BILL ANALYSIS
H.B. 3200
By: Brady (Henderson)
Economic Development
5-25-95
Senate Committee Report (Unamended)
BACKGROUND
Chapter 8 of the Business and Commerce Code sets the ground rules
for transferring investment securities and resolving disputes that
arise when conflicting interests are claimed in those investment
securities. However, modern security transactions have extended
beyond the limits of this chapter.
PURPOSE
As proposed, H.B. 3200 amends provisions regarding investment
securities and other financial assets and substantively revises
Chapter 8 of the Uniform Commercial Code.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not grant any
additional rulemaking authority to a state officer, institution, or
agency.
SECTION BY SECTION ANALYSIS
SECTION 1. Revises Chapter 8, Business and Commerce Code, as
follows:
CHAPTER 8. INVESTMENT SECURITIES
SUBCHAPTER A. SHORT TITLE AND GENERAL MATTERS
Sec. 8.101. SHORT TITLE: Uniform Commercial Code--Investment
Securities.
Sec. 8.102. DEFINITIONS. (a) Defines "adverse claim,"
"bearer form," "broker," "certificated security," "clearing
corporation," "communicate," "entitlement holder,"
"entitlement order," "financial asset," "good faith,"
"indorsement," "instruction," "registered form," "securities
intermediary," "security," "security certificate," "security
entitlement," and "uncertificated security."
(b) Sets forth a list of definitions applying to this
chapter and the sections in which they appear, including,
"appropriate person," "control," "delivery," "investment
company security," "issuer," "overissue," "protected
purchaser," and "securities account."
(c) Provides that Chapter 1 contains general definitions and
principles of construction and interpretation applicable
throughout this chapter.
(d) Provides that the characterization of a person,
business, or transaction does not determine the
characterization of the person, business, or transaction for
purposes of any other law, regulation, or rule.
Sec. 8.103. RULES FOR DETERMINING WHETHER CERTAIN OBLIGATIONS
AND INTERESTS ARE SECURITIES OR FINANCIAL ASSETS. (a)
Provides that a share or similar equity interest issued by a
corporation, business trust, joint stock company, or similar
entity is a security.
(b) Provides that an investment company security is a
security. Defines "investment company security."
(c) Provides that an interest in a partnership or limited
liability company is not a security unless it is dealt in or
traded on securities exchanges or in securities markets, its
terms expressly provide that it is a security, or it is an
investment company security. Provides that an interest in
a partnership or limited liability company is a financial
asset if it is held in a securities account.
(d) Provides that a writing that is a security certificate
(certificate) is governed by this chapter and not by Chapter
3, but a negotiable instrument governed by Chapter 3 is a
financial asset if it is held in a securities account.
(e) Provides that an option or similar obligation issued by
a clearing corporation to its participants is not a
security, but is a financial asset.
(f) Provides that a commodity contract, as defined in
Section 9,115, is not a security or a financial asset.
Sec. 8.104. ACQUISITION OF SECURITY OR FINANCIAL ASSET OR
INTEREST THEREIN. (a) Sets forth circumstances under which a
person acquires a security or an interest therein.
(b) Provides that a person acquires a financial asset, other
than a security, if the person acquires a security
entitlement to the asset.
(c) Provides that a person who acquires a security
entitlement to a security or other financial asset has the
rights specified in Subchapter E, but is a purchaser of any
security, security entitlement, or other financial asset
held by the securities intermediary (intermediary) only to
the extent provided in Section 8.503.
(d) Provides that unless the context shows otherwise, a
person who is required by other law, regulation, rule, or
agreement to put in the possession of another person a
security or financial asset satisfies that requirement by
causing the other person to acquire an interest in the
security or financial asset pursuant to Subsection (a) or
(b).
Sec. 8.105. NOTICE OF ADVERSE CLAIM. (a) Sets forth
circumstances under which a person has notice of an adverse
claim (notice).
(b) Provides that having knowledge that a financial asset or
interest therein is or has been transferred imposes no duty
of inquiry into the rightfulness of a transaction and is not
notice. Provides that a person who knows that a
representative has transferred a financial asset or interest
therein in a transaction that is for the benefit of the
representative or otherwise in breach of duty has notice.
(c) Provides that an act or event that creates a right to
immediate performance of the principal obligation
represented by a certificate or sets a date on or after
which the certificate is to be presented or surrendered for
redemption or exchange does not itself constitute notice
except in the case of transfers after a certain time period.
(d) Provides that a purchaser of a certificated security has
notice if the certificate meets certain criteria.
(e) Provides that filing of a financing statement under
Chapter 9 is not notice.
Sec. 8.106. CONTROL. (a) Provides that a purchaser has
control of a certificated security in bearer form if the
certificated security is delivered to the purchaser.
(b) Provides that a purchaser has control of a certificated
security in registered form if the certificated security is
delivered to the purchaser and certain criteria are met.
(c) Sets forth circumstances under which a purchaser has
control of an uncertificated security.
(d) Sets forth circumstances under which a purchaser has
control of a security entitlement.
(e) Provides that if an interest in a security entitlement
is granted by the entitlement holder (holder) to the
holder's own intermediary, the intermediary has control.
(f) Provides that a purchaser who has satisfied the
requirements of Subsection (c)(2) or (d)(2) has control even
if the registered owner or holder retains the right to make
substitutions for the uncertificated security or security
entitlement, to originate instructions or entitlement orders
to the issuer or intermediary, or otherwise to deal with the
uncertificated security or security entitlement.
