As Reported by the Senate Finance 1
and Financial Institutions Committee 2
122nd General Assembly 5
Regular Session H. B. No. 338 6
1997-1998 7
REPRESENTATIVES CALLENDER-WOMER BENJAMIN-GARCIA-BATCHELDER- 9
CLANCY-GARDNER-WISE-AMSTUTZ-BUCHY-HARRIS-TIBERI- 10
MILLER-LEWIS-VERICH-GRENDELL-REID-TAVARES-SALERNO 11
13
A B I L L
To amend sections 1301.05, 1302.56, 1309.01, 15
1309.03, 1309.04, 1309.23, and 1309.24, to enact 16
new sections 1305.01 to 1305.16, and to repeal 17
sections 1305.01, 1305.02, 1305.03, 1305.04, 18
1305.05, 1305.06, 1305.07, 1305.08, 1305.09, 19
1305.10, 1305.11, 1305.12, 1305.13, 1305.14, 20
1305.15, and 1305.16 of the Revised Code to adopt 21
Revised Article V--Letters of Credit of the 22
Uniform Commercial Code. 23
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO: 25
Section 1. That sections 1301.05, 1302.56, 1309.01, 27
1309.03, 1309.04, 1309.23, and 1309.24 be amended and new 29
sections 1305.01, 1305.02, 1305.03, 1305.04, 1305.05, 1305.06, 30
1305.07, 1305.08, 1305.09, 1305.10, 1305.11, 1305.12, 1305.13, 31
1305.14, 1305.15, and 1305.16 of the Revised Code be enacted to
read as follows: 32
Sec. 1301.05. (A) Except as otherwise provided in this 41
section, when a transaction bears a reasonable relation to this 42
state and also to another state or nation, the parties may agree 43
that the law either of this state or of the other state or nation 44
shall govern their rights and duties. Failing such an agreement 45
Chapters 1301., 1302., 1303., 1304., 1305., 1307., 1308., 1309., 47
and 1310. of the Revised Code apply to transactions bearing an 48
2
appropriate relation to this state.
(B) Where one of the following provisions of Chapters 50
1301., 1302., 1303., 1304., 1305., 1307., 1308., 1309., and 1310. 52
of the Revised Code specifies the applicable law, that provision 53
governs and a contrary agreement is effective only to the extent 54
permitted by the law, including the conflict of laws rules, so 55
specified:
(1) Rights of creditors against sold goods, as provided in 57
section 1302.43 of the Revised Code; 58
(2) Applicability of sections 1304.01 to 1304.40 of the 60
Revised Code, as provided in section 1304.02 of the Revised Code; 61
(3) Fund transfers under sections 1304.51 to 1304.85 of 63
the Revised Code, as provided in section 1304.85 of the Revised 64
Code; 65
(4) CHOICE OF LAW AS TO LETTERS OF CREDIT UNDER SECTION 67
1305.15 OF THE REVISED CODE;
(5) Applicability of sections 1308.01 to 1308.36 of the 69
Revised Code, as provided in section 1308.05 of the Revised Code; 70
(5)(6) Perfection provisions of section 1309.03 of the 72
Revised Code; 73
(6)(7) Applicability of sections 1310.01 to 1310.78 of the 75
Revised Code, as provided in sections 1310.03 and 1310.04 of the 76
Revised Code. 77
Sec. 1302.56. (A) Where the contract requires payment 86
before inspection, non-conformity NONCONFORMITY of the goods does 87
not excuse the buyer from so making payment unless: 88
(1) the non-conformity THE NONCONFORMITY appears without 90
inspection; or 91
(2) despite DESPITE tender of the required documents the 93
circumstances would justify injunction against honor under the 94
provisions DIVISION (B) of section 1305.13 1305.08 of the Revised 97
Code.
(B) Payment pursuant to division (A) of this section does 99
not constitute an acceptance of goods or impair the buyer's right 100
3
to inspect or any of his THE BUYER'S remedies. 101
Sec. 1305.01. (A) AS USED IN THIS CHAPTER: 103
(1) "ADVISER" MEANS A PERSON WHO, AT THE REQUEST OF THE 106
ISSUER, A CONFIRMER, OR ANOTHER ADVISER, NOTIFIES OR REQUESTS 107
ANOTHER ADVISER TO NOTIFY THE BENEFICIARY THAT A LETTER OF CREDIT 108
HAS BEEN ISSUED, CONFIRMED, OR AMENDED.
(2) "APPLICANT" MEANS A PERSON AT WHOSE REQUEST OR FOR 110
WHOSE ACCOUNT A LETTER OF CREDIT IS ISSUED. THE TERM INCLUDES A 111
PERSON WHO REQUESTS AN ISSUER TO ISSUE A LETTER OF CREDIT ON 112
BEHALF OF ANOTHER IF THE PERSON MAKING THE REQUEST UNDERTAKES AN 113
OBLIGATION TO REIMBURSE THE ISSUER. 114
(3) "BENEFICIARY" MEANS A PERSON WHO, UNDER THE TERMS OF A 117
LETTER OF CREDIT, IS ENTITLED TO HAVE ITS COMPLYING PRESENTATION 118
HONORED. THE TERM INCLUDES A PERSON TO WHOM DRAWING RIGHTS HAVE 119
BEEN TRANSFERRED UNDER A TRANSFERABLE LETTER OF CREDIT. 120
(4) "CONFIRMER" MEANS A NOMINATED PERSON WHO UNDERTAKES, 123
AT THE REQUEST OR WITH THE CONSENT OF THE ISSUER, TO HONOR A 124
PRESENTATION UNDER A LETTER OF CREDIT ISSUED BY ANOTHER.
(5) "DISHONOR" OF A LETTER OF CREDIT MEANS FAILURE TIMELY 127
TO HONOR OR TO TAKE AN INTERIM ACTION, SUCH AS ACCEPTANCE OF A 128
DRAFT, THAT MAY BE REQUIRED BY THE LETTER OF CREDIT.
(6) "DOCUMENT" MEANS A DRAFT OR OTHER DEMAND, DOCUMENT OF 131
TITLE, INVESTMENT SECURITY, CERTIFICATE, INVOICE, OR OTHER
RECORD, STATEMENT, OR REPRESENTATION OF FACT, LAW, RIGHT, OR 132
OPINION THAT IS (a) PRESENTED IN A WRITTEN OR OTHER MEDIUM 133
PERMITTED BY THE LETTER OF CREDIT OR, UNLESS PROHIBITED BY THE 134
LETTER OF CREDIT, BY THE STANDARD PRACTICE REFERRED TO IN 135
DIVISION (E) OF SECTION 1305.07 OF THE REVISED CODE AND (b) 136
CAPABLE OF BEING EXAMINED FOR COMPLIANCE WITH THE TERMS AND 138
CONDITIONS OF THE LETTER OF CREDIT. A DOCUMENT MAY NOT BE ORAL. 139
(7) "GOOD FAITH" MEANS HONESTY IN FACT IN THE CONDUCT OR 142
TRANSACTION CONCERNED.
(8) "HONOR" OF A LETTER OF CREDIT MEANS PERFORMANCE OF THE 145
ISSUER'S UNDERTAKING IN THE LETTER OF CREDIT TO PAY OR DELIVER AN 146
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ITEM OF VALUE. UNLESS THE LETTER OF CREDIT OTHERWISE PROVIDES, 147
"HONOR" OCCURS:
(a) UPON PAYMENT; 149
(b) IF THE LETTER OF CREDIT PROVIDES FOR ACCEPTANCE, UPON 152
ACCEPTANCE OF A DRAFT AND, AT MATURITY, ITS PAYMENT; OR 153
(c) IF THE LETTER OF CREDIT PROVIDES FOR INCURRING A 156
DEFERRED OBLIGATION, UPON INCURRING THE OBLIGATION AND, AT
MATURITY, ITS PERFORMANCE. 157
(9) "ISSUER" MEANS A BANK OR OTHER PERSON THAT ISSUES A 160
LETTER OF CREDIT, BUT DOES NOT INCLUDE AN INDIVIDUAL WHO MAKES AN 161
ENGAGEMENT FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES.
(10) "LETTER OF CREDIT" MEANS A DEFINITE UNDERTAKING THAT 164
SATISFIES THE REQUIREMENTS OF SECTION 1305.03 OF THE REVISED CODE
BY AN ISSUER TO A BENEFICIARY AT THE REQUEST OR FOR THE ACCOUNT 165
OF AN APPLICANT OR, IN THE CASE OF A FINANCIAL INSTITUTION, TO 166
ITSELF OR FOR ITS OWN ACCOUNT, TO HONOR A DOCUMENTARY 167
PRESENTATION BY PAYMENT OR DELIVERY OF AN ITEM OF VALUE. 168
(11) "NOMINATED PERSON" MEANS A PERSON WHOM THE ISSUER (a) 171
DESIGNATES OR AUTHORIZES TO PAY, ACCEPT, NEGOTIATE, OR OTHERWISE 172
GIVE VALUE UNDER A LETTER OF CREDIT AND (b) UNDERTAKES BY 173
AGREEMENT OR CUSTOM AND PRACTICE TO REIMBURSE.
