Whats next

1
Whats next?

• Why bother? Secured creditors remedies much
  better than unsecured creditor remedies.
• How to do it?
• Assignment 8 Formalities for Attachment
• Assignment 9 What collateral is covered
  after-acquired
• Assignment 10 What collateral is covered
  proceeds

2
Article 9 Definition of Proceeds

• 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.

3
More on proceeds

• Every security interest automatically includes
  proceeds.
• 9-203(f) The attachment of a security interest
  in collateral gives the secured party the right
  to proceeds . . .
• Why the proceeds of proceeds are proceeds
• 9-102(a)(12). Collateral . . . includes . . .
  proceeds.
• The secured party has a right to the proceeds of
  the collateral. 9-203(f).
• So the secured party has a right to the proceeds
  of proceeds.

4
Overview of proceeds statutes

• 9-102(a)(64) Definition of proceeds.
• 9-203(f) Default right to proceeds.
• 9-315(a)(1) security interest can continue in
  collateral after sale by debtor, and (2) attaches
  to identifiable proceeds.
• 9-315(b) When commingled proceeds are
  identifiable (goods vs. not goods).
• 9-336 If commingled goods a security interest
  attaches to the product or mass.
• 9-332 Transferee of money takes free of security
  interest, unless colluding with the debtor

5
When security interest continues in collateral

• 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 . . .
  .
• (2) a security interest attaches to any
  identifiable proceeds of collateral.

ZBank
Security Interest (Cow)
Cow
Cow
Beans
Debtor
Bean seller
Cow buyer
Cow buyer 2
2K
2K
2.5K
6
When proceeds are identifiable

• 9-315(a)(2) A security interest attaches to any
  identifiable proceeds of collateral
• 9-315(b) Proceeds that are commingled with other
  property are identifiable proceeds,
• (1) if the proceeds are goods, to the extent
  provided by 9-336, or
• (2) if the proceeds are not goods, to the
  extent secured party identifies the proceeds by
  a method of tracing, including equitable
  principles.

7
Identifying commingled goods

• 9-315(b) (1) if the proceeds are goods, to the
  extent provided by 9-336,
• 9-336 Commingled goods means goods 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.

8
Identifying commingled not goods

• 9-315(b)(2) if the proceeds are not goods, to
  the extent secured party identifies the proceeds
  by a method of tracing, including applications of
  equitable principles permitted under law other
  than this article..
• Example Money commingled in a bank account

The lowest intermediate balance rule.
9
Problem 10.1.
Firstbanks has a perfected security interest in
all of the equipment, inventory, and accounts
of Polly Arthur. No mention of proceeds in the
security agreement. 9-102(a)(64) Proceeds
include rights arising out of collateral.
9-203(f) Secured creditor has default right to
proceeds. 9-204(a) A security agreement may
create an interest in after-acquired collateral.

10
Problem 10.1.

• Are the proceeds of this collateral covered?
• A. Yes B. No C. Maybe.
• Are the products, offspring, substitutions,
  additions, or replacements of this collateral
  covered?
• A. Yes B. No C. Maybe.

11
Problem 10.1.

• Firstbanks has a perfected security interest in
  all of the equipment, inventory, and accounts
  of Polly Arthur.
• Are the proceeds of this collateral covered?
• A. Yes B. No C. Maybe.
• Are the products, offspring, substitutions,
  additions, or replacements of this collateral
  covered?
• A. Yes B. No C. Maybe.

12
Problem 10.2.
Firstbanks has a perfected security interest in
all of the equipment, inventory, and accounts
of Polly Arthur. 9-102(a)(2) Account means a
right to payment of a monetary obligation. 9-102(
a)(64)(C) Proceeds include rights arising out
of collateral. 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 . . . . (2) a security interest
attaches to any identifiable proceeds of
collateral.
13
Problem 10.2.

• Is the money in Pollys bank account collateral
  under Firstbanks security agreement?
• A. Yes B. No C. Maybe.
• A parrot that Polly took in payment of an
  overdue account?
• A. Yes B. No C. Maybe.

14
Problem 10.2.

• Computer Polly bought to replace computer she
  owned at time she granted security interest to
  Firstbanks security agreement?
• A. Yes B. No C. Maybe.
• A Myna bird that Polly took from
  Robin Watts in payment for some
  plumbing work?
• A. Yes B. No C. Maybe.

