| | | letter-of-credit practice and provides finality to payments made | | to recognized assignees of letter-of-credit proceeds. If an | | issuer or nominated person recognizes multiple security interests | | in a letter-of-credit right, resulting in multiple parties having | | control (Section 9-107 [Maine cite section 9-1107]), under | | paragraph (2) [Maine cite subsection (2)] the security interests | | rank according to the time of obtaining control. |
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| | | 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 [Maine cite section 9-1102)] 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. |
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| | | Section 5-114(e) provides that the "[r]ights of a transferee | | beneficiary or nominated person are independent of the | | beneficiary's assignment of the proceeds of a letter of credit | | and are superior to the assignee's right to the proceeds." To | | the extent the rights of a transferee beneficiary or nominated | | person are independent and superior, this Article does not apply. | | See Section 9-109(c) [Maine cite section 9-1109, subsection (3)]. |
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| | | Under Article 5, there is in effect a novation upon the | | transfer with the issuer becoming bound on a new, independent | | obligation to the transferee. The rights of nominated persons | | and transferee beneficiaries under a letter of credit include the | | right to demand payment from the issuer. Under Section 5-114(e), | | their rights to payment are independent of their obligations to | | the beneficiary (or original beneficiary) and superior to the | | rights of assignees of letter of credit proceeds (Section 5- | | 114(c)) and others claiming a security interest in the | | beneficiary's (or original beneficiary's) letter of credit | | rights. |
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| | | A transfer of drawing rights under a transferable letter of | | credit establishes independent Article 5 rights in the transferee | | and does not create or perfect an Article 9 [Maine cite Article | | 9-A] security interest in the transferred drawing rights. The | | definition of "letter-of-credit right" in Section 9-102 [Maine | | cite section 9-1102] excludes a beneficiary's drawing rights. | | The exercise of drawing rights by a transferee beneficiary may | | breach a contractual obligation of the transferee to the original | | beneficiary concerning when and how much the transferee may draw | | or how it may use the funds received under the letter of credit. | | If, for example, drawing rights are transferred to support a sale |
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