(g) Prohibits an issuer or an intermediary from entering
into an agreement of the kind described in Subsection
(c)(2) or (d)(2) without the consent of the registered owner
or holder, but an issuer or a securities intermediary is not
required to enter into such an agreement even though the
owner or holder so direct. Provides that an issuer or
intermediary that has entered into such an agreement is not
required to confirm the existence of the agreement to
another party unless requested to do so by the owner or
holder.
Sec. 8.107. WHETHER INDORSEMENT, INSTRUCTION, OR ENTITLEMENT
ORDER IS EFFECTIVE. (a) Defines "appropriate person."
(b) Sets forth circumstances under which an indorsement,
instruction, or entitlement order (order) is effective.
(c) Provides that an order made by a representative is
effective even if the representative has failed to comply
with a controlling instrument or with the law of the state
having jurisdiction of the representative relationship; or
the representative's action in making the order or using the
proceeds is otherwise a breach of duty.
(d) Provides that if a security is registered in the name of
or specially indorsed to a person described as a
representative, or if a securities account is maintained in
the name of a person described as a representative, an order
made by the person is effective even though the person is no
longer serving in the described capacity.
(e) Provides that the effectiveness of an order is
determined as of the date the order is made, and an order
does not become ineffective by reason of any later change of
circumstances.
Sec. 8.108. WARRANTIES IN DIRECT HOLDING. (a) Sets forth
warranties that a person who transfers a certificated security
to a purchaser for value makes to the purchaser, and an
indorser, if the transfer is by indorsement, makes to any
subsequent purchaser.
(b) Sets forth warranties that a person who originates an
instruction for registration of transfer of an
uncertificated security to a purchaser for value makes to
the purchaser.
(c) Sets forth warranties that a person who transfers an
uncertificated security to a purchaser for value and does
not originate an instruction in connection with the transfer
makes.
(d) Sets forth warranties that a person who indorses a
certificate makes to the issuer.
(e) Sets forth warranties that a person who originates an
instruction for registration of transfer of an
uncertificated security makes to the issuer.
(f) Provides that a person who presents a certificated
security for registration of transfer or for payment or
exchange warrants to the issuer that the person is entitled
to the registration, payment, or exchange, but a purchaser
for value and without notice to whom transfer is registered
warrants only that the person has no knowledge of any
unauthorized signature in a necessary indorsement.
(g) Provides that if a person acts as agent in delivering a
certificated security to a purchaser, the identity of the
principal was known to the person to whom the certificate
was delivered, and the certificate delivered by the agent
from the principal or received by the agent from another
person at the direction of the principal, the person
delivering the certificate warrants only that the delivering
person has authority to act for the principal and does not
know of any adverse claim to the certificated security.
(h) Provides that a secured party who redelivers a
certificate received, or after payment and on order of the
debtor delivers the certificate to another person, makes
only the warranties of an agency under Subsection (g).
(i) Provides that, except as provided in Subsection (g), a
broker acting for a customer makes to the issuer and a
purchaser the warranties provided in Subsections (a)-(f).
Provides that a broker that delivers a certificate to its
customer or makes to the customer the warranties provided in
Subsection (a) or (b), and has the rights and privileges of
a purchaser. Provides that the warranties of and in favor
of the broker are in addition to applicable warranties given
by and in favor of the customer.
Sec. 8.109. WARRANTIES IN INDIRECT HOLDING. (a) Sets forth
warranties that a purchaser who originates an entitlement
order to an intermediary makes to the intermediary.
(b) Provides that a person who delivers a certificate to an
intermediary for credit to a securities account or
originates an instruction with respect to the uncertificated
security directing that the uncertificated security be
credited to a securities account makes to the intermediary
the warranties specified in Section 8.108(a) or (b).
(c) Provides that if an intermediary delivers a certificate
to its holder or cause its holder to be registered as the
owner of an uncertificated security, the intermediary makes
to the holder the warranties specified in Section 8.108(a)
or (b).
Sec. 8.110. APPLICABILITY; CHOICE OF LAW. (a) Sets forth
matters over which the local law of the issuer's jurisdiction
governs.
(b) Sets forth matters over which the local law of the
intermediary's jurisdiction governs.
(c) Provides that the local law of the jurisdiction in which
a certificate is located at the time of delivery governs
whether an adverse claim can be asserted against a person to
whom the certificate is delivered.
(d) Defines "issuer's jurisdiction."
(e) Sets forth rules that determine an intermediary's
jurisdiction for purposes of this section.
(f) Provides that an intermediary's jurisdiction is not
determined by the physical location of the certificates
representing financial assets, the jurisdiction in which is
organized the issuer of the financial asset with respect to
which an entitlement holder has a security entitlement, or
the location of facilities for date processing or other
recordkeeping concerning the account.
Sec. 8.111. CLEARING CORPORATION RULES. Provides that a
rules adopted by a clearing corporation governing rights and
obligations among the clearing corporation and its
participants in the clearing corporation is effective even if
the rule conflicts with this chapter and affects another party
who does not consent to the rule.
Sec. 8.112. CREDITOR'S LEGAL PROCESS. (a) Authorizes the
interest of a debtor in a certificated security to be reached
by a creditor only by actual seizure of the certificate by a
creditor only by actual seizure of the certificate by the
officer making the attachment or levy, except as otherwise
provided in Subsection (d). Authorizes a certificated
security for which the certificate has been surrendered to the
issuer to be reached by a creditor by a legal process on the
issuer.
