Notice:

The materials contained in this legal reference section are for informational purposes only.  Although every effort has been made to ensure that the content of the laws and statutes quoted or summarized herein is accurate as of the date of publication, no representation is made as to the accuracy or authority of the content.  For your convenience, some statutes have been edited.

42 USC Section 1983

Age Discrimination in Employment Act

Automobile Information Disclosure Act

Child Support Recovery Act

Consumer Credit Cost Disclosure Act

Consumer Leasing Act

Disciplinary Rules of Professional Conduct

Electronic Fund Transfers Act

Employee Retirement Income Security Act

Equal Credit Opportunity Act

Fair Credit Billing Act

Fair Credit Reporting Act

Fair Debt Collection Practices Act

Fair Labor Standards Act

Family and Medical Leave Act

Freedom of Information Act

Securities and Exchange Act

Selected Federal Rules of Civil Procedure

Selected Federal Rules of Evidence

Selected Provisions of the Social Security Act

Soldiers and Sailors Civil Relief Act

Telemarketing and Consumer Fraud and Abuse Prevention

The Constitution of the United States

Uniform Commercial Code

General Provisions

Sales

Leases

Negotiable Instruments

Bank Deposits and Collections

Funds Transfers

Letters of Credit

Secured Transactions

Wage Garnishment Restrictions


Notice:

The materials contained in this legal reference section are for informational purposes only.  Although every effort has been made to ensure that the content of the laws and statutes quoted or summarized herein is accurate as of the date of publication, no representation is made as to the accuracy or authority of the content.  For your convenience, some statutes have been edited.


The Constitution of the United States

WE THE PEOPLE of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this CONSTITUTION for the United States of America.

Art. I, sec. 1

All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.

Art. I, sec. 2

The House of Representatives shall be composed of Members chosen every second Year by the People of the several States, and the Electors in each State shall have the Qualifications requisite for Electors of the most numerous Branch of the State Legislature.

No Person shall be a Representative who shall not have attained to the Age of twenty five Years, and been seven Years a Citizen of the United States, and who shall not, when elected, be an Inhabitant of that State in which he shall be chosen.

[Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons.]  The actual Enumeration shall be made within three Years after the first Meeting of the Congress of the United States, and within every subsequent Term of ten Years, in such Manner as they shall by Law direct.  The Number of Representatives shall not exceed one for every thirty Thousand, but each State shall have at Least one Representative;  and until such enumeration shall be made, the State of New Hampshire shall be entitled to choose three, Massachusetts eight, RhodeIsland and Providence Plantations one, Connecticut five, NewYork six, New Jersey four, Pennsylvania eight, Delaware one, Maryland six, Virginia ten, North Carolina five, South Carolina five, and Georgia three.

When vacancies happen in the Representation from any State, the Executive Authority thereof shall issue Writs of Election to fill such Vacancies.

The House of Representatives shall choose their Speaker and other Officers;  and shall have the sole Power of Impeachment.

Art. I, sec. 3

[The Senate of the United States shall be composed of two Senators from each State, chosen by the Legislature thereof, for six Years;  and each Senator shall have one Vote.]

Immediately after they shall be assembled in Consequence of the first Election, they shall be divided as equally as may be into three Classes.  The Seats of the Senators of the first Class shall be vacated at the Expiration of the second Year, of the second Class at the Expiration of the fourth Year, and of the third Class at the Expiration of the sixth Year, so that one third may be chosen every second Year;  [and if Vacancies happen by Resignation, or otherwise, during the Recess of the Legislature of any State, the Executive thereof may make temporary Appointments until the next Meeting of the Legislature, which shall then fill such Vacancies].

No Person shall be a Senator who shall not have attained to the Age of thirty Years, and been nine Years a Citizen of the United States, and who shall not, when elected, be an Inhabitant of that State for which he shall be chosen.

The Vice President of the United States shall be President of the Senate, but shall have no Vote, unless they be equally divided.

The Senate shall chuse their other Officers, and also a President pro tempore, in the Absence of the Vice President, or when he shall exercise the Office of President of the United States.

The Senate shall have the sole Power to try all Impeachments.  When sitting for that Purpose, they shall be on Oath or Affirmation.  When the President of the United States is tried, the Chief Justice shall preside:  And no Person shall be convicted without the Concurrence of two thirds of the Members present.

Judgment in Cases of Impeachment shall not extend further than to removal from Office, and disqualification to hold and enjoy any Office of honor, Trust or Profit under the United States:  but the Party convicted shall nevertheless be liable and subject to Indictment, Trial, Judgment and Punishment, according to Law.

Art. I, sec. 4

The Times, Places and Manner of holding Elections for Senators and Representatives, shall be prescribed in each State by the Legislature thereof; but the Congress may at any time by Law make or alter such Regulations, except as to the Places of chusing Senators.

The Congress shall assemble at least once in every Year, and such Meeting shall be on the [first Monday in December], unless they shall by Law appoint a different Day.

Art. I, sec. 5

Each House shall be the Judge of the Elections, Returns and Qualifications of its own Members, and a Majority of each shall constitute a Quorum to do Business;  but a smaller Number may adjourn from day to day, and may be authorized to compel the Attendance of absent Members, in such Manner, and under such Penalties as each House may provide.

Each House may determine the Rules of its Proceedings, punish its Members for disorderly Behaviour, and, with the Concurrence of two thirds, expel a Member.

Each House shall keep a Journal of its Proceedings, and from time to time publish the same, excepting such Parts as may in their Judgment require Secrecy;  and the Yeas and Nays of the Members of either House on any question shall, at the Desire of one fifth of those Present, be entered on the Journal.

Neither House, during the Session of Congress, shall, without the Consent of the other, adjourn for more than three days, nor to any other Place than that in which the two Houses shall be sitting.

Art. I, sec. 6

The Senators and Representatives shall receive a Compensation for their Services, to be ascertained by Law, and paid out of the Treasury of the United States.  They shall in all Cases, except Treason, Felony and Breach of the Peace, be privileged from Arrest during their Attendance at the Session of their respective Houses, and in going to and returning from the same;  and for any Speech or Debate in either House, they shall not be questioned in any other Place.

No Senator or Representative shall, during the Time for which he was elected, be appointed to any civil Office under the Authority of the United States, which shall have been created, or the Emoluments whereof shall have been encreased during such time;  and no Person holding any Office under the United States, shall be a Member of either House during his Continuance in Office.

Art. I, sec. 7

All Bills for raising Revenue shall originate in the House of Representatives;  but the Senate may propose or concur with Amendments as on other Bills.

Every Bill which shall have passed the House of Representatives and the Senate, shall, before it become a Law, be presented to the President of the United States;  If he approve he shall sign it, but if not he shall return it, with his Objections to that House in which it shall have originated, who shall enter the Objections at large on their Journal, and proceed to reconsider it. If after such Reconsideration two thirds of that House shall agree to pass the Bill, it shall be sent, together with the Objections, to the other House, by which it shall likewise be reconsidered, and if approved by two thirds of that House, it shall become a Law.  But in all such Cases the Votes of both Houses shall be determined by yeas and Nays, and the Names of the Persons voting for and against the Bill shall be entered on the Journal of each House respectively.  If any Bill shall not be returned by the President within ten Days (Sundays excepted) after it shall have been presented to him, the Same shall be a Law, in like Manner as if he had signed it, unless the Congress by their Adjournment prevent its Return, in which Case it shall not be a Law.

Every Order, Resolution, or Vote to which the Concurrence of the Senate and House of Representatives may be necessary (except on a question of Adjournment) shall be presented to the President of the United States;  and before the Same shall take Effect, shall be approved by him, or being disapproved by him, shall be repassed by two thirds of the Senate and House of Representatives, according to the Rules and Limitations prescribed in the Case of a Bill.

Art. I, sec. 8

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States;  but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow Money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

To establish Post Offices and post Roads;

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

To constitute Tribunals inferior to the supreme Court;

To define and punish Piracies and Felonies committed on the high Seas, and Offences against the Law of Nations;

To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;

To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;

To provide and maintain a Navy;

To make Rules for the Government and Regulation of the land and naval Forces;

To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions;

To provide for organizing, arming, and disciplining, the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress;

To exercise exclusive Legislation in all Cases whatsoever, over such District  (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dockYards, and other needful Buildings;And

To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

Art. I, sec. 9

The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year one thousand eight hundred and eight, but a Tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person.

The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.

No Bill of Attainder or ex post facto Law shall be passed.

No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.

No Tax or Duty shall be laid on Articles exported from any State.

No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another:  nor shall Vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in another.

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law;  and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

No Title of Nobility shall be granted by the United States:  And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.

Art. I, sec. 10

No State shall enter into any Treaty, Alliance, or Confederation;  grant Letters of Marque and Reprisal;  coin Money; emit Bills of Credit;  make any Thing but gold and silver Coin a Tender in Payment of Debts;  pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility

No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws:  and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States;  and all such Laws shall be subject to the Revision and Controul of the Congress.

No State shall, without the Consent of Congress, lay any Duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with another State, or with a foreign Power, or engage in War, unless actually invaded, or in such imminent Danger as will not admit of delay.

Art. II, sec. 1

The executive Power shall be vested in a President of the United States of America.  He shall hold his Office during the Term of four Years, and, together with the Vice President, chosen for the same Term, be elected, as follows:

Each State shall appoint, in such Manner as the Legislature thereof may direct, a Number of Electors, equal to the whole Number of Senators and Representatives to which the State may be entitled in the Congress:  but no Senator or Representative, or Person holding an Office of Trust or Profit under the United States, shall be appointed an Elector.

The Congress may determine the Time of chusing the Electors, and the Day on which they shall give their Votes;  which Day shall be the same throughout the United States.

No Person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President;  neither shall any Person be eligible to that Office who shall not have attained to the Age of thirty five Years, and been fourteen Years a Resident within the United States.

In Case of the Removal of the President from Office, or of his Death, Resignation, or Inability to discharge the Powers and Duties of the said Office, the Same shall devolve on the Vice President, and the Congress may by Law provide for the Case of Removal, Death, Resignation or Inability, both of the President and Vice President, declaring what Officer shall then act as President, and such Officer shall act accordingly, until the Disability be removed, or a President shall be elected.

The President shall, at stated Times, receive for his Services, a Compensation, which shall neither be encreased nor diminished during the Period for which he shall have been elected, and he shall not receive within that Period any other Emolument from the United States, or any of them.

Before he enter on the Execution of his Office, he shall take the following Oath or Affirmation:"I do solemnly swear (or affirm) that I will faithfully execute the Office of President of the United States, and will to the best of my Ability, preserve, protect and defend the Constitution of the United States."

Art. II, sec. 2

The President shall be Commander in Chief of the Army and Navy of the United States, and of the Militia of the several States, when called into the actual Service of the United States;  he may require the Opinion, in writing, of the principal Officer in each of the executive Departments, upon any Subject relating to the Duties of their respective Offices, and he shall have Power to grant Reprieves and Pardons for Offenses against the United States, except in Cases of Impeachment.

He shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur;  and he shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law:  but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.

The President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session.

Art. II, sec. 3

He shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient;  he may, on extraordinary Occasions, convene both Houses, or either of them, and in Case of Disagreement between them, with Respect to the Time of Adjournment, he may adjourn them to such Time as he shall think proper;  he shall receive Ambassadors and other public Ministers;  he shall take Care that the Laws be faithfully executed, and shall Commission all the Officers of the United States.

Art. II, sec. 4

The President, Vice President and all civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors.

Art. III, sec. 1

The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.  The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services, a Compensation, which shall not be diminished during their Continuance in Office.

Art. III, sec. 2

The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority;to all Cases affecting Ambassadors, other public Ministers and Consuls;to all Cases of admiralty and maritime Jurisdiction;to Controversies to which the United States shall be a Party;to Controversies between two or more States;between a State and Citizens of another State;between Citizens of different States;between Citizens of the same State claiming Lands under Grants of different States, and between a State, or the Citizens thereof, and foreign States, Citizens or Subjects.

In all Cases affecting Ambassadors, other public Ministers and Consuls, and those in which a State shall be Party, the supreme Court shall have original Jurisdiction.  In all the other Cases before mentioned, the supreme Court shall have appellate Jurisdiction, both as to Law and Fact, with such Exceptions, and under such Regulations as the Congress shall make.

The Trial of all Crimes, except in Cases of Impeachment, shall be by Jury;  and such Trial shall be held in the State where the said Crimes shall have been committed;  but when not committed within any State, the Trial shall be at such Place or Places as the Congress may by Law have directed.

Art. III, sec. 3

Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort.  No Person shall be convicted of Treason unless on the Testimony of two Witnesses to the same overt Act, or on Confession in open Court.

The Congress shall have Power to declare the Punishment of Treason, but no Attainder of Treason shall work Corruption of Blood, or Forfeiture except during the Life of the Person attainted.

Art. IV, sec. 1

Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State.  And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof.

Art. IV, sec. 2

The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.

A person charged in any State with Treason, Felony, or other Crime, who shall flee from Justice, and be found in another State, shall on Demand of the executive Authority of the State from which he fled, be delivered up, to be removed to the State having Jurisdiction of the Crime.

No Person held to Service or Labour in one State, under the Laws thereof, escaping into another, shall, in Consequence of any Law or Regulation therein, be discharged from such Service or Labour, but shall be delivered up on Claim of the Party to whom such Service or Labour may be due.

Art. IV, sec. 3

New States may be admitted by the Congress into this Union;  but no new State shall be formed or erected within the Jurisdiction of any other State;  nor any State be formed by the Junction of two or more States, or Parts of States, without the Consent of the Legislatures of the States concerned as well as of the Congress.

The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States;  and nothing in this Constitution shall be so construed as to Prejudice any Claims of the United States, or of any particular State.

Art. IV, sec. 4

The United States shall guarantee to every State in this Union a Republican Form of Government, and shall protect each of them against Invasion;  and on Application of the Legislature, or of the Executive (when the Legislature cannot be convened) against domestic Violence.

Art. V

The Congress, whenever two thirds of both Houses shall deem it necessary, shall propose Amendments to this Constitution, or on the Application of the Legislatures of two thirds of the several States, shall call a Convention for proposing Amendments, which, in either Case, shall be valid to all Intents and Purposes, as Part of this Constitution, when ratified by the Legislatures of three fourths of the several States, or by Conventions in three fourths thereof, as the one or the other Mode of Ratification may be proposed by the Congress;  Provided that no Amendment which may be made prior to the Year One thousand eight hundred and eight shall in any Manner affect the first and fourth Clauses in the Ninth Section of the first Article;  and that no State, without its Consent, shall be deprived of its equal Suffrage in the Senate.

Art. VI

All Debts contracted and Engagements entered into, before the Adoption of this Constitution, shall be as valid against the United States under this Constitution, as under the Confederation.

This Constitution, and the Laws of the United States which shall be made in Pursuance thereof;  and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land;  and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.

The Senators and Representatives before mentioned, and the Members of the several State Legislatures, and all executive and judicial Officers, both of the United States and of the several States, shall be bound by Oath or Affirmation, to support this Constitution;  but no religious Test shall ever be required as a Qualification to any Office or public Trust under the United States.

Art. VII

The Ratification of the Conventions of nine States, shall be sufficient for the Establishment of this Constitution between the States so ratifying the Same.

DONE in Convention by the Unanimous Consent of the States present the Seventeenth Day of September in the Year of our Lord one thousand seven hundred and Eighty seven and of the Independence of the United States of America the Twelfth.  IN WITNESS whereof We have hereunto subscribed our Names...

(Signatures)

Amend. I

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof;  or abridging the freedom of speech, or of the press;  or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Amend. II

A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.

Amend. III

No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law.

Amend. IV

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Amend. V

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger;  nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb;  nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law;  nor shall private property be taken for public use, without just compensation.

Amend. VI

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation;  to be confronted with the witnesses against him;  to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defence.

Amend. VII

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law.

Amend. VIII

Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.

Amend. IX

The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.

Amend. X

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

Amend. XI.

 The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.

Amend. XII.

 The Electors shall meet in their respective states and vote by ballot for President and VicePresident, one of whom, at least, shall not be an inhabitant of the same state with themselves;  they shall name in their ballots the person voted for as President, and in distinct ballots the person voted for as Vice President, and they shall make distinct lists of all persons voted for as President, and of all persons voted for as VicePresident, and of the number of votes for each, which lists they shall sign and certify, and transmit sealed to the seat of the government of the United States, directed to the President of the Senate;The President of the Senate shall, in the presence of the Senate and House of Representatives, open all the certificates and the votes shall then be counted;The person having the greatest number of votes for President, shall be the President, if such number be a majority of the whole number of Electors appointed;  and if no person have such majority, then from the persons having the highest numbers not exceeding three on the list of those voted for as President, the House of Representatives shall choose immediately, by ballot, the President.  But in choosing the President, the votes shall be taken by states, the representation from each state having one vote;  a quorum for this purpose shall consist of a member or members from twothirds of the states, and a majority of all the states shall be necessary to a choice.  And if the House of Representatives shall not choose a President whenever the right of choice shall devolve upon them, before the fourth day of March next following, then the VicePresident shall act as President, as in the case of the death or other constitutional disability of the President.The person having the greatest number of votes as VicePresident, shall be the VicePresident, if such number be a majority of the whole number of Electors appointed, and if no person have a majority, then from the two highest numbers on the list, the Senate shall choose the VicePresident;  a quorum for the purpose shall consist of two thirds of the whole number of Senators, and a majority of the whole number shall be necessary to a choice.  But no person constitutionally ineligible to the office of President shall be eligible to that of VicePresident of the United States.

Amend. XIII.

Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

Congress shall have power to enforce this article by appropriate legislation.

Amend. XIV.

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.  No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States;  nor shall any State deprive any person of life, liberty, or property, without due process of law;  nor deny to any person within its jurisdiction the equal protection of the laws.

Representatives shall be apportioned among the several States according to their respective numbers, counting the whole number of persons in each State, excluding Indians not taxed.  But when the right to vote at any election for the choice of electors for President and Vice President of the United States, Representatives in Congress, the Executive and Judicial officers of a State, or the members of the Legislature thereof, is denied to any of the male inhabitants of such State, being twentyone years of age, and citizens of the United States, or in any way abridged, except for participation in rebellion, or other crime, the basis of representation therein shall be reduced in the proportion which the number of such male citizens shall bear to the whole number of male citizens twentyone years of age in such State.

No person shall be a Senator or Representative in Congress, or elector of President and Vice President, or hold any office, civil or military, under the United States, or under any State, who, having previously taken an oath, as a member of Congress, or as an officer of the United States, or as a member of any State legislature, or as an executive or judicial officer of any State, to support the Constitution of the United States, shall have engaged in insurrection or rebellion against the same, or given aid or comfort to the enemies thereof.  But Congress may by a vote of twothirds of each House, remove such disability.

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.  But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave;  but all such debts, obligations and claims shall be held illegal and void.

The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.

Amend. XV

The right of citizens of the United States to vote shall not be denied or abridged by the United States or by any State on account of race, color, or previous condition of servitude.

The Congress shall have power to enforce this article by appropriate legislation.

Amend. XVI

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Amend. XVII

 The Senate of the United States shall be composed of two Senators from each State, elected by the people thereof, for six years;  and each Senator shall have one vote.  The electors in each State shall have the qualifications requisite for electors of the most numerous branch of the State legislatures.

 When vacancies happen in the representation of any State in the Senate, the executive authority of such State shall issue writs of election to fill such vacancies:  Provided, That the legislature of any State may empower the executive thereof to make temporary appointments until the people fill the vacancies by election as the legislature may direct.

 This amendment shall not be so construed as to affect the election or term of any Senator chosen before it becomes valid as part of the Constitution.

Amend. XVIII

After one year from the ratification of this article the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage purposes is hereby prohibited.

The Congress and the several States shall have concurrent power to enforce this article by appropriate legislation.

This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by the legislatures of the several States, as provided in the Constitution, within seven years from the date of the submission hereof to the States by the Congress.

Amend. XIX

 The right of citizens of the United States to vote shall not be denied or abridged by the United States or by any State on account of sex.

 Congress shall have power to enforce this article by appropriate legislation.

Amend. XX

The terms of the President and Vice President shall end at noon on the 20th day of January, and the terms of Senators and Representatives at noon on the 3d day of January, of the years in which such terms would have ended if this article had not been ratified;  and the terms of their successors shall then begin.

The Congress shall assemble at least once in every year, and such meeting shall begin at noon on the 3d day of January, unless they shall by law appoint a different day.

If, at the time fixed for the beginning of the term of the President, the President elect shall have died, the Vice President elect shall become President.  If a President shall not have been chosen before the time fixed for the beginning of his term, or if the President elect shall have failed to qualify, then the Vice President elect shall act as President until a President shall have qualified;  and the Congress may by law provide for the case wherein neither a President elect nor a Vice President elect shall have qualified, declaring who shall then act as President, or the manner in which one who is to act shall be selected, and such person shall act accordingly until a President or Vice President shall have qualified.

The Congress may by law provide for the case of the death of any of the persons from whom the House of Representatives may choose a President whenever the right of choice shall have devolved upon them, and for the case of the death of any of the persons from whom the Senate may choose a Vice President whenever the right of choice shall have devolved upon them.

Sections 1 and 2 shall take effect on the 15th day of October following the ratification of this article.

This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by the legislatures of three fourths of the several States within seven years from the date of its submission.

Amend. XXI

The eighteenth article of amendment to the Constitution of the United States is hereby repealed.

The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.

This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by conventions in the several States, as provided in the Constitution, within seven years from the date of the submission hereof to the States by the Congress.

Amend. XXII

No person shall be elected to the office of the President more than twice, and no person who has held the office of President, or acted as President, for more than two years of a term to which some other person was elected President shall be elected to the office of the President more than once.  But this Article shall not apply to any person holding the office of President when this Article was proposed by the Congress, and shall not prevent any person who may be holding the office of President, or acting as President, during the term within which this Article becomes operative from holding the office of President or acting as President during the remainder of such term.

This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by the legislatures of three fourths of the several States within seven years from the date of its submission to the States by the Congress.

Amend. XXIII

The District constituting the seat of Government of the United States shall appoint in such manner as the Congress may direct:

 A number of electors of President and Vice President equal to the whole number of Senators and Representatives in Congress to which the District would be entitled if it were a State, but in no event more than the least populous State;  they shall be in addition to those appointed by the States, but they shall be considered, for the purposes of the election of President and Vice President, to be electors appointed by a State;  and they shall meet in the District and perform such duties as provided by the twelfth article of amendment.

The Congress shall have power to enforce this article by appropriate legislation.

Amend. XXIV

The right of citizens of the United States to vote in any primary or other election for President or Vice President, for electors for President or Vice President, or for Senator or Representative in Congress, shall not be denied or abridged by the United States or any State by reason of failure to pay any poll tax or other tax.

The Congress shall have power to enforce this article by appropriate legislation.

Amend. XXV

In case of the removal of the President from office or of his death or resignation, the Vice President shall become President.

Whenever there is a vacancy in the office of the Vice President, the President shall nominate a Vice President who shall take office upon confirmation by a majority vote of both Houses of Congress.

Whenever the President transmits to the President pro tempore of the Senate and the Speaker of the House of Representatives his written declaration that he is unable to discharge the powers and duties of his office, and until he transmits to them a written declaration to the contrary, such powers and duties shall be discharged by the Vice President as Acting President.

Whenever the Vice President and a majority of either the principal officers of the executive departments or of such other body as Congress may by law provide, transmit to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office, the Vice President shall immediately assume the powers and duties of the office as Acting President.

 Thereafter, when the President transmits to the President pro tempore of the Senate and the Speaker of the House of Representatives his written declaration that no inability exists, he shall resume the powers and duties of his office unless the Vice President and a majority of either the principal officers of the executive department or of such other body as Congress may by law provide, transmit within four days to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office. Thereupon Congress shall decide the issue, assembling within fortyeight hours for that purpose if not in session.  If the Congress, within twentyone days after receipt of the latter written declaration, or, if Congress is not in session, within twentyone days after Congress is required to assemble, determines by twothirds vote of both Houses that the President is unable to discharge the powers and duties of his office, the Vice President shall continue to discharge the same as Acting President;  otherwise, the President shall resume the powers and duties of his office.

Amend. XXVI

The right of citizens of the United States, who are eighteen years of age or older, to vote shall not be denied or abridged by the United States or by any State on account of age.

The Congress shall have power to enforce this article by appropriate legislation.

Amend. XXVII

No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened.


Age Discrimination in Employment Act

29 U.S.C. Sections 621-634

Section 621:  Congressional statement of findings and purpose

(a)	The Congress hereby finds and declares that

(1)	in the face of rising productivity and affluence, older workers find themselves disadvantaged in their efforts to retain employment, and especially to regain employment when displaced from jobs;

(2)	the setting of arbitrary age limits regardless of potential for job performance has become a common practice, and certain otherwise desirable practices may work to the disadvantage of older persons;

(3)	the incidence of unemployment, especially longterm unemployment with resultant deterioration of skill, morale, and employer acceptability is, relative to the younger ages, high among older workers;  their numbers are great and growing;  and their employment problems grave;

(4)	the existence in industries affecting commerce, of arbitrary discrimination in employment because of age, burdens commerce and the free flow of goods in commerce.

(b)	It is therefore the purpose of this chapter to promote employment of older persons based on their ability rather than age;  to prohibit arbitrary age discrimination in employment;  to help employers and workers find ways of meeting problems arising from the impact of age on employment.

Section 622:  Education and research program;  recommendation to Congress

(a)	The Secretary of Labor shall undertake studies and provide information to labor unions, management, and the general public concerning the needs and abilities of older workers, and their potentials for continued employment and contribution to the economy.  In order to achieve the purposes of this chapter, the Secretary of Labor shall carry on a continuing program of education and information, under which he may, among other measures

(1)	undertake research, and promote research, with a view to reducing barriers to the employment of older persons, and the promotion of measures for utilizing their skills;

(2)	publish and otherwise make available to employers, professional societies, the various media of communication, and other interested persons  the findings of studies and other materials for the promotion of employment;

(3)	foster through the public employment service system and through cooperative effort the development of facilities of public and private agencies for expanding the opportunities and potentials of older persons;

(4)	sponsor and assist State and community informational and educational programs.

(b)	Not later than six months after the effective date of this chapter, the Secretary shall recommend to the Congress any measures he may deem desirable to change the lower or upper age limits set forth in section 631 of this title.

Section 623:  Prohibition of age discrimination

(a)	Employer practices

It shall be unlawful for an employer

(1)	to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age;

(2)	to limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's age;  or

(3)	to reduce the wage rate of any employee in order to comply with this chapter.

(b)	Employment agency practices

It shall be unlawful for an employment agency to fail or refuse to refer for employment, or otherwise to discriminate against, any individual because of such individual's age, or to classify or refer for employment any individual on the basis of such individual's age.

(c)	Labor organization practices

It shall be unlawful for a labor organization

(1)	to exclude or to expel from its membership, or otherwise to discriminate against, any individual because of his age;

(2)	to limit, segregate, or classify its membership, or to classify or fail or refuse to refer for employment any individual, in any way which would deprive or tend to deprive any individual of employment opportunities, or would limit such employment opportunities or otherwise adversely affect his status as an employee or as an applicant for employment, because of such  individual's age;

(3)	to cause or attempt to cause an employer to discriminate against an individual in violation of this section.

(d)	Opposition to unlawful practices;  participation in investigations, proceedings, or litigation

It shall be unlawful for an employer to discriminate against any of his employees or applicants for employment, for an employment agency to discriminate against any individual, or for a labor organization to discriminate against any member thereof or applicant for membership, because such individual, member or applicant for membership has opposed any practice made unlawful by this section, or because such individual, member or applicant for membership has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or litigation under this chapter.

(e)	Printing or publication of notice or advertisement indicating preference, limitation, etc.

It shall be unlawful for an employer, labor organization, or employment agency to print or publish, or cause to be printed or published, any notice or advertisement relating to employment by such an employer or membership in or any classification or referral for employment by such a labor organization, or relating to any classification or referral for employment by such an employment agency, indicating any preference, limitation, specification, or discrimination, based on age.

(f)	Lawful practices;  age an occupational qualification;  other reasonable factors;  laws of foreign work place;  seniority system;  employee benefit plans;  discharge or discipline for good cause

It shall not be unlawful for an employer, employment agency, or labor organization

(1)	to take any action otherwise prohibited under subsections (a), (b), (c), or (e) of this section where age is a bona fide occupational qualification reasonably necessary to the normal operation of the particular business, or where the differentiation is based on reasonable factors other than age, or where such practices involve an employee in a work place in a foreign country, and compliance with such subsections would cause such employer, or a corporation controlled by such employer, to violate the laws of the country in which such work place is located;

(2)	to take any action otherwise prohibited under subsection (a), (b), (c), or (e) of this section

(A)	to observe the terms of a bona fide seniority system that is not intended to evade the purposes of this chapter, except that no such seniority system shall require or permit the involuntary retirement of any individual specified by section 631(a) of this title because of the age of such individual;  or

(B)	to observe the terms of a bona fide employee benefit plan

(i)	where, for each benefit or benefit package, the actual amount of payment made or cost incurred on behalf of an older worker is no less than that made or incurred on behalf of a younger worker, as permissible under section 1625.10, title 29, Code of Federal Regulations (as in effect on June 22, 1989);  or

(ii)	that is a voluntary early retirement incentive plan consistent with the relevant purpose or purposes of this chapter.

Notwithstanding clause (i) or (ii) of subparagraph (B), no such employee benefit plan or voluntary early retirement incentive plan shall excuse the failure to hire any individual, and no such employee benefit plan shall   require or permit the involuntary retirement of any individual specified by section 631(a) of this title, because of the age of such individual.  An employer, employment agency, or labor organization acting under subparagraph (A), or under clause (i) or (ii) of subparagraph (B), shall have the burden of proving that such actions are lawful in any civil enforcement proceeding brought under this chapter;  or

(3)	to discharge or otherwise discipline an individual for good cause.

(g)	Repealed.  Pub.L. 101239, Title VI, Section 6202(b)(3)(C)(i), Dec. 19, 1989, 103 Stat. 2233

(h)	Practices of foreign corporations controlled by American employers;  foreign employers not controlled by American employers;  factors determining control

(1)	If an employer controls a corporation whose place of incorporation is in a foreign country, any practice by such corporation prohibited under this section shall be presumed to be such practice by such employer.

(2)	The prohibitions of this section shall not apply where the employer is a foreign person not controlled by an American employer.

(3)	For the purpose of this subsection the determination of whether an employer controls a corporation shall be based upon the

(A)	interrelation of operations,

(B)	common management,

(C)	centralized control of labor relations, and

(D)	common ownership or financial control, of the employer and the corporation.

(i)	Employee pension benefit plans;  cessation or reduction of benefit accrual or of allocation to employee account;  distribution of benefits after attainment of normal retirement age;  compliance;  highly compensated employees

(1)	Except as otherwise provided in this subsection, it shall be unlawful for an employer, an employment agency, a labor organization, or any combination thereof to establish or maintain an employee pension benefit plan which requires or permits

(A)	in the case of a defined benefit plan, the cessation of an employee's  benefit accrual, or the reduction of the rate of an employee's benefit accrual, because of age, or

(B)	in the case of a defined contribution plan, the cessation of allocations to an employee's account, or the reduction of the rate at which amounts are allocated to an employee's account, because of age.

(2)	Nothing in this section shall be construed to prohibit an employer, employment agency, or labor organization from observing any provision of an employee pension benefit plan to the extent that such provision imposes (without regard to age) a limitation on the amount of benefits that the plan provides or a limitation on the number of years of service or years of participation which are taken into account for purposes of determining benefit accrual under the plan.

(3)	In the case of any employee who, as of the end of any plan year under a defined benefit plan, has attained normal retirement age under such plan

(A)	if distribution of benefits under such plan with respect to such employee has commenced as of the end of such plan year, then any requirement of this subsection for continued accrual of benefits under such plan with respect to such employee during such plan year shall be treated as satisfied to the extent of the actuarial equivalent of inservice distribution of benefits, and

(B)	if distribution of benefits under such plan with respect to such employee  has not commenced as of the end of such year in accordance with section 1056(a)(3) of this title and section 401(a)(14)(C) of Title 26, and the payment of benefits under such plan with respect to such employee is not suspended during such plan year pursuant to section 1053(a)(3)(B) of this title or section 411(a)(3)(B) of Title 26, then any requirement of this subsection for continued accrual of benefits under such plan with respect to such employee during such plan year shall be treated as satisfied to the extent of any adjustment in the benefit payable under the plan during such plan year attributable to the delay in the distribution of benefits after the attainment of normal retirement age.

The provisions of this paragraph shall apply in accordance with regulations of the Secretary of the Treasury.  Such regulations shall provide for the application of the preceding provisions of this paragraph to all employee pension benefit plans subject to this subsection and may provide for the application of such provisions, in the case of any such employee, with respect to any period of time within a plan year.

(4)	Compliance with the requirements of this subsection with respect to an employee pension benefit plan shall constitute compliance with the requirements of this section relating to benefit accrual under such plan.

(5)	Paragraph (1) shall not apply with respect to any employee who is a highly compensated employee (within the meaning of section 414(q) of Title 26) to the extent provided in regulations prescribed by the Secretary of the Treasury for purposes of precluding discrimination in favor of highly compensated employees within the meaning of subchapter D of chapter 1 of Title 26.

(6)	A plan shall not be treated as failing to meet the requirements of paragraph (1) solely because the subsidized portion of any early retirement benefit is disregarded in determining benefit accruals.

(7)	Any regulations prescribed by the Secretary of the Treasury pursuant to clause (v) of section 411(b)(1)(H) of Title 26 and subparagraphs (C) and (D) of section 411(b)(2) of Title 26 shall apply with respect to the requirements of this subsection in the same manner and to the same extent as such regulations apply with respect to the requirements of such sections 411(b)(1)(H) and 411(b)(2) of Title 26.

(8)	A plan shall not be treated as failing to meet the requirements of this section solely because such plan provides a normal retirement age described in section 1002(24)(B) of this title and section 411(a)(8)(B) of Title 26.

(9)	For purposes of this subsection

(A)	The terms "employee pension benefit plan", "defined benefit plan",  "defined contribution plan", and "normal retirement age" have the meanings  provided such terms in section 1002 of this title.

(B)	The term "compensation" has the meaning provided by section 414(s) of Title 26.

(j)	Repealed.  Pub.L. 99592, Section 3(b), Oct. 31, 1986, 100 Stat. 3342

(k)	Seniority system or employee benefit plan;  compliance

A seniority system or employee benefit plan shall comply with this chapter regardless of the date of adoption of such system or plan.

(l)	Lawful practices;  minimum age as condition of eligibility for retirement benefits;  deductions from severance pay;  reduction of longterm disability benefits

Notwithstanding clause (i) or (ii) of subsection (f)(2)(B) of this section

(1)	It shall not be a violation of subsection (a), (b), (c), or (e) of this section solely because

(A)	an employee pension benefit plan (as defined in section 1002(2) of this   title) provides for the attainment of a minimum age as a condition of eligibility for normal or early retirement benefits;  or

(B)	a defined benefit plan (as defined in section 1002(35) of this title) provides for

(i)	payments that constitute the subsidized portion of an early retirement benefit;  or

(ii)	social security supplements for plan participants that commence before the age and terminate at the age (specified by the plan) when participants are eligible to receive reduced or unreduced oldage insurance benefits under title II of the Social Security Act (42 U.S.C. 401 et seq.), and that do not exceed such oldage insurance benefits.

(2)	(A)	It shall not be a violation of subsection (a), (b), (c), or (e) of this section solely because following a contingent event unrelated to age

(i)	the value of any retiree health benefits received by an individual eligible for an immediate pension;

(ii)	the value of any additional pension benefits that are made available solely as a result of the contingent event unrelated to age and following which the individual is eligible for not less than an immediate and unreduced pension;  or

(iii) the values described in both clauses (i) and (ii) are deducted from severance pay made available as a result of the contingent event unrelated to age.

(B)	For an individual who receives immediate pension benefits that are actuarially reduced under subparagraph (A)(i), the amount of the deduction available pursuant to subparagraph (A)(i) shall be reduced by the same percentage as the reduction in the pension benefits.

(C)	For purposes of this paragraph, severance pay shall include that portion of supplemental unemployment compensation benefits (as described in section 501(c)(17) of Title 26) that

(i)	constitutes additional benefits of up to 52 weeks;

(ii)	has the primary purpose and effect of continuing benefits until an individual becomes eligible for an immediate and unreduced pension;  and

(iii) is discontinued once the individual becomes eligible for an immediate and unreduced pension.

(D)	For purposes of this paragraph and solely in order to make the deduction authorized under this paragraph, the term "retiree health benefits" means benefits provided pursuant to a group health plan covering retirees, for which (determined as of the contingent event unrelated to age)

(i)	the package of benefits provided by the employer for the retirees who   are below age 65 is at least comparable to benefits provided under title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.);

(ii)	the package of benefits provided by the employer for the retirees who are age 65 and above is at least comparable to that offered under a plan that provides a benefit package with onefourth the value of benefits provided under title XVIII of such Act;  or

(iii)	the package of benefits provided by the employer is as described in clauses (i) and (ii).

(E)	(i)	If the obligation of the employer to provide retiree health benefits is of limited duration, the value for each individual shall be calculated at a rate of $3,000 per year for benefit years before age 65, and $750 per year for benefit years beginning at age 65 and above.

(ii)	If the obligation of the employer to provide retiree health benefits is of unlimited duration, the value for each individual shall be calculated at a rate of $48,000 for individuals below age 65, and $24,000 for individuals age 65 and above.

(iii) The values described in clauses (i) and (ii) shall be calculated based on the age of the individual as of the date of the contingent event unrelated to age.  The values are effective on October 16, 1990, and shall be adjusted on an annual basis, with respect to a contingent event that occurs subsequent  to the first year after October 16, 1990, based on the medical component of the Consumer Price Index for allurban consumers published by the Department of Labor.

(iv)	If an individual is required to pay a premium for retiree health benefits, the value calculated pursuant to this subparagraph shall be reduced by whatever percentage of the overall premium the individual is required to pay.

(F)	If an employer that has implemented a deduction pursuant to subparagraph (A) fails to fulfill the obligation described in subparagraph (E), any aggrieved individual may bring an action for specific performance of the obligation described in subparagraph (E).  The relief shall be in addition to any other remedies provided under Federal or State law.

(3)	It shall not be a violation of subsection (a), (b), (c), or (e) of this section solely because an employer provides a bona fide employee benefit plan or plans under which longterm disability benefits received by an individual are reduced by any pension benefits (other than those attributable to employee contributions)

(A)	paid to the individual that the individual voluntarily elects to receive;  or

(B)	for which an individual who has attained the later of age 62 or normal retirement age is eligible.

Section 624:  Study by Secretary of Labor

(a)	(1)	The Secretary of Labor is directed to undertake an appropriate study of institutional and other arrangements giving rise to involuntary retirement, and report his findings and any appropriate legislative recommendations to the President and to the Congress.  Such study shall include

(A)	an examination of the effect of the amendment made by section 3(a) of the Age Discrimination in Employment Act Amendments of 1978 in raising the upper age limitation established by section 631(a) of this title to 70 years of age;

(B)	a determination of the feasibility of eliminating such limitation;

(C)	a determination of the feasibility of raising such limitation above 70  years of age;  and

(D)	an examination of the effect of the exemption contained in section 631(c) of this title, relating to certain executive employees, and the exemption contained in section 631(d) of this title, relating to tenured teaching personnel.

(2)	The Secretary may undertake the study required by paragraph (1) of this subsection directly or by contract or other arrangement.

(b)	The report required by subsection (a) of this section shall be transmitted to the President and to the Congress as an interim report not later than January 1, 1981, and in final form not later than January 1, 1982.

Section 625:  Administration

The Secretary shall have the power

(a)	Delegation of functions;  appointment of personnel;  technical assistance to make delegations, to appoint such agents and employees, and to pay for technical assistance on a fee for service basis, as he deems necessary to assist him in the performance of his functions under this chapter;

(b)	Cooperation with other agencies, employers, labor organizations, and employment agencies to cooperate with regional, State, local, and other agencies, and to cooperate with and furnish technical assistance to employers, labor organizations, and employment agencies to aid in effectuating the purposes of this chapter.

 Section 626:  Recordkeeping, investigation, and enforcement

(a)	Attendance of witnesses;  investigations, inspections, records, and homework regulations

The Equal Employment Opportunity Commission shall have the power to make investigations and require the keeping of records necessary or appropriate for the administration of this chapter in accordance with the powers and procedures provided in sections 209 and 211 of this title.

(b)	Enforcement;  prohibition of age discrimination under fair labor standards;  unpaid minimum wages and unpaid overtime compensation;  liquidated  damages;  judicial relief;  conciliation, conference, and persuasion

The provisions of this chapter shall be enforced in accordance with the powers, remedies, and procedures provided in sections 211(b), 216 (except for subsection (a) thereof), and 217 of this title, and subsection (c) of this section.  Any act prohibited under section 623 of this title shall be deemed to be a prohibited act under section 215 of this title.  Amounts owing to a person as a result of a violation of this chapter shall be deemed to be unpaid minimum wages or unpaid overtime compensation for purposes of sections 216 and 217 of this title:  Provided, That liquidated damages shall be payable only in cases of willful violations of this chapter.  In any action brought to enforce this chapter the court shall have jurisdiction to grant such legal or equitable relief as may be appropriate to effectuate the purposes of this chapter, including without limitation judgments compelling employment, reinstatement or promotion, or enforcing the liability for amounts deemed to be unpaid minimum wages or unpaid overtime compensation under this section.  Before instituting any action under this section, the Equal Employment Opportunity Commission shall attempt to eliminate the discriminatory practice or practices alleged, and to effect voluntary compliance with the requirements of this chapter through informal methods of conciliation, conference, and persuasion.

(c)	Civil actions;  persons aggrieved;  jurisdiction;  judicial relief;  termination of individual action upon commencement of action by Commission; jury trial

(1)	Any person aggrieved may bring a civil action in any court of competent jurisdiction for such legal or equitable relief as will effectuate the purposes of this chapter:  Provided, That the right of any person to bring such action shall terminate upon the commencement of an action by the Equal Employment Opportunity Commission to enforce the right of such employee under this chapter.

(2)	In an action brought under paragraph (1), a person shall be entitled to a trial by jury of any issue of fact in any such action for recovery of amounts owing as a result of a violation of this chapter, regardless of whether equitable relief is sought by any party in such action.

(d)	Filing of charge with Commission;  timeliness;  conciliation, conference, and persuasion

No civil action may be commenced by an individual under this section until 60 days after a charge alleging unlawful discrimination has been filed with the Equal Employment Opportunity Commission.  Such a charge shall be filed

(1)	within 180 days after the alleged unlawful practice occurred;  or

(2)	in a case to which section 633(b) of this title applies, within 300 days after the alleged unlawful practice occurred, or within 30 days after receipt by the individual of notice of termination of proceedings under State law, whichever is earlier.

Upon receiving such a charge, the Commission shall promptly notify all persons named in such charge as prospective defendants in the action and shall promptly seek to eliminate any alleged unlawful practice by informal methods of conciliation, conference, and persuasion.

(e)	Reliance on administrative rulings;  notice of dismissal or termination;  civil action after receipt of notice

Section 259 of this title shall apply to actions under this chapter.

If a charge filed with the Commission under this chapter is dismissed or the proceedings of the Commission are otherwise terminated by the Commission, the Commission shall notify the person aggrieved.  A civil action may be brought under this section by a person defined in section 630(a) of this title against the respondent named in the charge within 90 days after the date of the receipt of such notice.

(f)	Waiver

(1)	An individual may not waive any right or claim under this chapter unless the waiver is knowing and voluntary.  Except as provided in paragraph (2), a waiver may not be considered knowing and voluntary unless at a minimum

(A)	the waiver is part of an agreement between the individual and the employer that is written in a manner calculated to be understood by such individual, or by the average individual eligible to participate;

(B)	the waiver specifically refers to rights or claims arising under this chapter;

(C)	the individual does not waive rights or claims that may arise after the date the waiver is executed;

(D)	the individual waives rights or claims only in exchange for consideration in addition to anything of value to which the individual already is entitled;

(E)	the individual is advised in writing to consult with an attorney prior to executing the agreement;

(F)	(i)	the individual is given a period of at least 21 days within which to consider the agreement;  or

(ii)	if a waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, the individual is given a period of at least 45 days within which to consider the agreement;

(G)	the agreement provides that for a period of at least 7 days following the execution of such agreement, the individual may revoke the agreement, and the agreement shall not become effective or enforceable until the revocation period has expired;

(H)	if a waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, the employer (at the commencement of the period specified in subparagraph (F)) informs the individual in writing in a manner calculated to be understood by the average individual eligible to participate, as to

(i)	any class, unit, or group of individuals covered by such program, any eligibility factors for such program, and any time limits applicable to such program;  and

(ii)	the job titles and ages of all individuals eligible or selected for the   program, and the ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program.

(2)	A waiver in settlement of a charge filed with the Equal Employment Opportunity Commission, or an action filed in court by the individual or the individual's representative, alleging age discrimination of a kind prohibited under section 623 or 633a of this title may not be considered knowing and voluntary unless at a minimum

(A)	subparagraphs (A) through (E) of paragraph (1) have been met;  and

(B)	the individual is given a reasonable period of time within which to consider the settlement agreement.

(3)	In any dispute that may arise over whether any of the requirements, conditions, and circumstances set forth in subparagraph (A), (B), (C), (D), (E), (F), (G), or (H) of paragraph (1), or subparagraph (A) or (B) of paragraph (2), have been met, the party asserting the validity of a waiver shall have the burden of proving in a court of competent jurisdiction that a waiver was knowing and voluntary pursuant to paragraph (1) or (2).

(4)	No waiver agreement may affect the Commission's rights and responsibilities to enforce this chapter.  No waiver may be used to justify interfering with the protected right of an employee to file a charge or participate in an investigation or proceeding conducted by the Commission.

Section 627:  Notices to be posted

Every employer, employment agency, and labor organization shall post and keep posted in conspicuous places upon its premises a notice to be prepared or approved by the Equal Employment Opportunity Commission setting forth information as the Commission deems appropriate to effectuate the purposes of this chapter.

Section 628:  Rules and regulations;  exemptions

In accordance with the provisions of subchapter II of chapter 5 of Title 5, the Equal Employment Opportunity Commission may issue such rules and regulations as it may consider necessary or appropriate for carrying out this chapter, and may establish such reasonable exemptions to and from any or all provisions of this chapter as it may find necessary and proper in the public interest.

Section 629:  Criminal penalties

Whoever shall forcibly resist, oppose, impede, intimidate or interfere with a duly authorized representative of the Equal Employment Opportunity Commission while it is engaged in the performance of duties under this chapter shall be punished by a fine of not more than $500 or by imprisonment for not more than one year, or by both:  Provided, however, That no person shall be imprisoned under this section except when there has been a prior conviction hereunder.

Section 630:  Definitions

For the purposes of this chapter

(a)	The term "person" means one or more individuals, partnerships, associations, labor organizations, corporations, business trusts, legal representatives, or any organized groups of persons.

(b)	The term "employer" means a person engaged in an industry affecting commerce who has twenty or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year: Provided, That prior to June 30, 1968, employers having fewer than fifty employees shall not be considered employers.  The term also means (1) any agent of such a person, and (2) a State or political subdivision of a State and any agency or instrumentality of a State or a political subdivision of a State, and any interstate agency, but such term does not include the United States, or a corporation wholly owned by the Government of the United States.

(c)	The term "employment agency" means any person regularly undertaking with or without compensation to procure employees for an employer and includes an agent of such a person;  but shall not include an agency of the United States.

(d)	The term "labor organization" means a labor organization engaged in an industry affecting commerce, and any agent of such an organization, and includes any organization of any kind, any agency, or employee representation committee, group, association, or plan so engaged in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours, or other terms or conditions of employment, and any conference, general committee, joint or system board, or joint council so engaged which is subordinate to a national or international labor organization.

(e)	A labor organization shall be deemed to be engaged in an industry affecting commerce if (1) it maintains or operates a hiring hall or hiring office which procures employees for an employer or procures for employees opportunities to work for an employer, or (2) the number of its members (or, where it is a labor organization composed of other labor organizations or their representatives, if the aggregate number of the members of such other labor organization) is fifty or more prior to July 1, 1968, or twentyfive or more on or after July 1, 1968, and such labor organization

(1)	is the certified representative of employees under the provisions of the National Labor Relations Act, as amended [29 U.S.C.A.Section 151 et seq.], or the Railway Labor Act, as amended [45 U.S.C.A. Section 151 et seq.];  or

(2)	although not certified, is a national or international labor organization or a local labor organization recognized or acting as the representative of employees of an employer or employers engaged in an industry affecting commerce;  or

(3)	has chartered a local labor organization or subsidiary body which is representing or actively seeking to represent employees of employers within the meaning of paragraph (1) or (2);  or

(4)	has been chartered by a labor organization representing or actively seeking to represent employees within the meaning of paragraph (1) or (2) as the local or subordinate body through which such employees may enjoy membership or become affiliated with such labor organization;  or

(5)	is a conference, general committee, joint or system board, or joint council subordinate to a national or international labor organization, which includes a labor organization engaged in an industry affecting commerce within the meaning of any of the preceding paragraphs of this subsection.

(f)	The term "employee" means an individual employed by any employer except that the term "employee" shall not include any person elected to public office in any State or political subdivision of any State by the qualified voters thereof, or any person chosen by such officer to be on such officer's personal staff, or an appointee on the policy-making level or an immediate adviser with respect to the exercise of the constitutional or legal powers of the office. The exemption set forth in the preceding sentence shall not include employees subject to the civil service laws of a State government, governmental agency, or political subdivision.  The term "employee" includes any individual who is a citizen of the United States employed by an employer in a work place in a foreign country.

(g)	The term "commerce" means trade, traffic, commerce, transportation, transmission, or communication among the several States;  or between a State and any place outside thereof;  or within the District of Columbia, or a possession of the United States;  or between points in the same State but through a point outside thereof.

(h)	The term "industry affecting commerce" means any activity, business, or industry in commerce or in which a labor dispute would hinder or obstruct commerce or the free flow of commerce and includes any activity or industry "affecting commerce" within the meaning of the LaborManagement Reporting and Disclosure Act of 1959 [29 U.S.C.A. Section 401 et seq.].

(i)	The term "State" includes a State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, American Samoa, Guam, Wake Island, the Canal Zone, and Outer Continental Shelf lands defined in the Outer Continental Shelf Lands Act [43 U.S.C.A. Section 1331 et seq.].

(j)	The term "firefighter" means an employee, the duties of whose position are primarily to perform work directly connected with the control and extinguishment of fires or the maintenance and use of firefighting apparatus and equipment, including an employee engaged in this activity who is transferred to a supervisory or administrative position.

(k)	The term "law enforcement officer" means an employee, the duties of whose position are primarily the investigation, apprehension, or detention of individuals suspected or convicted of offenses against the criminal laws of a State, including an employee engaged in this activity who is transferred to a supervisory or administrative position.  For the purpose of this subsection, "detention" includes the duties of employees assigned to guard individuals incarcerated in any penal institution.

(l)	The term "compensation, terms, conditions, or privileges of employment" encompasses all employee benefits, including such benefits provided pursuant to a bona fide employee benefit plan.

Section 631:  Age limits

(a)	Individuals at least 40 years of age

The prohibitions in this chapter shall be limited to individuals who are at least 40 years of age.

(b)	Employees or applicants for employment in Federal Government

In the case of any personnel action affecting employees or applicants for employment which is subject to the provisions of section 633a of this title, the prohibitions established in section 633a of this title shall be limited to individuals who are at least 40 years of age.

(c)	Bona fide executives or high policy-makers

(1)	Nothing in this chapter shall be construed to prohibit compulsory retirement of any employee who has attained 65 years of age and who, for the 2 year period immediately before retirement, is employed in a bona fide executive or a high policy-making position, if such employee is entitled to an immediate nonforfeitable annual retirement benefit from a pension, profitsharing, savings, or deferred compensation plan, or any combination of such plans, of the employer of such employee, which equals, in the aggregate, at least $44,000.

(2)	In applying the retirement benefit test of paragraph (1) of this subsection, if any such retirement benefit is in a form other than a straight life annuity (with no ancillary benefits), or if employees contribute to any such plan or make rollover contributions, such benefit shall be adjusted in accordance with regulations prescribed by the Equal Employment Opportunity Commission, after consultation with the Secretary of the Treasury, so that the benefit is the equivalent of a straight life annuity (with no ancillary benefits) under a plan to which employees do not contribute and under which no rollover contributions are made.

(d)	Repealed.  Pub.L. 99592, Section 6(b), Oct. 31, 1986, 100 Stat. 3344

Section 632:  Annual report to Congress

The Equal Employment Opportunity Commission shall submit annually in January a report to the Congress covering its activities for the preceding year and including such information, data and recommendations for further legislation in connection with the matters covered by this chapter as it may find advisable. Such report shall contain an evaluation and appraisal by the Commission of the effect of the minimum and maximum ages established by this chapter, together with its recommendations to the Congress.  In making such evaluation and appraisal, the Commission shall take into consideration any changes which may have occurred in the general age level of the population, the effect of the chapter upon workers not covered by its provisions, and such other factors as it may deem pertinent.

Section 633:  FederalState relationship

(a)	Federal action superseding State action

Nothing in this chapter shall affect the jurisdiction of any agency of any State performing like functions with regard to discriminatory employment practices on account of age except that upon commencement of action under this chapter such action shall supersede any State action.

(b)	Limitation of Federal action upon commencement of State proceedings

In the case of an alleged unlawful practice occurring in a State which has a law prohibiting discrimination in employment because of age and establishing or authorizing a State authority to grant or seek relief from such discriminatory practice, no suit may be brought under section 626 of this title before the expiration of sixty days after proceedings have been commenced under the State law, unless such proceedings have been earlier terminated:  Provided, That such sixtyday period shall be extended to one hundred and twenty days during the first year after the effective date of such State law.  If any requirement for the commencement of such proceedings is imposed by a State authority other than a requirement of the filing of a written and signed statement of the facts upon which the proceeding is based, the proceeding shall be deemed to have been commenced for the purposes of this subsection at the time such statement is sent by registered mail to the appropriate State authority.

Section 633a:  Nondiscrimination on account of age in Federal Government employment

(a)	Federal agencies affected

All personnel actions affecting employees or applicants for employment who are at least 40 years of age (except personnel actions with regard to aliens employed outside the limits of the United States) in military departments as defined in section 102 of Title 5, in executive agencies as defined in section 105 of Title 5 (including employees and applicants for employment who are paid from nonappropriated funds), in the United States Postal Service and the Postal Rate Commission, in those units in the government of the District of Columbia having positions in the competitive service, and in those units of the judicial branch of the Federal Government having positions in the competitive service, and in the Government Printing Office, the General Accounting Office, and the Library of Congress shall be made free from any discrimination based on age.

(b)	Enforcement by Equal Employment Opportunity Commission and by Librarian of Congress in the Library of Congress;  remedies;  rules, regulations, orders, and instructions of Commission:  compliance by Federal agencies;  powers and duties of Commission;  notification of final action on complaint of discrimination;  exemptions: bona fide occupational qualification

Except as otherwise provided in this subsection, the Equal Employment Opportunity Commission is authorized to enforce the provisions of subsection (a) of this section through appropriate remedies, including reinstatement or hiring of employees with or without backpay, as will effectuate the policies of this section.  The Equal Employment Opportunity Commission shall issue such rules, regulations, orders, and instructions as it deems necessary and appropriate to carry out its responsibilities under this section.  The Equal Employment Opportunity Commission shall

(1)	be responsible for the review and evaluation of the operation of all agency programs designed to carry out the policy of this section, periodically  obtaining and publishing (on at least a semiannual basis) progress reports from each department, agency, or unit referred to in subsection (a) of this section;

(2)	consult with and solicit the recommendations of interested individuals, groups, and organizations relating to nondiscrimination in employment on account of age;  and

(3)	provide for the acceptance and processing of complaints of discrimination in Federal employment on account of age.

The head of each such department, agency, or unit shall comply with such rules, regulations, orders, and instructions of the Equal Employment Opportunity Commission which shall include a provision that an employee or applicant for employment shall be notified of any final action taken on any complaint of discrimination filed by him thereunder.  Reasonable exemptions to the provisions of this section may be established by the Commission but only when the Commission has established a maximum age requirement on the basis of a determination that age is a bona fide occupational qualification necessary to the performance of the duties of the position.  With respect to employment in the Library of Congress, authorities granted in this subsection to the Equal Employment Opportunity Commission shall be exercised by the Librarian of Congress.

(c)	Civil actions;  jurisdiction;  relief

Any person aggrieved may bring a civil action in any Federal district court of competent jurisdiction for such legal or equitable relief as will effectuate the purposes of this chapter.

(d)	Notice to Commission;  time of notice;  Commission notification of prospective defendants;  Commission elimination of unlawful practices

When the individual has not filed a complaint concerning age discrimination with the Commission, no civil action may be commenced by any individual under this section until the individual has given the Commission not less than thirty days' notice of an intent to file such action.  Such notice shall be filed within one hundred and eighty days after the alleged unlawful practice occurred.  Upon receiving a notice of intent to sue, the Commission shall promptly notify all persons named therein as prospective defendants in the action and take any appropriate action to assure the elimination of any unlawful practice.

(e)	Duty of Government agency or official

Nothing contained in this section shall relieve any Government agency or official of the responsibility to assure nondiscrimination on account of age in employment as required under any provision of Federal law.

(f)	Applicability of statutory provisions to personnel action of Federal departments, etc.

Any personnel action of any department, agency, or other entity referred to in subsection (a) of this section shall not be subject to, or affected by, any provision of this chapter, other than the provisions of section 631(b) of this title and the provisions of this section.

(g)	Study and report to President and Congress by Equal Employment Opportunity Commission;  scope

(1)	The Equal Employment Opportunity Commission shall undertake a study relating to the effects of the amendments made to this section by the Age Discrimination in Employment Act Amendments of 1978, and the effects of section 631(b) of this title.

(2)	The Equal Employment Opportunity Commission shall transmit a report to the President and to the Congress containing the findings of the Commission resulting from the study of the Commission under paragraph (1) of this subsection.  Such report shall be transmitted no later than January 1, 1980.

Section 634:  Authorization of appropriations

There are hereby authorized to be appropriated such sums as may be necessary to carry out this chapter.


Automobile Information Disclosure Act

15 U.S.C. Sections 1231-1233

Section 1231:

 For purposes of this chapter

 (a) The term "manufacturer" shall mean any person engaged in the manufacturing or assembling of new automobiles, including any person importing new automobiles for resale and any person who acts for and is under the control of such manufacturer, assembler, or importer in connection with the distribution of new automobiles.

 (b) The term "person" means an individual, partnership, corporation, business trust, or any organized group of persons.

 (c) The term "automobile" includes any passenger car or station wagon.

 (d) The term "new automobile" means an automobile the equitable or legal title to which has never been transferred by a manufacturer, distributor, or dealer to an ultimate purchaser.

 (e) The term "dealer" shall mean any person resident or located in the United States or any Territory thereof or in the District of Columbia engaged in the sale or the distribution of new automobiles to the ultimate purchaser.

 (f) The term "final assembly point" means

  (1) in the case of a new automobile manufactured or assembled in the United States, or in any Territory of the United States, the plant, factory, or other place at which a new automobile is produced or assembled by a manufacturer and from which such automobile is delivered to a dealer in such a condition that  all component parts necessary to the mechanical operation of such automobile are included with such automobile, whether or not such component parts are permanently installed in or on such automobile;  and

  (2) in the case of a new automobile imported into the United States, the port of importation.

 (g) The term "ultimate purchaser" means, with respect to any new automobile, the first person, other than a dealer purchasing in his capacity as a dealer, who in good faith purchases such new automobile for purposes other than resale.

 (h) The term "commerce" shall mean commerce among the several States of the United States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or among the Territories or between any Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation.  New automobiles delivered to, or for further delivery to, ultimate purchasers within the United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, Virgin Islands, American Samoa, the Trust Territories of the Pacific, the Canal Zone, Wake Island, Midway Island, Kingman Reef, Johnson Island, or within any other place under the jurisdiction of the United States shall be deemed to have been distributed in commerce.

Section 1232:

Every manufacturer of new automobiles distributed in commerce shall, prior to the delivery of any new automobile to any dealer, or at or prior to the introduction date of new models delivered to a dealer prior to such introduction date, securely affix to the windshield, or side window of such automobile a label on which such manufacturer shall endorse clearly, distinctly and legibly true and correct entries disclosing the following information concerning such automobile

  (a) the make, model, and serial or identification number or numbers;

  (b) the final assembly point;

  (c) the name, and the location of the place of business, of the dealer to whom it is to be delivered;

  (d) the name of the city or town at which it is to be delivered to such dealer;

  (e) the method of transportation used in making delivery of such automobile, if driven or towed from final assembly point to place of delivery;  and

  (f) the following information:

   (1) the retail price of such automobile suggested by the manufacturer;

   (2) the retail delivered price suggested by the manufacturer for each accessory or item of optional equipment, physically attached to such automobile at the time of its delivery to such dealer, which is not included   within the price of such automobile as stated pursuant to paragraph (1);

   (3) the amount charged, if any, to such dealer for the transportation of such automobile to the location at which it is delivered to such dealer;

   (4) the total of the amounts specified pursuant to paragraphs (1), (2), and  (3).

Section 1233:

(a) Failure to affix required label

 Any manufacturer of automobiles distributed in commerce who willfully fails to affix to any new automobile manufactured or imported by him the label required by section 1232 of this title shall be fined not more than $1,000.  Such failure with respect to each automobile shall constitute a separate offense.

(b) Failure to endorse required label

 Any manufacturer of automobiles distributed in commerce who willfully fails to endorse clearly, distinctly and legibly any label as required by section 1232 of this title, or who makes a false endorsement of any such label, shall be fined not more than $1,000.  Such failure or false endorsement with respect to each automobile shall constitute a separate offense.

(c) Removal, alteration, or illegibility of required label

 Any person who willfully removes, alters, or renders illegible any label affixed to a new automobile pursuant to section 1232 of this title, or any endorsement thereon, prior to the time that such automobile is delivered to the actual custody and possession of the ultimate purchaser of such new automobile, except where the manufacturer relabels the automobile in the event the same is rerouted, repurchased, or reacquired by the manufacturer of such automobile, shall be fined not more than $1,000, or imprisoned not more than one year, or both.  Such removal, alteration, or rendering illegible with respect to each automobile shall constitute a separate offense.


Child Support Recovery Act

18 U.S.C. Section 228

18 U.S.C. Section 228:

 (a) Offense.Whoever willfully fails to pay a past due support obligation with respect to a child who resides in another State shall be punished as provided in subsection (b).

 (b) Punishment.The punishment for an offense under this section is

  (1) in the case of a first offense under this section, a fine under this title, imprisonment for not more than 6 months, or both;  and

  (2) in any other case, a fine under this title, imprisonment for not more than 2 years, or both.

 (c) Restitution.Upon a conviction under this section, the court shall order restitution under section 3663 in an amount equal to the past due support obligation as it exists at the time of sentencing.

 (d) Definitions.As used in this section

  (1) the term "past due support obligation" means any amount

   (A) determined under a court order or an order of an administrative process pursuant to the law of a State to be due from a person for the support and maintenance of a child or of a child and the parent with whom the child is living;  and

   (B) that has remained unpaid for a period longer than one year, or is greater than $5,000;  and

  (2) the term "State" includes the District of Columbia, and any other  possession or territory of the United States.


Selected Federal Rules of Civil Procedure

Rule 1: Scope and Purpose of Rules

These rules govern the procedure in the United States district courts in all suits of a civil nature whether cognizable as cases at law or in equity or in admiralty, with the exceptions stated in Rule 81.  They shall be construed and administered to secure the just, speedy, and inexpensive determination of every action.

Rule 2: One Form of Action

There shall be one form of action to be known as "civil action".

Rule 3: Commencement of Action

A civil action is commenced by filing a complaint with the court.

Rule 4: Summons

(a) Form.  The summons shall be signed by the clerk, bear the seal of the court, identify the court and the parties, be directed to the defendant, and state the name and address of the plaintiff's attorney or, if unrepresented, of the plaintiff.  It shall also state the time within which the defendant must appear and defend, and notify the defendant that failure to do so will result in a judgment by default against the defendant for the relief demanded in the complaint.  The court may allow a summons to be amended.

(b) Issuance.  Upon or after filing the complaint, the plaintiff may present a summons to the clerk for signature and seal.  If the summons is in proper form, the clerk shall sign, seal, and issue it to the plaintiff for service on the defendant.  A summons, or a copy of the summons if addressed to multiple defendants, shall be issued for each defendant to be served.

(c) Service with Complaint; by Whom Made.

(1) A summons shall be served together with a copy of the complaint.  The plaintiff is responsible for service of a summons and complaint within the time allowed under subdivision (m) and shall furnish the person effecting service with the necessary copies of the summons and complaint.

(2) Service may be effected by any person who is not a party and who is at least 18 years of age.  At the request of the plaintiff, however, the court may direct that service be effected by a United States marshal, deputy United States marshal, or other person or officer specially appointed by the court for that purpose.  Such an appointment must be made when the plaintiff is authorized to proceed in forma pauperis pursuant to 28 U.S.C. § 1915 or is authorized to proceed as a seaman under 28 U.S.C. § 1916.

(d) Waiver of Service;  Duty to Save Costs of Service;  Request to Waive.

(1) A defendant who waives service of a summons does not thereby waive any objection to the venue or to the jurisdiction of the court over the person of the defendant.

(2) An individual, corporation, or association that is subject to service under subdivision (e), (f), or (h) and that receives notice of an action in  the manner provided in this paragraph has a duty to avoid unnecessary costs of serving the summons.  To avoid costs, the plaintiff may notify such a defendant of the commencement of the action and request that the defendant waive service of a summons.  The notice and request

   (A) shall be in writing and shall be addressed directly to the defendant, if an individual, or else to an officer or managing or general agent (or other agent authorized by appointment or law to receive service of process) of a defendant subject to service under subdivision (h);

   (B) shall be dispatched through firstclass mail or other reliable means;

   (C) shall be accompanied by a copy of the complaint and shall identify the court in which it has been filed;

   (D) shall inform the defendant, by means of a text prescribed in an official form promulgated pursuant to Rule 84, of the consequences of compliance and of a failure to comply with the request;

   (E) shall set forth the date on which the request is sent;

   (F) shall allow the defendant a reasonable time to return the waiver, which shall be at least 30 days from the date on which the request is sent, or 60 days from that date if the defendant is addressed outside any judicial district of the United States;  and

   (G) shall provide the defendant with an extra copy of the notice and request, as well as a prepaid means of compliance in writing.

  If a defendant located within the United States fails to comply with a request for waiver made by a plaintiff located within the United States, the court shall impose the costs subsequently incurred in effecting service on the defendant unless good cause for the failure be shown.

(3) A defendant that, before being served with process, timely returns a waiver so requested is not required to serve an answer to the complaint until 60 days after the date on which the request for waiver of service was sent, or 90 days after that date if the defendant was addressed outside any judicial district of the United States.

(4) When the plaintiff files a waiver of service with the court, the action shall proceed, except as provided in paragraph (3), as if a summons and complaint had been served at the time of filing the waiver, and no proof of service shall be required.

(5) The costs to be imposed on a defendant under paragraph (2) for failure to comply with a request to waive service of a summons shall include the costs subsequently incurred in effecting service under subdivision (e), (f), or (h), together with the costs, including a reasonable attorney's fee, of any motion required to collect the costs of service.

(e) Service Upon Individuals Within a Judicial District of the United States.  Unless otherwise provided by federal law, service upon an individual from whom a waiver has not been obtained and filed, other than an infant or an incompetent person, may be effected in any judicial district of the United States:

  (1) pursuant to the law of the state in which the district court is located, or in which service is effected, for the service of a summons upon the defendant in an action brought in the courts of general jurisdiction of the State;  or

  (2) by delivering a copy of the summons and of the complaint to the individual personally or by leaving copies thereof at the individual's dwelling house or usual place of abode with some person of suitable age and discretion then residing therein or by delivering a copy of the summons and of the complaint to an agent authorized by appointment or by law to receive service of process.

(f) Service Upon Individuals in a Foreign Country.  Unless otherwise provided by federal law, service upon an individual from whom a waiver has not been obtained and filed, other than an infant or an incompetent person, may be effected in a place not within any judicial district of the United States:

  (1) by any internationally agreed means reasonably calculated to give notice,  such as those means authorized by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents;  or

  (2) if there is no internationally agreed means of service or the applicable international agreement allows other means of service, provided that service is reasonably calculated to give notice:

   (A) in the manner prescribed by the law of the foreign country for service in that country in an action in any of its courts of general jurisdiction; or

   (B) as directed by the foreign authority in response to a letter rogatory or letter of request;  or

   (C) unless prohibited by the law of the foreign country, by

    (i) delivery to the individual personally of a copy of the summons and the complaint;  or

    (ii) any form of mail requiring a signed receipt, to be addressed and dispatched by the clerk of the court to the party to be served;  or

  (3) by other means not prohibited by international agreement as may be directed by the court.

(g) Service Upon Infants and Incompetent Persons.  Service upon an infant or an incompetent person in a judicial district of the United States shall be effected in the manner prescribed by the law of the state in which the service is made for the service of summons or other like process upon any such defendant in an action brought in the courts of general jurisdiction of that state.  Service upon an infant or an incompetent person in a place not within any judicial district of the United States shall be effected in the manner prescribed by paragraph (2)(A) or (2)(B) of subdivision (f) or by such means as the court may direct.

(h) Service Upon Corporations and Associations.  Unless otherwise provided by federal law, service upon a domestic or foreign corporation or upon a partnership or other unincorporated association that is subject to suit under a common name, and from which a waiver of service has not been obtained and filed, shall be effected:

  (1) in a judicial district of the United States in the manner prescribed for individuals by subdivision (e)(1), or by delivering a copy of the summons and of the complaint to an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process and, if the agent is one authorized by statute to receive service and the statute so requires, by also mailing a copy to the defendant, or

  (2) in a place not within any judicial district of the United States in any manner prescribed for individuals by subdivision (f) except personal delivery as provided in paragraph (2)(C)(i) thereof.

 (i) Service Upon the United States, and Its Agencies, Corporations, or Officers.

  (1) Service upon the United States shall be effected

   (A) by delivering a copy of the summons and of the complaint to the United States attorney for the district in which the action is brought or to an assistant United States attorney or clerical employee designated by the United States attorney in a writing filed with the clerk of the court or by sending a copy of the summons and of the complaint by registered or certified mail addressed to the civil process clerk at the office of the United States attorney and

   (B) by also sending a copy of the summons and of the complaint by registered or certified mail to the Attorney General of the United States at Washington, District of Columbia, and

   (C) in any action attacking the validity of an order of an officer or agency of the United States not made a party, by also sending a copy of the summons and of the complaint by registered or certified mail to the officer or agency.

  (2) Service upon an officer, agency, or corporation of the United States, shall be effected by serving the United States in the manner prescribed by paragraph (1) of this subdivision and by also sending a copy of the summons  and of the complaint by registered or certified mail to the officer, agency, or corporation.

  (3) The court shall allow a reasonable time for service of process under this subdivision for the purpose of curing the failure to serve multiple officers, agencies, or corporations of the United States if the plaintiff has effected service on either the United States attorney or the Attorney General of the United States.

(j) Service Upon Foreign, State, or Local Governments.

  (1) Service upon a foreign state or a political subdivision, agency, or instrumentality thereof shall be effected pursuant to 28 U.S.C. § 1608.

  (2) Service upon a state, municipal corporation, or other governmental organization subject to suit shall be effected by delivering a copy of the summons and of the complaint to its chief executive officer or by serving the summons and complaint in the manner prescribed by the law of that state for the service of summons or other like process upon any such defendant.

(k) Territorial Limits of Effective Service.

  (1) Service of a summons or filing a waiver of service is effective to establish jurisdiction over the person of a defendant

   (A) who could be subjected to the jurisdiction of a court of general jurisdiction in the state in which the district court is located, or

   (B) who is a party joined under Rule 14 or Rule 19 and is served at a place within a judicial district of the United States and not more than 100 miles from the place from which the summons issues, or

   (C) who is subject to the federal interpleader jurisdiction under 28 U.S.C. § 1335, or

   (D) when authorized by a statute of the United States.

  (2) If the exercise of jurisdiction is consistent with the Constitution and laws of the United States, serving a summons or filing a waiver of service is also effective, with respect to claims arising under federal law, to establish personal jurisdiction over the person of any defendant who is not subject to the jurisdiction of the courts of general jurisdiction of any state.

(l) Proof of Service.  If service is not waived, the person effecting service shall make proof thereof to the court.  If service is made by a person other than a United States marshal or deputy United States marshal, the person shall make affidavit thereof.  Proof of service in a place not within any judicial district of the United States shall, if effected under paragraph (1) of subdivision (f), be made pursuant to the applicable treaty or convention, and shall, if effected under paragraph (2) or (3) thereof, include a receipt signed by the addressee or other evidence of delivery to the addressee satisfactory to the court.  Failure to make proof of service does not affect the validity of the service.  The court may allow proof of service to be amended.

(m) Time Limit for Service.  If service of the summons and complaint is not made upon a defendant within 120 days after the filing of the complaint, the court, upon motion or on its own initiative after notice to the plaintiff, shall dismiss the action without prejudice as to that defendant or direct that service be effected within a specified time;  provided that if the plaintiff shows good cause for the failure, the court shall extend the time for service for an appropriate period.  This subdivision does not apply to service in a foreign country pursuant to subdivision (f) or (j)(1).

(n) Seizure of Property;  Service of Summons Not Feasible.

  (1) If a statute of the United States so provides, the court may assert jurisdiction over property.  Notice to claimants of the property shall then be sent in the manner provided by the statute or by service of a summons under this rule.

  (2) Upon a showing that personal jurisdiction over a defendant cannot, in the district where the action is brought, be obtained with reasonable efforts by service of summons in any manner authorized by this rule, the court may assert jurisdiction over any of the defendant's assets found within the district by seizing the assets under the circumstances and in the manner provided by the law of the state in which the district court is located.

 Rule 4.1: Service of Other Process

 (a) Generally.  Process other than a summons as provided in Rule 4 or subpoena as provided in Rule 45 shall be served by a United States marshal, a deputy United States marshal, or a person specially appointed for that purpose, who shall make proof of service as provided in Rule 4(1).  The process may be served anywhere within the territorial limits of the state in which the district court is located, and, when authorized by a statute of the United States, beyond the territorial limits of that state.

 (b) Enforcement of Orders:  Commitment for Civil Contempt.  An order of civil commitment of a person held to be in contempt of a decree or injunction issued to enforce the laws of the United States may be served and enforced in any district.  Other orders in civil contempt proceedings shall be served in the state in which the court issuing the order to be enforced is located or elsewhere within the United States if not more than 100 miles from the place at which the order to be enforced was issued.

 Rule 5: Service and Filing of Pleadings and Other Papers

 (a) Service:  When required.  Except as otherwise provided in these rules, every order required by its terms to be served, every pleading subsequent to the original complaint unless the court otherwise orders because of numerous defendants, every paper relating to discovery required to be served upon a party unless the court otherwise orders, every written motion other than one which may be heard ex parte, and every written notice, appearance, demand, offer of judgment, designation of record on appeal, and similar paper shall be served upon each of the parties.  No service need be made on parties in default for failure to appear except that pleadings asserting new or additional claims for relief against them shall be served upon them in the manner provided for service of summons in Rule 4.

 In an action begun by seizure of property, in which no person need be or is named as defendant, any service required to be made prior to the filing of an answer, claim, or appearance shall be made upon the person having custody or possession of the property at the time of its seizure.

 (b) Same:  How Made.  Whenever under these rules service is required or permitted to be made upon a party represented by an attorney the service shall be made upon the attorney unless service upon the party is ordered by the court.  Service upon the attorney or upon a party shall be made by delivering a copy to the attorney or party or by mailing it to the attorney or party at the attorney's or party's last known address or, if no address is known, by leaving it with the clerk of the court.  Delivery of a copy within this rule means: handing it to the attorney or to the party;  or leaving it at the attorney's or party's office with a clerk or other person in charge thereof;  or, if there is no one in charge, leaving it in a conspicuous place therein;  or, if the office is closed or the person to be served has no office, leaving it at the person's dwelling house or usual place of abode with some person of suitable age and discretion then residing therein.  Service by mail is complete upon mailing.

 (c) Same:  Numerous Defendants.  In any action in which there are unusually large numbers of defendants, the court, upon motion or of its own initiative, may order that service of the pleadings of the defendants and replies thereto need not be made as between the defendants and that any crossclaim, counterclaim, or matter constituting an avoidance or affirmative defense contained therein shall be deemed to be denied or avoided by all other parties and that the filing of any such pleading and service thereof upon the plaintiff constitutes due notice of it to the parties.  A copy of every such order shall be served upon the parties in such manner and form as the court directs.

 (d) Filing;  Certificate of Service.  All papers after the complaint required to be served upon a party, together with a certificate of service, shall be filed with the court within a reasonable time after service, but the court may on motion of a party or on its own initiative order that depositions upon oral examination and interrogatories, requests for documents, requests for admission, and answers and responses thereto not be filed unless on order of the court or for use in the proceeding.

 (e) Filing with the Court Defined.  The filing of papers with the court as required by these rules shall be made by filing them with the clerk of the court, except that the judge may permit the papers to be filed with the judge, in which event the judge shall note thereon the filing date and forthwith transmit them to the office of the clerk.  A court may, by local rule, permit papers to be filed by facsimile or other electronic means if such means are authorized by and consistent with standards established by the Judicial Conference of the United States.  The clerk shall not refuse to accept for filing any paper presented for that purpose solely because it is not presented in proper form as required by these rules or any local rules or practices.

 Rule 8: General Rules of Pleading

 (a) Claims for Relief.  A pleading which sets forth a claim for relief, whether an original claim, counterclaim, crossclaim, or thirdparty claim, shall contain (1) a short and plain statement of the grounds upon which the court's jurisdiction depends, unless the court already has jurisdiction and the claim needs no new grounds of jurisdiction to support it, (2) a short and plain statement of the claim showing that the pleader is entitled to relief, and (3) a demand for judgment for the relief the pleader seeks.  Relief in the alternative or of several different types may be demanded.

 (b) Defenses;  Form of Denials.  A party shall state in short and plain terms the party's defenses to each claim asserted and shall admit or deny the averments upon which the adverse party relies.  If a party is without knowledge or information sufficient to form a belief as to the truth of an averment, the party shall so state and this has the effect of a denial.  Denials shall fairly meet the substance of the averments denied.  When a pleader intends in good faith to deny only a part or a qualification of an averment, the pleader shall specify so much of it as is true and material and shall deny only the remainder.  Unless the pleader intends in good faith to controvert all the averments of the preceding pleading, the pleader may make denials as specific denials of designated averments or paragraphs or may generally deny all the averments except such designated averments or paragraphs as the pleader expressly admits;  but, when the pleader does so intend to controvert all its averments, including averments of the grounds upon which the court's jurisdiction depends, the pleader may do so by general denial subject to the obligations set forth in Rule 11.

 (c) Affirmative Defenses.  In pleading to a preceding pleading, a party shall set forth affirmatively accord and satisfaction, arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy, duress, estoppel, failure of consideration, fraud, illegality, injury by fellow servant, laches, license, payment, release, res judicata, statute of frauds, statute of limitations, waiver, and any other matter constituting an avoidance or affirmative defense.  When a party has mistakenly designated a defense as a counterclaim or a counterclaim as a defense, the court on terms, if justice so requires, shall treat the pleading as if there had been a proper designation.

 (d) Effect of Failure to Deny.  Averments in a pleading to which a responsive pleading is required, other than those as to the amount of damage, are admitted when not denied in the responsive pleading.  Averments in a pleading to which no responsive pleading is required or permitted shall be taken as denied or avoided.

 (e) Pleading to be Concise and Direct;  Consistency.

  (1) Each averment of a pleading shall be simple, concise, and direct.  No technical forms of pleading or motions are required.

  (2) A party may set forth two or more statements of a claim or defense alternately or hypothetically, either in one count or defense or in separate counts or defenses.  When two or more statements are made in the alternative and one of them if made independently would be sufficient, the pleading is not made insufficient by the insufficiency of one or more of the alternative statements.  A party may also state as many separate claims or defenses as the party has regardless of consistency and whether based on legal, equitable, or maritime grounds.  All statements shall be made subject to the obligations set forth in Rule 11.

 (f) Construction of Pleadings.  All pleadings shall be so construed as to do substantial justice.

 Rule 16: Pretrial Conferences;  Scheduling;  Management

 (a) Pretrial Conferences;  Objectives.  In any action, the court may in its discretion direct the attorneys for the parties and any unrepresented parties to appear before it for a conference or conferences before trial for such purposes as

  (1) expediting the disposition of the action;

  (2) establishing early and continuing control so that the case will not be protracted because of lack of management;

  (3) discouraging wasteful pretrial activities;

  (4) improving the quality of the trial through more thorough preparation, and;

  (5) facilitating the settlement of the case.

 (b) Scheduling and Planning.  Except in categories of actions exempted by district court rule as inappropriate, the district judge, or a magistrate judge when authorized by district court rule, shall, after receiving the report from the parties under Rule 26(f) or after consulting with the attorneys for the parties and any unrepresented parties by a scheduling conference, telephone, mail, or other suitable means, enter a scheduling order that limits the time

  (1) to join other parties and to amend the pleadings;

  (2) to file motions;  and

  (3) to complete discovery.

The scheduling order may also include

  (4) modifications of the times for disclosures under Rules 26(a) and 26(e)(1) and of the extent of discovery to be permitted;

  (5) the date or dates for conferences before trial, a final pretrial conference, and trial;  and

  (6) any other matters appropriate in the circumstances of the case.

The order shall issue as soon as practicable but in any event within 90 days after the appearance of a defendant and within 120 days after the complaint has been served on a defendant.  A schedule shall not be modified except upon a showing of good cause and by leave of the district judge or, when authorized by local rule, by a magistrate judge.

 (c) Subjects for Consideration at Pretrial Conferences.  At any conference under this rule consideration may be given, and the court may take appropriate action, with respect to

  (1) the formulation and simplification of the issues, including the elimination of frivolous claims or defenses;

  (2) the necessity or desirability of amendments to the pleadings;

  (3) the possibility of obtaining admissions of fact and of documents which will avoid unnecessary proof, stipulations regarding the authenticity of documents, and advance rulings from the court on the admissibility of evidence;

  (4) the avoidance of unnecessary proof and of cumulative evidence, and limitations or restrictions on the use of testimony under Rule 702 of the Federal Rules of Evidence;

  (5) the appropriateness and timing of summary adjudication under Rule 56;

  (6) the control and scheduling of discovery, including orders affecting disclosures and discovery pursuant to Rule 26 and Rules 29 through 37;

  (7) the identification of witnesses and documents, the need and schedule for filing and exchanging pretrial briefs, and the date or dates for further  conferences and for trial;

  (8) the advisability of referring matters to a magistrate judge or master;

  (9) settlement and the use of special procedures to assist in resolving the dispute when authorized by statute or local rule;

  (10) the form and substance of the pretrial order;

  (11) the disposition of pending motions;

  (12) the need for adopting special procedures for managing potentially difficult or protracted actions that may involve complex issues, multiple parties, difficult legal questions, or unusual proof problems;

  (13) an order for a separate trial pursuant to Rule 42(b) with respect to a claim, counterclaim, crossclaim, or thirdparty claim, or with respect to any particular issue in the case;

  (14) an order directing a party or parties to present evidence early in the trial with respect to a manageable issue that could, on the evidence, be the basis for a judgment as a matter of law under Rule 50(a) or a judgment on partial findings under Rule 52(c);

  (15) an order establishing a reasonable limit on the time allowed for presenting evidence;  and

  (16) such other matters as may facilitate the just, speedy, and inexpensive disposition of the action.

At least one of the attorneys for each party participating in any conference before trial shall have authority to enter into stipulations and to make admissions regarding all matters that the participants may reasonably anticipate may be discussed.  If appropriate, the court may require that a party or its representative be present or reasonably available by telephone in order to consider possible settlement of the dispute.

 (d) Final Pretrial Conference.  Any final pretrial conference shall be held as close to the time of trial as reasonable under the circumstances.  The participants at any such conference shall formulate a plan for trial, including a program for facilitating the admission of evidence.  The conference shall be attended by at least one of the attorneys who will conduct the trial for each of the parties and by any unrepresented parties.

 (e) Pretrial Orders.  After any conference held pursuant to this rule, an order shall be entered reciting the action taken.  This order shall control the subsequent course of the action unless modified by a subsequent order.  The order following a final pretrial conference shall be modified only to prevent manifest injustice.

 (f) Sanctions.  If a party or party's attorney fails to obey a scheduling or pretrial order, or if no appearance is made on behalf of a party at a scheduling or pretrial conference, or if a party or party's attorney is substantially unprepared to participate in the conference, or if a party or party's attorney fails to participate in good faith, the judge, upon motion or the judge's own initiative, may make such orders with regard thereto as are just, and among others any of the orders provided in Rule 37(b)(2)(B), (C), (D).  In lieu of or in addition to any other sanction, the judge shall require the party or the attorney representing the party or both to pay the reasonable expenses incurred because of any noncompliance with this rule, including attorney's fees, unless the judge finds that the noncompliance was substantially justified or that other circumstances make an award of expenses unjust.

 Rule 23: Class Actions

 (a) Prerequisites to a Class Action.  One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

 (b) Class Actions Maintainable.  An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:

  (1) the prosecution of separate actions by or against individual members of the class would create a risk of

   (A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or

   (B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests;  or

  (2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole;  or

  (3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.  The matters pertinent to the findings include:  (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions;  (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class;  (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum;  (D) the  difficulties likely to be encountered in the management of a class action.

 (c) Determination by Order Whether Class Action to be Maintained;  Notice;  Judgment;  Actions Conducted Partially as Class Actions.

  (1) As soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained.  An order under this subdivision may be conditional, and may be altered or amended before the decision on the merits.

  (2) In any class action maintained under subdivision (b)(3), the court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.  The notice shall advise each member that (A) the court will exclude the member from the class if the member so requests by a specified date;  (B) the judgment, whether favorable or not, will include all members who do not request exclusion;  and (C) any member who does not request exclusion may, if the member desires, enter an appearance through counsel.

  (3) The judgment in an action maintained as a class action under subdivision  (b)(1) or (b)(2), whether or not favorable to the class, shall include and describe those whom the court finds to be members of the class.  The judgment in an action maintained as a class action under subdivision (b)(3), whether or  not favorable to the class, shall include and specify or describe those to whom the notice provided in subdivision (c)(2) was directed, and who have not requested exclusion, and whom the court finds to be members of the class.

  (4) When appropriate (A) an action may be brought or maintained as a class action with respect to particular issues, or (B) a class may be divided into subclasses and each subclass treated as a class, and the provisions of this rule shall then be construed and applied accordingly.

 (d) Orders in Conduct of Actions.  In the conduct of actions to which this rule applies, the court may make appropriate orders:  (1) determining the course of proceedings or prescribing measures to prevent undue repetition or complication in the presentation of evidence or argument;  (2) requiring, for the protection of the members of the class or otherwise for the fair conduct of the action, that notice be given in such manner as the court may direct to some or all of the members of any step in the action, or of the proposed extent of the judgment, or of the opportunity of members to signify whether they consider the representation fair and adequate, to intervene and present claims or defenses, or otherwise to come into the action;  (3) imposing conditions on the representative parties or on intervenors;  (4) requiring that the pleadings be amended to eliminate therefrom allegations as to representation of absent persons, and that the action proceed accordingly;  (5) dealing with similar procedural matters.  The orders may be combined with an order under Rule 16, and may be altered or amended as may be desirable from time to time.

 (e) Dismissal or Compromise.  A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs.

 Rule 26. General Provisions Governing Discovery;  Duty of Disclosure

 (a) Required Disclosures;  Methods to Discover Additional Matter.

  (1) Initial Disclosures.  Except to the extent otherwise stipulated or directed by order or local rule, a party shall, without awaiting a discovery request, provide to other parties:

   (A) the name and, if known, the address and telephone number of each individual likely to have discoverable information relevant to disputed facts alleged with particularity in the pleadings, identifying the subjects of the information;

   (B) a copy of, or a description by category and location of, all documents, data compilations, and tangible things in the possession, custody, or control of the party that are relevant to disputed facts alleged with particularity   in the pleadings;

   (C) a computation of any category of damages claimed by the disclosing party, making available for inspection and copying as under Rule 34 the documents or other evidentiary material, not privileged or protected from disclosure, on which such computation is based, including materials bearing on the nature and extent of injuries suffered;  and

   (D) for inspection and copying as under Rule 34 any insurance agreement under which any person carrying on an insurance business may be liable to satisfy part or all of a judgment which may be entered in the action or to indemnify or reimburse for payments made to satisfy the judgment.

  Unless otherwise stipulated or directed by the court, these disclosures shall be made at or within 10 days after the meeting of the parties under subdivision (f).  A party shall make its initial disclosures based on the information then reasonably available to it and is not excused from making its disclosures because it has not fully completed its investigation of the case or because it challenges the sufficiency of another party's disclosures or because another party has not made its disclosures.

  (2) Disclosure of Expert Testimony.

   (A) In addition to the disclosures required by paragraph (1), a party shall   disclose to other parties the identity of any person who may be used at trial to present evidence under Rules 702, 703, or 705 of the Federal Rules of Evidence.

   (B) Except as otherwise stipulated or directed by the court, this disclosure shall, with respect to a witness who is retained or specially employed to provide expert testimony in the case or whose duties as an employee of the party regularly involve giving expert testimony, be accompanied by a written report prepared and signed by the witness.  The report shall contain a complete statement of all opinions to be expressed and the basis and reasons therefor;  the data or other information considered by the witness in forming the opinions;  any exhibits to be used as a summary of or support for the opinions;  the qualifications of the witness, including a list of all publications authored by the witness within the preceding ten years;  the compensation to be paid for the study and testimony;  and a listing of any other cases in which the witness has testified as an expert at trial or by deposition within the preceding four years.

   (C) These disclosures shall be made at the times and in the sequence directed by the court.  In the absence of other directions from the court or stipulation by the parties, the disclosures shall be made at least 90 days before the trial date or the date the case is to be ready for trial or, if   the evidence is intended solely to contradict or rebut evidence on the same subject matter identified by another party under paragraph (2)(B), within 30 days after the disclosure made by the other party.  The parties shall supplement these disclosures when required under subdivision (e)(1).

  (3) Pretrial Disclosures.  In addition to the disclosures required in the preceding paragraphs, a party shall provide to other parties the following information regarding the evidence that it may present at trial other than solely for impeachment purposes:

   (A) the name and, if not previously provided, the address and telephone number of each witness, separately identifying those whom the party expects to present and those whom the party may call if the need arises;

   (B) the designation of those witnesses whose testimony is expected to be presented by means of a deposition and, if not taken stenographically, a transcript of the pertinent portions of the deposition testimony;  and

   (C) an appropriate identification of each document or other exhibit, including summaries of other evidence, separately identifying those which the party expects to offer and those which the party may offer if the need arises.

  Unless otherwise directed by the court, these disclosures shall be made at   least 30 days before trial.  Within 14 days thereafter, unless a different time is specified by the court, a party may serve and file a list disclosing (i) any objections to the use under Rule 32(a) of a deposition designated by another party under subparagraph (B) and (ii) any objection, together with the grounds therefor, that may be made to the admissibility of materials identified under subparagraph (C).  Objections not so disclosed, other than objections under Rules 402 and 403 of the Federal Rules of Evidence, shall be deemed waived unless excused by the court for good cause shown.

  (4) Form of Disclosures;  Filing.  Unless otherwise directed by order or local rule, all disclosures under paragraphs (1) through (3) shall be made in writing, signed, served, and promptly filed with the court.

  (5) Methods to Discover Additional Matter.  Parties may obtain discovery by one or more of the following methods:  depositions upon oral examination or written questions;  written interrogatories;  production of documents or things or permission to enter upon land or other property under Rule 34 or 45(a)(1)(C), for inspection and other purposes;  physical and mental examinations;  and requests for admission.

 (b) Discovery Scope and Limits.  Unless otherwise limited by order of the court in accordance with these rules, the scope of discovery is as follows:

  (1) In General.  Parties may obtain discovery regarding any matter, not  privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter.  The information sought need not be admissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.

  (2) Limitations.  By order or by local rule, the court may alter the limits in these rules on the number of depositions and interrogatories and may also limit the length of depositions under Rule 30 and the number of requests under Rule 36.  The frequency or extent of use of the discovery methods otherwise permitted under these rules and by any local rule shall be limited by the court if it determines that:  (i) the discovery sought is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive;  (ii) the party seeking discovery has had ample opportunity by discovery in the action to obtain the information sought;  or (iii) the burden or expense of the proposed discovery outweighs its likely benefit, taking into account the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at  stake in the litigation, and the importance of the proposed discovery in resolving the issues.  The court may act upon its own initiative after reasonable notice or pursuant to a motion under subdivision (c).

  (3) Trial Preparation:  Materials.  Subject to the provisions of subdivision  (b)(4) of this rule, a party may obtain discovery of documents and tangible things otherwise discoverable under subdivision (b)(1) of this rule and prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means.  In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.

A party may obtain without the required showing a statement concerning the action or its subject matter previously made by that party.  Upon request, a person not a party may obtain without the required showing a statement concerning the action or its subject matter previously made by that person.  If the request is refused, the person may move for a court order.  The provisions of Rule 37(a)(4) apply to the award of expenses incurred in relation to the motion.  For purposes of this paragraph, a statement previously made is (A) a written statement signed or otherwise adopted or approved by the person making it, or (B) a stenographic, mechanical, electrical, or other recording, or a transcription thereof, which is a substantially verbatim recital of an oral statement by the person making it and contemporaneously recorded.

  (4) Trial Preparation:  Experts.

   (A) A party may depose any person who has been identified as an expert whose opinions may be presented at trial.  If a report from the expert is required under subdivision (a)(2)(B), the deposition shall not be conducted until after the report is provided.

   (B) A party may, through interrogatories or by deposition, discover facts known or opinions held by an expert who has been retained or specially employed by another party in anticipation of litigation or preparation for trial and who is not expected to be called as a witness at trial, only as provided in Rule 35(b) or upon a showing of exceptional circumstances under which it is impracticable for the party seeking discovery to obtain facts or opinions on the same subject by other means.

   (C) Unless manifest injustice would result, (i) the court shall require that the party seeking discovery pay the expert a reasonable fee for time spent in responding to discovery under this subdivision;  and (ii) with respect to discovery obtained under subdivision (b)(4)(B) of this rule the court shall require the party seeking discovery to pay the other party a fair portion of the fees and expenses reasonably incurred by the latter party in obtaining facts and opinions from the expert.

  (5) Claims of Privilege or Protection of Trial Preparation Materials.  When a party withholds information otherwise discoverable under these rules by claiming that it is privileged or subject to protection as trial preparation material, the party shall make the claim expressly and shall describe the nature of the documents, communications, or things not produced or disclosed in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the applicability of the privilege or protection.

 (c) Protective Orders.  Upon motion by a party or by the person from whom discovery is sought, accompanied by a certification that the movant has in good faith conferred or attempted to confer with other affected parties in an effort to resolve the dispute without court action, and for good cause shown, the court in which the action is pending or alternatively, on matters relating to a deposition, the court in the district where the deposition is to be taken may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including one or more of the following:

  (1) that the disclosure or discovery not be had;

  (2) that the disclosure or discovery may be had only on specified terms and conditions, including a designation of the time or place;

  (3) that the discovery may be had only by a method of discovery other than that selected by the party seeking discovery;

  (4) that certain matters not be inquired into, or that the scope of the disclosure or discovery be limited to certain matters;

  (5) that discovery be conducted with no one present except persons designated by the court;

  (6) that a deposition, after being sealed, be opened only by order of the court;

  (7) that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a designated way;  and

  (8) that the parties simultaneously file specified documents or information enclosed in sealed envelopes to be opened as directed by the court.

If the motion for a protective order is denied in whole or in part, the court may, on such terms and conditions as are just, order that any party or other person provide or permit discovery.  The provisions of Rule 37(a)(4) apply to the award of expenses incurred in relation to the motion.

 (d) Timing and Sequence of Discovery.  Except when authorized under these rules or by local rule, order, or agreement of the parties, a party may not seek discovery from any source before the parties have met and conferred as required by subdivision (f).  Unless the court upon motion, for the convenience of parties and witnesses and in the interests of justice, orders otherwise, methods of discovery may be used in any sequence, and the fact that a party is conducting discovery, whether by deposition or otherwise, shall not operate to delay any other party's discovery.

 (e) Supplementation of Disclosures and Responses.  A party who has made a disclosure under subdivision (a) or responded to a request for discovery with a disclosure or response is under a duty to supplement or correct the disclosure or response to include information thereafter acquired if ordered by the court or in the following circumstances:

  (1) A party is under a duty to supplement at appropriate intervals its disclosures under subdivision (a) if the party learns that in some material  respect the information disclosed is incomplete or incorrect and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing.  With respect to testimony of an expert from whom a report is required under subdivision (a)(2)(B) the duty extends both to information contained in the report and to information provided through a deposition of the expert, and any additions or other changes to this information shall be disclosed by the time the party's disclosures under Rule 26(a)(3) are due.

  (2) A party is under a duty seasonably to amend a prior response to an interrogatory, request for production, or request for admission if the party learns that the response is in some material respect incomplete or incorrect and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing.

 (f) Meeting of Parties;  Planning for Discovery.  Except in actions exempted by local rule or when otherwise ordered, the parties shall, as soon as practicable and in any event at least 14 days before a scheduling conference is held or a scheduling order is due under Rule 16(b), meet to discuss the nature and basis of their claims and defenses and the possibilities for a prompt settlement or resolution of the case, to make or arrange for the disclosures required by subdivision (a)(1), and to develop a proposed discovery plan.  The plan shall indicate the parties' views and proposals concerning:

  (1) what changes should be made in the timing, form, or requirement for disclosures under subdivision (a) or local rule, including a statement as to when disclosures under subdivision (a)(1) were made or will be made;

  (2) the subjects on which discovery may be needed, when discovery should be completed, and whether discovery should be conducted in phases or be limited to or focused upon particular issues;

  (3) what changes should be made in the limitations on discovery imposed under these rules or by local rule, and what other limitations should be imposed; and

  (4) any other orders that should be entered by the court under subdivision  (c) or under Rule 16(b) and (c).

The attorneys of record and all unrepresented parties that have appeared in the case are jointly responsible for arranging and being present or represented at the meeting, for attempting in good faith to agree on the proposed discovery plan, and for submitting to the court within 10 days after the meeting a written report outlining the plan.

 (g) Signing of Disclosures, Discovery Requests, Responses, and Objections.

  (1) Every disclosure made pursuant to subdivision (a)(1) or subdivision  (a)(3) shall be signed by at least one attorney of record in the attorney's individual name, whose address shall be stated.  An unrepresented party shall sign the disclosure and state the party's address.  The signature of the attorney or party constitutes a certification that to the best of the signer's knowledge, information, and belief, formed after a reasonable inquiry, the disclosure is complete and correct as of the time it is made.

  (2) Every discovery request, response, or objection made by a party represented by an attorney shall be signed by at least one attorney of record in the attorney's individual name, whose address shall be stated.  An unrepresented party shall sign the request, response, or objection and state the party's address.  The signature of the attorney or party constitutes a certification that to the best of the signer's knowledge, information, and belief, formed after a reasonable inquiry, the request, response, or objection is:

   (A) consistent with these rules and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law;

   (B) not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;  and

   (C) not unreasonable or unduly burdensome or expensive, given the needs of the case, the discovery already had in the case, the amount in controversy,   and the importance of the issues at stake in the litigation.

  If a request, response, or objection is not signed, it shall be stricken unless it is signed promptly after the omission is called to the attention of the party making the request, response, or objection, and a party shall not be obligated to take any action with respect to it until it is signed.

  (3) If without substantial justification a certification is made in violation of the rule, the court, upon motion or upon its own initiative, shall impose upon the person who made the certification, the party on whose behalf the disclosure, request, response, or objection is made, or both, an appropriate sanction, which may include an order to pay the amount of the reasonable expenses incurred because of the violation, including a reasonable attorney's fee.


Fair Debt Collection Practices Act

15 U.S.C. Sections 1692-1692o

 Section 1692: Congressional findings and declaration of purpose

(a)	Abusive practices

There is abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors.  Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.

(b)	Inadequacy of laws

Existing laws and procedures for redressing these injuries are inadequate to protect consumers.

(c)	Available nonabusive collection methods

Means other than misrepresentation or other abusive debt collection practices are available for the effective collection of debts.

(d)	Interstate commerce

Abusive debt collection practices are carried on to a substantial extent in interstate commerce and through means and instrumentalities of such commerce. Even where abusive debt collection practices are purely intrastate in character, they nevertheless directly affect interstate commerce.

(e)	Purposes

It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.

 Section 1692a: Definitions

As used in this subchapter

(1)	The term "Commission" means the Federal Trade Commission.

(2)	The term "communication" means the conveying of information regarding a debt directly or indirectly to any person through any medium.

(3)	The term "consumer" means any natural person obligated or allegedly obligated to pay any debt.

(4)	The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for  another.

(5)	The term "debt" means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.

(6)	The term "debt collector" means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.  Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts.  For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.  The term does not include

(A)	any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor;

(B)	any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts;

(C)	any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties;

(D)	any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt;

(E)	any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditor;  and

(F)	any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement;  (ii) concerns a debt which was originated by such person; (iii) concerns a debt which was not in default at the time it was obtained by such person;  or (iv) concerns a debt obtained by such person as a secured   party in a commercial credit transaction involving the creditor.

(G)	Redesignated (F).

(7)	The term "location information" means a consumer's place of abode and his telephone number at such place, or his place of employment.

(8)	The term "State" means any State, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any political subdivision of any of the foregoing.

 Section 1692b: Acquisition of location information

Any debt collector communicating with any person other than the consumer for the purpose of acquiring location information about the consumer shall

(1)	identify himself, state that he is confirming or correcting location information concerning the consumer, and, only if expressly requested, identify his employer;

(2)	not state that such consumer owes any debt;

(3)	not communicate with any such person more than once unless requested to do so by such person or unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has correct or complete location information;

(4)	not communicate by post card;

(5)	not use any language or symbol on any envelope or in the contents of any communication effected by the mails or telegram that indicates that the debt collector is in the debt collection business or that the communication relates to the collection of a debt;  and

(6)	after the debt collector knows the consumer is represented by an attorney with regard to the subject debt and has knowledge of, or can readily ascertain, such attorney's name and address, not communicate with any person other than that attorney, unless the attorney fails to respond within a reasonable period of time to communication from the debt collector.

 Section 1692c: Communication in connection with debt collection

(a)	Communication with consumer generally

Without the prior consent of the consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt

(1)	at any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer.  In the absence of knowledge of circumstances to the contrary, a debt collector shall assume that the  convenient time for communicating with a consumer is after 8 o'clock antimeridian and before 9 o'clock postmeridian, local time at the consumer's location;

(2)	if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney's name and address, unless the attorney fails to respond within a reasonable period of time to a communication from the debt collector or unless the attorney consents to direct communication with the consumer;  or

(3)	at the consumer's place of employment if the debt collector knows or has reason to know that the consumer's employer prohibits the consumer from receiving such communication.

(b)	Communication with third parties

Except as provided in section 1692b of this title, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.

(c)	Ceasing communication

If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except

(1)	to advise the consumer that the debt collector's further efforts are being terminated;

(2)	to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor;  or

(3)	where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.

If such notice from the consumer is made by mail, notification shall be complete upon receipt.

(d)	"Consumer" defined

For the purpose of this section, the term "consumer" includes the consumer's spouse, parent (if the consumer is a minor), guardian, executor, or administrator.

 Section 1692d: Harassment or abuse

A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.  Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(1)	The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person.

(2)	The use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader.

(3)	The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements  of section 1681a(f) or 1681b(3) of this title.

(4)	The advertisement for sale of any debt to coerce payment of the debt.

(5)	Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.

(6)	Except as provided in section 1692b of this title, the placement of telephone calls without meaningful disclosure of the caller's identity.

 Section 1692e: False or misleading representations

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.  Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(1)	The false representation or implication that the debt collector is vouched for, bonded by, or affiliated with the United States or any State, including the use of any badge, uniform, or facsimile thereof.

(2)	The false representation of

(A)	the character, amount, or legal status of any debt;  or

(B)	any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.

(3)	The false representation or implication that any individual is an attorney or that any communication is from an attorney.

(4)	The representation or implication that nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to take such action.

(5)	The threat to take any action that cannot legally be taken or that is not intended to be taken.

(6)	The false representation or implication that a sale, referral, or other transfer of any interest in a debt shall cause the consumer to

(A)	lose any claim or defense to payment of the debt;  or

(B)	become subject to any practice prohibited by this subchapter.

(7)	The false representation or implication that the consumer committed any crime or other conduct in order to disgrace the consumer.

(8)	Communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.

(9)	The use or distribution of any written communication which simulates or is falsely represented to be a document authorized, issued, or approved by any  court, official, or agency of the United States or any State, or which creates a false impression as to its source, authorization, or approval.

(10)	The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.

(11)	Except as otherwise provided for communications to acquire location information under section 1692b of this title, the failure to disclose clearly in all communications made to collect a debt or to obtain information about a consumer, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.

(12)	The false representation or implication that accounts have been turned over to innocent purchasers for value.

(13)	The false representation or implication that documents are legal process.

(14)	The use of any business, company, or organization name other than the true name of the debt collector's business, company, or organization.

(15)	The false representation or implication that documents are not legal process forms or do not require action by the consumer.

(16)	The false representation or implication that a debt collector operates or is employed by a consumer reporting agency as defined by section 1681a(f) of this title.

 Section 1692f: Unfair practices

A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt.  Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(1)	The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.

(2)	The acceptance by a debt collector from any person of a check or other payment instrument postdated by more than five days unless such person is notified in writing of the debt collector's intent to deposit such check or instrument not more than ten nor less than three business days prior to such  deposit.

(3)	The solicitation by a debt collector of any postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution.

(4)	Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument.

(5)	Causing charges to be made to any person for communications by concealment of the true purpose of the communication.  Such charges include, but are not limited to, collect telephone calls and telegram fees.

(6)	Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if

(A)	there is no present right to possession of the property claimed as collateral through an enforceable security interest;

(B)	there is no present intention to take possession of the property;  or

(C)	the property is exempt by law from such dispossession or disablement.

(7)	Communicating with a consumer regarding a debt by post card.

(8)	Using any language or symbol, other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.

 Section 1692g: Validation of debts

(a)	Notice of debt;  contents

Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing

(1)	the amount of the debt;

(2)	the name of the creditor to whom the debt is owed;

(3)	a statement that unless the consumer, within thirty days after receipt of  the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4)	a statement that if the consumer notifies the debt collector in writing within the thirtyday period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector;  and

(5)	a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

(b)	Disputed debts

If the consumer notifies the debt collector in writing within the thirtyday period described in subsection (a) of this section that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.

(c)	Admission of liability

The failure of a consumer to dispute the validity of a debt under this section may not be construed by any court as an admission of liability by the consumer.

 Section 1692h: Multiple debts

If any consumer owes multiple debts and makes any single payment to any debt collector with respect to such debts, such debt collector may not apply such payment to any debt which is disputed by the consumer and, where applicable, shall apply such payment in accordance with the consumer's directions.

 Section 1692i: Legal actions by debt collectors

(a)	Any debt collector who brings any legal action on a debt against any consumer shall

(1)	in the case of an action to enforce an interest in real property securing the consumer's obligation, bring such action only in a judicial district or similar legal entity in which such real property is located;  or

(2)	in the case of an action not described in paragraph (1), bring such action only in the judicial district or similar legal entity

(A)	in which such consumer signed the contract sued upon;  or

(B)	in which such consumer resides at the commencement of the action.

(b)	Nothing in this subchapter shall be construed to authorize the bringing of legal actions by debt collectors.

 Section 1692j: Furnishing certain deceptive forms

(a)	It is unlawful to design, compile, and furnish any form knowing that such form would be used to create the false belief in a consumer that a person other than the creditor of such consumer is participating in the collection of or in an attempt to collect a debt such consumer allegedly owes such creditor, when in fact such person is not so participating.

(b)	Any person who violates this section shall be liable to the same extent and in the same manner as a debt collector is liable under section 1692k of this title for failure to comply with a provision of this subchapter.

 Section 1692k: Civil liability

(a)	Amount of damages

Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of

(1)	any actual damage sustained by such person as a result of such failure;

(2)

(A)	in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000;  or

(B)	in the case of a class action, (i) such amount for each named plaintiff  as could be recovered under subparagraph (A), and (ii) such amount as the court may allow for all other class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector;  and

(3)	in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney's fee as determined by the court.  On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs.

(b)	Factors considered by court

In determining the amount of liability in any action under subsection (a) of this section, the court shall consider, among other relevant factors

(1)	in any individual action under subsection (a)(2)(A) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional;  or

(2)	in any class action under subsection (a)(2)(B) of this section, the  frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector's noncompliance was intentional.

(c)	Intent

A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.

(d)	Jurisdiction

An action to enforce any liability created by this subchapter may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within one year from the date on which the violation occurs.

(e)	Advisory opinions of Commission

No provision of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the Commission, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.

 Section 1692l: Administrative enforcement

(a)	Federal Trade Commission

Compliance with this subchapter shall be enforced by the Commission, except to the extent that enforcement of the requirements imposed under this subchapter is specifically committed to another agency under subsection (b) of this section.  For purpose of the exercise by the Commission of its functions and powers under the Federal Trade Commission Act, a violation of this subchapter shall be deemed an unfair or deceptive act or practice in violation of that Act.  All of the functions and powers of the Commission under the Federal Trade Commission Act are available to the Commission to enforce compliance by any person with this subchapter, irrespective of whether that person is engaged in commerce or meets any other jurisdictional tests in the Federal Trade Commission Act, including the power to enforce the provisions of this subchapter in the same manner as if the violation had been a violation of a Federal Trade Commission trade regulation rule.

(b)	Applicable provisions of law

Compliance with any requirements imposed under this subchapter shall be enforced under

(1)	section 8 of the Federal Deposit Insurance Act [12 U.S.C.A. § 1818], in the case of

(A)	national banks, and Federal branches and Federal agencies of foreign banks, by the Office of the Comptroller of the Currency;

(B)	member banks of the Federal Reserve System (other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25(a) of the Federal Reserve Act [12 U.S.C.A. §§   601 et seq., 611 et seq.], by the Board of Governors of the Federal Reserve System;  and

(C)	banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation;

(2)	section 8 of the Federal Deposit Insurance Act [12 U.S.C.A. § 1818], by the Director of the Office of Thrift Supervision, in the case of a savings association the deposits of which are insured by the Federal Deposit Insurance Corporation;

(3)	the Federal Credit Union Act, by the National Credit Union Administration Board with respect to any Federal credit union;

(4)	subtitle IV of Title 49, by the Secretary of Transportation, with respect to all carriers subject to the jurisdiction of the Surface Transportation Board;

(5)	the Federal Aviation Act of 1958, by the Secretary of Transportation with respect to any air carrier or any foreign air carrier subject to that Act; and

(6)	the Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any  activities subject to that Act.

The terms used in paragraph (1) that are not defined in this subchapter or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).

(c)	Agency powers

For the purpose of the exercise by any agency referred to in subsection (b) of this section of its powers under any Act referred to in that subsection, a violation of any requirement imposed under this subchapter shall be deemed to be a violation of a requirement imposed under that Act.  In addition to its powers under any provision of law specifically referred to in subsection (b) of this section, each of the agencies referred to in that subsection may exercise, for the purpose of enforcing compliance with any requirement imposed under this subchapter any other authority conferred on it by law, except as provided in subsection (d) of this section.

(d)	Rules and regulations

Neither the Commission nor any other agency referred to in subsection (b) of this section may promulgate trade regulation rules or other regulations with respect to the collection of debts by debt collectors as defined in this subchapter.

 Section 1692m: Reports to Congress by the Commission

(a)	Not later than one year after the effective date of this subchapter and at oneyear intervals thereafter, the Commission shall make reports to the Congress concerning the administration of its functions under this subchapter, including such recommendations as the Commission deems necessary or appropriate.  In addition, each report of the Commission shall include its assessment of the extent to which compliance with this subchapter is being achieved and a summary of the enforcement actions taken by the Commission under section 1692l of this title.

(b)	In the exercise of its functions under this subchapter, the Commission may obtain upon request the views of any other Federal agency which exercises enforcement functions under section 1692l of this title.

 Section 1692n: Relation to State laws

This subchapter does not annul, alter, or affect, or exempt any person subject to the provisions of this subchapter from complying with the laws of any State with respect to debt collection practices, except to the extent that those laws are inconsistent with any provision of this subchapter, and then only to the extent of the inconsistency.  For purposes of this section, a State law is not inconsistent with this subchapter if the protection such law affords any consumer is greater than the protection provided by this subchapter.

 Section 1692o: Exemption for State regulation

The Commission shall by regulation exempt from the requirements of this subchapter any class of debt collection practices within any State if the Commission determines that under the law of that State that class of debt collection practices is subject to requirements substantially similar to those imposed by this subchapter, and that there is adequate provision for enforcement.


Consumer Credit Cost Disclosure Act

15 U.S.C. Sections 1601-1615

 Section 1601:  Congressional findings and declaration of purpose

(a)	Informed use of credit

The Congress finds that economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit.  The informed use of credit results from an awareness of the cost thereof by consumers.  It is the purpose of this subchapter to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.

(b)	Terms of personal property leases

The Congress also finds that there has been a recent trend toward leasing automobiles and other durable goods for consumer use as an alternative to installment credit sales and that these leases have been offered without adequate cost disclosures.  It is the purpose of this subchapter to assure a meaningful disclosure of the terms of leases of personal property for personal, family, or household purposes so as to enable the lessee to compare more readily the various lease terms available to him, limit balloon payments in consumer leasing, enable comparison of lease terms with credit terms where appropriate, and to assure meaningful and accurate disclosures of lease terms in advertisements.

 Section 1602:  Definitions and rules of construction

(a)	The definitions and rules of construction set forth in this section are applicable for the purposes of this subchapter.

(b)	The term "Board" refers to the Board of Governors of the Federal Reserve System.

(c)	The term "organization" means a corporation, government or governmental subdivision or agency, trust, estate, partnership, cooperative, or association.

(d)	The term "person" means a natural person or an organization.

(e)	The term "credit" means the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.

(f)	The term "creditor" refers only to a person who both (1) regularly extends, whether in connection with loans, sales of property or services, or otherwise, consumer credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement. Notwithstanding the preceding sentence, in the case of an openend credit plan involving a credit card, the card issuer and any person who honors the credit card and offers a discount which is a finance charge are creditors.  For the purpose of the requirements imposed under part D of this subchapter and sections 1637(a) (5), 1637(a) (6), 1637(a) (7), 1637(b) (1), 1637(b) (2), 1637(b) (3), 1637(b) (8), and 1637(b) (10) of this title, the term "creditor" shall also include card issuers whether or not the amount due is payable by agreement in more than four installments or the payment of a finance charge is or may be required, and the Board shall, by regulation, apply these requirements to such card issuers, to the extent appropriate, even though the requirements are by their terms applicable only to creditors offering openend credit plans.  Any person who originates 2 or more mortgages referred to in subsection (aa) of this section in any 12month period or any person who originates 1 or more such mortgages through a mortgage broker shall be considered to be a creditor for purposes of this title.

(g)	The term "credit sale" refers to any sale in which the seller is a creditor.  The term includes any contract in the form of a bailment or lease if the bailee or lessee contracts to pay as compensation for use a sum substantially equivalent to or in excess of the aggregate value of the property and services involved and it is agreed that the bailee or lessee will become, or for no other or a nominal consideration has the option to become, the owner of the property upon full compliance with his obligations under the contract.

(h)	The adjective "consumer", used with reference to a credit transaction, characterizes the transaction as one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes.

(i)	The term "open end credit plan" means a plan under which the creditor reasonably contemplates repeated transactions, which prescribes the terms of such transactions, and which provides for a finance charge which may be computed from time to time on the outstanding unpaid balance.  A credit plan which is an open end credit plan within the meaning of the preceding sentence is an open end credit plan even if credit information is verified from time to time.

(j)	The term "adequate notice", as used in section 1643 of this title, means a printed notice to a cardholder which sets forth the pertinent facts clearly and conspicuously so that a person against whom it is to operate could reasonably be expected to have noticed it and understood its meaning.  Such notice may be given to a cardholder by printing the notice on any credit card, or on each periodic statement of account, issued to the cardholder, or by any other means reasonably assuring the receipt thereof by the cardholder.

(k)	The term "credit card" means any card, plate, coupon book or other credit device existing for the purpose of obtaining money, property, labor, or services on credit.

(l)	The term "accepted credit card" means any credit card which the cardholder has requested and received or has signed or has used, or authorized another to use, for the purpose of obtaining money, property, labor, or services on credit.

(m)	The term "cardholder" means any person to whom a credit card is issued or any person who has agreed with the card issuer to pay obligations arising from the issuance of a credit card to another person.

(n)	The term "card issuer" means any person who issues a credit card, or the agent of such person with respect to such card.

(o)	The term "unauthorized use", as used in section 1643 of this title, means a use of a credit card by a person other than the cardholder who does not have actual, implied, or apparent authority for such use and from which the cardholder receives no benefit.

(p)	The term "discount" as used in section 1666f of this title means a reduction made from the regular price.  The term "discount" as used in section 1666f of this title shall not mean a surcharge.

(q)	The term "surcharge" as used in this section and section 1666f of this title means any means of increasing the regular price to a cardholder which is not imposed upon customers paying by cash, check, or similar means.

(r)	The term "State" refers to any State, the Commonwealth of Puerto Rico, the District of Columbia, and any territory or possession of the United States.

(s)	The term "agricultural purposes" includes the production, harvest, exhibition, marketing, transportation, processing, or manufacture of agricultural products by a natural person who cultivates, plants, propagates, or nurtures those agricultural products, including but not limited to the acquisition of farmland, real property with a farm residence, and personal property and services used primarily in farming.

(t)	The term "agricultural products" includes agricultural, horticultural, viticultural, and dairy products, livestock, wildlife, poultry, bees, forest products, fish and shellfish, and any products thereof, including processed and manufactured products, and any and all products raised or produced on farms and any processed or manufactured products thereof.

(u)	The term "material disclosures" means the disclosure, as required by this subchapter, of the annual percentage rate, the method of determining the finance charge and the balance upon which a finance charge will be imposed, the amount of the finance charge, the amount to be financed, the total of payments, the number and amount of payments, the due dates or periods of payments scheduled to repay the indebtedness, and the disclosures required by section 1639(a) of this title.

(v)	The term "dwelling" means a residential structure or mobile home which contains one to four family housing units, or individual units of condominiums or cooperatives.

(w)	The term "residential mortgage transaction" means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained against the consumer's dwelling to finance the acquisition or initial construction of such dwelling.

(x)	As used in this section and section 1666f of this title, the term "regular price" means the tag or posted price charged for the property or service if a single price is tagged or posted, or the price charged for the property or service when payment is made by use of an openend credit plan or a credit card if either 	(1) no price is tagged or posted, or (2) two prices are tagged or posted, one of which is charged when payment is made by use of an openend credit plan or a credit card and the other when payment is made by the use of cash, check, or similar means.  For purposes of this definition, payment by check, draft, or other negotiable instrument which may result in the debiting of an openend credit plan or a credit cardholder's openend account shall not be considered payment made by use of the plan or the account.

(y)	Any reference to any requirement imposed under this subchapter or any provision thereof includes reference to the regulations of the Board under this subchapter or the provision thereof in question.

(z)	The disclosure of an amount or percentage which is greater than the amount or percentage required to be disclosed under this subchapter does not in itself constitute a violation of this subchapter.

(aa)	(1)	A mortgage referred to in this subsection means a consumer credit transaction that is secured by the consumer's principal dwelling, other than a residential mortgage transaction, a reverse mortgage transaction, or a transaction under an open end credit plan, if--

(A)	the annual percentage rate at consummation of the transaction will exceed by more than 10 percentage points the yield on Treasury securities having comparable periods of maturity on the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor;  or

(B)	the total points and fees payable by the consumer at or before closing will exceed the greater of:

(i)	8 percent of the total loan amount;  or

(ii)	$400.

(2)	(A)	After the 2year period beginning on the effective date of the regulations promulgated under section 155 of the Riegle Community Development and Regulatory Improvement Act of 1994, and no more frequently than biennially after the first increase or decrease under this subparagraph, the Board may by regulation increase or decrease the number of percentage points specified in paragraph (1)(A), if the Board determines that the increase or decrease is

(i)	consistent with the consumer protections against abusive lending provided by the amendments made by subtitle B of title I of the Riegle Community Development and Regulatory Improvement Act of 1994;  and

(ii)	warranted by the need for credit.

(B)	An increase or decrease under subparagraph (A) may not result in the number of percentage points referred to in subparagraph (A) being

(i)	less than 8 percentage points;  or

(ii)	greater than 12 percentage points.

(C)	In determining whether to increase or decrease the number of percentage points referred to in subparagraph (A), the Board shall consult with representatives of consumers, including lowincome consumers, and lenders.

(3)	The amount specified in paragraph (1)(B)(ii) shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index, as reported on June 1 of the year preceding such adjustment.

(4)	For purposes of paragraph (1)(B), points and fees shall include

(A)	all items included in the finance charge, except interest or the time price differential;

(B)	all compensation paid to mortgage brokers;

(C)	each of the charges listed in section 1605(e) of this title (except an escrow for future payment of taxes), unless

(i)	the charge is reasonable;

(ii)	the creditor receives no direct or indirect compensation;  and

(iii) the charge is paid to a third party unaffiliated with the creditor;  and

(D)	such other charges as the Board determines to be appropriate.

(5)	This subsection shall not be construed to limit the rate of interest or the finance charge that a person may charge a consumer for any extension of credit.

(bb)	The term "reverse mortgage transaction" means a nonrecourse transaction in which a mortgage, deed of trust, or equivalent consensual security interest is created against the consumer's principal dwelling

(1)	securing one or more advances;  and

(2)	with respect to which the payment of any principal, interest, and shared appreciation or equity is due and payable (other than in the case of default) only after

(A)	the transfer of the dwelling;

(B)	the consumer ceases to occupy the dwelling as a principal dwelling;  or

(C)	the death of the consumer.

 Section 1603:  Exempted transactions

This subchapter does not apply to the following:

(1)	Credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes, or to government or governmental agencies or instrumentalities, or to organizations.

(2)	Transactions in securities or commodities accounts by a brokerdealer registered with the Securities and Exchange Commission.

(3)	Credit transactions, other than those in which a security interest is or will be acquired in real property, or in personal property used or expected to be used as the principal dwelling of the consumer, in which the total amount  financed exceeds $25,000.

(4)	Transactions under public utility tariffs, if the Board determines that a State regulatory body regulates the charges for the public utility services involved, the charges for delayed payment, and any discount allowed for early payment.

(5)	Repealed.  Pub.L. 96221, Title VI, Section 603(c) (3), Mar. 31, 1980, 94 Stat. 169.

(6)	Loans made, insured, or guaranteed pursuant to a program authorized by Title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.).

 Section 1604:  Disclosure guidelines

(a)	Promulgation, contents, etc., of regulations

The Board shall prescribe regulations to carry out the purposes of this subchapter.  Except in the case of a mortgage referred to in section 1602(aa) of this title, these regulations may contain such classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for any class of transactions, as in the judgment of the Board are necessary or proper to effectuate the purposes of this subchapter, to prevent circumvention or evasion thereof, or to facilitate compliance therewith.

(b)	Model disclosure forms and clauses;  publication, criteria, compliance, etc.

The Board shall publish model disclosure forms and clauses for common transactions to facilitate compliance with the disclosure requirements of this subchapter and to aid the borrower or lessee in understanding the transaction by utilizing readily understandable language to simplify the technical nature of the disclosures.  In devising such forms, the Board shall consider the use by creditors or lessors of data processing or similar automated equipment. Nothing in this subchapter may be construed to require a creditor or lessor to use any such model form or clause prescribed by the Board under this section. A creditor or lessor shall be deemed to be in compliance with the disclosure provisions of this subchapter with respect to other than numerical disclosures if the creditor or lessor (1) uses any appropriate model form or clause as published by the Board, or (2) uses any such model form or clause and changes it by (A) deleting any information which is not required by this subchapter, or (B) rearranging the format, if in making such deletion or rearranging the format, the creditor or lessor does not affect the substance, clarity, or meaningful sequence of the disclosure.

(c)	Procedures applicable for adoption of model forms and clauses

Model disclosure forms and clauses shall be adopted by the Board after notice duly given in the Federal Register and an opportunity for public comment in accordance with section 553 of Title 5.

(d)	Effective dates of regulations containing new disclosure requirements.

Any regulation of the Board, or any amendment or interpretation thereof, requiring any disclosure which differs from the disclosures previously required by this part, part D, or part E of this subchapter, or by any regulation of the Board promulgated thereunder shall have an effective date of that October 1 which follows by at least six months the date of promulgation, except that the Board may at its discretion take interim action by regulation, amendment, or interpretation to lengthen the period of time permitted for creditors or lessors to adjust their forms to accommodate new requirements or shorten the length of time for creditors or lessors to make such adjustments when it makes a specific finding that such action is necessary to comply with the findings of a court or to prevent unfair or deceptive disclosure practices.  Notwithstanding the previous sentence, any creditor or lessor may comply with any such newly promulgated disclosure requirements prior to the effective date of the requirements.

 Section 1605:  Determination of finance charge

(a)	"Finance charge" defined

Except as otherwise provided in this section, the amount of the finance charge in connection with any consumer credit transaction shall be determined as the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit.  The finance charge does not include charges of a type payable in a comparable cash transaction.  The finance charge shall not include fees and amounts imposed by third party closing agents  (including settlement agents, attorneys, and escrow and title companies) if the creditor does not require the imposition of the charges or the services provided and does not retain the charges.  Examples of charges which are included in the finance charge include any of the following types of charges which are applicable:

(1)	Interest, time price differential, and any amount payable under a point, discount, or other system of additional charges.

(2)	Service or carrying charge.

(3)	Loan fee, finder's fee, or similar charge.

(4)	Fee for an investigation or credit report.

(5)	Premium or other charge for any guarantee or insurance protecting the creditor against the obligor's default or other credit loss.

(6)	Borrowerpaid mortgage broker fees, including fees paid directly to the broker or the lender (for delivery to the broker) whether such fees are paid in cash or financed.

(b)	Life, accident, or health insurance premiums included in finance charge.

Charges or premiums for credit life, accident, or health insurance written in connection with any consumer credit transaction shall be included in the finance charge unless

(1)	the coverage of the debtor by the insurance is not a factor in the approval by the creditor of the extension of credit, and this fact is clearly disclosed in writing to the person applying for or obtaining the extension of credit;  and

(2)	in order to obtain the insurance in connection with the extension of credit, the person to whom the credit is extended must give specific affirmative written indication of his desire to do so after written disclosure to him of the cost thereof.

(c)	Property damage and liability insurance premiums included in finance charge.

Charges or premiums for insurance, written in connection with any consumer credit transaction, against loss of or damage to property or against liability arising out of the ownership or use of property, shall be included in the finance charge unless a clear and specific statement in writing is furnished by the creditor to the person to whom the credit is extended, setting forth the cost of the insurance if obtained from or through the creditor, and stating that the person to whom the credit is extended may choose the person through which the insurance is to be obtained.

(d)	Items exempted from computation of finance charge in all credit transactions

If any of the following items is itemized and disclosed in accordance with the regulations of the Board in connection with any transaction, then the creditor need not include that item in the computation of the finance charge with respect to that transaction:

(1)	Fees and charges prescribed by law which actually are or will be paid to public officials for determining the existence of or for perfecting or releasing or satisfying any security related to the credit transaction.

(2)	The premium payable for any insurance in lieu of perfecting any security interest otherwise required by the creditor in connection with the transaction, if the premium does not exceed the fees and charges described in paragraph (1) which would otherwise be payable.

(3)	Any tax levied on security instruments or on documents evidencing indebtedness if the payment of such taxes is a precondition for recording the instrument securing the evidence of indebtedness.

(e)	Items exempted from computation of finance charge in extensions of credit secured by interest in real property

The following items, when charged in connection with any extension of credit secured by an interest in real property, shall not be included in the computation of the finance charge with respect to that transaction:

(1)	Fees or premiums for title examination, title insurance, or similar purposes.

(2)	Fees for preparation of loanrelated documents.

(3)	Escrows for future payments of taxes and insurance.

(4)	Fees for notarizing deeds and other documents.

(5)	Appraisal fees, including fees related to any pest infestation or flood hazard inspections conducted prior to closing.

(6)	Credit reports.

(f)	Tolerances for accuracy

In connection with credit transactions not under an open end credit plan that are secured by real property or a dwelling, the disclosure of the finance charge and other disclosures affected by any finance charge

(1)	shall be treated as being accurate for purposes of this title if the amount disclosed as the finance charge

(A)	does not vary from the actual finance charge by more than $100;  or

(B)	is greater than the amount required to be disclosed under this subchapter;  and

(2)	shall be treated as being accurate for purposes of section 1635 of this title if

(A)	except as provided in subparagraph (B), the amount disclosed as the finance charge does not vary from the actual finance charge by more than an amount equal to onehalf of one percent of the total amount of credit extended;  or

(B)	in the case of a transaction, other than a mortgage referred to in section 1602(aa) of this title, which

(i)	is a refinancing of the principal balance then due and any accrued and unpaid finance charges of a residential mortgage transaction as defined in section 1602(w) of this title, or is any subsequent refinancing of such a transaction;  and

(ii)	does not provide any new consolidation or new advance;

if the amount disclosed as the finance charge does not vary from the actual finance charge by more than an amount equal to one percent of the total amount of credit extended.

 Section 1606:  Determination of annual percentage rate

(a)	"Annual percentage rate" defined

The annual percentage rate applicable to any extension of consumer credit shall be determined, in accordance with the regulations of the Board,

(1)	in the case of any extension of credit other than under an open end credit plan, as

(A)	that nominal annual percentage rate which will yield a sum equal to the amount of the finance charge when it is applied to the unpaid balances of the amount financed, calculated according to the actuarial method of allocating payments made on a debt between the amount financed and the amount of the finance charge, pursuant to which a payment is applied first to the accumulated finance charge and the balance is applied to the unpaid amount financed;  or

(B)	the rate determined by any method prescribed by the Board as a method which materially simplifies computation while retaining reasonable accuracy as compared with the rate determined under subparagraph (A).

(2)	in the case of any extension of credit under an open end credit plan, as the quotient (expressed as a percentage) of the total finance charge for the period to which it relates divided by the amount upon which the finance charge for that period is based, multiplied by the number of such periods in a year.

(b)	Computation of rate of finance charges for balances within specified range.

Where a creditor imposes the same finance charge for balances within a specified range, the annual percentage rate shall be computed on the median balance within the range, except that if the Board determines that a rate so computed would not be meaningful, or would be materially misleading, the annual percentage rate shall be computed on such other basis as the Board may by regulation require.

(c)	Allowable tolerances for purposes of compliance with disclosure requirements.

The disclosure of an annual percentage rate is accurate for the purpose of this subchapter if the rate disclosed is within a tolerance not greater than oneeighth of 1 per centum more or less than the actual rate or rounded to the nearest onefourth of 1 per centum.  The Board may allow a greater tolerance to simplify compliance where irregular payments are involved.

(d)	Use of rate tables or charts having allowable variance from determined rates

The Board may authorize the use of rate tables or charts which may provide for the disclosure of annual percentage rates which vary from the rate determined in accordance with subsection (a)(1)(A) of this section by not more than such tolerances as the Board may allow.  The Board may not allow a tolerance greater than 8 per centum of that rate except to simplify compliance where irregular payments are involved.

(e)	Authorization of tolerances in determining annual percentage rates.

In the case of creditors determining the annual percentage rate in a manner other than as described in subsection (d) of this section, the Board may authorize other reasonable tolerances.

 Section 1607:  Administrative enforcement

(a)	Enforcing agencies

Compliance with the requirements imposed under this subchapter shall be enforced under.

(1)	section 8 of the Federal Deposit Insurance Act [12 U.S.C.A. Section 1818], in the case of

(A)	national banks, and Federal branches and Federal agencies of foreign banks, by the Office of the Comptroller of the Currency;

(B)	member banks of the Federal Reserve System (other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25(a) of the Federal Reserve Act [12 U.S.C.A. Sections 601 et seq., 611 et seq.], by the Board;  and

(C)	banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation;

(2)	section 8 of the Federal Deposit Insurance Act [12 U.S.C.A. Section 1818], by the Director of the Office of Thrift Supervision, in the case of a savings association the deposits of which are insured by the Federal Deposit Insurance Corporation.

(3)	the Federal Credit Union Act, by the National Credit Union Administration Board with respect to any Federal credit union.

(4)	the Federal Aviation Act of 1958, by the Secretary of Transportation with respect to any air carrier or foreign air carrier subject to that Act.

(5)	the Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any  activities subject to that Act.

(6)	the Farm Credit Act of 1971 by the Farm Credit Administration with respect to any Federal land bank, Federal land bank association, Federal intermediate credit bank, or production credit association.

The terms used in paragraph (1) that are not defined in this subchapter or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).

(b)	Violations of this subchapter deemed violations of preexisting statutory requirements;  additional agency powers

For the purpose of the exercise by any agency referred to in subsection (a) of this section of its powers under any Act referred to in that subsection, a violation of any requirement imposed under this subchapter shall be deemed to be a violation of a requirement imposed under that Act.  In addition to its powers under any provision of law specifically referred to in subsection (a) of this section, each of the agencies referred to in that subsection may exercise, for the purpose of enforcing compliance with any requirement imposed under this subchapter, any other authority conferred on it by law.

(c)	Federal Trade Commission as overall enforcing agency

Except to the extent that enforcement of the requirements imposed under this subchapter is specifically committed to some other Government agency under subsection (a) of this section, the Federal Trade Commission shall enforce such requirements.  For the purpose of the exercise by the Federal Trade Commission of its functions and powers under the Federal Trade Commission Act, a violation of any requirement imposed under this subchapter shall be deemed a violation of a requirement imposed under that Act.  All of the functions and powers of the Federal Trade Commission under the Federal Trade Commission Act are available to the Commission to enforce compliance by any person with the requirements imposed under this subchapter, irrespective of whether that person is engaged in commerce or meets any other jurisdictional tests in the Federal Trade Commission Act.

(d)	Rules and regulations

The authority of the Board to issue regulations under this subchapter does not impair the authority of any other agency designated in this section to make rules respecting its own procedures in enforcing compliance with requirements imposed under this subchapter.

(e)	Adjustment of finance charges;  procedures applicable, coverage criteria, etc.

(1)	In carrying out its enforcement activities under this section, each agency referred to in subsection (a) or (c) of this section, in cases where an annual percentage rate or finance charge was inaccurately disclosed, shall notify the creditor of such disclosure error and is authorized in accordance with the provisions of this subsection to require the creditor to make an adjustment to the account of the person to whom credit was extended, to assure that such person will not be required to pay a finance charge in excess of the finance charge actually disclosed or the dollar equivalent of the annual percentage rate actually disclosed, whichever is lower.  For the purposes of this subsection, except where such disclosure error resulted from a willful violation which was intended to mislead the person to whom credit was extended, in determining whether a disclosure error has occurred and in calculating any adjustment, (A) each agency shall apply (i) with respect to the annual percentage rate, a tolerance of onequarter of 1 percent more or less than the actual rate, determined without regard to section 1606(c) of this title, and (ii) with respect to the finance charge, a corresponding numerical tolerance as generated by the tolerance provided under this subsection for the annual percentage rate;  except that (B) with respect to transactions consummated after two years following March 31, 1980, each agency shall apply (i) for transactions that have a scheduled amortization of ten years or less, with respect to the annual percentage rate, a tolerance not to exceed onequarter of 1 percent more or less than the actual rate, determined without regard to section 1606(c) of this title, but in no event a tolerance of less than the tolerances allowed under section 1606(c) of this title, (ii) for transactions that have a scheduled amortization of more than ten years, with respect to the annual percentage rate, only such tolerances as are allowed under section 1606(c) of this title, and (iii) for all transactions, with respect to the finance charge, a corresponding numerical tolerance as generated by the tolerances provided under this subsection for the annual percentage rate.

(2)	Each agency shall require such an adjustment when it determines that such disclosure error resulted from (A) a clear and consistent pattern or practice of violations, (B) gross negligence, or (C) a willful violation which was intended to mislead the person to whom the credit was extended. Notwithstanding the preceding sentence, except where such disclosure error resulted from a willful violation which was intended to mislead the person to whom credit was extended, an agency need not require such an adjustment if it determines that such disclosure error

(A)	resulted from an error involving the disclosure of a fee or charge that would otherwise be excludable in computing the finance charge, including but not limited to violations involving the disclosures described in sections 1605(b), (c) and (d) of this title, in which event the agency may require such remedial action as it determines to be equitable, except that for transactions consummated after two years after March 31, 1980, such an adjustment shall be ordered for violations of section 1605(b) of this title;

(B)	involved a disclosed amount which was 10 per centum or less of the amount that should have been disclosed and (i) in cases where the error involved a disclosed finance charge, the annual percentage rate was disclosed correctly, and (ii) in cases where the error involved a disclosed annual percentage rate, the finance charge was disclosed correctly;  in which event the agency may require such adjustment as it determines to be equitable;

(C)	involved a total failure to disclose either the annual percentage rate or the finance charge, in which event the agency may require such adjustment as it determines to be equitable;  or

(D)	resulted from any other unique circumstance involving clearly technical and nonsubstantive disclosure violations that do not adversely affect information provided to the consumer and that have not misled or otherwise deceived the consumer.

In the case of other such disclosure errors, each agency may require such an adjustment.

(3)	Notwithstanding paragraph (2), no adjustment shall be ordered (A) if it would have a significantly adverse impact upon the safety or soundness of the creditor, but in any such case, the agency may require a partial adjustment in an amount which does not have such an impact, except that with respect to any transaction consummated after March 31, 1980, the agency shall require the full adjustment, but permit the creditor to make the required adjustment in partial payments over an extended period of time which the agency considers to be reasonable, (B) if the amount of the adjustment would be less than $1, except that if more than one year has elapsed since the date of the violation, the agency may require that such amount be paid into the Treasury of the United States, or (C) except where such disclosure error resulted from a willful violation which was intended to mislead the person to whom credit was extended, in the case of an openend credit plan, more than two years after the violation, or in the case of any other extension of credit, as follows:

(i)	with respect to creditors that are subject to examination by the agencies referred to in paragraphs (1) through (3) of subsection (a) of this section, except in connection with violations arising from practices identified in the current examination and only in connection with transactions that are consummated after the date of the immediately preceding examination, except that where practices giving rise to violations identified in earlier examinations have not been corrected, adjustments for those violations shall be required in connection with transactions consummated after the date of the examination in which such practices were first identified;

(ii)	with respect to creditors that are not subject to examination by such agencies, except in connection with transactions that are consummated after May 10, 1978;  and

(iii) in no event after the later of (I) the expiration of the life of the credit extension, or (II) two years after the agreement to extend credit was consummated.

(4)	(A)	Notwithstanding any other provision of this section, an adjustment under this subsection may be required by an agency referred to in subsection (a) or (c) of this section only by an order issued in accordance with cease and desist procedures provided by the provision of law referred to in such subsections.

(B)	In the case of an agency which is not authorized to conduct cease and desist proceedings, such an order may be issued after an agency hearing on the record conducted at least thirty but not more than sixty days after notice of the alleged violation is served on the creditor.  Such a hearing shall be deemed to be a hearing which is subject to the provisions of section 8(h) of the Federal Deposit Insurance Act and shall be subject to judicial review as provided therein.

(5)	Except as otherwise specifically provided in this subsection and notwithstanding any provision of law referred to in subsection (a) or (c) of this section, no agency referred to in subsection (a) or (c) of this section may require a creditor to make dollar adjustments for errors in any requirements under this subchapter, except with regard to the requirements of section 1666d of this title.

(6)	A creditor shall not be subject to an order to make an adjustment, if within sixty days after discovering a disclosure error, whether pursuant to a final written examination report or through the creditor's own procedures, the creditor notifies the person concerned of the error and adjusts the account so as to assure that such person will not be required to pay a finance charge in excess of the finance charge actually disclosed or the dollar equivalent of the annual percentage rate actually disclosed, whichever is lower.

(7)	Notwithstanding the second sentence of subsection (e)(1), subsection (e)(3)(C)(i) and subsection (e)(3)(C)(ii) of this section, each agency referred to in subsection (a) or (c) of this section shall require an adjustment for an annual percentage rate disclosure error that exceeds a tolerance of one quarter of one percent less than the actual rate, determined without regard to section 1606(c) of this title, with respect to any transaction consummated between January 1, 1977, and March 31, 1980.

 Section 1608:  Views of other agencies

In the exercise of its functions under this subchapter, the Board may obtain upon request the views of any other Federal agency which, in the judgment of the Board, exercises regulatory or supervisory functions with respect to any class of creditors subject to this subchapter.

 Section 1610:  Effect on other laws

(a)	Inconsistent provisions;  procedures applicable for determination

(1)	 Except as provided in subsection (e) of this section, this part and parts B and C of this subchapter do not annul, alter, or affect the laws of any State relating to the disclosure of information in connection with credit transactions, except to the extent that those laws are inconsistent with the provisions of this subchapter and then only to the extent of the inconsistency.  Upon its own motion or upon the request of any creditor, State or other interested party which is submitted in accordance with procedures prescribed in regulations of the Board, the Board shall determine whether any such inconsistency exists.  If the Board determines that a Staterequired disclosure is inconsistent, creditors located in that State may not make disclosures using the inconsistent term or form, and shall incur no liability under the law of that State for failure to use such term or form, notwithstanding that such determination is subsequently amended, rescinded, or determined by judicial or other authority to be invalid for any reason.

(2)	Upon its own motion or upon the request of any creditor, State, or other interested party which is submitted in accordance with procedures prescribed in regulations of the Board, the Board shall determine whether any disclosure required under the law of any State is substantially the same in meaning as a disclosure required under this subchapter.  If the Board determines that a Staterequired disclosure is substantially the same in meaning as a disclosure required by this subchapter, then creditors located in that State may make such disclosure in compliance with such State law in lieu of the disclosure required by this subchapter, except that the annual percentage rate and finance charge shall be disclosed as required by section 1632 of this title, and such State required disclosure may not be made in lieu of the disclosures applicable to certain mortgages under section 1639 of this title.

(b)	State credit charge statutes

Except as provided in section 1639 of this title, this subchapter does not otherwise annul, alter or affect in any manner the meaning, scope or applicability of the laws of any State, including, but not limited to, laws relating to the types, amounts or rates of charges, or any element or elements of charges, permissible under such laws in connection with the extension or use of credit, nor does this subchapter extend the applicability of those laws to any class of persons or transactions to which they would not otherwise apply. The provisions of section 1639 of this title do not annul, alter, or affect the applicability of the laws of any State or exempt any person subject to the provisions of section 1639 of this title from complying with the laws of any State, with respect to the requirements for mortgages referred to in section 1602(aa) of this title, except to the extent that those State laws are inconsistent with any provisions of section 1639 of this title, and then only to the extent of the inconsistency.

(c)	Disclosure as evidence

In any action or proceeding in any court involving a consumer credit sale, the disclosure of the annual percentage rate as required under this subchapter in connection with that sale may not be received as evidence that the sale was a loan or any type of transaction other than a credit sale.

(d) 	Contract or other obligations under State or Federal law

Except as specified in sections 1635, 1640, and 1666e of this title, this subchapter and the regulations issued thereunder do not affect the validity or enforceability of any contract or obligation under State or Federal law.

(e)	Certain credit and charge card application and solicitation disclosure provisions

The provisions of subsection (c) of section 1632 and subsections (c), (d),  (e), and (f) of section 1637 of this title shall supersede any provision of the law of any State relating to the disclosure of information in any credit or charge card application or solicitation which is subject to the requirements of section 1637(c) of this title or any renewal notice which is subject to the requirements of section 1637(d) of this title, except that any State may employ or establish State laws for the purpose of enforcing the requirements of such sections.

 Section 1611:  Criminal liability for willful and knowing violation

Whoever willfully and knowingly

(1)	gives false or inaccurate information or fails to provide information which he is required to disclose under the provisions of this subchapter or any regulation issued thereunder,

(2)	uses any chart or table authorized by the Board under section 1606 of this title in such a manner as to consistently understate the annual percentage rate determined under section 1606(a)(1)(A) of this title, or

(3)	otherwise fails to comply with any requirement imposed under this subchapter, shall be fined not more than $5,000 or imprisoned not more than one year, or both.

 Section 1612:  Effect on government agencies

(a)	Consultation requirements respecting compliance of credit instruments issued to participating creditor

Any department or agency of the United States which administers a credit program in which it extends, insures, or guarantees consumer credit and in which it provides instruments to a creditor which contain any disclosures required by this subchapter shall, prior to the issuance or continued use of such instruments, consult with the Board to assure that such instruments comply with this subchapter.

(b)	Inapplicability of Federal civil or criminal penalties to Federal, state, and local agencies

No civil or criminal penalty provided under this subchapter for any violation thereof may be imposed upon the United States or any department or agency thereof, or upon any State or political subdivision thereof, or any agency of any State or political subdivision.

(c)	Inapplicability of Federal civil or criminal penalties to participating creditor where violating instrument issued by United States

A creditor participating in a credit program administered, insured, or guaranteed by any department or agency of the United States shall not be held liable for a civil or criminal penalty under this subchapter in any case in which the violation results from the use of an instrument required by any such department or agency.

(d)	Applicability of State penalties to violations by participating creditor

A creditor participating in a credit program administered, insured, or guaranteed by any department or agency of the United States shall not be held liable for a civil or criminal penalty under the laws of any State (other than laws determined under section 1610 of this title to be inconsistent with this subchapter) for any technical or procedural failure, such as a failure to use a specific form, to make information available at a specific place on an instrument, or to use a specific typeface, as required by State law, which is caused by the use of an instrument required to be used by such department or agency.

 Section 1613:  Annual reports to Congress by Board

Each year the Board shall make a report to the Congress concerning the administration of its functions under this subchapter, including such recommendations as the Board deems necessary or appropriate.  In addition, each report of the Board shall include its assessment of the extent to which compliance with the requirements imposed under this subchapter is being achieved.

 Section 1615:  Prohibition on use of "Rule of 78's" in connection with mortgage refinancings and other consumer loans

(a)	Prompt refund of unearned interest required

(1)	In general

If a consumer prepays in full the financed amount under any consumer credit transaction, the creditor shall promptly refund any unearned portion of the  interest charge to the consumer.

(2)	Exception for refund of de minimus amount

No refund shall be required under paragraph (1) with respect to the prepayment of any consumer credit transaction if the total amount of the refund would be less than $1.

(3)	Applicability to refinanced transactions and acceleration by the creditor

This subsection shall apply with respect to any prepayment of a consumer credit transaction described in paragraph (1) without regard to the manner or the reason for the prepayment, including

(A)	any prepayment made in connection with the refinancing, consolidation, or restructuring of the transaction;  and

(B)	any prepayment made as a result of the acceleration of the obligation to repay the amount due with respect to the transaction.

(b)	Use of "Rule of 78's" prohibited

For the purpose of calculating any refund of interest required under subsection (a) of this section for any precomputed consumer credit transaction of a term exceeding 61 months which is consummated after September 30, 1993, the creditor shall compute the refund based on a method which is at least as favorable to the consumer as the actuarial method.

(c)	Statement of prepayment amount

(1)	In general

Before the end of the 5day period beginning on the date an oral or written request is received by a creditor from a consumer for the disclosure of the amount due on any precomputed consumer credit account, the creditor or assignee shall provide the consumer with a statement of

(A)	the amount necessary to prepay the account in full;  and

(B)	if the amount disclosed pursuant to subparagraph (A) includes an amount which is required to be refunded under this section with respect to such prepayment, the amount of such refund.

(2)	Written statement required if request is in writing

If the customer's request is in writing, the statement under paragraph (1) shall be in writing.

(3)	1 free annual statement

A consumer shall be entitled to obtain 1 statement under paragraph (1) each year without charge.

(4)	Additional statements subject to reasonable fees

Any creditor may impose a reasonable fee to cover the cost of providing any statement under paragraph (1) to any consumer in addition to the 1 free annual statement required under paragraph 	(3) if the amount of the charge for such additional statement is disclosed to the consumer before furnishing such statement.

(d)	Definitions

For the purpose of this section

(1)	Actuarial method

The term "actuarial method" means the method of allocating payments made on a debt between the amount financed and the finance charge pursuant to which a payment is applied first to the accumulated finance charge and any remainder is subtracted from, or any deficiency is added to, the unpaid balance of the amount financed.

(2)	Consumer, credit

The terms "consumer" and "creditor" have the meanings given to such terms in section 1602 of this title.

(3)	Creditor

The term "creditor"

(A)	has the meaning given to such term in section 1602 of this title;  and

(B)	includes any assignee of any creditor with respect to credit extended in connection with any consumer credit transaction and any subsequent assignee with respect to such credit.


Electronic Fund Transfers Act

15 U.S.C. Sections 1693 - 1693s

 Section 1693: Congressional findings and declaration of purpose

 (a) The Congress finds that the use of electronic systems to transfer funds provides the potential for substantial benefits to consumers.  However, due to the unique characteristics of such systems, the application of existing consumer protection legislation is unclear, leaving the rights and liabilities of consumers, financial institutions, and intermediaries in electronic fund transfers undefined.

 (b) It is the purpose of this subchapter to provide a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer systems.  The primary objective of this subchapter, however, is the provision of individual consumer rights.

 Section 1693a:  Definitions

 As used in this subchapter

  (1) the term "accepted card or other means of access" means a card, code, or other means of access to a consumer's account for the purpose of initiating electronic fund transfers when the person to whom such card or other means of access was issued has requested and received or has signed or has used, or authorized another to use, such card or other means of access for the purpose of transferring money between accounts or obtaining money, property, labor, or services;

  (2) the term "account" means a demand deposit, savings deposit, or other asset account (other than an occasional or incidental credit balance in an  open end credit plan as defined in section 1602(i) of this title), as described in regulations of the Board, established primarily for personal, family, or household purposes, but such term does not include an account held by a financial institution pursuant to a bona fide trust agreement;

  (3) the term "Board" means the Board of Governors of the Federal Reserve System;

  (4) the term "business day" means any day on which the offices of the consumer's financial institution involved in an electronic fund transfer are open to the public for carrying on substantially all of its business functions;

  (5) the term "consumer" means a natural person;

  (6) the term "electronic fund transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account.  Such term includes, but is not limited to, pointofsale transfers, automated teller machine transactions, direct deposits or withdrawals of funds, and transfers initiated by telephone.  Such term does not include

   (A) any check guarantee or authorization service which does not directly   result in a debit or credit to a consumer's account:

   (B) any transfer of funds, other than those processed by automated clearinghouse, made by a financial institution on behalf of a consumer by means of a service that transfers funds held at either Federal Reserve banks or other depository institutions and which is not designed primarily to transfer funds on behalf of a consumer;

   (C) any transaction the primary purpose of which is the purchase or sale of securities or commodities through a brokerdealer registered with or regulated by the Securities and Exchange Commission;

   (D) any automatic transfer from a savings account to a demand deposit account pursuant to an agreement between a consumer and a financial institution for the purpose of covering an overdraft or maintaining an agreed upon minimum balance in the consumer's demand deposit account;  or

   (E) any transfer of funds which is initiated by a telephone conversation between a consumer and an officer or employee of a financial institution which is not pursuant to a prearranged plan and under which periodic or recurring transfers are not contemplated;

  as determined under regulations of the Board;

  (7) the term "electronic terminal" means an electronic device, other than a  telephone operated by a consumer, through which a consumer may initiate an electronic fund transfer.  Such term includes, but is not limited to, point ofsale terminals, automated teller machines, and cash dispensing machines;

  (8) the term "financial institution" means a State or National bank, a State or Federal savings and loan association, a mutual savings bank, a State or Federal credit union, or any other person who, directly or indirectly, holds an account belonging to a consumer;

  (9) the term "preauthorized electronic fund transfer" means an electronic fund transfer authorized in advance to recur at substantially regular intervals;

  (10) the term "State" means any State, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any political subdivision of any of the foregoing;  and

  (11) the term "unauthorized electronic fund transfer" means an electronic fund transfer from a consumer's account initiated by a person other than the consumer without actual authority to initiate such transfer and from which the consumer receives no benefit, but the term does not include any electronic fund transfer (A) initiated by a person other than the consumer who was furnished with the card, code, or other means of access to such consumer's account by such consumer, unless the consumer has notified the financial  institution involved that transfers by such other person are no longer authorized, (B) initiated with fraudulent intent by the consumer or any person acting in concert with the consumer, or (C) which constitutes an error committed by a financial institution.

