1-1 By: Rudd (Senate Sponsor - Parker) H.B. No. 1113
1-2 (In the Senate - Received from the House April 20, 1993;
1-3 April 21, 1993, read first time and referred to Committee on
1-4 Economic Development; May 13, 1993, reported adversely, with
1-5 favorable Committee Substitute by the following vote: Yeas 8, Nays
1-6 0; May 13, 1993, sent to printer.)
1-7 COMMITTEE VOTE
1-8 Yea Nay PNV Absent
1-9 Parker x
1-10 Lucio x
1-11 Ellis x
1-12 Haley x
1-13 Harris of Dallas x
1-14 Harris of Tarrant x
1-15 Leedom x
1-16 Madla x
1-17 Rosson x
1-18 Shapiro x
1-19 Wentworth x
1-20 COMMITTEE SUBSTITUTE FOR H.B. No. 1113 By: Parker
1-21 A BILL TO BE ENTITLED
1-22 AN ACT
1-23 relating to certain commercial transactions.
1-24 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-25 SECTION 1. Title 1, Business & Commerce Code, is amended by
1-26 adding Chapter 2A to read as follows:
1-27 CHAPTER 2A. LEASES
1-28 SUBCHAPTER A. GENERAL PROVISIONS
1-29 Sec. 2A.101. SHORT TITLE. This chapter shall be known and
1-30 may be cited as the Uniform Commercial Code--Leases.
1-31 Sec. 2A.102. SCOPE. This chapter applies to any
1-32 transaction, regardless of form, that creates a lease of goods.
1-33 This chapter does not apply to a transaction that creates an
1-34 interest in or lease of real estate, except to the extent that
1-35 provision is made for leases of fixtures by Section 2A.309.
1-36 Sec. 2A.103. DEFINITIONS AND INDEX OF DEFINITIONS. (a) In
1-37 this chapter unless the context otherwise requires:
1-38 (1) "Buyer in the ordinary course of business" means a
1-39 person who in good faith and without knowledge that the sale to him
1-40 or her is in violation of the ownership rights or security interest
1-41 or leasehold interest of a third party in the goods buys in the
1-42 ordinary course from a person in the business of selling goods of
1-43 that kind but does not include a pawnbroker. "Buying" may be for
1-44 cash or by exchange of other property or on secured or unsecured
1-45 credit and includes receiving goods or documents of title under a
1-46 preexisting contract for sale but does not include a transfer in
1-47 bulk or as security for or in total or partial satisfaction of a
1-48 money debt.
1-49 (2) "Cancellation" occurs when either party puts an
1-50 end to the lease contract for default by the other party.
1-51 (3) "Commercial unit" means a unit of goods as by
1-52 commercial usage is a single whole for purposes of lease and
1-53 division of which materially impairs its character or value on the
1-54 market or in use. A commercial unit may be a single article, as a
1-55 machine, or a set of articles, as a suite of furniture or a line of
1-56 machinery, or a quantity, as a gross or carload, or any other unit
1-57 treated in use or in the relevant market as a single whole.
1-58 (4) "Conforming" goods or performance under a lease
1-59 contract means performance or goods that are in accordance with the
1-60 obligations under the lease contract.
1-61 (5) "Consumer lease" means a lease that a lessor
1-62 regularly engaged in the business of leasing or selling makes to a
1-63 lessee who is an individual and who takes under the lease primarily
1-64 for a personal, family, or household purpose, if the total payments
1-65 to be made under the lease contract, excluding payments for options
1-66 to renew or buy, do not exceed $25,000.
1-67 (6) "Fault" means a wrongful act, omission, breach, or
1-68 default.
2-1 (7) "Finance lease" means a lease with respect to
2-2 which:
2-3 (A) the lessor does not select, manufacture, or
2-4 supply the goods;
2-5 (B) the lessor acquires the goods or the right
2-6 to possession and use of the goods in connection with the lease;
2-7 and
2-8 (C) one of the following occurs:
2-9 (i) the lessee receives a copy of the
2-10 contract by which the lessor acquired the goods or the right to
2-11 possession and use of the goods before signing the lease contract;
2-12 (ii) the lessee's approval of the contract
2-13 by which the lessor acquired the goods or the right to possession
2-14 and use of the goods is a condition to effectiveness of the lease
2-15 contract;
2-16 (iii) the lessee, before signing the lease
2-17 contract, receives an accurate and complete statement designating
2-18 the promises and warranties, and any disclaimers of warranties,
2-19 limitations or modifications of remedies, or liquidated damages,
2-20 including those of a third party, such as the manufacturer of the
2-21 goods, provided to the lessor by the person supplying the goods in
2-22 connection with or as part of the contract by which the lessor
2-23 acquired the goods or the right to possession and use of the goods;
2-24 or
2-25 (iv) if the lease is not a consumer lease,
2-26 the lessor, before the lessee signs the lease contract, informs the
2-27 lessee in writing (a) of the identity of the person supplying the
2-28 goods to the lessor, unless the lessee has selected that person and
2-29 directed the lessor to acquire the goods or the right to possession
2-30 and use of the goods from that person, (b) that the lessee is
2-31 entitled under this chapter to the promises and warranties,
2-32 including those of any third party, provided to the lessor by the
2-33 person supplying the goods in connection with or as part of the
2-34 contract by which the lessor acquired the goods or the right to
2-35 possession and use of the goods, and (c) that the lessee may
2-36 communicate with the person supplying the goods to the lessor and
2-37 receive an accurate and complete statement of those promises and
2-38 warranties, including any disclaimers and limitations of them or of
2-39 remedies.
2-40 (8) "Goods" means all things that are moveable at the
2-41 time of identification to the lease contract, or are fixtures
2-42 (Section 2A.309), but the term does not include money, documents,
2-43 instruments, accounts, chattel paper, general intangibles, or
2-44 minerals or the like, including oil and gas, before extraction.
2-45 The term also includes the unborn young of animals.
2-46 (9) "Installment lease contract" means a lease
2-47 contract that authorizes or requires the delivery of goods in
2-48 separate lots to be separately accepted, even though the lease
2-49 contract contains the clause "each delivery is a separate lease" or
2-50 its equivalent.
2-51 (10) "Lease" means a transfer of the right to
2-52 possession and use of goods for a term in return for consideration,
2-53 but a sale, including a sale on approval or a sale or return, or
2-54 retention or creation of a security interest is not a lease.
2-55 Unless the context clearly indicates otherwise, the term includes a
2-56 sublease.
2-57 (11) "Lease agreement" means the bargain, with respect
2-58 to the lease, of the lessor and the lessee in fact as found in
2-59 their language or by implication from other circumstances including
2-60 course of dealing or usage of trade or course of performance as
2-61 provided by this chapter. Unless the context clearly indicates
2-62 otherwise, the term includes a sublease agreement.
2-63 (12) "Lease contract" means the total legal obligation
2-64 that results from the lease agreement as affected by this chapter
2-65 and any other applicable rules of law. Unless the context clearly
2-66 indicates otherwise, the term includes a sublease contract.
2-67 (13) "Leasehold interest" means the interest of the
2-68 lessor or the lessee under a lease contract.
2-69 (14) "Lessee" means a person who acquires the right to
2-70 possession and use of goods under a lease. Unless the context
3-1 clearly indicates otherwise, the term includes a sublessee.
3-2 (15) "Lessee in ordinary course of business" means a
3-3 person who in good faith and without knowledge that the lease to
3-4 him or her is in violation of the ownership rights or security
3-5 interest or leasehold interest of a third party in the goods,
3-6 leases in ordinary course from a person in the business of selling
3-7 or leasing goods of that kind but does not include a pawnbroker.
3-8 "Leasing" may be for cash or by exchange of other property or on
3-9 secured or unsecured credit and includes receiving goods or
3-10 documents of title under a preexisting lease contract but does not
3-11 include a transfer in bulk or as security for or in total or
3-12 partial satisfaction of a money debt.
3-13 (16) "Lessor" means a person who transfers the right
3-14 to possession and use of goods under a lease. Unless the context
3-15 clearly indicates otherwise, the term includes a sublessor.
3-16 (17) "Lessor's residual interest" means the lessor's
3-17 interest in the goods after the expiration, termination, or
3-18 cancellation of the lease contract.
3-19 (18) "Lien" means a charge against or interest in
3-20 goods to secure payment of a debt or performance of an obligation,
3-21 but the term does not include a security interest.
3-22 (19) "Lot" means a parcel or a single article that is
3-23 the subject matter of a separate lease or delivery, whether or not
3-24 it is sufficient to perform the lease contract.
3-25 (20) "Merchant lessee" means a lessee that is a
3-26 merchant with respect to goods of the kind subject to the lease.
3-27 (21) "Present value" means the amount as of a date
3-28 certain of one or more sums payable in the future, discounted to
3-29 the date certain. The discount is determined by the interest rate
3-30 specified by the parties if the rate was not manifestly
3-31 unreasonable at the time the transaction was entered into;
3-32 otherwise, the discount is determined by a commercially reasonable
3-33 rate that takes into account the facts and circumstances of each
3-34 case at the time the transaction was entered into.
3-35 (22) "Purchase" includes taking by sale, lease,
3-36 mortgage, security interest, pledge, gift, or any other voluntary
3-37 transaction creating an interest in goods.
3-38 (23) "Sublease" means a lease of goods the right to
3-39 possession and use of which was acquired by the lessor as a lessee
3-40 under an existing lease.
3-41 (24) "Supplier" means a person from whom a lessor buys
3-42 or leases goods to be leased under a finance lease.
3-43 (25) "Supply contract" means a contract under which a
3-44 lessor buys or leases goods to be leased.
3-45 (26) "Termination" occurs when either party pursuant
3-46 to a power created by agreement or law puts an end to the lease
3-47 contract otherwise than for default.
3-48 (b) Other definitions applying to this chapter and the
3-49 sections in which they appear are:
3-50 "Accessions". Section 2A.310(a).
3-51 "Construction mortgage". Section 2A.309(a)(4).
3-52 "Encumbrance". Section 2A.309(a)(5).
3-53 "Fixtures". Section 2A.309(a)(1).
3-54 "Fixture filing". Section 2A.309(a)(2).
3-55 "Purchase money lease". Section 2A.309(a)(3).
3-56 (c) The following definitions in other chapters apply to
3-57 this chapter:
3-58 "Account". Section 9.106.
3-59 "Between merchants". Section 2.104(c).
3-60 "Buyer". Section 2.103(a)(1).
3-61 "Chattel paper". Section 9.105(a)(2).
3-62 "Consumer goods". Section 9.109(1).
3-63 "Document". Section 9.105(a)(6).
3-64 "Entrusting". Section 2.403(c).
3-65 "General intangibles". Section 9.106.
3-66 "Good faith". Section 2.103(a)(2).
3-67 "Instrument". Section 9.105(a)(9).
3-68 "Merchant". Section 2.104(a).
3-69 "Mortgage". Section 9.105(a)(10).
3-70 "Pursuant to commitment". Section 9.105(a)(11).
4-1 "Receipt". Section 2.103(a)(3).
4-2 "Sale". Section 2.106(a).
4-3 "Sale on approval". Section 2.326.
4-4 "Sale or return". Section 2.326.
4-5 "Seller". Section 2.103(a)(4).
4-6 (d) In addition Chapter 1 contains general definitions and
4-7 principles of construction and interpretation applicable throughout
4-8 this chapter.
4-9 Sec. 2A.104. LEASES SUBJECT TO OTHER LAWS. (a) A lease,
4-10 although subject to this chapter, is also subject to any
4-11 applicable:
4-12 (1) certificate of title statute of this state,
4-13 including the provisions of the Certificate of Title Act (Article
4-14 6687-1, Vernon's Texas Civil Statutes), Chapter 31, Parks and
4-15 Wildlife Code, and Section 19, Texas Manufactured Housing Standards
4-16 Act (Article 5221f, Vernon's Texas Civil Statutes);
4-17 (2) certificate of title statute of another
4-18 jurisdiction (Section 2A.105); or
4-19 (3) consumer law of this state, both decisional and
4-20 statutory, including, to the extent that they apply to a lease
4-21 transaction, the provisions of Chapters 17 and 35, Business &
4-22 Commerce Code, and the Texas Manufactured Housing Standards Act
4-23 (Article 5221f, Vernon's Texas Civil Statutes).
4-24 (b) In case of conflict between this chapter, other than
4-25 Sections 2A.105, 2A.304(c) and 2A.305(c), and any statute or law
4-26 referred to in Subsection (a), the statute or law controls.
4-27 (c) Failure to comply with any applicable statute has only
4-28 the effect specified therein.
4-29 Sec. 2A.105. TERRITORIAL APPLICATION OF CHAPTER TO GOODS
4-30 COVERED BY CERTIFICATE OF TITLE. Subject to the provisions of
4-31 Sections 2A.304(c) and 2A.305(c), with respect to goods covered by
4-32 a certificate of title issued under a statute of this state or of
4-33 another jurisdiction, compliance and the effect of compliance or
4-34 noncompliance with a certificate of title statute are governed by
4-35 the law (including the conflict of laws rules) of the jurisdiction
4-36 issuing the certificate until the earlier of:
4-37 (1) surrender of the certificate; or
4-38 (2) four months after the goods are removed from that
4-39 jurisdiction and thereafter until a new certificate of title is
4-40 issued by another jurisdiction.
4-41 Sec. 2A.106. LIMITATION ON POWER OF PARTIES TO CONSUMER
4-42 LEASE TO CHOOSE APPLICABLE LAW AND JUDICIAL FORUM. (a) If the law
4-43 chosen by the parties to a consumer lease is that of a jurisdiction
4-44 other than a jurisdiction in which the lessee resides at the time
4-45 the lease agreement becomes enforceable or within 30 days
4-46 thereafter or in which the goods are to be used, the choice is not
4-47 enforceable.
4-48 (b) If the judicial forum chosen by the parties to a
4-49 consumer lease is a forum located in a jurisdiction other than the
4-50 jurisdiction in which the lessee in fact signed the lease
4-51 agreement, resides at the commencement of the action, or resided at
4-52 the time the lease contract became enforceable or in which the
4-53 goods are in fact used by the lessee, the choice is not
4-54 enforceable.
4-55 Sec. 2A.107. WAIVER OR RENUNCIATION OF CLAIM OR RIGHT AFTER
4-56 DEFAULT. A claim or right arising out of an alleged default or
4-57 breach of warranty may be discharged in whole or in part without
4-58 consideration by a written waiver or renunciation signed and
4-59 delivered by the aggrieved party.
4-60 Sec. 2A.108. UNCONSCIONABILITY. (a) If the court as a
4-61 matter of law finds a lease contract or any clause of a lease
4-62 contract to have been unconscionable at the time it was made, the
4-63 court may refuse to enforce the lease contract, or it may enforce
4-64 the remainder of the lease contract without the unconscionable
4-65 clause, or it may so limit the application of any unconscionable
4-66 clause as to avoid any unconscionable result.
4-67 (b) With respect to a consumer lease, if the court as a
4-68 matter of law finds that a lease contract or any clause of a lease
4-69 contract has been induced by unconscionable conduct or that
4-70 unconscionable conduct has occurred in the collection of a claim
5-1 arising from a lease contract, the court may grant appropriate
5-2 relief.
5-3 (c) Before making a finding of unconscionability under
5-4 Subsection (a) or (b), the court, on its own motion or that of a
5-5 party, shall afford the parties a reasonable opportunity to present
5-6 evidence as to the setting, purpose, and effect of the lease
5-7 contract or clause thereof or of the conduct.
5-8 (d) In an action in which the lessee claims
5-9 unconscionability with respect to a consumer lease:
5-10 (1) if the court finds unconscionability under
5-11 Subsection (a) or (b), the court shall award reasonable attorney's
5-12 fees to the lessee; and
5-13 (2) in determining attorney's fees, the amount of the
5-14 recovery on behalf of the claimant under Subsections (a) and (b) is
5-15 not controlling.
5-16 Sec. 2A.109. OPTION TO ACCELERATE AT WILL. (a) A term
5-17 providing that one party or the party's successor in interest may
5-18 accelerate payment or performance or require collateral or
5-19 additional collateral "at will" or "when the party deems himself or
5-20 herself insecure" or in words of similar import must be construed
5-21 to mean that the party has power to do so only if the party in good
5-22 faith believes that the prospect of payment or performance is
5-23 impaired.
5-24 (b) With respect to a consumer lease, the burden of
5-25 establishing good faith under Subsection (a) is on the party who
5-26 exercises the power; otherwise the burden of establishing lack of
5-27 good faith is on the party against whom the power has been
5-28 exercised.
5-29 SUBCHAPTER B. FORMATION AND
5-30 CONSTRUCTION OF LEASE CONTRACT
5-31 Sec. 2A.201. STATUTE OF FRAUDS. (a) A lease contract is
5-32 not enforceable by way of action or defense unless:
5-33 (1) the total payments to be made under the lease
5-34 contract, excluding payments for options to renew or buy, are less
5-35 than $1,000; or
5-36 (2) there is a writing, signed by the party against
5-37 whom enforcement is sought or by that party's authorized agent,
5-38 sufficient to indicate that a lease contract has been made between
5-39 the parties and to describe the goods leased and the lease term.
5-40 (b) Any description of leased goods or of the lease term is
5-41 sufficient and satisfies Subsection (a)(2), whether or not it is
5-42 specific, if it reasonably identifies what is described.
5-43 (c) A writing is not insufficient because it omits or
5-44 incorrectly states a term agreed upon, but the lease contract is
5-45 not enforceable under Subsection (a)(2) beyond the lease term and
5-46 the quantity of goods shown in the writing.
5-47 (d) A lease contract that does not satisfy the requirements
5-48 of Subsection (a), but which is valid in other respects, is
5-49 enforceable:
5-50 (1) if the goods are to be specially manufactured or
5-51 obtained for the lessee and are not suitable for lease or sale to
5-52 others in the ordinary course of the lessor's business, and the
5-53 lessor, before notice of repudiation is received and under
5-54 circumstances that reasonably indicate that the goods are for the
5-55 lessee, has made either a substantial beginning of their
5-56 manufacture or commitments for their procurement;
5-57 (2) if the party against whom enforcement is sought
5-58 admits in that party's pleading, testimony or otherwise in court
5-59 that a lease contract was made, but the lease contract is not
5-60 enforceable under this provision beyond the quantity of goods
5-61 admitted;
5-62 (3) with respect to goods that have been received and
5-63 accepted by the lessee; or
5-64 (4) if the lease contract would otherwise be
5-65 enforceable under general principles of equitable estoppel,
5-66 detrimental reliance or unjust enrichment.
5-67 (e) The lease term under a lease contract referred to in
5-68 Subsection (d) is:
5-69 (1) if there is a writing signed by the party against
5-70 whom enforcement is sought or by that party's authorized agent
6-1 specifying the lease term, the term so specified;
6-2 (2) if the party against whom enforcement is sought
6-3 admits in that party's pleading, testimony, or otherwise in court a
6-4 lease term, the term so admitted; or
6-5 (3) a reasonable lease term.
6-6 Sec. 2A.202. FINAL WRITTEN EXPRESSION; PAROL OR EXTRINSIC
6-7 EVIDENCE. Terms with respect to which the confirmatory memoranda
6-8 of the parties agree or which are otherwise set forth in a writing
6-9 intended by the parties as a final expression of their agreement
6-10 with respect to such terms as are included therein may not be
6-11 contradicted by evidence of a prior agreement or of a
6-12 contemporaneous oral agreement but may be explained or
6-13 supplemented:
6-14 (1) by course of dealing or usage of trade or by
6-15 course of performance; and
6-16 (2) by evidence of consistent additional terms unless
6-17 the court finds the writing to have been intended also as a
6-18 complete and exclusive statement of the terms of the agreement.
6-19 Sec. 2A.203. SEALS INOPERATIVE. The affixing of a seal to a
6-20 writing evidencing a lease contract or an offer to enter into a
6-21 lease contract does not render the writing a sealed instrument and
6-22 the law with respect to sealed instruments does not apply to the
6-23 lease contract or offer.
6-24 Sec. 2A.204. FORMATION IN GENERAL. (a) A lease contract
6-25 may be made in any manner sufficient to show agreement, including
6-26 conduct by both parties which recognizes the existence of a lease
6-27 contract.
6-28 (b) An agreement sufficient to constitute a lease contract
6-29 may be found although the moment of its making is undetermined.
6-30 (c) Although one or more terms are left open, a lease
6-31 contract does not fail for indefiniteness if the parties have
6-32 intended to make a lease contract and there is a reasonably certain
6-33 basis for giving an appropriate remedy.
6-34 Sec. 2A.205. FIRM OFFERS. An offer by a merchant to lease
6-35 goods to or from another person in a signed writing that by its
6-36 terms gives assurance it will be held open is not revocable, for
6-37 lack of consideration, during the time stated or, if no time is
6-38 stated, for a reasonable time, but in no event may the period of
6-39 irrevocability exceed three months. Any such term of assurance on
6-40 a form supplied by the offeree must be separately signed by the
6-41 offeror.
6-42 Sec. 2A.206. OFFER AND ACCEPTANCE IN FORMATION OF LEASE
6-43 CONTRACT. (a) Unless otherwise unambiguously indicated by the
6-44 language or circumstances, an offer to make a lease contract must
6-45 be construed as inviting acceptance in any manner and by any medium
6-46 reasonable in the circumstances.
6-47 (b) If the beginning of a requested performance is a
6-48 reasonable method of acceptance, an offeror who is not notified of
6-49 acceptance within a reasonable time may treat the offer as having
6-50 lapsed before acceptance.
6-51 Sec. 2A.207. COURSE OF PERFORMANCE OR PRACTICAL
6-52 CONSTRUCTION. (a) If a lease contract involves repeated occasions
6-53 for performance by either party with knowledge of the nature of the
6-54 performance and opportunity for objection to it by the other, a
6-55 course of performance accepted or acquiesced in without objection
6-56 is relevant to determine the meaning of the lease agreement.
6-57 (b) The express terms of a lease agreement and any course of
6-58 performance, as well as any course of dealing and usage of trade,
6-59 must be construed whenever reasonable as consistent with each
6-60 other; but if that construction is unreasonable, express terms
6-61 control course of performance, course of performance controls both
6-62 course of dealing and usage of trade, and course of dealing
6-63 controls usage of trade.
6-64 (c) Subject to the provisions of Section 2A.208 on
6-65 modification and waiver, course of performance is relevant to show
6-66 a waiver or modification of a term inconsistent with the course of
6-67 performance.
6-68 Sec. 2A.208. MODIFICATION, RESCISSION AND WAIVER. (a) An
6-69 agreement modifying a lease contract needs no consideration to be
6-70 binding.
7-1 (b) A signed lease agreement that excludes modification or
7-2 rescission except by a signed writing may not be otherwise modified
7-3 or rescinded, but, except as between merchants, such a requirement
7-4 on a form supplied by a merchant must be separately signed by the
7-5 other party.
7-6 (c) Although an attempt at modification or rescission does
7-7 not satisfy the requirements of Subsection (b), it may operate as a
7-8 waiver.
7-9 (d) A party who has made a waiver affecting an executory
7-10 portion of a lease contract may retract the waiver by reasonable
7-11 notification received by the other party that strict performance
7-12 will be required of any term waived, unless a retraction would be
7-13 unjust in view of a material change of position in reliance on the
7-14 waiver.
7-15 Sec. 2A.209. LESSEE UNDER FINANCE LEASE AS BENEFICIARY OF
7-16 SUPPLY CONTRACT. (a) The benefit of a supplier's promises to the
7-17 lessor under the supply contract and of all warranties, whether
7-18 express or implied, including those of any third party provided in
7-19 connection with or as part of the supply contract, extends to the
7-20 lessee to the extent of the lessee's leasehold interest under a
7-21 finance lease related to the supply contract, but is subject to the
7-22 terms of the warranty and of the supply contract and all defenses
7-23 or claims arising therefrom.
7-24 (b) The extension of the benefit of a supplier's promises
7-25 and of warranties to the lessee (Section 2A.209(a)) does not:
7-26 (1) modify the rights and obligations of the parties
7-27 to the supply contract, whether arising therefrom or otherwise; or
7-28 (2) impose any duty or liability under the supply
7-29 contract on the lessee.
