By: Carona S.B. No. 547
A BILL TO BE ENTITLED
AN ACT
1-1 relating to letters of credit.
1-2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-3 SECTION 1. Chapter 5, Business & Commerce Code, is amended
1-4 to read as follows:
1-5 CHAPTER 5. LETTERS OF CREDIT
1-6 Sec. 5.101. SHORT TITLE. This chapter may be cited as
1-7 Uniform Commercial Code--Letters of Credit.
1-8 Sec. 5.102. DEFINITIONS. (a) In this chapter:
1-9 (1) "Adviser" means a person who, at the request of
1-10 the issuer, a confirmer, or another adviser, notifies or requests
1-11 another adviser to notify the beneficiary that a letter of credit
1-12 has been issued, confirmed, or amended.
1-13 (2) "Applicant" means a person at whose request or for
1-14 whose account a letter of credit is issued. The term includes a
1-15 person who requests an issuer to issue a letter of credit on behalf
1-16 of another if the person making the request undertakes an
1-17 obligation to reimburse the issuer.
1-18 (3) "Beneficiary" means a person who under the terms
1-19 of a letter of credit is entitled to have its complying
1-20 presentation honored. The term includes a person to whom drawing
1-21 rights have been transferred under a transferable letter of credit.
1-22 (4) "Confirmer" means a nominated person who
1-23 undertakes, at the request or with the consent of the issuer, to
2-1 honor a presentation under a letter of credit issued by another.
2-2 (5) "Dishonor" of a letter of credit means failure
2-3 timely to honor or to take an interim action, such as acceptance of
2-4 a draft, that may be required by the letter of credit.
2-5 (6) "Document" means a draft or other demand, document
2-6 of title, investment security, certificate, invoice, or other
2-7 record, statement, or representation of fact, law, right, or
2-8 opinion (i) that is presented in a written or other medium
2-9 permitted by the letter of credit or, unless prohibited by the
2-10 letter of credit, by the standard practice referred to in Section
2-11 5.108(e); and (ii) that is capable of being examined for compliance
2-12 with the terms and conditions of the letter of credit. A document
2-13 may not be oral.
2-14 (7) "Good faith" means honesty in fact in the conduct
2-15 or transaction concerned.
2-16 (8) "Honor" of a letter of credit means performance of
2-17 the issuer's undertaking in the letter of credit to pay or deliver
2-18 an item of value. Unless the letter of credit otherwise provides,
2-19 "honor" occurs:
2-20 (A) upon payment;
2-21 (B) if the letter of credit provides for
2-22 acceptance, upon acceptance of a draft and, at maturity, its
2-23 payment; or
2-24 (C) if the letter of credit provides for
2-25 incurring a deferred obligation, upon incurring the obligation and,
3-1 at maturity, its performance.
3-2 (9) "Issuer" means a bank or other person that issues
3-3 a letter of credit but does not include an individual who makes an
3-4 engagement for personal, family, or household purposes.
3-5 (10) "Letter of credit" means a definite undertaking
3-6 that satisfies the requirements of Section 5.104 by an issuer to a
3-7 beneficiary at the request or for the account of an applicant or,
3-8 in the case of a financial institution, to itself or for its own
3-9 account, to honor a documentary presentation by payment or delivery
3-10 of an item of value.
3-11 (11) "Nominated person" means a person whom the
3-12 issuer:
3-13 (A) designates or authorizes to pay, accept,
3-14 negotiate, or otherwise give value under a letter of credit; and
3-15 (B) undertakes by agreement or custom and
3-16 practice to reimburse.
3-17 (12) "Presentation" means delivery of a document to an
3-18 issuer or nominated person for honor or giving of value under a
3-19 letter of credit.
3-20 (13) "Presenter" means a person making a presentation
3-21 as or on behalf of a beneficiary or nominated person.
3-22 (14) "Record" means information that is inscribed on a
3-23 tangible medium or that is stored in an electronic or other medium
3-24 and is retrievable in perceivable form.
3-25 (15) "Successor of a beneficiary" means a person who
4-1 succeeds to substantially all of the rights of a beneficiary by
4-2 operation of law, including a corporation with or into which the
4-3 beneficiary has been merged or consolidated, an administrator, an
4-4 executor, a personal representative, a trustee in bankruptcy, a
4-5 debtor in possession, a liquidator, and a receiver.
4-6 (b) Definitions in other chapters of this code applying to
4-7 this chapter and the sections in which they appear are:
4-8 "Accept" or "Acceptance" Section 3.409
4-9 "Value" Sections 3.303 and 4.211
4-10 (c) Chapter 1 contains certain additional general
4-11 definitions and principles of construction and interpretation
4-12 applicable throughout this chapter.
4-13 Sec. 5.103. SCOPE. (a) This chapter applies to letters of
4-14 credit and to certain rights and obligations arising out of
4-15 transactions involving letters of credit.
4-16 (b) The statement of a rule in this chapter does not by
4-17 itself require, imply, or negate application of the same or a
4-18 different rule to a situation not provided for or to a person not
4-19 specified in this chapter.
4-20 (c) With the exception of this subsection, Subsections (a)
4-21 and (d), Sections 5.102(a)(9) and (10), Section 5.106(d), and
4-22 Section 5.114(d) and except to the extent prohibited in Sections
4-23 1.102(c) and 5.117(d), the effect of this chapter may be varied by
4-24 agreement or by a provision stated or incorporated by reference in
4-25 an undertaking. A term in an agreement or undertaking generally
5-1 excusing liability or generally limiting remedies for failure to
5-2 perform obligations is not sufficient to vary obligations
5-3 prescribed by this chapter.
5-4 (d) Rights and obligations of an issuer to a beneficiary or
5-5 a nominated person under a letter of credit are independent of the
5-6 existence, performance, or nonperformance of a contract or
5-7 arrangement out of which the letter of credit arises or which
5-8 underlies it, including contracts or arrangements between the
5-9 issuer and the applicant and between the applicant and the
5-10 beneficiary.
5-11 [(1) to a credit issued by a bank if the credit
5-12 requires a documentary draft or a documentary demand for payment;
5-13 and]
5-14 [(2) to a credit issued by a person other than a bank
5-15 if the credit requires that the draft or demand for payment be
5-16 accompanied by a document of title; and]
5-17 [(3) to a credit issued by a bank or other person if
5-18 the credit is not within Subdivision (1) or (2) but conspicuously
5-19 states that it is a letter of credit or is conspicuously so
5-20 entitled.]
5-21 [(b) Unless the engagement meets the requirements of
5-22 Subsection (a), this chapter does not apply to engagements to make
5-23 advances or to honor drafts or demands for payment, to authorities
5-24 to pay or purchase, to guarantees or to general agreements.]
5-25 [(c) This chapter deals with some but not all of the rules
6-1 and concepts of letters of credit as such rules or concepts have
6-2 developed prior to this title or may hereafter develop. The fact
6-3 that this chapter states a rule does not by itself require, imply
6-4 or negate application of the same or a converse rule to a situation
6-5 not provided for or to a person not specified by this chapter.]
