1-1 By: Carona S.B. No. 85
1-2 (In the Senate - Filed December 7, 1998; January 26, 1999,
1-3 read first time and referred to Committee on Economic Development;
1-4 February 18, 1999, reported favorably by the following vote: Yeas
1-5 6, Nays 0; February 18, 1999, sent to printer.)
1-6 A BILL TO BE ENTITLED
1-7 AN ACT
1-8 relating to letters of credit.
1-9 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-10 SECTION 1. Chapter 5, Business & Commerce Code, is amended
1-11 to read as follows:
1-12 CHAPTER 5. LETTERS OF CREDIT
1-13 Sec. 5.101. SHORT TITLE. This chapter may be cited as
1-14 Uniform Commercial Code--Letters of Credit.
1-15 Sec. 5.102. DEFINITIONS. (a) In this chapter:
1-16 (1) "Adviser" means a person who, at the request of
1-17 the issuer, a confirmer, or another adviser, notifies or requests
1-18 another adviser to notify the beneficiary that a letter of credit
1-19 has been issued, confirmed, or amended.
1-20 (2) "Applicant" means a person at whose request or for
1-21 whose account a letter of credit is issued. The term includes a
1-22 person who requests an issuer to issue a letter of credit on behalf
1-23 of another if the person making the request undertakes an
1-24 obligation to reimburse the issuer.
1-25 (3) "Beneficiary" means a person who under the terms
1-26 of a letter of credit is entitled to have its complying
1-27 presentation honored. The term includes a person to whom drawing
1-28 rights have been transferred under a transferable letter of credit.
1-29 (4) "Confirmer" means a nominated person who
1-30 undertakes, at the request or with the consent of the issuer, to
1-31 honor a presentation under a letter of credit issued by another.
1-32 (5) "Dishonor" of a letter of credit means failure
1-33 timely to honor or to take an interim action, such as acceptance of
1-34 a draft, that may be required by the letter of credit.
1-35 (6) "Document" means a draft or other demand, document
1-36 of title, investment security, certificate, invoice, or other
1-37 record, statement, or representation of fact, law, right, or
1-38 opinion (i) that is presented in a written or other medium
1-39 permitted by the letter of credit or, unless prohibited by the
1-40 letter of credit, by the standard practice referred to in Section
1-41 5.108(e); and (ii) that is capable of being examined for compliance
1-42 with the terms and conditions of the letter of credit. A document
1-43 may not be oral.
1-44 (7) "Good faith" means honesty in fact in the conduct
1-45 or transaction concerned.
1-46 (8) "Honor" of a letter of credit means performance of
1-47 the issuer's undertaking in the letter of credit to pay or deliver
1-48 an item of value. Unless the letter of credit otherwise provides,
1-49 "honor" occurs:
1-50 (A) upon payment;
1-51 (B) if the letter of credit provides for
1-52 acceptance, upon acceptance of a draft and, at maturity, its
1-53 payment; or
1-54 (C) if the letter of credit provides for
1-55 incurring a deferred obligation, upon incurring the obligation and,
1-56 at maturity, its performance.
1-57 (9) "Issuer" means a bank or other person that issues
1-58 a letter of credit, but does not include an individual who makes an
1-59 engagement for personal, family, or household purposes.
1-60 (10) "Letter of credit" means a definite undertaking
1-61 that satisfies the requirements of Section 5.104 by an issuer to a
1-62 beneficiary at the request or for the account of an applicant or,
1-63 in the case of a financial institution, to itself or for its own
1-64 account, to honor a documentary presentation by payment or delivery
2-1 of an item of value.
2-2 (11) "Nominated person" means a person whom the
2-3 issuer:
2-4 (A) designates or authorizes to pay, accept,
2-5 negotiate, or otherwise give value under a letter of credit; and
2-6 (B) undertakes by agreement or custom and
2-7 practice to reimburse.
2-8 (12) "Presentation" means delivery of a document to an
2-9 issuer or nominated person for honor or giving of value under a
2-10 letter of credit.
2-11 (13) "Presenter" means a person making a presentation
2-12 as or on behalf of a beneficiary or nominated person.
2-13 (14) "Record" means information that is inscribed on a
2-14 tangible medium or that is stored in an electronic or other medium
2-15 and is retrievable in perceivable form.
2-16 (15) "Successor of a beneficiary" means a person who
2-17 succeeds to substantially all of the rights of a beneficiary by
2-18 operation of law, including a corporation with or into which the
2-19 beneficiary has been merged or consolidated, an administrator, an
2-20 executor, a personal representative, a trustee in bankruptcy, a
2-21 debtor in possession, a liquidator, and a receiver.
2-22 (b) Definitions in other chapters of this code applying to
2-23 this chapter and the sections in which they appear are:
2-24 "Accept" or "Acceptance". Section 3.409.
2-25 "Value". Sections 3.303 and 4.211.
2-26 (c) Chapter 1 contains certain additional general
2-27 definitions and principles of construction and interpretation
2-28 applicable throughout this chapter.
2-29 Sec. 5.103. SCOPE. (a) This chapter applies to letters of
2-30 credit and to certain rights and obligations arising out of
2-31 transactions involving letters of credit.
2-32 (b) The statement of a rule in this chapter does not by
2-33 itself require, imply, or negate application of the same or a
2-34 different rule to a situation not provided for, or to a person not
2-35 specified, in this chapter.
2-36 (c) With the exception of this subsection, Subsections (a)
2-37 and (d), Sections 5.102(a)(9) and (10), Section 5.106(d), Section
2-38 5.110(c), and Section 5.114(d) and except to the extent prohibited
2-39 in Sections 1.102(c) and 5.117(d), the effect of this chapter may
2-40 be varied by agreement or by a provision stated or incorporated by
2-41 reference in an undertaking. A term in an agreement or undertaking
2-42 generally excusing liability or generally limiting remedies for
2-43 failure to perform obligations is not sufficient to vary
2-44 obligations prescribed by this chapter.
2-45 (d) Rights and obligations of an issuer to a beneficiary or
2-46 a nominated person under a letter of credit are independent of the
2-47 existence, performance, or nonperformance of a contract or
2-48 arrangement out of which the letter of credit arises or which
2-49 underlies it, including contracts or arrangements between the
2-50 issuer and the applicant and between the applicant and the
2-51 beneficiary. [SCOPE. (a) This chapter applies]
2-52 [(1) to a credit issued by a bank if the credit
2-53 requires a documentary draft or a documentary demand for payment;
2-54 and]
2-55 [(2) to a credit issued by a person other than a bank
2-56 if the credit requires that the draft or demand for payment be
2-57 accompanied by a document of title; and]
2-58 [(3) to a credit issued by a bank or other person if
2-59 the credit is not within Subdivision (1) or (2) but conspicuously
2-60 states that it is a letter of credit or is conspicuously so
2-61 entitled.]
2-62 [(b) Unless the engagement meets the requirements of
2-63 Subsection (a), this chapter does not apply to engagements to make
2-64 advances or to honor drafts or demands for payment, to authorities
2-65 to pay or purchase, to guarantees or to general agreements.]
2-66 [(c) This chapter deals with some but not all of the rules
2-67 and concepts of letters of credit as such rules or concepts have
2-68 developed prior to this title or may hereafter develop. The fact
2-69 that this chapter states a rule does not by itself require, imply
3-1 or negate application of the same or a converse rule to a situation
3-2 not provided for or to a person not specified by this chapter.]
