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[Introduced][Status][Bill Documents][Fiscal Note][Bills Directory]
S.B. 163 Enrolled
AN ACT RELATING TO THE UNIFORM COMMERCIAL CODE; REPEALING AND
REENACTING CHAPTER 5 PROVISION ON LETTERS OF CREDIT; AMENDING
RELATED PROVISIONS; MAKING TECHNICAL CHANGES; AND PROVIDING AN
EFFECTIVE DATE.
This act affects sections of Utah Code Annotated 1953 as follows:
AMENDS:
70A-1-105, as last amended by Chapters 42 and 204, Laws of Utah 1996
70A-2-512, as enacted by Chapter 154, Laws of Utah 1965
70A-9-103, as last amended by Chapter 204, Laws of Utah 1996
70A-9-104, as last amended by Chapter 272, Laws of Utah 1977
70A-9-105, as last amended by Chapter 204, Laws of Utah 1996
70A-9-106, as last amended by Chapter 204, Laws of Utah 1996
70A-9-304, as last amended by Chapter 204, Laws of Utah 1996
70A-9-305, as last amended by Chapter 204, Laws of Utah 1996
ENACTS:
70A-5-118, Utah Code Annotated 1953
70A-5-119, Utah Code Annotated 1953
REPEALS AND REENACTS:
70A-5-101, as enacted by Chapter 154, Laws of Utah 1965
70A-5-102, as enacted by Chapter 154, Laws of Utah 1965
70A-5-103, as last amended by Chapter 204, Laws of Utah 1996
70A-5-104, as enacted by Chapter 154, Laws of Utah 1965
70A-5-105, as enacted by Chapter 154, Laws of Utah 1965
70A-5-106, as enacted by Chapter 154, Laws of Utah 1965
70A-5-107, as enacted by Chapter 154, Laws of Utah 1965
70A-5-108, as enacted by Chapter 154, Laws of Utah 1965
70A-5-109, as enacted by Chapter 154, Laws of Utah 1965
70A-5-110, as enacted by Chapter 154, Laws of Utah 1965
70A-5-111, as enacted by Chapter 154, Laws of Utah 1965
70A-5-112, as enacted by Chapter 154, Laws of Utah 1965
70A-5-113, as enacted by Chapter 154, Laws of Utah 1965
70A-5-114, as last amended by Chapter 204, Laws of Utah 1996
70A-5-115, as enacted by Chapter 154, Laws of Utah 1965
70A-5-116, as last amended by Chapter 272, Laws of Utah 1977
70A-5-117, as enacted by Chapter 154, Laws of Utah 1965
Be it enacted by the Legislature of the state of Utah:
Section 1. Section 70A-1-105 is amended to read:
70A-1-105. Territorial application of title -- Parties' power to choose applicable law.
(1) Except as provided in this section, when a transaction bears a reasonable relation to this
state and also to another state or nation, the parties may agree that the law either of this state or of
such other state or nation shall govern their rights and duties. Failing such agreement, this title
applies to transactions bearing an appropriate relation to this state.
(2) Where one of the following provisions of this title specifies the applicable law, that
provision governs and a contrary agreement is effective only to the extent permitted by the law,
including the conflict of laws rules, so specified:
(a) rights of creditors against sold goods under Section 70A-2-402;
(b) applicability of the chapter on leases under Sections 70A-2a-105 and 70A-2a-106;
(c) applicability of the chapter on Bank Deposits and Collections under Section 70A-4-102;
(d) applicability of the chapter on Investment Securities under Section 70A-8-109; [
(e) perfection provisions of the chapter on Secured Transactions under Section 70A-9-103[
or
(f) applicability of the chapter on Letters of Credit under Section 70A-5-116.
Section 2. Section 70A-2-512 is amended to read:
70A-2-512. Payment by buyer before inspection.
(1) Where the contract requires payment before inspection, nonconformity of the goods does
not excuse the buyer from so making payment unless:
(a) the nonconformity appears without inspection; or
(b) despite tender of the required documents the circumstances would justify injunction
against honor under the provisions [
(2) Payment pursuant to Subsection (1) does not constitute an acceptance of goods or impair
the buyer's right to inspect or any of his remedies.
Section 3. Section 70A-5-101 is repealed and reenacted to read:
70A-5-101. Title.
This chapter shall be known as "Uniform Commercial Code -- Letters of Credit."
Section 4. Section 70A-5-102 is repealed and reenacted to read:
70A-5-102. Definitions.
As used in this chapter:
(1) "Adviser" means a person who, at the request of the issuer, a confirmer, or another
adviser, notifies or requests another adviser to notify the beneficiary that a letter of credit has been
issued, confirmed, or amended.
(2) "Applicant" means a person at whose request or for whose account a letter of credit is
issued. The term includes a person who requests an issuer to issue a letter of credit on behalf of
another if the person making the request undertakes an obligation to reimburse the issuer.
(3) "Beneficiary" means a person who under the terms of a letter of credit is entitled to have
its complying presentation honored. The term includes a person to whom drawing rights have been
transferred under a transferable letter of credit.
(4) "Confirmer" means a nominated person who undertakes, at the request or with the
consent of the issuer, to honor a presentation under a letter of credit issued by another.
(5) "Dishonor" of a letter of credit means failure timely to honor or to take an interim action,
such as acceptance of a draft, that may be required by the letter of credit.
(6) "Document" means a draft or other demand, document of title, investment security,
certificate, invoice, or other record, statement, or representation of fact, law, right, or opinion:
(a) which is presented in a written or other medium permitted by the letter of credit or, unless
prohibited by the letter of credit, by the standard practice referred to in Section 70A-5-108(5); and
(b) which is capable of being examined for compliance with the terms and conditions of the
letter of credit. A document may not be oral.