(12) "PRESENTATION" MEANS DELIVERY OF A DOCUMENT TO AN 175
ISSUER OR NOMINATED PERSON FOR HONOR OR GIVING OF VALUE UNDER A 176
LETTER OF CREDIT. 177
(13) "PRESENTER" MEANS A PERSON MAKING A PRESENTATION AS, 180
OR ON BEHALF OF, A BENEFICIARY OR NOMINATED PERSON.
(14) "RECORD" MEANS INFORMATION THAT IS INSCRIBED ON A 182
TANGIBLE MEDIUM, OR THAT IS STORED IN AN ELECTRONIC OR OTHER 183
MEDIUM AND IS RETRIEVABLE IN PERCEIVABLE FORM. 184
(15) "SUCCESSOR OF A BENEFICIARY" MEANS A PERSON WHO 186
SUCCEEDS TO SUBSTANTIALLY ALL OF THE RIGHTS OF A BENEFICIARY BY 187
OPERATION OF LAW, INCLUDING A CORPORATION WITH OR INTO WHICH THE 188
BENEFICIARY HAS BEEN MERGED OR CONSOLIDATED, AN ADMINISTRATOR, 189
EXECUTOR, PERSONAL REPRESENTATIVE, TRUSTEE IN BANKRUPTCY, DEBTOR 190
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IN POSSESSION, LIQUIDATOR, AND RECEIVER. 191
(B) DEFINITIONS IN OTHER CHAPTERS APPLYING TO THIS CHAPTER 193
AND THE SECTIONS IN WHICH THEY APPEAR ARE: "ACCEPT" OR 194
"ACCEPTANCE" IN SECTION 1303.46 AND "VALUE" IN SECTIONS 1303.33 195
AND 1304.21 OF THE REVISED CODE.
(C) CHAPTER 1301. OF THE REVISED CODE CONTAINS CERTAIN 197
ADDITIONAL GENERAL DEFINITIONS AND PRINCIPLES OF CONSTRUCTION AND 198
INTERPRETATION APPLICABLE THROUGHOUT THIS CHAPTER. 199
Sec. 1305.02. (A) THIS CHAPTER APPLIES TO LETTERS OF 201
CREDIT AND TO CERTAIN RIGHTS AND OBLIGATIONS ARISING OUT OF 202
TRANSACTIONS INVOLVING LETTERS OF CREDIT. 203
(B) THE STATEMENT OF A RULE IN THIS CHAPTER DOES NOT BY 205
ITSELF REQUIRE, IMPLY, OR NEGATE APPLICATION OF THE SAME OR A 206
DIFFERENT RULE TO A SITUATION NOT PROVIDED FOR, OR TO A PERSON 207
NOT SPECIFIED, IN THIS CHAPTER. 208
(C) WITH THE EXCEPTION OF THIS DIVISION, DIVISIONS (A) AND 211
(D) OF THIS SECTION, DIVISIONS (A)(9) AND (10) OF SECTION 212
1305.01, DIVISION (D) OF SECTION 1305.05, AND DIVISION (D) OF 214
SECTION 1305.13, AND EXCEPT TO THE EXTENT PROHIBITED IN DIVISION 215
(C) OF SECTION 1301.02 AND DIVISION (D) OF SECTION 1305.16 OF THE 216
REVISED CODE, THE EFFECT OF THIS CHAPTER MAY BE VARIED BY 217
AGREEMENT OR BY A PROVISION STATED OR INCORPORATED BY REFERENCE 218
IN AN UNDERTAKING. A TERM IN AN AGREEMENT OR UNDERTAKING 219
GENERALLY EXCUSING LIABILITY OR GENERALLY LIMITING REMEDIES FOR 220
FAILURE TO PERFORM OBLIGATIONS IS NOT SUFFICIENT TO VARY 221
OBLIGATIONS PRESCRIBED BY THIS CHAPTER. 222
(D) RIGHTS AND OBLIGATIONS OF AN ISSUER TO A BENEFICIARY 224
OR A NOMINATED PERSON UNDER A LETTER OF CREDIT ARE INDEPENDENT OF 226
THE EXISTENCE, PERFORMANCE, OR NONPERFORMANCE OF A CONTRACT OR 227
ARRANGEMENT OUT OF WHICH THE LETTER OF CREDIT ARISES OR WHICH
UNDERLIES IT, INCLUDING CONTRACTS OR ARRANGEMENTS BETWEEN THE 228
ISSUER AND THE APPLICANT AND BETWEEN THE APPLICANT AND THE 229
BENEFICIARY. 230
Sec. 1305.03. A LETTER OF CREDIT, CONFIRMATION, ADVICE, 232
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TRANSFER, AMENDMENT, OR CANCELLATION MAY BE ISSUED IN ANY FORM 233
THAT IS A RECORD AND IS AUTHENTICATED BY A SIGNATURE OR IN 234
ACCORDANCE WITH THE AGREEMENT OF THE PARTIES OR THE STANDARD 235
PRACTICE REFERRED TO IN DIVISION (E) OF SECTION 1305.07 OF THE 236
REVISED CODE.
Sec. 1305.04. CONSIDERATION IS NOT REQUIRED TO ISSUE, 238
AMEND, TRANSFER, OR CANCEL A LETTER OF CREDIT, ADVICE, OR 239
CONFIRMATION.
Sec. 1305.05. (A) A LETTER OF CREDIT IS ISSUED AND 241
BECOMES ENFORCEABLE ACCORDING TO ITS TERMS AGAINST THE ISSUER 243
WHEN THE ISSUER SENDS OR OTHERWISE TRANSMITS IT TO THE PERSON 244
REQUESTED TO ADVISE OR TO THE BENEFICIARY. A LETTER OF CREDIT IS 245
REVOCABLE ONLY IF IT SO PROVIDES. 246
(B) AFTER A LETTER OF CREDIT IS ISSUED, RIGHTS AND 248
OBLIGATIONS OF A BENEFICIARY, APPLICANT, CONFIRMER, AND ISSUER 249
ARE NOT AFFECTED BY AN AMENDMENT OR CANCELLATION TO WHICH THAT 250
PERSON HAS NOT CONSENTED EXCEPT TO THE EXTENT THE LETTER OF 251
CREDIT PROVIDES THAT IT IS REVOCABLE OR THAT THE ISSUER MAY AMEND 252
OR CANCEL THE LETTER OF CREDIT WITHOUT THAT CONSENT. 253
(C) IF THERE IS NO STATED EXPIRATION DATE OR OTHER 255
PROVISION THAT DETERMINES ITS DURATION, A LETTER OF CREDIT 256
EXPIRES ONE YEAR AFTER ITS STATED DATE OF ISSUANCE OR, IF NONE IS 257
STATED, AFTER THE DATE ON WHICH IT IS ISSUED. 258
(D) A LETTER OF CREDIT THAT STATES THAT IT IS PERPETUAL 260
EXPIRES FIVE YEARS AFTER ITS STATED DATE OF ISSUANCE OR, IF NONE 261
IS STATED, AFTER THE DATE ON WHICH IT IS ISSUED. 262
Sec. 1305.06. (A) A CONFIRMER IS DIRECTLY OBLIGATED ON A 264
LETTER OF CREDIT AND HAS THE RIGHTS AND OBLIGATIONS OF AN ISSUER 266
TO THE EXTENT OF ITS CONFIRMATION. THE CONFIRMER ALSO HAS RIGHTS 267
AGAINST AND OBLIGATIONS TO THE ISSUER AS IF THE ISSUER WERE AN 268
APPLICANT AND THE CONFIRMER HAD ISSUED THE LETTER OF CREDIT AT 269
THE REQUEST AND FOR THE ACCOUNT OF THE ISSUER. 270
(B) A NOMINATED PERSON WHO IS NOT A CONFIRMER IS NOT 272
OBLIGATED TO HONOR OR OTHERWISE GIVE VALUE FOR A PRESENTATION. 273
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(C) A PERSON REQUESTED TO ADVISE MAY DECLINE TO ACT AS AN 275
ADVISER. AN ADVISER THAT IS NOT A CONFIRMER IS NOT OBLIGATED TO 276
HONOR OR GIVE VALUE FOR A PRESENTATION. AN ADVISER UNDERTAKES TO 277
THE ISSUER AND TO THE BENEFICIARY ACCURATELY TO ADVISE THE TERMS 278
OF THE LETTER OF CREDIT, CONFIRMATION, AMENDMENT, OR ADVICE 279
RECEIVED BY THAT PERSON AND UNDERTAKES TO THE BENEFICIARY TO 280
CHECK THE APPARENT AUTHENTICITY OF THE REQUEST TO ADVISE. EVEN 281
IF THE ADVICE IS INACCURATE, THE LETTER OF CREDIT, CONFIRMATION, 282
OR AMENDMENT IS ENFORCEABLE AS ISSUED. 283
(D) A PERSON WHO NOTIFIES A TRANSFEREE BENEFICIARY OF THE 285
TERMS OF A LETTER OF CREDIT, CONFIRMATION, AMENDMENT, OR ADVICE 286
HAS THE RIGHTS AND OBLIGATIONS OF AN ADVISER UNDER DIVISION (C) 287
OF THIS SECTION. THE TERMS IN THE NOTICE TO THE TRANSFEREE 288
BENEFICIARY MAY DIFFER FROM THE TERMS IN ANY NOTICE TO THE 289
TRANSFEROR BENEFICIARY TO THE EXTENT PERMITTED BY THE LETTER OF 290
CREDIT, CONFIRMATION, AMENDMENT, OR ADVICE RECEIVED BY THE PERSON 292
WHO SO NOTIFIES.
