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
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
4-1 executor, a personal representative, a trustee in bankruptcy, a
4-2 debtor in possession, a liquidator, and a receiver.
4-3 (b) Definitions in other chapters of this code applying to
4-4 this chapter and the sections in which they appear are:
4-5 "Accept" or "Acceptance". Section 3.409.
4-6 "Value". Sections 3.303 and 4.211.
4-7 (c) Chapter 1 contains certain additional general
4-8 definitions and principles of construction and interpretation
4-9 applicable throughout this chapter.
4-10 Sec. 5.103. SCOPE. (a) This chapter applies to letters of
4-11 credit and to certain rights and obligations arising out of
4-12 transactions involving letters of credit.
4-13 (b) The statement of a rule in this chapter does not by
4-14 itself require, imply, or negate application of the same or a
4-15 different rule to a situation not provided for, or to a person not
4-16 specified, in this chapter.
4-17 (c) With the exception of this subsection, Subsections (a)
4-18 and (d), Sections 5.102(a)(9) and (10), Section 5.106(d), Section
4-19 5.110(c), and Section 5.114(d) and except to the extent prohibited
4-20 in Sections 1.102(c) and 5.117(d), the effect of this chapter may
4-21 be varied by agreement or by a provision stated or incorporated by
4-22 reference in an undertaking. A term in an agreement or undertaking
4-23 generally excusing liability or generally limiting remedies for
4-24 failure to perform obligations is not sufficient to vary
4-25 obligations prescribed by this chapter.
4-26 (d) Rights and obligations of an issuer to a beneficiary or
5-1 a nominated person under a letter of credit are independent of the
5-2 existence, performance, or nonperformance of a contract or
5-3 arrangement out of which the letter of credit arises or which
5-4 underlies it, including contracts or arrangements between the
5-5 issuer and the applicant and between the applicant and the
5-6 beneficiary. [SCOPE. (a) This chapter applies]
5-7 [(1) to a credit issued by a bank if the credit
5-8 requires a documentary draft or a documentary demand for payment;
5-9 and]
5-10 [(2) to a credit issued by a person other than a bank
5-11 if the credit requires that the draft or demand for payment be
5-12 accompanied by a document of title; and]
5-13 [(3) to a credit issued by a bank or other person if
5-14 the credit is not within Subdivision (1) or (2) but conspicuously
5-15 states that it is a letter of credit or is conspicuously so
5-16 entitled.]
5-17 [(b) Unless the engagement meets the requirements of
5-18 Subsection (a), this chapter does not apply to engagements to make
5-19 advances or to honor drafts or demands for payment, to authorities
5-20 to pay or purchase, to guarantees or to general agreements.]
5-21 [(c) This chapter deals with some but not all of the rules
5-22 and concepts of letters of credit as such rules or concepts have
5-23 developed prior to this title or may hereafter develop. The fact
5-24 that this chapter states a rule does not by itself require, imply
5-25 or negate application of the same or a converse rule to a situation
5-26 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
7-1 causes an issuer to issue a credit. The term also includes a bank
7-2 which procures issuance or confirmation on behalf of that bank's
7-3 customer.]
7-4 [(b) Other definitions applying to this chapter and the
7-5 sections in which they appear are:]
7-6 ["Notation Credit".] [Section 5.1a8.]
7-7 ["Presenter".] [Section 5.112(c).]
7-8 [(c) Definitions in other chapters applying to this chapter
7-9 and the sections in which they appear are:]
7-10 ["Accept" or "Acceptance".] [Section 3.409.]
7-11 ["Contract for sale".] [Section 2.106.]
7-12 ["Draft".] [Section 3.104.]
7-13 ["Holder in due course".] [Section 3.302.]
7-14 ["Midnight deadline".] [Section 4.104.]
7-15 ["Security".] [Section 8.102.]
7-16 [(d) In addition, Chapter 1 contains general definitions and
7-17 principles of construction and interpretation applicable throughout
7-18 this chapter.]
7-19 Sec. 5.104. FORMAL REQUIREMENTS[; SIGNING]. A letter of
7-20 credit, confirmation, advice, transfer, amendment, or cancellation
7-21 may be issued in any form that is a record and is authenticated:
7-22 (1) by a signature; or
7-23 (2) in accordance with the agreement of the parties or
7-24 the standard practice referred to in Section 5.108(e).
7-25 [(a) Except as otherwise required in Subsection (a)(3) of Section
7-26 5.102 on scope, no particular form of phrasing is required for a
8-1 credit. A credit must be in writing and signed by the issuer and a
8-2 confirmation must be in writing and signed by the confirming bank.
8-3 A modification of the terms of a credit or confirmation must be
8-4 signed by the issuer or confirming bank.]
8-5 [(b) A telegram may be a sufficient signed writing if it
8-6 identifies its sender by an authorized authentication. The
8-7 authentication may be in code and the authorized naming of the
8-8 issuer in an advice of credit is a sufficient signing.]
8-9 Sec. 5.105. CONSIDERATION. Consideration is not required to
8-10 issue, amend, transfer, or cancel a letter of credit, advice, or
8-11 confirmation. [No consideration is necessary to establish a credit
8-12 or to enlarge or otherwise modify its terms.]
8-13 Sec. 5.106. ISSUANCE, AMENDMENT, CANCELLATION, AND DURATION.
8-14 (a) A letter of credit is issued and becomes enforceable according
8-15 to its terms against the issuer when the issuer sends or otherwise
8-16 transmits it to the person requested to advise or to the
8-17 beneficiary. A letter of credit is revocable only if it so
8-18 provides.
8-19 (b) After a letter of credit is issued, rights and
8-20 obligations of a beneficiary, applicant, confirmer, and issuer are
8-21 not affected by an amendment or cancellation to which that person
8-22 has not consented except to the extent the letter of credit
8-23 provides that it is revocable or that the issuer may amend or
8-24 cancel the letter of credit without that consent.
8-25 (c) If there is no stated expiration date or other provision
8-26 that determines its duration, a letter of credit expires one year
9-1 after its stated date of issuance or, if no date is stated, after
9-2 the date on which it is issued.
9-3 (d) A letter of credit that states that it is perpetual
9-4 expires five years after its stated date of issuance or, if no date
9-5 is stated, after the date on which it is issued. [TIME AND EFFECT
9-6 OF ESTABLISHMENT OF CREDIT. (a) Unless otherwise agreed a credit
9-7 is established]
9-8 [(1) as regards the customer as soon as a letter of
9-9 credit is sent to him or the letter of credit or an authorized
9-10 written advice of its issuance is sent to the beneficiary; and]
9-11 [(2) as regards the beneficiary when he receives a
9-12 letter of credit or an authorized written advice of its issuance.]
