Brief Fact Summary. Oriental Rug Warehouse Club, Inc., (Petitioner), filed for bankruptcy. Yashar Rug Co., (Respondent), filed a proof of secured claim in the amount of $64,243 representing Petitioner’s outstanding balance for the purchase of rugs from Respondent. Petitioner objects.
Synopsis of Rule of Law. The secured party has the burden of establishing that something constitutes identifiable proceeds form the sale or distribution of the secured party’s collateral. To do this, the secured party must race the claimed proceeds back to the original collateral. Proceeds of the disposition of collateral are presumed to remain in a commingled account as long as the account balance is equal to or exceeds the amounts of the proceeds.
Issue. Whether Petitioner’s current inventory constitutes “proceeds from Petitioner’s sale of the consigned rugs.
Held. No. Respondent has failed to prove that that those assets constitute identifiable proceeds arising from the disposition of its original collateral.
Discussion. The burden of tracing the proceeds back to the original collateral is on Respondent. Respondent admits that it is impossible to reconstruct exactly what Petitioner did with the proceeds of the sale of Respondent’s consigned inventory. Therefore Respondent’s secured claim is disallowed.