7-30 (c) Any modification or rescission of the supply contract by
7-31 the supplier and the lessor is effective between the supplier and
7-32 the lessee unless, before the modification or rescission, the
7-33 supplier has received notice that the lessee has entered into a
7-34 finance lease related to the supply contract. If the modification
7-35 or rescission is effective between the supplier and the lessee, the
7-36 lessor is deemed to have assumed, in addition to the obligations of
7-37 the lessor to the lessee under the lease contract, promises of the
7-38 supplier to the lessor and warranties that were so modified or
7-39 rescinded as they existed and were available to the lessee before
7-40 modification or rescission.
7-41 (d) In addition to the extension of the benefit of the
7-42 supplier's promises and of warranties to the lessee under
7-43 Subsection (a), the lessee retains all rights that the lessee may
7-44 have against the supplier which arise from an agreement between the
7-45 lessee and the supplier or under other law.
7-46 Sec. 2A.210. EXPRESS WARRANTIES. (a) Express warranties by
7-47 the lessor are created as follows:
7-48 (1) Any affirmation of fact or promise made by the
7-49 lessor to the lessee that relates to the goods and becomes part of
7-50 the basis of the bargain creates an express warranty that the goods
7-51 will conform to the affirmation or promise.
7-52 (2) Any description of the goods which is made part of
7-53 the basis of the bargain creates an express warranty that the goods
7-54 will conform to the description.
7-55 (3) Any sample or model that is made part of the basis
7-56 of the bargain creates an express warranty that the whole of the
7-57 goods will conform to the sample or model.
7-58 (b) It is not necessary to the creation of an express
7-59 warranty that the lessor use formal words, such as "warrant" or
7-60 "guarantee," or that the lessor have a specific intention to make a
7-61 warranty, but an affirmation merely of the value of the goods or a
7-62 statement purporting to be merely the lessor's opinion or
7-63 commendation of the goods does not create a warranty.
7-64 Sec. 2A.211. WARRANTIES AGAINST INTERFERENCE AND AGAINST
7-65 INFRINGEMENT; LESSEE'S OBLIGATION AGAINST INFRINGEMENT. (a) There
7-66 is in a lease contract a warranty that for the lease term no person
7-67 holds a claim to or interest in the goods that arose from an act or
7-68 omission of the lessor other than a claim by way of infringement or
7-69 the like, which will interfere with the lessee's enjoyment of its
7-70 leasehold interest.
8-1 (b) Except in a finance lease there is in a lease contract
8-2 by a lessor who is a merchant regularly dealing in goods of the
8-3 kind a warranty that the goods are delivered free of the rightful
8-4 claim of any person by way of infringement or the like.
8-5 (c) A lessee who furnishes specifications to a lessor or a
8-6 supplier shall hold the lessor and the supplier harmless against a
8-7 claim by way of infringement or the like that arises out of
8-8 compliance with the specifications.
8-9 Sec. 2A.212. IMPLIED WARRANTY OF MERCHANTABILITY.
8-10 (a) Except in a finance lease, a warranty that the goods will be
8-11 merchantable is implied in a lease contract if the lessor is a
8-12 merchant with respect to goods of that kind.
8-13 (b) Goods to be merchantable must be at least such as:
8-14 (1) pass without objection in the trade under the
8-15 description in the lease agreement;
8-16 (2) in the case of fungible goods, are of fair average
8-17 quality within the description;
8-18 (3) are fit for the ordinary purposes for which goods
8-19 of that type are used;
8-20 (4) run, within the variation permitted by the lease
8-21 agreement, of even kind, quality, and quantity within each unit and
8-22 among all units involved;
8-23 (5) are adequately contained, packaged, and labeled as
8-24 the lease agreement may require; and
8-25 (6) conform to any promises or affirmations of fact
8-26 made on the container or label.
8-27 (c) Other implied warranties may arise from course of
8-28 dealing or usage of trade.
8-29 Sec. 2A.213. IMPLIED WARRANTY OF FITNESS FOR PARTICULAR
8-30 PURPOSE. Except in a finance lease, if the lessor at the time the
8-31 lease contract is made has reason to know of any particular purpose
8-32 for which the goods are required and that the lessee is relying on
8-33 the lessor's skill or judgment to select or furnish suitable goods,
8-34 there is in the lease contract an implied warranty that the goods
8-35 will be fit for that purpose.
8-36 Sec. 2A.214. EXCLUSION OR MODIFICATION OF WARRANTIES.
8-37 (a) Words or conduct relevant to the creation of an express
8-38 warranty and words or conduct tending to negate or limit a warranty
8-39 must be construed whenever reasonable, as consistent with each
8-40 other; but, subject to the provisions of Section 2A.202 on parol or
8-41 extrinsic evidence, negation or limitation is inoperative to the
8-42 extent that the construction is unreasonable.
8-43 (b) Subject to Subsection (c), to exclude or modify the
8-44 implied warranty of merchantability or any part of it the language
8-45 must mention "merchantability," be by a writing, and be
8-46 conspicuous. Subject to Subsection (c), to exclude or modify an
8-47 implied warranty of fitness the exclusion must be by a writing and
8-48 be conspicuous. Language to exclude all implied warranties of
8-49 fitness is sufficient if it is in writing, is conspicuous and
8-50 states, for example, "There is no warranty that the goods will be
8-51 fit for a particular purpose."
8-52 (c) Notwithstanding Subsection (b), but subject to
8-53 Subsection (d):
8-54 (1) unless the circumstances indicate otherwise, all
8-55 implied warranties are excluded by expressions like "as is," or
8-56 "with all faults," or by other language that in common
8-57 understanding calls the lessee's attention to the exclusion of
8-58 warranties and makes plain that there is no implied warranty, if in
8-59 writing and conspicuous;
8-60 (2) if the lessee before entering into the lease
8-61 contract has examined the goods or the sample or model as fully as
8-62 desired or has refused to examine the goods, there is no implied
8-63 warranty with regard to defects that an examination ought in the
8-64 circumstances to have revealed; and
8-65 (3) an implied warranty also may be excluded or
8-66 modified by course of dealing, course of performance, or usage of
8-67 trade.
8-68 (d) To exclude or modify a warranty against interference or
8-69 against infringement (Section 2A.211) or any part of it, the
8-70 language must be specific, be by a writing, and be conspicuous,
9-1 unless the circumstances, including course of performance, course
9-2 of dealing, or usage of trade, give the lessee reason to know that
9-3 the goods are being leased subject to a claim or interest of any
9-4 person.
9-5 Sec. 2A.215. ACCUMULATION AND CONFLICT OF WARRANTIES EXPRESS
9-6 OR IMPLIED. Warranties, whether express or implied, must be
9-7 construed as consistent with each other and as cumulative, but if
9-8 that construction is unreasonable, the intention of the parties
9-9 determines which warranty is dominant. In ascertaining that
9-10 intention the following rules apply:
9-11 (1) exact or technical specifications displace an
9-12 inconsistent sample or model or general language of description;
9-13 (2) a sample from an existing bulk displaces
9-14 inconsistent general language of description; and
9-15 (3) express warranties displace inconsistent implied
9-16 warranties other than an implied warranty of fitness for a
9-17 particular purpose.
9-18 Sec. 2A.216. THIRD-PARTY BENEFICIARIES OF EXPRESS AND
9-19 IMPLIED WARRANTIES. This chapter does not provide whether anyone
9-20 other than a lessee may take advantage of an express or implied
9-21 warranty of quality made to the lessee or whether the lessee or
9-22 anyone entitled to take advantage of a warranty made to the lessee
9-23 may sue a third party other than the immediate lessor, or the
9-24 supplier in a finance lease, for deficiencies in the quality of the
9-25 goods. These matters are left to the courts for their
9-26 determination.
9-27 Sec. 2A.217. IDENTIFICATION. Identification of goods as
9-28 goods to which a lease contract refers may be made at any time and
9-29 in any manner explicitly agreed to by the parties. In the absence
9-30 of explicit agreement, identification occurs:
9-31 (1) when the lease contract is made if the lease
9-32 contract is for a lease of goods that are existing and identified;
9-33 (2) when the goods are shipped, marked, or otherwise
9-34 designated by the lessor as goods to which the lease contract
9-35 refers, if the lease contract is for a lease of goods that are not
9-36 existing and identified; or
9-37 (3) when the young are conceived, if the lease
9-38 contract is for a lease of the unborn young of animals.
9-39 Sec. 2A.218. INSURANCE AND PROCEEDS. (a) A lessee obtains
9-40 an insurable interest when existing goods are identified to the
9-41 lease contract even though the goods identified are nonconforming
9-42 and the lessee has an option to reject them.
9-43 (b) If a lessee has an insurable interest only by reason of
9-44 the lessor's identification of the goods, the lessor, until default
9-45 or insolvency or notification to the lessee that identification is
9-46 final, may substitute other goods for those identified.
9-47 (c) Notwithstanding a lessee's insurable interest under
9-48 Subsections (a) and (b), the lessor retains an insurable interest
9-49 during the existence of the lease contract.
9-50 (d) Nothing in this section impairs any insurable interest
9-51 recognized under any other statute or rule of law.
9-52 (e) The parties by agreement may determine that one or more
9-53 parties have an obligation to obtain and pay for insurance covering
9-54 the goods and by agreement may determine the beneficiary of the
9-55 proceeds of the insurance.
9-56 Sec. 2A.219. RISK OF LOSS. (a) Except in the case of a
9-57 finance lease, risk of loss is retained by the lessor and does not
9-58 pass to the lessee. In the case of a finance lease, risk of loss
9-59 passes to the lessee.
9-60 (b) Subject to the provisions of this chapter on the effect
9-61 of default on risk of loss (Section 2A.220), if risk of loss is to
9-62 pass to the lessee and the time of passage is not stated, the
9-63 following rules apply:
9-64 (1) If the lease contract requires or authorizes the
9-65 goods to be shipped by carrier:
9-66 (A) and it does not require delivery at a
9-67 particular destination, the risk of loss passes to the lessee when
9-68 the goods are duly delivered to the carrier; but
9-69 (B) if it does require delivery at a particular
9-70 destination and the goods are there duly tendered while in the
10-1 possession of the carrier, the risk of loss passes to the lessee
10-2 when the goods are there duly so tendered as to enable the lessee
10-3 to take delivery.
10-4 (2) If the goods are held by a bailee to be delivered
10-5 without being moved, the risk of loss passes to the lessee on
10-6 acknowledgement by the bailee of the lessee's right to possession
10-7 of the goods.
10-8 (3) In any case not within Subdivision (1) or (2), the
10-9 risk of loss passes to the lessee on tender of delivery if the
10-10 lessee is a merchant; otherwise the risk of loss passes to the
10-11 lessee on the lessee's receipt of the goods.
10-12 Sec. 2A.220. EFFECT OF DEFAULT ON RISK OF LOSS. (a) Where
10-13 risk of loss is to pass to the lessee and the time of passage is
10-14 not stated:
10-15 (1) if a tender or delivery of goods so fails to
10-16 conform to the lease contract as to give a right of rejection, the
10-17 risk of their loss remains with the lessor, or, in the case of a
10-18 finance lease, the supplier, until cure or acceptance; or
10-19 (2) if the lessee rightfully revokes acceptance, the
10-20 lessee, to the extent of any deficiency in the lessee's effective
10-21 insurance coverage, may treat the risk of loss as having remained
10-22 with the lessor from the beginning.
10-23 (b) Whether or not risk of loss is to pass to the lessee, if
10-24 the lessee as to conforming goods already identified to a lease
10-25 contract repudiates or is otherwise in default under the lease
10-26 contract, the lessor, or, in the case of a finance lease, the
10-27 supplier, to the extent of any deficiency in the lessor's or the
10-28 supplier's effective insurance coverage may treat the risk of loss
10-29 as resting on the lessee for a commercially reasonable time.
10-30 Sec. 2A.221. CASUALTY TO IDENTIFIED GOODS. If a lease
10-31 contract requires goods identified when the lease contract is made,
10-32 and the goods suffer casualty without fault of the lessee, the
10-33 lessor or the supplier before delivery, or the goods suffer
10-34 casualty before risk of loss passes to the lessee under the lease
10-35 agreement or Section 2A.219:
10-36 (1) if the loss is total, the lease contract is
10-37 avoided; and
10-38 (2) if the loss is partial or the goods have so
10-39 deteriorated as to no longer conform to the lease contract, the
10-40 lessee may nevertheless demand inspection and at the lessee's
10-41 option either treat the lease contract as avoided or, except in a
10-42 finance lease that is not a consumer lease, accept the goods with
10-43 due allowance from the rent payable for the balance of the lease
10-44 term for the deterioration or the deficiency in quantity but
10-45 without further right against the lessor.
10-46 SUBCHAPTER C. EFFECT OF LEASE CONTRACT
10-47 Sec. 2A.301. ENFORCEABILITY OF LEASE CONTRACT. Except as
10-48 otherwise provided in this title, a lease contract is effective and
10-49 enforceable according to its terms between the parties, against
10-50 purchasers of the goods and against creditors of the parties.
10-51 Sec. 2A.302. TITLE TO AND POSSESSION OF GOODS. Except as
10-52 otherwise provided in this title, each provision of this chapter
10-53 applies whether the lessor or a third party has title to the goods,
10-54 and whether the lessor, the lessee, or a third party has possession
10-55 of the goods, notwithstanding any statute or rule of law that
10-56 possession or the absence of possession is fraudulent.
10-57 Sec. 2A.303. ALIENABILITY OF PARTY'S INTEREST UNDER LEASE
10-58 CONTRACT OR OF LESSOR'S RESIDUAL INTEREST IN GOODS; DELEGATION OF
10-59 PERFORMANCE; TRANSFER OF RIGHTS. (a) As used in this section,
10-60 "creation of a security interest" includes the sale of a lease
10-61 contract that is subject to Chapter 9 of this code, Secured
10-62 Transactions, by reason of Section 9.102(a)(2).
10-63 (b) Except as provided in Subsections (c) and (d), a
10-64 provision in a lease agreement which (1) prohibits the voluntary or
10-65 involuntary transfer, including a transfer by sale, sublease,
10-66 creation or enforcement of a security interest, or attachment,
10-67 levy, or other judicial process, of an interest of a party under
10-68 the lease contract or of the lessor's residual interest in the
10-69 goods, or (2) makes such a transfer an event of default, gives rise
10-70 to the rights and remedies provided in Subsection (e) of this
11-1 section, but a transfer that is prohibited or is an event of
11-2 default under the lease agreement is otherwise effective.
11-3 (c) A provision in a lease agreement which (1) prohibits the
11-4 creation or enforcement of a security interest in an interest of a
11-5 party under the lease contract or in the lessor's residual interest
11-6 in the goods, or (2) makes such a transfer an event of default, is
11-7 not enforceable unless, and then only to the extent that, there is
11-8 an actual transfer by the lessee of the lessee's right of
11-9 possession or use of the goods in violation of the provision or an
11-10 actual delegation of a material performance of either party to the
11-11 lease contract in violation of the provision. Neither the granting
11-12 nor the enforcement of a security interest in (1) the lessor's
11-13 interest in the lease contract or (2) the lessor's residual
11-14 interest in the goods is a transfer that materially impairs the
11-15 prospect of obtaining return performance by, materially changes the
11-16 duty of, or materially increases the burden of risk imposed on, the
11-17 lessee within the purview of Subsection (e) unless, and then only
11-18 to the extent that, there is an actual delegation of a material
11-19 performance of the lessor.
11-20 (d) A provision in a lease agreement which (1) prohibits a
11-21 transfer of a right to damages for default with respect to the
11-22 whole lease contract or of a right to payment arising out of the
11-23 transferor's due performance of the transferor's entire obligation,
11-24 or (2) makes such a transfer an event of default, is not
11-25 enforceable, and such a transfer is not a transfer that materially
11-26 impairs the prospect of obtaining return performance by, materially
11-27 changes the duty of, or materially increases the burden or risk
11-28 imposed on, the other party to the lease contract within the
11-29 purview of Subsection (e).
11-30 (e) Subject to Subsections (c) and (d):
11-31 (1) if a transfer is made which is made an event of
11-32 default under a lease agreement, the party to the lease contract
11-33 not making the transfer, unless that party waives the default or
11-34 otherwise agrees, has the rights and remedies described in Section
11-35 2A.501(b); and
11-36 (2) if Subdivision (1) is not applicable and if a
11-37 transfer is made that (A) is prohibited under a lease agreement or
11-38 (B) materially impairs the prospect of obtaining return performance
11-39 by, materially changes the duty of, or materially increases the
11-40 burden of risk imposed on, the other party to the lease contract,
11-41 unless the party not making the transfer agrees at any time to the
11-42 transfer in the lease contract or otherwise, then, except as
11-43 limited by contract, (i) the transferor is liable to the party not
11-44 making the transfer for damages caused by the transfer to the
11-45 extent that the damages could not reasonably be prevented by the
11-46 party not making the transfer and (ii) a court having jurisdiction
11-47 may grant other appropriate relief, including cancellation of the
11-48 lease contract or an injunction against the transfer.
11-49 (f) A transfer of "the lease" or of "all my rights under the
11-50 lease," or a transfer in similar general terms, is a transfer of
11-51 rights and, unless the language or the circumstances, as in a
11-52 transfer for security, indicate the contrary, the transfer is a
11-53 delegation of duties by the transferor to the transferee.
11-54 Acceptance by the transferee constitutes a promise by the
11-55 transferee to perform those duties. This promise is enforceable by
11-56 either the transferor or the other party to the lease contract.
11-57 (g) Unless otherwise agreed by the lessor and the lessee, a
11-58 delegation of performance does not relieve the transferor as
11-59 against the other party of any duty to perform or of any liability
11-60 for default.
11-61 (h) In a consumer lease, to prohibit the transfer of an
11-62 interest of a party under the lease contract or to make a transfer
11-63 an event of default, the language must be specific, by a writing,
11-64 and conspicuous.
11-65 Sec. 2A.304. SUBSEQUENT LEASE OF GOODS BY LESSOR.
11-66 (a) Subject to Section 2A.303 of this chapter, a subsequent lessee
11-67 from a lessor of goods under an existing lease contract obtains, to
11-68 the extent of the leasehold interest transferred, the leasehold
11-69 interest in the goods that the lessor had or had power to transfer,
11-70 and except as provided by Subsection (b) or Section 2A.527(d) takes
12-1 subject to the existing lease contract. A lessor with voidable
12-2 title has power to transfer a good leasehold interest to a good
12-3 faith subsequent lessee for value, but only to the extent set forth
12-4 in the preceding sentence. If goods have been delivered under a
12-5 transaction of purchase, the lessor has that power even though:
12-6 (1) the lessor's transferor was deceived as to the
12-7 identity of the lessor;
12-8 (2) the delivery was in exchange for a check which is
12-9 later dishonored;
12-10 (3) it was agreed that the transaction was to be a
12-11 "cash sale"; or
12-12 (4) the delivery was procured through fraud punishable
12-13 as larcenous under the criminal law.
12-14 (b) A subsequent lessee in the ordinary course of business
12-15 from a lessor who is a merchant dealing in goods of that kind to
12-16 whom the goods were entrusted by the existing lessee of that lessor
12-17 before the interest of the subsequent lessee became enforceable
12-18 against that lessor obtains, to the extent of the leasehold
12-19 interest transferred, all of that lessor's and the existing
12-20 lessee's rights to the goods, and takes free of the existing lease
12-21 contract.
12-22 (c) A subsequent lessee from the lessor of goods that are
12-23 subject to an existing lease contract and are covered by a
12-24 certificate of title issued under a statute of this state or of
12-25 another jurisdiction takes no greater rights than those provided
12-26 both by this section and by the certificate of title statute.
12-27 Sec. 2A.305. SALE OR SUBLEASE OF GOODS BY LESSEE.
12-28 (a) Subject to the provisions of Section 2A.303, a buyer or
12-29 sublessee from the lessee of goods under an existing lease contract
12-30 obtains, to the extent of the interest transferred, the leasehold
12-31 interest in the goods that the lessee had or had power to transfer,
12-32 and except as provided by Subsection (b) and Section 2A.511, takes
12-33 subject to the existing lease contract. A lessee with a voidable
12-34 leasehold interest has power to transfer a good leasehold interest
12-35 to a good faith buyer for value or a good faith sublessee for
12-36 value, but only to the extent set forth in the preceding sentence.
12-37 When goods have been delivered under a transaction of lease the
12-38 lessee has that power even though:
12-39 (1) the lessor was deceived as to the identity of the
12-40 lessee;
12-41 (2) the delivery was in exchange for a check which is
12-42 later dishonored; or
12-43 (3) the delivery was procured through fraud punishable
12-44 as larcenous under the criminal law.
12-45 (b) A buyer in the ordinary course of business or a
12-46 sublessee in the ordinary course of business from a lessee who is a
12-47 merchant dealing in goods of that kind to whom the goods were
12-48 entrusted by the lessor obtains, to the extent of the interest
12-49 transferred, all of the lessor's and lessee's rights to the goods,
12-50 and takes free of the existing lease contract.
12-51 (c) A buyer or sublessee from the lessee of goods that are
12-52 subject to an existing lease contract and are covered by a
12-53 certificate of title issued under a statute of this state or of
12-54 another jurisdiction takes no greater rights than those provided
12-55 both by this section and by the certificate of title statute.
12-56 Sec. 2A.306. PRIORITY OF CERTAIN LIENS ARISING BY OPERATION
12-57 OF LAW. If a person in the ordinary course of the person's
12-58 business furnishes services or materials with respect to goods
12-59 subject to a lease contract, a lien upon those goods in the
12-60 possession of that person given by statute or rule of law for those
12-61 materials or services takes priority over any interest of the
12-62 lessor or lessee under the lease contract or this chapter unless
12-63 the lien is created by statute and the statute provides otherwise
12-64 or unless the lien is created by rule of law and the rule of law
12-65 provides otherwise.
12-66 Sec. 2A.307. PRIORITY OF LIENS ARISING BY ATTACHMENT OR LEVY
12-67 ON, SECURITY INTERESTS IN, AND OTHER CLAIMS TO GOODS. (a) Except
12-68 as otherwise provided in Section 2A.306, a creditor of a lessee
12-69 takes subject to the lease contract.
12-70 (b) Except as otherwise provided in Subsections (c) and (d)
13-1 and Sections 2A.306 and 2A.308, a creditor of a lessor takes
13-2 subject to the lease contract unless:
13-3 (1) the creditor holds a lien that attached to the
13-4 goods before the lease contract became enforceable;
13-5 (2) the creditor holds a security interest in the
13-6 goods and the lessee did not give value and receive delivery of the
13-7 goods without knowledge of the security interest; or
13-8 (3) the creditor holds a security interest in the
13-9 goods which was perfected (Section 9.303) before the lease contract
13-10 became enforceable.
13-11 (c) A lessee in the ordinary course of business takes the
13-12 leasehold interest free of a security interest in the goods created
13-13 by the lessor even though the security interest is perfected
13-14 (Section 9.303) and the lessee knows of its existence.
13-15 (d) A lessee other than a lessee in the ordinary course of
13-16 business takes the leasehold interest free of a security interest
13-17 to the extent that it secures future advances made after the
13-18 secured party acquires knowledge of the lease or more than 45 days
13-19 after the lease contract becomes enforceable, whichever first
13-20 occurs, unless the future advances are made pursuant to a
13-21 commitment entered into without knowledge of the lease and before
13-22 the expiration of the 45-day period.
13-23 Sec. 2A.308. SPECIAL RIGHTS OF CREDITORS. (a) A creditor
13-24 of a lessor in possession of goods subject to a lease contract may
13-25 treat the lease contract as void if as against the creditor
13-26 retention of possession by the lessor is fraudulent or voids the
13-27 lease contract under any statute or rule of law, but retention of
13-28 possession in good faith and current course of trade by the lessor
13-29 for a commercially reasonable time after the lease contract becomes
13-30 enforceable is not fraudulent and does not void the lease contract.
13-31 (b) Nothing in this chapter impairs the rights of creditors
13-32 of a lessor if the lease contract is made under circumstances which
13-33 under any statute or rule of law apart from this chapter would
13-34 constitute the transaction a fraudulent transfer or voidable
13-35 preference.
