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1
Secured TransactionsAssignment 10
Proceeds, Products, and Value-Tracing: State Law
2
The Big Picture
Chapters 1and 2. Creditors’ Remedies
Chapter 3. Creation of Security Interests
Assignment 8: Formalities for Attachment
Assignment 9: What Collateral and Obligations are Covered?
Assignment 10: Proceeds (State Law)
Assignment 11: Proceeds (Bankruptcy)
3
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
(C) rights arising out of collateral
(D) to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or . . . damage to, the collateral.
(E) to the extent of the value of collateral . . . insurance payable by reason of the loss . . . of . . . or damage to, the collateral.
Basic Concepts
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
4
Basic Concepts
Debtor BuyerCollateral
Proceeds
Secured
Security interest
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
5
Basic Concepts
DebtorAccountdebtors
Secured
Account
Security interestin “accounts”
6
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
(C) rights arising out of collateral
(D) to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or . . . damage to, the collateral.
(E) to the extent of the value of collateral . . . insurance payable by reason of the loss . . . of . . . or damage to, the collateral.
Basic Concepts
DebtorAccountdebtors
Payment
Secured
Security interestin “accounts”
$
7
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
(C) rights arising out of collateral
(D) to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or . . . damage to, the collateral.
(E) to the extent of the value of collateral . . . insurance payable by reason of the loss . . . of . . . or damage to, the collateral.
Basic Concepts
Debtor CollateralProceeds
Secured
Security interest
8
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
(C) rights arising out of collateral
(D) to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or damage to, the collateral.
(E) to the extent of the value of collateral . . . insurance payable by reason of the loss . . . of . . . or damage to, the collateral.
Basic Concepts
Debtor TortfeasorCollateral
Loss claim
Security interest
9
Collateral: 100
Claim “arising from” loss of collateral: 300
Recovery: 100
Proceeds: ?
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
(C) rights arising out of collateral
(D) to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or damage to, the collateral.
Basic Concepts
Debtor TortfeasorCollateral
Loss claim
10
Collateral
Collateral: 100
Claim “arising from” loss of collateral: 300
Recovery: 100
Proceeds: 100, not 33
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
(C) rights arising out of collateral
(D) to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or damage to, the collateral.
Basic Concepts
Debtor TortfeasorLoss claim
11Loss claim
Collateral
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
(C) rights arising out of collateral
(D) to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or damage to, the collateral.
(E) to the extent of the value of collateral . . . insurance payable by reason of the loss . . . of, . . . or damage to, the collateral.
Basic Concepts
DebtorInsuranceCompany
12
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
Basic Concepts
13
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
Basic Concepts
Debtor
ZBank
SecurityInterest (Cow)
14
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
Basic Concepts
DebtorCow
$2K
ZBank
SecurityInterest (Cow)
Cowbuyer
15
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
Basic Concepts
DebtorCow
$2K
ZBank
SecurityInterest (Cow)
Cowbuyer
16
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
Basic Concepts
DebtorCow
$2K
ZBank
SecurityInterest (Cow)
Cowbuyer
17
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
Basic Concepts
DebtorCow
ZBank
SecurityInterest (Cow)
Beanseller
Cowbuyer$2K
Beans
18
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
Basic Concepts
DebtorCow
ZBank
SecurityInterest (Cow)
Beanseller
Cowbuyer$2K
Beans
19
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
Basic Concepts
DebtorCow
ZBank
SecurityInterest (Cow)
Beanseller
Cowbuyer$2K
Beans
But bean seller takes the $2K free of the SI.
§9-332(a). “A transferee of money takes the money free of a security interest . . . .”
20
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
Basic Concepts
Debtor
ZBank
SecurityInterest (Cow)
Beanseller
Cowbuyer
Cowbuyer 2
Cow
$2K $2.5K
Beans
21
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
Basic Concepts
Debtor
ZBank
SecurityInterest (Cow)
Beanseller
Cowbuyer
Cowbuyer 2
Cow
$2K $2.5K
Beans
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
Basic Concepts
Debtor
ZBank
SecurityInterest (Cow)
Beanseller
Cowbuyer
Cowbuyer 2
Cow
$2K $2.5K
Beans
§9-332(a). “A transferee of money takes the money free of a security interest . . . .”
Cow buyer does not take the $2.5K free of the SI.
