PRINTER'S NO. 213
No. 205 Session of 2001
INTRODUCED BY HOLL, COSTA, EARLL, MUSTO, O'PAKE, ROBBINS,
M. WHITE AND THOMPSON, JANUARY 31, 2001
REFERRED TO BANKING AND INSURANCE, JANUARY 31, 2001
AN ACT
1 Amending Title 13 (Commercial Code) of the Pennsylvania
2 Consolidated Statutes, revising the division on letters of
3 credit; and making conforming amendments to Divisions 1, 2
4 and 9 of Title 13.
5 The General Assembly of the Commonwealth of Pennsylvania
6 hereby enacts as follows:
7 Section 1. This act shall be known and may be cited as the
8 Uniform Commercial Code Modernization Act of (in printing this
9 act in the Laws of Pennsylvania and the Pennsylvania
10 Consolidated Statutes, the Legislative Reference Bureau shall
11 insert here, in lieu of this statement, the year of enactment of
12 this act).
13 Section 2. Sections 1105(b) and 2512(a) of Title 13 of the
14 Pennsylvania Consolidated Statutes are amended to read:
15 § 1105. Territorial application of title; power of parties to
16 choose applicable law.
17 * * *
18 (b) Limitations on power of parties to choose applicable
1 law.--Where one of the following provisions of this title
2 specifies the applicable law, that provision governs and a
3 contrary agreement is effective only to the extent permitted by
4 the law (including the conflict of laws rules) so specified:
5 Section 2402 (relating to rights of creditors of seller
6 against sold goods).
7 Sections 2A105 (relating to territorial application of
8 division to goods covered by certificate of title) and 2A106
9 (relating to limitation on power of parties to consumer lease
10 to choose applicable law and judicial forum).
11 Section 4102 (relating to applicability [of division on
12 bank deposits and collections]).
13 Section 4A507 (relating to choice of law).
14 Section 5116 (relating to choice of law and forum).
15 Section 8110 (relating to applicability; choice of law).
16 Section 9103 (relating to perfection [provisions of
17 division on secured] of security interests in multiple state
18 transactions).
19 § 2512. Payment by buyer before inspection.
20 (a) General rule.--Where the contract requires payment
21 before inspection nonconformity of the goods does not excuse the
22 buyer from so making payment unless:
23 (1) the nonconformity appears without inspection; or
24 (2) despite tender of the required documents the
25 circumstances would justify injunction against honor under
26 [the provisions of] this title [(section 5114 (relating to
27 duty and privilege of issuer to honor; right to
28 reimbursement))] (section 5109(b) (relating to conditions for
29 injunction)).
30 * * *
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1 Section 3. Division 5 of Title 13 is repealed.
2 Section 4. Title 13 is amended by adding a division to read:
3 DIVISION 5
4 LETTERS OF CREDIT
5 Chapter
6 51. Letters of Credit
7 CHAPTER 51
8 LETTERS OF CREDIT
9 Sec.
10 5101. Short title of division.
11 5102. Definitions.
12 5103. Scope.
13 5104. Formal requirements.
14 5105. Consideration.
15 5106. Issuance, amendment, cancellation and duration.
16 5107. Confirmer, nominated person and adviser.
17 5108. Issuer's rights and obligations.
18 5109. Fraud and forgery.
19 5110. Warranties.
20 5111. Remedies.
21 5112. Transfer of letter of credit.
22 5113. Transfer by operation of law.
23 5114. Assignment of proceeds.
24 5115. Statute of limitations.
25 5116. Choice of law and forum.
26 5117. Subrogation of issuer, applicant and nominated person.
27 § 5101. Short title of division.
28 This division shall be known and may be cited as the Uniform
29 Commercial Code, Article 5, Letters of Credit.
30 § 5102. Definitions.
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1 (a) Definitions.--The following words and phrases when used
2 in this division shall have, unless the context clearly
3 indicates otherwise, the meanings given to them in this
4 subsection:
5 "Adviser." A person who, at the request of the issuer, a
6 confirmer or another adviser, notifies or requests another
7 adviser to notify the beneficiary that a letter of credit has
8 been issued, confirmed or amended.
9 "Applicant." A person at whose request or for whose account
10 a letter of credit is issued. The term includes a person who
11 requests an issuer to issue a letter of credit on behalf of
12 another if the person making the request undertakes an
13 obligation to reimburse the issuer.
14 "Beneficiary." A person who under the terms of a letter of
15 credit is entitled to have its complying presentation honored.
16 The term includes a person to whom drawing rights have been
17 transferred under a transferable letter of credit.
18 "Confirmer." A nominated person who undertakes, at the
19 request or with the consent of the issuer, to honor a
20 presentation under a letter of credit issued by another.