 Section 1693b: Regulations

(a) Prescription by Board

 The Board shall prescribe regulations to carry out the purposes of this subchapter.  In prescribing such regulations, the Board shall:

  (1) consult with the other agencies referred to in section 1693o of this title and take into account, and allow for, the continuing evolution of electronic banking services and the technology utilized in such services,

  (2) prepare an analysis of economic impact which considers the costs and benefits to financial institutions, consumers, and other users of electronic  fund transfers, including the extent to which additional documentation, reports, records, or other paper work would be required, and the effects upon competition in the provision of electronic banking services among large and small financial institutions and the availability of such services to different classes of consumers, particularly low income consumers,

  (3) to the extent practicable, the Board shall demonstrate that the consumer protections of the proposed regulations outweigh the compliance costs imposed upon consumers and financial institutions, and

  (4) any proposed regulations and accompanying analyses shall be sent promptly to Congress by the Board.

(b) Issuance of model clauses

 The Board shall issue model clauses for optional use by financial institutions to facilitate compliance with the disclosure requirements of section 1693c of this title and to aid consumers in understanding the rights and responsibilities of participants in electronic fund transfers by utilizing readily understandable language.  Such model clauses shall be adopted after notice duly given in the Federal Register and opportunity for public comment in accordance with section 553 of Title 5.  With respect to the disclosures required by section 1693c(a)(3) and (4) of this title, the Board shall take account of variations in the services and charges under different electronic fund transfer systems and, as appropriate, shall issue alternative model clauses for disclosure of these differing account terms.

(c) Criteria;  modification of requirements

 Regulations prescribed hereunder may contain such classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for any class of electronic fund transfers, as in the judgment of the Board are necessary or proper to effectuate the purposes of this subchapter, to prevent circumvention or evasion thereof, or to facilitate compliance therewith.  The Board shall by regulation modify the requirements imposed by this subchapter on small financial institutions if the Board determines that such modifications are necessary to alleviate any undue compliance burden on small financial institutions and such modifications are consistent with the purpose and objective of this subchapter.

(d) Applicability to service providers other than certain financial institutions

  (1) In general

  If electronic fund transfer services are made available to consumers by a person other than a financial institution holding a consumer's account, the Board shall by regulation assure that the disclosures, protections, responsibilities, and remedies created by this subchapter are made applicable to such persons and services.

  (2) State and local government electronic benefit transfer systems

    (A) Definition of electronic benefit transfer system

   In this paragraph, the term "electronic benefit transfer system"

    (i) means a system under which a government agency distributes needstested benefits by establishing accounts that may be accessed by recipients electronically, such as through automated teller machines or pointofsale terminals;  and

    (ii) does not include employmentrelated payments, including salaries and    pension, retirement, or unemployment benefits established by a Federal, State, or local government agency.

    (B) Exemption generally

   The disclosures, protections, responsibilities, and remedies established under this subchapter, and any regulation prescribed or order issued by the Board in accordance with this subchapter, shall not apply to any electronic benefit transfer system established under State or local law or administered by a State or local government.

    (C) Exception for direct deposit into recipient's account

   Subparagraph (B) shall not apply with respect to any electronic funds transfer under an electronic benefit transfer system for a deposit directly into a consumer account held by the recipient of the benefit.

    (D) Rule of construction

   No provision of this paragraph

    (i) affects or alters the protections otherwise applicable with respect to benefits established by any other provision Federal, State, or local law; or

    (ii) otherwise supersedes the application of any State or local law.

 Section 1693c: Terms and conditions of transfer

(a) Disclosures;  time;  form;  contents

 The terms and conditions of electronic fund transfers involving a consumer's account shall be disclosed at the time the consumer contracts for an electronic fund transfer service, in accordance with regulations of the Board.  Such disclosures shall be in readily understandable language and shall include, to the extent applicable

  (1) the consumer's liability for unauthorized electronic fund transfers and, at the financial institution's option, notice of the advisability of prompt  reporting of any loss, theft, or unauthorized use of a card, code, or other means of access;

  (2) the telephone number and address of the person or office to be notified in the event the consumer believes than  [FN1] an unauthorized electronic fund transfer has been or may be effected;

  (3) the type and nature of electronic fund transfers which the consumer may initiate, including any limitations on the frequency or dollar amount of such transfers, except that the details of such limitations need not be disclosed if their confidentiality is necessary to maintain the security of an electronic fund transfer system, as determined by the Board;

  (4) any charges for electronic fund transfers or for the right to make such transfers;

  (5) the consumer's right to stop payment of a preauthorized electronic fund transfer and the procedure to initiate such a stop payment order;

  (6) the consumer's right to receive documentation of electronic fund transfers under section 1693d of this title;

  (7) a summary, in a form prescribed by regulations of the Board, of the error resolution provisions of section 1693f of this title and the consumer's rights thereunder.  The financial institution shall thereafter transmit such summary at least once per calendar year;

  (8) the financial institution's liability to the consumer under section 1693h of this title;  and

  (9) under what circumstances the financial institution will in the ordinary course of business disclose information concerning the consumer's account to third persons.

(b) Notification of changes to consumer

 A financial institution shall notify a consumer in writing at least twentyone days prior to the effective date of any change in any term or condition of the consumer's account required to be disclosed under subsection (a) of this section if such change would result in greater cost or liability for such consumer or decreased access to the consumer's account.  A financial institution may, however, implement a change in the terms or conditions of an account without prior notice when such change is immediately necessary to maintain or restore the security of an electronic fund transfer system or a consumer's account.  Subject to subsection (a)(3) of this section, the Board shall require subsequent notification if such a change is made permanent.

(c) Time for disclosures respecting accounts accessible prior to effective date  of this subchapter

 For any account of a consumer made accessible to electronic fund transfers prior to the effective date of this subchapter, the information required to be disclosed to the consumer under subsection (a) of this section shall be disclosed not later than the earlier of

  (1) the first periodic statement required by section 1693d(c) of this title after the effective date of this subchapter;  or

  (2) thirty days after the effective date of this subchapter.

 Section 1693d: Documentation of transfers

(a) Availability of written documentation to consumer;  contents

 For each electronic fund transfer initiated by a consumer from an electronic terminal, the financial institution holding such consumer's account shall, directly or indirectly, at the time the transfer is initiated, make available to the consumer written documentation of such transfer.  The documentation shall clearly set forth to the extent applicable

  (1) the amount involved and date the transfer is initiated;

  (2) the type of transfer;

  (3) the identity of the consumer's account with the financial institution from which or to which funds are transferred;

  (4) the identity of any third party to whom or from whom funds are transferred;  and

  (5) the location or identification of the electronic terminal involved.

(b) Notice of credit to consumer

 For a consumer's account which is scheduled to be credited by a preauthorized electronic fund transfer from the same payor at least once in each successive sixtyday period, except where the payor provides positive notice of the transfer to the consumer, the financial institution shall elect to provide promptly either positive notice to the consumer when the credit is made as scheduled, or negative notice to the consumer when the credit is not made as scheduled, in accordance with regulations of the Board.  The means of notice elected shall be disclosed to the consumer in accordance with section 1693c of this title.

(c) Periodic statement;  contents

 A financial institution shall provide each consumer with a periodic statement for each account of such consumer that may be accessed by means of an electronic fund transfer.  Except as provided in subsections (d) and (e) of this section, such statement shall be provided at least monthly for each monthly or shorter cycle in which an electronic fund transfer affecting the account has occurred, or every three months, whichever is more frequent.  The statement, which may include information regarding transactions other than electronic fund transfers, shall clearly set forth

  (1) with regard to each electronic fund transfer during the period, the information described in subsection (a) of this section, which may be provided on an accompanying document;

  (2) the amount of any fee or charge assessed by the financial institution during the period for electronic fund transfers or for account maintenance;

  (3) the balances in the consumer's account at the beginning of the period and at the close of the period;  and

  (4) the address and telephone number to be used by the financial institution for the purpose of receiving any statement inquiry or notice of account error from the consumer.  Such address and telephone number shall be preceded by the caption "Direct Inquiries To:"  or other similar language indicating that the address and number are to be used for such inquiries or notices.

(d) Consumer passbook accounts

 In the case of a consumer's passbook account which may not be accessed by electronic fund transfers other than preauthorized electronic fund transfers crediting the account, a financial institution may, in lieu of complying with the requirements of subsection (c) of this section, upon presentation of the passbook provide the consumer in writing with the amount and date of each such transfer involving the account since the passbook was last presented.

(e) Accounts other than passbook accounts

 In the case of a consumer's account, other than a passbook account, which may not be accessed by electronic fund transfers other than preauthorized electronic fund transfers crediting the account, the financial institution may provide a periodic statement on a quarterly basis which otherwise complies with the requirements of subsection (c) of this section.

(f) Documentation as evidence

 In any action involving a consumer, any documentation required by this section to be given to the consumer which indicates that an electronic fund transfer was made to another person shall be admissible as evidence of such transfer and shall constitute prima facie proof that such transfer was made.

 Section 1693e: Preauthorized transfers

 (a) A preauthorized electronic fund transfer from a consumer's account may be authorized by the consumer only in writing, and a copy of such authorization shall be provided to the consumer when made.  A consumer may stop payment of a preauthorized electronic fund transfer by notifying the financial institution orally or in writing at any time up to three business days preceding the scheduled date of such transfer.  The financial institution may require written confirmation to be provided to it within fourteen days of an oral notification if, when the oral notification is made, the consumer is advised of such requirement and the address to which such confirmation should be sent.

 (b) In the case of preauthorized transfers from a consumer's account to the same person which may vary in amount, the financial institution or designated payee shall, prior to each transfer, provide reasonable advance notice to the consumer, in accordance with regulations of the Board, of the amount to be transferred and the scheduled date of the transfer.

 Section 1693f: Error resolution

(a) Notification to financial institution of error

 If a financial institution, within sixty days after having transmitted to a consumer documentation pursuant to section 1693d(a), (c), or (d) of this title or notification pursuant to section 1693d(b) of this title, receives oral or written notice in which the consumer

  (1) sets forth or otherwise enables the financial institution to identify the name and account number of the consumer;

  (2) indicates the consumer's belief that the documentation, or, in the case  of notification pursuant to section 1693d(b) of this title, the consumer's account, contains an error and the amount of such error;  and

  (3) sets forth the reasons for the consumer's belief (where applicable) that an error has occurred,

the financial institution shall investigate the alleged error, determine whether an error has occurred, and report or mail the results of such investigation and determination to the consumer within ten business days.  The financial institution may require written confirmation to be provided to it within ten business days of an oral notification of error if, when the oral notification is made, the consumer is advised of such requirement and the address to which such confirmation should be sent.  A financial institution which requires written confirmation in accordance with the previous sentence need not provisionally recredit a consumer's account in accordance with subsection (c) of this section, nor shall the financial institution be liable under subsection (e) of this section if the written confirmation is not received within the tenday period referred to in the previous sentence.

(b) Correction of error;  interest

 If the financial institution determines that an error did occur, it shall promptly, but in no event more than one business day after such determination, correct the error, subject to section 1693g of this title, including the crediting of interest where applicable.

(c) Provisional recredit of consumer's account

 If a financial institution receives notice of an error in the manner and within the time period specified in subsection (a) of this section, it may, in lieu of the requirements of subsections (a) and (b) of this section, within ten business days after receiving such notice provisionally recredit the consumer's account for the amount alleged to be in error, subject to section 1693g of this title, including interest where applicable, pending the conclusion of its investigation and its determination of whether an error has occurred.  Such investigation shall be concluded not later than fortyfive days after receipt of notice of the error.  During the pendency of the investigation, the consumer shall have full use of the funds provisionally recredited.

(d) Absence of error;  finding;  explanation

 If the financial institution determines after its investigation pursuant to subsection (a) or (c) of this section that an error did not occur, it shall deliver or mail to the consumer an explanation of its findings within 3 business days after the conclusion of its investigation, and upon request of the consumer promptly deliver or mail to the consumer reproductions of all documents which the financial institution relied on to conclude that such error did not occur.  The financial institution shall include notice of the right to request reproductions with the explanation of its findings.

(e) Treble damages

 If in any action under section 1693m of this title, the court finds that

  (1) the financial institution did not provisionally recredit a consumer's account within the tenday period specified in subsection (c) of this section, and the financial institution (A) did not make a good faith investigation of the alleged error, or (B) did not have a reasonable basis for believing that the consumer's account was not in error;  or

  (2) the financial institution knowingly and willfully concluded that the consumer's account was not in error when such conclusion could not reasonably have been drawn from the evidence available to the financial institution at  the time of its investigation.

then the consumer shall be entitled to treble damages determined under section 1693m(a)(1) of this title.

(f) Acts constituting error

 For the purpose of this section, an error consists of

  (1) an unauthorized electronic fund transfer;

  (2) an incorrect electronic fund transfer from or to the consumer's account;

  (3) the omission from a periodic statement of an electronic fund transfer affecting the consumer's account which should have been included;

  (4) a computational error by the financial institution;

  (5) the consumer's receipt of an incorrect amount of money from an electronic terminal;

  (6) a consumer's request for additional information or clarification concerning an electronic fund transfer or any documentation required by this subchapter;  or

  (7) any other error described in regulations of the Board.

 Section 1693g: Consumer liability

(a) Unauthorized electronic fund transfers;  limit

 A consumer shall be liable for any unauthorized electronic fund transfer involving the account of such consumer only if the card or other means of access utilized for such transfer was an accepted card or other meanas [FN1] of access and if the issuer of such card, code, or other means of access has provided a means whereby the user of such card, code, or other means of access can be identified as the person authorized to use it, such as by signature, photograph, or fingerprint or by electronic or mechanical confirmation.  In no event, however, shall a consumer's liability for an unauthorized transfer exceed the lesser of

  (1) $50;  or

  (2) the amount of money or value of property or services obtained in such unauthorized electronic fund transfer prior to the time the financial institution is notified of, or otherwise becomes aware of, circumstances which lead to the reasonable belief that an unauthorized electronic fund transfer involving the consumer's account has been or may be effected.  Notice under this paragraph is sufficient when such steps have been taken as may be reasonably required in the ordinary course of business to provide the financial institution with the pertinent information, whether or not any particular officer, employee, or agent of the financial institution does in fact receive such information.

Notwithstanding the foregoing, reimbursement need not be made to the consumer for losses the financial institution establishes would not have occurred but for the failure of the consumer to report within sixty days of transmittal of the statement (or in extenuating circumstances such as extended travel or hospitalization, within a reasonable time under the circumstances) any unauthorized electronic fund transfer or account error which appears on the periodic statement provided to the consumer under section 1693d of this title.  In addition, reimbursement need not be made to the consumer for losses which the financial institution establishes would not have occurred but for the failure of the consumer to report any loss or theft of a card or other means of access within two business days after the consumer learns of the loss or theft (or in extenuating circumstances such as extended travel or hospitalization, within a longer period which is reasonable under the circumstances), but the consumer's liability under this subsection in any such case may not exceed a total of $500, or the amount of unauthorized electronic fund transfers which occur following the close of two business days (or such longer period) after the consumer learns of the loss or theft but prior to notice to the financial institution under this subsection, whichever is less.

(b) Burden of proof

 In any action which involves a consumer's liability for an unauthorized electronic fund transfer, the burden of proof is upon the financial institution to show that the electronic fund transfer was authorized or, if the electronic fund transfer was unauthorized, then the burden of proof is upon the financial institution to establish that the conditions of liability set forth in subsection (a) of this section have been met, and, if the transfer was initiated after the effective date of section 1693c of this title, that the disclosures required to be made to the consumer under section 1693c(a)(1) and (2) of this title were in fact made in accordance with such section.

(c) Determination of limitation on liability

 In the event of a transaction which involves both an unauthorized electronic fund transfer and an extension of credit as defined in section 1602(e) of this title pursuant to an agreement between the consumer and the financial institution to extend such credit to the consumer in the event the consumer's account is overdrawn, the limitation on the consumer's liability for such transaction shall be determined solely in accordance with this section.

(d) Restriction on liability

 Nothing in this section imposes liability upon a consumer for an unauthorized electronic fund transfer in excess of his liability for such a transfer under other applicable law or under any agreement with the consumer's financial institution.

(e) Scope of liability

 Except as provided in this section, a consumer incurs no liability from an unauthorized electronic fund transfer.

 Section 1693h: Liability of financial institutions

(a) Action or failure to act proximately causing damages

 Subject to subsections (b) and (c) of this section, a financial institution shall be liable to a consumer for all damages proximately caused by

  (1) the financial institution's failure to make an electronic fund transfer, in accordance with the terms and conditions of an account, in the correct amount or in a timely manner when properly instructed to do so by the consumer, except where

   (A) the consumer's account has insufficient funds;

   (B) the funds are subject to legal process or other encumbrance restricting such transfer;

   (C) such transfer would exceed an established credit limit;

   (D) an electronic terminal has insufficient cash to complete the transaction;  or

   (E) as otherwise provided in regulations of the Board;

  (2) the financial institution's failure to make an electronic fund transfer due to insufficient funds when the financal  [FN1] institution failed to credit, in accordance with the terms and conditions of an account, a deposit of funds to the consumer's account which would have provided sufficient funds to make the transfer, and

  (3) the financial institution's failure to stop payment of a preauthorized transfer from a consumer's account when instructed to do so in accordance with the terms and conditions of the account.

(b) Acts of God and technical malfunctions

 A financial institution shall not be liable under subsection (a)(1) or (2) of this section if the financial institution shows by a preponderance of the evidence that its action or failure to act resulted from

  (1) an act of God or other circumstance beyond its control, that it exercised reasonable care to prevent such an occurrence, and that it exercised such diligence as the circumstances required;  or

  (2) a technical malfunction which was known to the consumer at the time he attempted to initiate an electronic fund transfer or, in the case of a preauthorized transfer, at the time such transfer should have occurred.

(c) Intent

 In the case of a failure described in subsection (a) of this section which was not intentional and which resulted from a bona fide error, notwithstanding the maintenance of procedures reasonably adapted to avoid any such error, the financial institution shall be liable for actual damages proved.

 Section 1693i: Issuance of cards or other means of access

(a) Prohibition;  proper issuance

 No person may issue to a consumer any card, code, or other means of access to such consumer's account for the purpose of initiating an electronic fund transfer other than

  (1) in response to a request or application therefor;  or

  (2) as a renewal of, or in substitution for, an accepted card, code, or other means of access, whether issued by the initial issuer or a successor.

(b) Exceptions

 Notwithstanding the provisions of subsection (a) of this section, a person may distribute to a consumer on an unsolicited basis a card, code, or other means of access for use in initiating an electronic fund transfer from such consumer's account, if

  (1) such card, code, or other means of access is not validated;

  (2) such distribution is accompanied by a complete disclosure, in accordance with section 1693c of this title, of the consumer's rights and liabilities which will apply if such card, code, or other means of access is validated;

  (3) such distribution is accompanied by a clear explanation, in accordance with regulations of the Board, that such card, code, or other means of access is not validated and how the consumer may dispose of such code, card, or other means of access if validation is not desired;  and

  (4) such card, code, or other means of access is validated only in response to a request or application from the consumer, upon verification of the consumer's identity.

(c) Validation

 For the purpose of subsection (b) of this section, a card, code, or other means of access is validated when it may be used to initiate an electronic fund transfer.

 Section 1693j: Suspension of obligations

 If a system malfunction prevents the effectuation of an electronic fund transfer initiated by a consumer to another person, and such other person has agreed to accept payment by such means, the consumer's obligation to the other person shall be suspended until the malfunction is corrected and the electronic fund transfer may be completed, unless such other person has subsequently, by written request, demanded payment by means other than an electronic fund transfer.

 Section 1693k: Compulsory use of electronic fund transfers

 No person may

  (1) condition the extension of credit to a consumer on such consumer's repayment by means of preauthorized electronic fund transfers;  or

  (2) require a consumer to establish an account for receipt of electronic fund transfers with a particular financial institution as a condition of employment or receipt of a government benefit.

 Section 1693l. Waiver of rights

 No writing or other agreement between a consumer and any other person may contain any provision which constitutes a waiver of any right conferred or cause of action created by this subchapter.  Nothing in this section prohibits, however, any writing or other agreement which grants to a consumer a more extensive right or remedy or greater protection than contained in this subchapter or a waiver given in settlement of a dispute or action.

 Section 1693m: Civil liability

(a) Individual or class action for damages;  amount of award

 Except as otherwise provided by this section and section 1693h of this title, any person who fails to comply with any provision of this subchapter with respect to any consumer, except for an error resolved in accordance with section 1693f of this title, is liable to such consumer in an amount equal to the sum of

  (1) any actual damage sustained by such consumer as a result of such failure;

  (2)(A) in the case of an individual action, an amount not less than $100 nor  greater than $1,000;  or

  (B) in the case of a class action, such amount as the court may allow, except that (i) as to each member of the class no minimum recovery shall be applicable, and (ii) the total recovery under this subparagraph in any class action or series of class actions arising out of the same failure to comply by the same person shall not be more than the lesser of $500,000 or 1 per centum of the net worth of the defendant;  and

  (3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney's fee as determined by the court.

(b) Factors determining amount of award

 In determining the amount of liability in any action under subsection (a) of this section, the court shall consider, among other relevant factors

  (1) in any individual action under subsection (a)(2)(A) of this section, the frequency and persistence of noncompliance, the nature of such noncompliance, and the extent to which the noncompliance was intentional;  or

  (2) in any class action under subsection (a)(2)(B) of this section, the frequency and persistence of noncompliance, the nature of such noncompliance,  the resources of the defendant, the number of persons adversely affected, and the extent to which the noncompliance was intentional.

(c) Unintentional violations;  bona fide error

 Except as provided in section 1693h of this title, a person may not be held liable in any action brought under this section for a violation of this subchapter if the person shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.

(d) Good faith compliance with rule, regulation, or interpretation of Board or approval of duly authorized official or employee of Federal Reserve System

 No provision of this section or section 1693n of this title imposing any liability shall apply to

  (1) any act done or omitted in good faith in conformity with any rule, regulation, or interpretation thereof by the Board or in conformity with any interpretation or approval by an official or employee of the Federal Reserve  System duly authorized by the Board to issue such interpretations or approvals under such procedures as the Board may prescribe therefor;  or

  (2) any failure to make disclosure in proper form if a financial institution utilized an appropriate model clause issued by the Board,

notwithstanding that after such act, omission, or failure has occurred, such rule, regulation, approval, or model clause is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.

(e) Notification to consumer prior to action;  adjustment of consumer's account

 A person has no liability under this section for any failure to comply with any requirement under this subchapter if, prior to the institution of an action under this section, the person notifies the consumer concerned of the failure, complies with the requirements of this subchapter, and makes an appropriate adjustment to the consumer's account and pays actual damages or, where applicable, damages in accordance with section 1693h of this title.

(f) Action in bad faith or for harassment;  attorney's fees

 On a finding by the court that an unsuccessful action under this section was brought in bad faith or for purposes of harassment, the court shall award to the defendant attorney's fees reasonable in relation to the work expended and costs.

(g) Jurisdiction of courts;  time for maintenance of action

 Without regard to the amount in controversy, any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation.

 Section 1693n:  Criminal liability

(a) Violations respecting giving of false or inaccurate information, failure to provide information, and failure to comply with provisions of this subchapter

 Whoever knowingly and willfully

  (1) gives false or inaccurate information or fails to provide information which he is required to disclose by this subchapter or any regulation issued thereunder;  or

  (2) otherwise fails to comply with any provision of this subchapter;

shall be fined not more than $5,000 or imprisoned not more than one year, or both.

(b) Violations affecting interstate or foreign commerce

 Whoever

  (1) knowingly, in a transaction affecting interstate or foreign commerce, uses or attempts or conspires to use any counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained debit instrument to obtain money, goods, services, or anything else of value which within any oneyear period has a value aggregating $1,000 or more;  or

  (2) with unlawful or fraudulent intent, transports or attempts or conspires to transport in interstate or foreign commerce a counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained debit instrument knowing the same to be counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained;  or

  (3) with unlawful or fraudulent intent, uses any instrumentality of interstate or foreign commerce to sell or transport a counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained debit instrument knowing the same to be counterfeit, fictitious, altered, forged, lost, stolen,  or fraudulently obtained;  or

  (4) knowingly receives, conceals, uses, or transports money, goods, services, or anything else of value (except tickets for interstate or foreign transportation) which (A) within any oneyear period has a value aggregating $1,000 or more, (B) has moved in or is part of, or which constitutes interstate or foreign commerce, and (C) has been obtained with a counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained debit instrument;  or

  (5) knowingly receives, conceals, uses, sells, or transports in interstate or foreign commerce one or more tickets for interstate or foreign transportation, which (A) within any oneyear period have a value aggregating $500 or more, and (B) have been purchased or obtained with one or more counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained debit instrument;  or

  (6) in a transaction affecting interstate or foreign commerce, furnishes money, property, services, or anything else of value, which within any one year period has a value aggregating $1,000 or more, through the use of any counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained debit instrument knowing the same to be counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained

shall be fined not more than $10,000 or imprisoned not more than ten years, or both.

(c) "Debit instrument" defined

 As used in this section, the term "debit instrument" means a card, code, or other device, other than a check, draft, or similar paper instrument, by the use of which a person may initiate an electronic fund transfer.

 Section 1693o: Administrative enforcement

(a) Enforcing agencies

 Compliance with the requirements imposed under this subchapter shall be enforced under

  (1) section 8 of the Federal Deposit Insurance Act [12 U.S.C.A. § 1818], in the case of

   (A) national banks, and Federal branches and Federal agencies of foreign banks, by the Office of the Comptroller of the Currency;

   (B) member banks of the Federal Reserve System (other than national banks),   branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25(a) of the Federal Reserve Act [12 U.S.C.A. §§ 601 et seq., 611 et seq.], by the Board;  and

   (C) banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation;

  (2) section 8 of the Federal Deposit Insurance Act [12 U.S.C.A. § 1818], by the Director of the Office of Thrift Supervision, in the case of a savings association the deposits of which are insured by the Federal Deposit Insurance Corporation;

  (3) the Federal Credit Union Act, by the Administrator of the National Credit Union Administration with respect to any Federal credit union. [FN1]

  (4) the Federal Aviation Act of 1958, by the Secretary of Transportation, with respect to any air carrier or foreign air carrier subject to that Act; and

  (5) the Securities Exchange Act of 1934, by the Securities and Exchange Commission, with respect to any broker or dealer subject to that Act.

The terms used in paragraph (1) that are not defined in this subchapter or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).

(b) Violations of subchapter deemed violations of preexisting statutory requirements;  additional powers

 For the purpose of the exercise by any agency referred to in subsection (a) of this section of its powers under any Act referred to in that subsection, a violation of any requirement imposed under this subchapter shall be deemed to be a violation of a requirement imposed under that Act.  In addition to its powers under any provision of law specifically referred to in subsection (a) of this section, each of the agencies referred to in that subsection may exercise, for the purpose of enforcing compliance with any requirement imposed under this subchapter, any other authority conferred on it by law.

(c) Overall enforcement authority of Federal Trade Commission

 Except to the extent that enforcement of the requirements imposed under this subchapter is specifically committed to some other Government agency under subsection (a) of this section, the Federal Trade Commission shall enforce such requirements.  For the purpose of the exercise by the Federal Trade Commission of its functions and powers under the Federal Trade Commission Act, a violation of any requirement imposed under this subchapter shall be deemed a violation of a requirement imposed under that Act.  All of the functions and powers of the Federal Trade Commission under the Federal Trade Commission Act are available to the Commission to enforce compliance by any person subject to the jurisdiction of the Commission with the requirements imposed under this subchapter, irrespective of whether that person is engaged in commerce or meets any other jurisdictional tests in the Federal Trade Commission Act.

 Section 1693p: Reports to Congress

 (a) Not later than twelve months after the effective date of this subchapter and at oneyear intervals thereafter, the Board shall make reports to the Congress concerning the administration of its functions under this subchapter, including such recommendations as the Board deems necessary and appropriate. In addition, each report of the Board shall include its assessment of the extent to which compliance with this subchapter is being achieved, and a summary of the enforcement actions taken under section 1693o of this title.  In such report, the Board shall particularly address the effects of this subchapter on the costs and benefits to financial institutions and consumers, on competition, on the introduction of new technology, on the operations of financial institutions, and on the adequacy of consumer protection.

 (b) In the exercise of its functions under this subchapter, the Board may obtain upon request the views of any other Federal agency which, in the judgment of the Board, exercises regulatory or supervisory functions with respect to any class of persons subject to this subchapter.

 Section 1693q: Relation to State laws

 This subchapter does not annul, alter, or affect the laws of any State relating to electronic fund transfers, except to the extent that those laws are inconsistent with the provisions of this subchapter, and then only to the extent of the inconsistency.  A State law is not inconsistent with this subchapter if the protection such law affords any consumer is greater than the protection afforded by this subchapter.  The Board shall, upon its own motion or upon the request of any financial institution, State, or other interested party, submitted in accordance with procedures prescribed in regulations of the Board, determine whether a State requirement is inconsistent or affords greater protection.  If the Board determines that a State requirement is inconsistent, financial institutions shall incur no liability under the law of that State for a good faith failure to comply with that law, notwithstanding that such determination is subsequently amended, rescinded, or determined by judicial or other authority to be invalid for any reason.  This subchapter does not extend the applicability of any such law to any class of persons or transactions to which it would not otherwise apply.

 Section 1693r: Exemption for State regulation

 The Board shall by regulation exempt from the requirements of this subchapter any class of electronic fund transfers within any State if the Board determines that under the law of that State that class of electronic fund transfers is subject to requirements substantially similar to those imposed by this subchapter, and that there is adequate provision for enforcement.


Equal Credit Opportunity Act

15 U.S.C. Sections 1691-1691f

 Section 1691:  Scope of prohibition

(a)	Activities constituting discrimination

It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction

(1)	on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract);

(2)	because all or part of the applicant's income derives from any public assistance program;  or

(3)	because the applicant has in good faith exercised any right under this  chapter.

(b)	Activities not constituting discrimination

It shall not constitute discrimination for purposes of this subchapter for a creditor

(1)	to make an inquiry of marital status if such inquiry is for the purpose of ascertaining the creditor's rights and remedies applicable to the particular extension of credit and not to discriminate in a determination of creditworthiness;

(2)	to make an inquiry of the applicant's age or of whether the applicant's income derives from any public assistance program if such inquiry is for the purpose of determining the amount and probable continuance of income levels, credit history, or other pertinent element of creditworthiness as provided in regulations of the Board;

(3)	to use any empirically derived credit system which considers age if such system is demonstrably and statistically sound in accordance with regulations of the Board, except that in the operation of such system the age of an elderly applicant may not be assigned a negative factor or value;  or

(4)	to make an inquiry or to consider the age of an elderly applicant when  the age of such applicant is to be used by the creditor in the extension of credit in favor of such applicant.

(c)	Additional activities not constituting discrimination

It is not a violation of this section for a creditor to refuse to extend credit offered pursuant to

(1)	any credit assistance program expressly authorized by law for an economically disadvantaged class of persons;

(2)	any credit assistance program administered by a nonprofit organization for its members or an economically disadvantaged class of persons;  or

(3)	any special purpose credit program offered by a profitmaking organization to meet special social needs which meets standards prescribed in regulations by the Board; if such refusal is required by or made pursuant to such program.

(d)	Reason for adverse action;  procedure applicable;  definition

(1)	Within thirty days (or such longer reasonable time as specified in regulations of the Board for any class of credit transaction) after receipt of a completed application for credit, a creditor shall notify the applicant of its action on the application.

(2)	Each applicant against whom adverse action is taken shall be entitled to a statement of reasons for such action from the creditor.  A creditor satisfies this obligation by

(A)	providing statements of reasons in writing as a matter of course to applicants against whom adverse action is taken;  or

(B)	giving written notification of adverse action which discloses--

(i) the applicant's right to a statement of reasons within thirty days after receipt by the creditor of a request made within sixty days after such notification, and

(ii) the identity of the person or office from which such statement may be obtained.

Such statement may be given orally if the written notification advises the applicant of his right to have the statement of reasons confirmed in writing on written request.

(3)	A statement of reasons meets the requirements of this section only if it contains the specific reasons for the adverse action taken.

(4)	Where a creditor has been requested by a third party to make a specific extension of credit directly or indirectly to an applicant, the notification and statement of reasons required by this subsection may be made directly by such creditor, or indirectly through the third party, provided in either case that the identity of the creditor is disclosed.

(5)	The requirements of paragraph (2), (3), or (4) may be satisfied by verbal statements or notifications in the case of any creditor who did not act on more than one hundred and fifty applications during the calendar year preceding the calendar year in which the adverse action is taken, as determined under regulations of the Board.

(6)	For purposes of this subsection, the term "adverse action" means a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested.  Such term does not include a refusal to extend additional credit under an existing credit arrangement where the applicant is delinquent or otherwise in default, or where such additional credit would exceed a previously established credit limit.

(e)	Appraisals;  copies of reports to applicants;  costs

Each creditor shall promptly furnish an applicant, upon written request by the applicant made within a reasonable period of time of the application, a copy of the appraisal report used in connection with the applicant's application for a loan that is or would have been secured by a lien on residential real property.  The creditor may require the applicant to reimburse the creditor for the cost of the appraisal.

 Section 1691a:  Definitions;  rules of construction

(a)	The definitions and rules of construction set forth in this section are applicable for the purposes of this subchapter.

(b)	The term "applicant" means any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.

(c)	The term "Board" refers to the Board of Governors of the Federal Reserve System.

(d)	The term "credit" means the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.

(e)	The term "creditor" means any person who regularly extends, renews, or continues credit;  any person who regularly arranges for the extension, renewal, or continuation of credit;  or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.

(f)	The term "person" means a natural person, a corporation, government or governmental subdivision or agency, trust, estate, partnership, cooperative, or association.

(g)	Any reference to any requirement imposed under this subchapter or any provision thereof includes reference to the regulations of the Board under this subchapter or the provision thereof in question.

 Section 1691b:  Promulgation of regulations by Board;  establishment of Consumer Advisory Council by Board;  duties, membership, etc., of Council

(a)	Regulations

(1)	The Board shall prescribe regulations to carry out the purposes of this subchapter.  These regulations may contain but are not limited to such classifications, differentiation, or other provision, and may provide for such adjustments and exceptions for any class of transactions, as in the judgment of the Board are necessary or proper to effectuate the purposes of this subchapter, to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance therewith.

(2)	Such regulations may exempt from the provisions of this subchapter any class of transactions that are not primarily for personal, family, or household purposes, or business or commercial loans made available by a financial institution, except that a particular type within a class of such transactions may be exempted if the Board determines, after making an express finding that the application of this subchapter or of any provision of this subchapter of such transaction would not contribute substantially to effecting the purposes of this subchapter.

(3)	An exemption granted pursuant to paragraph (2) shall be for no longer than five years and shall be extended only if the Board makes a subsequent determination, in the manner described by such paragraph, that such exemption remains appropriate.

(4)	Pursuant to Board regulations, entities making business or commercial loans shall maintain such records or other data relating to such loans as may be necessary to evidence compliance with this subsection or enforce any action pursuant to the authority of this chapter.  In no event shall such records or data be maintained for a period of less than one year.  The Board shall promulgate regulations to implement this paragraph in the manner prescribed by chapter 5 of Title 5.

(5)	The Board shall provide in regulations that an applicant for a business or commercial loan shall be provided a written notice of such applicant's right to receive a written statement of the reasons for the denial of such loan.

(b)	Consumer Advisory Council

The Board shall establish a Consumer Advisory Council to advise and consult with it in the exercise of its functions under this chapter and to advise and consult with it concerning other consumer related matters it may place before the Council.  In appointing the members of the Council, the Board shall seek to achieve a fair representation of the interests of creditors and consumers.  The Council shall meet from time to time at the call of the Board.  Members of the Council who are not regular fulltime employees of the United States shall, while attending meetings of such Council, be entitled to receive compensation at a rate fixed by the Board, but not exceeding $100 per day, including travel time.  Such members may be allowed travel expenses, including transportation and subsistence, while away from their homes or regular place of business.

 Section 1691c:  Administrative enforcement

(a)	Enforcing agencies

Compliance with the requirements imposed under this subchapter shall be enforced under:

(1)	section 8 of the Federal Deposit Insurance Act [12 U.S.C.A. Section 1818], in the case of

(A)	national banks, and Federal branches and Federal agencies of foreign banks, by the Office of the Comptroller of the Currency;

(B)	member banks of the Federal Reserve System (other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25(a) of the Federal Reserve Act [12 U.S.C.A. Sections 601 et seq., 611 et seq.], by the Board;  and

(C)	banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation;

(2)	Section 8 of the Federal Deposit Insurance Act [12 U.S.C.A. Section 1818], by the Director of the Office of Thrift Supervision, in the case of a savings association the deposits of which are insured by the Federal Deposit Insurance Corporation.

(3)	The Federal Credit Union Act, by the Administrator of the National Credit Union Administration with respect to any Federal Credit Union.

(4)	Subtitle IV of Title 49, by the Secretary of Transportation, with respect to all carriers subject to the jurisdiction of the Surface Transportation Board.

(5)	The Federal Aviation Act of 1958, by the Secretary of Transportation with respect to any air carrier or foreign air carrier subject to that Act.

(6)	The Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act.

(7)	The Farm Credit Act of 1971, by the Farm Credit Administration with respect to any Federal land bank, Federal land bank association, Federal intermediate credit bank, and production credit association;

(8)	The Securities Exchange Act of 1934, by the Securities and Exchange Commission with respect to brokers and dealers;  and

(9)	The Small Business Investment Act of 1958, by the Small Business Administration, with respect to small business investment companies.

The terms used in paragraph (1) that are not defined in this subchapter or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).

(b)	Violations of subchapter deemed violations of preexisting statutory requirements;  additional agency powers

For the purpose of the exercise by any agency referred to in subsection (a) of this section of its powers under any Act referred to in that subsection, a violation of any requirement imposed under this subchapter shall be deemed to be a violation of a requirement imposed under that Act.  In addition to its powers under any provision of law specifically referred to in subsection (a) of this section, each of the agencies referred to in that subsection may exercise for the purpose of enforcing compliance with any requirement imposed under this subchapter, any other authority conferred on it by law.  The exercise of the authorities of any of the agencies referred to in subsection (a) of this section for the purpose of enforcing compliance with any requirement imposed under this subchapter shall in no way preclude the exercise of such authorities for the purpose of enforcing compliance with any other provision of law not relating to the prohibition of discrimination on the basis of sex or marital status with respect to any aspect of a credit transaction.

(c)	Overall enforcement authority of Federal Trade Commission

Except to the extent that enforcement of the requirements imposed under this subchapter is specifically committed to some other Government agency under subsection (a) of this section, the Federal Trade Commission shall enforce such requirements.  For the purpose of the exercise by the Federal Trade Commission of its functions and powers under the Federal Trade Commission Act, a violation of any requirement imposed under this subchapter shall be deemed a violation of a requirement imposed under that Act.  All of the functions and powers of the Federal Trade Commission under the Federal Trade Commission Act are available to the Commission to enforce compliance by any person with the requirements imposed under this subchapter, irrespective of whether that person is engaged in commerce or meets any other jurisdictional tests in the Federal Trade Commission Act, including the power to enforce any Federal Reserve Board regulation promulgated under this subchapter in the same manner as if the violation had been a violation of a Federal Trade Commission trade regulation rule.

(d)	Rules and regulations by enforcing agencies

The authority of the Board to issue regulations under this subchapter does not impair the authority of any other agency designated in this section to make rules respecting its own procedures in enforcing compliance with requirements imposed under this subchapter.

 Section 1691d:  Applicability of other laws

(a)	Requests for signature of husband and wife for creation of valid lien, etc.

A request for the signature of both parties to a marriage for the purpose of creating a valid lien, passing clear title, waiving inchoate rights to property, or assigning earnings, shall not constitute discrimination under this subchapter:  Provided, however, That this provision shall not be construed to permit a creditor to take sex or marital status into account in connection with the evaluation of creditworthiness of any applicant.

(b)	State property laws affecting creditworthiness

Consideration or application of State property laws directly or indirectly affecting creditworthiness shall not constitute discrimination for purposes of this subchapter.

(c)	State laws prohibiting separate extension of consumer credit to husband and wife

Any provision of State law which prohibits the separate extension of consumer credit to each party to a marriage shall not apply in any case where each party to a marriage voluntarily applies for separate credit from the same creditor: Provided, That in any case where such a State law is so preempted, each party to the marriage shall be solely responsible for the debt so contracted.

(d)	Combining credit accounts of husband and wife with same creditor to determine permissible finance charges or loan ceilings under Federal or State laws

When each party to a marriage separately and voluntarily applies for and obtains separate credit accounts with the same creditor, those accounts shall not be aggregated or otherwise combined for purposes of determining permissible finance charges or permissible loan ceilings under the laws of any State or of the United States.

(e)	Election of remedies under subchapter or State law;  nature of relief determining applicability

Where the same act or omission constitutes a violation of this subchapter and of applicable State law, a person aggrieved by such conduct may bring a legal action to recover monetary damages either under this subchapter or under such State law, but not both.  This election of remedies shall not apply to court actions in which the relief sought does not include monetary damages or to administrative actions.

(f)	Compliance with inconsistent State laws;  determination of inconsistency

This subchapter does not annul, alter, or affect, or exempt any person subject to the provisions of this subchapter from complying with, the laws of any State with respect to credit discrimination, except to the extent that those laws are inconsistent with any provision of this subchapter, and then only to the extent of the inconsistency.  The Board is authorized to determine whether such inconsistencies exist.  The Board may not determine that any State law is inconsistent with any provision of this subchapter if the Board determines that such law gives greater protection to the applicant.

(g)	Exemption by regulation of credit transactions covered by State law;  failure to comply with State law

The Board shall by regulation exempt from the requirements of sections 1691 and 1691a of this title any class of credit transactions within any State if it determines that under the law of that State that class of transactions is subject to requirements substantially similar to those imposed under this subchapter or that such law gives greater protection to the applicant, and that there is adequate provision for enforcement.  Failure to comply with any requirement of such State law in any transaction so exempted shall constitute a violation of this subchapter for the purposes of section 1691e of this title.

 Section 1691e:  Civil liability

(a)	Individual or class action for actual damages

Any creditor who fails to comply with any requirement imposed under this subchapter shall be liable to the aggrieved applicant for any actual damages sustained by such applicant acting either in an individual capacity or as a member of a class.

(b)	Recovery of punitive damages in individual and class actions for actual damages;  exemptions;  maximum amount of punitive damages in individual  actions;  limitation on total recovery in class actions;  factors determining amount of award

Any creditor, other than a government or governmental subdivision or agency, who fails to comply with any requirement imposed under this subchapter shall be liable to the aggrieved applicant for punitive damages in an amount not greater than $10,000, in addition to any actual damages provided in subsection (a) of this section, except that in the case of a class action the total recovery under this subsection shall not exceed the lesser of $500,000 or 1 per centum of the net worth of the creditor.  In determining the amount of such damages in any action, the court shall consider, among other relevant factors, the amount of any actual damages awarded, the frequency and persistence of failures of compliance by the creditor, the resources of the creditor, the number of persons adversely affected, and the extent to which the creditor's failure of compliance was intentional.

(c)	Action for equitable and declaratory relief

Upon application by an aggrieved applicant, the appropriate United States district court or any other court of competent jurisdiction may grant such equitable and declaratory relief as is necessary to enforce the requirements imposed under this subchapter.

(d)	Recovery of costs and attorney fees

In the case of any successful action under subsection (a), (b), or (c) of this section, the costs of the action, together with a reasonable attorney's fee as determined by the court, shall be added to any damages awarded by the court under such subsection.

(e)	Good faith compliance with rule, regulation, or interpretation of Board or interpretation or approval by an official or employee of Federal Reserve System duly authorized by Board

No provision of this subchapter imposing liability shall apply to any act done or omitted in good faith in conformity with any official rule, regulation, or interpretation thereof by the Board or in conformity with any interpretation or approval by an official or employee of the Federal Reserve System duly authorized by the Board to issue such interpretations or approvals under such procedures as the Board may prescribe therefor, notwithstanding that after such act or omission has occurred, such rule, regulation, interpretation, or approval is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.

(f)	Jurisdiction of courts;  time for maintenance of action;  exceptions

Any action under this section may be brought in the appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction.  No such action shall be brought later than two years from the date of the occurrence of the violation, except that

(1)	whenever any agency having responsibility for administrative enforcement under section 1691c of this title commences an enforcement proceeding within two years from the date of the occurrence of the violation,

(2)	whenever the Attorney General commences a civil action under this section within two years from the date of the occurrence of the violation, then any applicant who has been a victim of the discrimination which is the subject of such proceeding or civil action may bring an action under this section not later than one year after the commencement of that proceeding or action.

(g)	Request by responsible enforcement agency to Attorney General for civil action

The agencies having responsibility for administrative enforcement under section 1691c of this title, if unable to obtain compliance with section 1691 of this title, are authorized to refer the matter of the Attorney General with a recommendation that an appropriate civil action be instituted.  Each agency referred to in paragraphs (1), (2), and (3) of section 1691c(a) of this title shall refer the matter to the Attorney General whenever the agency has reason to believe that 1 or more creditors has engaged in a pattern or practice of discouraging or denying applications for credit in violation of section 1691(a) of this title.  Each such agency may refer the matter to the Attorney General whenever the agency has reason to believe that 1 or more creditors has violated section 1691(a) of this title.

(h)	Authority for Attorney General to bring civil action;  jurisdiction

When a matter is referred to the Attorney General pursuant to subsection (g) of this section, or whenever he has reason to believe that one or more creditors are engaged in a pattern or practice in violation of this subchapter, the Attorney General may bring a civil action in any appropriate United States district court for such relief as may be appropriate, including actual and punitive damages and injunctive relief.

(i)	Recovery under both subchapter and fair housing enforcement provisions prohibited for violation based on same transaction

No person aggrieved by a violation of this subchapter and by a violation of section 3605 of Title 42 shall recover under this subchapter and section 3612 of Title 42, if such violation is based on the same transaction.

(j)	Discovery of creditor's granting standards

Nothing in this subchapter shall be construed to prohibit the discovery of a creditor's credit granting standards under appropriate discovery procedures in the court or agency in which an action or proceeding is brought.

(k)	Notice to HUD of violations

Whenever an agency referred to in paragraph (1), (2), or (3) of section 1691c(a) of this title

(1)	has reason to believe, as a result of receiving a consumer complaint, conducting a consumer compliance examination, or otherwise, that a violation of this subchapter has occurred;

(2)	has reason to believe that the alleged violation would be a violation of the Fair Housing Act [42 U.S.C.A. Section 3601 et seq.];  and

(3)	does not refer the matter to the Attorney General pursuant to subsection (g) of this section, the agency shall notify the Secretary of Housing and Urban Development of the violation, and shall notify the applicant that the Secretary of Housing and Urban Development has been notified of the alleged violation and that remedies for the violation may be available under the Fair Housing Act [42 U.S.C.A. Section 3601 et seq.].

 Section 1691f:  Annual reports to Congress;  contents

Each year, the Board and the Attorney General shall, respectively, make reports to the Congress concerning the administration of their functions under this subchapter, including such recommendations as the Board and the Attorney General, respectively, deem necessary or appropriate.  In addition, each report of the Board shall include its assessment of the extent to which compliance with the requirements of this subchapter is being achieved, and a summary of the enforcement actions taken by each of the agencies assigned administrative enforcement responsibilities under section 1691c of this title.


Employee Retirement Income Security Act

29 U.S.C. Sections 1001a-1085

 Section 1001a: Congressional findings

(a)	Effects of multiemployer pension plans

The Congress finds that

(1)	multiemployer pension plans have a substantial impact on interstate commerce and are affected with a national public interest;

(2)	multiemployer pension plans have accounted for a substantial portion of the increase in private pension plan coverage over the past three decades;

(3)	the continued wellbeing and security of millions of employees, retirees, and their dependents are directly affected by multiemployer pension plans; and

(4)(A) withdrawals of contributing employers from a multiemployer pension plan frequently result in substantially increased funding obligations for employers who continue to contribute to the plan, adversely affecting the plan, its participants and beneficiaries, and labormanagement relations, and

(4)(B) in a declining industry, the incidence of employer withdrawals is higher and the adverse effects described in subparagraph (A) are exacerbated.

(b)	Modification of multiemployer plan termination insurance provisions and replacement of program

The Congress further finds that

(1)	it is desirable to modify the current multiemployer plan termination insurance provisions in order to increase the likelihood of protecting plan participants against benefit losses;  and

(2)	it is desirable to replace the termination insurance program for multiemployer pension plans with an insolvencybased benefit protection program that will enhance the financial soundness of such plans, place primary emphasis on plan continuation, and contain program costs within reasonable  limits.

(c)	Policy

It is hereby declared to be the policy of this Act

(1)	to foster and facilitate interstate commerce,

(2)	to alleviate certain problems which tend to discourage the maintenance and growth of multiemployer pension plans,

(3)	to provide reasonable protection for the interests of participants and beneficiaries of financially distressed multiemployer pension plans, and

(4)	to provide a financially selfsufficient program for the guarantee of employee benefits under multiemployer plans.

 Section 1001b: Findings and declaration of policy

(a)	Findings

The Congress finds that

(1)	singleemployer defined benefit pension plans have a substantial impact on interstate commerce and are affected with a national interest;

(2)	the continued wellbeing and retirement income security of millions of workers, retirees, and their dependents are directly affected by such plans;

(3)	the existence of a sound termination insurance system is fundamental to the retirement income security of participants and beneficiaries of such plans;  and

(4)	the current termination insurance system in some instances encourages employers to terminate pension plans, evade their obligations to pay benefits, and shift unfunded pension liabilities onto the termination insurance system and the other premiumpayers.

(b)	Additional findings

The Congress further finds that modification of the current termination insurance system and an increase in the insurance premium for singleemployer defined benefit pension plans

(1)	is desirable to increase the likelihood that full benefits will be paid to participants and beneficiaries of such plans;

(2)	is desirable to provide for the transfer of liabilities to the termination insurance system only in cases of severe hardship;

(3)	is necessary to maintain the premium costs of such system at a reasonable level; and

(4)	is necessary to finance properly current funding deficiencies and future obligations of the singleemployer pension plan termination insurance system.

(c)	Declaration of policy

It is hereby declared to be the policy of this title

(1)	to foster and facilitate interstate commerce;

(2)	to encourage the maintenance and growth of singleemployer defined benefit pension plans;

(3)	to increase the likelihood that participants and beneficiaries under singleemployer defined benefit pension plans will receive their full benefits;

(4)	to provide for the transfer of unfunded pension liabilities onto the singleemployer pension plan termination insurance system only in cases of severe hardship;

(5)	to maintain the premium costs of such system at a reasonable level;  and

(6)	to assure the prudent financing of current funding deficiencies and future obligations of the singleemployer pension plan termination insurance system by increasing termination insurance premiums.

 Section 1002: Definitions

For purposes of this subchapter:

(1)	The terms "employee welfare benefit plan" and "welfare plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise,

(A)	medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or

(B)	any benefit described in section 186(c) of this title (other than pensions on retirement or death, and insurance to provide such pensions).

(2)	(A)	Except as provided in subparagraph (B), the terms "employee pension benefit plan" and "pension plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program

(i)	provides retirement income to employees, or

(ii)	results in a deferral of income by employees for periods extending to the termination of covered employment or beyond, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.

(B)	The Secretary may by regulation prescribe rules consistent with the standards and purposes of this chapter providing one or more exempt categories under which

(i)	severance pay arrangements, and

(ii)	supplemental retirement income payments, under which the pension benefits of retirees or their beneficiaries are supplemented to take into account some portion or all of the increases in the cost of living (as determined by the Secretary of Labor) since retirement, shall, for purposes of this subchapter, be treated as welfare plans rather than pension plans.  In the case of any arrangement or payment a principal effect of which is the evasion of the standards or purposes of this chapter applicable to pension plans, such arrangement or payment shall be treated as a pension plan.

(3)	The term "employee benefit plan" or "plan" means an employee welfare benefit plan or an employee pension benefit plan or a plan which is both an employee welfare benefit plan and an employee pension benefit plan.

(4)	The term "employee organization" means any labor union or any organization of any kind, or any agency or employee representation committee, association, group, or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning an employee benefit plan, or other matters incidental to employment relationships;  or any employees' beneficiary association organized for the purpose in whole or in part, of establishing such a plan.

(5)	The term "employer" means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan;  and includes a group or association of employers acting for an employer in such capacity.

(6)	The term "employee" means any individual employed by an employer.

(7)	The term "participant" means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit.

(8)	The term "beneficiary" means a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.

(9)	The term "person" means an individual, partnership, joint venture, corporation, mutual company, jointstock company, trust, estate, unincorporated organization, association, or employee organization.

(10)	The term "State" includes any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, American Samoa, Guam, Wake Island, and the Canal Zone.  The term "United States" when used in the geographic sense means the States and the Outer Continental Shelf lands defined in the Outer Continental Shelf Lands Act (43 U.S.C. Sections 13311343).

(11)	The term "commerce" means trade, traffic, commerce, transportation, or communication between any State and any place outside thereof.

(12)	The term "industry or activity affecting commerce" means any activity, business, or industry in commerce or in which a labor dispute would hinder or obstruct commerce or the free flow of commerce, and includes any activity or industry "affecting commerce" within the meaning of the Labor Management Relations Act, 1947 [29 U.S.C.A. Section 141 et seq.], or the Railway Labor Act [45 U.S.C.A. Section 151 et seq.]

(13)	The term "Secretary" means the Secretary of Labor.

(14)	The term "party in interest" means, as to an employee benefit plan

(A)	any fiduciary (including, but not limited to, any administrator, officer, trustee, or custodian), counsel, or employee of such employee benefit plan;

(B)	a person providing services to such plan;

(C)	an employer any of whose employees are covered by such plan;

(D)	an employee organization any of whose members are covered by such plan;

(E)	an owner, direct or indirect, of 50 percent or more of

(i)	the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation.

(ii)	the capital interest or the profits interest of a partnership, or

(iii) the beneficial interest of a trust or unincorporated enterprise, which is an employer or an employee organization described in subparagraph (C) or (D);

(F)	a relative (as defined in paragraph (15)) of any individual described in subparagraph (A), (B), (C), or (E);

(G)	a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of

(i)	the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation,

(ii)	the capital interest or profits interest of such partnership, or

(iii) the beneficial interest of such trust or estate, is owned directly or indirectly, or held by persons described in subparagraph (A), (B), (C), (D), or (E);

(H)	an employee, officer, director (or an individual having powers or responsibilities similar to those of officers or directors), or a 10 percent or more shareholder directly or indirectly, of a person described in subparagraph (B), (C), (D), (E), or (G), or of the employee benefit plan;  or

(I)	a 10 percent or more (directly or indirectly in capital or profits) partner or joint venturer of a person described in subparagraph (B), (C), (D), (E), or (G).  The Secretary, after consultation and coordination with the Secretary of the Treasury, may by regulation prescribe a percentage lower than 50 percent for subparagraph (E) and (G) and lower than 10 percent for subparagraph (H) or (I).  The Secretary may prescribe regulations for determining the ownership (direct or indirect) of profits and beneficial interests, and the manner in which indirect stockholdings are taken into account.  Any person who is a party in interest with respect to a plan to which a trust described in section 501(c)(22) of Title 26 is permitted to make payments under section 1403 of this title shall be treated as a party in interest with respect to such trust.

(15)	The term "relative" means a spouse, ancestor, lineal descendant, or spouse of a lineal descendant.

(16)	(A)	The term "administrator" means

(i)	the person specifically so designated by the terms of the instrument under which the plan is operated;

(ii)	if an administrator is not so designated, the plan sponsor;  or

(iii) in the case of a plan for which an administrator is not designated and  a plan sponsor cannot be identified, such other person as the Secretary may by regulation prescribe.

(B)	The term "plan sponsor" means--

(i)	the employer in the case of an employee benefit plan established or maintained by a single employer, 	(ii)	the employee organization in the case of a plan established or maintained by an employee organization, or

(iii) in the case of a plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan.

(17)	The term "separate account" means an account established or maintained by an insurance company under which income, gains, and losses, whether or not realized, from assets allocated to such account, are, in accordance with the applicable contract, credited to or charged against such account without regard to other income, gains, or losses of the insurance company.

(18)	The term "adequate consideration" when used in part 4 of subtitle B of this subchapter means--

(A)	in the case of a security for which there is a generally recognized market, either--

(i)	the price of the security prevailing on a national securities exchange which is registered under section 78f of Title 15, or

(ii)	if the security is not traded on such a national securities exchange, a price not less favorable to the plan than the offering price for the security as established by the current bid and asked prices quoted by persons independent of the issuer and of any party in interest;  and (B)	in the case of an asset other than a security for which there is a generally recognized market, the fair market value of the asset as determined in good faith by the trustee or named fiduciary pursuant to the terms of the plan and in accordance with regulations promulgated by the Secretary.

(19)	The term "nonforfeitable" when used with respect to a pension benefit or right means a claim obtained by a participant or his beneficiary to that part of an immediate or deferred benefit under a pension plan which arises from the participant's service, which is unconditional, and which is legally enforceable against the plan.  For purposes of this paragraph, a right to an accrued benefit derived from employer contributions shall not be treated as forfeitable merely because the plan contains a provision described in section 1053(a)(3) of this title.

(20)	The term "security" has the same meaning as such term has under section 77b(1) of Title 15.

(21)	(A)	Except as otherwise provided in subparagraph (B), a person is a fiduciary with respect to a plan to the extent--

(i)	he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets,

(ii)	he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or

(iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.  Such term includes any person designated under section 1105(c)(1)(B) of this title.

(B)	If any money or other property of an employee benefit plan is invested in securities issued by an investment company registered under the Investment Company Act of 1940 [15 U.S.C.A. Section 80a1 et seq.], such investment shall not by itself cause such investment company or such investment company's investment adviser or principal underwriter to be deemed to be a fiduciary or a party in interest as those terms are defined in this subchapter, except insofar as such investment company or its investment adviser or principal underwriter acts in connection with an employee benefit plan covering employees of the investment company, the investment adviser, or its principal underwriter.  Nothing contained in this subparagraph shall limit the duties imposed on such investment company, investment adviser, or principal underwriter by any other law.

(22)	The term "normal retirement benefit" means the greater of the early retirement benefit under the plan, or the benefit under the plan commencing at normal retirement age.  The normal retirement benefit shall be determined without regard to

(A)	medical benefits, and

(B)	disability benefits not in excess of the qualified disability benefit.

For purposes of this paragraph, a qualified disability benefit is a disability benefit provided by a plan which does not exceed the benefit which would be provided for the participant if he separated from the service at normal retirement age.  For purposes of this paragraph, the early retirement benefit under a plan shall be determined without regard to any benefit under the plan which the Secretary of the Treasury finds to be a benefit described in section 1054(b)(1)(G) of this title.

(23)	The term "accrued benefit" means

(A)	in the case of a defined benefit plan, the individual's accrued benefit determined under the plan and, except as provided in section 1054(c)(3) of this title, expressed in the form of an annual benefit commencing at normal retirement age, or

(B)	in the case of a plan which is an individual account plan, the balance of the individual's account.

The accrued benefit of an employee shall not be less than the amount determined under section 1054(c)(2)(B) of this title with respect to the employee's accumulated contribution.

(24)	The term "normal retirement age" means the earlier of

(A)	the time a plan participant attains normal retirement age under the plan, or

(B)	the later of

(i)	the time a plan participant attains age 65, or

(ii)	the 5th anniversary of the time a plan participant commenced participation in the plan.

(25)	The term "vested liabilities" means the present value of the immediate or deferred benefits available at normal retirement age for participants and their beneficiaries which are nonforfeitable.

(26)	The term "current value" means fair market value where available and otherwise the fair value as determined in good faith by a trustee or a named fiduciary (as defined in section 1102(a)(2) of this title) pursuant to the terms of the plan and in accordance with regulations of the Secretary, assuming an orderly liquidation at the time of such determination.

(27)	The term "present value", with respect to a liability, means the value adjusted to reflect anticipated events.  Such adjustments shall conform to such regulations as the Secretary of the Treasury may prescribe.

(28)	The term "normal service cost" or "normal cost" means the annual cost of future pension benefits and administrative expenses assigned, under an actuarial cost method, to years subsequent to a particular valuation date of a pension plan.  The Secretary of the Treasury may prescribe regulations to carry out this paragraph.

(29)	The term "accrued liability" means the excess of the present value, as of a particular valuation date of a pension plan, of the projected future benefit costs and administrative expenses for all plan participants and beneficiaries over the present value of future contributions for the normal cost of all applicable plan participants and beneficiaries.  The Secretary of the Treasury may prescribe regulations to carry out this paragraph.

(30)	The term "unfunded accrued liability" means the excess of the accrued liability, under an actuarial cost method which so provides, over the present value of the assets of a pension plan.  The Secretary of the Treasury may prescribe regulations to carry out this paragraph.

(31)	The term "advance funding actuarial cost method" or "actuarial cost method" means a recognized actuarial technique utilized for establishing the amount and incidence of the annual actuarial cost of pension plan benefits and expenses.  Acceptable actuarial cost methods shall include the accrued benefit cost method (unit credit method), the entry age normal cost method, the individual level premium cost method, the aggregate cost method, the attained age normal cost method, and the frozen initial liability cost method.  The terminal funding cost method and the current funding (payasyougo) cost method are not acceptable actuarial cost methods.  The Secretary of the Treasury shall issue regulations to further define acceptable actuarial cost methods.

(32)	The term "governmental plan" means a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.  The term "governmental plan" also includes any plan to which the Railroad Retirement Act of 1935, or 1937 [45 U.S.C.A. Section 231 et seq.] applies, and which is financed by contributions required under that Act and any plan of an international organization which is exempt from taxation under the provisions of the International Organizations Immunities Act [22 U.S.C.A. Section 288 et seq.].

(33)	(A)	The term "church plan" means a plan established and maintained (to the extent required in clause (ii) of subparagraph (B)) for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of Title 26.

(B)	The term "church plan" does not include a plan

(i)	which is established and maintained primarily for the benefit of employees (or their beneficiaries) of such church or convention or association of churches who are employed in connection with one or more unrelated trades or businesses (within the meaning of section 513 of Title 26), or

(ii)	if less than substantially all of the individuals included in the plan are individuals described in subparagraph (A) or in clause (ii) of subparagraph (C) (or their beneficiaries).

(C)	For purposes of this paragraph

(i)	A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.

(ii)	The term employee of a church or a convention or association of churches includes

(I)	a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry, regardless of the source of his compensation;

(II)	an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 501 of Title 26 and which is controlled by or associated with a church or a convention or association of churches;  and

(III) an individual described in clause (v).

(iii) A church or a convention or association of churches which is exempt from tax under section 501 of Title 26 shall be deemed the employer of any individual included as an employee under clause (ii).

(iv)	An organization, whether a civil law corporation or otherwise, is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church or convention or association of churches.

(v)	If an employee who is included in a church plan separates from the service of a church or a convention or association of churches or an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 501 of Title 26 and which is controlled by or associated with a church or a convention or association of churches, the church plan shall not fail to meet the requirements of this paragraph merely  because the plan

(I)	retains the employee's accrued benefit or account for the payment of benefits to the employee or his beneficiaries pursuant to the terms of the plan;  or

(II)	receives contributions on the employee's behalf after the employee's separation from such service, but only for a period of 5 years after such separation, unless the employee is disabled (within the meaning of the disability provisions of the church plan or, if there are no such provisions in the church plan, within the meaning of section 72(m)(7) of Title 26) at the time of such separation from service.

(D)	(i)	If a plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of Title 26 fails to meet one or more of the requirements of this paragraph and corrects its failure to meet such requirements within the correction period, the plan shall be deemed to meet the requirements of this paragraph for the year in which the correction was made and for all prior years.

(ii)	If a correction is not made within the correction period, the plan shall be deemed not to meet the requirements of this paragraph beginning with the date on which the earliest failure to meet one or more of such requirements occurred.

(iii) For purposes of this subparagraph, the term "correction period" means

(I)	the period ending 270 days after the date of mailing by the Secretary of the Treasury of a notice of default with respect to the plan's failure to meet one or more of the requirements of this paragraph;  or

(II)	any period set by a court of competent jurisdiction after a final determination that the plan fails to meet such requirements, or, if the court does not specify such period, any reasonable period determined by the Secretary of the Treasury on the basis of all the facts and circumstances, but in any event not less than 270 days after the determination has become final; or

(III) any additional period which the Secretary of the Treasury determines is reasonable or necessary for the correction of the default, whichever has the latest ending date.

(34)	The term "individual account plan" or "defined contribution plan" means a pension plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's account.

(35)	The term "defined benefit plan" means a pension plan other than an individual account plan;  except that a pension plan which is not an individual account plan and which provides a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant

(A)	for the purposes of section 1052 of this title, shall be treated as an individual account plan, and

(B)	for the purposes of paragraph (23) of this section and section 1054 of this title, shall be treated as an individual account plan to the extent benefits are based upon the separate account of a participant and as a defined benefit plan with respect to the remaining portion of benefits under the plan.

(36)	The term "excess benefit plan" means a plan maintained by an employer solely for the purpose of providing benefits for certain employees in excess of the limitations on contributions and benefits imposed by section 415 of Title 26 on plans to which that section applies without regard to whether the plan is funded.  To the extent that a separable part of a plan (as determined by the Secretary of Labor) maintained by an employer is maintained for such purpose, that part shall be treated as a separate plan which is an excess benefit plan.

(37)	(A)	The term "multiemployer plan" means a plan

(i)	to which more than one employer is required to contribute,

(ii)	which is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer, and

(iii) which satisfies such other requirements as the Secretary may prescribe by regulation.

(B)	For purposes of this paragraph, all trades or businesses (whether or not incorporated) which are under common control within the meaning of section 1301(b)(1) of this title are considered a single employer.

(C)	Notwithstanding subparagraph (A), a plan is a multiemployer plan on and after its termination date if the plan was a multiemployer plan under this paragraph for the plan year preceding its termination date.

(D)	For purposes of this subchapter, notwithstanding the preceding provisions of this paragraph, for any plan year which began before September 26, 1980, the term "multiemployer plan" means a plan described in this paragraph (37) as in effect immediately before such date.

(E)	Within one year after September 26, 1980, a multiemployer plan may irrevocably elect, pursuant to procedures established by the corporation and subject to the provisions of sections 1453(b) and (c) of this title, that the plan shall not be treated as a multiemployer plan for all purposes under this chapter or Title 26 if for each of the last 3 plan years ending prior to the effective date of the Multiemployer Pension Plan Amendments Act of 1980

(i)	the plan was not a multiemployer plan because the plan was not a plan described in subparagraph (A)(iii) of this paragraph and section 414(f)(1)(C) of Title 26 (as such provisions were in effect on the day before September 26, 1980);  and

(ii)	the plan had been identified as a plan that was not a multiemployer plan in substantially all its filings with the corporation, the Secretary of Labor and the Secretary of the Treasury.

(F)	(i)	For purposes of this subchapter, a qualified football coaches plan

(I)	shall be treated as a multiemployer plan to the extent not inconsistent with the purposes of this subparagraph;  and

(II)	notwithstanding section 401(k)(4)(B) of Title 26, may include a qualified cash and deferred arrangement.

(ii)	For purposes of this subparagraph, the term "qualified football coaches plan" means any defined contribution plan which is established and maintained by an organization

(I)	which is described in section 501(c) of Title 26;

(II) the membership of which consists entirely of individuals who primarily coach football as fulltime employees of 4year colleges or universities described in section 170(b)(1)(A)(ii) of Title 26; and

(III) which was in existence on September 18, 1986.

(38)	The term "investment manager" means any fiduciary (other than a trustee or named fiduciary, as defined in section 1102(a)(2) of this title)

(A)	who has the power to manage, acquire, or dispose of any asset of a plan;

(B)	who is

(i)	registered as an investment adviser under the Investment Advisers Act of 1940 [15 U.S.C.A. Section 80b1 et seq.];

(ii)	is a bank, as defined in that Act; or

(iii) is an insurance company qualified to perform services described in subparagraph (A) under the laws of more than one State; and

(C)	has acknowledged in writing that he is a fiduciary with respect to the plan.

(39)	The terms "plan year" and "fiscal year of the plan" mean, with respect to a plan, the calendar, policy, or fiscal year on which the records of the plan are kept.

(40)	(A)	The term "multiple employer welfare arrangement" means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more selfemployed individuals), or to their beneficiaries, except that such term does not include any such plan or other arrangement which is established or maintained

(i)	under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements,

(ii)	by a rural electric cooperative, or

(iii) by a rural telephone cooperative association.

(B)	For purposes of this paragraph

(i)	two or more trades or businesses, whether or not incorporated, shall be deemed a single employer if such trades or businesses are within the same control group,

(ii)	the term "control group" means a group of trades or businesses under common control,

(iii) the determination of whether a trade or business is under "common control" with another trade or business shall be determined under regulations of the Secretary applying principles similar to the principles applied in determining whether employees of two or more trades or businesses are treated as employed by a single employer under section 1301(b) of this title, except that, for purposes of this paragraph, common control shall not be based on an interest of less than 25 percent,

(iv)	the term "rural electric cooperative" means

(I) any organization which is exempt from tax under section 501(a) of Title 26 and which is engaged primarily in providing electric service on a mutual or cooperative basis, and

(II)	any organization described in paragraph (4) or (6) of section 501(c) of Title 26 which is exempt from tax under section 501(a) of Title 26 and at least 80 percent of the members of which are organizations described in subclause (I), and

(v)	the term "rural telephone cooperative association" means an organization described in paragraph (4) or (6) of section 501(c) of Title 26 which is exempt from tax under section 501(a) of such Title and at least 80 percent of the members of which are organizations engaged primarily in providing telephone service to rural areas of the United States on a mutual, cooperative, or other basis.

(41)	The term "single employer plan" means a plan which is not a multiemployer plan.

 Section 1003: Coverage

(a)	Except as provided in subsection (b) of this section and in sections 1051, 1081, and 1101 of this title, this subchapter shall apply to any employee benefit plan if it is established or maintained

(1)	by any employer engaged in commerce or in any industry or activity affecting commerce;  or

(2)	by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce;  or

(3)	by both.

(b)	The provisions of this subchapter shall not apply to any employee benefit plan if

(1)	such plan is a governmental plan (as defined in section 1002(32) of this title);

(2)	such plan is a church plan (as defined in section 1002(33) of this title) with respect to which no election has been made under section 410(d) of Title 26;

(3)	such plan is maintained solely for the purpose of complying with applicable workmen's compensation laws or unemployment compensation or disability insurance laws;

4)	such plan is maintained outside of the United States primarily for the benefit of persons substantially all of whom are nonresident aliens;  or

(5)	such plan is an excess benefit plan (as defined in section 1002(36) of this title) and is unfunded.

The provisions of part 7 of subtitle B shall not apply to a health insurance issuer (as defined in section 1191b(b)(2) of this title) solely by reason of health insurance coverage (as defined in section 1191b(b)(1) of this title) provided by such issuer in connection with a group health plan (as defined in section 1191b(a)(1) of this title) if the provisions of this subchapter do not apply to such group health plan.

 Section 1021:  Duty of disclosure and reporting

(a)	Summary plan description and information to be furnished to participants and beneficiaries

The administrator of each employee benefit plan shall cause to be furnished in accordance with section 1024(b) of this title to each participant covered under the plan and to each beneficiary who is receiving benefits under the plan

(1)	a summary plan description described in section 1022(a)(1) of this title;  and

(2)	the information described in sections 1024(b)(3) and 1025(a) and (c) of this title.

(b)	Plan description, modifications and changes, and reports to be filed with Secretary of Labor

The administrator shall, in accordance with section 1024(a) of this title, file with the Secretary

(1)	the summary plan description described in section 1022(a)(1) of this title;

(2)	a plan description containing the matter required in section 1022(b) of this title;

(3)	modifications and changes referred to in section 1022(a)(2) of this title;

(4)	the annual report containing the information required by section 1023 of this title;  and

(5) terminal and supplementary reports as required by subsection (c) of this section.

(c) Terminal and supplementary reports

(1)	Each administrator of an employee pension benefit plan which is winding up its affairs (without regard to the number of participants remaining in the plan) shall, in accordance with regulations prescribed by the Secretary, file such terminal reports as the Secretary may consider necessary.  A copy of such report shall also be filed with the Pension Benefit Guaranty Corporation.

(2)	The Secretary may require terminal reports to be filed with regard to any employee welfare benefit plan which is winding up its affairs in accordance with regulations promulgated by the Secretary.

(3)	The Secretary may require that a plan described in paragraph (1) or (2) file a supplementary or terminal report with the annual report in the year such plan is terminated and that a copy of such supplementary or terminal report in the case of a plan described in paragraph (1) be also filed with the Pension Benefit Guaranty Corporation.

(d)	Notice of failure to meet minimum funding standards

(1)	In general

If an employer maintaining a plan other than a multiemployer plan fails to make a required installment or other payment required to meet the minimum funding standard under section 1082 of this title to a plan before the 60th day following the due date for such installment or other payment, the employer shall notify each participant and beneficiary (including an alternate payee as defined in section 1056(d)(3)(K) of this title) of such plan of such failure. Such notice shall be made at such time and in such manner as the Secretary may prescribe.

(2)	Subsection not to apply if waiver pending

This subsection shall not apply to any failure if the employer has filed a waiver request under section 1083 of this title with respect to the plan year to which the required installment relates, except that if the waiver request is denied, notice under paragraph (1) shall be provided within 60 days after the date of such denial.

(3)	Definitions

For purposes of this subsection, the terms "required installment" and "due date" have the same meanings given such terms by section 1082(e) of this title.

(e)	Notice of transfer of excess pension assets to health benefits accounts

(1)	Notice to participants

Not later than 60 days before the date of a qualified transfer by an employee pension benefit plan of excess pension assets to a health benefits account, the administrator of the plan shall notify (in such manner as the Secretary may prescribe) each participant and beneficiary under the plan of such transfer.  Such notice shall include information with respect to the amount of excess pension assets, the portion to be transferred, the amount of health benefits liabilities expected to be provided with the assets transferred, and the amount of pension benefits of the participant which will be nonforfeitable immediately after the transfer.

(2)	Notice to Secretaries, administrator, and employee organizations

(A)	In general

Not later than 60 days before the date of any qualified transfer by an employee pension benefit plan of excess pension assets to a health benefits account, the employer maintaining the plan from which the transfer is made shall provide the Secretary, the Secretary of the Treasury, the administrator, and each employee organization representing participants in the plan a written notice of such transfer.  A copy of any such notice shall be available for inspection in the principal office of the administrator.

(B)	Information relating to transfer

Such notice shall identify the plan from which the transfer is made, the amount of the transfer, a detailed accounting of assets projected to be held by the plan immediately before and immediately after the transfer, and the current liabilities under the plan at the time of the transfer.

(C)	Authority for additional reporting requirements

The Secretary may prescribe such additional reporting requirements as may be necessary to carry out the purposes of this section.

(3)	Definitions

For purposes of paragraph (1), any term used in such paragraph which is also used in section 420 of Title 26 (as in effect on January 1, 1995) shall have the same meaning as when used in such section.

(f)	Information necessary to comply with Medicare and Medicaid Coverage Data Bank requirements

(1)	Provision of information by group health plan upon request of employer

(A)	In general

An employer shall comply with the applicable requirements of section 1320b 14 of Title 42.  Upon the request of an employer maintaining a group health plan, any plan sponsor, plan administrator, insurer, thirdparty administrator, or other person who maintains under the plan the information necessary to enable the employer to comply with the applicable requirements of section 1320b14 of Title 42 shall, in such form and manner as may be prescribed in regulations of the Secretary (in consultation with the Secretary of Health and Human Services), provide such information (not inconsistent with paragraph (2))

    (i) in the case of a request by an employer described in subparagraph (B) and a plan that is not a multiemployer plan or a component of an arrangement described in subparagraph (C), to the Medicare and Medicaid Coverage Data Bank;

(ii) in the case of a plan that is a multiemployer plan or is a component of an arrangement described in subparagraph (C), to the employer or to such Data Bank, at the option of the plan;  and

(iii) in any other case, to the employer or to such Data Bank, at the option of the employer.

(B)	Employer described

An employer is described in this subparagraph for any calendar year if such employer normally employed fewer than 50 employees on a typical business day during such calendar year.

(C)	Arrangement described

An arrangement described in this subparagraph is any arrangement in which two or more employers contribute for the purpose of providing group health plan coverage for employees.

(2)	Information not required to be provided

Any plan sponsor, plan administrator, insurer, thirdparty administrator, or other person described in paragraph (1)(A) (other than the employer) that maintains the information under the plan shall not provide to an employer in order to satisfy the requirements of section 1320b14 of Title 42, and shall not provide to the Data Bank under such section, information that pertains in any way to

(A)	the health status of a participant, or of the participant's spouse, dependent child, or other beneficiary,

(B)	the cost of coverage provided to any participant or beneficiary, or

(C)	any limitations on such coverage specific to any participant or beneficiary.

 	(3)	Regulations

The Secretary may, in consultation with the Secretary of Health and Human Services, prescribe such regulations as are necessary to carry out this subsection.

(g)	Reporting by certain arrangements

The Secretary may, by regulation, require multiple employer welfare arrangements providing benefits consisting of medical care (within the meaning of section 1191b(a)(2) of this title) which are not group health plans to report, not more frequently than annually, in such form and such manner as the Secretary may require for the purpose of determining the extent to which the requirements of part 7 are being carried out in connection with such benefits.

(h)	Simple retirement accounts

(1)	No employer reports

Except as provided in this subsection, no report shall be required under this section by an employer maintaining a qualified salary reduction arrangement under section 408(p) of Title 26.

(2)	Summary description

The trustee of any simple retirement account established pursuant to a qualified salary reduction arrangement under section 408(p) of Title 26 shall provide to the employer maintaining the arrangement each year a description containing the following information:

(A)	The name and address of the employer and the trustee.

(B)	The requirements for eligibility for participation.

(C)	The benefits provided with respect to the arrangement.

(D)	The time and method of making elections with respect to the arrangement.

(E)	The procedures for, and effects of, withdrawals (including rollovers) from the arrangement.

(3)	Employee notification

The employer shall notify each employee immediately before the period for which an election described in section 408(p)(5)(C) of Title 26 may be made of the employee's opportunity to make such election.  Such notice shall include a copy of the description described in paragraph (2).

(i)	Cross reference

For regulations relating to coordination of reports to the Secretaries of Labor and the Treasury, see section 1204 of this title.

 Section 1022:  Plan description and summary plan description

(a)	(1)	A summary plan description of any employee benefit plan shall be furnished to participants and beneficiaries as provided in section 1024(b) of this title.  The summary plan description shall include the information described in subsection (b) of this section, shall be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.  A summary of any material modification in the terms of the plan and any change in the information required under subsection (b) of this section shall be written in a manner calculated to be understood by the average plan participant and shall be furnished in accordance with section 1024(b)(1) of this title.

(2)	A plan description (containing the information required by subsection (b) of this section) of any employee benefit plan shall be prepared on forms prescribed by the Secretary, and shall be filed with the Secretary as required by section 1024(a)(1) of this title.  Any material modification in the terms of the plan and any change in the information described in subsection (b) of this section shall be filed in accordance with section 1024(a)(1)(D) of this title.

(b)	The plan description and summary plan description shall contain the following information:  The name and type of administration of the plan;  in the case of a group health plan (as defined in section 1191b(a)(1) of this title), whether a health insurance issuer (as defined in section 1191b(b)(2) of this title) is responsible for the financing or administration (including payment of claims) of the plan and (if so) the name and address of such issuer;  the name and address of the person designated as agent for the service of legal process, if such person is not the administrator;  the name and address of the administrator;  names, titles, and addresses of any trustee or trustees (if they are persons different from the administrator);  a description of the relevant provisions of any applicable collective bargaining agreement; the plan's requirements respecting eligibility for participation and benefits;  a description of the provisions providing for nonforfeitable pension benefits; circumstances which may result in disqualification, ineligibility, or denial or loss of benefits;  the source of financing of the plan and the identity of any organization through which benefits are provided;  the date of the end of the plan year and whether the records of the plan are kept on a calendar, policy, or fiscal year basis;  the procedures to be followed in presenting claims for benefits under the plan including the office at the Department of Labor through which participants and beneficiaries may seek assistance or information regarding their rights under this chapter and the Health Insurance Portability and Accountability Act of 1996 with respect to health benefits that are offered through a group health plan (as defined in section 1191b(a)(1) of this title) and the remedies available under the plan for the redress of claims which are denied in whole or in part (including procedures required under section 1133 of this title).

 Section 1023: Annual reports

(a)	Publication and filing

(1)	(A)	An annual report shall be published with respect to every employee benefit plan to which this part applies.  Such report shall be filed with the Secretary in accordance with section 1024(a) of this title, and shall be made available and furnished to participants in accordance with section 1024(b) of this title.

(B)	The annual report shall include the information described in subsections (b) and (c) of this section and where applicable subsections (d) and (e) of this section and shall also include

(i)	a financial statement and opinion, as required by paragraph (3) of this subsection, and

(ii)	an actuarial statement and opinion, as required by paragraph (4) of this subsection.

(2)	If some or all of the information necessary to enable the administrator to comply with the requirements of this subchapter is maintained by

(A)	an insurance carrier or other organization which provides some or all of the benefits under the plan, or holds assets of the plan in a separate account,

(B)	a bank or similar institution which holds some or all of the assets of the plan in a common or collective trust or a separate trust, or custodial account, or

(C)	a plan sponsor as defined in section 1002(16)(B) of this title,

such carrier, organization, bank, institution, or plan sponsor shall transmit and certify the accuracy of such information to the administrator within 120 days after the end of the plan year (or such other date as may be prescribed under regulations of the Secretary).

(3)	(A)	Except as provided in subparagraph (C), the administrator of an employee benefit plan shall engage, on behalf of all plan participants, an independent qualified public accountant, who shall conduct such an examination of any financial statements of the plan, and of other books and records of the plan, as the accountant may deem necessary to enable the accountant to form an opinion as to whether the financial statements and schedules required to be included in the annual reports by subsection (b) of this section are presented fairly in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year.  Such examination shall be conducted in accordance with generally accepted auditing standards, and shall involve such tests of the books and records of the plan as are considered necessary by the independent qualified public accountant.  The independent qualified public accountant shall also offer his opinion as to whether the separate schedules specified in subsection (b)(3) of this section and the summary material required under section 1024(b)(3) of this title present fairly, and in all material respects the information contained therein when considered in conjunction with the financial statements taken as a whole.  The opinion by the independent qualified public accountant shall be made a part of the annual report.  In a case where a plan is not required to file an annual report, the requirements of this paragraph shall not apply.  In a case where by reason of section 1024(a)(2) of this title a plan is required only to file a simplified annual report, the Secretary may waive the requirements of this paragraph.

(B)	In offering his opinion under this section the accountant may rely on the correctness of any actuarial matter certified to by an enrolled actuary, if he so states his reliance.

(C)	The opinion required by subparagraph (A) need not be expressed as to any statements required by subsection (b)(3)(G) of this section prepared by a bank or similar institution or insurance carrier regulated and supervised and subject to periodic examination by a State or Federal agency if such statements are certified by the bank, similar institution, or insurance carrier as accurate and are made a part of the annual report.

(D)	For purposes of this subchapter, the term "qualified public accountant" means

(i)	a person who is a certified public accountant, certified by a regulatory authority of a State;

(ii)	a person who is a licensed public accountant licensed by a regulatory authority of a State;  or

(iii) a person certified by the Secretary as a qualified public accountant in  accordance with regulations published by him for a person who practices in States where there is no certification or licensing procedure for accountants.

(4)	(A)	The administrator of an employee pension benefit plan subject to the reporting requirement of subsection (d) of this section shall engage, on behalf of all plan participants, an enrolled actuary who shall be responsible for the preparation of the materials comprising the actuarial statement required under subsection (d) of this section.  In a case where a plan is not required to file an annual report, the requirement of this paragraph shall not apply, and, in a case where by reason of section 1024(a)(2) of this title, a plan is required only to file a simplified report, the Secretary may waive the requirement of this paragraph.

(B)	The enrolled actuary shall utilize such assumptions and techniques as are necessary to enable him to form an opinion as to whether the contents of the matters reported under subsection (d) of this section

(i)	are in the aggregate reasonably related to the experience of the plan and to reasonable expectations;  and

(ii)	represent his best estimate of anticipated experience under the plan.

The opinion by the enrolled actuary shall be made with respect to, and shall be made a part of, each annual report.

(C)	For purposes of this subchapter, the term "enrolled actuary" means an actuary enrolled under subtitle C of subchapter II of this chapter.

(C)	In making a certification under this section the enrolled actuary may rely on the correctness of any accounting matter under subsection (b) of this section to which any qualified public accountant has expressed an opinion, if he so states his reliance.

(b)	Financial statement

An annual report under this section shall include a financial statement containing the following information:

(1)	With respect to an employee welfare benefit plan:  a statement of assets and liabilities;  a statement of changes in fund balance;  and a statement of changes in financial position.  In the notes to financial statements, disclosures concerning the following items shall be considered by the accountant:  a description of the plan including any significant changes in the plan made during the period and the impact of such changes on benefits;  a description of material lease commitments, other commitments, and contingent liabilities;  a description of agreements and transactions with persons known to be parties in interest;  a general description of priorities upon termination of the plan;  information concerning whether or not a tax ruling or determination letter has been obtained;  and any other matters necessary to fully and fairly present the financial statements of the plan.

(2)	With respect to an employee pension benefit plan:  a statement of assets and liabilities, and a statement of changes in net assets available for plan benefits which shall include details of revenues and expenses and other changes aggregated by general source and application.  In the notes to financial statements, disclosures concerning the following items shall be considered by the accountant:  a description of the plan including any significant changes in the plan made during the period and the impact of such changes on benefits;  the funding policy (including policy with respect to prior service cost), and any changes in such policies during the year;  a description of any significant changes in plan benefits made during the period;  a description of material lease commitments, other commitments, and contingent liabilities;  a description of agreements and transactions with persons known to be parties in interest;  a general description of priorities upon termination of the plan;  information concerning whether or not a tax ruling or determination letter has been obtained;  and any other matters necessary to fully and fairly present the financial statements of such pension plan.

(3)	With respect to all employee benefit plans, the statement required under paragraph (1) or (2) shall have attached the following information in separate schedules:

(A)	a statement of the assets and liabilities of the plan aggregated by categories and valued at their current value, and the same data displayed in comparative form for the end of the previous fiscal year of the plan;

(B)	a statement of receipts and disbursements during the preceding twelve month period aggregated by general sources and applications;

(C)	a schedule of all assets held for investment purposes aggregated and identified by issuer, borrower, or lessor, or similar party to the transaction (including a notation as to whether such party is known to be a party in interest), maturity date, rate of interest, collateral, par or maturity value, cost, and current value;

(D)	a schedule of each transaction involving a person known to be party in interest, the identity of such party in interest and his relationship or that of any other party in interest to the plan, a description of each asset to which the transaction relates; the purchase or selling price in case of a sale or purchase, the rental in case of a lease, or the interest rate and maturity date in case of a loan;  expense incurred in connection with the transaction;  the cost of the asset, the current value of the asset, and the   net gain (or loss) on each transaction;

(E)	a schedule of all loans or fixed income obligations which were in default as of the close of the plan's fiscal year or were classified during the year as uncollectable and the following information with respect to each loan on such schedule (including a notation as to whether parties involved are known to be parties in interest):  the original principal amount of the loan, the amount of principal and interest received during the reporting year, the unpaid balance, the identity and address of the obligor, a detailed description of the loan (including date of making and maturity, interest rate, the type and value of collateral, and other material terms), the amount of principal and interest overdue (if any) and an explanation thereof;

(F)	a list of all leases which were in default or were classified during the year as uncollectable;  and the following information with respect to each lease on such schedule (including a notation as to whether parties involved are known to be parties in interest):  the type of property leased (and, in the case of fixed assets such as land, buildings, leasehold, and so forth, the location of the property), the identity of the lessor or lessee from or to whom the plan is leasing, the relationship of such lessors and lessees, if any, to the plan, the employer, employee organization, or any other party in interest, the terms of the lease regarding rent, taxes, insurance, repairs, expenses, and renewal options;  the date the leased property was purchased and its cost, the date the property was leased and its approximate value at such date, the gross rental receipts during the reporting period, expenses paid for the leased property during the reporting period, the net receipts from the lease, the amounts in arrears, and a statement as to what steps have been taken to collect amounts due or otherwise remedy the default;

(G)	if some or all of the assets of a plan or plans are held in a common or collective trust maintained by a bank or similar institution or in a separate account maintained by an insurance carrier or a separate trust maintained by a bank as trustee, the report shall include the most recent annual statement of assets and liabilities of such common or collective trust, and in the case of a separate account or a separate trust, such other information as is required by the administrator in order to comply with this subsection;  and

(H) a schedule of each reportable transaction, the name of each party to the transaction (except that, in the case of an acquisition or sale of a security on the market, the report need not identify the person from whom the security was acquired or to whom it was sold) and a description of each asset to which the transaction applies;  the purchase or selling price in case of a sale or purchase, the rental in case of a lease, or the interest rate and maturity date in case of a loan;  expenses incurred in connection with the transaction;  the cost of the asset, the current value of the asset, and the net gain (or loss) on each transaction.  For purposes of the preceding sentence, the term "reportable transaction" means a transaction to which the plan is a party if such transaction is

(i)	a transaction involving an amount in excess of 3 percent of the current value of the assets of the plan;

(ii)	any transaction (other than a transaction respecting a security) which is part of a series of transactions with or in conjunction with a person in a plan year, if the aggregate amount of such transactions exceeds 3 percent of the current value of the assets of the plan;

(iii) a transaction which is part of a series of transactions respecting one or more securities of the same issuer, if the aggregate amount of such transactions in the plan year exceeds 3 percent of the current value of the assets of the plan;  or

(iv)	a transaction with or in conjunction with a person respecting a security, if any other transaction with or in conjunction with such person in the plan year respecting a security is required to be reported by reason of clause (i).

(4)	The Secretary may, by regulation, relieve any plan from filing a copy of a statement of assets and liabilities (or other information) described in  paragraph (3)(G) if such statement and other information is filed with the Secretary by the bank or insurance carrier which maintains the common or collective trust or separate account.

(c)	Information to be furnished by administrator

The administrator shall furnish as a part of a report under this section the following information:

(1)	The number of employees covered by the plan.

(2)	The name and address of each fiduciary.

(3)	Except in the case of a person whose compensation is minimal (determined under regulations of the Secretary) and who performs solely ministerial duties (determined under such regulations), the name of each person (including but not limited to, any consultant, broker, trustee, accountant, insurance carrier, actuary, administrator, investment manager, or custodian who rendered services to the plan or who had transactions with the plan) who received directly or indirectly compensation from the plan during the preceding year for services rendered to the plan or its participants, the amount of such compensation, the nature of his services to the plan or its participants, his relationship to the employer of the employees covered by the plan, or the  employee organization, and any other office, position, or employment he holds with any party in interest.

(4)	An explanation of the reason for any change in appointment of trustee, accountant, insurance carrier, enrolled actuary, administrator, investment manager, or custodian.

(5) Such financial and actuarial information including but not limited to the material described in subsections (b) and (d) of this section as the Secretary may find necessary or appropriate.

(d)	Actuarial statement

With respect to an employee pension benefit plan (other than (A) a profit sharing, savings, or other plan, which is an individual account plan, (b) a plan described in section 1081(b) of this title, or (c) a plan described both in section 1321(b) of this title and in paragraph (1), (2), (3), (4), (5), (6), or (7) of section 1081(a) of this title) an annual report under this section for a plan year shall include a complete actuarial statement applicable to the plan year which shall include the following:

(1)	The date of the plan year, and the date of the actuarial valuation applicable to the plan year for which the report is filed.

(2)	The date and amount of the contribution (or contributions) received by the plan for the plan year for which the report is filed and contributions for prior plan years not previously reported.

(3)	The following information applicable to the plan year for which the report is filed:  the normal costs, the accrued liabilities, an identification of benefits not included in the calculation;  a statement of the other facts and actuarial assumptions and methods used to determine costs, and a justification for any change in actuarial assumptions or cost methods;  and the minimum contribution required under section 1082 of this title.

(4)	The number of participants and beneficiaries, both retired and nonretired, covered by the plan.

(5)	The current value of the assets accumulated in the plan, and the present value of the assets of the plan used by the actuary in any computation of the amount of contributions to the plan required under section 1082 of this title and a statement explaining the basis of such valuation of present value of assets.

(6)	Information required in regulations of the Pension Benefit Guaranty Corporation with respect to:

(A)	the current value of the assets of the plan,

(B)	the present value of all nonforfeitable benefits for participants and beneficiaries receiving payments under the plan,

(C)	the present value of all nonforfeitable benefits for all other participants and beneficiaries,

(D)	the present value of all accrued benefits which are not nonforfeitable (including a separate accounting of such benefits which are benefit commitments, as defined in section 1301(a)(16) of this title), and

(E)	the actuarial assumptions and techniques used in determining the values described in subparagraphs (A) through (D).

(7)	A certification of the contribution necessary to reduce the accumulated funding deficiency to zero.

(8)	A statement by the enrolled actuary

(A)	that to the best of his knowledge the report is complete and accurate, and

(B)	the requirements of section 1082(c)(3) of this title (relating to reasonable actuarial assumptions and methods) have been complied with.

(9)	A copy of the opinion required by subsection (a)(4) of this section.

(10)	A statement by the actuary which discloses

(A)	any event which the actuary has not taken into account, and

(B)	any trend which, for purposes of the actuarial assumptions used, was not assumed to continue in the future, but only if, to the best of the actuary's knowledge, such event or trend may require a material increase in plan costs or required contribution rates.

(11)	If the current value of the assets of the plan is less than 70 percent of the current liability under the plan (within the meaning of section 1082(d)(7) of this title), the percentage which such value is of such liability.

(12)	Such other information regarding the plan as the Secretary may by regulation require.

(13)	Such other information as may be necessary to fully and fairly disclose the actuarial position of the plan.

Such actuary shall make an actuarial valuation of the plan for every third plan year, unless he determines that a more frequent valuation is necessary to support his opinion under subsection (a)(4) of this section.

(e)	Statement from insurance company, insurance service, or other similar organizations which sell or guarantee plan benefits

If some or all of the benefits under the plan are purchased from and guaranteed by an insurance company, insurance service, or other similar organization, a report under this section shall include a statement from such insurance company, service, or other similar organization covering the plan year and enumerating

(1)	the premium rate or subscription charge and the total premium or subscription charges paid to each such carrier, insurance service, or other similar organization and the approximate number of persons covered by each class of such benefits; and

(2)	the total amount of premiums received, the approximate number of persons covered by each class of benefits, and the total claims paid by such company, service, or other organization;  dividends or retroactive rate adjustments, commissions, and administrative service or other fees or other specific acquisition costs paid by such company, service, or other organization;  any amounts held to provide benefits after retirement;  the remainder of such premiums;  and the names and addresses of the brokers, agents, or other persons to whom commissions or fees were paid, the amount paid to each, and for what purpose.  If any such company, service, or other organization does not maintain separate experience records covering the specific groups it serves, the report shall include in lieu of the information required by the foregoing provisions of this paragraph

(A)	a statement as to the basis of its premium rate or subscription charge, the total amount of premiums or subscription charges received from the plan, and a copy of the financial report of the company, service, or other organization and

(B)	if such company, service, or organization incurs specific costs in connection with the acquisition or retention of any particular plan or plans, a detailed statement of such costs.

 Section 1024: Filing and furnishing of information

(a)	Filing of annual report, plan description, summary plan description, and modifications and changes with Secretary

(1)	The administrator of any employee benefit plan subject to this part shall file with the Secretary

(A)	the annual report for a plan year within 210 days after the close of such year (or within such time as may be required by regulations promulgated by the  Secretary in order to reduce duplicative filing);

(B)	the plan description within 120 days after such plan becomes subject to this part and an updated plan description, no more frequently than once every 5 years, as the Secretary may require;

(C)	a copy of the summary plan description at the time such summary plan description is required to be furnished to participants and beneficiaries pursuant to subsection (b)(1)(B) of this section;  and

(D)	modifications and changes referred to in section 1022(a)(2) of this title within 60 days after such modification or change is adopted or occurs, as the case may be.

The Secretary shall make copies of such plan descriptions, summary plan descriptions, and annual reports available for inspection in the public document room of the Department of Labor.  The administrator shall also furnish to the Secretary, upon request, any documents relating to the employee benefit plan, including but not limited to the bargaining agreement, trust agreement, contract, or other instrument under which the plan is established or operated.

(2)	(A)	With respect to annual reports required to be filed with the Secretary under this part, he may by regulation prescribe simplified annual reports for any pension plan which covers less than 100 participants.

(B)	Nothing contained in this paragraph shall preclude the Secretary from requiring any information or data from any such plan to which this part applies where he finds such data or information is necessary to carry out the purposes of this subchapter nor shall the Secretary be precluded from revoking provisions for simplified reports for any such plan if he finds it necessary to do so in order to carry out the objectives of this subchapter.

(3)	The Secretary may by regulation exempt any welfare benefit plan from all or part of the reporting and disclosure requirements of this subchapter, or may provide for simplified reporting and disclosure if he finds that such requirements are inappropriate as applied to welfare benefit plans.

(4)	The Secretary may reject any filing under this section

(A)	if he determines that such filing is incomplete for purposes of this part;  or

(B)	if he determines that there is any material qualification by an accountant or actuary contained in an opinion submitted pursuant to section 1023(a)(3)(A) or section 1023(a)(4)(B) of this title.

(5)	If the Secretary rejects a filing of a report under paragraph (4) and if a revised filing satisfactory to the Secretary is not submitted within 45 days after the Secretary makes his determination under paragraph (4) to reject the filing, and if the Secretary deems it in the best interest of the participants, he may take any one or more of the following actions

(A)	retain an independent qualified public accountant (as defined in section 1023(a)(3)(D) of this title) on behalf of the participants to perform an audit,

(B)	retain an enrolled actuary (as defined in section 1023(a)(4)(C) of this title) on behalf of the plan participants, to prepare an actuarial statement,

(C)	bring a civil action for such legal or equitable relief as may be appropriate to enforce the provisions of this part, or

(D)	take any other action authorized by this subchapter.

The administrator shall permit such accountant or actuary to inspect whatever books and records of the plan are necessary for such audit.  The plan shall be liable to the Secretary for the expenses for such audit or report, and the Secretary may bring an action against the plan in any court of competent jurisdiction to recover such expenses.

(b)	Publication of summary plan description and annual report to participants and beneficiaries of plan

Publication of the summary plan descriptions and annual reports shall be made to participants and beneficiaries of the particular plan as follows:

(1)	The administrator shall furnish to each participant, and each beneficiary receiving benefits under the plan, a copy of the summary plan description, and all modifications and changes referred to in section 1022(a)(1) of this title

(A)	within 90 days after he becomes a participant, or (in the case of a beneficiary) within 90 days after he first receives benefits, or

(B)	if later, within 120 days after the plan becomes subject to this part.

The administrator shall furnish to each participant, and each beneficiary receiving benefits under the plan, every fifth year after the plan becomes subject to this part an updated summary plan description described in section 1022 of this title which integrates all plan amendments made within such fiveyear period, except that in a case where no amendments have been made to a plan during such fiveyear period this sentence shall not apply.  Notwithstanding the foregoing, the administrator shall furnish to each participant, and to each beneficiary receiving benefits under the plan, the summary plan description described in section 1022 of this title every tenth year after the plan becomes subject to this part.  If there is a modification or change described in section 1022(a)(1) of this title (other than a material reduction in covered services or benefits provided in the case of a group health plan (as defined in section 1191b(a)(1) of this title)), a summary description of such modification or change shall be furnished not later than 210 days after the end of the plan year in which the change is adopted to each participant, and to each beneficiary who is receiving benefits under the plan.  If there is a modification or change described in section 1022(a)(1) of this title that is a material reduction in covered services or benefits provided under a group health plan (as defined in section 1191b(a)(1) of this title), a summary description of such modification or change shall be furnished to participants and beneficiaries not later than 60 days after the date of the adoption of the modification or change.  In the alternative, the plan sponsors may provide such description at regular intervals of not more than 90 days.  The Secretary shall issue regulations within 180 days after August 21, 1996, providing alternative mechanisms to delivery by mail through which group health plans (as so defined) may notify participants and beneficiaries of material reductions in covered services or benefits.

(2)	The administrator shall make copies of the plan description and the latest annual report and the bargaining agreement, trust agreement, contract, or other instruments under which the plan was established or is operated available for examination by any plan participant or beneficiary in the principal office of the administrator and in such other places as may be necessary to make available all pertinent information to all participants (including such places as the Secretary may prescribe by regulations).

(3)	Within 210 days after the close of the fiscal year of the plan, the administrator shall furnish to each participant, and to each beneficiary receiving benefits under the plan, a copy of the statements and schedules, for such fiscal year, described in subparagraphs (A) and (b) of section 1023(b)(3) of this title and such other material (including the percentage determined under section 1023(d)(11) of this title) as is necessary to fairly summarize the latest annual report.

(4)	The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary plan description, plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.  The administrator may make a reasonable charge to cover the cost of furnishing such complete copies.  The Secretary may by regulation prescribe the maximum amount which will constitute a reasonable charge under the preceding sentence.

(c)	Statement of rights

The Secretary may by regulation require that the administrator of any employee benefit plan furnish to each participant and to each beneficiary receiving benefits under the plan a statement of the rights of participants and beneficiaries under this subchapter.

(d)	Cross reference

For regulations respecting coordination of reports to the Secretaries of Labor and the Treasury, see section 1204 of this title.

 Section 1025: Reporting of participant's benefit rights

(a)	Statement furnished by administrator to participants and beneficiaries

Each administrator of an employee pension benefit plan shall furnish to any plan participant or beneficiary who so requests in writing, a statement indicating, on the basis of the latest available information

(1)	the total benefits accrued, and

(2)	the nonforfeitable pension benefits, if any, which have accrued, or the  earliest date on which benefits will become nonforfeitable.

(b)	Oneperyear limit on reports

In no case shall a participant or beneficiary be entitled under this section to receive more than one report described in subsection (a) of this section during any one 12month period.

(c)	Individual statement furnished by administrator to participants setting forth information in administrator's Internal Revenue registration statement and notification of forfeitable benefits

Each administrator required to register under section 6057 of Title 26 shall, before the expiration of the time prescribed for such registration, furnish to each participant described in subsection (a)(2)(C) of such section, an individual statement setting forth the information with respect to such participant required to be contained in the registration statement required by section 6057(a)(2) of Title 26.  Such statement shall also include a notice to the participant of any benefits which are forfeitable if the participant dies before a certain date.

(d)	Plans to which more than one unaffiliated employer is required to contribute;  regulations

Subsection (a) of this section shall apply to a plan to which more than one unaffiliated employer is required to contribute only to the extent provided in regulations prescribed by the Secretary in coordination with the Secretary of the Treasury.

 Section 1026: Reports made public information

(a)	Except as provided in subsection (b) of this section, the contents of the descriptions, annual reports, statements, and other documents filed with the Secretary pursuant to this part shall be public information and the Secretary shall make any such information and data available for inspection in the public document room of the Department of Labor.  The Secretary may use the information and data for statistical and research purposes, and compile and publish such studies, analyses, reports, and surveys based thereon as he may deem appropriate.

(b)	Information described in sections 1025(a) and 1025(c) of this title with respect to a participant may be disclosed only to the extent that information respecting that participant's benefits under title II of the Social Security Act [42 U.S.C.A. Section 401 et seq.] may be disclosed under such Act.

 Section 1027: Retention of records

Every person subject to a requirement to file any description or report or to certify any information therefor under this subchapter or who would be subject to such a requirement but for an exemption or simplified reporting requirement under section 1024(a)(2) or (3) of this title shall maintain records on the matters of which disclosure is required which will provide in sufficient detail the necessary basic information and data from which the documents thus required may be verified, explained, or clarified, and checked for accuracy and completeness, and shall include vouchers, worksheets, receipts, and applicable resolutions, and shall keep such records available for examination for a period of not less than six years after the filing date of the documents based on the information which they contain, or six years after the date on which such documents would have been filed but for an exemption or simplified reporting requirement under section 1024(a)(2) or (3) of this title.

 Section 1028:  Reliance on administrative interpretations

In any criminal proceeding under section 1131 of this title, based on any act or omission in alleged violation of this part or section 1112 of this title, no person shall be subject to any liability or punishment for or on account of the failure of such person to

(1)	comply with this part or section 1112 of this title, if he pleads and proves that the act or omission complained of was in good faith, in conformity with, and in reliance on any regulation or written ruling of the Secretary, or

(2) publish and file any information required by any provision of this part if he pleads and proves that he published and filed such information in good faith, and in conformity with any regulation or written ruling of the Secretary issued under this part regarding the filing of such reports.  Such a defense, if established, shall be a bar to the action or proceeding, notwithstanding that

(A)	after such act or omission, such interpretation or opinion is modified or rescinded or is determined by judicial authority to be invalid or of no legal effect, or

(B)	after publishing or filing the plan description, annual reports, and other reports required by this subchapter, such publication or filing is determined by judicial authority not to be in conformity with the requirements of this part.

 Section 1029:  Forms

(a)	Information required on forms

Except as provided in subsection (b) of this section, the Secretary may require that any information required under this subchapter to be submitted to him, including but not limited to the information required to be filed by the administrator pursuant to section 1023(b)(3) and (c) of this title, must be

submitted on such forms as he may prescribe.

(b)	Information not required on forms

The financial statement and opinion required to be prepared by an independent qualified public accountant pursuant to section 1023(a)(3)(A) of this title, the actuarial statement required to be prepared by an enrolled actuary pursuant to section 1023(a)(4)(A) of this title and the summary plan description required by section 1022(a) of this title shall not be required to be submitted on forms.

(c)	Format and content of summary plan description, annual report, etc., required to be furnished to plan participants and beneficiaries

The Secretary may prescribe the format and content of the summary plan description, the summary of the annual report described in section 1024(b)(3) of this title and any other report, statements or documents (other than the bargaining agreement, trust agreement, contract, or other instrument under which the plan is established or operated), which are required to be furnished or made available to plan participants and beneficiaries receiving benefits under the plan.

 Section 1030:  Alternative methods of compliance

(a)	The Secretary on his own motion or after having received the petition of an administrator may prescribe an alternative method for satisfying any requirement of this part with respect to any pension plan, or class of pension plans, subject to such requirement if he determines

(1)	that the use of such alternative method is consistent with the purposes of this subchapter and that it provides adequate disclosure to the participants and beneficiaries in the plan, and adequate reporting to the Secretary,

(2)	that the application of such requirement of this part would

(A)	increase the costs to the plan, or

  	(B)	impose unreasonable administrative burdens with respect to the operation of the plan, having regard to the particular characteristics of the plan or the type of plan involved;  and

(3)	that the application of this part would be adverse to the interests of plan participants in the aggregate.

(b)	An alternative method may be prescribed under subsection (a) of this section by regulation or otherwise.  If an alternative method is prescribed other than by regulation, the Secretary shall provide notice and an opportunity for interested persons to present their views, and shall publish in the Federal Register the provisions of such alternative method.

 Section 1031:  Repeal and effective date

(a)	(1)	The Welfare and Pension Plans Disclosure Act [29 U.S.C.A. Section 301 et seq.] is repealed except that such Act shall continue to apply to any conduct and events which occurred before the effective date of this part.

(2)	(A)	Section 664 of Title 18 is amended by striking out "any such plan subject to the provisions of the Welfare and Pension Plans Disclosure Act" and inserting in lieu thereof "any employee benefit plan subject to any provisions of title I of the Employee Retirement Income Security Act of 1974".

(B)	(i) Section 1027 of such Title 18 is amended by striking out "Welfare and Pension Plans Disclosure Act" and inserting in lieu thereof "title I of the Employee Retirement Income Security Act of 1974", and by striking out "Act" each place it appears and inserting in lieu thereof "title".

(ii)	The heading for such section is amended by striking out "Welfare and Pension Plans Disclosure Act" and inserting in lieu thereof "Employee Retirement Income Security Act of 1974".

(iii) The table of sections of chapter 47 of such Title 18 is amended by striking out "Welfare and Pension Plans Disclosure Act" in the item relating to section 1027 and inserting in lieu thereof "Employee Retirement Income Security Act of 1974".

(C)	Section 1954 of such Title 18 is amended by striking out "any plan subject to the provisions of the Welfare and Pension Plans Disclosure Act as amended" and inserting in lieu thereof "any employee welfare benefit plan or employee pension benefit plan, respectively, subject to any provision of title I of the Employee Retirement Income Security Act of 1974";  and by striking out "sections 3(3) and 5(b)(1) and (2) of the Welfare and Pension Plans Disclosure Act, as amended" and inserting in lieu thereof "sections 3(4) and (3)(16) of the Employee Retirement Income Security Act of 1974".

(D)	Section 211 of the LaborManagement Reporting and Disclosure Act of 1959 (29 U.S.C. 441) is amended by striking out "Welfare and Pension Plans Disclosure Act" and inserting in lieu thereof "Employee Retirement Income Security Act of 1974".

(b)	(1)	Except as provided in paragraph (2), this part (including the amendments and repeals made by subsection (a) of this section) shall take effect on January 1, 1975.

(2)	In the case of a plan which has a plan year which begins before January 1, 1975, and ends after December 31, 1974, the Secretary may postpone by regulation the effective date of the repeal of any provision of the Welfare and Pension Plans Disclosure Act (and of any amendment made by subsection (a)(2) of this section) and the effective date of any provision of this part, until the beginning of the first plan year of such plan which begins after January 1, 1975.

(C)	The provisions of this subchapter authorizing the Secretary to promulgate regulations shall take effect on September 2, 1974.

(D)	Subsections (b) and (c) of this section shall not apply with respect to amendments made to this part in provisions enacted after September 2, 1974.

 Section 1051:  Coverage

This part shall apply to any employee benefit plan described in section 1003(a) of this title (and not exempted under section 1003(b) of this title) other than

(1)	an employee welfare benefit plan;

(2)	a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees;

(3)	(A)	a plan established and maintained by a society, order, or association described in section 501(c)(8) or (9) of Title 26, if no part of the contributions to or under such plan are made by employers of participants in such plan, or

(B)	a trust described in section 501(c)(18) of Title 26;

(4)	a plan which is established and maintained by a labor organization described in section 501(c)(5) of Title 26 and which does not at any time after September 2, 1974, provide for employer contributions;

(5)	any agreement providing payments to a retired partner or a deceased partner's successor in interest, as described in section 736 of Title 26;

(6)	an individual retirement account or annuity described in section 408 of Title 26, or a retirement bond described in section 409 of Title 26 (as effective for obligations issued before January 1, 1984);

(7)	an excess benefit plan; or

(8)	any plan, fund or program under which an employer, all of whose stock is directly or indirectly owned by employees, former employees or their beneficiaries, proposes through an unfunded arrangement to compensate retired employees for benefits which were forfeited by such employees under a pension plan maintained by a former employer prior to the date such pension plan became subject to this chapter.

 Section 1052:  Minimum participation standards

(a)	(1)	(A)	No pension plan may require, as a condition of participation in the plan, that an employee complete a period of service with the employer or employers maintaining the plan extending beyond the later of the following dates

(i)	the date on which the employee attains the age of 21;  or

(ii)	the date on which he completes 1 year of service.

(B)	(i)	In the case of any plan which provides that after not more than 2 years of service each participant has a right to 100 percent of his accrued benefit under the plan which is nonforfeitable at the time such benefit accrues, clause (ii) of subparagraph (A) shall be applied by substituting "2 years of service" for "1 year of service".

(ii) In the case of any plan maintained exclusively for employees of an educational organization (as defined in section 170(b)(1)(A)(ii) of Title 26) by an employer which is exempt from tax under section 501(a) of Title 26, which provides that each participant having at least 1 year of service has a right to 100 percent of his accrued benefit under the plan which is nonforfeitable at the time such benefit accrues, clause (i) of subparagraph (A) shall be applied by substituting "26" for "21".  This clause shall not apply to any plan to which clause (i) applies.

(2)	No pension plan may exclude from participation (on the basis of age) employees who have attained a specified age.

(3)	(A)	For purposes of this section, the term "year of service" means a 12 month period during which the employee has not less than 1,000 hours of service.  For purposes of this paragraph, computation of any 12month period shall be made with reference to the date on which the employee's employment commenced, except that, in accordance with regulations prescribed by the Secretary, such computation may be made by reference to the first day of a plan year in the case of an employee who does not complete 1,000 hours of service during the 12month period beginning on the date his employment commenced.

(A)	In the case of any seasonal industry where the customary period of employment is less than 1,000 hours during a calendar year, the term "year of service" shall be such period as may be determined under regulations prescribed by the Secretary.

(C)	For purposes of this section, the term "hour of service" means a time of service determined under regulations prescribed by the Secretary.

(D)	For purposes of this section, in the case of any maritime industry, 125 days of service shall be treated as 1,000 hours of service.  The Secretary may prescribe regulations to carry out the purposes of this subparagraph.

(4)	A plan shall be treated as not meeting the requirements of paragraph (1) unless it provides that any employee who has satisfied the minimum age and service requirements specified in such paragraph, and who is otherwise entitled to participate in the plan, commences participation in the plan no later than the earlier of

(A)	the first day of the first plan year beginning after the date on which such employee satisfied such requirements, or

(B)	the date 6 months after the date on which he satisfied such requirements,

unless such employee was separated from the service before the date referred to in subparagraph (A) or (B), whichever is applicable.

(b)	(1) 	Except as otherwise provided in paragraphs (2), (3), and (4), all years of service with the employer or employers maintaining the plan shall be taken into account in computing the period of service for purposes of subsection (a)(1) of this section.

(2)	In the case of any employee who has any 1year break in service (as defined in section 1053(b)(3)(A) of this title) under a plan to which the service requirements of clause (i) of subsection (a)(1)(B) of this section apply, if such employee has not satisfied such requirements, service before such break shall not be required to be taken into account.

(3)	In computing an employee's period of service for purposes of subsection (a)(1) of this section in the case of any participant who has any 1year break in service (as defined in section 1053(b)(3)(A) of this title), service before such break shall not be required to be taken into account under the plan until he has completed a year of service (as defined in subsection (a)(3) of this section) after his return.

(4)	(A)	For purposes of paragraph (1), in the case of a nonvested participant, years of service with the employer or employers maintaining the plan before any period of consecutive 1year breaks in service shall not be required to be taken into account in computing the period of service if the number of consecutive 1year breaks in service within such period equals or exceeds the greater of

(i)	5, or

(ii)	the aggregate number of years of service before such period.

(B)	If any years of service are not required to be taken into account by reason of a period of breaks in service to which subparagraph (A) applies, such years of service shall not be taken into account in applying subparagraph (A) to a subsequent period of breaks in service.

(C)	For purposes of subparagraph (A), the term "nonvested participant" means a participant who does not have any nonforfeitable right under the plan to an accrued benefit derived from employer contributions.

(5)	(A)	In the case of each individual who is absent from work for any period

(i)	by reason of the pregnancy of the individual,

(ii)	by reason of the birth of a child of the individual,

(iii) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or

(iv)	for purposes of caring for such child for a period beginning immediately following such birth or placement,

the plan shall treat as hours of service, solely for purposes of determining under this subsection whether a 1year break in service (as defined in section 1053(b)(3)(A) of this title) has occurred, the hours described in subparagraph (B).

(B)	The hours described in this subparagraph are

(i) the hours of service which otherwise would normally have been credited to such individual but for such absence, or

(ii) in any case in which the plan is unable to determine the hours described in clause (i), 8 hours of service per day of such absence,

except that the total number of hours treated as hours of service under this subparagraph by reason of any such pregnancy or placement shall not exceed 501 hours.

(C)	The hours described in subparagraph (B) shall be treated as hours of service as provided in this paragraph

(i)	only in the year in which the absence from work begins, if a participant would be prevented from incurring a 1year break in service in such year solely because the period of absence is treated as hours of service as provided in subparagraph (A);  or

(ii)	in any other case, in the immediately following year.

(D)	For purposes of this paragraph, the term "year" means the period used in computations pursuant to subsection (a)(3)(A) of this section.

(E)	A plan may provide that no credit will be given pursuant to this paragraph unless the individual furnishes to the plan administrator such timely information as the plan may reasonably require to establish

(i) 	that the absence from work is for reasons referred to in subparagraph  (A), and

(ii)	the number of days for which there was such an absence.

 Section 1053:  Minimum vesting standards

(a)	Nonforfeitability requirements

Each pension plan shall provide that an employee's right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age and in addition shall satisfy the requirements of paragraphs (1) and (2) of this subsection.

(1)	A plan satisfies the requirements of this paragraph if an employee's  rights in his accrued benefit derived from his own contributions are nonforfeitable.

(2)	A plan satisfies the requirements of this paragraph if it satisfies the requirements of subparagraph (A) or (B).

(A)	A plan satisfies the requirements of this subparagraph if an employee who has completed at least 5 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions.

(B)	A plan satisfies the requirements of this subparagraph if an employee has a nonforfeitable right to a percentage of the employee's accrued benefit derived from employer contributions determined under the following table:

Years of service:	The nonforfeitable percentage is:

3 ..................................  20

4 ..................................  40

5 ..................................  60

6 ..................................  80

7 or more .......................... 100.

(3)	(A)	A right to an accrued benefit derived from employer contributions shall not be treated as forfeitable solely because the plan provides that it is not payable if the participant dies (except in the case of a survivor annuity which is payable as provided in section 1055 of this title).

(B)	A right to an accrued benefit derived from employer contributions shall not be treated as forfeitable solely because the plan provides that the payment of benefits is suspended for such period as the employee is employed, subsequent to the commencement of payment of such benefits

(i)	in the case of a plan other than a multiemployer plan, by an employer who maintains the plan under which such benefits were being paid;  and

(ii)	in the case of a multiemployer plan, in the same industry, in the same trade or craft, and the same geographic area covered by the plan, as when such benefits commenced.

The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph, including regulations with respect to the meaning of the term "employed".

(C)	A right to an accrued benefit derived from employer contributions shall not be treated as forfeitable solely because plan amendments may be given  retroactive application as provided in section 1082(c)(8) of this title.

(D)	(i)	A right to an accrued benefit derived from employer contributions shall not be treated as forfeitable solely because the plan provides that, in the case of a participant who does not have a nonforfeitable right to at least 50 percent of his accrued benefit derived from employer contributions, such accrued benefit may be forfeited on account of the withdrawal by the participant of any amount attributable to the benefit derived from mandatory contributions (as defined in the last sentence of section 1054(c)(2)(C) of this title) made by such participant.

(ii)	Clause (i) shall not apply to a plan unless the plan provides that any accrued benefit forfeited under a plan provision described in such clause shall be restored upon repayment by the participant of the full amount of the withdrawal described in such clause plus, in the case of a defined benefit plan, interest.  Such interest shall be computed on such amount at the rate determined for purposes of section 1054(c)(2)(C) of this title (if such subsection applies) on the date of such repayment (computed annually from the date of such withdrawal).  The plan provision required under this clause may provide that such repayment must be made (I) in the case of a withdrawal on account of separation from service, before the earlier of 5 years after the first date on which the participant is subsequently reemployed by the  employer, or the close of the first period of 5 consecutive 1year breaks in service commencing after the withdrawal;  or (II) in the case of any other withdrawal, 5 years after the date of the withdrawal.

(iii) In the case of accrued benefits derived from employer contributions which accrued before September 2, 1974, a right to such accrued benefit derived from employer contributions shall not be treated as forfeitable solely because the plan provides that an amount of such accrued benefit may be forfeited on account of the withdrawal by the participant of an amount attributable to the benefit derived from mandatory contributions, made by such participant before September 2, 1974, if such amount forfeited is proportional to such amount withdrawn.  This clause shall not apply to any plan to which any mandatory contribution is made after September 2, 1974.  The Secretary of the Treasury shall prescribe such regulations as may be necessary to carry out the purposes of this clause.

(iv)	For purposes of this subparagraph, in the case of any classyear plan, a withdrawal of employee contributions shall be treated as a withdrawal of such contributions on a plan year by plan year basis in succeeding order of time.

(v)	Cross reference

For nonforfeitability where the employee has a nonforfeitable right to at least 50 percent of his accrued benefit, see section 1056(c) of this title.

(E)	(i)	A right to an accrued benefit derived from employer contributions under a multiemployer plan shall not be treated as forfeitable solely because the plan provides that benefits accrued as a result of service with the participant's employer before the employer had an obligation to contribute under the plan may not be payable if the employer ceases contributions to the multiemployer plan.

(ii)	A participant's right to an accrued benefit derived from employer contributions under a multiemployer plan shall not be treated as forfeitable solely because

(I)	the plan is amended to reduce benefits under section 1425 or 1441 of this title, or

(II)	benefit payments under the plan may be suspended under section 1426 or 1441 of this title.

(F)	A matching contribution (within the meaning of section 401(m) of Title 26) shall not be treated as forfeitable merely because such contribution is forfeitable if the contribution to which the matching contribution relates is treated as an excess contribution under section 401(k)(8)(B) of Title 26, an excess deferral under section 402(g)(2)(A) of Title 26, or an excess aggregate contribution under section 401(m)(6)(B) of Title 26.

(b)	Computation of period of service

(1)	In computing the period of service under the plan for purposes of determining the nonforfeitable percentage under subsection (a)(2) of this section, all of an employee's years of service with the employer or employers maintaining the plan shall be taken into account, except that the following may be disregarded:

(A)	years of service before age 18,

(B)	years of service during a period for which the employee declined to contribute to a plan requiring employee contributions,

(C)	years of service with an employer during any period for which the employer did not maintain the plan or a predecessor plan, defined by the Secretary of the Treasury;

(D)	service not required to be taken into account under paragraph (3);

(E)	years of service before January 1, 1971, unless the employee has had at least 3 years of service after December 31, 1970;

(F)	years of service before this part first applies to the plan if such service would have been disregarded under the rules of the plan with regard to breaks in service, as in effect on the applicable date;  and

(G)	in the case of a multiemployer plan, years of service

(i)	with an employer after

(I)	a complete withdrawal of such employer from the plan (within the meaning of section 1383 of this title), or

(II)	to the extent permitted by regulations prescribed by the Secretary of the Treasury, a partial withdrawal described in section 1385(b)(2)(A)(i) of this title in connection with the decertification of the collective bargaining representative;  and

(ii)	with any employer under the plan after the termination date of the plan under section 1348 of this title.

(2)	(A)	For purposes of this section, except as provided in subparagraph (C), the term "year of service" means a calendar year, plan year, or other 12 consecutive month period designated by the plan (and not prohibited under regulations prescribed by the Secretary) during which the participant has completed 1,000 hours of service.

(B)	For purposes of this section, the term "hour of service" has the meaning provided by section 1052(a)(3)(C) of this title.

(C)	In the case of any seasonal industry where the customary period of employment is less than 1,000 hours during a calendar year, the term "year of service" shall be such period as determined under regulations of the Secretary.

(D)	For purposes of this section, in the case of any maritime industry, 125 days of service shall be treated as 1,000 hours of service.  The Secretary may prescribe regulations to carry out the purposes of this subparagraph.

(3)	(A)	For purposes of this paragraph, the term "1year break in service" means a calendar year, plan year, or other 12consecutivemonth period designated by the plan (and not prohibited under regulations prescribed by the Secretary) during which the participant has not completed more than 500 hours of service.

(B)	For purposes of paragraph (1), in the case of any employee who has any 1 year break in service, years of service before such break shall not be required to be taken into account until he has completed a year of service after his return.

(C)	For purposes of paragraph (1), in the case of any participant in an individual account plan or an insured defined benefit plan which satisfies the requirements of subsection 1054(b)(1)(F) of this title who has 5 consecutive 1 year breaks in service, years of service after such 5year period shall not be required to be taken into account for purposes of determining the nonforfeitable percentage of his accrued benefit derived from employer contributions which accrued before such 5year period.

(D)	(i)	For purposes of paragraph (1), in the case of a nonvested participant, years of service with the employer or employers maintaining the plan before any period of consecutive 1year breaks in service shall not be required to be taken into account if the number of consecutive 1year breaks in service within such period equals or exceeds the greater of

(I)	5, or

(II)	the aggregate number of years of service before such period.

(ii)	If any years of service are not required to be taken into account by reason of a period of breaks in service to which clause (i) applies, such years of service shall not be taken into account in applying clause (i) to a subsequent period of breaks in service.

(iii) For purposes of clause (i), the term "nonvested participant" means a participant who does not have any nonforfeitable right under the plan to an accrued benefit derived from employer contributions.

(E)	(i)	In the case of each individual who is absent from work for any period

(I)	by reason of the pregnancy of the individual,

(II)	by reason of the birth of a child of the individual,

(III) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or

(IV)	for purposes of caring for such child for a period beginning immediately following such birth or placement,

the plan shall treat as hours of service, solely for purposes of determining under this paragraph whether a 1year break in service has occurred, the hours described in clause (ii).

(ii)	The hours described in this clause are

(I)	the hours of service which otherwise would normally have been credited to such individual but for such absence, or

(II)	in any case in which the plan is unable to determine the hours described in subclause (I), 8 hours of service per day of absence,

except that the total number of hours treated as hours of service under this clause by reason of such pregnancy or placement shall not exceed 501 hours.

(iii) The hours described in clause (ii) shall be treated as hours of service as provided in this subparagraph

(I)	only in the year in which the absence from work begins, if a participant would be prevented from incurring a 1year break in service in such year solely because the period of absence is treated as hours of service as provided in clause (i);  or

(II)	in any other case, in the immediately following year.

(iv)	For purposes of this subparagraph, the term "year" means the period used in computations pursuant to paragraph (2).

(v)	A plan may provide that no credit will be given pursuant to this subparagraph unless the individual furnishes to the plan administrator such timely information as the plan may reasonably require to establish

(I)that the absence from work is for reasons referred to in clause (i), and

(II)the number of days for which there was such an absence.

(4)	Cross references

(A)	For definitions of "accrued benefit" and "normal retirement age", see sections 1002(23) and (24) of this title.

(B)	For effect of certain cash out distributions, see section 1054(d)(1) of this title.

(C)	Plan amendments altering vesting schedule

(1)	(A)	A plan amendment changing any vesting schedule under the plan shall be treated as not satisfying the requirements of subsection (a)(2) of this section if the nonforfeitable percentage of the accrued benefit derived from employer contributions (determined as of the later of the date such amendment is adopted, or the date such amendment becomes effective) of any employee who is a participant in the plan is less than such nonforfeitable percentage computed under the plan without regard to such amendment.

(B)	A plan amendment changing any vesting schedule under the plan shall be treated as not satisfying the requirements of subsection (a)(2) of this section unless each participant having not less than 3 years of service is permitted to elect, within a reasonable period after adoption of such amendment, to have his nonforfeitable percentage computed under the plan without regard to such amendment.

(2)	Subsection (A) of this section shall not apply to benefits which may not be provided for designated employees in the event of early termination of the plan under provisions of the plan adopted pursuant to regulations prescribed by the Secretary of the Treasury to preclude the discrimination prohibited by section 401(a)(4) of Title 26.

(3)	Repealed.  Pub.L. 99514, Title XI, Section 1113(e)(2), Oct. 22, 1986, 100 Stat. 2448

(d)	Nonforfeitable benefits after lesser period and in greater amounts than required

A pension plan may allow for nonforfeitable benefits after a lesser period and in greater amounts than are required by this part.

(e)	Consent for distribution;  present value;  covered distributions

(1)	If the present value of any nonforfeitable benefit with respect to a participant in a plan exceeds $3,500, the plan shall provide that such benefit may not be immediately distributed without the consent of the participant.

(2)	For purposes of paragraph (1), the present value shall be calculated in accordance with section 1055(g)(3) of this title.

(3)	This subsection shall not apply to any distribution of dividends to which section 404(k) of Title 26 applies.

 Section 1054: Benefit accrual requirements

(a)	Satisfaction of requirements by pension plans

Each pension plan shall satisfy the requirements of subsection (b)(3) of this section, and

 	(1)	in the case of a defined benefit plan, shall satisfy the requirements of subsection (b)(1) of this section;  and

 	(2)	in the case of a defined contribution plan, shall satisfy the  requirements of subsection (b)(2) of this section.

(b) Enumeration of plan requirements

 (1)(a)	A defined benefit plan satisfies the requirements of this paragraph if the accrued benefit to which each participant is entitled upon his separation from the service is not less than

  (i) 3 percent of the normal retirement benefit to which he would be entitled at the normal retirement age if he commenced participation at the earliest possible entry age under the plan and served continuously until the earlier of age 65 or the normal retirement age specified under the plan, multiplied by

  (ii) the number of years (not in excess of 33 1/3 ) of his participation in the plan.

In the case of a plan providing retirement benefits based on compensation during any period, the normal retirement benefit to which a participant would be entitled shall be determined as if he continued to earn annually the average rate of compensation which he earned during consecutive years of service, not in excess of 10, for which his compensation was the highest.  For purposes of this subparagraph, social security benefits and all other relevant factors used to compute benefits shall be treated as remaining constant as of the current year for all years after such current year.

(b)	A defined benefit plan satisfies the requirements of this paragraph of a particular plan year if under the plan the accrued benefit payable at the normal retirement age is equal to the normal retirement benefit and the annual rate at which any individual who is or could be a participant can accrue the retirement benefits payable at normal retirement age under the plan for any later plan year is not more than 133 1/3 percent of the annual rate at which he can accrue benefits for any plan year beginning on or after such particular plan year and before such later plan year.  For purposes of this subparagraph

  (i) any amendment to the plan which is in effect for the current year shall be treated as in effect for all other plan years;

  (ii) any change in an accrual rate which does not apply to any individual who is or could be a participant in the current year shall be disregarded;

  (iii) the fact that benefits under the plan may be payable to certain employees before normal retirement age shall be disregarded;  and

  (iv) social security benefits and all other relevant factors used to compute benefits shall be treated as remaining constant as of the current year for all years after the current year.

(c)	A defined benefit plan satisfies the requirements of this paragraph if the accrued benefit to which any participant is entitled upon his separation from the service is not less than a fraction of the annual benefit commencing at normal retirement age to which he would be entitled under the plan as in effect on the date of his separation if he continued to earn annually until normal retirement age the same rate of compensation upon which his normal retirement benefit would be computed under the plan, determined as if he had attained normal retirement age on the date any such determination is made (but taking into account no more than the 10 years of service immediately preceding his separation from service).  Such fraction shall be a fraction, not exceeding 1, the numerator of which is the total number of his years of participation in the plan (as of the date of his separation from the service) and the denominator of which is the total number of years he would have participated in the plan if he separated from the service at the normal retirement age.  For purposes of this subparagraph, social security benefits and all other relevant factors used to compute benefits shall be treated as remaining constant as of the current year for all years after such current year.

(d)	Subparagraphs (A), (B), and (C) shall not apply with respect to years of participation before the first plan year to which this section applies but a defined benefit plan satisfies the requirements of this subparagraph with respect to such years of participation only if the accrued benefit of any participant with respect to such years of participation is not less than the greater of

  (i) his accrued benefit determined under the plan, as in effect from time to time prior to September 2, 1974, or

  (ii) an accrued benefit which is not less than onehalf of the accrued benefit to which such participant would have been entitled if subparagraph (A), (B), or (C) applied with respect to such years of participation.

(e)	Notwithstanding subparagraphs (A), (B), and (C) of this paragraph, a plan shall not be treated as not satisfying the requirements of this paragraph solely because the accrual of benefits under the plan does not become effective until the employee has two continuous years of service.  For purposes of this subparagraph, the term "year of service" has the meaning provided by section 1052(a)(3)(A) of this title.

 	(f)	Notwithstanding subparagraphs (A), (B), and (C), a defined benefit plan satisfies the requirements of this paragraph if such plan

  (i) is funded exclusively by the purchase of insurance contracts, and

  (ii) satisfies the requirements of paragraphs (2) and (3) of section 1081(b) of this title (relating to certain insurance contract plans), but only if an employee's accrued benefit as of any applicable date is not less than the cash surrender value his insurance contracts would have on such applicable date if the requirements of paragraphs (4), (5), and (6) of section 1081(b) of this title were satisfied.

 	(g)	Notwithstanding the preceding subparagraphs, a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if the participant's accrued benefit is reduced on account of any increase in his age or service.  The preceding sentence shall not apply to benefits under the plan commencing before benefits payable under title II of the Social Security Act [42 U.S.C.A. Section 401 et seq.] which benefits under the plan

  (i) do not exceed social security benefits, and

  (ii) terminate when such social security benefits commence.

 (H)(i) Notwithstanding the preceding subparagraphs, a defined benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee's benefit accrual is ceased, or the rate of an employee's benefit accrual is reduced, because of the attainment of any age.

 (ii) A plan shall not be treated as failing to meet the requirements of this subparagraph solely because the plan imposes (without regard to age) a limitation on the amount of benefits that the plan provides or a limitation on the number of years of service or years of participation which are taken into account for purposes of determining benefit accrual under the plan.

 (iii) In the case of any employee who, as of the end of any plan year under a defined benefit plan, has attained normal retirement age under such plan

  (I) if distribution of benefits under such plan with respect to such employee has commenced as of the end of such plan year, then any requirement of this subparagraph for continued accrual of benefits under such plan with respect to such employee during such plan year shall be treated as satisfied to the extent of the actuarial equivalent of inservice distribution of benefits, and

  (II) if distribution of benefits under such plan with respect to such employee has not commenced as of the end of such year in accordance with section 1056(a)(3) of this title, and the payment of benefits under such plan with respect to such employee is not suspended during such plan year pursuant to section 1053(a)(3)(B) of this title, then any requirement of this subparagraph for continued accrual of benefits under such plan with respect to such employee during such plan year shall be treated as satisfied to the extent of any adjustment in the benefit payable under the plan during such plan year attributable to the delay in the distribution of benefits after the attainment of normal retirement age.

The preceding provisions of this clause shall apply in accordance with regulations of the Secretary of the Treasury.  Such regulations may provide for the application of the preceding provisions of this clause, in the case of any such employee, with respect to any period of time within a plan year.

 (iv) Clause (i) shall not apply with respect to any employee who is a highly compensated employee (within the meaning of section 414(q) of Title 26) to the extent provided in regulations prescribed by the Secretary of the Treasury for purposes of precluding discrimination in favor of highly compensated employees within the meaning of subchapter D of chapter 1 of Title 26.

 (v) A plan shall not be treated as failing to meet the requirements of clause  (i) solely because the subsidized portion of any early retirement benefit is disregarded in determining benefit accruals.

 (vi) Any regulations prescribed by the Secretary of the Treasury pursuant to clause (v) of section 411(b)(1)(H) of Title 26 shall apply with respect to the requirements of this subparagraph in the same manner and to the same extent as such regulations apply with respect to the requirements of such section 411(b)(1)(H).

 (2)(a)	A defined contribution plan satisfies the requirements of this paragraph if, under the plan, allocations to the employee's account are not ceased, and the rate at which amounts are allocated to the employee's account is not reduced, because of the attainment of any age.

(b)	A plan shall not be treated as failing to meet the requirements of subparagraph (A) solely because the subsidized portion of any early retirement benefit is disregarded in determining benefit accruals.

(c)	Any regulations prescribed by the Secretary of the Treasury pursuant to subparagraphs (B) and (C) of section 411(b)(2) of Title 26 shall apply with respect to the requirements of this paragraph in the same manner and to the same extent as such regulations apply with respect to the requirements of such section 411(b)(2).

(3)	A plan satisfies the requirements of this paragraph if

(a)	in the case of a defined benefit plan, the plan requires separate accounting for the portion of each employee's accrued benefit derived from any voluntary employee contributions permitted under the plan;  and

 	(b)	in the case of any plan which is not a defined benefit plan, the plan requires separate accounting for each employee's accrued benefit.

 (4)(a)	For purposes of determining an employee's accrued benefit, the term  "year of participation" means a period of service (beginning at the earliest date on which the employee is a participant in the plan and which is included in a period of service required to be taken into account under section 1052(b) of this title, determined without regard to section 1052(b)(5) of this title) as determined under regulations prescribed by the Secretary which provide for the calculation of such period on any reasonable and consistent basis.

(b)	For purposes of this paragraph, except as provided in subparagraph (C), in the case of any employee whose customary employment is less than full time, the calculation of such employee's service on any basis which provides less than a ratable portion of the accrued benefit to which he would be entitled under the plan if his customary employment were full time shall not be treated as made on a reasonable and consistent basis.

(c)	For purposes of this paragraph, in the case of any employee whose service is less than 1,000 hours during any calendar year, plan year or other 12 consecutivemonth period designated by the plan (and not prohibited under regulations prescribed by the secretary) the calculation of his period of service shall not be treated as not made on a reasonable and consistent basis merely because such service is not taken into account.

(d)	In the case of any seasonal industry where the customary period of employment is less than 1,000 hours during a calendar year, the term "year of participation" shall be such period as determined under regulations prescribed by the Secretary.

(e)	For purposes of this subsection in the case of any maritime industry, 125 days of service shall be treated as a year of participation.  The Secretary may prescribe regulations to carry out the purposes of this subparagraph.

(c) Employee's accrued benefits derived from employer and employee contributions

(1)	For purposes of this section and section 1053 of this title an employee's accrued benefit derived from employer contributions as of any applicable date is the excess (if any) of the accrued benefit for such employee as of such applicable date over the accrued benefit derived from contributions made by such employee as of such date.

 (2)(a)	In the case of a plan other than a defined benefit plan, the accrued benefit derived from contributions made by an employee as of any applicable date is

  (i) except as provided in clause (ii), the balance of the employee's separate account consisting only of his contributions and income, expenses, gains, and losses attributable thereto, or

  (ii) if a separate account is not maintained with respect to an employee's contributions under such a plan, the amount which bears the same ratio to his total accrued benefit as the total amount of the employee's contributions (less withdrawals) bears to the sum of such contributions and the contributions made on his behalf by the employer (less withdrawals).

(b)	Defined benefit plans

 In the case of a defined benefit plan, the accrued benefit derived from contributions made by an employee as of any applicable date is the amount equal to the employee's accumulated contributions expressed as an annual benefit commencing at normal retirement age, using an interest rate which would be used under the plan under section 1055(g)(3) of this title (as of the determination date).

(c)	For purposes of this subsection, the term "accumulated contributions" means the total of

  (i) all mandatory contributions made by the employee,

  (ii) interest (if any) under the plan to the end of the last plan year to which section 1053(a)(2) of this title does not apply (by reason of the applicable effective date), and

  (iii) interest on the sum of the amounts determined under clauses (i) and  (ii) compounded annually

   (I) at the rate of 120 percent of the Federal midterm rate (as in effect under section 1274 of Title 26 for the 1st month of a plan year for the period beginning with the 1st plan year to which subsection (a)(2) of this section applies by reason of the applicable effective date) and ending with the date on which the determination is being made, and

   (II) at the interest rate which would be used under the plan under section   1055(g)(3) of this title (as of the determination date) for the period beginning with the determination date and ending on the date on which the employee attains normal retirement age.

For purposes of this subparagraph, the term "mandatory contributions" means amounts contributed to the plan by the employee which are required as a condition of employment, as a condition of participation in such plan, or as a condition of obtaining benefits under the plan attributable to employer contributions.

(d)	The Secretary of the Treasury is authorized to adjust by regulation the conversion factor described in subparagraph (B) from time to time as he may deem necessary.  No such adjustment shall be effective for a plan year beginning before the expiration of 1 year after such adjustment is determined and published.

(e)	Repealed.  Pub.L. 101239, Title VII, Section 7881(m)(2)(C), Dec. 19, 1989, 103 Stat. 2444

(3)	For purposes of this section, in the case of any defined benefit plan, if an employee's accrued benefit is to be determined as an amount other than an annual benefit commencing at normal retirement age, or if the accrued benefit derived from contributions made by an employee is to be determined with respect to a benefit other than an annual benefit in the form of a single life annuity  (without ancillary benefits) commencing at normal retirement age, the employee's accrued benefit, or the accrued benefits derived from contributions made by an employee, as the case may be, shall be the actuarial equivalent of such benefit or amount determined under paragraph (1) or (2).

 (4) In the case of a defined benefit plan which permits voluntary employee contributions, the portion of an employee's accrued benefit derived from such contributions shall be treated as an accrued benefit derived from employee contributions under a plan other than a defined benefit plan.

(d) Employee service which may be disregarded in determining employee's accrued benefits under plan

Notwithstanding section 1053(b)(1) of this title, for purposes of determining the employee's accrued benefit under the plan, the plan may disregard service performed by the employee with respect to which he has received

 	(1)	a distribution of the present value of his entire nonforfeitable benefit if such distribution was in an amount (not more than $3,500) permitted under regulations prescribed by the Secretary of the Treasury, or

 	(2)	a distribution of the present value of his nonforfeitable benefit  attributable to such service which he elected to receive.

Paragraph (1) shall apply only if such distribution was made on termination of the employee's participation in the plan.  Paragraph (2) shall apply only if such distribution was made on termination of the employee's participation in the plan or under such other circumstances as may be provided under regulations prescribed by the Secretary of the Treasury.

(e)	Opportunity to repay full amount of distributions which have been reduced through disregarded employee service

For purposes of determining the employee's accrued benefit, the plan shall not disregard service as provided in subsection (d) of this section unless the plan provides an opportunity for the participant to repay the full amount of a distribution described in subsection (d) of this section with, in the case of a defined benefit plan, interest at the rate determined for purposes of subsection (c)(2)(C) of this section and provides that upon such repayment the employee's accrued benefit shall be recomputed by taking into account service so disregarded.  This subsection shall apply only in the case of a participant who

 	(1)	received such a distribution in any plan year to which this section applies, which distribution was less than the present value of his accrued benefit,

 	(2)	resumes employment covered under the plan, and

 	(3)	repays the full amount of such distribution with, in the case of a defined benefit plan, interest at the rate determined for purposes of subsection (c)(2)(C) of this section.

The plan provision required under this subsection may provide that such repayment must be made (a)	in the case of a withdrawal on account of separation from service, before the earlier of 5 years after the first date on which the participant is subsequently reemployed by the employer, or the close of the first period of 5 consecutive 1year breaks in service commencing after the withdrawal;  or (B) in the case of any other withdrawal, 5 years after the date of the withdrawal.

(f)	Employer treated as maintaining a plan

For the purposes of this part, an employer shall be treated as maintaining a plan if any employee of such employer accrues benefits under such plan by reason of service with such employer.

(g)	Decrease of accrued benefits through amendment of plan

(1)	The accrued benefit of a participant under a plan may not be decreased by an amendment of the plan, other than an amendment described in section 1082(c)(8) or 1441 of this title.

(2)	For purposes of paragraph (1), a plan amendment which has the effect of

(a)	eliminating or reducing an early retirement benefit or a retirementtype subsidy (as defined in regulations), or

(b)	eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits.  In the case of a retirementtype subsidy, the preceding sentence shall apply only with respect to a participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy.  The Secretary of the Treasury may by regulations provide that this subparagraph shall not apply to a plan amendment described in subparagraph (B) (other than a plan amendment having an effect described in subparagraph (A)).

(3)	For purposes of this subsection, any

(a)	tax credit employee stock ownership plan (as defined in section 409(a) of Title 26), or

(b)	employee stock ownership plan (as defined in section 4975(e)(7) of Title 26),

shall not be treated as failing to meet the requirements of this subsection merely because it modifies distribution options in a nondiscriminatory manner.

(h) Notice of significant reduction in benefit accruals

(1)	A plan described in paragraph (2) may not be amended so as to provide for a significant reduction in the rate of future benefit accrual, unless, after adoption of the plan amendment and not less than 15 days before the effective date of the plan amendment, the plan administrator provides a written notice, setting forth the plan amendment and its effective date, to

(a) each participant in the plan,

(b) each beneficiary who is an alternate payee (within the meaning of section 1056(d)(3)(K) of this title) under an applicable qualified domestic relations order (within the meaning of section 1056(d)(3)(B)(i) of this title), and

 	(c)	each employee organization representing participants in the plan,

except that such notice shall instead be provided to a person designated, in writing, to receive such notice on behalf of any person referred to in subparagraph (A), (B), or (C).

(2)	A plan is described in this paragraph if such plan is

(a)	a defined benefit plan, or

(b)	an individual account plan which is subject to the funding standards of section 302.

(i) Probation on benefit increases where plan sponsor is in bankruptcy

(1)	In the case of a plan described in paragraph (3) which is maintained by an employer that is a debtor in a case under Title 11 or similar Federal or State law, no amendment of the plan which increases the liabilities of the plan by reason of

(a)	any increase in benefits,

 	(b)	any change in the accrual of benefits, or

 	(c)	any change in the rate at which benefits become nonforfeitable under the plan,

with respect to employees of the debtor, shall be effective prior to the effective date of such employer's plan of reorganization.

(2)	Paragraph (1) shall not apply to any plan amendment that

(a)	the Secretary of the Treasury determines to be reasonable and that provides for only de minimis increases in the liabilities of the plan with respect to employees of the debtor,

 	(b)	only repeals an amendment described in section 1082(c)(8) of this title,

 	(c)	is required as a condition of qualification under part I of subchapter D of chapter 1 of Title 26, or

 	(d)	was adopted prior to, or pursuant to a collective bargaining agreement entered into prior to, the date on which the employer became a debtor in a case under Title 11 or similar Federal or State law.

(3)	This subsection shall apply only to plans (other than multiemployer plans) covered under section 1321 of this title for which the funded current liability percentage (within the meaning of section 1082(d)(8) of this title) is less than 100 percent after taking into account the effect of the amendment.

(4)	For purposes of this subsection, the term "employer" has the meaning set forth in section 1082(c)(11)(A) of this title, without regard to section 1082(c)(11)(B) of this title.

(j) Cross reference

   For special rules relating to plan provisions adopted to preclude discrimination, see section 1053(c)(2) of this title.

 Section 1055: Requirement of joint and survivor annuity and preretirement survivor annuity

(a) Required contents for applicable plans

 Each pension plan to which this section applies shall provide that

 	(1)	in the case of a vested participant who does not die before the annuity starting date, the accrued benefit payable to such participant shall be provided in the form of a qualified joint and survivor annuity, and

 	(2)	in the case of a vested participant who dies before the annuity starting date and who has a surviving spouse, a qualified preretirement survivor annuity shall be provided to the surviving spouse of such participant.

(b) Applicable plans

(1)	This section shall apply to

(a) any defined benefit plan,

 	(b)	any individual account plan which is subject to the funding standards of section 1082 of this title, and

 	(c)	any participant under any other individual account plan unless

   (i) such plan provides that the participant's nonforfeitable accrued benefit (reduced by any security interest held by the plan by reason of a loan outstanding to such participant) is payable in full, on the death of the participant, to the participant's surviving spouse (or, if there is no surviving spouse or the surviving spouse consents in the manner required under subsection (c)(2) of this section, to a designated beneficiary),

   (ii) such participant does not elect the payment of benefits in the form of a life annuity, and

   (iii) with respect to such participant, such plan is not a direct or   indirect transferee (in a transfer after December 31, 1984) of a plan which is described in subparagraph (A) or (B) or to which this clause applied with respect to the participant.

Clause (iii) of subparagraph (C) shall apply only with respect to the transferred assets (and income therefrom) if the plan separately accounts for such assets and any income therefrom. (2)(A) In the case of

  (i) a tax credit employee stock ownership plan (as defined in section 409(a) of Title 26), or

  (ii) an employee stock ownership plan (as defined in section 4975(e)(7) of Title 26),

subsection (a) of this section shall not apply to that portion of the employee's accrued benefit to which the requirements of section 409(h) of Title 26 apply.

(b)	Subparagraph (A) shall not apply with respect to any participant unless the requirements of clause (i), (ii), and (iii) of paragraph (1)(C) are met with respect to such participant.

(4)	 This section shall not apply to a plan which the Secretary of the Treasury or his delegate has determined is a plan described in section 404(c) of Title 26 (or a continuation thereof) in which participation is substantially limited to individuals who, before January 1, 1976, ceased employment covered by the plan.

(4)	 A plan shall not be treated as failing to meet the requirements of paragraph (1)(C) or (2) merely because the plan provides that benefits will not be payable to the surviving spouse of the participant unless the participant and such spouse had been married throughout the 1year period ending on the earlier of the participant's annuity starting date or the date of the participant's death.

(c) Plans meeting requirements of section

(1)	A plan meets the requirements of this section only if

  (A) under the plan, each participant

   (i) may elect at any time during the applicable election period to waive the qualified joint and survivor annuity form of benefit or the qualified preretirement survivor annuity form of benefit (or both), and

   (ii) may revoke any such election at any time during the applicable election period, and

 	(b)	the plan meets the requirements of paragraphs (2), (3), and (4).

(2)	Each plan shall provide that an election under paragraph (1)(A)(i) shall not take effect unless

  (A) (i) the spouse of the participant consents in writing to such election,  (ii) such election designates a beneficiary (or a form of benefits) which may not be changed without spousal consent (or the consent of the spouse expressly permits designations by the participant without any requirement of further consent by the spouse), and (iii) the spouse's consent acknowledges the effect of such election and is witnessed by a plan representative or a notary public, or

 	(b)	it is established to the satisfaction of a plan representative that the consent required under subparagraph (A) may not be obtained because there is no spouse, because the spouse cannot be located, or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe.

Any consent by a spouse (or establishment that the consent of a spouse may not be obtained) under the preceding sentence shall be effective only with respect to such spouse.

 (3)(A) Each plan shall provide to each participant, within a reasonable period of time before the annuity starting date (and consistent with such regulations as the Secretary of the Treasury may prescribe) a written explanation of

  (i) the terms and conditions of the qualified joint and survivor annuity,

  (ii) the participant's right to make, and the effect of, an election under paragraph (1) to waive the joint and survivor annuity form of benefit,

  (iii) the rights of the participant's spouse under paragraph (2), and

  (iv) the right to make, and the effect of, a revocation of an election under paragraph (1).

 (B)(i) Each plan shall provide to each participant, within the applicable period with respect to such participant (and consistent with such regulations as the Secretary may prescribe), a written explanation with respect to the qualified preretirement survivor annuity comparable to that required under subparagraph (A).

 (ii) For purposes of clause (i), the term "applicable period" means, with respect to a participant, whichever of the following periods ends last:

  (I) The period beginning with the first day of the plan year in which the participant attains age 32 and ending with the close of the plan year preceding the plan year in which the participant attains age 35.

  (II) A reasonable period after the individual becomes a participant.

  (III) A reasonable period ending after paragraph (5) ceases to apply to the participant.

  (IV) A reasonable period ending after this section applies to the participant.

In the case of a participant who separates from service before attaining age 35, the applicable period shall be a reasonable period after separation.

(4)	Each plan shall provide that, if this section applies to a participant when part or all of the participant's accrued benefit is to be used as security for a loan, no portion of the participant's accrued benefit may be used as security for such loan unless

  (A) the spouse of the participant (if any) consents in writing to such use during the 90day period ending on the date on which the loan is to be so secured, and

 	(b)	requirements comparable to the requirements of paragraph (2) are met with respect to such consent.

 (5)(A) The requirements of this subsection shall not apply with respect to the qualified joint and survivor annuity form of benefit or the qualified preretirement survivor annuity form of benefit, as the case may be, if such benefit may not be waived (or another beneficiary selected) and if the plan fully subsidizes the costs of such benefit.

