NMSA 55-9-107. Control of letter-of-credit right

55-9-107. Control of letter-of-credit right. A secured party has control of a letter-of-credit right to the extent of any right to payment or performance by the issuer or any nominated person if the issuer or nominated person has consented to an assignment of proceeds of the letter of credit under Subsection (c) of Section 55-5-114 NMSA 1978 or otherwise applicable law or practice. History: 1978 Comp., § 55-9-107, enacted by Laws 2001, ch. 139, § 7. OFFICIAL COMMENTS UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved. 1. Source. New. 2. "Control" of Letter-of-Credit Right. Whether a secured party has control of a letter-of-credit right may determine the secured party's priority as against competing secured parties. See Section 9-329. This section provides that a secured party acquires control of a letter-of-credit right by receiving an assignment if the secured party obtains the consent of the issuer or any nominated person, such as a confirmer or negotiating bank, under Section 5-114 or other applicable law or practice. Because both issuers and nominated persons may give or be obligated to give value under a letter of credit, this section contemplates that a secured party obtains control of a letter-of-credit right with respect to the issuer or a particular nominated person only to the extent that the issuer or that nominated person consents to the assignment. For example, if a secured party obtains control to the extent of an issuer's obligation but fails to obtain the consent of a nominated person, the secured party does not have control to the extent that the nominated person gives value. In many cases the person or persons who will give value under a letter of credit will be clear from its terms. In other cases, prudence may suggest obtaining consent from more than one person. The details of the consenting issuer's or nominated person's duties to pay or otherwise render performance to the secured party are left to the agreement of the parties. 3. "Proceeds of a Letter of Credit." Section 5-114 follows traditional banking terminology by referring to a letter of credit beneficiary's assignment of its right to receive payment thereunder as an assignment of the "proceeds of a letter of credit." However, as the seller of goods can assign its right to receive payment (an "account") before it has been earned by delivering the goods to the buyer, so the beneficiary of a letter of credit can assign its contingent right to payment before the letter of credit has been honored. See Section 5-114(b). If the assignment creates a security interest, the security interest can be perfected at the time it is created. An assignment of, including the creation of a security interest in, a letter-of-credit right is an assignment of a present interest. 4. "Transfer" vs. "Assignment." Letter-of-credit law and practice distinguish the "transfer" of a letter of credit from an "assignment." Under a transfer, the transferee itself becomes the beneficiary and acquires the right to draw. Whether a new, substitute credit is issued or the issuer advises the transferee of its status as such, the transfer constitutes a novation under which the transferee is the new, substituted beneficiary (but only to the extent of the transfer, in the case of a partial transfer). Section 5-114(e) provides that the rights 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. For this reason, transfer does not appear in this article as a means of control or perfection. Section 9-109(c)(4) recognizes the independent and superior rights of a transferee beneficiary under Section 5-114(e); this article does not apply to the rights of a transferee beneficiary or nominated person to the extent that those rights are independent and superior under Section 5-114. 5. Supporting Obligation: Automatic Attachment and Perfection. A letter-of-credit right is a type of "supporting obligation," as defined in Section 9-102. Under Sections 9- 203 and 9-308, a security interest in a letter-of-credit right automatically attaches and is automatically perfected if the security interest in the supported obligation is a perfected security interest. However, unless the secured party has control of the letter-of-credit right or itself becomes a transferee beneficiary, it cannot obtain any rights against the issuer or a nominated person under article 5. Consequently, as a practical matter, the secured party's rights would be limited to its ability to locate and identify proceeds distributed by the issuer or nominated person under the letter of credit. 55-9-107A. Control of controllable electronic record, account or controllable payment intangible. (a) A secured party has control of a controllable electronic record as provided in Section 55-12-105 NMSA 1978. (b) A secured party has control of a controllable account or controllable payment intangible if the secured party has control of the controllable electronic record that evidences the controllable account or controllable payment intangible. History: 1978 Comp., § 55-9-107A, enacted by Laws 2023, ch. 142, § 47. OFFICIAL COMMENTS UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved. 1. Perfection by Control or Filing and Priority for Controllable Electronic Records. Perfection by filing and perfection by control are alternative methods of perfection for a controllable electronic record. See Sections 9-312, 9-314. Under this section, a secured party has control of a controllable electronic record as provided in Section 12-105. Under Section 9-326A, a security interest in a controllable electronic record that is perfected by control has priority over a security interest perfected by another method. 2. Perfection by Control or Filing and Priority for Controllable Account or Controllable Payment Intangible. Perfection by filing and perfection by control also are alternative methods of perfection for a controllable account or controllable payment intangible. See Sections 9-312, 9-314. Under this section, a secured party would obtain control of a controllable account or controllable payment intangible by obtaining control of the controllable electronic record that evidences the controllable account or controllable payment intangible. Under Section 9-326A, a security interest in a controllable account or controllable payment intangible that is perfected by control has priority over a security interest perfected by another method. By definition, a controllable account would be an Article 9 "account," and a controllable payment intangible would be an Article 9 "payment intangible." Section 9-102. The fact that an account or payment intangible is a controllable account or controllable payment intangible does not affect a secured party’s alternative of perfection by filing. Moreover, that fact does not affect the applicability of other provisions of Article 9, including the provisions governing an account debtor’s agreement not to assert defenses (Section 9- 403) and the statutory overrides of legal and contractual restrictions on the assignability of accounts and payment intangibles (Sections 9-406 and 9-408). 55-9-107B. No requirement to acknowledge or confirm; no duties. (a) A person that has control under Section 55-9-104, 55-9-105 or 55-9-105A NMSA 1978 is not required to acknowledge that it has control on behalf of another person. (b) If a person acknowledges that it has or will obtain control on behalf of another person, unless the person otherwise agrees or law other than this article otherwise provides, the person does not owe any duty to the other person and is not required to confirm the acknowledgment to any other person. History: 1978 Comp., § 55-9-107B, enacted by Laws 2023, ch. 142, § 48. OFFICIAL COMMENTS UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved. 1. Source. Section 9-107B derives from Sections 8-106(g) and 9-313(f) and (g). 2. Purpose. Subsection (a) makes clear that a person that has control under the specified sections has no duty to acknowledge that it has or will obtain control on behalf of another person. Arrangements for a person to acknowledge that it has control on behalf of another person are not standardized. Accordingly, Subsection (b) leaves to the agreement of the parties and to any other applicable law any duties of a person that does acknowledge that it has or will obtain control on behalf of any other person.