(7) "Good faith" means honesty in fact in the conduct or transaction concerned.
(8) "Honor" of a letter of credit means performance of the issuer's undertaking in the letter
of credit to pay or deliver an item of value. Unless the letter of credit otherwise provides, "honor"
occurs:
(a) upon payment;
(b) if the letter of credit provides for acceptance, upon acceptance of a draft and, at maturity,
its payment; or
(c) if the letter of credit provides for incurring a deferred obligation, upon incurring the
obligation and, at maturity, its performance.
(9) "Issuer" means a bank or other person that issues a letter of credit, but does not include
an individual who makes an engagement for personal, family, or household purposes.
(10) "Letter of credit" means a definite undertaking that satisfies the requirements of Section
70A-5-104 by an issuer to a beneficiary at the request or for the account of an applicant or, in the
case of a financial institution, to itself or for its own account, to honor a documentary presentation
by payment or delivery of an item of value.
(11) "Nominated person" means a person whom the issuer:
(a) designates or authorizes to pay, accept, negotiate, or otherwise give value under a letter
of credit; and
(b) undertakes by agreement or custom and practice to reimburse.
(12) "Presentation" means delivery of a document to an issuer or nominated person for honor
or giving of value under a letter of credit.
(13) "Presenter" means a person making a presentation as or on behalf of a beneficiary or
nominated person.
(14) "Record" means information that is inscribed on a tangible medium, or that is stored
in an electronic or other medium and is retrievable in perceivable form.
(15) "Successor of a beneficiary" means a person who succeeds to substantially all of the
rights of a beneficiary by operation of law, including a corporation with or into which the beneficiary
has been merged or consolidated, an administrator, executor, personal representative, trustee in
bankruptcy, debtor in possession, liquidator, and receiver.
Section 5. Section 70A-5-103 is repealed and reenacted to read:
70A-5-103. Scope.
(1) This chapter applies to letters of credit and to certain rights and obligations arising out
of transactions involving letters of credit.
(2) The statement of a rule in this chapter does not by itself require, imply, or negate
application of the same or a different rule to a situation not provided for, or to a person not specified,
in this chapter.
(3) With the exception of this Subsection (3), Subsections (1) and (4), Subsections
70A-5-102(9) and (10), 70A-5-106(4), and 70A-5-114(4), and except to the extent prohibited in
Subsections 70A-1-102(3) and 70A-5-117(4), the effect of this chapter may be varied by agreement
or by a provision stated or incorporated by reference in an undertaking. A term in an agreement or
undertaking generally excusing liability or generally limiting remedies for failure to perform
obligations is not sufficient to vary obligations prescribed by this chapter.
(4) Rights and obligations of an issuer to a beneficiary or a nominated person under a letter
of credit are independent of the existence, performance, or nonperformance of a contract or
arrangement out of which the letter of credit arises or which underlies it, including contracts or
arrangements between the issuer and the applicant and between the applicant and the beneficiary.
Section 6. Section 70A-5-104 is repealed and reenacted to read:
70A-5-104. Formal requirements.
A letter of credit, confirmation, advice, transfer, amendment, or cancellation may be issued
in any form that is a record and is authenticated:
(1) by a signature; or
(2) in accordance with the agreement of the parties or the standard practice referred to in
Subsection 70A-5-108(5).
Section 7. Section 70A-5-105 is repealed and reenacted to read:
70A-5-105. Consideration.
Consideration is not required to issue, amend, transfer, or cancel a letter of credit, advice, or
confirmation.
Section 8. Section 70A-5-106 is repealed and reenacted to read:
70A-5-106. Issuance, amendment, cancellation, and duration.
(1) A letter of credit is issued and becomes enforceable according to its terms against the
issuer when the issuer sends or otherwise transmits it to the person requested to advise or to the
beneficiary. A letter of credit is revocable only if it so provides.
(2) After a letter of credit is issued, rights and obligations of a beneficiary, applicant,
confirmer, and issuer are not affected by an amendment or cancellation to which that person has not
consented except to the extent the letter of credit provides that it is revocable or that the issuer may
amend or cancel the letter of credit without that consent.
(3) If there is no stated expiration date or other provision that determines its duration, a letter
of credit expires one year after its stated date of issuance or, if none is stated, after the date on which
it is issued.
(4) A letter of credit that states that it is perpetual expires five years after its stated date of
issuance, or if none is stated, after the date on which it is issued.
Section 9. Section 70A-5-107 is repealed and reenacted to read:
70A-5-107. Confirmer, nominated person, and adviser.
(1) A confirmer is directly obligated on a letter of credit and has the rights and obligations
of an issuer to the extent of its confirmation. The confirmer also has rights against and obligations
to the issuer as if the issuer were an applicant and the confirmer had issued the letter of credit at the
request and for the account of the issuer.
(2) A nominated person who is not a confirmer is not obligated to honor or otherwise give
value for a presentation.
(3) A person requested to advise may decline to act as an adviser. An adviser that is not a
confirmer is not obligated to honor or give value for a presentation. An adviser undertakes to the
issuer and to the beneficiary accurately to advise the terms of the letter of credit, confirmation,
amendment, or advice received by that person and undertakes to the beneficiary to check the
apparent authenticity of the request to advise. Even if the advice is inaccurate, the letter of credit,
confirmation, or amendment is enforceable as issued.
(4) A person who notifies a transferee beneficiary of the terms of a letter of credit,
confirmation, amendment, or advice has the rights and obligations of an adviser under Subsection
(3). The terms in the notice to the transferee beneficiary may differ from the terms in any notice to
the transferor beneficiary to the extent permitted by the letter of credit, confirmation, amendment,
or advice received by the person who so notifies.
