to the stability of milk prices in this state and are unfairly harming many milk producers in this state; and that the immediate passage of this act is necessary to correct such situation. Therefore, an emergency is hereby declared to exist and this act being necessary for the immediate preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

Research References

Ark. L. Rev.

The Milk Contract Bill — Sale of Commodities Below Cost, 9 Ark. L. Rev. 403.

Case Notes

Applicability.

Sections 4-75-801 — 4-75-806, 4-75-808 and 4-75-809 do not apply to retail grocery stores. Central Ark. Milk Producers Ass'n v. Consumer's Whse. Mkt., Inc., 229 Ark. 934, 319 S.W.2d 511 (1958).

4-75-801. Purpose.

  1. It is not the intention of §§ 4-75-801 — 4-75-806, 4-75-808, and 4-75-809 to guarantee a profit to any person, firm, or corporation engaged in the business of processing or distributing milk, and any such person, firm, or corporation shall be free to meet competitive prices in this state, as herein provided.
  2. However, it is the intention of §§ 4-75-801 — 4-75-806, 4-75-808, and 4-75-809 to prevent any person, firm, or corporation engaged in the business of processing or distributing milk from lowering its selling price below cost, as defined in § 4-75-802, plus four percent (4%), except as hereinafter stated.

History. Acts 1955, No. 380, § 1; A.S.A. 1947, § 70-701.

4-75-802. Definition.

  1. As used in §§ 4-75-801 — 4-75-806, 4-75-808, and 4-75-809, unless the context otherwise requires, “cost” includes the price the processor or distributor pays the producer for fresh milk, plus the cost of doing business, which shall include labor, including salaries of executives and officers, rent, interest, depreciation, selling costs, maintenance of equipment, transportation and delivery costs, credit losses, all types of permit and license fees, all taxes, insurance, advertising, and any and all overhead expenses of the processor or distributor or expenses incident to doing business.
  2. In the event any action is instituted in any court in this state under §§ 4-75-801 — 4-75-806, 4-75-808, and 4-75-809, costs, including the cost of raw milk, shall be determined by the average costs of such processor or distributor for the thirty-day period previous to the date of the alleged violation.
  3. A profit from the sale of other products, including ice cream and other frozen foods, shall not be used in cost computations to subsidize or lower the costs of doing business in the sale of fresh milk.

History. Acts 1955, No. 380, § 3; A.S.A. 1947, § 70-703.

4-75-803. Institutions excepted from application of subchapter.

Sections 4-75-801 — 4-75-806, 4-75-808, and 4-75-809 shall not apply to federal government institutions, state tax-supported charitable or penal institutions, or church-supported orphanages.

History. Acts 1955, No. 380, § 7; A.S.A. 1947, § 70-707.

4-75-804. Penalties.

The sale, offer, or advertisement for sale of fresh milk in violation of the provisions of §§ 4-75-8014-75-806, 4-75-808, and 4-75-809 is declared to be for the purpose of destroying competition and any person, firm, or corporation found to be in violation hereof shall be guilty of a Class B misdemeanor. Each day's violation shall constitute a separate offense.

History. Acts 1955, No. 380, § 5; A.S.A. 1947, § 70-705; Acts 2005, No. 1994, § 379.

4-75-805. Sales at less than equivalent competitive price.

  1. It shall be unlawful for any person, firm, or corporation, or combination thereof, engaged in this state in the business of processing or distributing fresh milk, either at retail or wholesale, to sell, offer for sale, or advertise for sale, fresh milk at less than four percent (4%) over and above the cost of purchasing, processing, and distributing the fresh milk, either at wholesale or retail, unless the sale, offer for sale, or advertisement for sale at less than cost plus four percent (4%) is for the purpose of meeting equivalent competitive prices of a processor or distributor in any county.
  2. Equivalent competitive prices, as used in this section, means any legal wholesale or retail price, not less than the minimum prices provided herein, at which fresh fluid milk is sold, advertised, or offered for sale by the competitor who sells not less than five percent (5%) of the total fresh fluid milk sales in that county.

History. Acts 1955, No. 380, § 2; A.S.A. 1947, § 70-702.

Case Notes

Retail Stores.

A retail grocery store is not a distributor within the meaning of §§ 4-75-8014-75-806, 4-75-808 and 4-75-809 and the use of the word “retail” in this section does not make it otherwise. Central Ark. Milk Producers Ass'n v. Consumer's Whse. Mkt., Inc., 229 Ark. 934, 319 S.W.2d 511 (1958).

4-75-806. Rebates, refunds, etc., considered as costs.

The payment or allowance of rebates, refunds, commissions, or discounts, whether in the form of money or otherwise, or the extending to certain purchasers of special services or privileges not extended to all purchasers purchasing upon like terms and conditions, or the offering of a combined price for fresh milk or any fresh milk product with another commodity or service which is less than the aggregate of the prices for which the milk or milk products and other commodity or service is offered for sale, shall be considered costs of doing business in each separate sale or transaction, and each separate sale or transaction must stand the test of cost plus four percent (4%) as provided in § 4-75-805.

History. Acts 1955, No. 380, § 4; A.S.A. 1947, § 70-704.

4-75-807. Fresh dairy products — Unlawful to limit quantity of purchase.

  1. It shall be unlawful for any vendor of fresh dairy products in this state who advertises or displays any of the products for sale at specified prices to restrict or limit the number or quantity of any such products to be sold to any purchaser desiring to purchase the products so long as the supply of the products to be purchased is available.
    1. Any person violating the provisions of this section shall be guilty of a violation and upon conviction shall be punished by a fine of not more than one hundred dollars ($100).
    2. Each violation of this section shall be punishable as a separate offense.

History. Acts 1963, No. 268, § 1; A.S.A. 1947, § 70-708; Acts 2005, No. 1994, § 41.

4-75-808. Furnishing equipment free or at less than cost unlawful — Exceptions.

  1. It shall be unlawful to furnish any free equipment other than to public schools, parochial schools, private schools, colleges, or universities.
  2. Any equipment furnished or sold to any person, firm, or corporation by a processor or distributor or his or her or its agent, or designee, other than to public schools, parochial schools, private schools, colleges, or universities, shall be sold at a price not less than actual cost, including installation cost if paid or agreed to be paid by the processor or distributor or his or her or its agents, less ten percent (10%) per year allowance for age of the equipment prior to the installation. Any time or deferred price therefor shall not be payable for a term of more than one (1) year from date of installation.

History. Acts 1955, No. 380, § 4; A.S.A. 1947, § 70-704.

4-75-809. Remedies.

  1. In addition to any remedy herein or otherwise and elsewhere provided, any person, firm, or corporation, or combination thereof, may be enjoined in a court of competent jurisdiction by any affected person, firm, or corporation from the violation of any of the provisions of §§ 4-75-801 — 4-75-806, 4-75-808, or 4-75-809.
  2. Any person, firm, or corporation found by the court to be in violation of any of the provisions of §§ 4-75-801 — 4-75-806, 4-75-808, or 4-75-809 shall be liable for three (3) times the amount of the actual damages, if any, sustained by any injured person, firm, or corporation as the result of the violations.

History. Acts 1955, No. 380, § 6; A.S.A. 1947, § 70-706.

Subchapter 9 — Motion Pictures

4-75-901. Purpose.

The purpose of this subchapter is to establish fair and open procedures for the bidding and negotiation of motion pictures within the state in order to prevent unfair and deceptive acts or practices and unreasonable restraints of trade in the business of motion picture distribution within the state, promote fair and effective competition in that business, and benefit the movie-going public by holding down admission prices to motion picture theatres, expanding the choice of motion pictures available to the public, and preventing exposure of the public to objectionable or unsuitable motion pictures by ensuring that exhibitors have the opportunity to view a picture before committing themselves to exhibiting it.

History. Acts 1981, No. 606, § 1; A.S.A. 1947, § 70-1101.

4-75-902. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Bid” means a written or oral offer or proposal by an exhibitor to a distributor, in response to an invitation to bid or otherwise, stating the terms under which the exhibitor will agree to exhibit a motion picture;
  2. “Blind bidding” means the bidding for, negotiating for, or offering or agreeing to terms for the licensing or exhibition of a motion picture if the motion picture has not been trade screened within the state or at the nearest film exchange before any such event has occurred;
  3. “Distributor” means any person engaged in the business of distributing or supplying motion pictures to exhibitors by rental, sale, or licensing;
  4. “Exhibit” or “exhibition” means showing a motion picture to the public for a charge;
  5. “Exhibitor” means any person engaged in the business of operating one (1) or more theatres;
  6. “Invitation to bid” means a written or oral solicitation or invitation by a distributor to one (1) or more exhibitors to bid or negotiate for the right to exhibit a motion picture;
  7. “License agreement” means any contract, agreement, understanding, or condition between a distributor and an exhibitor relating to the licensing or exhibition of a motion picture by the exhibitor;
  8. “Person” includes one (1) or more individuals, partnerships, associations, societies, trusts, or corporations;
  9. “Run” means the continuous exhibition of a motion picture in a defined geographic area for a specified period of time. A “first run” is the first exhibition of a picture in a designated area; a “second run” is the second exhibition; and “subsequent runs” are subsequent exhibitions after the second run;
  10. “Theatre” means any establishment in which motion pictures are exhibited to the public regularly for a charge; and
  11. “Trade screening” means the showing of a motion picture by a distributor in one (1) of the three (3) largest cities within the state or at the nearest film exchange which is open to any exhibitor interested in exhibiting the motion picture.

History. Acts 1981, No. 606, § 2; A.S.A. 1947, § 70-1102.

4-75-903. Penalties.

Any person violating or failing to comply with the provisions of this subchapter shall be guilty of a violation and upon conviction shall be subject to a fine of one hundred dollars ($100) for each day the violation or noncompliance continues.

History. Acts 1981, No. 606, § 5; A.S.A. 1947, § 70-1105; Acts 2005, No. 1994, § 42.

4-75-904. Injunctions.

Any court of competent jurisdiction is authorized, upon petition of a party in interest, to enjoin any violation of or noncompliance with the provisions of this subchapter.

History. Acts 1981, No. 606, § 6; A.S.A. 1947, § 70-1106.

4-75-905. Trade screening — Blind bidding prohibited.

    1. Blind bidding is prohibited within the state.
    2. No bids shall be returnable, no negotiations for the exhibition or licensing of a motion picture shall take place, and no license agreement or any of its terms shall be agreed to, for the exhibition of any motion picture within the state before the motion picture has been trade screened within the state or at the nearest film exchange.
  1. A distributor shall include in each invitation to bid for a motion picture for exhibition within the state, if the motion picture has not already been trade screened within the state or at the nearest film exchange, the date, time, and place of the trade screening of the motion picture within the state or at the nearest film exchange.
  2. A distributor shall provide reasonable and uniform notice to exhibitors within the state of all trade screenings within the state or at the nearest film exchange of motion pictures he or she is distributing.
  3. Any purported waiver of the requirements of this section shall be void and unenforceable.

History. Acts 1981, No. 606, § 3; A.S.A. 1947, § 70-1103.

4-75-906. Bidding procedures.

If bids are solicited from exhibitors for the licensing of a motion picture within this state, then:

  1. The invitation to bid shall specify:
    1. The number and length of runs for which the bid is being solicited, whether it is a first, second, or subsequent run, and the geographic area for each run;
    2. The names of all exhibitors who are being solicited;
    3. The date and hour the invitation to bid expires; and
    4. The location, including the address, where the bids will be opened, which shall be within this state or at the nearest film exchange;
  2. All bids shall be submitted in writing and shall be opened at the same time and in the presence of exhibitors, or their agents, who submitted bids and are present at the time, in one (1) of the three (3) largest cities within the state or at the nearest film exchange;
  3. After being opened, bids shall be subject to examination by exhibitors or their agents who submitted bids. Within seven (7) business days after a bid is opened, the distributor shall notify in writing each exhibitor who submitted a bid of the terms of the accepted bid and the name of the winning bidder; and
  4. Once bids are solicited, the distributor shall license the picture only by bidding and may solicit rebids or negotiate if he or she does not accept any of the submitted bids.

History. Acts 1981, No. 606, § 4; A.S.A. 1947, § 70-1104.

Subchapter 10 — Foundation Repair Contracts Act

4-75-1001. Title.

This subchapter shall be known and may be cited as the “Foundation Repair Contracts Act”.

History. Acts 2015, No. 687, § 1.

4-75-1002. Purpose.

The purpose of this subchapter is to ensure fair and reasonable regulation of foundation repair contracts to prevent misleading and deceptive business practices in the performance of a foundation repair contract.

History. Acts 2015, No. 687, § 1.

4-75-1003. Definitions.

As used in this section:

  1. “Contractor” means a person or an entity that repairs or has repaired the foundation of a single-family dwelling;
  2. “Foundation repair contract” means a written contract between a homeowner and a contractor to repair the foundation of a single-family dwelling;
  3. “Homeowner” means the initial owner and any subsequent owner of a single-family dwelling; and
  4. “Single-family dwelling” means a dwelling constructed for habitation by one (1) to four (4) families.

History. Acts 2015, No. 687, § 1.

4-75-1004. Foundation repair contract requirements.

A foundation repair contract shall contain the:

  1. Legal description and street address of the single-family dwelling; and
  2. Names and addresses of the parties to the contract.

History. Acts 2015, No. 687, § 1.

4-75-1005. Enforceability.

A foundation repair contract is enforceable by a homeowner against a contractor for the time specified in the foundation repair contract.

History. Acts 2015, No. 687, § 1.

4-75-1006. Civil remedies.

If a homeowner successfully files suit to obtain a remedy authorized by this subchapter, the homeowner shall recover:

  1. The amount of the cost to repair the foundation, remediate any defects, and reconstruct the structural damage resulting from a defect in a single-family dwelling's foundation; and
  2. Court costs and a reasonable attorney's fee.

History. Acts 2015, No. 687, § 1.

Subchapter 11 — Frank Broyles Publicity Rights Protection Act of 2016

A.C.R.C. Notes. Identical Acts 2016 (3rd Ex. Sess.), Nos. 8 and 9, § 2, provided: “SEVERABILITY CLAUSE. If any provision of this act or its application to any person or circumstance is held invalid, the invaliding does not affect other provisions or applications of this act which can be given effect without the invalid provision or application, and to this end the provisions of this act are severable.”

4-75-1101. Title.

This subchapter shall be known and may be cited as the “Frank Broyles Publicity Rights Protection Act of 2016”.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1102. Findings and legislative intent.

  1. The General Assembly finds that citizens of this state:
    1. Are renowned for their hard work and accomplishments in many areas that contribute to the public health, welfare, and pursuit of happiness;
    2. Often spend most of their lives developing and maintaining reputations of honesty and integrity;
    3. Have a vested interest in maintaining the memory of personal traits that characterize them and their accomplishments; and
    4. Should have the use of their names, voices, signatures, photographs, and likenesses protected for their benefit and the benefit of their families.
  2. It is the intent of the General Assembly by the enactment of this subchapter to:
    1. Protect the names, voices, signatures, photographs, and likenesses of the citizens of this state from exploitation and unauthorized commercial use without the consent of the citizen;
    2. Provide a method for the fair administration of the right to use the name, voice, signature, photograph, or likeness of a citizen; and
    3. Provide appropriate remedies for the exploitation and unauthorized commercial use of the name, voice, signature, photograph, or likeness of a citizen.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1103. Definitions.

As used in this subchapter:

    1. “Commercial use” means the use of an individual's readily identifiable name, voice, signature, photograph, or likeness:
      1. For advertising, selling, or soliciting purchases of products, merchandise, goods, or services; or
      2. On or in connection with products, merchandise, goods, or other commercial activity that is not exempt under this subchapter.
    2. “Commercial use” does not mean the use of an individual's name, voice, signature, photograph, or likeness to identify the individual for the purpose of:
      1. Data collection or data reporting and supplying the data collected or reported; or
      2. Data processing, data matching, data distribution, or data licensing;
  1. “Individual” means a natural person, alive or dead;
  2. “Likeness” means a reproduction of the image of an individual by any means other than a photograph;
    1. “Person” means an individual or entity.
    2. “Person” includes:
      1. A partnership, a corporation, a company, an association, or any other business entity;
      2. A not-for-profit corporation or association;
      3. An educational or religious institution;
      4. A political party; and
      5. A community, civic, or other organization;
  3. “Photograph” means a reproduction of the image of an individual that readily identifies the individual, whether made by photography, videotape, live transmission, or other means; and
  4. “Successor in interest” means an owner or the beneficial owner of a property right provided by this subchapter under:
    1. A transfer, assignment, or license of the property right; or
    2. Section 4-75-1104(b)(3).

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1104. Property right in use of name, voice, signature, photograph, or likeness — Prior consent.

  1. An individual has a property right in the commercial use by any medium in any manner without the individual's prior consent of:
    1. The individual's name, voice, signature, photograph, or likeness; and
    2. Any combination of the individual's name, voice, signature, photograph, or likeness.
  2. The property right provided under subsection (a) of this section:
    1. Is freely transferable, assignable, licensable, and descendible, in whole or in part, by contract or by a trust, testamentary disposition, or other instrument executed before or after August 22, 2016;
    2. Does not expire upon the death of an individual, whether or not the rights were commercially used by the individual during the individual's lifetime; and
      1. Upon the death of an individual, vests in the individual's executors, administrators, heirs, devisees, and assignees according to:
        1. The terms of a trust, testamentary, or other instrument under subdivision (b)(1) of this section; or
        2. Except as provided in subdivision (b)(3)(B) of this section, if a testamentary instrument does not expressly provide for the transfer of a property right provided by subsection (a) of this section, the laws of this state governing intestate succession to personalty control.
      2. In the absence of an express transfer in a testamentary instrument of the rights of an individual in his or her name, voice, signature, photograph, or likeness, a provision in the testamentary instrument that provides for the disposition of the residue of the individual's assets is effective to transfer the rights recognized under this section in accordance with the terms of the provision.
  3. Subject to the terms of a transfer, assignment, or license of a property right provided by this section, the consent required by subsection (a) of this section shall be exercised by:
    1. The individual during the lifetime of the individual;
    2. A person or persons to whom all or part of the right of consent has been transferred, assigned, or licensed; or
    3. After the death of an individual, as provided by § 4-75-1105.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1105. Exercise of rights after death.

  1. Subject to the terms of a transfer, assignment, or license of property rights under § 4-75-1104, after the death of an individual, consent to the use of the individual's name, voice, signature, photograph, or likeness shall be granted by no less than fifty and one-thousandths percent (50.001%) of the owners of the right to use the name, voice, signature, photograph, or likeness of the individual under § 4-75-1104(b)(3).
  2. Compensation or other remuneration received under subsection (a) of this section for the use of the name, voice, signature, photograph, or likeness of the individual shall be shared by all owners of the right to use the name, voice, signature, photograph, or likeness of the individual according to each owner's respective ownership interest.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1106. Registration.

  1. A successor in interest shall register a claim of property rights under this subchapter in the manner provided by this section.
  2. Unless a claim of property rights under this subchapter is registered under this section, a successor in interest shall not recover damages from a person or obtain any other legal or equitable remedy on the claim for a commercial use prohibited by this subchapter unless the person knew of the claim of the successor in interest before the person undertook efforts or expense to make the commercial use.
    1. A successor in interest shall register the claim with the Secretary of State:
      1. On a form prescribed by the Secretary of State; and
      2. By paying a filing fee prescribed by the Secretary of State not to exceed twenty-five dollars ($25.00).
    2. The form shall:
      1. Be verified under oath;
      2. Include the name and, if applicable, date of death of the individual; and
      3. Include the name and address of the claimant, the basis of the claim, and the property rights claimed.
    1. Upon receipt of the claim, the Secretary of State shall file and post the form along with the entire registry of persons claiming to be a successor in interest of a decedent on the website of the Secretary of State.
    2. The Secretary of State shall microfilm or otherwise reproduce the filing or form and destroy the original filing or form.
    3. Under this section, the microfilm or other reproduction of the filing or form is:
      1. Admissible in any court of law; and
      2. A matter of public record.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1107. Exclusive rights — Expiration.

Subject to a transfer, an assignment, or a licensing agreement, the property rights provided by this subchapter are exclusive to:

  1. An individual during the individual's lifetime; and
  2. The executors, administrators, heirs, devisees, and assignees of the individual for fifty (50) years after the individual's death.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1108. Unauthorized commercial use.

  1. Except as provided in § 4-75-1110, a person who commercially uses the name, voice, signature, photograph, or likeness of an individual is liable to the holder of the property right provided by this subchapter for damages and disgorgement of profits, funds, goods, or services if the commercial use was not authorized under § 4-75-1104(c).
  2. If a minor is the holder of the property right, the parent or legal guardian may consent on the minor's behalf.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1109. Civil actions — Damages.

  1. An aggrieved party may file a civil action in the county where:
    1. One (1) or more defendants reside; or
    2. A violation of this subchapter occurred.
  2. Upon finding a violation of this subchapter, the court may issue an injunction to prevent or restrain the unauthorized commercial use of the name, voice, signature, photograph, or likeness of the individual.
    1. The holder of the property right under this subchapter is entitled to recover for the unauthorized commercial use of the property right by seeking both:
      1. The actual damages the holder of the property right has suffered as a result of a commercial use of the property right; and
      2. Any profits that are attributable to the commercial use.
    2. Profits that are attributable to the commercial use shall not be considered in computing the actual damages.
    3. The existence or nonexistence of profits from the unauthorized commercial use shall not be a criterion for determining liability.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1110. Exempt use — Commercial use.

    1. It is not a violation of this subchapter if the name, voice, signature, photograph, or likeness of an individual is used:
      1. In connection with a news, public affairs, or sports broadcast, including the promotion of and advertising for a sports broadcast, an account of public interest, or a political campaign;
      2. In:
        1. A play, book, magazine, newspaper, musical composition, visual work, work of art, audiovisual work, radio or television program if it is fictional or nonfictional entertainment, or a dramatic, literary, or musical work;
        2. A work of political, public interest, or newsworthy value, including a comment, criticism, parody, satire, or a transformative creation of a work of authorship; or
        3. An advertisement or commercial announcement for any of the works described in subdivision (a)(1)(A) of this section or this subdivision (a)(1)(B);
      3. In a photograph or likeness where the individual appears as a member of the public, an attendee of a photographed event, or in a public place, and the individual is not named;
      4. By an institution of higher education or by a nonprofit organization, club, or supporting foundation that is authorized by the institution of higher education and established solely to advance the purposes of the institution of higher education if:
        1. The use is for educational purposes or to promote the institution of higher education and its educational, athletic, or other institutional objectives; and
        2. The individual is or was affiliated with the institution, including without limitation as a:
          1. Student or member of the faculty or staff;
          2. Donor or campus visitor; or
          3. Contractor, subcontractor, or employee;
      5. By any person practicing the profession of photography or his or her representative:
        1. To exhibit and display photographs in a personal portfolio through physical media or digital media unless the exhibit and display are continued by the person practicing the profession of photography after written notice objecting to the exhibit and display has been given by the individual or by his or her representative;
        2. To distribute photographs for license and sale or other transfer to third parties or to promote or advertise such activities; and
        3. To provide yearbooks to an educational institution or photographs for school publications; or
      6. By a service provider of a system or network if the service provider:
        1. Does not have actual knowledge that a photograph or likeness on the system or network is in violation of this subchapter; or
        2. In the absence of such actual knowledge, is not aware of facts or circumstances from which a violation of this subchapter is apparent.
    2. The use of the name, voice, signature, photograph, or likeness of the individual within a work that is protected under subdivision (a)(1)(B) of this section is not an exempt use protected by subdivision (a)(1) of this section if the claimant proves that the use is so directly connected with a product, article of merchandise, good, or service other than the work itself as to constitute an act of advertising, selling, or soliciting purchases of the product, article of merchandise, good, or service by the individual without the prior consent required by this subchapter.
    1. The commercial use of the name, voice, signature, photograph, or likeness of the individual in a commercial medium does not constitute a commercial use for purposes of advertising or solicitation if the material containing the commercial use is authorized by the individual for commercial sponsorship or paid advertising.
    2. It is a question of fact as to whether or not the commercial use of the name, voice, signature, photograph, or likeness of an individual is so directly connected with the commercial sponsorship or paid advertising as to constitute an authorized use for purposes of advertising or solicitation.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1111. Exclusive remedies.

  1. Remedies granted by this subchapter shall constitute the exclusive basis for asserting a claim for the unauthorized commercial use of the name, voice, signature, photograph, or likeness of an individual.
  2. Except as provided in this subchapter, a right of publicity in the use of the name, voice, signature, photograph, or likeness of an individual does not exist.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1112. Construction.

  1. This subchapter:
    1. Shall be liberally construed to accomplish its intent and purposes; and
    2. Does not render invalid or unenforceable a contract or license entered into before or after August 22, 2016, by an individual during his or her lifetime by which the individual transferred, assigned, or licensed all or part of the right to use his or her name, voice, signature, photograph, or likeness.
  2. The property rights granted by this subchapter are not considered intellectual property for purposes of 47 U.S.C. § 230.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

4-75-1113. Applicability.

  1. The property rights granted by this subchapter vest with respect to an individual on August 22, 2016.
  2. This subchapter applies only to individuals maintaining a domicile or residence in the State of Arkansas on or after August 22, 2016.

History. Acts 2016 (3rd Ex. Sess.), No. 8, § 1; 2016 (3rd Ex. Sess.), No. 9, § 1.

Subchapter 12 — Asphalt Roof Shingles Express Warranty Act

4-75-1201. Title.

This subchapter shall be known and may be cited as the “Asphalt Roof Shingles Express Warranty Act”.

History. Acts 2017, No. 487, § 1.

4-75-1202. Purpose.

The purpose of this subchapter is to ensure that the express warranty provided by a manufacturer against defective asphalt roof shingles is available to a homeowner and any subsequent homeowner to prevent misleading and deceptive business practices in the sale of asphalt roof shingles.

History. Acts 2017, No. 487, § 1.

4-75-1203. Definitions.

As used in this subchapter:

  1. “Asphalt roof shingles” means a roof-covering material or product that is installed on a roof of a single-family dwelling;
  2. “Homeowner” means the initial owner and any subsequent owner of a single-family dwelling;
  3. “Manufacturer” means an entity that is engaged in the manufacturing of asphalt roof shingles; and
  4. “Single-family dwelling” means a dwelling constructed for habitation by one to four (1-4) families.

History. Acts 2017, No. 487, § 1.

4-75-1204. Enforceability.

A manufacturer's express warranty against defective asphalt roof shingles is enforceable by a homeowner against a manufacturer for the time specified in the express warranty as provided by the manufacturer.

History. Acts 2017, No. 487, § 1.

Chapter 76 Copyright Royalty Collection

4-76-101. Short title.

This chapter may be cited as the “Copyright Royalty Collection Practices Act”.

History. Acts 1997, No. 648, § 1.

4-76-102. Definitions.

In this chapter:

  1. “Copyright owner” means the owner of a copyright of a musical work, other than a motion picture or audiovisual work, recognized and enforceable under the copyright laws of the United States pursuant to Title 17 of the United States Code, Pub. L. 94-554, 17 U.S.C. § 101 et seq.;
  2. “Performing rights society” means an association or corporation that licenses the nondramatic public performance of musical works on behalf of copyright owners, such as:
    1. The American Society of Composers, Authors and Publishers, also known as ASCAP;
    2. Broadcast Music, Inc., also known as BMI; and
    3. SESAC, Inc., also known as SESAC;
  3. “Proprietor” means the owner or operator of a retail establishment, restaurant, inn, bar, tavern, or other similar place of business located in this state in which the public may assemble and in which musical works may be performed, broadcast, or otherwise transmitted; and
  4. “Royalty” or “royalties” means the fees payable to a performing rights society for public performance rights.

History. Acts 1997, No. 648, § 2.

4-76-103. Licensing negotiations.

No performing rights society shall offer to enter into or enter into a contract for the payment of royalties by a proprietor unless, at the time of the offer or any time thereafter, but no later than seventy-two (72) hours prior to the execution of that contract, it provides to the proprietor, in writing, the following:

  1. A schedule of the rates and terms of royalties under the contract;
  2. At the request of the proprietor, the opportunity to review the most current available list of the members or affiliates represented by the society;
  3. Notice that it will make available, on written request of any proprietor, at the sole expense of the proprietor, the most current available listing of the copyrighted musical works in the performing rights society's repertory, provided that the notice specifies the means by which such information can be secured; and
  4. A toll-free number that the proprietor can use to obtain answers to specific questions concerning the performing rights society's repertoire.

History. Acts 1997, No. 648, § 3.

4-76-104. Form of contract.

Every contract between a performing rights society and a proprietor for the payment of royalties executed in this state shall:

  1. Be in writing;
  2. Be signed by the parties; and
  3. Include at least the following information:
    1. The proprietor's name and business address and the name and location of each place of business to which the contract applies;
    2. The name and address of the performing rights society;
    3. The duration of the contract; and
    4. The schedule of rates and terms of the royalties to be collected under the contract, including any sliding scale or schedule for any increase or decrease of those rates for the duration of that contract.

History. Acts 1997, No. 648, § 4.

4-76-105. Improper licensing practices.

No performing rights society or any agent or employee thereof shall collect or attempt to collect from a proprietor licensed by that performing rights society a royalty payment except as provided in a contract executed pursuant to the provisions of this chapter.

History. Acts 1997, No. 648, § 5.

4-76-106. Code of conduct.

No performing rights society or any agent, employee, or representative thereof shall:

  1. Engage in any coercive act or practice that is disruptive of a proprietor's business; or
  2. Enter onto the premises of a proprietor's business for the purpose of discussing or inquiring about a contract for payment of royalties for the use of copyrighted works by that proprietor, without first identifying himself or herself to the proprietor or to the proprietor's management employees, including showing his or her photo identification card and disclosing that he or she is acting on behalf of the performing rights society and disclosing the purpose of the entry.

History. Acts 1997, No. 648, § 6.

4-76-107. Civil remedies — Injunction.

Any person who suffers a violation of this chapter may bring an action to recover actual damages and reasonable attorney's fees and seek an injunction or any other remedy available at law or in equity.

History. Acts 1997, No. 648, § 7.

Research References

ALR.

Actual Registration or Application as Constituting Condition Precedent to Copyright Infringement Action Under § 411(a) of Copyright Act (17 U.S.C. § 411(a)), 30 A.L.R. Fed. 3d Art. 4 (2018).

4-76-108. Application.

  1. This chapter shall not apply to contracts between performing rights societies and broadcasters licensed by the Federal Communications Commission or to contracts with cable operators, programmers, or other transmission services.
  2. This chapter does not apply to investigations by law enforcement officers or other persons concerning a suspected violation of § 5-37-510(c).

History. Acts 1997, No. 648, § 8.

Chapters 77-85 [Reserved.]

[Reserved]

Subtitle 7. Consumer Protection

Chapter 86 General Provisions

Effective Dates. Acts 2015, No. 1169, § 3: Emergency clause failed to pass. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that agriculture is an essential element of Arkansas's economy; that protecting the members of the agricultural community in Arkansas is in the best interests of the state; that the failure of some contractors to notify growers in advance that additional investments may be required under a production contract has resulted in some growers being forced to close their businesses; and that this act is immediately necessary because the unexpected closure of these businesses is harmful to the state's agricultural community and overall economy. Therefore, an emergency is declared to exist, and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Research References

ALR.

Escalators. 1 A.L.R.4th 144.

Flammable clothing. 1 A.L.R.4th 251.

Defect in boat or its parts, supplies, or equipment. 1 A.L.R.4th 411.

Defective heating equipment. 1 A.L.R.4th 748.

Prosthesis or other product designed to be surgically implanted in patient's body. 1 A.L.R.4th 921.

Diethylstilbestrol. 2 A.L.R.4th 1091.

Snow throwers. 2 A.L.R.4th 1284.

Defective vehicular windows. 3 A.L.R.4th 489.

Farm machinery. 4 A.L.R.4th 13.

Vehicular bumpers. 5 A.L.R.4th 483.

Personal injury or death allegedly caused by defect in electrical system in motor vehicle. 5 A.L.R.4th 662.

Clothes dryers. 6 A.L.R.4th 1262.

Glue and other adhesive products. 7 A.L.R.4th 155.

Elevators. 7 A.L.R.4th 852.

Industrial presses. 8 A.L.R.4th 70.

Liability of manufacturer, seller, or distributor of motor vehicle for defect which merely enhances injury from accident otherwise caused. 9 A.L.R.4th 494.

Applicability of comparative negligence doctrine to actions based on strict liability in tort. 9 A.L.R.4th 633.

Workers' Compensation Act as furnishing exclusive remedy for employee injured by product manufactured, sold, or distributed by employer. 9 A.L.R.4th 873.

Transformers and other electrical equipment. 10 A.L.R.4th 854.

Ladders. 11 A.L.R.4th 1118.

Fertilizers, insecticides, pesticides, etc. 12 A.L.R.4th 462.

Allowances of punitive damages. 13 A.L.R.4th 52.

Preemption of strict liability in tort by provisions of U.C.C., Article 2. 15 A.L.R.4th 791.

Firearms, ammunition, and chemical weapons. 15 A.L.R.4th 910.

Tire rims and wheels. 16 A.L.R.4th 137.

Firefighting equipment. 19 A.L.R.4th 326.

“Concert of activity” or similar theory as basis for imposing liability upon one or more manufacturers of defective uniform product, in absence of identification of manufacturer of precise unit or batch causing injury. 22 A.L.R.4th 183.

Mechanical or chain saw or components thereof. 22 A.L.R.4th 206.

Validity and construction of statute terminating right of action for product-caused injury at fixed period after manufacture, sale, or delivery of product. 30 A.L.R.5th 1.

Adequacy of warning provided to user of product. 26 A.L.R.4th 377.

Protective clothing and equipment. 27 A.L.R.4th 815.

Strict products liability for failure to warn as dependent on defendant's knowledge of danger. 33 A.L.R.4th 368.

Stud guns, staple guns, or parts thereof. 33 A.L.R.4th 1189.

Appliances for cleaning, washing, etc. 34 A.L.R.4th 95.

Household appliance: Liability of manufacturer or seller. 34 A.L.R.4th 95; 35 A.L.R.4th 663.

Patent or obvious dangers. 35 A.L.R.4th 861.

Furnishings for home or office. 36 A.L.R.4th 170.

Bottle explosion or breakage. 36 A.L.R.4th 419.

Liability of person furnishing, installing, or servicing burglary or fire alarm system for burglary or fire loss. 37 A.L.R.4th 47.

Postinjury measures undertaken by defendant. 38 A.L.R.4th 583.

Manufacturer's responsibility for defective component supplied by another and incorporated in product. 39 A.L.R.4th 6.

Alteration of product after it leaves hands of manufacturer or seller as affecting for product-caused harm. 41 A.L.R.4th 47.

Perfumes, colognes, or deodorants. 46 A.L.R.4th 1197.

Evidence of industry custom or practice. 47 A.L.R.4th 621.

Sufficiency of evidence to support product misuse defense in product liability actions concerning athletic, exercise, or recreational equipment. 50 A.L.R.4th 1226.

Admissibility of evidence of absence of other accidents in products liability action. 51 A.L.R.4th 1186.

Sufficiency of evidence to support product misuse defense in products liability actions concerning wearing apparel. 52 A.L.R.4th 276.

Attorney's fees in products liability suit. 53 A.L.R.4th 414.

Personal soaps. 54 A.L.R.4th 574.

Sufficiency of evidence to support product misuse defense in products liability actions concerning electrical generation and transmission equipment. 55 A.L.R.4th 1010.

Sufficiency of evidence to support product misuse defense in products liability action concerning lawn mowers. 55 A.L.R.4th 1062.

Civil liability for tobacco sales to minors. 55 A.L.R.4th 1238.

Products liability of pertussis vaccine manufacturers. 57 A.L.R.4th 911, 98 A.L.R. Fed. 124.

Commercial renter's negligence liability for consumer's personal injuries. 57 A.L.R.4th 1186.

Sufficiency of evidence to support product misuse defense in actions concerning food, drugs, and other products intended for ingestion. 58 A.L.R.4th 7.

Sufficiency of evidence to support product misuse defense in actions concerning cosmetics and other personal care products. 58 A.L.R.4th 40.

Sufficiency of evidence to support product misuse defense in products liability actions concerning paint, cleaners, or other chemicals. 58 A.L.R.4th 76.

Sufficiency of evidence to support product misuse defense in actions concerning gas and electric appliances. 58 A.L.R.4th 131.

Sufficiency of evidence to support product misuse defense in actions concerning bottles, cans, storage tanks, or other containers. 58 A.L.R.4th 160.

Toxic shock syndrome. 59 A.L.R.4th 50.

Sufficiency of evidence to support product misuse defense in actions concerning ladders and scaffolds. 59 A.L.R.4th 73.

Sufficiency of evidence to support product misuse defense in actions concerning weapons and ammunition. 59 A.L.R.4th 102.

Polyvinyl chloride. 59 A.L.R.4th 129.

What goods or property are “used,” “secondhand” or the like for purposes of state consumer laws prohibiting claims that such items are new. 59 A.L.R.4th 1192.

Sufficiency of evidence to support misuse defense in actions concerning agricultural implements and equipment. 60 A.L.R.4th 678.

Electricity. 60 A.L.R.4th 732.

Falling of displayed, stored, or piled objects, liability for injury to customer or other invitee of retail store by. 61 A.L.R.4th 27.

Overhead garage doors and openers. 61 A.L.R.4th 94.

Sufficiency of evidence to support product misuse defense in action concerning building components and materials. 61 A.L.R.4th 156.

Sufficiency of evidence to support product misuse defense in actions concerning automobiles, boats, aircraft, and other vehicles. 63 A.L.R.4th 18.

Mascara and other eye cosmetics. 63 A.L.R.4th 105.

Sufficiency of evidence to support product misuse defense in actions concerning commercial or industrial equipment and machinery. 64 A.L.R.4th 10.

Admissibility of experimental or test evidence to disprove defect in motor vehicle. 64 A.L.R.4th 125.

Misuse defense. 65 A.L.R.4th 263.

Malfunction of product or occurrence of accident as evidence of defect. 65 A.L.R.4th 346.

Sudden or unexpected acceleration of motor vehicle. 66 A.L.R.4th 20.

Liability of manufacturer of oral live polio vaccine for injury or death from its administration. 66 A.L.R.4th 83.

Liability for injury incurred in operation of power golf cart. 66 A.L.R.4th 662.

Liability of owner or operator of business premises for injury to patron by dog or cat. 67 A.L.R.4th 976.

What is “unavoidably safe” product. 70 A.L.R.4th 16.

Recovery for damage to product alone. 72 A.L.R.4th 12.

Motor vehicle exhaust systems. 72 A.L.R.4th 62.

Industrial refrigeration equipment. 72 A.L.R.4th 90.

Implied warranty coverage for service transactions under state consumer protection and deceptive trade statutes. 72 A.L.R.4th 282.

Tractors. 75 A.L.R.4th 312.

Contributory negligence or assumption of risk as defense in action for strict liability or breach of warranty based on failure to provide safety device for product causing injury. 75 A.L.R.4th 538.

Bicycles and accessories. 76 A.L.R.4th 117.

Exercise and related equipment. 76 A.L.R.4th 145.

Trampolines and similar devices. 76 A.L.R.4th 171.

Competitive sports equipment. 76 A.L.R.4th 201.

Skiing equipment. 76 A.L.R.4th 256.

Mechanical amusement rides and devices. 77 A.L.R.4th 1121.

Burden of proving feasibility of alternative safe design in products liability action based on defective design. 78 A.L.R.4th 154.

Lubricating products and systems. 80 A.L.R.4th 972.

Liability of cosmetology school for injury to patron. 81 A.L.R.4th 444.

All-terrain vehicles. 83 A.L.R.4th 70.

Liability of auctioneer under doctrine of strict products liability. 83 A.L.R.4th 1188.

Cutting or heating torches. 84 A.L.R.4th 1123.

Liability for injury or death allegedly caused by spoilage or contamination of beverage. 87 A.L.R.4th 804.

Constitutional right to jury trial in cause of action under state unfair or deceptive trade practices law. 54 A.L.R.5th 631.

Am. Jur. 17 Am. Jur. 2d, Cons. & Bor. Pro. § 1 et seq.

Ark. L. Rev.

Cantu, A New Look at an Old Conundrum: The Determinative Test for the Hybrid Sales/Service Transaction Under Section 402A of the Restatement (Second) of Torts, 45 Ark. L. Rev. 913.

C.J.S. 21 C.J.S., Cr. Rep. Ag. § 23 et seq.

4-86-101. Breach of warranty — Liability.

The lack of privity between plaintiff and defendant shall be no defense in any action brought against the manufacturer or seller of goods to recover damages for breach of warranty, express or implied, or for negligence, although the plaintiff did not purchase the goods from the defendant, if the plaintiff was a person whom the manufacturer or seller might reasonably have expected to use, consume, or be affected by the goods.

History. Acts 1965, No. 35, § 1; A.S.A. 1947, § 85-2-318.1.

Research References

Ark. L. Notes.

Copeland, The Implied Warranty of Habitability and the Use of the Uniform Commercial Code by Analogy, 1983 Ark. L. Notes 5.

Ark. L. Rev.

Torts — Strict Liability in Products Cases, 22 Ark. L. Rev. 796.

Products Liability — Assumption of Risk and Contributory Negligence as Defense, 23 Ark. L. Rev. 297.

The Return of Caveat Venditor as the Law of Products Liability, 23 Ark. L. Rev. 355.

Products Liability — Extent of Manufacturers Liability for Breach of Warranty, 24 Ark. L. Rev. 374.

Torts — Strict Liability: Protection for the Bystander in Products Cases, 26 Ark. L. Rev. 106.

Note, The Arkansas Product Liability Act of 1979, 35 Ark. L. Rev. 364.

U. Ark. Little Rock L.J.

Survey—Business Law, 10 U. Ark. Little Rock L.J. 89.

Case Notes

Applicability.

This section has no effect on suits filed prior to its effective date. Knowles v. Vick Chem. Co., 240 Ark. 125, 398 S.W.2d 204 (1966).

The dismissal without prejudice of an action pending on the effective date of this section and the filing thereafter of an identical complaint by and against the same parties did not render this section applicable. Myers v. Council Mfg. Corp., 276 F. Supp. 541 (W.D. Ark. 1967).

This section is not limited to cases involving injury or damage to persons or property. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

This section was applicable in suit for breach of implied warranty of fitness against manufacturer of trucks and against dealer. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

This section, relating to liability for breach of warranty, does not limit strict liability actions to injuries to the ultimate consumer or user; nevertheless, the product has to meet the definition of unreasonably dangerous found in § 16-116-102. Elk Corp. v. Jackson, 291 Ark. 448, 725 S.W.2d 829 (1987).

In a negligence action, the real question was whether the property appraiser owed any legal duty to the plaintiff property owners, and the plaintiffs' reliance on §§ 4-86-101, 16-114-303, and 16-22-310 to support their proposition that privity of contract with an appraiser was not a requirement in their negligence suit was misplaced. Marlar v. Daniel, 368 Ark. 505, 247 S.W.3d 473 (2007).

Persons Protected.

The question of whether the plaintiff was a person protected by this section is one of fact. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

The intention to permit a second purchaser or even a lessor from a purchaser to recover for breach of warranty seems implicit in the language providing that lack of privity should not be a defense although the plaintiff did not purchase the goods from the defendant. Mack Trucks of Ark., Inc. v. Jet Asphalt & Rock Co., 246 Ark. 101, 437 S.W.2d 459 (1969), overruled in part on other grounds, Cavette v. Ford Motor Credit Co., 260 Ark. 874, 545 S.W.2d 612 (1977).

When a seller of tomato seed warrants it to be of a particular fitness and variety, the warranty extends in the distributive chain to a purchaser of tomato plants which are grown from the seeds for commercial purposes. L.A. Green Seed Co. v. Williams, 246 Ark. 463, 438 S.W.2d 717 (1969).

Cited: Marion Power Shovel Co. v. Huntsman, 246 Ark. 152, 437 S.W.2d 784 (1969); Flippo v. Mode O'Day Frock Shops, 248 Ark. 1, 449 S.W.2d 692 (1970); Blagg v. Fred Hunt Co., 272 Ark. 185, 612 S.W.2d 321 (1981); Ford Motor Credit Co. v. Harper, 671 F.2d 1117 (8th Cir. 1982).

4-86-102. [Transferred.]

Publisher's Notes. Former § 4-86-102 was renumbered as § 16-116-101 in 2016 by the Arkansas Code Revision Commission.

4-86-103. Unsolicited merchandise.

When unsolicited merchandise is delivered in this state to the person for whom it is intended, the person shall have a right to refuse to accept delivery of this merchandise, or may deem the merchandise to be a gift and use it or dispose of it in any manner he or she chooses without obligation to the sender.

History. Acts 1969, No. 47, § 1; A.S.A. 1947, § 85-2-606.1.

4-86-104. Interest on deposits for freight and parcel delivery services.

  1. Whenever any person, company, or corporation furnishing customers with freight or parcel delivery service shall require a deposit from the customer before the delivery service will be supplied to him or her, the person putting up the deposit shall receive interest annually on the deposit until it is returned to the customer, provided all bills due for services furnished have been paid by the customer.
  2. The annual rate of interest shall be ten percent (10%) per year and shall be paid on or before December 31 of each year.

History. Acts 1991, No. 422, §§ 1, 2.

4-86-105. Grave markers or headstones.

When any person purchases a grave marker or grave headstone from any seller in this state, the seller shall advise the purchaser that if the deceased is a veteran of the armed forces of the United States, the purchaser may request that the word “VET” be inscribed in the upper left corner of the marker or stone.

History. Acts 1995, No. 932, § 1.

4-86-106. Automatic renewal of professional home security contracts prohibited.

  1. Except as provided in subsection (c) of this section, no professional home security services contract that is entered into after August 1, 2003, shall state that the term of the professional home security services contract will automatically be renewed for any additional period beyond the initial term of the professional home security services contract.
  2. Except as provided in subsection (c) of this section, no professional home security services contract under subsection (a) of this section shall be renewed for any additional period beyond the initial term of the professional home security services contract unless the person receiving the professional home security services affirmatively notifies the person offering the professional home security services that he or she wishes to renew the professional home security services contract.
    1. A provider of professional home security services and a person may enter into a professional home security services contract that has a fixed initial term and successive, automatic monthly renewal terms.
    2. If the professional home security services contract contains a renewal clause as described in subdivision (c)(1) of this section, then:
      1. The professional home security services contract shall conspicuously state that the person receiving the professional home security services has the right without additional cost or penalty to terminate the professional home security services contract at the end of the initial term or the then current renewal; and
      2. The person shall provide the provider of the professional home security services with notice of his or her intent to terminate by written notice at least thirty (30) days before the expiration of the initial term or the then current renewal term.
  3. This section does not affect the initial term of a professional home security services contract under subsection (a) of this section and does not prohibit any person from offering to renew a professional home security services contract under subsection (a) of this section.
  4. If a professional home security services contract under this section is renewed in violation of this section, the person receiving the professional home security services may without additional cost or penalty immediately terminate the professional home security services contract by giving a written termination notice to the provider and shall not be obligated to perform under the professional home security services contract as renewed.

History. Acts 2003, No. 1344, § 1; 2007, No. 439, § 1.

Research References

ALR.

Consumer Protection: Automatic Renewal Clauses, 32 A.L.R.7th Art. 5 (2018).

4-86-107. Prohibiting the misappropriation of social security numbers.

  1. As used in this section:
    1. “Person” means:
      1. An individual;
      2. A corporation;
      3. A partnership;
      4. An organization; or
      5. Any other entity; and
    2. “Publicly post” or “publicly display” means to intentionally communicate or otherwise make available to the general public.
  2. Except as provided in subsection (c) of this section, a person may not do any of the following:
    1. Publicly post or publicly display in any manner an individual's social security number;
    2. Print an individual's social security number on any card required for the individual to access products or services provided by the person or entity;
    3. Print an individual's social security number:
      1. On a postcard or other mailer not requiring an envelope; or
      2. In a manner in which the social security number is visible on an envelope or without the envelope's being opened; or
    4. Require an individual to transmit his or her social security number over the Internet unless the:
      1. Connection is secure; or
      2. Social security number is encrypted.
  3. This section does not prevent the collection, use, or release of a social security number:
    1. As required or explicitly authorized by federal or state law; or
    2. Pursuant to state or federal court rules.
  4. This section does not apply to an entity providing an electronic communications service to the public that is used by another person to violate this section unless the entity:
    1. Conspires with another person to violate this section; or
    2. Intentionally aids and abets another person in the violation of this section.
  5. This section shall not be asserted as a means to avoid compliance with an otherwise valid request for records pursuant to the Freedom of Information Act of 1967, § 25-19-101 et seq.
  6. The Attorney General may:
    1. Bring suit against any person for violating the provisions of this section;
    2. Collect civil penalties of up to two hundred fifty dollars ($250) per violation along with attorney's fees and costs incurred in the investigation and prosecution of the matter; and
    3. Seek appropriate injunctive relief.

History. Acts 2005, No. 1295, § 1.

Effective Dates. As enacted by Acts 2005, No. 1295, § 1, this section contained a subsection (g) which provided: “This section shall become effective on January 1, 2007, and apply to acts occurring on or after January 1, 2007.”

4-86-108. [Repealed.]

Publisher's Note. This section, concerning distribution of drug samples, was repealed by Acts 2011, No. 719, § 2. The section was derived from Acts 2009, No. 943, § 1.

4-86-109. Automatic lease agreement renewal — Notice required — Definition.

  1. For purposes of this section, “automatic lease renewal” means a provision in a written lease of personal property that the lease is automatically renewed for an additional term at the end of the initial lease agreement term or at the end of any renewal lease term unless the lessee gives written notice to the lessor not to renew the lease agreement.
  2. Except as provided in subsection (c) of this section, a lessor of personal property under a written lease agreement that contains an automatic lease renewal shall provide to a lessee:
    1. Written notice of the automatic renewal at least thirty (30) days before the date the cancellation of the renewal of the lease agreement is due by the lessee;
    2. The identification of the lessor on communications between the lessee and lessor, including monthly statements;
    3. A copy of the original lease agreement on request; and
    4. The full purchase price, the interest rate for the lease, the monthly payment, and the total payoff amount for the personal property in the written lease agreement.
  3. If the lessor fails to provide the notice and information required under subsection (b) of this section, the automatic lease agreement renewal is voidable at the option of the lessee.
  4. This section does not apply to lease agreements with a term of less than one (1) year.

History. Acts 2013, No. 1320, § 1.

Research References

ALR.

Consumer Protection: Automatic Renewal Clauses, 32 A.L.R.7th Art. 5 (2018).

4-86-110. Additional investment for production contracts.

  1. For purposes of this section, “production contract” means the same as defined in § 2-32-201.
  2. A lender or loan originator shall provide the following notice in boldface in or attached as a separate document to a commercial loan agreement if the borrower is obtaining financing relating to a production contract: “NOTICE: The Borrower may be required to make additional investments to comply with the related production contract before the term of this agreement is complete. The Lender is not obligated to make any additional loans to the Borrower if additional investments are required to comply with the related production contract.”

History. Acts 2015, No. 1169, § 2.

Chapter 87 Arkansas Equal Consumer Credit Act

4-87-101. Title.

This chapter shall be known and may be cited as the “Arkansas Equal Consumer Credit Act of 1975”.

History. Acts 1975, No. 566, § 1; A.S.A. 1947, § 70-925.

4-87-102. Statute of limitations.

Any action brought under the provisions of this chapter may be brought in any court of competent jurisdiction in this state during a period of one (1) year commencing on the date of occurrence of the violation.

History. Acts 1975, No. 566, § 4; A.S.A. 1947, § 70-928.

4-87-103. Class actions prohibited.

No class action may be filed under the provisions of this chapter.

History. Acts 1975, No. 566, § 5; A.S.A. 1947, § 70-929.

4-87-104. Discrimination based on sex or marital status unlawful.

It shall be unlawful for any creditor or credit card issuer to discriminate between equally qualified individuals solely on the basis of sex or marital status with respect to the approval or denial of terms of credit in connection with any consumer credit sale whether or not under an open-end credit plan, consumer loan, or any other extension of consumer credit, or with respect to the issuance, renewal, denial, or terms of any credit card.

History. Acts 1975, No. 566, § 2; A.S.A. 1947, § 70-926.

Research References

ALR.

Discrimination Against Credit Applicant on Basis of Marital Status Under Equal Credit Opportunity Act (15 U.S.C. §§ 1691 et seq.), 18 A.L.R. Fed. 3d Art. 5 (2017).

U. Ark. Little Rock L.J.

Notes, Civil Rights — Marital Status Discrimination — Refusing to Rent to Unmarried Cohabitants is Not Unlawful Marital Status Discrimination Under the Minnesota Human Rights Act. State ex rel. Cooper v. French, 460 N.W.2d 2 (Minn. 1990), 13 U. Ark. Little Rock L.J. 653.

4-87-105. Damages.

Any creditor or credit card issuer who discriminates against any individual in a manner prohibited by § 4-87-104 is liable to the individual for damages in an amount equal to the sum of:

  1. In a successful action to enforce the provisions of this chapter, not less than one hundred dollars ($100) nor more than five hundred dollars ($500); and
  2. In the case of any successful action to enforce the foregoing liability, the costs of the action together with a reasonable attorney's fee as determined by the court.

History. Acts 1975, No. 566, § 3; A.S.A. 1947, § 70-927.

Research References

Ark. L. Rev.

Speed, Attorney's Fees Awards in Federal Court: An Arkansas Study, 39 Ark. L. Rev. 99.

Chapter 88 Deceptive Trade Practices

Preambles. Acts 1971, No. 92 contained a preamble which read:

“Whereas, the public health, welfare, and interest require a strong and effective consumer protection program to protect the interests of both the consumer public and the legitimate business community; and

“Whereas, a Consumer Protection Division of the Attorney General's Office is needed to coordinate services offered to the consumer by various State and Local Agencies, together with private organizations; for the purpose of developing and providing preventative and remedial programs affecting the interest of the consumer public ….”

Cross References. Transfer of credit card debt, § 4-107-201 et seq.

Effective Dates. Acts 1971, No. 92, § 15: July 1, 1971.

Research References

ALR.

Failure to deliver ordered merchandise to customer on date promised as unfair or deceptive trade practice. 7 A.L.R.4th 1257.

Finance company's liability in connection with consumer fraud practice of party selling goods or services. 18 A.L.R.4th 824.

Award of attorneys' fees in actions under state deceptive trade practice and consumer protection acts. 35 A.L.R.4th 12.

“Fraudulent” or “unconscionable” agreement or conduct within meaning of state consumer credit protection act. 42 A.L.R.4th 293.

Impugning quality or worth of merchandise or products. 42 A.L.R.4th 318.

Implied warranty coverage for service transactions under state consumer protection and deceptive trade statutes. 72 A.L.R.4th 282.

Constitutional right to jury trial in cause of action under state unfair or deceptive trade practices law. 54 A.L.R.5th 631.

Extension of Credit Under Consumer Credit Protection Act Provisions (18 U.S.C. §§ 891 to 894) Prohibiting Extortionate Credit Transactions, 35 A.L.R. Fed. 3d Art. 2 (2018).

Am. Jur. 17 Am. Jur. 2d, Con. & Borr. Prot., §§ 280-305.

Ark. L. Rev.

Legislative Note — Act 462 of 1973: Three Day “Cooling-Off” Period for Home Solicitation Sales, 27 Ark. L. Rev. 571.

Kershen, Horse-Tradin': Legal Implications of Livestock Auction Bidding Practices, 37 Ark. L. Rev. 119.

Case Notes

Class Certification.

Class certification against nursing homes met Ark. R. Civ. P. 23 predominance because common issues existed as to (1) a duty to provide proper staffing under an admission agreement and § 20-10-1201, (2) liability under the Arkansas Deceptive Trade Practices Act, § 4-88-101 et seq., and (3) whether statutory and contractual duties were met. GGNSC Arkadelphia, LLC v. Lamb, 2015 Ark. 253, 465 S.W.3d 826 (2015).

Cited: Lenders Title Co. v. Chandler, 358 Ark. 66, 186 S.W.3d 695 (2004); Am. Abstract & Title Co. v. Rice, 358 Ark. 1, 186 S.W.3d 705 (2004).

Subchapter 1 — General Provisions

Cross References. Penalties for violations of requirements for solitors for advertisements on school calendars, § 4-88-503.

Effective Dates. Acts 1997, No. 250, § 258: Feb. 24, 1997. Emergency clause provided: “It is hereby found and determined by the General Assembly that Act 1211 of 1995 established the procedure for all state boards and commissions to follow regarding reimbursement of expenses and stipends for board members; that this act amends various sections of the Arkansas Code which are in conflict with the Act 1211 of 1995; and that until this cleanup act becomes effective conflicting laws will exist. Therefore an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governer, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto.”

Research References

U. Ark. Little Rock L. Rev.

Terrence Cain, Essay: The (Un?) Constitutionality of Compelling Non-Immunized Testimony in Deceptive Trade Practices Investigations Conducted by the Attorney General of the State of Arkansas, 37 U. Ark. Little Rock L. Rev. 91 (2014).

4-88-101. Applicability of chapter.

This chapter does not apply to:

  1. Advertising or practices which are subject to and which comply with any rule, order, or statute administered by the Federal Trade Commission;
  2. Broadcasters, printers, publishers, and other persons engaging in the dissemination of information who do not have actual knowledge of the intent, design, purpose, or deceptive nature of the advertising or practice;
  3. Actions or transactions specifically permitted under laws administered by the Insurance Commissioner, the Securities Commissioner, the State Highway Commission, the Bank Commissioner, or other regulatory body or officer acting under statutory authority of this state or the United States, unless a director of these divisions specifically requests the Attorney General to implement the powers of this chapter; or
  4. Actions or transactions of a public utility which have been authorized by the Arkansas Public Service Commission, a municipal authority, the Federal Energy Regulatory Commission, the Federal Communications Commission, or other regulatory body or officer acting under statutory authority of the United States.

History. Acts 1971, No. 92, § 13; A.S.A. 1947, § 70-913; Acts 1991, No. 1177, § 3; 1995, No. 836, § 6; 2017, No. 986, § 1.

Amendments. The 2017 amendment inserted “specifically” preceding “permitted” in (3).

Research References

Ark. L. Rev.

Nathan Price Chaney, The Arkansas Deceptive Trade Practices Act: The Arkansas Supreme Court Should Adopt the Specific-Conduct Rule, 67 Ark. L. Rev. 299 (2014).

U. Ark. Little Rock L. Rev.

Resolving the Circuit Split on Standing in False Advertising Claims and Incorporation of Prudential Standing in State Deceptive Trade Practices Law: The Quest for Optimal Levels of Accurate Information in the Marketplace, 29 U. Ark. Little Rock L. Rev. 283.

Case Notes

Applicability.

Appellate court would not decide the issue of whether this section applied to a company's actions in the state where the company's actions were also the subject of a Federal Trade Commission order; the appellate court did not consider issues of jurisdiction in an appeal that arose out of the issuance of a preliminary injunction. Mercury Mktg. Techs. of Del., Inc. v. State ex rel. Beebe, 358 Ark. 319, 189 S.W.3d 414 (2004).

Plaintiff's motion to dismiss defendant's Arkansas Deceptive Trade Practices Act (ADTPA) claim on the ground that the ADTPA was not cognizable because defendant was not a consumer was denied because one did not have to be a consumer to recover under the ADTPA pursuant to this section, and §§ 4-88-102(5) and 4-88-113(f). Valor Healthcare, Inc. v. Pinkerton, — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 105988 (W.D. Ark. Dec. 23, 2008).

Self-regulating national securities dealer association and its investigatory and disciplinary arm properly removed an Arkansas corporation's suit from state court pursuant to 28 U.S.C.S. § 1441(b) because although the corporation purported to seek relief solely under the Arkansas Deceptive Trade Practices Act (ADTPA), its claims actually arose under federal law: (1) the corporation filed its suit after it was investigated for alleged security law violations; (2) the corporation alleged that the association and its arm violated the ADTPA by issuing fraudulent securities registrations to undercover investigators and by taking other actions to make it appear that those registrations were legitimate; (3) Ninth Circuit precedent held that 15 U.S.C.S. § 78aa vested exclusive jurisdiction in the federal courts as to claims arising under the Securities Exchange Act of 1934 (Exchange Act), and (4) the corporation's claims clearly arose under the Exchange Act because the association acted pursuant to 15 U.S.C.S. § 78o in issuing the registrations to the undercover investigators. Shimoda-Atlantic, Inc. v. Fin. Indus. Regulatory Auth., Inc., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 37900 (W.D. Ark. May 8, 2008).

Both the preamble to the Arkansas Deceptive Trade Practices Act (ADTPA), §§ 4-88-101 to 4-88-503, and the activities that the ADTPA makes unlawful show that the ADTPA protects consumers from unfair ways of doing business: (1) the application of the ADTPA is limited to trade practices; (2) “unconscionable” conduct prohibited by the ADTPA must be considered in light of trade practices; and (3) there is nothing in the ADTPA that supports the conclusion that the ADTPA protects consumers against third party criminal conduct. Independence County v. Pfizer, Inc., 534 F. Supp. 2d 882 (E.D. Ark. 2008), aff'd, Ashley County v. Pfizer, Inc., 552 F.3d 659 (8th Cir. 2009).

Disappointed loan applicant had no contract or tort claim against either the lender or the loan broker, because no contract was ever formed and neither the lender or the broker owed the applicant a duty of care, and the applicant could not recover under the Deceptive Trade Practices Act, pursuant to this section, because both the broker and lender were regulated by the state and the federal government. Arloe Designs, LLC v. Arkansas Capital Corp., 2014 Ark. 21, 431 S.W.3d 277 (2014).

District court did not err in dismissing plaintiff's claim under the Arkansas Deceptive Trade Practices Act (ADTPA), as plaintiff failed to establish that defendants' acts of conversion and fraud were consumer-oriented or impacted consumers in any way. The ADTPA does not apply to deception and fraud claims regarding business between a manufacturer and its distributor when consumers are not deceived or defrauded. Stonebridge Collection, Inc. v. Carmichael, 791 F.3d 811 (8th Cir. 2015).

Arkansas Deceptive Trade Practices Act's safe-harbor provision in subdivision (3) of this section is to be applied according to the specific-conduct rule, meaning that it precludes claims only when the actions or transactions at issue have been specifically permitted or authorized under laws administered by a state or federal regulatory body or officer. Air Evac EMS, Inc. v. USAble Mut. Ins. Co., 2017 Ark. 368, 533 S.W.3d 572 (2017) (answering certified questions from federal district court).

The specific-conduct rule should be applied to the safe-harbor provision in subdivision (3) of this section, because (1) the Arkansas Deceptive Trade Practices Act is to be liberally construed, and the general-activity rule would undermine the Act's purpose by exempting virtually all conduct, since virtually all conduct is regulated in some way, such that the general-activity rule would essentially read the Act out of existence, and (2) the General Assembly's 2017 amendment of the provision to add “specifically” before “permitted” showed an intent to follow the specific-conduct rule. Air Evac EMS, Inc. v. USAble Mut. Ins. Co., 2017 Ark. 368, 533 S.W.3d 572 (2017) (answering certified questions from federal district court).

Because the matter was before the Supreme Court on an interlocutory appeal of a permanent injunction, it did not consider the merits of a competitor's claim that a corporation violated the Arkansas Deceptive Trade Practices Act (ADTPA) because the ADTPA does not provide for a private cause of action seeking injunctive relief. Apprentice Info. Sys. v. DataScout, LLC, 2018 Ark. 146, 544 S.W.3d 39 (2018).

Trial court properly ruled that an air ambulance service's claims under the Arkansas Deceptive Trade Practices Act against a plan insurer were precluded by the act's safe-harbor provision in subdivision (3) of this section because the service's claims were based on the terms and rates of the insurer's plans that were approved by the Insurance Commissioner under § 23-79-109(a)(1)(A)(i). Air Evac EMS, Inc. v. USAble Mut. Ins. Co., 931 F.3d 647 (8th Cir. 2019).

Arbitration.

Farm owners' claims against a poultry processor for violation of the Arkansas Deceptive Trade Practices Act, § 4-88-101 et seq., were arbitrable under a broad arbitration clause contained in an agreement between the parties; an Arkansas choice-of-law provision in the agreement did not require application of § 16-108-230(b)(1) of the Arkansas Uniform Arbitration Act, under which contractual arbitration provisions did not apply to tort claims. An arbitration panel did not violate 9 U.S.C.S. § 10(a)(3) or (4) of the Federal Arbitration Act and did not manifestly disregard the law by finding that the owners' tort claims were barred by res judicata; the tort claims could have been litigated in a prior arbitration. Hudson v. ConAgra Poultry Co., 484 F.3d 496 (8th Cir. 2007).

District court properly ruled that it could determine the threshold question of whether a customer's Arkansas Deceptive Trade Practices Act, § 4-88-101 et seq., claims were subject to arbitration pursuant to the terms of the customer's service agreement. Although the customer's challenge to the validity of the arbitration provision was a “claim” arising from the agreement and, thus, was covered by the arbitration provision, the provision also contained an exemption for certain disputes, the challenge to the validity of the arbitration provision was an exempted “dispute,” and the exemption overrode other language that stated that arbitrations would be conducted under American Arbitration Association rules, which gave arbitrators the authority to determine the arbitrability of claims. Enderlin v. XM Satellite Radio Holdings, 483 F.3d 559 (8th Cir. 2007).

