| | | 3. Consequences of Becoming "Commingled Goods." By | | definition, the identity of the original collateral cannot be | | determined once the original collateral becomes commingled goods. | | Consequently, the security interest in the specific original | | collateral alone is lost once the collateral becomes commingled | | goods, and no security interest in the original collateral can be | | created thereafter except as a part of the resulting product or | | mass. See subsection (b) [Maine cite subsection (2)]. |
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| | | Once collateral becomes commingled goods, the secured party's | | security interest is transferred from the original collateral to | | the product or mass. See subsection (c) [Maine cite subsection | | (3)]. If the security interest in the original collateral was | | perfected, the security interest in the product or mass is a | | perfected security interest. See subsection (d) [Maine cite | | subsection (4)]. This perfection continues until lapse. |
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| | | 4. Priority of Perfected Security Interests That Attach Under | | This Section. This section governs the priority of competing | | security interests in a product or mass only when both security | | interests arise under this section. In that case, if both | | security interests are perfected by operation of this section | | (see subsections (c) and (d) [Maine cite subsections (3) and | | (4)]), then the security interests rank equally, in proportion to | | the value of the collateral at the time it became commingled | | goods. See subsection (f)(2) [Maine cite subsection (6), | | paragraph (b)]. |
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| | | Example 1: SP-1 has a perfected security interest in Debtor's | | eggs, which have a value of $300 and secure a debt of $400, and | | SP-2 has a perfected security interest in Debtor's flour, which | | has a value of $500 and secures a debt of $600. Debtor uses the | | flour and eggs to make cakes, which have a value of $1000. The | | two security interests rank equally and share in the ratio of | | 3:5. Applying this ratio to the entire value of the product, SP- | | 1 would be entitled to $375 (i.e., 3/8 x $1000), and SP-2 would | | be entitled to $625 (i.e., 5/8 x $1000). |
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| | | Example 2: Assume the facts of Example 1, except that SP-1's | | collateral, worth $300, secures a debt of $200. Recall that, if | | the cake is worth $1000, then applying the ratio of 3:5 would | | entitle SP-1 to $375 and SP-2 to $625. However, SP-1 is not | | entitled to collect from the product more than it is owed. | | Accordingly, SP-1's share would be only $200, SP-2 would receive | | the remaining value, up to the amount it is owed ($600). |
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| | | Example 3: Assume that the cakes in the previous examples | | have a value of only $600. Again, the parties share in the ratio | | of 3:5. If, as in Example 1, SP-1 is owed $400, then SP-1 is |
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