3-3 [Sec. 5.103. DEFINITIONS. (a) In this chapter unless the
3-4 context otherwise requires]
3-5 [(1) "Credit" or "letter of credit" means an
3-6 engagement by a bank or other person made at the request of a
3-7 customer and of a kind within the scope of this chapter (Section
3-8 5.102) that the issuer will honor drafts or other demands for
3-9 payment upon compliance with the conditions specified in the
3-10 credit. A credit may be either revocable or irrevocable. The
3-11 engagement may be either an agreement to honor or a statement that
3-12 the bank or other person is authorized to honor.]
3-13 [(2) A "documentary draft" or a "documentary demand
3-14 for payment" is one honor of which is conditioned upon the
3-15 presentation of a document or documents. "Document" means any
3-16 paper including document of title, security, invoice, certificate,
3-17 notice of default and the like.]
3-18 [(3) An "issuer" is a bank or other person issuing a
3-19 credit.]
3-20 [(4) A "beneficiary" of a credit is a person who is
3-21 entitled under its terms to draw or demand payment.]
3-22 [(5) An "advising bank" is a bank which gives
3-23 notification of the issuance of a credit by another bank.]
3-24 [(6) A "confirming bank" is a bank which engages
3-25 either that it will itself honor a credit already issued by another
3-26 bank or that such a credit will be honored by the issuer or a third
3-27 bank.]
3-28 [(7) A "customer" is a buyer or other person who
3-29 causes an issuer to issue a credit. The term also includes a bank
3-30 which procures issuance or confirmation on behalf of that bank's
3-31 customer.]
3-32 [(b) Other definitions applying to this chapter and the
3-33 sections in which they appear are:]
3-34 ["Notation Credit".] [Section 5.1a8.]
3-35 ["Presenter".] [Section 5.112(c).]
3-36 [(c) Definitions in other chapters applying to this chapter
3-37 and the sections in which they appear are:]
3-38 ["Accept" or "Acceptance".] [Section 3.409.]
3-39 ["Contract for sale".] [Section 2.106.]
3-40 ["Draft".] [Section 3.104.]
3-41 ["Holder in due course".] [Section 3.302.]
3-42 ["Midnight deadline".] [Section 4.104.]
3-43 ["Security".] [Section 8.102.]
3-44 [(d) In addition, Chapter 1 contains general definitions and
3-45 principles of construction and interpretation applicable throughout
3-46 this chapter.]
3-47 Sec. 5.104. FORMAL REQUIREMENTS[; SIGNING]. A letter of
3-48 credit, confirmation, advice, transfer, amendment, or cancellation
3-49 may be issued in any form that is a record and is authenticated:
3-50 (1) by a signature; or
3-51 (2) in accordance with the agreement of the parties or
3-52 the standard practice referred to in Section 5.108(e).
3-53 [(a) Except as otherwise required in Subsection (a)(3) of Section
3-54 5.102 on scope, no particular form of phrasing is required for a
3-55 credit. A credit must be in writing and signed by the issuer and a
3-56 confirmation must be in writing and signed by the confirming bank.
3-57 A modification of the terms of a credit or confirmation must be
3-58 signed by the issuer or confirming bank.]
3-59 [(b) A telegram may be a sufficient signed writing if it
3-60 identifies its sender by an authorized authentication. The
3-61 authentication may be in code and the authorized naming of the
3-62 issuer in an advice of credit is a sufficient signing.]
3-63 Sec. 5.105. CONSIDERATION. Consideration is not required to
3-64 issue, amend, transfer, or cancel a letter of credit, advice, or
3-65 confirmation. [No consideration is necessary to establish a credit
3-66 or to enlarge or otherwise modify its terms.]
3-67 Sec. 5.106. ISSUANCE, AMENDMENT, CANCELLATION, AND DURATION.
3-68 (a) A letter of credit is issued and becomes enforceable according
3-69 to its terms against the issuer when the issuer sends or otherwise
4-1 transmits it to the person requested to advise or to the
4-2 beneficiary. A letter of credit is revocable only if it so
4-3 provides.
4-4 (b) After a letter of credit is issued, rights and
4-5 obligations of a beneficiary, applicant, confirmer, and issuer are
4-6 not affected by an amendment or cancellation to which that person
4-7 has not consented except to the extent the letter of credit
4-8 provides that it is revocable or that the issuer may amend or
4-9 cancel the letter of credit without that consent.
4-10 (c) If there is no stated expiration date or other provision
4-11 that determines its duration, a letter of credit expires one year
4-12 after its stated date of issuance or, if no date is stated, after
4-13 the date on which it is issued.
4-14 (d) A letter of credit that states that it is perpetual
4-15 expires five years after its stated date of issuance or, if no date
4-16 is stated, after the date on which it is issued. [TIME AND EFFECT
4-17 OF ESTABLISHMENT OF CREDIT. (a) Unless otherwise agreed a credit
4-18 is established]
4-19 [(1) as regards the customer as soon as a letter of
4-20 credit is sent to him or the letter of credit or an authorized
4-21 written advice of its issuance is sent to the beneficiary; and]
4-22 [(2) as regards the beneficiary when he receives a
4-23 letter of credit or an authorized written advice of its issuance.]
4-24 [(b) Unless otherwise agreed once an irrevocable credit is
4-25 established as regards the customer it can be modified or revoked
4-26 only with the consent of the customer and once it is established as
4-27 regards the beneficiary it can be modified or revoked only with his
4-28 consent.]
4-29 [(c) Unless otherwise agreed after a revocable credit is
4-30 established it may be modified or revoked by the issuer without
4-31 notice to or consent from the customer or beneficiary.]
4-32 [(d) Notwithstanding any modification or revocation of a
4-33 revocable credit any person authorized to honor or negotiate under
4-34 the terms of the original credit is entitled to reimbursement for
4-35 or honor of any draft or demand for payment duly honored or
4-36 negotiated before receipt of notice of the modification or
4-37 revocation and the issuer in turn is entitled to reimbursement from
4-38 its customer.]
4-39 Sec. 5.107. CONFIRMER, NOMINATED PERSON, AND ADVISER.
4-40 (a) A confirmer is directly obligated on a letter of credit and
4-41 has the rights and obligations of an issuer to the extent of its
4-42 confirmation. The confirmer also has rights against and
4-43 obligations to the issuer as if the issuer were an applicant and
4-44 the confirmer had issued the letter of credit at the request and
4-45 for the account of the issuer.
4-46 (b) A nominated person who is not a confirmer is not
4-47 obligated to honor or otherwise give value for a presentation.
4-48 (c) A person requested to advise may decline to act as an
4-49 adviser. An adviser that is not a confirmer is not obligated to
4-50 honor or give value for a presentation. An adviser undertakes to
4-51 the issuer and to the beneficiary accurately to advise the terms of
4-52 the letter of credit, confirmation, amendment, or advice received
4-53 by that person and undertakes to the beneficiary to check the
4-54 apparent authenticity of the request to advise. Even if the advice
4-55 is inaccurate, the letter of credit, confirmation, or amendment is
4-56 enforceable as issued.
4-57 (d) A person who notifies a transferee beneficiary of the
4-58 terms of a letter of credit, confirmation, amendment, or advice has
4-59 the rights and obligations of an adviser under Subsection (c). The
4-60 terms in the notice to the transferee beneficiary may differ from
4-61 the terms in any notice to the transferor beneficiary to the extent
4-62 permitted by the letter of credit, confirmation, amendment, or
4-63 advice received by the person who so notifies. [ADVICE OF CREDIT;
4-64 CONFIRMATION; ERROR IN STATEMENT OF TERMS. (a) Unless otherwise
4-65 specified an advising bank by advising a credit issued by another
4-66 bank does not assume any obligation to honor drafts drawn or
4-67 demands for payment made under the credit but it does assume
4-68 obligation for the accuracy of its own statement.]
