The following rules govern priority among conflicting security interests in the same deposit account:

(1) A security interest held by a secured party having control of the deposit account under Section 55-9-104 NMSA 1978 has priority over a conflicting security interest held by a secured party that does not have control.

(2) Except as otherwise provided in Subsections (3) and (4) of this section, security interests perfected by control under Section 55-9-314 NMSA 1978 rank according to priority in time of obtaining control.

(3) Except as otherwise provided in Subsection (4) of this section, a security interest held by the bank with which the deposit account is maintained has priority over a conflicting security interest held by another secured party.

(4) A security interest perfected by control under Paragraph (3) of Subsection (a) of Section 55-9-104 NMSA 1978 has priority over a security interest held by the bank with which the deposit account is maintained.

History: 1978 Comp., § 55-9-327, enacted by Laws 2001, ch. 139, § 47.

OFFICIAL COMMENTS

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

1. Source. New; derived from former section 9-115(5).

2. Scope of This Section. This section contains the rules governing the priority of conflicting security interests in deposit accounts. It overrides conflicting priority rules. See sections 9-322(f)(1) and 9-324(a), (b), (d), and (f). This section does not apply to accounts evidenced by an instrument (e.g., certain certificates of deposit), which by definition are not "deposit accounts."

3. Control. Under paragraph (1), security interests perfected by control (sections 9-104 and 9-314) take priority over those perfected otherwise, e.g., as identifiable cash proceeds under section 9-315. Secured parties for whom the deposit account is an integral part of the credit decision will, at a minimum, insist upon the right to immediate access to the deposit account upon the debtor's default (i.e., control). Those secured parties for whom the deposit account is less essential will not take control, thereby running the risk that the debtor will dispose of funds on deposit (either outright or for collateral purposes) after default but before the account can be frozen by court order or the secured party can obtain control.

Paragraph (2) governs the case (expected to be very rare) in which a bank enters into a section 9-104(a)(2) control agreement with more than one secured party. It provides that the security interests rank according to time of obtaining control. If the bank is solvent and the control agreements are well drafted, the bank will be liable to each secured party, and the priority rule will have no practical effect.

4. Priority of Bank. Under paragraph (3), the security interest of the bank with which the deposit account is maintained normally takes priority over all other conflicting security interests in the deposit account, regardless of whether the deposit account constitutes the competing secured party's original collateral or its proceeds. A rule of this kind enables banks to extend credit to their depositors without the need to examine either the public record or their own records to determine whether another party might have a security interest in the deposit account.

A secured party who takes a security interest in the deposit account as original collateral can protect itself against the results of this rule in one of two ways. It can take control of the deposit account by becoming the bank's customer. Under paragraph (4), this arrangement operates to subordinate the bank's security interest. Alternatively, the secured party can obtain a subordination agreement from the bank. See section 9-339.

A secured party who claims the deposit account as proceeds of other collateral can reduce the risk of becoming junior by obtaining the debtor's agreement to deposit proceeds into a specific cash-collateral account and obtaining the agreement of that bank to subordinate all its claims to those of the secured party. But if the debtor violates its agreement and deposits funds into a deposit account other than the cash-collateral account, the secured party risks being subordinated.

5. Priority in Proceeds of, and Funds Transferred from, Deposit Account. The priority afforded by this section does not extend to proceeds of a deposit account. Rather, section 9-322(c) through (e) and the provisions referred to in section 9-322(f) govern priorities in proceeds of a deposit account. Section 9-315(d) addresses continuation of perfection in proceeds of deposit accounts. As to funds transferred from a deposit account that serves as collateral, see section 9-332.

Effective dates. — Laws 2001, ch. 139, § 155 makes the act effective July 1, 2001.