21 "Dishonor (of a letter of credit)." Failure timely to honor
22 or to take an interim action, such as acceptance of a draft,
23 that may be required by the letter of credit.
24 "Document." A draft or other demand, document of title,
25 investment security, certificate, invoice or other record,
26 statement or representation of fact, law, right or opinion which
27 is:
28 (1) presented in a written or other medium permitted by
29 the letter of credit or, unless prohibited by the letter of
30 credit, by the standard practice referred to in section
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1 5108(e) (relating to standard practice and role of court);
2 and
3 (2) capable of being examined for compliance with the
4 terms and conditions of the letter of credit.
5 A document may not be oral.
6 "Good faith." Honesty in fact in the conduct or transaction
7 concerned.
8 "Honor (of a letter of credit)." Performance of the issuer's
9 undertaking in the letter of credit to pay or deliver an item of
10 value. Unless the letter of credit otherwise provides, "honor"
11 occurs:
12 (1) upon payment;
13 (2) if the letter of credit provides for acceptance,
14 upon acceptance of a draft and, at maturity, its payment; or
15 (3) if the letter of credit provides for incurring a
16 deferred obligation, upon incurring the obligation and, at
17 maturity, its performance.
18 "Issuer." A bank or other person that issues a letter of
19 credit, but does not include an individual who makes an
20 engagement for personal, family or household purposes.
21 "Letter of credit." A definite undertaking that satisfies
22 the requirements of section 5104 (relating to formal
23 requirements) by an issuer to a beneficiary at the request or
24 for the account of an applicant or, in the case of a financial
25 institution, to itself or for its own account, to honor a
26 documentary presentation by payment or delivery of an item of
27 value.
28 "Nominated person." A person whom the issuer:
29 (1) designates or authorizes to pay, accept, negotiate
30 or otherwise give value under a letter of credit; and
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1 (2) undertakes by agreement or custom and practice to
2 reimburse.
3 "Presentation." Delivery of a document to an issuer or
4 nominated person for honor or giving of value under a letter of
5 credit.
6 "Presenter." A person making a presentation as or on behalf
7 of a beneficiary or nominated person.
8 "Record." Information that is inscribed on a tangible
9 medium, or that is stored in an electronic or other medium and
10 is retrievable in perceivable form.
11 "Successor of a beneficiary." A person who succeeds to
12 substantially all of the rights of a beneficiary by operation of
13 law, including a corporation with or into which the beneficiary
14 has been merged or consolidated, an administrator, executor,
15 personal representative, trustee in bankruptcy, debtor in
16 possession, liquidator and receiver.
17 (b) Index of other definitions.--Definitions in other
18 divisions applying to this division and the sections in which
19 they appear are:
20 "Accept" or "acceptance." Section 3409 (relating to
21 acceptance of draft; certified check).
22 "Value." Sections 3303 (relating to value and consideration)
23 and 4211 (relating to when bank gives value for purposes of
24 holder in due course).
25 (c) Applicability of general definitions and principles.--
26 Division 1 (relating to general provisions) contains certain
27 additional general definitions and principles of construction
28 and interpretation applicable throughout this division.
29 § 5103. Scope.
30 (a) Applicability of division.--This division applies to
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1 letters of credit and to certain rights and obligations arising
2 out of transactions involving letters of credit.
3 (b) Effect of statement of rule in this division.--The
4 statement of a rule in this division does not by itself require,
5 imply or negate application of the same or a different rule to a
6 situation not provided for, or to a person not specified, in
7 this division.
8 (c) Variation by agreement or undertaking.--With the
9 exception of this subsection, subsections (a) and (d), the
10 definitions of "issuer" and "letter of credit" under section
11 5102(a) (relating to definitions) and sections 5106(d) (relating
12 to perpetual letters of credit) and 5114(d) (relating to consent
13 to assignment of proceeds), and except to the extent prohibited
14 under sections 1102(c) (relating to variation of title by
15 agreement) and 5117(d) (relating to time at which subrogation
16 rights arise), the effect of this division may be varied by
17 agreement or by a provision stated or incorporated by reference
18 in an undertaking. A term in an agreement or undertaking
19 generally excusing liability or generally limiting remedies for
20 failure to perform obligations is not sufficient to vary
21 obligations prescribed by this division.
22 (d) Independence of rights and obligations of issuer.--
23 Rights and obligations of an issuer to a beneficiary or a
24 nominated person under a letter of credit are independent of the
25 existence, performance or nonperformance of a contract or
26 arrangement out of which the letter of credit arises or which
27 underlies it, including contracts or arrangements between the
28 issuer and the applicant and between the applicant and the
29 beneficiary.
30 § 5104. Formal requirements.