13-36 (c) A creditor of a seller may treat a sale or an
13-37 identification of goods to a contract for sale as void if as
13-38 against the creditor retention of possession by the seller is
13-39 fraudulent under any statute or rule of law, but retention of
13-40 possession of the goods pursuant to a lease contract entered into
13-41 by the seller as lessee and the buyer as lessor in connection with
13-42 the sale or identification of the goods is not fraudulent if the
13-43 buyer bought for value and in good faith.
13-44 Sec. 2A.309. LESSOR'S AND LESSEE'S RIGHTS WHEN GOODS BECOME
13-45 FIXTURES. (a) In this section:
13-46 (1) goods are "fixtures" when they become so related
13-47 to particular real estate that an interest in them arises under
13-48 real estate law;
13-49 (2) a "fixture filing" is the filing, in the office
13-50 where a mortgage on the real estate would be filed or recorded, of
13-51 a financing statement covering goods that are or are to become
13-52 fixtures and conforming to the requirements of Section 9.402(e);
13-53 (3) a lease is a "purchase money lease" unless the
13-54 lessee has possession or use of the goods or the right to
13-55 possession or use of the goods before the lease agreement is
13-56 enforceable;
13-57 (4) a mortgage is a "construction mortgage" to the
13-58 extent it secures an obligation incurred for the construction of an
13-59 improvement on land including the acquisition cost of the land, if
13-60 the recorded writing so indicates; and
13-61 (5) "encumbrance" includes real estate mortgages and
13-62 other liens on real estate and all other rights in real estate that
13-63 are not ownership interests.
13-64 (b) Under this chapter a lease may be of goods that are
13-65 fixtures or may continue in goods that become fixtures, but no
13-66 lease exists under this chapter of ordinary building materials
13-67 incorporated into an improvement on land.
13-68 (c) This chapter does not prevent the creation of a lease of
13-69 fixtures pursuant to real estate law.
13-70 (d) The perfected interest of a lessor of fixtures has
14-1 priority over a conflicting interest of an encumbrancer or owner of
14-2 the real estate if:
14-3 (1) the lease is a purchase money lease, the
14-4 conflicting interest of the encumbrancer or owner arises before the
14-5 goods become fixtures, a fixture filing covering the fixtures is
14-6 filed or recorded before the goods become fixtures or within 10
14-7 days thereafter, and the lessee has an interest of record in the
14-8 real estate or is in possession of the real estate; or
14-9 (2) the interest of the lessor is perfected by a
14-10 fixture filing before the interest of the encumbrancer or owner is
14-11 of record, the lessor's interest has priority over any conflicting
14-12 interest of a predecessor in title of the encumbrancer or owner,
14-13 and the lessee has an interest of record in the real estate or is
14-14 in possession of the real estate.
14-15 (e) The interest of a lessor of fixtures, whether or not
14-16 perfected, has priority over the conflicting interest of an
14-17 encumbrancer or owner of the real estate if:
14-18 (1) the fixtures are readily removable factory or
14-19 office machines, readily removable equipment that is not primarily
14-20 used or leased for use in the operation of the real estate, or
14-21 readily removable replacements of domestic appliances that are
14-22 goods subject to a consumer lease, and before the goods become
14-23 fixtures the lease contract is enforceable; or
14-24 (2) the conflicting interest is a lien on the real
14-25 estate obtained by legal or equitable proceedings after the lease
14-26 contract is enforceable; or
14-27 (3) the encumbrancer or owner has consented in writing
14-28 to the lease or has disclaimed an interest in the goods as
14-29 fixtures; or
14-30 (4) the lessee has a right to remove the goods as
14-31 against the encumbrancer or owner. If the lessee's right to remove
14-32 terminates, the priority of the interest of the lessor continues
14-33 for a reasonable time.
14-34 (f) Notwithstanding Subsection (d)(1) but otherwise subject
14-35 to Subsections (d) and (e), the interest of a lessor of fixtures,
14-36 including the lessor's residual interest, is subordinate to the
14-37 conflicting interest of an encumbrancer of the real estate under a
14-38 construction mortgage recorded before the goods become fixtures if
14-39 the goods become fixtures before the completion of the
14-40 construction. To the extent given to refinance a construction
14-41 mortgage, the conflicting interest of an encumbrancer of the real
14-42 estate under a mortgage has this priority to the same extent as the
14-43 encumbrancer of the real estate under the construction mortgage.
14-44 (g) In cases not within the preceding subsections, priority
14-45 between the interest of a lessor of fixtures, including the
14-46 lessor's residual interest, and the conflicting interest of an
14-47 encumbrancer or owner of the real estate who is not the lessee is
14-48 determined by the priority rules governing conflicting interests in
14-49 real estate.
14-50 (h) If the interest of a lessor of fixtures, including the
14-51 lessor's residual interest, has priority over all conflicting
14-52 interests of all owners and encumbrancers of the real estate, the
14-53 lessor or the lessee may (1) on default, expiration, termination,
14-54 or cancellation of the lease agreement but subject to the lease
14-55 agreement and this chapter, or (2) if necessary to enforce other
14-56 rights and remedies of the lessor or lessee under this chapter,
14-57 remove the goods from the real estate, free and clear of all
14-58 conflicting interests of all owners and encumbrancers of the real
14-59 estate, but the lessor or lessee must reimburse any encumbrancer or
14-60 owner of the real estate who is not the lessee and who has not
14-61 otherwise agreed for the cost of repair of any physical injury, but
14-62 not for any diminution in value of the real estate caused by the
14-63 absence of the goods removed or by any necessity of replacing them.
14-64 A person entitled to reimbursement may refuse permission to remove
14-65 until the party seeking removal gives adequate security for the
14-66 performance of this obligation.
14-67 (i) Even though the lease agreement does not create a
14-68 security interest, the interest of a lessor of fixtures, including
14-69 the lessor's residual interest, is perfected by filing a financing
14-70 statement as a fixture filing for leased goods that are or are to
15-1 become fixtures in accordance with the relevant provisions of
15-2 Chapter 9.
15-3 Sec. 2A.310. LESSOR'S AND LESSEE'S RIGHTS WHEN GOODS BECOME
15-4 ACCESSIONS. (a) Goods are "accessions" when they are installed in
15-5 or affixed to other goods.
15-6 (b) The lessor's residual interest in the accessions and the
15-7 interest of a lessor or a lessee under a lease contract entered
15-8 into before the goods became accessions are superior to all
15-9 interests in the whole except as stated in Subsection (d).
15-10 (c) The lessor's residual interest in the accessions and the
15-11 interest of a lessor or a lessee under a lease contract entered
15-12 into at the time or after the goods became accessions are superior
15-13 to all subsequently acquired interests in the whole except as
15-14 stated in Subsection (d) but are subordinate to interests in the
15-15 whole existing at the time the lease contract was made unless the
15-16 holders of such interests in the whole have in writing consented to
15-17 the lease or disclaimed an interest in the goods as part of the
15-18 whole.
15-19 (d) The lessor's residual interest in the accessions and the
15-20 interest of a lessor or a lessee under a lease contract described
15-21 by Subsection (b) or (c) are subordinate to the interest of:
15-22 (1) a buyer in the ordinary course of business or a
15-23 lessee in the ordinary course of business of any interest in the
15-24 whole acquired after the goods became accessions; or
15-25 (2) a creditor with a security interest in the whole
15-26 perfected before the lease contract was made to the extent that the
15-27 creditor makes subsequent advances without knowledge of the lease
15-28 contract.
15-29 (e) When under Subsections (b) or (c) and (d) a lessor or a
15-30 lessee of accessions holds an interest that is superior to all
15-31 interests in the whole, the lessor or the lessee may (1) on
15-32 default, expiration, termination, or cancellation of the lease
15-33 contract by the other party but subject to the provisions of the
15-34 lease contract and this chapter, or (2) if necessary to enforce the
15-35 lessor's or lessee's other rights and remedies under this chapter,
15-36 remove the goods from the whole, free and clear of all interests in
15-37 the whole, but the party must reimburse any holder of an interest
15-38 in the whole who is not the lessee and who has not otherwise agreed
15-39 for the cost of repair of any physical injury but not for any
15-40 diminution in value of the whole caused by the absence of the goods
15-41 removed or by any necessity for replacing them. A person entitled
15-42 to reimbursement may refuse permission to remove until the party
15-43 seeking removal gives adequate security for the performance of this
15-44 obligation.
15-45 SUBCHAPTER D. PERFORMANCE OF LEASE CONTRACT:
15-46 REPUDIATED, SUBSTITUTED AND EXCUSED
15-47 Sec. 2A.401. INSECURITY: ADEQUATE ASSURANCE OF PERFORMANCE.
15-48 (a) A lease contract imposes an obligation on each party that the
15-49 other's expectation of receiving due performance will not be
15-50 impaired.
15-51 (b) If reasonable grounds for insecurity arise with respect
15-52 to the performance of either party, the insecure party may demand
15-53 in writing adequate assurance of due performance. Until the
15-54 insecure party receives that assurance, if commercially reasonable,
15-55 the insecure party may suspend any performance for which the party
15-56 has not already received the agreed return.
15-57 (c) A repudiation of the lease contract occurs if assurance
15-58 of due performance adequate under the circumstances of the
15-59 particular case is not provided to the insecure party within a
15-60 reasonable time, not to exceed 30 days after receipt of a demand by
15-61 the other party.
15-62 (d) Between merchants, the reasonableness of grounds for
15-63 insecurity and the adequacy of any assurance offered must be
15-64 determined according to commercial standards.
15-65 (e) Acceptance of any nonconforming delivery or payment does
15-66 not prejudice the aggrieved party's right to demand adequate
15-67 assurance of future performance.
15-68 Sec. 2A.402. ANTICIPATORY REPUDIATION. If either party
15-69 repudiates a lease contract with respect to a performance not yet
15-70 due under the lease contract, the loss of which performance will
16-1 substantially impair the value of the lease contract to the other,
16-2 the aggrieved party may:
16-3 (1) for a commercially reasonable time, await
16-4 retraction of repudiation and performance by the repudiating party;
16-5 (2) make demand pursuant to Section 2A.401 and await
16-6 assurance of future performance adequate under the circumstances of
16-7 the particular case; or
16-8 (3) resort to any right or remedy on default under the
16-9 lease contract or this chapter, even though the aggrieved party has
16-10 notified the repudiating party that the aggrieved party would await
16-11 the repudiating party's performance and assurance and has urged
16-12 retraction. In addition, whether or not the aggrieved party is
16-13 pursuing one of the foregoing remedies, the aggrieved party may
16-14 suspend performance or, if the aggrieved party is the lessor,
16-15 proceed in accordance with the provisions of this chapter on the
16-16 lessor's right to identify goods to the lease contract
16-17 notwithstanding default or to salvage unfinished goods (Section
16-18 2A.524).
16-19 Sec. 2A.403. RETRACTION OF ANTICIPATORY REPUDIATION.
16-20 (a) Until the repudiating party's next performance is due, the
16-21 repudiating party can retract the repudiation unless, since the
16-22 repudiation, the aggrieved party has canceled the lease contract or
16-23 materially changed the aggrieved party's position or otherwise
16-24 indicated that the aggrieved party considers the repudiation final.
16-25 (b) Retraction may be by any method that clearly indicates
16-26 to the aggrieved party that the repudiating party intends to
16-27 perform under the lease contract and includes any assurance
16-28 demanded under Section 2A.401.
16-29 (c) Retraction reinstates a repudiating party's rights under
16-30 a lease contract with due excuse and allowance to the aggrieved
16-31 party for any delay occasioned by the repudiation.
16-32 Sec. 2A.404. SUBSTITUTED PERFORMANCE. (a) If without fault
16-33 of the lessee, the lessor and the supplier, the agreed berthing,
16-34 loading, or unloading facilities fail or the agreed type of carrier
16-35 becomes unavailable or the agreed manner of delivery otherwise
16-36 becomes commercially impracticable, but a commercially reasonable
16-37 substitute is available, the substitute performance must be
16-38 tendered and accepted.
16-39 (b) If the agreed means or manner of payment fails because
16-40 of domestic or foreign governmental regulation:
16-41 (1) the lessor may withhold or stop delivery or cause
16-42 the supplier to withhold or stop delivery unless the lessee
16-43 provides a means or manner of payment that is commercially a
16-44 substantial equivalent; and
16-45 (2) if delivery has already been taken, payment by the
16-46 means or in the manner provided by the regulation discharges the
16-47 lessee's obligation unless the regulation is discriminatory,
16-48 oppressive, or predatory.
16-49 Sec. 2A.405. EXCUSED PERFORMANCE. Subject to Section 2A.404
16-50 on substituted performance, the following rules apply:
16-51 (1) Delay in delivery or nondelivery in whole or in
16-52 part by a lessor or a supplier who complies with Subdivisions (2)
16-53 and (3) is not a default under the lease contract if performance as
16-54 agreed has been made impracticable by the occurrence of a
16-55 contingency the nonoccurrence of which was a basic assumption on
16-56 which the lease contract was made or by compliance in good faith
16-57 with any applicable foreign or domestic governmental regulation or
16-58 order, whether or not the regulation or order later proves to be
16-59 invalid.
16-60 (2) If the causes mentioned in Subdivision (1) affect
16-61 only part of the lessor's or the supplier's capacity to perform,
16-62 the lessor or supplier shall allocate production and deliveries
16-63 among the lessor's or supplier's customers but at the lessor's or
16-64 supplier's option may include regular customers not then under
16-65 contract for sale or lease as well as the lessor's or supplier's
16-66 own requirements for further manufacture. The lessor or supplier
16-67 may so allocate in any manner that is fair and reasonable.
16-68 (3) The lessor seasonably shall notify the lessee and
16-69 in the case of a finance lease the supplier seasonably shall notify
16-70 the lessor and the lessee, if known, that there will be delay or
17-1 nondelivery and, if allocation is required under Subdivision (2),
17-2 of the estimated quota made available for the lessee.
17-3 Sec. 2A.406. PROCEDURE ON EXCUSED PERFORMANCE. (a) If the
17-4 lessee receives notification of a material or indefinite delay or
17-5 an allocation justified under Section 2A.405, the lessee may by
17-6 written notification to the lessor as to any goods involved, and
17-7 with respect to all of the goods if under an installment lease
17-8 contract the value of the whole lease contract is substantially
17-9 impaired (Section 2A.510):
17-10 (1) terminate the lease contract (Section 2A.505(b));
17-11 or
17-12 (2) except in a finance lease that is not a consumer
17-13 lease, modify the lease contract by accepting the available quota
17-14 in substitution, with due allowance from the rent payable for the
17-15 balance of the lease term for the deficiency but without further
17-16 right against the lessor.
17-17 (b) If, after receipt of a notification from the lessor
17-18 under Section 2A.405, the lessee fails to modify the lease
17-19 agreement within a reasonable time not exceeding 30 days, the lease
17-20 contract lapses with respect to any deliveries affected.
17-21 Sec. 2A.407. IRREVOCABLE PROMISES: FINANCE LEASES. (a) In
17-22 the case of a finance lease that is not a consumer lease, a term in
17-23 the lease agreement that provides that the lessee's promises under
17-24 the lease contract become irrevocable and independent upon the
17-25 lessee's acceptance of the goods is enforceable.
17-26 (b) A promise that has become irrevocable and independent
17-27 under Subsection (a):
17-28 (1) is effective and enforceable between the parties,
17-29 and by or against third parties including assignees of the parties;
17-30 and
17-31 (2) is not subject to cancellation, termination,
17-32 modification, repudiation, excuse, or substitution without the
17-33 consent of the party to whom the promise runs.
17-34 SUBCHAPTER E. DEFAULT
17-35 Sec. 2A.501. DEFAULT: PROCEDURE. (a) Whether the lessor
17-36 or the lessee is in default under a lease contract is determined by
17-37 the lease agreement and this chapter.
17-38 (b) If the lessor or the lessee is in default under the
17-39 lease contract, the party seeking enforcement has rights and
17-40 remedies as provided in this chapter and, except as limited by this
17-41 chapter, as provided in the lease agreement.
17-42 (c) If the lessor or the lessee is in default under the
17-43 lease contract, the party seeking enforcement may reduce the
17-44 party's claim to judgment or otherwise enforce the lease contract
17-45 by self-help or any available judicial procedure or nonjudicial
17-46 procedure, including administrative proceeding, arbitration, or the
17-47 like, in accordance with this chapter.
17-48 (d) Except as otherwise provided by Section 1.106(a) or this
17-49 chapter or the lease agreement, the rights and remedies referred to
17-50 in Subsections (b) and (c) are cumulative.
17-51 (e) If the lease agreement covers both real property and
17-52 goods, the party seeking enforcement may proceed under this
17-53 subchapter as to the goods, or under other applicable law as to
17-54 both the real property and the goods in accordance with that
17-55 party's rights and remedies in respect of the real property, in
17-56 which case this subchapter does not apply.
17-57 Sec. 2A.502. NOTICE AFTER DEFAULT. Except as provided by
17-58 this chapter or the lease agreement, the lessor or lessee in
17-59 default under the lease contract is not entitled to notice of
17-60 default or notice of enforcement from the other party to the lease
17-61 agreement.
17-62 Sec. 2A.503. MODIFICATION OR IMPAIRMENT OF RIGHTS AND
17-63 REMEDIES. (a) Except as otherwise provided in this chapter, the
17-64 lease agreement may include rights and remedies for default in
17-65 addition to or in substitution for those provided by this chapter
17-66 and may limit or alter the measure of damages recoverable under
17-67 this chapter.
17-68 (b) Resort to a remedy provided under this chapter or in the
17-69 lease agreement is optional unless the remedy is expressly agreed
17-70 to be exclusive. If circumstances cause an exclusive or limited
18-1 remedy to fail its essential purpose, or provision for an exclusive
18-2 remedy is unconscionable, remedy may be had as provided by this
18-3 chapter.
18-4 (c) Consequential damages may be liquidated under Section
18-5 2A.504 or otherwise be limited, altered, or excluded unless the
18-6 limitation, alteration, or exclusion is unconscionable.
18-7 Liquidation, limitation, alteration, or exclusion of consequential
18-8 damages for injury to the person in the case of consumer goods is
18-9 prima facie unconscionable, but liquidation, limitation,
18-10 alteration, or exclusion of damages where the loss is commercial is
18-11 not prima facie unconscionable.
18-12 (d) Rights and remedies on default by the lessor or the
18-13 lessee with respect to an obligation or promise collateral or
18-14 ancillary to the lease contract are not impaired by this chapter.
18-15 Sec. 2A.504. LIQUIDATION OF DAMAGES. (a) Damages payable
18-16 by either party for default or any other act or omission, including
18-17 indemnity for loss or diminution of anticipated tax benefits or
18-18 loss or damage to lessor's residual interest, may be liquidated in
18-19 the lease agreement but only at an amount or by a formula that is
18-20 reasonable in light of the then anticipated harm caused by the
18-21 default or other act or omission. In a consumer lease, a term
18-22 fixing liquidated damages that are unreasonably large in light of
18-23 the actual harm is unenforceable as a penalty.
18-24 (b) If the lease agreement provides for liquidation of
18-25 damages, and such provision does not comply with Subsection (a) or
18-26 such provision is an exclusive or limited remedy that circumstances
18-27 cause to fail of its essential purpose, remedy may be had as
18-28 provided in this chapter.
18-29 (c) If the lessor justifiably withholds or stops delivery of
18-30 goods because of the lessee's default or insolvency (Section 2A.525
18-31 or 2A.526), the lessee is entitled to restitution of any amount by
18-32 which the sum of the lessee's payments exceeds:
18-33 (1) the amount to which the lessor is entitled by
18-34 virtue of terms liquidating the lessor's damages in accordance with
18-35 Subsection (a); or
18-36 (2) in the absence of those terms, 20 percent of the
18-37 then present value of the total rent the lessee was obligated to
18-38 pay for the balance of the lease term, or, in the case of a
18-39 consumer lease, the lesser of such amount or $500.
18-40 (d) A lessee's right to restitution under Subsection (c) is
18-41 subject to offset to the extent the lessor establishes:
18-42 (1) a right to recover damages under the provisions of
18-43 this chapter other than Subsection (a); and
18-44 (2) the amount of value of any benefits received by
18-45 the lessee directly or indirectly by reason of the lease contract.
18-46 Sec. 2A.505. CANCELLATION AND TERMINATION AND EFFECT OF
18-47 CANCELLATION, TERMINATION, RESCISSION, OR FRAUD ON RIGHTS AND
18-48 REMEDIES. (a) On cancellation of the lease contract, all
18-49 obligations that are still executory on both sides are discharged,
18-50 but any right based on prior default or performance survives, and
18-51 the canceling party also retains any remedy for default of the
18-52 whole lease contract or any unperformed balance.
18-53 (b) On termination of the lease contract, all obligations
18-54 that are still executory on both sides are discharged but any right
18-55 based on a prior default or performance survives.
18-56 (c) Unless the contrary intention clearly appears,
18-57 expressions of "cancellation," "rescission," or the like of the
18-58 lease contract may not be construed as a renunciation or discharge
18-59 of any claim in damages for an antecedent default.
18-60 (d) Rights and remedies for material misrepresentation or
18-61 fraud include all rights and remedies available under this chapter
18-62 for default.
18-63 (e) Neither rescission nor a claim for rescission of the
18-64 lease contract nor rejection or return of the goods may bar or be
18-65 deemed inconsistent with a claim for damages or other right or
18-66 remedy.
18-67 Sec. 2A.506. STATUTE OF LIMITATIONS. (a) An action for
18-68 default under a lease contract, including breach of warranty or
18-69 indemnity, must be commenced within four years after the cause of
18-70 action accrued. By the original lease contract the parties may not
19-1 expand such period of limitation but, except in the case of a
19-2 consumer lease, may reduce the period of limitation to not less
19-3 than one year.
19-4 (b) A cause of action for default accrues when the act or
19-5 omission on which the default or breach of warranty is based is or
19-6 should have been discovered by the aggrieved party. A cause of
19-7 action for indemnity accrues:
19-8 (1) in the case of an indemnity against liability,
19-9 when the act or omission on which the claim for indemnity is based
19-10 is or should have been discovered by the indemnified party; or
19-11 (2) in the case of an indemnity against loss or
19-12 damage, when the person indemnified makes payment thereof.
19-13 (c) If an action commenced within the time limited by
19-14 Subsection (a) is so terminated as to leave available a remedy by
19-15 another action for the same default or breach of warranty or
19-16 indemnity, the other action may be commenced after the expiration
19-17 of the time limited and within six months after the termination of
19-18 the first action unless the termination resulted from voluntary
19-19 discontinuance or from dismissal for failure or neglect to
19-20 prosecute.
19-21 (d) This section does not alter the law on tolling of the
19-22 statute of limitations nor does it apply to causes of action that
19-23 have accrued before this chapter becomes effective.
19-24 Sec. 2A.507. PROOF OF MARKET RENT. (a) Damages based on
19-25 market rent (Section 2A.519 or 2A.528) are determined according to
19-26 the rent for the use of the goods concerned for a lease term
19-27 identical to the remaining lease term of the original lease
19-28 agreement and prevailing at the times specified in Sections 2A.519
19-29 and 2A.528.
19-30 (b) If evidence of rent for the use of the goods concerned
19-31 for a lease term identical to the remaining lease term of the
19-32 original lease agreement and prevailing at the times or places
19-33 described in this chapter is not readily available, the rent
19-34 prevailing within any reasonable time before or after the time
19-35 described or at any other place or for a different lease term which
19-36 in commercial judgment or under usage of trade would serve as a
19-37 reasonable substitute for the one described may be used, making any
19-38 proper allowance for the difference, including the cost of
19-39 transporting the goods to or from the other place.
19-40 (c) Evidence of a relevant rent prevailing at a time or
19-41 place or for a lease term other than the one described in this
19-42 chapter offered by one party is not admissible unless and until the
19-43 party has given the other party notice the court finds sufficient
19-44 to prevent unfair surprise.
19-45 (d) If the prevailing rent or value of any goods regularly
19-46 leased in any established market is in issue, reports in official
19-47 publications or trade journals or in newspapers or periodicals of
19-48 general circulation published as the reports of that market are
19-49 admissible in evidence. The circumstances of the preparation of
19-50 the report may be shown to affect its weight but not its
19-51 admissibility.