6-6 [Sec. 5.103. DEFINITIONS. (a) In this chapter unless the
6-7 context otherwise requires]
6-8 [(1) "Credit" or "letter of credit" means an
6-9 engagement by a bank or other person made at the request of a
6-10 customer and of a kind within the scope of this chapter (Section
6-11 5.102) that the issuer will honor drafts or other demands for
6-12 payment upon compliance with the conditions specified in the
6-13 credit. A credit may be either revocable or irrevocable. The
6-14 engagement may be either an agreement to honor or a statement that
6-15 the bank or other person is authorized to honor.]
6-16 [(2) A "documentary draft" or a "documentary demand
6-17 for payment" is one honor of which is conditioned upon the
6-18 presentation of a document or documents. "Document" means any
6-19 paper including document of title, security, invoice, certificate,
6-20 notice of default and the like.]
6-21 [(3) An "issuer" is a bank or other person issuing a
6-22 credit.]
6-23 [(4) A "beneficiary" of a credit is a person who is
6-24 entitled under its terms to draw or demand payment.]
6-25 [(5) An "advising bank" is a bank which gives
7-1 notification of the issuance of a credit by another bank.]
7-2 [(6) A "confirming bank" is a bank which engages
7-3 either that it will itself honor a credit already issued by another
7-4 bank or that such a credit will be honored by the issuer or a third
7-5 bank.]
7-6 [(7) A "customer" is a buyer or other person who
7-7 causes an issuer to issue a credit. The term also includes a bank
7-8 which procures issuance or confirmation on behalf of that bank's
7-9 customer.]
7-10 [(b) Other definitions applying to this chapter and the
7-11 sections in which they appear are:]
7-12 ["Notation Credit". Section 5.1a8.]
7-13 ["Presenter". Section 5.112(c).]
7-14 [(c) Definitions in other chapters applying to this chapter
7-15 and the sections in which they appear are:]
7-16 ["Accept" or "Acceptance". Section 3.409.]
7-17 ["Contract for sale". Section 2.106.]
7-18 ["Draft". Section 3.104.]
7-19 ["Holder in due course". Section 3.302.]
7-20 ["Midnight deadline". Section 4.104.]
7-21 ["Security". Section 8.102.]
7-22 [(d) In addition, Chapter 1 contains general definitions and
7-23 principles of construction and interpretation applicable throughout
7-24 this chapter.]
7-25 Sec. 5.104. FORMAL REQUIREMENTS[; SIGNING]. A letter of
8-1 credit, confirmation, advice, transfer, amendment, or cancellation
8-2 may be issued in any form that is a record and is authenticated:
8-3 (1) by a signature; or
8-4 (2) in accordance with the agreement of the parties or
8-5 the standard practice referred to in Section 5.108(e). [(a) Except
8-6 as otherwise required in Subsection (a)(3) of Section 5.102 on
8-7 scope, no particular form of phrasing is required for a credit. A
8-8 credit must be in writing and signed by the issuer and a
8-9 confirmation must be in writing and signed by the confirming bank.
8-10 A modification of the terms of a credit or confirmation must be
8-11 signed by the issuer or confirming bank.]
8-12 [(b) A telegram may be a sufficient signed writing if it
8-13 identifies its sender by an authorized authentication. The
8-14 authentication may be in code and the authorized naming of the
8-15 issuer in an advice of credit is a sufficient signing.]
8-16 Sec. 5.105. CONSIDERATION. Consideration is not required to
8-17 issue, amend, transfer, or cancel a letter of credit, advice, or
8-18 confirmation. [No consideration is necessary to establish a credit
8-19 or to enlarge or otherwise modify its terms.]
8-20 Sec. 5.106. ISSUANCE, AMENDMENT, CANCELLATION, AND DURATION.
8-21 (a) A letter of credit is issued and becomes enforceable according
8-22 to its terms against the issuer when the issuer sends or otherwise
8-23 transmits it to the person requested to advise or to the
8-24 beneficiary. A letter of credit is revocable only if it so
8-25 provides.
9-1 (b) After a letter of credit is issued, rights and
9-2 obligations of a beneficiary, applicant, confirmer, and issuer are
9-3 not affected by an amendment or cancellation to which that person
9-4 has not consented except to the extent the letter of credit
9-5 provides that it is revocable or that the issuer may amend or
9-6 cancel the letter of credit without that consent.
9-7 (c) If there is no stated expiration date or other provision
9-8 that determines its duration, a letter of credit expires one year
9-9 after its stated date of issuance or, if no date is stated, after
9-10 the date on which it is issued.
9-11 (d) A letter of credit that states that it is perpetual
9-12 expires five years after its stated date of issuance or, if no date
9-13 is stated, after the date on which it is issued. [TIME AND EFFECT
9-14 OF ESTABLISHMENT OF CREDIT. (a) Unless otherwise agreed a credit
9-15 is established]
9-16 [(1) as regards the customer as soon as a letter of
9-17 credit is sent to him or the letter of credit or an authorized
9-18 written advice of its issuance is sent to the beneficiary; and]
9-19 [(2) as regards the beneficiary when he receives a
9-20 letter of credit or an authorized written advice of its issuance.]
9-21 [(b) Unless otherwise agreed once an irrevocable credit is
9-22 established as regards the customer it can be modified or revoked
9-23 only with the consent of the customer and once it is established as
9-24 regards the beneficiary it can be modified or revoked only with his
9-25 consent.]
10-1 [(c) Unless otherwise agreed after a revocable credit is
10-2 established it may be modified or revoked by the issuer without
10-3 notice to or consent from the customer or beneficiary.]
10-4 [(d) Notwithstanding any modification or revocation of a
10-5 revocable credit any person authorized to honor or negotiate under
10-6 the terms of the original credit is entitled to reimbursement for
10-7 or honor of any draft or demand for payment duly honored or
10-8 negotiated before receipt of notice of the modification or
10-9 revocation and the issuer in turn is entitled to reimbursement from
10-10 its customer.]
10-11 Sec. 5.107. CONFIRMER, NOMINATED PERSON, AND ADVISER.
10-12 (a) A confirmer is directly obligated on a letter of credit and
10-13 has the rights and obligations of an issuer to the extent of its
10-14 confirmation. The confirmer also has rights against and
10-15 obligations to the issuer as if the issuer were an applicant and
10-16 the confirmer had issued the letter of credit at the request and
10-17 for the account of the issuer.
10-18 (b) A nominated person who is not a confirmer is not
10-19 obligated to honor or otherwise give value for a presentation.
10-20 (c) A person requested to advise may decline to act as an
10-21 adviser. An adviser that is not a confirmer is not obligated to
10-22 honor or give value for a presentation. An adviser undertakes to
10-23 the issuer and to the beneficiary accurately to advise the terms of
10-24 the letter of credit, confirmation, amendment, or advice received
10-25 by that person and undertakes to the beneficiary to check the
11-1 apparent authenticity of the request to advise. Even if the advice
11-2 is inaccurate, the letter of credit, confirmation, or amendment is
11-3 enforceable as issued.
11-4 (d) A person who notifies a transferee beneficiary of the
11-5 terms of a letter of credit, confirmation, amendment, or advice has
11-6 the rights and obligations of an adviser under Subsection (c). The
11-7 terms in the notice to the transferee beneficiary may differ from
11-8 the terms in any notice to the transferor beneficiary to the extent
11-9 permitted by the letter of credit, confirmation, amendment, or
11-10 advice received by the person who so notifies. [ADVICE OF CREDIT;
11-11 CONFIRMATION; ERROR IN STATEMENT OF TERMS. (a) Unless otherwise
11-12 specified an advising bank by advising a credit issued by another
11-13 bank does not assume any obligation to honor drafts drawn or
11-14 demands for payment made under the credit but it does assume
11-15 obligation for the accuracy of its own statement.]
