Written by attorneys · grounded in primary & secondary sources — see below
A procedure authorized by non-Article 9 law for identifying commingled proceeds of collateral. The procedure permits a secured party to locate its interest in funds or other property that have been mixed with other assets by applying equitable principles such as the lowest-intermediate-balance rule.
Sources & Authorities
How it applies
Common Examples
2
Bank Account Tracing After Loan Payments
Atlas Funding held a perfected security interest in Meridian Finance's loan portfolio. Meridian deposited borrower payments into a single custodial account that also contained unrelated consulting fees and then repeatedly withdrew and redeposited funds. Atlas applied the lowest-intermediate-balance rule to the account statements and thereby isolated the portion of the current balance that still represented the original loan payments.
Segregated Rents in Mixed Account
Silver Agency held an assignment of rents from City of Appleton's emergency equipment. Appleton deposited a federal grant reimbursement tied to the equipment into its general operating fund that also held tax revenues. Silver Agency maintained a separate ledger showing the exact grant amount and applied an equitable tracing method permitted under state law to identify the corresponding balance still present in the fund.
Put it into practice
Test Yourself
10
Practice Questions5
· 2 primary sources
Select any source to read its text and confirm it supports the definition.
Uniform Acts
Hornbooks
Common questions
Frequently Asked
3
When are cash proceeds in a commingled account still identifiable?+
Cash proceeds remain identifiable to the extent the secured party can apply a tracing method permitted under other law. Courts commonly accept equitable principles such as the lowest-intermediate-balance rule when the account balance has fluctuated.
Supporting sources
Does commingling automatically destroy a security interest in proceeds?+
Commingling does not destroy the interest. The interest continues in any portion that can still be identified through an accepted tracing method even after the funds have been mixed with other money.
Supporting sources
What role do internal records play in tracing commingled proceeds?+
Contemporaneous records that document the source and amount of each deposit can support a tracing claim when they allow reliable allocation of the remaining balance. Records alone do not overcome repeated depletions below the claimed amount under the lowest-intermediate-balance rule.
Supporting sources
Secured TransactionsRights of third parties; perfected and unperfected security interests; rules of priority (§ 9-301, et seq.) · Requirement of filing and steps to be taken for perfection (§§ 9-308 through 9-316; § 9-501, et seq.); assignment of security interest (§§ 9-514, 9-519)UBEIntermediate