By Carona S.B. No. 547
75R2381 LJR-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to letters of credit.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Chapter 5, Business & Commerce Code, is amended
1-5 to read as follows:
1-6 CHAPTER 5. LETTERS OF CREDIT
1-7 Sec. 5.101. SHORT TITLE. This chapter may be cited as
1-8 Uniform Commercial Code--Letters of Credit.
1-9 Sec. 5.102. DEFINITIONS. (a) In this chapter:
1-10 (1) "Adviser" means a person who, at the request of
1-11 the issuer, a confirmer, or another adviser, notifies or requests
1-12 another adviser to notify the beneficiary that a letter of credit
1-13 has been issued, confirmed, or amended.
1-14 (2) "Applicant" means a person at whose request or for
1-15 whose account a letter of credit is issued. The term includes a
1-16 person who requests an issuer to issue a letter of credit on behalf
1-17 of another if the person making the request undertakes an
1-18 obligation to reimburse the issuer.
1-19 (3) "Beneficiary" means a person who under the terms
1-20 of a letter of credit is entitled to have its complying
1-21 presentation honored. The term includes a person to whom drawing
1-22 rights have been transferred under a transferable letter of credit.
1-23 (4) "Confirmer" means a nominated person who
1-24 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,
2-26 at maturity, its performance.
2-27 (9) "Issuer" means a bank or other person that issues
3-1 a letter of credit, but does not include an individual who makes an
3-2 engagement for personal, family, or household purposes.
3-3 (10) "Letter of credit" means a definite undertaking
3-4 that satisfies the requirements of Section 5.104 by an issuer to a
3-5 beneficiary at the request or for the account of an applicant or,
3-6 in the case of a financial institution, to itself or for its own
3-7 account, to honor a documentary presentation by payment or delivery
3-8 of an item of value.
3-9 (11) "Nominated person" means a person whom the
3-10 issuer:
3-11 (A) designates or authorizes to pay, accept,
3-12 negotiate, or otherwise give value under a letter of credit; and
3-13 (B) undertakes by agreement or custom and
3-14 practice to reimburse.
3-15 (12) "Presentation" means delivery of a document to an
3-16 issuer or nominated person for honor or giving of value under a
3-17 letter of credit.
3-18 (13) "Presenter" means a person making a presentation
3-19 as or on behalf of a beneficiary or nominated person.
3-20 (14) "Record" means information that is inscribed on a
3-21 tangible medium or that is stored in an electronic or other medium
3-22 and is retrievable in perceivable form.
3-23 (15) "Successor of a beneficiary" means a person who
3-24 succeeds to substantially all of the rights of a beneficiary by
3-25 operation of law, including a corporation with or into which the
3-26 beneficiary has been merged or consolidated, an administrator, an
3-27 executor, a personal representative, a trustee in bankruptcy, a
4-1 debtor in possession, a liquidator, and a receiver.
4-2 (b) Definitions in other chapters of this code applying to
4-3 this chapter and the sections in which they appear are:
4-4 "Accept" or "Acceptance" Section
4-5 3.409
4-6 "Value"
4-7 Sections
4-8 3.303 and 4.211
4-9 (c) Chapter 1 contains certain additional general
4-10 definitions and principles of construction and interpretation
4-11 applicable throughout this chapter.
4-12 Sec. 5.103. SCOPE. (a) This chapter applies to letters of
4-13 credit and to certain rights and obligations arising out of
4-14 transactions involving letters of credit.
4-15 (b) The statement of a rule in this chapter does not by
4-16 itself require, imply, or negate application of the same or a
4-17 different rule to a situation not provided for, or to a person not
4-18 specified, in this chapter.
4-19 (c) With the exception of this subsection, Subsections (a)
4-20 and (d), Sections 5.102(a)(9) and (10), Section 5.106(d), and
4-21 Section 5.114(d) and except to the extent prohibited in Sections
4-22 1.102(c) and 5.117(d), the effect of this chapter may be varied by
4-23 agreement or by a provision stated or incorporated by reference in
4-24 an undertaking. A term in an agreement or undertaking generally
4-25 excusing liability or generally limiting remedies for failure to
4-26 perform obligations is not sufficient to vary obligations
4-27 prescribed by this chapter.
5-1 (d) Rights and obligations of an issuer to a beneficiary or
5-2 a nominated person under a letter of credit are independent of the
5-3 existence, performance, or nonperformance of a contract or
5-4 arrangement out of which the letter of credit arises or which
5-5 underlies it, including contracts or arrangements between the
5-6 issuer and the applicant and between the applicant and the
5-7 beneficiary. [This chapter applies]
5-8 [(1) to a credit issued by a bank if the credit
5-9 requires a documentary draft or a documentary demand for payment;
5-10 and]
5-11 [(2) to a credit issued by a person other than a bank
5-12 if the credit requires that the draft or demand for payment be
5-13 accompanied by a document of title; and]
5-14 [(3) to a credit issued by a bank or other person if
5-15 the credit is not within Subdivision (1) or (2) but conspicuously
5-16 states that it is a letter of credit or is conspicuously so
5-17 entitled.]
5-18 [(b) Unless the engagement meets the requirements of
5-19 Subsection (a), this chapter does not apply to engagements to make
5-20 advances or to honor drafts or demands for payment, to authorities
5-21 to pay or purchase, to guarantees or to general agreements.]
5-22 [(c) This chapter deals with some but not all of the rules
5-23 and concepts of letters of credit as such rules or concepts have
5-24 developed prior to this title or may hereafter develop. The fact
5-25 that this chapter states a rule does not by itself require, imply
5-26 or negate application of the same or a converse rule to a situation
5-27 not provided for or to a person not specified by this chapter.]
6-1 [Sec. 5.103. DEFINITIONS. (a) In this chapter unless the
6-2 context otherwise requires]
6-3 [(1) "Credit" or "letter of credit" means an
6-4 engagement by a bank or other person made at the request of a
6-5 customer and of a kind within the scope of this chapter (Section
6-6 5.102) that the issuer will honor drafts or other demands for
6-7 payment upon compliance with the conditions specified in the
6-8 credit. A credit may be either revocable or irrevocable. The
6-9 engagement may be either an agreement to honor or a statement that
6-10 the bank or other person is authorized to honor.]
6-11 [(2) A "documentary draft" or a "documentary demand
6-12 for payment" is one honor of which is conditioned upon the
6-13 presentation of a document or documents. "Document" means any
6-14 paper including document of title, security, invoice, certificate,
6-15 notice of default and the like.]
6-16 [(3) An "issuer" is a bank or other person issuing a
6-17 credit.]
6-18 [(4) A "beneficiary" of a credit is a person who is
6-19 entitled under its terms to draw or demand payment.]
6-20 [(5) An "advising bank" is a bank which gives
6-21 notification of the issuance of a credit by another bank.]
6-22 [(6) A "confirming bank" is a bank which engages
6-23 either that it will itself honor a credit already issued by another
6-24 bank or that such a credit will be honored by the issuer or a third
6-25 bank.]