4-69 [(b) A confirming bank by confirming a credit becomes
5-1 directly obligated on the credit to the extent of its confirmation
5-2 as though it were its issuer and acquires the rights of an issuer.]
5-3 [(c) Even though an advising bank incorrectly advises the
5-4 terms of a credit it has been authorized to advise the credit is
5-5 established as against the issuer to the extent of its original
5-6 terms.]
5-7 [(d) Unless otherwise specified the customer bears as
5-8 against the issuer all risks of transmission and reasonable
5-9 translation or interpretation of any message relating to a credit.]
5-10 Sec. 5.108. ISSUER'S RIGHTS AND OBLIGATIONS. (a) Except as
5-11 otherwise provided in Section 5.109, an issuer shall honor a
5-12 presentation that, as determined by the standard practice referred
5-13 to in Subsection (e), appears on its face strictly to comply with
5-14 the terms and conditions of the letter of credit. Except as
5-15 otherwise provided in Section 5.113 and unless otherwise agreed
5-16 with the applicant, an issuer shall dishonor a presentation that
5-17 does not appear so to comply.
5-18 (b) An issuer has a reasonable time after presentation, but
5-19 not beyond the end of the seventh business day of the issuer after
5-20 the date of its receipt of documents:
5-21 (1) to honor;
5-22 (2) if the letter of credit provides for honor to be
5-23 completed more than seven business days after presentation, to
5-24 accept a draft or incur a deferred obligation; or
5-25 (3) to give notice to the presenter of discrepancies
5-26 in the presentation.
5-27 (c) Except as otherwise provided in Subsection (d), an
5-28 issuer is precluded from asserting as a basis for dishonor any
5-29 discrepancy if timely notice is not given or any discrepancy not
5-30 stated in the notice if timely notice is given.
5-31 (d) Failure to give the notice specified in Subsection (b)
5-32 or to mention fraud, forgery, or expiration in the notice does not
5-33 preclude the issuer from asserting as a basis for dishonor fraud or
5-34 forgery as described in Section 5.109(a) or expiration of the
5-35 letter of credit before presentation.
5-36 (e) An issuer shall observe standard practice of financial
5-37 institutions that regularly issue letters of credit. Determination
5-38 of the issuer's observance of the standard practice is a matter of
5-39 interpretation for the court. The court shall offer the parties a
5-40 reasonable opportunity to present evidence of the standard
5-41 practice.
5-42 (f) An issuer is not responsible for:
5-43 (1) the performance or nonperformance of the
5-44 underlying contract, arrangement, or transaction;
5-45 (2) an act or omission of others; or
5-46 (3) observance or knowledge of the usage of a
5-47 particular trade other than the standard practice referred to in
5-48 Subsection (e).
5-49 (g) If an undertaking constituting a letter of credit under
5-50 Section 5.102(a)(10) contains nondocumentary conditions, an issuer
5-51 shall disregard the nondocumentary conditions and treat them as if
5-52 they were not stated.
5-53 (h) An issuer that has dishonored a presentation shall
5-54 return the documents or hold them at the disposal of, and send
5-55 advice to that effect to, the presenter.
5-56 (i) An issuer that has honored a presentation as permitted
5-57 or required by this chapter:
5-58 (1) is entitled to be reimbursed by the applicant in
5-59 immediately available funds not later than the date of its payment
5-60 of funds;
5-61 (2) takes the documents free of claims of the
5-62 beneficiary or presenter;
5-63 (3) is precluded from asserting a right of recourse on
5-64 a draft under Sections 3.414 and 3.415;
5-65 (4) except as otherwise provided in Sections 5.110 and
5-66 5.117, is precluded from restitution of money paid or other value
5-67 given by mistake to the extent the mistake concerns discrepancies
5-68 in the documents or tender that are apparent on the face of the
5-69 presentation; and
6-1 (5) is discharged to the extent of its performance
6-2 under the letter of credit unless the issuer honored a presentation
6-3 in which a required signature of a beneficiary was forged.
6-4 Sec. 5.109. FRAUD AND FORGERY. (a) If a presentation is
6-5 made that appears on its face strictly to comply with the terms and
6-6 conditions of the letter of credit, but a required document is
6-7 forged or materially fraudulent, or honor of the presentation would
6-8 facilitate a material fraud by the beneficiary on the issuer or
6-9 applicant:
6-10 (1) the issuer shall honor the presentation if honor
6-11 is demanded by:
6-12 (A) a nominated person who has given value in
6-13 good faith and without notice of forgery or material fraud;
6-14 (B) a confirmer who has honored its confirmation
6-15 in good faith;
6-16 (C) a holder in due course of a draft drawn
6-17 under the letter of credit that was taken after acceptance by the
6-18 issuer or nominated person; or
6-19 (D) an assignee of the issuer's or nominated
6-20 person's deferred obligation that was taken for value and without
6-21 notice of forgery or material fraud after the obligation was
6-22 incurred by the issuer or nominated person; and
6-23 (2) the issuer, acting in good faith, may honor or
6-24 dishonor the presentation in any other case.
6-25 (b) If an applicant claims that a required document is
6-26 forged or materially fraudulent or that honor of the presentation
6-27 would facilitate a material fraud by the beneficiary on the issuer
6-28 or applicant, a court of competent jurisdiction may temporarily or
6-29 permanently enjoin the issuer from honoring a presentation or grant
6-30 similar relief against the issuer or other persons only if the
6-31 court finds that:
6-32 (1) the relief is not prohibited under the law
6-33 applicable to an accepted draft or deferred obligation incurred by
6-34 the issuer;
6-35 (2) a beneficiary, issuer, or nominated person who may
6-36 be adversely affected is adequately protected against loss that it
6-37 may suffer because the relief is granted;
6-38 (3) all of the conditions to entitle a person to the
6-39 relief under the law of this state have been met; and
6-40 (4) on the basis of the information submitted to the
6-41 court, the applicant is more likely than not to succeed under its
6-42 claim of forgery or material fraud and the person demanding honor
6-43 does not qualify for protection under Subsection (a)(1).
6-44 ["NOTATION CREDIT"; EXHAUSTION OF CREDIT. (a) A credit which
6-45 specifies that any person purchasing or paying drafts drawn or
6-46 demands for payment made under it must note the amount of the draft
6-47 or demand on the letter or advice of credit is a "notation credit".]
6-48 [(b) Under a notation credit]
6-49 [(1) a person paying the beneficiary or purchasing a
6-50 draft or demand for payment from him acquires a right to honor only
6-51 if the appropriate notation is made and by transferring or
6-52 forwarding for honor the documents under the credit such a person
6-53 warrants to the issuer that the notation has been made; and]
6-54 [(2) unless the credit or a signed statement that an
6-55 appropriate notation has been made accompanies the draft or demand
6-56 for payment the issuer may delay honor until evidence of notation
6-57 has been procured which is satisfactory to it but its obligation
6-58 and that of its customer continue for a reasonable time not
6-59 exceeding thirty days to obtain such evidence.]