9-13 [(b) Unless otherwise agreed once an irrevocable credit is
9-14 established as regards the customer it can be modified or revoked
9-15 only with the consent of the customer and once it is established as
9-16 regards the beneficiary it can be modified or revoked only with his
9-17 consent.]
9-18 [(c) Unless otherwise agreed after a revocable credit is
9-19 established it may be modified or revoked by the issuer without
9-20 notice to or consent from the customer or beneficiary.]
9-21 [(d) Notwithstanding any modification or revocation of a
9-22 revocable credit any person authorized to honor or negotiate under
9-23 the terms of the original credit is entitled to reimbursement for
9-24 or honor of any draft or demand for payment duly honored or
9-25 negotiated before receipt of notice of the modification or
9-26 revocation and the issuer in turn is entitled to reimbursement from
10-1 its customer.]
10-2 Sec. 5.107. CONFIRMER, NOMINATED PERSON, AND ADVISER.
10-3 (a) A confirmer is directly obligated on a letter of credit and
10-4 has the rights and obligations of an issuer to the extent of its
10-5 confirmation. The confirmer also has rights against and
10-6 obligations to the issuer as if the issuer were an applicant and
10-7 the confirmer had issued the letter of credit at the request and
10-8 for the account of the issuer.
10-9 (b) A nominated person who is not a confirmer is not
10-10 obligated to honor or otherwise give value for a presentation.
10-11 (c) A person requested to advise may decline to act as an
10-12 adviser. An adviser that is not a confirmer is not obligated to
10-13 honor or give value for a presentation. An adviser undertakes to
10-14 the issuer and to the beneficiary accurately to advise the terms of
10-15 the letter of credit, confirmation, amendment, or advice received
10-16 by that person and undertakes to the beneficiary to check the
10-17 apparent authenticity of the request to advise. Even if the advice
10-18 is inaccurate, the letter of credit, confirmation, or amendment is
10-19 enforceable as issued.
10-20 (d) A person who notifies a transferee beneficiary of the
10-21 terms of a letter of credit, confirmation, amendment, or advice has
10-22 the rights and obligations of an adviser under Subsection (c). The
10-23 terms in the notice to the transferee beneficiary may differ from
10-24 the terms in any notice to the transferor beneficiary to the extent
10-25 permitted by the letter of credit, confirmation, amendment, or
10-26 advice received by the person who so notifies. [ADVICE OF CREDIT;
11-1 CONFIRMATION; ERROR IN STATEMENT OF TERMS. (a) Unless otherwise
11-2 specified an advising bank by advising a credit issued by another
11-3 bank does not assume any obligation to honor drafts drawn or
11-4 demands for payment made under the credit but it does assume
11-5 obligation for the accuracy of its own statement.]
11-6 [(b) A confirming bank by confirming a credit becomes
11-7 directly obligated on the credit to the extent of its confirmation
11-8 as though it were its issuer and acquires the rights of an issuer.]
11-9 [(c) Even though an advising bank incorrectly advises the
11-10 terms of a credit it has been authorized to advise the credit is
11-11 established as against the issuer to the extent of its original
11-12 terms.]
11-13 [(d) Unless otherwise specified the customer bears as
11-14 against the issuer all risks of transmission and reasonable
11-15 translation or interpretation of any message relating to a credit.]
11-16 Sec. 5.108. ISSUER'S RIGHTS AND OBLIGATIONS. (a) Except as
11-17 otherwise provided in Section 5.109, an issuer shall honor a
11-18 presentation that, as determined by the standard practice referred
11-19 to in Subsection (e), appears on its face strictly to comply with
11-20 the terms and conditions of the letter of credit. Except as
11-21 otherwise provided in Section 5.113 and unless otherwise agreed
11-22 with the applicant, an issuer shall dishonor a presentation that
11-23 does not appear so to comply.
11-24 (b) An issuer has a reasonable time after presentation, but
11-25 not beyond the end of the seventh business day of the issuer after
11-26 the date of its receipt of documents:
12-1 (1) to honor;
12-2 (2) if the letter of credit provides for honor to be
12-3 completed more than seven business days after presentation, to
12-4 accept a draft or incur a deferred obligation; or
12-5 (3) to give notice to the presenter of discrepancies
12-6 in the presentation.
12-7 (c) Except as otherwise provided in Subsection (d), an
12-8 issuer is precluded from asserting as a basis for dishonor any
12-9 discrepancy if timely notice is not given or any discrepancy not
12-10 stated in the notice if timely notice is given.
12-11 (d) Failure to give the notice specified in Subsection (b)
12-12 or to mention fraud, forgery, or expiration in the notice does not
12-13 preclude the issuer from asserting as a basis for dishonor fraud or
12-14 forgery as described in Section 5.109(a) or expiration of the
12-15 letter of credit before presentation.
12-16 (e) An issuer shall observe standard practice of financial
12-17 institutions that regularly issue letters of credit. Determination
12-18 of the issuer's observance of the standard practice is a matter of
12-19 interpretation for the court. The court shall offer the parties a
12-20 reasonable opportunity to present evidence of the standard
12-21 practice.
12-22 (f) An issuer is not responsible for:
12-23 (1) the performance or nonperformance of the
12-24 underlying contract, arrangement, or transaction;
12-25 (2) an act or omission of others; or
12-26 (3) observance or knowledge of the usage of a
13-1 particular trade other than the standard practice referred to in
13-2 Subsection (e).
13-3 (g) If an undertaking constituting a letter of credit under
13-4 Section 5.102(a)(10) contains nondocumentary conditions, an issuer
13-5 shall disregard the nondocumentary conditions and treat them as if
13-6 they were not stated.
13-7 (h) An issuer that has dishonored a presentation shall
13-8 return the documents or hold them at the disposal of, and send
13-9 advice to that effect to, the presenter.
13-10 (i) An issuer that has honored a presentation as permitted
13-11 or required by this chapter:
13-12 (1) is entitled to be reimbursed by the applicant in
13-13 immediately available funds not later than the date of its payment
13-14 of funds;
13-15 (2) takes the documents free of claims of the
13-16 beneficiary or presenter;
13-17 (3) is precluded from asserting a right of recourse on
13-18 a draft under Sections 3.414 and 3.415;
13-19 (4) except as otherwise provided in Sections 5.110 and
13-20 5.117, is precluded from restitution of money paid or other value
13-21 given by mistake to the extent the mistake concerns discrepancies
13-22 in the documents or tender that are apparent on the face of the
13-23 presentation; and
13-24 (5) is discharged to the extent of its performance
13-25 under the letter of credit unless the issuer honored a presentation
13-26 in which a required signature of a beneficiary was forged.
