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Secured Transactions > Attachment > Flashcards

Attachment Flashcards

1
Q

OVERVIEW

What is attachment?

A

Creation of an enforceable security interest (against the debtor)

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2
Q

OVERVIEW

Time of attachment

A

When the last of the three requirements occurs

can occur in any order

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3
Q

OVERVIEW

Can an agreement postpone the time of attachment?

A

Yes.

(§ 9–203. Attachment and Enforceability of Security Interest. . . . (a) A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.)

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4
Q

ATTACHMENT REQUIREMENTS

3 elements of attachment

A
  1. Value has been given
  2. The debtor has rights in the collateral
  3. EITHER
    a. The debtor has authenticated a security agreement that provides a description of the collateral OR
    b. The collateral is in the possession of the secured party pursuant to the debtor’s security agreement
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5
Q

VALUE // ATTACHMENT REQUIREMENTS

Definition

A

When rights are acquired
1. in return for
binding commitment to extend credit/immediate extension of credit
as security for, or in satisfaction (total or partial) of a preexisting claim OR
2. In return for any consideration sufficient to support a simple contract
(defined in Article 1, not article 9)

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6
Q

VALUE // ATTACHMENT REQUIREMENTS

Is past consideration sufficient to satisfy the value requirement?

A

Yes

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7
Q

VALUE // ATTACHMENT REQUIREMENTS

Is an illusory promise sufficient to satisfy the value requirement?

A

No

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8
Q

DEBTOR’S RIGHTS IN THE COLLATERAL // ATTACHMENT REQUIREMENTS

Where do issues with rights in the collateral arise?

A

Debtors that are business entities

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9
Q

DEBTOR’S RIGHTS IN THE COLLATERAL // ATTACHMENT REQUIREMENTS

Can a corporation grant a security interest in assets belonging to one of its wholly-owned subsidiaries?

A

No, because corporate law treats a corporation as a separate legal entity.

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10
Q

AUTHENTICATION/WRITING // ATTACHMENT REQUIREMENTS

3 components

A
  1. Authentication
  2. Security agreement
  3. Description of collateral
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11
Q

AUTHENTICATION // AUTHENTICATION/WRITING

Definition

A
  • Writing (or record)

- Signed by the debtor (or signature alternatives)

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12
Q

SECURITY AGREEMENT // AUTHENTICATION/WRITING

Definition

A

Must have the “words of grant”
AKA magic words
AKA must be a contract that grants a security interest

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13
Q

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Sufficiency of description

A

Sufficient, whether or not it’s specific, if it REASONABLY IDENTIFIES what is describes

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14
Q

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Reasonable identification standard

A
  • General, overarching standard

- Flexible to allow courts discretion in individual cases

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15
Q

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Examples of reasonable identification

A

Specified examples of collateral descriptions that will suffice

  1. Specific listing
  2. Category
  3. UCC collateral definition
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16
Q

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Specific listing

A

listing each item of collateral

e.g. “150 Model X Whirpool Washing Machines, 25 Gold L Dryers”

17
Q

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Category

A

any kind of factual, categorical classification

e.g. “all dryers, all washing machines”

18
Q

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

UCC collateral definition

A

Type of collateral defined in the UCC
(e.g. “all inventory”)

EXCEPTION = secured party cannot use “consumer goods” in secured transaction with consumer for consumer purposes (b/c undesirable from public policy standpoint)

19
Q

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Super-generic description

A
  • Prohibited by UCC

- Security agreement must be more specific than simply saying “all assets” or “all property”

20
Q

ALTERNATIVES // AUTHENTICATION/WRITING

3 exceptions to written, authenticated security agreement

A
  1. Possession (with pledge)
  2. Delivery
  3. Control
21
Q

ALTERNATIVES TO // AUTHENTICATION/WRITING

Possession (with pledge) exception

A

The third element of attachment can instead be satisfied when
1. debtor agrees to grant a security interest in collateral and
2. Transfers possession of the collateral into the hands of a secured party
AKA if possession is transferred into the hands of secured party, security agreement can be oral instead of in writing and signed

22
Q

ALTERNATIVES TO // AUTHENTICATION/WRITING

Control exception

A
  • Security agreement can be evidenced by the control over certain collateral
  • Only applies to
    1. deposit accounts
    2. electronic chattel paper
    3. investment property
    4. electronic documents
23
Q

ALTERNATIVES TO // AUTHENTICATION/WRITING

Delivery exception

A
  • Security agreement can be evidenced by the delivery by the debtor
  • Only applies to certain certificated securities AKA stock securities in paper form)
24
Q

SCOPE OF SECURITY INTEREST

When security interest attaches, what might it encompass?

A
  1. Future advances
  2. After-acquired property
  3. Identifiable proceeds
25
Q

SCOPE OF SECURITY INTEREST

Future advance clause

A
  • Future advance clause = collateral debtor granted creditor security interest in will serve as collateral for this loan but also future loans
  • AKA don’t need a new security agreement when a future advance is made
  • Very commonly used
26
Q

SCOPE OF SECURITY INTEREST

After-acquired property clause

A
  • Want to obtain security interest not only in that collateral owned at the time but to acquire all of that collateral you may obtain in the future
  • Example = “now owned or later acquired”
27
Q

AFTER-ACQUIRED PROPERTY // SCOPE OF SECURITY INTEREST

general rule

A

if contract does not expressly include an after-acquired property clause, then creditor only has interest in property owned at the time interest attaches

28
Q

AFTER-ACQUIRED PROPERTY // SCOPE OF SECURITY INTEREST

exception

A
  • courts will imply after-acquired property clause into agreement when the collateral is of the type that is rapidly depleted and then replenished
  • Applies to
    1. Inventory
    2. accounts
29
Q

AFTER-ACQUIRED PROPERTY // SCOPE OF SECURITY INTEREST

2 limitations on after-acquired property clause

A
  1. Commercial tort claims

2. Consumer goods

30
Q

AFTER-ACQUIRED PROPERTY // SCOPE OF SECURITY INTEREST

Limitation re: commercial tort claims

A

After-acquired property clauses don’t not apply to commercial tort claims

(Commercial tort claims can only become collateral for loan if in existence at the time the security agreement is executed and authenticated)

31
Q

AFTER-ACQUIRED PROPERTY // SCOPE OF SECURITY INTEREST

Limitation re: consumer goods

A

Can only be the subject of an after-acquired property clause to the extent that the debtor acquires the consumer goods within 10 days after the secured party gives the value for attachment

32
Q

SCOPE OF SECURITY INTEREST

Identifiable proceeds

A 
= whatever is received upon the 
1. sale, 
2. exchange, 
3. collection, 
4. other disposition, or
5. proceeds 
of collateral
33
Q

PROCEEDS // SCOPE OF SECURITY INTEREST

Rule

A

unless otherwise agreed, a security interest gives secured creditor a right to identifiable proceeds of collateral

34
Q

PROCEEDS // SCOPE OF SECURITY INTEREST

Key takeaways

A

Does not need to be stated in agreement at all
Only identifiable proceeds
= creditor must prove proceeds came from its original collateral

35
Q

PROCEEDS // SCOPE OF SECURITY INTEREST

Lowest intermediate balance test

A
  • Use = allows courts to designate a portion of commingled bank account as identifiable
  • Effect = can’t claim more proceeds than originally deposited in bank account
  • Calculation =
    1. Look at the balance in commingled bank account, take the lowest amount in account
    2. starting at time proceeds get deposited
    3. ending at the time the test is applied
    4. to tell you what portion of commingled bank account is identifiable

Secured Transactions (7 decks)

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