HBA-DMD, BTC H.B. 366 76(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 366
By: Smith
Financial Institutions
1/28/1999
Introduced



BACKGROUND AND PURPOSE 

Letters of credit are used to assure the creditworthiness of the person
required to obtain them and are typically issued by a financial institution
at the request of a customer who pays a fee and engages to reimburse any
payments made by the issuer to a person to whom the customer is obligated
in an underlying transaction.  There are two basic letters of credit,
commercial letters of credit, and standby letters of credit.  Commercial
letters of credit are primarily utilized to finance the purchase of goods
and anticipate paying a beneficiary in the underlying transaction by
drawing upon the letter of credit.  Standby letters of credit, the most
common type, function when a beneficiary is expected to draw upon the
letter of credit only if the obligor in the underlying transaction
defaults.   

Under the Independence Principle, a fundamental of letter of credit law, an
issuer's rights and obligations with respect to a beneficiary are
independent of the arrangement that gave rise to the letter of credit.
Chapter 5 of the Texas Business and Commerce Code (Letters of Credit) does
not mention the Independence Principle, yet Texas case law adheres to this
principle.  H.B. 366 expressly codifies the principle and prohibits its
waiver. 

Additionally, Texas law currently requires that a letter of credit be in
writing.  This bill permits a letter of credit to be issued electronically. 

H.B. 366 makes other amendments to Chapter 5 as well, all of which were
recommended by the American Law Institute and the National Conference of
Commissioners on Uniform State Law. 

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 Chapter 5, Business & Commerce Code,  Section 5.102, as
follows: 

Sec. 5.102.  DEFINITIONS. (a) Defines:

(1) "Adviser" as a person who, at the request of the issuer, a confirmer,
or another adviser, notifies or requests another adviser to notify the
beneficiary that a letter of credit has been issued, confirmed, or amended. 
(2)  "Applicant" as a person at whose request or for whose account a letter
of credit is issued. The term includes a person who requests an issuer to
issue a letter of credit on behalf of another if  the person making the
request undertakes an obligation to reimburse the issuer. 
(3) "Beneficiary" as a person who under the terms of a letter of credit is
entitled to have its complying  presentation honored.  The term includes a
person to whom drawing rights have been transferred under a transferable
letter of credit. 
(4) "Confirmer" as a nominated person who undertakes, at the request or
with the consent of the issuer, to honor a presentation under a letter of
credit issued by another. 
(5) "Dishonor" of a letter of credit as failure timely to honor or to take
an interim action, such as acceptance of a draft, that may be required by
the letter of credit. 
(6) "Document" as a draft or other demand, document of title, investment
security,  certificate, invoice, or other record, statement, or
representation of fact, law, right, or opinion (i) that is presented in a
written or other medium permitted by the letter of credit or, unless
prohibited by the letter of credit, by the standard practice referred to in
Section 5.108 (e); and (ii) that is capable of being examined for
compliance with the terms and conditions of the letter of credit.  A
document may not be oral. 
(7) "Good faith" as honesty in fact in the conduct or transaction concerned.
(8) "Honor"  of a letter of credit as performance of the issuer's
undertaking in the letter of credit to pay or deliver an item of value.
Unless the letter of credit otherwise provides "honor" occurs, upon
payment, if the letter of credit provides for acceptance, upon acceptance
of a draft and, at maturity, its payment; or if the letter of credit
provides for incurring a deferred obligation, upon incurring the obligation
and, at maturity, its performance. 
(9) "Issuer" as a bank or other person that issues a letter of credit, but
does not include an individual who makes an engagement for personal,
family, or household purposes. 
(10) "Letter of credit" as a definite undertaking that satisfies the
requirements of Section 5.104 by an issuer to a beneficiary at the request
or for the account of an applicant or, in the case of a financial
institution, to itself or for its own account, to honor a documentary
presentation by payment or delivery of an item of value. 
(11) "Nominated person" as a person whom the issuer designates or
authorizes to pay, accept, negotiate, or otherwise give value under a
letter of credit and undertakes by agreement or custom and practice to
reimburse. 
(12) "Presentation" as delivery of a document to an issuer or nominated
person for honor or giving of value under a letter of credit. 
(13) "Presenter" as a person making a presentation as or on behalf of a
beneficiary or nominated person. 
(14) "Record" as information that is inscribed on a tangible medium or that
is stored in an electronic or other medium and is retrievable in
perceivable form. 
(15) "Successor of a beneficiary" as a person who succeeds to substantially
all of the rights of a beneficiary by operation of law, including a
corporation with or into which the beneficiary has been merged or
consolidated, an administrator, an executor, a personal representative, a
trustee in bankruptcy, a debtor in possession, a liquidator, and a
receiver. 