14-1 Sec. 5.109. FRAUD AND FORGERY. (a) If a presentation is
14-2 made that appears on its face strictly to comply with the terms and
14-3 conditions of the letter of credit, but a required document is
14-4 forged or materially fraudulent, or honor of the presentation would
14-5 facilitate a material fraud by the beneficiary on the issuer or
14-6 applicant:
14-7 (1) the issuer shall honor the presentation if honor
14-8 is demanded by:
14-9 (A) a nominated person who has given value in
14-10 good faith and without notice of forgery or material fraud;
14-11 (B) a confirmer who has honored its confirmation
14-12 in good faith;
14-13 (C) a holder in due course of a draft drawn
14-14 under the letter of credit that was taken after acceptance by the
14-15 issuer or nominated person; or
14-16 (D) an assignee of the issuer's or nominated
14-17 person's deferred obligation that was taken for value and without
14-18 notice of forgery or material fraud after the obligation was
14-19 incurred by the issuer or nominated person; and
14-20 (2) the issuer, acting in good faith, may honor or
14-21 dishonor the presentation in any other case.
14-22 (b) If an applicant claims that a required document is
14-23 forged or materially fraudulent or that honor of the presentation
14-24 would facilitate a material fraud by the beneficiary on the issuer
14-25 or applicant, a court of competent jurisdiction may temporarily or
14-26 permanently enjoin the issuer from honoring a presentation or grant
15-1 similar relief against the issuer or other persons only if the
15-2 court finds that:
15-3 (1) the relief is not prohibited under the law
15-4 applicable to an accepted draft or deferred obligation incurred by
15-5 the issuer;
15-6 (2) a beneficiary, issuer, or nominated person who may
15-7 be adversely affected is adequately protected against loss that it
15-8 may suffer because the relief is granted;
15-9 (3) all of the conditions to entitle a person to the
15-10 relief under the law of this state have been met; and
15-11 (4) on the basis of the information submitted to the
15-12 court, the applicant is more likely than not to succeed under its
15-13 claim of forgery or material fraud and the person demanding honor
15-14 does not qualify for protection under Subsection (a)(1).
15-15 ["NOTATION CREDIT"; EXHAUSTION OF CREDIT. (a) A credit which
15-16 specifies that any person purchasing or paying drafts drawn or
15-17 demands for payment made under it must note the amount of the draft
15-18 or demand on the letter or advice of credit is a "notation credit".]
15-19 [(b) Under a notation credit]
15-20 [(1) a person paying the beneficiary or purchasing a
15-21 draft or demand for payment from him acquires a right to honor only
15-22 if the appropriate notation is made and by transferring or
15-23 forwarding for honor the documents under the credit such a person
15-24 warrants to the issuer that the notation has been made; and]
15-25 [(2) unless the credit or a signed statement that an
15-26 appropriate notation has been made accompanies the draft or demand
16-1 for payment the issuer may delay honor until evidence of notation
16-2 has been procured which is satisfactory to it but its obligation
16-3 and that of its customer continue for a reasonable time not
16-4 exceeding thirty days to obtain such evidence.]
16-5 [(c) If the credit is not a notation credit]
16-6 [(1) the issuer may honor complying drafts or demands
16-7 for payment presented to it in the order in which they are
16-8 presented and is discharged pro tanto by honor of any such draft or
16-9 demand;]
16-10 [(2) as between competing good faith purchasers of
16-11 complying drafts or demands the person first purchasing has
16-12 priority over a subsequent purchaser even though the later
16-13 purchased draft or demand has been first honored.]
16-14 [Sec. 5.109. ISSUER'S OBLIGATION TO ITS CUSTOMER. (a) An
16-15 issuer's obligation to its customer includes good faith and
16-16 observance of any general banking usage but unless otherwise agreed
16-17 does not include liability or responsibility]
16-18 [(1) for performance of the underlying contract for
16-19 sale or other transaction between the customer and the beneficiary;
16-20 or]
16-21 [(2) for any act or omission of any person other than
16-22 itself or its own branch or for loss or destruction of a draft,
16-23 demand or document in transit or in the possession of others; or]
16-24 [(3) based on knowledge or lack of knowledge of any
16-25 usage of any particular trade.]
16-26 [(b) An issuer must examine documents with care so as to
17-1 ascertain that on their face they appear to comply with the terms
17-2 of the credit but unless otherwise agreed assumes no liability or
17-3 responsibility for the genuineness, falsification or effect of any
17-4 document which appears on such examination to be regular on its
17-5 face.]
17-6 [(c) A non-bank issuer is not bound by any banking usage of
17-7 which it has no knowledge.]
17-8 [Sec. 5.110. 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 [5.111]. WARRANTIES [ON TRANSFER AND
17-19 PRESENTMENT]. (a) If its presentation is honored, the beneficiary
17-20 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.
18-1 (b) The warranties in Subsection (a) are in addition to
18-2 warranties arising under Chapters 3, 4, 7, and 8 because of the
18-3 presentation or transfer of documents covered by any of those
18-4 chapters.
18-5 (c) Notwithstanding any agreement or term to the contrary,
18-6 the warranties in Subsection (a) do not arise until the issuer
18-7 honors the letter of credit.
18-8 Sec. 5.111. REMEDIES. (a) If an issuer wrongfully
18-9 dishonors or repudiates its obligation to pay money under a letter
18-10 of credit before presentation, the beneficiary, successor, or
18-11 nominated person presenting on its own behalf may recover from the
18-12 issuer the amount that is the subject of the dishonor or
18-13 repudiation. If the issuer's obligation under the letter of credit
18-14 is not for the payment of money, the claimant may obtain specific
18-15 performance or, at the claimant's election, recover an amount equal
18-16 to the value of performance from the issuer. In either case, the
18-17 claimant may also recover incidental but not consequential damages.
18-18 The claimant is not obligated to take action to avoid damages that
18-19 might be due from the issuer under this subsection. If, although
18-20 not obligated to do so, the claimant avoids damages, the claimant's
18-21 recovery from the issuer must be reduced by the amount of damages
18-22 avoided. The issuer has the burden of proving the amount of
18-23 damages avoided. In the case of repudiation the claimant need not
18-24 present any document.
18-25 (b) If an issuer wrongfully dishonors a draft or demand
18-26 presented under a letter of credit or honors a draft or demand in
19-1 breach of its obligation to the applicant, the applicant may
19-2 recover damages resulting from the breach, including incidental but
19-3 not consequential damages, less any amount saved as a result of the
19-4 breach.
