HBA-ATS H.B. 2585 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 2585 By: Woolley Business & Industry 4/4/1999 Introduced BACKGROUND AND PURPOSE On January 1, 1999, the "euro" became the single currency of the eleven participating members of the European Economic and Monetary Union. On that date the conversion rates between the currencies of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain and the euro were legally fixed. Although these eleven nations now have a single foreign exchange policy and a single interest rate tied to the euro, no euro banknotes or coins are available. This is because the conversion to the euro will occur gradually during a three-year transition period from January 1, 1999, to December 31, 2001. During this transition period, the national currencies of the participating members continue to exist in parallel to the euro. However, their status has changed. These national currencies are now temporary "denominations" or "units" of the euro. Nevertheless, national banknotes and coins are being used for all cash transactions. It is expected that euro banknotes and coins will be introduced in participating countries on January 1, 2002. From that date until June 30, 2002, euro banknotes and coins will circulate alongside national currency banknotes and coins. By the end of that period, national banknotes and coins will be withdrawn from circulation and cease to be legal tender. The introduction of the euro and the three-year transition period during which the currency will not circulate create uncertainty about existing contracts and other instruments in which payments have been calculated using currencies that are now temporary denominations of the euro, and soon to be replaced by it. For example, discrepancies between conversion and reconversion may occur because of the use of a legally-fixed conversion rate that may not reflect market-based exchange rates. The fear is that any rounding inconsistency may place one party to a contract at a disadvantage. Some people could rely on principles of law such as the common law doctrines of impossibility, impracticability, and frustration of purpose to rescind the contract. Such rescissions could negatively impact commerce between Texas and the participating members. H.B. 2585 provides that, if a subject or medium of payment of a contract, security, or instrument is 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 that currency, or tendered, in each case at the conversion rate specified in, and otherwise calculated in accordance with, the regulations adopted by the Council of the European Union. In addition, this bill provides that the calculation 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 due to 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. SHORT TITLE. Authorizes the citation of this chapter as the European Union Currency Conversion Act. Sec. 42.002. DEFINITIONS. Defines "ECU," "EUR," "Euro," "euro," "European Currency Unit," "Introduction of the euro," and "XEU." Sec. 42.003. REFERENCES TO EUROPEAN CURRENCY UNIT. Requires the replacement of references to the ECU in a contract, security, or instrument that also refers to that definition of the ECU with references to the euro when the euro becomes the monetary unit of participating member states of the European Union. Requires that references to the ECU in a contract, security, or instrument that does not refer to the definition of the ECU be construed as references to the currency basket that is from time to time used as the unit of account of the European Community, unless the contract, security, or instrument demonstrates that the parties intended a different construction. Sec. 42.004. CONTINUITY OF CONTRACT. (a) Provides that, if a subject or medium of payment of a contract, security, or instrument is 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 that currency or tendered, in each case at the conversion rate specified in, and otherwise calculated in accordance with, the regulations adopted by the Council of the European Union (council). (b) Provides that, if a subject or medium of payment of a contract, security, or instrument is the ECU, the euro is a commercially reasonable substitute and substantial equivalent. Authorizes the euro to be used in determining the value of the ECU or tendered, in each case at the conversion rate specified in, and otherwise calculated in accordance with, the regulations adopted by the council. (c) Authorizes a person to perform any of the obligations described in Subsection (a) or (b) 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 these 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. (d) 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) or (b); _the determination of the value of any obligation as described in Subsection (a) or (b); or _the calculation 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 due to the introduction of the euro and that is a commercially reasonable substitute and substantial equivalent. Sec. 42.005. EFFECT OF AGREEMENTS. Provides that this chapter does not alter or impair an agreement between parties that specifically addresses the introduction of the euro. Sec. 42.006. APPLICATION. Specifies that this chapter applies to all contracts, securities, and instruments, including commercial contracts governed by the laws of this state. Sets forth that this chapter prevails to the extent of any conflict between this chapter and any other law of this state. Provides that, in circumstances of currency alteration, other than the introduction of the euro, this chapter does not create any inference or presumption regarding the validity or enforceability of contracts, securities, or instruments denominated in whole or in part in a currency affected by the alteration. SECTION 2.Emergency clause. Effective date: upon passage.