(b)  Establishes that definitions in other chapters and corresponding
sections which apply in this chapter are as follows: "Accept" or
"Acceptance," Section 3.409; "Value," Sections 3.303 and 4.211, and that
certain additional general definitions, principles of construction and
interpretation applicable to this chapter are contained in Chapter 1. 

Sec. 5.103. SCOPE.  Establishes that this chapter applies to letters of
credit and certain rights and obligations arising out of letters of credit
transactions. Provides that a stated rule does not by itself require,
imply, or negate application of the same or a different rule to a situation
not provided for, or to a person not specified, in this chapter.
Specifies, that with the exception of this subsection, Subsections (a) and
(d), Sections 5.102 (a)(9) and (10), Sections 5.106 (d), 5.110 (c), 5.114
(d) and except to the extent prohibited in Sections 1.102 (c) and 5.117
(d), the effects of this chapter may be varied by agreement or by a
provision stated or incorporated by reference in an undertaking.  Specifies
that a term excusing liability or generally limiting remedies for failure
to perform obligations in an agreement or undertaking is not sufficient to
vary obligations of this chapter.  Establishes that the rights and
obligations of an issuer to a beneficiary or nominated person under a
letter of credit are independent of the existence, performance, or
nonperformance of a contract or arrangement out of which the letter of
credit arises or which underlies it, including contracts or arrangements
between the issuer and the applicant and between the applicant and the
beneficiary.  Deletes previously text of Subsections (a),(b) and (c) and
previous Section 5.103.  Replaces existing section and language. 

Sec. 5.104. New Title:  FORMAL REQUIREMENTS.  Establishes that a letter of
credit, confirmation, advice, transfer, amendment, or cancellation may be
issued in any form that is a record and is authenticated by a signature or
in accordance with the agreement of parties or provisions in Section 5.108
(e).  Deletes Subsections (a) and (b).  Deletes "signing" from the title.  
 Sec. 5.105.  CONSIDERATION.  Establishes that consideration is not
required to issue, amend, transfer, or cancel a letter of credit, advice,
or confirmation.  Deletes former section language. 

Sec. 5.106.  New Title:  ISSUANCE, AMENDMENT, CANCELLATION, AND DURATION.
(a)  Deletes previous Subsections (a) - (d) and creates new Subsections (a)
(d).  Establishes that a letter of credit is issued and becomes enforceable
according to its terms against the issuer when the issuer sends or
otherwise transmits it to the person requested to advise or to the
beneficiary, and is revocable only if it so provides.   

(b)  Establishes that after a letter of credit is issued, rights and
obligations of a beneficiary, applicant, confirmer, and issuer are not
affected by an amendment or cancellation to which that person has not
consented except to the extent the letter of credit provides that it is
revocable or that the issuer may amend or cancel the letter of credit
without that consent.   

(c)  Establishes that if there is no stated expiration date or other
provision that determines its duration, a letter of credit expires one year
after its stated date of issuance or, if no date is stated, after the date
on which it is issued.   

(d)  Specifies that a letter of credit that states it is perpetual expires
five years after its stated date of issuance or, if no date is stated,
after the date on which it is issued. 

Sec. 5.107. CONFIRMER, NOMINATED PERSON, AND ADVISER.   (a) Replaces
existing section and existing language.  Specifies that a confirmer is
directly obligated on a letter of credit and has the rights and obligations
of an issuer to the extent of its confirmation, as well as the rights
against and obligations to the issuer as if the issuer were an applicant
and the confirmer had issued the letter of credit at the request and for
the issuer's account.   

(b)  Establishes that a nominated person who is not a confirmer is not
obligated to honor or otherwise give value for a presentation.   

(c)  Establishes that a person requested to advise may decline to act as an
adviser. Specifies that an adviser that is not a confirmer is not obligated
to honor or give value for a presentation.  Further specifies that an
adviser has a duty to accurately advise the issuer and beneficiary as to
the terms of the letter of credit, confirmation, amendment, or advice
received, and check the authenticity of the request to advise, even if the
aforementioned is enforceable as issued.   