(b)	For purposes of subparagraph (A), a plan fully subsidizes the costs of a benefit if under the plan the failure to waive such benefit by a participant would not result in a decrease in any plan benefits with respect to such participant and would not result in increased contributions from such participant.

 (6) If a plan fiduciary acts in accordance with part 4 of this subtitle in

  (A) relying on a consent or revocation referred to in paragraph (1)(A), or

 	(b)	making a determination under paragraph (2),

then such consent, revocation, or determination shall be treated as valid for purposes of discharging the plan from liability to the extent of payments made pursuant to such Act.

 (7) For purposes of this subsection, the term "applicable election period" means

  (A) in the case of an election to waive the qualified joint and survivor annuity form of benefit, the 90day period ending on the annuity starting date, or

 	(b)	in the case of an election to waive the qualified preretirement survivor annuity, the period which begins on the first day of the plan year in which the participant attains age 35 and ends on the date of the participant's death.

In the case of a participant who is separated from service, the applicable election period under subparagraph (B) with respect to benefits accrued before the date of such separation from service shall not begin later than such date.

 (8) Notwithstanding any other provision of this subsection

  (A)(i) A plan may provide the written explanation described in paragraph  (3)(A) after the annuity starting date.  In any case to which this subparagraph applies, the applicable election period under paragraph (7) shall not end before the 30th day after the date on which such explanation is provided.

  (ii) The Secretary may by regulations limit the application of clause (i), except that such regulations may not limit the period of time by which the annuity starting date precedes the provision of the written explanation other than by providing that the annuity starting date may not be earlier than termination of employment.

 	(b)	A plan may permit a participant to elect (with any applicable spousal consent) to waive any requirement that the written explanation be provided at least 30 days before the annuity starting date (or to waive the 30day requirement under subparagraph (A)) if the distribution commences more than 7 days after such explanation is provided.

(d) "Qualified and joint survivor annuity" defined

 For purposes of this section, the term "qualified joint and survivor annuity" means an annuity

 	(1)	for the life of the participant with a survivor annuity for the life of the spouse which is not less than 50 percent of (and is not greater than 100 percent of) the amount of the annuity which is payable during the joint lives of the participant and the spouse, and

 	(2)	which is the actuarial equivalent of a single annuity for the life of the participant.

Such term also includes any annuity in a form having the effect of an annuity described in the preceding sentence.

(e)	"Qualified preretirement survivor annuity" defined

 For purposes of this section

 	(1)	Except as provided in paragraph (2), the term "qualified preretirement survivor annuity" means a survivor annuity for the life of the surviving  spouse of the participant if

   (A) the payments to the surviving spouse under such annuity are not less than the amounts which would be payable as a survivor annuity under the qualified joint and survivor annuity under the plan (or the actuarial equivalent thereof) if

    (i) in the case of a participant who dies after the date on which the participant attained the earliest retirement age, such participant had retired with an immediate qualified joint and survivor annuity on the day before the participant's date of death, or

    (ii) in the case of a participant who dies on or before the date on which the participant would have attained the earliest retirement age, such participant had

(I) separated from service on the date of death,

(II) survived to the earliest retirement age,

(III) retired with an immediate qualified joint and survivor annuity at the earliest retirement age, and

(IV) died on the day after the day on which such participant would have attained the earliest retirement age, and

  	(b)	under the plan, the earliest period for which the surviving spouse may receive a payment under such annuity is not later than the month in which the   participant would have attained the earliest retirement age under the plan.

  In the case of an individual who separated from service before the date of such individual's death, subparagraph (A)(ii)(I) shall not apply.

 	(2)	In the case of any individual account plan or participant described in subparagraph (B) or (C) of subsection (b)(1) of this section, the term "qualified preretirement survivor annuity" means an annuity for the life of the surviving spouse the actuarial equivalent of which is not less than 50 percent of the portion of the account balance of the participant (as of the date of death) to which the participant had a nonforfeitable right (within the meaning of section 1053 of this title).

 	(3)	For purposes of paragraphs (1) and (2), any security interest held by the plan by reason of a loan outstanding to the participant shall be taken into account in determining the amount of the qualified preretirement survivor annuity.

(f)	Marriage requirements for plan

(1)	Except as provided in paragraph (2), a plan may provide that a qualified joint and survivor annuity (or a qualified preretirement survivor annuity) will not be provided unless the participant and spouse had been married throughout the 1year period ending on the earlier of

(a) the participant's annuity starting date, or

(b)	the date of the participant's death.

(2)	For purposes of paragraph (1), if

  (A) a participant marries within 1 year before the annuity starting date, and

 	(b)	the participant and the participant's spouse in such marriage have been married for at least a 1year period ending on or before the date of the participant's death,

such participant and such spouse shall be treated as having been married throughout the 1year period ending on the participant's annuity starting date.

(g)	Distribution of present value of annuity;  written consent;  determination

(1)	A plan may provide that the present value of a qualified joint and survivor annuity or a qualified preretirement survivor annuity will be immediately distributed if such value does not exceed $3,500.  No distribution may be made under the preceding sentence after the annuity starting date unless the participant and the spouse of the participant (or where the participant has died, the surviving spouse) consent in writing to such distribution.

(2)	If

  (A) the present value of the qualified joint and survivor annuity or the qualified preretirement survivor annuity exceeds $3,500, and

 	(b)	the participant and the spouse of the participant (or where the participant has died, the surviving spouse) consent in writing to the distribution,

the plan may immediately distribute the present value of such annuity.

(3)	Determination of present value

  (A) In general

    (i) Present value

   Except as provided in subparagraph (B), for purposes of paragraphs (1) and  (2), the present value shall not be less than the present value calculated by using the applicable mortality table and the applicable interest rate.

    (ii) Definitions

   For purposes of clause (i)

(I) Applicable mortality table

    The term "applicable mortality table" means the table prescribed by the Secretary of the Treasury.  Such table shall be based on the prevailing commissioners' standard table (described in section 807(d)(5)(A) of Title 26) used to determine reserves for group annuity contracts issued on the date as of which present value is being determined (without regard to any other subparagraph of section 807(d)(5) of Title 26).

(II) Applicable interest rate

    The term "applicable interest rate" means the annual rate of interest on 30year Treasury securities for the month before the date of distribution or such other time as the Secretary of the Treasury may by regulations prescribe.

 	(b)	Exception

  In the case of a distribution from a plan that was adopted and in effect prior to December 8, 1994, the present value of any distribution made before the earlier of

   (i) the later of when a plan amendment applying subparagraph (A) is adopted or made effective, or

   (ii) the first day of the first plan year beginning after December 31, 1999,

  shall be calculated, for purposes of paragraphs (1) and (2), using the interest rate determined under the regulations of the Pension Benefit Guaranty Corporation for determining the present value of a lump sum distribution on plan termination that were in effect on September 1, 1993, and using the provisions of the plan as in effect on the day before December 8, 1994;  but only if such provisions of the plan met the requirements of this paragraph as in effect on the day before December 8, 1994.

(h) Definitions

 For purposes of this section

 	(1)	The term "vested participant" means any participant who has a nonforfeitable right (within the meaning of section 1002(19) of this title) to any portion of such participant's accrued benefit.

  (2)(A) The term "annuity starting date" means

   (i) the first day of the first period for which an amount is payable as an annuity, or

   (ii) in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the participant to such benefit.

 	(b)	For purposes of subparagraph (A), the first day of the first period for which a benefit is to be received by reason of disability shall be treated as the annuity starting date only if such benefit is not an auxiliary benefit.

 	(3)	The term "earliest retirement age" means the earliest date on which, under the plan, the participant could elect to receive retirement benefits.

(i) Increased costs from providing annuity

 A plan may take into account in any equitable manner (as determined by the Secretary of the Treasury) any increased costs resulting from providing a qualified joint or survivor annuity or a qualified preretirement survivor annuity.

(j) Use of participant's accrued benefit as security for loan as not preventing distribution

 If the use of any participant's accrued benefit (or any portion thereof) as security for a loan meets the requirements of subsection (c)(4), of this section, nothing in this section shall prevent any distribution required by reason of a failure to comply with the terms of such loan.

(k) Spousal consent

No consent of a spouse shall be effective for purposes of subsection (g)(1) or (g)(2) of this section (as the case may be) unless requirements comparable to the requirements for spousal consent to an election under subsection (c)(1)(A) of this section are met.

(l) Regulations;  consultation of Secretary of the Treasury with Secretary of Labor

 In prescribing regulations under this section, the Secretary of the Treasury shall consult with the Secretary of Labor.

 Section 1056: Form and payment of benefits

(a) Commencement date for payment of benefits

Each pension plan shall provide that unless the participant otherwise elects, the payment of benefits under the plan to the participant shall begin not later than the 60th day after the latest of the close of the plan year in which

 	(1)	occurs the date on which the participant attains the earlier of age 65 or the normal retirement age specified under the plan,

 	(2)	occurs the 10th anniversary of the year in which the participant commenced participation in the plan, or

 	(3)	the participant terminates his service with the employer.

In the case of a plan which provides for the payment of an early retirement benefit, such plan shall provide that a participant who satisfied the service requirements for such early retirement benefit, but separated from the service (with any nonforfeitable right to an accrued benefit) before satisfying the age requirement for such early retirement benefit, is entitled upon satisfaction of such age requirement to receive a benefit not less than the benefit to which he would be entitled at the normal retirement age, actuarially reduced under regulations prescribed by the Secretary of the Treasury.

(b) Decrease in plan benefits by reason of increases in benefit levels under Social Security Act or Railroad Retirement Act of 1937

 If

 	(1)	a participant or beneficiary is receiving benefits under a pension plan, or

 	(2)	a participant is separated from the service and has nonforfeitable rights  to benefits,

a plan may not decrease benefits of such a participant by reason of any increase in the benefit levels payable under title II of the Social Security Act [42 U.S.C.A. Section 401 et seq.] or the Railroad Retirement Act of 1937 [45 U.S.C.A. Section 231 et seq.], or any increase in the wage base under such title II, if such increase takes place after September 2, 1974, or (if later) the earlier of the date of first entitlement of such benefits or the date of such separation.

(c) Forfeiture of accrued benefits derived from employer contributions

 No pension plan may provide that any part of a participant's accrued benefit derived from employer contributions (whether or not otherwise nonforfeitable) is forfeitable solely because of withdrawal by such participant of any amount attributable to the benefit derived from contributions made by such participant.  The preceding sentence shall not apply (1) to the accrued benefit of any participant unless, at the time of such withdrawal, such participant has a nonforfeitable right to at least 50 percent of such accrued benefit, or	(2)	to the extent that an accrued benefit is permitted to be forfeited in accordance with section 1053(a)(3)(D)(iii) of this title.

(d) Assignment or alienation of plan benefits

(1)	Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.

(2)	For the purposes of paragraph (1) of this subsection, there shall not be taken into account any voluntary and revocable assignment of not to exceed 10 percent of any benefit payment, or of any irrevocable assignment or alienation of benefits executed before September 2, 1974.  The preceding sentence shall not apply to any assignment or alienation made for the purposes of defraying plan administration costs.  For purposes of this paragraph a loan made to a participant or beneficiary shall not be treated as an assignment or alienation if such loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax imposed by section 4975 of Title 26 (relating to tax on prohibited transactions) by reason of section 4975(d)(1) of Title 26.

 (3)(A) Paragraph (1) shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order, except that paragraph (1) shall not apply if the order is determined to be a qualified domestic relations order.  Each pension plan shall provide for the payment of benefits in accordance with the applicable requirements of any qualified domestic relations order.

(b)	For purposes of this paragraph

  (i) the term "qualified domestic relations order" means a domestic relations order

   (I) which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and

   (II) with respect to which the requirements of subparagraphs (C) and (D) are met, and

  (ii) the term "domestic relations order" means any judgment, decree, or order (including approval of a property settlement agreement) which

   (I) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant, and

   (II) is made pursuant to a State domestic relations law (including a community property law).

(c)	A domestic relations order meets the requirements of this subparagraph only if such order clearly specifies

  (i) the name and the last known mailing address (if any) of the participant  and the name and mailing address of each alternate payee covered by the order,

  (ii) the amount or percentage of the participant's benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,

  (iii) the number of payments or period to which such order applies, and

  (iv) each plan to which such order applies.

(d)	A domestic relations order meets the requirements of this subparagraph only if such order

  (i) does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan,

  (ii) does not require the plan to provide increased benefits (determined on the basis of actuarial value), and

  (iii) does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.

 (E)(i) A domestic relations order shall not be treated as failing to meet the requirements of clause (i) of subparagraph	(d)	solely because such order requires that payment of benefits be made to an alternate payee

  (I) in the case of any payment before a participant has separated from service, on or after the date on which the participant attains (or would have  attained) the earliest retirement age,

  (II) as if the participant had retired on the date on which such payment is to begin under such order (but taking into account only the present value of benefits actually accrued and not taking into account the present value of any employer subsidy for early retirement), and

  (III) in any form in which such benefits may be paid under the plan to the participant (other than in the form of a joint and survivor annuity with respect to the alternate payee and his or her subsequent spouse).

For purposes of subclause (II), the interest rate assumption used in determining the present value shall be the interest rate specified in the plan or, if no rate is specified, 5 percent.

 (ii) For purposes of this subparagraph, the term "earliest retirement age" means the earlier of

  (I) the date on which the participant is entitled to a distribution under the plan, or

  (II) the later of the date of the participant attains age 50 or the earliest date on which the participant could begin receiving benefits under the plan if the participant separated from service.

 	(f)	To the extent provided in any qualified domestic relations order

  (i) the former spouse of a participant shall be treated as a surviving spouse of such participant for purposes of section 1055 (and any spouse of the participant shall not be treated as a spouse of the participant for such purposes) of this title, and

  (ii) if married for at least 1 year, the surviving former spouse shall be treated as meeting the requirements of section 1055(f) of this title.

 (G)(i) In the case of any domestic relations order received by a plan

  (I) the plan administrator shall promptly notify the participant and each alternate payee of the receipt of such order and the plan's procedures for determining the qualified status of domestic relations orders, and

  (II) within a reasonable period after receipt of such order, the plan administrator shall determine whether such order is a qualified domestic relations order and notify the participant and each alternate payee of such determination.

 (ii) Each plan shall establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders.  Such procedures

  (I) shall be in writing,

  (II) shall provide for the notification of each person specified in a domestic relations order as entitled to payment of benefits under the plan (at  the address included in the domestic relations order) of such procedures promptly upon receipt by the plan of the domestic relations order, and

  (III) shall permit an alternate payee to designate a representative for receipt of copies of notices that are sent to the alternate payee with respect to a domestic relations order.

 (H)(i) During any period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined (by the plan administrator, by a court of competent jurisdiction, or otherwise), the plan administrator shall separately account for the amounts (hereinafter in this subparagraph referred to as the "segregated amounts") which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order.

 (ii) If within the 18month period described in clause (v) the order (or modification thereof) is determined to be a qualified domestic relations order, the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons entitled thereto.

 (iii) If within 18month period described in clause (v)

  (I) it is determined that the order is not a qualified domestic relations order, or

  (II) the issue as to whether such order is a qualified domestic relations  order is not resolved,

then the plan administrator shall pay the segregated amounts (including any interest thereon) to the person or persons who would have been entitled to such amounts if there had been no order.

 (iv) Any determination that an order is a qualified domestic relations order which is made after the close of the 18month period described in clause (v) shall be applied prospectively only.

 (v) For purposes of this subparagraph, the 18month period described in this clause is the 18month period beginning with the date on which the first payment would be required to be made under the domestic relations order.

 (I) If a plan fiduciary acts in accordance with part 4 of this subtitle in

  (i) treating a domestic relations order as being (or not being) a qualified domestic relations order, or

  (ii) taking action under subparagraph (H),

then the plan's obligation to the participant and each alternate payee shall be discharged to the extent of any payment made pursuant to such Act.

 (J) A person who is an alternate payee under a qualified domestic relations order shall be considered for purposes of any provision of this chapter a beneficiary under the plan.  Nothing in the preceding sentence shall permit a requirement under section 1301 of this title of the payment of more than 1 premium with respect to a participant for any period.

 (K) The term "alternate payee" means any spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to such participant.

 (L) This paragraph shall not apply to any plan to which paragraph (1) does not apply.

 (M) Payment of benefits by a pension plan in accordance with the applicable requirements of a qualified domestic relations order shall not be treated as garnishment for purposes of section 303(a) of the Consumer Credit Protection Act.

 (N) In prescribing regulations under this paragraph, the Secretary shall consult with the Secretary of the Treasury.

(e)	Limitation on distributions other than life annuities paid by the plan

 	(1)	In general

  Notwithstanding any other provision of this part, the fiduciary of a pension plan that is subject to the additional funding requirements of section 1082(d) of this title shall not permit a prohibited payment to be made from a plan during a period in which such plan has a liquidity shortfall (as defined in section 1082(e)(5) of this title).

 	(2)	Prohibited payment

  For purposes of paragraph (1), the term "prohibited payment" means

   (A) any payment, in excess of the monthly amount paid under a single life annuity (plus any social security supplements described in the last sentence of section 1054(b)(1)(G) of this title), to a participant or beneficiary whose annuity starting date (as defined in section 1055(h)(2) of this title), that occurs during the period referred to in paragraph (1),

  	(b)	any payment for the purchase of an irrevocable commitment from an insurer to pay benefits, and

  	(c)	any other payment specified by the Secretary of the Treasury by regulations.

 	(3)	Period of shortfall

  For purposes of this subsection, a plan has a liquidity shortfall during the period that there is an underpayment of an installment under section 1082(e) 3of this title by reason of paragraph (5)(A) thereof.

 	(4)	Coordination with other provisions

  Compliance with this subsection shall not constitute a violation of any other provision of this chapter.

(f)	Missing participants in terminated plans

 In the case of a plan covered by subchapter III of this chapter, the plan shall provide that, upon termination of the plan, benefits of missing participants shall be treated in accordance with section 1350 of this title.

 Section 1057: Temporary variances from certain vesting requirements

 In the case of any plan maintained on January 1, 1974, if not later than 2 years after September 2, 1974, the administrator petitions the Secretary, the Secretary may prescribe an alternate method which shall be treated as satisfying the requirements of section 1053(a)(2) or 1054(b)(1) (other than subparagraph (D) thereof) of this title or both for a period of not more than 4 years.  The Secretary may prescribe such alternate method only when he finds that

 	(1)	the application of such requirements would increase the costs of the plan  to such an extent that there would result a substantial risk to the voluntary continuation of the plan or a substantial curtailment of benefit levels or the levels of employees' compensation.

 	(2)	the application of such requirements or discontinuance of the plan would be adverse to the interests of plan participants in the aggregate, and

 	(3)	a waiver or extension of time granted under section 1083 or 1084 of this title would be inadequate.

In the case of any plan with respect to which an alternate method has been prescribed under the preceding provisions of this subsection for a period of not more than 4 years, if, not later than 1 year before the expiration of such period, the administrator petitions the Secretary for an extension of such alternate method, and the Secretary makes the findings required by the preceding sentence, such alternate method may be extended for not more than 3 years.

 Section 1058: Mergers and consolidations of plans or transfers of plan assets

A pension plan may not merge or consolidate with, or transfer its assets or liabilities to, any other plan after September 2, 1974, unless each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had then terminated).  The preceding sentence shall not apply to any transaction to the extent that participants either before or after the transaction are covered under a multiemployer plan to which subchapter III of this chapter applies.

 Section 1059: Recordkeeping and reporting requirements

 (a)(1) Except as provided by paragraph (2) every employer shall, in accordance with regulations prescribed by the Secretary, maintain records with respect to each of his employees sufficient to determine the benefits due or which may become due to such employees.  The plan administrator shall make a report, in such manner and at such time as may be provided in regulations prescribed by the Secretary, to each employee who is a participant under the plan and who

  (A) requests such report, in such manner and at such time as may be provided in such regulations,

 	(b)	terminates his service with the employer, or

 	(c)	has a 1year break in service (as defined in section 1053(b)(3)(A) of this title).

The employer shall furnish to the plan administrator the information necessary for the administrator to make the reports required by the preceding sentence. Not more than one report shall be required under subparagraph (A) in any 12 month period.  Not more than one report shall be required under subparagraph (C) with respect to consecutive 1year breaks in service.  The report required under this paragraph shall be sufficient to inform the employee of his accrued benefits under the plan and the percentage of such benefits which are nonforfeitable under the plan.

(2)	If more than one employer adopts a plan, each such employer shall, in accordance with regulations prescribed by the Secretary, furnish to the plan administrator the information necessary for the administrator to maintain the records and make the reports required by paragraph (1).  Such administrator shall maintain the records and, to the extent provided under regulations prescribed by the Secretary, make the reports, required by paragraph (1).

(b)	If any person who is required, under subsection (a) of this section, to furnish information or maintain records for any plan year fails to comply with such requirement, he shall pay to the Secretary a civil penalty of $10 for each employee with respect to whom such failure occurs, unless it is shown that such failure is due to reasonable cause.

 Section 1060: Multiple employer plans

(a) Plan maintained by more than one employer

Notwithstanding any other provision of this part or part 3, the following provisions of this subsection shall apply to a plan maintained by more than one employer:

 	(1)	Section 1052 of this title shall be applied as if all employees of each of the employers were employed by a single employer.

 	(2)	Sections 1053 and 1054 of this title shall be applied as if all such employers constituted a single employer, except that the application of any rules with respect to breaks in service shall be made under regulations prescribed by the Secretary.

 	(3)	The minimum funding standard provided by section 1082 of this title shall be determined as if all participants in the plan were employed by a single employer.

(b) Maintenance of plan of predecessor employer

 For purposes of this part and part 3

 	(1)	in any case in which the employer maintains a plan of a predecessor employer, service for such predecessor shall be treated as service for the employer, and

 	(2)	in any case in which the employer maintains a plan which is not the plan maintained by a predecessor employer, service for such predecessor shall, to the extent provided in regulations prescribed by the Secretary of the Treasury, be treated as service for the employer.

(c) Plan maintained by controlled group of corporations

 For purposes of sections 1052, 1053, and 1054 of this title, all employees of all corporations which are members of a controlled group of corporations (within the meaning of section 1563(a) of Title 26, determined without regard to section 1563(a)(4) and (e)(3)(C) of Title 26) shall be treated as employed by a single employer.  With respect to a plan adopted by more than one such corporation, the minimum funding standard of section 1082 of this title shall be determined as if all such employers were a single employer, and allocated to each employer in accordance with regulations prescribed by the Secretary of the Treasury.

(d) Plan of trades or businesses under common control

 For purposes of sections 1052, 1053, and 1054 of this title, under regulations prescribed by the Secretary of the Treasury, all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer.  The regulations prescribed under this subsection shall be based on principles similar to the principles which apply in the case of subsection (c) of this section.

 Section 1061: Effective dates

(a) Except as otherwise provided in this section, this part shall apply in the case of plan years beginning after September 2, 1974.

 (b)(1) Except as otherwise provided in subsection (d) of this section, sections 1055, 1056(d), and 1058 of this title shall apply with respect to plan years beginning after December 31, 1975.

(2)	Except as otherwise provided in subsections (c) and (d) of this section in the case of a plan in existence on January 1, 1974, this part shall apply in the case of plan years beginning after December 31, 1975.

 (c)(1) In the case of a plan maintained on January 1, 1974, pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements between employee organizations and one or more employers, no plan shall be treated as not meeting the requirements of sections 1054 and 1055 of this title solely by reason of a supplementary or special plan provision (within the meaning of paragraph (2)) for any plan year before the year which begins after the earlier of

  (A) the date on which the last of such agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after September 2, 1974), or

 	(b)	December 31, 1980.

For purposes of subparagraph (A) and section 1086(c) of this title, any plan amendment made pursuant to a collective bargaining agreement relating to the plan which amends the plan solely to conform to any requirement contained in this chapter or the Internal Revenue Code of 1986 shall not be treated as a termination of such collective bargaining agreement.  This paragraph shall not apply unless the Secretary determines that the participation and vesting rules in effect on September 2, 1974, are not less favorable to participants, in the aggregate, than the rules provided under sections 1052, 1053, and 1054 of this title.

(2)	For purposes of paragraph (1), the term "supplementary or special plan provision" means any plan provision which

  (A) provides supplementary benefits, not in excess of onethird of the basic benefit, in the form of an annuity for the life of the participant, or

 	(b)	provides that, under a contractual agreement based on medical evidence as to the effects of working in an adverse environment for an extended period of time, a participant having 25 years of service is to be treated as having 30 years of service.

(3)	This subsection shall apply with respect to a plan if (and only if) the application of this subsection results in a later effective date for this part than the effective date required by subsection (b) of this section.

(d)	If the administrator of a plan elects under section 1017(d) of this Act to make applicable to a plan year and to all subsequent plan years the provisions of the Internal Revenue Code of 1986 relating to participation, vesting, funding, and form of benefit, this part shall apply to the first plan year to which such election applies and to all subsequent plan years.

 (e)(1) No pension plan to which section 1052 of this title applies may make effective any plan amendment with respect to breaks in service (which amendment is made or becomes effective after January 1, 1974, and before the date on which section 1052 of this title first becomes effective with respect to such plan) which provides that any employee's participation in the plan would commence at any date later than the later of

  (A) the date on which his participation would commence under the break in service rules of section 1052(b) of this title, or

 	(b)	the date on which his participation would commence under the plan as in effect on January 1, 1974.

(2)	No pension plan to which section 1053 of this title applies may make effective any plan amendment with respect to breaks in service (which amendment is made or becomes effective after January 1, 1974, and before the date on which section 1053 of this title first becomes effective with respect to such plan) if such amendment provides that the nonforfeitable benefit derived from employer contributions to which any employee would be entitled is less than the lesser of the nonforfeitable benefit derived from employer contributions to which he would be entitled under

  (A) the break in service rules of section 1052(b)(3) of this title, or

 	(b)	the plan as in effect on January 1, 1974.

Subparagraph (B) shall not apply if the break in service rules under the plan would have been in violation of any law or rule of law in effect on January 1, 1974.

 	(f)	The preceding provisions of this section shall not apply with respect to amendments made to this part in provisions enacted after September 2, 1974.

 Section 1081: Coverage

(a) Plans excepted from applicability of this part

 This part shall apply to any employee pension benefit plan described in section 1003(a) of this title, (and not exempted under section 1003(b) of this title), other than

 	(1)	an employee welfare benefit plan;

 	(2)	an insurance contract plan described in subsection (b) of this section;

 	(3)	a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees;

  (4)(A) a plan which is established and maintained by a society, order, or association described in section 501(c)(8) or (9) of Title 26, if no part of the contributions to or under such plan are made by employers of participants in such plan;  or

 	(b)	a trust described in section 501(c)(18) of Title 26;

  (5) a plan which has not at any time after September 2, 1974, provided for employer contributions;

  (6) an agreement providing payments to a retired partner or deceased partner or a deceased partner's successor in interest as described in section 736 of Title 26;

  (7) an individual retirement account or annuity as described in section 408(a) of Title 26, or a retirement bond described in section 409 of Title 26 (as effective for obligations issued before January 1, 1984);

  (8) an individual account plan (other than a money purchase plan) and a defined benefit plan to the extent it is treated as an individual account plan (other than a money purchase plan) under section 1002(35)(B) of this title;

  (9) an excess benefit plan;  or

  (10) any plan, fund or program under which an employer, all of whose stock is directly or indirectly owned by employees, former employees or their beneficiaries, proposes through an unfunded arrangement to compensate retired employees for benefits which were forfeited by such employees under a pension plan maintained by a former employer prior to the date such pension plan became subject to this chapter.

(b) "Insurance contract plan" defined

 For the purposes of paragraph (2) of subsection (a) of this section a plan is an "insurance contract plan" if

 	(1)	the plan is funded exclusively by the purchase of individual insurance contracts,

 	(2)	such contracts provide for level annual premium payments to be paid extending not later than the retirement age for each individual participating in the plan, and commencing with the date the individual became a participant in the plan (or, in the case of an increase in benefits, commencing at the time such increase became effective),

 	(3)	benefits provided by the plan are equal to the benefits provided under  each contract at normal retirement age under the plan and are guaranteed by an insurance carrier (licensed under the laws of a State to do business with the plan) to the extent premiums have been paid,

  (4) premiums payable for the plan year, and all prior plan years under such contracts have been paid before lapse or there is reinstatement of the policy,

  (5) no rights under such contracts have been subject to a security interest at any time during the plan year, and

  (6) no policy loans are outstanding at any time during the plan year.

A plan funded exclusively by the purchase of group insurance contracts which is determined under regulations prescribed by the Secretary of the Treasury to have the same characteristics as contracts described in the preceding sentence shall be treated as a plan described in this subsection.

(c) Applicability of this part to terminated multiemployer plans

 This part applies, with respect to a terminated multiemployer plan to which section 1321 of this title applies, until the last day of the plan year in which the plan terminates, within the meaning of section 1341a(a)(2) of this title.

(d) Financial assistance from Pension Benefit Guaranty Corporation

 Any amount of any financial assistance from the Pension Benefit Guaranty Corporation to any plan, and any repayment of such amount, shall be taken into account under this section in such manner as determined by the Secretary of the Treasury.

 Section 1082: Minimum funding standards

(a) Avoidance of accumulated funding deficiency

(1)	Every employee pension benefit plan subject to this part shall satisfy the minimum funding standard (or the alternative minimum funding standard under section 1085 of this title) for any plan year to which this part applies.  A plan to which this part applies shall have satisfied the minimum funding standard for such plan for a plan year if as of the end of such plan year the plan does not have an accumulated funding deficiency.

(2)	For the purposes of this part, the term "accumulated funding deficiency" means for any plan the excess of the total charges to the funding standard account for all plan years (beginning with the first plan year to which this part applies) over the total credits to such account for such years or, if less, the excess of the total charges to the alternative minimum funding standard account for such plan years over the total credits to such account for such years.

(3)	In any plan year in which a multiemployer plan is in reorganization, the accumulated funding deficiency of the plan shall be determined under section 1423 of this title.

(b) Funding standard account

(1)	Each plan to which this part applies shall establish and maintain a funding standard account.  Such account shall be credited and charged solely as provided in this section.

(2)	For a plan year, the funding standard account shall be charged with the sum of

  (A) the normal cost of the plan for the plan year,

 	(b)	the amounts necessary to amortize in equal annual installments (until fully amortized)

   (i) in the case of a plan in existence on January 1, 1974, the unfunded past service liability under the plan on the first day of the first plan year to which this part applies, over a period of 40 plan years,

   (ii) in the case of a plan which comes into existence after January 1, 1974, the unfunded past service liability under the plan on the first day of the first plan year to which this part applies, over a period of 30 plan years,

   (iii) separately, with respect to each plan year, the net increase (if any) in unfunded past service liability under the plan arising from plan amendments adopted in such year, over a period of 30 plan years,

   (iv) separately, with respect to each plan year, the net experience loss (if any) under the plan, over a period of 5 plan years (15 plan years in the case of a multiemployer plan), and

   (v) separately, with respect to each plan year, the net loss (if any) resulting from changes in actuarial assumptions used under the plan, over a period of 10 plan years (30 plan years in the case of a multiemployer plan).

 	(c)	the amount necessary to amortize each waived funding deficiency (within the meaning of section 1083(c) of this title) for each prior plan year in equal annual installments (until fully amortized) over a period of 5 plan  years (15 plan years in the case of a multiemployer plan), and

 	(d)	the amount necessary to amortize in equal annual installments (until fully amortized) over a period of 5 plan years any amount credited to the funding standard account under paragraph (3)(D).

(3)	For a plan year, the funding standard account shall be credited with the sum of

  (A) the amount considered contributed by the employer to or under the plan for the plan year,

 	(b)	the amount necessary to amortize in equal annual installments (until fully amortized)

   (i) separately, with respect to each plan year, the net decrease (if any) in unfunded past service liability under the plan arising from plan amendments adopted in such year, over a period of 30 plan years,

   (ii) separately, with respect to each plan year, the net experience gain (if any) under the plan, over a period of 5 plan years (15 plan years in the case of a multiemployer plan),

   (iii) separately, with respect to each plan year, the net gain (if any) resulting from changes in actuarial assumptions used under the plan, over a period of 10 plan years (30 plan years in the case of a multiemployer plan),

 	(c)	the amount of the waived funding deficiency (within the meaning of  section 1083(c) of this title) for the plan year, and

 	(d)	in the case of a plan year for which the accumulated funding deficiency is determined under the funding standard account if such plan year follows a plan year for which such deficiency was determined under the alternative minimum funding standard, the excess (if any) of any debit balance in the funding standard account (determined without regard to this subparagraph) over any debit balance in the alternative minimum funding standard account.

(4)	Under regulations prescribed by the Secretary of the Treasury, amounts required to be amortized under paragraph (2) or paragraph (3), as the case may be

  (A) may be combined into one amount under such paragraph to be amortized over a period determined on the basis of the remaining amortization period for all items entering into such combined amount, and

 	(b)	may be offset against amounts required to be amortized under the other such paragraph, with the resulting amount to be amortized over a period determined on the basis of the remaining amortization periods for all items entering into whichever of the two amounts being offset is the greater.

 (5) Interest

  (A) In general

  The funding standard account (and items therein) shall be charged or credited (as determined under regulations prescribed by the Secretary of the Treasury) with interest at the appropriate rate consistent with the rate or rates of interest used under the plan to determine costs.

 	(b)	Required change of interest rate

  For purposes of determining a plan's current liability and for purposes of determining a plan's required contribution under subsection (d) of this section for any plan year

    (i) In general

   If any rate of interest used under the plan to determine cost is not within the permissible range, the plan shall establish a new rate of interest within the permissible range.

    (ii) Permissible range

   For purposes of this subparagraph

(I) In general

    Except as provided in subclause (II), the term "permissible range" means a rate of interest which is not more than 10 percent above, and not more than 10 percent below, the the weighted average of the rates of interest on 30year Treasury securities during the 4year period ending on the last day before the beginning of the plan year.

(II) Secretarial authority

    If the Secretary finds that the lowest rate of interest permissible under subclause (I) is unreasonably high, the Secretary may prescribe a lower rate of interest, except that such rate may not be less than 80 percent of the average rate determined under subclause (I).

    (iii) Assumptions

   Notwithstanding subsection (c)(3)(A)(i) of this section, the interest rate used under the plan shall be

    (I) determined without taking into account the experience of the plan and reasonable expectations, but

    (II) consistent with the assumptions which reflect the purchase rates which would be used by insurance companies to satisfy the liabilities under the plan.

 (6) In the case of a plan which, immediately before September 26, 1980, was a multiemployer plan (within the meaning of section 1002(37) of this title as in effect immediately before such date)

  (A) any amount described in paragraph (2)(B)(ii), (2)(B)(iii), or (3)(B)(i) of this subsection which arose in a plan year beginning before such date shall be amortized in equal annual installments (until fully amortized) over 40 plan years, beginning with the plan year in which the amount arose;

 	(b)	any amount described in paragraph (2)(B)(iv) or (3)(B)(ii) of this subsection which arose in a plan year beginning before such date shall be amortized in equal annual installments (until fully amortized) over 20 plan years, beginning with the plan year in which the amount arose;

 	(c)	any change in past service liability which arises during the period of 3 plan years beginning on or after such date, and results from a plan amendment adopted before such date, shall be amortized in equal annual installments (until fully amortized) over 40 plan years, beginning with the plan year in  which the change arises;  and

 	(d)	any change in past service liability which arises during the period of 2 plan years beginning on or after such date, and results from the changing of a group of participants from one benefit level to another benefit level under a schedule of plan benefits which

   (i) was adopted before such date, and

   (ii) was effective for any plan participant before the beginning of the first plan year beginning on or after such date,

  shall be amortized in equal annual installments (until fully amortized) over 40 plan years, beginning with the plan year in which the increase arises.

 (7) For purposes of this part

  (A) Any amount received by a multiemployer plan in payment of all or part of an employer's withdrawal liability under part 1 of subtitle E of subchapter III of this chapter shall be considered an amount contributed by the employer to or under the plan.  The Secretary of the Treasury may prescribe by regulation additional charges and credits to a multiemployer plan's funding standard account to the extent necessary to prevent withdrawal liability payments from being unduly reflected as advance funding for plan liabilities.

 	(b)	If a plan is not in reorganization in the plan year but was in  reorganization in the immediately preceding plan year, any balance in the funding standard account at the close of such immediately preceding plan year

   (i) shall be eliminated by an offsetting credit or charge (as the case may be), but

   (ii) shall be taken into account in subsequent plan years by being amortized in equal annual installments (until fully amortized) over 30 plan years.

  The preceding sentence shall not apply to the extent of any accumulated funding deficiency under section 418B(a) of Title 26 as of the end of the last plan year that the plan was in reorganization.

 	(c)	Any amount paid by a plan during a plan year to the Pension Benefit Guaranty Corporation pursuant to section 1402 of this title or to a fund exempt under section 501(c)(22) of Title 26 pursuant to section 1403 of this title shall reduce the amount of contributions considered received by the plan for the plan year.

 	(d)	Any amount paid by an employer pending a final determination of the employer's withdrawal liability under part 1 of subtitle E of subchapter III of this chapter and subsequently refunded to the employer by the plan shall be charged to the funding standard account in accordance with regulations  prescribed by the Secretary.

(E)	For purposes of the full funding limitation under subsection (c)(7) of this section, unless otherwise provided by the plan, the accrued liability under a multiemployer plan shall not include benefits which are not nonforfeitable under the plan after the termination of the plan (taking into consideration section 411(d)(3) of Title 26).

(c) Methods

(1)	For purposes of this part, normal costs, accrued liability, past service liabilities, and experience gains and losses shall be determined under the funding method used to determine costs under the plan.

 (2)(A) For purposes of this part, the value of the plan's assets shall be determined on the basis of any reasonable actuarial method of valuation which takes into account fair market value and which is permitted under regulations prescribed by the Secretary of the Treasury.

(b)	For purposes of this part, the value of a bond or other evidence of indebtedness which is not in default as to principal or interest may, at the election of the plan administrator, be determined on an amortized basis running from initial cost at purchase to par value at maturity or earliest call date. Any election under this subparagraph shall be made at such time and in such manner as the Secretary of the Treasury shall by regulations provide, shall apply to all such evidences of indebtedness, and may be revoked only with the consent of the Secretary of the Treasury.  In the case of a plan other than a multiemployer plan, this subparagraph shall not apply, but the Secretary of the Treasury may by regulations provide that the value of any dedicated bond portfolio of such plan shall be determined by using the interest rate under subsection (b)(5) of this section.

(3)	For purposes of this section, all costs, liabilities, rates of interest, and other factors under the plan shall be determined on the basis of actuarial assumptions and methods

  (A) in the case of

   (i) a plan other than a multiemployer plan, each of which is reasonable  (taking into account the experience of the plan and reasonable expectations) or which, in the aggregate, result in a total contribution equivalent to that which would be determined if each such assumption and method were reasonable, or

   (ii) a multiemployer plan, which, in the aggregate, are reasonable (taking into account the experiences of the plan and reasonable expectations), and

 	(b)	which, in combination, offer the actuary's best estimate of anticipated  experience under the plan.

(4)	For purposes of this section, if

  (A) a change in benefits under the Social Security Act [42 U.S.C.A. Section 301 et seq.] or in other retirement benefits created under Federal or State law, or

 	(b)	a change in the definition of the term "wages" under section 3121 of Title 26, or a change in the amount of such wages taken into account under regulations prescribed for purposes of section 401(a)(5) of Title 26,

results in an increase or decrease in accrued liability under a plan, such increase or decrease shall be treated as an experience loss or gain.

 (5)(A) In general

 If the funding method for a plan is changed, the new funding method shall become the funding method used to determine costs and liabilities under the plan only if the change is approved by the Secretary of the Treasury.  If the plan year for a plan is changed, the new plan year shall become the plan year for the plan only if the change is approved by the Secretary of the Treasury.

(b)	Approval required for certain changes in assumptions by certain single employer plans subject to additional funding requirement

  (i) In general

  No actuarial assumption (other than the assumptions described in subsection  (d)(7)(C) of this section) used to determine the current liability for a plan to which this subparagraph applies may be changed without the approval of the Secretary of the Treasury.

  (ii) Plans to which subparagraph applies

  This subparagraph shall apply to a plan only if

   (I) the plan is a defined benefit plan (other than a multiemployer plan) to which subchapter III of this chapter applies;

   (II) the aggregate unfunded vested benefits as of the close of the preceding plan year (as determined under section 1306(a)(3)(E)(iii) of this title) of such plan and all other plans maintained by the contributing sponsors (as defined in section 1301(a)(13) of this title) and members of such sponsors' controlled groups (as defined in section 1301(a)(14) of this title) which are covered by subchapter III of this chapter (disregarding plans with no unfunded vested benefits) exceed $50,000,000;  and

   (III) the change in assumptions (determined after taking into account any   changes in interest rate and mortality table) results in a decrease in the unfunded current liability of the plan for the current plan year that exceeds $50,000,000, or that exceeds $5,000,000 and that is 5 percent or more of the current liability of the plan before such change.

 (6) If, as of the close of a plan year, a plan would (without regard to this paragraph) have an accumulated funding deficiency (determined without regard to the alternative minimum funding standard account permitted under section 1085 of this title) in excess of the full funding limitation

  (A) the funding standard account shall be credited with the amount of such excess, and

 	(b)	all amounts described in paragraphs (2), (B), (C), and (D) and (3)(B) of subsection (b) of this section which are required to be amortized shall be considered fully amortized for purposes of such paragraphs.

 (7) Fullfunding limitation

  (A) In general

  For purposes of paragraph (6), the term "fullfunding limitation" means the excess (if any) of

   (i) the lesser of (I) 150 percent of current liability (including the   expected increase in current liability due to benefits accruing during the plan year), or (II) the accrued liability (including normal cost) under the plan (determined under the entry age normal funding method if such accrued liability cannot be directly calculated under the funding method used for the plan), over

   (ii) the lesser of

    (I) the fair market value of the plan's assets, or

    (II) the value of such assets determined under paragraph (2).

 	(b)	Current liability

  For purposes of subparagraph (D) and subclause (I) of subparagraph (A)(i), the term "current liability" has the meaning given such term by subsection (d)(7) of this section (without regard to subparagraphs (C) and (D) thereof) and using the rate of interest used under subsection (b)(5)(B) of this section.

 	(c)	Special rule for paragraph (6)(B)

  For purposes of paragraph (6)(B), subparagraph (A)(i) shall be applied  without regard to subclause (I) thereof.

 	(d)	Regulatory authority

  The Secretary of the Treasury may by regulations provide

   (i) for adjustments to the percentage contained in subparagraph (A)(i) to take into account the respective ages or lengths of service of the participants.

   (ii) alternative methods based on factors other than current liability for the determination of the amount taken into account under subparagraph (A)(i), and

   (iii) for the treatment under this section of contributions which would be required to be made under the plan but for the provisions of subparagraph (A)(i)(I).

 	(e)	Minimum amount

    (i) In general

   In no event shall the fullfunding limitation determined under subparagraph  (A) be less than the excess (if any) of

    (I) 90 percent of the current liability of the plan (including the expected increase in current liability due to benefits accruing during the plan year), over

    (II) the value of the plan's assets determined under paragraph (2).

    (ii) Current liability;  assets.

   For purposes of clause (i)

    (I) the term "current liability" has the meaning given such term by subsection (d)(7) of this section (without regard to subparagraph (D) thereof), and

    (II) assets shall not be reduced by any credit balance in the funding standard account.

 (8) For purposes of this part, any amendment applying to a plan year which

  (A) is adopted after the close of such plan year but no later than 2 1/2 months after the close of the plan year (or, in the case of a multiemployer plan, no later than 2 years after the close of such plan year),

 	(b)	does not reduce the accrued benefit of any participant determined as of  the beginning of the first plan year to which the amendment applies, and

 	(c)	does not reduce the accrued benefit of any participant determined as of the time of adoption except to the extent required by the circumstances,

shall, at the election of the plan administrator, be deemed to have been made on the first day of such plan year.  No amendment described in this paragraph which reduces the accrued benefits of any participant shall take effect unless the plan administrator files a notice with the Secretary notifying him of such amendment and the Secretary has approved such amendment or, within 90 days after the date on which such notice was filed, failed to disapprove such amendment.  No amendment described in this subsection shall be approved by the Secretary unless he determines that such amendment is necessary because of a substantial business hardship (as determined under section 1083(b) of this title) and that waiver under section 1083(a) of this title is unavailable or inadequate.

 (9) For purposes of this part, a determination of experience gains and losses and a valuation of the plan's liability shall be made not less frequently than once every year except that such determination shall be made more frequently to the extent required in particular cases under regulations prescribed by the Secretary of the Treasury.

 (10) For purposes of this section

  (A) In the case of a defined benefit plan other than a multiemployer plan, any contributions for a plan year made by an employer during the period

   (i) beginning on the day after the last day of such plan year, and

   (ii) ending on the date which is 8 1/2 months after the close of the plan year.

  shall be deemed to have been made on such last day.

 	(b)	In the case of a plan not described in subparagraph (A), any contributions for a plan year made by an employer after the last day of such plan year, but not later than two and onehalf months after such day, shall be deemed to have been made on such last day.  For purposes of this subparagraph, such two and onehalf month period may be extended for not more than six months under regulations prescribed by the Secretary of the Treasury.

 (11) Liability for contributions

  (A) In general

  Except as provided in subparagraph (B), the amount of any contribution required by this section and any required installments under subsection (e) of  this section shall be paid by the employer responsible for contributing to or under the plan the amount described in subsection (b)(3)(A) of this section.

 	(b)	Joint and several liability where employer member of controlled group

    (i) In general

   In the case of a plan other than a multiemployer plan, if the employer referred to in subparagraph (A) is a member of a controlled group, each member of such group shall be jointly and severally liable for payment of such contribution or required installment.

    (ii) Controlled group

   For purposes of clause (i), the term "controlled group" means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414 of Title 26.

 (12) Anticipation of benefit increases effective in the future

  In determining projected benefits, the funding method of a collectively  bargained plan described in section 413(a) of Title 26 (other than a multiemployer plan) shall anticipate benefit increases scheduled to take effect during the term of the collective bargaining agreement applicable to the plan.

(d) Additional funding requirements for plans which are not multiemployer plans

 	(1)	In general

  In the case of a defined benefit plan (other than a multiemployer plan) to which this subsection applies under paragraph (9) for any plan year, the amount charged to the funding standard account for such plan year shall be increased by the sum of

   (A) the excess (if any) of

    (i) the deficit reduction contribution determined under paragraph (2) for such plan year, over

    (ii) the sum of the charges for such plan year under subsection (b)(2) of this section, reduced by the sum of the credits for such plan year under subparagraph (B) of subsection (b)(3) of this section, plus

  	(b)	the unpredictable contingent event amount (if any) for such plan year.

  Such increase shall not exceed the amount which, after taking into account charges (other than the additional charge under this subsection) and credits under subsection (b) of this section, is necessary to increase the funded current liability percentage (taking into account the expected increase in current liability due to benefits accruing during the plan year) to 100 percent.

 	(2)	Deficit reduction contribution

  For purposes of paragraph (1), the deficit reduction contribution determined under this paragraph for any plan year is the sum of

   (A) the unfunded old liability amount,

  	(b)	the unfunded new liability amount,

  	(c)	the expected increase in current liability due to benefits accruing during the plan year, and

  	(d)	the aggregate of the unfunded mortality increase amounts.

 	(3)	Unfunded old liability amount

  For purposes of this subsection

    (A) In general

   The unfunded old liability amount with respect to any plan for any plan year is the amount necessary to amortize the unfunded old liability under the plan in equal annual installments over a period of 18 plan years (beginning with the 1st plan year beginning after December 31, 1988).

   	(b)	Unfunded old liability

   The term "unfunded old liability" means the unfunded current liability of the plan as of the beginning of the 1st plan year beginning after December 31, 1987 (determined without regard to any plan amendment increasing liabilities adopted after October 16, 1987).

   	(c)	Special rules for benefit increases under existing collective bargaining agreements

(i) In general

    In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and the employer ratified before October 29, 1987, the unfunded old liability amount with respect to such plan for any plan year shall be increased by the amount necessary to amortize the unfunded existing benefit increase liability in equal annual installments over a period of 18 plan years beginning with

(I) the plan year in which the benefit increase with respect to such liability occurs, or

(II) if the taxpayer elects, the 1st plan year beginning after December 31, 1988.

(ii) Unfunded existing benefit increase liabilities

    For purposes of clause (i), the unfunded existing benefit increase liability means, with respect to any benefit increase under the agreements described in clause (i) which takes effect during or after the 1st plan year beginning after December 31, 1987, the unfunded current liability determined

(I) by taking into account only liabilities attributable to such benefit increase, and

(II) by reducing (but not below zero) the amount determined under paragraph (8)(A)(ii) by the current liability determined without regard to such benefit increase.

(iii) Extensions, modifications, etc. not taken into account

    For purposes of this subparagraph, any extension, amendment, or other modification of an agreement after October 28, 1987, shall not be taken into account.

   	(d)	Special rule for required changes in actuarial assumptions

(i) In general

    The unfunded old liability amount with respect to any plan for any plan year shall be increased by the amount necessary to amortize the amount of additional unfunded old liability under the plan in equal annual    installments over a period of 12 plan years (beginning with the first plan year beginning after December 31, 1994).

(ii) Additional unfunded old liability

    For purposes of clause (i), the term "additional unfunded old liability" means the amount (if any) by which

(I) the current liability of the plan as of the beginning of the first plan year beginning after December 31, 1994, valued using the assumptions required by paragraph (7)(C) as in effect for plan years beginning after December 31, 1994, exceeds

(II) the current liability of the plan as of the beginning of such first plan year, valued using the same assumptions used under subclause (I) (other than the assumptions required by paragraph (7)(C)), using the prior interest rate, and using such mortality assumptions as were used to determine current liability for the first plan year beginning after December 31, 1992.

(iii) Prior interest rate

    For purposes of clause (ii), the term "prior interest rate" means the rate of interest that is the same percentage of the weighted average under subsection (b)(5)(B)(ii)(I) of this section for the first plan year beginning after December 31, 1994, as the rate of interest used by the plan to determine current liability for the first plan year beginning after December 31, 1992, is of the weighted average under subsection (b)(5)(B)(ii)(I) of this section for such first plan year beginning after December 31, 1992.

   	(e)	Optional rule for additional unfunded old liability

(i) In general

    If an employer makes an election under clause (ii), the additional unfunded old liability for purposes of subparagraph (D) shall be the amount (if any) by which

(I) the unfunded current liability of the plan as of the beginning of the first plan year beginning after December 31, 1994, valued using the assumptions required by paragraph (7)(C) as in effect for plan years     beginning after December 31, 1994, exceeds

(II) the unamortized portion of the unfunded old liability under the plan as of the beginning of the first plan year beginning after December 31, 1994.

(ii) Election

    (I) An employer may irrevocably elect to apply the provisions of this subparagraph as of the beginning of the first plan year beginning after December 31, 1994.

    (II) If an election is made under this clause, the increase under paragraph (1) for any plan year beginning after December 31, 1994, and before January 1, 2002, to which this subsection applies (without regard to this subclause) shall not be less than the increase that would be required under paragraph (1) if the provisions of this subchapter as in effect for the last plan year beginning before January 1, 1995, had remained in effect.

 	(4)	Unfunded new liability amount

  For purposes of this subsection

    (A) In general

   The unfunded new liability amount with respect to any plan for any plan year is the applicable percentage of the unfunded new liability.

   	(b)	Unfunded new liability

   The term "unfunded new liability" means the unfunded current liability of the plan for the plan year determined without regard to

    (i) the unamortized portion of the unfunded old liability, the unamortized portion of the additional unfunded old liability, the unamortized portion of each unfunded mortality increase, and the unamortized portion of the unfunded existing benefit increase liability, and

    (ii) the liability with respect to any unpredictable contingent event benefits (without regard to whether the event has occurred).

   	(c)	Applicable percentage

   The term "applicable percentage" means, with respect to any plan year, 30   percent, reduced by the product of

    (i) .40 multiplied by

    (ii) the number of percentage points (if any) by which the funded current liability percentage exceeds 60 percent.

  (5) Unpredictable contingent event amount

    (A) In general

   The unpredictable contingent event amount with respect to a plan for any plan year is an amount equal to the greatest of

    (i) the applicable percentage of the product of

(I) 100 percent, reduced (but not below zero) by the funded current liability percentage for the plan year, multiplied by

(II) the amount of unpredictable contingent event benefits paid during the plan year, including (except as provided by the Secretary of the Treasury) any payment for the purchase of an annuity contract for a participant or beneficiary with respect to such benefits,

    (ii) the amount which would be determined for the plan year if the    unpredictable contingent event benefit liabilities were amortized in equal annual installments over 7 plan years (beginning with the plan year in which such event occurs), or

    (iii) the additional amount that would be determined under paragraph (4)(A) if the unpredictable contingent event benefit liabilities were included in unfunded new liability notwithstanding paragraph (4)(B)(ii).

   	(b)	Applicable percentage

In the case of

 plan years beginning in:	The applicable percentage is:

               1989 and 1990 ...........................   5

               1991 ....................................  10

               1992 ....................................  15

               1993 ....................................  20

               1994 ....................................  30

               1995 ....................................  40

               1996 ....................................  50

               1997 ....................................  60

               1998 ....................................  70

               1999 ....................................  80

               2000 ....................................  90

               2001 and thereafter ..................... 100

   	(c)	Paragraph not to apply to existing benefits

   This paragraph shall not apply to unpredictable contingent event benefits  (and liabilities attributable thereto) for which the event occurred before the first plan year beginning after December 31, 1988.

   	(d)	Special rule for first year of amortization

   Unless the employer elects otherwise, the amount determined under subparagraph (A) for the plan year in which the event occurs shall be equal to 150 percent of the amount determined under subparagraph (A)(i).  The amount under subparagraph (A)(ii) for subsequent plan years in the amortization period shall be adjusted in the manner provided by the Secretary of the Treasury to reflect the application of this subparagraph.

   	(e)	Limitation

   The present value of the amounts described in subparagraph (A) with respect to any one event shall not exceed the unpredictable contingent event benefit liabilities attributable to that event.

  (6) Special rules for small plans

    (A) Plans with 100 or fewer participants

   This subsection shall not apply to any plan for any plan year if on each day during the preceding plan year such plan had no more than 100 participants.

   	(b)	Plans with more than 100 but not more than 150 participants

   In the case of a plan to which subparagraph (A) does not apply and which on each day during the preceding plan year had no more than 150 participants, the amount of the increase under paragraph	(1)	for such plan year shall be equal to the product of

    (i) such increase determined without regard to this subparagraph, multiplied by

    (ii) 2 percent for the highest number of participants in excess of 100 on any such day.

   	(c)	Aggregation of plans

   For purposes of this paragraph, all defined benefit plans maintained by the same employer (or any member of such employer's controlled group) shall be treated as 1 plan, but only employees of such employer or member shall be taken into account.

  (7) Current liability

  For purposes of this subsection

    (A) In general

   The term "current liability" means all liabilities to participants and their beneficiaries under the plan.

   	(b)	Treatment of unpredictable contingent event benefits

(i) In general

    For purposes of subparagraph (A), any unpredictable contingent event benefit shall not be taken into account until the event on which the benefit is contingent occurs.

(ii) Unpredictable contingent event benefit

    The term "unpredictable contingent event benefit" means any benefit contingent on an event other than

(I) age, service, compensation, death, or disability, or

(II) an event which is reasonably and reliably predictable (as determined by the Secretary of the Treasury).

   	(c)	Interest rate and mortality assumptions used

   Effective for plan years beginning after December 31, 1994

(i) Interest rate

(I) In general

The rate of interest used to determine current liability under this subsection shall be the rate of interest used under subsection (b)(5) of this section, except that the highest rate in the permissible range under subparagraph (B)(ii) thereof shall not exceed the specified percentage under subclause (II) of the weighted average referred to in such subparagraph.

(II) Specified percentage

For purposes of subclause (I), the specified percentage shall be determined as follows:

In the case of plan years beginning

 in calendar year:	The specified percentage is:

    1995 ................................................ 109

    1996 ................................................ 108

    1997 ................................................ 107

    1998 ................................................ 106

    1999 and thereafter ................................. 105

(ii) Mortality tables

(I) Commissioners' standard table

In the case of plan years beginning before the first plan year to which the first tables prescribed under subclause (II) apply, the mortality table used in determining current liability under this subsection shall be the table prescribed by the Secretary of the Treasury which is based on the prevailing commissioners' standard table (described in section 807(d)(5)(A) of this Title 26) used to determine reserves for group annuity contracts     issued on January 1, 1993.

(II) Secretarial authority

The Secretary of the Treasury may by regulation prescribe for plan years beginning after December 31, 1999, mortality tables to be used in determining current liability under this subsection.  Such tables shall be based upon the actual experience of pension plans and projected trends in such experience.  In prescribing such tables, the Secretary of the Treasury shall take into account results of available independent studies of mortality of individuals covered by pension plans.

(III) Periodic review

The Secretary of the Treasury shall periodically (at least every 5 years) review any tables in effect under this subsection and shall, to the extent the Secretary determines necessary, by regulation update the tables to reflect the actual experience of pension plans and projected trends in such experience.

(iii) Separate mortality tables for the disabled

    Notwithstanding clause (ii)

(I) In general

In the case of plan years beginning after December 31, 1995, the Secretary of the Treasury shall establish mortality tables which may be used (in lieu of the tables under clause (ii)) to determine current liability under this subsection for individuals who are entitled to benefits under the plan on account of disability.  Such Secretary shall establish separate tables for individuals whose disabilities occur in plan years beginning before January 1, 1995, and for individuals whose disabilities occur in plan years beginning on or after such date.

(II) Special rule for disabilities occurring after 1994

In the case of disabilities occurring in plan years beginning after December 31, 1994, the tables under subclause (I) shall apply only with respect to individuals described in such subclause who are disabled within the meaning of title II of the Social Security Act [42 U.S.C.A. Section 401 et seq.] and the regulations thereunder.

(III) Plan years beginning in 1995

In the case of any plan year beginning in 1995, a plan may use its own mortality assumptions for individuals who are entitled to benefits under the plan on account of disability.

   	(d)	Certain service disregarded

(i) In general

    In the case of a participant to whom this subparagraph applies, only the applicable percentage of the years of service before such individual became a participant shall be taken into account in computing the current liability of the plan.

(ii) Applicable percentage

    For purposes of this subparagraph, the applicable percentage shall be determined as follows:

  If the years of participation are:      The applicable percentage is:

              1 ...................................  20

              2 ...................................  40

              3 ...................................  60

              4 ...................................  80

              5 or more ........................... 100

(iii) Participants to whom subparagraph applies

    This subparagraph shall apply to any participant who, at the time of becoming a participant

(I) has not accrued any other benefit under any defined benefit plan (whether or not terminated) maintained by the employer or a member of the same controlled group of which the employer is a member,

(II) who first becomes a participant under the plan in a plan year beginning after December 31, 1987, and

(III) has years of service greater than the minimum years of service necessary for eligibility to participate in the plan.

(iv) Election

    An employer may elect not to have this subparagraph apply.  Such an election, once made, may be revoked only with the consent of the Secretary of the Treasury.

  (8) Other definitions

  For purposes of this subsection

    (A) Unfunded current liability

   The term "unfunded current liability" means, with respect to any plan year, the excess (if any) of

    (i) the current liability under the plan, over

    (ii) value of the plan's assets determined under subsection (c)(2)

   	(b)	Funded current liability percentage

   The term "funded current liability percentage" means, with respect to any plan year, the percentage which

    (i) the amount determined under subparagraph (A)(ii), is of

    (ii) the current liability under the plan.

   	(c)	Controlled group

   The term "controlled group" means any group treated as a single employer under subsections (b), (c), (m), and (o) of section 414 of Title 26.

   	(d)	Adjustments to prevent omissions and duplications

   The Secretary of the Treasury shall provide such adjustments in the unfunded old liability amount, the unfunded new liability amount, the unpredictable contingent event amount, the current payment amount, and any other charges or credits under this section as are necessary to avoid duplication or omission of any factors in the determination of such amounts, charges, or credits.

   	(e)	Deduction for credit balances

   For purposes of this subsection, the amount determined under subparagraph  (A)(ii) shall be reduced by any credit balance in the funding standard account.  The Secretary of the Treasury may provide for such reduction for purposes of any other provision which references this subsection.

  (9) Applicability of subsection

    (A) In general

   Except as provided in paragraph (6)(A), this subsection shall apply to a plan for any plan year if its funded current liability percentage for such year is less than 90 percent.

   	(b)	Exception for certain plans at least 80 percent funded

   Subparagraph (A) shall not apply to a plan for a plan year if

    (i) the funded current liability percentage for the plan year is at least    80 percent, and

    (ii) such percentage for each of the 2 immediately preceding plan years (or each of the 2d and 3d immediately preceding plan years) is at least 90 percent.

   	(c)	Funded current liability percentage

   For purposes of subparagraphs (A) and (B), the term "funded current liability percentage" has the meaning given such term by paragraph (8)(B), except that such percentage shall be determined for any plan year

    (i) without regard to paragraph (8)(E), and

    (ii) by using the rate of interest which is the highest rate allowable for the plan year under paragraph (7)(C).

   	(d)	Transition rules

   For purposes of this paragraph:

(i) Funded percentage for years before 1995

    The funded current liability percentage for any plan year beginning before January 1, 1995, shall be treated as not less than 90 percent only if for such plan year the plan met one of the following requirements (as in effect for such year):

(I) The fullfunding limitation under subsection (c)(7) of this section for the plan was zero.

(II) The plan had no additional funding requirement under this subsection (or would have had no such requirement if its funded current liability percentage had been determined under subparagraph (C)).

(III) The plan's additional funding requirement under this subsection did not exceed the lesser of 0.5 percent of current liability or $5,000,000.

(ii) Special rule for 1995 and 1996

    For purposes of determining whether subparagraph (B) applies to any plan year beginning in 1995 or 1996, a plan shall be treated as meeting the requirements of subparagraph (B)(ii) if the plan met the requirements of clause (i) of this subparagraph for any two of the plan years beginning in 1992, 1993, and 1994 (whether or not consecutive).

  (10) Unfunded mortality increase amount

    (A) In general

   The unfunded mortality increase amount with respect to each unfunded mortality increase is the amount necessary to amortize such increase in equal annual installments over a period of 10 plan years (beginning with the first plan year for which a plan uses any new mortality table issued under paragraph (7)(C)(ii)(II) or (III)).

   	(b)	Unfunded mortality increase

   For purposes of subparagraph (A), the term "unfunded mortality increase" means an amount equal to the excess of

    (i) the current liability of the plan for the first plan year for which a plan uses any new mortality table issued under paragraph (7)(C)(ii)(II) or (III), over

    (ii) the current liability of the plan for such plan year which would have been determined if the mortality table in effect for the preceding plan year    had been used.

  (11) Phasein of increases in funding required by retirement protection act of 1994

    (A) In general

   For any applicable plan year, at the election of the employer, the increase under paragraph (1) shall not exceed the greater of

    (i) the increase that would be required under paragraph (1) if the provisions of this subchapter as in effect for plan years beginning before January 1, 1995, had remained in effect, or

    (ii) the amount which, after taking into account charges (other than the additional charge under this subsection) and credits under subsection (b) of this section, is necessary to increase the funded current liability percentage (taking into account the expected increase in current liability due to benefits accruing during the plan year) for the applicable plan year to a percentage equal to the sum of the initial funded current liability percentage of the plan plus the applicable number of percentage points for    such applicable plan year.

   	(b)	Applicable number of percentage points

(i) Initial funded current liability percentage of 75 percent or less

    Except as provided in clause (ii), for plans with an initial funded current liability percentage of 75 percent or less, the applicable number of percentage points for the applicable plan year is:

In the case                                                   The applicable

  of applicable                                                    number of

  plan years                                                      percentage

  beginning in:                                                   points is:

    1995 ................................................................. 3

    1996 ................................................................. 6

    1997 ................................................................. 9

    1998 ................................................................ 12

    1999 ................................................................ 15

    2000 ................................................................ 19

    2001 ............................................................... 24.

(ii) Other cases

    In the case of a plan to which this clause applies, the applicable number of percentage points for any such applicable plan year is the sum of

(I) 2 percentage points;

(II) the applicable number of percentage points (if any) under this clause for the preceding applicable plan year;

(III) the product of .10 multiplied by the excess (if any) of (a) 85 percentage points over (b) the sum of the initial funded current liability percentage and the number determined under subclause (II);

(IV) for applicable plan years beginning in 2000, 1 percentage point;  and

(V) for applicable plan years beginning in 2001, 2 percentage points.

(iii) Plans to which clause (ii) applies

(I) In general

Clause (ii) shall apply to a plan for an applicable plan year if the initial funded current liability percentage of such plan is more than 75 percent.

(II) Plans initially under clause (i)

In the case of a plan which (but for this subclause) has an initial funded current liability percentage of 75 percent or less, clause (ii) (and not clause (i)) shall apply to such plan with respect to applicable plan years beginning after the first applicable plan year for which the sum of the initial funded current liability percentage and the applicable number of percentage points (determined under clause (i)) exceeds 75 percent.  For purposes of applying clause (ii) to such a plan, the initial funded current liability percentage of such plan shall be treated as being the sum referred to in the preceding sentence.

   	(c)	Definitions

   For purposes of this paragraph

    (i) The term "applicable plan year" means a plan year beginning after December 31, 1994, and before January 1, 2002.

    (ii) The term "initial funded current liability percentage" means the funded current liability percentage as of the first day of the first plan year beginning after December 31, 1994.

(e) Quarterly contributions required

 	(1)	In general

  If a defined benefit plan (other than a multiemployer plan) which has a funded current liability percentage (as defined in subsection (d)(8) of this section) for the preceding plan year of less than 100 percent fails to pay the full amount of a required installment for the plan year, then the rate of interest charged to the funding standard account under subsection (b)(5) of this section with respect to the amount of the underpayment for the period of the underpayment shall be equal to the greater of

   (A) 175 percent of the Federal midterm rate (as in effect under section   1274 of Title 26 for the 1st month of such plan year), or

  	(b)	the rate of interest used under the plan in determining costs (including adjustments under subsection (b)(5)(B) of this section).

 	(2)	Amount of underpayment, period of underpayment

  For purposes of paragraph (1)

    (A) Amount

   The amount of the underpayment shall be the excess of

    (i) the required installment, over

    (ii) the amount (if any) of the installment contributed to or under the plan on or before the due date for the installment.

   	(b)	Period of underpayment

   The period for which any interest is charged under this subsection with respect to any portion of the underpayment shall run from the due date for the installment to the date on which such portion is contributed to or under   the plan (determined without regard to subsection (c)(10) of this section).

   	(c)	Order of crediting contributions

   For purposes of subparagraph (A)(ii), contributions shall be credited against unpaid required installments in the order in which such installments are required to be paid.

 	(3)	Number of required installments;  due dates

  For purposes of this subsection

    (A) Payable in 4 installments

   There shall be 4 required installments for each plan year.

   	(b)	Time for payment of installments

In the case of the following required          The due date is:

  installments:

1st .......................................... April 15

2nd .......................................... July 15

3rd .......................................... October 15

4th .......................................... January 15 of the 	following year

 	(4)	Amount of required installment

  For purposes of this subsection

    (A) In general

   The amount of any required installment shall be the applicable percentage of the required annual payment.

   	(b)	Required annual payment

   For purposes of subparagraph (A), the term "required annual payment" means the lesser of

    (i) 90 percent of the amount required to be contributed to or under the plan by the employer for the plan year under section 412 of Title 26 (without regard to any waiver under subsection (c) thereof), or

    (ii) 100 percent of the amount so required for the preceding plan year.

    Clause (ii) shall not apply if the preceding plan year was not a year of 12 months.

   	(c)	Applicable percentage

   For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table:

For plan years beginning in:      The applicable percentage is:

1989 ........................................  6.25

1990 ........................................ 12.5

1991 ........................................ 18.25

1992 and thereafter ......................... 25.

   	(d)	Special rules for unpredictable contingent event benefits

   In the case of a plan to which subsection (d) of this section applies for any calendar year and which has any unpredictable contingent event benefit liabilities

(i) Liabilities not taken into account

    Such liabilities shall not be taken into account in computing the required annual payment under subparagraph (B).

(ii) Increase in installments

    Each required installment shall be increased by the greatest of

(I) the unfunded percentage of the amount of benefits described in subsection (d)(5)(A)(i) of this section paid during the 3month period preceding the month in which the due date for such installment occurs,

(II) 25 percent of the amount determined under subsection (d)(5)(A)(ii) of this section for the plan year, or

(III) 25 percent of the amount determined under subsection (d)(5)(A)(iii)     of this section for the plan year.

(iii) Unfunded percentage

    For purposes of clause (ii)(I), the term "unfunded percentage" means the percentage determined under subsection (d)(5)(A)(i)(I) of this section for the plan year.

(iv) Limitation on increase

    In no event shall the increases under clause (ii) exceed the amount necessary to increase the funded current liability percentage (within the meaning of subsection (d)(8)(B) of this section) for the plan year to 100 percent.

  (5) Liquidity requirement

    (A) In general

   A plan to which this paragraph applies shall be treated as failing to pay the full amount of any required installment to the extent that the value of the liquid assets paid in such installment is less than the liquidity shortfall (whether or not such liquidity shortfall exceeds the amount of such installment required to be paid but for this paragraph).

   	(b)	Plans to which paragraph applies

   This paragraph shall apply to a defined benefit plan (other than a multiemployer plan or a plan described in subsection (d)(6)(A) of this section) which

    (i) is required to pay installments under this subsection for a plan year, and

    (ii) has a liquidity shortfall for any quarter during such plan year.

   	(c)	Period of underpayment

   For purposes of paragraph (1), any portion of an installment that is treated as not paid under subparagraph (A) shall continue to be treated as unpaid until the close of the quarter in which the due date for such installment   occurs.

   	(d)	Limitation on increase

   If the amount of any required installment is increased by reason of subparagraph (A), in no event shall such increase exceed the amount which, when added to prior installments for the plan year, is necessary to increase the funded current liability percentage (taking into account the expected increase in current liability due to benefits accruing during the plan year) to 100 percent.

   	(e)	Definitions

   For purposes of this paragraph

(i) Liquidity shortfall

    The term "liquidity shortfall" means, with respect to any required installment, an amount equal to the excess (as of the last day of the quarter for which such installment is made) of the base amount with respect    to such quarter over the value (as of such last day) of the plan's liquid assets.

(ii) Base amount

(I) In general

The term "base amount" means, with respect to any quarter, an amount equal to 3 times the sum of the adjusted disbursements from the plan for the 12 months ending on the last day of such quarter.

(II) Special rule

If the amount determined under clause (i) exceeds an amount equal to 2 times the sum of the adjusted disbursements from the plan for the 36 months ending on the last day of the quarter and an enrolled actuary certifies to the satisfaction of the Secretary of the Treasury that such excess is the result of nonrecurring circumstances, the base amount with respect to such quarter shall be determined without regard to amounts related to those     nonrecurring circumstances.

(iii) Disbursements from the plan

    The term "disbursements from the plan" means all disbursements from the trust, including purchases of annuities, payments of single sums and other benefits, and administrative expenses.

(iv) Adjusted disbursements

    The term "adjusted disbursements" means disbursements from the plan reduced by the product of

(I) the plan's funded current liability percentage (as defined in subsection (d)(8) of this section) for the plan year, and

(II) the sum of the purchases of annuities, payments of single sums, and such other disbursements as the Secretary of the Treasury shall provide in regulations.

(v) Liquid assets

    The term "liquid assets" means cash, marketable securities and such other assets as specified by the Secretary of the Treasury in regulations.

(vi) Quarter

    The term "quarter" means, with respect to any required installment, the 3 month period preceding the month in which the due date for such installment occurs.

    	(f)	Regulations

   The Secretary of the Treasury may prescribe such regulations as are necessary to carry out this paragraph.

  (6) Fiscal years and short years

    (A) Fiscal years

   In applying this subsection to a plan year beginning on any date other than   January 1, there shall be substituted for the months specified in this subsection, the months which correspond thereto.

   	(b)	Short plan year

   This section shall be applied to plan years of less than 12 months in accordance with regulations prescribed by the Secretary of the Treasury.

(f)	Imposition of lien where failure to make required contributions

 	(1)	In general

  In the case of a plan covered under section 1321 of this title, if

   (A) any person fails to make a required installment under subsection (e) of this section or any other payment required under this section before the due date for such installment or other payment, and

  	(b)	the unpaid balance of such installment or other payment (including interest), when added to the aggregate unpaid balance of all preceding such installments or other payments for which payment was not made before the due   date (including interest), exceeds $1,000,000,

  then there shall be a lien in favor of the plan in the amount determined under paragraph (3) upon all property and rights to property, whether real or personal, belonging to such person and any other person who is a member of the same controlled group of which such person is a member.

 	(2)	Plans to which subsection applies

  This subsection shall apply to a defined benefit plan (other than a multiemployer plan) for any plan year for which the funded current liability percentage (within the meaning of subsection (d)(8)(B) of this section) of such plan is less than 100 percent.

 	(3)	Amount of lien

  For purposes of paragraph (1), the amount of the lien shall be equal to the aggregate unpaid balance of required installments and other payments required under this section (including interest)

   (A) for plan years beginning after 1987, and

  	(b)	for which payment has not been made before the due date.

 	(4)	Notice of failure;  lien

    (A) Notice of failure

   A person committing a failure described in paragraph (1) shall notify the Pension Benefit Guaranty Corporation of such failure within 10 days of the due date for the required installment or other payment.

   	(b)	Period of lien

   The lien imposed by paragraph (1) shall arise on the due date for the required installment or other payment and shall continue until the last day of the first plan year in which the plan ceases to be described in paragraph (1)(B).  Such lien shall continue to run without regard to whether such plan continues to be described in paragraph (2) during the period referred to in the preceding sentence.

   	(c)	Certain rules to apply

   Any amount with respect to which a lien is imposed under paragraph (1) shall be treated as taxes due and owing the United States and rules similar to the rules of subsections (c), (d), and (e) of section 1368 of this title shall apply with respect to a lien imposed by subsection (a) and the amount with respect to such lien.

  (5) Enforcement

  Any lien created under paragraph (1) may be perfected and enforced only by the Pension Benefit Guaranty Corporation, or at the direction of the Pension Benefit Guaranty Corporation, by the contributing sponsor (or any member of the controlled group of the contributing sponsor).

  (6) Definitions

  For purposes of this subsection

    (A) Due date;  required installment

   The terms "due date" and "required installment" have the meanings given such terms by subsection (e) of this section, except that in the case of a payment other than a required installment, the due date shall be the date such payment is required to be made under this section.

   	(b)	Controlled group

   The term "controlled group" means any group treated as a single employer under subsections (b), (c), (m), and (o) of section 414 of Title 26.

(g)	Qualified transfers to health benefit accounts

 For purposes of this section, in the case of a qualified transfer (as defined in section 420 of Title 26)

 	(1)	any assets transferred in a plan year on or before the valuation date for such year (and any income allocable thereto) shall, for purposes of subsection (c)(7) of this section, be treated as assets in the plan as of the valuation date for such year, and

 	(2)	the plan shall be treated as having a net experience loss under subsection (b)(2)(B)(iv) of this section in an amount equal to the amount of  such transfer (reduced by any amounts transferred back to the plan under section 420(c)(1)(B) of Title 26) and for which amortization charges begin for the first plan year after the plan year in which such transfer occurs, except that such subsection shall be applied to such amount by substituting "10 plan years" for "5 plan years".

(h) Cross reference

   For alternative amortization method for certain multiemployer plans see section 1013(d) of this Act.

 Section 1083: Variance from minimum funding standard

(a) Waiver of requirements in event of business hardship

 If an employer, or in the case of a multiemployer plan, 10 percent or more of the number of employers contributing to or under the plan are unable to satisfy the minimum funding standard for a plan year without temporary substantial business hardship (substantial business hardship in the case of a multiemployer plan) and if application of the standard would be adverse to the interests of plan participants in the aggregate, the Secretary of the Treasury may waive the requirements of section 1082(a) of this title for such year with respect to all or any portion of the minimum funding standard other than the portion thereof determined under section 1082(b)(2)(C) of this title.  The Secretary of the Treasury shall not waive the minimum funding standard with respect to a plan for more than 3 of any 15 (5 of any 15 in the case of a multiemployer plan) consecutive plan years.  The interest rate used for purposes of computing the amortization charge described in subsection (b)(2)(C) of this section for any plan year shall be

 	(1)	in the case of a plan other than a multiemployer plan, the greater of (A) 150 percent of the Federal midterm rate (as in effect under section 1274 of Title 26 for the 1st month of such plan year), or	(b)	the rate of interest used under the plan in determining costs (including adjustments under section 1082(b)(5)(B) of this title), and

 	(2)	in the case of a multiemployer plan, the rate determined under section 6621(b) of Title 26.

(b) Matters considered in determining business hardship

 For purposes of this part, the factors taken into account in determining temporary substantial business hardship (substantial business hardship in the case of a multiemployer plan) shall include (but shall not be limited to) whether

 	(1)	the employer is operating at an economic loss,

 	(2)	there is substantial unemployment or underemployment in the trade or business and in the industry concerned.

 	(3)	the sales and profits of the industry concerned are depressed or declining, and

(4)	it is reasonable to expect that the plan will be continued only if the waiver is granted.

(c) "Waived funding deficiency" defined

 For purposes of this part, the term "waived funding deficiency" means the portion of the minimum funding standard (determined without regard to subsection (b)(3)(C) of section 1082 of this title) for a plan year waived by the Secretary of the Treasury and not satisfied by employer contributions.

(d) Special rules

 	(1)	Application must be submitted before date 2 1/2 months after close of year

  In the case of a plan other than a multiemployer plan, no waiver may be granted under this section with respect to any plan for any plan year unless an application therefor is submitted to the Secretary of the Treasury not later than the 15th day of the 3rd month beginning after the close of such plan year.

 	(2)	Special rule if employer is member of controlled group

    (A) In general

   In the case of a plan other than a multiemployer plan, if an employer is a member of a controlled group, the temporary substantial business hardship requirements of subsection (a) shall be treated as met only if such requirements are met

    (i) with respect to such employer, and

    (ii) with respect to the controlled group of which such employer is a member (determined by treating all members of such group as a single employer).

    The Secretary of the Treasury may provide that an analysis of a trade or business or industry of a member need not be conducted if the Secretary of the Treasury determines such analysis is not necessary because the taking into account of such member would not significantly affect the determination under this subsection.

   	(b)	Controlled group

   For purposes of subparagraph (A), the term "controlled group" means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414 of Title 26.

(e) Notice of filing of application for waiver

(1)	The Secretary of the Treasury shall, before granting a waiver under this section, require each applicant to provide evidence satisfactory to such Secretary that the applicant has provided notice of the filing of the application for such waiver to each employee organization representing employees covered by the affected plan, and each affected party (as defined in section 1301(a)(21) of this title) other than the Pension Benefit Guaranty Corporation.  Such notice shall include a description of the extent to which the plan is funded for benefits which are guaranteed under Title IV and for benefit liabilities.

(2)	The Secretary of the Treasury shall consider any relevant information provided by a person to whom notice was given under paragraph (1).

(f)	Cross reference

 For corresponding duties of the Secretary of the Treasury with regard to implementation of the Internal Revenue Code of 1986, see section 412(d) of Title 26.

 Section 1084: Extension of amortization periods

(a) Determinations by Secretary in granting extension

 The period of years required to amortize any unfunded liability (described in any clause of subsection (b)(2)(B) of section 1082 of this title) of any plan may be extended by the Secretary for a period of time (not in excess of 10 years) if he determines that such extension would carry out the purposes of this chapter and would provide adequate protection for participants under the plan and their beneficiaries and if he determines that the failure to permit such extension would

 	(1)	result in

   (A) a substantial risk to the voluntary continuation of the plan, or

  	(b)	a substantial curtailment of pension benefit levels or employee compensation, and

 	(2)	be adverse to the interests of plan participants in the aggregate.

 In the case of a plan other than a multiemployer plan, the interest rate applicable for any plan year under any arrangement entered into by the Secretary in connection with an extension granted under this subsection shall be the greater of (A) 150 percent of the Federal midterm rate (as in effect under section 1274 of Title 26 for the 1st month of such plan year), or	(b)	the rate of interest used under the plan in determining costs.  In the case of a multiemployer plan, such rate shall be the rate determined under section 6621(b) of Title 26.

(b) Amendment of plan

(1)	No amendment of the plan which increases the liabilities of the plan by reason of any increase in benefits, any change in the accrual of benefits, or any change in the rate at which benefits become nonforfeitable under the plan shall be adopted if a waiver under section 1083(a) of this title or an extension of time under subsection (a) of this section is in effect with respect to the plan, or if a plan amendment described in section 1082(c)(8) of this title has been made at any time in the preceding 12 months (24 months in the case of a multiemployer plan).  If a plan is amended in violation of the preceding sentence, any such waiver, or extension of time, shall not apply to any plan year ending on or after the date on which such amendment is adopted.

(2)	Paragraph (1) shall not apply to any plan amendment which

  (A) the Secretary determines to be reasonable and which provides for only de minimis increases in the liabilities of the plan,

 	(b)	only repeals an amendment described in section 1082(c)(8) of this title, or

 	(c)	is required as a condition of qualification under part I of subchapter D, of chapter 1, of Title 26.

(c) Notice of filing of application for extension

(1)	The Secretary of the Treasury shall, before granting an extension under this section, require each applicant to provide evidence satisfactory to such Secretary that the applicant has provided notice of the filing of the application for such extension to each employee organization representing employees covered by the affected plan.

(2)	The Secretary of the Treasury shall consider any relevant information provided by a person to whom notice was given under paragraph (1).

 Section 1085: Alternative minimum funding standard

(a) Maintenance of account

A plan which uses a funding method that requires contributions in all years not less than those required under the entry age normal funding method may maintain an alternative minimum funding standard account for any plan year. Such account shall be credited and charged solely as provided in this section.

(b) Operation of account

For a plan year the alternative minimum funding standard accounts shall be

 	(1)	charged with the sum of

(A) the lesser of normal cost under the funding method used under the plan or normal cost determined under the unit credit method,

  	(b)	the excess, if any, of the present value of accrued benefits under the plan over the fair market value of the assets, and

  	(c)	an amount equal to the excess, if any, of credits to the alternative minimum funding standard account for all prior plan years over charges to such account for all such years, and

 	(2)	credited with the amount considered contributed by the employer to or under the plan (within the meaning of section 1082(c)(10) of this title) for the plan year.

(c) Interest

The alternative minimum funding standard account (and items therein) shall be charged or credited with interest in the manner provided under section 1082(b)(5) of this title with respect to the funding standard account.


Selected Federal Rules of Evidence

 Rule 101: Scope

These rules govern proceedings in the courts of the United States and before the United States bankruptcy judges and United States magistrate judges, to the extent and with the exceptions stated in rule 1101.

 Rule 102: Purpose and Construction

These rules shall be construed to secure fairness in administration, elimination of unjustifiable expense and delay, and promotion of growth and development of the law of evidence to the end that the truth may be ascertained and proceedings justly determined.

 Rule 103: Rulings on Evidence

 (a) Effect of erroneous ruling.  Error may not be predicated upon a ruling which admits or excludes evidence unless a substantial right of the party is affected, and

  (1) Objection.  In case the ruling is one admitting evidence, a timely objection or motion to strike appears of record, stating the specific ground of objection, if the specific ground was not apparent from the context;  or

  (2) Offer of proof.  In case the ruling is one excluding evidence, the substance of the evidence was made known to the court by offer or was apparent from the context within which questions were asked.

 (b) Record of offer and ruling.  The court may add any other or further statement which shows the character of the evidence, the form in which it was offered, the objection made, and the ruling thereon.  It may direct the making of an offer in question and answer form.

 (c) Hearing of jury.  In jury cases, proceedings shall be conducted, to the extent practicable, so as to prevent inadmissible evidence from being suggested to the jury by any means, such as making statements or offers of proof or asking questions in the hearing of the jury.

 (d) Plain error.  Nothing in this rule precludes taking notice of plain errors affecting substantial rights although they were not brought to the attention of the court.

 Rule 104: Preliminary Questions

 (a) Questions of admissibility generally.  Preliminary questions concerning the qualification of a person to be a witness, the existence of a privilege, or the admissibility of evidence shall be determined by the court, subject to the provisions of subdivision (b).  In making its determination it is not bound by the rules of evidence except those with respect to privileges.

 (b) Relevancy conditioned on fact.  When the relevancy of evidence depends upon the fulfillment of a condition of fact, the court shall admit it upon, or subject to, the introduction of evidence sufficient to support a finding of the fulfillment of the condition.

 (c) Hearing of jury.  Hearings on the admissibility of confessions shall in all cases be conducted out of the hearing of the jury.  Hearings on other preliminary matters shall be so conducted when the interests of justice require, or when an accused is a witness and so requests.

 (d) Testimony by accused.  The accused does not, by testifying upon a preliminary matter, become subject to crossexamination as to other issues in the case.

 (e) Weight and credibility.  This rule does not limit the right of a party to introduce before the jury evidence relevant to weight or credibility.

 Rule 105. Limited Admissibility

When evidence which is admissible as to one party or for one purpose but not admissible as to another party or for another purpose is admitted, the court, upon request, shall restrict the evidence to its proper scope and instruct the jury accordingly.

 Rule 106: Remainder of or Related Writings or Recorded Statements

When a writing or recorded statement or part thereof is introduced by a party, an adverse party may require the introduction at that time of any other part or any other writing or recorded statement which ought in fairness to be considered contemporaneously with it.

 Rule 201: Judicial Notice of Adjudicative Facts

 (a) Scope of rule.  This rule governs only judicial notice of adjudicative facts.

 (b) Kinds of facts.  A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.

 (c) When discretionary.  A court may take judicial notice, whether requested or not.

 (d) When mandatory.  A court shall take judicial notice if requested by a party and supplied with the necessary information.

 (e) Opportunity to be heard.  A party is entitled upon timely request to an opportunity to be heard as to the propriety of taking judicial notice and the tenor of the matter noticed.  In the absence of prior notification, the request may be made after judicial notice has been taken.

 (f) Time of taking notice.  Judicial notice may be taken at any stage of the proceeding.

 (g) Instructing jury.  In a civil action or proceeding, the court shall instruct the jury to accept as conclusive any fact judicially noticed.  In a criminal case, the court shall instruct the jury that it may, but is not required to, accept as conclusive any fact judicially noticed.

 Rule 301: Presumptions in General in Civil Actions and Proceedings

In all civil actions and proceedings not otherwise provided for by Act of Congress or by these rules, a presumption imposes on the party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption, but does not shift to such party the burden of proof in the sense of the risk of nonpersuasion, which remains throughout the trial upon the party on whom it was originally cast.

 Rule 302: Applicability of State Law in Civil Actions and Proceedings

In civil actions and proceedings, the effect of a presumption respecting a fact which is an element of a claim or defense as to which State law supplies the rule of decision is determined in accordance with State law.

 Rule 401: Definition of "Relevant Evidence"

"Relevant evidence" means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.

 Rule 402: Relevant Evidence Generally Admissible;  Irrelevant Evidence Inadmissible

All relevant evidence is admissible, except as otherwise provided by the Constitution of the United States, by Act of Congress, by these rules, or by other rules prescribed by the Supreme Court pursuant to statutory authority. Evidence which is not relevant is not admissible.

 Rule 403: Exclusion of Relevant Evidence on Grounds of Prejudice, Confusion, or Waste of Time

Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence.

 Rule 404: Character Evidence Not Admissible To Prove Conduct;  Exceptions;  Other Crimes

 (a) Character evidence generally.  Evidence of a person's character or a trait of character is not admissible for the purpose of proving action in conformity therewith on a particular occasion, except:

  (1) Character of accused.  Evidence of a pertinent trait of character offered by an accused, or by the prosecution to rebut the same;

  (2) Character of victim.  Evidence of a pertinent trait of character of the victim of the crime offered by an accused, or by the prosecution to rebut the same, or evidence of a character trait of peacefulness of the victim offered by the prosecution in a homicide case to rebut evidence that the victim was the first aggressor;

  (3) Character of witness.  Evidence of the character of a witness, as provided in rules 607, 608, and 609.

 (b) Other crimes, wrongs, or acts.  Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith.  It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident, provided that upon request by the accused, the prosecution in a criminal case shall provide reasonable notice in advance of trial, or during trial if the court excuses pretrial notice on good cause shown, of the general nature of any such evidence it intends to introduce at trial.

 Rule 408: Compromise and Offers to Compromise

Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount.  Evidence of conduct or statements made in compromise negotiations is likewise not admissible.  This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations.  This rule also does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negativing a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.

 Rule 409: Payment of Medical and Similar Expenses

Evidence of furnishing or offering or promising to pay medical, hospital, or similar expenses occasioned by an injury is not admissible to prove liability for the injury.

 Rule 411: Liability Insurance

Evidence that a person was or was not insured against liability is not admissible upon the issue whether the person acted negligently or otherwise wrongfully.  This rule does not require the exclusion of evidence of insurance against liability when offered for another purpose, such as proof of agency, ownership, or control, or bias or prejudice of a witness.

 Rule 801: Definitions

The following definitions apply under this article:

 (a) Statement.  A "statement" is (1) an oral or written assertion or (2) nonverbal conduct of a person, if it is intended by the person as an assertion.

 (b) Declarant.  A "declarant" is a person who makes a statement.

 (c) Hearsay.  "Hearsay" is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.

 (d) Statements which are not hearsay.  A statement is not hearsay if

  (1) Prior statement by witness.  The declarant testifies at the trial or hearing and is subject to crossexamination concerning the statement, and the statement is (A) inconsistent with the declarant's testimony, and was given  under oath subject to the penalty of perjury at a trial, hearing, or other proceeding, or in a deposition, or (B) consistent with the declarant's testimony and is offered to rebut an express or implied charge against the declarant of recent fabrication or improper influence or motive, or (C) one of identification of a person made after perceiving the person;  or

  (2) Admission by partyopponent.  The statement is offered against a party and is (A) the party's own statement in either an individual or a representative capacity or (B) a statement of which the party has manifested an adoption or belief in its truth, or (C) a statement by a person authorized by the party to make a statement concerning the subject, or (D) a statement by the party's agent or servant concerning a matter within the scope of the agency or employment, made during the existence of the relationship, or (E) a statement by a coconspirator of a party during the course and in furtherance of the conspiracy.

 Rule 802: Hearsay Rule

Hearsay is not admissible except as provided by these rules or by other rules prescribed by the Supreme Court pursuant to statutory authority or by Act of Congress.

 Rule 803: Hearsay Exceptions;  Availability of Declarant Immaterial

The following are not excluded by the hearsay rule, even though the declarant is available as a witness:

  (1) Present sense impression.  A statement describing or explaining an event or condition made while the declarant was perceiving the event or condition, or immediately thereafter.

  (2) Excited utterance.  A statement relating to a startling event or condition made while the declarant was under the stress of excitement caused by the event or condition.

  (3) Then existing mental, emotional, or physical condition.  A statement of the declarant's then existing state of mind, emotion, sensation, or physical condition (such as intent, plan, motive, design, mental feeling, pain, and  bodily health), but not including a statement of memory or belief to prove the fact remembered or believed unless it relates to the execution, revocation, identification, or terms of declarant's will.

  (4) Statements for purposes of medical diagnosis or treatment.  Statements made for purposes of medical diagnosis or treatment and describing medical history, or past or present symptoms, pain, or sensations, or the inception or general character of the cause or external source thereof insofar as reasonably pertinent to diagnosis or treatment.

  (5) Recorded recollection.  A memorandum or record concerning a matter about which a witness once had knowledge but now has insufficient recollection to enable the witness to testify fully and accurately, shown to have been made or adopted by the witness when the matter was fresh in the witness' memory and to reflect that knowledge correctly.  If admitted, the memorandum or record may be read into evidence but may not itself be received as an exhibit unless offered by an adverse party.

  (6) Records of regularly conducted activity.  A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make  the memorandum, report, record, or data compilation, all as shown by the testimony of the custodian or other qualified witness, unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness.  The term "business" as used in this paragraph includes business, institution, association, profession, occupation, and calling of every kind, whether or not conducted for profit.

  (7) Absence of entry in records kept in accordance with the provisions of paragraph (6).  Evidence that a matter is not included in the memoranda  reports, records, or data compilations, in any form, kept in accordance with the provisions of paragraph (6), to prove the nonoccurrence or nonexistence of the matter, if the matter was of a kind of which a memorandum, report, record, or data compilation was regularly made and preserved, unless the sources of information or other circumstances indicate lack of trustworthiness.

  (8) Public records and reports.  Records, reports, statements, or data compilations, in any form, of public offices or agencies, setting forth (A) the activities of the office or agency, or (B) matters observed pursuant to duty imposed by law as to which matters there was a duty to report, excluding, however, in criminal cases matters observed by police officers and other law enforcement personnel, or (C) in civil actions and proceedings and against the Government in criminal cases, factual findings resulting from an investigation  made pursuant to authority granted by law, unless the sources of information or other circumstances indicate lack of trustworthiness.

  (9) Records of vital statistics.  Records or data compilations, in any form, of births, fetal deaths, deaths, or marriages, if the report thereof was made to a public office pursuant to requirements of law.

  (10) Absence of public record or entry.  To prove the absence of a record, report, statement, or data compilation, in any form, or the nonoccurrence or nonexistence of a matter of which a record, report, statement, or data compilation, in any form, was regularly made and preserved by a public office or agency, evidence in the form of a certification in accordance with rule 902, or testimony, that diligent search failed to disclose the record, report, statement, or data compilation, or entry.

  (11) Records of religious organizations.  Statements of births, marriages, divorces, deaths, legitimacy, ancestry, relationship by blood or marriage, or other similar facts of personal or family history, contained in a regularly kept record of a religious organization.

  (12) Marriage, baptismal, and similar certificates.  Statements of fact contained in a certificate that the maker performed a marriage or other ceremony or administered a sacrament, made by a clergyman, public official, or other person authorized by the rules or practices of a religious organization  or by law to perform the act certified, and purporting to have been issued at the time of the act or within a reasonable time thereafter.

  (13) Family records.  Statements of fact concerning personal or family history contained in family Bibles, genealogies, charts, engravings on rings, inscriptions on family portraits, engravings on urns, crypts, or tombstones, or the like.

  (14) Records of documents affecting an interest in property.  The record of a document purporting to establish or affect an interest in property, as proof of the content of the original recorded document and its execution and delivery by each person by whom it purports to have been executed, if the record is a record of a public office and an applicable statute authorizes the recording of documents of that kind in that office.

  (15) Statements in documents affecting an interest in property.  A statement contained in a document purporting to establish or affect an interest in property if the matter stated was relevant to the purpose of the document, unless dealings with the property since the document was made have been inconsistent with the truth of the statement or the purport of the document.

  (16) Statements in ancient documents.  Statements in a document in existence twenty years or more the authenticity of which is established.

  (17) Market reports, commercial publications.  Market quotations,  tabulations, lists, directories, or other published compilations, generally used and relied upon by the public or by persons in particular occupations.

  (18) Learned treatises.  To the extent called to the attention of an expert witness upon crossexamination or relied upon by the expert witness in direct examination, statements contained in published treatises, periodicals, or pamphlets on a subject of history, medicine, or other science or art, established as a reliable authority by the testimony or admission of the witness or by other expert testimony or by judicial notice.  If admitted, the statements may be read into evidence but may not be received as exhibits.

  (19) Reputation concerning personal or family history.  Reputation among members of a person's family by blood, adoption, or marriage, or among a person's associates, or in the community, concerning a person's birth, adoption, marriage, divorce, death, legitimacy, relationship by blood, adoption, or marriage, ancestry, or other similar fact of personal or family history.

  (20) Reputation concerning boundaries or general history.  Reputation in a community, arising before the controversy, as to boundaries of or customs affecting lands in the community, and reputation as to events of general history important to the community or State or nation in which located.

  (21) Reputation as to character.  Reputation of a person's character among  associates or in the community.

  (22) Judgment of previous conviction.  Evidence of a final judgment, entered after a trial or upon a plea of guilty (but not upon a plea of nolo contendere), adjudging a person guilty of a crime punishable by death or imprisonment in excess of one year, to prove any fact essential to sustain the judgment, but not including, when offered by the Government in a criminal prosecution for purposes other than impeachment, judgments against persons other than the accused.  The pendency of an appeal may be shown but does not affect admissibility.

  (23) Judgment as to personal, family, or general history, or boundaries.  Judgments as proof of matters of personal, family or general history, or boundaries, essential to the judgment, if the same would be provable by evidence of reputation.

  (24) Other exceptions.  A statement not specifically covered by any of the foregoing exceptions but having equivalent circumstantial guarantees of trustworthiness, if the court determines that (A) the statement is offered as evidence of a material fact;  (B) the statement is more probative on the point for which it is offered than any other evidence which the proponent can procure through reasonable efforts;  and (C) the general purposes of these rules and the interests of justice will best be served by admission of the  statement into evidence.  However, a statement may not be admitted under this exception unless the proponent of it makes known to the adverse party sufficiently in advance of the trial or hearing to provide the adverse party with a fair opportunity to prepare to meet it, the proponent's intention to offer the statement and the particulars of it, including the name and address of the declarant.

 Rule 804: Hearsay Exceptions;  Declarant Unavailable

 (a) Definition of unavailability.  "Unavailability as a witness" includes situations in which the declarant

  (1) is exempted by ruling of the court on the ground of privilege from testifying concerning the subject matter of the declarant's statement;  or

  (2) persists in refusing to testify concerning the subject matter of the declarant's statement despite an order of the court to do so;  or

  (3) testifies to a lack of memory of the subject matter of the declarant's statement;  or

  (4) is unable to be present or to testify at the hearing because of death or then existing physical or mental illness or infirmity;  or

  (5) is absent from the hearing and the proponent of a statement has been  unable to procure the declarant's attendance (or in the case of a hearsay exception under subdivision (b)(2), (3), or (4), the declarant's attendance or testimony) by process or other reasonable means.

A declarant is not unavailable as a witness if exemption, refusal, claim of lack of memory, inability, or absence is due to the procurement or wrongdoing of the proponent of a statement for the purpose of preventing the witness from attending or testifying.

 (b) Hearsay exceptions.  The following are not excluded by the hearsay rule if the declarant is unavailable as a witness:

  (1) Former testimony.  Testimony given as a witness at another hearing of the same or a different proceeding, or in a deposition taken in compliance with law in the course of the same or another proceeding, if the party against whom the testimony is now offered, or, in a civil action or proceeding, a predecessor in interest, had an opportunity and similar motive to develop the testimony by direct, cross, or redirect examination.

  (2) Statement under belief of impending death.  In a prosecution for homicide or in a civil action or proceeding, a statement made by a declarant while believing that the declarant's death was imminent, concerning the cause or circumstances of what the declarant believed to be impending death.

  (3) Statement against interest.  A statement which was at the time of its making so far contrary to the declarant's pecuniary or proprietary interest, or so far tended to subject the declarant to civil or criminal liability, or to render invalid a claim by the declarant against another, that a reasonable person in the declarant's position would not have made the statement unless believing it to be true.  A statement tending to expose the declarant to criminal liability and offered to exculpate the accused is not admissible unless corroborating circumstances clearly indicate the trustworthiness of the statement.

  (4) Statement of personal or family history.  (A) A statement concerning the declarant's own birth, adoption, marriage, divorce, legitimacy, relationship by blood, adoption, or marriage, ancestry, or other similar fact of personal or family history, even though declarant had no means of acquiring personal knowledge of the matter stated;  or (B) a statement concerning the foregoing matters, and death also, of another person, if the declarant was related to the other by blood, adoption, or marriage or was so intimately associated with the other's family as to be likely to have accurate information concerning the matter declared.

  (5) Other exceptions.  A statement not specifically covered by any of the foregoing exceptions but having equivalent circumstantial guarantees of  trustworthiness, if the court determines that (A) the statement is offered as evidence of a material fact;  (B) the statement is more probative on the point for which it is offered than any other evidence which the proponent can procure through reasonable efforts;  and (C) the general purposes of these rules and the interests of justice will best be served by admission of the statement into evidence.  However, a statement may not be admitted under this exception unless the proponent of it makes known to the adverse party sufficiently in advance of the trial or hearing to provide the adverse party with a fair opportunity to prepare to meet it, the proponent's intention to offer the statement and the particulars of it, including the name and address of the declarant.

 Rule 806: Attacking and Supporting Credibility of Declarant

When a hearsay statement, or a statement defined in Rule 801(d)(2), (C), (D), or (E), has been admitted in evidence, the credibility of the declarant may be attacked, and if attacked may be supported, by any evidence which would be admissible for those purposes if declarant had testified as a witness. Evidence of a statement or conduct by the declarant at any time, inconsistent with the declarant's hearsay statement, is not subject to any requirement that the declarant may have been afforded an opportunity to deny or explain.  If the party against whom a hearsay statement has been admitted calls the declarant as a witness, the party is entitled to examine the declarant on the statement as if under crossexamination.


Fair Credit Billing Act

15 U.S.C. Sections 1666-1666j

 Section 1666:  Correction of billing errors

(a)	Written notice by obligor to creditor;  time for and contents of notice;  procedure upon receipt of notice by creditor

If a creditor, within sixty days after having transmitted to an obligor a statement of the obligor's account in connection with an extension of consumer credit, receives at the address disclosed under section 1637(b)(10) of this title a written notice (other than notice on a payment stub or other payment medium supplied by the creditor if the creditor so stipulates with the disclosure required under section 1637(a)(7) of this title) from the obligor in which the obligor

(1)	sets forth or otherwise enables the creditor to identify the name and account number (if any) of the obligor,

(2)	indicates the obligor's belief that the statement contains a billing error and the amount of such billing error, and

(3)	sets forth the reasons for the obligor's belief (to the extent applicable) that the statement contains a billing error, the creditor shall, unless the obligor has, after giving such written notice and before the expiration of the time limits herein specified, agreed that the statement was correct

(A)	not later than thirty days after the receipt of the notice, send a written acknowledgement thereof to the obligor, unless the action required in subparagraph (B) is taken within such thirtyday period, and

(B)	not later than two complete billing cycles of the creditor (in no event later than ninety days) after the receipt of the notice and prior to taking any action to collect the amount, or any part thereof, indicated by the obligor under paragraph (2) either

(i)	make appropriate corrections in the account of the obligor, including   the crediting of any finance charges on amounts erroneously billed, and transmit to the obligor a notification of such corrections and the creditor's explanation of any change in the amount indicated by the obligor under paragraph (2) and, if any such change is made and the obligor so requests, copies of documentary evidence of the obligor's indebtedness;  or

(ii)	send a written explanation or clarification to the obligor, after having conducted an investigation, setting forth to the extent applicable the reasons why the creditor believes the account of the obligor was correctly shown in the statement and, upon request of the obligor, provide copies of documentary evidence of the obligor's indebtedness.  In the case of a billing error where the obligor alleges that the creditor's billing statement reflects goods not delivered to the obligor or his designee in accordance with the agreement made at the time of the transaction, a creditor may not construe such amount to be correctly shown unless he determines that such goods were actually delivered, mailed, or otherwise sent to the obligor and provides the obligor with a statement of such determination.

After complying with the provisions of this subsection with respect to an alleged billing error, a creditor has no further responsibility under this section if the obligor continues to make substantially the same allegation with respect to such error.

(b)	Billing error

For the purpose of this section, a "billing error" consists of any of the following:

(1)	A reflection on a statement of an extension of credit which was not made to the obligor or, if made, was not in the amount reflected on such statement.

(2)	A reflection on a statement of an extension of credit for which the obligor requests additional clarification including documentary evidence thereof.

(3)	A reflection on a statement of goods or services not accepted by the obligor or his designee or not delivered to the obligor or his designee in accordance with the agreement made at the time of a transaction.

(4)	The creditor's failure to reflect properly on a statement a payment made by the obligor or a credit issued to the obligor.

(5)	A computation error or similar error of an accounting nature of the creditor on a statement.

(6)	Failure to transmit the statement required under section 1637(b) of this title to the last address of the obligor which has been disclosed to the  creditor, unless that address was furnished less than twenty days before the end of the billing cycle for which the statement is required.

(7)	Any other error described in regulations of the Board.

(c)	Action by creditor to collect amount or any part thereof regarded by obligor to be a billing error

For the purposes of this section, "action to collect the amount, or any part thereof, indicated by an obligor under paragraph (2)" does not include the sending of statements of account, which may include finance charges on amounts in dispute, to the obligor following written notice from the obligor as specified under subsection (a) of this section, if

(1)	the obligor's account is not restricted or closed because of the failure of the obligor to pay the amount indicated under paragraph (2) of subsection (a) of this section, and

(2)	the creditor indicates the payment of such amount is not required pending the creditor's compliance with this section.

Nothing in this section shall be construed to prohibit any action by a creditor to collect any amount which has not been indicated by the obligor to contain a billing error.

(d)	Restricting or closing by creditor of account regarded by obligor to contain a billing error

Pursuant to regulations of the Board, a creditor operating an open end consumer credit plan may not, prior to the sending of the written explanation or clarification required under paragraph (B)(ii), restrict or close an account with respect to which the obligor has indicated pursuant to subsection (a) of this section that he believes such account to contain a billing error solely because of the obligor's failure to pay the amount indicated to be in error.  Nothing in this subsection shall be deemed to prohibit a creditor from applying against the credit limit on the obligor's account the amount indicated to be in error.

(e)	Effect of noncompliance with requirements by creditor

Any creditor who fails to comply with the requirements of this section or section 1666a of this title forfeits any right to collect from the obligor the amount indicated by the obligor under paragraph (2) of subsection (a) of this section, and any finance charges thereon, except that the amount required to be forfeited under this subsection may not exceed $50.00.

 Section 1666a:  Regulation of credit reports

(a)	Reports by creditor on obligor's failure to pay amount regarded as billing error

After receiving a notice from an obligor as provided in section 1666(a) of this title, a creditor or his agent may not directly or indirectly threaten to report to any person adversely on the obligor's credit rating or credit standing because of the obligor's failure to pay the amount indicated by the obligor under section 1666(a)(2) of this title, and such amount may not be reported as delinquent to any third party until the creditor has met the requirements of section 1666 of this title and has allowed the obligor the same number of days (not less than ten) thereafter to make payment as is provided under the credit agreement with the obligor for the payment of undisputed amounts.

(b)	Reports by creditor on delinquent amounts in dispute;  notification of obligor of parties notified of delinquency

If a creditor receives a further written notice from an obligor that an amount is still in dispute within the time allowed for payment under subsection (a) of this section, a creditor may not report to any third party that the amount of the obligor is delinquent because the obligor has failed to pay an amount which he has indicated under section 1666(a)(2) of this title, unless the creditor also reports that the amount is in dispute and, at the same time, notifies the obligor of the name and address of each party to whom the creditor is reporting information concerning the delinquency.

(c)	Reports by creditor of subsequent resolution of delinquent amounts

A creditor shall report any subsequent resolution of any delinquencies reported pursuant to subsection (b) of this section to the parties to whom such delinquencies were initially reported.

 Section 1666b:  Length of billing period in credit statement for imposition of finance charge;  effect of failure of timely mailing or delivery of statement

(a)	Additional finance charge

If an open end consumer credit plan provides a time period within which an obligor may repay any portion of the credit extended without incurring an additional finance charge, such additional finance charge may not be imposed with respect to such portion of the credit extended for the billing cycle of which such period is a part unless a statement which includes the amount upon which the finance charge for that period is based was mailed at least fourteen days prior to the date specified in the statement by which payment must be made in order to avoid imposition of that finance charge.

(b)	Excusable cause

Subsection (a) of this section does not apply in any case where a creditor has been prevented, delayed, or hindered in making timely mailing or delivery of such periodic statement within the time period specified in such subsection because of an act of God, war, natural disaster, strike, or other excusable or justifiable cause, as determined under regulations of the Board.

 Section 1666c:  Prompt crediting of payments;  imposition of finance charge

Payments received from an obligor under an open end consumer credit plan by the creditor shall be posted promptly to the obligor's account as specified in regulations of the Board.  Such regulations shall prevent a finance charge from being imposed on any obligor if the creditor has received the obligor's payment in readily identifiable form in the amount, manner, location, and time indicated by the creditor to avoid the imposition thereof.

 Section 1666d:  Treatment of credit balances

Whenever a credit balance in excess of $1 is created in connection with a consumer credit transaction through (1) transmittal of funds to a creditor in excess of the total balance due on an account, (2) rebates of unearned finance charges or insurance premiums, or (3) amounts otherwise owed to or held for the benefit of an obligor, the creditor shall

(A)	credit the amount of the credit balance to the consumer's account;

(B)	refund any part of the amount of the remaining credit balance, upon request of the consumer;  and

(C)	make a good faith effort to refund to the consumer by cash, check, or  money order any part of the amount of the credit balance remaining in the account for more than six months, except that no further action is required in any case in which the consumer's current location is not known by the creditor and cannot be traced through the consumer's last known address or telephone number.

 Section 1666e:  Notification of credit card issuer

With respect to any sales transaction where a credit card has been used to obtain credit, where the seller is a person other than the card issuer, and where the seller accepts or allows a return of the goods or forgiveness of a debit for services which were the subject of such sale, the seller shall promptly transmit to the credit card issuer, a credit statement with respect thereto and the credit card issuer shall credit the account of the obligor for the amount of the transaction.

 Section 1666f:  Inducements to cardholders by sellers of cash discounts for payments by cash, check or similar means;  credit card surcharge prohibition;  finance charge for sales transactions involving cash discounts

(a)	Cash discounts

With respect to credit card which may be used for extensions of credit in sales transactions in which the seller is a person other than the card issuer, the card issuer may not, by contract or otherwise, prohibit any such seller from offering a discount to a cardholder to induce the cardholder to pay by cash, check, or similar means rather than use a credit card.

(b)	Finance charge

With respect to any sales transaction, any discount from the regular price offered by the seller for the purpose of inducing payment by cash, checks, or other means not involving the use of an openend credit plan or a credit card shall not constitute a finance charge as determined under section 1605 of this title if such discount is offered to all prospective buyers and its availability is disclosed clearly and conspicuously.

 Section 1666g:  Tiein services prohibited for issuance of credit card

Notwithstanding any agreement to the contrary, a card issuer may not require a seller, as a condition to participating in a credit card plan, to open an account with or procure any other service from the card issuer or its subsidiary or agent.

 Section 1666h:  Offset of cardholder's indebtedness by issuer of credit card with funds deposited with issuer by cardholder;  remedies of creditors under State law not affected

(a)	Claims and defense assertible

A card issuer may not take any action to offset a cardholder's indebtedness arising in connection with a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer unless

(1)	such action was previously authorized in writing by the cardholder in accordance with a credit plan whereby the cardholder agrees periodically to pay debts incurred in his open end credit account by permitting the card issuer periodically to deduct all or a portion of such debt from the cardholder's deposit account, and

(2)	such action with respect to any outstanding disputed amount not be taken by the card issuer upon request of the cardholder.

In the case of any credit card account in existence on the effective date of this section, the previous written authorization referred to in clause (1) shall not be required until the date (after such effective date) when such account is renewed, but in no case later than one year after such effective date.  Such written authorization shall be deemed to exist if the card issuer has previously notified the cardholder that the use of his credit card account will subject any funds which the card issuer holds in deposit accounts of such cardholder to offset against any amounts due and payable on his credit card account which have not been paid in accordance with the terms of the agreement between the card issuer and the cardholder.

(b)	Amount of claims and defenses assertible

This section does not alter or affect the right under State law of a card issuer to attach or otherwise levy upon funds of a cardholder held on deposit with the card issuer if that remedy is constitutionally available to creditors generally.

 Section 1666i:  Assertion by cardholder against card issuer of claims and defenses arising out of credit card transaction;  prerequisites;  limitation on amount of claims or defenses

(a)	Subject to the limitation contained in subsection (b) of this section, a card issuer who has issued a credit card to a cardholder pursuant to an open end consumer credit plan shall be subject to all claims (other than tort claims) and defenses arising out of any transaction in which the credit card is used as a method of payment or extension of credit if --

(1)	the obligor has made a good faith attempt to obtain satisfactory resolution of a disagreement or problem relative to the transaction from the person honoring the credit card;

(2)	the amount of the initial transaction exceeds $50; and

(3)	the place where the initial transaction occurred was in the same State as the mailing address previously provided by the cardholder or was within 100 miles from such address, except that the limitations set forth in clauses (2) and (3) with respect to an obligor's right to assert claims and defenses against a card issuer shall not be applicable to any transaction in which the person honoring the credit card--

(A)	is the same person as the card issuer,

(B)	is controlled by the card issuer,

(C)	is under direct or indirect common control with the card issuer,

(D)	is a franchised dealer in the card issuer's products or services, or

(E)	has obtained the order for such transaction through a mail solicitation made by or participated in by the card issuer in which the cardholder is solicited to enter into such transaction by using the credit card issued by the card issuer.

(b)	The amount of claims or defenses asserted by the cardholder may not exceed the amount of credit outstanding with respect to such transaction at the time the cardholder first notifies the card issuer or the person honoring the credit card of such claim or defense.  For the purpose of determining the amount of credit outstanding in the preceding sentence, payments and credits to the cardholder's account are deemed to have been applied, in the order indicated, to the payment of:

(1)	late charges in the order of their entry to the account;

(2)	finance charges in order of their entry to the account;  and

(3)	debits to the account other than those set forth above, in the order in which each debit entry to the account was made.

 Section 1666j:  Applicability of State laws

(a)	Consistency of provisions

This part does not annul, alter, or affect, or exempt any person subject to the provisions of this part from complying with, the laws of any State with respect to credit billing practices, except to the extent that those laws are inconsistent with any provision of this part, and then only to the extent of the inconsistency.  The Board is authorized to determine whether such inconsistencies exist.  The Board may not determine that any State law is inconsistent with any provision of this part if the Board determines that such law gives greater protection to the consumer.

(b)	Exemptions by Board from credit billing requirements

The Board shall by regulation exempt from the requirements of this part any class of credit transactions within any State if it determines that under the law of that State that class of transactions is subject to requirements substantially similar to those imposed under this part or that such law gives greater protection to the consumer, and that there is adequate provision for enforcement.

(c)	Finance charge or other charge for credit for sales transactions involving cash discounts

Notwithstanding any other provisions of this subchapter, any discount offered under section 1666f(b) of this title shall not be considered a finance charge or other charge for credit under the usury laws of any State or under the laws of any State relating to disclosure of information in connection with credit transactions, or relating to the types, amounts or rates of charges, or to any element or elements of charges permissible under such laws in connection with the extension or use of credit.


Family and Medical Leave Act

29 U.S.C. Sections 2601 - 2654

 Section 2601:  Findings and purposes

(a)	Findings

Congress finds that

(1)	the number of singleparent households and twoparent households in which the single parent or both parents work is increasing significantly;

(2)	it is important for the development of children and the family unit that fathers and mothers be able to participate in early childrearing and the care of family members who have serious health conditions;

(3)	the lack of employment policies to accommodate working parents can force individuals to choose between job security and parenting;

(4)	there is inadequate job security for employees who have serious health conditions that prevent them from working for temporary periods;

(5)	due to the nature of the roles of men and women in our society, the primary responsibility for family caretaking often falls on women, and such responsibility affects the working lives of women more than it affects the working lives of men;  and

(6)	employment standards that apply to one gender only have serious potential for encouraging employers to discriminate against employees and applicants for employment who are of that gender.

(b)	Purposes

It is the purpose of this Act

(1)	to balance the demands of the workplace with the needs of families, to promote the stability and economic security of families, and to promote national interests in preserving family integrity;

(2)	to entitle employees to take reasonable leave for medical reasons, for the birth or adoption of a child, and for the care of a child, spouse, or parent who has a serious health condition;

(3)	to accomplish the purposes described in paragraphs (1) and (2) in a  manner that accommodates the legitimate interests of employers;

(4)	to accomplish the purposes described in paragraphs (1) and (2) in a manner that, consistent with the Equal Protection Clause of the Fourteenth Amendment, minimizes the potential for employment discrimination on the basis of sex by ensuring generally that leave is available for eligible medical reasons (including maternityrelated disability) and for compelling family reasons, on a genderneutral basis;  and

(5)	to promote the goal of equal employment opportunity for women and men, pursuant to such clause.

 Section 2612L:  Leave requirement

(a)	In general

(1)	Entitlement to leave

Subject to section 2613 of this title, an eligible employee shall be entitled to a total of 12 workweeks of leave during any 12month period for one or more of the following:

(A)	Because of the birth of a son or daughter of the employee and in order   to care for such son or daughter.

(B)	Because of the placement of a son or daughter with the employee for adoption or foster care.

(C)	In order to care for the spouse, or a son, daughter, or parent, of the employee, if such spouse, son, daughter, or parent has a serious health condition.

(D)	Because of a serious health condition that makes the employee unable to perform the functions of the position of such employee.

(2)	Expiration of entitlement

The entitlement to leave under subparagraphs (A) and (B) of paragraph (1) for a birth or placement of a son or daughter shall expire at the end of the 12 month period beginning on the date of such birth or placement.

(b)	Leave taken intermittently or on reduced leave schedule

(1)	In general

Leave under subparagraph (A) or (B) of subsection (a)(1) of this section shall not be taken by an employee intermittently or on a reduced leave schedule unless the employee and the employer of the employee agree otherwise.  Subject to paragraph (2), subsection (e)(2) of this section, and section 2613(b)(5) of this title, leave under subparagraph (C) or (D) of subsection (a)(1) of this section may be taken intermittently or on a reduced leave schedule when medically necessary.  The taking of leave intermittently or on a reduced leave schedule pursuant to this paragraph shall not result in a reduction in the total amount of leave to which the employee is entitled under subsection (a) of this section beyond the amount of leave actually taken.

(2)	Alternative position

If an employee requests intermittent leave, or leave on a reduced leave schedule, under subparagraph (C) or (D) of subsection (a)(1) of this section, that is foreseeable based on planned medical treatment, the employer may require such employee to transfer temporarily to an available alternative position offered by the employer for which the employee is qualified and that

(A)	has equivalent pay and benefits;  and

(B)	better accommodates recurring periods of leave than the regular employment position of the employee.

(c)	Unpaid leave permitted

Except as provided in subsection (d) of this section, leave granted under subsection (a) of this section may consist of unpaid leave.  Where an employee is otherwise exempt under regulations issued by the Secretary pursuant to section 213(a)(1) of this title, the compliance of an employer with this subchapter by providing unpaid leave shall not affect the exempt status of the employee under such section.

(d)	Relationship to paid leave

(1)	Unpaid leave

If an employer provides paid leave for fewer than 12 workweeks, the additional weeks of leave necessary to attain the 12 workweeks of leave  required under this subchapter may be provided without compensation.

(2)	Substitution of paid leave

(A)	In general

An eligible employee may elect, or an employer may require the employee, to substitute any of the accrued paid vacation leave, personal leave, or family leave of the employee for leave provided under subparagraph (A), (B), or (C) of subsection (a)(1) of this section for any part of the 12week period of such leave under such subsection.

(B)	Serious health condition

An eligible employee may elect, or an employer may require the employee, to substitute any of the accrued paid vacation leave, personal leave, or medical or sick leave of the employee for leave provided under subparagraph (C) or (D) of subsection (a)(1)  of this section for any part of the 12week period of such leave under such subsection, except that nothing in this subchapter   shall require an employer to provide paid sick leave or paid medical leave in any situation in which such employer would not normally provide any such paid leave.

(e)	Foreseeable leave

(1)	Requirement of notice

In any case in which the necessity for leave under subparagraph (A) or (B) of subsection (a)(1) of this section is foreseeable based on an expected birth or placement, the employee shall provide the employer with not less than 30 days' notice, before the date the leave is to begin, of the employee's intention to take leave under such subparagraph, except that if the date of the birth or placement requires leave to begin in less than 30 days, the employee shall provide such notice as is practicable.

(2)	Duties of employee

In any case in which the necessity for leave under subparagraph (C) or (D) of  subsection (a)(1) of this section is foreseeable based on planned medical treatment, the employee

(A)	shall make a reasonable effort to schedule the treatment so as not to disrupt unduly the operations of the employer, subject to the approval of the health care provider of the employee or the health care provider of the son, daughter, spouse, or parent of the employee, as appropriate;  and

(B)	shall provide the employer with not less than 30 days' notice, before the date the leave is to begin, of the employee's intention to take leave under such subparagraph, except that if the date of the treatment requires leave to begin in less than 30 days, the employee shall provide such notice as is practicable.

(f)	Spouses employed by same employer

In any case in which a husband and wife entitled to leave under subsection (a) of this section are employed by the same employer, the aggregate number of workweeks of leave to which both may be entitled may be limited to 12 workweeks during any 12month period, if such leave is taken

(1)	under subparagraph (A) or (B) of subsection (a)(1) of this section;  or

(2)	to care for a sick parent under subparagraph (C) of such subsection.

 Section 2614:  Employment and benefits protection

(a)	Restoration to position

(1)	In general

Except as provided in subsection (b) of this section, any eligible employee who takes leave under section 2612 of this title for the intended purpose of the leave shall be entitled, on return from such leave

(A)	to be restored by the employer to the position of employment held by the   employee when the leave commenced;  or

(B)	to be restored to an equivalent position with equivalent employment benefits, pay, and other terms and conditions of employment.

(2)	Loss of benefits

The taking of leave under section 2612 of this title shall not result in the loss of any employment benefit accrued prior to the date on which the leave commenced.

(3)	Limitations

Nothing in this section shall be construed to entitle any restored employee to

(A)	the accrual of any seniority or employment benefits during any period of leave;  or

(B)	any right, benefit, or position of employment other than any right, benefit, or position to which the employee would have been entitled had the employee not taken the leave.

(4)	Certification

 As a condition of restoration under paragraph (1) for an employee who has taken leave under section 2612(a)(1)(D) of this title, the employer may have a uniformly applied practice or policy that requires each such employee to receive certification from the health care provider of the employee that the employee is able to resume work, except that nothing in this paragraph shall supersede a valid State or local law or a collective bargaining agreement that governs the return to work of such employees.

(5)	Construction

Nothing in this subsection shall be construed to prohibit an employer from requiring an employee on leave under section 2612 of this title to report periodically to the employer on the status and intention of the employee to return to work.

(b)	Exemption concerning certain highly compensated employees

(1)	Denial of restoration

An employer may deny restoration under subsection (a) of this section to any eligible employee described in paragraph (2) if

(A)	such denial is necessary to prevent substantial and grievous economic injury to the operations of the employer;

(B)	the employer notifies the employee of the intent of the employer to deny restoration on such basis at the time the employer determines that such injury would occur;  and

(C)	in any case in which the leave has commenced, the employee elects not to return to employment after receiving such notice.

(2)	Affected employees

An eligible employee described in paragraph (1) is a salaried eligible employee who is among the highest paid 10 percent of the employees employed by the employer within 75 miles of the facility at which the employee is employed.

(c)	Maintenance of health benefits

(1)	Coverage

Except as provided in paragraph (2), during any period that an eligible employee takes leave under section 2612 of this title, the employer shall maintain coverage under any "group health plan" (as defined in section 5000(b)(1) of Title 26) for the duration of such leave at the level and under the conditions coverage would have been provided if the employee had continued in employment continuously for the duration of such leave.

(2)	Failure to return from leave

The employer may recover the premium that the employer paid for maintaining coverage for the employee under such group health plan during any period of unpaid leave under section 2612 of this title if

(A)	the employee fails to return from leave under section 2612 of this title after the period of leave to which the employee is entitled has expired;  and

(B)	the employee fails to return to work for a reason other than

(i)	the continuation, recurrence, or onset of a serious health condition that entitles the employee to leave under subparagraph (C) or (D) of section    2612(a)(1) of this title;  or

(ii)	other circumstances beyond the control of the employee.

(3)	Certification

(A)	Issuance

An employer may require that a claim that an employee is unable to return to work because of the continuation, recurrence, or onset of the serious health condition described in paragraph (2)(B)(i) be supported by

(i)	a certification issued by the health care provider of the son, daughter, spouse, or parent of the employee, as appropriate, in the case of an employee unable to return to work because of a condition specified in section 2612(a)(1)(C) of this title;  or

(ii)	a certification issued by the health care provider of the eligible employee, in the case of an employee unable to return to work because of a condition specified in section 2612(a)(1)(D) of this title.

(B)	Copy

The employee shall provide, in a timely manner, a copy of such certification to the employer.

(C)	Sufficiency of certification

(i)	Leave due to serious health condition of employee

The certification described in subparagraph (A)(ii) shall be sufficient if the certification states that a serious health condition prevented the employee from being able to perform the functions of the position of the employee on the date that the leave of the employee expired.

(ii)	Leave due to serious health condition of family member

The certification described in subparagraph (A)(i) shall be sufficient if the certification states that the employee is needed to care for the son, daughter, spouse, or parent who has a serious health condition on the date that the leave of the employee expired.

 Section 2615:  Prohibited acts

(a)	Interference with rights

(1)	Exercise of rights

It shall be unlawful for any employer to interfere with, restrain, or deny the exercise of or the attempt to exercise, any right provided under this subchapter.

(2)	Discrimination

It shall be unlawful for any employer to discharge or in any other manner discriminate against any individual for opposing any practice made unlawful by this subchapter.

(b)	Interference with proceedings or inquiries

It shall be unlawful for any person to discharge or in any other manner discriminate against any individual because such individual

(1)	has filed any charge, or has instituted or caused to be instituted any proceeding, under or related to this subchapter;

(2)	has given, or is about to give, any information in connection with any inquiry or proceeding relating to any right provided under this subchapter; or

(3)	has testified, or is about to testify, in any inquiry or proceeding relating to any right provided under this subchapter.

 Section 2616:  Investigative authority

(a)	In general

To ensure compliance with the provisions of this subchapter, or any regulation or order issued under this subchapter, the Secretary shall have, subject to subsection (c) of this section, the investigative authority provided under section 211(a) of this title.

(b)	Obligation to keep and preserve records

Any employer shall make, keep, and preserve records pertaining to compliance with this subchapter in accordance with section 211(c) of this title and in accordance with regulations issued by the Secretary.

(c)	Required submissions generally limited to an annual basis

The Secretary shall not under the authority of this section require any employer or any plan, fund, or program to submit to the Secretary any books or records more than once during any 12month period, unless the Secretary has reasonable cause to believe there may exist a violation of this subchapter or any regulation or order issued pursuant to this subchapter, or is investigating a charge pursuant to section 2617(b) of this title.

(d)	Subpoena powers

For the purposes of any investigation provided for in this section, the Secretary shall have the subpoena authority provided for under section 209 of this title.

 Section 2617:  Enforcement

(a)	Civil action by employees

(1)	Liability

Any employer who violates section 2615 of this title shall be liable to any eligible employee affected

(A)	for damages equal to

(i)	the amount of

(I)	any wages, salary, employment benefits, or other compensation denied or lost to such employee by reason of the violation;  or

(II)	in a case in which wages, salary, employment benefits, or other compensation have not been denied or lost to the employee, any actual monetary losses sustained by the employee as a direct result of the violation, such as the cost of providing care, up to a sum equal to 12 weeks of wages or salary for the employee;

(ii)	the interest on the amount described in clause (i) calculated at the prevailing rate;  and

(iii)	an additional amount as liquidated damages equal to the sum of the amount described in clause (i) and the interest described in clause (ii), except that if an employer who has violated section 2615 of this title proves to the satisfaction of the court that the act or omission which violated section 2615 of this title was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation of section 2615 of this title, such court may, in the discretion of the court, reduce the amount of the liability to the amount and interest determined under clauses (i) and (ii), respectively;  and

(B)	for such equitable relief as may be appropriate, including employment, reinstatement, and promotion.

(2)	Right of action

An action to recover the damages or equitable relief prescribed in paragraph  (1) may be maintained against any employer (including a public agency) in any Federal or State court of competent jurisdiction by any one or more employees for and in behalf of

(A)	the employees;  or

(B)	the employees and other employees similarly situated.

(3)	Fees and costs

The court in such an action shall, in addition to any judgment awarded to the plaintiff, allow a reasonable attorney's fee, reasonable expert witness fees, and other costs of the action to be paid by the defendant.

(4)	Limitations

The right provided by paragraph (2) to bring an action by or on behalf of any employee shall terminate

(A)	on the filing of a complaint by the Secretary in an action under subsection (d) of this section in which restraint is sought of any further delay in the payment of the amount described in paragraph (1)(A) to such employee by an employer responsible under paragraph (1) for the payment;  or

(B)	on the filing of a complaint by the Secretary in an action under subsection (b) of this section in which a recovery is sought of the damages described in paragraph (1)(A) owing to an eligible employee by an employer liable under paragraph (1), unless the action described in subparagraph (A) or (B) is dismissed without prejudice on motion of the Secretary.

(b)	Action by Secretary

(1)	Administrative action

The Secretary shall receive, investigate, and attempt to resolve complaints of violations of section 2615 of this title in the same manner that the Secretary receives, investigates, and attempts to resolve complaints of  violations of sections 206 and 207 of this title.

(2)	Civil action

The Secretary may bring an action in any court of competent jurisdiction to recover the damages described in subsection (a)(1)(A) of this section.

(3)	Sums recovered

Any sums recovered by the Secretary pursuant to paragraph (2) shall be held in a special deposit account and shall be paid, on order of the Secretary, directly to each employee affected.  Any such sums not paid to an employee because of inability to do so within a period of 3 years shall be deposited into the Treasury of the United States as miscellaneous receipts.

(c)	Limitation

(1)	In general

Except as provided in paragraph (2), an action may be brought under this section not later than 2 years after the date of the last event constituting the alleged violation for which the action is brought.

(2)	Willful violation

In the case of such action brought for a willful violation of section 2615 of this title, such action may be brought within 3 years of the date of the last event constituting the alleged violation for which such action is brought.

(3)	Commencement

In determining when an action is commenced by the Secretary under this section for the purposes of this subsection, it shall be considered to be commenced on the date when the complaint is filed.

(d)	Action for injunction by Secretary

The district courts of the United States shall have jurisdiction, for cause shown, in an action brought by the Secretary

(1)	to restrain violations of section 2615 of this title, including the restraint of any withholding of payment of wages, salary, employment benefits, or other compensation, plus interest, found by the court to be due to eligible employees;  or

(2)	to award such other equitable relief as may be appropriate, including employment, reinstatement, and promotion.

(e)	Solicitor of Labor

The Solicitor of Labor may appear for and represent the Secretary on any litigation brought under this section.

 Section 2618:  Special rules concerning employees of local educational agencies

(a)	Application

(1)	In general

Except as otherwise provided in this section, the rights (including the rights under section 2614 of this title, which shall extend throughout the period of leave of any employee under this section), remedies, and procedures under this subchapter shall apply to

(A)	any "local educational agency" (as defined in section 8801 of Title 20) and an eligible employee of the agency;  and

(B)	any private elementary or secondary school and an eligible employee of the school.

(2)	Definitions

For purposes of the application described in paragraph (1):

(A)	Eligible employee

The term "eligible employee" means an eligible employee of an agency or school described in paragraph (1).

(B)	Employer

The term "employer" means an agency or school described in paragraph (1).

(b)	Leave does not violate certain other Federal laws

A local educational agency and a private elementary or secondary school shall not be in violation of the Individuals with Disabilities Education Act (20 U.S.C. 1400 et seq.), section 794 of this title, or title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.), solely as a result of an eligible employee of such agency or school exercising the rights of such employee under this subchapter.

(c)	Intermittent leave or leave on a reduced schedule for instructional employees

(1)	In general

Subject to paragraph (2), in any case in which an eligible employee employed principally in an instructional capacity by any such educational agency or school requests leave under subparagraph (C) or (D) of section 2612(a)(1) of this title that is foreseeable based on planned medical treatment and the employee would be on leave for greater than 20 percent of the total number of working days in the period during which the leave would extend, the agency or school may require that such employee elect either

(A)	to take leave for periods of a particular duration, not to exceed the duration of the planned medical treatment;  or

(B)	to transfer temporarily to an available alternative position offered by the employer for which the employee is qualified, and that

(i)	has equivalent pay and benefits;  and

(ii)	better accommodates recurring periods of leave than the regular employment position of the employee.

(2)	Application

The elections described in subparagraphs (A) and (B) of paragraph (1) shall apply only with respect to an eligible employee who complies with section 2612(e)(2) of this title.

(d)	Rules applicable to periods near the conclusion of academic term

The following rules shall apply with respect to periods of leave near the conclusion of an academic term in the case of any eligible employee employed principally in an instructional capacity by any such educational agency or school:

(1)	Leave more than 5 weeks prior to end of term

If the eligible employee begins leave under section 2612 of this title more than 5 weeks prior to the end of the academic term, the agency or school may require the employee to continue taking leave until the end of such term, if

(A)	the leave is of at least 3 weeks duration;  and

(B)	the return to employment would occur during the 3week period before the end of such term.

(2)	Leave less than 5 weeks prior to end of term

If the eligible employee begins leave under subparagraph (A), (B), or (C) of section 2612(a)(1) of this title during the period that commences 5 weeks prior to the end of the academic term, the agency or school may require the employee to continue taking leave until the end of such term, if

(A)	the leave is of greater than 2 weeks duration;  and

(B)	the return to employment would occur during the 2week period before the end of such term.

(3)	Leave less than 3 weeks prior to end of term

If the eligible employee begins leave under subparagraph (A), (B), or (C) of section 2612(a)(1) of this title during the period that commences 3 weeks prior to the end of the academic term and the duration of the leave is greater than 5 working days, the agency or school may require the employee to continue to take leave until the end of such term.

(e)	Restoration to equivalent employment position

For purposes of determinations under section 2614(a)(1)(B) of this title  (relating to the restoration of an eligible employee to an equivalent position), in the case of a local educational agency or a private elementary or secondary school, such determination shall be made on the basis of established school board policies and practices, private school policies and practices, and collective bargaining agreements.

(f)	Reduction of amount of liability

If a local educational agency or a private elementary or secondary school that has violated this subchapter proves to the satisfaction of the court that the agency, school, or department had reasonable grounds for believing that the underlying act or omission was not a violation of this subchapter, such court may, in the discretion of the court, reduce the amount of the liability provided for under section 2617(a)(1)(A) of this title to the amount and interest determined under clauses (i) and (ii), respectively, of such section.

 Section 2619:  Notice

(a)	In general

Each employer shall post and keep posted, in conspicuous places on the premises of the employer where notices to employees and applicants for employment are customarily posted, a notice, to be prepared or approved by the Secretary, setting forth excerpts from, or summaries of, the pertinent provisions of this subchapter and information pertaining to the filing of a charge.

(b)	Penalty

Any employer that willfully violates this section may be assessed a civil money penalty not to exceed $100 for each separate offense.

 Section 2631:  Establishment

There is established a commission to be known as the Commission on Leave  (referred to in this subchapter as the "Commission").

 Section 2632:  Duties

The Commission shall

(1)	conduct a comprehensive study of

(A)	existing and proposed mandatory and voluntary policies relating to family and temporary medical leave, including policies provided by employers not covered under this Act;

(B)	the potential costs, benefits, and impact on productivity, job creation and business growth of such policies on employers and employees;

(C)	possible differences in costs, benefits, and impact on productivity, job creation and business growth of such policies on employers based on business type and size;

(D)	the impact of family and medical leave policies on the availability of employee benefits provided by employers, including employers not covered under this Act;

(E)	alternate and equivalent State enforcement of subchapter I with respect to employees described in section 2618(a) of this title;

(F)	methods used by employers to reduce administrative costs of implementing family and medical leave policies;

(G)	the ability of the employers to recover, under section 2614(c)(2) of this title, the premiums described in such section;  and

(H)	the impact on employers and employees of policies that provide temporary wage replacement during periods of family and medical leave.

(2)	not later than 2 years after the date on which the Commission first meets, prepare and submit, to the appropriate Committees of Congress, a report concerning the subjects listed in paragraph (1).

 Section 2633:  Membership

(a)	Composition

(1)	Appointments

The Commission shall be composed of 12 voting members and 4 ex officio members to be appointed not later than 60 days after February 5, 1993, as follows:

(A)	Senators

One Senator shall be appointed by the Majority Leader of the Senate, and one Senator shall be appointed by the Minority Leader of the Senate.

(B)	Members of House of Representatives

One Member of the House of Representatives shall be appointed by the Speaker of the House of Representatives, and one Member of the House of Representatives shall be appointed by the Minority Leader of the House of Representatives.

(C)	Additional members

(i)	Appointment

Two members each shall be appointed by

(I)	the Speaker of the House of Representatives;

(II)	the Majority Leader of the Senate;

(III)	the Minority Leader of the House of Representatives;  and

(IV)	the Minority Leader of the Senate.

(ii)	Expertise

Such members shall be appointed by virtue of demonstrated expertise in relevant family, temporary disability, and labor management issues.  Such members shall include representatives of employers, including employers from large businesses and from small businesses.

(2)	Ex officio members

The Secretary of Health and Human Services, the Secretary of Labor, the Secretary of Commerce, and the Administrator of the Small Business Administration shall serve on the Commission as nonvoting ex officio members.

(b)	Vacancies

Any vacancy on the Commission shall be filled in the manner in which the original appointment was made.  The vacancy shall not affect the power of the remaining members to execute the duties of the Commission.

(c)	Chairperson and vice chairperson

The Commission shall elect a chairperson and a vice chairperson from among the members of the Commission.

(d)	Quorum

Eight members of the Commission shall constitute a quorum for all purposes, except that a lesser number may constitute a quorum for the purpose of holding hearings.

 Section 2634:  Compensation

(a)	Pay

Members of the Commission shall serve without compensation.

(b)	Travel expenses

Members of the Commission shall be allowed reasonable travel expenses, including a per diem allowance, in accordance with section 5703 of Title 5 when performing duties of the Commission.

 Section 2635:  Powers

(a)	Meetings

The Commission shall first meet not later than 30 days after the date on which all members are appointed, and the Commission shall meet thereafter on the call of the chairperson or a majority of the members.

(b)	Hearings and sessions

The Commission may hold such hearings, sit and act at such times and places, take such testimony, and receive such evidence as the Commission considers appropriate.  The Commission may administer oaths or affirmations to witnesses appearing before it.

(c)	Access to information

The Commission may secure directly from any Federal agency information necessary to enable it to carry out this subchapter, if the information may be disclosed under section 552 of Title 5.  Subject to the previous sentence, on the request of the chairperson or vice chairperson of the Commission, the head of such agency shall furnish such information to the Commission.

(d)	Use of facilities and services

Upon the request of the Commission, the head of any Federal agency may make available to the Commission any of the facilities and services of such agency.

(e)	Personnel from other agencies

On the request of the Commission, the head of any Federal agency may detail any of the personnel of such agency to serve as an Executive Director of the Commission or assist the Commission in carrying out the duties of the Commission.  Any detail shall not interrupt or otherwise affect the civil service status or privileges of the Federal employee.

(f)	Voluntary service

Notwithstanding section 1342 of Title 31, the chairperson of the Commission may accept for the Commission voluntary services provided by a member of the Commission.

 Section 2636:  Termination

The Commission shall terminate 30 days after the date of the submission of the report of the Commission to Congress.

 Section 2651:  Effect on other laws

(a)	Federal and State antidiscrimination laws

Nothing in this Act or any amendment made by this Act shall be construed to modify or affect any Federal or State law prohibiting discrimination on the basis of race, religion, color, national origin, sex, age, or disability.

(b)	State and local laws

Nothing in this Act or any amendment made by this Act shall be construed to supersede any provision of any State or local law that provides greater family or medical leave rights than the rights established under this Act or any amendment made by this Act.

 Section 2652:  Effect on existing employment benefits

(a)	More protective

Nothing in this Act or any amendment made by this Act shall be construed to diminish the obligation of an employer to comply with any collective bargaining agreement or any employment benefit program or plan that provides greater family or medical leave rights to employees than the rights established under this Act or any amendment made by this Act.

(b)	Less protective

The rights established for employees under this Act or any amendment made by this Act shall not be diminished by any collective bargaining agreement or any employment benefit program or plan.

 Section 2653:  Encouragement of more generous leave policies

Nothing in this Act or any amendment made by this Act shall be construed to discourage employers from adopting or retaining leave policies more generous than any policies that comply with the requirements under this Act or any amendment made by this Act.

 Section 2654:  Regulations

The Secretary of Labor shall prescribe such regulations as are necessary to carry out subchapter I of this chapter and this subchapter not later than 120 days after February 5, 1993.

 Section 2613:  Certification

(a)	In general

An employer may require that a request for leave under subparagraph (C) or (D) of section 2612(a)(1) of this title be supported by a certification issued by the health care provider of the eligible employee or of the son, daughter, spouse, or parent of the employee, as appropriate.  The employee shall provide, in a timely manner, a copy of such certification to the employer.

(b)	Sufficient certification

Certification provided under subsection (a) of this section shall be sufficient if it states

(1)	the date on which the serious health condition commenced;

(2)	the probable duration of the condition;

(3)	the appropriate medical facts within the knowledge of the health care provider regarding the condition;

(4)(A)	for purposes of leave under section 2612(a)(1)(C) of this title, a statement that the eligible employee is needed to care for the son, daughter, spouse, or parent and an estimate of the amount of time that such employee is needed to care for the son, daughter, spouse, or parent;  and

(B)	for purposes of leave under section 2612(a)(1)(D) of this title, a statement that the employee is unable to perform the functions of the position of the employee;

(5)	in the case of certification for intermittent leave, or leave on a reduced leave schedule, for planned medical treatment, the dates on which such treatment is expected to be given and the duration of such treatment;

(6)	in the case of certification for intermittent leave, or leave on a reduced leave schedule, under section 2612(a)(1)(D) of this title, a statement of the medical necessity for the intermittent leave or leave on a reduced leave schedule, and the expected duration of the intermittent leave or reduced  leave schedule;  and

(7)	in the case of certification for intermittent leave, or leave on a reduced leave schedule, under section 2612(a)(1)(C) of this title, a statement that the employee's intermittent leave or leave on a reduced leave schedule is necessary for the care of the son, daughter, parent, or spouse who has a serious health condition, or will assist in their recovery, and the expected duration and schedule of the intermittent leave or reduced leave schedule.

(c)	Second opinion

(1)	In general

In any case in which the employer has reason to doubt the validity of the certification provided under subsection (a) of this section for leave under subparagraph (C) or (D) of section 2612(a)(1) of this title, the employer may require, at the expense of the employer, that the eligible employee obtain the opinion of a second health care provider designated or approved by the employer concerning any information certified under subsection (b) of this section for such leave.

(2)	Limitation

A health care provider designated or approved under paragraph (1) shall not be employed on a regular basis by the employer.

(d)	Resolution of conflicting opinions

(1)	In general

In any case in which the second opinion described in subsection (c) of this section differs from the opinion in the original certification provided under subsection (a) of this section, the employer may require, at the expense of the employer, that the employee obtain the opinion of a third health care provider designated or approved jointly by the employer and the employee concerning the information certified under subsection (b) of this section.

(2)	Finality

The opinion of the third health care provider concerning the information certified under subsection (b) of this section shall be considered to be final and shall be binding on the employer and the employee.

(e)	Subsequent recertification

The employer may require that the eligible employee obtain subsequent recertifications on a reasonable basis.


Fair Labor Standards Act

29 U.S.C. Sections 201 - 219

 Section 201: Short title

 This chapter may be cited as the "Fair Labor Standards Act of 1938".

 Section 202: Congressional finding and declaration of policy

 (a) The Congress finds that the existence, in industries engaged in commerce or in the production of goods for commerce, of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general wellbeing of workers (1) causes commerce and the channels and instrumentalities of commerce to be used to spread and perpetuate such labor conditions among the workers of the several States;  (2) burdens commerce and the free flow of goods in commerce;  (3) constitutes an unfair method of competition in commerce;  (4) leads to labor disputes burdening and obstructing commerce and the free flow of goods in commerce;  and (5) interferes with the orderly and fair marketing of goods in commerce.  That Congress further finds that the employment of persons in domestic service in households affects commerce.

 (b) It is declared to be the policy of this chapter, through the exercise by Congress of its power to regulate commerce among the several States and with foreign nations, to correct and as rapidly as practicable to eliminate the conditions above referred to in such industries without substantially curtailing employment or earning power.

 Section 203: Definitions

 As used in this chapter

  (a) "Person" means an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons.

  (b) "Commerce" means trade, commerce, transportation, transmission, or communication among the several States or between any State and any place outside thereof.

  (c) "State" means any State of the United States or the District of Columbia or any Territory or possession of the United States.

  (d) "Employer" includes any person acting directly or indirectly in the interest of an employer in relation to an employee and includes a public agency, but does not include any labor organization (other than when acting as  an employer) or anyone acting in the capacity of officer or agent of such labor organization.

  (e)(1) Except as provided in paragraphs (2), (3), and (4) the term "employee" means any individual employed by an employer.

  (2) In the case of an individual employed by a public agency, such term means

   (A) any individual employed by the Government of the United States

    (i) as a civilian in the military departments (as defined in section 102 of Title 5),

    (ii) in any executive agency (as defined in section 105 of such title),

    (iii) in any unit of the judicial branch of the Government which has positions in the competitive service,

    (iv) in a nonappropriated fund instrumentality under the jurisdiction of the Armed Forces,

    (v) in the Library of Congress, or

    (vi) the Government Printing Office;

   (B) any individual employed by the United States Postal Service or the Postal Rate Commission;  and

   (C) any individual employed by a State, political subdivision of a State, or an interstate governmental agency, other than such an individual

    (i) who is not subject to the civil service laws of the State, political subdivision, or agency which employs him;  and

    (ii) who

(I) holds a public elective office of that State, political subdivision, or agency,

(II) is selected by the holder of such an office to be a member of his personal staff,

(III) is appointed by such an officeholder to serve on a policymaking level,

(IV) is an immediate adviser to such an officeholder with respect to the constitutional or legal powers of his office, or

(V) is an employee in the legislative branch or legislative body of that State, political subdivision, or agency and is not employed by the legislative library of such State, political subdivision, or agency.

  (3) For purposes of subsection (u) of this section, such term does not include any individual employed by an employer engaged in agriculture if such individual is the parent, spouse, child, or other member of the employer's immediate family.

  (4)(A) The term "employee" does not include any individual who volunteers to perform services for a public agency which is a State, a political subdivision  of a State, or an interstate governmental agency, if

   (i) the individual receives no compensation or is paid expenses, reasonable benefits, or a nominal fee to perform the services for which the individual volunteered;  and

   (ii) such services are not the same type of services which the individual is employed to perform for such public agency.

  (B) An employee of a public agency which is a State, political subdivision of a State, or an interstate governmental agency may volunteer to perform services for any other State, political subdivision, or interstate governmental agency, including a State, political subdivision or agency with which the employing State, political subdivision, or agency has a mutual aid agreement.

  (f) "Agriculture" includes farming in all its branches and among other things includes the cultivation and tillage of the soil, dairying, the production, cultivation, growing, and harvesting of any agricultural or horticultural commodities (including commodities defined as agricultural commodities in section 1141j(g) of Title 12), the raising of livestock, bees, furbearing animals, or poultry, and any practices (including any forestry or lumbering operations) performed by a farmer or on a farm as an incident to or in conjunction with such farming operations, including preparation for market,  delivery to storage or to market or to carriers for transportation to market.

  (g) "Employ" includes to suffer or permit to work.

  (h) "Industry" means a trade, business, industry, or other activity, or branch or group thereof, in which individuals are gainfully employed.

  (i) "Goods" means goods (including ships and marine equipment), wares, products, commodities, merchandise, or articles or subjects of commerce of any character, or any part or ingredient thereof, but does not include goods after their delivery into the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer, or processor thereof.

  (j) "Produced" means produced, manufactured, mined, handled, or in any other manner worked on in any State;  and for the purposes of this chapter an employee shall be deemed to have been engaged in the production of goods if such employee was employed in producing, manufacturing, mining, handling, transporting, or in any other manner working on such goods, or in any closely related process or occupation directly essential to the production thereof, in any State.

  (k) "Sale" or "sell" includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.

  (l) "Oppressive child labor" means a condition of employment under which (1) any employee under the age of sixteen years is employed by an employer (other  than a parent or a person standing in place of a parent employing his own child or a child in his custody under the age of sixteen years in an occupation other than manufacturing or mining or an occupation found by the Secretary of Labor to be particularly hazardous for the employment of children between the ages of sixteen and eighteen years or detrimental to their health or wellbeing) in any occupation, or (2) any employee between the ages of sixteen and eighteen years is employed by an employer in any occupation which the Secretary of Labor shall find and by order declare to be particularly hazardous for the employment of children between such ages or detrimental to their health or wellbeing;  but oppressive child labor shall not be deemed to exist by virtue of the employment in any occupation of any person with respect to whom the employer shall have on file an unexpired certificate issued and held pursuant to regulations of the Secretary of Labor certifying that such person is above the oppressive childlabor age.  The Secretary of Labor shall provide by regulation or by order that the employment of employees between the ages of fourteen and sixteen years in occupations other than manufacturing and mining shall not be deemed to constitute oppressive child labor if and to the extent that the Secretary of Labor determines that such employment is confined to periods which will not interfere with their schooling and to conditions which will not interfere with their health and wellbeing.

  (m) "Wage" paid to any employee includes the reasonable cost, as determined by the Administrator, to the employer of furnishing such employee with board, lodging, or other facilities, if such board, lodging, or other facilities are customarily furnished by such employer to his employees:  Provided, That the cost of board, lodging, or other facilities shall not be included as a part of the wage paid to any employee to the extent it is excluded therefrom under the terms of a bona fide collectivebargaining agreement applicable to the particular employee:  Provided further, That the Secretary is authorized to determine the fair value of such board, lodging, or other facilities for defined classes of employees and in defined areas, based on average cost to the employer or to groups of employers similarly situated, or average value to groups of employees, or other appropriate measures of fair value.  Such evaluations, where applicable and pertinent, shall be used in lieu of actual measure of cost in determining the wage paid to any employee.  In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee's employer shall be an amount equal to

   (1) the cash wage paid such employee which for purposes of such determination shall be not less than the cash wage required to be paid such an employee on August 20, 1996;  and

   (2) an additional amount on account of the tips received by such employee   which amount is equal to the difference between the wage specified in paragraph (1) and the wage in effect under section 206(a)(1) of this title.

The additional amount on account of tips may not exceed the value of the tips actually received by an employee.  The preceding 2 sentences shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the provisions of this subsection, and all tips received by such employee have been retained by the employee, except that this subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips.

  (n) "Resale" shall not include the sale of goods to be used in residential or farm building construction, repair, or maintenance:  Provided, That the sale is recognized as a bona fide retail sale in the industry.

  (o) Hours Worked.In determining for the purposes of sections 206 and 207 of this title the hours for which an employee is employed, there shall be excluded any time spent in changing clothes or washing at the beginning or end of each workday which was excluded from measured working time during the week involved by the express terms of or by custom or practice under a bona fide collectivebargaining agreement applicable to the particular employee.

  (p) "American vessel" includes any vessel which is documented or numbered  under the laws of the United States.

  (q) "Secretary" means the Secretary of Labor.

  (r)(1) "Enterprise" means the related activities performed (either through unified operation or common control) by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments or by one or more corporate or other organizational units including departments of an establishment operated through leasing arrangements, but shall not include the related activities performed for such enterprise by an independent contractor.  Within the meaning of this subsection, a retail or service establishment which is under independent ownership shall not be deemed to be so operated or controlled as to be other than a separate and distinct enterprise by reason of any arrangement, which includes, but is not necessarily limited to, an agreement (A) that it will sell, or sell only, certain goods specified by a particular manufacturer, distributor, or advertiser, or (B) that it will join with other such establishments in the same industry for the purpose of collective purchasing, or (C) that it will have the exclusive right to sell the goods or use the brand name of a manufacturer, distributor, or advertiser within a specified area, or by reason of the fact that it occupies premises leased to it by a person who also leases premises to other retail or service establishments.

  (2) For purposes of paragraph (1), the activities performed by any person or persons

   (A) in connection with the operation of a hospital, an institution primarily engaged in the care of the sick, the aged, the mentally ill or defective who reside on the premises of such institution, a school for mentally or physically handicapped or gifted children, a preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such hospital, institution, or school is operated for profit or not for profit), or

   (B) in connection with the operation of a street, suburban or interurban electric railway, or local trolley or motorbus carrier, if the rates and services of such railway or carrier are subject to regulation by a State or local agency (regardless of whether or not such railway or carrier is public or private or operated for profit or not for profit), or

   (C) in connection with the activities of a public agency, shall be deemed to be activities performed for a business purpose.

