Prior Uniform Statutory Provision: None.
1. "Financing agency" is broadly defined in this article to cover every normal instance in which a party aids or intervenes in the financing of a sales transaction. The term as used in subsection (1) is not in any sense intended as a limitation and covers any other appropriate situation which may arise outside the scope of the definition.
2. "Paying" as used in subsection (1) is typified by the letter of credit, or "authority to pay" situation in which a banker, by arrangement with the buyer or other consignee, pays on his or her behalf a draft for the price of the goods. It is immaterial whether the draft is formally drawn on the party paying or his or her principal, whether it is a sight draft paid in cash or a time draft "paid" in the first instance by acceptance, or whether the payment is viewed as absolute or conditional. All of these cases constitute "payment" under this subsection. Similarly, "purchasing for value" is used to indicate the whole area of financing by the seller's banker, and the principle of subsection (1) is applicable without any niceties of distinction between "purchase", "discount", "advance against collection", or the like. But it is important to notice that the only right to have the draft honored that is acquired is that against the buyer; if any right against anyone else is claimed it will have to be under some separate obligation of that other person. A letter of credit does not necessarily protect purchasers of drafts. See article 5. And for the relations of the parties to documentary drafts see part 5 of article 4.
3. Subsection (1) is made applicable to payments or advances against a draft which "relates to" a shipment of goods and this has been chosen as a term of maximum breadth. In particular the term is intended to cover the case of a draft against an invoice or against a delivery order. Further, it is unnecessary that there be an explicit assignment of the invoice attached to the draft to bring the transaction within the reason of this subsection.
4. After shipment, "the rights of the shipper in the goods" are merely security rights and are subject to the buyer's right to force delivery upon tender of the price. The rights acquired by the financing agency are similarly limited and, moreover, if the agency fails to procure any outstanding negotiable document of title, it may find its exercise of these rights hampered or even defeated by the seller's disposition of the document to a third party. This section does not attempt to create any new rights in the financing agency against the carrier which would force the latter to honor a stop order from the agency, a stranger to the shipment, or any new rights against a holder to whom a document of title has been duly negotiated under article 7.
5. The deletion of the language "on its face" from subsection (2) is designed to accommodate electronic documents of title without changing the requirement of regularity of the document.
Point 1: Section 2-104(2) and article 4.
Point 2: Part 5 of article 4 and article 5.
Point 4: Sections 2-501 and 2-502(1) and article 7.
Definitional Cross References:
"Buyer". Section 2-103.
"Document of title". Section 1-201.
"Draft". Section 3-104.
"Financing agency". Section 2-104.
"Good faith". Section 2-103.
"Goods". Section 2-105.
"Honor". Section 1-201.
"Purchase". Section 1-201.
"Rights". Section 1-201.
"Value". Section 1-201.