(b) Authorizes the interest of a debtor in an uncertificated
security to be reached by a creditor only by legal process
on the issuer at its chief executive office in the United
States, except as provided in Subsection (d).
(c) Authorizes the interest of a debtor in a security
entitlement to be reached by a creditor only by legal
process on the intermediary with whom the debtor's
securities account is maintained, except as otherwise
provided in Subsection (d).
(d) Authorizes the interest of debtor in a certificated
security for which the certificate is in the possession of
a secured party, or in an uncertificated security registered
in the name of a secured party, or in a security entitlement
maintained in the name of a secured party to be reached by
a creditor by a legal process on the secured party.
(e) Entitles a creditor whose debtor is the owner of a
certificated security, uncertificated security, or security
entitlement is to aid from a court of competent jurisdiction
in reaching the certificated security, uncertificated
security, or security entitlement or in satisfying the claim
by means allowed at law or in equity in regard to property
that cannot readily be reached by other legal process.
Sec. 8.113. STATUTE OF FRAUDS INAPPLICABLE. Provides that a
contract or modification of a contract for the sale or
purchase of a security is enforceable whether or not there is
a writing signed or record authenticated by a party against
whom enforcement is sought.
Sec. 8.114. EVIDENTIARY RULES CONCERNING CERTIFICATED
SECURITIES. Sets forth rules that apply in an action on a
certificated security against the issuer.
Sec. 8.115. SECURITIES INTERMEDIARY AND OTHERS NOT LIABLE TO
ADVERSE CLAIMANT. Provides that an intermediary that has
transferred a financial asset pursuant to an effective
entitlement order, or a broker or other agent or bailee that
has dealt with a financial asset at the direction of its
customer or principal, is not liable to a person having an
adverse claim to the financial asset, unless the intermediary,
or broker or other agent or bailee performed certain actions.
Sec. 8.116. SECURITIES INTERMEDIARY AS PURCHASER FOR VALUE.
Provides that an intermediary that receives a financial asset
and establishes a security entitlement to the financial asset
in favor of a holder is a purchaser for value of the financial
asset. Provides that an intermediary that acquires a security
entitlement to a financial asset from another intermediary
acquires the security entitlement for value if the acquiring
intermediary establishes a security entitlement to the
financial asset in favor of a holder.
SUBCHAPTER B. ISSUE AND ISSUER
Sec. 8.201. ISSUER. (a) Defines "issuer" with respect to an
obligation on or a defense to a security.
(b) Provides that a guarantor is an issuer to the extent of
its guaranty, with respect to an obligation on or defense to
a security.
(c) Defines "issuer," with respect to a registration of a
transfer.
Sec. 8.202. ISSUER'S RESPONSIBILITY AND DEFENSES; NOTICE OF
DEFECT OR DEFENSE. (a) Provides that even against a purchaser
for value and without notice the terms of a certificated
security include terms stated on the certificate and terms
made part of the security by reference to another document or
to a statute, ordinance, rule, or the like to the extent the
terms referred to do not conflict with terms stated on the
certificate. Provides that a reference does not of itself
charge a purchaser for value with notice of a defect going to
the validity of the security. Provides that the terms of an
uncertificated security include those state in any document or
in a statute, ordinance, rule, or the like pursuant to which
the security is issue.
(b) Sets forth the rules that apply if an issuer asserts
that a security is not valid.
(c) Provides that lack of genuineness of a certificated
security is a complete defense, except as provided in
Section 8.205.
(d) Provides that all other defenses of the issuer of a
security are ineffective against a purchaser for value who
has taken the certificated security without notice of the
particular defense.
(e) Provides that this section does not affect the right of
a party to cancel a contract for a security "when, as and if
issued" or "when distributed" in the event of a material
change in the character of the security that is the subject
of the contract or in the plan or arrangement pursuant to
which the security is to be issued or distributed.
(f) Prohibits the issuer from asserting any defense that the
issuer could not assert if the holder held the security
directly, if a security is held by an intermediary against
whom a holder has a security entitlement with respect to the
security.
Sec. 8.203. STALENESS AS NOTICE OF DEFECT OR DEFENSE.
Provides that after an act or event, other than a call that
has been revoked, a purchaser is charged with notice of any
defect in its issue or defense of the issuer if the act or
event requires certain action on presentation or surrender of
the certificate, the money or security is available on the
date set for payment or exchange, and the purchaser takes the
security more than one year after that date; or the purchaser
takes the security more than two years after the date set for
surrender or presentation of the certificate or the date on
which performance became due.
Sec. 8.204. EFFECT OF ISSUER'S RESTRICTION ON TRANSFER.
Provides that a restriction on transfer of a security imposed
by the issuer is ineffective against a person without
knowledge of the restriction unless certain conditions are
met.
Sec. 8.205. EFFECT OF UNAUTHORIZED SIGNATURE ON SECURITY
CERTIFICATE. Provides that an unauthorized signature placed
on a certificate before or in the course of issue is
ineffective, but the signature is effective in favor of a
purchaser for value of the certificated security if the
purchaser is without notice of the lack of authority and the
signing has been done by certain a certain party.
Sec. 8.206. COMPLETION OR ALTERATION OF SECURITY CERTIFICATE.
(a) Provides that if a certificate contains the signatures
necessary to its issue or transfer but is incomplete in any
other respect any person may complete it by filling in the
blanks as authorized; and even if the blanks are incorrectly
filled in, the certificate as completed is enforceable by a
purchaser who took it for value and without notice of the
incorrectness.
(b) Provides that a complete certificate that has been
improperly altered remains enforceable, but only according
to its original terms.
