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