HBA-ATS C.S.H.B. 2585 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2585 By: Woolley Business & Industry 4/16/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE On January 1, 1999, the "euro" became the single currency of the eleven participating members of the European Economic and Monetary Union. On that date the conversion rates between the currencies of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain and the euro were legally fixed. Although these eleven nations now have a single foreign exchange policy and a single interest rate tied to the euro, no euro banknotes or coins are available. This is because the conversion to the euro will occur gradually during a three-year transition period from January 1, 1999, to December 31, 2001. During this transition period, the national currencies of the participating members continue to exist in parallel to the euro. However, their status has changed. These national currencies are now temporary "denominations" or "units" of the euro. Nevertheless, national banknotes and coins are being used for all cash transactions. It is expected that euro banknotes and coins will be introduced in participating countries on January 1, 2002. From that date until June 30, 2002, euro banknotes and coins will circulate alongside national currency banknotes and coins. By the end of that period, national banknotes and coins will be withdrawn from circulation and cease to be legal tender. The introduction of the euro and the three-year transition period during which the currency will not circulate create uncertainty about existing contracts and other instruments in which payments have been calculated using currencies that are now temporary denominations of the euro, and soon to be replaced by it. For example, discrepancies between conversion and reconversion may occur because of the use of a legally-fixed conversion rate that may not reflect market-based exchange rates. The fear is that any rounding inconsistency may place one party to a contract at a disadvantage. Some people could rely on principles of law such as the common law doctrines of impossibility, impracticability, and frustration of purpose to rescind the contract. Such rescissions could negatively impact commerce between Texas and the participating members. C.S.H.B. 2585 provides that, if a subject or medium of payment of a contract, security, or instrument is the European currency unit or a currency that has been substituted or replaced by the euro, the euro is a commercially reasonable substitute and substantial equivalent. Under this bill, the euro may be used to determine the value of the European currency unit or currency, as appropriate, or tendered, in each case, at the conversion rate specified in, and otherwise computed in accordance with, the regulations adopted by the Council of the European Union. In addition, this bill provides that the computation or determination of the subject or medium of payment of a contract, security, or instrument with reference to interest rate or other basis that has been substituted or replaced because of the introduction of the euro and that is a commercially reasonable substitute and substantial equivalent is neither an occurrence that discharges or excuses performance under a contract, security, or instrument, nor a right to unilaterally alter or terminate any contract, security, or instrument. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Title 4, Business & Commerce Code, by adding Chapter 42, as follows: CHAPTER 42. EUROPEAN UNION CURRENCY CONVERSION Sec. 42.001. DEFINITIONS. Defines "euro," "European currency unit," "Treaty on European Union," and "Introduction of the euro." Sec. 42.002. APPLICABILITY OF CHAPTER. Specifies that this chapter applies to each contract, security, and instrument, including a commercial contract governed by the laws of this state. Provides that, with respect to currency alteration, other than the introduction of the euro, this chapter does not create any negative inference or negative presumption regarding the validity or enforceability of a contract, security, or instrument denominated wholly or partly in a currency affected by the alteration. Sec. 42.003. CONFLICTS OF LAW. Sets forth that this chapter prevails to the extent of any conflict between this chapter and any other law of this state. Sec. 42.004. CONTINUITY OF CONTRACT. (a) Provides that, if a subject or medium of payment of a contract, security, or instrument is the European currency unit or a currency that has been substituted or replaced by the euro, the euro is a commercially reasonable substitute and substantial equivalent. Authorizes the euro to be used in determining the value of the European currency unit or currency, as appropriate, or tendered, in each case, at the conversion rate specified in, and otherwise computed in accordance with, the regulations adopted by the Council of the European Union (council). (b) Authorizes a person to perform any of the obligations described in Subsection (a) in the currency or currencies originally designated in the contract, security, or instrument, if that currency or those currencies remain legal tender, or in euros. Prohibits a person from performing