Sec. 8.207. RIGHTS AND DUTIES OF ISSUER WITH RESPECT TO
REGISTERED OWNERS. (a) Authorizes, before due presentment for
registration of transfer of a certificated security in
registered form or of an instruction requesting registration
of transfer of an uncertificated security, the issuer or
indenture trustee to treat the registered owner as the person
exclusively entitled to vote, receive notifications, and
otherwise exercise all the rights and powers of an owner.
(b) Provides that this chapter does not affect the liability
of the registered owner of a security for a call,
assessment, or the like.
Sec. 8.208. EFFECT OF SIGNATURE OF AUTHENTICATING TRUSTEE,
REGISTRAR, OR TRANSFER AGENT. (a) Sets forth warrants that a
person signing a certificate as authenticating trustee,
registrar, transfer agent, or the like makes to a purchaser
for value of the certificated security, if the purchaser is
without notice of a particular defect.
(b) Provides that unless otherwise agreed, a person signing
under Subsection (a) does not assume responsibility for the
validity of the security in other respects.
Sec. 8.209. ISSUER'S LIEN. Provides that a lien in favor of
an issuer on a certificated security is valid against a
purchaser only if the right of the issuer to the lien is noted
conspicuously on the certificate.
Sec. 8.210. OVERISSUE. (a) Defines "overissue."
(b) Provides that the provisions of this chapter that
validate a security or compel its issue or reissue do not
apply to the extent that validation, issue, or reissue would
result in overissue.
(c) Authorizes a person entitled to issue or deliver, if an
identical security not constituting an overissue is
available for purchase, to purchase the security and deliver
it if certificated or register its transfer if
uncertificated, against surrender of any certificate the
person holds.
(d) Authorizes a person entitled to issue or validation to
recover from the issuer the price the person or the last
purchaser for value paid for it with interest if a security
is not available for purchase.
SUBCHAPTER C. TRANSFER OF CERTIFICATED AND
UNCERTIFICATED SECURITIES
Sec. 8.301. DELIVERY. (a) Sets forth circumstances under
which delivery of a certificated security to a purchaser
occurs.
(b) Sets forth circumstances under which a delivery of an
uncertificated security to a purchaser occurs.
Sec. 8.302. RIGHTS OF PURCHASER. (a) Provides that the
purchaser acquires all rights in the security that the
transferor had or had power to transfer, with exceptions.
(b) Provides that a purchaser of a limited interest acquires
rights only to the extent of the interest purchased.
(c) Provides that a purchaser of a certificated security who
as a previous holder had notice does not improve its
position by taking from a protected purchaser.
Sec. 8.303. PROTECTED PURCHASER. (a) Defines "protected
purchaser."
(b) Provides that a protected purchaser acquires a
purchaser's interest in the security free of any adverse
claim.
Sec. 8.304. INDORSEMENT. (a) Authorizes an indorsement to be
in blank or special. Provides that an indorsement in blank
includes an indorsement to bearer. Provides that a special
indorsement specifies to whom a security is to be transferred
or who has power to transfer it. Authorizes a holder to
convert a blank into a special indorsement.
(b) Provides that an indorsement purporting to be only of
part of a certificate representing units intended to be
separately transferable is effective to the extent of the
indorsement.
(c) Provides that an indorsement does not constitute a
transfer until delivery of the certificate or, if the
indorsement is on a separate document, until delivery of
both the document and the certificate.
(d) Authorizes the purchaser to become a protected purchaser
only when the indorsement is supplied if a certificate in
registered form has been delivered without a necessary
indorsement.
(e) Authorizes an indorsement of a certificate in bearer
form to give notice to the certificate, but it does not
otherwise affect a holder's right to registration.
(f) Provides that a person making an indorsement assumes
only the obligations provided in Section 8.108 and not an
obligation that the security will be honored by the
treasurer, unless otherwise agreed.
Sec. 8.305. INSTRUCTION. (a) Authorizes any person to
complete an instruction that is originated by an appropriate
person but incomplete in other respects, and authorizes the
issuer to rely on it as completed.
(b) Provides that unless otherwise agreed, a person
initiating an instruction assumes only the obligations
imposed by Section 8.108 and not an obligation that the
security will be honored by the issuer.
Sec. 8.306. EFFECT OF GUARANTEEING SIGNATURE, INDORSEMENT, OR
INSTRUCTION. (a) Sets forth warrants that a person who
guarantees a signature of an indorser of a certificate makes
at the time of signing.
(b) Sets forth warrants that a person who guarantees a
signature of the originator of an instruction makes at the
time of signing.
(c) Provides that a person who specially guarantees the
signature of an originator of an instruction makes the
warranties of a signature guarantor, in addition to other
warrants.
(d) Provides that a guarantor under Subsections (a) and (b)
or a special guarantor under Subsection (c) does not
otherwise warrant the rightfulness of the transfer.
(e) Provides that a person who guarantees an indorsement of
a certificate makes the warranties of a signature guarantor
and also warrants the rightfulness of the transfer in all
respects.
(f) Provides that a person who guarantees an instruction
requesting the transfer of an uncertificated security makes
the warranties of a special signature guarantor and also
warrants the rightfulness of the transfer in all respects.
(g) Prohibits an issuer from requiring a special guaranty of
signature, of indorsement, or of instruction as a condition
to registration of transfer.
(h) Provides that the warranties are made to a person taking
or dealing with the security in reliance on the guaranty and
the guarantor is liable to the person for loss resulting
from their breach. Provides that an indorser or originator
of instruction whose signature, indorsement, or instruction
has been guaranteed is liable to a guarantor for any loss
suffered by the guarantor as a result of breach of the
warranties of the guarantor.
