Attachment and Perfection

Question 1

Creation of a Security Interest

Answer 1

article 9 concerns the secured party’s rights against both the debtor and third parties. rights against the debtor are established by attachment; rights against third parties are established by perfection.

Question 2

requisites for attachment

Answer 2

A security interest is not enforceable unless it is attached. There are three requirements, which must co-exist:
(1) the parties must agree to create the interest via a security agreement (evidenced by possession, control, or authenticating security agreement);
(2) value must be given by secured party; and
(3) the debtor must have rights in the collateral

Question 3

form of the authenticated security agreement

Answer 3

1. Evidenced by a record showing an intent to create a security interest
2. Authenticated (signed by debtor w/ present intent to authenticate)
3. Description of collateral (must reasonably identify collateral)

For description, collateral can be described broadly by category or type or specifcially. BUT THERE’S AN EXCEPTION FOR: consumer goods, consumer securities accounts, and commercial tort claims which cannot be described by type alone, a more specific description is needed.

Furthermore, no supergeneric descriptions are allowed.

Question 4

after-acquired property

Answer 4

without an explicit after-acquired propety clause in the security agreement, the secured party’s security interest only reaches collateral that the debtor had rights in at the time the debtor signed the security agreement.

if an agreement does contain this clause, then the interest will attach to the property as soon as the debtor acquired an interest in the collateral.

Question 5

after-acquired property clause exceptions

Answer 5

if an agreement does not contain an after-acquired clause, sometimes the security interest will automatically attach regardless IF the collateral is of a type that’s rapidly depleated and replenished (i.e., accounts and inventory).

ALSO, a security interest will automatically attach to identifiable proceeds (proceeds) of collateral even without this clause.

Question 6

after-acquired clause applied to consumer goods

Answer 6

clause does not apply to consumer goods unless the debtor acquires rights in the goods within 10 days after the creditor gives value.

Question 7

after-acquired clause applied to commercial tort claims

Answer 7

does NOT apply

Question 8

Proceeds

Answer 8

includes whatever is received upon the sale, exchange, collection, or other disposition of collateral.

also includes second generation proceeds.

insurance payable by reason of loss/damage to the collateral = proceed UNLESS it is payable to someone other than the debtor or secured party

claims arising out of loss/defect/damage to collateral = proceeds

Proceeds must be identificable (i.e., can be traced back to the OG collateral)

Question 9

lowest intermediate balance rule

Answer 9

in the case of commingled cash proceeds, you will look at the bank account starting at the time the proceeds are deposited and ending at the time you are applying the rule. the lowest balance during that time period is the secured party’s identifiable proceeds (but amount cann’t exceed the valur of the cash proceeds originally deposited)

Question 10

perfection

Answer 10

to acquire maximum priority in the collateral over most third parties, the secured party must “perfect.”

five methods of perfection:
1. filing
2. taking posession
3. control
4. automatic perfection
5. temporary perfection

Question 11

time of perfection

Answer 11

a security interest is not enforceable against anyone until it has attached to the collateral.

Question 12

automatic perfection - PMSI in consumer goods

Answer 12

a PMSI in consumer goods is perfected as soon as it attaches

Limitations:
- a PMSI in fixtures has to file a fixture filing in order to have priority over an encumbrancer of real estate
- security interest on a car can be perfected only by notation on the vehicle’s certificate of title

Question 13

perfection by taking possession (pledge)

Answer 13

General rule: where the secured party takes actual possession of the collateral, the security interest is perfected from the moment of possession and continues as long as possession is retained

Exceptions: security interests in general intangibles, deposit accounts, nonnegotiable goods, electronic chattel paper, certificate of title goods, and accounts CANNOT be perfected by possession.

Question 14

perfection by control

Answer 14

security interests in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfected by control.

Note: nonconsumer deposit accounts can only be perfected by control.

Question 15

methods of obtaining control: nonconsumer deposit account

Answer 15

Bank automatically has control over account. If secured party is not the bank, they can get control by either:
(1) putting the account in their name; or
(2) agreeing in an authenticated record with the debtor and the bank that the bank will comply with the secured party’s orders w/o debtor’s consent

Question 16

methods of obtaining control: investment property

Answer 16

control begins when secured party has taken whatever steps necessary to have property sold withotu further action from the owner

Question 17

methods of obtaining control: electronic chattel paper

Answer 17

control happens when a system put in place to show the transfer of interets in chattel paper reliable establishes the secured party as assignee

Question 18

perfection for motor vehicles

Answer 18

under the state’s certificate of title law, security interests in MVs required to be titled can only be perfected by notation on the certificate of title issued by the state

exception: dealers - dealers holding MVs in inventory for sale/lease are perfected by filing a financing statement under the ordinary code rules

Question 19

perfection by filing

Answer 19

must file a financing statement, that contains:
1. the debtor’s name and address
2. the secured party’s name and address
3. description of the collateral conveyed

Debtor’s name cannot be seriously misleading

Applies to everything EXCEPT deposit accounts and money

Question 20

perfection by filing: real property

Answer 20

must be financing statement requirements and:
1. description of the related real property
2. name of the record owner (if not the debtor)
3. indication that it is to be filed in the real property records

Question 21

place of filing

Answer 21

general rule: centrally (in office of SoS)
Exceptions: timber/minerals or fixtures can be filed locally

Question 22

which state’s law governs perfection

Answer 22

general: state where debtor is located
exceptions:
* possessory security interests + timber/mineral/fixures = where collateral is located
* goods covered by certificate of title = state issuing most recent certificate of title
* deposit accounts = law of state where bank has chief executive office
* investment property = if certificated security then the state where certificated security is located; if uncertificated security, then the law of the state where the issuer was organized; if securities account, law of the state where the securities’ intermediary’s chief executive office is

Question 23

relocation of debtor

Answer 23

will be unperfected in 4 months unless new financing statement filed

Question 24

debtor in different state

Answer 24

if collateral is transferred to a new owner in a different state, the security interest will be unperfected within one year

Question 25

how long is a financing statement valid for?

Answer 25

five years - after that, a continuation statement should be filed which will extend it for another 5 years.

continuation statement can only be filed within 6 months before the lapse of the filed statement. debtor’s authorization is not required.

Question 26

termination statements

Answer 26

generally: secured party is not obligated to terminate a financing statement

exception: if there’s no outstanding obligation of the debtor and no commitment on the part of the secured party to make future advances (or if debtor did not authorize the filing of the intial statement) then the secured party must, on demand of the debtor, within 20 days, file a termination statement or provide one to the debtor

Question 27

perfection of proceeds

Answer 27

if a secured party has a perfected security interest in collateral, that party has an automatically perfected security interest in any proceeds of the collateral for 20 days after receipt of the proceeds.

proceeds can be perfected beyond the 20 days if:
1. the proceeds are identifiable cash proceeds
2. security interest in the OG collateral was perfected by filing, the proceeds would have been filed in the same place, and proceeds were not purchased with cash proceeds of the collateral
3. the security interest in the proceeds is perfected within the 20 days period