NMSA 55-9-306. Law governing perfection and priority of security

55-9-306. Law governing perfection and priority of security interests in letter-of-credit rights. (a) Subject to Subsection (c) of this section, the local law of the issuer's jurisdiction or a nominated person's jurisdiction governs perfection, the effect of perfection or nonperfection and the priority of a security interest in a letter-of-credit right if the issuer's jurisdiction or nominated person's jurisdiction is a state. (b) For purposes of Sections 55-9-301 through 55-9-342 NMSA 1978, an issuer's jurisdiction or nominated person's jurisdiction is the jurisdiction whose law governs the liability of the issuer or nominated person with respect to the letter-of-credit right as provided in Section 55-5-116 NMSA 1978. (c) This section does not apply to a security interest that is perfected only under Subsection (d) of Section 55-9-308 NMSA 1978. History: 1978 Comp., § 55-9-306, enacted by Laws 2001, ch. 139, § 26. OFFICIAL COMMENTS UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved. 1. Source. New; derived in part from section 8-110(e) and former section 9-103(6). 2. Sui Generis Treatment. This section governs the applicable law for perfection and priority of security interests in letter-of-credit rights, other than a security interest perfected only under section 9-308(d) (i.e., as a supporting obligation). The treatment differs substantially from that provided in section 9-304 for deposit accounts. The basic rule is that the law of the issuer's or nominated person's (e.g., confirmer's) jurisdiction, derived from the terms of the letter of credit itself, controls perfection and priority, but only if the issuer's or nominated person's jurisdiction is a state, as defined in section 9- 102. If the issuer's or nominated person's jurisdiction is not a state, the baseline rule of section 9-301 applies - perfection and priority are governed by the law of the debtor's location, determined under section 9-307. Export transactions typically involve a foreign issuer and a domestic nominated person, such as a confirmer, located in a state. The principal goal of this section is to reduce the likelihood that perfection and priority would be governed by the law of a foreign jurisdiction in a transaction that is essentially domestic from the standpoint of the debtor-beneficiary, its creditors, and a domestic nominated person. 3. Issuer's or Nominated Person's Jurisdiction. Subsection (b) defers to the rules established under section 5-116 for determination of an issuer's or nominated person's jurisdiction. Example: An Italian bank issues a letter of credit that is confirmed by a New York bank. The beneficiary is a Connecticut corporation. The letter of credit provides that the issuer's liability is governed by Italian law, and the confirmation provides that the confirmer's liability is governed by the law of New York. Under sections 5-116(a) and 9- 306(b), Italy is the issuer's jurisdiction and New York is the confirmer's (nominated person's) jurisdiction. Because the confirmer's jurisdiction is a state, the law of New York governs perfection and priority of a security interest in the beneficiary's letter-of- credit right against the confirmer. See section 9-306(a). However, because the issuer's jurisdiction is not a state, the law of that jurisdiction does not govern. See section 9- 306(a). Rather, the choice-of-law rule in section 9-301(1) applies to perfection and priority of a security interest in the beneficiary's letter-of-credit right against the issuer. Under that section, perfection and priority are governed by the law of the jurisdiction in which the debtor (beneficiary) is located. That jurisdiction is Connecticut. See section 9- 307. 4. Scope of this section. This section specifies only the law governing perfection, the effect of perfection or nonperfection, and priority of security interests. Section 5-116 specifies the law governing the liability of, and article 5 (or other applicable law) deals with the rights and duties of, an issuer or nominated person. Perfection, nonperfection, and priority have no effect on those rights and duties. 5. Change in Law Governing Perfection. When the issuer's jurisdiction, or nominated person's jurisdiction changes, the jurisdiction whose law governs perfection under subsection (a) changes, as well. Nevertheless, this change will not result in an immediate loss of perfection. See section 9-316(f) and (g). 55-9-306A. Law governing perfection and priority of security interests in chattel paper. (a) Except as provided in Subsection (d) of this section, if chattel paper is evidenced only by an authoritative electronic copy of the chattel paper or is evidenced by an authoritative electronic copy and an authoritative tangible copy, the local law of the chattel paper's jurisdiction governs perfection, the effect of perfection or nonperfection and the priority of a security interest in the chattel paper, even if the transaction does not bear any relation to the chattel paper's jurisdiction. (b) The following rules determine the chattel paper's jurisdiction under this section: (1) if the authoritative electronic copy of the record evidencing chattel paper, or a record attached to or logically associated with the electronic copy and readily available for review, expressly provides that a particular jurisdiction is the chattel paper's jurisdiction for purposes of this part or the Uniform Commercial Code, that jurisdiction is the chattel paper's jurisdiction; (2) if Paragraph (1) of this subsection does not apply and the rules of the system in which the authoritative electronic copy is recorded are readily available for review and expressly provide that a particular jurisdiction is the chattel paper's jurisdiction for purposes of this part or the Uniform Commercial Code, that jurisdiction is the chattel paper's jurisdiction; (3) if Paragraphs (1) and (2) of this section do not apply and the authoritative electronic copy, or a record attached to or logically associated with the electronic copy and readily available for review, expressly provides that the chattel paper is governed by the law of a particular jurisdiction, that jurisdiction is the chattel paper's jurisdiction; (4) if Paragraphs (1), (2) and (3) of this subsection do not apply and the rules of the system in which the authoritative electronic copy is recorded are readily available for review and expressly provide that the chattel paper or the system is governed by the law of a particular jurisdiction, that jurisdiction is the chattel paper's jurisdiction; and (5) if Paragraphs (1) through (4) of this subsection do not apply, the chattel paper's jurisdiction is the jurisdiction in which the debtor is located. (c) If an authoritative tangible copy of a record evidences chattel paper and the chattel paper is not evidenced by an authoritative electronic copy, while the authoritative tangible copy of the record evidencing chattel paper is located in a jurisdiction, the local law of that jurisdiction governs: (1) perfection of a security interest in the chattel paper by possession under Section 55-9-314A NMSA 1978; and (2) the effect of perfection or nonperfection and the priority of a security interest in the chattel paper. (d) The local law of the jurisdiction in which the debtor is located governs perfection of a security interest in chattel paper by filing. History: 1978 Comp., § 55-9-306A, enacted by Laws 2023, ch. 142, § 59. OFFICIAL COMMENTS UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved. 1. Source. Section 9-306A(a) and (b) [55-9-306 NMSA 1978] derive from Sections 8-110(e) [55-8-110 NMSA 1978] and 9-305 [55-9-305 NMSA 1978] on law governing perfection and priority of security interests in investment property (as do Sections 9- 306B and 12-107 [55-12-107 NMSA 1978]). 