District court erred when it denied the 9 U.S.C.S. § 4 motion to compel arbitration filed by a creditor's assignees: (1) the district court properly addressed in the first instance whether the creditor's assignment of a consumer's credit card agreement was valid, which was a precondition for making the assignees a party to the agreement; (2) the district court erred in concluding that the assignment was invalid because the consumer had purportedly paid the full amount owed on her credit card account before the assignment took place; (3) even if she had settled her debt as she claimed, that did not release the consumer from her obligations under the agreement, including her obligation to arbitrate disputes arising out of the agreement; (4) the consumer's continuing obligations under the agreement gave the creditor a present, assignable interest in the agreement even after the consumer settled her debt; (5) the agreement's arbitration provision broadly covered any claim, dispute, or controversy arising from or related to the agreement; and (6) the debtor could be compelled to arbitrate her Fair Debt Collection Practices Act and the Arkansas Deceptive Trade Practices Act claims because those claims were based on the assignees' alleged efforts to collect on the consumer's already-paid debt, and disputes over the collection of debts incurred under the agreement constituted controversies arising from or related to the agreement. Koch v. Compucredit Corp., 543 F.3d 460 (8th Cir. 2008).

Consumer Protection Acts.

Where the complaint alleged that the defendants violated the Consumer Protection Acts by selling the co-op demand notes by means of misrepresentations, this section was not applicable. Robertson v. White, 633 F. Supp. 954 (W.D. Ark. 1986). But see Reves v. Ernst & Young, 494 U.S. 56, 110 S. Ct. 945, 108 L. Ed. 2d 47 (1990), rehearing denied, 494 U.S. 1092, 110 S. Ct. 1840, 108 L. Ed. 2d 968 (1990)

In a class action suit against a check-cashing business and its corporate officers, the trial court did not err in piercing the corporate veil and holding the officers individually liable as they failed to properly maintain business records, thereby failing to comply with § 23-52-112(a) [repealed] of the Arkansas Check Casher's Act. Anderson v. Stewart, 366 Ark. 203, 234 S.W.3d 295 (2006)

Elements of Claim.

Because a breach of contract, in and of itself, was not tortious, the supplier had no cognizable tortious interference or Arkansas Deceptive Trade Practices Act claims. B & B Hardware, Inc. v. Fastenal Co., 688 F.3d 917 (8th Cir. 2012).

Practice of Law.

Trial court properly dismissed the complaint with prejudice because the Arkansas Deceptive Trade Practices Act, as codified in this section, did not apply to the practice of law, and the Arkansas Supreme Court made rules regulating the practice of law and that responsibility could not be discharged if it were dependent upon or controlled by statutes enacted by the Arkansas General Assembly; the attorney agreed to represent the husband in the medical malpractice action, which was dismissed with prejudice because the attorney was not authorized to practice law in Arkansas. Preston v. Stoops, 373 Ark. 591, 285 S.W.3d 606 (2008).

Dismissal of a claim under the Arkansas Deceptive Trade Practices Act (ADTPA), § 4-88-101 et seq., was proper in an action by debtors against a law firm acting as a debt collector because the ADTPA did not apply to the practice of law. Born v. Hosto & Buchan, PLLC, 2010 Ark. 292, 372 S.W.3d 324 (2010).

Because a law firm and its attorneys were attorneys engaged in the practice of law at the time of their alleged collection of amounts in excess of those set forth in § 4-60-103 by a holder of a dishonored check, the Arkansas Deceptive Trade Practices Act (ADTPA), §§ 4-88-101 to 4-88-804, had no applicability to their actions. The law firm was engaged in the practice of law by engaging in settlement negotiations for its clients. Bennett & Deloney, P.C. v. State ex rel. McDaniel, 2012 Ark. 119, 388 S.W.3d 12 (2012).

Preemption.

Arkansas Deceptive Trade Practices Act claim in a putative class action against an air ambulance service could not impose a state statutory price disclosure obligation beyond the scope of any agreement the air ambulance service had with its passenger because such disclosure obviously related to both price and service and was preempted by the Airline Deregulation Act, 49 U.S.C. § 41713. Ferrell v. Air EVAC EMS, Inc., 900 F.3d 602 (8th Cir. 2018).

4-88-102. Definitions.

As used in this subchapter:

  1. “Caller identification service” means a service offered by a telecommunications provider that provides caller identification information to a device capable of displaying the information;
  2. “Charitable organization” means any benevolent, philanthropic, patriotic, civic, or eleemosynary person;
  3. “Contribution” means the promise or grant of any money or property of any kind or value;
  4. “Goods” means any tangible property, coupons, or certificates, whether bought or leased;
  5. “Person” means an individual, organization, group, association, partnership, corporation, or any combination of them;
  6. “Promotion” means, for each charitable organization represented, each and every fundraising drive or campaign for which contributions are solicited. Similar or identical promotions on behalf of different charitable organizations constitute separate and distinct promotions;
  7. “Services” means work, labor, or other things purchased that do not have physical characteristics;
  8. “Solicitation” means each request for a contribution; and
  9. “Actual financial loss” means an ascertainable amount of money that is equal to the difference between the amount paid by a person for goods or services and the actual market value of the goods or services provided to a person.

History. Acts 1991, No. 1177, § 3; 1993, No. 587, § 1; 2003, No. 1465, § 1; 2017, No. 986, § 2.

A.C.R.C. Notes. Former § 4-88-102 was renumbered as § 4-88-103.

Amendments. The 2017 amendment added the definition for “Actual financial loss”.

Research References

Ark. L. Rev.

Margaret E. Rushing, Comment: Deceptively Simple: The Arkansas Deceptive Trade Practices Act, 71 Ark. L. Rev. 1033 (2019).

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

Case Notes

Person.

Plaintiff's motion to dismiss defendant's Arkansas Deceptive Trade Practices Act (ADTPA) claim on the ground that the ADTPA was not cognizable because defendant was not a consumer was denied because one did not have to be a consumer to recover under the ADTPA pursuant to §§ 4-88-101, 4-88-113(f) or subdivision (5) of this section, only a person who suffers actual damage or injury as a result of an offense or violation. Valor Healthcare, Inc. v. Pinkerton, — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 105988 (W.D. Ark. Dec. 23, 2008).

4-88-103. Penalties.

Any person who knowingly and willfully commits an unlawful practice under this chapter shall be guilty of a Class A misdemeanor.

History. Acts 1971, No. 92, § 7; A.S.A. 1947, § 70-907; Acts 1991, No. 1177, § 3.

A.C.R.C. Notes. This section was formerly codified as § 4-88-102. Former § 4-88-103 was renumbered as § 4-88-104.

Case Notes

Cited: Stein v. Lukas, 308 Ark. 74, 823 S.W.2d 832 (1992).

4-88-104. Injunctions.

In addition to the criminal penalty imposed hereunder, the Attorney General of this state shall have authority, acting through the Consumer Counsel, to file an action in the court designated in § 4-88-112 for civil enforcement of the provisions of this chapter, including, but not limited to, the seeking of restitution and the seeking of an injunction prohibiting any person from engaging in any deceptive or unlawful practice prohibited by this chapter.

History. Acts 1971, No. 92, § 8; A.S.A. 1947, § 70-908; Acts 1991, No. 1177, § 3; 1995, No. 836, § 1.

A.C.R.C. Notes. This section was formerly codified as § 4-88-103. Former § 4-88-104 has been renumbered as § 4-88-105.

4-88-105. Consumer Protection Division.

  1. There is created within the office of the Attorney General a Consumer Protection Division.
  2. The director of the division shall be known as the “Consumer Counsel of Arkansas” and shall be appointed by the Attorney General who may also appoint such assistants, investigators, and professional and clerical staff as are necessary for the efficient operation of the division.
  3. The division shall represent and protect the state, its subdivisions, the legitimate business community, and the general public as consumers.
  4. The division shall have the following functions, powers, and duties:
    1. To serve as a central coordinating agency and clearinghouse for receiving complaints of illegal, fraudulent, or deceptive practices;
    2. To assist, advise, and cooperate with federal, state, and local agencies and officials to protect and promote the interests of the consumer public;
    3. To conduct investigations, research, studies, and analyses of matters, to issue reports, and take appropriate action affecting the interests of consumers, which may include the referral of complaints to state and local departments or agencies charged with enforcement of consumer laws, or to private organizations and agencies; however, the division may retain jurisdiction over such matters until resolved;
    4. To promote consumer education and to undertake activities to encourage business and industry to maintain high standards of honesty, fair business practices, and public responsibility in the production, advertisement, and sale of consumer goods and services, encouraging and supporting activities directed toward these objectives by the Better Business Bureau, consumer organizations, and other associations of like nature;
    5. To investigate violations of laws enacted and rules promulgated for the purpose of consumer protection, and to study the operation of such laws and rules and to recommend to the General Assembly needed changes in law in the consumer's interest; and
    6. To enforce the provisions of this chapter and to perform such other functions as may be incidental to the powers and duties set forth in this chapter.
  5. The expenses of the division shall be paid from funds provided for that purpose by law, including without limitation:
    1. Funds made available by the state, a state agency, or a state political subdivision;
    2. Funds made available by the United States Government or a federal agency; or
      1. Funds deposited into a Consumer Education and Enforcement Account, managed by the division, from settlements or judgments in favor of the state related to a lawsuit or assurance of voluntary compliance in which the state was a party.
      2. The account shall not carry a balance greater than one million dollars ($1,000,000), and the funds in the account shall be used in a manner determined by the office of the Attorney General, including without limitation:
        1. Litigation support;
        2. Expert witness fees;
        3. Court filing fees;
        4. Process server fees;
        5. Witness fees;
        6. Court costs;
        7. Court reporter fees;
        8. Attorney and staff training;
        9. Travel expenses;
        10. Consumer education;
        11. Office expenses and improvements; and
        12. Investigation expenses.
    1. As used in this section, “state agency” includes without limitation:
      1. A state agency, office, or department;
      2. A board or commission; and
      3. A public college or university.
    2. When a settlement is agreed to or a judgment is entered in a lawsuit in which the state is a party receiving all or part of the settlement or judgment, the Attorney General shall distribute the funds in the following manner:
      1. Restitution to Arkansas consumers or state agencies, or for other purposes, as designated by the court order or settlement agreement;
      2. Designation of cash funds to a state agency having a nexus to the underlying litigation;
      3. Payment of attorney's fees or civil penalties under § 4-88-113(a)(1), § 4-88-113(c), or § 4-88-113(e); or
      4. Payment into the account, as authorized by this section.
      1. Funds to be distributed as described in subdivisions (f)(2)(B)-(D) of this section shall be distributed in the manner prescribed by this section within one hundred twenty (120) days of the receipt of the funds.
      2. Restitution funds shall be distributed to Arkansas consumers as soon as is practicable and in accordance with any applicable court order.
      1. The office of the Attorney General shall on a quarterly basis provide to the Legislative Council or Joint Budget Committee a report of all cash funds received from court orders or settlement agreements.
      2. The report shall include:
        1. The case name of the court order or settlement agreement;
        2. The amount of funds received by the office of the Attorney General for each court order or settlement agreement; and
          1. A plan for disbursement of the funds.
          2. If cash funds received from a court order or settlement agreement are expended for any purpose, including consumer education and enforcement activities, the report must itemize specific activities subject to the exclusions provided in § 4-88-111 and § 25-1-403(1)(B).
          3. The report shall also itemize the specific consumer education and enforcement activities funded for the office of the Attorney General.
      3. If funds received from a court order or settlement agreement are given to a specific entity by the office of the Attorney General, the report shall include:
          1. Whether or not the court order or settlement agreement directed funds to be given to a specific entity.
          2. If the court order or settlement agreement directs funds to a specific entity, the office of the Attorney General shall provide a summary of input regarding the drafting of the court order or settlement agreement.
          3. If the office of the Attorney General receives funds from a court order or settlement agreement that does not require disbursement of funds to a specific entity, the office of the Attorney General shall report a rationale for disbursing funds to a specific entity; and
        1. A report of current balances of all unappropriated cash fund holdings received by court order or settlement agreement by the office of the Attorney General.
      4. The quarterly reports shall be provided no later than the fifteenth day of the month immediately following the end of each quarter.

History. Acts 1971, No. 92, §§ 1, 2, 12; A.S.A. 1947, §§ 70-901, 70-902, 70-912; Acts 1991, No. 1177, § 3; 2013, No. 763, §§ 1, 2; 2015, No. 1160, § 2; 2019, No. 315, § 129.

A.C.R.C. Notes. This section was formerly codified as § 4-88-104. Former § 4-88-105 has been renumbered as § 4-88-106.

Amendments. The 2013 amendment rewrote (e); and added (f).

The 2015 amendment, in the introductory language of (f)(4)(C), inserted “the” preceding “Attorney General” and substituted “shall” for “must”; redesignated former (f)(4)(C)(i) as (f)(4)(C)(i) (a) ; in (f)(4)(C)(i) (a) , substituted “Whether or not” for “If” and substituted “funds” for “moneys”; redesignated former (f)(4)(C)(ii) and (iii) as (f)(4)(C)(i) (b) and (c) ; and redesignated former (f)(4)(C)(iv) as (f)(4)(C)(ii).

The 2019 amendment, in (d)(5), deleted “and regulations” following “rules” and substituted “such laws and rules” for “such laws, rules, and regulations”.

Research References

U. Ark. Little Rock L. Rev.

Eric B. Estes, Undercover Investigations and Government Lawyers, 37 U. Ark. Little Rock L. Rev. 285 (2015).

Case Notes

Cited: Hubbard v. Moore, 537 F. Supp. 126 (W.D. Ark. 1982).

4-88-106. Consumer Advisory Board.

  1. There may be a Consumer Advisory Board appointed by the Attorney General.
    1. If the Attorney General appoints such a board, it shall consist of eleven (11) members serving terms of two (2) years.
    2. The membership of the board shall be fairly representative of consumers, manufacturers, the Better Business Bureau, labor organizations, retailers, agriculture, and trade and professional associations.
    3. Each member shall serve without pay, but may be reimbursed for expenses in accordance with § 25-16-901 et seq.
  2. The chairman of the board shall be elected by the members.
  3. The board may assist and advise the Consumer Counsel with respect to:
    1. Policy matters relating to consumer interests;
    2. Improvement in the effectiveness of state consumer programs and operations;
    3. Needed changes in law to improve consumer protection in Arkansas.

History. Acts 1971, No. 92, § 3; A.S.A. 1947, § 70-903; Acts 1991, No. 1177, § 3; 1997, No. 250, § 11.

A.C.R.C. Notes. This section was formerly codified as § 4-88-105. Former § 4-88-106 has been renumbered as § 4-88-107.

4-88-107. Deceptive and unconscionable trade practices generally.

  1. Deceptive and unconscionable trade practices made unlawful and prohibited by this chapter include, but are not limited to, the following:
    1. Knowingly making a false representation as to the characteristics, ingredients, uses, benefits, alterations, source, sponsorship, approval, or certification of goods or services or as to whether goods are original or new or of a particular standard, quality, grade, style, or model;
    2. Disparaging the goods, services, or business of another by false or misleading representation of fact;
    3. Advertising the goods or services with the intent not to sell them as advertised;
    4. Refusal of a retailer to deliver to a customer purchasing any electronic or mechanical apparatus the record of warranty and statement of service availability which the manufacturer includes in the original carton or container of the product or the refusal to make available on request information relating thereto;
    5. The employment of bait-and-switch advertising consisting of an attractive but insincere offer to sell a product or service which the seller in truth does not intend or desire to sell, evidenced by:
      1. A refusal to show or a disparagement of the advertised product;
      2. The requirement of a tie-in sale or other undisclosed conditions precedent to the purchase;
      3. A demonstration of a defective product; or
      4. Other acts demonstrating an intent not to sell the advertised product or services;
    6. Knowingly failing to identify flood, water, fire, or accidentally damaged goods as to such damages;
    7. Making a false representation that contributions solicited for charitable purposes shall be spent in a specific manner or for specified purposes;
    8. Knowingly taking advantage of a consumer who is reasonably unable to protect his or her interest because of:
      1. Physical infirmity;
      2. Ignorance;
      3. Illiteracy;
      4. Inability to understand the language of the agreement; or
      5. A similar factor;
    9. The offering for sale, assembly, or drafting of any trust document, including a living trust, by a nonlawyer, excluding the marketing, assembly, and funding by bank trust departments and trust companies;
    10. Engaging in any other unconscionable, false, or deceptive act or practice in business, commerce, or trade; and
      1. Displaying or causing to be displayed a fictitious or misleading name or telephone number on an Arkansas resident's telephone caller identification service.
      2. Subdivision (a)(11)(A) of this section does not apply to the transmission of a caller identification service by a telecommunications provider that complies with § 23-17-122.
  2. The deceptive and unconscionable trade practices listed in this section are in addition to and do not limit the types of unfair trade practices actionable at common law or under other statutes of this state.

History. Acts 1971, No. 92, § 6; A.S.A. 1947, § 70-906; Acts 1991, No. 1177, § 3; 1993, No. 587, § 2; 1995, No. 1306, § 1; 2003, No. 1465, § 2; 2019, No. 677, § 2.

A.C.R.C. Notes. This section was formerly codified as § 4-88-106. Former § 4-88-107 has been renumbered as § 4-88-108.

Acts 2019, No. 677, § 1, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The citizens of this state are being negatively affected by illegal robocalls from telemarketers and from others seeking to perpetrate scams on them;

“(2) While these illegal robocalls are frustrating for most, the robocalls are costly and dangerous for far too many Arkansans;

“(3) An alarming number of illegal robocalls originate from scammers using automatic telephone dialing systems to send out thousands of phone calls per minute with fictitious or misleading names or telephone numbers displaying on unsuspecting consumers' telephone caller identification service;

“(4) These scammers are engaging in insidious schemes and targeting seniors and other vulnerable groups by soliciting personal information such as credit or debit card information and Social security numbers;

“(5) Displaying fictitious or misleading names or telephone numbers, or ‘spoofing’, is the predominant means by which a robocaller protects their identities and entices consumers to answer the telephone; and

“(6) Spoofing is the gateway for illegal robocalls and scams.

“(b) It is the intent of the General Assembly:

“(1) To protect the citizens of this state from being spoofed by receiving illegal robocalls from telemarketers and from others seeking to perpetrate scams on unsuspecting or vulnerable citizens;

“(2) To provide the citizens of this state who use a caller identification service with accurate information about the identities and locations of callers;

“(3) To encourage telecommunications providers to swiftly implement technologies that will allow telecommunications providers to identify and stop illegal calling practices; and

“(4) That this act be construed as broadly as possible to ensure that the citizens of this state are protected from the negative impact of illegal robocalls and to ensure that scammers and complicit telecommunications providers are held criminally accountable”.

Amendments. The 2019 amendment added “that complies with § 23-17-122” in (a)(11)(B).

Research References

ALR.

World wide web domain as violating state trademark protection statute or state unfair trade practices act. 96 A.L.R.5th 1.

Ark. L. Rev.

Recent Development: Trade Regulation — Procedure, 58 Ark. L. Rev. 1005.

Nathan Price Chaney, The Arkansas Deceptive Trade Practices Act: The Arkansas Supreme Court Should Adopt the Specific-Conduct Rule, 67 Ark. L. Rev. 299 (2014).

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

Case Notes

In General.

The Deceptive Trade Practices Act protects consumers and promotes the purposes of the Arkansas Constitution, Art. 19, § 13, by making its provisions effective for consumers who are not likely to have financial means to obtain legal assistance and who are unlikely to be aware of their legal rights to bring individual actions. State ex rel. Bryant v. R & A Inv. Co., 336 Ark. 289, 985 S.W.2d 299 (1999).

Although the parent corporation's name and logo appeared on the master agreement that was executed between contractor and subsidiary company, the fact remained that the parties to the contract were clearly stated and that the contractor chose to make the assumption, without further investigation on his part, that subsidiary company was financially backed by the parent corporation, which subsequently sold its stock to a corporation that went bankrupt; the use of parent corporation's logo and company name by the subsidiary alone was not a deceptive trade practice. Little Rock Elec. Contractors, Inc. v. Entergy Corp., 79 Ark. App. 337, 87 S.W.3d 842 (2002).

Section 4-88-113 limits a private cause of action for deceptive trade practices under this section to instances where actual damage or injury has occurred; hence, where the only alleged injury is the diminution in value of a product, a private cause of action is not cognizable. Wallis v. Ford Motor Co., 362 Ark. 317, 208 S.W.3d 153 (2005).

Health services company's policy which denied privileges to doctors that acquired or held an interest in a competitor hospital constituted a violation of the Arkansas Deceptive Trade Practices Act, and such a violation may satisfy the impropriety requirement for a claim of tortious interference; subdivision (a)(10) of this section makes illegal any trade practice which is unconscionable and includes conduct violative of public policy or statute. Baptist Health v. Murphy, 365 Ark. 115, 226 S.W.3d 800 (2006).

Any Other Deceptive Act or Practice.

Subsection (a)(10) is not too vague for enforcement. State ex rel. Bryant v. R & A Inv. Co., 336 Ark. 289, 985 S.W.2d 299 (1999).

A title-pawn corporation violated subsection (a)(10) where (1) it required borrowers to surrender their car titles as security for repayment and pay monthly interest, or a monthly pawn charge, (2) the monthly interest was typically equal to 25 percent of the entire loan amount each month that the loan was not paid in full, and which constituted an annual percentage rate of 304.17 percent, (3) the corporation's contracts further provided that upon the borrower's default, it had the right to take whatever steps may be necessary to take possession thereof at the borrower's risk and expense, and (4) borrowers were required to sign a power of attorney, allowing the corporation to sell the vehicle upon repossession. State ex rel. Bryant v. R & A Inv. Co., 336 Ark. 289, 985 S.W.2d 299 (1999).

Plaintiff's claims regarding violations of Telephonic Sellers Act and School Calendar Act were actionable under the Arkansas Deceptive Trade Practices Act, even though neither Act provided a private cause of action for consumers because a violation of either statute constituted a deceptive trade practice under the ADTPA pursuant to §§ 4-88-503(a), 4-99-111(b), and any person who suffered actual damage as a result of such a practice had a cause of action under the ADTPA, § 4-88-113(f). M.S. Wholesale Plumbing, Inc. v. Univ. Sports Publs. Co., Inc., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 4159 (E.D. Ark. Jan. 7, 2008).

Applicability.

Grant of summary judgment in favor of the employer in the employee's action alleging that he was fired for reporting inhumane workplace conditions was appropriate because the appellate court was unable to interpret subdivision (a)(1) of this section as applying to the employer's statements in its annual report about its factory-certification process, even if the employee's factual allegations were accepted as true. The employee simply failed to show a nexus between his reports of problems with the factory-certification process and any public policy of Arkansas; and, even if the employee's allegations did implicate public policy, his admitted violation of the employer's fraternization policy provided independent, sufficient grounds for his termination. Lynn v. Wal-Mart Stores, Inc., 102 Ark. App. 65, 280 S.W.3d 574 (2008).

Circuit court properly ruled that the Arkansas Deceptive Trade Practices Act was not applicable to appellant's case because appellant failed to assert that appellee engaged in any type of consumer-oriented act or practice that caused damages. Skalla v. Canepari, 2013 Ark. 415, 430 S.W.3d 72 (2013).

Arkansas Deceptive Trade Practices Act (ADTPA) claim failed because ADTPA did not apply to practice of law in undertaking debt collections. Humes v. LVNV Funding, LLC (In re Humes), 496 B.R. 557 (Bankr. E.D. Ark. 2013).

District court did not err in dismissing plaintiff's claim under the Arkansas Deceptive Trade Practices Act (ADTPA), as plaintiff failed to establish that defendants' acts of conversion and fraud were consumer-oriented or impacted consumers in any way. The ADTPA does not apply to deception and fraud claims regarding business between a manufacturer and its distributor when consumers are not deceived or defrauded. Stonebridge Collection, Inc. v. Carmichael, 791 F.3d 811 (8th Cir. 2015).

Collection and dissemination of license-plate data prohibited by the Automatic License Plate Reader System Act, § 12-12-1801 et seq., was not consumer-oriented, and thus did not constitute an unconscionable act subject to the Attorney General's enforcement authority under the Deceptive Trade Practices Act, § 4-88-101 et seq.Digital Recognition Network, Inc. v. Hutchinson, 803 F.3d 952 (8th Cir. 2015).

Trial court abused its discretion in dismissing the doctor's Arkansas Deceptive Trade Practices Act claim because the operator's alleged conduct took advantage of physically infirm customers and was an unconscionable business practice; the doctor alleged actual damages sufficient to withstand a motion to dismiss because he was allegedly terminated due to his resistance to take part in the operator's scheme to increase revenue. Hamby v. Health Mgmt. Assocs., 2015 Ark. App. 298, 462 S.W.3d 346 (2015).

In a foreclosure action, in which borrowers asserted a counterclaim under the Arkansas Deceptive Trade Practices Act based on subdivisions (a)(8)(A) and (a)(10) of this section, there was no showing that the lender co-trustees, who were the parents of one of the borrowers, were in the business, commerce, or trade of making loans; instead, there was testimony that the borrowers would not qualify for a conventional loan and this was simply a case of parents helping their child, and the circuit court found that borrowers were not damaged. Parker v. Parker, 2017 Ark. App. 242, 520 S.W.3d 693 (2017).

Class Action.

Class of consumers alleging a manufacturer falsely advertised light cigarettes as safer than regular cigarettes was properly certified because individual issues did not predominate, as (1) the key inquiry under § 4-88-101 et seq., was the manufacturer's deception, and (2) a bifurcated approach could be used to address individual causation and damages issues. Philip Morris Cos. v. Miner, 2015 Ark. 73, 462 S.W.3d 313 (2015).

When consumers claimed a manufacturer falsely advertised that light cigarettes were safer than regular cigarettes, a trial court sufficiently found a class was ascertainable because (1) the court's class definition referred to objective criteria, (2) the court did not have to separately find ascertainability, and (3) consumers did not have to provide receipts for purchases to show class membership. Philip Morris Cos. v. Miner, 2015 Ark. 73, 462 S.W.3d 313 (2015).

Class action was a superior method of adjudicating the claims of a class of consumers that a manufacturer falsely advertised that light cigarettes were safer than regular cigarettes because (1) the manufacturer would not have to litigate multiple lawsuits, and (2) the overarching issue of the manufacturer's misrepresentation could be conveniently determined. Philip Morris Cos. v. Miner, 2015 Ark. 73, 462 S.W.3d 313 (2015).

Elements of Claim.

Plaintiff's false representation/unfair competition claim under subdivision (a)(1) of this section, arising from the fact that defendant had begun using the same name that it used for its informal hunting club, failed as a matter of law because plaintiff did not offer any evidence showing that it suffered any actual damage or injury as a result of defendant's actions, which pursuant to § 4-88-113(f) was a necessary element of plaintiff's Arkansas Deceptive Trade Practices Act claim. Ark. Trophy Hunters Ass'n v. Tex. Trophy Hunters Ass'n, 506 F. Supp. 2d 277 (W.D. Ark. 2007).

Consumers sufficiently alleged specific deceptive statements or omissions made by a refrigerator manufacturer, which was necessary to assert actionable claims under the Arkansas Deceptive Trade Practices Act, subdivision (a)(10) of this section and § 4-88-108(2). The consumers alleged: (1) that the manufacturer knew of defects in its refrigerators, which defects were a material fact; (2) the manufacturer failed to disclose that material fact to the public, knowing that its failure to do so would tend to deceive the public and cause them to purchase its refrigerators; (3) the manufacturer failed to disclose the defects with the intent of having the public rely on its omission to purchase its refrigerators; and (4) the consumers suffered an injury because they relied on the manufacturer's omission and would not have purchased its refrigerators if the defects had been disclosed. Rush v. Whirlpool Corp., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 17210 (W.D. Ark. Feb. 22, 2008).

Claims stated by the contractor in Count I constituted ordinary breach-of-contract claims that did not rise to the level of violating the Arkansas Deceptive Trade Practices Act, §§ 4-88-101 to 4-88-503, as they were devoid of any factual bases on which the appellate court could conclude that the subcontractor engaged in deceptive business practices. CEI Eng'g Assocs. v. Elder Constr. Co., 2009 Ark. App. 259, 306 S.W.3d 447 (2009).

Subdivision (a)(10) of this section and § 4-88-108(2) did not require knowing or intentional deception, and subdivision (a)(10) listed deception as unlawful, and since omitting an installation requirement from defendant supplier's rebate documents could be a deceptive trade practice, plaintiff retailer's claims under those sections, alleging the retailer lost profits and was forced to issue its own rebates to customers due to the supplier's refusal to honor its rebate program for the retailer's customers, should have survived summary judgment. Curtis Lumber Co. v. La. Pac. Corp., 618 F.3d 762 (8th Cir. 2010).

State-of-mind requirement for claims under subdivisions (a)(1), (3), and (5) of this section mirrored that of fraud, and thus, where plaintiff retailer alleged defendant supplier refused to honor its rebate program for the retailer's customers, but there was no evidence of fraudulent intent, and the fact that the supplier established and followed procedures for processing rebate applications in nearly all other instances showed no fraudulent scheme at work, those claims failed. Curtis Lumber Co. v. La. Pac. Corp., 618 F.3d 762 (8th Cir. 2010).

Appellee alleged that appellant made false representations and that its actions were deceptive and unconscionable under the Arkansas Deceptive Trade Practices Act. As appellee never explained what the false representations were or what acts appellant engaged in that violated the Act, and did not explain how it was damaged by appellant's actions, it failed to allege facts setting forth a cause of action under the Act. Forever Green Ath. Fields, Inc. v. Lasiter Constr., Inc., 2011 Ark. App. 347, 384 S.W.3d 540 (2011).

Circuit court erred in finding that a corporation violated the Arkansas Deceptive Trade Practices Act (ADTPA), § 4-88-101 et seq., because there was simply no “consumer-oriented act” as required for a cause of action under the ADTPA; the circuit court clearly erred in finding that the plaintiff competitor was a consumer for purposes of the ADTPA because the corporation and the competitor were opponents in the market of selling counties' public data. Apprentice Info. Sys. v. DataScout, LLC, 2018 Ark. 149, 544 S.W.3d 536 (2018).

Jury Instructions.

Arkansas Model Jury Instruction 405 accurately stated the burden of proof required in a misrepresentation action. McClard v. Crain Mgt. Group, Inc., 313 Ark. 472, 855 S.W.2d 929 (1993).

Misrepresentation.

Appellant claimed the trial court erred in dismissing her claim for violation of the Arkansas Deceptive Trade Practices Act, but that claim required proof of a misrepresentation; the salesman's statement that the vehicle was in good condition was subject to interpretation by the individual and was more of an opinion than a misrepresentation. Epley v. John Gibson Auto Sales, 2016 Ark. App. 540 (2016).

Scope.

Even the most general catchall provision of the Arkansas Deceptive Trade Practices Act (ADTPA), making it unlawful to engage in any other unconscionable, false, or deceptive act or practice in business, commerce, or trade. By its terms, subdivision (a)(10) of this section requires that the conduct occur in connection with business, commerce, or trade, not in connection with litigation. Thus, an ADTPA counterclaim based on an employment agreement which first surfaced as an exhibit to plaintiffs' response to defendants' motion to dismiss, was dismissed. Illumination Station, Inc. v. Cook, — F. Supp. 2d —, 2007 U.S. Dist. LEXIS 89247 (W.D. Ark. Nov. 20, 2007).

Plaintiff's claim alleging a violation of the Arkansas Deceptive Trade Practices Act (ADTPA), subdivisions (a)(1) and (a)(10) of this section, was actionable because plaintiff had alleged sufficient facts to satisfy the ADTPA's actual damage requirement under § 4-88-113(f); plaintiff was not alleging that it purchased a product with less economic value than represented by defendant, but instead, plaintiff claimed that it paid for a product that was not at all what defendant represented, that is, an advertisement sold on behalf of a university. M.S. Wholesale Plumbing, Inc. v. Univ. Sports Publs. Co., Inc., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 4159 (E.D. Ark. Jan. 7, 2008).

In Preston v. Stoops, 373 Ark. 591, 285 S.W.3d 606 (2008), the Arkansas Supreme Court dismissed the client's claim against the attorney because it found that the Arkansas Deceptive Trade Practices Act (ADTPA), § 4-88-101 et seq., did not apply to the practice of law; the basis for this holding was that the Arkansas General Assembly did not have the authority to create a law that would control the practice of law. However, that same protective rationale did not apply to the creditor here; it was a separate entity apart from the firm it hired to collect the debt, and Preston did not shield it from debtor's ADTPA cause of action. Humes v. LVNV Funding, L.L.C. (In re Humes), 468 B.R. 346 (Bankr. E.D. Ark. 2011).

Specific prohibitions enumerated in subdivisions (a)(1)-(9) of this section each involve false representation, fraud, or the improper use of economic leverage in a trade transaction; thus, the catch-all provision for “any other unconscionable, false, or deceptive act or practice in business, commerce, or trade” in subdivision (a)(10) must be interpreted to reach similar instances of false representation, fraud, or the improper use of economic leverage in a trade transaction. Universal Coops., Inc. v. AAC Flying Serv., 710 F.3d 790 (8th Cir. 2013).

Herbicide distributor's complaint alleged that the crop dusters applied the herbicide in contravention of the label instructions, during inappropriate weather conditions, and without maintaining required records (but it did not allege that these actions included conduct in the nature of an improper use of economic leverage in a trade transaction); the alleged conduct simply failed to fit within the scope of the unconscionable trade practices prohibited by the Arkansas Deceptive Trade Practices Act. Universal Coops., Inc. v. AAC Flying Serv., 710 F.3d 790 (8th Cir. 2013).

Standing.

The Attorney General has standing to enforce the provisions of the Deceptive Trade Practices Act. State ex rel. Bryant v. R & A Inv. Co., 336 Ark. 289, 985 S.W.2d 299 (1999).

Trial court properly dismissed, for failure to state a claim, a class-action fraud and statutory deceptive trade practices lawsuit alleging that a concealed design defect caused a diminution in value of a vehicle; a private cause of action could not be maintained under this section because no actual damage or injury occurred within the meaning of § 4-88-113. Wallis v. Ford Motor Co., 362 Ark. 317, 208 S.W.3d 153 (2005).

Unconscionable Conduct.

Arkansas counties could not pursue a private action under § 4-88-113(f) against companies that produced and marketed cold remedies containing ephedrine and pseudoephedrine, which were ingredients used in manufacturing methamphetamine (meth), because the counties failed to assert actionable claims under the Arkansas Deceptive Trade Practices Act (ADTPA), §§ 4-88-101 to 4-88-503: (1) the counties alleged that the companies engaged in unconscionable behavior under subdivision (a)(10) of this section, by failing to take action to prevent their remedies from being used to manufacture meth, by benefitting from that illegal use of their remedies, and by actively impeding measures to prevent the remedies from being used to manufacturer meth; (2) the ADTPA was limited to trade practices and did not protect consumers or the counties against third party criminal conduct involving the use of the companies' remedies; (3) the counties could not show that the companies caused their financial injury because the companies did not have any special relationship with the counties that rendered them liable for the criminal acts of the meth manufactures; and (4) the counties could not seek relief under the ADTPA because there injury was too remote, as there was no direct link between the companies' remedies and their alleged financial injuries. Independence County v. Pfizer, Inc., 534 F. Supp. 2d 882 (E.D. Ark. 2008), aff'd, Ashley County v. Pfizer, Inc., 552 F.3d 659 (8th Cir. 2009).

Circuit clerk's Arkansas Deceptive Trade Practices Act claim did not state a claim because Arkansas law did not impose a duty on assignees of real estate mortgages to record those assignments, and the court could not see how failing to record was false or unconscionable when no such duty existed. Brown v. Mortg. Elec. Registration Sys., 738 F.3d 926 (8th Cir. 2013).

Cited: New Equity Sec. Holders Comm. ex rel. Golden Gulf, Ltd. v. Phillips, 97 B.R. 492 (E.D. Ark. 1989).

4-88-108. Concealment, suppression, or omission of material facts.

  1. When utilized in connection with the sale or advertisement of any goods, services, or charitable solicitation, the following is unlawful:
    1. The act, use, or employment by a person of any deception, fraud, or false pretense;
    2. The concealment, suppression, or omission of any material fact with intent that others rely upon the concealment, suppression, or omission;
    3. Displaying or causing to be displayed a fictitious or misleading name or telephone number on an Arkansas resident's caller identification service; or
    4. Using a third party to display or cause to be displayed a fictitious or misleading name or telephone number on an Arkansas resident's caller identification service.
  2. Subdivision (a)(3) of this section does not apply to the transmission of a caller identification service by a telecommunications provider that complies with § 23-17-122.

History. Acts 1971, No. 92, § 4; A.S.A. 1947, § 70-904; Acts 1991, No. 1177, § 3; 1995, No. 836, § 2; 2019, No. 677, § 3.

A.C.R.C. Notes. This section was formerly codified as § 4-88-107. Former § 4-88-108 has been renumbered as § 4-88-109.

Acts 2019, No. 677, § 1, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The citizens of this state are being negatively affected by illegal robocalls from telemarketers and from others seeking to perpetrate scams on them;

“(2) While these illegal robocalls are frustrating for most, the robocalls are costly and dangerous for far too many Arkansans;

“(3) An alarming number of illegal robocalls originate from scammers using automatic telephone dialing systems to send out thousands of phone calls per minute with fictitious or misleading names or telephone numbers displaying on unsuspecting consumers' telephone caller identification service;

“(4) These scammers are engaging in insidious schemes and targeting seniors and other vulnerable groups by soliciting personal information such as credit or debit card information and Social security numbers;

“(5) Displaying fictitious or misleading names or telephone numbers, or ‘spoofing’, is the predominant means by which a robocaller protects their identities and entices consumers to answer the telephone; and

“(6) Spoofing is the gateway for illegal robocalls and scams.

“(b) It is the intent of the General Assembly:

“(1) To protect the citizens of this state from being spoofed by receiving illegal robocalls from telemarketers and from others seeking to perpetrate scams on unsuspecting or vulnerable citizens;

“(2) To provide the citizens of this state who use a caller identification service with accurate information about the identities and locations of callers;

“(3) To encourage telecommunications providers to swiftly implement technologies that will allow telecommunications providers to identify and stop illegal calling practices; and

“(4) That this act be construed as broadly as possible to ensure that the citizens of this state are protected from the negative impact of illegal robocalls and to ensure that scammers and complicit telecommunications providers are held criminally accountable”.

Amendments. The 2019 amendment added designation (a); added (a)(3), (a)(4), and (b); and made stylistic changes.

Research References

ALR.

World wide web domain as violating state trademark protection statute or state unfair trade practices act. 96 A.L.R.5th 1.

Case Notes

Purpose.

This section is not designed to regulate the lawyer-client or accountant-client relationship. Robertson v. White, 633 F. Supp. 954 (W.D. Ark. 1986). But see Reves v. Ernst & Young, 494 U.S. 56, 110 S. Ct. 945, 108 L. Ed. 2d 47 (1990), rehearing denied, 494 U.S. 1092, 110 S. Ct. 1840, 108 L. Ed. 2d 968 (1990).

Negligence.

A violation of this section, prohibiting the employment of any deception or the intentional concealment of a material fact in the sale or advertisement of goods, can be considered as evidence of negligence. Berkeley Pump Co. v. Reed-Joseph Land Co., 279 Ark. 384, 653 S.W.2d 128 (1983).

Odometer.

There were no genuine issues of material fact remaining where there was a violation of the Arkansas Odometer Fraud Act by failing to have the odometer read the correct mileage or by adjusting it to zero to put buyers on notice; a violation of the Odometer Fraud Act constituted an unfair or deceptive trade practice. The damages for economic loss, treble damages, and attorney’s fees were upheld under the Odometer Fraud Act and the Arkansas Deceptive Trade Practices Act. Ukegbu v. Daniels, 2014 Ark. App. 422, 438 S.W.3d 284 (2014).

Omission.

Ordinarily, absent affirmative fraud, a party, in order to hold another liable in fraud (as opposed to breach of implied warranty), must seek out the information he desired and may not omit inquiry and examination and then complain that the other did not volunteer information. Berkeley Pump Co. v. Reed-Joseph Land Co., 279 Ark. 384, 653 S.W.2d 128 (1983).

Consumers sufficiently alleged specific deceptive statements or omissions made by a refrigerator manufacturer, which was necessary to assert actionable claims under the Arkansas Deceptive Trade Practices Act, § 4-88-107(a)(10) and subdivision (2) of this section. The consumers alleged: (1) that the manufacturer knew of defects in its refrigerators, which defects were a material fact; (2) the manufacturer failed to disclose that material fact to the public, knowing that its failure to do so would tend to deceive the public and cause them to purchase its refrigerators; (3) the manufacturer failed to disclose the defects with the intent of having the public rely on its omission to purchase its refrigerators; and (4) the consumers suffered an injury because they relied on the manufacturer's omission and would not have purchased its refrigerators if the defects had been disclosed. Rush v. Whirlpool Corp., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 17210 (W.D. Ark. Feb. 22, 2008).

Scienter.

Section 4-88-107(a)(10) and subdivision (2) of this section did not require knowing or intentional deception, and § 4-88-107(a)(10) listed deception as unlawful, and since omitting an installation requirement from defendant supplier's rebate documents could be a deceptive trade practice, plaintiff retailer's claims under those sections, alleging the retailer lost profits and was forced to issue its own rebates to customers due to the supplier's refusal to honor its rebate program for the retailer's customers, should have survived summary judgment; subdivision (1) of this section listed both fraud and deception as unlawful acts, and those terms could not be coterminous, as that result would violate the basic principle that a statute had to be construed so that every word was given meaning and effect, if possible, so that no word was left void, superfluous, or insignificant. Curtis Lumber Co. v. La. Pac. Corp., 618 F.3d 762 (8th Cir. 2010).

Cited: Arkansas Nursing Home, Inc. v. Rogers, 279 Ark. 433, 652 S.W.2d 15 (1983); New Equity Sec. Holders Comm. ex rel. Golden Gulf, Ltd. v. Phillips, 97 B.R. 492 (E.D. Ark. 1989); Stein v. Lukas, 308 Ark. 74, 823 S.W.2d 832 (1992).

4-88-109. Prohibition of pyramid promotional schemes — Definitions.

  1. A person who promotes any pyramid promotional scheme engages in an unlawful practice.
  2. As used in this section:
    1. “Bona fide inventory repurchase program” means a program through which an entity repurchases from an independent salesperson current and marketable inventory in possession of the independent salesperson, upon request and upon commercially reasonable terms, when the independent salesperson's business relationship with the entity is terminated;
    2. “Commercially reasonable terms” means the repurchase of current and marketable inventory within twelve (12) months after the date of purchase at not less than ninety percent (90%) of the original net cost, less appropriate set-offs and legal claims, if any;
    3. “Compensation” means a payment of any money, a thing of value, or financial benefit conferred in return for inducing another person to participate in a pyramid promotional scheme;
      1. “Consideration” means the payment of cash or the purchase of goods, services, or intangible property.
      2. “Consideration” does not include:
        1. The purchase of goods or services furnished at cost to be used in making sales and not for resale;
        2. Time and effort spent in pursuit of sales or recruiting activities; or
        3. Payment for sales demonstration equipment and materials furnished at cost for use in making sales and not for resale;
    4. “Inventory” means goods and services, including company-produced promotional materials, sales aids, and sales kits that an entity requires independent salespersons to purchase;
    5. “Inventory loading” means the requirement or encouragement by a plan or operation that its independent salesperson purchase inventory in an amount that exceeds the amount that the independent salesperson can expect to resell for ultimate consumption or to use or consume in a reasonable time period, or both;
    6. “Person” means an individual, corporation, trust, estate, partnership, unincorporated association, or any other legal or commercial entity;
    7. “Promote” means to contrive, prepare, establish, plan, operate, advertise, or otherwise induce or attempt to induce another person to participate in a pyramid promotional scheme; and
      1. “Pyramid promotional scheme” means any plan or operation through which a person gives consideration for the opportunity to receive compensation primarily from the introduction of other persons into the plan or operation rather than from the sale and consumption of goods, services, or intangible property by a participant or other persons introduced into the plan or operation.
      2. “Pyramid promotional scheme” includes any plan or operation that limits the number of participants either expressly or by the application of conditions affecting the eligibility of a person to receive compensation under the plan or operation, and includes any plan or operation under which a person, on giving any consideration, obtains any goods, services, or intangible property in addition to the right to receive compensation.
    1. This section does not prohibit a plan or operation, or define a plan or operation as a pyramid promotional scheme, if all of the following occur:
      1. The participants in the plan or operation give consideration in return for the right to receive compensation based upon purchases of goods, services, or intangible property by participants for personal use, consumption, or resale;
      2. The plan or operation does not require inventory loading; and
      3. The plan or operation implements a bona fide inventory repurchase program.
      1. An entity shall clearly describe a bona fide inventory repurchase program in an entity's recruiting literature, sales manual, or contracts with independent salespersons.
      2. The recruiting literature, sales manual, or contracts shall disclose any inventory that is not eligible for repurchase under the bona fide inventory repurchase program.
    2. A bona fide inventory repurchase program is not required to apply to inventory that is no longer within the inventory's commercially reasonable use or shelf life period or has been used or opened.
  3. Before an independent salesperson of an entity purchases inventory, the entity shall clearly document the inventory that is excluded from the bona fide inventory repurchase program as “seasonal”, “discontinued”, or “special promotion products” and indicate that the inventory is not subject to the bona fide inventory repurchase program.

History. Acts 1971, No. 92, § 5; A.S.A. 1947, § 70-905; Acts 1991, No. 1177, § 3; 2019, No. 340, § 1.

A.C.R.C. Notes. This section was formerly codified as § 4-88-108. Former § 4-88-109 was renumbered as § 4-88-110 [repealed].

Amendments. The 2019 amendment substituted “Prohibition of pyramid promotional schemes” for Pyramiding devices” in the section heading; and rewrote the section.

Research References

ALR.

Practices Forbidden by State Deceptive Trade Practice and Consumer Protection Acts — Pyramid or Ponzi or Referral Sales Schemes. 48 A.L.R.6th 511.

Judicial Remedies for Proceeds and Funds from Ponzi Schemes. 100 A.L.R.6th 281 (2014).

Investor Retention of Interest from Ponzi Scheme, 23 A.L.R.7th Art. 4 (2018).

4-88-110. [Repealed.]

A.C.R.C. Notes. This section was formerly codified as § 4-88-109. Former § 4-88-110 has been renumbered as § 4-88-111.

Publisher's Notes. This section, concerning solicitations for charitable organizations, was repealed by Acts 1999, No. 1198, § 19. The section was derived from Acts 1983, No. 363, § 2; A.S.A. 1947, § 70-906.1; Acts 1991, No. 1177, § 3; 1993, No. 910, § 1.

4-88-111. Investigations — Procedure — Confidential information.

  1. When the Attorney General determines that an investigation should be made as to whether a person has engaged in, is engaging in, or shows evidence of intent to engage in any practice declared to be unlawful by this chapter, when he or she receives a request for enforcement proceedings from a consumer or labor organization, better business bureau, chamber of commerce, or any state agency, or when he or she receives a written complaint from a consumer of a practice declared to be unlawful under this chapter, he or she may:
    1. Require that person to file a statement or report in writing as to the facts and circumstances concerning the matter, together with such other data as may be reasonably related thereto;
    2. Examine under oath or take the deposition of any person in connection with the matter; and
    3. Examine any merchandise, or sample thereof, sales tickets, or other records relating thereto.
  2. Unless otherwise ordered by a court for good cause shown, no statement or documentary material produced pursuant to a demand under this section shall be produced for inspection or copying by, nor shall the contents thereof be disclosed to, any person other than the authorized employee of the Attorney General without the consent of the person who produced the material.
  3. The Attorney General or any attorney designated by him or her may use the documentary material or copies thereof in the enforcement of this chapter by presentation before any court, provided that any such material which contains trade secrets shall not be presented except with the approval of the court in which the action is pending after adequate notice to the person furnishing such material. However, when material containing trade secrets is presented with court approval, the material and the evidence pertaining thereto shall be held in camera and shall not be part of the court record or trial transcript.
  4. No statements, documents, or other information maintained or produced as a result of an ongoing investigation of possible violations of this chapter shall be disclosed to any person other than those persons specifically authorized by the Attorney General to receive such information.

History. Acts 1971, No. 92, § 9; A.S.A. 1947, § 70-909; Acts 1991, No. 1177, § 3; 1993, No. 587, § 3.

A.C.R.C. Notes. This section was formerly codified as § 4-88-110. Former § 4-88-111 has been renumbered as § 4-88-112.

Research References

U. Ark. Little Rock L. Rev.

Terrence Cain, Essay: The (Un?) Constitutionality of Compelling Non-Immunized Testimony in Deceptive Trade Practices Investigations Conducted by the Attorney General of the State of Arkansas, 37 U. Ark. Little Rock L. Rev. 91 (2014).

Case Notes

Testimony.

Assistant Attorney General allowed to testify against defendant where the information came to the Attorney General's office as a result of a civil investigation demand, and where the testimony came in without objection or a motion to strike. Cheqnet Sys. v. Montgomery, 322 Ark. 742, 911 S.W.2d 956 (1995).

4-88-112. Failure to cooperate in investigations — Proceedings.

  1. In the event any person fails or refuses to file a statement, appear, or produce records as required by § 4-88-111, the Attorney General, acting through the Consumer Counsel, may file, in the circuit court of the county in which the person resides or transacts business or of the judicial district in which the State Capitol is located, a petition for an order of such court for the civil enforcement of such section.
  2. Upon the filing of the petition and service upon the person, the court shall have jurisdiction to hear and determine the matter so presented and to enter such order, including temporary injunctions, as may be required to effectuate this chapter.
  3. Willful concealment, destruction, alteration, or falsification of any documentary material which would be subject to subpoena by the court or the disobedience of any order of the court is declared to be unlawful and shall be punished as contempt of court.
  4. Any final order shall be subject to appeal to the Supreme Court of Arkansas.

History. Acts 1971, No. 92, § 10; A.S.A. 1947, § 70-910; Acts 1991, No. 1177, § 3; 1995, No. 836, § 3.

A.C.R.C. Notes. This section was formerly codified as § 4-88-111. Former § 4-88-112 has been renumbered as § 4-88-113.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-88-113. Civil enforcement and remedies — Suspension or forfeiture of charter, franchise, etc.

  1. In any proceeding brought by the Attorney General for civil enforcement of the provisions of this chapter, prohibiting unlawful practices as defined in this chapter, the circuit court may make such orders or judgments as may be necessary to:
    1. Prevent the use or employment by such person of any prohibited practices;
      1. Restore to any purchaser who has suffered any ascertainable loss by reason of the use or employment of the prohibited practices any moneys or real or personal property which may have been acquired by means of any practice declared to be unlawful by this chapter, together with other damages sustained.
      2. In determining the amount of restitution to be awarded under this section, the court shall consider affidavits from nontestifying purchasers, provided that:
        1. The affidavits are offered as evidence of a material fact;
        2. The affidavits are more probative on the point for which they are offered than any other evidence which the Attorney General can procure through reasonable efforts;
        3. The interests of justice will be best served by admission of the affidavits; and
        4. The Attorney General makes the names and addresses of the affiants available to the adverse party sufficiently in advance to provide the adverse party with a fair opportunity to communicate with them; and
    2. Assess penalties to be paid to the state, not to exceed ten thousand dollars ($10,000) per violation, against persons found to have violated this chapter.
  2. Upon petition of the Attorney General, the court may order the suspension or forfeiture of franchises, corporate charters, or other licenses or permits or authorization to do business in this state.
  3. Any person who violates the terms of an injunction issued under this chapter shall forfeit and pay to the state a civil penalty of not more than ten thousand dollars ($10,000) for any single action brought by the Attorney General.
    1. Every person who directly or indirectly controls another person who is in violation of or liable under this chapter and every partner, officer, or director of another person who is in violation of or liable under this chapter shall be jointly and severally liable for any penalties assessed and any monetary judgments awarded in any proceeding for civil enforcement of the provisions of this chapter, provided that the persons to be held jointly and severally liable knew or reasonably should have known of the existence of the facts by reason of which the violation or liability exists.
    2. There is contribution as in cases of contract among the several persons so liable.
    3. Every person subject to liability under subdivision (d)(1) of this section shall be deemed, as a matter of law, to have purposefully availed himself or herself of the privileges of conducting activities within Arkansas sufficient to subject the person to the personal jurisdiction of the circuit court hearing an action brought pursuant to this chapter.
  4. As compensation for his services under this chapter, the Attorney General shall be entitled to all expenses reasonably incurred in the investigation and prosecution of suits, including, but not limited to, expenses for expert witnesses, to be paid by the defendant when judgment is rendered for the state, and, in addition, shall recover attorney's fees and costs.
      1. A person who suffers an actual financial loss as a result of his or her reliance on the use of a practice declared unlawful by this chapter may bring an action to recover his or her actual financial loss proximately caused by the offense or violation, as defined in this chapter.
      2. A private class action under this subsection is prohibited unless the claim is being asserted for a violation of Arkansas Constitution, Amendment 89.
    1. To prevail on a claim brought under this subsection, a claimant must prove individually that he or she suffered an actual financial loss proximately caused by his or her reliance on the use of a practice declared unlawful under this chapter.
    2. A court may award reasonable attorney's fees.

History. Acts 1971, No. 92, § 11; 1977, No. 835, § 1; A.S.A. 1947, § 70-911; Acts 1991, No. 1177, § 3; 1993, No. 587, § 4; 1995, No. 836, § 4; 1999, No. 990, § 1; 2017, No. 986, § 3.

A.C.R.C. Notes. This section was formerly codified as § 4-88-112.

Amendments. The 2017 amendment rewrote (f).

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

Research References

ALR.

Right to private action under state consumer protection act — Equitable relief available. 115 A.L.R.5th 709.

Right to private action under state consumer protection act — Preconditions to action. 117 A.L.R.5th 155.

Ark. L. Rev.

Nathan Price Chaney, The Arkansas Deceptive Trade Practices Act: The Arkansas Supreme Court Should Adopt the Specific-Conduct Rule, 67 Ark. L. Rev. 299 (2014).

Britta Palmer Stamps, Recent Developments: Attorney's Fees — Fees May Be Awarded Under Arkansas Deceptive Trade Practices Act Regardless of Overall Prevailing Party, 67 Ark. L. Rev. 1111 (2014).

Margaret E. Rushing, Comment: Deceptively Simple: The Arkansas Deceptive Trade Practices Act, 71 Ark. L. Rev. 1033 (2019).

U. Ark. Little Rock. L. Rev.

Annual Survey of Case Law, Civil Procedure, 28 U. Ark. Little Rock L. Rev. 631.

Annual Survey of Case Law: Practice, Procedure, and Courts, 29 U. Ark. Little Rock L. Rev. 905.

Case Notes

In General.

This section limits a private cause of action for deceptive trade practices under § 4-88-107 to instances where actual damage or injury has occurred; hence, where the only alleged injury is the diminution in value of a product, a private cause of action is not cognizable. Wallis v. Ford Motor Co., 362 Ark. 317, 208 S.W.3d 153 (2005).

Plaintiff's motion to dismiss defendant's Arkansas Deceptive Trade Practices Act (ADTPA) claim on the ground that the ADTPA was not cognizable because defendant was not a consumer was denied because one did not have to be a consumer to recover under the ADTPA pursuant to subsection (f) of this section and §§ 4-88-101 and 4-88-102(5). Valor Healthcare, Inc. v. Pinkerton, — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 105988 (W.D. Ark. Dec. 23, 2008).

Claims stated by the contractor in Count I constituted ordinary breach-of-contract claims that did not rise to the level of violating the Arkansas Deceptive Trade Practices Act, §§ 4-88-101 to 4-88-503, as they were devoid of any factual bases on which the appellate court could conclude that the subcontractor engaged in deceptive business practices. CEI Eng'g Assocs. v. Elder Constr. Co., 2009 Ark. App. 259, 306 S.W.3d 447 (2009).

Circuit court properly ruled that the Arkansas Deceptive Trade Practices Act was not applicable to appellant's case because appellant failed to assert that appellee engaged in any type of consumer-oriented act or practice that caused damages. Skalla v. Canepari, 2013 Ark. 415, 430 S.W.3d 72 (2013).

Construction.

—Prior Version of Section.

Building owner's deceptive trade practices claim under the former version of subsection (f) of this section (amended 2017) was properly dismissed where there was no evidence that the owner either knew about a “leak proof” label before the incident that caused water damage or took some action because of it. Apex Oil Co. v. Jones Stephens Corp., 881 F.3d 658 (8th Cir. 2018) (decision under prior version of section).

Building owner's argument that reliance was not an element under the former version of subsection (f) (amended 2017) was rejected as the more natural reading of the former text required proof of reliance, even though not expressly included in the statute, and the 2017 amendment was better viewed as a clarification. Apex Oil Co. v. Jones Stephens Corp., 881 F.3d 658 (8th Cir. 2018) (decision under prior version of section).

Actual Damages.

Appellees could not recover damages for mental anguish as an element of actual damages under this section because appellees had no physical injury; Arkansas does not recognize negligent infliction of emotional distress. FMC Corp. v. Helton, 360 Ark. 465, 202 S.W.3d 490 (2005).

Trial court properly dismissed, for failure to state a claim, a class-action fraud and statutory deceptive trade practices lawsuit alleging that a concealed design defect caused a diminution in value of a vehicle; a private cause of action could not be maintained under § 4-88-107 because no actual damage or injury occurred within the meaning of this secttion. Wallis v. Ford Motor Co., 362 Ark. 317, 208 S.W.3d 153 (2005).

Plaintiff's § 4-88-107(a)(1) false representation/unfair competition claim, arising from the fact that defendant had begun using the same name that it used for its informal hunting club, failed as a matter of law because plaintiff did not offer any evidence showing that it suffered any actual damage or injury as a result of defendant's actions. Subsection (f) of this section required that plaintiff show such injury or damage, in order to pursue a claim under the Arkansas Deceptive Trade Practices Act. Ark. Trophy Hunters Ass'n v. Tex. Trophy Hunters Ass'n, 506 F. Supp. 2d 277 (W.D. Ark. 2007).

Plaintiff's claims regarding violations of Telephonic Sellers Act and School Calendar Act were actionable under the Arkansas Deceptive Trade Practices Act, § 4-88-107, even though neither Act provided a private cause of action for consumers because a violation of either statute constituted a deceptive trade practice under the ADTPA pursuant to §§ 4-88-503(a), 4-99-111(b), and any person who suffered actual damage as a result of such a practice had a cause of action under the ADTPA, subsection (f) of this section. M.S. Wholesale Plumbing, Inc. v. Univ. Sports Publs. Co., Inc., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 4159 (E.D. Ark. Jan. 7, 2008).

Plaintiff's claim alleging a violation of the Arkansas Deceptive Trade Practices Act (ADTPA), § 4-88-107(a)(1), (a)(10), was actionable because plaintiff had alleged sufficient facts to satisfy the ADTPA's actual damage requirement under subsection (f) of this section; plaintiff was not alleging that it purchased a product with less economic value than represented by defendant, but instead, plaintiff claimed that it paid for a product that was not at all what defendant represented, that is, an advertisement sold on behalf of a university. M.S. Wholesale Plumbing, Inc. v. Univ. Sports Publs. Co., Inc., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 4159 (E.D. Ark. Jan. 7, 2008).

Jury was properly instructed that licensees could not recover on their deceptive trade practices claim if the only injury they suffered was a diminution in value of the product; the jury could have found that a lack of patent protection resulted in only a diminution in value of the products the licensees contracted to market. Yazdianpour v. Safeblood Techs., Inc., 779 F.3d 530 (8th Cir. 2015).

Trial court abused its discretion in dismissing the doctor's Arkansas Deceptive Trade Practices Act claim because the operator's alleged conduct took advantage of physically infirm customers and was an unconscionable business practice; the doctor alleged actual damages sufficient to withstand a motion to dismiss because he was allegedly terminated due to his resistance to take part in the operator's scheme to increase revenue. Hamby v. Health Mgmt. Assocs., 2015 Ark. App. 298, 462 S.W.3d 346 (2015).

In a foreclosure action, in which borrowers asserted a counterclaim under the Arkansas Deceptive Trade Practices Act based on § 4-88-107(a)(8)(A) and (a)(10), there was no showing that the lender co-trustees, who were the parents of one of the borrowers, were in the business, commerce, or trade of making loans; instead, there was testimony that the borrowers would not qualify for a conventional loan and this was simply a case of parents helping their child, and the circuit court found that borrowers were not damaged. Parker v. Parker, 2017 Ark. App. 242, 520 S.W.3d 693 (2017).

It was not necessary to determine whether the 2017 amendment to this section, requiring “actual financial loss”, applied to plaintiff's complaint because he failed to meet the “actual damage or injury” requirement of the pre-2017 version of this section. Parnell v. FanDuel, Inc., 2019 Ark. 412, 591 S.W.3d 315 (2019).

Circuit court properly dismissed a subscriber's complaint and class-action allegations against an internet-based fantasy sports game company for violation of the Arkansas Deceptive Trade Practices Act and unjust enrichment; while the subscriber alleged that the company failed to match his $200 deposit as advertised, he failed to allege any “actual damage or injury” where he made no allegation that he was in any way prevented from spending or withdrawing his deposit from his account and could not demonstrate that the company was unjustly enriched. Parnell v. FanDuel, Inc., 2019 Ark. 412, 591 S.W.3d 315 (2019).

Class Action.

Superiority requirement was established in a class action suit against a title company under the Arkansas Deceptive Trade Practices Act, § 4-88-101 et seq., because it was not feasible to recover the small document fee charged to parties in real estate transactions in individual litigation and an examination of individual cases were not required; the title company's argument that this section showed the economic feasibility of individual claims was rejected. Lenders Title Co. v. Chandler, 358 Ark. 66, 186 S.W.3d 695 (2004).

Consumer-Oriented.

Chicken growers' claim that the processor violated the Arkansas Deceptive Trade Practices Act, § 4-88-101 et seq., was dismissed as the growers failed to plead facts showing that the processor's alleged unequal treatment of growers it contracted with was a consumer-oriented act or practice. Crutchfield v. Tyson Foods, Inc., 2017 Ark. App. 121, 514 S.W.3d 499 (2017).

Circuit court erred in finding that a corporation violated the Arkansas Deceptive Trade Practices Act (ADTPA), § 4-88-101 et seq., because there was simply no “consumer-oriented act” as required for a cause of action under the ADTPA; the circuit court clearly erred in finding that the plaintiff competitor was a consumer for purposes of the ADTPA because the corporation and the competitor were opponents in the market of selling counties' public data. Apprentice Info. Sys. v. DataScout, LLC, 2018 Ark. 149, 544 S.W.3d 536 (2018).

Costs and Fees.

Subdivision (b)(2) of this section only provides for the award of attorneys' fees in those cases where the attorney general seeks the “suspension or forfeiture of franchises, corporate charters, or other licenses or permits, or authorizations to do business in the state”; where the attorney general does not seek such remedies, a request for attorney's fees will be denied. State ex rel. Bryant v. McLeod, 318 Ark. 781, 888 S.W.2d 639 (1994).

Subsection (b) of this section does not provide that expert-witness fees can be charged against the losing party. State ex rel. Bryant v. McLeod, 318 Ark. 781, 888 S.W.2d 639 (1994).

Trial court abused its discretion in awarding all of appellees' requested attorneys' fees where only one of their causes of action provided for fees; nothing in § 16-22-308 or this section provides that a party is entitled to an award of all fees in cases where multiple claims have been pursued. FMC Corp. v. Helton, 360 Ark. 465, 202 S.W.3d 490 (2005).

Plain reading of subsection (f) of this section requires that an award for actual damages or attorney's fees is predicated on prevailing on the claim or claims asserted; thus, where the jury rejected the buyer's claims pursuant to §§ 4-88-107 and 4-88-108, thereby denying her recovery of actual damages or attorney's fees, it was not necessary for the appellate court to consider whether attorney's fees were a part of an element of damages under subsection (f). Thomas v. Olson, 364 Ark. 444, 220 S.W.3d 627 (2005).

It was necessary to remand for a determination of whether defendant was entitled to attorney's fees on its counterclaim under the Arkansas Deceptive Trade Practices Act, because a party who prevailed on a cause of action to recover actual damages under the Act was eligible for an award of attorney's fees, in the discretion of the court, even when another party was the prevailing party in the overall action. G&K Servs. Co. v. Bill's Super Foods, Inc., 766 F.3d 797 (8th Cir. 2014).

In a deceptive trade practices action, the circuit court's award of attorney's fees, costs, and expenses to the State comported with the language of this section where the practice of the attorney general was to record the cumulative hours regarding certain work on the day the work was completed, and there was no error in the circuit court's acceptance of the State's explanation. Pleasant v. State ex rel. McDaniel, 2019 Ark. App. 248, 576 S.W.3d 90 (2019).

Elements of Claim.

Appellee alleged that appellant made false representations and that its actions were deceptive and unconscionable under the Arkansas Deceptive Trade Practices Act. As appellee never explained what the false representations were or what acts appellant engaged in that violated the Act, and did not explain how it was damaged by appellant's actions, it failed to allege facts setting forth a cause of action under the Act. Forever Green Ath. Fields, Inc. v. Lasiter Constr., Inc., 2011 Ark. App. 347, 384 S.W.3d 540 (2011).

In a case alleging negligence, breach of contract, breach of warranty, strict product liability, and violations of the Arkansas Deceptive Trade Practices Act based on a claim that a casket was defective, the complaint failed to include the elements of the causes of actions pled because it failed to state facts that linked the damages to the conduct or product supplied; there was no way of knowing the condition of the casket purchased since it had not been disinterred or inspected since its burial in 1996. Clayton v. Batesville Casket Co., 2015 Ark. App. 361, 465 S.W.3d 441 (2015).

