§ 9-207 — Rights and Duties of Secured Party Having Possession or Control of Collateral

Section 9--207. Rights and Duties of Secured Party Having Possession or\n Control of Collateral.\n (a) Duty of care when secured party in possession. Except as otherwise\nprovided in subsection (d), a secured party shall use reasonable care in\nthe custody and preservation of collateral in the secured party's\npossession. In the case of chattel paper or an instrument, reasonable\ncare includes taking necessary steps to preserve rights against prior\nparties unless otherwise agreed.\n (b) Expenses, risks, duties, and rights when secured party in\npossession. Except as otherwise provided in subsection (d), if a secured\nparty has possession of collateral:\n (1) reasonable expenses, including the cost of insurance and\n payment of taxes or other charges, incurred in the custody,\n preservation, use, or operation of the collateral are\n chargeable to the debtor and are secured by the collateral;\n (2) the risk of accidental loss or damage is on the debtor to the\n extent of a deficiency in any effective insurance coverage;\n (3) the secured party shall keep the collateral identifiable, but\n fungible collateral may be commingled; and\n (4) the secured party may use or operate the collateral:\n (A) for the purpose of preserving the collateral or its\n value;\n (B) as permitted by an order of a court having competent\n jurisdiction; or\n (C) except in the case of consumer goods, in the manner and\n to the extent agreed by the debtor.\n * (c) Duties and rights when secured party in possession or control.\nExcept as otherwise provided in subsection (d), a secured party having\npossession of collateral or control of collateral under Section 7--106,\n9--104, 9--105, 9--106, or 9--107:\n (1) may hold as additional security any proceeds, except money or\n funds, received from the collateral;\n (2) shall apply money or funds received from the collateral to\n reduce the secured obligation, unless remitted to the debtor;\n and\n (3) may create a security interest in the collateral.\n * NB Effective until June 3, 2026\n * (c) Duties and rights when secured party in possession or\n control. Except as otherwise provided in subsection (d), a\n secured party having possession of collateral or control of\n collateral under Section 7--106, 9--104, 9--105, 9--105A, 9--106,\n 9--107, or 9--107A:\n (1) may hold as additional security any proceeds, except money or\n funds, received from the collateral;\n (2) shall apply money or funds received from the collateral to\n reduce the secured obligation, unless remitted to the debtor;\n and\n (3) may create a security interest in the collateral.\n * NB Effective June 3, 2026\n (d) Buyer of certain rights to payment. If the secured party is a\nbuyer of accounts, chattel paper, payment intangibles, or promissory\nnotes or a consignor:\n (1) subsection (a) does not apply unless the secured party is\n entitled under an agreement:\n (A) to charge back uncollected collateral; or\n (B) otherwise to full or limited recourse against the debtor\n or a secondary obligor based on the nonpayment or other\n default of an account debtor or other obligor on the\n collateral; and\n (2) subsections (b) and (c) do not apply.\n