Sec. 8.307. PURCHASER'S RIGHT TO REQUISITES FOR REGISTRATION
OF TRANSFER. Requires the transferor of a security on due
demand to supply the purchaser with proof of authority to
transfer or with any other requisite necessary to obtain
registration of the transfer of the security, but if the
transfer is not for value, a transferor need not comply unless
the purchaser pays the expenses. Authorizes the purchaser to
reject or rescind the transfer if the transferor fails to
comply with the demand.
SUBCHAPTER D. REGISTRATION
Sec. 8.401. DUTY OF ISSUER TO REGISTER TRANSFER. (a) Sets
forth circumstances under which the issuer is required to
register the transfer as requested if a certificated security
in registered form is presented to an issuer with a request to
register transfer of an uncertificated security.
(b) Provides that the issuer is liable to a person
presenting a certificated security or an instruction for
registration or to the person's principal for loss resulting
from unreasonable delay in registration or failure or
refusal to register the transfer.
Sec. 8.402. ASSURANCE THAT INDORSEMENT OR INSTRUCTION IS
EFFECTIVE. (a) Authorizes an issuer to require a certain
assurance that each necessary indorsement or each instruction
is genuine and authorized.
(b) Authorizes an issuer to elect to require reasonable
assurance beyond that specified in this section.
(c) Defines "appropriate evidence of appointment or
incumbency."
Sec. 8.403. DEMAND THAT ISSUED NOT REGISTER TRANSFER. (a)
Authorizes a person who is an appropriate person to make an
indorsement or originate an instruction to demand that the
issuer not register transfer of a security by communicating to
the issuer a notification that identifies the registered owner
and the issue of which the security is a part and provides an
address for communications directed to the person making the
demand. Provides that the demand is effective only if it is
received by the issuer in a form affording the issuer
opportunity to act on it.
(b) Sets forth notifications that the issuer is required to
communicate to the person who initiated the demand and the
person who presented the security for registration of
transfer or initiated the instruction, if a certificated
security in registered form or an instruction is presented
to an issuer with a request to register transfer or to
register transfer of an uncertificated security after a
demand that the issuer not register transfer has become
effective.
(c) Prohibits the period of time for which the issuer will
withhold registration of transfer from exceeding 30 days
after the date of the communication. Authorizes a shorter
period to be specified by the issuer.
(d) Provides that an issuer is not liable to a person who
initiated a demand that the issuer not register transfer for
any loss the person suffers as a result of registration of
a transfer pursuant to an effective indorsement or
instruction if the person who initiated the demand does not
perform certain actions within a time specified in the
communication.
(e) Provides that this section does not relieve an issuer
from liability for registering transfer pursuant to an
indorsement or instruction that was not effective.
Sec. 8.404. WRONGFUL REGISTRATION. (a) Provides that an
issuer is liable for wrongful registration of transfer if the
issuer has registered a transfer of a security to a person not
entitled to it, and the transfer was registered under certain
conditions.
(b) Requires an issuer that is liable for wrongful
registration of transfer under Subsection (a) on demand to
provide the person entitled to the security with a like
certificated or uncertificated security and any payments or
distributions that the person did not receive as a result of
the wrongful registration. Provides that if an overissue
would result, the issuer's liability to provide the person
with a like security is governed by Section 8.210.
(c) Provides that except as provided in Subsection (a) or
in a law relating to the collection of taxes, an issuer is
not liable to an owner or other person suffering loss as a
result of the registration of a transfer of a security if
registration was made pursuant to an effective indorsement
or instruction.
Sec. 8.405. REPLACEMENT OF LOST, DESTROYED, OR WRONGFULLY
TAKEN SECURITY CERTIFICATE. (a) Requires the issuer to issue
a new certificate if the owner of a certificated security,
whether in registered or bearer form, claims that the
certificate has been lost, destroyed, or wrongfully taken, and
the owner satisfies certain conditions.
(b) Requires the issuer, if a protected purchaser of the
original certificate presents it for registration of
transfer, to register the transfer unless an overissue would
result. Provides that the issuer's liability is governed by
Section 8.210 in that case. Authorizes an issuer recover
the new certificate from a person to whom it was issued or
any person taking under that person, except a protected
purchaser.
Sec. 8.406. OBLIGATION TO NOTIFY ISSUER OF LOST, DESTROYED,
OR WRONGFULLY TAKEN SECURITY CERTIFICATE. Provides that if a
security certificate has been lost, apparently destroyed, or
wrongfully taken, and the owner fails to notify the issuer of
that fact within a reasonable time after the owner has notice
of it and the issuer registers a transfer of the security
before receiving notification, the owner may not assert
against the issuer a claim for registering that transfer under
Section 8.404 or a claim to a new security certificate under
Section 8.405.
Sec. 8.407. AUTHENTICATING TRUSTEE, TRANSFER AGENT, AND
REGISTRAR. Provides that a person acting as authenticating
trustee, transfer agent, registrar, or other agent for an
issuer in the registration of a transfer of its securities, in
the issue of new security certificates or uncertificated
securities, or in the cancellation of surrendered security
certificates has the same obligation to the holder or owner of
a certificated or uncertificated security with regard to the
particular functions performed as the issuer has in regard to
those functions.
