N.D. Cent. Code § 41-09-49
(9-329) Priority of security interests in letter-of-credit right
Redline — December 1, 2021 → current.View current text →
Current — January 1, 2022
As of December 1, 2021
The following rules govern priority among conflicting security interests in the same letter-of-credit right:
The following rules govern priority among conflicting security interests in the same letter-of-credit right:
(1) A security interest held by a secured party having control of the letter-of-credit right under section 41-09-07 has priority to the extent of its control over a conflicting security interest held by a secured party that does not have control.
(1) A security interest held by a secured party having control of the letter-of-credit right under section 41-09-07 has priority to the extent of its control over a conflicting security interest held by a secured party that does not have control.
(2) Security interests perfected by control under section 41-09-34 rank according to priority in time of obtaining control.
(2) Security interests perfected by control under section 41-09-34 rank according to priority in time of obtaining control.
(3) Drawing Rights; Transferee Beneficiaries. Drawing under a letter of credit is personal to the beneficiary and requires the beneficiary to perform the conditions for drawing under the letter of credit. Accordingly, a beneficiary’s grant of a security interest in a letter of credit includes the beneficiary’s “letter-of-credit right” as defined in Section 9-102 and the right to “proceeds of [the] letter of credit” as defined in Section 5-114(a), but does not include the right to demand payment under the letter of credit.
(4) Secured Party-Transferee Beneficiaries. As described in Comment 3, drawing rights under letters of credit are transferred in many commercial contexts in which the transferee is not a secured party claiming a security interest in an underlying receivable supported by the letter of credit. Consequently, a transfer of a letter of credit is not a method of “perfection” of a security interest. The transferee’s independent right to draw under the letter of credit and to receive and retain the value thereunder (in effect, priority) is not based on Article 9 but on letter-of-credit law and the terms of the letter of credit. Assume, however, that a secured party does hold a security interest in a receivable that is owned by a beneficiary-debtor and supported by a transferable letter of credit. Assume further that the beneficiary-debtor causes the letter of credit to be transferred to the secured party, the secured party draws under the letter of credit, and, upon the issuer’s payment to the secured party-transferee, the underlying account debtor’s obligation to the original beneficiary-debtor is satisfied. In this situation, the payment to the secured party-transferee is proceeds of the receivable collected by the secured party-transferee. Consequently, the secured party-transferee would have certain duties to the debtor and third parties under Article 9. For example, it would be obliged to collect under the letter of credit in a commercially reasonable manner and to remit any surplus pursuant to Sections 9-607 and 9-608.
Official source: North Dakota Legislative Branch. Reproduced from public-domain North Dakota statutes; confirm against the official source for the current text. Not legal advice.