6-60 [(c) If the credit is not a notation credit]
6-61 [(1) the issuer may honor complying drafts or demands
6-62 for payment presented to it in the order in which they are
6-63 presented and is discharged pro tanto by honor of any such draft or
6-64 demand;]
6-65 [(2) as between competing good faith purchasers of
6-66 complying drafts or demands the person first purchasing has
6-67 priority over a subsequent purchaser even though the later
6-68 purchased draft or demand has been first honored.]
6-69 [Sec. 5.109. ISSUER'S OBLIGATION TO ITS CUSTOMER. (a) An
7-1 issuer's obligation to its customer includes good faith and
7-2 observance of any general banking usage but unless otherwise agreed
7-3 does not include liability or responsibility]
7-4 [(1) for performance of the underlying contract for
7-5 sale or other transaction between the customer and the beneficiary;
7-6 or]
7-7 [(2) for any act or omission of any person other than
7-8 itself or its own branch or for loss or destruction of a draft,
7-9 demand or document in transit or in the possession of others; or]
7-10 [(3) based on knowledge or lack of knowledge of any
7-11 usage of any particular trade.]
7-12 [(b) An issuer must examine documents with care so as to
7-13 ascertain that on their face they appear to comply with the terms
7-14 of the credit but unless otherwise agreed assumes no liability or
7-15 responsibility for the genuineness, falsification or effect of any
7-16 document which appears on such examination to be regular on its
7-17 face.]
7-18 [(c) A non-bank issuer is not bound by any banking usage of
7-19 which it has no knowledge.]
7-20 [Sec. 5.110. AVAILABILITY OF CREDIT IN PORTIONS; PRESENTER'S
7-21 RESERVATION OF LIEN OR CLAIM. (a) Unless otherwise specified a
7-22 credit may be used in portions in the discretion of the
7-23 beneficiary.]
7-24 [(b) Unless otherwise specified a person by presenting a
7-25 documentary draft or demand for payment under a credit relinquishes
7-26 upon its honor all claims to the documents and a person by
7-27 transferring such draft or demand or causing such presentment
7-28 authorizes such relinquishment. An explicit reservation of claim
7-29 makes the draft or demand non-complying.]
7-30 Sec. 5.110 [5.111]. WARRANTIES [ON TRANSFER AND
7-31 PRESENTMENT]. (a) If its presentation is honored, the beneficiary
7-32 warrants:
7-33 (1) to the issuer, any other person to whom
7-34 presentation is made, and the applicant that there is no fraud or
7-35 forgery of the kind described in Section 5.109(a); and
7-36 (2) to the applicant that the drawing does not violate
7-37 any agreement between the applicant and beneficiary or any other
7-38 agreement intended by them to be augmented by the letter of credit.
7-39 (b) The warranties in Subsection (a) are in addition to
7-40 warranties arising under Chapters 3, 4, 7, and 8 because of the
7-41 presentation or transfer of documents covered by any of those
7-42 chapters.
7-43 (c) Notwithstanding any agreement or term to the contrary,
7-44 the warranties in Subsection (a) do not arise until the issuer
7-45 honors the letter of credit.
7-46 Sec. 5.111. REMEDIES. (a) If an issuer wrongfully
7-47 dishonors or repudiates its obligation to pay money under a letter
7-48 of credit before presentation, the beneficiary, successor, or
7-49 nominated person presenting on its own behalf may recover from the
7-50 issuer the amount that is the subject of the dishonor or
7-51 repudiation. If the issuer's obligation under the letter of credit
7-52 is not for the payment of money, the claimant may obtain specific
7-53 performance or, at the claimant's election, recover an amount equal
7-54 to the value of performance from the issuer. In either case, the
7-55 claimant may also recover incidental but not consequential damages.
7-56 The claimant is not obligated to take action to avoid damages that
7-57 might be due from the issuer under this subsection. If, although
7-58 not obligated to do so, the claimant avoids damages, the claimant's
7-59 recovery from the issuer must be reduced by the amount of damages
7-60 avoided. The issuer has the burden of proving the amount of
7-61 damages avoided. In the case of repudiation the claimant need not
7-62 present any document.
7-63 (b) If an issuer wrongfully dishonors a draft or demand
7-64 presented under a letter of credit or honors a draft or demand in
7-65 breach of its obligation to the applicant, the applicant may
7-66 recover damages resulting from the breach, including incidental but
7-67 not consequential damages, less any amount saved as a result of the
7-68 breach.
7-69 (c) If an adviser or nominated person other than a confirmer
8-1 breaches an obligation under this chapter or an issuer breaches an
8-2 obligation not covered in Subsection (a) or (b), a person to whom
8-3 the obligation is owed may recover damages resulting from the
8-4 breach, including incidental but not consequential damages, less
8-5 any amount saved as a result of the breach. To the extent of the
8-6 confirmation, a confirmer has the liability of an issuer specified
8-7 in this subsection and Subsections (a) and (b).
8-8 (d) An issuer, nominated person, or adviser who is found
8-9 liable under Subsection (a), (b), or (c) shall pay interest on the
8-10 amount owed thereunder from the date of wrongful dishonor or other
8-11 appropriate date.
8-12 (e) Reasonable attorney's fees and other expenses of
8-13 litigation may be awarded to the prevailing party in an action in
8-14 which a remedy is sought under this chapter.
8-15 (f) Damages that would otherwise be payable by a party for
8-16 breach of an obligation under this chapter may be liquidated by
8-17 agreement or undertaking, but only in an amount or by a formula
8-18 that is reasonable in light of the harm anticipated. [Unless
8-19 otherwise agreed the beneficiary by transferring or presenting a
8-20 documentary draft or demand for payment warrants to all interested
8-21 parties that the necessary conditions of the credit have been
8-22 complied with. This is in addition to any warranties arising under
8-23 Chapters 3, 4, 7 and 8.]
8-24 [(b) Unless otherwise agreed a negotiating, advising,
8-25 confirming, collecting or issuing bank presenting or transferring a
8-26 draft or demand for payment under a credit warrants only the
8-27 matters warranted by a collecting bank under Chapter 4 and any such
8-28 bank transferring a document warrants only the matters warranted by
8-29 an intermediary under Chapters 7 and 8.]
8-30 [Sec. 5.112. TIME ALLOWED FOR HONOR OR REJECTION;
8-31 WITHHOLDING HONOR OR REJECTION BY CONSENT; "PRESENTER". (a) A
8-32 bank to which a documentary draft or demand for payment is
8-33 presented under a credit may without dishonor of the draft, demand
8-34 or credit]
8-35 [(1) defer honor until the close of the third banking
8-36 day following receipt of the documents; and]
8-37 [(2) further defer honor if the presenter has
8-38 expressly or impliedly consented thereto.]
8-39 [Failure to honor within the time here specified constitutes
8-40 dishonor of the draft or demand and of the credit except as
8-41 otherwise provided in Subsection (d) of Section 5.114 on
8-42 conditional payment.]
8-43 [(b) Upon dishonor the bank may unless otherwise instructed
8-44 fulfill its duty to return the draft or demand and the documents by
8-45 holding them at the disposal of the presenter and sending him an
8-46 advice to that effect.]
8-47 [(c) "Presenter" means any person presenting a draft or
8-48 demand for payment for honor under a credit even though that person
8-49 is a confirming bank or other correspondent which is acting under
8-50 an issuer's authorization.]
8-51 [Sec. 5.113. INDEMNITIES. (a) A bank seeking to obtain
8-52 (whether for itself or another) honor, negotiation or reimbursement
8-53 under a credit may give an indemnity to induce such honor,
8-54 negotiation or reimbursement.]
