2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 7 - Documents of Title › Part 1 - GENERAL › Section 55-7-106 - Control of electronic document of title.

(a) A person has control of an electronic document of title if a system employed for evidencing the transfer of interests in the electronic document reliably establishes that person as the person to which the electronic document was issued or transferred.
(b) A system satisfies Subsection (a) of this section, and a person is deemed to have control of an electronic document of title, if the document is created, stored and assigned in such a manner that:
(1) a single authoritative copy of the document exists that is unique, identifiable and, except as otherwise provided in Paragraphs (4), (5) and (6) of this subsection, unalterable;
(2) the authoritative copy identifies the person asserting control as:
(A) the person to which the document was issued; or
(B) if the authoritative copy indicates that the document has been transferred, the person to which the document was most recently transferred;
(3) the authoritative copy is communicated to and maintained by the person asserting control or its designated custodian;
(4) copies or amendments that add or change an identified assignee of the authoritative copy can be made only with the consent of the person asserting control;
(5) each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy; and
(6) any amendment of the authoritative copy is readily identifiable as authorized or unauthorized.
History:
Laws 2005, ch. 144, § 56.
OFFICIAL COMMENTS
UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
Prior Uniform Statutory Provision.
— Uniform Electronic Transactions Act Section 16.
1. The 2022 revision of this section on control of electronic documents of title preserves Subsection (a), the general rule, and Subsection (b), the "safe harbor" from the pre-2022 section. The minor stylistic revisions are not substantive. The other revisions add a second "safe harbor" in Subsection (c), explanatory provisions relating to exclusivity of powers in subsections (d) and (e), a presumption of exclusivity of powers in Subsection (f), and a new Subsection (g) on control through another person. The requirements for obtaining control under Subsection (c) were inspired by Section 12-105 [55-12-105 NMSA 1978] on control of controllable electronic records.
See
Section 12-105 and Comments.
This section defines "control" for electronic documents of title. Subsections (a) and (b) derive from the Uniform Electronic Transactions Act § Section 16 on transferrable records. Unlike under UETA § Section 16, however, a document of title may be reissued in an alternative medium pursuant to Section 7-105 [55-7-105 NMSA 1978]. At any point in time in which a document of title is in electronic form, the control concept of this section is relevant. As under UETA § Section 16, the control concept embodied in this section provides the legal framework for developing systems for electronic documents of title.
2. Control of an electronic document of title substitutes for the concept of indorsement (for negotiable documents) and possession (for tangible documents of title).
See
Section 7-501 [55-7-501 NMSA 1978]. A person with a tangible document of title delivers the document by voluntarily transferring possession and a person with an electronic document of title delivers the document by voluntarily transferring control. (Delivery is defined in Section 1-201(b)(15) [55-1-201 NMSA 1978]).
3. Subsection (a) sets forth the general rule that the "system employed for evidencing the transfer of interests in the electronic document reliably establishes that person as the person to which the electronic document was issued or transferred." The key to having a system that satisfies this test is that identity of the person to which the document was issued or transferred must be reliably established. Of great importance to the functioning of the control concept under Subsection (a), as well as under the safe harbors in Subsections (b) and (c), is to be able to demonstrate and identify, at any point in time,
the person
entitled under the electronic document. For example, a carrier may issue an electronic bill of lading by having the required information in a database that is encrypted and accessible by virtue of a password. If the computer system in which the required information is maintained identifies the person as the person to which the electronic bill of lading was issued or transferred, that person has control of the electronic document of title. That identification may be by virtue of passwords or other encryption methods. Registry systems may satisfy this test. For example, see the electronic warehouse receipt system established pursuant to 7 C.F.R. Part 735. This Article leaves to the market place the development of sufficient technologies and business practices that will meet the test.
An electronic document of title is evidenced by a record consisting of information stored in an electronic medium.
See
Section 1-201(b)(16A) [55-1-201 NMSA 1978] (defining "electronic") and (31) (defining "record"). For example, a record in a computer database could be an electronic document of title assuming that it otherwise meets the definition of document of title. To the extent that third parties wish to deal in paper mediums, Section 7-105 [55-7-105 NMSA 1978] provides a mechanism for exiting the electronic environment by having the issuer reissue the document of title in a tangible medium. Thus if a person entitled to enforce an electronic document of title causes the information in the record to be printed onto paper without the issuer's involvement in issuing the document of title pursuant to Section 7-105, that paper is not a document of title.