15
Problem 10.2.

• Computer Polly bought to replace computer she
  owned at time she granted security interest to
  Firstbanks security agreement?
• A. Yes B. No C. Maybe.
• A Myna bird that Polly took from
  Robin Watts in payment for some
  plumbing work?
• A. Yes B. No C. Maybe.

16
Problem 10.3.
Equipment Leasing Partners (ELP) financed Lucky
Partners Syndicates acquisition of Horace. ELP
took security interest in Horace and all
proceeds, products, and profits therefrom. Lucky
Partners defaulted on 750,000 loan. Before
repossession, Horace won 50,000 in a
race. 9-102(a)(64) (A) Whatever is acquired
upon sale, lease or other disposition of
collateral (B) Whatever is collected on, or
distributed on account of, collateral (C)
Proceeds include rights arising out of
collateral.
17
Problem 10.3.

• Are Horaces 50,000 winnings collateral?
• Yes, they are collateral under 9-102(a)(64)(A).
• B. Yes, they are collateral under
  9-102(a)(64)(B).
• Yes, they are collateral under 9-102(a)(64)(C).
• Yes, because the purse would constitute
  proceeds, products, or profits of Horace.
• No, the winnings are probably not collateral.

18
Problem 10.3.

• Are Horaces 50,000 winnings collateral?
• Yes, they are collateral under 9-102(a)(64)(A).
• B. Yes, they are collateral under
  9-102(a)(64)(B).
• Yes, they are collateral under 9-102(a)(64)(C).
• Yes, because the purse would constitute
  proceeds, products, or profits of Horace.
• No, the winnings are probably not collateral.

19
Problem 10.4.
Joey Teigh to buy Billies Toy Shop, including
the leasehold, furniture, fixtures, equipment,
goodwill, accounts receivable, and
trademarks. Omitted inventory because of
Firstbank security interest in inventory. Could
Firstbanks security interest reach beyond
inventory? A. YES B. NO C.
MAYBE.
20
Problem 10.5.
ELP loans 35K to Golan Industries to purchase a
XT-100 copier. Golan granted ELP a security
interest in XT-100 copier, serial number
XEX3088372. 9-102(a)(12). Collateral . . .
includes . . . proceeds. 9-102(a)(64) (A)
Whatever is acquired upon sale, lease or other
disposition of collateral (B) Whatever is
collected on, or distributed on account of,
collateral (C) Proceeds include rights
arising out of collateral. 9-203(f) The
attachment of a security interest in collateral
gives the secured party the right to proceeds . .
.
21
Problem 10.5.

• Fire destroyed this copier, but copier was
  insured. What is ELPs collateral?
• A. The burnt copier.
• The insurance paid.
• Nothing.

• 9-102(a)(64) Proceeds means the following
  property
• (E) to the extent of the value of collateral
  and to the extent payable to the debtor or the
  secured party, insurance payable by reason of the
  loss or damage to the collateral.

22
Problem 10.5.

• Insurance check was made out to Golan. Golan
  added it to account with 5,000. What is ELPs
  collateral?
• A. The burnt copier.
• 5,000 in the bank account.
• 35,000 in the bank account
• 40,000 in the bank account.

9-315(b)(2) - if proceeds not goods,
identifiable to extent secured party identifies
by tracing on equitable principles. Comment 3
Equitable principles include lowest intermediate
balance rule.
23
Problem 10.5.

• Wrote 2,000 check for rent, leaving 38,000
  balance in the account?
• A. The burnt copier.
• 33,000 in the bank account.
• 35,000 in the bank account.
• 38,000 in the bank account.

XT-100 Copier XEX30
Insurance payable
Bank account
Check
24
Problem 10.5.

• Wrote 32,000 check to the IRS, leaving a 6,000
  balance. What is ELPs collateral?
• A. 6,000 in the bank account.
• 6,000 in the bank account and 29,000 at the
  IRS.

9-315(b) if proceeds not goods, identifiable to
extent secured party identifies by tracing on
equitable principles. 9-332 A transferee of
money takes the money free of a security
interest, unless the transferee act in collusion.
25
Problem 10.6.

• It turns out that the 32,000 was used to
  purchase a new copier, leaving a 6,000 balance.
  What is ELPs collateral?
• A. 6,000 in the bank account.
• 6,000 in the bank account, and the new
  copier.
• 3,000 of the bank account, and the new copier.
• 6,000 of the bank account, and 29,000 of the
  new copier