By: Elkins, et al. (Senate Sponsor - Williams) H.B. No. 1394
(In the Senate - Received from the House April 24, 2003;
April 25, 2003, read first time and referred to Committee on
Business and Commerce; May 8, 2003, reported favorably by the
following vote: Yeas 8, Nays 0; May 8, 2003, sent to printer.)
A BILL TO BE ENTITLED
AN ACT
relating to a revision of the general provisions of the Uniform
Commercial Code.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 1, Business & Commerce Code, is amended
to read as follows:
CHAPTER 1. GENERAL PROVISIONS
SUBCHAPTER A. GENERAL PROVISIONS [SHORT TITLE, CONSTRUCTION,
APPLICATION AND SUBJECT MATTER OF THE TITLE]
Sec. 1.101. SHORT TITLES [TITLE]. (a) This title may be
cited as the Uniform Commercial Code.
(b) This chapter may be cited as Uniform Commercial
Code--General Provisions.
Sec. 1.102. SCOPE OF CHAPTER. This chapter applies to a
transaction to the extent that it is governed by another chapter of
this title.
Sec. 1.103. CONSTRUCTION OF TITLE TO PROMOTE ITS PURPOSES
AND POLICIES; APPLICABILITY OF SUPPLEMENTAL PRINCIPLES OF LAW.
[PURPOSES; RULES OF CONSTRUCTION; VARIATION BY AGREEMENT.] (a)
This title must [shall] be liberally construed and applied to
promote its underlying purposes and policies, which[.
[(b) Underlying purposes and policies of this title] are:
(1) to simplify, clarify and modernize the law
governing commercial transactions;
(2) to permit the continued expansion of commercial
practices through custom, usage and agreement of the parties; and
(3) to make uniform the law among the various
jurisdictions.
(b) [(c) The effect of provisions of this title may be
varied by agreement, except as otherwise provided in this title and
except that the obligations of good faith, diligence,
reasonableness and care prescribed by this title may not be
disclaimed by agreement but the parties may by agreement determine
the standards by which the performance of such obligations is to be
measured if such standards are not manifestly unreasonable.
[(d) The presence in certain provisions of this title of the
words "unless otherwise agreed" or words of similar import does not
imply that the effect of other provisions may not be varied by
agreement under Subsection (c).
[(e) In this title unless the context otherwise requires
[(1) words in the singular number include the plural,
and in the plural include the singular;
[(2) words of the masculine gender include the
feminine and the neuter, and when the sense so indicates words of
the neuter gender may refer to any gender.
[Sec. 1.103. SUPPLEMENTARY GENERAL PRINCIPLES OF LAW
APPLICABLE.] Unless displaced by the particular provisions of
this title, the principles of law and equity, including the law
merchant and the law relative to capacity to contract, principal
and agent, estoppel, fraud, misrepresentation, duress, coercion,
mistake, bankruptcy, or other validating or invalidating cause
shall supplement its provisions.
Sec. 1.104. CONSTRUCTION AGAINST IMPLIED [IMPLICIT]
REPEAL. This title being a general act [body of law] intended as a
unified coverage of its subject matter, no part of it shall be
deemed to be impliedly repealed by subsequent legislation if such
construction can reasonably be avoided.
Sec. 1.105. [TERRITORIAL APPLICATION OF THE TITLE; PARTIES'
POWER TO CHOOSE APPLICABLE LAW. (a) Except as provided hereafter
in this section, when a transaction bears a reasonable relation to
this state and also to another state or nation the parties may agree
that the law either of this state or of such other state or nation
shall govern their rights and duties. Failing such agreement this
title applies to transactions bearing an appropriate relation to
this state.
[(b) Where one of the following provisions of this title
specifies the applicable law, that provision governs and a contrary
agreement is effective only to the extent permitted by the law
(including the conflict of laws rules) so specified:
[Rights of creditors against sold goods. Section 2.402.
[Applicability of the chapter on Leases. Sections 2A.105 and
2A.106.
[Applicability of the chapter on Bank Deposits and
Collections. Section 4.102.
[Governing law in the chapter on Funds Transfers. Section
4A.507.
[Letters of Credit. Section 5.116.
[Applicability of the chapter on Investment Securities.
Section 8.110.
[Law governing perfection, the effect of perfection or
nonperfection, and the priority of security interests and
agricultural liens. Sections 9.301-9.307.
[(c) If a transaction that is subject to this title is a
"qualified transaction," as defined in Section 35.51 of this code,
then except as provided in Subsection (b) of this section, Section
35.51 governs the effect of an agreement by the parties that the law
of a particular jurisdiction governs an issue relating to the
transaction or that the law of a particular jurisdiction governs
the interpretation or construction of an agreement relating to the
transaction or a provision of the agreement.
[Sec. 1.106. REMEDIES TO BE LIBERALLY
ADMINISTERED. (a) The remedies provided by this title shall be
liberally administered to the end that the aggrieved party may be
put in as good a position as if the other party had fully performed
but neither consequential or special nor penal damages may be had
except as specifically provided in this title or by other rule of
law.
[(b) Any right or obligation declared by this title is
enforceable by action unless the provision declaring it specifies a
different and limited effect.
[Sec. 1.107. WAIVER OR RENUNCIATION OF CLAIM OR RIGHT AFTER
BREACH. Any claim or right arising out of an alleged breach can be
discharged in whole or in part without consideration by a written
waiver or renunciation signed and delivered by the aggrieved party.
[Sec. 1.108.] SEVERABILITY. If any provision or clause of
this title or its application [thereof] to any person or
circumstance [circumstances] is held invalid, the [such]
invalidity does [shall] not affect other provisions or applications
of this [the] title which can be given effect without the invalid
provision or application, and to this end the provisions of this
title are [declared to be] severable.
Sec. 1.106. USE OF SINGULAR AND PLURAL; GENDER. In this
title, unless the statutory context otherwise requires:
(1) words in the singular number include the plural,
and those in the plural include the singular; and
(2) words of any gender also refer to any other gender.