4. Subsection (a) sets forth the general test for control. Subsections (b) and (c) set forth safe harbor tests that, if satisfied, result in control under the general test in Subsection (a). The safe harbor in Subsection (b) requires the existence of only one authoritative copy of the document but the safe harbor in Subsection (c) allows for either a single authoritative copy or multiple authoritative copies.
Under Subsection (b), at any point in time, a party should be able to identify the single authoritative copy which is unique and identifiable as the authoritative copy. This does not mean that once created that the authoritative copy need be static and never moved or copied from its original location. To the extent that backup systems exist which result in multiple copies, the key to this idea is that at any point in time, the one authoritative copy needs to be unique and identifiable.
5. Article 7 has historically provided for rights under documents of title and rights of transferees of documents of title as those rights relate to the goods covered by the document. Third parties may possess or have control of documents of title. While misfeasance or negligence in failure to transfer or misdelivery of the document by those third parties may create serious issues, this Article has never dealt with those issues as it relates to tangible documents of title, preferring to leave those issues to the law of contracts, agency and tort law. In the electronic document of title regime, registry systems continue to evolve. To the extent that these systems evolve by use of the control concepts contained in this section, the law of contracts, agency, and torts as it applies to the registry's misfeasance or negligence concerning the transfer of control of the electronic document will allocate the risks and liabilities of the parties as that other law now does so for third parties who hold tangible documents and fail to deliver the documents.
6. The Subsection (c) "safe harbor" generally follows Section 12-105 [55-12-105 NMSA 1978] for control of controllable electronic records as well as revised Section 9-105 on control of chattel paper evidenced by electronic records.
See generally
Sections 9-105 and 12-105 [55-9-105 and 55-12-105 NMSA 1978, respectively] and Comments. It differs from Subsection (b), which (as noted above) is based on a "single authoritative copy" of an electronic document of title and so is unavailable when the relevant record is maintained on a blockchain or another distributed ledger. The utility of distributed ledger technology depends on there being multiple authoritative copies of an electronic record. It is important to note that compliance with the conditions for control in Subsection (c) also would satisfy the conditions provided in Subsection (b). However, Subsection (b) was retained out of an abundance of caution and to provide assurances that existing systems for control of electronic documents of title continue to be viable. The conditions for "control" in Subsection (c) reflect the functions that possession serves with respect to writings, but in a more accurate and technologically flexible way than do the conditions in Subsection (b).
7. Under Subsection (c), to obtain control of an electronic document of title a person must be able to identify each electronic copy as authoritative or nonauthoritative and identify itself as the person to which each authoritative electronic copy has been issued or transferred. As to the means of identification,
see
Section 12-105 [55-12-105 NMSA 1978], Comment 7. In addition, the person must have the exclusive powers, first, to prevent others from adding or changing an identified person to which each authoritative electronic copy has been issued or transferred and, second, to transfer control of each authoritative copy. However, once it is established that a person has received those powers, Subsection (f) provides a presumption of exclusivity. Consequently, a person asserting control need not prove exclusivity in order to make out a prima facie case. Application of the presumption will be governed also by Section 1-206 [55-1-206 NMSA 1978] (effects of a presumption under the UCC) and applicable non-UCC law (including rules of procedure and evidence). In addition, Subsection (d) contains two qualifications of the term "exclusive" as used in Subsection (c)(3). A power can be "exclusive" under Subsection (c)(3) even if one or both of these qualifications apply.
Subsection (e) provides that in certain circumstances a power is not shared within the meaning of Subsection (d)(2), the relaxation of the exclusivity requirement provided by Subsection (d)(2) does not apply, and, consequently, a person's power is not exclusive. Subsection (e) provides that a person does not share an exclusive power with another person if the person can exercise the power only with the other person's cooperation (Subsection (e)(1)) but the other person either (i) can exercise of the power without the person's cooperation (Subsection (e)(2)(A)) or (ii) is the transferor to the person (transferee) of an interest in the document of title (Subsection (e)(2)(B)). It follows that a person to which Subsection (e) applies does not have control based on its exclusive powers (although it might have control through another person under Subsection (g), discussed below, or if another person having control is acting as the person's agent). As to the rationale for disqualifying a transferee (which includes a secured party in a secured transaction) from the benefit of shared control under Subsection (d)(2), as provided in Subsection (e)(2)(B), and for examples of the operation of Subsection (e) (in the context of the similar provision in Section 12-105 [55-12-105 NMSA 1978]),
see
Section 12-105, Comments 5 and 9.