6-26 [(7) A "customer" is a buyer or other person who
6-27 causes an issuer to issue a credit. The term also includes a bank
7-1 which procures issuance or confirmation on behalf of that bank's
7-2 customer.]
7-3 [(b) Other definitions applying to this chapter and the
7-4 sections in which they appear are:]
7-5 ["Notation Credit".
7-6 Section 5.1a8.]
7-7 ["Presenter".
7-8 Section 5.112(c).
7-9 (c) Definitions in other chapters applying to this chapter
7-11 and the sections in which they appear are:]
7-12 ["Accept" or "Acceptance". Section
7-13 3.409.]
7-14 ["Contract for sale". Section
7-15 2.106.]
7-16 ["Draft".
7-17 Section
7-18 3.104.]
7-19 ["Holder in due course". Section
7-20 3.302.]
7-21 ["Midnight deadline". Section
7-22 4.104.]
7-23 ["Security".
7-24 Section
7-25 8.102.]
7-26 [(d) In addition, Chapter 1 contains general definitions and
7-27 principles of construction and interpretation applicable throughout
8-1 this chapter.]
8-2 Sec. 5.104. FORMAL REQUIREMENTS[; SIGNING]. A letter of
8-3 credit, confirmation, advice, transfer, amendment, or cancellation
8-4 may be issued in any form that is a record and is authenticated:
8-5 (1) by a signature; or
8-6 (2) in accordance with the agreement of the parties or
8-7 the standard practice referred to in Section 5.108(e).
8-8 [(a) Except as otherwise required in Subsection (a)(3) of Section
8-9 5.102 on scope, no particular form of phrasing is required for a
8-10 credit. A credit must be in writing and signed by the issuer and a
8-11 confirmation must be in writing and signed by the confirming bank.
8-12 A modification of the terms of a credit or confirmation must be
8-13 signed by the issuer or confirming bank.]
8-14 [(b) A telegram may be a sufficient signed writing if it
8-15 identifies its sender by an authorized authentication. The
8-16 authentication may be in code and the authorized naming of the
8-17 issuer in an advice of credit is a sufficient signing.]
8-18 Sec. 5.105. CONSIDERATION. Consideration is not required to
8-19 issue, amend, transfer, or cancel a letter of credit, advice, or
8-20 confirmation. [No consideration is necessary to establish a credit
8-21 or to enlarge or otherwise modify its terms.]
8-22 Sec. 5.106. ISSUANCE, AMENDMENT, CANCELLATION, AND DURATION.
8-23 (a) A letter of credit is issued and becomes enforceable according
8-24 to its terms against the issuer when the issuer sends or otherwise
8-25 transmits it to the person requested to advise or to the
8-26 beneficiary. A letter of credit is revocable only if it so
8-27 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.]
9-26 [(c) Unless otherwise agreed after a revocable credit is
9-27 established it may be modified or revoked by the issuer without
10-1 notice to or consent from the customer or beneficiary.]
10-2 [(d) Notwithstanding any modification or revocation of a
10-3 revocable credit any person authorized to honor or negotiate under
10-4 the terms of the original credit is entitled to reimbursement for
10-5 or honor of any draft or demand for payment duly honored or
10-6 negotiated before receipt of notice of the modification or
10-7 revocation and the issuer in turn is entitled to reimbursement from
10-8 its customer.]
10-9 Sec. 5.107. CONFIRMER, NOMINATED PERSON, AND ADVISER.
10-10 (a) A confirmer is directly obligated on a letter of credit and
10-11 has the rights and obligations of an issuer to the extent of its
10-12 confirmation. The confirmer also has rights against and
10-13 obligations to the issuer as if the issuer were an applicant and
10-14 the confirmer had issued the letter of credit at the request and
10-15 for the account of the issuer.
10-16 (b) A nominated person who is not a confirmer is not
10-17 obligated to honor or otherwise give value for a presentation.
10-18 (c) A person requested to advise may decline to act as an
10-19 adviser. An adviser that is not a confirmer is not obligated to
10-20 honor or give value for a presentation. An adviser undertakes to
10-21 the issuer and to the beneficiary accurately to advise the terms of
10-22 the letter of credit, confirmation, amendment, or advice received
10-23 by that person and undertakes to the beneficiary to check the
10-24 apparent authenticity of the request to advise. Even if the advice
10-25 is inaccurate, the letter of credit, confirmation, or amendment is
10-26 enforceable as issued.
10-27 (d) A person who notifies a transferee beneficiary of the
11-1 terms of a letter of credit, confirmation, amendment, or advice has
11-2 the rights and obligations of an adviser under Subsection (c). The
11-3 terms in the notice to the transferee beneficiary may differ from
11-4 the terms in any notice to the transferor beneficiary to the extent
11-5 permitted by the letter of credit, confirmation, amendment, or
11-6 advice received by the person who so notifies. [ADVICE OF CREDIT;
11-7 CONFIRMATION; ERROR IN STATEMENT OF TERMS. (a) Unless otherwise
11-8 specified an advising bank by advising a credit issued by another
11-9 bank does not assume any obligation to honor drafts drawn or
11-10 demands for payment made under the credit but it does assume
11-11 obligation for the accuracy of its own statement.]
11-12 [(b) A confirming bank by confirming a credit becomes
11-13 directly obligated on the credit to the extent of its confirmation
11-14 as though it were its issuer and acquires the rights of an issuer.]
11-15 [(c) Even though an advising bank incorrectly advises the
11-16 terms of a credit it has been authorized to advise the credit is
11-17 established as against the issuer to the extent of its original
11-18 terms.]
11-19 [(d) Unless otherwise specified the customer bears as
11-20 against the issuer all risks of transmission and reasonable
11-21 translation or interpretation of any message relating to a credit.]
11-22 Sec. 5.108. ISSUER'S RIGHTS AND OBLIGATIONS. (a) Except as
11-23 otherwise provided in Section 5.109, an issuer shall honor a
11-24 presentation that, as determined by the standard practice referred
11-25 to in Subsection (e), appears on its face strictly to comply with
11-26 the terms and conditions of the letter of credit. Except as
11-27 otherwise provided in Section 5.113 and unless otherwise agreed
12-1 with the applicant, an issuer shall dishonor a presentation that
12-2 does not appear so to comply.
12-3 (b) An issuer has a reasonable time after presentation, but
12-4 not beyond the end of the seventh business day of the issuer after
12-5 the date of its receipt of documents:
12-6 (1) to honor;
12-7 (2) if the letter of credit provides for honor to be
12-8 completed more than seven business days after presentation, to
12-9 accept a draft or incur a deferred obligation; or
12-10 (3) to give notice to the presenter of discrepancies
12-11 in the presentation.
12-12 (c) Except as otherwise provided in Subsection (d), an
12-13 issuer is precluded from asserting as a basis for dishonor any
12-14 discrepancy if timely notice is not given or any discrepancy not
12-15 stated in the notice if timely notice is given.