Sec. 1305.07. (A) EXCEPT AS OTHERWISE PROVIDED IN SECTION 294
1305.08 OF THE REVISED CODE, AN ISSUER SHALL HONOR A PRESENTATION 296
THAT, AS DETERMINED BY THE STANDARD PRACTICE REFERRED TO IN 297
DIVISION (E) OF THIS SECTION, APPEARS ON ITS FACE STRICTLY TO 298
COMPLY WITH THE TERMS AND CONDITIONS OF THE LETTER OF CREDIT. 299
EXCEPT AS OTHERWISE PROVIDED IN SECTION 1305.12 OF THE REVISED 300
CODE AND, UNLESS OTHERWISE AGREED WITH THE APPLICANT, AN ISSUER 301
SHALL DISHONOR A PRESENTATION THAT DOES NOT APPEAR SO TO COMPLY. 302
(B) AN ISSUER HAS A REASONABLE TIME AFTER PRESENTATION, 304
BUT NOT BEYOND THE END OF THE SEVENTH BUSINESS DAY OF THE ISSUER 305
AFTER THE DAY OF ITS RECEIPT OF DOCUMENTS: 306
(1) TO HONOR; 308
(2) IF THE LETTER OF CREDIT PROVIDES FOR HONOR TO BE 310
COMPLETED MORE THAN SEVEN BUSINESS DAYS AFTER PRESENTATION, TO 311
ACCEPT A DRAFT OR INCUR A DEFERRED OBLIGATION; OR 312
(3) TO GIVE NOTICE TO THE PRESENTER OF DISCREPANCIES IN 314
THE PRESENTATION. 315
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(C) EXCEPT AS OTHERWISE PROVIDED IN DIVISION (D) OF THIS 318
SECTION, AN ISSUER IS PRECLUDED FROM ASSERTING AS A BASIS FOR 319
DISHONOR ANY DISCREPANCY IF TIMELY NOTICE IS NOT GIVEN OR ANY 320
DISCREPANCY NOT STATED IN THE NOTICE IF TIMELY NOTICE IS GIVEN. 321
(D) FAILURE TO GIVE THE NOTICE SPECIFIED IN DIVISION (B) 324
OF THIS SECTION OR TO MENTION FRAUD, FORGERY, OR EXPIRATION IN
THE NOTICE DOES NOT PRECLUDE THE ISSUER FROM ASSERTING AS A BASIS 326
FOR DISHONOR FRAUD OR FORGERY AS DESCRIBED IN DIVISION (A) OF 327
SECTION 1305.08 OF THE REVISED CODE OR EXPIRATION OF THE LETTER
OF CREDIT BEFORE PRESENTATION. 328
(E) AN ISSUER SHALL OBSERVE STANDARD PRACTICE OF FINANCIAL 330
INSTITUTIONS THAT REGULARLY ISSUE LETTERS OF CREDIT. 331
DETERMINATION OF THE ISSUER'S OBSERVANCE OF THE STANDARD PRACTICE 333
IS A MATTER OF INTERPRETATION FOR THE COURT. THE COURT SHALL 334
OFFER THE PARTIES A REASONABLE OPPORTUNITY TO PRESENT EVIDENCE OF 335
THE STANDARD PRACTICE.
(F) AN ISSUER IS NOT RESPONSIBLE FOR: 337
(1) THE PERFORMANCE OR NONPERFORMANCE OF THE UNDERLYING 339
CONTRACT, ARRANGEMENT, OR TRANSACTION; 340
(2) AN ACT OR OMISSION OF OTHERS; OR 342
(3) OBSERVANCE OR KNOWLEDGE OF THE USAGE OF A PARTICULAR 345
TRADE OTHER THAN THE STANDARD PRACTICE REFERRED TO IN DIVISION 346
(E) OF THIS SECTION.
(G) IF AN UNDERTAKING CONSTITUTING A LETTER OF CREDIT 348
UNDER DIVISION (A)(10) OF SECTION 1305.01 OF THE REVISED CODE 349
CONTAINS NONDOCUMENTARY CONDITIONS, AN ISSUER SHALL DISREGARD THE 351
NONDOCUMENTARY CONDITIONS AND TREAT THEM AS IF THEY WERE NOT
STATED. 352
(H) AN ISSUER THAT HAS DISHONORED A PRESENTATION SHALL 354
RETURN THE DOCUMENTS OR HOLD THEM AT THE DISPOSAL OF, AND SEND 355
ADVICE TO THAT EFFECT TO, THE PRESENTER. 356
(I) AN ISSUER THAT HAS HONORED A PRESENTATION AS PERMITTED 358
OR REQUIRED BY THIS CHAPTER: 359
(1) IS ENTITLED TO BE REIMBURSED BY THE APPLICANT IN 361
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IMMEDIATELY AVAILABLE FUNDS NOT LATER THAN THE DATE OF ITS 362
PAYMENT OF FUNDS; 363
(2) TAKES THE DOCUMENTS FREE OF CLAIMS OF THE BENEFICIARY 366
OR PRESENTER;
(3) IS PRECLUDED FROM ASSERTING A RIGHT OF RECOURSE ON A 369
DRAFT UNDER SECTIONS 1303.54 AND 1303.55 OF THE REVISED CODE;
(4) EXCEPT AS OTHERWISE PROVIDED IN SECTIONS 1305.09 AND 372
1305.16 OF THE REVISED CODE, IS PRECLUDED FROM RESTITUTION OF
MONEY PAID OR OTHER VALUE GIVEN BY MISTAKE TO THE EXTENT THE 373
MISTAKE CONCERNS DISCREPANCIES IN THE DOCUMENTS OR TENDER THAT 374
ARE APPARENT ON THE FACE OF THE PRESENTATION; AND 375
(5) IS DISCHARGED TO THE EXTENT OF ITS PERFORMANCE UNDER 378
THE LETTER OF CREDIT UNLESS THE ISSUER HONORED A PRESENTATION IN 379
WHICH A REQUIRED SIGNATURE OF A BENEFICIARY WAS FORGED. 380
Sec. 1305.08. (A) IF A PRESENTATION IS MADE THAT APPEARS 382
ON ITS FACE STRICTLY TO COMPLY WITH THE TERMS AND CONDITIONS OF 384
THE LETTER OF CREDIT, BUT A REQUIRED DOCUMENT IS FORGED OR 385
MATERIALLY FRAUDULENT, OR HONOR OF THE PRESENTATION WOULD 386
FACILITATE A MATERIAL FRAUD BY THE BENEFICIARY ON THE ISSUER OR 387
APPLICANT:
(1) THE ISSUER SHALL HONOR THE PRESENTATION, IF HONOR IS 389
DEMANDED BY (a) A NOMINATED PERSON WHO HAS GIVEN VALUE IN GOOD 390
FAITH AND WITHOUT NOTICE OF FORGERY OR MATERIAL FRAUD, (b) A 391
CONFIRMER WHO HAS HONORED ITS CONFIRMATION IN GOOD FAITH, (c) A 393
HOLDER IN DUE COURSE OF A DRAFT DRAWN UNDER THE LETTER OF CREDIT 394
WHICH WAS TAKEN AFTER ACCEPTANCE BY THE ISSUER OR NOMINATED 395
PERSON, OR (d) AN ASSIGNEE OF THE ISSUER'S OR NOMINATED PERSON'S 396
DEFERRED OBLIGATION THAT WAS TAKEN FOR VALUE AND WITHOUT NOTICE 397
OF FORGERY OR MATERIAL FRAUD AFTER THE OBLIGATION WAS INCURRED BY 398
THE ISSUER OR NOMINATED PERSON; AND
(2) THE ISSUER, ACTING IN GOOD FAITH, MAY HONOR OR 400
DISHONOR THE PRESENTATION IN ANY OTHER CASE. 401
(B) IF AN APPLICANT CLAIMS THAT A REQUIRED DOCUMENT IS 403
FORGED OR MATERIALLY FRAUDULENT OR THAT HONOR OF THE PRESENTATION 404
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WOULD FACILITATE A MATERIAL FRAUD BY THE BENEFICIARY ON THE 405
ISSUER OR APPLICANT, A COURT OF COMPETENT JURISDICTION MAY 406
TEMPORARILY OR PERMANENTLY ENJOIN THE ISSUER FROM HONORING A 407
PRESENTATION OR GRANT SIMILAR RELIEF AGAINST THE ISSUER OR OTHER 408
PERSONS ONLY IF THE COURT FINDS THAT: 409
(1) THE RELIEF IS NOT PROHIBITED UNDER THE LAW APPLICABLE 412
TO AN ACCEPTED DRAFT OR DEFERRED OBLIGATION INCURRED BY THE 413
ISSUER;
(2) A BENEFICIARY, ISSUER, OR NOMINATED PERSON WHO MAY BE 416
ADVERSELY AFFECTED IS ADEQUATELY PROTECTED AGAINST LOSS THAT IT 417
MAY SUFFER BECAUSE THE RELIEF IS GRANTED;
(3) ALL OF THE CONDITIONS TO ENTITLE A PERSON TO THE 419
RELIEF UNDER THE LAW OF THIS STATE HAVE BEEN MET; AND 420
(4) ON THE BASIS OF THE INFORMATION SUBMITTED TO THE 422
COURT, THE APPLICANT IS MORE LIKELY THAN NOT TO SUCCEED UNDER ITS 424
CLAIM OF FORGERY OR MATERIAL FRAUD AND THE PERSON DEMANDING HONOR 425
DOES NOT QUALIFY FOR PROTECTION UNDER DIVISION (A)(1) OF THIS 426
SECTION.
