2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 9 - Secured Transactions › Part 6 - DEFAULT › Subpart 1 - DEFAULT AND ENFORCEMENT OFSECURITY INTEREST › Section 55-9-620 - Acceptance of collateral in full or partial satisfaction of obligation; compulsory disposition of collateral.

(a) Except as otherwise provided in Subsection (g) of this section, a secured party may accept collateral in full or partial satisfaction of the obligation it secures only if:
(1) the debtor consents to the acceptance under Subsection (c) of this section;
(2) the secured party does not receive, within the time set forth in Subsection (d) of this section, a notification of objection to the proposal authenticated by:
(A) a person to which the secured party was required to send a proposal under Section 55-9-621 NMSA 1978; or
(B) any other person, other than the debtor, holding an interest in the collateral subordinate to the security interest that is the subject of the proposal;
(3) if the collateral is consumer goods, the collateral is not in the possession of the debtor when the debtor consents to the acceptance; and
(4) Subsection (e) of this section does not require the secured party to dispose of the collateral or the debtor waives the requirement pursuant to Section 55-9-624 NMSA 1978.
(b) A purported or apparent acceptance of collateral under this section is ineffective unless:
(1) the secured party consents to the acceptance in an authenticated record or sends a proposal to the debtor; and
(2) the conditions of Subsection (a) of this section are met.
(c) For purposes of this section:
(1) a debtor consents to an acceptance of collateral in partial satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default; and
(2) a debtor consents to an acceptance of collateral in full satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default or the secured party:
(A) sends to the debtor after default a proposal that is unconditional or subject only to a condition that collateral not in the possession of the secured party be preserved or maintained;
(B) in the proposal, proposes to accept collateral in full satisfaction of the obligation it secures; and
(C) does not receive a notification of objection authenticated by the debtor within twenty days after the proposal is sent.
(d) To be effective under Paragraph (2) of Subsection (a) of this section, a notification of objection must be received by the secured party:
(1) in the case of a person to which the proposal was sent pursuant to Section 55-9-621 NMSA 1978, within twenty days after notification was sent to that person; and
(2) in other cases:
(A) within twenty days after the last notification was sent pursuant to Section 55-9-621 NMSA 1978; or
(B) if a notification was not sent, before the debtor consents to the acceptance under Subsection (c) of this section.
(e) A secured party that has taken possession of collateral shall dispose of the collateral pursuant to Section 55-9-610 NMSA 1978 within the time specified in Subsection (f) of this section if:
(1) sixty percent of the cash price has been paid in the case of a purchase-money security interest in consumer goods; or
(2) sixty percent of the principal amount of the obligation secured has been paid in the case of a non-purchase-money security interest in consumer goods.
(f) To comply with Subsection (e) of this section, the secured party shall dispose of the collateral:
(1) within ninety days after taking possession; or
(2) within any longer period to which the debtor and all secondary obligors have agreed in an agreement to that effect entered into and authenticated after default.
(g) In a consumer transaction, a secured party may not accept collateral in partial satisfaction of the obligation it secures.
History:
1978 Comp., § 55-9-620, enacted by Laws 2001, ch. 139, § 117; 2021, ch. 86, § 3.
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 9-505.
2.
Overview.
This section and the two sections following deal with strict foreclosure, a procedure by which the secured party acquires the debtor's interest in the collateral without the need for a sale or other disposition under section 9-610. Although these provisions derive from former section 9-505, they have been entirely reorganized and substantially rewritten. The more straightforward approach taken in this article eliminates the fiction that the secured party always will present a "proposal" for the retention of collateral and the debtor will have a fixed period to respond. By eliminating the need (but preserving the possibility) for proceeding in that fashion, this section eliminates much of the awkwardness of former section 9-505. It reflects the belief that strict foreclosures should be encouraged and often will produce better results than a disposition for all concerned.