23
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
(b) Proceeds that are commingled with other property are identifiable proceeds
(1) if the proceeds are goods, to the extent provided by §9- 336
§9-336. “commingled goods” means good that are physically united with other goods in such a manner that their identity is lost in a product or mass.
Examples: Grain in a grain silo. Steel in an automobile.
Basic Concepts
24
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
(b) Proceeds that are commingled with other property are identifiable proceeds
(1) if the proceeds are goods, to the extent provided by §9- 336
§9-336. “commingled goods” means good that are physically united with other goods in such a manner that their identity is lost in a product or mass.
Examples: Grain in a grain silo. Steel in an automobile.
Basic Concepts
25
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
(b) Proceeds that are commingled with other property are identifiable proceeds
(1) if the proceeds are goods, to the extent provided by §9- 336
§9-336. “commingled goods” means good that are physically united with other goods in such a manner that their identity is lost in a product or mass.
Examples: Grain in a grain silo. Steel in an automobile.
Basic Concepts
26
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
(b) Proceeds that are commingled with other property are identifiable proceeds
(1) if the proceeds are goods, to the extent provided by §9- 336
§9-336. “commingled goods” means good that are physically united with other goods in such a manner that their identity is lost in a product or mass.
Examples: Grain in a grain silo. Steel in an automobile.
Basic Concepts
27
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
(b) Proceeds that are commingled with other property are identifiable proceeds
(1) if the proceeds are goods, to the extent provided by §9- 336 and
(2) if the proceeds are not goods, to the extent that the secured party identifies the proceeds by a method of
tracing . . . permitted under law other than this article
Example: Money commingled in a bank account
Basic Concepts
28
§9-315(a)(1) a security interest . . . continues in collateral not-withstanding . . . disposition thereof unless the secured party authorized the disposition free of the security interest . . . . and
(2) a security interest attaches to any identifiable proceeds of collateral
(b) Proceeds that are commingled with other property are identifiable proceeds
(1) if the proceeds are goods, to the extent provided by §9- 336 and
(2) if the proceeds are not goods, to the extent that the secured party identifies the proceeds by a method of
tracing . . . permitted under law other than this article
Example: Money commingled in a bank account
Basic Concepts
29
The lowest intermediate balance rule:
Basic Concepts
30
The lowest intermediate balance rule:
[T]he proceeds of the disposition of collateral remain in a commingled account as long as the account balance is equal to or exceeds the amounts of the proceeds. – Oriental Rug
Basic Concepts
31
The lowest intermediate balance rule:
[T]he proceeds of the disposition of collateral remain in a commingled account as long as the account balance is equal to or exceeds the amounts of the proceeds. – Oriental Rug
Basic Concepts
Proceeds
Non-proceeds
32
The lowest intermediate balance rule:
[T]he proceeds of the disposition of collateral remain in a commingled account as long as the account balance is equal to or exceeds the amounts of the proceeds. – Oriental Rug
Basic Concepts
Non-proceeds
ProceedsProceeds
Non-proceeds
33
The lowest intermediate balance rule:
[T]he proceeds of the disposition of collateral remain in a commingled account as long as the account balance is equal to or exceeds the amounts of the proceeds. – Oriental Rug
Basic Concepts
Proceeds
Non-proceeds Non-proceeds
Proceeds
Non-proceeds
Proceeds
Segregated bank account. A bank account containing only a single secured creditor's collateral.
Basic Concepts
34
Segregated bank account. A bank account containing only a single secured creditor's collateral.
Assume: Bank takes a security interest in “all inventory”
Basic Concepts
35
Segregated bank account. A bank account containing only a single secured creditor's collateral.
Assume: Bank takes a security interest in “all inventory”
Basic Concepts
Segregated account
Loan proceeds
$
36
Payments
Segregated bank account. A bank account containing only a single secured creditor's collateral.
Assume: Bank takes a security interest in “all inventory”
Basic Concepts
Segregated account
Loan proceeds
$
Suppliers
37
Payments
Segregated bank account. A bank account containing only a single secured creditor's collateral.
Assume: Bank takes a security interest in “all inventory”
Basic Concepts
Segregated account
Loan proceeds
$
Suppliers
Debtor’sinventory
Goods
38
Payments
Segregated bank account. A bank account containing only a single secured creditor's collateral.
Assume: Bank takes a security interest in “all inventory”
Basic Concepts
Segregated account
Loan proceeds
$
Debtor’sinventory
GoodsGoods
Customers
39
Suppliers
Payments
Segregated bank account. A bank account containing only a single secured creditor's collateral.