Sec. 1305.09. (A) IF ITS PRESENTATION IS HONORED, THE 428
BENEFICIARY WARRANTS: 429
(1) TO THE ISSUER, ANY OTHER PERSON TO WHOM PRESENTATION 432
IS MADE, AND THE APPLICANT THAT THERE IS NO FRAUD OR FORGERY OF 433
THE KIND DESCRIBED IN DIVISION (A) OF SECTION 1305.08 OF THE 434
REVISED CODE; AND
(2) TO THE APPLICANT THAT THE DRAWING DOES NOT VIOLATE ANY 437
AGREEMENT BETWEEN THE APPLICANT AND BENEFICIARY OR ANY OTHER
AGREEMENT INTENDED BY THEM TO BE AUGMENTED BY THE LETTER OF 438
CREDIT. 439
(B) THE WARRANTIES IN DIVISION (A) OF THIS SECTION ARE IN 442
ADDITION TO WARRANTIES ARISING UNDER CHAPTERS 1303., 1304., 443
1307., AND 1308. OF THE REVISED CODE BECAUSE OF THE PRESENTATION 445
OR TRANSFER OF DOCUMENTS COVERED BY ANY OF THOSE CHAPTERS. 446
Sec. 1305.10. (A) IF AN ISSUER WRONGFULLY DISHONORS OR 448
REPUDIATES ITS OBLIGATION TO PAY MONEY UNDER A LETTER OF CREDIT 450
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BEFORE PRESENTATION, THE BENEFICIARY, SUCCESSOR, OR NOMINATED 451
PERSON PRESENTING ON ITS OWN BEHALF MAY RECOVER FROM THE ISSUER 452
THE AMOUNT THAT IS THE SUBJECT OF THE DISHONOR OR REPUDIATION. 453
IF THE ISSUER'S OBLIGATION UNDER THE LETTER OF CREDIT IS NOT FOR 454
THE PAYMENT OF MONEY, THE CLAIMANT MAY OBTAIN SPECIFIC 455
PERFORMANCE OR, AT THE CLAIMANT'S ELECTION, RECOVER AN AMOUNT 456
EQUAL TO THE VALUE OF PERFORMANCE FROM THE ISSUER. IN EITHER 457
CASE, THE CLAIMANT MAY ALSO RECOVER INCIDENTAL BUT NOT 458
CONSEQUENTIAL DAMAGES. THE CLAIMANT IS NOT OBLIGATED TO TAKE 459
ACTION TO AVOID DAMAGES THAT MIGHT BE DUE FROM THE ISSUER UNDER 460
THIS DIVISION. IF, ALTHOUGH NOT OBLIGATED TO DO SO, THE CLAIMANT 461
AVOIDS DAMAGES, THE CLAIMANT'S RECOVERY FROM THE ISSUER MUST BE 462
REDUCED BY THE AMOUNT OF DAMAGES AVOIDED. THE ISSUER HAS THE 463
BURDEN OF PROVING THE AMOUNT OF DAMAGES AVOIDED. IN THE CASE OF 464
REPUDIATION THE CLAIMANT NEED NOT PRESENT ANY DOCUMENT. 465
(B) IF AN ISSUER WRONGFULLY DISHONORS A DRAFT OR DEMAND 467
PRESENTED UNDER A LETTER OF CREDIT OR HONORS A DRAFT OR DEMAND IN 468
BREACH OF ITS OBLIGATION TO THE APPLICANT, THE APPLICANT MAY 469
RECOVER DAMAGES RESULTING FROM THE BREACH, INCLUDING INCIDENTAL 470
BUT NOT CONSEQUENTIAL DAMAGES, LESS ANY AMOUNT SAVED AS A RESULT 471
OF THE BREACH. 472
(C) IF AN ADVISER OR NOMINATED PERSON OTHER THAN A 474
CONFIRMER BREACHES AN OBLIGATION UNDER THIS CHAPTER OR AN ISSUER 475
BREACHES AN OBLIGATION NOT COVERED IN DIVISION (A) OR (B) OF THIS 477
SECTION, A PERSON TO WHOM THE OBLIGATION IS OWED MAY RECOVER 478
DAMAGES RESULTING FROM THE BREACH, INCLUDING INCIDENTAL BUT NOT 479
CONSEQUENTIAL DAMAGES, LESS ANY AMOUNT SAVED AS A RESULT OF THE 480
BREACH. TO THE EXTENT OF THE CONFIRMATION, A CONFIRMER HAS THE 481
LIABILITY OF AN ISSUER SPECIFIED IN THIS DIVISION AND DIVISION 482
(A) OR (B) OF THIS SECTION. 483
(D) AN ISSUER, NOMINATED PERSON, OR ADVISER WHO IS FOUND 485
LIABLE UNDER DIVISION (A), (B), OR (C) OF THIS SECTION SHALL PAY 487
INTEREST ON THE AMOUNT OWED THEREUNDER FROM THE DATE OF WRONGFUL 488
DISHONOR OR OTHER APPROPRIATE DATE.
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(E) REASONABLE ATTORNEY'S FEES AND OTHER EXPENSES OF 490
LITIGATION MUST BE AWARDED TO THE PREVAILING PARTY IN AN ACTION 491
IN WHICH A REMEDY IS SOUGHT UNDER THIS CHAPTER. 492
(F) DAMAGES THAT WOULD OTHERWISE BE PAYABLE BY A PARTY FOR 494
BREACH OF AN OBLIGATION UNDER THIS CHAPTER MAY BE LIQUIDATED BY 495
AGREEMENT OR UNDERTAKING, BUT ONLY IN AN AMOUNT OR BY A FORMULA 496
THAT IS REASONABLE IN LIGHT OF THE HARM ANTICIPATED. 497
Sec. 1305.11. (A) EXCEPT AS OTHERWISE PROVIDED IN SECTION 499
1305.12 OF THE REVISED CODE, UNLESS A LETTER OF CREDIT PROVIDES 501
THAT IT IS TRANSFERABLE, THE RIGHT OF A BENEFICIARY TO DRAW OR 502
OTHERWISE DEMAND PERFORMANCE UNDER A LETTER OF CREDIT MAY NOT BE 503
TRANSFERRED.
(B) EVEN IF A LETTER OF CREDIT PROVIDES THAT IT IS 505
TRANSFERABLE, THE ISSUER MAY REFUSE TO RECOGNIZE OR CARRY OUT A 506
TRANSFER IF:
(1) THE TRANSFER WOULD VIOLATE APPLICABLE LAW; OR 508
(2) THE TRANSFEROR OR TRANSFEREE HAS FAILED TO COMPLY WITH 511
ANY REQUIREMENT STATED IN THE LETTER OF CREDIT OR ANY OTHER
REQUIREMENT RELATING TO TRANSFER IMPOSED BY THE ISSUER THAT IS 512
WITHIN THE STANDARD PRACTICE REFERRED TO IN DIVISION (E) OF 514
SECTION 1305.07 OF THE REVISED CODE OR IS OTHERWISE REASONABLE 515
UNDER THE CIRCUMSTANCES.