12-16 (d) Failure to give the notice specified in Subsection (b)
12-17 or to mention fraud, forgery, or expiration in the notice does not
12-18 preclude the issuer from asserting as a basis for dishonor fraud or
12-19 forgery as described in Section 5.109(a) or expiration of the
12-20 letter of credit before presentation.
12-21 (e) An issuer shall observe standard practice of financial
12-22 institutions that regularly issue letters of credit. Determination
12-23 of the issuer's observance of the standard practice is a matter of
12-24 interpretation for the court. The court shall offer the parties a
12-25 reasonable opportunity to present evidence of the standard
12-26 practice.
12-27 (f) An issuer is not responsible for:
13-1 (1) the performance or nonperformance of the
13-2 underlying contract, arrangement, or transaction;
13-3 (2) an act or omission of others; or
13-4 (3) observance or knowledge of the usage of a
13-5 particular trade other than the standard practice referred to in
13-6 Subsection (e).
13-7 (g) If an undertaking constituting a letter of credit under
13-8 Section 5.102(a)(10) contains nondocumentary conditions, an issuer
13-9 shall disregard the nondocumentary conditions and treat them as if
13-10 they were not stated.
13-11 (h) An issuer that has dishonored a presentation shall
13-12 return the documents or hold them at the disposal of, and send
13-13 advice to that effect to, the presenter.
13-14 (i) An issuer that has honored a presentation as permitted
13-15 or required by this chapter:
13-16 (1) is entitled to be reimbursed by the applicant in
13-17 immediately available funds not later than the date of its payment
13-18 of funds;
13-19 (2) takes the documents free of claims of the
13-20 beneficiary or presenter;
13-21 (3) is precluded from asserting a right of recourse on
13-22 a draft under Sections 3.414 and 3.415;
13-23 (4) except as otherwise provided in Sections 5.110 and
13-24 5.117, is precluded from restitution of money paid or other value
13-25 given by mistake to the extent the mistake concerns discrepancies
13-26 in the documents or tender that are apparent on the face of the
13-27 presentation; and
14-1 (5) is discharged to the extent of its performance
14-2 under the letter of credit unless the issuer honored a presentation
14-3 in which a required signature of a beneficiary was forged.
14-4 ["NOTATION CREDIT"; EXHAUSTION OF CREDIT. (a) A credit which
14-5 specifies that any person purchasing or paying drafts drawn or
14-6 demands for payment made under it must note the amount of the draft
14-7 or demand on the letter or advice of credit is a "notation credit".]
14-8 [(b) Under a notation credit]
14-9 [(1) a person paying the beneficiary or purchasing a
14-10 draft or demand for payment from him acquires a right to honor only
14-11 if the appropriate notation is made and by transferring or
14-12 forwarding for honor the documents under the credit such a person
14-13 warrants to the issuer that the notation has been made; and]
14-14 [(2) unless the credit or a signed statement that an
14-15 appropriate notation has been made accompanies the draft or demand
14-16 for payment the issuer may delay honor until evidence of notation
14-17 has been procured which is satisfactory to it but its obligation
14-18 and that of its customer continue for a reasonable time not
14-19 exceeding thirty days to obtain such evidence.]
14-20 [(c) If the credit is not a notation credit]
14-21 [(1) the issuer may honor complying drafts or demands
14-22 for payment presented to it in the order in which they are
14-23 presented and is discharged pro tanto by honor of any such draft or
14-24 demand;]
14-25 [(2) as between competing good faith purchasers of
14-26 complying drafts or demands the person first purchasing has
14-27 priority over a subsequent purchaser even though the later
15-1 purchased draft or demand has been first honored.]
15-2 [Sec. 5.109. ISSUER'S OBLIGATION TO ITS CUSTOMER. (a) An
15-3 issuer's obligation to its customer includes good faith and
15-4 observance of any general banking usage but unless otherwise agreed
15-5 does not include liability or responsibility]
15-6 [(1) for performance of the underlying contract for
15-7 sale or other transaction between the customer and the beneficiary;
15-8 or]
15-9 [(2) for any act or omission of any person other than
15-10 itself or its own branch or for loss or destruction of a draft,
15-11 demand or document in transit or in the possession of others; or]
15-12 [(3) based on knowledge or lack of knowledge of any
15-13 usage of any particular trade.]
15-14 [(b) An issuer must examine documents with care so as to
15-15 ascertain that on their face they appear to comply with the terms
15-16 of the credit but unless otherwise agreed assumes no liability or
15-17 responsibility for the genuineness, falsification or effect of any
15-18 document which appears on such examination to be regular on its
15-19 face.]
15-20 [(c) A non-bank issuer is not bound by any banking usage of
15-21 which it has no knowledge.]
15-22 Sec. 5.109. FRAUD AND FORGERY. (a) If a presentation is
15-23 made that appears on its face strictly to comply with the terms and
15-24 conditions of the letter of credit, but a required document is
15-25 forged or materially fraudulent, or honor of the presentation would
15-26 facilitate a material fraud by the beneficiary on the issuer or
15-27 applicant:
16-1 (1) the issuer shall honor the presentation if honor
16-2 is demanded by:
16-3 (A) a nominated person who has given value in
16-4 good faith and without notice of forgery or material fraud;
16-5 (B) a confirmer who has honored its confirmation
16-6 in good faith;
16-7 (C) a holder in due course of a draft drawn
16-8 under the letter of credit that was taken after acceptance by the
16-9 issuer or nominated person; or
16-10 (D) an assignee of the issuer's or nominated
16-11 person's deferred obligation that was taken for value and without
16-12 notice of forgery or material fraud after the obligation was
16-13 incurred by the issuer or nominated person; and
16-14 (2) the issuer, acting in good faith, may honor or
16-15 dishonor the presentation in any other case.
16-16 (b) If an applicant claims that a required document is
16-17 forged or materially fraudulent or that honor of the presentation
16-18 would facilitate a material fraud by the beneficiary on the issuer
16-19 or applicant, a court of competent jurisdiction may temporarily or
16-20 permanently enjoin the issuer from honoring a presentation or grant
16-21 similar relief against the issuer or other persons only if the
16-22 court finds that:
16-23 (1) the relief is not prohibited under the law
16-24 applicable to an accepted draft or deferred obligation incurred by
16-25 the issuer;
16-26 (2) a beneficiary, issuer, or nominated person who may
16-27 be adversely affected is adequately protected against loss that it
17-1 may suffer because the relief is granted;
17-2 (3) all of the conditions to entitle a person to the
17-3 relief under the law of this state have been met; and
17-4 (4) on the basis of the information submitted to the
17-5 court, the applicant is more likely than not to succeed under its
17-6 claim of forgery or material fraud and the person demanding honor
17-7 does not qualify for protection under Subsection (a)(1).
17-8 [Sec. 5110. AVAILABILITY OF CREDIT IN PORTIONS; PRESENTER'S
17-9 RESERVATION OF LIEN OR CLAIM. (a) Unless otherwise specified a
17-10 credit may be used in portions in the discretion of the
17-11 beneficiary.]