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1 A letter of credit, confirmation, advice, transfer, amendment
2 or cancellation may be issued in any form that is a record and
3 is authenticated:
4 (1) by a signature; or
5 (2) in accordance with the agreement of the parties or
6 the standard practice referred to in section 5108(e)
7 (relating to standard practice and role of court).
8 § 5105. Consideration.
9 Consideration is not required to issue, amend, transfer or
10 cancel a letter of credit, advice or confirmation.
11 § 5106. Issuance, amendment, cancellation and duration.
12 (a) Issuance; revocability.--A letter of credit is issued
13 and becomes enforceable according to its terms against the
14 issuer when the issuer sends or otherwise transmits it to the
15 person requested to advise or to the beneficiary. A letter of
16 credit is revocable only if it so provides.
17 (b) Effect of amendment or cancellation in certain
18 circumstances.--After a letter of credit is issued, rights and
19 obligations of a beneficiary, applicant, confirmer and issuer
20 are not affected by an amendment or cancellation to which that
21 person has not consented except to the extent the letter of
22 credit provides that it is revocable or that the issuer may
23 amend or cancel the letter of credit without that consent.
24 (c) No stated expiration date.--If there is no stated
25 expiration date or other provision that determines its duration,
26 a letter of credit expires one year after its stated date of
27 issuance or, if none is stated, after the date on which it is
28 issued.
29 (d) Perpetual letters of credit.--A letter of credit that
30 states that it is perpetual expires five years after its stated
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1 date of issuance or, if none is stated, after the date on which
2 it is issued.
3 § 5107. Confirmer, nominated person and adviser.
4 (a) Rights and obligations of a confirmer.--A confirmer is
5 directly obligated on a letter of credit and has the rights and
6 obligations of an issuer to the extent of its confirmation. The
7 confirmer also has rights against and obligations to the issuer
8 as if the issuer were an applicant and the confirmer had issued
9 the letter of credit at the request and for the account of the
10 issuer.
11 (b) Nominated person.--A nominated person who is not a
12 confirmer is not obligated to honor or otherwise give value for
13 a presentation.
14 (c) Advisers.--A person requested to advise may decline to
15 act as an adviser. An adviser that is not a confirmer is not
16 obligated to honor or give value for a presentation. An adviser
17 undertakes to the issuer and to the beneficiary accurately to
18 advise the terms of the letter of credit, confirmation,
19 amendment or advice received by that person and undertakes to
20 the beneficiary to check the apparent authenticity of the
21 request to advise. Even if the advice is inaccurate, the letter
22 of credit, confirmation or amendment is enforceable as issued.
23 (d) Notice to transferee beneficiary.--A person who notifies
24 a transferee beneficiary of the terms of a letter of credit,
25 confirmation, amendment or advice has the rights and obligations
26 of an adviser under subsection (c). The terms in the notice to
27 the transferee beneficiary may differ from the terms in any
28 notice to the transferor beneficiary to the extent permitted by
29 the letter of credit, confirmation, amendment or advice received
30 by the person who so notifies.
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1 § 5108. Issuer's rights and obligations.
2 (a) Duty to honor, dishonor.--Except as otherwise provided
3 in section 5109 (relating to fraud and forgery), an issuer shall
4 honor a presentation that, as determined by the standard
5 practice referred to in subsection (e), appears on its face
6 strictly to comply with the terms and conditions of the letter
7 of credit. Except as otherwise provided in section 5113
8 (relating to transfer by operation of law) and unless otherwise
9 agreed with the applicant, an issuer shall dishonor a
10 presentation that does not appear so to comply.
11 (b) Time for honor, etc.--An issuer has a reasonable time
12 after presentation, but not beyond the end of the seventh
13 business day of the issuer after the day of its receipt of
14 documents:
15 (1) to honor;
16 (2) if the letter of credit provides for honor to be
17 completed more than seven business days after presentation,
18 to accept a draft or incur a deferred obligation; or
19 (3) to give notice to the presenter of discrepancies in
20 the presentation.
21 (c) Preclusion, generally.--Except as otherwise provided in
22 subsection (d), an issuer is precluded from asserting as a basis
23 for dishonor any discrepancy if timely notice is not given, or
24 any discrepancy not stated in the notice if timely notice is
25 given.
26 (d) Preclusion for fraud, forgery or expiration.--Failure to
27 give the notice specified in subsection (b) or to mention fraud,
28 forgery or expiration in the notice does not preclude the issuer
29 from asserting as a basis for dishonor fraud or forgery as
30 described in section 5109(a) or expiration of the letter of
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1 credit before presentation.
2 (e) Standard practice and role of court.--An issuer shall
3 observe standard practice of financial institutions that
4 regularly issue letters of credit. Determination of the standard
5 practice is a matter of interpretation for the court. The court
6 shall offer the parties a reasonable opportunity to present
7 evidence of the standard practice.