Sec. 1305.12. (A) A SUCCESSOR OF A BENEFICIARY MAY 517
CONSENT TO AMENDMENTS, SIGN AND PRESENT DOCUMENTS, AND RECEIVE 519
PAYMENT OR OTHER ITEMS OF VALUE IN THE NAME OF THE BENEFICIARY 520
WITHOUT DISCLOSING ITS STATUS AS A SUCCESSOR. 521
(B) A SUCCESSOR OF A BENEFICIARY MAY CONSENT TO 523
AMENDMENTS, SIGN AND PRESENT DOCUMENTS, AND RECEIVE PAYMENT OR 524
OTHER ITEMS OF VALUE IN ITS OWN NAME AS THE DISCLOSED SUCCESSOR 525
OF THE BENEFICIARY. EXCEPT AS OTHERWISE PROVIDED IN DIVISION (E) 526
OF THIS SECTION, AN ISSUER SHALL RECOGNIZE A DISCLOSED SUCCESSOR 527
OF A BENEFICIARY AS BENEFICIARY IN FULL SUBSTITUTION FOR ITS 528
PREDECESSOR UPON COMPLIANCE WITH THE REQUIREMENTS FOR RECOGNITION 530
BY THE ISSUER OF A TRANSFER OF DRAWING RIGHTS BY OPERATION OF LAW 531
13
UNDER THE STANDARD PRACTICE REFERRED TO IN DIVISION (E) OF 532
SECTION 1305.07 OF THE REVISED CODE OR, IN THE ABSENCE OF SUCH A 533
PRACTICE, COMPLIANCE WITH OTHER REASONABLE PROCEDURES SUFFICIENT 534
TO PROTECT THE ISSUER.
(C) AN ISSUER IS NOT OBLIGED TO DETERMINE WHETHER A 536
PURPORTED SUCCESSOR IS A SUCCESSOR OF A BENEFICIARY OR WHETHER 537
THE SIGNATURE OF A PURPORTED SUCCESSOR IS GENUINE OR AUTHORIZED. 538
(D) HONOR OF A PURPORTED SUCCESSOR'S APPARENTLY COMPLYING 540
PRESENTATION UNDER DIVISION (A) OR (B) OF THIS SECTION HAS THE 542
CONSEQUENCES SPECIFIED IN DIVISION (I) OF SECTION 1305.07 OF THE 543
REVISED CODE EVEN IF THE PURPORTED SUCCESSOR IS NOT THE SUCCESSOR 544
OF A BENEFICIARY. DOCUMENTS SIGNED IN THE NAME OF THE 545
BENEFICIARY OR OF A DISCLOSED SUCCESSOR BY A PERSON WHO IS 546
NEITHER THE BENEFICIARY NOR THE SUCCESSOR OF THE BENEFICIARY ARE 547
FORGED DOCUMENTS FOR THE PURPOSES OF SECTION 1305.08 OF THE 549
REVISED CODE.
(E) AN ISSUER WHOSE RIGHTS OF REIMBURSEMENT ARE NOT 551
COVERED BY DIVISION (D) OF THIS SECTION OR SUBSTANTIALLY SIMILAR 553
LAW AND ANY CONFIRMER OR NOMINATED PERSON MAY DECLINE TO 554
RECOGNIZE A PRESENTATION UNDER DIVISION (B) OF THIS SECTION. 555
(F) A BENEFICIARY WHOSE NAME IS CHANGED AFTER THE ISSUANCE 558
OF A LETTER OF CREDIT HAS THE SAME RIGHTS AND OBLIGATIONS AS A 559
SUCCESSOR OF A BENEFICIARY UNDER THIS SECTION.
Sec. 1305.13. (A) AS USED IN THIS SECTION, "PROCEEDS OF A 561
LETTER OF CREDIT" MEANS THE CASH, CHECK, ACCEPTED DRAFT, OR OTHER 563
ITEM OF VALUE PAID OR DELIVERED UPON HONOR OR GIVING OF VALUE BY 564
THE ISSUER OR ANY NOMINATED PERSON UNDER THE LETTER OF CREDIT. 565
THE TERM DOES NOT INCLUDE A BENEFICIARY'S DRAWING RIGHTS OR 566
DOCUMENTS PRESENTED BY THE BENEFICIARY. 567
(B) A BENEFICIARY MAY ASSIGN ITS RIGHT TO PART OR ALL OF 569
THE PROCEEDS OF A LETTER OF CREDIT. THE BENEFICIARY MAY DO SO 570
BEFORE PRESENTATION AS A PRESENT ASSIGNMENT OF ITS RIGHT TO 571
RECEIVE PROCEEDS CONTINGENT UPON ITS COMPLIANCE WITH THE TERMS 572
AND CONDITIONS OF THE LETTER OF CREDIT. 573
14
(C) AN ISSUER OR NOMINATED PERSON NEED NOT RECOGNIZE AN 575
ASSIGNMENT OF PROCEEDS OF A LETTER OF CREDIT UNTIL IT CONSENTS TO 576
THE ASSIGNMENT. 577
(D) AN ISSUER OR NOMINATED PERSON HAS NO OBLIGATION TO 579
GIVE OR WITHHOLD ITS CONSENT TO AN ASSIGNMENT OF PROCEEDS OF A 580
LETTER OF CREDIT, BUT CONSENT MAY NOT BE UNREASONABLY WITHHELD IF 581
THE ASSIGNEE POSSESSES AND EXHIBITS THE LETTER OF CREDIT AND 582
PRESENTATION OF THE LETTER OF CREDIT IS A CONDITION TO HONOR. 583
(E) RIGHTS OF A TRANSFEREE BENEFICIARY OR NOMINATED PERSON 585
ARE INDEPENDENT OF THE BENEFICIARY'S ASSIGNMENT OF THE PROCEEDS 586
OF A LETTER OF CREDIT AND ARE SUPERIOR TO THE ASSIGNEE'S RIGHT TO 587
THE PROCEEDS. 588
(F) NEITHER THE RIGHTS RECOGNIZED BY THIS SECTION BETWEEN 590
AN ASSIGNEE AND AN ISSUER, TRANSFEREE BENEFICIARY, OR NOMINATED 591
PERSON NOR THE ISSUER'S OR NOMINATED PERSON'S PAYMENT OF PROCEEDS 593
TO AN ASSIGNEE OR A THIRD PERSON AFFECT THE RIGHTS BETWEEN THE 594
ASSIGNEE AND ANY PERSON OTHER THAN THE ISSUER, TRANSFEREE 595
BENEFICIARY, OR NOMINATED PERSON. THE MODE OF CREATING AND 596
PERFECTING A SECURITY INTEREST IN OR GRANTING AN ASSIGNMENT OF A 597
BENEFICIARY'S RIGHTS TO PROCEEDS IS GOVERNED BY CHAPTER 1309. OF 598
THE REVISED CODE OR OTHER LAW. AGAINST PERSONS OTHER THAN THE 599
ISSUER, TRANSFEREE BENEFICIARY, OR NOMINATED PERSON, THE RIGHTS 600
AND OBLIGATIONS ARISING UPON THE CREATION OF A SECURITY INTEREST 601
OR OTHER ASSIGNMENT OF A BENEFICIARY'S RIGHT TO PROCEEDS AND ITS 602
PERFECTION ARE GOVERNED BY CHAPTER 1309. OF THE REVISED CODE OR 604
OTHER LAW.
Sec. 1305.14. AN ACTION TO ENFORCE A RIGHT OR OBLIGATION 606
ARISING UNDER THIS CHAPTER MUST BE COMMENCED WITHIN ONE YEAR 607
AFTER THE EXPIRATION DATE OF THE RELEVANT LETTER OF CREDIT OR ONE 609
YEAR AFTER THE CAUSE OF ACTION ACCRUES, WHICHEVER OCCURS LATER. 610
A CAUSE OF ACTION ACCRUES WHEN THE BREACH OCCURS, REGARDLESS OF 611
THE AGGRIEVED PARTY'S LACK OF KNOWLEDGE OF THE BREACH. 612
Sec. 1305.15. (A) THE LIABILITY OF AN ISSUER, NOMINATED 614
PERSON, OR ADVISER FOR ACTION OR OMISSION IS GOVERNED BY THE LAW 615
15
OF THE JURISDICTION CHOSEN BY AN AGREEMENT IN THE FORM OF A 616
RECORD SIGNED OR OTHERWISE AUTHENTICATED BY THE AFFECTED PARTIES 617
IN THE MANNER PROVIDED IN SECTION 1305.03 OF THE REVISED CODE OR 619
BY A PROVISION IN THE PERSON'S LETTER OF CREDIT, CONFIRMATION, OR 620
OTHER UNDERTAKING. THE JURISDICTION WHOSE LAW IS CHOSEN NEED NOT 621
BEAR ANY RELATION TO THE TRANSACTION.
