| | | access to the deposit account upon the debtor's default (i.e., | | control). Those secured parties for whom the deposit account is | | less essential will not take control, thereby running the risk | | that the debtor will dispose of funds on deposit (either outright | | or for collateral purposes) after default but before the account | | can be frozen by court order or the secured party can obtain | | control. |
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| | | Paragraph (2) [Maine cite subsection (2)]governs the case | | (expected to be very rare) in which a bank enters into a Section | | 9-104(a)(2) [Maine cite section 9-1104, subsection (1), paragraph | | (b)] control agreement with more than one secured party. It | | provides that the security interests rank according to time of | | obtaining control. If the bank is solvent and the control | | agreements are well drafted, the bank will be liable to each | | secured party, and the priority rule will have no practical | | effect. |
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| | | 4. Priority of Bank. Under paragraph (3) [Maine cite | | subsection (3)], the security interest of the bank with which the | | deposit account is maintained normally takes priority over all | | other conflicting security interests in the deposit account, | | regardless of whether the deposit account constitutes the | | competing secured party's original collateral or its proceeds. A | | rule of this kind enables banks to extend credit to their | | depositors without the need to examine either the public record | | or their own records to determine whether another party might | | have a security interest in the deposit account. |
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| | | A secured party who takes a security interest in the deposit | | account as original collateral can protect itself against the | | results of this rule in one of two ways. It can take control of | | the deposit account by becoming the bank's customer. Under | | paragraph (4) [Maine cite subsection (4)], this arrangement | | operates to subordinate the bank's security interest. | | Alternatively, the secured party can obtain a subordination | | agreement from the bank. See Section 9-339 [Maine cite section | | 9-1339]. |
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| | | A secured party who claims the deposit account as proceeds of | | other collateral can reduce the risk of becoming junior by | | obtaining the debtor's agreement to deposit proceeds into a | | specific cash-collateral account and obtaining the agreement of | | that bank to subordinate all its claims to those of the secured | | party. But if the debtor violates its agreement and deposits | | funds into a deposit account other than the cash-collateral | | account, the secured party risks being subordinated. |
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| | | 5. Priority in Proceeds of, and Funds Transferred from, | | Deposit Account. The priority afforded by this section does not |
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