§ 25-9-207. Rights and duties of secured party having possession or control of collateral.
SUBPART 2. Rights and Duties.
§ 25‑9‑207. Rights and duties of secured party having possession or control of collateral.
(a) Duty of care whensecured party in possession. Except as otherwise provided in subsection (d)of this section, a secured party shall use reasonable care in the custody andpreservation of collateral in the secured party's possession. In the case ofchattel paper or an instrument, reasonable care includes taking necessary stepsto preserve rights against prior parties unless otherwise agreed.
(b) Expenses, risks,duties, and rights when secured party in possession. Except as otherwiseprovided in subsection (d) of this section, if a secured party has possessionof collateral:
(1) Reasonable expenses,including the cost of insurance and payment of taxes or other charges, incurredin the custody, preservation, use, or operation of the collateral arechargeable to the debtor and are secured by the collateral;
(2) The risk ofaccidental loss or damage is on the debtor to the extent of a deficiency in anyeffective insurance coverage;
(3) The secured partyshall keep the collateral identifiable, but fungible collateral may becommingled; and
(4) The secured partymay use or operate the collateral:
a. For the purpose ofpreserving the collateral or its value;
b. As permitted by anorder of a court having competent jurisdiction; or
c. Except in the caseof consumer goods, in the manner and to the extent agreed by the debtor.
(c) Rights and dutieswhen secured party in possession or control. Except as otherwise provided insubsection (d) of this section, a secured party having possession of collateralor control of collateral under G.S. 25‑7‑106, 25‑9‑104,25‑9‑105, 25‑9‑106, or 25‑9‑107:
(1) May hold asadditional security any proceeds, except money or funds, received from thecollateral;
(2) Shall apply money orfunds received from the collateral to reduce the secured obligation, unlessremitted to the debtor; and
(3) May create asecurity interest in the collateral.
(d) Buyer of certain rightsto payment. If the secured party is a buyer of accounts, chattel paper,payment intangibles, or promissory notes or a consignor:
(1) Subsection (a) ofthis section does not apply unless the secured party is entitled under anagreement:
a. To charge backuncollected collateral; or
b. Otherwise to full orlimited recourse against the debtor or a secondary obligor based on thenonpayment or other default of an account debtor or other obligor on thecollateral; and
(2) Subsections (b) and(c) of this section do not apply. (1965, c. 700, s. 1; 1975, c. 862, s. 7; 2000‑169,s. 1; 2006‑112, s. 46.)