Sec. 1.107 [1.109]. SECTION CAPTIONS. Section captions
are parts of this title.
Sec. 1.108. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND
NATIONAL COMMERCE ACT. This title modifies, limits, and
supersedes the federal Electronic Signatures in Global and National
Commerce Act (15 U.S.C. Section 7001 et seq.) but does not modify,
limit, or supersede Section 101(c) of that Act (15 U.S.C. Section
7001(c)) or authorize electronic delivery of any of the notices
described in Section 103(b) of that Act (15 U.S.C. Section
7003(b)).
SUBCHAPTER B. GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION
Sec. 1.201. GENERAL DEFINITIONS. (a) Unless the context
otherwise requires, words or phrases defined in this section, or in
the additional definitions contained in other chapters of this
title that apply to particular chapters or parts thereof, have the
meanings stated.
(b) Subject to [additional] definitions contained in other
[the subsequent] chapters of this title that apply [which are
applicable] to particular [specific] chapters or parts
[subchapters] thereof[, and unless the context otherwise requires,
in this title]:
(1) "Action," in the sense of a judicial proceeding,
includes recoupment, counterclaim, set-off, suit in equity, and any
other proceeding [proceedings] in which rights are determined.
(2) "Aggrieved party" means a party entitled to pursue
[resort to] a remedy.
(3) "Agreement," as distinguished from "contract,"
means the bargain of the parties in fact, as found in their language
or inferred [by implication] from other circumstances, including
course of performance, course of dealing, or usage of trade [or
course of performance] as provided in Section 1.303 [this title
(Sections 1.205 and 2.208)]. [Whether an agreement has legal
consequences is determined by the provisions of this title, if
applicable; otherwise by the law of contracts (Section 1.103).
(Compare "Contract".)]
(4) "Bank" means a [any] person engaged in the
business of banking and includes a savings bank, savings and loan
association, credit union, and trust company [solely for the
purposes of Sections 3 and 4 of this Act includes any depository
institution as defined by federal law].
(5) "Bearer" means a [the] person in possession of a
negotiable [an] instrument, document of title, or certificated
security that is payable to bearer or indorsed in blank.
(6) "Bill of lading" means a document evidencing the
receipt of goods for shipment issued by a person engaged in the
business of transporting or forwarding goods[, and includes an
airbill. "Airbill" means a document serving for air transportation
as a bill of lading does for marine or rail transportation, and
includes an air consignment note or air waybill].
(7) "Branch" includes a separately incorporated
foreign branch of a bank.
(8) "Burden of establishing" a fact means the burden
of persuading the trier [triers] of fact that the existence of the
fact is more probable than its nonexistence [non-existence].
(9) "Buyer in ordinary course of business" means a
person that buys goods in good faith, without knowledge that the
sale violates the rights of another person in the goods, and in the
ordinary course from a person, other than a pawnbroker, in the
business of selling goods of that kind. A person buys goods in the
ordinary course if the sale to the person comports with the usual or
customary practices in the kind of business in which the seller is
engaged or with the seller's own usual or customary practices. A
person that sells oil, gas, or other minerals at the wellhead or
minehead is a person in the business of selling goods of that kind.
A buyer in ordinary course of business may buy for cash, by exchange
of other property, or on secured or unsecured credit, and may
acquire goods or documents of title under a preexisting
[pre-existing] contract for sale. Only a buyer that takes
possession of the goods or has a right to recover the goods from the
seller under Chapter 2 may be a buyer in ordinary course of
business. "Buyer in ordinary course of business" does not include a
[A] person that acquires goods in a transfer in bulk or as security
for or in total or partial satisfaction of a money debt [is not a
buyer in ordinary course of business].
(10) "Conspicuous," with reference to a term, means so
written, displayed, or presented that a reasonable person against
which it is to operate ought to have noticed it. Whether a term is
"conspicuous" or not is a decision for the court. Conspicuous terms
include the following:
(A) a heading in capitals equal to or greater in
size than the surrounding text, or in contrasting type, font, or
color to the surrounding text of the same or lesser size; and
(B) language in the body of a record or display in
larger type than the surrounding text, or in contrasting type,
font, or color to the surrounding text of the same size, or set off
from surrounding text of the same size by symbols or other marks
that call attention to the language[: A term or clause is
conspicuous when it is so written that a reasonable person against
whom it is to operate ought to have noticed it. A printed heading in
capitals (as: Non-Negotiable Bill of Lading) is conspicuous.
Language in the body of a form is "conspicuous" if it is in larger or
other contrasting type or color. But in a telegram any stated term
is "conspicuous". Whether a term or clause is "conspicuous" or not
is for decision by the court].
(11) "Consumer" means an individual who enters into a
transaction primarily for personal, family, or household purposes.
(12) "Contract," as distinguished from "agreement,"
means the total legal obligation that [which] results from the
parties' agreement as determined [affected] by this title as
supplemented by [and] any other applicable laws [rules of law].
[(Compare "Agreement".)]
(13) [(12)] "Creditor" includes a general creditor, a
secured creditor, a lien creditor and any representative of
creditors, including an assignee for the benefit of creditors, a
trustee in bankruptcy, a receiver in equity and an executor or
administrator of an insolvent debtor's or assignor's estate.
(14) [(13)] "Defendant" includes a person in the
position of defendant in a [cross-action or] counterclaim,
cross-claim, or third-party claim.
(15) [(14)] "Delivery," with respect to an
instrument, document [instruments, documents] of title, or chattel
paper, [or certificated securities] means voluntary transfer of
possession.
(16) [(15)] "Document of title" includes bill of
lading, dock warrant, dock receipt, warehouse receipt or order for
the delivery of goods, and also any other document which in the
regular course of business or financing is treated as adequately
evidencing that the person in possession of it is entitled to
receive, hold and dispose of the document and the goods it covers.
To be a document of title a document must purport to be issued by or
addressed to a bailee and purport to cover goods in the bailee's
possession which are either identified or are fungible portions of
an identified mass.