17-12 [(b) Unless otherwise specified a person by presenting a
17-13 documentary draft or demand for payment under a credit relinquishes
17-14 upon its honor all claims to the documents and a person by
17-15 transferring such draft or demand or causing such presentment
17-16 authorizes such relinquishment. An explicit reservation of claim
17-17 makes the draft or demand non-complying.]
17-18 Sec. 5.110. [Sec. 5.111.] WARRANTIES [ON TRANSFER AND
17-19 PRESENTMENT]. (a) If its presentation is honored, the
17-20 beneficiary warrants:
17-21 (1) to the issuer, any other person to whom
17-22 presentation is made, and the applicant that there is no fraud or
17-23 forgery of the kind described in Section 5.109(a); and
17-24 (2) to the applicant that the drawing does not violate
17-25 any agreement between the applicant and beneficiary or any other
17-26 agreement intended by them to be augmented by the letter of credit.
17-27 (b) The warranties in Subsection (a) are in addition to
18-1 warranties arising under Chapters 3, 4, 7, and 8 because of the
18-2 presentation or transfer of documents covered by any of those
18-3 chapters. [(a) Unless otherwise agreed the beneficiary by
18-4 transferring or presenting a documentary draft or demand for
18-5 payment warrants to all interested parties that the necessary
18-6 conditions of the credit have been complied with. This is in
18-7 addition to any warranties arising under Chapters 3, 4, 7 and 8.]
18-8 [(b) Unless otherwise agreed a negotiating, advising,
18-9 confirming, collecting or issuing bank presenting or transferring a
18-10 draft or demand for payment under a credit warrants only the
18-11 matters warranted by a collecting bank under Chapter 4 and any such
18-12 bank transferring a document warrants only the matters warranted by
18-13 an intermediary under Chapters 7 and 8.]
18-14 [Sec. 5.112. TIME ALLOWED FOR HONOR OR REJECTION;
18-15 WITHHOLDING HONOR OR REJECTION BY CONSENT; "PRESENTER". (a) A
18-16 bank to which a documentary draft or demand for payment is
18-17 presented under a credit may without dishonor of the draft, demand
18-18 or credit]
18-19 [(1) defer honor until the close of the third banking
18-20 day following receipt of the documents; and]
18-21 [(2) further defer honor if the presenter has
18-22 expressly or impliedly consented thereto.]
18-23 [Failure to honor within the time here specified constitutes
18-24 dishonor of the draft or demand and of the credit except as
18-25 otherwise provided in Subsection (d) of Section 5.114 on
18-26 conditional payment.]
18-27 [(b) Upon dishonor the bank may unless otherwise instructed
19-1 fulfill its duty to return the draft or demand and the documents by
19-2 holding them at the disposal of the presenter and sending him an
19-3 advice to that effect.]
19-4 [(c) "Presenter" means any person presenting a draft or
19-5 demand for payment for honor under a credit even though that person
19-6 is a confirming bank or other correspondent which is acting under
19-7 an issuer's authorization.]
19-8 [Sec. 5.113. INDEMNITIES. (a) A bank seeking to obtain
19-9 (whether for itself or another) honor, negotiation or reimbursement
19-10 under a credit may give an indemnity to induce such honor,
19-11 negotiation or reimbursement.]
19-12 [(b) An indemnity agreement inducing honor, negotiation or
19-13 reimbursement]
19-14 [(1) unless otherwise explicitly agreed applies to
19-15 defects in the documents but not in the goods; and]
19-16 [(2) unless a longer time is explicitly agreed expires
19-17 at the end of ten business days following receipt of the documents
19-18 by the ultimate customer unless notice of objection is sent before
19-19 such expiration date. The ultimate customer may send notice of
19-20 objection to the person from whom he received the documents and any
19-21 bank receiving such notice is under a duty to send notice to its
19-22 transferor before its midnight deadline.]
19-23 [Sec. 5.114. ISSUER'S DUTY AND PRIVILEGE TO HONOR; RIGHT TO
19-24 REIMBURSEMENT. (a) An issuer must honor a draft or demand for
19-25 payment which complies with the terms of the relevant credit
19-26 regardless of whether the goods or documents conform to the
19-27 underlying contract for sale or other contract between the customer
20-1 and the beneficiary. The issuer is not excused from honor of such
20-2 a draft or demand by reason of an additional general term that all
20-3 documents must be satisfactory to the issuer, but an issuer may
20-4 require that specified documents must be satisfactory to it.]
20-5 [(b) Unless otherwise agreed when documents appear on their
20-6 face to comply with the terms of a credit but a required document
20-7 does not in fact conform to the warranties made on negotiation or
20-8 transfer of a document of title (Section 7.507) or of a
20-9 certificated security (Section 8.108) or is forged or fraudulent or
20-10 there is fraud in the transaction:]
20-11 [(1) the issuer must honor the draft or demand for
20-12 payment if honor is demanded by a negotiating bank or other holder
20-13 of the draft or demand which has taken the draft or demand under
20-14 the credit and under circumstances which would make it a holder in
20-15 due course (Section 3.302) and in an appropriate case would make it
20-16 a person to whom a document of title has been duly negotiated
20-17 (Section 7.502) or a bona fide purchaser of a certificated security
20-18 (Section 8.302); and]
20-19 [(2) in all other cases as against its customer, an
20-20 issuer acting in good faith may honor the draft or demand for
20-21 payment despite notification from the customer of fraud, forgery or
20-22 other defect not apparent on the face of the documents but a court
20-23 of appropriate jurisdiction may enjoin such honor.]
20-24 [(c) Unless otherwise agreed an issuer which has duly
20-25 honored a draft or demand for payment is entitled to immediate
20-26 reimbursement of any payment made under the credit and to be put in
20-27 effectively available funds not later than the day before maturity
21-1 of any acceptance made under the credit.]
21-2 [(d) When a credit provides for payment by the issuer on
21-3 receipt of notice that the required documents are in the possession
21-4 of a correspondent or other agent of the issuer]
21-5 [(1) any payment made on receipt of such notice is
21-6 conditional; and]
21-7 [(2) the issuer may reject documents which do not
21-8 comply with the credit if it does so within three banking days
21-9 following its receipt of the documents; and]
21-10 [(3) in the event of such rejection, the issuer is
21-11 entitled by charge back or otherwise to return of the payment made.]
21-12 [(e) In the case covered by Subsection (d) failure to reject
21-13 documents within the time specified in Subdivision (2), constitutes
21-14 acceptance of the documents and makes the payment final in favor of
21-15 the beneficiary.]
21-16 Sec. 5.111. REMEDIES. (a) If an issuer wrongfully
21-17 dishonors or repudiates its obligation to pay money under a letter
21-18 of credit before presentation, the beneficiary, successor, or
21-19 nominated person presenting on its own behalf may recover from the
21-20 issuer the amount that is the subject of the dishonor or
21-21 repudiation. If the issuer's obligation under the letter of credit
21-22 is not for the payment of money, the claimant may obtain specific
21-23 performance or, at the claimant's election, recover an amount equal
21-24 to the value of performance from the issuer. In either case, the
21-25 claimant may also recover incidental but not consequential damages.