(d)  Specifies that a person who notifies a transferee beneficiary of the
terms of a letter of credit, confirmation, amendment, or advice has the
rights and obligations of an adviser under Subsection (c).  Establishes
that the terms in the notice to the transferee beneficiary may differ from
the terms in any notice to the transferor beneficiary to the extent
permitted y the letter of credit, confirmation, amendment, or advice
received by the person who so notifies. 
    
Sec. 5.108.  ISSUER'S RIGHTS AND OBLIGATIONS.  (a) Replaces existing
section and existing language.  Specifies that except as otherwise provided
in Section 5.109(e), an issuer is required to honor a presentation that
appears on its face to comply with the terms and conditions of the letter
of credit.  Requires that except as otherwise provided in Section 5.113,
and unless otherwise agreed with the applicant, an issuer must dishonor a
presentation that doesn't appear to comply.   

(b)  Specifies that an issuer has a reasonable time, after presentation,
but no more than seven business days after receipt of documents, to honor;
if the letter of credit provides for honor to be completed more than seven
business days after presentation to accept a draft or incur a deferred
obligation or notify the presenter of discrepancies in the presentation.   

 (c)  Specifies that except as otherwise provided in Subsection (d), an
issuer is precluded from asserting as a basis for dishonor any discrepancy
if timely notice is not given or any discrepancy not stated in the notice
if such is given.   

(d)  Establishes that failure to give the notice outlined in Subsection (b)
or to mention fraud, forgery (Section 5.109 (a)), or expiration in the
notice does not preclude the issuer from asserting the same as a basis for
dishonor.   

(e)  Specifies that an issuer observe, per the court's interpretation, the
standard practice of financial institutions that regularly issue letters of
credit.  Establishes that the court must offer the parties a reasonable
opportunity to present evidence of the standard practice.   

(f)  Specifies that an issuer is not responsible for the performance or
nonperformance of the underlying contract, arrangement, or transaction; an
act or omission by others; or observance or knowledge of the usage of a
particular trade other than the standard practice referred to in Subsection
(e).   

(g)  Requires an issuer of a letter of credit to disregard nondocumentary
conditions which may be stated therein and treat them as if they were not
stated.   

(h)  Requires an issuer who has dishonored a presentation to return the
documents or hold them at the disposal of, and advise the presenter of the
same.   

(i)  Specifies that an issuer that has honored a presentation as permitted
or required by this chapter: is entitled to be reimbursed by the applicant
in immediately available funds, not later than the date of its payment of
funds; takes the documents free of claims of the beneficiary or presenter;
is precluded from asserting a right of recourse on a draft under Sections
3.414 and 3.415; except as otherwise provided in Sections 5.110 and 5.117,
is precluded from restitution of money paid or other value given by mistake
to the extent the mistake concerns discrepancies in the documents or tender
that are apparent on the face of the presentation; and is discharged to the
extent of its performance under the letter of credit unless the issuer
honored a presentation in which a required signature of a beneficiary was
forged. 

Sec. 5.109.  FRAUD AND FORGERY.  (a) Replaces existing section and existing
language. Specifies that if upon presentation, the letter of credit appears
to be valid, but a required document is forged or materially fraudulent, or
honor of the presentation would facilitate a material fraud by the
beneficiary on the issuer or applicant, the issuer is required to honor the
presentation if honor is demanded by a nominated person who has given value
in good faith and without notice of forgery or material fraud, a confirmer
who has honored its confirmation in good faith, a holder in due course of a
draft drawn under the letter of credit that was taken after acceptance by
the issuer or nominated person, or an assignee of the issuer's or nominated
person's deferred obligation that was taken for value and without notice of
forgery or material fraud after the obligation was incurred by the issuer
or nominated person and  the issuer, acting in good faith, may honor or
dishonor the presentation in any other case.   

(b)  Establishes that if an applicant claims that a required document is
forged or materially fraudulent or that honor of the presentation would
facilitate a material fraud by the beneficiary on the issuer or applicant,
a court of competent jurisdiction may temporarily or permanently enjoin the
issuer from honoring a presentation or grant similar relief against the
issuer or other persons, only if the court finds that:  

(1) the relief is not prohibited under the applicable law to an accepted
draft or deferred obligation incurred by the issuer;  
(2) a beneficiary, issuer, or nominated person who may be adversely
affected is adequately protected against loss that it may suffer because
the relief is granted;  
(3) all of the conditions to entitle a person to the relief under the law
of this state have  been met; and  

(4) on the basis of the information submitted to the court, the applicant
is more likely than not to succeed under its claim of forgery or material
fraud and the person demanding honor does not qualify for protection under
Subsection (a)(1). 

