400.9-409. Restrictions on assignment of letter-of-credit rights ineffective.

Restrictions on assignment of letter-of-credit rights ineffective.

400.9-409. (a) A term in a letter of credit or a rule of law,statute, regulation, custom, or practice applicable to the letter of creditwhich prohibits, restricts, or requires the consent of an applicant,issuer, or nominated person to a beneficiary's assignment of or creation ofa security interest in a letter-of-credit right is ineffective to theextent that the term or rule of law, statute, regulation, custom, orpractice:

(1) Would impair the creation, attachment, or perfection of asecurity interest in the letter-of-credit right; or

(2) Provides that the assignment or the creation, attachment, orperfection of the security interest may give rise to a default, breach,right of recoupment, claim, defense, termination, right of termination, orremedy under the letter-of-credit right.

(b) To the extent that a term in a letter of credit is ineffectiveunder subsection (a) but would be effective under law other than thisarticle or a custom or practice applicable to the letter of credit, to thetransfer of a right to draw or otherwise demand performance under theletter of credit, or to the assignment of a right to proceeds of the letterof credit, the creation, attachment, or perfection of a security interestin the letter-of-credit right:

(1) Is not enforceable against the applicant, issuer, nominatedperson, or transferee beneficiary;

(2) Imposes no duties or obligations on the applicant, issuer,nominated person, or transferee beneficiary; and

(3) Does not require the applicant, issuer, nominated person, ortransferee beneficiary to recognize the security interest, pay or renderperformance to the secured party, or accept payment or other performancefrom the secured party.

(L. 1988 S.B. 583, A.L. 2001 S.B. 288, A.L. 2002 S.B. 895)