(B) UNLESS DIVISION (A) OF THIS SECTION APPLIES, THE 624
LIABILITY OF AN ISSUER, NOMINATED PERSON, OR ADVISER FOR ACTION 625
OR OMISSION IS GOVERNED BY THE LAW OF THE JURISDICTION IN WHICH 626
THE PERSON IS LOCATED. THE PERSON IS CONSIDERED TO BE LOCATED AT 627
THE ADDRESS INDICATED IN THE PERSON'S UNDERTAKING. IF MORE THAN 628
ONE ADDRESS IS INDICATED, THE PERSON IS CONSIDERED TO BE LOCATED 629
AT THE ADDRESS FROM WHICH THE PERSON'S UNDERTAKING WAS ISSUED. 630
FOR THE PURPOSE OF JURISDICTION, CHOICE OF LAW, AND RECOGNITION 631
OF INTERBRANCH LETTERS OF CREDIT, BUT NOT ENFORCEMENT OF A 632
JUDGMENT, ALL BRANCHES OF A BANK ARE CONSIDERED SEPARATE 633
JURIDICAL ENTITIES AND A BANK IS CONSIDERED TO BE LOCATED AT THE 634
PLACE WHERE ITS RELEVANT BRANCH IS CONSIDERED TO BE LOCATED UNDER 635
THIS DIVISION.
(C) EXCEPT AS OTHERWISE PROVIDED IN THIS DIVISION, THE 637
LIABILITY OF AN ISSUER, NOMINATED PERSON, OR ADVISER IS GOVERNED 638
BY ANY RULES OF CUSTOM OR PRACTICE, SUCH AS THE UNIFORM CUSTOMS 639
AND PRACTICE FOR DOCUMENTARY CREDITS, TO WHICH THE LETTER OF 640
CREDIT, CONFIRMATION, OR OTHER UNDERTAKING IS EXPRESSLY MADE 641
SUBJECT. IF (1) THIS CHAPTER WOULD GOVERN THE LIABILITY OF AN 642
ISSUER, NOMINATED PERSON, OR ADVISER UNDER DIVISION (A) OR (B) OF 646
THIS SECTION, (2) THE RELEVANT UNDERTAKING INCORPORATES RULES OF 647
CUSTOM OR PRACTICE, AND (3) THERE IS CONFLICT BETWEEN THIS 648
CHAPTER AND THOSE RULES AS APPLIED TO THAT UNDERTAKING, THOSE 649
RULES GOVERN EXCEPT TO THE EXTENT OF ANY CONFLICT WITH THE
NONVARIABLE PROVISIONS SPECIFIED IN DIVISION (C) OF SECTION 650
1305.02 OF THE REVISED CODE. 651
(D) IF THERE IS CONFLICT BETWEEN THIS CHAPTER AND CHAPTER 653
1303., 1304., OR 1309. OF THE REVISED CODE, THIS CHAPTER GOVERNS. 655
16
(E) THE FORUM FOR SETTLING DISPUTES ARISING OUT OF AN 657
UNDERTAKING WITHIN THIS CHAPTER MAY BE CHOSEN IN THE MANNER AND 658
WITH THE BINDING EFFECT THAT GOVERNING LAW MAY BE CHOSEN IN 659
ACCORDANCE WITH DIVISION (A) OF THIS SECTION. 660
Sec. 1305.16. (A) AN ISSUER THAT HONORS A BENEFICIARY'S 662
PRESENTATION IS SUBROGATED TO THE RIGHTS OF THE BENEFICIARY TO 663
THE SAME EXTENT AS IF THE ISSUER WERE A SECONDARY OBLIGOR OF THE 664
UNDERLYING OBLIGATION OWED TO THE BENEFICIARY AND OF THE 665
APPLICANT TO THE SAME EXTENT AS IF THE ISSUER WERE THE SECONDARY 666
OBLIGOR OF THE UNDERLYING OBLIGATION OWED TO THE APPLICANT. 667
(B) AN APPLICANT THAT REIMBURSES AN ISSUER IS SUBROGATED 669
TO THE RIGHTS OF THE ISSUER AGAINST ANY BENEFICIARY, PRESENTER, 670
OR NOMINATED PERSON TO THE SAME EXTENT AS IF THE APPLICANT WERE 671
THE SECONDARY OBLIGOR OF THE OBLIGATIONS OWED TO THE ISSUER AND 672
HAS THE RIGHTS OF SUBROGATION OF THE ISSUER TO THE RIGHTS OF THE 673
BENEFICIARY STATED IN DIVISION (A) OF THIS SECTION. 674
(C) A NOMINATED PERSON WHO PAYS OR GIVES VALUE AGAINST A 676
DRAFT OR DEMAND PRESENTED UNDER A LETTER OF CREDIT IS SUBROGATED 677
TO THE RIGHTS OF: 678
(1) THE ISSUER AGAINST THE APPLICANT TO THE SAME EXTENT AS 681
IF THE NOMINATED PERSON WERE A SECONDARY OBLIGOR OF THE
OBLIGATION OWED TO THE ISSUER BY THE APPLICANT; 682
(2) THE BENEFICIARY TO THE SAME EXTENT AS IF THE ISSUER 684
WERE A SECONDARY OBLIGOR OF THE UNDERLYING OBLIGATION OWED TO THE 686
BENEFICIARY; AND
(3) THE APPLICANT TO THE SAME EXTENT AS IF THE NOMINATED 689
PERSON WERE THE SECONDARY OBLIGOR OF THE UNDERLYING OBLIGATION 690
OWED TO THE APPLICANT.
(D) NOTWITHSTANDING ANY AGREEMENT OR TERM TO THE CONTRARY, 692
THE RIGHTS OF SUBROGATION STATED IN DIVISIONS (A) AND (B) OF THIS 694
SECTION DO NOT ARISE UNTIL THE ISSUER HONORS THE LETTER OF CREDIT 695
OR OTHERWISE PAYS AND THE RIGHTS IN DIVISION (C) OF THIS SECTION 696
DO NOT ARISE UNTIL THE NOMINATED PERSON PAYS OR OTHERWISE GIVES 697
VALUE. UNTIL THEN, THE ISSUER, NOMINATED PERSON, AND THE 698
17
APPLICANT DO NOT DERIVE UNDER THIS SECTION PRESENT OR PROSPECTIVE 699
RIGHTS FORMING THE BASIS OF A CLAIM, DEFENSE, OR EXCUSE. 700
Sec. 1309.01. (A) As used in sections 1309.01 to 1309.50 709
of the Revised Code, unless the context otherwise requires: 710
(1) "Account debtor" means the person who is obligated on 712
an account, chattel paper, or general intangible. 713
(2) "Chattel paper" means a writing or writings which 715
evidence both a monetary obligation and a security interest in or 716
a lease of specific goods, but a charter or other contract 717
involving the use or hire of a vessel is not chattel paper. When 718
a transaction is evidenced both by such a security agreement or a 719
lease and by an instrument or a series of instruments, the group 720
of writings taken together constitutes chattel paper. 721
(3) "Collateral" means the property subject to a security 723
interest, and includes accounts and chattel paper which have been 724
sold. 725
(4) "Debtor" means the person who owes payment or other 727
performance of the obligations secured, whether or not he THE 728
PERSON owns or has rights in the collateral, and includes the 729
seller of accounts or chattel paper. Where the debtor and the 730
owner of the collateral are not the same person, the term 731
"debtor" means the owner of the collateral in any provision of 732
sections 1309.01 to 1309.50 of the Revised Code dealing with the 733
collateral, the obligor in any provision dealing with the 734
obligation and may include both where the context so requires. 735
(5) "Deposit account" means a demand, time, savings, 737
passbook or like account maintained with a bank, savings and loan 738
association, credit union, or like organization, other than an 739
account evidenced by a certificate of deposit. 740
(6) "Document" means document of title as defined in 742
division (O) of section 1301.01 of the Revised Code, and a 743
receipt of the kind described in division (B) of section 1307.06 744
of the Revised Code. 745
(7) "Encumbrance" includes real estate mortgages and other 747
18
liens on real estate and all other rights in real estate that are 748
not ownership interests. 749
(8) "Goods" includes all things which are movable at the 751
time the security interest attaches or which are fixtures under 752
section 1309.32 of the Revised Code, but does not include money, 753
documents, instruments, accounts, chattel paper, general 754
intangibles, or minerals or the like, including oil and gas, 755
before extraction. "Goods" also include standing timber which is 756
to be cut and removed under a conveyance or contract for sale, 757
the unborn young of animals, and growing crops. 758
(9) "Instrument" means a negotiable instrument as defined 760
in section 1303.03 of the Revised Code, or a certificated 761
security as defined in section 1308.01 of the Revised Code, or 762
any other writing which evidences a right to the payment of money 763
and is not itself a security agreement or lease and is of a type 764
which is in ordinary course of business transferred by delivery 765
with any necessary indorsement or assignment. 766
(10) "Mortgage" means a consensual interest created by a 768
real estate mortgage, a trust deed on real estate, or the like. 769
(11) An advance is made "pursuant to commitment" if the 771
secured party has bound himself ITSELF to make it, whether or not 773
a subsequent event of default or other event not within his THE
SECURED PARTY'S control has relieved or may relieve him THE 774
SECURED PARTY from his THE SECURED PARTY'S obligation. 775
(12) "Security agreement" means an agreement which creates 777
or provides for a security interest. 778
(13) "Secured party" means a lender, seller, or other 780
person in whose favor there is a security interest, including a 781
person to whom accounts or chattel paper have been sold. When 782
the holders of obligations issued under an indenture of trust, 783
equipment trust agreement, or the like are represented by a 784
trustee or other person, the representative is the secured party. 785
(14) "Transmitting utility" means any person primarily 787
engaged in the railroad, street railway, or trolley bus business, 788
19
the electric or electronic communications business, the 789
transmission of goods by pipeline, or the transmission or the 790
production and transmission of electricity, steam, gas, or water, 791
or the provision of sewer service. 792
(15) "Account" means any right to payment for goods sold 794
or leased or for services rendered which is not evidenced by an 795
instrument or chattel paper, whether or not it has been earned by 796
performance. 797
(16) "General intangible" means any personal property, 799
including things in action, other than goods, accounts, chattel 800
paper, documents, instruments, RIGHTS TO PROCEEDS OF LETTERS OF 801
CREDIT, and money. All rights to payment earned or unearned 803
under a charter or other contract involving the use or hire of a 804
vessel and all rights incident to the charter or contract are 805
accounts.
