(a) The Uniform Commercial Code must be liberally construed and applied to promote its underlying purposes and policies, which are:

(1) to simplify, clarify and modernize the law governing commercial transactions;

(2) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties; and

(3) to make uniform the law among the various jurisdictions.

(b) Unless displaced by the particular provisions of the Uniform Commercial Code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy and other validating or invalidating cause, supplement its provisions.

History: 1953 Comp., § 50A-1-103, enacted by Laws 1961, ch. 96, § 1-1032; 1978 Comp.; Laws 2005, ch. 144, § 3.

OFFICIAL COMMENTS

UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.

Source. — Former Section 1-102 (1)-(2) [55-1-102 (1)-(2) NMSA 1978]; Former Section 1-103 [55-1-103 NMSA 1978].

Changes from former law. — This section is derived from Subsections (1) and (2) of former Section 1-102 [55-1-102 NMSA 1978] and from former Section 1-103 [55-1-103 NMSA 1978]. Subsection (a) of this section combines Subsections (1) and (2) of former Section 1-102. Except for changing the form of reference to the Uniform Commercial Code and minor stylistic changes, its language is the same as Subsections (1) and (2) of former Section 1-102. Except for changing the form of reference to the Uniform Commercial Code and minor stylistic changes, Subsection (b) of this section is identical to former Section 1-103. The provisions have been combined in this section to reflect the interrelationship between them.

1. The Uniform Commercial Code is drawn to provide flexibility so that, since it is intended to be a semi-permanent and infrequently-amended piece of legislation, it will provide its own machinery for expansion of commercial practices. It is intended to make it possible for the law embodied in the Uniform Commercial Code to be applied by the courts in the light of unforeseen and new circumstances and practices. The proper construction of the Uniform Commercial Code requires, of course, that its interpretation and application be limited to its reason.

Even prior to the enactment of the Uniform Commercial Code, courts were careful to keep broad acts from being hampered in their effects by later acts of limited scope.See Pacific Wool Growers v. Draper & Co., 158 Or. 1, 73 P.2d 1391 (1937), and compare Section 1-104 [55-1-104 NMSA 1978]. The courts have often recognized that the policies embodied in an act are applicable in reason to subject-matter that was not expressly included in the language of the act, Commercial Nat. Bank of New Orleans v. Canal-Louisiana Bank & Trust Co., 239 U.S. 520, 36 S.Ct. 194, 60 L.Ed. 417 (1916) (bona fide purchase policy of Uniform Warehouse Receipts Act extended to case not covered but of equivalent nature), and did the same where reason and policy so required, even where the subject-matter had been intentionally excluded from the act in general. Agar v. Orda, 264 N.Y. 248, 190 N.E. 479 (1934) (Uniform Sales Act change in seller's remedies applied to contract for sale of choses in action even though the general coverage of that Act was intentionally limited to goods "other than things in action.") They implemented a statutory policy with liberal and useful remedies not provided in the statutory text. They disregarded a statutory limitation of remedy where the reason of the limitation did not apply. Fiterman v. J. N. Johnson & Co., 156 Minn. 201, 194 N.W. 399 (1923) (requirement of return of the goods as a condition to rescission for breach of warranty; also, partial rescission allowed). Nothing in the Uniform Commercial Code stands in the way of the continuance of such action by the courts.

The Uniform Commercial Code should be construed in accordance with its underlying purposes and policies. The text of each section should be read in the light of the purpose and policy of the rule or principle in question, as also of the Uniform Commercial Code as a whole, and the application of the language should be construed narrowly or broadly, as the case may be, in conformity with the purposes and policies involved.

2. Applicability of supplemental principles of law. Subsection (b) states the basic relationship of the Uniform Commercial Code to supplemental bodies of law. The Uniform Commercial Code was drafted against the backdrop of existing bodies of law, including the common law and equity, and relies on those bodies of law to supplement its provisions in many important ways. At the same time, the Uniform Commercial Code is the primary source of commercial law rules in areas that it governs, and its rules represent choices made by its drafters and the enacting legislatures about the appropriate policies to be furthered in the transactions it covers. Therefore, while principles of common law and equity may supplement provisions of the Uniform Commercial Code, they may not be used to supplant its provisions, or the purposes and policies those provisions reflect, unless a specific provision of the Uniform Commercial Code provides otherwise. In the absence of such a provision, the Uniform Commercial Code preempts principles of common law and equity that are inconsistent with either its provisions or its purposes and policies.

