Attachment Flashcards
True or false: for a secured party to have a valid interest in the collateral, it must first attach.
True
What is attachment?
Linking debt to particular piece of collateral
Gives the lender rights to sue the debtor and seize the property if the debtor defaults
Name the three elements for attachment
- Value by secured party
- Rights in collateral
- Security Agreement: authenticated or unauthenticated
Violet Roses Smell Amazing
True or false: value can be given by providing the same consideration needed for a K
True. No new value is required (pre-existing duty rule doesn’t apply)
True or false: security interests can attach to after-acquired property, but the attachment does not occur until the debtor obtains rights in the collateral
True.
What is required for an authenticated security agreement?
- Recorded
- Authenticated by debtor
- Describe the collateral
True or false: Possession or control are not sufficient for an agreement in attachment
False. A secured party’s possession or control of the collateral pursuant to a security agreement suffices for attachment (unauthenticated)
BUT attachment by possession or control MUST be pursuant to an oral or unauthenticated security agreement
Name the rights and duties of the secured party in possession of collateral
- act with reasonable care with respect to collateral
- keep collateral identifiable
- relinquish collateral once obligation is satisfied
- may charge debtor for reasonable expenses for storing/maintaining collateral
True or false: If there is no reference to after-acquired property, the security interest only attaches to the collateral that existed at the time that the security agreement was exceuted
True. EXCEPT an after-acquired provision may be implied by courts if the agreement describes inventory or accounts
Ex: inventory at a grocery store with a limited shelf life
Define accessions of goods
Goods that are physically united with other goods so that the identity of the original goods is not lost.
If collateral becomes accession, a security interest in that collateral is not lost, the security continues in accession.
Debtor signed a valid security agreement granting a finance company a security interest in 25 of the debtor’s “delivery trucks” and “any accessories now or hereafter installed.” The debtor installed hands-free GPS devices on the trucks after the agreement was formed.
Does the finance company have a security interest in the GPS devices on the trucks?
Yes, the terms of the security agreement determined that the lender had a security interest in the property with which the accession is united.
True or false: A security interest continues once the original goods have been commingled.
False. If commingling has occurred, the security interest will attach to the larger product or mass that results.
What is the attachment rule for proceeds?
If a security interest attaches to the original collateral, it also attaches to the proceeds automatically.
Note: whether or not the security interest states that it covers proceeds is immaterial
Define Purchase Money Security Interest (PMSI)
PMSI = Special type of security interest, only if the collateral is goods or software
- Value given allows debtor to acquire the goods/software
- Goods or software acquired secure the loan
What is the difference between Lender PMSI and Seller PMSI
Lender: lender loans to debtor so debtor can acquire goods
+ value actually used
+ lender takes security interest in those same goods for loan
Seller: goods bought on credit
