Proceeds

     Article 9 provides that a security interest attaches to any  identifiable proceeds of the collateral. U.C.C. 9-315 (a)(2).  Proceeds are defined in U.C.C. 9-102(a)(64).  Attachment of an Article 9 security interest to proceeds is automatic; a security agreement need not provide that the security interest continues in proceeds. 

     We explore the non-bankruptcy operation of this protection in two examples. In Chrysler Credit Corp. v. Superior Court a secured party with a security interest in the inventory (automobiles) of an automobile dealer sought to claim funds (proceeds) received by the dealer upon the sale of automobiles, because the security interest in the automobiles was extinguished by the sale (see U.C.C. 9-320(a)).  In Problem.Proceeds a secured party with a security interest in the equipment of a farmer seeks to claim funds traceable to the farmer's trade-in of one piece of equipment.  While the security interest continues in the equipment notwithstanding its trade-in (see U.C.C. 9-315(a)(1)) (unlike the security interest in the automobiles in Chrysler Credit), the equipment may be difficult or expensive to locate, may be impractical or expensive to repossess, or may have depreciated significantly or been damaged or destroyed.

     In bankruptcy, the capture of proceeds by the security interest has an additional significant consequence.  Under section 552 of the Bankruptcy Code, a security interest extends to proceeds acquired by the debtor's bankruptcy estate after the commencement of a bankruptcy case except to the extent that a bankruptcy court orders otherwise.  In contrast, under that section, a security interest does not extend to property other than proceeds acquired by the debtor's bankruptcy estate after commencement of the bankruptcy case even though the security agreement contains an after-acquired property clause.   The definition of proceeds in Revised Article 9 (U.C.C. 9-102(a)(64)), expanded considerably beyond the definition of proceeds in former Article 9 (former U.C.C. 9-306(1)), thus increases significantly the rights of the secured creditor in bankruptcy by amendment to state law.  Nothing in the Official Comments to Revised Article 9 alludes to this significant consequence of the expanded definition of proceeds.  Professor Ray Warner criticizes this and other changes to bankruptcy law through the non-federal uniform law adoption process in G. Ray Warner, The Anti-Bankruptcy Act: Revised Article 9 and Bankruptcy, 9 Amer. Bankr. Inst. L. Rev. 3, 54 (2001).