The language of Subsection (b) is intended to reflect both the concept of supplementation and the concept of preemption. Some courts, however, had difficulty in applying the identical language of former Section 1-103 [55-1-103 NMSA 1978] to determine when other law appropriately may be applied to supplement the Uniform Commercial Code, and when that law has been displaced by the Code. Some decisions applied other law in situations in which that application, while not inconsistent with the text of any particular provision of the Uniform Commercial Code, clearly was inconsistent with the underlying purposes and policies reflected in the relevant provisions of the Code. See, e.g., Sheerbonnet, Ltd. v. American Express Bank, Ltd., 951 F. Supp. 403 (S.D.N.Y. 1995). In part, this difficulty arose from Comment 1 to former Section 1-103, which stated that "this section indicates the continued applicability to commercial contracts of all supplemental bodies of law except insofar as they are explicitly displaced by this Act." The "explicitly displaced" language of that Comment did not accurately reflect the proper scope of Uniform Commercial Code preemption, which extends to displacement of other law that is inconsistent with the purposes and policies of the Uniform Commercial Code, as well as with its text.

3. Application of Subsection (b) to statutes. The primary focus of Section 1-103 [55-1-103 NMSA 1978] is on the relationship between the Uniform Commercial Code and principles of common law and equity as developed by the courts. State law, however, increasingly is statutory. Not only are there a growing number of state statutes addressing specific issues that come within the scope of the Uniform Commercial Code, but in some States many general principles of common law and equity have been codified. When the other law relating to a matter within the scope of the Uniform Commercial Code is a statute, the principles of Subsection (b) remain relevant to the court's analysis of the relationship between that statute and the Uniform Commercial Code, but other principles of statutory interpretation that specifically address the interrelationship between statutes will be relevant as well. In some situations, the principles of Subsection (b) still will be determinative. For example, the mere fact that an equitable principle is stated in statutory form rather than in judicial decisions should not change the court's analysis of whether the principle can be used to supplement the Uniform Commercial Code under Subsection (b), equitable principles may supplement provisions of the Uniform Commercial Code only if they are consistent with the purposes and policies of the Uniform Commercial Code as well as its text. In other situations, however, other interpretive principles addressing the interrelationship between statutes may lead the court to conclude that the other statute is controlling, even though it conflicts with the Uniform Commercial Code. This, for example, would be the result in a situation where the other statute was specifically intended to provide additional protection to a class of individuals engaging in transactions covered by the Uniform Commercial Code.

4. Listing not exclusive. The list of sources of supplemental law in Subsection (b) is intended to be merely illustrative of the other law that may supplement the Uniform Commercial Code, and is not exclusive. No listing could be exhaustive. Further, the fact that a particular section of the Uniform Commercial Code makes express reference to other law is not intended to suggest the negation of the general application of the principles of Subsection (b). Note also that the word "bankruptcy" in Subsection (b), continuing the use of that word from former Section 1-103 [55-1-103 NMSA 1978], should be understood not as a specific reference to federal bankruptcy law but, rather as a reference to general principles of insolvency, whether under federal or state law.

Repeals and reenactments. — Laws 2005, ch. 144, § 3, effective January 1, 2006, repealed former 55-1-103 NMSA 1978, as enacted by Laws 1961, ch. 96, § 1-103, and enacted a new 55-1-103 NMSA 1978. Subsection (b) is almost identical to 55-1-103 NMSA 1978. Pursuant to 12-2A-14 NMSA 1978, this section is shown as amended.

The 2005 amendment, effective January 1, 2006, inserted a new Subsection (a) which included the substance of former 55-1-102 NMSA 1978.

Variant meanings of "commercial paper". — "Commercial paper" in former Section 58-13-2H NMSA 1978 did not have a meaning identical to "commercial paper" under New Mexico's UCC; although a document might have been commercial paper under both acts, the purposes of the two acts were not the same. State v. Sheets, 1980-NMCA-041, 94 N.M. 356, 610 P.2d 760, cert. denied, 94 N.M. 675, 615 P.2d 992.

Reasonableness of guaranty contracts. — Guaranty contracts according to which the creditor bank was not, as a prerequisite to the guarantors' liability, obliged to take any security, although it had a right to do so, no provision of which required the bank to perfect security taken or otherwise to deal with it in any particular way, and under which the guarantors waived their rights to subrogation and waived and released any claims to the security and to "any benefit of, and any right to participate in any security now or hereafter held by bank," while the bank was given the right to "waive and release" the security at any time without the waiver or release affecting the guarantors' obligation to pay, are not inherently unreasonable. American Bank of Commerce v. Covolo, 1975-NMSC-053, 88 N.M. 405, 540 P.2d 1294.

Interpretation of reasonableness by court. — Since former 50A-3-606, 1953 Comp. allowed a surety to waive his defenses and this section allowed parties by agreement to determine the standards by which performance of their good faith obligations could be measured, a court could then interpret the provisions of the guaranty agreement to determine whether the guarantors should be relieved of liability under the general law of suretyship. American Bank of Commerce v. Covolo, 1975-NMSC-053, 88 N.M. 405, 540 P.2d 1294.

