Printable Format84-5-117. Subrogation of issuer, applicant and nominated person. (a) 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.
(b) 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 (a).
(c) 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:
(1) 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;
(2) the beneficiary to the same extent as if the nominated person were a secondary obligor of the underlying obligation owed to the beneficiary; and
(3) the applicant to the same extent as if the nominated person were a secondary obligor of the underlying obligation owed to the applicant.
(d) Notwithstanding any agreement or term to the contrary, the rights of subrogation stated in subsections (a) and (b) do not arise until the issuer honors the the letter of credit or otherwise pays and the rights in subsection (c) 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.
History: L. 1996, ch. 202, § 17; July 1.
KANSAS COMMENT, 1996
This section is new and identical to the 1995 Official Text. As the Official Comment 1 explains, a "secondary obligor" is the general term for a guarantor or surety used in the Restatement (Third) Suretyship and Guaranty. The section provides that as issuers, applicants and nominated persons perform their obligations, they are subrogated to the rights of the obligees to the same extent they would be if they were sureties of the performance. Thus if a surety would have recourse, the issuer, applicant or nominated person will have that recourse.
Subsection (b) reiterates the requirement that the issuer, applicant or nominated person must give value before having any rights of subrogation. This subsection reinforces the independence principle contained in 84-5-108. The duty of the issuer, applicant or nominated person is to perform under the terms of the letter of credit. Only after giving of the value will it be possible to raise any defenses or claims regarding the underlying transaction, with the exception of the forgery, materially fraudulent or material fraud claims permitted under 84-5-109.
Revisor's Note:
Former section 84-5-117 was repealed by L. 1996, ch. 202, § 91 and the number reassigned to the current text.