8 (f) Issuer not responsible for certain matters.--An issuer
9 is not responsible for:
10 (1) the performance or nonperformance of the underlying
11 contract, arrangement or transaction;
12 (2) an act or omission of others; or
13 (3) observance or knowledge of the usage of a particular
14 trade other than standard practice referred to in subsection
15 (e).
16 (g) Nondocumentary conditions.--If an undertaking
17 constituting a letter of credit under the definition of "letter
18 of credit" under section 5102(a) (relating to definitions)
19 contains nondocumentary conditions, an issuer shall disregard
20 the nondocumentary conditions and treat them as if they were not
21 stated.
22 (h) Disposition of documents following dishonor.--An issuer
23 that has dishonored a presentation shall return the documents or
24 hold them at the disposal of, and send advice to that effect to,
25 the presenter.
26 (i) Certain consequences of honor.--An issuer that has
27 honored a presentation as permitted or required by this
28 division:
29 (1) is entitled to be reimbursed by the applicant in
30 immediately available funds not later than the date of its
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1 payment of funds;
2 (2) takes the documents free of claims of the
3 beneficiary or presenter;
4 (3) is precluded from asserting a right of recourse on a
5 draft under sections 3414 (relating to obligation of drawer)
6 and 3415 (relating to obligation of indorser);
7 (4) except as otherwise provided in sections 5110
8 (relating to warranties) and 5117 (relating to subrogation of
9 issuer, applicant and nominated person), is precluded from
10 restitution of money paid or other value given by the mistake
11 to the extent the mistake concerns discrepancies in the
12 documents or tender which are apparent on the face of the
13 presentation; and
14 (5) is discharged to the extent of its performance under
15 the letter of credit.
16 § 5109. Fraud and forgery.
17 (a) Fraud and forgery generally.--If a presentation is made
18 that appears on its face strictly to comply with the terms and
19 conditions of the letter of credit, but a required document is
20 forged or materially fraudulent, or honor of the presentation
21 would facilitate a material fraud by the beneficiary on the
22 issuer or applicant:
23 (1) the issuer shall honor the presentation, if honor is
24 demanded by:
25 (i) a nominated person who has given value in good
26 faith and without notice of forgery or material fraud;
27 (ii) a confirmer who has honored its confirmation in
28 good faith;
29 (iii) a holder in due course of a draft drawn under
30 the letter of credit which was taken after acceptance by
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1 the issuer or nominated person; or
2 (iv) an assignee of the issuer's or nominated
3 person's deferred obligation that was taken for value and
4 without notice of forgery or material fraud after the
5 obligation was incurred by the issuer or nominated
6 person; and
7 (2) the issuer, acting in good faith, may honor or
8 dishonor the presentation in any other case.
9 (b) Conditions for injunction.--If an applicant claims that
10 a required document is forged or materially fraudulent or that
11 honor of the presentation would facilitate a material fraud by
12 the beneficiary on the issuer or applicant, a court of competent
13 jurisdiction may temporarily or permanently enjoin the issuer
14 from honoring a presentation or grant similar relief against the
15 issuer or other persons only if the court finds that:
16 (1) the relief is not prohibited under the law
17 applicable to an accepted draft or deferred obligation
18 incurred by the issuer;
19 (2) a beneficiary, issuer or nominated person who may be
20 adversely affected is adequately protected against loss that
21 it may suffer because the relief is granted;
22 (3) all of the conditions to entitle a person to the
23 relief under the law of this Commonwealth have been met; and
24 (4) on the basis of the information submitted to the
25 court, the applicant is more likely than not to succeed under
26 its claim of forgery or material fraud and the person
27 demanding honor does not qualify for protection under
28 subsection (a)(1).
29 § 5110. Warranties.
30 (a) Warranties generally.--If its presentation is honored,
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1 the beneficiary warrants:
2 (1) to the issuer, any other person to whom presentation
3 is made and the applicant that there is no fraud or forgery
4 of the kind described in section 5109(a) (relating to fraud
5 and forgery generally); and
6 (2) to the applicant that the drawing does not violate
7 any agreement between the applicant and beneficiary or any
8 other agreement intended by them to be augmented by the
9 letter of credit.
10 (b) Warranties arising under other divisions.--The
11 warranties in subsection (a) are in addition to warranties
12 arising under Divisions 3 (relating to negotiable instruments),
13 4 (relating to bank deposits and collections), 7 (relating to
14 warehouse receipts, bills of lading and other documents of
15 title) and 8 (relating to investment securities) because of the
16 presentation or transfer of documents covered by any of those
17 divisions.
