SB 6 - This act makes numerous and significant modifications to Chapter 400, RSMo, the Uniform Commercial Code, in particular Articles 5 and 8.

Article 5: Letters of Credit - 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.

Article 5 becomes much simpler and less detailed because of the explicit reliance upon standards of practice. Article 5 continues to provide rules that can be waived or modified by agreement between the parties.

Article 8: Investment Securities (with conforming amendments to Articles 1, 5, 9 and 10) - 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 security 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.

This act is identical to SB 681 (1996).

DENISE GARNIER