21-26 The claimant is not obligated to take action to avoid damages that
21-27 might be due from the issuer under this subsection. If, although
22-1 not obligated to do so, the claimant avoids damages, the claimant's
22-2 recovery from the issuer must be reduced by the amount of damages
22-3 avoided. The issuer has the burden of proving the amount of
22-4 damages avoided. In the case of repudiation the claimant need not
22-5 present any document.
22-6 (b) If an issuer wrongfully dishonors a draft or demand
22-7 presented under a letter of credit or honors a draft or demand in
22-8 breach of its obligation to the applicant, the applicant may
22-9 recover damages resulting from the breach, including incidental but
22-10 not consequential damages, less any amount saved as a result of the
22-11 breach.
22-12 (c) If an adviser or nominated person other than a confirmer
22-13 breaches an obligation under this chapter or an issuer breaches an
22-14 obligation not covered in Subsection (a) or (b), a person to whom
22-15 the obligation is owed may recover damages resulting from the
22-16 breach, including incidental but not consequential damages, less
22-17 any amount saved as a result of the breach. To the extent of the
22-18 confirmation, a confirmer has the liability of an issuer specified
22-19 in this subsection and Subsections (a) and (b).
22-20 (d) An issuer, nominated person, or adviser who is found
22-21 liable under Subsection (a), (b), or (c) shall pay interest on the
22-22 amount owed thereunder from the date of wrongful dishonor or other
22-23 appropriate date.
22-24 (e) Reasonable attorney's fees and other expenses of
22-25 litigation must be awarded to the prevailing party in an action in
22-26 which a remedy is sought under this chapter.
22-27 (f) Damages that would otherwise be payable by a party for
23-1 breach of an obligation under this chapter may be liquidated by
23-2 agreement or undertaking, but only in an amount or by a formula
23-3 that is reasonable in light of the harm anticipated.
23-4 [Sec. 5.115. REMEDY FOR IMPROPER DISHONOR OR ANTICIPATORY
23-5 REPUDIATION. (a) When an issuer wrongfully dishonors a draft or
23-6 demand for payment presented under a credit the person entitled to
23-7 honor has with respect to any documents the rights of a person in
23-8 the position of a seller (Section 2.707) and may recover from the
23-9 issuer the face amount of the draft or demand together with
23-10 incidental damages under Section 2.710 on seller's incidental
23-11 damages and interest but less any amount realized by resale or
23-12 other use or disposition of the subject matter of the transaction.
23-13 In the event no resale or other utilization is made the documents,
23-14 goods or other subject matter involved in the transaction must be
23-15 turned over to the issuer on payment of judgment.]
23-16 [(b) When an issuer wrongfully cancels or otherwise
23-17 repudiates a credit before presentment of a draft or demand for
23-18 payment drawn under it the beneficiary has the rights of a seller
23-19 after anticipatory repudiation by the buyer under Section 2.610 if
23-20 he learns of the repudiation in time reasonably to avoid
23-21 procurement of the required documents. Otherwise the beneficiary
23-22 has an immediate right of action for wrongful dishonor.]
23-23 Sec. 5.112. [Sec. 5.116.] TRANSFER OF LETTER OF CREDIT [AND
23-24 ASSIGNMENT]. (a) Except as otherwise provided in Section 5.113,
23-25 unless a letter of credit provides that it is transferable, the
23-26 right of a beneficiary to draw or otherwise demand performance
23-27 under a letter of credit may not be transferred [The right to draw
24-1 under a credit can be transferred or assigned only when the credit
24-2 is expressly designated as transferable or assignable].
24-3 (b) Even if a letter of credit provides that it is
24-4 transferable, the issuer may refuse to recognize or carry out a
24-5 transfer if:
24-6 (1) the transfer would violate applicable law; or
24-7 (2) the transferor or transferee has failed to comply
24-8 with any requirement stated in the letter of credit or any other
24-9 requirement relating to transfer imposed by the issuer which is
24-10 within the standard practice referred to in Section 5.108(e) or is
24-11 otherwise reasonable under the circumstances.
24-12 Sec. 5.113. TRANSFER BY OPERATION OF LAW. (a) A successor
24-13 of a beneficiary may consent to amendments, sign and present
24-14 documents, and receive payment or other items of value in the name
24-15 of the beneficiary without disclosing its status as a successor.
24-16 (b) A successor of a beneficiary may consent to amendments,
24-17 sign and present documents, and receive payment or other items of
24-18 value in its own name as the disclosed successor of the
24-19 beneficiary. Except as otherwise provided in Subsection (e), an
24-20 issuer shall recognize a disclosed successor of a beneficiary as
24-21 beneficiary in full substitution for its predecessor upon
24-22 compliance with the requirements for recognition by the issuer of a
24-23 transfer of drawing rights by operation of law under the standard
24-24 practice referred to in Section 5.108(e) or, in the absence of such
24-25 a practice, compliance with other reasonable procedures sufficient
24-26 to protect the issuer.
24-27 (c) An issuer is not obliged to determine whether a
25-1 purported successor is a successor of a beneficiary or whether the
25-2 signature of a purported successor is genuine or authorized.
25-3 (d) Honor of a purported successor's apparently complying
25-4 presentation under Subsection (a) or (b) has the consequences
25-5 specified in Section 5.108(i) even if the purported successor is
25-6 not the successor of a beneficiary. Documents signed in the name
25-7 of the beneficiary or of a disclosed successor by a person who is
25-8 neither the beneficiary nor the successor of the beneficiary are
25-9 forged documents for the purposes of Section 5.109.
25-10 (e) An issuer whose rights of reimbursement are not covered
25-11 by Subsection (d) or substantially similar law and any confirmer or
25-12 nominated person may decline to recognize a presentation under
25-13 Subsection (b).
25-14 (f) A beneficiary whose name is changed after the issuance
25-15 of a letter of credit has the same rights and obligations as a
25-16 successor of a beneficiary under this section.
25-17 Sec. 5.114. ASSIGNMENT OF PROCEEDS. (a) In this section,
25-18 "proceeds of a letter of credit" means the cash, check, accepted
25-19 draft, or other item of value paid or delivered upon honor or
25-20 giving of value by the issuer or any nominated person under the
25-21 letter of credit. The term does not include a beneficiary's
25-22 drawing rights or documents presented by the beneficiary.
25-23 (b) A beneficiary may assign its right to part or all of the
25-24 proceeds of a letter of credit. The beneficiary may do so before
25-25 presentation as a present assignment of its right to receive
25-26 proceeds contingent upon its compliance with the terms and
25-27 conditions of the letter of credit.
26-1 (c) An issuer or nominated person need not recognize an
26-2 assignment of proceeds of a letter of credit until it consents to
26-3 the assignment.