Section 10. Section 70A-5-108 is repealed and reenacted to read:
70A-5-108. Issuer's rights and obligations.
(1) Except as otherwise provided in Section 70A-5-109, an issuer shall honor a presentation
that, as determined by the standard practice referred to in Subsection (5), appears on its face strictly
to comply with the terms and conditions of the letter of credit. Except as otherwise provided in
Section 70A-5-113 and unless otherwise agreed with the applicant, an issuer shall dishonor a
presentation that does not appear so to comply.
(2) An issuer has a reasonable time after presentation, but not beyond the end of the seventh
business day of the issuer after the day of its receipt of documents:
(a) to honor;
(b) if the letter of credit provides for honor to be completed more than seven business days
after presentation, to accept a draft or incur a deferred obligation; or
(c) to give notice to the presenter of discrepancies in the presentation.
(3) Except as otherwise provided in Subsection (4), an issuer is precluded from asserting as
a basis for dishonor any discrepancy if timely notice is not given, or any discrepancy not stated in
the notice if timely notice is given.
(4) Failure to give the notice specified in Subsection (2) or to mention fraud, forgery, or
expiration in the notice does not preclude the issuer from asserting as a basis for dishonor fraud or
forgery as described in Subsection 70A-5-109(1) or expiration of the letter of credit before
presentation.
(5) An issuer shall observe standard practice of financial institutions that regularly issue
letters of credit. Determination of the issuer's observance of the standard practice is a matter of
interpretation for the court. The court shall offer the parties a reasonable opportunity to present
evidence of the standard practice.
(6) An issuer is not responsible for:
(a) the performance or nonperformance of the underlying contract, arrangement, or
transaction;
(b) an act or omission of others; or
(c) observance or knowledge of the usage of a particular trade other than the standard
practice referred to in Subsection (5).
(7) If an undertaking constituting a letter of credit under Subsection 70A-5-102(10) contains
nondocumentary conditions, an issuer shall disregard the nondocumentary conditions and treat them
as if they were not stated.
(8) An issuer that has dishonored a presentation shall return the documents or hold them at
the disposal of, and send advice to that effect to, the presenter.
(9) An issuer that has honored a presentation as permitted or required by this chapter:
(a) is entitled to be reimbursed by the applicant in immediately available funds not later than
the date of its payment of funds;
(b) takes the documents free of claims of the beneficiary or presenter;
(c) is precluded from asserting a right of recourse on a draft under Sections 70A-3-414 and
70A-3-415;
(d) except as otherwise provided in Sections 70A-5-110 and 70A-5-117, is precluded from
restitution of money paid or other value given by mistake to the extent the mistake concerns
discrepancies in the documents or tender which are apparent on the face of the presentation; and
(e) is discharged to the extent of its performance under the letter of credit unless the issuer
honored a presentation in which a required signature of a beneficiary was forged.
Section 11. Section 70A-5-109 is repealed and reenacted to read:
70A-5-109. Fraud and forgery.
(1) If a presentation is made that appears on its face strictly to comply with the terms and
conditions of the letter of credit, but a required document is forged or materially fraudulent, or honor
of the presentation would facilitate a material fraud by the beneficiary on the issuer or applicant:
(a) the issuer shall honor the presentation, if honor is demanded by:
(i) a nominated person who has given value in good faith and without notice of forgery or
material fraud;
(ii) a confirmer who has honored its confirmation in good faith;
(iii) a holder in due course of a draft drawn under the letter of credit which was taken after
acceptance by the issuer or nominated person; or
(iv) an assignee of the issuer's or nominated person's deferred obligation that was taken for
value and without notice of forgery or material fraud after the obligation was incurred by the issuer
or nominated person; and
(b) the issuer, acting in good faith, may honor or dishonor the presentation in any other case.
(2) If an applicant claims that a required document is forged or materially fraudulent or that
honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or
applicant, a court of competent jurisdiction may temporarily or permanently enjoin the issuer from
honoring a presentation or grant similar relief against the issuer or other persons only if the court
finds that:
(a) the relief is not prohibited under the law applicable to an accepted draft or deferred
obligation incurred by the issuer;
(b) a beneficiary, issuer, or nominated person who may be adversely affected is adequately
protected against loss that it may suffer because the relief is granted;
(c) all of the conditions to entitle a person to the relief under the law of this state have been
met; and
(d) on the basis of the information submitted to the court, the applicant is more likely than
not to succeed under its claim of forgery or material fraud and the person demanding honor does not
qualify for protection under Subsection (1)(a).
Section 12. Section 70A-5-110 is repealed and reenacted to read:
70A-5-110. Warranties.
(1) If its presentation is honored, the beneficiary warrants:
(a) to the issuer, any other person to whom presentation is made, and the applicant that there
is no fraud or forgery of the kind described in Subsection 70A-5-109(1); and
(b) to the applicant that the drawing does not violate any agreement between the applicant
and beneficiary or any other agreement intended by them to be augmented by the letter of credit.
(2) The warranties in Subsection (1) are in addition to warranties arising under Title 70A,
Chapter 3, Negotiable Instruments, Chapter 4, Bank Deposits and Collections, Chapter 7, Documents
of Title, and Chapter 8, Investment Securities, because of the presentation or transfer of documents
covered by any of those chapters.
Section 13. Section 70A-5-111 is repealed and reenacted to read:
70A-5-111. Remedies.
