(a) Subject to Subsection (b) of this section, a security interest that is created by a new debtor in collateral in which the new debtor has or acquires rights and is perfected solely by a filed financing statement that would be ineffective to perfect the security interest but for the application of Paragraph (1) of Subsection (i) of Section 55-9-316 or Section 55-9-508 NMSA 1978 is subordinate to a security interest in the same collateral that is perfected other than by such a filed financing statement.

(b) The other provisions of Sections 55-9-301 through 55-9-342 NMSA 1978 determine the priority among conflicting security interests in the same collateral perfected by filed financing statements described in Subsection (a) of this section. However, if the security agreements to which a new debtor became bound as debtor were not entered into by the same original debtor, the conflicting security interests rank according to priority in time of the new debtor having become bound.

History: 1978 Comp., § 55-9-326, enacted by Laws 2001, ch. 139, § 46; 2013, ch. 137, § 9.

OFFICIAL COMMENTS

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

1. Source. New.

2. Subordination of Security Interests Created by New Debtor. This section addresses the priority contests that may arise when a new debtor becomes bound by the security agreement of an original debtor and each debtor has a secured creditor.

Subsection (a) subordinates the original debtor's secured party's security interest perfected against the new debtor by a filed financing statement that would be ineffective to perfect the security interest but for Section 9-508 [55-9-508 NMSA 1978] or, if the original debtor and new debtor are located in different jurisdictions, Section 9-316(i)(1) [55-9-316(i)(1) NMSA 1978]. The security interest is subordinated to security interests in the same collateral perfected by another method, e.g., by filing against the new debtor. This section does not subordinate a security interest perfected by a new initial financing statement providing the name of the new debtor, even if the initial financing statement is filed to maintain the effectiveness of a financing statement under the circumstances described in Section 9-508(b) [55-9-508(b) NMSA 1978]. Nor does it subordinate a security interest perfected by a financing statement filed against the original debtor which remains effective against collateral transferred by the original debtor to the new debtor. See Section 9-508(c) [55-9-508(c) NMSA 1978]. Concerning priority contests involving transferred collateral, see Sections 9-325 and 9-507 [55-9-325 and 55-9-507 NMSA 1978].

Example 1: SP-X holds a perfected-by-filing security interest in X Corp's existing and after-acquired inventory, and SP-Z holds a perfected-by-possession security interest in an item of Z Corp's inventory. Both X Corp and Z Corp are located in the same jurisdiction under Section 9-307 [55-9-307 NMSA 1978]. Z Corp becomes bound as debtor by X Corp's security agreement (e.g., Z Corp buys X Corp's assets and assumes its security agreement). See Section 9-203(d) [55-9-203(d) NMSA 1978]. But for Section 9-508 [55-9-508 NMSA 1978], SP-X's financing statement would be ineffective to perfect a security interest in the item of inventory in which Z Corp has rights. However, subsection (a) provides that SP-X's perfected security interest is subordinate to SP-Z's, regardless of whether SP-X's financing statement was filed before SP-Z perfected its security interest.

Example 2: SP-X holds a perfected-by-filing security interest in X Corp's existing and after-acquired inventory, and SP-Z holds a perfected-by-filing security interest in Z Corp's existing and after-acquired inventory. Both X Corp and Z Corp are located in the same jurisdiction under Section 9-307 [55-9-307 NMSA 1978]. Z Corp becomes bound as debtor by X Corp's security agreement. Immediately thereafter, and before the effectiveness of SP-X's financing statement lapses, Z Corp acquires a new item of inventory. But for Section 9-508 [55-9-508 NMSA 1978], SP-X's financing statement would be ineffective to perfect a security interest in the new item of inventory in which Z Corp has rights. However, because SP-Z's security interest was perfected by a filing whose effectiveness does not depend on Section 9-316(i)(1) [55-9-316(i)(1) NMSA 1978] or 9-508 [55-9-508 NMSA 1978], subsection (a) subordinates SP-X's perfected security interest to SP-Z's. This would be the case even if SP-Z filed after Z Corp became bound by X Corp's security agreement, and regardless of which financing statement was filed first.

The same result would obtain if X Corp and Z Corp were located in different jurisdictions. SP-X's security interest would be perfected by a financing statement that would be ineffective but for Section 9-316(i)(1) [55-9-316(i)(1) NMSA 1978], whereas the effectiveness of SP-Z's filing does not depend on Section 9-316(i)(1) or 9-508 [55-9-508 NMSA 1978].