26-4 (d) An issuer or nominated person has no obligation to give
26-5 or withhold its consent to an assignment of proceeds of a letter of
26-6 credit, but consent may not be unreasonably withheld if the
26-7 assignee possesses and exhibits the letter of credit and
26-8 presentation of the letter of credit is a condition to honor.
26-9 (e) Rights of a transferee beneficiary or nominated person
26-10 are independent of the beneficiary's assignment of the proceeds of
26-11 a letter of credit and are superior to the assignee's right to the
26-12 proceeds.
26-13 (f) Neither the rights recognized by this section between an
26-14 assignee and an issuer, transferee beneficiary, or nominated person
26-15 nor the issuer's or nominated person's payment of proceeds to an
26-16 assignee or a third person affect the rights between the assignee
26-17 and any person other than the issuer, transferee beneficiary, or
26-18 nominated person. The mode of creating and perfecting a security
26-19 interest in or granting an assignment of a beneficiary's rights to
26-20 proceeds is governed by Chapter 9 or other law. Against persons
26-21 other than the issuer, transferee beneficiary, or nominated person,
26-22 the rights and obligations arising upon the creation of a security
26-23 interest or other assignment of a beneficiary's right to proceeds
26-24 and its perfection are governed by Chapter 9 or other law.
26-25 [(b) Even though the credit specifically states that it is
26-26 nontransferable or nonassignable the beneficiary may before
26-27 performance of the conditions of the credit assign his right to
27-1 proceeds. Such an assignment is an assignment of an account under
27-2 Chapter 9 on Secured Transactions and is governed by that chapter
27-3 except that]
27-4 [(1) the assignment is ineffective until the letter of
27-5 credit or advice of credit is delivered to the assignee which
27-6 delivery constitutes perfection of the security interest under
27-7 Chapter 9; and]
27-8 [(2) the issuer may honor drafts or demands for
27-9 payment drawn under the credit until it receives a notification of
27-10 the assignment signed by the beneficiary which reasonably
27-11 identifies the credit involved in the assignment and contains a
27-12 request to pay the assignee; and]
27-13 [(3) after what reasonably appears to be such a
27-14 notification has been received the issuer may without dishonor
27-15 refuse to accept or pay even to a person otherwise entitled to
27-16 honor until the letter of credit or advice of credit is exhibited
27-17 to the issuer.]
27-18 [(c) Except where the beneficiary has effectively assigned
27-19 his right to draw or his right to proceeds, nothing in this section
27-20 limits his right to transfer or negotiate drafts or demands drawn
27-21 under the credit.]
27-22 Sec. 5.115. STATUTE OF LIMITATIONS. An action to enforce a
27-23 right or obligation arising under this chapter must be commenced
27-24 within one year after the expiration date of the relevant letter of
27-25 credit or one year after the cause of action accrues, whichever
27-26 occurs later. A cause of action accrues when the breach occurs,
27-27 regardless of the aggrieved party's lack of knowledge of the
28-1 breach.
28-2 Sec. 5.116. CHOICE OF LAW AND FORUM. (a) The liability of
28-3 an issuer, nominated person, or adviser for action or omission is
28-4 governed by the law of the jurisdiction chosen by an agreement in
28-5 the form of a record signed or otherwise authenticated by the
28-6 affected parties in the manner provided in Section 5.104 or by a
28-7 provision in the person's letter of credit, confirmation, or other
28-8 undertaking. The jurisdiction whose law is chosen need not bear
28-9 any relation to the transaction.
28-10 (b) Unless Subsection (a) applies, the liability of an
28-11 issuer, nominated person, or adviser for action or omission is
28-12 governed by the law of the jurisdiction in which the person is
28-13 located. The person is considered to be located at the address
28-14 indicated in the person's undertaking. If more than one address is
28-15 indicated, the person is considered to be located at the address
28-16 from which the person's undertaking was issued. For the purpose of
28-17 jurisdiction, choice of law, and recognition of interbranch letters
28-18 of credit, but not enforcement of a judgment, all branches of a
28-19 bank are considered separate juridical entities, and a bank is
28-20 considered to be located at the place where its relevant branch is
28-21 considered to be located under this subsection.
28-22 (c) Except as otherwise provided in this subsection, the
28-23 liability of an issuer, nominated person, or adviser is governed by
28-24 any rules of custom or practice, such as the Uniform Customs and
28-25 Practice for Documentary Credits, to which the letter of credit,
28-26 confirmation, or other undertaking is expressly made subject. If
28-27 (i) this chapter would govern the liability of an issuer, nominated
29-1 person, or adviser under Subsection (a) or (b), (ii) the relevant
29-2 undertaking incorporates rules of custom or practice, and (iii)
29-3 there is conflict between this chapter and those rules as applied
29-4 to that undertaking, those rules govern except to the extent of any
29-5 conflict with the nonvariable provisions specified in Section
29-6 5.103(c).
29-7 (d) If there is conflict between this chapter and Chapter 3,
29-8 4, 4A, or 9, this chapter governs.
29-9 (e) The forum for settling disputes arising out of an
29-10 undertaking within this chapter may be chosen in the manner and
29-11 with the binding effect that governing law may be chosen in
29-12 accordance with Subsection (a).
29-13 Sec. 5.117. SUBROGATION OF ISSUER, APPLICANT, AND NOMINATED
29-14 PERSON. (a) An issuer that honors a beneficiary's presentation is
29-15 subrogated to the rights of the beneficiary to the same extent as
29-16 if the issuer were a secondary obligor of the underlying obligation
29-17 owed to the beneficiary and of the applicant to the same extent as
29-18 if the issuer were the secondary obligor of the underlying
29-19 obligation owed to the applicant.
29-20 (b) An applicant that reimburses an issuer is subrogated to
29-21 the rights of the issuer against any beneficiary, presenter, or
29-22 nominated person to the same extent as if the applicant were the
29-23 secondary obligor of the obligations owed to the issuer and has the
29-24 rights of subrogation of the issuer to the rights of the
29-25 beneficiary stated in Subsection (a).
29-26 (c) A nominated person who pays or gives value against a
29-27 draft or demand presented under a letter of credit is subrogated to
30-1 the rights of:
30-2 (1) the issuer against the applicant to the same
30-3 extent as if the nominated person were a secondary obligor of the
30-4 obligation owed to the issuer by the applicant;
30-5 (2) the beneficiary to the same extent as if the
30-6 nominated person were a secondary obligor of the underlying
30-7 obligation owed to the beneficiary; and
30-8 (3) the applicant to the same extent as if the
30-9 nominated person were a secondary obligor of the underlying
30-10 obligation owed to the applicant.
