2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 12 - Controllable Electronic Records (Effective January 1, 2024.) › Section 55-12-106 - Discharge of account debtor on controllable account or controllable payment intangible. (Effective January 1, 2024.)

(a) An account debtor on a controllable account or controllable payment intangible may discharge its obligation by paying:
(1) the person having control of the controllable electronic record that evidences the controllable account or controllable payment intangible; or
(2) except as provided in Subsection (b) of this section, a person that formerly had control of the controllable electronic record.
(b) Subject to Subsection (d) of this section, the account debtor may not discharge its obligation by paying a person that formerly had control of the controllable electronic record if the account debtor receives a notification that:
(1) is signed by a person that formerly had control or the person to which control was transferred;
(2) reasonably identifies the controllable account or controllable payment intangible;
(3) notifies the account debtor that control of the controllable electronic record that evidences the controllable account or controllable payment intangible was transferred;
(4) identifies the transferee, in any reasonable way, including by name, identifying number, cryptographic key, office or account number; and
(5) provides a commercially reasonable method by which the account debtor is to pay the transferee.
(c) After receipt of a notification that complies with Subsection (b) of this section, the account debtor may discharge its obligation by paying in accordance with the notification and may not discharge the obligation by paying a person that formerly had control.
(d) Subject to Subsection (h) of this section, notification is ineffective pursuant to Subsection (b) of this section:
(1) unless, before the notification is sent, the account debtor and the person that, at that time, had control of the controllable electronic record that evidences the controllable account or controllable payment intangible agree in a signed record to a commercially reasonable method by which a person may furnish reasonable proof that control has been transferred;
(2) to the extent an agreement between the account debtor and seller of a payment intangible limits the account debtor's duty to pay a person other than the seller and the limitation is effective under law other than Sections 55-12-101 through 55-12-106 NMSA 1978; or
(3) at the option of the account debtor, if the notification notifies the account debtor to:
(A) divide a payment;
(B) make less than the full amount of an installment or other periodic payment; or
(C) pay any part of a payment by more than one method or to more than one person.
(e) Subject to Subsection (h) of this section, if requested by the account debtor, the person giving the notification pursuant to Subsection (b) of this section seasonably shall furnish reasonable proof, using the method in the agreement referred to in Paragraph (1) of Subsection (d) of this section, that control of the controllable electronic record has been transferred. Unless the person complies with the request, the account debtor may discharge its obligation by paying a person that formerly had control, even if the account debtor has received a notification pursuant to Subsection (b) of this section.
(f) A person furnishes reasonable proof pursuant to Subsection (e) of this section that control has been transferred if the person demonstrates, using the method in the agreement referred to in Paragraph (1) of Subsection (d) of this section, that the transferee has the power to:
(1) avail itself of substantially all the benefit from the controllable electronic record;
(2) prevent others from availing themselves of substantially all the benefit from the controllable electronic record; and
(3) transfer the powers specified in Paragraphs (1) and (2) of this subsection to another person.
(g) Subject to Subsection (h) of this section, an account debtor may not waive or vary its rights pursuant to Paragraph (1) of Subsection (d) and Subsection (e) of this section or its option pursuant to Paragraph (3) of Subsection (d) of this section.
(h) This section is subject to law other than Sections 55-12-101 through 55-12-106 NMSA 1978 that establishes a different rule for an account debtor who is an individual and who incurred the obligation primarily for personal, family or household purposes.
History:
1978 Comp., § 55-12-106, enacted by Laws 2023, ch. 142, § 101.
OFFICIAL COMMENTS
UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
1.
Source.
These provisions derive from Section 3-602, which governs the discharge of a person obligated on a negotiable instrument, and Section 9-406(a), (b) and (c), which governs the discharge of an account debtor, including a person obligated on an account or payment intangible.
2.
The basic rules.
This section applies only to an account debtor that has undertaken to pay the person that has control of the controllable electronic record that evidences the obligation to pay. See Section 9-102 (defining "controllable account" and "controllable payment intangible"). Section 9-406 would continue to apply in other respects and to all other account debtors. As to the relationship between this section and Section 9-406, see Comment 5.
Under subsection (a)(1), an account debtor may discharge its obligation on the controllable account or controllable payment intangible by paying the person that has control of the related controllable electronic record at the time of payment. Subsections (a)(2) and (b) would remove from an account debtor the burden of determining who has control of the related controllable electronic record at any given time—a burden that, with respect to some controllable electronic records, an account debtor may be unable to satisfy. Under subsection (a)(2), subject to subsection (b), an account debtor may discharge its obligation by paying a person that formerly had control of the related controllable electronic record, which presumably would include the initial obligee.
