§ 34.1-9-207 — Rights and duties of secured party having possession or control of collateral

(a) Except as otherwise provided in subsection (d), a
secured party shall use reasonable care in the custody and
preservation of collateral in the secured party's possession. In
the case of chattel paper or an instrument, reasonable care
includes taking necessary steps to preserve rights against prior
parties unless otherwise agreed.
(b) Except as otherwise provided in subsection (d), if a
secured party has possession of collateral:
(i) Reasonable expenses, including the cost of
insurance and payment of taxes or other charges, incurred in the
custody, preservation, use or operation of the collateral are
chargeable to the debtor and are secured by the collateral;
(ii) The risk of accidental loss or damage is on the
debtor to the extent of a deficiency in any effective insurance
coverage;
(iii) The secured party shall keep the collateral
identifiable, but fungible collateral may be commingled; and
(iv) The secured party may use or operate the
collateral:
(A) For the purpose of preserving the collateral
or its value;
(B) As permitted by an order of a court having
competent jurisdiction; or
(C) Except in the case of consumer goods, in the
manner and to the extent agreed by the debtor.
(c) Except as otherwise provided in subsection (d), a
secured party having possession of collateral or control of
collateral under section 34.1-7-106, 34.1-9-104, 34.1-9-105,
34.1-9-106 or 34.1-9-107:
(i) May hold as additional security any proceeds,
except money or funds, received from the collateral;
(ii) Shall apply money or funds received from the
collateral to reduce the secured obligation, unless remitted to
the debtor; and
(iii) May create a security interest in the
collateral.
(d) If the secured party is a buyer of accounts, chattel
paper, payment intangibles or promissory notes or a consignor:
(i) Subsection (a) does not apply unless the secured
party is entitled under an agreement:
(A) To charge back uncollected collateral; or
(B) Otherwise to full or limited recourse
against the debtor or a secondary obligor based on the
nonpayment or other default of an account debtor or other
obligor on the collateral; and
(ii) Subsections (b) and (c) do not apply.