North Carolina § 25-9-105 - Control of electronic chattel paper.

§ 25-9-105. Control of electronic chattel paper.

General Rule: Control of Electronic Chattel Paper. - 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. Specific Facts Giving Control. - 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: A single authoritative copy of the record or records exists which is unique, identifiable, and, except as otherwise provided in subdivisions (4), (5), and (6) of this section, unalterable; The authoritative copy identifies the secured party as the assignee of the record or records; The authoritative copy is communicated to and maintained by the secured party or its designated custodian; 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; 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 Any amendment of the authoritative copy is readily identifiable as authorized or unauthorized. History (1965, c. 700, s. 1; 1967, c. 562, s. 1; 1975, c. 862, s. 7; 1989 (Reg. Sess., 1990), c. 1024, s. 8(g); 1997-181, s. 3; 1997-456, s. 4; 1999-73, s. 6; 2000-169, s. 1; 2012-70, s. 2.) AMENDED OFFICIAL COMMENT (2010 EDITION) 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. 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, (ii) is a method of perfection under section 9-314, and (iii) is a condition for obtaining special, nontemporal priority under section 9-330. 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). 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), security entitlements, a type of investment property (section 9-106), and letter-of-credit rights (section 9-107). 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. Transition Provisions. - For transition provisions related to the 2010 amendments to Article 9 by Session Laws 2012-70, see the Appendix following Part 7 at the end of this Article. Session Laws 2012-70, s. 26(a), (b), provides: "(a) Pre-Effective-Date Transactions or Liens. - Except as otherwise provided in Part II of this act, this act applies to a transaction or lien within its scope, even if the transaction or lien was entered into or created before this act becomes effective [July 1, 2013]. "(b) Pre-Effective-Date Proceedings. - This act does not affect an action, case, or proceeding commenced before this act becomes effective [July 1, 2013]." Editor's Note. - Session Laws 2012-70, s. 27, provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the 2010 Amendments to Article 9 of the Uniform Commercial Code and all explanatory comments of the drafters of this act as the Revisor may deem appropriate." The Revision of Uniform Commercial Code Article 9 - Secured Transactions was drafted by the National Conference of Commissioners on Uniform State Laws and The American Law Institute on April 27, 2011. The Official Commentary for the 2010 revision are copyrighted 2010 by The American Law Institute and National Conference of Commissioners on Uniform State Laws. The affected portions of the Official Comment to this section have been set out at this section with the appropriate amendments. Effect of Amendments. - Session Laws 2012-70, s. 2, effective July 1, 2013, added designations (a) and (b); in subsection (a), added to the beginning of the sentence "General Rule: Control of Electronic Chattel Paper. - " and added "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" following "chattel paper if"; in subsection (b), added the language preceding "the record or records"; in subdivision (b)(4), substituted "amendments" for "revisions" and "consent" for "participation"; in subdivision (b)(6), substituted "amendment" for "revision" and "authorized or unauthorized" for "an authorized or unauthorized revision"; and made minor punctuation changes. See note for Transition Provisions governing these amendments.