Attachment

Question 1

OVERVIEW

What is attachment?

Answer 1

Creation of an enforceable security interest (against the debtor)

Question 2

OVERVIEW

Time of attachment

Answer 2

When the last of the three requirements occurs

can occur in any order

Question 3

OVERVIEW

Can an agreement postpone the time of attachment?

Answer 3

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.)

Question 4

ATTACHMENT REQUIREMENTS

3 elements of attachment

Answer 4

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

Question 5

VALUE // ATTACHMENT REQUIREMENTS

Definition

Answer 5

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)

Question 6

VALUE // ATTACHMENT REQUIREMENTS

Is past consideration sufficient to satisfy the value requirement?

Answer 6

Yes

Question 7

VALUE // ATTACHMENT REQUIREMENTS

Is an illusory promise sufficient to satisfy the value requirement?

Answer 7

No

Question 8

DEBTOR’S RIGHTS IN THE COLLATERAL // ATTACHMENT REQUIREMENTS

Where do issues with rights in the collateral arise?

Answer 8

Debtors that are business entities

Question 9

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?

Answer 9

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

Question 10

AUTHENTICATION/WRITING // ATTACHMENT REQUIREMENTS

3 components

Answer 10

1. Authentication
2. Security agreement
3. Description of collateral

Question 11

AUTHENTICATION // AUTHENTICATION/WRITING

Definition

Answer 11

• Writing (or record)

- Signed by the debtor (or signature alternatives)

Question 12

SECURITY AGREEMENT // AUTHENTICATION/WRITING

Definition

Answer 12

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

Question 13

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Sufficiency of description

Answer 13

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

Question 14

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Reasonable identification standard

Answer 14

• General, overarching standard

- Flexible to allow courts discretion in individual cases

Question 15

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Examples of reasonable identification

Answer 15

Specified examples of collateral descriptions that will suffice

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

Question 16

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Specific listing

Answer 16

listing each item of collateral

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

Question 17

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Category

Answer 17

any kind of factual, categorical classification

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

Question 18

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

UCC collateral definition

Answer 18

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)

Question 19

DESCRIPTION OF COLLATERAL // AUTHENTICATION/WRITING

Super-generic description

Answer 19

• Prohibited by UCC

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

Question 20

ALTERNATIVES // AUTHENTICATION/WRITING

3 exceptions to written, authenticated security agreement

Answer 20

1. Possession (with pledge)
2. Delivery
3. Control

Question 21

ALTERNATIVES TO // AUTHENTICATION/WRITING

Possession (with pledge) exception

Answer 21

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

Question 22

ALTERNATIVES TO // AUTHENTICATION/WRITING

Control exception

Answer 22

• 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

Question 23

ALTERNATIVES TO // AUTHENTICATION/WRITING

Delivery exception

Answer 23

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

Question 24

SCOPE OF SECURITY INTEREST

When security interest attaches, what might it encompass?

Answer 24

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

Question 25

SCOPE OF SECURITY INTEREST | Future advance clause

Answer 25

- 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

Question 26

SCOPE OF SECURITY INTEREST | After-acquired property clause

Answer 26

- 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”

Question 27

AFTER-ACQUIRED PROPERTY // SCOPE OF SECURITY INTEREST | general rule

Answer 27

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

Question 28

AFTER-ACQUIRED PROPERTY // SCOPE OF SECURITY INTEREST | exception

Answer 28

- 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

Question 29

AFTER-ACQUIRED PROPERTY // SCOPE OF SECURITY INTEREST | 2 limitations on after-acquired property clause

Answer 29

1. Commercial tort claims | 2. Consumer goods

Question 30

AFTER-ACQUIRED PROPERTY // SCOPE OF SECURITY INTEREST | Limitation re: commercial tort claims

Answer 30

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)

Question 31

AFTER-ACQUIRED PROPERTY // SCOPE OF SECURITY INTEREST | Limitation re: consumer goods

Answer 31

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

Question 32

SCOPE OF SECURITY INTEREST | Identifiable proceeds

Answer 32

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

Question 33

PROCEEDS // SCOPE OF SECURITY INTEREST | Rule

Answer 33

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

Question 34

PROCEEDS // SCOPE OF SECURITY INTEREST | Key takeaways

Answer 34

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

Question 35

PROCEEDS // SCOPE OF SECURITY INTEREST | Lowest intermediate balance test

Answer 35

- 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