Certain consent or restriction terms in a letter of credit are ineffective when they block a beneficiary’s assignment of, or security interest in, letter-of-credit rights.
47-9409 - Restrictions on assignment of letter-of-credit rights ineffective 47-9409 . Restrictions on assignment of letter-of-credit rights ineffective A. A term in a letter of credit or a rule of law, statute, regulation, custom or practice applicable to the letter of credit that prohibits, restricts or requires the consent of an applicant, issuer or nominated person to a beneficiary's assignment of or creation of a security interest in a letter-of-credit right is ineffective to the extent that the term or rule of law, statute, regulation, custom or practice: 1. Would impair the creation, attachment or perfection of a security interest in the letter-of-credit right; or 2. Provides that the assignment or the creation, attachment or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination or remedy under the letter-of-credit right. B. To the extent that a term in a letter of credit is ineffective under subsection A but would be effective under law other than this chapter or a custom or practice applicable to the letter of credit, to the transfer of a right to draw or otherwise demand performance under the letter of credit or to the assignment of a right to proceeds of the letter of credit, the creation, attachment or perfection of a security interest in the letter-of-credit right: 1. Is not enforceable against the applicant, issuer, nominated person 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 or transferee beneficiary to recognize the security interest, pay or render performance to the secured party or accept payment or other performance from the secured party.