2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 9 - Secured Transactions › Part 3 - PERFECTION AND PRIORITY › Subpart 3 - PRIORITY › Section 55-9-332 - Transfer of money; transfer of funds from deposit account.

(a) A transferee of money takes the money free of a security interest unless the transferee acts in collusion with the debtor in violating the rights of the secured party.
(b) A transferee of funds from a deposit account takes the funds free of a security interest in the deposit account unless the transferee acts in collusion with the debtor in violating the rights of the secured party.
History:
1978 Comp., § 55-9-332, enacted by Laws 2001, ch. 139, § 52.
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.
Scope of This Section.
This section affords broad protection for transferees of money and of funds from a deposit account to take free of a security interest. The term "transferee" is not defined; however, the debtor itself is not a transferee. Thus this section does not cover the case in which a debtor withdraws money (currency) from its deposit account or the case in which a bank debits an encumbered account and credits another account it maintains for the debtor.
A transfer of funds from a deposit account, to which Subsection (b) applies, normally will be made by check, by funds transfer, or by debiting the debtor's deposit account and crediting another depositor's account.
2A.
Meaning of "Transfer."
The term "transferee" is not defined; however, the debtor itself is not a transferee. Thus this section does not cover the case in which a debtor withdraws money (currency) from its deposit account or the case in which a bank debits an encumbered account and credits another account it maintains for the debtor.
A "transfer" of property occurs when the transferee has obtained a property interest in the relevant property.
See
Section 9-102, Comment 2.b.1 ("Several provisions of this Article and its official comments also refer to the 'transfer' of
property
interests." (emphasis added)). Other law determines when the transferee has acquired a property interest.
See
Section 9-408, Comment 3 ("Other law determines whether a debtor has a property interest ('rights in the collateral') and the nature of that interest."). Although the terms "transfer" and "transferee" are not defined in the UCC, the term "transfer" is broader in scope than "purchase," which requires taking in a "voluntary transaction creating an interest in property." Section 1-201(b)(29). For example, "transfer" includes an involuntary transfer such as the acquisition of a judicial lien by a lien creditor.
See
Section 9-102(a)(52) (defining "lien creditor"). However, many references to a "transfer" in the UCC and official comments relate to a voluntary transfer to a purchaser, as indicated by the context.
2B.
Transferees of Tangible Money.
Subsection (a) conditions the take-free rule on the transferee's receipt of possession of tangible money. This reflects what had always been assumed under the pre-2022 text—that a transfer of an interest in tangible money which is not accompanied by a physical transfer of possession would not impair the rights of third parties.
2C.
Transferees of Funds from Deposit Account.
Subsection (b) reflects the corresponding change for a transfer of funds from a deposit account. To qualify for the take-free protection under subsection (b), the transferee must "receive[] the funds without acting in collusion . . ." The amendments to subsections (a) and (b) clarify what was implicit under the original text. Although "funds" is not defined in the UCC, if deposit accounts with a central bank or another bank were to become money, as defined in Section 1-201(b)(24), transfers from such deposit accounts would be covered by subsection (b) and not subsection (c) (discussed in Comment 2.D.).
See
Section 9-102(a)(54A) (defining "money," for purposes of Article 9, to exclude deposit accounts).
Example 1:
Debtor maintains a deposit account with Bank A. The deposit account is subject to a perfected security interest in favor of Lender. Debtor draws a check on the account, payable to Payee. Inasmuch as the check is not the proceeds of the deposit account (it is an order to pay funds from the deposit account), Lender's security interest in the deposit account does not give rise to a security interest in the check. Payee deposits the check into its own deposit account, and Bank A pays it. Unless Payee acted in collusion with Debtor in violating Lender's rights, Payee takes the funds (the credits running in favor of Payee) free of Lender's security interest. This is true regardless of whether Payee is a holder in due course of the check and even if Payee gave no value for the check.
Example 2:
Debtor maintains a deposit account with Bank A. The deposit account is subject to a perfected security interest in favor of Lender. At Bank B's suggestion, Debtor moves the funds from the account at Bank A to Debtor's deposit account with Bank B. Unless Bank B acted in collusion with Debtor in violating Lender's rights, Bank B takes the funds (the credits running in favor of Bank B) free from Lender's security interest.
See
subsection (b). However, inasmuch as the deposit account maintained with Bank B constitutes the proceeds of the deposit account at Bank A, Lender's security interest would attach to that account as proceeds.
See
Section 9-315.
Subsection (b) also would apply if, in these examples, Bank A debited Debtor's deposit account in exchange for the issuance of Bank A's cashier's check. Lender's security interest would attach to the cashier's check as proceeds of the deposit account, and the rules applicable to instruments would govern any competing claims to the cashier's check. See, e.g., Sections 3-306, 9-322, 9-330, 9-331.
If Debtor withdraws funds from an encumbered deposit account, receives the funds in the form of tangible money, and transfers the money to a third party, then subsection (a), to the extent not displaced by federal law relating to money, applies to the transfer. It contains substantially the same rule as subsection (b).