18 § 5111. Remedies.
19 (a) Wrongful dishonor or repudiation before presentation.--
20 If an issuer wrongfully dishonors or repudiates its obligation
21 to pay money under a letter of credit before presentation, the
22 beneficiary, successor or nominated person presenting on its own
23 behalf may recover from the issuer the amount that is the
24 subject of the dishonor or repudiation. If the issuer's
25 obligation under the letter of credit is not for the payment of
26 money, the claimant may obtain specific performance or, at the
27 claimant's election, recover an amount equal to the value of
28 performance from the issuer. In either case, the claimant may
29 also recover incidental but not consequential damages. The
30 claimant is not obligated to take action to avoid damages that
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1 might be due from the issuer under this subsection. If, although
2 not obligated to do so, the claimant avoids damages, the
3 claimant's recovery from the issuer must be reduced by the
4 amount of damages avoided. The issuer has the burden of proving
5 the amount of damages avoided. In the case of repudiation the
6 claimant need not present any document.
7 (b) Wrongful dishonor upon presentation; wrongful honor.--If
8 an issuer wrongfully dishonors a draft or demand presented under
9 a letter of credit or honors a draft or demand in breach of its
10 obligation to the applicant, the applicant may recover damages
11 resulting from the breach, including incidental but not
12 consequential damages, less any amount saved as a result of the
13 breach.
14 (c) Certain other breaches.--If an adviser or nominated
15 person other than a confirmer breaches an obligation under this
16 division or an issuer breaches an obligation not covered in
17 subsection (a) or (b), a person to whom the obligation is owed
18 may recover damages resulting from the breach, including
19 incidental but not consequential damages, less any amount saved
20 as a result of the breach. To the extent of the confirmation, a
21 confirmer has the liability of an issuer specified in this
22 subsection and subsections (a) and (b).
23 (d) Interest.--An issuer, nominated person or advisor who is
24 found liable under subsection (a), (b) or (c) shall pay interest
25 on the amount owed thereunder from the date of wrongful dishonor
26 or other appropriate date.
27 (e) Attorney fees.--Reasonable attorney fees and other
28 expenses of litigation may be awarded to the prevailing party in
29 an action in which a remedy is sought under this division.
30 (f) Liquidated damages.--Damages that would otherwise be
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1 payable by a party for breach of an obligation under this
2 division may be liquidated by agreement or undertaking, but only
3 in an amount or by a formula that is reasonable in light of the
4 harm anticipated.
5 § 5112. Transfer of letter of credit.
6 (a) Transfer generally.--Except as otherwise provided in
7 section 5113 (relating to transfer by operation of law), unless
8 a letter of credit provides that it is transferable, the right
9 of a beneficiary to draw or otherwise demand performance under a
10 letter of credit may not be transferred.
11 (b) Limitations on duty to recognize or carry out a
12 transfer.--Even if a letter of credit provides that it is
13 transferable, the issuer may refuse to recognize or carry out a
14 transfer if:
15 (1) the transfer would violate applicable law; or
16 (2) the transferor or transferee has failed to comply
17 with any requirement stated in the letter of credit or any
18 other requirement relating to transfer imposed by the issuer
19 which is within the standard practice referred to in section
20 5108(e) (relating to standard practice and role of court) or
21 is otherwise reasonable under the circumstances.
22 § 5113. Transfer by operation of law.
23 (a) Undisclosed successor.--A successor of a beneficiary may
24 consent to amendments, sign and present documents and receive
25 payment or other items of value in the name of the beneficiary
26 without disclosing its status as a successor.
27 (b) Disclosed successor.--A successor of a beneficiary may
28 consent to amendments, sign and present documents and receive
29 payment or other items of value in its own name as the disclosed
30 successor of the beneficiary. Except as otherwise provided in
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1 subsection (e), an issuer shall recognize a disclosed successor
2 of a beneficiary as beneficiary in full substitution for its
3 predecessor upon compliance with the requirements for
4 recognition by the issuer of a transfer of drawing rights by
5 operation of law under the standard practice referred to in
6 section 5108(e) (relating to standard practice and role of
7 court) or, in the absence of such a practice, compliance with
8 other reasonable procedures sufficient to protect the issuer.
9 (c) Determination of successor status, signature.--An issuer
10 is not obliged to determine whether a purported successor is a
11 successor of a beneficiary or whether the signature of a
12 purported successor is genuine or authorized.
13 (d) Effect of honor of presentation by purported
14 successor.--Honor of a purported successor's apparently
15 complying presentation under subsection (a) or (b) has the
16 consequences specified in section 5108(i) (relating to certain
17 consequences of honor) even if the purported successor is not
18 the successor of a beneficiary. Documents signed in the name of
19 the beneficiary or of a disclosed successor by a person who is
20 neither the beneficiary nor the successor of the beneficiary are
21 forged documents for the purposes of section 5109 (relating to
22 fraud and forgery).
