2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 9 - Secured Transactions › Part 6 - DEFAULT › Subpart 1 - DEFAULT AND ENFORCEMENT OFSECURITY INTEREST › Section 55-9-605 - Unknown debtor or secondary obligor.

A secured party does not owe a duty based on its status as secured party:
(1) to a person that is a debtor or obligor, unless the secured party knows:
(A) that the person is a debtor or obligor;
(B) the identity of the person; and
(C) how to communicate with the person; or
(2) to a secured party or lienholder that has filed a financing statement against a person, unless the secured party knows:
(A) that the person is a debtor; and
(B) the identity of the person.
History:
1978 Comp., § 55-9-605, enacted by Laws 2001, ch. 139, § 102.
OFFICIAL COMMENTS
UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
1.
Source.
New.
2.
Duties to Unknown Persons and Limitation of Liability.
This section relieves a secured party from duties owed to a debtor or obligor if the secured party does not know about the debtor or obligor. Similarly, it relieves a secured party from duties owed to a secured party or lienholder who has filed a financing statement against the debtor if the secured party does not know about the debtor. Section 9-628(a) and (b) provide analogous limitations of liability. For example, a secured party may be unaware that the original debtor has sold the collateral subject to the security interest and that the new owner has become the debtor. If so, the secured party owes no duty to the new owner (debtor) or to a secured party who has filed a financing statement against the new owner. Note that this section relieves a secured party not only from duties arising under this Article but also from duties arising under other law by virtue of the secured party's status as such under this Article, unless the other law otherwise provides.
This section should be read in conjunction with the limitations on liability contained in the exculpatory provisions in subsections (a), (b), and (c) of Section 9-628. Without this group of provisions, a secured party could incur liability to unknown persons and under circumstances that would not allow the secured party to protect itself. The broadened definition of the term "debtor" underscores the need for these provisions. For example, as noted above, a debtor may dispose of collateral subject to a security interest, resulting in the transferee becoming a debtor, but the secured party may have no knowledge of the disposition or that the transferee has become a debtor. In that situation the secured party will have no means of giving notice to or accounting to the transferee debtor. Sections 9-605 and 9-628 contemplate such situations by relieving the secured party of its duties to the debtor and limiting the secured party's liability to the debtor.
3.
Exceptions to Relief from Duties and Limitation of Liability.
In some cases, lenders may extend secured credit without knowing, or having the ability to discover, the identity of their borrowers. Pre-2022 Sections 9-605(a) and 9-628(a) and (b) would excuse these secured parties from having duties to their debtors and obligors, including, for example, the duty to notify the debtor or secondary obligor before disposing of the collateral and the duty to account to the debtor for any surplus arising from a disposition, and would limit the secured parties' liability to their debtors and obligors. In many cases these debtors and obligors may be aware that their identities are unknown to their secured parties. By failing to make their identities and contact information known, these debtors and obligors may be impairing the ability of their secured parties to comply with their duties under Article 9. However, such debtor complicity notwithstanding, if secured parties were relieved of their duties in these circumstances, it would conflict with the policy of Section 9-602, which prohibits a waiver or variance of many rights of debtors and obligors and duties of secured parties.
Sections 9-605(b) and 9-628(f) reflect the policy that a secured party should not be free to avoid statutory duties or absolve itself from liability to a debtor or obligor when the secured party knows that the collateral, records attached to or logically associated with the collateral, and the system in which the collateral is recorded do not provide the secured party with the information necessary to fulfill its statutory duties. As discussed in the following paragraph, the secured party's knowledge that it may not be able to comply with its duties enables the secured party to protect itself from being in breach of these duties. (A person has knowledge of or knows a fact if it has "actual knowledge." Section 1-202(b).) The exceptions from the exculpatory protections otherwise afforded to secured parties are determined by the secured party's knowledge at the later of the time the secured party obtains control of a controllable account, controllable electronic record, or controllable payment intangible or the time that the security interest attaches to the collateral.
Obtaining control or attachment of the security interest serves as a rough proxy for the context in which a secured party may know that it may be unable to comply with its duties, usually because the transferor is pseudonymous. The carve-out from the exculpatory protection is limited to duties owed to and liability to a debtor—the transferor of a controllable account, controllable electronic record, or controllable payment intangible over which the secured party obtains control—or obligor. The secured party in such situations could protect itself by choosing not to enter into a transaction in which it might be unable to comply with its statutory duties or by conditioning its participation on disclosure of the debtor's or obligor's identity and contact information. Ideally, systems providing for the transfer of controllable electronic records would provide mechanisms that would permit compliance with such duties (such as methods of communication and making payments that would preserve a debtor's or obligor's pseudonymity, where that is desired). The amendments to Sections 9-605 and 9-628 provide incentives for system design that would allow for compliance with Article 9 duties.
Secured parties that enter into transactions with knowledge that they may not be able to comply with their Article 9 duties do so at their own peril. Of course, if a secured party possesses, or can obtain, the information necessary to comply with its duties, there is no need for the exculpation from those duties. Note, however, that the limitation on a secured party's relief from duties and liability relates only to secured transactions involving controllable accounts, controllable electronic records, or controllable payment intangibles. Designing systems for these assets that would afford secured parties with opportunities to comply with their Article 9 duties, as suggested above, could eliminate the risks to secured parties and also provide for the protection of debtors' and obligors' rights.
ANNOTATIONS
Effective dates.
— Laws 2001, ch. 139, § 155 makes the act effective July 1, 2001.