19-5 (c) If an adviser or nominated person other than a confirmer
19-6 breaches an obligation under this chapter or an issuer breaches an
19-7 obligation not covered in Subsection (a) or (b), a person to whom
19-8 the obligation is owed may recover damages resulting from the
19-9 breach, including incidental but not consequential damages, less
19-10 any amount saved as a result of the breach. To the extent of the
19-11 confirmation, a confirmer has the liability of an issuer specified
19-12 in this subsection and Subsections (a) and (b).
19-13 (d) An issuer, nominated person, or adviser who is found
19-14 liable under Subsection (a), (b), or (c) shall pay interest on the
19-15 amount owed thereunder from the date of wrongful dishonor or other
19-16 appropriate date.
19-17 (e) Reasonable attorney's fees and other expenses of
19-18 litigation may be awarded to the prevailing party in an action in
19-19 which a remedy is sought under this chapter.
19-20 (f) Damages that would otherwise be payable by a party for
19-21 breach of an obligation under this chapter may be liquidated by
19-22 agreement or undertaking, but only in an amount or by a formula
19-23 that is reasonable in light of the harm anticipated. [Unless
19-24 otherwise agreed the beneficiary by transferring or presenting a
19-25 documentary draft or demand for payment warrants to all interested
19-26 parties that the necessary conditions of the credit have been
20-1 complied with. This is in addition to any warranties arising under
20-2 Chapters 3, 4, 7 and 8.]
20-3 [(b) Unless otherwise agreed a negotiating, advising,
20-4 confirming, collecting or issuing bank presenting or transferring a
20-5 draft or demand for payment under a credit warrants only the
20-6 matters warranted by a collecting bank under Chapter 4 and any such
20-7 bank transferring a document warrants only the matters warranted by
20-8 an intermediary under Chapters 7 and 8.]
20-9 [Sec. 5.112. TIME ALLOWED FOR HONOR OR REJECTION;
20-10 WITHHOLDING HONOR OR REJECTION BY CONSENT; "PRESENTER". (a) A
20-11 bank to which a documentary draft or demand for payment is
20-12 presented under a credit may without dishonor of the draft, demand
20-13 or credit]
20-14 [(1) defer honor until the close of the third banking
20-15 day following receipt of the documents; and]
20-16 [(2) further defer honor if the presenter has
20-17 expressly or impliedly consented thereto.]
20-18 [Failure to honor within the time here specified constitutes
20-19 dishonor of the draft or demand and of the credit except as
20-20 otherwise provided in Subsection (d) of Section 5.114 on
20-21 conditional payment.]
20-22 [(b) Upon dishonor the bank may unless otherwise instructed
20-23 fulfill its duty to return the draft or demand and the documents by
20-24 holding them at the disposal of the presenter and sending him an
20-25 advice to that effect.]
20-26 [(c) "Presenter" means any person presenting a draft or
21-1 demand for payment for honor under a credit even though that person
21-2 is a confirming bank or other correspondent which is acting under
21-3 an issuer's authorization.]
21-4 [Sec. 5.113. INDEMNITIES. (a) A bank seeking to obtain
21-5 (whether for itself or another) honor, negotiation or reimbursement
21-6 under a credit may give an indemnity to induce such honor,
21-7 negotiation or reimbursement.]
21-8 [(b) An indemnity agreement inducing honor, negotiation or
21-9 reimbursement]
21-10 [(1) unless otherwise explicitly agreed applies to
21-11 defects in the documents but not in the goods; and]
21-12 [(2) unless a longer time is explicitly agreed expires
21-13 at the end of ten business days following receipt of the documents
21-14 by the ultimate customer unless notice of objection is sent before
21-15 such expiration date. The ultimate customer may send notice of
21-16 objection to the person from whom he received the documents and any
21-17 bank receiving such notice is under a duty to send notice to its
21-18 transferor before its midnight deadline.]
21-19 [Sec. 5.114. ISSUER'S DUTY AND PRIVILEGE TO HONOR; RIGHT TO
21-20 REIMBURSEMENT. (a) An issuer must honor a draft or demand for
21-21 payment which complies with the terms of the relevant credit
21-22 regardless of whether the goods or documents conform to the
21-23 underlying contract for sale or other contract between the customer
21-24 and the beneficiary. The issuer is not excused from honor of such
21-25 a draft or demand by reason of an additional general term that all
21-26 documents must be satisfactory to the issuer, but an issuer may
22-1 require that specified documents must be satisfactory to it.]
22-2 [(b) Unless otherwise agreed when documents appear on their
22-3 face to comply with the terms of a credit but a required document
22-4 does not in fact conform to the warranties made on negotiation or
22-5 transfer of a document of title (Section 7.507) or of a
22-6 certificated security (Section 8.108) or is forged or fraudulent or
22-7 there is fraud in the transaction:]
22-8 [(1) the issuer must honor the draft or demand for
22-9 payment if honor is demanded by a negotiating bank or other holder
22-10 of the draft or demand which has taken the draft or demand under
22-11 the credit and under circumstances which would make it a holder in
22-12 due course (Section 3.302) and in an appropriate case would make it
22-13 a person to whom a document of title has been duly negotiated
22-14 (Section 7.502) or a bona fide purchaser of a certificated security
22-15 (Section 8.302); and]
22-16 [(2) in all other cases as against its customer, an
22-17 issuer acting in good faith may honor the draft or demand for
22-18 payment despite notification from the customer of fraud, forgery or
22-19 other defect not apparent on the face of the documents but a court
22-20 of appropriate jurisdiction may enjoin such honor.]
22-21 [(c) Unless otherwise agreed an issuer which has duly
22-22 honored a draft or demand for payment is entitled to immediate
22-23 reimbursement of any payment made under the credit and to be put in
22-24 effectively available funds not later than the day before maturity
22-25 of any acceptance made under the credit.]
22-26 [(d) When a credit provides for payment by the issuer on
23-1 receipt of notice that the required documents are in the possession
23-2 of a correspondent or other agent of the issuer]
23-3 [(1) any payment made on receipt of such notice is
23-4 conditional; and]
23-5 [(2) the issuer may reject documents which do not
23-6 comply with the credit if it does so within three banking days
23-7 following its receipt of the documents; and]
23-8 [(3) in the event of such rejection, the issuer is
23-9 entitled by charge back or otherwise to return of the payment made.]
23-10 [(e) In the case covered by Subsection (d) failure to reject
23-11 documents within the time specified in Subdivision (2), constitutes
23-12 acceptance of the documents and makes the payment final in favor of
23-13 the beneficiary.]
