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Secured Transactions Assignment 10

Secured Transactions Assignment 10. Proceeds, Products, and Value-Tracing: State Law. 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?

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Secured Transactions Assignment 10

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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: whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral whatever is collected on, or distributed on account of, collateral rights arising out of collateral to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or . . . damage to, the collateral. to the extent of the value of collateral . . . insurance payable by reason of the loss . . . of . . . or damage to, the collateral. Basic Concepts

  4. §9-102(a)(64) “Proceeds” . . . means the following property: whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral Basic Concepts Secured Security interest Collateral Buyer Debtor Proceeds

  5. §9-102(a)(64) “Proceeds” . . . means the following property: whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral whatever is collected on, or distributed on account of, collateral Basic Concepts Secured Security interest in “accounts” Account debtors Debtor Account

  6. §9-102(a)(64) “Proceeds” . . . means the following property: whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral whatever is collected on, or distributed on account of, collateral rights arising out of collateral to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or . . . damage to, the collateral. to the extent of the value of collateral . . . insurance payable by reason of the loss . . . of . . . or damage to, the collateral. Basic Concepts Secured Security interest in “accounts” Account debtors Debtor $ Payment

  7. §9-102(a)(64) “Proceeds” . . . means the following property: whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral whatever is collected on, or distributed on account of, collateral rights arising out of collateral to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or . . . damage to, the collateral. to the extent of the value of collateral . . . insurance payable by reason of the loss . . . of . . . or damage to, the collateral. Basic Concepts Secured Security interest Collateral Debtor Proceeds

  8. §9-102(a)(64) “Proceeds” . . . means the following property: whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral whatever is collected on, or distributed on account of, collateral rights arising out of collateral to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or damage to, the collateral. to the extent of the value of collateral . . . insurance payable by reason of the loss . . . of . . . or damage to, the collateral. Basic Concepts Security interest Collateral Tortfeasor Debtor Loss claim

  9. §9-102(a)(64) “Proceeds” . . . means the following property: whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral whatever is collected on, or distributed on account of, collateral rights arising out of collateral to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or damage to, the collateral. Basic Concepts Collateral: 100 Claim “arising from” loss of collateral: 300 Recovery: 100 Proceeds: ? Collateral Tortfeasor Debtor Loss claim

  10. §9-102(a)(64) “Proceeds” . . . means the following property: whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral whatever is collected on, or distributed on account of, collateral rights arising out of collateral to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or damage to, the collateral. Basic Concepts Collateral: 100 Claim “arising from” loss of collateral: 300 Recovery: 100 Proceeds: 100, not 33 Collateral Tortfeasor Debtor Loss claim

  11. §9-102(a)(64) “Proceeds” . . . means the following property: whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral whatever is collected on, or distributed on account of, collateral rights arising out of collateral to the extent of the value of collateral, claims arising out of the loss . . . of, . . . or damage to, the collateral. to the extent of the value of collateral . . . insurance payable by reason of the loss . . . of, . . . or damage to, the collateral. Basic Concepts Collateral Insurance Company Debtor Loss claim

  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 ZBank Security Interest (Cow) Debtor

  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 ZBank Security Interest (Cow) Cow Debtor Cow buyer $2K

  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 ZBank Security Interest (Cow) Cow Debtor Cow buyer $2K

  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 ZBank Security Interest (Cow) Cow Debtor Cow buyer $2K

  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 ZBank Security Interest (Cow) Beans Cow Bean seller Debtor Cow buyer $2K

  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 proceedsof collateral Basic Concepts ZBank Security Interest (Cow) Beans Cow Bean seller Debtor Cow buyer $2K

  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 proceedsof collateral Basic Concepts §9-332(a). “A transferee of money takes the money free of a security interest . . . .” ZBank Security Interest (Cow) Beans Cow Bean seller Debtor Cow buyer $2K But bean seller takes the $2K free of the SI.

