2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 9 - Secured Transactions › Part 4 - RIGHTS OF THIRD PARTIES › Section 55-9-407 - Restrictions on creation or enforcement of security interest in leasehold interest or in lessor's residual interest.

(a) Except as otherwise provided in Subsection (b) of this section, a term in a lease agreement is ineffective to the extent that it:
(1) prohibits, restricts or requires the consent of a party to the lease to the assignment or transfer of, or the creation, attachment, perfection or enforcement of a security interest in an interest of a party under the lease contract or in the lessor's residual interest in the goods; or
(2) provides that the assignment or transfer or the creation, attachment, perfection or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination or remedy under the lease.
(b) Except as otherwise provided in Subsection (7) of Section 55-2A-303 NMSA 1978, a term described in Paragraph (2) of Subsection (a) of this section is effective to the extent that there is:
(1) a transfer by the lessee of the lessee's right of possession or use of the goods in violation of the term; or
(2) a delegation of a material performance of either party to the lease contract in violation of the term.
(c) The creation, attachment, perfection or enforcement of a security interest in the lessor's interest under the lease contract or the lessor's residual interest in the goods is not a transfer that materially impairs the lessee's prospect of obtaining return performance or materially changes the duty of or materially increases the burden or risk imposed on the lessee within the purview of Subsection (4) of Section 55-2A-303 NMSA 1978 unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the lessor.
History:
1978 Comp., § 55-9-407, enacted by Laws 2001, ch. 139, § 69.
OFFICIAL COMMENTS
UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
1. Source. Section 2A-303.
2. Restrictions on Assignment Generally Ineffective. Under subsection (a), as under former section 2A-303(3), a term in a lease agreement which prohibits or restricts the creation of a security interest generally is ineffective. This reflects the general policy of section 9-406(d) and former section 9-318(4). This section has been conformed in several respects to analogous provisions in sections 9-406, 9-408, and 9-409, including the substitution of "ineffective" for "not enforceable" and the substitution of "assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest" for "creation or enforcement of a security interest."
3. Exceptions for Certain Transfers and Delegations. Subsection (b) provides exceptions to the general ineffectiveness of restrictions under subsection (a). A term that otherwise is ineffective under subsection (a)(2) is effective to the extent that a lessee transfers its right to possession and use of goods or if either party delegates material performance of the lease contract in violation of the term. However, under subsection (c), as under former section 2A-303(3), a lessor's creation of a security interest in its interest in a lease contract or its residual interest in the leased goods is not a material impairment under section 2A-303(4) (former section 2A-303(5)), absent an actual delegation of the lessor's material performance. The terms of the lease contract determine whether the lessor, in fact, has any remaining obligations to perform. If it does, it is then necessary to determine whether there has been an actual delegation of "material performance."
See
section 2A-303, comments 3 and 4.
ANNOTATIONS
Repeals and reenactments.
— Laws 2001, ch. 139, § 69 repealed former 55-9-407 NMSA 1978, as amended by Laws 1986, ch. 36, § 5, and enacted a new section, effective July 1, 2001.