Substantial evidence existed that the officer, acting for the company, omitted or concealed material facts in connection with the home services; he made representations about his age, education, experience, and insurance coverage that were false, and thus there was sufficient evidence for the jury to have found that the failure to speak truthfully caused the owners damage, and thus substantial evidence supported the jury's finding on the deceptive trade practices claim. Roggasch v. Sims, 2016 Ark. App. 44, 481 S.W.3d 440 (2016).

Individual Liability.

Because substantial evidence supported the jury's finding on the deceptive trade practices claim, there was no error in the corporate officer being held individually accountable. Roggasch v. Sims, 2016 Ark. App. 44, 481 S.W.3d 440 (2016).

Judgment on Pleadings.

Judgment on the pleadings was entered because Arkansas counties could not pursue a private action under subsection (f) of this section against companies that produced and marketed cold remedies containing ephedrine and pseudoephedrine, which were ingredients used in manufacturing methamphetamine (meth), because the counties failed to assert actionable claims under the Arkansas Deceptive Trade Practices Act (ADTPA), §§ 4-88-101 to 4-88-503: (1) the counties alleged that the companies engaged in unconscionable behavior under § 4-88-107(a)(10), by failing to take action to prevent their remedies from being used to manufacture meth, by benefitting from that illegal use of their remedies, and by actively impeding measures to prevent the remedies from being used to manufacturer meth; (2) the ADTPA was limited to trade practices and did not protect consumers or the counties against third party criminal conduct involving the use of the companies' remedies; (3) the counties could not show that the companies caused their financial injury because the companies did not have any special relationship with the counties that rendered them liable for the criminal acts of the meth manufactures; and (4) the counties could not seek relief under the ADTPA because there injury was too remote, as there was no direct link between the companies' remedies and their alleged financial injuries. Independence County v. Pfizer, Inc., 534 F. Supp. 2d 882 (E.D. Ark. 2008), aff'd, Ashley County v. Pfizer, Inc., 552 F.3d 659 (8th Cir. 2009).

Lost Profits.

Where plaintiff retailer sued defendant supplier on claims of deceptive trade practices in connection with the supplier's refusal to honor its rebate program for the retailer's customers, if successful, the retailer's lost profits were recoverable under the Arkansas Deceptive Trade Practices Act, subsection (f) of this section, and the voluntary payment rule would not preclude a recovery of lost profits since, while the retailer's decision to issue its own rebates to customers could arguably be considered “voluntary,” the retailer's alleged lost profits were not. Curtis Lumber Co. v. La. Pac. Corp., 618 F.3d 762 (8th Cir. 2010).

Odometer.

There were no genuine issues of material fact remaining where there was a violation of the Arkansas Odometer Fraud Act by failing to have the odometer read the correct mileage or by adjusting it to zero to put buyers on notice; a violation of the Odometer Fraud Act constituted an unfair or deceptive trade practice. The damages for economic loss, treble damages, and attorney’s fees were upheld under the Odometer Fraud Act and the Arkansas Deceptive Trade Practices Act. Ukegbu v. Daniels, 2014 Ark. App. 422, 438 S.W.3d 284 (2014).

Standing.

It did not appear that Arkansas counties had standing to bring a suit under subsection (f) of this section of the Arkansas Deceptive Trade Practices Act (ADTPA), §§ 4-88-101 to 4-88-503, against companies that produced and marketed cold remedies containing ephedrine and pseudoephedrine, which were ingredients used in manufacturing methamphetamine (meth), because the counties could not show that they suffered actual damage or injury as a result of an offense or violation of the ADTPA. The counties had merely alleged that they expended significant sums in dealing with issues relating to the use and manufacture of meth and that the companies could and should have taken action to impede or eliminate the use of their remedies in meth manufacturing. Independence County v. Pfizer, Inc., 534 F. Supp. 2d 882 (E.D. Ark. 2008), aff'd, Ashley County v. Pfizer, Inc., 552 F.3d 659 (8th Cir. 2009).

Violation Not Shown.

In a case that set aside a foreclosure decree due to improper service on the property owner, the foreclosure sale purchaser did not have a cause of action against the foreclosure mortgagee under the Arkansas Deceptive Trade Practices Act; the purchaser did not challenge the circuit court's finding that the foreclosure mortgagee's actions were neither intentional nor reckless. MidFirst Bank v. Sumpter, 2016 Ark. App. 552, 508 S.W.3d 69 (2016).

Cited: Anderson v. Stewart, 366 Ark. 203, 234 S.W.3d 295 (2006); Holiday Inn Franchising v. Hotel Assocs., 2011 Ark. App. 147, 382 S.W.3d 6 (2011).

4-88-114. Voluntary compliance.

    1. In the administration of this chapter, the Attorney General may accept an assurance of voluntary compliance with respect to any method, act, or practice deemed to be violative of the provisions of this chapter from any person who has engaged in or was about to engage in the method, act, or practice.
    2. Any such assurance shall be in writing and may be enforced by petitioning the circuit court of the county in which the alleged violator resides or has his principal place of business, or the Pulaski County Circuit Court.
    3. Such assurance of voluntary compliance shall not be considered an admission of violation for any purpose.
    1. The assurance of voluntary compliance shall provide for the discontinuance by the person entering into the same of any method, act, or practice alleged to be a violation of this chapter, and it may include a stipulation for the payment by such person of reasonable expenses, investigative costs, and attorney's fees incurred by the Attorney General.
    2. The assurance may also include a stipulation for payment to consumers of actual damages or for restitution of money, property, or other things received from consumers in connection with a violation of the provisions of this chapter, and a stipulation for specific performance.
  1. A finding by a circuit court that a violation of such assurance of voluntary compliance has occurred shall prima facie establish that the person subject thereto knows, or in the exercise of due care should know, that he or she has in the past violated or is violating the provisions of this chapter.
  2. The assurance of voluntary compliance shall not be admissible into evidence in any separate criminal proceeding within the meaning of this chapter.

History. Acts 1993, No. 587, § 5; 1995, No. 836, § 5.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-88-115. Statute of limitations.

Any civil action brought to enforce the provisions of this chapter may be brought in any court of competent jurisdiction in this state during a period of five (5) years commencing on the date of the occurrence of the violation or the date upon which the cause of action arises.

History. Acts 1993, No. 910, § 2.

Case Notes

Doctrine of Fraudulent Concealment.

Plaintiff's action was properly dismissed because his claims were clearly time-barred under §§ 16-56-111, 16-56-105, and this section, and by failing to allege when and how he discovered defendant's alleged fraud, plaintiff failed to meet his burden under Fed. R. Civ. P. 9(b), (f) of sufficiently pleading that the doctrine of fraudulent concealment saved his otherwise time-barred claims. Summerhill v. Terminix, Inc., 637 F.3d 877 (8th Cir. 2011).

Statute of Limitations.

Claims by mineral lessors, including under the Arkansas Deceptive Trade Practices Act, § 4-88-101 et seq., were properly dismissed as time-barred under § 16-56-105 and this section where they were brought more than five years after the leases were executed; fraud was not sufficiently shown for purposes of tolling. Hipp v. Vernon L. Smith & Assocs., 2011 Ark. App. 611, 386 S.W.3d 526 (2011).

In a creditor's breach of contract suit arising from cross-defaulted loan agreements, counterclaims asserting causes of action for fraud, breach of fiduciary duty, negligence, breach of contract, and deceptive trade practices were time-barred. Bank of Am., N.A. v. JB Hanna, LLC, 766 F.3d 841 (8th Cir. 2014).

4-88-116. Right to jury trial.

Any party in an action brought under § 4-88-113(f) shall have the right to a jury trial if the action was pending or filed on or after August 1, 2017.

History. Acts 2017, No. 986, § 4.

4-88-117. Durable medical equipment — Definition.

  1. As used in this section, “durable medical equipment” means a good that qualifies for insurance reimbursement and requires a referral or prescription of a licensed physician or a licensed advanced practice registered nurse.
  2. A person shall not represent or advertise that a consumer's health insurance, health benefit plan, Medicare, or Medicaid will cover any portion of the cost of durable medical equipment unless a licensed physician or a licensed advanced practice registered nurse has made a referral for or prescribed the durable medical equipment for the consumer before an agreement to purchase durable medical equipment is executed between a consumer and seller of the durable medical equipment.
  3. Notwithstanding any provision of this section, a provision in an agreement to purchase durable medical equipment does not violate this section if the consumer has signed a conspicuous waiver that contains no other information or agreements and clearly states that the consumer understands that Medicare, Medicaid, a health benefit plan, a health insurance plan, or any other insurance plan may only cover the cost of the durable medical equipment upon approval by the consumer's licensed physician or licensed advanced practice registered nurse.
    1. If an agreement to purchase durable medical equipment contains a provision that violates this section, the agreement to purchase durable medical equipment is void.
    2. If an agreement to purchase durable medical equipment is voided under subdivision (d)(1) of this section, a consumer may receive full reimbursement for the durable medical equipment.
    3. If a consumer seeks reimbursement for a transaction, the consumer shall return the durable medical equipment upon the request of the seller of the durable medical equipment and at the expense of the seller of the durable medical equipment.
    1. A transaction for durable medical equipment shall have a thirty-day return policy.
    2. Durable medical equipment may be returned for any reason.
    3. Notification of a return of durable medical equipment:
      1. Shall be given by the consumer within thirty (30) days of the agreement to purchase durable medical equipment; and
      2. May be given to the seller of the durable medical equipment in writing or over the telephone.
      1. A seller of durable medical equipment shall not deny a reimbursement for durable medical equipment because the durable medical equipment has not been returned.
      2. However, a consumer shall be permitted to return the durable medical equipment at the expense of the seller of the durable medical equipment within a reasonable amount of time after notification of the return.

History. Acts 2019, No. 1065, § 1.

Subchapter 2 — Enhanced Penalties When Elder Persons or Persons With Disabilities Are Targeted

4-88-201. Definitions.

  1. “Elder person” means a person who is sixty (60) years of age or older.
  2. “Person with a disability” means a person who has a physical or mental impairment which substantially limits one (1) or more of such person's major life activities.
    1. As used in this subsection, “physical or mental impairment” means any of the following:
      1. Any physiological disorder or condition, cosmetic disfigurement, or anatomical loss substantially affecting one (1) or more of the following body systems: neurological; musculoskeletal; special sense organs; respiratory, including speech organs; cardiovascular; reproductive; digestive; genitourinary; hemic and lymphatic; skin; or endocrine.
      2. Any mental or psychological disorder, including intellectual and developmental disabilities, organic brain syndrome, emotional or mental illness, and specific learning disabilities.
    2. The term “physical or mental impairment” includes, but is not limited to, such diseases and conditions as orthopedic, visual, speech and hearing impairment, cerebral palsy, spina bifida, Down syndrome, epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease, diabetes, intellectual and developmental disabilities, and emotional illness.
  3. “Substantially limits” means substantially interferes with or affects over an extended period of time. Minor temporary ailments or injuries shall not be considered physical or mental impairments that substantially limit a person's major life activities. Examples of minor temporary ailments are colds, influenza, sprains, or minor injuries.
  4. “Major life activities” include functions such as caring for oneself, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, and working.

History. Acts 1993, No. 138, § 1; 2011, No. 68, § 1; 2019, No. 1035, § 1.

Amendments. The 2011 amendment inserted “spina bifida, Down syndrome” in (b)(2).

The 2019 amendment substituted “‘Person with a disability’” for “‘Disabled person’” in the introductory language of (b); substituted “including intellectual and developmental disabilities” for “such as mental retardation” in (b)(1)(B); and substituted “intellectual and developmental disabilities” for “mental retardation” in (b)(2).

Case Notes

Cited: Tay-Tay, Inc. v. Young, 349 Ark. 675, 80 S.W.3d 365 (2002).

4-88-202. Civil penalty — Disposition of funds.

  1. If any person is found to have violated any provision of this chapter, including unlawful practices related to charitable solicitations, and the violation is committed against an elder person or a person with a disability, in addition to any civil penalty otherwise set forth or imposed, the court may impose an additional civil penalty not to exceed ten thousand dollars ($10,000) for each violation.
  2. The civil penalties imposed pursuant to subsection (a) of this section shall be deposited with the Treasurer of State and placed into the Elder Person and Person with a Disability Victims Fund, a special fund created in the State Treasury and administered by the Attorney General for the investigation and prosecution of deceptive acts against an elder person or a person with a disability and for consumer education initiatives.

History. Acts 1993, No. 138, § 1; 2019, No. 1035, § 2.

Amendments. The 2019 amendment substituted “an elder person or a person with a disability” for “elder or disabled persons” in (a); and, in (b), substituted “Elder Person and Person with a Disability Victims Fund” for “Elder and Disabled Victims Fund” and substituted “against an elder person or a person with a disability” for “against elder and disabled persons”.

4-88-203. Determination of civil penalty.

In determining whether to impose an enhanced civil penalty under this subchapter and the amount thereof, the court shall consider the extent to which one (1) or more of the following factors are present:

  1. Whether the defendant's conduct was in disregard of the rights of the elder person or person with a disability;
  2. Whether the defendant knew or should have known that the defendant's conduct was directed to an elder person or person with a disability;
  3. Whether the elder person or person with a disability was more vulnerable to the defendant's conduct because of age, poor health, infirmity, impaired understanding, restricted mobility, or disability than other persons and whether the elder person or person with a disability actually suffered substantial physical, emotional, or economic damage resulting from the defendant's conduct;
  4. Whether the defendant's conduct caused an elder person or person with a disability to suffer any of the following:
    1. Mental or emotional anguish;
    2. Loss of or encumbrance upon a primary residence of the elder person or person with a disability;
    3. Loss of or encumbrance upon the elder or disabled person's principal employment or principal source of income;
    4. Loss of funds received under a pension or retirement plan or a government benefits program;
    5. Loss of property set aside for retirement or for personal or family care and maintenance; or
    6. Loss of assets essential to the health and welfare of the elder person or person with a disability; or
  5. Any other factors the court deems appropriate.

History. Acts 1993, No. 138, § 1; 2019, No. 1035, § 2.

Amendments. The 2019 amendment substituted “elder person or person with a disability” for “elder or disabled person” throughout the section.

4-88-204. Cause of action.

An elder person or person with a disability who suffers damage or injury as a result of an offense or violation described in this chapter has a cause of action to recover actual damages, punitive damages, if appropriate, and reasonable attorney's fees. Restitution ordered pursuant to this section has priority over a civil penalty imposed pursuant to this subchapter.

History. Acts 1993, No. 138, § 1; 2019, No. 1035, § 2.

Amendments. The 2019 amendment substituted “elder person or person with a disability” for “elder or disabled person”.

4-88-205. Education initiatives.

The Attorney General shall, pursuant to the funds allocated in this subchapter, develop and implement statewide educational initiatives to inform elder persons and persons with a disability, law enforcement agencies, the judicial system, social services professionals, and the general public as to the prevalence and prevention of consumer crimes against elder persons or persons with a disability, the provisions of this chapter, the penalties for violations of this chapter, and the remedies available for victims of violations.

History. Acts 1993, No. 138, § 1; 2019, No. 1035, § 2.

Amendments. The 2019 amendment substituted “an elder person and a person with a disability” for “elder persons and disabled persons” and substituted “an elder person or person with a disability” for “elder and disabled persons”.

4-88-206. Referrals for abuse, neglect, and exploitation.

The Attorney General shall establish and maintain referral procedures with the Division of Aging, Adult, and Behavioral Health Services of the Department of Human Services in order to provide any necessary intervention and assistance to an elder person or person with a disability who may have been victimized by violations of this chapter.

History. Acts 1993, No. 138, § 1; 2017, No. 913, § 10; 2019, No. 1035, § 2.

Amendments. The 2017 amendment substituted “Division of Aging, Adult, and Behavioral Health Services of” for “Division of Aging and Adult Services within”.

The 2019 amendment substituted “an elder person or person with a disability” for “elder or disabled persons”.

4-88-207. Elder Person and Person with a Disability Victims Fund created.

The “Elder Person and Person with a Disability Victims Fund” is hereby created and established on the books of the Treasurer of State, Auditor of State, and Chief Fiscal Officer of the State and shall consist of those special funds as may be provided by law. This fund shall be used for the investigation and prosecution of deceptive acts against an elder person or person with a disability and for consumer education initiatives directed toward elder persons or persons with a disability, law enforcement officers, the judicial system, social services professionals, and the general public on the provisions of this chapter and related statutes.

History. Acts 1993, No. 138, § 2; 2019, No. 1035, § 2.

Publisher's Notes. Acts 1993, No. 138, § 2 is also codified as § 19-6-473.

Amendments. The 2019 amendment substituted “Elder Person and Person with a Disability Victims Fund” for “Elder and Disabled Victims Fund” in the section heading and in the section; and substituted “an elder person or person with a disability” for “elder and disabled persons” twice.

Subchapter 3 — Protection of Consumers from Price Gouging and Unfair Pricing Practices During and Shortly After a State of Emergency

Effective Dates. Acts 1997, No. 376, § 6: March 6, 1997. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the widespread practice of price gouging and unfair pricing during and shortly after an emergency has created numerous problems for consumers; that such price gouging is particularly egregious due to the very nature of such an emergency; that such price gouging has a significant negative impact upon the economy and well-being of this state and its local communities; and that this act is necessary for the protection of the people of Arkansas. Therefore an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto.”

Acts 2003, No. 1448, § 4: Apr. 16, 2003. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that present law pertaining to price gouging does not adequately address the circumstances of terrorists attacks and war; that this act enhances the price gouging laws of this state to cover those situations; and that the imminent prospect of war and further terrorists attacks dictate that this act should go into effect as soon as possible. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health, and safety shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

4-88-301. Emergencies and natural disasters — Taking unfair advantage of consumers.

The General Assembly hereby finds that during emergencies and major disasters, including, but not limited to, tornadoes, earthquakes, fires, floods, or civil disturbances, some merchants have taken unfair advantage of consumers by greatly increasing prices for essential consumer goods or services. While the pricing of consumer goods and services is generally best left to the marketplace under ordinary conditions, when a declared state of emergency results in abnormal disruptions of the market, the public interest requires that excessive and unjustified increases in the prices of essential consumer goods and services be prohibited. It is the intent of the General Assembly in enacting this subchapter to protect citizens from excessive and unjustified increases in the prices charged during or shortly after a declared state of emergency for goods and services that are vital and necessary for the health, safety, and welfare of consumers. Further, it is the intent of the General Assembly that this section be liberally construed so that its beneficial purposes may be served.

History. Acts 1997, No. 376, § 1.

4-88-302. Definitions.

  1. “Building materials” means lumber, construction tools, windows, and anything else used in the building or rebuilding of property.
  2. “Consumer food item” means any article that is used or intended for use for food, drink, confection, or condiment by a person or animal.
  3. “Emergency supplies” includes, but is not limited to, water, flashlights, radios, batteries, candles, blankets, soap, diapers, temporary shelters, tape, toiletries, plywood, nails, and hammers.
  4. “Gasoline” means any fuel used to power any motor vehicle or power tool.
  5. “Goods” has the same meaning as defined in § 4-88-102(4).
  6. “Housing” means any rental housing and includes any housing provided by a hotel or motel.
  7. “Local emergency” means a natural or man-made disaster or emergency resulting from a tornado, earthquake, flood, fire, riot, or storm for which a local emergency has been declared by the executive officer or governing body of any city or county in Arkansas.
  8. “Medical supplies” includes, but is not limited to, prescription and nonprescription medications, bandages, gauze, isopropyl alcohol, and antibacterial products.
  9. “Person” means a natural person, individual, partnership, corporation, trust, estate, incorporated or unincorporated association, and any other legal or commercial entity however organized.
  10. “Repair or reconstruction services” means services performed by any person for repairs to residential or commercial property of any type that is damaged as a result of a disaster or terrorist attack.
  11. “Services” means any work, labor, or services including services furnished in connection with the sale or repair of goods or real property or improvements thereto.
    1. “State of emergency” means a natural or man-made disaster or emergency resulting from a tornado, earthquake, flood, fire, riot, storm, act of war, threat of war, military action, or the time of instability following a terrorist attack for which a state of emergency has been declared by the President of the United States or the Governor.
    2. “State of emergency” also includes the declaration of a red condition in the Homeland Security Advisory System by either the United States Department of Homeland Security or the Arkansas Department of Emergency Management.
  12. “Transportation, freight, and storage services” means any service that is performed by any person or company that contracts to move, store, or transport personal or business property or rents equipment for those purposes.

History. Acts 1997, No. 376, § 1; 2003, No. 1082, § 1; 2003, No. 1448, § 2.

A.C.R.C. Notes. Acts 2003, No. 1448, § 1 provided:

“Legislative intent. The General Assembly finds and declares that:

“(1) The threats of terrorist attacks and war are real and could impose horrific social and economic damage on Arkansas;

“(2) The threat of terrorist attacks and war can dismantle the stability of markets and free trade;

“(3) Pricing of consumer goods and services is generally best left to the marketplace under ordinary conditions, but when a terrorist attack, a threat of war, or an act of war results in abnormal disruptions of the market, the public interest requires that excessive and unjustified increases in the prices of consumer goods and services should be discouraged;

“(4) Protecting the public from price gouging is a vital function of state government in providing for the health, safety, and welfare of consumers; and

“(5)(A) The intent of the General Assembly is to protect citizens, during the time of instability and uncertainty that follows a terrorist attack, a threat of war, or during a time of war, from excessive and unjustified increases in the prices charged for goods and services that are vital or necessary for the consumer.

“(B) Further, it is the intent of the General Assembly that this act be liberally construed so that its beneficial purposes may be served.”

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

4-88-303. Prohibited unfair pricing practices.

    1. Upon the proclamation of a state of emergency resulting from a tornado, earthquake, flood, fire, riot, storm, or natural or man-made disaster declared by the President of the United States or the Governor and upon the declaration of a local emergency resulting from a tornado, earthquake, flood, fire, riot, storm, or natural or man-made disaster by the executive officer of any city or county and for a period of thirty (30) days following that declaration or during any period of time during which a red condition under the Homeland Security Advisory System has been declared by either the United States Department of Homeland Security or the Arkansas Department of Emergency Management, it is unlawful for any person, contractor, business, or other entity to sell or offer to sell any consumer food items or goods, goods or services used for emergency cleanup, emergency supplies, medical supplies, home heating oil, building materials, housing, transportation, freight, and storage services, or gasoline or other motor fuels for a price of more than ten percent (10%) above the price charged by that person for those goods or services immediately prior to the proclamation of emergency.
    2. However, a greater price increase shall not be unlawful if that person can prove that the increase in price was directly attributable to additional costs imposed on it by the supplier of the goods or directly attributable to additional costs for labor or materials used to provide the services, provided that in those situations where the increase in price is attributable to additional costs imposed by the seller's supplier or additional costs of providing the good or service during the state of emergency, the price represents no more than ten percent (10%) above the total of the cost to the seller plus the markup customarily applied by the seller for that good or service in the usual course of business immediately prior to the onset of the state of emergency.
    1. Upon the proclamation of a state of emergency resulting from a tornado, earthquake, flood, fire, riot, or storm declared by the President of the United States or the Governor, or upon the declaration of a local emergency resulting from a tornado, earthquake, flood, fire, riot, or storm by the executive officer of any city or county, and for a period of one hundred eighty (180) days following that declaration, it is unlawful for any contractor to sell or offer to sell any repair or reconstruction services or any services used in emergency cleanup for a price of more than ten percent (10%) above the price charged by that person for those services immediately prior to the proclamation of emergency.
    2. However, a greater price increase shall not be unlawful if that person can prove that the increase in price was directly attributable to additional costs imposed on it by the supplier of the goods or directly attributable to additional costs for labor or materials used to provide the services, provided that in those situations where the increase in price is attributable to the additional costs imposed by the contractor's supplier or additional costs of providing the service during the state of emergency, the price represents no more than ten percent (10%) above the total of the cost to the contractor plus the markup customarily applied by the contractor for that good or service in the usual course of business immediately prior to the onset of the state of emergency.
  1. The provisions of this section may be extended for additional thirty-day periods by a local governing body or the General Assembly if deemed necessary to protect the lives, property, or welfare of the citizens.
  2. Any business offering an item for sale at a reduced price immediately prior to the proclamation of the emergency may use the price at which it usually sells the item to calculate the price pursuant to subsection (a) or (b) of this section.

History. Acts 1997, No. 376, § 1; 2003, No. 1448, § 3.

A.C.R.C. Notes. Acts 2003, No. 1448, § 1 provided:

“Legislative intent. The General Assembly finds and declares that:

“(1) The threats of terrorist attacks and war are real and could impose horrific social and economic damage on Arkansas;

“(2) The threat of terrorist attacks and war can dismantle the stability of markets and free trade;

“(3) Pricing of consumer goods and services is generally best left to the marketplace under ordinary conditions, but when a terrorist attack, a threat of war, or an act of war results in abnormal disruptions of the market, the public interest requires that excessive and unjustified increases in the prices of consumer goods and services should be discouraged;

“(4) Protecting the public from price gouging is a vital function of state government in providing for the health, safety, and welfare of consumers; and

“(5)(A) The intent of the General Assembly is to protect citizens, during the time of instability and uncertainty that follows a terrorist attack, a threat of war, or during a time of war, from excessive and unjustified increases in the prices charged for goods and services that are vital or necessary for the consumer.

“(B) Further, it is the intent of the General Assembly that this act be liberally construed so that its beneficial purposes may be served.”

4-88-304. Penalties, remedies, and enforcement.

    1. When a person violates this subchapter or a rule prescribed under this subchapter, the violation shall constitute an unfair or deceptive act or practice as defined by this chapter.
    2. All remedies, penalties, and authority granted to the Attorney General under this chapter shall be available to the Attorney General for the enforcement of this subchapter.
  1. Any person who is found to have violated this subchapter shall be guilty of a Class A misdemeanor.
  2. The remedies and penalties provided by this section are cumulative to each other, the remedies under § 17-25-301 et seq., and the remedies or penalties available under all other laws of this state.

History. Acts 1997, No. 376, § 1; 2005, No. 1994, § 218; 2019, No. 315, § 130.

Amendments. The 2019 amendment substituted “rule” for “regulation” in (a)(1).

Cross References. Deceptive and unconscionable trade practices generally, § 4-88-107.

4-88-305. Preemption.

Nothing in this section shall preempt any local ordinance prohibiting the same or similar conduct or imposing a more severe penalty for the same conduct prohibited in this section.

History. Acts 1997, No. 376, § 1.

Subchapter 4 — “Slamming” in the Telecommunications Industry

4-88-401. Definitions.

As used in this subchapter:

  1. “Person” means any individual, group, unincorporated association, limited or general partnership, limited liability corporation, corporation, professional fund raiser, charitable organization, or other business entity;

(3) “Slamming” means submitting or executing a change in a subscriber's selection of a provider of telephone exchange service or telephone toll service except in accordance with the verification procedures as the Federal Communications Commission shall prescribe; and

(3) “Subscriber” means a telecommunications service provider's retail business customer or a retail residential customer.

History. Acts 1999, No. 1489, § 1.

4-88-402. Slamming.

No telecommunications service provider and no person acting on behalf of any telecommunications service provider shall engage in the practice of slamming as defined in § 4-88-401(2).

History. Acts 1999, No. 1489, § 1.

4-88-403. Penalties, remedies, and enforcement.

  1. When a person violates this subchapter or a rule prescribed under this subchapter, the violation shall constitute an unfair or deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    1. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this subchapter.
    2. The remedies and penalties provided by this section are cumulative to each other and the remedies or penalties available under all other laws of this state.

History. Acts 1999, No. 1489, § 1; 2019, No. 315, § 131.

Amendments. The 2019 amendment substituted “rule” for “regulation” in (a).

Subchapter 5 — Disclosures by Solicitors for Advertisements on School Calendars

Effective Dates. Acts 1999, No. 1284, § 7: Apr. 9, 1999. Emergency clause provided: “It is hereby found and determined by the Eighty-second General Assembly that Arkansas consumers must be provided with all relevant information necessary to make an informed decision concerning school calendar solicitations due to the prevalence of misleading solicitations that ultimately harm legitimate school fund raising efforts. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto.”

4-88-501. Definitions.

As used in this subchapter:

  1. “Person” shall have the same meaning as provided in § 4-88-102(5); and
  2. “School calendar” means a poster or other printed material that depicts a school mascot, emblem, or name in conjunction with an athletic event or schedule.

History. Acts 1999, No. 1284, § 1.

4-88-502. Violations.

  1. This subchapter shall not be construed to permit an activity otherwise prohibited by law.
    1. A person who solicits advertisements for school calendars shall disclose whether or not the school whose name, emblem, or mascot is used will receive any funds as a result of the solicitation and, if so, what percentage or amount of those funds the school will receive.
    2. If the school whose name, emblem, or mascot is used will not receive a percentage of any funds raised, the person making the solicitation must clearly and conspicuously disclose, both orally and in writing at the time the person makes the solicitation, that the school will not receive a percentage of any funds raised.
  2. Subsection (b) of this section shall not apply to a person who solicits advertisements for university calendars when the person has a written contract with the university.

History. Acts 1999, No. 1284, § 2; 2009, No. 645, § 1; 2011, No. 719, § 4.

Amendments. The 2009 amendment added (c).

The 2011 amendment substituted “This subchapter shall not” for “Nothing in this subchapter shall” in (a).

4-88-503. Penalty.

  1. A violation of this subchapter shall constitute a violation of § 4-88-101 et seq. pertaining to deceptive trade practices.
  2. All remedies, penalties, and authority granted to the Attorney General under § 4-88-101 et seq. shall be available to the Attorney General for the enforcement of this subchapter.

History. Acts 1999, No. 1284, § 3.

Case Notes

Deceptive Trade Practice.

Plaintiff's claims regarding violations of Telephonic Sellers Act and School Calendar Act were actionable under the Arkansas Deceptive Trade Practices Act, § 4-88-107, even though neither Act provided a private cause of action for consumers because a violation of either statute constituted a deceptive trade practice under the ADTPA pursuant to subsection (a) of this section and § 4-99-111(b), and any person who suffered actual damage as a result of such a practice had a cause of action under the ADTPA, § 4-88-113(f). M.S. Wholesale Plumbing, Inc. v. Univ. Sports Publs. Co., Inc., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 4159 (E.D. Ark. Jan. 7, 2008).

Subchapter 6 — Unsolicited Commercial and Sexually Explicit Electronic Mail Prevention Act

4-88-601. Title.

This subchapter may be referred to and cited as the “Unsolicited Commercial and Sexually Explicit Electronic Mail Prevention Act”.

History. Acts 2003, No. 1019, § 1.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

4-88-602. Definitions.

As used in this subchapter:

  1. “Commercial” means for the purpose of promoting the sale, lease, or exchange of goods, services, or real property;
  2. “Computer network” means a set of related remotely connected devices and communication facilities, including two (2) or more computers with the capability to transmit data through communication facilities;
  3. “Electronic mail” means an electronic message, a file, data, or other information that is transmitted:
    1. Between two (2) or more computers, computer networks, or electronic terminals; or
    2. Within or between computer networks;
  4. “Electronic mail address” means a destination commonly expressed as a string of characters to which electronic mail may be sent or delivered;
  5. “Electronic mail service provider” means a person who:
    1. Is an intermediary in the transmission of electronic mail from the sender to the recipient; or
    2. Provides to end users of electronic mail service the ability to send and receive electronic mail;
  6. “Harmful to minors” shall have the same meaning as set forth in § 5-68-501(2);
  7. “Interactive computer service” means an information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet, and also the systems operated or services offered by libraries or educational institutions;
  8. “Internet domain name” means a globally unique, hierarchical reference to an Internet host or service assigned through centralized Internet authorities and comprising a series of character strings separated by periods, with the right-most string specifying the top of the hierarchy;
  9. “Person” means any individual, corporation, partnership, association, limited liability company, any other form or business association, or any combination of them;
      1. “Preexisting business relationship” means that there was a business transaction or communication between the sender and the recipient of a commercial electronic mail message during the five-year period preceding the receipt of that message.
      2. A preexisting business relationship does not exist after a recipient requests to be removed from the distribution list of a sender.
    1. If a sender operates through separate lines of business or divisions and holds itself out to the recipient as that particular line of business or division rather than as the entity of which the line of business or division is a part, then the line of business or the division shall be treated as the sender for purposes of this section;
  10. “Sexually explicit electronic mail” means a commercial electronic mail that contains material that is harmful to minors or promotes an electronic link to material that is harmful to minors; and
  11. “Unsolicited” means without the recipient's express permission, except that commercial electronic mail is not unsolicited if the sender has a preexisting business or personal relationship with the recipient.

History. Acts 2003, No. 1019, § 1.

4-88-603. Unsolicited commercial or sexually explicit electronic mail — Requirements.

  1. Each person who sends or causes to be sent an unsolicited commercial electronic mail or an unsolicited sexually explicit electronic mail through the intermediary of an electronic mail service provider or to an electronic mail address held by a resident of the state shall:
    1. Conspicuously state in the electronic mail the sender's:
      1. Legal name;
      2. Correct street address; and
      3. Valid Internet domain name;
    2. For a sexually explicit electronic mail, include in the electronic mail a subject line that contains “adv:adult” as the first nine (9) characters;
    3. Provide the recipient a convenient, no-cost mechanism to notify the sender not to send any future electronic mail to the recipient, including:
      1. Return electronic mail to a valid, functioning return electronic address; and
      2. For a sexually explicit electronic mail and if the sender has a toll-free telephone number, the sender's toll-free telephone number; and
    4. Conspicuously provide in the text of the electronic mail a notice:
      1. That informs the recipient that the recipient may conveniently and at no cost be excluded from future commercial or sexually explicit electronic mail, as the case may be, from the sender; and
      2. For sexually explicit electronic mail, if the sender has a toll-free telephone number, that includes the sender's valid, toll-free telephone number that the recipient may call to be excluded from future electronic mail from the sender.
    1. A commercial electronic mail is not unsolicited if the sender has a preexisting business or personal relationship with the recipient.
    2. The sender of a commercial electronic mail of this nature must still include in the electronic mail message the required disclosures set forth in subdivisions (a)(3) and (4) of this section and shall remove the recipient from future mailings if requested.
  2. A person who sends or causes to be sent an unsolicited commercial electronic mail or an unsolicited sexually explicit electronic mail through the intermediary of an electronic mail service provider located in the state or to an electronic mail address held by a resident of the state may not:
    1. Use a third party's Internet domain name in identifying the point of origin or in stating the transmission path of the electronic mail without the third party's consent;
    2. Misrepresent any information in identifying the point of origin or the transmission path of the electronic mail; or
    3. Fail to include in the electronic mail the information necessary to identify the point of origin of the electronic mail.
    1. If the recipient of an unsolicited commercial electronic mail or an unsolicited sexually explicit electronic mail notifies the sender that the recipient does not want to receive future commercial electronic mail or future sexually explicit electronic mail from the sender, the sender may not send that recipient a commercial electronic mail or a sexually explicit electronic mail either directly or through a subsidiary or affiliate.
    2. If a recipient has requested to be removed from future mailings, the sender may recontact the recipient if a preexisting business relationship has been reestablished or if the recipient has expressly requested to receive future mailings from the sender.

History. Acts 2003, No. 1019, § 1.

4-88-604. Interactive computer service and electronic mail service provider authority.

  1. An interactive computer service or electronic mail service provider may block the receipt or transmission through its service of any bulk electronic mail that it reasonably believes is or will be sent in violation of this subchapter.
  2. An interactive computer service or electronic mail service provider is not:
    1. In violation of this section and the injured party shall not have a cause of action against an interactive computer service or mail service provider due to the fact that the interactive computer service or electronic mail service provider:
      1. Is an intermediary between the sender and recipient in the transmission of an electronic mail that violates this section; or
      2. Provides transmission of unsolicited commercial electronic mail messages over the provider's computer network or facilities; or
    2. Liable for any action it voluntarily takes in good faith to block the receipt or transmission through its service of any electronic mail advertisements that it believes is or will be sent in violation of this subchapter.
  3. An interactive computer service may disconnect or terminate the service of any person who is in violation of this subchapter.

History. Acts 2003, No. 1019, § 1.

4-88-605. Criminal penalty.

  1. A person who violates any requirement of § 4-88-603 with respect to an unsolicited sexually explicit electronic mail is guilty of a Class B misdemeanor.
  2. A person who is found guilty of, or pleads guilty or nolo contendere to, violations of § 4-88-603 is not relieved from civil liability in an action under § 4-88-606.

History. Acts 2003, No. 1019, § 1.

4-88-606. Civil action for violation — Election on damages — Costs and attorney's fees — Defense.

  1. For any violation of a provision of this subchapter, an action may be brought by:
    1. A person who received the unsolicited commercial electronic mail or unsolicited sexually explicit electronic mail that violates this subchapter; or
    2. An electronic mail service provider through whose facilities the unsolicited commercial electronic mail or unsolicited sexually explicit electronic mail was transmitted.
    1. In each action under subdivision (a)(1) of this section, a recipient or electronic mail service provider may elect, in lieu of actual damages, to recover the lesser of:
      1. Ten dollars ($10.00) per unsolicited commercial electronic mail or unsolicited sexually explicit electronic mail sent to a previously opted-out electronic mail address or transmitted through the electronic mail service provider or otherwise sent in violation of this subchapter; or
      2. Twenty-five thousand dollars ($25,000) per day the violation occurs.
    2. Each prevailing recipient or electronic mail service provider shall be awarded costs and reasonable attorney's fees.
  2. It is an affirmative defense to a violation of this subchapter if a person can demonstrate that the sender at the time of the alleged violation had:
    1. Maintained a list of consumers who have notified the person not to send any subsequent commercial electronic messages;
    2. Established and implemented with due care and reasonable practices and procedures to effectively prevent unsolicited commercial electronic mail messages in violation of this subchapter;
    3. Trained the sender's personnel in the requirements of this subchapter; and
    4. Maintained records demonstrating compliance with this subchapter.

History. Acts 2003, No. 1019, § 1.

RESEARCH REFERENCES

ALR.

Validity, construction, and application of federal and state statutes regulating unsolicited email or “spam”. 10 A.L.R.6th 1.

4-88-607. Enforcement of subchapter.

    1. Any transmission of unsolicited commercial or sexually explicit electronic mail in violation of this subchapter shall constitute an unfair and deceptive act or practice under § 4-88-107.
    2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., or this subchapter shall be available to the Attorney General for the enforcement of this subchapter.
  1. The prosecuting attorneys of the various districts and counties of this state shall also have full authority to enforce the provisions of this subchapter.
  2. Nothing in the provisions of this subchapter shall prohibit the bringing of a civil action against a violator of this subchapter by an individual harmed by a deceptive trade practice.

History. Acts 2003, No. 1019, § 1.

Subchapter 7 — Fair Gift Card Act

4-88-701. Short title.

This act shall be known and may be cited as the “Fair Gift Card Act”.

History. Acts 2007, No. 304, § 1.

4-88-702. Definitions.

As used in this subchapter:

  1. “Debit card” means any card issued by a financial institution to a consumer for use in initiating an electronic fund transfer from the account of the consumer at the financial institution for the purpose of transferring money between accounts or obtaining money, property, labor, or services;
  2. “Dormancy fee” or “inactivity charge or fee” means a fee, a charge, or a penalty for nonuse or inactivity of a gift certificate, a store gift card, or a prepaid general use card;
  3. “Financial institution” means a state or national bank, a state or federal savings and loan association, a mutual savings bank, a state or federal credit union, or any other person that, directly or indirectly, holds a transaction account belonging to a consumer;
    1. “General use prepaid card” means a card or other electronic payment device issued by a bank or financial institution that is:
      1. Usable at multiple, unaffiliated merchants or service providers or at automated teller machines;
      2. Issued in a requested amount whether or not that amount may be, at the option of the issuer, increased in value or reloaded if requested by the holder;
      3. Purchased or loaded on a prepaid basis; and
      4. Honored, upon presentation, by merchants for goods or services or at automated teller machines.
    2. “General use prepaid card” does not include:
      1. A debit card that is linked to a demand deposit account or a share draft account; and
      2. A written promise, plastic card, or other electronic device that is:
        1. Used solely for telephone services; or
        2. Associated with a demand deposit account, checking account, savings account, or similar account in the name of the individual at a bank or financial institution that provides payment solely by debiting the account;
    1. “Gift certificate” means a written promise that is:
      1. Usable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo;
      2. Issued in a specific amount and cannot be increased;
      3. Purchased on a prepaid basis in exchange for payment; and
      4. Honored upon presentation by the single merchant or affiliated group of merchants for goods or services.
    2. “Gift certificate” does not include a written promise, plastic card, or other electronic device that is:
      1. Used solely for telephone services; or
      2. Associated with a demand deposit account, checking account, savings account, or similar account in the name of the individual at a bank or financial institution that provides payment solely by debiting the account;
  4. “Service fee” means a periodic fee, a charge, or a penalty for holding or use of a gift certificate, a store card, or a prepaid general use card;
    1. “Store gift card” means a plastic card or other electronic payment device that is:
      1. Usable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo;
      2. Issued in a specified amount and may or may not be increased in value or reloaded;
      3. Purchased on a prepaid basis in exchange for payment; and
      4. Honored upon presentation by the single merchant or affiliated group of merchants for goods or services.
    2. “Store gift card” does not include a written promise, plastic card, or other electronic device that is:
      1. Used solely for telephone services; or
      2. Associated with a demand deposit account, checking account, savings account, or similar account in the name of the individual at a bank or financial institution that provides payment solely by debiting the account; and
    1. “Transaction account” means a deposit or an account on which the depositor or account holder is permitted to make withdrawals by negotiable or transferable instrument, a payment order of withdrawal, telephone transfer, or other similar method for the purpose of making payments or transfers to third persons or others.
    2. “Transaction account” includes demand deposits, negotiable order of withdrawal accounts, savings deposits subject to automatic transfers, and share draft accounts.

History. Acts 2007, No. 304, § 1.

4-88-703. Regulation of unfair and deceptive acts and practices in connection with gift cards.

  1. A person shall not sell or issue a gift certificate, a store gift card, or a general use prepaid card that is subject to an expiration date earlier than two (2) years from the date of issuance or sale of the gift certificate, store gift card, or general use prepaid card.
  2. A dormancy fee, an inactivity charge or fee, or a service fee shall not be charged on a gift certificate, a store gift card, or a general use prepaid card before two (2) years from the date of issuance or sale of the gift certificate, store gift card, or general use prepaid card.
  3. Upon the expiration of the two-year time period referenced in subsection (b) of this section, a gift certificate, a store gift card, or a general use prepaid card may be subject to expiration or a postsale fee, including a service fee, a dormancy fee, an account maintenance fee, a cash-out fee, a gift card replacement fee, an activation fee, or a reactivation fee if the following disclosures are printed clearly in a conspicuous place on the front or back of the gift certificate, the store gift card, or the general use prepaid card in at least 10-point type:
    1. The date on which the gift certificate, the store gift card, or the general use prepaid card expires; and
    2. With respect to a postsale fee:
      1. The amount of the fee;
      2. The circumstances under which the fee will be imposed;
      3. The frequency with which the fee will be imposed; and
      4. Whether the fee is triggered by inactivity.
  4. If the disclosures required by subsection (c) of this section are hidden by the packaging of the gift certificate, the store gift card, or the general use prepaid card, the seller or issuer shall give the purchaser a written statement of the disclosures before the gift certificate, the store gift card, or the general use prepaid card is sold or issued.
    1. If a gift certificate, a store gift card, or a general use prepaid card is sold or issued by electronic means, the seller or issuer shall include a conspicuous written statement of the information required by subsection (c) of this section in the electronic message offering the gift certificate, the store gift card, or the general use prepaid card.
    2. If a gift certificate, a store gift card, or a general use prepaid card is sold or issued by telephonic means, the seller or issuer shall state the information required by subsection (c) of this section to the purchaser.
  5. A term or condition disclosed under subsection (c) of this section shall not be changed after the date of purchase or issuance of the gift certificate, the store gift card, or the general use prepaid card unless the change benefits the holder of the gift certificate, the store gift card, or the general use prepaid card.

History. Acts 2007, No. 304, § 1.

4-88-704. Exclusions.

The prohibitions and requirements of this subchapter shall not apply to gift certificates, store gift cards, or general use prepaid cards that:

  1. Are distributed pursuant to an award, loyalty, or promotional program and for which there is no money or other value exchanged;
  2. Expire not later than thirty (30) days after the date they are sold and are sold below the face value of the gift certificate, the store gift card, or the general use prepaid card to an employer or to a nonprofit or charitable organization for fundraising purposes; or
  3. Are usable with multiple, unaffiliated sellers of goods or services and are issued by a financial institution under § 4-88-702(3).

History. Acts 2007, No. 304, § 1.

4-88-705. Enforcement.

A violation of the provisions of this subchapter shall constitute a deceptive and unconscionable trade practice as defined by § 4-88-101 et seq. and is subject to all the authority, remedies, and penalties granted under those sections.

History. Acts 2007, No. 304, § 1.

4-88-706. Rules.

  1. The State Bank Department shall promulgate rules pertaining to the regulation of state-chartered banks and the selling of gift cards.
  2. The department shall have authority of the sale of gift cards by state-chartered banks and promulgate rules based on guidance issued by the Comptroller of the Currency in the Office of the Comptroller of the Currency Bulletin 2006-34 on August 14, 2006.

History. Acts 2007, No. 304, § 1.

Subchapter 8 — Fair Disclosure of State Funded Payments for Pharmacists' Services Act

Effective Dates. Acts 2018 (2nd Ex. Sess.), No. 1, § 7: Mar. 15, 2018, §§ 1, 2, 3, and 5. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the unregulated behavior of pharmacy benefits managers is threatening the sustainability of pharmacies in Arkansas; that regulation of pharmacy benefits managers by the State Insurance Department will stabilize the pharmacy industry in this state; and that Section 1, 2, 3, and 5 of this act are immediately necessary to ensure that Arkansas residents have continued access to pharmacy services across the state. Therefore, an emergency is declared to exist, and Sections 1, 2, 3, and 5 of this act, being immediately necessary for the preservation of the public peace, health, and safety, shall become effective on: (1) The date of the act's approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

Acts 2018 (2nd Ex. Sess.), No. 3, § 7: Mar. 19, 2018, §§ 1, 2, 3, and 5. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the unregulated behavior of pharmacy benefits managers is threatening the sustainability of pharmacies in Arkansas; that regulation of pharmacy benefits managers by the State Insurance Department will stabilize the pharmacy industry in this state; and that Section 1, 2, 3, and 5 of this act are immediately necessary to ensure that Arkansas residents have continued access to pharmacy services across the state. Therefore, an emergency is declared to exist, and Sections 1, 2, 3, and 5 of this act, being immediately necessary for the preservation of the public peace, health, and safety, shall become effective on: (1) The date of the act's approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

4-88-801. Title.

This subchapter shall be known and may be cited as the “Fair Disclosure of State Funded Payments for Pharmacists' Services Act”.

History. Acts 2009, No. 769, § 1.

4-88-802. Definitions.

As used in this subchapter:

  1. “Pharmacy benefits manager” or “PBM” means an entity that administers or manages a pharmacy benefits plan or program;
  2. “Pharmacy benefits plan or program” means any plan or program that is funded by state dollars to furnish, cover the cost of, or otherwise provide for pharmacist services to individuals who reside or are employed in this state;
  3. “Pharmacist” means a licensed pharmacist as defined in § 17-92-101;
  4. “Pharmacist services” means products, goods, or services provided as a part of the practice of pharmacy as defined in § 17-92-101 to individuals who reside or are employed in this state; and
  5. “Pharmacy” means the same as defined in § 17-92-101.

History. Acts 2009, No. 769, § 1.

4-88-803. Required practices.

  1. A PBM, when seeking payment or reimbursement for pharmacist services provided in connection with a pharmacy benefits plan or program or reporting expenditures for pharmacist services provided in connection with a pharmacy benefits plan or program, shall itemize by individual claim:
    1. The amount actually paid or to be paid to the pharmacy or pharmacist for the pharmacist services;
    2. The identity of the pharmacy or pharmacist actually paid or to be paid; and
    3. The prescription number or other identifier of the pharmacist services.
  2. A PBM shall pay the amounts it receives for pharmacist services provided in connection with a pharmacy benefits plan or program to the pharmacies or pharmacists that provided the pharmacist services.
  3. This section does not:
    1. Require a PBM to set specific fees, rates, or schedules for payment for pharmacist services;
    2. Prohibit a PBM from charging for any services in addition to pharmacist services; or
    3. Require a PBM to pay a pharmacy or pharmacist more on any claim than the amount disclosed under subdivision (a)(1) of this section.
    1. Unless otherwise required more frequently by the Insurance Commissioner, a pharmacy benefits manager shall file an annual report with the commissioner providing the information required under subsection (a) of this section pursuant to the timing, format, and requirements issued by rule of the State Insurance Department.
    2. The annual report is:
      1. Considered proprietary and confidential under § 23-61-107(a)(4) and § 23-61-207; and
      2. Not subject to the Freedom of Information Act of 1967, § 25-19-101 et seq.
    3. This section is not subject to § 4-88-113(f)(1)(B).

History. Acts 2009, No. 769, § 1; 2018 (2nd Ex. Sess.), No. 1, § 2; 2018 (2nd Ex. Sess.), No. 3, § 2.

Amendments. The 2018 (2nd Ex. Sess.) amendment by identical acts Nos. 1 and 3 added (d).

4-88-804. Enforcement.

A violation of this subchapter is a deceptive and unconscionable trade practice under the Deceptive Trade Practices Act, § 4-88-101 et seq.

History. Acts 2009, No. 769, § 1.

Subchapter 9 — Unfair Practices Related to Residential Real Estate Repair Contracts

4-88-901. Applicability.

  1. This subchapter applies to a residential real estate repair contract under which a person has contracted with a residential contractor to provide goods or services to be paid from the proceeds of a property and casualty insurance policy.
  2. The rights and responsibilities contained in this subchapter are in addition to those under § 4-89-101 et seq. and § 17-25-501.

History. Acts 2013, No. 1360, § 1.

4-88-902. Definitions.

As used in this subchapter:

    1. “Emergency services” means services performed with the express permission of the insured and that are immediately necessary for:
      1. The preservation of the residential real estate; or
      2. The health of the insured, owner, or possessor.
    2. “Emergency services” does not include inspection of the residential real estate or an estimation of the repair costs;
  1. “Insured” means the person whose name appears on the face of the property and casualty insurance policy;
  2. “Residential contractor” means a person or entity in the business of contracting or offering to contract with an insured, owner, or possessor of residential real estate to repair or replace roof systems or perform other exterior repair, replacement, construction, or reconstruction work on residential real estate;
  3. “Residential real estate” means a new or existing dwelling constructed for habitation by one (1) to four (4) families, including a detached garage;
  4. “Residential real estate repair contract” means a written contract with an insured to repair residential real estate and provide goods and services to be paid under a property and casualty insurance policy; and
  5. “Roof system” means roof coverings, roof sheathing, roof weatherproofing, and insulation.

History. Acts 2013, No. 1360, § 1.

4-88-903. Notice of cancellation.

Before signing a residential real estate repair contract with an insured, a residential contractor shall furnish to the insured:

  1. The following statement in at least 10-point boldface type, the following:
  2. A fully completed form in duplicate, captioned “NOTICE OF CANCELLATION”, that is attached to the residential real estate repair contract for repairs to residential real estate, that is easily detachable, and contains the following in at least 10-point boldface type:

“You may cancel this residential real estate repair contract at any time within three (3) business days after you have received written notification from your insurer that all or any part of the claim or residential real estate repair contract is not a covered loss under the insurance policy. See attached notice of cancellation form for an explanation of this right.”; and

“NOTICE OF CANCELLATION

(Enter date of transaction)

If you are notified by your insurer that all or any part of the claim or residential real estate repair contract is not a covered loss under the insurance policy, you may cancel the residential real estate repair contract by mailing or delivering a signed and dated copy of this cancellation notice or another written notice to (name of residential contractor) at (address of residential contractor's place of business) at any time within three (3) business days after you have received such notice from your insurer. If you cancel, any payments made under the residential real estate repair contract except for certain emergency services already performed by the residential contractor will be returned to you within ten (10) business days following receipt by the residential contractor of your cancellation notice.

I CANCEL THIS TRANSACTION

_______________________

(DATE)

_______________________

(INSURED'S SIGNATURE).”

History. Acts 2013, No. 1360, § 1.

4-88-904. Commencement of work — Cancellation.

  1. A residential contractor in a residential real estate repair contract with an insured shall not commence work until the insured's right to cancel under subsection (b) of this section has expired.
  2. A person who has entered into a residential real estate repair contract with a residential contractor may cancel the residential real estate repair contract within three (3) business days after the insured has received written notice from the insurer in response to an insurance claim filed that all or any part of the claim or residential real estate repair contract is not a covered loss under the insurance policy.
    1. The insured cancels the residential real estate repair contract by giving written notice of cancellation to the residential contractor in person or by mailing it to the address stated in the residential real estate repair contract.
    2. If the notice of cancellation is given by mail, it is effective upon deposit of the notice in the United States mail, postage prepaid, and properly addressed to the residential contractor.
    3. The notice of cancellation is not required to be in a particular form and is sufficient if it expresses in writing an intention of the insured not to be bound by the residential real estate repair contract.
    1. Within ten (10) days after cancellation of a residential real estate repair contract, the residential contractor shall tender to the insured any payments, partial payments, or deposits made and any note or other evidence of indebtedness.
    2. If the residential contractor has performed any emergency services, the residential contractor is entitled to the reasonable value of such emergency services.
  3. Any provision in a residential real estate repair contract that requires the payment of a fee for anything except emergency services is not enforceable against the insured that has cancelled a residential real estate repair contract under this section.

History. Acts 2013, No. 1360, § 1.

4-88-905. Violations.

  1. A violation of this subchapter by a residential contractor is an unfair and deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
  2. This subchapter does not prohibit an insured that is harmed by a deceptive trade practice from commencing a civil action against a residential contractor.

History. Acts 2013, No. 1360, § 1.

Subchapter 10 — Patient Rights Regarding Payment for Pharmacists Services Act

4-88-1001. Title.

This subchapter shall be known and may be cited as the “Patient Rights Regarding Payment for Pharmacists Services Act”.

History. Acts 2015, No. 1025, § 1.

4-88-1002. Definitions.

As used in this subchapter:

  1. “Pharmacist” means a licensed pharmacist as defined in § 17-92-101;
  2. “Pharmacists services” means products, goods, or services provided as a part of the practice of pharmacy as defined in § 17-92-101, to individuals who reside or are employed in this state;
  3. “Pharmacy” means the same as defined in § 17-92-101;
  4. “Pharmacy benefits manager” means an entity that administers or manages a pharmacy benefits plan or program;
  5. “Pharmacy benefits plan or program” means any plan or program that pays for, reimburses, covers the cost of, or otherwise provides for pharmacists services to individuals who reside or are employed in this state;
  6. “Provider choice” means an individual's choice of provider network, individual pharmacy or pharmacist, or method of delivery under a pharmacy benefits plan or program; and
  7. “Provider network” means a network of pharmacists or pharmacies that are authorized by a pharmacy benefits plan or program to provide pharmacists services.

History. Acts 2015, No. 1025, § 1.

4-88-1003. Change in choice of provider without express consent — Prohibited.

  1. When an individual's consent to altering or changing provider choice is required, the individual's express consent to effect such change within the pharmacy benefits plan or program provider network shall be obtained.
  2. An alteration or change in provider choice that is subject to an individual's later opting out of the alteration or change does not satisfy subsection (a) of this section.

History. Acts 2015, No. 1025, § 1.

4-88-1004. Limitation — Patient payment.

An individual shall not be required to make a payment for pharmacists services in an amount greater than the pharmacist or pharmacy providing the pharmacists services may retain from all payment sources.

History. Acts 2015, No. 1025, § 1.

4-88-1005. Enforcement.

The Insurance Commissioner shall:

  1. Enforce this subchapter using powers granted to the commissioner in the Arkansas Insurance Code; and
  2. Be entitled to seek an injunction against a pharmacy benefits manager in a court of competent jurisdiction.

History. Acts 2015, No. 1025, § 1.

Publisher's Notes. The Arkansas Insurance Code, referred to in this section, was originally enacted by Acts 1959, No. 148. Acts 1959, No. 148 is codified as set out in the note following § 23-60-101.

Chapter 89 Home Solicitation Sales

Research References

U. Ark. Little Rock L.J.

Legislative Survey, Business Law, 4 U. Ark. Little Rock L.J. 579 (1981).

4-89-101. Purpose.

The purpose of this chapter is to promote the public welfare by regulating home solicitation sales so that the consumer shall not become a victim of deceptive sales practices.

History. Acts 1973, No. 462, § 1; A.S.A. 1947, § 70-914.

4-89-102. Definitions.

As used in this chapter, unless the context otherwise requires:

  1. “Appropriate trade premises” means premises at which either the owner or seller normally carries on a business or where goods are normally offered or exposed for sale in the course of business carried on at those premises;
  2. “Deceptive trade practices” means the following acts of a seller in connection with any home solicitation sale, and the following acts constitute a violation of this chapter:
    1. Failure to comply with any requirement of §§ 4-89-107 and 4-89-109; or
    2. Misrepresenting in any manner the consumer's right to cancel; or
    3. Representing directly or indirectly that the seller is primarily conducting or participating in any survey, quiz, or contest or is primarily engaged in any activity other than soliciting business or misrepresenting in any manner the purpose of the call or solicitation; or
    4. Representing directly or indirectly that any offer to sell goods or services is being made only to specially selected persons or misrepresenting in any manner the persons or class of persons afforded the opportunity of purchasing the seller's goods or services; or
    5. Representing directly or indirectly that any sale or service is being offered for any organization, individual, or firm other than the one engaged in soliciting business or misrepresenting in any manner the identity of the solicitor or his or her firm and of the business in which he or she is engaged; or
    6. Representing directly or indirectly that any merchandise or service is free or is provided as a gift or without cost or charge in connection with the purchase of goods or services, unless the price of the goods or services required to be purchased in order to obtain the free merchandise or gift is disclosed; or
    7. Representing directly or indirectly that any price is a special or reduced price, unless it constitutes a significant reduction from the seller's established selling price at which the goods or services have been sold in substantial quantities in the recent and regular course of trade or misrepresenting in any manner the savings which the consumer will receive; or
    8. Failing to disclose clearly and unqualifiedly at the initial contact or solicitation and at all subsequent contacts or solicitations, whether by telephone, written communication, or person-to-person, that the purpose of the contact or solicitation is to sell goods or services; or
    9. Failing to disclose clearly and conspicuously, both orally and in writing in the contract:
      1. The total cash price;
      2. The down payment;
      3. The unpaid balance of the cash price;
      4. The number, amount, and due dates of payments necessary to pay the unpaid balance in full; and
      5. An accurate description of the goods or services purchased;
  3. “Goods” means tangible chattels bought for use primarily for personal, family, or household purposes, including certificates or coupons exchangeable for such goods, and including goods which, at the time of the sale or subsequently, are to be so affixed to real property as to become a part of such real property whether or not severable therefrom;
    1. “Home solicitation sale” means a cash sale or a consumer credit sale of goods, other than insurance, or services in which the seller or a person acting for him or her engages in a personal solicitation of the sale at other than appropriate trade premises in an amount more than twenty-five dollars ($25.00).
    2. This definition also includes all telephone sales in which the seller has initiated contact, regardless of his or her location, and the consumer's agreement to purchase is made at the consumer's home.
    3. It does not include a sale made pursuant to prior negotiations between the parties at a business establishment, at a fixed location, where goods or services are offered or exhibited for sale, or a sale in which the buyer has initiated the contact and specifically requested the seller to visit his or her home for the purpose of repairing or performing maintenance upon the buyer's personal property. If, in the course of such a visit, the seller sells the buyer the right to receive additional services or goods other than replacement parts necessarily used in performing the maintenance or in making the repairs, the sale of those additional goods or services would not fall within this exclusion.
    4. The term “home solicitation sale” does not include a transaction involving an order for goods to be delivered at one (1) time if:
      1. The order is evidenced only by a sales ticket or invoice which the buyer is not required to sign;
      2. The buyer makes no payment prior to delivery of the goods;
      3. The goods are not delivered within three (3) business days of the date of the order;
      4. The buyer may refuse to accept the goods when they are delivered without incurring any obligation to pay for them or the expenses associated with the transaction, including mailing or shipping charges, or the buyer may, upon inspecting the goods after delivery, return them within three (3) business days to the seller and receive a full refund for any amounts the buyer has paid, including mailing and shipping charges; and
      5. The buyer's right to cancel the order, refuse delivery, or return the goods without obligation or charge is clearly and unmistakably set forth on the face or reverse side of the sales ticket or invoice;
  4. “Seller” means any person, partnership, corporation, or association engaged in the door-to-door or telephone sale of consumer goods or services; and
  5. “Services” means work, labor, or other services furnished primarily for personal, family, or household purposes, including, but not limited to, services in connection with the repair, alteration, or improvement of residential premises, courses of instruction or training regardless of the purpose for which they are taken, and services furnished in connection with the sale or repair of goods, but does not include the services of attorneys, real estate brokers and salesmen, securities dealers or investment counselors, physicians, optometrists, or dentists.

History. Acts 1973, No. 462, §§ 2, 7; 1981, No. 341, §§ 1-3, 5; A.S.A. 1947, §§ 70-915, 70-920; Acts 1995, No. 447, § 1.

4-89-103. Contracts excepted from chapter.

The provisions of this chapter shall not apply to a contract which is executed in connection with the making of emergency repairs or services which are necessary for the immediate protection of persons or real or personal property, or to sales made by a seller who makes seventy-five percent (75%) or more of its sales at its local appropriate trade premises, or to sales made pursuant to credit arrangements existing at the time of the sale.

History. Acts 1973, No. 462, § 8; A.S.A. 1947, § 70-921.

4-89-104. Penalties.

Any person, firm, partnership, corporation, or other entity that knowingly and willfully commits a deceptive trade practice as defined in § 4-89-102(2) shall be guilty of a Class A misdemeanor.

History. Acts 1973, No. 462, § 11; A.S.A. 1947, § 70-924; Acts 2005, No. 1994, § 343.

4-89-105. Damages.

For a violation which is subject to the provisions of this chapter, the consumer shall recover from the persons violating this chapter an amount equal to:

  1. Ten percent (10%) of the transaction total or one hundred dollars ($100), whichever is greater; and
  2. The actual damages, including any incidental, consequential, and special damages sustained by the consumer as a result of the violation.

History. Acts 1973, No. 462, § 9; A.S.A. 1947, § 70-922.

4-89-106. Enforcement of chapter.

    1. Any home solicitation sale conducted in violation of this chapter shall constitute an unfair and deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this chapter.
  1. The prosecuting attorneys of the various districts and counties of this state shall also have full authority to enforce the provisions of this chapter.
  2. Nothing in the provisions of this chapter shall prohibit the bringing of a civil action against a violator of this chapter by an individual harmed by a deceptive trade practice.

History. Acts 1973, No. 462, § 10; A.S.A. 1947, § 70-923; Acts 1995, No. 447, § 2.

4-89-107. Buyer's right to cancel offer or contract.

  1. In addition to any other right to revoke an offer, the buyer has the absolute right to cancel a home solicitation contract or offer until midnight of the third calendar day, excluding Sundays and holidays as declared in § 1-5-101, after the day on which the buyer signs an agreement.
  2. Cancellation occurs when the buyer returns to the seller the notice of cancellation, the notice having been provided for the buyer by the seller. To further protect the consumer, it is suggested that the notice of cancellation be sent by registered mail.

History. Acts 1973, No. 462, § 3; A.S.A. 1947, § 70-916.

4-89-108. Requirements for enforceable sale — Notice of right to cancellation required.

  1. A home solicitation sale is not enforceable by way of action or defense unless there is a writing which:
    1. Is sufficient to indicate that a contract for sale has been made between the parties;
    2. Is signed by both the consumer and the seller;
    3. Contains no provision not included in the oral sales presentation;
    4. Contains the name and address of the seller; and
    5. Contains the date on which the consumer actually signs the writing.
  2. A home solicitation sale is not enforceable by way of action if:
    1. The seller does not provide the consumer with a fully completed copy of the writing at the time the consumer actually signs the writing; or
    2. The seller commits a deceptive trade practice as defined by this chapter.
  3. In a home solicitation sale, the seller must furnish to the buyer at the time he or she signs the sales contract or otherwise agrees to buy consumer goods or services from the seller a completed form in duplicate, captioned “NOTICE OF CANCELLATION”, which shall be attached to the contract or receipt and easily detachable and which shall contain in 10-point bold face type the following information and statements:
  4. If seller fails to give both oral and written notice of the buyer's right to cancellation, the cooling-off period does not begin to run until actual notice is given, and the buyer is no longer obliged to return the goods in substantially the same condition.

“NOTICE OF CANCELLATION (Enter date of transaction) You are entitled to cancel the agreement or offer referred to above at any time prior to midnight of the third day, excluding Sundays and holidays, after the day you signed the agreement or offer. In the event you cancel, the seller must return to you (1) any payments made; (2) any goods or other property (or a sum equal to the amount of the trade-in allowance given therefor); and (3) any note or other evidence of indebtedness, given by you to the seller pursuant to or in connection with the agreement or offer. After cancellation, the seller is entitled to receive back from you at your address any goods previously delivered by him or her to you in substantially the same condition as delivered, providing he or she has returned any payments and goods or other property received from you, to the extent indicated above. If the seller does not call for his or her goods at your address within twenty (20) days after you give notice of cancellation, you may keep them as your own. TO CANCEL THIS TRANSACTION, MAIL OR DELIVER A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE OR ANY OTHER WRITTEN NOTICE TO (Name of seller) AT (Address of seller's place of business) NOT LATER THAN MIDNIGHT OF (Date) I HEREBY CANCEL THIS TRANSACTION (Date) (Buyer's signature).”

