8. Priority in Proceeds of Chattel Paper. Subsection (c) [Maine cite subsection (3)] sets forth the two circumstances under which the priority afforded to a purchaser of chattel paper under subsection (a) or (b) [Maine cite subsection (1) or (2)] extends also to proceeds of the chattel paper. The first is if the purchaser would have priority under the normal priority rules applicable to proceeds. The second, which the following Comments discuss in greater detail, is if the proceeds consist of the specific goods covered by the chattel paper. Former Article 9 generally was silent as to the priority of a security interest in proceeds when a purchaser qualifies for priority under Section 9- 308 [Maine cite section 9-1308] (but see former Section 9- 306(5)(b), concerning returned and repossessed goods).

9. Priority in Returned and Repossessed Goods. Returned and repossessed goods may constitute proceeds of chattel paper. The following Comments explain the treatment of returned and repossessed goods as proceeds of chattel paper. The analysis is consistent with that of PEB Commentary No. 5, which these Comments replace, and is based upon the following example:

Example: SP1 has a security interest in all the inventory of a dealer in goods (Dealer); SP1's security interest is perfected by filing. Dealer sells some of its inventory to a buyer in the ordinary course of business (BIOCOB) pursuant to a conditional sales contract (chattel paper) that does not indicate that it has been assigned to SP-1. SP2 purchases the chattel paper from Dealer and takes possession of the paper in good faith, in the ordinary course of business, and without knowledge that the purchase violates the rights of SP1. Subsequently, BIOCOB returns the goods to Dealer because they are defective. Alternatively, Dealer acquires possession of the goods following BIOCOB's default.

10. Assignment of Non-Lease Chattel Paper.

a. Loan by SP2 to Dealer Secured by Chattel Paper (or Functional Equivalent Pursuant to Recourse Arrangement).

(1) Returned Goods. If BIOCOB returns the goods to Dealer for repairs, Dealer is merely a bailee and acquires thereby no meaningful rights in the goods to which SP1's security interest could attach. (Although SP1's security interest could attach to Dealer's interest as a bailee, that interest is not likely to be of any particular value to SP1.) Dealer is the owner of the chattel paper (i.e., the owner of a right to