8. Subsection (g) provides for a person to obtain control through the control of another person. It follows revisions to the corresponding provisions for control of a security entitlement (Section 8-106(d)(3) [55-8-106 NMSA 1978]), control of deposit accounts (Section 9-104(a)(4) [55-9-104 NMSA 1978]), control of authoritative electronic copies of records evidencing chattel paper (Section 9-105(g) [55-9-105 NMSA 1978]), control of electronic money (Section 9-105A(e)), and control of controllable electronic records (Section 12-105(e) [55-12-105 NMSA 1978]). For a brief discussion and background,
see
Section 12-105, Comment 8. Under Subsection (g) for an acknowledgment by another person to be effective to confer control on a person, the other person making the acknowledgment must be one "other than the transferor of an interest in the electronic record" to the person. The rationale for this limitation is discussed in Section 12-105, Comment 9. Control based on an acknowledgment under Subsection (g) by another person having control continues only while the other person retains control. This result necessarily follows because such control derives solely from the other person's continued control.
Subsections (h) and (i) derive from Section 9-313(f) and (g). Subsection (h) makes clear that a person that has control under this section has no duty to acknowledge that it has or will obtain control on behalf of another person. Arrangements for a person to acknowledge that it has or will obtain control on behalf of another person are not standardized. Accordingly, Subsection (i) leaves to the agreement of the parties and to any other applicable law (other than this Article or Article 9) any duties of a person that does acknowledge that it has or will obtain control on behalf of another person and provides that a person making an acknowledgment is not required to confirm the acknowledgment to another person. For example, Subsection (g) would apply to give control to a person, Alpha, when another person, Beta, has control of each authoritative electronic document of title and acknowledges that it has control on behalf of Alpha. However, under Subsection (h), Beta is not required to so acknowledge. And under Subsection (i), even if Beta does so acknowledge, Beta owes no duty to Alpha, unless Beta agrees or other law so provides, and Beta is not required to confirm its acknowledgment to any other person.
9. This section applies to both negotiable and nonnegotiable electronic documents of title. For negotiable electronic documents of title, "delivery" is a necessary condition for negotiation, and therefore for due negotiation, under Section 7-501(b) [55-7-501 NMSA 1978]. "Delivery" of an electronic document of title is defined in Section 1-201(b)(15) [55-1-201 NMSA 1978] as the "voluntary transfer of control." The person in control of a negotiable document, other than pursuant to Subsection (g), also is a "holder," as defined in Section 1-201(b)(21)(C). Of course, nonnegotiable documents cannot be negotiated.
A security interest in an electronic document of title, whether negotiable or nonnegotiable, may be perfected by control. Section 9-314(a) [55-9-314 NMSA 1978]. But perfection of a security interest by control in a nonnegotiable document does not perfect a security interest in goods covered by the document and does not confer on a secured party or other purchaser the status of a person entitled under the document.
See
Section 7-102(a)(9) [55-7-102 NMSA 1978] (defining "person entitled under the document") and Comment 6. This distinction arises from the differing rights conferred by a negotiable document and a nonnegotiable document. Both types serve as a receipt for the goods delivered to the bailee and a contract of storage (in the case of a warehouse receipt) or contract of carriage (in the case of a bill of lading). However, a negotiable document is also a representation of the goods themselves, whereas a nonnegotiable document confers only the right to receive possession of the goods. (On perfection of security interests in negotiable documents of title and goods covered by negotiable and nonnegotiable documents of title, see generally Section 9-312(a) [55-9-312 NMSA 1978], (c), and (g) and Comment 7.)
Cross References.
— Sections 7-105 [55-7-105 NMSA 1978] and 7-501 [55-7-501 NMSA 1978].
"Delivery". 1-201 [55-1-201 NMSA 1978].
"Document of title". 1-201.
ANNOTATIONS
Effective dates.
— Laws 2005, ch. 144, § 115 made Laws 2005, ch. 144, § 56 effective January 1, 2006.
Cross references.
— For control of electronic chattel paper,
see
55-9-105 NMSA 1978.