Click to view form.

History. Acts 1973, No. 462, § 4; 1981, No. 341, § 4; 1985, No. 556, § 1; A.S.A. 1947, § 70-917.

4-89-109. Return of payments and goods by seller.

  1. Within ten (10) days after a home solicitation contract or offer has been cancelled, the seller must tender to the buyer any payments made by the buyer and any note or other evidence of indebtedness.
  2. If the down payment includes goods traded in, the goods must be tendered in substantially as good condition as when received. If the seller fails to tender the goods as provided by this section, the buyer may elect to recover an amount equal to the trade-in allowance stated in the agreement.
  3. Until the seller has complied with the obligations imposed by this section, the buyer may retain possession of goods delivered to him or her by the seller and has a lien on the goods for any recovery to which he or she is entitled.

History. Acts 1973, No. 462, § 5; A.S.A. 1947, § 70-918.

4-89-110. Return of goods by buyer — Buyer's duty.

    1. Within twenty (20) days after a home solicitation contract or offer has been cancelled, the buyer, upon demand, must tender to the seller any goods delivered by the seller pursuant to the sale or offer, but he or she is not obligated to tender at any place other than his or her own address.
    2. If the seller fails to demand possession of goods within twenty (20) days after cancellation, the goods become the property of the buyer without obligation to pay for them.
    1. The buyer has a duty to take reasonable care of the goods in his or her possession both prior to cancellation and during the twenty-day period following.
    2. During the twenty-day period after cancellation, except for the buyer's duty of care, the goods are at the seller's risk.

History. Acts 1973, No. 462, § 6; A.S.A. 1947, § 70-919.

Chapter 90 Automobiles

Subchapter 1 — General Provisions

[Reserved]

Subchapter 2 — Odometer Regulations

Publisher's Notes. Former subchapter 2, concerning odometer regulations, was repealed by Acts 1995, No. 795, § 11. The former subchapter was derived from the following sources:

4-90-201. Acts 1975, No. 527, § 1; A.S.A. 1947, § 75-2401.

4-90-202. Acts 1975, No. 527, § 4; A.S.A. 1947, § 75-2404; Acts 1993, No. 1047, § 1.

4-90-203. Acts 1975, No. 527, § 4; A.S.A. 1947, § 75-2404.

4-90-204. Acts 1975, No. 527, § 2; A.S.A. 1947, § 75-2402.

4-90-205. Acts 1975, No. 527, § 2; A.S.A. 1947, § 75-2402.

4-90-206. Acts 1975, No. 527, § 3; A.S.A. 1947, § 75-2403; Acts 1989, No. 415, § 1.

Effective Dates. Acts 2019, No. 910, § 6346(b): July 1, 2019. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that this act revises the duties of certain state entities; that this act establishes new departments of the state; that these revisions impact the expenses and operations of state government; and that the sections of this act other than the two uncodified sections of this act preceding the emergency clause titled ‘Funding and classification of cabinet-level department secretaries’ and ‘Transformation and Efficiencies Act transition team’ should become effective at the beginning of the fiscal year to allow for implementation of the new provisions at the beginning of the fiscal year. Therefore, an emergency is declared to exist, and Sections 1 through 6343 of this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2019”.

Research References

Am. Jur. 17 Am. Jur. 2d, Cons. & Bor. Pro., § 364 et seq.

8 Am. Jur. 2d, Auto., §§ 220, 221.

17 Am. Jur. 2d, Con. & Borr. Prot., § 299.

C.J.S. 37 C.J.S., Fraud, § 9 et seq.

37 C.J.S., Fraud, §§ 12, 91.

U. Ark. Little Rock L.J.

Survey — Criminal Law, 12 U. Ark. Little Rock L.J. 183.

Case Notes

In General.

The federal act regulating odometers, codified as 15 U.S.C. § 1981 et seq., is very similar to this subchapter. Boren v. State, 297 Ark. 220, 761 S.W.2d 885 (1988) (decision under prior law).

4-90-201. Legislative intent and purpose.

The General Assembly recognizes that a motor vehicle is a major consumer acquisition and that buyers of motor vehicles rely heavily on the odometer reading as an index of the condition and value of a vehicle. The General Assembly further recognizes that buyers are entitled to rely on the odometer reading as an accurate indication of the mileage of the motor vehicle and that an accurate indication of the mileage assists a buyer in deciding on the safety and reliability of the vehicle. The purposes of this subchapter are to prohibit tampering with motor vehicle odometers and to provide safeguards to protect purchasers in the sale of motor vehicles with altered or reset odometers. It is the intent of the General Assembly that this subchapter incorporate certain provisions of newly codified federal law to supplement existing Arkansas law. To that end, any state rule or federal rule or regulation in effect under a law replaced by this subchapter continues in effect under the corresponding provision enacted by this subchapter until repealed, amended, or superseded. In addition, where no substantive change in law has occurred, an action taken or an offense committed under a law replaced by a section of this subchapter is deemed to have been taken or committed under the corresponding provision enacted by this subchapter.

History. Acts 1995, No. 795, § 1; 2019, No. 315, § 132.

Amendments. The 2019 amendment substituted “any state rule or federal rule or regulation” for “any rule or regulation” in the fifth sentence.

Case Notes

Cited: Colding v. Williams, 53 Ark. App. 173, 920 S.W.2d 507 (1996).

4-90-202. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Auction company” means a person taking possession of a motor vehicle owned by another to sell at an auction;
  2. “Dealer” means a person that sold at least five (5) motor vehicles during the prior twelve (12) months to buyers that in good faith bought the vehicles other than for resale;
  3. “Distributor” means a person that sold at least five (5) motor vehicles during the prior twelve (12) months for resale;
  4. “Leased motor vehicle” means a motor vehicle leased to a person for at least four (4) months by a lessor that leased at least five (5) vehicles during the prior twelve (12) months;
  5. “Motor vehicle” means any self-propelled vehicle not operated exclusively upon railroad tracks, except snowmobiles and other devices designed and used primarily for the transportation of persons over natural terrain, snow, or ice and propelled by wheels, skis, tracks, runners, or whatever other means;
  6. “Odometer” means an instrument for measuring and recording the distance a motor vehicle is driven, but does not include an auxiliary instrument designed to be reset by the operator of the vehicle to record the mileage of a trip;
  7. “Person” means an individual, firm, partnership, incorporated and unincorporated association, or any other legal or commercial entity;
  8. “Repair” and “replace” mean to restore to a sound working condition by replacing any part of an odometer or by correcting any inoperative part of an odometer;
  9. “Title” means the certificate of title or other document issued by this state or another state and indicating ownership, and includes a manufacturer's statement or certificate of origin; and
  10. “Transfer” means to change ownership by sale, gift, or other means.

History. Acts 1995, No. 795, § 2.

4-90-203. Penalties and enforcement.

      1. When a person violates this subchapter or a rule prescribed under this subchapter, the violation shall constitute an unfair or deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
      2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this subchapter, including, but not limited to, an action to:
        1. Enjoin the violation; and
        2. Recover:
          1. Amounts for which the person is liable under § 4-90-207(a) to each private person; and
          2. Costs, investigative costs, and reasonable attorney's fees.
      1. An action under this subsection may be brought in an appropriate court of competent jurisdiction in the county in which the person resides or transacts business or in the judicial district in which the state capital is located.
      2. The action must be brought not later than five (5) years after the claim accrues.
    1. Any person who is found to have violated this subchapter shall be guilty of a felony and imprisoned for not more than three (3) years and subject to a fine of not more than fifty thousand dollars ($50,000) for each violation.
    2. If the person is a corporation, the penalties of this subsection also apply to a director, officer, or individual agent of a corporation who knowingly and willfully authorizes, orders, or performs an act in violation of this subchapter or a rule prescribed or order issued under this subchapter, without regard to penalties imposed on the corporation.

History. Acts 1995, No. 795, § 6; 2019, No. 315, §§ 133, 134.

Amendments. The 2019 amendment substituted “rule” for “regulation” in (a)(1)(A) and (b)(2).

Case Notes

Attorney's Fees.

The amount of attorney's fees awarded lies within the broad discretion of the trial court; the trial judge is in a superior position to determine a reasonable attorney's fee because of his acquaintance with the record and the quality of services rendered. Caldwell v. Jenkins, 42 Ark. App. 157, 856 S.W.2d 37 (1993).

While there is no fixed formula to be used in setting a reasonable fee, the Supreme Court has adopted the list of factors to be considered set out in the American Bar Association's Code of Professional Responsibility; the factors include the time and labor required and the results obtained. Caldwell v. Jenkins, 42 Ark. App. 157, 856 S.W.2d 37 (1993).

Award Upheld.

There were no genuine issues of material fact remaining where there was a violation of the Arkansas Odometer Fraud Act by failing to have the odometer read the correct mileage or by adjusting it to zero to put buyers on notice; a violation of the Odometer Fraud Act constituted an unfair or deceptive trade practice. The damages for economic loss, treble damages, and attorney’s fees were upheld under the Odometer Fraud Act and the Arkansas Deceptive Trade Practices Act. Ukegbu v. Daniels, 2014 Ark. App. 422, 438 S.W.3d 284 (2014).

Damages.

Plaintiff awarded $5,000, the difference in value between the vehicle as warranted, with approximately 9,000 miles, and the vehicle with its actual mileage of 109,000. Colding v. Williams, 53 Ark. App. 173, 920 S.W.2d 507 (1996).

4-90-204. Preventing tampering.

A person may not:

  1. Advertise for sale, sell, use, install, or have installed, a device that makes an odometer of a motor vehicle register a mileage different from the mileage the vehicle was driven, as registered by the odometer within the designed tolerance of the manufacturer of the odometer;
  2. Disconnect, reset, alter, or have disconnected, reset, or altered, an odometer of a motor vehicle intending to change the mileage registered by the odometer;
  3. With the intent to defraud, operate a motor vehicle on a public street, road, or highway, if the person knows that the odometer of the vehicle is disconnected or not operating; or
  4. Conspire to violate any provision of this subchapter.

History. Acts 1995, No. 795, § 3.

Research References

ALR.

Validity, Construction and Application of State Laws Concerning, Relating to, or Encompassing Disclosure of and Tampering with Motor Vehicle Odometer — Validity of Statutory Provisions, Construction of Statute and Particular Terms, and Remedies. 66 A.L.R.6th 351.

Validity, Construction, and Application of State Laws Concerning, Relating to, or Encompassing Disclosure of and Tampering with Motor Vehicle Odometer — Statutes of Limitation, Parties to Action, Evidentiary Matters, and Particular Violations of Statute. 67 A.L.R.6th 209.

Case Notes

Knowledge.

Whether a person has sold a motor vehicle with knowledge that the mileage registered on the odometer has been altered is a question of fact. Caldwell v. Jenkins, 42 Ark. App. 157, 856 S.W.2d 37 (1993).

Violation.

There were no genuine issues of material fact remaining where there was a violation of the Arkansas Odometer Fraud Act by failing to have the odometer read the correct mileage or by adjusting it to zero to put buyers on notice; a violation of the Odometer Fraud Act constituted an unfair or deceptive trade practice. The damages for economic loss, treble damages, and attorney’s fees were upheld under the Odometer Fraud Act and the Arkansas Deceptive Trade Practices Act. Ukegbu v. Daniels, 2014 Ark. App. 422, 438 S.W.3d 284 (2014).

4-90-205. Service, repair, and replacement.

    1. A person may service, repair, or replace an odometer of a motor vehicle if the mileage registered by the odometer remains the same as before the service, repair, or replacement.
    2. If the mileage cannot remain the same:
      1. The person shall adjust the odometer to zero; and
      2. The owner of the vehicle or agent of the owner shall attach a written notice to the left door frame of the vehicle specifying the mileage before the service, repair, or replacement and the date of the service, repair, or replacement.
  1. A person may not, with the intent to defraud, remove or alter a notice attached to a motor vehicle as required by this section.

History. Acts 1995, No. 795, § 4.

Case Notes

Violation.

There were no genuine issues of material fact remaining where there was a violation of the Arkansas Odometer Fraud Act by failing to have the odometer read the correct mileage or by adjusting it to zero to put buyers on notice; a violation of the Odometer Fraud Act constituted an unfair or deceptive trade practice. The damages for economic loss, treble damages, and attorney’s fees were upheld under the Odometer Fraud Act and the Arkansas Deceptive Trade Practices Act. Ukegbu v. Daniels, 2014 Ark. App. 422, 438 S.W.3d 284 (2014).

4-90-206. Disclosure requirements on transfer of a motor vehicle.

    1. A person transferring his or her ownership of a motor vehicle shall give the transferee a written disclosure:
      1. Of the cumulative mileage registered by the odometer; or
      2. That the mileage is not actual, if the transferor knows that the mileage registered by the odometer is incorrect.
    2. A person making a written disclosure required by a rule prescribed under subdivision (a)(1) of this section may not make a false statement in the disclosure.
    3. A person acquiring a motor vehicle for resale may accept a disclosure under this section only if it is complete.
    4. The Secretary of the Department of Finance and Administration shall adopt, pursuant to the Arkansas Administrative Procedure Act, § 25-15-201 et seq., rules not inconsistent with this subchapter or Title 49, Chapter 327 of the United States Code, or any rules promulgated thereunder prescribing the manner in which the written disclosure shall be made.
    1. A motor vehicle, the ownership of which is transferred, may not be licensed for use in this state unless the transferee, in submitting an application for the title on which the license will be issued, includes with the application the transferor's title and, if that title contains the appropriate space, the transferor's disclosure of the mileage at the time of transfer, and the signature and the date of the disclosure.
      1. If the title to a motor vehicle issued to a transferor is in the possession of a lienholder when the transferor transfers ownership of the vehicle, the transferor may use a written power of attorney in making the mileage disclosure required under subsection (a) of this section.
      2. The secretary shall adopt, pursuant to the Arkansas Administrative Procedure Act, § 25-15-201 et seq., rules not inconsistent with this subchapter or Title 49, Chapter 327 of the United States Code, or any rules promulgated thereunder prescribing the form of the power of attorney.
      3. The provisions of § 4-90-203 and § 4-90-207(a) apply to a person granting or granted a power of attorney under this subdivision (b)(2).
    1. For a leased motor vehicle, the lessee shall provide the written disclosure required by subsection (a) of this section to the lessor when the lessor transfers ownership of that vehicle.
    2. The lessor shall provide written notice to the lessee of:
      1. The mileage disclosure requirements of subsection (a) of this section; and
      2. The penalties for failure to comply with those requirements.
    3. The lessor shall retain the disclosures made by a lessee under subdivision (c)(1) of this section for at least four (4) years following the date the lessor transfers the leased motor vehicle.
    4. If the lessor transfers ownership of a leased motor vehicle without obtaining possession of the vehicle, the lessor, in making the disclosure required by subsection (a) of this section, may indicate on the title the mileage disclosed by the lessee under subdivision (c)(1) of this section, unless the lessor has reason to believe that the disclosure by the lessee does not reflect the actual mileage of the vehicle.
  1. If a motor vehicle is sold at an auction, the auction company conducting the auction shall maintain the following records for at least four (4) years after the date of the sale:
    1. The name and address of the most recent owner of the motor vehicle, except the auction company;
    2. The name and address of the buyer of the motor vehicle;
    3. The vehicle identification number of the motor vehicle; and
    4. The odometer reading on the date the auction company took possession of the motor vehicle.

History. Acts 1995, No. 795, § 5; 1997, No. 809, § 5; 2019, No. 315, § 135; 2019, No. 910, §§ 3356, 3357.

Amendments. The 2019 amendment by No. 315 substituted “rule” for “regulation” in (a)(2).

The 2019 amendment by No. 910 substituted “Secretary of the Department of Finance and Administration” for “Director of the Department of Finance and Administration” in (a)(4); and substituted “The secretary” for “The director” in (b)(2)(B).

U.S. Code. Title 49, Chapter 327 of the United States Code, referred to in this section, is 49 U.S.C. § 32701 et seq.

Research References

ALR.

Validity, Construction and Application of State Laws Concerning, Relating to, or Encompassing Disclosure of and Tampering with Motor Vehicle Odometer — Validity of Statutory Provisions, Construction of Statute and Particular Terms, and Remedies. 66 A.L.R.6th 351.

Validity, Construction, and Application of State Laws Concerning, Relating to, or Encompassing Disclosure of and Tampering with Motor Vehicle Odometer — Statutes of Limitation, Parties to Action, Evidentiary Matters, and Particular Violations of Statute. 67 A.L.R.6th 209.

Case Notes

Knowledge.

Liability of car seller under subsection (a) of a prior similar provision did not depend upon her actual knowledge. Hinson v. Eaton, 322 Ark. 331, 908 S.W.2d 646 (1995).

Violation Shown.

Seller's failure to disclose actual mileage held to be intentional misrepresentation rather than negligence. Colding v. Williams, 53 Ark. App. 173, 920 S.W.2d 507 (1996).

4-90-207. Civil actions by private persons.

    1. A person who violates this subchapter or a rule prescribed under this subchapter with intent to defraud is liable for three (3) times the actual damages or one thousand five hundred dollars ($1,500), whichever is greater.
      1. A person may bring a civil action to enforce a claim under this subsection in an appropriate court of competent jurisdiction.
      2. The action must be brought not later than five (5) years after the claim accrues.
      3. The court shall award costs and a reasonable attorney's fee to the person when a judgment is entered for that person.
  1. Nothing in this subchapter, however, shall in any way limit any other statutory or common law rights, causes of actions, or remedies which are otherwise available to a person, including, but not limited to, actions for:
    1. Breach of warranty;
    2. Fraud;
    3. Negligent misrepresentation;
    4. Intentional misrepresentation;
    5. Deceptive trade practices actions;
    6. Rescission; or
    7. Revocation of acceptance.

History. Acts 1995, No. 795, §§ 7, 8; 2019, No. 315, § 136.

Amendments. The 2019 amendment substituted “rule” for “regulation” in (a)(1).

Case Notes

Award Upheld.

There were no genuine issues of material fact remaining where there was a violation of the Arkansas Odometer Fraud Act by failing to have the odometer read the correct mileage or by adjusting it to zero to put buyers on notice; a violation of the Odometer Fraud Act constituted an unfair or deceptive trade practice. The damages for economic loss, treble damages, and attorney’s fees were upheld under the Odometer Fraud Act and the Arkansas Deceptive Trade Practices Act. Ukegbu v. Daniels, 2014 Ark. App. 422, 438 S.W.3d 284 (2014).

Subchapter 3 — Aftermarket Crash Parts

4-90-301. Legislative intent.

This subchapter is intended to apply only to parts that are aftermarket crash parts as defined in this subchapter and to the documents prepared in the repair estimate process. It is not intended to apply to any mechanical automotive parts or used parts of any kind or to any invoice or final invoicing forms.

History. Acts 1991, No. 1209, § 5.

4-90-302. Definitions.

As used in this subchapter:

  1. “Aftermarket crash part” means a replacement for any of the nonmechanical sheet metal or plastic parts which generally constitute the exterior of a motor vehicle, including inner and outer panels;
  2. “Installer” means an individual who performs the work of replacing or repairing parts of a motor vehicle;
  3. “Insurer” means an insurance company and any person authorized to represent the insurer with respect to a claim and who is acting within the scope of the person's authority;
  4. “Nonoriginal equipment manufacturer aftermarket crash part” means an aftermarket crash part made by any manufacturer other than the original vehicle manufacturer or his or her suppliers; and
  5. “Repair facility” means a motor vehicle dealer, garage, body shop, or other commercial entity which undertakes the repair or replacement of those parts that generally constitute the exterior of a motor vehicle.

History. Acts 1991, No. 1209, § 1.

4-90-303. Penalties.

Any person who violates any provision of this subchapter shall, upon conviction, be guilty of a violation and shall be subject to the penalty prescribed in § 5-4-201(c)(1).

History. Acts 1991, No. 1209, § 4.

4-90-304. Required identification.

Any nonoriginal equipment manufacturer aftermarket crash part manufactured or supplied for use in this state on or after January 1, 1992, shall have affixed thereto or inscribed thereon the logo, identification number, or name of its manufacturer. The manufacturer's logo, identification number, or name shall be visible after installation whenever practicable.

History. Acts 1991, No. 1209, § 2.

4-90-305. Repair estimates.

  1. In all instances where nonoriginal equipment manufacturer aftermarket crash parts are used in preparing an estimate for repairs, the written estimate prepared by the insurer or repair facility shall clearly identify such parts.
  2. A disclosure document attached to the estimate shall contain the following information in no smaller than 10-point type:

“THIS ESTIMATE HAS BEEN PREPARED BASED ON THE USE OF AFTERMARKET CRASH PARTS SUPPLIED BY A SOURCE OTHER THAN THE MANUFACTURER OF YOUR MOTOR VEHICLE. THE AFTERMARKET CRASH PARTS USED IN THE PREPARATION OF THIS ESTIMATE ARE WARRANTED BY THE MANUFACTURER OR DISTRIBUTOR OF SUCH PARTS INSTEAD OF THE MANUFACTURER OF YOUR VEHICLE.”

History. Acts 1991, No. 1209, § 3.

4-90-306. Repairs.

Whenever repairs are made involving replacement crash parts, as defined in this subchapter, and the vehicle is still under the manufacturer's original warranty, only original equipment manufacturer replacement crash parts may be used by the repair facility unless the owner gives or has given written consent otherwise.

History. Acts 1997, No. 835, § 1.

4-90-307. Insurance.

Every insurer that writes motor vehicle insurance and that intends to require or specify the use of aftermarket parts must disclose to its policyholders in writing, either in the policy or on an attached sticker, the following information in no smaller than 10-point type:

“IN THE REPAIR OF YOUR COVERED MOTOR VEHICLE UNDER THE PHYSICAL DAMAGE COVERAGE PROVISIONS OF THIS POLICY, WE MAY REQUIRE OR SPECIFY THE USE OF MOTOR VEHICLE PARTS NOT MADE BY THE ORIGINAL MANUFACTURER. THESE PARTS ARE REQUIRED TO BE AT LEAST EQUAL IN TERMS OF FIT, QUALITY, PERFORMANCE, AND WARRANTY TO THE ORIGINAL MANUFACTURER PARTS THEY REPLACE.”

History. Acts 1997, No. 835, § 1.

Subchapter 4 — New Motor Vehicle Quality Assurance Act

Research References

U. Ark. Little Rock L.J.

Legislative Survey, Miscellaneous, 16 U. Ark. Little Rock L.J. 161.

Note, Arkansas's New Motor Vehicle Quality Assurance Act — A Branch of Hope For Lemon Owners, 16 U. Ark. Little Rock L.J. 493.

4-90-401. Title.

This subchapter shall be known and may be cited as the “Arkansas New Motor Vehicle Quality Assurance Act”.

History. Acts 1993, No. 285, § 1; 1993, No. 297, § 1.

4-90-402. Legislative determinations and intent.

The General Assembly recognizes that a motor vehicle is a major consumer acquisition and that a defective motor vehicle undoubtedly creates a hardship for the consumer. The General Assembly further recognizes that a duly franchised motor vehicle dealer is an authorized service agent of the manufacturer. It is the intent of the General Assembly that a good-faith motor vehicle warranty complaint by a consumer be resolved by the manufacturer within a specified period of time. It is further the intent of the General Assembly to provide the statutory procedures whereby a consumer may receive a replacement motor vehicle or a full refund for a motor vehicle which cannot be brought into conformity with the warranty during the motor vehicle quality assurance period provided for in this subchapter. However, nothing in this subchapter shall in any way limit the rights or remedies which are otherwise available to a consumer under any other law.

History. Acts 1993, No. 285, § 2; 1993, No. 297, § 2; 2001, No. 1134, § 1.

4-90-403. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Calendar day” means any day of the week other than a legal holiday;
  2. “Collateral charges” means those additional charges to a consumer wholly incurred as a result of the acquisition of the motor vehicle. For the purposes of this subchapter, collateral charges include, but are not limited to, manufacturer-installed or agent-installed items, earned finance charges, sales taxes, title charges, and charges for extended warranties provided by the manufacturer, its subsidiary, or agent;
  3. “Condition” means a general problem that may be attributable to a defect in more than one (1) part;
  4. “Consumer” means the purchaser or lessee, other than for the purposes of lease or resale, of a new or previously untitled motor vehicle or any other person entitled to enforce the obligations of the warranty during the duration of the motor vehicle quality assurance period, provided the purchaser has titled and registered the motor vehicle as prescribed by law;
  5. “Incidental charges” means those reasonable costs incurred by the consumer, including, but not limited to, towing charges and the costs of obtaining alternative transportation which are directly caused by the nonconformity or nonconformities which are the subject of the claim, but shall not include loss of use, loss of income, or personal injury claims;
  6. “Lease price” means the aggregate of:
    1. The lessor's actual purchase costs;
    2. Collateral charges, if applicable;
    3. Any fee paid to another person to obtain the lease;
    4. Any insurance or other costs expended by the lessor for the benefit of the lease;
    5. An amount equal to state and local sales taxes, not otherwise included as collateral charges, paid by the lessor when the vehicle was initially purchased; and
    6. An amount equal to five percent (5%) of the lessor's actual purchase price;
  7. “Lessee” means any consumer who leases a motor vehicle for one (1) year or more pursuant to a written lease agreement which provides that the lessee is responsible for repairs to the motor vehicle;
  8. “Lessee cost” means the aggregate deposit and rental payments previously paid to the lessor for the leased vehicle;
  9. “Lessor” means a person who holds title to a motor vehicle leased to a lessee under the written lease agreement or who holds the lessor's rights under such agreement;
  10. “Manufacturer” means:
    1. Any person who is engaged in the business of constructing or assembling new motor vehicles or installing on previously assembled vehicle chassis special bodies or equipment which, when installed, form an integral part of the new motor vehicle; or
    2. In the case of motor vehicles not manufactured in the United States, any person who is engaged in the business of importing new motor vehicles into the United States for the purpose of selling or distributing new motor vehicles to new motor vehicle dealers;
    1. “Motor vehicle” or “vehicle” means any self-propelled vehicle licensed, purchased, or leased in this state primarily designed for the transportation of persons or property over the public streets and highways.
    2. “Motor vehicle” or ”vehicle” does not include:
      1. Mopeds;
      2. Motorcycles;
      3. The living facilities of a motor home;
        1. Vehicles over thirteen thousand pounds (13,000 lbs.) gross vehicle weight rating.
        2. For purposes of this subchapter, the limit of thirteen thousand pounds (13,000 lbs.) gross vehicle weight rating does not apply to motor homes; or
      4. A vehicle over ten thousand pounds (10,000 lbs.) gross vehicle weight rating that has been substantially altered after its initial sale from a dealer to the person;
  11. “Motor vehicle quality assurance period” means a period of time that:
    1. Begins:
      1. On the date of original delivery of a motor vehicle; or
      2. In the case of a replacement vehicle provided by a manufacturer to a consumer under this subchapter, on the date of delivery of the replacement vehicle to the consumer; and
    2. Ends twenty-four (24) months after the date of the original delivery of the motor vehicle to a consumer, or the first twenty-four thousand (24,000) miles of operation attributable to the consumer, whichever is later;
  12. “Nonconformity” means any specific or generic defect or condition or any concurrent combination of defects or conditions that:
    1. Substantially impairs the use, market value, or safety of a motor vehicle; or
    2. Renders the motor vehicle nonconforming to the terms of an applicable manufacturer's express warranty or implied warranty of merchantability;
  13. “Person” means any natural person, partnership, firm, corporation, association, joint venture, trust, or other legal entity;
  14. “Purchase price” means the cash price paid for the motor vehicle appearing in the sales agreement or contract, including any net allowance for a trade-in vehicle;
  15. “Replacement motor vehicle” means a motor vehicle which is identical or reasonably equivalent to the motor vehicle to be replaced, as the motor vehicle replaced existed at the time of the original acquisition; and
  16. “Warranty” means any written warranty issued by the manufacturer or any affirmation of fact or promise made by the manufacturer, excluding statements made by the dealer, in connection with the sale or lease of a motor vehicle to a consumer which relates to the nature of the material or workmanship and affirms or promises that such material or workmanship is free of defects or will meet a specified level of performance.

History. Acts 1993, No. 285, § 3; 1993, No. 297, § 3; 1995, No. 302, § 1; 2001, No. 1134, § 2; 2009, No. 322, § 1; 2009, No. 492, § 1.

Amendments. The 2009 amendment by act No. 322 redesignated (11), substituted “thirteen thousand pounds (13,000 lbs.)” for “ten thousand pounds (10,000 lbs.)” in (11)(B)(iv)(a) and (11)(B)(iv)(b), substituted “subchapter” for “definition” in (11)(B)(iv)(b), and made related and minor stylistic changes.

The 2009 amendment by act No. 492 in (11), inserted (11)(B)(v), redesignated the remainder of the subsection, substituted “thirteen thousand pounds (13,000 lbs.)” for “ten thousand pounds (10,000 lbs.)” in (11)(B)(iv)(a) and (11)(B)(iv)(b), and made related changes.

4-90-404. Notice by consumer — Disclosure by manufacturer, agent, or dealer.

    1. A consumer shall utilize the informal dispute settlement proceeding provided for in this subchapter prior to bringing any legal action to enforce the consumer's rights under this subchapter, if the manufacturer has made the disclosure required by subsection (b) of this section.
    2. However, if the manufacturer has not made the required disclosure, the consumer is not required to utilize the informal dispute settlement procedure pursuant to § 4-90-414 prior to any legal action to enforce the consumer's rights under this subchapter.
      1. At the time of the consumer's purchase or lease of the vehicle, the manufacturer, its agent, or an authorized dealer shall provide to the consumer a written statement that explains the consumer's rights and obligations under this subchapter.
      2. The manufacturer's authorized dealer shall obtain the consumer's signed acknowledgement of the receipt of the written statement explaining the consumer's rights and obligations under this subchapter.
      3. The manufacturer's authorized dealer shall maintain copies of the consumer's signed acknowledgement for a period of no fewer than five (5) years.
    1. The written statement shall be prepared by the Consumer Protection Division of the Office of the Attorney General and shall include the telephone number of the division that the consumer can contact to obtain information regarding his or her rights and obligations under this subchapter.
    2. For each failure of the manufacturer, its agent, or an authorized dealer to provide to a consumer the written statement required under this section or failure to retain a signed acknowledgement form, the manufacturer shall be liable to the State of Arkansas for a civil penalty of not less than twenty-five dollars ($25.00) nor more than one thousand dollars ($1,000).
    1. The manufacturer shall clearly and conspicuously disclose to the consumer, in the warranty or owner's manual, that written notice of the nonconformity is required before the buyer may be eligible for a refund or replacement of the vehicle.
    2. The manufacturer shall provide the consumer with conspicuous notice of the address and phone number for its zone, district, or regional office for this state at the time of vehicle acquisition, to which the buyer must send notification.

History. Acts 1993, No. 285, § 5; 1993, No. 297, § 5; 1995, No. 302, § 2; 2001, No. 1134, § 3.

Case Notes

Failure to Exhaust.

Failure to exhaust the Informal Dispute Settlement Proceedings (IDSP) options did not preclude a consumer's state-law action for breach of warranty because all the remedies available to him under the Arkansas Lemon Law were not available under the particular IDSP, which contained no language granting the consumer an unconditional right to choose a refund rather than a replacement as he could under subdivision (b)(2)(A) of this section. Ford Motor Co. v. Keatts, 2013 Ark. App. 575 (2013).

4-90-405. Required warranty repairs.

If a motor vehicle does not conform to the warranty and the consumer reports the nonconformity to the manufacturer, its agent, or authorized dealer during the motor vehicle quality assurance period, the manufacturer, its agent, or authorized dealer shall make repairs as are necessary to correct the nonconformity, even if the repairs are made after the expiration of the term of protection.

History. Acts 1993, No. 285, § 4; 1993, No. 297, § 4; 2001, No. 1134, § 4.

4-90-406. Failure to make required repairs.

    1. After three (3) attempts have been made to repair the same nonconformity that substantially impairs the motor vehicle, or after one (1) attempt to repair a nonconformity that is likely to cause death or serious bodily injury, the consumer shall give written notification, by certified or registered mail, to the manufacturer of the need to repair the nonconformity in order to allow the manufacturer a final attempt to cure the nonconformity.
    2. The manufacturer shall, within ten (10) days after receipt of the notification, notify and provide the consumer with the opportunity to have the vehicle repaired at a reasonably accessible repair facility, and, after delivery of the vehicle to the designated repair facility by the consumer, the manufacturer shall, within ten (10) days, conform the motor vehicle to the warranty.
    3. If the manufacturer fails to notify and provide the consumer with the opportunity to have the vehicle repaired at a reasonably accessible repair facility or fails to perform the repairs within the time periods prescribed in this subsection, the requirement that the manufacturer be given a final attempt to cure the nonconformity does not apply and a nonrebuttable presumption of a reasonable number of attempts to repair arises.
      1. If the manufacturer, its agent, or authorized dealer has not conformed the motor vehicle to the warranty by repairing or correcting one (1) or more nonconformities that substantially impair the motor vehicle after a reasonable number of attempts, the manufacturer, within forty (40) days, shall:
        1. At the time of its receipt of payment of a reasonable offset for use by the consumer, replace the motor vehicle with a replacement motor vehicle acceptable to the consumer; or
        2. Repurchase the motor vehicle from the consumer or lessor and refund to the consumer or lessor the full purchase price or lease price, less a reasonable offset for use and less a reasonable offset for physical damage sustained to the vehicle while under the ownership of the consumer.
      2. The replacement or refund shall include payment of all collateral and reasonably incurred incidental charges.
      1. The consumer shall have an unconditional right to choose a refund rather than a replacement.
      2. At the time of the refund or replacement, the consumer, lienholder, or lessor shall furnish to the manufacturer clear title to and possession of the motor vehicle.
    1. The amount of reasonable offset for use by the consumer shall be determined by multiplying the actual price of the new motor vehicle paid or payable by the consumer, including any charges for transportation and manufacturer-installed or agent-installed options, by a fraction having as its denominator one hundred twenty thousand (120,000) and having as its numerator the number of miles traveled by the new motor vehicle prior to the time the buyer first delivered the vehicle to the manufacturer, its agent, or authorized dealer for correction of the problem that gave rise to the nonconformity.

History. Acts 1993, No. 285, § 6; 1993, No. 297, § 6; 1995, No. 302, § 3.

Case Notes

Unconditional Right.

Failure to exhaust the Informal Dispute Settlement Proceedings (IDSP) options did not preclude a consumer's state-law action for breach of warranty because all the remedies available to him under the Arkansas Lemon Law were not available under the particular IDSP, which although allowed for a replacement of vehicle, contained no language granting the consumer an unconditional right to choose a refund rather than a vehicle replacement. Ford Motor Co. v. Keatts, 2013 Ark. App. 575 (2013).

4-90-407. Refunds.

    1. Refunds shall be made to the consumer and lienholder of record, if any, as their interests may appear.
    2. If applicable, refunds shall be made to the lessor and lessee as follows:
      1. The lessee shall receive the lessee cost less a reasonable offset for use; and
      2. The lessor shall receive the lease price less the aggregate deposit and rental payments previously paid to the lessor for the leased vehicle.
  1. If the manufacturer makes a refund to the lessor or lessee pursuant to this subchapter, the consumer's lease agreement with the lessor shall be terminated upon payment of the refund and no penalty for early termination shall be assessed.
  2. If a replaced vehicle was financed by the manufacturer, its subsidiary, or agent, the manufacturer, subsidiary, or agent may not require the buyer to enter into any refinancing agreement concerning a replacement vehicle that would create any financial obligations upon the buyer beyond those of the original financing agreement.

History. Acts 1993, No. 285, § 7; 1993, No. 297, § 7.

Cross References. Refund of sales tax on vehicles returned as defective, § 26-52-515.

4-90-408. Reimbursement of towing and rental costs.

Whenever a vehicle is replaced or refunded under this subchapter, the manufacturer shall reimburse the consumer for necessary towing and rental costs actually incurred as a direct result of the nonconformity.

History. Acts 1993, No. 285, § 10; 1993, No. 297, § 10.

4-90-409. Option to retain use of vehicle.

A consumer has the option of retaining the use of any vehicle returned under this subchapter until the time that the consumer has been tendered a full refund or a replacement vehicle of comparable value.

History. Acts 1993, No. 285, § 11; 1993, No. 297, § 11.

4-90-410. Presumption of reasonable attempts to repair — Extension of time to repair in case of war, invasion, strike, fire, flood, or natural disaster.

  1. A rebuttable presumption of a reasonable number of attempts to repair is considered to have been undertaken to correct a nonconformity if:
    1. The nonconformity has been subject to repair as provided in § 4-90-406(a), but the nonconformity continues to exist;
    2. The vehicle is out of service by reason of repair, or attempt to repair, any nonconformity for a cumulative total of thirty (30) calendar days; or
    3. There have been five (5) or more attempts on separate occasions to repair any nonconformities that together substantially impair the use and value of the motor vehicle to the consumer.
    1. The thirty (30) calendar days in subdivision (a)(2) of this section shall be extended by any period of time during which repair services are not available as a direct result of war, invasion, strike, fire, flood, or natural disaster.
    2. The manufacturer, its agent, or authorized dealer shall provide or make provisions for the free use of a vehicle to any consumer whose vehicle is out of service beyond thirty (30) days by reason of delayed repair as a direct result of war, invasion, strike, fire, flood, or natural disaster.
  2. The burden is on the manufacturer to show that the reason for an extension under subsection (b) of this section was the direct cause for the failure of the manufacturer, its agent, or authorized dealer to cure any nonconformity during the time of the event.

History. Acts 1993, No. 285, § 12; 1993, No. 297, § 12.

4-90-411. Diagnosis or repair — Documentation.

  1. A manufacturer, its agent, or authorized dealer may not refuse to diagnose or repair any vehicle for the purpose of avoiding liability under this subchapter.
      1. A manufacturer, its agent, or authorized dealer shall provide a consumer with a written repair order each time the consumer's vehicle is brought in for examination or repair.
      2. The written repair order shall include a reference to each defect, nonconformity, or other complaint brought to the attention of the manufacturer, its agent, or authorized dealer by the consumer, and each presentation of the vehicle by the consumer for a reasonable opportunity to repair shall be a repair attempt for those defects, nonconformities, or other complaints noted in the written repair order.
        1. However, in the case of a motor vehicle that is a motor home where two (2) or more manufacturers contributed to the construction of the motor home, it shall not count as a repair attempt if the repair facility at which the consumer presented the vehicle is not authorized by the manufacturer to provide warranty service on that vehicle.
        2. In addition, it shall count as only one (1) repair attempt for a motor vehicle that is a motor home if the same nonconformity is being addressed a second time due to the consumer's decision to continue traveling and to seek the repair of that same nonconformity at another repair facility, rather than wait for the repair to be completed at the initial repair facility.
    1. The repair order must indicate all work performed on the vehicle, including examination of the vehicle, parts, and labor.

History. Acts 1993, No. 285, § 13; 1993, No. 297, § 13; 2001, No. 1134, § 5.

4-90-412. Resale of returned nonconforming vehicle.

  1. If a motor vehicle has been replaced or repurchased by a manufacturer as the result of a court judgment, an arbitration award, or any voluntary agreement entered into between a manufacturer or a manufacturer through its authorized dealer and a consumer that occurs after a consumer has notified the manufacturer of the consumer's desire to utilize the informal dispute settlement proceeding pursuant to this subchapter or a similar law of another state, the motor vehicle may not be resold in Arkansas unless:
    1. The manufacturer provides the same express warranty the manufacturer provided to the original purchaser, except that the term of the warranty need only last for twelve thousand (12,000) miles or twelve (12) months after the date of resale, whichever occurs first; and
    2. The manufacturer provides a written disclosure, signed by the consumer, indicating that the vehicle was returned to the manufacturer because of a nonconformity not cured within a reasonable time as provided by Arkansas law.
  2. The written disclosure required by this section applies to the first resale to a retail customer of the vehicle in Arkansas by the manufacturer or its authorized dealer.

History. Acts 1993, No. 285, § 14; 1993, No. 297, § 14; 2001, No. 1134, § 6.

4-90-413. Affirmative defenses.

It is an affirmative defense to any claim under this subchapter that:

  1. The nonconformity, defect, or condition does not substantially impair the use, value, or safety of the motor vehicle;
  2. The nonconformity, defect, or condition is the result of an accident, abuse, neglect, or unauthorized modification or alteration of the motor vehicle by persons other than the manufacturer, its agent, or authorized dealer;
  3. The claim by the consumer was not filed in good faith; or
  4. Any other defense allowed by law that may be raised against the claim.

History. Acts 1993, No. 285, § 15; 1993, No. 297, § 15.

Case Notes

Common-Law Defenses.

The law-of-the-case defense is an affirmative defense like estoppel or res judicata. State v. Bell, 329 Ark. 422, 948 S.W.2d 557 (1997).

4-90-414. Informal proceeding as precedent.

    1. Any manufacturer doing business in this state, entering into franchise agreements for the sale of its motor vehicles in this state, or offering express warranties on its motor vehicles sold or distributed for sale in this state, shall operate or participate in an informal dispute settlement proceeding located in the State of Arkansas which complies with the requirements of this section.
    2. The provisions of § 4-90-406(b)(1) and (2) concerning refunds or replacement do not apply to a consumer who has not first used this informal proceeding before commencing a civil action, unless the manufacturer allows a consumer to commence an action without first using this informal proceeding, or unless the manufacturer has failed to make the disclosure required by § 4-90-404(b).
      1. The consumer shall receive adequate written notice from the manufacturer of the existence of the proceeding.
      2. Adequate written notice may include the incorporation of the informal dispute settlement proceeding into the terms of the written warranty to which the motor vehicle does not conform.
  1. The informal dispute proceeding shall meet the following criteria:
    1. The informal dispute proceeding must comply with the minimum requirements of the Federal Trade Commission for informal dispute settlement proceedings as set forth in 16 C.F.R. § 703.1 et seq., as in effect on the date of adoption of this subchapter, unless any provision of 16 C.F.R. § 703.1 et seq. is in conflict with this subchapter, in which case the provisions of this subchapter shall govern;
    2. The informal dispute proceedings must prescribe a reasonable time, not to exceed thirty (30) days after the decision is accepted by the buyer, within which the manufacturer or its agent must fulfill the terms of its decisions;
      1. No documents shall be received by any informal dispute proceeding unless those documents have been provided to each of the parties in the dispute at or prior to the proceeding, with an opportunity for the parties to comment on the documents either in writing or orally.
      2. If a consumer is present during the informal dispute proceeding, the consumer may request postponement of the proceeding meeting to allow sufficient time to review any documents presented at the time of the meeting, which had not been presented to the consumer prior to the time of the meeting;
      1. The informal dispute proceeding shall allow each party to appear and make an oral presentation within the State of Arkansas, unless the consumer agrees to submit the dispute for decision on the basis of documents alone or by telephone, or unless the party fails to appear for an oral presentation after reasonable prior written notice.
      2. If the consumer agrees to submit the dispute for decision on the basis of documents alone, then the manufacturer or dealer representatives may not participate in the discussion of the dispute;
    3. Consumers shall be given an adequate opportunity to contest a manufacturer's assertion that a nonconformity falls within intended specifications for the vehicle by having the basis of the manufacturer's claim appraised by a technical expert selected and paid for by the consumer prior to the informal dispute settlement hearing;
    4. A consumer may not be charged with a fee to participate in an informal dispute proceeding; and
    5. Any party to the dispute has the right to be represented by an attorney in an informal dispute proceeding.
    1. The informal dispute proceeding shall annually submit a pool of not fewer than six (6) members to the Consumer Protection Division of the Office of the Attorney General.
    2. Selected strictly by rotation, one (1) member shall hear disputes scheduled for a particular session unless the consumer requests a panel of three (3) members, in which case three (3) members, also selected by rotation, shall hear disputes scheduled for a particular three-member session.
    3. If the informal dispute proceeding deems it appropriate to require the services of an independent investigator, the investigator shall be selected from a pool of not fewer than four (4) members who are submitted annually to the division and from which the particular investigator shall be selected strictly by rotation.

History. Acts 1993, No. 285, § 16; 1993, No. 297, § 16; 2001, No. 1134, § 7.

Publisher's Notes. In reference to the term “the date of adoption of this subchapter,” Acts 1993, Nos. 285 and 297 were approved on March 1, 1993, and both became effective August 13, 1993.

Case Notes

FTC Requirements.

Failure to exhaust the Informal Dispute Settlement Proceedings (IDSP) options did not preclude a consumer's state-law action for breach of warranty because all the remedies available to him under the Arkansas Lemon Law were not available under the particular IDSP, which did not grant the consumer an unconditional right to choose a refund rather than a vehicle replacement, thereby failing to comply with the Federal Trade Commission requirements under 16 C.F.R. § 703.1 et seq.Ford Motor Co. v. Keatts, 2013 Ark. App. 575 (2013).

4-90-415. Enforcement — Exclusivity — Costs and expenses.

  1. A consumer may bring a civil action to enforce this subchapter in a court of competent jurisdiction.
  2. This subchapter does not limit the rights and remedies that are otherwise available to a consumer under any applicable provisions of law.
  3. A consumer who prevails in any legal proceeding under this subchapter is entitled to recover as part of the judgment a sum equal to the aggregate amount of costs and expenses, including attorney's fees based upon actual time expended by the attorney, determined by the court to have been reasonably incurred by the consumer for or in connection with the commencement and prosecution of the action.

History. Acts 1993, No. 285, §§ 17-19; 1993, No. 297, §§ 17-19.

Case Notes

Recovery of Expenses.

In a customer's action against a truck manufacturer under the Arkansas New Motor Vehicle Quality Assurance Act, the trial court did not err in interpreting subsection (c) of this section to allow for the recovery of copy costs and mileage expenses; even if it was assumed that costs were limited to those items set forth in Ark. R. Civ. P. 54(d), subsection (c) also allowed a consumer who prevailed to recover “expenses,” including attorney fees. DaimlerChrysler Corp. v. Smelser, 375 Ark. 216, 289 S.W.3d 466 (2008).

4-90-416. Time limitation for commencement of action.

  1. An action brought under this subchapter must be commenced within two (2) years following the date the buyer first reports the nonconformity to the manufacturer, its agent, or authorized dealer.
  2. When the buyer has commenced an informal dispute settlement procedure described in § 4-90-414, the two-year period specified in subsection (a) of this section begins to run at the time the informal dispute settlement procedure is being commenced.

History. Acts 1993, No. 285, § 20; 1993, No. 297, § 20.

4-90-417. Deceptive trade practices.

A violation of any of the provisions of this subchapter shall be deemed a deceptive trade practice under § 4-88-101 et seq.

History. Acts 1993, No. 285, § 21; 1993, No. 297, § 21.

Subchapter 5 — Motor Vehicle Service Contract Act

Effective Dates. Acts 1993, No. 805, § 18: Apr. 1, 1993. Emergency clause provided: “It is hereby found and determined by the General Assembly that the common law and statutory law of this state does not adequately address the matter of the issuance and regulation of motor vehicle service contracts; it is further found that legislation is necessary to allow for the marketing of such contracts in a manner that is consistent with protection of the public which purchases such contracts and that such legislation should go into effect immediately. Therefore, an emergency is hereby declared to exist and this act being necessary for the immediate preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

4-90-501. Title.

This subchapter is known and may be cited as the “Motor Vehicle Service Contract Act”.

History. Acts 1993, No. 805, § 1.

4-90-502. Definitions.

As used in this subchapter:

  1. “Affiliate” means an entity that is owned at least fifty-one percent (51%) by the same entity that holds at least fifty-one percent (51%) of the seller of a motor vehicle;
  2. “Commissioner” means the Insurance Commissioner for the State of Arkansas;
    1. “Incidental costs” means expenses specified in a theft protection program warranty that are incurred by the warranty holder due to the failure of a theft protection program to perform as provided in the contract.
    2. “Incidental costs” may include without limitation:
      1. Insurance policy deductibles;
      2. Rental vehicle charges;
      3. The difference between the actual value of the stolen motor vehicle at the time of theft and the cost of a replacement motor vehicle;
      4. Sales tax;
      5. Registration fees;
      6. Transaction fees; and
      7. Mechanical inspection fees.
    3. Incidental costs may be reimbursed in either:
      1. A fixed amount specified in the theft protection program warranty; or
      2. By use of a formula itemizing specific incidental costs incurred by the warranty holder;
  3. “Mechanical breakdown insurance” means a policy, contract, or agreement that undertakes to perform or provide repair or replacement service, or indemnification for such service, for the operational or structural failure of a motor vehicle due to a defect in materials or workmanship or normal wear and tear and that is issued by an insurer that is authorized or approved to transact the business of insurance in this state;
  4. “Motor vehicle” means a vehicle designed for highway use and subject to registration under § 27-14-701 et seq.;
    1. “Motor vehicle service contract” or “service contract” means a contract or agreement given for separate and identifiable consideration that a service contract provider undertakes to perform or provide repair or replacement service, or indemnification for such service, for the operational or structural failure of a motor vehicle or any of its component parts due to a defect in materials or workmanship or normal wear and tear, with or without an additional provision for incidental payment of indemnity under limited circumstances, including without limitation towing, rental vehicle expense, and emergency road service, but does not include mechanical breakdown insurance.
    2. “Motor vehicle service contract” includes a contract that provides any of the following services:
      1. The repair or replacement of tires or wheels on a motor vehicle damaged as a result of coming into contact with road hazards;
      2. The removal of dents, dings, or creases on a motor vehicle that can be repaired using the process of paintless dent removal without affecting the existing paint finish and without replacing vehicle body panels, sanding, bonding, or painting;
      3. The repair of chips or cracks in or the replacement of motor vehicle windshields as a result of damage caused by road hazards;
      4. The replacement of a motor vehicle key or key fob in the event that the key or key fob becomes inoperable or is lost or stolen; or
      5. Other services that may be approved by the commissioner, if not inconsistent with this subchapter;
  5. “Motor vehicle service contract provider” or “provider” means a person who, as the principal or obligor, issues, makes, sells, or offers to sell a motor vehicle service contract;
  6. “Reimbursement insurance policy” means a policy of insurance providing coverage for all obligations and liabilities incurred by a motor vehicle service contract provider or a warrantor under the terms of the motor vehicle service contracts issued or sold by the motor vehicle service contract provider or theft protection program warranties issued by a warrantor;
    1. “Road hazard” means a condition that is encountered while driving a motor vehicle.
    2. “Road hazard” includes without limitation:
      1. Potholes;
      2. Rocks;
      3. Wood debris;
      4. Metal parts;
      5. Glass;
      6. Plastic;
      7. Curbs; or
      8. Composite scraps;
  7. “Service contract holder” or “holder” means a person who purchases a service contract or a permitted transferee;
    1. “Theft protection program” means a device or system that:
      1. Is installed on or applied to a motor vehicle;
      2. Is designed to prevent loss or damage to a motor vehicle from theft; and
      3. Includes a theft protection program warranty.
    2. “Theft protection program” includes without limitation:
      1. Alarm systems;
      2. Body part marking products;
      3. Steering locks;
      4. Window etch products;
      5. Pedal and ignition locks;
      6. Fuel and ignition kill switches; and
      7. Electronic, radio, and satellite tracking devices.
    3. “Theft protection program” does not include fuel additives, oil additives, or other chemical products that are applied to the engine, transmission, fuel system, or interior or exterior surfaces of a motor vehicle;
  8. “Theft protection program warranty” means a written agreement by a warrantor that provides that if the theft protection program fails to prevent loss or damage to a motor vehicle from theft, the warrantor shall pay to or on behalf of the warranty holder any specified incidental costs as a result of the failure of the theft protection program to perform under the terms of the theft protection program warranty;
  9. “Warrantor” means a person who is contractually obligated to the warranty holder under the terms of the theft protection program warranty; and
  10. “Warranty holder” means a person who purchases a theft protection program, any authorized transferee or assignee of the purchaser, or any other person legally assuming the purchaser's rights under the theft protection program contract.

History. Acts 1993, No. 805, § 2; 2017, No. 364, § 1.

Amendments. The 2017 amendment substituted “As used in” for “For purposes of” in the introductory language; added the definitions of “Affiliate”, “Incidental costs”, “Road hazard”, “Theft protection program”, “Theft protection program warranty”, “Warrantor”, and “Warranty holder” and redesignated the remaining subdivisions accordingly; in (6)(A), substituted “that” for “pursuant to which”, inserted “or any of its component parts”, and inserted “with or without . . . emergency road service”; added (6)(B); inserted “motor vehicle” preceding the second occurrence of “service contract” in (7); rewrote (8); and made stylistic changes.

4-90-503. Applicability.

This subchapter shall apply to motor vehicle service contracts sold on or after May 1, 1993.

History. Acts 1993, No. 805, § 17.

4-90-504. Exemptions — Affiliates.

  1. Except as provided in this subchapter, a motor vehicle service contract provider and warrantor are governed by this subchapter and are exempt from the Arkansas Insurance Code.
    1. This subchapter shall not prohibit or affect the giving, free of charge, of the usual warranties or performance guarantees by manufacturers, distributors, or dealers in connection with the sale of new motor vehicles.
    2. This subchapter shall not apply to a motor vehicle service contract or a theft protection program warranty issued by a motor vehicle manufacturer, distributor, importer, or dealer of motor vehicles, nor shall the requirements of this subchapter apply to any nonrenewable motor vehicle service contract or theft protection program warranty issued for a period of less than six (6) months, if the issuer of the motor vehicle service contract or theft protection program warranty is the entity that sold the motor vehicle to which the motor vehicle service contract or theft protection program warranty applies or is an affiliate of the entity.

History. Acts 1993, No. 805, § 3; 2017, No. 364, § 2.

Publisher's Notes. The Arkansas Insurance Code, derived from Acts 1959, No. 148, is codified as § 23-60-10123-60-108, 23-60-110, 23-61-10123-61-112, 23-61-20123-61-206, 23-61-30123-61-307, 23-61-401, 23-61-402, 23-62-10123-62-108, 23-62-201, 23-62-202, 23-62-203 [repealed], 23-62-204, 23-62-205, 23-63-10123-63-104, 23-63-20123-63-216, 23-63-301, 23-63-302, 23-63-40123-63-403, 23-63-404 [repealed], 23-63-60123-63-613, 23-63-701, 23-63-80123-63-833, 23-63-83523-63-837, 23-63-838 [repealed],23-63-901 — 23-63-912, 23-63-100123-63-1004, 23-64-10123-64-103, 23-64-20223-64-229, 23-65-10123-65-104, 23-65-20123-65-205, 23-65-30123-65-319, 23-66-20123-66-214, 23-66-30123-66-306, 23-66-30823-66-311, 23-66-313, 23-66-314, 23-68-10123-68-113, 23-68-11523-68-132, 23-69-10123-69-103, 23-69-10523-69-141, 23-69-143, 23-69-14923-69-156, 23-70-10123-70-124, 23-71-10123-71-116, 23-72-10123-72-122, 23-73-10123-73-116, 23-74-10123-74-141 [revised], 23-75-10123-75-120, 23-79-10123-79-106, former 23-79-107, 23-79-10923-79-128, 23-79-13123-79-134, 23-79-20223-79-210, 23-81-10123-81-117, 23-81-12023-81-136, 23-81-20123-81-213, 23-82-10123-82-118, 23-84-10123-84-111, 23-85-10123-85-131, 23-86-10123-86-104, 23-86-10623-86-109, 23-86-112, 23-87-10123-87-119, 23-88-101, 23-89-101, 23-89-102, 26-57-60126-57-605, 26-57-607, 26-57-608, 26-57-610.

The Arkansas Insurance Code, referred to in this section, was originally enacted by Acts 1959, No. 148. Acts 1959, No. 148 is codified as set out in the note following § 23-60-101.

Amendments. The 2017 amendment rewrote the section heading; in (a), substituted “provider and warrantor” for “providers” and made stylistic changes; rewrote (b); and deleted (c).

4-90-505. Mandatory insurance.

  1. A motor vehicle service contract or theft protection program warranty shall not be issued, sold, or offered for sale in this state unless a motor vehicle service contract provider or warrantor is insured under a reimbursement insurance policy issued by an insurer authorized to do business in this state, and providing that the insurer will pay on behalf of the motor vehicle service contract provider or warrantor all sums that the motor vehicle service contract provider or warrantor is legally obligated to pay and will guarantee the performance of the motor vehicle service contract provider's or warrantor's obligations undertaken according to the motor vehicle service contract provider's or warrantor's contractual obligations under the service contracts issued or sold by the motor vehicle service contract provider or theft protection program warranties issued by the warrantor.
  2. A policy of insurance shall not be cancelled, terminated, or nonrenewed by the insurer unless a sixty-day written notice has been given to the motor vehicle service contract provider or warrantor before the date of the cancellation, termination, or nonrenewal.
  3. A cancellation, termination, or nonrenewal shall not affect the liability of an insurer to guarantee the performance of a motor vehicle service contract provider or warrantor under the motor vehicle service contracts or theft protection program warranties issued or sold before the effective date of cancellation or termination or nonrenewal.
  4. The insured motor vehicle service contract or theft protection program warranty shall conspicuously state:
    1. That the obligations of a motor vehicle service contract provider to the service contract holder or the obligations of a warrantor to the warranty holder are guaranteed under a reimbursement insurance policy;
    2. The name, address, and telephone number of the issuer of a motor vehicle service contract provider's or warrantor's reimbursement insurance policy; and
    3. The procedure for filing a claim under a motor vehicle service contract or theft protection program warranty directly with a reimbursement insurer.
  5. A reimbursement insurer shall establish and maintain unearned premium reserves and claims reserves for any gross policy obligations under a reimbursement insurance policy, net of reinsurance ceded, that the insurer is entitled to as full reserve credit on its financial statements under this subchapter.

History. Acts 1993, No. 805, § 4; 2017, No. 364, § 3.

Amendments. The 2017 amendment rewrote the section.

4-90-506. Required service contract and warranty disclosures.

A motor vehicle service contract or theft protection program warranty issued or sold for delivery in this state shall contain the following disclosures, as applicable, in a conspicuous and readable manner:

  1. The name and address of the:
    1. Motor vehicle service contract provider and the service contract holder; or
    2. Warrantor and the warranty holder;
  2. The total retail price of the motor vehicle service contract or theft protection program;
  3. The procedure for making a claim under the motor vehicle service contract or theft protection program warranty, including the name, address, and telephone number of any person from whom approval is required before covered repairs may be commenced;
  4. The existence and amount of a deductible, if any;
  5. For motor vehicle service contracts, the motor vehicle parts and components covered under the motor vehicle service contract, and any limitations, exceptions, or exclusions;
  6. The terms, conditions, and restrictions governing transferability of the motor vehicle service contract or theft protection program warranty, if any;
  7. For motor vehicle service contracts, the provisions governing termination and refunds under § 4-90-507; and
  8. A statement that purchase of the motor vehicle service contract or theft protection program is not required in order to purchase or obtain financing for a motor vehicle.

History. Acts 1993, No. 805, § 5; 2017, No. 364, § 4.

Amendments. The 2017 amendment, in the introductory language, substituted “A motor vehicle service contract or theft protection program warranty” for “All motor vehicle service contracts” and inserted “as applicable”; rewrote (1); inserted references to theft protection program and to theft protection program warranty throughout the section; inserted “motor vehicle” preceding “service contract” in (2), (3), (5), and (6); added “For motor vehicle service contracts” in (5) and (7); and made stylistic changes.

4-90-507. Termination and refunds.

No motor vehicle service contract may be issued, sold, or offered for sale or delivery in this state unless the service contract conspicuously states that the holder is allowed to cancel the service contract:

  1. Within thirty (30) days of its purchase, if no claim has been made, and receive a full refund of the service contract retail price, less any cancellation fee stated in the service contract not exceeding fifty dollars ($50.00); or
  2. At any other time, and receive a pro rata refund of the service contract retail price for the unexpired term of the service contract based on the number of elapsed months or miles, less any cancellation fee stated in the service contract not exceeding fifty dollars ($50.00).

History. Acts 1993, No. 805, § 6.

4-90-508. [Repealed.]

Publisher's Notes. This section, concerning incidental benefits, was repealed by Acts 2017, No. 364, § 5. The section was derived from Acts 1993, No. 805, § 7.

4-90-509. Rulemaking power.

  1. The Insurance Commissioner may adopt such administrative rules as are necessary to implement the provisions of this subchapter.
  2. The commissioner may promulgate rules providing for the filing with the commissioner of motor vehicle service contract forms by motor vehicle service contract providers and warrantors under § 4-90-504 if rules do not require the approval of the forms by the commissioner before their initial use.

History. Acts 1993, No. 805, §§ 8, 12; 2017, No. 364, § 6.

Amendments. The 2017 amendment, in (b), deleted “and regulations” following “promulgate rules”, substituted “motor vehicle service contract providers and warrantors” for “providers authorized” and “if rules do not” for “provided, that any such rules and regulations may not”; and made stylistic changes.

4-90-510. Investigations and enforcement.

  1. The Insurance Commissioner is authorized to conduct such investigations of the motor vehicle service contract and theft protection program business of any motor vehicle service contract provider or warrantor and of any person assisting the motor vehicle service contract provider or warrantor in the conduct of such business as the commissioner may deem necessary.
  2. The commissioner shall have and may exercise all of the powers conferred by § 23-61-103, §§ 23-61-108 — 23-61-110, § 23-61-201(a)(1), §§ 23-61-203 — 23-61-206, and § 23-61-301 et seq. in the conduct of such investigations and in the enforcement of this subchapter and any rules promulgated by the commissioner.

History. Acts 1993, No. 805, § 9; 2017, No. 364, § 7; 2019, No. 315, § 137.

Amendments. The 2017 amendment, in (a), inserted “and theft protection program”, substituted “motor vehicle service contract provider or warrantor” for “provider” twice, and made stylistic changes.

The 2019 amendment deleted “and regulations” following “rules” in (b).

4-90-511. Unfair trade practices.

Motor vehicle service contract providers and warrantors are subject to the Trade Practices Act, § 23-66-201 et seq., to the extent such act may be appropriately applied to motor vehicle service contract providers and warrantors given the nature of such contracts.

History. Acts 1993, No. 805, § 10; 2017, No. 364, § 8.

Amendments. The 2017 amendment inserted “and warrantors” twice and substituted “are subject to” for “shall be subject to the provisions of”.

4-90-512. Form of service contracts and warranties.

A motor vehicle service contract or theft protection program warranty shall not be issued that:

  1. Is a violation of or does not comply with this subchapter, any specifically applicable provision of the Arkansas Insurance Code, or any applicable rule of the State Insurance Department;
  2. Contains, or incorporates by reference when such incorporation is otherwise permissible, any inconsistent, ambiguous, illusory, or misleading clauses, or exceptions and conditions that deceptively affect the risk purported to be assumed in the general coverage of the motor vehicle service contract;
  3. Has any title, heading, or other indication of its provisions that is misleading;
  4. Is printed or otherwise reproduced in such manner as to render any material provision of the form substantially illegible;
  5. Contains any provision that is unconscionable or encourages misrepresentation;
  6. Contains any provision that makes it difficult to determine the actual motor vehicle service contract provider or warrantor issuing the form; or
  7. Contains any provision for reducing claim payments due to depreciation of parts.

History. Acts 1993, No. 805, § 11; 2017, No. 364, § 9.

Publisher's Notes. The Arkansas Insurance Code, derived from Acts 1959, No. 148, is codified as § 23-60-10123-60-108, 23-60-110, 23-61-10123-61-112, 23-61-20123-61-206, 23-61-30123-61-307, 23-61-401, 23-61-402, 23-62-10123-62-108, 23-62-201, 23-62-202, 23-62-203 [repealed], 23-62-204, 23-62-205, 23-63-10123-63-104, 23-63-20123-63-216, 23-63-301, 23-63-302, 23-63-40123-63-404 [repealed], 23-63-60123-63-613, 23-63-701, 23-63-80123-63-833, 23-63-83523-63-837, 26-63-838 [repealed], 23-63-90123-63-912, 23-63-100123-63-1004, 23-64-10123-64-103, 23-64-20223-64-229, 23-65-10123-65-104, 23-65-20123-65-205, 23-65-30123-65-319, 23-66-20123-66-214, 23-66-30123-66-306, 23-66-30823-66-311, 23-66-313, 23-66-314, 23-68-10123-68-113, 23-68-11523-68-132, 23-69-10123-69-103, 23-69-10523-69-141, 23-69-143, 23-69-14923-69-156, 23-70-10123-70-124, 23-71-10123-71-116, 23-72-10123-72-122, 23-73-10123-73-116, 23-74-10123-74-141 [revised], 23-75-10123-75-120, 23-79-10123-79-106, former 23-79-107, 23-79-10923-79-128, 23-79-13123-79-134, 23-79-20223-79-210, 23-81-10123-81-117, 23-81-12023-81-136, 23-81-20123-81-213, 23-82-10123-82-118, 23-84-10123-84-111, 23-85-10123-85-131, 23-86-10123-86-104, 23-86-10623-86-109, 23-86-112, 23-87-10123-87-119, 23-88-101, 23-89-101, 23-89-102, 26-57-60126-57-605, 26-57-607, 26-57-608, 26-57-610.

The Arkansas Insurance Code, referred to in this section, was originally enacted by Acts 1959, No. 148. Acts 1959, No. 148 is codified as set out in the note following § 23-60-101.