  (s)(1) "Enterprise engaged in commerce or in the production of goods for commerce" means an enterprise that

   (A)(i) has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on   goods or materials that have been moved in or produced for commerce by any person;  and

   (ii) is an enterprise whose annual gross volume of sales made or business done is not less than $500,000 (exclusive of excise taxes at the retail level that are separately stated);

   (B) is engaged in the operation of a hospital, an institution primarily engaged in the care of the sick, the aged, or the mentally ill or defective who reside on the premises of such institution, a school for mentally or physically handicapped or gifted children, a preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such hospital, institution, or school is public or private or operated for profit or not for profit);  or

   (C) is an activity of a public agency.

  (2) Any establishment that has as its only regular employees the owner thereof or the parent, spouse, child or other member of the immediate family of such owner shall not be considered to be an enterprise engaged in commerce or in the production of goods for commerce or a part of such an enterprise. The sales of such an establishment shall not be included for the purpose of determining the annual gross volume of sales of any enterprise for the purpose of this subsection.

  (t) "Tipped employee" means any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.

  (u) "Manday" means any day during which an employee performs any agricultural labor for not less than one hour.

  (v) "Elementary school" means a day or residential school which provides elementary education, as determined under State law.

  (w) "Secondary school" means a day or residential school which provides secondary education, as determined under State law.

  (x) "Public agency" means the Government of the United States;  the government of a State or political subdivision thereof;  any agency of the United States (including the United States Postal Service and Postal Rate Commission), a State, or a political subdivision of a State;  or any interstate governmental agency.

 Section 204: Administration

(a) Creation of Wage and Hour Division in Department of Labor;  Administrator

 There is created in the Department of Labor a Wage and Hour Division which shall be under the direction of an Administrator, to be known as the Administrator of the Wage and Hour Division (in this chapter referred to as the "Administrator").  The Administrator shall be appointed by the President, by and with the advice and consent of the Senate.

(b) Appointment, selection, classification, and promotion of employees by Administrator

 The Administrator may, subject to the civilservice laws, appoint such employees as he deems necessary to carry out his functions and duties under this chapter and shall fix their compensation in accordance with chapter 51 and subchapter III of chapter 53 of Title 5.  The Administrator may establish and utilize such regional, local, or other agencies, and utilize such voluntary and uncompensated services, as may from time to time be needed.  Attorneys appointed under this section may appear for and represent the Administrator in any litigation, but all such litigation shall be subject to the direction and control of the Attorney General.  In the appointment, selection, classification, and promotion of officers and employees of the Administrator, no political test or qualification shall be permitted or given consideration, but all such appointments and promotions shall be given and made on the basis of merit and efficiency.

(c) Principal office of Administrator;  jurisdiction

 The principal office of the Administrator shall be in the District of Columbia, but he or his duly authorized representative may exercise any or all of his powers in any place.

(d) Annual report to Congress;  studies of exemptions to hour and wage provisions and means to prevent curtailment of employment opportunities

 (1) The Secretary shall submit biennially in January a report to the Congress covering his activities for the preceding two years and including such information, data, and recommendations for further legislation in connection with the matters covered by this chapter as he may find advisable.  Such report shall contain an evaluation and appraisal by the Secretary of the minimum wages and overtime coverage established by this chapter, together with his recommendations to the Congress.  In making such evaluation and appraisal, the Secretary shall take into consideration any changes which may have occurred in the cost of living and in productivity and the level of wages in manufacturing, the ability of employers to absorb wage increases, and such other factors as he may deem pertinent.  Such report shall also include a summary of the special certificates issued under section 214(b) of this title.

 (2) The Secretary shall conduct studies on the justification or lack thereof for each of the special exemptions set forth in section 213 of this title, and the extent to which such exemptions apply to employees of establishments described in subsection (g) of such section and the economic effects of the application of such exemptions to such employees.  The Secretary shall submit a report of his findings and recommendations to the Congress with respect to the studies conducted under this paragraph not later than January 1, 1976.

 (3) The Secretary shall conduct a continuing study on means to prevent curtailment of employment opportunities for manpower groups which have had historically high incidences of unemployment (such as disadvantaged minorities, youth, elderly, and such other groups as the Secretary may designate).  The first report of the results of such study shall be transmitted to the Congress not later than one year after the effective date of the Fair Labor Standards Amendments of 1974.  Subsequent reports on such study shall be transmitted to the Congress at twoyear intervals after such effective date.  Each such report shall include suggestions respecting the Secretary's authority under section 214 of this title.

(e) Study of effects of foreign production on unemployment;  report to President and Congress

 Whenever the Secretary has reason to believe that in any industry under this chapter the competition of foreign producers in United States markets or in markets abroad, or both, has resulted, or is likely to result, in increased unemployment in the United States, he shall undertake an investigation to gain full information with respect to the matter.  If he determines such increased unemployment has in fact resulted, or is in fact likely to result, from such competition, he shall make a full and complete report of his findings and determinations to the President and to the Congress:  Provided, That he may also include in such report information on the increased employment resulting from additional exports in any industry under this chapter as he may determine to be pertinent to such report.

(f) Employees of Library of Congress;  administration of provisions by Office of Personnel Management

 The Secretary is authorized to enter into an agreement with the Librarian of Congress with respect to individuals employed in the Library of Congress to provide for the carrying out of the Secretary's functions under this chapter with respect to such individuals.  Notwithstanding any other provision of this chapter, or any other law, the Director of the Office of Personnel Management is authorized to administer the provisions of this chapter with respect to any individual employed by the United States (other than an individual employed in the Library of Congress, United States Postal Service, Postal Rate Commission, or the Tennessee Valley Authority).  Nothing in this subsection shall be construed to affect the right of an employee to bring an action for unpaid minimum wages, or unpaid overtime compensation, and liquidated damages under section 216(b) of this title.

 Section 205: Special industry committees for American Samoa

(a) Establishment;  residents as members of committees

 The Administrator shall as soon as practicable appoint a special industry committee to recommend the minimum rate or rates of wages to be paid under section 206 of this title to employees in American Samoa, engaged in commerce or in the production of goods for commerce or employed in any enterprise engaged in commerce or in the production of goods for commerce or the Administrator may appoint separate industry committees to recommend the minimum rate or rates of wages to be paid under said section to employees therein engaged in commerce or in the production of goods for commerce or employed in any enterprise engaged in commerce or in the production of goods for commerce in particular industries.  An industry committee appointed under this subsection shall be composed of residents of American Samoa where the employees with respect to whom such committee was appointed are employed and residents of the United States outside of American Samoa.  In determining the minimum rate or rates of wages to be paid, and in determining classifications, such industry committees shall be subject to the provisions of section 208 of this title.

(b) Appointment of committee without regard to other laws pertaining to the appointment and compensation of employees of United States;  composition of committees

 An industry committee shall be appointed by the Administrator without regard to any other provisions of law regarding the appointment and compensation of employees of the United States.  It shall include a number of disinterested persons representing the public, one of whom the Administrator shall designate as chairman, a like number of persons representing employees in the industry, and a like number representing employers in the industry.  In the appointment of the persons representing each group, the Administrator shall give due regard to the geographical regions in which the industry is carried on.

(c) Quorum;  compensation;  employees

 Twothirds of the members of an industry committee shall constitute a quorum, and the decision of the committee shall require a vote of not less than a majority of all its members.  Members of an industry committee shall receive as compensation for their services a reasonable per diem, which the Administrator shall by rules and regulations prescribe, for each day actually spent in the work of the committee, and shall in addition be reimbursed for their necessary traveling and other expenses.  The Administrator shall furnish the committee with adequate legal, stenographic, clerical, and other assistance, and shall by rules and regulations prescribe the procedure to be followed by the committee.

(d) Submission of data to committees

 The Administrator shall submit to an industry committee from time to time such data as he may have available on the matters referred to it, and shall cause to be brought before it in connection with such matters any witnesses whom he deems material.  An industry committee may summon other witnesses or call upon the Administrator to furnish additional information to aid it in its deliberations.

(e) Repealed.  Pub.L. 101157, § 4(a)(3), Nov. 17, 1989, 103 Stat. 939

 Section 206: Minimum wage

(a) Employees engaged in commerce;  home workers in Puerto Rico and Virgin Islands;  employees in American Samoa;  seamen on American vessels; agricultural employees

 Every employer shall pay to each of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, wages at the following rates:

  (1) except as otherwise provided in this section, not less than $4.25 an hour during the period ending on September 30, 1996, not less than $4.75 an hour  during the year beginning on October 1, 1996, and not less than $5.15 an hour beginning September 1, 1997;

  (2) if such employee is a home worker in Puerto Rico or the Virgin Islands, not less than the minimum piece rate prescribed by regulation or order;  or, if no such minimum piece rate is in effect, any piece rate adopted by such employer which shall yield, to the proportion or class of employees prescribed by regulation or order, not less than the applicable minimum hourly wage rate.  Such minimum piece rates or employer piece rates shall be commensurate with, and shall be paid in lieu of, the minimum hourly wage rate applicable under the provisions of this section.  The Administrator, or his authorized representative, shall have power to make such regulations or orders as are necessary or appropriate to carry out any of the provisions of this paragraph, including the power without limiting the generality of the foregoing, to define any operation or occupation which is performed by such home work employees in Puerto Rico or the Virgin Islands;  to establish minimum piece rates for any operation or occupation so defined;  to prescribe the method and procedure for ascertaining and promulgating minimum piece rates;  to prescribe standards for employer piece rates, including the proportion or class of employees who shall receive not less than the minimum hourly wage rate;  to define the term "home worker";  and to prescribe the conditions under which  employers, agents, contractors, and subcontractors shall cause goods to be produced by home workers;

  (3) if such employee is employed in American Samoa, in lieu of the rate or rates provided by this subsection or subsection (b) of this section, not less than the applicable rate established by the Secretary of Labor in accordance with recommendations of a special industry committee or committees which he shall appoint pursuant to sections 205 and 208 of this title.  The minimum wage rate thus established shall not exceed the rate prescribed in paragraph (1) of this subsection;

  (4) if such employee is employed as a seaman on an American vessel, not less than the rate which will provide to the employee, for the period covered by the wage payment, wages equal to compensation at the hourly rate prescribed by paragraph (1) of this subsection for all hours during such period when he was actually on duty (including periods aboard ship when the employee was on watch or was, at the direction of a superior officer, performing work or standing by, but not including offduty periods which are provided pursuant to the employment agreement);  or

  (5) if such employee is employed in agriculture, not less than the minimum wage rate in effect under paragraph (1) after December 31, 1977.

(b) Additional applicability to employees pursuant to subsequent amendatory provisions

 Every employer shall pay to each of his employees (other than an employee to whom subsection (a)(5) of this section applies) who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, and who in such workweek is brought within the purview of this section by the amendments made to this chapter by the Fair Labor Standards Amendments of 1966, title IX of the Education Amendments of 1972, or the Fair Labor Standards Amendments of 1974, wages at the following rate:  Effective after December 31, 1977, not less than the minimum wage rate in effect under subsection (a)(1) of this section.

(c) Repealed.  Pub.L. 104188, § 2104(c), Aug. 20, 1996, 110 Stat. 1929

(d) Prohibition of sex discrimination

 (1) No employer having employees subject to any provisions of this section shall discriminate, within any establishment in which such employees are employed, between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which he pays wages to employees of the opposite sex in such establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions, except where such payment is made pursuant to (i) a seniority system;  (ii) a merit system;  (iii) a system which measures earnings by quantity or quality of production;  or (iv) a differential based on any other factor other than sex:  Provided, That an employer who is paying a wage rate differential in violation of this subsection shall not, in order to comply with the provisions of this subsection, reduce the wage rate of any employee.

 (2) No labor organization, or its agents, representing employees of an employer having employees subject to any provisions of this section shall cause or attempt to cause such an employer to discriminate against an employee in violation of paragraph (1) of this subsection.

 (3) For purposes of administration and enforcement, any amounts owing to any employee which have been withheld in violation of this subsection shall be deemed to be unpaid minimum wages or unpaid overtime compensation under this chapter.

 (4) As used in this subsection, the term "labor organization" means any organization of any kind, or any agency or employee representation committee or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.

(e) Employees of employers providing contract services to United States

 (1) Notwithstanding the provisions of section 213 of this title (except subsections (a)(1) and (f) thereof), every employer providing any contract services (other than linen supply services) under a contract with the United States or any subcontract thereunder shall pay to each of his employees whose rate of pay is not governed by the Service Contract Act of 1965 or to whom subsection (a)(1) of this section is not applicable, wages at rates not less than the rates provided for in subsection (b) of this section.

 (2) Notwithstanding the provisions of section 213 of this title (except subsections (a)(1) and (f) thereof) and the provisions of the Service Contract Act of 1965, every employer in an establishment providing linen supply services to the United States under a contract with the United States or any subcontract thereunder shall pay to each of his employees in such establishment wages at rates not less than those prescribed in subsection (b) of this section, except that if more than 50 per centum of the gross annual dollar volume of sales made or business done by such establishment is derived from providing such linen supply services under any such contracts or subcontracts, such employer shall pay to each of his employees in such establishment wages at rates not less than those prescribed in subsection (a)(1) of this section.

(f) Employees in domestic service

 Any employee

  (1) who in any workweek is employed in domestic service in a household shall be paid wages at a rate not less than the wage rate in effect under subsection (b) of this section unless such employee's compensation for such service would not because of section 209(a)(6) of the Social Security Act [42 U.S.C.A. § 409(a)(6) ] constitute wages for the purposes of title II of such Act [42 U.S.C.A. § 401 et seq.], or

  (2) who in any workweek

   (A) is employed in domestic service in one or more households, and

   (B) is so employed for more than 8 hours in the aggregate,

shall be paid wages for such employment in such workweek at a rate not less than the wage rate in effect under subsection (b) of this section.

(g) Newly hired employees who are less than 20 years old

 (1) In lieu of the rate prescribed by subsection (a)(1) of this section, any employer may pay any employee of such employer, during the first 90 consecutive calendar days after such employee is initially employed by such employer, a wage which is not less than $4.25 an hour.

 (2) No employer may take any action to displace employees (including partial displacements such as reduction in hours, wages, or employment benefits) for purposes of hiring individuals at the wage authorized in paragraph (1).

 (3) Any employer who violates this subsection shall be considered to have violated section 215(a)(3) of this title.

 (4) This subsection shall only apply to an employee who has not attained the age of 20 years.

 Section 207: Maximum hours

(a) Employees engaged in interstate commerce;  additional applicability to employees pursuant to subsequent amendatory provisions

 (1) Except as otherwise provided in this section, no employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and onehalf times the regular rate at which he is employed.

 (2) No employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, and who in such workweek is brought within the purview of this subsection by the amendments made to this chapter by the Fair Labor Standards Amendments of 1966

  (A) for a workweek longer than fortyfour hours during the first year from the effective date of the Fair Labor Standards Amendments of 1966,

  (B) for a workweek longer than fortytwo hours during the second year from such date, or

  (C) for a workweek longer than forty hours after the expiration of the second year from such date,

unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and onehalf times the regular rate at which he is employed.

(b) Employment pursuant to collective bargaining agreement;  employment by independently owned and controlled local enterprise engaged in distribution of petroleum products

 No employer shall be deemed to have violated subsection (a) of this section by employing any employee for a workweek in excess of that specified in such subsection without paying the compensation for overtime employment prescribed therein if such employee is so employed

  (1) in pursuance of an agreement, made as a result of collective bargaining by representatives of employees certified as bona fide by the National Labor Relations Board, which provides that no employee shall be employed more than one thousand and forty hours during any period of twentysix consecutive weeks;  or

  (2) in pursuance of an agreement, made as a result of collective bargaining by representatives of employees certified as bona fide by the National Labor Relations Board, which provides that during a specified period of fiftytwo consecutive weeks the employee shall be employed not more than two thousand two hundred and forty hours and shall be guaranteed not less than one thousand eight hundred and fortyhours (or not less than fortysix weeks at the normal number of hours worked per week, but not less than thirty hours per week) and not more than two thousand and eighty hours of employment for which he shall receive compensation for all hours guaranteed or worked at rates not less than those applicable under the agreement to the work performed and for all hours in excess of the guaranty which are also in excess of the maximum workweek  applicable to such employee under subsection (a) of this section or two thousand and eighty in such period at rates not less than one and onehalf times the regular rate at which he is employed;  or

  (3) by an independently owned and controlled local enterprise (including an enterprise with more than one bulk storage establishment) engaged in the wholesale or bulk distribution of petroleum products if

   (A) the annual gross volume of sales of such enterprise is less than  $1,000,000 exclusive of excise taxes,

   (B) more than 75 per centum of such enterprise's annual dollar volume of sales is made within the State in which such enterprise is located, and

   (C) not more than 25 per centum of the annual dollar volume of sales of such enterprise is to customers who are engaged in the bulk distribution of such products for resale,

  and such employee receives compensation for employment in excess of forty hours in any workweek at a rate not less than one and onehalf times the minimum wage rate applicable to him under section 206 of this title,

and if such employee receives compensation for employment in excess of twelve hours in any workday, or for employment in excess of fiftysix hours in any workweek, as the case may be, at a rate not less than one and onehalf times the regular rate at which he is employed.

(c), (d) Repealed.  Pub.L. 93259, § 19(e), Apr. 8, 1974, 88 Stat. 66

(e) "Regular rate" defined

 As used in this section the "regular rate" at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee, but shall not be deemed to include

  (1) sums paid as gifts;  payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency;

  (2) payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause;  reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer's interests and properly reimbursable by the employer;  and other similar  payments to an employee which are not made as compensation for his hours of employment;

  (3) Sums paid in recognition of services performed during a given period if either, (a) both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly;  or (b) the payments are made pursuant to a bona fide profitsharing plan or trust or bona fide thrift or savings plan, meeting the requirements of the Administrator set forth in appropriate regulations which he shall issue, having due regard among other relevant factors, to the extent to which the amounts paid to the employee are determined without regard to hours of work, production, or efficiency;  or (c) the payments are talent fees (as such talent fees are defined and delimited by regulations of the Administrator) paid to performers, including announcers, on radio and television programs;

  (4) contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing oldage, retirement, life, accident, or health insurance or similar benefits for employees;

  (5) extra compensation provided by a premium rate paid for certain hours worked by the employee in any day or workweek because such hours are hours  worked in excess of eight in a day or in excess of the maximum workweek applicable to such employee under subsection (a) of this section or in excess of the employee's normal working hours or regular working hours, as the case may be;

  (6) extra compensation provided by a premium rate paid for work by the employee on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek, where such premium rate is not less than one and onehalf times the rate established in good faith for like work performed in nonovertime hours on other days;  or

  (7) extra compensation provided by a premium rate paid to the employee, in pursuance of an applicable employment contract or collectivebargaining agreement, for work outside of the hours established in good faith by the contract or agreement as the basic, normal, or regular workday (not exceeding eight hours) or workweek (not exceeding the maximum workweek applicable to such employee under subsection (a) of this section, [FN1] where such premium rate is not less than one and onehalf times the rate established in good faith by the contract or agreement for like work performed during such workday or workweek.

(f) Employment necessitating irregular hours of work

 No employer shall be deemed to have violated subsection (a) of this section by employing any employee for a workweek in excess of the maximum workweek applicable to such employee under subsection (a) of this section if such employee is employed pursuant to a bona fide individual contract, or pursuant to an agreement made as a result of collective bargaining by representatives of employees, if the duties of such employee necessitate irregular hours of work, and the contract or agreement (1) specifies a regular rate of pay of not less than the minimum hourly rate provided in subsection (a) or (b) of section 206 of this title (whichever may be applicable) and compensation at not less than one and onehalf times such rate for all hours worked in excess of such maximum workweek, and (2) provides a weekly guaranty of pay for not more than sixty hours based on the rates so specified.

(g) Employment at piece rates

 No employer shall be deemed to have violated subsection (a) of this section by employing any employee for a workweek in excess of the maximum workweek applicable to such employee under such subsection if, pursuant to an agreement or understanding arrived at between the employer and the employee before performance of the work, the amount paid to the employee for the number of hours worked by him in such workweek in excess of the maximum workweek applicable to such employee under such subsection

  (1) in the case of an employee employed at piece rates, is computed at piece rates not less than one and onehalf times the bona fide piece rates applicable to the same work when performed during nonovertime hours;  or

  (2) in the case of an employee performing two or more kinds of work for which different hourly or piece rates have been established, is computed at rates not less than one and onehalf times such bona fide rates applicable to the same work when performed during nonovertime hours;  or

  (3) is computed at a rate not less than one and onehalf times the rate established by such agreement or understanding as the basic rate to be used in computing overtime compensation thereunder:  Provided, That the rate so established shall be authorized by regulation by the Administrator as being substantially equivalent to the average hourly earnings of the employee, exclusive of overtime premiums, in the particular work over a representative period of time;

and if (i) the employee's average hourly earnings for the workweek exclusive of payments described in paragraphs (1) through (7) of subsection (e) of this section are not less than the minimum hourly rate required by applicable law, and (ii) extra overtime compensation is properly computed and paid on other forms of additional pay required to be included in computing the regular rate.

(h) Extra compensation creditable toward overtime compensation

 Extra compensation paid as described in paragraphs (5), (6), and (7) of subsection (e) of this section shall be creditable toward overtime compensation payable pursuant to this section.

(i) Employment by retail or service establishment

 No employer shall be deemed to have violated subsection (a) of this section by employing any employee of a retail or service establishment for a workweek in excess of the applicable workweek specified therein, if (1) the regular rate of pay of such employee is in excess of one and onehalf times the minimum hourly rate applicable to him under section 206 of this title, and (2) more than half his compensation for a representative period (not less than one month) represents commissions on goods or services.  In determining the proportion of compensation representing commissions, all earnings resulting from the application of a bona fide commission rate shall be deemed commissions on goods or services without regard to whether the computed commissions exceed the draw or guarantee.

(j) Employment in hospital or establishment engaged in care of sick, aged or mentally ill

 No employer engaged in the operation of a hospital or an establishment which is an institution primarily engaged in the care of the sick, the aged, or the mentally ill or defective who reside on the premises shall be deemed to have violated subsection (a) of this section if, pursuant to an agreement or understanding arrived at between the employer and the employee before performance of the work, a work period of fourteen consecutive days is accepted in lieu of the workweek of seven consecutive days for purposes of overtime computation and if, for his employment in excess of eight hours in any workday and in excess of eighty hours in such fourteenday period, the employee receives compensation at a rate not less than one and onehalf times the regular rate at which he is employed.

(k) Employment by public agency engaged in fire protection or law enforcement activities

 No public agency shall be deemed to have violated subsection (a) of this section with respect to the employment of any employee in fire protection activities or any employee in law enforcement activities (including security personnel in correctional institutions) if

  (1) in a work period of 28 consecutive days the employee receives for tours of duty which in the aggregate exceed the lesser of (A) 216 hours, or (B) the average number of hours (as determined by the Secretary pursuant to section 6(c)(3) of the Fair Labor Standards Amendments of 1974) in tours of duty of employees engaged in such activities in work periods of 28 consecutive days in calendar year 1975;  or

  (2) in the case of such an employee to whom a work period of at least 7 but less than 28 days applies, in his work period the employee receives for tours of duty which in the aggregate exceed a number of hours which bears the same ratio to the number of consecutive days in his work period as 216 hours (or if lower, the number of hours referred to in clause (B) of paragraph (1)) bears to 28 days,

compensation at a rate not less than one and onehalf times the regular rate at which he is employed.

(l) Employment in domestic service in one or more households

 No employer shall employ any employee in domestic service in one or more households for a workweek longer than forty hours unless such employee receives compensation for such employment in accordance with subsection (a) of this section.

(m) Employment in tobacco industry

 For a period or periods of not more than fourteen workweeks in the aggregate in any calendar year, any employer may employ any employee for a workweek in excess of that specified in subsection (a) of this section without paying the compensation for overtime employment prescribed in such subsection, if such employee

  (1) is employed by such employer

   (A) to provide services (including stripping and grading) necessary and incidental to the sale at auction of green leaf tobacco of type 11, 12, 13, 14, 21, 22, 23, 24, 31, 35, 36, or 37 (as such types are defined by the Secretary of Agriculture), or in auction sale, buying, handling, stemming, redrying, packing, and storing of such tobacco,

   (B) in auction sale, buying, handling, sorting, grading, packing, or storing green leaf tobacco of type 32 (as such type is defined by the Secretary of Agriculture), or

   (C) in auction sale, buying, handling, stripping, sorting, grading, sizing, packing, or stemming prior to packing, of perishable cigar leaf tobacco of type 41, 42, 43, 44, 45, 46, 51, 52, 53, 54, 55, 61, or 62 (as such types are defined by the Secretary of Agriculture);  and

  (2) receives for

   (A) such employment by such employer which is in excess of ten hours in any workday, and

   (B) such employment by such employer which is in excess of fortyeight hours in any workweek,

  compensation at a rate not less than one and onehalf times the regular rate at which he is employed.

An employer who receives an exemption under this subsection shall not be eligible for any other exemption under this section.

(n) Employment by street, suburban or interurban electric railway, or local  trolley or motorbus carrier

 In the case of an employee of an employer engaged in the business of operating a street, suburban or interurban electric railway, or local trolley or motorbus carrier (regardless of whether or not such railway or carrier is public or private or operated for profit or not for profit), in determining the hours of employment of such an employee to which the rate prescribed by subsection (a) of this section applies there shall be excluded the hours such employee was employed in charter activities by such employer if (1) the employee's employment in such activities was pursuant to an agreement or understanding with his employer arrived at before engaging in such employment, and (2) if employment in such activities is not part of such employee's regular employment.

(o) Compensatory time

 (1) Employees of a public agency which is a State, a political subdivision of a State, or an interstate governmental agency may receive, in accordance with this subsection and in lieu of overtime compensation, compensatory time off at a rate not less than one and onehalf hours for each hour of employment for which overtime compensation is required by this section.

 (2) A public agency may provide compensatory time under paragraph (1) only

  (A) pursuant to

   (i) applicable provisions of a collective bargaining agreement, memorandum of understanding, or any other agreement between the public agency and representatives of such employees;  or

   (ii) in the case of employees not covered by subclause (i), an agreement or understanding arrived at between the employer and employee before the performance of the work;  and

  (B) if the employee has not accrued compensatory time in excess of the limit applicable to the employee prescribed by paragraph (3).

In the case of employees described in clause (A)(ii) hired prior to April 15, 1986, the regular practice in effect on April 15, 1986, with respect to compensatory time off for such employees in lieu of the receipt of overtime compensation, shall constitute an agreement or understanding under such clause (A)(ii).  Except as provided in the previous sentence, the provision of compensatory time off to such employees for hours worked after April 14, 1986, shall be in accordance with this subsection.

 (3)(A) If the work of an employee for which compensatory time may be provided included work in a public safety activity, an emergency response activity, or a seasonal activity, the employee engaged in such work may accrue not more than 480 hours of compensatory time for hours worked after April 15, 1986.  If such work was any other work, the employee engaged in such work may accrue not more than 240 hours of compensatory time for hours worked after April 15, 1986.  Any such employee who, after April 15, 1986, has accrued 480 or 240 hours, as the case may be, of compensatory time off shall, for additional overtime hours of work, be paid overtime compensation.

 (B) If compensation is paid to an employee for accrued compensatory time off, such compensation shall be paid at the regular rate earned by the employee at the time the employee receives such payment.

 (4) An employee who has accrued compensatory time off authorized to be provided under paragraph (1) shall, upon termination of employment, be paid for the unused compensatory time at a rate of compensation not less than

  (A) the average regular rate received by such employee during the last 3 years of the employee's employment, or

  (B) the final regular rate received by such employee, whichever is higher   [FN2]

 (5) An employee of a public agency which is a State, political subdivision of a State, or an interstate governmental agency

  (A) who has accrued compensatory time off authorized to be provided under paragraph (1), and

  (B) who has requested the use of such compensatory time,

shall be permitted by the employee's employer to use such time within a reasonable period after making the request if the use of the compensatory time does not unduly disrupt the operations of the public agency.

 (6) The hours an employee of a public agency performs court reporting transcript preparation duties shall not be considered as hours worked for the purposes of subsection (a) of this section if

  (A) such employee is paid at a perpage rate which is not less than

   (i) the maximum rate established by State law or local ordinance for the jurisdiction of such public agency,

   (ii) the maximum rate otherwise established by a judicial or administrative officer and in effect on July 1, 1995, or

   (iii) the rate freely negotiated between the employee and the party requesting the transcript, other than the judge who presided over the proceedings being transcribed, and

  (B) the hours spent performing such duties are outside of the hours such employee performs other work (including hours for which the agency requires  the employee's attendance) pursuant to the employment relationship with such public agency.

For purposes of this section, the amount paid such employee in accordance with subparagraph (A) for the performance of court reporting transcript preparation duties, shall not be considered in the calculation of the regular rate at which such employee is employed.

 (7) For purposes of this subsection

  (A) the term "overtime compensation" means the compensation required by subsection (a), and

  (B) the terms "compensatory time" and "compensatory time off" mean hours during which an employee is not working, which are not counted as hours worked during the applicable workweek or other work period for purposes of overtime compensation, and for which the employee is compensated at the employee's regular rate.

(p) Special detail work for fire protection and law enforcement employees;  occasional or sporadic employment;  substitution

 (1) If an individual who is employed by a State, political subdivision of a State, or an interstate governmental agency in fire protection or law enforcement activities (including activities of security personnel in correctional institutions) and who, solely at such individual's option, agrees to be employed on a special detail by a separate or independent employer in fire protection, law enforcement, or related activities, the hours such individual was employed by such separate and independent employer shall be excluded by the public agency employing such individual in the calculation of the hours for which the employee is entitled to overtime compensation under this section if the public agency

  (A) requires that its employees engaged in fire protection, law enforcement, or security activities be hired by a separate and independent employer to perform the special detail,

  (B) facilitates the employment of such employees by a separate and independent employer, or

  (C) otherwise affects the condition of employment of such employees by a separate and independent employer.

 (2) If an employee of a public agency which is a State, political subdivision of a State, or an interstate governmental agency undertakes, on an occasional or sporadic basis and solely at the employee's option, parttime employment for the public agency which is in a different capacity from any capacity in which the employee is regularly employed with the public agency, the hours such employee was employed in performing the different employment shall be excluded by the public agency in the calculation of the hours for which the employee is entitled to overtime compensation under this section.

 (3) If an individual who is employed in any capacity by a public agency which is a State, political subdivision of a State, or an interstate governmental agency, agrees, with the approval of the public agency and solely at the option of such individual, to substitute during scheduled work hours for another individual who is employed by such agency in the same capacity, the hours such employee worked as a substitute shall be excluded by the public agency in the calculation of the hours for which the employee is entitled to overtime compensation under this section.

(q) Maximum hour exemption for employees receiving remedial education

 Any employer may employ any employee for a period or periods of not more than 10 hours in the aggregate in any workweek in excess of the maximum workweek specified in subsection (a) of this section without paying the compensation for overtime employment prescribed in such subsection, if during such period or periods the employee is receiving remedial education that is

  (1) provided to employees who lack a high school diploma or educational attainment at the eighth grade level;

  (2) designed to provide reading and other basic skills at an eighth grade level or below;  and

  (3) does not include job specific training.

 Section 208: Wage orders in American Samoa

(a) Congressional policy;  recommendation of wage rate by industry committee

 The policy of this chapter with respect to industries or enterprises in American Samoa engaged in commerce or in the production of goods for commerce is to reach as rapidly as is economically feasible without substantially curtailing employment the objective of the minimum wage rate which would apply in each such industry under paragraph (1) or (5) of section 206(a) of this title but for section 206(c) of this title.   The Administrator shall from time to time convene an industry committee or committees, appointed pursuant to section 205 of this title, and any such industry committee shall from time to time recommend the minimum rate or rates of wages to be paid under section 206 of this title by employers in American Samoa, engaged in commerce or in the production of goods for commerce or in any enterprise engaged in commerce or in the production of goods for commerce in any such industry or classifications therein, and who but for section 206(a)(3) of this title would be subject to the minimum wage requirements of section 206(a)(1) of this title.  Minimum rates of wages established in accordance with this section which are not equal to the otherwise applicable minimum wage rate in effect under paragraph (1) or (5) of section 206(a) of this title shall be reviewed by such a Committee once during each biennial period, beginning with the biennial period commencing July 1, 1958, except that the Secretary, in his discretion, may order an additional review during any such biennial period.

(b) Investigation of industry condition by industry committee;  matters considered

 Upon the convening of any such industry committee, the Administrator shall refer to it the question of the minimum wage rate or rates to be fixed for such industry.  The industry committee shall investigate conditions in the industry and the committee, or any authorized subcommittee thereof, shall after due notice hear such witnesses and receive such evidence as may be necessary or appropriate to enable the committee to perform its duties and functions under this chapter.  The committee shall recommend to the Administrator the highest minimum wage rates for the industry which it determines, having due regard to economic and competitive conditions, will not substantially curtail employment in the industry, and will not give any industry in American Samoa a competitive advantage over any industry in the United States outside of American Samoa; except that the committee shall recommend to the Secretary the minimum wage rate prescribed in section 206(a) or 206(b) of this title, which would be applicable but for section 206(a)(3) of this title, unless there is evidence in the record which establishes that the industry, or a predominant portion thereof, is unable to pay that wage due to such economic and competitive conditions.

(c) Classifications within industry;  recommendation of wage rate

 The industry committee shall recommend such reasonable classifications within any industry as it determines to be necessary for the purpose of fixing for each classification within such industry the highest minimum wage rate (not in excess of that in effect under paragraph (1) or (5) of section 206(a) of this title (as the case may be)) which (1) will not substantially curtail employment in such classification and (2) will not give a competitive advantage to any group in the industry, and shall recommend for each classification in the industry the highest minimum wage rate which the committee determines will not substantially curtail employment in such classification.  In determining whether such classification should be made in any industry, in making such classifications, and in determining the minimum wage rates for such classifications, no classifications shall be made, and no minimum wage rate shall be fixed, solely on a regional basis, but the industry committee shall consider among other relevant factors the following:

  (1) competitive conditions as affected by transportation, living, and production costs;

  (2) the wages established for work of like or comparable character by collective labor agreements negotiated between employers and employees by representatives of their own choosing;  and

  (3) the wages paid for work of like or comparable character by employers who voluntarily maintain minimum wage standards in the industry.

No classification shall be made under this section on the basis of age or sex.

(d) Report by industry committee;  publication in Federal Register

 The industry committee shall file with the Secretary a report containing its findings of fact and recommendations with respect to the matters referred to it.  Upon the filing of such report, the Secretary shall publish such recommendations in the Federal Register and shall provide by order that the recommendations contained in such report shall take effect upon the expiration of 15 days after the date of such publication.

(e) Orders

 Orders issued under this section shall define the industries and classifications therein to which they are to apply, and shall contain such terms and conditions as the Administrator finds necessary to carry out the purposes of such orders, to prevent the circumvention or evasion thereof, and to safeguard the minimum wage rates established therein.

(f) Due notice of hearings by publication in Federal Register

 Due notice of any hearing provided for in this section shall be given by publication in the Federal Register and by such other means as the Administrator deems reasonably calculated to give general notice to interested persons.

 Section 209: Attendance of witnesses

 For the purpose of any hearing or investigation provided for in this chapter, the provisions of sections 49 and 50 of Title 15 (relating to the attendance of witnesses and the production of books, papers, and documents), are made applicable to the jurisdiction, powers, and duties of the Administrator, the Secretary of Labor, and the industry committees.

 Section 210: Court review of wage orders in Puerto Rico and the Virgin Islands

 (a) Any person aggrieved by an order of the Secretary issued under section 208 of this title may obtain a review of such order in the United States Court of Appeals for any circuit wherein such person resides or has his principal place of business, or in the United States Court of Appeals for the District of Columbia, by filing in such court, within 60 days after the entry of such order a written petition praying that the order of the Secretary be modified or set aside in whole or in part.  A copy of such petition shall forthwith be transmitted by the clerk of the court to the Secretary, and thereupon the Secretary shall file in the court the record of the industry committee upon which the order complained of was entered, as provided in section 2112 of Title 28.  Upon the filing of such petition such court shall have exclusive jurisdiction to affirm, modify (including provision for the payment of an appropriate minimum wage rate), or set aside such order in whole or in part, so far as it is applicable to the petitioner.  The review by the court shall be limited to questions of law, and findings of fact by such industry committee when supported by substantial evidence shall be conclusive.  No objection to the order of the Secretary shall be considered by the court unless such objection shall have been urged before such industry committee or unless there were reasonable grounds for failure so to do.  If application is made to the court for leave to adduce additional evidence, and it is shown to the satisfaction of the court that such additional evidence may materially affect the result of the proceeding and that there were reasonable grounds for failure to adduce such evidence in the proceedings before such industry committee, the court may order such additional evidence to be taken before an industry committee and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper.  Such industry committee may modify the initial findings by reason of the additional evidence so taken, and shall file with the court such modified or new findings which if supported by substantial evidence shall be conclusive, and shall also file its recommendation, if any, for the modification or setting aside of the original order.  The judgment and decree of the court shall be final, subject to review by the Supreme Court of the United States upon certiorari or certification as provided in section 1254 of Title 28.

 (b) The commencement of proceedings under subsection (a) of this section shall not, unless specifically ordered by the court, operate as a stay of the Administrator's order.  The court shall not grant any stay of the order unless the person complaining of such order shall file in court an undertaking with a surety or sureties satisfactory to the court for the payment to the employees affected by the order, in the event such order is affirmed, of the amount by which the compensation such employees are entitled to receive under the order exceeds the compensation they actually receive while such stay is in effect.

 Section 211: Collection of data

(a) Investigations and inspections

 The Administrator or his designated representatives may investigate and gather data regarding the wages, hours, and other conditions and practices of employment in any industry subject to this chapter, and may enter and inspect such places and such records (and make such transcriptions thereof), question such employees, and investigate such facts, conditions, practices, or matters as he may deem necessary or appropriate to determine whether any person has violated any provision of this chapter, or which may aid in the enforcement of the provisions of this chapter.  Except as provided in section 212 of this title and in subsection (b) of this section, the Administrator shall utilize the bureaus and divisions of the Department of Labor for all the investigations and inspections necessary under this section.  Except as provided in section 212 of this title, the Administrator shall bring all actions under section 217 of this title to restrain violations of this chapter.

(b) State and local agencies and employees

 With the consent and cooperation of State agencies charged with the administration of State labor laws, the Administrator and the Secretary of Labor may, for the purpose of carrying out their respective functions and duties under this chapter, utilize the services of State and local agencies and their employees and, notwithstanding any other provision of law, may reimburse such State and local agencies and their employees for services rendered for such purposes.

(c) Records

 Every employer subject to any provision of this chapter or of any order issued under this chapter shall make, keep, and preserve such records of the persons employed by him and of the wages, hours, and other conditions and practices of employment maintained by him, and shall preserve such records for such periods of time, and shall make such reports therefrom to the Administrator as he shall prescribe by regulation or order as necessary or appropriate for the enforcement of the provisions of this chapter or the regulations or orders thereunder.  The employer of an employee who performs substitute work described in section 207(p)(3) of this title may not be required under this subsection to keep a record of the hours of the substitute work.

(d) Homework regulations

 The Administrator is authorized to make such regulations and orders regulating, restricting, or prohibiting industrial homework as are necessary or appropriate to prevent the circumvention or evasion of and to safeguard the minimum wage rate prescribed in this chapter, and all existing regulations or orders of the Administrator relating to industrial homework are continued in full force and effect.

 Section 212: Child labor provisions

(a) Restrictions on shipment of goods;  prosecution;  conviction

 No producer, manufacturer, or dealer shall ship or deliver for shipment in commerce any goods produced in an establishment situated in the United States in or about which within thirty days prior to the removal of such goods therefrom any oppressive child labor has been employed:  Provided, That any such shipment or delivery for shipment of such goods by a purchaser who acquired them in good faith in reliance on written assurance from the producer, manufacturer, or dealer that the goods were produced in compliance with the requirements of this section, and who acquired such goods for value without notice of any such violation, shall not be deemed prohibited by this subsection:  And provided further, That a prosecution and conviction of a defendant for the shipment or delivery for shipment of any goods under the conditions herein prohibited shall be a bar to any further prosecution against the same defendant for shipments or deliveries for shipment of any such goods before the beginning of said prosecution.

(b) Investigations and inspections

 The Secretary of Labor or any of his authorized representatives, shall make all investigations and inspections under section 211(a) of this title with respect to the employment of minors, and, subject to the direction and control of the Attorney General, shall bring all actions under section 217 of this title to enjoin any act or practice which is unlawful by reason of the existence of oppressive child labor, and shall administer all other provisions of this chapter relating to oppressive child labor.

(c) Oppressive child labor

 No employer shall employ any oppressive child labor in commerce or in the production of goods for commerce or in any enterprise engaged in commerce or in the production of goods for commerce.

(d) Proof of age

 In order to carry out the objectives of this section, the Secretary may by regulation require employers to obtain from any employee proof of age.

 Section 213: Exemptions

 (a) The provisions of section 206 (except subsection (d) in the case of paragraph (1) of this subsection) and section 207 of this title shall not apply with respect to

  (1) any employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools), or in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary, subject to  the provisions of subchapter II of chapter 5 of Title 5, except that an employee of a retail or service establishment shall not be excluded from the definition of employee employed in a bona fide executive or administrative capacity because of the number of hours in his workweek which he devotes to activities not directly or closely related to the performance of executive or administrative activities, if less than 40 per centum of his hours worked in the workweek are devoted to such activities);  or

  (2) Repealed.  Pub.L. 101157, § 3(c)(1), Nov. 17, 1989, 103 Stat. 939

  (3) any employee employed by an establishment which is an amusement or recreational establishment, organized camp, or religious or nonprofit educational conference center, if (A) it does not operate for more than seven months in any calendar year, or (B) during the preceding calendar year, its average receipts for any six months of such year were not more than 33 1/3 per centum of its average receipts for the other six months of such year, except that the exemption from sections 206 and 207 of this title provided by this paragraph does not apply with respect to any employee of a private entity engaged in providing services or facilities (other than, in the case of the exemption from section 206 of this title, a private entity engaged in providing services and facilities directly related to skiing) in a national park or a national forest, or on land in the National Wildlife Refuge System,  under a contract with the Secretary of the Interior or the Secretary of Agriculture;  or

  (4) Repealed.  Pub.L. 101157, § 3(c)(1), Nov. 17, 1989, 103 Stat. 939

  (5) any employee employed in the catching, taking, propagating, harvesting, cultivating, or farming of any kind of fish, shellfish, crustacea, sponges, seaweeds, or other aquatic forms of animal and vegetable life, or in the first processing, canning or packing such marine products at sea as an incident to, or in conjunction with, such fishing operations, including the going to and returning from work and loading and unloading when performed by any such employee;  or

  (6) any employee employed in agriculture (A) if such employee is employed by an employer who did not, during any calendar quarter during the preceding calendar year, use more than five hundred mandays of agricultural labor, (B) if such employee is the parent, spouse, child, or other member of his employer's immediate family, (C) if such employee (i) is employed as a hand harvest laborer and is paid on a piece rate basis in an operation which has been, and is customarily and generally recognized as having been, paid on a piece rate basis in the region of employment, (ii) commutes daily from his permanent residence to the farm on which he is so employed, and (iii) has been employed in agriculture less than thirteen weeks during the preceding calendar  year, (D) if such employee (other than an employee described in clause (C) of this subsection) (i) is sixteen years of age or under and is employed as a hand harvest laborer, is paid on a piece rate basis in an operation which has been, and is customarily and generally recognized as having been, paid on a piece rate basis in the region of employment, (ii) is employed on the same farm as his parent or person standing in the place of his parent, and (iii) is paid at the same piece rate as employees over age sixteen are paid on the same farm, or (E) if such employee is principally engaged in the range production of livestock;  or

  (7) any employee to the extent that such employee is exempted by regulations, order, or certificate of the Secretary issued under section 214 of this title;  or

  (8) any employee employed in connection with the publication of any weekly, semiweekly, or daily newspaper with a circulation of less than four thousand the major part of which circulation is within the county where published or counties contiguous thereto;  or

  (9) Repealed.  Pub.L. 93259, § 23(a)(1), Apr. 8, 1974, 88 Stat. 69

  (10) any switchboard operator employed by an independently owned public telephone company which has not more than seven hundred and fifty stations; or

  (11) Repealed.  Pub.L. 93259, § 10(a), Apr. 8, 1974, 88 Stat. 63

  (12) any employee employed as a seaman on a vessel other than an American vessel;  or

  (13), (14) Repealed.  Pub.L. 93259, §§ 9(b)(1), 23(b)(1), Apr. 8, 1974, 88 Stat. 63, 69

  (15) any employee employed on a casual basis in domestic service employment to provide babysitting services or any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves (as such terms are defined and delimited by regulations of the Secretary);  or

  (16) a criminal investigator who is paid availability pay under section 5545a of Title 5;  or

  (17) any employee who is a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker, whose primary duty is

   (A) the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;

   (B) the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

   (C) the design, documentation, testing, creation, or modification of computer programs related to machine operating systems;  or

   (D) a combination of duties described in subparagraphs (A), (B), and (C) the performance of which requires the same level of skills, and

  who, in the case of an employee who is compensated on an hourly basis, is compensated at a rate of not less than $27.63 an hour.

  (18) Repealed. Pub.L. 89601, § 204(a), Sept. 23, 1966, 80 Stat. 834, 835

  (19) Repealed. Pub.L. 89601, § 209(a), Sept. 23, 1966, 80 Stat. 836

  (20) Repealed. Pub.L. 89601, § 210(a), Sept. 23, 1966, 80 Stat. 837

  (21) Redesignated (14)

  (22) Repealed. Pub.L. 89601, § 204(a), Sept. 23, 1966, 80 Stat. 835

 (b) The provisions of section 207 of this title shall not apply with respect to

  (1) any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of Title 49;  or

  (2) any employee of an employer engaged in the operation of a rail carrier subject to part A of subtitle IV of Title 49;  or

  (3) any employee of a carrier by air subject to the provisions of title II  of the Railway Labor Act [45 U.S.C.A. § 181 et seq.];  or

  (4) Repealed.  Pub.L. 93259, § 11(c), Apr. 8, 1974, 88 Stat. 64

  (5) any individual employed as an outside buyer of poultry, eggs, cream, or milk, in their raw or natural state;  or

  (6) any employee employed as a seaman;  or

  (7) Repealed.  Pub.L. 93259, § 21(b)(3), Apr. 8, 1974, 88 Stat. 68

  (8) Repealed.  Pub.L. 95151, § 14(b), Nov. 1, 1977, 91 Stat. 1252

  (9) any employee employed as an announcer, news editor, or chief engineer by a radio or television station the major studio of which is located (A) in a city or town of one hundred thousand population or less, according to the latest available decennial census figures as compiled by the Bureau of the Census, except where such city or town is part of a standard metropolitan statistical area, as defined and designated by the Office of Management and Budget, which has a total population in excess of one hundred thousand, or (B) in a city or town of twentyfive thousand population or less, which is part of such an area but is at least 40 airline miles from the principal city in such area;  or

  (10)(A) any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling  such vehicles or implements to ultimate purchasers;  or

  (B) any salesman primarily engaged in selling trailers, boats, or aircraft, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling trailers, boats, or aircraft to ultimate purchasers;  or

  (11) any employee employed as a driver or driver's helper making local deliveries, who is compensated for such employment on the basis of trip rates, or other delivery payment plan, if the Secretary shall find that such plan has the general purpose and effect of reducing hours worked by such employees to, or below, the maximum workweek applicable to them under section 207(a) of this title;  or

  (12) any employee employed in agriculture or in connection with the operation or maintenance of ditches, canals, reservoirs, or waterways, not owned or operated for profit, or operated on a sharecrop basis, and which are used exclusively for supply and storing of water for agricultural purposes;  or

  (13) any employee with respect to his employment in agriculture by a farmer, notwithstanding other employment of such employee in connection with livestock auction operations in which such farmer is engaged as an adjunct to the raising of livestock, either on his own account or in conjunction with other farmers, if such employee (A) is primarily employed during his workweek in agriculture by such farmer, and (B) is paid for his employment in connection  with such livestock auction operations at a wage rate not less than that prescribed by section 206(a)(1) of this title;  or

  (14) any employee employed within the area of production (as defined by the Secretary) by an establishment commonly recognized as a country elevator, including such an establishment which sells products and services used in the operation of a farm, if no more than five employees are employed in the establishment in such operations;  or

  (15) any employee engaged in the processing of maple sap into sugar (other than refined sugar) or syrup;  or

  (16) any employee engaged (A) in the transportation and preparation for transportation of fruits or vegetables, whether or not performed by the farmer, from the farm to a place of first processing or first marketing within the same State, or (B) in transportation, whether or not performed by the farmer, between the farm and any point within the same State of persons employed or to be employed in the harvesting of fruits or vegetables;  or

  (17) any driver employed by an employer engaged in the business of operating taxicabs;  or

  (18) Repealed.  Pub.L. 93259, § 15(c), Apr. 8, 1974, 88 Stat. 65

  (19) Repealed.  Pub.L. 93259, § 16(b), Apr. 8, 1974, 88 Stat. 65

  (20) any employee of a public agency who in any workweek is employed in fire  protection activities or any employee of a public agency who in any workweek is employed in law enforcement activities (including security personnel in correctional institutions), if the public agency employs during the workweek less than 5 employees in fire protection or law enforcement activities, as the case may be;  or

  (21) any employee who is employed in domestic service in a household and who resides in such household;  or

  (22) Repealed.  Pub.L. 95151, § 5, Nov. 1, 1977, 91 Stat. 1249

  (23) Repealed.  Pub.L. 93259, § 10(b)(3), Apr. 8, 1974, 88 Stat. 64

  (24) any employee who is employed with his spouse by a nonprofit educational institution to serve as the parents of children

   (A) who are orphans or one of whose natural parents is deceased, or

   (B) who are enrolled in such institution and reside in residential facilities of the institution,

  while such children are in residence at such institution, if such employee and his spouse reside in such facilities, receive, without cost, board and lodging from such institution, and are together compensated, on a cash basis, at an annual rate of not less than $10,000;  or

  (25) Repealed.  Pub.L. 95151, § 6(a), Nov. 1, 1977, 91 Stat. 1249

  (26) Repealed.  Pub.L. 95151, § 7(a), Nov. 1, 1977, 91 Stat. 1250

  (27) any employee employed by an establishment which is a motion picture theater;  or

  (28) any employee employed in planting or tending trees, cruising, surveying, or felling timber, or in preparing or transporting logs or other forestry products to the mill, processing plant, railroad, or other transportation terminal, if the number of employees employed by his employer in such forestry or lumbering operations does not exceed eight;

  (29) any employee of an amusement or recreational establishment located in a national park or national forest or on land in the National Wildlife Refuge System if such employee (A) is an employee of a private entity engaged in providing services or facilities in a national park or national forest, or on land in the National Wildlife Refuge System, under a contract with the Secretary of the Interior or the Secretary of Agriculture, and (B) receives compensation for employment in excess of fiftysix hours in any workweek at a rate not less than one and onehalf times the regular rate at which he is employed;  or

  (30) a criminal investigator who is paid availability pay under section 5545a of Title 5.

 (c)(1) Except as provided in paragraph (2) or (4), the provisions of section 212 of this title relating to child labor shall not apply to any employee employed in agriculture outside of school hours for the school district where such employee is living while he is so employed, if such employee

  (A) is less than twelve years of age and (i) is employed by his parent, or by a person standing in the place of his parent, on a farm owned or operated by such parent or person, or (ii) is employed, with the consent of his parent or person standing in the place of his parent, on a farm, none of the employees of which are (because of subsection (a)(6)(A) of this section) required to be paid at the wage rate prescribed by section 206(a)(5) of this title,

  (B) is twelve years or thirteen years of age and (i) such employment is with the consent of his parent or person standing in the place of his parent, or (ii) his parent or such person is employed on the same farm as such employee, or

  (C) is fourteen years of age or older.

 (2) The provisions of section 212 of this title relating to child labor shall apply to an employee below the age of sixteen employed in agriculture in an occupation that the Secretary of Labor finds and declares to be particularly hazardous for the employment of children below the age of sixteen, except where such employee is employed by his parent or by a person standing in the place of his parent on a farm owned or operated by such parent or person.

 (3) The provisions of section 212 of this title relating to child labor shall not apply to any child employed as an actor or performer in motion pictures or theatrical productions, or in radio or television productions.

 (4)(A) An employer or group of employers may apply to the Secretary for a waiver of the application of section 212 of this title to the employment for not more than eight weeks in any calendar year of individuals who are less than twelve years of age, but not less than ten years of age, as hand harvest laborers in an agricultural operation which has been, and is customarily and generally recognized as being, paid on a piece rate basis in the region in which such individuals would be employed.  The Secretary may not grant such a waiver unless he finds, based on objective data submitted by the applicant, that

  (i) the crop to be harvested is one with a particularly short harvesting season and the application of section 212 of this title would cause severe economic disruption in the industry of the employer or group of employers applying for the waiver;

  (ii) the employment of the individuals to whom the waiver would apply would not be deleterious to their health or wellbeing;

  (iii) the level and type of pesticides and other chemicals used would not have an adverse effect on the health or wellbeing of the individuals to whom  the waiver would apply;

  (iv) individuals age twelve and above are not available for such employment;  and

  (v) the industry of such employer or group of employers has traditionally and substantially employed individuals under twelve years of age without displacing substantial job opportunities for individuals over sixteen years of age.

 (B) Any waiver granted by the Secretary under subparagraph (A) shall require that

  (i) the individuals employed under such waiver be employed outside of school hours for the school district where they are living while so employed;

  (ii) such individuals while so employed commute daily from their permanent residence to the farm on which they are so employed;  and

  (iii) such individuals be employed under such waiver (I) for not more than eight weeks between June 1 and October 15 of any calendar year, and (II) in accordance with such other terms and conditions as the Secretary shall prescribe for such individuals' protection.

 (5)(A) In the administration and enforcement of the child labor provisions of this chapter, employees who are 16 and 17 years of age shall be permitted to load materials into, but not operate or unload materials from, scrap paper balers and paper box compactors

  (i) that are safe for 16 and 17yearold employees loading the scrap paper balers or paper box compactors;  and

  (ii) that cannot be operated while being loaded.

 (B) For purposes of subparagraph (A), scrap paper balers and paper box compactors shall be considered safe for 16 or 17yearold employees to load only if

  (i)(I) the scrap paper balers and paper box compactors meet the American National Standards Institute's Standard ANSI Z245.51990 for scrap paper balers and Standard ANSI Z245.21992 for paper box compactors;  or

  (II) the scrap paper balers and paper box compactors meet an applicable standard that is adopted by the American National Standards Institute after August 6, 1996, and that is certified by the Secretary to be at least as protective of the safety of minors as the standard described in subclause (I);

  (ii) the scrap paper balers and paper box compactors include an onoff switch incorporating a keylock or other system and the control of the system is maintained in the custody of employees who are 18 years of age or older;

  (iii) the onoff switch of the scrap paper balers and paper box compactors is maintained in an off position when the scrap paper balers and paper box compactors are not in operation;  and

  (iv) the employer of 16 and 17yearold employees provides notice, and posts a notice, on the scrap paper balers and paper box compactors stating that

   (I) the scrap paper balers and paper box compactors meet the applicable standard described in clause (i);

   (II) 16 and 17yearold employees may only load the scrap paper balers and paper box compactors;  and

   (III) any employee under the age of 18 may not operate or unload the scrap paper balers and paper box compactors.

The Secretary shall publish in the Federal Register a standard that is adopted by the American National Standards Institute for scrap paper balers or paper box compactors and certified by the Secretary to be protective of the safety of minors under clause (i)(II).

 (C)(i) Employers shall prepare and submit to the Secretary reports

  (I) on any injury to an employee under the age of 18 that requires medical treatment (other than first aid) resulting from the employee's contact with a scrap paper baler or paper box compactor during the loading, operation, or unloading of the baler or compactor;  and

  (II) on any fatality of an employee under the age of 18 resulting from the employee's contact with a scrap paper baler or paper box compactor during the  loading, operation, or unloading of the baler or compactor.

 (ii) The reports described in clause (i) shall be used by the Secretary to determine whether or not the implementation of subparagraph (A) has had any effect on the safety of children.

 (iii) The reports described in clause (i) shall provide

  (I) the name, telephone number, and address of the employer and the address of the place of employment where the incident occurred;

  (II) the name, telephone number, and address of the employee who suffered an injury or death as a result of the incident;

  (III) the date of the incident;

  (IV) a description of the injury and a narrative describing how the incident occurred;  and

  (V) the name of the manufacturer and the model number of the scrap paper baler or paper box compactor involved in the incident.

 (iv) The reports described in clause (i) shall be submitted to the Secretary promptly, but not later than 10 days after the date on which an incident relating to an injury or death occurred.

 (v) The Secretary may not rely solely on the reports described in clause (i) as the basis for making a determination that any of the employers described in clause (i) has violated a provision of section 212 of this title relating to oppressive child labor or a regulation or order issued pursuant to section 212 of this title.  The Secretary shall, prior to making such a determination, conduct an investigation and inspection in accordance with section 212(b) of this title.

 (vi) The reporting requirements of this subparagraph shall expire 2 years after August, 6 1996.

 (d) The provisions of sections 206, 207, and 212 of this title shall not apply with respect to any employee engaged in the delivery of newspapers to the consumer or to any homeworker engaged in the making of wreaths composed principally of natural holly, pine, cedar, or other evergreens (including the harvesting of the evergreens or other forest products used in making such wreaths).

 (e) The provisions of section 207 of this title shall not apply with respect to employees for whom the Secretary of Labor is authorized to establish minimum wage rates as provided in section 206(a)(3) of this title, except with respect to employees for whom such rates are in effect;  and with respect to such employees the Secretary may make rules and regulations providing reasonable limitations and allowing reasonable variations, tolerances, and exemptions to and from any or all of the provisions of section 207 of this title if he shall find, after a public hearing on the matter, and taking into account the factor set forth in section 206(a)(3) of this title, that economic conditions warrant such action.

 (f) The provisions of sections 206, 207, 211 and 212 of this title shall not apply with respect to any employee whose services during the workweek are performed in a workplace within a foreign country or within territory under the jurisdiction of the United States other than the following:  a State of the United States;  the District of Columbia;  Puerto Rico;  the Virgin Islands; outer Continental Shelf lands defined in the Outer Continental Shelf Lands Act (ch. 345, 67 Stat. 462) [43 U.S.C.A. § 1331 et seq.];  American Samoa; Guam;  Wake Island;  Eniwetok Atoll;  Kwajalein Atoll;  and Johnston Island.

 (g) The exemption from section 206 of this title provided by paragraph (6) of subsection (a) of this section shall not apply with respect to any employee employed by an establishment (1) which controls, is controlled by, or is under common control with, another establishment the activities of which are not related for a common business purpose to, but materially support the activities of the establishment employing such employee;  and (2) whose annual gross volume of sales made or business done, when combined with the annual gross volume of sales made or business done by each establishment which controls, is controlled by, or is under common control with, the establishment employing such employee, exceeds $10,000,000 (exclusive of excise taxes at the retail level which are separately stated).

 (h) The provisions of section 207 of this title shall not apply for a period or periods of not more than fourteen workweeks in the aggregate in any calendar year to any employee who

  (1) is employed by such employer

   (A) exclusively to provide services necessary and incidental to the ginning of cotton in an establishment primarily engaged in the ginning of cotton;

   (B) exclusively to provide services necessary and incidental to the receiving, handling, and storing of raw cotton and the compressing of raw cotton when performed at a cotton warehouse or compresswarehouse facility, other than one operated in conjunction with a cotton mill, primarily engaged in storing and compressing;

   (C) exclusively to provide services necessary and incidental to the receiving, handling, storing, and processing of cottonseed in an establishment primarily engaged in the receiving, handling, storing, and processing of cottonseed;  or

   (D) exclusively to provide services necessary and incidental to the processing of sugar cane or sugar beets in an establishment primarily engaged in the processing of sugar cane or sugar beets;  and

  (2) receives for

   (A) such employment by such employer which is in excess of ten hours in any workday, and

   (B) such employment by such employer which is in excess of fortyeight hours in any workweek,

  compensation at a rate not less than one and onehalf times the regular rate at which he is employed.

Any employer who receives an exemption under this subsection shall not be eligible for any other exemption under this section or section 207 of this title.

 (i) The provisions of section 207 of this title shall not apply for a period or periods of not more than fourteen workweeks in the aggregate in any period of fiftytwo consecutive weeks to any employee who

  (1) is engaged in the ginning of cotton for market in any place of employment located in a county where cotton is grown in commercial quantities;  and

  (2) receives for any such employment during such workweeks

   (A) in excess of ten hours in any workday, and

   (B) in excess of fortyeight hours in any workweek,

  compensation at a rate not less than one and onehalf times the regular rate at which he is employed.  No week included in any fiftytwo week period for purposes of the preceding sentence may be included for such purposes in any other fiftytwo week period.

 (j) The provisions of section 207 of this title shall not apply for a period or periods of not more than fourteen workweeks in the aggregate in any period of fiftytwo consecutive weeks to any employee who

  (1) is engaged in the processing of sugar beets, sugar beet molasses, or sugar cane into sugar (other than refined sugar) or syrup;  and

  (2) receives for any such employment during such workweeks

   (A) in excess of ten hours in any workday, and

   (B) in excess of fortyeight hours in any workweek,

  compensation at a rate not less than one and onehalf times the regular rate at which he is employed.  No week included in any fiftytwo week period for purposes of the preceding sentence may be included for such purposes in any other fiftytwo week period.

 § 214: Employment under special certificates

(a) Learners, apprentices, messengers

 The Secretary, to the extent necessary in order to prevent curtailment of opportunities for employment, shall by regulations or by orders provide for the employment of learners, of apprentices, and of messengers employed primarily in delivering letters and messages, under special certificates issued pursuant to regulations of the Secretary, at such wages lower than the minimum wage applicable under section 206 of this title and subject to such limitations as to time, number, proportion, and length of service as the Secretary shall prescribe.

(b) Students

 (1)(A) The Secretary, to the extent necessary in order to prevent curtailment of opportunities for employment, shall by special certificate issued under a regulation or order provide, in accordance with subparagraph (B), for the employment, at a wage rate not less than 85 per centum of the otherwise applicable wage rate in effect under section 206 of this title or not less than $1.60 an hour, whichever is the higher, of fulltime students (regardless of age but in compliance with applicable child labor laws) in retail or service establishments.

 (B) Except as provided in paragraph (4)(B), during any month in which full time students are to be employed in any retail or service establishment under certificates issued under this subsection the proportion of student hours of employment to the total hours of employment of all employees in such establishment may not exceed

  (i) in the case of a retail or service establishment whose employees (other than employees engaged in commerce or in the production of goods for commerce) were covered by this chapter before the effective date of the Fair Labor Standards Amendments of 1974

   (I) the proportion of student hours of employment to the total hours of employment of all employees in such establishment for the corresponding month of the immediately preceding twelvemonth period,

   (II) the maximum proportion for any corresponding month of student hours of employment to the total hours of employment of all employees in such establishment applicable to the issuance of certificates under this section at any time before the effective date of the Fair Labor Standards Amendments of 1974 for the employment of students by such employer, or

   (III) a proportion equal to onetenth of the total hours of employment of all employees in such establishment,

  whichever is greater;

  (ii) in the case of retail or service establishment whose employees (other than employees engaged in commerce or in the production of goods for commerce) are covered for the first time on or after the effective date of the Fair Labor Standards Amendments of 1974

   (I) the proportion of hours of employment of students in such establishment to the total hours of employment of all employees in such establishment for the corresponding month of the twelvemonth period immediately prior to the effective date of such Amendments,

   (II) the proportion of student hours of employment to the total hours of employment of all employees in such establishment for the corresponding month of the immediately preceding twelvemonth period, or

   (III) a proportion equal to onetenth of the total hours of employment of all employees in such establishment,

  whichever is greater;  or

  (iii) in the case of a retail or service establishment for which records of student hours worked are not available, the proportion of student hours of employment to the total hours of employment of all employees based on the practice during the immediately preceding twelvemonth period in (I) similar establishments of the same employer in the same general metropolitan area in which such establishment is located, (II) similar establishments of the same or nearby communities if such establishment is not in a metropolitan area, or (III) other establishments of the same general character operating in the community or the nearest comparable community.

For purpose of clauses (i), (ii), and (iii) of this subparagraph, the term  "student hours of employment" means hours during which students are employed in a retail or service establishment under certificates issued under this subsection.

 (2) The Secretary, to the extent necessary in order to prevent curtailment of opportunities for employment, shall by special certificate issued under a regulation or order provide for the employment, at a wage rate not less than 85 per centum of the wage rate in effect under section 206(a)(5) of this title or not less than $1.30 an hour, whichever is the higher, of fulltime students (regardless of age but in compliance with applicable child labor laws) in any occupation in agriculture.

 (3) The Secretary, to the extent necessary in order to prevent curtailment of opportunities for employment, shall by special certificate issued under a regulation or order provide for the employment by an institution of higher education, at a wage rate not less than 85 per centum of the otherwise applicable wage rate in effect under section 206 of this title or not less than $1.60 an hour, whichever is the higher, of fulltime students (regardless of age but in compliance with applicable child labor laws) who are enrolled in such institution.  The Secretary shall by regulation prescribe standards and requirements to insure that this paragraph will not create a substantial probability of reducing the fulltime employment opportunities of persons other than those to whom the minimum wage rate authorized by this paragraph is applicable.

 (4)(A) A special certificate issued under paragraph (1), (2), or (3) shall provide that the student or students for whom it is issued shall, except during vacation periods, be employed on a parttime basis and not in excess of twenty hours in any workweek.

 (B) If the issuance of a special certificate under paragraph (1) or (2) for an employer will cause the number of students employed by such employer under special certificates issued under this subsection to exceed six, the Secretary may not issue such a special certificate for the employment of a student by such employer unless the Secretary finds employment of such student will not create a substantial probability of reducing the fulltime employment opportunities of persons other than those employed under special certificates issued under this subsection.  If the issuance of a special certificate under paragraph (1) or (2) for an employer will not cause the number of students employed by such employer under special certificates issued under this subsection to exceed six

  (i) the Secretary may issue a special certificate under paragraph (1) or (2) for the employment of a student by such employer if such employer certifies to the Secretary that the employment of such student will not reduce the full time employment opportunities of persons other than those employed under special certificates issued under this subsection, and

  (ii) in the case of an employer which is a retail or service establishment, subparagraph (B) of paragraph (1) shall not apply with respect to the issuance of special certificates for such employer under such paragraph.

The requirement of this subparagraph shall not apply in the case of the issuance of special certificates under paragraph (3) for the employment of fulltime students by institutions of higher education;  except that if the Secretary determines that an institution of higher education is employing students under certificates issued under paragraph (3) but in violation of the requirements of that paragraph or of regulations issued thereunder, the requirements of this subparagraph shall apply with respect to the issuance of special certificates under paragraph (3) for the employment of students by such institution.

 (C) No special certificate may be issued under this subsection unless the employer for whom the certificate is to be issued provides evidence satisfactory to the Secretary of the student status of the employees to be employed under such special certificate.

 (D) To minimize paperwork for, and to encourage, small businesses to employ students under special certificates issued under paragraphs (1) and (2), the Secretary shall, by regulation or order, prescribe a simplified application form to be used by employers in applying for such a certificate for the employment of not more than six fulltime students.  Such an application shall require only

  (i) a listing of the name, address, and business of the applicant employer,

  (ii) a listing of the date the applicant began business, and

  (iii) the certification that the employment of such fulltime students will not reduce the fulltime employment opportunities of persons other than persons employed under special certificates.

(c) Handicapped workers

 (1) The Secretary, to the extent necessary to prevent curtailment of opportunities for employment, shall by regulation or order provide for the employment, under special certificates, of individuals (including individuals employed in agriculture) whose earning or productive capacity is impaired by age, physical or mental deficiency, or injury, at wages which are

  (A) lower than the minimum wage applicable under section 206 of this title,

  (B) commensurate with those paid to nonhandicapped workers, employed in the vicinity in which the individuals under the certificates are employed, for essentially the same type, quality, and quantity of work, and

  (C) related to the individual's productivity.

 (2) The Secretary shall not issue a certificate under paragraph (1) unless the employer provides written assurances to the Secretary that

  (A) in the case of individuals paid on an hourly rate basis, wages paid in accordance with paragraph (1) will be reviewed by the employer at periodic intervals at least once every six months, and

  (B) wages paid in accordance with paragraph (1) will be adjusted by the employer at periodic intervals, at least once each year, to reflect changes in the prevailing wage paid to experienced nonhandicapped individuals employed in the locality for essentially the same type of work.

 (3) Notwithstanding paragraph (1), no employer shall be permitted to reduce the hourly wage rate prescribed by certificate under this subsection in effect on June 1, 1986, of any handicapped individual for a period of two years from such date without prior authorization of the Secretary.

 (4) Nothing in this subsection shall be construed to prohibit an employer from maintaining or establishing work activities centers to provide therapeutic activities for handicapped clients.

 (5)(A) Notwithstanding any other provision of this subsection, any employee receiving a special minimum wage at a rate specified pursuant to this subsection or the parent or guardian of such an employee may petition the Secretary to obtain a review of such special minimum wage rate.  An employee or the employee's parent or guardian may file such a petition for and in behalf of the employee or in behalf of the employee and other employees similarly situated.  No employee may be a party to any such action unless the employee or the employee's parent or guardian gives consent in writing to become such a party and such consent is filed with the Secretary.

 (B) Upon receipt of a petition filed in accordance with subparagraph (A), the Secretary within ten days shall assign the petition to an administrative law judge appointed pursuant to section 3105 of Title 5.  The administrative law judge shall conduct a hearing on the record in accordance with section 554 of Title 5 with respect to such petition within thirty days after assignment.

 (C) In any such proceeding, the employer shall have the burden of demonstrating that the special minimum wage rate is justified as necessary in order to prevent curtailment of opportunities for employment.

 (D) In determining whether any special minimum wage rate is justified pursuant to subparagraph (C), the administrative law judge shall consider

  (i) the productivity of the employee or employees identified in the petition and the conditions under which such productivity was measured;  and

  (ii) the productivity of other employees performing work of essentially the same type and quality for other employers in the same vicinity.

 (E) The administrative law judge shall issue a decision within thirty days after the hearing provided for in subparagraph (B).  Such action shall be deemed to be a final agency action unless within thirty days the Secretary grants a request to review the decision of the administrative law judge. Either the petitioner or the employer may request review by the Secretary within fifteen days of the date of issuance of the decision by the administrative law judge.

 (F) The Secretary, within thirty days after receiving a request for review, shall review the record and either adopt the decision of the administrative law judge or issue exceptions.  The decision of the administrative law judge, together with any exceptions, shall be deemed to be a final agency action.

 (G) A final agency action shall be subject to judicial review pursuant to chapter 7 of Title 5.  An action seeking such review shall be brought within thirty days of a final agency action described in subparagraph (F).

(d) Employment by schools

 The Secretary may by regulation or order provide that sections 206 and 207 of this title shall not apply with respect to the employment by any elementary or secondary school of its students if such employment constitutes, as determined under regulations prescribed by the Secretary, an integral part of the regular education program provided by such school and such employment is in accordance with applicable child labor laws.

 Section 215: Prohibited acts;  prima facie evidence

 (a) After the expiration of one hundred and twenty days from June 25, 1938, it shall be unlawful for any person

  (1) to transport, offer for transportation, ship, deliver, or sell in commerce, or to ship, deliver, or sell with knowledge that shipment or delivery or sale thereof in commerce is intended, any goods in the production of which any employee was employed in violation of section 206 or section 207 of this title, or in violation of any regulation or order of the Secretary issued under section 214 of this title;  except that no provision of this chapter shall impose any liability upon any common carrier for the transportation in commerce in the regular course of its business of any goods not produced by such common carrier, and no provision of this chapter shall  excuse any common carrier from its obligation to accept any goods for transportation;  and except that any such transportation, offer, shipment, delivery, or sale of such goods by a purchaser who acquired them in good faith in reliance on written assurance from the producer that the goods were produced in compliance with the requirements of this chapter, and who acquired such goods for value without notice of any such violation, shall not be deemed unlawful;

  (2) to violate any of the provisions of section 206 or section 207 of this title, or any of the provisions of any regulation or order of the Secretary issued under section 214 of this title;

  (3) to discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to this chapter, or has testified or is about to testify in any such proceeding, or has served or is about to serve on an industry committee;

  (4) to violate any of the provisions of section 212 of this title;

  (5) to violate any of the provisions of section 211(c) of this title, or any regulation or order made or continued in effect under the provisions of section 211(d) of this title, or to make any statement, report, or record filed or kept pursuant to the provisions of such section or of any regulation  or order thereunder, knowing such statement, report, or record to be false in a material respect.

 (b) For the purposes of subsection (a)(1) of this section proof that any employee was employed in any place of employment where goods shipped or sold in commerce were produced, within ninety days prior to the removal of the goods from such place of employment, shall be prima facie evidence that such employee was engaged in the production of such goods.

 Section 216: Penalties

(a) Fines and imprisonment

 Any person who willfully violates any of the provisions of section 215 of this title shall upon conviction thereof be subject to a fine of not more than $10,000, or to imprisonment for not more than six months, or both.  No person shall be imprisoned under this subsection except for an offense committed after the conviction of such person for a prior offense under this subsection.

(b) Damages;  right of action;  attorney's fees and costs;  termination of right of action

 Any employer who violates the provisions of section 206 or section 207 of this title shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages.  Any employer who violates the provisions of section 215(a)(3) of this title shall be liable for such legal or equitable relief as may be appropriate to effectuate the purposes of section 215(a)(3) of this title, including without limitation employment, reinstatement, promotion, and the payment of wages lost and an additional equal amount as liquidated damages.  An action to recover the liability prescribed in either of the preceding sentences may be maintained against any employer (including a public agency) in any Federal or State court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.  No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.  The court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney's fee to be paid by the defendant, and costs of the action.  The right provided by this subsection to bring an action by or on behalf of any employee, and the right of any employee to become a party plaintiff to any such action, shall terminate upon the filing of a complaint by the Secretary of Labor in an action under section 217 of this title in which (1) restraint is sought of any further delay in the payment of unpaid minimum wages, or the amount of unpaid overtime compensation, as the case may be, owing to such employee under section 206 or section 207 of this title by an employer liable therefor under the provisions of this subsection or (2) legal or equitable relief is sought as a result of alleged violations of section 215(a)(3) of this title.

(c) Payment of wages and compensation;  waiver of claims;  actions by the Secretary;  limitation of actions

 The Secretary is authorized to supervise the payment of the unpaid minimum wages or the unpaid overtime compensation owing to any employee or employees under section 206 or section 207 of this title, and the agreement of any employee to accept such payment shall upon payment in full constitute a waiver by such employee of any right he may have under subsection (b) of this section to such unpaid minimum wages or unpaid overtime compensation and an additional equal amount as liquidated damages.  The Secretary may bring an action in any court of competent jurisdiction to recover the amount of unpaid minimum wages or overtime compensation and an equal amount as liquidated damages.  The right provided by subsection (b) of this section to bring an action by or on behalf of any employee to recover the liability specified in the first sentence of such subsection and of any employee to become a party plaintiff to any such action shall terminate upon the filing of a complaint by the Secretary in an action under this subsection in which a recovery is sought of unpaid minimum wages or unpaid overtime compensation under sections 206 and 207 of this title or liquidated or other damages provided by this subsection owing to such employee by an employer liable under the provisions of subsection (b) of this section, unless such action is dismissed without prejudice on motion of the Secretary.  Any sums thus recovered by the Secretary of Labor on behalf of an employee pursuant to this subsection shall be held in a special deposit account and shall be paid, on order of the Secretary of Labor, directly to the employee or employees affected.  Any such sums not paid to an employee because of inability to do so within a period of three years shall be covered into the Treasury of the United States as miscellaneous receipts.  In determining when an action is commenced by the Secretary of Labor under this subsection for the purposes of the statutes of limitations provided in section 255(a) of this title, it shall be considered to be commenced in the case of any individual claimant on the date when the complaint is filed if he is specifically named as a party plaintiff in the complaint, or if his name did not so appear, on the subsequent date on which his name is added as a party plaintiff in such action.

(d) Savings provisions

 In any action or proceeding commenced prior to, on, or after Aug. 8, 1956, no employer shall be subject to any liability or punishment under this chapter or the PortaltoPortal Act of 1947 [29 U.S.C.A. § 251 et seq.] on account of his failure to comply with any provision or provisions of this chapter or such Act (1) with respect to work heretofore or hereafter performed in a workplace to which the exemption in section 213(f) of this title is applicable, (2) with respect to work performed in Guam, the Canal Zone or Wake Island before the effective date of this amendment of subsection (d), or (3) with respect to work performed in a possession named in section 206(a)(3) of this title at any time prior to the establishment by the Secretary, as provided therein, of a minimum wage rate applicable to such work.

(e) Civil penalties for child labor violations

 Any person who violates the provisions of section 212 or section 213(c)(5) of this title, relating to child labor, or any regulation issued under section 212 or section 213(c)(5) of this title, shall be subject to a civil penalty of not to exceed $10,000 for each employee who was the subject of such a violation. Any person who repeatedly or willfully violates section 206 or 207 of this title shall be subject to a civil penalty of not to exceed $1,000 for each such violation.  In determining the amount of any penalty under this subsection, the appropriateness of such penalty to the size of the business of the person charged and the gravity of the violation shall be considered.  The amount of any penalty under this subsection, when finally determined, may be

  (1) deducted from any sums owing by the United States to the person charged;

  (2) recovered in a civil action brought by the Secretary in any court of competent jurisdiction, in which litigation the Secretary shall be represented by the Solicitor of Labor;  or

  (3) ordered by the court, in an action brought for a violation of section 215(a)(4) of this title or a repeated or willful violation of section 215(a)(2) of this title, to be paid to the Secretary.

Any administrative determination by the Secretary of the amount of any penalty under this subsection shall be final, unless within fifteen days after receipt of notice thereof by certified mail the person charged with the violation takes exception to the determination that the violations for which the penalty is imposed occurred, in which event final determination of the penalty shall be made in an administrative proceeding after opportunity for hearing in accordance with section 554 of Title 5, and regulations to be promulgated by the Secretary.  Except for civil penalties collected for violations of section 212 of this title, sums collected as penalties pursuant to this section shall be applied toward reimbursement of the costs of determining the violations and assessing and collecting such penalties, in accordance with the provisions of section 9a of this title.  Civil penalties collected for violations of section 212 of this title shall be deposited in the general fund of the Treasury.

 Section 216a: Repealed.

 Section 216b: Liability for overtime work performed prior to July 20, 1949

 No employer shall be subject to any liability or punishment under this chapter (in any action or proceeding commenced prior to or on or after January 24, 1950), on account of the failure of said employer to pay an employee compensation for any period of overtime work performed prior to July 20, 1949, if the compensation paid prior to July 20, 1949, for such work was at least equal to the compensation which would have been payable for such work had subsections (d)(6), (7) and (g) of section 207 of this title been in effect at the time of such payment.

 Section 217: Injunction proceedings

 The district courts, together with the United States District Court for the District of the Canal Zone, the District Court of the Virgin Islands, and the District Court of Guam shall have jurisdiction, for cause shown, to restrain violations of section 215 of this title, including in the case of violations of section 215(a)(2) of this title the restraint of any withholding of payment of minimum wages or overtime compensation found by the court to be due to employees under this chapter (except sums which employees are barred from recovering, at the time of the commencement of the action to restrain the violations, by virtue of the provisions of section 255 of this title).

 Section 218: Relation to other laws

 (a) No provision of this chapter or of any order thereunder shall excuse noncompliance with any Federal or State law or municipal ordinance establishing a minimum wage higher than the minimum wage established under this chapter or a maximum workweek lower than the maximum workweek established under this chapter, and no provision of this chapter relating to the employment of child labor shall justify noncompliance with any Federal or State law or municipal ordinance establishing a higher standard than the standard established under this chapter.  No provision of this chapter shall justify any employer in reducing a wage paid by him which is in excess of the applicable minimum wage under this chapter, or justify any employer in increasing hours of employment maintained by him which are shorter than the maximum hours applicable under this chapter.

 (b) Notwithstanding any other provision of this chapter (other than section 213(f) of this title) or any other law

  (1) any Federal employee in the Canal Zone engaged in employment of the kind described in section 5102(c)(7) of Title 5, or

  (2) any employee employed in a nonappropriated fund instrumentality under the jurisdiction of the Armed Forces,

shall have his basic compensation fixed or adjusted at a wage rate that is not less than the appropriate wage rate provided for in section 206(a)(1) of this title (except that the wage rate provided for in section 206(b) of this title shall apply to any employee who performed services during the workweek in a work place within the Canal Zone), and shall have his overtime compensation set at an hourly rate not less than the overtime rate provided for in section 207(a)(1) of this title.

 Section 219: Separability

 If any provision of this chapter or the application of such provision to any person or circumstance is held invalid, the remainder of this chapter and the application of such provision to other persons or circumstances shall not be affected thereby.


Freedom of Information Act

5 U.S.C. Sections 551-552

&

Executive Order No. 12600

 5 U.S.C. Section 551:

For the purpose of this subchapter

  (1) "agency" means each authority of the Government of the United States, whether or not it is within or subject to review by another agency, but does not include

   (A) the Congress;

   (B) the courts of the United States;

   (C) the governments of the territories or possessions of the United States;

   (D) the government of the District of Columbia;

  or except as to the requirements of section 552 of this title

   (E) agencies composed of representatives of the parties or of representatives of organizations of the parties to the disputes determined by them;

   (F) courts martial and military commissions;

   (G) military authority exercised in the field in time of war or in occupied territory;  or

   (H) functions conferred by sections 1738, 1739, 1743, and 1744 of title 12;  chapter 2 of title 41;  subchapter II of chapter 471 of title 49;  or sections 1884, 18911902, and former section 1641(b)(2), of title 50, appendix;

  (2) "person" includes an individual, partnership, corporation, association, or public or private organization other than an agency;

  (3) "party" includes a person or agency named or admitted as a party, or properly seeking and entitled as of right to be admitted as a party, in an agency proceeding, and a person or agency admitted by an agency as a party for limited purposes;

  (4) "rule" means the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency and includes the approval or prescription for the future of rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services or allowances therefor or of valuations, costs, or accounting, or practices bearing on any of the foregoing;

  (5) "rule making" means agency process for formulating, amending, or repealing a rule;

  (6) "order" means the whole or a part of a final disposition, whether affirmative, negative, injunctive, or declaratory in form, of an agency in a matter other than rule making but including licensing;

  (7) "adjudication" means agency process for the formulation of an order;

  (8) "license" includes the whole or a part of an agency permit, certificate, approval, registration, charter, membership, statutory exemption or other form of permission;

  (9) "licensing" includes agency process respecting the grant, renewal, denial, revocation, suspension, annulment, withdrawal, limitation, amendment, modification, or conditioning of a license;

  (10) "sanction" includes the whole or a part of an agency

   (A) prohibition, requirement, limitation, or other condition affecting the freedom of a person;

   (B) withholding of relief;

   (C) imposition of penalty or fine;

   (D) destruction, taking, seizure, or withholding of property;

   (E) assessment of damages, reimbursement, restitution, compensation, costs, charges, or fees;

   (F) requirement, revocation, or suspension of a license;  or

   (G) taking other compulsory or restrictive action;

  (11) "relief" includes the whole or a part of an agency

   (A) grant of money, assistance, license, authority, exemption, exception, privilege, or remedy;

   (B) recognition of a claim, right, immunity, privilege, exemption, or   exception;  or

   (C) taking of other action on the application or petition of, and beneficial to, a person;

  (12) "agency proceeding" means an agency process as defined by paragraphs  (5), (7), and (9) of this section;

  (13) "agency action" includes the whole or a part of an agency rule, order, license, sanction, relief, or the equivalent or denial thereof, or failure to act;  and

  (14) "ex parte communication" means an oral or written communication not on the public record with respect to which reasonable prior notice to all parties is not given, but it shall not include requests for status reports on any matter or proceeding covered by this subchapter.

 5 U.S.C. Section 552:

 (a) Each agency shall make available to the public information as follows:

 (1) Each agency shall separately state and currently publish in the Federal Register for the guidance of the public

  (A) descriptions of its central and field organization and the established places at which, the employees (and in the case of a uniformed service, the members) from whom, and the methods whereby, the public may obtain information, make submittals or requests, or obtain decisions;

  (B) statements of the general course and method by which its functions are channeled and determined, including the nature and requirements of all formal and informal procedures available;

  (C) rules of procedure, descriptions of forms available or the places at which forms may be obtained, and instructions as to the scope and contents of all papers, reports, or examinations;

  (D) substantive rules of general applicability adopted as authorized by law, and statements of general policy or interpretations of general applicability formulated and adopted by the agency;  and

  (E) each amendment, revision, or repeal of the foregoing.

Except to the extent that a person has actual and timely notice of the terms thereof, a person may not in any manner be required to resort to, or be adversely affected by, a matter required to be published in the Federal Register and not so published.  For the purpose of this paragraph, matter reasonably available to the class of persons affected thereby is deemed published in the Federal Register when incorporated by reference therein with the approval of the Director of the Federal Register.

 (2) Each agency, in accordance with published rules, shall make available for public inspection and copying

  (A) final opinions, including concurring and dissenting opinions, as well as orders, made in the adjudication of cases;

  (B) those statements of policy and interpretations which have been adopted by the agency and are not published in the Federal Register;  and

  (C) administrative staff manuals and instructions to staff that affect a member of the public;

unless the materials are promptly published and copies offered for sale.  To the extent required to prevent a clearly unwarranted invasion of personal privacy, an agency may delete identifying details when it makes available or publishes an opinion, statement of policy, interpretation, or staff manual or instruction.  However, in each case the justification for the deletion shall be explained fully in writing.  Each agency shall also maintain and make available for public inspection and copying current indexes providing identifying information for the public as to any matter issued, adopted, or promulgated after July 4, 1967, and required by this paragraph to be made available or published.  Each agency shall promptly publish, quarterly or more frequently, and distribute (by sale or otherwise) copies of each index or supplements thereto unless it determines by order published in the Federal Register that the publication would be unnecessary and impracticable, in which case the agency shall nonetheless provide copies of such index on request at a cost not to exceed the direct cost of duplication.  A final order, opinion, statement of policy, interpretation, or staff manual or instruction that affects a member of the public may be relied on, used, or cited as precedent by an agency against a party other than an agency only if

  (i) it has been indexed and either made available or published as provided by this paragraph;  or

  (ii) the party has actual and timely notice of the terms thereof.

 (3) Except with respect to the records made available under paragraphs (1) and (2) of this subsection, each agency, upon any request for records which (A) reasonably describes such records and (B) is made in accordance with published rules stating the time, place, fees (if any), and procedures to be followed, shall make the records promptly available to any person.

 (4)(A)(i) In order to carry out the provisions of this section, each agency shall promulgate regulations, pursuant to notice and receipt of public comment, specifying the schedule of fees applicable to the processing of requests under this section and establishing procedures and guidelines for determining when such fees should be waived or reduced.  Such schedule shall conform to the guidelines which shall be promulgated, pursuant to notice and receipt of public comment, by the Director of the Office of Management and Budget and which shall provide for a uniform schedule of fees for all agencies.

 (ii) Such agency regulations shall provide that

  (I) fees shall be limited to reasonable standard charges for document search, duplication, and review, when records are requested for commercial use;

  (II) fees shall be limited to reasonable standard charges for document duplication when records are not sought for commercial use and the request is made by an educational or noncommercial scientific institution, whose purpose is scholarly or scientific research;  or a representative of the news media; and

  (III) for any request not described in (I) or (II), fees shall be limited to reasonable standard charges for document search and duplication.

 (iii) Documents shall be furnished without any charge or at a charge reduced below the fees established under clause (ii) if disclosure of the information is in the public interest because it is likely to contribute significantly to public understanding of the operations or activities of the government and is not primarily in the commercial interest of the requester.

 (iv) Fee schedules shall provide for the recovery of only the direct costs of search, duplication, or review.  Review costs shall include only the direct costs incurred during the initial examination of a document for the purposes of determining whether the documents must be disclosed under this section and for the purposes of withholding any portions exempt from disclosure under this section.  Review costs may not include any costs incurred in resolving issues of law or policy that may be raised in the course of processing a request under this section.  No fee may be charged by any agency under this section

  (I) if the costs of routine collection and processing of the fee are likely to equal or exceed the amount of the fee;  or

  (II) for any request described in clause (ii)(II) or (III) of this subparagraph for the first two hours of search time or for the first one hundred pages of duplication.

 (v) No agency may require advance payment of any fee unless the requester has previously failed to pay fees in a timely fashion, or the agency has determined that the fee will exceed $250.

 (vi) Nothing in this subparagraph shall supersede fees chargeable under a statute specifically providing for setting the level of fees for particular types of records.

 (vii) In any action by a requester regarding the waiver of fees under this section, the court shall determine the matter de novo:  Provided, That the court's review of the matter shall be limited to the record before the agency.

 (B) On complaint, the district court of the United States in the district in which the complainant resides, or has his principal place of business, or in which the agency records are situated, or in the District of Columbia, has jurisdiction to enjoin the agency from withholding agency records and to order the production of any agency records improperly withheld from the complainant. In such a case the court shall determine the matter de novo, and may examine the contents of such agency records in camera to determine whether such records or any part thereof shall be withheld under any of the exemptions set forth in subsection (b) of this section, and the burden is on the agency to sustain its action.

 (C) Notwithstanding any other provision of law, the defendant shall serve an answer or otherwise plead to any complaint made under this subsection within thirty days after service upon the defendant of the pleading in which such complaint is made, unless the court otherwise directs for good cause shown.

 [(D) Repealed.  Pub.L. 98620, Title IV, § 402(2), Nov. 8, 1984, 98 Stat. 3357]

 (E) The court may assess against the United States reasonable attorney fees and other litigation costs reasonably incurred in any case under this section in which the complainant has substantially prevailed.

 (F) Whenever the court orders the production of any agency records improperly withheld from the complainant and assesses against the United States reasonable attorney fees and other litigation costs, and the court additionally issues a written finding that the circumstances surrounding the withholding raise questions whether agency personnel acted arbitrarily or capriciously with respect to the withholding, the Special Counsel shall promptly initiate a proceeding to determine whether disciplinary action is warranted against the officer or employee who was primarily responsible for the withholding.  The Special Counsel, after investigation and consideration of the evidence submitted, shall submit his findings and recommendations to the administrative authority of the agency concerned and shall send copies of the findings and recommendations to the officer or employee or his representative.  The administrative authority shall take the corrective action that the Special Counsel recommends.

 (G) In the event of noncompliance with the order of the court, the district court may punish for contempt the responsible employee, and in the case of a uniformed service, the responsible member.

 (5) Each agency having more than one member shall maintain and make available for public inspection a record of the final votes of each member in every agency proceeding.

 (6)(A) Each agency, upon any request for records made under paragraph (1),  (2), or (3) of this subsection, shall

  (i) determine within ten days (excepting Saturdays, Sundays, and legal public holidays) after the receipt of any such request whether to comply with such request and shall immediately notify the person making such request of such determination and the reasons therefor, and of the right of such person to appeal to the head of the agency any adverse determination;  and

  (ii) make a determination with respect to any appeal within twenty days  (excepting Saturdays, Sundays, and legal public holidays) after the receipt of such appeal.  If on appeal the denial of the request for records is in whole or in part upheld, the agency shall notify the person making such request of the provisions for judicial review of that determination under paragraph (4) of this subsection.

 (B) In unusual circumstances as specified in this subparagraph, the time limits prescribed in either clause (i) or clause (ii) of subparagraph (A) may be extended by written notice to the person making such request setting forth the reasons for such extension and the date on which a determination is expected to be dispatched.  No such notice shall specify a date that would result in an extension for more than ten working days.  As used in this subparagraph, "unusual circumstances" means, but only to the extent reasonably necessary to the proper processing of the particular request

  (i) the need to search for and collect the requested records from field facilities or other establishments that are separate from the office processing the request;

  (ii) the need to search for, collect, and appropriately examine a voluminous amount of separate and distinct records which are demanded in a single request;  or

  (iii) the need for consultation, which shall be conducted with all practicable speed, with another agency having a substantial interest in the determination of the request or among two or more components of the agency having substantial subjectmatter interest therein.

 (C) Any person making a request to any agency for records under paragraph  (1), (2), or (3) of this subsection shall be deemed to have exhausted his administrative remedies with respect to such request if the agency fails to comply with the applicable time limit provisions of this paragraph.  If the Government can show exceptional circumstances exist and that the agency is exercising due diligence in responding to the request, the court may retain jurisdiction and allow the agency additional time to complete its review of the records.  Upon any determination by an agency to comply with a request for records, the records shall be made promptly available to such person making such request.  Any notification of denial of any request for records under this subsection shall set forth the names and titles or positions of each person responsible for the denial of such request.

 (b) This section does not apply to matters that are

  (1) (A) specifically authorized under criteria established by an Executive order to be kept secret in the interest of national defense or foreign policy and (B) are in fact properly classified pursuant to such Executive order;

  (2) related solely to the internal personnel rules and practices of an agency;

  (3) specifically exempted from disclosure by statute (other than section 552b of this title), provided that such statute (A) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (B) establishes particular criteria for withholding or refers to particular types of matters to be withheld;

  (4) trade secrets and commercial or financial information obtained from a person and privileged or confidential;

  (5) interagency or intraagency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency;

  (6) personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy;

  (7) records or information compiled for law enforcement purposes, but only to the extent that the production of such law enforcement records or information (A) could reasonably be expected to interfere with enforcement proceedings, (B) would deprive a person of a right to a fair trial or an impartial adjudication, (C) could reasonably be expected to constitute an unwarranted invasion of personal privacy, (D) could reasonably be expected to disclose the identity of a confidential source, including a State, local, or foreign agency or authority or any private institution which furnished information on a confidential basis, and, in the case of a record or information compiled by criminal law enforcement authority in the course of a criminal investigation or by an agency conducting a lawful national security intelligence investigation, information furnished by a confidential source, (E) would disclose techniques and procedures for law enforcement investigations or prosecutions, or would disclose guidelines for law enforcement investigations or prosecutions if such disclosure could reasonably be expected to risk  circumvention of the law, or (F) could reasonably be expected to endanger the life or physical safety of any individual;

  (8) contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions;  or

  (9) geological and geophysical information and data, including maps, concerning wells.

Any reasonably segregable portion of a record shall be provided to any person requesting such record after deletion of the portions which are exempt under this subsection.

 (c)(1) Whenever a request is made which involves access to records described in subsection (b)(7)(A) and

  (A) the investigation or proceeding involves a possible violation of criminal law;  and

  (B) there is reason to believe that (i) the subject of the investigation or proceeding is not aware of its pendency, and (ii) disclosure of the existence of the records could reasonably be expected to interfere with enforcement proceedings,

the agency may, during only such time as that circumstance continues, treat the records as not subject to the requirements of this section.

 (2) Whenever informant records maintained by a criminal law enforcement agency under an informant's name or personal identifier are requested by a third party according to the informant's name or personal identifier, the agency may treat the records as not subject to the requirements of this section unless the informant's status as an informant has been officially confirmed.

 (3) Whenever a request is made which involves access to records maintained by the Federal Bureau of Investigation pertaining to foreign intelligence or counterintelligence, or international terrorism, and the existence of the records is classified information as provided in subsection (b)(1), the Bureau may, as long as the existence of the records remains classified information, treat the records as not subject to the requirements of this section.

 (d) This section does not authorize withholding of information or limit the availability of records to the public, except as specifically stated in this section.  This section is not authority to withhold information from Congress.

 (e) On or before March 1 of each calendar year, each agency shall submit a report covering the preceding calendar year to the Speaker of the House of Representatives and President of the Senate for referral to the appropriate committees of the Congress.  The report shall include

  (1) the number of determinations made by such agency not to comply with requests for records made to such agency under subsection (a) and the reasons for each such determination;

  (2) the number of appeals made by persons under subsection (a)(6), the result of such appeals, and the reason for the action upon each appeal that results in a denial of information;

  (3) the names and titles or positions of each person responsible for the denial of records requested under this section, and the number of instances of participation for each;

  (4) the results of each proceeding conducted pursuant to subsection  (a)(4)(F), including a report of the disciplinary action taken against the officer or employee who was primarily responsible for improperly withholding records or an explanation of why disciplinary action was not taken;

  (5) a copy of every rule made by such agency regarding this section;

  (6) a copy of the fee schedule and the total amount of fees collected by the agency for making records available under this section;  and

  (7) such other information as indicates efforts to administer fully this section.

The Attorney General shall submit an annual report on or before March 1 of each calendar year which shall include for the prior calendar year a listing of the number of cases arising under this section, the exemption involved in each case, the disposition of such case, and the cost, fees, and penalties assessed under subsections (a)(4)(E), (F), and (G).  Such report shall also include a description of the efforts undertaken by the Department of Justice to encourage agency compliance with this section.

 (f) For purposes of this section, the term "agency" as defined in section 551(1) of this title includes any executive department, military department, Government corporation, Government controlled corporation, or other establishment in the executive branch of the Government (including the Executive Office of the President), or any independent regulatory agency.

 	EXECUTIVE ORDER NUMBER 12600

June 23, 1987

PREDISCLOSURE NOTIFICATION PROCEDURES

FOR CONFIDENTIAL COMMERCIAL INFORMATION

By the authority vested in me as President by the Constitution and statutes of the United States of America, and in order to provide predisclosure notification procedures under the Freedom of Information Act [this section] concerning confidential commercial information, and to make existing agency notification provisions more uniform, it is hereby ordered as follows:

 Section 1. The head of each Executive department and agency subject to the Freedom of Information Act [5 U.S.C.A. § 552] shall, to the extent permitted by law, establish procedures to notify submitters of records containing confidential commercial information as described in section 3 of this Order, when those records are requested under the Freedom of Information Act [FOIA], 5 U.S.C. 552, as amended, if after reviewing the request, the responsive records, and any appeal by the requester, the department or agency determines that it may be required to disclose the records.  Such notice requires that an agency use goodfaith efforts to advise submitters of confidential commercial information of the procedures established under this Order.  Further, where notification of a voluminous number of submitters is required, such notification may be accomplished by posting or publishing the notice in a place reasonably calculated to accomplish notification.

 Section 2. For purposes of this Order, the following definitions apply:

 (a) "Confidential commercial information" means records provided to the government by a submitter that arguably contain material exempt from release under Exemption 4 of the Freedom of Information Act, 5 U.S.C. 552(b)(4) [subsec. (b)(4) of this section], because disclosure could reasonably be expected to cause substantial competitive harm.

 (b) "Submitter" means any person or entity who provides confidential commercial information to the government.  The term "submitter" includes, but is not limited to, corporations, state governments, and foreign governments.

 Section 3. (a) For confidential commercial information submitted prior to January 1, 1988, the head of each Executive department or agency shall, to the extent permitted by law, provide a submitter with notice pursuant to section 1 whenever:

 (i) the records are less than 10 years old and the information has been designated by the submitter as confidential commercial information;  or

 (ii) the department or agency has reason to believe that disclosure of the information could reasonably be expected to cause substantial competitive harm.

 (b) For confidential commercial information submitted on or after January 1, 1988, the head of each Executive department or agency shall, to the extent permitted by law, establish procedures to permit submitters of confidential commercial information to designate, at the time the information is submitted to the Federal government or a reasonable time thereafter, any information the disclosure of which the submitter claims could reasonably be expected to cause substantial competitive harm.  Such agency procedures may provide for the expiration, after a specified period of time or changes in circumstances, of designations of competitive harm made by submitters.  Additionally, such procedures may permit the agency to designate specific classes of information that will be treated by the agency as if the information had been so designated by the submitter.  The head of each Executive department or agency shall, to the extent permitted by law, provide the submitter notice in accordance with section 1 of this Order whenever the department or agency determines that it may be required to disclose records:

 (i) designated pursuant to this subsection;  or

 (ii) the disclosure of which the department or agency has reason to believe could reasonably be expected to cause substantial competitive harm.

 Section 4. When notification is made pursuant to section 1, each agency's procedures shall, to the extent permitted by law, afford the submitter a reasonable period of time in which the submitter or its designee may object to the disclosure of any specified portion of the information and to state all grounds upon which disclosure is opposed.

 Section 5. Each agency shall give careful consideration to all such specified grounds for nondisclosure prior to making an administrative determination of the issue.  In all instances when the agency determines to disclose the requested records, its procedures shall provide that the agency give the submitter a written statement briefly explaining why the submitter's objections are not sustained.  Such statement shall, to the extent permitted by law, be provided a reasonable number of days prior to a specified disclosure date.

 Section 6. Whenever a FOIA requester brings suit seeking to compel disclosure of confidential commercial information, each agency's procedures shall require that the submitter be promptly notified.

 Section 7. The designation and notification procedures required by this Order shall be established by regulations, after notice and public comment.  If similar procedures or regulations already exist, they should be reviewed for conformity and revised where necessary.  Existing procedures or regulations need not be modified if they are in compliance with this Order.

 Section 8. The notice requirements of this Order need not be followed if:

 (a) The agency determines that the information should not be disclosed;

 (b) The information has been published or has been officially made available to the public;

 (c) Disclosure of the information is required by law (other than 5 U.S.C. 552);

 (d) The disclosure is required by an agency rule that (1) was adopted pursuant to notice and public comment, (2) specifies narrow classes of records submitted to the agency that are to be released under the Freedom of Information Act [5 U.S.C.A. § 552], and (3) provides in exceptional circumstances for notice when the submitter provides written justification, at the time the information is submitted or a reasonable time thereafter, that disclosure of the information could reasonably be expected to cause substantial competitive harm;

 (e) The information requested is not designated by the submitter as exempt from disclosure in accordance with agency regulations promulgated pursuant to section 7, when the submitter had an opportunity to do so at the time of submission of the information or a reasonable time thereafter, unless the agency has substantial reason to believe that disclosure of the information would result in competitive harm;  or

 (f) The designation made by the submitter in accordance with agency regulations promulgated pursuant to section 7 appears obviously frivolous; except that, in such case, the agency must provide the submitter with written notice of any final administrative disclosure determination within a reasonable number of days prior to the specified disclosure date.

 Section 9. Whenever an agency notifies a submitter that it may be required to disclose information pursuant to section 1 of this Order, the agency shall also notify the requester that notice and an opportunity to comment are being provided the submitter.  Whenever an agency notifies a submitter of a final decision pursuant to section 5 of this Order, the agency shall also notify the requester.

 Section 10. This Order is intended only to improve the internal management of the Federal government, and is not intended to create any right or benefit, substantive or procedural, enforceable at law by a party against the United States, its agencies, its officers, or any person.

RONALD REAGAN


Wage Garnishment Restrictions

15 U.S.C. Sections 1671-1677

 Section 1671:  Congressional findings and declaration of purpose

(a)	Disadvantage of garnishment

The Congress finds:

(1)	The unrestricted garnishment of compensation due for personal services encourages the making of predatory extensions of credit.  Such extensions of credit divert money into excessive credit payments and thereby hinder the production and flow of goods in interstate commerce.

(2)	The application of garnishment as a creditors' remedy frequently results in loss of employment by the debtor, and the resulting disruption of  employment, production, and consumption constitutes a substantial burden on interstate commerce.

(3)	The great disparities among the laws of the several States relating to garnishment have, in effect, destroyed the uniformity of the bankruptcy laws and frustrated the purposes thereof in many areas of the country.

(b)	Necessity for regulation

On the basis of the findings stated in subsection (a) of this section, the Congress determines that the provisions of this subchapter are necessary and proper for the purpose of carrying into execution the powers of the Congress to regulate commerce and to establish uniform bankruptcy laws.

 Section 1672:  Definitions

For the purposes of this subchapter:

(a)	The term "earnings" means compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program.

(b)	The term "disposable earnings" means that part of the earnings of any individual remaining after the deduction from those earnings of any amounts required by law to be withheld.

(c)	The term "garnishment" means any legal or equitable procedure through which the earnings of any individual are required to be withheld for payment of any debt.

 Section 1673:  Restriction on garnishment

(a)	Maximum allowable garnishment

Except as provided in subsection (b) of this section and in section 1675 of this title, the maximum part of the aggregate disposable earnings of an individual for any workweek which is subjected to garnishment may not exceed

(1)	25 per centum of his disposable earnings for that week, or

(2)	the amount by which his disposable earnings for that week exceed thirty times the Federal minimum hourly wage prescribed by section 206(a)(1) of Title 29 in effect at the time the earnings are payable, whichever is less.  In the case of earnings for any pay period other than a week, the Secretary of Labor shall by regulation prescribe a multiple of the Federal minimum hourly wage equivalent in effect to that set forth in paragraph (2).

(b)	Exceptions

(1)	The restrictions of subsection (a) of this section do not apply in the case of

(A)	any order for the support of any person issued by a court of competent jurisdiction or in accordance with an administrative procedure, which is established by State law, which affords substantial due process, and which is subject to judicial review.

(B)	any order of any court of the United States having jurisdiction over cases under chapter 13 of Title 11.

(C)	any debt due for any State or Federal tax.

(2)	The maximum part of the aggregate disposable earnings of an individual for any workweek which is subject to garnishment to enforce any order for the support of any person shall not exceed

(A)	where such individual is supporting his spouse or dependent child (other than a spouse or child with respect to whose support such order is used), 50 per centum of such individual's disposable earnings for that week;  and

(B)	where such individual is not supporting such a spouse or dependent child described in clause (A), 60 per centum of such individual's disposable earnings for that week; except that, with respect to the disposable earnings of any individual for any workweek, the 50 per centum specified in clause (A) shall be deemed to be 55 per centum and the 60 per centum specified in clause (B) shall be deemed to be 65 per centum, if and to the extent that such earnings are subject to garnishment to enforce a support order with respect to a period which is prior to the twelveweek period which ends with the beginning of such workweek.

(c)	Execution or enforcement of garnishment order or process prohibited

No court of the United States or any State, and no State (or officer or agency thereof), may make, execute, or enforce any order or process in violation of this section.

 Section 1674:  Restriction on discharge from employment by reason of garnishment

(a)	Termination of employment

No employer may discharge any employee by reason of the fact that his earnings have been subjected to garnishment for any one indebtedness.

(b)	Penalties

Whoever willfully violates subsection (a) of this section shall be fined not more than $1,000, or imprisoned not more than one year, or both.

 Section 1675:  Exemption for Stateregulated garnishments

The Secretary of Labor may by regulation exempt from the provisions of section 1673(a) and (b)(2) of this title garnishments issued under the laws of any State if he determines that the laws of that State provide restrictions on garnishment which are substantially similar to those provided in section 1673(a) and (b)(2) of this title.

 Section 1676:  Enforcement by Secretary of Labor

The Secretary of Labor, acting through the Wage and Hour Division of the Department of Labor, shall enforce the provisions of this subchapter.

 Section 1677. Effect on State laws

This subchapter does not annul, alter, or affect, or exempt any person from complying with, the laws of any State

(1)	prohibiting garnishments or providing for more limited garnishments than are allowed under this subchapter, or

(2)	prohibiting the discharge of any employee by reason of the fact that his earnings have been subjected to garnishment for more than one indebtedness.


Consumer Leasing Act

15 U.S.C. Sections 1667-1667e

 Section 1667:  Definitions

For purposes of this part

(1)	The term "consumer lease" means a contract in the form of a lease or bailment for the use of personal property by a natural person for a period of time exceeding four months, and for a total contractual obligation not exceeding $25,000, primarily for personal, family, or household purposes, whether or not the lessee has the option to purchase or otherwise become the owner of the property at the expiration of the lease, except that such term shall not include any credit sale as defined in section 1602(g) of this title.  Such term does not include a lease for agricultural, business, or  commercial purposes, or to a government or governmental agency or instrumentality, or to an organization.

(2)	The term "lessee" means a natural person who leases or is offered a consumer lease.

(3)	The term "lessor" means a person who is regularly engaged in leasing, offering to lease, or arranging to lease under a consumer lease.

(4)	The term "personal property" means any property which is not real property under the laws of the State where situated at the time offered or otherwise made available for lease.

(5)	The terms "security" and "security interest" mean any interest in property which secures payment or performance of an obligation.

 Section 1667a:  Consumer lease disclosures

Each lessor shall give a lessee prior to the consummation of the lease a dated written statement on which the lessor and lessee are identified setting out accurately and in a clear and conspicuous manner the following information with respect to that lease, as applicable:

(1)	A brief description or identification of the leased property;

(2)	The amount of any payment by the lessee required at the inception of the lease;

(3)	The amount paid or payable by the lessee for official fees, registration, certificate of title, or license fees or taxes;

(4)	The amount of other charges payable by the lessee not included in the periodic payments, a description of the charges and that the lessee shall be liable for the differential, if any, between the anticipated fair market value of the leased property and its appraised actual value at the termination of the lease, if the lessee has such liability;

(5)	A statement of the amount or method of determining the amount of any liabilities the lease imposes upon the lessee at the end of the term and whether or not the lessee has the option to purchase the leased property and at what price and time;

(6)	A statement identifying all express warranties and guarantees made by the manufacturer or lessor with respect to the leased property, and identifying the party responsible for maintaining or servicing the leased property together with a description of the responsibility;

(7)	A brief description of insurance provided or paid for by the lessor or required of the lessee, including the types and amounts of the coverages and costs;

(8)	A description of any security interest held or to be retained by the lessor in connection with the lease and a clear identification of the property to which the security interest relates;

(9)	The number, amount, and due dates or periods of payments under the lease  and the total amount of such periodic payments;

(10)	Where the lease provides that the lessee shall be liable for the anticipated fair market value of the property on expiration of the lease, the fair market value of the property at the inception of the lease, the aggregate cost of the lease on expiration, and the differential between them;  and

(11)	A statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the term and the amount or method of determining any penalty or other charge for delinquency, default, late payments, or early termination.

The disclosures required under this section may be made in the lease contract to be signed by the lessee.  The Board may provide by regulation that any portion of the information required to be disclosed under this section may be given in the form of estimates where the lessor is not in a position to know exact information.

 Section 1667b:  Lessee's liability on expiration or termination of lease

(a)	Estimated residual value of property as basis;  presumptions;  action by lessor for excess liability;  mutually agreeable final adjustment

Where the lessee's liability on expiration of a consumer lease is based on the estimated residual value of the property such estimated residual value shall be a reasonable approximation of the anticipated actual fair market value of the property on lease expiration.  There shall be a rebuttable presumption that the estimated residual value is unreasonable to the extent that the estimated residual value exceeds the actual residual value by more than three times the average payment allocable to a monthly period under the lease.  In addition, where the lessee has such liability on expiration of a consumer lease there shall be a rebuttable presumption that the lessor's estimated residual value is not in good faith to the extent that the estimated residual value exceeds the actual residual value by more than three times the average payment allocable to a monthly period under the lease and such lessor shall not collect from the lessee the amount of such excess liability on expiration of a consumer lease unless the lessor brings a successful action with respect to such excess liability.  In all actions, the lessor shall pay the lessee's reasonable attorney's fees.  The presumptions stated in this section shall not apply to the extent the excess of estimated over actual residual value is due to physical damage to the property beyond reasonable wear and use, or to excessive use, and the lease may set standards for such wear and use if such standards are not unreasonable.  Nothing in this subsection shall preclude the right of a willing lessee to make any mutually agreeable final adjustment with respect to such excess residual liability, provided such an agreement is reached after termination of the lease.

(b)	Penalties and charges for delinquency, default, or early termination

Penalties or other charges for delinquency, default, or early termination may be specified in the lease but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the delinquency, default, or early termination, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy.

(c)	Independent professional appraisal of residual value of property at termination of lease;  finality

If a lease has a residual value provision at the termination of the lease, the lessee may obtain at his expense, a professional appraisal of the leased property by an independent third party agreed to by both parties.  Such appraisal shall be final and binding on the parties.

 Section 1667c:  Consumer lease advertising;  liability of advertising media

(a)	Contents of lease advertisements

No advertisement to aid, promote, or assist directly or indirectly any consumer lease shall state the amount of any payment, the number of required payments, or that any or no downpayment or other payment is required at inception of the lease unless the advertisement also states clearly and conspicuously and in accordance with regulations issued by the Board each of the following items of information which is applicable:

(1)	That the transaction advertised is a lease.

(2)	The amount of any payment required at the inception of the lease or that no such payment is required if that is the case.

(3)	The number, amounts, due dates or periods of scheduled payments, and the total of payments under the lease.

(4)	That the lessee shall be liable for the differential, if any, between the anticipated fair market value of the leased property and its appraised actual value at the termination of the lease, if the lessee has such liability.

(5)	A statement of the amount or method of determining the amount of any liabilities the lease imposes upon the lessee at the end of the term and whether or not the lessee has the option to purchase the leased property and at what price and time.

(b)	Radio advertisements

(1)	In general

An advertisement by radio broadcast to aid, promote, or assist, directly or indirectly, any consumer lease shall be deemed to be in compliance with the  requirements of subsection (a) of this section if such advertisement clearly and conspicuously

(A)	states the information required by paragraphs (1) and (2) of subsection (a) of this section;

(B)	states the number, amounts, due dates or periods of scheduled payments, and the total of such payments under the lease;

(C)	includes

(i)	a referral to

(I)	a tollfree telephone number established in accordance with paragraph (2) that may be used by consumers to obtain the information required under subsection (a) of this section;  or

(II)	a written advertisement that

(aa)	appears in a publication in general circulation in the community served by the radio station on which such advertisement is broadcast during the period beginning 3 days before any such broadcast and ending 10 days after such broadcast;  and

(bb)	includes the information required to be disclosed under subsection (a) of this section;  and

(ii)	the name and dates of any publication referred to in clause (i)(II);  and

(D)	includes any other information which the Board determines necessary to carry out this part.

(2)	Establishment of tollfree number

(A)	In general

In the case of a radio broadcast advertisement described in paragraph (1) that includes a referral to a tollfree telephone number, the lessor who offers the consumer lease shall

(i)	establish such a tollfree telephone number not later than the date on which the advertisement including the referral is broadcast;

(ii)	maintain such telephone number for a period of not less than 10 days, beginning on the date of any such broadcast;  and

(iii) provide the information required under subsection (a) of this section with respect to the lease to any person who calls such number.

(B)	Form of information

The information required to be provided under subparagraph (A)(iii) shall be provided verbally or, if requested by the consumer, in written form.

(3)	No effect on other law

Nothing in this subsection shall affect the requirements of Federal law as such requirements apply to advertisement by any medium other than radio broadcast.

(c)	Liability of advertising media

There is no liability under this section on the part of any owner or personnel, as such, of any medium in which an advertisement appears or through which it is disseminated.

 Section 1667d: Civil liability of lessors

(a)	Grounds for maintenance of action

Any lessor who fails to comply with any requirement imposed under section 1667a or 1667b of this title with respect to any person is liable to such person as provided in section 1640 of this title.

(b)	Additional grounds for maintenance of action;  "creditor" defined

Any lessor who fails to comply with any requirement imposed under section 1667c of this title with respect to any person who suffers actual damage from the violation is liable to such person as provided in section 1640 of this title.  For the purposes of this section, the term "creditor" as used in sections 1640 and 1641 of this title shall include a lessor as defined in this part.

(c)	Jurisdiction of courts;  time limitation

Notwithstanding section 1640(e) of this title, any action under this section may be brought in any United States district court or in any other court of competent jurisdiction.  Such actions alleging a failure to disclose or otherwise comply with the requirements of this part shall be brought within one year of the termination of the lease agreement.

 Section 1667e:  Applicability of State laws;  exemptions by Board from leasing requirements

(a)	This part does not annul, alter, or affect, or exempt any person subject to the provisions of this part from complying with, the laws of any State with respect to consumer leases, except to the extent that those laws are inconsistent with any provision of this part, and then only to the extent of the inconsistency.  The Board is authorized to determine whether such inconsistencies exist.  The Board may not determine that any State law is inconsistent with any provision of this part if the Board determines that such law gives greater protection and benefit to the consumer.

(b)	The Board shall by regulation exempt from the requirements of this part any class of lease transactions within any State if it determines that under the law of that State that class of transactions is subject to requirements substantially similar to those imposed under this part or that such law gives greater protection and benefit to the consumer, and that there is adequate provision for enforcement.


Telemarketing and Consumer Fraud and Abuse Prevention

15 U.S.C. Sections 6101 - 6108

 Section 6101: Findings

 The Congress makes the following findings:

  (1) Telemarketing differs from other sales activities in that it can be carried out by sellers across State lines without direct contact with the consumer.  Telemarketers also can be very mobile, easily moving from State to State.

  (2) Interstate telemarketing fraud has become a problem of such magnitude that the resources of the Federal Trade Commission are not sufficient to ensure adequate consumer protection from such fraud.

  (3) Consumers and others are estimated to lose $40 billion a year in telemarketing fraud.

  (4) Consumers are victimized by other forms of telemarketing deception and  abuse.

  (5) Consequently, Congress should enact legislation that will offer consumers necessary protection from telemarketing deception and abuse.

 Section 6102: Telemarketing rules

(a) In general

 (1) The Commission shall prescribe rules prohibiting deceptive telemarketing acts or practices and other abusive telemarketing acts or practices.

 (2) The Commission shall include in such rules respecting deceptive telemarketing acts or practices a definition of deceptive telemarketing acts or practices which may include acts or practices of entities or individuals that assist or facilitate deceptive telemarketing, including credit card laundering.

 (3) The Commission shall include in such rules respecting other abusive telemarketing acts or practices

  (A) a requirement that telemarketers may not undertake a pattern of unsolicited telephone calls which the reasonable consumer would consider coercive or abusive of such consumer's right to privacy,

  (B) restrictions on the hours of the day and night when unsolicited telephone calls can be made to consumers, and

  (C) a requirement that any person engaged in telemarketing for the sale of goods or services shall promptly and clearly disclose to the person receiving the call that the purpose of the call is to sell goods or services and make such other disclosures as the Commission deems appropriate, including the nature and price of the goods and services.

In prescribing the rules described in this paragraph, the Commission shall also consider recordkeeping requirements.

(b) Rulemaking

 The Commission shall prescribe the rules under subsection (a) of this section within 365 days after August 16, 1994.  Such rules shall be prescribed in accordance with section 553 of Title 5.

(c) Enforcement

 Any violation of any rule prescribed under subsection (a) of this section shall be treated as a violation of a rule under section 57a of this title regarding unfair or deceptive acts or practices.

(d) Securities and Exchange Commission rules

  (1) Promulgation

    (A) In general

   Except as provided in subparagraph (B), not later than 6 months after the effective date of rules promulgated by the Federal Trade Commission under subsection (a) of this section, the Securities and Exchange Commission shall promulgate, or require any national securities exchange or registered securities association to promulgate, rules substantially similar to such rules to prohibit deceptive and other abusive telemarketing acts or practices   by persons described in paragraph (2).

    (B) Exception

   The Securities and Exchange Commission is not required to promulgate a rule under subparagraph (A) if it determines that

    (i) Federal securities laws or rules adopted by the Securities and Exchange Commission thereunder provide protection from deceptive and other abusive telemarketing by persons described in paragraph (2) substantially similar to that provided by rules promulgated by the Federal Trade Commission under subsection (a) of this section;  or

    (ii) such a rule promulgated by the Securities and Exchange Commission is not necessary or appropriate in the public interest, or for the protection of investors, or would be inconsistent with the maintenance of fair and orderly markets.

    If the Securities and Exchange Commission determines that an exception described in clause (i) or (ii) applies, the Securities and Exchange Commission shall publish in the Federal Register its determination with the reasons for it.

  (2) Application

    (A) In general

   The rules promulgated by the Securities and Exchange Commission under paragraph (1)(A) shall apply to a broker, dealer, transfer agent, municipal securities dealer, municipal securities broker, government securities broker, government securities dealer, investment adviser or investment company, or any individual associated with a broker, dealer, transfer agent, municipal securities dealer, municipal securities broker, government securities broker, government securities dealer, investment adviser or investment company.  The rules promulgated by the Federal Trade Commission under subsection (a) of this section shall not apply to persons described in the preceding sentence.

    (B) Definitions

   For purposes of subparagraph (A)

    (i) the terms "broker", "dealer", "transfer agent", "municipal securities    dealer", "municipal securities broker", "government securities broker", and  "government securities dealer" have the meanings given such terms by paragraphs (4), (5), (25), (30), (31), (43), and (44) of section 78c(a) of this title;

    (ii) the term "investment adviser" has the meaning given such term by section 80b2(a)(11) of this title;  and

    (iii) the term "investment company" has the meaning given such term by section 80a3(a) of this title.

(e) Commodity Futures Trading Commission rules

  (1) Application

  The rules promulgated by the Federal Trade Commission under subsection (a) of this section shall not apply to persons described in section 9b(1) of Title 7.

  (2) Omitted

 Section 6103: Actions by States

(a) In general

 Whenever an attorney general of any State has reason to believe that the interests of the residents of that State have been or are being threatened or adversely affected because any person has engaged or is engaging in a pattern or practice of telemarketing which violates any rule of the Commission under section 6102 of this title, the State, as parens patriae, may bring a civil action on behalf of its residents in an appropriate district court of the United States to enjoin such telemarketing, to enforce compliance with such rule of the Commission, to obtain damages, restitution, or other compensation on behalf of residents of such State, or to obtain such further and other relief as the court may deem appropriate.

(b) Notice

 The State shall serve prior written notice of any civil action under subsection (a) or (f)(2) of this section upon the Commission and provide the Commission with a copy of its complaint, except that if it is not feasible for the State to provide such prior notice, the State shall serve such notice immediately upon instituting such action.  Upon receiving a notice respecting a civil action, the Commission shall have the right (1) to intervene in such action, (2) upon so intervening, to be heard on all matters arising therein, and (3) to file petitions for appeal.

(c) Construction

 For purposes of bringing any civil action under subsection (a) of this section, nothing in this chapter shall prevent an attorney general from exercising the powers conferred on the attorney general by the laws of such State to conduct investigations or to administer oaths or affirmations or to compel the attendance of witnesses or the production of documentary and other evidence.

(d) Actions by the Commission

 Whenever a civil action has been instituted by or on behalf of the Commission for violation of any rule prescribed under section 6102 of this title, no State may, during the pendency of such action instituted by or on behalf of the Commission, institute a civil action under subsection (a) or (f)(2) of this section against any defendant named in the complaint in such action for violation of any rule as alleged in such complaint.

(e) Venue;  service of process

 Any civil action brought under subsection (a) of this section in a district court of the United States may be brought in the district in which the defendant is found, is an inhabitant, or transacts business or wherever venue is proper under section 1391 of Title 28.  Process in such an action may be served in any district in which the defendant is an inhabitant or in which the defendant may be found.

(f) Actions by other State officials

 (1) Nothing contained in this section shall prohibit an authorized State official from proceeding in State court on the basis of an alleged violation of any civil or criminal statute of such State.

 (2) In addition to actions brought by an attorney general of a State under subsection (a) of this section, such an action may be brought by officers of such State who are authorized by the State to bring actions in such State on behalf of its residents.

 Section 6104: Actions by private persons

(a) In general

 Any person adversely affected by any pattern or practice of telemarketing which violates any rule of the Commission under section 6102 of this title, or an authorized person acting on such person's behalf, may, within 3 years after discovery of the violation, bring a civil action in an appropriate district court of the United States against a person who has engaged or is engaging in such pattern or practice of telemarketing if the amount in controversy exceeds the sum or value of $50,000 in actual damages for each person adversely affected by such telemarketing.  Such an action may be brought to enjoin such telemarketing, to enforce compliance with any rule of the Commission under section 6102 of this title, to obtain damages, or to obtain such further and other relief as the court may deem appropriate.

(b) Notice

 The plaintiff shall serve prior written notice of the action upon the Commission and provide the Commission with a copy of its complaint, except in any case where such prior notice is not feasible, in which case the person shall serve such notice immediately upon instituting such action.  The Commission shall have the right (A) to intervene in the action, (B) upon so intervening, to be heard on all matters arising therein, and (C) to file petitions for appeal.

(c) Action by the Commission

 Whenever a civil action has been instituted by or on behalf of the Commission for violation of any rule prescribed under section 6102 of this title, no person may, during the pendency of such action instituted by or on behalf of the Commission, institute a civil action against any defendant named in the complaint in such action for violation of any rule as alleged in such complaint.

(d) Cost and fees

 The court, in issuing any final order in any action brought under subsection  (a) of this section, may award costs of suit and reasonable fees for attorneys and expert witnesses to the prevailing party.

(e) Construction

 Nothing in this section shall restrict any right which any person may have under any statute or common law.

(f) Venue;  service of process

 Any civil action brought under subsection (a) of this section in a district court of the United States may be brought in the district in which the defendant is found, is an inhabitant, or transacts business or wherever venue is proper under section 1391 of Title 28.  Process in such an action may be served in any district in which the defendant is an inhabitant or in which the defendant may be found.

 Section 6105: Administration and applicability of chapter

(a) In general

 Except as otherwise provided in sections 6102(d), 6102(e), 6103, and 6104 of this title, this chapter shall be enforced by the Commission under the Federal Trade Commission Act (15 U.S.C. 41 et seq.).  Consequently, no activity which is outside the jurisdiction of that Act shall be affected by this chapter.

(b) Actions by the Commission

 The Commission shall prevent any person from violating a rule of the Commission under section 6102 of this title in the same manner, by the same means, and with the same jurisdiction, powers, and duties as though all applicable terms and provisions of the Federal Trade Commission Act (15 U.S.C. 41 et seq.) were incorporated into and made a part of this chapter.  Any person who violates such rule shall be subject to the penalties and entitled to the privileges and immunities provided in the Federal Trade Commission Act [15 U.S.C.A. § 41 et seq.] in the same manner, by the same means, and with the same jurisdiction, power, and duties as though all applicable terms and provisions of the Federal Trade Commission Act [15 U.S.C.A. § 41 et seq.] were incorporated into and made a part of this chapter.

(c) Effect on other laws

 Nothing contained in this chapter shall be construed to limit the authority of the Commission under any other provision of law.

 Section 6106: Definitions

 For purposes of this chapter:

  (1) The term "attorney general" means the chief legal officer of a State.

  (2) The term "Commission" means the Federal Trade Commission.

  (3) The term "State" means any State of the United States, the District of Columbia, Puerto Rico, the Northern Mariana Islands, and any territory or possession of the United States.

  (4) The term "telemarketing" means a plan, program, or campaign which is conducted to induce purchases of goods or services by use of one or more telephones and which involves more than one interstate telephone call.  The term does not include the solicitation of sales through the mailing of a catalog which

   (A) contains a written description, or illustration of the goods or services offered for sale,

   (B) includes the business address of the seller,

   (C) includes multiple pages of written material or illustrations, and

   (D) has been issued not less frequently than once a year,

  where the person making the solicitation does not solicit customers by telephone but only receives calls initiated by customers in response to the catalog and during those calls takes orders only without further solicitation.

 Section 6107: Enforcement of orders

(a) General authority

 Subject to subsections (b) and (c) of this section, the Federal Trade Commission may bring a criminal contempt action for violations of orders of the Commission obtained in cases brought under section 53(b) of this title.

(b) Appointment

 An action authorized by subsection (a) of this section may be brought by the Federal Trade Commission only after, and pursuant to, the appointment by the Attorney General of an attorney employed by the Commission, as a special assistant United States Attorney.

(c) Request for appointment

  (1) Appointment upon request or motion

  A special assistant United States Attorney may be appointed under subsection  (b) of this section upon the request of the Federal Trade Commission or the court which has entered the order for which contempt is sought or upon the Attorney General's own motion.

  (2) Timing

  The Attorney General shall act upon any request made under paragraph (1) within 45 days of the receipt of the request.

(d) Termination of authority

 The authority of the Federal Trade Commission to bring a criminal contempt action under subsection (a) of this section expires 2 years after the date of the first promulgation of rules under section 6102 of this title.  The expiration of such authority shall have no effect on an action brought before the expiration date.

 Section 6108: Review

 Upon the expiration of 5 years following the date of the first promulgation of rules under section 6102 of this title, the Commission shall review the implementation of this chapter and its effect on deceptive telemarketing acts or practices and report the results of the review to the Congress.


Fair Credit Reporting Act

15 U.S.C. Sections 1681-1681t

 Section 1681:  Congressional findings and statement of purpose

(a)	Accuracy and fairness of credit reporting

The Congress makes the following findings:

(1)	The banking system is dependent upon fair and accurate credit reporting.  Inaccurate credit reports directly impair the efficiency of the banking system, and unfair credit reporting methods undermine the public confidence which is essential to the continued functioning of the banking system.

(2)	An elaborate mechanism has been developed for investigating and evaluating the credit worthiness, credit standing, credit capacity, character,  and general reputation of consumers.

(3)	Consumer reporting agencies have assumed a vital role in assembling and evaluating consumer credit and other information on consumers.

(4)	There is a need to insure that consumer reporting agencies exercise their grave responsibilities with fairness, impartiality, and a respect for the consumer's right to privacy.

(b)	Reasonable procedures

It is the purpose of this subchapter to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this subchapter.

 Section 1681a:  Definitions;  rules of construction

(a)	Definitions and rules of construction set forth in this section are applicable for the purposes of this subchapter.

(b)	The term "person" means any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity.

(c)	The term "consumer" means an individual.

(d)	The term "consumer report" means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for--

(1)	credit or insurance to be used primarily for personal, family, or household purposes, or

(2)	employment purposes, or

(3)	other purposes authorized under section 1681b of this title.  The term does not include--

(A)	any report containing information solely as to transactions or experiences between the consumer and the person making the report;

(B)	any authorization or approval of a specific extension of credit directly or indirectly by the issuer of a credit card or similar device;  or

(C)	any report in which a person who has been requested by a third party to make a specific extension of credit directly or indirectly to a consumer conveys his decision with respect to such request, if the third party advises the consumer of the name and address of the person to whom the request was made and such person makes the disclosures to the consumer required under section 1681m of this title.

(e)	The term "investigative consumer report" means a consumer report or portion thereof in which information on a consumer's character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on or with others with whom he is acquainted or who may have knowledge concerning any such items of information.  However, such information shall not include specific factual information on a consumer's credit record obtained directly from a creditor of the consumer or from a consumer reporting agency when such information was obtained directly from a creditor of the consumer or from the consumer.

(f)	The term "consumer reporting agency" means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.

(g)	The term "file", when used in connection with information on any consumer, means all of the information on that consumer recorded and retained by a consumer reporting agency regardless of how the information is stored.

(h)	The term "employment purposes" when used in connection with a consumer report means a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.

(i)	The term "medical information" means information or records obtained, with the consent of the individual to whom it relates, from licensed physicians or medical practitioners, hospitals, clinics, or other medical or medically related facilities.

(j)	Definitions relating to child support obligations

(1)	Overdue support

The term "overdue support" has the meaning given to such term in section 666(e) of Title 42.

(2)	State or local child support enforcement agency

The term "State or local child support enforcement agency" means a State or local agency which administers a State or local program for establishing and enforcing child support obligations.

 Section 1681b:  Permissible purposes of consumer reports

A consumer reporting agency may furnish a consumer report under the following circumstances and no other:

(1)	In response to the order of a court having jurisdiction to issue such an order, or a subpoena issued in connection with proceedings before a Federal grand jury.

(2)	In accordance with the written instructions of the consumer to whom it relates.

(3)	To a person which it has reason to believe

(A)	intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer;  or

(B)	intends to use the information for employment purposes;  or

(C)	intends to use the information in connection with the underwriting of insurance involving the consumer;  or

(D)	intends to use the information in connection with a determination of the consumer's eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant's financial responsibility or status;  or

(E)	otherwise has a legitimate business need for the information in connection with a business transaction involving the consumer.

(4)	In response to a request by the head of a State or local child support enforcement agency (or a State or local government official authorized by the head of such an agency), if the person making the request certifies to the consumer reporting agency that

(A)	the consumer report is needed for the purpose of establishing an individual's capacity to make child support payments or determining the appropriate level of such payments;

(B)	the paternity of the consumer for the child to which the obligation relates has been established or acknowledged by the consumer in accordance   with State laws under which the obligation arises (if required by those laws);

(C)	the person has provided at least 10 days' prior notice to the consumer whose report is requested, by certified or registered mail to the last known address of the consumer, that the report will be requested;  and

(D)	the consumer report will be kept confidential, will be used solely for a purpose described in subparagraph (A), and will not be used in connection with any other civil, administrative, or criminal proceeding, or for any other purpose.

(5)	To an agency administering a State plan under section 654 of Title 42 for use to set an initial or modified child support award.

 Section 1681c:  Reporting of obsolete information prohibited

(a)	Prohibited items

Except as authorized under subsection (b) of this section, no consumer reporting agency may make any consumer report containing any of the following items of information:

(1)	Cases under Title 11 or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years.

(2)	Suits and judgments which, from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period.

(3)	Paid tax liens which, from date of payment, antedate the report by more than seven years.

(4)	Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.

(5)	Records of arrest, indictment, or conviction of crime which, from date of disposition, release, or parole, antedate the report by more than seven years.

(6)	Any other adverse item of information which antedates the report by more than seven years.

(b)	Exempted cases

The provisions of subsection (a) of this section are not applicable in the case of any consumer credit report to be used in connection with

(1)	a credit transaction involving, or which may reasonably be expected to involve, a principal amount of $50,000 or more;

(2)	the underwriting of life insurance involving, or which may reasonably be expected to involve, a face amount of $50,000 or more;  or

(3) 	The employment of any individual at an annual salary which equals, or  which may reasonably be expected to equal $20,000, or more.

 Section 1681d:  Disclosure of investigative consumer reports

(a)	Disclosure of fact of preparation

A person may not procure or cause to be prepared an investigative consumer report on any consumer unless

(1)	it is clearly and accurately disclosed to the consumer that an investigative consumer report including information as to his character, general reputation, personal characteristics, and mode of living, whichever are applicable, may be made, and such disclosure

(A)	is made in a writing mailed, or otherwise delivered, to the consumer, not later than three days after the date on which the report was first requested, and

(B)	includes a statement informing the consumer of his right to request the additional disclosures provided for under subsection (b) of this section;  or

(2)	the report is to be used for employment purposes for which the consumer has not specifically applied.

(b)	Disclosure on request of nature and scope of investigation

Any person who procures or causes to be prepared an investigative consumer report on any consumer shall, upon written request made by the consumer within a reasonable period of time after the receipt by him of the disclosure required by subsection (a)(1) of this section, shall make a complete and accurate disclosure of the nature and scope of the investigation requested.  This disclosure shall be made in a writing mailed, or otherwise delivered, to the consumer not later than five days after the date on which the request for such disclosure was received from the consumer or such report was first requested, whichever is the later.

(c)	Limitation on liability upon showing of reasonable procedures for compliance with provisions

No person may be held liable for any violation of subsection (a) or (b) of this section if he shows by a preponderance of the evidence that at the time of the violation he maintained reasonable procedures to assure compliance with subsection (a) or (b) of this section.

 Section 1681e:  Compliance procedures

(a)	Identity and purposes of credit users

Every consumer reporting agency shall maintain reasonable procedures designed to avoid violations of section 1681c of this title and to limit the furnishing of consumer reports to the purposes listed under section 1681b of this title. These procedures shall require that prospective users of the information identify themselves, certify the purposes for which the information is sought, and certify that the information will be used for no other purpose.  Every consumer reporting agency shall make a reasonable effort to verify the identity of a new prospective user and the uses certified by such prospective user prior to furnishing such user a consumer report.  No consumer reporting agency may furnish a consumer report to any person if it has reasonable grounds for believing that the consumer report will not be used for a purpose listed in section 1681b of this title.

(b)	Accuracy of report

Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.

 Section 1681f:  Disclosures to governmental agencies

Notwithstanding the provisions of section 1681b of this title, a consumer reporting agency may furnish identifying information respecting any consumer, limited to his name, address, former addresses, places of employment, or former places of employment, to a governmental agency.

 Section 1681g:  Disclosures to consumers

(a)	Information on file;  sources;  report recipients

Every consumer reporting agency shall, upon request and proper identification of any consumer, clearly and accurately disclose to the consumer:

(1)	The nature and substance of all information (except medical information) in its files on the consumer at the time of the request.

(2)	The sources of the information;  except that the sources of information acquired solely for use in preparing an investigative consumer report and actually used for no other purpose need not be disclosed:  Provided, That in the event an action is brought under this subchapter, such sources shall be available to the plaintiff under appropriate discovery procedures in the court in which the action is brought.

(3)	The recipients of any consumer report on the consumer which it has furnished

(A)	for employment purposes within the twoyear period preceding the request, and

(B)	for any other purpose within the sixmonth period preceding the request.

(4)	The dates, original payees, and amounts of any checks upon which is based any adverse characterization of the consumer, included in the file at the time of the disclosure.

(b)	Exempt information

The requirements of subsection (a) of this section respecting the disclosure of sources of information and the recipients of consumer reports do not apply to information received or consumer reports furnished prior to the effective date of this subchapter except to the extent that the matter involved is contained in the files of the consumer reporting agency on that date.

 Section 1681h:  Conditions of disclosure to consumers

(a)	Times and notice

A consumer reporting agency shall make the disclosures required under section 1681g of this title during normal business hours and on reasonable notice.

(b)	Identification of consumer

The disclosures required under section 1681g of this title shall be made to the consumer

(1)	in person if he appears in person and furnishes proper identification;  or

(2)	by telephone if he has made a written request, with proper identification, for telephone disclosure and the toll charge, if any, for the telephone call is prepaid by or charged directly to the consumer.

(c)	Trained personnel

Any consumer reporting agency shall provide trained personnel to explain to the consumer any information furnished to him pursuant to section 1681g of this title.

(d)	Persons accompanying consumer

The consumer shall be permitted to be accompanied by one other person of his choosing, who shall furnish reasonable identification.  A consumer reporting agency may require the consumer to furnish a written statement granting permission to the consumer reporting agency to discuss the consumer's file in such person's presence.

(e)	Limitation of liability

Except as provided in sections 1681n and 1681o of this title, no consumer may bring any action or proceeding in the nature of defamation, invasion of privacy, or negligence with respect to the reporting of information against any consumer reporting agency, any user of information, or any person who furnishes information to a consumer reporting agency, based on information disclosed pursuant to section 1681g, 1681h, or 1681m of this title, except as to false information furnished with malice or willful intent to injure such consumer.

 Section 1681i:   Procedure in case of disputed accuracy

(a)	Dispute; reinvestigation

If the completeness or accuracy of any item of information contained in his file is disputed by a consumer, and such dispute is directly conveyed to the consumer reporting agency by the consumer, the consumer reporting agency shall within a reasonable period of time reinvestigate and record the current status of that information unless it has reasonable grounds to believe that the dispute by the consumer is frivolous or irrelevant.  If after such reinvestigation such information is found to be inaccurate or can no longer be verified, the consumer reporting agency shall promptly delete such information.  The presence of contradictory information in the consumer's file does not in and of itself constitute reasonable grounds for believing the dispute is frivolous or irrelevant.

(b)	Statement of dispute

If the reinvestigation does not resolve the dispute, the consumer may file a brief statement setting forth the nature of the dispute.  The consumer reporting agency may limit such statements to not more than one hundred words if it provides the consumer with assistance in writing a clear summary of the dispute.

(c)	Notification of consumer dispute in subsequent consumer reports

Whenever a statement of a dispute is filed, unless there is reasonable grounds to believe that it is frivolous or irrelevant, the consumer reporting agency shall, in any subsequent consumer report containing the information in question, clearly note that it is disputed by the consumer and provide either the consumer's statement or a clear and accurate codification or summary thereof.

(d)	Notification of deletion of disputed information

Following any deletion of information which is found to be inaccurate or whose accuracy can no longer be verified or any notation as to disputed information, the consumer reporting agency shall, at the request of the consumer, furnish notification that the item has been deleted or the statement, codification or summary pursuant to subsection (b) or (c) of this section to any person specifically designated by the consumer who has within two years prior thereto received a consumer report for employment purposes, or within six months prior thereto received a consumer report for any other purpose, which contained the deleted or disputed information.  The consumer reporting agency shall clearly and conspicuously disclose to the consumer his rights to make such a request. Such disclosure shall be made at or prior to the time the information is deleted or the consumer's statement regarding the disputed information is received.

 Section 1681j:  Charges for disclosures

A consumer reporting agency shall make all disclosures pursuant to section 1681g of this title and furnish all consumer reports pursuant to section 1681i(d) of this title without charge to the consumer if, within thirty days after receipt by such consumer of a notification pursuant to section 1681m of this title or notification from a debt collection agency affiliated with such consumer reporting agency stating that the consumer's credit rating may be or has been adversely affected, the consumer makes a request under section 1681g or 1681i(d) of this title.  Otherwise, the consumer reporting agency may impose a reasonable charge on the consumer for making disclosure to such consumer pursuant to section 1681g of this title, the charge for which shall be indicated to the consumer prior to making disclosure;  and for furnishing notifications, statements, summaries, or codifications to person designated by the consumer pursuant to section 1681i(d) of this title, the charge for which shall be indicated to the consumer prior to furnishing such information and shall not exceed the charge that the consumer reporting agency would impose on each designated recipient for a consumer report except that no charge may be made for notifying such persons of the deletion of information which is found to be inaccurate or which can no longer be verified.

 Section 1681k:  Public record information for employment purposes

A consumer reporting agency which furnishes a consumer report for employment purposes and which for that purpose compiles and reports items of information on consumers which are matters of public record and are likely to have an adverse effect upon a consumer's ability to obtain employment shall

(1)	at the time such public record information is reported to the user of such consumer report, notify the consumer of the fact that public record information is being reported by the consumer reporting agency, together with the name and address of the person to whom such information is being reported;  or

(2)	maintain strict procedures designed to insure that whenever public record  information which is likely to have an adverse effect on a consumer's ability to obtain employment is reported it is complete and up to date.  For purposes of this paragraph, items of public record relating to arrests, indictments, convictions, suits, tax liens, and outstanding judgments shall be considered up to date if the current public record status of the item at the time of the report is reported.

 Section 1681l:  Restrictions on investigative consumer reports

Whenever a consumer reporting agency prepares an investigative consumer report, no adverse information in the consumer report (other than information which is a matter of public record) may be included in a subsequent consumer report unless such adverse information has been verified in the process of making such subsequent consumer report, or the adverse information was received within the threemonth period preceding the date the subsequent report is furnished.

 Section 1681m:  Requirements on users of consumer reports

(a)	Adverse action based on reports of consumer reporting agencies

Whenever credit or insurance for personal, family, or household purposes, or employment involving a consumer is denied or the charge for such credit or insurance is increased either wholly or partly because of information contained in a consumer report from a consumer reporting agency, the user of the consumer report shall so advise the consumer against whom such adverse action has been taken and supply the name and address of the consumer reporting agency making the report.

(b)	Adverse action based on reports of persons other than consumer reporting agencies

Whenever credit for personal, family, or household purposes involving a consumer is denied or the charge for such credit is increased either wholly or partly because of information obtained from a person other than a consumer reporting agency bearing upon the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living, the user of such information shall, within a reasonable period of time, upon the consumer's written request for the reasons for such adverse action received within sixty days after learning of such adverse action, disclose the nature of the information to the consumer. The user of such information shall clearly and accurately disclose to the consumer his right to make such written request at the time such adverse action is communicated to the consumer.

(c)	Reasonable procedures to assure compliance

No person shall be held liable for any violation of this section if he shows by a preponderance of the evidence that at the time of the alleged violation he maintained reasonable procedures to assure compliance with the provisions of subsections (a) and (b) of this section.

 Section 1681n:  Civil liability for willful noncompliance

Any consumer reporting agency or user of information which willfully fails to comply with any requirement imposed under this subchapter with respect to any consumer is liable to that consumer in an amount equal to the sum of

(1)	any actual damages sustained by the consumer as a result of the failure;

(2)	such amount of punitive damages as the court may allow;  and

(3)	in the case of any successful action to enforce any liability under this section, the costs of the action together with reasonable attorney's fees as determined by the court.

 Section 1681o:  Civil liability for negligent noncompliance

Any consumer reporting agency or user of information which is negligent in failing to comply with any requirement imposed under this subchapter with respect to any consumer is liable to that consumer in an amount equal to the sum of

(1)	any actual damages sustained by the consumer as a result of the failure;

(2)	in the case of any successful action to enforce any liability under this section, the costs of the action together with reasonable attorney's fees as determined by the court.

 Section 1681p:  Jurisdiction of courts;  limitation of actions

An action to enforce any liability created under this subchapter may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within two years from the date on which the liability arises, except that where a defendant has materially and willfully misrepresented any information required under this subchapter to be disclosed to an individual and the information so misrepresented is material to the establishment of the defendant's liability to that individual under this subchapter, the action may be brought at any time within two years after discovery by the individual of the misrepresentation.

 Section 1681q:  Obtaining information under false pretenses

Any person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses shall be fined not more than $5,000 or imprisoned not more than one year, or both.

 Section 1681r:  Unauthorized disclosures by officers or employees

Any officer or employee of a consumer reporting agency who knowingly and willfully provides information concerning an individual from the agency's files to a person not authorized to receive that information shall be fined not more than $5,000 or imprisoned not more than one year, or both.

 Section 1681s:  Administrative enforcement

(a)	Federal Trade Commission;  powers

Compliance with the requirements imposed under this subchapter shall be enforced under the Federal Trade Commission Act by the Federal Trade Commission with respect to consumer reporting agencies and all other persons subject thereto, except to the extent that enforcement of the requirements imposed under this subchapter is specifically committed to some other government agency under subsection (b) hereof.  For the purpose of the exercise by the Federal Trade Commission of its functions and powers under the Federal Trade Commission Act, a violation of any requirement or prohibition imposed under this subchapter shall constitute an unfair or deceptive act or practice in commerce in violation of section 5(a) of the Federal Trade Commission Act and shall be subject to enforcement by the Federal Trade Commission under section 5(b) thereof with respect to any consumer reporting agency or person subject to enforcement by the Federal Trade Commission pursuant to this subsection, irrespective of whether that person is engaged in commerce or meets any other jurisdictional tests in the Federal Trade Commission Act.  The Federal Trade Commission shall have such procedural, investigative, and enforcement powers, including the power to issue procedural rules in enforcing compliance with the requirements imposed under this subchapter and to require the filing of reports, the production of documents, and the appearance of witnesses as though the applicable terms and conditions of the Federal Trade Commission Act were part of this subchapter.  Any person violating any of the provisions of this subchapter shall be subject to the penalties and entitled to the privileges and immunities provided in the Federal Trade Commission Act as though the applicable terms and provisions thereof were part of this subchapter.

(b)	Other administrative bodies

Compliance with the requirements imposed under this subchapter with respect to consumer reporting agencies and persons who use consumer reports from such agencies shall be enforced under

(1)	section 8 of the Federal Deposit Insurance Act [12 U.S.C.A. Section 1818], in the case of

(A)	national banks, and Federal branches and Federal agencies of foreign banks, by the Office of the Comptroller of the Currency;

(B)	member banks of the Federal Reserve System (other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25(a) of the Federal Reserve Act [12 U.S.C.A. Sections 601 et seq., 611 et seq.], by the Board of Governors of the Federal Reserve System;  and

(C)	banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation;

(2)	Section 8 of the Federal Deposit Insurance Act [12 U.S.C.A. Section 1818], by the Director of the Office of Thrift Supervision, in the case of a  savings association the deposits of which are insured by the Federal Deposit Insurance Corporation.

(3)	the Federal Credit Union Act, by the Administrator of the National Credit Union Administration with respect to any Federal credit union;

(4)	subtitle IV of Title 49, by the Secretary of Transportation, with respect to all carriers subject to the jurisdiction of the Surface Transportation Board;

(5)	the Federal Aviation Act of 1958, by the Secretary of Transportation with respect to any air carrier or foreign air carrier subject to that Act;  and

(6)	the Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act.

The terms used in paragraph (1) that are not defined in this subchapter or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).

(c)	Enforcement under other authority

For the purpose of the exercise by any agency referred to in subsection (b) of this section of its powers under any Act referred to in that subsection, a violation of any requirement imposed under this subchapter shall be deemed to be a violation of a requirement imposed under that Act.  In addition to its powers under any provision of law specifically referred to in subsection (b) of this section, each of the agencies referred to in that subsection may exercise, for the purpose of enforcing compliance with any requirement imposed under this subchapter any other authority conferred on it by law.

 Section 1681s1:  Information on overdue child support obligations

Notwithstanding any other provision of this subchapter, a consumer reporting agency shall include in any consumer report furnished by the agency in accordance with section 1681b of this title, any information on the failure of the consumer to pay overdue support which

(1)	is provided

(A)	to the consumer reporting agency by a State or local child support enforcement agency;  or

(B)	to the consumer reporting agency and verified by any local, State, or Federal Government agency;  and

(2)	antedates the report by 7 years or less.

 Section 1681t:  Relation to State laws

This subchapter does not annul, alter, affect, or exempt any person subject to the provisions of this subchapter from complying with the laws of any State with respect to the collection, distribution, or use of any information on consumers, except to the extent that those laws are inconsistent with any provision of this subchapter, and then only to the extent of the inconsistency.


42 USC Section 1983

Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.  For the purposes of this section, any Act of Congress applicable exclusively to the District of Columbia shall be considered to be a statute of the District of Columbia.


Selected Provisions of the Social Security Act

42 U.S.C. Sections 401, et seq.

 Section 401. Trust Funds

(a) Federal OldAge and Survivors Insurance Trust Fund

   There is hereby created on the books of the Treasury of the United States a trust fund to be known as the "Federal OldAge and Survivors Insurance Trust Fund".  The Federal OldAge and Survivors Insurance Trust Fund shall consist of the securities held by the Secretary of the Treasury for the OldAge Reserve Account and the amount standing to the credit of the OldAge Reserve Account on the books of the Treasury on January 1, 1940, which securities and amount the Secretary of the Treasury is authorized and directed to transfer to the Federal OldAge and Survivors Insurance Trust Fund, and, in addition, such gifts and bequests as may be made as provided in subsection (i)(1) of this section, and such amounts as may be appropriated to, or deposited in, the Federal OldAge and Survivors Insurance Trust Fund as hereinafter provided.  There is hereby appropriated to the Federal OldAge and Survivors Insurance Trust Fund for the fiscal year ending June 30, 1941, and for each fiscal year thereafter, out of any moneys in the Treasury not otherwise appropriated, amounts equivalent to 100 per centum of

  (1) the taxes (including interest, penalties, and additions to the taxes) received under subchapter A of chapter 9 of the Internal Revenue Code of 1939 (and covered into the Treasury) which are deposited into the Treasury by collectors of internal revenue before January 1, 1951;  and

  (2) the taxes certified each month by the Commissioner of Internal Revenue as taxes received under subchapter A of chapter 9 of the Internal Revenue Code of 1939 which are deposited into the Treasury by collectors of internal revenue after December 31, 1950, and before January 1, 1953, with respect to assessments of such taxes made before January 1, 1951;  and

  (3) the taxes imposed by subchapter A of chapter 9 of the Internal Revenue Code of 1939 with respect to wages (as defined in section 1426 of such Code), and by chapter 21 (other than sections 3101(b) and 3111(b) ) of Title 26 with  respect to wages (as defined in section 3121 of Title 26) reported to the Commissioner of Internal Revenue pursuant to section 1420(c) of the Internal Revenue Code of 1939 after December 31, 1950, or to the Secretary of the Treasury or his delegates pursuant to subtitle F of Title 26 after December 31, 1954, as determined by the Secretary of the Treasury by applying the applicable rates of tax under such subchapter or chapter 21 (other than sections 3101(b) and 3111(b) ) to such wages, which wages shall be certified by the Commissioner of Social Security on the basis of the records of wages established and maintained by such Commissioner in accordance with such reports, less the amounts specified in clause (1) of subsection (b) of this section;  and

  (4) the taxes imposed by subchapter E of chapter 1 of the Internal Revenue Code of 1939, with respect to selfemployment income (as defined in section 481 of such Code), and by chapter 2 (other than section 1401(b) ) of Title 26 with respect to selfemployment income (as defined in section 1402 of Title 26) reported to the Commissioner of Internal Revenue on tax returns under such subchapter or to the Secretary of the Treasury or his delegate on tax returns under subtitle F of Title 26, as determined by the Secretary of the Treasury by applying the applicable rate of tax under such subchapter or chapter (other than section 1401(b) ) to such selfemployment income, which selfemployment  income shall be certified by the Commissioner of Social Security on the basis of the records of selfemployment income established and maintained by the Commissioner of Social Security in accordance with such returns, less the amounts specified in clause (2) of subsection (b) of this section.

