Basic Uniform Commercial Code

Proceeds

Proceeds are what arise out of the disposition of property. The definition is meant to be broad.

To have a claim the proceeds from the sale of collateral, you have to have had an interest in the collateral and then be able to identify (prove) the proceeds. You don't have to specifically contract for proceeds anymore. You stay attached. UCC § 9-203, UCC § 9-315.

You are perfected in proceeds if you are perfected in the original property. UCC § 9-315(c). It will then become unperfected in 21 days unless it is cash proceeds or unless, like in a trade-in, a financial statement has been filed (then it lasts as long as the filing statement). UCC § 9-315(d)–(e).

If more than one claimant exists, you must have priority.

If proceeds are comingled with nonproceeds, the proceeds must be identified with the lowest intermediate balance test.

Lowest Intermediate Balance Test

The lowest intermediate balance test identifies proceeds out of commingled funds. It comprises three assumptions:

  • Funds withdrawn from a commingled account will first deplete nonproceeds.
  • Proceeds are deemed to be withdrawn only if no nonproceeds remain in the account.
  • Subsequent deposits of nonproceeds do not replenish proceeds.

I.e., the proceeds remaining in a commingled account are the lowest the account got after getting those proceeds.