(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).

Repeals and reenactments. — Laws 2001, ch. 139, § 26 repealed former 55-9-306 NMSA 1978, as amended by Laws 1996, ch. 47, § 66, and enacted a new section, effective July 1, 2001.