30-11 (d) Notwithstanding any agreement or term to the contrary,
30-12 the rights of subrogation stated in Subsections (a) and (b) do not
30-13 arise until the issuer honors the letter of credit or otherwise
30-14 pays, and the rights in Subsection (c) do not arise until the
30-15 nominated person pays or otherwise gives value. Until then, the
30-16 issuer, the nominated person, and the applicant do not derive under
30-17 this section present or prospective rights forming the basis of a
30-18 claim, defense, or excuse. [INSOLVENCY OF BANK HOLDING FUNDS FOR
30-19 DOCUMENTARY CREDIT. (a) Where an issuer or an advising or
30-20 confirming bank or a bank which has for a customer procured
30-21 issuance of a credit by another bank becomes insolvent before final
30-22 payment under the credit and the credit is one to which this
30-23 chapter is made applicable by Subdivision (1) or (2) of Section
30-24 5.102(a) on scope, the receipt or allocation of funds or collateral
30-25 to secure or meet obligations under the credit shall have the
30-26 following results:]
30-27 [(1) to the extent of any funds or collateral turned
31-1 over after or before the insolvency as indemnity against or
31-2 specifically for the purpose of payment of drafts or demands for
31-3 payment drawn under the designated credit, the drafts or demands
31-4 are entitled to payment in preference over depositors or other
31-5 general creditors of the issuer or bank; and]
31-6 [(2) on expiration of the credit or surrender of the
31-7 beneficiary's rights under it unused any person who has given such
31-8 funds or collateral is similarly entitled to return thereof; and]
31-9 [(3) a charge to a general or current account with a
31-10 bank if specifically consented to for the purpose of indemnity
31-11 against or payment of drafts or demands for payment drawn under the
31-12 designated credit falls under the same rules as if the funds had
31-13 been drawn out in cash and then turned over with specific
31-14 instructions.]
31-15 [(b) After honor or reimbursement under this section the
31-16 customer or other person for whose account the insolvent bank has
31-17 acted is entitled to receive the documents involved.]
31-18 SECTION 2. Section 1.105(b), Business & Commerce Code, is
31-19 amended to read as follows:
31-20 (b) Where one of the following provisions of this title
31-21 specifies the applicable law, that provision governs and a contrary
31-22 agreement is effective only to the extent permitted by the law
31-23 (including the conflict of laws rules) so specified:
31-24 Rights of creditors against sold goods. Section 2.402.
31-25 Applicability of the chapter on Leases. Sections 2A.105 and
31-26 2A.106.
31-27 Applicability of the chapter on Bank Deposits and
32-1 Collections. Section 4.102.
32-2 Governing law in the chapter on Funds Transfers. Section
32-3 4A.507.
32-4 Letters of Credit. Section 5.116.
32-5 Applicability of the chapter on Investment Securities.
32-6 Section 8.110.
32-7 Perfection provisions of the chapter on Secured Transactions.
32-8 Section 9.103.
32-9 SECTION 3. Section 2.512(a), Business & Commerce Code, is
32-10 amended to read as follows:
32-11 (a) Where the contract requires payment before inspection
32-12 non-conformity of the goods does not excuse the buyer from so
32-13 making payment unless
32-14 (1) the non-conformity appears without inspection; or
32-15 (2) despite tender of the required documents
32-16 circumstances would justify injunction against honor under [the
32-17 provisions of] this title (Section 5.109(b) [5.114]).
32-18 SECTION 4. Section 9.103(a), Business & Commerce Code, is
32-19 amended to read as follows:
32-20 (a) Documents, instruments, letters of credit, and ordinary
32-21 goods.
32-22 (1) This subsection applies to documents, [and]
32-23 instruments, and rights to proceeds of written letters of credit
32-24 and to goods other than those covered by a certificate of title
32-25 described in Subsection (b), mobile goods described in Subsection
32-26 (c), and minerals described in Subsection (e).
32-27 (2) Except as otherwise provided in this subsection,
33-1 perfection and the effect of perfection or non-perfection of a
33-2 security interest in collateral are governed by the law of the
33-3 jurisdiction where the collateral is when the last event occurs on
33-4 which is based the assertion that the security interest is
33-5 perfected or unperfected.
33-6 (3) If the parties to a transaction creating a
33-7 purchase money security interest in goods in one jurisdiction
33-8 understand at the time that the security interest attaches that the
33-9 goods will be kept in another jurisdiction, then the law of the
33-10 other jurisdiction governs the perfection and the effect of
33-11 perfection or non-perfection of the security interest from the time
33-12 it attaches until 30 days after the debtor receives possession of
33-13 the goods and thereafter if the goods are taken to the other
33-14 jurisdiction before the end of the 30-day period.
33-15 (4) When collateral is brought into and kept in this
33-16 state while subject to a security interest perfected under the law
33-17 of the jurisdiction from which the collateral was removed, the
33-18 security interest remains perfected, but if action is required by
33-19 Subchapter C of this chapter to perfect the security interest,
33-20 (A) if the action is not taken before the
33-21 expiration of the period of perfection in the other jurisdiction or
33-22 the end of four months after the collateral is brought into this
33-23 state, whichever period first expires, the security interest
33-24 becomes unperfected at the end of that period and is thereafter
33-25 deemed to have been unperfected as against a person who became a
33-26 purchaser after removal;
33-27 (B) if the action is taken before the expiration
34-1 of the period specified in paragraph (A), the security interest
34-2 continues perfected thereafter;
34-3 (C) for the purpose of priority over a buyer of
34-4 consumer goods (Subsection (b) of Section 9.307), the period of the
34-5 effectiveness of a filing in the jurisdiction from which the
34-6 collateral is removed is governed by the rules with respect to
34-7 perfection in paragraphs (A) and (B).
34-8 SECTION 5. Section 9.104, Business & Commerce Code, is
34-9 amended to read as follows:
34-10 Sec. 9.104. TRANSACTIONS EXCLUDED FROM CHAPTER. This
34-11 chapter does not apply
34-12 (1) to a security interest subject to any statute of
34-13 the United States such as the Ship Mortgage Act, 1920, to the
34-14 extent that such statute governs the rights of parties to and third
34-15 parties affected by transactions in particular types of property;
34-16 or
34-17 (2) to a landlord's lien; or
34-18 (3) to a lien given by statute or other rule of law
34-19 for services or materials except as provided in Section 9.310 on
34-20 priority of such liens; or
34-21 (4) to a transfer of a claim for wages, salary or
34-22 other compensation of an employee; or
34-23 (5) to a transfer by a government or governmental
34-24 subdivision or agency; or
34-25 (6) to a sale of accounts or chattel paper as part of
34-26 a sale of the business out of which they arose, or an assignment of
34-27 accounts or chattel paper which is for the purpose of collection
35-1 only, or a transfer of a right to payment under a contract to an
35-2 assignee who is also to do the performance under the contract or a
35-3 transfer of a single account to an assignee in whole or partial
35-4 satisfaction of a preexisting indebtedness; or
35-5 (7) to a transfer of an interest or claim in or under
35-6 any policy of insurance, except as provided with respect to
35-7 proceeds (Section 9.306) and priorities in proceeds (Section
35-8 9.312); or
35-9 (8) to a right represented by a judgment (other than a
35-10 judgment taken on a right to payment which was collateral); or
35-11 (9) to any right of set-off; or
35-12 (10) except to the extent that provision is made for
35-13 fixtures in Section 9.313, to the creation or transfer of an
35-14 interest in or lien on real estate, including a lease or rents
35-15 thereunder; or
35-16 (11) to a transfer in whole or in part of any claim
35-17 arising out of tort; or
35-18 (12) to a transfer of an interest in any deposit
35-19 account (Subsection (a)(5) of Section 9.105), except as provided
35-20 with respect to proceeds (Section 9.306) and priorities in proceeds
35-21 (Section 9.312); or
35-22 (13) to a transfer of an interest in a letter of
35-23 credit other than the rights to proceeds of a written letter of
35-24 credit.