Amendments. The 2017 amendment rewrote the introductory language; in (1), substituted “Is a” for “Is in any respect in” and “State Insurance Department” for “department”; substituted “motor vehicle service contract” for “service agreement” in (2); in (6), inserted “motor vehicle service contract” and “or warrantor”; and made stylistic changes.

Subchapter 6 — Consumer Motor Vehicle Leasing Act

4-90-601 — 4-90-607. [Repealed.]

A.C.R.C. Notes. Acts 2001, No. 953, § 1, provided:

“The provisions of the Consumer Motor Vehicle Leasing Act enacted in Arkansas in 1999 deviates substantially from federal law which governs motor vehicle leasing in most states in the United States. After the enactment of the Consumer Motor Vehicle Leasing Act, many motor vehicle leasing companies withdrew from doing business in the State of Arkansas because of the difficulty of administering the various provisions of Arkansas law as compared to other states in the country. The General Assembly finds that it will be beneficial to the motor vehicle leasing industry and its customers in Arkansas if Arkansas laws are brought into conformity with the motor vehicle consumer leasing laws in almost every other state as governed by federal law pursuant to the Consumer Leasing Act, 15 U.S.C § 1667 - 1667e and its implementing provisions, Regulation M, 12 C.F.R. § 213, et seq.”

Publisher's Notes. This subchapter was repealed by Acts 2001, No. 953, § 2. The subchapter was derived from the following sources:

4-90-601. Acts 1999, No. 1059, § 9.

4-90-602. Acts 1999, No. 1059, § 1.

4-90-603. Acts 1999, No. 1059, § 2.

4-90-604. Acts 1999, No. 1059, § 3.

4-90-605. Acts 1999, No. 1059, § 4.

4-90-606. Acts 1999, No. 1059, § 5.

4-90-607. Acts 1999, No. 1059, § 6.

Subchapter 7 — Debt Cancellation Agreements

Effective Dates. Acts 2007, No. 496, § 24: Mar. 26, 2007. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that the incompatibility of acts of the Eighty-Sixth General Assembly presents difficult compliance issues for the administration of debt cancellation agreements; that in order to avoid a disruption in commerce associated with compliance with other debt cancellation legislation, the enactment of Sections 22 and 23 of this act is immediately necessary. Therefore, an emergency is declared to exist and Sections 22 and 23 of this act being immediately necessary for the preservation of the public peace, health, and safety, Sections 22 and 23 shall become effective on: (1) The date of its approval by the Governor; (2) If the bill is neither approved nor vetoed by the Governor, the expiration of the period of time during which the Governor may veto the bill; or (3) If the bill is vetoed by the Governor and the veto is overridden, the date the last house overrides the veto.”

4-90-701. Definition.

As used in this subchapter, “debt cancellation agreement” means a loan term or contractual arrangement modifying a loan term dealing with motor vehicles under which a lender agrees to cancel all or part of a borrower's obligation to repay an extension of credit from the lender upon the occurrence of a specified event other than the death or disability of the borrower, whether or not separate from or a part of other loan documents. Provided, however, for purposes of this subchapter only, the term “debt cancellation agreement” shall not include that form of debt cancellation agreement which constitutes a guaranteed automobile protection waiver agreement or “GAP” waiver agreement. A guaranteed automobile protection waiver agreement or “GAP” waiver agreement means a loan term or a contractual arrangement modifying a loan term dealing with motor vehicles under which a lender agrees to waive, cancel, pay, or satisfy any remaining balance owed on a loan after a total loss or theft of the vehicle.

History. Acts 2007, No. 496, § 22.

4-90-702. Requiring borrower to purchase debt cancellation agreement prohibited.

A lender shall not require a borrower to purchase a debt cancellation agreement.

History. Acts 2007, No. 496, § 22.

4-90-703. Debt cancellation agreements to be legible — Disclosure requirements.

All terms of a debt cancellation agreement shall be printed or reproduced to render all material provisions of the agreement legible and shall clearly and conspicuously disclose the following information:

  1. If the debt cancellation agreement is provided by or administered by a third party, the debt cancellation agreement shall disclose that fact and provide the name, address, and telephone number of the third party and describe the procedure to follow for filing a claim with that third party under the debt cancellation agreement;
  2. The total retail price of the debt cancellation agreement;
  3. Any limitation or restriction on the cancellation of the entire debt due upon the occurrence of the specified event;
  4. That the purchaser is allowed to cancel the debt cancellation agreement at any time and receive a refund paid directly to the purchaser minus any cancellation fee not to exceed twenty-five dollars ($25.00) as follows:
    1. If the debt cancellation agreement is cancelled within thirty (30) days of purchase, a purchaser shall receive a full refund of the retail price; or
    2. If the debt cancellation agreement is cancelled at a later time, the purchaser shall receive a pro rata refund of the retail price for the unexpired term based upon the number of elapsed months at the time of the cancellation compared to the total length of the financing agreement; and
  5. That the terms of the debt cancellation agreement financed by the lender are binding on the lender.

History. Acts 2007, No. 496, § 22.

4-90-704. Debt cancellation agreements — Restrictions.

No debt cancellation agreement shall be issued that:

  1. Is in any respect in violation of or does not comply with this subchapter;
  2. Contains or incorporates by reference if incorporation by reference is otherwise permissible any inconsistent, ambiguous, illusory, or misleading clauses or exceptions and conditions that deceptively affect the material terms of the debt cancellation agreement;
  3. Has a title, heading, or other indication of its provisions that is misleading; or
  4. Is sold after any representation, oral or written, that is misleading or deceptive with respect to any material term of the contract or any provision of this subchapter.

History. Acts 2007, No. 496, § 22.

4-90-705. Application of § 4-88-101 et seq. to debt cancellation agreements and sellers of debt cancellation agreements.

  1. Debt cancellation agreements and sellers of debt cancellation agreements are subject to the provisions of § 4-88-101 et seq., and any violation of any of the provisions of this subchapter constitutes an unconscionable or deceptive act or practice under § 4-88-101 et seq.
  2. All remedies, penalties, and authority granted to the Attorney General under § 4-88-101 et seq. are available to the Attorney General for the enforcement of this subchapter.

History. Acts 2007, No. 496, § 22.

Subchapter 8 — Guaranteed Asset Protection Waivers

4-90-801. Legislative intent — Purpose — Scope.

  1. The General Assembly finds that guaranteed asset protection waivers are not insurance.
  2. It is the intent of the General Assembly that all guaranteed asset protection waivers issued in this state, before or after the enactment of this subchapter, are not to be considered insurance.
  3. The purpose of this subchapter is to provide a framework within which guaranteed asset protection waivers are defined and may be offered within this state.
  4. This subchapter does not apply to:
    1. An insurance policy offered by an insurer under the Arkansas Insurance Code and insurance laws of this state; or
    2. A debt cancellation or debt suspension contract being offered in compliance with 12 C.F.R. Part 37 or 12 C.F.R. Part 721 or other applicable federal laws.
    1. Guaranteed asset protection waivers governed under this subchapter are not insurance and are exempt from the insurance laws of this state.
    2. Persons marketing, selling, or offering to sell guaranteed asset protection waivers to borrowers that comply with this subchapter are exempt from this state's insurance licensing requirements.

History. Acts 2019, No. 787, § 1.

Publisher's Notes. The Arkansas Insurance Code, referred to in this section, was originally enacted by Acts 1959, No. 148. Acts 1959, No. 148 is codified as set out in the note following § 23-60-101.

4-90-802. Definitions.

As used in this subchapter:

  1. “Administrator” means a person, other than an insurer or creditor, that performs administrative or operational functions under a guaranteed asset protection waiver program;
  2. “Borrower” means a debtor, retail buyer, or lessee under a finance agreement;
  3. “Creditor” means:
    1. A lender in a loan or credit transaction;
    2. A lessor in a lease transaction;
    3. Any retail seller in a retail installment transaction;
    4. A seller in a commercial retail installment transaction; or
    5. An assignee of any of the above to whom a credit obligation is payable;
  4. “Finance agreement” means a loan, lease, or retail installment sales contract for the purchase or lease of a motor vehicle;
  5. “Free look period” means the period of time, not less than thirty (30) days, from the effective date of the guaranteed asset protection waiver until the date the borrower may cancel the contract without imposition of a penalty, fee, or cost to the borrower;
  6. “Guaranteed asset protection waiver” means a contractual agreement wherein a creditor, for a separate charge, agrees to cancel or waive all or part of the amount due on a borrower's finance agreement with the creditor in the case of a total physical damage loss or unrecovered theft of the motor vehicle, and the contractual agreement is part of or a separate addendum to the borrower's finance agreement;
  7. “Insurer” means an insurance company that is licensed, registered, or otherwise authorized to do business under the insurance laws of this state;
  8. “Motor vehicle” means a self-propelled or towed vehicle designed for personal or commercial use, including without limitation:
    1. An automobile;
    2. A truck;
    3. A motorcycle;
    4. A recreational vehicle;
    5. An all-terrain vehicle;
    6. A snowmobile;
    7. A camper;
    8. A boat;
    9. A personal watercraft;
    10. A motorcycle trailer;
    11. A boat trailer;
    12. A camper trailer; and
    13. A personal watercraft trailer;
  9. “Person” means an individual, company, association, organization, partnership, business trust, corporation, or any other form of legal entity;
  10. “Retail buyer” means a person who buys or agrees to buy a motor vehicle; and
  11. “Retail seller” means a motor vehicle dealer that sells, or offers to sell, a motor vehicle.

History. Acts 2019, No. 787, § 1.

4-90-803. Requirements for offering guaranteed asset protection waivers.

  1. A guaranteed asset protection waiver may be offered, sold, or provided to a borrower in this state under this subchapter.
  2. At the option of the creditor that offers the guaranteed asset protection waiver, a guaranteed asset protection waiver may:
    1. Be sold for a single payment; or
    2. Be offered with a monthly or periodic payment option.
  3. Notwithstanding any other provision of law, any cost to the borrower for a guaranteed asset protection waiver entered into in compliance with the Truth in Lending Act, 15 U.S.C. § 1601 et seq., and its implementing federal regulations, as it existed on January 1, 2019, shall be separately itemized in the finance agreement and is not to be considered a finance charge or interest.
    1. A retail seller shall insure its guaranteed asset protection waiver obligations under a contractual liability or other insurance policy issued by an insurer.
    2. A creditor, other than a retail seller, may insure its guaranteed asset protection waiver obligations under a contractual liability policy or other policy issued by an insurer.
      1. The insurance policy may be directly obtained by a creditor, retail seller, or procured by an administrator to cover a creditor's or retail seller's obligations under the guaranteed asset protection waiver.
      2. A retail seller that is a lessor of motor vehicles and does not assign its finance agreements is not required to insure its obligations related to guaranteed asset protection waivers on its sold or leased vehicles.
  4. The guaranteed asset protection waiver remains a part of the finance agreement upon an assignment, sale, or transfer of the finance agreement by the creditor.
  5. Neither the extension of credit, the term of credit, nor the term of the related motor vehicle sale or lease may be conditioned on the purchase of a guaranteed asset protection waiver.
  6. A creditor that offers a guaranteed asset protection waiver shall report the sale of, and forward funds received on, all waivers to the designated party, if any, as prescribed in any applicable administration services agreement, contractual liability policy, other insurance policy, or other specified program documents.
  7. Moneys received or held by a creditor or administrator and belonging to an insurer, creditor, or administrator, under the terms of a written agreement, shall be held by the creditor or administrator in a fiduciary capacity.

History. Acts 2019, No. 787, § 1.

4-90-804. Contractual liability or other insurance policies.

  1. A contractual liability policy or other insurance policy insuring a guaranteed asset protection waiver shall state the obligation of the insurer to reimburse or pay to the creditor any sums the creditor is legally obligated to waive under the guaranteed asset protection waiver issued by the creditor and purchased or held by the borrower.
  2. Coverage under a contractual liability or other insurance policy insuring a guaranteed asset protection waiver shall also cover any subsequent assignee upon the assignment, sale, or transfer of the finance agreement.
  3. Coverage under a contractual liability or other insurance policy insuring a guaranteed asset protection waiver shall remain in effect unless canceled or terminated in compliance with the applicable insurance laws of this state.
  4. The cancellation or termination of a contractual liability or other insurance policy shall not reduce the insurer's responsibility for guaranteed asset protection waivers issued by the creditor before the date of cancellation or termination and for which a premium has been received by the insurer.

History. Acts 2019, No. 787, § 1.

4-90-805. Disclosures.

A guaranteed asset protection waiver shall disclose, as applicable, in writing and in clear and understandable language that is easy to read, the following:

  1. The name and address of the initial creditor, the borrower at the time of sale, and the identity of any administrator, if different from the initial creditor;
  2. The purchase price and the terms of the guaranteed asset protection waiver, including without limitation the requirements for protection, conditions, or exclusions associated with the guaranteed asset protection waiver;
  3. That the borrower may cancel the guaranteed asset protection waiver within a free look period as specified in the guaranteed asset protection waiver, and will be entitled to a full refund of the purchase price, so long as no benefits have been provided;
  4. The procedure the borrower has to follow, if any, to obtain guaranteed asset protection waiver benefits under the terms and conditions of the guaranteed asset protection waiver, including a telephone number and address where the borrower may apply for waiver benefits;
  5. Whether or not the guaranteed asset protection is cancelable after the free look period and, if so, the conditions under which it may be canceled or terminated, including the procedures for requesting any refund due;
    1. That in order to receive any refund due in the event of a borrower's cancellation of the guaranteed asset protection waiver agreement or early termination of the finance agreement after the free look period of the guaranteed asset protection waiver, the borrower, according to the terms of the waiver, shall provide a written notice requesting to cancel to the creditor, administrator, or other party.
    2. If the request is being made due to the early termination of the finance agreement, the notice shall be provided to the creditor, administrator, or other party within ninety (90) days of the occurrence of the event terminating the finance agreement;
  6. The methodology for calculating any refund of the unearned purchase price of the guaranteed asset protection waiver due, in the event of cancellation of the guaranteed asset protection waiver or early termination of the finance agreement;
  7. That the extension of credit, the terms of the credit agreement, or the terms of the related motor vehicle sale or lease shall not be conditioned on the purchase of the guaranteed asset protection waiver; and
  8. That the cost of the guaranteed asset protection waiver is not regulated and that the borrower should determine whether the cost of the guaranteed asset protection waiver is reasonable in relation to the protection afforded by the guaranteed asset protection waiver.

History. Acts 2019, No. 787, § 1.

4-90-806. Cancellation of guaranteed asset protection waiver.

    1. A guaranteed asset protection waiver agreement may be cancelable or may not be cancelable after the free look period.
    2. A guaranteed asset protection waiver that is cancelable shall provide that if a borrower cancels a guaranteed asset protection waiver within the free look period, the borrower shall be entitled to a full refund of the purchase price, so long as no benefits have been provided.
    1. Upon a borrower's cancellation of the guaranteed asset protection waiver or early termination of the finance agreement, after the agreement has been in effect beyond the free look period and no benefits have been provided, the borrower shall be entitled to a refund of any unearned portion of the purchase price of the waiver less any cancellation fee no greater than seventy-five dollars ($75.00) according to the terms of the waiver.
    2. In order to receive a refund, a borrower shall provide a written notice requesting to cancel the guaranteed asset protection waiver to the creditor, administrator, or other party under any applicable terms of the guaranteed asset protection waiver.
    3. If the request is being made due to the early termination of the finance agreement, the notice shall be provided by the borrower to the creditor, administrator, or other party within ninety (90) days of the occurrence of the event terminating the finance agreement.
  1. If the cancellation of the guaranteed asset protection waiver occurs as a result of a default under the finance agreement, the repossession of the motor vehicle associated with the finance agreement, or any other termination of the finance agreement, any refund due may be paid directly to the creditor or administrator and applied as stated in subsection (d) of this section.
  2. A cancellation refund under this section may be applied by the creditor as a reduction of the amount owed under the finance agreement, unless the borrower can show that the finance agreement has been paid in full.

History. Acts 2019, No. 787, § 1.

4-90-807. Commercial transactions — Exemptions.

Section 4-90-803(c), § 4-90-805, and § 4-90-808 shall not apply to a guaranteed asset protection waiver offered in a commercial transaction involving a lease or retail installment sale.

History. Acts 2019, No. 787, § 1.

4-90-808. Enforcement.

  1. The Insurance Commissioner may take action that is necessary or appropriate to enforce this subchapter and to protect guaranteed asset protection waiver holders in this state.
  2. After notice and opportunity for hearing, the commissioner may:
    1. Order the creditor, administrator, or other person that is not complying with this subchapter to cease and desist from further guaranteed asset protection waiver-related operations that are in violation of this subchapter; and
      1. Impose a penalty of no more than five hundred dollars ($500) per violation and a maximum total of no more than ten thousand dollars ($10,000) for all violations of a similar nature.
      2. For purposes of this section, a violation shall be of a similar nature if the violation consists of the same or similar course of conduct, action, or practice, regardless of the number of times the conduct, action, or practice that is determined to be a violation has occurred.

History. Acts 2019, No. 787, § 1.

Chapter 91 Credit Services Organizations

Subchapter 1 — Credit Services Organizations Act of 1987

4-91-101 — 4-91-109. [Repealed.]

Publisher's Notes. This subchapter, concerning the “Credit Services Organizations Act of 1987”, was repealed by Acts 2017, No. 944, §§ 2-10. The subchapter was derived from the following sources:

4-91-101. Acts 1987, No. 321, § 1.

4-91-102. Acts 1987, No. 321, § 2.

4-91-103. Acts 1987, No. 321, § 8.

4-91-104. Acts 1987, No. 321, § 8; 1991, No. 786, § 1.

4-91-105. Acts 1987, No. 321, § 9.

4-91-106. Acts 1987, No. 321, §§ 3, 4.

4-91-107. Acts 1987, No. 321, § 5.

4-91-108. Acts 1987, No. 321, § 6; 1991, No. 786, § 2.

4-91-109. Acts 1987, No. 321, § 7.

Subchapter 2 — Credit Repair Services Organizations Act of 2017

4-91-201. Title.

This subchapter shall be known and may be cited as the “Credit Repair Services Organizations Act of 2017”.

History. Acts 2017, No. 944, § 1.

4-91-202. Definitions — Interest — Statement Required — Contracts — Prohibited Conduct.

  1. As used in this subchapter:
    1. “Buyer” means a person or entity that has received credit in a loan transaction and is obligated to repay the loan amount;
    2. “Consumer” means an individual who is solicited to purchase or who purchases the services of a credit services organization;
      1. “Credit repair services organization” means a person or entity that, with respect to the extension of credit by others, sells, provides, performs, or represents that the person or entity will sell, provide, or perform, in return for the payment of money or other valuable consideration, any of the following services:
        1. Improve a buyer's credit record, history, or rating;
        2. Obtain an extension of credit for a buyer;
        3. Locate an independent, unaffiliated third-party lender for a buyer;
        4. Obtain an installment loan from an independent third-party lender; or
        5. Provide advice or assistance to a buyer with regard to subdivision (3)(A)(i), subdivision (3)(A)(ii), or subdivision (3)(A)(iii) of this section.
      2. “Credit repair services organization” does not include:
        1. A person or entity authorized to make loans under state or federal law, if the person or entity is:
          1. Subject to regulation and supervision by a state or federal regulatory agency; or
          2. A lender approved by the United States Secretary of Housing and Urban Development for participation in a mortgage insurance program under the National Housing Act, 12 U.S.C. § 1701 et seq.;
        2. A bank, trust company, savings bank, building and loan association, savings and loan company or association, or credit union, authorized to do business under state or federal laws relating to financial institutions, the accounts of which are insured by the Federal Deposit Insurance Corporation, the National Credit Union Administration, or their operating subsidiaries;
        3. A nonprofit corporation that qualifies as a nonprofit entity under § 501(c)(3) of the Internal Revenue Code;
        4. A licensed real estate agent or broker who is performing those activities subject to the regulation of the Arkansas Real Estate Commission;
        5. A licensed collection agency that is performing those activities subject to the regulation of the State Board of Collection Agencies;
        6. An attorney licensed in Arkansas rendering legal services to his or her client, when the conduct that would subject the attorney to the jurisdiction of this section is ancillary to the provision of the legal services offered;
        7. A person doing business under the laws of this state or the United States relating to any broker-dealer or commodity futures commission merchant or commodity trading advisor or agent registered and regulated by the State Securities Department or the United States Commodity Futures Trading Commission; or
        8. A consumer reporting agency as defined in 15 U.S.C. § 1681a(f), as it existed on January 1, 2017;
    3. “Extension of credit” means the right, offered or granted primarily for personal, family, or household purposes, to defer payment of debt or to incur debt and defer its payment;
    4. “Lender” means a person or entity engaged in the business of making loans to buyers through a credit services organization; and
      1. “Loan” means an advance of funds or moneys that is conditioned on the obligation of a person or entity to repay the funds or moneys under a loan agreement, note, contract, or other instrument or document evidencing the indebtedness.
      2. “Loan” includes payments for interest, expenses, and charges incurred with the making of the loan.
    1. The maximum rate of interest provided by § 4-57-104 applies to a loan obtained under this section.
    2. Any amount paid or payable to a credit repair services organization under a loan obtained under this section that exceeds the amount provided by the lender to the buyer in connection with a loan shall be included as interest for purposes of § 4-57-104.
    1. Before the execution of a contract or agreement between the buyer and a credit repair services organization or before the receipt by the credit repair services organization of any money or other valuable consideration, whichever occurs first, the credit repair services organization shall provide the buyer with a statement in writing containing:
      1. A complete and accurate statement of the buyer's right to review any file on the buyer that is maintained by any consumer reporting agency, as provided under the federal Fair Credit Reporting Act, 15 U.S.C. §§ 1681-1681t;
      2. A statement that the buyer may review his or her consumer reporting agency file at no charge if a request is made to the consumer reporting agency within thirty (30) days after receiving notice that credit has been denied;
      3. The approximate price the buyer will be charged by the consumer reporting agency to review his or her consumer reporting agency file;
      4. A complete and accurate statement of the buyer's right to dispute the completeness or accuracy of any item contained in any file on the buyer maintained by any consumer reporting agency;
      5. A complete and detailed description of the services to be performed by the credit repair services organization for the buyer and the total amount the buyer will have to pay, or become obligated to pay, for the services;
      6. A statement asserting the buyer's right to proceed against the bond or trust account required under subdivision (e)(1) of this section; and
      7. The name and address of the surety company that issued the bond or the name and address of the depository and the trustee and the account number of the trust account.
    2. The credit repair services organization shall maintain on file for a period of two (2) years an exact copy of the statement, personally signed by the buyer, acknowledging receipt of a copy of the statement.
    1. A contract or agreement governing a credit repair services organization transaction or extension of credit shall:
      1. Be in writing;
        1. Prominently disclose the annual percentage rate applicable to the loan transaction.
        2. The annual percentage rate shall be included in bold 20-point type and Arial font surrounded by a 1.5 point rectangle, as follows:
      2. Provide a conspicuous statement in boldface type, in immediate proximity to the space reserved for the signature of the buyer, as follows:
      3. Disclose the terms and conditions of payment, including the total of all payments to be made by the buyer, whether to the credit repair services organization or to some other person;
      4. Provide a full and detailed description of the services to be performed by the credit repair services organization for the buyer, including all guarantees and all promises of full or partial refunds, and the estimated date by which the services are to be performed or the estimated length of time for performing the services; and
      5. Provide the credit repair services organization's principal business address and the name and address of its agent in this state authorized to receive service of process.
    2. The contract shall be accompanied by a completed form in duplicate, captioned “Notice of Cancellation”, that shall be attached to the contract, be easily detachable, and contain in boldface type the following statement written in the same language as used within the contract:
    3. The credit repair services organization shall give to the buyer a copy of the completed contract and all other documents the credit services organization requires the buyer to sign at the time of the cancellation of the contract.
  2. A credit repair services organization, its salespersons, agents, and representatives, and independent contractors who sell or attempt to sell the services of a credit repair services organization shall not:
    1. Charge or receive any money or other valuable consideration before complete performance of the services the credit repair services organization has agreed to perform for the buyer unless the credit repair services organization:
      1. Obtains a surety bond of ten thousand dollars ($10,000) issued by a surety company having a right to do business in this state; and
      2. Establishes a trust account at a state or national bank or savings and loan association in this state, if the funds deposited into the trust account are federally insured;
    2. Charge or receive any money or other valuable consideration solely for referral of the buyer to a lender that may extend credit to the buyer if the credit that is extended to the buyer is upon substantially the same terms as those available to the general public;
    3. Make, counsel, or advise a buyer to make any statement concerning a buyer's credit worthiness, credit standing, or credit capacity that is untrue or misleading or that should be known by the exercise of reasonable care to be untrue or misleading to a credit reporting agency or to a person who has extended credit to a buyer or to whom a buyer is applying for an extension of credit; or
    4. Make or use any untrue or misleading representations in the offer or sale of the services of a credit repair services organization or engage, directly or indirectly, in any act, practice, or course of business that operates or would operate as fraud or deception upon any person in connection with the offer or sale of the services of a credit repair services organization.
    1. A waiver by a buyer of any part of this subchapter is void.
    2. An attempt by a credit repair services organization to have a buyer waive rights given by this subchapter is a violation of this subchapter.
  3. In any proceeding involving this subchapter, the burden of proving an exemption or an exception from a definition described in this subchapter is upon the person claiming it.
  4. A violation of this section is:
    1. A deceptive and unconscionable trade practice under § 4-88-107; and
    2. Subject to the penalties, remedies, and enforcement provided by § 4-88-101 et seq.

“ APR

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“You, the Buyer, may cancel this contract at any time before midnight of the fifth day after the date of the transaction. See the attached notice of cancellation form for an explanation of this right”;

“Notice of Cancellation: Buyer may cancel this contract without any penalty or obligation within five (5) days from the date the contract is signed. If Buyer cancels this contract, any payment made by Buyer under this contract will be returned within ten (10) days following receipt by the Seller of Buyer's cancellation notice. To cancel this contract, mail or deliver a signed dated copy of this cancellation notice or any other written notice to (name of seller) at (address of seller) (place of business) not later than midnight (date). I hereby cancel this transaction, (date) (purchaser's signature).”

History. Acts 2017, No. 944, § 1.

Chapter 92 Rental Purchases

4-92-101. Title.

This chapter shall be known and may be cited as the “Rental Purchase Act”.

History. Acts 1987, No. 490, § 1.

4-92-102. Definitions.

As used in this chapter, unless the context otherwise requires:

  1. “Advertisement” means a commercial message in any medium that directly or indirectly promotes or assists a rental-purchase agreement, except for in-store merchandising aids;
  2. “Consumer” means a person who leases personal property under a rental-purchase agreement;
  3. “Merchandise” means the personal property that is the subject of a rental-purchase agreement;
  4. “Lessor” means a person who, in the ordinary course of business, regularly leases, offers to lease, or arranges for the leasing of merchandise under a rental-purchase agreement and includes a person who is assigned an interest in a rental-purchase agreement;
  5. “Person” means an individual, corporation, partnership, organization, or any other entity;
  6. “Reinstatement period” means the period of time specified in § 4-92-106 during which a consumer may either pay delinquent rent or return merchandise and thereby retain the right to have the rental-purchase agreement reinstated; and
  7. “Rental-purchase agreement” means an agreement for the use of merchandise by a consumer for personal, family, household, or business purposes for an initial period of four (4) months or less that is automatically renewable with each payment after the initial period, but does not obligate or require the consumer to continue leasing or using the merchandise after the initial period, and that permits the consumer to become the owner of the merchandise, but does not obligate the consumer to purchase or become the owner of the merchandise.

History. Acts 1987, No. 490, § 2.

Case Notes

Cited: In re Taylor, 130 B.R. 849 (Bankr. E.D. Ark. 1991).

4-92-103. Liability of lessor.

  1. A consumer damaged by a violation of this chapter by a lessor is entitled to recover from the lessor:
    1. Actual damages;
    2. Twenty-five percent (25%) of an amount equal to the total amount of payments required to obtain ownership of the merchandise involved. However, the amount recovered under this subdivision (a)(2) may not be less than one hundred dollars ($100) nor more than one thousand dollars ($1,000); and
    3. Reasonable attorney's fees not to exceed fifteen percent (15%) of the consumer's allowable recovery and court costs.
    1. Any execution or enforcement of a rental-purchase agreement in violation of this chapter or any other violation of this chapter shall constitute an unfair or deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this chapter.

History. Acts 1987, No. 490, § 8; 1993, No. 1050, § 1.

4-92-104. Agreement — Nature.

An agreement which conforms with the definition as set forth in § 4-92-102(7) shall be a true lease and shall not constitute a credit sale, retail installment contract, agreement, obligation, or any other type of credit sale financing device, nor shall it create a security interest as that term is defined in § 4-1-201(b)(35). Until the lessor transfers title to the merchandise to the consumer, the relationship of the parties to a rental-purchase agreement shall be that of a lessor and lessee and not that of a seller and buyer, and title to the merchandise shall remain vested with the lessor.

History. Acts 1987, No. 490, § 3.

Case Notes

True Lease.

The agreements between the debtor and its creditor complied, in every respect, with the provisions of § 4-92-105 and therefore, the agreements were determined to be leases. In re Taylor, 130 B.R. 849 (Bankr. E.D. Ark. 1991).

4-92-105. Agreement — Provisions prohibited and required.

  1. A rental-purchase agreement shall not contain a provision:
    1. Requiring a confession of judgment;
    2. Authorizing a merchant or agent of the merchant to commit a breach of the peace while repossessing merchandise;
    3. Waiving a defense, counterclaim, or right the consumer may have against the merchant or an agent of the merchant; or
    4. Requiring the purchase of insurance from the merchant to cover the merchandise.
  2. A rental-purchase agreement must disclose:
    1. Whether the merchandise is new or used;
    2. The amount and timing of regular rental payments;
    3. The total number of payments necessary and the total amount to be paid to acquire ownership;
    4. The amounts and purpose of any other payment, charge, or fee in addition to the regular periodic rental payment;
    5. That the consumer does not acquire any ownership rights until the consumer has complied with the ownership terms of the agreement;
    6. Whether the consumer is liable for loss or damage to the merchandise, and if so, the maximum amount for which the consumer may be held liable; and
    7. Notice of the right to reinstate an agreement as provided in § 4-92-106(a).

History. Acts 1987, No. 490, §§ 4, 5.

Case Notes

Compliance.

The agreements between the debtor and its creditor complied, in every respect, with the provisions of this section and therefore, the agreements were determined to be leases. In re Taylor, 130 B.R. 849 (Bankr. E.D. Ark. 1991).

4-92-106. Agreement — Reinstatement.

  1. A consumer who fails to make a timely rental payment may reinstate an agreement without losing any rights or options previously acquired by either paying all rental and other charges due or returning the merchandise to the lessor within five (5) business days from the date of the last scheduled rental payment if the consumer pays rent monthly, or within two (2) business days from the date of the last scheduled rental payment if the consumer pays more frequently than monthly.
  2. Nothing in this section shall prevent the accrual of any late charges or reinstatement fees charged by the lessor.
  3. Nothing in this section shall prevent the lessor from attempting to repossess the merchandise during the reinstatement period, but the consumer's right to reinstate an agreement shall not expire because of the repossession.
  4. If the merchandise is returned during the applicable reinstatement period, other than through judicial process, the right to reinstate shall be extended for a period of not less than thirty (30) days after the date of the return of the merchandise.
  5. No consumer shall have the right to reinstate more than three (3) times during the term of any one (1) rental-purchase agreement.
  6. On reinstatement, the lessor shall provide the consumer with the same merchandise or shall substitute merchandise of comparable quality and condition. However, the lessor shall not be required to provide new disclosures upon reinstatement.

History. Acts 1987, No. 490, § 6.

4-92-107. Advertisements.

Any advertisement for a rental-purchase agreement must clearly and conspicuously state that the advertised transaction is a rental-purchase transaction.

History. Acts 1987, No. 490, § 7.

4-92-108. Personal property — Repossessed rental merchandise.

  1. This section applies when merchandise becomes attached to the personal property of the consumer that is subject to a perfected lien of a secured creditor while the merchandise is being leased from a lessor under a rental-purchase agreement.
    1. If a secured creditor has a security interest in the personal property of a consumer and the merchandise has become attached to that consumer's personal property, and a lessor repossesses the merchandise attached to the consumer's personal property before the consumer becomes the owner of such merchandise, then at the time of repossession the lessor shall install substitute new or used factory quality equipment that is reasonably calculated to keep the personal property of the consumer usable and operable.
    2. A lessor is liable to a secured creditor for the cost and installation of the substitute equipment if a lessor does not comply with subdivision (b)(1) of this section at the time of repossession.
  2. If a secured creditor repossesses the collateral of the secured creditor before the consumer becomes the owner of the merchandise that is attached to the collateral and before the collateral is resold, then the secured creditor shall:
    1. Work with the lessor to comply with subdivision (b)(1) of this section; or
    2. Pay the lessor whichever is the lesser amount:
      1. The original cost of the merchandise; or
      2. The total of remaining rental payments on the consumer's rental purchase agreement with the lessor.

History. Acts 2019, No. 865, § 1.

Chapter 93 Credit Reporting Disclosures

Research References

Am. Jur. 15A Am. Jur. 2d, Coll. & Cr. A., § 1 et seq.

C.J.S. 21 C.J.S. Cr. Rep. Ag. § 1 et seq.

4-93-101. Title.

This chapter may be known and cited as the “Credit Reporting Disclosure Act of 1989”.

History. Acts 1989, No. 431, § 1; 1989, No. 593, § 1.

4-93-102. Definitions.

As used in this chapter, the terms “consumer”, “consumer report”, “consumer reporting agency”, and “person” have the same meaning as used in the federal Fair Credit Reporting Act, 15 U.S.C. § 1681, 84 Stat. 1128.

History. Acts 1989, No. 431, § 2; 1989, No. 593, § 2.

4-93-103. Notice of adverse action — Required.

Whenever credit, the further extension of existing credit, or the increase in limits of existing credit for personal, family, or household purposes is denied either wholly or partly because of information contained in a consumer report from a consumer reporting agency, the user of the consumer report shall so advise the consumer against whom such adverse action has been taken.

History. Acts 1989, No. 431, § 3; 1989, No. 593, § 3.

4-93-104. Notice of adverse action — Contents — Damages.

  1. The notification of adverse action shall be in writing and shall contain:
    1. A statement of the action taken;
    2. The name and address of the creditor;
    3. The name and address of the consumer reporting agency making the report; and
    4. The social security number of the consumer, provided that the social security number has been given to the user of the consumer report by the consumer or is contained in the consumer report received from the consumer reporting agency.
  2. Any person who fails to provide the notification required by this chapter shall be liable to the injured party for actual damages.

History. Acts 1989, No. 431, § 4; 1989, No. 593, §§ 4, 5.

Chapter 94 Health Spa Consumer Protection Act

Research References

ALR.

Exercise and related equipment. 76 A.L.R.4th 145.

Liability of proprietor of private gymnasium, reducing salon, or similar health club for injury to patron. 79 A.L.R.4th 127.

Hotel, motel, resort, or private membership club or association operating swimming pool, liability for injury or death of guest or member. 55 A.L.R.5th 563.

U. Ark. Little Rock L.J.

Survey, Contracts, 12 U. Ark. Little Rock L.J. 611.

4-94-101. Title.

This chapter shall be known and may be cited as the “Health Spa Consumer Protection Act”.

History. Acts 1989, No. 264, § 1.

Research References

ALR.

Construction and Applicability of State Statutes Governing Health Club Membership Contracts or Fees. 48 A.L.R.6th 223.

4-94-102. Definitions.

As used in this chapter, unless the context otherwise requires:

  1. “Buyer” means a person who contracts for and purchases services under a health spa services contract;
  2. “Contract for health spa services” means a written agreement whereby a buyer purchases or is obligated to purchase the health spa services or a right to use its facilities;
    1. “Health spa” means and includes any person, firm, corporation, organization, club, or association engaged in the sale of memberships in a program of physical exercise which includes the use of one (1) or more of a sauna, whirlpool, weightlifting room, massage, steam room, or exercising machine or device, or engaged in the sale of the right or privilege to use exercise equipment or facilities, such as a sauna, whirlpool, weightlifting room, massage, steam room, or exercising machine or device.
    2. The term “health spa” shall not include the following:
      1. Bona fide nonprofit organizations, including, but not limited to, the Young Men's Christian Association, Young Women's Christian Association, or similar organizations whose functions as health spas are only incidental to the overall functions and purposes;
      2. Any organization primarily operated for the purpose of teaching a particular form of martial arts, such as judo or karate;
      3. Any nonprofit public or private school, college, or university;
      4. Any country club; or
      5. Weight-loss or weight-control services which do not provide physical exercise facilities and which do not obligate the customer for more than twenty-five (25) months; and
  3. “Seller” means the person, corporation, partnership, association, or group that is engaged in the operation of the health spa, as defined in this section and who offers for sale the right to use health spa facilities or services, now or in the future.

History. Acts 1989, No. 264, § 2.

4-94-103. Scope of chapter.

The provisions of this chapter are not exclusive and do not relieve the parties or the contracts subject thereto from compliance with all other applicable provisions of law.

History. Acts 1989, No. 264, § 6.

4-94-104. Written contract required — Delivery to buyer.

  1. Every contract for health spa services shall be in writing and be subject to the provisions of this chapter.
  2. A copy of the written contract shall be given to the buyer at the time the contract is executed.

History. Acts 1989, No. 264, § 3.

Research References

ALR.

Construction and Applicability of State Statutes Governing Health Club Membership Contracts or Fees. 48 A.L.R.6th 223.

4-94-105. Void or voidable provisions — Waiver.

  1. Any contract for health spa services which does not comply with the applicable provisions of this chapter shall be voidable at the option of the buyer.
    1. Any contract for health spa services entered into in reliance upon any willful and false, fraudulent, or misleading information, representation, notice, or advertisement of the seller shall be void and unenforceable.
      1. Any attempted enforcement of a health spa services contract in violation of this chapter shall constitute an unfair or deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
      2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this chapter.
  2. Any waiver of the buyer of the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.

History. Acts 1989, No. 264, §§ 7-9; 1993, No. 1048, § 1.

Research References

ALR.

Construction and Applicability of State Statutes Governing Health Club Membership Contracts or Fees. 48 A.L.R.6th 223.

4-94-106. Registration statement.

  1. Any person, corporation, partnership, association, or group intending to open or operate a health spa shall file an annual registration statement with the office of the Secretary of State prior to the sale of any contracts for health spa services.
  2. The registration statement shall contain:
    1. The name and address of the health spa;
    2. The names and addresses of the officers, directors, and stockholders of the health spa and its parent corporation, if such entity exists; and
    3. The types of available facilities.

History. Acts 1989, No. 264, § 10.

4-94-107. Payment period.

No contract for health spa services shall require payments or financing by the buyer over a period in excess of twenty-five (25) months from the date the contract is entered into, nor shall the term of any contract be measured by or be for the life of the buyer; however, the availability of the health spa facilities to the buyer and under the contract may extend over a period not to exceed two (2) years from the date the contract is entered into, with the right to renew for additional periods of equal length.

History. Acts 1989, No. 264, § 4.

4-94-108. Time for performance.

  1. Every contract for health spa services to be rendered at an existing health spa facility shall provide that the performance of the agreed-upon services will begin within forty-five (45) days from the date the contract is entered into.
  2. Every contract for health spa services at a planned spa facility or spa facility under construction shall, at the option of the buyer, be voidable in the event that the health spa facilities and the agreed-upon services are not available within one hundred eighty (180) days from the date the contract is entered into.

History. Acts 1989, No. 264, § 5.

4-94-109. Cancellation of contracts.

    1. Contracts for health spa services may be cancelled within three (3) business days after the date of receipt by the buyer of a copy of the contract by written notice to the seller at the address specified in the contract.
    2. The notice must be accompanied by the contract forms, membership cards, and any and all other documents and evidence of membership previously delivered to the buyer.
    3. All moneys paid pursuant to the contract shall be refunded within thirty (30) days of receipt of the notice of cancellation.
    1. Every contract for health spa services shall provide that, after the three-day period of cancellation as provided in subsection (a) of this section, the buyer's estate may cancel a contract for services if the buyer dies.
    2. The buyer may also cancel after three (3) days if the buyer becomes totally and permanently physically disabled or moves his or her residence to a location more than fifty (50) miles from a health club operated by the seller or a substantially similar health club facility which would accept the seller's obligation under the contract or after the services are no longer available as provided in the contract because of the seller's permanent discontinuance of operation.
    3. Nothing contained in this section or § 4-94-108 shall restrict or prohibit the seller from offering or providing in the contract additional or broader reasons for cancellation.
    1. The health spa shall have the right to require and verify reasonable evidence of permanent physical relocation, permanent physical disability, or death.
    2. In the case of permanent disability, the health spa may also require in the contract that the buyer submit to a physical examination by a doctor agreeable to the buyer and the health club.
  1. All moneys paid pursuant to any contract cancelled for the reasons contained in this section shall be refunded within thirty (30) days of receipt of the notice of cancellation; provided, however, that the seller may retain the benefits conferred and that portion of the total price representing the services used or completed, and further provided that the seller may receive the reasonable cost of goods and services which the buyer has consumed or wishes to retain after cancellation of the contract. In no instance shall the seller receive more than the full contract price from the buyer except for goods and services consumed by the buyer separate from the contract. If the buyer has executed any credit or loan agreement to pay for all or part of health spa services, then the credit or loan agreement executed by the buyer shall also be returned within thirty (30) days.

History. Acts 1989, No. 264, § 5.

Research References

ALR.

Construction and Applicability of State Statutes Governing Health Club Membership Contracts or Fees. 48 A.L.R.6th 223.

Chapter 95 Arkansas Mail and Telephone Consumer Product Promotion Fair Practices Act

4-95-101. Title.

This chapter may be known and cited as the “Arkansas Mail and Telephone Consumer Product Promotion Fair Practices Act”.

History. Acts 1991, No. 680, § 1.

4-95-102. Definitions.

As used in this chapter, unless the context otherwise requires:

  1. “Consumer product” means a good or service purchased, leased, or rented primarily for personal, family, or household purposes, including a course of instruction or training, regardless of the purpose for which it is taken;
  2. “Division” means the Consumer Protection Division of the Office of the Attorney General as created under § 4-88-105;
  3. “Gift or prize” means any premium, bonus, award, or any other similar language of inducement or incentive to purchase a consumer product;
  4. “Pay-per-call” means telecommunications services which permit simultaneous calling by a large number of callers to a single telephone number and for which the calling party is assessed, by virtue of completing the call, a charge that is not dependent on the existence of a presubscription relationship and for which the caller pays a per-call or per-time interval charge that is greater than, or in addition to, the charge for transmission of the call;
  5. “Person” means any individual, organization, group, association, partnership, corporation, or any combination of them; and
    1. “Product promoter” means any person who individually or through an agent and by means of a written notice sent through the mail or by telephone:
      1. Offers a gift, prize, or award with the intent to sell, lease, or rent any consumer product;
      2. Solicits to sell, lease, or rent a consumer product, in which the consumer product and all the material terms of the transaction, including the price, handling, shipping, delivery, or any other fee are not fully described and which requests the consumer contact the seller to complete the transaction; or
      3. Offers by gift, prize, or award any consumer product in which all material terms regarding the requirements of receiving such gift, prize, or award are not fully described.
    2. The term “product promoter” does not include any activities of nonprofit or charitable organizations exempt from federal income taxation under § 501(c)(3) of the United States Internal Revenue Code, 26 U.S.C. § 501(c)(3).

History. Acts 1991, No. 680, § 2; 1993, No. 139, §§ 1, 2.

4-95-103. Penalties — Criminal.

Any person who knowingly commits a practice defined as unlawful in this chapter shall be guilty of a Class B misdemeanor and upon conviction in the appropriate court of any county in this state in which any portion of the unlawful practice occurred shall be subject to punishment accordingly. If the amount in question solicited exceeds two hundred dollars ($200), the offense shall constitute a Class D felony.

History. Acts 1991, No. 680, § 6; 1993, No. 139, § 3; 1995, No. 1296, § 1.

4-95-104. Penalties — Civil.

In addition to the criminal penalty imposed in § 4-95-103, the Consumer Protection Division shall have authority to file a petition in the Pulaski County Circuit Court for civil enforcement of the provisions of this chapter by seeking an injunction prohibiting any person, firm, partnership, corporation, or any other entity from engaging in any unlawful practice. Violation of any of the provisions of this chapter shall constitute an unfair or deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to him or her or the enforcement of this chapter.

History. Acts 1991, No. 680, § 7; 1993, No. 139, § 4.

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-95-105. Offers of gifts or prizes.

  1. It shall be an unlawful practice under this chapter for any product promoter to enforce or to attempt to enforce an agreement for a consumer product not in compliance with the requirements of this chapter.
  2. It shall be an unlawful practice under this chapter for any person to offer a gift, prize, or award by means of written notice sent through the mail or by telephone with the intent to sell, lease, or rent a consumer product, or to initiate the sale, lease, or rental of a consumer product when, at the time of such offer, the consumer product and all the material terms of the transaction, including the price, handling, shipping, delivery, or any other fee, are not fully described, unless done so in compliance with this chapter.
  3. It shall be an unlawful practice for any person to offer a gift, prize, or award by means of written notice sent through the mail or by telephone with the intent to receive a payment of any money when at the time of such offer all of the material terms of the transaction, including handling, shipping, delivery, or any other fee, are not fully described and:
    1. Which requests the consumer to further the transaction by calling a 900 number or “pay-per-call”; or
    2. Which requests the consumer to send payment to claim the prize.

History. Acts 1991, No. 680, § 3; 1993, No. 139, §§ 5, 6.

4-95-106. Purchase agreements generally.

  1. Any agreement by a consumer to obtain a consumer product from a product promoter is not enforceable unless it is in writing, it contains the signature of the consumer, and it contains the following information:
    1. The name and address and telephone number of the product promoter;
    2. A list of the price or fee, including any handling, shipping, delivery, or other charges, being requested from the consumer;
    3. The date of the transaction;
    4. A detailed description of the consumer product; and
    5. In a type size of a minimum of 12-points, in a space immediately preceding the space allotted for the consumer's signature, the disclosure statement: “YOU ARE NOT OBLIGATED TO PAY ANY MONEY UNLESS YOU SIGN THIS CONTRACT AND RETURN IT TO THE SELLER.”
    1. If the consumer sends a payment to the product promoter in the form of cash, check, money order, or other form of payment without having included a signed copy of the agreement to obtain the consumer product, the consumer may cancel the transaction by notifying the product promoter in writing by certified mail with return receipt requested and returning the consumer product to the product promoter in substantially the same condition as he or she received the product.
    2. A product promoter who has received written notice of cancellation from a consumer, within ten (10) business days of the receipt of the notice, shall:
      1. Refund all payments made, including any down payment made under the agreement;
      2. Return any good or product traded in to the product promoter on account of or in contemplation of the agreement, in substantially the same condition as when it was received by the product promoter; and
      3. Take any action necessary or appropriate to terminate promptly any security interest created in connection with the agreement.
  2. A consumer product transaction is considered to have taken place in the State of Arkansas, regardless of the location of the product promoter, when the consumer has received an offer of a gift or prize or an initiation of a product transaction from the product promoter through the mail at an address within the state or through a telephone contact at a site within the state.

History. Acts 1991, No. 680, § 4.

4-95-107. Exemptions.

This chapter shall not apply to a consumer product transaction:

  1. That has been made in accordance with prior negotiations in the course of a visit by the consumer to a merchant operating a business establishment that has a fixed permanent location and where the consumer products are displayed or offered for sale, lease, or rent on a continuing basis;
  2. When the business establishment making the solicitation has made a related prior sale to the consumer or has a clear, continuing business relationship with the consumer, provided that the relationship resulted in the consumer's becoming aware of the full name, business address, and telephone number of the establishment; or
  3. When the consumer obtains a consumer product pursuant to an examination of a television, radio, or print advertisement or a sample brochure, catalog, or other mailed material of the product promoter which contains:
    1. The name, address, and telephone number of the product promoter;
    2. A full description of the consumer product along with a list of the price or fee being requested, including any handling, shipping, or delivery charge; and
    3. Any limitations or restrictions that apply to the offer.

History. Acts 1991, No. 680, § 5; 1993, No. 139, § 7.

4-95-108. Violation of subchapter renders agreement void — Waiver.

  1. Any agreement for sale, lease, or rent of a consumer product by a product promoter in violation of this chapter is void and unenforceable.
  2. Any waiver or attempt to waive any of the provisions of this chapter shall be void and unenforceable.

History. Acts 1991, No. 680, § 8.

Chapter 96 Farm Machinery

Subchapter 1 — General Provisions

[Reserved]

Subchapter 2 — Hour Meters on Farm Machinery

4-96-201. Alteration prohibited.

  1. No person shall knowingly tamper with, adjust, alter, change, set back, disconnect, or, with intent to defraud, fail to connect the hour meter of any farm machinery, or cause any of the foregoing to occur to an hour meter of any farm machinery, so as to reflect fewer hours than the farm machinery has actually been operated.
  2. No person, with the intent to defraud, shall operate any farm machinery knowing that the hour meter is disconnected or nonfunctional.
  3. No person shall advertise for sale, sell, use, or install on any part of any farm machinery or on any hour meter on any farm machinery any device which causes the hour meter to register any hours other than the true hours of operation.
  4. No person shall sell or offer for sale any farm machinery with knowledge that the hours registered on the hour meter have been altered so as to reflect fewer hours than the farm machinery has actually been operated without disclosing such fact to prospective purchasers.

History. Acts 1991, No. 186, § 1.

4-96-202. Conspiracy to violate subchapter — Penalties.

  1. No person shall conspire with any other person to violate this subchapter.
  2. Any person who is found to have violated the provisions of this subchapter shall be guilty of a Class A misdemeanor.
    1. A violation of this subchapter shall constitute an unfair or deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this subchapter.

History. Acts 1991, No. 186, § 1; 1993, No. 908, § 1; 2005, No. 1994, § 219.

Subchapter 3 — Arkansas New Farm Machinery Quality Assurance Act

4-96-301. Title.

This subchapter shall be known and may be cited as the “Arkansas New Farm Machinery Quality Assurance Act”.

History. Acts 2019, No. 588, § 1.

4-96-302. Definitions.

As used in this subchapter:

  1. “Authorized dealer” means an individual, corporation, or limited liability company authorized by the manufacturer or distributor to sell, barter, or exchange a particular make of new farm machinery;
  2. “Collateral charges” means any reasonable additional charge to a consumer not directly attributable to the aggregate purchase price of the farm machinery;
  3. “Comparable farm machinery” means an identical or reasonable replacement piece of farm machinery;
  4. “Consumer” means a purchaser or lessee of new farm machinery, other than for purposes of resale, or a person entitled to enforce the obligations of the warranty during the duration of the farm machinery quality assurance period;
    1. “Farm machinery” means self-propelled equipment or machinery typically used for agricultural purposes that is purchased or leased for the first time from a manufacturer, distributor, or an authorized dealer.
    2. “Farm machinery” includes farm machinery propelled by power other than physical power if the farm machinery is not an off-road vehicle, an all-terrain vehicle, as defined under § 27-21-102, equipment under twenty-five horsepower (25 h.p.), lawn tractors, or lawn mowers;
  5. “Farm machinery quality assurance period” means a period of time that:
    1. Begins:
      1. On the date of original delivery of farm machinery; or
      2. In the case of a replacement piece of farm machinery provided by a manufacturer to a consumer under this subchapter, on the date of delivery of the replacement vehicle to the consumer; and
    2. Ends twelve (12) months after the date of the original delivery of the farm machinery to a consumer, or the first six hundred (600) hours of operation attributable to the consumer, whichever is earlier;
  6. “Nonconformity” means any condition of farm machinery that:
    1. Does not conform with the terms of an express warranty issued by a manufacturer to a consumer;
    2. Significantly impairs the use, value, or safety of the farm machinery; and
    3. Does not arise or occur as a result of abuse or neglect, including without limitation failure to operate and maintain the farm machinery according to the manufacturer's operator manual and recommended maintenance of the farm machinery;
  7. “Reasonable allowance for consumer use” means an amount attributable to use by a consumer:
    1. Before the consumer's first report of the nonconformity to the manufacturer or authorized dealer of the farm machinery;
    2. During any period of use of the farm machinery subsequent to the first report of nonconformity if the farm machinery is not out of service by reason of repair of the reported nonconformity; and
    3. Of the farm machinery provided by the manufacturer or its authorized dealer while the farm machinery is out of service by reason of repair of the reported nonconformity, but not less than the fair lease value of the farm machinery;
  8. “Seller” means a retail seller of the farm machinery as evidenced by the purchase order or lease agreement, that may be a dealer, distributor, manufacturer, or manufacturer's agent; and
    1. “Warranty” means a written warranty, as labeled, issued by a manufacturer of new farm machinery or an affirmation of fact or promise made by the manufacturer, including any terms or conditions precedent to the enforcement of obligations under that warranty in connection with the sale or lease of farm machinery to a consumer concerning the nature of the material or workmanship that affirms or promises that the material or workmanship is free of defects or will meet a specified level of performance.
    2. “Warranty” does not include a statement or expression made by an authorized dealer.

History. Acts 2019, No. 588, § 1.

4-96-303. Disclosure by seller.

    1. When a consumer purchases or leases farm machinery from a seller, the seller shall at the time of purchase or lease transaction:
      1. Provide to the consumer a written statement that adequately discloses and explains the rights and obligations of a consumer under this subchapter;
      2. Obtain a signed acknowledgment from the consumer of the receipt of the written statement described in subdivision (a)(1)(A) of this section; and
      3. For self-propelled farm machinery, maintain copies of the consumer's signed acknowledgment for at least the period equal to the term of coverage of the manufacturer's warranty.
    2. It is a violation of this subchapter for a seller to fail to provide to a consumer the written statement required under subdivision (a)(1)(A) of this section.
    1. The Consumer Protection Division of the office of the Attorney General shall prepare and make available, in either print or by electronic form, a written statement as described in subdivision (a)(1)(A) of this section that includes the telephone number of the division that the consumer can call to obtain information regarding his or her rights and obligations under this subchapter.
    2. It is a violation of this subchapter for a seller to fail to provide to a consumer the written statement described in subdivision (b)(1) of this section.
  1. For each failure of the seller to provide to a consumer the written statement required under this section or failure to retain a signed acknowledgement form, the seller shall be liable to the state for a civil penalty of not less than twenty-five dollars ($25.00) but no more than one thousand dollars ($1,000).
    1. A seller shall clearly and conspicuously disclose to the consumer that written notice of a nonconformity is required before the buyer may be eligible for a refund or replacement of the farm machinery.
    2. At the time of acquisition of farm machinery, a seller shall provide the consumer with conspicuous notice of the address and phone number for the manufacturer, distributor, or authorized dealer at the time of acquisition of farm machinery to which the buyer shall send notification of a nonconformity.
    1. If farm machinery does not conform to any applicable express warranties and the consumer provides written notice by certified mail to the manufacturer, distributor, or authorized dealer demanding correction or repair of the nonconformity during the term of the express warranty or during the farm machinery quality assurance period, whichever period expires earlier, the manufacturer, agent of a manufacturer, distributor, or an authorized dealer shall make any necessary repairs to conform the farm machinery to the express warranties, notwithstanding the fact that the repairs are made after the expiration of the term of the express warranty or farm machinery quality assurance period.
    2. For self-propelled farm machinery, this section is limited to warranty coverage for the engine, transmission, and power train.
  2. This subchapter applies to farm machinery sold on or after January 1, 2020.

History. Acts 2019, No. 588, § 1.

4-96-304. Right to repair.

After notice is provided under § 4-96-303, a manufacturer, a distributor, or an authorized dealer shall have the right to repair a nonconformity of farm machinery:

    1. Three (3) times for the same repair issue or thirty (30) days out of service for the same issue under this subchapter.
    2. The cost of three (3) repairs shall equal at least thirty percent (30%) of the total purchase price of the farm machinery in order to trigger recourse under this subchapter; or
    1. Five (5) times for all issues or sixty (60) days of out of service time.
    2. The cost of five (5) repairs under subdivision (2)(A) of this section shall be equal to at least fifty percent (50%) of the total purchase price of the farm machinery in order to trigger recourse under this subchapter.
    3. Days of out of service time do not count for the purposes of subdivision (1)(A) of this section if the authorized dealer provides comparable farm machinery.

History. Acts 2019, No. 588, § 1.

4-96-305. Refund or replacement.

  1. If a manufacturer, an agent of a manufacturer, a distributor, or an authorized dealer does not conform farm machinery to the warranty as required under § 4-96-303, after notice of the nonconformity under § 4-96-303 by repairing or correcting one (1) or more nonconformities that substantially impair the farm machinery after a reasonable number of attempts, then, within thirty (30) days, the manufacturer or distributor shall:
    1. At the time of receipt of payment of a reasonable offset for use by the consumer, replace the farm machinery with comparable farm machinery acceptable to the consumer; or
    2. Repurchase the farm machinery from the buyer or lessor and refund to the buyer or lessor the full purchase price or lease price, less:
      1. A reasonable allowance for consumer use; and
      2. A reasonable offset for physical damage sustained by the farm machinery while under the ownership of the consumer.
  2. The replacement or refund under subsection (a) of this section shall include payment of all collateral charges and reasonably incurred incidental charges.
  3. A buyer has an unconditional right to choose a refund rather than a replacement under this subchapter.
  4. At the time of the refund or replacement, a consumer, lien holder, or lessor shall furnish clear title to and possession of the farm machinery to the manufacturer, distributor, or authorized dealer.
  5. The amount of reasonable allowance for consumer use is determined by the fair lease value of the farm machinery.

History. Acts 2019, No. 588, § 1.

4-96-306. Affirmative defenses.

It is an affirmative defense to a claim under this subchapter that:

  1. A defect or condition does not substantially impair the use, value, or safety of the farm machinery;
  2. A nonconformity is the result of an accident, abuse, neglect, or unauthorized modification or alteration of the farm machinery by a person other than the manufacturer, agent of a manufacturer, distributor, or an authorized dealer;
  3. A claim by the consumer was not filed in good faith; or
  4. If there are any other defenses allowed by law that may be raised against the claim.

History. Acts 2019, No. 588, § 1.

4-96-307. Enforcement — Exclusivity — Costs and expenses.

  1. A consumer may bring a civil action to enforce this subchapter in a court of competent jurisdiction.
  2. This subchapter does not limit the rights and remedies that are otherwise available to a consumer under any applicable law.
    1. A consumer who prevails in a legal proceeding under this subchapter is entitled to recover, as part of the judgment, a sum equal to the aggregate amount of costs and expenses, including attorney's fees.
    2. The attorney's fees shall be:
      1. Based on actual time expended by the attorney; and
      2. Based on charges reasonably incurred by the consumer for or in connection with the commencement and prosecution of the action as determined by the court.

History. Acts 2019, No. 588, § 1.

4-96-308. Action — Limitations.

  1. A legal action brought under this subchapter shall commence within two (2) years following the date a buyer first reports the nonconformity to a manufacturer, an agent of a manufacturer, a distributor, or an authorized dealer.
    1. Before filing a legal action in court concerning the enforcement of the rights and remedies available to the consumer under this subchapter, the consumer and the manufacturer, distributor, or authorized dealer shall, in good faith, attempt to resolve all issues and claims in dispute through the use of an impartial, third-party mediator certified by the Arkansas Alternative Dispute Resolution Commission, if the seller has provided the required disclosures under § 4-96-303.
    2. The consumer and the manufacturer shall equally bear all costs and expenses of mediation, unless agreed otherwise.
    3. However, if the seller has not provided the required disclosure under § 4-96-303, the consumer is not required to utilize mediation before commencement of any legal action to enforce the consumer's rights under this subchapter.

History. Acts 2019, No. 588, § 1.

Chapter 97 Retail Pet Stores

Effective Dates. Acts 1991, No. 1225, § 12: April 10, 1991. Emergency clause provided: “It is hereby found and declared that abuses exist within the pet store industry regarding selling sick and injured animals to the public; failing to provide consumer guarantees for these animals consistent with their status as companions; failing to provide appropriate time for the animals outside of cages for healthful exercise and socialization; failing to provide proper veterinary care; maintaining unsanitary and otherwise unhealthful conditions; and inhumane methods of killing sick and unwanted animals, and animals returned for failure of guarantee; that this act is designed to minimize or eliminate such abuses and should be given effect immediately. Therefore, an emergency is hereby declared to exist, and this act being necessary for the immediate preservation of the public peace, health, safety and welfare, shall be in full force and effect from and after the date of its passage and approval.”

Acts 2019, No. 910, § 6346(b): July 1, 2019. Emergency clause provided: “It is found and determined by the General Assembly of the State of Arkansas that this act revises the duties of certain state entities; that this act establishes new departments of the state; that these revisions impact the expenses and operations of state government; and that the sections of this act other than the two uncodified sections of this act preceding the emergency clause titled ‘Funding and classification of cabinet-level department secretaries’ and ‘Transformation and Efficiencies Act transition team’ should become effective at the beginning of the fiscal year to allow for implementation of the new provisions at the beginning of the fiscal year. Therefore, an emergency is declared to exist, and Sections 1 through 6343 of this act being necessary for the preservation of the public peace, health, and safety shall become effective on July 1, 2019”.

4-97-101. Title.

This chapter may be cited as the “Arkansas Retail Pet Store Consumer Protection Act of 1991”.

History. Acts 1991, No. 1225, § 1.

4-97-102. Legislative intent.

It is the purpose of this chapter to require certain guarantees from retail pet stores to the purchasers of dogs and cats which are consistent with their unique status as companions rather than commodities. A further purpose is to provide a means by which it can be ensured that the treatment, care, and disposition of those animals is humane and that the treatment, care, and disposition are consistent with providing to the retail consumer animals which are physically and temperamentally sound, healthy, and fit as companions; to provide a means by which the acquisition and care of those animals can be monitored; and to ensure that the animals and facilities are managed in a manner noninjurious to the public health. Therefore, it is hereby determined and declared that the supervision by the state of the sale of dogs and cats by retail pet stores, and the inspection of such animals, whether or not found within the public area of the store, is within the public interest.

History. Acts 1991, No. 1225, § 2.

4-97-103. Definitions.

For the purposes of this chapter:

  1. “Animal” means a dog or cat of any age;
  2. “Authorized person” means the Secretary of the Department of Health or his or her delegate, or any law enforcement officer;
  3. “Cattery” means an enterprise wherein or whereon the business of grooming or boarding cats, or breeding cats for sale, and selling those cats, is carried on, and which does not in its usual course of business acquire cats for resale to the public;
  4. “Consumer” means any individual purchasing an animal from a retail pet store. A retail pet store shall not be considered a consumer;
  5. “D.V.M.” means a person who has graduated from an accredited school of veterinary medicine or has received equivalent formal education, and who has a valid license to practice veterinary medicine within the State of Arkansas;
  6. “Director” means the Director of the Department of Health;
  7. “Euthanasia” means the humane killing of an animal accomplished by a method that utilizes anesthesia produced by an agent that causes painless loss of consciousness and subsequent death, and administered by a licensed veterinarian or a euthanasia technician licensed by the United States Drug Enforcement Administration and certified by the Department of Health;
  8. “Kennel” means an enterprise wherein or whereon the business of grooming or boarding dogs, or breeding dogs for sale, and selling such dogs, is carried on, and which does not in its usual course of business acquire dogs for resale to the public;
  9. “Person” means any individual, partnership, firm, joint-stock company, corporation, association, trust, estate, or other legal entity;
  10. “Records” of a retail pet store means:
    1. The permanent record of each animal's health history showing the animal's vaccinations, inoculations, wormings, and other veterinary medical procedures performed on that animal; and
    2. The permanent journal giving a perpetual, sequential listing of animals which are kept at the retail pet store for thirty (30) days or longer. The journal shall contain the animal's identifying number, arrival date, exit date, and disposition; and
    1. “Retail pet store” means any room or group of rooms, run, cage, compartment, exhibition pen, or tether, any part of which is within the State of Arkansas, wherein any animal is sold or kept, displayed, or offered for sale, to the public. It excludes kennels and catteries which sell animals directly to consumers. Also excluded are duly authorized animal shelters and duly incorporated humane societies dedicated to the care of unwanted animals which make those animals available for adoption, whether or not a fee for such adoption is charged.
    2. As used in this chapter, the term “retail pet store” includes its owners, officers, agents, operators, managers, and employees, and refers to any such enterprise whether in fact registered or not.

History. Acts 1991, No. 1225, § 3; 2019, No. 910, § 4829.

Amendments. The 2019 amendment substituted “Secretary of the Department of Health” for “Director of the Department of Health” in (2).

4-97-104. Registration required.

    1. Any person who owns, operates, or establishes a retail pet store within the State of Arkansas shall register, by reporting in writing to the director:
      1. The name of the retail pet store;
      2. The location of each housing facility for animals owned by it, or in its care, custody, or control;
      3. The name and address of its principal agent; and
      4. The date its operation began.
    2. The report shall reflect the name and position of the individual under whose direction it is prepared and shall be made under oath before a notary public.
  1. Each registration shall be valid for a period of one (1) year. On or before the anniversary date of the original registration, reregistration shall be required, except that if at any time prior to the required reregistration date the information originally reported to the director changes or requires additions, that fact shall be reported to the director without delay.
    1. A retail pet store in operation on or before April 10, 1991, shall register within ninety (90) days after April 10, 1991.
    2. A retail pet store which begins operation within ninety (90) days after April 10, 1991, shall register within thirty (30) days after the beginning of operation.
    3. A retail pet store which begins operation subsequent to ninety (90) days after April 10, 1991, shall register at least thirty (30) days prior to the beginning of operation.
    4. The date of the first acquisition of an animal for retail sale shall be deemed the date on which the operation begins.
  2. A fee of one hundred dollars ($100) shall accompany the initial registration, and a fee of fifty dollars ($50.00) shall accompany each subsequent reregistration. No fee shall be required for interim reports of change or addition.
  3. Each instance of failure to register or report as required by this chapter is a Class A misdemeanor.
    1. The director shall maintain a list of registered retail pet stores containing all information reported with the initial registration, including the date thereof, and the dates and information provided with all subsequent amendments and reregistrations.
    2. The director shall make the list of registered retail pet stores available to the public, upon request, at no charge.