Sec. 5.110. New Title:  WARRANTIES.  Specifies that if presentation is
honored, the beneficiary warrants: (1) to the issuer, any other person to
whom presentation is made, and the applicant that there is no fraud or
forgery per Section 5.109 (a), and to the applicant that the drawing does
not violate any agreement between the applicant and beneficiary or any
other agreement intended by them to be augmented by the letter of credit.
Specifies that the warranties in Subsection (a), which do not arise until
the issuer honors the letter of credit, are in addition to warranties
arising under Chapters 3, 4, 7, and 8.  Replaces existing Section 5.111 and
existing language.  Deletes "on Transfer and Presentment" from title.  

Sec. 5.111.  REMEDIES.  (a)  Replaces existing section and existing
language.  Establishes that if an issuer wrongfully dishonors or repudiates
its obligation to pay money under a letter of credit before presentation,
the beneficiary, successor, or nominated person presenting on its own
behalf may recover from the issuer the amount that is the subject of the
dishonor or repudiation.  Specifies that if the issuer's obligation under
the letter of credit is not for the payment of money, the claimant may
obtain specific performance or, at the claimant's election, recover an
amount equal to the value of performance from the issuer.  Provides that a
claimant may also recover incidental, but not consequential damages.
Establishes that the claimant is not obligated to take action to avoid
damages that might be due  from the issuer under this subsection, but if
claimant does so, the recovery from the issuer must be reduced by the
amount of damages avoided.  Provides that the issuer has burden of proving
the amount of damages avoided.  Provides that claimants do not have to
present any documents in the case of repudiation.   

(b) Specifies that if an issuer wrongfully dishonors a draft or demand
presented under a letter of credit, or honors a draft or demand in breach
of its obligation to the applicant, applicant is authorized to recover
damages, including incidental but not consequential damages, less any
amount saved as a result of the breach.   

(c) Specifies that if an adviser or nominated person other than a confirmer
breaches an obligation or an issuer breaches an obligation not covered in
Subsection (a) or (b), a person to whom the obligation is owed may recover
damages resulting from the breach including incidental, but not
consequential damages, less any amount saved from the breach.  Specifies
that a confirmer, to the extent of confirmation,  has the liability of an
issuer specified in this section and Subsections (a) and (b).  

(d)  Requires an issuer, nominated person, or adviser who is found liable
under Subsection (a), (b), or (c) to pay interest on the amount owed from
the date of wrongful dishonor or other appropriate date.   

(e)  Establishes that the prevailing party in an action in which a remedy
is sought may be awarded reasonable attorney's fees and other expenses of
litigation.   

(f)  Authorizes liquidation of damages by agreement, but only using a
reasonable formula relative to the anticipated harm.   

Sec. 5.112.  New Title:  TRANSFER OF LETTER OF CREDIT.   (a)  Redesignates
Section 5.116.  Replaces existing section and language.  Specifies that
except as otherwise provided in Section 5.113, unless a letter of credit
provides that it is transferable, the right of a beneficiary to draw or
otherwise demand performance under a letter of credit may not be
transferred.  Deletes "And Assignment" from title. 

(b)  Establishes that even if a letter of credit provides that it is
transferable, the issuer may refuse to recognize or carry out a transfer if
it would violate applicable law or the  transferor or transferee has failed
to comply with any requirement relating to transfer imposed by the issuer
which is within the standard practice referred to in Section 5.108 (e), or
is otherwise reasonable. 

Sec. 5.113.  TRANSFER BY OPERATION OF LAW.  (a)  Replaces existing section
and language.  Establishes that a successor of a beneficiary may consent to
amendments, sign and present documents, and receive payment or other items
of value in the name of the beneficiary without disclosing its status as a
successor and in its own name as the disclosed successor of the
beneficiary.  

(b)  Requires an issuer, except as otherwise provided in Subsection (e), to
recognize a disclosed successor of a beneficiary as beneficiary in full
substitution for its predecessor upon compliance with  the recognition
requirements by the issuer of a transfer of drawing rights by operation of
law pursuant to Section 5.108 (e) or, in the absence of such a practice,
compliance with other reasonable procedures which protect the issuer. 

