§ 9306 Letter Of Credit Security Interests

• •If you have a letter-of-credit right, the rules about who gets paid first (priority) and how to make sure your claim is valid (perfection) depend on the laws where the issuer or the nominated person is located.
• •The issuer or nominated person’s location is determined by the laws that decide who is responsible for the letter-of-credit right, as explained in Section 5116.
• •This rule does not apply if the security interest is only perfected under Section 9308(d).

Imagine you have a letter of credit from a bank in California to guarantee payment for goods you’re selling. If someone else also claims that same letter of credit as security for a loan, the laws of California will decide who gets paid first.

The bank’s location (California) determines the rules for who has the stronger claim on the letter of credit. If the bank is in California, California’s laws apply to decide priority.