(a) A secured party has control of electronic chattel paper if a system employed for evidencing the transfer of interests in the chattel paper reliably establishes the secured party as the person to which the chattel paper was assigned.

(b) A system satisfies Subsection (a) of this section if the record or records comprising the chattel paper are created, stored and assigned in such a manner that:

(1) a single authoritative copy of the record or records exists that is unique, identifiable and, except as otherwise provided in Paragraphs (4) through (6) of this subsection, unalterable;

(2) the authoritative copy identifies the secured party as the assignee of the record or records;

(3) the authoritative copy is communicated to and maintained by the secured party 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 secured party;

(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: 1978 Comp., § 55-9-105, enacted by Laws 2001, ch. 139, § 5; 2013, ch. 137, § 4.

OFFICIAL COMMENTS

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

1. Source. New.

2. "Control" of Electronic Chattel Paper. This Article covers security interests in "electronic chattel paper," a new term defined in Section 9-102 [55-9-102 NMSA 1978]. This section governs how "control" of electronic chattel paper may be obtained. Subsection (a), which derives from Section 16 of the Uniform Electronic Transactions Act, sets forth the general test for control. Subsection (b) sets forth a safe harbor test that, if satisfied, establishes control under the general test in Subsection (a).

A secured party's control of electronic chattel paper (i) may substitute for an authenticated security agreement for purposes of attachment under Section 9-203 [55-9-203 NMSA 1978], (ii) is a method of perfection under Section 9-314 [55-9-314 NMSA 1978], and (iii) is a condition for obtaining special, non-temporal priority under Section 9-330 [55-9-330 NMSA 1978]. Because electronic chattel paper cannot be transferred, assigned, or possessed in the same manner as tangible chattel paper, a special definition of control is necessary. In descriptive terms, this section provides that control of electronic chattel paper is the functional equivalent of possession of "tangible chattel paper" (a term also defined in Section 9-102 [55-9-102 NMSA 1978]).

3. Development of Control Systems. This Article leaves to the marketplace the development of systems and procedures, through a combination of suitable technologies and business practices, for dealing with control of electronic chattel paper in a commercial context. Systems that evolve for control of electronic chattel paper may or may not involve a third party custodian of the relevant records. As under UETA, a system must be shown to reliably establish that the secured party is the assignee of the chattel paper. Reliability is a high standard and encompasses the general principles of uniqueness, identifiability, and unalterability found in Subsection (b) without setting forth specific guidelines as to how these principles must be achieved. However, the standards applied to determine whether a party is in control of electronic chattel paper should not be more stringent than the standards now applied to determine whether a party is in possession of tangible chattel paper. For example, just as a secured party does not lose possession of tangible chattel paper merely by virtue of the possibility that a person acting on its behalf could wrongfully redeliver the chattel paper to the debtor, so control of electronic chattel paper would not be defeated by the possibility that the secured party's interest could be subverted by the wrongful conduct of a person (such as a custodian) acting on its behalf.

This section and the concept of control of electronic chattel paper are not based on the same concepts as are control of deposit accounts (Section 9-104 [55-9-104 NMSA 1978]), security entitlements, a type of investment property (Section 9-106 [55-9-106 NMSA 1978]), and letter-of-credit rights (Section 9-107 [55-9-107 NMSA 1978]). The rules for control of those types of collateral are based on existing market practices and legal and regulatory regimes for institutions such as banks and securities intermediaries. Analogous practices for electronic chattel paper are developing nonetheless. The flexible approach adopted by this section, moreover, should not impede the development of these practices and, eventually, legal and regulatory regimes, which may become analogous to those for, e.g., investment property.

4. "Authoritative Copy" of Electronic Chattel Paper. One requirement for establishing control under Subsection (b) is that a particular copy be an "authoritative copy." Although other copies may exist, they must be distinguished from the authoritative copy. This may be achieved, for example, through the methods of authentication that are used or by business practices involving the marking of any additional copies. When tangible chattel paper is converted to electronic chattel paper, in order to establish that a copy of the electronic chattel paper is the authoritative copy it may be necessary to show that the tangible chattel paper no longer exists or has been permanently marked to indicate that it is not the authoritative copy.

Repeals and reenactments. — Laws 2001, ch. 139, § 5 repealed former 55-9-105 NMSA 1978, as amended by Laws 1997, ch. 75, § 22, and enacted a new section, effective July 1, 2001.

The 2013 amendment, effective July 1, 2013, clarified when a secured party has control of electronic chattel paper; in Subsection (a), after "chattel paper if", added the remainder of the sentence; in Subsection (b), in the introductory sentence, added "A system satisfies Subsection (a) of this section if"; in Paragraph (1) of Subsection (a), after "as otherwise provided in", deleted "Subsections (d) through (f) of this section" and added "Paragraphs (4) through (6) of this subsection"; in Paragraph (4) of Subsection (a), after "copies or", deleted "revisions" and added "amendments" and after "only with the", deleted "participation" and added "consent"; and in Paragraph (6) of Subsection (a), after "any", deleted "revision" and added "amendment" and after "unauthorized", deleted "revision".