(a) A purchaser has control of an authoritative electronic copy of a record evidencing chattel paper if a system employed for evidencing the assignment of interests in the chattel paper reliably establishes the purchaser as the person to which the authoritative electronic copy was assigned. (b) A system satisfies Subsection (a) of this section if the record or records evidencing the chattel paper are created, stored and assigned in 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), (5) and (6) of this subsection, unalterable; (2) the authoritative copy identifies the purchaser as the assignee of the record or records; (3) the authoritative copy is communicated to and maintained by the purchaser 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 purchaser; (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. (c) A system satisfies Subsection (a) of this section, and a purchaser has control of an authoritative electronic copy of a record evidencing chattel paper, if the electronic copy, a record attached to or logically associated with the electronic copy or a system in which the electronic copy is recorded: (1) enables the purchaser readily to identify each electronic copy as either an authoritative copy or a nonauthoritative copy; (2) enables the purchaser readily to identify itself in any way, including by name, identifying number, cryptographic key, office or account number, as the assignee of the authoritative electronic copy; and (3) gives the purchaser exclusive power, subject to Subsection (d) of this section, to: (A) prevent others from adding or changing an identified assignee of the authoritative electronic copy; and (B) transfer control of the authoritative electronic copy. (d) Subject to Subsection (e) of this section, a power is exclusive under Subparagraphs (A) and (B) of Paragraph (3) of Subsection (c) of this section even if: (1) the authoritative electronic copy, a record attached to or logically associated with the authoritative electronic copy or a system in which the authoritative electronic copy is recorded limits the use of the authoritative electronic copy or has a protocol programmed to cause a change, including a transfer or loss of control; or (2) the power is shared with another person. (e) A power of a purchaser is not shared with another person under Paragraph (2) of Subsection (d) of this section and the purchaser's power is not exclusive if: (1) the purchaser can exercise the power only if the power also is exercised by the other person; and (2) the other person: (A) can exercise the power without exercise of the power by the purchaser; or (B) is the transferor to the purchaser of an interest in the chattel paper. (f) If a purchaser has the powers specified in Subparagraphs (A) and (B) of Paragraph (3) of Subsection (c) of this section, the powers are presumed to be exclusive. (g) A purchaser has control of an authoritative electronic copy of a record evidencing chattel paper if another person, other than the transferor to the purchaser of an interest in the chattel paper: (1) has control of the authoritative electronic copy and acknowledges that it has control on behalf of the purchaser; or (2) obtains control of the authoritative electronic copy after having acknowledged that it will obtain control of the electronic copy on behalf of the purchaser. History: 1978 Comp., § 55-9-105, enacted by Laws 2001, ch. 139, § 5; 2013, ch. 137, § 4; repealed and reenacted by Laws 2023, ch. 142, § 45. OFFICIAL COMMENTS UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved. 1. The Functions of Control. A secured party can perfect a security interest in chattel paper by filing. See Section 9-312(a) [55-9-312 NMSA 1978]. Alternatively, a secured party can perfect a security interest in chattel paper by taking possession of all authoritative tangible copies of the record evidencing the chattel paper and obtaining control of all authoritative electronic copies of the record evidencing chattel paper. Section 9-314A [55-9-314 NMSA 1978]. Possession and control also are conditions for achieving priority under Section 9-330(a) [55-9-330 NMSA 1978], (b), and (c). A secured party's possession or control of chattel paper also may substitute for a signed security agreement for purposes of attachment under Section 9-203 [55-9-203 NMSA 1978]. 2. Conditions for Obtaining Control: In General. This section provides the requirements for obtaining control of chattel paper. As explained in the comment to the definition of "chattel paper," the definitions of "electronic chattel paper" and "tangible chattel paper" have been deleted as unnecessary. See Section 9-102 [55-9-102 NMSA 1978], Comment 5.b. Subsections (a) and (b) are substantially unchanged under the 2022 Article 9 Revisions. Subsection (a), which derives from Section 16 of the Uniform Electronic Transactions Act, sets forth the general test for control. (The amendments to subsection (a) primarily reflect the changes to the definition of chattel paper in Section 9-102 [55-9-102 NMSA 1978]). Subsections (b) and (c) set forth safe harbor tests that, if satisfied, establish control under the general test in Subsection (a). It is important to note that compliance with the conditions for control in Subsection (c) would satisfy the conditions provided in Subsection (b). However, Subsection (b) has been retained out of an abundance of caution and to provide assurances of the continuing viability of pre-2022 systems for control of chattel paper evidenced by electronic records. 3. Development of Control Systems and Application of Subsection (b). 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 chattel paper in a commercial context. As under UETA and under the general standard for control under Subsection (a), for control under Subsection (b), as supplemented by Subsection (g), 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 principle of identifiability of an assignee of an authoritative copy as found in Subsection (b), but without setting forth specific guidelines as to how compliance with this principle must be achieved. Under Subsection (b), at any point in time, a party should be able to identify the single authoritative copy of the record or records evidencing the chattel paper which is unique and identifiable as the authoritative copy. This does not mean that once created the authoritative copy need be static and never moved or copied from its original location. To the extent that backup systems exist which result in multiple copies, the key to this idea is that at any point in time, the one authoritative copy needs to be unique and identifiable. However, the standards applied to determine whether a party is in control of chattel paper should not be more stringent than the pre-2022 standards 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 chattel paper evidenced by an electronic copy of a record or records would not be defeated by the possibility that the secured party's control could be subverted by the wrongful conduct of a person (such as a custodian) acting on its behalf. 