HCS HB 369 -- UNIFORM COMMERCIAL CODE (Clayton)

This substitute makes numerous changes to Chapter 400, RSMo, the
Uniform Commercial Code, in particular Articles 5 and 8.

LETTERS OF CREDIT (Article 5)

Letters of credit are used to obtain payment and as a supplement
to other types of credit extension.  The revision to Article 5
does not change the flexible framework of rules that allow
commercial entities great latitude in tailoring letters of
credit by agreement.  In the revisions there is explicit
recognition of standards of practice, so that standards such as
the Uniform Customs and Practices for Documentary Credits,
issued by the International Chamber of Commerce, can govern many
of the particulars of letters of credit.

The Statute of Frauds provision is revised to allow for other
forms of durable representation of language, such as computer
storage devices.  Prior ambiguities with the concept of fraud in
the transaction are clarified.  Damages for a dishonored or
repudiated letter of credit are limited to the amount of the
document plus incidental damages.  Consequential damages are not
permitted.  Providing cover is not required to obtain damages.
There are clear subrogation rights for any party who pays on a
letter of credit on behalf of another.

INVESTMENT SECURITIES (Article 8)

The revision to Article 8 introduces a new concept of "security
entitlement" as a property interest in "security accounts,"
recognizing the fact that most investment securities are kept in
securities accounts in what is called the indirect holding
system for securities.  That system is characterized by central
depositaries for the certificates representing investment
securities in which securities intermediaries hold positions in
their own names or the names of nominees.  In turn, investors
have interests in securities represented in accounts with the
same securities intermediaries.

A security entitlement is a property right that an investor has
in a security account with an intermediary, and that an
intermediary has in an account with a depositary.  That property
right guarantees ownership rights even though direct ownership
is not registered with the issuers of these same investment
securities.

One of the major impacts of these revisions is upon attachment
and perfection of security interests in investment securities.
A security interest may be taken in a entitlement, or in the
entire financial assets held in a securities account, or in the
even broader category of investment property that includes
commodities contracts.  Commodities contracts are not securities
under Article 8.  The security interest may be taken by filing a
financing statement or by creditor control over the specific
securities.  Control is obtained by giving the secured creditor
power over transactions concerning the investment property to
which the security interest has attached.

FISCAL NOTE:  No impact on state funds.

HCS HB 369 -- UNIFORM COMMERCIAL CODE

SPONSOR:  Copeland (Clayton)

COMMITTEE ACTION:  Voted "do pass" by the Committee on Banks and
Financial Institution by a vote of 26 to 0.

This substitute makes numerous changes to Chapter 400, RSMo, the
Uniform Commercial Code, in particular Articles 5 and 8.

LETTERS OF CREDIT (Article 5)

Letters of credit are used to obtain payment and as a supplement
to other types of credit extension.  The revision to Article 5
does not change the flexible framework of rules that allow
commercial entities great latitude in tailoring letters of
credit by agreement.  In the revisions there is explicit
recognition of standards of practice, so that standards such as
the Uniform Customs and Practices for Documentary Credits,
issued by the International Chamber of Commerce, can govern many
of the particulars of letters of credit.

The Statute of Frauds provision is revised to allow for other
forms of durable representation of language, such as computer
storage devices.  Prior ambiguities with the concept of fraud in
the transaction are clarified.  Damages for a dishonored or
repudiated letter of credit are limited to the amount of the
document plus incidental damages.  Consequential damages are not
permitted.  Providing cover is not required to obtain damages.
There are clear subrogation rights for any party who pays on a
letter of credit on behalf of another.

INVESTMENT SECURITIES (Article 8)

The revision to Article 8 introduces a new concept of "security
entitlement" as a property interest in "security accounts,"
recognizing the fact that most investment securities are kept in
securities accounts in what is called the indirect holding
system for securities.  That system is characterized by central
depositaries for the certificates representing investment
securities in which securities intermediaries hold positions in
their own names or the names of nominees.  In turn, investors
have interests in securities represented in accounts with the
same securities intermediaries.

A security entitlement is a property right that an investor has
in a security account with an intermediary, and that an
intermediary has in an account with a depositary.  That property
right guarantees ownership rights even though direct ownership
is not registered with the issuers of these same investment
securities.

One of the major impacts of these revisions is upon attachment
and perfection of security interests in investment securities.
A security interest may be taken in a entitlement, or in the
entire financial assets held in a securities account, or in the
even broader category of investment property that includes
commodities contracts.  Commodities contracts are not securities
under Article 8.  The security interest may be taken by filing a
financing statement or by creditor control over the specific
securities.  Control is obtained by giving the secured creditor
power over transactions concerning the investment property to
which the security interest has attached.

FISCAL NOTE:  No impact on state funds.

PROPONENTS:  Supporters say that this revision of the uniform
commercial code is needed to update and fill in gaps in the law.

Testifying for the bill were Representative Clayton; The
Missouri Bar; Agri-Bank FCE; and Missouri Bankers Association.

OPPONENTS:  There was no opposition voiced to the committee.

Bob Dominique, Research Analyst

HB 369 -- Uniform Commercial Code

Sponsor:  Clayton

This bill makes numerous changes to Chapter 400, RSMo, the
Uniform Commercial Code, in particular Articles 5 and 8.

LETTERS OF CREDIT (Article 5)

Letters of credit are used to obtain payment and as a supplement
to other types of credit extension.  The revision to Article 5
does not change the flexible framework of rules that allow
commercial entities great latitude in tailoring letters of
credit by agreement.  In the revisions there is explicit
recognition of standards of practice, so that standards such as
the Uniform Customs and Practices for Documentary Credits,
issued by the International Chamber of Commerce, can govern many
of the particulars of letters of credit.

The Statute of Frauds provision is revised to allow for other
forms of durable representation of language, such as computer
storage devices.  Prior ambiguities with the concept of fraud in
the transaction are clarified.  Damages for a dishonored or
repudiated letter of credit are limited to the amount of the
document plus incidental damages.  Consequential damages are not
permitted.  Providing cover is not required to obtain damages.
There are clear subrogation rights for any party who pays on a
letter of credit on behalf of another.

INVESTMENT SECURITIES (Article 8)

The revision to Article 8 introduces a new concept of "security
entitlement" as a property interest in "security accounts,"
recognizing the fact that most investment securities are kept in
securities accounts in what is called the indirect holding
system for securities.  That system is characterized by central
depositaries for the certificates representing investment
securities in which securities intermediaries hold positions in
their own names or the names of nominees.  In turn, investors
have interests in securities represented in accounts with the
same securities intermediaries.

A security entitlement is a property right that an investor has
in a security account with an intermediary, and that an
intermediary has in an account with a depositary.  That property
right guarantees ownership rights even though direct ownership
is not registered with the issuers of these same investment
securities.

One of the major impacts of these revisions is upon attachment
and perfection of security interests in investment securities.
A security interest may be taken in a entitlement, or in the
entire financial assets held in a securities account, or in the
even broader category of investment property that includes
commodities contracts.  Commodities contracts are not securities
under Article 8.  The security interest may be taken by filing a
financing statement or by creditor control over the specific
securities.  Control is obtained by giving the secured creditor
power over transactions concerning the investment property to
which the security interest has attached.