History. Acts 1991, No. 1225, § 4.

4-97-105. Consumer guarantees.

    1. A retail pet store shall provide to the consumer at the time of sale of an animal a written notice, printed or typed, setting forth the rights provided in subsection (b) of this section.
    2. The notice of rights shall have added to it by the retail pet store:
      1. The animal's identifying number;
      2. A description of the animal, including its breed, sex, and color;
      3. The date of sale;
      4. The name, address, and telephone number of the consumer; and
      5. The sales price of the animal.
      1. The notice may be contained in a written contract, an animal history certificate, or a separate document, provided such notice is in 10-point boldface type.
      2. The retail pet store shall certify the information by signing the document in which it is contained.
    1. If, within ten (10) days following the sale of an animal subject to this chapter, a licensed veterinarian of the consumer's choosing certifies such animal to be unfit for purchase due to illness, a congenital malformation which adversely affects the health of the animal, or the presence of symptoms of a contagious or infectious disease, the retail pet store, in addition to any other warranty, shall afford the consumer the right to retain the animal and to receive reimbursement from the retail pet store for veterinary services from a licensed veterinarian of the consumer's choosing, for the purpose of curing or attempting to cure the animal.
    2. The reasonable value of reimbursable services rendered to cure or attempt to cure the animal shall not exceed the purchase price of the animal. The value of such services is reasonable if comparable to the value of similar services rendered by other licensed veterinarians in proximity to the treating veterinarian.
    3. The reimbursement shall not include the costs of initial veterinary examination fees and diagnostic fees not directly related to the veterinarian's certification that the animal is unfit for purchase pursuant to this section.
  1. The certification that an animal is unfit for purchase, which shall be provided by an examining veterinarian to a consumer upon the examination of an animal subject to the provisions of this section, shall include, but not be limited to, information which identifies the type of animal, its breed, sex, and color, the owner, the date, and diagnosis of the animal, the treatment recommended if any, and an estimate or the actual cost of such treatment. Such form shall also include the notice prescribed in subsection (a) of this section.
    1. The reimbursement required by subsection (b) of this section shall be made by the retail pet store not later than ten (10) business days following receipt of a signed veterinary certification as herein required.
    2. Such certification shall be presented to the retail pet store not later than three (3) business days following receipt thereof by the consumer.
    1. A veterinary finding of intestinal parasites shall not be grounds for declaring the animal unfit for sale unless the animal is clinically ill due to such condition.
    2. An animal may not be found unfit for sale on account of an injury sustained or illness contracted subsequent to the consumer's taking possession thereof.
    1. In the event that a retail pet store wishes to contest a demand for reimbursement made by a consumer pursuant to this section, such retail pet store shall have the right to require the consumer to produce the animal for examination by a licensed veterinarian designated by such retail pet store.
    2. Upon such examination, if the consumer and the retail pet store are unable to reach an agreement within ten (10) business days following receipt of the animal for such examination, the consumer may initiate an action in a court of competent jurisdiction to recover or obtain such reimbursement.
  2. Nothing in this section shall be construed in any way to limit the rights or remedies which are otherwise available to a consumer under any law.

History. Acts 1991, No. 1225, § 5.

4-97-106. Public health — Enforcement.

The State Board of Health may propose, adopt, promulgate, and enforce, in accordance with the Arkansas Administrative Procedure Act, § 25-15-201 et seq., such additional rules and standards as may be necessary to carry out the intent of this chapter.

History. Acts 1991, No. 1225, § 6; 2019, No. 315, § 138.

Amendments. The 2019 amendment deleted “regulations” following “rules”.

4-97-107. Unlawful disposition of animals.

  1. It is unlawful for a retail pet store to knowingly give, sell, exchange, barter, or otherwise transfer an animal to any other person if the ultimate destination of the animal is research or killing for dissection.
  2. It is unlawful for a retail pet store to kill any animal in its care, custody, or control without a prior written or oral recommendation from a doctor of veterinary medicine citing the animal's interest justifying the killing of the animal.
  3. It is unlawful for a retail pet store, its owners, officers, agents, operator, manager, or employees, or any other person, to kill any animal in its care, custody, or control by any means other than euthanasia as defined in § 4-97-103.
  4. A violation of this chapter or a rule promulgated hereunder shall constitute a Class A misdemeanor.

History. Acts 1991, No. 1225, § 7; 2019, No. 315, § 139.

Amendments. The 2019 amendment substituted “rule” for “regulation” in (d).

4-97-108. Inspection — Public notice.

  1. Any authorized person is entitled to inspect the premises and records of a retail pet store at reasonable hours.
  2. Retail pet stores shall make their premises available for inspection by authorized persons at reasonable hours.
  3. Each failure to make premises or records available to an authorized person whose identity is made known to an owner, officer, agent, operator, manager, or employee of a retail pet store is a Class A misdemeanor.
      1. Every retail pet store required to be registered shall post a public notice on each of its premises, in type not less than one inch (1") in height, in a location conspicuous to the public, that complaints regarding treatment or care of its animals may be made to the State Board of Health or to any law enforcement officer.
      2. The public notice shall refer to this chapter.
    1. Failure to post the public notice is a Class A misdemeanor.
  4. Within thirty (30) days of the receipt by the director of an initial registration report, and the receipt of proper fees therefor, the director shall provide a public notice conforming with subsection (d) of this section to the registrant. Additional public notices for multiple locations and replacements of notices already provided may be obtained from the director upon the payment of a fee of ten dollars ($10.00) for each additional public notice.

History. Acts 1991, No. 1225, § 8.

4-97-109. Applicability to other laws.

Nothing in this chapter shall be construed to prevent or limit the application of any other law.

History. Acts 1991, No. 1225, § 10.

Chapter 98 Arkansas Pay-Per-Call Consumer Protection Act

Research References

C.J.S. 86 C.J.S., Tel. §§ 79, 80, 84, 85, 99, 100, 102-106.

4-98-101. Title.

This chapter shall be known and may be cited as the “Arkansas Pay-Per-Call Consumer Protection Act”.

History. Acts 1993, No. 203, § 1.

4-98-102. Definitions.

For the purposes of this chapter, unless the context otherwise requires:

  1. “Information provider” means any person, company, or corporation that controls the content of a pay-per-call service. Any telephone corporation that provides basic local exchange service or message telecommunication service which only transmits pay-per-call service but which does not control the content of the information transmitted is not included within this definition; and
  2. “Pay-per-call service” means any telecommunications service which permits calling by a number of callers to a single telephone number and for which the calling party is assessed by virtue of completing the call a charge that is not dependent on the existence of a presubscription relationship and for which the caller pays a per-call or per-time interval charge that is greater than or in addition to the charge for the transmission of the call.

History. Acts 1993, No. 203, § 2.

4-98-103. Information and disclosure message.

    1. An information provider that offers pay-per-call services in this state shall provide a minimum of twelve (12) seconds of delayed timing for an information and disclosure message which shall be reasonable in speed so as to be clearly understandable.
    2. A three-second period of silence shall follow the information and disclosure message.
    3. If the consumer disconnects the call within the delayed timing period, or within three (3) seconds after the delayed timing period, no information charge shall be billed to the caller.
    4. If the delayed timing period is exceeded, a consumer shall be billed from the time of the initial connection, and transport charges shall be billed to the information provider from the time of the initial connection.
    5. During the delayed timing period, the information provider shall inform the consumer of all of the following:
      1. An accurate description of the service that will be provided to the caller;
      2. An accurate summation of the cost of the service including, but not limited to, all of the following:
        1. The initial flat rate charge, if any;
        2. The charge per minute, if any; and
        3. The maximum charge per call;
      3. That, if the caller disconnects the call within the delayed timing period, the consumer will not be charged for the call; and
      4. Before the end of the delayed timing period, that the billing will commence after a specified event following the disclosure message, such as a signal tone.
  1. Any information charges and price disclosure message associated with a pay-per-call service that is aimed at or likely to be of interest to children under the age of eighteen (18) years must contain a statement that the caller should hang up unless he or she has parental permission.
    1. A caller may be provided the means to bypass the information and disclosure message on subsequent calls, provided that the caller has sole control of that capability, except that any bypass device shall be disabled for a period of thirty (30) days following the effective date of a price increase for the service.
    2. Instructions on how to bypass must be either at the end of the preamble message or at the end of the service.
  2. When an information provider's pay-per-call service results in a total potential cost of two dollars ($2.00) or less, or if the call is being provided for polling services, asynchronous or computerized data transmission technology, or political fundraising, the provisions of this section shall not apply.

History. Acts 1993, No. 203, § 3.

4-98-104. Advertisement requirements.

Any information provider offering pay-per-call service shall utilize advertising that accurately describes the message content, terms, conditions, and price of the offered service in a clear and understandable manner in all print, broadcast, or telephone advertising and announcements promoting its offers, including:

  1. The per call charges, or, if the call is billed on a usage-sensitive basis, the rates by minute or other unit of time, any minimum charges, and the total cost for calls to that service if the duration of the service can be determined;
  2. Any geographic, time-of-day, or other limitations on the availability of the offer;
  3. A requirement that callers under eighteen (18) years of age must request parental or adult guardian permission before calling to hear the offer;
  4. Display of the charges in broadcast advertising with the telephone numbers and a voice announcement of the charges during the course of the commercials;
  5. Repeated voice announcements of these charges at regular intervals for commercials in excess of two (2) minutes; and
  6. Charges for all subsequent calls if the program refers to and requires another pay per call.

History. Acts 1993, No. 203, § 4.

4-98-105. Remedies.

    1. Any consumer injured by a violation of this chapter may bring an action for the recovery of damages.
    2. Judgment may be entered for three (3) times the amount at which the actual damages are assessed, plus costs and reasonable attorney's fees.
    1. Violation of any of the provisions of this chapter shall constitute an unfair or deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to him or her for the enforcement of this chapter.
    1. No private action may be brought under the provisions of this chapter more than two (2) years after the cause of action accrues.
    2. A cause of action shall be deemed to have accrued when the party bringing an action under the provisions of this chapter knows or in the exercise of reasonable care should have known about the violation of the provisions of this chapter.

History. Acts 1993, No. 203, § 5.

Chapter 99 Regulation of Telephonic Sellers

Subchapter 1 — General Provisions

A.C.R.C. Notes. References to “this chapter” in subchapter 1 may not apply to subchapters 2, 3, or 4, which were enacted subsequently.

Publisher's Notes. Due to the enactment of subchapter 2 by Acts 1997, No. 1157, the existing provisions of this chapter have been redesignated as subchapter 1.

Effective Dates. Acts 1993, No. 137, § 17: Feb. 16, 1993. Emergency clause provided: “It is hereby found and determined by the General Assembly that the widespread use of telephone solicitors to initiate sales of goods, real property, and investment opportunities has created numerous problems for purchasers and investors which are inimical to good business practices; that telephonic sales have a significant impact upon the economy and well-being of this state and its local communities; and that this act is necessary for the protection of the people of Arkansas. Therefore, an emergency is hereby declared to exist and this act being necessary for the immediate preservation of the public peace, health and safety shall be in full force and effect from and after its passage and approval.”

Acts 2017, No. 728, § 8: Jan. 1, 2018.

Research References

Am. Jur. 60 Am. Jur. 2d, Peddlers, § 114.

4-99-101. Legislative finding, declaration, and intent.

  1. The General Assembly recognizes that the widespread use of telephone solicitors to initiate sales of goods, real property, and investment opportunities has created numerous problems for purchasers and investors which are inimical to good business practices. Telephonic sales have a significant impact upon the economy and well-being of this state and its local communities. However, purchasers have suffered substantial losses because of misrepresentations, lack of full and complete information regarding both the telephonic seller and the goods and investments the telephonic seller is offering, and failure of delivery. The provisions of this chapter relating to telephonic sellers are necessary for the public welfare.
  2. It is the intent of the legislature in enacting this chapter to:
    1. Provide each prospective telephonic sales purchaser with information necessary to make an intelligent decision regarding the offer made;
    2. Safeguard the public against deceit and financial hardship;
    3. Ensure, foster, and encourage competition and fair dealings among telephonic sellers by requiring adequate disclosure; and
    4. Prohibit representations that tend to mislead.

History. Acts 1993, No. 137, § 1.

4-99-102. Construction.

This chapter shall be construed liberally in order to achieve these purposes.

History. Acts 1993, No. 137, § 1.

4-99-103. Definitions.

As used in this chapter:

  1. “Caller identification service” means a service offered by a telecommunications provider that provides caller identification information to a device capable of displaying the information;
  2. [Repealed.]
  3. “Item” means any goods and services and includes coupon books which are to be used with businesses other than the seller's business;
  4. “Owner” means a person who owns or controls ten percent (10%) or more of the equity of or otherwise has claim to ten percent (10%) or more of the net income of a telephonic seller;
  5. “Person” includes an individual, firm, association, corporation, partnership, joint venture, or any other business entity;
  6. “Principal” means an owner, an executive officer of a corporation, a general partner of a partnership, a sole proprietor of a sole proprietorship, a trustee of a trust, or any other individual with similar supervisory functions with respect to any person;
  7. “Purchaser” or “prospective purchaser” means a person who is solicited to become or does become obligated to a telephonic seller;
  8. “Salesperson” means any individual employed, appointed, or authorized by a telephonic seller, whether referred to by the telephonic seller as an “agent”, “representative”, or “independent contractor”, who attempts to solicit or solicits a sale on behalf of the telephonic seller. The principals of a seller are themselves salespersons if they solicit sales on behalf of the telephonic seller; and
  9. “Telephonic seller” or “seller” means a person who on his or her own behalf or through salespersons causes a telephone solicitation or attempted telephone solicitation to occur which meets the criteria specified in subdivision (9)(A) or subdivision (9)(B) of this section, and who is not exempted by subdivision (9)(C) of this section, as follows:
    1. A telephone solicitation or attempted telephone solicitation wherein the telephonic seller initiates telephonic contact with a prospective purchaser and represents or implies one (1) or more of the following:
      1. That a prospective purchaser who buys one (1) or more items will also receive additional or other items, whether or not of the same type as purchased, without further cost. For purposes of this subdivision (9)(A)(i), “further cost” does not include actual postage or common carrier delivery charges, if any;
      2. That a prospective purchaser will receive a prize or gift if the person also encourages the prospective purchaser to do either of the following:
        1. Purchase or rent any goods or services; or
        2. Pay any money, including, but not limited to, a delivery or handling charge;
      3. That a prospective purchaser is able to obtain any item or service at a price which the seller states or implies is below the regular price of the item or service offered. This subdivision (9)(A)(iii) shall not apply to retailers who within the previous twelve (12) months have sold a majority of their goods or services through in-person sales at retail stores;
      4. That the seller is a person other than the person he or she is; or
      5. That the items for sale are manufactured or supplied by a person other than the actual manufacturer or supplier;
      1. A solicitation or attempted solicitation which is made by telephone in response to inquiries generated by unrequested notifications sent by the seller to persons who have not previously purchased goods or services from the seller or who have not previously requested credit from the seller to a prospective purchaser wherein the seller represents or implies to the recipient of the notification that any of the following applies to the recipient:
        1. That the recipient has in any manner been specially selected to receive the notification or the offer contained in the notification;
        2. That the recipient will receive a prize, gift, or award if the recipient calls the seller; or
        3. That, if the recipient buys one (1) or more items from the seller, the recipient will also receive additional or other items, whether or not of the same type as purchased, without further cost or at a cost which the seller states or implies is less than the regular price of such items.
      2. This subdivision (9)(B) does not apply to the solicitation of sales by a catalogue seller who periodically issues and delivers catalogues to potential purchasers by mail or by other means. This exception only applies if the catalogue includes a written description or illustration and the sales price of each item or merchandise offered for sale includes at least twenty-four (24) full pages of written material or illustrations, is distributed in more than one (1) state, and has an annual circulation of no fewer than two hundred fifty thousand (250,000) customers; and
    2. As used in this chapter, “telephonic seller” or “seller” does not include any of the following:
      1. A person offering or selling a security and who is registered pursuant to § 23-42-301 et seq.;
      2. A person offering or selling insurance and who is licensed pursuant to § 23-64-201 et seq.;
      3. A person primarily soliciting the sale of a newspaper of general circulation, a magazine, or membership in a book or record club whose program operates in conformity with § 4-89-101 et seq. and the Arkansas Mail and Telephone Consumer Product Promotion Fair Practices Act, § 4-95-101 et seq.;
      4. A person soliciting business from prospective purchasers who have previously purchased from the business enterprise for which the person is calling;
        1. A person soliciting without the intent to complete and who does not complete the sales presentation during the telephone solicitation but completes the sales presentation at a later face-to-face meeting between the solicitor and the prospective purchaser.
        2. However, if a seller, directly following a telephone solicitation, causes an individual whose primary purpose it is to go to the prospective purchaser to collect the payment or deliver any item purchased, this exemption does not apply;
      5. Any supervised financial institution or parent, subsidiary, or affiliate thereof. As used in this subdivision (9)(C)(vi), “supervised financial institution” means any commercial bank, trust company, savings and loan association, credit union, industrial loan company, personal property broker, consumer finance lender, commercial finance lender, or insurer, provided that the institution is subject to the supervision of an official or agency of this state or of the United States;
      6. Any burial association operating pursuant to the authority of § 23-78-101 et seq.;
      7. A person or an affiliate of a person whose business is regulated by the Arkansas Public Service Commission;
      8. An issuer or a subsidiary of an issuer that has a class of securities which is subject to and which is either registered or exempt from registration under § 23-42-401 et seq.;
      9. A person soliciting a transaction regulated by the United States Commodity Futures Trading Commission if the person is registered or temporarily licensed for this activity with the United States Commodity Futures Trading Commission under the Commodity Exchange Act, 7 U.S.C. § 1 et seq., and the registration or license has not expired or been suspended or revoked; or
      10. A person soliciting a transaction directed to a purchaser holding a permit pursuant to the Arkansas Gross Receipts Act of 1941, § 26-52-101 et seq., and in which the solicitation deals with goods of a type that are subject to resale by the purchaser.

History. Acts 1993, No. 137, §§ 2, 3; 1995, No. 440, § 1; 2003, No. 1465, § 3; 2017, No. 728, § 1.

Amendments. The 2017 amendment repealed (2).

Effective Dates. Acts 2017, No. 728, § 8: Jan. 1, 2018.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

4-99-104. Registration procedures — Fees — Duration.

    1. Not less than ten (10) days before doing business in this state, a telephonic seller shall register with the Secretary of State by filing the information required by this chapter and a filing fee of one hundred dollars ($100).
    2. A seller shall be deemed to do business in this state if the seller solicits prospective purchasers from locations in this state or solicits prospective purchasers who are located in this state.
  1. Registration of a telephonic seller shall be valid for one (1) year from the effective date thereof and may be renewed by making the filing required by this chapter and paying a filing fee of one hundred dollars ($100).
  2. The information required by this chapter shall be submitted on a form prescribed by the Secretary of State and shall be verified by a declaration signed by each principal of the telephonic seller under penalty of perjury.
    1. Except as provided in subdivision (d)(2) of this section and before expiration of a seller's annual registration, if there is a material change in the information required under this chapter, the seller shall, within ten (10) days, file an addendum updating the information with the Secretary of State.
    2. Changes in salespersons soliciting on behalf of a seller shall be updated in quarterly intervals computed from the effective date of registration.
    1. Upon receipt of a filing and filing fee under subsection (a) or subsection (b) of this section, the Secretary of State shall send the telephonic seller a written confirmation of registration.
    2. If the seller has more than one (1) business location, the confirmation of registration shall be sent to the principal business location identified in the seller's filing in sufficient number so that the seller has a confirmation of registration for each location to be displayed in a conspicuous place at each of the seller's business locations and available for inspection by any governmental agency at each location.
    3. Until confirmation of registration is received and posted, the seller shall post in a conspicuous place at each of the seller's business locations within this state a copy of the first page of the registration form sent to the Secretary of State.
    1. Every salesperson shall be employed in a principal-agent relationship by a telephonic seller registered under this chapter and shall, within seventy-two (72) hours after accepting such employment, register with the Secretary of State.
    2. An application for registration shall be on a form prescribed by the Secretary of State, verified by a declaration signed by each salesperson under penalty of perjury, and shall be accompanied by a fee in the sum of ten dollars ($10.00).
    3. When effective, the registration shall be for a period of one (1) year and may be renewed upon the payment of the fee prescribed in this section for additional one-year periods.
  3. All fees collected by the Secretary of State under this section shall be deposited into the State Treasury as general revenues.

History. Acts 1993, No. 137, § 4; 2017, No. 728, § 2.

Amendments. The 2017 amendment substituted “Secretary of State” for “Consumer Protection Division of the Office of the Attorney General” in (a)(1); substituted “Secretary of State” for “Attorney General” in (c), (f)(2), and (g); redesignated (d) as (d)(1) and (2); in (d)(1), substituted “Except as provided in subdivision (d)(2) of this section and before” for “Whenever, prior to” and inserted “if”; substituted “Secretary of State” for “division” in (d)(1), (e)(1), (e)(3), and (f)(1); deleted “However” at the beginning of (d)(2); and made stylistic changes.

Effective Dates. Acts 2017, No. 728, § 8: Jan. 1, 2018.

4-99-105. Filing information.

Each registration filing pursuant to this chapter shall contain the following information:

  1. The name or names of the seller, including the name under which the seller is doing or intends to do business, if different from the name of the seller, and the name of any parent or affiliated organization that will engage in business transactions with purchasers relating to sales solicited by the seller, or that accepts responsibility for statements made by, or acts of, the seller relating to sales solicited by the seller;
  2. The seller's business form and place of organization and, if the seller is a corporation, a copy of its articles of incorporation and bylaws and amendments thereto, or, if a partnership, a copy of the partnership agreement, or, if operating under a fictitious business name, the location where the fictitious name has been registered. All the same information shall be included for any parent or affiliated organization disclosed pursuant to subdivision (1) of this section;
    1. The complete street address or addresses of all locations, designating the principal location from which the telephonic seller will be conducting business.
    2. If the principal business location of the seller is not in this state, then the seller shall also designate which of any locations within this state is its main location in the state;
  3. A listing of all telephone numbers to be used by the seller and the address where each telephone using each of these telephone numbers is located;
  4. The name of, and the office held by, the seller's officers, directors, trustees, general and limited partners, sole proprietor, and owners, as the case may be, and the names of those persons who have management responsibilities in connection with the seller's business activities;
  5. The complete address of the principal residence, the date of birth, and the Social Security number of each of the persons whose names are disclosed pursuant to subdivision (5) of this section;
  6. A list of the names and principal residence addresses of salespersons who solicit on behalf of the telephonic seller and the names the salespersons use while soliciting;
  7. A description of the items the seller is offering for sale and a copy of all sales scripts the telephonic seller requires salespersons to use when soliciting prospective purchasers or, if no sales script is required to be used, a statement to that effect;
  8. A copy of all sales information and literature, including, but not limited to, scripts, outlines, instructions, and information regarding how to conduct telephonic sales, sample introductions, sample closings, product information, and contest or premium award information provided by the telephonic seller to salespersons, or of which the seller informs salespersons, and a copy of all written materials the seller sends to any prospective or actual purchaser;
  9. If the telephonic seller represents or implies, or directs salespersons to represent or imply, to purchasers that the purchaser will receive certain specific items, including a certificate of any type which the purchaser must redeem to obtain the item described in the certificate, or one (1) or more items from among designated items, whether the items are denominated as gifts, premiums, bonuses, prizes, awards, or otherwise, the filing shall include the following:
    1. A list of the items offered;
    2. The value or worth of each item described to prospective purchasers and the basis for the valuation;
    3. The price paid by the telephonic seller to its supplier for each of these items and the name, address, and telephone number of each item's supplier;
    4. If the purchaser is to receive fewer than all of the items described by the seller, the filing shall include the following:
      1. The manner in which the telephonic seller decides which item or items a particular prospective purchaser is to receive;
      2. The odds a single prospective purchaser has of receiving each described item; and
      3. The name and address of each recipient who has, during the preceding twelve (12) months, or if the seller has not been in business that long, during the period the telephonic seller has been in business, received the item having the greatest value and the item with the smallest odds of being received; and
    5. All state rules, federal rules or regulations, terms, and conditions a prospective purchaser must meet in order to receive the item; and
  10. The name and address of the telephonic seller's agent in this state, other than the Secretary of State, authorized to receive service of process in this state.

History. Acts 1993, No. 137, § 6; 2017, No. 728, § 3; 2019, No. 315, § 140.

Amendments. The 2017 amendment substituted “Secretary of State” for “Attorney General” in (11).

The 2019 amendment substituted “state rules, federal rules or regulations” for “rules, regulations” in (10)(E).

Effective Dates. Acts 2017, No. 727, § 8: Jan. 1, 2018.

4-99-106. Exemption information — Requirements.

  1. A person claiming an exemption from registration as provided by this chapter shall keep full and accurate records in a form that will enable the person to provide to the Secretary of State or the Attorney General upon request the information required to substantiate an exemption under this chapter.
  2. The information provided under this section shall be verified by a declaration signed under penalty of perjury by each principal of the person claiming exemption.

History. Acts 1993, No. 137, § 5; 2017, No. 728, § 4.

Amendments. The 2017 amendment, in (a), substituted “A person” for “Any person”, substituted “in a form that” for “in such form as”, and inserted “Secretary of State or the”.

Effective Dates. Acts 2017, No. 727, § 8: Jan. 1, 2018”.

4-99-107. Bond requirement — Promotions — Notice prior to inception.

    1. A telephonic seller shall maintain a bond issued by a surety company authorized to do business in this state.
    2. The bond shall be in the amount of fifty thousand dollars ($50,000) in favor of the State of Arkansas for the benefit of a person suffering injury or loss by reason of a violation of this chapter, to be paid under the terms of any order of a court of competent jurisdiction obtained by the Attorney General or prosecuting attorney as a result of a violation of this chapter.
    3. A copy of the bond shall be filed with the Secretary of State.
    1. At least ten (10) days before the inception of a promotion offering a premium with an actual market value or advertised value of five hundred dollars ($500) or more, the telephonic seller shall notify the Secretary of State in writing of the details of the promotion, describing the premium, its current market value, the value at which it is advertised or held out to the consumer, the date the premium shall be awarded, and the conditions under which the award shall be made.
        1. The telephonic seller shall maintain an additional bond for the total current market value or advertised value, whichever is greater, of the premiums held out or advertised to be available to a purchaser or recipient.
        2. A copy of the bond shall be filed with the Secretary of State.
      1. The bond or portion thereof necessary to cover the cost of the award shall be forfeited if the premium is not awarded to a bona fide customer within thirty (30) days of the date disclosed as the time of award or other time required by law.
      2. A person suffering injury or loss by reason of any violation of this chapter shall be paid the proceeds of the bond, or shall be paid under the terms of any order of a court of competent jurisdiction obtained by the Attorney General or prosecuting attorney as a result of any violation of this chapter.
      3. The bond shall be maintained until the seller files with the Secretary of State proof that the premium was awarded.

History. Acts 1993, No. 137, § 13; 2017, No. 728, § 5.

Amendments. The 2017 amendment redesignated part of former (a)(1) as present (a)(2) and redesignated former (a)(2) as (a)(3); substituted “Secretary of State” for “Consumer Protection Division of the Office of the Attorney General” in (a)(3); substituted “Secretary of State” for “Attorney General” in (b)(1) and (b)(2)(D); redesignated (b)(2)(A) as (b)(2)(A)(i) and (ii); substituted “Secretary of State” for “division” in (b)(2)(A)(ii); in (b)(2)(C), substituted “A” for “The proceeds of the bond shall be paid to any” and inserted “shall be paid the proceeds of the bond”; and made stylistic changes.

Effective Dates. Acts 2017, No. 727, § 8: Jan. 1, 2018.

4-99-108. Information to be provided each prospective purchaser.

  1. If the telephonic seller represents or implies that a prospective purchaser will receive, without charge therefor, certain specific items, or one (1) item from among designated items, whether the items are denominated as gifts, premiums, bonuses, prizes, awards, or otherwise, the seller shall provide, at the time the solicitation is made and prior to consummation of any sales transaction, the following:
    1. The manner in which the telephonic seller decides which item or items a particular prospective purchaser is to receive;
    2. The odds a single prospective purchaser has of receiving each described item;
    3. All state rules, federal rules or regulations, terms, and conditions a prospective purchaser must meet in order to receive the item;
    4. The complete street address of the location from which the salesperson is calling the prospective purchaser and, if different, the complete street address of the telephonic seller's principal location; and
    5. The total number of individuals who have actually received from the telephonic seller, during the preceding twelve (12) months or, if the seller has not been in business that long, during the period the seller has been in business, the item having the greatest value and the item with the smallest odds of being received.
  2. No seller shall make or authorize the making of any reference to its compliance with this chapter to any prospective or actual purchaser.
    1. A person making or transmitting a telephone solicitation shall not display or cause to be displayed a fictitious or misleading name or telephone number on an Arkansas resident's telephone caller identification service.
    2. Subdivision (c)(1) of this section does not apply to the transmission of a caller identification service by a telecommunications provider that complies with § 23-17-122.

History. Acts 1993, No. 137, §§ 7, 9; 2003, No. 1465, § 4; 2019, No. 315, § 141; 2019, No. 677, § 4.

A.C.R.C. Notes. Acts 2019, No. 677, § 1, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The citizens of this state are being negatively affected by illegal robocalls from telemarketers and from others seeking to perpetrate scams on them;

“(2) While these illegal robocalls are frustrating for most, the robocalls are costly and dangerous for far too many Arkansans;

“(3) An alarming number of illegal robocalls originate from scammers using automatic telephone dialing systems to send out thousands of phone calls per minute with fictitious or misleading names or telephone numbers displaying on unsuspecting consumers' telephone caller identification service;

“(4) These scammers are engaging in insidious schemes and targeting seniors and other vulnerable groups by soliciting personal information such as credit or debit card information and Social security numbers;

“(5) Displaying fictitious or misleading names or telephone numbers, or ‘spoofing’, is the predominant means by which a robocaller protects their identities and entices consumers to answer the telephone; and

“(6) Spoofing is the gateway for illegal robocalls and scams.

“(b) It is the intent of the General Assembly:

“(1) To protect the citizens of this state from being spoofed by receiving illegal robocalls from telemarketers and from others seeking to perpetrate scams on unsuspecting or vulnerable citizens;

“(2) To provide the citizens of this state who use a caller identification service with accurate information about the identities and locations of callers;

“(3) To encourage telecommunications providers to swiftly implement technologies that will allow telecommunications providers to identify and stop illegal calling practices; and

“(4) That this act be construed as broadly as possible to ensure that the citizens of this state are protected from the negative impact of illegal robocalls and to ensure that scammers and complicit telecommunications providers are held criminally accountable”.

Amendments. The 2019 amendment by No. 315 substituted “state rules, federal rules or regulations” for “rules, regulations” in (a)(3).

The 2019 amendment by No. 677 substituted “A person making or transmitting a telephone solicitation shall not” for “No telephonic seller under this section shall” in (c)(1); and added “that complies with § 23-17-122” in (c)(2).

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

4-99-109. Irrevocable consent appointing Secretary of State to act as seller's attorney to receive service — Conditions of effective service.

  1. A telephonic seller shall file with the Secretary of State, in the form prescribed by the Secretary of State, an irrevocable consent appointing the Secretary of State to act as the seller's attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against the seller or the seller's successor, executor, or administrator, that may arise under this chapter, when the agent designated in the seller's registration filing cannot with reasonable diligence be found at the address designated or if no agent has been designated pursuant thereto.
  2. When service is made upon the Secretary of State in conformance with this section, it has the same force and validity as if served personally on the seller.
  3. Service may be made by leaving a copy of the process with the Secretary of State, but service is not effective until both of the following are done:
    1. When service is effected under this section, the plaintiff shall forthwith send by certified first class mail, return receipt requested, a notice of the service and a copy of the process to the defendant or respondent at the last address on file with the Secretary of State; and
    2. The plaintiff's affidavit of compliance with this section shall be filed in the case on or before the return date of the process, if any, or within such further time as the court allows.

History. Acts 1993, No. 137, § 8; 2017, No. 728, § 6.

Amendments. The 2017 amendment substituted “Secretary of State” for “Attorney General” in the section heading and throughout (a) and (b); rewrote the introductory language of (c); substituted “Secretary of State” for “Consumer Protection Division” in (c)(1); and made stylistic changes.

Effective Dates. Acts 2017, No. 727, § 8: Jan. 1, 2018.

4-99-110. Soliciting prospective purchasers on behalf of unregistered telephonic seller prohibited — Violation.

    1. A salesperson shall not solicit prospective purchasers on behalf of a telephonic seller who is not currently registered with the Secretary of State under this chapter.
    2. A salesperson who violates this section shall be guilty of a Class A misdemeanor.
  1. Except as provided in subdivision (a)(1) of this section, any person, including without limitation the seller, a salesperson, agent or representative of the seller, or an independent contractor, who willfully violates a provision of this chapter or who directly or indirectly employs a device, scheme, or artifice to deceive in connection with the offer or sale by a telephonic seller, or who willfully, directly or indirectly, engages in any act, practice, or course of business that operates or would operate as fraud or deceit upon a person in connection with a sale by a telephonic seller shall be, upon conviction, guilty of a Class D felony.
    1. A person who controls a seller liable under this section, or a salesperson liable under subdivision (a)(1) of this section, every partner, officer, or director of such a seller or salesperson, a person occupying a similar status or performing a similar function, and an employee of such a seller or salesperson who materially aids in the sale or attempted sale are also liable jointly and severally with and to the same extent as the seller or salesperson, unless the nonseller or nonsalesperson who is so liable sustains the burden of proof that he or she did not know and in the exercise of reasonable care could not have known of the existence of the facts by reason of which the liability is alleged to exist.
    2. There is contribution as in cases of contract among the several persons so liable.

History. Acts 1993, No. 137, §§ 10, 11; 2017, No. 728, § 7.

Amendments. The 2017 amendment redesignated (a) as (a)(1) and (2); substituted “Secretary of State” for “Consumer Protection Division” in (a)(1); substituted “subdivision (a)(1)” for “subsection (a)” in (b); redesignated (c) as (c)(1) and (2); substituted “subdivision (a)(1)” for “subsection (a)” in (c)(1); and made stylistic changes.

Effective Dates. Acts 2017, No. 727, § 8: Jan. 1, 2018.

4-99-111. Remedies provided for violation of provisions of this chapter not exclusive — Rights of Attorney General.

  1. The provisions of this chapter are not exclusive. The remedies specified in this chapter for violation of any section of this chapter or for conduct proscribed by any section of this chapter shall be in addition to any other procedures or remedies for any violation or conduct provided for in any other law.
  2. Violation of any of the provisions of this chapter shall constitute an unfair or deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this chapter.

History. Acts 1993, No. 137, § 12.

Case Notes

Deceptive Trade Practices.

Plaintiff's claims regarding violations of Telephonic Sellers Act and School Calendar Act were actionable under the Arkansas Deceptive Trade Practices Act, § 4-88-107, even though neither Act provided a private cause of action for consumers because a violation of either statute constituted a deceptive trade practice under the ADTPA pursuant to subsection (b) of this section and § 4-88-503(a), and any person who suffered actual damage as a result of such a practice had a cause of action under the ADTPA, § 4-88-113(f). M.S. Wholesale Plumbing, Inc. v. Univ. Sports Publs. Co., Inc., — F. Supp. 2d —, 2008 U.S. Dist. LEXIS 4159 (E.D. Ark. Jan. 7, 2008).

4-99-112. Burden of proving an exemption or exception.

In any civil proceeding alleging a violation of this chapter, the burden of proving an exemption or an exception from a definition is upon the person claiming it, and in any criminal proceeding alleging a violation of this chapter, the burden of producing evidence to support a defense based upon an exemption or an exception from a definition is upon the person claiming it.

History. Acts 1993, No. 137, § 2.

Subchapter 2 — Residential Sales and Solicitations

A.C.R.C. Notes. References to “this chapter” in subchapter 1 may not apply to this subchapter which was enacted subsequently.

4-99-201. Caller identification — Information offered — Penalty for violation.

    1. Any person who on behalf of any charity, business, or organization calls a residential phone number for the purpose of soliciting or requesting a contribution or to offer goods or services shall immediately disclose to the person contacted:
      1. The caller's identity and the identity of the person or organization on whose behalf the telephone call is being made; and
      2. The purpose of the telephone call, including a brief description of the goods or services to be offered.
    2. If the person receiving the telephone call indicates that he or she does not want to hear about the charity, goods, or services, the caller shall not attempt to provide additional information during that conversation about the charity, goods, or services.
  1. A violation of this section shall be a Class A misdemeanor.
    1. A violation of the provisions of this section shall constitute an unfair and deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this section.
      1. No person under subdivision (a)(1) of this section shall display or cause to be displayed a fictitious or misleading name or telephone number on an Arkansas resident's telephone caller identification service.
      2. For purposes of this section, “caller identification service” means a service offered by a telecommunications provider that provides caller identification information to a device capable of displaying the information.
  2. Nothing in this section limits the rights or remedies which are otherwise available to a consumer under any other law.
  3. The obligations under this section are cumulative and should in no way be deemed to limit the obligations imposed under any other law.

History. Acts 1997, No. 1157, § 1; 2003, No. 1465, § 5.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

Case Notes

Constitutionality.

Subsection (a)(2), which limits the solicitation activity of charities with regard to telephone calls to unwilling listeners in their homes, does not violate the First Amendment of the federal constitution since the subsection does not substantially limit charitable solicitations. Its only impact is to end solicitation calls to unwilling residents who otherwise would not hang up, it leaves open ample alternative channels of communication, it does not foreclose other forms of solicitation aimed at those unwilling residents, and does not bar additional solicitation calls to their homes. Nat'l Fed'n of the Blind of Ark., Inc. v. Pryor, 258 F.3d 851 (8th Cir. 2001).

Subsection (a)(2) of this section is not unconstitutionally overbroad or vague; there was no evidence that solicitors would misread this section as prohibiting them from contacting Arkansas residents, and the term “indicates” is sufficiently clear. Nat'l Fed'n of the Blind of Ark., Inc. v. Pryor, 258 F.3d 851 (8th Cir. 2001).

Subsection (a)(2) of this section does not violate the equal protection clause of the Fourteenth Amendment to the federal constitution, notwithstanding the contention that it unreasonably discriminates between small charities that must combine their advocacy and solicitation calls and large charities that can make separate calls and thereby exercise their advocacy free speech rights unencumbered by the statute's prohibition, since advocacy callers and those soliciting contributions are not similarly situated and the state's decision to distinguish between them was not shown to be irrational. Nat'l Fed'n of the Blind of Ark., Inc. v. Pryor, 258 F.3d 851 (8th Cir. 2001).

4-99-202. Collection practices.

    1. No person who calls a residential telephone number for the purpose of offering merchandise for sale shall dispatch a courier or other individual to the residence to collect payment before the consumer has inspected the merchandise.
    2. It shall be unlawful for any person who calls a residential telephone number for the purpose of offering a prize to a consumer to dispatch a courier or other individual to the consumer's home for the purpose of collecting any fees or costs of any kind from the consumer.
  1. A violation of this section shall be a Class A misdemeanor.
    1. A violation of the provisions of this section shall constitute an unfair and deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this section.
  2. Nothing in this section limits the rights or remedies which are otherwise available to the consumer under any other law.
  3. The obligations under this section are cumulative and should in no way be deemed to limit the obligations imposed under any other law.

History. Acts 1999, No. 566, § 1.

4-99-203. Consumer's express written authorization required.

    1. For the purposes of this section, “telemarketer” means any person who initiates telephone calls to, or who receives telephone calls from, a consumer in connection with a plan, program, or campaign to market goods and services.
    2. The term “telemarketer” does not include a federally insured depository institution or its subsidiary when it obtains or submits for payment a check, draft, or other form of negotiable instrument drawn on or debited against a person's checking, savings, share, or other depository account at that institution.
    1. It shall be unlawful for any telemarketer as defined in subsection (a) of this section to obtain or submit for payment a check, draft, or other form of negotiable instrument drawn on a person's checking, savings, share, or other depository account without the consumer's express written authorization.
    2. For the purpose of this section, a check bearing the valid signature of the consumer shall constitute the consumer's express written authorization.
    1. A violation of the provisions of this section shall constitute an unfair and deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this section.
  1. Nothing in this section limits the rights or remedies which are otherwise available to a consumer under any other law.
  2. The obligations under this section are cumulative and should in no way be deemed to limit the obligations under any other law.

History. Acts 1999, No. 1512, § 1.

Subchapter 3 — Caller Identification Blocking by Telephonic Sellers

4-99-301. Definitions.

For the purpose of this subchapter:

  1. “Caller identification service” means a service offered by a telecommunications utility that provides caller identification information to a device capable of displaying the information;
  2. “Charitable organization” means any charitable organization as that term is defined by § 4-28-401(1);
  3. “Consumer” means any person to whom has been assigned in the State of Arkansas any telephone line and corresponding telephone number;
  4. “Per call blocking” means a telecommunications service that prevents the transmission of caller identification information to a called party on an individual call if the calling party acts affirmatively to prevent the transmission of the caller identification information;
  5. “Per line blocking” means a telecommunications service that prevents the transmission of caller identification to a called party on every call unless the calling party acts affirmatively to release the caller identification information;
  6. “Person” means any individual, group, unincorporated association, limited or general partnership, limited liability corporation, corporation, professional fund raiser, charitable organization, or other business entity; and
  7. “Telephone solicitation” means the initiation of a telephone call or message for the purpose of encouraging the purchase or rental of or investment in property, goods, or services or the initiation of a telephone call or message for the purpose of encouraging a charitable contribution by or on behalf of any charitable organization, which telephone call or message is transmitted to any consumer.

History. Acts 1999, No. 1361, § 1.

4-99-302. Prohibition.

  1. It is a violation of this subchapter for any person to make or transmit a telephone solicitation while using any method, including, but not limited to, per call blocking or per line blocking, that prevents caller identification information for the telephone solicitor's lines used to make telephone calls to a consumer from being shown by a device capable of displaying caller identification information.
    1. It is a violation of this subchapter for a person making or transmitting a telephone solicitation by any method to display or cause to be displayed a fictitious or misleading name or telephone number on an Arkansas resident's telephone caller identification service.
    2. Subdivision (b)(1) of this section does not apply to the transmission of a caller identification service by a telecommunications provider that complies with § 23-17-122.

History. Acts 1999, No. 1361, § 1; 2003, No. 1465, § 6; 2019, No. 677, § 5.

A.C.R.C. Notes. 2019, No. 677, § 1, provided: “Legislative findings and intent.

“(a) The General Assembly finds that:

“(1) The citizens of this state are being negatively affected by illegal robocalls from telemarketers and from others seeking to perpetrate scams on them;

“(2) While these illegal robocalls are frustrating for most, the robocalls are costly and dangerous for far too many Arkansans;

“(3) An alarming number of illegal robocalls originate from scammers using automatic telephone dialing systems to send out thousands of phone calls per minute with fictitious or misleading names or telephone numbers displaying on unsuspecting consumers' telephone caller identification service;

“(4) These scammers are engaging in insidious schemes and targeting seniors and other vulnerable groups by soliciting personal information such as credit or debit card information and Social security numbers;

“(5) Displaying fictitious or misleading names or telephone numbers, or ‘spoofing’, is the predominant means by which a robocaller protects their identities and entices consumers to answer the telephone; and

“(6) Spoofing is the gateway for illegal robocalls and scams.

“(b) It is the intent of the General Assembly:

“(1) To protect the citizens of this state from being spoofed by receiving illegal robocalls from telemarketers and from others seeking to perpetrate scams on unsuspecting or vulnerable citizens;

“(2) To provide the citizens of this state who use a caller identification service with accurate information about the identities and locations of callers;

“(3) To encourage telecommunications providers to swiftly implement technologies that will allow telecommunications providers to identify and stop illegal calling practices; and

“(4) That this act be construed as broadly as possible to ensure that the citizens of this state are protected from the negative impact of illegal robocalls and to ensure that scammers and complicit telecommunications providers are held criminally accountable”.

Amendments. The 2019 amendment added “that complies with § 23-17-122” in (b)(2); and made a stylistic change.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

4-99-303. Penalties — Remedies — Enforcement.

  1. When a person violates this subchapter or a rule prescribed under this subchapter, the violation shall constitute an unfair or deceptive act or practice as defined in § 4-88-101 et seq. pertaining to deceptive trade practices.
    1. All remedies, penalties, and authority granted to the Attorney General under § 4-88-101 et seq. shall be available to the Attorney General for enforcement of this subchapter.
    2. The remedies and penalties provided by this section are cumulative to each other and the remedies or penalties available under all other laws of this state.

History. Acts 1999, No. 1361, § 1; 2019, No. 315, § 142.

Amendments. The 2019 amendment substituted “rule” for “regulation” in (a).

Subchapter 4 — Arkansas Consumer Telephone Privacy Act

4-99-401. Short title.

This subchapter shall be known as the “Arkansas Consumer Telephone Privacy Act”.

History. Acts 1999, No. 1465, § 1.

4-99-402. Legislative findings and intent.

  1. The General Assembly finds that:
    1. The use of the telephone to market goods and services to the home and to other businesses is now pervasive due to the increased use of cost-effective telemarketing techniques;
    2. Unrestricted telemarketing, however, can be an intrusive invasion of privacy;
    3. Many consumers are outraged over the proliferation of intrusive nuisance calls to their homes from telemarketers;
    4. In addition, the proliferation of unsolicited telemarketing calls, especially during the evening hours, creates a disturbance upon the home and family life of Arkansas consumers during a time of day used by many families for traditional family activities;
    5. In addition, some consumers maintain telephone service primarily for emergency medical situations, and unrestricted telemarketing calls to these consumers may create a health and safety risk for these consumers;
    6. Individuals' privacy rights, public safety interests, and commercial freedom of speech and trade must be balanced in a way that protects the privacy of individuals and permits legitimate telemarketing practices; and
        1. Many consumers enjoy and benefit from unsolicited telemarketing contacts from legitimate telemarketers.
        2. However, other consumers object to these contacts as an invasion of an individual's right of privacy and have expressed an intention to refuse to respond to such telemarketing contacts.
      1. Thus, even legitimate telemarketers have no further legitimate interest in continuing to invade the privacy of those consumers who have affirmatively expressed their objections to such contact and, in fact, legitimate telemarketers can make their telemarketing efforts even more cost-effective by avoiding calling those consumers who have affirmatively expressed an objection to any such contact.
  2. The General Assembly intends that this subchapter protect the privacy of Arkansas consumers who have affirmatively expressed an objection to unsolicited telephone solicitations, and the General Assembly intends that this subchapter be liberally construed to effectuate that goal.

History. Acts 1999, No. 1465, § 2.

4-99-403. Definitions.

As used in this subchapter, unless the context requires otherwise:

  1. The term “affiliates” means a person or persons wholly owned and operated by a parent entity, which parent entity claims a prior or existing business relationship with a consumer or a parent company whose wholly owned subsidiary claims a prior existing business relationship with the consumer;
    1. The term “charitable organization” means:
      1. Any person who is or holds himself out to be established for any benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare or advocacy, public health, environmental conservation, civic, or other eleemosynary purpose or for the benefit of law enforcement personnel, firefighters, or other persons who protect the public safety; or
      2. Any person who in any manner employs a charitable appeal as the basis of any solicitation or an appeal which has a tendency to suggest there is a charitable purpose to any such solicitation.
    2. However, it does not include those charitable organizations that are not required to register with the Attorney General's office pursuant to those statutes governing the solicitation of charitable contributions;
  2. The term “consumer” means any person to whom has been assigned in the State of Arkansas any residential telephone line and corresponding telephone number;
  3. The term “person” means any individual, group, unincorporated association, limited or general partnership, limited liability corporation, corporation, professional fund raiser, charitable organization, or other business entity;
    1. The term “prior or existing business relationship” means a relationship in which some financial transaction has transpired between the consumer and the telephone solicitor or its affiliates within the thirty-six (36) months immediately preceding the contemplated telephone solicitation.
    2. The term does not include the situation wherein the consumer has merely been subject to a telephone solicitation by or at the behest of the telephone solicitor within the thirty-six (36) months immediately preceding the contemplated telephone solicitation; and
    1. The term “telephone solicitation” means the initiation of a telephone call or message for the purpose of encouraging the purchase or rental of or investment in property, goods, or services, or the initiation of a telephone call or message for the purpose of encouraging a charitable contribution by or on behalf of any charitable organization, which telephone call or message is transmitted to any consumer, but such term does not include a call or message to any person made with that person's prior written express invitation or permission nor a call or message to any consumer with whom the telephone solicitor has a prior or existing business relationship.
    2. Also, such term does not include a telephone call by any person to a consumer who has placed upon his or her real property a “for sale” sign which lists a telephone number and invites inquiries regarding the property.
    3. Also, such term does not include a telephone call made solely in connection with an existing debt or contractual obligation, payment or performance of which has not been completed at the time of the call.

History. Acts 1999, No. 1465, § 3.

4-99-404. Statewide database.

The Attorney General shall:

  1. Establish and thereafter operate a single statewide database composed of a list of telephone numbers of consumers who object to receiving telephone solicitations;
    1. Specify the methods by which the objections to telephone solicitations shall be collected and added to the database.
      1. Any consumer wishing to be placed in the database may notify the Attorney General and be placed in the database upon receipt by the Attorney General of an application and any initial listing charge which shall not exceed ten dollars ($10.00).
      2. The listing shall be renewed by the Attorney General annually for each consumer upon the receipt of a renewal notice and any annual assessment not to exceed five dollars ($5.00).
      1. The database may include Arkansas consumers who have registered for the national “Do-Not-Call” registry established and maintained by the Federal Trade Commission pursuant to 16 C.F.R. § 310.4, as in effect on March 1, 2003.
      2. The Attorney General may:
        1. Periodically obtain from the commission the information necessary to add these Arkansas consumers to the database maintained by the Attorney General; and
        2. Provide to the commission access to the state database so that those Arkansas consumers who have signed up for the state database can also be included in the national Do-Not-Call registry;
  2. Specify the methods, if any, by which the objections may be withdrawn from the database;
  3. Specify the methods by which any person desiring to make or transmit telephone solicitations may obtain access to the database as required to avoid calling the telephone numbers of the consumers included in the database;
  4. Specify the methods, if any, for recovering the costs involved in identifying, collecting, updating, and disseminating the database and for other activities related to the Attorney General's duties under this subchapter; and
  5. Specify the frequency with which the database will be updated and specify the method by which the updating will take effect for the purposes of compliance with this subchapter, allowing no fewer than ten (10) calendar days for affected persons to update their databases after the Attorney General's database has been updated.

History. Acts 1999, No. 1465, § 4; 2003, No. 1042, § 1.

A.C.R.C. Notes. As enacted, this section began:

“No later than January 1, 2000.”

4-99-405. Prohibitions.

It shall be a violation of this subchapter for any person to:

  1. Make or transmit a telephone solicitation to the telephone number of any consumer included in the then-current database maintained by the Attorney General pursuant to this subchapter;
  2. Make or transmit a telephone solicitation without having first accessed, in the manner specified by the Attorney General, the then-current database maintained by the Attorney General pursuant to this subchapter; or
  3. Make or transmit a telephone solicitation if that telephone solicitation violates the Federal Trade Commission Do-Not-Call rule set out in 16 C.F.R. § 310.4, as in effect on March 1, 2003.

History. Acts 1999, No. 1465, § 5; 2003, No. 1042, § 2.

4-99-406. Applicability of subchapter.

The provisions of this subchapter shall not apply to:

  1. Any person who is a licensee, as defined by § 17-42-103(7)(A), who is a resident of the State of Arkansas and whose telephone call to the consumer is for the sole purpose of selling, exchanging, purchasing, renting, listing for sale or rent, or leasing real estate in accordance with the provisions for which he or she was licensed and not in conjunction with any other offer;
  2. Any motor vehicle dealer, as that term is defined in § 23-112-103(19), who is a resident of the State of Arkansas, and who maintains a current motor vehicle dealer's license issued by the Arkansas Motor Vehicle Commission, whose call to the consumer is for the sole purpose of selling, offering to sell, soliciting, or advertising the sale of motor vehicles in accordance with the provisions for which they were licensed and not in conjunction with any other offer;
  3. Any agent, as that term is defined in § 23-64-102(1), who maintains a current license as an insurance agent whose call to the consumer is for the purpose of soliciting, consulting, advising, or adjusting in the business of insurance;
  4. Any broker-dealer, agent, or investment advisor registered by the Securities Commissioner pursuant to the provisions of § 23-42-301 et seq., whose telephone call to the consumer is for the purpose of effecting or attempting to effect the purchase or sale of securities or has the purpose of providing or seeking to provide investment or financial advice;
  5. Any person calling on behalf of a charitable organization as that term is defined in § 4-99-403(2), whose call to the consumer is for the sole purpose of soliciting for the charitable organization and who receives no compensation as a result of his or her solicitation activities on behalf of the charitable organization;
  6. Any person calling on behalf of a newspaper of general circulation whose call to the consumer is for the purpose of soliciting a subscription to the newspaper from the consumer or soliciting advertising from the consumer;
    1. Telephone calls made on behalf of any federally chartered or state-chartered bank if the call to the consumer relates to banking services other than credit card offers.
    2. In no event shall the telephone calls made pursuant to this subdivision (7) of this section reference any form of credit card offer; and
  7. Telephone calls made on behalf of a funeral establishment properly licensed pursuant to § 17-29-301 et seq., if the purpose of the telephone call relates to services provided by the funeral establishment in its ordinary course of business.

History. Acts 1999, No. 1465, § 6.

4-99-407. Enforcement by the Attorney General.

  1. Any violation by any person of the prohibitions set out in § 4-99-405 shall constitute an unfair or deceptive act or practice as defined by § 4-88-101 et seq. of the Deceptive Trade Practices Act.
  2. All authority granted to the Attorney General and all remedies available to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be granted to and available to the Attorney General for the enforcement of this subchapter after the time period referred to in § 4-99-404(6) has been provided for affected persons to update their databases.

History. Acts 1999, No. 1465, § 7.

4-99-408. Moneys derived from listing charge.

All moneys derived from the listing charge described in § 4-99-404 shall be deposited into the State Treasury to the credit of the State Central Services Fund as a direct revenue to be used exclusively to defray the cost associated with the creation and maintenance of the database required by this subchapter and the enforcement of this subchapter.

History. Acts 1999, No. 1465, § 8.

Chapter 100 Motor Vehicle Transfers

4-100-101. Definitions.

As used in this subchapter, unless the context requires otherwise:

  1. “Lease” means the grant of use and possession of a motor vehicle for consideration, whether or not the grant includes an option to buy the vehicle;
  2. “Motor vehicle” means a device in, on, or by which a person or property is or may be transported or drawn on a highway, except a device used exclusively on stationary rails or tracks;
  3. “Security interest” means an interest in personal property or fixtures that secures payment or performance of an obligation;
  4. “Third party” means a person other than the actor or the owner of the vehicle; and
  5. “Transfer” means to transfer possession, whether or not another right is also transferred, by means of a sale, lease, sublease, lease assignment, or other property transfer.

History. Acts 1993, No. 1042, § 1.

4-100-102. Remedies and penalties.

  1. Any sublease or transfer, or attempted sublease or transfer, in violation of this subchapter shall constitute a deceptive trade practice as defined by § 4-88-101 et seq., and any and all remedies available thereto shall be available to the Attorney General for the enforcement of this subchapter.
  2. Any person injured or damaged by reason of any act in violation of this subchapter may file a civil action to recover damages based on the violation with the following remedies:
    1. The greater of three (3) times the amount of any actual damages or one thousand five hundred dollars ($1,500);
    2. Reasonable attorney's fees and costs; and
    3. Any other relief which the court deems just.
  3. A person who knowingly or intentionally engages in an act of unlawful subleasing or transfer of a motor vehicle as described by this subchapter shall be guilty of a Class D felony.

History. Acts 1993, No. 1042, § 3.

4-100-103. Prohibited practices.

  1. A person engages in an act of unlawful subleasing or transfer of a motor vehicle if all of the following conditions are met:
    1. The vehicle is subject to a lease contract, an installment sales agreement, or a security agreement, the terms of which prohibit the transfer or assignment of any right or interest in the vehicle or under the lease contract, installment sales agreement, or security agreement without consent of the lessor, seller, or secured party;
    2. The person is not a party to the lease contract, installment sales agreement, or security agreement;
    3. The person transfers or assigns, or purports to transfer or assign, a right or an interest in the vehicle to a person who is not a party to the lease contract, installment sales agreement, or security agreement;
    4. The person does not obtain, before the transfer or assignment described in subdivision (a)(3) of this section, written consent to the transfer or assignment from the vehicle's lessor, seller, or secured party; and
    5. The person receives compensation or some other consideration for the transfer or assignment described in subdivision (a)(3) of this section.
  2. A person engages in an act of unlawful subleasing or transfer of a motor vehicle when the person is not a party to the lease contract, installment sales agreement, or security agreement and assists, causes, or arranges an actual or purported transfer or assignment described as a violation of this subchapter.
  3. It is not a defense to prosecution under this subchapter that the motor vehicle's owner has violated a contract creating a security interest, lease, or lien in the motor vehicle.

History. Acts 1993, No. 1042, § 2.

Chapter 101 Jewelry

Subchapter 1 — General Provisions

[Reserved]

Subchapter 2 — Sale of Fracture-Filled and Clarity-Enhanced Diamonds

4-101-201. Duty of merchant — Penalty.

  1. A person engaged in the business of selling fracture-filled or clarity-enhanced diamonds or jewelry containing fracture-filled diamonds shall:
    1. Disclose to the customer that the diamond has been treated and that it is a fracture-filled or clarity-enhanced diamond; and
    2. Post the following notice in a conspicuous place at the entrance to the premises:
  2. A violation of this section shall be a Class B misdemeanor.

“NOTICE TO CUSTOMERS.

Fracture-filled and clarity-enhanced diamonds are sold by this business. Arkansas law requires that the seller disclose to the customer that a diamond is fracture-filled or clarity-enhanced before the sale of any fracture-filled or clarity-enhanced diamond.”

History. Acts 1995, No. 1128, § 1.

Chapter 102 Prize Promotion

4-102-101. Legislative finding, declaration, and intent.

  1. The General Assembly has become aware of the avalanche of sweepstakes, contests, and prize promotions that have been and are being directed at Arkansas consumers and recognizes that consumers are often misled by these sweepstakes, contests, and prize promotions. The General Assembly also recognizes that Arkansas consumers have paid hundreds of thousands of dollars to sweepstakes, contests, and prize promoters based upon misrepresentations by those promoters to Arkansas consumers. Many of the sweepstakes, contests, and prize promotions are artfully crafted to lead Arkansas consumers to believe that they have been selected to receive valuable prizes, when such is not the case. The promotions often mislead Arkansas consumers as to the value of the prizes. The promotions often mislead Arkansas consumers as to their chances to receive the prize. The promotions often mislead Arkansas consumers to believe that they must purchase the promoter's product, or otherwise pay to the promoter sums of money in order to be eligible to receive the prize, or that the likelihood that the prize to be awarded will be increased, or that the consumer's application for the prize will receive special handling if the consumer purchases the promoter's product. These sweepstakes, contests, and prize promoters prey particularly upon elderly Arkansas consumers.
  2. It is the intent of the General Assembly through the enactment of this chapter to require that Arkansas consumers be provided with all relevant information necessary to make an informed decision concerning sweepstakes, contests, and prize promotions. It is also the intent of the General Assembly to prohibit misleading and deceptive prize promotions. This chapter shall be construed liberally in order to achieve this purpose.

History. Acts 1995, No. 736, § 9.

Case Notes

Applicability.

The Prize Promotion Act did not apply to a golf tournament in which the sponsor advertised that a car would be awarded to the first person to score a hole-in-one as the participants in the tournament were not required to purchase products in order to be eligible to win the car. Burford Distrib., Inc. v. Starr, 341 Ark. 914, 20 S.W.3d 363 (2000).

Research References

Ark. L. Rev.

Priebe, Arkansas Prize Promotion Act,Burford Distributing, Inc. v. Starr, 341 Ark., 20 S.W.3d 363 (2000), 53 Ark. L. Rev. 749.

4-102-102. Definitions.

As used in this chapter, unless the context otherwise requires:

  1. “Prize” means a gift, award, or other item or service that is offered or awarded to a participant in a real or purported contest, competition, sweepstakes, puzzle, drawing, scheme, plan, or other selection process;
  2. “Retail value” of a prize means:
    1. A price at which the sponsor can substantiate that a substantial number of the prizes have been sold to the public in Arkansas in the preceding year; or
    2. If the sponsor is unable to satisfy the requirement in subdivision (2)(A) of this section, then no more than one and one-half (1.5) times the amount the sponsor paid for the prize in a bona fide purchase from an unaffiliated seller; and
  3. “Sponsor” means a corporation, partnership, limited liability company, sole proprietorship, or natural person that offers a prize or information about a prize to a person in Arkansas in conjunction with the sale or lease of any product or service, or offers a prize or information about a prize in conjunction with any real or purported contest, competition, sweepstakes, puzzle, drawing, scheme, plan, or other selection process that requires, or creates the reasonable impression of requiring, or allows the person to pay any money as a condition of receiving, or in conjunction with allowing the person to receive, use, compete for, or obtain a prize or information about a prize.

History. Acts 1995, No. 736, § 1; 2001, No. 1670, § 2.

4-102-103. Violations.

  1. Nothing in this chapter shall be construed to permit an activity otherwise prohibited by law.
    1. Each prize offer made in violation of this chapter, as to each separate person to whom such offer is made, shall constitute a separate violation of this chapter.
      1. A violation of this chapter is also a violation of the Deceptive Trade Practices Act, § 4-88-101 et seq., and is subject to all of the enforcement provisions of that act.
      2. For the purposes of the assessment of penalties pursuant to the Deceptive Trade Practices Act, § 4-88-101 et seq., each separate violation of this chapter will constitute a separate violation of the Deceptive Trade Practices Act, § 4-88-101 et seq.
    1. Any person suffering a pecuniary loss because of an intentional violation of this chapter may bring an action in any court of competent jurisdiction and shall recover:
      1. Costs;
      2. Reasonable attorney's fees; and
      3. The greater of:
        1. Five hundred dollars ($500); or
        2. Twice the amount of the pecuniary loss.
    2. It is evidence of intent if the violation occurs after the office of the Attorney General has notified a sponsor that the sponsor is in violation of this chapter.
  2. The relief provided in this section is in addition to remedies or penalties otherwise available in regard to the same conduct under law or under other statutes of this state.

History. Acts 1995, No. 736, § 8.

4-102-104. Exemptions.

  1. Nothing in this chapter creates liability for the acts by the publisher, owner, agent, or employee of a newspaper, periodical, radio station, television station, cable television station system, or other advertising medium arising out of the publication or dissemination of a solicitation, notice, or promotion governed by this chapter, unless the publisher, owner, agent, or employee had knowledge that the solicitation, notice, or promotion violated the requirements of this chapter, or had a financial interest in the solicitation, notice, or promotion.
    1. This chapter does not apply to sponsors of prize promotions where all prizes are awarded absolutely for free and there is no opportunity for the payment of money from the person to the sponsor or any agent of the sponsor.
    2. The fact that a prize promotion makes provision for entry into the contest or eligibility for the prize without any payment does not exempt the prize promotion or its sponsor from the provisions of this chapter where the prize promotion requires, or creates the reasonable impression of requiring, or allows the person to pay, any money as a condition of receiving, or in conjunction with allowing the person to receive, use, compete for, or obtain a prize or information about a prize.
    3. If the prize promotion provides any opportunity for any payment by the person to the sponsor for any reason, regardless of whether such payment is required, and regardless of how such payment is denominated, this exemption shall not apply.
  2. This chapter does not apply to solicitations or representations in connection with:
    1. The sale or purchase of books, recordings, videocassettes, periodicals, and similar goods through:
      1. A membership group or club which is regulated by the Federal Trade Commission pursuant to 16 C.F.R. Part 425.1 concerning the use of negative option plans by sellers in commerce; or
        1. The sale or purchase of such goods through a contractual plan or arrangement such as a continuity plan, subscription arrangement, or a single sale or purchase series arrangement under which the seller ships such goods to a consumer who has consented in advance to receive the goods and, after the receipt of the goods, is given the opportunity to examine the goods and to receive a full refund of charges for the goods upon return of the goods undamaged within a reasonable period of time.
        2. Provided, that the return and refund privilege shall be clearly and conspicuously disclosed to the consumer in the original contact with the consumer, whether oral or written.
        3. If the consumer elects to return the product for a refund, the seller shall process the refund within thirty (30) days after the receipt of the returned merchandise by the consumer.
        4. In addition to the return and refund privilege, the consumer may cancel the plan, arrangement, subscription, or purchase series at any time by notifying the seller. After the seller receives the cancellation notice, any further products, not already in transit, sent to the consumer shall be considered a gift to the consumer which the consumer may keep without further obligation, and for which gift the seller shall not bill the consumer; or
      1. Sales by a catalogue seller.
      2. For purposes of this section, “catalogue seller” shall mean any entity and its subsidiaries, or person, at least fifty percent (50%) of whose annual revenues are derived from the sale of products sold in connection with the distribution of catalogues of at least twenty-four (24) pages, which contain written descriptions or illustrations and sale prices for each item of merchandise and which are distributed in more than one (1) state with a total annual distribution of at least two hundred fifty thousand (250,000).
  3. Any willful failure of a seller claiming exemption under subsection (c) of this section to comply with all of the terms of the exemption shall render a claim of exemption void, and such seller shall be bound to fully comply with the provisions of this chapter.
  4. This chapter does not apply to pari-mutuel wagering on horse racing and greyhound racing permitted and regulated by Arkansas law.
  5. This chapter does not apply to prize promotions that appear in a magazine, newspaper, or other periodical if the prize promotions are not directed to a named individual or if the prize promotions do not include an opportunity to make a payment or order a product or service.
  6. The solicitations or representations exempted from the coverage of this chapter in subsection (c) of this section shall be exempt only if:
    1. The information specified in § 4-102-106(b) is clearly and conspicuously set forth or contained in the rules for any solicitation which includes entry materials for a sweepstakes;
    2. The notification and steps to deliver a prize are commenced within thirty (30) days of a prize award; and
    3. A prize is not available, the sponsor complies with the provisions set out in § 4-102-107(1) or (2).