8-55 [(b) An indemnity agreement inducing honor, negotiation or
8-56 reimbursement]
8-57 [(1) unless otherwise explicitly agreed applies to
8-58 defects in the documents but not in the goods; and]
8-59 [(2) unless a longer time is explicitly agreed expires
8-60 at the end of ten business days following receipt of the documents
8-61 by the ultimate customer unless notice of objection is sent before
8-62 such expiration date. The ultimate customer may send notice of
8-63 objection to the person from whom he received the documents and any
8-64 bank receiving such notice is under a duty to send notice to its
8-65 transferor before its midnight deadline.]
8-66 [Sec. 5.114. ISSUER'S DUTY AND PRIVILEGE TO HONOR; RIGHT TO
8-67 REIMBURSEMENT. (a) An issuer must honor a draft or demand for
8-68 payment which complies with the terms of the relevant credit
8-69 regardless of whether the goods or documents conform to the
9-1 underlying contract for sale or other contract between the customer
9-2 and the beneficiary. The issuer is not excused from honor of such
9-3 a draft or demand by reason of an additional general term that all
9-4 documents must be satisfactory to the issuer, but an issuer may
9-5 require that specified documents must be satisfactory to it.]
9-6 [(b) Unless otherwise agreed when documents appear on their
9-7 face to comply with the terms of a credit but a required document
9-8 does not in fact conform to the warranties made on negotiation or
9-9 transfer of a document of title (Section 7.507) or of a
9-10 certificated security (Section 8.108) or is forged or fraudulent or
9-11 there is fraud in the transaction:]
9-12 [(1) the issuer must honor the draft or demand for
9-13 payment if honor is demanded by a negotiating bank or other holder
9-14 of the draft or demand which has taken the draft or demand under
9-15 the credit and under circumstances which would make it a holder in
9-16 due course (Section 3.302) and in an appropriate case would make it
9-17 a person to whom a document of title has been duly negotiated
9-18 (Section 7.502) or a bona fide purchaser of a certificated security
9-19 (Section 8.302); and]
9-20 [(2) in all other cases as against its customer, an
9-21 issuer acting in good faith may honor the draft or demand for
9-22 payment despite notification from the customer of fraud, forgery or
9-23 other defect not apparent on the face of the documents but a court
9-24 of appropriate jurisdiction may enjoin such honor.]
9-25 [(c) Unless otherwise agreed an issuer which has duly
9-26 honored a draft or demand for payment is entitled to immediate
9-27 reimbursement of any payment made under the credit and to be put in
9-28 effectively available funds not later than the day before maturity
9-29 of any acceptance made under the credit.]
9-30 [(d) When a credit provides for payment by the issuer on
9-31 receipt of notice that the required documents are in the possession
9-32 of a correspondent or other agent of the issuer]
9-33 [(1) any payment made on receipt of such notice is
9-34 conditional; and]
9-35 [(2) the issuer may reject documents which do not
9-36 comply with the credit if it does so within three banking days
9-37 following its receipt of the documents; and]
9-38 [(3) in the event of such rejection, the issuer is
9-39 entitled by charge back or otherwise to return of the payment made.]
9-40 [(e) In the case covered by Subsection (d) failure to reject
9-41 documents within the time specified in Subdivision (2), constitutes
9-42 acceptance of the documents and makes the payment final in favor of
9-43 the beneficiary.]
9-44 [Sec. 5.115. REMEDY FOR IMPROPER DISHONOR OR ANTICIPATORY
9-45 REPUDIATION. (a) When an issuer wrongfully dishonors a draft or
9-46 demand for payment presented under a credit the person entitled to
9-47 honor has with respect to any documents the rights of a person in
9-48 the position of a seller (Section 2.707) and may recover from the
9-49 issuer the face amount of the draft or demand together with
9-50 incidental damages under Section 2.710 on seller's incidental
9-51 damages and interest but less any amount realized by resale or
9-52 other use or disposition of the subject matter of the transaction.
9-53 In the event no resale or other utilization is made the documents,
9-54 goods or other subject matter involved in the transaction must be
9-55 turned over to the issuer on payment of judgment.]
9-56 [(b) When an issuer wrongfully cancels or otherwise
9-57 repudiates a credit before presentment of a draft or demand for
9-58 payment drawn under it the beneficiary has the rights of a seller
9-59 after anticipatory repudiation by the buyer under Section 2.610 if
9-60 he learns of the repudiation in time reasonably to avoid
9-61 procurement of the required documents. Otherwise the beneficiary
9-62 has an immediate right of action for wrongful dishonor.]
9-63 Sec. 5.112 [5.116]. TRANSFER OF LETTER OF CREDIT [AND
9-64 ASSIGNMENT]. (a) Except as otherwise provided in Section 5.113,
9-65 unless a letter of credit provides that it is transferable, the
9-66 right of a beneficiary to draw or otherwise demand performance
9-67 under a letter of credit may not be transferred [The right to draw
9-68 under a credit can be transferred or assigned only when the credit
9-69 is expressly designated as transferable or assignable].
10-1 (b) Even if a letter of credit provides that it is
10-2 transferable, the issuer may refuse to recognize or carry out a
10-3 transfer if:
10-4 (1) the transfer would violate applicable law; or
10-5 (2) the transferor or transferee has failed to comply
10-6 with any requirement stated in the letter of credit or any other
10-7 requirement relating to transfer imposed by the issuer which is
10-8 within the standard practice referred to in Section 5.108(e) or is
10-9 otherwise reasonable under the circumstances.
10-10 Sec. 5.113. TRANSFER BY OPERATION OF LAW. (a) A successor
10-11 of a beneficiary may consent to amendments, sign and present
10-12 documents, and receive payment or other items of value in the name
10-13 of the beneficiary without disclosing its status as a successor.
10-14 (b) A successor of a beneficiary may consent to amendments,
10-15 sign and present documents, and receive payment or other items of
10-16 value in its own name as the disclosed successor of the
10-17 beneficiary. Except as otherwise provided in Subsection (e), an
10-18 issuer shall recognize a disclosed successor of a beneficiary as
10-19 beneficiary in full substitution for its predecessor upon
10-20 compliance with the requirements for recognition by the issuer of a
10-21 transfer of drawing rights by operation of law under the standard
10-22 practice referred to in Section 5.108(e) or, in the absence of such
10-23 a practice, compliance with other reasonable procedures sufficient
10-24 to protect the issuer.
10-25 (c) An issuer is not obliged to determine whether a
10-26 purported successor is a successor of a beneficiary or whether the
10-27 signature of a purported successor is genuine or authorized.
10-28 (d) Honor of a purported successor's apparently complying
10-29 presentation under Subsection (a) or (b) has the consequences
10-30 specified in Section 5.108(i) even if the purported successor is
10-31 not the successor of a beneficiary. Documents signed in the name
10-32 of the beneficiary or of a disclosed successor by a person who is
10-33 neither the beneficiary nor the successor of the beneficiary are
10-34 forged documents for the purposes of Section 5.109.
10-35 (e) An issuer whose rights of reimbursement are not covered
10-36 by Subsection (d) or substantially similar law and any confirmer or
10-37 nominated person may decline to recognize a presentation under
10-38 Subsection (b).
10-39 (f) A beneficiary whose name is changed after the issuance
10-40 of a letter of credit has the same rights and obligations as a
10-41 successor of a beneficiary under this section.
