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1962: 4-3-105, 4-3-112, 4-3-122 [Repealed], 4-3-412, 4-3-504, 4-4-106, 4-4-109 (new section added to U.C.C. by N.C.C.U.S.L. in 1962), 4-4-204, 4-6-103 [Repealed], 4-6-104 [Repealed], 4-6-106 (amended by N.C.C.U.S.L. in 1962, but Arkansas reserved this section) [Repealed], 4-6-107 [Repealed], 4-6-108 [Repealed], 4-8-102, 4-8-107 (new section added to U.C.C. by N.C.C.U.S.L. in 1962), 4-8-208, 4-8-306, 4-8-308 [Repealed], 4-8-313 [Repealed], 4-8-320 (new section added to U.C.C. by N.C.C.U.S.L. in 1962) [Repealed], 4-9-206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4-8-204, 4-8-205, 4-8-206, 4-8-207, 4-8-208, 4-8-301, 4-8-302, 4-8-303, 4-8-304, 4-8-305, 4-8-306, 4-8-307, 4-8-308 [Repealed], 4-8-309 [Repealed], 4-8-310 [Repealed], 4-8-311 [Repealed], 4-8-312 [Repealed], 4-8-313 [Repealed], 4-8-314 [Repealed], 4-8-315 [Repealed], 4-8-316 [Repealed], 4-8-317 [Repealed], 4-8-318 [Repealed], 4-8-319 [Repealed], 4-8-320 [Repealed], 4-8-321 (new section added to U.C.C. by N.C.C.U.S.L. in 1977) [Repealed], 4-8-401, 4-8-402, 4-8-403, 4-8-404, 4-8-405, 4-8-406, 4-8-407 (new section added to U.C.C. by N.C.C.U.S.L. in 1977), 4-8-408 (new section added to U.C.C. by N.C.C.U.S.L. in 1977) [Repealed], 4-9-103, 4-9-105, 4-9-203, 4-9-302, 4-9-304, 4-9-305, 4-9-309, 4-9-312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