History. Acts 1995, No. 736, § 6; 2001, No. 1670, § 1.

Cross References. Horse racing, § 23-110-101 et seq.

Dog racing, § 23-111-101 et seq.

4-102-105. Prohibited practices.

A sponsor shall not do any of the following:

  1. Offer a prize to any person except in accordance with the requirements of this chapter;
    1. Deliver a written prize notice, or an envelope containing a written prize notice that contains language or is designed in a manner that would have the tendency or capacity to mislead intended recipients as to the source of the written prize notice.
    2. This prohibition includes, but is not limited to, a written prize notice or envelope which indicates that the notice or envelope originates from a government agency, public utility, insurance company, consumer reporting agency, debt collector, or law firm, unless the written prize notice or envelope originates from that source;
  2. Represent directly or by implication that the number of persons eligible for the prize is limited or that a person has been selected to receive a particular prize unless the representation is true;
  3. Represent that a person is a winner or finalist, has been specially selected, is in first place, or is otherwise among a limited group of persons with an enhanced likelihood of receiving a prize, or that a person is entering a contest, sweepstakes, drawing, or other competitive enterprise from which a single winner or select group of winners will receive a prize, when in fact the enterprise is a promotional scheme designed to make contact with prospective customers and all or a substantial number of those receiving the notice are awarded the same prize;
    1. Represent directly or by implication that a person will have an increased chance of receiving a prize by making multiple or duplicate purchases, payments, or donations, or by entering a game, drawing, sweepstakes, or other contest more than one (1) time, unless the representation is true.
    2. A sponsor is deemed to have made such representation if the sponsor delivers one (1) or more prize notices to a person after the person has already made a purchase, payment, or donation to the sponsor for the same promotion, or has already entered the same game, drawing, sweepstakes, or other contest, unless the sponsor can demonstrate a bona fide error even though the sponsor has implemented procedures reasonably designed to prevent such duplication;
  4. Represent directly or by implication that a person is being notified a second or final time of the opportunity to receive or compete for a prize unless the representation is true;
  5. Represent directly or by implication that a prize notice is urgent, or otherwise convey an impression of the urgency by use of description, narrative copy, phrasing on an envelope, or similar method unless there is a limited time period in which the recipient must take some action to claim or be eligible to receive a prize, and the date by which such action is required appears in immediate proximity to each representation of urgency and in the same type size and boldness as each representation of urgency;
    1. Knowingly sell, rent, exchange, transfer, or otherwise furnish to or purchase from other persons, financial data regarding Arkansans disclosed in connection with a prize promotion not in compliance with this chapter.
    2. For purposes of this chapter, financial data includes credit card numbers, bank account numbers, other payment device numbers, and dollars spent on prize promotions which are not in compliance with this chapter; or
  6. Request an individual to disclose the individual's phone number, age, birthdate, credit card ownership, or financial data in connection with a prize promotion which is not in compliance with this chapter.

History. Acts 1995, No. 736, § 7.

4-102-106. Disclosures required.

  1. No sponsor shall offer a prize nor shall a sponsor use any solicitation, whether written or oral, and however communicated, that offers a prize, unless the person to whom such offer is made has first received a written prize notice containing the information required in subsections (b) and (c) of this section.
  2. A written prize notice must contain each of the following:
    1. The true name or names of the sponsor and the address of the sponsor's actual principal place of business;
    2. The retail value of each prize the person receiving the notice has been selected to receive or may be eligible to receive;
    3. A statement of the person's odds of receiving each prize identified in the notice;
    4. Any requirement that the person pay shipping or handling fees or any other charges in order to obtain or use a prize, or any fees required to obtain information about a prize, including the nature and amount of such charges;
    5. If the receipt of the prize is subject to a restriction, a statement that a restriction applies, and a description of the restrictions;
    6. Any limitations on eligibility for the prize; and
    7. If a sponsor represents that the person is a “winner”, is a “finalist”, has been “specially selected”, is in “first place”, or is otherwise among a limited group of persons with an enhanced likelihood of receiving a prize, the written prize notice must contain a statement of the maximum number of persons in the group or purported group with this enhanced likelihood of receiving a prize.
  3. The information required by subsection (b) of this section must be presented in the following form:
    1. The retail value and statement of odds required under subdivisions (b)(2) and (3) of this section must be stated in immediate proximity to each identification of a prize on the written notice, and must be in the same size and boldness of type as the reference to the prize;
    2. The statement of odds must include, for each prize, the total number of prizes to be given away and the total number of written prizes to be distributed;
    3. The number of prizes and written prize notices must be stated in arabic numerals;
    4. The statement of odds must be in the following form: “ (number of prizes) out of (notices distributed)”;
    5. If a person is required to pay shipping or handling fees or any other charges in order to obtain a prize, to be eligible to obtain a prize, to obtain information about a prize, or to otherwise participate in the contest, the following statement must appear in immediate proximity to each listing of the prize in the written prize notice, in not less than 10-point bold face type: “YOU MUST PAY $ TO RECEIVE THIS ITEM” or “YOU MUST PAY $ TO COMPETE FOR THIS ITEM” or “YOU MUST PAY $ TO OBTAIN INFORMATION ABOUT THIS ITEM”, whichever is applicable; and
    6. A statement required under subdivision (b)(7) of this section must appear in immediate proximity to each representation that the person is among a group of persons with an enhanced likelihood of receiving a prize and must be in the same size and boldness of type as the representation.

History. Acts 1995, No. 736, § 2.

Case Notes

Contractual Relationship.

This section does not define the contractual relationship between the participating parties, therefore, the official rules serve as the controlling contract. Without possession of a valid game-stamp, the plaintiff was unable to perform the unilateral contract, and this lack of compliance resulted in no contract, no duty to perform by the defendants, and no breach. Barnes v. McDonald's Corp., 72 F. Supp. 2d 1038 (E.D. Ark. 1999), aff'd, 230 F.3d 1362 (8th Cir. Ark. 2000).

Posting of Notice.

Placing the rules and restrictions for the game openly in the exact building where the prize stamps were being given away put all participants on notice that there were rules and restrictions. Barnes v. McDonald's Corp., 72 F. Supp. 2d 1038 (E.D. Ark. 1999), aff'd, 230 F.3d 1362 (8th Cir. Ark. 2000).

Notice Adequate.

Plaintiff had adequate notice of game restrictions where games boards were widely dispersed to the public by an advertising circular, were placed in a large number of Sunday newspapers, were available at defendant stores to be picked up by anyone interested in playing, and where plaintiff had actual possession of a game board. Barnes v. McDonald's Corp., 72 F. Supp. 2d 1038 (E.D. Ark. 1999), aff'd, 230 F.3d 1362 (8th Cir. Ark. 2000).

Written Prize Notice.

All of the information required under subsections (b) and (c) of this section was found in Official Rules openly posted within a participating restaurant, and these posted rules served as a fundamental part of a written prize notice, especially in light of the references made to these rules on the Game Board and the Redemption Form. Barnes v. McDonald's Corp., 72 F. Supp. 2d 1038 (E.D. Ark. 1999), aff'd, 230 F.3d 1362 (8th Cir. Ark. 2000).

4-102-107. Prize award required.

A sponsor who represents to a person that the person has been awarded a prize shall, not later than thirty (30) days after making a representation, provide the person with the prize, or with a voucher, certificate, or other document giving the person the unconditional right to receive the prize, or shall provide the person with either of the following items selected by the person:

  1. Any other prize listed in the written prize notice that is available and that is of equal or greater value; or
  2. The retail value of the prize as stated in the written notice in the form of cash, a money order, or a certified check.

History. Acts 1995, No. 736, § 3.

4-102-108. Telephonic prize offers.

  1. All provisions of this chapter apply to prize offers made by way of telephone communication.
  2. Sponsors of the offers shall not solicit or accept the payment of any money from any person unless that person has first received the written prize notice as required by this chapter.
  3. No sponsor shall solicit or utilize in any fashion any credit card or bank account information from any person unless that person has first received a written prize notice as required by this chapter.
  4. If a sponsor contacts a person by telephone after that person has first received a written prize notice as required by this chapter, the sponsor shall specifically identify the written prize notice and shall by oral disclosure communicate all disclosures required by § 4-102-106 prior to soliciting or accepting any money from any person and prior to soliciting or accepting any credit card or bank account information from any person.

History. Acts 1995, No. 736, § 4.

4-102-109. Application of the Home Solicitation Act.

All prize offers, including telephone prize offers, in which the sponsor has initiated contact, regardless of his or her location, and the consumer's agreement to pay is made at the consumer's home and is an agreement to pay more than twenty-five dollars ($25.00) is a home solicitation sale within the meaning of § 4-89-102(4).

History. Acts 1995, No. 736, § 5.

Cross References. Home Solicitation Act, § 4-89-101 et seq.

Chapter 103 Charitable Solicitation

Subchapter 1 — General Provisions

[Reserved]

Subchapter 2 — Containers

4-103-201. Definitions.

As used in this subchapter:

    1. “Charitable organization” means any nonprofit corporation that is or holds itself out to be established for a charitable purpose or any person who employs a charitable appeal as the basis for any solicitation or appeal that suggests, directly or indirectly, that the solicitation is for a charitable purpose.
    2. “Charitable organization” includes a person, chapter, branch, area office, or a similar affiliate or agent of any of these, whether paid or not paid, soliciting contributions within the state for a charitable organization or cause;
  1. “Charitable purpose” means any charitable, benevolent, philanthropic, humane, patriotic, scientific, artistic, public health, social welfare, advocacy, environmental, conservation, civic, or other eleemosynary purpose as defined and amended, from time to time, by the Internal Revenue Code;
  2. “Container” means any box, carton, package, receptacle, canister, jar, dispenser, or machine that offers a product for sale or distribution for solicitation purposes; and
  3. “Disclosure label” means a printed or typed notice affixed to a container located in a conspicuous place and accessible to the public which is easily readable and legible and informs the public of the following:
    1. The approximate annual percentage paid, if any, to an individual or organization to maintain, service, or collect the contributions raised by the solicitation;
    2. The net percentage or sum for the most recent calendar year going to the specific charitable purpose; and
    3. If the maintenance, service, and collection from the container is done by volunteers or by paid individuals.

History. Acts 1997, No. 172, § 1.

U.S. Code. The Internal Revenue Code, referred to in (2), is codified generally as 26 U.S.C. § 1 et seq.

4-103-202. Disclosure label required — Unlawful charitable solicitation.

  1. Any container used by any charitable organization in a public place to solicit contributions by offering a product for sale or distribution for solicitation purposes shall have a disclosure label attached to it.
  2. Any charitable organization that knowingly places a container in violation of the provisions of subsection (a) of this section commits the offense of unlawful charitable solicitation.
  3. Unlawful charitable solicitation is a Class C misdemeanor.
  4. It is an affirmative defense to prosecution under this section that a charitable organization has given one hundred percent (100%) of the receipts generated by the container to the charitable purpose for which the charitable organization represented the funds were being solicited.

History. Acts 1997, No. 172, § 2.

4-103-203. Exemptions.

No charitable organization shall be liable for prosecution under this subchapter for failure to place a disclosure label on any container if:

  1. The container generates less than one hundred dollars ($100) gross per annum; or
  2. The charitable organization generates less than five hundred dollars ($500) per year from all sources for any charitable purpose or purposes combined.

History. Acts 1997, No. 172, § 3.

4-103-204. Enforcement of subchapter.

    1. Any violation of the provisions of this subchapter shall constitute an unfair and deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this subchapter.
  1. The prosecuting attorneys of the various districts and counties of this state shall also have full authority to enforce the provisions of this subchapter.

History. Acts 1997, No. 172, § 4.

4-103-205. Construction of subchapter.

The provisions of this subchapter shall be supplemental to the laws of this state pertaining to charitable fraud or fraudulent practices.

History. Acts 1997, No. 172, § 5.

Chapter 104 Credit Card Solicitation

Subchapter 1 — General Provisions

[Reserved]

Subchapter 2 — College Campuses

4-104-201. Definitions.

As used in this subchapter:

  1. “Credit card” means:
    1. Any card, plate, or other single credit device that may be used from time to time to obtain credit.
    2. Checks and similar instruments that can be used only once to obtain a single credit extension are not credit cards;
  2. “Credit card issuer” means:
    1. Any person or entity who issues a credit card; or
    2. The employee or agent of the person or entity, with respect to the card;
  3. “Institution of higher education” means any public or private university, college, technical college, or community college located in Arkansas; and
  4. “Person” means any natural person, firm, association, organization, partnership, corporation, or company, or any combination thereof.

History. Acts 1999, No. 1328, § 1.

4-104-202. Face-to-face solicitations.

    1. It is unlawful to:
      1. Solicit any person to apply for a credit card in an academic building and within one hundred feet (100') of an academic building on the campus of an institution of higher education; or
      2. Offer gifts or any other promotional incentives to any person under twenty-one (21) years of age through direct face-to-face contact in order to entice the person to apply for a credit card.
    2. Prior to any personal solicitation of credit card applications on the campus of an institution of higher education in which gifts or any other promotional incentives are being offered, the credit card issuer shall verify the identity and age of the person to be solicited by the review of a valid driver's license or other credible means of identification bearing a photograph of the person.
    3. This subsection shall not apply to the solicitation of a credit card application by a bank or credit union located on the campus if the solicitation is made within its office.
  1. It is unlawful to issue a credit card to any individual whose application for credit is obtained as a result of actions prohibited by this subchapter.

History. Acts 1999, No. 1328, § 2; 2005, No. 1430, § 1.

4-104-203. Solicitations at athletic events.

If the institution of higher learning permits solicitations at athletic events, the institution shall include a credit seminar within the institution's freshman orientation.

History. Acts 1999, No. 1328, § 3.

4-104-204. Violations — Penalties.

Any credit card issuer violating this subchapter shall be guilty of a violation and fined not less than five hundred dollars ($500) nor more than one thousand dollars ($1,000) for each violation.

History. Acts 1999, No. 1328, § 4; 2005, No. 1994, § 43.

Chapter 105 Lemon Laws

Research References

ALR.

Validity, construction, and effect of state motor vehicle warranty legislation (lemon laws). 51 A.L.R.4th 872.

Constitutional right to jury trial in cause of action under state unfair or deceptive trade practices law. 54 A.L.R.5th 631.

Award of attorneys' fees under state motor vehicle warranty legislation (lemon laws). 82 A.L.R.5th 501.

Subchapter 1 — General Provisions

[Reserved]

Subchapter 2 — Assistive Devices

4-105-201. Definitions.

For purposes of this subchapter:

    1. “Assistive device” means a:
      1. Manual wheelchair;
      2. Motorized wheelchair;
      3. Motorized scooter designed to enhance the mobility of a disabled person; or
      4. Van lift.
    2. “Assistive device” does not include a device having a value of less than seven hundred fifty dollars ($750);
  1. “Assistive device dealer” means a person who is in the business of selling assistive devices;
  2. “Assistive device lessor” means a person who leases an assistive device to a consumer or who holds the lessor's rights under a written lease;
  3. “Assistive device warranty” means the warranty attached to assistive devices sold or leased by assistive device manufacturers or assistive device dealers;
  4. “Collateral costs” means expenses incurred by a consumer in connection with the repair of a nonconformity, including the costs of obtaining an alternative assistive device;
  5. “Consumer” means:
    1. The purchaser of an assistive device, if the assistive device was purchased from an assistive device dealer or manufacturer for purposes other than resale;
    2. A person to whom the assistive device is transferred for purposes other than resale if the transfer occurs before the expiration of an express warranty applicable to the assistive device;
    3. A person who may enforce the warranty; and
    4. A person who leases an assistive device from an assistive device lessor under a written lease;
  6. “Demonstrator” means an assistive device used primarily for the purpose of demonstration to the public;
    1. “Early termination cost” means any expense or obligation that an assistive device lessor incurs as a result of both the termination of a written lease before the termination date set forth in that lease and the return of an assistive device to a manufacturer pursuant to the provisions of this subchapter.
    2. “Early termination cost” includes a penalty for prepayment under a finance arrangement;
    1. “Early termination saving” means any expense or obligation that an assistive device lessor avoids as a result of both the termination of a written lease before the termination date set forth in that lease and the return of an assistive device to a manufacturer pursuant to the provisions of this subchapter.
    2. “Early termination saving” includes an interest charge that the assistive device lessor would have paid to finance the assistive device or, if the assistive device lessor does not finance the assistive device, the difference between the total amount for which the lease obligates the consumer during the period of the lease term remaining after the early termination and the present value of that amount at the date of the early termination;
  7. “Manufacturer” means a person who manufactures or assembles assistive devices and agents of that person, including an importer, a distributor, factory branch, distributor branch, and any warrantors of the manufacturer's assistive device, but does not include an assistive device dealer;
  8. “Nonconformity” means a condition or defect that substantially impairs the use, value, or safety of an assistive device and that is covered by an express warranty applicable to the assistive device or to a component of the assistive device, including, but not limited to, any piece or part or any premanufactured and assembled part by the manufacturer or employee that fails in use, but does not include:
    1. A condition of the device that is the result of abuse, neglect, or unauthorized modification or alteration of the assistive device by a consumer; or
    2. A condition of the device that is the result of normal use which may be resolved through a fitting adjustment, preventative maintenance, or proper care; and
  9. “Reasonable attempt to repair” means, within the terms of an express warranty applicable to a new assistive device:
    1. Presenting the assistive device for repair of the same nonconformity on at least three (3) separate occasions to the manufacturer, assistive device lessor, or any of the manufacturer's authorized assistive device dealers; or
    2. The assistive device is out of service with no assistive device available for loan for an aggregate of at least fourteen (14) calendar days because of warranty nonconformity.

History. Acts 1999, No. 953, § 1.

4-105-202. Express warranties.

  1. A manufacturer who in the State of Arkansas sells an assistive device to a consumer shall provide to the consumer an express warranty to continue no less than one (1) year after first delivery of the assistive device.
  2. In the absence of an express warranty from the manufacturer, the manufacturer shall be deemed to have expressly warranted to the consumer of an assistive device that for a period of no less than one (1) year after the date of first delivery to the consumer the assistive device will be free from any condition or defect which substantially impairs the value of the assistive device to the consumer.

History. Acts 1999, No. 953, § 2.

4-105-203. Warranty.

If a new assistive device does not conform to an applicable express warranty and the consumer reports the nonconformity to the manufacturer, the assistive device lessor, or any of the manufacturer's authorized assistive device dealers and makes the assistive device available for repair before thirty (30) days after return delivery of the assistive device to a consumer, the nonconformity shall be repaired at no charge to the consumer.

History. Acts 1999, No. 953, § 3.

4-105-204. Repair.

  1. A reasonable amount of time to fix a nonconformity shall be thirty (30) calendar days, with the exchange of a substitute of the consumer's assistive device at the option of the consumer.
  2. If, after a reasonable attempt to repair, the nonconformity is not repaired, then at the direction of the consumer the manufacturer shall do one (1) of the following:
    1. Accept return of the assistive device and replace the assistive device with a comparable new assistive device and refund any collateral costs;
      1. Accept return of the assistive device and refund to the consumer and to any holder of a perfected security interest in the consumer's assistive device, as their interest may appear, the full purchase price plus any finance charge paid by the consumer at the point of sale and collateral costs, less a reasonable allowance for use.
      2. A reasonable allowance for use may not exceed the amount obtained by multiplying the full purchase price of the assistive device by a fraction, the denominator of which is one thousand four hundred sixty (1,460) and the numerator of which is the number of days that the assistive device was used before the consumer first reported the nonconformity to the assistive device dealer; or
    2. With respect to a consumer who leases an assistive device from an assistive device lessor under a written lease, accept return of the assistive device, refund to the assistive device lessor and to any holder of a perfected security interest in the assistive device, as their interest may appear, the current value of the written lease, and refund to the consumer the amount that the consumer paid under the written lease plus any collateral costs, less a reasonable allowance for use.

History. Acts 1999, No. 953, § 4.

4-105-205. Valuation.

  1. The current value of the written lease equals the total amount for which that lease obligates the consumer during the period of the lease remaining after its early termination, plus the assistive device dealer's early termination costs and the value of the assistive device at the lease expiration date if the lease sets forth that value, less the assistive device lessor's early termination savings.
  2. A reasonable allowance for use may not exceed the amount obtained by multiplying the total amount for which the written lease obligates the consumer by a fraction, the denominator of which is one thousand four hundred sixty (1,460) and the numerator of which is the number of days that the consumer used the assistive device before first reporting the nonconformity to the manufacturer, assistive device lessor, or assistive device dealer.

History. Acts 1999, No. 953, § 5.

4-105-206. Refund or replacement.

    1. To receive a comparable new assistive device or a refund due under the provisions of this subchapter, a consumer shall offer to the manufacturer of the assistive device having the nonconformity to transfer possession of that assistive device to that manufacturer.
    2. No later than fifteen (15) calendar days after that offer, the manufacturer shall provide the consumer with an assistive device or a refund.
  1. After the manufacturer provides the new assistive device or refund, the consumer shall return the assistive device having the nonconformity to the manufacturer or its dealer, along with any endorsements necessary to transfer ownership to the manufacturer.
      1. To receive a refund due under the provisions of this subchapter, a person who leases an assistive device from an assistive device lessor under a written lease shall offer to return the assistive device having the nonconformity to its manufacturer.
      2. No later than fifteen (15) calendar days after that offer, the manufacturer shall provide the refund to the consumer.
    1. After the manufacturer provides the refund, the consumer shall return to the manufacturer the nonconforming assistive device.
    1. To receive a refund due under the provisions of this subchapter, an assistive device lessor shall offer to transfer possession of the assistive device having the nonconformity to its manufacturer.
    2. No later than fifteen (15) calendar days after that offer, the manufacturer shall provide the refund to the assistive device lessor.
  2. A consumer who prevails in any legal proceeding under this subchapter is entitled to recover as part of the judgment a sum equal to the aggregate amount of costs and expenses, including attorney's fees based upon actual time expended by the attorney, determined by the court to have been reasonably incurred by the consumer for or in connection with the commencement and prosecution of the action.

History. Acts 1999, No. 953, § 6.

Chapter 106 Discount Cards

Subchapter 1 — General Provisions

[Reserved]

Subchapter 2 — Health-Related Cash Discount Cards

4-106-201. Prohibited practices.

It shall be unlawful and a violation of this subchapter for any person to sell, market, promote, advertise, or otherwise distribute any card or other purchasing mechanism or device which is not insurance that purports to offer discounts or access to discounts from health care providers in health-related purchases if:

  1. The card or other purchasing mechanism or device does not expressly provide in bold and prominent type that the discounts are not insurance;
  2. The card or other purchasing mechanism or device does not expressly provide in bold and prominent type on the card or in a statement attached to the card that the consumer has the right to cancel his or her registration within thirty (30) days from the effective date of the card or other purchasing mechanism or device;
  3. The discounts are not specifically authorized by an individual and separate contract with each health care provider listed in conjunction with the card or other purchasing mechanism or device;
  4. The discounts or access to discounts offered or the range of discounts or access to the range of discounts offered are, regardless of the literal wording used:
    1. Misleading;
    2. Deceptive; or
    3. Fraudulent;
  5. The card or any advertisements for the card in any form include words or phrases that are commonly associated with the business of insurance, such as “health plan”, “ preexisting condition”, or “coverage”, in a way that could have a tendency to deceive the public into believing that the cards are a form of insurance;
  6. The contract for the card or other purchasing mechanism or device, or any other document that is provided to the consumer at the time the card or other purchasing mechanism or device is received, does not contain:
    1. Information in bold and prominent type that a consumer has the right to cancel his or her registration within thirty (30) days from the effective date of the card or other purchasing mechanism or device; and
    2. Instructions on how a consumer may cancel his or her registration;
  7. Printed advertisements and other printed promotional materials concerning the card or other purchasing mechanism or device do not expressly provide in bold and prominent type that:
    1. The discounts are not insurance; and
    2. The card or other purchasing mechanism or device contains a thirty-day cancellation period; and
  8. Electronic advertisements and other electronic promotions concerning the card or other purchasing mechanism or device, including, but not limited to, radio, television, the Internet, and telephone solicitations, do not expressly state in a prominent manner that:
    1. The discounts are not insurance; and
    2. A consumer has the right to cancel the registration within a thirty-day period under § 4-106-205.
    1. It is found and determined by the General Assembly that:

History. Acts 1999, No. 1406, § 1; 2005, No. 875, § 2.

A.C.R.C. Notes. Acts 2005, No. 875, § 1, provided:

“Legislative intent.

“(1) Consumers in the State of Arkansas purchase health-related cash discount cards with the expectation that all health-related cash discount cards will provide significant savings for the cost of health care;

“(2) Many consumers in the State of Arkansas purchase health-related cash discount cards without the seller providing a full explanation of the range of discounts offered and whether consumers' health-care providers will accept the card; and

“(3) Many health-related cash discount card providers do not clearly indicate in advertisements or during the sales process that discount cards are not insurance.

“(b) This act is intended to provide consumers in the State of Arkansas with:

“(1) Additional protections that will ensure that they have sufficient information with which to make an informed decision before agreeing to purchase a health-related cash discount card; and

“(2) A sufficient time period in which to cancel a health-related cash discount card.”

Research References

ALR.

Validity, Construction, and Application of State Statute Forbidding Unfair Trade Practice or Competition by Discriminatory Allowance of Rebates, Commissions, Discounts, or the Like. 83 A.L.R.6th 419.

4-106-202. Penalty.

  1. The Attorney General, any person, firm, private corporation, municipal or other public corporation, or trade association may maintain an action to enjoin a continuance of any act or acts in violation of this subchapter and for the recovery of damages.
  2. Any person subject to liability under this section shall be deemed as a matter of law to have purposely availed himself or herself of the privileges of conducting activities within Arkansas sufficient to subject the person to the personal jurisdiction of the circuit court hearing an action brought pursuant to this subchapter.
  3. An action for violation of this section may be brought:
    1. In the county where the plaintiff resides;
    2. In the county where the plaintiff conducts business;
    3. In the county where the card or other purchasing mechanism or device was sold, marketed, promoted, advertised, or otherwise distributed; or
    4. In the Pulaski County Circuit Court if the action is initiated by the Attorney General.
    1. If, in such action, the court shall find that the defendant is violating or has violated any of the provisions of this subchapter, it shall enjoin the defendant from a continuance thereof.
    2. It shall not be necessary, except to recover for actual damages under subdivision (d)(3)(B) of this section, that actual damages to the plaintiff be alleged or proved.
    3. In addition to injunctive relief, the plaintiff in the action shall be entitled to recover from the defendant:
      1. Whichever is greater:
        1. One hundred dollars ($100) per card or other purchasing mechanism or device sold, marketed, promoted, advertised, or otherwise distributed within the State of Arkansas; or
        2. Ten thousand dollars ($10,000);
      2. Three (3) times the amount of the actual damages, if any, sustained;
      3. Reasonable attorney's fees;
      4. Costs; and
      5. Any other relief which the court deems proper.
    1. All actions under this section shall be commenced within two (2) years after the date on which the violation of this subchapter occurs or within two (2) years after the person bringing the action discovers or in the exercise of reasonable diligence should have discovered the occurrence of the violation of this subchapter.
    2. The period of limitation provided in this section may be extended for a period of one hundred eighty (180) days if the person bringing the action proves by a preponderance of the evidence that the failure to timely commence the action was caused by the defendant's engaging in conduct solely calculated to induce the plaintiff to refrain from or postpone the commencement of the action.
    1. Any defendant in an action brought under the provisions of this subchapter may be required to testify under § 16-43-211 and as otherwise provided by law.
    2. In addition, the books and records of the defendant may be brought into court and introduced, by reference, into evidence.
  4. The remedies prescribed in this section are cumulative and in addition to the remedies prescribed in the Deceptive Trade Practices Act, § 4-88-101 et seq., and any other applicable criminal, civil, or administrative penalties.

History. Acts 1999, No. 1406, § 2; 2005, No. 875, §§ 3, 4; 2013, No. 1148, § 3.

A.C.R.C. Notes. Acts 2005, No. 875, § 1, provided:

“Legislative intent.

(a) It is found and determined by the General Assembly that:

“(1) Consumers in the State of Arkansas purchase health-related cash discount cards with the expectation that all health-related cash discount cards will provide significant savings for the cost of health care;

“(2) Many consumers in the State of Arkansas purchase health-related cash discount cards without the seller providing a full explanation of the range of discounts offered and whether consumers' health-care providers will accept the card; and

“(3) Many health-related cash discount card providers do not clearly indicate in advertisements or during the sales process that discount cards are not insurance.

“(b) This act is intended to provide consumers in the State of Arkansas with:

“(1) Additional protections that will ensure that they have sufficient information with which to make an informed decision before agreeing to purchase a health-related cash discount card; and

“(2) A sufficient time period in which to cancel a health-related cash discount card.”

Amendments. The 2013 amendment substituted “§ 16-43-211 and as otherwise provided by law” for “the provisions of § 16-43-701” in (f)(1).

Cross References. Jurisdiction of circuit courts, Ark. Const. Amend. 80, §§ 6, 19.

4-106-203. Designation and registration of agent.

Any person who sells, markets, promotes, advertises, or otherwise distributes any card or other purchasing mechanism or device which is not insurance that purports to offer discounts from health care providers in health-related purchases in Arkansas shall:

  1. Designate an agent who is a resident of Arkansas for service of process; and
  2. Register the agent with the Secretary of State.

History. Acts 1999, No. 1406, § 3.

4-106-204. Construction.

Nothing in this subchapter shall be construed to apply to eye or vision care services, glasses, or contact lenses provided by an optometrist or ophthalmologist.

History. Acts 1999, No. 1406, § 4.

4-106-205. Right to rescind contract — No waiver of claims.

  1. In addition to any other right to revoke an offer, a buyer who enters into a contract for the purchase of a health-related discount card or other purchasing mechanism or device has the absolute right to cancel the contract and receive a full refund without penalty until midnight of the thirtieth calendar day after the effective date of the card or other purchasing mechanism or device.
  2. The acceptance or use of any card or other purchasing mechanism or device is not a waiver of:
    1. Any claim that may be asserted under this subchapter or under § 4-88-101 et seq.; or
    2. Any other applicable criminal, civil, or administrative penalties.

History. Acts 2005, No. 875, § 5.

A.C.R.C. Notes. Acts 2005, No. 875, § 1, provided:

“Legislative intent.

(a) It is found and determined by the General Assembly that:

“(1) Consumers in the State of Arkansas purchase health-related cash discount cards with the expectation that all health-related cash discount cards will provide significant savings for the cost of health care;

“(2) Many consumers in the State of Arkansas purchase health-related cash discount cards without the seller providing a full explanation of the range of discounts offered and whether consumers' health-care providers will accept the card; and

“(3) Many health-related cash discount card providers do not clearly indicate in advertisements or during the sales process that discount cards are not insurance.

“(b) This act is intended to provide consumers in the State of Arkansas with:

“(1) Additional protections that will ensure that they have sufficient information with which to make an informed decision before agreeing to purchase a health-related cash discount card; and

“(2) A sufficient time period in which to cancel a health-related cash discount card.”

Chapter 107 Credit Cards

Research References

ALR.

Liability of credit card issuer under state laws for wrongful billing, cancellation dishonor, or disclosure. 53 A.L.R.4th 231.

Subchapter 1 — General Provisions

[Reserved]

Subchapter 2 — Transfer of Credit Card Debt

Cross References. Deceptive trade practices, § 4-88-101 et seq.

4-107-201. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Card issuer” means any person who issues a credit card or the agent of the person with respect to the credit card;
  2. “Cardholder” means any person to whom a credit card is issued or any person who has agreed with the card issuer to pay obligations arising from the issuance of a credit card to another person;
  3. “Credit” means the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment;
  4. “Credit card” means any card, plate, coupon book, or other credit device existing for the purpose of obtaining money, property, labor, or services on credit;
    1. “Creditor” means a person who both:
      1. Regularly extends, whether in connection with loans, sales of property or services, or otherwise, consumer credit which is payable by agreement in more than four (4) installments or for which the payment of a finance charge is or may be required; and
      2. Is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement.
    2. In the case of an open-end credit plan involving a credit card, the card issuer is a creditor.
    3. “Creditor” shall also include card issuers, whether or not the amount due is payable by agreement in more than four (4) installments;
    1. “Open-end credit plan” means a plan under which the creditor reasonably contemplates repeated transactions, which prescribes the terms of such transactions, and which provides for a finance charge which may be computed from time to time on the outstanding unpaid balance.
    2. A credit plan which is an open-end credit plan within the meaning of the preceding sentence is an open-end credit plan even if credit information is verified from time to time; and
  5. “Person” means a natural person or an organization.

History. Acts 1999, No. 1497, § 1.

4-107-202. Cardholders protected.

  1. If a credit cardholder transfers an outstanding credit card balance from one credit card account to another credit card account, the creditor issuing the credit card from which the outstanding balance was transferred shall not collect any interest or any other fees attributable to the credit card account for the amount of the outstanding balance having been transferred for any period after the date of the transfer from the account.
  2. Any creditor issuing a credit card who charges a consumer any interest or any other fees after the transfer of an outstanding credit balance from one credit card account to another credit card account shall be liable to the consumer for an amount which is treble the amount of any interest or other fees charged, plus all costs, to include a reasonable amount for attorney's fees.

History. Acts 1999, No. 1497, § 2.

4-107-203. Deceptive trade practices.

    1. Further, a violation of the provisions of this subchapter by a credit card issuer or creditor issuing a credit card shall constitute an unfair and deceptive act or practice as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.
    2. All remedies, penalties, and authority granted to the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq., shall be available to the Attorney General for the enforcement of this section.
  1. Nothing in this subchapter shall limit the rights or remedies which are otherwise available to the credit card holder under any other law.
  2. The obligations under this subchapter are cumulative and should in no way be deemed to limit the obligations imposed under any other state or federal law.

History. Acts 1999, No. 1497, § 3.

4-107-204. Applicability.

Notwithstanding the federal Consumer Credit Protection Act, 15 U.S.C. § 1601 et seq., or any other federal or state laws protecting the rights of consumers who are issued credit cards in this state or other states, the provisions of this subchapter shall apply to all qualifying credit card account transactions where a creditor has chosen to issue a credit card to a citizen of the State of Arkansas or has chosen to continue to offer a credit card account to a citizen in Arkansas and shall thereby be governed by the provisions of this subchapter.

History. Acts 1999, No. 1497, § 4.

Subchapter 3 — Unauthorized Use of Credit Cards

4-107-301. Legislative findings.

The General Assembly finds, determines, and declares that:

  1. Credit, particularly the use of credit cards, is an important tool for consumers in today's economy;
  2. Unscrupulous persons often fraudulently use the credit card accounts of others by stealing the credit card itself or obtaining the necessary information to fraudulently charge the purchase of goods and services to another person's credit card account; and
  3. Protection from unauthorized use of credit card accounts is necessary.

History. Acts 2003, No. 274, § 1.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2003 Arkansas General Assembly, Business Law, 26 U. Ark. Little Rock L. Rev. 351.

4-107-302. Definitions.

As used in this subchapter:

  1. “Authorized user” means a person granted express, implied, or apparent authority to use a cardholder's credit card or credit card number;
  2. “Cardholder” means the named credit card account member and co-applicant who applies for or accepts the terms and conditions of a credit card account;
  3. “Charges” means purchases, cash advances, annual membership fees, delinquent payment fees, insufficient fund fees, over-the-limit credit fees, or other amounts incurred through the use of the credit card;
  4. “Credit card” means an instrument or device, whether known as a credit card, charge card, credit plate, courtesy card, identification card, or by any other name, that:
    1. Is issued by a credit card issuer with or without a fee;
    2. Has an assigned account number; and
    3. Is for the use of the cardholder to obtain money, goods, services, or anything of monetary value, on credit, in possession, or in consideration of an undertaking or guaranty by the credit card issuer of the payment of a check drawn by the cardholder on a promise to pay, in part or in full, at a future time whether or not any part of the indebtedness that is represented by the promise to make a deferred payment is secured or unsecured;
  5. “Credit card account” means a line of credit offered by a credit card issuer to a cardholder for the use of a credit card;
  6. “Credit card agreement” means the terms and conditions governing the use of the credit card account;
  7. “Credit card issuer” means a person who issues a credit card or the agent of a person with respect to a credit card;
  8. “Creditor” means a person, business, financial institution, or commercial enterprise that owns the credit card account;
  9. “Data” means the information maintained on the cardholder's account by the original creditor, credit card issuer, or succeeding creditor in the regular course of business and transferred as part of an assignment or sales agreement to the present creditor or owner of the account electronically or otherwise from which information the present creditor or owner has compiled;
  10. “Financial institution” means:
    1. A banking institution that may issue credit cards under any state or federal law;
    2. A banking subsidiary owned by a bank holding company as defined in 12 U.S.C. § 1841 or by a savings and loan holding company as defined in 12 U.S.C. § 1467a(a)(1)(D); or
    3. Any federally regulated banking institution;
  11. “Interest” means a payment to compensate a creditor or prospective creditor for making an extension of credit, making available a line of credit, or for a borrower's default or breach of a condition on which credit was extended; and
  12. “Terms and conditions” means the general and special arrangements, provisions, requirements, rules, specifications, and standards that form an integral part of a credit card agreement between the credit card issuer and the cardholder.

History. Acts 2003, No. 274, § 1; 2013, No. 1495, § 1.

Amendments. The 2013 amendment rewrote the section heading and the section.

4-107-303. Printing card number on receipts.

  1. No person, firm, partnership, association, corporation, limited liability company, or other entity accepting credit cards for the transaction of business shall print more than the last five (5) digits of the credit card account number, the credit card expiration date, or both, on a credit card receipt to the cardholder.
    1. This section shall apply only to the receipts that are electronically printed and shall not apply to transactions in which the sole means of recording the credit card number is by handwriting or by an imprint or copy of the credit card.
      1. Except as provided in subdivision (b)(2)(C) of this section, this section applies to any person or entity formed on and after July 16, 2003, that uses a cash register or any other machine or device that electronically imprints receipts of credit card transactions.
      2. Except as provided in subdivision (b)(2)(C) of this section, beginning January 1, 2004, this section also applies to any person or entity formed before July 16, 2003, that uses a cash register and any other machine or device that electronically imprints receipts of credit card transactions.
      3. Until January 1, 2005, this section shall not apply to:
        1. Institutions of higher education; or
        2. Persons or entities employing no more than twenty-five (25) employees or who have generated no more than five million dollars ($5,000,000) annually in revenues from the person's business activities.

History. Acts 2003, No. 274, § 1.

4-107-304. Acceptance of credit card agreement.

The acceptance of the terms and conditions of a credit card account by a cardholder may be established as binding and enforceable by:

  1. The written or electronic signature or other electronic record of acceptance by the cardholder; or
  2. The use of the credit card account by the named credit card account member, any coapplicant, or any authorized user if the credit card agreement provides that any use of the credit card account constitutes an acceptance of the terms and conditions of the credit card agreement if the time prescribed in 12 C.F.R. § 202.12(b) has expired.

History. Acts 2013, No. 1495, § 2.

4-107-305. Liability.

  1. A cardholder is personally liable for charges and interest incurred by the named credit card account member, any coapplicant, or any authorized user on the credit card account of the cardholder.
  2. A cardholder is not liable for charges and interest incurred on the credit card account as a result of fraudulent activity by another person.

History. Acts 2013, No. 1495, § 2.

4-107-306. Amount owed.

  1. A creditor may establish a presumption of correctness of its ownership of the credit card account and the amount of the charges and interest that is owed on a credit card account by:
    1. Filing a copy of the credit card issuer's final billing statement or charge-off statement; or
    2. Filing a compilation of the data maintained by the original creditor, credit card issuer, or succeeding creditor in the regular course of business.
  2. The cardholder may dispute the presumption with any credible evidence as allowed by state or federal law.

History. Acts 2013, No. 1495, § 2.

4-107-307. Interest rate.

A creditor may establish the contracted interest rate for a credit card account by:

  1. Documenting the acceptance of the terms and conditions that contain a stated or variable interest rate by a cardholder of the credit card account; or
  2. Any billing statement generated by the credit card issuer that contains a stated or variable interest rate.

History. Acts 2013, No. 1495, § 2.

Chapter 108 Fuel and Lubricants

Subchapter 1 — General Provisions

[Reserved]

Subchapter 2 — Quality Specifications

Effective Dates. Acts 2001, No. 586, § 15: Mar. 7, 2001. Emergency clause provided: “”It is hereby found and determined by the General Assembly that the present state laws and regulatory authority regarding standards for engine fuels, petroleum products, and automotive lubricants are outdated; that this act adopts modern standards and grants the Director of the State Plant Board appropriate authority to maintain up-to-date standards hereafter; and that until this act becomes effective the employees of the State Plant Board will remain hampered in performing their lawful duties. Therefore, an emergency is declared to exist and this act being immediately necessary for the preservation of the public peace, health and safety shall become effective on the date of its approval by the Governor. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto.”

4-108-201. Purpose.

  1. There should be uniform requirements for engine fuels, petroleum products, and automotive lubricants among the several states.
  2. This subchapter provides for the establishment of quality specifications for these products.

History. Acts 2001, No. 586, § 1.

Research References

U. Ark. Little Rock L. Rev.

Survey of Legislation, 2001 Arkansas General Assembly, Business Law, 24 U. Ark. Little Rock L. Rev. 407.

4-108-202. Scope.

  1. This subchapter establishes a sampling, testing, and enforcement program, requires registration of engine fuels, and empowers the state to promulgate rules as needed to carry out the provisions of this subchapter.
  2. It also provides for administrative, civil, and criminal penalties.

History. Acts 2001, No. 586, § 2; 2019, No. 315, § 143.

Amendments. The 2019 amendment substituted “rules” for “regulations” in (a).

4-108-203. Definitions.

As used in this subchapter:

  1. “ASTM” means the American Society for Testing and Materials, a national voluntary consensus standards organization formed for the development of standards on characteristics and performance of materials, products, systems, and services, and the promotion of related knowledge;
  2. “Automotive lubricants” means any material interposed between two (2) surfaces that reduces the friction or wear between them;
  3. “Board” means the State Plant Board;
  4. “Director” means the Director of the State Plant Board and its designated agents;
  5. “Engine fuel” means any liquid or gaseous matter used for the generation of power in an internal combustion engine;
    1. “Engine fuel designed for special use” means engine fuels designated by the director as requiring registration.
      1. These fuels normally have no American Society for Testing and Materials or other national consensus standards applying to their quality or usability.
      2. Common special fuels are racing fuels and those intended for agricultural and other off-road applications;
  6. “Person” means an individual, corporation, company, society, association, partnership, or governmental entity;
  7. “Petroleum products” means products obtained from distilling and processing of petroleum, crude oil, unfinished oils, recycled oils, natural gas liquids, refinery blend stocks, and other miscellaneous hydrocarbon compounds; and
  8. “Sold” means kept, offered, or exposed for sale, or sold.

History. Acts 2001, No. 586, § 3.

4-108-204. Administration — Adoption of standards — Rules.

  1. The provisions of this subchapter shall be administered by the Director of the State Plant Board.
      1. For the purpose of administering and giving effect to the provisions of this subchapter, the State Plant Board may adopt the specification and test method standards set forth in both the most recent edition of the National Institute of Standards and Technology Handbook 130 and the most recent edition of the Annual Book of ASTM Standards and supplements thereto, and revisions thereof.
      2. When no ASTM International standard exists, other generally recognized national consensus standards may be used.
    1. The board is empowered to write rules on the advertising, posting of prices, labeling, standards for, and identity of fuels, petroleum products, and automotive lubricants and is authorized to establish a testing laboratory.

History. Acts 2001, No. 586, § 4; 2019, No. 315, § 144.

Amendments. The 2019 amendment deleted “and regulations” following “rules” in (b)(2).

4-108-205. State Petroleum Products Division — General duties and powers.

  1. There is hereby created a State Petroleum Products Division located for administrative purposes within the Arkansas Bureau of Standards.
  2. The State Plant Board shall have the authority to:
    1. Enforce and administer all the provisions of this subchapter by inspections, analyses, and other appropriate actions;
        1. Have access during normal business hours to all places where engine fuels, petroleum products, and automotive lubricants are kept, transferred, offered, exposed for sale, or sold for the purpose of examination, inspection, taking of samples, and investigation.
        2. As used in subdivision (b)(2)(A)(i) of this section, “engine fuels” does not include aviation fuel.
      1. If a representative of the board is denied access by the owner or agent or other persons leasing the place where engine fuels, petroleum products, or automotive lubricants are kept, transferred, offered, exposed for sale, or sold for the purpose of examination, inspection, taking of samples, and investigation, the Director of the State Plant Board may obtain an administrative search warrant from a court of competent jurisdiction;
      1. Collect, or cause to be collected, samples of engine fuels, petroleum products, and automotive lubricants marketed in this state, and cause the samples to be tested or analyzed for compliance with the provisions of this subchapter.
      2. As used in subdivision (b)(3)(A) of this section, “engine fuels” does not include aviation fuel;
      1. Define engine fuels for special use and refuse, revoke, suspend, or issue a stop-order if an engine fuel for special use is found not to be in compliance with this subchapter and remand a stop-order if the engine fuel for special use is brought into full compliance with this subchapter.
      2. As used in subdivision (b)(4)(A) of this section, “engine fuels” does not include aviation fuel;
      1. Issue a stop-sale order for any engine fuel, petroleum product, and automotive lubricant found not to be in compliance with this subchapter and remand the stop-sale order if the engine fuel, petroleum product, or automotive lubricant is brought into full compliance with this subchapter.
      2. As used in subdivision (b)(5)(A) of this section, “engine fuel” does not include aviation fuel;
      1. Refuse, revoke, or suspend the registration of an engine fuel, petroleum product, or automotive lubricant.
      2. As used in subdivision (b)(6)(A) of this section, “engine fuel” does not include aviation fuel; and
    2. Delegate to appropriate personnel any of these responsibilities for the proper administration of this subchapter.

History. Acts 2001, No. 586, § 5; 2019, No. 606, § 1.

Amendments. The 2019 amendment redesignated (b)(1)(A) as (b)(1) and redesignated the remaining subdivisions accordingly; added (b)(2)(A)(ii), (b)(3)(B), (b)(4)(B), (b)(5)(B), and (b)(6)(B); rewrote (b)(2)(B); in (b)(4)(A), inserted “an engine fuel for special use is” and inserted “with this subchapter”; inserted “with this subchapter” in (b)(5)(A); and made stylistic changes.

4-108-206. Registration of engine fuels designed for special use.

  1. All engine fuels designed for special use must be registered with the board.
  2. Such registration shall include the:
    1. Name, brand, or trademark under which the fuel will be sold;
    2. Name and address of the person registering the engine fuel;
    3. Special use for which the engine fuel is designed; and
    4. Certification, declaration, or affidavit stating the specifications which the fuel will meet upon testing.

History. Acts 2001, No. 586, § 6.

4-108-207. Prohibited acts.

It shall be unlawful to:

  1. Represent engine fuels, petroleum products, or automotive lubricants in any manner that may deceive or tend to deceive the purchaser as to the nature, brand, price, quantity, or quality of the products;
  2. Fail to register an engine fuel designed for special use;
  3. Submit incorrect, misleading, or false information regarding the registration of an engine fuel designed for special use;
  4. Hinder or obstruct the State Plant Board in the performance of its duties;
  5. Represent an engine fuel, petroleum product, or automotive lubricant that is contrary to the provisions of this subchapter; and
  6. Represent automotive lubricants with a Society of Automotive Engineers viscosity grade or American Petroleum Institute service classification other than those specified by the intended purchaser.

History. Acts 2001, No. 586, § 7.

4-108-208. Civil penalties.

    1. Any person who by himself or herself, by his or her servant or agent, or as the servant or agent of another person, commits any of the acts enumerated in § 4-108-207 may be assessed by the State Plant Board a civil penalty of:
      1. Not less than one hundred dollars ($100) nor more than three hundred dollars ($300) for a first violation;
      2. Not less than four hundred dollars ($400) nor more than six hundred dollars ($600) for a second violation within three (3) years after the date of the first violation; and
      3. Not less than seven hundred dollars ($700) nor more than one thousand dollars ($1,000) for a third violation within three (3) years after the date of the first violation.
    2. For a violation to be considered as a second or subsequent offense, it must be a repeat of a violation as enumerated in § 4-108-207.
    1. Any person subject to a civil penalty shall have a right to request an administrative hearing within ten (10) calendar days after receipt of the notice of the penalty.
    2. The board or a subcommittee of the board shall be authorized to conduct the hearing after giving appropriate notice to the respondent.
    3. The decision of the board shall be subject to appropriate judicial review under the Arkansas Administrative Procedure Act, § 25-15-201 et seq.
    1. If the respondent has exhausted his or her administrative appeals and the civil penalty has been upheld, he or she shall pay the civil penalty within twenty (20) calendar days after the effective date of the final decision.
    2. If the respondent fails to pay the penalty, a civil action may be brought by the director in any court of competent jurisdiction to recover the penalty.
    3. Any civil penalty collected under this section shall be transmitted to the Plant Board Fund.

History. Acts 2001, No. 586, § 8.

Cross References. Plant Board Fund, § 19-6-408.

4-108-209. Criminal penalties.

Any person who intentionally violates any provision of this subchapter or rules promulgated thereto shall be guilty of a Class A misdemeanor.

History. Acts 2001, No. 586, § 9; 2019, No. 315, § 145.

Amendments. The 2019 amendment substituted “rules” for “regulations”.

4-108-210. Restraining order and injunction.

The Director of the State Plant Board is authorized to apply to any court of competent jurisdiction for a restraining order or a temporary or permanent injunction restraining any person from violating any provision of this subchapter.

History. Acts 2001, No. 586, § 10.

4-108-211. Title.

This subchapter shall be known and may be cited as the “Engine Fuels, Petroleum Products, and Automotive Lubricants Inspection Act of 2001”.

History. Acts 2001, No. 586, § 11.

4-108-212. Rules.

  1. The State Plant Board may by rule adopted pursuant to the Arkansas Administrative Procedure Act, § 25-15-201 et seq., adopt as a rule of the Arkansas Bureau of Standards specifications, tolerances, and regulations for engine fuels, petroleum products, and automotive lubricants set out in National Institute of Standards and Technology Handbook 130, or in any similar publication issued by the National Institute of Standards and Technology.
  2. In drafting the rules, the bureau shall consider whether the specifications, tolerances, and regulations published by the National Institute of Standards and Technology are consistent with the needs of Arkansas businesses and consumers and may modify, amend, or delete suggested language found in the National Institute of Standards and Technology handbooks.

History. Acts 2001, No. 586, § 12; 2019, No. 315, § 146.

Amendments. The 2019 amendment substituted “Rules” for “Regulations” in the section heading; substituted “rule” for “regulation” twice in (a); and substituted “rules” for “regulations” in (b).

4-108-213. Rules to be unaffected by repeal of prior enabling statute.

The adoption of this subchapter or any of its provisions shall not affect any rules promulgated pursuant to the authority of any earlier enabling statute unless inconsistent with this subchapter or modified or revoked by the State Plant Board.

History. Acts 2001, No. 586, § 13; 2019, No. 315, § 147.

Amendments. The 2019 amendment substituted “Rules” for “Regulations” in the section heading; and substituted “rules” for “regulations” in the section.

Chapter 109 Use of “Notario” and Similar Terms

4-109-101. Definitions.

As used in this chapter:

  1. “Notary public” means a person duly appointed or commissioned under § 21-14-101;
  2. “Person” means:
      1. An individual;
      2. An organization;
      3. An association;
      4. A partnership;
      5. A limited liability company; or
      6. A corporation; or
    1. Any combination of them; and
  3. “Practice of law” means:
    1. Holding oneself out to the public as being entitled to practice law;
    2. Tendering or furnishing legal services or advice;
    3. Furnishing attorneys or counsel;
    4. Rendering legal services of any kind in actions or proceedings of any nature or in any other way or manner;
    5. Acting as if or in any other manner assuming to be entitled to practice law; or
    6. Advertising or assuming the title of lawyer or attorney, attorney at law, or equivalent terms in any language in such a manner as to convey the impression that one is entitled to practice law or to furnish legal advice, service, or counsel.

History. Acts 2005, No. 66, § 1.

4-109-102. Prohibited acts and practices.

It is a violation of this chapter for any person to advertise his or her services using the terms “notario ” or “notario publico”, or any similar term, unless the person is a notary public as defined in this subchapter and the person complies with the notice requirements in § 4-109-103.

History. Acts 2005, No. 66, § 1.

4-109-103. Notice required.

  1. Any notary public who chooses to use the term “notario” or “notario publico”, or any similar terms, in any advertisement shall include in the advertisement the following notice:
  2. The notice shall be provided in both English and Spanish.

“I AM NOT A LICENSED ATTORNEY AND CANNOT ENGAGE IN THE PRACTICE OF LAW. I AM NOT A REPRESENTATIVE OF ANY GOVERNMENTAL AGENCY WITH AUTHORITY OVER IMMIGRATION OR CITIZENSHIP AND I CANNOT OFFER LEGAL ADVICE OR OTHER ASSISTANCE REGARDING IMMIGRATION.”

History. Acts 2005, No. 66, § 1.

4-109-104. Exceptions.

This chapter does not apply to an attorney licensed in this state.

History. Acts 2005, No. 66, § 1.

4-109-105. Enforcement.

A violation of this chapter is an unconscionable or deceptive act or practice, as defined by the Deceptive Trade Practices Act, § 4-88-101 et seq.

History. Acts 2005, No. 66, § 1.

Chapter 110 Personal Information Protection Act

4-110-101. Short title.

This chapter shall be known and cited as the “Personal Information Protection Act”.

History. Acts 2005, No. 1526, § 1.

RESEARCH REFERENCES

Ark. L. Rev.

Daveante Jones, Comment: Protecting Biometric Information in Arkansas, 69 Ark. L. Rev. 117 (2016).

U. Ark. Little Rock L.J.

Survey of Legislation, 2005 Arkansas General Assembly, Business Law, 28 U. Ark. Little Rock L. Rev. 321.

4-110-102. Findings and purpose.

  1. It is the intent of the General Assembly to ensure that sensitive personal information about Arkansas residents is protected.
  2. To that end, the purpose of this chapter is to encourage individuals, businesses, and state agencies that acquire, own, or license personal information about the citizens of the State of Arkansas to provide reasonable security for the information.

History. Acts 2005, No. 1526, § 1.

Research References

Ark. L. Rev.

Daveante Jones, Comment: Protecting Biometric Information in Arkansas, 69 Ark. L. Rev. 117 (2016).

4-110-103. Definitions.

As used in this chapter:

    1. “Breach of the security of the system” means unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal information maintained by a person or business.
    2. “Breach of the security of the system” does not include the good faith acquisition of personal information by an employee or agent of the person or business for the legitimate purposes of the person or business if the personal information is not otherwise used or subject to further unauthorized disclosure;
    1. “Business” means a sole proprietorship, partnership, corporation, association, or other group, however organized and whether or not organized to operate at a profit, including a financial institution organized, chartered, or holding a license or authorization certificate under the law of this state, any other state, the United States, or of any other country or the parent or the subsidiary of a financial institution.
    2. “Business” includes:
      1. An entity that destroys records; and
      2. A state agency;
  1. “Customer” means an individual who provides personal information to a business for the purpose of purchasing or leasing a product or obtaining a service from the business;
  2. “Individual” means a natural person;
  3. “Medical information” means any individually identifiable information, in electronic or physical form, regarding the individual's medical history or medical treatment or diagnosis by a healthcare professional;
  4. “Owns or licenses” includes, but is not limited to, personal information that a business retains as part of the internal customer account of the business or for the purpose of using the information in transactions with the person to whom the information relates;
  5. “Personal information” means an individual's first name or first initial and his or her last name in combination with any one (1) or more of the following data elements when either the name or the data element is not encrypted or redacted:
    1. Social Security number;
    2. Driver's license number or Arkansas identification card number;
    3. Account number, credit card number, or debit card number in combination with any required security code, access code, or password that would permit access to an individual's financial account;
    4. Medical information; and
      1. Biometric data.
      2. As used in this subdivision (7)(E), “biometric data” means data generated by automatic measurements of an individual's biological characteristics, including without limitation:
        1. Fingerprints;
        2. Faceprint;
        3. A retinal or iris scan;
        4. Hand geometry;
        5. Voiceprint analysis;
        6. Deoxyribonucleic acid (DNA); or
        7. Any other unique biological characteristics of an individual if the characteristics are used by the owner or licensee to uniquely authenticate the individual's identity when the individual accesses a system or account;
    1. “Records” means any material that contains sensitive personal information in electronic form.
    2. “Records” does not include any publicly available directories containing information an individual has voluntarily consented to have publicly disseminated or listed, such as name, address, or telephone number; and
  6. “State agencies” or “state agency” means any agency, institution, authority, department, board, commission, bureau, council, or other agency of the State of Arkansas supported by cash funds or the appropriation of state or federal funds.

History. Acts 2005, No. 1526, § 1; 2019, No. 1030, § 1.

Amendments. The 2019 amendment added (7)(E).

4-110-104. Protection of personal information.

  1. A person or business shall take all reasonable steps to destroy or arrange for the destruction of a customer's records within its custody or control containing personal information that is no longer to be retained by the person or business by shredding, erasing, or otherwise modifying the personal information in the records to make it unreadable or undecipherable through any means.
  2. A person or business that acquires, owns, or licenses personal information about an Arkansas resident shall implement and maintain reasonable security procedures and practices appropriate to the nature of the information to protect the personal information from unauthorized access, destruction, use, modification, or disclosure.

History. Acts 2005, No. 1526, § 1.

Research References

Ark. L. Rev.

Daveante Jones, Comment: Protecting Biometric Information in Arkansas, 69 Ark. L. Rev. 117 (2016).

4-110-105. Disclosure of security breaches.

    1. Any person or business that acquires, owns, or licenses computerized data that includes personal information shall disclose any breach of the security of the system following discovery or notification of the breach of the security of the system to any resident of Arkansas whose unencrypted personal information was, or is reasonably believed to have been, acquired by an unauthorized person.
    2. The disclosure shall be made in the most expedient time and manner possible and without unreasonable delay, consistent with the legitimate needs of law enforcement as provided in subsection (c) of this section, or any measures necessary to determine the scope of the breach and to restore the reasonable integrity of the data system.
    1. A person or business that maintains computerized data that includes personal information that the person or business does not own shall notify the owner or licensee that there has been a breach of the security of the system immediately following discovery if the personal information was, or is reasonably believed to have been, acquired by an unauthorized person.
    2. If a breach of the security of a system affects the personal information of more than one thousand (1,000) individuals, the person or business required to make a disclosure of the security breach under subdivision (b)(1) of this section shall, at the same time the security breach is disclosed to an affected individual or within forty-five (45) days after the person or business determines that there is a reasonable likelihood of harm to customers, whichever occurs first, disclose the security breach to the Attorney General.
    1. The notification required by this section may be delayed if a law enforcement agency determines that the notification will impede a criminal investigation.
    2. The notification required by this section shall be made after the law enforcement agency determines that it will not compromise the investigation.
  1. Notification under this section is not required if, after a reasonable investigation, the person or business determines that there is no reasonable likelihood of harm to customers.
  2. For purposes of this section, notice may be provided by one (1) of the following methods:
    1. Written notice;
    2. Electronic mail notice if the notice provided is consistent with the provisions regarding electronic records and signatures set forth in 15 U.S.C. § 7001, as it existed on January 1, 2005; or
      1. Substitute notice if the person or business demonstrates that:
        1. The cost of providing notice would exceed two hundred fifty thousand dollars ($250,000);
        2. The affected class of persons to be notified exceeds five hundred thousand (500,000); or
        3. The person or business does not have sufficient contact information.
      2. Substitute notice shall consist of all of the following:
        1. Electronic mail notice when the person or business has an electronic mail address for the subject persons;
        2. Conspicuous posting of the notice on the website of the person or business if the person or business maintains a website; and
        3. Notification by statewide media.
  3. Notwithstanding subsection (e) of this section, a person or business that maintains its own notification procedures as part of an information security policy for the treatment of personal information and is otherwise consistent with the timing requirements of this section shall be deemed to be in compliance with the notification requirements of this section if the person or business notifies affected persons in accordance with its policies in the event of a breach of the security of the system.
    1. A person or business shall retain a copy of the written determination of a breach of the security of a system and supporting documentation for five (5) years from the date of determination of the breach of the security of the system.
    2. If the Attorney General submits a written request for the written determination of the breach of the security of the system, the person or business shall send a copy of the written determination of the breach of the security of the system and supporting documentation to the Attorney General no later than thirty (30) days after the date of receipt of the request.
    3. The determination and documentation retained under this subsection are confidential and not subject to public disclosure.

History. Acts 2005, No. 1526, § 1; 2019, No. 1030, §§ 2, 3.

Amendments. The 2019 amendment added the (b)(1) designation; substituted “licensee that there has been a breach” for “licensee of the information of any breach” in (b)(1); added (b)(2); added (g); and made a stylistic change.

Research References

Ark. L. Rev.

John Ogle, Comment: Identities Lost: Enacting Federal Law Mandating Disclosure & Notice After a Data Security Breach, 72 Ark. L. Rev. 221 (2019).

Daveante Jones, Comment: Protecting Biometric Information in Arkansas, 69 Ark. L. Rev. 117 (2016).

4-110-106. Exemptions.

    1. The provisions of this chapter do not apply to a person or business that is regulated by a state or federal law that provides greater protection to personal information and at least as thorough disclosure requirements for breaches of the security of personal information than that provided by this chapter.
    2. Compliance with the state or federal law shall be deemed compliance with this chapter with regard to the subjects covered by this chapter.
  1. This section does not relieve a person or business from a duty to comply with any other requirements of other state and federal law regarding the protection and privacy of personal information.

History. Acts 2005, No. 1526, § 1.

4-110-107. Waiver.

Any waiver of a provision of this chapter is contrary to public policy, void, and unenforceable.

History. Acts 2005, No. 1526, § 1.

4-110-108. Penalties.

Any violation of this chapter is punishable by action of the Attorney General under the provisions of § 4-88-101 et seq.

History. Acts 2005, No. 1526, § 1.

Research References

Ark. L. Rev.

Daveante Jones, Comment: Protecting Biometric Information in Arkansas, 69 Ark. L. Rev. 117 (2016).

Chapter 111 Consumer Protection Against Computer Spyware Act

4-111-101. Short title.

This chapter shall be known and cited as the “Consumer Protection Against Computer Spyware Act”.

History. Acts 2005, No. 2255, § 1.

4-111-102. Definitions.