10-42 Sec. 5.114. ASSIGNMENT OF PROCEEDS. (a) In this section,
10-43 "proceeds of a letter of credit" means the cash, check, accepted
10-44 draft, or other item of value paid or delivered upon honor or
10-45 giving of value by the issuer or any nominated person under the
10-46 letter of credit. The term does not include a beneficiary's
10-47 drawing rights or documents presented by the beneficiary.
10-48 (b) A beneficiary may assign its right to part or all of the
10-49 proceeds of a letter of credit. The beneficiary may do so before
10-50 presentation as a present assignment of its right to receive
10-51 proceeds contingent upon its compliance with the terms and
10-52 conditions of the letter of credit.
10-53 (c) An issuer or nominated person need not recognize an
10-54 assignment of proceeds of a letter of credit until it consents to
10-55 the assignment.
10-56 (d) An issuer or nominated person has no obligation to give
10-57 or withhold its consent to an assignment of proceeds of a letter of
10-58 credit, but consent may not be unreasonably withheld if the
10-59 assignee possesses and exhibits the letter of credit and
10-60 presentation of the letter of credit is a condition to honor.
10-61 (e) Rights of a transferee beneficiary or nominated person
10-62 are independent of the beneficiary's assignment of the proceeds of
10-63 a letter of credit and are superior to the assignee's right to the
10-64 proceeds.
10-65 (f) Neither the rights recognized by this section between an
10-66 assignee and an issuer, transferee beneficiary, or nominated person
10-67 nor the issuer's or nominated person's payment of proceeds to an
10-68 assignee or a third person affect the rights between the assignee
10-69 and any person other than the issuer, transferee beneficiary, or
11-1 nominated person. The mode of creating and perfecting a security
11-2 interest in or granting an assignment of a beneficiary's rights to
11-3 proceeds is governed by Chapter 9 or other law. Against persons
11-4 other than the issuer, transferee beneficiary, or nominated person,
11-5 the rights and obligations arising upon the creation of a security
11-6 interest or other assignment of a beneficiary's right to proceeds
11-7 and its perfection are governed by Chapter 9 or other law.
11-8 Sec. 5.115. STATUTE OF LIMITATIONS. An action to enforce a
11-9 right or obligation arising under this chapter must be commenced
11-10 within one year after the expiration date of the relevant letter of
11-11 credit or one year after the cause of action accrues, whichever
11-12 occurs later. A cause of action accrues when the breach occurs,
11-13 regardless of the aggrieved party's lack of knowledge of the
11-14 breach.
11-15 Sec. 5.116. CHOICE OF LAW AND FORUM. (a) The liability of
11-16 an issuer, nominated person, or adviser for action or omission is
11-17 governed by the law of the jurisdiction chosen by an agreement in
11-18 the form of a record signed or otherwise authenticated by the
11-19 affected parties in the manner provided in Section 5.104 or by a
11-20 provision in the person's letter of credit, confirmation, or other
11-21 undertaking. The jurisdiction whose law is chosen need not bear
11-22 any relation to the transaction.
11-23 (b) Unless Subsection (a) applies, the liability of an
11-24 issuer, nominated person, or adviser for action or omission is
11-25 governed by the law of the jurisdiction in which the person is
11-26 located. The person is considered to be located at the address
11-27 indicated in the person's undertaking. If more than one address is
11-28 indicated, the person is considered to be located at the address
11-29 from which the person's undertaking was issued. For the purpose of
11-30 jurisdiction, choice of law, and recognition of interbranch letters
11-31 of credit, but not enforcement of a judgment, all branches of a
11-32 bank are considered separate juridical entities, and a bank is
11-33 considered to be located at the place where its relevant branch is
11-34 considered to be located under this subsection.
11-35 (c) Except as otherwise provided in this subsection, the
11-36 liability of an issuer, nominated person, or adviser is governed by
11-37 any rules of custom or practice, such as the Uniform Customs and
11-38 Practice for Documentary Credits, to which the letter of credit,
11-39 confirmation, or other undertaking is expressly made subject. If
11-40 (i) this chapter would govern the liability of an issuer, nominated
11-41 person, or adviser under Subsection (a) or (b), (ii) the relevant
11-42 undertaking incorporates rules of custom or practice, and (iii)
11-43 there is conflict between this chapter and those rules as applied
11-44 to that undertaking, those rules govern except to the extent of any
11-45 conflict with the nonvariable provisions specified in Section
11-46 5.103(c).
11-47 (d) If there is conflict between this chapter and Chapter 3,
11-48 4, 4A, or 9, this chapter governs.
11-49 (e) The forum for settling disputes arising out of an
11-50 undertaking within this chapter may be chosen in the manner and
11-51 with the binding effect that governing law may be chosen in
11-52 accordance with Subsection (a). [though the credit specifically
11-53 states that it is nontransferable or nonassignable the beneficiary
11-54 may before performance of the conditions of the credit assign his
11-55 right to proceeds. Such an assignment is an assignment of an
11-56 account under Chapter 9 on Secured Transactions and is governed by
11-57 that chapter except that]
11-58 [(1) the assignment is ineffective until the letter of
11-59 credit or advice of credit is delivered to the assignee which
11-60 delivery constitutes perfection of the security interest under
11-61 Chapter 9; and]
11-62 [(2) the issuer may honor drafts or demands for
11-63 payment drawn under the credit until it receives a notification of
11-64 the assignment signed by the beneficiary which reasonably
11-65 identifies the credit involved in the assignment and contains a
11-66 request to pay the assignee; and]
11-67 [(3) after what reasonably appears to be such a
11-68 notification has been received the issuer may without dishonor
11-69 refuse to accept or pay even to a person otherwise entitled to
12-1 honor until the letter of credit or advice of credit is exhibited
12-2 to the issuer.]
12-3 [(c) Except where the beneficiary has effectively assigned
12-4 his right to draw or his right to proceeds, nothing in this section
12-5 limits his right to transfer or negotiate drafts or demands drawn
12-6 under the credit.]
12-7 Sec. 5.117. SUBROGATION OF ISSUER, APPLICANT, AND NOMINATED
12-8 PERSON. (a) An issuer that honors a beneficiary's presentation is
12-9 subrogated to the rights of the beneficiary to the same extent as
12-10 if the issuer were a secondary obligor of the underlying obligation
12-11 owed to the beneficiary and of the applicant to the same extent as
12-12 if the issuer were the secondary obligor of the underlying
12-13 obligation owed to the applicant.
12-14 (b) An applicant that reimburses an issuer is subrogated to
12-15 the rights of the issuer against any beneficiary, presenter, or
12-16 nominated person to the same extent as if the applicant were the
12-17 secondary obligor of the obligations owed to the issuer and has the
12-18 rights of subrogation of the issuer to the rights of the
12-19 beneficiary stated in Subsection (a).
12-20 (c) A nominated person who pays or gives value against a
12-21 draft or demand presented under a letter of credit is subrogated to
12-22 the rights of:
12-23 (1) the issuer against the applicant to the same
12-24 extent as if the nominated person were a secondary obligor of the
12-25 obligation owed to the issuer by the applicant;
12-26 (2) the beneficiary to the same extent as if the
12-27 nominated person were a secondary obligor of the underlying
12-28 obligation owed to the beneficiary; and
12-29 (3) the applicant to the same extent as if the
12-30 nominated person were a secondary obligor of the underlying
12-31 obligation owed to the applicant.