(1) If an issuer wrongfully dishonors or repudiates its obligation to pay money under a letter
of credit before presentation, the beneficiary, successor, or nominated person presenting on its own
behalf may recover from the issuer the amount that is the subject of the dishonor or repudiation. If
the issuer's obligation under the letter of credit is not for the payment of money, the claimant may
obtain specific performance or, at the claimant's election, recover an amount equal to the value of
performance from the issuer. In either case, the claimant may also recover incidental but not
consequential damages. The claimant is not obligated to take action to avoid damages that might
be due from the issuer under this Subsection (1). If, although not obligated to do so, the claimant
avoids damages, the claimant's recovery from the issuer must be reduced by the amount of damages
avoided. The issuer has the burden of proving the amount of damages avoided. In the case of
repudiation the claimant need not present any document.
(2) If an issuer wrongfully dishonors a draft or demand presented under a letter of credit or
honors a draft or demand in breach of its obligation to the applicant, the applicant may recover
damages resulting from the breach, including incidental but not consequential damages, less any
amount saved as a result of the breach.
(3) If an adviser or nominated person other than a confirmer breaches an obligation under
this chapter or an issuer breaches an obligation not covered in Subsection (1) or (2), a person to
whom the obligation is owed may recover damages resulting from the breach, including incidental
but not consequential damages, less any amount saved as a result of the breach. To the extent of the
confirmation, a confirmer has the liability of an issuer specified in this Subsection (3) and
Subsections (1) and (2).
(4) An issuer, nominated person, or adviser who is found liable under Subsection (1), (2),
or (3) shall pay interest on the amount owed thereunder from the date of wrongful dishonor or other
appropriate date.
(5) Reasonable attorney's fees and other expenses of litigation must be awarded to the
prevailing party in an action in which a remedy is sought under this chapter.
(6) Damages that would otherwise be payable by a party for breach of an obligation under
this chapter may be liquidated by agreement or undertaking, but only in an amount or by a formula
that is reasonable in light of the harm anticipated.
Section 14. Section 70A-5-112 is repealed and reenacted to read:
70A-5-112. Transfer of letter of credit.
(1) Except as otherwise provided in Section 70A-5-113, unless a letter of credit provides that
it is transferable, the right of a beneficiary to draw or otherwise demand performance under a letter
of credit may not be transferred.
(2) Even if a letter of credit provides that it is transferable, the issuer may refuse to recognize
or carry out a transfer if:
(a) the transfer would violate applicable law; or
(b) the transferor or transferee has failed to comply with any requirement stated in the letter
of credit or any other requirement relating to transfer imposed by the issuer which is within the
standard practice referred to in Subsection 70A-5-108(5) or is otherwise reasonable under the
circumstances.
Section 15. Section 70A-5-113 is repealed and reenacted to read:
70A-5-113. Transfer by operation of law.
(1) A successor of a beneficiary may consent to amendments, sign and present documents,
and receive payment or other items of value in the name of the beneficiary without disclosing its
status as a successor.
(2) A successor of a beneficiary may consent to amendments, sign and present documents,
and receive payment or other items of value in its own name as the disclosed successor of the
beneficiary. Except as otherwise provided in Subsection (5), an issuer shall recognize a disclosed
successor of a beneficiary as beneficiary in full substitution for its predecessor upon compliance with
the requirements for recognition by the issuer of a transfer of drawing rights by operation of law
under the standard practice referred to in Subsection 70A-5-108(5) or, in the absence of such a
practice, compliance with other reasonable procedures sufficient to protect the issuer.
(3) An issuer is not obliged to determine whether a purported successor is a successor of a
beneficiary or whether the signature of a purported successor is genuine or authorized.
(4) Honor of a purported successor's apparently complying presentation under Subsection
(1) or (2) has the consequences specified in Subsection 70A-5-108(9) even if the purported successor
is not the successor of a beneficiary. Documents signed in the name of the beneficiary or of a
disclosed successor by a person who is neither the beneficiary nor the successor of the beneficiary
are forged documents for the purposes of Section 70A-5-109.
(5) An issuer whose rights of reimbursement are not covered by Subsection (4) or
substantially similar law and any confirmer or nominated person may decline to recognize a
presentation under Subsection (2).
(6) A beneficiary whose name is changed after the issuance of a letter of credit has the same
rights and obligations as a successor of a beneficiary under this section.
Section 16. Section 70A-5-114 is repealed and reenacted to read:
70A-5-114. Assignment of proceeds.
(1) In this section, "proceeds of a letter of credit" means the cash, check, accepted draft, or
other item of value paid or delivered upon honor or giving of value by the issuer or any nominated
person under the letter of credit. The term does not include a beneficiary's drawing rights or
documents presented by the beneficiary.
(2) A beneficiary may assign its right to part or all of the proceeds of a letter of credit. The
beneficiary may do so before presentation as a present assignment of its right to receive proceeds
contingent upon its compliance with the terms and conditions of the letter of credit.
(3) An issuer or nominated person need not recognize an assignment of proceeds of a letter
of credit until it consents to the assignment.
(4) An issuer or nominated person has no obligation to give or withhold its consent to an
assignment of proceeds of a letter of credit, but consent may not be unreasonably withheld if the
assignee possesses and exhibits the letter of credit and presentation of the letter of credit is a
condition to honor.
(5) 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.
(6) Neither the rights recognized by this section between an assignee and an issuer,
transferee beneficiary, or nominated person nor the issuer's or nominated person's payment of
proceeds to an assignee or a third person affect the rights between the assignee and any person other
than the issuer, transferee beneficiary, or nominated person. The mode of creating and perfecting
a security interest in or granting an assignment of a beneficiary's rights to proceeds is governed by
Title 70A, Chapter 9, Secured Transactions, or other law. Against persons other than the issuer,
transferee beneficiary, or nominated person, the rights and obligations arising upon the creation of
a security interest or other assignment of a beneficiary's right to proceeds and its perfection are
governed by Title 70A, Chapter 9, Secured Transactions, or other law.
