(1) Except as otherwise provided in Section 55-2A-306 NMSA 1978, a creditor of a lessee takes subject to the lease contract.

(2) Except as otherwise provided in Subsection (3) of this section and in Sections 55-2A-306 and 55-2A-308 NMSA 1978, a creditor of a lessor takes subject to the lease contract unless the creditor holds a lien that attached to the goods before the lease contract became enforceable.

(3) Except as otherwise provided in Sections 55-9-317, 55-9-321 and 55-9-323 NMSA 1978, a lessee takes a leasehold interest subject to a security interest held by a creditor of the lessor.

History: 1978 Comp., § 55-2A-307, enacted by Laws 1992, ch. 114, § 44; 2001, ch. 139, § 135.

OFFICIAL COMMENTS

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

Uniform Statutory Source: — None for subsection (1). Subsection (2) is derived from Section 9-301 [55-9-301 NMSA 1978], and Subsections (3) and (4) are derived from Section 9-307(1) and (3) [55-9-307 NMSA 1978], respectively.

Changes: — The provisions of Sections 9-301 [55-9-301 NMSA 1978] and 9-307(1) and (3) [55-9-307 NMSA 1978] were incorporated, and modified to reflect leasing terminology and the basic concepts reflected in this Article.

1. Subsection (1) states a general rule of priority that a creditor of the lessee takes subject to the lease contract. The term lessee (Section 2A-103(1)(n)) [55-2A-103 NMSA 1978] includes sublessee. Therefore, this subsection not only covers disputes between the prime lessor and a creditor of the prime lessee but also disputes between the prime lessor, or the sublessor, and a creditor of the sublessee. Section 2A-301 [55-2A-301 NMSA 1978] official comment 3(g). Further, by using the term creditor (Section 1-201(12)) [55-1-201 NMSA 1978], this subsection will cover disputes with a general creditor, a secured creditor, a lien creditor and any representative of creditors. Section 2A-103(4) [55-2A-103 NMSA 1978].

2. Subsection (2) states a general rule of priority that a creditor of a lessor takes subject to the lease contract. Note the discussion above with regard to the scope of these rules. Section 2A-301 [55-2A-301 NMSA 1978] official comment 3(g). Thus, the section will not only cover disputes between the prime lessee and a creditor of the prime lessor but also disputes between the prime lessee, or the sublessee, and a creditor of the sublessor.

3. To take priority over the lease contract, and the interests derived therefrom, the creditor must come within one of three exceptions stated within the rule. First, Subsection (2)(a) provides that where the creditor holds a lien (Section 2A-103(1)(r)) [55-2A-103 NMSA 1978] that attached before the lease contract became enforceable (Section 2A-301) [55-2A-301 NMSA 1978], the creditor does not take subject to the lease. Second, Subsection (2)(b) provides that when the creditor holds a security interest (Section 1-201(37)) [55-1-201 NMSA 1978], whether or not perfected, the creditor has priority over a lessee who did not give value (Section 1-201(44)) [55-1-201 NMSA 1978] and receive delivery of the goods without knowledge (Section 1-201(25)) [55-1-201 NMSA 1978] of the security interest. As to other lessees, under subsection (2)(c) a secured creditor holding a perfected security interest before the time the lease contract became enforceable (Section 2A-301) [55-2A-301 NMSA 1978] does not take subject to the lease. With respect to this provision, the lessee in these circumstances is treated like a buyer so that perfection of a purchase money security interest does not relate back (Section 9-301) [55-9-301 NMSA 1978].

4. The rules of this section operate in favor of whichever party to the lease contract may enforce it, even if one party perhaps may not, e.g., under Section 2A-201(1)(b) [55-2A-201 NMSA 1978].

5. The rules stated in subsections (2)(b) and (c), and the rule in subsection (3), are best understood by reviewing a hypothetical. Assume that a merchant engaged in the business of selling and leasing musical instruments obtained possession of a truckload of musical instruments on deferred payment terms from a supplier of musical instruments on January 6. To secure payment of such credit the merchant granted the supplier a security interest in the instruments; the security interest was perfected by filing on January 15. The merchant, as lessor, entered into a lease to an individual of one of the musical instruments supplied by the supplier; the lease became enforceable on January 10. Under Subsection (2)(b) the lessee will prevail (assuming the lessee qualifies thereunder) unless subsection (c) provides otherwise. Under the rule stated in Subsection (2)(c) a priority dispute between the supplier, as the lessor's secured creditor, and the lessee would be determined by ascertaining on January 10 (the day the lease became enforceable) the validity and perfected status of the security interest in the musical instrument and the enforceability of the lease contract by the lessee. Nothing more appearing, under the rule stated in Subsection (2)(c), the supplier's security interest in the musical instrument would not have priority over the lease contract. Moreover, Subsection (2) states that its rules are subject to the rules of subsections (3) and (4). Under this hypothetical the lessee should qualify as a "lessee in the ordinary course of business". Section 2A-103(1)(o) [55-2A-103 NMSA 1978]. Subsection (3) also makes clear that the lessee in the ordinary course of business will win even if he or she knows of the existence of the supplier's security interest.

6. Subsections (3) and (4), which are modeled on the provisions of Section 9-307(1) and (3) [55-9-307 NMSA 1978], respectively, state two exceptions to the priority rule stated in subsection (2) with respect to a creditor who holds a security interest. The lessee in the ordinary course of business will be treated in the same fashion as the buyer in the ordinary course of business, given a priority dispute with a secured creditor over goods subject to a lease contract.

Cross References: — Sections 1-201(12), 1-201(25), 1-201(37), 1-201(44), 2A-103(1)(n), 2A-103(1)(o), 2A-103(1)(r), 2A-103(4), 2A-201(1)(b), 2A-301 official comment 3(g), Article 9, especially Sections 9-301, 9-307(1) and 9-307(3) [55-1-201, 55-2A-103, 55-2A-201, 55-2A-301, 55-9-301 and 55-9-307 NMSA 1978, respectively].

"Creditor". Section 1-201(12) [55-1-201 NMSA 1978].

"Goods". Section 2A-103(1)(h) [55-2A-103 NMSA 1978].

"Knowledge" and "Knows". Section 1-201(25) [55-1-201 NMSA 1978].

"Lease". Section 2A-103(1)(j) [55-2A-103 NMSA 1978].

"Lease contract". Section 2A-103(1)(l) [55-2A-103 NMSA 1978].

"Leasehold interest". Section 2A-103(1)(m) [55-2A-103 NMSA 1978].

"Lessee". Section 2A-103(1)(n) [55-2A-103 NMSA 1978].

"Lessee in the ordinary course of business". Section 2A-103(1)(o) [55-2A-103 NMSA 1978].

"Lessor". Section 2A-103(1)(p) [55-2A-103 NMSA 1978].

"Lien". Section 2A-103(1)(r) [55-2A-103 NMSA 1978].

"Party". Section 1-201(29) [55-1-201 NMSA 1978].

"Pursuant to commitment". Section 2A-103(3) [55-2A-103 NMSA 1978].

"Security interest". Section 1-201(37) [55-1-201 NMSA 1978].

The 2001 amendment, effective July 1, 2001, in Subsection (2), substituted "Subsection (3) of this section" for "Subsections (3) and (4)", removed the Paragraph (a) designation and deleted Paragraphs (b) and (c), regarding exceptions that occur when a creditor holds a security interest in the goods; deleted former Subsections (3) and (4), concerning conditions in which a lessee takes a leasehold interest free of security interest; and added present Subsection (3).