(c)  Establishes that an issuer is not obligated to determine whether a
successor or the successor's signature is genuine or authorized. 

(d)  Establishes that the honor of a purported successor's apparent
compliant presentation pursuant to Subsection (a) or (b) has the
consequences outlined in Section 5.108 (i). Specifies that forged documents
are documents signed in the name of the beneficiary or of a disclosed
successor by a person who is neither the beneficiary nor the successor of
the beneficiary pursuant to Section 5.109. 

(e)  Specifies that an issuer whose rights of reimbursement are not covered
by Subsection  
(d) or substantially similar law and any confirmer or nominated person may
decline to recognize a presentation under Subsection (b). 

(f)  Establishes that a beneficiary whose name changed after the issuance
of a letter of credit has the same rights and obligations as a successor of
a beneficiary under this section. 

Sec. 5.114.  ASSIGNMENT OF PROCEEDS. (a)  Replaces existing section and
existing language.  Defines "proceeds of a letter of credit" to mean the
cash, check, accepted draft, or other item of value paid or delivered upon
honor or giving of value by the issuer or any nominated person under the
letter of credit.  This does not include a beneficiary's drawing rights or
documents presented by the beneficiary. 

(b)  Specifies that a beneficiary may assign its right to part or all of
the proceeds of a letter of credit prior to presentation as a present
assignment of such right contingent upon its compliance with the terms and
conditions of the letter of credit. 

(c)  Provides that an issuer or nominated person need not recognize such an
assignment until it consents to the assignment. 

(d)  Provides that an issuer or nominated person has no obligation to give
or withhold its consent to an assignment of proceeds of a letter of credit,
but consent may not be unreasonably withheld if the assignee possesses and
exhibits the letter of credit and presentation of the letter of credit is a
condition to honor. 

(e)  Provides that the rights of a transferee beneficiary or nominated
person are independent of the beneficiary's assignment of the proceeds of a
letter of credit and are superior to the assignee's right to the proceeds. 

(f)  Provides that neither the rights recognized by this section between an
assignee and an issuer, transferee beneficiary, or nominated person nor the
issuer's or nominated person's payment of the proceeds to an assignee or a
third person affect the rights between the assignee and any person other
than the issuer, transferee beneficiary, or nominated person.  Specifies
that the  mode of creating and perfecting a security interest in or
granting an assignment of a beneficiary's rights to proceeds, as well as
the rights and obligations arising because of this creation to be enforced
against persons other than the issuer, transferee beneficiary, or nominated
person, is governed by Chapter 9 (Secured Transactions; Sales of Accounts
and Chattel Paper) or other law. 

Sec. 5.115.  STATUTE OF LIMITATIONS.   Establishes that a cause of action
accrues when a breach occurs, regardless of the aggrieved party's lack of
knowledge of the breach. Specifies that to enforce a right or obligation
arising under this chapter, the cause of action must be commenced within
one year after the expiration date of the letter of credit or one year
after the date of the breach, whichever occurs later.  Replaces existing
section and existing language. 

Sec. 5.116.  CHOICE OF LAW AND FORUM.    Replaces existing section and
language. 

(a)  Establishes that the liability of an issuer, nominated person, or
adviser for action or omission is governed by the law of the jurisdiction
chosen by an agreement in the form of a record signed or otherwise
authenticated by the affected parties pursuant to Section 5.104, or by a
provision in the person's letter of credit, confirmation, or other
undertaking, and need not have any relation to the transaction.   

(b)  Specifies that, unless Subsection (a) applies, the liability of the
previously mentioned persons for action or omission is governed by the law
of the jurisdiction in which the person is located, which is indicated at
the address given in the person's undertaking.  If more than one address is
indicated, the person is considered to be located at the one from which the
person's undertaking was issued.  Specifies that for purposes of
jurisdiction, choice of law, and recognition of interbranch letters of
credit, but not enforcement of a judgment, all branches of a bank are
considered separate jurisdictional entities, and a bank is considered to be
located at the place where its relevant branch is considered to be located
under this section.   

(c)  Provides that, except as otherwise provided in this subsection, the
liability of the persons referenced above is governed by any rules of
custom or practice, such as the Uniform Customs and Practice for
Documentary Credits, to which the letter of credit, confirmation, or other
undertaking is expressly made subject.  Establishes that if this chapter
would govern the liability of the above referenced persons under Subsection
(a) or (b), the relevant undertaking incorporates rules of custom or
practice, and there is conflict between this chapter and those rules as
applied to that undertaking, those rules govern except to the extent of any
conflict with the nonvariable provisions specified in Sec. 5.103 (c). 

