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Home > Journals > Michigan Law Review > MLR > Volume 66 > Issue 3 (1968)

 

Abstract

Section 9-306 gives the inventory financer a "continuously perfected" security interest in the proceeds of the inventory if the security interest in the original collateral was perfected. "Proceeds" is defined as including "whatever is received when collateral or proceeds is sold, exchanged, collected or otherwise disposed of." Thus, the inventory financer may have a security interest in the proceeds of the original collateral or the proceeds of the proceeds. The security interest in the proceeds may be perfected in either of two ways: (1) under section 9-306(3)(a) the security interest is perfected by filing a financing statement that expressly covers both the original collateral and the proceeds; (2) under section 9-306(3)(b) the security interest in proceeds is perfected by filing a new financing statement within ten days after the debtor has received the proceeds.

The ease of perfecting a security interest in proceeds, however, increases the possibility of conflicting security interests in collateral in a number of situations in which at least one of the secured parties claims the collateral as proceeds. For example, the inventory financer may have an interest in proceeds consisting of documents, instruments, or chattel paper which conflicts with a claim by one who has purchased the paper or documents. Second, there may be two inventory financers claiming the proceeds. Third, the proceeds may be in the form of accounts, in which case both an inventory financer and an accounts financer could have a claim. It is the purpose of this Comment to discuss the problems created by these conflicts, to evaluate the solutions offered by the Code, and to recommend appropriate alterations where the Code scheme is inadequate.

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