(B) Other definitions applying to sections 1309.01 to 807
1309.50 of the Revised Code are: 808
(1) "Attach," as defined in section 1309.14 of the Revised 810
Code; 811
(2) "Construction mortgage," as defined in section 1309.32 813
of the Revised Code; 814
(3) "Consumer goods," as defined in section 1309.07 of the 816
Revised Code; 817
(4) "Equipment," as defined in section 1309.07 of the 819
Revised Code; 820
(5) "Farm products," as defined in section 1309.07 of the 822
Revised Code; 823
(6) "Fixture," as defined in section 1309.32 of the 825
Revised Code; 826
(7) "Fixture filing," as defined in section 1309.32 of the 828
Revised Code; 829
(8) "Inventory," as defined in section 1309.07 of the 831
Revised Code; 832
(9) "Lien creditor," as defined in section 1309.20 of the 834
20
Revised Code; 835
(10) "Proceeds," as defined in section 1309.25 of the 837
Revised Code; 838
(11) "Purchase money security interest," as defined in 840
section 1309.05 of the Revised Code; 841
(12) "United States," as defined in section 1309.03 of the 843
Revised Code; 844
(13) "LETTER OF CREDIT," AS DEFINED IN SECTION 1305.01 OF 846
THE REVISED CODE;
(14) "PROCEEDS OF A LETTER OF CREDIT," AS DEFINED IN 848
SECTION 1305.13 OF THE REVISED CODE.
(C) As used in sections 1309.01 to 1309.50 of the Revised 850
Code, "check" and "note" have the meaning set forth in section 851
1303.03 of the Revised Code; "contract for sale" and "sale" have 852
the meaning set forth in section 1302.01 of the Revised Code; and 853
"holder in due course" has the meaning set forth in section 854
1303.31 of the Revised Code. 855
(D) The terms and principles of construction and 857
interpretation set forth in sections 1301.01 to 1301.14 of the 858
Revised Code are applicable to sections 1309.01 to 1309.50 of the 859
Revised Code. 860
Sec. 1309.03. (A) Documents, instruments, LETTERS OF 869
CREDIT, and ordinary goods: 870
(1) This division applies to documents and, instruments, 872
RIGHTS TO PROCEEDS OF LETTERS OF CREDIT, and to goods other than 873
those covered by a certificate of title described in division (B) 875
of this section, mobile goods described in division (C) of this 876
section, and minerals described in division (E) of this section. 877
(2) Except as otherwise provided in this division, 879
perfection and the effect of perfection or nonperfection of a 880
security interest in collateral are governed by the law of the 881
jurisdiction where the collateral is when the last event occurs 882
on which is based the assertion that the security interest is 883
perfected or unperfected. 884
21
(3) If the parties to a transaction creating a purchase 886
money security interest in goods in one jurisdiction understand 887
at the time that the security interest attaches that the goods 888
will be kept in another jurisdiction, then the law of the other 889
jurisdiction governs the perfection and the effect of perfection 890
or nonperfection of the security interest from the time it 891
attaches until thirty days after the debtor receives possession 892
of the goods and thereafter if the goods are taken to the other 893
jurisdiction before the end of the thirty-day period. 894
(4) When collateral is brought into and kept in this state 896
while subject to a security interest perfected under the law of 897
the jurisdiction from which the collateral was removed, the 898
security interest remains perfected, but if action is required by 899
sections 1309.20 to 1309.37 of the Revised Code to perfect the 900
security interest: 901
(a) If the action is not taken before the expiration of 903
the period of perfection in the other jurisdiction or the end of 904
four months after the collateral is brought into this state, 905
whichever period first expires, the security interest becomes 906
unperfected at the end of that period and is thereafter deemed to 907
have been unperfected as against a person who became a purchaser 908
after removal; 909
(b) If the action is taken before the expiration of the 911
period specified in division (A)(4)(a) of this section, the 912
security interest continues perfected thereafter; 913
(c) For the purpose of priority over a buyer of consumer 915
goods, division (B) of section 1309.26 of the Revised Code, the 916
period of the effectiveness of a filing in the jurisdiction from 917
which the collateral is removed is governed by the rules with 918
respect to perfection in divisions (A)(4)(a) and (b) of this 919
section. 920
(B) Certificate of title. 922
(1) This division applies to goods covered by a 924
certificate of title issued under a statute of this state or of 925
22
another jurisdiction under the law of which indication of a 926
security interest on the certificate is required as a condition 927
of perfection. 928
(2) Except as otherwise provided in this division, 930
perfection and the effect of perfection or nonperfection of the 931
security interest are governed by the law, including the conflict 932
of laws rules, of the jurisdiction issuing the certificate until 933
four months after the goods are removed from that jurisdiction 934
and thereafter until the goods are registered in another 935
jurisdiction, but in any event not beyond surrender of the 936
certificate. After the expiration of that period, the goods are 937
not covered by the certificate of title within the meaning of 938
this section. 939
(3) Except with respect to the rights of a buyer described 941
in division (B)(4) of this section a security interest, perfected 942
in another jurisdiction otherwise than by notation on a 943
certificate of title, in goods brought into this state and 944
thereafter covered by a certificate of title issued by this state 945
is subject to the rules stated in division (A)(4) of this 946
section. 947
(4) If goods are brought into this state while a security 949
interest therein is perfected in any manner under the law of the 950
jurisdiction from which the goods are removed and a certificate 951
of title is issued by this state and the certificate does not 952
show that the goods are subject to the security interest or that 953
they may be subject to security interests not shown on the 954
certificate, the security interest is subordinate to the rights 955
of a buyer of the goods who is not in the business of selling 956
goods of that kind to the extent that he THE BUYER gives value 957
and receives delivery of the goods after issuance of the 958
certificate and without knowledge of the security interest. 959
(C) Accounts, general intangibles, and mobile goods. 961
(1) This division applies to accounts, other than an 963
account described in division (E) of this section on minerals, 964
23
and general intangibles, other than uncertificated securities, 965
and to goods which are mobile and which are of a type normally 966
used in more than one jurisdiction, such as motor vehicles, 967
trailers, rolling stock, airplanes, shipping containers, road 968
building and construction machinery, and commercial harvesting 969
machinery and the like, if the goods are equipment or are 970
inventory leased or held for lease by the debtor to others, and 971
are not covered by a certificate of title described in division 972
(B) of this section. 973
(2) The law, including the conflict of laws rules, of the 975
jurisdiction in which the debtor is located governs the 976
perfection and the effect of perfection or nonperfection of the 977
security interest. 978
(3) If, however, the debtor is located in a jurisdiction 980
which is not a part of the United States, and which does not 981
provide for perfection of the security interest by filing or 982
recording in that jurisdiction, the law of the jurisdiction in 983
the United States in which the debtor has its major executive 984
office in the United States governs the perfection and the effect 985
of perfection or nonperfection of the security interest through 986
filing. In the alternative, if the debtor is located in a 987
jurisdiction which is not a part of the United States or Canada 988
and the collateral is accounts or general intangibles for money 989
due or to become due, the security interest may be perfected by 990
notification to the account debtor. As used in this division, 991
"United States" includes its territories and possessions and the 992
Commonwealth of Puerto Rico. 993
(4) A debtor shall be deemed located at his THE DEBTOR'S 995
place of business if he THE DEBTOR has one, at his THE DEBTOR'S 997
chief executive office if he THE DEBTOR has more than one place 999
of business; otherwise at his THE DEBTOR'S residence. If, 1,000
however, the debtor is a foreign air carrier under the "Federal
Aviation Act of 1958," as amended, it shall be deemed located at 1,001
the designated office of the agent upon whom service of process 1,002
24
may be made on behalf of the foreign air carrier. 1,003
(5) A security interest perfected under the law of the 1,005
jurisdiction of the location of the debtor is perfected until the 1,006
expiration of four months after a change of the debtor's location 1,007
to another jurisdiction, or until perfection would have ceased by 1,008
the law of the first jurisdiction, whichever period first 1,009