Assume: Bank takes a security interest in “all inventory”
Basic Concepts
Segregated account
Loan proceeds
Payments
$
Debtor’sinventory
GoodsGoods
Customers
40
Suppliers
Payments
41
Segregated bank account. A bank account containing only a single secured creditor's collateral.
Assume: Bank takes a security interest in “all inventory”
Basic Concepts
Segregated account
General account
Loan proceeds
Payments
Owner investment
Proceeds of other loans
Tax refunds
Sale of non collateral
All other expenditures
$
$
$
$$
Debtor’sinventory
GoodsGoods
Customers Suppliers
42
Problem 10.1, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
1. Does this description cover the proceeds of this collateral? Yes.
2. Does this description cover the products of this collateral? Only if the products are proceeds or after acquired inventory or accounts.
3. The offspring of this collateral?
4. Substitutions for this collateral?
5. Additions to this collateral?
6. Replacements for this collateral?
43
Problem 10.1, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
1. Does this description cover the proceeds of this collateral?
44
Problem 10.1, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
1. Does this description cover the proceeds of this collateral? Yes. §9-203(f).
45
Problem 10.1, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
1. Does this description cover the proceeds of this collateral? Yes. §9-203(f).
2. Does this description cover the products, offspring, substitutions, additions or replacements of this collateral?
46
Problem 10.1, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
1. Does this description cover the proceeds of this collateral? Yes. §9-203(f).
2. Does this description cover the products, offspring, substitutions, additions or replacements of this collateral?
Only if the products are (1) proceeds or (2) after acquired inventory or accounts.
47
Problem 10.2, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
a. Does this description cover the money now in Polly’s bank account? Only if it is proceeds.
b. A parrot that Polly took in payment of an overdue account? Yes. “Proceeds includes “whatever is collected on . . . Collateral.” §9-102(a)(64)(B).
c. A new computer Polly bought to replace the one she owned at the time she granted the security interest? Not unless it is proceeds. After-acquired equipment is not included.
d. Myna bird
48
Problem 10.2, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
a. Does this description cover the money now in Polly’s bank account? Only if it is proceeds.
b. A parrot that Polly took in payment of an overdue account? Yes. “Proceeds includes “whatever is collected on . . . Collateral.” §9-102(a)(64)(B).
c. A new computer Polly bought to replace the one she owned at the time she granted the security interest? Not unless it is proceeds. After-acquired equipment is not included.
d. Myna bird
49
Problem 10.2, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
a. Does this description cover the money now in Polly’s bank account? Only if it is proceeds.
b. A parrot that Polly took in payment of an overdue account? Yes. “Proceeds includes “whatever is collected on . . . Collateral.” §9-102(a)(64)(B).
c. A new computer Polly bought to replace the one she owned at the time she granted the security interest? Not unless it is proceeds. After-acquired equipment is not included.
d. Myna bird
50
Problem 10.2, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
a. Does this description cover the money now in Polly’s bank account? Only if it is proceeds.
b. A parrot that Polly took in payment of an overdue account? Yes. “Proceeds includes “whatever is collected on . . . Collateral.” §9-102(a)(64)(B).
c. A new computer Polly bought to replace the one she owned at the time she granted the security interest? Not unless it is proceeds. After-acquired equipment is not included.
d. Myna bird
51
Problem 10.2, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
a. Does this description cover the money now in Polly’s bank account? Only if it is proceeds.
b. A parrot that Polly took in payment of an overdue account? Yes. “Proceeds includes “whatever is collected on . . . collateral.” §9-102(a)(64)(B).
c. A new computer Polly bought to replace the one she owned at the time she granted the security interest? Not unless it is proceeds. After-acquired equipment is not included.
d. Myna bird
52
Problem 10.2, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
a. Does this description cover the money now in Polly’s bank account? Only if it is proceeds.
b. A parrot that Polly took in payment of an overdue account? Yes. “Proceeds includes “whatever is collected on . . . collateral.” §9-102(a)(64)(B).
c. A new computer Polly bought to replace the one she owned at the time she granted the security interest? Not unless it is proceeds. After-acquired equipment is not included.
d. Myna bird
53
Problem 10.2, page 179
Firstbank’s description of collateral: “equipment, inventory, and accounts”
a. Does this description cover the money now in Polly’s bank account? Only if it is proceeds.
b. A parrot that Polly took in payment of an overdue account? Yes. “Proceeds includes “whatever is collected on . . . collateral.” §9-102(a)(64)(B).
c. A new computer Polly bought to replace the one she owned at the time she granted the security interest? Not unless it is proceeds. After-acquired equipment is not in this description.
d. Myna bird
54
Firstbank’s description of collateral: “equipment, inventory, and accounts”
d. Myna bird Polly bought and paid for with plumbing work?