Section 17. Section 70A-5-115 is repealed and reenacted to read:
70A-5-115. Statute of limitations.
An action to enforce a right or obligation arising under this chapter must be commenced
within one year after the expiration date of the relevant letter of credit or one year after the cause of
action accrues, whichever occurs later. A cause of action accrues when the breach occurs, regardless
of the aggrieved party's lack of knowledge of the breach.
Section 18. Section 70A-5-116 is repealed and reenacted to read:
70A-5-116. Choice of law and forum.
(1) The liability of an issuer, nominated person, or adviser for action or omission is governed
by the law of the jurisdiction chosen by an agreement in the form of a record signed or otherwise
authenticated by the affected parties in the manner provided in Section 70A-5-104 or by a provision
in the person's letter of credit, confirmation, or other undertaking. The jurisdiction whose law is
chosen need not bear any relation to the transaction.
(2) Unless Subsection (1) applies, the liability of an issuer, nominated person, or adviser for
action or omission is governed by the law of the jurisdiction in which the person is located. The
person is considered to be located at the address indicated in the person's undertaking. If more than
one address is indicated, the person is considered to be located at the address from which the person's
undertaking was issued. For the purpose of jurisdiction, choice of law, and recognition of
interbranch letters of credit, but not enforcement of a judgment, all branches of a bank are considered
separate juridical entities and a bank is considered to be located at the place where its relevant branch
is considered to be located under this Subsection (2).
(3) (a) Except as otherwise provided in this Subsection (3)(a), the liability of an issuer,
nominated person, or adviser is governed by any rules of custom or practice, such as the Uniform
Customs and Practice for Documentary Credits, to which the letter of credit, confirmation, or other
undertaking is expressly made subject.
(b) If this chapter would govern the liability of an issuer, nominated person, or adviser under
Subsection (1) or (2):
(i) the relevant undertaking incorporates rules of custom or practice; and
(ii) there is conflict between this chapter and those rules as applied to that undertaking, those
rules govern except to the extent of any conflict with the nonvariable provisions specified in
Subsection 70A-5-103(3).
(4) If there is conflict between this chapter and Title 70A. Chapter 3, Commercial Paper,
Chapter 4, Bank Deposits and Collections, Chapter 4a, Funds Transfers, or Chapter 9, Secured
Transactions, this chapter governs.
(5) The forum for settling disputes arising out of an undertaking within this chapter may be
chosen in the manner and with the binding effect that governing law may be chosen in accordance
with Subsection (1).
Section 19. Section 70A-5-117 is repealed and reenacted to read:
70A-5-117. Subrogation of issuer, applicant, and nominated person.
(1) An issuer that honors a beneficiary's presentation is subrogated to the rights of the
beneficiary to the same extent as if the issuer were a secondary obligor of the underlying obligation
owed to the beneficiary and of the applicant to the same extent as if the issuer were the secondary
obligor of the underlying obligation owed to the applicant.
(2) An applicant that reimburses an issuer is subrogated to the rights of the issuer against any
beneficiary, presenter, or nominated person to the same extent as if the applicant were the secondary
obligor of the obligations owed to the issuer and has the rights of subrogation of the issuer to the
rights of the beneficiary stated in Subsection (1).
(3) A nominated person who pays or gives value against a draft or demand presented under
a letter of credit is subrogated to the rights of:
(a) the issuer against the applicant to the same extent as if the nominated person were a
secondary obligor of the obligation owed to the issuer by the applicant;
(b) the beneficiary to the same extent as if the nominated person were a secondary obligor
of the underlying obligation owed to the beneficiary; and
(c) the applicant to the same extent as if the nominated person were a secondary obligor of
the underlying obligation owed to the applicant.
(4) Notwithstanding any agreement or term to the contrary, the rights of subrogation stated
in Subsections (1) and (2) do not arise until the issuer honors the letter of credit or otherwise pays
and the rights in Subsection (3) do not arise until the nominated person pays or otherwise gives
value. Until then, the issuer, nominated person, and the applicant do not derive under this section
present or prospective rights forming the basis of a claim, defense, or excuse.
Section 20. Section 70A-5-118 is enacted to read:
70A-5-118. Applicability.
This act applies to a letter of credit that is issued on or after July 1, 1997. This act does not
apply to a transaction, event, obligation, or duty arising out of or associated with a letter of credit
that was issued before July 1, 1997.
Section 21. Section 70A-5-119 is enacted to read:
70A-5-119. Savings clause.
A transaction arising out of or associated with a letter of credit that was issued before July
1, 1997, and the rights, obligations, and interests flowing from that transaction are governed by any
statute or other law amended or repealed by this act as if repeal or amendment had not occurred and
may be terminated, completed, consummated, or enforced under that statute or other law.
Section 22. Section 70A-9-103 is amended to read:
70A-9-103. Perfection of security interests in multiple state transactions.
(1) Documents, instruments, letters of credit, and ordinary goods.
(a) This Subsection (1) applies to documents [
letters of credit, and [
Subsection (2), mobile goods described in Subsection (3), and minerals described in Subsection (5).
(b) Except as otherwise provided in this subsection, perfection and the effect of perfection
or nonperfection of a security interest in collateral are governed by the law of the jurisdiction where
the collateral is when the last event occurs on which is based the assertion that the security interest
is perfected or unperfected.
(c) If the parties to a transaction creating a purchase money security interest in goods in one
jurisdiction understand at the time that the security interest attaches that the goods will be kept in
another jurisdiction, then the law of the other jurisdiction governs the perfection and the effect of
perfection or nonperfection of the security interest from the time it attaches until 30 days after the
debtor receives possession of the goods and thereafter if the goods are taken to the other jurisdiction
before the end of the 30-day period.
