(a) A collecting bank has a security interest in an item and any accompanying documents or the proceeds of either:

(1) in the case of an item deposited in an account, to the extent to which credit given for the item has been withdrawn or applied;

(2) in the case of an item for which it has given credit available for withdrawal as of right, to the extent of the credit given, whether or not the credit is drawn upon or there is a right of charge-back; or

(3) if it makes an advance on or against the item.

(b) If credit given for several items received at one time or pursuant to a single agreement is withdrawn or applied in part, the security interest remains upon all the items, any accompanying documents or the proceeds of either. For the purpose of this section, credits first given are first withdrawn.

(c) Receipt by a collecting bank of a final settlement for an item is a realization on its security interest in the item, accompanying documents and proceeds. So long as the bank does not receive final settlement for the item or give up possession of the item or possession or control of the accompanying documents for purposes other than collection, the security interest continues to that extent and is subject to Chapter 55, Article 9 NMSA 1978, but:

(1) no security agreement is necessary to make the security interest enforceable (Subparagraph (A) of Paragraph (3) of Subsection (b) of Section 55-9-203 NMSA 1978);

(2) no filing is required to perfect the security interest; and

(3) the security interest has priority over conflicting perfected security interests in the item, accompanying documents or proceeds.

History: 1953 Comp., § 50A-4-208, enacted by Laws 1961, ch. 96, § 4-208; 1978 Comp., § 55-4-208, recompiled as 1978 Comp., § 55-4-210 by Laws 1992, ch. 114, § 176; 2001, ch. 139, § 137; 2005, ch. 144, § 47.

OFFICIAL COMMENTS

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

1. Subsection (a) states a rational rule for the interest of a bank in an item. The customer of the depositary bank is normally the owner of the item and the several collecting banks are agents of the customer (Section 4-201) [55-4-201 NMSA 1978]. A collecting agent may properly make advances on the security of paper held for collection, and acquires at common law a possessory lien for these advances. Subsection (a) applies an analogous principle to a bank in the collection chain which extends credit on items in the course of collection. The bank has a security interest to the extent stated in this section. To the extent of its security interest it is a holder for value (Sections 3-303, 4-211) [55-3-303, 55-4-211 NMSA 1978, respectively] and a holder in due course if it satisfies the other requirements for that status (Section 3-302) [55-3-302 NMSA 1978]. Subsection (a) does not derogate from the banker's general common law lien or right of setoff against indebtedness owing in deposit accounts. See Section 1-103 [55-1-103 NMSA 1978]. Rather Subsection (a) specifically implements and extends the principle as a part of the bank collection process.

2. Subsection (b) spreads the security interest of the bank over all items in a single deposit or received under a single agreement and a single giving of credit. It also adopts the "first-in, first-out" rule.

3. Collection statistics establish that the vast majority of items handled for collection are in fact collected. The first sentence of subsection (c) reflects the fact that in the normal case the bank's security interest is self-liquidating. The remainder of the subsection correlates the security interest with the provisions of Article 9, particularly for use in the cases of noncollection in which the security interest may be important.

Recompilations. — Laws 1992, ch. 114, § 178 recompiled former 55-4-210 NMSA 1978, relating to presentment by notice of item not payable by, through or at a bank, as 55-4-212 NMSA 1978, effective July 1, 1992.

The 2005 amendment, effective January 1, 2006, provides in Subsection (c) that if the bank does not give up possession or control of the accompanying documents, the security interest continues.

The 2001 amendment, effective July 1, 2001, in Subsection (c), substituted "Chapter 55, Article 9 NMSA 1978" for "Article 9" at the end of the preliminary language and updated the internal reference in Paragraph (1).

The 1992 amendment, effective July 1, 1992, revised the subsection and paragraph designations; inserted "collecting" and substituted "in an item" for "and an item" in the introductory paragraph of Subsection (a); substituted "(1)(a) of Section 55-9-203" for "Section (1)(b) of Section 9-203" in Subsection (c)(1); and made minor stylistic changes throughout the section.

Am. Jur. 2d, A.L.R. and C.J.S. references. — 10 Am. Jur. 2d Banks §§ 660, 699; 11 Am. Jur. 2d Bills and Notes § 339.

Lien of bank upon commercial paper delivered to it by debtor for collection, 22 A.L.R.2d 478.

9 C.J.S. Banks and Banking § 384.