Attachment

Question 1

What is attachment and what is its effect?

Answer 1

Attachment is an arrangement linking a debt to a particular piece of collateral.

Upon attachment, a party becomes a secured party and the security interests are enforceable against the debtor’s collateral.

Question 2

What three conditions need to exist for a security interest to be enforceable against a debtor?

Answer 2

1. Value has been given by the secured party;
2. The debtor has rights in the collateral; and
3. The debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.

Question 3

What are four ways in which a secured party can give value for attachment?

Answer 3

1. Providing consideration sufficient to support a simple contract;
2. Extending credit–immediately or under a binding commitment to do so;
3. As a buyer, accepting delivery under a preexisting contract; or
4. In satisfaction of, or as security for, part or all of a preexisting claim.

Question 4

What rights does a security interest attach to?

Answer 4

Generally, a security interest attaches only to the rights that the debtor has.

After-Acquired Collateral. A security interest may apply not only to the collateral the debtor owns at the time the security is granted, but also to collateral acquired in the future if the security agreement contains an after-acquired collateral clause.

• Exception: the clause is not effective if the collateral is consumer goods, UNLESS the debtor acquires them within 10 days after the secured party gives value.

Proceeds. A security interest in collateral automatically attaches to identifiable proceeds from the sale, exchange, or other disposition of the collateral.

Accessions. A security interest that is created in collateral that becomes an accession is not lost due to the collateral becoming an accession.

Question 5

What are the requirements for a valid security agreement?

Answer 5

1. Must be in a record, such as a written or typed document;
2. Contain a description of the collateral; and
3. Be authenticated by the debtor.