CO Code § 4-9-315 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 9 - Secured Transactions|Part 3 - Perfection and Priority|§ 4-9-315. Secured Party's Rights on Disposition of Collateral and in Proceeds

  Except as otherwise provided in this article and in section 4-2-403 (2):   A security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured party authorized the disposition free of the security interest or agricultural lien; and    A security interest attaches to any identifiable proceeds of collateral.       Proceeds that are commingled with other property are identifiable proceeds:   If the proceeds are goods, to the extent provided by section 4-9-336; and    If the proceeds are not goods, to the extent that the secured party identifies the proceeds by a method of tracing, including application of equitable principles, that is permitted under law other than this article with respect to commingled property of the type involved.       A security interest in proceeds is a perfected security interest if the security interest in the original collateral was perfected.    A perfected security interest in proceeds becomes unperfected on the twenty-first day after the security interest attaches to the proceeds unless:   The following conditions are satisfied:   A filed financing statement covers the original collateral;    The proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement has been filed; and    The proceeds are not acquired with cash proceeds;       The proceeds are identifiable cash proceeds; or    The security interest in the proceeds is perfected other than under subsection (c) of this section when the security interest attaches to the proceeds or within twenty days thereafter.       If a filed financing statement covers the original collateral, a security interest in proceeds which remains perfected under paragraph (1) of subsection (d) of this section becomes unperfected at the later of:   When the effectiveness of the filed financing statement lapses under section 4-9-515 or is terminated under section 4-9-513; or    The twenty-first day after the security interest attaches to the proceeds.        History. Source: L. 2001: Entire article R&RE, p. 1353, § 1, effective July 1.    Editor's note:   This section is similar to former § 4-9-306 as it existed prior to 2001.   OFFICIAL COMMENT   1. Source. Former Section 9-306.   2. Continuation of Security Interest or Agricultural Lien Following Disposition of Collateral. Subsection (a)(1), which derives from former Section 9-306(2), contains the general rule that a security interest survives disposition of the collateral. In these cases, the secured party may repossess the collateral from the transferee or, in an appropriate case, maintain an action for conversion. The secured party may claim both any proceeds and the original collateral but, of course, may have only one satisfaction.   In many cases, a purchaser or other transferee of collateral will take free of a security interest, and the secured party's only right will be to proceeds. For example, the general rule does not apply, and a security interest does not continue in collateral, if the secured party authorized the disposition, in the agreement that contains the security agreement or otherwise. Subsection (a)(1) adopts the view of PEB Commentary No. 3 and makes explicit that the authorized disposition to which it refers is an authorized disposition “free of” the security interest or agricultural lien. The secured party's right to proceeds under this section or under the express terms of an agreement does not in itself constitute an authorization of disposition. The change in language from former Section 9-306(2) is not intended to address the frequently litigated situation in which the effectiveness of the secured party's consent to a disposition is conditioned upon the secured party's receipt of the proceeds. In that situation, subsection (a) leaves the determination of authorization to the courts, as under former Article 9.   This Article contains several provisions under which a transferee takes free of a security interest or agricultural lien. For example, Section 9-317 states when transferees take free of unperfected security interests; Sections 9-320 and 9-321 on goods, 9-321 on general intangibles, 9-330 on chattel paper and instruments, and 9-331 on negotiable instruments, negotiable documents, and securities state when purchasers of such collateral take free of a security interest, even though perfected and even though the disposition was not authorized. Section 9-332 enables most transferees (including non-purchasers) of funds from a deposit account and most transferees of money to take free of a perfected security interest in the deposit account or money.   Likewise, the general rule that a security interest survives disposition does not apply if the secured party entrusts goods collateral to a merchant who deals in goods of that kind and the merchant sells the collateral to a buyer in ordinary course of business. Section 2-403(2) gives the merchant the power to transfer all the secured party's rights to the buyer, even if the sale is wrongful as against the secured party. Thus, under subsection (a)(1), an entrusting secured party runs the same risk as any other entruster.   