Legislature(1999 - 2000)
04/12/1999 01:55 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 79 - UNIFORM COMMERCIAL CODE: LETTERS OF CREDIT CHAIRMAN KOTT announced the first order of business is HB 79, "An Act relating to letters of credit under the Uniform Commercial Code; and providing for an effective date." Number 0049 JANET SEITZ, Legislative Assistant to Representative Norm Rokeberg, Alaska State Legislature, stated that the House Labor and Commerce Standing Committee introduced HB 79 at the request of the uniform law commissioners for Alaska. Article 5 of the Uniform Commercial Code (UCC) needs to be revised to reflect changes in technology and business practices. The National Conference of Commissioners on Uniform State Laws in 1995 proposed the revisions. As of January, 39 other jurisdictions have adopted them. In order for Alaska to keep up with developments in commercial law and letters of credit, it needs to adopt this bill as well. She noted that Mr. Art Peterson, a uniform law commissioner for Alaska, is here to answer any technical questions. Number 0180 [THE RECORD REFLECTS THAT L.S. (JERRY) KURTZ' TESTIMONY IS INTERMITTENTLY AUDIBLE.] L.S. (JERRY) KURTZ, JR., Member, National Conference of Commissioners on Uniform State Laws, testified via teleconference from Anchorage. He is a retired attorney, and has represented both sides of letters of credit. Alaska has had the old version, or existing version, of UCC Article 5 for almost 40 years. It works well and there has been very little litigation under it. The new one simply embellishes it to catch up with technology and perhaps make a little bit of a better balance between debtors and creditors. Number 0347 ARTHUR H. PETERSON, Uniform Law Commissioner for Alaska, came before the committee to testify. He is also an attorney with the law offices of Dillon and Findley. He noted that Pete Crandall, a banker, is in the audience to answer any banking questions. The basic thrust of the bill is to recognize what is going on in the area of commercial law with letters of credit. The UCC Article 5 was drafted in the 1940's and 1950's, and the concepts were based on the thinking of that time. Clearly, a lot has been done in the intervening decades, such as the use of computers, E-mail, fax machines, etc. In addition, Alaska hasn't had a lot of litigation, but there has been conflicting court decisions amongst the various states. The bill would resolve those inconsistencies and facilitate the modern way of doing business. It is a major industry. As of 1989, it was a $200-billion business. He is sure that the figure is considerably higher today. Number 0562 CHAIRMAN KOTT said this particular issue has been before the legislature a few times, but this seems to be the most pervasive change. He asked Mr. Peterson whether this is something that has been agreed to nationally. MR. PETERSON replied yes. This bill is a product of the National Conference of Commissioners on Uniform State Laws, as was the original UCC. The conference continually works on various articles in order to update them. Thirty-nine states have already enacted this amendment to the UCC, so Alaska had better get with it. This was before the legislature last year. It passed the House, but got stopped in the Senate Judiciary Standing Committee for some unknown reason. Number 0674 REPRESENTATIVE GREEN referred to a list of states that have adopted the amendment, and asked Mr. Peterson whether Texas has adopted it yet. Texas is listed under "Introductions in 1999". MR. PETERSON replied he is not sure how fast they operate in Texas. They could very well have passed it by this time. REPRESENTATIVE GREEN said some of the states that haven't passed this amendment - Pennsylvania, New York, Louisiana and Texas - are pretty well-known for their financial institutions. He asked Mr. Peterson what is the hold up for them. Number 0719 MR. PETERSON replied New York, where guidance and leadership is looked at for commercial law matters, has a system where all revisions to uniform acts have to go through a section of the bar association which causes delays. He has not heard of any opposition, however. He can't comment on Louisiana, other than that they are under a civil law approach which is a little bit different than the common law approach. They have adopted most of the UCC; he just doesn't know where they stand on Article 5. He can't imagine that they wouldn't adopt it because a good bit of it deals with international trade. Number 0827 REPRESENTATIVE GREEN said he is wondering why Alaska should "get on board" quickly when one of the largest financial states will probably be the last to "get on board." Number 0860 MR. PETERSON pointed out that California, Illinois and all of the Northwestern states have already enacted the amendment. He would not worry because New York is not on the list; they will be there. Number 0924 REPRESENTATIVE GREEN said if Wyoming, Nebraska or Montana were not on the list that would be