2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 12 - Controllable Electronic Records (Effective January 1, 2024.) › Section 55-12-107 - Governing law. (Effective January 1, 2024.)

(a) Except as provided in Subsection (b) of this section, the local law of a controllable electronic record's jurisdiction governs a matter covered by Sections 55-12-101 through 55-12-106 NMSA 1978.
(b) For a controllable electronic record that evidences a controllable account or controllable payment intangible, the local law of the controllable electronic record's jurisdiction governs a matter covered by Section 55-12-106 NMSA 1978 unless an effective agreement determines that the local law of another jurisdiction governs.
(c) The following rules determine a controllable electronic record's jurisdiction pursuant to this section:
(1) if the controllable electronic record, or a record attached to or logically associated with the controllable electronic record and readily available for review, expressly provides that a particular jurisdiction is the controllable electronic record's jurisdiction for purposes of Sections 55-12-101 through 55-12-106 NMSA 1978 or the Uniform Commercial Code, that jurisdiction is the controllable electronic record's jurisdiction;
(2) if Paragraph (1) of this subsection does not apply and the rules of the system in which the controllable electronic record is recorded are readily available for review and expressly provide that a particular jurisdiction is the controllable electronic record's jurisdiction for purposes of Sections 55-12-101 through 55-12-106 NMSA 1978 or the Uniform Commercial Code, that jurisdiction is the controllable electronic record's jurisdiction;
(3) if Paragraphs (1) and (2) of this subsection do not apply and the controllable electronic record, or a record attached to or logically associated with the controllable electronic record and readily available for review, expressly provides that the controllable electronic record is governed by the law of a particular jurisdiction, that jurisdiction is the controllable electronic record's jurisdiction;
(4) if Paragraphs (1), (2) and (3) of this subsection do not apply and the rules of the system in which the controllable electronic record is recorded are readily available for review and expressly provide that the controllable electronic record or the system is governed by the law of a particular jurisdiction, that jurisdiction is the controllable electronic record's jurisdiction; and
(5) if Paragraphs (1) through (4) of this subsection do not apply, the controllable electronic record's jurisdiction is the District of Columbia.
(d) If Paragraph (5) of Subsection (c) of this section applies and Article 12 is not in effect in the District of Columbia without material modification, the governing law for a matter covered by Sections 55-12-101 through 55-12-106 NMSA 1978 is the law of the District of Columbia as though those sections were in effect in the District of Columbia without material modification. In this subsection, "Article 12" means Article 12 of Uniform Commercial Code Amendments (2022).
(e) To the extent Subsections (a) and (b) of this section provide that the local law of the controllable electronic record's jurisdiction governs a matter covered by Sections 55-12-101 through 55-12-106 NMSA 1978, that law governs even if the matter or a transaction to which the matter relates does not bear any relation to the controllable electronic record's jurisdiction.
(f) The rights acquired pursuant to Section 55-12-104 NMSA 1978 by a purchaser or qualifying purchaser are governed by the law applicable pursuant to this section at the time of purchase.
History:
1978 Comp., § 55-12-107, enacted by Laws 2023, ch. 142, § 102.
OFFICIAL COMMENTS
UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
1.
Source.
The provisions of Section 12-107 (as well as Sections 9-306A and 9-306B) derive from Sections 8-110 and 9-305 on law governing perfection and priority of security interests in investment property and the relevance of a securities intermediary's jurisdiction and a commodity intermediary's jurisdiction.
2.
The basic rule: Law governing matters covered by Article 12.
Subsection (a) states the basic rule that the local law of the controllable electronic record's jurisdiction governs the matters covered by this Article. The "matters covered by" this Article are relatively narrow and discrete, albeit enormously important. If the choice-of-law rule provided by this section points to a jurisdiction that has adopted Article 12, those matters would include the interpretation and application of Article 12, including its definitions. In general, issues that would be determined by the provisions of this Article are to be determined under the law that is applicable as determined by this section. These include the rights of purchasers and property claimants more generally with respect to controllable electronic records, controllable accounts, and controllable payment intangibles to the extent dealt with by this Article—issues addressed by section 12-104. The rights and obligations of account debtors, to the extent dealt with by section 12-106, are also matters covered. Matters not covered by this Article, including matters as to which this Article expressly provides are covered by other law, are not within the scope of this section.
3.
Practical considerations on determination of governing law.
This section relating to the law governing the matters covered by this Article must confront substantial practical considerations. These considerations arise primarily from two factors. First, as described below, this section relies primarily on a "waterfall" of alternatives for determining a controllable electronic record's jurisdiction. The first four elements of the waterfall require for their applicability express provisions of a controllable electronic record, an attached or logically associated record, or the system in which a controllable electronic record is recorded. However, many controllable electronic records and systems existing at the time of the 2022 Amendments do not contain these provisions. As explained in Comment 6, the expectation is that over time electronic records and related systems will adopt these provisions in reliance on this section, thereby satisfying at least one of the first four elements of the waterfall. Second, in the absence of these provisions, at the bottom of the waterfall the controllable electronic record's jurisdiction is the District of Columbia. See Comment 6.
4.
Governing law for Section 12-106.
Subsection (b) provides an exception to the general rule of subsection (a) that "the local law of a controllable electronic record's jurisdiction governs the matters covered by this Article." The exception recognizes that an account debtor's rights and duties generally are governed by the law applicable to the underlying obligation of the account debtor, and not by the law applicable to the agreement between the assignor (debtor) and the assignee (secured party)—a security agreement. See Section 9-401, Comment 3. Subsection (b) recognizes that an effective agreement (i.e., one effective under Section 1-301(a)) between the account debtor and assignor may choose a different law to cover the matters covered by Section 12-106 (i.e., the account debtor's rights and duties addressed in that section). Such an agreement may, of course, address matters other than those covered by Section 12-106 (for example, an agreement that all obligations of the account debtor are governed by the laws of State X).