The amounts appropriated by clauses (3) and (4) of this subsection shall be transferred from time to time from the general fund in the Treasury to the Federal OldAge and Survivors Insurance Trust Fund, and the amounts appropriated by clauses (1) and (2) of subsection (b) of this section shall be transferred from time to time from the general fund in the Treasury to the Federal Disability Insurance Trust Fund, such amounts to be determined on the basis of estimates by the Secretary of the Treasury of the taxes, specified in clauses (3) and (4) of this subsection, paid to or deposited into the Treasury;  and proper adjustments shall be made in amounts subsequently transferred to the extent prior estimates were in excess of or were less than the taxes specified in such clauses (3) and (4) of this subsection.  All amounts transferred to either Trust Fund under the preceding sentence shall be invested by the Managing Trustee in the same manner and to the same extent as the other assets of such Trust Fund.  Notwithstanding the preceding sentence, in any case in which the Secretary of the Treasury determines that the assets of either such Trust Fund would otherwise be inadequate to meet such Fund's obligations for any month, the Secretary of the Treasury shall transfer to such Trust Fund on the first day of such month the amount which would have been transferred to such Fund under this section as in effect on October 1, 1990; and such Trust Fund shall pay interest to the general fund on the amount so transferred on the first day of any month at a rate (calculated on a daily basis, and applied against the difference between the amount so transferred on such first day and the amount which would have been transferred to the Trust Fund up to that day under the procedures in effect on January 1, 1983) equal to the rate earned by the investments of such Fund in the same month under subsection (d) of this section.

(b) Federal Disability Insurance Trust Fund

 There is hereby created on the books of the Treasury of the United States a trust fund to be known as the "Federal Disability Insurance Trust Fund".  The Federal Disability Insurance Trust Fund shall consist of such gifts and bequests as may be made as provided in subsection (i)(1) of this section, and such amounts as may be appropriated to, or deposited in, such fund as provided in this section.  There is hereby appropriated to the Federal Disability Insurance Trust Fund for the fiscal year ending June 30, 1957, and for each fiscal year thereafter, out of any moneys in the Treasury not otherwise appropriated, amounts equivalent to 100 per centum of

  (1) (A) 1/2 of 1 per centum of the wages (as defined in section 3121 of Title 26) paid after December 31, 1956, and before January 1, 1966, and reported to the Secretary of the Treasury or his delegate pursuant to subtitle F of Title 26, (B) 0.70 of 1 per centum of the wages (as so defined) paid after December 31, 1965, and before January 1, 1968, and so reported, (C) 0.95 of 1 per centum of the wages (as so defined) paid after December 31, 1967, and before January 1, 1970, and so reported, (D) 1.10 per centum of the wages (as so defined) paid after December 31, 1969, and before January 1, 1973, and so reported, (E) 1.1 per centum of the wages (as so defined) paid after December 31, 1972, and before January 1, 1974, and so reported, (F) 1.15 per centum of the wages (as so defined) paid after December 31, 1973, and before January 1, 1978, and so reported, (G) 1.55 per centum of the wages (as so defined) paid after December 31, 1977, and before January 1, 1979, and so reported, (H) 1.50 per centum of the wages (as so defined) paid after December 31, 1978, and before January 1, 1980, and so reported, (I) 1.12 per centum of the wages (as so defined) paid after December 31, 1979, and before January 1, 1981, and so reported, (J) 1.30 per centum of the wages (as so defined) paid after December  31, 1980, and before January 1, 1982, and so reported, (K) 1.65 per centum of the wages (as so defined) paid after December 31, 1981, and before January 1, 1983, and so reported, (L) 1.25 per centum of the wages (as so defined) paid after December 31, 1982, and before January 1, 1984, and so reported, (M) 1.00 per centum of the wages (as so defined) paid after December 31, 1983, and before January 1, 1988, and so reported, (N) 1.06 per centum of the wages (as so defined) paid after December 31, 1987, and before January 1, 1990, and so reported, (O) 1.20 per centum of the wages (as so defined) paid after December 31, 1989, and before January 1, 1994, and so reported, (P) 1.88 per centum of the wages (as so defined) paid after December 31, 1993, and before January 1, 1997, and so reported, (Q) 1.70 per centum of the wages (as so defined) paid after December 31, 1996, and before January 1, 2000, and so reported, and (R) 1.80 per centum of the wages (as so defined) paid after December 31, 1999, and so reported, which wages shall be certified by the Commissioner of Social Security on the basis of the records of wages established and maintained by such Commissioner in accordance with such reports;  and

  (2) (A) 3/8 of 1 per centum of the amount of selfemployment income (as defined in section 1402 of Title 26) reported to the Secretary of the Treasury or his delegate on tax returns under subtitle F of Title 26 for any taxable year beginning after December 31, 1956, and before January 1, 1966, (B) 0.525  of 1 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1965, and before January 1, 1968, (C) 0.7125 of 1 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1967, and before January 1, 1970, (D) 0.825 of 1 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1969, and before January 1, 1973, (E) 0.795 of 1 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1972, and before January 1, 1974, (F) 0.815 of 1 per centum of the amount of self employment income (as so defined) as reported for any taxable year beginning after December 31, 1973, and before January 1, 1978, (G) 1.090 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1977, and before January 1, 1979, (H) 1.0400 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1978, and before January 1, 1980, (I) 0.7775 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1979, and before January 1, 1981, (J) 0.9750 per centum of the amount of selfemployment income (as so defined) so reported for any taxable  year beginning after December 31, 1980, and before January 1, 1982, (K) 1.2375 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1981, and before January 1, 1983, (L) 0.9375 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1982, and before January 1, 1984, (M) 1.00 per centum of the amount of self employment income (as so defined) so reported for any taxable year beginning after December 31, 1983, and before January 1, 1988, (N) 1.06 per centum of the selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1987, and before January 1, 1990, (O) 1.20 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1989, and before January 1, 1994, (P) 1.88 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1993, and before January 1, 1997, (Q) 1.70 per centum of the amount of self employment income (as so defined) so reported for any taxable year beginning after December 31, 1996, and before January 1, 2000, and (R) 1.80 per centum of the amount of selfemployment income (as so defined) so reported for any taxable year beginning after December 31, 1999, which selfemployment income shall be certified by the Commissioner of Social Security on the basis of the  records of selfemployment income established and maintained by the Commissioner of Social Security in accordance with such returns.

(c) Board of Trustees;  duties;  reports to Congress

 With respect to the Federal OldAge and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund (hereinafter in this subchapter called the "Trust Funds") there is hereby created a body to be known as the Board of Trustees of the Trust Funds (hereinafter in this subchapter called the "Board of Trustees") which Board of Trustees shall be composed of the Commissioner of Social Security, the Secretary of the Treasury, the Secretary of Labor, and the Secretary of Health and Human Services, all ex officio, and of two members of the public (both of whom may not be from the same political party), who shall be nominated by the President for a term of four years and subject to confirmation by the Senate.  A member of the Board of Trustees serving as a member of the public and nominated and confirmed to fill a vacancy occurring during a term shall be nominated and confirmed only for the remainder of such term.  An individual nominated and confirmed as a member of the public may serve in such position after the expiration of such member's term until the earlier of the time at which the member's successor takes office or the time at which a report of the Board is first issued under paragraph (2) after the expiration of the member's term.  The Secretary of the Treasury shall be the Managing Trustee of the Board of Trustees (hereinafter in this subchapter called the "Managing Trustee").  The Deputy Commissioner of Social Security shall serve as Secretary of the Board of Trustees.  The Board of Trustees shall meet not less frequently than once each calendar year.  It shall be the duty of the Board of Trustees to

  (1) Hold the Trust Funds;

  (2) Report to the Congress not later than the first day of April of each year on the operation and status of the Trust Funds during the preceding fiscal year and on their expected operation and status during the next ensuing five fiscal years;

  (3) Report immediately to the Congress whenever the Board of Trustees is of the opinion that the amount of either of the Trust Funds is unduly small;

  (4) Recommend improvements in administrative procedures and policies designed to effectuate the proper coordination of the oldage and survivors insurance and FederalState unemployment compensation program;  and

  (5) Review the general policies followed in managing the Trust Funds, and recommend changes in such policies, including necessary changes in the provisions of the law which govern the way in which the Trust Funds are to be  managed.

The report provided for in paragraph (2) of this subsection shall include a statement of the assets of, and the disbursements made from, the Trust Funds during the preceding fiscal year, an estimate of the expected future income to, and disbursements to be made from, the Trust Funds during each of the next ensuing five fiscal years, and a statement of the actuarial status of the Trust Funds.  Such statement shall include a finding by the Board of Trustees as to whether the Federal OldAge and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, individually and collectively, are in close actuarial balance (as defined by the Board of Trustees).  Such report shall include an actuarial opinion by the Chief Actuary of the Social Security Administration certifying that the techniques and methodologies used are generally accepted within the actuarial profession and that the assumptions and cost estimates used are reasonable.  Such report shall also include an actuarial analysis of the benefit disbursements made from the Federal OldAge and Survivors Insurance Trust Fund with respect to disabled beneficiaries. Such report shall be printed as a House document of the session of the Congress to which the report is made.  A person serving on the Board of Trustees shall not be considered to be a fiduciary and shall not be personally liable for actions taken in such capacity with respect to the Trust Funds.

(d) Investments

 It shall be the duty of the Managing Trustee to invest such portion of the Trust Funds as is not, in his judgment, required to meet current withdrawals. Such investments may be made only in interestbearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States.  For such purpose such obligations may be acquired (1) on original issue at the issue price, or (2) by purchase of outstanding obligations at the market price.  The purposes for which obligations of the United States may be issued under chapter 31 of Title 31 are hereby extended to authorize the issuance at par of publicdebt obligations for purchase by the Trust Funds.  Such obligations issued for purchase by the Trust Funds shall have maturities fixed with due regard for the needs of the Trust Funds and shall bear interest at a rate equal to the average market yield (computed by the Managing Trustee on the basis of market quotations as of the end of the calendar month next preceding the date of such issue) on all marketable interestbearing obligations of the United States then forming a part of the public debt which are not due or callable until after the expiration of four years from the end of such calendar month;  except that where such average market yield is not a multiple of oneeighth of 1 per centum, the rate of interest of such obligations shall be the multiple of oneeighth of 1 per centum nearest such market yield.  Each obligation issued for purchase by the Trust Funds under this subsection shall be evidenced by a paper instrument in the form of a bond, note, or certificate of indebtedness issued by the Secretary of the Treasury setting forth the principal amount, date of maturity, and interest rate of the obligation, and stating on its face that the obligation shall be incontestable in the hands of the Trust Fund to which it is issued, that the obligation is supported by the full faith and credit of the United States, and that the United States is pledged to the payment of the obligation with respect to both principal and interest.  The Managing Trustee may purchase other interestbearing obligations of the United States or obligations guaranteed as to both principal and interest by the United States, on original issue or at the market price, only where he determines that the purchase of such other obligations is in the public interest.

(e) Sale of acquired obligations

 Any obligations acquired by the Trust Funds (except publicdebt obligations issued exclusively to the Trust Funds) may be sold by the Managing Trustee at the market price, and such publicdebt obligations may be redeemed at par plus accrued interest.

(f) Proceeds from sale or redemption of obligations;  interest

 The interest on, and the proceeds from the sale or redemption of, any obligations held in the Federal OldAge and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund shall be credited to and form a part of the Federal OldAge and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund, respectively.  Payment from the general fund of the Treasury to either of the Trust Funds of any such interest or proceeds shall be in the form of paper checks drawn on such general fund to the order of such Trust Fund.

(g) Payments into Treasury

 (1)(A) The Managing Trustee of the Trust Funds (which for purposes of this paragraph shall include also the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund established by subchapter XVIII of this chapter) is directed to pay from the Trust Funds into the Treasury

  (i) the amounts estimated by the Managing Trustee, the Commissioner of Social Security, and the Secretary of Health and Human Services which will be expended, out of moneys appropriated from the general fund in the Treasury, during a threemonth period by the Department of Health and Human Services for the administration of subchapter XVIII of this chapter and by the Department of Treasury for the administration of subchapters II and XVIII of this chapter and chapters 2 and 21 of Title 26, less

  (ii) the amounts estimated (pursuant to the applicable method prescribed under paragraph (4) of this subsection) by the Commissioner of Social Security which will be expended, out of moneys made available for expenditures from the Trust Funds, during such threemonth period to cover the cost of carrying out the functions of the Social Security Administration, specified in section 432 of this title, which relate to the administration of provisions of Title 26 other than those referred to in clause (i).

Such payments shall be carried into the Treasury as the net amount of repayments due the general fund account for reimbursement of expenses incurred in connection with the administration of subchapters II and XVIII of this chapter and chapters 2 and 21 of Title 26.  A final accounting of such payments for any fiscal year shall be made at the earliest practicable date after the close thereof.  There are hereby authorized to be made available for expenditure, out of any or all of the Trust Funds, such amounts as the Congress may deem appropriate to pay the costs of the part of the administration of this subchapter, subchapter XVI of this chapter, and subchapter XVIII of this chapter for which the Commissioner of Social Security is responsible, the costs of subchapter XVIII of this chapter for which the Secretary of Health and Human Services is responsible, and the costs of carrying out the functions of the Social Security Administration, specified in section 432 of this title, which relate to the administration of provisions of Title 26 other than those referred to in clause (i) of the first sentence of this subparagraph.  Of the amounts authorized to be made available out of the Federal OldAge and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund under the preceding sentence, there are hereby authorized to be made available from either or both of such Trust Funds for continuing disability reviews

  (i) for fiscal year 1996, $260,000,000;

  (ii) for fiscal year 1997, $360,000,000;

  (iii) for fiscal year 1998, $570,000,000;

  (iv) for fiscal year 1999, $720,000,000;

  (v) for fiscal year 2000, $720,000,000;

  (vi) for fiscal year 2001, $720,000,000;  and

  (viii) for fiscal year 2002, $720,000,000.

For purposes of this subparagraph, the term "continuing disability review" means a review conducted pursuant to section 421(i) of this title and a review or disability eligibility redetermination conducted to determine the continuing disability and eligibility of a recipient of benefits under the supplemental security income program under subchapter XVI of this chapter, including any review or redetermination conducted pursuant to section 207 or 208 of the Social Security Independence and Program Improvements Act of 1994 (Public Law 103296).

 (B) After the close of each fiscal year

  (i) the Commissioner of Social Security shall determine

   (I) the portion of the costs, incurred during such fiscal year, of administration of this subchapter, subchapter XVI of this chapter, and subchapter XVIII of this chapter for which the Commissioner is responsible and of carrying out the functions of the Social Security Administration, specified in section 432 of this title, which relate to the administration of provisions of Title 26 (other than those referred to in clause (i) of the   first sentence of subparagraph (A)), which should have been borne by the general fund of the Treasury,

   (II) the portion of such costs which should have been borne by the Federal OldAge and Survivors Insurance Trust Fund,

   (III) the portion of such costs which should have been borne by the Federal Disability Insurance Trust Fund,

   (IV) the portion of such costs which should have been borne by the Federal Hospital Insurance Trust Fund, and

   (V) the portion of such costs which should have been borne by the Federal Supplementary Medical Insurance Trust Fund, and

  (ii) the Secretary of Health and Human Services shall determine

   (I) the portion of the costs, incurred during such fiscal year, of the administration of subchapter XVIII of this chapter for which the Secretary is responsible, which should have been borne by the general fund of the Treasury,

   (II) the portion of such costs which should have been borne by the Federal Hospital Insurance Trust Fund, and

   (III) the portion of such costs which should have been borne by the Federal Supplementary Medical Insurance Trust Fund.

 (C) After the determinations under subparagraph (B) have been made for any fiscal year, the Commissioner of Social Security and the Secretary shall each certify to the Managing Trustee the amounts, if any, which should be transferred from one to any of the other such Trust Funds and the amounts, if any, which should be transferred between the Trust Funds (or one of the Trust Funds) and the general fund of the Treasury, in order to ensure that each of the Trust Funds and the general fund of the Treasury have borne their proper share of the costs, incurred during such fiscal year, for

  (i) the parts of the administration of this subchapter, subchapter XVI of this chapter, and subchapter XVIII of this chapter for which the Commissioner of Social Security is responsible,

  (ii) the parts of the administration of subchapter XVIII of this chapter for which the Secretary is responsible, and

  (iii) carrying out the functions of the Social Security Administration, specified in section 432 of this title, which relate to the administration of provisions of Title 26 (other than those referred to in clause (i) of the first sentence of subparagraph (A)).

The Managing Trustee shall transfer any such amounts in accordance with any certification so made.

 (D) The determinations required under subclauses (IV) and (V) of subparagraph (B)(i) shall be made in accordance with the cost allocation methodology in existence on August 15, 1994, until such time as the methodology for making the determinations required under such subclauses is revised by agreement of the Commissioner and the Secretary, except that the determination of the amounts to be borne by the general fund of the Treasury with respect to expenditures incurred in carrying out the functions of the Social Security Administration specified in section 432 of this title shall be made pursuant to the applicable method prescribed under paragraph (4).

 (2) The Managing Trustee is directed to pay from time to time from the Trust Funds into the Treasury the amount estimated by him as taxes imposed under section 3101(a) of Title 26 which are subject to refund under section 6413(c) of such Title with respect to wages (as defined in section 3121 of such Title).  Such taxes shall be determined on the basis of the records of wages maintained by the Commissioner of Social Security in accordance with the wages reported to the Secretary of the Treasury or his delegate pursuant to subtitle F of such Title, and the Commissioner of Social Security shall furnish the Managing Trustee such information as may be required by the Trustee for such purpose.  The payments by the Managing Trustee shall be covered into the Treasury as repayments to the account for refunding internal revenue collections.  Payments pursuant to the first sentence of this paragraph shall be made from the Federal OldAge and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund in the ratio in which amounts were appropriated to such Trust Funds under clause (3) of subsection (a) of this section and clause (1) of subsection (b) of this section.

 (3) Repayments made under paragraph (1) or (2) of this subsection shall not be available for expenditures but shall be carried to the surplus fund of the Treasury.  If it subsequently appears that the estimates under either such paragraph in any particular period were too high or too low, appropriate adjustments shall be made by the Managing Trustee in future payments.

 (4) The Commissioner of Social Security shall utilize the method prescribed pursuant to this paragraph, as in effect immediately before August 15, 1994, for determining the costs which should be borne by the general fund of the Treasury of carrying out the functions of the Commissioner, specified in section 432 of this title, which relate to the administration of provisions of Title 26 (other than those referred to in clause (i) of the first sentence of paragraph (1)(A)).  If at any time or times thereafter the Boards of Trustees of such Trust Funds consider such action advisable, they may modify the method of determining such costs.

(h) Benefit payments

 Benefit payments required to be made under section 423 of this title, and benefit payments required to be made under subsection (b), (c), or (d) of section 402 of this title to individuals entitled to benefits on the basis of the wages and selfemployment income of an individual entitled to disability insurance benefits, shall be made only from the Federal Disability Insurance Trust Fund.  All other benefit payments required to be made under this subchapter (other than section 426 of this title) shall be made only from the Federal OldAge and Survivors Insurance Trust Fund.

(i) Gifts and bequests

 (1) The Managing Trustee may accept on behalf of the United States money gifts and bequests made unconditionally to the Federal OldAge and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, or the Federal Supplementary Medical Insurance Trust Fund or to the Social Security Administration, the Department of Health and Human Services, or any part or officer thereof, for the benefit of any of such Funds or any activity financed through such Funds.

 (2) Any such gift accepted pursuant to the authority granted in paragraph (1) of this subsection shall be deposited in

  (A) the specific trust fund designated by the donor or

  (B) if the donor has not so designated, the Federal OldAge and Survivors Insurance Trust Fund.

(j) Travel expenses

 There are authorized to be made available for expenditure, out of the Federal OldAge and Survivors Insurance Trust Fund, or the Federal Disability Insurance Trust Fund (as determined appropriate by the Commissioner of Social Security), such amounts as are required to pay travel expenses, either on an actual cost or commuted basis, to individuals for travel incident to medical examinations requested by the Commissioner of Social Security in connection with disability determinations under this subchapter, and to parties, their representatives, and all reasonably necessary witnesses for travel within the United States (as defined in section 410(i) of this title) to attend reconsideration interviews and proceedings before administrative law judges with respect to any determination under this subchapter.  The amount available under the preceding sentence for payment for air travel by any person shall not exceed the coach fare for air travel between the points involved unless the use of firstclass accommodations is required (as determined under regulations of the Commissioner of Social Security) because of such person's health condition or the unavailability of alternative accommodations;  and the amount available for payment for other travel by any person shall not exceed the cost of travel (between the points involved) by the most economical and expeditious means of transportation appropriate to such person's health condition, as specified in such regulations.  The amount available for payment under this subsection for travel by a representative to attend an administrative proceeding before an administrative law judge or other adjudicator shall not exceed the maximum amount allowable under this subsection for such travel originating within the geographic area of the office having jurisdiction over such proceeding.

(k) Experiment and demonstration project expenditures

 Expenditures made for experiments and demonstration projects under section 505(a) of the Social Security Disability Amendments of 1980 shall be made from the Federal Disability Insurance Trust Fund and the Federal OldAge and Survivors Insurance Trust Fund, as determined appropriate by the Commissioner of Social Security.

(l) Interfund borrowing

 (1) If at any time prior to January 1988 the Managing Trustee determines that borrowing authorized under this subsection is appropriate in order to best meet the need for financing the benefit payments from the Federal OldAge and Survivors Insurance Trust Fund or the Federal Disability Insurance Trust Fund, the Managing Trustee may borrow such amounts as he determines to be appropriate from the other such Trust Fund, or, subject to paragraph (5), from the Federal Hospital Insurance Trust Fund established under section 1395i of this title, for transfer to and deposit in the Trust Fund whose need for financing is involved.

 (2) In any case where a loan has been made to a Trust Fund under paragraph  (1), there shall be transferred on the last day of each month after such loan is made, from the borrowing Trust Fund to the lending Trust Fund, the total interest accrued to such day with respect to the unrepaid balance of such loan at a rate equal to the rate which the lending Trust Fund would earn on the amount involved if the loan were an investment under subsection (d) of this section (even if such an investment would earn interest at a rate different than the rate earned by investments redeemed by the lending fund in order to make the loan).

 (3)(A) If in any month after a loan has been made to a Trust Fund under paragraph (1), the Managing Trustee determines that the assets of such Trust Fund are sufficient to permit repayment of all or part of any loans made to such Fund under paragraph (1), he shall make such repayments as he determines to be appropriate.

 (B)(i) If on the last day of any year after a loan has been made under paragraph (1) by the Federal Hospital Insurance Trust Fund to the Federal Old Age and Survivors Insurance Trust Fund or the Federal Disability Insurance Trust Fund, the Managing Trustee determines that the OASDI trust fund ratio exceeds 15 percent, he shall transfer from the borrowing Trust Fund to the Federal Hospital Insurance Trust Fund an amount that

  (I) together with any amounts transferred from another borrowing Trust Fund under this paragraph for such year, will reduce the OASDI trust fund ratio to 15 percent;  and

  (II) does not exceed the outstanding balance of such loan.

 (ii) Amounts required to be transferred under clause (i) shall be transferred on the last day of the first month of the year succeeding the year in which the determination described in clause (i) is made.

 (iii) For purposes of this subparagraph, the term "OASDI trust fund ratio" means, with respect to any calendar year, the ratio of

  (I) the combined balance in the Federal OldAge and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, as of the last day of  such calendar year, to

  (II) the amount estimated by the Commissioner of Social Security to be the total amount to be paid from the Federal OldAge and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund during the calendar year following such calendar year for all purposes authorized by this section (other than payments of interest on, and repayments of, loans from the Federal Hospital Insurance Trust Fund under paragraph (1), but excluding any transfer payments between such trust funds and reducing the amount of any transfer to the Railroad Retirement Account by the amount of any transfers into either such trust fund from that Account).

 (C)(i) The full amount of all loans made under paragraph (1) (whether made before or after January 1, 1983) shall be repaid at the earliest feasible date and in any event no later than December 31, 1989.

 (ii) For the period after December 31, 1987, and before January 1, 1990, the Managing Trustee shall transfer each month to the Federal Hospital Insurance Trust Fund from any Trust Fund with any amount outstanding on a loan made from the Federal Hospital Insurance Trust Fund under paragraph (1) an amount not less than an amount equal to (I) the amount owed to the Federal Hospital Insurance Trust Fund by such Trust Fund at the beginning of such month (plus the interest accrued on the outstanding balance of such loan during such month), divided by (II) the number of months elapsing after the preceding month and before January 1990.  The Managing Trustee may, during this period, transfer larger amounts than prescribed by the preceding sentence.

 (4) The Board of Trustees shall make a timely report to the Congress of any amounts transferred (including interest payments) under this subsection.

 (5)(A) No amounts may be borrowed from the Federal Hospital Insurance Trust Fund under paragraph (1) during any month if the Hospital Insurance Trust Fund ratio for such month is less than 10 percent.

 (B) For purposes of this paragraph, the term "Hospital Insurance Trust Fund ratio" means, with respect to any month, the ratio of

  (i) the balance in the Federal Hospital Insurance Trust Fund, reduced by the outstanding amount of any loan (including interest thereon) theretofore made to such Trust Fund under this subsection, as of the last day of the second month preceding such month, to

  (ii) the amount obtained by multiplying by twelve the total amount which (as estimated by the Secretary) will be paid from the Federal Hospital Insurance Trust Fund during the month for which such ratio is to be determined (other than payments of interest on, or repayments of loans from another Trust Fund under this subsection), and reducing the amount of any transfers to the Railroad Retirement Account by the amount of any transfer into the Hospital  Insurance Trust Fund from that Account.

(m) Accounting for unnegotiated benefit checks

 (1) The Secretary of the Treasury shall implement procedures to permit the identification of each check issued for benefits under this subchapter that has not been presented for payment by the close of the sixth month following the month of its issuance.

 (2) The Secretary of the Treasury shall, on a monthly basis, credit each of the Trust Funds for the amount of all benefit checks (including interest thereon) drawn on such Trust Fund more than 6 months previously but not presented for payment and not previously credited to such Trust Fund, to the extent provided in advance in appropriation Acts.

 (3) If a benefit check is presented for payment to the Treasury and the amount thereof has been previously credited pursuant to paragraph (2) to one of the Trust Funds, the Secretary of the Treasury shall nevertheless pay such check, if otherwise proper, recharge such Trust Fund, and notify the Commissioner of Social Security.

 (4) A benefit check bearing a current date may be issued to an individual who did not negotiate the original benefit check and who surrenders such check for cancellation if the Secretary of the Treasury determines it is necessary to effect proper payment of benefits.

 Section 403. Reduction of insurance benefits

(a) Maximum benefits

 (1) In the case of an individual whose primary insurance amount has been computed or recomputed under section 415(a)(1) or (4) of this title, or section 415(d) of this title, as in effect after December 1978, the total monthly benefits to which beneficiaries may be entitled under section 402 or 423 of this title for a month on the basis of the wages and selfemployment income of such individual shall, except as provided by paragraphs (3) and (6) (but prior to any increases resulting from the application of paragraph (2)(A)(ii)(III) of section 415(i) of this title), be reduced as necessary so as not to exceed

  (A) 150 percent of such individual's primary insurance amount to the extent that it does not exceed the amount established with respect to this subparagraph by paragraph (2),

  (B) 272 percent of such individual's primary insurance amount to the extent that it exceeds the amount established with respect to subparagraph (A) but does not exceed the amount established with respect to this subparagraph by paragraph (2),

  (C) 134 percent of such individual's primary insurance amount to the extent that it exceeds the amount established with respect to subparagraph (B) but does not exceed the amount established with respect to this subparagraph by paragraph (2), and

  (D) 175 percent of such individual's primary insurance amount to the extent that it exceeds the amount established with respect to subparagraph (C).

Any such amount that is not a multiple of $0.10 shall be decreased to the next lower multiple of $0.10.

 (2)(A) For individuals who initially become eligible for oldage or disability insurance benefits, or who die (before becoming so eligible for such benefits), in the calendar year 1979, the amounts established with respect to subparagraphs (A), (B), and (C) of paragraph (1) shall be $230, $332, and $433, respectively.

 (B) For individuals who initially become eligible for oldage or disability insurance benefits, or who die (before becoming so eligible for such benefits), in any calendar year after 1979, each of the amounts so established shall equal the product of the corresponding amount established for the calendar year 1979 by subparagraph (A) of this paragraph and the quotient obtained under subparagraph (B)(ii) of section 415(a)(1) of this title, with such product being rounded in the manner prescribed by section 415(a)(1)(B)(iii) of this title.

 (C) In each calendar year after 1978 the Commissioner of Social Security shall publish in the Federal Register, on or before November 1, the formula which (except as provided in section 415(i)(2)(D) of this title) is to be applicable under this paragraph to individuals who become eligible for oldage or disability insurance benefits, or who die (before becoming eligible for such benefits), in the following calendar year.

 (D) A year shall not be counted as the year of an individual's death or eligibility for purposes of this paragraph or paragraph (8) in any case where such individual was entitled to a disability insurance benefit for any of the 12 months immediately preceding the month of such death or eligibility (but there shall be counted instead the year of the individual's eligibility for the disability insurance benefits to which he was entitled during such 12 months).

 (3)(A) When an individual who is entitled to benefits on the basis of the wages and selfemployment income of any insured individual and to whom this subsection applies would (but for the provisions of section 402(k)(2)(A) of this title) be entitled to child's insurance benefits for a month on the basis of the wages and selfemployment income of one or more other insured individuals, the total monthly benefits to which all beneficiaries are entitled on the basis of such wages and selfemployment income shall not be reduced under this subsection to less than the smaller of

  (i) the sum of the maximum amounts of benefits payable on the basis of the wages and selfemployment income of all such insured individuals, or

  (ii) an amount (I) initially equal to the product of 1.75 and the primary insurance amount that would be computed under section 415(a)(1) of this title, for January of the year determined for purposes of this clause under the following two sentences, with respect to average indexed monthly earnings equal to onetwelfth of the contribution and benefit base determined for that year under section 430 of this title, and (II) thereafter increased in accordance with the provisions of section 415(i)(2)(A)(ii) of this title.

The year established for purposes of clause (ii) shall be 1983 or, if it occurs later with respect to any individual, the year in which occurred the month that the application of the reduction provisions contained in this subparagraph began with respect to benefits payable on the basis of the wages and self employment income of the insured individual.  If for any month subsequent to the first month for which clause (ii) applies (with respect to benefits payable on the basis of the wages and selfemployment income of the insured individual) the reduction under this subparagraph ceases to apply, then the year determined under the preceding sentence shall be redetermined (for purposes of any subsequent application of this subparagraph with respect to benefits payable on the basis of such wages and selfemployment income) as though this subparagraph had not been previously applicable.

 (B) When two or more persons were entitled (without the application of section 402(j)(1) of this title and section 423(b) of this title) to monthly benefits under section 402 or 423 of this title for January 1971 or any prior month on the basis of the wages and selfemployment income of such insured individual and the provisions of this subsection as in effect for any such month were applicable in determining the benefit amount of any persons on the basis of such wages and selfemployment income, the total of benefits for any month after January 1971 shall not be reduced to less than the largest of

  (i) the amount determined under this subsection without regard to this subparagraph,

  (ii) the largest amount which has been determined for any month under this subsection for persons entitled to monthly benefits on the basis of such insured individual's wages and selfemployment income, or

  (iii) if any persons are entitled to benefits on the basis of such wages and selfemployment income for the month before the effective month (after September 1972) of a general benefit increase under this subchapter (as defined in section 415(i)(3) of this title) or a benefit increase under the provisions of section 415(i) of this title, an amount equal to the sum of amounts derived by multiplying the benefit amount determined under this subchapter (excluding any part thereof determined under section 402(w) of this title) for the month before such effective month (including this subsection, but without the application of section 422(b) of this title, section 402(q) of this title, and subsections (b), (c), and (d) of this section), for each such person for such month, by a percentage equal to the percentage of the increase provided under such benefit increase (with any such increased amount which is not a multiple of $0.10 being rounded to the next lower multiple of $0.10);

but in any such case (I) subparagraph (A) of this paragraph shall not be applied to such total of benefits after the application of clause (ii) or  (iii), and (II) if section 402(k)(2)(A) of this title was applicable in the case of any such benefits for a month, and ceases to apply for a month after such month, the provisions of clause (ii) or (iii) shall be applied, for and after the month in which section 402(k)(2)(A) of this title ceases to apply, as though subparagraph (A) of this paragraph had not been applicable to such total of benefits for the last month for which clause (ii) or (iii) was applicable.

 (C) When any of such individuals is entitled to monthly benefits as a divorced spouse under section 402(b) or (c) of this title or as a surviving divorced spouse under section 402(e) or (f) of this title for any month, the benefit to which he or she is entitled on the basis of the wages and selfemployment income of such insured individual for such month shall be determined without regard to this subsection, and the benefits of all other individuals who are entitled for such month to monthly benefits under section 402 of this title on the wages and selfemployment income of such insured individual shall be determined as if no such divorced spouse or surviving divorced spouse were entitled to benefits for such month.

 (D) In any case in which

  (i) two or more individuals are entitled to monthly benefits for the same month as a spouse under subsection (b) or (c) of section 402 of this title, or  as a surviving spouse under subsection (e), (f), or (g) of section 402 of this title,

  (ii) at least one of such individuals is entitled by reason of subparagraph  (A)(ii) or (B) of section 416(h)(1) of this title, and

  (iii) such entitlements are based on the wages and selfemployment income of the same insured individual,

the benefit of the entitled individual whose entitlement is based on a valid marriage (as determined without regard to subparagraphs (A)(ii) and (B) of section 416(h)(1) of this title) to such insured individual shall, for such month and all months thereafter, be determined without regard to this subsection, and the benefits of all other individuals who are entitled, for such month or any month thereafter, to monthly benefits under section 402 of this title based on the wages and selfemployment income of such insured individual shall be determined as if such entitled individual were not entitled to benefits for such month.

 (4) In any case in which benefits are reduced pursuant to the provisions of this subsection, the reduction shall be made after any deductions under this section and after any deductions under section 422(b) of this title. Notwithstanding the preceding sentence, any reduction under this subsection in the case of an individual who is entitled to a benefit under subsection (b),  (c), (d), (e), (f), (g), or (h) of section 402 of this title for any month on the basis of the same wages and selfemployment income as another person

  (A) who also is entitled to a benefit under subsection (b), (c), (d), (e),  (f), (g), or (h) of section 402 of this title for such month,

  (B) who does not live in the same household as such individual, and

  (C) whose benefit for such month is suspended (in whole or in part) pursuant to subsection (h)(3) of this section,

shall be made before the suspension under subsection (h)(3) of this section.  Whenever a reduction is made under this subsection in the total of monthly benefits to which individuals are entitled for any month on the basis of the wages and selfemployment income of an insured individual, each such benefit other than the oldage or disability insurance benefit shall be proportionately decreased.

 (5) Notwithstanding any other provision of law, when

  (A) two or more persons are entitled to monthly benefits for a particular month on the basis of the wages and selfemployment income of an insured individual and (for such particular month) the provisions of this subsection are applicable to such monthly benefits, and

  (B) such individual's primary insurance amount is increased for the following month under any provision of this subchapter,

then the total of monthly benefits for all persons on the basis of such wages and selfemployment income for such particular month, as determined under the provisions of this subsection, shall for purposes of determining the total monthly benefits for all persons on the basis of such wages and selfemployment income for months subsequent to such particular month be considered to have been increased by the smallest amount that would have been required in order to assure that the total of monthly benefits payable on the basis of such wages and selfemployment income for any such subsequent month will not be less (after the application of the other provisions of this subsection and section 402(q) of this title) than the total of monthly benefits (after the application of the other provisions of this subsection and section 402(q) of this title) payable on the basis of such wages and selfemployment income for such particular month.

 (6) Notwithstanding any of the preceding provisions of this subsection other than paragraphs (3)(A), (3)(C), (3)(D), (4), and (5) (but subject to section 415(i)(2)(A)(ii) of this title), the total monthly benefits to which beneficiaries may be entitled under sections 402 and 423 of this title for any month on the basis of the wages and selfemployment income of an individual entitled to disability insurance benefits shall be reduced (before the application of section 424a of this title) to the smaller of

  (A) 85 percent of such individual's average indexed monthly earnings (or 100 percent of his primary insurance amount, if larger), or

  (B) 150 percent of such individual's primary insurance amount.

 (7) In the case of any individual who is entitled for any month to benefits based upon the primary insurance amounts of two or more insured individuals, one or more of which primary insurance amounts were determined under section 415(a) or (d) of this title as in effect (without regard to the table contained therein) prior to January 1979 and one or more of which primary insurance amounts were determined under section 415(a)(1) or (4) of this title, or section 415(d) of this title, as in effect after December 1978, the total benefits payable to that individual and all other individuals entitled to benefits for that month based upon those primary insurance amounts shall be reduced to an amount equal to the amount determined in accordance with the provisions of paragraph (3)(A)(ii) of this subsection, except that for this purpose the references to subparagraph (A) in the last two sentences of paragraph (3)(A) shall be deemed to be references to paragraph (7).

 (8) Subject to paragraph (7) and except as otherwise provided in paragraph (10)(C), this subsection as in effect in December 1978 shall remain in effect with respect to a primary insurance amount computed under section 415(a) or (d) of this title, as in effect (without regard to the table contained therein) in December 1978 and as amended by section 5117 of the Omnibus Budget Reconciliation Act of 1990, except that a primary insurance amount so computed with respect to an individual who first becomes eligible for an oldage or disability insurance benefit, or dies (before becoming eligible for such a benefit), after December 1978, shall instead be governed by this section as in effect after December 1978.  For purposes of the preceding sentence, the phrase "rounded to the next higher multiple of $0.10", as it appeared in subsection (a)(2)(C) of this section as in effect in December 1978, shall be deemed to read "rounded to the next lower multiple of $0.10".

 (9) When

  (A) one or more persons were entitled (without the application of section 402(j)(1) of this title) to monthly benefits under section 402 of this title for May 1978 on the basis of the wages and selfemployment income of an individual,

  (B) the benefit of at least one such person for June 1978 is increased by reason of the amendments made by section 204 of the Social Security Amendments of 1977;  and

  (C) the total amount of benefits to which all such persons are entitled under such section 402 of this title are reduced under the provisions of this subsection (or would be so reduced except for the first sentence of subsection (a)(4) of this section),

then the amount of the benefit to which each such person is entitled for months after May 1978 shall be increased (after such reductions are made under this subsection) to the amount such benefits would have been if the benefit of the person or persons referred to in subparagraph (B) had not been so increased.

 (10)(A) Subject to subparagraphs (B) and (C)

  (i) the total monthly benefits to which beneficiaries may be entitled under sections 402 and 423 of this title for a month on the basis of the wages and selfemployment income of an individual whose primary insurance amount is computed under section 415(a)(2)(B)(i) of this title shall equal the total monthly benefits which were authorized by this section with respect to such individual's primary insurance amount for the last month of his prior entitlement to disability insurance benefits, increased for this purpose by the general benefit increases and other increases under section 415(i) of this title that would have applied to such total monthly benefits had the individual remained entitled to disability insurance benefits until the month  in which he became entitled to oldage insurance benefits or reentitled to disability insurance benefits or died, and

  (ii) the total monthly benefits to which beneficiaries may be entitled under sections 402 and 423 of this title for a month on the basis of the wages and selfemployment income of an individual whose primary insurance amount is computed under section 415(a)(2)(C) of this title shall equal the total monthly benefits which were authorized by this section with respect to such individual's primary insurance amount for the last month of his prior entitlement to disability insurance benefits.

 (B) In any case in which

  (i) the total monthly benefits with respect to such individual's primary insurance amount for the last month of his prior entitlement to disability insurance benefits was computed under paragraph (6), and

  (ii) the individual's primary insurance amount is computed under subparagraph (B)(i) or (C) of section 415(a)(2) of this title by reason of the individual's entitlement to oldage insurance benefits or death,

the total monthly benefits shall equal the total monthly benefits that would have been authorized with respect to the primary insurance amount for the last month of his prior entitlement to disability insurance benefits if such total monthly benefits had been computed without regard to paragraph (6).

 (C) This paragraph shall apply before the application of paragraph (3)(A), and before the application of subsection (a)(1) of this section as in effect in December 1978.

(b) Deductions on account of work

 (1) Deductions, in such amounts and at such time or times as the Commissioner of Social Security shall determine, shall be made from any payment or payments under this subchapter to which an individual is entitled, and from any payment or payments to which any other persons are entitled on the basis of such individual's wages and selfemployment income, until the total of such deductions equals

  (A) such individual's benefit or benefits under section 402 of this title for any month, and

  (B) if such individual was entitled to oldage insurance benefits under section 402(a) of this title for such month, the benefit or benefits of all other persons for such month under section 402 of this title based on such individual's wages and selfemployment income,

if for such month he is charged with excess earnings, under the provisions of subsection (f) of this section, equal to the total of benefits referred to in clauses (A) and (B).  If the excess earnings so charged are less than such total of benefits, such deductions with respect to such month shall be equal only to the amount of such excess earnings.  If a child who has attained the age of 18 and is entitled to child's insurance benefits, or a person who is entitled to mother's or father's insurance benefits, is married to an individual entitled to oldage insurance benefits under section 402(a) of this title, such child or such person, as the case may be, shall, for the purposes of this subsection and subsection (f) of this section, be deemed to be entitled to such benefits on the basis of the wages and selfemployment income of such individual entitled to oldage insurance benefits.  If a deduction has already been made under this subsection with respect to a person's benefit or benefits under section 402 of this title for a month, he shall be deemed entitled to payments under such section for such month for purposes of further deductions under this subsection, and for purposes of charging of each person's excess earnings under subsection (f) of this section, only to the extent of the total of his benefits remaining after such earlier deductions have been made.  For purposes of this subsection and subsection (f) of this section

   (i) an individual shall be deemed to be entitled to payments under section   402 of this title equal to the amount of the benefit or benefits to which he is entitled under such section after the application of subsection (a) of this section, but without the application of the first sentence of paragraph (4) thereof;  and

   (ii) if a deduction is made with respect to an individual's benefit or benefits under section 402 of this title because of the occurrence in any month of an event specified in subsection (c) or (d) of this section or in section 422(b) of this title, such individual shall not be considered to be entitled to any benefits under such section 402 for such month.

 (2)(A) Except as provided in subparagraph (B), in any case in which

  (i) any of the other persons referred to in paragraph (1)(B) is entitled to monthly benefits as a divorced spouse under section 402(b) or (c) of this title for any month, and

  (ii) such person has been divorced for not less than 2 years,

the benefit to which he or she is entitled on the basis of the wages and self employment income of the individual referred to in paragraph (1) for such month shall be determined without regard to deductions under this subsection as a result of excess earnings of such individual, and the benefits of all other individuals who are entitled for such month to monthly benefits under section 402 of this title on the basis of the wages and selfemployment income of such individual referred to in paragraph (1) shall be determined as if no such divorced spouse were entitled to benefits for such month.

 (B) Clause (ii) of subparagraph (A) shall not apply with respect to any divorced spouse in any case in which the individual referred to in paragraph (1) became entitled to oldage insurance benefits under section 402(a) of this title before the date of the divorce.

(c) Deductions on account of noncovered work outside United States or failure to have child in care

 Deductions, in such amounts and at such time or times as the Commissioner of Social Security shall determine, shall be made from any payment or payments under this subchapter to which an individual is entitled, until the total of such deductions equals such individual's benefits or benefit under section 402 of this title for any month

  (1) in which such individual is under the age of seventy and for more than fortyfive hours of which such individual engaged in noncovered remunerative activity outside the United States;

  (2) in which such individual, if a wife or husband under retirement age (as  defined in section 416(l) of this title) entitled to a wife's or husband's insurance benefit, did not have in his or her care (individually or jointly with his or her spouse) a child of such spouse entitled to a child's insurance benefit and such wife's or husband's insurance benefit for such month was not reduced under the provisions of section 402(q) of this title;

  (3) in which such individual, if a widow or widower entitled to a mother's or father's insurance benefit, did not have in his or her care a child of his or her deceased spouse entitled to a child's insurance benefit;  or

  (4) in which such an individual, if a surviving divorced mother or father entitled to a mother's or father's insurance benefit, did not have in his or her care a child of his or her deceased former spouse who (A) is his or her son, daughter, or legally adopted child and (B) is entitled to a child's insurance benefit on the basis of the wages and selfemployment income of such deceased former spouse.

For purposes of paragraphs (2), (3), and (4) of this subsection, a child shall not be considered to be entitled to a child's insurance benefit for any month in which paragraph (1) of section 402(s) of this title applies or an event specified in section 422(b) of this title occurs with respect to such child. Subject to paragraph (3) of such section 402(s) of this title, no deduction shall be made under this subsection from any child's insurance benefit for the month in which the child entitled to such benefit attained the age of eighteen or any subsequent month;  nor shall any deduction be made under this subsection from any widow's insurance benefit for any month in which the widow or surviving divorced wife is entitled and has not attained retirement age (as defined in section 416(l) of this title) (but only if she became so entitled prior to attaining age 60), or from any widower's insurance benefit for any month in which the widower or surviving divorced husband is entitled and has not attained retirement age (as defined in section 416(l) of this title) (but only if he became so entitled prior to attaining age 60).

(d) Deductions from dependents' benefits on account of noncovered work outside United States by oldage insurance beneficiary

 (1)(A) Deductions shall be made from any wife's, husband's, or child's insurance benefit, based on the wages and selfemployment income of an individual entitled to oldage insurance benefits, to which a wife, divorced wife, husband, divorced husband, or child is entitled, until the total of such deductions equals such wife's, husband's, or child's insurance benefit or benefits under section 402 of this title for any month in which such individual is under the age of seventy and for more than fortyfive hours of which such individual engaged in noncovered remunerative activity outside the United States.

 (B)(i) Except as provided in clause (ii), in any case in which

  (I) a divorced spouse is entitled to monthly benefits under section 202(b) or (c) for any month, and

  (II) such divorced spouse has been divorced for not less than 2 years,

the benefit to which he or she is entitled for such month on the basis of the wages and selfemployment income of the individual entitled to oldage insurance benefits referred to in subparagraph (A) shall be determined without regard to deductions under this paragraph as a result of excess earnings of such individual, and the benefits of all other individuals who are entitled for such month to monthly benefits under section 402 of this title on the basis of the wages and selfemployment income of such individual referred to in subparagraph (A) shall be determined as if no such divorced spouse were entitled to benefits for such month.

 (ii) Subclause (II) of clause (i) shall not apply with respect to any divorced spouse in any case in which the individual entitled to oldage insurance benefits referred to in subparagraph (A) became entitled to such benefits before the date of the divorce.

 (2) Deductions shall be made from any child's insurance benefit to which a child who has attained the age of eighteen is entitled, or from any mother's or father's insurance benefit to which a person is entitled, until the total of such deductions equals such child's insurance benefit or benefits or mother's or father's insurance benefit or benefits under section 402 of this title for any month in which such child or person entitled to mother's or father's insurance benefits is married to an individual under the age of seventy who is entitled to oldage insurance benefits and for more than fortyfive hours of which such individual engaged in noncovered remunerative activity outside the United States.

(e) Occurrence of more than one event

 If more than one of the events specified in subsections (c) and (d) of this section and section 422(b) of this title occurs in any one month which would occasion deductions equal to a benefit for such month, only an amount equal to such benefit shall be deducted.

(f) Months to which earnings are charged

 For purposes of subsection (b) of this section

  (1) The amount of an individual's excess earnings (as defined in paragraph  (3)) shall be charged to months as follows:  There shall be charged to the first month of such taxable year an amount of his excess earnings equal to the sum of the payments to which he and all other persons (excluding divorced spouses referred to in subsection (b)(2) of this section) are entitled for such month under section 402 of this title on the basis of his wages and self employment income (or the total of his excess earnings if such excess earnings are less than such sum), and the balance, if any, of such excess earnings shall be charged to each succeeding month in such year to the extent, in the case of each such month, of the sum of the payments to which such individual and all such other persons are entitled for such month under section 402 of this title on the basis of his wages and selfemployment income, until the total of such excess has been so charged.  Where an individual is entitled to benefits under section 402(a) of this title and other persons (excluding divorced spouses referred to in subsection (b)(2) of this section) are entitled to benefits under section 402(b), (c), or (d) of this title on the basis of the wages and selfemployment income of such individual, the excess earnings of such individual for any taxable year shall be charged in accordance with the provisions of this subsection before the excess earnings  of such persons for a taxable year are charged to months in such individual's taxable year.  Notwithstanding the preceding provisions of this paragraph but subject to section 402(s) of this title, no part of the excess earnings of an individual shall be charged to any month (A) for which such individual was not entitled to a benefit under this subchapter, (B) in which such individual was age seventy or over, (C) in which such individual, if a child entitled to child's insurance benefits, has attained the age of 18, (D) for which such individual is entitled to widow's insurance benefits and has not attained retirement age (as defined in section 416(l) of this title) (but only if she became so entitled prior to attaining age 60), or widower's insurance benefits and has not attained retirement age (as defined in section 416(l) of this title) (but only if he became so entitled prior to attaining age 60), (E) in which such individual did not engage in selfemployment and did not render services for wages (determined as provided in paragraph (5) of this subsection) of more than the applicable exempt amount as determined under paragraph (8), if such month is in the taxable year in which occurs the first month after December 1977 that is both (i) a month for which the individual is entitled to benefits under subsection (a), (b), (c), (d), (e), (f), (g), or (h) of section 402 of this title (without having been entitled for the preceding month to a benefit under any other of such subsections), and (ii) a  month in which the individual did not engage in selfemployment and did not render services for wages (determined as provided in paragraph (5)) of more than the applicable exempt amount as determined under paragraph (8), or (F) in which such individual did not engage in selfemployment and did not render services for wages (determined as provided in paragraph (5) of this subsection) of more than the applicable exempt amount as determined under paragraph (8), in the case of an individual entitled to benefits under section 402(b) or (c) of this title (but only by reason of having a child in his or her care within the meaning of paragraph (1)(B) of subsection (b) or (c) of this section, as may be applicable) or under section 402(d) or (g) of this title, if such month is in a year in which such entitlement ends for a reason other than the death of such individual, and such individual is not entitled to any benefits under this subchapter for the month following the month during which such entitlement under section 402(b), (d), or (g) of this title ended.

  (2) As used in paragraph (1), the term "first month of such taxable year" means the earliest month in such year to which the charging of excess earnings described in such paragraph is not prohibited by the application of clauses (A), (B), (C), (D), (E), and (F) thereof.

  (3) For purposes of paragraph (1) and subsection (h) of this section, an individual's excess earnings for a taxable year shall be 33 1/3 percent of his  earnings for such year in excess of the product of the applicable exempt amount as determined under paragraph (8) in the case of an individual who has attained (or, but for the individual's death, would have attained) retirement age (as defined in section 416(l) of this title) before the close of such taxable year, or 50 percent of his earnings for such year in excess of such product in the case of any other individual, multiplied by the number of months in such year, except that, in determining an individual's excess earnings for the taxable year in which he attains age 70, there shall be excluded any earnings of such individual for the month in which he attains such age and any subsequent month (with any net earnings or net loss from selfemployment in such year being prorated in an equitable manner under regulations of the Commissioner of Social Security).  For purposes of the preceding sentence, notwithstanding section 411(e) of this title, the number of months in the taxable year in which an individual dies shall be 12.  The excess earnings as derived under the first sentence of this paragraph, if not a multiple of $1, shall be reduced to the next lower multiple of $1.

  (4) For purposes of clause (E) of paragraph (1)

   (A) An individual will be presumed, with respect to any month, to have been engaged in selfemployment in such month until it is shown to the satisfaction of the Commissioner of Social Security that such individual   rendered no substantial services in such month with respect to any trade or business the net income or loss of which is includible in computing (as provided in paragraph (5) of this subsection) his net earnings or net loss from selfemployment for any taxable year.  The Commissioner of Social Security shall by regulations prescribe the methods and criteria for determining whether or not an individual has rendered substantial services with respect to any trade or business.

   (B) An individual will be presumed, with respect to any month, to have rendered services for wages (determined as provided in paragraph (5) of this subsection) of more than the applicable exempt amount as determined under paragraph (8) until it is shown to the satisfaction of the Commissioner of Social Security that such individual did not render such services in such month for more than such amount.

  (5)(A) An individual's earnings for a taxable year shall be (i) the sum of his wages for services rendered in such year and his net earnings from self employment for such year, minus (ii) any net loss from selfemployment for such year.

  (B) For purposes of this section

   (i) an individual's net earnings from selfemployment for any taxable year shall be determined as provided in section 411 of this title, except that   paragraphs (1), (4), and (5) of section 411(c) of this title shall not apply and the gross income shall be computed by excluding the amounts provided by subparagraph (D) of this paragraph, and

   (ii) an individual's net loss from selfemployment for any taxable year is the excess of the deductions (plus his distributive share of loss described in section 702(a)(8) of Title 26) taken into account under clause (i) over the gross income (plus his distributive share of income so described) taken into account under clause (i).

  (C) For purposes of this subsection, an individual's wages shall be computed without regard to the limitations as to amounts of remuneration specified in paragraphs (1), (6)(B), (6)(C), (7)(B), and (8) of section 409(a) of this title;  and in making such computation services which do not constitute employment as defined in section 410 of this title, performed within the United States by the individual as an employee or performed outside the United States in the active military or naval service of the United States, shall be deemed to be employment as so defined if the remuneration for such services is not includible in computing his net earnings or net loss from self employment.  The term "wages" does not include

   (i) the amount of any payment made to, or on behalf of, an employee or any of his dependents (including any amount paid by an employer for insurance or   annuities, or into a fund, to provide for any such payment) on account of retirement, or

   (ii) any payment or series of payments by an employer to an employee or any of his dependents upon or after the termination of the employee's employment relationship because of retirement after attaining an age specified in a plan referred to in section 409(a)(11)(B) of this title or in a pension plan of the employer.

  (D) In the case of

   (i) an individual who has attained retirement age (as defined in section 416(l) of this title) on or before the last day of the taxable year, and who shows to the satisfaction of the Commissioner of Social Security that he or she is receiving royalties attributable to a copyright or patent obtained before the taxable year in which he or she attained such age and that the property to which the copyright or patent relates was created by his or her own personal efforts, or

   (ii) an individual who has become entitled to insurance benefits under this subchapter, other than benefits under section 423 of this title or benefits payable under section 402(d) of this title by reason of being under a disability, and who shows to the satisfaction of the Commissioner of Social Security that he or she is receiving, in a year after his or her initial year   of entitlement to such benefits, any other income not attributable to services performed after the month in which he or she initially became entitled to such benefits,

  there shall be excluded from gross income any such royalties or other income.

  (E) For purposes of this section, any individual's net earnings from self employment which result from or are attributable to the performance of services by such individual as a director of a corporation during any taxable year shall be deemed to have been derived (and received) by such individual in that year, at the time the services were performed, regardless of when the income, on which the computation of such net earnings from selfemployment is based, is actually paid to or received by such individual (unless such income was actually paid and received prior to that year).

  (6) For purposes of this subsection, wages (determined as provided in paragraph (5)(C)) which, according to reports received by the Commissioner of Social Security, are paid to an individual during a taxable year shall be presumed to have been paid to him for services performed in such year until it is shown to the satisfaction of the Commissioner of Social Security that they were paid for services performed in another taxable year.  If such reports with respect to an individual show his wages for a calendar year, such  individual's taxable year shall be presumed to be a calendar year for purposes of this subsection until it is shown to the satisfaction of the Commissioner of Social Security that his taxable year is not a calendar year.

  (7) Where an individual's excess earnings are charged to a month and the excess earnings so charged are less than the total of the payments (without regard to such charging) to which all persons (excluding divorced spouses referred to in subsection (b)(2) of this section) are entitled under section 402 of this title for such month on the basis of his wages and selfemployment income, the difference between such total and the excess so charged to such month shall be paid (if it is otherwise payable under this title) to such individual and other persons in the proportion that the benefit to which each of them is entitled (without regard to such charging, without the application of section 402(k)(3) of this title, and prior to the application of section 403(a) of this title) bears to the total of the benefits to which all of them are entitled.

  (8)(A) Whenever the Commissioner of Social Security pursuant to section 415(i) of this title increases benefits effective with the month of December following a costofliving computation quarter  [FN1] the Commissioner shall also determine and publish in the Federal Register on or before November 1 of the calendar year in which such quarter occurs the new exempt amounts  (separately stated for individuals described in subparagraph (D) and for other individuals) which are to be applicable (unless prevented from becoming effective by subparagraph (C) ) with respect to taxable years ending in (or with the close of) the calendar year after the calendar year in which such benefit increase is effective (or, in the case of an individual who dies during the calendar year after the calendar year in which the benefit increase is effective, with respect to such individual's taxable year which ends, upon his death, during such year).

  (B) Except as otherwise provided in subparagraph (D), the exempt amount which is applicable to individuals described in such subparagraph and the exempt amount which is applicable to other individuals, for each month of a particular taxable year, shall each be whichever of the following is the larger

   (i) the corresponding exempt amount which is in effect with respect to months in the taxable year in which the determination under subparagraph (A) is made, or

   (ii) the product of the corresponding exempt amount which is in effect with respect to months in the taxable year ending after 2001 and before 2003 (with respect to individuals described in subparagraph (D)) or the taxable year ending after 1993 and before 1995 (with respect to other individuals), and   the ratio of

    (I) the national average wage index (as defined in section 409(k)(1) of this title) for the calendar year before the calendar year in which the determination under subparagraph (A) is made, to

    (II) the national average wage index (as so defined) for 2000 (with respect to individuals described in subparagraph (D)) or 1992 (with respect to other individuals),

    with such product, if not a multiple of $10, being rounded to the next higher multiple of $10 where such product is a multiple of $5 but not of $10 and to the nearest multiple of $10 in any other case.

  Whenever the Commissioner of Social Security determines that an exempt amount is to be increased in any year under this paragraph, the Commissioner  shall notify the House Committee on Ways and Means and the Senate Committee on Finance within 30 days after the close of the base quarter (as defined in section 415(i)(1)(A) of this title) in such year of the estimated amount of such increase, indicating the new exempt amount, the actuarial estimates of the effect of the increase, and the actuarial assumptions and methodology used in preparing such estimates.

  (C) Notwithstanding the determination of a new exempt amount by the Commissioner of Social Security under subparagraph (A) (and notwithstanding any publication thereof under such subparagraph or any notification thereof under the last sentence of subparagraph (B) ), such new exempt amount shall not take effect pursuant thereto if during the calendar year in which such determination is made a law increasing the exempt amount is enacted.

  (D) Notwithstanding any other provision of this subsection, the exempt amount which is applicable to an individual who has attained retirement age (as defined in section 416(l) of this title) before the close of the taxable year involved shall be

   (i) for each month of any taxable year ending after 1995 and before 1997,  $1,041.66 2/3,

   (ii) for each month of any taxable year ending after 1996 and before 1998,  $1,125.00,

   (iii) for each month of any taxable year ending after 1997 and before 1999,  $1,208.33 1/3,

   (iv) for each month of any taxable year ending after 1998 and before 2000,  $1,291.66 2/3,

   (v) for each month of any taxable year ending after 1999 and before 2001,  $1,416.66 2/3,

   (vi) for each month of any taxable year ending after 2000 and before 2002,  $2,083.33 1/3 , and

   (vii) for each month of any taxable year ending after 2001 and before 2003,  $2,500.00.

  (9) For purposes of paragraphs (3), (5)(D)(i), and (8)(D), the term  "retirement age (as defined in section 416(l) of this title)", with respect to any individual entitled to monthly insurance benefits under section 402 of this title, means the retirement age (as so defined) which is applicable in the case of oldage insurance benefits, regardless of whether or not the particular benefits to which the individual is entitled (or the only such benefits) are oldage insurance benefits.

(g) Penalty for failure to report certain events

 Any individual in receipt of benefits subject to deduction under subsection  (c) of this section, (or who is in receipt of such benefits on behalf of another individual), because of the occurrence of an event specified therein, who fails to report such occurrence to the Commissioner of Social Security prior to the receipt and acceptance of an insurance benefit for the second month following the month in which such event occurred, shall suffer deductions in addition to those imposed under subsection (c) of this section as follows:

  (1) if such failure is the first one with respect to which an additional deduction is imposed by this subsection, such additional deduction shall be equal to his benefit or benefits for the first month of the period for which there is a failure to report even though such failure is with respect to more than one month;

  (2) if such failure is the second one with respect to which an additional deduction is imposed by this subsection, such additional deduction shall be equal to two times his benefit or benefits for the first month of the period for which there is a failure to report even though such failure is with respect to more than two months;  and

  (3) if such failure is the third or a subsequent one for which an additional deduction is imposed under this subsection, such additional deduction shall be equal to three times his benefit or benefits for the first month of the period for which there is a failure to report even though the failure to report is with respect to more than three months;

except that the number of additional deductions required by this subsection shall not exceed the number of months in the period for which there is a failure to report.  As used in this subsection, the term "period for which there is a failure to report" with respect to any individual means the period for which such individual received and accepted insurance benefits under section 402 of this title without making a timely report and for which deductions are required under subsection (c) of this section.

(h) Report of earnings to Commissioner of Social Security

 (1)(A) If an individual is entitled to any monthly insurance benefit under section 402 of this title during any taxable year in which he has earnings or wages, as computed pursuant to paragraph (5) of subsection (f) of this section, in excess of the product of the applicable exempt amount as determined under subsection (f)(8) of this section times the number of months in such year, such individual (or the individual who is in receipt of such benefit on his behalf) shall make a report to the Commissioner of Social Security of his earnings (or wages) for such taxable year.  Such report shall be made on or before the fifteenth day of the fourth month following the close of such year, and shall contain such information and be made in such manner as the Commissioner of Social Security may by regulations prescribe.  Such report need not be made for any taxable year

  (i) beginning with or after the month in which such individual attained age  70, or

  (ii) if benefit payments for all months (in such taxable year) in which such individual is under age 70 have been suspended under the provisions of the first sentence of paragraph (3) of this subsection, unless

   (I) such individual is entitled to benefits under subsection (b), (c), (d),  (e), (f), (g), or (h) of section 402 of this title,

   (II) such benefits are reduced under subsection (a) of this section for any month in such taxable year, and

   (III) in any such month there is another person who also is entitled to benefits under subsection (b), (c), (d), (e), (f), (g), or (h) of section 402 of this title on the basis of the same wages and selfemployment income and who does not live in the same household as such individual.

The Commissioner of Social Security may grant a reasonable extension of time for making the report of earnings required in this paragraph if the Commissioner finds that there is valid reason for a delay, but in no case may the period be extended more than four months.

 (B) If the benefit payments of an individual have been suspended for all months in any taxable year under the provisions of the first sentence of paragraph (3) of this subsection, no benefit payment shall be made to such individual for any such month in such taxable year after the expiration of the period of three years, three months, and fifteen days following the close of such taxable year unless within such period the individual, or some other person entitled to benefits under this subchapter on the basis of the same wages and selfemployment income, files with the Commissioner of Social Security information showing that a benefit for such month is payable to such individual.

 (2) If an individual fails to make a report required under paragraph (1) of this subsection, within the time prescribed by or in accordance with such paragraph, for any taxable year and any deduction is imposed under subsection (b) of this section by reason of his earnings for such year, he shall suffer additional deductions as follows:

  (A) if such failure is the first one with respect to which an additional deduction is imposed under this paragraph, such additional deduction shall be equal to his benefit or benefits for the last month of such year for which he was entitled to a benefit under section 402 of this title, except that if the deduction imposed under subsection (b) of this section by reason of his earnings for such year is less than the amount of his benefit (or benefits) for the last month of such year for which he was entitled to a benefit under section 402 of this title, the additional deduction shall be equal to the  amount of the deduction imposed under subsection (b) of this section but not less than $10;

  (B) if such failure is the second one for which an additional deduction is imposed under this paragraph, such additional deduction shall be equal to two times his benefit or benefits for the last month of such year for which he was entitled to a benefit under section 402 of this title;

  (C) if such failure is the third or a subsequent one for which an additional deduction is imposed under this paragraph, such additional deduction shall be equal to three times his benefit or benefits for the last month of such year for which he was entitled to a benefit under section 402 of this title;

except that the number of the additional deductions required by this paragraph with respect to a failure to report earnings for a taxable year shall not exceed the number of months in such year for which such individual received and accepted insurance benefits under section 402 of this title and for which deductions are imposed under subsection (b) of this section by reason of his earnings.  In determining whether a failure to report earnings is the first or a subsequent failure for any individual, all taxable years ending prior to the imposition of the first additional deduction under this paragraph, other than the latest one of such years, shall be disregarded.

 (3) If the Commissioner of Social Security determines, on the basis of information obtained by or submitted to the Commissioner, that it may reasonably be expected that an individual entitled to benefits under section 402 of this title for any taxable year will suffer deductions imposed under subsection (b) of this section by reason of his earnings for such year, the Commissioner of Social Security may, before the close of such taxable year, suspend the total or less than the total payment for each month in such year (or for only such months as the Commissioner of Social Security may specify) of the benefits payable on the basis of such individual's wages and self employment income;  and such suspension shall remain in effect with respect to the benefits for any month until the Commissioner of Social Security has determined whether or not any deduction is imposed for such month under subsection (b) of this section.  The Commissioner of Social Security is authorized, before the close of the taxable year of an individual entitled to benefits during such year, to request of such individual that he make, at such time or times as the Commissioner of Social Security may specify, a declaration of his estimated earnings for the taxable year and that he furnish to the Commissioner of Social Security such other information with respect to such earnings as the Commissioner of Social Security may specify.  A failure by such individual to comply with any such request shall in itself constitute justification for a determination under this paragraph that it may reasonably be expected that the individual will suffer deductions imposed under subsection (b) of this section by reason of his earnings for such year.  If, after the close of a taxable year of an individual entitled to benefits under section 402 of this title for such year, the Commissioner of Social Security requests such individual to furnish a report of his earnings (as computed pursuant to paragraph (5) of subsection (f) of this section) for such taxable year or any other information with respect to such earnings which the Commissioner of Social Security may specify, and the individual fails to comply with such request, such failure shall in itself constitute justification for a determination that such individual's benefits are subject to deductions under subsection (b) of this section for each month in such taxable year (or only for such months thereof as the Commissioner of Social Security may specify) by reason of his earnings for such year.

 (4) the Commissioner of Social Security shall develop and implement procedures in accordance with this subsection to avoid paying more than the correct amount of benefits to any individual under this subchapter as a result of such individual's failure to file a correct report or estimate of earnings or wages.  Such procedures may include identifying categories of individuals who are likely to be paid more than the correct amount of benefits and requesting that they estimate their earnings or wages more frequently than other persons subject to deductions under this section on account of earnings or wages.

(i) Repealed.  Pub.L. 103296, Title III, Section 309(a), Aug. 15, 1994, 108 Stat. 1523

(j) Attainment of age seventy

 For the purposes of this section, an individual shall be considered as seventy years of age during the entire month in which he attains such age.

(k) Noncovered remunerative activity outside United States

 An individual shall be considered to be engaged in noncovered remunerative activity outside the United States if he performs services outside the United States as an employee and such services do not constitute employment as defined in section 410 of this title and are not performed in the active military or naval service of the United States, or if he carries on a trade or business outside the United States (other than the performance of service as an employee) the net income or loss of which (1) is not includible in computing his net earnings from selfemployment for a taxable year and (2) would not be excluded from net earnings from selfemployment, if carried on in the United States, by any of the numbered paragraphs of section 411(a) of this title. When used in the preceding sentence with respect to a trade or business (other than the performance of service as an employee), the term "United States" does not include the Commonwealth of Puerto Rico, the Virgin Islands, Guam, or American Samoa in the case of an alien who is not a resident of the United States (including the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa);  and the term "trade or business" shall have the same meaning as when used in section 162 of Title 26.

(l) Good cause for failure to make reports required

 The failure of an individual to make any report required by subsection (g) or  (h)(1)(A) of this section within the time prescribed therein shall not be regarded as such a failure if it is shown to the satisfaction of the Commissioner of Social Security that he had good cause for failing to make such report within such time.  The determination of what constitutes good cause for purposes of this subsection shall be made in accordance with regulations of the Commissioner of Social Security, except that in making any such determination, the Commissioner of Social Security shall specifically take into account any physical, mental, educational, or linguistic limitation such individual may have (including any lack of facility with the English language).

 Section 404. Overpayments and underpayments

(a) Procedure for adjustment or recovery

 (1) Whenever the Commissioner of Social Security finds that more or less than the correct amount of payment has been made to any person under this subchapter, proper adjustment or recovery shall be made, under regulations prescribed by the Commissioner of Social Security, as follows:

  (A) With respect to payment to a person of more than the correct amount, the Commissioner of Social Security shall decrease any payment under this subchapter to which such overpaid person is entitled, or shall require such  overpaid person or his estate to refund the amount in excess of the correct amount, or shall decrease any payment under this subchapter payable to his estate or to any other person on the basis of the wages and selfemployment income which were the basis of the payments to such overpaid person, or shall obtain recovery by means of reduction in tax refunds based on notice to the Secretary of the Treasury as permitted under section 3720A of Title 31, or shall apply any combination of the foregoing.  A payment made under this subchapter on the basis of an erroneous report of death by the Department of Defense of an individual in the line of duty while he is a member of the uniformed services (as defined in section 410(m) of this title) on active duty (as defined in section 410(l) of this title) shall not be considered an incorrect payment for any month prior to the month such Department notifies the Commissioner of Social Security that such individual is alive.

  (B) With respect to payment to a person of less than the correct amount, the Commissioner of Social Security shall make payment of the balance of the amount due such underpaid person, or, if such person dies before payments are completed or before negotiating one or more checks representing correct payments, disposition of the amount due shall be made in accordance with subsection (d) of this section.

 (2) Notwithstanding any other provision of this section, when any payment of more than the correct amount is made to or on behalf of an individual who has died, and such payment

  (A) is made by direct deposit to a financial institution;

  (B) is credited by the financial institution to a joint account of the deceased individual and another person;  and

  (C) such other person was entitled to a monthly benefit on the basis of the same wages and selfemployment income as the deceased individual for the month preceding the month in which the deceased individual died,

the amount of such payment in excess of the correct amount shall be treated as a payment of more than the correct amount to such other person.

(b) No recovery from persons without fault

 In any case in which more than the correct amount of payment has been made, there shall be no adjustment of payments to, or recovery by the United States from, any person who is without fault if such adjustment or recovery would defeat the purpose of this subchapter or would be against equity and good conscience.  In making for purposes of this subsection any determination of whether any individual is without fault, the Commissioner of Social Security shall specifically take into account any physical, mental, educational, or linguistic limitation such individual may have (including any lack of facility with the English language).

(c) Nonliability of certifying and disbursing officers

 No certifying or disbursing officer shall be held liable for any amount certified or paid by him to any person where the adjustment or recovery of such amount is waived under subsection (b) of this section, or where adjustment under subsection (a) of this section is not completed prior to the death of all persons against whose benefits deductions are authorized.

(d) Payment to survivors or heirs when eligible person is deceased

 If an individual dies before any payment due him under this subchapter is completed, payment of the amount due (including the amount of any unnegotiated checks) shall be made

  (1) to the person, if any, who is determined by the Commissioner of Social Security to be the surviving spouse of the deceased individual and who either (i) was living in the same household with the deceased at the time of his  death or (ii) was, for the month in which the deceased individual died, entitled to a monthly benefit on the basis of the same wages and self employment income as was the deceased individual;

  (2) if there is no person who meets the requirements of paragraph (1), or if the person who meets such requirements dies before the payment due him under this subchapter is completed, to the child or children, if any, of the deceased individual who were, for the month in which the deceased individual died, entitled to monthly benefits on the basis of the same wages and self employment income as was the deceased individual (and, in case there is more than one such child, in equal parts to each such child);

  (3) if there is no person who meets the requirements of paragraph (1) or (2), or if each person who meets such requirements dies before the payment due him under this subchapter is completed, to the parent or parents, if any, of the deceased individual who were, for the month in which the deceased individual died, entitled to monthly benefits on the basis of the same wages and self employment income as was the deceased individual (and, in case there is more than one such parent, in equal parts to each such parent);

  (4) if there is no person who meets the requirements of paragraph (1), (2), or (3), or if each person who meets such requirements dies before the payment due him under this subchapter is completed, to the person, if any, determined  by the Commissioner of Social Security to be the surviving spouse of the deceased individual;

  (5) if there is no person who meets the requirements of paragraph (1), (2),  (3), or (4), or if each person who meets such requirements dies before the payment due him under this subchapter is completed, to the person or persons, if any, determined by the Commissioner of Social Security to be the child or children of the deceased individual (and, in case there is more than one such child, in equal parts to each such child);

  (6) if there is no person who meets the requirements of paragraph (1), (2),  (3), (4), or (5), or if each person who meets such requirements dies before the payment due him under this subchapter is completed, to the parent or parents, if any, of the deceased individual (and, in case there is more than one such parent, in equal parts to each such parent);  or

  (7) if there is no person who meets the requirements of paragraph (1), (2),  (3), (4), (5), or (6), or if each person who meets such requirements dies before the payment due him under this subchapter is completed, to the legal representative of the estate of the deceased individual, if any.

(e) Adjustments due to supplemental security income payments

 For payments which are adjusted by reason of payment of benefits under the supplemental security income program established by subchapter XVI of this chapter, see section 1320a6 of this title.

(f) Collection of delinquent amounts

 (1) With respect to any delinquent amount, the Commissioner of Social Security may use the collection practices described in sections 3711(e), 3716, 3717, and 3718 of Title 31 and in section 5514 of Title 5, as in effect immediately after April 26, 1996.

 (2) For purposes of paragraph (1), the term "delinquent amount" means an amount

  (A) in excess of the correct amount of payment under this title;

  (B) paid to a person after such person has attained 18 years of age;  and

  (C) determined by the Commissioner of Social Security, under regulations, to be otherwise unrecoverable under this section after such person ceases to be a beneficiary under this title.

 Section 405. Evidence, procedure, and certification for payments

(a) Rules and regulations;  procedures

 The Commissioner of Social Security shall have full power and authority to make rules and regulations and to establish procedures, not inconsistent with the provisions of this subchapter, which are necessary or appropriate to carry out such provisions, and shall adopt reasonable and proper rules and regulations to regulate and provide for the nature and extent of the proofs and evidence and the method of taking and furnishing the same in order to establish the right to benefits hereunder.

(b) Administrative determination of entitlement to benefits;  findings of fact;  hearings;  investigations;  evidentiary hearings in reconsiderations of disability benefit terminations;  subsequent applications

 (1) The Commissioner of Social Security is directed to make findings of fact, and decisions as to the rights of any individual applying for a payment under this subchapter.  Any such decision by the Commissioner of Social Security which involves a determination of disability and which is in whole or in part unfavorable to such individual shall contain a statement of the case, in understandable language, setting forth a discussion of the evidence, and stating the Commissioner's determination and the reason or reasons upon which it is based.   Upon request by any such individual or upon request by a wife, divorced wife, widow, surviving divorced wife, surviving divorced mother, surviving divorced father, husband, divorced husband, widower, surviving divorced husband, child, or parent who makes a showing in writing that his or her rights may be prejudiced by any decision the Commissioner of Social Security has rendered, the Commissioner shall give such applicant and such other individual reasonable notice and opportunity for a hearing with respect to such decision, and, if a hearing is held, shall, on the basis of evidence adduced at the hearing, affirm, modify, or reverse the Commissioner's findings of fact and such decision.  Any such request with respect to such a decision must be filed within sixty days after notice of such decision is received by the individual making such request.  The Commissioner of Social Security is further authorized, on the Commissioner's own motion, to hold such hearings and to conduct such investigations and other proceedings as the Commissioner may deem necessary or proper for the administration of this subchapter.  In the course of any hearing, investigation, or other proceeding, the Commissioner may administer oaths and affirmations, examine witnesses, and receive evidence. Evidence may be received at any hearing before the Commissioner of Social Security even though inadmissible under rules of evidence applicable to court procedure.

 (2) In any case where

  (A) an individual is a recipient of disability insurance benefits, or of child's, widow's, or widower's insurance benefits based on disability,

  (B) the physical or mental impairment on the basis of which such benefits are payable is found to have ceased, not to have existed, or to no longer be disabling, and

  (C) as a consequence of the finding described in subparagraph (B), such individual is determined by the Commissioner of Social Security not to be  entitled to such benefits,

any reconsideration of the finding described in subparagraph (B), in connection with a reconsideration by the Commissioner of Social Security (before any hearing under paragraph (1) on the issue of such entitlement) of the Commissioner's determination described in subparagraph (C), shall be made only after opportunity for an evidentiary hearing, with regard to the finding described in subparagraph (B), which is reasonably accessible to such individual.  Any reconsideration of a finding described in subparagraph (B) may be made either by the State agency or the Commissioner of Social Security where the finding was originally made by the State agency, and shall be made by the Commissioner of Social Security where the finding was originally made by the Commissioner of Social Security.  In the case of a reconsideration by a State agency of a finding described in subparagraph (B) which was originally made by such State agency, the evidentiary hearing shall be held by an adjudicatory unit of the State agency other than the unit that made the finding described in subparagraph (B).  In the case of a reconsideration by the Commissioner of Social Security of a finding described in subparagraph (B) which was originally made by the Commissioner of Social Security, the evidentiary hearing shall be held by a person other than the person or persons who made the finding described in subparagraph (B).

 (3)(A) A failure to timely request review of an initial adverse determination with respect to an application for any benefit under this subchapter or an adverse determination on reconsideration of such an initial determination shall not serve as a basis for denial of a subsequent application for any benefit under this subchapter if the applicant demonstrates that the applicant, or any other individual referred to in paragraph (1), failed to so request such a review acting in good faith reliance upon incorrect, incomplete, or misleading information, relating to the consequences of reapplying for benefits in lieu of seeking review of an adverse determination, provided by any officer or employee of the Social Security Administration or any State agency acting under section 421 of this title.

 (B) In any notice of an adverse determination with respect to which a review may be requested under paragraph (1), the Commissioner of Social Security shall describe in clear and specific language the effect on possible entitlement to benefits under this subchapter of choosing to reapply in lieu of requesting review of the determination.

(c) Wage records

 (1) For the purposes of this subsection

  (A) The term "year" means a calendar year when used with respect to wages and a taxable year when used with respect to selfemployment income.

  (B) The term "time limitation" means a period of three years, three months, and fifteen days.

  (C) The term "survivor" means an individual's spouse, surviving divorced wife, surviving divorced husband, surviving divorced mother, surviving divorced father, child, or parent, who survives such individual.

  (D) The term "period" when used with respect to selfemployment income means a taxable year and when used with respect to wages means

   (i) a quarter if wages were reported or should have been reported on a quarterly basis on tax returns filed with the Secretary of the Treasury or his delegate under section 6011 of Title 26, or regulations thereunder (or on reports filed by a State under section 418(e) of this title (as in effect prior to December 31, 1986) of this title or regulations thereunder),

   (ii) a year if wages were reported or should have been reported on a yearly basis on such tax returns or reports, or

   (iii) the half year beginning January 1 or July 1 in the case of wages which were reported or should have been reported for calendar year 1937.

 (2)(A) On the basis of information obtained by or submitted to the Commissioner of Social Security, and after such verification thereof as the Commissioner deems necessary, the Commissioner of Social Security shall establish and maintain records of the amounts of wages paid to, and the amounts of selfemployment income derived by, each individual and of the periods in which such wages were paid and such income was derived and, upon request, shall inform any individual or his survivor, or the legal representative of such individual or his estate, of the amounts of wages and selfemployment income of such individual and the periods during which such wages were paid and such income was derived, as shown by such records at the time of such request.

 (B)(i) In carrying out the Commissioner's duties under subparagraph (A) and sight subparagraph (F), the Commissioner of Social Security shall take affirmative measures to assure that social security account numbers will, to the maximum extent practicable, be assigned to all members of appropriate groups or categories of individuals by assigning such numbers (or ascertaining that such numbers have already been assigned):

  (I) to aliens at the time of their lawful admission to the United States either for permanent residence or under other authority of law permitting them to engage in employment in the United States and to other aliens at such time as their status is so changed as to make it lawful for them to engage in such employment;

  (II) to any individual who is an applicant for or recipient of benefits under any program financed in whole or in part from Federal funds including any child on whose behalf such benefits are claimed by another person;  and

  (III) to any other individual when it appears that he could have been but was not assigned an account number under the provisions of subclauses (I) or (II) but only after such investigation as is necessary to establish to the satisfaction of the Commissioner of Social Security, the identity of such individual, the fact that an account number has not already been assigned to such individual, and the fact that such individual is a citizen or a noncitizen who is not, because of his alien status, prohibited from engaging in employment;

and, in carrying out such duties, the Commissioner of Social Security is authorized to take affirmative measures to assure the issuance of social security numbers:

  (IV) to or on behalf of children who are below school age at the request of their parents or guardians;  and

  (V) to children of school age at the time of their first enrollment in school.

 (ii) The Commissioner of Social Security shall require of applicants for social security account numbers such evidence as may be necessary to establish the age, citizenship, or alien status, and true identity of such applicants, and to determine which (if any) social security account number has previously been assigned to such individual.

 (iii) In carrying out the requirements of this subparagraph, the Commissioner of Social Security shall enter into such agreements as may be necessary with the Attorney General and other officials and with State and local welfare agencies and school authorities (including nonpublic school authorities).

 (C)(i) It is the policy of the United States that any State (or political subdivision thereof) may, in the administration of any tax, general public assistance, driver's license, or motor vehicle registration law within its jurisdiction, utilize the social security account numbers issued by the Commissioner of Social Security for the purpose of establishing the identification of individuals affected by such law, and may require any individual who is or appears to be so affected to furnish to such State (or political subdivision thereof) or any agency thereof having administrative responsibility for the law involved, the social security account number (or numbers, if he has more than one such number) issued to him by the Commissioner of Social Security.

 (ii) In the administration of any law involving the issuance of a birth certificate, each State shall require each parent to furnish to such State (or political subdivision thereof) or any agency thereof having administrative responsibility for the law involved, the social security account number (or numbers, if the parent has more than one such number) issued to the parent unless the State (in accordance with regulations prescribed by the Commissioner of Social Security) finds good cause for not requiring the furnishing of such number.  The State shall make numbers furnished under this subclause available to the agency administering the State's plan under part D of subchapter IV of this chapter in accordance with Federal or State law and regulation.  Such numbers shall not be recorded on the birth certificate.  A State shall not use any social security account number, obtained with respect to the issuance by the State of a birth certificate, for any purpose other than for the enforcement of child support orders in effect in the State, unless section 7(a) of the Privacy Act of 1974 does not prohibit the State from requiring the disclosure of such number, by reason of the State having adopted, before January 1, 1975, a statute or regulation requiring such disclosure.

 (iii)(I) In the administration of section 9 of the Food Stamp Act of 1977  (7 U.S.C. 2018) involving the determination of the qualifications of applicants under such Act [7 U.S.C.A. Section 2011 et seq.], the Secretary of Agriculture may require each applicant retail store or wholesale food concern to furnish to the Secretary of Agriculture the social security account number of each individual who is an officer of the store or concern and, in the case of a privately owned applicant, furnish the social security account numbers of the owners of such applicant.  No officer or employee of the Department of Agriculture shall have access to any such number for any purpose other than the establishment and maintenance of a list of the names and social security account numbers of such individuals for use in determining those applicants who have been previously sanctioned or convicted under section 12 or 15 of such Act (7 U.S.C. 2021 or 2024).

 (II) The Secretary of Agriculture may share any information contained in any list referred to in subclause (I) with any other agency or instrumentality of the United States which otherwise has access to social security account numbers in accordance with this subsection or other applicable Federal law, except that the Secretary of Agriculture may share such information only to the extent that such Secretary determines such sharing would assist in verifying and matching such information against information maintained by such other agency or instrumentality.  Any such information shared pursuant to this subclause may be used by such other agency or instrumentality only for the purpose of effective administration and enforcement of the Food Stamp Act of 1977 [7 U.S.C.A. Section 2011 et seq.] or for the purpose of investigation of violations of other Federal laws or enforcement of such laws.

 (III) The Secretary of Agriculture, and the head of any other agency or instrumentality referred to in this subclause, shall restrict, to the satisfaction of the Commissioner of Social Security, access to social security account numbers obtained pursuant to this clause only to officers and employees of the United States whose duties or responsibilities require access for the purposes described in subclause (II).

 (IV) The Secretary of Agriculture, and the head of any agency or instrumentality with which information is shared pursuant to clause (II), shall provide such other safeguards as the Commissioner of Social Security determines to be necessary or appropriate to protect the confidentiality of the social security account numbers.

 (iv) In the administration of section 506 of the Federal Crop Insurance Act  [7 U.S.C.A. Section 1506], the Federal Crop Insurance Corporation may require each policyholder and each reinsured company to furnish to the insurer or to the Corporation the social security account number of such policyholder, subject to the requirements of this clause.  No officer or employee of the Federal Crop Insurance Corporation shall have access to any such number for any purpose other than the establishment of a system of records necessary for the effective administration of such Act [7 U.S.C.A. Section 1501 et seq.].  The Manager of the Corporation may require each policyholder to provide to the Manager, at such times and in such manner as prescribed by the Manager, the social security account number of each individual that holds or acquires a substantial beneficial interest in the policyholder.  For purposes of this clause, the term "substantial beneficial interest" means not less than 5 percent of all beneficial interest in the policyholder.  The Secretary of Agriculture shall restrict, to the satisfaction of the Commissioner of Social Security, access to social security account numbers obtained pursuant to this clause only to officers and employees of the United States or authorized persons whose duties or responsibilities require access for the administration of the Federal Crop Insurance Act [7 U.S.C.A. Section 1501 et seq.].  The Secretary of Agriculture shall provide such other safeguards as the Commissioner of Social Security determines to be necessary or appropriate to protect the confidentiality of such social security account numbers.  For purposes of this clause the term "authorized person" means an officer or employee of an insurer whom the Manager of the Corporation designates by rule, subject to appropriate safeguards including a prohibition against the release of such social security account number (other than to the Corporation) by such person.

 (v) If and to the extent that any provision of Federal law heretofore enacted is inconsistent with the policy set forth in clause (i), such provision shall, on and after October 4, 1976, be null, void, and of no effect.  If and to the extent that any such provision is inconsistent with the requirement set forth in clause (ii), such provision shall, on and after October 13, 1988, be null, void, and of no effect.

 (vi) For purposes of clause (i) of this subparagraph, an agency of a State (or political subdivision thereof) charged with the administration of any general public assistance, driver's license, or motor vehicle registration law which did not use the social security account number for identification under a law or regulation adopted before January 1, 1975, may require an individual to disclose his or her social security number to such agency solely for the purpose of administering the laws referred to in clause (i) above and for the purpose of responding to requests for information from an agency operating pursuant to the provisions of part A or D of subchapter IV of this chapter.

 (vii) For purposes of this subparagraph, the term "State" includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Commonwealth of the Northern Marianas, and the Trust Territory of the Pacific Islands.

 (viii)(I) Social security account numbers and related records that are obtained or maintained by authorized persons pursuant to any provision of law enacted on or after October 1, 1990, shall be confidential, and no authorized person shall disclose any such social security account number or related record.

 (II) Paragraphs (1), (2), and (3) of section 7213(a) of the Internal Revenue Code of 1986 [26 U.S.C.A. Section 7213(a)(1), (2), and (3) ] shall apply with respect to the unauthorized willful disclosure to any person of social security account numbers and related records obtained or maintained by an authorized person pursuant to a provision of law enacted on or after October 1, 1990, in the same manner and to the same extent as such paragraphs apply with respect to unauthorized disclosures of return and return information described in such paragraphs.  Paragraph (4) of section 7213(a) of such Code [26 U.S.C.A. Section 7213(a)(4) ] shall apply with respect to the willful offer of any item of material value in exchange for any such social security account number or related record in the same manner and to the same extent as such paragraph applies with respect to offers (in exchange for any return or return information) described in such paragraph.

 (III) For purposes of this clause, the term "authorized person" means an officer or employee of the United States, an officer or employee of any State, political subdivision of a State, or agency of a State or political subdivision of a State, and any other person (or officer or employee thereof), who has or had access to social security account numbers or related records pursuant to any provision of law enacted on or after October 1, 1990.  For purposes of this subclause, the term "officer or employee" includes a former officer or employee.

 (IV) For purposes of this clause, the term "related record" means any record, list, or compilation that indicates, directly or indirectly, the identity of any individual with respect to whom a social security account number or a request for a social security account number is maintained pursuant to this clause.

 (ix) In the administration of the provisions of chapter 81 of Title 5 and the Longshore and Harbor Workers' Compensation Act (33 U.S.C. 901 et seq.), the Secretary of Labor may require by regulation that any person filing a notice of injury or a claim for benefits under such provisions provide as part of such notice or claim such person's social security account number, subject to the requirements of this clause.   No officer or employee of the Department of Labor shall have access to any such number for any purpose other than the establishment of a system of records necessary for the effective administration of such provisions.  The Secretary of Labor shall restrict, to the satisfaction of the Commissioner of Social Security, access to social security account numbers obtained pursuant to this clause to officers and employees of the United States whose duties or responsibilities require access for the administration or enforcement of such provisions.  The Secretary of Labor shall provide such other safeguards as the Commissioner of Social Security determines to be necessary or appropriate to protect the confidentiality of the social security account numbers.

 (D)(i) It is the policy of the United States that

  (I) any State (or any political subdivision of a State) and any authorized blood donation facility may utilize the social security account numbers issued by the Commissioner of Social Security for the purpose of identifying blood donors, and

  (II) any State (or political subdivision of a State) may require any individual who donates blood within such State (or political subdivision) to furnish to such State (or political subdivision), to any agency thereof having related administrative responsibility, or to any authorized blood donation facility the social security account number (or numbers, if the donor has more than one such number) issued to the donor by the Commissioner of Social Security.

 (ii) If and to the extent that any provision of Federal law enacted before November 10, 1988 is inconsistent with the policy set forth in clause (i), such provision shall, on and after such date, be null, void, and of no effect.

 (iii) For purposes of this subparagraph

  (I) the term "authorized blood donation facility" means an entity described in section 1320b11(h)(1)(B) of this title, and

  (II) the term "State" includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Commonwealth of the Northern Marianas, and the Trust Territory of the Pacific Islands.

 (E)(i) It is the policy of the United States that

  (I) any State (or any political subdivision of a State) may utilize the social security account numbers issued by the Commissioner of Social Security for the additional purposes described in clause (ii) if such numbers have been collected and are otherwise utilized by such State (or political subdivision) in accordance with applicable law, and

  (II) any district court of the United States may use, for such additional purposes, any such social security account numbers which have been so collected and are so utilized by any State.

 (ii) The additional purposes described in this clause are the following:

  (I) Identifying duplicate names of individuals on master lists used for jury selection purposes.

  (II) Identifying on such master lists those individuals who are ineligible to serve on a jury by reason of their conviction of a felony.

 (iii) To the extent that any provision of Federal law enacted before August 15, 1994 is inconsistent with the policy set forth in clause (i), such provision shall, on and after that date, be null, void, and of no effect.

 (iv) For purposes of this subparagraph, the term "State" has the meaning such term has in subparagraph (D).

 (F) The Commissioner of Social Security shall require, as a condition for receipt of benefits under this subchapter, that an individual furnish satisfactory proof of a social security account number assigned to such individual by the Commissioner of Social Security or, in the case of an individual to whom no such number has been assigned, that such individual make proper application for assignment of such a number.

 (G) The Commissioner of Social Security shall issue a social security card to each individual at the time of the issuance of a social security account number to such individual.  The social security card shall be made of banknote paper, and (to the maximum extent practicable) shall be a card which cannot be counterfeited.

 (3) The Commissioner's records shall be evidence for the purpose of proceedings before the Commissioner of Social Security or any court of the amounts of wages paid to, and selfemployment income derived by, an individual and of the periods in which such wages were paid and such income was derived. The absence of an entry in such records as to wages alleged to have been paid to, or as to selfemployment income alleged to have been derived by, an individual in any period shall be evidence that no such alleged wages were paid to, or that no such alleged income was derived by, such individual during such period.

 (4) Prior to the expiration of the time limitation following any year the Commissioner of Social Security may, if it is brought to the Commissioner's attention that any entry of wages or selfemployment income in the Commissioner's records for such year is erroneous or that any item of wages or selfemployment income for such year has been omitted from such records, correct such entry or include such omitted item in the Commissioner's records, as the case may be.  After the expiration of the time limitation following any year

  (A) the Commissioner's records (with changes, if any, made pursuant to paragraph (5) of this subsection) of the amounts of wages paid to, and self employment income derived by, an individual during any period in such year shall be conclusive for the purposes of this subchapter;

  (B) the absence of an entry in the Commissioner's records as to the wages alleged to have been paid by an employer to an individual during any period in such year shall be presumptive evidence for the purposes of this subchapter that no such alleged wages were paid to such individual in such period;  and

  (C) the absence of an entry in the Commissioner's records as to the self employment income alleged to have been derived by an individual in such year shall be conclusive for the purposes of this subchapter that no such alleged selfemployment income was derived by such individual in such year unless it is shown that he filed a tax return of his selfemployment income for such year before the expiration of the time limitation following such year, in which case the Commissioner of Social Security shall include in the Commissioner's records the selfemployment income of such individual for such year.

 (5) After the expiration of the time limitation following any year in which wages were paid or alleged to have been paid to, or selfemployment income was derived or alleged to have been derived by, an individual, the Commissioner of Social Security may change or delete any entry with respect to wages or self employment income in the Commissioner's records of such year for such individual or include in the Commissioner's records of such year for such individual any omitted item of wages or selfemployment income but only

  (A) if an application for monthly benefits or for a lumpsum death payment was filed within the time limitation following such year;  except that no such change, deletion, or inclusion may be made pursuant to this subparagraph after a final decision upon the application for monthly benefits or lumpsum death  payment;

  (B) if within the time limitation following such year an individual or his survivor makes a request for a change or deletion, or for an inclusion of an omitted item, and alleges in writing that the Commissioner's records of the wages paid to, or the selfemployment income derived by, such individual in such year are in one or more respects erroneous;  except that no such change, deletion, or inclusion may be made pursuant to this subparagraph after a final decision upon such request.  Written notice of the Commissioner's decision on any such request shall be given to the individual who made the request;

  (C) to correct errors apparent on the face of such records;

  (D) to transfer items to records of the Railroad Retirement Board if such items were credited under this subchapter when they should have been credited under the Railroad Retirement Act of 1937 [45 U.S.C.A. Section 228a et seq.] or 1974 [45 U.S.C.A. Section 231 et seq.], or to enter items transferred by the Railroad Retirement Board which have been credited under the Railroad Retirement Act of 1937 [45 U.S.C.A. Section 228a et seq.] or 1974 [45 U.S.C.A. Section 231 et seq.] when they should have been credited under this subchapter;

  (E) to delete or reduce the amount of any entry which is erroneous as a result of fraud;

  (F) to conform the Commissioner's records to

   (i) tax returns or portions thereof (including information returns and other written statements) filed with the Commissioner of Internal Revenue under Title VIII of the Social Security Act [42 U.S.C.A. Section 1001 et seq.], under subchapter E of chapter 1 or subchapter A of chapter 9 of the Internal Revenue Code of 1939, under chapter 2 or 21 of the Internal Revenue Code of 1954 or the Internal Revenue Code of 1986, or under regulations made under authority of such title, subchapter, or chapter;

   (ii) wage reports filed by a State pursuant to an agreement under section 418 of this title or regulations of the Commissioner of Social Security thereunder;  or

   (iii) assessments of amounts due under an agreement pursuant to section 418  (as in effect prior to December 31, 1986) of this title, if such assessments are made within the period specified in subsection (q) of such section (as so in effect), or allowances of credits or refunds of overpayments by a State under an agreement pursuant to such section;

  except that no amount of selfemployment income of an individual for any taxable year (if such return or statement was filed after the expiration of the time limitation following the taxable year) shall be included in the   Commissioner's records pursuant to this subparagraph;

  (G) to correct errors made in the allocation, to individuals or periods, of wages or selfemployment income entered in the records of the Commissioner of Social Security;

  (H) to include wages paid during any period in such year to an individual by an employer;

  (I) to enter items which constitute remuneration for employment under subsection (o) of this section, such entries to be in accordance with certified reports of records made by the Railroad Retirement Board pursuant to section 5(k)(3) of the Railroad Retirement Act of 1937 [45 U.S.C.A. Section 228e(k)(3)] or section 7(b)(7) of the Railroad Retirement Act of 1974 [45 U.S.C.A. Section 231f(b)(7) ];  or

  (J) to include selfemployment income for any taxable year, up to, but not in excess of, the amount of wages deleted by the Commissioner of Social Security as payments erroneously included in such records as wages paid to such individual, if such income (or net earnings from selfemployment), not already included in such records as selfemployment income, is included in a return or statement (referred to in subparagraph (F) of this subsection) filed before the expiration of the time limitation following the taxable year in which such deletion of wages is made.

 (6) Written notice of any deletion or reduction under paragraph (4) or (5) of this subsection shall be given to the individual whose record is involved or to his survivor, except that (A) in the case of a deletion or reduction with respect to any entry of wages such notice shall be given to such individual only if he has previously been notified by the Commissioner of Social Security of the amount of the his wages for the period involved, and (B) such notice shall be given to such survivor only if he or the individual whose record is involved has previously been notified by the Commissioner of Social Security of the amount of such individual's wages and selfemployment income for the period involved.

 (7) Upon request in writing (within such period, after any change or refusal of a request for a change of the Commissioner's records pursuant to this subsection, as the Commissioner of Social Security may prescribe), opportunity for hearing with respect to such change or refusal shall be afforded to any individual or his survivor.  If a hearing is held pursuant to this paragraph the Commissioner of Social Security shall make findings of fact and a decision based upon the evidence adduced at such hearing and shall include any omitted items, or change or delete any entry, in the Commissioner's records as may be required by such findings and decision.

 (8) A translation into English by a third party of a statement made in a foreign language by an applicant for or beneficiary of monthly insurance benefits under this subchapter shall not be regarded as reliable for any purpose under this subchapter unless the third party, under penalty of perjury

  (A) certifies that the translation is accurate;  and

  (B) discloses the nature and scope of the relationship between the third party and the applicant or recipient, as the case may be.

 (9) Decisions of the Commissioner of Social Security under this subsection shall be reviewable by commencing a civil action in the United States district court as provided in subsection (g) of this section.

   <See also amendment set out after text>

(d) Issuance of subpenas in administrative proceedings

 For the purpose of any hearing, investigation, or other proceeding authorized or directed under this subchapter, or relative to any other matter within the Commissioner's jurisdiction hereunder, the Commissioner of Social Security shall have power to issue subpenas requiring the attendance and testimony of witnesses and the production of any evidence that relates to any matter under investigation or in question before the Commissioner of Social Security.  Such attendance of witnesses and production of evidence at the designated place of such hearing, investigation, or other proceeding may be required from any place in the United States or in any Territory or possession thereof.  Subpenas of the Commissioner of Social Security shall be served by anyone authorized by the Commissioner (1) by delivering a copy thereof to the individual named therein, or (2) by registered mail or by certified mail addressed to such individual at his last dwelling place or principal place of business.  A verified return by the individual so serving the subpoena setting forth the manner of service, or, in the case of service by registered mail or by certified mail, the return postoffice receipt therefor signed by the individual so served, shall be proof of service.  Witnesses so subpoenaed shall be paid the same fees and mileage as are paid witnesses in the district courts of the United States.

(e) Judicial enforcement of subpenas;  contempt

 In case of contumacy by, or refusal to obey a subpoena duly served upon, any person, any district court of the United States for the judicial district in which said person charged with contumacy or refusal to obey is found or resides or transacts business, upon application by the Commissioner of Social Security, shall have jurisdiction to issue an order requiring such person to appear and give testimony, or to appear and produce evidence, or both;  any failure to obey such order of the court may be punished by said court as contempt thereof.

(f) Repealed.  Pub.L. 91452, Title II, Section 236, Oct. 15, 1970, 84 Stat. 930

(g) Judicial review

 Any individual, after any final decision of the Commissioner of Social Security made after a hearing to which he was a party, irrespective of the amount in controversy, may obtain a review of such decision by a civil action commenced within sixty days after the mailing to him of notice of such decision or within such further time as the Commissioner of Social Security may allow. Such action shall be brought in the district court of the United States for the judicial district in which the plaintiff resides, or has his principal place of business, or, if he does not reside or have his principal place of business within any such judicial district, in the United States District Court for the District of Columbia.  As part of the Commissioner's answer the Commissioner of Social Security shall file a certified copy of the transcript of the record including the evidence upon which the findings and decision complained of are based.  The court shall have power to enter, upon the pleadings and transcript of the record, a judgment affirming, modifying, or reversing the decision of the Commissioner of Social Security, with or without remanding the cause for a rehearing.  The findings of the Commissioner of Social Security as to any fact, if supported by substantial evidence, shall be conclusive, and where a claim has been denied by the Commissioner of Social Security or a decision is rendered under subsection (b) of this section which is adverse to an individual who was a party to the hearing before the Commissioner of Social Security, because of failure of the claimant or such individual to submit proof in conformity with any regulation prescribed under subsection (a) of this section, the court shall review only the question of conformity with such regulations and the validity of such regulations.  The court may, on motion of the Commissioner of Social Security made for good cause shown before the Commissioner files the Commissioner's answer, remand the case to the Commissioner of Social Security for further action by the Commissioner of Social Security, and it may at any time order additional evidence to be taken before the Commissioner of Social Security, but only upon a showing that there is new evidence which is material and that there is good cause for the failure to incorporate such evidence into the record in a prior proceeding;  and the Commissioner of Social Security shall, after the case is remanded, and after hearing such additional evidence if so ordered, modify or affirm the Commissioner's findings of fact or the Commissioner's decision, or both, and shall file with the court any such additional and modified findings of fact and decision, and a transcript of the additional record and testimony upon which the Commissioner's action in modifying or affirming was based.   Such additional or modified findings of fact and decision shall be reviewable only to the extent provided for review of the original findings of fact and decision.   The judgment of the court shall be final except that it shall be subject to review in the same manner as a judgment in other civil actions.  Any action instituted in accordance with this subsection shall survive notwithstanding any change in the person occupying the office of Commissioner of Social Security or any vacancy in such office.

(h) Finality of Commissioner's decision

 The findings and decision of the Commissioner of Social Security after a hearing shall be binding upon all individuals who were parties to such hearing.  No findings of fact or decision of the Commissioner of Social Security shall be reviewed by any person, tribunal, or governmental agency except as herein provided.  No action against the United States, the Commissioner of Social Security, or any officer or employee thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any claim arising under this subchapter.

(i) Certification for payment

 Upon final decision of the Commissioner of Social Security, or upon final judgment of any court of competent jurisdiction, that any person is entitled to any payment or payments under this subchapter, the Commissioner of Social Security shall certify to the Managing Trustee the name and address of the person so entitled to receive such payment or payments, the amount of such payment or payments, and the time at which such payment or payments should be made, and the Managing Trustee, through the Fiscal Service of the Department of the Treasury, and prior to any action thereon by the General Accounting Office, shall make payment in accordance with the certification of the Commissioner of Social Security (except that in the case of (A) an individual who will have completed ten years of service creditable under the Railroad Retirement Act of 1937 [45 U.S.C.A. Section 228a et seq.] or the Railroad Retirement Act of 1974 [45 U.S.C.A. Section 231 et seq.], (B) the wife or husband of such an individual,  (C) any survivor of such an individual if such survivor is entitled, or could upon application become entitled, to an annuity under section 2 of the Railroad Retirement Act of 1974 [45 U.S.C.A. Section 231a], and (D) any other person entitled to benefits under section 202 of this Act [42 U.S.C.A. Section 402] on the basis of the wages and selfemployment income of such an individual (except a survivor of such an individual where such individual did not have a current connection with the railroad industry, as defined in the Railroad Retirement Act of 1974, at the time of his death), such certification shall be made to the Railroad Retirement Board which shall provide for such payment or payments to such person on behalf of the Managing Trustee in accordance with the provisions of the Railroad Retirement Act of 1974):  Provided, That where a review of the Commissioner's decision is or may be sought under subsection (g) of this section the Commissioner of Social Security may withhold certification of payment pending such review.  The Managing Trustee shall not be held personally liable for any payment or payments made in accordance with a certification by the Commissioner of Social Security.

(j) Representative payees

 (1)(A) If the Commissioner of Social Security determines that the interest of any individual under this subchapter, would be served thereby, certification of payment of such individual's benefit under this subchapter may be made, regardless of the legal competency or incompetency of the individual, either for direct payment to the individual, or for his or her use and benefit, to another individual, or an organization, with respect to whom the requirements of paragraph (2) have been met (hereinafter in this subsection referred to as the individual's "representative payee").  If the Commissioner of Social Security or a court of competent jurisdiction determines that a representative payee has misused any individual's benefit paid to such representative payee pursuant to this subsection or section 1383(a)(2) of this title, the Commissioner of Social Security shall promptly revoke certification for payment of benefits to such representative payee pursuant to this subsection and certify payment to an alternative representative payee or, if the interest of the individual under this subchapter would be served thereby, to the individual.

 (B) In the case of an individual entitled to benefits based on disability, the payment of such benefits shall be made to a representative payee if the Commissioner of Social Security determines that such payment would serve the interest of the individual because the individual also has an alcoholism or drug addiction condition (as determined by the Commissioner) and the individual is incapable of managing such benefits.

 (2)(A) Any certification made under paragraph (1) for payment of benefits to an individual's representative payee shall be made on the basis of

  (i) an investigation by the Commissioner of Social Security of the person to serve as representative payee, which shall be conducted in advance of such certification and shall, to the extent practicable, include a facetoface interview with such person, and

  (ii) adequate evidence that such certification is in the interest of such individual (as determined by the Commissioner of Social Security in regulations).

 (B)(i) As part of the investigation referred to in subparagraph (A)(i), the Commissioner of Social Security shall

  (I) require the person being investigated to submit documented proof of the identity of such person, unless information establishing such identity has been submitted with an application for benefits under this subchapter or subchapter XVI of this chapter,

  (II) verify such person's social security account number (or employer identification number),

  (III) determine whether such person has been convicted of a violation of  section 408 or 1383a of this title, and

  (IV) determine whether certification of payment of benefits to such person has been revoked pursuant to this subsection or payment of benefits to such person has been terminated pursuant to section 1383(a)(2)(A)(iii) of this title by reason of misuse of funds paid as benefits under this subchapter or subchapter XVI of this chapter.

 (ii) The Commissioner of Social Security shall establish and maintain a centralized file, which shall be updated periodically and which shall be in a form which renders it readily retrievable by each servicing office of the Social Security Administration.  Such file shall consist of

  (I) a list of the names and social security account numbers (or employer identification numbers) of all persons with respect to whom certification of payment of benefits has been revoked on or after January 1, 1991, pursuant to this subsection, or with respect to whom payment of benefits has been terminated on or after such date pursuant to section 1383(a)(2)(A)(iii) of this title, by reason of misuse of funds paid as benefits under this subchapter or subchapter XVI of this chapter, and

  (II) a list of the names and social security account numbers (or employer identification numbers) of all persons who have been convicted of a violation of section 408 or 1383a of this title.

 (C)(i) Benefits of an individual may not be certified for payment to any other person pursuant to this subsection if

  (I) such person has previously been convicted as described in subparagraph  (B)(i)(III),

  (II) except as provided in clause (ii), certification of payment of benefits to such person under this subsection has previously been revoked as described in subparagraph (B)(i)(IV), or payment of benefits to such person pursuant to section 1383(a)(2)(A)(ii) of this title has previously been terminated as described in section 1383(a)(2)(B)(ii)(IV) of this title, or

  (III) except as provided in clause (iii), such person is a creditor of such individual who provides such individual with goods or services for consideration.

 (ii) The Commissioner of Social Security shall prescribe regulations under which the Commissioner of Social Security may grant exemptions to any person from the provisions of clause (i)(II) on a casebycase basis if such exemption is in the best interest of the individual whose benefits would be paid to such person pursuant to this subsection.

 (iii) Clause (i)(III) shall not apply with respect to any person who is a creditor referred to therein if such creditor is

  (I) a relative of such individual if such relative resides in the same  household as such individual,

  (II) a legal guardian or legal representative of such individual,

  (III) a facility that is licensed or certified as a care facility under the law of a State or a political subdivision of a State,

  (IV) a person who is an administrator, owner, or employee of a facility referred to in subclause (III) if such individual resides in such facility, and the certification of payment to such facility or such person is made only after good faith efforts have been made by the local servicing office of the Social Security Administration to locate an alternative representative payee to whom such certification of payment would serve the best interests of such individual, or

  (V) an individual who is determined by the Commissioner of Social Security, on the basis of written findings and under procedures which the Commissioner of Social Security shall prescribe by regulation, to be acceptable to serve as a representative payee.

 (iv) The procedures referred to in clause (iii)(V) shall require the individual who will serve as representative payee to establish, to the satisfaction of the Commissioner of Social Security, that

  (I) such individual poses no risk to the beneficiary,

  (II) the financial relationship of such individual to the beneficiary poses  no substantial conflict of interest, and

  (III) no other more suitable representative payee can be found.

 (v) In the case of an individual described in paragraph (1)(B), when selecting such individual's representative payee, preference shall be given to

  (I) a communitybased nonprofit social service agency licensed or bonded by the State,

  (II) a Federal, State, or local government agency whose mission is to carry out income maintenance, social service, or health carerelated activities,

  (III) a State or local government agency with fiduciary responsibilities, or

  (IV) a designee of an agency (other than of a Federal agency) referred to in the preceding subclauses of this clause, if the Commissioner of Social Security deems it appropriate,

unless the Commissioner of Social Security determines that selection of a family member would be appropriate.

 (D)(i) Subject to clause (ii), if the Commissioner of Social Security makes a determination described in the first sentence of paragraph (1) with respect to any individual's benefit and determines that direct payment of the benefit to the individual would cause substantial harm to the individual, the Commissioner of Social Security may defer (in the case of initial entitlement) or suspend (in the case of existing entitlement) direct payment of such benefit to the individual, until such time as the selection of a representative payee is made pursuant to this subsection.

 (ii)(I) Except as provided in subclause (II), any deferral or suspension of direct payment of a benefit pursuant to clause (i) shall be for a period of not more than 1 month.

 (II) Subclause (I) shall not apply in any case in which the individual is, as of the date of the Commissioner's determination, legally incompetent, under the age of 15 years, or described in paragraph (1)(B).

 (iii) Payment pursuant to this subsection of any benefits which are deferred or suspended pending the selection of a representative payee shall be made to the individual or the representative payee as a single sum or over such period of time as the Commissioner of Social Security determines is in the best interest of the individual entitled to such benefits.

 (E)(i) Any individual who is dissatisfied with a determination by the Commissioner of Social Security to certify payment of such individual's benefit to a representative payee under paragraph (1) or with the designation of a particular person to serve as representative payee shall be entitled to a hearing by the Commissioner of Social Security to the same extent as is provided in subsection (b) of this section, and to judicial review of the Commissioner's final decision as is provided in subsection (g) of this section.

 (ii) In advance of the certification of payment of an individual's benefit to a representative payee under paragraph (1), the Commissioner of Social Security shall provide written notice of the Commissioner's initial determination to certify such payment.  Such notice shall be provided to such individual, except that, if such individual

  (I) is under the age of 15,

  (II) is an unemancipated minor under the age of 18, or

  (III) is legally incompetent,

then such notice shall be provided solely to the legal guardian or legal representative of such individual.

 (iii) Any notice described in clause (ii) shall be clearly written in language that is easily understandable to the reader, shall identify the person to be designated as such individual's representative payee, and shall explain to the reader the right under clause (i) of such individual or of such individual's legal guardian or legal representative

  (I) to appeal a determination that a representative payee is necessary for such individual,

  (II) to appeal the designation of a particular person to serve as the  representative payee of such individual, and

  (III) to review the evidence upon which such designation is based and submit additional evidence.

 (3)(A) In any case where payment under this subchapter is made to a person other than the individual entitled to such payment, the Commissioner of Social Security shall establish a system of accountability monitoring whereby such person shall report not less often than annually with respect to the use of such payments.  The Commissioner of Social Security shall establish and implement statistically valid procedures for reviewing such reports in order to identify instances in which such persons are not properly using such payments.

 (B) Subparagraph (A) shall not apply in any case where the other person to whom such payment is made is a State institution.  In such cases, the Commissioner of Social Security shall establish a system of accountability monitoring for institutions in each State.

 (C) Subparagraph (A) shall not apply in any case where the individual entitled to such payment is a resident of a Federal institution and the other person to whom such payment is made is the institution.

 (D) Notwithstanding subparagraphs (A), (B), and (C), the Commissioner of Social Security may require a report at any time from any person receiving payments on behalf of another, if the Commissioner of Social Security has reason to believe that the person receiving such payments is misusing such payments.

 (E) The Commissioner of Social Security shall maintain a centralized file, which shall be updated periodically and which shall be in a form which will be readily retrievable by each servicing office of the Social Security Administration, of

  (i) the address and the social security account number (or employer identification number) of each representative payee who is receiving benefit payments pursuant to this subsection or section 1383(a)(2) of this title, and

  (ii) the address and social security account number of each individual for whom each representative payee is reported to be providing services as representative payee pursuant to this subsection or section 1383(a)(2) of this title.

 (F) Each servicing office of the Administration shall maintain a list, which shall be updated periodically, of public agencies and communitybased nonprofit social service agencies which are qualified to serve as representative payees pursuant to this subsection or section 1383(a)(2) of this title and which are located in the area served by such servicing office.

 (4)(A)(i) A qualified organization may collect from an individual a monthly fee for expenses (including overhead) incurred by such organization in providing services performed as such individual's representative payee pursuant to this subsection if such fee does not exceed the lesser of

  (I) 10 percent of the monthly benefit involved, or

  (II) $25.00 per month ($50.00 per month in any case in which the individual is described in paragraph (1)(B)).

The Commissioner of Social Security shall adjust annually (after 1995) each dollar amount set forth in subclause (II) under procedures providing for adjustments in the same manner and to the same extent as adjustments are provided for under the procedures used to adjust benefit amounts under section 415(i)(2)(A) of this title, except that any amount so adjusted that is not a multiple of $1.00 shall be rounded to the nearest multiple of $1.00.

Any agreement providing for a fee in excess of the amount permitted under this subparagraph shall be void and shall be treated as misuse by such organization of such individual's benefits.

 (ii) In the case of an individual who is no longer currently entitled to monthly insurance benefits under this subchapter but to whom all pastdue benefits have not been paid, for purposes of clause (i), any amount of such pastdue benefits payable in any month shall be treated as a monthly benefit referred to in clause (i)(I).

 (B) For purposes of this paragraph, the term "qualified organization" means any State or local government agency whose mission is to carry out income maintenance, social service, or health carerelated activities, any State or local government agency with fiduciary responsibilities, or any communitybased nonprofit social service agency which is bonded or licensed in each State in which it serves as a representative payee, if such agency, in accordance with any applicable regulations of the Commissioner of Social Security

  (i) regularly provides services as the representative payee, pursuant to this subsection or section 1383(a)(2) of this title, concurrently to 5 or more individuals,

  (ii) demonstrates to the satisfaction of the Commissioner of Social Security that such agency is not otherwise a creditor of any such individual.

  (iii) Repealed.  Pub.L. 103296, Title II, Section 201(a)(2)(B)(ii)(IV), Aug. 15, 1994, 108 Stat. 1493

The Commissioner of Social Security shall prescribe regulations under which the Commissioner of Social Security may grant an exception from clause (ii) for any individual on a casebycase basis if such exception is in the best interests of such individual.

 (C) Any qualified organization which knowingly charges or collects, directly or indirectly, any fee in excess of the maximum fee prescribed under subparagraph (A) or makes any agreement, directly or indirectly, to charge or collect any fee in excess of such maximum fee, shall be fined in accordance with Title 18, or imprisoned not more than 6 months, or both.

 (D) Repealed.  Pub.L. 103296, Title II, Section 201(a)(2)(B)(iii), Aug. 15, 1994, 108 Stat. 1493

 (5) In cases where the negligent failure of the Commissioner of Social Security to investigate or monitor a representative payee results in misuse of benefits by the representative payee, the Commissioner of Social Security shall certify for payment to the beneficiary or the beneficiary's alternative representative payee an amount equal to such misused benefits.  The Commissioner of Social Security shall make a good faith effort to obtain restitution from the terminated representative payee.

 (6) The Commissioner of Social Security shall include as a part of the annual report required under section 904 of this title information with respect to the implementation of the preceding provisions of this subsection, including the number of cases in which the representative payee was changed, the number of cases discovered where there has been a misuse of funds, how any such cases were dealt with by the Commissioner of Social Security, the final disposition of such cases, including any criminal penalties imposed, and such other information as the Commissioner of Social Security determines to be appropriate.

 (7) For purposes of this subsection, the term "benefit based on disability" of an individual means a disability insurance benefit of such individual under section 423 of this title or a child's, widow's, or widower's insurance benefit of such individual under section 402 of this title based on such individual's disability.

(k) Payments to incompetents

 Any payment made after December 31, 1939, under conditions set forth in subsection (j) of this section, any payment made before January 1, 1940, to, or on behalf of, a legally incompetent individual, and any payment made after December 31, 1939, to a legally incompetent individual without knowledge by the Commissioner of Social Security of incompetency prior to certification of payment, if otherwise valid under this subchapter, shall be a complete settlement and satisfaction of any claim, right, or interest in and to such payment.

(l) Delegation of powers and duties by Commissioner of Social Security

 The Commissioner of Social Security is authorized to delegate to any member, officer, or employee of the Social Security Administration designated by the Commissioner any of the powers conferred upon the Commissioner by this section, and is authorized to be represented by the Commissioner's own attorneys in any court in any case or proceeding arising under the provisions of subsection (e) of this section.

(m) Repealed.  Aug. 28, 1950, c. 809, Title I, Section 101(b)(2), 64 Stat. 488

(n) Joint payments

 The Commissioner of Social Security may, in the Commissioner's discretion, certify to the Managing Trustee any two or more individuals of the same family for joint payment of the total benefits payable to such individuals for any month, and if one of such individuals dies before a check representing such joint payment is negotiated, payment of the amount of such unnegotiated check to the surviving individual or individuals may be authorized in accordance with regulations of the Secretary of the Treasury;  except that appropriate adjustment or recovery shall be made under section 404(a) of this title with respect to so much of the amount of such check as exceeds the amount to which such surviving individual or individuals are entitled under this subchapter for such month.

(o) Crediting of compensation under Railroad Retirement Act

 If there is no person who would be entitled, upon application therefor, to an annuity under section 2 of the Railroad Retirement Act of 1974 [45 U.S.C.A. Section 231a], or to a lumpsum payment under section 6(b) of such Act [45 U.S.C.A. Section 231e(b) ], with respect to the death of an employee (as defined in such Act), then, notwithstanding section 410(a)(10) of this title, compensation (as defined in such Railroad Retirement Act, but excluding compensation attributable as having been paid during any month on account of military service creditable under section 3(i) of such Act [45 U.S.C.A. Section 231b(i) ] if wages are deemed to have been paid to such employee during such month under subsection (a) or (e) of section 417 of this title) of such employee shall constitute remuneration for employment for purposes of determining (A) entitlement to and the amount of any lumpsum death payment under this subchapter on the basis of such employee's wages and selfemployment income and (B) entitlement to and the amount of any monthly benefit under this subchapter, for the month in which such employee died or for any month thereafter, on the basis of such wages and selfemployment income.  For such purposes, compensation (as so defined) paid in a calendar year before 1978 shall, in the absence of evidence to the contrary, be presumed to have been paid in equal proportions with respect to all months in the year in which the employee rendered services for such compensation.

(p) Special rules in case of Federal service

 (1) With respect to service included as employment under section 410 of this title which is performed in the employ of the United States or in the employ of any instrumentality which is wholly owned by the United States, including service, performed as a member of a uniformed service, to which the provisions of subsection (l)(1) of such section are applicable, and including service, performed as a volunteer or volunteer leader within the meaning of the Peace Corps Act [22 U.S.C.A. Section 2501 et seq.], to which the provisions of section 410(o) of this title are applicable, the Commissioner of Social Security shall not make determinations as to the amounts of remuneration for such service, or the periods in which or for which such remuneration was paid, but shall accept the determinations with respect thereto of the head of the appropriate Federal agency or instrumentality, and of such agents as such head may designate, as evidenced by returns filed in accordance with the provisions of section 3122 of Title 26, and certifications made pursuant to this subsection.  Such determinations shall be final and conclusive.  Nothing in this paragraph shall be construed to affect the Commissioner's authority to determine under sections 409 and 410 of this title whether any such service constitutes employment, the periods of such employment, and whether remuneration paid for any such service constitutes wages.

 (2) The head of any such agency or instrumentality is authorized and directed, upon written request of the Commissioner of Social Security, to make certification to the Commissioner with respect to any matter determinable for the Commissioner of Social Security by such head or his agents under this subsection, which the Commissioner of Social Security finds necessary in administering this subchapter.

 (3) The provisions of paragraphs (1) and (2) of this subsection shall be applicable in the case of service performed by a civilian employee, not compensated from funds appropriated by the Congress, in the Army and Air Force Exchange Service, Army and Air Force Motion Picture Service, Navy Exchanges, Marine Corps Exchanges, or other activities, conducted by an instrumentality of the United States subject to the jurisdiction of the Secretary of Defense, at installations of the Department of Defense for the comfort, pleasure, contentment, and mental and physical improvement of personnel of such Department;  and for purposes of paragraphs (1) and (2) of this subsection the Secretary of Defense shall be deemed to be the head of such instrumentality. The provisions of paragraphs (1) and (2) shall be applicable also in the case of service performed by a civilian employee, not compensated from funds appropriated by the Congress, in the Coast Guard Exchanges or other activities, conducted by an instrumentality of the United States subject to the jurisdiction of the Secretary of Transportation, at installations of the Coast Guard for the comfort, pleasure, contentment, and mental and physical improvement of personnel of the Coast Guard;  and for purposes of paragraphs (1) and (2) the Secretary of Transportation shall be deemed to be the head of such instrumentality.

(q) Expedited benefit payments

 (1) The Commissioner of Social Security shall establish and put into effect procedures under which expedited payment of monthly insurance benefits under this subchapter will, subject to paragraph (4) of this subsection, be made as set forth in paragraphs (2) and (3) of this subsection.

 (2) In any case in which

  (A) an individual makes an allegation that a monthly benefit under this subchapter was due him in a particular month but was not paid to him, and

  (B) such individual submits a written request for the payment of such benefit

   (i) in the case of an individual who received a regular monthly benefit in the month preceding the month with respect to which such allegation is made, not less than 30 days after the 15th day of the month with respect to which such allegation is made (and in the event that such request is submitted prior to the expiration of such 30day period, it shall be deemed to have been submitted upon the expiration of such period), and

   (ii) in any other case, not less than 90 days after the later of (I) the date on which such benefit is alleged to have been due, or (II) the date on which such individual furnished the last information requested by the Commissioner of Social Security (and such written request will be deemed to be filed on the day on which it was filed, or the ninetieth day after the first day on which the Commissioner of Social Security has evidence that such   allegation is true, whichever is later),

the Commissioner of Social Security shall, if the Commissioner finds that benefits are due, certify such benefits for payment, and payment shall be made within 15 days immediately following the date on which the written request is deemed to have been filed.

 (3) In any case in which the Commissioner of Social Security determines that there is evidence, although additional evidence might be required for a final decision, that an allegation described in paragraph (2)(A) is true, the Commissioner may make a preliminary certification of such benefit for payment even though the 30day or 90day periods described in paragraph (2)(B)(i) and (B)(ii) have not elapsed.

 (4) Any payment made pursuant to a certification under paragraph (3) of this subsection shall not be considered an incorrect payment for purposes of determining the liability of the certifying or disbursing officer.

 (5) For purposes of this subsection, benefits payable under section 428 of this title shall be treated as monthly insurance benefits payable under this subchapter.  However, this subsection shall not apply with respect to any benefit for which a check has been negotiated, or with respect to any benefit alleged to be due under either section 423 of this title, or section 402 of this title to a wife, husband, or child of an individual entitled to or applying for benefits under section 423 of this title, or to a child who has attained age 18 and is under a disability, or to a widow or widower on the basis of being under a disability.

(r) Use of death certificates to correct program information

 (1) The Commissioner of Social Security shall undertake to establish a program under which

  (A) States (or political subdivisions thereof) voluntarily contract with the Commissioner of Social Security to furnish the Commissioner of Social Security periodically with information (in a form established by the Commissioner of Social Security in consultation with the States) concerning individuals with respect to whom death certificates (or equivalent documents maintained by the States or subdivisions) have been officially filed with them;  and

  (B) there will be (i) a comparison of such information on such individuals with information on such individuals in the records being used in the administration of this chapter, (ii) validation of the results of such comparisons, and (iii) corrections in such records to accurately reflect the status of such individuals.

 (2) Each State (or political subdivision thereof) which furnishes the Commissioner of Social Security with information on records of deaths in the State or subdivision under this subsection may be paid by the Commissioner of Social Security from amounts available for administration of this chapter the reasonable costs (established by the Commissioner of Social Security in consultations with the States) for transcribing and transmitting such information to the Commissioner of Social Security.

 (3) In the case of individuals with respect to whom federally funded benefits are provided by (or through) a Federal or State agency other than under this chapter, the Commissioner of Social Security shall to the extent feasible provide such information through a cooperative arrangement with such agency, for ensuring proper payment of those benefits with respect to such individuals if

  (A) under such arrangement the agency provides reimbursement to the Commissioner of Social Security for the reasonable cost of carrying out such arrangement, and

  (B) such arrangement does not conflict with the duties of the Commissioner of Social Security under paragraph (1).

 (4) The Commissioner of Social Security may enter into similar agreements with States to provide information for their use in programs wholly funded by the States if the requirements of subparagraphs (A) and (B) of paragraph (3) of this section are met.

 (5) The Commissioner of Social Security may use or provide for the use of such records as may be corrected under this section, subject to such safeguards as the Commissioner of Social Security determines are necessary or appropriate to protect the information from unauthorized use or disclosure, for statistical and research activities conducted by Federal and State agencies.

 (6) Information furnished to the Commissioner of Social Security under this subsection may not be used for any purpose other than the purpose described in this subsection and is exempt from disclosure under section 552 of Title 5, and from the requirements of section 552a of Title 5.

 (7) The Commissioner of Social Security shall include information on the status of the program established under this section and impediments to the effective implementation of the program in the 1984 report required under section 904 of this title.

(s) Notice requirements

 The Commissioner of Social Security shall take such actions as are necessary to ensure that any notice to one or more individuals issued pursuant to this title by the Commissioner of Social Security or by a State agency

  (1) is written in simple and clear language, and

  (2) includes the address and telephone number of the local office of the Social Security Administration which serves the recipient.

In the case of any such notice which is not generated by a local servicing office, the requirements of paragraph (2) shall be treated as satisfied if such notice includes the address of the local office of the Social Security Administration which services the recipient of the notice and a telephone number through which such office can be reached.

(t) Sameday personal interviews at field offices in cases where time is of essence

 In any case in which an individual visits a field office of the Social Security Administration and represents during the visit to an officer or employee of the Social Security Administration in the office that the individual's visit is occasioned by

  (1) the receipt of a notice from the Social Security Administration indicating a time limit for response by the individual, or

  (2) the theft, loss, or nonreceipt of a benefit payment under this subchapter,

the Commissioner of Social Security shall ensure that the individual is granted a facetoface interview at the office with an officer or employee of the Social Security Administration before the close of business on the day of the visit.

(u) Redetermination of entitlement

 (1)(A) The Commissioner of Social Security shall immediately redetermine the entitlement of individuals to monthly insurance benefits under this subchapter if there is reason to believe that fraud or similar fault was involved in the application of the individual for such benefits, unless a United States attorney, or equivalent State prosecutor, with jurisdiction over potential or actual related criminal cases, certifies, in writing, that there is a substantial risk that such action by the Commissioner of Social Security with regard to beneficiaries in a particular investigation would jeopardize the criminal prosecution of a person involved in a suspected fraud.

 (B) When redetermining the entitlement, or making an initial determination of entitlement, of an individual under this subchapter, the Commissioner of Social Security shall disregard any evidence if there is reason to believe that fraud or similar fault was involved in the providing of such evidence.

 (2) For purposes of paragraph (1), similar fault is involved with respect to a determination if

  (A) an incorrect or incomplete statement that is material to the determination is knowingly made;  or

  (B) information that is material to the determination is knowingly concealed.

 (3) If, after redetermining pursuant to this subsection the entitlement of an individual to monthly insurance benefits, the Commissioner of Social Security determines that there is insufficient evidence to support such entitlement, the Commissioner of Social Security may terminate such entitlement and may treat benefits paid on the basis of such insufficient evidence as overpayments.

 Section 406. Representation of claimants before Commissioner of Social Security

(a) Recognition of representatives;  fees for representation before Commissioner of Social Security

 (1) The Commissioner of Social Security may prescribe rules and regulations governing the recognition of agents or other persons, other than attorneys as hereinafter provided, representing claimants before the Commissioner of Social Security, and may require of such agents or other persons, before being recognized as representatives of claimants that they shall show that they are of good character and in good repute, possessed of the necessary qualifications to enable them to render such claimants valuable service, and otherwise competent to advise and assist such claimants in the presentation of their cases.  An attorney in good standing who is admitted to practice before the highest court of the State, Territory, District, or insular possession of his residence or before the Supreme Court of the United States or the inferior Federal courts, shall be entitled to represent claimants before the Commissioner of Social Security.  The Commissioner of Social Security may, after due notice and opportunity for hearing, suspend or prohibit from further practice before the Commissioner any such person, agent, or attorney who refuses to comply with the Commissioner's rules and regulations or who violates any provision of this section for which a penalty is prescribed.  The Commissioner of Social Security may, by rule and regulation, prescribe the maximum fees which may be charged for services performed in connection with any claim before the Commissioner of Social Security under this subchapter, and any agreement in violation of such rules and regulations shall be void.  Except as provided in paragraph (2)(A), whenever the Commissioner of Social Security, in any claim before the Commissioner for benefits under this subchapter, makes a determination favorable to the claimant, the Commissioner shall, if the claimant was represented by an attorney in connection with such claim, fix (in accordance with the regulations prescribed pursuant to the preceding sentence) a reasonable fee to compensate such attorney for the services performed by him in connection with such claim.

 (2)(A) In the case of a claim of entitlement to pastdue benefits under this subchapter, if

  (i) an agreement between the claimant and another person regarding any fee to be recovered by such person to compensate such person for services with respect to the claim is presented in writing to the Commissioner of Social Security prior to the time of the Commissioner's determination regarding the claim,

  (ii) the fee specified in the agreement does not exceed the lesser of

   (I) 25 percent of the total amount of such pastdue benefits (as determined before any applicable reduction under section 1320a6(a) of this title), or

   (II) $4,000, and

  (iii) the determination is favorable to the claimant,

then the Commissioner of Social Security shall approve that agreement at the time of the favorable determination, and (subject to paragraph (3)) the fee specified in the agreement shall be the maximum fee.  The Commissioner of Social Security may from time to time increase the dollar amount under clause (ii)(II) to the extent that the rate of increase in such amount, as determined over the period since January 1, 1991, does not at any time exceed the rate of increase in primary insurance amounts under section 415(i) of this title since such date.  The Commissioner of Social Security shall publish any such increased amount in the Federal Register.

 (B) For purposes of this subsection, the term "pastdue benefits" excludes any benefits with respect to which payment has been continued pursuant to subsection (g) or (h) of section 423 of this title.

 (C) In any case involving

  (i) an agreement described in subparagraph (A) with any person relating to both a claim of entitlement to pastdue benefits under this subchapter and a claim of entitlement to pastdue benefits under subchapter XVI of this chapter, and

  (ii) a favorable determination made by the Commissioner of Social Security with respect to both such claims,

the Commissioner of Social Security may approve such agreement only if the total fee or fees specified in such agreement does not exceed, in the aggregate, the dollar amount in effect under subparagraph (A)(ii)(II).

 (D) In the case of a claim with respect to which the Commissioner of Social Security has approved an agreement pursuant to subparagraph (A), the Commissioner of Social Security shall provide the claimant and the person representing the claimant a written notice of

  (i) the dollar amount of the pastdue benefits (as determined before any applicable reduction under section 1320a6(a) of this title) and the dollar amount of the pastdue benefits payable to the claimant,

  (ii) the dollar amount of the maximum fee which may be charged or recovered as determined under this paragraph, and

  (iii) a description of the procedures for review under paragraph (3).

 (3)(A) The Commissioner of Social Security shall provide by regulation for review of the amount which would otherwise be the maximum fee as determined under paragraph (2) if, within 15 days after receipt of the notice provided pursuant to paragraph (2)(D)

  (i) the claimant, or the administrative law judge or other adjudicator who made the favorable determination, submits a written request to the Commissioner of Social Security to reduce the maximum fee, or

  (ii) the person representing the claimant submits a written request to the Commissioner of Social Security to increase the maximum fee.

Any such review shall be conducted after providing the claimant, the person representing the claimant, and the adjudicator with reasonable notice of such request and an opportunity to submit written information in favor of or in opposition to such request.  The adjudicator may request the Commissioner of Social Security to reduce the maximum fee only on the basis of evidence of the failure of the person representing the claimant to represent adequately the claimant's interest or on the basis of evidence that the fee is clearly excessive for services rendered.

 (B)(i) In the case of a request for review under subparagraph (A) by the claimant or by the person representing the claimant, such review shall be conducted by the administrative law judge who made the favorable determination or, if the Commissioner of Social Security determines that such administrative law judge is unavailable or if the determination was not made by an administrative law judge, such review shall be conducted by another person designated by the Commissioner of Social Security for such purpose.

 (ii) In the case of a request by the adjudicator for review under subparagraph (A), the review shall be conducted by the Commissioner of Social Security or by an administrative law judge or other person (other than such adjudicator) who is designated by the Commissioner of Social Security.

 (C) Upon completion of the review, the administrative law judge or other person conducting the review shall affirm or modify the amount which would otherwise be the maximum fee.  Any such amount so affirmed or modified shall be considered the amount of the maximum fee which may be recovered under paragraph (2).  The decision of the administrative law judge or other person conducting the review shall not be subject to further review.

 (4)(A) Subject to subparagraph (B), if the claimant is determined to be entitled to pastdue benefits under this subchapter and the person representing the claimant is an attorney, the Commissioner of Social Security shall, notwithstanding section 405(i) of this title, certify for payment out of such pastdue benefits (as determined before any applicable reduction under section 1320a6(a) of this title) to such attorney an amount equal to so much of the maximum fee as does not exceed 25 percent of such pastdue benefits (as determined before any applicable reduction under section 1320a6(a) of this title).

 (B) The Commissioner of Social Security shall not in any case certify any amount for payment to the attorney pursuant to this paragraph before the expiration of the 15day period referred to in paragraph (3)(A) or, in the case of any review conducted under paragraph (3), before the completion of such review.

 (5) Any person who shall, with intent to defraud, in any manner willfully and knowingly deceive, mislead, or threaten any claimant or prospective claimant or beneficiary under this subchapter by word, circular, letter or advertisement, or who shall knowingly charge or collect directly or indirectly any fee in excess of the maximum fee, or make any agreement directly or indirectly to charge or collect any fee in excess of the maximum fee, prescribed by the Commissioner of Social Security shall be deemed guilty of a misdemeanor and, upon conviction thereof, shall for each offense be punished by a fine not exceeding $500 or by imprisonment not exceeding one year, or both.

(b) Attorney fees

 (1)(A) Whenever a court renders a judgment favorable to a claimant under this subchapter who was represented before the court by an attorney, the court may determine and allow as part of its judgment a reasonable fee for such representation, not in excess of 25 percent of the total of the pastdue benefits to which the claimant is entitled by reason of such judgment, and the Commissioner of Social Security may, notwithstanding the provisions of section 405(i) of this title, certify the amount of such fee for payment to such attorney out of, and not in addition to, the amount of such pastdue benefits. In case of any such judgment, no other fee may be payable or certified for payment for such representation except as provided in this paragraph.

 (B) For purposes of this paragraph

  (i) the term "pastdue benefits" excludes any benefits with respect to which payment has been continued pursuant to subsection (g) or (h) of section 423 of this title, and

  (ii) amounts of pastdue benefits shall be determined before any applicable reduction under section 1320a6(a) of this title.

 (2) Any attorney who charges, demands, receives, or collects for services rendered in connection with proceedings before a court to which paragraph (1) of this subsection is applicable any amount in excess of that allowed by the court thereunder shall be guilty of a misdemeanor and upon conviction thereof shall be subject to a fine of not more than $500, or imprisonment for not more than one year, or both.

(c) Notification of options for obtaining attorneys

 The Commissioner of Social Security shall notify each claimant in writing, together with the notice to such claimant of an adverse determination, of the options for obtaining attorneys to represent individuals in presenting their cases before the Commissioner of Social Security.  Such notification shall also advise the claimant of the availability to qualifying claimants of legal services organizations which provide legal services free of charge.

 Section 407. Assignment;  amendment of section

 (a) The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.

 (b) No other provision of law, enacted before, on, or after April 20, 1983, may be construed to limit, supersede, or otherwise modify the provisions of this section except to the extent that it does so by express reference to this section.

 Section 408. Penalties

(a) In general

 Whoever

  (1) for the purpose of causing an increase in any payment authorized to be made under this subchapter, or for the purpose of causing any payment to be made where no payment is authorized under this subchapter, shall make or cause to be made any false statement or representation (including any false statement or representation in connection with any matter arising under subchapter E of chapter 1, or subchapter A or E of chapter 9 of the  Internal Revenue Code of 1939, or chapter 2 or 21 or subtitle F of Title 26) as to

   (A) whether wages were paid or received for employment (as said terms are defined in this subchapter and Title 26), or the amount of wages or the period during which paid or the person to whom paid;  or

   (B) whether net earnings from selfemployment (as such term is defined in this subchapter and in Title 26) were derived, or as to the amount of such net earnings or the period during which or the person by whom derived;  or

   (C) whether a person entitled to benefits under this subchapter had earnings in or for a particular period (as determined under section 403(f) of this title for purposes of deductions from benefits), or as to the amount thereof;  or

  (2) makes or causes to be made any false statement or representation of a material fact in any application for any payment or for a disability determination under this subchapter;  or

  (3) at any time makes or causes to be made any false statement or representation of a material fact for use in determining rights to payment under this subchapter;  or

  (4) having knowledge of the occurrence of any event affecting (1) his initial or continued right to any payment under this subchapter, or (2) the initial or  continued right to any payment of any other individual in whose behalf he has applied for or is receiving such payment, conceals or fails to disclose such event with an intent fraudulently to secure payment either in a greater amount than is due or when no payment is authorized;  or

  (5) having made application to receive payment under this subchapter for the use and benefit of another and having received such a payment, knowingly and willfully converts such a payment, or any part thereof, to a use other than for the use and benefit of such other person;  or

  (6) willfully, knowingly, and with intent to deceive the Commissioner of Social Security as to his true identity (or the true identity of any other person) furnishes or causes to be furnished false information to the Commissioner of Social Security with respect to any information required by the Commissioner of Social Security in connection with the establishment and maintenance of the records provided for in section 405(c)(2) of this title; or

  (7) for the purpose of causing an increase in any payment authorized under this subchapter (or any other program financed in whole or in part from Federal funds), or for the purpose of causing a payment under this subchapter (or any such other program) to be made when no payment is authorized thereunder, or for the purpose of obtaining (for himself or any other person)  any payment or any other benefit to which he (or such other person) is not entitled, or for the purpose of obtaining anything of value from any person, or for any other purpose

   (A) willfully, knowingly, and with intent to deceive, uses a social security account number, assigned by the Commissioner of Social Security (in the exercise of the Commissioner's authority under section 405(c)(2) of this title to establish and maintain records) on the basis of false information furnished to the Commissioner of Social Security by him or by any other person;  or

   (B) with intent to deceive, falsely represents a number to be the social security account number assigned by the Commissioner of Social Security to him or to another person, when in fact such number is not the social security account number assigned by the Commissioner of Social Security to him or to such other person;  or

   (C) knowingly alters a social security card issued by the Commissioner of Social Security, buys or sells a card that is, or purports to be, a card so issued, counterfeits a social security card, or possesses a social security card or counterfeit social security card with intent to sell or alter it;  or

  (8) discloses, uses, or compels the disclosure of the social security number of any person in violation of the laws of the United States;

shall be guilty of a felony and upon conviction thereof shall be fined under Title 18 or imprisoned for not more than five years, or both.

 Any person or other entity who is convicted of a violation of any of the provisions of this section, if such violation is committed by such person or entity in his role as, or in applying to become, a certified payee under section 405(j) of this title on behalf of another individual (other than such person's spouse), upon his second or any subsequent such conviction shall, in lieu of the penalty set forth in the preceding provisions of this section, be guilty of a felony and shall be fined under Title 18 or imprisoned for not more than five years, or both.  In the case of any violation described in the preceding sentence, including a first such violation, if the court determines that such violation includes a willful misuse of funds by such person or entity, the court may also require that full or partial restitution of such funds be made to the individual for whom such person or entity was the certified payee.

(b) Effect upon certification as payee

 Any individual or entity convicted of a felony under this section or under section 1383a(b) of this title may not be certified as a payee under section 405(j) of this title.

(c) Definitions

 For the purpose of subsection (a)(7) of this section, the terms "social security number" and "social security account number" mean such numbers as are assigned by the Commissioner of Social Security under section 405(c)(2) of this title whether or not, in actual use, such numbers are called social security numbers.

(d) Aliens

 (1) Except as provided in paragraph (2), an alien

  (A) whose status is adjusted to that of lawful temporary resident under section 1160 or 1255a of Title 8 or under section 902 of the Foreign Relations Authorization Act, Fiscal Years 1988 and 1989,

  (B) whose status is adjusted to that of permanent resident

   (i) under section 202 of the Immigration Reform and Control Act of 1986, or

   (ii) pursuant to section 1259 of Title 8, or

  (C) who is granted special immigrant status under section 1101(a)(27)(I) of Title 8,

shall not be subject to prosecution for any alleged conduct described in paragraph (6) or (7) of subsection (a) of this section if such conduct is alleged to have occurred prior to 60 days after November 5, 1990.

 (2) Paragraph (1) shall not apply with respect to conduct (described in subsection (a)(7)(C) of this section) consisting of

  (A) selling a card that is, or purports to be, a social security card issued by the Commissioner of Social Security,

  (B) possessing a social security card with intent to sell it, or

  (C) counterfeiting a social security card with intent to sell it.

 (3) Paragraph (1) shall not apply with respect to any criminal conduct involving both the conduct described in subsection (a)(7) of this section to which paragraph (1) applies and any other criminal conduct if such other conduct would be criminal conduct if the conduct described in subsection (a)(7) of this section were not committed.

 Section 409. "Wages" defined

(a) In general

 For the purposes of this subchapter, the term "wages" means remuneration paid prior to 1951 which was wages for the purposes of this subchapter under the law applicable to the payment of such remuneration, and remuneration paid after 1950 for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash;  except that, in the case of remuneration paid after 1950, such term shall not include

  (1)(A) That part of remuneration which, after remuneration (other than  remuneration referred to in the succeeding subsections of this section) equal to $3,600 with respect to employment has been paid to an individual during any calendar year prior to 1955, is paid to such individual during such calendar year;

  (B) That part of remuneration, which, after remuneration (other than remuneration referred to in the succeeding subsections of this section) equal to $4,200 with respect to employment has been paid to an individual during any calendar year after 1954 and prior to 1959, is paid to such individual during such calendar year;

  (C) That part of remuneration which, after remuneration (other than remuneration referred to in the succeeding subsections of this section) equal to $4,800 with respect to employment has been paid to an individual during any calendar year after 1958 and prior to 1966, is paid to such individual during such calendar year;

  (D) That part of remuneration which, after remuneration (other than remuneration referred to in the succeeding subsections of this section) equal to $6,600 with respect to employment has been paid to an individual during any calendar year after 1965 and prior to 1968, is paid to such individual during such calendar year;

  (E) That part of remuneration which, after remuneration (other than  remuneration referred to in the succeeding subsections of this section) equal to $7,800 with respect to employment has been paid to an individual during any calendar year after 1967 and prior to 1972, is paid to such individual during such calendar year;

  (F) That part of remuneration which, after remuneration (other than remuneration referred to in the succeeding subsections of this section) equal to $9,000 with respect to employment has been paid to an individual during any calendar year after 1971 and prior to 1973, is paid to such individual during any such calendar year;

  (G) That part of remuneration which, after remuneration (other than remuneration referred to in the succeeding subsections of this section) equal to $10,800 with respect to employment has been paid to an individual during any calendar year after 1972 and prior to 1974, is paid to such individual during such calendar year;

  (H) That part of remuneration which, after remuneration (other than remuneration referred to in the succeeding subsections of this section) equal to $13,200 with respect to employment has been paid to an individual during any calendar year after 1973 and prior to 1975, is paid to such individual during such calendar year;

  (I) That part of remuneration which, after remuneration (other than  remuneration referred to in the succeeding subsections of this section) equal to the contribution and benefit base (determined under section 430 of this title) with respect to employment has been paid to an individual during any calendar year after 1974 with respect to which such contribution and benefit base is effective, is paid to such individual during such calendar year;

  (2) The amount of any payment (including any amount paid by an employer for insurance or annuities, or into a fund, to provide for any such payment) made to, or on behalf of, an employee or any of his dependents under a plan or system established by an employer which makes provision for his employees generally (or for his employees generally and their dependents) or for a class or classes of his employees (or for a class or classes of his employees and their dependents), on account of (A) sickness or accident disability (but, in the case of payments made to an employee or any of his dependents, this clause shall exclude from the term "wages" only payments which are received under a workmen's compensation law), or (B) medical or hospitalization expenses in connection with sickness or accident disability, or (C) death, except that this subsection does not apply to a payment for groupterm life insurance to the extent that such payment is includible in the gross income of the employee under Title 26;

  (3) Any payment on account of sickness or accident disability, or medical or  hospitalization expenses in connection with sickness or accident disability, made by an employer to, or on behalf of, an employee after the expiration of six calendar months following the last calendar month in which the employee worked for such employer;

  (4) Any payment made to, or on behalf of, an employee or his beneficiary (A) from or to a trust exempt from tax under section 165(a) of the Internal Revenue Code of 1939 at the time of such payment or, in the case of a payment after 1954, under sections 401 and 501(a) of the Internal Revenue Code of 1954 or the Internal Revenue Code of 1986, unless such payment is made to an employee of the trust as remuneration for services rendered as such employee and not as a beneficiary of the trust, or (B) under or to an annuity plan which, at the time of such payment, meets the requirements of section 165(a)(3), (4), (5), and (6) of the Internal Revenue Code of 1939 or, in the case of a payment after 1954 and prior to 1963, the requirements of section 401(a)(3), (4), (5), and (6) of Title 26, or (C) under or to an annuity plan which, at the time of any such payment after 1962, is a plan described in section 403(a) of Title 26, or (D) under or to a bond purchase plan which, at the time of any such payment after 1962, is a qualified bond purchase plan described in section 405(a) of Title 26 (as in effect before July 18, 1984), or (E) under or to an annuity contract described in section 403(b)  of Title 26, other than a payment for the purchase of such contract which is made by reason of a salary reduction agreement (whether evidenced by a written instrument or otherwise), or (F) under or to an exempt governmental deferred compensation plan (as defined in section 3121(v)(3) of Title 26), or (G) to supplement pension benefits under a plan or trust described in any of the foregoing provisions of this subsection to take into account some portion or all of the increase in the cost of living (as determined by the Secretary of Labor) since retirement but only if such supplemental payments are under a plan which is treated as a welfare plan under section 1002(2)(B)(ii) of Title 29, or (H) under a simplified employee pension (as defined in section 408(k)(1) of Title 26), other than any contributions described in section 408(k)(6) of Title 26, or (I) under a cafeteria plan (within the meaning of section 125 of Title 26) if such payment would not be treated as wages without regard to such plan and it is reasonable to believe that (if section 125 applied for purposes of this section) section 125 would not treat any wages as constructively received;  or (J) under an arrangement to which section 408(p) of Title 26 applies, other than any elective contributions under paragraph (2)(A)(i) thereof;  or (K) under a plan described in section 457(e)(11)(A)(ii) of Title 26 and maintained by an eligible employer (as defined in section 457(e)(1) of Title 26);

  (5) The payment by an employer (without deduction from the remuneration of the employee)

   (A) of the tax imposed upon an employee under section 3101 of Title 26, or

   (B) of any payment required from an employee under a State unemployment compensation law,

  with respect to remuneration paid to an employee for domestic service in a private home of the employer or for agricultural labor;

  (6)(A) Remuneration paid in any medium other than cash to an employee for service not in the course of the employer's trade or business or for domestic service in a private home of the employer;

  (B) Cash remuneration paid by an employer in any calendar year to an employee for domestic service in a private home of the employer (including domestic service described in section 410(f)(5) of this title), if the cash remuneration paid in such year by the employer to the employee for such service is less than the applicable dollar threshold (as defined in section 3121(x) of Title 26) for such year;

  (C) Cash remuneration paid by an employer in any calendar year to an employee for service not in the course of the employer's trade or business, if the cash  remuneration paid in such year by the employer to the employee for such service is less than $100.  As used in this paragraph, the term "service not in the course of the employer's trade or business" does not include domestic service in a private home of the employer and does not include service described in section 410(f)(5) of this title;

  (7)(A) Remuneration paid in any medium other than cash for agricultural labor;

  (B) Cash remuneration paid by an employer in any calendar year to an employee for agricultural labor unless

   (i) the cash remuneration paid in such year by the employer to the employee for such labor is $150 or more, or

   (ii) the employer's expenditures for agricultural labor in such year equal or exceed $2,500,

  except that clause (ii) shall not apply in determining whether remuneration paid to an employee constitutes "wages" under this section if such employee (I) is employed as a hand harvest laborer and is paid on a piece rate basis in an operation which has been, and is customarily and generally recognized as having been, paid on a piece rate basis in the region of employment, (II) commutes daily from his permanent residence to the farm on which he is so   employed, and (III) has been employed in agriculture less than 13 weeks during the preceding calendar year;

  (8) Remuneration paid by an employer in any year to an employee for service described in section 410(j)(3)(C) of this title (relating to home workers), if the cash remuneration paid in such year by the employer to the employee for such service is less than $100;

  (9) Remuneration paid to or on behalf of an employee if (and to the extent that) at the time of the payment of such remuneration it is reasonable to believe that a corresponding deduction is allowable under section 217 of Title 26 (determined without regard to section 274(n) of Title 26);

  (10)(A) Tips paid in any medium other than cash;

  (B) Cash tips received by an employee in any calendar month in the course of his employment by an employer unless the amount of such cash tips is $20 or more;

  (11) Any payment or series of payments by an employer to an employee or any of his dependents which is paid

   (A) upon or after the termination of an employee's employment relationship because of (A)  [FN1] death, or (B)  [FN1] retirement for disability, and

   (B) under a plan established by the employer which makes provision for his   employees generally or a class or classes of his employees (or for such employees or class or classes of employees and their dependents),

  other than any such payment or series of payments which would have been paid if the employee's employment relationship had not been so terminated;

  (12) Any payment made by an employer to a survivor or the estate of a former employee after the calendar year in which such employee died;

  (13) Any payment made by an employer to an employee, if at the time such payment is made such employee is entitled to disability insurance benefits under section 423(a) of this title and such entitlement commenced prior to the calendar year in which such payment is made, and if such employee did not perform any services for such employer during the period for which such payment is made;

  (14)(A) Remuneration paid by an organization exempt from income tax under  section 501 of Title 26 in any calendar year to an employee for service rendered in the employ of such organization, if the remuneration paid in such year by the organization to the employee for such service is less than $100;

  (B) Any contribution, payment, or service, provided by an employer which may be excluded from the gross income of an employee, his spouse, or his dependents, under the provisions of section 120 of Title 26 (relating to  amounts received under qualified group legal services plans);

  (15) Any payment made, or benefit furnished, to or for the benefit of an employee if at the time of such payment or such furnishing it is reasonable to believe that the employee will be able to exclude such payment or benefit from income under section 127 or 129 of Title 26;

  (16) The value of any meals or lodging furnished by or on behalf of the employer if at the time of such furnishing it is reasonable to believe that the employee will be able to exclude such items from income under section 119 of Title 26;

  (17) Any benefit provided to or on behalf of an employee if at the time such benefit is provided, it is reasonable to believe that the employee will be able to exclude such benefit from income under section 74(c), 117, or 132 of Title 26;  or

  (18) Remuneration consisting of income excluded from taxation under  section 7873 of Title 26 (relating to income derived by Indians from exercise of fishing rights).