11-16 [(b) A confirming bank by confirming a credit becomes
11-17 directly obligated on the credit to the extent of its confirmation
11-18 as though it were its issuer and acquires the rights of an issuer.]
11-19 [(c) Even though an advising bank incorrectly advises the
11-20 terms of a credit it has been authorized to advise the credit is
11-21 established as against the issuer to the extent of its original
11-22 terms.]
11-23 [(d) Unless otherwise specified the customer bears as
11-24 against the issuer all risks of transmission and reasonable
11-25 translation or interpretation of any message relating to a credit.]
12-1 Sec. 5.108. ISSUER'S RIGHTS AND OBLIGATIONS. (a) Except as
12-2 otherwise provided in Section 5.109, an issuer shall honor a
12-3 presentation that, as determined by the standard practice referred
12-4 to in Subsection (e), appears on its face strictly to comply with
12-5 the terms and conditions of the letter of credit. Except as
12-6 otherwise provided in Section 5.113 and unless otherwise agreed
12-7 with the applicant, an issuer shall dishonor a presentation that
12-8 does not appear so to comply.
12-9 (b) An issuer has a reasonable time after presentation, but
12-10 not beyond the end of the seventh business day of the issuer after
12-11 the date of its receipt of documents:
12-12 (1) to honor;
12-13 (2) if the letter of credit provides for honor to be
12-14 completed more than seven business days after presentation, to
12-15 accept a draft or incur a deferred obligation; or
12-16 (3) to give notice to the presenter of discrepancies
12-17 in the presentation.
12-18 (c) Except as otherwise provided in Subsection (d), an
12-19 issuer is precluded from asserting as a basis for dishonor any
12-20 discrepancy if timely notice is not given or any discrepancy not
12-21 stated in the notice if timely notice is given.
12-22 (d) Failure to give the notice specified in Subsection (b)
12-23 or to mention fraud, forgery, or expiration in the notice does not
12-24 preclude the issuer from asserting, as a basis for dishonor, fraud
12-25 or forgery as described in Section 5.109(a) or expiration of the
13-1 letter of credit before presentation.
13-2 (e) An issuer shall observe standard practice of financial
13-3 institutions that regularly issue letters of credit. Determination
13-4 of the issuer's observance of the standard practice is a matter of
13-5 interpretation for the court. The court shall offer the parties a
13-6 reasonable opportunity to present evidence of the standard
13-7 practice.
13-8 (f) An issuer is not responsible for:
13-9 (1) the performance or nonperformance of the
13-10 underlying contract, arrangement, or transaction;
13-11 (2) an act or omission of others; or
13-12 (3) observance or knowledge of the usage of a
13-13 particular trade other than the standard practice referred to in
13-14 Subsection (e).
13-15 (g) If an undertaking constituting a letter of credit under
13-16 Section 5.102(a)(10) contains nondocumentary conditions, an issuer
13-17 shall disregard the nondocumentary conditions and treat them as if
13-18 they were not stated.
13-19 (h) An issuer that has dishonored a presentation shall
13-20 return the documents or hold them at the disposal of, and send
13-21 advice to that effect to, the presenter.
13-22 (i) An issuer that has honored a presentation as permitted
13-23 or required by this chapter:
13-24 (1) is entitled to be reimbursed by the applicant in
13-25 immediately available funds not later than the date of its payment
14-1 of funds;
14-2 (2) takes the documents free of claims of the
14-3 beneficiary or presenter;
14-4 (3) is precluded from asserting a right of recourse on
14-5 a draft under Sections 3.414 and 3.415;
14-6 (4) except as otherwise provided in Sections 5.110 and
14-7 5.117, is precluded from restitution of money paid or other value
14-8 given by mistake to the extent the mistake concerns discrepancies
14-9 in the documents or tender that are apparent on the face of the
14-10 presentation; and
14-11 (5) is discharged to the extent of its performance
14-12 under the letter of credit unless the issuer honored a presentation
14-13 in which a required signature of a beneficiary was forged.
14-14 ["NOTATION CREDIT"; EXHAUSTION OF CREDIT. (a) A credit which
14-15 specifies that any person purchasing or paying drafts drawn or
14-16 demands for payment made under it must note the amount of the draft
14-17 or demand on the letter or advice of credit is a "notation credit".]
14-18 [(b) Under a notation credit]
14-19 [(1) a person paying the beneficiary or purchasing a
14-20 draft or demand for payment from him acquires a right to honor only
14-21 if the appropriate notation is made and by transferring or
14-22 forwarding for honor the documents under the credit such a person
14-23 warrants to the issuer that the notation has been made; and]
14-24 [(2) unless the credit or a signed statement that an
14-25 appropriate notation has been made accompanies the draft or demand
15-1 for payment the issuer may delay honor until evidence of notation
15-2 has been procured which is satisfactory to it but its obligation
15-3 and that of its customer continue for a reasonable time not
15-4 exceeding thirty days to obtain such evidence.]
15-5 [(c) If the credit is not a notation credit]
15-6 [(1) the issuer may honor complying drafts or demands
15-7 for payment presented to it in the order in which they are
15-8 presented and is discharged pro tanto by honor of any such draft or
15-9 demand;]
15-10 [(2) as between competing good faith purchasers of
15-11 complying drafts or demands the person first purchasing has
15-12 priority over a subsequent purchaser even though the later
15-13 purchased draft or demand has been first honored.]
15-14 Sec. 5.109. FRAUD AND FORGERY [ISSUER'S OBLIGATION TO ITS
15-15 CUSTOMER]. (a) If a presentation is made that appears on its face
15-16 strictly to comply with the terms and conditions of the letter of
15-17 credit, but a required document is forged or materially fraudulent
15-18 or honor of the presentation would facilitate a material fraud by
15-19 the beneficiary on the issuer or applicant:
15-20 (1) the issuer shall honor the presentation if honor
15-21 is demanded by:
15-22 (A) a nominated person who has given value in
15-23 good faith and without notice of forgery or material fraud;
15-24 (B) a confirmer who has honored its confirmation
15-25 in good faith;
16-1 (C) a holder in due course of a draft drawn
16-2 under the letter of credit that was taken after acceptance by the
16-3 issuer or nominated person; or
16-4 (D) an assignee of the issuer's or nominated
16-5 person's deferred obligation that was taken for value and without
16-6 notice of forgery or material fraud after the obligation was
16-7 incurred by the issuer or nominated person; and
16-8 (2) the issuer, acting in good faith, may honor or
16-9 dishonor the presentation in any other case.