(d)  Provides that this chapter governs if there are any conflicts between
this chapter and Chapter 3. 

(e)  Provides that the forum for dispute settlement based on an undertaking
may be chosen by the same manner as choice of law in Subsection (a). 

Sec. 5.117.  SUBROGATION OF ISSUER, APPLICANT, AND NOMINATED PERSON.
(a)  Establishes that an issuer that honors a beneficiary's presentation is
subrogated to the rights of the beneficiary to the same extent as if the
issuer were a secondary obligor of the underlying obligation owed to the
beneficiary and the applicant to the same extent as if the issuer were the
secondary obligor of the underlying obligation owed to the applicant. 

(b)  Establishes that an applicant that reimburses an issuer is subrogated
to the rights of the issuer against any beneficiary, presenter, or
nominated person to the same extent as if the applicant were the secondary
obligor of the obligations owed to the issuer and has the rights of
subrogation of the issuer to the rights of the beneficiary stated in
Subsection (a). 

 (c)  Establishes that a nominated person who pays or gives value against a
draft or demand presented under a letter of credit is subrogated to the
rights of: 

(1)  the issuer against the applicant to the same extent as if the
nominated person were a secondary obligor of the obligation owed to the
issuer by the applicant; 

(2)  the beneficiary to the same extent as if the nominated person were a
secondary obligor of the underlying obligation owed to the beneficiary; and

(3)  the applicant to the same extent as if the nominated person were a
secondary obligor of the underlying obligation owed to the applicant. 

(d)  Specifies that notwithstanding any agreement or term to the contrary,
the rights of subrogation stated in Subsections (a) and (b) do not arise
until the issuer honors the letter of credit or otherwise pays, and the
rights in Subsection (c) do not arise until the nominated person pays or
otherwise gives value and until that time, the issuer, nominated person,
and the applicant do not have present or prospective rights forming the
basis of a claim, defense, or excuse. 

SECTION 2.  Amends Section 1.105 (b), Business & Commerce Code, to provide
that letters of credit are outlined in Section 5.116.  

SECTION 3.  Amends Section 2.512 (a), Business & Commerce Code, to make
nonsubstantive and conforming changes. 

SECTION 4.  Amends Section 9.103 (a), Business & Commerce Code, to include
"letters of credit" in the list in Subsection (a).  Includes "rights to
proceeds of written letters of credit" as one of the types of documents
which this section applies.  Makes a nonsubstantive change. 

SECTION  5.  Amends Section 9.104, Business & Commerce Code, to create
Subdivision (13) which refers to a transfer of an interest in a letter of
credit other than the rights to proceeds of a written letter of credit. 

SECTION 6.  Amends Section 9.105 (c), Business & Commerce Code, by adding
"Letter of credit", Section 5.102 and "Proceeds of a letter of credit,"
Section 5.114, to the list  of definitions in other chapters that apply to
this chapter. 

SECTION 7.  Amends Section 9.106, Business & Commerce Code, by including
"rights to proceeds of written letters of credit" in the list of personal
property that is not classified as a general intangible. 

SECTION 8.  Amends Section 9.304 and 9.305, Business & Commerce Code, as
follows:    

Sec. 9.304. New Title:  PERFECTION OF SECURITY INTEREST IN INSTRUMENTS,
DOCUMENTS, PROCEEDS OF A WRITTEN LETTER OF CREDIT, AND GOODS COVERED BY
DOCUMENTS; PERFECTION BY PERMISSIVE FILING; TEMPORARY PERFECTION WITHOUT
FILING OR TRANSFER OF POSSESSION.  Adds to the list of ways a security
interest can be perfected by stating that a security interest in the rights
to proceeds of a written letter of credit can be perfected only by the
secured party's taking possession of the letter of credit. 

Sec. 9.305.  Deletes letters of credit and advices of credit (Subsection
(b)(1) of Section 5.116) from the list of instruments which may be
perfected by the secured party's taking possession.  Makes a conforming
change.   

SECTION 9.  Effective date:  September 1, 1999.

SECTION 10.  Makes application of this Act prospective.

 SECTION 11.  Emergency clause.