(b) Regulations providing exclusions from term

 Nothing in the regulations prescribed for purposes of chapter 24 of Title 26 (relating to income tax withholding) which provides an exclusion from  "wages" as used in such chapter shall be construed to require a similar exclusion from "wages" in the regulations prescribed for purposes of this subchapter.

(c) Individuals performing domestic services

 For purposes of this subchapter, in the case of domestic service described in subsection (a)(6)(B) of this section, any payment of cash remuneration for such service which is more or less than a wholedollar amount shall, under such conditions and to such extent as may be prescribed by regulations made under this subchapter, be computed to the nearest dollar.  For the purpose of the computation to the nearest dollar, the payment of a fractional part of a dollar shall be disregarded unless it amounts to onehalf dollar or more, in which case it shall be increased to $1.  The amount of any payment of cash remuneration so computed to the nearest dollar shall, in lieu of the amount actually paid, be deemed to constitute the amount of cash remuneration for purposes of subsection (a)(6)(B) of this section.

(d) Members of uniformed services

 For purposes of this subchapter, in the case of an individual performing service, as a member of a uniformed service, to which the provisions of section 410(l )(1) of this title are applicable, the term "wages" shall, subject to the provisions of subsection (a)(1) of this section, include as such individual's remuneration for such service only (1) his basic pay as described in chapter 3 and section 1009 of Title 37 in the case of an individual performing service to which subparagraph (A) of such section 410(l)(1) of this title applies, or (2) his compensation for such service as determined under section 206(a) of Title 37 in the case of an individual performing service to which subparagraph (B) of such section 410 (l)(1) of this title applies.

(e) Peace Corps volunteers

 For purposes of this subchapter, in the case of an individual performing service, as a volunteer or volunteer leader within the meaning of the Peace Corps Act [22 U.S.C.A. Section 2501 et seq.], to which the provisions of section 410(o ) of this title are applicable, (1) the term "wages" shall, subject to the provisions of subsection (a) of this section, include as such individual's remuneration for such service only amounts certified as payable pursuant to section 5(c) or 6(1) of the Peace Corps Act [22 U.S.C.A. Section 2504(c) or 2505(1) ], and (2) any such amount shall be deemed to have been paid to such individual at the time the service, with respect to which it is paid, is performed.

(f) Tips

 For purposes of this subchapter, tips received by an employee in the course of his employment shall be considered remuneration for employment.  Such remuneration shall be deemed to be paid at the time a written statement including such tips is furnished to the employer pursuant to section 6053(a) of Title 26, or (if no statement including such tips is so furnished) at the time received.

(g) Members of religious orders

 For purposes of this subchapter, in any case where an individual is a member of a religious order (as defined in section 3121(r)(2) of Title 26) performing service in the exercise of duties required by such order, and an election of coverage under section 3121(r) of Title 26 is in effect with respect to such order or with respect to the autonomous subdivision thereof to which such member belongs, the term "wages" shall, subject to the provisions of subsection (a) of this section, include as such individual's remuneration for such service the fair market value of any board, lodging, clothing, and other perquisites furnished to such member by such order or subdivision thereof or by any other person or organization pursuant to an agreement with such order or subdivision, except that the amount included as such individual's remuneration under this paragraph shall not be less than $100 a month.

(h) Retired justices and judges

 For purposes of this subchapter, in the case of an individual performing service under the provisions of section 294 of Title 28 (relating to assignment of retired justices and judges to active duty), the term "wages" shall not include any payment under section 371(b) of such Title 28 which is received during the period of such service.

(i) Employer contributions under sections 401(k) and 414(h)(2) of Title 26

 Nothing in any of the foregoing provisions of this section (other than subsection (a) of this section) shall exclude from the term "wages"

  (1) Any employer contribution under a qualified cash or deferred arrangement  (as defined in section 401(k) of Title 26) to the extent not included in gross income by reason of section 402(a)(8) of Title 26, or

  (2) Any amount which is treated as an employer contribution under section 414(h)(2) of Title 26 where the pickup referred to in such section is pursuant to a salary reduction agreement (whether evidenced by a written instrument or otherwise).

(j) Amounts deferred under nonqualified deferred compensation plans

 Any amount deferred under a nonqualified deferred compensation plan (within the meaning of section 3121(v)(2)(C) of Title 26) shall be taken into account for purposes of this subchapter as of the later of when the services are performed, or when there is no substantial risk of forfeiture of the rights to such amount.  Any amount taken into account as wages by reason of the preceding sentence (and the income attributable thereto) shall not thereafter be treated as wages for purposes of this subchapter.

(k) "National average wage index" and "deferred compensation amount" defined

 (1) For purposes of sections 403(f)(8)(B)(ii), 413(d)(2)(B),  415(a)(1)(B)(ii), 415(a)(1)(C)(ii), 415(a)(1)(D), 415(b)(3)(A)(ii), 415(i)(1)(E), 415(i)(2)(C)(ii), 424(f)(2)(B), and 430(b)(2) of this title (and 430(b)(2) of this title as in effect immediately prior to the enactment of the Social Security Amendments of 1977), the term "national average wage index" for any particular calendar year means, subject to regulations of the Commissioner of Social Security under paragraph (2), the average of the total wages for such particular calendar year.

 (2) The Commissioner of Social Security shall prescribe regulations under which the national average wage index for any calendar year shall be computed

  (A) on the basis of amounts reported to the Secretary of the Treasury or his delegate for such year,

  (B) by disregarding the limitation on wages specified in subsection (a)(1) of this section,

  (C) with respect to calendar years after 1990, by incorporating deferred compensation amounts and factoring in for such years the rate of change from year to year in such amounts, in a manner consistent with the requirements of section 10208 of the Omnibus Budget Reconciliation Act of 1989, and

  (D) with respect to calendar years before 1978, in a manner consistent with the manner in which the average of the total wages for each of such calendar years was determined as provided by applicable law as in effect for such years.

 (3) For purposes of this subsection, the term "deferred compensation amount" means

  (A) any amount excluded from gross income under chapter 1 of Title 26 by reason of section 402(a)(8), 402(h)(1)(B), or 457(a) of Title 26 or by reason of a salary reduction agreement under section 403(b) of Title 26,

  (B) any amount with respect to which a deduction is allowable under  chapter 1 of Title 26 by reason of a contribution to a plan described in section 501(c)(18) of Title 26, and

  (C) to the extent provided in regulations of the Commissioner of Social Security, deferred compensation provided under any arrangement, agreement, or plan referred to in subsection (i) or (j) of this section.

 Section 410. Definitions relating to employment

 For the purposes of this subchapter

  (a) Employment

  The term "employment" means any service performed after 1936 and prior to 1951 which was employment for the purposes of this subchapter under the law applicable to the period in which such service was performed, and any service, of whatever nature, performed after 1950 (A) by an employee for the person employing him, irrespective of the citizenship or residence of either, (i) within the United States, or (ii) on or in connection with an American vessel  or American aircraft under a contract of service which is entered into within the United States or during the performance of which and while the employee is employed on the vessel or aircraft it touches at a port in the United States, if the employee is employed on and in connection with such vessel or aircraft when outside the United States, or (B) outside the United States by a citizen or resident of the United States as an employee (i) of an American employer (as defined in subsection (e) of this section), or (ii) of a foreign affiliate (as defined in section 3121(l)(6) of Title 26) of an American employer during any period for which there is in effect an agreement, entered into pursuant to section 3121(l) of Title 26, with respect to such affiliate, or (C) if it is service, regardless of where or by whom performed, which is designated as employment or recognized as equivalent to employment under an agreement entered into under section 433 of this title;  except that, in the case of service performed after 1950, such term shall not include

   (1) Service performed by foreign agricultural workers lawfully admitted to the United States from the Bahamas, Jamaica, and the other British West Indies, or from any other foreign country or possession thereof, on a temporary basis to perform agricultural labor;

   (2) Domestic service performed in a local college club, or local chapter of a college fraternity or sorority, by a student who is enrolled and is   regularly attending classes at a school, college, or university;

   (3)(A) Service performed by a child under the age of 18 in the employ of his father or mother;

   (B) Service not in the course of the employer's trade or business, or domestic service in a private home of the employer, performed by an individual under the age of 21 in the employ of his father or mother, or performed by an individual in the employ of his spouse or son or daughter; except that the provisions of this subparagraph shall not be applicable to such domestic service performed by an individual in the employ of his son or daughter if

    (i) the employer is a surviving spouse or a divorced individual and has not remarried, or has a spouse living in the home who has a mental or physical condition which results in such spouse's being incapable of caring for a son, daughter, stepson, or stepdaughter (referred to in clause (ii)) for at least 4 continuous weeks in the calendar quarter in which the service is rendered, and

    (ii) a son, daughter, stepson, or stepdaughter of such employer is living in the home, and

    (iii) the son, daughter, stepson, or stepdaughter (referred to in clause  (ii)) has not attained age 18 or has a mental or physical condition which    requires the personal care and supervision of an adult for at least 4 continuous weeks in the calendar quarter in which the service is rendered;

   (4) Service performed by an individual on or in connection with a vessel not an American vessel, or on or in connection with an aircraft not an American aircraft, if (A) the individual is employed on and in connection with such vessel or aircraft when outside the United States and (B)(i) such individual is not a citizen of the United States or (ii) the employer is not an American employer;

   (5) Service performed in the employ of the United States or any instrumentality of the United States, if such service

    (A) would be excluded from the term "employment" for purposes of this subchapter if the provisions of paragraphs (5) and (6) of this subsection as in effect in January 1983 had remained in effect, and

    (B) is performed by an individual who

(i) has been continuously performing service described in subparagraph (A) since December 31, 1983, and for purposes of this clause

(I) if an individual performing service described in subparagraph (A) returns to the performance of such service after being separated therefrom for a period of less than 366 consecutive days, regardless of whether the period began before, on, or after December 31, 1983, then such service shall be considered continuous,

(II) if an individual performing service described in subparagraph (A) returns to the performance of such service after being detailed or transferred to an international organization as described under section 3343 of subchapter III of chapter 33 of Title 5 or under section 3581 of chapter 35 of such Title, then the service performed for that organization shall be considered service described in subparagraph (A),

(III) if an individual performing service described in subparagraph (A) is reemployed or reinstated after being separated from such service for the purpose of accepting employment with the American Institute of Taiwan as provided under section 3310 of Title 22, then the service performed for that Institute shall be considered service described in subparagraph (A),

(IV) if an individual performing service described in subparagraph (A) returns to the performance of such service after performing service as a member of a uniformed service (including, for purposes of this clause, service in the National Guard and temporary service in the Coast Guard Reserve) and after exercising restoration or reemployment rights as provided under chapter 43 of Title 38, then the service so performed as a member of a uniformed service shall be considered service described in subparagraph (A), and

(V) if an individual performing service described in subparagraph (A) returns to the performance of such service after employment (by a tribal organization) to which section 450i(e)(2) of Title 25 applies, then the service performed for that tribal organization shall be considered service described in subparagraph (A);  or

(ii) is receiving an annuity from the Civil Service Retirement and Disability Fund, or benefits (for service as an employee) under another retirement system established by a law of the United States for employees of the Federal Government (other than for members of the uniformed services);

except that this paragraph shall not apply with respect to any such service performed on or after any date on which such individual performs

    (C) service performed as the President or Vice President of the United States,

    (D) service performed

(i) in a position placed in the Executive Schedule under sections 5312 through 5317 of Title 5,

(ii) as a noncareer appointee in the Senior Executive Service or a     noncareer member of the Senior Foreign Service, or

(iii) in a position to which the individual is appointed by the President (or his designee) or the Vice President under section 105(a)(1), 106(a)(1), or 107(a)(1) or (b)(1) of Title 3, if the maximum rate of basic pay for such position is at or above the rate for level V of the Executive Schedule,

    (E) service performed as the Chief Justice of the United States, an Associate Justice of the Supreme Court, a judge of a United States court of appeals, a judge of a United States district court (including the district court of a territory), a judge of the United States Court of Federal Claims, a judge of the United States Court of International Trade, a judge of the United States Tax Court, a United States magistrate, or a referee in bankruptcy or United States bankruptcy judge,

    (F) service performed as a Member, Delegate, or Resident Commissioner of or to the Congress,

    (G) any other service in the legislative branch of the Federal Government if such service

(i) is performed by an individual who was not subject to subchapter III of chapter 83 of Title 5, or to another retirement system established by a law of the United States for employees of the Federal Government (other than     for members of the uniformed services), on December 31, 1983, or

(ii) is performed by an individual who has, at any time after December 31, 1983, received a lumpsum payment under section 8342(a) of Title 5, or under the corresponding provision of the law establishing the other retirement system described in clause (i), or

(iii) is performed by an individual after such individual has otherwise ceased to be subject to subchapter III of chapter 83 of Title 5 (without having an application pending for coverage under such subchapter), while performing service in the legislative branch (determined without regard to the provisions of subparagraph (B) relating to continuity of employment), for any period of time after December 31, 1983,

and for purposes of this subparagraph (G) an individual is subject to such subchapter III or to any such other retirement system at any time only if (a) such individual's pay is subject to deductions, contributions, or similar payments (concurrent with the service being performed at that time) under section 8334(a) of such Title 5 or the corresponding provision of the law establishing such other system, or (in a case to which section 8332(k)(1) of such Title 5 applies) such individual is making payments of amounts equivalent to such deductions, contributions, or similar payments while on leave without pay, or (b) such individual is receiving an annuity from the Civil Service Retirement and Disability Fund, or is receiving benefits (for service as an employee) under another retirement system established by a law of the United States for employees of the Federal Government (other than for members of the uniformed services), or

    (H) service performed by an individual

(i) on or after the effective date of an election by such individual, under section 301 of the Federal Employees' Retirement System Act of 1986 or section 2157 of Title 50, to become subject to the Federal Employees's Retirement System provided in chapter 84 of Title 5, or

(ii) on or after the effective date of an election by such individual, under regulations issued under section 860 of the Foreign Service Act of 1980 [22 U.S.C.A. Section 4071i], to become subject to the Foreign Service Pension System provided in subchapter II of chapter 8 of title I of such Act [22 U.S.C.A. Section 4071 et seq.];

   (6) Service performed in the employ of the United States or any instrumentality of the United States if such service is performed

    (A) in a penal institution of the United States by an inmate thereof;

    (B) by any individual as an employee included under section 5351(2) of    Title 5 (relating to certain interns, student nurses, and other student employees of hospitals of the Federal Government) other than as a medical or dental intern or a medical or dental resident in training;  or

    (C) by any individual as an employee serving on a temporary basis in case of fire, storm, earthquake, flood, or other similar emergency;

   (7) Service performed in the employ of a State, or any political subdivision thereof, or any instrumentality of any one or more of the foregoing which is wholly owned thereby, except that this paragraph shall not apply in the case of

    (A) service included under an agreement under section 418 of this title,

    (B) service which, under subsection (k) of this section, constitutes covered transportation service,

    (C) service in the employ of the Government of Guam or the Government of American Samoa or any political subdivision thereof, or of any instrumentality of any one or more of the foregoing which is wholly owned thereby, performed by an officer or employee thereof (including a member of the legislature of any such Government or political subdivision), and, for purposes of this subchapter

(i) any person whose service as such an officer or employee is not covered by a retirement system established by a law of the United States shall not,     with respect to such service, be regarded as an officer or employee of the United States or any agency or instrumentality thereof, and

(ii) the remuneration for service described in clause (i) (including fees paid to a public official) shall be deemed to have been paid by the Government of Guam or the Government of American Samoa or by a political subdivision thereof or an instrumentality of any one or more of the foregoing which is wholly owned thereby, whichever is appropriate,

    (D) service performed in the employ of the District of Columbia or any instrumentality which is wholly owned thereby, if such service is not covered by a retirement system established by a law of the United States; except that the provisions of this subparagraph shall not be applicable to service performed

(i) in a hospital or penal institution by a patient or inmate thereof;

(ii) by any individual as an employee included under section 5351(2) of Title 5 (relating to certain interns, student nurses, and other student employees of hospitals of the District of Columbia Government), other than as a medical or dental intern or as a medical or dental resident in training;

(iii) by any individual as an employee serving on a temporary basis in case of fire, storm, snow, earthquake, flood, or other similar emergency;     or

(iv) by a member of a board, committee, or council of the District of Columbia, paid on a per diem, meeting, or other fee basis,

    (E) service performed in the employ of the Government of Guam (or any instrumentality which is wholly owned by such Government) by an employee properly classified as a temporary or intermittent employee, if such service is not covered by a retirement system established by a law of Guam;  except that (i) the provisions of this subparagraph shall not be applicable to services performed by an elected official or a member of the legislature or in a hospital or penal institution by a patient or inmate thereof, and (ii) for purposes of this subparagraph, clauses (i) and (ii) of subparagraph (C) shall apply, or

    (F) service in the employ of a State (other than the District of Columbia, Guam, or American Samoa), of any political subdivision thereof, or of any instrumentality of any one or more of the foregoing which is wholly owned thereby, by an individual who is not a member of a retirement system of such State, political subdivision, or instrumentality, except that the provisions of this subparagraph shall not be applicable to service performed

(i) by an individual who is employed to relieve such individual from unemployment;

(ii) in a hospital, home, or other institution by a patient or inmate thereof;

(iii) by any individual as an employee serving on a temporary basis in case of fire, storm, snow, earthquake, flood, or other similar emergency;

(iv) by an election official or election worker if the remuneration paid in a calendar year for such service is less than $1,000 with respect to service performed during any calendar year commencing on or after January 1, 1995, ending on or before December 31, 1999, and the adjusted amount determined under section 418(c)(8)(B) of this title for any calendar year commencing on or after January 1, 2000, with respect to service performed during such calendar year;  or

(v) by an employee in a position compensated solely on a fee basis which is treated pursuant to section 411(c)(2)(E) of this title as a trade or business for purposes of inclusion of such fees in net earnings from self employment;

for purposes of this subparagraph, except as provided in regulations prescribed by the Secretary of the Treasury, the term "retirement system" has the meaning given such term by section 418(b)(4) of this title;

   (8)(A) Service performed by a duly ordained, commissioned, or licensed   minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order, except that this subparagraph shall not apply to service performed by a member of such an order in the exercise of such duties, if an election of coverage under section 3121(r) of Title 26 is in effect with respect to such order, or with respect to the autonomous subdivision thereof to which such member belongs;

   (B) Service performed in the employ of a church or qualified church controlled organization if such church or organization has in effect an election under section 3121(w) of Title 26, other than service in an unrelated trade or business (within the meaning of section 513(a) of Title 26);

   (9) Service performed by an individual as an employee or employee representative as defined in section 3231 of Title 26;

   (10) Service performed in the employ of

    (A) a school, college, or university, or

    (B) an organization described in section 509(a)(3) of Title 26 if the organization is organized, and at all times thereafter is operated, exclusively for the benefit of, to perform the functions of, or to carry out the purposes of a school, college, or university and is operated, supervised, or controlled by or in connection with such school, college, or    university, unless it is a school, college, or university of a State or a political subdivision thereof and the services in its employ performed by a student referred to in section 418(c)(5) of this title are covered under the agreement between the Commissioner of Social Security and such State entered into pursuant to section 418 of this title;

    if such service is performed by a student who is enrolled and regularly attending classes at such school, college, or university;

   (11) Service performed in the employ of a foreign government (including service as a consular or other officer or employee or a nondiplomatic representative);

   (12) Service performed in the employ of an instrumentality wholly owned by a foreign government

    (A) If the service is of a character similar to that performed in foreign countries by employees of the United States Government or of an instrumentality thereof;  and

    (B) If the Secretary of State shall certify to the Secretary of the Treasury that the foreign government, with respect to whose instrumentality and employees thereof exemption is claimed, grants an equivalent exemption with respect to similar service performed in the foreign country by    employees of the United States Government and of instrumentalities thereof;

   (13) Service performed as a student nurse in the employ of a hospital or a nurses' training school by an individual who is enrolled and is regularly attending classes in a nurses' training school chartered or approved pursuant to State law;

   (14)(A) Service performed by an individual under the age of eighteen in the delivery or distribution of newspapers or shopping news, not including delivery or distribution to any point for subsequent delivery or distribution;

   (B) Service performed by an individual in, and at the time of, the sale of newspapers or magazines to ultimate consumers, under an arrangement under which the newspapers or magazines are to be sold by him at a fixed price, his compensation being based on the retention of the excess of such price over the amount at which the newspapers or magazines are charged to him, whether or not he is guaranteed a minimum amount of compensation for such service, or is entitled to be credited with the unsold newspapers or magazines turned back;

   (15) Service performed in the employ of an international organization entitled to enjoy privileges, exemptions, and immunities as an international organization under the International Organizations Immunities Act (59 Stat.   669) [22 U.S.C.A. Section 288 et seq.], except service which constitutes  "employment" under subsection (r) of this section;

   (16) Service performed by an individual under an arrangement with the owner or tenant of land pursuant to which

    (A) such individual undertakes to produce agricultural or horticultural commodities (including livestock, bees, poultry, and furbearing animals and wildlife) on such land,

    (B) the agricultural or horticultural commodities produced by such individual, or the proceeds therefrom, are to be divided between such individual and such owner or tenant, and

    (C) the amount of such individual's share depends on the amount of the agricultural or horticultural commodities produced;

   (17) Service in the employ of any organization which is performed (A) in any year during any part of which such organization is registered, or there is in effect a final order of the Subversive Activities Control Board requiring such organization to register, under the Internal Security Act of 1950, as amended [50 U.S.C.A. Section 781 et seq.], as a Communistaction organization, a Communistfront organization, or a Communistinfiltrated organization, and (B) after June 30, 1956;

   (18) Service performed in Guam by a resident of the Republic of the   Philippines while in Guam on a temporary basis as a nonimmigrant alien admitted to Guam pursuant to section 1101(a)(15)(H)(ii) of Title 8;

   (19) Service which is performed by a nonresident alien individual for the period he is temporarily present in the United States as a nonimmigrant under subparagraph (J), (M), or (Q) of section 1101(a)(15) of Title 8, and which is performed to carry out the purpose specified in subparagraph (J), (M), or (Q) as the case may be;

   (20) Service (other than service described in paragraph (3)(A)) performed by an individual on a boat engaged in catching fish or other forms of aquatic animal life under an arrangement with the owner or operator of such boat pursuant to which

    (A) such individual does not receive any additional compensation other than as provided in subparagraph (B) and other than cash remuneration

(i) which does not exceed $100 per trip;

(ii) which is contingent on a minimum catch;  and

(iii) which is paid solely for additional duties (such as mate, engineer, or cook) for which additional cash remuneration is traditional in the industry,

    (B) such individual receives a share of the boat's (or the boats' in the case of a fishing operation involving more than one boat) catch of fish or    other forms of aquatic animal life or a share of the proceeds from the sale of such catch, and

    (C) the amount of such individual's share depends on the amount of the boat's (or boats' in the case of a fishing operation involving more than one boat) catch of fish or other forms of aquatic animal life,

    but only if the operating crew of such boat (or each boat from which the individual receives a share in the case of a fishing operation involving more than one boat) is normally made up of fewer than 10 individuals;  or

   (21) Domestic service in a private home of the employer which

    (A) is performed in any year by an individual under the age of 18 during any portion of such year;  and

    (B) is not the principal occupation of such employee.

    For purposes of paragraph (20), the operating crew of a boat shall be treated as normally made up of fewer than 10 individuals if the average size of the operating crew on trips made during the preceding 4 calendar quarters consisted of fewer than 10 individuals.

  (b) Included and excluded service

  If the services performed during onehalf or more of any pay period by an employee for the person employing him constitute employment, all the services of such employee for such period shall be deemed to be employment;  but if the services performed during more than onehalf of any such pay period by an employee for the person employing him do not constitute employment, then none of the services of such employee for such period shall be deemed to be employment.  As used in this subsection, the term "pay period" means a period (of not more than thirtyone consecutive days) for which a payment of remuneration is ordinarily made to the employee by the person employing him. This subsection shall not be applicable with respect to services performed in a pay period by an employee for the person employing him, where any of such service is excepted by paragraph (9) of subsection (a) of this section.

  (c) American vessel

  The term "American vessel" means any vessel documented or numbered under the laws of the United States;  and includes any vessel which is neither documented or numbered under the laws of the United States nor documented under the laws of any foreign country, if its crew is employed solely by one or more citizens or residents of the United States or corporations organized  under the laws of the United States or of any State.

  (d) American aircraft

  The term "American aircraft" means an aircraft registered under the laws of the United States.

  (e) American employer

  The term "American employer" means an employer which is (1) the United States or any instrumentality thereof, (2) a State or any political subdivision thereof, or any instrumentality of any one or more of the foregoing, (3) an individual who is a resident of the United States, (4) a partnership, if two thirds or more of the partners are residents of the United States, (5) a trust, if all of the trustees are residents of the United States, or (6) a corporation organized under the laws of the United States or of any State.

  (f) Agricultural labor

  The term "agricultural labor" includes all service performed

   (1) On a farm, in the employ of any person, in connection with cultivating the soil, or in connection with raising or harvesting any agricultural or horticultural commodity, including the raising, shearing, feeding, caring for, training, and management of livestock, bees, poultry, and furbearing animals and wildlife.

   (2) In the employ of the owner or tenant or other operator of a farm, in connection with the operation, management, conservation, improvement, or maintenance of such farm and its tools and equipment, or in salvaging timber or clearing land of brush and other debris left by a hurricane, if the major part of such service is performed on a farm.

   (3) In connection with the production or harvesting of any commodity defined as an agricultural commodity in section 1141j(g) of Title 12, or in connection with the ginning of cotton, or in connection with the operation or maintenance of ditches, canals, reservoirs, or waterways, not owned or operated for profit, used exclusively for supplying and storing water for farming purposes.

   (4)(A) In the employ of the operator of a farm in handling, planting, drying, packing, packaging, processing, freezing, grading, storing, or delivering to storage or to market or to a carrier for transportation to market, in its unmanufactured state, any agricultural or horticultural   commodity;  but only if such operator produced more than onehalf of the commodity with respect to which such service is performed.

   (B) In the employ of a group of operators of farms (other than a cooperative organization) in the performance of service described in subparagraph (A) of this paragraph, but only if such operators produced all of the commodity with respect to which such service is performed.  For the purposes of this subparagraph, any unincorporated group of operators shall be deemed a cooperative organization if the number of operators comprising such group is more than twenty at any time during the calendar year in which such service is performed.

   (5) On a farm operated for profit if such service is not in the course of the employer's trade or business or is domestic service in a private home of the employer.

  The provisions of subparagraphs (A) and (B) of paragraph (4) of this subsection shall not be deemed to be applicable with respect to service performed in connection with commercial canning or commercial freezing or in connection with any agricultural or horticultural commodity after its delivery to a terminal market for distribution for consumption.

  (g) Farm

  The term "farm" includes stock, dairy, poultry, fruit, furbearing animal, and truck farms, plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards.

  (h) State

  The term "State" includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.

  (i) United States

  The term "United States" when used in a geographical sense means the States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.

  (j) Employee

  The term "employee" means

   (1) any officer of a corporation;  or

   (2) any individual who, under the usual common law rules applicable in determining the employeremployee relationship, has the status of an employee;  or

   (3) any individual (other than an individual who is an employee under paragraph (1) or (2) of this subsection) who performs services for remuneration for any person

    (A) as an agentdriver or commissiondriver engaged in distributing meat products, vegetable products, fruit products, bakery products, beverages (other than milk), or laundry or drycleaning services, for his principal;

    (B) as a fulltime life insurance salesman;

    (C) as a home worker performing work, according to specifications furnished by the person for whom the services are performed, on materials or goods furnished by such person which are required to be returned to such person or a person designated by him;  or

    (D) as a traveling or city salesman, other than as an agentdriver or commissiondriver, engaged upon a fulltime basis in the solicitation on behalf of, and the transmission to, his principal (except for sideline sales activities on behalf of some other person) of orders from wholesalers,    retailers, contractors, or operators of hotels, restaurants, or other similar establishments for merchandise for resale or supplies for use in their business operations;

    if the contract of service contemplates that substantially all of such services are to be performed personally by such individual;  except that an individual shall not be included in the term "employee" under the provisions of this paragraph if such individual has a substantial investment in facilities used in connection with the performance of such services (other than in facilities for transportation), or if the services are in the nature of a single transaction not part of a continuing relationship with the person for whom the services are performed.

  (k) Covered transportation service

  (1) Except as provided in paragraph (2) of this subsection, all service performed in the employ of a State or political subdivision in connection with its operation of a public transportation system shall constitute covered transportation service if any part of the transportation system was acquired from private ownership after 1936 and prior to 1951.

  (2) Service performed in the employ of a State or political subdivision in connection with the operation of its public transportation system shall not constitute covered transportation service if

   (A) any part of the transportation system was acquired from private ownership after 1936 and prior to 1951, and substantially all service in connection with the operation of the transportation system is, on December 31, 1950, covered under a general retirement system providing benefits which, by reason of a provision of the State constitution dealing specifically with retirement systems of the State or political subdivisions thereof, cannot be diminished or impaired;  or

   (B) no part of the transportation system operated by the State or political subdivision on December 31, 1950, was acquired from private ownership after 1936 and prior to 1951;

  except that if such State or political subdivision makes an acquisition after 1950 from private ownership of any part of its transportation system, then, in the case of any employee who

   (C) became an employee of such State or political subdivision in connection with and at the time of its acquisition after 1950 of such part, and

   (D) prior to such acquisition rendered service in employment in connection   with the operation of such part of the transportation system acquired by the State or political subdivision,

  the service of such employee in connection with the operation of the transportation system shall constitute covered transportation service, commencing with the first day of the third calendar quarter following the calendar quarter in which the acquisition of such part took place, unless on such first day such service of such employee is covered by a general retirement system which does not, with respect to such employee, contain special provisions applicable only to employees described in subparagraph (C) of this paragraph.

  (3) All service performed in the employ of a State or political subdivision thereof in connection with its operation of a public transportation system shall constitute covered transportation service if the transportation system was not operated by the State or political subdivision prior to 1951 and, at the time of its first acquisition (after 1950) from private ownership of any part of its transportation system, the State or political subdivision did not have a general retirement system covering substantially all service performed in connection with the operation of the transportation system.

  (4) For the purposes of this subsection

   (A) The term "general retirement system" means any pension, annuity, retirement, or similar fund or system established by a State or by a political subdivision thereof for employees of the State, political subdivision, or both;  but such term shall not include such a fund or system which covers only service performed in positions connected with the operation of its public transportation system.

   (B) A transportation system or a part thereof shall be considered to have been acquired by a State or political subdivision from private ownership if prior to the acquisition service performed by employees in connection with the operation of the system or part thereof acquired constituted employment under this subchapter, and some of such employees became employees of the State or political subdivision in connection with and at the time of such acquisition.

   (C) The term "political subdivision" includes an instrumentality of (i) a State, (ii) one or more political subdivisions of a State, or (iii) a State and one or more of its political subdivisions.

  (l) Service in uniformed services

  (1) Except as provided in paragraph (4), the term "employment" shall,  notwithstanding the provisions of subsection (a) of this section, include

   (A) service performed after December 1956 by an individual as a member of a uniformed service on active duty, but such term shall not include any such service which is performed while on leave without pay, and

   (B) service performed after December 1987 by an individual as a member of a uniformed service on inactive duty training.

  (2) The term "active duty" means "active duty" as described in paragraph (21) of section 101 of Title 38, except that it shall also include "active duty for training" as described in paragraph (22) of such section.

  (3) The term "inactive duty training" means "inactive duty training" as described in paragraph (23) of such section 101.

  (4)(A) Paragraph (1) of this subsection shall not apply in the case of any service, performed by an individual as a member of a uniformed service, which is creditable under section 231b(i) of Title 45.  The Railroad Retirement Board shall notify the Commissioner of Social Security, [FN1] with respect to all such service which is so creditable.

  (B) In any case where benefits under this subchapter are already payable on the basis of such individual's wages and selfemployment income at the time such notification (with respect to such individual) is received by the Commissioner of Social Security, the Commissioner of Social Security shall  certify no further benefits for payment under this subchapter on the basis of such individual's wages and selfemployment income, or shall recompute the amount of any further benefits payable on the basis of such wages and self employment income, as may be required as a consequence of subparagraph (A) of this paragraph.  No payment of a benefit to any person on the basis of such individual's wages and selfemployment income, certified by the Commissioner of Social Security prior to the end of the month in which he receives such notification from the Railroad Retirement Board, shall be deemed by reason of this subparagraph to have been an erroneous payment or a payment to which such person was not entitled.  The Commissioner of Social Security shall, as soon as possible after the receipt of such notification from the Railroad Retirement Board, advise such Board whether or not any such benefit will be reduced or terminated by reason of subparagraph (A) of this paragraph, and if any such benefit will be so reduced or terminated, specify the first month with respect to which such reduction or termination will be effective.

  (m) Member of a uniformed service

  The term "member of a uniformed service" means any person appointed, enlisted, or inducted in a component of the Army, Navy, Air Force, Marine  Corps, or Coast Guard (including a reserve component as defined in section 101(27) of Title 38), or in one of those services without specification of component, or as a commissioned officer of the Coast and Geodetic Survey, the National Oceanic and Atmospheric Administration Corps, or the Regular or Reserve Corps of the Public Health Service, and any person serving in the Army or Air Force under call or conscription.  The term includes

   (1) a retired member of any of those services;

   (2) a member of the Fleet Reserve or Fleet Marine Corps Reserve;

   (3) a cadet at the United States Military Academy, a midshipman at the United States Naval Academy, and a cadet at the United States Coast Guard Academy or United States Air Force Academy;

   (4) a member of the Reserve Officers' Training Corps, the Naval Reserve Officers' Training Corps, or the Air Force Reserve Officers' Training Corps, when ordered to annual training duty for fourteen days or more, and while performing authorized travel to and from that duty;  and

   (5) Any person while en route to or from, or at, a place for final acceptance or for entry upon active duty in the military, naval, or air service

    (A) who has been provisionally accepted for such duty;  or

    (B) who, under the Military Selective Service Act [50 App. U.S.C.A. Section    451 et seq.], has been selected for active military, naval, or air service;

    and has been ordered or directed to proceed to such place.

  The term does not include a temporary member of the Coast Guard Reserve.

  (n) Crew leader

  The term "crew leader" means an individual who furnishes individuals to perform agricultural labor for another person, if such individual pays (either on his own behalf or on behalf of such person) the individuals so furnished by him for the agricultural labor performed by them and if such individual has not entered into a written agreement with such person whereby such individual has been designated as an employee of such person;  and such individuals furnished by the crew leader to perform agricultural labor for another person shall be deemed to be the employees of such crew leader.  A crew leader shall, with respect to services performed in furnishing individuals to perform agricultural labor for another person and service performed as a member of the crew, be deemed not to be an employee of such other person.

  (o) Peace Corps volunteer service

  The term "employment" shall, notwithstanding the provisions of subsection (a) of this section, include service performed by an individual as a volunteer or volunteer leader within the meaning of the Peace Corps Act [22 U.S.C.A. Section 2501 et seq.].

  (p) Medicare qualified government employment

  (1) For purposes of sections 426 and 4261, the term "medicare qualified government employment" means any service which would constitute "employment" as defined in subsection (a) of this section but for the application of the provisions of

   (A) subsection (a)(5) of this section, or

   (B) subsection (a)(7) of this section, except as provided in paragraphs (2) and (3).

  (2) Service shall not be treated as employment by reason of paragraph (1)(B) if the service is performed

   (A) by an individual who is employed by a State or political subdivision thereof to relieve him from unemployment,

   (B) in a hospital, home, or other institution by a patient or inmate thereof as an employee of a State or political subdivision thereof or of the District of Columbia,

   (C) by an individual, as an employee of a State or political subdivision thereof or of the District of Columbia, serving on a temporary basis in case of fire, storm, snow, earthquake, flood or other similar emergency,

   (D) by any individual as an employee included under section 5351(2) of Title 5 (relating to certain interns, student nurses, and other student employees of hospitals of the District of Columbia Government), other than as a medical or dental intern or a medical or dental resident in training, or

   (E) by an election official or election worker if the remuneration paid in a calendar year for such service is less than $1,000 with respect to service performed during any calendar year commencing on or after January 1, 1995, ending on or before December 31, 1999, and the adjusted amount determined under section 418(c)(8)(B) of this title for any calendar year commencing on or after January 1, 2000, with respect to service performed during such calendar year.

  As used in this paragraph, the terms "State" and "political subdivision" have the meanings given those terms in section 418(b) of this title.

  (3) Service performed for an employer shall not be treated as employment by reason of paragraph (1)(B) if

   (A) such service would be excluded from the term "employment" for purposes of this section if paragraph (1)(B) did not apply;

   (B) such service is performed by an individual

    (i) who was performing substantial and regular service for remuneration for that employer before April 1, 1986,

    (ii) who is a bona fide employee of that employer on March 31, 1986, and

    (iii) whose employment relationship with that employer was not entered into for purposes of meeting the requirements of this subparagraph;  and

   (C) the employment relationship with that employer has not been terminated after March 31, 1986.

  (4) For purposes of paragraph (3), under regulations (consistent with regulations established under section 3121(u)(2)(D) of Title 26)

   (A) all agencies and instrumentalities of a State (as defined in section 418(b) of this title) or of the District of Columbia shall be treated as a single employer, and

   (B) all agencies and instrumentalities of a political subdivision of a State (as so defined) shall be treated as a single employer and shall not be treated as described in subparagraph (A).

  (q) Treatment of real estate agents and direct sellers

  Notwithstanding any other provision of this subchapter, the rules of section 3508 of Title 26 shall apply for purposes of this subchapter.

  (r) Service in employ of international organizations by certain transferred Federal employees

  (1) For purposes of this subchapter, service performed in the employ of an international organization by an individual pursuant to a transfer of such individual to such international organization pursuant to section 3582 of Title 5, shall constitute "employment" if

   (A) immediately before such transfer, such individual performed service with a Federal agency which constituted "employment" as defined in subsection (a) of this section, and

   (B) such individual would be entitled, upon separation from such international organization and proper application, to reemployment with such Federal agency under such section 3582.

  (2) For purposes of this subsection:

   (A) The term "Federal agency" means an agency, as defined in section 3581(1) of Title 5.

   (B) The term "international organization" has the meaning provided such term by section 3581(3) of Title 5.

 Section 417. Benefits for veterans

(a) Determination of benefits

 (1) For purposes of determining entitlement to and the amount of any monthly benefit for any month after August 1950, or entitlement to and the amount of any lumpsum death payment in case of a death after such month, payable under this subchapter on the basis of the wages and selfemployment income of any World War II veteran, and for purposes of section 416(i)(3) of this title, such veteran shall be deemed to have been paid wages (in addition to the wages, if any, actually paid to him) of $160 in each month during any part of which he served in the active military or naval service of the United States during World War II.  This subsection shall not be applicable in the case of any monthly benefit or lumpsum death payment if

  (A) a larger such benefit or payment, as the case may be, would be payable without its application;  or

  (B) a benefit (other than a benefit payable in a lump sum unless it is a commutation of, or a substitute for, periodic payments) which is based, in whole or in part, upon the active military or naval service of such veteran during World War II is determined by any agency or wholly owned instrumentality of the United States (other than the Department of Veterans Affairs) to be payable by it under any other law of the United States or under a system established by such agency or instrumentality.

The provisions of clause (B) of this paragraph shall not apply in the case of any monthly benefit or lumpsum death payment under this subchapter if its application would reduce by $0.50 or less the primary insurance amount (as computed under section 415 of this title prior to any recomputation thereof pursuant to section 415(f) of this title) of the individual on whose wages and selfemployment income such benefit or payment is based.  The provisions of clause (B) of this paragraph shall also not apply for purposes of section 416(i)(3) of this title.

 (2) Upon application for benefits or a lumpsum death payment on the basis of the wages and selfemployment income of any World War II veteran, the Commissioner of Social Security shall make a decision without regard to clause (B) of paragraph (1) of this subsection unless the Commissioner has been notified by some other agency or instrumentality of the United States that, on the basis of the military or naval service of such veteran during World War II, a benefit described in clause (B) of paragraph (1) of this subsection has been determined by such agency or instrumentality to be payable by it.  If the Commissioner has not been so notified, the Commissioner of Social Security shall then ascertain whether some other agency or wholly owned instrumentality of the United States has decided that a benefit described in clause (B) of paragraph (1) of this subsection is payable by it.  If any such agency or instrumentality has decided, or thereafter decides, that such a benefit is payable by it, it shall so notify the Commissioner of Social Security, and the Commissioner of Social Security shall certify no further benefits for payment or shall recompute the amount of any further benefits payable, as may be required by paragraph (1) of this subsection.

 (3) Any agency or wholly owned instrumentality of the United States which is authorized by any law of the United States to pay benefits, or has a system of benefits which are based, in whole or in part, on military or naval service during World War II shall, at the request of the Commissioner of Social Security, certify to the Commissioner, with respect to any veteran, such information as the Commissioner of Social Security deems necessary to carry out the Commissioner's functions under paragraph (2) of this subsection.

(b) Determination of insurance status

 (1) Subject to paragraph (3), any World War II veteran who died during the period of three years immediately following his separation from the active military or naval service of the United States shall be deemed to have died a fully insured individual whose primary insurance amount is the amount determined under section 415(c) of this title as in effect in December 1978. Notwithstanding section 415(d) of this title as in effect in December 1978, the primary insurance benefit (for purposes of section 415(c) of this title as in effect in December 1978) of such veteran shall be determined as provided in this subchapter as in effect prior to August 28, 1950, except that the 1 per centum addition provided for in section 409(a)(4)(B) of this title as in effect prior to August 28, 1950 shall be applicable only with respect to calendar years prior to 1951.  This subsection shall not be applicable in the case of any monthly benefit or lumpsum death payment if

  (A) a larger such benefit or payment, as the case may be, would be payable without its application;

  (B) any pension or compensation is determined by the Secretary of Veterans Affairs to be payable by him on the basis of the death of such veteran;

  (C) the death of the veteran occurred while he was in the active military or naval service of the United States;  or

  (D) such veteran has been discharged or released from the active military or naval service of the United States subsequent to July 26, 1951.

 (2) Upon an application for benefits or a lumpsum death payment on the basis of the wages and selfemployment income of any World War II veteran, the Commissioner of Social Security shall make a decision without regard to paragraph (1)(B) of this subsection unless the Commissioner has been notified by the Secretary of Veterans Affairs that pension or compensation is determined to be payable by that Secretary by reason of the death of such veteran.  The Commissioner of Social Security shall thereupon report such decision to the Secretary of Veterans Affairs.  If the Secretary of Veterans Affairs in any such case has made an adjudication or thereafter makes an adjudication that any pension or compensation is payable under any law administered by it  [FN1], the Secretary of Veterans Affairs shall notify the Commissioner of Social Security, and the Commissioner of Social Security shall certify no further benefits for payment, or shall recompute the amount of any further benefits payable, as may be required by paragraph (1) of this subsection.  Any payments theretofore certified by the Commissioner of Social Security on the basis of paragraph (1) of this subsection to any individual, not exceeding the amount of any accrued pension or compensation payable to him by the Secretary of Veterans Affairs, shall (notwithstanding the provisions of section 3101 of Title 38) be deemed to have been paid to him by that Secretary on account of such accrued pension or compensation.  No such payment certified by the Commissioner of Social Security, and no payment certified by the Commissioner for any month prior to the first month for which any pension or compensation is paid by the Secretary of Veterans Affairs shall be deemed by reason of this subsection to have been an erroneous payment.

 (3)(A) The preceding provisions of this subsection shall apply for purposes of determining the entitlement to benefits under section 402 of this title, based on the primary insurance amount of the deceased World War II veteran, of any surviving individual only if such surviving individual makes application for such benefits before the end of the 18month period after November, 1990.

 (B) Subparagraph (A) shall not apply if any person is entitled to benefits under section 402 of this title based on the primary insurance amount of such veteran for the month preceding the month in which such application is made.

(c) Filing proof of support

 In the case of any World War II veteran to whom subsection (a) of this section is applicable, proof of support required under section 402(h) of this title may be filed by a parent at any time prior to July 1951 or prior to the expiration of two years after the date of the death of such veteran, whichever is the later.

(d) Definitions

 For the purposes of this section

  (1) The term "World War II" means the period beginning with September 16, 1940, and ending at the close of July 24, 1947.

  (2) The term "World War II veteran" means any individual who served in the active military or naval service of the United States at any time during World War II and who, if discharged or released therefrom, was so discharged or released under conditions other than dishonorable after active service of ninety days or more or by reason of a disability or injury incurred or  aggravated in service in line of duty;  but such term shall not include any individual who died while in the active military or naval service of the United States if his death was inflicted (other than by an enemy of the United States) as lawful punishment for a military or naval offense.

(e) Determination based on wages and selfemployment

 (1) For purposes of determining entitlement to and the amount of any monthly benefit or lumpsum death payment payable under this subchapter on the basis of wages and selfemployment income of any veteran (as defined in paragraph (4) of this subsection), and for purposes of section 416(i)(3) of this title, such veteran shall be deemed to have been paid wages (in addition to the wages, if any, actually paid to him) of $160 in each month during any part of which he served in the active military or naval service of the United States on or after July 25, 1947, and prior to January 1, 1957.  This subsection shall not be applicable in the case of any monthly benefit or lumpsum death payment if

  (A) a larger such benefit or payment, as the case may be, would be payable without its application;  or

  (B) a benefit (other than a benefit payable in a lump sum unless it is a commutation of, or a substitute for, periodic payments) which is based, in  whole or in part, upon the active military or naval service of such veteran on or after July 25, 1947, and prior to January 1, 1957, is determined by any agency or wholly owned instrumentality of the United States (other than the Department of Veterans Affairs) to be payable by it under any other law of the United States or under a system established by such agency or instrumentality.

The provisions of clause (B) of this paragraph shall not apply in the case of any monthly benefit or lumpsum death payment under this subchapter if its application would reduce by $0.50 or less the primary insurance amount (as computed under section 415 of this title prior to any recomputation thereof pursuant to subsection (f) of section 415 of this title) of the individual on whose wages and selfemployment income such benefit or payment is based.  The provisions of clause (B) of this paragraph shall also not apply for purposes of section 416(i)(3) of this title.  In the case of monthly benefits under this subchapter for months after December 1956 (and any lumpsum death payment under this subchapter with respect to a death occurring after December 1956) based on the wages and selfemployment income of a veteran who performed service (as a member of a uniformed service) to which the provisions of section 410(l)(1) of this title are applicable, wages which would, but for the provisions of clause (B) of this paragraph, be deemed under this subsection to have been paid to such veteran with respect to his active military or naval service performed after December 1950 shall be deemed to have been paid to him with respect to such service notwithstanding the provisions of such clause, but only if the benefits referred to in such clause which are based (in whole or in part) on such service are payable solely by the Army, Navy, Air Force, Marine Corps, Coast Guard, Coast and Geodetic Survey, National Oceanic and Atmospheric Administration Corps, or Public Health Service.

 (2) Upon application for benefits or a lumpsum death payment on the basis of the wages and selfemployment income of any veteran, the Commissioner of Social Security shall make a decision without regard to clause (B) of paragraph (1) of this subsection unless the Commissioner has been notified by some other agency or instrumentality of the United States that, on the basis of the military or naval service of such veteran on or after July 25, 1947, and prior to January 1, 1957, a benefit described in clause (B) of paragraph (1) of this subsection has been determined by such agency or instrumentality to be payable by it.  If the Commissioner has not been so notified, the Commissioner of Social Security shall then ascertain whether some other agency or wholly owned instrumentality of the United States has decided that a benefit described in clause (B) of paragraph (1) of this subsection is payable by it.  If any such agency or instrumentality has decided, or thereafter decides, that such a benefit is payable by it, it shall so notify the Commissioner of Social Security, and the Commissioner of Social Security shall certify no further benefits for payment or shall recompute the amount of any further benefits payable, as may be required by paragraph (1) of this subsection.

 (3) Any agency or wholly owned instrumentality of the United States which is authorized by any law of the United States to pay benefits, or has a system of benefits which are based, in whole or in part, on military or naval service on or after July 25, 1947, and prior to January 1, 1957, shall, at the request of the Commissioner of Social Security, certify to the Commissioner, with respect to any veteran, such information as the Commissioner of Social Security deems necessary to carry out the Commissioner's functions under paragraph (2) of this subsection.

 (4) For the purposes of this subsection, the term "veteran" means any individual who served in the active military or naval service of the United States at any time on or after July 25, 1947, and prior to January 1, 1957, and who, if discharged or released therefrom, was so discharged or released under conditions other than dishonorable after active service of ninety days or more or by reason of a disability or injury incurred or aggravated in service in line of duty;  but such term shall not include any individual who died while in the active military or naval service of the United States if his death was inflicted (other than by an enemy of the United States) as lawful punishment for a military or naval offense.

(f) Right to annuity;  waiver

 (1) In any case where a World War II veteran (as defined in subsection (d)(2) of this section) or a veteran (as defined in subsection (e)(4) of this section) has died or shall hereafter die, and his or her surviving spouse or child is entitled under subchapter III of chapter 83 of Title 5 to an annuity in the computation of which his or her active military or naval service was included, clause (B) of subsection (a)(1) of this section or clause (B) of subsection (e)(1) of this section shall not operate (solely by reason of such annuity) to make such subsection inapplicable in the case of any monthly benefit under section 402 of this title which is based on his or her wages and self employment income;  except that no such surviving spouse or child shall be entitled under section 402 of this title to any monthly benefit in the computation of which such service is included by reason of this subsection (A) unless such surviving spouse or child after December 1956 waives his or her right to receive such annuity, or (B) for any month prior to the first month with respect to which the Director of the Office of Personnel Management certifies to the Commissioner of Social Security that (by reason of such waiver) no further annuity will be paid to such surviving spouse or child under such subchapter III on the basis of such veteran's military or civilian service.  Any such waiver shall be irrevocable.

 (2) Whenever a surviving spouse waives his or her right to receive such annuity such waiver shall constitute a waiver on his or her own behalf;  a waiver by a legal guardian or guardians, or, in the absence of a legal guardian, the person (or persons) who has the child in his or her care, of the child's right to receive such annuity shall constitute a waiver on behalf of such child.  Such a waiver with respect to an annuity based on a veteran's service shall be valid only if the surviving spouse and all children, or, if there is no surviving spouse, all the children, waive their rights to receive annuities under subchapter III of chapter 83 of Title 5 based on such veteran's military or civilian service.

(g) Appropriation to trust funds

 (1) Within thirty days after April 20, 1983, the Commissioner of Social Security shall determine the amount equal to the excess of

  (A) the actuarial present value as of April 20, 1983 of the past and future  benefit payments from the Federal OldAge and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, and the Federal Hospital Insurance Trust Fund under this subchapter and subchapter XVIII of this chapter, together with associated administrative costs, resulting from the operation of this section (other than this subsection) and section 410 of this title as in effect before the enactment of the Social Security Amendments of 1950, over

  (B) any amounts previously transferred from the general fund of the Treasury to such Trust Funds pursuant to the provisions of this subsection as in effect immediately before April 20, 1983.

Such actuarial present value shall be based on the relevant actuarial assumptions set forth in the report of the Board of Trustees of each such Trust Fund for 1983 under sections 401(c) and 1395i(b) of this title.  Within thirty days after April 20, 1983, the Secretary of the Treasury shall transfer the amount determined under this paragraph with respect to each such Trust Fund to such Trust Fund from amounts in the general fund of the Treasury not otherwise appropriated.

 (2) The Commissioner of Social Security shall revise the amount determined under paragraph (1) with respect to each such Trust Fund in 1985 and each fifth year thereafter, as determined appropriate by the Commissioner of Social Security from data which becomes available to the Commissioner after the date of the determination under paragraph (1) on the basis of the amount of benefits and administrative expenses actually paid from such Trust Fund under this subchapter or subchapter XVIII of this chapter and the relevant actuarial assumptions set forth in the report of the Board of Trustees of such Trust Fund for such year under section 401(c) or 1395i(b) of this title.  Within 30 days after any such revision, the Secretary of the Treasury, to the extent provided in advance in appropriation Acts, shall transfer to such Trust Fund, from amounts in the general fund of the Treasury not otherwise appropriated, or from such Trust Fund to the general fund of the Treasury, such amounts as the Secretary of the Treasury determines necessary to take into account such revision.

(h) Determination of veterans status

 (1) For the purposes of this section, any individual who the Commissioner of Social Security finds

  (A) served during World War II (as defined in subsection (d)(1) of this section) in the active military or naval service of a country which was on  September 16, 1940, at war with a country with which the United States was at war during World War II;

  (B) entered into such active service on or before December 8, 1941;

  (C) was a citizen of the United States throughout such period of service or lost his United States citizenship solely because of his entrance into such service;

  (D) had resided in the United States for a period or periods aggregating four years during the fiveyear period ending on the day of, and was domiciled in the United States on the day of, such entrance into such active service;  and

  (E)(i) was discharged or released from such service under conditions other than dishonorable after active service of ninety days or more or by reason of a disability or injury incurred or aggravated in service in line of duty, or

  (ii) died while in such service,

shall be considered a World War II veteran (as defined in subsection (d)(2) of this section) and such service shall be considered to have been performed in the active military or naval service of the United States.

 (2) In the case of any individual to whom paragraph (1) applies, proof of support required under section 402(f) or (h) of this title may be filed at any time prior to the expiration of two years after the date of such individual's death or August 28, 1958, whichever is the later.


Soldiers and Sailors Civil Relief Act

Appendix 50 U.S.C. Sections 590-593

 Section 590: Stay of enforcement of obligations, liabilities, taxes, etc.

(1) A person may, at any time during his period of military service or within six months thereafter, apply to a court for relief in respect of any obligation or liability incurred by such person prior to his period of military service or in respect of any tax or assessment whether falling due prior to or during his period of military service.  The court, after appropriate notice and hearing, unless in its opinion the ability of the applicant to comply with the terms of such obligation or liability or to pay such tax or assessment has not been materially affected by reason of his military service, may grant the following relief:

(a) In the case of an obligation payable under its terms in installments under a contract for the purchase of real estate, or secured by a mortgage or other instrument in the nature of a mortgage upon real estate, a stay of the enforcement of such obligation during the applicant's period of military service and, from the date of termination of such period of military service or from the date of application if made after such service, for a period equal to the period of the remaining life of the installment contract or other instrument plus a period of time equal to the period of military service of the applicant, or any part of such combined period, subject to payment of the balance of principal and accumulated interest due and unpaid at the date of termination of the period of military service or from the date of application, as the case may be, in equal installments during such combined period at such rate of interest on the unpaid balance as is prescribed in such contract, or other instrument evidencing the obligation, for installments paid when due, and subject to such other terms as may be just.

(b) In the case of any other obligation, liability, tax, or assessment, a stay of the enforcement thereof during the applicant's period of military service and, from the date of termination of such period of military service or from the date of application if made after such service, for a period of time equal to the period of military service of the applicant or any part of such period, subject to payment of the balance of principal and accumulated interest due and unpaid at the date of termination of such period of military service or the date of application, as the case may be, in equal periodic installments during such extended period at such rate of interest as may be prescribed for such obligation, liability, tax, or assessment, if paid when due, and subject to such other terms as may be just.

(2) When any court has granted a stay as provided in this section no fine or penalty shall accrue during the period the terms and conditions of such stay are complied with by reason of failure to comply with the terms or conditions of the obligation, liability, tax, or assessment in respect of which such stay was granted.

 Section 591: Power of attorney

(a) Extension for period person in missing status

Notwithstanding any other provision of law, a power of attorney which

(1) was duly executed by a person in the military service who is in a missing status (as defined in section 551(2) of title 37, United States Code [37 U.S.C. Section 551(2)]);

(2) designates that person's spouse, parent, or other named relative as his attorney in fact for certain specified, or all, purposes;  and

(3) expires by its terms after that person entered a missing status, and before or after the effective date of this section;

shall be automatically extended for the period that the person is in a missing status.

(b) Limitation on extension

No power of attorney executed after the effective date of this section by a person in the military service may be extended under subsection (a) of this section if the document by its terms clearly indicates that the power granted expires on the date specified even though that person, after the date of execution of the document, enters a missing status.

(c) Persons subject to coverage

This section applies to the following powers of attorney executed by a person in military service or under a call or order to report for military service (or who has been advised by an official of the Department of Defense that such person may receive such a call or order):

(1) A power of attorney that is executed during the Vietnam era (as defined in section 101(29) of title 38, United States Code [38 U.S.C.A. Section 101(29)]).

(2) A power of attorney that expires by its terms after July 31, 1990.

 Section 592: Professional liability protection for certain persons ordered to active duty in the armed forces

(a) Applicability

 This section applies to a person who

  (1) after July 31, 1990, is ordered to active duty (other than for training) pursuant to section 688, 12301(a), 12301(g), 12302, 12304, 12306, or 12307 of title 10, United States Code [10 U.S.C.A. Section 688, 12301(a), 12301(g), 12302, 12304, 12306, or 12307], or who  is ordered to active duty under section 12301(d) of such title [10 U.S.C.A. Section 12301(d)] during a period when members are on active duty pursuant to any of the preceding sections;  and

  (2) immediately before receiving the order to active duty

   (A) was engaged in the furnishing of healthcare services or other services determined by the Secretary of Defense to be professional services;  and

   (B) had in effect a professional liability insurance policy that does not continue to cover claims filed with respect to such person during the period of the person's active duty unless the premiums are paid for such coverage for such period.

(b) Suspension of coverage

 (1) Coverage of a person referred to in subsection (a) by a professional liability insurance policy shall be suspended in accordance with this subsection upon receipt of the written request of such person by the insurance carrier.

 (2) A professional liability insurance carrier

  (A) may not require that premiums be paid by or on behalf of a person for any professional liability insurance coverage suspended pursuant to paragraph  (1);  and

  (B) shall refund any amount paid for coverage for the period of such suspension or, upon the election of such person, apply such amount for the payment of any premium becoming due upon the reinstatement of such coverage.

 (3) A professional liability insurance carrier shall not be liable with respect to any claim that is based on professional conduct (including any failure to take any action in a professional capacity) of a person that occurs during a period of suspension of that person's professional liability insurance under this subsection.  For the purposes of the preceding sentence, a claim based upon the failure of a professional to make adequate provision for patients to be cared for during the period of the professional's active duty service shall be considered to be based on an action or failure to take action before the beginning of the period of suspension of professional liability insurance under this subsection, except in a case in which professional services were provided after the date of the beginning of such period.

(c) Reinstatement of coverage

 (1) Professional liability insurance coverage suspended in the case of any person pursuant to subsection (b) shall be reinstated by the insurance carrier on the date on which that person transmits to the insurance carrier a written request for reinstatement.

 (2) The request of a person for reinstatement shall be effective only if the person transmits the request to the insurance carrier within 30 days after the date on which the person is released from active duty.  The insurance carrier shall notify the person of the due date for payment of the premium of such insurance.  Such premium shall be paid by the person within 30 days after the receipt of that notice.

 (3) The period for which professional liability insurance coverage shall be reinstated for a person under this subsection may not be less than the balance of the period for which coverage would have continued under the insurance policy if the coverage had not been suspended.

(d) Increase in premium

 An insurance carrier may not increase the amount of the premium charged for professional liability insurance coverage of any person for the minimum period of the reinstatement of such coverage required under subsection (c)(3) to an amount greater than the amount chargeable for such coverage for such period before the suspension, except to the extent of any general increase in the premium amounts charged by that carrier for the same professional liability coverage for persons similarly covered by such insurance during the period of the suspension.

(e) Continuation of coverage of unaffected persons

 This section does not

  (1) require a suspension of professional liability insurance coverage for any person who is not a person referred to in subsection (a) and who is covered by the same professional liability insurance as a person referred to in such subsection;  or

  (2) relieve any person of the obligation to pay premiums for the coverage not required to be suspended.

(f) Stay of civil or administrative actions

 (1) A civil or administrative action for damages on the basis of the alleged professional negligence or other professional liability of a person whose professional liability insurance coverage has been suspended under subsection (b) shall be stayed until the end of the period of the suspension if

  (A) the action was commenced during that period;

  (B) the action is based on an act or omission that occurred before the date on which the suspension became effective;  and

  (C) the suspended professional liability insurance would, except for the suspension, on its face cover the alleged professional negligence or other professional liability negligence or other professional liability of the person.

 (2) Whenever a civil or administrative action for damages is stayed under paragraph (1) in the case of any person, the action shall be deemed to have been filed on the date on which the professional liability insurance coverage of such person is reinstated under subsection (c).

(g) Effect of suspension upon limitations period

 In the case of a civil or administrative action for which a stay could have been granted under subsection (f) by reason of the suspension of professional liability insurance coverage of the defendant under this section, the period of the suspension of the coverage shall be excluded from the computation of any statutory period of limitation on the commencement of such action.

(h) Death during period of suspension

 If a person whose professional liability insurance coverage is suspended under subsection (b) dies during the period of the suspension

  (1) the requirement for the grant or continuance of a stay in any civil or administrative action against such person under subsection (f)(1) shall terminate on the date of the death of such person;  and

  (2) the carrier of the professional liability insurance so suspended shall be liable for any claim for damages for professional negligence or other professional liability of the deceased person in the same manner and to the same extent as such carrier would be liable if the person had died while covered by such insurance but before the claim was filed.

(i) Definitions

 In this section:

  (1) The term "active duty" has the meaning given that term in section 101 of title 10, United States Code [10 U.S.C.A. Section 101].

  (2) The term "profession" includes occupation.

  (3) The term "professional" includes occupational.

 Section 593: Reinstatement of health insurance coverage upon release from service

(a) Right to reinstatement of coverage

A person who, by reason of military service described in section 702(a)(1)  [section 592(a)(1) of this Appendix], is entitled to the rights and benefits of this Act [sections 501 to 593 of this Appendix] shall also be entitled upon release from such military service to reinstatement of any health insurance which (1) was in effect on the day before such service commenced, and (2) was terminated effective on a date during the period of such service.

(b) Exclusion or waiting period

 An exclusion or a waiting period may not be imposed in connection with reinstatement of health insurance coverage of a health or physical condition of a person under subsection (a), or a health or physical condition of any other person who is covered by the insurance by reason of the coverage of such person, if

  (1) the condition arose before or during that person's period of training or service in the Armed Forces;

  (2) an exclusion or waiting period would not have been imposed for the condition during a period of coverage resulting from participation by such person in the insurance;  and

  (3) the condition of such person has not been determined by the Secretary of Veterans Affairs to be a disability incurred or aggravated in the line of duty (within the meaning of section 105 of title 38, United States Code [38 U.S.C.A. Section 105]).

(c) Employeroffered insurance benefits

 Subsection (a) does not apply in the case of employeroffered insurance benefits in which a person referred to in such subsection is entitled to participate pursuant to the provisions of chapter 43 of title 38, United States Code [38 U.S.C.A. Section2021 et seq.].


Disciplinary Rules of Professional Conduct

These are the Model Rules of Professional Responsibility as they have been codified in Texas.  The language of the rules may vary slightly in your state.  To receive a copy of your state's rules, contact your state Bar Association.  A complete list of the state Bar Associations can be found in the "Helpful Organizations" section of the Help file in this program.

TEXAS DISCIPLINARY RULES OF PROFESSIONAL CONDUCT

Preamble: A Lawyer's Responsibilities

 1. A lawyer is a representative of clients, an officer of the legal system and a public citizen having special responsibility for the quality of justice. Lawyers, as guardians of the law, play a vital role in the preservation of society.  The fulfillment of this role requires an understanding by lawyers of their relationship with and function in our legal system.  A consequent obligation of lawyers is to maintain the highest standards of ethical conduct.

 2. As a representative of clients, a lawyer performs various functions.  As advisor, a lawyer provides a client with an informed understanding of the client's legal rights and obligations and explains their practical implications.  As advocate, a lawyer zealously asserts the client's position under the rules of the adversary system.  As negotiator, a lawyer seeks a result advantageous to the client but consistent with requirements of honest dealing with others.  As intermediary between clients, a lawyer seeks to reconcile their divergent interests as an advisor and, to a limited extent, as a spokesperson for each client.  A lawyer acts as evaluator by examining a client's affairs and reporting about them to the client or to others.

 3. In all professional functions, a lawyer should zealously pursue clients' interests within the bounds of the law.  In doing so, a lawyer should be competent, prompt and diligent.  A lawyer should maintain communication with a client concerning the representation.  A lawyer should keep in confidence information relating to representation of a client except so far as disclosure is required or permitted by the Texas Disciplinary Rules of Professional Conduct or other law.

 4. A lawyer's conduct should conform to the requirements of the law, both in professional service to clients and in the lawyer's business and personal affairs.  A lawyer should use the law's procedures only for legitimate purposes and not to harass or intimidate others.  A lawyer should demonstrate respect for the legal system and for those who serve it, including judges, other lawyers and public officials.  While it is a lawyer's duty, when necessary, to challenge the rectitude of official action, it is also a lawyer's duty to uphold legal process.

 5. As a public citizen, a lawyer should seek improvement of the law, the administration of justice and the quality of service rendered by the legal profession.  As a member of a learned profession, a lawyer should cultivate knowledge of the law beyond its use for clients, employ that knowledge in reform of the law and work to strengthen legal education.  A lawyer should be mindful of deficiencies in the administration of justice and of the fact that the poor, and sometimes persons who are not poor, cannot afford adequate legal assistance, and should therefore devote professional time and civic influence in their behalf.  A lawyer should aid the legal profession in pursuing these objectives and should help the bar regulate itself in the public interest.

 6. A lawyer should render public interest legal service.  The basic responsibility for providing legal services for those unable to pay ultimately rests upon the individual lawyer, and personal involvement in the problems of the disadvantaged can be one of the most rewarding experiences in the life of a lawyer.  Every lawyer, regardless of professional prominence or professional workload, should find time to participate in or otherwise support the provision of legal services to the disadvantaged.  The provision of free legal services to those unable to pay reasonable fees is a moral obligation of each lawyer as well as the profession generally.  A lawyer may discharge this basic responsibility by providing public interest legal services without fee, or at a substantially reduced fee, in one or more of the following areas:  poverty law, civil rights law, public rights law, charitable organization representation, the administration of justice, and by financial support for organizations that provide legal services to persons of limited means.

 7. In the nature of law practice, conflicting responsibilities are encountered.  Virtually all difficult ethical problems arise from apparent conflict between a lawyer's responsibilities to clients, to the legal system and to the lawyer's own interests.  The Texas Disciplinary Rules of Professional Conduct prescribe terms for resolving such tensions.  They do so by stating minimum standards of conduct below which no lawyer can fall without being subject to disciplinary action.  Within the framework of these Rules many difficult issues of professional discretion can arise.  The Rules and their Comments constitute a body of principles upon which the lawyer can rely for guidance in resolving such issues through the exercise of sensitive professional and moral judgment.  In applying these rules, lawyers may find interpretive guidance in the principles developed in the Comments.

 8. The legal profession has a responsibility to assure that its regulation is undertaken in the public interest rather than in furtherance of parochial or selfinterested concerns of the bar, and to insist that every lawyer both comply with its minimum disciplinary standards and aid in securing their observance by other lawyers.  Neglect of these responsibilities compromises the independence of the profession and the public interest which it serves.

 9. Each lawyer's own conscience is the touchstone against which to test the extent to which his actions may rise above the disciplinary standards prescribed by these rules.  The desire for the respect and confidence of the members of the profession and of the society which it serves provides the lawyer the incentive to attain the highest possible degree of ethical conduct. The possible loss of that respect and confidence is the ultimate sanction.  So long as its practitioners are guided by these principles, the law will continue to be a noble profession.  This is its greatness and its strength, which permit of no compromise.

 10. The Texas Disciplinary Rules of Professional Conduct are rules of reason.  The Texas Rules of Professional Conduct define proper conduct for purposes of professional discipline.  They are imperatives, cast in the terms "shall" or "shall not."  The Comments are cast often in the terms of "may" or "should" and are permissive, defining areas in which the lawyer has professional discretion.  When a lawyer exercises such discretion, whether by acting or not acting, no disciplinary action may be taken.  The Comments also frequently illustrate or explain applications of the rules, in order to provide guidance for interpreting the rules and for practicing in compliance with the spirit of the rules.  The Comments do not, however, add obligations to the rules and no disciplinary action may be taken for failure to conform to the Comments.

 11. The rules presuppose a larger legal context shaping the lawyer's role.  That context includes court rules and statutes relating to matters of licensure, laws defining specific obligations of lawyers and substantive and procedural law in general.  Compliance with the rules, as with all law in an open society, depends primarily upon understanding and voluntary compliance, secondarily upon reinforcement by peer and public opinion and finally, when necessary, upon enforcement through disciplinary proceedings.  The rules and Comments do not, however, exhaust the moral and ethical considerations that should guide a lawyer, for no worthwhile human activity can be completely defined by legal rules.

 12. Most of the duties flowing from the clientlawyer relationship attach only after the client has requested the lawyer to render legal services and the lawyer has agreed to do so.  For purposes of determining the lawyer's authority and responsibility, individual circumstances and principles of substantive law external to these rules determine whether a clientlawyer relationship may be found to exist.  But there are some duties, such as of that of confidentiality, that may attach before a clientlawyer relationship has been established.

 13. The responsibilities of government lawyers, under various legal provisions, including constitutional, statutory and common law, may include authority concerning legal matters that ordinarily reposes in the client in private clientlawyer relationships.  For example, a lawyer for a government agency may have authority on behalf of the government to decide upon settlement or whether to appeal from an adverse judgment.  Such authority in various respects is generally vested in the attorney general and the state's attorney in state government, and their federal counterparts, and the same may be true of other government law officers.  Also, lawyers under the supervision of these officers may be authorized to represent several government agencies in intragovernmental legal controversies in circumstances where a private lawyer could not represent multiple private clients.  They also may have authority to represent the "public interest" in circumstances where a private lawyer would not be authorized to do so.  These rules do not abrogate any such authority.

 14. These rules make no attempt to prescribe either disciplinary procedures or penalties for violation of a rule.

 15. These rules do not undertake to define standards of civil liability of lawyers for professional conduct.  Violation of a rule does not give rise to a private cause of action nor does it create any presumption that a legal duty to a client has been breached.  Likewise, these rules are not designed to be standards for procedural decisions.  Furthermore, the purpose of these rules can be abused when they are invoked by opposing parties as procedural weapons. The fact that a rule is a just basis for a lawyer's selfassessment, or for sanctioning a lawyer under the administration of a disciplinary authority, does not imply that an antagonist in a collateral proceeding or transaction has standing to seek enforcement of the rule.  Accordingly, nothing in the rules should be deemed to augment any substantive legal duty of lawyers or the extra disciplinary consequences of violating such a duty.

 16. Moreover, these rules are not intended to govern or affect judicial application of either the attorneyclient or work product privilege.  The fact that in exceptional situations the lawyer under the Rules has a limited discretion to disclose a client confidence does not vitiate the proposition that, as a general matter, the client has a reasonable expectation that information relating to the client will not be voluntarily disclosed and that disclosure of such information may be judicially compelled only in accordance with recognized exceptions to the attorneyclient and work product privileges.

Terminology

"Adjudicatory Official" denotes a person who serves on a Tribunal.

"Adjudicatory Proceeding" denotes the consideration of a matter by a Tribunal.

"Belief" or "Believes" denotes that the person involved actually supposed the fact in question to be true.  A person's belief may be inferred from circumstances.

"Competent" or "Competence" denotes possession or the ability to timely acquire the legal knowledge, skill, and training reasonably necessary for the representation of the client.

"Consult" or "Consultation" denotes communication of information and advice reasonably sufficient to permit the client to appreciate the significance of the matter in question.

"Firm" or "Law firm" denotes a lawyer or lawyers in a private firm;  or a lawyer or lawyers employed in the legal department of a corporation, legal services organization, or other organization, or in a unit of government.

"Fitness" denotes those qualities of physical, mental and psychological health that enable a person to discharge a lawyer's responsibilities to clients in conformity with the Texas Disciplinary Rules of Professional Conduct.  Normally a lack of fitness is indicated most clearly by a persistent inability to discharge, or unreliability in carrying out, significant obligations.

"Fraud" or "Fraudulent" denotes conduct having a purpose to deceive and not merely negligent misrepresentation or failure to apprise another of relevant information.

"Knowingly," "Known," or "Knows" denotes actual knowledge of the fact in question.  A person's knowledge may be inferred from circumstances.

"Law firm":  see "Firm."

"Partner" denotes an individual or corporate member of a partnership or a shareholder in a law firm organized as a professional corporation.

"Person" includes a legal entity as well as an individual.

"Reasonable" or "Reasonably" when used in relation to conduct by a lawyer denotes the conduct of a reasonably prudent and competent lawyer.

"Reasonable belief" or "Reasonably believes" when used in reference to a lawyer denotes that the lawyer believes the matter in question and that the circumstances are such that the belief is reasonable.

"Should know" when used in reference to a lawyer denotes that a reasonable lawyer under the same or similar circumstances would know the matter in question.

"Substantial" when used in reference to degree or extent denotes a matter of meaningful significance or involvement.

"Tribunal" denotes any governmental body or official or any other person engaged in a process of resolving a particular dispute or controversy. "Tribunal" includes such institutions as courts and administrative agencies when engaging in adjudicatory or licensing activities as defined by applicable law or rules of practice or procedure, as well as judges, magistrates, special masters, referees, arbitrators, mediators, hearing officers and comparable persons empowered to resolve or to recommend a resolution of a particular matter;  but it does not include jurors, prospective jurors, legislative bodies or their committees, members or staffs, nor does it include other governmental bodies when acting in a legislative or rulemaking capacity.

I. CLIENTLAWYER RELATIONSHIP

Rule 1.01. Competent and Diligent Representation

 (a) A lawyer shall not accept or continue employment in a legal matter which the lawyer knows or should know is beyond the lawyer's competence, unless:

  (1) another lawyer who is competent to handle the matter is, with the prior informed consent of the client, associated in the matter;  or

  (2) the advice or assistance of the lawyer is reasonably required in an  emergency and the lawyer limits the advice and assistance to that which is reasonably necessary in the circumstances.

 (b) In representing a client, a lawyer shall not:

  (1) neglect a legal matter entrusted to the lawyer;  or

  (2) frequently fail to carry out completely the obligations that the lawyer owes to a client or clients.

 (c) As used in this Rule, "neglect" signifies inattentiveness involving a conscious disregard for the responsibilities owed to a client or clients.

Rule 1.02. Scope and Objectives of Representation

 (a) Subject to paragraphs (b), (c), (d), and (e), (f), and (g), a lawyer shall abide by a client's decisions:

  (1) concerning the objectives and general methods of representation;

  (2) whether to accept an offer of settlement of a matter, except as otherwise authorized by law;

  (3) In a criminal case, after consultation with the lawyer, as to a plea to be entered, whether to waive jury trial, and whether the client will testify.

 (b) A lawyer may limit the scope, objectives and general methods of the representation if the client consents after consultation.

 (c) A lawyer shall not assist or counsel a client to engage in conduct that the lawyer knows is criminal or fraudulent.  A lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel and represent a client in connection with the making of a good faith effort to determine the validity, scope, meaning or application of the law.

 (d) When a lawyer has confidential information clearly establishing that a client is likely to commit a criminal or fraudulent act that is likely to result in substantial injury to the financial interests or property of another, the lawyer shall promptly make reasonable efforts under the circumstances to dissuade the client from committing the crime or fraud.

 (e) When a lawyer has confidential information clearly establishing that the  lawyer's client has committed a criminal or fraudulent act in the commission of which the lawyer's services have been used, the lawyer shall make reasonable efforts under the circumstances to persuade the client to take corrective action.

 (f) When a lawyer knows that a client expects representation not permitted by the rules of professional conduct or other law, the lawyer shall consult with the client regarding the relevant limitations on the lawyer's conduct.

 (g) A lawyer shall take reasonable action to secure the appointment of a guardian or other legal representative for, or seek other protective orders with respect to, a client whenever the lawyer reasonably believes that the client lacks legal competence and that such action should be taken to protect the client.

Rule 1.03. Communication

 (a) A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information.

 (b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

Rule 1.04. Fees

 (a) A lawyer shall not enter into an arrangement for, charge, or collect an illegal fee or unconscionable fee.  A fee is unconscionable if a competent lawyer could not form a reasonable belief that the fee is reasonable.

 (b) Factors that may be considered in determining the reasonableness of a fee include, but not to the exclusion of other relevant factors, the following:

  (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

  (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

  (3) the fee customarily charged in the locality for similar legal services;

  (4) the amount involved and the results obtained;

  (5) the time limitations imposed by the client or by the circumstances;

  (6) the nature and length of the professional relationship with the client;

  (7) the experience, reputation, and ability of the lawyer or lawyers performing the services;  and

  (8) whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been rendered.

 (c) When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation.

 (d) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (e) or other law.  A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined.  If there is to be a differentiation in the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, the percentage for each shall be stated.  The agreement shall state the litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated.  Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement describing the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.

 (e) A lawyer shall not enter into an arrangement for, charge, or collect a contingent fee for representing a defendant in a criminal case.

 (f) A division or agreement for division of a fee between lawyers who are not in the same firm shall not be made unless:

  (1) the division is:

   (i) in proportion to the professional services performed by each lawyer;

   (ii) made with a forwarding lawyer;  or

   (iii) made, by written agreement with the client, with a lawyer who assumes joint responsibility for the representation;

  (2) the client is advised of, and does not object to, the participation of all the lawyers involved;  and

  (3) the aggregate fee does not violate paragraph (a).

 (g) Paragraph (f) of this Rule does not prohibit payment to a former partner or associate pursuant to a separation or retirement agreement.

Rule 1.05. Confidentiality of Information

 (a) "Confidential information" includes both "privileged information" and  "unprivileged client information."  "Privileged information" refers to the information of a client protected by the lawyerclient privilege of Rule 503 of the Texas Rules of Evidence or of Rule 503 of the Texas Rules of Criminal Evidence or by the principles of attorneyclient privilege governed by Rule 501 of the Federal Rules of Evidence for United States Courts and Magistrates.  "Unprivileged client information" means all information relating to a client or furnished by the client, other than privileged information, acquired by the lawyer during the course of or by reason of the representation of the client.

 (b) Except as permitted by paragraphs (c) and (d), or as required by paragraphs (e) and (f), a lawyer shall not knowingly:

  (1) Reveal confidential information of a client or a former client to:

   (i) a person that the client has instructed is not to receive the information;  or

   (ii) anyone else, other than the client, the client's representatives, or the members, associates, or employees of the lawyer's law firm.

  (2) Use confidential information of a client to the disadvantage of the client unless the client consents after consultation.

  (3) Use confidential information of a former client to the disadvantage of the former client after the representation is concluded unless the former client consents after consultation or the confidential information has become generally known.

  (4) Use privileged information of a client for the advantage of the lawyer or of a third person, unless the client consents after consultation.

 (c) A lawyer may reveal confidential information:

  (1) When the lawyer has been expressly authorized to do so in order to carry out the representation.

  (2) When the client consents after consultation.

  (3) To the client, the client's representatives, or the members, associates, and employees of the lawyer's firm, except when otherwise instructed by the client.

  (4) When the lawyer has reason to believe it is necessary to do so in order to comply with a court order, a Texas Disciplinary Rules of Professional Conduct, or other law.

  (5) To the extent reasonably necessary to enforce a claim or establish a defense on behalf of the lawyer in a controversy between the lawyer and the client.

  (6) To establish a defense to a criminal charge, civil claim or disciplinary complaint against the lawyer or the lawyer's associates based upon conduct involving the client or the representation of the client.

  (7) When the lawyer has reason to believe it is necessary to do so in order to prevent the client from committing a criminal or fraudulent act.

  (8) To the extent revelation reasonably appears necessary to rectify the consequences of a client's criminal or fraudulent act in the commission of  which the lawyer's services had been used.

 (d) A lawyer also may reveal unprivileged client information:

  (1) When impliedly authorized to do so in order to carry out the representation.

  (2) When the lawyer has reason to believe it is necessary to do so in order to:

   (i) carry out the representation effectively;

   (ii) defend the lawyer or the lawyer's employees or associates against a claim of wrongful conduct;

   (iii) respond to allegations in any proceeding concerning the lawyer's representation of the client;  or

   (iv) prove the services rendered to a client, or the reasonable value thereof, or both, in an action against another person or organization responsible for the payment of the fee for services rendered to the client.

 (e) When a lawyer has confidential information clearly establishing that a client is likely to commit a criminal or fraudulent act that is likely to result in death or substantial bodily harm to a person, the lawyer shall reveal confidential information to the extent revelation reasonably appears necessary to prevent the client from committing the criminal or fraudulent act.

 (f) A lawyer shall reveal confidential information when required to do so by Rule 3.03(a)(2), 3.03(b), or by Rule 4.01(b).

Rule 1.06. Conflict of Interest:  General Rule

 (a) A lawyer shall not represent opposing parties to the same litigation.

 (b) In other situations and except to the extent permitted by paragraph (c), a lawyer shall not represent a person if the representation of that person:

  (1) involves a substantially related matter in which that person's interests are materially and directly adverse to the interests of another client of the  lawyer or the lawyer's firm;  or

  (2) reasonably appears to be or become adversely limited by the lawyer's or law firm's responsibilities to another client or to a third person or by the lawyer's or law firm's own interests.

 (c) A lawyer may represent a client in the circumstances described in (b) if:

  (1) the lawyer reasonably believes the representation of each client will not be materially affected;  and

  (2) each affected or potentially affected client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any.

 (d) A lawyer who has represented multiple parties in a matter shall not thereafter represent any of such parties in a dispute among the parties arising out of the matter, unless prior consent is obtained from all such parties to the dispute.

 (e) If a lawyer has accepted representation in violation of this Rule, or if multiple representation properly accepted becomes improper under this Rule, the lawyer shall promptly withdraw from one or more representations to the extent necessary for any remaining representation not to be in violation of these Rules.

 (f) If a lawyer would be prohibited by this Rule from engaging in particular conduct, no other lawyer while a member or associated with that lawyer's firm may engage in that conduct.

Rule 1.07. Conflict of Interest:  Intermediary

 (a) A lawyer shall not act as intermediary between clients unless:

  (1) the lawyer consults with each client concerning the implications of the common representation, including the advantages and risks involved, and the effect on the attorneyclient privileges, and obtains each client's written consent to the common representation;

  (2) the lawyer reasonably believes that the matter can be resolved without the necessity of contested litigation on terms compatible with the clients' best interests, that each client will be able to make adequately informed decisions in the matter and that there is little risk of material prejudice to the interests of any of the clients if the contemplated resolution is unsuccessful;  and

  (3) the lawyer reasonably believes that the common representation can be undertaken impartially and without improper effect on other responsibilities the lawyer has to any of the clients.

 (b) While acting as intermediary, the lawyer shall consult with each client concerning the decision to be made and the considerations relevant in making them, so that each client can make adequately informed decisions.

 (c) A lawyer shall withdraw as intermediary if any of the clients so requests, or if any of the conditions stated in paragraph (a) is no longer satisfied. Upon withdrawal, the lawyer shall not continue to represent any of the clients in the matter that was the subject of the intermediation.

 (d) Within the meaning of this Rule, a lawyer acts as intermediary if the lawyer represents two or more parties with potentially conflicting interests.

 (e) If a lawyer would be prohibited by this Rule from engaging in particular conduct, no other lawyer while a member of or associated with that lawyer's firm may engage in that conduct.

Rule 1.08. Conflict of Interest:  Prohibited Transactions

 (a) A lawyer shall not enter into a business transaction with a client unless:

  (1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed in a manner which can be reasonably understood by the client;

  (2) the client is given a reasonable opportunity to seek the advice of  independent counsel in the transaction;  and

  (3) the client consents in writing thereto.

 (b) A lawyer shall not prepare an instrument giving the lawyer or a person related to the lawyer as a parent, child, sibling, or spouse any substantial gift from a client, including a testamentary gift, except where the client is related to the donee.

 (c) Prior to the conclusion of all aspects of the matter giving rise to the lawyer's employment, a lawyer shall not make or negotiate an agreement with a client, prospective client, or former client giving the lawyer literary or media rights to a portrayal or account based in substantial part on information relating to the representation.

 (d) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation or administrative proceedings, except that:

  (1) a lawyer may advance or guarantee court costs, expenses of litigation or administrative proceedings, and reasonably necessary medical and living expenses, the repayment of which may be contingent on the outcome of the matter;  and

  (2) a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.

 (e) A lawyer shall not accept compensation for representing a client from one other than the client unless:

  (1) the client consents;

  (2) there is no interference with the lawyer's independence of professional judgment or with the clientlawyer relationship;  and

  (3) information relating to representation of a client is protected as required by Rule 1.05.

 (f) A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients, or in a criminal case an aggregated agreement to guilty or nolo contendere pleas, unless each client has consented after consultation, including disclosure of the existence and nature of all the claims or pleas involved and of the nature and extent of the participation of each person in the settlement.

 (g) A lawyer shall not make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement, or settle a claim for such liability with an unrepresented client or former client with out first advising that person in writing that independent representation is appropriate in connection therewith.

 (h) A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may:

  (1) acquire a lien granted by law to secure the lawyer's fee or expenses;  and

  (2) contract in a civil case with a client for a contingent fee that is permissible under Rule 1.04.

 (i) If a lawyer would be prohibited by this Rule from engaging in particular conduct, no other lawyer while a member of or associated with that lawyer's firm may engage in that conduct.

 (j) As used in this Rule, "business transactions" does not include standard commercial transactions between the lawyer and the client for products or services that the client generally markets to others.

Rule 1.09. Conflict of Interest:  Former Client

 (a) Without prior consent, a lawyer who personally has formerly represented a client in a matter shall not thereafter represent another person in a matter adverse to the former client:

  (1) in which such other person questions the validity of the lawyer's services or work product for the former client;  or

  (2) if the representation in reasonable probability will involve a violation of Rule 1.05.

  (3) if it is the same or a substantially related matter.

 (b) Except to the extent authorized by Rule 1.10, when lawyers are or have become members of or associated with a firm, none of them shall knowingly represent a client if any one of them practicing alone would be prohibited from doing so by paragraph (a).

 (c) When the association of a lawyer with a firm has terminated, the lawyers who were then associated with that lawyer shall not knowingly represent a client if the lawyer whose association with that firm has terminated would be prohibited from doing so by paragraph (a)(1) or if the representation in reasonable probability will involve a violation of Rule 1.05.

Rule 1.10. Successive Government and Private Employment

 (a) Except as law may otherwise expressly permit, a lawyer shall not represent a private client in connection with a matter in which the lawyer participated personally and substantially as a public officer or employee, unless the appropriate government agency consents after consultation.

 (b) No lawyer in a firm with which a lawyer subject to paragraph (a) is associated may knowingly undertake or continue representation in such a matter unless:

  (1) The lawyer subject to paragraph (a) is screened from any participation in the matter and is apportioned no part of the fee therefrom;  and

  (2) written notice is given with reasonable promptness to the appropriate government agency.

 (c) Except as law may otherwise expressly permit, a lawyer having information that the lawyer knows or should know is confidential government information about a person or other legal entity acquired when the lawyer was a public officer or employee may not represent a private client whose interests are adverse to that person or legal entity.

 (d) After learning that a lawyer in the firm is subject to paragraph (c) with respect to a particular matter, a firm may undertake or continue representation in that matter only if that disqualified lawyer is screened from any participation in the matter and is apportioned no part of the fee therefrom.

 (e) Except as law may otherwise expressly permit, a lawyer serving as a public officer or employee shall not:

  (1) Participate in a matter involving a private client when the lawyer had represented that client in the same matter while in private practice or nongovernmental employment, unless under applicable law no one is, or by  lawful delegation may be, authorized to act in the lawyer's stead in the matter;  or

  (2) Negotiate for private employment with any person who is involved as a party or as attorney for a party in a matter in which the lawyer is participating personally and substantially.

 (f) As used in this rule, the term "matter" does not include regulationmaking or rulemaking proceedings or assignments, but includes:

  (1) Any adjudicatory proceeding, application, request for a ruling or other determination, contract, claim, controversy, investigation, charge accusation, arrest or other similar, particular transaction involving a specific party or parties;  and

  (2) any other action or transaction covered by the conflict of interest rules of the appropriate government agency.

 (g) As used in this rule, the term "confidential government information" means information which has been obtained under governmental authority and which, at the time this rule is applied, the government is prohibited by law from disclosing to the public or has a legal privilege not to disclose, and which is not otherwise available to the public.

 (h) As used in this Rule, "Private Client" includes not only a private party but also a governmental agency if the lawyer is not a public officer or employee of that agency.

 (i) A lawyer who serves as a public officer or employee of one body politic after having served as a public officer of another body politic shall comply with paragraphs (a) and (c) as if the second body politic were a private client and with paragraph (e) as if the first body politic were a private client.

Rule 1.11. Adjudicatory Official or Law Clerk

 (a) A lawyer shall not represent anyone in connection with a matter in which the lawyer has passed upon the merits or otherwise participated personally and substantially as an adjudicatory official or law clerk to an adjudicatory official, unless all parties to the proceeding consent after disclosure.

 (b) A lawyer who is an adjudicatory official shall not negotiate for employment with any person who is involved as a party or as attorney for a party in a pending matter in which that official is participating personally and substantially.  A lawyer serving as a law clerk to an adjudicatory official may negotiate for employment with a party or attorney involved in a matter in which the clerk is participating personally and substantially, but only after the clerk has notified the adjudicatory official.

 (c) If paragraph (a) is applicable to a lawyer, no other lawyer in a firm with which that lawyer is associated may knowingly undertake or continue representation in the matter unless:

  (1) the lawyer who is subject to paragraph (a) is screened from participation in the matter and is apportioned no part of the fee therefrom;  and

  (2) written notice is promptly given to the other parties to the proceeding.

Rule 1.12. Organization as a Client

 (a) A lawyer employed or retained by an organization represents the entity.  While the lawyer in the ordinary course of working relationships may report to, and accept direction from, an entity's duly authorized constituents, in the situations described in paragraph (b) the lawyer shall proceed as reasonably necessary in the best interest of the organization without involving unreasonable risks of disrupting the organization and of revealing information relating to the representation to persons outside the organization.

 (b) A lawyer representing an organization must take reasonable remedial actions whenever the lawyer learns or knows that:

  (1) an officer, employee, or other person associated with the organization has committed or intends to commit a violation of a legal obligation to the organization or a violation of law which reasonably might be imputed to the organization;

  (2) the violation is likely to result in substantial injury to the organization;  and

  (3) the violation is related to a matter within the scope of the lawyer's representation of the organization.

 (c) Except where prior disclosure to persons outside the organization is required by law or other Rules, a lawyer shall first attempt to resolve a violation by taking measures within the organization.  In determining the internal procedures, actions or measures that are reasonably necessary in order to comply with paragraphs (a) and (b), a lawyer shall give due consideration to the seriousness of the violation and its consequences, the scope and nature of the lawyer's representation, the responsibility in the organization and the apparent motivation of the person involved, the policies of the organization concerning such matters, and any other relevant considerations.  Such procedures, actions and measures may include, but are not limited to, the following:

  (1) asking reconsideration of the matter;

  (2) advising that a separate legal opinion on the matter be sought for presentation to appropriate authority in the organization;  and

  (3) referring the matter to higher authority in the organization, including, if warranted by the seriousness of the matter, referral to the highest authority that can act in behalf of the organization as determined by applicable law.

 (d) Upon a lawyer's resignation or termination of the relationship in compliance with Rule 1.15, a lawyer is excused from further proceeding as required by paragraphs (a), (b) and (c), and any further obligations of the lawyer are determined by Rule 1.05.

 (e) In dealing with an organization's directors, officers, employees, members, shareholders or other constituents, a lawyer shall explain the identity of the client when it is apparent that the organization's interests are adverse to those of the constituents with whom the lawyer is dealing or when explanation appears reasonably necessary to avoid misunderstanding on their part.

Rule 1.13. Conflicts:  Public Interests Activities

 A lawyer serving as a director, officer or member of a legal services, civic, charitable or law reform organization, apart from the law firm in which the lawyer practices, shall not knowingly participate in a decision or action of the organization:

 (a) if participating in the decision would violate the lawyer's obligations to a client under Rule 1.06;  or

 (b) where the decision could have a material adverse effect on the representation of any client of the organization whose interests are adverse to a client of the lawyer.

Rule 1.14. Safekeeping Property

 (a) A lawyer shall hold funds and other property belonging in whole or in part to clients or third persons that are in a lawyer's possession in connection with a representation separate from the lawyer's own property.  Such funds shall be kept in a separate account, designated as a "trust" or "escrow" account, maintained in the state where the lawyer's office is situated, or elsewhere with the consent of the client or third person.  Other client property shall be identified as such and appropriately safeguarded.  Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation.

 (b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.

 (c) When in the course of representation a lawyer is in possession of funds or other property in which both the lawyer and other person claim interests, the property shall be kept separate by the lawyer until there is an accounting and severance of their interest.  All funds in a trust or escrow account shall be disbursed only to those persons entitled to receive them by virtue of the representation or by law.  If a dispute arises concerning their respective interests, the portion in dispute shall be kept separated by the lawyer until the dispute is resolved, and the undisputed portion shall be distributed appropriately.

Rule 1.15. Declining or Terminating Representation

 (a) A lawyer shall decline to represent a client or, where representation has commenced, shall withdraw, except as stated in paragraph (c), from the representation of a client, if:

  (1) the representation will result in violation of Rule 3.08, other applicable rules of professional conduct or other law;

  (2) the lawyer's physical, mental or psychological condition materially impairs the lawyer's fitness to represent the client;  or

  (3) the lawyer is discharged, with or without good cause.

 (b) Except as required by paragraph (a), a lawyer shall not withdraw from representing a client unless:

  (1) withdrawal can be accomplished without material adverse effect on the interests of the client;

  (2) the client persists in a course of action involving the lawyer's services that the lawyer reasonably believes may be criminal or fraudulent;

  (3) the client has used the lawyer's services to perpetrate a crime or fraud;

  (4) a client insists upon pursuing an objective that the lawyer considers repugnant or imprudent or with which the lawyer has fundamental disagreement;

  (5) the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer's services, including an obligation to pay the lawyer's fee as agreed, and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled;

  (6) the representation will result in an unreasonable financial burden on the lawyer or has been rendered unreasonably difficult by the client;  or

  (7) other good cause for withdrawal exists.

 (c) When ordered to do so by a tribunal, a lawyer shall continue representation notwithstanding good cause for terminating the representation.

 (d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payments of fee that has not been earned.  The lawyer may retain papers relating to the client to the extent permitted by other law only if such retention will not prejudice the client in the subject matter of the representation.

Rule 2.01. Advisor

 In advising or otherwise representing a client, a lawyer shall exercise independent professional judgment and render candid advice.

Rule 2.02. Evaluation for Use by Third Persons

 A lawyer shall not undertake an evaluation of a matter affecting a client for the use of someone other than the client unless:

 (a) the lawyer reasonably believes that making the evaluation is compatible with other aspects of the lawyer's relationship with the client;  and

 (b) the client consents after consultation.

Rule 3.01. Meritorious Claims and Contentions

 A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless the lawyer reasonably believes that there is a basis for doing so that is not frivolous.

Rule 3.02. Minimizing the Burdens and Delays of Litigation

 In the course of litigation, a lawyer shall not take a position that unreasonably increases the costs or other burdens of the case or that unreasonably delays resolution of the matter.

Rule 3.03. Candor Toward the Tribunal

 (a) A lawyer shall not knowingly:

  (1) make a false statement of material fact or law to a tribunal;

  (2) fail to disclose a fact to a tribunal when disclosure is necessary to avoid assisting a criminal or fraudulent act;

  (3) in an ex parte proceeding, fail to disclose to the tribunal an  unprivileged fact which the lawyer reasonably believes should be known by that entity for it to make an informed decision;

  (4) fail to disclose to the tribunal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel;  or

  (5) offer or use evidence that the lawyer knows to be false.

 (b) If a lawyer has offered material evidence and comes to know of its falsity, the lawyer shall make a good faith effort to persuade the client to authorize the lawyer to correct or withdraw the false evidence.  If such efforts are unsuccessful, the lawyer shall take reasonable remedial measures, including disclosure of the true facts.

 (c) The duties stated in paragraphs (a) and (b) continue until remedial legal measures are no longer reasonably possible.

Rule 3.04. Fairness in Adjudicatory Proceedings

 A lawyer shall not:

 (a) unlawfully obstruct another party's access to evidence;  in anticipation of a dispute unlawfully alter, destroy or conceal a document or other material that a competent lawyer would believe has potential or actual evidentiary value;  or counsel or assist another person to do any such act.

 (b) falsify evidence, counsel or assist a witness to testify falsely, or pay, offer to pay, or acquiesce in the offer or payment of compensation to a witness or other entity contingent upon the content of the testimony of the witness or the outcome of the case.  But a lawyer may advance, guarantee, or acquiesce in the payment of:

  (1) expenses reasonably incurred by a witness in attending or testifying;

  (2) reasonable compensation to a witness for his loss of time in attending or testifying;

  (3) a reasonable fee for the professional services of an expert witness.

 (c) except as stated in paragraph (d), in representing a client before a tribunal:

  (1) habitually violate an established rule of procedure or of evidence;

  (2) state or allude to any matter that the lawyer does not reasonably believe is relevant to such proceeding or that will not be supported by admissible evidence, or assert personal knowledge of facts in issue except when testifying as a witness;

  (3) state a personal opinion as to the justness of a cause, the credibility of a witness, the culpability of a civil litigant or the guilt or innocence of an accused, except that a lawyer may argue on his analysis of the evidence and other permissible considerations for any position or conclusion with respect  to the matters stated herein;

  (4) ask any question intended to degrade a witness or other person except where the lawyer reasonably believes that the question will lead to relevant and admissible evidence;  or

  (5) engage in conduct intended to disrupt the proceedings.

 (d) knowingly disobey, or advise the client to disobey, an obligation under the standing rules of or a ruling by a tribunal except for an open refusal based either on an assertion that no valid obligation exists or on the client's willingness to accept any sanctions arising from such disobedience.

 (e) request a person other than a client to refrain from voluntarily giving relevant information to another party unless:

  (1) the person is a relative or an employee or other agent of a client;  and

  (2) the lawyer reasonably believes that the person's interests will not be adversely affected by refraining from giving such information.

Rule 3.05. Maintaining Impartiality of Tribunal

 A lawyer shall not:

 (a) seek to influence a tribunal concerning a pending matter by means prohibited by law or applicable rules of practice or procedure;

 (b) except as otherwise permitted by law and not prohibited by applicable rules of practice or procedure, communicate or cause another to communicate ex parte with a tribunal for the purpose of influencing that entity or person concerning a pending matter other than:

  (1) in the course of official proceedings in the cause;

  (2) in writing if he promptly delivers a copy of the writing to opposing counsel or the adverse party if he is not represented by a lawyer;

  (3) orally upon adequate notice to opposing counsel or to the adverse party if he is not represented by a lawyer.

 (c) For purposes of this rule:

  (1) "Matter" has the meanings ascribed by it in Rule 1.10(f) of these Rules;

  (2) A matter is "pending" before a particular tribunal either when that entity has been selected to determine the matter or when it is reasonably foreseeable that that entity will be so selected.

Rule 3.06. Maintaining Integrity of Jury System

 (a) A lawyer shall not:

  (1) conduct or cause another, by financial support or otherwise, to conduct a vexatious or harassing investigation of a venireman or juror;  or

  (2) seek to influence a venireman or juror concerning the merits of a pending matter by means prohibited by law or applicable rules of practice or  procedure.

 (b) Prior to discharge of the jury from further consideration of a matter, a lawyer connected therewith shall not communicate with or cause another to communicate with anyone he knows to be a member of the venire from which the jury will be selected or any juror or alternate juror, except in the course of official proceedings.

 (c) During the trial of a case, a lawyer not connected therewith shall not communicate with or cause another to communicate with a juror or alternate juror concerning the matter.

 (d) After discharge of the jury from further consideration of a matter with which the lawyer was connected, the lawyer shall not ask questions of or make comments to a member of that jury that are calculated merely to harass or embarrass the juror or to influence his actions in future jury service.

 (e) All restrictions imposed by this Rule upon a lawyer also apply to communications with or investigations of members of a family of a venireman or a juror.

 (f) A lawyer shall reveal promptly to the court improper conduct by a venireman or a juror, or by another toward a venireman or a juror or a member of his family, of which the lawyer has knowledge.

 (g) As used in this Rule, the terms "matter" and "pending" have the meanings specified in Rule 3.05(c).

Rule 3.07. Trial Publicity

 (a) In the course of representing a client, a lawyer shall not make an extrajudicial statement that a reasonable person would expect to be disseminated by means of public communication if the lawyer knows or reasonably should know that it will have a substantial likelihood of materially prejudicing an adjudicatory proceeding.  A lawyer shall not counsel or assist another person to make such a statement.

 (b) A lawyer ordinarily will violate paragraph (a), and the likelihood of a violation increases if the adjudication is ongoing or imminent, by making an extrajudicial statement of the type referred to in that paragraph when the statement refers to:

  (1) the character, credibility, reputation or criminal record of a party, suspect in a criminal investigation or witness;  or the expected testimony of a party or witness;

  (2) in a criminal case or proceeding that could result in incarceration, the possibility of a plea of guilty to the offense;  the existence or contents of any confession, admission, or statement given by a defendant or suspect;  or that person's refusal or failure to make a statement;

  (3) the performance, refusal to perform, or results of any examination or test;   the refusal or failure of a person to allow or submit to an examination or test;  or the identity or nature of physical evidence expected to be presented;

  (4) any opinion as to the guilt or innocence of a defendant or suspect in a criminal case or proceeding that could result in incarceration;  or

  (5) information the lawyer knows or reasonably should know is likely to be inadmissible as evidence in a trial and would if disclosed create a  substantial risk of prejudicing an impartial trial.

 (c) A lawyer ordinarily will not violate paragraph (a) by making an extrajudicial statement of the type referred to in that paragraph when the lawyer merely states:

  (1) the general nature of the claim or defense;

  (2) the information contained in a public record;

  (3) that an investigation of the matter is in progress, including the general scope of the investigation, the offense, claim or defense involved;

  (4) except when prohibited by law, the identity of the persons involved in the matter;

  (5) the scheduling or result of any step in litigation;

  (6) a request for assistance in obtaining evidence, and information necessary thereto;

  (7) a warning of danger concerning the behavior of a person involved, when there is a reason to believe that there exists the likelihood of substantial harm to an individual or to the public interest;  and

  (8) if a criminal case:

   (i) the identity, residence, occupation and family status of the accused;

   (ii) if the accused has not been apprehended, information necessary to aid in apprehension of that person;

   (iii) the fact, time and place of arrest;  and

   (iv) the identity of investigating and arresting officers or agencies and the length of the investigation.

Rule 3.08. Lawyer as Witness

 (a) A lawyer shall not accept or continue employment as an advocate before a tribunal in a contemplated or pending adjudicatory proceeding if the lawyer knows or believes that the lawyer is or may be a witness necessary to establish an essential fact on behalf of the lawyer's client, unless:

  (1) the testimony relates to an uncontested issue;

  (2) the testimony will relate solely to a matter of formality and there is no reason to believe that substantial evidence will be offered in opposition to the testimony;

  (3) the testimony relates to the nature and value of legal services rendered in the case;

  (4) the lawyer is a party to the action and is appearing pro se;  or

  (5) the lawyer has promptly notified opposing counsel that the lawyer expects to testify in the matter and disqualification of the lawyer would work substantial hardship on the client.

 (b) A lawyer shall not continue as an advocate in a pending adjudicatory proceeding if the lawyer believes that the lawyer will be compelled to furnish testimony that will be substantially adverse to the lawyer's client, unless the client consents after full disclosure.

 (c) Without the client's informed consent, a lawyer may not act as advocate in an adjudicatory proceeding in which another lawyer in the lawyer's firm is prohibited by paragraphs (a) or (b) from serving as advocate.  If the lawyer to be called as a witness could not also serve as an advocate under this Rule, that lawyer shall not take an active role before the tribunal in the presentation of the matter.

Rule 3.09. Special Responsibilities of a Prosecutor

 The prosecutor in a criminal case shall:

 (a) refrain from prosecuting or threatening to prosecute a charge that the prosecutor knows is not supported by probable cause;

 (b) refrain from conducting or assisting in a custodial interrogation of an accused unless the prosecutor has made reasonable efforts to be assured that the accused has been advised of any right to, and the procedure for obtaining, counsel and has been given reasonable opportunity to obtain counsel;

 (c) not initiate or encourage efforts to obtain from an unrepresented accused a waiver of important pretrial, trial or posttrial rights;

 (d) make timely disclosure to the defense of all evidence or information known to the prosecutor that tends to negate the guilt of the accused or mitigates the offense, and, in connection with sentencing, disclose to the defense and to the tribunal all unprivileged mitigating information known to the prosecutor, except when the prosecutor is relieved of this responsibility by a protective order of the tribunal;  and

 (e) exercise reasonable care to prevent persons employed or controlled by the prosecutor in a criminal case from making an extrajudicial statement that the prosecutor would be prohibited from making under Rule 3.07.

Rule 3.10. Advocate in Nonadjudicative Proceedings

 A lawyer representing a client before a legislative or administrative body in a nonadjudicative proceeding shall disclose that the appearance is in a representative capacity and shall conform to the provisions of Rules 3.04(a) through (d), 3.05(a), and 4.01.

Rule 4.01. Truthfulness in Statements to Others

 In the course of representing a client a lawyer shall not knowingly:

 (a) make a false statement of material fact or law to a third person;  or

 (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid making the lawyer a party to a criminal act or knowingly assisting a fraudulent act perpetrated by a client.

Rule 4.02. Communication with One Represented by Counsel

 (a) In representing a client, a lawyer shall not communicate or cause or encourage another to communicate about the subject of the representation with a person, organization or entity of government the lawyer knows to be represented by another lawyer regarding that subject, unless the lawyer has the consent of the other lawyer or is authorized by law to do so.

 (b) In representing a client a lawyer shall not communicate or cause another to communicate about the subject of representation with a person or organization a lawyer knows to be employed or retained for the purpose of conferring with or advising another lawyer about the subject of the representation, unless the lawyer has the consent of the other lawyer or is authorized by law to do so.

 (c) For the purpose of this rule, "organization or entity of government" includes: (1) those persons presently having a managerial responsibility with an organization or entity of government that relates to the subject of the representation, or (2) those persons presently employed by such organization or entity and whose act or omission in connection with the subject of representation may make the organization or entity of government vicariously liable for such act or omission.

 (d) When a person, organization, or entity of government that is represented by a lawyer in a matter seeks advice regarding that matter from another lawyer, the second lawyer is not prohibited by paragraph (a) from giving such advice without notifying or seeking consent of the first lawyer.

Rule 4.03. Dealing With Unrepresented Person

 In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.

Rule 4.04. Respect for Rights of Third Persons

 (a) In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person.

 (b) A lawyer shall not present, participate in presenting, or threaten to present:

  (1) criminal or disciplinary charges solely to gain an advantage in a civil matter;  or

  (2) civil, criminal or disciplinary charges against a complainant, a witness, or a potential witness in a bar disciplinary proceeding solely to prevent participation by the complainant, witness or potential witness therein.

Rule 5.01. Responsibilities of a Partner or Supervisory Lawyer

 A lawyer shall be subject to discipline because of another lawyer's violation of these rules of professional conduct if:

 (a) The lawyer is a partner or supervising lawyer and orders, encourages, or knowingly permits the conduct involved;  or

 (b) The lawyer is a partner in the law firm in which the other lawyer practices, is the general counsel of a government agency's legal department in which the other lawyer is employed, or has direct supervisory authority over the other lawyer, and with knowledge of the other lawyer's violation of these rules knowingly fails to take reasonable remedial action to avoid or mitigate the consequences of the other lawyer's violation.

Rule 5.02. Responsibilities of a Supervised Lawyer

 A lawyer is bound by these rules notwithstanding that the lawyer acted under the supervision of another person, except that a supervised lawyer does not violate these rules if that lawyer acts in accordance with a supervisory lawyer's reasonable resolution of an arguable question of professional conduct.

Rule 5.03. Responsibilities Regarding Nonlawyer Assistants

 With respect to a nonlawyer employed or retained by or associated with a lawyer:

 (a) a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person's conduct is compatible with the professional obligations of the lawyer;  and

 (b) a lawyer shall be subject to discipline for the conduct of such a person that would be a violation of these rules if engaged in by a lawyer if:

  (1) the lawyer orders, encourages, or permits the conduct involved;  or

  (2) the lawyer:

   (i) is a partner in the law firm in which the person is employed, retained by, or associated with;  or is the general counsel of a government agency's legal department in which the person is employed, retained by or associated with;  or has direct supervisory authority over such person;  and

   (ii) with knowledge of such misconduct by the nonlawyer knowingly fails to take reasonable remedial action to avoid or mitigate the consequences of that person's misconduct.

Rule 5.04. Professional Independence of a Lawyer

 (a) A lawyer or law firm shall not share or promise to share legal fees with a nonlawyer, except that:

  (1) an agreement by a lawyer with the lawyer's firm, partner, or associate, or a lawful court order, may provide for the payment of money, over a reasonable period of time, to the lawyer's estate to or for the benefit of the  lawyer's heirs or personal representatives, beneficiaries, or former spouse, after the lawyer's death or as otherwise provided by law or court order.

  (2) a lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer;  and

  (3) a lawyer or law firm may include nonlawyer employees in a retirement plan, even though the plan is based in whole or in part on a profitsharing arrangement.

 (b) A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.

 (c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services.

 (d) A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if:

  (1) a nonlawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration;

  (2) a nonlawyer is a corporate director or officer thereof;  or

  (3) a nonlawyer has the right to direct or control the professional judgment of a lawyer.

Rule 5.05. Unauthorized Practice of Law

 A lawyer shall not:

 (a) practice law in a jurisdiction where doing so violates the regulation of the legal profession in that jurisdiction;  or

 (b) assist a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law.

Rule 5.06. Restrictions on Right to Practice

 A lawyer shall not participate in offering or making:

 (a) a partnership or employment agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement;  or

 (b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a suit or controversy, except that as part of the settlement of a disciplinary proceedings against a lawyer an agreement may be made placing restrictions on the right of that lawyer to practice.

Rule 5.08. Prohibited Discriminatory Activities

 (a) A lawyer shall not willfully, in connection with an adjudicatory proceeding, except as provided in paragraph (b), manifest, by words or conduct, bias or prejudice based on race, color, national origin, religion, disability, age, sex, or sexual orientation towards any person involved in that proceeding in any capacity.

 (b) Paragraph (a) does not apply to a lawyer's decision whether to represent a particular person in connection with an adjudicatory proceeding, nor to the process of jury selection, nor to communications protected as "confidential information" under these Rules.  See Rule 1.05(a), (b).  It also does not preclude advocacy in connection with an adjudicatory proceeding involving any of the factors set out in paragraph (a) if that advocacy:

  (i) is necessary in order to address any substantive or procedural issues raised by the proceeding;  and

  (ii) is conducted in conformity with applicable rulings and orders of a tribunal and applicable rules of practice and procedure.

Rule 6.01. Accepting Appointments by a Tribunal

 A lawyer shall not seek to avoid appointment by a tribunal to represent a person except for good cause, such as:

 (a) representing the client is likely to result in violation of law or rules of professional conduct;

 (b) representing the client is likely to result in an unreasonable financial burden on the lawyer;  or

 (c) the client or the cause is so repugnant to the lawyer as to be likely to impair the clientlawyer relationship or the lawyer's ability to represent the client.

Rule 7.01. Firm Names and Letterheads

 (a) A lawyer in private practice shall not practice under a trade name, a name that is misleading as to the identity of the lawyer or lawyers practicing under such name, or a firm name containing names other than those of one or more of the lawyers in the firm, except that the names of a professional corporation, professional association, limited liability partnership, or professional limited liability company may contain "P.C.," "P.A.," "L.L.P.," "P.L.L.C.," or similar symbols indicating the nature of the organization, and if otherwise lawful a firm may use as, or continue to include in, its name the name or names of one or more deceased or retired members of the firm or of a predecessor firm in a continuing line of succession.  Nothing herein shall prohibit a married woman from practicing under her maiden name.

 (b) A firm with offices in more than one jurisdiction may use the same name in each jurisdiction, but identification of the lawyers in an office of the firm shall indicate the jurisdictional limitations on those not licensed to practice in the jurisdiction where the office is located.

 (c) The name of a lawyer occupying a judicial, legislative, or public executive or administrative position shall not be used in the name of a firm, or in communications on its behalf, during any substantial period in which the lawyer is not actively and regularly practicing with the firm.

 (d) A lawyer shall not hold himself or herself out as being a partner, shareholder, or associate with one or more other lawyers unless they are in fact partners, shareholders, or associates.

 (e) A lawyer shall not advertise in the public media or seek professional employment by written communication under a trade or fictitious name, except that a lawyer who practices under a trade name as authorized by paragraph (a) of this Rule may use that name in such advertisement or such written communication but only if that name is the firm name that appears on the lawyer's letterhead, business cards, office sign, fee contracts, and with the lawyer's signature on pleadings and other legal documents.

 (f) A lawyer shall not use a firm name, letterhead, or other professional designation that violates Rule 7.02(a).

Rule 7.02. Communications Concerning a Lawyer's Services

 (a) A lawyer shall not make a false or misleading communication about the qualifications or the services of any lawyer or firm.  A communication is false or misleading if it:

  (1) contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially  misleading;

  (2) is likely to create an unjustified expectation about results the lawyer can achieve, or states or implies that the lawyer can achieve results by means that violate these rules or other law;

  (3) compares the lawyer's services with other lawyers' services, unless the comparison can be substantiated by reference to verifiable, objective data;

  (4) states or implies that the lawyer is able to influence improperly or upon irrelevant grounds any tribunal, legislative body, or public official;  or

  (5) designates one or more specific areas of practice in an advertisement in the public media or in a written solicitation unless the advertising lawyer is competent to handle legal matters in each such area of practice.

 (b) Rule 7.02(a)(5) does not require that a lawyer be certified by the Texas Board of Legal Specialization at the time of advertising in a specific area of practice, but such certification shall conclusively establish that such lawyer satisfies the requirements of Rule 7.02(a)(5) with respect to the area(s) of practice in which such lawyer is certified.

 (c) A lawyer shall not advertise in the public media that the lawyer is a specialist except as permitted under Rule 7.04.

 (d) Any statement or disclaimer required by these rules shall be made in each language used in the advertisement or writing with respect to which such required statement or disclaimer relates;  provided however, the mere statement that a particular language is spoken or understood shall not alone result in the need for a statement or disclaimer in that language.

Rule 7.03. Prohibited Solicitations and Payments

 (a) A lawyer shall not by inperson or telephone contact seek professional employment concerning a matter arising out of a particular occurrence or event, or series of occurrences or events, from a prospective client or nonclient who has not sought the lawyer's advice regarding employment or with whom the lawyer has no family or past or present attorneyclient relationship when a significant motive for the lawyer's doing so is the lawyer's pecuniary gain.  Notwithstanding the provisions of this paragraph, a lawyer for a qualified nonprofit organization may communicate with the organization's members for the purpose of educating the members to understand the law, to recognize legal problems, to make intelligent selection of counsel, or to use legal services. In those situations where inperson or telephone contact is permitted by this paragraph, a lawyer shall not have such a contact with a prospective client if:

  (1) the communication involves coercion, duress, fraud, overreaching, intimidation, undue influence, or harassment:

  (2) the communication contains information prohibited by Rule 7.02(a);  or

  (3) the communication contains a false, fraudulent, misleading, deceptive, or unfair statement or claim.

 (b) A lawyer shall not pay, give, or offer to pay or give anything of value to a person not licensed to practice law for soliciting prospective clients for, or referring clients or prospective clients to, any lawyer or firm, except that a lawyer may pay reasonable fees for advertising and public relations services rendered in accordance with this Rule and may pay the usual charges of a lawyer referral service that meets the requirements of Article 320d, Revised Statutes.

 (c) A lawyer, in order to solicit professional employment, shall not pay, give, advance, or offer to pay, give, or advance anything of value, other than actual litigation expenses and other financial assistance as permitted by Rule 1.08(d), to a prospective client or any other person;  provided however, this provision does not prohibit the payment of legitimate referral fees as permitted by paragraph (b) of this Rule.

 (d) A lawyer shall not enter into an agreement for, charge for, or collect a fee for professional employment obtained in violation of Rule 7.03(a), (b), or (c).

 (e) A lawyer shall not participate with or accept referrals from a lawyer referral service unless the lawyer knows or reasonably believes that the lawyer referral service meets the requirements of Article 320d, Revised Statutes.

Rule 7.04. Advertisements in the Public Media

 (a) A lawyer shall not advertise in the public media that the lawyer is a specialist, except as permitted under Rule 7.04(b) or as follows:

  (1) A lawyer admitted to practice before the United States Patent Office may use the designation "Patents," "Patent Attorney," or "Patent Lawyer," or any combination of those terms.  A lawyer engaged in the trademark practice may  use the designation "Trademark," "Trademark Attorney," or "Trademark Lawyer," or any combination of those terms.  A lawyer engaged in patent and trademark practice may hold himself or herself out as specializing in "Intellectual Property Law," "Patent, Trademark, Copyright Law and Unfair Competition," or any of those terms.

  (2) A lawyer may permit his or her name to be listed in lawyer referral service offices that meet the requirements of Article 320d, Revised Statutes, according to the areas of law in which the lawyer will accept referrals.

  (3) A lawyer available to practice in a particular area of law or legal service may distribute to other lawyers and publish in legal directories and legal newspapers a listing or an announcement of such availability.  The listing shall not contain a false or misleading representation of special competence or experience, but may contain the kind or information that traditionally has been included in such publications.

 (b) A lawyer who advertises in the public media:

  (1) shall publish or broadcast the name of at least one lawyer who is responsible for the content of such advertisement.

  (2) shall not include a statement that the lawyer has been certified or designated by an organization as possessing special competence or a statement that the lawyer is a member of an organization the name of which implies that  its members possess special competence, except that:

   (i) a lawyer who has been awarded a Certificate of Special Competence by the Texas Board of Legal Specialization in the area so advertised, may state with respect to each such area, "Board Certified, [area of specialization]Texas Board of Legal Specialization;"  and

   (ii) a lawyer who is a member of an organization the name of which implies that its members possess special competence, or who has been certified or designated by an organization as possessing special competence, may include a factually accurate statement of such membership or may include a factually accurate statement, "Certified [area of specialization] [name of certifying organization]," but such statements may be made only if that organization has been accredited by the Texas Board of Legal Specialization as a bona fide organization that admits to membership or grants certification only on the basis of objective, exacting, publicly available standards (including high standards of individual character, conduct, and reputation) that are reasonably relevant to the special training or special competence that is implied ant that are in excess of the level of training and competence generally required for admission to the Bar;  and

  (3) shall state with respect to each area advertised in which the lawyer has not been awarded a Certificate of Special Competence by the Texas Board of  Legal Specialization, "Not Certified by the Texas Board of Legal Specialization," however, if an area of law so advertised has not been designated as an area in which a lawyer may be awarded a Certificate of Special Competence by the Texas Board of Legal Specialization, the lawyer may also state, "No designation has been made by the Texas Board of Legal Specialization for a Certificate of Special Competence in this area."

 (c) Separate and apart from any other statements, the statements referred to in paragraph (b) shall be displayed conspicuously with no abbreviations, changes, or additions in the quoted language set forth in paragraph (b) so as to be easily seen or understood by an ordinary consumer.

 (d) Subject to the requirements of Rule 7.02 and of paragraphs (a), (b), and  (c) of this Rule, a lawyer may, either directly or through a public relations or advertising representative, advertise services in the public media, such as (but not limited to) a telephone directory, legal directory, newspaper or other periodical, outdoor display, radio, or television.

 (e) All advertisements in the public media for a lawyer or firm must be reviewed and approved in writing by the lawyer or a lawyer in the firm.

 (f) A copy or recording of each advertisement in the public media and relevant approval referred to in paragraph (e), and a record of when and where the advertisement was used, shall be kept by the lawyer or firm for four years after its last dissemination.

 (g) In advertisements utilizing video or comparable visual images, any person who portrays a lawyer whose services or whose firm's services are being advertised, or who narrates an advertisement as if he or she were such a lawyer, shall be one or more of the lawyers whose services are being advertised.  In advertisements utilizing audio recordings, any person who narrates an advertisement as if he or she were a lawyer whose services or whose firm's services are being advertised, shall be one or more of the lawyers whose services are being advertised.

 (h) If an advertisement in the public media by a lawyer or firm discloses the willingness or potential willingness of the lawyer or firm to render services on a contingent fee basis, the advertisement must state whether the client will be obligated to pay all or any portion of the court costs and, if a client may be liable for other expenses, this fact must be disclosed.  If specific percentage fees or fee ranges of contingent fee work are disclosed in such advertisement, it must also disclose whether the percentage is computed before or after expenses are deducted from the recovery.

 (i) A lawyer who advertises in the public media a specific fee or range of fees for a particular service shall conform to the advertised fee or range of fees for the period during which the advertisement is reasonably expected to be in circulation or otherwise expected to be effective in attracting clients, unless the advertisement specifies a shorter period;  but in no instance is the lawyer bound to conform to the advertised fee or range of fees for a period of more than one year after the date of publication.

 (j) A lawyer or firm who advertises in the public media must disclose the geographic location, by city or town, of the lawyer's or firm's principal office.  A lawyer or firm shall not advertise the existence of any office other than the principal office unless:

  (1) that other office is staffed by a lawyer at least three (3) days a week;  or

  (2) the advertisement discloses the days and times during which a lawyer will be present at that other office.

 (k) A lawyer may not, directly or indirectly, pay all or a part of the cost of an advertisement in the public media for a lawyer not in the same firm unless such advertisement discloses the name and address of the financing lawyer, the relationship between the advertising lawyer and the financing lawyer, and whether the advertising lawyer is likely to refer cases received through the advertisement to the financing lawyer.

 (l) If an advertising lawyer knows or should know at the time of an advertisement in the public media that a case or matter will likely be referred to another lawyer or firm, a statement of such fact shall be conspicuously included in such advertisement.

 (m) No motto, slogan, or jingle that is false or misleading may be used in any advertisement in the public media.

 (n) A lawyer shall not include in any advertisement in the public media the lawyer's association with a lawyer referral service unless the lawyer knows or reasonably believes that the lawyer referral service meets the requirements of Article 320d, Revised Statutes.

 (o) A lawyer may not advertise in the public media as part of an advertising cooperative or venture of two or more lawyers not in the same firm unless each such advertisement:

  (1) states that the advertisement is paid for by the cooperating lawyers;

  (2) names each of the cooperating lawyers;

  (3) sets forth conspicuously the special competency requirements required by Rule 7.04(b) of lawyers who advertise in the public media;

  (4) does not state or imply that the lawyers participating in the advertising cooperative or venture possess professional superiority, are able to perform services in a superior manner, or possess special competence in any area of law advertised, except that the advertisement may contain the information permitted by Rule 7.04(b)(2);  and

  (5) does not otherwise violate the Texas Disciplinary Rules of Professional Conduct.

 (p) Each lawyer who advertises in the public media as part of an advertising cooperative or venture shall be individually responsible for:

  (1) ensuring that each advertisement does not violate this Rule;  and

  (2) complying with the filing requirements of Rule 7.07.

Rule 7.05. Prohibited Written Solicitations

 (a) A lawyer shall not send or deliver, or knowingly permit or cause another person to send or deliver on the lawyer's behalf, a written communication to a prospective client for the purpose of obtaining professional employment if:

  (1) the communication involves coercion, duress, fraud, overreaching, intimidation, undue influence, or harassment;

  (2) the communication contains information prohibited by Rule 7.02 or fails to satisfy each of the requirements of Rule 7.04(a) through (c), and (h) through (o) that would be applicable to the communication if it were an advertisement in the public media;  or

  (3) the communication contains a false, fraudulent, misleading, deceptive, or unfair statement or claim.

 (b) Except as provided in paragraph (e) of this Rule, a written solicitation communication to prospective clients for the purpose of obtaining professional employment:

  (1) shall conform to the provisions of Rule 7.04(a) through (c);

  (2) shall be plainly marked "ADVERTISEMENT" on the first page of the written communication, and the face of the envelope also shall be plainly marked "ADVERTISEMENT," however, if the written communication is in the form of a selfmailing brochure or pamphlet, the word "ADVERTISEMENT" shall be:  (i) in a color that contrasts sharply with the background color;  and (ii) in a size of at least 3/8 " vertically or three times the vertical height of the letters used in the body of such communication, whichever is larger.

  (3) shall not be made to resemble legal pleadings or other legal documents;

  (4) shall not contain a statement or implication that the written communication has received any kind of authorization or approval from the  State Bar of Texas or from the Law Advertisement and Solicitation Review Committee;

  (5) shall not be sent in a manner, such as by registered mail, that requires personal delivery to a particular individual;

  (6) shall not reveal on the envelope used for the communication, or on the outside of a selfmailing brochure or pamphlet, the nature of the legal problem of the prospective client or nonclient;  and

  (7) shall disclose how the lawyer obtained the information prompting such written communication to solicit professional employment if such contact was prompted by a specific occurrence involving the recipient of the communication or a family member of such person(s).

 (c) All written communications to a prospective client for the purpose of obtaining professional employment must be reviewed and either signed by or approved in writing by the lawyer or a lawyer in the firm.

 (d) A copy of each written solicitation communication, the relevant approval thereof, and a record of the date of each such communication;  the name and address to which each such communication was sent;  and the means by which each such communication was sent shall be kept by the lawyer or firm for four years after its dissemination.

 (e) The provisions of paragraph (b) of this Rule do not apply to a written solicitation communication:

  (1) directed to a family member or a person with whom the lawyer had or has an attorneyclient relationship;

  (2) that is not motivated by or concerned with a particular past occurrence or event or a particular series of past occurrences or events, and also is not motivated by or concerned with the prospective client's specific existing legal problem of which the lawyer is aware;

  (3) if the lawyer's use of the communication to secure professional employment was not significantly motivated by a desire for, or by the possibility of obtaining, pecuniary gain;  or

  (4) that is requested by the prospective client.

Rule 7.06. Prohibited Employment

 A lawyer shall not accept or continue employment when the lawyer knows or reasonably should know that the person who seeks the lawyer's services does so as a result of conduct prohibited by these rules.

Rule 7.07. Filing Requirements for Public Advertisements and Written Solicitations

 (a) Except as provided in paragraph (d) of this Rule, a lawyer shall file with the Lawyer Advertisement and Solicitation Review Committee of the State Bar of Texas, either before or concurrently with the mailing or sending of a written solicitation communication:

  (1) a copy of the written solicitation communication being sent or to be sent to one or more prospective clients for the purpose of obtaining professional employment, together with a representative sample of the envelopes in which the communications are enclosed;  and

  (2) a check or money order payable to the State Bar of Texas for the fee set by the Board of Directors.  Such fee shall be for the sole purpose of defraying the expense of enforcing the rules related to such solicitations.

 (b) Except as provided in paragraph (d) of this Rule, a lawyer shall file with the Lawyer Advertisement and Solicitation Review Committee of the State Bar of Texas, either before or concurrently with the first dissemination of an advertisement in the public media, a copy of that advertisement.  The filing shall include:

  (1) a copy of the advertisement in the form in which it appears or is or will be disseminated, such as a videotape, an audiotape, a print copy, or a photograph of outdoor advertising;

  (2) a production script of the advertisement setting forth all words used and describing in detail the actions, events, scenes, and background sounds used in such advertisement together with a listing of the names and addresses of persons portrayed or heard to speak, if the advertisement is in or will be in a form in which the advertised message is not fully revealed by a print copy  or photograph;

  (3) a statement of when and where the advertisement has been, is, or will be used;  and

  (4) a check or money order payable to the State Bar of Texas for the fee set by the Board of Directors.  Such fee shall be for the sole purpose of defraying the expense of enforcing the rules related to such advertisements.

 (c) A lawyer who desires to secure an advance advisory opinion concerning compliance of a contemplated written solicitation communication or advertisement may submit to the Lawyer Advertisement and Solicitation Review Committee, not less than thirty (30) days prior to the date of first dissemination, the material specified in paragraph (a) or (b) of this Rule, including the required fee;  provided however, it shall not be necessary to submit a videotape it the videotape has not then been prepared and the production script submitted reflects in detail and accurately the actions, events, scenes, and background sounds that will be depicted or contained on such videotapes, when prepared, as well as the narrative transcript of the verbal and printed portions of such advertisement.  An advisory opinion of the Lawyer Advertisement and Solicitation Review Committee of noncompliance is not binding in a disciplinary proceeding or disciplinary action but a finding of compliance is binding in favor of the submitting lawyer if the representations, statements, materials, facts and written assurances received in connection therewith are true and are not misleading.  The finding constitutes admissible evidence if offered by a party.

 (d) The filing requirements of paragraphs (a) and (b) do not extend to any of the following materials:

  (1) an advertisement in the public media that contains only part or all of the following information, provided the information is not false or misleading:

   (i) the name of a lawyer or firm and lawyers associated with the firm, with office addresses, telephone numbers, office and telephone service hours, telecopier numbers, and a designation of the profession such as "attorney," "lawyer," "law office," or "firm";

   (ii) the fields of law in which the lawyer or firm advertises specialization and the statements required by Rule 7.04(a) through (c);

   (iii) the date of admission of the lawyer or lawyers to the State Bar of Texas, to particular federal courts, and to the bars of other jurisdictions;

   (iv) technical and professional licenses granted by this state and other recognized licensing authorities;

   (v) foreign language ability;

   (vi) fields of law in which one or more lawyers are certified or designated,   provided the statement of this information is in compliance with Rule 7.02(a) through (c);

   (vii) identification of prepaid or group legal service plans in which the lawyer participates;

   (viii) the acceptance or nonacceptance of credit cards;

   (ix) any fee for initial consultation and fee schedule;

   (x) that the lawyer or firm is a sponsor of a charitable, civic, or community program or event, or is a sponsor of a public service announcement;

   (xi) any disclosure or statement required by these rules;  and

   (xii) any other information specified from time to time in orders promulgated by the Supreme Court of Texas:

  (2) an advertisement in the public media that:

   (i) identifies one or more lawyers or a firm as a contributor to a specified charity or as a sponsor of a specified charitable, community, or public interest program, activity, or event;  and

   (ii) contains no information about the lawyers or firm other than name of the lawyers or firm or both, location of the law offices, and the fact of the sponsorship or contribution;

  (3) a listing or entry in a regularly published law list;

  (4) an announcement card stating new or changed associations, new offices, or  similar changes relating to a lawyer or firm, or a tombstone professional card;

  (5) a newsletter mailed only to:

   (i) existing or former clients;

   (ii) other lawyers or professionals;  and

   (iii) members of a nonprofit organization that meets the following conditions:  the primary purposes of the organization do not include the rendition of legal services;  the recommending, furnishing, paying for, or educating persons regarding legal services is incidental and reasonably related to the primary purposes of the organization;  the organization does not derive a financial benefit from the rendition of legal services by a lawyer;  and the person for whom the legal services are rendered, and not the organization, is recognized as the client of the lawyer who is recommended, furnished, or paid by the organization;

  (6) a written solicitation communication that is not motivated by or concerned with a particular past occurrence or event or a particular series of past occurrences or events, and also is not motivated by or concerned with the prospective client's specific existing legal problem of which the lawyer is award;

  (7) a written solicitation communication if the lawyer's use of the  communication to secure professional employment was not significantly motivated by a desire for, or by the possibility of obtaining, pecuniary gain;  or

  (8) a written solicitation communication that is requested by the prospective client.

 (e) If requested by the Lawyer Advertisement and Solicitation Review Committee, a lawyer shall promptly submit information to substantiate statements or representations made or implied in any advertisement in the public media and/or written solicitation.

Rule 8.01. Bar Admission, Reinstatement, and Disciplinary Matters

 An applicant for admission to the bar, a petitioner for reinstatement to the bar, or a lawyer in connection with a bar admission application, a petition for reinstatement, or a disciplinary matter, shall not:

 (a) knowingly make a false statement of material fact;  or

 (b) fail to correct a misapprehension known by the person to have arisen in the matter, or knowingly fail to respond to a lawful demand for information from an admission, reinstatement, or disciplinary authority, except that this rule does not require disclosure of information otherwise protected by Rule 1.05.

Rule 8.02. Judicial and Legal Officials

 (a) A lawyer shall not make a statement that the lawyer knows to be false or with reckless disregard as to its truth or falsity concerning the qualifications or integrity of a judge, adjudicatory official or public legal officer, or of a candidate for election or appointment to judicial or legal office.

 (b) A lawyer who is a candidate for judicial office shall comply with the applicable provisions of the Texas Code of Judicial Conduct.

 (c) A lawyer who is a candidate for an elective public office shall comply with the applicable provisions of the Texas Election Code.

Rule 8.03. Reporting Professional Misconduct

 (a) Except as permitted in paragraphs (c) or (d), a lawyer having knowledge that another lawyer has committed a violation of applicable rules of professional conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate disciplinary authority.

 (b) Except as permitted in paragraphs (c) or (d), a lawyer having knowledge that a judge has committed a violation of applicable rules of judicial conduct that raises a substantial question as to the judge's fitness for office shall inform the appropriate authority.

 (c) A lawyer having knowledge or suspecting that another lawyer or judge whose conduct the lawyer is required to report pursuant to paragraphs (a) or (b) of this Rule is impaired by chemical dependency on alcohol or drugs or by mental illness may report that person to an approved peer assistance program rather than to an appropriate disciplinary authority.  If a lawyer elects that option, the lawyer's report to the approved peer assistance program shall disclose any disciplinary violations that the reporting lawyer would otherwise have to disclose to the authorities referred to in paragraphs (a) and (b).

 (d) This rule does not require disclosure of knowledge or information otherwise protected as confidential information:

  (1) by Rule 1.05 or

  (2) by any statutory or regulatory provisions applicable to the counseling activities of the approved peer assistance program.

Rule 8.04. Misconduct

 (a) A lawyer shall not:

  (1) violate these rules, knowingly assist or induce another to do so, or do so through the acts of another, whether or not such violation occurred in the course of a clientlawyer relationship;

  (2) commit a serious crime or commit any other criminal act that reflects  adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects;

  (3) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

  (4) engage in conduct constituting obstruction of justice;

  (5) state or imply an ability to influence improperly a government agency or official;

  (6) knowingly assist a judge or judicial officer in conduct that is a violation of applicable rules of judicial conduct or other law;

  (7) violate any disciplinary or disability order or judgment;

  (8) fail to timely furnish to the Chief Disciplinary Counsel's office or a district grievance committee a response or other information as required by the Texas Rules of Disciplinary Procedure, unless he or she in good faith timely asserts a privilege or other legal ground for failure to do so;

  (9) engage in conduct that constitutes barratry as defined by the law of this state;

  (10) fail to comply with section 13.01 of the Texas Rules of Disciplinary Procedure relating to notification of an attorney's cessation of practice;

  (11) engage in the practice of law when the lawyer is on inactive status or when the lawyer's right to practice has been suspended or terminated including  but not limited to situations where a lawyer's right to practice has been administratively suspended for failure to timely pay required fees or assessments or for failure to comply with Article XII of the State Bar Rules relating to Mandatory Continuing Legal Education;  or

  (12) violate any other laws of this state relating to the professional conduct of lawyers and to the practice of law.

 (b) As used in subsection (a)(2) of this Rule, "serious crime" means barratry;  any felony involving moral turpitude;  any misdemeanor involving theft, embezzlement, or fraudulent or reckless misappropriation of money or other property;  or any attempt, conspiracy, or solicitation of another to commit any of the foregoing crimes.

Rule 8.05. Jurisdiction

 (a) A lawyer is subject to the disciplinary authority of this state, if admitted to practice in this state or if specially admitted by a court of this state for a particular proceeding.  In addition to being answerable for his or her conduct occurring in this state, any such lawyer also may be disciplined here for conduct occurring in another jurisdiction or resulting in lawyer discipline in another jurisdiction, if it is professional misconduct under Rule 8.04.

 (b) A lawyer admitted to practice in this state is also subject to the disciplinary authority for:

  (1) an advertisement in the public media that does not comply with these rules and that is broadcast or disseminated in another jurisdiction, even if the advertisement complies with the rules governing lawyer advertisements in that jurisdiction, if the broadcast or dissemination of the advertisement is intended to be received by prospective clients in this state and is intended to secure employment to be performed in this state;  and

  (2) a written solicitation communication that does not comply with these rules and that is mailed in another jurisdiction, even if the communication complies with the rules governing written solicitation communications by lawyers in that jurisdiction, if the communication is mailed to an addressee in this state or is intended to secure employment to be performed in this state.

Rule 9.01. Severability

 If any provision of these rules or any application of these rules to any person or circumstances if held invalid, such invalidity shall not affect any other provision or application of these rules that can be given effect without the invalid provision or application and, to this end, the provisions of these rules are severable.


General Provisions

CHAPTER 1. GENERAL PROVISIONS

  1.101. Short Title

 This title may be cited as Uniform Commercial Code.

  1.102. Purposes;  Rules of Construction;  Variation by Agreement

 (a) This title shall be liberally construed and applied to promote its underlying purposes and policies.

 (b) Underlying purposes and policies of this title 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;

  (3) to make uniform the law among the various jurisdictions.

 (c) The effect of provisions of this title may be varied by agreement, except as otherwise provided in this title and except that the obligations of good faith, diligence, reasonableness and care prescribed by this title may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable.

 (d) The presence in certain provisions of this title of the words "unless otherwise agreed" or words of similar import does not imply that the effect of other provisions may not be varied by agreement under Subsection (c).

 (e) In this title unless the context otherwise requires

  (1) words in the singular number include the plural, and in the plural include the singular;

  (2) words of the masculine gender include the feminine and the neuter, and when the sense so indicates words of the neuter gender may refer to any gender.

  1.103. Supplementary General Principles of Law Applicable

 Unless displaced by the particular provisions of this title, 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, or other validating or invalidating cause shall supplement its provisions.

  1.104. Construction Against Implicit Repeal

 This title being a general body of law 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.

  1.105. Territorial Application of the Title;  Parties' Power to Choose Applicable Law

 (a) Except as provided hereafter in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties.  Failing such agreement this title applies to transactions bearing an appropriate relation to this state.

 (b) Where one of the following provisions of this title 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 2.402.

 Applicability of the chapter on Leases.  Sections 2A.105 and 2A.106.

 Applicability of the chapter on Bank Deposits and Collections.  Section 4.102.

 Governing law in the chapter on Funds Transfers.  Section 4A.507.

 Applicability of the chapter on Investment Securities.  Section 8.110.

 Perfection provisions of the chapter on Secured Transactions.  Section 9.103.

 (c) If a transaction that is subject to this title is a "qualified transaction," as defined in Section 35.51 of this code, then except as provided in Subsection (b) of this section, Section 35.51 governs the effect of an agreement by the parties that the law of a particular jurisdiction governs an issue relating to the transaction or that the law of a particular jurisdiction governs the interpretation or construction of an agreement relating to the transaction or a provision of the agreement.

  1.106. Remedies to be Liberally Administered

 (a) The remedies provided by this title shall 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 nor penal damages may be had except as specifically provided in this title or by other rule of law.

 (b) Any right or obligation declared by this title is enforceable by action unless the provision declaring it specifies a different and limited effect.

  1.107. Waiver or Renunciation of Claim or Right After Breach

 Any claim or right arising out of an alleged breach can be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party.

  1.108. Severability

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

  1.109. Section Captions

 Section captions are parts of this title.

  1.201. General Definitions

 Subject to additional definitions contained in the subsequent chapters of this title which are applicable to specific chapters or subchapters thereof, and unless the context otherwise requires, in this title:

  (1) "Action" in the sense of a judicial proceeding includes recoupment, counterclaim, setoff, suit in equity and any other proceedings in which rights are determined.

  (2) "Aggrieved party" means a party entitled to resort to a remedy.

  (3) "Agreement" means the bargain of the parties 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 title  (Sections 1.205 and 2.208).  Whether an agreement has legal consequences is determined by the provisions of this title, if applicable;  otherwise by the law of contracts (Section 1.103).  (Compare "Contract".)

  (4) "Bank" means any person engaged in the business of banking and solely for the purposes of Sections 3 and 4 of this Act includes any depository institution as defined by federal law.

  (5) "Bearer" means the person in possession of an instrument, document of title, or certificated security payable to bearer or indorsed in blank.

  (6) "Bill of lading" means a document evidencing the receipt of goods for shipment issued by a person engaged in the business of transporting or forwarding goods, and includes an airbill.  "Airbill" means a document serving for air transportation as a bill of lading does for marine or rail transportation, and includes an air consignment note or air waybill.

  (7) "Branch" includes a separately incorporated foreign branch of a bank.

  (8) "Burden of establishing" a fact means the burden of persuading the triers of fact that the existence of the fact is more probable than its non existence.

  (9) "Buyer in ordinary course of business" means a person who in good faith and without knowledge that the sale to him is in violation of the ownership  rights or security 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.  All persons who sell minerals or the like (including oil and gas) at wellhead or minehead shall be deemed to be persons in the business of selling goods of that kind.  "Buying" may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods or documents of title under a preexisting 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.

  (10) "Conspicuous":  A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it.  A printed heading in capitals (as:  NonNegotiable Bill of Lading) is conspicuous.  Language in the body of a form is "conspicuous" if it is in larger or other contrasting type or color.  But in a telegram any stated term is "conspicuous".  Whether a term or clause is "conspicuous" or not is for decision by the court.

  (11) "Contract" means the total legal obligation which results from the parties' agreement as affected by this title and any other applicable rules of law.  (Compare "Agreement".)

  (12) "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.

  (13) "Defendant" includes a person in the position of defendant in a cross action or counterclaim.

  (14) "Delivery" with respect to instruments, documents of title, chattel paper, or certificated securities means voluntary transfer of possession.

  (15) "Document of title" includes bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers.  To be a document of title a document must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee's possession which are either identified or are fungible portions of an identified mass.

  (16) "Fault" means wrongful act, omission or breach.

  (17) "Fungible" with respect to goods or securities means goods or securities of which any unit is, by nature or usage of trade, the equivalent of any other like unit.  Goods which are not fungible shall be deemed fungible for the purposes of this title to the extent that under a particular agreement or  document unlike units are treated as equivalents.

  (18) "Genuine" means free of forgery or counterfeiting.

  (19) "Good faith" means honesty in fact in the conduct or transaction concerned.

  (20) "Holder" with respect to a negotiable instrument means the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession. "Holder" with respect to a document of title means the person in possession if the goods are deliverable to bearer or to the order of the person in possession.

  (21) To "honor" is to pay or to accept and pay, or where a credit so engages to purchase or discount a draft complying with the terms of the credit.

  (22) "Insolvency proceedings" includes any assignment for the benefit of creditors or other proceedings intended to liquidate or rehabilitate the estate of the person involved.

  (23) A person is "insolvent" who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due or is insolvent within the meaning of the federal bankruptcy law.

  (24) "Money" means a medium of exchange authorized or adopted by a domestic or foreign government and includes a monetary unit of account established by  an intergovernmental organization or by agreement between two or more nations.

  (25) A person has "notice" of a fact when

   (A) he has actual knowledge of it;  or

   (B) he has received a notice or notification of it;  or

   (C) from all the facts and circumstances known to him at the time in question he has reason to know that it exists.

 A person "knows" or has "knowledge" of a fact when he has actual knowledge of it.  "Discover" or "learn" or a word or phrase of similar import refers to knowledge rather than to reason to know.  The time and circumstances under which a notice or notification may cease to be effective are not determined by this title.

  (26) A person "notifies" or "gives" a notice or notification to another by taking such steps as may be reasonably required to inform the other in ordinary course whether or not such other actually comes to know of it.  A person "receives" a notice or notification when

   (A) it comes to his attention;  or

   (B) it is duly delivered at the place of business through which the contract was made or at any other place held out by him as the place for receipt of such communications.

  (27) Notice, knowledge or a notice or notification received by an organization is effective for a particular transaction from the time when it is brought to the attention of the individual conducting that transaction, and in any event from the time when it would have been brought to his 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 such communication is part of his regular duties or unless he has reason to know of the transaction and that the transaction would be materially affected by the information.

  (28) "Organization" includes a corporation, government or governmental subdivision or agency, business trust, estate, trust, partnership or association, two or more persons having a joint or common interest, or any other legal or commercial entity.

  (29) "Party", as distinct from "third party", means a person who has engaged in a transaction or made an agreement within this title.

  (30) "Person" includes an individual or an organization (See Section 1.102).

  (31) "Presumption" or "presumed" means that the trier of fact must find the  existence of the fact presumed unless and until evidence is introduced which would support a finding of its nonexistence.

  (32) "Purchase" includes taking by sale, discount, negotiation, mortgage, pledge, lien, issue or reissue, gift or any other voluntary transaction creating an interest in property.

  (33) "Purchaser" means a person who takes by purchase.

  (34) "Remedy" means any remedial right to which an aggrieved party is entitled with or without resort to a tribunal.

  (35) "Representative" includes an agent, an officer of a corporation or association, and a trustee, executor or administrator of an estate, or any other person empowered to act for another.

  (36) "Rights" includes remedies.

  (37)(A) "Security interest" means an interest in personal property or fixtures which secures payment or performance of an obligation. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer (Section 2.401) is limited in effect to a reservation of a "security interest." The term also includes any interest of a buyer of accounts or chattel paper which is subject to Chapter 9.  The special property interest of a buyer of goods on identification of such goods to a contract for sale under Section 2.401 is not a "security interest", but a buyer may also  acquire a "security interest" by complying with Chapter 9.  Unless a consignment is intended as security, reservation of title thereunder is not a "security interest" but a consignment in any event is subject to the provisions on consignment sales (Section 2.326).

   (B) Whether a transaction creates a lease or security interest is determined by the facts of each case;  however, a transaction creates a security interest if the consideration 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 not subject to termination by the lessee, and:

    (i) the original term of the lease is equal to or greater than the remaining economic life of the goods;

    (ii) 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;

    (iii) the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement;  or

    (iv) the lessee has an option to become the owner of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement.

   (C) A transaction does not create a security interest merely because it   provides that:

    (i) 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;

    (ii) the lessee assumes risk of loss of the goods or agrees to pay taxes, insurance, filing, recording, or registration fees or service or maintenance costs with respect to the goods;

    (iii) the lessee has an option to renew the lease or to become the owner of the goods;

    (iv) 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

    (v) 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.

   (D) For the purposes of this subdivision, 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:

    (i) 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

    (ii) 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.

   (E) For the purposes of this subdivision, "reasonably predictable" and  "remaining economic life of the goods" are to be determined with reference to the facts and circumstances at the time the transaction is entered into.

   (F) For the purposes of this subdivision, "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 is not manifestly unreasonable at the time the transaction is 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.

  (38) "Send" in connection with any writing or notice means 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.  The receipt of any writing or notice within the time at which it would have arrived if properly sent has the effect of a proper sending.

  (39) "Signed" includes any symbol executed or adopted by a party with present intention to authenticate a writing.

  (40) "Surety" includes guarantor.

  (41) "Telegram" includes a message transmitted by radio, teletype, cable, any mechanical method of transmission, or the like.

  (42) "Term" means that portion of an agreement which relates to a particular matter.

  (43) "Unauthorized" signature means one made without actual, implied, or apparent authority and includes a forgery.

  (44) "Value".  Except as otherwise provided with respect to negotiable instruments and bank collections (Sections 3.303, 4.210, and 4.211 ) a person gives "value" for rights if he acquires them:

   (A) 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 chargeback is provided for in the event of difficulties in collection;

   (B) as security for or in total or partial satisfaction of a preexisting   claim;

   (C) by accepting delivery pursuant to a preexisting contract for purchase;  or

   (D) generally, in return for any consideration sufficient to support a simple contract.

  (45) "Warehouse receipt" means a receipt issued by a person engaged in the business of storing goods for hire.

  (46) "Written" or "writing" includes printing, typewriting or any other intentional reduction to tangible form.

  1.202. 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 shall be prima facie evidence of its own authenticity and genuineness and of the facts stated in the document by the third party.

  1.203. Obligation of Good Faith

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

  1.204. Time;  Reasonable Time;  "Seasonably"

 (a) Whenever this title requires any action to be taken within a reasonable time, any time which is not manifestly unreasonable may be fixed by agreement.

 (b) What is a reasonable time for taking any action depends on the nature, purpose and circumstances of such action.

 (c) An action is taken "seasonably" when it is taken at or within the time agreed or if no time is agreed at or within a reasonable time.

  1.205. Course of Dealing and Usage of Trade

 (a) A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

 (b) 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 are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court.

 (c) A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement.

 (d) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other;  but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.

 (e) An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting the agreement as to that part of the performance.

 (f) Evidence of a relevant usage of trade 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 to the latter.

  1.206. Statute of Frauds for Kinds of Personal Property Not Otherwise Covered

 (a) Except in the cases described in Subsection (b) of this section a contract for the sale of personal property is not enforceable by way of action or defense beyond $5,000 in amount or value of remedy unless there is some writing which indicates that a contract for sale has been made between the parties at a defined or stated price, reasonably identifies the subject matter, and is signed by the party against whom enforcement is sought or by his authorized agent.

 (b) Subsection (a) of this section does not apply to contracts for the sale of goods (Section 2.201) nor of securities (Section 8.113 ) nor to security agreements (Section 9.203).

  1.207. Performance or Acceptance Under Reservation of Rights

 (a) A party who, 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.

 (b) Subsection (a) does not apply to an accord and satisfaction.

  1.208. Option to Accelerate at Will

 A term providing that one party or his successor in interest may accelerate payment or performance or require collateral or additional collateral "at will" or "when he deems himself insecure" or in words of similar import shall be construed to mean that he shall have power to do so only if he 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 whom the power has been exercised.


Sales

CHAPTER 2. SALES

  2.101. Short Title

 This chapter may be cited as Uniform Commercial CodeSales.

  2.102. Scope;  Certain Security and Other Transactions Excluded From This 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.

  2.103. Definitions and Index of Definitions

 (a) In this chapter unless the context otherwise requires

  (1) "Buyer" means a person who buys or contracts to buy goods.

  (2) "Good faith" in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.

  (3) "Receipt" of goods means taking physical possession of them.

  (4) "Seller" means a person who sells or contracts to sell goods.

 (b) Other definitions applying to this chapter or to specified subchapters thereof, and the sections in which they appear are:

  "Acceptance".  Section 2.606.

  "Banker's credit".  Section 2.325.

  "Between merchants".  Section 2.104.

  "Cancellation".  Section 2.106(d).

  "Commercial unit".  Section 2.105.

  "Confirmed credit".  Section 2.325.

  "Conforming to contract".  Section 2.106.

  "Contract for sale".  Section 2.106.

  "Cover".  Section 2.712.

  "Entrusting".  Section 2.403.

  "Financing agency".  Section 2.104.

  "Future goods".  Section 2.105.

  "Goods".  Section 2.105.

  "Identification".  Section 2.501.

  "Installment contract".  Section 2.612.

  "Letter of credit".  Section 2.325.

  "Lot".  Section 2.105.

  "Merchant".  Section 2.104.

  "Overseas".  Section 2.323.

  "Person in position of seller".  Section 2.707.

