Attachment Flashcards

1
Q

What is attachment?

A

An arrangement linking a debt to a particular piece of collateral

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2
Q

What does it mean for a security interest to have “attached” to collateral?

A

The security interest is enforceable against the debtor

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3
Q

What are the conditions for a security interest to be enforceable against a debtor?

A
  • Value has been given by the secured party
  • The debtor has rights in the collateral
  • There is a security agreement where:
    • The agreement is authenticated and describes the collateral, or
    • The secured party has possession or control of the collateral pursuant to an oral or unauthenticated security agreement

UNLESS there is an agreement to postpone the time of attachment

Mnemonic: Violet Roses Smell Amazing

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4
Q

True or False: The secured party must give value for the security interest.

A

True

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5
Q

Can value be given by providing the same consideration needed for a contract?

A

Yes

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6
Q

Can value be a binding commitment to extend credit?

A

Yes

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7
Q

Can a security agreement provide that collateral secures future advances?

A

Yes

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8
Q

What does a security interest attach to?

A

Only the rights that the debtor has in the collateral (e.g. leasehold, joint tenancy, full ownership)

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9
Q

Can thieves grant security interests in stolen good?

A

No, they have no rights in the collateral

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10
Q

If a debtor has voidable title but could transfer full title to a good-faith purchaser for value, can the debtor create an enforceable security interest?

A

Yes

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11
Q

For after-acquired property, when does a security interest attach?

A

When the debtor obtains rights in the collateral

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12
Q

If a debtor has sold an account, does the debtor still retain “rights” in the account for attachment purposes?

A

Yes, until the purchaser perfects the security interest

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13
Q

If a consignor retains title to the consigned goods, does the consignee have rights in the consigned goods?

A

No, unless the consignment is covered by Article 9

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14
Q

With an agreement between a debtor and secured party that prohibits the transfer of the debtor’s rights, what happens after a transfer?

A

The secured party has rights against the debtor for the transfer

Note: the transfer does still take effect

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15
Q

With an agreement between a debtor and secured party that makes a transfer of the debtor’s rights a default, what happens after a transfer?

A

It might make the transfer a default

Note: It does not prevent the transfer from taking effect

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16
Q

What is required for a security agreement?

A
  • A record
  • A description of the collateral, and
  • Authentication by the debtor

Mnemonic: security agreements are RAD

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17
Q

What is required for a security agreement to be in a record?

A

Must be in a tangible medium OR a medium that can be retrieved in a perceivable form

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18
Q

What is required for a security agreement’s description of collateral?

A

Must reasonably identify the collateral

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19
Q

What is required for authentication of a security agreement?

A

The debtor must sign or execute with the present intent to adopt or accept the record

20
Q

What kind of collateral can be attached by possession?

A

Tangible (e.g. goods) or quasi-intangible (e.g. chattel paper) collateral

Tip: If you can hold it in your hands, you can attach by possession

21
Q

What kind of collateral can be attached by control?

A

Collateral that typically has no physical existence (e.g. electronic chattel paper, investment property, deposit accounts)

22
Q

What is after-acquired property?

A

Property acquired by the debtor after the security interest attaches

23
Q

In general, if a security agreement leaves out after-acquired language, is after-acquired property included?

A

No

24
Q

When might courts interpret a security agreement to implicitly include after-acquired property?

A

If it describes inventory or accounts, there is a rebuttable presumption that the description includes after-acquired inventory or accounts.

Note: Courts are split, but this is the majority approach

25
Q

A security interest _____________ attaches to identifiable proceeds.

A

automatically

26
Q

What are proceeds?

A

Whatever results when collateral is sold, leased, licensed, exchanged, or otherwise disposed of

27
Q

What are the duties of the secured party?

A
  • Duty of reasonable care of the collateral
  • Duty to keep collateral identifiable
  • Duty to relinquish possession or control of collateral once the obligation has been satisfied
28
Q

What are the rights of the secured party?

A
  • Right to charge for reasonable expenses
  • Right to use or operate collateral for preserving it
  • Right to hold proceeds, except money or funds
29
Q

Who bears the risk of loss of or damage to the collateral?

A

The debtor

30
Q

Can parties include a term in a security agreement that prohibits or otherwise restricts assignment?

A

No, such a term will be ineffective

31
Q

If a debtor assigns the right to receive payment, then the secured party may notify an account debtor to make payments to the secured party. What is required for the notification?

A
  • Authenticated by the debtor (assignor) or secured party (assignee)
  • Reasonably identifies the rights assigned
32
Q

Upon receipt of a notification that a debtor (assignor) has assigned the right to payment to a secured party (assignee), how can an account debtor discharge their obligation?

A

Only by paying the secured party (assignee)

The account debtor can also raise claims and defenses that arise from the transaction with the debtor (assignor)

33
Q

What does PMSI stand for?

A

Purchase-money security interest

34
Q

What types of collateral can qualify as a PMSI?

A
  • Goods (including fixtures)
  • Software
35
Q

What are the two components of a PMSI?

A
  1. The value given allows the debtor to acquire the goods or software, and
  2. The goods or software acquired secure the loan
36
Q

What kind of PMSI is a consignor’s security interest in consigned goods?

A

A PMSI in inventory

37
Q

If inventory subject to a PMSI secures not only its own price or enabling loan but also the price or enabling loan of another purchase-money inventory, what does the security interest cover?

A
  • The inventory at its own price, and
  • The price of the other inventory
38
Q

For non-consumer-goods transactions, can a security interest be a PMSI to some extent and a non-PMSI to some extent?

A

Yes, under the “dual status” rule

39
Q

Under the “dual status” rule, who has the burden of establishing to the extent to which a security interest is a PMSI?

A

The secured party claiming a PMSI

40
Q

Is there a “dual status” rule for consumer-goods transactions?

A

No, courts can either apply the rule or conclude there is no PMSI

41
Q

When the extent to which a security interest is a PMSI depends on the application of a payment of a particular obligation, how must the payment be applied?

A
  1. In accordance with the parties’ reasonable agreement;
  2. If there is no reasonable agreement, in accordance with the obligor’s manifestation at or before the time payment is made; or
  3. If none of the above, then:
    1. First to unsecured obligations
    2. Then to obligations secured by a PMSI in the order in which the obligations were incurred
42
Q

When does a PMSI in software exist?

A
  • The debtor acquired the interest in software in an integrated transaction where the debtor also acquired an interest in goods;
  • The debtor acquired that interest in software for the principal purpose of using the software in the goods;
  • The security interest in the software must also secure an obligation for the goods; AND
  • The secured party must hold a PMSI in the goods
43
Q

What are accessions?

A

Goods that are physically united with other goods so that the identity of the original goods is not lost

44
Q

If collateral becomes an accession, what happens to the security interest?

A

It continues in the accession (not lost)

45
Q

What are commingled goods?

A

Goods that are physically united with other goods to the point that their identity is lost in a product or mass

46
Q

If collateral becomes commingled, what happens to the security interest?

A

It attaches to the larger product or mass that results