23-14 [Sec. 5.115. REMEDY FOR IMPROPER DISHONOR OR ANTICIPATORY
23-15 REPUDIATION. (a) When an issuer wrongfully dishonors a draft or
23-16 demand for payment presented under a credit the person entitled to
23-17 honor has with respect to any documents the rights of a person in
23-18 the position of a seller (Section 2.707) and may recover from the
23-19 issuer the face amount of the draft or demand together with
23-20 incidental damages under Section 2.710 on seller's incidental
23-21 damages and interest but less any amount realized by resale or
23-22 other use or disposition of the subject matter of the transaction.
23-23 In the event no resale or other utilization is made the documents,
23-24 goods or other subject matter involved in the transaction must be
23-25 turned over to the issuer on payment of judgment.]
23-26 [(b) When an issuer wrongfully cancels or otherwise
24-1 repudiates a credit before presentment of a draft or demand for
24-2 payment drawn under it the beneficiary has the rights of a seller
24-3 after anticipatory repudiation by the buyer under Section 2.610 if
24-4 he learns of the repudiation in time reasonably to avoid
24-5 procurement of the required documents. Otherwise the beneficiary
24-6 has an immediate right of action for wrongful dishonor.]
24-7 Sec. 5.112 [5.116]. TRANSFER OF LETTER OF CREDIT [AND
24-8 ASSIGNMENT]. (a) Except as otherwise provided in Section 5.113,
24-9 unless a letter of credit provides that it is transferable, the
24-10 right of a beneficiary to draw or otherwise demand performance
24-11 under a letter of credit may not be transferred [The right to draw
24-12 under a credit can be transferred or assigned only when the credit
24-13 is expressly designated as transferable or assignable].
24-14 (b) Even if a letter of credit provides that it is
24-15 transferable, the issuer may refuse to recognize or carry out a
24-16 transfer if:
24-17 (1) the transfer would violate applicable law; or
24-18 (2) the transferor or transferee has failed to comply
24-19 with any requirement stated in the letter of credit or any other
24-20 requirement relating to transfer imposed by the issuer which is
24-21 within the standard practice referred to in Section 5.108(e) or is
24-22 otherwise reasonable under the circumstances.
24-23 Sec. 5.113. TRANSFER BY OPERATION OF LAW. (a) A successor
24-24 of a beneficiary may consent to amendments, sign and present
24-25 documents, and receive payment or other items of value in the name
24-26 of the beneficiary without disclosing its status as a successor.
25-1 (b) A successor of a beneficiary may consent to amendments,
25-2 sign and present documents, and receive payment or other items of
25-3 value in its own name as the disclosed successor of the
25-4 beneficiary. Except as otherwise provided in Subsection (e), an
25-5 issuer shall recognize a disclosed successor of a beneficiary as
25-6 beneficiary in full substitution for its predecessor upon
25-7 compliance with the requirements for recognition by the issuer of a
25-8 transfer of drawing rights by operation of law under the standard
25-9 practice referred to in Section 5.108(e) or, in the absence of such
25-10 a practice, compliance with other reasonable procedures sufficient
25-11 to protect the issuer.
25-12 (c) An issuer is not obliged to determine whether a
25-13 purported successor is a successor of a beneficiary or whether the
25-14 signature of a purported successor is genuine or authorized.
25-15 (d) Honor of a purported successor's apparently complying
25-16 presentation under Subsection (a) or (b) has the consequences
25-17 specified in Section 5.108(i) even if the purported successor is
25-18 not the successor of a beneficiary. Documents signed in the name
25-19 of the beneficiary or of a disclosed successor by a person who is
25-20 neither the beneficiary nor the successor of the beneficiary are
25-21 forged documents for the purposes of Section 5.109.
25-22 (e) An issuer whose rights of reimbursement are not covered
25-23 by Subsection (d) or substantially similar law and any confirmer or
25-24 nominated person may decline to recognize a presentation under
25-25 Subsection (b).
25-26 (f) A beneficiary whose name is changed after the issuance
26-1 of a letter of credit has the same rights and obligations as a
26-2 successor of a beneficiary under this section.
26-3 Sec. 5.114. ASSIGNMENT OF PROCEEDS. (a) In this section,
26-4 "proceeds of a letter of credit" means the cash, check, accepted
26-5 draft, or other item of value paid or delivered upon honor or
26-6 giving of value by the issuer or any nominated person under the
26-7 letter of credit. The term does not include a beneficiary's
26-8 drawing rights or documents presented by the beneficiary.
26-9 (b) A beneficiary may assign its right to part or all of the
26-10 proceeds of a letter of credit. The beneficiary may do so before
26-11 presentation as a present assignment of its right to receive
26-12 proceeds contingent upon its compliance with the terms and
26-13 conditions of the letter of credit.
26-14 (c) An issuer or nominated person need not recognize an
26-15 assignment of proceeds of a letter of credit until it consents to
26-16 the assignment.
26-17 (d) An issuer or nominated person has no obligation to give
26-18 or withhold its consent to an assignment of proceeds of a letter of
26-19 credit, but consent may not be unreasonably withheld if the
26-20 assignee possesses and exhibits the letter of credit and
26-21 presentation of the letter of credit is a condition to honor.
26-22 (e) Rights of a transferee beneficiary or nominated person
26-23 are independent of the beneficiary's assignment of the proceeds of
26-24 a letter of credit and are superior to the assignee's right to the
26-25 proceeds.
26-26 (f) Neither the rights recognized by this section between an
27-1 assignee and an issuer, transferee beneficiary, or nominated person
27-2 nor the issuer's or nominated person's payment of proceeds to an
27-3 assignee or a third person affect the rights between the assignee
27-4 and any person other than the issuer, transferee beneficiary, or
27-5 nominated person. The mode of creating and perfecting a security
27-6 interest in or granting an assignment of a beneficiary's rights to
27-7 proceeds is governed by Chapter 9 or other law. Against persons
27-8 other than the issuer, transferee beneficiary, or nominated person,
27-9 the rights and obligations arising upon the creation of a security
27-10 interest or other assignment of a beneficiary's right to proceeds
27-11 and its perfection are governed by Chapter 9 or other law.
27-12 Sec. 5.115. STATUTE OF LIMITATIONS. An action to enforce a
27-13 right or obligation arising under this chapter must be commenced
27-14 within one year after the expiration date of the relevant letter of
27-15 credit or one year after the cause of action accrues, whichever
27-16 occurs later. A cause of action accrues when the breach occurs,
27-17 regardless of the aggrieved party's lack of knowledge of the
27-18 breach.
27-19 Sec. 5.116. CHOICE OF LAW AND FORUM. (a) The liability of
27-20 an issuer, nominated person, or adviser for action or omission is
27-21 governed by the law of the jurisdiction chosen by an agreement in
27-22 the form of a record signed or otherwise authenticated by the
27-23 affected parties in the manner provided in Section 5.104 or by a
27-24 provision in the person's letter of credit, confirmation, or other
27-25 undertaking. The jurisdiction whose law is chosen need not bear
27-26 any relation to the transaction.
