HBA-ATS H.B. 2585 76(R)BILL ANALYSIS


Office of House Bill AnalysisH.B. 2585
By: Woolley
Business & Industry
6/8/1999
Enrolled



BACKGROUND AND PURPOSE 

On January 1, 1999, the "euro" became the single currency of the eleven
participating members of the European Economic and Monetary Union.  On that
date the conversion rates between the currencies of Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal, and Spain and the euro were legally fixed.  Although these eleven
nations now have a single foreign exchange policy and a single interest
rate tied to the euro, no euro banknotes or coins are available.  This is
because the conversion to the euro will occur gradually during a three-year
transition period from January 1, 1999, to December 31, 2001.  During this
transition period, the national currencies of the participating members
continue to exist concurrently with the euro.  However, their status has
changed.  These national currencies are now temporary "denominations" or
"units" of the euro. Nevertheless, national banknotes and coins are being
used for all cash transactions.  It is expected that euro banknotes and
coins will be introduced in participating countries on January 1, 2002.
From that date until June 30, 2002, euro banknotes and coins will circulate
alongside national currency banknotes and coins.  By the end of that
period, national banknotes and coins will be withdrawn from circulation and
cease to be legal tender. 

The introduction of the euro and the three-year transition period during
which the currency will not circulate create uncertainty about existing
contracts and other instruments in which payments have been calculated
using currencies that are now temporary denominations of the euro, and soon
to be replaced by it.  For example, discrepancies between conversion and
reconversion may occur because of the use of a legally-fixed conversion
rate that may not reflect market-based exchange rates.  The fear is that
any rounding inconsistency may place one party to a contract at a
disadvantage.  Some people could rely on principles of law such as the
common law doctrines of impossibility, impracticability, and frustration of
purpose to rescind the contract.  Such rescissions could negatively impact
commerce between Texas and the participating members. 

H.B. 2585 provides that, if a subject or medium of payment of a contract,
security, or instrument is the European currency unit or a currency that
has been substituted or replaced by the euro, the euro is a commercially
reasonable substitute and substantial equivalent. Under this bill, the euro
may be used to determine the value of the European currency unit or
currency, as appropriate, or tendered, in each case, at the conversion rate
specified in, and otherwise computed in accordance with, the regulations
adopted by the Council of the European Union.  In addition, this bill
provides that the computation or determination of the subject or medium of
payment of a contract, security, or instrument with reference to interest
rate or other basis that has been substituted or replaced because of the
introduction of the euro and that is a commercially reasonable substitute
and substantial equivalent is neither an occurrence that discharges or
excuses performance under a contract, security, or instrument, nor a right
to unilaterally alter or terminate any contract, security, or instrument. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Title 4, Business & Commerce Code, by adding Chapter 42,
as follows: 

 CHAPTER 42.  EUROPEAN UNION CURRENCY CONVERSION

Sec. 42.001.  DEFINITIONS.  Defines "euro," "European currency unit,"
"Treaty on European Union," and "Introduction of the euro." 

Sec. 42.002.  APPLICABILITY OF CHAPTER.  Specifies that this chapter
applies to each contract, security, and instrument, including a commercial
contract governed by the laws of this state.  Provides that, with respect
to currency alteration, other than the introduction of the euro, this
chapter does not create any negative inference or negative presumption
regarding the validity or enforceability of a contract, security, or
instrument denominated wholly or partly in a currency affected by the
alteration. 

Sec. 42.003.  CONFLICTS OF LAW.  Sets forth that this chapter prevails to
the extent of any conflict between this chapter and any other law of this
state. 

Sec. 42.004.  CONTINUITY OF CONTRACT.  (a) Provides that, if a subject or
medium of payment of a contract, security, or instrument is the European
currency unit or a currency that has been substituted or replaced by the
euro, the euro is a commercially reasonable substitute and substantial
equivalent.  Authorizes the euro to be used in determining the value of the
European currency unit or currency, as appropriate, or tendered, in each
case, at the conversion rate specified in, and otherwise computed in
accordance with, the regulations adopted by the Council of the European
Union (council). 

(b) Authorizes a person to perform any of the obligations described in
Subsection (a) in the currency or currencies originally designated in the
contract, security, or instrument, if that currency or those currencies
remain legal tender, or in euros.  Prohibits a person from performing those
obligations in any other currency, whether that other currency has been
substituted or replaced by the euro or is a currency that is considered a
denomination of the euro and has a fixed conversion rate with respect to
the euro. 

(c) Sets forth that the following occurrences neither discharge nor excuse
performance under a contract, security, or instrument, nor give a party the
right to unilaterally alter or terminate any contract, security, or
instrument: 

  _the introduction of the euro;
  _the tender of euros in connection with any obligation as described in
Subsection (a); 
  _the determination of the value of any obligation as described in
Subsection (a); or 
  _the computation or determination of the subject or medium of payment of
a contract, security, or instrument with reference to interest rate or
other basis that has been substituted or replaced because of the
introduction of the euro and that is a commercially reasonable substitute
and substantial equivalent. 

Sec. 42.005.  EFFECT ON CERTAIN AGREEMENTS.  Provides that this chapter
does not alter or impair an agreement between parties that specifically
relates to the introduction of the euro. 

SECTION 2.Emergency clause.
  Effective date: upon passage.