Attachment Flashcards
what does attachment refer to
• defines the creation of the SI and refers to the relationship between CREDITOR/DEBTOR
o an attached SI means that it is enforceable against D
general rule for attachment; three conditions; timing
• governing rule: a SI attaches to CL when it becomes enforceable against D with respect to the CL
o **must satisfy three conditions to be attached (i.e. enforceable):
(1) VALUE must have been given (the loan)
»> can be an immediately available line of credit or total/partial satisfaction of a prexisting claim
»> super broad, so even past consideration is sufficient!
»> technically BOTH need to give value, but the debtor’s promise to repay is implied collateral
(2) D must have RIGHTS IN THE CL (ownership or the right to extend a SI), AND
(3) D must agree that SI will attach and either:
o CL must be in SP’s possession/control (pledge), OR
»> in this case, an ORAL agreement is necessary and sufficient
o D must have signed a SECURITY AGREEMENT (SA) which describes the CL and addresses the obligation
WHENEVER THE LAST OF THESE THREE ELEMENTS IS SATISFIED, ATTACHMENT IS AUTOMATICALLY CREATED
define security agreement and three elements
• security agreement: evidences D’s PRESENT INTENT to give C a SI in the CL
o **elements (must be recorded on a TANGIBLE MEDIUM - i.e. a writing is necessary):
(1) must be authenticated (i.e. typically signed, but a liberal requirement), AND
»> unrecorded oral convos will not suffice unless SP has possession of the CL and can show that the possession is pursuant to a SA
»> for now, just think “signed writing” as required by the SOF
(2) must sufficiently describe the CL, AND
(3) must contain action language, like “I grant” or “I convey” (i.e. can’t just mention the CL)
»> D’s written authorization of the filing of a FS often comes before SA, but does not carry with it the guarantee that D intended to transfer a SI
what happens if you amend your SA to include new CL
o note: if you forget a piece of CL in your SA, you can amend, BUT that piece of CL only attaches on the date of amendment (other CL that was properly ID’d in the SA and FS will not be affected)
rules for identifying the CL in the SA and FS
general rule: must “reasonably ID” the CL (9-801)
• safe harbor descriptions: includes specific listing, category (“motor vehicles”), or type of CL defined in UCC (“equipment”) – all of these are sufficient
• prohibition against “supergeneric descriptions”: saying “all debtor assets” or “all debtor’s personalty” are insufficient IDs of CL
o instead, say “all equipment, inventory, accounts, etc.”
o **however, FS (not a SA) can get by with “all assets” or “all personalty” language (b/c think about it – SA is a contract, and the FS is simply a notice document that tells other creditors to look deeper)
• caveat to using the UCC category to describe the CL: 9-108(e)(2) says that SP cannot use the term “consumer goods” in a ST with a consumer for consumer purposes – public policy goal of protecting the consumer from losing every scrap of ppty he owns should the bank choose to interpret it that way
rule for attachment of proceeds
o rule: remember that when a SI attached to CL, it also attaches to any identifiable proceeds flowing from that CL - so if debtor can trace, it can get those proceeds
do supporting obligations attach? when?
o rule: when a SI attaches to CL, it also automatically attaches to all “supporting obligations”
o common example of a SO is a guarantee (i.e. a promise to be secondarily liable; that is, to pay the debt if the primary debtor doesn’t pay it) – so if you use an account as CL and there is a guarantee on that account (like a promise by a parent to cover kid’s debt if kid can’t pay), the SP gets that guarantee as well
