Proceeds

Question 1

PROCEEDS

Answer 1

As mentioned, a security interest in collateral automatically attaches to identifiable proceeds of the collateral. Proceeds include whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds. Proceeds include second generation proceeds. Insurance payable by reason of loss or damage to the collateral is a proceed, unless it is payable to someone other than the debtor or secured party. Claims arising out of the loss of, defects in, or damage to collateral also are proceeds.

Question 2

Commingled Cash Proceeds—Lowest Intermediate
Balance Rule Applies

Answer 2

In the case of commingled cash proceeds (for example, in a bank account), the identifiable proceeds can be traced using the lowest intermediate balance rule. Under that rule, you will look at the bank account starting at the time the proceeds are deposited and ending at the time you are applying the rule. The lowest balance during that time period is the secured party’s identifiable proceeds (