Also known as: letter of credit rights · letters-of-credit rights · L/C rights
Written by attorneys · grounded in primary & secondary sources — see below
Personal property collateral under Article 9 consisting of a beneficiary's right to receive payment as proceeds under a letter of credit. The category is carved out from goods and general intangibles and is perfected by control rather than filing.
Luna Lang obtained a standby letter of credit from a bank to secure payment for goods sold to a buyer. When Luna granted a security interest in her right to draw proceeds under the letter, the interest attached to letter-of-credit rights rather than goods because the definition of goods expressly excludes such rights. The secured party therefore followed the rules applicable to letter-of-credit rights instead of those for goods.
Levi Lowe granted a security interest in his letter-of-credit rights to Lighthouse Shipping to secure a loan. Lighthouse obtained an agreement from the issuer allowing it to direct draws without further consent from Levi. The security interest became perfected when Lighthouse obtained that control, satisfying the statutory method for this collateral type.
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Latoya Lane assigned her letter-of-credit rights to Lexicon Media as collateral. Lexicon obtained control through an issuer agreement but later allowed the agreement to lapse. The security interest remained perfected only while Lexicon retained control and lost that status once control ended.
Logan Lane pledged rights to payment under a letter of credit to Loyal Insurance. Because the definition of general intangibles expressly excludes letter-of-credit rights, the interest attached and was classified under the separate letter-of-credit-rights category rather than as a general intangible.
A secured party that obtains control of the letter-of-credit right has priority over a conflicting secured party that lacks control, even if the noncontrolling party filed first. Control exists when the issuer agrees to follow the secured party's instructions regarding draws without further consent from the debtor.
Supporting sources
Yes. A letter of credit issued to support an account debtor's payment obligation is a supporting obligation. Once a secured party perfects a security interest in the account, that perfection automatically extends to the supporting letter-of-credit right without any additional filing or control step.
Supporting sources
No. Filing alone does not perfect an interest in letter-of-credit rights. Control is the required method of perfection, although a filed financing statement may temporarily perfect an interest in letter-of-credit rights that constitute identifiable proceeds of other collateral.
Supporting sources