A. Except as otherwise provided in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties.

B. In the absence of an agreement effective under Subsection A of this section, and except as provided in Subsection C of this section, the Uniform Commercial Code applies to transactions bearing an appropriate relation to this state.

C. If one of the following provisions of the Uniform Commercial Code specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law so specified:

(1) Section 55-2-402 NMSA 1978;

(2) Sections 55-2A-105 and 55-2A-106 NMSA 1978;

(3) Section 55-4-102 NMSA 1978;

(4) Section 55-4A-507 NMSA 1978;

(5) Section 55-5-116 NMSA 1978;

(6) Section 55-8-110 NMSA 1978; and

(7) Sections 55-9-301 through 55-9-307 NMSA 1978.

History: 1953 Comp., § 50A-1-105, enacted by Laws 1961, ch. 96, § 1-105; 1978 Comp. §55-1-105; recompiled by compiler as 1978 Comp. § 55-1-105; Laws 2005, ch. 144, § 15.

OFFICIAL COMMENTS

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

Source. — Former Section 1-105 [55-1-105 NMSA 1978].

Changes from former law. — This section is substantively identical to former Section 1-105. Changes in language are stylistic only.

1. Subsection (a) states affirmatively the right of the parties to a multi-state transaction or a transaction involving foreign trade to choose their own law. That right is subject to the firm rules stated in the sections listed in Subsection (c), and is limited to jurisdictions to which the transaction bears a "reasonable relation." In general, the test of "reasonable relation" is similar to that laid down by the Supreme Court in Seeman v. Philadelphia Warehouse Co., 274 U.S. 403, 47 S.Ct. 626, 71 L.Ed. 1123 (1927). Ordinarily the law chosen must be that of a jurisdiction where a significant enough portion of the making or performance of the contract is to occur or occurs. But an agreement as to choice of law may sometimes take effect as a shorthand expression of the intent of the parties as to matters governed by their agreement, even though the transaction has no significant contact with the jurisdiction chosen.

2. Where there is no agreement as to the governing law, the Act is applicable to any transaction having an "appropriate" relation to any state which enacts it. Of course, the Act applies to any transaction which takes place in its entirety in a state which has enacted the Act. But the mere fact that suit is brought in a state does not make it appropriate to apply the substantive law of that state. Cases where a relation to the enacting state is not "appropriate" include, for example, those where the parties have clearly contracted on the basis of some other law, as where the law of the place of contracting and the law of the place of contemplated performance are the same and are contrary to the law under the Code.

3. Where a transaction has significant contacts with a state which has enacted the Act and also with other jurisdictions, the question what relation is "appropriate" is left to judicial decision. In deciding that question, the court is not strictly bound by precedents established in other contexts. Thus a conflict-of-laws decision refusing to apply a purely local statute or rule of law to a particular multi-state transaction may not be valid precedent for refusal to apply the Code in an analogous situation. Application of the Code in such circumstances may be justified by its comprehensiveness, by the policy of uniformity, and by the fact that it is in large part a reformulation and restatement of the law merchant and of the understanding of a business community which transcends state and even national boundaries. Compare Global Commerce Corp. v. Clark-Babbitt Industries, Inc., 239 F.2d 716, 719 (2d Cir. 1956). In particular, where a transaction is governed in large part by the Code, application of another law to some detail of performance because of an accident of geography may violate the commercial understanding of the parties.

4. Subsection (c) spells out essential limitations on the parties' right to choose the applicable law. Especially in Article 9 parties taking a security interest or asked to extend credit which may be subject to a security interest must have sure ways to find out whether and where to file and where to look for possible existing filings.

5. Sections 9-301 [55-9-301 NMSA 1978] through 9-307 [55-9-307 NMSA 1978] should be consulted as to the rules for perfection of security interests and agricultural liens and the effect of perfection and nonperfection and priority. In transactions to which the Hague Securities Convention applies, the requirements for foreclosure and the like, the characterization of a transfer as being outright or by way of security, and certain other issues will generally be governed by the law specified in the account agreement. See PEB Commentary No. 19, dated April 11, 2017.

6. This section is subject to Section 1-102 [55-1-102 NMSA 1978], which states the scope of Article 1. As that section indicates, the rules of Article 1, including this section, apply to a transaction to the extent that transaction is governed by one of the other Articles of the Uniform Commercial Code.

Compiler's notes. — Laws 2005, ch. 144, § 15, effective January 1, 2006, enacted a new 55-1-301 NMSA 1978 relating to territorial applicability and power to choose applicable law. The substance of former 55-1-105 NMSA 1978, relating to territorial applicability and power to choose applicable law, has been enacted as a new 55-1-301 NMSA 1978 by Laws 2005, ch. 144, § 15. See 12-2A-14 NMSA 1978 for repeal and reenactment of a law that is not a new enactment. For provisions of former 55-1-105 NMSA 1978, see the 2004 NMSA 1978 on NMOneSource.com.

Public policy exception. — When the application of the law chosen by the parties offends New Mexico public policy, New Mexico courts may decline to enforce the choice-of-law provision and apply New Mexico law instread. Fiser v. Dell Computer Corp., 2008-NMSC-046, 144 N.M. 646, 118 P.3d 1215.

Jurisdiction where significant performance occurs governs choice of law. — The law chosen must be that of a jurisdiction where a significant enough portion of the making or performance of the contract is to occur or occurs. United Wholesale Liquor Co. v. Brown-Forman Distillers Corp., 1989-NMSC-030, 108 N.M. 467, 775 P.2d 233.

Public policy considerations in applying out-of-state law. — When the choice of law rule leads to the law of another state and that law is different from the law of the forum, the forum may decline to apply the out-of-state law if it offends the public policy of New Mexico. United Wholesale Liquor Co. v. Brown-Forman Distillers Corp., 1989-NMSC-030, 108 N.M. 467, 775 P.2d 233.

Determination of validity of contract executed in another state. — The validity of a contract executed in a sister state is determined according to the laws of that state, unless such construction conflicts with some settled policy of the forum state. In re Estate of Voight, 1981-NMCA-016, 95 N.M. 625, 624 P.2d 1022, cert. denied, 95 N.M. 669, 625 P.2d 1186.

Probate of will in forum state not significant. — The fact that the will is being probated in the forum state is not significant in determining whether or not to use the forum's law to decide the question of the validity of the contractual claims against the estate. In re Estate of Voight, 1981-NMCA-016, 95 N.M. 625, 624 P.2d 1022, cert. denied, 95 N.M. 669, 625 P.2d 1186.

Application of out-of-state liquor law. — Kentucky law and not the New Mexico Alcoholic Beverage Franchise Act applied to distributorship contracts, where the contracts bore a reasonable relation to the state of Kentucky and the choice of law provision therein did not violate some fundamental principle of justice. United Wholesale Liquor Co. v. Brown-Forman Distillers Corp., 1989-NMSC-030, 108 N.M. 467, 775 P.2d 233.