Problem 10.2, page 179
55
Firstbank’s description of collateral: “equipment, inventory, and accounts”
d. Myna bird Polly bought and paid for with plumbing work? No. Distinguish two situations:
Plumbing work account Myna bird
Plumbing work bird contract Myna bird
Problem 10.2, page 179
56
Firstbank’s description of collateral: “equipment, inventory, and accounts”
d. Myna bird Polly bought and paid for with plumbing work? No. Distinguish two situations:
Not collateral Collateral ProceedsPlumbing work account Myna bird
Not collateral Not collateral Not collateralPlumbing work bird contract Myna bird
Problem 10.2, page 179
57
Firstbank’s description of collateral: “equipment, inventory, and accounts”
d. Myna bird Polly bought and paid for with plumbing work? No. Distinguish two situations:
Not collateral Collateral ProceedsPlumbing work account Myna bird
Not collateral Not collateral Not collateralPlumbing work bird contract Myna bird
§9-102(a)(2) an “account” is a “monetary obligation”
Problem 10.2, page 179
58
Problem 10.3, page 180
ELP’s description of collateral: “Horace and all proceeds, products, and profits therefrom.” Horace won a race. Does ELP’s description cover the purse?
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
(C) rights arising out of collateral
Products: the result of fabrication or processing (Black’s)
Profits: (1) excess of revenues over expenses, (2) “a right in the soil of another”
59
Problem 10.3, page 180
ELP’s description of collateral: “Horace and all proceeds, products, and profits therefrom.” Horace won a race. Does ELP’s description cover the purse?
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
Products: the result of fabrication or processing (Black’s)
Profits: (1) excess of revenues over expenses, (2) “a right in the soil of another”
60
Problem 10.3, page 180
ELP’s description of collateral: “Horace and all proceeds, products, and profits therefrom.” Horace won a race. Does ELP’s description cover the purse?
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
Products: the result of fabrication or processing (Black’s)
Profits: (1) excess of revenues over expenses, (2) “a right in the soil of another”
61
Problem 10.3, page 180
ELP’s description of collateral: “Horace and all proceeds, products, and profits therefrom.” Horace won a race. Does ELP’s description cover the purse?
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
(C) rights arising out of collateral
Products: the result of fabrication or processing (Black’s)
Profits: (1) excess of revenues over expenses, (2) “a right in the soil of another”
62
Problem 10.3, page 180
ELP’s description of collateral: “Horace and all proceeds, products, and profits therefrom.” Horace won a race. Does ELP’s description cover the purse?
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
(C) rights arising out of collateral
Products: the result of fabrication or processing (Black’s)
Profits: (1) excess of revenues over expenses, (2) “a right in the soil of another”
63
Problem 10.3, page 180
ELP’s description of collateral: “Horace and all proceeds, products, and profits therefrom.” Horace won a race. Does ELP’s description cover the purse?
§9-102(a)(64) “Proceeds” . . . means the following property:
(A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral
(B) whatever is collected on, or distributed on account of, collateral
(C) rights arising out of collateral
Products: the result of fabrication or processing (Black’s)
Profits: (1) excess of revenues over expenses, (2) “a right in the soil of another”
64
Problem 10.4, page 180Billie gave a SI in “inventory.”
Billie
First-bank
“Inventory”
65
Problem 10.4, page 180Billie gave a SI in “inventory.” Billie is selling everything but
the inventory to Joey.
Billie
LeaseholdFurnitureFixturesEquipment
First-bank
“Inventory”
JoeyGoodwillAccountsTrademarks
66
Problem 10.4, page 180Billie gave a SI in “inventory.” Billie is selling everything but
the inventory to Joey. We represent Joey. Is the security interest in inventory of concern?
Billie
LeaseholdFurnitureFixturesEquipment
First-bank
“Inventory”
JoeyGoodwillAccountsTrademarks
67
Problem 10.4, page 180Billie gave a SI in “inventory.” Billie is selling everything but
the inventory to Joey. We represent Joey. Is the security interest in inventory of concern?