Subsection (a) sets forth the conditions necessary to an effective acceptance (formerly, retention) of collateral in full or partial satisfaction of the secured obligation. Section 9-621 requires in addition that a secured party who wishes to proceed under this section notify certain other persons who have or claim to have an interest in the collateral. Unlike the failure to meet the conditions in subsection (a), under section 9-622(b) the failure to comply with the notification requirement of section 9-621 does not render the acceptance of collateral ineffective. Rather, the acceptance can take effect notwithstanding the secured party's noncompliance. A person to whom the required notice was not sent has the right to recover damages under section 9-625(b). Section 9-622(a) sets forth the effect of an acceptance of collateral.
3.
Conditions to Effective Acceptance.
Subsection (a) contains the conditions necessary to the effectiveness of an acceptance of collateral. Subsection (a)(1) requires the debtor's consent. Under subsections (c)(1) and (c)(2), the debtor may consent by agreeing to the acceptance in writing after default. Subsection (c)(2) contains an alternative method by which to satisfy the debtor's-consent condition in subsection (a)(1). It follows the proposal-and-objection model found in pre-1998 Section 9-505: The debtor consents if the secured party sends a proposal to the debtor and does not receive an objection within 20 days. Under subsection (c)(1), however, that silence is not deemed to be consent with respect to acceptances in partial satisfaction. Thus, a secured party who wishes to conduct a "partial strict foreclosure" must obtain the debtor's agreement in a record signed after default. In all other respects, the conditions necessary to an effective partial strict foreclosure are the same as those governing acceptance of collateral in full satisfaction. (But see subsection (g), prohibiting partial strict foreclosure of a security interest in consumer transactions.)
The time when a debtor consents to a strict foreclosure is significant in several circumstances under this section and the following one.
See
sections 9-620(a)(1), (d)(2), 9-621(a)(1), (a)(2), and (a)(3). For purposes of determining the time of consent, a debtor's conditional consent constitutes consent.
Subsection (a)(2) contains the second condition to the effectiveness of an acceptance under this section - the absence of a timely objection from a person holding a junior interest in the collateral or from a secondary obligor. Any junior party - secured party or lienholder - is entitled to lodge an objection to a proposal, even if that person was not entitled to notification under section 9-621. Subsection (d), discussed below, indicates when an objection is timely.
Subsections (a)(3) and (a)(4) contain special rules for transactions in which consumers are involved.
See
comment 12.
4.
Proposals.
Section 9-102 defines the term "proposal." It is necessary to send a "proposal" to the debtor only if the debtor does not agree to an acceptance in signed record as described in subsection (c)(1) or (c)(2). Section 9-621(a) determines whether it is necessary to send a proposal to third parties. A proposal need not take any particular form as long as it sets forth the terms under which the secured party is willing to accept collateral in satisfaction. A proposal to accept collateral should specify the amount (or a means of calculating the amount, such as by including a per diem accrual figure) of the secured obligations to be satisfied, state the conditions (if any) under which the proposal may be revoked, and describe any other applicable conditions. Note, however, that a conditional proposal generally requires the debtor's agreement in order to take effect. See subsection (c).
5.
Secured Party's Agreement; No "Constructive" Strict Foreclosure.
The conditions of subsection (a) relate to actual or implied consent by the debtor and any secondary obligor or holder of a junior security interest or lien. To ensure that the debtor cannot unilaterally cause an acceptance of collateral, subsection (b) provides that compliance with these conditions is necessary but not sufficient to cause an acceptance of collateral. Rather, under subsection (b), acceptance does not occur unless, in addition, the secured party consents to the acceptance in a signed record or sends to the debtor a proposal. For this reason, a mere delay in collection or disposition of collateral does not constitute a "constructive" strict foreclosure. Instead, delay is a factor relating to whether the secured party acted in a commercially reasonable manner for purposes of Section 9-607 or 9-610. A debtor's voluntary surrender of collateral to a secured party and the secured party's acceptance of possession of the collateral does not, of itself, necessarily raise an implication that the secured party intends or is proposing to accept the collateral in satisfaction of the secured obligation under this section.
6.
When Acceptance Occurs.
