16 CREATION OF SECURITY INTERESTS - Proceeds, Products, and Other Value-Tracing Concepts Flashcards

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1
Q

What are the primary collateral categories?

A
  • Proceeds;
  • Accounts;
  • Deposit accounts;
  • After Acquired Property.
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2
Q

What are the rights in collateral with respect to proceeds?

A

Proceeds are broadly defined as things exchanged for or arising out of collateral:

  • Automatically included (doesn’t need to be in the S.A.)
  • Products and offspring tend to fit into proceeds definition
  • Included proceeds of proceeds, so long as it remains traceable
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3
Q

What are the rights in collateral with respect to accounts?

A

“Accounts” mean a right to payment of a monetary obligation for goods sold or services rendered

• Non-monetary payment is only an account when it is a replacement for money where the original agreement specified monetary payment

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4
Q

What are the rights in collateral with respect to “after acquired property?

A

After Acquired Property – property which fits a collateral category but is acquired after creation of the security interest
• Pairs with ‘equipment’ and ‘inventory’ collateral to ensure future property is included when old equipment is replaced
• While future property acquired using proceeds will be covered by the security agreement, evidentiary issues make including “after acquired property” easier to get it

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5
Q

What is the Lowest Intermediate Balance Rule?

A

Lowest Intermediate Balance Rule: Where proceeds are comingled with non-proceeds in an account, this rule determines what value in the account is proceeds
• Rule: Account holder spends non-proceeds first whenever possible
• Only when non-proceeds are exhausted do withdraws start cutting into proceeds, and once cut into the amount of proceeds in the account cannot expand

Think LIFO

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