Subsection (b) reflects the fact that a person to which control has been transferred may not wish to take the risk that the account debtor will discharge its obligation by paying the transferor. Subsection (b) protects the transferee by providing that, if the account debtor receives an effective notification that control has been transferred, the account debtor may discharge its obligation by paying in accordance with the notification and may not discharge its obligation by paying a person that formerly had control. The notification must be signed by a person formerly having control or by the transferee.
To be effective under subsection (b), a notification must reasonably identify the controllable account or controllable payment intangible, notify the account debtor that control of the controllable electronic record that evidences the controllable account or controllable payment intangible was transferred, identify the transferee in any reasonable way, and provide a commercially reasonable method by which the account debtor is to make payments to the transferee. A change in the identity of the person to which the account debtor must make payment should not, and typically will not, impose a significant burden on the account debtor. However, one can imagine a method of making payment that would be burdensome, for example, making a payment through a trading platform or payment service with which the account debtor does not have an account. For this reason, the designated method of making payment must be "commercially reasonable."
3.
"Reasonable proof."
As noted above, this section derives in large part from Section 9-406, which provides for notification that an account or payment intangible has been assigned. Experience suggests that account debtors that have received notification of an assignment under Section 9-406 typically make payments in accordance with the notice. Recognizing that an account debtor may be uncertain whether a notification is legitimate, Section 9-406 affords to an account debtor the right to request proof that the account or payment intangible was assigned. See generally, Section 9-406, Comment 4.
Subsection (e) contains a similar provision. On the account debtor's request, the person giving the notification must seasonably furnish reasonable proof that control of the controllable electronic record has been transferred. If the person does not comply with the request, the account debtor may ignore the notification and discharge its obligation by paying a person formerly in control.
"Reasonable proof" requires evidence that would be understood by a typical account debtor to whom it is proffered as demonstrating to a reasonably high probability that control of the controllable electronic record has been transferred to the transferee. Subsection (f) provides a safe harbor for providing reasonable proof. It enables a person to satisfy the account debtor's request by demonstrating that the transferee has the power to avail itself of substantially all the benefit from the controllable electronic record, to prevent others from availing themselves of substantially all the benefit from the controllable electronic record, and to transfer these powers to another person. This demonstration would not necessarily prove that a person actually has control of a controllable electronic record because it need not show that the transferee held the last two powers exclusively. Nevertheless, such a demonstration would constitute "reasonable proof" under subsection (f). A person that has control should have little difficulty providing this proof, as a person cannot have control unless it can readily identify itself as having the requisite powers. See Section 12-105(a)(2). Reasonable proof that is seasonably furnished by a person other than the person that gave the notification would constitute compliance with the account debtor's request.
Subsection (e) requires that reasonable proof be provided "using the agreed method." Subsection (f) requires that a person use "the agreed method" to demonstrate that the transferee has the specified powers. "Agreed method" refers to the commercially reasonable method to which the parties agreed, in a signed record, before the notification was sent. If parties did not so agree, the notification is ineffective under subsection (d)(1).
An account debtor may agree to participate in a system providing for the control of controllable accounts or controllable payment intangibles. If the system is programmed to provide for notification to the account debtor upon the transfer of control, the account debtor's agreement and the operation of the system may satisfy the requirements of subsections (d)(1), (e), and (f).
4.
Additional considerations for account debtors.
The requirement in subsection (e) that reasonable proof be furnished using the "agreed method" provides considerable protection for account debtors upon receipt of a notification of assignment and making a request for proof. There are, however, other considerations that are of importance to account debtors but are beyond the scope of the frameworks provided by Articles 9 and 12. One such consideration is the potential involvement of pseudonymous payees, which may raise issues such as compliance with anti-money laundering regulations and sanctions compliance. These are examples of issues that a well-structured program for controllable accounts and controllable payment intangibles might address.
5.
Relationship to Section 9-406.
Section 9-406 governs the discharge of the obligation of an account debtor. Section 9-406 carves out of its scope transactions to the extent covered by this section. See Section 9-406(l).
ANNOTATIONS
Effective dates.
— Laws 2023, ch. 142, § 112 made Laws 2023, ch. 142, § 101 effective January 1, 2024.
Compiler's notes.
— Laws 2023, ch. 142, § 101 enacted a new 55-12-106 NMSA 1978, effective January 1, 2024. Former 55-12-106 NMSA 1978, as enacted by Laws 1985, ch. 193, § 44, was recompiled as 55-11A-106 NMSA 1978, effective January 1, 2024.