(17) [(16)] "Fault" means a default, breach, or
wrongful act or[,] omission [or breach].
(18) [(17)] "Fungible[" with respect to] goods" [or
securities] means:
(A) goods [or securities] of which any unit [is],
by nature or usage of trade, is the equivalent of any other like
unit; or
(B) goods that by agreement[. Goods which are
not fungible shall be deemed fungible for the purposes of this title
to the extent that under a particular agreement or document unlike
units] are treated as equivalent [equivalents].
(19) [(18)] "Genuine" means free of forgery or
counterfeiting.
(20) [(19)] "Good faith," except as otherwise
provided in Chapter 5, means honesty in fact and the observance of
reasonable commercial standards of fair dealing [in the conduct or
transaction concerned].
(21) [(20)] "Holder" [with respect to a negotiable
instrument] means:
(A) the person in possession of a negotiable [if
the] instrument that is payable either to bearer or[, in the case of
an instrument payable] to an identified person that is[, if] the
[identified] person [is] in possession; or
(B)[. "Holder" with respect to a document of title
means] the person in possession of a document of title if the goods
are deliverable either to bearer or to the order of the person in
possession.
[(21) To "honor" is to pay or to accept and pay, or
where a credit so engages to purchase or discount a draft complying
with the terms of the credit.]
(22) "Insolvency proceeding [proceedings]" includes
an [any] assignment for the benefit of creditors or other
proceeding [proceedings] intended to liquidate or rehabilitate the
estate of the person involved.
(23) "Insolvent" means:
(A) having generally [A person is "insolvent" who
either has] ceased to pay [his] debts in the ordinary course of
business other than as a result of a bona fide dispute;
(B) being unable to [or cannot] pay [his] debts
as they become due; or
(C) being [is] insolvent within the meaning of
the federal bankruptcy law.
(24) "Money" means a medium of exchange currently
authorized or adopted by a domestic or foreign government. The term
[and] includes a monetary unit of account established by an
intergovernmental organization or by agreement between two or more
countries [nations].
(25) [A person has "notice" of a fact when
[(A) he has actual knowledge of it; or
[(B) he has received a notice or notification of
it; or
[(C) from all the facts and circumstances known
to him at the time in question he has reason to know that it exists.
[A person "knows" or has "knowledge" of a fact when he
has actual knowledge of it. "Discover" or "learn" or a word or
phrase of similar import refers to knowledge rather than to reason
to know. The time and circumstances under which a notice or
notification may cease to be effective are not determined by this
title.
[(26) A person "notifies" or "gives" a notice or
notification to another by taking such steps as may be reasonably
required to inform the other in ordinary course whether or not such
other actually comes to know of it. A person "receives" a notice or
notification when
[(A) it comes to his attention; or
[(B) it is duly delivered at the place of
business through which the contract was made or at any other place
held out by him as the place for receipt of such communications.
[(27) Notice, knowledge or a notice or notification
received by an organization is effective for a particular
transaction from the time when it is brought to the attention of the
individual conducting that transaction, and in any event from the
time when it would have been brought to his attention if the
organization had exercised due diligence. An organization
exercises due diligence if it maintains reasonable routines for
communicating significant information to the person conducting the
transaction and there is reasonable compliance with the routines.
Due diligence does not require an individual acting for the
organization to communicate information unless such communication
is part of his regular duties or unless he has reason to know of the
transaction and that the transaction would be materially affected
by the information.
[(28)] "Organization" means a person other than an
individual [includes a corporation, government or governmental
subdivision or agency, business trust, estate, trust, partnership
or association, two or more persons having a joint or common
interest, or any other legal or commercial entity].
(26) [(29)] "Party,"[,] as distinguished [distinct]
from "third party,"[,] means a person that [who] has engaged in a
transaction or made an agreement subject to [within] this title.
(27) [(30)] "Person" means an individual,
corporation, business trust, estate, trust, partnership, limited
liability company, association, joint venture, government,
governmental subdivision, agency, or instrumentality, public
corporation, or any other legal or commercial entity [includes an
individual or an organization (See Section 1.102)].
(28) "Present value" means the amount as of a date
certain of one or more sums payable in the future, discounted to the
date certain by use of either an interest rate specified by the
parties if that rate is not manifestly unreasonable at the time the
transaction is entered into or, if an interest rate is not so
specified, a commercially reasonable rate that takes into account
the facts and circumstances at the time the transaction is entered
into.
(29) [(31) "Presumption" or "presumed" means that the
trier of fact must find the existence of the fact presumed unless
and until evidence is introduced which would support a finding of
its non-existence.
[(32)] "Purchase" means [includes] taking by sale,
lease, discount, negotiation, mortgage, pledge, lien, security
interest, issue or reissue, gift, or any other voluntary
transaction creating an interest in property.
(30) [(33)] "Purchaser" means a person that [who]
takes by purchase.
(31) "Record" means information that is inscribed on
a tangible medium or that is stored in an electronic or other medium
and is retrievable in perceivable form.
(32) [(34)] "Remedy" means any remedial right to
which an aggrieved party is entitled with or without resort to a
tribunal.
(33) [(35)] "Representative" means a [includes an
agent, an officer of a corporation or association, and a trustee,
executor or administrator of an estate, or any other] person
empowered to act for another, including an agent, an officer of a
corporation or association, and a trustee, executor, or
administrator of an estate.
(34) "Right" [(36) "Rights"] includes remedy
[remedies].
(35) [(37)(A)] "Security interest" means an interest in
personal property or fixtures which [that] secures payment or
performance of an obligation. "Security interest" [The term also]
includes any interest of a consignor and a buyer of accounts,
chattel paper, a payment intangible, or a promissory note in a
transaction that is subject to Chapter 9. "Security interest" does
not include the [The] special property interest of a buyer of goods
on identification of those [such] goods to a contract for sale under
Section 2.401 [is not a "security interest"], but a buyer may also
acquire a "security interest" by complying with Chapter 9. Except
as otherwise provided in Section 2.505, the right of a seller or
lessor of goods under Chapter 2 or 2A to retain or acquire
possession of the goods is not a "security interest,"[,] but a
seller or lessor may also acquire a "security interest" by
complying with Chapter 9. The retention or reservation of title by
a seller of goods notwithstanding shipment or delivery to the buyer
under [(]Section 2.401[)] is limited in effect to a reservation of a
"security interest."[.