Applicability of former law. — It is evident that provisions of the code are not applicable as to transactions completed or entered into before the effective date of the code, but those transactions are governed by provisions of the former law even though repealed or amended by the code. 1962 Op. Att'y Gen. No. 62-12.

Preservation of common-law principles. — This section does not preserve common-law principles in area thoroughly covered by UCC simply because they are not expressly excluded. Rutherford v. Darwin, 1980-NMCA-087, 95 N.M. 340, 622 P.2d 245, cert. quashed sub nom., 95 N.M. 426, 622 P.2d 1046 (1981).

Common law claims are precluded. — Section 55-4-406 NMSA 1978 precludes common laws claims for negligence and breach of contract in transactions involving forged checks. Assoc. Home & RV Sales, Inc. v. Bank of Belen, 2013-NMCA-018, 294 P.3d 1276.

Common law claims were precluded. — Where plaintiffs' employee, who was employed to assist with bookkeeping and balancing plaintiffs' accounts, forged 211 checks over an eighteen month period; and when defendant refused to repay plaintiffs for the losses, plaintiffs sued defendant for common law claims of negligence and breach of contract, plaintiffs' common law claims were precluded by Section 55-4-406 NMSA 1978. Associated Home & RV Sales, Inc. v. Bank of Belen, 2013-NMCA-018, 294 P.3d 1276.

Under applicable equitable estoppel principles, the party estopped must know or have knowledge imputed to it of concealed material facts at the time of concealment; and the party asserting estoppel must not know the truth of the facts but must rely on the other's conduct to its detriment. Bowlin's, Inc. v. Ramsey Oil Co., 1983-NMCA-038, 99 N.M. 660, 662 P.2d 661, cert. denied, 99 N.M. 644, 662 P.2d 645.

Applicability of pre-UCC contract law. — Under the Uniform Commercial Code, to the extent that the contract does not expressly regulate any matter relating to the exercise of such powers as options to purchase, the continuing pre-code contract law will supply the answer. Cranetex, Inc. v. Mountain Dev. Corp., 1987-NMSC-051, 106 N.M. 5, 738 P.2d 123.

Action for conversion. — An action for conversion is not foreclosed where a plaintiff also sues under Section 55-8-401 NMSA 1978, relating to the duty of an issurer of a security to register transfer, pledge or release. Broadcort Capital Corp. v. Summa Med. Corp., 972 F.2d 1183 (10th Cir. 1992).

Restitution. — A seller, who breached the contract by delivering nonconforming goods to the buyer, could nonetheless assert a claim of restitution against the buyer when the buyer used the goods to its benefit even though it may have rejected the goods. Credit Inst. v. Veterinary Nutrition Corp., 2003-NMCA-010, 133 N.M. 248, 62 P.3d 339.

Statute of frauds has no application where there has been a full and complete performance of the contract by one of the contracting parties, and the party so performing may sue on the contract in a court of law, particularly where the agreement has been completely performed as to the part thereof which comes within the provisions of the statute, and the part remaining to be performed is merely the payment of money. Boggs v. Anderson, 1963-NMSC-087, 72 N.M. 136, 381 P.2d 419.

Law reviews. — For article, "New Mexico's Uniform Commercial Code: Who Is the Beneficiary of the Stop Payment Provisions of Article 4?" see 4 Nat. Resources J. 69 (1964).

For note, "New Mexico's Uniform Commercial Code: Presentment Warranties and the Myth of the 'Shelter Provision' " see 4 Nat. Resources J. 398 (1964).

For article, "The Warehouseman vs. the Secured Party: Who Prevails When the Warehouseman's Lien Covers Goods Subject to a Security Interest?" see 8 Nat. Resources J. 331 (1968).

Clovis Nat'l Bank v. Thomas, 77 N.M. 554, 425 P.2d 726 (1967), commented on in 8 Nat. Resources J. 183 (1968).

Am. Jur. 2d, A.L.R. and C.J.S. references. — 11 Am. Jur. 2d Bills and Notes §§ 45, 382; 15A Am. Jur. 2d Commercial Code §§ 15, 68, 75; 17A Am. Jur. 2d Contracts §§ 23, 24.

Liability of parent for dental services to minor child, 7 A.L.R. 1070.

Civil liability of father for necessaries furnished to child taken from home by mother, 32 A.L.R. 1466.

Damages of infant on rescission of exchange of goods, 52 A.L.R.2d 1114.

82 C.J.S. Statutes §§ 363, 364.