  20. §9-315(a)(1) a security interest . . . continues in collateral not- withstanding . . . dispositionthereof 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 ZBank Security Interest (Cow) Beans Cow Bean seller Debtor Cow buyer Cow buyer 2 $2K $2.5K

  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 ZBank Security Interest (Cow) Beans Cow Bean seller Debtor Cow buyer Cow buyer 2 $2K $2.5K

  22. §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 §9-332(a). “A transferee of money takes the money free of a security interest . . . .” ZBank Security Interest (Cow) Beans Cow Bean seller Debtor Cow buyer Cow buyer 2 $2K $2.5K 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 Non- proceeds 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 Non-proceeds Proceeds 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 Non- proceeds Non-proceeds Non-proceeds Proceeds Proceeds Proceeds

  34. Basic Concepts Segregated bank account. A bank account containing only a single secured creditor's collateral.

  35. Basic Concepts Segregated bank account. A bank account containing only a single secured creditor's collateral. Assume: Bank takes a security interest in “all inventory”

  36. Basic Concepts Segregated bank account. A bank account containing only a single secured creditor's collateral. Assume: Bank takes a security interest in “all inventory” Loan proceeds $ Segregated account

  37. Basic Concepts Segregated bank account. A bank account containing only a single secured creditor's collateral. Assume: Bank takes a security interest in “all inventory” Loan proceeds $ Segregated account Payments Suppliers

  38. Basic Concepts Segregated bank account. A bank account containing only a single secured creditor's collateral. Assume: Bank takes a security interest in “all inventory” Loan proceeds $ Segregated account Payments Suppliers Debtor’s inventory Goods

  39. Basic Concepts Segregated bank account. A bank account containing only a single secured creditor's collateral. Assume: Bank takes a security interest in “all inventory” Loan proceeds $ Segregated account Payments Customers Suppliers Debtor’s inventory Goods Goods

  40. Basic Concepts Segregated bank account. A bank account containing only a single secured creditor's collateral. Assume: Bank takes a security interest in “all inventory” Loan proceeds Payments $ Segregated account Payments Customers Suppliers Debtor’s inventory Goods Goods

  41. Basic Concepts Segregated bank account. A bank account containing only a single secured creditor's collateral. Assume: Bank takes a security interest in “all inventory” Loan proceeds Payments $ Segregated account Payments Customers Suppliers Debtor’s inventory Goods Goods Owner investment Proceeds of other loans Tax refunds Sale of non collateral $ General account $ All other expenditures $ $

  42. Problem 10.1, page 179 • Firstbank’s description of collateral: “equipment, inventory, and accounts” • Does this description cover the proceeds of this collateral? Yes. • Does this description cover the products of this collateral? Only if the products are proceeds or after acquired inventory or accounts. • The offspring of this collateral? • Substitutions for this collateral? • Additions to this collateral? • Replacements for this collateral?

  43. Problem 10.1, page 179 • Firstbank’s description of collateral: “equipment, inventory, and accounts” • Does this description cover the proceeds of this collateral?

  44. Problem 10.1, page 179 • Firstbank’s description of collateral: “equipment, inventory, and accounts” • 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” • Does this description cover the proceeds of this collateral? Yes. §9-203(f). • 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” • Does this description cover the proceeds of this collateral? Yes. §9-203(f). • 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. • A parrot that Polly took in payment of an overdue account? Yes. “Proceeds includes “whatever is collected on . . . Collateral.” §9-102(a)(64)(B). • 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. • 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. • A parrot that Polly took in payment of an overdue account? Yes. “Proceeds includes “whatever is collected on . . . Collateral.” §9-102(a)(64)(B). • 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. • 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. • A parrot that Polly took in payment of an overdue account? Yes. “Proceeds includes “whatever is collected on . . . Collateral.” §9-102(a)(64)(B). • 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. • 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. • A parrot that Polly took in payment of an overdue account?Yes. “Proceeds includes “whatever is collected on . . . Collateral.” §9-102(a)(64)(B). • 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. • Myna bird

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