19-52 Sec. 2A.508. LESSEE'S REMEDIES. (a) If a lessor fails to
19-53 deliver the goods in conformity to the lease contract (Section
19-54 2A.509) or repudiates the lease contract (Section 2A.402), or a
19-55 lessee rightfully rejects the goods (Section 2A.509) or justifiably
19-56 revokes acceptance of the goods (Section 2A.517), then with respect
19-57 to any goods involved, and with respect to all of the goods if
19-58 under an installment lease contract and the value of the whole
19-59 lease contract is substantially impaired (Section 2A.510), the
19-60 lessor is in default under the lease contract and the lessee may:
19-61 (1) cancel the lease contract (Section 2A.505(a));
19-62 (2) recover so much of the rent and security as has
19-63 been paid and is just under the circumstances;
19-64 (3) cover and recover damages as to all goods affected
19-65 whether or not they have been identified to the lease contract
19-66 (Sections 2A.518 and 2A.520), or recover damages for nondelivery
19-67 (Sections 2A.519 and 2A.520); or
19-68 (4) exercise any other rights or pursue any other
19-69 remedies provided in the lease contract.
19-70 (b) If a lessor fails to deliver the goods in conformity to
20-1 the lease contract or repudiates the lease contract, the lessee may
20-2 also:
20-3 (1) if the goods have been identified, recover them
20-4 (Section 2A.522); or
20-5 (2) in a proper case, obtain specific performance,
20-6 replevin, detinue, sequestration, claim and delivery, or the like
20-7 for the goods (Section 2A.521).
20-8 (c) If a lessor is otherwise in default under a lease
20-9 contract, the lessee may exercise the rights and pursue the
20-10 remedies provided in the lease contract, which may include a right
20-11 to cancel the lease, and in Section 2A.519(c).
20-12 (d) If a lessor has breached a warranty, whether express or
20-13 implied, the lessee may recover damages (Section 2A.519(d)).
20-14 (e) On rightful rejection or justifiable revocation or
20-15 acceptance, a lessee has a security interest in goods in the
20-16 lessee's possession or control for any rent and security that has
20-17 been paid and any expenses reasonably incurred in their inspection,
20-18 receipt, transportation, and care and custody and may hold those
20-19 goods and dispose of them in good faith and in a commercially
20-20 reasonable manner, subject to Section 2A.527(e).
20-21 (f) Subject to the provisions of Section 2A.407, a lessee,
20-22 on notifying the lessor of the lessee's intention to do so, may
20-23 deduct all or part of the damages resulting from any default under
20-24 the lease contract from any part of the rent still due under the
20-25 same lease contract.
20-26 Sec. 2A.509. LESSEE'S RIGHTS ON IMPROPER DELIVERY; RIGHTFUL
20-27 REJECTION. (a) Subject to the provisions of Section 2A.510 on
20-28 default in installment lease contracts, if the goods or the tender
20-29 or delivery fail in any respect to conform to the lease contract,
20-30 the lessee may reject or accept the goods or accept any commercial
20-31 unit or units and reject the rest of the goods.
20-32 (b) Rejection of goods is ineffective unless it is within a
20-33 reasonable time after tender or delivery of the goods and the
20-34 lessee seasonably notifies the lessor.
20-35 Sec. 2A.510. INSTALLMENT LEASE CONTRACTS: REJECTION AND
20-36 DEFAULT. (a) Under an installment lease contract a lessee may
20-37 reject any delivery that is nonconforming if the nonconformity
20-38 substantially impairs the value of that delivery and cannot be
20-39 cured or the nonconformity is a defect in the required documents;
20-40 but if the nonconformity does not fall within Subsection (b) and
20-41 the lessor or the supplier gives adequate assurance of its cure,
20-42 the lessee must accept the delivery.
20-43 (b) Whenever nonconformity or default with respect to one or
20-44 more deliveries substantially impairs the value of the installment
20-45 lease contract as a whole there is a default with respect to the
20-46 whole. But the aggrieved party reinstates the installment lease
20-47 contract as a whole if the aggrieved party accepts a nonconforming
20-48 delivery without seasonably notifying of cancellation or brings an
20-49 action with respect only to past deliveries or demands performance
20-50 as to future deliveries.
20-51 Sec. 2A.511. MERCHANT LESSEE'S DUTIES AS TO RIGHTFULLY
20-52 REJECTED GOODS. Subject to any security interest of a lessee
20-53 (Section 2A.508(e)), if a lessor or a supplier has no agent or
20-54 place of business at the market of rejection, a merchant lessee,
20-55 after rejection of goods in the lessee's possession or control,
20-56 shall follow any reasonable instructions received from the lessor
20-57 or the supplier with respect to the goods. In the absence of those
20-58 instructions, a merchant lessee shall make reasonable efforts to
20-59 sell, lease, or otherwise dispose of the goods for the lessor's
20-60 account if they threaten to decline in value speedily.
20-61 Instructions are not reasonable if on demand indemnity for expenses
20-62 is not forthcoming.
20-63 Sec. 2A.512. LESSEE'S DUTIES AS TO RIGHTFULLY REJECTED
20-64 GOODS. (a) Except as otherwise provided with respect to goods
20-65 that threaten to decline in value speedily (Section 2A.511) and
20-66 subject to any security interest of a lessee (Section 2A.508(e)):
20-67 (1) the lessee, after rejection of goods in the
20-68 lessee's possession, shall hold them with reasonable care at the
20-69 lessor's or the supplier's disposition for a reasonable time after
20-70 the lessee's seasonable notification of rejection;
21-1 (2) if the lessor or the supplier gives no
21-2 instructions within a reasonable time after notification of
21-3 rejection, the lessee may store the rejected goods for the lessor's
21-4 or the supplier's account or ship them to the lessor or the
21-5 supplier or dispose of them for the lessor's or the supplier's
21-6 account with reimbursement in the manner provided by Subsection
21-7 (d); but
21-8 (3) the lessee has no further obligations with regard
21-9 to goods rightfully rejected.
21-10 (b) Action by the lessee pursuant to Subsection (a) is not
21-11 acceptance or conversion.
21-12 (c) If a merchant lessee (Section 2A.511) or any other
21-13 lessee disposes of goods, the lessee is entitled to reimbursement
21-14 either from the lessor or the supplier or out of the proceeds for
21-15 reasonable expenses of caring for and disposing of the goods and,
21-16 if the expenses include no disposition commission, to such
21-17 commission as is usual in the trade, or if there is none, to a
21-18 reasonable sum not exceeding 10 percent of the gross proceeds.
21-19 (d) In complying with this section or Section 2A.511, the
21-20 lessee is held only to good faith. Good faith conduct hereunder is
21-21 neither acceptance or conversion nor the basis of an action for
21-22 damages.
21-23 (e) A purchaser who purchases in good faith from a lessee
21-24 pursuant to this section or Section 2A.511 takes the goods free of
21-25 any rights of the lessor and the supplier even though the lessee
21-26 fails to comply with one or more of the requirements of this
21-27 chapter.
21-28 Sec. 2A.513. CURE BY LESSOR OF IMPROPER TENDER OR DELIVERY;
21-29 REPLACEMENT. (a) If any tender or delivery by the lessor or the
21-30 supplier is rejected because nonconforming and the time for
21-31 performance has not yet expired, the lessor or the supplier may
21-32 seasonably notify the lessee of the lessor's or the supplier's
21-33 intention to cure and may then make a conforming delivery within
21-34 the time provided by the lease contract.
21-35 (b) If the lessee rejects a nonconforming tender that the
21-36 lessor or the supplier had reasonable grounds to believe would be
21-37 acceptable with or without money allowance, the lessor or the
21-38 supplier may have a further reasonable time to substitute a
21-39 conforming tender if the lessor or supplier seasonably notifies the
21-40 lessee.
21-41 Sec. 2A.514. WAIVER OF LESSEE'S OBJECTIONS. (a) In
21-42 rejecting goods, a lessee's failure to state a particular defect
21-43 that is ascertainable by reasonable inspection precludes the lessee
21-44 from relying on the defect to justify rejection or to establish
21-45 default:
21-46 (1) if, stated seasonably, the lessor or the supplier
21-47 could have cured it (Section 2A.513); or
21-48 (2) between merchants if the lessor or the supplier
21-49 after rejection has made a request in writing for a full and final
21-50 written statement of all defects on which the lessee proposes to
21-51 rely.
21-52 (b) A lessee's failure to reserve rights when paying rent or
21-53 other consideration against documents precludes recovery of the
21-54 payment for defects apparent on the face of the documents.
21-55 Sec. 2A.515. ACCEPTANCE OF GOODS. (a) Acceptance of goods
21-56 occurs after the lessee has had a reasonable opportunity to inspect
21-57 the goods and:
21-58 (1) the lessee signifies or acts with respect to the
21-59 goods in a manner that signifies to the lessor or the supplier that
21-60 the goods are conforming or that the lessee will take or retain
21-61 them in spite of their nonconformity; or
21-62 (2) the lessee fails to make an effective rejection of
21-63 the goods (Section 2A.509(b)).
21-64 (b) Acceptance of a part of any commercial unit is
21-65 acceptance of that entire unit.
21-66 Sec. 2A.516. EFFECT OF ACCEPTANCE OF GOODS; NOTICE OF
21-67 DEFAULT; BURDEN OF ESTABLISHING DEFAULT AFTER ACCEPTANCE; NOTICE OF
21-68 CLAIM OR LITIGATION TO PERSON ANSWERABLE OVER. (a) A lessee must
21-69 pay rent for any goods accepted in accordance with the lease
21-70 contract, with due allowance for goods rightfully rejected or not
22-1 delivered.
22-2 (b) A lessee's acceptance of goods precludes rejection of
22-3 the goods accepted. In the case of a finance lease that is not a
22-4 consumer lease, if made with knowledge of a nonconformity,
22-5 acceptance cannot be revoked because of it. In any other case, if
22-6 made with knowledge of a nonconformity, acceptance cannot be
22-7 revoked because of it unless the acceptance was on the reasonable
22-8 assumption that the nonconformity would be seasonably cured.
22-9 Acceptance does not of itself impair any other remedy provided by
22-10 this chapter or the lease agreement for nonconformity.
22-11 (c) If a tender has been accepted:
22-12 (1) within a reasonable time after the lessee
22-13 discovers or should have discovered any default, the lessee shall
22-14 notify the lessor and supplier, if any, or be barred from any
22-15 remedy against the party not notified;
22-16 (2) within a reasonable time after the lessee receives
22-17 notice of litigation for infringement or the like (Section 2A.211)
22-18 the lessee shall notify the lessor or be barred from any remedy
22-19 over for liability established by the litigation; and
22-20 (3) the burden is on the lessee to establish any
22-21 default.
22-22 (d) If a lessee is sued for breach of a warranty or other
22-23 obligation for which a lessor or a supplier is answerable over, the
22-24 following apply:
22-25 (1) The lessee may give the lessor or the supplier, or
22-26 both, written notice of the litigation. If the notice states that
22-27 the person notified may come in and defend and that if the person
22-28 notified does not do so that person will be bound in any action
22-29 against that person by the lessee by any determination of fact
22-30 common to both litigations, then unless the person notified after
22-31 seasonable receipt of the notice does come in and defend that
22-32 person is so bound.
22-33 (2) The lessor or the supplier may demand in writing
22-34 that the lessee turn over control of the litigation including
22-35 settlement if the claim is one for infringement or the like
22-36 (Section 2A.211) or else be barred from any remedy over. If the
22-37 demand states that the lessor or the supplier agrees to bear all
22-38 expense and to satisfy any adverse judgment, then unless the lessee
22-39 after seasonable receipt of the demand does turn over control the
22-40 lessee is so barred.
22-41 (e) Subsections (c) and (d) apply to any obligation of a
22-42 lessee to hold the lessor or the supplier harmless against
22-43 infringement or the like (Section 2A.211).
22-44 (f) Subsection (c) shall not apply to a consumer lease.
22-45 Sec. 2A.517. REVOCATION OF ACCEPTANCE OF GOODS. (a) A
22-46 lessee may revoke acceptance of a lot or commercial unit whose
22-47 nonconformity substantially impairs its value to the lessee if the
22-48 lessee has accepted it:
22-49 (1) except in the case of a finance lease that is not
22-50 a consumer lease, on the reasonable assumption that its
22-51 nonconformity would be cured and it has not been seasonably cured;
22-52 or
22-53 (2) without discovery of the nonconformity if the
22-54 lessee's acceptance was reasonably induced either by the lessor's
22-55 assurances or, except in the case of a finance lease that is not a
22-56 consumer lease, by the difficulty of discovery before acceptance.
22-57 (b) A lessee may revoke acceptance of a lot or commercial
22-58 unit if the lessor defaults under the lease contract and the
22-59 default substantially impairs the value of that lot or commercial
22-60 unit to the lessee.
22-61 (c) If the lease agreement so provides, the lessee may
22-62 revoke acceptance of a lot or commercial unit because of other
22-63 defaults by the lessor.
22-64 (d) Revocation of acceptance must occur within a reasonable
22-65 time after the lessee discovers or should have discovered the
22-66 ground for it and before any substantial change in condition of the
22-67 goods which is not caused by the nonconformity. Revocation is not
22-68 effective until the lessee notifies the lessor.
22-69 (e) A lessee who so revokes has the same rights and duties
22-70 with regard to the goods involved as if the lessee had rejected
23-1 them.
23-2 Sec. 2A.518. COVER; SUBSTITUTE GOODS. (a) After default by
23-3 a lessor under the lease contract of the type described by Section
23-4 2A.508(a), or, if agreed, after other default by the lessor, the
23-5 lessee may cover by making any purchase or lease of or contract to
23-6 purchase or lease goods in substitution for those due from the
23-7 lessor.
23-8 (b) Except as otherwise provided with respect to damages
23-9 liquidated in the lease agreement (Section 2A.504) or otherwise
23-10 determined pursuant to agreement of the parties (Sections 1.102(c)
23-11 and 2A.503), if a lessee's cover is by a lease agreement
23-12 substantially similar to the original lease agreement and the new
23-13 lease agreement is made in good faith and in a commercially
23-14 reasonable manner, the lessee may recover from the lessor as
23-15 damages (1) the present value, as of the date of the commencement
23-16 of the term of the new lease agreement, of the rent under the new
23-17 lease agreement applicable to that period of the new lease term
23-18 which is comparable to the then remaining term of the original
23-19 lease agreement minus the present value as of the same date of the
23-20 total rent for the then remaining lease term of the original lease
23-21 agreement, and (2) any incidental or consequential damages, less
23-22 expenses saved as a consequence of the lessor's default.
23-23 (c) If the lessee's cover is by lease agreement that for any
23-24 reason does not qualify for treatment under Subsection (b) or is
23-25 by purchase or otherwise, the lessee may recover from the lessor as
23-26 if the lessee had elected not to cover and Section 2A.519 governs.
23-27 Sec. 2A.519. LESSEE'S DAMAGES FOR NONDELIVERY, REPUDIATION,
23-28 DEFAULT, AND BREACH OF WARRANTY IN REGARD TO ACCEPTED GOODS.
23-29 (a) Except as otherwise provided with respect to damages
23-30 liquidated in the lease agreement (Section 2A.504) or otherwise
23-31 determined pursuant to agreement of the parties (Sections 1.102(c)
23-32 and 2A.503), if a lessee elects not to cover or a lessee elects to
23-33 cover and the cover is by lease agreement that for any reason does
23-34 not qualify for treatment under Section 2A.518(b) or is by purchase
23-35 or otherwise, the measure of damages for nondelivery or repudiation
23-36 by the lessor or for rejection or revocation of acceptance by the
23-37 lessee is the present value, as of the date of the default, of the
23-38 then market rent minus the present value as of the same date of the
23-39 original rent, computed for the remaining lease term of the
23-40 original lease agreement, together with incidental and
23-41 consequential damages, less expenses saved in consequence of the
23-42 lessor's default.
23-43 (b) Market rent is to be determined as of the place for
23-44 tender or, in cases of rejection after arrival or revocation of
23-45 acceptance, as of the place of arrival.
23-46 (c) Except as otherwise agreed, if the lessee has accepted
23-47 goods and given notification (Section 2A.516(c)), the measure of
23-48 damages for nonconforming tender or delivery or other default by a
23-49 lessor is the loss resulting in the ordinary course of events from
23-50 the lessor's default as determined in any manner that is reasonable
23-51 together with incidental and consequential damages, less expenses
23-52 saved in consequence of the lessor's default.
23-53 (d) Except as otherwise agreed, the measure of damages for
23-54 breach of warranty is the present value at the time and place of
23-55 acceptance of the difference between the value of the use of the
23-56 goods accepted and the value if they had been as warranted for the
23-57 lease term, unless special circumstances show proximate damages of
23-58 a different amount, together with incidental and consequential
23-59 damages, less expenses saved in consequence of the lessor's default
23-60 or breach of warranty.
23-61 Sec. 2A.520. LESSEE'S INCIDENTAL AND CONSEQUENTIAL DAMAGES.
23-62 (a) Incidental damages resulting from a lessor's default include
23-63 expenses reasonably incurred in inspection, receipt,
23-64 transportation, and care and custody of goods rightfully rejected
23-65 or goods the acceptance of which is justifiably revoked, any
23-66 commercially reasonable charges, expenses or commissions in
23-67 connection with effecting cover, and any other reasonable expense
23-68 incident to the default.
23-69 (b) Consequential damages resulting from a lessor's default
23-70 include:
24-1 (1) any loss resulting from general or particular
24-2 requirements and needs of which the lessor at the time of
24-3 contracting had reason to know and which could not reasonably be
24-4 prevented by cover or otherwise; and
24-5 (2) injury to person or property proximately resulting
24-6 from any breach of warranty.
24-7 Sec. 2A.521. LESSEE'S RIGHT TO SPECIFIC PERFORMANCE,
24-8 REPLEVIN, AND OTHER REMEDIES. (a) Specific performance may be
24-9 decreed if the goods are unique or in other proper circumstances.
24-10 (b) A decree for specific performance may include the terms
24-11 and conditions as to payment of the rent, damages, or other relief
24-12 that the court deems just.
24-13 (c) A lessee has a right of replevin, detinue,
24-14 sequestration, claim and delivery, or the like for goods identified
24-15 to the lease contract if after reasonable effort the lessee is
24-16 unable to effect cover for those goods or the circumstances
24-17 reasonably indicate that the effort will be unavailing.
24-18 Sec. 2A.522. LESSEE'S RIGHT TO GOODS ON LESSOR'S INSOLVENCY.
24-19 (a) Subject to Subsection (b) and even though the goods have not
24-20 been shipped, a lessee who has paid a part or all of the rent and
24-21 security for goods identified to a lease contract (Section 2A.217)
24-22 on making and keeping good a tender of any unpaid portion of the
24-23 rent and security due under the lease contract may recover the
24-24 goods identified from the lessor if the lessor becomes insolvent
24-25 within 10 days after receipt of the first installment of rent and
24-26 security.
24-27 (b) A lessee acquires the right to recover goods identified
24-28 to a lease contract only if they conform to the lease contract.
24-29 Sec. 2A.523. LESSOR'S REMEDIES. (a) If a lessee wrongfully
24-30 rejects or revokes acceptance of goods or fails to make a payment
24-31 when due or repudiates with respect to a part or the whole, then,
24-32 with respect to any goods involved, and with respect to all of the
24-33 goods if under an installment lease contract, the value of the
24-34 whole lease contract is substantially impaired (Section 2A.510),
24-35 the lessee is in default under the lease contract and the lessor
24-36 may:
24-37 (1) cancel the lease contract (Section 2A.505(a));
24-38 (2) proceed respecting goods not identified to the
24-39 lease contract (Section 2A.524);
24-40 (3) withhold delivery of the goods and take possession
24-41 of goods previously delivered (Section 2A.525);
24-42 (4) stop delivery of the goods by any bailee (Section
24-43 2A.526);
24-44 (5) dispose of the goods and recover damages (Section
24-45 2A.527), or retain the goods and recover damages (Section 2A.528),
24-46 or in a proper case recover rent (Section 2A.529); or
24-47 (6) exercise any other rights or pursue any other
24-48 remedies provided in the lease contract.
24-49 (b) If a lessor does not fully exercise a right or obtain a
24-50 remedy to which the lessor is entitled under Subsection (a), the
24-51 lessor may recover the loss resulting in the ordinary course of
24-52 events from the lessee's default as determined in any reasonable
24-53 manner, together with incidental damages, less expenses saved in
24-54 consequence of the lessee's default.
24-55 (c) If a lessee is otherwise in default under a lease
24-56 contract, the lessor may exercise the rights and pursue the
24-57 remedies provided in the lease contract, which may include a right
24-58 to cancel the lease. In addition, unless otherwise provided in the
24-59 lease contract:
24-60 (1) if the default substantially impairs the value of
24-61 the lease contract to the lessor, the lessor may exercise the
24-62 rights and pursue the remedies provided by Subsection (a) or (b);
24-63 or
24-64 (2) if the default does not substantially impair the
24-65 value of the lease contract to the lessor, the lessor may recover
24-66 as provided by Subsection (b).
24-67 Sec. 2A.524. LESSOR'S RIGHT TO IDENTIFY GOODS TO LEASE
24-68 CONTRACT. (a) A lessor aggrieved under Section 2A.523(a) may:
24-69 (1) identify to the lease contract conforming goods
24-70 not already identified, if at the time the lessor learned of the
25-1 default they were in the lessor's or the supplier's possession or
25-2 control; and
25-3 (2) dispose of goods (Section 2A.527(a)) that
25-4 demonstrably have been intended for the particular lease contract
25-5 even though those goods are unfinished.
25-6 (b) If the goods are unfinished, in the exercise of
25-7 reasonable commercial judgment for the purposes of avoiding loss
25-8 and of effective realization, an aggrieved lessor or the supplier
25-9 may either complete manufacture and wholly identify the goods to
25-10 the lease contract or cease manufacture and lease, sell, or
25-11 otherwise dispose of the goods for scrap or salvage value or
25-12 proceed in any other reasonable manner.
25-13 Sec. 2A.525. LESSOR'S RIGHT TO POSSESSION OF GOODS. (a) If
25-14 a lessor discovers the lessee to be insolvent, the lessor may
25-15 refuse to deliver the goods.
25-16 (b) After a default by the lessee under the lease contract
25-17 of the type described by Section 2A.523(a) or (c)(1) or, if agreed,
25-18 after other default by the lessee, the lessor has the right to take
25-19 possession of the goods. If the lease contract so provides, the
25-20 lessor may require the lessee to assemble the goods and make them
25-21 available to the lessor at a place to be designated by the lessor
25-22 which is reasonably convenient to both parties. Without removal,
25-23 the lessor may render unusable any goods employed in trade or
25-24 business, and may dispose of goods on the lessee's premises
25-25 (Section 2A.527).
25-26 (c) The lessor may proceed under Subsection (b) without
25-27 judicial process if that can be done without breach of the peace or
25-28 the lessor may proceed by action.
25-29 Sec. 2A.526. LESSOR'S STOPPAGE OF DELIVERY IN TRANSIT OR
25-30 OTHERWISE. (a) A lessor may stop delivery of goods in the
25-31 possession of a carrier or other bailee if the lessor discovers the
25-32 lessee to be insolvent and may stop delivery of carload, truckload,
25-33 planeload, or larger shipments of express or freight if the lessee
25-34 repudiates or fails to make a payment due before delivery, whether
25-35 for rent, security or otherwise under the lease contract, or for
25-36 any other reason the lessor has a right to withhold or take
25-37 possession of the goods.
25-38 (b) In pursuing its remedies under Subsection (a), the
25-39 lessor may stop delivery until:
25-40 (1) receipt of the goods by the lessee;
25-41 (2) acknowledgement to the lessee by any bailee of the
25-42 goods, except a carrier, that the bailee holds the goods for the
25-43 lessee; or
25-44 (3) such an acknowledgement to the lessee by a carrier
25-45 via reshipment or as warehouseman.
25-46 (c)(1) To stop delivery, a lessor shall so notify as to
25-47 enable the bailee by reasonable diligence to prevent delivery of
25-48 the goods.
25-49 (2) After notification, the bailee shall hold and
25-50 deliver the goods according to the directions of the lessor, but
25-51 the lessor is liable to the bailee for any ensuing charges or
25-52 damages.
25-53 (3) A carrier who has issued a nonnegotiable bill of
25-54 lading is not obligated to obey a notification to stop received
25-55 from a person other than the consignor.
25-56 Sec. 2A.527. LESSOR'S RIGHTS TO DISPOSE OF GOODS.