4. Subsection (c) Safe Harbor: In General. The Subsection (c) "safe harbor" generally follows Section 12-105 [55-12-105 NMSA 1978] for control of controllable electronic records. See generally Section 12-105 and Comments. It differs from Subsection (b), which (as explained above) is based on a "single authoritative copy" of an electronic record or records. Subsection (b) would be inapplicable when the relevant record is maintained on a blockchain or another distributed ledger. The utility of distributed ledger technology depends on there being multiple authoritative copies of a record. However, as with Subsection (b), control under Subsection (c) also meets the high standard of reliability under Subsection (a) as to the identifiability of an assignee of authoritative copies. The conditions for "control" in subsection (c) are meant to reflect the functions that possession serves with respect to writings, but in a more accurate and technologically flexible way than does the definition in Subsection (b). Subsection (c), as supplemented by subsections (d) through (g), sets forth the requirements for a purchaser to have "control of an authoritative electronic copy of a record evidencing chattel paper." However, for purposes of perfection of a security interest in the chattel paper under Section 9-314A [55-9-314 NMSA 1978] and qualification for non-temporal priority under Section 9-330 [55-9-330 NMSA 1978], the purchaser must obtain control of each authoritative electronic copy (i.e., all of the copies) of a record evidencing the chattel paper and take possession of each tangible copy (if any) of the record evidencing the chattel paper. 5. Control of Electronic Copy of Record Evidencing Chattel Paper under Subsection (c). Under Subsection (c), to obtain control of an electronic copy of a record evidencing chattel paper a purchaser must be able to identify each electronic copy as authoritative or nonauthoritative and identify itself as the assignee of the authoritative copy. As to the means of identification, see Section 12-105 [55-12-105 NMSA 1978], Comment 7. In addition, the purchaser must have the exclusive power to prevent others from adding or changing an identified assignee and to transfer control of the authoritative copy. However, once it is established that a person has received those powers, Subsection (f) provides a presumption of exclusivity. Consequently, a person asserting control need not prove exclusivity in order to make out a prima facie case. Application of the presumption will be governed also by Section 1-206 [55-1-206 NMSA 1978] (effects of a presumption under the UCC) and applicable non-UCC law (including rules of procedure and evidence). See generally Section 12-105 [55-12-105 NMSA 1978], Comment 5. Subsection (d) contains two qualifications of the term "exclusive" as used in Subsection (c)(3). A power can be "exclusive" under Subsection (c)(3) even if one or both of these qualifications apply. Subsection (e) provides that in certain circumstances a power is not shared within the meaning of Subsection (d)(2), the relaxation of the exclusivity requirement provided by Subsection (d)(2) does not apply, and, consequently, a purchaser's power is not exclusive. Subsection (e) provides that a purchaser does not share an exclusive power with another person if the purchaser can exercise the power only with the other person's cooperation (Subsection (e)(1)) but the other person either (i) can exercise the power without the purchaser's cooperation (Subsection (e)(2)(A)) or (ii) is the transferor to the purchaser of an interest in the chattel paper (Subsection (e)(2)(B)). It follows that a purchaser to which Subsection (e) applies does not have control based on its exclusive powers (although it might have control through another person under Subsection (g), discussed below, or if another person having control is acting as the person's agent). As to the rationale for disqualifying a purchaser (which includes a secured party in a secured transaction) from sharing powers with a transferor to the purchaser, as provided in Subsection (e)(2)(B), and from the benefit of shared control under Subsection (d)(2), and for examples of the operation of Subsection (e) (in the context of the similar provision in Section 12-105 [55-12-105 NMSA 1978]), see Section 12-105, Comments 5 and 9. 6. Control Through Another Person. Subsection (g) provides for a purchaser to obtain control of an electronic copy by virtue of the acknowledgment by another person in control of the electronic copy. It follows revisions to the corresponding provisions for control of electronic documents of title (Section 7-106(g)) [55-7-106 NMSA 1978], control of a security entitlement (Section 8-106(d)(3)) [55-8-106 NMSA 1978], control of deposit accounts (Section 9-104(a)(4)) [55-9-104 NMSA 1978], control of electronic money (Section 9-105A(e)) [55-9-105 NMSA 1978], and control of controllable electronic records (Section 12-105(e)) [55-12-105 NMSA 1978]. For a brief discussion, see Section 12-105, Comment 8. For an acknowledgment by another person to be effective to confer control on a purchaser under Subsection (g), the other person making the acknowledgment must be one "other than the transferor to the purchaser of an interest in the chattel paper." The rationale for this limitation is discussed in Section 12-105, Comment 9. Section 9-107B(a) [55-9-107 NMSA 1978] makes clear that a person that has control under this section has no duty to acknowledge that it has or will obtain control on behalf of another person. Arrangements for a person to acknowledge that it has or will obtain control on behalf of another person are not standardized. Accordingly, Section 9-107B(b) leaves to the agreement of the parties and to any other applicable law any duties of a person that does acknowledge that it has or will obtain control on behalf of another person and provides that a person making an acknowledgment is not required to confirm the acknowledgment to another person. For example, Subsection (g) would apply to give control to a person, Alpha, when another person, Beta, has control of each authoritative electronic copy of a record evidencing chattel paper and acknowledges that it has control on behalf of Alpha. However, under Section 9-107B(a), Beta is not required to so acknowledge. And under Section 9-107B(b), even if Beta does so acknowledge, Beta owes no duty to Alpha unless Beta agrees or other law so provides and Beta is not required to confirm its acknowledgment to any other person. 7. References to "Secured Party" Changed to "Purchaser." References to a "secured party" in the pre-2022 text of this section have been changed to refer to a "purchaser." This change aligns the text with the priority rules of Section 9-330(a), (b), and (c) [55-9-330 NMSA 1978]. Repeals and reenactments. — Laws 2023, ch. 142, § 45 repealed former 55-9-105 NMSA 1978 and enacted a new section, effective January 1, 2024. 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".
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