SUBCHAPTER E. SECURITY ENTITLEMENT
Sec. 8.501. SECURITIES ACCOUNT; ACQUISITION OF SECURITY
ENTITLEMENT FROM SECURITIES INTERMEDIARY. (a) Defines
"securities account."
(b) Provides that a person acquires a security entitlement
if a intermediary indicates by book entry that a financial
asset has been credited to the person's security account or
receives certain information.
(c) Provides that if a condition of Subsection (b) has been
met, a person has a security entitlement even though the
intermediary does not itself hold the financial asset.
(d) Provides that if a intermediary holds a financial asset
for another person, and the financial asset is registered in
the name of, payable to the order of, or specifically
indorsed to the other person and has not been indorsed to
the intermediary or in blank, the other person is treated as
holding the financial asset directly rather than as having
a security entitlement with respect to the financial asset.
(e) Provides that issuance of a security is not
establishment of a security entitlement.
Sec. 8.502. ASSERTION OF ADVERSE CLAIM AGAINST ENTITLEMENT
HOLDER. Prohibits an action based on an adverse claim to a
financial asset whether framed in conversation, replevin,
constructive trust, equitable lien, or other theory, from
being asserted against a person who acquires a security
entitlement under Section 8.501 for value and without notice
of the adverse claim.
Sec. 8.503. PROPERTY INTEREST OF ENTITLEMENT HOLDER IN
FINANCIAL ASSET HELD BY SECURITIES INTERMEDIARY. (a) Provides
that to the extent necessary for a intermediary to satisfy all
security entitlement with respect to a particular financial
asset, all interests in that financial asset held by the
intermediary are held by the intermediary for the holders, and
are not subject to claims of creditors of the intermediary,
except as otherwise provided in Section 8.511.
(b) Provides that a holder's property interest with respect
to a particular financial asset under Subsection (a) is a
pro rata property interest in all interests in that
financial asset held by the intermediary, without regard to
the time the holder acquired the security entitlement or the
time the intermediary acquired the interest in that
financial asset.
(c) Authorizes a holder's property interest with respect to
a particular financial asset under Subsection (a) to be
enforced against the intermediary only by exercise of the
holder's rights under Section 8.505-8.508.
(d) Authorizes a holder's property interest with respect to
a particular financial asset under Subsection (a) to be
enforced against a purchaser of the financial asset or
interest therein only under certain conditions.
(e) Authorizes the trustee or other liquidator, acting on
behalf of all holders having security entitlement with
respect to a particular financial asset, to recover the
financial asset, or interest therein, form the purchaser.
Provides that if the trustee or other liquidator elects not
to pursue that right, a holder whose security entitlement
remains unsatisfied has the right to recover its interest in
the financial asset from the purchaser.
(f) Prohibits an action based on the holder's property
interest with respect to a particular financial asset under
Subsection (a), whether framed in conversion, replevin,
constructive trust, equitable lien, or other theory, from
being asserted against any purchaser of a financial asset or
interest therein who gives value, obtains control, and does
not act in collusion with the intermediary in violating the
intermediary's obligations under Section 8.504.
Sec. 8.504. DUTY OF SECURITIES INTERMEDIARY TO MAINTAIN
FINANCIAL ASSET. (a) Requires an intermediary to promptly
obtain and thereafter maintain a financial asset in a quantity
corresponding to the aggregate of all security entitlements it
has established in favor of its holders with respect to that
financial asset. Authorizes the intermediary to maintain those
financial assets directly or through one or more other
intermediaries.
(b) Prohibits an intermediary from granting any security
interests in a financial asset it is obligated to maintain
pursuant to Subsection (a).
(c) Sets forth the conditions under which a intermediary
satisfies the duty in Subsection (a).
(d) Provides that this section does not apply to a clearing
corporation that is itself the obligor of an option or
similar obligation to which its holders have securities
entitlement.
Sec. 8.505. DUTY OF SECURITIES INTERMEDIARY WITH RESPECT TO
PAYMENTS AND DISTRIBUTIONS. (a) Requires an intermediary
take action to the obtain a payment or distribution make by
the issuer of a financial asset. Sets forth the conditions
under which an intermediary satisfies the duty.
(b) Provides that an intermediary is obligated to its
entitlement holder for a payment or distribution made by the
issuer of a financial asset if the payment or distribution
is received by the intermediary.
Sec. 8.506. DUTY OF SECURITIES INTERMEDIARY TO EXERCISE
RIGHTS AS DIRECTED BY ENTITLEMENT HOLDER. Requires an
intermediary to exercise rights with respect to a financial
asset if directed to do so by a holder. Sets forth the
conditions under which an intermediary satisfies the duty.
Sec. 8.507. DUTY OF A SECURITIES INTERMEDIARY TO COMPLY WITH
ENTITLEMENT ORDER. (a) Requires an intermediary to comply with
an entitlement order if the entitlement order is originated by
the appropriate person, the intermediary has had reasonable
opportunity to assure itself that the entitlement order is
genuine and authorized, and the intermediary has had
reasonable opportunity to comply with the order. Sets forth
the conditions under which an intermediary satisfies the duty.
(b) Requires the intermediary, if an intermediary transfers
a financial asset pursuant to an ineffective entitlement
order, to reestablish a security entitlement in favor of the
person entitled to it and pay or credit any payments or
distributions that the person did not receive as a result of
the wrongful transfer. Provides that if the intermediary
does not reestablish a security entitlement, the
intermediary is liable to the holder for damages.