25-57 (a) After a default by a lessee under the lease contract of the
25-58 type described in Section 2A.523(a) or (c)(1) or after the lessor
25-59 refuses to deliver or takes possession of goods (Section 2A.525 or
25-60 2A.526), or, if agreed, after other default by a lessee, the lessor
25-61 may dispose of the goods concerned or the undelivered balance
25-62 thereof by lease, sale or otherwise.
25-63 (b) Except as otherwise provided with respect to damages
25-64 liquidated in the lease agreement (Section 2A.504) or otherwise
25-65 determined pursuant to agreement of the parties (Sections 1.102(c)
25-66 and 2A.503), if the disposition is by lease agreement substantially
25-67 similar to the original lease agreement and the new lease agreement
25-68 is made in good faith and in a commercially reasonable manner, the
25-69 lessor may recover from the lessee as damages (1) accrued and
25-70 unpaid rent as of the date of the commencement of the term of the
26-1 new lease agreement, (2) the present value, as of the same date, of
26-2 the total rent for the then remaining lease term of the original
26-3 lease agreement minus the present value, as of the same date, of
26-4 the rent under the new lease agreement applicable to that period of
26-5 the new lease term which is comparable to the then remaining term
26-6 of the original lease agreement, and (3) any incidental damages
26-7 allowed under Section 2A.530, less expenses saved in consequence
26-8 of the lessee's default.
26-9 (c) If the lessor's disposition is by lease agreement that
26-10 for any reason does not qualify for treatment under Subsection (b),
26-11 or is by sale or otherwise, the lessor may recover from the lessee
26-12 as if the lessor had elected not to dispose of the goods and
26-13 Section 2A.528 governs.
26-14 (d) A subsequent buyer or lessee who buys or leases from the
26-15 lessor in good faith for value as a result of a disposition under
26-16 this section takes the goods free of the original lease contract
26-17 and any rights of the original lessee even though the lessor fails
26-18 to comply with one or more of the requirements of this chapter.
26-19 (e) The lessor is not accountable to the lessee for any
26-20 profit made on any disposition. A lessee who has rightfully
26-21 rejected or justifiably revoked acceptance shall account to the
26-22 lessor for any excess over the amount of the lessee's security
26-23 interest (Section 2A.508(e)).
26-24 Sec. 2A.528. LESSOR'S DAMAGES FOR NONACCEPTANCE, FAILURE TO
26-25 PAY, REPUDIATION, OR OTHER DEFAULT. (a) Except as otherwise
26-26 provided with respect to damages liquidated in the lease agreement
26-27 (Section 2A.504) or otherwise determined pursuant to agreement of
26-28 the parties (Sections 1.102(c) and 2A.503), if a lessor elects to
26-29 retain the goods or a lessor elects to dispose of the goods and the
26-30 disposition is by lease agreement that for any reason does not
26-31 qualify for treatment under Section 2A.527(b) or is by sale or
26-32 otherwise, the lessor may recover from the lessee as damages for a
26-33 default of the type described in Section 2A.523(a) or (c)(1), or,
26-34 if agreed, for other default of the lessee, (i) accrued and unpaid
26-35 rent as of the date of default if the lessee has never taken
26-36 possession of the goods, or, if the lessee has taken possession of
26-37 the goods, as of the date the lessor repossesses the goods or an
26-38 earlier date on which the lessee makes a tender of the goods to the
26-39 lessor, (ii) the present value as of the date determined under
26-40 clause (i) of the total rent for the then remaining lease term of
26-41 the original lease agreement minus the present value as of the same
26-42 date of the market rent at the place where the goods are located
26-43 computed for the same lease term, and (iii) any incidental damages
26-44 allowed under Section 2A.530, less expenses saved in consequence of
26-45 the lessee's default.
26-46 (b) If the measure of damages provided in Subsection (a) is
26-47 inadequate to put a lessor in as good a position as performance
26-48 would have, the measure of damages is the present value of the
26-49 profit, including reasonable overhead, the lessor would have made
26-50 from full performance by the lessee, together with any incidental
26-51 damages allowed under Section 2A.530, due allowance for costs
26-52 reasonably incurred and due credit for payments or proceeds of
26-53 disposition.
26-54 Sec. 2A.529. LESSOR'S ACTION FOR THE RENT. (a) After
26-55 default by the lessee under the lease contract of the type
26-56 described in Section 2A.523(a) or (c)(1), or, if agreed, after
26-57 other default by the lessee, if the lessor complies with Subsection
26-58 (b), the lessor may recover from the lessee as damages:
26-59 (1) for goods accepted by the lessee and not
26-60 repossessed by or tendered to the lessor, and for conforming goods
26-61 lost or damaged within a commercially reasonable time after risk of
26-62 loss passes to the lessee (Section 2A.219), (i) accrued and unpaid
26-63 rent as of the date of entry of judgment in favor of the lessor,
26-64 (ii) the present value as of the same date of the rent for the then
26-65 remaining lease term of the lease agreement, and (iii) any
26-66 incidental damages allowed under Section 2A.530, less expenses
26-67 saved in consequence of the lessee's default; and
26-68 (2) for goods identified to the lease contract if the
26-69 lessor is unable after reasonable effort to dispose of them at a
26-70 reasonable price or the circumstances reasonably indicate that
27-1 effort will be unavailing, (i) accrued and unpaid rent as of the
27-2 date of entry of judgment in favor of the lessor, (ii) the present
27-3 value as of the same date of the rent for the then remaining lease
27-4 term of the lease agreement, and (iii) any incidental damages
27-5 allowed under Section 2A.530, less expenses saved in consequence of
27-6 the lessee's default.
27-7 (b) Except as provided by Subsection (c) of this section,
27-8 the lessor shall hold for the lessee for the remaining lease term
27-9 of the lease agreement any goods that have been identified to the
27-10 lease contract and are in the lessor's control.
27-11 (c) The lessor may dispose of the goods at any time before
27-12 collection of the judgment for damages obtained pursuant to
27-13 Subsection (a). If the disposition is before the end of the
27-14 remaining lease term of the lease agreement, the lessor's recovery
27-15 against the lessee for damages is governed by Section 2A.527 or
27-16 2A.528, and the lessor will cause an appropriate credit to be
27-17 provided against any judgment for damages to the extent that the
27-18 amount of the judgment exceeds the recovery available pursuant to
27-19 Section 2A.527 or 2A.528.
27-20 (d) Payment of the judgment for damages obtained pursuant to
27-21 Subsection (a) entitles the lessee to the use and possession of the
27-22 goods not then disposed of for the remaining lease term of and in
27-23 accordance with the lease agreement.
27-24 (e) After a lessee has wrongfully rejected or revoked
27-25 acceptance of goods, has failed to pay rent then due, or has
27-26 repudiated (Section 2A.402), a lessor who is held not entitled to
27-27 rent under this section must nevertheless be awarded damages for
27-28 nonacceptance under Section 2A.527 or 2A.528.
27-29 Sec. 2A.530. LESSOR'S INCIDENTAL DAMAGES. Incidental
27-30 damages to an aggrieved lessor include any commercially reasonable
27-31 charges, expenses, or commissions incurred in stopping delivery, in
27-32 the transportation, care and custody of goods after the lessee's
27-33 default, in connection with return or disposition of the goods, or
27-34 otherwise resulting from the default.
27-35 Sec. 2A.531. STANDING TO SUE THIRD PARTIES FOR INJURY TO
27-36 GOODS. (a) If a third party so deals with goods that have been
27-37 identified to a lease contract as to cause actionable injury to a
27-38 party to the lease contract:
27-39 (1) the lessor has a right of action against the third
27-40 party; and
27-41 (2) the lessee also has a right of action against the
27-42 third party if the lessee:
27-43 (A) has a security interest in the goods;
27-44 (B) has an insurable interest in the goods;
27-45 (C) bears the risk of loss under the lease
27-46 contract or has since the injury assumed that risk as against the
27-47 lessor and the goods have been converted or destroyed.
27-48 (b) If at the time of the injury the party plaintiff did not
27-49 bear the risk of loss as against the other party to the lease
27-50 contract and there is no arrangement between them for disposition
27-51 of the recovery, the party's suit or settlement, subject to the
27-52 party's own interest, is as a fiduciary for the other party to the
27-53 lease contract.
27-54 (c) Either party with the consent of the other may sue for
27-55 the benefit of whom it may concern.
27-56 Sec. 2A.532. LESSOR'S RIGHTS TO RESIDUAL INTEREST. In
27-57 addition to any other recovery permitted by this chapter or other
27-58 law, the lessor may recover from the lessee an amount that will
27-59 fully compensate the lessor for any loss of or damage to the
27-60 lessor's residual interest in the goods caused by the default of
27-61 the lessee.
27-62 SECTION 2. Section 1.105, Business & Commerce Code, is
27-63 amended by amending Subsection (b) and adding Subsection (c) to
27-64 read as follows:
27-65 (b) Where one of the following provisions of this title
27-66 specifies the applicable law, that provision governs and a contrary
27-67 agreement is effective only to the extent permitted by the law
27-68 (including the conflict of laws rules) so specified:
27-69 Rights of creditors against sold goods. Section 2.402.
27-70 Applicability of the chapter on Leases. Sections 2A.105 and
28-1 2A.106.
28-2 Applicability of the chapter on Bank Deposits and
28-3 Collections. Section 4.102.
28-4 Governing law in the chapter on Funds Transfers. Section
28-5 4A.507.
28-6 <Bulk transfers subject to the chapter on Bulk Transfers.
28-7 Section 6.102.>
28-8 Applicability of the chapter on Investment Securities.
28-9 Section 8.106.
28-10 Perfection provisions of the chapter on Secured Transactions.
28-11 Section 9.103.
28-12 (c) If a transaction that is subject to this title is a
28-13 "qualified transaction," as defined in Section 35.51 of this code,
28-14 then except as provided in Subsection (b) of this section, Section
28-15 35.51 governs the effect of an agreement by the parties that the
28-16 law of a particular jurisdiction governs an issue relating to the
28-17 transaction or that the law of a particular jurisdiction governs
28-18 the interpretation or construction of an agreement relating to the
28-19 transaction or a provision of the agreement.
28-20 SECTION 3. Section 2.403(d), Business & Commerce Code, is
28-21 amended to read as follows:
28-22 (d) The rights of other purchasers of goods and of lien
28-23 creditors are governed by the chapters on Secured Transactions
28-24 (Chapter 9)<, Bulk Transfers (Chapter 6)> and Documents of Title
28-25 (Chapter 7).
28-26 SECTION 4. Section 9.113, Business & Commerce Code, is
28-27 amended to read as follows:
28-28 Sec. 9.113. Security Interests Arising Under Chapter on
28-29 Sales OR UNDER CHAPTER ON LEASES. A security interest arising
28-30 solely under the chapter on Sales (Chapter 2) or the chapter on
28-31 Leases (Chapter 2A) is subject to the provisions of this chapter
28-32 except that to the extent that and so long as the debtor does not
28-33 have or does not lawfully obtain possession of the goods
28-34 (1) no security agreement is necessary to make the
28-35 security interest enforceable; and
28-36 (2) no filing is required to perfect the security
28-37 interest; and
28-38 (3) the rights of the secured party on default by the
28-39 debtor are governed by the chapter on Sales (Chapter 2) or by the
28-40 chapter on Leases (Chapter 2A) in the case of a security interest
28-41 arising solely under such chapter.
28-42 SECTION 5. Section 9.410(b), Business & Commerce Code, is
28-43 amended to read as follows:
28-44 (b) A secured party may change the name or mailing address
28-45 of the secured party in more than one financing statement by filing
28-46 a written statement of master amendment <assignment> signed by the
28-47 secured party of record in each financing statement and setting
28-48 forth the name of the secured party of record and file number of
28-49 each financing statement and the new name or mailing address of the
28-50 secured party. The secured party must also provide filing
28-51 information in computer-readable form prescribed by the secretary
28-52 of state.
28-53 SECTION 6. Section 17.46(b), Business & Commerce Code, is
28-54 amended to read as follows:
28-55 (b) Except as provided in Subsection (d) of this section,
28-56 the term "false, misleading, or deceptive acts or practices"
28-57 includes, but is not limited to, the following acts:
28-58 (1) passing off goods or services as those of another;
28-59 (2) causing confusion or misunderstanding as to the
28-60 source, sponsorship, approval, or certification of goods or
28-61 services;
28-62 (3) causing confusion or misunderstanding as to
28-63 affiliation, connection, or association with, or certification by,
28-64 another;
28-65 (4) using deceptive representations or designations of
28-66 geographic origin in connection with goods or services;
28-67 (5) representing that goods or services have
28-68 sponsorship, approval, characteristics, ingredients, uses,
28-69 benefits, or quantities which they do not have or that a person has
28-70 a sponsorship, approval, status, affiliation, or connection which
29-1 he does not;
29-2 (6) representing that goods are original or new if
29-3 they are deteriorated, reconditioned, reclaimed, used, or
29-4 secondhand;
29-5 (7) representing that goods or services are of a
29-6 particular standard, quality, or grade, or that goods are of a
29-7 particular style or model, if they are of another;
29-8 (8) disparaging the goods, services, or business of
29-9 another by false or misleading representation of facts;
29-10 (9) advertising goods or services with intent not to
29-11 sell them as advertised;
29-12 (10) advertising goods or services with intent not to
29-13 supply a reasonable expectable public demand, unless the
29-14 advertisements disclosed a limitation of quantity;
29-15 (11) making false or misleading statements of fact
29-16 concerning the reasons for, existence of, or amount of price
29-17 reductions;
29-18 (12) representing that an agreement confers or
29-19 involves rights, remedies, or obligations which it does not have or
29-20 involve, or which are prohibited by law;
29-21 (13) knowingly making false or misleading statements
29-22 of fact concerning the need for parts, replacement, or repair
29-23 service;
29-24 (14) misrepresenting the authority of a salesman,
29-25 representative or agent to negotiate the final terms of a consumer
29-26 transaction;
29-27 (15) basing a charge for the repair of any item in
29-28 whole or in part on a guaranty or warranty instead of on the value
29-29 of the actual repairs made or work to be performed on the item
29-30 without stating separately the charges for the work and the charge
29-31 for the warranty or guaranty, if any;
29-32 (16) disconnecting, turning back, or resetting the
29-33 odometer of any motor vehicle so as to reduce the number of miles
29-34 indicated on the odometer gauge;
29-35 (17) advertising of any sale by fraudulently
29-36 representing that a person is going out of business;
29-37 (18) using or employing a chain referral sales plan in
29-38 connection with the sale or offer to sell of goods, merchandise, or
29-39 anything of value, which uses the sales technique, plan,
29-40 arrangement, or agreement in which the buyer or prospective buyer
29-41 is offered the opportunity to purchase merchandise or goods and in
29-42 connection with the purchase receives the seller's promise or
29-43 representation that the buyer shall have the right to receive
29-44 compensation or consideration in any form for furnishing to the
29-45 seller the names of other prospective buyers if receipt of the
29-46 compensation or consideration is contingent upon the occurrence of
29-47 an event subsequent to the time the buyer purchases the merchandise
29-48 or goods;
29-49 (19) representing that a guarantee or warranty confers
29-50 or involves rights or remedies which it does not have or involve,
29-51 provided, however, that nothing in this subchapter shall be
29-52 construed to expand the implied warranty of merchantability as
29-53 defined in Sections 2.314 through 2.318 and Sections 2A.212 through
29-54 2A.216 of the Business & Commerce Code to involve obligations in
29-55 excess of those which are appropriate to the goods;
29-56 (20) selling or offering to sell, either directly or
29-57 associated with the sale of goods or services, a right of
29-58 participation in a multi-level distributorship. As used herein,
29-59 "multi-level distributorship" means a sales plan for the
29-60 distribution of goods or services in which promises of rebate or
29-61 payment are made to individuals, conditioned upon those individuals
29-62 recommending or securing additional individuals to assume positions
29-63 in the sales operation, and where the rebate or payment is not
29-64 exclusively conditioned on or in relation to proceeds from the
29-65 retail sales of goods;
29-66 (21) representing that work or services have been
29-67 performed on, or parts replaced in, goods when the work or services
29-68 were not performed or the parts replaced;
29-69 (22) filing suit founded upon a written contractual
29-70 obligation of and signed by the defendant to pay money arising out
30-1 of or based on a consumer transaction for goods, services, loans,
30-2 or extensions of credit intended primarily for personal, family,
30-3 household, or agricultural use in any county other than in the
30-4 county in which the defendant resides at the time of the
30-5 commencement of the action or in the county in which the defendant
30-6 in fact signed the contract; provided, however, that a violation of
30-7 this subsection shall not occur where it is shown by the person
30-8 filing such suit he neither knew or had reason to know that the
30-9 county in which such suit was filed was neither the county in which
30-10 the defendant resides at the commencement of the suit nor the
30-11 county in which the defendant in fact signed the contract;
30-12 (23) the failure to disclose information concerning
30-13 goods or services which was known at the time of the transaction if
30-14 such failure to disclose such information was intended to induce
30-15 the consumer into a transaction into which the consumer would not
30-16 have entered had the information been disclosed; or
30-17 (24) using the term "corporation," "incorporated," or
30-18 an abbreviation of either of those terms in the name of a business
30-19 entity that is not incorporated under the laws of this state or
30-20 another jurisdiction.
30-21 SECTION 7. Title 1, Business & Commerce Code, is amended by
30-22 adding Chapter 4A to read as follows:
30-23 CHAPTER 4A. FUNDS TRANSFERS
30-24 SUBCHAPTER A. SUBJECT MATTER AND DEFINITIONS
30-25 Sec. 4A.101. SHORT TITLE. This chapter may be cited as
30-26 Uniform Commercial Code--Funds Transfers.
30-27 Sec. 4A.102. SUBJECT MATTER. Except as otherwise provided
30-28 in Section 4A.108, this chapter applies to funds transfers defined
30-29 in Section 4A.104.
30-30 Sec. 4A.103. PAYMENT ORDER-DEFINITIONS. (a) In this
30-31 chapter:
30-32 (1) "Payment order" means an instruction of a sender
30-33 to a receiving bank, transmitted orally, electronically, or in
30-34 writing, to pay, or to cause another bank to pay, a fixed or
30-35 determinable amount of money to a beneficiary if:
30-36 (A) the instruction does not state a condition
30-37 of payment to the beneficiary other than the time of payment;
30-38 (B) the receiving bank is to be reimbursed by
30-39 debiting an account of, or otherwise receiving payment from, the
30-40 sender; and
30-41 (C) the instruction is transmitted by the sender
30-42 directly to the receiving bank or to an agent, funds transfer
30-43 system, or communication system for transmittal to the receiving
30-44 bank.
30-45 (2) "Beneficiary" means the person to be paid by the
30-46 beneficiary's bank.
30-47 (3) "Beneficiary's bank" means the bank identified in
30-48 a payment order in which an account of the beneficiary is to be
30-49 credited pursuant to the order or which otherwise is to make
30-50 payment to the beneficiary if the order does not provide for
30-51 payment to an account.
30-52 (4) "Receiving bank" means the bank to which the
30-53 sender's instruction is addressed.
30-54 (5) "Sender" means the person giving the instruction
30-55 to the receiving bank.
30-56 (b) If an instruction complying with Subsection (a)(1) is to
30-57 make more than one payment to a beneficiary, the instruction is a
30-58 separate payment order with respect to each payment.
30-59 (c) A payment order is issued when it is sent to the
30-60 receiving bank.
30-61 Sec. 4A.104. FUNDS TRANSFER-DEFINITIONS. In this chapter:
30-62 (1) "Funds transfer" means the series of transactions,
30-63 beginning with the originator's payment order, made for the purpose
30-64 of making payment to the beneficiary of the order. The term
30-65 includes any payment order issued by the originator's bank or an
30-66 intermediary bank intended to carry out the originator's payment
30-67 order. A funds transfer is completed by acceptance by the
30-68 beneficiary's bank of a payment order for the benefit of the
30-69 beneficiary of the originator's payment order.
30-70 (2) "Intermediary bank" means a receiving bank other
31-1 than the originator's bank or the beneficiary's bank.
31-2 (3) "Originator" means the sender of the first payment
31-3 order in a funds transfer.
31-4 (4) "Originator's bank" means:
31-5 (A) the receiving bank to which the payment
31-6 order of the originator is issued if the originator is not a bank;
31-7 or
31-8 (B) the originator if the originator is a bank.
31-9 Sec. 4A.105. OTHER DEFINITIONS. (a) In this chapter:
31-10 (1) "Authorized account" means a deposit account of a
31-11 customer in a bank designated by the customer as a source of
31-12 payment of payment orders issued by the customer to the bank. If a
31-13 customer does not so designate an account, any account of the
31-14 customer is an authorized account if payment of a payment order
31-15 from that account is not inconsistent with a restriction on the use
31-16 of that account.
31-17 (2) "Bank" means a person engaged in the business of
31-18 banking and includes a savings bank, savings and loan association,
31-19 credit union, and trust company. A branch or separate office of a
31-20 bank is a separate bank for purposes of this chapter.
31-21 (3) "Customer" means a person, including a bank,
31-22 having an account with a bank or from whom a bank has agreed to
31-23 receive payment orders.
31-24 (4) "Funds transfer business day" of a receiving bank
31-25 means the part of a day during which the receiving bank is open for
31-26 the receipt, processing, and transmittal of payment orders and
31-27 cancellations and amendments of payment orders.
31-28 (5) "Funds transfer system" means a wire transfer
31-29 network, automated clearinghouse, or other communication system of
31-30 a clearinghouse or other association of banks through which a
31-31 payment order by a bank may be transmitted to the bank to which the
31-32 order is addressed.
31-33 (6) "Good faith" means honesty in fact and the
31-34 observance of reasonable commercial standards of fair dealing.
31-35 (7) "Prove" with respect to a fact means to meet the
31-36 burden of establishing the fact (Section 1.201(8)).
31-37 (b) Other definitions applying to this chapter and the
31-38 sections in which they appear are:
31-39 (1) "Acceptance." Section 4A.209.
31-40 (2) "Beneficiary." Section 4A.103.
31-41 (3) "Beneficiary's bank." Section 4A.103.
31-42 (4) "Executed." Section 4A.301.
31-43 (5) "Execution date." Section 4A.301.
31-44 (6) "Funds transfer." Section 4A.104.
31-45 (7) "Funds transfer system rule." Section 4A.501.
31-46 (8) "Intermediary bank." Section 4A.104.
31-47 (9) "Originator." Section 4A.104.
31-48 (10) "Originator's bank." Section 4A.104.
31-49 (11) "Payment by beneficiary's bank to beneficiary."
31-50 Section 4A.405.
31-51 (12) "Payment by originator to beneficiary." Section
31-52 4A.406.
31-53 (13) "Payment by sender to receiving bank." Section
31-54 4A.403.
31-55 (14) "Payment date." Section 4A.401.
31-56 (15) "Payment order." Section 4A.103.
31-57 (16) "Receiving bank." Section 4A.103.
31-58 (17) "Security procedure." Section 4A.201.
31-59 (18) "Sender." Section 4A.103.
31-60 (c) The following definitions in Chapter 4 apply to this
31-61 chapter:
31-62 (1) "Clearinghouse." Section 4.104.
31-63 (2) "Item." Section 4.104.
31-64 (3) "Suspends payments." Section 4.104.
31-65 (d) In addition, Chapter 1 contains general definitions and
31-66 principles of construction and interpretation applicable throughout
31-67 this chapter.
31-68 Sec. 4A.106. TIME PAYMENT ORDER IS RECEIVED. (a) The time
31-69 of receipt of a payment order or communication cancelling or
31-70 amending a payment order is determined by the rules applicable to
32-1 receipt of a notice stated in Section 1.201. A receiving bank may
32-2 fix a cutoff time or times on a funds transfer business day for the
32-3 receipt and processing of payment orders and communications
32-4 cancelling or amending payment orders. Different cutoff times may
32-5 apply to payment orders, cancellations, or amendments, or to
32-6 different categories of payment orders, cancellations, or
32-7 amendments. A cutoff time may apply to senders generally or
32-8 different cutoff times may apply to different senders or categories
32-9 of payment orders. If a payment order or communication cancelling
32-10 or amending a payment order is received after the close of a funds
32-11 transfer business day or after the appropriate cutoff time on a
32-12 funds transfer business day, the receiving bank may treat the
32-13 payment order or communication as received at the opening of the
32-14 next funds transfer business day.