[(B)] Whether a transaction in the form of a lease
creates a [lease or] security interest is determined pursuant to
Section 1.203 [by the facts of each case; however, a transaction
creates a security interest if the consideration the lessee is to
pay the lessor for the right to possession and use of the goods is an
obligation for the term of the lease not subject to termination by
the lessee, and:
[(i) the original term of the lease is equal
to or greater than the remaining economic life of the goods;
[(ii) the lessee is bound to renew the lease
for the remaining economic life of the goods or is bound to become
the owner of the goods;
[(iii) the lessee has an option to renew the
lease for the remaining economic life of the goods for no additional
consideration or nominal additional consideration upon compliance
with the lease agreement; or
[(iv) the lessee has an option to become the
owner of the goods for no additional consideration or nominal
additional consideration upon compliance with the lease agreement.
[(C) A transaction does not create a security
interest merely because it provides that:
[(i) the present value of the consideration
the lessee is obligated to pay the lessor for the right to
possession and use of the goods is substantially equal to or is
greater than the fair market value of the goods at the time the
lease is entered into;
[(ii) the lessee assumes risk of loss of the
goods or agrees to pay taxes, insurance, filing, recording, or
registration fees or service or maintenance costs with respect to
the goods;
[(iii) the lessee has an option to renew the
lease or to become the owner of the goods;
[(iv) the lessee has an option to renew the
lease for a fixed rent that is equal to or greater than the
reasonably predictable fair market rent for the use of the goods for
the term of the renewal at the time the option is to be performed;
or
[(v) the lessee has an option to become the
owner of the goods for a fixed price that is equal to or greater than
the reasonably predictable fair market value of the goods at the
time the option is to be performed.
[(D) For the purposes of this subdivision,
additional consideration is nominal if it is less than the lessee's
reasonably predictable cost of performing under the lease agreement
if the option is not exercised. Additional consideration is not
nominal if:
[(i) when the option to renew the lease is
granted to the lessee, the rent is stated to be the fair market rent
for the use of the goods for the term of the renewal determined at
the time the option is to be performed; or
[(ii) when the option to become the owner of
the goods is granted to the lessee, the price is stated to be the
fair market value of the goods determined at the time the option is
to be performed.
[(E) For the purposes of this subdivision,
"reasonably predictable" and "remaining economic life of the goods"
are to be determined with reference to the facts and circumstances
at the time the transaction is entered into.
[(F) For the purposes of this subdivision,
"present value" means the amount as of a date certain of one or more
sums payable in the future, discounted to the date certain. The
discount is determined by the interest rate specified by the
parties if the rate is not manifestly unreasonable at the time the
transaction is entered into. Otherwise, the discount is determined
by a commercially reasonable rate that takes into account the facts
and circumstances of each case at the time the transaction was
entered into].
(36) [(38)] "Send" in connection with a [any] writing,
record, or notice means:
(A) to deposit in the mail or deliver for
transmission by any other usual means of communication with postage
or cost of transmission provided for and properly addressed and, in
the case of an instrument, to an address specified thereon or
otherwise agreed, or if there be none to any address reasonable
under the circumstances; or
(B) in any other way cause to be received any
record[. The receipt of any writing] or notice within the time at
which it would have arrived if properly sent [has the effect of a
proper sending].
(37) [(39)] "Signed" includes using any symbol
executed or adopted [by a party] with present intention to adopt or
accept [authenticate] a writing.
(38) "State" means a State of the United States, the
District of Columbia, Puerto Rico, the United States Virgin
Islands, or any territory or insular possession subject to the
jurisdiction of the United States.
(39) [(40)] "Surety" includes a guarantor or other
secondary obligor.
(40) [(41) "Telegram" includes a message transmitted
by radio, teletype, cable, any mechanical method of transmission,
or the like.
[(42)] "Term" means a [that] portion of an agreement
that [which] relates to a particular matter.
(41) [(43)] "Unauthorized["] signature" means a
signature [one] made without actual, implied, or apparent
authority. The term [and] includes a forgery.
(42) [(44) "Value". Except as otherwise provided with
respect to negotiable instruments and bank collections (Sections
3.303, 4.210, and 4.211) a person gives "value" for rights if he
acquires them:
[(A) in return for a binding commitment to extend
credit or for the extension of immediately available credit whether
or not drawn upon and whether or not a charge-back is provided for
in the event of difficulties in collection;
[(B) as security for or in total or partial
satisfaction of a pre-existing claim;
[(C) by accepting delivery pursuant to a
pre-existing contract for purchase; or
[(D) generally, in return for any consideration
sufficient to support a simple contract.
[(45)] "Warehouse receipt" means a receipt issued by a
person engaged in the business of storing goods for hire.
(43) "Writing" [(46) "Written" or "writing"]
includes printing, typewriting, or any other intentional reduction
to tangible form. "Written" has a corresponding meaning.
Sec. 1.202. NOTICE; KNOWLEDGE. (a) Subject to Subsection
(f), a person has "notice" of a fact if the person:
(1) has actual knowledge of it;
(2) has received a notice or notification of it; or
(3) from all the facts and circumstances known to the
person at the time in question, has reason to know that it exists.
(b) "Knowledge" means actual knowledge. "Knows" has a
corresponding meaning.
(c) "Discover," "learn," or words of similar import refer to
knowledge rather than to reason to know.
(d) A person "notifies" or "gives" a notice or notification
to another person by taking such steps as may be reasonably required
to inform the other person in ordinary course, whether or not the
other person actually comes to know of it.