3. Secured Party's Right to Identifiable Proceeds. Under subsection (a)(2), which derives from former Section 9-306(2), a security interest attaches to any identifiable “proceeds,” as defined in Section 9-102. See also Section 9-203(f). Subsection (b) is new. It indicates when proceeds commingled with other property are identifiable proceeds and permits the use of whatever methods of tracing other law permits with respect to the type of property involved. Among the “equitable principles” whose use other law may permit is the “lowest intermediate balance rule.” See Restatement (2d), Trusts § 202.   4. Automatic Perfection in Proceeds: General Rule. Under subsection (c), a security interest in proceeds is a perfected security interest if the security interest in the original collateral was perfected. This Article extends the period of automatic perfection in proceeds from 10 days to 20 days. Generally, a security interest in proceeds becomes unperfected on the 21st day after the security interest attaches to the proceeds. See subsection (d). The loss of perfected status under subsection (d) is prospective only. Compare, e.g., Section 9-515(c) (deeming security interest unperfected retroactively).   5. Automatic Perfection in Proceeds: Proceeds Acquired with Cash Proceeds. Subsection (d)(1) derives from former Section 9-306(3)(a). It carries forward the basic rule that a security interest in proceeds remains perfected beyond the period of automatic perfection if a filed financing statement covers the original collateral (e.g., inventory) and the proceeds are collateral in which a security interest may be perfected by filing in the office where the financing statement has been filed (e.g., equipment). A different rule applies if the proceeds are acquired with cash proceeds, as is the case if the original collateral (inventory) is sold for cash (cash proceeds) that is used to purchase equipment (proceeds). Under these circumstances, the security interest in the equipment proceeds remains perfected only if the description in the filed financing indicates the type of property constituting the proceeds (e.g., “equipment”).   This section reaches the same result but takes a different approach. It recognizes that the treatment of proceeds acquired with cash proceeds under former Section 9-306(3)(a) essentially was superfluous. In the example, had the filing covered “equipment” as well as “inventory,” the security interest in the proceeds would have been perfected under the usual rules governing after-acquired equipment (see former Sections 9-302, 9-303); paragraph (3)(a) added only an exception to the general rule. Subsection (d)(1)(C) of this section takes a more direct approach. It makes the general rule of continued perfection inapplicable to proceeds acquired with cash proceeds, leaving perfection of a security interest in those proceeds to the generally applicable perfection rules under subsection (d)(3).   Example 1: Lender perfects a security interest in Debtor's inventory by filing a financing statement covering “inventory.” Debtor sells the inventory and deposits the buyer's check into a deposit account. Debtor draws a check on the deposit account and uses it to pay for equipment. Under the “lowest intermediate balance rule,” which is a permitted method of tracing in the relevant jurisdiction, see Comment 3, the funds used to pay for the equipment were identifiable proceeds of the inventory. Because the proceeds (equipment) were acquired with cash proceeds (deposit account), subsection (d)(1) does not extend perfection beyond the 20-day automatic period.   Example 2: Lender perfects a security interest in Debtor's inventory by filing a financing statement covering “all debtor's property.” As in Example 1, Debtor sells the inventory, deposits the buyer's check into a deposit account, draws a check on the deposit account, and uses the check to pay for equipment. Under the “lowest intermediate balance rule,” which is a permitted method of tracing in the relevant jurisdiction, see Comment 3, the funds used to pay for the equipment were identifiable proceeds of the inventory. Because the proceeds (equipment) were acquired with cash proceeds (deposit account), subsection (d)(1) does not extend perfection beyond the 20-day automatic period. However, because the financing statement is sufficient to perfect a security interest in debtor's equipment, under subsection (d)(3) the security interest in the equipment proceeds remains perfected beyond the 20-day period.   