Sec. 8.508. DUTY OF SECURITIES INTERMEDIARY TO CHANGE
ENTITLEMENT HOLDER'S POSITION TO OTHER FORM OF SECURITY
HOLDING. Requires an intermediary to act at the direction of
an entitlement into another available form of holding for
which the holder is eligible or to cause the financial asset
to be transferred to a securities account of the holder with
another intermediary. Sets forth the conditions under which
an intermediary satisfies the duty.
Sec. 8.509. SPECIFICATION OF DUTIES OF SECURITIES
INTERMEDIARY BY OTHER STATUTE OR REGULATION; MANNER OF
PERFORMANCE OF DUTIES OF SECURITIES INTERMEDIARY AND EXERCISE
OF RIGHTS OF ENTITLEMENT HOLDER. (a) Provides that if the
substance of a duty imposed on an intermediary by Sections
8.504-8.508 is the subject of another statute, regulation, or
rule, compliance with that statute, regulation, or rule
satisfies the duty.
(b) Requires an intermediary to perform its duties and the
entitlement holder to exercise its rights in a commercially
reasonable manner to the extent that specific standards for
the performance of the duties of a securities intermediary
or the exercise of the rights of a holder are not specified
by another statute, regulation, or rule or by agreement
between the intermediary and the holder.
(c) Sets forth the rights to which the obligation of an
intermediary to perform the duties imposed by Sections
8.504-8.508 are subject.
(d) Provides that Sections 8.504-8.508 do not require an
intermediary to take any action that is prohibited by
another statute, regulation, or rule.
Sec. 8.510. RIGHTS OF PURCHASER OF SECURITY ENTITLEMENT FROM
ENTITLEMENT HOLDER. (a) Prohibits an action based on an
adverse claim to a financial asset or security entitlement,
whether framed in conversion, replevin, constructive trust,
equitable lien, or other theory, from being asserted against
a person who purchases a security entitlement, or an interest
therein, from a holder if the purchaser gives value, does not
have notice, and obtains control.
(b) Provides that if an adverse claim could not have been
asserted against a holder under Section 8.502, the adverse
claim cannot be asserted against a person who purchased from
the entitlement holder a security entitlement or an interest
therein.
(c) Provides that in a case not covered by the priority
rules in Chapter 9, a purchaser for value of a security
entitlement, or an interest therein, who obtains control has
priority over a purchaser of a security entitlement, or an
interest therein, who does not obtain control. Provides
that purchasers who have control rank equally, except that
a intermediary as purchaser has priority over a conflicting
purchaser who has control unless otherwise agreed on by the
intermediary.
SECTION 2. Amends Section 9.103(f), Business and Commerce Code, as
follows:
(f) New heading: Investment property.
(1) Provides that this subsection applies to investment
property.
(2)-(5) Sets forth the jurisdiction, except as otherwise
provided in Subdivision (6), governing the perfection of a
security interest, effect of perfection or non-perfection,
and the priority of a security interest in the certificated
security, in an uncertificated security, in a security
entitlement or securities account, and in a commodity
contract or commodity account. Sets forth the rules
determining a commodity intermediary's jurisdiction.
(6) Provides that perfection of a security interest by
filing, automatic perfection of a security interest in
investment property granted by a broker or intermediary, and
automatic perfection of a security interest in a commodity
contract or commodity account granted by a commodity
intermediary are governed by the local law of the
jurisdiction in which the debtor is located. Deletes
provisions regarding uncertificated securities.
SECTION 3. Amends Section 9.105, Business and Commerce Code, as
follows:
(a) Redefines "goods" and "instrument."
(b) Expands the list of definitions applying to this chapter
and the sections in which they appear.
(c) Expands the list of definitions in other chapters that
apply to this chapter.
SECTION 4. Amends Section 9.106, Business and Commerce Code, to
redefine "general intangibles."
SECTION 5. Amends Chapter 9A, Business and Commerce Code, by adding
Sections 9.115 and 9.116, as follows:
Sec. 9.115. INVESTMENT PROPERTY. (a) Defines "commodity
account," "commodity contract," "commodity customer,"
"commodity intermediary," "control," and "investment
property."
(b) Provides that attachment or perfection of a security
interest in a securities account is also attachment or
perfection of a security interest in all security
entitlements carried in the securities account. Provides
that attachment or perfection of a security interest in a
commodity account is also attachment or perfection of a
security interest in all commodity contracts carried in the
commodity account.
(c) Provides that a description of collateral in a security
agreement or financing statement is sufficient to create or
perfect a security interest in a certificated security,
uncertificated security, security entitlement, securities
account, commodity contract, or commodity account. Provides
that a description of investment property collateral in a
security agreement or financing statement is sufficient if
it identifies the collateral by any method, if the identity
of the collateral is objectively determinable.
(d) Requires perfection of a security interest in investment
property to be governed by certain rules.
(e) Requires priority between conflicting security interests
in the same investment property to be governed by certain
rules.
(f) Provides that, if a certificate in registered form is
delivered to a secured party pursuant to agreement, a
written security agreement is not required for attachment or
enforceability of the security interest, delivery suffices
for perfection of the security interest, and the security
interest has priority over a conflicting security interest
perfected by means other than control, even if a necessary
indorsement is lacking.
Sec. 9.116. SECURITY INTEREST ARISING IN PURCHASE OR DELIVERY
OF FINANCIAL ASSET. (a) Provides that, if a person buys a
financial asset through an intermediary in a transaction in
which the buyer is obligated to pay the purchase price to the
intermediary at the time of the purchase, and the security
intermediary credits the financial asset to the buyer's
securities account before the buyer pays the intermediary, the
intermediary has a security interest in the buyer's security
entitlement securing the buyer's obligation to pay. Provides
that a security agreement is not required for attachment or
enforceability of the security interest, and the security
interest is automatically perfected.