12-32 (d) Notwithstanding any agreement or term to the contrary,
12-33 the rights of subrogation stated in Subsections (a) and (b) do not
12-34 arise until the issuer honors the letter of credit or otherwise
12-35 pays, and the rights in Subsection (c) do not arise until the
12-36 nominated person pays or otherwise gives value. Until then, the
12-37 issuer, the nominated person, and the applicant do not derive under
12-38 this section present or prospective rights forming the basis of a
12-39 claim, defense, or excuse. [INSOLVENCY OF BANK HOLDING FUNDS FOR
12-40 DOCUMENTARY CREDIT. (a) Where an issuer or an advising or
12-41 confirming bank or a bank which has for a customer procured
12-42 issuance of a credit by another bank becomes insolvent before final
12-43 payment under the credit and the credit is one to which this
12-44 chapter is made applicable by Subdivision (1) or (2) of Section
12-45 5.102(a) on scope, the receipt or allocation of funds or collateral
12-46 to secure or meet obligations under the credit shall have the
12-47 following results:]
12-48 [(1) to the extent of any funds or collateral turned
12-49 over after or before the insolvency as indemnity against or
12-50 specifically for the purpose of payment of drafts or demands for
12-51 payment drawn under the designated credit, the drafts or demands
12-52 are entitled to payment in preference over depositors or other
12-53 general creditors of the issuer or bank; and]
12-54 [(2) on expiration of the credit or surrender of the
12-55 beneficiary's rights under it unused any person who has given such
12-56 funds or collateral is similarly entitled to return thereof; and]
12-57 [(3) a charge to a general or current account with a
12-58 bank if specifically consented to for the purpose of indemnity
12-59 against or payment of drafts or demands for payment drawn under the
12-60 designated credit falls under the same rules as if the funds had
12-61 been drawn out in cash and then turned over with specific
12-62 instructions.]
12-63 [(b) After honor or reimbursement under this section the
12-64 customer or other person for whose account the insolvent bank has
12-65 acted is entitled to receive the documents involved.]
12-66 SECTION 2. Subsection (b), Section 1.105, Business &
12-67 Commerce Code, is amended to read as follows:
12-68 (b) Where one of the following provisions of this title
12-69 specifies the applicable law, that provision governs and a contrary
13-1 agreement is effective only to the extent permitted by the law
13-2 (including the conflict of laws rules) so specified:
13-3 Rights of creditors against sold goods. Section 2.402.
13-4 Applicability of the chapter on Leases. Sections 2A.105 and
13-5 2A.106.
13-6 Applicability of the chapter on Bank Deposits and
13-7 Collections. Section 4.102.
13-8 Governing law in the chapter on Funds Transfers. Section
13-9 4A.507.
13-10 Letters of Credit. Section 5.116.
13-11 Applicability of the chapter on Investment Securities.
13-12 Section 8.110.
13-13 Perfection provisions of the chapter on Secured Transactions.
13-14 Section 9.103.
13-15 SECTION 3. Subsection (a), Section 2.512, Business &
13-16 Commerce Code, is amended to read as follows:
13-17 (a) Where the contract requires payment before inspection
13-18 non-conformity of the goods does not excuse the buyer from so
13-19 making payment unless
13-20 (1) the non-conformity appears without inspection; or
13-21 (2) despite tender of the required documents
13-22 circumstances would justify injunction against honor under [the
13-23 provisions of] this title (Section 5.109(b) [5.114]).
13-24 SECTION 4. Subsection (a), Section 9.103, Business &
13-25 Commerce Code, is amended to read as follows:
13-26 (a) Documents, instruments, letters of credit, and ordinary
13-27 goods.
13-28 (1) This subsection applies to documents, [and]
13-29 instruments, and rights to proceeds of written letters of credit
13-30 and to goods other than those covered by a certificate of title
13-31 described in Subsection (b), mobile goods described in Subsection
13-32 (c), and minerals described in Subsection (e).
13-33 (2) Except as otherwise provided in this subsection,
13-34 perfection and the effect of perfection or non-perfection of a
13-35 security interest in collateral are governed by the law of the
13-36 jurisdiction where the collateral is when the last event occurs on
13-37 which is based the assertion that the security interest is
13-38 perfected or unperfected.
13-39 (3) If the parties to a transaction creating a
13-40 purchase money security interest in goods in one jurisdiction
13-41 understand at the time that the security interest attaches that the
13-42 goods will be kept in another jurisdiction, then the law of the
13-43 other jurisdiction governs the perfection and the effect of
13-44 perfection or non-perfection of the security interest from the time
13-45 it attaches until 30 days after the debtor receives possession of
13-46 the goods and thereafter if the goods are taken to the other
13-47 jurisdiction before the end of the 30-day period.
13-48 (4) When collateral is brought into and kept in this
13-49 state while subject to a security interest perfected under the law
13-50 of the jurisdiction from which the collateral was removed, the
13-51 security interest remains perfected, but if action is required by
13-52 Subchapter C of this chapter to perfect the security interest,
13-53 (A) if the action is not taken before the
13-54 expiration of the period of perfection in the other jurisdiction or
13-55 the end of four months after the collateral is brought into this
13-56 state, whichever period first expires, the security interest
13-57 becomes unperfected at the end of that period and is thereafter
13-58 deemed to have been unperfected as against a person who became a
13-59 purchaser after removal;
13-60 (B) if the action is taken before the expiration
13-61 of the period specified in paragraph (A), the security interest
13-62 continues perfected thereafter;
13-63 (C) for the purpose of priority over a buyer of
13-64 consumer goods (Subsection (b) of Section 9.307), the period of the
13-65 effectiveness of a filing in the jurisdiction from which the
13-66 collateral is removed is governed by the rules with respect to
13-67 perfection in paragraphs (A) and (B).
13-68 SECTION 5. Section 9.104, Business & Commerce Code, is
13-69 amended to read as follows:
14-1 Sec. 9.104. TRANSACTIONS EXCLUDED FROM CHAPTER. This
14-2 chapter does not apply
14-3 (1) to a security interest subject to any statute of
14-4 the United States such as the Ship Mortgage Act, 1920, to the
14-5 extent that such statute governs the rights of parties to and third
14-6 parties affected by transactions in particular types of property;
14-7 or
14-8 (2) to a landlord's lien; or
14-9 (3) to a lien given by statute or other rule of law
14-10 for services or materials except as provided in Section 9.310 on
14-11 priority of such liens; or
14-12 (4) to a transfer of a claim for wages, salary or
14-13 other compensation of an employee; or
14-14 (5) to a transfer by a government or governmental
14-15 subdivision or agency; or
14-16 (6) to a sale of accounts or chattel paper as part of
14-17 a sale of the business out of which they arose, or an assignment of
14-18 accounts or chattel paper which is for the purpose of collection
14-19 only, or a transfer of a right to payment under a contract to an
14-20 assignee who is also to do the performance under the contract or a
14-21 transfer of a single account to an assignee in whole or partial
14-22 satisfaction of a preexisting indebtedness; or
14-23 (7) to a transfer of an interest or claim in or under
14-24 any policy of insurance, except as provided with respect to
14-25 proceeds (Section 9.306) and priorities in proceeds (Section
14-26 9.312); or
14-27 (8) to a right represented by a judgment (other than a
14-28 judgment taken on a right to payment which was collateral); or
14-29 (9) to any right of set-off; or
14-30 (10) except to the extent that provision is made for
14-31 fixtures in Section 9.313, to the creation or transfer of an
14-32 interest in or lien on real estate, including a lease or rents
14-33 thereunder; or
14-34 (11) to a transfer in whole or in part of any claim
14-35 arising out of tort; or
14-36 (12) to a transfer of an interest in any deposit
14-37 account (Subsection (a)(5) of Section 9.105), except as provided
14-38 with respect to proceeds (Section 9.306) and priorities in proceeds
14-39 (Section 9.312); or
14-40 (13) to a transfer of an interest in a letter of
14-41 credit other than the rights to proceeds of a written letter of
14-42 credit.