6. Automatic Perfection in Proceeds: Lapse or Termination of Financing Statement During 20-Day Period; Perfection Under Other Statute or Treaty. Subsection (e) provides that a security interest in proceeds perfected under subsection (d)(1) ceases to be perfected when the financing statement covering the original collateral lapses or is terminated. If the lapse or termination occurs before the 21st day after the security interest attaches, however, the security interest in the proceeds remains perfected until the 21st day. Section 9-311(b) provides that compliance with the perfection requirements of a statute or treaty described in Section 9-311(a) “is equivalent to the filing of a financing statement.” It follows that collateral subject to a security interest perfected by such compliance under Section 9-311(b) is covered by a “filed financing statement” within the meaning of Section 9-315(d) and (e).   7. Automatic Perfection in Proceeds: Continuation of Perfection in Cash Proceeds. Former Section 9-306(3)(b) provided that if a filed financing statement covered original collateral, a security interest in identifiable cash proceeds of the collateral remained perfected beyond the ten-day period of automatic perfection. Former Section 9-306(3)(c) contained a similar rule with respect to identifiable cash proceeds of investment property. Subsection (d)(2) extends the benefits of former Sections 9-306(3)(b) and (3)(c) to identifiable cash proceeds of all types of original collateral in which a security interest is perfected by any method. Under subsection (d)(2), if the security interest in the original collateral was perfected, a security interest in identifiable cash proceeds will remain perfected indefinitely, regardless of whether the security interest in the original collateral remains perfected. In many cases, however, a purchaser or other transferee of the cash proceeds will take free of the perfected security interest. See, e.g., Sections 9-330(d) (purchaser of check), 9-331 (holder in due course of check), 9-332 (transferee of money or funds from a deposit account).   8. Insolvency Proceedings; Returned and Repossessed Goods. This Article deletes former Section 9-306(4), which dealt with proceeds in insolvency proceedings. Except as otherwise provided by the Bankruptcy Code, the debtor's entering into bankruptcy does not affect a secured party's right to proceeds.   This Article also deletes former Section 9-306(5), which dealt with returned and repossessed goods. Section 9-330, Comments 9 to 11 explain and clarify the application of priority rules to returned and repossessed goods as proceeds of chattel paper.   9. Proceeds of Collateral Subject to Agricultural Lien. This Article does not determine whether a lien extends to proceeds of farm products encumbered by an agricultural lien. If, however, the proceeds are themselves farm products on which an “agricultural lien” (defined in Section 9-102) arises under other law, then the agricultural-lien provisions of this Article apply to the agricultural lien on the proceeds in the same way in which they would apply had the farm products not been proceeds.   ANNOTATION   Law reviews. For article, "Buyer-Secured Party Conflicts Under Section 9-307(1) of the Uniform Commercial Code", see 46 U. Colo. L. Rev. 333 (1974-75). For article, “Commercial Law”, see 58 Den. L.J. 279 . For article, “Secured Transactions — Part I: Attachment, Perfection and Priorities”, see 11 Colo. Law. 2939 (1982). For article, “Commercial and Corporate Law”, which discusses a Tenth Circuit decision dealing with perfection in proceeds in event of insolvency proceedings, see 65 Den. U. L. Rev. 469 (1988). For article, “Setoff and Security Interests In Deposit Accounts”, see 17 Colo. Law. 2108 (1988).   Annotator's note. Since § 4-9-315 is similar to § 4-9-306 as it existed prior to the 2001 repeal and reenactment of this article, relevant cases construing that provision have been included in the annotations to this section.   This section and § 4-9-311 must be read together. Section 4-9-311 does not invalidate the prior security interest under subsection (2). Am. Heritage Bank & Trust Co. v. O. & E., Inc., 40 Colo. App. 306, 576 P.2d 566 (1978).   For the inconsistency between § 4-9-203 and this section on subject of proceeds, see Fort Collins Prod. Credit Ass'n v. Carroll Dairy, 37 Colo. App. 536, 553 P.2d 95 (1976) (decided prior to the 1977 amendment of this section and § 4-9-203 ).   A secured party may bring a claim for conversion against a party who wrongfully obtained and sold property in which the secured party has a security interest if the secured party's interest has priority over the seller's interest. Former TCHR, LLC v. First Hand Mgmt., 2012 COA 129 , 317 P.3d 1226.   Nothing in the language of subsection (1) requires that the disposition of collateral must be final in order to generate proceeds. In re Clancy & Co. Const., Inc., 214 B.R. 387 (Bankr. D. Colo. 1997 ).   Effect of failure to use word “proceeds” in security agreement. Even absent use of the specific word “proceeds” in a security agreement, the lender continues, under the uniform commercial code, to have a secured interest in money received from the sale of personalty covered specifically in the agreement. Fort Collins Prod. Credit Ass'n v. Carroll Dairy, 37 Colo. App. 536, 553 P.2d 95 (1976).   