28-1 (b) Unless Subsection (a) applies, the liability of an
28-2 issuer, nominated person, or adviser for action or omission is
28-3 governed by the law of the jurisdiction in which the person is
28-4 located. The person is considered to be located at the address
28-5 indicated in the person's undertaking. If more than one address is
28-6 indicated, the person is considered to be located at the address
28-7 from which the person's undertaking was issued. For the purpose of
28-8 jurisdiction, choice of law, and recognition of interbranch letters
28-9 of credit, but not enforcement of a judgment, all branches of a
28-10 bank are considered separate juridical entities, and a bank is
28-11 considered to be located at the place where its relevant branch is
28-12 considered to be located under this subsection.
28-13 (c) Except as otherwise provided in this subsection, the
28-14 liability of an issuer, nominated person, or adviser is governed by
28-15 any rules of custom or practice, such as the Uniform Customs and
28-16 Practice for Documentary Credits, to which the letter of credit,
28-17 confirmation, or other undertaking is expressly made subject. If
28-18 (i) this chapter would govern the liability of an issuer, nominated
28-19 person, or adviser under Subsection (a) or (b), (ii) the relevant
28-20 undertaking incorporates rules of custom or practice, and (iii)
28-21 there is conflict between this chapter and those rules as applied
28-22 to that undertaking, those rules govern except to the extent of any
28-23 conflict with the nonvariable provisions specified in Section
28-24 5.103(c).
28-25 (d) If there is conflict between this chapter and Chapter 3,
28-26 4, 4A, or 9, this chapter governs.
29-1 (e) The forum for settling disputes arising out of an
29-2 undertaking within this chapter may be chosen in the manner and
29-3 with the binding effect that governing law may be chosen in
29-4 accordance with Subsection (a). [though the credit specifically
29-5 states that it is nontransferable or nonassignable the beneficiary
29-6 may before performance of the conditions of the credit assign his
29-7 right to proceeds. Such an assignment is an assignment of an
29-8 account under Chapter 9 on Secured Transactions and is governed by
29-9 that chapter except that]
29-10 [(1) the assignment is ineffective until the letter of
29-11 credit or advice of credit is delivered to the assignee which
29-12 delivery constitutes perfection of the security interest under
29-13 Chapter 9; and]
29-14 [(2) the issuer may honor drafts or demands for
29-15 payment drawn under the credit until it receives a notification of
29-16 the assignment signed by the beneficiary which reasonably
29-17 identifies the credit involved in the assignment and contains a
29-18 request to pay the assignee; and]
29-19 [(3) after what reasonably appears to be such a
29-20 notification has been received the issuer may without dishonor
29-21 refuse to accept or pay even to a person otherwise entitled to
29-22 honor until the letter of credit or advice of credit is exhibited
29-23 to the issuer.]
29-24 [(c) Except where the beneficiary has effectively assigned
29-25 his right to draw or his right to proceeds, nothing in this section
29-26 limits his right to transfer or negotiate drafts or demands drawn
30-1 under the credit.]
30-2 Sec. 5.117. SUBROGATION OF ISSUER, APPLICANT, AND NOMINATED
30-3 PERSON. (a) An issuer that honors a beneficiary's presentation is
30-4 subrogated to the rights of the beneficiary to the same extent as
30-5 if the issuer were a secondary obligor of the underlying obligation
30-6 owed to the beneficiary and of the applicant to the same extent as
30-7 if the issuer were the secondary obligor of the underlying
30-8 obligation owed to the applicant.
30-9 (b) An applicant that reimburses an issuer is subrogated to
30-10 the rights of the issuer against any beneficiary, presenter, or
30-11 nominated person to the same extent as if the applicant were the
30-12 secondary obligor of the obligations owed to the issuer and has the
30-13 rights of subrogation of the issuer to the rights of the
30-14 beneficiary stated in Subsection (a).
30-15 (c) A nominated person who pays or gives value against a
30-16 draft or demand presented under a letter of credit is subrogated to
30-17 the rights of:
30-18 (1) the issuer against the applicant to the same
30-19 extent as if the nominated person were a secondary obligor of the
30-20 obligation owed to the issuer by the applicant;
30-21 (2) the beneficiary to the same extent as if the
30-22 nominated person were a secondary obligor of the underlying
30-23 obligation owed to the beneficiary; and
30-24 (3) the applicant to the same extent as if the
30-25 nominated person were a secondary obligor of the underlying
30-26 obligation owed to the applicant.
31-1 (d) Notwithstanding any agreement or term to the contrary,
31-2 the rights of subrogation stated in Subsections (a) and (b) do not
31-3 arise until the issuer honors the letter of credit or otherwise
31-4 pays, and the rights in Subsection (c) do not arise until the
31-5 nominated person pays or otherwise gives value. Until then, the
31-6 issuer, the nominated person, and the applicant do not derive under
31-7 this section present or prospective rights forming the basis of a
31-8 claim, defense, or excuse. [INSOLVENCY OF BANK HOLDING FUNDS FOR
31-9 DOCUMENTARY CREDIT. (a) Where an issuer or an advising or
31-10 confirming bank or a bank which has for a customer procured
31-11 issuance of a credit by another bank becomes insolvent before final
31-12 payment under the credit and the credit is one to which this
31-13 chapter is made applicable by Subdivision (1) or (2) of Section
31-14 5.102(a) on scope, the receipt or allocation of funds or collateral
31-15 to secure or meet obligations under the credit shall have the
31-16 following results:]
31-17 [(1) to the extent of any funds or collateral turned
31-18 over after or before the insolvency as indemnity against or
31-19 specifically for the purpose of payment of drafts or demands for
31-20 payment drawn under the designated credit, the drafts or demands
31-21 are entitled to payment in preference over depositors or other
31-22 general creditors of the issuer or bank; and]
31-23 [(2) on expiration of the credit or surrender of the
31-24 beneficiary's rights under it unused any person who has given such
31-25 funds or collateral is similarly entitled to return thereof; and]
31-26 [(3) a charge to a general or current account with a
32-1 bank if specifically consented to for the purpose of indemnity
32-2 against or payment of drafts or demands for payment drawn under the
32-3 designated credit falls under the same rules as if the funds had
32-4 been drawn out in cash and then turned over with specific
32-5 instructions.]
32-6 [(b) After honor or reimbursement under this section the
32-7 customer or other person for whose account the insolvent bank has
32-8 acted is entitled to receive the documents involved.]