32-15 (b) If this chapter refers to an execution date or payment
32-16 date or states a day on which a receiving bank is required to take
32-17 action, and the date or day does not fall on a funds transfer
32-18 business day, the next day that is a funds transfer business day is
32-19 treated as the date or day stated, unless the contrary is stated in
32-20 this chapter.
32-21 Sec. 4A.107. FEDERAL RESERVE REGULATIONS AND OPERATING
32-22 CIRCULARS. Regulations of the Board of Governors of the Federal
32-23 Reserve System and operating circulars of the Federal Reserve Banks
32-24 supersede any inconsistent provision of this chapter to the extent
32-25 of the inconsistency.
32-26 Sec. 4A.108. EXCLUSION OF CONSUMER TRANSACTIONS GOVERNED BY
32-27 FEDERAL LAW. This chapter does not apply to a funds transfer any
32-28 part of which is governed by the Electronic Fund Transfer Act, 15
32-29 U.S.C. Sec. 1693 et seq., as amended from time to time.
32-30 (Sections 4A.109-4A.200 reserved for expansion
32-31 SUBCHAPTER B. ISSUE AND
32-32 ACCEPTANCE OF PAYMENT ORDER
32-33 Sec. 4A.201. SECURITY PROCEDURE. "Security procedure" means
32-34 a procedure established by an agreement between a customer and a
32-35 receiving bank for the purpose of (i) verifying that a payment
32-36 order or communication amending or cancelling a payment order is
32-37 that of the customer, or (ii) detecting error in the transmission
32-38 or the content of the payment order or communication. A security
32-39 procedure may require the use of algorithms or other codes,
32-40 identifying words or numbers, encryption, callback procedures, or
32-41 similar security devices. Comparison of a signature on a payment
32-42 order or communication with an authorized specimen signature of the
32-43 customer is not by itself a security procedure.
32-44 Sec. 4A.202. AUTHORIZED AND VERIFIED PAYMENT ORDERS. (a) A
32-45 payment order received by the receiving bank is the authorized
32-46 order of the person identified as sender if that person authorized
32-47 the order or is otherwise bound by it under the law of agency.
32-48 (b) If a bank and its customer have agreed that the
32-49 authenticity of payment orders issued to the bank in the name of
32-50 the customer as sender will be verified pursuant to a security
32-51 procedure, a payment order received by the receiving bank is
32-52 effective as the order of the customer, whether or not authorized,
32-53 if (i) the security procedure is a commercially reasonable method
32-54 of providing security against unauthorized payment orders, and (ii)
32-55 the bank proves that it accepted the payment order in good faith
32-56 and in compliance with the security procedure and any written
32-57 agreement or instruction of the customer restricting acceptance of
32-58 payment orders issued in the name of the customer. The bank is not
32-59 required to follow an instruction that violates a written agreement
32-60 with the customer or notice of which is not received at a time and
32-61 in a manner affording the bank a reasonable opportunity to act on
32-62 it before the payment order is accepted.
32-63 (c) Commercial reasonableness of a security procedure is a
32-64 question of law to be determined by considering the wishes of the
32-65 customer expressed to the bank, the circumstances of the customer
32-66 known to the bank, including the size, type, and frequency of
32-67 payment orders normally issued by the customer to the bank,
32-68 alternative security procedures offered to the customer, and
32-69 security procedures in general use by customers and receiving banks
32-70 similarly situated. A security procedure is deemed to be
33-1 commercially reasonable if:
33-2 (1) the security procedure was chosen by the customer
33-3 after the bank offered, and the customer refused, a security
33-4 procedure that was commercially reasonable for the customer; and
33-5 (2) the customer expressly agreed in writing to be
33-6 bound by any payment order, whether or not authorized, issued in
33-7 its name and accepted by the bank in compliance with the security
33-8 procedure chosen by the customer.
33-9 (d) The term "sender" in this chapter includes the customer
33-10 in whose name a payment order is issued if the order is the
33-11 authorized order of the customer under Subsection (a) or it is
33-12 effective as the order of the customer under Subsection (b).
33-13 (e) This section applies to amendments and cancellations of
33-14 payment orders to the same extent it applies to payment orders.
33-15 (f) Except as provided in this section and in Section
33-16 4A.203(a)(1), the rights and obligations arising under this section
33-17 or Section 4A.203 may not be varied by agreement.
33-18 Sec. 4A.203. UNENFORCEABILITY OF CERTAIN VERIFIED PAYMENT
33-19 ORDERS. (a) If an accepted payment order is not, under Section
33-20 4A.202(a), an authorized order of a customer identified as sender,
33-21 but is effective as an order of the customer pursuant to Section
33-22 4A.202(b), the following rules apply:
33-23 (1) By express written agreement, the receiving bank
33-24 may limit the extent to which it is entitled to enforce or retain
33-25 payment of the payment order.
33-26 (2) The receiving bank is not entitled to enforce or
33-27 retain payment of the payment order if the customer proves that the
33-28 order was not caused, directly or indirectly, by a person:
33-29 (A) entrusted at any time with duties to act for
33-30 the customer with respect to payment orders or the security
33-31 procedure; or
33-32 (B) who obtained access to transmitting
33-33 facilities of the customer or who obtained, from a source
33-34 controlled by the customer and without authority of the receiving
33-35 bank, information facilitating breach of the security procedure,
33-36 regardless of how the information was obtained or whether the
33-37 customer was at fault. Information includes any access device,
33-38 computer software, or the like.
33-39 (b) This section applies to amendments of payment orders to
33-40 the same extent it applies to payment orders.
33-41 Sec. 4A.204. REFUND OF PAYMENT AND DUTY OF CUSTOMER TO
33-42 REPORT WITH RESPECT TO UNAUTHORIZED PAYMENT ORDER. (a) If a
33-43 receiving bank accepts a payment order issued in the name of its
33-44 customer as sender which is (i) not authorized and not effective as
33-45 the order of the customer under Section 4A.202, or (ii) not
33-46 enforceable, in whole or in part, against the customer under
33-47 Section 4A.203, the bank shall refund any payment of the payment
33-48 order received from the customer to the extent the bank is not
33-49 entitled to enforce payment and shall pay interest on the
33-50 refundable amount calculated from the date the bank received
33-51 payment to the date of the refund. However, the customer is not
33-52 entitled to interest from the bank on the amount to be refunded if
33-53 the customer fails to exercise ordinary care to determine that the
33-54 order was not authorized by the customer and to notify the bank of
33-55 the relevant facts within a reasonable time not exceeding 90 days
33-56 after the date the customer received notification from the bank
33-57 that the order was accepted or that the customer's account was
33-58 debited with respect to the order. The bank is not entitled to any
33-59 recovery from the customer on account of a failure by the customer
33-60 to give notification as stated in this section.
33-61 (b) Reasonable time under Subsection (a) may be fixed by
33-62 agreement as stated in Section 1.204, but the obligation of a
33-63 receiving bank to refund payment as stated in Subsection (a) may
33-64 not otherwise be varied by agreement.
33-65 Sec. 4A.205. ERRONEOUS PAYMENT ORDERS. (a) If an accepted
33-66 payment order was transmitted pursuant to a security procedure for
33-67 the detection of error and the payment order (i) erroneously
33-68 instructed payment to a beneficiary not intended by the sender,
33-69 (ii) erroneously instructed payment in an amount greater than the
33-70 amount intended by the sender, or (iii) was an erroneously
34-1 transmitted duplicate of a payment order previously sent by the
34-2 sender, the following rules apply:
34-3 (1) If the sender proves that the sender or a person
34-4 acting on behalf of the sender pursuant to Section 4A.206 complied
34-5 with the security procedure and that the error would have been
34-6 detected if the receiving bank had also complied, the sender is not
34-7 obliged to pay the order to the extent stated in Subdivisions (2)
34-8 and (3).
34-9 (2) If the funds transfer is completed on the basis of
34-10 an erroneous payment order described in clause (i) or (iii) of
34-11 Subsection (a), the sender is not obliged to pay the order and the
34-12 receiving bank is entitled to recover from the beneficiary any
34-13 amount paid to the beneficiary to the extent allowed by the law
34-14 governing mistake and restitution.
34-15 (3) If the funds transfer is completed on the basis of
34-16 a payment order described in clause (ii) of Subsection (a), the
34-17 sender is not obliged to pay the order to the extent the amount
34-18 received by the beneficiary is greater than the amount intended by
34-19 the sender. In that case, the receiving bank is entitled to
34-20 recover from the beneficiary the excess amount received to the
34-21 extent allowed by the law governing mistake and restitution.
34-22 (b) If (i) the sender of an erroneous payment order
34-23 described in Subsection (a) is not obliged to pay all or part of
34-24 the order, and (ii) the sender receives notification from the
34-25 receiving bank that the order was accepted by the bank or that the
34-26 sender's account was debited with respect to the order, the sender
34-27 has a duty to exercise ordinary care, on the basis of information
34-28 available to the sender, to discover the error with respect to the
34-29 order and to advise the bank of the relevant facts within a
34-30 reasonable time, not exceeding 90 days, after the bank's
34-31 notification was received by the sender. If the bank proves that
34-32 the sender failed to perform that duty, the sender is liable to the
34-33 bank for the loss the bank proves it incurred as a result of the
34-34 failure, but the liability of the sender may not exceed the amount
34-35 of the sender's order.
34-36 (c) This section applies to amendments to payment orders to
34-37 the same extent it applies to payment orders.
34-38 Sec. 4A.206. TRANSMISSION OF PAYMENT ORDER THROUGH FUNDS
34-39 TRANSFER OR OTHER COMMUNICATION SYSTEM. (a) If a payment order
34-40 addressed to a receiving bank is transmitted to a funds transfer
34-41 system or other third-party communication system for transmittal to
34-42 the bank, the system is deemed to be an agent of the sender for the
34-43 purpose of transmitting the payment order to the bank. If there is
34-44 a discrepancy between the terms of the payment order transmitted to
34-45 the system and the terms of the payment order transmitted by the
34-46 system to the bank, the terms of the payment order of the sender
34-47 are those transmitted by the system. This section does not apply
34-48 to a funds transfer system of the Federal Reserve Banks.
34-49 (b) This section applies to cancellations and amendments of
34-50 payment orders to the same extent it applies to payment orders.
34-51 Sec. 4A.207. MISDESCRIPTION OF BENEFICIARY. (a) Subject to
34-52 Subsection (b), if, in a payment order received by the
34-53 beneficiary's bank, the name, bank account number, or other
34-54 identification of the beneficiary refers to a nonexistent or
34-55 unidentifiable person or account, no person has rights as a
34-56 beneficiary of the order and acceptance of the order cannot occur.
34-57 (b) If a payment order received by the beneficiary's bank
34-58 identifies the beneficiary both by name and by an identifying or
34-59 bank account number and the name and number identify different
34-60 persons, the following rules apply:
34-61 (1) Except as provided in Subsection (c), if the
34-62 beneficiary's bank does not know that the name and number refer to
34-63 different persons or if the funds transfer is processed by the
34-64 beneficiary bank in a fully automated manner, it may rely on the
34-65 number as the proper identification of the beneficiary of the
34-66 order. The beneficiary's bank need not determine whether the name
34-67 and number refer to the same person.
34-68 (2) If the beneficiary's bank pays the person
34-69 identified by name or any individual processing the funds transfer
34-70 on behalf of the beneficiary bank knows that the name and number
35-1 identify different persons, no person has rights as beneficiary
35-2 except the person paid by the beneficiary's bank if that person was
35-3 entitled to receive payment from the originator of the funds
35-4 transfer. If no person has rights as beneficiary, acceptance of
35-5 the order cannot occur.
35-6 (c) If (i) a payment order described in Subsection (b) is
35-7 accepted, (ii) the originator's payment order described the
35-8 beneficiary inconsistently by name and number, and (iii) the
35-9 beneficiary's bank pays the person identified by number as
35-10 permitted by Subsection (b)(1), the following rules apply:
35-11 (1) If the originator is a bank, the originator is
35-12 obliged to pay its order.
35-13 (2) If the originator is not a bank and proves that
35-14 the person identified by number was not entitled to receive payment
35-15 from the originator, the originator is not obliged to pay its order
35-16 unless the originator's bank proves that the originator, before
35-17 acceptance of the originator's order, had notice that payment of a
35-18 payment order issued by the originator might be made by the
35-19 beneficiary's bank on the basis of an identifying or bank account
35-20 number even if it identifies a person different from the named
35-21 beneficiary. Proof of notice may be made by any admissible
35-22 evidence. The originator's bank satisfies the burden of proof if
35-23 it proves that the originator, before the payment order was
35-24 accepted, signed a writing stating the information to which the
35-25 notice relates.
35-26 (d) In a case governed by Subsection (b)(1), if the
35-27 beneficiary's bank rightfully pays the person identified by number
35-28 and that person was not entitled to receive payment from the
35-29 originator, the amount paid may be recovered from that person to
35-30 the extent allowed by the law governing mistake and restitution as
35-31 follows:
35-32 (1) If the originator is obliged to pay its payment
35-33 order as stated in Subsection (c), the originator has the right to
35-34 recover.
35-35 (2) If the originator is not a bank and is not obliged
35-36 to pay its payment order, the originator's bank has the right to
35-37 recover.
35-38 Sec. 4A.208. MISDESCRIPTION OF INTERMEDIARY BANK OR
35-39 BENEFICIARY'S BANK. (a) This subsection applies to a payment
35-40 order identifying an intermediary bank or the beneficiary's bank
35-41 only by an identifying number.
35-42 (1) The receiving bank may rely on the number as the
35-43 proper identification of the intermediary or beneficiary's bank and
35-44 does not need to determine whether the number identifies a bank.
35-45 (2) The sender is obliged to compensate the receiving
35-46 bank for any loss and expenses incurred by the receiving bank as a
35-47 result of its reliance on the number in executing or attempting to
35-48 execute the order.
35-49 (b) This subsection applies to a payment order identifying
35-50 an intermediary bank or the beneficiary's bank both by name and an
35-51 identifying number if the name and number identify different
35-52 persons.
35-53 (1) If the sender is a bank, the receiving bank may
35-54 rely on the number as the proper identification of the intermediary
35-55 or beneficiary's bank if the receiving bank, when it executes the
35-56 sender's order, does not know that the name and number identify
35-57 different persons. The receiving bank need not determine whether
35-58 the name and number refer to the same person or whether the number
35-59 refers to a bank. The sender is obliged to compensate the
35-60 receiving bank for any loss and expenses incurred by the receiving
35-61 bank as a result of its reliance on the number in executing or
35-62 attempting to execute the order.
35-63 (2) If the sender is not a bank and the receiving bank
35-64 proves that the sender, before the payment order was accepted, had
35-65 notice that the receiving bank might rely on the number as the
35-66 proper identification of the intermediary or beneficiary's bank
35-67 even if it identifies a person different from the bank identified
35-68 by name, the rights and obligations of the sender and the receiving
35-69 bank are governed by Subsection (b)(1), as though the sender were a
35-70 bank. Proof of notice may be made by any admissible evidence. The
36-1 receiving bank satisfies the burden of proof if it proves that the
36-2 sender, before the payment order was accepted, signed a writing
36-3 stating the information to which the notice relates.
36-4 (3) Regardless of whether the sender is a bank, the
36-5 receiving bank may rely on the name as the proper identification of
36-6 the intermediary or beneficiary's bank if the receiving bank, at
36-7 the time it executes the sender's order, does not know that the
36-8 name and number identify different persons. The receiving bank
36-9 need not determine whether the name and number refer to the same
36-10 person.
36-11 (4) If the receiving bank knows that the name and
36-12 number identify different persons, reliance on either the name or
36-13 the number in executing the sender's payment order is a breach of
36-14 the obligation stated in Section 4A.302(a)(1).
36-15 Sec. 4A.209. ACCEPTANCE OF PAYMENT ORDER. (a) Subject to
36-16 Subsection (d), a receiving bank other than the beneficiary's bank
36-17 accepts a payment order when it executes the order.
36-18 (b) Subject to Subsections (c) and (d), a beneficiary's bank
36-19 accepts a payment order at the earliest of the following times:
36-20 (1) when the bank (i) pays the beneficiary as stated
36-21 in Section 4A.405(a) or (b), or (ii) notifies the beneficiary of
36-22 receipt of the order or that the account of the beneficiary has
36-23 been credited with respect to the order unless the notice indicates
36-24 that the bank is rejecting the order or that funds with respect to
36-25 the order may not be withdrawn or used until receipt of payment
36-26 from the sender of the order;
36-27 (2) when the bank receives payment of the entire
36-28 amount of the sender's order pursuant to Section 4A.403(a)(1) or
36-29 (2); or
36-30 (3) the opening of the next funds transfer business
36-31 day of the bank following the payment date of the order if, at that
36-32 time, the amount of the sender's order is fully covered by a
36-33 withdrawable credit balance in an authorized account of the sender
36-34 or the bank has otherwise received full payment from the sender,
36-35 unless the order was rejected before that time or is rejected
36-36 within (i) one hour after that time, or (ii) one hour after the
36-37 opening of the next business day of the sender following the
36-38 payment date if that time is later. If notice of rejection is
36-39 received by the sender after the payment date and the authorized
36-40 account of the sender does not bear interest, the bank is obliged
36-41 to pay interest to the sender on the amount of the order for the
36-42 number of days elapsing after the payment date to the day the
36-43 sender receives notice or learns that the order was not accepted,
36-44 counting that day as an elapsed day. If the withdrawable credit
36-45 balance during that period falls below the amount of the order, the
36-46 amount of interest payable is reduced accordingly.
36-47 (c) Acceptance of a payment order cannot occur before the
36-48 order is received by the receiving bank. Acceptance does not occur
36-49 under Subsection (b)(2) or (3) if the beneficiary of the payment
36-50 order does not have an account with the receiving bank, the account
36-51 has been closed, or the receiving bank is not permitted by law to
36-52 receive credits for the beneficiary's account.
36-53 (d) A payment order issued to the originator's bank cannot
36-54 be accepted until the payment date if the bank is the beneficiary's
36-55 bank, or the execution date if the bank is not the beneficiary's
36-56 bank. If the originator's bank executes the originator's payment
36-57 order before the execution date or pays the beneficiary of the
36-58 originator's payment order before the payment date and the payment
36-59 order is subsequently canceled pursuant to Section 4A.211(b), the
36-60 bank may recover from the beneficiary any payment received to the
36-61 extent allowed by the law governing mistake and restitution.
36-62 Sec. 4A.210. REJECTION OF PAYMENT ORDER. (a) A payment
36-63 order is rejected by the receiving bank by a notice of rejection
36-64 transmitted to the sender orally, electronically, or in writing. A
36-65 notice of rejection need not use any particular words and is
36-66 sufficient if it indicates that the receiving bank is rejecting the
36-67 order or will not execute or pay the order. Rejection is effective
36-68 when the notice is given if transmission is by a means that is
36-69 reasonable under the circumstances. If notice of rejection is
36-70 given by a means that is not reasonable, rejection is effective
37-1 when the notice is received. If an agreement of the sender and
37-2 receiving bank establishes the means to be used to reject a payment
37-3 order:
37-4 (1) any means complying with the agreement is
37-5 reasonable; and
37-6 (2) any means not complying is not reasonable unless
37-7 no significant delay in receipt of the notice resulted from the use
37-8 of the noncomplying means.
37-9 (b) This subsection applies if a receiving bank other than
37-10 the beneficiary's bank fails to execute a payment order despite the
37-11 existence on the execution date of a withdrawable credit balance in
37-12 an authorized account of the sender sufficient to cover the order.
37-13 If the sender does not receive notice of rejection of the order on
37-14 the execution date and the authorized account of the sender does
37-15 not bear interest, the bank is obliged to pay interest to the
37-16 sender on the amount of the order for the number of days elapsing
37-17 after the execution date to the earlier of the day the order is
37-18 canceled pursuant to Section 4A.211(d) or the day the sender
37-19 receives notice or learns that the order was not executed, counting
37-20 the final day of the period as an elapsed day. If the withdrawable
37-21 credit balance during that period falls below the amount of the
37-22 order, the amount of interest is reduced accordingly.
37-23 (c) If a receiving bank suspends payments, all unaccepted
37-24 payment orders issued to it are deemed rejected at the time the
37-25 bank suspends payments.
37-26 (d) Acceptance of a payment order precludes a later
37-27 rejection of the order. Rejection of a payment order precludes a
37-28 later acceptance of the order.
37-29 Sec. 4A.211. CANCELLATION AND AMENDMENT OF PAYMENT ORDER.
37-30 (a) A communication of the sender of a payment order cancelling or
37-31 amending the order may be transmitted to the receiving bank orally,
37-32 electronically, or in writing. If a security procedure is in
37-33 effect between the sender and the receiving bank, the communication
37-34 is not effective to cancel or amend the order unless the
37-35 communication is verified pursuant to the security procedure or the
37-36 bank agrees to the cancellation or amendment.
37-37 (b) Subject to Subsection (a), a communication by the sender
37-38 cancelling or amending a payment order is effective to cancel or
37-39 amend the order if notice of the communication is received at a
37-40 time and in a manner affording the receiving bank a reasonable
37-41 opportunity to act on the communication before the bank accepts the
37-42 payment order.
37-43 (c) After a payment order has been accepted, cancellation or
37-44 amendment of the order is not effective unless the receiving bank
37-45 agrees or a funds transfer system rule allows cancellation or
37-46 amendment without agreement of the bank.
37-47 (1) With respect to a payment order accepted by a
37-48 receiving bank other than the beneficiary's bank, cancellation or
37-49 amendment is not effective unless a conforming cancellation or
37-50 amendment of the payment order issued by the receiving bank is also
37-51 made.
37-52 (2) With respect to a payment order accepted by the
37-53 beneficiary's bank, cancellation or amendment is not effective
37-54 unless the order was issued in execution of an unauthorized payment
37-55 order or because of a mistake by a sender in the funds transfer
37-56 which resulted in the issuance of a payment order (i) that is a
37-57 duplicate of a payment order previously issued by the sender,
37-58 (ii) that orders payment to a beneficiary not entitled to receive
37-59 payment from the originator, or (iii) that orders payment in an
37-60 amount greater than the amount the beneficiary was entitled to
37-61 receive from the originator. If the payment order is canceled or
37-62 amended, the beneficiary's bank is entitled to recover from the
37-63 beneficiary any amount paid to the beneficiary to the extent
37-64 allowed by the law governing mistake and restitution.
37-65 (d) An unaccepted payment order is canceled by operation of
37-66 law at the close of the fifth funds transfer business day of the
37-67 receiving bank after the execution date or payment date of the
37-68 order.
37-69 (e) A canceled payment order cannot be accepted. If an
37-70 accepted payment order is canceled, the acceptance is nullified and
38-1 no person has any right or obligation based on the acceptance.
38-2 Amendment of a payment order is deemed to be cancellation of the
38-3 original order at the time of amendment and issue of a new payment
38-4 order in the amended form at the same time.
38-5 (f) Unless otherwise provided in an agreement of the parties
38-6 or in a funds transfer system rule, if the receiving bank, after
38-7 accepting a payment order, agrees to cancellation or amendment of
38-8 the order by the sender or is bound by a funds transfer system rule
38-9 allowing cancellation or amendment without the bank's agreement,
38-10 the sender, whether or not cancellation or amendment is effective,
38-11 is liable to the bank for any loss and expenses, including
38-12 reasonable attorney's fees, incurred by the bank as a result of the
38-13 cancellation or amendment or attempted cancellation or amendment.
38-14 (g) A payment order is not revoked by the death or legal
38-15 incapacity of the sender unless the receiving bank knows of the
38-16 death or of an adjudication of incapacity by a court of competent
38-17 jurisdiction and has reasonable opportunity to act before
38-18 acceptance of the order.
38-19 (h) A funds transfer system rule is not effective to the
38-20 extent it conflicts with Subsection (c)(2).