(e) Subject to Subsection (f), a person "receives" a notice
or notification when:
(1) it comes to that person's attention; or
(2) it is duly delivered in a form reasonable under the
circumstances at the place of business through which the contract
was made or at another location held out by that person as the place
for receipt of such communications.
(f) Notice, knowledge, or a notice or notification received
by an organization is effective for a particular transaction from
the time it is brought to the attention of the individual conducting
that transaction and, in any event, from the time it would have been
brought to the individual's attention if the organization had
exercised due diligence. An organization exercises due diligence
if it maintains reasonable routines for communicating significant
information to the person conducting the transaction and there is
reasonable compliance with the routines. Due diligence does not
require an individual acting for the organization to communicate
information unless the communication is part of the individual's
regular duties or the individual has reason to know of the
transaction and that the transaction would be materially affected
by the information. [PRIMA FACIE EVIDENCE BY THIRD PARTY
DOCUMENTS. A document in due form purporting to be a bill of
lading, policy or certificate of insurance, official weigher's or
inspector's certificate, consular invoice, or any other document
authorized or required by the contract to be issued by a third party
shall be prima facie evidence of its own authenticity and
genuineness and of the facts stated in the document by the third
party.]
Sec. 1.203. LEASE DISTINGUISHED FROM SECURITY INTEREST.
(a) Whether a transaction in the form of a lease creates a lease or
security interest is determined by the facts of each case.
(b) A transaction in the form of a lease creates a security
interest if the consideration that the lessee is to pay the lessor
for the right to possession and use of the goods is an obligation
for the term of the lease and is not subject to termination by the
lessee, and:
(1) the original term of the lease is equal to or
greater than the remaining economic life of the goods;
(2) the lessee is bound to renew the lease for the
remaining economic life of the goods or is bound to become the owner
of the goods;
(3) the lessee has an option to renew the lease for the
remaining economic life of the goods for no additional
consideration or for nominal additional consideration upon
compliance with the lease agreement; or
(4) the lessee has an option to become the owner of the
goods for no additional consideration or for nominal additional
consideration upon compliance with the lease agreement.
(c) A transaction in the form of a lease does not create a
security interest merely because:
(1) the present value of the consideration the lessee
is obligated to pay the lessor for the right to possession and use
of the goods is substantially equal to or is greater than the fair
market value of the goods at the time the lease is entered into;
(2) the lessee assumes risk of loss of the goods;
(3) the lessee agrees to pay, with respect to the
goods, taxes, insurance, filing, recording, or registration fees,
or service or maintenance costs;
(4) the lessee has an option to renew the lease or to
become the owner of the goods;
(5) the lessee has an option to renew the lease for a
fixed rent that is equal to or greater than the reasonably
predictable fair market rent for the use of the goods for the term
of the renewal at the time the option is to be performed; or
(6) the lessee has an option to become the owner of the
goods for a fixed price that is equal to or greater than the
reasonably predictable fair market value of the goods at the time
the option is to be performed.
(d) Additional consideration is nominal if it is less than
the lessee's reasonably predictable cost of performing under the
lease agreement if the option is not exercised. Additional
consideration is not nominal if:
(1) when the option to renew the lease is granted to
the lessee, the rent is stated to be the fair market rent for the use
of the goods for the term of the renewal determined at the time the
option is to be performed; or
(2) when the option to become the owner of the goods is
granted to the lessee, the price is stated to be the fair market
value of the goods determined at the time the option is to be
performed.
(e) The "remaining economic life of the goods" and
"reasonably predictable" fair market rent, fair market value, or
cost of performing under the lease agreement must be determined
with reference to the facts and circumstances at the time the
transaction is entered into. [OBLIGATION OF GOOD FAITH. Every
contract or duty within this title imposes an obligation of good
faith in its performance or enforcement.]
Sec. 1.204. VALUE. Except as otherwise provided in
Chapters 3, 4, and 5, a person gives value for rights if the person
acquires them:
(1) in return for a binding commitment to extend
credit or for the extension of immediately available credit,
whether or not drawn upon and whether or not a charge-back is
provided for in the event of difficulties in collection;
(2) as security for, or in total or partial
satisfaction of, a preexisting claim;
(3) by accepting delivery under a preexisting contract
for purchase; or
(4) in return for any consideration sufficient to
support a simple contract.
Sec. 1.205. [TIME;] REASONABLE TIME; SEASONABLENESS.
["SEASONABLY."] (a) Whether a time for taking an action required
by this title is reasonable [Whenever this title requires any
action to be taken within a reasonable time, any time which is not
manifestly unreasonable may be fixed by agreement.
[(b) What is a reasonable time for taking any action] depends
on the nature, purpose, and circumstances of the [such] action.
(b) [(c)] An action is taken seasonably if ["seasonably"
when] it is taken at or within the time agreed or, if no time is
agreed, at or within a reasonable time.
Sec. 1.206. PRESUMPTIONS. Whenever this title creates a
"presumption" with respect to a fact, or provides that a fact is
"presumed," the trier of fact must find the existence of the fact
unless and until evidence is introduced that supports a finding of
its nonexistence.
SUBCHAPTER C. TERRITORIAL APPLICABILITY AND GENERAL RULES
Sec. 1.301. TERRITORIAL APPLICATION OF THE TITLE; PARTIES'
POWER TO CHOOSE APPLICABLE LAW. (a) Except as provided hereafter
in this section, when a transaction bears a reasonable relation to
this state and also to another state or nation the parties may agree
that the law either of this state or of such other state or nation
shall govern their rights and duties. Failing such agreement this
title applies to transactions bearing an appropriate relation to
this state.
(b) Where one of the following provisions of this title
specifies the applicable law, that provision governs and a contrary
agreement is effective only to the extent permitted by the law
(including the conflict of laws rules) so specified:
Rights of creditors against sold goods. Section 2.402.
Applicability of the chapter on Leases. Sections 2A.105 and
2A.106.
Applicability of the chapter on Bank Deposits and
Collections. Section 4.102.
Governing law in the chapter on Funds Transfers. Section
4A.507.
Letters of Credit. Section 5.116.