(d) When collateral is brought into and kept in this state while subject to a security interest
perfected under the law of the jurisdiction from which the collateral was removed, the security
interest remains perfected, but if action is required by Part 3 of this chapter to perfect the security
interest:
(i) if the action is not taken before the expiration of the period of perfection in the other
jurisdiction or the end of four months after the collateral is brought into this state, whichever period
first expires, the security interest becomes unperfected at the end of that period and is thereafter
[
removal;
(ii) if the action is taken before the expiration of the period specified in Subsection (i), the
security interest continues perfected thereafter; or
(iii) for the purpose of priority over a buyer of consumer goods as provided in Subsection
70A-9-307(2), the period of the effectiveness of a filing in the jurisdiction from which the collateral
is removed is governed by the rules with respect to perfection in Subsections (i) and (ii).
(2) Certificate of title.
(a) This subsection applies to goods covered by a certificate of title issued under a statute
of this state or of another jurisdiction under the law of which indication of a security interest on the
certificate is required as a condition of perfection.
(b) Except as otherwise provided in this subsection, perfection and the effect of perfection
or nonperfection of the security interest are governed by the laws, including the conflict of law rules,
of the jurisdiction issuing the certificate until four months after the goods are removed from that
jurisdiction and thereafter until the goods are registered in another jurisdiction, but in any event not
beyond surrender of the certificate. After the expiration of that period, the goods are not covered by
the certificate of title within the meaning of this section.
(c) Except with respect to the rights of a buyer described in the next paragraph, a security
interest, perfected in another jurisdiction otherwise than by notation on a certificate of title, in goods
brought into this state and thereafter covered by a certificate of title issued by this state is subject to
the rules stated in Subsection (1)(d).
(d) If goods are brought into this state while a security interest therein is perfected in any
manner under the law of the jurisdiction from which the goods are removed and a certificate of title
is issued by this state and the certificate does not show that the goods are subject to the security
interest or that they may be subject to security interests not shown on the certificate, the security
interest is subordinate to the rights of a buyer of the goods who is not in the business of selling goods
of that kind to the extent that he gives value and receives delivery of the goods after issuance of the
certificate and without knowledge of the security interest.
(3) Accounts, general intangibles, and mobile goods.
(a) This subsection applies to accounts, other than an account described in Subsection (5)
on minerals, and general intangibles, other than uncertificated securities, and to goods which are
mobile and which are of a type normally used in more than one jurisdiction, such as motor vehicles,
trailers, rolling stock, airplanes, shipping containers, road building and construction machinery, and
commercial harvesting machinery and the like, if the goods are equipment or are inventory leased
or held for lease by the debtor to others and are not covered by a certificate of title described in
Subsection (2).
(b) The law, including the conflict of laws rules, of the jurisdiction in which the debtor is
located governs the perfection and the effect of perfection or nonperfection of the security interest.
(c) If, however, the debtor is located in a jurisdiction which is not a part of the United States,
and which does not provide for perfection of the security interest by filing or recording in that
jurisdiction, the law of the jurisdiction in the United States in which the debtor has its major
executive office in the United States governs the perfection and the effect of perfection or
nonperfection of the security interest through filing. In the alternative, if the debtor is located in a
jurisdiction which is not a part of the United States or Canada and the collateral is accounts or
general intangibles for money due or to become due, the security interest may be perfected by
notification to the account debtor. As used in this paragraph, "United States" includes its territories
and possessions and the Commonwealth of Puerto Rico.
(d) A debtor shall be deemed located at his place of business if he has one, at his chief
executive office if he has more than one place of business, otherwise at his residence. If, however,
the debtor is a foreign air carrier under the Federal Aviation Act of 1958, as amended, it shall be
deemed located at the designated office of the agent upon whom service of process may be made on
behalf of the foreign air carrier.
(e) A security interest perfected under the law of the jurisdiction of the location of the debtor
is perfected until the expiration of four months after a change of the debtor's location to another
jurisdiction, or until perfection would have ceased by the law of the first jurisdiction, whichever
period first expires. Unless perfected in the new jurisdiction before the end of that period, it
becomes unperfected thereafter and is deemed to have been unperfected as against a person who
became a purchaser after the change.
(4) Chattel paper. The rules stated for goods in Subsection (1) apply to a possessory security
interest in chattel paper. The rules stated for accounts in Subsection (3) apply to a nonpossessory
security interest in chattel paper, but the security interest may not be perfected by notification to the
account debtor.
(5) Minerals. Perfection and the effect of perfection or nonperfection of a security interest
which is created by a debtor who has an interest in minerals or the like, including oil and gas, before
extraction and which attaches thereto as extracted, or which attaches to an account resulting from
the sale thereof at the wellhead or minehead are governed by the law, including the conflict of laws
rules, of the jurisdiction wherein the wellhead or minehead is located.
(6) Investment property.
(a) Except as otherwise provided in Subsection (e), during the time that a security certificate
is located in a jurisdiction, perfection of a security interest, the effect of perfection or nonperfection,
and the priority of a security interest in the certificated security represented thereby are governed by
the local law of that jurisdiction.
(b) Except as otherwise provided in Subsection (e), perfection of a security interest, the
effect of perfection or nonperfection, and the priority of a security interest in an uncertificated
security are governed by the local law of the issuer's jurisdiction as specified in Subsection
70A-8-109(4).
(c) Except as otherwise provided in Subsection (e), perfection of a security interest, the
effect of perfection or nonperfection, and the priority of a security interest in a security entitlement
or securities account are governed by the local law of the securities intermediary's jurisdiction as
specified in Subsection 70A-8-109(5).
