2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 5 - Letters of Credit › Section 55-5-116 - Choice of law and forum.

(a) 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 55-5-104 NMSA 1978 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.
(b) Unless Subsection (a) of this section 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.
(c) Except as otherwise provided in this subsection, 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. If (i) this article would govern the liability of an issuer, nominated person, or adviser under Subsection (a) or (b) of this section, (ii) the relevant undertaking incorporates rules of custom or practice, and (iii) there is conflict between this article and those rules as applied to that undertaking, those rules govern except to the extent of any conflict with the nonvariable provisions specified in Section 55-5-103(c) NMSA 1978.
(d) If there is conflict between this article and Article 3, 4, 4A or 9, this article governs.
(e) The forum for settling disputes arising out of an undertaking within this article may be chosen in the manner and with the binding effect that governing law may be chosen in accordance with Subsection (a) of this section.
History:
1978 Comp., § 55-5-116, enacted by Laws 1997, ch. 75, § 18.
OFFICIAL COMMENTS
UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
1. Although it would be possible for the parties to agree otherwise, the law normally chosen by agreement under Subsection (a) and that provided in the absence of agreement under Subsection (b) is the substantive law of a particular jurisdiction not including the choice of law principles of that jurisdiction. Thus, two parties, an issuer and an applicant, both located in Oklahoma might choose the law of New York. Unless they agree otherwise, the section anticipates that they wish the substantive law of New York to apply to their transaction and they do not intend that a New York choice of law principle might direct a court to Oklahoma law. By the same token, the liability of an issuer located in New York is governed by New York substantive law - in the absence of agreement - even in circumstances in which choice of law principles found in the common law of New York might direct one to the law of another State. Subsection (b) states the relevant choice of law principles and it should not be subordinated to some other choice of law rule. Within the States of the United States renvoi will not be a problem once every jurisdiction has enacted Section 5-116 because every jurisdiction will then have the same choice of law rule and in a particular case all choice of law rules will point to the same substantive law. Subsection (a) refers to a record signed by the affected parties. The reference in the pre-2022 text of subsection (a) to an authentication pursuant to an agreement of the parties or standard practice is no longer necessary in view of the 2022 revision of "sign" in Section 1-201 [55-1-201 NMSA 1978].
See
Section 5-104, Comment 2.
Subsection (b) does not state a choice of law rule for the "liability of an applicant." However, Subsection (b) does state a choice of law rule for the liability of an issuer, nominated person, or adviser, and since some of the issues in suits by applicants against those persons involve the "liability of an issuer, nominated person, or adviser," Subsection (b) states the choice of law rule for those issues. Because an issuer may have liability to a confirmer both as an issuer (Section 5-108(a), Comment 5 to Section 5-108) and as an applicant (Section 5-107(a), Comment 1 to Section 5-107, Section 5-108(i)), Subsection (b) may state the choice of law rule for some but not all of the issuer's liability in a suit by a confirmer.
1A. The last sentence of pre-2022 subsection (b) is now in a new subsection (c) and a new subsection (d) has been added. These revisions were necessary to eliminate a potential ambiguity arising from the first sentence of subsection (b). The first sentence has been construed incorrectly as meaning that the last sentence, which recognizes the separateness of bank branches for the specified purposes, is inapplicable when a governing law has been chosen pursuant to subsection (a). These revisions reject that construction and reject decisions such as
Zeeco, Inc. v. JPMorgan Chase Bank
, Case No. 17 -CV-384-JED-FHM, 2018 WL 1414119 (N.D. Okla. Mar. 21, 2018), amending opinion dated March 20, 2018, both opinions vacated, 2019 WL 3543081, 2019 U.S. Dist. LEXIS 133756 (Feb. 8, 2019).