As used in this chapter:

  1. “Advertisement” means a communication, the primary purpose of which is the commercial promotion of a commercial product or service, including content on an Internet website operated for a commercial purpose;
  2. “Authorized user”, with respect to a computer, means a person that owns or is authorized by the owner or lessee to use the computer;
  3. “Bundled software” means software that is acquired through the installation of a large number of separate programs in a single installation when the programs are wholly unrelated to the purpose of the installation as described to the authorized user;
    1. “Cause to be copied” means to distribute or transfer computer software or any component of computer software.
    2. “Cause to be copied” does not include providing:
      1. Transmission, routing, intermediate temporary storage, or caching of software;
      2. A compact disk, website, computer server, or other storage medium through which the software was distributed by a third party; or
      3. A directory, index, reference, pointer, hypertext link, or other information location tool through which the user of the computer located the software;
  4. “Computer software” means a sequence of instructions written in any programming language that is executed on a computer but does not include a text or data file, including a cookie;
  5. “Computer virus” means a computer program or other set of instructions that is designed to do the following acts without the authorization of the owner or owners of a computer or computer network:
    1. Degrade the performance of or disable a computer or computer network; and
    2. Have the ability to replicate itself on another computer or computer network;
  6. “Damage” means any significant impairment to the integrity, confidentiality, or availability of data, software, a system, or information, including, but not limited to, the:
    1. Significant and intentional degradation of the performance of a computer or a computer network; or
    2. Intentional disabling of a computer or computer network;
  7. “Distributed denial of service” or “DDoS attack” means techniques or actions involving the use of one (1) or more damaged computers to damage another computer or a targeted computer system in order to shut the computer or computer system down and deny the service of the damaged computer or computer system to legitimate users;
  8. “Execute”, when used with respect to computer software, means the performance of the functions or the carrying out of the instructions of the computer software;
  9. “Hardware” means a comprehensive term for all of the discrete physical parts of a computer as distinguished from:
    1. The data the computer contains or that enables it to operate; and
    2. The software that provides instructions for the hardware to accomplish tasks;
  10. “Intentionally deceptive” means with the intent to deceive an authorized user in order to either damage a computer or computer system or wrongfully obtain personally identifiable information without authority:
    1. To make an intentional and materially false or fraudulent statement;
    2. To make a statement or description that intentionally omits or misrepresents material information; or
    3. An intentional and material failure to provide any notice to an authorized user regarding the download or installation of software;
  11. “Internet” means:
    1. The international computer network of both federal and nonfederal interoperable packet switched data networks; or
    2. The global information system that:
      1. Is logically linked together by a globally unique address space based on the Internet Protocol (IP) or its subsequent extensions;
      2. Is able to support communications using the Transmission Control Protocol/Internet Protocol (TCP/IP) suite, its subsequent extensions, or other IP-compatible protocols; and
      3. Provides, uses, or makes accessible, either publicly or privately, high-level services layered on the communications and related infrastructure described in this subdivision (12);
  12. “Internet address” means a specific location on the Internet accessible through a universal resource locator or Internet protocol address;
  13. “Person” means one (1) or more individuals, partnerships, corporations, limited liability companies, or other organizations;
  14. “Personally identifiable information” means any of the following if it allows the entity holding the information to identify an authorized user by:
    1. First name or first initial in combination with last name;
    2. Credit or debit card numbers or other financial account numbers;
    3. A password or personal identification number or other identification required to access an identified account other than a password, personal identification number, or other identification transmitted by an authorized user to the issuer of the account or its agent;
    4. A social security number; or
    5. Any of the following information in a form that personally identifies an authorized user:
      1. Account balances;
      2. Overdraft history;
      3. Payment history;
      4. A history of websites visited;
      5. Home address;
      6. Work address; or
      7. A record of a purchase or purchases; and
  15. “Phishing” means the use of electronic mail or other means to imitate a legitimate company or business in order to entice the user into divulging passwords, credit card numbers, or other sensitive information for the purpose of committing theft or fraud.

History. Acts 2005, No. 2255, § 1.

4-111-103. Unlawful acts — Exceptions.

  1. A person that is not an authorized user with actual knowledge, with conscious avoidance of actual knowledge or willfully, shall not cause computer software to be copied onto any computer in this state nor use the software to:
    1. Modify, through intentionally deceptive means, any of the following settings related to the computer's access to, or use of, the Internet:
      1. The page which appears when an authorized user launches an Internet browser or similar software program used to access and navigate the Internet;
      2. The default provider or web proxy the authorized user uses to access or search the Internet;
      3. The authorized user's list of bookmarks used to access web pages; or
      4. Settings in computer software or in a text or data file on the computer that are used to resolve a universal resource locator or other location identifier used to access a public or private network;
    2. Collect, through intentionally deceptive means, personally identifiable information about the authorized user that:
      1. Is collected through the use of a keystroke-logging function that records all keystrokes made by an authorized user who uses the computer and transmits the information from the computer to another person;
      2. Includes all or substantially all of the Internet addresses visited by an authorized user, other than Internet addresses of the provider of the software, if the computer software was installed in an intentionally deceptive manner to conceal from all authorized users of the computer the fact that the software is being installed;
      3. Is extracted from a computer hard drive for a purpose wholly unrelated to any of the purposes of the software or service as described to the authorized user; or
      4. Is collected by extracting screen shots of an authorized user's use of the computer for a purpose wholly unrelated to any of the purposes of the software or service as described to the authorized user;
    3. Prevent without authorization from the authorized user through intentionally deceptive means an authorized user's reasonable efforts to block the installation of or disable software by causing software that the authorized user has properly removed or disabled to automatically reinstall or reactivate on the computer without the authorization of an authorized user;
    4. Intentionally misrepresent that software will be uninstalled or disabled by an authorized user's action with knowledge that the software will not be uninstalled or disabled; or
    5. Through intentionally deceptive means remove, disable, or render inoperative security, antispyware, or antivirus software installed on the computer.
  2. A person who is not an authorized user who with actual knowledge, with conscious avoidance of actual knowledge, or willfully shall not:
    1. Cause computer software to be copied onto any computer in this state and use the software to take control of a computer by:
      1. Transmitting or relaying without the authorization of an authorized user commercial electronic mail or a computer virus from the consumer's computer;
      2. Accessing or using the authorized user's modem or Internet service for the purpose of causing:
        1. Damage to the authorized user's computer; or
        2. An authorized user to incur financial charges for a service that is not authorized by the authorized user;
      3. Using the consumer's computer as part of an activity performed by a group of computers for the purpose of causing damage to another computer, including, but not limited to, launching a denial of service attack; or
      4. Opening multiple, sequential, stand-alone advertisements in the authorized user's Internet browser without the authorization of an authorized user and with knowledge that a reasonable computer user can not close the advertisements without turning off the computer or closing the authorized user's Internet browser;
    2. Without authorization obtain the ability to use one (1) or more computers of other end users on a network to send commercial electronic mail, to damage other computers, or to locate other computers vulnerable to an attack without:
      1. Notice to or knowledge of the owners of the computers or computer networks; or
      2. A prior or existing personal, business, or contractual relationship with the owner or owners of the computer or computer networks;
    3. Modify any of the following settings related to the computer's access to, or use of, the Internet:
      1. An authorized user's security or other settings that protect information about the authorized user for the purpose of stealing personal information of an authorized user; or
      2. The security settings of the computer for the purpose of causing damage to one (1) or more computers;
    4. Prevent without the authorization of an authorized user an authorized user's reasonable efforts to block the installation of or disable software by presenting the authorized user with an option to decline installation of software with knowledge that when the option is selected by the authorized user the installation nevertheless proceeds; or
    5. Intentionally interfere with an authorized user's attempt to uninstall the software by:
      1. Leaving behind without authorization on the authorized user's computer for the purpose of evading an authorized user's attempt to remove the software from the computer hidden elements of the software that are designed to and will reinstall the software or portions of the software;
      2. Intentionally causing damage to or removing any vital component of the operating system;
      3. Falsely representing that software has been disabled;
      4. Changing the name, location, or other designation information of the software for the purpose of preventing an authorized user from locating the software to remove it;
      5. Using randomized or intentionally deceptive file names, directory folders, formats, or registry entries for the purpose of avoiding detection and removal of the software by an authorized user;
      6. Causing the installation of software in a particular computer directory or computer memory for the purpose of evading an authorized user's attempt to remove the software from the computer;
      7. Requiring completion of a survey to uninstall software unless reasonably related to the uninstallation; or
      8. Requiring without the authority of the owner of the computer that an authorized user obtain a special code or download a special program from a third party to uninstall the software.
  3. A person that is not an authorized user, with regard to any computer in this state, shall not:
    1. Induce an authorized user to install a software component onto the computer by intentionally misrepresenting that installing software is necessary for security or privacy reasons or in order to open, view, or play a particular type of content or software; or
    2. Deceptively cause the copying and execution on the computer of a computer software component with the intent of causing an authorized user to use the component in a way that violates any other provision of this section.
  4. No person shall engage in phishing.
  5. A person who is not an authorized user who with actual knowledge, with conscious avoidance of actual knowledge, or willfully shall not cause computer software to be copied onto any computer in this state to carry out any of the violations described in subsections (a)-(d) of this section for a purpose wholly unrelated to any of the purposes of the software or service as described to the authorized user if the software is installed in an intentionally deceptive manner that:
    1. Exploits a security vulnerability in the computer; or
    2. Bundles the software with other software without providing prior notice to the authorized user of the name of the software and that the software will be installed on the computer.
  6. Any provision of a consumer contract that permits an intentionally deceptive practice prohibited under this section is not enforceable.
  7. This section shall not apply to any monitoring of, or interaction with, a subscriber's Internet or other network connection or service or a protected computer in accordance with the relationship or agreement between the owner of the computer or computer system used by the authorized user and a:
    1. Telecommunications or Internet service provider;
    2. Cable Internet provider;
    3. Computer hardware or software provider; or
    4. Provider of information service or interactive computer service for:
      1. Network or computer security purposes;
      2. Diagnostics;
      3. Technical support;
      4. Repair;
      5. Authorized updates of software or system firmware;
      6. Authorized remote system management;
      7. Network management or maintenance; or
      8. Detection or prevention of the unauthorized use or fraudulent or other illegal activities in connection with a network, service, or computer software, including scanning for and removing software proscribed under this subchapter.
  8. Notwithstanding any other provision of this chapter, the provisions of this chapter shall not apply to the installation of:
    1. Software that falls within the scope of a grant of authorization by an authorized user;
    2. An upgrade to a software program that has already been installed on the computer with the authorization of an authorized user; or
    3. Software before the first retail sale and delivery of the computer.

History. Acts 2005, No. 2255, § 1.

Research References

ALR.

Expectation of Privacy in and Discovery of Social Networking Web Site Postings and Communications. 88 A.L.R.6th 319.

U. Ark. Little Rock L. Rev.

J. Lyn Entrikin, The Right of Privacy in Arkansas: A Progressive State, 35 U. Ark. Little Rock L. Rev. 439 (2013).

4-111-104. Penalties.

Any violation of this chapter is punishable by action of the Attorney General under the Deceptive Trade Practices Act, § 4-88-101 et seq.

History. Acts 2005, No. 2255, § 1.

4-111-105. Use of Spyware Monitoring Fund.

  1. All fines and penalties collected under § 4-111-104 shall be paid to the Treasurer of State for the benefit of the Spyware Monitoring Fund to be used by the Attorney General to:
    1. Investigate potential violations and enforce the provisions of this subchapter; and
    2. Establish and maintain a website to:
      1. Provide information concerning:
        1. The availability of computer software to combat spyware; and
        2. False representations about the effectiveness of specific antispyware software;
      2. Promote consumer awareness about spyware, antispyware, and computer fraud;
      3. Educate consumers about:
        1. Spyware, computer fraud, and the effects of spyware and computer fraud upon consumer privacy and computer systems; and
        2. How to access or obtain computer software to combat spyware; and
      4. Provide consumers with links to antispyware websites with helpful information.
  2. The Attorney General is authorized to request an appropriation from the fund to offset his or her salary and administrative expenses directly related to the enforcement of this subchapter and the administration of the website.

History. Acts 2005, No. 2255, § 1.

Cross References. Spyware Monitoring Fund, § 19-6-804.

Chapter 112 Arkansas Consumer Report Security Freeze Act

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008. Effective date clause provided: “This act takes effect January 1, 2008.”

4-112-101. Title.

This chapter shall be known and may be cited as the “Arkansas Consumer Report Security Freeze Act”.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment made no apparent change to the section.

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-102. Definitions.

As used in this chapter:

  1. “Consumer” means an individual;
  2. “Consumer report” means the same as defined in 15 U.S.C. § 1681a(d) as it existed on January 1, 2009;
  3. “Consumer reporting agency” means the same as defined in 15 U.S.C. § 1681a(f) as it existed on January 1, 2009;
  4. “Credit report” means a consumer report that a consumer reporting agency furnishes to a person that it has reason to believe intends to use the consumer report as a factor in establishing the consumer's eligibility for credit to be used primarily for personal, family, or household purposes;
  5. “Proper identification” means the same as defined in 15 U.S.C. § 1681h(a)(1) as it existed on January 1, 2009;
  6. “Security freeze” means a notice placed in a credit report of a consumer at the request of the consumer that prohibits a consumer reporting agency from releasing the credit report or credit score of the consumer in response to a request to open a new account or to extend credit; and
    1. “Victim of identity theft” means a consumer who supplies to a consumer reporting agency in conjunction with a request for a security freeze a copy of a valid investigative report, an incident report, or a complaint with a law enforcement agency alleging the unlawful use of the consumer's identifying information by another person.
    2. The copy of the valid investigative report, the incident report, or the complaint with a law enforcement agency may be transmitted to the consumer reporting agency by mail or secure electronic connection or secure electronic mail connection if the connection is made available by the consumer reporting agency.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment rewrote (1); substituted “2009” for “2007” in (2), (3), and (5); inserted (4) and redesignated the remaining subdivisions accordingly; substituted “credit report” for” consumer report” twice in (6); added (7); and made related changes.

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-103. Placement of security freeze.

  1. A consumer may request that a security freeze be placed on his or her consumer report by:
    1. Sending his or her request in writing by mail to a consumer reporting agency;
    2. Telephoning his or her request to a consumer reporting agency and providing over the telephone proper identification or certain personal identification information required by the consumer reporting agency; or
    3. Electronically forwarding his or her request to a consumer reporting agency through a secure electronic connection or a secure electronic mail connection if the connection is made available by the consumer reporting agency.
  2. A consumer reporting agency shall place a security freeze on a credit report of a consumer no later than three (3) business days after receiving from the consumer:
    1. A request as provided in subsection (a) of this section;
    2. Proper identification; and
    3. Payment of the required fee, if applicable.
  3. Within five (5) business days of the receipt of the information and any applicable fees under subsection (b) of this section, the consumer reporting agency shall:
    1. Send a written confirmation of the placement of the security freeze to the consumer; and
    2. Provide the consumer with a unique personal identification number or password to be used by the consumer when providing authorization for the release of his or her credit report for a specific period of time.
  4. At the time a consumer requests a security freeze, the consumer reporting agency shall disclose the process:
    1. Of placing a security freeze and temporarily lifting a security freeze; and
    2. For allowing access to information from the credit report of the consumer for a period of time while the security freeze is in place.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment rewrote the section.

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-104. Access to credit report — Notification of unauthorized access.

  1. If the consumer wishes to allow his or her credit report to be accessed for a specific period of time while a security freeze is in place, he or she shall contact the consumer reporting agency using a method of contact designated by the consumer reporting agency requesting that the security freeze be temporarily lifted and providing, to complete the request, all of the following:
    1. Proper identification;
    2. The unique personal identification number or password provided by the consumer reporting agency under § 4-112-103(c); and
    3. The proper information regarding the time period for which the credit report shall be available to users of the credit report.
    1. Except as provided in subdivision (b)(2) of this section, a consumer reporting agency that receives a request in compliance with subsection (a) of this section from a consumer to temporarily lift a security freeze on his or her credit report accompanied by all of the items listed in subsection (a) of this section shall comply with the request no later than:
      1. Three (3) business days after receiving the completed request by mail; or
      2. Fifteen (15) minutes after receiving the completed request by:
        1. Telephone;
        2. Secure electronic connection; or
        3. Secure electronic mail connection.
    2. A consumer reporting agency may temporarily lift a security freeze as soon as the circumstances reasonably permit during normal business hours if the consumer reporting agency's ability to temporarily lift the security freeze within fifteen (15) minutes is prevented by:
      1. An act of God, including without limitation a fire, an earthquake, a hurricane, a storm, or a similar natural disaster or phenomenon;
      2. An unauthorized or illegal act by a third party, including without limitation terrorism, sabotage, riot, vandalism, a labor strike or dispute disrupting operations, or a similar occurrence;
      3. An operational interruption, including without limitation electrical failure, an unanticipated delay in the delivery of equipment or a replacement part, a computer hardware or software failure inhibiting response time, or a similar disruption;
      4. Governmental action, including without limitation an emergency order or regulation, a judicial or law enforcement action, or a similar directive;
      5. Regularly scheduled maintenance or updates during other than normal business hours to the consumer reporting agency's computer systems;
      6. Commercially reasonable maintenance or repair to the consumer reporting agency's systems if the maintenance or repair is unexpected or unscheduled; or
      7. The receipt of a removal request outside of normal business hours.
  2. A consumer reporting agency may develop procedures involving the use of telephone, the Internet, or other electronic media to receive and process a request from a consumer to temporarily lift a security freeze on a credit report under subsection (a) of this section in an expedited manner.
  3. If in connection with an application for credit or any other use a third party requests access to a credit report on which a security freeze is in effect and the consumer does not allow his or her credit report to be accessed for that period of time, the third party may treat the application as incomplete.
  4. If a consumer reporting agency grants unauthorized access to a consumer's credit report, then within three (3) days of learning that unauthorized access to the credit report has been granted, the consumer reporting agency shall send notice to the consumer that unauthorized access has been granted for each time unauthorized access was granted.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment, in (a), substituted “credit report” for “consumer report” once in the introductory language and twice in (a)(3), and deleted (a)(4), which read: “The required fee, if applicable”; rewrote (b); in (c), deleted “facsimile” following “telephone,” and substituted “credit report” for “consumer report”; added (d) and (e); and made related and minor stylistic changes.

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-105. Removal of security freeze.

  1. A consumer reporting agency shall remove or temporarily lift a security freeze placed on the credit report of a consumer in the following cases:
    1. Upon the consumer's request under § 4-112-104 or § 4-112-106; or
    2. If the credit report of the consumer was frozen due to a material misrepresentation of fact by the consumer.
  2. If a consumer reporting agency intends to remove a security freeze upon a credit report of a consumer and is not doing so at the request of the consumer, the consumer reporting agency shall notify the consumer in writing at least three (3) business days before removing the security freeze on the credit report of the consumer.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment deleted (b) and redesignated (a) as (a) and (b); substituted “credit report” for “consumer report” throughout the section; and substituted “at least three (3) business days before” for “prior to” in (b).

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-106. Consumer request for removal of security freeze.

    1. A security freeze shall remain in place until the consumer requests that the security freeze be removed using a method of contact designated by the consumer reporting agency.
    2. A consumer reporting agency shall remove a security freeze within three (3) business days of receiving a request for removal under subdivision (a)(1) of this section from a consumer who provides with the request:
      1. Proper identification; and
      2. The unique personal identification number or password provided by the consumer reporting agency under § 4-112-103(c)(2).
  1. A consumer reporting agency shall require proper identification of the consumer making a request to place or remove a security freeze.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment deleted (a)(2)(C), which read: “The required fee, if applicable,” and made related changes.

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-107. Exceptions.

  1. This chapter does not apply to the use of a credit report by any of the following:
      1. A person or an entity, or a subsidiary, an affiliate, or an agent of that person or entity, or an assignee of a financial obligation owed by the consumer to that person or entity, or a prospective assignee of a financial obligation owed by the consumer to that person or entity in conjunction with the proposed purchase of the financial obligation, with which the consumer has or had prior to assignment an account or a contract including a demand deposit account, or to whom the consumer issued a negotiable instrument, for the purposes of reviewing the account or collecting the financial obligation owed for the account, contract, or negotiable instrument.
      2. As used in this subdivision (a)(1), “reviewing the account” includes activities related to account maintenance, monitoring, credit line increases, and account upgrades and enhancements;
    1. A subsidiary, an affiliate, an agent, an assignee, or a prospective assignee of a person or an entity to which access has been granted for purposes of facilitating the extension of credit or other permissible use;
    2. A state or local agency, law enforcement agency, trial court, or private collection agency acting under a court order, warrant, or subpoena;
    3. A child support agency acting under Title IV-D of the Social Security Act, 42 U.S.C. § 651 et seq., as it existed on January 1, 2009;
    4. The state or its agents or assigns acting to investigate fraud or acting to investigate or collect delinquent taxes or unpaid court orders or to fulfill any of its other constitutional or statutory responsibilities if such responsibilities are consistent with a permissible purpose under 15 U.S.C. § 168lb, as it existed on January 1, 2009;
    5. The use of credit information used for purposes permitted under 15 U.S.C. § 1681b(c), as it existed on January 1, 2009;
    6. Any person or entity administering a credit file monitoring subscription or similar service to which the consumer has subscribed;
    7. Any person or entity for the purpose of providing a consumer with a copy of his or her credit report or credit score upon the request of the consumer;
    8. Any person using the information in connection with the business of insurance; or
    9. A consumer reporting agency for its database or file that is used for one (1) or more of the following:
      1. Maintaining criminal records;
      2. Fraud prevention or detection;
      3. Maintaining personal loss history information; or
      4. Employment, tenant, or individual background screening.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment, in (a), deleted “consumer” following “use of a” in the introductory language, substituted “2009” for “2007” in (a)(4) and (a)(5), substituted “January 1, 2009” for “January 8, 2007” in (a)6), substituted “credit report” for “consumer report” in (a)(8), substituted “agency for its” for “agencies”, and made minor stylistic changes.

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-108. Permissible fees — Exception.

  1. Except as provided in subsection (b) of this section, a consumer reporting agency may charge a consumer a fee of no more than five dollars ($5.00) for the:
    1. Initial placement of a security freeze;
    2. Removal of a security freeze; or
    3. Temporary lifting of a security freeze for a period of time.
  2. A consumer reporting agency shall not charge a fee for the initial placement of a security freeze if requested by a consumer who is:
    1. At least sixty-five (65) years of age; or
    2. A victim of identity theft.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment added (b) and redesignated the remaining text; in (a), in the introductory language, inserted “Except as provided in subsection (b) of this section” and substituted “five dollars (5.00)” for “ten dollars ($10.00)”; and made related and minor stylistic changes.

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-109. Written confirmation.

  1. If a security freeze is in place, a consumer reporting agency shall not change any of the following official information in a credit report without sending a written confirmation of the change to the consumer within thirty (30) days of posting the change to the file of the consumer:
    1. Name;
    2. Date of birth;
    3. Social security number; and
    4. Address.
    1. Written confirmation is not required for technical modifications of official information of a consumer, including name and street abbreviations, complete spellings, or the transposition of numbers or letters.
    2. In the case of an address change, the written confirmation shall be sent to both the new address and to the former address.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment substituted “credit report” for “consumer report” in (a).

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-110. Entities not required to place security freeze.

The following entities are not required to place a security freeze on a credit report:

    1. A consumer reporting agency that acts only as a reseller of credit information by assembling and merging information contained in the database of another consumer reporting agency or multiple consumer reporting agencies and does not maintain a permanent database of credit information from which new credit reports are produced.
    2. However, a consumer reporting agency acting as a reseller shall honor any security freeze placed on a credit report by another consumer reporting agency;
  1. A check services or fraud prevention services company that issues reports on incidents of fraud or authorizations for the purpose of approving or processing negotiable instruments, electronic funds transfers, or similar methods of payments; or
  2. A deposit account information service company that issues reports regarding account closures due to fraud, substantial overdrafts, automatic teller machine abuse, or similar negative information regarding a consumer to inquiring banks or other financial institutions for use only in reviewing a consumer request for a deposit account at the inquiring bank or financial institution.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment substituted “credit” for “consumer” in the introductory language, (1)(A), and (1)(B).

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-111. Notice.

At any time that a consumer is required to receive a summary of rights required under 15 U.S.C. § 168lg(c), as it existed on January 1, 2009, the following notice shall be included:

“Arkansas Consumers Have the Right to Obtain a Security Freeze.

You have the right to place a “security freeze” on your credit report, which will prohibit a consumer reporting agency from releasing information in your credit report without your express authorization. The security freeze is designed to prevent credit, loans, and services from being approved in your name without your consent. However, you should be aware that using a security freeze to take control over who gets access to the personal and financial information in your credit report may delay, interfere with, or prohibit the timely approval of any subsequent request or application you make regarding a new loan, credit, mortgage, government services or payments, rental housing, employment, investment, license, cellular phone, utilities, digital signature, Internet credit card transaction, or other services, including an extension of credit at point of sale.

When you place a security freeze on your credit report, you will be provided a personal identification number or password to use if you choose to remove the security freeze on your credit report or authorize the release of your credit report for a period of time after the security freeze is in place. To provide that authorization you must contact the consumer reporting agency by one (1) of the methods that it requires and provide all of the following:

  1. Your personal identification number or password;
  2. Proper identification to verify your identity; and
  3. The proper information regarding the period of time for which the credit report shall be available.

A consumer reporting agency must authorize the release of your credit report for a period of time within fifteen (15) minutes or as soon as practical if good cause exists for the delay, and must remove a security freeze no later than three (3) business days after receiving all of the above items by any method that the consumer reporting agency allows.

A security freeze does not apply to a person or an entity, or its affiliates, or collection agencies acting on behalf of the person or entity with which you have an existing account that requests information in your credit report for the purposes of reviewing or collecting the account. Reviewing the account includes activities related to account maintenance, monitoring, credit line increases, and account upgrades and enhancements.

You have a right to bring a civil action against anyone, including a consumer reporting agency, that willfully or negligently fails to comply with any requirement of the Arkansas Consumer Report Security Freeze Act.

A consumer reporting agency has the right to charge you up to five dollars ($5.00) to place a security freeze on your credit report, to temporarily lift a security freeze on your credit report, or to remove a security freeze from your credit report. However, you shall not be charged any fee if you are at least sixty-five (65) years of age or if you are a victim of identity theft and have submitted, in conjunction with the security freeze request, a copy of a valid investigative report or incident report or complaint with a law enforcement agency alleging the unlawful use of your identifying information by another person.”

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment substituted “2009” for “2007” in the introductory language; deleted the second sentence of first paragraph of the notice, which read: “A security freeze must be requested in writing by certified mail”; in the third paragraph of the notice, substituted “credit report” for “consumer report” and deleted former subdivision (4), which read: “Payment of the appropriate fee, if any”; inserted “for a period of time within fifteen (15) minutes or as soon as practical if good cause exists for the delay, and must remove a security freeze” in the third paragraph of the notice; rewrote the last paragraph of the notice; and made related and minor stylistic changes.

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-112. Civil action.

  1. Any person or entity that willfully fails to comply with any requirement imposed under this chapter with respect to any consumer is liable to that consumer in an amount equal to the sum of:
    1. Any actual damages sustained by the consumer; and
    2. In the case of any successful action to enforce any liability under this chapter, the costs of the action together with reasonable attorney's fees as determined by the court.
  2. Any person or entity that obtains a credit report, requests a security freeze, or requests the temporary lift of a security freeze or the removal of a security freeze from a consumer reporting agency under false pretenses or in an attempt to violate federal or state law is liable to the consumer reporting agency for actual damages sustained by the consumer reporting agency or one thousand dollars ($1,000), whichever is greater.
  3. Any person or entity that is negligent in failing to comply with any requirement imposed under this chapter with respect to any consumer is liable to that consumer in an amount equal to the sum of:
    1. Any actual damages sustained by the consumer as a result of the failure; and
    2. In the case of any successful action to enforce any liability under this chapter, the costs of the action together with reasonable attorney's fees as determined by the court.
  4. Upon a finding by the court that an unsuccessful pleading, motion, or other paper filed in connection with an action under this chapter was filed in bad faith or for purposes of harassment, the court shall award to the prevailing party reasonable attorney's fees in relation to the work expended in responding to the pleading, motion, or other paper.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment substituted “credit report” for “consumer report” in (b).

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-113. Enforcement — Penalties — Remedies.

  1. A violation of this chapter constitutes an unfair act or practice or a deceptive act or practice under § 4-88-101 et seq. pertaining to deceptive trade practices.
    1. All remedies, penalties, and authority granted to the Attorney General under § 4-88-101 et seq. shall be available to the Attorney General for enforcement of this chapter.
    2. The remedies and penalties provided by this section are cumulative to each other and the remedies or penalties available under all other laws of this state.

History. Acts 2007, No. 391, § 1; 2009, No. 223, § 1.

Amendments. The 2009 amendment made no apparent changes to the section.

Effective Dates. Acts 2007, No. 391, § 2: Jan. 1, 2008.

4-112-114. No prohibition on advising third party that security freeze is in effect.

This chapter does not prohibit a consumer reporting agency from advising a third party that a security freeze is in effect with respect to the credit report of a consumer.

History. Acts 2009, No. 223, § 1.

Chapter 113 Connect Arkansas Broadband Program

4-113-101, 4-113-102. [Repealed.]

Publisher's Notes. These sections, concerning short title and definitions, were repealed by Acts 2019, No. 1091, § 1, effective July 24, 2019. The sections were derived from the following sources:

4-113-101. Acts 2007, No. 604, § 1.

4-113-102. Acts 2007, No. 604, § 1; 2009, No. 947, § 1.

4-113-103. [Repealed.]

Publisher's Notes. This section, concerning Connect Arkansas, nonprofit organization, purposes and grants, was repealed by Acts 2017, No. 426, § 1. The section was derived from Acts 2007, No. 604, § 1; 2009, No. 947, § 2; 2011, No. 719, § 5; 2015 (1st Ex. Sess.), No. 7, § 63; 2015 (1st Ex. Sess.), No. 8, § 63.

4-113-104. [Repealed.]

A.C.R.C. Notes. Section 4-113-104 was amended by Acts 2019, No. 910, §§ 129, 130 to substitute “Secretary of the Department of Commerce” for “Governor” in (a)(2) and “Director” for “Executive Director” preceding “of the Arkansas Economic Development Commission” in (b)(5). However, § 4-113-104 was specifically repealed by Acts 2019, No. 1091, § 1.

Publisher's Notes. This section, concerning creation of the Arkansas Broadband Council, was repealed by Acts 2019, No. 1091, § 1, effective July 24, 2019. The section was derived from Acts 2007, No. 604, § 1; 2009, No. 947, § 3; 2011, No. 599, § 1; 2015 (1st Ex. Sess.), No. 7, § 64; 2015 (1st Ex. Sess.), No. 8, § 64; 2019, No. 910, §§ 129, 130.

4-113-105. [Repealed.]

Publisher's Notes. This section, concerning broadband service registration, was repealed by Acts 2017, No. 426, § 2. The section was derived from Acts 2007, No. 604, § 1.

4-113-106. [Repealed.]

Publisher's Notes. This section, concerning legislative findings, critical infrastructure, and priority of county economic development plans that include regional broadband collaboration, was repealed by Acts 2019, No. 1091, § 1, effective July 24, 2019. The section was derived from Acts 2009, No. 947, § 4.

Chapter 114 Service Contracts Act

A.C.R.C. Notes. Acts 2007, No. 656, § 1, provided: “Effective date — Exception. This chapter shall become effective and apply to all service contracts issued on or after October 1, 2007. However, a provider engaged in the service contract business in this state on or before the effective date of this chapter that submits an application for registration as a provider under this chapter within thirty (30) days after the Insurance Commissioner makes the application available may continue to engage in business as a provider in this state until final agency action is taken by the commissioner regarding the registration application and all rights to administrative judicial review have been exhausted or have expired.”

4-114-101. Title.

This chapter shall be known and may be cited as the “Service Contracts Act”.

History. Acts 2007, No. 656, § 1.

4-114-102. Scope and purpose.

  1. The purpose of this chapter is to:
    1. Create a legal framework within which service contracts are defined, may be sold, and are regulated in this state;
    2. Add significant consumer protections; and
    3. Eliminate unnecessary administration.
  2. A service contract under § 4-114-103 is not insurance and is not subject to the Arkansas Insurance Code.
  3. This chapter does not apply to:
    1. Warranties;
    2. Maintenance agreements;
    3. Commercial transactions;
    4. A person or entity or the affiliate of a person or entity licensed or certificated by the Arkansas Public Service Commission or the Federal Communications Commission with respect to warranties, service contracts, or maintenance agreements covering wiring, transmission devices, equipment, or services offered or provided by the person, entity, or affiliate to its customers;
    5. Service contracts sold or offered for sale to persons other than consumers;
    6. Motor vehicle service contracts as defined in and regulated pursuant to the Motor Vehicle Service Contract Act, § 4-90-501 et seq.; or
    7. Mechanical breakdown insurance.
  4. Manufacturer's service contracts on the manufacturer's products are subject only to §§ 4-114-106(a), 4-114-106(d)-(g), 4-114-107, and 4-114-111.
  5. Other than mechanical breakdown insurance, the types of agreements referred to in subsections (c) and (d) of this section and service contracts governed under this chapter are not insurance and are not subject to compliance with any provision of the insurance laws of this state.

History. Acts 2007, No. 656, § 1.

4-114-103. Definitions.

As used in this chapter:

  1. “Administrator” means the person who is responsible for the administration of a service contract;
  2. “Consumer” means an individual who buys other than for purposes of resale any tangible personal property that is distributed in commerce and that is normally used for personal, family, or household purposes and not for business or resale purposes;
  3. “Maintenance agreement” means a contract of limited duration that provides for scheduled maintenance only;
  4. “Manufacturer” means a person that:
    1. Manufactures or produces property and sells the property under its own name or label;
    2. Is a wholly owned subsidiary of the person that manufactures or produces that property;
    3. Is a corporation that owns one hundred percent (100%) of the person that manufactures or produces the property;
    4. Does not manufacture or produce the property, but the property is sold under its trade name label;
    5. Manufactures or produces the property, and the property is sold under the trade name or label of another person; or
    6. Does not manufacture or produce the property but licenses the use of its trade name or label under a written contract with another person that sells the property under the licensor's trade name or label;
  5. “Mechanical breakdown insurance” means a policy, a contract, or an agreement issued by an authorized insurer that provides for the repair, replacement, or maintenance of property or indemnification for repair, replacement, or service for the operations or structural failure of the property due to a defect in materials or workmanship or to normal wear and tear;
  6. “Nonoriginal manufacturer's parts” means replacement parts not made for or by the original manufacturer of the property, commonly referred to as “after market parts”;
  7. “Person” means an individual, a partnership, a corporation, an incorporated or unincorporated association, a joint stock company, a reciprocal, a syndicate, or any similar entity or combination of entities acting in concert;
  8. “Premium” means the consideration paid to an insurer for a reimbursement insurance policy;
  9. “Provider” means a person that is contractually obligated to the service contract holder under the terms of the service contract;
  10. “Provider fee” means the consideration paid for a service contract;
  11. “Reimbursement insurance policy” means a policy of insurance issued to a provider to either:
    1. Provide reimbursement to the provider under the terms of the insured service contracts issued or sold by the provider; or
    2. In the event of the provider's nonperformance, to pay on behalf of the provider all covered contractual obligations incurred by the provider under the terms of the insured service contracts issued or sold by the provider;
    1. “Service contract” means a contract or an agreement for a separately stated consideration and for a specific duration to perform the service, repair, replacement, or maintenance of property or indemnification for service, repair, replacement, or maintenance for the operational or structural failure of property due to a defect in materials, workmanship, or normal wear and tear, with or without additional provision for incidental payment of indemnity under limited circumstances, including without limitation unavailability of parts, obsolescence, food spoilage, rental, or shipping.
    2. “Service contract” does not include mechanical breakdown insurance or maintenance agreements.
    3. A service contract may provide for the repair, replacement, or maintenance of property for damage resulting from power surges or accidental damage from handling.
    4. A service contract is not insurance in this state or otherwise regulated under the Arkansas Insurance Code;
  12. “Service contract holder” means a person that is the purchaser or holder of a service contract; and
  13. “Warranty” means a warranty made solely by the manufacturer, importer, or seller of property or services without charge that:
    1. Is not negotiated or separated from the sale of the product;
    2. Is incidental to the sale of the product; and
    3. Guarantees indemnity for defective parts, mechanical breakdown, or electrical breakdown and labor or other remedial measures, such as repair or replacement of the property or repetition of services.

History. Acts 2007, No. 656, § 1.

4-114-104. Requirements for doing business.

  1. A provider may appoint an administrator or other designee to be responsible for all or part of the administration of service contracts and compliance with this chapter.
  2. Service contracts shall not be issued, sold, or offered for sale in this state unless the provider or its designee has:
    1. Provided a receipt or other written evidence of the purchase of the service contract to the contract holder;
    2. Provided a copy of the service contract to the service contract holder within a reasonable period of time from the date of purchase; and
    3. Complied with this chapter.
    1. Each provider of service contracts sold in this state shall file a registration with the Insurance Commissioner consisting of its name, full corporate address, telephone number and contact person, evidence of compliance with subsection (d) of this section, a designation of a person in this state for service of process, and any other information required to be submitted by rule of the Insurance Commissioner.
    2. Each provider shall pay to the commissioner a fee in the amount of two hundred dollars ($200) upon initial registration and every year thereafter.
    3. The registration shall be updated by written notification to the commissioner if material changes occur in the registration.
  3. In order to assure the faithful performance of a provider's obligations to its contract holders, each provider that is contractually obligated to provide service under a service contract shall:
    1. Insure all service contracts under a reimbursement insurance policy issued by an insurer licensed, registered, or authorized to transact insurance in this state or a surplus lines insurer that is authorized under § 23-65-310 and maintains statutory capital and surplus of at least fifteen million dollars ($15,000,000) at all times while the reimbursement insurance policy is in force;
    2. Do both of the following:
        1. Maintain a funded reserve account for its obligations under its contracts issued and outstanding in this state.
        2. The reserves shall not be less than forty percent (40%) of gross consideration received less claims paid on the sale of all unexpired service contracts.
        3. The reserve account shall be subject to examination and review by the commissioner; and
      1. Place in trust with the commissioner a financial security deposit having a value of not less than five percent (5%) of the gross consideration received less claims paid on the sale of all unexpired service contracts, but not less than twenty-five thousand dollars ($25,000), consisting of a surety bond issued by an authorized surety; or
      1. Maintain a net worth of one hundred million dollars ($100,000,000) on its own or together with its parent company if the parent company executes a parental guarantee in a form acceptable to the commissioner.
      2. Upon request, the provider shall provide the commissioner with a copy of the provider's financial statements or, if the provider's financial statements are consolidated with those of its parent company, the provider's parent company's most recent Form 10-K or Form 20-F filed with the United States Securities and Exchange Commission within the last calendar year, or if the company does not file with the United States Securities and Exchange Commission, a copy of the company's audited financial statements, which shows an independent net worth of the provider or its parent company of at least one hundred million dollars ($100,000,000).
      3. If the provider's parent company's Form 10-K, Form 20-F, or audited financial statements are filed to meet the provider's financial stability requirement, then the parent company shall agree to guarantee the obligations of the obligor relating to service contracts sold by the provider in this state.
  4. Except for the requirements specified in subsection (d) of this section, no other financial security requirements shall be required by the commissioner for a provider.
    1. Provider fees collected on service contracts shall not be subject to premium taxes.
    2. Premiums for reimbursement insurance policies shall be subject to applicable taxes.
  5. Except for the registration requirements in subsection (c) of this section, persons marketing, selling, or offering to sell service contracts for providers that comply with this chapter are exempt from this state's licensing requirements.
  6. Providers complying with this chapter are not required to comply with other provisions of the Arkansas Insurance Code.

History. Acts 2007, No. 656, § 1; 2009, No. 726, § 2.

Amendments. The 2009 amendment inserted “Do both of the following” in (d)(2), redesignated (d)(2), (d)(3), and (d)(4), and inserted the first instance of “financial statements” in (d)(3)(B).

4-114-105. Required disclosures — Reimbursement insurance policy.

  1. Reimbursement insurance policies insuring service contracts issued, sold, or offered for sale in this state shall state that the insurer that issued the reimbursement insurance policy shall:
    1. Reimburse or pay on behalf of the provider any covered sums the provider is legally obligated to pay; or
    2. In the event of the provider's nonperformance, shall provide the service that the provider is legally obligated to perform according to the provider's contractual obligations under the service contracts issued or sold by the provider.
  2. In the event covered service is not provided by the provider within sixty (60) days of proof of loss by the service contract holder, the service contract holder is entitled to apply directly to the reimbursement insurance company.

History. Acts 2007, No. 656, § 1.

4-114-106. Required disclosure — Service contracts.

  1. A service contract issued, sold, or offered for sale in this state shall:
    1. Be written in clear, understandable language that is easy to read; and
    2. Conspicuously disclose the applicable requirements of this section.
    1. A service contract insured under a reimbursement insurance policy under § 4-114-104(d)(1) shall contain the name and address of the insurer and a statement in substantially the following form: “Obligations of the provider under this service contract are guaranteed under a service contract reimbursement insurance policy. If the provider fails to pay or provide service on a claim within sixty (60) days after proof of loss has been filed, the service contract holder is entitled to make a claim directly against the insurance company.”
    2. A claim against the provider may include a claim for return of the unearned provider fee.
    1. A service contract not insured under a reimbursement insurance policy under § 4-114-104(d)(1) shall conspicuously state the name and address of the provider and contain a statement in substantially the following form: “Obligations of the provider under this service contract are backed only by the full faith and credit of the provider (issuer) and are not guaranteed under a service contract reimbursement insurance policy.”
    2. A claim against the provider shall also include a claim for return of the unearned provider fee.
  2. A service contract shall identify the administrator, the provider obligated to perform the service under the contract, the service contract seller, and the service contract holder to the extent that the name and address of the service contract holder have been furnished by the service contract holder.
    1. A service contract or a service contract holder's receipt shall state the total purchase price and the terms under which the service contract is sold.
    2. The purchase price is not required to be preprinted on the service contract and may be negotiated at the time of sale with the service contract holder.
  3. If prior approval of repair work is required, a service contract shall state the procedure for obtaining prior approval and for making a claim, including a toll-free telephone number for claim service and a procedure for obtaining emergency repairs performed outside of normal business hours.
  4. A service contract shall:
    1. Disclose the deductible amount;
    2. Specify the merchandise and services to be provided and any limitations, exceptions, or exclusions;
      1. State the conditions upon which the use of the nonoriginal manufacturer's parts or substitute service may be allowed.
      2. Conditions stated shall comply with applicable state and federal laws;
    3. State any terms, restrictions, or conditions governing the transferability of the service contract;
      1. State the terms, restrictions, or conditions governing termination of the service contract by the service contract holder.
        1. The provider of the service contract shall mail a written notice to the contract holder within fifteen (15) days of the date of termination in the event the provider terminates the service contract.
        2. Prior notice is not required if the reason for cancellation is nonpayment of the provider fee, a material misrepresentation by the service contract holder to the provider, or a substantial breach of duties by the service contract holder relating to the covered product or its use.
      2. The notice shall state the effective date of the cancellation and the reason for the cancellation.
      3. A pro rata refund of the unearned portion of the provider fee less the amount or value of any claims paid shall accompany the notice unless cancellation is for nonpayment;
      1. Require every provider to permit the service contract holder to return the contract within no less than twenty (20) days of the date of mailing of the service contract or no less than ten (10) days if the service contract is delivered at the time of sale or within a longer time period permitted under the service contract.
      2. If no claim has been made under the service contract, the service contract is void and the provider shall refund to the service contract holder the full purchase price of the service contract.
      3. A ten percent (10%) penalty per month shall be added to a refund that is not paid within forty-five (45) days of return of the service contract to the provider.
      4. The applicable free-look time period on service contracts shall only apply to the original service contract purchaser and only if no claim has been made prior to its return to the provider;
    4. Set forth all of the obligations and duties of the service contract holder, such as the duty to protect against any further damage and the requirement for certain service and maintenance; and
    5. Clearly state whether or not the service contract provides for or excludes consequential damages or preexisting conditions.

History. Acts 2007, No. 656, § 1.

4-114-107. Prohibited acts.

    1. A provider shall not use a name:
      1. With the words “insurance”, “casualty”, “surety”, “mutual”, or any other words descriptive of the insurance, casualty, or surety business; or
      2. Deceptively similar to the name or description of any insurance or surety corporation or any other provider.
      1. This subsection shall not apply to a company that was using any of the prohibited language in its name prior to October 1, 2007.
      2. However, a company using the prohibited language in its name shall conspicuously disclose in its service contracts that the service contract is not an insurance contract.
  1. A provider or its representative shall not in its service contracts or literature make or permit or cause to be made any false or misleading statement or deliberately omit any material statement that would be considered misleading if omitted in connection with the sale, offer to sell, or advertisement of a service contract.
  2. A person, including without limitation a bank, savings and loan association, lending institution, manufacturer, or seller of any product shall not require the purchase of a service contract as a condition of a loan or a condition for the sale of any property.

History. Acts 2007, No. 656, § 1.

4-114-108. Recordkeeping requirements.

    1. A provider shall keep accurate accounts, books, and records concerning transactions regulated under this chapter.
    2. A provider's accounts, books, and records shall include:
      1. A copy of each type of service contract issued;
      2. The name and address of each service contract holder to the extent that the name and address have been furnished by the service contract holder;
      3. A list of the provider locations where service contracts are marketed, sold, or offered for sale; and
      4. Claims files containing at a minimum the dates, amounts, and description of all receipts, claims, and expenditures related to the service contracts.
    3. Except as provided in subsection (b) of this section, a provider shall retain all records pertaining to each service contract holder for at least three (3) years after the specified period of coverage has expired.
      1. A provider may keep all records required under this chapter on a computer disk or other similar technology.
      2. If a provider maintains records in other than hard copy, records shall be accessible from a computer terminal available to the Insurance Commissioner and be capable of duplication to legible hard copy.
  1. A provider discontinuing business in this state shall maintain its records until it furnishes the commissioner satisfactory proof that it has discharged all obligations to service contract holders in this state.
  2. A provider shall make all accounts, books, and records concerning transactions regulated under this chapter or other pertinent laws available to the commissioner upon request.
  3. The books and records requirement of this section may be delegated by the provider to its administrator or other designee, but such delegation shall not relieve the provider of its obligations to have the books and records maintained and produced upon the commissioner's request.

History. Acts 2007, No. 656, § 1.

4-114-109. Cancellation of reimbursement insurance policy.

  1. An insurer that issued a reimbursement insurance policy shall not terminate the policy until at least sixty (60) days' notice of termination has been mailed or delivered to the Insurance Commissioner and in accordance with any other applicable law.
  2. The termination of a reimbursement insurance policy shall not reduce the insurer's responsibility for service contracts issued by providers prior to the date of the termination.

History. Acts 2007, No. 656, § 1.

4-114-110. Obligation of reimbursement insurance policy insurers.

    1. A provider is considered to be the agent of the insurer that issued a reimbursement insurance policy for the purpose of obligating an insurer for the acts of its agents, including the collection of moneys not forwarded.
    2. If a provider is acting as an administrator and enlists other providers, the provider acting as the administrator shall notify the insurer of the existence and identities of the other providers.
  1. This chapter shall not prevent or limit the right of an insurer that issued a reimbursement insurance policy to seek indemnification or subrogation against a provider if the insurer pays or is obligated to pay a service contract holder sums that the provider was obligated to pay pursuant to the provisions of the service contract or under a contractual agreement.

History. Acts 2007, No. 656, § 1.

4-114-111. Enforcement provisions.

  1. The Insurance Commissioner may conduct investigations or examinations of providers, administrators, insurers, or other persons to enforce the provisions of this chapter and protect service contract holders in this state.
    1. The commissioner may take any action that is necessary or appropriate to enforce the provisions of this chapter and the commissioner's rules and orders to protect service contract holders in this state.
    2. The commissioner may order a provider to cease and desist from committing violations of this chapter or the commissioner's rules or orders, may issue an order prohibiting a provider from selling or offering a service contract for sale, or may issue an order imposing a civil penalty, or any combination of these, if the provider has violated this chapter or the commissioner's rules or orders.
      1. A person aggrieved by an order issued under this subsection may request a hearing before the commissioner by filing a request with the commissioner within twenty (20) days of the commissioner's order.
      2. Pending the hearing and the decision by the commissioner, the commissioner shall suspend the effective date of the order.
        1. At the hearing, the burden shall be on the commissioner to show why the order is justified.
        2. The provisions of § 23-61-301 et seq. shall apply to a hearing requested under this subsection.
      1. The commissioner may bring an action in the Pulaski County Circuit Court for an injunction or other appropriate relief for threatened or existing violations of this chapter or of the commissioner's rules or orders.
      2. An action filed under subdivision (b)(3)(A) of this section may also seek restitution on behalf of persons aggrieved by a violation of this chapter or a rule or an order of the commissioner.
      1. A person in violation of this chapter or a rule or an order of the commissioner may be assessed a civil penalty not to exceed five hundred dollars ($500) per violation and no more than ten thousand dollars ($10,000) in the aggregate for all violations of a similar nature.
      2. For purposes of this subdivision (b)(5), violations shall be of a similar nature if the violation consists of the same or similar course of conduct, action, or practice, irrespective of the number of times the act, conduct, or practice that is determined to be a violation of this chapter has occurred.
  2. The authority of the commissioner under this section is in addition to other authorities of the commissioner.

History. Acts 2007, No. 656, § 1.

4-114-112. Rules.

The Insurance Commissioner may promulgate rules necessary to effectuate this chapter.

History. Acts 2007, No. 656, § 1.

Chapter 115 Credit Card Processing Service

4-115-101. Credit card processing service — Required disclosures — Prohibitions.

    1. Any person or entity that offers a credit card processing service in this state shall disclose the following information on any contract or agreement to render a credit card processing service:
      1. The effective date of the contract;
      2. The term of the contract;
      3. The amount of any monthly minimum fee or charge for the credit card processing service; and
      4. The amount of any fee or charge for terminating the contract or agreement.
    2. The disclosures required in subsection (a) of this section and any other terms and conditions pertaining to the use of the credit card processing service shall be printed in 8-point font at a minimum.
  1. A person or entity that offers a credit card processing service in this state shall not charge:
    1. A fee of more than fifty dollars ($50.00) for terminating a contract for credit card processing service; or
    2. A monthly minimum fee under a credit card processing service contract for more than one (1) month after the credit card processing service contract is terminated.
  2. Equipment rentals or lease purchase payments charged by a person or entity that offers a credit card processing service shall not be considered to be fees for the purposes of this chapter.

History. Acts 2007, No. 911, § 1.

4-115-102. Penalties and enforcement.

  1. A violation of the provisions of this chapter by a person or entity providing credit card processing service shall constitute an unfair and deceptive act or practice, as defined by § 4-88-101 et seq.
  2. All remedies, penalties, and authority granted to the Attorney General under § 4-88-101 et seq. shall be available to the Attorney General for the enforcement of this chapter.

History. Acts 2007, No. 911, § 1; 2009, No. 624, § 1.

Amendments. The 2009 amendment deleted (b) through (d) and redesignated (a)(1) and (2) as (a) and (b).

4-115-103. Applicability and exclusions.

  1. Nothing contained in this chapter shall:
    1. Affect the jurisdiction of state or federal bank regulators over the regulation of credit card processing services provided by state or national banks; or
    2. Limit the rights or remedies that are otherwise available to a person or an entity that has contracted with a credit card processing service.
  2. This chapter does not apply to:
    1. A contract entered into before August 1, 2007;
    2. A state bank, a national bank, or a savings association, each as defined in 12 U.S.C. § 1813, as it existed on January 1, 2009; or
    3. The parent, affiliate, or subsidiary of a state bank, a national bank, or a savings association, each as defined in 12 U.S.C. § 1813, as it existed on January 1, 2009.
  3. The obligations under this chapter are cumulative and do not limit the obligations imposed under any other state or federal law.

History. Acts 2007, No. 911, § 1; 2009, No. 624, § 2.

Amendments. The 2009 amendment rewrote (a), which read: “Nothing contained in this chapter shall affect the jurisdiction of state or federal bank regulators over regulations of credit card processing services provided by state or national banks”; and rewrote (b), which read: “The provisions of this chapter shall only apply to new contracts entered into after July 31, 2007.”

Chapter 116 Refund Anticipation Loan Act

4-116-101. Title and intent.

  1. This act shall be known and referred to as the “Refund Anticipation Loan Act”.
  2. It is the intent of the General Assembly that this act shall protect consumers who enter into a refund anticipation loan and a refund anticipation check transaction.

History. Acts 2009, No. 1402, § 1.

4-116-102. Definitions.

  1. “Consumer” means a person who, individually or in conjunction with another consumer, is solicited for, applies for, or receives a refund anticipation loan or refund anticipation check;
  2. “Creditor” means a person who makes a refund anticipation loan or who takes an assignment of a refund anticipation loan;
    1. “Facilitator” means a person who, individually or in conjunction or cooperation with another person:
      1. Processes, receives, or accepts an application or agreement for a refund anticipation loan or refund anticipation check;
      2. Services or collects upon a refund anticipation loan or refund anticipation check; or
      3. Facilitates the making of a refund anticipation loan or refund anticipation check.
    2. “Facilitator” does not include a bank, savings and loan association, credit union, or person who acts solely as an intermediary and does not deal with the public in the making of a refund anticipation loan or refund anticipation check;
  3. “Refund anticipation check” means a check, stored value card, or other payment mechanism, representing the proceeds of the consumer's tax refund, which was issued by a depository institution or other person that received a direct deposit of the consumer's tax refund or tax credit and for which the consumer has paid a fee or other consideration for such payment mechanism.
    1. “Refund anticipation loan” means a loan arranged to be paid directly or indirectly from the proceeds of the consumer's income tax refund or tax credits.
    2. “Refund anticipation loan” includes any sale, assignment, or purchase of a consumer's tax refund at a discount or for a fee, whether or not the consumer is required to repay the buyer or assignee if the Internal Revenue Service denies or reduces the consumer's tax refund;
    1. “Refund anticipation loan fee” means any charges, fees, or other consideration charged or imposed directly or indirectly for the making of or in connection with a refund anticipation loan.
    2. “Refund anticipation loan fee” includes a charge, fee, or other consideration for a deposit account if the deposit account is used for receipt of the consumer's tax refund to repay the amount owed on the loan; and

History. Acts 2009, No. 1402, § 1.

4-116-103. Scope.

Unless a facilitator has complied with the provisions of this chapter, a facilitator, including any officer, agent, employee or representative, individually or in conjunction or cooperation with another person, shall not:

  1. Solicit the execution of, process, receive, or accept an application or agreement for a refund anticipation loan or refund anticipation check; or
  2. Facilitate the making of a refund anticipation loan or refund anticipation check.

History. Acts 2009, No. 1402, § 1.

4-116-104. Posting of fee schedules and disclosures.

  1. A facilitator shall display a schedule showing the current fees for refund anticipation loans or refund anticipation checks facilitated at the office.
  2. A facilitator also shall prominently display on each fee schedule the following information:
    1. Examples of the interest rates charged for refund anticipation loans in the amounts of:
      1. Two hundred fifty dollars ($250);
      2. Five hundred dollars ($500);
      3. One thousand dollars ($1,000); and
      4. Two thousand five hundred dollars ($2,500);
    2. A legend, centered, in bold capital letters, and in one-inch letters stating: “NOTICE CONCERNING REFUND ANTICIPATION LOANS”; and
    3. The following statement: “When you take out a refund anticipation loan, you are borrowing money against your tax refund. If your tax refund is less than expected, you will still owe the entire amount of the loan. If your refund is delayed, you may have to pay additional costs. YOU CAN USUALLY GET YOUR REFUND IN 8 TO 15 DAYS WITHOUT PAYING ANY EXTRA FEES AND TAKING OUT A LOAN. You can have your tax return filed electronically and your refund direct deposited into your own bank account without obtaining a loan or paying fees for an extra product.”
    1. The postings required by this section shall be made in no less than 28-point type on a document measuring no less than sixteen inches by twenty inches (16" x 20").
    2. The posting required in this section shall be displayed in a prominent location at each office where the facilitator is facilitating refund anticipation loans.
  3. A facilitator shall not facilitate a refund anticipation loan or refund anticipation check unless;
    1. The disclosures required by this section are displayed; and
    2. The fee charged for the refund anticipation loan or refund anticipation check is the same as the fee displayed on the schedule.

History. Acts 2009, No. 1402, § 1.

4-116-105. Application disclosures.

  1. When a consumer applies for a refund anticipation loan, the facilitator shall disclose to the consumer on a colored-paper form separate from the application in 14-point type face, the following information:
    1. The fee for the refund anticipation loan, including the fee for the tax preparation and other fees charged the consumer;
    2. The time within which the proceeds of the refund anticipation loan will be paid to the consumer if the loan is approved;
    3. For refund anticipation loans, the following disclosures:
      1. A legend, centered, in bold, capital letters, and in 18-point type stating: “NOTICE”; and
      2. The statement: “This is a loan. You are borrowing money against your tax refund. If your tax refund is less than expected, you will still owe the entire amount of the loan. If your refund is delayed, you may have to pay additional costs. YOU CAN USUALLY GET YOUR REFUND IN 8 TO 15 DAYS WITHOUT GETTING A LOAN OR PAYING EXTRA FEES. You can have your tax return filed electronically and your refund direct deposited into your bank account without obtaining a loan or other paid product.”; and
      1. For refund anticipation loans, disclosure of the refund anticipation loan interest rate.
      2. The refund anticipation loan interest rate shall be calculated utilizing the guidelines established under the federal Truth in Lending Act, 15 U.S.C. § 1601 et seq., as it existed on January 1, 2009.
  2. If a consumer applies for a refund anticipation check, the facilitator shall disclose to the consumer on a colored-paper form separate from the application in 14-point type face, the following information:
    1. The fee for the refund anticipation check, including the fee for tax preparation and other fees charged the consumer;
    2. The time within which the proceeds of the refund anticipation check will be paid to the consumer; and
    3. The following disclosures:
      1. A legend, centered, in bold, capital letters, and in 18-point type stating: “NOTICE”; and
      2. The statement: “You are paying [amount of refund anticipation check fee] to get your refund check through [name of issuer of the refund anticipation check]. YOU CAN AVOID THIS FEE AND STILL RECEIVE YOUR REFUND IN THE SAME AMOUNT OF TIME BY HAVING YOUR REFUND DIRECTLY DEPOSITED INTO YOUR BANK ACCOUNT. You can also wait for the Internal Revenue Service to mail you a check.”
  3. The facilitator shall provide to the consumer before completing the loan or check transaction in a form that can be kept by the consumer the following:
    1. The disclosures required by this subsection;
    2. A copy of the completed loan or check application and agreement; and
    3. For refund anticipation loans, the disclosures required by the federal Truth in Lending Act.
  4. The disclosures required by this section shall be provided in English and in the language used primarily for oral communication between the facilitator and the consumer.

History. Acts 2009, No. 1402, § 1.

4-116-106. Oral disclosures.

  1. If a consumer applies for a refund anticipation loan, the facilitator shall orally inform the consumer:
    1. That the product is a loan that lasts one (1) or two (2) weeks;
    2. That if the consumer's tax refund is less than expected, the consumer is liable for the full amount of the loan and must repay any difference;
    3. The amount of the refund loan fee; and
    4. The refund anticipation loan interest rate.
  2. If a consumer applies for a refund anticipation check, the facilitator shall orally inform the consumer:
    1. The amount of the refund check; and
    2. That the consumer may receive a refund in the same amount of time without a fee if the tax return is filed electronically and if the consumer directly deposits the refund in the consumer's own bank account.
  3. The disclosures required in this section shall be provided in the language primarily used for oral communication between the facilitator and the consumer.

History. Acts 2009, No. 1402, § 1.

4-116-107. Prohibited activities.

A facilitator shall not:

  1. Require a consumer to enter into a loan agreement in order to complete a tax return;
    1. Charge or impose any fee or charge or require other consideration in the making or facilitating of a refund anticipation loan or refund anticipation check apart from the fee charged by the creditor or bank that provides the loan or check.
      1. This section does not prohibit the charge or fee imposed by the facilitator to all of its customers if the same fee in the same amount is charged to customers who do not receive refund anticipation loans, refund anticipation checks, or other tax-related financial products.
      2. This fee may include fees for tax return preparation;
  2. Engage in a transaction, practice, or course of business that operates a fraud upon a consumer in connection with a refund anticipation loan or refund anticipation check, including making oral statements contradicting any of the information required to be disclosed under this chapter;
  3. Directly or indirectly arrange for any third party to charge an interest, fee, or charge related to a refund anticipation loan or refund anticipation check, other than the refund anticipation loan or refund anticipation check fee imposed by the creditor, including without limitation charges for insurance, attorney's fees, other collection costs, or check cashing.
  4. Misrepresent a material fact or condition of a refund anticipation loan or refund anticipation check; and
  5. Fail to process the application for a refund anticipation loan promptly after the client applies for the loan.

History. Acts 2009, No. 1402, § 1.

4-116-108. Remedies.

  1. A facilitator who violates a provision of this chapter is in violation of the Deceptive Trade Practices Act, § 4-88-101 et seq., and a consumer shall have all rights and remedies provided under this law.
  2. A facilitator who willfully fails to comply with any provision of this chapter is liable to the consumer for:
    1. Actual and consequential damages;
    2. Statutory damages of one thousand dollars ($1,000); and
    3. Reasonable attorney's fees and costs.

History. Acts 2009, No. 1402, § 1.

Chapter 117 Distribution of Drug Samples

4-117-101. Definitions.

As used in this chapter:

  1. “Authorized distributors of record” means those distributors with whom a drug manufacturer has established an ongoing relationship to distribute the drug manufacturer's products;
  2. “Board” means the Arkansas State Board of Pharmacy;
    1. “Distribute” means the distribution of drug samples.
    2. “Distribute” does not include the providing of a drug sample to a patient by a:
      1. Physician or practitioner licensed to prescribe the drug;
      2. Health care professional acting at the direction and under the supervision of a physician or practitioner; or
      3. Pharmacy that has been granted approval from the Arkansas State Board of Pharmacy to handle samples at the direction of a physician or practitioner and that received the sample under this chapter;
  3. “Drug” means all medicines and preparations recognized in the United States Pharmacopoeia or the National Formulary as substances intended to be used for the care, mitigation, or prevention of disease of either humans or other animals;
  4. “Drug sample” means a unit of a prescription drug that is not intended to be sold and is intended to promote the sale of the drug;
  5. “Licensed pharmacist” means a person holding a license under § 17-92-101 et seq.;
  6. “Pharmacy” means the place licensed by the board in which drugs, chemicals, medicines, prescriptions, and poisons are compounded, dispensed, or sold at retail; and
  7. “Physician” means a practitioner of medicine licensed under the laws of this state or some other state.

History. Acts 2011, No. 719, § 3.

4-117-102. Distribution of drug samples.

  1. Except under subsections (b) and (c) of this section, a person shall not distribute a drug sample.
    1. A drug manufacturer or authorized distributor of record of a drug may distribute a drug sample by mail, common carrier, or by direct distribution by an authorized company representative to physicians or practitioners licensed to prescribe the drugs.
      1. A distribution of a drug sample under subdivision (b)(1) of this section shall be made only upon the written request of the licensed physician or practitioner.
      2. The written request shall contain:
        1. The name, address, professional designation, and signature of the physician or practitioner making the request;
        2. The identity of the drug sample requested, the strength of the drug, and the quantity requested;
        3. The name of the drug manufacturer of the drug sample requested; and
        4. The date of the request.
      1. A drug manufacturer or authorized distributor of record may distribute drug samples to its authorized company representatives by common carrier.
      2. A drug sample that is distributed by common carrier shall be shipped in a manner that requires the signature of the recipient before delivery.
      3. The authorized company representative shall personally sign for this delivery.
    1. The drug manufacturer or authorized distributor of record does not violate this subsection if the common carrier fails to obtain the authorized company representative's signature.
    1. The authorized company representative shall store the drug samples under conditions that will maintain the stability, integrity, and effectiveness of the drug samples and ensure that the drug samples will be free of contamination, deterioration, and adulteration as required under the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et seq.
    2. All compendial and labeling requirements for storage and handling of a particular prescription drug shall be followed.
    1. The name and address of the individual responsible for responding to requests by the United States Food and Drug Administration regarding samples on behalf of a drug manufacturer or distributor shall be provided by the manufacturer to the Arkansas State Board of Pharmacy.
    2. The individual identified under subdivision (e)(1) of this section shall further serve as the initial contact person to the board concerning any alleged violations of this section.
    1. A drug manufacturer or an authorized distributor of record shall maintain a list of:
      1. The name and address of each representative of the manufacturer or authorized distributor who distributes drug samples; and
      2. Each site where drug samples are stored.
    2. A record and a list maintained under this subsection shall be made available by the drug manufacturer or authorized distributor to the board upon request.
  2. A drug manufacturer or an authorized distributor shall notify the board of a significant loss of drug samples and known theft of drug samples.
  3. The board may report to the United States Food and Drug Administration any violation of this section.
  4. This section applies only to the distribution of drug samples within the State of Arkansas.
  5. A drug manufacturer that distributes drug samples in the State of Arkansas shall have a policy for drug screening of an employee who distributes drug samples in this state.

History. Acts 2011, No. 719, § 3.

Chapter 118 Prepaid Mobile Device Protection Act

4-118-101. Title.

This chapter shall be known and may be cited as the “Prepaid Mobile Device Protection Act”.

History. Acts 2019, No. 1053, § 1.

4-118-102. Definitions.

As used in this chapter:

  1. “Minor” means an individual under eighteen (18) years of age;
    1. “Person” means an individual who is not related to a minor.
    2. “Person” does not mean a parent or grandparent, including without limitation a biological parent, adoptive parent, stepparent, fictive kin, legal guardian, temporary guardian, or other legal custodian of a minor;
  2. “Prepaid mobile device” means a cellular telephone or other communication device for which the mobile device user purchases a set allotment of wireless communication services; and
  3. “Wireless communication services” means any mobile service that is provided for profit and makes interconnected service available to the public.

History. Acts 2019, No. 1053, § 1.

4-118-103. Prepaid mobile device.

It is unlawful for a person:

  1. To purchase a prepaid mobile device or refill a prepaid mobile device with wireless communication services on a previously purchased prepaid mobile device for a minor in this state; or
  2. To provide funds to a minor for the purpose of purchasing a prepaid mobile device or refilling a prepaid mobile device with wireless communication services on a previously purchased prepaid mobile device in this state.

History. Acts 2019, No. 1053, § 1.

4-118-104. Penalty.

A person who violates this chapter or who knowingly purchases a prepaid mobile device or wireless communication services for a minor or provides funds to a minor for the purpose of purchasing a prepaid mobile device or refilling a prepaid mobile device with wireless communication services on a previously purchased prepaid mobile device shall be guilty of a violation and upon conviction shall be fined no less than one hundred dollars ($100).

History. Acts 2019, No. 1053, § 1.