32-9 SECTION 2. Subsection (b), Section 1.105, Business &
32-10 Commerce Code, is amended to read as follows:
32-11 (b) Where one of the following provisions of this title
32-12 specifies the applicable law, that provision governs and a contrary
32-13 agreement is effective only to the extent permitted by the law
32-14 (including the conflict of laws rules) so specified:
32-15 Rights of creditors against sold goods. Section 2.402.
32-16 Applicability of the chapter on Leases. Sections 2A.105 and
32-17 2A.106.
32-18 Applicability of the chapter on Bank Deposits and
32-19 Collections. Section 4.102.
32-20 Governing law in the chapter on Funds Transfers. Section
32-21 4A.507.
32-22 Letters of Credit. Section 5.116.
32-23 Applicability of the chapter on Investment Securities.
32-24 Section 8.110.
32-25 Perfection provisions of the chapter on Secured Transactions.
32-26 Section 9.103.
33-1 SECTION 3. Subsection (a), Section 2.512, Business &
33-2 Commerce Code, is amended to read as follows:
33-3 (a) Where the contract requires payment before inspection
33-4 non-conformity of the goods does not excuse the buyer from so
33-5 making payment unless
33-6 (1) the non-conformity appears without inspection; or
33-7 (2) despite tender of the required documents
33-8 circumstances would justify injunction against honor under [the
33-9 provisions of] this title (Section 5.109(b) [5.114]).
33-10 SECTION 4. Subsection (a), Section 9.103, Business &
33-11 Commerce Code, is amended to read as follows:
33-12 (a) Documents, instruments, letters of credit, and ordinary
33-13 goods.
33-14 (1) This subsection applies to documents, [and]
33-15 instruments, and rights to proceeds of written letters of credit
33-16 and to goods other than those covered by a certificate of title
33-17 described in Subsection (b), mobile goods described in Subsection
33-18 (c), and minerals described in Subsection (e).
33-19 (2) Except as otherwise provided in this subsection,
33-20 perfection and the effect of perfection or non-perfection of a
33-21 security interest in collateral are governed by the law of the
33-22 jurisdiction where the collateral is when the last event occurs on
33-23 which is based the assertion that the security interest is
33-24 perfected or unperfected.
33-25 (3) If the parties to a transaction creating a
33-26 purchase money security interest in goods in one jurisdiction
34-1 understand at the time that the security interest attaches that the
34-2 goods will be kept in another jurisdiction, then the law of the
34-3 other jurisdiction governs the perfection and the effect of
34-4 perfection or non-perfection of the security interest from the time
34-5 it attaches until 30 days after the debtor receives possession of
34-6 the goods and thereafter if the goods are taken to the other
34-7 jurisdiction before the end of the 30-day period.
34-8 (4) When collateral is brought into and kept in this
34-9 state while subject to a security interest perfected under the law
34-10 of the jurisdiction from which the collateral was removed, the
34-11 security interest remains perfected, but if action is required by
34-12 Subchapter C of this chapter to perfect the security interest,
34-13 (A) if the action is not taken before the
34-14 expiration of the period of perfection in the other jurisdiction or
34-15 the end of four months after the collateral is brought into this
34-16 state, whichever period first expires, the security interest
34-17 becomes unperfected at the end of that period and is thereafter
34-18 deemed to have been unperfected as against a person who became a
34-19 purchaser after removal;
34-20 (B) if the action is taken before the expiration
34-21 of the period specified in paragraph (A), the security interest
34-22 continues perfected thereafter;
34-23 (C) for the purpose of priority over a buyer of
34-24 consumer goods (Subsection (b) of Section 9.307), the period of the
34-25 effectiveness of a filing in the jurisdiction from which the
34-26 collateral is removed is governed by the rules with respect to
35-1 perfection in paragraphs (A) and (B).
35-2 SECTION 5. Section 9.104, Business & Commerce Code, is
35-3 amended to read as follows:
35-4 Sec. 9.104. TRANSACTIONS EXCLUDED FROM CHAPTER. This
35-5 chapter does not apply
35-6 (1) to a security interest subject to any statute of
35-7 the United States such as the Ship Mortgage Act, 1920, to the
35-8 extent that such statute governs the rights of parties to and third
35-9 parties affected by transactions in particular types of property;
35-10 or
35-11 (2) to a landlord's lien; or
35-12 (3) to a lien given by statute or other rule of law
35-13 for services or materials except as provided in Section 9.310 on
35-14 priority of such liens; or
35-15 (4) to a transfer of a claim for wages, salary or
35-16 other compensation of an employee; or
35-17 (5) to a transfer by a government or governmental
35-18 subdivision or agency; or
35-19 (6) to a sale of accounts or chattel paper as part of
35-20 a sale of the business out of which they arose, or an assignment of
35-21 accounts or chattel paper which is for the purpose of collection
35-22 only, or a transfer of a right to payment under a contract to an
35-23 assignee who is also to do the performance under the contract or a
35-24 transfer of a single account to an assignee in whole or partial
35-25 satisfaction of a preexisting indebtedness; or
35-26 (7) to a transfer of an interest or claim in or under
36-1 any policy of insurance, except as provided with respect to
36-2 proceeds (Section 9.306) and priorities in proceeds (Section
36-3 9.312); or
36-4 (8) to a right represented by a judgment (other than a
36-5 judgment taken on a right to payment which was collateral); or
36-6 (9) to any right of set-off; or
36-7 (10) except to the extent that provision is made for
36-8 fixtures in Section 9.313, to the creation or transfer of an
36-9 interest in or lien on real estate, including a lease or rents
36-10 thereunder; or
36-11 (11) to a transfer in whole or in part of any claim
36-12 arising out of tort; or
36-13 (12) to a transfer of an interest in any deposit
36-14 account (Subsection (a)(5) of Section 9.105), except as provided
36-15 with respect to proceeds (Section 9.306) and priorities in proceeds
36-16 (Section 9.312); or
36-17 (13) to a transfer of an interest in a letter of
36-18 credit other than the rights to proceeds of a written letter of
36-19 credit.
36-20 SECTION 6. Subsection (c), Section 9.105, Business &
36-21 Commerce Code, is amended to read as follows:
36-22 (c) The following definitions in other chapters apply to
36-23 this chapter:
36-24 "Broker". Section 8.102.
36-25 "Certificated security". Section 8.102.
36-26 "Check". Section 3.104.
37-1 "Clearing corporation". Section 8.102.
37-2 "Contract for sale". Section 2.106.
37-3 "Control". Section 8.106.
37-4 "Delivery". Section 8.301.
37-5 "Entitlement holder". Section 8.102.
37-6 "Financial asset". Section 8.102.
37-7 "Holder in due course". Section 3.302.
37-8 "Letter of credit". Section 5.102.