(d) Except as otherwise provided in Subsection (e), perfection of a security interest, the
effect of perfection or nonperfection, and the priority of a security interest in a commodity contract
or commodity account are governed by the local law of the commodity intermediary's jurisdiction.
The following rules determine a "commodity intermediary's jurisdiction" for purposes of this
Subsection (6):
(i) If an agreement between the commodity intermediary and commodity customer specifies
that it is governed by the law of a particular jurisdiction, that jurisdiction is the commodity
intermediary's jurisdiction.
(ii) If an agreement between the commodity intermediary and commodity customer does not
specify the governing law as provided in Subsection (i), but expressly specifies that the commodity
account is maintained at an office in a particular jurisdiction, that jurisdiction is the commodity
intermediary's jurisdiction.
(iii) If an agreement between the commodity intermediary and commodity customer does
not specify a jurisdiction as provided in Subsection (i) or (ii), the commodity intermediary's
jurisdiction is the jurisdiction in which is located the office identified in an account statement as the
office serving the commodity customer's account.
(iv) If an agreement between the commodity intermediary and commodity customer does
not specify a jurisdiction as provided in Subsection (i) or (ii) and an account statement does not
identify an office serving the commodity customer's account as provided in Subsection (iii), the
commodity intermediary's jurisdiction is the jurisdiction in which is located the chief executive
office of the commodity intermediary.
(e) Perfection of a security interest by filing, automatic perfection of a security interest in
investment property granted by a broker or securities intermediary, and automatic perfection of a
security interest in a commodity contract or commodity account granted by a commodity
intermediary are governed by the local law of the jurisdiction in which the debtor is located. The
rules in Subsections (3)(c), (d), and (e) apply to security interests to which this paragraph applies.
Section 23. Section 70A-9-104 is amended to read:
70A-9-104. Transactions excluded from chapter.
This chapter does not apply:
(a) to a security interest subject to any statute of the United States to the extent that such
statute governs the rights of parties to and third parties affected by transactions in particular types
of property; [
(b) to a landlord's lien; [
(c) to a lien given by statute or other rule of law for services or materials except as provided
in Section 70A-9-310 on priority of such liens; [
(d) to a transfer of a claim for wages, salary, or other compensation of an employee; [
(e) to a transfer by a government or governmental subdivision or agency; [
(f) to a sale of accounts or chattel paper as part of a sale of the business out of which they
arose, or an assignment of accounts or chattel paper which is for the purpose of collection only, or
a transfer of a right to payment under a contract to an assignee who is also to do the performance
under the contract, or a transfer of a single account to an assignee in whole or partial satisfaction of
a preexisting indebtedness; [
(g) to a transfer of an interest or claim in or under any policy of insurance or any contract
for an annuity (including a variable annuity), except as provided with respect to proceeds (Section
70A-9-306) and priorities in proceeds (Section 70A-9-312); [
(h) to a right represented by a judgment (other than a judgment taken on a right to payment
which was collateral); [
(i) to any right of setoff; [
(j) except to the extent that provision is made for fixtures in Section 70A-9-313, to the
creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder; [
(k) to a transfer in whole or in part of any claim arising out of tort; [
(l) to a transfer of interest in any deposit account (Subsection (1) of Section 70A-9-105),
except as provided with respect to proceeds (Section 70A-9-306) and priorities in proceeds (Section
70A-9-312)[
(m) to a transfer of an interest in a letter of credit other than the rights to proceeds of a
written letter of credit.
Section 24. Section 70A-9-105 is amended to read:
70A-9-105. Definitions and index of definitions.
(1) In this chapter unless the context otherwise requires:
(a) "Account debtor" means the person who is obligated on an account, chattel paper, or
general intangible.
(b) "Chattel paper" means a writing or writings which evidence both a monetary obligation
and a security interest in or a lease of specific goods, but a charter or other contract involving the use
or hire of a vessel is not chattel paper. When a transaction is evidenced both by such a security
agreement or a lease and by an instrument or a series of instruments, the group of writings taken
together constitutes chattel paper.
(c) "Collateral" means the property subject to a security interest, and includes accounts and
chattel paper which have been sold.
(d) "Debtor" means the person who owes payment or other performance of the obligation
secured, whether or not he owns or has rights in the collateral, and includes the seller of accounts
or chattel paper. Where the debtor and the owner of the collateral are not the same person, the term
"debtor" means the owner of the collateral in any provision of the chapter dealing with the collateral,
the obligor in any provision dealing with the obligation, and may include both where the context so
requires.
(e) "Deposit account" means a demand, time, savings, passbook, or like account maintained
with a bank, savings and loan association, credit union, or like organization, other than an account
evidenced by a certificate of deposit.
(f) "Document" means document of title as defined in the general definitions of [
(g) "Encumbrance" includes real estate mortgages and other liens on real estate and all other
rights in real estate that are not ownership interests.
(h) "Goods" includes all things which are movable at the time the security interest attaches
or which are fixtures as provided in Section 70A-9-313, but does not include money, documents,
instruments, investment property, accounts, chattel paper, general intangibles, or minerals or the like,
including oil and gas, before extraction. "Goods" also include standing timber which is to be cut and
removed under a conveyance or contract for sale, the unborn young of animals, and growing crops.
(i) "Instrument" means a negotiable instrument, as defined in Section 70A-3-104, or any
other writing which evidences a right to the payment of money and is not itself a security agreement
or lease and is of a type which is in ordinary course of business transferred by delivery with any
necessary indorsement or assignment. The term does not include investment property.
(j) "Letter of credit" means the definition as provided in Section 70A-5-102.
[
deed on real estate or the like.