2. Applicability of this Section. This section determines the law governing perfection and priority of security interests in chattel paper. Subsections (a) and (b) apply to chattel paper that is evidenced only by an authoritative electronic copy of the chattel paper or by an authoritative electronic copy and an authoritative tangible copy. Subsection (c) applies to chattel paper that is evidenced by an authoritative tangible copy but not evidenced by an authoritative electronic copy. Subsection (d) applies to perfection by filing for all chattel paper. 3. Authoritative Electronic Copy: Chattel Paper’s Jurisdiction. Subsection (a) specifies the law governing perfection and priority of security interests in chattel paper evidenced by an authoritative electronic copy of the chattel paper, even if it is also evidenced by an authoritative tangible copy. Subject to subsection (d) on perfection by filing, the law governing perfection and priority is the local law of the chattel paper’s jurisdiction. Drawing on Sections 8-110 and 9-305 [55-8-110, 55-9-305 NMSA 1978, respectively], it is the authoritative electronic copy itself, records attached thereto or associated therewith, or the system in which the authoritative electronic copy is recorded that determines the chattel paper’s jurisdiction and, therefore, the governing law. Subsection (b) provides a "waterfall" of rules based on provisions that identify a particular jurisdiction as the chattel paper’s jurisdiction or alternatively that provide the governing law of the chattel paper or of the system in which the electronic copy is recorded. When no such identification or provision is made, it is the debtor’s location, determined under Section 9-307 [55-9-307 NMSA 1978], that is the chattel paper’s jurisdiction. As to the final clause of subsection (a), see Section 8-110, Comment 5A. 4. Rationale for Subsection (a). A buyer of, or secured lender against, chattel paper may arrange for authoritative electronic copies of chattel paper that it wishes to have assigned to it to be originated in or submitted into a system for the control and assignment of the chattel paper. The secured parties and lessors that will be assigning the chattel paper may be located in many different jurisdictions. As to assignments of the chattel paper by these secured parties and lessors (assignor-debtors), but for this section perfection and priority would be governed by the law of each assignor-debtor’s location under Section 9-301(1) [55-9-301 NMSA 1978]. Under this section, however, the law of a single jurisdiction—the chattel paper’s jurisdiction—could govern perfection and priority with respect to all of the assignments. By avoiding the application of the laws of multiple jurisdictions to perfection and priority, this rule could substantially reduce transaction costs. 5. Authoritative tangible copy. Subsection (c) ties the choice-of-law rules to the location of the authoritative tangible copy when no authoritative electronic copy exists. In that circumstance, the local law of the jurisdiction where the authoritative tangible copy is physically located governs perfection of a security interest in the chattel paper by possession, under Section 9-314A [55-9-314A NMSA 1978], and priority. Like its predecessor, subsection (c) assumes that all the authoritative tangible copies are located in the same jurisdiction. However, assuming the secured party is in possession of all the tangible copies, even if the copies are located in more than one jurisdiction the situation is unlikely to be problematic. 6. Perfection by filing. Subsection (d) provides that the local law of the jurisdiction where the debtor is located governs perfection by filing for all chattel paper. 55-9-306B. Law governing perfection and priority of security interests in controllable accounts, controllable electronic records and controllable payment intangibles. (a) Except as provided in Subsection (b) of this section, the local law of the controllable electronic record's jurisdiction specified in Subsections (c) and (d) of Section 55-12-107 NMSA 1978 governs perfection, the effect of perfection or nonperfection and the priority of a security interest in a controllable electronic record and a security interest in a controllable account or controllable payment intangible evidenced by the controllable electronic record. (b) The local law of the jurisdiction in which the debtor is located governs: (1) perfection of a security interest in a controllable account, controllable electronic record or controllable payment intangible by filing; and (2) automatic perfection of a security interest in a controllable payment intangible created by a sale of the controllable payment intangible. History: 1978 Comp., § 55-9-306B, enacted by Laws 2023, ch. 142, § 60. OFFICIAL COMMENTS UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved. 1. Perfection by control and priority. Subsection (a) deals with perfection of a security interest in a controllable account, controllable electronic record, or controllable payment intangible other than by filing—i.e., perfection by control under Section 12-105 [55-12-105 NMSA 1978]—and priority. For these purposes the governing law is that of the controllable electronic record’s jurisdiction under Section 12-107(c) and (d) [55-12- 107 NMSA 1978]. 2. Perfection by filing. Under Subsection (b) the local law of the jurisdiction of the debtor’s location governs perfection of a security interest in a controllable account, controllable electronic record, or controllable payment intangible by filing (but not priority, as to which Subsection (a) would apply). Because controllable electronic records are general intangibles and controllable accounts and controllable payment intangibles are subsets of accounts and payment intangibles, this provision does not change prior law.