Attachment and Perfection

Question 1

What is attachment?

Answer 1

It is the process where the security interest in favor of creditor becomes
effective against the debtor

Question 2

What is necessary for attachment:

Answer 2

1. A security agreement that is authenticated by the debtor, or the creditor must
   have possession or control of the collateral (pursuant to an oral agreement with
   the debtor).
2. The creditor must give value, and
   • We will take “value” to be consideration for a simple contract (9-203).
3. The Debtor Must Have Some Rights In The Collateral.
   All 3 must be true before the security interest attaches to the collateral

Question 3

What are the 4 ways that perfection usually occurs?

Answer 3

• Filing (the presumed/default manner for many types of collateral)
• Possession/Pledge
• Control, and
• Automatically (perfection occurs at the moment of attachment)

Question 4

What is perfection?

Answer 4

It is the process by which a security interest in favor of a creditor becomes effective against the world.

Question 5

A “security interest”

Answer 5

is defined as “an interest in personal property or fixtures

Question 6

A written security agreement must provide

Answer 6

“a description of the collateral.” That statute offers no other guidance on the quoted language. Guidance, though, is found elsewhere. Section 9-108 (“Sufficiency of Description”) offers the general rule that the collateral description is “sufficient . . . if it reasonably identifies what is described.” § 9-108(a).

Question 7

“Sufficiency of Description” of the collateral offers the general rule that the collateral description is

Answer 7

“sufficient . . . if it reasonably identifies what is described.” § 9-108(a).

Question 8

In an effort to discourage a creditor’s predatory practices, Article 9 renders ineffective an after-acquired property clause that attempts to encumber consumer goods acquired by the debtor

Answer 8

more than 10 days after the creditor has given value.

Question 9

What are the two cases in which an after-acquired property clause is ineffective?

Answer 9

In one case, the clause will not reach out and encumber consumer goods. See § 9-204(b)(1). In the other case, the clause will not encumber future commercial tort claims. See § 9-204(b)(2). It renders the after-acquired property clause ineffective only in these two cases.

Question 10

‘Financing statement’ means

Answer 10

a record or records composed of an initial financing statement and any filed record relating to the initial financing statement. Two things are noteworthy here. First, the definition refers to “record or records,” meaning that despite the usual of the singular “statement,” a “financing statement” can consist of many documents. Second, the financing statement includes any record “related to the initial financing statement,” meaning that the list of documents that may be included is not limited to the official forms that appear in Section 9-521.

Question 11

Financing Statement Exceptions

Answer 11

1. collateral, such as an airplane or a ship, that is subject to federal registration (see § 9-311(a)(1));
2. vehicles that are not held by the debtor as inventory and are otherwise subject to certificate-of-title laws (see §§ 9-311(a)(2) and 9-311(d));
3. deposit accounts (as original collateral) and letter-of-credit rights, which require “control” (see § 9-312(b)(1), (2)); and
4. money (as original collateral), which requires possession by the creditor (see § 9-312(b)(3)).

Question 12

A financing statement is effective for

Answer 12

five years. See § 9-515(a). The effectiveness of the original filing (usually a UCC-1 form) can be extended for an additional five-year period by the timely filing of a continuation statement (usually a UCC-3 form, with the “continuation” box checked). To be timely, the continuation statement must be filed “within six months before the expiration of the five-year period.” § 9-515(d).

Question 13

A continuation statement that is not filed within the six-month period

Answer 13

provided by Section 9-515 “is ineffective.” See § 9-510(c). This is so, even though the “notice” function is served by the original filing and the tardy continuation statement.

Question 14

The filing of an amendment to the initial financing statement

Answer 14

does not extend the period of effectiveness of the financing statement.

Question 15

Is there a “grace period” for continuation statements filed outside the six-month window?

Answer 15

Article 9 provides no “grace period” for continuation statements filed outside the six-month window, no matter how close to the window the filing falls.

Question 16

The only instance in which a secured party should file its financing statement at the county level (rather than in the state’s central filing office)

Answer 16

is if the financing statement will serve as a fixture filing.

Question 17

A financing statement filed against an individual with an unexpired driver’s license

Answer 17

is effective only if filed against the name indicated on such license.

Question 18

“standard search logic” rules:

Answer 18

These rules manipulate the name given in the financing statement for the debtor to create a unique string of letters and characters. Under the IACA manipulations,

No distinction is made between upper and lower case letters.
Punctuation marks and accents are disregarded.
Ending words and abbreviations that indicate the existence or nature of an organization are disregarded. (“Inc.,” “Corp.” “LLC,” etc.)
The word “the” at the beginning of the search criteria is disregarded.
All spaces are disregarded.

Question 19

Inasmuch as searches are not conducted under the secured party’s name, and no filing is needed to continue the perfected status of security interest after it is assigned, an error in the name of the secured party or its representative

Answer 19

will not be seriously misleading.”

Question 20

Rules that determine the law governing perfection

Answer 20

The local law of the jurisdiction in which the debtor is located governs . . . perfection of a security interest in investment property by filing.”
Under Section 9-307(b)(1), a debtor who is an individual is located at her principal residence.

Question 21

A security interest in investment property can be perfected

Answer 21

by filing.

Question 22

Perfection by control trumps perfection

Answer 22

by filing.

Question 23

A security interest in a certificated security in registered form which is perfected by taking delivery . . . and not by control . . .

Answer 23

has priority over a conflicting security interest perfected by a method other than control

Question 24

To be effective, a continuation statement must be filed

Answer 24

within the last six months of the five-year life of the UCC-1 financing statement. See § 9-515(d).

Question 25

A continuation statement filed early (before the six-month period starts running)

Answer 25

is ineffective (even if it slips past the clerk and is recorded).

Question 26

A security interest in a deposit account [as original collateral] may be perfected

Answer 26

only by control.

Question 27

“Authenticate” means:

Answer 27

(A) to sign; or

(B) with present intent to adopt or accept a record, to attach to or logically associate with the record an electronic sound, symbol, or process.

Question 28

A secured party cannot perfect a security interest in accounts or general intangibles

Answer 28

by possession (notwithstanding the presence of a tangible writing).

Question 29

Section 9-204(b)(1) negates the reach of an after-acquired property clause to a consumer good unless

Answer 29

the debtor acquires the consumer good within 10 days after the secured party has given any value. (Presumably the limitation has the intended purpose, at least in part, of discouraging overreaching, or possible predatory practices, by a secured party who seeks to claim a property interest in a consumer’s goods against which the secured party advanced no funds and that have little value to anyone other than the consumer (think “hostage value” rather than “commercial value”)).

Question 30

In order to get superpriority to purchase-money security interests in inventory the purchase-money creditor must

Answer 30

file its financing statement before the debtor-buyer takes possession of the inventory.