Subsection (b) applies to
transfers of funds from
a deposit account; it does not apply to
transfers of the deposit account
itself or of an interest therein. Because a deposit account is a monetary obligation (debt) of the depositary bank to its depositor, a transfer of the deposit account itself does not transfer the funds credited to the deposit account. For example, this section does not apply to the creation of a security interest in a deposit account. Competing claims to the deposit account itself are dealt with by other Article 9 priority rules.
See
Sections 9-317(a), 9-327, 9-340, 9-341. Similarly, a corporate merger normally would not result in a transfer of funds from a deposit account. Rather, it might result in a transfer of the deposit account itself. If so, the normal rules applicable to transferred collateral would apply; this section would not.
The depositor's creditors (whether secured parties or lien creditors) do not have any interest in any
funds
(or any other assets of the depositary bank) as a result of having an interest in the deposit account (the right to payment of the bank's obligation). Consequently, a transferee of funds that takes free of a security interest under Subsection (b) does so whether the security interest in the deposit account from which the funds were transferred arises as original collateral or as proceeds.
A transferee of
an interest in the deposit account
, such as a garnishing lien creditor, does not take free of a security interest in a deposit account under Subsection (b). A transferee takes free under subsection (b) only upon the actual receipt of
funds
from the deposit account. The proper construction of Subsection (b) rejects cases that treat garnishment of a deposit account as an immediate transfer of funds or an interest in funds credited to the deposit account.
The last event that provides a recovery for a creditor in a garnishment action virtually always would be a transfer of funds from a deposit account. However, this does not mean that a perfected security interest will always be cut off by a garnishing creditor. By intervening in the garnishment proceeding to assert its senior security interest before funds are disbursed, the secured party might assert and retain its priority. However, the relevant procedural law may not provide the secured party with adequate advance notice. In some cases, a control agreement that perfects a security interest in the deposit account may require the garnished bank to provide prompt notice to the secured party. But not all control agreements will so provide. Moreover, the secured party's priority is not absolute.
See, e.g.
, Section 9-401, Comment 6 (explaining that the equitable doctrine of marshaling may be appropriate in the case of a lien creditor's interest in collateral when a senior secured party is oversecured).
2D.
Transferees of Electronic Money.
Because "electronic money" is new, no pattern of past practices or understandings exists. However, subsection (c) provides a take-free rule for electronic money that complements subsection (a) by conditioning the take-free rule on the transferee's obtaining control.
2E.
Temporal Aspect of Collusion Test.
For a transferee to take free of a security interest under this section the transferee must receive delivery of tangible money, receive funds from a deposit account, or obtain control of electronic money without acting in collusion. Whether the transferee is acting without collusion is determined as of the time of delivery to the transferee or receipt of funds or obtaining control by the transferee.
3.
Policy.
Broad protection for transferees helps to ensure that security interests in deposit accounts do not impair the free flow of funds. It also minimizes the likelihood that a secured party will enjoy a claim to whatever the transferee purchases with the funds. Rules concerning recovery of payments traditionally have placed a high value on finality. The opportunity to upset a completed transaction, or even to place a completed transaction in jeopardy by bringing suit against the transferee of funds, should be severely limited. Although the giving of value usually is a prerequisite for receiving the ability to take free from third-party claims, where payments are concerned the law is even more protective. Thus, section 3-418(c) provides that, even where the law of restitution otherwise would permit recovery of funds paid by mistake, no recovery may be had from a person "who in good faith changed position in reliance on the payment." Rather than adopt this standard, this section eliminates all reliance requirements whatsoever. Payments made by mistake are relatively rare, but payments of funds from encumbered deposit accounts (
e.g.
, deposit accounts containing collections from accounts receivable) occur with great regularity. In most cases, unlike payment by mistake, no one would object to these payments. In the vast proportion of cases, the transferee probably would be able to show a change of position in reliance on the payment. This section does not put the transferee to the burden of having to make this proof.
4.
"Bad Actors."
To deal with the question of the "bad actor," this section borrows "collusion" language from Article 8.
See, e.g.
, Sections 8-115, 8-503(e). This is the most protective (i.e., least stringent) of the various standards now found in the UCC.
Compare, e.g.
, Section 1-201(b)(9) ("without knowledge that the sale violates the rights of another person," in the definition of "buyer in ordinary course of business"); Section 1-201(b)(20) (defining "good faith" as "honesty in fact and the observance of reasonable commercial standards of fair dealing"); Section 3-302(a)(2)(v) ("without notice of any claim").
5.
Transferee Who Does Not Take Free.
This section sets forth the circumstances under which certain transferees of money or funds take free of security interests. It does not determine the rights of a transferee who does not take free of a security interest.
Example 3:
The facts are as in Example 2, but, in wrongfully moving the funds from the deposit account at Bank A to Debtor's deposit account with Bank B, Debtor acts in collusion with Bank B. Bank B does not take the funds free of Lender's security interest under this section. If Debtor grants a security interest to Bank B, section 9-327 governs the relative priorities of Lender and Bank B. Under section 9-327(3), Bank B's security interest in the Bank B deposit account is senior to Lender's security interest in the deposit account as proceeds. However, Bank B's senior security interest does not protect Bank B against any liability to Lender that might arise from Bank B's wrongful conduct.
ANNOTATIONS
Effective dates.
— Laws 2001, ch. 139, § 155 makes the act effective July 1, 2001.