one thing. He just noticed that some of the states, that he expected to see, were not on the list. It's not a major issue; he was just wondering if there was a reason. Number 0940 CHAIRMAN KOTT said he would expect that New York, Texas or Florida, for example, would be interested in this issue since it is an important tool used in international trade. He asked Mr. Peterson what would be the consequence of not passing this measure this year. Number 0970 MR. PETERSON replied the state would fall behind in using letters of credit for Alaskans dealing in international trade. There would be no advantage to lag behind. He asked, Would National Bank of Alaska or First National Bank of Anchorage fall apart? He replied, no. Providing for this would benefit and facilitate commerce. As far as he can tell, there would be no disadvantage to any particular identifiable group by enacting this. In addition, a hold up in Texas or Florida could be that their bar associations want to tinker with a certain aspect. He doesn't have that information, however. Number 1079 REPRESENTATIVE CROFT asked Mr. Kurtz, Jr. whether he heard him say that there would be a shift between creditor and debtor. [THE RECORD REFLECTS THAT L.S. (JERRY) KURTZ' TESTIMONY IS INTERMITTENTLY AUDIBLE.] MR. KURTZ, JR. replied Representative Croft heard him correctly. He referred to Section 10(b) of the bill which specifically spells out a reasonable time to respond to a presentation of a letter of credit. One problem that has persisted for many years is that the occasional irresponsible financial institution would sit on a letter rather than acting on it thereby putting a business person in a very difficult situation. Nothing in the bill really changes the balance, except that it makes it easier for the banks and borrowers to utilize what Mr. Peterson was talking to. He referred to page 3, line 7, of the bill - "document" - and noted when the law was put into effect throughout the country in the 1960's, everybody envisioned a tightly sealed letter of credit going from one destination to another, but now with the expansion of faxes and E-mail this provision brings letters of credit into the same age as what the financial institutions have been in for years now when handling checks, for example. Number 1276 PET CRANDALL, Representative, Alaska Bankers Association, came before the committee to testify. He also works for the National Bank of Alaska. They both support HB 79. The UCC for letters of credit spells out the responsibilities of the parties between commerce transactions. The disadvantage in not passing updating legislation is dealing with a state that has thereby opening up gaps for attorneys to refute a transaction of some type. The state has existed with the current UCC, and there haven't been that many disputes, but the players need to be on the same common playing field. He declared that the states that haven't passed a revision yet will join the effort as time goes on. He pointed our that even though New York has not, huge states like California and Delaware have. The more states on board, the playing field becomes much more compatible and protects the rights of both buyers and sellers. Number 1391 REPRESENTATIVE MURKOWSKI asked Mr. Kurtz, Jr. whether he is aware of the hold up in New York and whether it is a fact, as Mr. Peterson indicated, that they have to go through their bar association in order to pass uniform type of legislation. Number 1420 [THE RECORD REFLECTS THAT L.S. (JERRY) KURTZ' TESTIMONY IS INTERMITTENTLY AUDIBLE.] MR. KURTZ, JR. replied he doesn't know any more than Mr. Peterson. He has frequently seen New York lag behind other states in respect to the commercial code. He pointed out that Texas and Louisiana are the only two states west of the Mississippi River that have not updated their commercial codes, except for Alaska. Number 1451 REPRESENTATIVE CROFT referred to the current AS 45.05.104 and noted that letters of credit need to be signed, but a telegram will suffice, if a signature cannot be gotten. The new AS 45.05.104 allows the parties to have an agreement or use standard industry practices. If it was strictly construed to a signature, there must be ways other than the actual delivery of a document to do this, otherwise it wouldn't have worked very well. Allowing for agreements or standard industry practices is one example of what is trying to be fixed. Number 1505 REPRESENTATIVE MURKOWSKI noted, when the bill was heard in the House Labor and Commerce Standing Committee, the testimony indicated that there is a need to stay on top of things, and that there is not a reason to delay moving it through this year. She said, "We need to get on board." Number 1536 REPRESENTATIVE MURKOWSKI made a motion to move HB 79 from the committee with individual recommendations and the attached fiscal note(s). There being no objection, HB 79 was so moved from the House Judiciary Standing Committee.
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