(l) "Proceeds of a letter of credit" means the definition as provided in Section 70A-5-114.
[
himself to make it, whether or not a subsequent event of default or other event not within his control
has relieved or may relieve him from his obligation.
[
interest.
[
security interest, including a person to whom accounts or chattel paper have been sold. When the
holders of obligations issued under an indenture of trust, equipment trust agreement, or the like are
represented by a trustee or other person, the representative is the secured party.
[
railway or trolley bus business, the electric or electronics communications transmission business,
the transmission of goods by pipeline, or the transmission or the production and transmission of
electricity, steam, gas, or water, or the provision of sewer service.
(2) Other definitions applying to this chapter and the sections in which they appear are:
"Account," Section 70A-9-106;
"Attach," Section 70A-9-203;
"Commodity contract," Section 70A-9-115;
"Commodity customer," Section 70A-9-115;
"Commodity intermediary," Section 70A-9-115;
"Construction mortgage," [
"Consumer goods," [
"Control," Section 70A-9-115;
"Equipment," [
"Farm products," [
"Fixture," Section 70A-9-313;
"Fixture filing," Section 70A-9-313;
"General intangibles," Section 70A-9-106;
"Inventory," [
"Investment property," Section 70A-9-115;
"Lien creditor," [
"Proceeds," [
"Purchase money security interest," Section 70A-9-107; and
"United States;" Section 70A-9-103.
(3) The following definitions in other chapters apply to this chapter:
"Broker," Section 70A-8-101;
"Certificated security," Section 70A-8-101;
"Check," Section 70A-3-104;
"Clearing corporation," Section 70A-8-101;
"Contract for sale," Section 70A-2-106;
"Control," Section 70A-8-105;
"Delivery," Section 70A-8-301;
"Entitlement holder," Section 70A-8-101;
"Financial asset," Section 70A-8-101;
"Holder in due course," Section 70A-3-302;
"Note," Section 70A-3-104;
"Sale[
"Securities intermediary," Section 70A-8-101;
"Security," Section 70A-8-101;
"Security certificate," Section 70A-8-101;
"Security entitlement," Section 70A-8-101; and
"Uncertificated security," Section 70A-8-101.
(4) In addition, Title 70A, Chapter 1, General Provisions, contains general definitions and
principles of construction and interpretation applicable throughout this chapter.
Section 25. Section 70A-9-106 is amended to read:
70A-9-106. Definitions -- "Account" -- "General intangibles."
"Account" means any right to payment for goods sold or leased or for services rendered
which is not evidenced by an instrument or chattel paper, whether or not it has been earned by
performance. "General intangibles" means any personal property (including things in action) other
than goods, accounts, chattel paper, documents, instruments, investment property, rights to proceeds
of written letters of credit, and money. All rights to payment earned or unearned under a charter or
other contract involving the use or hire of a vessel and all rights incident to the charter or contract
are accounts.
Section 26. Section 70A-9-304 is amended to read:
70A-9-304. Perfection of security interest in instruments, documents, proceeds of a
written letter of credit, and goods covered by documents -- Perfection by permissive filing --
Temporary perfection without filing or transfer of possession.
(1) A security interest in chattel paper or negotiable documents may be perfected by filing.
A security interest in the rights to proceeds of a written letter of credit can be perfected only by the
secured party's taking possession of the letter of credit. A security interest in money or instruments,
other than instruments which constitute part of chattel paper, can be perfected only by the secured
party's taking possession, except as provided in Subsections (4) and (5) of this section and
Subsections (2) and (3) of Section 70A-9-306 on proceeds.
(2) During the period that goods are in the possession of the issuer of a negotiable document
therefor, a security interest in the goods is perfected by perfecting a security interest in the document,
and any security interest in the goods otherwise perfected during such period is subject thereto.
(3) A security interest in goods in the possession of a bailee other than one who has issued
a negotiable document therefor is perfected by issuance of a document in the name of the secured
party or by the bailee's receipt of notification of the secured party's interest or by filing as to the
goods.
(4) A security interest in instruments, certificated securities, or negotiable documents is
perfected without filing or the taking of possession for a period of 21 days from the time it attaches
to the extent that it arises for new value given under a written security agreement.
(5) A security interest remains perfected for a period of 21 days without filing where a
secured party having a perfected security interest in an instrument, a certificated security, a
negotiable document, or goods in possession of a bailee other than one who has issued a negotiable
document therefor:
(a) makes available to the debtor the goods or documents representing the goods for the
purpose of ultimate sale or exchange or for the purpose of loading, unloading, storing, shipping,
transshipping, manufacturing, processing, or otherwise dealing with them in a manner preliminary
to their sale or exchange, but priority between conflicting security interests in the goods is subject
to Section 70A-9-312; or
(b) delivers the instrument or certificated security to the debtor for the purpose of ultimate
sale or exchange or of presentation, collection, renewal, or registration of transfer.
(6) After the 21-day period in Subsections (4) and (5), perfection depends upon compliance
with applicable provisions of this chapter.
Section 27. Section 70A-9-305 is amended to read:
70A-9-305. When possession by secured party perfects security interest without filing.
A security interest in [
perfected by the secured party's taking possession of the collateral. A security interest in the right
to proceeds of a written letter of credit may be perfected by the secured party's taking possession of
a letter of credit. If such collateral other than goods covered by a negotiable document is held by
a bailee, the secured party is deemed to have possession from the time the bailee receives notification
of the secured party's interest. A security interest is perfected by possession from the time
possession is taken without relation back and continues only so long as possession is retained, unless
otherwise specified in this chapter. The security interest may be otherwise perfected as provided in
this chapter before or after the period of possession by the secured party.
Section 28. Effective date.
This act takes effect on July 1, 1997.
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