expires. Unless perfected in the new jurisdiction before the end 1,010
of that period, it becomes unperfected thereafter and is deemed 1,011
to have been unperfected as against a person who became a 1,012
purchaser after the change. 1,013
(D) Chattel Paper. 1,015
The rules stated for goods in division (A) of this section 1,017
apply to a possessory security interest in chattel paper. The 1,018
rule stated for accounts in division (C) of this section applies 1,019
to a nonpossessory security in chattel paper, but the security 1,020
interest may not be perfected by notification to the account 1,021
debtor. 1,022
(E) Minerals. 1,024
Perfection and the effect of perfection or nonperfection of 1,026
a security interest which is created by a debtor who has an 1,027
interest in minerals or the like, including oil and gas, before 1,028
extraction and which attaches thereto as extracted, or which 1,029
attaches to an account resulting from the sale thereof at the 1,030
wellhead or minehead are governed by the law, including the 1,031
conflict of laws rules, of the jurisdiction wherein the wellhead 1,032
or minehead is located. 1,033
(F) Uncertificated securities. 1,035
The law, including the conflict of laws rules, of the 1,037
jurisdiction of organization of the issuer governs the perfection 1,038
and the effect of perfection or non-perfection NONPERFECTION of a 1,039
security interest in uncertificated securities. 1,040
Sec. 1309.04. Sections 1309.01 to 1309.50 of the Revised 1,049
Code do not apply: 1,050
(A) to TO a security interest subject to any statute of 1,052
25
the United States such as the "Ship Mortgage Act, 1920," 41 Stat. 1,053
1000, 46 U.S.C. 911, to the extent that such statute governs the 1,054
rights of parties to and third parties affected by transactions 1,055
in particular types of property; or 1,056
(B) to TO a lien given by statute or other rule of law for 1,058
services or materials except as provided in section 1309.29 of 1,059
the Revised Code on priority of such liens; or 1,060
(C) to TO a transfer of a claim for wages, salary, or 1,062
other compensation of an employee; or 1,063
(D) to TO a transfer by a governmental subdivision or 1,065
agency; or 1,066
(E) to TO a sale of accounts or chattel paper as part of a 1,068
sale of the business out of which they arose, or an assignment of 1,069
accounts or chattel paper which is for the purpose of collection 1,070
only, or a transfer of a right to payment under a contract to an 1,071
assignee who is also to do the performance under the contract, or 1,072
a transfer of a single account to an assignee in whole or partial 1,073
satisfaction of a pre-existing indebtedness; or 1,074
(F) to TO a transfer of an interest or claim in or under 1,076
any policy of insurance, except as provided with respect to 1,077
proceeds under section 1309.25 of the Revised Code and priorities 1,078
in proceeds under section 1309.31 of the Revised Code; or 1,079
(G) to TO a right represented by a judgment, other than a 1,081
judgment taken on a right to payment which was collateral; or 1,082
(H) to TO any right of set-off; or 1,084
(I) except EXCEPT to the extent that provision is made for 1,086
fixtures in section 1309.32 of the Revised Code, to the creation 1,087
or transfer of an interest in or lien on real estate, including a 1,088
lease or rents thereunder; or 1,089
(J) to TO a transfer in whole or in part of any claim 1,091
arising out of a tort; or 1,092
(K) to TO a transfer of an interest in any deposit 1,094
account, division (A)(5) of section 1309.01 of the Revised Code, 1,095
except as provided with respect to proceeds under section 1309.25 1,096
26
of the Revised Code, and priorities in proceeds under section 1,097
1309.31 of the Revised Code; OR 1,098
(L) TO A TRANSFER OF AN INTEREST IN A LETTER OF CREDIT 1,100
OTHER THAN THE RIGHTS TO PROCEEDS OF A LETTER OF CREDIT. 1,101
Sec. 1309.23. (A) A security interest in chattel paper or 1,110
negotiable documents may be perfected by filing. A SECURITY 1,111
INTEREST IN THE RIGHT TO PROCEEDS OF A LETTER OF CREDIT CAN BE 1,112
PERFECTED ONLY BY THE SECURED PARTY'S TAKING POSSESSION OF THE 1,113
LETTER OF CREDIT. A security interest in money or instruments, 1,114
other than certificated securities or instruments which 1,115
constitute part of chattel paper, can be perfected only by the 1,116
secured party's taking possession, except as provided in 1,117
divisions (D) and (E) of this section and divisions (B) and (C) 1,118
of section 1309.25 of the Revised Code on proceeds. 1,119
(B) During the period that goods are in the possession of 1,121
the issuer of a negotiable document therefor, a security interest 1,122
in the goods is perfected by perfecting a security interest in 1,123
the document, and any security interest in the goods otherwise 1,124
perfected during such period is subject thereto. 1,125
(C) A security interest in goods in the possession of a 1,127
bailee other than one who has issued a negotiable document 1,128
therefor is perfected by issuance of a document in the name of 1,129
the secured party or by the bailee's receipt of notification of 1,130
the secured party's interest or by filing as to the goods. 1,131
(D) A security interest in instruments, other than 1,133
certificated securities, or negotiable documents is perfected 1,134
without filing or the taking of possession for a period of 1,135
twenty-one days from the time it attaches to the extent that it 1,136
arises for new value given under a written security agreement. 1,137
(E) A security interest remains perfected for a period of 1,139
twenty-one days without filing where a secured party having a 1,140
perfected security interest in an instrument, other than a 1,141
certificated security, a negotiable document, or goods in 1,142
possession of a bailee other than one who has issued a negotiable 1,143
27
document therefor: 1,144
(1) Makes available to the debtor the goods or documents 1,146
representing the goods for the purpose of ultimate sale or 1,147
exchange or for the purpose of loading, unloading, storing, 1,148
shipping, trans-shipping, manufacturing, processing, or otherwise 1,149
dealing with them in a manner preliminary to their sale or 1,150
exchange, but priority between conflicting security interests in 1,151
the goods is subject to division (C) of section 1309.31 of the 1,152
Revised Code; or 1,153
(2) Delivers the instrument to the debtor for the purpose 1,155
of ultimate sale or exchange or of presentation, collection, 1,156
renewal, or registration of transfer. 1,157
(F) After the twenty-one day period set forth in divisions 1,159
(D) and (E) of this section, perfection depends upon compliance 1,160
with applicable provisions of sections 1309.01 to 1309.50 of the 1,161
Revised Code. 1,162
Sec. 1309.24. A security interest in letters of credit and 1,171
advices of credit, as provided in division (B)(1)(F) of section 1,173
1305.15 1305.13 of the Revised Code, goods, instruments, other 1,174
than certificated securities, negotiable documents, money, or 1,175
chattel paper may be perfected by the secured party's taking 1,176
possession of the collateral. A SECURITY INTEREST IN THE RIGHT 1,177
TO PROCEEDS OF A LETTER OF CREDIT MAY BE PERFECTED BY THE SECURED 1,178
PARTY'S TAKING POSSESSION OF THE LETTER OF CREDIT. If such 1,179
collateral other than goods covered by a negotiable document is 1,180
held by a bailee, the secured party is deemed to have possession 1,181
from the time the bailee receives notification of the secured 1,182
party's interest. A security interest is perfected by possession 1,183
from the time possession is taken without relation back and 1,184
continues only so long as possession is retained, unless 1,185
otherwise specified in sections 1309.01 to 1309.50 of the Revised 1,186
Code. The security interest may be otherwise perfected as 1,187
provided in sections 1309.01 to 1309.50 of the Revised Code, 1,188
before or after the period of possession by the secured party. 1,189
28
Section 2. That existing sections 1301.05, 1302.56, 1,191
1309.01, 1309.03, 1309.04, 1309.23, and 1309.24 and sections 1,192
1305.01, 1305.02, 1305.03, 1305.04, 1305.05, 1305.06, 1305.07, 1,193
1305.08, 1305.09, 1305.10, 1305.11, 1305.12, 1305.13, 1305.14, 1,194
1305.15, and 1305.16 of the Revised Code are hereby repealed. 1,195
Section 3. Sections 1 and 2 of this act shall become 1,197
effective July 1, 1998. 1,198
Section 4. This act applies to a letter of credit that is 1,200
issued on or after July 1, 1998. This act does not apply to a 1,201
transaction, event, obligation, or duty arising out of or 1,202
associated with a letter of credit that was issued before July 1, 1,203
1998.
Section 5. A transaction arising out of or associated with 1,205
a letter of credit that was issued before July 1, 1998, and the 1,206
rights, obligations, and interests flowing from that transaction 1,207
are governed by any statute or other law amended or repealed by 1,208
this act as if the amendment or repeal had not occurred and may 1,209
be terminated, completed, consummated, or enforced under that
statute or other law. 1,210