23 (e) Right to decline to recognize presentation.--An issuer
24 whose rights of reimbursement are not covered by subsection (d)
25 or substantially similar law and any confirmer or nominated
26 person may decline to recognize a presentation under subsection
27 (b).
28 (f) Change of name.--A beneficiary whose name is changed
29 after the issuance of a letter of credit has the same rights and
30 obligations as a successor of a beneficiary under this section.
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1 § 5114. Assignment of proceeds.
2 (a) Definition.--As used in this section, the term "proceeds
3 of a letter of credit" means the cash, check, accepted draft or
4 other item of value paid or delivered upon honor or giving of
5 value by the issuer or any nominated person under the letter of
6 credit. The term does not include a beneficiary's drawing rights
7 or documents presented by the beneficiary.
8 (b) Beneficiary's right to assign proceeds.--A beneficiary
9 may assign its right to part or all of the proceeds of a letter
10 of credit. The beneficiary may do so before presentation as a
11 present assignment of its right to receive proceeds contingent
12 upon its compliance with the terms and conditions of the letter
13 of credit.
14 (c) Recognition of assignment of proceeds.--An issuer or
15 nominated person need not recognize an assignment of proceeds of
16 a letter of credit until it consents to the assignment.
17 (d) Consent to assignment of proceeds.--An issuer or
18 nominated person has no obligation to give or withhold its
19 consent to an assignment of proceeds of a letter of credit, but
20 consent may not be unreasonably withheld if the assignee
21 possesses and exhibits the letter of credit and presentation of
22 the letter of credit is a condition to honor.
23 (e) Rights of transferee beneficiary or nominated person.--
24 Rights of a transferee beneficiary or nominated person are
25 independent of the beneficiary's assignment of the proceeds of a
26 letter of credit and are superior to the assignee's right to the
27 proceeds.
28 (f) Certain rights not affected; relationship to Division
29 9.--Neither the rights recognized by this section between an
30 assignee and an issuer, transferee beneficiary or nominated
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1 person nor the issuer's or nominated person's payment of
2 proceeds to an assignee or a third person affect the rights
3 between the assignee and any person other than the issuer,
4 transferee beneficiary or nominated person. The mode of creating
5 and perfecting a security interest in or granting an assignment
6 of a beneficiary's right to proceeds is governed by Division 9
7 (relating to secured transactions; sales of accounts, contract
8 rights and chattel paper) or other law. Against persons other
9 than the issuer, transferee beneficiary or nominated person, the
10 rights and obligations arising upon the creation of a security
11 interest or other assignment of a beneficiary's right to
12 proceeds and its perfection are governed by Division 9 or other
13 law.
14 § 5115. Statute of limitations.
15 An action to enforce a right or obligation arising under this
16 division must be commenced within one year after the expiration
17 date of the relevant letter of credit or one year after the
18 cause of action accrues, whichever occurs later. A cause of
19 action accrues when the breach occurs, regardless of the
20 aggrieved party's lack of knowledge of the breach, except that,
21 in the event of a fraud or forgery adversely affecting the
22 aggrieved party, a cause of action accrues on the earlier of the
23 date on which the fraud or forgery was discovered by the
24 aggrieved party or the date on which the fraud or forgery could
25 have been discovered by the aggrieved party by the exercise of
26 reasonable diligence.
27 § 5116. Choice of law and forum.
28 (a) Express choice of law.--The liability of an issuer,
29 nominated person or advisor for action or omission is governed
30 by the law of the jurisdiction chosen by an agreement in the
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1 form of a record signed or otherwise authenticated by the
2 affected parties in the manner provided in section 5104
3 (relating to formal requirements) or by a provision in the
4 person's letter of credit, confirmation or other undertaking.
5 The jurisdiction whose law is chosen need not bear any relation
6 to the transaction.
7 (b) Governing law otherwise.--Unless subsection (a) applies,
8 the liability of an issuer, nominated person or adviser for
9 action or omission is governed by the law of the jurisdiction in
10 which the person is located. The person is considered to be
11 located at the address indicated in the person's undertaking. If
12 more than one address is indicated, the person is considered to
13 be located at the address from which the person's undertaking
14 was issued. For the purpose of jurisdiction, choice of law and
15 recognition of interbranch letters of credit, but not
16 enforcement of a judgment, all branches of a bank are considered
17 separate juridical entities and a bank is considered to be
18 located at the place where its relevant branch is considered to
19 be located under this subsection.