those obligations in any other currency, whether that other currency has been substituted or replaced by the euro or is a currency that is considered a denomination of the euro and has a fixed conversion rate with respect to the euro. (c) Sets forth that the following occurrences neither discharge nor excuse performance under a contract, security, or instrument, nor give a party the right to unilaterally alter or terminate any contract, security, or instrument: _the introduction of the euro; _the tender of euros in connection with any obligation as described in Subsection (a); _the determination of the value of any obligation as described in Subsection (a); or _the computation or determination of the subject or medium of payment of a contract, security, or instrument with reference to interest rate or other basis that has been substituted or replaced because of the introduction of the euro and that is a commercially reasonable substitute and substantial equivalent. Sec. 42.005. EFFECT ON CERTAIN AGREEMENTS. Provides that this chapter does not alter or impair an agreement between parties that specifically relates to the introduction of the euro. SECTION 2.Emergency clause. Effective date: upon passage. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 2585 modifies the original bill in SECTION 1 by deleting the text of proposed Section 42.001, which authorized the citation of proposed Chapter 42, Business & Commerce Code, as the European Union Currency Conversion Act. The substitute redesignates proposed Section 42.002 of the original to Section 42.001 and adds the definition of "Treaty on European Union." In Section 42.001, the substitute also deletes the definition of "XEU" and makes nonsubstantive changes in this section. The substitute redesignates proposed Section 42.006 of the original to Section 42.002 and changes the section title from "Application" to "Applicability of Chapter." In Section 42.002, the substitute deletes the proposition that proposed Chapter 42 prevails to the extent of any conflict between it and any other law of this state (this proposition becomes the new text of proposed Section 42.003). The substitute also provides that, with respect to currency alteration, other than the introduction of the euro, this chapter does not create any negative inference or negative presumption, rather than any inference or presumption, regarding the validity or enforceability of a contract, security, or instrument denominated wholly or partly in a currency affected by the alteration. The substitute also makes nonsubstantive changes in this section. The substitute modifies the original by deleting the text of proposed Section 42.003, which required: the replacement of references to the ECU in a contract, security, or instrument that also refers to that definition of the ECU with references to the euro when the euro becomes the monetary unit of participating member states of the European Union; and that references to the ECU in a contract, security, or instrument that does not refer to the definition of the ECU be construed as references to the currency basket that is from time to time used as the unit of account of the European Community, unless the contract, security, or instrument demonstrates that the parties intended a different construction. The substitute replaces the text of proposed Section 42.003 with language setting forth that proposed Chapter 42 prevails to the extent of any conflict between it and any other law of this state. Accordingly, the substitute changes the title of Section 42.003 from "References to European Currency Unit" to "Conflicts of Law." The substitute modifies the original in proposed Section 42.004(a) by providing that, if a subject or medium of payment of a contract, security, or instrument is the European currency unit or a currency, rather than is a currency, that has been substituted or replaced by the euro, the euro is a commercially reasonable substitute and substantial equivalent, and by authorizing the euro to be used in determining the value of the European currency unit or currency, as appropriate, rather than the value of such currency. The substitute also deletes proposed Section 42.004(b), which provided that, if a subject or medium of payment of a contract, security, or instrument is the ECU, the euro is a commercially reasonable substitute and substantial equivalent, and authorized the euro to be used in determining the value of the ECU or tendered, in each case at the conversion rate specified in, and otherwise calculated in accordance with, the regulations adopted by the council. Accordingly, the substitute modifies the original by redesignating proposed Sections 42.004(c) and (d) to Sections 42.004(b) and (c). Within redesignated Sections 42.004(b) and (c), the substitute makes conforming and nonsubstantive changes. The substitute modifies the original in proposed Section 42.005 by providing that proposed Chapter 42 does not alter or impair an agreement between parties that specifically relates to, rather than addresses, the introduction of the euro. The substitute also changes the title of proposed Section 42.005 from "Effect of Agreements" to "Effect on Certain Agreements."