This section does not impose any formalities or identify any steps that a secured party must take in order to accept collateral once the conditions of subsections (a) and (b) have been met. Absent facts or circumstances indicating a contrary intention, the fact that the conditions have been met provides a sufficient indication that the secured party has accepted the collateral on the terms to which the secured party has consented or proposed and the debtor has consented or failed to object. Following a proposal, acceptance of the collateral normally is automatic upon the secured party's becoming bound and the time for objection passing. As a matter of good business practice, an enforcing secured party may wish to memorialize its acceptance following a proposal, such as by notifying the debtor that the strict foreclosure is effective or by placing a written record to that effect in its files. The secured party's agreement to accept collateral is self-executing and cannot be breached. The secured party is bound by its agreement to accept collateral and by any proposal to which the debtor consents.
7.
No Possession Requirement.
This section eliminates the requirement in former section 9-505 that the secured party be "in possession" of collateral. It clarifies that intangible collateral, which cannot be possessed, may be subject to a strict foreclosure under this section. However, under subsection (a)(3), if the collateral is consumer goods, acceptance does not occur unless the debtor is not in possession.
8.
When Objection Timely.
Subsection (d) explains when an objection is timely and thus prevents an acceptance of collateral from taking effect. An objection by a person to which notification was sent under section 9-621 is effective if it is received by the secured party within 20 days from the date the notification was sent to that person. Other objecting parties (i.e., third parties who are not entitled to notification) may object at any time within 20 days after the last notification is sent under section 9-621. If no such notification is sent, third parties must object before the debtor agrees to the acceptance in writing or is deemed to have consented by silence. The former may occur any time after default, and the latter requires a 20-day waiting period.
See
subsection (c).
9.
Applicability of Other Law.
This section does not purport to regulate all aspects of the transaction by which a secured party may become the owner of collateral previously owned by the debtor. For example, a secured party's acceptance of a motor vehicle in satisfaction of secured obligations may require compliance with the applicable motor vehicle certificate of title law. State legislatures should conform those laws so that they mesh well with this section and section 9-610, and courts should construe those laws and this section harmoniously. A secured party's acceptance of collateral in the possession of the debtor also may implicate statutes dealing with a seller's retention of possession of goods sold.
10.
Accounts, Chattel Paper, Payment Intangibles, and Promissory Notes.
If the collateral is accounts, chattel paper, payment intangibles, or promissory notes, then a secured party's acceptance of the collateral in satisfaction of secured obligations would constitute a sale to the secured party. That sale normally would give rise to a new security interest (the ownership interest) under Sections 1-201(b)(35) and 9-109. In the case of accounts and chattel paper, the new security interest would remain perfected by a filing that was effective to perfect the secured party's original security interest. In the case of payment intangibles or promissory notes, the security interest would be perfected when it attaches. See Section 9-309. However, the procedures for acceptance of collateral under this section satisfy all necessary formalities and a new security agreement signed by the debtor would not be necessary.
11.
Role of Good Faith.
Section 1-304 [55-1-304 NMSA 1978] imposes an obligation of good faith on a secured party's enforcement under this Article. This obligation may not be disclaimed by agreement.
See
Section 1-302 [55-1-302 NMSA 1978]. Thus, a proposal and acceptance made under this section in bad faith would not be effective. For example, a secured party's proposal to accept marketable securities worth $1,000 in full satisfaction of indebtedness in the amount of $100, made in the hopes that the debtor might inadvertently fail to object, would be made in bad faith. On the other hand, in the normal case proposals and acceptances should be not second-guessed on the basis of the "value" of the collateral involved. Disputes about valuation or even a clear excess of collateral value over the amount of obligations satisfied do not necessarily demonstrate the absence of good faith.
12.
Special Rules in Consumer Cases.
Subsection (e) imposes an obligation on the secured party to dispose of consumer goods under certain circumstances. Subsection (f) explains when a disposition that is required under subsection (e) is timely. An effective acceptance of collateral cannot occur if subsection (e) requires a disposition unless the debtor waives this requirement pursuant to Section 9-624(b) [55-9-624(b) NMSA 1978]. Moreover, a secured party who takes possession of collateral and unreasonably delays disposition violates subsection (e), if applicable, and may also violate Section 9-610 [55-9-610 NMSA 1978] or other provisions of this Part. Subsection (e) eliminates as superfluous the express statutory reference to "conversion" found in former Section 9-505 [55-9-505 NMSA 1978]. Remedies available under other law, including conversion, remain available under this Article in appropriate cases.