Applicability of the chapter on Investment Securities.
Section 8.110.
Law governing perfection, the effect of perfection or
nonperfection, and the priority of security interests and
agricultural liens. Sections 9.301-9.307.
(c) If a transaction that is subject to this title is a
"qualified transaction," as defined in Section 35.51 of this code,
then except as provided in Subsection (b) of this section, Section
35.51 governs the effect of an agreement by the parties that the law
of a particular jurisdiction governs an issue relating to the
transaction or that the law of a particular jurisdiction governs
the interpretation or construction of an agreement relating to the
transaction or a provision of the agreement.
Sec. 1.302. VARIATION BY AGREEMENT. (a) Except as
otherwise provided in Subsection (b) or elsewhere in this title,
the effect of provisions of this title may be varied by agreement.
(b) The obligations of good faith, diligence,
reasonableness, and care prescribed by this title may not be
disclaimed by agreement. The parties, by agreement, may determine
the standards by which the performance of those obligations is to be
measured if those standards are not manifestly unreasonable.
Whenever this title requires an action to be taken within a
reasonable time, a time that is not manifestly unreasonable may be
fixed by agreement.
(c) The presence in certain provisions of this title of the
phrase "unless otherwise agreed," or words of similar import, does
not imply that the effect of other provisions may not be varied by
agreement under this section.
Sec. 1.303. COURSE OF PERFORMANCE, [1.205.] COURSE OF
DEALING, AND USAGE OF TRADE. (a) A "course of performance" is a
sequence of conduct between the parties to a particular transaction
that exists if:
(1) the agreement of the parties with respect to the
transaction involves repeated occasions for performance by a
party; and
(2) the other party, with knowledge of the nature of
the performance and opportunity for objection to it, accepts the
performance or acquiesces in it without objection.
(b) A course of dealing is a sequence of [previous] conduct
concerning previous transactions between the parties to a
particular transaction that [which] is fairly to be regarded as
establishing a common basis of understanding for interpreting their
expressions and other conduct.
(c) [(b)] A "usage of trade" is any practice or method of
dealing having such regularity of observance in a place, vocation,
or trade as to justify an expectation that it will be observed with
respect to the transaction in question. The existence and scope of
such a usage must [are to] be proved as facts. If it is established
that such a usage is embodied in a [written] trade code or similar
record, [writing] the interpretation of the record is a question of
law [writing is for the court].
(d) [(c)] A course of performance or course of dealing
between the parties or [and any] usage of trade in the vocation or
trade in which they are engaged or of which they are or should be
aware is relevant in ascertaining the meaning of the parties'
agreement, may give particular meaning to specific terms of the
agreement, and may supplement or qualify the terms of the [an]
agreement. A usage of trade applicable in the place in which part
of the performance under the agreement is to occur may be so
utilized as to that part of the performance.
(e) Except as otherwise provided in Subsection (f), the [(d)
The] express terms of an agreement and any [an] applicable course of
performance, course of dealing, or usage of trade must [shall] be
construed whenever [wherever] reasonable as consistent with each
other. If[; but when] such a construction is unreasonable:
(1) express terms prevail over course of performance,
[control both] course of dealing, and usage of trade;
(2) course of performance prevails over course of
dealing and usage of trade; and
(3) course of dealing prevails over [controls] usage
of trade.
(f) Subject to Section 2.209, a course of performance is
relevant to show a waiver or modification of any term inconsistent
with the course of performance.
(g) [(e) An applicable usage of trade in the place where any
part of performance is to occur shall be used in interpreting the
agreement as to that part of the performance.
[(f)] Evidence of a relevant usage of trade offered by one
party is not admissible unless that party [and until he] has given
the other party [such] notice that [as] the court finds sufficient
to prevent unfair surprise to the other party [latter].
Sec. 1.304. OBLIGATION OF GOOD FAITH. Every contract or
duty within this title imposes an obligation of good faith in its
performance and enforcement.
Sec. 1.305. REMEDIES TO BE LIBERALLY ADMINISTERED. (a) The
remedies provided by this title must be liberally administered to
the end that the aggrieved party may be put in as good a position as
if the other party had fully performed but neither consequential or
special damages nor penal damages may be had except as specifically
provided in this title or by other rule of law.
(b) Any right or obligation declared by this title is
enforceable by action unless the provision declaring it specifies a
different and limited effect.
Sec. 1.306. WAIVER OF RENUNCIATION OF CLAIM OR RIGHT AFTER
BREACH. A claim or right arising out of an alleged breach may be
discharged in whole or in part without consideration by agreement
of the aggrieved party in an authenticated record.
Sec. 1.307. PRIMA FACIE EVIDENCE BY THIRD-PARTY DOCUMENTS.
A document in due form purporting to be a bill of lading, policy or
certificate of insurance, official weigher's or inspector's
certificate, consular invoice, or any other document authorized or
required by the contract to be issued by a third party is prima
facie evidence of its own authenticity and genuineness and of the
facts stated in the document by the third party.
Sec. 1.308 [1.206. STATUTE OF FRAUDS FOR KINDS OF PERSONAL
PROPERTY NOT OTHERWISE COVERED. (a) Except in the cases described
in Subsection (b) of this section a contract for the sale of
personal property is not enforceable by way of action or defense
beyond $5,000 in amount or value of remedy unless there is some
writing which indicates that a contract for sale has been made
between the parties at a defined or stated price, reasonably
identifies the subject matter, and is signed by the party against
whom enforcement is sought or by his authorized agent.
[(b) Subsection (a) of this section does not apply to
contracts for the sale of goods (Section 2.201) nor of securities
(Section 8.113) nor to security agreements (Section 9.203).
[Sec. 1.207]. PERFORMANCE OR ACCEPTANCE UNDER RESERVATION OF
RIGHTS. (a) A party that [who,] with explicit reservation of
rights[,] performs or promises performance or assents to
performance in a manner demanded or offered by the other party does
not thereby prejudice the rights reserved. Such words as "without
prejudice,"[,] "under protest,"[,] or the like are sufficient.