16-10 (b) If an applicant claims that a required document is
16-11 forged or materially fraudulent or that honor of the presentation
16-12 would facilitate a material fraud by the beneficiary on the issuer
16-13 or applicant, a court of competent jurisdiction may temporarily or
16-14 permanently enjoin the issuer from honoring a presentation or grant
16-15 similar relief against the issuer or other persons only if the
16-16 court finds that:
16-17 (1) the relief is not prohibited under the law
16-18 applicable to an accepted draft or deferred obligation incurred by
16-19 the issuer;
16-20 (2) a beneficiary, issuer, or nominated person who may
16-21 be adversely affected is adequately protected against loss that it
16-22 may suffer because the relief is granted;
16-23 (3) all of the conditions to entitle a person to the
16-24 relief under the law of this state have been met; and
16-25 (4) on the basis of the information submitted to the
17-1 court, the applicant is more likely than not to succeed under its
17-2 claim of forgery or material fraud and the person demanding honor
17-3 does not qualify for protection under Subsection (a)(1). [An
17-4 issuer's obligation to its customer includes good faith and
17-5 observance of any general banking usage but unless otherwise agreed
17-6 does not include liability or responsibility]
17-7 [(1) for performance of the underlying contract for
17-8 sale or other transaction between the customer and the beneficiary;
17-9 or]
17-10 [(2) for any act or omission of any person other than
17-11 itself or its own branch or for loss or destruction of a draft,
17-12 demand or document in transit or in the possession of others; or]
17-13 [(3) based on knowledge or lack of knowledge of any
17-14 usage of any particular trade.]
17-15 [(b) An issuer must examine documents with care so as to
17-16 ascertain that on their face they appear to comply with the terms
17-17 of the credit but unless otherwise agreed assumes no liability or
17-18 responsibility for the genuineness, falsification or effect of any
17-19 document which appears on such examination to be regular on its
17-20 face.]
17-21 [(c) A non-bank issuer is not bound by any banking usage of
17-22 which it has no knowledge.]
17-23 Sec. 5.110. [AVAILABILITY OF CREDIT IN PORTIONS; PRESENTER'S
17-24 RESERVATION OF LIEN OR CLAIM. (a) Unless otherwise specified a
17-25 credit may be used in portions in the discretion of the
18-1 beneficiary.]
18-2 [(b) Unless otherwise specified a person by presenting a
18-3 documentary draft or demand for payment under a credit relinquishes
18-4 upon its honor all claims to the documents and a person by
18-5 transferring such draft or demand or causing such presentment
18-6 authorizes such relinquishment. An explicit reservation of claim
18-7 makes the draft or demand non-complying.]
18-8 [Sec. 5.111.] WARRANTIES [ON TRANSFER AND PRESENTMENT].
18-9 (a) If its presentation is honored, the beneficiary warrants:
18-10 (1) to the issuer, any other person to whom
18-11 presentation is made, and the applicant that there is no fraud or
18-12 forgery of the kind described in Section 5.109(a); and
18-13 (2) to the applicant that the drawing does not violate
18-14 any agreement between the applicant and beneficiary or any other
18-15 agreement intended by them to be augmented by the letter of credit.
18-16 (b) The warranties in Subsection (a) are in addition to
18-17 warranties arising under Chapters 3, 4, 7, and 8 because of the
18-18 presentation or transfer of documents covered by any of those
18-19 chapters. [Unless otherwise agreed the beneficiary by transferring
18-20 or presenting a documentary draft or demand for payment warrants to
18-21 all interested parties that the necessary conditions of the credit
18-22 have been complied with. This is in addition to any warranties
18-23 arising under Chapters 3, 4, 7 and 8.]
18-24 [(b) Unless otherwise agreed a negotiating, advising,
18-25 confirming, collecting or issuing bank presenting or transferring a
19-1 draft or demand for payment under a credit warrants only the
19-2 matters warranted by a collecting bank under Chapter 4 and any such
19-3 bank transferring a document warrants only the matters warranted by
19-4 an intermediary under Chapters 7 and 8.]
19-5 [Sec. 5.112. TIME ALLOWED FOR HONOR OR REJECTION;
19-6 WITHHOLDING HONOR OR REJECTION BY CONSENT; "PRESENTER." (a) A
19-7 bank to which a documentary draft or demand for payment is
19-8 presented under a credit may without dishonor of the draft, demand
19-9 or credit]
19-10 [(1) defer honor until the close of the third banking
19-11 day following receipt of the documents; and]
19-12 [(2) further defer honor if the presenter has
19-13 expressly or impliedly consented thereto.]
19-14 [Failure to honor within the time here specified constitutes
19-15 dishonor of the draft or demand and of the credit except as
19-16 otherwise provided in Subsection (d) of Section 5.114 on
19-17 conditional payment.]
19-18 [(b) Upon dishonor the bank may unless otherwise instructed
19-19 fulfill its duty to return the draft or demand and the documents by
19-20 holding them at the disposal of the presenter and sending him an
19-21 advice to that effect.]
19-22 [(c) "Presenter" means any person presenting a draft or
19-23 demand for payment for honor under a credit even though that person
19-24 is a confirming bank or other correspondent which is acting under
19-25 an issuer's authorization.]
20-1 [Sec. 5.113. INDEMNITIES. (a) A bank seeking to obtain
20-2 (whether for itself or another) honor, negotiation or reimbursement
20-3 under a credit may give an indemnity to induce such honor,
20-4 negotiation or reimbursement.]
20-5 [(b) An indemnity agreement inducing honor, negotiation or
20-6 reimbursement]
20-7 [(1) unless otherwise explicitly agreed applies to
20-8 defects in the documents but not in the goods; and]
20-9 [(2) unless a longer time is explicitly agreed expires
20-10 at the end of ten business days following receipt of the documents
20-11 by the ultimate customer unless notice of objection is sent before
20-12 such expiration date. The ultimate customer may send notice of
20-13 objection to the person from whom he received the documents and any
20-14 bank receiving such notice is under a duty to send notice to its
20-15 transferor before its midnight deadline.]
20-16 [Sec. 5.114. ISSUER'S DUTY AND PRIVILEGE TO HONOR; RIGHT TO
20-17 REIMBURSEMENT. (a) An issuer must honor a draft or demand for
20-18 payment which complies with the terms of the relevant credit
20-19 regardless of whether the goods or documents conform to the
20-20 underlying contract for sale or other contract between the customer
20-21 and the beneficiary. The issuer is not excused from honor of such
20-22 a draft or demand by reason of an additional general term that all
20-23 documents must be satisfactory to the issuer, but an issuer may
20-24 require that specified documents must be satisfactory to it.]
20-25 [(b) Unless otherwise agreed when documents appear on their
21-1 face to comply with the terms of a credit but a required document
21-2 does not in fact conform to the warranties made on negotiation or
21-3 transfer of a document of title (Section 7.507) or of a
21-4 certificated security (Section 8.108) or is forged or fraudulent or
21-5 there is fraud in the transaction:]
21-6 [(1) the issuer must honor the draft or demand for
21-7 payment if honor is demanded by a negotiating bank or other holder
21-8 of the draft or demand which has taken the draft or demand under
21-9 the credit and under circumstances which would make it a holder in
21-10 due course (Section 3.302) and in an appropriate case would make it
21-11 a person to whom a document of title has been duly negotiated
21-12 (Section 7.502) or a bona fide purchaser of a certificated security
21-13 (Section 8.302); and]
21-14 [(2) in all other cases as against its customer, an
21-15 issuer acting in good faith may honor the draft or demand for
21-16 payment despite notification from the customer of fraud, forgery or
21-17 other defect not apparent on the face of the documents but a court
21-18 of appropriate jurisdiction may enjoin such honor.]
21-19 [(c) Unless otherwise agreed an issuer which has duly
21-20 honored a draft or demand for payment is entitled to immediate
21-21 reimbursement of any payment made under the credit and to be put in
21-22 effectively available funds not later than the day before maturity
21-23 of any acceptance made under the credit.]
