it imposed the burden upon accounts receivable or inventory
financiers to police proceeds or risk the invalidation of their
The authorities cited by NAC and the Trustee in support of that
portion of the Referee's order limiting the priority of Breece
only to a percentage of the specific accounts assigned to Breece
are not applicable to the facts of this case. In re Forney,
299 F.2d 503 (7th Cir. 1962); Clovis National Bank v. Thomas, 77 N.M. 554,
425 P.2d 726 (1967); and First National Bank and Trust Co.
of Oklahoma City v. Stock Yards Loan Co., 65 F.2d 226 (8th Cir.
In re Forney was decided in 1962 and did not purport to look to
the Uniform Commercial Code. If its holding were applied after
adoption of the Uniform Commercial Code, then its effect would be
to deny an inventory financier a right to proceeds of sales since
such sale would be in the ordinary and usual course of business
and with consent whether expressed or implied.
Section 9-306(2) of the Code expressly reserves the right to
proceeds notwithstanding authorization to sell the primary
collateral. Whether the sale was authorized is made determinative
only of the secured party's right to follow the collateral after
sale affecting his priorities as against the purchaser but in no
manner affects his interest in the retained proceeds as against
competing creditors. This construction of the statutory provision
is emphasized in the Official Code Comment upon that provision.
See UCC, Official Code Comment § 9-306(2) at par. 2.
The Stock Yards Loan Company case is less in point since that
case dealt only with the interest of a secured party in the
collateral which was actually sold. The right of the secured
party to the proceeds which the debtor received in exchange of
the sale was not even questioned. The same is true of the Clovis
As previously discussed, the uniform Commercial Code is
explicit in preserving the priority of the secured party to the
proceeds notwithstanding his consent to the sale of the primary
collateral and further notwithstanding his consent to the
debtor's unrestricted use and disposition of these proceeds so
long as they remain identifiable. See UCC §§ 9-306, 9-205 and the
Official Code Comments upon these sections.
Authorization to sell collateral at best affects the secured
party's rights against the subsequent purchaser but not as
against the creditor.
Accordingly I find and conclude that the order of the Referee
restricting the priority of Breece's secured claim to $14,265.05
is clearly erroneous. If the priority position of Breece is
recognized, it must be given effect to its entire claim.
However, there does appear to be a substantial question
concerning the priority of Breece over NAC in the Ampex accounts
since that priority is predicated wholly upon the status of
Breece as a purchase money lender. Although not raised by the
parties hereto, the law is not at all clear as to whether the
priority of a purchase money lender as against a competing
inventory financier extends to proceeds of the goods to which the
purchase money security interest applies. See 2 Gilmore, Security
Interests in Personal Property § 29.5. This issue may be
considered on remand.
I should further observe that this question is being presently
considered by the review committee for Article 9 of the Uniform
Commercial Code. Under their present draft of the proposed
revisions of Article 9, the relative priorities of the secured
seller as against competing inventory or accounts receivable
financiers would be determined by Section 9-312(5) of the Code on
the basis of who was first to file. The effect of Section
9-312(3) and (4) dealing with the special priority of the
purchase money lender would thus be restricted to the
primary collateral alone. See Permanent Editorial Board for
Uniform Commercial Code, Review Committee for Article 9 of the
Uniform Commercial Code, Preliminary Draft No. 2, Feb. 1, 1970 at
pp. 30-32. Of course, this draft of the proposed revisions has
not yet been adopted nor would it necessarily have binding
If it should be determined that the purchase money priority of
Breece extends to proceeds, then Breece is clearly entitled to
recover the full amount of its indebtedness in the sum of
$40,179.55 from the Ampex account as against NAC and the Trustee.
However, if it should be determined that the purchase money
priority of Breece does not extend to proceeds, Breece's rights
against the Trustee would nevertheless remain paramount for the
full extent of its claim against the Bankrupt since it would, in
any event, have a perfected security interest as to that entire
amount which, therefore, establishes its priority over the
trustee. UCC §§ 9-301, 9-108 and 9-306. See also, In re Grain
Merchants of Indiana, 408 F.2d 209 (7th Cir. 1969). The
determination of its status as a purchase money secured party
would only affect its relative priority over NAC, its competing
secured creditor, who apparently was the first to file against
this collateral. The adjudication of the relative priorities as
between Breece and NAC will determine who as between these two
will be the first to satisfy its debt out of the Ampex fund. The
second in priority will, in any event, be fully entitled to all
of the remaining surplus.
As to the remaining issues presented by the Petitions of NAC
and the Trustee, particularly, NAC's claim for attorneys' fees
and the Trustee's claim that the amount of NAC's lien was not
correctly determined by the Referee, I find that the Findings and
Conclusions of the Referee are supported by the evidence and the
authorities and are not clearly erroneous.
This cause is hereby remanded for proceedings consistent with
this memorandum and order.