2. Because the confirmer or other nominated person may choose different law from that chosen by the issuer or may be located in a different jurisdiction and fail to choose law, it is possible that a confirmer or nominated person may be obligated to pay (under their law) but will not be entitled to payment from the issuer (under its law). Similarly, the rights of an unreimbursed issuer, confirmer, or nominated person against a beneficiary under Section 5-109, 5-110, or 5-117 [55-5-109, 55-5-110, 55-5-117 NMSA 1978, respectively], will not necessarily be governed by the same law that applies to the issuer's or confirmer's obligation upon presentation. Because the UCP and other practice are incorporated in most international letters of credit, disputes arising from different legal obligations to honor have not been frequent. Since Section 5-108 incorporates standard practice, these problems should be further minimized - at least to the extent that the same practice is and continues to be widely followed.
3. This section does not permit what is now authorized by the nonuniform Section 5-102(4) [55-5-102 NMSA 1978] in New York. Under the current law in New York a letter of credit that incorporates the UCP is not governed in any respect by Article 5. Under revised Section 5-116 [55-5-116 NMSA 1978] letters of credit that incorporate the UCP or similar practice will still be subject to Article 5 in certain respects. First, incorporation of the UCP or other practice does not override the nonvariable terms of Article 5. Second, where there is no conflict between Article 5 and the relevant provision of the UCP or other practice, both apply. Third, practice provisions incorporated in a letter of credit will not be effective if they fail to comply with Section 5-103(c) [55-5-103 NMSA 1978]. Assume, for example, that a practice provision purported to free a party from any liability unless it were "grossly negligent" or that the practice generally limited the remedies that one party might have against another. Depending upon the circumstances, that disclaimer or limitation of liability might be ineffective because of Section 5-103(c).
Even though Article 5 is generally consistent with UCP 500, it is not necessarily consistent with other rules or with versions of the UCP that may be adopted after Article 5's revision, or with other practices that may develop. The phrase in Subsection 5-116(e) [55-5-116 NMSA 1978], "rules of custom or practice, such as the Uniform Customs and Practice for Documentary Credits," includes the International Standby Practices and the Uniform Rules for Demand Guarantees, as well as the Supplement to the Uniform Customs and Practice for Documentary Credits for Electronic Presentation. Rules of practice incorporated in the letter of credit or other undertaking are those in effect when the letter of credit or other undertaking is issued. Except in the unusual cases discussed in the immediately preceding paragraph, practice adopted in a letter of credit will override the rules of Article 5 and the parties to letter of credit transactions must be familiar with practice that is explicitly adopted in letters of credit.
4. In several ways Article 5 conflicts with and overrides similar matters governed by Articles 3 and 4. For example, "draft" is more broadly defined in letter of credit practice than under Section 3-104 [55-3-104 NMSA 1978]. The time allowed for honor and the required notification of reasons for dishonor are different in letter of credit practice than in the handling of documentary and other drafts under Articles 3 and 4.
5. Subsection (g) must be read in conjunction with existing law governing subject matter jurisdiction. If the local law restricts a court to certain subject matter jurisdiction not including letter of credit disputes, subsection (g) does not authorize parties to choose that forum. For example, the parties' agreement under Section 5-116(g) [55-5-116 NMSA 1978] would not confer jurisdiction on a probate court to decide a letter of credit case.
If the parties choose a forum under subsection (g) and if—because of other law—that forum will not take jurisdiction, the parties' agreement or undertaking should then be construed (for the purpose of forum selection) as though it did not contain a clause choosing a particular forum. That result is necessary to avoid sentencing the parties to eternal purgatory where neither the chosen State nor the State which would have jurisdiction but for the clause will take jurisdiction—the former in disregard of the clause and the latter in honor of the clause.
ANNOTATIONS
Repeals and reenactments.
— Laws 1997, ch. 75, § 18 repealed former 55-5-116 NMSA 1978, as enacted by Laws 1961, ch. 96, § 5-116, relating to transfer and assignment, and enacted a new section, effective July 1, 1997. For provisions of former section,
see
the 1996 NMSA 1978 on
NMOneSource.com
.