3. Other Priority Rules. Subsection (b) addresses the priority among security interests created by the original debtor (X Corp). By invoking the other priority rules of this subpart, as applicable, subsection (b) preserves the relative priority of security interests created by the original debtor.

Example 3: Under the facts of Example 2, SP-Y also holds a perfected-by-filing security interest in X Corp's existing and after-acquired inventory. SP-Y filed after SP-X. Inasmuch as both SP-X's and SP-Y's security interests in inventory acquired by Z Corp after it became bound would be unperfected but for the application of Section 9-508 [55-9-508 NMSA 1978], the normal priority rules determine their relative priorities. Under the "first-to-file-or-perfect" rule of Section 9-322(a)(1) [55-9-322(a)(1) NMSA 1978], SP-X has priority over SP-Y.

Example 4: Under the facts of Example 3, after Z Corp became bound by X Corp's security agreement, SP-Y promptly filed a new initial financing statement against Z Corp. SP-X's security interest remains perfected only by virtue of its original filing against X Corp which "would be ineffective to perfect the security interest but for the application of Section 9-508 [55-9-508 NMSA 1978]." Because SP-Y's security interest is perfected by the filing of a financing statement whose effectiveness does not depend on Section 9-508 or 9-316(i)(1) [55-9-316(i)(1) NMSA 1978], subsection (a) subordinates SP-X's security interest to SP-Y's. If both SP-X and SP-Y file a new initial financing statement against Z Corp, then the "first-to-file-or-perfect" rule of Section 9-322(a)(1) [55-9-322(a)(1) NMSA 1978] governs their priority inter se as well as their priority against SP-Z.

The second sentence of subsection (b) effectively limits the applicability of the first sentence to situations in which a new debtor has become bound by more than one security agreement entered into by the same original debtor. When the new debtor has become bound by security agreements entered into by different original debtors, the second sentence provides that priority is based on priority in time of the new debtor's becoming bound.

Example 5: Under the facts of Example 2, SP-W holds a perfected-by-filing security interest in W Corp's existing and after-acquired inventory. After Z Corp became bound by X Corp's security agreement in favor of SP-X, Z Corp became bound by W Corp's security agreement. Under subsection (b), SP-W's security interest in inventory acquired by Z Corp is subordinate to that of SP-X, because Z Corp became bound under SP-X's security agreement before it became bound under SP-W's security agreement. This is the result regardless of which financing statement (SP-X's or SP-W's) was filed first.

The second sentence of subsection (b) reflects the generally accepted view that priority based on the first-to-file rule is inappropriate for resolving priority disputes when the filings were made against different debtors. Like subsection (a) and the first sentence of subsection (b), however, the second sentence of subsection (b) relates only to priority conflicts among security interests that would be unperfected but for the application of Section 9-316(i)(1) or 9-508 [55-9-316(i)55-9-508 NMSA 1978].

Example 6: Under the facts of Example 5, after Z Corp became bound by W Corp's security agreement, SP-W promptly filed a new initial financing statement against Z Corp. At that time, SP-X's security interest was perfected only pursuant to its original filing against X Corp which "would be ineffective to perfect the security interest but for the application of Section 9-508 [55-9-508 NMSA 1978]." Because SP-W's security interest is perfected by the filing of a financing statement whose effectiveness does not depend on Section 9-316(i)(1) [55-9-316(i)(1) NMSA 1978] or 9-508, subsection (a) subordinates SP-X's security interest to SP-W's. If both SP-X and SP-W file a new initial financing statement against Z Corp, then the "first-to-file-or-perfect" rule of Section 9-322(a)(1) [55-9-322(a)(1) NMSA 1978] governs their priority inter se as well as their priority against SP-Z.

The 2013 amendment, effective July 1, 2013, provided for the subordination of a new debtor's security interest; in Subsection (a), after "Subsection (b) of this section, a security interest", added "that is", after "created by a new debtor", deleted "which is" and added "in collateral in which the new debtor has or acquires rights and is", after "acquires rights and is perfected", added "solely", after "filed financing statement that", deleted "is effective solely under Section 55-9-508 NMSA 1978 in collateral in which a new debtor has or acquires rights" and added "would be ineffective to perfect the security interest but for the application of Paragraph (1) of Subsection (i) of Section 55-9-316 or Section 55-9-508 NMSA 1978", and after "filed financing statement", deleted "that is effective solely under Section 55-9-508 NMSA 1987"; and in Subsection (b), after "perfected by filed financing statements", deleted "that are effective solely under Section 55-9-508 NMSA 1978" and added "described in Subsection (a) of this section".