21-24 [(d) When a credit provides for payment by the issuer on
21-25 receipt of notice that the required documents are in the possession
22-1 of a correspondent or other agent of the issuer]
22-2 [(1) any payment made on receipt of such notice is
22-3 conditional; and]
22-4 [(2) the issuer may reject documents which do not
22-5 comply with the credit if it does so within three banking days
22-6 following its receipt of the documents; and]
22-7 [(3) in the event of such rejection, the issuer is
22-8 entitled by charge back or otherwise to return of the payment made.]
22-9 [(e) In the case covered by Subsection (d) failure to reject
22-10 documents within the time specified in Subdivision (2), constitutes
22-11 acceptance of the documents and makes the payment final in favor of
22-12 the beneficiary.]
22-13 Sec. 5.111. REMEDIES. [Sec. 5.115. REMEDY FOR IMPROPER
22-14 DISHONOR OR ANTICIPATORY REPUDIATION.] (a) If [When] an issuer
22-15 wrongfully dishonors or repudiates its obligation to pay money
22-16 under a letter of credit before presentation, the beneficiary,
22-17 successor, or nominated person presenting on its own behalf may
22-18 recover from the issuer the amount that is the subject of the
22-19 dishonor or repudiation. If the issuer's obligation under the
22-20 letter of credit is not for the payment of money, the claimant may
22-21 obtain specific performance or, at the claimant's election, recover
22-22 an amount equal to the value of performance from the issuer. In
22-23 either case, the claimant may also recover incidental but not
22-24 consequential damages. The claimant is not obligated to take
22-25 action to avoid damages that might be due from the issuer under
23-1 this subsection. If, although not obligated to do so, the claimant
23-2 avoids damages, the claimant's recovery from the issuer must be
23-3 reduced by the amount of damages avoided. The issuer has the
23-4 burden of proving the amount of damages avoided. In the case of
23-5 repudiation the claimant need not present any document.
23-6 (b) If an issuer wrongfully dishonors a draft or demand
23-7 presented under a letter of credit or honors a draft or demand in
23-8 breach of its obligation to the applicant, the applicant may
23-9 recover damages resulting from the breach, including incidental but
23-10 not consequential damages, less any amount saved as a result of the
23-11 breach.
23-12 (c) If an adviser or nominated person other than a confirmer
23-13 breaches an obligation under this chapter or an issuer breaches an
23-14 obligation not covered in Subsection (a) or (b), a person to whom
23-15 the obligation is owed may recover damages resulting from the
23-16 breach, including incidental but not consequential damages, less
23-17 any amount saved as a result of the breach. To the extent of the
23-18 confirmation, a confirmer has the liability of an issuer specified
23-19 in this subsection and Subsections (a) and (b).
23-20 (d) An issuer, nominated person, or adviser who is found
23-21 liable under Subsection (a), (b), or (c) shall pay interest on the
23-22 amount owed thereunder from the date of wrongful dishonor or other
23-23 appropriate date.
23-24 (e) Reasonable attorney's fees and other expenses of
23-25 litigation must be awarded to the prevailing party in an action in
24-1 which a remedy is sought under this chapter.
24-2 (f) Damages that would otherwise be payable by a party for
24-3 breach of an obligation under this chapter may be liquidated by
24-4 agreement or undertaking, but only in an amount or by a formula
24-5 that is reasonable in light of the harm anticipated [a draft or
24-6 demand for payment presented under a credit the person entitled to
24-7 honor has with respect to any documents the rights of a person in
24-8 the position of a seller (Section 2.707) and may recover from the
24-9 issuer the face amount of the draft or demand together with
24-10 incidental damages under Section 2.710 on seller's incidental
24-11 damages and interest but less any amount realized by resale or
24-12 other use or disposition of the subject matter of the transaction.
24-13 In the event no resale or other utilization is made the documents,
24-14 goods or other subject matter involved in the transaction must be
24-15 turned over to the issuer on payment of judgment.]
24-16 [(b) When an issuer wrongfully cancels or otherwise
24-17 repudiates a credit before presentment of a draft or demand for
24-18 payment drawn under it the beneficiary has the rights of a seller
24-19 after anticipatory repudiation by the buyer under Section 2.610 if
24-20 he learns of the repudiation in time reasonably to avoid
24-21 procurement of the required documents. Otherwise the beneficiary
24-22 has an immediate right of action for wrongful dishonor].
24-23 Sec. 5.112. [Sec. 5.116.] TRANSFER OF LETTER OF CREDIT [AND
24-24 ASSIGNMENT]. (a) Except as otherwise provided in Section 5.113,
24-25 unless a letter of credit provides that it is transferable, the
25-1 right of a beneficiary to draw or otherwise demand performance
25-2 under a letter of credit may not be transferred [The right to draw
25-3 under a credit can be transferred or assigned only when the credit
25-4 is expressly designated as transferable or assignable].
25-5 (b) Even if a letter of credit provides that it is
25-6 transferable, the issuer may refuse to recognize or carry out a
25-7 transfer if:
25-8 (1) the transfer would violate applicable law; or
25-9 (2) the transferor or transferee has failed to comply
25-10 with any requirement stated in the letter of credit or any other
25-11 requirement relating to transfer imposed by the issuer which is
25-12 within the standard practice referred to in Section 5.108(e) or is
25-13 otherwise reasonable under the circumstances.
25-14 Sec. 5.113. TRANSFER BY OPERATION OF LAW. (a) A successor
25-15 of a beneficiary may consent to amendments, sign and present
25-16 documents, and receive payment or other items of value in the name
25-17 of the beneficiary without disclosing its status as a successor.
25-18 (b) A successor of a beneficiary may consent to amendments,
25-19 sign and present documents, and receive payment or other items of
25-20 value in its own name as the disclosed successor of the
25-21 beneficiary. Except as otherwise provided in Subsection (e), an
25-22 issuer shall recognize a disclosed successor of a beneficiary as
25-23 beneficiary in full substitution for its predecessor upon
25-24 compliance with the requirements for recognition by the issuer of a
25-25 transfer of drawing rights by operation of law under the standard
26-1 practice referred to in Section 5.108(e) or, in the absence of such
26-2 a practice, compliance with other reasonable procedures sufficient
26-3 to protect the issuer.
26-4 (c) An issuer is not obliged to determine whether a
26-5 purported successor is a successor of a beneficiary or whether the
26-6 signature of a purported successor is genuine or authorized.
26-7 (d) Honor of a purported successor's apparently complying
26-8 presentation under Subsection (a) or (b) has the consequences
26-9 specified in Section 5.108(i) even if the purported successor is
26-10 not the successor of a beneficiary. Documents signed in the name
26-11 of the beneficiary or of a disclosed successor by a person who is
26-12 neither the beneficiary nor the successor of the beneficiary are
26-13 forged documents for the purposes of Section 5.109.
26-14 (e) An issuer whose rights of reimbursement are not covered
26-15 by Subsection (d) or substantially similar law and any confirmer or
26-16 nominated person may decline to recognize a presentation under
26-17 Subsection (b).
26-18 (f) A beneficiary whose name is changed after the issuance
26-19 of a letter of credit has the same rights and obligations as a
26-20 successor of a beneficiary under this section.