37-9 "Note". Section 3.104.
37-10 "Proceeds of a letter of credit". Section 5.114.
37-11 "Sale". Section 2.106.
37-12 "Securities intermediary". Section 8.102.
37-13 "Security". Section 8.102.
37-14 "Security certificate". Section 8.102.
37-15 "Security entitlement". Section 8.102.
37-16 "Uncertificated security". Section 8.102.
37-17 SECTION 7. Section 9.106, Business & Commerce Code, is
37-18 amended to read as follows:
37-19 Sec. 9.106. DEFINITIONS: "ACCOUNT"; "GENERAL INTANGIBLES".
37-20 "Account" means any right to payment for goods sold or leased or
37-21 for services rendered which is not evidenced by an instrument or
37-22 chattel paper, whether or not it has been earned by performance.
37-23 "General intangibles" means any personal property (including things
37-24 in action) other than goods, accounts, chattel paper, documents,
37-25 instruments, investment property, rights to proceeds of written
37-26 letters of credit, and money. All rights to payment earned or
38-1 unearned under a charter or other contract involving the use or
38-2 hire of a vessel and all rights incident to the charter or contract
38-3 are accounts.
38-4 SECTION 8. Sections 9.304 and 9.305, Business & Commerce
38-5 Code, are amended to read as follows:
38-6 Sec. 9.304. PERFECTION OF SECURITY INTEREST IN INSTRUMENTS,
38-7 DOCUMENTS, PROCEEDS OF A WRITTEN LETTER OF CREDIT, AND GOODS
38-8 COVERED BY DOCUMENTS; PERFECTION BY PERMISSIVE FILING; TEMPORARY
38-9 PERFECTION WITHOUT FILING OR TRANSFER OF POSSESSION. (a) A
38-10 security interest in chattel paper or negotiable documents may be
38-11 perfected by filing. A security interest in the rights to proceeds
38-12 of a written letter of credit can be perfected only by the secured
38-13 party's taking possession of the letter of credit. A security
38-14 interest in money or instruments (other than instruments which
38-15 constitute part of chattel paper) can be perfected only by the
38-16 secured party's taking possession, except as provided in
38-17 Subsections (d) and (e) of this section and Subsections (b) and (c)
38-18 of Section 9.306 on proceeds. Possession of a nonnegotiable
38-19 certificate of deposit in which the secured party is the issuer of
38-20 the document is established when the issuer places a restriction on
38-21 withdrawals from the account on its records that evidences the
38-22 document. Possession established by the restriction of withdrawals
38-23 from an account evidenced by a nonnegotiable certificate of deposit
38-24 takes priority over any other possession established under this
38-25 chapter of which the secured party does not have prior knowledge.
38-26 (b) During the period that goods are in the possession of
39-1 the issuer of a negotiable document therefor, a security interest
39-2 in the goods is perfected by perfecting a security interest in the
39-3 document, and any security interest in the goods otherwise
39-4 perfected during such period is subject thereto.
39-5 (c) A security interest in goods in the possession of a
39-6 bailee other than one who has issued a negotiable document therefor
39-7 is perfected by issuance of a document in the name of the secured
39-8 party or by the bailee's receipt of notification of the secured
39-9 party's interest or by filing as to the goods.
39-10 (d) A security interest in instruments, certificated
39-11 securities, or negotiable documents is perfected without filing or
39-12 the taking of possession for a period of 21 days from the time it
39-13 attaches to the extent that it arises for new value given under a
39-14 written security agreement.
39-15 (e) A security interest remains perfected for a period of 21
39-16 days without filing where a secured party having a perfected
39-17 security interest in an instrument, a certificated security, a
39-18 negotiable document, or goods in possession of a bailee other than
39-19 one who has issued a negotiable document therefor:
39-20 (1) makes available to the debtor the goods or
39-21 documents representing the goods for the purpose of ultimate sale
39-22 or exchange or for the purpose of loading, unloading, storing,
39-23 shipping, transshipping, manufacturing, processing or otherwise
39-24 dealing with them in a manner preliminary to their sale or
39-25 exchange, but priority between conflicting security interests in
39-26 the goods is subject to Subsection (c) of Section 9.312; or
40-1 (2) delivers the instrument or certificated security
40-2 to the debtor for the purpose of ultimate sale or exchange or of
40-3 presentation, collection, renewal or registration of transfer.
40-4 (f) After the 21 day period in Subsections (d) and (e)
40-5 perfection depends upon compliance with applicable provisions of
40-6 this chapter.
40-7 Sec. 9.305. WHEN POSSESSION BY SECURED PARTY PERFECTS
40-8 SECURITY INTEREST WITHOUT FILING. A security interest in [letters
40-9 of credit and advices of credit (Subsection (b)(1) of Section
40-10 5.116),] goods, instruments, money, negotiable documents or chattel
40-11 paper may be perfected by the secured party's taking possession of
40-12 the collateral. A security interest in the right to proceeds of a
40-13 written letter of credit may be perfected by the secured party's
40-14 taking possession of the letter of credit. If such collateral
40-15 other than goods covered by a negotiable document is held by a
40-16 bailee, the secured party is deemed to have possession from the
40-17 time the bailee receives notification of the secured party's
40-18 interest. A security interest is perfected by possession from the
40-19 time possession is taken without relation back and continues only
40-20 so long as possession is retained, unless otherwise specified in
40-21 this chapter. The security interest may be otherwise perfected as
40-22 provided in this chapter before or after the period of possession
40-23 by the secured party.
40-24 SECTION 9. This Act takes effect September 1, 1999.
40-25 SECTION 10. (a) This Act applies only to a letter of credit
40-26 that is issued on or after the effective date of this Act.
41-1 (b) A transaction arising out of or associated with a letter
41-2 of credit that was issued before the effective date of this Act and
41-3 the rights, obligations, and interests flowing from that
41-4 transaction are governed by the law as it existed immediately
41-5 before this Act took effect, and that law is continued in effect
41-6 for that purpose.
41-7 SECTION 11. The importance of this legislation and the
41-8 crowded condition of the calendars in both houses create an
41-9 emergency and an imperative public necessity that the
41-10 constitutional rule requiring bills to be read on three several
41-11 days in each house be suspended, and this rule is hereby suspended.
_______________________________ _______________________________
President of the Senate Speaker of the House
I hereby certify that S.B. No. 85 passed the Senate on
February 25, 1999, by a viva-voce vote.
_______________________________
Secretary of the Senate
I hereby certify that S.B. No. 85 passed the House on
March 23, 1999, by a non-record vote.
_______________________________
Chief Clerk of the House
Approved:
_______________________________
Date
_______________________________
Governor