Also known as: letter of credit right · letter-of-credit rights · letter of credit rights · L/C right · LOC right
Written by attorneys · grounded in primary & secondary sources — see below
A right to payment or performance under a letter of credit. The right functions as collateral that a secured party may perfect by control.
Loyal Insurance extends credit to Layla Lane and takes a security interest in her right to payment under a standby letter of credit issued by Metro Bank. Loyal obtains the issuer's consent to an assignment of proceeds. The security interest in the letter-of-credit right becomes perfected by control.
Lakeshore Industries holds a security interest in Landon Long's letter-of-credit right and perfects it by obtaining the issuer's consent to an assignment of proceeds. When the issuer later withdraws consent and Lakeshore no longer directs payment, the security interest ceases to be perfected by control.
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Yes. When a secured party perfects a security interest in accounts that are backed by a letter of credit, the same act of perfection automatically perfects the interest in the letter-of-credit right as a supporting obligation. No separate filing or control step is required.
No. A security interest in a letter-of-credit right may be perfected only by control under Section 9-314, except when the right is a supporting obligation or proceeds of other collateral that was already perfected by filing.
The local law of the issuer's jurisdiction or a nominated person's jurisdiction governs perfection and priority of a security interest in a letter-of-credit right when that jurisdiction is a state.
Priority is determined by the time each secured party obtained control. The first to obtain control has priority over later parties that also perfect by control.