(b) Subsection (a) does not apply to an accord and
satisfaction.
Sec. 1.309 [1.208]. OPTION TO ACCELERATE AT WILL. A term
providing that one party or that party's [his] successor in
interest may accelerate payment or performance or require
collateral or additional collateral "at will" or when the party
"deems itself ["when he deems himself] insecure," or [in] words of
similar import, means [shall be construed to mean] that the party
has [he shall have] power to do so only if that party [he] in good
faith believes that the prospect of payment or performance is
impaired. The burden of establishing lack of good faith is on the
party against which [whom] the power has been exercised.
Sec. 1.310. SUBORDINATED OBLIGATIONS. An obligation may be
issued as subordinated to performance of another obligation of the
person obligated, or a creditor may subordinate its right to
performance of an obligation by agreement with either the person
obligated or another creditor of the person obligated.
Subordination does not create a security interest as against either
the common debtor or a subordinated creditor.
SECTION 2. Section 2.103(a)(2), Business & Commerce Code,
is amended to read as follows:
(2) [Reserved.] ["Good faith" in the case of a
merchant means honesty in fact and the observance of reasonable
commercial standards of fair dealing in the trade.]
SECTION 3. Section 2.202, Business & Commerce Code, is
amended to read as follows:
Sec. 2.202. FINAL WRITTEN EXPRESSION: PAROL OR EXTRINSIC
EVIDENCE. Terms with respect to which the confirmatory memoranda
of the parties agree or which are otherwise set forth in a writing
intended by the parties as a final expression of their agreement
with respect to such terms as are included therein may not be
contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement but may be explained or supplemented
(1) by course of performance, course of dealing, or
usage of trade (Section 1.303 [1.205]) [or by course of performance
(Section 2.208)]; and
(2) by evidence of consistent additional terms unless
the court finds the writing to have been intended also as a complete
and exclusive statement of the terms of the agreement.
SECTION 4. Section 2A.103(c), Business & Commerce Code, is
amended to read as follows:
(c) The following definitions in other chapters apply to
this chapter:
"Account". Section 9.102(a)(2).
"Between merchants". Section 2.104(c).
"Buyer". Section 2.103(a)(1).
"Chattel paper". Section 9.102(a)(11).
"Consumer goods". Section 9.102(a)(23).
"Document". Section 9.102(a)(30).
"Entrusting". Section 2.403(c).
"General intangible". Section 9.102(a)(42).
["Good faith". Section 2.103(a)(2).]
"Instrument". Section 9.102(a)(47).
"Merchant". Section 2.104(a).
"Mortgage". Section 9.102(a)(55).
"Pursuant to commitment". Section 9.102(a)(69).
"Receipt". Section 2.103(a)(3).
"Sale". Section 2.106(a).
"Sale on approval". Section 2.326.
"Sale or return". Section 2.326.
"Seller". Section 2.103(a)(4).
SECTION 5. Section 2A.501(d), Business & Commerce Code, is
amended to read as follows:
(d) Except as otherwise provided by Section 1.305(a)
[1.106(a)] or this chapter or the lease agreement, the rights and
remedies referred to in Subsections (b) and (c) are cumulative.
SECTION 6. Section 2A.518(b), Business & Commerce Code, is
amended to read as follows:
(b) Except as otherwise provided with respect to damages
liquidated in the lease agreement (Section 2A.504) or otherwise
determined pursuant to agreement of the parties (Sections 1.302
[1.102(c)] and 2A.503), if a lessee's cover is by a lease agreement
substantially similar to the original lease agreement and the new
lease agreement is made in good faith and in a commercially
reasonable manner, the lessee may recover from the lessor as
damages (1) the present value, as of the date of the commencement of
the term of the new lease agreement, of the rent under the new lease
agreement applicable to that period of the new lease term which is
comparable to the then remaining term of the original lease
agreement minus the present value as of the same date of the total
rent for the then remaining lease term of the original lease
agreement, and (2) any incidental or consequential damages, less
expenses saved as a consequence of the lessor's default.
SECTION 7. Section 2A.519(a), Business & Commerce Code, is
amended to read as follows:
(a) Except as otherwise provided with respect to damages
liquidated in the lease agreement (Section 2A.504) or otherwise
determined pursuant to agreement of the parties (Sections 1.302
[1.102(c)] and 2A.503), if a lessee elects not to cover or a lessee
elects to cover and the cover is by lease agreement that for any
reason does not qualify for treatment under Section 2A.518(b) or is
by purchase or otherwise, the measure of damages for nondelivery or
repudiation by the lessor or for rejection or revocation of
acceptance by the lessee is the present value, as of the date of the
default, of the then market rent minus the present value as of the
same date of the original rent, computed for the remaining lease
term of the original lease agreement, together with incidental and
consequential damages, less expenses saved in consequence of the
lessor's default.
SECTION 8. Section 2A.527(b), Business & Commerce Code, is
amended to read as follows:
(b) Except as otherwise provided with respect to damages
liquidated in the lease agreement (Section 2A.504) or otherwise
determined pursuant to agreement of the parties (Sections 1.302
[1.102(c)] and 2A.503), if the disposition is by lease agreement
substantially similar to the original lease agreement and the new
lease agreement is made in good faith and in a commercially
reasonable manner, the lessor may recover from the lessee as
damages (1) accrued and unpaid rent as of the date of the
commencement of the term of the new lease agreement, (2) the present
value, as of the same date, of the total rent for the then remaining
lease term of the original lease agreement minus the present value,
as of the same date, of the rent under the new lease agreement
applicable to that period of the new lease term which is comparable
to the then remaining term of the original lease agreement, and (3)
any incidental damages allowed under Section 2A.530, less expenses
saved in consequence of the lessee's default.