5.
Determination of controllable electronic record's jurisdiction.
The basic rule that the law of a controllable electronic record's jurisdiction governs the matters covered by Article 12 may be viewed as a rough proxy for the traditional role of the location of tangible asset (e.g., goods) in determining the applicable law (lex rei sitae). Drawing on the analogous provisions in Sections 8-110 and 9-305 in the context of a security entitlement or securities account or a commodity contract or commodity account, under subsection (c) it is the controllable electronic record itself, records attached thereto or associated therewith, or the system in which the controllable electronic record is recorded that determines the controllable electronic record's jurisdiction and, thereby, the governing law. Subsection (c) provides a "waterfall" of rules based on provisions that identify a particular jurisdiction as the controllable electronic record's jurisdiction or alternatively that provide the governing law for a controllable electronic record or the system in which the record is recorded. As to subsection (e), see Section 8-110, Comment 5A.
Paragraphs (1) through (4) of the subsection (c) waterfall each relies on information available from a controllable electronic record, an attached or logically associated record, or rules of a system in which the record is recorded. A controllable electronic record's jurisdiction is determined by one of these sources that "expressly provide[s]" that a jurisdiction is the controllable electronic record's jurisdiction or that a particular jurisdiction's law is the governing law. These paragraphs refer to attached or logically associated records or system rules that are "readily available." They also assume that the controllable electronic record is itself readily available to anyone choosing to deal with the record. These provisions are based on the assumption that the relevant express provision will be available to an interested person without the imposition of unreasonable burdens.
6.
Bottom of the waterfall: District of Columbia.
Many controllable electronic records, attached or logically associated records, and systems in which controllable electronic records are recorded that exist at the time of the 2022 Amendments do not identify the "controllable electronic record's jurisdiction" or the governing law (some permissioned systems being exceptions). (It is anticipated that, upon widespread adoption of Article 12 and accompanying amendments, systems will adapt and the first four elements of the waterfall will become more generally applicable for identifying a controllable electronic record's jurisdiction.) Consequently, subsection (c)(5) addresses an issue that does not normally exist in the context of Sections 8-110 and 9-305. It might be thought that the logical choice for the residual rule for designating the controllable electronic record's jurisdiction at bottom of the waterfall would be, the location of the debtor. That approach would follow the role of the location of a debtor under Sections 9-301 and 9-307. However, that location may not readily be determined by parties to a transaction, primarily because in many cases involving controllable electronic records the transferor is not known to or easily discoverable by a purchaser. See Prefatory Note 1 to Article 12. Consequently, Subsection (c)(5) resolves this issue by providing that the controllable electronic record's jurisdiction is the District of Columbia.
7.
District of Columbia as controllable electronic record's jurisdiction.
The designation of the District of Columbia as the controllable electronic record's jurisdiction follows Section 9-307(c), which designates the District of Columbia as the location of a debtor that otherwise would be located in a jurisdiction whose law does not provide for a generally applicable system of public notice (such a filing or registration) for nonpossessory security interests. This designation also assumes that the District of Columbia will have adopted Article 12 and the conforming amendments to Articles 1 and 9 in substantially the uniform version—i.e., without material modification of the official text. This is a plausible assumption based on the history of adoptions in that jurisdiction. Because the controllable electronic record's jurisdiction does not govern perfection of a security interest by filing, the designation of the District of Columbia at the bottom of the waterfall will not confer on that jurisdiction any economic benefits of fees for filing of financing statements. See Section 9-306B(b). Subsection (d) addresses the unlikely situation that the District of Columbia does not adopt Article 12 without material modification of the official text or later adopts materially non-uniform amendments. Subsection (d) is patterned loosely (but as closely as feasible) on the TRADES Regulations, 31 CFR § 357.11(e), for U.S. Treasury securities.
The term "Article 12" is defined in subsection (d) as the officially promulgated 2022 version of Article 12 and conforming amendments. In determining whether the District of Columbia has enacted Article 12 without material modification, a court or other tribunal should consider the materiality of any provision in the context of the issue or issues before it. A modification of a provision that would be material in another context should be disregarded if it has no bearing on the issue or issues before the tribunal. In connection with any future revision of the Article 12 official text, it will be important for transitional provisions to address the situations in which the District of Columbia may or may not have adopted the revised official text.
8.
Relevant time for determination of governing law.
Subsection (f) provides that the rights of purchasers are governed by the applicable law as of the time of purchase. Note that Sections 8-110 and 9-305 do not contain an analogous rule with respect to a securities intermediary's jurisdiction. However, Section 8-110(c) does provide a similar rule for the delivery of a security certificate and adverse claims. As to the timing of the determination of the governing law for other issues under Article 12, such as the rights and duties of account debtors under Section 12-106, the section does not specify a time. As with most statutory provisions relating to governing law, courts are free to determine the appropriate relevant time taking into account the relevant facts and the nature of the issues involved.
ANNOTATIONS
Effective dates.
— Laws 2023, ch. 142, § 112 made Laws 2023, ch. 142, § 102 effective January 1, 2024.
Compiler's notes.
— Laws 2023, ch. 142, § 102 enacted a new 55-12-107 NMSA 1978, effective January 1, 2024. Former 55-12-107 NMSA 1978, as enacted by Laws 1985, ch. 193, § 45, was recompiled as 55-11A-107 NMSA 1978, effective January 1, 2024.