See
Sections 1-103, 1-305 [55-1-103, 55-1-305 NMSA 1978].
Subsection (g) prohibits the secured party in consumer transactions from accepting collateral in partial satisfaction of the obligation it secures. If a secured party attempts an acceptance in partial satisfaction in a consumer transaction, the attempted acceptance is void.
13.
"Signed" Replaces "Authenticated."
Consistent with the revised definition of "sign" in Section 1-201, the cognate term "signed" replaces the references to "authenticated" in the pre-2022 text of this section.
ANNOTATIONS
The 2021 amendment,
effective June 18, 2021, in Subsection (a), Paragraph (a)(3), added "if".
Decisions under former Section 55-9-505 NMSA 1978.
— In light of the similarity of this section and former Section 55-9-505 NMSA 1978, annotations decided under former Section 55-9-505 NMSA 1978 have been included in the annotations in this section.
When creditor retains collateral in discharge of debt, he becomes owner.
Begay v. Foutz & Tanner, Inc.
, 1979-NMCA-136, 95 N.M. 106, 619 P.2d 551,
rev'd on other grounds sub nom.
Reeves v. Foutz & Tanner, Inc.
, 1980-NMSC-095, 94 N.M. 760, 617 P.2d 149 (decided under former law).
Creditor selling collateral in regular course of business must comply with the disposition section of the code.
— Once the creditor elects to retain collateral, and follow the mechanics of this section, he can do as he pleases with the property, but where he intends to sell the property in the regular course of his business, which is in substance selling the property as contemplated by Section 55-9-504 NMSA 1978 (now Section 55-9-610 NMSA 1978), he must account for a surplus in conformity with that section.
Reeves v. Foutz & Tanner, Inc.
, 1980-NMSC-095, 94 N.M. 760, 617 P.2d 149 (decided under former law).
Failure to sell collateral not always election to retain.
— Where a decrease in inventory constitutes a willful and malicious conversion of collateral and a violation of Section 30-16-18 NMSA 1978, failure to sell the repossessed collateral will not be treated as an election under this section to retain the collateral in satisfaction of the obligation.
With v. Amador
, 596 F.2d 428 (10th Cir. 1979) (decided under former law).
Recovery allowed for failure to sell truck within 90 days.
— Plaintiff was entitled to recover damages in conversion from defendant for failure to comply with default provisions of Uniform Commercial Code, where defendant, who repossessed plaintiff's pick-up truck after plaintiff had paid defendant more than 60% of purchase price, failed to sell truck within 90 days of possession.
Crosby v. Basin Motor Co.
, 1971-NMCA-127, 83 N.M. 77, 488 P.2d 127 (decided under former law).
Remedies of Subsection (2) of former Section 55-9-505 NMSA 1978 (now this section) are accessible to all secured parties
including pawnbrokers dealing in Indian pawn with Indian debtors, and they may avail themselves of the remedies provided by the code.
Begay v. Foutz & Tanner, Inc.
, 1979-NMCA-136, 95 N.M. 106, 619 P.2d 551,
rev'd on other grounds sub nom.
Reeves v. Foutz & Tanner, Inc.
, 1980-NMSC-095, 94 N.M. 760, 617 P.2d 149 (decided under former law).
Law reviews.
— For article, "Breach of the Peace and New Mexico's Uniform Commercial Code," see 4 Nat. Resources J. 85 (1964).
Am. Jur. 2d, A.L.R. and C.J.S. references. —
68A Am. Jur. 2d Secured Transactions § 704 et seq.
Rights and duties of parties to conditional sales contract as to resale of repossessed property, 49 A.L.R.2d 15.
Construction and operation of U.C.C. § 9-505(2) authorizing secured party in possession of collateral to retain it in satisfaction of obligation, 55 A.L.R.3d 651.
79 C.J.S. Secured Transactions § 179.