20 (c) Role of custom or practice.--Except as otherwise
21 provided in this subsection, the liability of an issuer,
22 nominated person or adviser is governed by any rules of custom
23 or practice, such as the Uniform Customs and Practice for
24 Documentary Credits, to which the letter of credit, confirmation
25 or other undertaking is expressly made subject. If:
26 (1) this division would govern the liability of an
27 issuer, nominated person or adviser under subsection (a) or
28 (b);
29 (2) the relevant undertaking incorporates rules of
30 custom or practice; and
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1 (3) there is conflict between this division and those
2 rules as applied to that undertaking;
3 those rules govern except to the extent of any conflict with the
4 nonvariable provisions specified in section 5103(c) (relating to
5 variation by agreement or undertaking).
6 (d) Conflict with certain other divisions.--If there is
7 conflict between this division and Division 3 (relating to
8 negotiable instruments), 4 (relating to bank deposits and
9 collections), 4A (relating to funds transfers) or 9 (relating to
10 secured transactions; sales of accounts, contract rights and
11 chattel paper), this division governs.
12 (e) Forum.--The forum for settling disputes arising out of
13 an undertaking within this division may be chosen in the manner
14 and with the binding effect that governing law may be chosen in
15 accordance with subsection (a).
16 § 5117. Subrogation of issuer, applicant and nominated person.
17 (a) Subrogation rights of issuer.--An issuer that honors a
18 beneficiary's presentation is subrogated to the rights of the
19 beneficiary to the same extent as if the issuer were a secondary
20 obligor of the underlying obligation owed to the beneficiary and
21 of the applicant to the same extent as if the issuer were the
22 secondary obligor of the underlying obligation owed to the
23 applicant.
24 (b) Subrogation rights of applicant.--An applicant that
25 reimburses an issuer is subrogated to the rights of the issuer
26 against any beneficiary, presenter or nominated person to the
27 same extent as if the applicant were the secondary obligor of
28 the obligations owed to the issuer and has the rights of
29 subrogation of the issuer to the rights of the beneficiary
30 stated in subsection (a).
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1 (c) Subrogation rights of nominated person.--A nominated
2 person who pays or gives value against a draft or demand
3 presented under a letter of credit is subrogated to the rights
4 of:
5 (1) the issuer against the applicant to the same extent
6 as if the nominated person were a secondary obligor of the
7 obligation owed to the issuer by the applicant;
8 (2) the beneficiary to the same extent as if the
9 nominated person were a secondary obligor of the underlying
10 obligation owed to the beneficiary; and
11 (3) the applicant to the same extent as if the nominated
12 person were a secondary obligor of the underlying obligation
13 owed to the applicant.
14 (d) Time at which subrogation rights arise.--Notwithstanding
15 any agreement or term to the contrary, the rights of subrogation
16 stated in subsections (a) and (b) do not arise until the issuer
17 honors the letter of credit or otherwise pays and the rights in
18 subsection (c) do not arise until the nominated person pays or
19 otherwise gives value. Until then, the issuer, nominated person
20 and the applicant do not derive under this section present or
21 prospective rights forming the basis of a claim, defense or
22 excuse.
23 Section 5. Sections 9103(a) heading and (1), 9104, 9105(c),
24 9106, 9304 heading and (a) and 9305 of Title 13 are amended to
25 read:
26 § 9103. Perfection of security interests in multiple state
27 transactions.
28 (a) Documents, instruments, letters of credit and ordinary
29 goods.--
30 (1) This subsection applies to documents [and],
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1 instruments, rights to proceeds of written letters of credit
2 and [to] goods other than those covered by a certificate of
3 title described in subsection (b), mobile goods described in
4 subsection (c) and minerals described in subsection (e).
5 * * *
6 § 9104. Transactions excluded from division.
7 This division does not apply:
8 (1) to a security interest subject to any statute of the
9 United States to the extent that such statute governs the
10 rights of parties to and third parties affected by
11 transactions in particular types of property;
12 (2) to the lien of a landlord;
13 (3) to a lien given by statute or other rule of law for
14 services or materials except as provided in section 9310
15 (relating to priority of certain liens arising by operation
16 of law) on priority of such liens;
17 (4) to a transfer of a claim for wages, salary or other
18 compensation of an employee;
19 (6) to a sale of accounts or chattel paper as a part of
20 a sale of the business out of which they arose, or an
21 assignment of accounts or chattel paper which is for the
22 purpose of collection only, or a transfer of a right to
23 payment under a contract to an assignee who is also to do the
24 performance under the contract or a transfer of a single
25 account to an assignee in whole or partial satisfaction of a
26 preexisting indebtedness;
27 (7) to a transfer of an interest or claim in or under
28 any policy of insurance, except as provided with respect to
29 proceeds (section 9306) and priorities in proceeds (section
30 9312);
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1 (8) to a right represented by a judgment (other than a
2 judgment taken on a right to payment which was collateral);
3 (9) to any right of set-off;
4 (10) except to the extent that provision is made for
5 fixtures in section 9313 (relating to priority of security
6 interests in fixtures), to the creation or transfer of an
7 interest in or lien on real estate, including a lease or
8 rents thereunder;
9 (11) to a transfer in whole or in part of any claim
10 arising out of tort; [or]
11 (12) to a transfer of an interest in any deposit account
12 (section 9105(a)), except as provided with respect to
13 proceeds (section 9306) and priorities in proceeds (section
14 9312)[.]; or
15 (13) to a transfer of an interest in a letter of credit
16 other than the right to proceeds of a written letter of
17 credit.