35-25 SECTION 6. Section 9.105(c), Business & Commerce Code, is
35-26 amended to read as follows:
35-27 (c) The following definitions in other chapters apply to
36-1 this chapter:
36-2 "Broker". Section 8.102.
36-3 "Certificated security". Section 8.102.
36-4 "Check". Section 3.104.
36-5 "Clearing corporation". Section 8.102.
36-6 "Contract for sale". Section 2.106.
36-7 "Control". Section 8.106.
36-8 "Delivery". Section 8.301.
36-9 "Entitlement holder". Section 8.102.
36-10 "Financial asset". Section 8.102.
36-11 "Holder in due course". Section 3.302.
36-12 "Letter of credit". Section 5.102.
36-13 "Note". Section 3.104.
36-14 "Proceeds of a letter of credit". Section 5.114.
36-15 "Sale". Section 2.106.
36-16 "Securities intermediary". Section 8.102.
36-17 "Security". Section 8.102.
36-18 "Security certificate". Section 8.102.
36-19 "Security entitlement". Section 8.102.
36-20 "Uncertificated security". Section 8.102.
36-21 SECTION 7. Section 9.106, Business & Commerce Code, is
36-22 amended to read as follows:
36-23 Sec. 9.106. DEFINITIONS: "ACCOUNT"; "GENERAL INTANGIBLES".
36-24 "Account" means any right to payment for goods sold or leased or
36-25 for services rendered which is not evidenced by an instrument or
36-26 chattel paper, whether or not it has been earned by performance.
36-27 "General intangibles" means any personal property (including things
37-1 in action) other than goods, accounts, chattel paper, documents,
37-2 instruments, investment property, rights to proceeds of written
37-3 letters of credit, and money. All rights to payment earned or
37-4 unearned under a charter or other contract involving the use or
37-5 hire of a vessel and all rights incident to the charter or contract
37-6 are accounts.
37-7 SECTION 8. Sections 9.304 and 9.305, Business & Commerce
37-8 Code, are amended to read as follows:
37-9 Sec. 9.304. PERFECTION OF SECURITY INTEREST IN INSTRUMENTS,
37-10 DOCUMENTS, PROCEEDS OF A WRITTEN LETTER OF CREDIT, AND GOODS
37-11 COVERED BY DOCUMENTS; PERFECTION BY PERMISSIVE FILING; TEMPORARY
37-12 PERFECTION WITHOUT FILING OR TRANSFER OF POSSESSION. (a) A
37-13 security interest in chattel paper or negotiable documents may be
37-14 perfected by filing. A security interest in the rights to proceeds
37-15 of a written letter of credit can be perfected only by the secured
37-16 party's taking possession of the letter of credit. A security
37-17 interest in money or instruments (other than instruments which
37-18 constitute part of chattel paper) can be perfected only by the
37-19 secured party's taking possession, except as provided in
37-20 Subsections (d) and (e) of this section and Subsections (b) and (c)
37-21 of Section 9.306 on proceeds.
37-22 (b) During the period that goods are in the possession of
37-23 the issuer of a negotiable document therefor, a security interest
37-24 in the goods is perfected by perfecting a security interest in the
37-25 document, and any security interest in the goods otherwise
37-26 perfected during such period is subject thereto.
37-27 (c) A security interest in goods in the possession of a
38-1 bailee other than one who has issued a negotiable document therefor
38-2 is perfected by issuance of a document in the name of the secured
38-3 party or by the bailee's receipt of notification of the secured
38-4 party's interest or by filing as to the goods.
38-5 (d) A security interest in instruments, certificated
38-6 securities, or negotiable documents is perfected without filing or
38-7 the taking of possession for a period of 21 days from the time it
38-8 attaches to the extent that it arises for new value given under a
38-9 written security agreement.
38-10 (e) A security interest remains perfected for a period of 21
38-11 days without filing where a secured party having a perfected
38-12 security interest in an instrument, a certificated security, a
38-13 negotiable document, or goods in possession of a bailee other than
38-14 one who has issued a negotiable document therefor:
38-15 (1) makes available to the debtor the goods or
38-16 documents representing the goods for the purpose of ultimate sale
38-17 or exchange or for the purpose of loading, unloading, storing,
38-18 shipping, transshipping, manufacturing, processing or otherwise
38-19 dealing with them in a manner preliminary to their sale or
38-20 exchange, but priority between conflicting security interests in
38-21 the goods is subject to Subsection (c) of Section 9.312; or
38-22 (2) delivers the instrument or certificated security
38-23 to the debtor for the purpose of ultimate sale or exchange or of
38-24 presentation, collection, renewal or registration of transfer.
38-25 (f) After the 21 day period in Subsections (d) and (e)
38-26 perfection depends upon compliance with applicable provisions of
38-27 this chapter.
39-1 Sec. 9.305. WHEN POSSESSION BY SECURED PARTY PERFECTS
39-2 SECURITY INTEREST WITHOUT FILING. A security interest in [letters
39-3 of credit and advices of credit (Subsection (b)(1) of Section
39-4 5.116),] goods, instruments, money, negotiable documents or chattel
39-5 paper may be perfected by the secured party's taking possession of
39-6 the collateral. A security interest in the right to proceeds of a
39-7 written letter of credit may be perfected by the secured party's
39-8 taking possession of the letter of credit. If such collateral
39-9 other than goods covered by a negotiable document is held by a
39-10 bailee, the secured party is deemed to have possession from the
39-11 time the bailee receives notification of the secured party's
39-12 interest. A security interest is perfected by possession from the
39-13 time possession is taken without relation back and continues only
39-14 so long as possession is retained, unless otherwise specified in
39-15 this chapter. The security interest may be otherwise perfected as
39-16 provided in this chapter before or after the period of possession
39-17 by the secured party.
39-18 SECTION 9. This Act takes effect September 1, 1997.
39-19 SECTION 10. (a) This Act applies only to a letter of credit
39-20 that is issued on or after the effective date of this Act.
39-21 (b) A transaction arising out of or associated with a letter
39-22 of credit that was issued before the effective date of this Act and
39-23 the rights, obligations, and interests flowing from that
39-24 transaction are governed by the law as it existed immediately
39-25 before this Act took effect, and that law is continued in effect
39-26 for that purpose.
39-27 SECTION 11. The importance of this legislation and the
40-1 crowded condition of the calendars in both houses create an
40-2 emergency and an imperative public necessity that the
40-3 constitutional rule requiring bills to be read on three several
40-4 days in each house be suspended, and this rule is hereby suspended.