  "Present sale".  Section 2.106.

  "Sale".  Section 2.106.

  "Sale on approval".  Section 2.326.

  "Sale or return".  Section 2.326.

  "Termination".  Section 2.106.

 (c) The following definitions in other chapters apply to this chapter:

  "Check".  Section 3.104.

  "Consignee".  Section 7.102.

  "Consignor".  Section 7.102.

  "Consumer goods".  Section 9.109.

  "Dishonor".  Section 3.507.

  "Draft".  Section 3.104.

 (d) In addition Chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.

  2.104. Definitions:  "Merchant";  "Between Merchants";  "Financing Agency"

 (a) "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.

 (b) "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 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 (Section 2.707).

 (c) "Between merchants" means in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.

  2.105. Definitions:  Transferability;  "Goods";  "Future" Goods;  "Lot";   "Commercial Unit"

 (a) "Goods" means all things (including specially manufactured goods) which are movable 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) 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 (Section 2.107).

 (b) 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.

 (c) There may be a sale of a part interest in existing identified goods.

 (d) 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.

 (e) "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.

 (f) "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.

  2.106. Definitions:  "Contract";  "Agreement";  "Contract for Sale";   "Sale";  "Present Sale";  "Conforming" to Contract;  "Termination"; "Cancellation"

 (a) 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 (Section 2.401).  A "present sale" means a sale which is accomplished by the making of the contract.

 (b) 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.

 (c) "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.

 (d) "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.

  2.107. Goods to be Severed From Realty:  Recording

 (a) 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.

 (b) 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 (a) 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.

 (c) 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.

  2.201. Formal Requirements;  Statute of Frauds

 (a) Except as otherwise provided in this section a contract for the sale of goods for the price of $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.

 (b) 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 (a) against such party unless written notice of objection to its contents is given within ten days after it is received.

 (c) A contract which does not satisfy the requirements of Subsection (a) 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 (Section 2.606).

  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 dealing or usage of trade (Section 1.205) or by course of performance (Section 2.208);  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.

  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.

  2.204. Formation in General

 (a) 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.

 (b) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.

 (c) Even though one 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.

  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 months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

  2.206. Offer and Acceptance in Formation of Contract

 (a) 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 nonconforming goods, but such a shipment of nonconforming 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.

 (b) 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.

  2.207. Additional Terms in Acceptance or Confirmation

 (a) 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.

 (b) 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.

 (c) 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 title.

  2.208. Course of Performance or Practical Construction

 (a) Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.

 (b) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other;  but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (Section 1.205).

 (c) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance.

  2.209. Modification, Rescission and Waiver

 (a) An agreement modifying a contract within this chapter needs no consideration to be binding.

 (b) 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.

 (c) The requirements of the statute of frauds section of this chapter (Section 2.201) must be satisfied if the contract as modified is within its provisions.

 (d) Although an attempt at modification or rescission does not satisfy the requirements of Subsection (b) or (c) it can operate as a waiver.

 (e) 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.

  2.210. Delegation of Performance;  Assignment of Rights

 (a) 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.

 (b) 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.

 (c) 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.

 (d) 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.

 (e) 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 (Section 2.609).

  2.301. General Obligations 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.

  2.302. Unconscionable Contract or Clause

 (a) 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.

 (b) 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.

  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.

  2.304. Price Payable in Money, Goods, Realty, or Otherwise

 (a) 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.

 (b) 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.

  2.305. Open Price Term

 (a) 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.

 (b) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.

 (c) 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.

 (d) 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.

  2.306. Output, Requirements and Exclusive Dealings

 (a) 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.

 (b) 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.

  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.

  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.

  2.309. Absence of Specific Time Provisions;  Notice of Termination

 (a) 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.

 (b) 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.

 (c) Termination of a contract by one 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.

  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 (Section 2.513);  and

  (3) if delivery is authorized and made by way of documents of title otherwise  than by Subdivision (2) then payment is due at the time and place at which the buyer is to receive the documents regardless of where the goods are to be received;  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 postdating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.

  2.311. Options and Cooperation Respecting Performance

 (a) An agreement for sale which is otherwise sufficiently definite  (Subsection (c) of Section 2.204) 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.

 (b) Unless otherwise agreed specifications relating to assortment of the goods are at the buyer's option and except as otherwise provided in Subsections (a)(3) and (c) of Section 2.319 specifications or arrangements relating to shipment are at the seller's option.

 (c) 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.

  2.312. Warranty of Title and Against Infringement;  Buyer's Obligation Against Infringement

 (a) Subject to Subsection (b) 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.

 (b) A warranty under Subsection (a) 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.

 (c) 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.

  2.313. Express Warranties by Affirmation, Promise, Description, Sample

 (a) 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.

 (b) 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.

  2.314. Implied Warranty:  Merchantability;  Usage of Trade

 (a) Unless excluded or modified (Section 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.

 (b) 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.

 (c) Unless excluded or modified (Section 2.316) other implied warranties may arise from course of dealing or usage of trade.

  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.

  2.316. Exclusion or Modification of Warranties

 (a) 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 (Section 2.202) negation or limitation is inoperative to the extent that such construction is unreasonable.

 (b) Subject to Subsection (c), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a 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."

 (c) Notwithstanding Subsection (b)

  (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.

 (d) 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 (Sections 2.718 and 2.719).

 (e) The implied warranties of merchantability and fitness shall not be applicable to the furnishing 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 Title be considered commodities subject to sale or barter, but shall be considered as medical services.

 (f) The implied warranties of merchantability and fitness do not apply to the sale or barter of livestock or its unborn young.

  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.

  2.318. Chapter Neutral on Question of Third Party Beneficiaries of Warranties of Quality and on Need for Privity of Contract

 This chapter does not provide whether anyone other than a buyer may take advantage of an express or implied warranty of quality made to the buyer or whether the buyer or anyone entitled to take advantage of a warranty made to the buyer may sue a third party other than the immediate seller for deficiencies in the quality of the goods.  These matters are left to the courts for their determination.

  2.319. F.O.B. and F.A.S. Terms

 (a) Unless otherwise agreed the term 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 (Section 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 (Section 2.503);

  (3) when under either Subdivision (1) or (2) 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 (Section 2.323).

 (b) 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.

 (c) Unless otherwise agreed in any case falling within Subsection (a)(1) or  (3) or Subsection (b) 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 (Section 2.311).  He may also at his option move the goods in any reasonable manner preparatory to delivery or shipment.

 (d) 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.

  2.320. C.I.F. and C. & F. Terms

 (a) 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.

 (b) 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.

 (c) 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.

 (d) 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.

  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.

 (a) 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.

 (b) An agreement described in Subsection (a) 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.

 (c) 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.

  2.322. Delivery "ExShip"

 (a) Unless otherwise agreed a term for delivery of goods "exship" (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.

 (b) 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.

  2.323. Form of Bill of Lading Required in Overseas Shipment;  "Overseas"

 (a) 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.

 (b) Where in a case within Subsection (a) a 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 (Subsection (a) of Section 2.508);  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.

 (c) 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.

  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 nonarrival;  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 (Section 2.613).

  2.325. "Letter of Credit" Term;  "Confirmed Credit"

 (a) Failure of the buyer seasonably to furnish an agreed letter of credit is a breach of the contract for sale.

 (b) 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.

 (c) 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.

  2.326. Sale on Approval and Sale or Return;  Consignment Sales and Rights of Creditors

 (a) 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.

 (b) Except as provided in Subsection (c), 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.

 (c) Where goods are delivered to a person for sale and such person maintains a place of business at which he deals in goods of the kind involved, under a name other than the name of the person making delivery, then with respect to claims of creditors of the person conducting the business the goods are deemed to be on sale or return.  The provisions of this subsection are applicable even though an agreement purports to reserve title to the person making delivery until payment or resale or uses such words as "on consignment" or "on memorandum".  However, this subsection is not applicable if the person making delivery

  (1) complies with an applicable law providing for a consignor's interest or the like to be evidenced by a sign, or

  (2) establishes that the person conducting the business is generally known by his creditors to be substantially engaged in selling the goods of others, or

  (3) complies with the filing provisions of the chapter on Secured Transactions (Chapter 9), or

  (4) is delivering a work of art subject to the Artists' Consignment Act.  [FN1]

 (d) 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 (Section 2.201) and as contradicting the sale aspect of the contract within the provisions of this chapter on parol or extrinsic evidence (Section 2.202).

  2.327. Special Incidents of Sale on Approval and Sale or Return

 (a) 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.

 (b) 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.

  2.328. Sale by Auction

 (a) In a sale by auction if goods are put up in lots each lot is the subject of a separate sale.

 (b) 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.

 (c) 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.

 (d) 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.

  2.401. Passing of Title;  Reservation for Security;  Limited Application of This 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:

 (a) Title to goods cannot pass under a contract for sale prior to their identification to the contract (Section 2.501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this title.  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), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.

 (b) 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.

 (c) Unless otherwise explicitly agreed where delivery is to be made without moving the goods,

  (1) if the seller is to deliver a document of title, title passes at the time  when and the place where he delivers such documents;  or

  (2) if the goods are at the time of contracting already identified and no documents are to be delivered, title passes at the time and place of contracting.

 (d) 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".

  2.402. Rights of Seller's Creditors Against Sold Goods

 (a) Except as provided in Subsections (b) and (c), 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 (Sections 2.502 and 2.716).

 (b) 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 merchantseller for a commercially reasonable time after a sale or identification is not fraudulent.

 (c) 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);  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 preexisting 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.

  2.403. Power to Transfer;  Good Faith Purchase of Goods;  "Entrusting"

 (a) 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.

 (b) 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.

 (c) "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 have been such as to be larcenous under the criminal law.

 (d) The rights of other purchasers of goods and of lien creditors are governed by the chapters on Secured Transactions (Chapter 9) and Documents of Title (Chapter 7).

  2.501. Insurable Interest in Goods;  Manner of Identification of Goods

 (a) 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 nonconforming 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 Subdivision (3), 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 months after contracting or for the sale of crops to be harvested within twelve months or the next normal harvest season after contracting whichever is longer.

 (b) 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.

 (c) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.

  2.502. Buyer's Right to Goods on Seller's Insolvency

 (a) Subject to Subsection (b) 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 the immediately preceding section may on making and keeping good a tender of any unpaid portion of their price recover them from the seller if the seller becomes insolvent within ten days after receipt of the first installment on their price.

 (b) 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.

  2.503. Manner of Seller's Tender of Delivery

 (a) 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.

 (b) Where the case is within the next section respecting shipment tender requires that the seller comply with its provisions.

 (c) Where the seller is required to deliver at a particular destination tender requires that he comply with Subsection (a) and also in any appropriate case tender documents as described in Subsections (d) and (e) of this section.

 (d) 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 nonnegotiable document of title or of a written direction to the bailee to deliver is sufficient tender unless the buyer seasonably objects, and 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.

 (e) 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 (Subsection (b) of Section 2.323);  and

  (2) tender through customary banking channels is sufficient and dishonor of a draft accompanying the documents constitutes nonacceptance or rejection.

  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 Subdivision (3) or to make a proper contract under Subdivision (1) is a ground for rejection only if material delay or loss ensues.

  2.505. Seller's Shipment Under Reservation

 (a) 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 nonnegotiable bill of lading to himself or his nominee reserves possession of the goods as security but except in a case of conditional  delivery (Subsection (b) of Section 2.507) a nonnegotiable bill of lading naming the buyer as consignee reserves no security interest even though the seller retains possession of the bill of lading.

 (b) 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.

  2.506. Rights of Financing Agency

 (a) 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.

 (b) 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 on its face.

  2.507. Effect of Seller's Tender;  Delivery on Condition

 (a) 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.

 (b) 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.

  2.508. Cure by Seller of Improper Tender or Delivery;  Replacement

 (a) 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.

 (b) Where the buyer rejects a nonconforming 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.

  2.509. Risk of Loss in the Absence of Breach

 (a) 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 (Section 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.

 (b) 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 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 a nonnegotiable document of title or other written direction to deliver, as provided in Subsection (d)(2) of Section 2.503.

 (c) In any case not within Subsection (a) or (b), 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.

 (d) The provisions of this section are subject to contrary agreement of the parties and to the provisions of this chapter on sale on approval (Section 2.327) and on effect of breach on risk of loss (Section 2.510).

  2.510. Effect of Breach on Risk of Loss

 (a) 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.

 (b) 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.

 (c) 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.

  2.511. Tender of Payment by Buyer;  Payment by Check

 (a) Unless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery.

 (b) 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.

 (c) Subject to the provisions of this title on the effect of an instrument on an obligation (Section 3.802), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.

  2.512. Payment by Buyer Before Inspection

 (a) Where the contract requires payment before inspection nonconformity of the goods does not excuse the buyer from so making payment unless

  (1) the nonconformity appears without inspection;  or

  (2) despite tender of the required documents circumstances would justify injunction against honor under the provisions of this title (Section 5.114).

 (b) Payment pursuant to Subsection (a) does not constitute an acceptance of goods or impair the buyer's right to inspect or any of his remedies.

  2.513. Buyer's Right to Inspection of Goods

 (a) Unless otherwise agreed and subject to Subsection (c), 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.

 (b) 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.

 (c) Unless otherwise agreed and subject to the provisions of this chapter on C.I.F. contracts (Subsection (c) of Section 2.321), 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.

 (d) 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.

  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 days after presentment;  otherwise, only on payment.

  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.

  2.601. Buyer's Rights on Improper Delivery

 Subject to the provisions of this chapter on breach in installment contracts  (Section 2.612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2.718 and 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.

  2.602. Manner and Effect of Rightful Rejection

 (a) Rejection of goods must be within a reasonable time after their delivery or tender.  It is ineffective unless the buyer seasonably notifies the seller.

 (b) Subject to the provisions of the two following sections on rejected goods  (Sections 2.603 and 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 (Subsection (c) of Section 2.711), 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.

 (c) The seller's rights with respect to goods wrongfully rejected are governed by the provisions of this chapter on Seller's remedies in general (Section 2.703).

  2.603. Merchant Buyer's Duties as to Rightfully Rejected Goods

 (a) Subject to any security interest in the buyer (Subsection (c) of Section 2.711), 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.

 (b) When the buyer sells goods under Subsection (a), 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 per cent on the gross proceeds.

 (c) 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.

  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.

  2.605. Waiver of Buyer's Objections by Failure to Particularize

 (a) 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.

 (b) Payment against documents made without reservation of rights precludes recovery of the payment for defects apparent on the face of the documents.

  2.606. What Constitutes Acceptance of Goods

 (a) 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 nonconformity;  or

  (2) fails to make an effective rejection (Subsection (a) of Section 2.602), 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.

 (b) Acceptance of a part of any commercial unit is acceptance of that entire unit.

  2.607. Effect of Acceptance;  Notice of Breach;  Burden of Establishing Breach After Acceptance;  Notice of Claim or Litigation to Person Answerable Over

 (a) The buyer must pay at the contract rate for any goods accepted.

 (b) Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a nonconformity 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 nonconformity.

 (c) 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 (Subsection (c) of Section 2.312) 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.

 (d) The burden is on the buyer to establish any breach with respect to the goods accepted.

 (e) Where the buyer is sued for breach of a warranty or other obligation for which his 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 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 (Subsection (c) of Section 2.312) 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.

 (f) The provisions of Subsections (c), (d) and (e) apply to any obligation of a buyer to hold the seller harmless against infringement or the like (Subsection (c) of Section 2.312).

  2.608. Revocation of Acceptance in Whole or in Part

 (a) 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 nonconformity would be cured and it has not been seasonably cured;  or

  (2) without discovery of such nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.

 (b) 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.

 (c) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

  2.609. Right to Adequate Assurance of Performance

 (a) 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.

 (b) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.

 (c) Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.

 (d) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.

  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 (Section 2.703 or Section 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 (Section 2.704).

  2.611. Retraction of Anticipatory Repudiation

 (a) 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.

 (b) 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 (Section 2.609).

 (c) 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 repudiati

  2.612. "Installment Contract";  Breach

 (a) 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.

 (b) The buyer may reject any installment which is nonconforming if the non conformity substantially impairs the value of that installment and cannot be cured or if the nonconformity is a defect in the required documents;  but if the nonconformity does not fall within Subsection (c) and the seller gives adequate assurance of its cure the buyer must accept that installment.

 (c) Whenever nonconformity or default with respect to one 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 nonconforming 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.

  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 (Section 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.

  2.614. Substituted Performance

 (a) 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.

 (b) 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.

  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 nondelivery in whole or in part by a seller who complies with Subdivisions (2) and (3) 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 nonoccurrence 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 Subdivision (1) 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 nondelivery and, when allocation is required under Subdivision (2), of the estimated quota thus made available for the buyer.

  2.616. Procedure on Notice Claiming Excuse

 (a) 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 (Section 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.

 (b) If after receipt of such notification from the seller the buyer fails so to modify the contract within a reasonable time not exceeding thirty days the contract lapses with respect to any deliveries affected.

 (c) 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.

  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.

  2.702. Seller's Remedies on Discovery of Buyer's Insolvency

 (a) 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 (Section 2.705).

 (b) Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within ten days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three 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.

 (c) The seller's right to reclaim under Subsection (b) is subject to the rights of a buyer in ordinary course or other good faith purchaser or lien creditor under this chapter (Section 2.403).  Successful reclamation of goods excludes all other remedies with respect to them.

  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 (Section 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 (Section 2.705);

  (3) proceed under the next section respecting goods still unidentified to the contract;

  (4) resell and recover damages as hereafter provided (Section 2.706);

  (5) recover damages for nonacceptance (Section 2.708) or in a proper case the price (Section 2.709);

  (6) cancel.

  2.704. Seller's Right to Identify Goods to the Contract Notwithstanding Breach or to Salvage Unfinished Goods

 (a) 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.

 (b) 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.

  2.705. Seller's Stoppage of Delivery in Transit or Otherwise

 (a) The seller may stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer to be insolvent (Section 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.

 (b) 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 warehouseman;  or

  (4) negotiation to the buyer of any negotiable document of title covering the goods.

 (c)

  (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 the document.

  (4) 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.

  2.706. Seller's Resale Including Contract for Resale

 (a) Under the conditions stated in Section 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 (Section 2.710), but less expenses saved in consequence of the buyer's breach.

 (b) Except as otherwise provided in Subsection (c) or unless otherwise agreed resale may be at public or private sale including sale by way of one 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.

 (c) Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell.

 (d) 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.

 (e) 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 or more of the requirements of this section.

 (f) The seller is not accountable to the buyer for any profit made on any resale.  A person in the position of a seller (Section 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 (Subsection (c) of Section 2.711).

  2.707. "Person in the Position of a Seller"

 (a) 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.

 (b) A person in the position of a seller may as provided in this chapter withhold or stop delivery (Section 2.705) and resell (Section 2.706) and recover incidental damages (Section 2.710).

  2.708. Seller's Damages for NonAcceptance or Repudiation

 (a) Subject to Subsection (b) and to the provisions of this chapter with respect to proof of market price (Section 2.723), the measure of damages for nonacceptance 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 (Section 2.710), but less expenses saved in consequence of the buyer's breach.

 (b) If the measure of damages provided in Subsection (a) 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 (Section 2.710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.

  2.709. Action for the Price

 (a) 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.

 (b) 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.

 (c) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2.610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for nonacceptance under the preceding section.

  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.

  2.711. Buyer's Remedies in General;  Buyer's Security Interest in Rejected Goods

 (a) 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 (Section 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 nondelivery as provided in this chapter (Section  2.713).

 (b) 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 (Section 2.502);  or

  (2) in a proper case obtain specific performance or replevy the goods as provided in this chapter (Section 2.716).

 (c) 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 (Section 2.706).

  2.712. "Cover";  Buyer's Procurement of Substitute Goods

 (a) 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.

 (b) 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 (Section 2.715), but less expenses saved in consequence of the seller's breach.

 (c) Failure of the buyer to effect cover within this section does not bar him from any other remedy.

  2.713. Buyer's Damages for NonDelivery or Repudiation

 (a) Subject to the provisions of this chapter with respect to proof of market price (Section 2.723), the measure of damages for nondelivery 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 (Section 2.715), but less expenses saved in consequence of the seller's breach.

 (b) 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.

  2.714. Buyer's Damages for Breach in Regard to Accepted Goods

 (a) Where the buyer has accepted goods and given notification (Subsection (c) of Section 2.607) he may recover as damages for any nonconformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable.

 (b) 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.

 (c) In a proper case any incidental and consequential damages under the next section may also be recovered.

  2.715. Buyer's Incidental and Consequential Damages

 (a) 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.

 (b) 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.

  2.716. Buyer's Right to Specific Performance or Replevin

 (a) Specific performance may be decreed where the goods are unique or in other proper circumstances.

 (b) 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.

 (c) 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.

  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.

  2.718. Liquidation or Limitation of Damages;  Deposits

 (a) 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.

 (b) 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 (a), or

  (2) in the absence of such terms, twenty percent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.

 (c) The buyer's right to restitution under Subsection (b) 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 (a), and

  (2) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.

 (d) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of Subsection (b);  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 (Section 2.706).

  2.719. Contractual Modification or Limitation of Remedy

 (a) Subject to the provisions of Subsections (b) and (c) 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.

 (b) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this title.

 (c) 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.

  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.

  2.721. Remedies for Fraud

 Remedies for material misrepresentation or fraud include all remedies available under this chapter for nonfraudulent 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.

  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.

  2.723. Proof of Market Price:  Time and Place

 (a) 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 (Section 2.708 or Section 2.713) shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation.

 (b) 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.

 (c) 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.

  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.

  2.725. Statute of Limitations in Contracts for Sale

 (a) An action for breach of any contract for sale must be commenced within four 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 year but may not extend it.

 (b) 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.

 (c) Where an action commenced within the time limited by Subsection (a) 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 months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute.

 (d) 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 this title becomes effective.


Leases

CHAPTER 2A. LEASES

  2A.101. Short Title

 This chapter shall be known and may be cited as the Uniform Commercial Code Leases.

  2A.102. Scope

 This chapter applies to any transaction, regardless of form, that creates a lease of goods.  This chapter does not apply to a transaction that creates an interest in or lease of real estate, except to the extent that provision is made for leases of fixtures by Section 2A.309.

  2A.103. Definitions and Index of Definitions

 (a) In this chapter unless the context otherwise requires:

  (1) "Buyer in the 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 the 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 receiving goods or documents of title under a preexisting 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 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 performance or goods 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 $25,000.

  (6) "Fault" means a wrongful act, omission, breach, or default.

  (7) "Finance lease" means a lease with respect to which:

   (A) the lessor does not select, manufacture, or supply the goods;

   (B) the lessor acquires the goods or the right to possession and use of the goods in connection with the lease;  and

   (C) one of the following occurs:

    (i) 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;

    (ii) 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;

    (iii) 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

    (iv) 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 moveable at the time of identification to the lease contract, or are fixtures (Section 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 the 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 by 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 receiving goods or documents of title under a preexisting 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 the 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.

 (b) Other definitions applying to this chapter and the sections in which they appear are:

 "Accessions".  Section 2A.310(a).

 "Construction mortgage".  Section 2A.309(a)(4).

 "Encumbrance".  Section 2A.309(a)(5).

 "Fixtures".  Section 2A.309(a)(1).

 "Fixture filing".  Section 2A.309(a)(2).

 "Purchase money lease".  Section 2A.309(a)(3).

 (c) The following definitions in other chapters apply to this chapter:

 "Account".  Section 9.106.

 "Between merchants".  Section 2.104(c).

 "Buyer".  Section 2.103(a)(1).

 "Chattel paper".  Section 9.105(a)(2).

 "Consumer goods".  Section 9.109(1).

 "Document".  Section 9.105(a)(6).

 "Entrusting".  Section 2.403(c).

 "General intangibles".  Section 9.106.

 "Good faith".  Section 2.103(a)(2).

 "Instrument".  Section 9.105(a)(9).

 "Merchant".  Section 2.104(a).

 "Mortgage".  Section 9.105(a)(10).

 "Pursuant to commitment".  Section 9.105(a)(11).

 "Receipt".  Section 2.103(a)(3).

 "Sale".  Section 2.106(a).

 "Sale on approval".  Section 2.326.

 "Sale or return".  Section 2.326.

 "Seller".  Section 2.103(a)(4).

 (d) In addition Chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.

  2A.104. Leases Subject to Other Laws

 (a) A lease, although subject to this chapter, is also subject to any applicable:

  (1) certificate of title statute of this state, including the provisions of the Certificate of Title Act (Article 66871, Vernon's Texas Civil Statutes), Chapter 31, Parks and Wildlife Code, and Section 19, Texas Manufactured Housing Standards Act (Article 5221f, Vernon's Texas Civil Statutes);

  (2) certificate of title statute of another jurisdiction (Section 2A.105);  or

  (3) consumer law of this state, both decisional and statutory, including, to the extent that they apply to a lease transaction, the provisions of Chapters 17 and 35, Business & Commerce Code, and the Texas Manufactured Housing Standards Act (Article 5221f, Vernon's Texas Civil Statutes).

 (b) In case of conflict between this chapter, other than Sections 2A.105, 2A.304(c) and 2A.305(c), and any statute or law referred to in Subsection (a), the statute or law controls.

 (c) Failure to comply with any applicable statute has only the effect specified therein.

  2A.105. Territorial Application of Chapter to Goods Covered by Certificate of Title

 Subject to the provisions of Sections 2A.304(c) and 2A.305(c), 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:

  (1) surrender of the certificate;  or

  (2) four months after the goods are removed from that jurisdiction and  thereafter until a new certificate of title is issued by another jurisdiction.

  2A.106. Limitation on Power of Parties to Consumer Lease to Choose Applicable Law and Judicial Forum

 (a) 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 30 days thereafter or in which the goods are to be used, the choice is not enforceable.

 (b) If the judicial forum chosen by the parties to a consumer lease is a forum located in a jurisdiction other than the jurisdiction in which the lessee in fact signed the lease agreement, resides at the commencement of the action, or resided at the time the lease contract became enforceable or in which the goods are in fact used by the lessee, the choice is not enforceable.

  2A.107. Waiver or Renunciation of Claim or Right After Default

 A 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.

  2A.108. Unconscionability

 (a) 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.

 (b) 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.

 (c) Before making a finding of unconscionability under Subsection (a) or (b), 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.

 (d) In an action in which the lessee claims unconscionability with respect to a consumer lease:

  (1) if the court finds unconscionability under Subsection (a) or (b), 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;  and

  (3) in determining attorney's fees, the amount of the recovery on behalf of the claimant under Subsections (a) and (b) is not controlling.

  2A.109. Option to Accelerate at Will

 (a) A term providing that one party or the party's successor in interest may accelerate payment or performance or require collateral or additional collateral "at will" or "when the party deems himself or herself insecure" or in words of similar import must be construed to mean that the party has power to do so only if the party in good faith believes that the prospect of payment or performance is impaired.

 (b) With respect to a consumer lease, the burden of establishing good faith under Subsection (a) is on the party who exercises the power;  otherwise the burden of establishing lack of good faith is on the party against whom the power has been exercised.

  2A.201. Statute of Frauds

 (a) 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 $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.

 (b) Any description of leased goods or of the lease term is sufficient and satisfies Subsection (a)(2), whether or not it is specific, if it reasonably identifies what is described.

 (c) A writing is not insufficient because it omits or incorrectly states a term agreed upon, but the lease contract is not enforceable under Subsection (a)(2) beyond the lease term and the quantity of goods shown in the writing.

 (d) A lease contract that does not satisfy the requirements of Subsection (a), 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;

  (3) with respect to goods that have been received and accepted by the lessee;  or

  (4) if the lease contract would otherwise be enforceable under general principles of equitable estoppel, detrimental reliance or unjust enrichment.

 (e) The lease term under a lease contract referred to in Subsection (d) 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.

  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 a 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.

  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.

  2A.204. Formation in General

 (a) 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.

 (b) An agreement sufficient to constitute a lease contract may be found although the moment of its making is undetermined.

 (c) Although one 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.

  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 months.  Any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

  2A.206. Offer and Acceptance in Formation of Lease Contract

 (a) 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.

 (b) If the beginning of a requested performance is a reasonable method of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

  2A.207. Course of Performance or Practical Construction

 (a) If a lease contract involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, a course of performance accepted or acquiesced in without objection is relevant to determine the meaning of the lease agreement.

 (b) The express terms of a lease agreement and any course of performance, as well as any course of dealing and usage of trade, must be construed whenever reasonable as consistent with each other;  but if that construction is unreasonable, express terms control course of performance, course of performance controls both course of dealing and usage of trade, and course of dealing controls usage of trade.

 (c) Subject to the provisions of Section 2A.208 on modification and waiver, course of performance is relevant to show a waiver or modification of a term inconsistent with the course of performance.

  2A.208. Modification, Rescission and Waiver

 (a) An agreement modifying a lease contract needs no consideration to be binding.

 (b) 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.

 (c) Although an attempt at modification or rescission does not satisfy the requirements of Subsection (b), it may operate as a waiver.

 (d) 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 a retraction would be unjust in view of a material change of position in reliance on the waiver.

  2A.209. Lessee Under Finance Lease as Beneficiary of Supply Contract

 (a) 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.

 (b) The extension of the benefit of a supplier's promises and of warranties to the lessee (Section 2A.209(a)) does not:

  (1) modify the rights and obligations of the parties to the supply contract, whether arising therefrom or otherwise;  or

  (2) impose any duty or liability under the supply contract on the lessee.

 (c) 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.

 (d) In addition to the extension of the benefit of the supplier's promises and of warranties to the lessee under Subsection (a), 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.

  2A.210. Express Warranties

 (a) Express warranties by the lessor are created as follows:

  (1) Any affirmation of fact or promise made by the lessor to the lessee that 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.

 (b) 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.

  2A.211. Warranties Against Interference and Against Infringement;  Lessee's Obligation Against Infringement

 (a) 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.

 (b) 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.

 (c) A lessee who furnishes specifications to a lessor or a supplier shall hold the lessor and the supplier harmless against a claim by way of infringement or the like that arises out of compliance with the specifications.

  2A.212. Implied Warranty of Merchantability

 (a) 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.

 (b) 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.

 (c) Other implied warranties may arise from course of dealing or usage of trade.

  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.

  2A.214. Exclusion or Modification of Warranties

 (a) 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 whenever reasonable, as consistent with each other;  but, subject to the provisions of Section 2A.202 on parol or extrinsic evidence, negation or limitation is inoperative to the extent that the construction is unreasonable.

 (b) Subject to Subsection (c), 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 (c), to exclude or modify an 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."

 (c) Notwithstanding Subsection (b), but subject to Subsection (d):

  (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 also may be excluded or modified by course of dealing, course of performance, or usage of trade.

 (d) To exclude or modify a warranty against interference or against infringement (Section 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.

  2A.215. Accumulation 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;  and

  (3) express warranties displace inconsistent implied warranties other than an  implied warranty of fitness for a particular purpose.

  2A.216. ThirdParty Beneficiaries of Express and Implied Warranties

 This chapter does not provide whether anyone other than a lessee may take advantage of an express or implied warranty of quality made to the lessee or whether the lessee or anyone entitled to take advantage of a warranty made to the lessee may sue a third party other than the immediate lessor, or the supplier in a finance lease, for deficiencies in the quality of the goods. These matters are left to the courts for their determination.

  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 the  unborn young of animals.

  2A.218. Insurance and Proceeds

 (a) 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.

 (b) 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.

 (c) Notwithstanding a lessee's insurable interest under Subsections (a) and  (b), the lessor retains an insurable interest during the existence of the lease contract.

 (d) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law.

 (e) The parties by agreement may determine that one 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.

  2A.219. Risk of Loss

 (a) 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.

 (b) Subject to the provisions of this chapter on the effect of default on risk of loss (Section 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:

   (A) 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

   (B) 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 acknowledgement by the bailee of the lessee's right to possession of the goods.

  (3) In any case not within Subdivision (1) or (2), the risk of loss passes to the lessee on tender of delivery if the lessee is a merchant;  otherwise the risk of loss passes to the lessee on the lessee's receipt of the goods.

  2A.220. Effect of Default on Risk of Loss

 (a) 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;  or

  (2) if the lessee rightfully revokes acceptance, the lessee, to the extent of any deficiency in the lessee's effective insurance coverage, may treat the risk of loss as having remained with the lessor from the beginning.

 (b) 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 the lessor's or the supplier's effective insurance coverage may treat the risk of loss as resting on the lessee for a commercially reasonable time.

  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 under the lease agreement or Section 2A.219:

  (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 the lessee's 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.

  2A.301. Enforceability of Lease Contract

 Except as otherwise provided in this title, 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.

  2A.302. Title to and Possession of Goods

 Except as otherwise provided in this title, 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.

  2A.303. Alienability of Party's Interest Under Lease Contract or of Lessor's Residual Interest in Goods;  Delegation of Performance;  Transfer of Rights

 (a) As used in this section, "creation of a security interest" includes the sale of a lease contract that is subject to Chapter 9 of this code, Secured Transactions, by reason of Section 9.102(a)(2).

 (b) Except as provided in Subsections (c) and (d), a provision in a lease agreement which (1) 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 (2) makes such a transfer an event of default, gives rise to the rights and remedies provided in Subsection (e) of this section, but a transfer that is prohibited or is an event of default under the lease agreement is otherwise effective.

 (c) A provision in a lease agreement which (1) prohibits the creation or enforcement of a security interest in an interest of a party under the lease contract or in the lessor's residual interest in the goods, or (2) makes such a transfer an event of default, is not enforceable unless, and then only to the extent that, there is an actual transfer by the lessee of the lessee's right of possession or use of the goods in violation of the provision or an actual delegation of a material performance of either party to the lease contract in violation of the provision.  Neither the granting nor the enforcement of a security interest in (1) the lessor's interest in the lease contract or (2) the lessor's residual interest in the goods is a transfer that materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden of risk imposed on, the lessee within the purview of Subsection (e) unless, and then only to the extent that, there is an actual delegation of a material performance of the lessor.

 (d) A provision in a lease agreement which (1) 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 (2) 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 (e).

 (e) Subject to Subsections (c) and (d):

  (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 Section 2A.501(b);  and

  (2) if Subdivision (1) is not applicable and if a transfer is made that (A) is prohibited under a lease agreement or (B) materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden of 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.

 (f) 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.  This promise is enforceable by either the transferor or the other party to the lease contract.

 (g) 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.

 (h) 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.

  2A.304. Subsequent Lease of Goods by Lessor

 (a) Subject to Section 2A.303 of this chapter, 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 by Subsection (b) or Section 2A.527(d) 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.

 (b) 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 of that lessor 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.

 (c) 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.

  2A.305. Sale or Sublease of Goods by Lessee

 (a) Subject to the provisions of Section 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 by Subsection (b) and Section 2A.511, 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.

 (b) 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.

 (c) 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.

  2A.306. Priority of Certain Liens Arising by Operation of Law

 If a person in the ordinary course of the person's 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.

  2A.307. Priority of Liens Arising by Attachment or Levy on, Security Interests in, and Other Claims to Goods

 (a) Except as otherwise provided in Section 2A.306, a creditor of a lessee takes subject to the lease contract.

 (b) Except as otherwise provided in Subsections (c) and (d) and Sections 2A.306 and 2A.308, a creditor of a lessor takes subject to the lease contract unless:

  (1) the creditor holds a lien that attached to the goods before the lease contract became enforceable;

  (2) the creditor holds a security interest in the goods and the lessee did  not give value and receive delivery of the goods without knowledge of the security interest;  or

  (3) the creditor holds a security interest in the goods which was perfected  (Section 9.303) before the lease contract became enforceable.

 (c) A lessee in the ordinary course of business takes the leasehold interest free of a security interest in the goods created by the lessor even though the security interest is perfected (Section 9.303) and the lessee knows of its existence.

 (d) A lessee other than a lessee in the ordinary course of business takes the leasehold interest free of a security interest to the extent that it secures future advances made after the secured party acquires knowledge of the lease or more than 45 days after the lease contract becomes enforceable, whichever first occurs, unless the future advances are made pursuant to a commitment entered into without knowledge of the lease and before the expiration of the 45day period.

  2A.308. Special Rights of Creditors

 (a) 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 or voids the lease contract 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 and does not void the lease contract.

 (b) Nothing in this chapter impairs the rights of creditors of a lessor if the lease contract 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.

 (c) 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.

  2A.309. Lessor's and Lessee's Rights When Goods Become Fixtures

 (a) 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 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 Section 9.402(e);

  (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.

 (b) 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.

 (c) This chapter does not prevent the creation of a lease of fixtures pursuant to real estate law.

 (d) 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, a fixture filing covering the fixtures is filed or recorded before the goods become fixtures or within 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.

 (e) 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.

 (f) Notwithstanding Subsection (d)(1) but otherwise subject to Subsections (d) and (e), 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.

 (g) 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.

 (h) 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 (1) on default, expiration, termination, or cancellation of the lease agreement but subject to the lease agreement and this chapter, or (2) 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.

 (i) 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 in accordance with the relevant provisions of Chapter 9.

  2A.310. Lessor's and Lessee's Rights When Goods Become Accessions

 (a) Goods are "accessions" when they are installed in or affixed to other goods.

 (b) The lessor's residual interest in the accessions and the interest of a lessor or a lessee under a lease contract entered into before the goods became accessions are superior to all interests in the whole except as stated in Subsection (d).

 (c) The lessor's residual interest in the accessions and the interest of a lessor or a lessee under a lease contract entered into at the time or after the goods became accessions are superior to all subsequently acquired interests in the whole except as stated in Subsection (d) but are 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.

 (d) The lessor's residual interest in the accessions and the interest of a lessor or a lessee under a lease contract described by Subsection (b) or (c) are 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.

 (e) When under Subsections (b) or (c) and (d) 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 (1) 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 (2) if necessary to enforce the lessor's or lessee's other rights and remedies under this chapter, remove the goods from the whole, free and clear of all interests in the whole, but the party 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.

  2A.401. Insecurity:  Adequate Assurance of Performance

 (a) A lease contract imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired.

 (b) 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 the party has not already received the agreed return.

 (c) 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 30 days after receipt of a demand by the other party.

 (d) Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered must be determined according to commercial standards.

 (e) Acceptance of any nonconforming delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.

  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 Section 2A.401 and await assurance of future performance adequate under the circumstances of the particular case;  or

  (3) resort to any right or remedy on 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 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 (Section 2A.524).

  2A.403. Retraction of Anticipatory Repudiation

 (a) Until the repudiating party's next performance is due, the repudiating party can retract the repudiation unless, since the repudiation, the aggrieved party has canceled the lease contract or materially changed the aggrieved party's position or otherwise indicated that the aggrieved party considers the repudiation final.

 (b) 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 Section 2A.401.

 (c) 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.

  2A.404. Substituted Performance

 (a) 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.

 (b) 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.

  2A.405. Excused Performance

 Subject to Section 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 Subdivisions (2) and (3) 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 Subdivision (1) affect only part of the lessor's or the supplier's capacity to perform, the lessor or supplier shall allocate production and deliveries among the lessor's or supplier's customers but at the lessor's or supplier's option may include regular customers not then under contract for sale or lease as well as the lessor's or supplier's own requirements for further manufacture.  The lessor or supplier 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 Subdivision (2), of the estimated quota made available for the lessee.

  2A.406. Procedure on Excused Performance

 (a) If the lessee receives notification of a material or indefinite delay or an allocation justified under Section 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 (Section 2A.510):

  (1) terminate the lease contract (Section 2A.505(b));  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.

 (b) If, after receipt of a notification from the lessor under Section 2A.405, the lessee fails to modify the lease agreement within a reasonable time not exceeding 30 days, the lease contract lapses with respect to any deliveries affected.

  2A.407. Irrevocable Promises:  Finance Leases

 (a) In the case of a finance lease that is not a consumer lease, a term in the lease agreement that provides that the lessee's promises under the lease contract become irrevocable and independent upon the lessee's acceptance of the goods is enforceable.

 (b) A promise that has become irrevocable and independent under Subsection  (a):

  (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.

  2A.501. Default:  Procedure

 (a) Whether the lessor or the lessee is in default under a lease contract is determined by the lease agreement and this chapter.

 (b) 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.

 (c) 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 selfhelp or any available judicial procedure or nonjudicial procedure, including administrative proceeding, arbitration, or the like, in accordance with this chapter.

 (d) Except as otherwise provided by Section 1.106(a) or this chapter or the lease agreement, the rights and remedies referred to in Subsections (b) and (c) are cumulative.

 (e) If the lease agreement covers both real property and goods, the party seeking enforcement may proceed under this subchapter 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 subchapter does not apply.

  2A.502. Notice After Default

 Except as provided by 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.

  2A.503. Modification or Impairment of Rights and Remedies

 (a) 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 by this chapter and may limit or alter the measure of damages recoverable under this chapter.

 (b) 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 its essential purpose, or provision for an exclusive remedy is unconscionable, remedy may be had as provided by this chapter.

 (c) Consequential damages may be liquidated under Section 2A.504 or otherwise be limited, altered, or excluded unless the limitation, alteration, or exclusion is unconscionable.  Liquidation, limitation, alteration, or exclusion of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable, but liquidation, limitation, alteration, or exclusion of damages where the loss is commercial is not prima facie unconscionable.

 (d) Rights and remedies on default by the lessor or the lessee with respect to an obligation or promise collateral or ancillary to the lease contract are not impaired by this chapter.

  2A.504. Liquidation of Damages

 (a) 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.  In a consumer lease, a term fixing liquidated damages that are unreasonably large in light of the actual harm is unenforceable as a penalty.

 (b) If the lease agreement provides for liquidation of damages, and such provision does not comply with Subsection (a) 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.

 (c) If the lessor justifiably withholds or stops delivery of goods because of the lessee's default or insolvency (Section 2A.525 or 2A.526), the lessee is entitled to restitution of any amount by which the sum of the lessee's payments exceeds:

  (1) the amount to which the lessor is entitled by virtue of terms liquidating the lessor's damages in accordance with Subsection (a);  or

  (2) in the absence of those terms, 20 percent 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 $500.

 (d) A lessee's right to restitution under Subsection (c) 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 (a);  and

  (2) the amount of value of any benefits received by the lessee directly or indirectly by reason of t

  2A.505. Cancellation and Termination and Effect of Cancellation, Termination, Rescission, or Fraud on Rights and Remedies

 (a) 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 canceling party also retains any remedy for default of the whole lease contract or any unperformed balance.

 (b) On termination of the lease contract, all obligations that are still executory on both sides are discharged but any right based on a prior default or performance survives.

 (c) 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.

 (d) Rights and remedies for material misrepresentation or fraud include all rights and remedies available under this chapter for default.

 (e) 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.

  2A.506. Statute of Limitations

 (a) An action for default under a lease contract, including breach of warranty or indemnity, must be commenced within four years after the cause of action accrued.  By the original lease contract the parties may not expand such period of limitation but, except in the case of a consumer lease, may reduce the period of limitation to not less than one year.

 (b) 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.  A cause of action for indemnity accrues:

  (1) in the case of an indemnity against liability, when the act or omission  on which the claim for indemnity is based is or should have been discovered by the indemnified party;  or

  (2) in the case of an indemnity against loss or damage, when the person indemnified makes payment thereof.

 (c) If an action commenced within the time limited by Subsection (a) 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 months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute.

 (d) 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.

  2A.507. Proof of Market Rent

 (a) Damages based on market rent (Section 2A.519 or 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 Sections 2A.519 and 2A.528.

 (b) 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.

 (c) 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 the party has given the other party notice the court finds sufficient to prevent unfair surprise.

 (d) 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.

  2A.508. Lessee's Remedies

 (a) If a lessor fails to deliver the goods in conformity to the lease contract (Section 2A.509) or repudiates the lease contract (Section 2A.402), or a lessee rightfully rejects the goods (Section 2A.509) or justifiably revokes acceptance of the goods (Section 2A.517), then with respect to any goods involved, and with respect to all of the goods if under an installment lease contract and the value of the whole lease contract is substantially impaired (Section 2A.510), the lessor is in default under the lease contract and the lessee may:

  (1) cancel the lease contract (Section 2A.505(a));

  (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 (Sections 2A.518 and 2A.520), or recover damages for nondelivery (Sections 2A.519 and 2A.520);  or

  (4) exercise any other rights or pursue any other remedies provided in the lease contract.

 (b) If a lessor fails to deliver the goods in conformity to the lease contract or repudiates the lease contract, the lessee may also:

  (1) if the goods have been identified, recover them (Section 2A.522);  or

  (2) in a proper case, obtain specific performance, replevin, detinue, sequestration, claim and delivery, or the like for the goods (Section 2A.521).

 (c) 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 Section 2A.519(c).

 (d) If a lessor has breached a warranty, whether express or implied, the lessee may recover damages (Section 2A.519(d)).

 (e) On rightful rejection or justifiable revocation or 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 Section 2A.527(e).

 (f) Subject to the provisions of Section 2A.407, a lessee, on notifying the lessor of the lessee's intention to do so, may deduct all or 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.

  2A.509. Lessee's Rights on Improper Delivery;  Rightful Rejection

 (a) Subject to the provisions of Section 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.

 (b) 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.

  2A.510. Installment Lease Contracts:  Rejection and Default

 (a) 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 (b) and the lessor or the supplier gives adequate assurance of its cure, the lessee must accept the delivery.

 (b) 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.

  2A.511. Merchant Lessee's Duties as to Rightfully Rejected Goods

 Subject to any security interest of a lessee (Section 2A.508(e)), 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 the lessee's 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.

  2A.512. Lessee's Duties as to Rightfully Rejected Goods

 (a) Except as otherwise provided with respect to goods that threaten to decline in value speedily (Section 2A.511) and subject to any security interest of a lessee (Section 2A.508(e)):

  (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 by Subsection (d);  but

  (3) the lessee has no further obligations with regard to goods rightfully rejected.

 (b) Action by the lessee pursuant to Subsection (a) is not acceptance or conversion.

 (c) If a merchant lessee (Section 2A.511) or any other lessee disposes of goods, the lessee 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 of the gross proceeds.

 (d) In complying with this section or Section 2A.511, 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.

 (e) A purchaser who purchases in good faith from a lessee pursuant to this section or Section 2A.511 takes the goods free of any rights of the lessor and the supplier even though the lessee fails to comply with one or more of the requirements of this chapter.

  2A.513. Cure by Lessor of Improper Tender or Delivery;  Replacement

 (a) 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 by the lease contract.

 (b) 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 the lessor or supplier seasonably notifies the lessee.

  2A.514. Waiver of Lessee's Objections

 (a) 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  (Section 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.

 (b) A lessee's failure to reserve rights when paying rent or other consideration against documents precludes recovery of the payment for defects apparent on the face of the documents.

  2A.515. Acceptance of Goods

 (a) 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 (Section 2A.509(b)).

 (b) Acceptance of a part of any commercial unit is acceptance of that entire unit.

  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

 (a) 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.

 (b) A lessee's acceptance of goods precludes rejection of the goods accepted.  In the case of a finance lease that is not a consumer 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.

 (c) 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 supplier, if any, or be barred from any remedy against the party not notified;

  (2) within a reasonable time after the lessee receives notice of litigation for infringement or the like (Section 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.

 (d) 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 both 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 (Section 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.

 (e) Subsections (c) and (d) apply to any obligation of a lessee to hold the lessor or the supplier harmless against infringement or the like (Section 2A.211).

 (f) Subsection (c) shall not apply to a consumer lease.

  2A.517. Revocation of Acceptance of Goods

 (a) 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 that is not a consumer 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 that is not a consumer lease, by the difficulty of discovery  before acceptance.

 (b) 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.

 (c) If the lease agreement so provides, the lessee may revoke acceptance of a lot or commercial unit because of other defaults by the lessor.

 (d) 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.

 (e) A lessee who so revokes has the same rights and duties with regard to the goods involved as if the lessee had rejected them.

  2A.518. Cover;  Substitute Goods

 (a) After default by a lessor under the lease contract of the type described by Section 2A.508(a), 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.

 (b) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A.504) or otherwise determined pursuant to agreement of the parties (Sections 1.102(c) and 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 (1) 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 (2) any incidental or consequential damages, less expenses saved as a consequence of the lessor's default.

 (c) If the lessee's cover is by lease agreement that for any reason does not qualify for treatment under Subsection (b) or is by purchase or otherwise, the lessee may recover from the lessor as if the lessee had elected not to cover and Section 2A.519 governs.

  2A.519. Lessee's Damages for Nondelivery, Repudiation, Default, and Breach of Warranty in Regard to Accepted Goods

 (a) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A.504) or otherwise determined pursuant to agreement of the parties (Sections 1.102(c) and 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 Section 2A.518(b) or is by purchase or otherwise, the measure of damages for nondelivery 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.

 (b) 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.

 (c) Except as otherwise agreed, if the lessee has accepted goods and given notification (Section 2A.516(c)), the measure of damages for nonconforming 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.

 (d) 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.

  2A.520. Lessee's Incidental and Consequential Damages

 (a) 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.

 (b) 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.

  2A.521. Lessee's Right to Specific Performance, Replevin, and Other Remedies

 (a) Specific performance may be decreed if the goods are unique or in other proper circumstances.

 (b) A decree for specific performance may include the terms and conditions as to payment of the rent, damages, or other relief that the court deems just.

 (c) 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.

  2A.522. Lessee's Right to Goods on Lessor's Insolvency

 (a) Subject to Subsection (b) 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 (Section 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 10 days after receipt of the first installment of rent and security.

 (b) A lessee acquires the right to recover goods identified to a lease contract only if they conform to the lease contract.

  2A.523. Lessor's Remedies

 (a) 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 (Section 2A.510), the lessee is in default under the lease contract and the lessor may:

  (1) cancel the lease contract (Section 2A.505(a));

  (2) proceed respecting goods not identified to the lease contract (Section 2A.524);

  (3) withhold delivery of the goods and take possession of goods previously delivered (Section 2A.525);

  (4) stop delivery of the goods by any bailee (Section 2A.526);

  (5) dispose of the goods and recover damages (Section 2A.527), or retain the goods and recover damages (Section 2A.528), or in a proper case recover rent (Section 2A.529);  or

  (6) exercise any other rights or pursue any other remedies provided in the lease contract.

 (b) If a lessor does not fully exercise a right or obtain a remedy to which the lessor is entitled under Subsection (a), 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.

 (c) 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 by Subsection (a) or (b);  or

  (2) if the default does not substantially impair the value of the lease contract to the lessor, the lessor may recover as provided by Subsection (b).

  2A.524. Lessor's Right to Identify Goods to Lease Contract

 (a) A lessor aggrieved under Section 2A.523(a) 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 (Section 2A.527(a)) that demonstrably have been intended for the particular lease contract even though those goods are unfinished.

 (b) 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.

  2A.525. Lessor's Right to Possession of Goods

 (a) If a lessor discovers the lessee to be insolvent, the lessor may refuse to deliver the goods.

 (b) After a default by the lessee under the lease contract of the type described by Section 2A.523(a) or (c)(1) 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 (Section 2A.527).

 (c) The lessor may proceed under Subsection (b) without judicial process if that can be done without breach of the peace or the lessor may proceed by action.

  2A.526. Lessor's Stoppage of Delivery in Transit or Otherwise

 (a) 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.

 (b) In pursuing its remedies under Subsection (a), the lessor may stop delivery until:

  (1) receipt of the goods by the lessee;

  (2) acknowledgement 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 acknowledgement to the lessee by a carrier via reshipment or as warehouseman.

 (c)(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 obligated to obey a notification to stop received from a person other than the consignor.

  2A.527. Lessor's Rights to Dispose of Goods

 (a) After a default by a lessee under the lease contract of the type described in Section 2A.523(a) or (c)(1) or after the lessor refuses to deliver or takes possession of goods (Section 2A.525 or 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.

 (b) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A.504) or otherwise determined pursuant to agreement of the parties (Sections 1.102(c) and 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 (1) accrued and unpaid rent as of the date of the commencement of the term of the new lease agreement, (2) 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 (3) any incidental damages allowed under Section 2A.530, less expenses saved in consequence of the lessee's default.

 (c) If the lessor's disposition is by lease agreement that for any reason does not qualify for treatment under Subsection (b), 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 Section 2A.528 governs.

 (d) 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 or more of the requirements of this chapter.

 (e) 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 (Section 2A.508(e)).

  2A.528. Lessor's Damages for Nonacceptance, Failure to Pay, Repudiation, or Other Default

 (a) Except as otherwise provided with respect to damages liquidated in the lease agreement (Section 2A.504) or otherwise determined pursuant to agreement of the parties (Sections 1.102(c) and 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 Section 2A.527(b) or is by sale or otherwise, the lessor may recover from the lessee as damages for a default of the type described in Section 2A.523(a) or (c)(1), 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 where the goods are located computed for the same lease term, and (iii) any incidental damages allowed under Section 2A.530, less expenses saved in consequence of the lessee's default.

 (b) If the measure of damages provided in Subsection (a) 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 Section 2A.530, due allowance for costs reasonably incurred and due credit for payments or proceeds of disposition.

  2A.529. Lessor's Action for the Rent

 (a) After default by the lessee under the lease contract of the type described in Section 2A.523(a) or (c)(1), or, if agreed, after other default by the lessee, if the lessor complies with Subsection (b), 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 (Section 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 Section 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 Section 2A.530, less expenses saved in consequence of the lessee's default.

 (b) Except as provided by Subsection (c) of this section, 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.

 (c) The lessor may dispose of the goods at any time before collection of the judgment for damages obtained pursuant to Subsection (a).  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 Section 2A.527 or 2A.528, and the lessor will cause an appropriate credit to be provided against any judgment for damages to the extent that the amount of the judgment exceeds the recovery available pursuant to Section 2A.527 or 2A.528.

 (d) Payment of the judgment for damages obtained pursuant to Subsection (a) 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.

 (e) After a lessee has wrongfully rejected or revoked acceptance of goods, has failed to pay rent then due, or has repudiated (Section 2A.402), a lessor who is held not entitled to rent under this section must nevertheless be awarded damages for nonacceptance under Section 2A.527 or 2A.528.

  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.

  2A.531. Standing to Sue Third Parties for Injury to Goods

 (a) 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:

  (1) the lessor has a right of action against the third party;  and

  (2) the lessee also has a right of action against the third party if the lessee:

   (A) has a security interest in the goods;

   (B) has an insurable interest in the goods;

   (C) 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.

 (b) 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, the party's suit or settlement, subject to the party's own interest, is as a fiduciary for the other party to the lease contract.

 (c) Either party with the consent of the other may sue for the benefit of whom it may concern.

  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.


Negotiable Instruments

CHAPTER 3. NEGOTIABLE INSTRUMENTS

  3.101. Short Title

 This chapter may be cited as Uniform Commercial CodeNegotiable Instruments.

  3.102. Subject Matter

 (a) This chapter applies to negotiable instruments.  It does not apply to money, to payment orders governed by Chapter 4A, or to securities governed by Chapter 8.

 (b) If there is conflict between this chapter and Chapter 4 or 9, Chapters 4 and 9 govern.

 (c) 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.

  3.103. Definitions

 (a) In this chapter:

  (1) "Acceptor" means a drawee who has accepted a draft.

  (2) "Drawee" means a person ordered in a draft to make payment.

  (3) "Drawer" means a person who signs or is identified in a draft as a person ordering payment.

  (4) "Good faith" means honesty in fact and the observance of reasonable commercial standards of fair dealing.

  (5) "Maker" means a person who signs or is identified in a note as a person undertaking to pay.

  (6) "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 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.

  (7) "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.

  (8) "Party" means a party to an instrument.

  (9) "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.

  (10) "Prove" with respect to a fact means to meet the burden of establishing the fact (Section 1.201(8)).

  (11) "Remitter" means a person who purchases an instrument from its issuer if the instrument is payable to an identified person other than the purchaser.

 (b) Other definitions applying to this chapter and the sections in which they appear are:

"Acceptance"                          Section 3.409.

"Accommodated party"                  Section 3.419.

"Accommodation party"                 Section 3.419.

"Alteration"                          Section 3.407.

"Anomalous indorsement"               Section 3.205.

"Blank indorsement"                   Section 3.205.

"Cashier's check"                     Section 3.104.

"Certificate of deposit"              Section 3.104.

"Certified check"                     Section 3.409.

"Check"                               Section 3.104.

"Consideration"                       Section 3.303.

"Draft"                               Section 3.104.

"Holder in due course"                Section 3.302.

"Incomplete instrument"               Section 3.115.

"Indorsement"                         Section 3.204.

"Indorser"                            Section 3.204.

"Instrument"                          Section 3.104.

"Issue"                               Section 3.105.

"Issuer"                              Section 3.105.

"Negotiable instrument"               Section 3.104.

"Negotiation"                         Section 3.201.

"Note"                                Section 3.104.

"Payable at a definite time"          Section 3.108.

"Payable on demand"                   Section 3.108.

"Payable to bearer"                   Section 3.109.

"Payable to order"                    Section 3.109.

"Payment"                             Section 3.602.

"Person entitled to enforce"          Section 3.301.

"Presentment"                         Section 3.501.

"Reacquisition"                       Section 3.207.

"Special indorsement"                 Section 3.205.

"Teller's check"                      Section 3.104.

"Transfer of instrument"              Section 3.203.

"Traveler's check"                    Section 3.104.

"Value"                               Section 3.303.

 (c) The following definitions in other chapters apply to this chapter:

"Bank"                                Section 4.105.

"Banking day"                         Section 4.104.

"Clearing house"                      Section 4.104.

"Collecting bank"                     Section 4.105.

"Depositary bank"                     Section 4.105.

"Documentary draft"                   Section 4.104.

"Intermediary bank"                   Section 4.105.

"Item"                                Section 4.104.

"Payor bank"                          Section 4.105.

"Suspends payments"                   Section 4.104.

 (d) In addition, Chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.

  3.104. Negotiable Instrument

 (a) 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:

   (A) an undertaking or power to give, maintain, or protect collateral to secure payment;

   (B) an authorization or power to the holder to confess judgment or realize on or dispose of collateral;  or

   (C) a waiver of the benefit of any law intended for the advantage or protection of an obligor.

 (b) "Instrument" means a negotiable instrument.

 (c) An order that meets all of the requirements of Subsection (a), except Subdivision (1), and otherwise falls within the definition of "check" in Subsection (f) is a negotiable instrument and a check.

 (d) 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.

 (e) 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.

 (f) "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."

 (g) "Cashier's check" means a draft with respect to which the drawer and drawee are the same bank or branches of the same bank.

 (h) "Teller's check" means a draft drawn by a bank:

  (1) on another bank;  or

  (2) payable at or through a bank.

 (i) "Traveler's check" means an instrument that:

  (1) is payable on demand;

  (2) is drawn on or payable at or through a bank;

  (3) is designated by the term "traveler's check" or by a substantially similar term;  and

  (4) requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument.

 (j) "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.

  3.105. Issue of Instrument

 (a) "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.

 (b) 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.

 (c) "Issuer" applies to issued and unissued instruments and means a maker or drawer of an instrument.

  3.106. Unconditional Promise or Order

 (a) Except as provided in this section, for the purposes of Section 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 writing, or (iii) that rights or obligations with respect to the promise or order are stated in another writing.  A reference to another writing does not of itself make the promise or order conditional.

 (b) A promise or order is not made conditional (i) by a reference to another writing 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.

 (c) 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 Section 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.

 (d) 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 Section 3.104(a);  but if the promise or order is an instrument, there cannot be a holder in due course of the instrument.

  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 bankoffered spot rate at the place of payment for the purchase of dollars on the day on which the instrument is paid.

  3.108. Payable on Demand or at Definite Time

 (a) A promise or order is "payable on demand" if it:

  (1) states that it is payable on demand or at sight, or otherwise indicates that it is payable at the will of the holder;  or

  (2) does not state any time of payment.

 (b) 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:

  (1) prepayment;

  (2) acceleration;

  (3) extension at the option of the holder;  or

  (4) extension to a further definite time at the option of the maker or acceptor or automatically on or after a specified act or event.

 (c) If an instrument, payable at a fixed date, is also payable on 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.

  3.109. Payable to Bearer or to Order

 (a) 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.

 (b) 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.

 (c) An instrument payable to bearer may become payable to an identified person if it is specially indorsed pursuant to Section 3.205(a).   An instrument payable to an identified person may become payable to bearer if it is indorsed in blank pursuant to Section 3.205(b).

  3.110. Identification of Person to Whom Instrument is Payable

 (a) 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 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 or more of the signers.

 (b) If the signature of the issuer of an instrument is made by automated means, such as a checkwriting 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.

 (c) 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:

   (A) 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;

   (B) 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;

   (C) 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

   (D) 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.

 (d) If an instrument is payable to two 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 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 or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.

  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 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.

  3.112. Interest

 (a) Unless otherwise provided in the instrument:

  (1) an instrument is not payable with interest;  and

  (2) interest on an interestbearing instrument is payable from the date of the instrument.

 (b) 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, and the instrument shall not by virtue of this sentence be considered to violate the provisions of Title 79, Revised Statutes (Article 50691.01 et seq., Vernon's Texas Civil Statutes).

  3.113. Date of Instrument

 (a) 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 Section 4.401(c), an instrument payable on demand is not payable before the date of the instrument.

 (b) 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.

  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.

  3.115. Incomplete Instrument

 (a) "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.

 (b) Subject to Subsection (c), if an incomplete instrument is an instrument under Section 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 Section 3.104, but, after completion, the requirements of Section 3.104 are met, the instrument may be enforced according to its terms as augmented by completion.

 (c) If words or numbers are added to an incomplete instrument without authority of the signer, there is an alteration of the incomplete instrument under Section 3.407.

 (d) 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.

  3.116. Joint and Several Liability;  Contribution

 (a) Except as otherwise provided in the instrument, two 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.

 (b) Except as provided in Section 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.

 (c) Discharge of one party having joint and several liability by a person entitled to enforce the instrument does not affect the right under Subsection  (b) of a party having the same joint and several liability to receive contribution from the party discharged.

  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.

  3.118. Statute of Limitations

 (a) 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 six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date.

 (b) 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 six 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 10 years.

 (c) 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 years after dishonor of the draft or 10 years after the date of the draft, whichever period expires first.

 (d) 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 years after demand for payment is made to the acceptor or issuer, as the case may be.

 (e) An action to enforce the obligation of a party to a certificate of deposit to pay the instrument must be commenced within six 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 sixyear period begins when a demand for payment is in effect and the due date has passed.

 (f) An action to enforce the obligation of a party to pay an accepted draft, other than a certified check, must be commenced:

  (1) within six 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

  (2) within six years after the date of the acceptance if the obligation of  the acceptor is payable on demand.

 (g) Unless governed by other law regarding claims for indemnity or contribution, the following actions must be commenced within three years after the cause of action accrues:

  (1) an action for conversion of an instrument, an action for money had and received, or like action based on conversion;

  (2) an action for breach of warranty;  or

  (3) an action to enforce an obligation, duty, or right arising under this chapter and not governed by this section.

  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 written notice of the litigation, 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.

  3.201. Negotiation

 (a) "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.

 (b) 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.

  3.202. Negotiation Subject to Rescission

 (a) Negotiation is effective even if obtained:

  (1) from an infant, a corporation exceeding its powers, or a person without capacity;

  (2) by fraud, duress, or mistake;  or

  (3) in breach of duty or as part of an illegal transaction.

 (b) 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.

  3.203. Transfer of Instrument;  Rights Acquired by Transfer

 (a) 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.

 (b) 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.  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.

 (c) 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.

 (d) 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.

  3.204. Indorsement

 (a) "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.

 (b) "Indorser" means a person who makes an indorsement.

 (c) 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.

 (d) 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.

  3.205. Special Indorsement;  Blank Indorsement;  Anomalous Indorsement

 (a) 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 Section 3.110 apply to special indorsements.

 (b) 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.

 (c) 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.

 (d) "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.

  3.206. Restrictive Indorsement

 (a) 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.

 (b) 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.

 (c) If an instrument bears an indorsement (i) described in Section 4.201(b), or (ii) in blank or to a particular bank using the words "for deposit" or "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; and

  (4) except as otherwise provided in Subdivision (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.

 (d) 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 Section 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;  and

  (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.

 (e) 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).

 (f) 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.

  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 canceled is discharged, and the discharge is effective against any subsequent holder.

  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 Section 3.309 or 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.

  3.302. Holder in Due Course

 (a) Subject to Subsection (c) and Section 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:

   (A) for value;

   (B) in good faith;

   (C) 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;

   (D) without notice that the instrument contains an unauthorized signature or has been altered;

   (E) without notice of any claim to the instrument described in Section 3.306;  and

   (F) without notice that any party has a defense or claim in recoupment described in Section 3.305(a).

 (b) 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.

 (c) 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:

  (1) by legal process or by purchase in an execution, bankruptcy, or creditor's sale or similar proceeding;

  (2) by purchase as part of a bulk transaction not in ordinary course of  business of the transferor;  or

  (3) as the successor in interest to an estate or other organization.

 (d) If, under Section 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.

 (e) 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 that, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.

 (f) To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.

 (g) This section is subject to any law limiting status as a holder in due course in particular classes of transactions.

  3.303. Value and Consideration

 (a) 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.

 (b) "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.

  3.304. Overdue Instrument

 (a) 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, 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 that is unreasonably long under the circumstances of the particular case in light of the nature of the instrument and usage of the trade.

 (b) 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 on 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;  and

  (3) if a due date with respect to principal has been accelerated, the instrument becomes overdue on the day after the accelerated due date.

 (c) 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.

  3.305. Defenses and Claims in Recoupment

 (a) Except as provided in Subsection (b), 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:

   (A) infancy of the obligor to the extent it is a defense to a simple contract;

   (B) duress, lack of legal capacity, or illegality of the transaction that, under other law, nullifies the obligation of the obligor;

   (C) 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

   (D) 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.

 (b) 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 Subsection (a)(1), but is not subject to defenses of the obligor stated in Subsection (a)(2) or claims in recoupment stated in Subsection (a)(3) against a person other than the holder.

 (c) Except as provided 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 (Section 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.

 (d) 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.

  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.

  3.307. Notice of Breach of Fiduciary Duty

 (a) 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 Subdivision (1) is owed.

 (b) 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:

   (A) taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary;

   (B) taken in a transaction known by the taker to be for the personal benefit of the fiduciary;  or

   (C) 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;  and

  (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:

   (A) taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary;

   (B) taken in a transaction known by the taker to be for the personal benefit of the fiduciary;  or

   (C) deposited to an account other than an account of the fiduciary, as such, or an account of the represented person.

  3.308. Proof of Signatures and Status as Holder in Due Course

 (a) In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument are 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 Section 3.402(a).

 (b) 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 Section 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 that are not subject to the defense or claim.

  3.309. Enforcement of Lost, Destroyed, or Stolen Instrument

 (a) A person who is not in possession of an instrument is entitled to enforce the instrument if:

  (1) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred;

  (2) the loss of possession was not the result of a transfer by the person or a lawful seizure;  and

  (3) 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.

 (b) 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, Section 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.

  3.310. Effect of Instrument on Obligation for Which Taken

 (a) 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.

 (b) 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 Subdivision (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 that 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.

 (c) If an instrument other than one described in Subsection (a) or (b) is taken for an obligation, the effect is:

  (1) that stated in Subsection (a) if the instrument is one for which a bank is liable as maker or acceptor;  or

  (2) that stated in Subsection (b) in any other case.

  3.311. Accord and Satisfaction by Use of Instrument

 (a) Subsections (b)(d) apply if a person against whom a claim is asserted proves that:

  (1) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim;

  (2) the amount of the claim was unliquidated or subject to a bona fide dispute;  and

  (3) the claimant obtained payment of the instrument.

 (b) 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.

 (c) 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:

   (A) 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

   (B) 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 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 Subdivision (1)(A).

 (d) 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.

  3.312. Lost, Destroyed, or Stolen Cashier's Check, Teller's Check, or Certified Check

 (a) 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 under penalty of perjury, to the effect that:

   (A) the declarer lost possession of a check;

   (B) 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;

   (C) the loss of possession was not the result of a transfer by the declarer or a lawful seizure;  and

   (D) 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.

 (b) 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 Section 4.302(a)(1), payment to the claimant discharges all liability of the obligated bank with respect to the check.

 (c) If the obligated bank pays the amount of a check to a claimant under Subsection (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:

  (1) refund the payment to the obligated bank if the check is paid;  or

  (2) pay the amount of the check to the person having rights of a holder in due course if the check is dishonored.

 (d) If a claimant has the right to assert a claim under Subsection (b) and is also a person who is entitled to enforce a cashier's check, teller's check, or certified check that is lost, destroyed, or stolen, the claimant may assert rights with respect to the check under either this section or Section 3.309.

  3.401. Signature

 (a) A person is not liable on an instrument unless the person:

  (1) signed the instrument;  or

  (2) is represented by an agent or representative who signed the instrument and the signature is binding on the represented person under Section 3.402.

 (b) 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.

  3.402. Signature by Representative

 (a) 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.

 (b) 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), 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 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.  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.

 (c) 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.

  3.403. Unauthorized Signature

 (a) Unless otherwise provided in this chapter or Chapter 4, 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.

 (b) If the signature of more than one person is required to constitute the authorized signature of an organization, the signature of the organization is unauthorized if one of the required signatures is lacking.

 (c) The civil or criminal liability of a person who makes an unauthorized signature is not affected by any provision of this chapter that makes the unauthorized signature effective for the purposes of this chapter.

  3.404. Impostors;  Fictitious Payees

 (a) 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.

 (b) If (i) a person whose intent determines to whom an instrument is payable  (Section 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.

 (c) Under Subsection (a) or (b), an indorsement is made in the name of a payee if:

  (1) it is made in a name substantially similar to that of the payee;  or

  (2) 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.

 (d) 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 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.

  3.405. Employer's Responsibility for Fraudulent Indorsement by Employee

 (a) In this section:

  (1) "Employee" includes an independent contractor and employee of an independent contractor retained by the employer.

  (2) "Fraudulent indorsement" means:

   (A) in the case of an instrument payable to the employer, a forged indorsement purporting to be that of the employer;  or

   (B) 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.

 (b) 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 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.

 (c) Under Subsection (b), an indorsement is made in the name of the person to whom an instrument is payable if:

  (1) it is made in a name substantially similar to the name of that person;  or

  (2) 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.

  3.406. Negligence Contributing to Forged Signature or Alteration of Instrument

 (a) 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.

 (b) Under Subsection (a), if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure 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.

 (c) 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.

  3.407. Alteration

 (a) "Alteration" means:

  (1) an unauthorized change in an instrument that purports to modify in any respect the obligation of a party;  or

  (2) an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party.

 (b) 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.

 (c) 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:

  (1) according to its original terms;  or

  (2) in the case of an incomplete instrument altered by unauthorized completion, according to its terms as completed.

  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.

  3.409. Acceptance of Draft;  Certified Check

 (a) "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.

 (b) A draft may be accepted although it has not been signed by the drawer, is otherwise incomplete, is overdue, or has been dishonored.

 (c) 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.

 (d) "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 that 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.

  3.410. Acceptance Varying Draft

 (a) 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.

 (b) 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.

 (c) 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.

  3.411. Refusal to Pay Cashier's Checks, Teller's Checks, and Certified Checks

 (a) 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.

 (b) 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.

 (c) Expenses or consequential damages under Subsection (b) are not recoverable if the refusal of the obligated bank to pay occurs because:

  (1) the obligated bank suspends payments;

  (2) 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;

  (3) the obligated bank has a reasonable doubt whether the person demanding payment is the person entitled to enforce the instrument;  or

  (4) payment is prohibited by law.

  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 Sections 3.115 and 3.407.   The obligation is owed to a person entitled to enforce the instrument or to an indorser who paid the instrument under Section 3.415.

  3.413. Obligation of Acceptor

 (a) 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 Sections 3.115 and 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 Section 3.414 or 3.415.

 (b) 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. The obligation of the acceptor is the amount of the instrument at the time it was taken by the holder in due course if:

  (1) the certification or acceptance does not state an amount;

  (2) the amount of the instrument is subsequently raised;  and

  (3) the instrument is then negotiated to a holder in due course.

  3.414. Obligation of Drawer

 (a) This section does not apply to cashier's checks or other drafts drawn on the drawer.

 (b) 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 Sections 3.115 and 3.407.  The obligation is owed to a person entitled to enforce the draft or to an indorser who paid the draft under Section 3.415.

 (c) If a draft is accepted by a bank, the drawer is discharged, regardless of when or by whom acceptance was obtained.

 (d) 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 Sections 3.415(a) and (c).

 (e) 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.

 (f) If (i) a check is not presented for payment or given to a depositary bank for collection within 30 days after its date, (ii) the drawee suspends payments after expiration of the 30day 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.

  3.415. Obligation of Indorser

 (a) Subject to Subsections (b), (c), (d), and (e) and to Section 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 Sections 3.115 and 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.

 (b) 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.

 (c) If notice of dishonor of an instrument is required by Section 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.

 (d) If a draft is accepted by a bank after an indorsement is made, the liability of the indorser under Subsection (a) is discharged.

 (e) 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 30 days after the day the indorsement was made, the liability of the indorser under Subsection (a) is discharged.

  3.416. Transfer Warranties

 (a) 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 that can be asserted against the warrantor;  and

  (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.

 (b) 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.

 (c) 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 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.

 (d) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

  3.417. Presentment Warranties

 (a) 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;  and

  (3) the warrantor has no knowledge that the signature of the drawer of the draft is unauthorized.

 (b) 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.

 (c) 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 Section 3.404 or 3.405 or the drawer is precluded under Section 3.406 or 4.406 from asserting against the drawee the unauthorized indorsement or alteration.

 (d) 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.

 (e) 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 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.

 (f) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

  3.418. Payment or Acceptance By Mistake

 (a) 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 Section 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.

 (b) 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:

  (1) recover the payment from the person to whom or for whose benefit payment was made;  or

  (2) in the case of acceptance, revoke the acceptance.

 (c) 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 Section 3.417 or 4.407.

 (d) Notwithstanding Section 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.

  3.419. Instruments Signed for Accommodation

 (a) 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."

 (b) An accommodation party may sign the instrument as maker, drawer, acceptor, or indorser.  Subject to Subsection (d), the accommodation party 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.

 (c) 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 Section 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.

 (d) 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:

  (1) execution of judgment against the other party has been returned unsatisfied;

  (2) the other party is insolvent or in an insolvency proceeding;

  (3) the other party cannot be served with process;  or

  (4) it is otherwise apparent that payment cannot be obtained from the other party.

 (e) 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.  An accommodated party who pays the instrument has no right of recourse against, and is not entitled to contribution from, an accommodation party.

  3.420. Conversion of Instrument

 (a) 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:

  (1) the issuer or acceptor of the instrument;  or

  (2) a payee or indorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a copayee.

 (b) 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.

 (c) 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.

  3.501. Presentment

 (a) "Presentment" means a demand made by or on behalf of a person entitled to enforce an instrument to:

  (1) 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

  (2) accept a draft made to the drawee.

 (b) The following rules are subject to Chapter 4, agreement of the parties, and clearinghouse 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.  Presentment may be made by any commercially reasonable means, including an oral, written, or electronic communication.  Presentment is effective:

   (A) when the demand for payment or acceptance is received by the person to whom presentment is made;  and

   (B) if made to any one of two or more makers, acceptors, drawees, or other payors.

  (2) On demand of the person to whom presentment is made, the person making presentment must:

   (A) exhibit the instrument;

   (B) give reasonable identification and, if presentment is made on behalf of another person, reasonable evidence of authority to do so;  and

   (C) 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:

   (A) return the instrument for lack of a necessary indorsement;  or

   (B) 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 cutoff hour not earlier than 2 p.m. for the receipt and processing of instruments presented for payment or acceptance and presentment is made after the cutoff hour.

  3.502. Dishonor

 (a) 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 Subdivision (2) does not apply, the note is dishonored if it is not paid on the day it becomes payable.

 (b) 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 Section 4.301 or 4.302, or becomes accountable for the amount of the check under Section 4.302.

  (2) If a draft is payable on demand and Subdivision (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:

   (A) 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

   (B) 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.

 (c) 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 not later than the close of the third business day of the drawee following the day on which payment or acceptance is required by those subdivisions.

 (d) 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.

 (e) In any case in which presentment is otherwise required for dishonor under this section and presentment is excused under Section 3.504, dishonor occurs without presentment if the instrument is not duly accepted or paid.

 (f) 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.

  3.503. Notice of Dishonor

 (a) The obligation of an indorser stated in Section 3.415(a) and the obligation of a drawer stated in Section 3.414(d) may not be enforced unless:

  (1) the indorser or drawer is given notice of dishonor of the instrument complying with this section;  or

  (2) notice of dishonor is excused under Section 3.504(b).

 (b) 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.

 (c) Subject to Section 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 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 30 days following the day on which dishonor occurs.

  3.504. Excused Presentment and Notice of Dishonor

 (a) Presentment for payment or acceptance of an instrument is excused if:

  (1) the person entitled to present the instrument cannot with reasonable diligence make presentment;

  (2) the maker or acceptor has repudiated an obligation to pay the instrument or is dead or in insolvency proceedings;

  (3) by the terms of the instrument presentment is not necessary to enforce the obligation of indorsers or the drawer;

  (4) 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

  (5) 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.

 (b) 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.

 (c) 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.

  3.505. Evidence of Dishonor

 (a) 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) that 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 that is  kept in the usual course of business and that shows dishonor, even if there is no evidence of who made the entry.

 (b) 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 on 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.

  3.601. Discharge and Effect of Discharge

 (a) 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 that would discharge an obligation to pay money under a simple contract.

 (b) 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.

  3.602. Payment

 (a) Subject to Subsection (b), an instrument is paid to the extent payment is made (i) by or on behalf of a party obliged to pay the instrument, and (ii) to a person entitled to enforce the instrument.   To the extent of the payment, 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 Section 3.306 by another person.

 (b) The obligation of a party to pay the instrument is not discharged under Subsection (a) if:

  (1) a claim to the instrument under Section 3.306 is enforceable against the  party receiving payment and:

   (A) payment is made with knowledge by the payor that payment is prohibited by injunction or similar process of a court of competent jurisdiction;  or

   (B) 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.

  3.603. Tender of Payment

 (a) 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.

 (b) 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.

 (c) 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.

  3.604. Discharge by Cancellation or Renunciation

 (a) A person entitled to enforce an instrument, with or without consideration, may discharge the obligation of a party to pay the instrument:

  (1) by an intentional voluntary act, such as surrender of the instrument to the party, destruction, mutilation, or cancellation of the instrument, cancellation or striking out of the party's signature, or the addition of words to the instrument indicating discharge;  or

  (2) by agreeing not to sue or otherwise renouncing rights against the party by a signed writing.

 (b) 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.

  3.605. Discharge of Indorsers and Accommodation Parties

 (a) In this section, the term "indorser" includes a drawer having the obligation described in Section 3.414(d).

 (b) Discharge of the obligation of a party to pay an instrument under Section 3.604 does not discharge the obligation of an indorser or accommodation party having a right of recourse against the discharged party.

 (c) If a person entitled to enforce an instrument agrees, with or without consideration, to an extension of the due date of the obligation of a party to pay the instrument, the extension discharges an indorser or accommodation party having a right of recourse against the party whose obligation is extended to the extent the indorser or accommodation party proves that the extension caused loss to the indorser or accommodation party with respect to the right of recourse.

 (d) If a person entitled to enforce an instrument agrees, with or without consideration, to a material modification of the obligation of a party other than an extension of the due date, the modification discharges the obligation of an indorser or accommodation party having a right of recourse against the person whose obligation is modified to the extent the modification causes loss to the indorser or accommodation party with respect to the right of recourse. The loss suffered by the indorser or accommodation party as a result of the modification is equal to the amount of the right of recourse unless the person enforcing the instrument proves that no loss was caused by the modification or that the loss caused by the modification was an amount less than the amount of the right of recourse.

 (e) If the obligation of a party to pay an instrument is secured by an interest in collateral and a person entitled to enforce the instrument impairs the value of the interest in collateral, the obligation of an indorser or accommodation party having a right of recourse against the obligor is discharged to the extent of the impairment.  The value of an interest in collateral is impaired to the extent (i) the value of the interest is reduced to an amount less than the amount of the right of recourse of the party asserting discharge, or (ii) the reduction in value of the interest causes an increase in the amount by which the amount of the right of recourse exceeds the value of the interest.  The burden of proving impairment is on the party asserting discharge.

 (f) If the obligation of a party is secured by an interest in collateral not provided by an accommodation party and a person entitled to enforce the instrument impairs the value of the interest in collateral, the obligation of any party who is jointly and severally liable with respect to the secured obligation is discharged to the extent the impairment causes the party asserting discharge to pay more than that party would have been obliged to pay, taking into account rights of contribution, if impairment had not occurred.  If the party asserting discharge is an accommodation party not entitled to discharge under Subsection (e), the party is deemed to have a right to contribution based on joint and several liability rather than a right to reimbursement.  The burden of proving impairment is on the party asserting discharge.

 (g) Under Subsection (e) or (f), impairing value of an interest in collateral includes:

  (1) failure to obtain or maintain perfection or recordation of the interest  in collateral;

  (2) release of collateral without substitution of collateral of equal value;

  (3) failure to perform a duty to preserve the value of collateral owed, under Chapter 9 or other law, to a debtor or surety or other person secondarily liable;  or

  (4) failure to comply with applicable law in disposing of collateral.

 (h) An accommodation party is not discharged under Subsection (c), (d), or (e) unless the person entitled to enforce the instrument knows of the accommodation or has notice under Section 3.419(c) that the instrument was signed for accommodation.

 (i) A party is not discharged under this section if:

  (1) the party asserting discharge consents to the event or conduct that is the basis of the discharge;  or

  (2) the instrument or a separate agreement of the party provides for waiver of discharge under this section.


Bank Deposits and Collections

CHAPTER 4. BANK DEPOSITS AND COLLECTIONS

  4.101. Short Title

 This chapter may be cited as Uniform Commercial CodeBank Deposits and Collections.

  4.102. Applicability

 (a) To the extent that items within this chapter are also within Chapters 3 and 8, they are subject to those chapters.  If there is conflict, this chapter governs Chapter 3, but Chapter 8 governs this chapter.

 (b) The liability of a bank for action or nonaction 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 nonaction 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.

  4.103. Variation by Agreement;  Measure of Damages;  Action Constituting Ordinary Care

 (a) 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.

 (b) 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.

 (c) Action or nonaction 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 nonaction 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.

 (d) The specification or approval of certain procedures by this chapter is not disapproval of other procedures that may be reasonable under the circumstances.

 (e) 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.

  4.104. Definitions and Index of Definitions

 (a) 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) "Clearing house" 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 (Section 8.102) or instructions for uncertificated securities (Section 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 Section 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 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.

 (b) Other definitions applying to this chapter and the sections in which they appear are:

"Agreement for electronic presentment"  Section 4.110.

"Bank"                                  Section 4.105.

"Collecting bank"                       Section 4.105.

"Depositary bank"                       Section 4.105.

"Intermediary bank"                     Section 4.105.

"Payor bank"                            Section 4.105.

"Presenting bank"                       Section 4.105.

"Presentment notice"                    Section 4.110.

 (c) The following definitions in other chapters apply to this chapter:

"Acceptance"                          Section 3.409.

"Alteration"                          Section 3.407.

"Cashier's check"                     Section 3.104.

"Certificate of deposit"              Section 3.104.

"Certified check"                     Section 3.409.

"Check"                               Section 3.104.

"Good faith"                          Section 3.103.

"Holder in due course"                Section 3.302.

"Instrument"                          Section 3.104.

"Notice of dishonor"                  Section 3.503.

"Order"                               Section 3.103.

"Ordinary care"                       Section 3.103.

"Person entitled to enforce"          Section 3.301.

"Presentment"                         Section 3.501.

"Promise"                             Section 3.103.

"Prove"                               Section 3.103.

"Teller's check"                      Section 3.104.

"Unauthorized signature"              Section 3.403.

 (d) In addition, Chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.

  4.105. "Bank";  "Depositary Bank";  "Intermediary Bank";  "Collecting Bank";  "Payor Bank";  "Presenting Bank"

 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.

  4.106. Payable Through or Payable at Bank;  Collecting Bank

 (a) If an item states that it is "payable through" a bank identified in the item, the item:

  (1) designates the bank as a collecting bank and does not by itself authorize the bank to pay the item;  and

  (2) may be presented for payment only by or through the bank.

 (b) If an item states that it is "payable at" a bank identified in the item, the item is equivalent to a draft drawn on the bank.

 (c) If a draft names a nonbank drawee and it is unclear whether a bank named in the draft is a codrawee or a collecting bank, the bank is a collecting bank.

  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 notices or orders must be given under this chapter and under Chapter 3.

  4.108. Time of Receipt of Items

 (a) 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 two P.M. or later as a cutoff hour for the handling of money and items and the making of entries on its books.

 (b) 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.

  4.109. Delays

 (a) 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 title for a period not exceeding two additional banking days without discharge of drawers or indorsers or liability to its transferor or a prior party.

 (b) Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by this title or by instructions is excused if:

  (1) 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

  (2) the bank exercises such diligence as the circumstances require.

  4.110. Electronic Presentment

 (a) "Agreement for electronic presentment" means an agreement, clearinghouse rule, or Federal Reserve regulation or operating circular providing that presentment of an item may be made by transmission of an image of an item or information describing the item ("presentment notice") rather than delivery of the item itself.   The agreement may provide for procedures governing retention, presentment, payment, dishonor, and other matters concerning items subject to the agreement.

 (b) Presentment of an item under an agreement for presentment is made when the presentment notice is received.

 (c) If presentment is made by presentment notice, a reference to "item" or  "check" in this chapter means the presentment notice unless the context otherwise indicates.

  4.111. Statute of Limitations

 An action to enforce an obligation, duty, or right arising under this chapter must be commenced within three years after the cause of action accrues.

  4.201. Status of Collecting Bank as Agent and Provisional Status of Credits;  Applicability of Chapter;  Item Indorsed "Pay Any Bank"

 (a) Unless a contrary intent clearly appears and before the time that a settlement given by a collecting bank for an item is or becomes final, the bank, with respect to the item, is an agent or subagent of the owner of the item and any settlement given for the item is provisional.  This provision applies regardless of the form of indorsement or lack of indorsement and even though credit given for the item is subject to immediate withdrawal as of right or is in fact withdrawn;  but the continuance of ownership of an item by its owner and any rights of the owner to proceeds of the item are subject to rights of a collecting bank, such as those resulting from outstanding advances on the item and rights of recoupment or setoff.  If an item is handled by banks for purposes of presentment, payment, collection, or return, the relevant provisions of this chapter apply even though action of the parties clearly establishes that a particular bank has purchased the item and is the owner of it.

 (b) After an item has been indorsed with the words "pay any bank" or the like, only a bank may acquire the rights of a holder until the item has been:

  (1) returned to the customer initiating collection;  or

  (2) specially indorsed by a bank to a person who is not a bank.

  4.202. Responsibility for Collection or Return;  When Action Timely

 (a) A collecting bank must exercise ordinary care in:

  (1) presenting an item or sending it for presentment;

  (2) sending notice of dishonor or nonpayment or returning an item other than a documentary draft to the bank's transferor after learning that the item has not been paid or accepted, as the case may be;

  (3) settling for an item when the bank receives final settlement;  and

  (4) notifying its transferor of any loss or delay in transit within a reasonable time after discovery thereof.

 (b) A collecting bank exercises ordinary care under Subsection (a) by taking proper action before its midnight deadline following receipt of an item, notice, or settlement.  Taking proper action within a reasonably longer time may constitute the exercise of ordinary care, but the bank has the burden of establishing timeliness.

 (c) Subject to Subsection (a)(1), a bank is not liable for the insolvency, neglect, misconduct, mistake, or default of another bank or person or for loss or destruction of an item in the possession of others or in transit.

  4.203. Effect of Instructions

 Subject to Chapter 3 concerning conversion of instruments (Section 3.420) and restrictive indorsements (Section 3.206), only a collecting bank's transferor can give instructions that affect the bank or constitute notice to it, and a collecting bank is not liable to prior parties for any action taken pursuant to the instructions or in accordance with any agreement with its transferor.

  4.204. Methods of Sending and Presenting;  Sending Directly to Payor Bank

 (a) A collecting bank shall send items by a reasonably prompt method, taking into consideration relevant instructions, the nature of the item, the number of those items on hand, the cost of collection involved, and the method generally used by it or others to present those items.

 (b) A collecting bank may send:

  (1) an item directly to the payor bank;

  (2) an item to a nonbank payor if authorized by its transferor;  and

  (3) an item other than a documentary draft to a nonbank payor, if authorized by Federal Reserve regulation or operating circular, clearinghouse rule, or  the like.

 (c) Presentment may be made by a presenting bank at a place where the payor bank or other payor has requested that presentment be made.

  4.205. Depository Bank Holder of Unindorsed Item

 If a customer delivers an item to a depositary bank for collection, the depositary bank:

  (1) becomes a holder of the item at the time it receives the item for collection if the customer at the time of delivery was a holder of the item, whether or not the customer indorses the item, and, if the bank satisfies the other requirements of Section 3.302, the bank is a holder in due course;  and

  (2) warrants to collecting banks, the payor bank or other payor, and the drawer that the amount of the item was paid to the customer or deposited to the customer's account.

  4.206. Transfer Between Banks

 Any agreed method that identifies the transferor bank is sufficient for the item's further transfer to another bank.

  4.207. Transfer Warranties

 (a) A customer or collecting bank that transfers an item and receives a settlement or other consideration warrants to the transferee and to any subsequent collecting bank that:

 (1) the warrantor is a person entitled to enforce the item;

  (2) all signatures on the item are authentic and authorized;

  (3) the item has not been altered;

  (4) the item is not subject to a defense or claim in recoupment (Section 3.305(a)) of any party that can be asserted against the warrantor;  and

  (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.

 (b) If an item is dishonored, a customer or collecting bank transferring the item and receiving settlement or other consideration is obliged to pay the amount due on the item (i) according to the terms of the item at the time it was transferred, or (ii) if the transfer was of an incomplete item, according to its terms when completed as stated in Sections 3.115 and 3.407.  The obligation of a transferor is owed to the transferee and to any subsequent collecting bank that takes the item in good faith.  A transferor cannot disclaim its obligation under this subsection by an indorsement stating that it is made "without recourse" or otherwise disclaiming liability.

 (c) A person to whom the warranties under Subsection (a) are made and who took the item in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, but not more than the amount of the item plus expenses and loss of interest incurred as a result of the breach.

 (d) 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 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the warrantor is discharged to the extent of any loss caused by the delay in giving notice of the claim.

 (e) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

  4.208. Presentment Warranties

 (a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee that pays or accepts the draft in good faith that:

  (1) the warrantor is, or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft;

  (2) the draft has not been altered;  and

  (3) the warrantor has no knowledge that the signature of the purported drawer of the draft is unauthorized.

 (b) A drawee making payment may recover from a warrantor damages for breach of warranty equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer because of the payment.  In addition, the drawee is entitled to compensation for expenses and loss of interest resulting from the breach.  The right of the drawee to recover damages under this subsection is not affected by any failure of the drawee to exercise ordinary care in making payment.  If the drawee accepts the draft, 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 a warrantor for breach of warranty the amounts stated in this subsection.

 (c) 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 Section 3.404 or 3.405 or the drawer is precluded under Section 3.406 or 4.406 from asserting against the drawee the unauthorized indorsement or alteration.

 (d) If (i) a dishonored draft is presented for payment to the drawer or an indorser, or (ii) any other item is presented for payment to a party obliged to pay the item, and the item is paid, the person obtaining payment and a prior transferor of the item warrant to the person making payment in good faith that the warrantor is, or was, at the time the warrantor transferred the item, a person entitled to enforce the item or authorized to obtain payment on behalf of a person entitled to enforce the item.  The person making payment may recover from any warrantor for breach of warranty an amount equal to the amount paid plus expenses and loss of interest resulting from the breach.

 (e) 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 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the warrantor is discharged to the extent of any loss caused by the delay in giving notice of the claim.

 (f) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

  4.209. Encoding and Retention Warranties

 (a) A person who encodes information on or with respect to an item after issue warrants to any subsequent collecting bank and to the payor bank or other payor that the information is correctly encoded.  If the customer of a depositary bank encodes, that bank also makes the warranty.

 (b) A person who undertakes to retain an item pursuant to an agreement for electronic presentment warrants to any subsequent collecting bank and to the payor bank or other payor that retention and presentment of the item comply with the agreement.  If a customer of a depositary bank undertakes to retain an item, that bank also makes this warranty.

 (c) A person to whom warranties are made under this section and who took the item in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, plus expenses and loss of interest incurred as a result of the breach.

  4.210. Security Interest of Collecting Bank in Items, Accompanying Documents and Proceeds

 (a) A collecting bank has a security interest in an item and any accompanying documents or the proceeds of either:

  (1) in case of an item deposited in an account, to the extent to which credit given for the item has been withdrawn or applied;

  (2) in case of an item for which it has given credit available for withdrawal as of right, to the extent of the credit given, whether or not the credit is drawn upon or there is a right of chargeback;  or

  (3) if it makes an advance on or against the item.

 (b) If credit given for several items received at one time or pursuant to a single agreement is withdrawn or applied in part, the security interest remains upon all the items, any accompanying documents, or the proceeds of either.  For the purpose of this section, credits first given are first withdrawn.

 (c) Receipt by a collecting bank of a final settlement for an item is a realization on its security interest in the item, accompanying documents, and proceeds.  So long as the bank does not receive final settlement for the item or give up possession of the item or accompanying documents for purposes other than collection, the security interest continues to that extent and is subject to Chapter 9, but:

  (1) no security agreement is necessary to make the security interest enforceable ( Section 9.203(a)(1));

  (2) no filing is required to perfect the security interest;  and

  (3) the security interest has priority over conflicting perfected security interests in the item, accompanying documents, or proceeds.

  4.211. When Bank Gives Value for Purposes of Holder in Due Course

 For purposes of determining its status as a holder in due course, a bank has given value to the extent it has a security interest in an item, if the bank otherwise complies with the requirements of Section 3.302 on what constitutes a holder in due course.

  4.212. Presentment by Notice of Item Not Payable by, Through or at a Bank;  Liability of Drawer or Indorser

 (a) Unless otherwise instructed, a collecting bank may present an item not payable by, through, or at a bank by sending to the party to accept or pay a written notice that the bank holds the item for acceptance or payment.  The notice must be sent in time to be received on or before the day when presentment is due, and the bank must meet any requirement of the party to accept or pay under Section 3.501 by the close of the bank's next banking day after it knows of the requirement.

 (b) If presentment is made by notice and payment, acceptance, or request for compliance with a requirement under Section 3.501 is not received by the close of business on the day after maturity or, in the case of demand items, by the close of business on the third banking day after notice was sent, the presenting bank may treat the item as dishonored and charge any drawer or indorser by sending it notice of the facts.

  4.213. Medium and Time of Settlement by Bank

 (a) With respect to settlement by a bank, the medium and time of settlement may be prescribed by Federal Reserve regulations or circulars, clearinghouse rules, and the like or by agreement.  In the absence of such a prescription:

  (1) the medium of settlement is cash or credit to an account in a Federal Reserve bank of or specified by the person to receive settlement;  and

  (2) the time of settlement is:

   (A) with respect to tender of settlement by cash, a cashier's check, or a teller's check, when the cash or check is sent or delivered;

   (B) with respect to tender of settlement by credit to an account in a   Federal Reserve bank, when the credit is made;

   (C) with respect to tender of settlement by a credit or debit to an account in a bank, when the credit or debit is made or, in the case of tender of settlement by authority to charge an account, when the authority is sent or delivered;  or

   (D) with respect to tender of settlement by a funds transfer, when payment is made pursuant to Section 4A.406(a) to the person receiving settlement.

 (b) If the tender of settlement is not by a medium authorized by Subsection  (a) or the time of settlement is not fixed by Subsection (a), a settlement does not occur until the tender of settlement is accepted by the person receiving settlement.

 (c) If settlement for an item is made by cashier's check or teller's check and the person receiving settlement, before its midnight deadline:

  (1) presents or forwards the check for collection, settlement is final when the check is finally paid;  or

  (2) fails to present or forward the check for collection, settlement is final at the midnight deadline of the person receiving settlement.

 (d) If settlement for an item is made by giving authority to charge the account of the bank giving settlement in the bank receiving settlement, settlement is final when the charge is made by the bank receiving settlement if there are funds available in the account for the amount of the item.

  4.214. Right of ChargeBack or Refund;  Liability of Collecting Bank;  Return of Item

 (a) If a collecting bank has made provisional settlement with its customer for an item and fails by reason of dishonor, suspension of payments by a bank, or otherwise to receive settlement for the item that is or becomes final, the bank may revoke the settlement given by it, charge back the amount of any credit given for the item to its customer's account, or obtain refund from its customer, whether or not it is able to return the item, if by its midnight deadline or within a longer reasonable time after it learns the facts it returns the item or sends notification of the facts.  If the return or notice is delayed beyond the bank's midnight deadline or a longer reasonable time after it learns the facts, the bank may revoke the settlement, charge back the credit, or obtain refund from its customers, but it is liable for any loss resulting from the delay.  These rights to revoke, chargeback, and obtain refund terminate if and when a settlement for the item received by the bank is or becomes final.

 (b) A collecting bank returns an item when it is sent or delivered to the bank's customer or transferor or pursuant to its instructions.

 (c) A depositary bank that is also the payor may chargeback the amount of an item to its customer's account or obtain refund in accordance with the section governing return of an item received by a payor bank for credit on its books (Section 4.301).

 (d) The right to chargeback is not affected by:

  (1) previous use of a credit given for the item;  or

  (2) failure by any bank to exercise ordinary care with respect to the item, but a bank so failing remains liable.

 (e) A failure to chargeback or claim refund does not affect other rights of the bank against the customer or any other party.

 (f) If credit is given in dollars as the equivalent of the value of an item payable in foreign money, the dollar amount of any chargeback or refund must be calculated on the basis of the bankoffered spot rate for the foreign money prevailing on the day when the person entitled to the chargeback or refund learns that it will not receive payment in ordinary course.

  4.215. Final Payment of Item by Payor Bank;  When Provisional Debits and Credits Become Final;  When Certain Credits Become Available for Withdrawal

 (a) An item is finally paid by a payor bank when the bank has first done any of the following:

  (1) paid the item in cash;

  (2) settled for the item without having a right to revoke the settlement under statute, clearinghouse rule, or agreement;  or

  (3) made a provisional settlement for the item and failed to revoke the settlement in the time and manner permitted by statute, clearinghouse rule, or agreement.

 (b) If provisional settlement for an item does not become final, the item is not finally paid.

 (c) If provisional settlement for an item between the presenting and payor banks is made through a clearing house or by debits or credits in an account between them, then to the extent that provisional debits or credits for the item are entered in accounts between the presenting and payor banks or between the presenting and successive prior collecting banks seriatim, they become final upon final payment of the item by the payor bank.

 (d) If a collecting bank receives a settlement for an item that is or becomes final, the bank is accountable to its customer for the amount of the item, and any provisional credit given for the item in an account with its customer becomes final.

 (e) Subject to (i) applicable law stating a time for availability of funds, and (ii) any right of the bank to apply the credit to an obligation of the customer, credit given by a bank for an item in a customer's account becomes available for withdrawal as of right if the bank:

  (1) has received a provisional settlement for the item,when the settlement becomes final and the bank has had a reasonable time to receive return of the item and the item has not been received within that time;  or

  (2) is both the depositary bank and the payor bank, and the item is finally  paid,at the opening of the bank's second banking day following receipt of the item.

 (f) Subject to applicable law stating a time for availability of funds and any right of a bank to apply a deposit to an obligation of the depositor, a deposit of money becomes available for withdrawal as of right at the opening of the bank's next banking day after receipt of the deposit.

  4.216. Insolvency and Preference

 (a) If an item is in or comes into the possession of a payor or collecting bank that suspends payment and the item has not been finally paid, the item must be returned by the receiver, trustee, or agent in charge of the closed bank to the presenting bank or the closed bank's customer.

 (b) If a payor bank finally pays an item and suspends payments without making a settlement for the item with its customer or the presenting bank, which settlement is or becomes final, the owner of the item has a preferred claim against the payor bank.

 (c) If a payor bank gives or a collecting bank gives or receives a provisional settlement for an item and thereafter suspends payments, the suspension does not prevent or interfere with the settlement's becoming final if the finality occurs automatically upon the lapse of certain time or the happening of certain events.

 (d) If a collecting bank receives from subsequent parties settlement for an item, which settlement is or becomes final, and the bank suspends payments without making a settlement for the item with its customer, which settlement is or becomes final, the owner of the item has a preferred claim against the collecting bank.

  4.301. Deferred Posting;  Recovery of Payment by Return of Items;  Time of Dishonor;  Return of Items by Payor Bank

 (a) If a payor bank settles for a demand item other than a documentary draft presented otherwise than for immediate payment over the counter before midnight of the banking day of receipt, the payor bank may revoke the settlement and recover the settlement if, before it has made final payment and before its midnight deadline, it:

  (1) returns the item;  or

  (2) sends written notice of dishonor or nonpayment if the item is unavailable for return.

 (b) If a demand item is received by a payor bank for credit on its books, it may return the item or send notice of dishonor and may revoke any credit given or recover the amount thereof withdrawn by its customer, if it acts within the time limit and in the manner specified in Subsection (a).

 (c) Unless previous notice of dishonor has been sent, an item is dishonored at the time when for purposes of dishonor it is returned or notice sent in accordance with this section.

 (d) An item is returned:

  (1) as to an item presented through a clearing house, when it is delivered to the presenting or last collecting bank or to the clearing house or is sent or delivered in accordance with clearinghouse rules;  or

  (2) in all other cases, when it is sent or delivered to the bank's customer or transferor or pursuant to instructions.

  4.302. Payor Bank's Responsibility for Late Return of Item

 (a) If an item is presented to and received by a payor bank, the bank is accountable for the amount of:

  (1) a demand item, other than a documentary draft, whether properly payable or not, if the bank, in any case in which it is not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, whether or not it is also the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline;  or

  (2) any other properly payable item unless, within the time allowed for  acceptance or payment of that item, the bank either accepts or pays the item or returns it and accompanying documents.

 (b) The liability of a payor bank to pay an item pursuant to Subsection (a) is subject to defenses based on breach of a presentment warranty (Section 4.208) or proof that the person seeking enforcement of the liability presented or transferred the item for the purpose of defrauding the payor bank.

  4.303. When Items Subject to Notice, StopPayment Order, Legal Process, or Setoff;  Order in Which Items May be Charged or Certified

 (a) Any knowledge, notice, or stoppayment order received by, legal process served upon, or setoff exercised by a payor bank comes too late to terminate, suspend, or modify the bank's right or duty to pay an item or to charge its customer's account for the item if the knowledge, notice, stoppayment order, or legal process is received or served and a reasonable time for the bank to act thereon expires or the setoff is exercised after the earliest of the following:

  (1) the bank accepts or certifies the item;

  (2) the bank pays the item in cash;

  (3) the bank settles for the item without having a right to revoke the settlement under statute, clearinghouse rule, or agreement;

  (4) the bank becomes accountable for the amount of the item under Section 4.302 dealing with the payor bank's responsibility for late return of items; or

  (5) with respect to checks, a cutoff hour not earlier than one hour after the opening of the next banking day after the banking day on which the bank received the check and not later than the close of that next banking day or, if no cutoff hour is fixed, the close of the next banking day after the banking day on which the bank received the check.

 (b) Subject to Subsection (a), items may be accepted, paid, certified, or charged to the indicated account of a bank's customer in any order and before or after the bank's regular banking hours.  A bank is under no obligation to determine the time of day an item is received and without liability may withhold the amount thereof pending a determination of the effect, consequence or priority of any knowledge, notice, stoppayment order, or legal process concerning the same, or interplead such amount and the claimants thereto.

  4.401. When Bank May Charge Customer's Account

 (a) A bank may charge against the account of a customer an item that is properly payable from that account even though the charge creates an overdraft.  An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and the bank.

 (b) A customer is not liable for the amount of an overdraft if the customer neither signed the item nor benefited from the proceeds of the item.

 (c) A bank may charge against the account of a customer a check that is otherwise properly payable from the account, even though payment was made before the date of the check, unless the customer has given notice to the bank of the postdating describing the check with reasonable certainty.  The notice is effective for the period stated in Section 4.403(b) for stoppayment orders and must be received at such time and in such manner as to afford the bank a reasonable opportunity to act on it before the bank takes any action with respect to the check described in Section 4.303.  If a bank charges against the account of a customer a check before the date stated in the notice of postdating, the bank is liable for damages for the loss resulting from its act.  The loss may include damages for dishonor of subsequent items under Section 4.402.

 (d) A bank that in good faith makes payment to a holder may charge the indicated account of its customer according to:

  (1) the original terms of the altered item;  or

  (2) the terms of the completed item, even though the bank knows the item has been completed, unless the bank has notice that the completion was improper.

  4.402. Bank's Liability to Customer for Wrongful Dishonor

 (a) Except as otherwise provided by this chapter, a payor bank wrongfully dishonors an item if it dishonors an item that is properly payable, but a bank may dishonor an item that would create an overdraft unless it has agreed to pay the overdraft.

 (b) A payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item.  Liability is limited to actual damages proved and may include damages for an arrest or prosecution of the customer or other consequential damages.  Whether any consequential damages are proximately caused by the wrongful dishonor is a question of fact to be determined in each case.

 (c) A payor bank's determination of the customer's account balance on which a decision to dishonor for insufficiency of available funds is based may be made at any time between the time the item is received by the payor bank and the time that the payor bank returns the item or gives notice in lieu of return, and no more than one determination need be made.  If, at the election of the payor bank, a subsequent balance determination is made for the purpose of reevaluating the bank's decision to dishonor the item, the account balance at that time is determinative of whether a dishonor for insufficiency of available funds is wrongful.

  4.403. Customer's Right to Stop Payment;  Burden of Proof of Loss

 (a) A customer or any person authorized to draw on the account if there is more than one person may stop payment of any item drawn on the customer's account or close the account by an order to the bank describing the item or account with reasonable certainty received at a time and in a manner that affords the bank a reasonable opportunity to act on it before any action by the bank with respect to the item described in Section 4.303.  If the signature of more than one person is required to draw on an account, any of those persons may stop payment or close the account.

 (b) A stoppayment order is effective for six months and is binding on the bank only if it is in writing, dated, and signed and describes the item with certainty.  A stoppayment order may be renewed for additional sixmonth periods by a writing given to the bank within a period during which the stop payment order is effective.

 (c) The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a stoppayment order or order to close an account is on the customer.  The loss from payment of an item contrary to a stoppayment order may include damages for dishonor of subsequent items under Section 4.402.

  4.404. Bank Not Obligated to Pay Check More Than Six Months Old

 A bank is under no obligation to a customer having a checking account to pay a check, other than a certified check, that is presented more than six months after its date, but it may charge its customer's account for a payment made thereafter in good faith.

  4.405. Death or Incompetence of Customer

 (a) A payor or collecting bank's authority to accept, pay, or collect an item or to account for proceeds of its collection, if otherwise effective, is not rendered ineffective by the incompetence of a customer of either bank existing at the time the item is issued or its collection is undertaken if the bank does not know of an adjudication of incompetence.  Neither death nor incompetence of a customer revokes the authority to accept, pay, collect, or account until the bank knows of the fact of death or of an adjudication of incompetence and has reasonable opportunity to act on it.

 (b) Even with knowledge, a bank may for 10 days after the date of death pay or certify checks drawn on or before that date unless ordered to stop payment by a person claiming an interest in the account.

  4.406. Customer's Duty to Discover and Report Unauthorized Signature or Alteration

 (a) A bank that sends or makes available to a customer a statement of account showing payment of items for the account shall either return or make available to the customer the items paid or provide information in the statement of account sufficient to allow the customer reasonably to identify the items paid.  The statement of account provides sufficient information if the item is described by item number, amount, and date of payment.  If the bank does not return the items, it shall provide in the statement of account the telephone number that the customer may call to request an item or a legible copy of the items pursuant to Subsection (b).

 (b) If the items are not returned to the customer, the person retaining the items shall either retain the items or, if the items are destroyed, maintain the capacity to furnish legible copies of the items until the expiration of seven years after receipt of the items.  A customer may request an item from the bank that paid the item, and that bank must provide in a reasonable time either the item or, if the item has been destroyed or is not otherwise obtainable, a legible copy of the item.  A bank shall provide, on request and without charge to the customer, at least two items or a legible copy of the items with respect to each statement of account sent to the customer.

 (c) If a bank sends or makes available a statement of account or items pursuant to Subsection (a), the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized.  If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.

 (d) If the bank proves that the customer failed, with respect to an item, to comply with the duties imposed on the customer by Subsection (c), the customer is precluded from asserting against the bank:

  (1) the customer's unauthorized signature or any alteration on the item, if the bank also proves that it suffered a loss by reason of the failure;  and

  (2) the customer's unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.

 (e) If Subsection (d) applies and the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure contributed to loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the extent to which the failure of the customer to comply with Subsection (c) and the failure of the bank to exercise ordinary care contributed to the loss.  If the customer proves that the bank did not pay the item in good faith, the preclusion under Subsection (d) does not apply.

 (f) Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement or items are made available to the customer (Subsection (a)) discover and report the customer's unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration.  If there is a preclusion under this subsection, the payor bank may not recover for breach of warranty under Section 4.208 with respect to the unauthorized signature or alteration to which the preclusion applies.

  4.407. Payor Bank's Right to Subrogation on Improper Payment

 If a payor bank has paid an item over the order of the drawer or maker to stop payment, or after an account has been closed, or otherwise under circumstances giving a basis for objection by the drawer or maker, to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of the item, the payor bank is subrogated to the rights:

  (1) of any holder in due course on the item against the drawer or maker;

  (2) of the payee or any other holder of the item against the drawer or maker either on the item or under the transaction out of which the item arose;  and

  (3) of the drawer or maker against the payee or any other holder of the item  with respect to the transaction out of which the item arose.

  4.501. Handling of Documentary Drafts;  Duty to Send for Presentment and to Notify Customer of Dishonor

 A bank that takes a documentary draft for collection shall present or send the draft and accompanying documents for presentment and, upon learning that the draft has not been paid or accepted in due course, shall seasonably notify its customer of the fact even though it may have discounted or bought the draft or extended credit available for withdrawal as of right.

  4.502. Presentment of "On Arrival" Drafts

 If a draft or the relevant instructions require presentment "on arrival",  "when goods arrive", or the like, the collecting bank need not present until in its judgment a reasonable time for arrival of the goods has expired.  Refusal to pay or accept because the goods have not arrived is not dishonor;  the bank must notify its transferor of the refusal but need not present the draft again until it is instructed to do so or learns of the arrival of the goods.

  4.503. Responsibility of Presenting Bank for Documents and Goods;  Report of Reasons for Dishonor;  Referee in Case of Need

 Unless otherwise instructed and except as provided in Chapter 5, a bank presenting a documentary draft:

  (1) must deliver the documents to the drawee on acceptance of the draft if it is payable more than three days after presentment;  otherwise, only on payment;  and

  (2) upon dishonor, either in the case of presentment for acceptance or presentment for payment, may seek and follow instructions from any referee in case of need designated in the draft or, if the presenting bank does not  choose to utilize the referee's services, it must use diligence and good faith to ascertain the reason for dishonor, must notify its transferor of the dishonor and of the results of its effort to ascertain the reasons therefor, and must request instructions.

 However, the presenting bank is under no obligation with respect to goods represented by the documents except to follow any reasonable instructions seasonably received;  it has a right to reimbursement for any expense incurred in following instructions and to prepayment of or indemnity for those expenses.

  4.504. Privilege of Presenting Bank to Deal With Goods;  Security Interest for Expenses

 (a) A presenting bank that, following the dishonor of a documentary draft, has seasonably requested instructions but does not receive them within a reasonable time may store, sell, or otherwise deal with the goods in any reasonable manner.

 (b) For its reasonable expenses incurred by action under Subsection (a) the presenting bank has a lien upon the goods or their proceeds, which may be foreclosed in the same manner as an unpaid seller's lien.


Funds Transfers

CHAPTER 4A. FUNDS TRANSFERS

  4A.101. Short Title

 This chapter may be cited as Uniform Commercial CodeFunds Transfers.

  4A.102. Subject Matter

 Except as otherwise provided in Section 4A.108, this chapter applies to funds transfers defined in Section 4A.104.

  4A.103. Payment OrderDefinitions

 (a) In this chapter:

  (1) "Payment order" means an instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, to pay, or to cause another bank to pay, a fixed or determinable amount of money to a beneficiary if:

   (A) the instruction does not state a condition of payment to the beneficiary other than the time of payment;

   (B) the receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender;  and

   (C) the instruction is transmitted by the sender directly to the receiving   bank or to an agent, funds transfer system, or communication system for transmittal to the receiving bank.

  (2) "Beneficiary" means the person to be paid by the beneficiary's bank.

  (3) "Beneficiary's bank" means the bank identified in a payment order in which an account of the beneficiary is to be credited pursuant to the order or which otherwise is to make payment to the beneficiary if the order does not provide for payment to an account.

  (4) "Receiving bank" means the bank to which the sender's instruction is addressed.

  (5) "Sender" means the person giving the instruction to the receiving bank.

 (b) If an instruction complying with Subsection (a)(1) is to make more than one payment to a beneficiary, the instruction is a separate payment order with respect to each payment.

 (c) A payment order is issued when it is sent to the receiving bank.

  4A.104. Funds TransferDefinitions

 In this chapter:

  (1) "Funds transfer" means the series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order.  The term includes any payment order issued by the originator's bank or an intermediary bank intended to carry out the originator's payment order.  A funds transfer is completed by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary of the originator's payment order.

  (2) "Intermediary bank" means a receiving bank other than the originator's  bank or the beneficiary's bank.

  (3) "Originator" means the sender of the first payment order in a funds transfer.

  (4) "Originator's bank" means:

   (A) the receiving bank to which the payment order of the originator is issued if the originator is not a bank;  or

   (B) the originator if the originator is a bank.

  4A.105. Other Definitions

 (a) In this chapter:

  (1) "Authorized account" means a deposit account of a customer in a bank designated by the customer as a source of payment of payment orders issued by the customer to the bank.  If a customer does not so designate an account, any account of the customer is an authorized account if payment of a payment order from that account is not inconsistent with a restriction on the use of that account.

  (2) "Bank" means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit union, and trust company.  A branch or separate office of a bank is a separate bank for purposes of this chapter.

  (3) "Customer" means a person, including a bank, having an account with a bank or from whom a bank has agreed to receive payment orders.

  (4) "Funds transfer business day" of a receiving bank means the part of a day during which the receiving bank is open for the receipt, processing, and transmittal of payment orders and cancellations and amendments of payment orders.

  (5) "Funds transfer system" means a wire transfer network, automated clearinghouse, or other communication system of a clearinghouse or other association of banks through which a payment order by a bank may be transmitted to the bank to which the order is addressed.

  (6) "Good faith" means honesty in fact and the observance of reasonable commercial standards of fair dealing.

  (7) "Prove" with respect to a fact means to meet the burden of establishing the fact (Section 1.201(8)).

 (b) Other definitions applying to this chapter and the sections in which they appear are:

  (1) "Acceptance."  Section 4A.209.

  (2) "Beneficiary."  Section 4A.103.

  (3) "Beneficiary's bank."  Section 4A.103.

  (4) "Executed."  Section 4A.301.

  (5) "Execution date."  Section 4A.301.

  (6) "Funds transfer."  Section 4A.104.

  (7) "Funds transfer system rule."  Section 4A.501.

  (8) "Intermediary bank."  Section 4A.104.

  (9) "Originator."  Section 4A.104.

  (10) "Originator's bank."  Section 4A.104.

  (11) "Payment by beneficiary's bank to beneficiary."  Section 4A.405.

  (12) "Payment by originator to beneficiary."  Section 4A.406.

  (13) "Payment by sender to receiving bank."  Section 4A.403.

  (14) "Payment date."  Section 4A.401.

  (15) "Payment order."  Section 4A.103.

  (16) "Receiving bank."  Section 4A.103.

  (17) "Security procedure."  Section 4A.201.

  (18) "Sender."  Section 4A.103.

 (c) The following definitions in Chapter 4 apply to this chapter:

  (1) "Clearinghouse."  Section 4.104.

  (2) "Item."  Section 4.104.

  (3) "Suspends payments."  Section 4.104.

 (d) In addition, Chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.

  4A.106. Time Payment Order is Received

 (a) The time of receipt of a payment order or communication cancelling or amending a payment order is determined by the rules applicable to receipt of a notice stated in Section 1.201.  A receiving bank may fix a cutoff time or times on a funds transfer business day for the receipt and processing of payment orders and communications cancelling or amending payment orders. Different cutoff times may apply to payment orders, cancellations, or amendments, or to different categories of payment orders, cancellations, or amendments.  A cutoff time may apply to senders generally or different cutoff times may apply to different senders or categories of payment orders.  If a payment order or communication cancelling or amending a payment order is received after the close of a funds transfer business day or after the appropriate cutoff time on a funds transfer business day, the receiving bank may treat the payment order or communication as received at the opening of the next funds transfer business day.

 (b) If this chapter refers to an execution date or payment date or states a day on which a receiving bank is required to take action, and the date or day does not fall on a funds transfer business day, the next day that is a funds transfer business day is treated as the date or day stated, unless the contrary is stated in this chapter.

  4A.107. Federal Reserve Regulations and Operating Circulars

 Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of this chapter to the extent of the inconsistency.

  4A.108. Exclusion of Consumer Transactions Governed by Federal Law

 This chapter does not apply to a funds transfer any part of which is governed by the Electronic Fund Transfer Act, 15 U.S.C. Sec. 1693 et seq., as amended from time to time.

  4A.201. Security Procedure

 "Security procedure" means a procedure established by an agreement between a customer and a receiving bank for the purpose of (i) verifying that a payment order or communication amending or cancelling a payment order is that of the customer, or (ii) detecting error in the transmission or the content of the payment order or communication.  A security procedure may require the use of algorithms or other codes, identifying words or numbers, encryption, callback procedures, or similar security devices.  Comparison of a signature on a payment order or communication with an authorized specimen signature of the customer is not by itself a security procedure.

  4A.202. Authorized and Verified Payment Orders

 (a) A payment order received by the receiving bank is the authorized order of the person identified as sender if that person authorized the order or is otherwise bound by it under the law of agency.

 (b) If a bank and its customer have agreed that the authenticity of payment orders issued to the bank in the name of the customer as sender will be verified pursuant to a security procedure, a payment order received by the receiving bank is effective as the order of the customer, whether or not authorized, if (i) the security procedure is a commercially reasonable method of providing security against unauthorized payment orders, and (ii) the bank proves that it accepted the payment order in good faith and in compliance with the security procedure and any written agreement or instruction of the customer restricting acceptance of payment orders issued in the name of the customer. The bank is not required to follow an instruction that violates a written agreement with the customer or notice of which is not received at a time and in a manner affording the bank a reasonable opportunity to act on it before the payment order is accepted.

 (c) Commercial reasonableness of a security procedure is a question of law to be determined by considering the wishes of the customer expressed to the bank, the circumstances of the customer known to the bank, including the size, type, and frequency of payment orders normally issued by the customer to the bank, alternative security procedures offered to the customer, and security procedures in general use by customers and receiving banks similarly situated. A security procedure is deemed to be commercially reasonable if:

  (1) the security procedure was chosen by the customer after the bank offered, and the customer refused, a security procedure that was commercially reasonable for the customer;  and

  (2) the customer expressly agreed in writing to be bound by any payment order, whether or not authorized, issued in its name and accepted by the bank in compliance with the security procedure chosen by the customer.

 (d) The term "sender" in this chapter includes the customer in whose name a payment order is issued if the order is the authorized order of the customer under Subsection (a) or it is effective as the order of the customer under Subsection (b).

 (e) This section applies to amendments and cancellations of payment orders to the same extent it applies to payment orders.

 (f) Except as provided in this section and in Section 4A.203(a)(1), the rights and obligations arising under this section or Section 4A.203 may not be varied by agreement.

  4A.203. Unenforceability of Certain Verified Payment Orders

 (a) If an accepted payment order is not, under Section 4A.202(a), an authorized order of a customer identified as sender, but is effective as an order of the customer pursuant to Section 4A.202(b), the following rules apply:

  (1) By express written agreement, the receiving bank may limit the extent to which it is entitled to enforce or retain payment of the payment order.

  (2) The receiving bank is not entitled to enforce or retain payment of the payment order if the customer proves that the order was not caused, directly or indirectly, by a person:

   (A) entrusted at any time with duties to act for the customer with respect   to payment orders or the security procedure;  or

   (B) who obtained access to transmitting facilities of the customer or who obtained, from a source controlled by the customer and without authority of the receiving bank, information facilitating breach of the security procedure, regardless of how the information was obtained or whether the customer was at fault.  Information includes any access device, computer software, or the like.

 (b) This section applies to amendments of payment orders to the same extent it applies to payment orders.

  4A.204. Refund of Payment and Duty of Customer to Report With Respect to Unauthorized Payment Order

 (a) If a receiving bank accepts a payment order issued in the name of its customer as sender which is (i) not authorized and not effective as the order of the customer under Section 4A.202, or (ii) not enforceable, in whole or in part, against the customer under Section 4A.203, the bank shall refund any payment of the payment order received from the customer to the extent the bank is not entitled to enforce payment and shall pay interest on the refundable amount calculated from the date the bank received payment to the date of the refund.  However, the customer is not entitled to interest from the bank on the amount to be refunded if the customer fails to exercise ordinary care to determine that the order was not authorized by the customer and to notify the bank of the relevant facts within a reasonable time not exceeding 90 days after the date the customer received notification from the bank that the order was accepted or that the customer's account was debited with respect to the order. The bank is not entitled to any recovery from the customer on account of a failure by the customer to give notification as stated in this section.

 (b) Reasonable time under Subsection (a) may be fixed by agreement as stated in Section 1.204, but the obligation of a receiving bank to refund payment as stated in Subsection (a) may not otherwise be varied by agreement.

  4A.205. Erroneous Payment Orders

 (a) If an accepted payment order was transmitted pursuant to a security procedure for the detection of error and the payment order (i) erroneously instructed payment to a beneficiary not intended by the sender, (ii) erroneously instructed payment in an amount greater than the amount intended by the sender, or (iii) was an erroneously transmitted duplicate of a payment order previously sent by the sender, the following rules apply:

  (1) If the sender proves that the sender or a person acting on behalf of the sender pursuant to Section 4A.206 complied with the security procedure and that the error would have been detected if the receiving bank had also  complied, the sender is not obliged to pay the order to the extent stated in Subdivisions (2) and (3).

  (2) If the funds transfer is completed on the basis of an erroneous payment order described in clause (i) or (iii) of Subsection (a), the sender is not obliged to pay the order and the receiving bank is entitled to recover from the beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution.

  (3) If the funds transfer is completed on the basis of a payment order described in clause (ii) of Subsection (a), the sender is not obliged to pay the order to the extent the amount received by the beneficiary is greater than the amount intended by the sender.  In that case, the receiving bank is entitled to recover from the beneficiary the excess amount received to the extent allowed by the law governing mistake and restitution.

 (b) If (i) the sender of an erroneous payment order described in Subsection  (a) is not obliged to pay all or part of the order, and (ii) the sender receives notification from the receiving bank that the order was accepted by the bank or that the sender's account was debited with respect to the order, the sender has a duty to exercise ordinary care, on the basis of information available to the sender, to discover the error with respect to the order and to advise the bank of the relevant facts within a reasonable time, not exceeding 90 days, after the bank's notification was received by the sender.  If the bank proves that the sender failed to perform that duty, the sender is liable to the bank for the loss the bank proves it incurred as a result of the failure, but the liability of the sender may not exceed the amount of the sender's order.

 (c) This section applies to amendments to payment orders to the same extent it applies to payment orders.

  4A.206. Transmission of Payment Order Through Funds Transfer or Other Communication System

 (a) If a payment order addressed to a receiving bank is transmitted to a funds transfer system or other thirdparty communication system for transmittal to the bank, the system is deemed to be an agent of the sender for the purpose of transmitting the payment order to the bank.  If there is a discrepancy between the terms of the payment order transmitted to the system and the terms of the payment order transmitted by the system to the bank, the terms of the payment order of the sender are those transmitted by the system.  This section does not apply to a funds transfer system of the Federal Reserve Banks.

 (b) This section applies to cancellations and amendments of payment orders to the same extent it applies to payment orders.

  4A.207. Misdescription of Beneficiary

 (a) Subject to Subsection (b), if, in a payment order received by the beneficiary's bank, the name, bank account number, or other identification of the beneficiary refers to a nonexistent or unidentifiable person or account, no person has rights as a beneficiary of the order and acceptance of the order cannot occur.

 (b) If a payment order received by the beneficiary's bank identifies the beneficiary both by name and by an identifying or bank account number and the name and number identify different persons, the following rules apply:

  (1) Except as provided in Subsection (c), if the beneficiary's bank does not  know that the name and number refer to different persons or if the funds transfer is processed by the beneficiary bank in a fully automated manner, it may rely on the number as the proper identification of the beneficiary of the order.  The beneficiary's bank need not determine whether the name and number refer to the same person.

  (2) If the beneficiary's bank pays the person identified by name or any individual processing the funds transfer on behalf of the beneficiary bank knows that the name and number identify different persons, no person has rights as beneficiary except the person paid by the beneficiary's bank if that person was entitled to receive payment from the originator of the funds transfer.  If no person has rights as beneficiary, acceptance of the order cannot occur.

 (c) If (i) a payment order described in Subsection (b) is accepted, (ii) the originator's payment order described the beneficiary inconsistently by name and number, and (iii) the beneficiary's bank pays the person identified by number as permitted by Subsection (b)(1), the following rules apply:

  (1) If the originator is a bank, the originator is obliged to pay its order.

  (2) If the originator is not a bank and proves that the person identified by number was not entitled to receive payment from the originator, the originator is not obliged to pay its order unless the originator's bank proves that the  originator, before acceptance of the originator's order, had notice that payment of a payment order issued by the originator might be made by the beneficiary's bank on the basis of an identifying or bank account number even if it identifies a person different from the named beneficiary.  Proof of notice may be made by any admissible evidence.  The originator's bank satisfies the burden of proof if it proves that the originator, before the payment order was accepted, signed a writing stating the information to which the notice relates.

 (d) In a case governed by Subsection (b)(1), if the beneficiary's bank rightfully pays the person identified by number and that person was not entitled to receive payment from the originator, the amount paid may be recovered from that person to the extent allowed by the law governing mistake and restitution as follows:

  (1) If the originator is obliged to pay its payment order as stated in Subsection (c), the originator has the right to recover.

  (2) If the originator is not a bank and is not obliged to pay its payment order, the originator's bank has the right to recover.

  4A.208. Misdescription of Intermediary Bank or Beneficiary's Bank

 (a) This subsection applies to a payment order identifying an intermediary bank or the beneficiary's bank only by an identifying number.

  (1) The receiving bank may rely on the number as the proper identification of the intermediary or beneficiary's bank and does not need to determine whether the number identifies a bank.

  (2) The sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of its reliance on the number in executing or attempting to execute the order.

 (b) This subsection applies to a payment order identifying an intermediary bank or the beneficiary's bank both by name and an identifying number if the name and number identify different persons.

  (1) If the sender is a bank, the receiving bank may rely on the number as the proper identification of the intermediary or beneficiary's bank if the receiving bank, when it executes the sender's order, does not know that the name and number identify different persons.  The receiving bank need not determine whether the name and number refer to the same person or whether the number refers to a bank.  The sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of its reliance on the number in executing or attempting to execute the order.

  (2) If the sender is not a bank and the receiving bank proves that the sender, before the payment order was accepted, had notice that the receiving bank might rely on the number as the proper identification of the intermediary or beneficiary's bank even if it identifies a person different from the bank identified by name, the rights and obligations of the sender and the receiving bank are governed by Subsection (b)(1), as though the sender were a bank. Proof of notice may be made by any admissible evidence.  The receiving bank satisfies the burden of proof if it proves that the sender, before the payment order was accepted, signed a writing stating the information to which the notice relates.

  (3) Regardless of whether the sender is a bank, the receiving bank may rely on the name as the proper identification of the intermediary or beneficiary's bank if the receiving bank, at the time it executes the sender's order, does not know that the name and number identify different persons.  The receiving bank need not determine whether the name and number refer to the same person.

  (4) If the receiving bank knows that the name and number identify different persons, reliance on either the name or the number in executing the sender's payment order is a breach of the obligation stated in Section 4A.302(a)(1).

  4A.209. Acceptance of Payment Order

 (a) Subject to Subsection (d), a receiving bank other than the beneficiary's bank accepts a payment order when it executes the order.

 (b) Subject to Subsections (c) and (d), a beneficiary's bank accepts a payment order at the earliest of the following times:

  (1) when the bank (i) pays the beneficiary as stated in Section 4A.405(a) or  (b), or (ii) notifies the beneficiary of receipt of the order or that the account of the beneficiary has been credited with respect to the order unless the notice indicates that the bank is rejecting the order or that funds with respect to the order may not be withdrawn or used until receipt of payment  from the sender of the order;

  (2) when the bank receives payment of the entire amount of the sender's order pursuant to Section 4A.403(a)(1) or (2);  or

  (3) the opening of the next funds transfer business day of the bank following the payment date of the order if, at that time, the amount of the sender's order is fully covered by a withdrawable credit balance in an authorized account of the sender or the bank has otherwise received full payment from the sender, unless the order was rejected before that time or is rejected within (i) one hour after that time, or (ii) one hour after the opening of the next business day of the sender following the payment date if that time is later. If notice of rejection is received by the sender after the payment date and the authorized account of the sender does not bear interest, the bank is obliged to pay interest to the sender on the amount of the order for the number of days elapsing after the payment date to the day the sender receives notice or learns that the order was not accepted, counting that day as an elapsed day.  If the withdrawable credit balance during that period falls below the amount of the order, the amount of interest payable is reduced accordingly.

 (c) Acceptance of a payment order cannot occur before the order is received by the receiving bank.  Acceptance does not occur under Subsection (b)(2) or (3) if the beneficiary of the payment order does not have an account with the receiving bank, the account has been closed, or the receiving bank is not permitted by law to receive credits for the beneficiary's account.

 (d) A payment order issued to the originator's bank cannot be accepted until the payment date if the bank is the beneficiary's bank, or the execution date if the bank is not the beneficiary's bank.  If the originator's bank executes the originator's payment order before the execution date or pays the beneficiary of the originator's payment order before the payment date and the payment order is subsequently canceled pursuant to Section 4A.211(b), the bank may recover from the beneficiary any payment received to the extent allowed by the law governing mistake and restitution.

  4A.210. Rejection of Payment Order

 (a) A payment order is rejected by the receiving bank by a notice of rejection transmitted to the sender orally, electronically, or in writing.  A notice of rejection need not use any particular words and is sufficient if it indicates that the receiving bank is rejecting the order or will not execute or pay the order.  Rejection is effective when the notice is given if transmission is by a means that is reasonable under the circumstances.  If notice of rejection is given by a means that is not reasonable, rejection is effective when the notice is received.  If an agreement of the sender and receiving bank establishes the means to be used to reject a payment order:

  (1) any means complying with the agreement is reasonable;  and

  (2) any means not complying is not reasonable unless no significant delay in receipt of the notice resulted from the use of the noncomplying means.

 (b) This subsection applies if a receiving bank other than the beneficiary's bank fails to execute a payment order despite the existence on the execution date of a withdrawable credit balance in an authorized account of the sender sufficient to cover the order.  If the sender does not receive notice of rejection of the order on the execution date and the authorized account of the sender does not bear interest, the bank is obliged to pay interest to the sender on the amount of the order for the number of days elapsing after the execution date to the earlier of the day the order is canceled pursuant to Section 4A.211(d) or the day the sender receives notice or learns that the order was not executed, counting the final day of the period as an elapsed day.  If the withdrawable credit balance during that period falls below the amount of the order, the amount of interest is reduced accordingly.

 (c) If a receiving bank suspends payments, all unaccepted payment orders issued to it are deemed rejected at the time the bank suspends payments.

 (d) Acceptance of a payment order precludes a later rejection of the order.  Rejection of a payment order precludes a later acceptance of the order.

  4A.211. Cancellation and Amendment of Payment Order

 (a) A communication of the sender of a payment order cancelling or amending the order may be transmitted to the receiving bank orally, electronically, or in writing.  If a security procedure is in effect between the sender and the receiving bank, the communication is not effective to cancel or amend the order unless the communication is verified pursuant to the security procedure or the bank agrees to the cancellation or amendment.

 (b) Subject to Subsection (a), a communication by the sender cancelling or amending a payment order is effective to cancel or amend the order if notice of the communication is received at a time and in a manner affording the receiving bank a reasonable opportunity to act on the communication before the bank accepts the payment order.

 (c) After a payment order has been accepted, cancellation or amendment of the order is not effective unless the receiving bank agrees or a funds transfer system rule allows cancellation or amendment without agreement of the bank.

  (1) With respect to a payment order accepted by a receiving bank other than the beneficiary's bank, cancellation or amendment is not effective unless a conforming cancellation or amendment of the payment order issued by the receiving bank is also made.

  (2) With respect to a payment order accepted by the beneficiary's bank, cancellation or amendment is not effective unless the order was issued in execution of an unauthorized payment order or because of a mistake by a sender in the funds transfer which resulted in the issuance of a payment order (i) that is a duplicate of a payment order previously issued by the sender, (ii) that orders payment to a beneficiary not entitled to receive payment from the originator, or (iii) that orders payment in an amount greater than the amount the beneficiary was entitled to receive from the originator.  If the payment order is canceled or amended, the beneficiary's bank is entitled to recover from the beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution.

 (d) An unaccepted payment order is canceled by operation of law at the close of the fifth funds transfer business day of the receiving bank after the execution date or payment date of the order.

 (e) A canceled payment order cannot be accepted.  If an accepted payment order is canceled, the acceptance is nullified and no person has any right or obligation based on the acceptance.  Amendment of a payment order is deemed to be cancellation of the original order at the time of amendment and issue of a new payment order in the amended form at the same time.

 (f) Unless otherwise provided in an agreement of the parties or in a funds transfer system rule, if the receiving bank, after accepting a payment order, agrees to cancellation or amendment of the order by the sender or is bound by a funds transfer system rule allowing cancellation or amendment without the bank's agreement, the sender, whether or not cancellation or amendment is effective, is liable to the bank for any loss and expenses, including reasonable attorney's fees, incurred by the bank as a result of the cancellation or amendment or attempted cancellation or amendment.

 (g) A payment order is not revoked by the death or legal incapacity of the sender unless the receiving bank knows of the death or of an adjudication of incapacity by a court of competent jurisdiction and has reasonable opportunity to act before acceptance of the order.

 (h) A funds transfer system rule is not effective to the extent it conflicts with Subsection (c)(2).

  4A.212. Liability and Duty of Receiving Bank Regarding Unaccepted Payment Order

 If a receiving bank fails to accept a payment order that it is obliged by express agreement to accept, the bank is liable for breach of the agreement to the extent provided in the agreement or in this chapter, but does not otherwise have any duty to accept a payment order or, before acceptance, to take any action, or refrain from taking action, with respect to the order except as provided in this chapter or by express agreement.  Liability based on acceptance arises only when acceptance occurs as stated in Section 4A.209, and liability is limited to that provided in this chapter.  A receiving bank is not the agent of the sender or beneficiary of the payment order it accepts, or of any other party to the funds transfer, and the bank owes no duty to any party to the funds transfer except as provided in this chapter or by express agreement.

  4A.301. Execution and Execution Date

 (a) A payment order is "executed" by the receiving bank when it issues a payment order intended to carry out the payment order received by the bank.  A payment order received by the beneficiary's bank can be accepted but cannot be executed.

 (b) "Execution date" of a payment order means the date on which the receiving bank may properly issue a payment order in execution of the sender's order. The execution date may be determined by instruction of the sender but cannot be earlier than the day the order is received and, unless otherwise determined, is the day the order is received.  If the sender's instruction states a payment date, the execution date is the payment date or an earlier date on which execution is reasonably necessary to allow payment to the beneficiary on the payment date.

  4A.302. Obligations of Receiving Bank in Execution of Payment Order

 (a) Except as provided in Subsections (b) through (d), if the receiving bank accepts a payment order pursuant to Section 4A.209(a), the bank has the following obligations in executing the order:

  (1) The receiving bank is obliged to issue, on the execution date, a payment order complying with the sender's order and to follow the sender's instructions concerning (i) any intermediary bank or funds transfer system to be used in carrying out the funds transfer, or (ii) the means by which payment orders are to be transmitted in the funds transfer.  If the originator's bank issues a payment order to an intermediary bank, the originator's bank is  obliged to instruct the intermediary bank according to the instruction of the originator.  An intermediary bank in the funds transfer is similarly bound by an instruction given to it by the sender of the payment order it accepts.

  (2) If the sender's instruction states that the funds transfer is to be carried out telephonically or by wire transfer or otherwise indicates that the funds transfer is to be carried out by the most expeditious means, the receiving bank is obliged to transmit its payment order by the most expeditious available means and to instruct any intermediary bank accordingly.  If a sender's instruction states a payment date, the receiving bank is obliged to transmit its payment order at a time and by means reasonably necessary to allow payment to the beneficiary on the payment date or as soon thereafter as is feasible.

 (b) Unless otherwise instructed, a receiving bank executing a payment order may (i) use any funds transfer system if use of that system is reasonable in the circumstances, and (ii) issue a payment order to the beneficiary's bank or to an intermediary bank through which a payment order conforming to the sender's order can expeditiously be issued to the beneficiary's bank if the receiving bank exercises ordinary care in the selection of the intermediary bank.  A receiving bank is not required to follow an instruction of the sender designating a funds transfer system to be used in carrying out the funds transfer if the receiving bank, in good faith, determines that it is not feasible to follow the instruction or that following the instruction would unduly delay completion of the funds transfer.

 (c) Unless Subsection (a)(2) applies or the receiving bank is otherwise instructed, the bank may execute a payment order by transmitting its payment order by first class mail or by any means reasonable in the circumstances.  If the receiving bank is instructed to execute the sender's order by transmitting its payment order by a particular means, the receiving bank may issue its payment order by the means stated or by any means as expeditious as the means stated.

 (d) Unless instructed by the sender, (i) the receiving bank may not obtain payment of its charges for services and expenses in connection with the execution of the sender's order by issuing a payment order in an amount equal to the amount of the sender's order less the amount of the charges, and (ii) may not instruct a subsequent receiving bank to obtain payment of its charges in the same amount.

  4A.303. Erroneous Execution of Payment Order

 (a) A receiving bank that (i) executes the payment order of the sender by issuing a payment order in an amount greater than the amount of the sender's order or (ii) issues a payment order in execution of the sender's order and then issues a duplicate order, is entitled to payment of the amount of the sender's order under Section 4A.402(c) if that subsection is otherwise satisfied.  The bank is entitled to recover from the beneficiary of the erroneous order the excess payment received to the extent allowed by the law governing mistake and restitution.

 (b) A receiving bank that executes the payment order of the sender by issuing a payment order in an amount less than the amount of the sender's order is entitled to payment of the amount of the sender's order under Section 4A.402(c) if (i) that subsection is otherwise satisfied and (ii) the bank corrects its mistake by issuing an additional payment order for the benefit of the beneficiary of the sender's order.  If the error is not corrected, the issuer of the erroneous order is entitled to receive or retain payment from the sender of the order it accepted only to the extent of the amount of the erroneous order.  This subsection does not apply if the receiving bank executes the sender's payment order by issuing a payment order in an amount less than the amount of the sender's order for the purpose of obtaining payment of its charges for services and expenses pursuant to instruction of the sender.

 (c) If a receiving bank executes the payment order of the sender by issuing a payment order to a beneficiary different from the beneficiary of the sender's order and the funds transfer is completed on the basis of that error, the sender of the payment order that was erroneously executed and all previous senders in the funds transfer are not obliged to pay the payment orders they issued.  The issuer of the erroneous order is entitled to recover from the beneficiary of the order the payment received to the extent allowed by the law governing mistake and restitution.

  4A.304. Duty of Sender to Report Erroneously Executed Payment Order

 If the sender of a payment order that is erroneously executed as stated in Section 4A.303 receives notification from the receiving bank that the order was executed or that the sender's account was debited with respect to the order, the sender has a duty to exercise ordinary care to determine, on the basis of information available to the sender, that the order was erroneously executed and to notify the bank of the relevant facts within a reasonable time not exceeding 90 days after the notification from the bank was received by the sender.  If the sender fails to perform that duty, the bank is not obliged to pay interest on any amount refundable to the sender under Section 4A.402(d) for the period before the bank learns of the execution error.  The bank is not entitled to any recovery from the sender on account of a failure by the sender to perform the duty stated in this section.

  4A.305. Liability for Late or Improper Execution or Failure to Execute Payment Order

 (a) If a funds transfer is completed but execution of a payment order by the receiving bank in breach of Section 4A.302 of this chapter results in delay in payment to the beneficiary, the bank is obliged to pay interest to either the originator or the beneficiary of the funds transfer for the period of delay caused by the improper execution.  Except as provided by Subsection (c), additional damages are not recoverable.

 (b) If execution of a payment order by a receiving bank in breach of Section 4A.302 results in (i) noncompletion of the funds transfer, (ii) failure to use an intermediary bank designated by the originator, or (iii) issuance of a payment order that does not comply with the terms of the payment order of the originator, the bank is liable to the originator for its expenses in the funds transfer and for incidental expenses and interest losses, to the extent not covered by Subsection (a) of this section, resulting from the improper execution.  Except as provided by Subsection (c), additional damages are not recoverable.

 (c) In addition to the amounts payable under Subsections (a) and (b), damages, including consequential damages, are recoverable to the extent provided in an express written agreement of the receiving bank.

 (d) If a receiving bank fails to execute a payment order it was obliged by express agreement to execute, the receiving bank is liable to the sender for its expenses in the transaction and for incidental expenses and interest losses resulting from the failure to execute.  Additional damages, including consequential damages, are recoverable to the extent provided in an express written agreement of the receiving bank, but are not otherwise recoverable.

 (e) Reasonable attorney's fees are recoverable if demand for compensation under Subsection (a) or (b) is made and refused before an action is brought on the claim.  If a claim is made for breach of an agreement under Subsection (d) and the agreement does not provide for damages, reasonable attorney's fees are recoverable if demand for compensation under Subsection (d) of this section is made and refused before an action is brought on the claim.

 (f) Except as provided by this section, the liability of a receiving bank under Subsections (a) and (b) of this section may not be varied by agreement.

  4A.401. Payment Date

 "Payment date" of a payment order means the day on which the amount of the order is payable to the beneficiary by the beneficiary's bank.  The payment date may be determined by instruction of the sender but cannot be earlier than the day the order is received by the beneficiary's bank and, unless otherwise determined, is the day the order is received by the beneficiary's bank.

  4A.402. Obligation of Sender to Pay Receiving Bank

 (a) This section is subject to Sections 4A.205 and 4A.207.

 (b) With respect to a payment order issued to the beneficiary's bank, acceptance of the order by the bank obliges the sender to pay the bank the amount of the order, but payment is not due until the payment date of the order.

 (c) This subsection is subject to Subsection (e) and to Section 4A.303.  With respect to a payment order issued to a receiving bank other than the beneficiary's bank, acceptance of the order by the receiving bank obliges the sender to pay the bank the amount of the sender's order.  Payment by the sender is not due until the execution date of the sender's order.  The obligation of that sender to pay its payment order is excused if the funds transfer is not completed by acceptance by the beneficiary's bank of a payment order instructing payment to the beneficiary of that sender's payment order.

 (d) If the sender of a payment order pays the order and was not obliged to pay all or part of the amount paid, the bank receiving payment is obliged to refund payment to the extent the sender was not obliged to pay.  Except as provided by Sections 4A.204 and 4A.304, interest is payable on the refundable amount from the date of payment.

 (e) If a funds transfer is not completed as provided by Subsection (c) and an intermediary bank is obliged to refund payment as provided by Subsection (d) but is unable to do so because not permitted by applicable law or because the bank suspends payments, a sender in the funds transfer that executed a payment order in compliance with an instruction, as provided by Section 4A.302(a)(1), to route the funds transfer through that intermediary bank is entitled to receive or retain payment from the sender of the payment order that it accepted.  The first sender in the funds transfer that issued an instruction requiring routing through that intermediary bank is subrogated to the right of the bank that paid the intermediary bank to a refund as stated in Subsection (d).

 (f) The right of the sender of a payment order to be excused from the obligation to pay the order as stated in Subsection (c) or to receive a refund under Subsection (d) may not be varied by agreement.

  4A.403. Payment by Sender to Receiving Bank

 (a) Payment of the sender's obligation under Section 4A.402 to pay the receiving bank occurs as follows:

  (1) If the sender is a bank, payment occurs when the receiving bank receives final settlement of the obligation through a Federal Reserve Bank or through a funds transfer system.

  (2) If the sender is a bank and the sender (i) credited an account of the receiving bank with the sender, or (ii) caused an account of the receiving bank in another bank to be credited, payment occurs when the credit is withdrawn or, if not withdrawn, at midnight of the day on which the credit is  withdrawable and the receiving bank learns of that fact.

  (3) If the receiving bank debits an account of the sender with the receiving bank, payment occurs when the debit is made to the extent the debit is covered by a withdrawable credit balance in the account.

 (b) If the sender and receiving bank are members of a funds transfer system that nets obligations multilaterally among participants, the receiving bank receives final settlement when settlement is complete in accordance with the rules of the system.  The obligation of the sender to pay the amount of a payment order transmitted through the funds transfer system may be satisfied, to the extent permitted by the rules of the system, by setting off and applying against the sender's obligation the right of the sender to receive payment from the receiving bank of the amount of any other payment order transmitted to the sender by the receiving bank through the funds transfer system.  The aggregate balance of obligations owed by each sender to each receiving bank in the funds transfer system may be satisfied, to the extent permitted by the rules of the system, by setting off and applying against that balance the aggregate balance of obligations owed to the sender by other members of the system.  The aggregate balance is determined after the right of setoff stated in the second sentence of this subsection has been exercised.

 (c) If two banks transmit payment orders to each other under an agreement that settlement of the obligations of each bank to the other under Section 4A.402 will be made at the end of the day or other period, the total amount owed with respect to all orders transmitted by one bank shall be set off against the total amount owed with respect to all orders transmitted by the other bank.  To the extent of the setoff, each bank has made payment to the other.

 (d) In a case not covered by Subsection (a), the time when payment of the sender's obligation under Section 4A.402(b) or (c) occurs is governed by applicable principles of law that determine when an obligation is satisfied.

  4A.404. Obligation of Beneficiary's Bank to Pay and Give Notice to Beneficiary

 (a) Subject to Sections 4A.211(e) and 4A.405(d) and (e), if a beneficiary's bank accepts a payment order, the bank is obliged to pay the amount of the order to the beneficiary of the order.  Payment is due on the payment date of the order, but if acceptance occurs on the payment date after the close of the funds transfer business day of the bank, payment is due on the next funds transfer business day.  If the bank refuses to pay after demand by the beneficiary and receipt of notice of particular circumstances that will give rise to consequential damages as a result of nonpayment, the beneficiary may recover damages resulting from the refusal to pay to the extent the bank had notice of the damages, unless the bank proves that it did not pay because of a reasonable doubt concerning the right of the beneficiary to payment.

 (b) If a payment order accepted by the beneficiary's bank instructs payment to an account of the beneficiary, the bank is obliged to notify the beneficiary of receipt of the order before midnight of the next funds transfer business day following the payment date.  If the payment order does not instruct payment to an account of the beneficiary, the bank is required to notify the beneficiary only if notice is required by the order.  Notice may be given by first class mail or any other means reasonable in the circumstances.  If the bank fails to give the required notice, the bank is obliged to pay interest to the beneficiary on the amount of the payment order from the day notice should have been given until the day the beneficiary learned of receipt of the payment order by the bank.  No other damages are recoverable.  Reasonable attorney's fees are recoverable if demand for interest is made and refused before an action is brought on the claim.

 (c) The right of a beneficiary to receive payment and damages as stated in Subsection (a) may not be varied by agreement or a funds transfer system rule. The right of a beneficiary to be notified as stated in Subsection (b) may be varied by agreement of the beneficiary or by a funds transfer system rule if the beneficiary is notified of the rule before initiation of the funds transfer.

  4A.405. Payment by Beneficiary's Bank to Beneficiary

 (a) If the beneficiary's bank credits an account of the beneficiary of a payment order, payment of the bank's obligation under Section 4A.404(a) occurs when and to the extent:

  (1) the beneficiary is notified of the right to withdraw the credit;

  (2) the bank lawfully applies the credit to a debt of the beneficiary;  or

  (3) funds with respect to the order are otherwise made available to the beneficiary by the bank.

 (b) If the beneficiary's bank does not credit an account of the beneficiary of a payment order, the time when payment of the bank's obligation under Section 4A.404(a) occurs is governed by principles of law that determine when an obligation is satisfied.

 (c) Except as provided by Subsections (d) and (e), if the beneficiary's bank pays the beneficiary of a payment order under a condition to payment or agreement of the beneficiary giving the bank the right to recover payment from the beneficiary if the bank does not receive payment of the order, the condition to payment or agreement is not enforceable.

 (d) A funds transfer system rule may provide that payments made to beneficiaries of funds transfers through the system are provisional until receipt of payment by the beneficiary's bank of the payment order is accepted. A beneficiary's bank that makes a payment that is provisional under the rule is entitled to refund from the beneficiary if (i) the rule requires that both the beneficiary and the originator be given notice of the provisional nature of the payment before the funds transfer is initiated, (ii) the beneficiary, the beneficiary's bank and the originator's bank agreed to be bound by the rule, and (iii) the beneficiary's bank did not receive payment of the payment order that it accepted.  If the beneficiary is obliged to refund payment to the beneficiary's bank, acceptance of the payment order by the beneficiary's bank is nullified and no payment by the originator of the funds transfer to the beneficiary occurs under Section 4A.406.

 (e) This subsection applies to a funds transfer that includes a payment order transmitted over a funds transfer system that (i) nets obligations multilaterally among participants, and (ii) has in effect a losssharing agreement among participants for the purpose of providing funds necessary to complete settlement of the obligations of one or more participants that do not meet their settlement obligations.  If the beneficiary's bank in the funds transfer accepts a payment order and the system fails to complete settlement pursuant to its rules with respect to any payment order in the funds transfer:

  (1) the acceptance by the beneficiary's bank is nullified and no person has any right or obligation based on the acceptance;

  (2) the beneficiary's bank is entitled to recover payment from the beneficiary;

  (3) no payment by the originator to the beneficiary occurs under Section 4A.406;  and

  (4) subject to Section 4A.402(e), each sender in the funds transfer is excused from its obligation to pay its payment order under Section 4A.402(c) because the funds transfer has not been completed.

  4A.406. Payment by Originator to Beneficiary;  Discharge of Underlying Obligation

 (a) Subject to Sections 4A.211(e) and 4A.405(d) and (e), the originator of a funds transfer pays the beneficiary of the originator's payment order:

  (1) at the time a payment order for the benefit of the beneficiary is accepted by the beneficiary's bank in the funds transfer;  and

  (2) in an amount equal to the amount of the order accepted by the beneficiary's bank, but not more than the amount of the originator's order.

 (b) If payment under Subsection (a) is made to satisfy an obligation, the obligation is discharged to the same extent discharge would result from payment to the beneficiary of the same amount in money, unless (i) the payment under Subsection (a) of this section was made by a means prohibited by the contract of the beneficiary with respect to the obligation, (ii) the beneficiary, within a reasonable time after receiving notice of receipt of the order by the beneficiary's bank, notified the originator of the beneficiary's refusal of the payment, (iii) funds with respect to the order were not withdrawn by the beneficiary or applied to a debt of the beneficiary, and (iv) the beneficiary would suffer a loss that could reasonably have been avoided if payment had been made by a means complying with the contract.  If payment by the originator does not result in discharge under this section, the originator is subrogated to the rights of the beneficiary to receive payment from the beneficiary's bank under Section 4A.404(a).

 (c) For the purpose of determining whether discharge of an obligation occurs under Subsection (b), if the beneficiary's bank accepts a payment order in an amount equal to the amount of the originator's payment order less charges of one or more receiving banks in the funds transfer, payment to the beneficiary is deemed to be in the amount of the originator's order unless upon demand by the beneficiary the originator does not pay the beneficiary the amount of the deducted charges.