38-21 Sec. 4A.212. LIABILITY AND DUTY OF RECEIVING BANK REGARDING
38-22 UNACCEPTED PAYMENT ORDER. If a receiving bank fails to accept a
38-23 payment order that it is obliged by express agreement to accept,
38-24 the bank is liable for breach of the agreement to the extent
38-25 provided in the agreement or in this chapter, but does not
38-26 otherwise have any duty to accept a payment order or, before
38-27 acceptance, to take any action, or refrain from taking action, with
38-28 respect to the order except as provided in this chapter or by
38-29 express agreement. Liability based on acceptance arises only when
38-30 acceptance occurs as stated in Section 4A.209, and liability is
38-31 limited to that provided in this chapter. A receiving bank is not
38-32 the agent of the sender or beneficiary of the payment order it
38-33 accepts, or of any other party to the funds transfer, and the bank
38-34 owes no duty to any party to the funds transfer except as provided
38-35 in this chapter or by express agreement.
38-36 (Sections 4A.213-4A.300 reserved for expansion
38-37 SUBCHAPTER C. EXECUTION OF
38-38 SENDER'S PAYMENT ORDER BY RECEIVING BANK
38-39 Sec. 4A.301. EXECUTION AND EXECUTION DATE. (a) A payment
38-40 order is "executed" by the receiving bank when it issues a payment
38-41 order intended to carry out the payment order received by the bank.
38-42 A payment order received by the beneficiary's bank can be accepted
38-43 but cannot be executed.
38-44 (b) "Execution date" of a payment order means the date on
38-45 which the receiving bank may properly issue a payment order in
38-46 execution of the sender's order. The execution date may be
38-47 determined by instruction of the sender but cannot be earlier than
38-48 the day the order is received and, unless otherwise determined, is
38-49 the day the order is received. If the sender's instruction states
38-50 a payment date, the execution date is the payment date or an
38-51 earlier date on which execution is reasonably necessary to allow
38-52 payment to the beneficiary on the payment date.
38-53 Sec. 4A.302. OBLIGATIONS OF RECEIVING BANK IN EXECUTION OF
38-54 PAYMENT ORDER. (a) Except as provided in Subsections (b) through
38-55 (d), if the receiving bank accepts a payment order pursuant to
38-56 Section 4A.209(a), the bank has the following obligations in
38-57 executing the order:
38-58 (1) The receiving bank is obliged to issue, on the
38-59 execution date, a payment order complying with the sender's order
38-60 and to follow the sender's instructions concerning (i) any
38-61 intermediary bank or funds transfer system to be used in carrying
38-62 out the funds transfer, or (ii) the means by which payment orders
38-63 are to be transmitted in the funds transfer. If the originator's
38-64 bank issues a payment order to an intermediary bank, the
38-65 originator's bank is obliged to instruct the intermediary bank
38-66 according to the instruction of the originator. An intermediary
38-67 bank in the funds transfer is similarly bound by an instruction
38-68 given to it by the sender of the payment order it accepts.
38-69 (2) If the sender's instruction states that the funds
38-70 transfer is to be carried out telephonically or by wire transfer or
39-1 otherwise indicates that the funds transfer is to be carried out by
39-2 the most expeditious means, the receiving bank is obliged to
39-3 transmit its payment order by the most expeditious available means
39-4 and to instruct any intermediary bank accordingly. If a sender's
39-5 instruction states a payment date, the receiving bank is obliged to
39-6 transmit its payment order at a time and by means reasonably
39-7 necessary to allow payment to the beneficiary on the payment date
39-8 or as soon thereafter as is feasible.
39-9 (b) Unless otherwise instructed, a receiving bank executing
39-10 a payment order may (i) use any funds transfer system if use of
39-11 that system is reasonable in the circumstances, and (ii) issue a
39-12 payment order to the beneficiary's bank or to an intermediary bank
39-13 through which a payment order conforming to the sender's order can
39-14 expeditiously be issued to the beneficiary's bank if the receiving
39-15 bank exercises ordinary care in the selection of the intermediary
39-16 bank. A receiving bank is not required to follow an instruction of
39-17 the sender designating a funds transfer system to be used in
39-18 carrying out the funds transfer if the receiving bank, in good
39-19 faith, determines that it is not feasible to follow the instruction
39-20 or that following the instruction would unduly delay completion of
39-21 the funds transfer.
39-22 (c) Unless Subsection (a)(2) applies or the receiving bank
39-23 is otherwise instructed, the bank may execute a payment order by
39-24 transmitting its payment order by first class mail or by any means
39-25 reasonable in the circumstances. If the receiving bank is
39-26 instructed to execute the sender's order by transmitting its
39-27 payment order by a particular means, the receiving bank may issue
39-28 its payment order by the means stated or by any means as
39-29 expeditious as the means stated.
39-30 (d) Unless instructed by the sender, (i) the receiving bank
39-31 may not obtain payment of its charges for services and expenses in
39-32 connection with the execution of the sender's order by issuing a
39-33 payment order in an amount equal to the amount of the sender's
39-34 order less the amount of the charges, and (ii) may not instruct a
39-35 subsequent receiving bank to obtain payment of its charges in the
39-36 same amount.
39-37 Sec. 4A.303. ERRONEOUS EXECUTION OF PAYMENT ORDER. (a) A
39-38 receiving bank that (i) executes the payment order of the sender by
39-39 issuing a payment order in an amount greater than the amount of the
39-40 sender's order or (ii) issues a payment order in execution of the
39-41 sender's order and then issues a duplicate order, is entitled to
39-42 payment of the amount of the sender's order under Section 4A.402(c)
39-43 if that subsection is otherwise satisfied. The bank is entitled to
39-44 recover from the beneficiary of the erroneous order the excess
39-45 payment received to the extent allowed by the law governing mistake
39-46 and restitution.
39-47 (b) A receiving bank that executes the payment order of the
39-48 sender by issuing a payment order in an amount less than the amount
39-49 of the sender's order is entitled to payment of the amount of the
39-50 sender's order under Section 4A.402(c) if (i) that subsection is
39-51 otherwise satisfied and (ii) the bank corrects its mistake by
39-52 issuing an additional payment order for the benefit of the
39-53 beneficiary of the sender's order. If the error is not corrected,
39-54 the issuer of the erroneous order is entitled to receive or retain
39-55 payment from the sender of the order it accepted only to the extent
39-56 of the amount of the erroneous order. This subsection does not
39-57 apply if the receiving bank executes the sender's payment order by
39-58 issuing a payment order in an amount less than the amount of the
39-59 sender's order for the purpose of obtaining payment of its charges
39-60 for services and expenses pursuant to instruction of the sender.
39-61 (c) If a receiving bank executes the payment order of the
39-62 sender by issuing a payment order to a beneficiary different from
39-63 the beneficiary of the sender's order and the funds transfer is
39-64 completed on the basis of that error, the sender of the payment
39-65 order that was erroneously executed and all previous senders in the
39-66 funds transfer are not obliged to pay the payment orders they
39-67 issued. The issuer of the erroneous order is entitled to recover
39-68 from the beneficiary of the order the payment received to the
39-69 extent allowed by the law governing mistake and restitution.
39-70 Sec. 4A.304. DUTY OF SENDER TO REPORT ERRONEOUSLY EXECUTED
40-1 PAYMENT ORDER. If the sender of a payment order that is
40-2 erroneously executed as stated in Section 4A.303 receives
40-3 notification from the receiving bank that the order was executed or
40-4 that the sender's account was debited with respect to the order,
40-5 the sender has a duty to exercise ordinary care to determine, on
40-6 the basis of information available to the sender, that the order
40-7 was erroneously executed and to notify the bank of the relevant
40-8 facts within a reasonable time not exceeding 90 days after the
40-9 notification from the bank was received by the sender. If the
40-10 sender fails to perform that duty, the bank is not obliged to pay
40-11 interest on any amount refundable to the sender under Section
40-12 4A.402(d) for the period before the bank learns of the execution
40-13 error. The bank is not entitled to any recovery from the sender on
40-14 account of a failure by the sender to perform the duty stated in
40-15 this section.
40-16 Sec. 4A.305. LIABILITY FOR LATE OR IMPROPER EXECUTION OR
40-17 FAILURE TO EXECUTE PAYMENT ORDER. (a) If a funds transfer is
40-18 completed but execution of a payment order by the receiving bank in
40-19 breach of Section 4A.302 of this chapter results in delay in
40-20 payment to the beneficiary, the bank is obliged to pay interest to
40-21 either the originator or the beneficiary of the funds transfer for
40-22 the period of delay caused by the improper execution. Except as
40-23 provided by Subsection (c), additional damages are not recoverable.
40-24 (b) If execution of a payment order by a receiving bank in
40-25 breach of Section 4A.302 results in (i) noncompletion of the funds
40-26 transfer, (ii) failure to use an intermediary bank designated by
40-27 the originator, or (iii) issuance of a payment order that does not
40-28 comply with the terms of the payment order of the originator, the
40-29 bank is liable to the originator for its expenses in the funds
40-30 transfer and for incidental expenses and interest losses, to the
40-31 extent not covered by Subsection (a) of this section, resulting
40-32 from the improper execution. Except as provided by Subsection (c),
40-33 additional damages are not recoverable.
40-34 (c) In addition to the amounts payable under Subsections (a)
40-35 and (b), damages, including consequential damages, are recoverable
40-36 to the extent provided in an express written agreement of the
40-37 receiving bank.
40-38 (d) If a receiving bank fails to execute a payment order it
40-39 was obliged by express agreement to execute, the receiving bank is
40-40 liable to the sender for its expenses in the transaction and for
40-41 incidental expenses and interest losses resulting from the failure
40-42 to execute. Additional damages, including consequential damages,
40-43 are recoverable to the extent provided in an express written
40-44 agreement of the receiving bank, but are not otherwise recoverable.
40-45 (e) Reasonable attorney's fees are recoverable if demand for
40-46 compensation under Subsection (a) or (b) is made and refused before
40-47 an action is brought on the claim. If a claim is made for breach
40-48 of an agreement under Subsection (d) and the agreement does not
40-49 provide for damages, reasonable attorney's fees are recoverable if
40-50 demand for compensation under Subsection (d) of this section is
40-51 made and refused before an action is brought on the claim.
40-52 (f) Except as provided by this section, the liability of a
40-53 receiving bank under Subsections (a) and (b) of this section may
40-54 not be varied by agreement.
40-55 (Sections 4A.306-4A.400 reserved for expansion
40-56 Subchapter D. Payment
40-57 Sec. 4A.401. PAYMENT DATE. "Payment date" of a payment
40-58 order means the day on which the amount of the order is payable to
40-59 the beneficiary by the beneficiary's bank. The payment date may be
40-60 determined by instruction of the sender but cannot be earlier than
40-61 the day the order is received by the beneficiary's bank and, unless
40-62 otherwise determined, is the day the order is received by the
40-63 beneficiary's bank.
40-64 Sec. 4A.402. OBLIGATION OF SENDER TO PAY RECEIVING BANK.
40-65 (a) This section is subject to Sections 4A.205 and 4A.207.
40-66 (b) With respect to a payment order issued to the
40-67 beneficiary's bank, acceptance of the order by the bank obliges the
40-68 sender to pay the bank the amount of the order, but payment is not
40-69 due until the payment date of the order.
40-70 (c) This subsection is subject to Subsection (e) and to
41-1 Section 4A.303. With respect to a payment order issued to a
41-2 receiving bank other than the beneficiary's bank, acceptance of the
41-3 order by the receiving bank obliges the sender to pay the bank the
41-4 amount of the sender's order. Payment by the sender is not due
41-5 until the execution date of the sender's order. The obligation of
41-6 that sender to pay its payment order is excused if the funds
41-7 transfer is not completed by acceptance by the beneficiary's bank
41-8 of a payment order instructing payment to the beneficiary of that
41-9 sender's payment order.
41-10 (d) If the sender of a payment order pays the order and was
41-11 not obliged to pay all or part of the amount paid, the bank
41-12 receiving payment is obliged to refund payment to the extent the
41-13 sender was not obliged to pay. Except as provided by Sections
41-14 4A.204 and 4A.304, interest is payable on the refundable amount
41-15 from the date of payment.
41-16 (e) If a funds transfer is not completed as provided by
41-17 Subsection (c) and an intermediary bank is obliged to refund
41-18 payment as provided by Subsection (d) but is unable to do so
41-19 because not permitted by applicable law or because the bank
41-20 suspends payments, a sender in the funds transfer that executed a
41-21 payment order in compliance with an instruction, as provided by
41-22 Section 4A.302(a)(1), to route the funds transfer through that
41-23 intermediary bank is entitled to receive or retain payment from the
41-24 sender of the payment order that it accepted. The first sender in
41-25 the funds transfer that issued an instruction requiring routing
41-26 through that intermediary bank is subrogated to the right of the
41-27 bank that paid the intermediary bank to a refund as stated in
41-28 Subsection (d).
41-29 (f) The right of the sender of a payment order to be excused
41-30 from the obligation to pay the order as stated in Subsection (c) or
41-31 to receive a refund under Subsection (d) may not be varied by
41-32 agreement.
41-33 Sec. 4A.403. PAYMENT BY SENDER TO RECEIVING BANK.
41-34 (a) Payment of the sender's obligation under Section 4A.402 to pay
41-35 the receiving bank occurs as follows:
41-36 (1) If the sender is a bank, payment occurs when the
41-37 receiving bank receives final settlement of the obligation through
41-38 a Federal Reserve Bank or through a funds transfer system.
41-39 (2) If the sender is a bank and the sender
41-40 (i) credited an account of the receiving bank with the sender, or
41-41 (ii) caused an account of the receiving bank in another bank to be
41-42 credited, payment occurs when the credit is withdrawn or, if not
41-43 withdrawn, at midnight of the day on which the credit is
41-44 withdrawable and the receiving bank learns of that fact.
41-45 (3) If the receiving bank debits an account of the
41-46 sender with the receiving bank, payment occurs when the debit is
41-47 made to the extent the debit is covered by a withdrawable credit
41-48 balance in the account.
41-49 (b) If the sender and receiving bank are members of a funds
41-50 transfer system that nets obligations multilaterally among
41-51 participants, the receiving bank receives final settlement when
41-52 settlement is complete in accordance with the rules of the system.
41-53 The obligation of the sender to pay the amount of a payment order
41-54 transmitted through the funds transfer system may be satisfied, to
41-55 the extent permitted by the rules of the system, by setting off and
41-56 applying against the sender's obligation the right of the sender to
41-57 receive payment from the receiving bank of the amount of any other
41-58 payment order transmitted to the sender by the receiving bank
41-59 through the funds transfer system. The aggregate balance of
41-60 obligations owed by each sender to each receiving bank in the funds
41-61 transfer system may be satisfied, to the extent permitted by the
41-62 rules of the system, by setting off and applying against that
41-63 balance the aggregate balance of obligations owed to the sender by
41-64 other members of the system. The aggregate balance is determined
41-65 after the right of setoff stated in the second sentence of this
41-66 subsection has been exercised.
41-67 (c) If two banks transmit payment orders to each other under
41-68 an agreement that settlement of the obligations of each bank to the
41-69 other under Section 4A.402 will be made at the end of the day or
41-70 other period, the total amount owed with respect to all orders
42-1 transmitted by one bank shall be set off against the total amount
42-2 owed with respect to all orders transmitted by the other bank. To
42-3 the extent of the setoff, each bank has made payment to the other.
42-4 (d) In a case not covered by Subsection (a), the time when
42-5 payment of the sender's obligation under Section 4A.402(b) or (c)
42-6 occurs is governed by applicable principles of law that determine
42-7 when an obligation is satisfied.
42-8 Sec. 4A.404. OBLIGATION OF BENEFICIARY'S BANK TO PAY AND
42-9 GIVE NOTICE TO BENEFICIARY. (a) Subject to Sections 4A.211(e) and
42-10 4A.405(d) and (e), if a beneficiary's bank accepts a payment order,
42-11 the bank is obliged to pay the amount of the order to the
42-12 beneficiary of the order. Payment is due on the payment date of
42-13 the order, but if acceptance occurs on the payment date after the
42-14 close of the funds transfer business day of the bank, payment is
42-15 due on the next funds transfer business day. If the bank refuses
42-16 to pay after demand by the beneficiary and receipt of notice of
42-17 particular circumstances that will give rise to consequential
42-18 damages as a result of nonpayment, the beneficiary may recover
42-19 damages resulting from the refusal to pay to the extent the bank
42-20 had notice of the damages, unless the bank proves that it did not
42-21 pay because of a reasonable doubt concerning the right of the
42-22 beneficiary to payment.
42-23 (b) If a payment order accepted by the beneficiary's bank
42-24 instructs payment to an account of the beneficiary, the bank is
42-25 obliged to notify the beneficiary of receipt of the order before
42-26 midnight of the next funds transfer business day following the
42-27 payment date. If the payment order does not instruct payment to an
42-28 account of the beneficiary, the bank is required to notify the
42-29 beneficiary only if notice is required by the order. Notice may be
42-30 given by first class mail or any other means reasonable in the
42-31 circumstances. If the bank fails to give the required notice, the
42-32 bank is obliged to pay interest to the beneficiary on the amount of
42-33 the payment order from the day notice should have been given until
42-34 the day the beneficiary learned of receipt of the payment order by
42-35 the bank. No other damages are recoverable. Reasonable attorney's
42-36 fees are recoverable if demand for interest is made and refused
42-37 before an action is brought on the claim.
42-38 (c) The right of a beneficiary to receive payment and
42-39 damages as stated in Subsection (a) may not be varied by agreement
42-40 or a funds transfer system rule. The right of a beneficiary to be
42-41 notified as stated in Subsection (b) may be varied by agreement of
42-42 the beneficiary or by a funds transfer system rule if the
42-43 beneficiary is notified of the rule before initiation of the funds
42-44 transfer.
42-45 Sec. 4A.405. PAYMENT BY BENEFICIARY'S BANK TO BENEFICIARY.
42-46 (a) If the beneficiary's bank credits an account of the
42-47 beneficiary of a payment order, payment of the bank's obligation
42-48 under Section 4A.404(a) occurs when and to the extent:
42-49 (1) the beneficiary is notified of the right to
42-50 withdraw the credit;
42-51 (2) the bank lawfully applies the credit to a debt of
42-52 the beneficiary; or
42-53 (3) funds with respect to the order are otherwise made
42-54 available to the beneficiary by the bank.
42-55 (b) If the beneficiary's bank does not credit an account of
42-56 the beneficiary of a payment order, the time when payment of the
42-57 bank's obligation under Section 4A.404(a) occurs is governed by
42-58 principles of law that determine when an obligation is satisfied.
42-59 (c) Except as provided by Subsections (d) and (e), if the
42-60 beneficiary's bank pays the beneficiary of a payment order under a
42-61 condition to payment or agreement of the beneficiary giving the
42-62 bank the right to recover payment from the beneficiary if the bank
42-63 does not receive payment of the order, the condition to payment or
42-64 agreement is not enforceable.
42-65 (d) A funds transfer system rule may provide that payments
42-66 made to beneficiaries of funds transfers through the system are
42-67 provisional until receipt of payment by the beneficiary's bank of
42-68 the payment order is accepted. A beneficiary's bank that makes a
42-69 payment that is provisional under the rule is entitled to refund
42-70 from the beneficiary if (i) the rule requires that both the
43-1 beneficiary and the originator be given notice of the provisional
43-2 nature of the payment before the funds transfer is initiated, (ii)
43-3 the beneficiary, the beneficiary's bank and the originator's bank
43-4 agreed to be bound by the rule, and (iii) the beneficiary's bank
43-5 did not receive payment of the payment order that it accepted. If
43-6 the beneficiary is obliged to refund payment to the beneficiary's
43-7 bank, acceptance of the payment order by the beneficiary's bank is
43-8 nullified and no payment by the originator of the funds transfer to
43-9 the beneficiary occurs under Section 4A.406.
43-10 (e) This subsection applies to a funds transfer that
43-11 includes a payment order transmitted over a funds transfer system
43-12 that (i) nets obligations multilaterally among participants, and
43-13 (ii) has in effect a loss-sharing agreement among participants for
43-14 the purpose of providing funds necessary to complete settlement of
43-15 the obligations of one or more participants that do not meet their
43-16 settlement obligations. If the beneficiary's bank in the funds
43-17 transfer accepts a payment order and the system fails to complete
43-18 settlement pursuant to its rules with respect to any payment order
43-19 in the funds transfer:
43-20 (1) the acceptance by the beneficiary's bank is
43-21 nullified and no person has any right or obligation based on the
43-22 acceptance;
43-23 (2) the beneficiary's bank is entitled to recover
43-24 payment from the beneficiary;
43-25 (3) no payment by the originator to the beneficiary
43-26 occurs under Section 4A.406; and
43-27 (4) subject to Section 4A.402(e), each sender in the
43-28 funds transfer is excused from its obligation to pay its payment
43-29 order under Section 4A.402(c) because the funds transfer has not
43-30 been completed.
43-31 Sec. 4A.406. PAYMENT BY ORIGINATOR TO BENEFICIARY; DISCHARGE
43-32 OF UNDERLYING OBLIGATION. (a) Subject to Sections 4A.211(e) and
43-33 4A.405(d) and (e), the originator of a funds transfer pays the
43-34 beneficiary of the originator's payment order:
43-35 (1) at the time a payment order for the benefit of the
43-36 beneficiary is accepted by the beneficiary's bank in the funds
43-37 transfer; and
43-38 (2) in an amount equal to the amount of the order
43-39 accepted by the beneficiary's bank, but not more than the amount of
43-40 the originator's order.
43-41 (b) If payment under Subsection (a) is made to satisfy an
43-42 obligation, the obligation is discharged to the same extent
43-43 discharge would result from payment to the beneficiary of the same
43-44 amount in money, unless (i) the payment under Subsection (a) of
43-45 this section was made by a means prohibited by the contract of the
43-46 beneficiary with respect to the obligation, (ii) the beneficiary,
43-47 within a reasonable time after receiving notice of receipt of the
43-48 order by the beneficiary's bank, notified the originator of the
43-49 beneficiary's refusal of the payment, (iii) funds with respect to
43-50 the order were not withdrawn by the beneficiary or applied to a
43-51 debt of the beneficiary, and (iv) the beneficiary would suffer a
43-52 loss that could reasonably have been avoided if payment had been
43-53 made by a means complying with the contract. If payment by the
43-54 originator does not result in discharge under this section, the
43-55 originator is subrogated to the rights of the beneficiary to
43-56 receive payment from the beneficiary's bank under Section
43-57 4A.404(a).
43-58 (c) For the purpose of determining whether discharge of an
43-59 obligation occurs under Subsection (b), if the beneficiary's bank
43-60 accepts a payment order in an amount equal to the amount of the
43-61 originator's payment order less charges of one or more receiving
43-62 banks in the funds transfer, payment to the beneficiary is deemed
43-63 to be in the amount of the originator's order unless upon demand by
43-64 the beneficiary the originator does not pay the beneficiary the
43-65 amount of the deducted charges.
43-66 (d) Rights of the originator or of the beneficiary of a
43-67 funds transfer under this section may be varied only by agreement
43-68 of the originator and the beneficiary.
43-69 (Sections 4A.407-4A.500 reserved for expansion
43-70 SUBCHAPTER E. MISCELLANEOUS PROVISIONS
44-1 Sec. 4A.501. VARIATION BY AGREEMENT AND EFFECT OF FUNDS
44-2 TRANSFER SYSTEM RULE. (a) Except as otherwise provided in this
44-3 chapter, the rights and obligations of a party to a funds transfer
44-4 may be varied by agreement of the affected party.
44-5 (b) "Funds transfer system rule" means a rule of an
44-6 association of banks (i) governing transmission of payment orders
44-7 by means of a funds transfer system of the association or rights
44-8 and obligations with respect to those orders, or (ii) to the
44-9 extent the rule governs rights and obligations between banks that
44-10 are parties to a funds transfer in which a Federal Reserve Bank,
44-11 acting as an intermediary bank, sends a payment order to the
44-12 beneficiary's bank. Except as otherwise provided in this chapter,
44-13 a funds transfer system rule governing rights and obligations
44-14 between participating banks using the system may be effective even
44-15 if the rule conflicts with this chapter and indirectly affects
44-16 another party to the funds transfer who does not consent to the
44-17 rule. A funds transfer system rule may also govern rights and
44-18 obligations of parties other than participating banks using the
44-19 system to the extent stated in Sections 4A.404(c), 4A.405(d), and
44-20 4A.507(c).