14-43 SECTION 6. Subsection (c), Section 9.105, Business &
14-44 Commerce Code, is amended to read as follows:
14-45 (c) The following definitions in other chapters apply to
14-46 this chapter:
14-47 "Broker". Section 8.102.
14-48 "Certificated security". Section 8.102.
14-49 "Check". Section 3.104.
14-50 "Clearing corporation". Section 8.102.
14-51 "Contract for sale". Section 2.106.
14-52 "Control". Section 8.106.
14-53 "Delivery". Section 8.301.
14-54 "Entitlement holder". Section 8.102.
14-55 "Financial asset". Section 8.102.
14-56 "Holder in due course". Section 3.302.
14-57 "Letter of credit". Section 5.102.
14-58 "Note". Section 3.104.
14-59 "Proceeds of a letter of credit". Section 5.114.
14-60 "Sale". Section 2.106.
14-61 "Securities intermediary". Section 8.102.
14-62 "Security". Section 8.102.
14-63 "Security certificate". Section 8.102.
14-64 "Security entitlement". Section 8.102.
14-65 "Uncertificated security". Section 8.102.
14-66 SECTION 7. Section 9.106, Business & Commerce Code, is
14-67 amended to read as follows:
14-68 Sec. 9.106. DEFINITIONS: "ACCOUNT"; "GENERAL INTANGIBLES".
14-69 "Account" means any right to payment for goods sold or leased or
15-1 for services rendered which is not evidenced by an instrument or
15-2 chattel paper, whether or not it has been earned by performance.
15-3 "General intangibles" means any personal property (including things
15-4 in action) other than goods, accounts, chattel paper, documents,
15-5 instruments, investment property, rights to proceeds of written
15-6 letters of credit, and money. All rights to payment earned or
15-7 unearned under a charter or other contract involving the use or
15-8 hire of a vessel and all rights incident to the charter or contract
15-9 are accounts.
15-10 SECTION 8. Sections 9.304 and 9.305, Business & Commerce
15-11 Code, are amended to read as follows:
15-12 Sec. 9.304. PERFECTION OF SECURITY INTEREST IN INSTRUMENTS,
15-13 DOCUMENTS, PROCEEDS OF A WRITTEN LETTER OF CREDIT, AND GOODS
15-14 COVERED BY DOCUMENTS; PERFECTION BY PERMISSIVE FILING; TEMPORARY
15-15 PERFECTION WITHOUT FILING OR TRANSFER OF POSSESSION. (a) A
15-16 security interest in chattel paper or negotiable documents may be
15-17 perfected by filing. A security interest in the rights to proceeds
15-18 of a written letter of credit can be perfected only by the secured
15-19 party's taking possession of the letter of credit. A security
15-20 interest in money or instruments (other than instruments which
15-21 constitute part of chattel paper) can be perfected only by the
15-22 secured party's taking possession, except as provided in
15-23 Subsections (d) and (e) of this section and Subsections (b) and (c)
15-24 of Section 9.306 on proceeds. Possession of a nonnegotiable
15-25 certificate of deposit in which the secured party is the issuer of
15-26 the document is established when the issuer places a restriction on
15-27 withdrawals from the account on its records that evidences the
15-28 document. Possession established by the restriction of withdrawals
15-29 from an account evidenced by a nonnegotiable certificate of deposit
15-30 takes priority over any other possession established under this
15-31 chapter of which the secured party does not have prior knowledge.
15-32 (b) During the period that goods are in the possession of
15-33 the issuer of a negotiable document therefor, a security interest
15-34 in the goods is perfected by perfecting a security interest in the
15-35 document, and any security interest in the goods otherwise
15-36 perfected during such period is subject thereto.
15-37 (c) A security interest in goods in the possession of a
15-38 bailee other than one who has issued a negotiable document therefor
15-39 is perfected by issuance of a document in the name of the secured
15-40 party or by the bailee's receipt of notification of the secured
15-41 party's interest or by filing as to the goods.
15-42 (d) A security interest in instruments, certificated
15-43 securities, or negotiable documents is perfected without filing or
15-44 the taking of possession for a period of 21 days from the time it
15-45 attaches to the extent that it arises for new value given under a
15-46 written security agreement.
15-47 (e) A security interest remains perfected for a period of 21
15-48 days without filing where a secured party having a perfected
15-49 security interest in an instrument, a certificated security, a
15-50 negotiable document, or goods in possession of a bailee other than
15-51 one who has issued a negotiable document therefor:
15-52 (1) makes available to the debtor the goods or
15-53 documents representing the goods for the purpose of ultimate sale
15-54 or exchange or for the purpose of loading, unloading, storing,
15-55 shipping, transshipping, manufacturing, processing or otherwise
15-56 dealing with them in a manner preliminary to their sale or
15-57 exchange, but priority between conflicting security interests in
15-58 the goods is subject to Subsection (c) of Section 9.312; or
15-59 (2) delivers the instrument or certificated security
15-60 to the debtor for the purpose of ultimate sale or exchange or of
15-61 presentation, collection, renewal or registration of transfer.
15-62 (f) After the 21 day period in Subsections (d) and (e)
15-63 perfection depends upon compliance with applicable provisions of
15-64 this chapter.
15-65 Sec. 9.305. WHEN POSSESSION BY SECURED PARTY PERFECTS
15-66 SECURITY INTEREST WITHOUT FILING. A security interest in [letters
15-67 of credit and advices of credit (Subsection (b)(1) of Section
15-68 5.116),] goods, instruments, money, negotiable documents or chattel
15-69 paper may be perfected by the secured party's taking possession of
16-1 the collateral. A security interest in the right to proceeds of a
16-2 written letter of credit may be perfected by the secured party's
16-3 taking possession of the letter of credit. If such collateral
16-4 other than goods covered by a negotiable document is held by a
16-5 bailee, the secured party is deemed to have possession from the
16-6 time the bailee receives notification of the secured party's
16-7 interest. A security interest is perfected by possession from the
16-8 time possession is taken without relation back and continues only
16-9 so long as possession is retained, unless otherwise specified in
16-10 this chapter. The security interest may be otherwise perfected as
16-11 provided in this chapter before or after the period of possession
16-12 by the secured party.
16-13 SECTION 9. This Act takes effect September 1, 1999.
16-14 SECTION 10. (a) This Act applies only to a letter of credit
16-15 that is issued on or after the effective date of this Act.
16-16 (b) A transaction arising out of or associated with a letter
16-17 of credit that was issued before the effective date of this Act and
16-18 the rights, obligations, and interests flowing from that
16-19 transaction are governed by the law as it existed immediately
16-20 before this Act took effect, and that law is continued in effect
16-21 for that purpose.
16-22 SECTION 11. The importance of this legislation and the
16-23 crowded condition of the calendars in both houses create an
16-24 emergency and an imperative public necessity that the
16-25 constitutional rule requiring bills to be read on three several
16-26 days in each house be suspended, and this rule is hereby suspended.
16-27 * * * * *