26-21 Sec. 5.114. ASSIGNMENT OF PROCEEDS. (a) In this section,
26-22 "proceeds of a letter of credit" means the cash, check, accepted
26-23 draft, or other item of value paid or delivered upon honor or
26-24 giving of value by the issuer or any nominated person under the
26-25 letter of credit. The term does not include a beneficiary's
27-1 drawing rights or documents presented by the beneficiary.
27-2 (b) A beneficiary may assign its right to part or all of the
27-3 proceeds of a letter of credit. The beneficiary may do so before
27-4 presentation as a present assignment of its right to receive
27-5 proceeds contingent upon its compliance with the terms and
27-6 conditions of the letter of credit.
27-7 (c) An issuer or nominated person need not recognize an
27-8 assignment of proceeds of a letter of credit until it consents to
27-9 the assignment.
27-10 (d) An issuer or nominated person has no obligation to give
27-11 or withhold its consent to an assignment of proceeds of a letter of
27-12 credit, but consent may not be unreasonably withheld if the
27-13 assignee possesses and exhibits the letter of credit and
27-14 presentation of the letter of credit is a condition to honor.
27-15 (e) Rights of a transferee beneficiary or nominated person
27-16 are independent of the beneficiary's assignment of the proceeds of
27-17 a letter of credit and are superior to the assignee's right to the
27-18 proceeds.
27-19 (f) Neither the rights recognized by this section between an
27-20 assignee and an issuer, transferee beneficiary, or nominated person
27-21 nor the issuer's or nominated person's payment of proceeds to an
27-22 assignee or a third person affect the rights between the assignee
27-23 and any person other than the issuer, transferee beneficiary, or
27-24 nominated person. The mode of creating and perfecting a security
27-25 interest in or granting an assignment of a beneficiary's rights to
28-1 proceeds is governed by Chapter 9 or other law. Against persons
28-2 other than the issuer, transferee beneficiary, or nominated person,
28-3 the rights and obligations arising upon the creation of a security
28-4 interest or other assignment of a beneficiary's right to proceeds
28-5 and its perfection are governed by Chapter 9 or other law. [though
28-6 the credit specifically states that it is nontransferable or
28-7 nonassignable the beneficiary may before performance of the
28-8 conditions of the credit assign his right to proceeds. Such an
28-9 assignment is an assignment of an account under Chapter 9 on
28-10 Secured Transactions and is governed by that chapter except that]
28-11 [(1) the assignment is ineffective until the letter of
28-12 credit or advice of credit is delivered to the assignee which
28-13 delivery constitutes perfection of the security interest under
28-14 Chapter 9; and]
28-15 [(2) the issuer may honor drafts or demands for
28-16 payment drawn under the credit until it receives a notification of
28-17 the assignment signed by the beneficiary which reasonably
28-18 identifies the credit involved in the assignment and contains a
28-19 request to pay the assignee; and]
28-20 [(3) after what reasonably appears to be such a
28-21 notification has been received the issuer may without dishonor
28-22 refuse to accept or pay even to a person otherwise entitled to
28-23 honor until the letter of credit or advice of credit is exhibited
28-24 to the issuer.]
28-25 [(c) Except where the beneficiary has effectively assigned
29-1 his right to draw or his right to proceeds, nothing in this section
29-2 limits his right to transfer or negotiate drafts or demands drawn
29-3 under the credit.]
29-4 Sec. 5.115. STATUTE OF LIMITATIONS. An action to enforce a
29-5 right or obligation arising under this chapter must be commenced
29-6 within one year after the expiration date of the relevant letter of
29-7 credit or one year after the cause of action accrues, whichever
29-8 occurs later. A cause of action accrues when the breach occurs,
29-9 regardless of the aggrieved party's lack of knowledge of the
29-10 breach.
29-11 Sec. 5.116. CHOICE OF LAW AND FORUM. (a) The liability of
29-12 an issuer, nominated person, or adviser for action or omission is
29-13 governed by the law of the jurisdiction chosen by an agreement in
29-14 the form of a record signed or otherwise authenticated by the
29-15 affected parties in the manner provided in Section 5.104 or by a
29-16 provision in the person's letter of credit, confirmation, or other
29-17 undertaking. The jurisdiction whose law is chosen need not bear
29-18 any relation to the transaction.
29-19 (b) Unless Subsection (a) applies, the liability of an
29-20 issuer, nominated person, or adviser for action or omission is
29-21 governed by the law of the jurisdiction in which the person is
29-22 located. The person is considered to be located at the address
29-23 indicated in the person's undertaking. If more than one address is
29-24 indicated, the person is considered to be located at the address
29-25 from which the person's undertaking was issued. For the purpose of
30-1 jurisdiction, choice of law, and recognition of interbranch letters
30-2 of credit, but not enforcement of a judgment, all branches of a
30-3 bank are considered separate juridical entities, and a bank is
30-4 considered to be located at the place where its relevant branch is
30-5 considered to be located under this subsection.
30-6 (c) Except as otherwise provided in this subsection, the
30-7 liability of an issuer, nominated person, or adviser is governed by
30-8 any rules of custom or practice, such as the Uniform Customs and
30-9 Practice for Documentary Credits, to which the letter of credit,
30-10 confirmation, or other undertaking is expressly made subject. If
30-11 (i) this chapter would govern the liability of an issuer, nominated
30-12 person, or adviser under Subsection (a) or (b), (ii) the relevant
30-13 undertaking incorporates rules of custom or practice, and (iii)
30-14 there is conflict between this chapter and those rules as applied
30-15 to that undertaking, those rules govern except to the extent of any
30-16 conflict with the nonvariable provisions specified in Section
30-17 5.103(c).
30-18 (d) If there is conflict between this chapter and Chapter 3,
30-19 4, 4A, or 9, this chapter governs.
30-20 (e) The forum for settling disputes arising out of an
30-21 undertaking within this chapter may be chosen in the manner and
30-22 with the binding effect that governing law may be chosen in
30-23 accordance with Subsection (a).
30-24 Sec. 5.117. SUBROGATION OF ISSUER, APPLICANT, AND NOMINATED
30-25 PERSON. (a) An issuer that honors a beneficiary's presentation is
31-1 subrogated to the rights of the beneficiary to the same extent as
31-2 if the issuer were a secondary obligor of the underlying obligation
31-3 owed to the beneficiary and of the applicant to the same extent as
31-4 if the issuer were the secondary obligor of the underlying
31-5 obligation owed to the applicant.
31-6 (b) An applicant that reimburses an issuer is subrogated to
31-7 the rights of the issuer against any beneficiary, presenter, or
31-8 nominated person to the same extent as if the applicant were the
31-9 secondary obligor of the obligations owed to the issuer and has the
31-10 rights of subrogation of the issuer to the rights of the
31-11 beneficiary stated in Subsection (a).
31-12 (c) A nominated person who pays or gives value against a
31-13 draft or demand presented under a letter of credit is subrogated to
31-14 the rights of:
31-15 (1) the issuer against the applicant to the same
31-16 extent as if the nominated person were a secondary obligor of the
31-17 obligation owed to the issuer by the applicant;
31-18 (2) the beneficiary to the same extent as if the
31-19 nominated person were a secondary obligor of the underlying
31-20 obligation owed to the beneficiary; and
31-21 (3) the applicant to the same extent as if the
31-22 nominated person were a secondary obligor of the underlying
31-23 obligation owed to the applicant.