(b) Provides that, if a certificated security or other
financial asset represented by a writing that in the
ordinary course of business is transferred by delivery with
any necessary indorsement or assignment is delivered
pursuant to an agreement between persons in the business of
dealing with such securities or financial assets and the
agreement calls for delivery versus payment, the person
delivering the certificate or other financial asset has a
security interest in the certificates security or other
financial asset securing the seller's right to receive
payment. Provides that a security agreement is not requires
for attachment or enforceability of the security interest,
and the security interest is automatically perfected.
SECTION 6. Amends Section 9.203(a), Business and Commerce Code, to
provide that, subject to the provisions of Sections 9.115 and 9.116
on security interests in investment property, rather than Section
8.321 on security interests in securities, among other provisions,
a security interest is not enforceable against the debtor or third
parties with respect to the collateral and does not attach unless,
among other conditions, the collateral is investment property and
the secured party has control pursuant to agreement.
SECTION 7. Amends Section 9.301(a), Business and Commerce Code, to
provide that, except as provided in Subsection (b), an unperfected
security interest is subordinate to the rights, among others, of a
person who is not a secured party and who is a transferee to the
extent that the person gives value without knowledge of the
security interest and before it is perfected, in the case of
investment property.
SECTION 8. Amends Section 9.302(a), Business and Commerce Code, to
require a financing statement to be filed to perfect all security
interests except, among others, a security interest temporarily
perfected in certificated securities or a security interest in
investment property that is perfected without filing under Section
9.115 or 9.116. Deletes a reference to Section 8.321.
SECTION 9. Amends Section 9.303(a), Business and Commerce Code, to
provide that a security interest is perfected when it has attached
and when all of the applicable steps required for perfection have
been taken, as specified in, among others, Section 9.115.
SECTION 10. Amends Sections 9.304(a), (d), and (e), Business and
Commerce Code, as follows:
(a) Deletes certificated securities from exceptions to this
subsection.
(d) Provides that a security interest in certificated
securities is perfected without filing or the taking of
possession for a period of 21 days from the time it attaches
to the extent that it arises for new value given under a
written security agreement.
(e) Makes a conforming change.
SECTION 11. Amends Section 9.305, Business and Commerce Code, to
delete certificated securities from an exception to this section.
SECTION 12. Amends Sections 9.306(a) and (c), Business and
Commerce Code, as follows:
(a) Redefines "proceeds."
(c) Expands the list of exceptions to this subsection to
include a condition in which the original collateral was
investment property and the proceeds are identifiable cash
proceeds.
SECTION 13. Amends Section 9.309, Business and Commerce Code, to
provide that nothing in this chapter limits the rights of a
protected, rather than bona fide, purchaser of a security under
Section 8.303, rather then Section 8.302.
SECTION 14. Amends Sections 9.312(a) and (g), Business and
Commerce Code, as follows:
(a) Requires the rules of priority to govern in Section 4.210,
rather than Section 4.208, with respect to the security
interests of collecting banks in items being collected,
accompanying documents, and proceeds; and Section 9.115 on
security interests in investment property.
(g) Provides that, if future advances are made while a
security interest is perfected by filing, the taking of
possession, or under Section 9.115 or 9.116 on investment
property, the security interest has the same priority for the
purposes of Subsection (e) or Section 9.115(e) with respect to
the future advances as it does with respect to the first
advance.
SECTION 15. Amends Section 1.105(b), Business and Commerce Code,
to make a conforming change.
SECTION 16. Amends Section 1.206(b), Business and Commerce Code,
to make a conforming change.
SECTION 17. Amends Section 5.114(b), Business and Commerce Code,
to make a conforming change.
SECTION 18. (a) Provides that, if H.B. 1728 or S.B. 1406, Acts
of the 74th Legislature, Regular Session, 1995, is enacted and
takes effect, Section 4.104(a), Business and Commerce Code, is
amended to redefine "account," "banking day," "clearing house,"
"customer," "documentary draft," "item," and "settle." Deletes the
definition of "properly payable."
SECTION 19. Repealer: Chapter 33, Business and Commerce Code
(Fiduciary Security Transfers).
SECTION 20. Effective date: September 1, 1995.
SECTION 21. (a) Makes application of this Act prospective.
(b) Provides that, if a security interest in a security is
perfected under Chapter 8, Business and Commerce Code, on the
date this Act takes effect, and the action by which the
security interest was perfected would suffice to perfect a
security interest under Chapter 8, Business and Commerce Code,
as revised by this Act, no further action is required to
continue perfection. Provides that, if a security interest in
a security is perfected under Chapter 8, Business and Commerce
Code, on the date this Act takes effect but the action by
which the security interest was perfected would not suffice to
perfect a security interest under Chapter 8, Business and
Commerce Code, as revised by this Act, the security interest
remains perfected until January 1, 1996, and continues
perfected on and after that date if appropriate action to
perfect under Chapter 8, Business and Commerce Code, as
revised by this Act, is taken before January 1, 1996.
Provides that, if a security interest is perfected under
Chapter 8, Business and Commerce Code, on the date this Act
takes effect and the security interest can be perfected by
filing under Chapter 8, Business and Commerce Code, as revised
by this Act, a financing statement signed by the secured party
instead of the debtor may be filed before January 1, 1996, to
continue perfection or filed on or after that date to perfect.
SECTION 22. Emergency clause.