SECTION 9. Section 2A.528(a), Business & Commerce Code, is
amended to read as follows:
(a) Except as otherwise provided with respect to damages
liquidated in the lease agreement (Section 2A.504) or otherwise
determined pursuant to agreement of the parties (Sections 1.302
[1.102(c)] and 2A.503), if a lessor elects to retain the goods or a
lessor elects to dispose of the goods and the disposition is by
lease agreement that for any reason does not qualify for treatment
under Section 2A.527(b) or is by sale or otherwise, the lessor may
recover from the lessee as damages for a default of the type
described in Section 2A.523(a) or (c)(1), or, if agreed, for other
default of the lessee, (i) accrued and unpaid rent as of the date of
default if the lessee has never taken possession of the goods, or,
if the lessee has taken possession of the goods, as of the date the
lessor repossesses the goods or an earlier date on which the lessee
makes a tender of the goods to the lessor, (ii) the present value as
of the date determined under clause (i) of the total rent for the
then remaining lease term of the original lease agreement minus the
present value as of the same date of the market rent at the place
where the goods are located computed for the same lease term, and
(iii) any incidental damages allowed under Section 2A.530, less
expenses saved in consequence of the lessee's default.
SECTION 10. Sections 3.103(a)(4) and (10), Business &
Commerce Code, are amended to read as follows:
(4) [Reserved.] ["Good faith" means honesty in fact
and the observance of reasonable commercial standards of fair
dealing.]
(10) "Prove" with respect to a fact means to meet the
burden of establishing the fact (Section 1.201(b)(8) [1.201(8)]).
SECTION 11. Section 4.102(c), Business & Commerce Code, is
amended to read as follows:
(c) Notwithstanding Section 1.301 [1.105], the laws of this
state govern a deposit contract between a bank and a consumer
account holder if the branch or separate office of the bank that
accepts the deposit contract is located in this state. For purposes
of this subsection, "consumer account holder" means a natural
person who holds a deposit account primarily for personal, family,
or household purposes but does not include a natural person who
holds an account for another in a professional capacity.
SECTION 12. Section 4.104(c), Business & Commerce Code, is
amended to read as follows:
(c) The following definitions in other chapters apply to
this chapter:
"Acceptance" Section 3.409.
"Alteration" Section 3.407.
"Cashier's check" Section 3.104.
"Certificate of deposit" Section 3.104.
"Certified check" Section 3.409.
"Check" Section 3.104.
["Good faith" Section 3.103.]
"Holder in due course" Section 3.302.
"Instrument" Section 3.104.
"Notice of dishonor" Section 3.503.
"Order" Section 3.103.
"Ordinary care" Section 3.103.
"Person entitled to enforce" Section 3.301.
"Presentment" Section 3.501.
"Promise" Section 3.103.
"Prove" Section 3.103.
"Teller's check" Section 3.104.
"Unauthorized signature" Section 3.403.
SECTION 13. Sections 4A.105(a)(6) and (7), Business &
Commerce Code, are amended to read as follows:
(6) [Reserved.] ["Good faith" means honesty in fact
and the observance of reasonable commercial standards of fair
dealing.]
(7) "Prove" with respect to a fact means to meet the
burden of establishing the fact (Section 1.201(b)(8) [1.201(8)]).
SECTION 14. Section 4A.106(a), Business & Commerce Code, is
amended to read as follows:
(a) The time of receipt of a payment order or communication
cancelling or amending a payment order is determined by the rules
applicable to receipt of a notice stated in Section 1.202 [1.201].
A receiving bank may fix a cutoff time or times on a funds transfer
business day for the receipt and processing of payment orders and
communications cancelling or amending payment orders. Different
cutoff times may apply to payment orders, cancellations, or
amendments, or to different categories of payment orders,
cancellations, or amendments. A cutoff time may apply to senders
generally or different cutoff times may apply to different senders
or categories of payment orders. If a payment order or
communication cancelling or amending a payment order is received
after the close of a funds transfer business day or after the
appropriate cutoff time on a funds transfer business day, the
receiving bank may treat the payment order or communication as
received at the opening of the next funds transfer business day.
SECTION 15. Section 4A.204(b), Business & Commerce Code, is
amended to read as follows:
(b) Reasonable time under Subsection (a) may be fixed by
agreement as stated in Section 1.302(b) [1.204], but the obligation
of a receiving bank to refund payment as stated in Subsection (a)
may not otherwise be varied by agreement.
SECTION 16. Section 4A.507(b), Business & Commerce Code, is
amended to read as follows:
(b) If the parties described by each subdivision of
Subsection (a) have made an agreement selecting the law of a
particular jurisdiction to govern rights and obligations between
each other, the law of that jurisdiction governs those rights and
obligations as to matters of construction and interpretation,
whether or not the payment order or the funds transfer bears a
reasonable relation to that jurisdiction, and as to validity, to
the extent permitted by Section 1.301 [1.105] of this code.
SECTION 17. Section 5.103(c), Business & Commerce Code, is
amended to read as follows:
(c) With the exception of this subsection, Subsections (a)
and (d), Sections 5.102(a)(9) and (10), Section 5.106(d), Section
5.110(c), and Section 5.114(d) and except to the extent prohibited
in Sections 1.302 [1.102(c)] and 5.117(d), the effect of this
chapter may be varied by agreement or by a provision stated or
incorporated by reference in an undertaking. A term in an agreement
or undertaking generally excusing liability or generally limiting
remedies for failure to perform obligations is not sufficient to
vary obligations prescribed by this chapter.
SECTION 18. Section 8.102(a)(10), Business & Commerce Code,
is amended to read as follows:
(10) [Reserved.] ["Good faith," for purposes of the
obligation of good faith in the performance or enforcement of
contracts or duties within this chapter, means honesty in fact and
the observance of reasonable commercial standards of fair dealing.]
SECTION 19. Section 9.102(a)(43), Business & Commerce Code,
is amended to read as follows:
(43) [Reserved.] ["Good faith" means honesty in fact
and the observance of reasonable commercial standards of fair
dealing.]
SECTION 20. Sections 2.208 and 2A.207, Business & Commerce
Code, are repealed.
SECTION 21. This Act takes effect September 1, 2003.
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