 (d) Rights of the originator or of the beneficiary of a funds transfer under this section may be varied only by agreement of the originator and the beneficiary.

  4A.501. Variation by Agreement and Effect of Funds Transfer System Rule

 (a) Except as otherwise provided in this chapter, the rights and obligations of a party to a funds transfer may be varied by agreement of the affected party.

 (b) "Funds transfer system rule" means a rule of an association of banks (i) governing transmission of payment orders by means of a funds transfer system of the association or rights and obligations with respect to those orders, or (ii) to the extent the rule governs rights and obligations between banks that are parties to a funds transfer in which a Federal Reserve Bank, acting as an intermediary bank, sends a payment order to the beneficiary's bank.  Except as otherwise provided in this chapter, a funds transfer system rule governing rights and obligations between participating banks using the system may be effective even if the rule conflicts with this chapter and indirectly affects another party to the funds transfer who does not consent to the rule.  A funds transfer system rule may also govern rights and obligations of parties other than participating banks using the system to the extent stated in Sections 4A.404(c), 4A.405(d), and 4A.507(c).

  4A.502. Creditor Process Served on Receiving Bank;  Setoff by Beneficiary's Bank

 (a) As used in this section, "creditor process" means levy, attachment, garnishment, notice of lien, sequestration, or similar process issued by or on behalf of a creditor or other claimant with respect to an account.

 (b) This subsection applies to creditor process with respect to an authorized account of the sender of a payment order if the creditor process is served on the receiving bank.  For the purpose of determining rights with respect to the creditor process, if the receiving bank accepts the payment order, the balance in the authorized account is deemed to be reduced by the amount of the payment order to the extent the bank did not otherwise receive payment of the order, unless the creditor process is served at a time and in a manner affording the bank a reasonable opportunity to act on it before the bank accepts the payment order.

 (c) If a beneficiary's bank has received a payment order for payment to the beneficiary's account in the bank the following rules apply:

  (1) The bank may credit the beneficiary's account, and the amount credited may be set off against an obligation owed by the beneficiary to the bank or may be applied to satisfy creditor process served on the bank with respect to the account.

  (2) The bank may credit the beneficiary's account and allow withdrawal of the amount credited unless creditor process with respect to the account is served at a time and in a manner affording the bank a reasonable opportunity to act to prevent withdrawal.

  (3) If creditor process with respect to the beneficiary's account has been served and the bank has had a reasonable opportunity to act on it, the bank may not reject the payment order except for a reason unrelated to the service of process.

 (d) Creditor process with respect to a payment by the originator to the beneficiary pursuant to a funds transfer may be served only on the beneficiary's bank with respect to the debt owed by that bank to the beneficiary.  Any other bank served with the creditor process is not obliged to act with respect to the process.

  4A.503. Injunction or Restraining Order With Respect to Funds Transfer

 For proper cause and in compliance with applicable law, a court may restrain  (i) a person from issuing a payment order to initiate a funds transfer, (ii) an originator's bank from executing the payment order of the originator, or (iii) the beneficiary's bank from releasing funds to the beneficiary or the beneficiary from withdrawing the funds.  A court may not otherwise restrain a person from issuing a payment order, paying or receiving payment of a payment order, or otherwise acting with respect to a funds transfer.

  4A.504. Order in Which Items and Payment Orders May be Charged to Account;  Order of Withdrawals From Account

 (a) If a receiving bank has received more than one payment order of the sender or one or more payment orders and other items that are payable from the sender's account, the bank may charge the sender's account with respect to the various orders and items in any sequence.

 (b) In determining whether a credit to an account has been withdrawn by the holder of the account or applied to a debt of the holder of the account, credits first made to the account are first withdrawn or applied.

  4A.505. Preclusion of Objection to Debit of Customer's Account

 If a receiving bank has received payment from its customer with respect to a payment order issued in the name of the customer as sender and accepted by the bank, and the customer received notification reasonably identifying the order, the customer is precluded from asserting that the bank is not entitled to retain the payment unless the customer notifies the bank of the customer's objection to the payment within one year after the notification was received by the customer.

  4A.506. Rate of Interest

 (a) If, under this chapter, a receiving bank is obliged to pay interest with respect to a payment order issued to the bank, the amount payable may be determined (i) by agreement of the sender and receiving bank, or (ii) by funds transfer system rule if the payment order is transmitted through a funds transfer system.

 (b) If the amount of interest is not determined by an agreement or rule as stated in Subsection (a), the amount is calculated by multiplying the applicable Federal Funds rate by the amount on which interest is payable, and then multiplying the product by the number of days for which interest is payable.  The applicable Federal Funds rate is the average of the Federal Funds rates published by the Federal Reserve Bank of New York for each of the days for which interest is payable divided by 360.  The Federal Funds rate for any day on which a published rate is not available is the same as the published rate for the next preceding day for which there is a published rate.  If a receiving bank that accepted a payment order is required to refund payment to the sender of the order because the funds transfer was not completed, but the failure to complete was not due to any fault by the bank, the interest payable is reduced by a percentage equal to the reserve requirement on deposits of the receiving bank.

  4A.507. Choice of Law

 (a) The following rules apply unless the affected parties otherwise agree or Subsection (c) applies:

  (1) The rights and obligations between the sender of a payment order and the receiving bank are governed by the law of the jurisdiction in which the receiving bank is located.

  (2) The rights and obligations between the beneficiary's bank and the beneficiary are governed by the law of the jurisdiction in which the beneficiary's bank is located.

  (3) The issue of when payment is made pursuant to a funds transfer by the  originator to the beneficiary is governed by the law of the jurisdiction in which the beneficiary's bank is located.

 (b) If the parties described by each subdivision of Subsection (a) have made an agreement selecting the law of a particular jurisdiction to govern rights and obligations between each other, the law of that jurisdiction governs those rights and obligations as to matters of construction and interpretation, whether or not the payment order or the funds transfer bears a reasonable relation to that jurisdiction, and as to validity, to the extent permitted by Section 1.105 of this code.

 (c) A funds transfer system rule may select the law of a particular jurisdiction to govern (i) rights and obligations between participating banks with respect to payment orders transmitted or processed through the system, or (ii) the rights and obligations of some or all parties to a funds transfer any part of which is carried out by means of the system.  A choice of law made pursuant to clause (i) is binding on participating banks.  A choice of law made pursuant to clause (ii) is binding on the originator, other sender, or a receiving bank having notice that the funds transfer system might be used in the funds transfer and of the choice of law by the system when the originator, other sender, or receiving bank issued or accepted a payment order.  The beneficiary of a funds transfer is bound by the choice of law if, when the funds transfer is initiated, the beneficiary has notice that the funds transfer system might be used in the funds transfer and of the choice of law by the system.  The law of a jurisdiction selected pursuant to this Subsection (c) may govern, as to matters of construction and interpretation, whether or not the law bears a reasonable relation to the matter in issue.

 (d) In the event of inconsistency between an agreement under Subsection (b) and a choiceoflaw rule under Subsection (c), the agreement under Subsection (b) prevails.

 (e) If a funds transfer is made by use of more than one funds transfer system and there is inconsistency between choiceoflaw rules of the systems, the matter in issue is governed by the law of the selected jurisdiction that has the most significant relationship to the matter in issue.


Letters of Credit

CHAPTER 5. LETTERS OF CREDIT

  5.102. Scope

 (a) This chapter applies

  (1) to a credit issued by a bank if the credit requires a documentary draft or a documentary demand for payment;  and

  (2) to a credit issued by a person other than a bank if the credit requires that the draft or demand for payment be accompanied by a document of title; and

  (3) to a credit issued by a bank or other person if the credit is not within Subdivision (1) or (2) but conspicuously states that it is a letter of credit or is conspicuously so entitled.

 (b) Unless the engagement meets the requirements of Subsection (a), this chapter does not apply to engagements to make advances or to honor drafts or demands for payment, to authorities to pay or purchase, to guarantees or to general agreements.

 (c) This chapter deals with some but not all of the rules and concepts of letters of credit as such rules or concepts have developed prior to this title or may hereafter develop.  The fact that this chapter states a rule does not by itself require, imply or negate application of the same or a converse rule to a situation not provided for or to a person not specified by this chapter.

  5.103. Definitions

 (a) In this chapter unless the context otherwise requires

  (1) "Credit" or "letter of credit" means an engagement by a bank or other person made at the request of a customer and of a kind within the scope of this chapter (Section 5.102) that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit.  A credit may be either revocable or irrevocable.  The engagement may be either an agreement to honor or a statement that the bank or other person is authorized to honor.

  (2) A "documentary draft" or a "documentary demand for payment" is one honor of which is conditioned upon the presentation of a document or documents.  "Document" means any paper including document of title, security, invoice, certificate, notice of default and the like.

  (3) An "issuer" is a bank or other person issuing a credit.

  (4) A "beneficiary" of a credit is a person who is entitled under its terms to draw or demand payment.

  (5) An "advising bank" is a bank which gives notification of the issuance of a credit by another bank.

  (6) A "confirming bank" is a bank which engages either that it will itself honor a credit already issued by another bank or that such a credit will be honored by the issuer or a third bank.

  (7) A "customer" is a buyer or other person who causes an issuer to issue a credit.  The term also includes a bank which procures issuance or confirmation on behalf of that bank's customer.

 (b) Other definitions applying to this chapter and the sections in which they appear are:

"Notation Credit".                    Section 5.1a8.

"Presenter".                          Section 5.112(c).

 (c) Definitions in other chapters applying to this chapter and the sections in which they appear are:

"Accept" or "Acceptance".             Section 3.409.

"Contract for sale".                  Section 2.106.

"Draft".                              Section 3.104.

"Holder in due course".               Section 3.302.

"Midnight deadline".                  Section 4.104.

"Security".                           Section 8.102.

 (d) In addition, Chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.

  5.104. Formal Requirements;  Signing

 (a) Except as otherwise required in Subsection (a)(3) of Section 5.102 on scope, no particular form of phrasing is required for a credit.  A credit must be in writing and signed by the issuer and a confirmation must be in writing and signed by the confirming bank.  A modification of the terms of a credit or confirmation must be signed by the issuer or confirming bank.

 (b) A telegram may be a sufficient signed writing if it identifies its sender by an authorized authentication.  The authentication may be in code and the authorized naming of the issuer in an advice of credit is a sufficient signing.

  5.105. Consideration

 No consideration is necessary to establish a credit or to enlarge or otherwise modify its terms.

  5.106. Time and Effect of Establishment of Credit

 (a) Unless otherwise agreed a credit is established

  (1) as regards the customer as soon as a letter of credit is sent to him or the letter of credit or an authorized written advice of its issuance is sent to the beneficiary;  and

  (2) as regards the beneficiary when he receives a letter of credit or an authorized written advice of its issuance.

 (b) Unless otherwise agreed once an irrevocable credit is established as regards the customer it can be modified or revoked only with the consent of the customer and once it is established as regards the beneficiary it can be modified or revoked only with his consent.

 (c) Unless otherwise agreed after a revocable credit is established it may be modified or revoked by the issuer without notice to or consent from the customer or beneficiary.

 (d) Notwithstanding any modification or revocation of a revocable credit any person authorized to honor or negotiate under the terms of the original credit is entitled to reimbursement for or honor of any draft or demand for payment duly honored or negotiated before receipt of notice of the modification or revocation and the issuer in turn is entitled to reimbursement from its customer.

  5.107. Advice of Credit;  Confirmation;  Error in Statement of Terms

 (a) Unless otherwise specified an advising bank by advising a credit issued by another bank does not assume any obligation to honor drafts drawn or demands for payment made under the credit but it does assume obligation for the accuracy of its own statement.

 (b) A confirming bank by confirming a credit becomes directly obligated on the credit to the extent of its confirmation as though it were its issuer and acquires the rights of an issuer.

 (c) Even though an advising bank incorrectly advises the terms of a credit it has been authorized to advise the credit is established as against the issuer to the extent of its original terms.

 (d) Unless otherwise specified the customer bears as against the issuer all risks of transmission and reasonable translation or interpretation of any message relating to a credit.

  5.108. "Notation Credit";  Exhaustion of Credit

 (a) A credit which specifies that any person purchasing or paying drafts drawn or demands for payment made under it must note the amount of the draft or demand on the letter or advice of credit is a "notation credit".

 (b) Under a notation credit

  (1) a person paying the beneficiary or purchasing a draft or demand for payment from him acquires a right to honor only if the appropriate notation is made and by transferring or forwarding for honor the documents under the credit such a person warrants to the issuer that the notation has been made; and

  (2) unless the credit or a signed statement that an appropriate notation has  been made accompanies the draft or demand for payment the issuer may delay honor until evidence of notation has been procured which is satisfactory to it but its obligation and that of its customer continue for a reasonable time not exceeding thirty days to obtain such evidence.

 (c) If the credit is not a notation credit

  (1) the issuer may honor complying drafts or demands for payment presented to it in the order in which they are presented and is discharged pro tanto by honor of any such draft or demand;

  (2) as between competing good faith purchasers of complying drafts or demands the person first purchasing has priority over a subsequent purchaser even though the later purchased draft or demand has been first honored.

  5.109. Issuer's Obligation to its Customer

 (a) An issuer's obligation to its customer includes good faith and observance of any general banking usage but unless otherwise agreed does not include liability or responsibility

  (1) for performance of the underlying contract for sale or other transaction between the customer and the beneficiary;  or

  (2) for any act or omission of any person other than itself or its own branch or for loss or destruction of a draft, demand or document in transit or in the possession of others;  or

  (3) based on knowledge or lack of knowledge of any usage of any particular trade.

 (b) An issuer must examine documents with care so as to ascertain that on their face they appear to comply with the terms of the credit but unless otherwise agreed assumes no liability or responsibility for the genuineness, falsification or effect of any document which appears on such examination to be regular on its face.

 (c) A nonbank issuer is not bound by any banking usage of which it has no knowledge.

  5.110. Availability of Credit in Portions;  Presenter's Reservation of Lien or Claim

 (a) Unless otherwise specified a credit may be used in portions in the discretion of the beneficiary.

 (b) Unless otherwise specified a person by presenting a documentary draft or demand for payment under a credit relinquishes upon its honor all claims to the documents and a person by transferring such draft or demand or causing such presentment authorizes such relinquishment.  An explicit reservation of claim makes the draft or demand noncomplying.

  5.111. Warranties on Transfer and Presentment

 (a) Unless otherwise agreed the beneficiary by transferring or presenting a documentary draft or demand for payment warrants to all interested parties that the necessary conditions of the credit have been complied with.  This is in addition to any warranties arising under Chapters 3, 4, 7 and 8.

 (b) Unless otherwise agreed a negotiating, advising, confirming, collecting or issuing bank presenting or transferring a draft or demand for payment under a credit warrants only the matters warranted by a collecting bank under Chapter 4 and any such bank transferring a document warrants only the matters warranted by an intermediary under Chapters 7 and 8.

  5.112. Time Allowed for Honor or Rejection;  Withholding Honor or Rejection by Consent;  "Presenter"

 (a) A bank to which a documentary draft or demand for payment is presented under a credit may without dishonor of the draft, demand or credit

  (1) defer honor until the close of the third banking day following receipt of the documents;  and

  (2) further defer honor if the presenter has expressly or impliedly consented thereto.

 Failure to honor within the time here specified constitutes dishonor of the draft or demand and of the credit except as otherwise provided in Subsection (d) of Section 5.114 on conditional payment.

 (b) Upon dishonor the bank may unless otherwise instructed fulfill its duty to return the draft or demand and the documents by holding them at the disposal of the presenter and sending him an advice to that effect.

 (c) "Presenter" means any person presenting a draft or demand for payment for honor under a credit even though that person is a confirming bank or other correspondent which is acting under an issuer's authorization.

  5.113. Indemnities

 (a) A bank seeking to obtain (whether for itself or another) honor, negotiation or reimbursement under a credit may give an indemnity to induce such honor, negotiation or reimbursement.

 (b) An indemnity agreement inducing honor, negotiation or reimbursement

  (1) unless otherwise explicitly agreed applies to defects in the documents but not in the goods;  and

  (2) unless a longer time is explicitly agreed expires at the end of ten business days following receipt of the documents by the ultimate customer unless notice of objection is sent before such expiration date.  The ultimate customer may send notice of objection to the person from whom he received the  documents and any bank receiving such notice is under a duty to send notice to its transferor before its midnight deadline.

  5.114. Issuer's Duty and Privilege to Honor;  Right to Reimbursement

 (a) An issuer must honor a draft or demand for payment which complies with the terms of the relevant credit regardless of whether the goods or documents conform to the underlying contract for sale or other contract between the customer and the beneficiary.  The issuer is not excused from honor of such a draft or demand by reason of an additional general term that all documents must be satisfactory to the issuer, but an issuer may require that specified documents must be satisfactory to it.

 (b) Unless otherwise agreed when documents appear on their face to comply with the terms of a credit but a required document does not in fact conform to the warranties made on negotiation or transfer of a document of title (Section 7.507) or of a certificated security (Section 8.108 ) or is forged or fraudulent or there is fraud in the transaction:

  (1) the issuer must honor the draft or demand for payment if honor is demanded by a negotiating bank or other holder of the draft or demand which has taken the draft or demand under the credit and under circumstances which would make it a holder in due course (Section 3.302) and in an appropriate case would make it a person to whom a document of title has been duly negotiated (Section 7.502) or a bona fide purchaser of a certificated security (Section 8.302);  and

  (2) in all other cases as against its customer, an issuer acting in good faith may honor the draft or demand for payment despite notification from the customer of fraud, forgery or other defect not apparent on the face of the documents but a court of appropriate jurisdiction may enjoin such honor.

 (c) Unless otherwise agreed an issuer which has duly honored a draft or demand for payment is entitled to immediate reimbursement of any payment made under the credit and to be put in effectively available funds not later than the day before maturity of any acceptance made under the credit.

 (d) When a credit provides for payment by the issuer on receipt of notice that the required documents are in the possession of a correspondent or other agent of the issuer

  (1) any payment made on receipt of such notice is conditional;  and

  (2) the issuer may reject documents which do not comply with the credit if it does so within three banking days following its receipt of the documents;  and

  (3) in the event of such rejection, the issuer is entitled by charge back or otherwise to return of the payment made.

 (e) In the case covered by Subsection (d) failure to reject documents within the time specified in Subdivision (2), constitutes acceptance of the documents and makes the payment final in favor of the beneficiary.

  5.115. Remedy for Improper Dishonor or Anticipatory Repudiation

 (a) When an issuer wrongfully dishonors a draft or demand for payment presented under a credit the person entitled to honor has with respect to any documents the rights of a person in the position of a seller (Section 2.707) and may recover from the issuer the face amount of the draft or demand together with incidental damages under Section 2.710 on seller's incidental damages and interest but less any amount realized by resale or other use or disposition of the subject matter of the transaction.  In the event no resale or other utilization is made the documents, goods or other subject matter involved in the transaction must be turned over to the issuer on payment of judgment.

 (b) When an issuer wrongfully cancels or otherwise repudiates a credit before presentment of a draft or demand for payment drawn under it the beneficiary has the rights of a seller after anticipatory repudiation by the buyer under Section 2.610 if he learns of the repudiation in time reasonably to avoid procurement of the required documents.  Otherwise the beneficiary has an immediate right of action for wrongful dishonor.

  5.116. Transfer and Assignment

 (a) The right to draw under a credit can be transferred or assigned only when the credit is expressly designated as transferable or assignable.

 (b) Even though the credit specifically states that it is nontransferable or nonassignable the beneficiary may before performance of the conditions of the credit assign his right to proceeds.  Such an assignment is an assignment of an account under Chapter 9 on Secured Transactions and is governed by that chapter except that

  (1) the assignment is ineffective until the letter of credit or advice of credit is delivered to the assignee which delivery constitutes perfection of the security interest under Chapter 9;  and

  (2) the issuer may honor drafts or demands for payment drawn under the credit until it receives a notification of the assignment signed by the beneficiary which reasonably identifies the credit involved in the assignment and contains a request to pay the assignee;  and

  (3) after what reasonably appears to be such a notification has been received the issuer may without dishonor refuse to accept or pay even to a person otherwise entitled to honor until the letter of credit or advice of credit is exhibited to the issuer.

 (c) Except where the beneficiary has effectively assigned his right to draw or his right to proceeds, nothing in this section limits his right to transfer or negotiate drafts or demands drawn under the credit.

  5.117. Insolvency of Bank Holding Funds for Documentary Credit

 (a) Where an issuer or an advising or confirming bank or a bank which has for a customer procured issuance of a credit by another bank becomes insolvent before final payment under the credit and the credit is one to which this chapter is made applicable by Subdivision (1) or (2) of Section 5.102(a) on scope, the receipt or allocation of funds or collateral to secure or meet obligations under the credit shall have the following results:

  (1) to the extent of any funds or collateral turned over after or before the insolvency as indemnity against or specifically for the purpose of payment of drafts or demands for payment drawn under the designated credit, the drafts or demands are entitled to payment in preference over depositors or other general  creditors of the issuer or bank;  and

  (2) on expiration of the credit or surrender of the beneficiary's rights under it unused any person who has given such funds or collateral is similarly entitled to return thereof;  and

  (3) a charge to a general or current account with a bank if specifically consented to for the purpose of indemnity against or payment of drafts or demands for payment drawn under the designated credit falls under the same rules as if the funds had been drawn out in cash and then turned over with specific instructions.

 (b) After honor or reimbursement under this section the customer or other person for whose account the insolvent bank has acted is entitled to receive the documents involved.


Secured Transactions

CHAPTER 9. SECURED TRANSACTIONS

  9.101. Short Title

 This chapter may be cited as Uniform Commercial CodeSecured Transactions.

  9.102. Policy and Subject Matter of Chapter

 (a) Except as otherwise provided in Section 9.104 on excluded transactions, this chapter applies

  (1) to any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper or accounts;  and also

  (2) to any sale of accounts or chattel paper.

 (b) This chapter applies to security interests created by contract including pledge, assignment, chattel mortgage, chattel trust, trust deed, factor's lien, equipment trust, conditional sale, trust receipt, other lien or title retention contract and lease or consignment intended as security.  This chapter does not apply to statutory liens except as provided in Section 9.310.

 (c) The application of this chapter to a security interest in a secured obligation is not affected by the fact that the obligation is itself secured by a transaction or interest to which this chapter does not apply.

  9.103. Perfection of Security Interests in Multiple State Transactions

 (a) Documents, instruments and ordinary goods.

  (1) This subsection applies to documents and instruments and to goods other than those covered by a certificate of title described in Subsection (b), mobile goods described in Subsection (c), and minerals described in Subsection (e).

  (2) Except as otherwise provided in this subsection, perfection and the effect of perfection or nonperfection of a security interest in collateral are governed by the law of the jurisdiction where the collateral is when the last event occurs on which is based the assertion that the security interest  is perfected or unperfected.

  (3) If the parties to a transaction creating a purchase money security interest in goods in one jurisdiction understand at the time that the security interest attaches that the goods will be kept in another jurisdiction, then the law of the other jurisdiction governs the perfection and the effect of perfection or nonperfection of the security interest from the time it attaches until 30 days after the debtor receives possession of the goods and thereafter if the goods are taken to the other jurisdiction before the end of the 30day period.

  (4) When collateral is brought into and kept in this state while subject to a security interest perfected under the law of the jurisdiction from which the collateral was removed, the security interest remains perfected, but if action is required by Subchapter C of this chapter  [FN1] to perfect the security interest,

   (A) if the action is not taken before the expiration of the period of perfection in the other jurisdiction or the end of four months after the collateral is brought into this state, whichever period first expires, the security interest becomes unperfected at the end of that period and is thereafter deemed to have been unperfected as against a person who became a purchaser after removal;

   (B) if the action is taken before the expiration of the period specified in paragraph (A), the security interest continues perfected thereafter;

   (C) for the purpose of priority over a buyer of consumer goods (Subsection  (b) of Section 9.307), the period of the effectiveness of a filing in the jurisdiction from which the collateral is removed is governed by the rules with respect to perfection in paragraphs (A) and (B).

 (b) Certificate of title.

  (1) This subsection applies to goods covered by a certificate of title issued under a statute of this state or of another jurisdiction under the law of which indication of a security interest on the certificate is required as a condition of perfection.

  (2) Except as otherwise provided in this subsection, perfection and the effect of perfection or nonperfection of the security interest are governed by the law (including the conflict of laws rules) of the jurisdiction issuing the certificate until four months after the goods are removed from that jurisdiction and thereafter until the goods are registered in another jurisdiction, but in any event not beyond surrender of the certificate.  After the expiration of that period, the goods are not covered by the certificate of title within the meaning of this section.

  (3) Except with respect to the rights of a buyer described in the next  paragraph, a security interest, perfected in another jurisdiction otherwise than by notation on a certificate of title, in goods brought into this state and thereafter covered by a certificate of title issued by this state is subject to the rules stated in paragraph (4) of Subsection (a).

  (4) If goods are brought into this state while a security interest therein is perfected in any manner under the law of the jurisdiction from which the goods are removed and a certificate of title is issued by this state and the certificate does not show that the goods are subject to the security interest or that they may be subject to security interests not shown on the certificate, the security interest is subordinate to the rights of a buyer of the goods who is not in the business of selling goods of that kind to the extent that he gives value and receives delivery of the goods after issuance of the certificate and without knowledge of the security interest.

 (c) Accounts, general intangibles and mobile goods.

  (1) This subsection applies to accounts (other than an account described in Subsection (e) on minerals) and general intangibles (other than uncertificated securities) and to goods which are mobile and which are of a type normally used in more than one jurisdiction, such as motor vehicles, trailers, rolling stock, airplanes, shipping containers, road building and construction machinery and commercial harvesting machinery and the like, if the goods are  equipment or are inventory leased or held for lease by the debtor to others, and are not covered by a certificate of title described in Subsection (b).

  (2) The law (including the conflict of laws rules) of the jurisdiction in which the debtor is located governs the perfection and the effect of perfection or nonperfection of the security interest.

  (3) If, however, the debtor is located in the jurisdiction which is not a part of the United States, and which does not provide for perfection of the security interest by filing or recording in that jurisdiction, the law of the jurisdiction in the United States in which the debtor has its major executive office in the United States governs the perfection and the effect of perfection or nonperfection of the security interest through filing.  In the alternative, if the debtor is located in a jurisdiction which is not a part of the United States or Canada and the collateral is accounts or general intangibles for money due or to become due, the security interest may be perfected by notification to the account debtor.  As used in this paragraph, "United States" includes its territories and possessions and the Commonwealth of Puerto Rico.

  (4) A debtor shall be deemed located at his place of business if he has one, at his chief executive office if he has more than one place of business, otherwise at his residence.  If, however, the debtor is a foreign air carrier  under the Federal Aviation Act of 1958, as amended, [FN2] it shall be deemed located at the designated office of the agent upon whom service of process may be made on behalf of the foreign air carrier.

  (5) A security interest perfected under the law of the jurisdiction of the location of the debtor is perfected until the expiration of four months after a change of the debtor's location to another jurisdiction, or until perfection would have ceased by the law of the first jurisdiction, whichever period first expires.  Unless perfected in the new jurisdiction before the end of that period, it becomes unperfected thereafter and is deemed to have been unperfected as against a person who became a purchaser after the change.

 (d) Chattel paper.

 The rules stated for goods in Subsection (a) apply to a possessory security interest in chattel paper.  The rules stated for accounts in Subsection (c) apply to a nonpossessory security interest in chattel paper, but the security interest may not be perfected by notification to the account debtor.

 (e) Minerals.

 Perfection and the effect of perfection or nonperfection of a security interest which is created by a debtor who has an interest in minerals or the like (including oil and gas) before extraction and which attaches thereto as extracted, or which attaches to an account resulting from the sale thereof at the wellhead or minehead are governed by the law (including the conflict of laws rules) of the jurisdiction wherein the wellhead or minehead is located.

 (f) Investment property.

  (1) This subsection applies to investment property.

  (2) Except as otherwise provided in Subdivision (6), during the time that a security certificate is located in a jurisdiction, perfection of a security interest, the effect of perfection or nonperfection, and the priority of a security interest in the certificated security represented thereby are governed by the local law of that jurisdiction.

  (3) Except as otherwise provided in Subdivision (6), perfection of a security interest, the effect of perfection or nonperfection, and the priority of a security interest in an uncertificated security are governed by the local law of the issuer's jurisdiction as specified in Section 8.110(d).

  (4) Except as otherwise provided in Subdivision (6), perfection of a security interest, the effect of perfection or nonperfection, and the priority of a security interest in a security entitlement or securities account are governed by the local law of the securities intermediary's jurisdiction as specified in Section 8.110(e).

  (5) Except as otherwise provided in Subdivision (6), perfection of a security interest, the effect of perfection or nonperfection, and the priority of a  security interest in a commodity contract or commodity account are governed by the local law of the commodity intermediary's jurisdiction.  The following rules determine a commodity intermediary's jurisdiction for purposes of this subdivision:

   (A) If an agreement between the commodity intermediary and the commodity customer specifies that it is governed by the law of a particular jurisdiction, that jurisdiction is the commodity intermediary's jurisdiction.

   (B) If an agreement between the commodity intermediary and the commodity customer does not specify the governing law as provided in Paragraph (A), but expressly specifies that the commodity account is maintained at an office in a particular jurisdiction, that jurisdiction is the commodity intermediary's jurisdiction.

   (C) If an agreement between the commodity intermediary and the commodity customer does not specify a jurisdiction as provided in Paragraph (A) or (B), the commodity intermediary's jurisdiction is the jurisdiction in which is located the office identified in an account statement as the office serving the commodity customer's account.

   (D) If an agreement between the commodity intermediary and the commodity customer does not specify a jurisdiction as provided in Paragraph (A) or (B) and an account statement does not identify an office serving the commodity   customer's account as provided in Paragraph (C), the commodity intermediary's jurisdiction is the jurisdiction in which is located the chief executive office of the commodity intermediary.

  (6) Perfection of a security interest by filing, automatic perfection of a security interest in investment property granted by a broker or securities intermediary, and automatic perfection of a security interest in a commodity contract or commodity account granted by a commodity intermediary are governed by the local law of the jurisdiction in which the debtor is located.

  9.104. Transactions Excluded From Chapter

 This chapter does not apply

  (1) to a security interest subject to any statute of the United States such as the Ship Mortgage Act, 1920, [FN1] to the extent that such statute governs the rights of parties to and third parties affected by transactions in particular types of property;  or

  (2) to a landlord's lien;  or

  (3) to a lien given by statute or other rule of law for services or materials except as provided in Section 9.310 on priority of such liens;  or

  (4) to a transfer of a claim for wages, salary or other compensation of an  employee;  or

  (5) to a transfer by a government or governmental subdivision or agency;  or

  (6) to a sale of accounts or chattel paper as part of a sale of the business out of which they arose, or an assignment of accounts or chattel paper which is for the purpose of collection only, or a transfer of a right to payment under a contract to an assignee who is also to do the performance under the contract or a transfer of a single account to an assignee in whole or partial satisfaction of a preexisting indebtedness;  or

  (7) to a transfer of an interest or claim in or under any policy of insurance, except as provided with respect to proceeds (Section 9.306) and priorities in proceeds (Section 9.312);  or

  (8) to a right represented by a judgment (other than a judgment taken on a right to payment which was collateral);  or

  (9) to any right of setoff;  or

  (10) except to the extent that provision is made for fixtures in Section 9.313, to the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder;  or

  (11) to a transfer in whole or in part of any claim arising out of tort;  or

  (12) to a transfer of an interest in any deposit account (Subsection (a)(5) of Section 9.105), except as provided with respect to proceeds (Section 9.306)  and priorities in proceeds (Section 9.312).

  9.105. Definitions and Index of Definitions

 (a) In this chapter, unless the context otherwise requires:

  (1) "Account debtor" means the person who is obligated on an account, chattel paper or general intangible.

  (2) "Chattel paper" means a writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific goods, but a charter or other contract involving the use or hire of a vessel is not chattel paper.  When a transaction is evidenced both by such a security agreement or a lease and by an instrument or a series of instruments, the group of writings taken together constitutes chattel paper.

  (3) "Collateral" means the property subject to a security interest, and includes accounts and chattel paper which have been sold.

  (4) "Debtor" means the person who owes payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral, and includes the seller of accounts or chattel paper.  Where the debtor and the owner of the collateral are not the same person, the term "debtor" means the owner of the collateral in any provision of the chapter dealing with the collateral, the obligor in any provision dealing with the obligation, and may include both where the context so requires.

  (5) "Deposit account" means a demand, time, savings, passbook or like account maintained with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a certificate of deposit.

  (6) "Document" means document of title as defined in the general definitions of Chapter 1 (Section 1.201), and a receipt of the kind described in Subsection (b) of Section 7.201.

  (7) "Encumbrance" includes real estate mortgages and other liens on real estate and all other rights in real estate that are not ownership interests.

  (8) "Goods" includes all things which are movable at the time the security interest attaches or which are fixtures (Section 9.313), but does not include money, documents, instruments, investment property, accounts, chattel paper,  general intangibles, or minerals or the like (including oil and gas) before extraction.  "Goods" also includes standing timber which is to be cut and removed under a conveyance or contract for sale, the unborn young of animals, and growing crops.

  (9) "Instrument" means a negotiable instrument (defined in Section 3.104) or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in ordinary course of business transferred by delivery with any necessary indorsement or assignment, but the term does not include investment property.

  (10) "Mortgage" means a consensual interest created by a real estate mortgage, a trust deed on real estate, or the like.

  (11) An advance is made "pursuant to commitment" if the secured party has bound himself to make it, whether or not a subsequent event of default or other event not within his control has relieved or may relieve him from his obligation.

  (12) "Security agreement" means an agreement which creates or provides for a security interest.

  (13) "Secured party" means a lender, seller or other person in whose favor there is a security interest, including a person to whom accounts or chattel paper have been sold.  When the holders of obligations issued under an  indenture of trust, equipment trust agreement or the like are represented by a trustee or other person, the representative is the secured party.

 (b) Other definitions applying to this chapter and the sections in which they appear are:

   "Account".                              Section 9.106.

   "Attach".                               Section 9.203.

   "Commodity contract".                   Section 9.115.

   "Commodity customer".                   Section 9.115.

   "Commodity intermediary".               Section 9.115.

   "Construction mortgage".             Section 9.313(a).

   "Consumer goods".                    Section 9.109(1).

   "Control".                              Section 9.115.

   "Equipment".                         Section 9.109(2).

   "Farm products".                     Section 9.109(3).

   "Fixture".                              Section 9.313.

   "Fixture filing".                       Section 9.313.

   "General intangibles".                  Section 9.106.

   "Inventory".                         Section 9.109(4).

   "Investment property".                  Section 9.115.

   "Lien creditor".                     Section 9.301(c).

   "Proceeds".                          Section 9.306(a).

   "Purchase money security interest".     Section 9.107.

   "United States".                        Section 9.103.

 (c) The following definitions in other chapters apply to this chapter:

"Broker".                                      Section 8.102.

"Certificated security".                       Section 8.102.

"Check".                                       Section 3.104.

"Clearing corporation".                        Section 8.102.

"Contract for sale".                           Section 2.106.

"Control".                                     Section 8.106.

"Delivery".                                    Section 8.301.

"Entitlement holder".                          Section 8.102.

"Financial asset".                             Section 8.102.

"Holder in due course".                        Section 3.302.

"Note".                                        Section 3.104.

"Sale".                                        Section 2.106.

"Securities intermediary".                     Section 8.102.

"Security".                                    Section 8.102.

"Security certificate".                        Section 8.102.

"Security entitlement".                        Section 8.102.

"Uncertificated security".                     Section 8.102.

 (d) In addition, Chapter 1 contains general definitions and principles of construction and interpretation applicable throughout this chapter.

  9.106. Definitions:  "Account";  "General Intangibles"

 "Account" means any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper, whether or not it has been earned by performance.  "General intangibles" means any personal property (including things in action) other than goods, accounts, chattel paper, documents, instruments, investment property, and money.  All rights to payment earned or unearned under a charter or other contract involving the use or hire of a vessel and all rights incident to the charter or contract are accounts.

  9.107. Definitions:  "Purchase Money Security Interest"

 A security interest is a "purchase money security interest" to the extent that it is

  (1) taken or retained by the seller of the collateral to secure all or part of its price;  or

  (2) taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used.

  9.108. When AfterAcquired Collateral Not Security for Antecedent Debt

 Where a secured party makes an advance, incurs an obligation, releases a perfected security interest, or otherwise gives new value which is to be secured in whole or in part by afteracquired property his security interest in the afteracquired collateral shall be deemed to be taken for new value and not as security for an antecedent debt if the debtor acquires his rights in such collateral either in the ordinary course of his business or under a contract of purchase made pursuant to the security agreement within a reasonable time after new value is given.

  9.109. Classification of Goods;  "Consumer Goods";  "Equipment";  "Farm Products";  "Inventory"

 Goods are

  (1) "consumer goods" if they are used or bought for use primarily for personal, family or household purposes;

  (2) "equipment" if they are used or bought for use primarily in business  (including farming or a profession) or by a debtor who is a nonprofit organization or a governmental subdivision or agency or if the goods are not included in the definitions of inventory, farm products or consumer goods;

  (3) "farm products" if they are crops or livestock or supplies used or  produced in farming operations or if they are products of crops or livestock in their unmanufactured states (such as ginned cotton, woolclip, maple syrup, milk and eggs), and if they are in the possession of a debtor engaged in raising, fattening, grazing or other farming operations.  If goods are farm products they are neither equipment nor inventory;

  (4) "inventory" if they are held by a person who holds them for sale or lease or to be furnished under contracts of service or if he has so furnished them, or if they are raw materials, work in process or materials used or consumed in a business.  Inventory of a person is not to be classified as his equipment.

  9.110. Sufficiency of Description

 Except as provided in Subsections (c) and (f) of Section 9.402, any description of personal property or real estate is sufficient for the purposes of this chapter whether or not it is specific if it reasonably identifies what is described.

  9.112. Where Collateral is Not Owned by Debtor

 Unless otherwise agreed, when a secured party knows that collateral is owned by a person who is not the debtor, the owner of the collateral is entitled to receive from the secured party any surplus under Section 9.502(b) or under Section 9.504(a), and is not liable for the debt or for any deficiency after resale, and he has the same right as the debtor

  (1) to receive statements under Section 9.208;

  (2) to receive notice of and to object to a secured party's proposal to retain the collateral in satisfaction of the indebtedness under Section 9.505;

  (3) to redeem the collateral under Section 9.506;

  (4) to obtain injunctive or other relief under Section 9.507(a);  and

  (5) to recover losses caused to him under Section 9.208(b).

  9.113. Security Interests Arising Under Chapter on Sales or Under Chapter on Leases

 A security interest arising solely under the chapter on Sales (Chapter 2) or the chapter on Leases (Chapter 2A) is subject to the provisions of this chapter except that to the extent that and so long as the debtor does not have or does not lawfully obtain possession of the goods

  (1) no security agreement is necessary to make the security interest enforceable;  and

  (2) no filing is required to perfect the security interest;  and

  (3) the rights of the secured party on default by the debtor are governed by  the chapter on Sales (Chapter 2) or by the chapter on Leases (Chapter 2A) in the case of a security interest arising solely under such chapter.

  9.114. Consignment

 (a) A person who delivers goods under a consignment which is not a security interest and who would be required to file under this chapter by Subsection (c)(3) of Section 2.326 has priority over a secured party who is or becomes a creditor of the consignee and who would have a perfected security interest in the goods if they were the property of the consignee, and also has priority with respect to identifiable cash proceeds received on or before delivery of the goods to a buyer, if

  (1) the consignor complies with the filing provision of the chapter on Sales with respect to consignments (Subsection (c)(3) of Section 2.326) before the  consignee receives possession of the goods;  and

  (2) the consignor gives notification in writing to the holder of the security interest if the holder has filed a financing statement covering the same types of goods before the date of the filing made by the consignor;  and

  (3) the holder of the security interest receives the notification within five years before the consignee receives possession of the goods;  and

  (4) the notification states that the consignor expects to deliver goods on consignment to the consignee, describing the goods by item or type.

 (b) In the case of a consignment which is not a security interest and in which the requirements of the preceding subsection have not been met, a person who delivers goods to another is subordinate to a person who would have a perfected security interest in the goods if they were the property of the debtor.

  9.115. Investment Property

 (a) In this chapter:

  (1) "Commodity account" means an account maintained by a commodity intermediary in which a commodity contract is carried for a commodity customer.

  (2) "Commodity contract" means a commodity futures contract, an option on a commodity futures contract, a commodity option, or other contract that, in each case, is:

   (A) traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to the federal   commodities laws;  or

   (B) traded on a foreign commodity board of trade, exchange, or market, and is carried on the books of a commodity intermediary for a commodity customer.

  (3) "Commodity customer" means a person for whom a commodity intermediary carries a commodity contract on its books.

  (4) "Commodity intermediary" means:

   (A) a person who is registered as a futures commission merchant under the federal commodities laws;  or

   (B) a person who in the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated as a contract market pursuant to the federal commodities laws.

  (5) "Control," with respect to a certificated security, uncertificated security, or security entitlement, has the meaning specified in Section 8.106.  A secured party has control over a commodity contract if, by agreement among the commodity customer, the commodity intermediary, and the secured party, the commodity intermediary has agreed that it will apply any value distributed on account of the commodity contract as directed by the secured party without further consent by the commodity customer.  If a commodity customer grants a security interest in a commodity contract to its own commodity intermediary, the commodity intermediary as secured party has  control.  A secured party has control over a securities account or commodity account if the secured party has control over all security entitlements or commodity contracts carried in the securities account or commodity account.

  (6) "Investment property" means:

   (A) a security, whether certificated or uncertificated;

   (B) a security entitlement;

   (C) a securities account;

   (D) a commodity contract;  or

   (E) a commodity account.

 (b) Attachment or perfection of a security interest in a securities account is also attachment or perfection of a security interest in all security entitlements carried in the securities account.  Attachment or perfection of a security interest in a commodity account is also attachment or perfection of a security interest in all commodity contracts carried in the commodity account.

 (c) A description of collateral in a security agreement or financing statement is sufficient to create or perfect a security interest in a certificated security, uncertificated security, security entitlement, securities account, commodity contract, or commodity account whether it describes the collateral by those terms, or as investment property, or by description of the underlying security, financial asset, or commodity contract.  A description of investment property collateral in a security agreement or financing statement is sufficient if it identifies the collateral by specific listing, by category, by quantity, by a computational or allocational formula or procedure, or by any other method, if the identity of the collateral is objectively determinable.

 (d) Perfection of a security interest in investment property is governed by the following rules:

  (1) A security interest in investment property may be perfected by control.

  (2) Except as otherwise provided in Subdivisions (3) and (4), a security interest in investment property may be perfected by filing.

  (3) If the debtor is a broker or securities intermediary, a security interest in investment property is perfected when it attaches.  The filing of a financing statement with respect to a security interest in investment property granted by a broker or securities intermediary has no effect for purposes of perfection or priority with respect to that security interest.

  (4) If a debtor is a commodity intermediary, a security interest in a commodity contract or a commodity account is perfected when it attaches.  The filing of a financing statement with respect to a security interest in a commodity contract or a commodity account granted by a commodity intermediary has no effect for purposes of perfection or priority with respect to that security interest.

 (e) Priority between conflicting security interests in the same investment property is governed by the following rules:

  (1) A security interest of a secured party who has control over investment property has priority over a security interest of a secured party who does not have control over the investment property.

  (2) Except as otherwise provided in Subdivisions (3) and (4), conflicting security interests of secured parties each of whom has control rank equally.

  (3) Except as otherwise agreed on by the securities intermediary, a security interest in a security entitlement or a securities account granted to the debtor's own securities intermediary has priority over any security interest granted by the debtor to another secured party.

  (4) Except as otherwise agreed on by the commodity intermediary, a security interest in a commodity contract or a commodity account granted to the debtor's own commodity intermediary has priority over any security interest granted by the debtor to another secured party.

  (5) Conflicting security interests granted by a broker, a securities intermediary, or a commodity intermediary that are perfected without control rank equally.

  (6) In all other cases, priority between conflicting security interests in investment property is governed by Sections 9.312(e)(g).  Section 9.312(d)  does not apply to investment property.

 (f) If a security certificate in registered form is delivered to a secured party pursuant to agreement, a written security agreement is not required for attachment or enforceability of the security interest, delivery suffices for perfection of the security interest, and the security interest has priority over a conflicting security interest perfected by means other than control, even if a necessary indorsement is lacking.

  9.116. Security Interest Arising in Purchase or Delivery of Financial Asset

 (a) If a person buys a financial asset through a securities intermediary in a transaction in which the buyer is obligated to pay the purchase price to the securities intermediary at the time of the purchase, and the securities intermediary credits the financial asset to the buyer's securities account before the buyer pays the securities intermediary, the securities intermediary has a security interest in the buyer's security entitlement securing the buyer's obligation to pay.  A security agreement is not required for attachment or enforceability of the security interest, and the security interest is automatically perfected.

 (b) If a certificated security or other financial asset represented by a writing that in the ordinary course of business is transferred by delivery with any necessary indorsement or assignment is delivered pursuant to an agreement between persons in the business of dealing with such securities or financial assets and the agreement calls for delivery versus payment, the person delivering the certificate or other financial asset has a security interest in the certificated security or other financial asset securing the seller's right to receive payment.  A security agreement is not required for attachment or enforceability of the security interest, and the security interest is automatically perfected.

  9.201. General Validity of Security Agreement

 Except as otherwise provided by this title a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors.  Nothing in this chapter validates any charge or practice illegal under any statute or regulation thereunder governing usury, small loans, retail installment sales, or the like, or extends the application of any such statute or regulation to any transaction not otherwise subject thereto.

  9.202. Title to Collateral Immaterial

 Each provision of this chapter with regard to rights, obligations and remedies applies whether title to collateral is in the secured party or in the debtor.

  9.203. Attachment and Enforceability of Security Interest;  Proceeds, Formal Requisites

 (a) Subject to the provisions of Section 4.210 on the security interest of a collecting bank, Sections 9.115 and 9.116 on security interests in investment property, and Section 9.113 on a security interest arising under the chapter on Sales, a security interest is not enforceable against the debtor or third parties with respect to the collateral and does not attach unless:

  (1) the collateral is in the possession of the secured party pursuant to agreement, the collateral is investment property and the secured party has control pursuant to agreement, or the debtor has signed a security agreement  which contains a description of the collateral and in addition, when the security interest covers crops growing or to be grown or timber to be cut, a description of the land concerned;

  (2) value has been given;  and

  (3) the debtor has rights in the collateral.

 (b) A security interest attaches when it becomes enforceable against the debtor with respect to the collateral.  Attachment occurs as soon as all of the events specified in Subsection (a) have taken place unless explicit agreement postpones the time of attaching.

 (c) If a secured party holds a security interest which applies under this chapter to minerals (including oil and gas) upon their extraction and the security interest also qualifies under applicable law as a lien on such minerals before their extraction, the security interest before and after production shall constitute a single continuous and uninterrupted lien on the property.  The foregoing is declaratory of the law of this state as it has heretofore existed and shall apply with respect to oil, gas, and other minerals heretofore and hereafter produced.

 (d) Unless otherwise agreed a security agreement gives the secured party the rights to proceeds provided by Section 9.306.

 (e) A transaction, although subject to this chapter, is also subject to Title 79, Revised Statutes, [FN1] and in the case of conflict between the provisions of this Chapter and any such statute, the provisions of such statute control.  Failure to comply with any applicable statute has only the effect which is specified therein.

  9.204. AfterAcquired Property;  Future Advances

 (a) Except as provided in Subsection (b), a security agreement may provide that any or all obligations covered by the security agreement are to be secured by afteracquired collateral.

 (b) No security interest attaches under an afteracquired property clause to consumer goods other than accessions (Section 9.314) when given as additional security unless the debtor acquires rights in them within ten days after the secured party gives value.

 (c) Obligations covered by a security agreement may include future advances or other value whether or not the advances or value are given pursuant to commitment (Subsection (a) of Section 9.105).

  9.205. Use or Disposition of Collateral Without Accounting Permissible

 A security interest is not invalid or fraudulent against creditors by reason of liberty in the debtor to use, commingle or dispose of all or part of the collateral (including returned or repossessed goods) or to collect or compromise accounts or chattel paper, or to accept the return of goods or make repossessions, or to use, commingle or dispose of proceeds, or by reason of the failure of the secured party to require the debtor to account for proceeds or replace collateral.  This section does not relax the requirements of possession where perfection of a security interest depends upon possession of the collateral by the secured party or by a bailee.

  9.206. Agreement Not to Assert Defenses Against Assignee;  Modification of Sales Warranties Where Security Agreement Exists

 (a) Subject to any statute or decision which establishes a different rule for buyers or lessees of consumer goods, an agreement by a buyer or lessee that he will not assert against an assignee any claim or defense which he may have against the seller or lessor is enforceable by an assignee who takes his assignment for value, in good faith and without notice of a claim or defense, except as to defenses of a type which may be asserted against a holder in due course of a negotiable instrument under the chapter on Commercial Paper (Chapter 3).  A buyer who as part of one transaction signs both a negotiable instrument and a security agreement makes such an agreement.

 (b) When a seller retains a purchase money security interest in goods the chapter on Sales (Chapter 2) governs the sale and any disclaimer, limitation or modification of the seller's warranties.

  9.207. Rights and Duties When Collateral is in Secured Party's Possession

 (a) A secured party must use reasonable care in the custody and preservation of collateral in his possession.  In the case of an instrument or chattel paper reasonable care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.

 (b) Unless otherwise agreed, when collateral is in the secured party's possession

  (1) reasonable expenses (including the cost of any insurance and payment of taxes or other charges) incurred in the custody, preservation, use or operation of the collateral are chargeable to the debtor and are secured by  the collateral;

  (2) the risk of accidental loss or damage is on the debtor to the extent of any deficiency in any effective insurance coverage;

  (3) the secured party may hold as additional security any increase or profits (except money) received from the collateral, but money so received, unless remitted to the debtor, shall be applied in reduction of the secured obligation;

  (4) the secured party must keep the collateral identifiable but fungible collateral may be commingled;

  (5) the secured party may repledge the collateral upon terms which do not impair the debtor's right to redeem it.

 (c) A secured party is liable for any loss caused by his failure to meet any obligation imposed by the preceding subsections but does not lose his security interest.

 (d) A secured party may use or operate the collateral for the purpose of preserving the collateral or its value or pursuant to the order of a court of appropriate jurisdiction or, except in the case of consumer goods, in the manner and to the extent provided in the security agreement.

  9.208. Request for Statement of Account or List of Collateral

 (a) A debtor may sign a statement indicating what he believes to be the aggregate amount of unpaid indebtedness as of a specified date and may send it to the secured party with a request that the statement be approved or corrected and returned to the debtor.  When the security agreement or any other record kept by the secured party identifies the collateral a debtor may similarly request the secured party to approve or correct a list of the collateral.

 (b) The secured party must comply with such a request within two weeks after receipt by sending a written correction or approval.  If the secured party claims a security interest in all of a particular type of collateral owned by the debtor he may indicate that fact in his reply and need not approve or correct an itemized list of such collateral.  If the secured party without reasonable excuse fails to comply he is liable for any loss caused to the debtor thereby;  and if the debtor has properly included in his request a good faith statement of the obligation or a list of the collateral or both the secured party may claim a security interest only as shown in the statement against persons misled by his failure to comply.  If he no longer has an interest in the obligation or collateral at the time the request is received he must disclose the name and address of any successor in interest known to him and he is liable for any loss caused to the debtor as a result of failure to disclose.  A successor in interest is not subject to this section until a request is received by him.

 (c) A debtor is entitled to such a statement once every six months without charge.  The secured party may require payment of a charge not exceeding $10 for each additional statement furnished.

  9.301. Persons Who Take Priority Over Unperfected Security Interests;  Right of "Lien Creditor"

 (a) Except as otherwise provided in Subsection (b), an unperfected security interest is subordinate to the rights of:

  (1) persons entitled to priority under Section 9.312;

  (2) a person who becomes a lien creditor before the security interest is perfected;

  (3) in the case of goods, instruments, documents, and chattel paper, a person who is not a secured party and who is a transferee in bulk or other buyer not  in ordinary course of business, or is a buyer of farm products in ordinary course of business, to the extent that he gives value and receives delivery of the collateral without knowledge of the security interest and before it is perfected;

  (4) in the case of accounts, general intangibles, and investment property, a person who is not a secured party and who is a transferee to the extent that he gives value without knowledge of the security interest and before it is perfected.

 (b) If the secured party files with respect to a purchase money security interest before or within 20 days after the debtor receives possession of the collateral, he takes priority over the rights of a transferee in bulk or of a lien creditor which arise between the time the security interest attaches and the time of filing.

 (c) A "lien creditor" means a creditor who has acquired a lien on the property involved by attachment, levy or the like and includes an assignee for benefit of creditors from the time of assignment, and a trustee in bankruptcy from the date of the filing of the petition or a receiver in equity from the time of appointment.

 (d) A person who becomes a lien creditor while a security interest is perfected takes subject to the security interest only to the extent that it secures advances made before he becomes a lien creditor or within 45 days thereafter or made without knowledge of the lien or pursuant to a commitment entered into without knowledge of the lien.

  9.302. When Filing is Required to Perfect Security Interest;  Security Interests to Which Filing Provisions of This Article Do Not Apply

 (a) A financing statement must be filed to perfect all security interests except the following:

  (1) a security interest in collateral in possession of the secured party under Section 9.305;

  (2) a security interest temporarily perfected in instruments, certificated securities, or documents without delivery under Section 9.304 or in proceeds for a 10 day period under Section 9.306;

  (3) a security interest created by an assignment of a beneficial interest in a trust or a decedent's estate;

  (4) a purchase money security interest in consumer goods;  but notation on a certificate of title is required for goods covered by a statute referred to in Subsection (c)(2);  and fixture filing is required for priority over conflicting interests in fixtures to the extent provided in Section 9.313;

  (5) an assignment of accounts which does not alone or in conjunction with other assignments to the same assignee transfer a significant part of the outstanding accounts of the assignor;

  (6) a security interest of a collecting bank (Section 4.210), a security interest arising under the Chapter on Sales (see Section 9.113), or a security interest covered in Subsection (c) of this Section;

  (7) an assignment for the benefit of all the creditors of the transferor, and subsequent transfers by the assignee thereunder;

  (8) a security interest in oil or gas production or their proceeds under Section 9.319 of this code;  or

  (9) a security interest in investment property that is perfected without filing under Section 9.115 or 9.116.

 (b) If a secured party assigns a perfected security interest, no filing under this Chapter is required in order to continue the perfected status of the security interest against creditors of and transferees from the original debtor.

 (c) The filing of a financing statement otherwise required by this Chapter is not necessary or effective to perfect a security interest in property subject to

  (1) a statute or treaty of the United States which provides for a national or international registration or a national or international certificate of title or which specifies a place of filing different from that specified in this Chapter for filing of the security interest;  or

  (2) the following statutes of this state;  the Certificate of Title Act, as amended (Article 66871, Vernon's Texas Civil Statutes);  Subchapter B1, Chapter 31, Parks and Wildlife Code, as amended, [FN1] relating to the certificates of title for motorboat and outboard motors;  the Texas Manufactured Housing Standards Act, as amended (Article 5221f, Vernon's Texas Civil Statutes);  but during any period in which collateral is inventory held for sale by a person who is in the business of selling goods of that kind, the filing provisions of this Chapter (Subchapter D)  [FN2] apply to a security interest in that collateral created by him as debtor;  or Subchapter A, Chapter 35, Title 4, Business & Commerce Code, [FN3] relating to utility security instruments;  or

  (3) a certificate of title statute of another jurisdiction under the law of which indication of a security interest on the certificate is required as a condition of perfection (Subsection (b) of Section 9.103).

 (d) Compliance with a statute or treaty described in Subsection (c) is equivalent to the filing of a financing statement under this Chapter, and a security interest in property subject to the statute or treaty can be perfected only by compliance therewith except as provided in Section 9.103 on multiple state transactions.  Duration and renewal of perfection of a security interest perfected by compliance with the statute or treaty are governed by the provisions of the statute or treaty;  in other respects the security interest is subject to this Chapter.

  9.303. When Security Interest Is Perfected;  Continuity of Perfection

 (a) A security interest is perfected when it has attached and when all of the applicable steps required for perfection have been taken.  Such steps are specified in Sections 9.115, 9.302, 9.304, 9.305 and 9.306.  If such steps are taken before the security interest attaches, it is perfected at the time when it attaches.

 (b) If a security interest is originally perfected in any way permitted under this chapter and is subsequently perfected in some other way under this chapter, without an intermediate period when it was unperfected, the security interest shall be deemed to be perfected continuously for the purposes of this chapter.

  9.304. Perfection of Security Interest in Instruments, Documents and Goods Covered by Documents;  Perfection by Permissive Filing;  Temporary Perfection Without Filing or Transfer of Possession

 (a) A security interest in chattel paper or negotiable documents may be perfected by filing.  A security interest in money or instruments (other than instruments which constitute part of chattel paper) can be perfected only by the secured party's taking possession, except as provided in Subsections (d) and (e) of this section and Subsections (b) and (c) of Section 9.306 on proceeds.

 (b) During the period that goods are in the possession of the issuer of a negotiable document therefor, a security interest in the goods is perfected by perfecting a security interest in the document, and any security interest in the goods otherwise perfected during such period is subject thereto.

 (c) A security interest in goods in the possession of a bailee other than one who has issued a negotiable document therefor is perfected by issuance of a document in the name of the secured party or by the bailee's receipt of notification of the secured party's interest or by filing as to the goods.

 (d) A security interest in instruments, certificated securities, or negotiable documents is perfected without filing or the taking of possession for a period of 21 days from the time it attaches to the extent that it arises for new value given under a written security agreement.

 (e) A security interest remains perfected for a period of 21 days without filing where a secured party having a perfected security interest in an instrument, a certificated security, a negotiable document, or goods in possession of a bailee other than one who has issued a negotiable document therefor:

  (1) makes available to the debtor the goods or documents representing the goods for the purpose of ultimate sale or exchange or for the purpose of loading, unloading, storing, shipping, transshipping, manufacturing,  processing or otherwise dealing with them in a manner preliminary to their sale or exchange, but priority between conflicting security interests in the goods is subject to Subsection (c) of Section 9.312;  or

  (2) delivers the instrument or certificated security to the debtor for the purpose of ultimate sale or exchange or of presentation, collection, renewal or registration of transfer.

 (f) After the 21 day period in Subsections (d) and (e) perfection depends upon compliance with applicable provisions of this chapter.

  9.305. When Possession by Secured Party Perfects Security Interest Without Filing

 A security interest in letters of credit and advices of credit (Subsection  (b)(1) of Section 5.116), goods, instruments, money, negotiable documents or chattel paper may be perfected by the secured party's taking possession of the collateral.  If such collateral other than goods covered by a negotiable document is held by a bailee, the secured party is deemed to have possession from the time the bailee receives notification of the secured party's interest.  A security interest is perfected by possession from the time possession is taken without relation back and continues only so long as possession is retained, unless otherwise specified in this chapter.  The security interest may be otherwise perfected as provided in this chapter before or after the period of possession by the secured party.

  9.306. "Proceeds";  Secured Party's Rights on Disposition of Collateral

 (a) "Proceeds" includes whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds.  Insurance payable by reason of loss or damage to the collateral is proceeds, except to the extent that it is payable to a person other than a party to the security agreement. Any payments or distributions made with respect to investment property collateral are proceeds.  Money, checks, deposit accounts and the like are "cash proceeds".  All other proceeds are "noncash proceeds".

 (b) Except where this chapter otherwise provides, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.

 (c) The security interest in proceeds is a continuously perfected security interest if the interest in the original collateral was perfected but it ceases to be a perfected security interest and becomes unperfected ten days after receipt of the proceeds by the debtor unless:

  (1) a filed financing statement covers the original collateral and the proceeds are collateral in which a security interest may be perfected by filing in the office or offices where the financing statement has been filed and, if the proceeds are acquired with cash proceeds, the description of collateral in the financing statement indicates the types of property constituting the proceeds;

  (2) a filed financing statement covers the original collateral and the proceeds are identifiable cash proceeds;

  (3) the original collateral was investment property and the proceeds are identifiable cash proceeds;  or

  (4) the security interest in the proceeds is perfected before the expiration of the ten day period.  Except as provided in this section, a security  interest in proceeds can be perfected only by the methods or under the circumstances permitted in this chapter for original collateral of the same type.

 (d) In the event of insolvency proceedings instituted by or against a debtor, a secured party with a perfected security interest in proceeds has a perfected security interest only in the following proceeds:

  (1) in identifiable noncash proceeds and in separate deposit accounts containing only proceeds;

  (2) in identifiable cash proceeds in the form of money which is neither commingled with other money nor deposited in a deposit account prior to the insolvency proceedings;

  (3) in identifiable cash proceeds in the form of checks and the like which are not deposited in a deposit account prior to the insolvency proceedings;

  (4) in all cash and deposit accounts of the debtor in which proceeds have been commingled with other funds, but the perfected security interest under this Subdivision (4) is

   (A) subject to any right of setoff;  and

   (B) limited to an amount not greater than the amount of any cash proceeds received by the debtor within ten days before the institution of the insolvency proceedings less the sum of (I) the payments to the secured party   on account of cash proceeds received by the debtor during such period and  (II) the cash proceeds received by the debtor during such period to which the secured party is entitled under Subdivisions (1) through (3) of this Subsection (d);  and

  (5) in all cash and deposit accounts of the debtor in which proceeds have been commingled with other funds, if the perfected security interest under this Subdivision (5) is provided by Section 9.319 of this code.

 (e) If a sale of goods results in an account or chattel paper which is transferred by the seller to a secured party, and if the goods are returned to or are repossessed by the seller or the secured party, the following rules determine priorities:

  (1) If the goods were collateral at the time of sale for an indebtedness of the seller which is still unpaid, the original security interest attaches again to the goods and continues as a perfected security interest if it was perfected at the time when the goods were sold.  If the security interest was originally perfected by a filing which is still effective, nothing further is required to continue the perfected status;  in any other case, the secured party must take possession of the returned or repossessed goods or must file.

  (2) An unpaid transferee of the chattel paper has a security interest in the goods against the transferor.  Such security interest is prior to a security  interest asserted under Subdivision (1) to the extent that the transferee of the chattel paper was entitled to priority under Section 9.308.

  (3) An unpaid transferee of the account has a security interest in the goods against the transferor.  Such security interest is subordinate to a security interest asserted under Subdivision (1).

  (4) A security interest of an unpaid transferee asserted under Subdivision  (2) or (3) must be perfected for protection against creditors of the transferor and purchasers of the returned or repossessed goods.

  9.307. Protection of Buyers of Goods

 (a) Except as provided by Subsection (d) of this section, a buyer in ordinary course of business (Subdivision (9) of Section 1.201) other than a person buying farm products from a person engaged in farming operations takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence.

 (b) In the case of consumer goods, a buyer takes free of a security interest even though perfected if he buys without knowledge of the security interest, for value and for his own personal, family or household purposes unless prior to the purchase the secured party has filed a financing statement covering such goods.

 (c) A buyer other than a buyer in ordinary course of business (Subsection (a) of this section) takes free of a security interest to the extent that it secures future advances made after the secured party acquires knowledge of the purchase, or more than 45 days after the purchase, whichever first occurs, unless made pursuant to a commitment entered into without knowledge of the purchase and before the expiration of the 45 day period.

 (d) A secured party, including a secured party under a security interest covered by Section 9.312(b) of this code, may not enforce a security interest in farm products against a person who has purchased the farm products from a person engaged in farming operations unless the secured party gives notice of the security interest to the buyer by certified mail, return receipt requested, not later than the 90th day after the date of purchase.  The notice must state the terms of the security interest and the amount claimed to be owed to the secured party.

  9.308. Purchase of Chattel Paper and Instruments

 A purchaser of chattel paper or an instrument who gives new value and takes possession of it in the ordinary course of his business has priority over a security interest in the chattel paper or instrument

  (1) which is perfected under Section 9.304 (permissive filing and temporary perfection) or under Section 9.306 (perfection as to proceeds) if he acts without knowledge that the specific paper or instrument is subject to a security interest;  or

  (2) which is claimed merely as proceeds of inventory subject to a security  interest (Section 9.306) even though he knows that the specific paper or instrument is subject to the security interest.

  9.309. Protection of Purchasers of Instruments, Documents, and Securities

 Nothing in this chapter limits the rights of a holder in due course of a negotiable instrument (Section 3.302) or a holder to whom a negotiable document of title has been duly negotiated (Section 7.501) or a protected purchaser of a security (Section 8.303 ) and such holders or purchasers take priority over an earlier security interest even though perfected.  Filing under this chapter does not constitute notice of the security interest to such holders or purchasers.

  9.310. Priority of Certain Liens Arising by Operation of Law

 When a person in the ordinary course of his business furnishes services or materials with respect to goods subject to a security interest, a lien upon goods in the possession of such person given by statute or rule of law for such materials or services takes priority over a perfected security interest unless the lien is statutory and the statute expressly provides otherwise.

  9.311. Alienability of Debtor's Rights:  Judicial Process

 The debtor's rights in collateral may be voluntarily or involuntarily transferred (by way of sale, creation of a security interest, attachment, levy, garnishment or other judicial process) notwithstanding a provision in the security agreement prohibiting any transfer or making the transfer constitute a default.

  9.312. Priorities Among Conflicting Security Interests in the Same Collateral

 (a) The rules of priority stated in other sections of this subchapter and in the following sections shall govern when applicable:  Section 4.210 with respect to the security interests of collecting banks in items being collected, accompanying documents and proceeds;  Section 9.103 on security interests related to other jurisdictions;  Section 9.114 on consignments;  Section 9.115 on security interests in investment property.

 (b) A perfected security interest in crops for new value given to enable the debtor to produce the crops during the production season and given not more than three months before the crops become growing crops by planting or otherwise takes priority over an earlier perfected security interest to the extent that such earlier interest secures obligations due more than six months before the crops become growing crops by planting or otherwise, even though the person giving new value had knowledge of the earlier security interest.

 (c) A perfected purchase money security interest in inventory has priority over a conflicting security interest in the same inventory and also has priority in identifiable cash proceeds received on or before the delivery of the inventory to a buyer if

  (1) the purchase money security interest is perfected at the time the debtor receives possession of the inventory;  and

  (2) except where excused by Section 9.319 (oil and gas production), the purchase money secured party gives notification in writing to the holder of the conflicting security interest if the holder had filed a financing statement covering the same types of inventory (i) before the date of the filing made by the purchase money secured party, or (ii) before the beginning of the 21 day period where the purchase money security interest is temporarily perfected without filing or possession (Subsection (e) of Section 9.304);  and

  (3) the holder of the conflicting security interest receives any required  notification within five years before the debtor receives possession of the inventory;  and

  (4) the notification states that the person giving the notice has or expects to acquire a purchase money security interest in inventory of the debtor, describing such inventory by item or type.

 (d) A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within 20 days thereafter.

 (e) In all cases not governed by other rules stated in this section (including cases of purchase money security interests which do not qualify for the special priorities set forth in Subsections (c) and (d) of this section), priority between conflicting security interests in the same collateral shall be determined according to the following rules:

  (1) Conflicting security interests rank according to priority in time of filing or perfection.  Priority dates from the time a filing is first made covering the collateral or the time the security interest is first perfected, whichever is earlier, provided that there is no period thereafter when there is neither filing nor perfection.

  (2) So long as conflicting security interests are unperfected, the first to  attach has priority.

 (f) For the purposes of Subsection (e) a date of filing or perfection as to collateral is also a date of filing or perfection as to proceeds.

 (g) If future advances are made while a security interest is perfected by filing, the taking of possession, or under Section 9.115 or 9.116 on investment property, the security interest has the same priority for the purposes of Subsection (e) or Section 9.115(e) with respect to the future advances as it does with respect to the first advance.  If a commitment is made before or while the security interest is so perfected, the security interest has the same priority with respect to advances made pursuant thereto.  In other cases a perfected security interest has priority from the date the advance is made.

  9.313. Priority of Security Interests in Fixtures

 (a) In this section and in the provisions of Subchapter D of this chapter   [FN1] referring to fixture filing, unless the context otherwise requires

  (1) goods are "fixtures" when they become so related to particular real estate that an interest in them arises under the real estate law of the state in which the real estate is situated;

  (2) a "fixture filing" is the filing in the office where a mortgage on the real estate would be filed or recorded of a financing statement covering goods which are or are to become fixtures and conforming to the requirements of  Subsection (e) of Section 9.402;

  (3) a mortgage is a "construction mortgage" to the extent that it secures an obligation incurred for the construction of an improvement on land including the acquisition cost of the land, if the recorded writing so indicates.

 (b) A security interest under this chapter may be created in goods which are fixtures or may continue in goods which become fixtures, but no security interest exists under this chapter in ordinary building materials incorporated into an improvement on land.

 (c) This chapter does not prevent creation of an encumbrance upon fixtures pursuant to real estate law.

 (d) A perfected security interest in fixtures has priority over the conflicting interest of an encumbrancer or owner of the real estate where

  (1) the security interest is a purchase money security interest, the interest of the encumbrancer or owner arises before the goods become fixtures, the security interest is perfected by a fixture filing before the goods become fixtures or within ten days thereafter, and the debtor has an interest of record in the real estate or is in possession of the real estate;  or

  (2) the security interest is perfected by a fixture filing before the interest of the encumbrancer or owner is of record, the security interest has priority over any conflicting interest of a predecessor in title of the  encumbrancer or owner, and the debtor has an interest of record in the real estate or is in possession of the real estate;  or

  (3) the fixtures are readily removable factory or office machines or readily removable replacements of domestic appliances which are consumer goods, and before the goods become fixtures the security interest is perfected by any method permitted by this chapter;  or

  (4) the conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the security interest was perfected by any method permitted by this chapter.

 (e) A security interest in fixtures, whether or not perfected, has priority over the conflicting interest of an encumbrancer or owner of the real estate where

  (1) the encumbrancer or owner has consented in writing to the security interest or has disclaimed an interest in the goods as fixtures;  or

  (2) the debtor has a right to remove the goods as against the encumbrancer or owner.  If the debtor's right terminates, the priority of the security interest continues for a reasonable time.

 (f) Notwithstanding Subdivision (1) of Subsection (d) but otherwise subject to Subsections (d) and (e), a security interest in fixtures is subordinate to a construction mortgage recorded before the goods become fixtures if the goods become fixtures before the completion of the construction.  To the extent that it is given to refinance a construction mortgage, a mortgage has this priority to the same extent as the construction mortgage.

 (g) In cases not within the preceding subsections, a security interest in fixtures is subordinate to the conflicting interest of an encumbrancer or owner of the related real estate who is not the debtor.

 (h) When the secured party has priority over all owners and encumbrancers of the real estate, he may, on default, subject to the provisions of Subchapter E, [FN2] remove his collateral from the real estate but he must reimburse any encumbrancer or owner of the real estate who is not the debtor 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 secured party gives adequate security for the performance of this obligation.

  9.314. Accessions

 (a) A security interest in goods which attaches before they are installed in or affixed to other goods takes priority as to the goods installed or affixed (called in this section "accessions") over the claims of all persons to the whole except as stated in Subsection (c) and subject to Section 9.315(a).

 (b) A security interest which attaches to goods after they become part of a whole is valid against all persons subsequently acquiring interests in the whole except as stated in Subsection (c) but is invalid against any person with an interest in the whole at the time the security interest attaches to the goods who has not in writing consented to the security interest or disclaimed an interest in the goods as part of the whole.

 (c) The security interests described in Subsections (a) and (b) do not take priority over

  (1) a subsequent purchaser for value of any interest in the whole;  or

  (2) a creditor with a lien on the whole subsequently obtained by judicial proceedings;  or

  (3) a creditor with a prior perfected security interest in the whole to the extent that he makes subsequent advances

if the subsequent purchase is made, the lien by judicial proceedings obtained or the subsequent advance under the prior perfected security interest is made or contracted for without knowledge of the security interest and before it is perfected.  A purchaser of the whole at a foreclosure sale other than the holder of a perfected security interest purchasing at his own foreclosure sale is a subsequent purchaser within this section.

 (d) When under Subsections (a) or (b) and (c) a secured party has an interest in accessions which has priority over the claims of all persons who have interests in the whole, he may on default subject to the provisions of Subchapter E remove his collateral from the whole but he must reimburse any encumbrancer or owner of the whole who is not the debtor 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 secured party gives adequate security for the performance of this obligation.

  9.315. Priority When Goods are Commingled or Processed

 (a) If a security interest in goods was perfected and subsequently the goods or a part thereof have become part of a product or mass, the security interest continues in the product or mass if

  (1) the goods are so manufactured, processed, assembled or commingled that their identity is lost in the product or mass;  or

  (2) a financing statement covering the original goods also covers the product into which the goods have been manufactured, processed or assembled.

 In a case to which Subdivision (2) applies, no separate security interest in that part of the original goods which has been manufactured, processed or assembled into the product may be claimed under Section 9.314.

 (b) When under Subsection (a) more than one security interest attaches to the product or mass, they rank equally according to the ratio that the cost of the goods to which each interest originally attached bears to the cost of the total product or mass.

  9.316. Priority Subject to Subordination

 Nothing in this chapter prevents subordination by agreement by any person entitled to priority.

  9.317. Secured Party Not Obligated on Contract of Debtor

 The mere existence of a security interest or authority given to the debtor to dispose of or use collateral does not impose contract or tort liability upon the secured party for the debtor's acts or omissions.

  9.318. Defenses Against Assignee;  Modification of Contract After Notification of Assignment;  Term Prohibiting Assignment Ineffective; Identification and Proof of Assignment

 (a) Unless an account debtor has made an enforceable agreement not to assert defenses or claims arising out of a sale as provided in Section 9.206 the rights of an assignee are subject to

  (1) all the terms of the contract between the account debtor and assignor and any defense or claim arising therefrom;  and

  (2) any other defense or claim of the account debtor against the assignor  which accrues before the account debtor receives notification of the assignment.

 (b) So far as the right to payment or a part thereof under an assigned contract has not been fully earned by performance, and notwithstanding notification of the assignment, any modification of or substitution for the contract made in good faith and in accordance with reasonable commercial standards is effective against an assignee unless the account debtor has otherwise agreed but the assignee acquires corresponding rights under the modified or substituted contract.  The assignment may provide that such modification or substitution is a breach by the assignor.

 (c) The account debtor is authorized to pay the assignor until the account debtor receives notification that the amount due or to become due has been assigned and that payment is to be made to the assignee.  A notification which does not reasonably identify the rights assigned is ineffective.  If requested by the account debtor, the assignee must seasonably furnish reasonable proof that the assignment has been made and unless he does so the account debtor may pay the assignor.

 (d) A term in any contract between an account debtor and an assignor is ineffective if it prohibits assignment of an account or prohibits creation of a security interest in a general intangible for money due or to become due or requires the account debtor's consent to such assignment or security interest.

  9.319. Oil and Gas Interests:  Security Interest Perfected Without Filing;  Statutory Lien

 (a) This section provides a security interest in favor of interest owners (as secured parties) to secure the obligations of the first purchaser of oil and gas production (as debtor) to pay the purchase price.  A signed writing giving the interest owner a right under real estate law operates as a security agreement created under this chapter.  The act of the first purchaser in signing an agreement to purchase oil or gas production, in issuing a division order, or in making any other voluntary communication to the interest owner or any governmental agency recognizing the interest owner's right operates as an authentication and adoption of the security agreement in accordance with Section 1.201(39) of this code for purposes of this chapter.

 (b) The security interest provided by this section is perfected automatically without the filing of a financing statement.  If the interest of the secured party is evidenced by a deed, mineral deed, reservation in either, oil or gas lease, assignment, or any other such writing recorded in the real estate records of a county clerk, that writing is effective as a filed financing statement for purposes of Sections 9.302, 9.304, 9.306, 9.312, 9.401, 9.402, and 9.403 of this code, but no fee is required except that otherwise required by the county clerk, and there is no requirement of refiling every five years to maintain effectiveness of the filing.

 (c) The security interest exists in oil and gas production, and also in the following proceeds of such production owned by, received by, or due to the first purchaser:

  (1) for an unlimited time if:

   (A) the proceeds are oil or gas production, inventory of raw, refined, or manufactured oil or gas production, or rights to or products of any of these, although the sale of such proceeds by a first purchaser to a buyer in the ordinary course of business as provided in Subsection (e) will cut off the   security interest in those proceeds;

   (B) the proceeds are accounts, chattel paper, instruments, and documents;  or

   (C) the proceeds are "cash proceeds" as defined in Section 9.306 of this code;  and

  (2) for the length of time provided by Section 9.306 of this code as to all other proceeds.

 (d) This section creates a lien that secures the payment of all taxes that are or should be withheld or paid by the first purchaser, and a lien that secures the rights of any person who would be entitled to a security interest under Subsection (a) of this section except for lack of any adoption of a security agreement by the first purchaser or a lack of possession or writing required by Section 9.203 of this code for the security interest to be enforceable.

 (e) The security interests and liens created by this section have priority over the bona fide purchasers described in Section 9.301 of this code (transferees in bulk and other buyers not in the ordinary course), but are cut off by the sale to a buyer from the first purchaser who is in the ordinary course of the first purchaser's business under Section 9.307(a) of this code. But in either case, whether or not the buyer from the first purchaser is in ordinary course a security interest will continue in the proceeds of the sale by the first purchaser as provided in Subsection (c).

 (f) The security interests and all liens created by this section will have the following priorities over other Chapter 9 security interests:

  (1) security interests created by this section shall be treated as purchase money security interests for purposes of determining their relative priority under Section 9.312 of this code over other security interests not provided for by this section;  holders of these security interests are not required to give the written notice every five years as provided by Section 9.312(c) to enjoy purchase money priority over security interests with a prior financing statement covering inventory;  and

  (2) statutory liens are subordinate to all other perfected Chapter 9 security interests, and have priority over unperfected Chapter 9 security interests and the lien creditors, buyers, and transferees mentioned in Section 9.301 of this code.

 (g) The security interests and liens created by this section have the following priorities among themselves:

  (1) if a writing effective as a financing statement under Subsection (b) of this section exists, the security interests perfected by that writing have priority over a security interest automatically perfected without filing under Subsection (b) of this section.  If several security interests perfected by  writings exist, they have the same priority among themselves as established by real estate law for interests in oil and gas in place.  If real estate law establishes no priority among them, they share priority pro rata;

  (2) a security interest perfected automatically without filing under Subsection (b) of this section has priority over a lien created under Subsection (d) of this section;  and

  (3) a nontax lien under Subsection (d) of this section has priority over a lien created under that subsection that secures the payment of taxes.

 (h) The priorities for statutory liens mentioned in Section 9.310 of this code do not apply to any security interest or statutory lien created by this section.  But if any pipeline common carrier has a statutory or tariff lien which is effective and enforceable against a trustee in bankruptcy and not invalidated by the Federal Tax Lien Act, it will have priority over the security interests and statutory liens created by this section.

 (i) If oil or gas production in which there are security interests or statutory liens created by this section is commingled with inventory or other production, the rules of Section 9.315 of this code apply.

 (j) A security interest or statutory lien created by this section remains effective against the debtor and perfected against his creditors even if assigned, regardless of whether the assignment is perfected against the assignor's creditors.  If a deed, mineral deed, assignment of oil and gas lease, or other such writing evidencing the assignment is filed in the real estate records of the county, it will have the same effect as filing an amended financing statement under Section 9.405 of this code.

 (k) This section does not impair an operator's right to setoff or withhold funds from other interest owners as security for or in satisfaction of any debt or security interest.  In case of a dispute between an operator and another interest owner, a good faith tender by anyone of funds to the person they shall agree on or who may otherwise show himself to be the one entitled to the funds or to a court of competent jurisdiction in the event of litigation or bankruptcy, shall operate as a tender of the funds to both.

 (l) A first purchaser who acts in good faith may terminate an interest owner's security interest or statutory lien under this section by paying, or by making and keeping open a tender of the amount the first purchaser believes to be due to the interest owner:

  (1) if the interest owner's rights are to oil or gas production or its proceeds, either to the operator alone, in which case the operator shall be considered the first purchaser, or to some combination of the interest owner and the operator, as the first purchaser chooses;  or

  (2) whatever the nature of the production to which the interest owner has  rights, to the person that the interest owner agreed to or acquiesced in;  or

  (3) to a court of competent jurisdiction in the event of litigation or bankruptcy.

 (m) A person who buys from a first purchaser can assure that he buys free and clear of an interest owner's security interest or statutory lien under this section:

  (1) by buying in the ordinary course of the first purchaser's business from the first purchaser under Section 9.307(a) of this code;  or

  (2) by obtaining the interest owner's consent to the sale under Section 9.306(b) of this code;  or

  (3) by insuring that the first purchaser has paid the interest owner, or else, provided that gas production is involved, or the interest owner has so agreed or acquiesced, by insuring that the first purchaser has paid the interest owner's operator;  or

  (4) by insuring that he or the first purchaser or some other person has withheld funds sufficient to pay amounts in dispute and has maintained a tender of such funds to whoever may show himself to be the person entitled. If a tender which is valid thereafter fails, the security interest and liens governed by this section remain effective.

 (n) In addition to the usual remedy of sequestration available to secured parties, and the remedies given in Subchapter E of this chapter, [FN1] the holders of security interests and liens created by this section have available to them, to the extent constitutionally permitted, the remedies of replevin, attachment, and garnishment to assist them in realizing upon their rights.

 (o ) The rights of any person claiming under a security interest or lien created by this section are governed by the other provisions of this chapter except to the extent that this section necessarily displaces those provisions. This section does not invalidate or otherwise affect the interests of any person in any real property prior to severance of any oil or gas production.

 (p) The security interest created under Sections 9.319(a) and (b) shall not apply to proceeds of gas production which have been withheld, in cash or account form, by a purchaser under the provisions of Section 201.204(c), Tax Code.

 (q) In this section:

  (1) "Oil and gas production" means any oil, natural gas, condensate of either, natural gas liquids, other gaseous, liquid, or dissolved hydrocarbons, sulfur, or helium, or other substance produced as a byproduct or adjunct to their production, or any combination of these, which is severed, extracted, or produced from the ground, the seabed, or other submerged lands within the jurisdiction of the State of Texas.  Any such substance, including recoverable  or recovered natural gas liquids, which is transported to or in a natural gas pipeline or natural gas gathering system, or otherwise transported or sold for use as natural gas, or is transported or sold for the extraction of helium or natural gas liquids is "gas production".  Any such substance which is transported or sold to persons and for purposes not included in the foregoing natural gas definition is oil production.

  (2) "Interest owner" means a person owning an entire or fractional interest of any kind or nature in oil or gas production at the time of severance, or a person who has an express, implied, or constructive right to receive a monetary payment determined by the value of oil or gas production or by the amount of production.

  (3) "First purchaser" means the first person that purchases oil or gas production from an operator or interest owner after the production is severed, or an operator that receives production proceeds from a thirdparty purchaser who acts in good faith under a division order or other agreement signed by the operator under which the operator collects proceeds of production on behalf of other interest owners.  To the extent the operator receives proceeds attributable to the interest of other interest owners from a thirdparty purchaser who acts in good faith under a division order or other agreement signed by such operator, the operator shall be considered to be the first  purchaser of the production for all purposes under this section, notwithstanding the characterization of other persons as first purchasers under other laws or regulations.  To the extent the operator has not received from the thirdparty purchaser proceeds attributable to his interest and the interest of other interest owners, the operator is not considered the first purchaser for the purposes of this section, and is entitled to all rights and benefits under this section.  Nothing herein shall impair or affect any rights otherwise held by a royalty owner to take its share of oil in kind or receive payment directly from a thirdparty purchaser for such royalty owner's share of oil production with or without a previously made agreement.

  (4) An "operator" is a person engaged in the business of severing oil or gas production from the ground, whether for himself alone, for other persons alone, or for himself and others.

  9.401. Place of Filing;  Erroneous Filing;  Removal of Collateral

 (a) The proper place to file in order to perfect a security interest is as follows:

  (1) when the collateral is consumer goods, then in the office of the County Clerk in the county of the debtor's residence or if the debtor is not a resident of this state then in the office of the County Clerk in the county where the goods are kept;

  (2) when the collateral is timber to be cut or is minerals or the like  (including oil and gas) or accounts subject to Subsection (e) of Section 9.103, or when the financing statement is filed as a fixture filing (Section  9.313) and the collateral is goods which are or are to become fixtures, then in the office of the County Clerk in the county where a mortgage on the real estate would be filed or recorded;

  (3) in all other cases, in the office of the Secretary of State.

 (b) A filing which is made in good faith in an improper place or not in all of the places required by this section is nevertheless effective with regard to any collateral as to which the filing complied with the requirements of this chapter and is also effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement.

 (c) A filing which is made in the proper county continues effective for four months after a change to another county of the debtor's residence or place of business or the location of the collateral, whichever controlled the original filing.  It becomes ineffective thereafter unless a copy of the financing statement signed by the secured party is filed in the new county within said period.  The security interest may also be perfected in the new county after the expiration of the fourmonth period;  in such case perfection dates from the time of perfection in the new county.  A change in the use of the collateral does not impair the effectiveness of the original filing.

 (d) The rules stated in Section 9.103 determine whether filing is necessary in this state.

 (e) For the purposes of this section, the residence of an organization is its place of business if it has one or its chief executive office if it has more than one place of business.

 (f) A continuation statement filed to continue a security interest perfected before September 1, 1985, in collateral that is equipment used in farming operations, farm products, or accounts or general intangibles arising from or relating to the sale of farm products by a farmer must be filed in the office of the Secretary of State, and must contain the information contained in the original financing statement, in addition to the information required for a continuation statement under Section 9.403 of this code.  The priority of such a security interest is not affected by the fact that a continuation statement filed according to this subsection is filed at a different place than the original financing statement.

  9.402. Formal Requisites of Financing Statement;  Amendments;  Mortgage as Financing Statement

 (a) A financing statement is sufficient if it gives the names of the debtor and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral.  A financing statement may be filed before a security agreement is made or a security interest otherwise attaches.  When the financing statement covers crops growing or to be grown, the statement must also contain a description of the real estate concerned. When the financing statement covers timber to be cut or covers minerals or the like (including oil and gas) or accounts subject to Subsection (e) of Section 9.103, or when the financing statement is filed as a fixture filing (Section 9.313) and the collateral is goods which are or are to become fixtures, the statement must also comply with Subsection (e).  A security agreement is sufficient as a financing statement if it contains the above information and is signed by the debtor.  A carbon, photographic or other reproduction of a security agreement or a financing statement is sufficient as a financing statement.

 (b) A financing statement which otherwise complies with Subsection (a) is sufficient when it is signed by the secured party instead of the debtor if it is filed to perfect a security interest in

  (1) collateral already subject to a security interest in another jurisdiction when it is brought into this state, or when the debtor's location is changed to this state.  Such a financing statement must state that the collateral was brought into this state or that the debtor's location was changed to this state under such circumstances;  or

  (2) proceeds under Section 9.306 if the security interest in the original collateral was perfected.  Such a financing statement must describe the original collateral;  or

  (3) collateral as to which the filing has lapsed;  or

  (4) collateral acquired after a change of name, identity or corporate structure of the debtor (Subsection (g)).

 (c) A form substantially as follows is sufficient to comply with Subsection  (a):

 Name of debtor (or assignor) _________________________________________________

 Address ______________________________________________________________________

 Name of secured party (or assignee) __________________________________________

 Address ______________________________________________________________________

 1. This financing statement covers the following types (or items) of property: (Describe) ____________________________________________________________________

 2. (If collateral is crops) The above described crops are growing or are to be grown on:

(Describe Real Estate) _________________________________________________________ ____________________________________________________________________________

 3. (If applicable) The above goods are or are to become fixtures on (or where appropriate substitute either "The above timber is standing on __________" or "The above minerals or the like (including oil and gas) or accounts will be financed at the wellhead or minehead of the well or mine located on __________")

(Describe Real Estate) ______________ and this financing statement is to be filed for record in the real estate records.  (If the debtor does not have an interest of record) The name of a record owner of the real estate concerned is ______________

 4. (If products of collateral are claimed) Products of the Collateral are also covered. (use _______________________________________________________________________ whichever ____________________________________________________________________

Signature of Debtor (or Assignor) is __________________________________________________________________________ applicable)                               Signature of Secured Party (or Assignee)

 (d) A financing statement may be amended by filing a writing signed by both the debtor and the secured party, provided, however, that an amendment to a financing statement which changes only the name of the secured party or the required address of either the secured party or the debtor is sufficient when it is signed by the secured party instead of the debtor.  An amendment does not extend the period of effectiveness of a financing statement.  If any amendment adds collateral, it is effective as to the added collateral only from the filing date of the amendment.  In this chapter, unless the context otherwise requires, the term "financing statement" means the original financing statement and any amendments.

 (e) A financing statement covering timber to be cut or covering minerals or the like (including oil and gas) or accounts subject to Subsection (e) of Section 9.103, or a financing statement filed as a fixture filing (Section 9.313), must show that it covers this type of collateral, must recite that it is to be filed for record in the real estate records, and the financing statement must contain a description of the real estate sufficient if it were contained in a mortgage of the real estate to give constructive notice of the mortgage under the law of this state.  If the debtor does not have an interest of record in the real estate, the financing statement must show the name of a record owner.

 (f) A mortgage is effective as a financing statement filed as a fixture filing or as a financing statement covering timber to be cut or covering minerals or the like (including oil and gas) or accounts subject to Subsection (e) of Section 9.103, from the date of its filing for record if (1) the goods or other collateral are described in the mortgage by item or type, (2) in the case of a fixture filing, the goods are or are to become fixtures related to the real estate described in the mortgage, (3) in the case of timber to be cut, the timber is standing on the real estate described in the mortgage, (4) in the case of minerals or the like (including oil and gas) or accounts subject to Subsection (e) of Section 9.103, the minerals or the like (including oil and gas) or the accounts are to be financed at the wellhead or minehead of the well or mine located on the real estate described in the mortgage, (5) the mortgage complies with the requirements for a financing statement in this section other than a recital that it is to be filed in the real estate records, and (6) the mortgage is duly filed for record.  No fee with reference to the financing statement is required other than the regular recording and satisfaction fees with respect to the mortgage.

 (g) A financing statement sufficiently shows the name of the debtor if it gives the individual, partnership or corporate name of the debtor, whether or not it adds other trade names or the names of partners.  Filing under a trade name or assumed name alone shall not be sufficient to perfect a security interest unless the trade name or assumed name is so similar to the debtor's legal name that the trade name or assumed name filing would be discovered in a search of the filing officer's records pursuant to Subsection (b) of Section 9.407, conducted in response to a request using the legal name of the debtor. Where the debtor so changes his name or in the case of an organization its name, identity or corporate structure that a filed financing statement becomes seriously misleading, the filing is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the change, unless a new appropriate financing statement is filed before the expiration of that time.  A filed financing statement remains effective with respect to collateral transferred by the debtor even though the secured party knows of or consents to the transfer.

 (h) A financing statement substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading.

  9.403. What Constitutes Filing;  Duration of Filing;  Effect of Lapsed Filing;  Duties of Filing Officer

 (a) Presentation for filing of a financing statement or other statement and tender of the filing fee or acceptance of the financing statement or other statement by the filing officer constitutes filing under this chapter.

 (b) Except as provided in Subsection (f) a filed financing statement is effective for a period of five years from the date of filing.  The effectiveness of a filed financing statement lapses on the expiration of the five year period unless a continuation statement is filed prior to the lapse. If a security interest perfected by filing exists at the time insolvency proceedings are commenced by or against the debtor, the security interest remains perfected until termination of the insolvency proceedings and thereafter for a period of sixty days or until expiration of the five year period, whichever occurs later.  Upon lapse the security interest becomes unperfected, unless it is perfected without filing.  If the security interest becomes unperfected upon lapse, it is deemed to have been unperfected as against a person who became a purchaser or lien creditor before lapse.

 (c) A continuation statement may be filed by the secured party within six months prior to the expiration of the five year period specified in Subsection (b).  Any such continuation statement must be signed by the secured party, identify the original statement by file number and state that the original statement is still effective.  A continuation statement signed by a person other than the secured party of record must be accompanied by a separate written statement of assignment signed by the secured party of record and complying with Subsection (b) of Section 9.405, including payment of the required fee.  Upon timely filing of the continuation statement, the effectiveness of the original statement is continued for five years after the last date to which the filing was effective whereupon it lapses in the same manner as provided in Subsection (b) unless another continuation statement is filed prior to such lapse.  Succeeding continuation statements may be filed in the same manner to continue the effectiveness of the original statement.  Unless a statute on disposition of public records provides otherwise, the filing officer may remove a lapsed statement from the files and destroy it immediately if he has retained a microfilm or other photographic record, or in other cases after one year after the lapse.  The filing officer shall so arrange matters by physical annexation of financing statements to continuation statements or other related filings, or by other means, that if he physically destroys the financing statements of a period more than five years past, those which have been continued by a continuation statement or which are still effective under Subsection (f) shall be retained.

 (d) Except as provided in Subsection (g) a filing officer shall mark each financing statement with a file number and with the date and hour of filing and shall hold the financing statement or a microfilm or other photographic copy thereof for public inspection.  In addition the filing officer shall index the financing statements according to the name of the debtor and shall note in the index the file number and the address of the debtor given in the financing statement.  The filing officer shall mark each continuation statement with the date and hour of filing and shall note it in the index of the original financing statement.

 (e) The uniform fee for filing and indexing and for stamping a copy furnished by the secured party to show the date and place of filing for an original financing statement, for an amendment, or for a continuation statement shall be $10 if the statement is in the standard form prescribed by the Secretary of State and otherwise shall be $25, plus in each case, if the financing statement sets forth the name of more than one debtor, a fee of $5 for the indexing of each additional debtor name, and if the financing statement is subject to Subsection (e) of Section 9.402, an amount equal to the fee prescribed by law for recording and indexing in the real property records of the county clerk.

 (f) A mortgage which is effective as a filing under Subsection (f) of Section 9.402 remains effective as such a filing as to the types of collateral enumerated in Subsection (f) of Section 9.402 until the mortgage is released or satisfied of record or its effectiveness otherwise terminates as to the real estate.

 (g) When a financing statement covers timber to be cut or covers minerals or the like (including oil and gas) or accounts subject to Subsection (e) of Section 9.103, or is filed as a fixture filing, it shall be filed for record and recorded, and the filing officer shall index it under the names of the debtor and any owner of record shown on the financing statement in the same fashion as if they were the mortgagors in a mortgage of the real estate described, and, to the extent that the law of this state provides for indexing of mortgages under the name of the mortgagee, under the name of the secured party as if he were the mortgagee thereunder, or where indexing is by description in the same fashion as if the financing statement were a mortgage of the real estate described.

 (h) The filing and other fees paid to the Secretary of State under this chapter shall be deposited in the general revenue fund of the state treasury.

  9.404. Termination Statement

 (a) If a financing statement covering consumer goods is filed on or after January 1, 1974, then within one month or within ten days following written demand by the debtor after there is no outstanding secured obligation and no commitment to make advances, incur obligations or otherwise give value, the secured party must file with each filing officer with whom the financing statement was filed, a termination statement to the effect that he no longer claims a security interest under the financing statement, which shall be identified by file number.  In other cases whenever there is no outstanding secured obligation and no commitment to make advances, incur obligations or otherwise give value, the secured party must on written demand by the debtor send the debtor, for each filing officer with whom the financing statement was filed, a termination statement to the effect that he no longer claims a security interest under the financing statement, which shall be identified by file number.  A termination statement signed by a person other than the secured party of record must be accompanied by a separate written statement of assignment signed by the secured party of record and complying with Subsection (b) of Section 9.405, including payment of the required fee.  If the affected secured party fails to file such a termination statement as required by this subsection, or to send such a termination statement within ten days after proper demand therefor he shall be liable to the debtor for $100, and in addition for any loss caused to the debtor by such failure.

 (b) On presentation to the filing officer of such a termination statement he must note it in the index.  If he has received the termination statement in duplicate, he shall return one copy of the termination statement to the secured party stamped to show the time of receipt thereof.  If the filing officer has a microfilm or other photographic record of the financing statement, and of any related continuation statement, statement of assignment and statement of release, he may remove the originals from the files at any time after receipt of the termination statement, or if he has no such record, he may remove them from the files at any time after one year after receipt of the termination statement.

 (c) If the termination statement is in the standard form prescribed by the Secretary of State, the uniform fee for filing and indexing the termination statement shall be $10, and otherwise shall be $25, plus, in each case where the original financing statement was filed pursuant to Subsection (e) of Section 9.402, an amount equal to the fee prescribed by law for recording and indexing in the real property records of the county clerk.

  9.405. Assignment of Security Interest:  Duties of Filing Officer;  Fees

 (a) A financing statement may disclose an assignment of a security interest in the collateral described in the financing statement by indication in the financing statement of the name and address of the assignee or by an assignment itself or a copy thereof on the face or back of the financing statement.  On presentation to the filing officer of such a financing statement the filing officer shall mark the same as provided in Section 9.403.

 (b) A secured party may assign of record all or a part of his rights under a financing statement by the filing in the place where the original financing statement was filed of a separate written statement of assignment signed by the secured party of record and setting forth the name of the secured party of record and the debtor, the file number and the date of filing of the financing statement and the name and address of the assignee and containing a description of the collateral assigned.  A copy of the assignment is sufficient as a separate statement if it complies with the preceding sentence.  On presentation to the filing officer of such a separate statement, the filing officer shall mark such separate statement with the date and hour of the filing.  He shall note the assignment on the index of the financing statement, or in the case of a fixture filing, or a filing covering timber to be cut, or covering minerals or the like (including oil and gas) or accounts subject to Subsection (e) of Section 9.103, he shall index the assignment under the name of the assignor as grantor and, to the extent that the law of this state provides for indexing the assignment of a mortgage under the name of the assignee, he shall index the assignment of the financing statement under the name of the assignee.  The uniform fee for filing, indexing and furnishing filing data about such a separate statement of assignment shall be $10 if the statement is in the standard form prescribed by the Secretary of State and otherwise shall be $25. Notwithstanding the provisions of this subsection, an assignment of record of a security interest in a fixture contained in a mortgage effective as a fixture filing (Subsection (f) of Section 9.402) may be made only by an assignment of the mortgage in the manner provided by the law of this state other than this code.

 (c) After the disclosure of filing of an assignment under this section, the assignee is the secured party of record.

 (d) The uniform fee for filing, indexing, and furnishing filing data for a financing statement so indicating an assignment shall be $10 if the statement is in the standard form prescribed by the Secretary of State and otherwise shall be $25, plus, in each case where the original financing statement was filed pursuant to Subsection (e) of Section 9.402, an amount equal to the fee prescribed by law for recording and indexing in the real property records of the county clerk.

  9.406. Release of Collateral;  Duties of Filing Officer;  Fees

 A secured party of record may by his signed statement release all or a part of any collateral described in a filed financing statement.  The statement of release is sufficient if it contains a description of the collateral being released, the name and address of the debtor, the name and address of the secured party, and the file number of the financing statement.  A statement of release signed by a person other than the secured party of record must be accompanied by a separate written statement of assignment signed by the secured party of record and complying with Subsection (b) of Section 9.405, including payment of the required fee.  Upon presentation of such a statement of release to the filing officer he shall mark the statement with the hour and date of filing and shall note the same upon the margin of the index of the filing of the financing statement.  The uniform fee for filing and noting such a statement of release shall be $10 if the statement is in the standard form prescribed by the Secretary of State and otherwise shall be $25, plus, in each case where the original financing statement was filed pursuant to Subsection (e) of Section 9.402, an amount equal to the fee prescribed by law for recording and indexing in the real property records of the county clerk.

  9.407. Information From Filing Officer

 (a) If the person filing any financing statement, termination statement, statement of assignment, or statement of release, furnishes the filing officer a copy thereof, the filing officer shall upon request note upon the copy the file number and date and hour of the filing of the original and deliver or send the copy to such person.

 (b) Upon request of any person, the filing officer shall issue his certificate showing whether there is on file on the date and hour stated therein, any presently effective financing statement naming a particular debtor and any statement of assignment thereof and if there is, giving the date and hour of filing of each such statement and the names and addresses of each secured party therein.  The filing officer of a county is required only to provide information about financing statements and statements of assignment on file in the financing statement records of the county and is not required to provide information from the real estate records of the county.  The uniform fee for such a certificate shall be $10 if the request for the certificate is in the standard form prescribed by the Secretary of State and otherwise shall be $25. If a certificate issued by the filing officer of a county contains listings for more than 10 statements, the filing officer shall add 50 cents to the uniform fee for each statement in excess of 10.  Upon request the filing officer shall furnish a copy of any filed financing statement or statement of assignment for a uniform fee of $1.50 per page, but not less than $5 per request concerning a debtor.

  9.408. Financing Statements Covering Consigned or Leased Goods

 A consignor or lessor of goods may file a financing statement using the terms  "consignor," "consignee," "lessor," "lessee" or the like instead of the terms specified in Section 9.402.  The provisions of this subchapter shall apply as appropriate to such a financing statement but its filing shall not of itself be a factor in determining whether or not the consignment or lease is intended as security (Section 1.201(37)).  However, if it is determined for other reasons that the consignment or lease is so intended, a security interest of the consignor or lessor which attaches to the consigned or leased goods is perfected by such filing.

  9.409. Prescribed Forms

 (a) The Secretary of State may prescribe the forms to be used in making any filing or in requesting any information of the filing officer under this chapter.  Where the Secretary of State has prescribed the form and a person fails to use this form or attaches additional pages to the prescribed form, the filing or request for information is in nonstandard form.

 (b) The filing and other fees paid to the Secretary of State under this chapter shall be deposited in the General Revenue Fund of the State Treasury.

  9.410. Master Assignment and Amendment

 (a) A secured party may assign all of the secured party's rights under more than one financing statement filed with the secretary of state by filing a written statement of master assignment signed by the secured party of record in each financing statement and setting forth the name of the secured party of record and file number of each financing statement and the name and address of the assignee.  The secured party must also provide filing information in computerreadable form prescribed by the secretary of state.

 (b) A secured party may change the name or mailing address of the secured party in more than one financing statement by filing a written statement of master amendment signed by the secured party of record in each financing statement and setting forth the name of the secured party of record and file number of each financing statement and the new name or mailing address of the secured party.  The secured party must also provide filing information in computerreadable form prescribed by the secretary of state.

 (c) The filing fee for filing, indexing, and furnishing filing data about a statement of master assignment or master amendment is $500 plus 50 cents for each financing statement covered by the master statement in excess of 50.

  9.411. Rules

 The secretary of state may adopt rules necessary to administer this subchapter.

  9.412. Fraudulent Filing

 (a) A person may not intentionally or knowingly present for filing or cause to be presented for filing a financing statement if the person knows that the financing statement:

  (1) is forged;

  (2) contains a material false statement;  or

  (3) is groundless.

 (b) A person who violates Subsection (a) is liable to the owner of property covered by the financing statement for:

  (1) the greater of $5,000 or the owner's actual damages;

  (2) court costs;  and

  (3) reasonable attorney's fees.

 (c) A person who violates Subsection (a) commits an offense under Section 37.10, Penal Code.

 (d) An owner of property covered by a fraudulent financing statement described in Subsection (a) shall have the following additional remedies:

  (1) [FN1] An owner may file suit in a court of suitable jurisdiction, requesting specific relief including, but not limited to, release of such fraudulent financing statement.  A successful plaintiff shall be entitled to reasonable attorney's fees and costs of court to be assessed against the person who filed the fraudulent financing statement.  In the event the person who filed the fraudulent financing statement cannot be located or is a fictitious person, then the owner of the property may serve the known or unknown defendant through publication in a newspaper of general circulation in the county wherein the suit is brought.

  9.501. Default;  Procedure When Security Agreement Covers Both Real and Personal Property

 (a) When a debtor is in default under a security agreement, a secured party has the rights and remedies provided in this subchapter and except as limited by Subsection (c) those provided in the security agreement.  He may reduce his claim to judgment, foreclose or otherwise enforce the security interest by any available judicial procedure.  If the collateral is documents the secured party may proceed either as to the documents or as to the goods covered thereby.  A secured party in possession has the rights, remedies and duties provided in Section 9.207.  The rights and remedies referred to in this subsection are cumulative.

 (b) After default, the debtor has the rights and remedies provided in this subchapter, those provided in the security agreement and those provided in Section 9.207.

 (c) To the extent that they give rights to the debtor and impose duties on the secured party, the rules stated in the subsections referred to below may not be waived or varied except as provided with respect to compulsory disposition of collateral (Subsection (c) of Section 9.504 and Section 9.505) and with respect to redemption of collateral (Section 9.506) but the parties may by agreement determine the standards by which the fulfillment of these rights and duties is to be measured if such standards are not manifestly unreasonable:

  (1) Subsection (b) of Section 9.502 and Subsection (b) of Section 9.504 insofar as they require accounting for surplus proceeds of collateral;

  (2) Subsection (c) of Section 9.504 and Subsection (a) of Section 9.505 which deal with disposition of collateral;

  (3) Subsection (b) of Section 9.505 which deals with acceptance of collateral as discharge of obligation;

  (4) Section 9.506 which deals with redemption of collateral;  and

  (5) Subsection (a) of Section 9.507 which deals with the secured party's liability for failure to comply with this subchapter.

 (d) If the security agreement covers both real and personal property, the secured party may proceed under this subchapter as to the personal property or he may proceed as to both the real and the personal property in accordance with his rights and remedies in respect of the real property in which case the provisions of this subchapter do not apply.

 (e) When a secured party has reduced his claim to judgment the lien of any levy which may be made upon his collateral by virtue of any execution based upon the judgment shall relate back to the date of the perfection of the security interest in such collateral.  A judicial sale, pursuant to such execution, is a foreclosure of the security interest by judicial procedure within the meaning of this section, and the secured party may purchase at the sale and thereafter hold the collateral free of any other requirements of this chapter.

  9.502. Collection Rights of Secured Party

 (a) When so agreed and in any event on default the secured party is entitled to notify an account debtor or the obligor on an instrument to make payment to him whether or not the assignor was theretofore making collections on the collateral, and also to take control of any proceeds to which he is entitled under Section 9.306.

 (b) A secured party who by agreement is entitled to charge back uncollected collateral or otherwise to full or limited recourse against the debtor and who undertakes to collect from the account debtors or obligors must proceed in a commercially reasonable manner and may deduct his reasonable expenses of realization from the collections.  If the security agreement secures an indebtedness, the secured party must account to the debtor for any surplus, and unless otherwise agreed, the debtor is liable for any deficiency.  But, if the underlying transaction was a sale of accounts or chattel paper, the debtor is entitled to any surplus or is liable for any deficiency only if the security agreement so provides.

  9.503. Secured Party's Right to Take Possession After Default

 Unless otherwise agreed a secured party has on default the right to take possession of the collateral.  In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace or may proceed by action.  If the security agreement so provides the secured party may require the debtor to assemble the collateral and make it available to the secured party at a place to be designated by the secured party which is reasonably convenient to both parties.  Without removal a secured party may render equipment unusable, and may dispose of collateral on the debtor's premises under Section 9.504.

  9.504. Secured Party's Right to Dispose of Collateral After Default;  Effect of Disposition

 (a) A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing.  Any sale of goods is subject to the chapter on Sales (Chapter 2).  The proceeds of disposition shall be applied in the order following to

  (1) the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and, to the extent provided for in the agreement and not prohibited by law, the reasonable attorneys' fees and legal  expenses incurred by the secured party;

  (2) the satisfaction of indebtedness secured by the security interest under which the disposition is made;

  (3) the satisfaction of indebtedness secured by any subordinate security interest in the collateral if written notification of demand therefor is received before distribution of the proceeds is completed.  If requested by the secured party, the holder of a subordinate security interest must seasonably furnish reasonable proof of his interest, and unless he does so, the secured party need not comply with his demand.

 (b) If the security interest secures an indebtedness, the secured party must account to the debtor for any surplus, and, unless otherwise agreed, the debtor is liable for any deficiency.  But if the underlying transaction was a sale of accounts or chattel paper, the debtor is entitled to any surplus or is liable for any deficiency only if the security agreement so provides.

 (c) Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts.  Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable.  Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor, if he has not signed after default a statement renouncing or modifying his right to notification of sale.  In the case of consumer goods no other notification need be sent.  In other cases notification shall be sent to any other secured party who has a security interest in the same collateral and who has duly filed in the office of the Secretary of State or of the county clerk in the proper county in this state a financing statement indexed in the name of the debtor or from whom the secured party has received (before sending his notification to the debtor or before the debtor's renunciation of his rights) written notice of a claim of an interest in the collateral.  The secured party may buy at any public sale and if the collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations he may buy at private sale.

 (d) When collateral is disposed of by a secured party after default, the disposition transfers to a purchaser for value all of the debtor's rights therein, discharges the security interest under which it is made and any security interest or lien subordinate thereto.  The purchaser takes free of all such rights and interests even though the secured party fails to comply with the requirements of this subchapter or of any judicial proceedings

  (1) in the case of a public sale, if the purchaser has no knowledge of any defects in the sale and if he does not buy in collusion with the secured party, other bidders or the person conducting the sale;  or

  (2) in any other case, if the purchaser acts in good faith.

 (e) A person who is liable to a secured party under a guaranty, indorsement, repurchase agreement or the like and who receives a transfer of collateral from the secured party or is subrogated to his rights has thereafter the rights and duties of the secured party.  Such a transfer of collateral is not a sale or disposition of the collateral under this chapter.

  9.505. Compulsory Disposition of Collateral;  Acceptance of the Collateral as Discharge of Obligation

 (a) If the debtor has paid sixty per cent of the cash price in the case of a purchase money security interest in consumer goods or sixty per cent of the loan in the case of another security interest in consumer goods, and has not signed after default a statement renouncing or modifying his rights under this subchapter a secured party who has taken possession of collateral must dispose of it under Section 9.504 and if he fails to do so within ninety days after he takes possession the debtor at his option may recover in conversion or under Section 9.507(a) on secured party's liability.

 (b) In any other case involving consumer goods or any other collateral a secured party in possession may, after default, propose to retain the collateral in satisfaction of the obligation.  Written notice of such proposal shall be sent to the debtor if he has not signed after default a statement renouncing or modifying his rights under this subsection.  In the case of consumer goods no other notice need be given.  In other cases notice shall be given to any other secured party who has a security interest in the same collateral and who has duly filed in the office of the Secretary of State or the County Clerk in the proper county in this state a financing statement indexed in the name of the debtor or from whom the secured party has received (before sending his notice to the debtor or before the debtor's renunciation of his rights) written notice of a claim of an interest in the collateral.  If the secured party receives objection in writing from a person entitled to receive notification within twentyone days after the notice was sent, the secured party must dispose of the collateral under Section 9.504.  In the absence of such written objection the secured party may retain the collateral in satisfaction of the debtor's obligation.

  9.506. Debtor's Right to Redeem Collateral

 At any time before the secured party has disposed of collateral or entered into a contract for its disposition under Section 9.504 or before the obligation has been discharged under Section 9.505(b) the debtor or any other secured party may unless otherwise agreed in writing after default redeem the collateral by tendering fulfillment of all obligations secured by the collateral as well as the expenses reasonably incurred by the secured party in retaking, holding and preparing the collateral for disposition, in arranging for the sale, and to the extent provided in the agreement and not prohibited by law, his reasonable attorneys' fees and legal expenses.

  9.507. Secured Party's Liability for Failure to Comply With This Subchapter

 (a) If it is established that the secured party is not proceeding in accordance with the provisions of this subchapter disposition may be ordered or restrained on appropriate terms and conditions.  If the disposition has occurred the debtor or any person entitled to notification or whose security interest has been made known to the secured party prior to the disposition has a right to recover from the secured party any loss caused by a failure to comply with the provisions of this subchapter.  If the collateral is consumer goods, the debtor has a right to recover in any event an amount not less than the credit service charge plus ten per cent of the principal amount of the debt or the time price differential plus ten per cent of the cash price.

 (b) The fact that a better price could have been obtained by a sale at different time or in a different method from that selected by the secured party is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner.  If the secured party either sells the collateral in the usual manner in any recognized market therefor or if he sells at the price current in such market at the time of his sale or if he has otherwise sold in conformity with reasonable commercial practices among dealers in the type of property sold he has sold in a commercially reasonable manner. The principles stated in the two preceding sentences with respect to sales also apply as may be appropriate to other types of disposition.  A disposition which has been approved in any judicial proceeding or by any bona fide creditors' committee or representative of creditors shall conclusively be deemed to be commercially reasonable, but this sentence does not indicate that any such approval must be obtained in any case nor does it indicate that any disposition not so approved is not commercially reasonable.


Securities and Exchange Act

SELECTED PROVISIONS OF THE SECURITIES AND EXCHANGE ACT OF 1933

  77a. Short title

 This subchapter may be cited as the "Securities Act of 1933."

  77b. Definitions;  promotion of efficiency, competition, and capital formation

(a) Definitions

 When used in this subchapter, unless the context otherwise requires

  (1) The term "security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profitsharing agreement, collateraltrust certificate, preorganization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, fractional undivided  interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

  (2) The term "person" means an individual, a corporation, a partnership, an association, a jointstock company, a trust, any unincorporated organization, or a government or political subdivision thereof.  As used in this paragraph the term "trust" shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security.

  (3) The term "sale" or "sell" shall include every contract of sale or disposition of a security or interest in a security, for value.  The term "offer to sell", "offer for sale", or "offer" shall include every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value.  The terms defined in this paragraph and the term "offer to buy" as used in subsection (c) of section 77e of this title  shall not include preliminary negotiations or agreements between an issuer (or any person directly or indirectly controlling or controlled by an issuer, or under direct or indirect common control with an issuer) and any underwriter or among underwriters who are or are to be in privity of contract with an issuer (or any person directly or indirectly controlling or controlled by an issuer, or under direct or indirect common control with an issuer).  Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing, shall be conclusively presumed to constitute a part of the subject of such purchase and to have been offered and sold for value.  The issue or transfer of a right or privilege, when originally issued or transferred with a security, giving the holder of such security the right to convert such security into another security of the same issuer or of another person, or giving a right to subscribe to another security of the same issuer or of another person, which right cannot be exercised until some future date, shall not be deemed to be an offer or sale of such other security;  but the issue or transfer of such other security upon the exercise of such right of conversion or subscription shall be deemed a sale of such other security.

  (4) The term "issuer" means every person who issues or proposes to issue any security;  except that with respect to certificates of deposit, votingtrust certificates, or collateraltrust certificates, or with respect to  certificates of interest or shares in an unincorporated investment trust not having a board of directors (or persons performing similar functions) or of the fixed, restricted management, or unit type, the term "issuer" means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other agreement or instrument under which such securities are issued;  except that in the case of an unincorporated association which provides by its articles for limited liability of any or all of its members, or in the case of a trust, committee, or other legal entity, the trustees or members thereof shall not be individually liable as issuers of any security issued by the association, trust, committee, or other legal entity;  except that with respect to equipmenttrust certificates or like securities, the term "issuer" means the person by whom the equipment or property is or is to be used;  and except that with respect to fractional undivided interests in oil, gas, or other mineral rights, the term "issuer" means the owner of any such right or of any interest in such right (whether whole or fractional) who creates fractional interests therein for the purpose of public offering.

  (5) The term "Commission" means the Securities and Exchange Commission.

  (6) The term "Territory" means Puerto Rico, the Virgin Islands, and the insular possessions of the United States.

  (7) The term "interstate commerce" means trade or commerce in securities or any transportation or communication relating thereto among the several States or between the District of Columbia or any Territory of the United States and any State or other Territory, or between any foreign country and any State, Territory, or the District of Columbia, or within the District of Columbia.

  (8) The term "registration statement" means the statement provided for in section 77f of this title, and includes any amendment thereto and any report, document, or memorandum filed as part of such statement or incorporated therein by reference.

  (9) The term "write" or "written" shall include printed, lithographed, or any means of graphic communication.

  (10) The term "prospectus" means any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security; except that (a) a communication sent or given after the effective date of the registration statement (other than a prospectus permitted under subsection (b) of section 77j of this title) shall not be deemed a prospectus if it is proved that prior to or at the same time with such communication a written prospectus meeting the requirements of subsection (a) of section 77j of this title at the time of  [FN1] such communication was sent or given to the person to whom  the communication was made, and (b) a notice, circular, advertisement, letter, or communication in respect of a security shall not be deemed to be a prospectus if it states from whom a written prospectus meeting the requirements of section 77j of this title may be obtained and, in addition, does no more than identify the security, state the price thereof, state by whom orders will be executed, and contain such other information as the Commission, by rules or regulations deemed necessary or appropriate in the public interest and for the protection of investors, and subject to such terms and conditions as may be prescribed therein, may permit.

  (11) The term "underwriter" means any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking;  but such term shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission.  As used in this paragraph the term "issuer" shall include, in addition to an issuer, any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer.

  (12) The term "dealer" means any person who engages either for all or part of his time, directly or indirectly, as agent, broker, or principal, in the business of offering, buying, selling, or otherwise dealing or trading in securities issued by another person.

  (13) The term "insurance company" means a company which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies, and which is subject to supervision by the insurance commissioner, or a similar official or agency, of a State or territory or the District of Columbia;  or any receiver or similar official or any liquidating agent for such company, in his capacity as such.

  (14) The term "separate account" means an account established and maintained by an insurance company pursuant to the laws of any State or territory of the United States, the District of Columbia, or of Canada or any province thereof, under which income, gains and losses, whether or not realized, from assets allocated to such account, are, in accordance with the applicable contract, credited to or charged against such account without regard to other income, gains, or losses of the insurance company.

  (15) The term "accredited investor" shall mean

   (i) a bank as defined in section 77c(a)(2) of this title whether acting in   its individual or fiduciary capacity;  an insurance company as defined in paragraph (13);  an investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act;  a Small Business Investment Company licensed by the Small Business Administration;  or an employee benefit plan, including an individual retirement account, which is subject to the provisions of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, insurance company, or registered investment adviser;  or

   (ii) any person who, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial matters, or amount of assets under management qualifies as an accredited investor under rules and regulations which the Commission shall prescribe.

(b) Consideration of promotion of efficiency, competition, and capital formation

 Whenever pursuant to this subchapter the Commission is engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.

  77c. Classes of securities under this subchapter

(a) Exempted securities

 Except as hereinafter expressly provided, the provisions of this subchapter shall not apply to any of the following classes of securities:

  (1) Reserved.

  (2) Any security issued or guaranteed by the United States or any territory thereof, or by the District of Columbia, or by any State of the United States, or by any political subdivision of a State or territory, or by any public instrumentality of one or more States or territories, or by any person  controlled or supervised by and acting as an instrumentality of the Government of the United States pursuant to authority granted by the Congress of the United States;  or any certificate of deposit for any of the foregoing;  or any security issued or guaranteed by any bank;  or any security issued by or representing an interest in or a direct obligation of a Federal Reserve bank; or any interest or participation in any common trust fund or similar fund maintained by a bank exclusively for the collective investment and reinvestment of assets contributed thereto by such bank in its capacity as trustee, executor, administrator, or guardian;  or any security which is an industrial development bond (as defined in section 103(c)(2) of Title 26) the interest on which is excludable from gross income under section 103(a)(1) of Title 26 if, by reason of the application of paragraph (4) or (6) of section 103(c) of Title 26 (determined as if paragraphs (4)(A), (5), and (7) were not included in such section 103(c) ), paragraph (1) of such section 103(c) does not apply to such security;  or any interest or participation in a single trust fund, or in a collective trust fund maintained by a bank, or any security arising out of a contract issued by an insurance company, which interest, participation, or security is issued in connection with (A) a stock bonus, pension, or profitsharing plan which meets the requirements for qualification under section 401 of Title 26, (B) an annuity plan which meets  the requirements for the deduction of the employer's contributions under section 404(a)(2) of Title 26, or (C) a governmental plan as defined in section 414(d) of Title 26 which has been established by an employer for the exclusive benefit of its employees or their beneficiaries for the purpose of distributing to such employees or their beneficiaries the corpus and income of the funds accumulated under such plan, if under such plan it is impossible, prior to the satisfaction of all liabilities with respect to such employees and their beneficiaries, for any part of the corpus or income to be used for, or diverted to, purposes other than the exclusive benefit of such employees or their beneficiaries, other than any plan described in clause (A), (B), or (C) of this paragraph (i) the contributions under which are held in a single trust fund or in a separate account maintained by an insurance company for a single employer and under which an amount in excess of the employer's contribution is allocated to the purchase of securities (other than interests or participations in the trust or separate account itself) issued by the employer or any company directly or indirectly controlling, controlled by, or under common control with the employer, (ii) which covers employees some or all of whom are employees within the meaning of section 401(c)(1) of Title 26, or (iii) which is a plan funded by an annuity contract described in section 403(b) of Title 26.  The Commission, by rules and regulations or order, shall  exempt from the provisions of section 77e of this title any interest or participation issued in connection with a stock bonus, pension, profit sharing, or annuity plan which covers employees some or all of whom are employees within the meaning of section 401(c)(1) of Title 26, if and to the extent that the Commission determines this to be necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter.  For purposes of this paragraph, a security issued or guaranteed by a bank shall not include any interest or participation in any collective trust fund maintained by a bank;  and the term "bank" means any national bank, or any banking institution organized under the laws of any State, territory, or the District of Columbia, the business of which is substantially confined to banking and is supervised by the State or territorial banking commission or similar official;  except that in the case of a common trust fund or similar fund, or a collective trust fund, the term "bank" has the same meaning as in the Investment Company Act of 1940 [15 U.S.C.A.   80a1 et seq.];

  (3) Any note, draft, bill of exchange, or banker's acceptance which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any  renewal thereof the maturity of which is likewise limited;

  (4) Any security issued by a person organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes and not for pecuniary profit, and no part of the net earnings of which inures to the benefit of any person, private stockholder, or individual;  or any security of a fund that is excluded from the definition of an investment company under section 3(c)(10)(B) of the Investment Company Act of 1940 [15 U.S.C.A.   80a3(c)(10)(B)];

  (5) Any security issued (A) by a savings and loan association, building and loan association, cooperative bank, homestead association, or similar institution, which is supervised and examined by State or Federal authority having supervision over any such institution;  or (B) by (i) a farmer's cooperative organization exempt from tax under section 521 of Title 26, (ii) a corporation described in section 501(c)(16) of Title 26 and exempt from tax under section 501(a) of Title 26, or (iii) a corporation described in section 501(c)(2) of Title 26 which is exempt from tax under section 501(a) of Title 26 and is organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization or corporation described in clause (i) or (ii);

  (6) Any interest in a railroad equipment trust.  For purposes of this  paragraph "interest in a railroad equipment trust" means any interest in an equipment trust, lease, conditional sales contract, or other similar arrangement entered into, issued, assumed, guaranteed by, or for the benefit of, a common carrier to finance the acquisition of rolling stock, including motive power;

  (7) Certificates issued by a receiver or by a trustee or debtor in possession in a case under Title 11, with the approval of the court;

  (8) Any insurance or endowment policy or annuity contract or optional annuity contract, issued by a corporation subject to the supervision of the insurance commissioner, bank commissioner, or any agency or officer performing like functions, of any State or Territory of the United States or the District of Columbia;

  (9) Except with respect to a security exchanged in a case under Title 11, any security exchanged by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange;

  (10) Except with respect to a security exchanged in a case under Title 11, any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange  are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval;

  (11) Any security which is a part of an issue offered and sold only to persons resident within a single State or Territory, where the issuer of such security is a person resident and doing business within or, if a corporation, incorporated by and doing business within, such State or Territory.

  (12) Any equity security issued in connection with the acquisition by a holding company of a bank under section 1842(a) of Title 12 or a savings association under section 1467a(e) of Title 12, if

   (A) the acquisition occurs solely as part of a reorganization in which security holders exchange their shares of a bank or savings association for shares of a newly formed holding company with no significant assets other than securities of the bank or savings association and the existing subsidiaries of the bank or savings association;

   (B) the security holders receive, after that reorganization, substantially the same proportional share interests in the holding company as they held in   the bank or savings association, except for nominal changes in shareholders' interests resulting from lawful elimination of fractional interests and the exercise of dissenting shareholders' rights under State or Federal law;

   (C) the rights and interests of security holders in the holding company are substantially the same as those in the bank or savings association prior to the transaction, other than as may be required by law;  and

   (D) the holding company has substantially the same assets and liabilities, on a consolidated basis, as the bank or savings association had prior to the transaction.

  For purposes of this paragraph, the term "savings association" means a savings association (as defined in section 1813(b) of Title 12) the deposits of which are insured by the Federal Deposit Insurance Corporation.

  (13) Any security issued by or any interest or participation in any church plan, company or account that is excluded from the definition of an investment company under section 80a3(c)(14) of this title.

(b) Additional exemptions

 The Commission may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed therein, add any class of securities to the securities exempted as provided in this section, if it finds that the enforcement of this subchapter with respect to such securities is not necessary in the public interest and for the protection of investors by reason of the small amount involved or the limited character of the public offering; but no issue of securities shall be exempted under this subsection where the aggregate amount at which such issue is offered to the public exceeds $5,000,000.

(c) Securities issued by small investment company

 The Commission may from time to time by its rules and regulations and subject to such terms and conditions as may be prescribed therein, add to the securities exempted as provided in this section any class of securities issued by a small business investment company under the Small Business Investment Act of 1958 if it finds, having regard to the purposes of that Act, that the enforcement of this subchapter with respect to such securities is not necessary in the public interest and for the protection of investors.

  77e. Prohibitions relating to interstate commerce and the mails

(a) Sale or delivery after sale of unregistered securities

 Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly

  (1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise;  or

  (2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for  the purpose of sale or for delivery after sale.

(b) Necessity of prospectus meeting requirements of section 77j of this title

 It shall be unlawful for any person, directly or indirectly

  (1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to carry or transmit any prospectus relating to any security with respect to which a registration statement has been filed under this subchapter, unless such prospectus meets the requirements of section 77j of this title;  or

  (2) to carry or cause to be carried through the mails or in interstate commerce any such security for the purpose of sale or for delivery after sale, unless accompanied or preceded by a prospectus that meets the requirements of subsection (a) of section 77j of this title.

(c) Necessity of filing registration statement

 It shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security, or while the registration statement is the subject of a refusal order or stop under or (prior to the effective date of the registration statement) any public proceeding or examination under section 77h of this title.

  77g. Information required in registration statement

 (a) The registration statement, when relating to a security other than a security issued by a foreign government, or political subdivision thereof, shall contain the information, and be accompanied by the documents, specified in Schedule A of section 77aa of this title, and when relating to a security issued by a foreign government, or political subdivision thereof, shall contain the information, and be accompanied by the documents, specified in Schedule B of section 77aa of this title;  except that the Commission may by rules or regulations provide that any such information or document need not be included in respect of any class of issuers or securities if it finds that the requirement of such information or document is inapplicable to such class and that disclosure fully adequate for the protection of investors is otherwise required to be included within the registration statement.  If any accountant, engineer, or appraiser, or any person whose profession gives authority to a statement made by him, is named as having prepared or certified any part of the registration statement, or is named as having prepared or certified a report or valuation for use in connection with the registration statement, the written consent of such person shall be filed with the registration statement.  If any such person is named as having prepared or certified a report or valuation (other than a public official document or statement) which is used in connection with the registration statement, but is not named as having prepared or certified such report or valuation for use in connection with the registration statement, the written consent of such person shall be filed with the registration statement unless the Commission dispenses with such filing as impracticable or as involving undue hardship on the person filing the registration statement.  Any such registration statement shall contain such other information, and be accompanied by such other documents, as the Commission may by rules or regulations require as being necessary or appropriate in the public interest or for the protection of investors.

 (b)(1) The Commission shall prescribe special rules with respect to registration statements filed by any issuer that is a blank check company. Such rules may, as the Commission determines necessary or appropriate in the public interest or for the protection of investors

  (A) require such issuers to provide timely disclosure, prior to or after such statement becomes effective under section 77h of this title, of (i) information regarding the company to be acquired and the specific application of the proceeds of the offering, or (ii) additional information necessary to prevent such statement from being misleading;

  (B) place limitations on the use of such proceeds and the distribution of securities by such issuer until the disclosures required under subparagraph (A) have been made;  and

  (C) provide a right of rescission to shareholders of such securities.

 (2) The Commission may, as it determines consistent with the public interest and the protection of investors, by rule or order exempt any issuer or class of issuers from the rules prescribed under paragraph (1).

 (3) For purposes of paragraph (1) of this subsection, the term "blank check company" means any development stage company that is issuing a penny stock (within the meaning of section 78c(a)(51) of this title) and that

  (A) has no specific business plan or purpose;  or

  (B) has indicated that its business plan is to merge with an unidentified company or companies.

  77h. Taking effect of registration statements and amendments thereto

(a) Effective date of registration statement

 Except as hereinafter provided, the effective date of a registration statement shall be the twentieth day after the filing thereof or such earlier date as the Commission may determine, having due regard to the adequacy of the information respecting the issuer theretofore available to the public, to the facility with which the nature of the securities to be registered, their relationship to the capital structure of the issuer and the rights of holders thereof can be understood, and to the public interest and the protection of investors.  If any amendment to any such statement is filed prior to the effective date of such statement, the registration statement shall be deemed to have been filed when such amendment was filed;  except that an amendment filed with the consent of the Commission, prior to the effective date of the registration statement, or filed pursuant to an order of the Commission, shall be treated as a part of the registration statement.

(b) Incomplete or inaccurate registration statement

 If it appears to the Commission that a registration statement is on its face incomplete or inaccurate in any material respect, the Commission may, after notice by personal service or the sending of confirmed telegraphic notice not later than ten days after the filing of the registration statement, and opportunity for hearing (at a time fixed by the Commission) within ten days after such notice by personal service or the sending of such telegraphic notice, issue an order prior to the effective date of registration refusing to permit such statement to become effective until it has been amended in accordance with such order.  When such statement has been amended in accordance with such order the Commission shall so declare and the registration shall become effective at the time provided in subsection (a) of this section or upon the date of such declaration, whichever date is the later.

(c) Effective date of amendment to registration statement

 An amendment filed after the effective date of the registration statement, if such amendment, upon its face, appears to the Commission not to be incomplete or inaccurate in any material respect, shall become effective on such date as the Commission may determine, having due regard to the public interest and the protection of investors.

(d) Untrue statements or omissions in registration statement

 If it appears to the Commission at any time that the registration statement includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, the Commission may, after notice by personal service or the sending of confirmed telegraphic notice, and after opportunity for hearing (at a time fixed by the Commission) within fifteen days after such notice by personal service or the sending of such telegraphic notice, issue a stop order suspending the effectiveness of the registration statement.  When such statement has been amended in accordance with such stop order, the Commission shall so declare and thereupon the stop order shall cease to be effective.

(e) Examination for issuance of stop order

 The Commission is empowered to make an examination in any case in order to determine whether a stop order should issue under subsection (d) of this section.  In making such examination the Commission or any officer or officers designated by it shall have access to and may demand the production of any books and papers of, and may administer oaths and affirmations to and examine, the issuer, underwriter, or any other person, in respect of any matter relevant to the examination, and may, in its discretion, require the production of a balance sheet exhibiting the assets and liabilities of the issuer, or its income statement, or both, to be certified to by a public or certified accountant approved by the Commission.  If the issuer or underwriter shall fail to cooperate, or shall obstruct or refuse to permit the making of an examination, such conduct shall be proper ground for the issuance of a stop order.

(f) Notice requirements

 Any notice required under this section shall be sent to or served on the issuer, or, in case of a foreign government or political subdivision thereof, to or on the underwriter, or, in the case of a foreign or Territorial person, to or on its duly authorized representative in the United States named in the registration statement, properly directed in each case of telegraphic notice to the address given in such statement.

  77j. Information required in prospectus

(a) Information in registration statement;  documents not required

 Except to the extent otherwise permitted or required pursuant to this subsection or subsections (c), (d), or (e) of this section

  (1) a prospectus relating to a security other than a security issued by a foreign government or political subdivision thereof, shall contain the information contained in the registration statement, but it need not include the documents referred to in paragraphs (28) to (32), inclusive, of schedule A of section 77aa of this title;

  (2) a prospectus relating to a security issued by a foreign government or political subdivision thereof shall contain the information contained in the registration statement, but it need not include the documents referred to in paragraphs (13) and (14) of schedule B of section 77aa of this title;

  (3) notwithstanding the provisions of paragraphs (1) and (2) of this subsection when a prospectus is used more than nine months after the effective date of the registration statement, the information contained therein shall be as of a date not more than sixteen months prior to such use, so far as such information is known to the user of such prospectus or can be furnished by such user without unreasonable effort or expense;

  (4) there may be omitted from any prospectus any of the information required under this subsection which the Commission may by rules or regulations designate as not being necessary or appropriate in the public interest or for the protection of investors.

(b) Summarizations and omissions allowed by rules and regulations

 In addition to the prospectus permitted or required in subsection (a) of this section, the Commission shall by rules or regulations deemed necessary or appropriate in the public interest or for the protection of investors permit the use of a prospectus for the purposes of subsection (b)(1) of section 77e of this title which omits in part or summarizes information in the prospectus specified in subsection (a) of this section.  A prospectus permitted under this subsection shall, except to the extent the Commission by rules or regulations deemed necessary or appropriate in the public interest or for the protection of investors otherwise provides, be filed as part of the registration statement but shall not be deemed a part of such registration statement for the purposes of section 77k of this title.  The Commission may at any time issue an order preventing or suspending the use of a prospectus permitted under this subsection, if it has reason to believe that such prospectus has not been filed (if required to be filed as part of the registration statement) or includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which such prospectus is or is to be used, not misleading.  Upon issuance of an order under this subsection, the Commission shall give notice of the issuance of such order and opportunity for hearing by personal service or the sending of confirmed telegraphic notice. The Commission shall vacate or modify the order at any time for good cause or if such prospectus has been filed or amended in accordance with such order.

(c) Additional information required by rules and regulations

 Any prospectus shall contain such other information as the Commission may by rules or regulations require as being necessary or appropriate in the public interest or for the protection of investors.

(d) Classification of prospectuses

 In the exercise of its powers under subsections (a), (b), or (c) of this section, the Commission shall have authority to classify prospectuses according to the nature and circumstances of their use or the nature of the security, issue, issuer, or otherwise, and, by rules and regulations and subject to such terms and conditions as it shall specify therein, to prescribe as to each class the form and contents which it may find appropriate and consistent with the public interest and the protection of investors.

(e) Information in conspicuous part of prospectus

 The statements or information required to be included in a prospectus by or under authority of subsections (a), (b), (c), or (d) of this section, when written, shall be placed in a conspicuous part of the prospectus and, except as otherwise permitted by rules or regulations, in type as large as that used generally in the body of the prospectus.

(f) Prospectus consisting of radio or television broadcast

 In any case where a prospectus consists of a radio or television broadcast, copies thereof shall be filed with the Commission under such rules and regulations as it shall prescribe.  The Commission may by rules and regulations require the filing with it of forms and prospectuses used in connection with the offer or sale of securities registered under this subchapter.

  77k. Civil liabilities on account of false registration statement

(a) Persons possessing cause of action;  persons liable

 In case any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring such security (unless it is proved that at the time of such acquisition he knew of such untruth or omission) may, either at law or in equity, in any court of competent jurisdiction, sue

  (1) every person who signed the registration statement;

  (2) every person who was a director of (or person performing similar functions) or partner in the issuer at the time of the filing of the part of the registration statement with respect to which his liability is asserted;

  (3) every person who, with his consent, is named in the registration statement as being or about to become a director, person performing similar functions, or partner;

  (4) every accountant, engineer, or appraiser, or any person whose profession gives authority to a statement made by him, who has with his consent been named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement in such registration statement, report, or valuation, which purports to have been prepared or certified by him;

  (5) every underwriter with respect to such security.

If such person acquired the security after the issuer has made generally available to its security holders an earning statement covering a period of at least twelve months beginning after the effective date of the registration statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not knowing of such omission, but such reliance may be established without proof of the reading of the registration statement by such person.

(b) Persons exempt from liability upon proof of issues

 Notwithstanding the provisions of subsection (a) of this section no person, other than the issuer, shall be liable as provided therein who shall sustain the burden of proof

  (1) that before the effective date of the part of the registration statement with respect to which his liability is asserted (A) he had resigned from or had taken such steps as are permitted by law to resign from, or ceased or refused to act in, every office, capacity, or relationship in which he was described in the registration statement as acting or agreeing to act, and (B) he had advised the Commission and the issuer in writing that he had taken such action and that he would not be responsible for such part of the registration statement;  or

  (2) that if such part of the registration statement became effective without  his knowledge, upon becoming aware of such fact he forthwith acted and advised the Commission, in accordance with paragraph (1) of this subsection, and, in addition, gave reasonable public notice that such part of the registration statement had become effective without his knowledge;  or

  (3) that (A) as regards any part of the registration statement not purporting to be made on the authority of an expert, and not purporting to be a copy of or extract from a report or valuation of an expert, and not purporting to be made on the authority of a public official document or statement, he had, after reasonable investigation, reasonable ground to believe and did believe, at the time such part of the registration statement became effective, that the statements therein were true and that there was no omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading;  and (B) as regards any part of the registration statement purporting to be made upon his authority as an expert or purporting to be a copy of or extract from a report or valuation of himself as an expert, (i) he had, after reasonable investigation, reasonable ground to believe and did believe, at the time such part of the registration statement became effective, that the statements therein were true and that there was no omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) such part of the  registration statement did not fairly represent his statement as an expert or was not a fair copy of or extract from his report or valuation as an expert; and (C) as regards any part of the registration statement purporting to be made on the authority of an expert (other than himself) or purporting to be a copy of or extract from a report or valuation of an expert (other than himself), he had no reasonable ground to believe and did not believe, at the time such part of the registration statement became effective, that the statements therein were untrue or that there was an omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that such part of the registration statement did not fairly represent the statement of the expert or was not a fair copy of or extract from the report or valuation of the expert;  and (D) as regards any part of the registration statement purporting to be a statement made by an official person or purporting to be a copy of or extract from a public official document, he had no reasonable ground to believe and did not believe, at the time such part of the registration statement became effective, that the statements therein were untrue, or that there was an omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that such part of the registration statement did not fairly represent the statement made by the official person  or was not a fair copy of or extract from the public official document.

(c) Standard of reasonableness

 In determining, for the purpose of paragraph (3) of subsection (b) of this section, what constitutes reasonable investigation and reasonable ground for belief, the standard of reasonableness shall be that required of a prudent man in the management of his own property.

(d) Effective date of registration statement with regard to underwriters

 If any person becomes an underwriter with respect to the security after the part of the registration statement with respect to which his liability is asserted has become effective, then for the purposes of paragraph (3) of subsection (b) of this section such part of the registration statement shall be considered as having become effective with respect to such person as of the time when he became an underwriter.

(e) Measure of damages;  undertaking for payment of costs

 The suit authorized under subsection (a) of this section may be to recover such damages as shall represent the difference between the amount paid for the security (not exceeding the price at which the security was offered to the public) and (1) the value thereof as of the time such suit was brought, or (2) the price at which such security shall have been disposed of in the market before suit, or (3) the price at which such security shall have been disposed of after suit but before judgment if such damages shall be less than the damages representing the difference between the amount paid for the security (not exceeding the price at which the security was offered to the public) and the value thereof as of the time such suit was brought:  Provided, That if the defendant proves that any portion or all of such damages represents other than the depreciation in value of such security resulting from such part of the registration statement, with respect to which his liability is asserted, not being true or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading, such portion of or all such damages shall not be recoverable.  In no event shall any underwriter (unless such underwriter shall have knowingly received from the issuer for acting as an underwriter some benefit, directly or indirectly, in which all other underwriters similarly situated did not share in proportion to their respective interests in the underwriting) be liable in any suit or as a consequence of suits authorized under subsection (a) of this section for damages in excess of the total price at which the securities underwritten by him and distributed to the public were offered to the public.  In any suit under this or any other section of this subchapter the court may, in its discretion, require an undertaking for the payment of the costs of such suit, including reasonable attorney's fees, and if judgment shall be rendered against a party litigant, upon the motion of the other party litigant, such costs may be assessed in favor of such party litigant (whether or not such undertaking has been required) if the court believes the suit or the defense to have been without merit, in an amount sufficient to reimburse him for the reasonable expenses incurred by him, in connection with such suit, such costs to be taxed in the manner usually provided for taxing of costs in the court in which the suit was heard.

(f) Joint and several liability

 (1) Except as provided in paragraph (2), all or any one or more of the persons specified in subsection (a) of this section shall be jointly and severally liable, and every person who becomes liable to make any payment under this section may recover contribution as in cases of contract from any person who, if sued separately, would have been liable to make the same payment, unless the person who has become liable was, and the other was not, guilty of fraudulent misrepresentation.

 (2)(A) The liability of an outside director under subsection (e) of this section shall be determined in accordance with section 38 of the Securities Exchange Act of 1934.

 (B) For purposes of this paragraph, the term "outside director" shall have the meaning given such term by rule or regulation of the Commission.

(g) Offering price to public as maximum amount recoverable

 In no case shall the amount recoverable under this section exceed the price at which the security was offered to the public.

  77l. Civil liabilities arising in connection with prospectuses and communications

(a) In general

 Any person who

  (1) offers or sells a security in violation of section 77e of this title, or

  (2) offers or sells a security (whether or not exempted by the provisions of section 77c of this title, other than paragraph (2) of subsection (a) of said section), by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus  or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission,

shall be liable, subject to subsection (b) of this section, to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.

(b) Loss causation

 In an action described in subsection (a)(2) of this section, if the person who offered or sold such security proves that any portion or all of the amount recoverable under subsection (a)(2) of this section represents other than the depreciation in value of the subject security resulting from such part of the prospectus or oral communication, with respect to which the liability of that person is asserted, not being true or omitting to state a material fact required to be stated therein or necessary to make the statement not misleading, then such portion or amount, as the case may be, shall not be recoverable.

  77n. Contrary stipulations void

 Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void.

  77o. Liability of controlling persons

 Every person who, by or through stock ownership, agency, or otherwise, or who, pursuant to or in connection with an agreement or understanding with one or more other persons by or through stock ownership, agency, or otherwise, controls any person liable under sections 77k or 77l of this title, shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.

  77z1. Private securities litigation

(a) Private class actions

  (1) In general

  The provisions of this subsection shall apply to each private action arising under this subchapter that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure.

  (2) Certification filed with complaint

    (A) In general

   Each plaintiff seeking to serve as a representative party on behalf of a class shall provide a sworn certification, which shall be personally signed by such plaintiff and filed with the complaint, that

    (i) states that the plaintiff has reviewed the complaint and authorized its filing;

    (ii) states that the plaintiff did not purchase the security that is the subject of the complaint at the direction of plaintiff's counsel or in order to participate in any private action arising under this subchapter;

    (iii) states that the plaintiff is willing to serve as a representative party on behalf of a class, including providing testimony at deposition and trial, if necessary;

    (iv) sets forth all of the transactions of the plaintiff in the security that is the subject of the complaint during the class period specified in the complaint;

    (v) identifies any other action under this subchapter, filed during the 3    year period preceding the date on which the certification is signed by the plaintiff, in which the plaintiff has sought to serve, or served, as a representative party on behalf of a class;  and

    (vi) states that the plaintiff will not accept any payment for serving as a representative party on behalf of a class beyond the plaintiff's pro rata share of any recovery, except as ordered or approved by the court in accordance with paragraph (4).

    (B) Nonwaiver of attorneyclient privilege

   The certification filed pursuant to subparagraph (A) shall not be construed to be a waiver of the attorneyclient privilege.

  (3) Appointment of lead plaintiff

    (A) Early notice to class members

(i) In general

    Not later than 20 days after the date on which the complaint is filed, the plaintiff or plaintiffs shall cause to be published, in a widely circulated national businessoriented publication or wire service, a notice advising members of the purported plaintiff class

(I) of the pendency of the action, the claims asserted therein, and the purported class period;  and

(II) that, not later than 60 days after the date on which the notice is published, any member of the purported class may move the court to serve as lead plaintiff of the purported class.

(ii) Multiple actions

    If more than one action on behalf of a class asserting substantially the same claim or claims arising under this subchapter is filed, only the plaintiff or plaintiffs in the first filed action shall be required to cause notice to be published in accordance with clause (i).

(iii) Additional notices may be required under Federal Rules

    Notice required under clause (i) shall be in addition to any notice    required pursuant to the Federal Rules of Civil Procedure.

    (B) Appointment of lead plaintiff

(i) In general

    Not later than 90 days after the date on which a notice is published under subparagraph (A)(i), the court shall consider any motion made by a purported class member in response to the notice, including any motion by a class member who is not individually named as a plaintiff in the complaint or complaints, and shall appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members (hereafter in this paragraph referred to as the "most adequate plaintiff") in accordance with this subparagraph.

(ii) Consolidated actions

    If more than one action on behalf of a class asserting substantially the    same claim or claims arising under this subchapter has been filed, and any party has sought to consolidate those actions for pretrial purposes or for trial, the court shall not make the determination required by clause (i) until after the decision on the motion to consolidate is rendered.  As soon as practicable after such decision is rendered, the court shall appoint the most adequate plaintiff as lead plaintiff for the consolidated actions in accordance with this subparagraph.

(iii) Rebuttable presumption

(I) In general

Subject to subclause (II), for purposes of clause (i), the court shall adopt a presumption that the most adequate plaintiff in any private action arising under this subchapter is the person or group of persons that

(aa) has either filed the complaint or made a motion in response to a notice under subparagraph (A)(i);

(bb) in the determination of the court, has the largest financial interest in the relief sought by the class;  and

(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.

(II) Rebuttal evidence

The presumption described in subclause (I) may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff

(aa) will not fairly and adequately protect the interests of the class; or

(bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class.

(iv) Discovery

    For purposes of this subparagraph, discovery relating to whether a member or members of the purported plaintiff class is the most adequate plaintiff may be conducted by a plaintiff only if the plaintiff first demonstrates a reasonable basis for a finding that the presumptively most adequate plaintiff is incapable of adequately representing the class.

(v) Selection of lead counsel

    The most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class.

(vi) Restrictions on professional plaintiffs

    Except as the court may otherwise permit, consistent with the purposes of this section, a person may be a lead plaintiff, or an officer, director, or fiduciary of a lead plaintiff, in no more than 5 securities class actions brought as plaintiff class actions pursuant to the Federal Rules of Civil Procedure during any 3year period.

  (4) Recovery by plaintiffs

  The share of any final judgment or of any settlement that is awarded to a representative party serving on behalf of a class shall be equal, on a per share basis, to the portion of the final judgment or settlement awarded to all other members of the class.  Nothing in this paragraph shall be construed to  limit the award of reasonable costs and expenses (including lost wages) directly relating to the representation of the class to any representative party serving on behalf of the class.

  (5) Restrictions on settlements under seal

  The terms and provisions of any settlement agreement of a class action shall not be filed under seal, except that on motion of any party to the settlement, the court may order filing under seal for those portions of a settlement agreement as to which good cause is shown for such filing under seal.  For purposes of this paragraph, good cause shall exist only if publication of a term or provision of a settlement agreement would cause direct and substantial harm to any party.

  (6) Restrictions on payment of attorneys' fees and expenses

  Total attorneys' fees and expenses awarded by the court to counsel for the plaintiff class shall not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class.

  (7) Disclosure of settlement terms to class members

  Any proposed or final settlement agreement that is published or otherwise disseminated to the class shall include each of the following statements, along with a cover page summarizing the information contained in such statements:

    (A) Statement of plaintiff recovery

   The amount of the settlement proposed to be distributed to the parties to the action, determined in the aggregate and on an average per share basis.

    (B) Statement of potential outcome of case

(i) Agreement on amount of damages

    If the settling parties agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged under this subchapter, a statement concerning the average amount of such    potential damages per share.

(ii) Disagreement on amount of damages

    If the parties do not agree on the average amount of damages per share that would be recoverable if the plaintiff prevailed on each claim alleged under this subchapter, a statement from each settling party concerning the issue or issues on which the parties disagree.

(iii) Inadmissibility for certain purposes

    A statement made in accordance with clause (i) or (ii) concerning the amount of damages shall not be admissible in any Federal or State judicial action or administrative proceeding, other than an action or proceeding arising out of such statement.

    (C) Statement of attorneys' fees or costs sought

   If any of the settling parties or their counsel intend to apply to the court for an award of attorneys' fees or costs from any fund established as part of   the settlement, a statement indicating which parties or counsel intend to make such an application, the amount of fees and costs that will be sought (including the amount of such fees and costs determined on an average per share basis), and a brief explanation supporting the fees and costs sought.

    (D) Identification of lawyers' representatives

   The name, telephone number, and address of one or more representatives of counsel for the plaintiff class who will be reasonably available to answer questions from class members concerning any matter contained in any notice of settlement published or otherwise disseminated to the class.

    (E) Reasons for settlement

   A brief statement explaining the reasons why the parties are proposing the settlement.

    (F) Other information

   Such other information as may be required by the court.

  (8) Attorney conflict of interest

  If a plaintiff class is represented by an attorney who directly owns or otherwise has a beneficial interest in the securities that are the subject of the litigation, the court shall make a determination of whether such ownership or other interest constitutes a conflict of interest sufficient to disqualify the attorney from representing the plaintiff class.

(b) Stay of discovery;  preservation of evidence

  (1) In general

  In any private action arising under this subchapter, all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds, upon the motion of any party, that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.

  (2) Preservation of evidence

  During the pendency of any stay of discovery pursuant to this subsection, unless otherwise ordered by the court, any party to the action with actual notice of the allegations contained in the complaint shall treat all documents, data compilations (including electronically recorded or stored data), and tangible objects that are in the custody or control of such person and that are relevant to the allegations, as if they were the subject of a continuing request for production of documents from an opposing party under the Federal Rules of Civil Procedure.

  (3) Sanction for willful violation

  A party aggrieved by the willful failure of an opposing party to comply with paragraph (2) may apply to the court for an order awarding appropriate sanctions.

(c) Sanctions for abusive litigation

  (1) Mandatory review by court

  In any private action arising under this subchapter, upon final adjudication of the action, the court shall include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of Rule 11(b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion.

  (2) Mandatory sanctions

  If the court makes a finding under paragraph (1) that a party or attorney violated any requirement of Rule 11(b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion, the court shall impose sanctions on such party or attorney in accordance with Rule 11 of the Federal Rules of Civil Procedure.  Prior to making a finding that any party or attorney has violated Rule 11 of the Federal Rules of Civil Procedure, the court shall give such party or attorney notice and an opportunity to respond.

  (3) Presumption in favor of attorneys' fees and costs

    (A) In general

   Subject to subparagraphs (B) and (C), for purposes of paragraph (2), the court shall adopt a presumption that the appropriate sanction

    (i) for failure of any responsive pleading or dispositive motion to comply with any requirement of Rule 11(b) of the Federal Rules of Civil Procedure is an award to the opposing party of the reasonable attorneys' fees and other expenses incurred as a direct result of the violation;  and

    (ii) for substantial failure of any complaint to comply with any requirement of Rule 11(b) of the Federal Rules of Civil Procedure is an award to the opposing party of the reasonable attorneys' fees and other expenses incurred in the action.

    (B) Rebuttal evidence

   The presumption described in subparagraph (A) may be rebutted only upon proof by the party or attorney against whom sanctions are to be imposed that

    (i) the award of attorneys' fees and other expenses will impose an    unreasonable burden on that party or attorney and would be unjust, and the failure to make such an award would not impose a greater burden on the party in whose favor sanctions are to be imposed;  or

    (ii) the violation of Rule 11(b) of the Federal Rules of Civil Procedure was de minimis.

    (C) Sanctions

   If the party or attorney against whom sanctions are to be imposed meets its burden under subparagraph (B), the court shall award the sanctions that the court deems appropriate pursuant to Rule 11 of the Federal Rules of Civil Procedure.

(d) Defendant's right to written interrogatories

 In any private action arising under this subchapter in which the plaintiff may recover money damages only on proof that a defendant acted with a particular state of mind, the court shall, when requested by a defendant, submit to the jury a written interrogatory on the issue of each such defendant's state of mind at the time the alleged violation occurred.