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F I S C A L I M P A C T R E P O R T

SPONSOR Park

DATE TYPED 3/10/05

HB 834/aHJC

SHORT TITLE Uniform Commercial Code Revisions

SB

ANALYST Wilson

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

See Narrative

SOURCES OF INFORMATION

LFC Files

Responses Received From

Administrative Office of the Courts (AOC)

SUMMARY

Synopsis of HJC Amendment

The House Judiciary Committee amendment eliminates references to public-finance transactions

to bring the bill into conformance with existing New Mexico law.

Synopsis of Original Bill

House Bill 834 amends, repeals and enacts certain sections of the Uniform Commercial Code

(UCC), Section 55-1-101 NMSA 1978 et. seq., in large part to conform to portions of the model

Uniform Commercial Code as drafted by the National Conference of Commissioners on Uniform

State Laws (NCCUSL). The purpose of the changes is to bring New Mexico law into confor-

mance with other states in order to enable commercial transactions across state boundaries to be

governed by a uniform set of statutes. Changes also need to be made in order to adapt to ad-

vances in technology.

The bill addresses three main articles of the UCC:

•

Article 1: General Provisions

•

Article 7: Documents of Title

•

Article 9: Secured Transactions

House Bill 834/aHJC-- Page 2

The bill also amends other articles of the UCC to create conformity and consistency throughout

the code.

Article 1 of the UCC provides definitions and general provisions that apply to transactions cov-

ered by other articles of the UCC. As other articles of the UCC have been revised and amended

to conform to modern usages and legal developments, the revisions to Article 1 are intended to

make both conforming, technical changes, as well as changes clarifying various ambiguities that

have arisen over the years. The revisions also make certain substantive changes, including ex-

panding the definition of good faith to include “the observance of reasonable commercial stan-

dards of fair dealing,” and allowing courts to use evidence of the “course of performances” of a

transaction in contract interpretation.

Article 7 governs the transfer of bills of lading and warehouse receipts as documents of title.

Generally, transfer of a document of title from one person to another transfers the rights in the

goods represented by the document of title. Article 7 provides for negotiable documents of title,

which transfer interests in goods represented in such documents free of any claims or defenses of

the issuer or other transferor of the document. The revisions establish the rules for electronic

documents of title. It authorizes them, incorporates electronic records and signatures for statute

of fraud purposes, provides an analogous system for transfer of electronic documents to the sys-

tem of negotiable paper documents of title, provides for conversion of electronic documents of

title into tangible documents of title and vice versa, and prepares for the expected reliance upon

electronic documents of title into the future. A key concept to transfer of electronic documents of

title is that of “control.” Control occurs when it is possible to identify every transfer of an au-

thoritative copy of an electronic document with absolute certainty and when transfer can only

occur when the party in control authorizes transfer.

The amendments to Article 9 are conforming amendments dealing mainly with electronic docu-

ments. The effective date of the Act is January 1, 2006.

Significant Issues:

The AOC provided the following:

•

This bill provides that if a document of title is lost, stolen or destroyed, a court may order

delivery of the goods or issuance of a substitute document and the bailee may without li-

ability to any person comply with the order. If the document was negotiable, a court may

not order delivery of the goods or issuance of a substitute document without the claim-

ant's posting security unless it finds that any person that may suffer loss as a result of non

surrender of possession or control of the document is adequately protected against the

loss. If the document was nonnegotiable, the court may require security. The court may

also order payment of the bailee's reasonable costs and attorney fees in any action under

this subsection.

•

This bill provides that a secured party having possession of collateral may use or operate

the collateral as permitted by an order of a court having competent jurisdiction.

FISCAL IMPLICATIONS

There will be a cost for statewide update, distribution, and documentation of statutory changes.

House Bill 834/aHJC-- Page 3

Any additional fiscal impact on the judiciary would be proportional to the enforcement of this

law and commenced proceedings. New laws, amendments to existing laws, and new hearings

have the potential to increase caseloads in the courts, thus requiring additional resources to han-

dle the increase.

ADMINISTRATIVE IMPLICATIONS

The court staff will have to use existing staff to update the laws in the affected areas.

OTHER SUBSTANTIVE ISSUES

The NCCUSL, now 113 years old, provides states with non-partisan and well-drafted legislation

that brings clarity and stability to critical areas of the law. NCCUSL’s work supports the federal

system and facilitates the movement of individuals and the business of organizations with rules

that are consistent from state to state. While NCCUSL is best known as the drafters of the Uni-

form Commercial Code (UCC), in recent years it has also promulgated widely-adopted uniform

acts on the interstate recognition and enforcement of family law determinations (child support,

custody, parentage, and protection orders), uniform acts on arbitration and mediation, revisions

to the principal business organizations statutes of the United States (partnerships, limited part-

nerships, limited liability companies, etc.), acts codifying or recodifying state trust and securities

laws, and several acts relating to land use, common interest ownerships, and other real property

subjects.

Uniform Law Commissioners must be lawyers, qualified to practice law. They are lawyer-

legislators, attorneys in private practice, state and federal judges, law professors, and legislative

staff attorneys, who have been appointed by state governments as well as the District of

Columbia, Puerto Rico and the U.S. Virgin Islands to research, draft and promote the enactment

of uniform state laws in areas where uniformity is desirable and practicable. NCCUSL is funded

by, and works on behalf of, state governments.

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