A security interest arising under Section 55-2-401, 55-2-505, Subsection (3) of Section 55-2-711 or Subsection (5) of Section 55-2A-508 NMSA 1978 is subject to Chapter 55, Article 9 NMSA 1978. However, until the debtor obtains possession of the goods:

(1) the security interest is enforceable, even if Paragraph (3) of Subsection (b) of Section 55-9-203 NMSA 1978 has not been satisfied;

(2) filing is not required to perfect the security interest;

(3) the rights of the secured party after default by the debtor are governed by Chapter 55, Article 2 or 2A NMSA 1978; and

(4) the security interest has priority over a conflicting security interest created by the debtor.

History: 1978 Comp., § 55-9-110, enacted by Laws 2001, ch. 139, § 10.

OFFICIAL COMMENTS

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

1. Source. Former section 9-113.

2. Background. Former Section 9-113, from which this section derives, referred generally to security interests "arising solely under the Article on Sales (Article 2) or the Article on Leases (Article 2A)." Views differed as to the precise scope of that section. In contrast, Section 9-110 specifies the security interests to which it applies.

3. Security Interests Under Articles 2 and 2A. Section 2-505 explains how a seller of goods may reserve a security interest in them. Section 2-401 indicates that a reservation of title by the seller of goods, despite delivery to the buyer, is limited to reservation of a security interest. As did former article 9, this article governs a security interest arising solely under one of those sections; however, until the buyer obtains possession of the goods, the security interest is enforceable even in the absence of a security agreement, filing is not necessary to perfect the security interest, and the seller-secured party's rights on the buyer's default are governed by article 2.

Sections 2-711(3) and 2A-508(5) create a security interest in favor of a buyer or lessee in possession of goods that were rightfully rejected or as to which acceptance was justifiably revoked. As did former article 9, this article governs a security interest arising solely under one of those sections; however, until the seller or lessor obtains possession of the goods, the security interest is enforceable even in the absence of a security agreement, filing is not necessary to perfect the security interest, and the secured party's (buyer's or lessee's) rights on the debtor's (seller's or lessor's) default are governed by article 2 or 2A, as the case may be.

4. Priority. This section adds to former Section 9-113 a priority rule. Until the debtor obtains possession of the goods, a security interest arising under one of the specified sections of article 2 or 2A has priority over conflicting security interests created by the debtor. Thus, a security interest arising under Section 2-401 or 2-505 has priority over a conflicting security interest in the buyer's after-acquired goods, even if the goods in question are inventory. Arguably, the same result would obtain under Section 9-322, but even if it would not, a purchase-money-like priority is appropriate. Similarly, a security interest under Section 2-711(3) or 2A-508(5) has priority over security interests claimed by the seller's or lessor's secured lender. This result is appropriate, inasmuch as the payments giving rise to the debt secured by the article 2 or 2A security interest are likely to be included among the lender's proceeds.

Example: Seller owns equipment subject to a security interest created by Seller in favor of Lender. Buyer pays for the equipment, accepts the goods, and then justifiably revokes acceptance. As long as Seller does not recover possession of the equipment, Buyer's security interest under Section 2-711(3) is senior to that of Lender.

In the event that a security interest referred to in this section conflicts with a security interest that is created by a person other than the debtor, Section 9-325 applies. Thus, if Lender's security interest in the example was created not by Seller but by the person from whom Seller acquired the goods, Section 9-325 would govern.

5. Relationship to Other Rights and Remedies Under Articles 2 and 2A. This article does not specifically address the conflict between (i) a security interest created by a buyer or lessee and (ii) the seller's or lessor's right to withhold delivery under Section 2-702(1), 2-703(a), or 2A-525, the seller's or lessor's right to stop delivery under Section 2-705 or 2A-526, or the seller's right to reclaim under Section 2-507(2) or 2-702(2). These conflicts are governed by the first sentence of Section 2-403(1), under which the buyer's secured party obtains no greater rights in the goods than the buyer had or had power to convey, or Section 2A-307(1), under which creditors of the lessee take subject to the lease contract.

Repeals and reenactments. — Laws 2001, ch. 139, § 10 repealed former 55-9-110 NMSA 1978, as amended by Laws 1985, ch. 193, § 11, and enacted a new section, effective July 1, 2001.

Decisions under former 55-9-113 NMSA 1978. — In light of the similarity of this section and former Section 55-9-113 NMSA 1978, annotations decided under former 55-9-113 NMSA 1978 have been included in the annotations in this section.

Oral title-retention contract. — Cattle seller's alleged oral title-retention contract with a buyer did not create a security interest within the provisions of this section, since it was not evidenced by a written agreement and filed so that it could take priority over a bank's perfected security interest. O'Brien v. Chandler, 1988-NMSC-094, 107 N.M. 797, 765 P.2d 1165 (decided under former law).

Law reviews. — For article, "Buyers and Sellers of Goods in Bankruptcy," see 1 N.M. L. Rev. 435 (1971).

For article, "Essential Attributes of Commercial Paper - Part I," see 1 N.M. L. Rev. 479 (1971).

Am. Jur. 2d, A.L.R. and C.J.S. references. — Bill of sale, absolute on its face, as a chattel mortgage, 33 A.L.R.2d 364.