44-21 Sec. 4A.502. CREDITOR PROCESS SERVED ON RECEIVING BANK;
44-22 SETOFF BY BENEFICIARY'S BANK. (a) As used in this section,
44-23 "creditor process" means levy, attachment, garnishment, notice of
44-24 lien, sequestration, or similar process issued by or on behalf of a
44-25 creditor or other claimant with respect to an account.
44-26 (b) This subsection applies to creditor process with respect
44-27 to an authorized account of the sender of a payment order if the
44-28 creditor process is served on the receiving bank. For the purpose
44-29 of determining rights with respect to the creditor process, if the
44-30 receiving bank accepts the payment order, the balance in the
44-31 authorized account is deemed to be reduced by the amount of the
44-32 payment order to the extent the bank did not otherwise receive
44-33 payment of the order, unless the creditor process is served at a
44-34 time and in a manner affording the bank a reasonable opportunity to
44-35 act on it before the bank accepts the payment order.
44-36 (c) If a beneficiary's bank has received a payment order for
44-37 payment to the beneficiary's account in the bank the following
44-38 rules apply:
44-39 (1) The bank may credit the beneficiary's account, and
44-40 the amount credited may be set off against an obligation owed by
44-41 the beneficiary to the bank or may be applied to satisfy creditor
44-42 process served on the bank with respect to the account.
44-43 (2) The bank may credit the beneficiary's account and
44-44 allow withdrawal of the amount credited unless creditor process
44-45 with respect to the account is served at a time and in a manner
44-46 affording the bank a reasonable opportunity to act to prevent
44-47 withdrawal.
44-48 (3) If creditor process with respect to the
44-49 beneficiary's account has been served and the bank has had a
44-50 reasonable opportunity to act on it, the bank may not reject the
44-51 payment order except for a reason unrelated to the service of
44-52 process.
44-53 (d) Creditor process with respect to a payment by the
44-54 originator to the beneficiary pursuant to a funds transfer may be
44-55 served only on the beneficiary's bank with respect to the debt owed
44-56 by that bank to the beneficiary. Any other bank served with the
44-57 creditor process is not obliged to act with respect to the process.
44-58 Sec. 4A.503. INJUNCTION OR RESTRAINING ORDER WITH RESPECT TO
44-59 FUNDS TRANSFER. For proper cause and in compliance with applicable
44-60 law, a court may restrain (i) a person from issuing a payment order
44-61 to initiate a funds transfer, (ii) an originator's bank from
44-62 executing the payment order of the originator, or (iii) the
44-63 beneficiary's bank from releasing funds to the beneficiary or the
44-64 beneficiary from withdrawing the funds. A court may not otherwise
44-65 restrain a person from issuing a payment order, paying or receiving
44-66 payment of a payment order, or otherwise acting with respect to a
44-67 funds transfer.
44-68 Sec. 4A.504. ORDER IN WHICH ITEMS AND PAYMENT ORDERS MAY BE
44-69 CHARGED TO ACCOUNT; ORDER OF WITHDRAWALS FROM ACCOUNT. (a) If a
44-70 receiving bank has received more than one payment order of the
45-1 sender or one or more payment orders and other items that are
45-2 payable from the sender's account, the bank may charge the sender's
45-3 account with respect to the various orders and items in any
45-4 sequence.
45-5 (b) In determining whether a credit to an account has been
45-6 withdrawn by the holder of the account or applied to a debt of the
45-7 holder of the account, credits first made to the account are first
45-8 withdrawn or applied.
45-9 Sec. 4A.505. PRECLUSION OF OBJECTION TO DEBIT OF CUSTOMER'S
45-10 ACCOUNT. If a receiving bank has received payment from its
45-11 customer with respect to a payment order issued in the name of the
45-12 customer as sender and accepted by the bank, and the customer
45-13 received notification reasonably identifying the order, the
45-14 customer is precluded from asserting that the bank is not entitled
45-15 to retain the payment unless the customer notifies the bank of the
45-16 customer's objection to the payment within one year after the
45-17 notification was received by the customer.
45-18 Sec. 4A.506. RATE OF INTEREST. (a) If, under this chapter,
45-19 a receiving bank is obliged to pay interest with respect to a
45-20 payment order issued to the bank, the amount payable may be
45-21 determined (i) by agreement of the sender and receiving bank, or
45-22 (ii) by funds transfer system rule if the payment order is
45-23 transmitted through a funds transfer system.
45-24 (b) If the amount of interest is not determined by an
45-25 agreement or rule as stated in Subsection (a), the amount is
45-26 calculated by multiplying the applicable Federal Funds rate by the
45-27 amount on which interest is payable, and then multiplying the
45-28 product by the number of days for which interest is payable. The
45-29 applicable Federal Funds rate is the average of the Federal Funds
45-30 rates published by the Federal Reserve Bank of New York for each of
45-31 the days for which interest is payable divided by 360. The Federal
45-32 Funds rate for any day on which a published rate is not available
45-33 is the same as the published rate for the next preceding day for
45-34 which there is a published rate. If a receiving bank that accepted
45-35 a payment order is required to refund payment to the sender of the
45-36 order because the funds transfer was not completed, but the failure
45-37 to complete was not due to any fault by the bank, the interest
45-38 payable is reduced by a percentage equal to the reserve requirement
45-39 on deposits of the receiving bank.
45-40 Sec. 4A.507. CHOICE OF LAW. (a) The following rules apply
45-41 unless the affected parties otherwise agree or Subsection (c)
45-42 applies:
45-43 (1) The rights and obligations between the sender of a
45-44 payment order and the receiving bank are governed by the law of the
45-45 jurisdiction in which the receiving bank is located.
45-46 (2) The rights and obligations between the
45-47 beneficiary's bank and the beneficiary are governed by the law of
45-48 the jurisdiction in which the beneficiary's bank is located.
45-49 (3) The issue of when payment is made pursuant to a
45-50 funds transfer by the originator to the beneficiary is governed by
45-51 the law of the jurisdiction in which the beneficiary's bank is
45-52 located.
45-53 (b) If the parties described by each subdivision of
45-54 Subsection (a) have made an agreement selecting the law of a
45-55 particular jurisdiction to govern rights and obligations between
45-56 each other, the law of that jurisdiction governs those rights and
45-57 obligations as to matters of construction and interpretation,
45-58 whether or not the payment order or the funds transfer bears a
45-59 reasonable relation to that jurisdiction, and as to validity, to
45-60 the extent permitted by Section 1.105 of this code.
45-61 (c) A funds transfer system rule may select the law of a
45-62 particular jurisdiction to govern (i) rights and obligations
45-63 between participating banks with respect to payment orders
45-64 transmitted or processed through the system, or (ii) the rights
45-65 and obligations of some or all parties to a funds transfer any part
45-66 of which is carried out by means of the system. A choice of law
45-67 made pursuant to clause (i) is binding on participating banks. A
45-68 choice of law made pursuant to clause (ii) is binding on the
45-69 originator, other sender, or a receiving bank having notice that
45-70 the funds transfer system might be used in the funds transfer and
46-1 of the choice of law by the system when the originator, other
46-2 sender, or receiving bank issued or accepted a payment order. The
46-3 beneficiary of a funds transfer is bound by the choice of law if,
46-4 when the funds transfer is initiated, the beneficiary has notice
46-5 that the funds transfer system might be used in the funds transfer
46-6 and of the choice of law by the system. The law of a jurisdiction
46-7 selected pursuant to this Subsection (c) may govern, as to matters
46-8 of construction and interpretation, whether or not the law bears a
46-9 reasonable relation to the matter in issue.
46-10 (d) In the event of inconsistency between an agreement under
46-11 Subsection (b) and a choice-of-law rule under Subsection (c), the
46-12 agreement under Subsection (b) prevails.
46-13 (e) If a funds transfer is made by use of more than one
46-14 funds transfer system and there is inconsistency between
46-15 choice-of-law rules of the systems, the matter in issue is governed
46-16 by the law of the selected jurisdiction that has the most
46-17 significant relationship to the matter in issue.
46-18 SECTION 8. Section 24.003(b), Business & Commerce Code, is
46-19 amended to read as follows:
46-20 (b) A debtor who is generally not paying <able to pay> the
46-21 debtor's debts as they become due is presumed to be insolvent.
46-22 SECTION 9. Section 24.004(d), Business & Commerce Code, is
46-23 amended to read as follows:
46-24 (d) "Reasonably equivalent value" includes without
46-25 limitation, a transfer or obligation that is within the range of
46-26 values for which the transferor would have <wilfully> sold the
46-27 assets in an arm's <arms> length transaction.
46-28 SECTION 10. Section 24.005(a), Business & Commerce Code, is
46-29 amended to read as follows:
46-30 (a) A transfer made or obligation incurred by a debtor is
46-31 fraudulent as to a creditor, whether the creditor's claim arose
46-32 <within a reasonable time> before or within a reasonable time after
46-33 the transfer was made or the obligation was incurred, if the debtor
46-34 made the transfer or incurred the obligation:
46-35 (1) with actual intent to hinder, delay, or defraud
46-36 any creditor of the debtor; or
46-37 (2) without receiving a reasonably equivalent value in
46-38 exchange for the transfer or obligation, and the debtor:
46-39 (A) was engaged or was about to engage in a
46-40 business or a transaction for which the remaining assets of the
46-41 debtor were unreasonably small in relation to the business or
46-42 transaction; or
46-43 (B) intended to incur, or believed or reasonably
46-44 should have believed that the debtor would incur, debts beyond the
46-45 debtor's ability to pay as they became due.
46-46 SECTION 11. Sections 24.009(c) and (d), Business & Commerce
46-47 Code, are amended to read as follows:
46-48 (c)(1) Except as provided by Subdivision (2) of this
46-49 subsection, if <If> the judgment under Subsection (b) of this
46-50 section is based upon the value of the asset transferred, the
46-51 judgment must be for an amount equal to the value of the asset at
46-52 the time of the transfer, subject to adjustment as the equities may
46-53 require.
46-54 (2) The value of the asset transferred is not to be
46-55 adjusted to include the value of improvements made by a good faith
46-56 transferee, including:
46-57 (A) physical additions or changes to the asset
46-58 transferred;
46-59 (B) repairs to the asset;
46-60 (C) payment of any tax on the asset;
46-61 (D) payment of any debt secured by a lien on the
46-62 asset that is superior or equal to the rights of a voiding creditor
46-63 under this chapter; and
46-64 (E) preservation of the asset.
46-65 (d)(1) Notwithstanding voidability of a transfer or an
46-66 obligation under this chapter, a good faith transferee or obligee
46-67 is entitled, at the transferee's or obligee's election, to the
46-68 extent of the value <of any improvements made by a good faith
46-69 transferee or obligee, and> given the debtor for the transfer or
46-70 obligation, to:
47-1 (A) a lien, prior to the rights of a voiding
47-2 creditor under this chapter <creditor's claim>, or a right to
47-3 retain any interest in the asset transferred;
47-4 (B) enforcement of any obligation incurred; or
47-5 (C) a reduction in the amount of the liability
47-6 on the judgment.
47-7 (2) Notwithstanding voidability of a transfer under
47-8 this chapter, to the extent of the value of any improvements made
47-9 by a good faith transferee, the good faith transferee is entitled
47-10 to a lien on the asset transferred prior to the rights of a voiding
47-11 creditor under this chapter <In this subsection, "improvement"
47-12 includes:>
47-13 <(A) physical additions or changes to the
47-14 property transferred;>
47-15 <(B) repairs to such property;>
47-16 <(C) payment of any tax on such property;>
47-17 <(D) payment of any debt secured by a lien on
47-18 such property that is superior or equal to the rights of the
47-19 trustee; and>
47-20 <(E) preservation of such property>.
47-21 SECTION 12. Section 24.010, Business & Commerce Code, is
47-22 amended to read as follows:
47-23 Sec. 24.010. Extinguishment of Cause of Action. (a) Except
47-24 as provided by Subsection (b) of this section, a <A> cause of
47-25 action with respect to a fraudulent transfer or obligation under
47-26 this chapter is extinguished unless action is brought:
47-27 (1) under Section 24.005(a)(1) of this code, within
47-28 four years after the transfer was made or the obligation was
47-29 incurred or, if later, within one year after the transfer or
47-30 obligation was or could reasonably have been discovered by the
47-31 claimant;
47-32 (2) under Section 24.005(a)(2) or 24.006(a) of this
47-33 code, within four years after the transfer was made or the
47-34 obligation was incurred; or
47-35 (3) under Section 24.006(b) of this code, within one
47-36 year after the transfer was made <or the obligation was incurred>.
47-37 (b) A cause of action on behalf of a spouse, minor, or ward
47-38 with respect to a fraudulent transfer or <of> obligation under this
47-39 chapter is extinguished <as to a spouse, minor, or ward> unless the
47-40 action is brought:
47-41 (1) under Section 24.005(a) or 24.006(a) of this code,
47-42 within two years after the cause of action accrues, or if later,
47-43 within one year after the transfer or obligation was or could
47-44 reasonably have been discovered by the claimant; or
47-45 (2) under Section 24.006(b) of this code within one
47-46 year after the date the transfer was made<, subject to the
47-47 provisions relating to disabilities under Chapter 16, Civil
47-48 Practice and Remedies Code>.
47-49 (c) If a creditor entitled to bring an action under this
47-50 chapter is under a legal disability when a time period prescribed
47-51 by this section starts, the time of the disability is not included
47-52 in the period. A disability that arises after the period starts
47-53 does not suspend the running of the period. A creditor may not
47-54 tack one legal disability to another to extend the period. For the
47-55 purposes of this subsection, a creditor is under a legal disability
47-56 if the creditor is:
47-57 (1) younger than 18 years of age, regardless of
47-58 whether the person is married; or
47-59 (2) of unsound mind.
47-60 SECTION 13. Subchapter D, Chapter 35, Business & Commerce
47-61 Code, is amended by adding Sections 35.51 and 35.52 to read as
47-62 follows:
47-63 Sec. 35.51. RIGHTS OF PARTIES TO CHOOSE LAW APPLICABLE TO
47-64 CERTAIN TRANSACTIONS. (a) In this section:
47-65 (1) "Transaction" includes more than one substantially
47-66 similar or related transaction entered into contemporaneously and
47-67 having at least one common party.
47-68 (2) "Qualified transaction" means a transaction under
47-69 which a party:
47-70 (A) pays or receives, or is obligated to pay or
48-1 entitled to receive, consideration with an aggregate value of at
48-2 least $1,000,000; or
48-3 (B) lends, advances, borrows, or receives, or is
48-4 obligated to lend or advance or is entitled to borrow or receive,
48-5 funds or credit with an aggregate value of at least $1,000,000.
48-6 (b) Except as provided by Subsection (e) or (f) of this
48-7 section or Section 35.52 of this code, if the parties to a
48-8 qualified transaction agree in writing that the law of a particular
48-9 jurisdiction governs an issue relating to the transaction,
48-10 including the validity or enforceability of an agreement relating
48-11 to the transaction or a provision of the agreement, and the
48-12 transaction bears a reasonable relation to that jurisdiction, the
48-13 law, other than conflict of laws rules, of that jurisdiction
48-14 governs the issue regardless of whether the application of that law
48-15 is contrary to a fundamental or public policy of this state or of
48-16 any other jurisdiction.
48-17 (c) Except as provided by Subsection (f) of this section and
48-18 Section 35.52 of this code, if the parties to a qualified
48-19 transaction agree in writing that the law of a particular
48-20 jurisdiction governs the interpretation or construction of an
48-21 agreement relating to the transaction or a provision of the
48-22 agreement, the law, other than conflict of laws rules, of that
48-23 jurisdiction governs that issue regardless of whether the
48-24 transaction bears a reasonable relation to that jurisdiction.
48-25 (d) For purposes of this section, a transaction bears a
48-26 reasonable relation to a particular jurisdiction if the
48-27 transaction, the subject matter of the transaction, or a party to
48-28 the transaction is reasonably related to that jurisdiction. A
48-29 transaction bears a reasonable relation to a particular
48-30 jurisdiction if:
48-31 (1) a party to the transaction is a resident of that
48-32 jurisdiction;
48-33 (2) a party to the transaction has its place of
48-34 business or, if that party has more than one place of business,
48-35 its chief executive office or an office from which it conducts a
48-36 substantial part of the negotiations relating to the transaction,
48-37 in that jurisdiction;
48-38 (3) all or part of the subject matter of the
48-39 transaction is located in that jurisdiction;
48-40 (4) a party to the transaction is required to perform
48-41 a substantial part of its obligations relating to the transaction,
48-42 such as delivering payments, in that jurisdiction; or
48-43 (5) a substantial part of the negotiations relating to
48-44 the transaction, and the signing of an agreement relating to the
48-45 transaction by a party to the transaction, occurred in that
48-46 jurisdiction.
48-47 (e) Except as provided by Subsection (f) of this section or
48-48 Section 35.52 of this code, if:
48-49 (1) the parties to a qualified transaction agree in
48-50 writing that the law of a particular jurisdiction governs the
48-51 validity or enforceability of an agreement relating to the
48-52 transaction or a provision of the agreement;
48-53 (2) the transaction bears a reasonable relation to
48-54 that jurisdiction; and
48-55 (3) a term of the agreement or of that provision is
48-56 invalid or unenforceable under the law, other than conflict of laws
48-57 rules, of that jurisdiction but is valid or enforceable under the
48-58 law, other than conflict of laws rules, of the jurisdiction that
48-59 has the most significant relation to the transaction, the subject
48-60 matter of the transaction, and the parties, then:
48-61 (A) the law, other than conflict of laws rules,
48-62 of the jurisdiction that has the most significant relation to the
48-63 transaction, the subject matter of the transaction, and the parties
48-64 governs the validity or enforceability of that term; and
48-65 (B) the law, other than conflict of laws rules,
48-66 of the jurisdiction that the parties agree would govern the
48-67 validity or enforceability of that agreement or of that provision
48-68 governs the validity or enforceability of the other terms of that
48-69 agreement or provision.
48-70 (f) Subsections (b)-(e) of this section do not apply to the
49-1 determination of the law that governs:
49-2 (1) whether a transaction transfers or creates an
49-3 interest in real property for security purposes or otherwise, the
49-4 nature of an interest in real property that is transferred or
49-5 created by a transaction, the method for foreclosure of a lien on
49-6 real property, the nature of an interest in real property that
49-7 results from foreclosure, or the manner and effect of recording or
49-8 failing to record evidence of a transaction that transfers or
49-9 creates an interest in real property;
49-10 (2) the validity of a marriage or an adoption, whether
49-11 a marriage has been terminated, or the effect of a marriage on
49-12 property owned by a spouse at the time of the marriage or acquired
49-13 by either spouse during the marriage;
49-14 (3) whether an instrument is a will, the rights of
49-15 persons under a will, or the rights of persons in the absence of a
49-16 will; or
49-17 (4) an issue that another statute of this state, or a
49-18 statute of the United States, provides is governed by the law of a
49-19 particular jurisdiction.
49-20 (g) Subsections (b)-(e) of this section apply to the
49-21 determination of the law that governs an issue relating to a
49-22 transaction involving real property other than those specified in
49-23 Subsection (f)(1) of this section, including the validity or
49-24 enforceability of an indebtedness incurred in consideration for the
49-25 transfer of, or the payment of which is secured by a lien on, real
49-26 property.
49-27 Sec. 35.52. LAW APPLICABLE TO CONSTRUCTION CONTRACTS.
49-28 (a) If a contract is principally for the construction or repair of
49-29 improvements to real property located in this state and the
49-30 contract contains a provision that makes the contract or any
49-31 conflict arising under it subject to the law of another state, to
49-32 litigation in the courts of another state, or to arbitration in
49-33 another state, that provision is voidable by the party that is
49-34 obligated by the contract to perform the construction or repair.
49-35 (b) A contract is principally for the construction or repair
49-36 of improvements to real property located in this state if the
49-37 contract obligates a party, as its principal obligation under the
49-38 contract, to provide labor, or labor and materials, for the
49-39 construction or repair of improvements to real property located in
49-40 this state as a general contractor or subcontractor.
49-41 (c) A contract is not principally for the construction or
49-42 repair of improvements to real property located in this state if:
49-43 (1) the contract is a partnership agreement or other
49-44 agreement governing an entity or trust;
49-45 (2) the contract provides for a loan or other
49-46 extension of credit and the party promising to construct or repair
49-47 improvements does so as part of its agreements with the lender or
49-48 other extender of credit; or
49-49 (3) the contract is for the management of real
49-50 property or improvements and the obligation to construct or repair
49-51 is part of that management.
49-52 (d) Subsections (b) and (c) of this section are not an
49-53 exclusive list of situations in which a contract is or is not
49-54 principally for the construction or repair of improvements to real
49-55 property located in this state.
49-56 SECTION 14. Section 35.53(a), Business & Commerce Code, is
49-57 amended to read as follows:
49-58 (a) This section applies to a contract<, other than a
49-59 contract for the construction or repair of improvements to real
49-60 property located in this state,> only if:
49-61 (1) the contract is for the sale, lease, exchange, or
49-62 other disposition for value of goods for the price, rental, or
49-63 other consideration of $50,000 or less; <and>
49-64 (2) any element of the execution of the contract
49-65 occurred in this state and a party to the contract is:
49-66 (A) an individual resident of this state; or
49-67 (B) an association or corporation created under
49-68 the laws of this state or having its principal place of business in
49-69 this state; and
49-70 (3) Section 1.105 of this code does not apply to the
50-1 contract.
50-2 SECTION 15. Section 9.402(a), Business & Commerce Code, is
50-3 amended to read as follows:
50-4 (a) A financing statement is sufficient if it gives the
50-5 names of the debtor and the secured party, is signed by the debtor,
50-6 gives an address of the secured party from which information
50-7 concerning the security interest may be obtained, gives a mailing
50-8 address of the debtor and contains a statement indicating the
50-9 types, or describing the items, of collateral. A financing
50-10 statement may be filed before a security agreement is made or a
50-11 security interest otherwise attaches. When the financing statement
50-12 covers crops growing or to be grown, the statement must also
50-13 contain a description of the real estate concerned. When the
50-14 financing statement covers timber to be cut or covers minerals or
50-15 the like (including oil and gas) or accounts subject to Subsection
50-16 (e) of Section 9.103, or when the financing statement is filed as a
50-17 fixture filing (Section 9.313) and the collateral is goods which
50-18 are or are to become fixtures, the statement must also comply with
50-19 Subsection (e). A <copy of a> security agreement is sufficient as
50-20 a financing statement if it contains the above information and is
50-21 signed by the debtor. A carbon, photographic or other reproduction
50-22 of a security agreement or a financing statement is sufficient as a
50-23 financing statement <if the security agreement so provides or if
50-24 the original has been filed in this state>.
50-25 SECTION 16. The following are repealed:
50-26 (1) Chapter 6, Business & Commerce Code;
50-27 (2) Section 9.111, Business & Commerce Code;
50-28 (3) Section 24.013, Business & Commerce Code; and
50-29 (4) Section 35.53(c), Business & Commerce Code.
50-30 SECTION 17. This Act takes effect September 1, 1993.
50-31 SECTION 18. The importance of this legislation and the
50-32 crowded condition of the calendars in both houses create an
50-33 emergency and an imperative public necessity that the
50-34 constitutional rule requiring bills to be read on three several
50-35 days in each house be suspended, and this rule is hereby suspended.
50-36 * * * * *
50-37 Austin,
50-38 Texas
50-39 May 13, 1993
50-40 Hon. Bob Bullock
50-41 President of the Senate
50-42 Sir:
50-43 We, your Committee on Economic Development to which was referred
50-44 H.B. No. 1113, have had the same under consideration, and I am
50-45 instructed to report it back to the Senate with the recommendation
50-46 that it do not pass, but that the Committee Substitute adopted in
50-47 lieu thereof do pass and be printed.
50-48 Parker,
50-49 Chairman
50-50 * * * * *
50-51 WITNESSES
50-52 FOR AGAINST ON
50-53 ___________________________________________________________________
50-54 Name: Marion Sanford, Jr. x
50-55 Representing: Tx Business Law Foundation
50-56 City: Austin
50-57 -------------------------------------------------------------------
50-58 Name: Rob Norcross x
50-59 Representing: Texas Bankers Association
50-60 City: Austin
50-61 -------------------------------------------------------------------
50-62 Name: Karen Neeley x
50-63 Representing: Ind. Bankers Assn. of Texas
50-64 City: Austin
50-65 -------------------------------------------------------------------