31-24 (d) Notwithstanding any agreement or term to the contrary,
31-25 the rights of subrogation stated in Subsections (a) and (b) do not
32-1 arise until the issuer honors the letter of credit or otherwise
32-2 pays, and the rights in Subsection (c) do not arise until the
32-3 nominated person pays or otherwise gives value. Until then, the
32-4 issuer, the nominated person, and the applicant do not derive under
32-5 this section present or prospective rights forming the basis of a
32-6 claim, defense, or excuse. [INSOLVENCY OF BANK HOLDING FUNDS FOR
32-7 DOCUMENTARY CREDIT. (a) Where an issuer or an advising or
32-8 confirming bank or a bank which has for a customer procured
32-9 issuance of a credit by another bank becomes insolvent before final
32-10 payment under the credit and the credit is one to which this
32-11 chapter is made applicable by Subdivision (1) or (2) of Section
32-12 5.102(a) on scope, the receipt or allocation of funds or collateral
32-13 to secure or meet obligations under the credit shall have the
32-14 following results:]
32-15 [(1) to the extent of any funds or collateral turned
32-16 over after or before the insolvency as indemnity against or
32-17 specifically for the purpose of payment of drafts or demands for
32-18 payment drawn under the designated credit, the drafts or demands
32-19 are entitled to payment in preference over depositors or other
32-20 general creditors of the issuer or bank; and]
32-21 [(2) on expiration of the credit or surrender of the
32-22 beneficiary's rights under it unused any person who has given such
32-23 funds or collateral is similarly entitled to return thereof; and]
32-24 [(3) a charge to a general or current account with a
32-25 bank if specifically consented to for the purpose of indemnity
33-1 against or payment of drafts or demands for payment drawn under the
33-2 designated credit falls under the same rules as if the funds had
33-3 been drawn out in cash and then turned over with specific
33-4 instructions.]
33-5 [(b) After honor or reimbursement under this section the
33-6 customer or other person for whose account the insolvent bank has
33-7 acted is entitled to receive the documents involved.]
33-8 SECTION 2. Subsection (b), Section 1.105, Business &
33-9 Commerce Code, is amended to read as follows:
33-10 (b) Where one of the following provisions of this title
33-11 specifies the applicable law, that provision governs and a contrary
33-12 agreement is effective only to the extent permitted by the law
33-13 (including the conflict of laws rules) so specified:
33-14 Rights of creditors against sold goods. Section 2.402.
33-15 Applicability of the chapter on Leases. Sections 2A.105 and
33-16 2A.106.
33-17 Applicability of the chapter on Bank Deposits and
33-18 Collections. Section 4.102.
33-19 Governing law in the chapter on Funds Transfers. Section
33-20 4A.507.
33-21 Letters of Credit. Section 5.116.
33-22 Applicability of the chapter on Investment Securities.
33-23 Section 8.110.
33-24 Perfection provisions of the chapter on Secured Transactions.
33-25 Section 9.103.
34-1 SECTION 3. Subsection (a), Section 2.512, Business &
34-2 Commerce Code, is amended to read as follows:
34-3 (a) Where the contract requires payment before inspection
34-4 non-conformity of the goods does not excuse the buyer from so
34-5 making payment unless
34-6 (1) the non-conformity appears without inspection; or
34-7 (2) despite tender of the required documents
34-8 circumstances would justify injunction against honor under [the
34-9 provisions of] this title (Section 5.109(b) [5.114]).
34-10 SECTION 4. Subsection (a), Section 9.103, Business &
34-11 Commerce Code, is amended to read as follows:
34-12 (a) Documents, instruments, letters of credit, and ordinary
34-13 goods.
34-14 (1) This subsection applies to documents, [and]
34-15 instruments, and rights to proceeds of written letters of credit
34-16 and to goods other than those covered by a certificate of title
34-17 described in Subsection (b), mobile goods described in Subsection
34-18 (c), and minerals described in Subsection (e).
34-19 (2) Except as otherwise provided in this subsection,
34-20 perfection and the effect of perfection or non-perfection of a
34-21 security interest in collateral are governed by the law of the
34-22 jurisdiction where the collateral is when the last event occurs on
34-23 which is based the assertion that the security interest is
34-24 perfected or unperfected.
34-25 (3) If the parties to a transaction creating a
35-1 purchase money security interest in goods in one jurisdiction
35-2 understand at the time that the security interest attaches that the
35-3 goods will be kept in another jurisdiction, then the law of the
35-4 other jurisdiction governs the perfection and the effect of
35-5 perfection or non-perfection of the security interest from the time
35-6 it attaches until 30 days after the debtor receives possession of
35-7 the goods and thereafter if the goods are taken to the other
35-8 jurisdiction before the end of the 30-day period.
35-9 (4) When collateral is brought into and kept in this
35-10 state while subject to a security interest perfected under the law
35-11 of the jurisdiction from which the collateral was removed, the
35-12 security interest remains perfected, but if action is required by
35-13 Subchapter C of this chapter to perfect the security interest,
35-14 (A) if the action is not taken before the
35-15 expiration of the period of perfection in the other jurisdiction or
35-16 the end of four months after the collateral is brought into this
35-17 state, whichever period first expires, the security interest
35-18 becomes unperfected at the end of that period and is thereafter
35-19 deemed to have been unperfected as against a person who became a
35-20 purchaser after removal;
35-21 (B) if the action is taken before the expiration
35-22 of the period specified in paragraph (A), the security interest
35-23 continues perfected thereafter;
35-24 (C) for the purpose of priority over a buyer of
35-25 consumer goods (Subsection (b) of Section 9.307), the period of the
36-1 effectiveness of a filing in the jurisdiction from which the
36-2 collateral is removed is governed by the rules with respect to
36-3 perfection in paragraphs (A) and (B).
36-4 SECTION 5. Section 9.104, Business & Commerce Code, is
36-5 amended to read as follows:
36-6 Sec. 9.104. TRANSACTIONS EXCLUDED FROM CHAPTER. This
36-7 chapter does not apply
36-8 (1) to a security interest subject to any statute of
36-9 the United States such as the Ship Mortgage Act, 1920, to the
36-10 extent that such statute governs the rights of parties to and third
36-11 parties affected by transactions in particular types of property;
36-12 or
36-13 (2) to a landlord's lien; or
36-14 (3) to a lien given by statute or other rule of law
36-15 for services or materials except as provided in Section 9.310 on
36-16 priority of such liens; or
36-17 (4) to a transfer of a claim for wages, salary or
36-18 other compensation of an employee; or
36-19 (5) to a transfer by a government or governmental
36-20 subdivision or agency; or
36-21 (6) to a sale of accounts or chattel paper as part of
36-22 a sale of the business out of which they arose, or an assignment of
36-23 accounts or chattel paper which is for the purpose of collection
36-24 only, or a transfer of a right to payment under a contract to an
36-25 assignee who is also to do the performance under the contract or a
37-1 transfer of a single account to an assignee in whole or partial
37-2 satisfaction of a preexisting indebtedness; or
37-3 (7) to a transfer of an interest or claim in or under
37-4 any policy of insurance, except as provided with respect to
37-5 proceeds (Section 9.306) and priorities in proceeds (Section
37-6 9.312); or
37-7 (8) to a right represented by a judgment (other than a
37-8 judgment taken on a right to payment which was collateral); or
37-9 (9) to any right of set-off; or
37-10 (10) except to the extent that provision is made for
37-11 fixtures in Section 9.313, to the creation or transfer of an
37-12 interest in or lien on real estate, including a lease or rents
37-13 thereunder; or
37-14 (11) to a transfer in whole or in part of any claim
37-15 arising out of tort; or
37-16 (12) to a transfer of an interest in any deposit
37-17 account (Subsection (a)(5) of Section 9.105), except as provided
37-18 with respect to proceeds (Section 9.306) and priorities in proceeds
37-19 (Section 9.312); or
37-20 (13) to a transfer of an interest in a letter of
37-21 credit other than the rights to proceeds of a written letter of
37-22 credit.