Billie
LeaseholdFurnitureFixturesEquipment
First-bank
“Inventory”
JoeyGoodwillAccountsTrademarks
Could Firstbank have a security interest in the accounts?
68
Problem 10.4, page 180Billie gave a SI in “inventory.” Billie is selling everything but
the inventory to Joey. We represent Joey. Is the security interest in inventory of concern?
Billie
LeaseholdFurnitureFixturesEquipment
First-bank
“Inventory”
JoeyGoodwillAccountsTrademarks
Could Firstbank have a security interest in the accounts?
Other items?
69
Problem 10.4, page 180Billie gave a SI in “inventory.” Billie is selling everything but
the inventory to Joey. We represent Joey. Is the security interest in inventory of concern?
Billie
LeaseholdFurnitureFixturesEquipment
First-bank
“Inventory”
JoeyGoodwillAccountsTrademarks
Could Firstbank have a security interest in the accounts?
Other items?
In re Shirel, page 154. “No reasonable third party would understand that a security interest was created in the refrigerator by merely looking to the description itself.”
70
Problem 10.5, page 180
ELP lends Golan $35K secured by XT-100.
XT-100Copier#XEX30
71
Problem 10.5, page 180
ELP lends Golan $35K secured by XT-100.
a. Fire destroys copier. Loss insured. What is ELP’s collateral?
XT-100Copier#XEX30
Insurancepayable
72
Problem 10.5, page 180
ELP lends Golan $35K secured by XT-100.
a. Fire destroys copier. Loss insured. What is ELP’s collateral?
b. Insuror pays. Golan deposits. What is ELP’s collateral?
XT-100Copier#XEX30
Insurancepayable
Check Bankaccount
Deposits Withdrawals Balance
Start $5,000
Insurance $35,000 $40,000
73
Problem 10.5, page 180
ELP lends Golan $35K secured by XT-100.
a. Fire destroys copier. Loss insured. What is ELP’s collateral?
b. Insuror pays. Golan deposits. What is ELP’s collateral?
c. Golan writes check for rental. What is ELP’s collateral?
XT-100Copier#XEX30
Insurancepayable
Check Bankaccount
Checkto rent
Deposits Withdrawals Balance
Start $5,000
Insurance $35,000 $40,000
Rent check $2,000 $38,000
74
Problem 10.5, page 180
ELP lends Golan $35K secured by XT-100.
a. Fire destroys copier. Loss insured. What is ELP’s collateral?
b. Insuror pays. Golan deposits. What is ELP’s collateral?
c. Golan writes check for rental. What is ELP’s collateral?
XT-100Copier#XEX30
Insurancepayable
Check Bankaccount
Deposits Withdrawals Balance
Start $5,000
Insurance $35,000 $40,000
Rent check $2,000 $38,000
Next check $32,000 $6,000
d. Golan writescheck to IRS.What is ELP’scollateral?
Checkto rent
Checkto IRS
75
Problem 10.6, page 180
Golan writes check for new copier. What is ELP’s collateral?
XT-100Copier#XEX30
Insurancepayable
Check Bankaccount
Deposits Withdrawals Balance
Start $5,000
Insurance $35,000 $40,000
Rent check $2,000 $38,000
Next check $32,000 $6,000
§9-332(b)
Checkto rent
Newcopier
76
Problem 10.6, page 180
Golan writes check for new copier. What is ELP’s collateral?
XT-100Copier#XEX30
Insurancepayable
Check Bankaccount
Deposits Withdrawals Balance
Start $5,000
Insurance $35,000 $40,000
Rent check $2,000 $38,000
Next check $32,000 $6,000
§9-332(b)
Checkto rent
Newcopier
77
Golan writes check for new copier. What is ELP’s collateral?
$6,000 and probably the new copier.
XT-100Copier#XEX30
Insurancepayable
Check Bankaccount
Deposits Withdrawals Balance
Start $5,000
Insurance $35,000 $40,000
Rent check $2,000 $38,000
Next check $32,000 $6,000
Problem 10.6, page 180Checkto rent
Newcopier
Three Possible Results
• $29,000 of the check was our proceeds. – But it would create a security interest for an
amount less than the value of the collateral and less than the amount of the debt. Unusual
• Only the $6,000 in the bank account remains identifiable. – The remainder of the money loses its
"identifiability" when it is commingled in the check with non-proceeds money.
• The new XT-100 is our collateral – Value of our collateral expands
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