Cattle which eat feed in which there is a security interest do not constitute proceeds of the collateral by application of this section. First Nat'l Bank v. Bostron, 39 Colo. App. 107, 564 P.2d 964 (1977).   There could be no traceable “proceeds” to which a security interest in cattle feed may be said to have attached when the cattle have consumed the feed, and therefore such a security interest could not survive consumption of the feed by the cattle. First Nat'l Bank v. Bostron, 37 Colo. App. 107, 564 P.2d 964 (1977).   Wool incentive payments are “proceeds” of the wool. In re Mahleres, 53 B.R. 86 (Bankr. D. Colo. 1985 ).   Satisfaction of judgment constituted only “identifiable proceeds in the hands of the debtor”, when the debtor paid to judgment creditor the cash proceeds of sale of equipment in which bank held security interest, and thus bank in enforcing its security interest in identifiable proceeds of sale was not entitled to recover from judgment creditor the amount paid by debtor. First Interstate Bank v. Arizona Agrochemical, 731 P.2d 746 (Colo. App. 1986).   Implied authorization for sale or other disposition of collateral must be determined based upon the circumstances of the parties, the nature of the collateral, the course of dealing of the parties, and the usage of trade. Platte Valley Bank v. B & J Constr., Inc., 44 Colo. App. 21, 606 P.2d 455 (1980); Mid-States Sales Co. v. Mtn. Empire Dairymen's Ass'n, 741 P.2d 342 (Colo. App. 1987); Morgan County Feeders, Inc. v. McCormick, 836 P.2d 1051 (Colo. App. 1992).   Existence of implied authorization is a factual determination. Morgan County Feeders, Inc. v. McCormick, 836 P.2d 1051 (Colo. App. 1992).   Bank's interest in collateral is not terminated by failure to participate in garnishment action, and its security interest follows the collateral. El Paso County Bank v. Charles R. Milisen & Co., 622 P.2d 594 (Colo. App. 1980).   Bank lost lien on corn by consenting to sale. Where lending bank, which held a security interest in the corn crop grown by a borrowing farmer, consented to the sale of the crop, the bank lost its lien on the corn. Farmers Nat'l Bank v. Ceres Land Co., 32 Colo. App. 290, 512 P.2d 1174 (1973).   Subsection (4)(d) replaces the common law rules of tracing in the context of insolvency proceedings. In re Intermountain Porta Storage, Inc., 74 B.R. 1011 (Bankr. D. Colo. 1987 ).   Creditor does not waive its security interest in dairy cattle by authorizing the sale of milk, but did waive its security interest to the extent it allowed distribution of the proceeds from the sale to other creditors during the customary course of dealing between the parties. Mid-States Sales v. Mt. Empire Dairymen's, 741 P.2d 342 (Colo. App. 1987).   Livestock broker engaged in conversion when it sold borrowers' cattle, which was subject to a security interest, and remitted proceeds to borrowers. Ignorance of the security interest was no defense. United States v. Winter Livestock Comm'n, 924 F.2d 986 (10th Cir. 1991).   The 10-day automatic perfection period provided by this section is not extended in the event insolvency proceedings are commenced. Following expiration of the 10-day period of automatic perfection, the mortgage financier became a general unsecured creditor of the debtor. In re Reliance Equities, Inc. 966 F.2d 1338 (10th Cir. 1992).   One cannot perfect a security interest in proceeds if the security interest in the original collateral was not perfected. Subsection (3) must be read in context of the entire section and addresses the means to perfect an interest in proceeds beyond the 10-day period, when the previously perfected interest ceases to be perfected under this section. In re Carpenter & McAleer Assocs., 815 F. Supp. 384 (D. Colo. 1993 ).   Since security interest in original collateral was perfected by possession, even if only for a short period of time, the security interest in the identifiable cash proceeds thereof is perfected indefinitely under this section. Expeditors Int'l of Wash., Inc. v. Liquidating Trust, 313 B.R. 473 (Bankr. D. Colo. 2004 ).   Pursuant to § 42-6-120 , this section applies to a security interest in a motor vehicle held in inventory, notwithstanding the requirement in § 42-6-109 , that the certificate of title is required to transfer an interest in a motor vehicle. Although a bank had a perfected security interest in an auto dealer's inventory, the interest was extinguished upon sale of the vehicle because the bank authorized the sale of the inventory. Under this section, the bank is left with a security interest only in the proceeds of the sale. Therefore, a credit union that financed the purchase of the vehicle from the dealer has a security interest that prevails against the bank, even though the certificate of title was not conveyed to the credit union at the time of sale. Valley Bank & Trust Co. v. Holyoke Cmty. Fed. Credit Union, 121 P.3d 358 (Colo. App. 2005).   Applied in Chambers v. Nation, 178 Colo. 124 , 497 P.2d 5 (1972); Western Nat'l Bank v. ABC Drilling Co., 42 Colo. App. 407, 599 P.2d 942 (1979); Layne v. Fort Carson Nat'l Bank, 655 P.2d 856 (Colo. App. 1982).