37-23 SECTION 6. Subsection (c), Section 9.105, Business &
37-24 Commerce Code, is amended to read as follows:
37-25 (c) The following definitions in other chapters apply to
38-1 this chapter:
38-2 "Broker". Section 8.102.
38-3 "Certificated security". Section 8.102.
38-4 "Check". Section 3.104.
38-5 "Clearing corporation". Section 8.102.
38-6 "Contract for sale". Section 2.106.
38-7 "Control". Section 8.106.
38-8 "Delivery". Section 8.301.
38-9 "Entitlement holder". Section 8.102.
38-10 "Financial asset". Section 8.102.
38-11 "Holder in due course". Section 3.302.
38-12 "Letter of credit". Section 5.102.
38-13 "Note". Section 3.104.
38-14 "Proceeds of a letter of credit". Section 5.114.
38-15 "Sale". Section 2.106.
38-16 "Securities intermediary". Section 8.102.
38-17 "Security". Section 8.102.
38-18 "Security certificate". Section 8.102.
38-19 "Security entitlement". Section 8.102.
38-20 "Uncertificated security". Section 8.102.
38-21 SECTION 7. Section 9.106, Business & Commerce Code, is
38-22 amended to read as follows:
38-23 Sec. 9.106. DEFINITIONS: "ACCOUNT"; "GENERAL INTANGIBLES".
38-24 "Account" means any right to payment for goods sold or leased or
38-25 for services rendered which is not evidenced by an instrument or
39-1 chattel paper, whether or not it has been earned by performance.
39-2 "General intangibles" means any personal property (including things
39-3 in action) other than goods, accounts, chattel paper, documents,
39-4 instruments, investment property, rights to proceeds of written
39-5 letters of credit, and money. All rights to payment earned or
39-6 unearned under a charter or other contract involving the use or
39-7 hire of a vessel and all rights incident to the charter or contract
39-8 are accounts.
39-9 SECTION 8. Sections 9.304 and 9.305, Business & Commerce
39-10 Code, are amended to read as follows:
39-11 Sec. 9.304. PERFECTION OF SECURITY INTEREST IN INSTRUMENTS,
39-12 DOCUMENTS, PROCEEDS OF A WRITTEN LETTER OF CREDIT, AND GOODS
39-13 COVERED BY DOCUMENTS; PERFECTION BY PERMISSIVE FILING; TEMPORARY
39-14 PERFECTION WITHOUT FILING OR TRANSFER OF POSSESSION. (a) A
39-15 security interest in chattel paper or negotiable documents may be
39-16 perfected by filing. A security interest in the rights to proceeds
39-17 of a written letter of credit can be perfected only by the secured
39-18 party's taking possession of the letter of credit. A security
39-19 interest in money or instruments (other than instruments which
39-20 constitute part of chattel paper) can be perfected only by the
39-21 secured party's taking possession, except as provided in
39-22 Subsections (d) and (e) of this section and Subsections (b) and (c)
39-23 of Section 9.306 on proceeds.
39-24 (b) During the period that goods are in the possession of
39-25 the issuer of a negotiable document therefor, a security interest
40-1 in the goods is perfected by perfecting a security interest in the
40-2 document, and any security interest in the goods otherwise
40-3 perfected during such period is subject thereto.
40-4 (c) A security interest in goods in the possession of a
40-5 bailee other than one who has issued a negotiable document therefor
40-6 is perfected by issuance of a document in the name of the secured
40-7 party or by the bailee's receipt of notification of the secured
40-8 party's interest or by filing as to the goods.
40-9 (d) A security interest in instruments, certificated
40-10 securities, or negotiable documents is perfected without filing or
40-11 the taking of possession for a period of 21 days from the time it
40-12 attaches to the extent that it arises for new value given under a
40-13 written security agreement.
40-14 (e) A security interest remains perfected for a period of 21
40-15 days without filing where a secured party having a perfected
40-16 security interest in an instrument, a certificated security, a
40-17 negotiable document, or goods in possession of a bailee other than
40-18 one who has issued a negotiable document therefor:
40-19 (1) makes available to the debtor the goods or
40-20 documents representing the goods for the purpose of ultimate sale
40-21 or exchange or for the purpose of loading, unloading, storing,
40-22 shipping, transshipping, manufacturing, processing or otherwise
40-23 dealing with them in a manner preliminary to their sale or
40-24 exchange, but priority between conflicting security interests in
40-25 the goods is subject to Subsection (c) of Section 9.312; or
41-1 (2) delivers the instrument or certificated security
41-2 to the debtor for the purpose of ultimate sale or exchange or of
41-3 presentation, collection, renewal or registration of transfer.
41-4 (f) After the 21 day period in Subsections (d) and (e)
41-5 perfection depends upon compliance with applicable provisions of
41-6 this chapter.
41-7 Sec. 9.305. WHEN POSSESSION BY SECURED PARTY PERFECTS
41-8 SECURITY INTEREST WITHOUT FILING. A security interest in [letters
41-9 of credit and advices of credit (Subsection (b)(1) of Section
41-10 5.116),] goods, instruments, money, negotiable documents or chattel
41-11 paper may be perfected by the secured party's taking possession of
41-12 the collateral. A security interest in the right to proceeds of a
41-13 written letter of credit may be perfected by the secured party's
41-14 taking possession of the letter of credit. If such collateral
41-15 other than goods covered by a negotiable document is held by a
41-16 bailee, the secured party is deemed to have possession from the
41-17 time the bailee receives notification of the secured party's
41-18 interest. A security interest is perfected by possession from the
41-19 time possession is taken without relation back and continues only
41-20 so long as possession is retained, unless otherwise specified in
41-21 this chapter. The security interest may be otherwise perfected as
41-22 provided in this chapter before or after the period of possession
41-23 by the secured party.
41-24 SECTION 9. This Act takes effect September 1, 1997.
41-25 SECTION 10. (a) This Act applies only to a letter of credit
42-1 that is issued on or after the effective date of this Act.
42-2 (b) A transaction arising out of or associated with a letter
42-3 of credit that was issued before the effective date of this Act and
42-4 the rights, obligations, and interests flowing from that
42-5 transaction are governed by the law as it existed immediately
42-6 before this Act took effect, and that law is continued in effect
42-7 for that purpose.
42-8 SECTION 11. The importance of this legislation and the
42-9 crowded condition of the calendars in both houses create an
42-10 emergency and an imperative public necessity that the
42-11 constitutional rule requiring bills to be read on three several
42-12 days in each house be suspended, and this rule is hereby suspended.