18 § 9105. Definitions and index of definitions.
19 * * *
20 (c) Index of definitions in other divisions.--The following
21 definitions in other divisions of this title apply to this
22 division:
23 "Broker." Section 8102.
24 "Certificated security." Section 8102.
25 "Check." Section 3104.
26 "Clearing corporation." Section 8102.
27 "Contract for sale." Section 2106.
28 "Control." Section 8106.
29 "Delivery." Section 8301.
30 "Entitlement holder." Section 8102.
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1 "Financial asset." Section 8102.
2 "Holder in due course." Section 3302.
3 "Letter of credit." Section 5102.
4 "Note." Section 3104.
5 "Proceeds of a letter of credit." Section 5114(a).
6 "Sale." Section 2106.
7 "Securities intermediary." Section 8102.
8 "Security." Section 8102.
9 "Security certificate." Section 8102.
10 "Security entitlement." Section 8102.
11 "Uncertificated security." Section 8102.
12 * * *
13 § 9106. Definitions: "account"; "general intangibles."
14 The following words and phrases when used in this division
15 shall have, unless the context clearly indicates otherwise, the
16 meanings given to them in this section:
17 "Account." Any right to payment for goods sold or leased or
18 for services rendered which is not evidenced by an instrument or
19 chattel paper, whether or not it has been earned by performance.
20 "General intangibles." Any personal property (including
21 things in action) other than goods, accounts, chattel paper,
22 documents, instruments, investment property, rights to proceeds
23 of written letters of credit and money. All rights to payment
24 earned or unearned under a charter or other contract involving
25 the use or hire of a vessel and all rights incident to the
26 charter or contract are accounts.
27 § 9304. Perfection of security interest in instruments,
28 documents, proceeds of a written letter of credit and
29 goods covered by documents; perfection by permissive
30 filing; temporary perfection without filing or
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1 transfer of possession.
2 (a) Chattel paper, negotiable documents, proceeds of a
3 written letter of credit, money and instruments.--A security
4 interest in chattel paper or negotiable documents may be
5 perfected by filing. A security interest in the right to
6 proceeds of a written letter of credit can be perfected only by
7 the secured party's taking possession of the letter of credit. A
8 security interest in money or instruments (other than
9 instruments which constitute part of chattel paper) can be
10 perfected only by the secured party's taking possession, except
11 as provided in subsections (d) and (e) and section 9306(b) and
12 (c) (relating to "proceeds"; rights of secured party on
13 disposition of collateral).
14 * * *
15 § 9305. When possession by secured party perfects security
16 interest without filing.
17 A security interest in [letters of credit and advices of
18 credit (section 5116(b)(1)),] goods, instruments, money,
19 negotiable documents or chattel paper may be perfected by the
20 secured party's taking possession of the collateral. A security
21 interest in the right to proceeds of a written letter of credit
22 may be perfected by the secured party's taking possession of the
23 letter of credit. If such collateral other than goods covered by
24 a negotiable document is held by a bailee, the secured party is
25 deemed to have possession from the time the bailee receives
26 notification of the interest of the secured party. A security
27 interest is perfected by possession from the time possession is
28 taken without relation back and continues only so long as
29 possession is retained, unless otherwise specified in this
30 division. The security interest may be otherwise perfected as
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1 provided in this division before or after the period of
2 possession by the secured party.
3 Section 6. A transaction arising out of or associated with a
4 letter of credit that was issued before the effective date of
5 this act and the rights, obligations and interests flowing from
6 that transaction are governed by any statute or other law
7 amended or repealed by this act as if repeal or amendment had
8 not occurred and may be terminated, completed, consummated or
9 enforced under that statute or other law.
10 Section 7. This act applies to a letter of credit that is
11 issued on or after the effective date of this act. This act does
12 not apply to a transaction, event, obligation or duty arising
13 out of or associated with a letter of credit that was issued
14 before the effective date of this act.
15 Section 8. This act shall take effect in 180 days.
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