Attachment of security Interest Flashcards
Attachment
Attachment is essentially how a security interest is created. Once a security interest attaches, it becomes enforceable. A valid attachment requires that:
(1) there is a valid security agreement memorializing the security interest
(2) The debtor possesses rights in collateral AND
(3) The creditor extends value to the debtor
security interest authentication
The debtor must authenticate the security agreement by providing the creditor with a reasonable description of the collateral in writing.
Rights in collateral
The debtor must have rights in collateral beyond mere possession however, the debtor need not possess good title to the property
Consignment
A consignment is a transaction in which a person delivers goods to a merchant for the purpose of sale in which
(1) the merchant:
(a) deals in goods of that kind under a name other than the name of the person making delivery
(b) is NOT an auctioneer; AND
(c) is NOT generally known by its creditors to be substantially engaged in selling the goods of others
(2) The aggregate value of the goods is 1,000 or more at the time of each delivery
(3) The goods are NOT consumer foods immediately before delivery; AND
(4) The transaction does NOT create a security interest that secures an obligation
Rights if a consignee’s creditor
Article 9 provides that in order to determine the rights of a consignee’s creditor, the consignee (The debtor) has rights and title to the goods identical to those of the consignor.
Under a consignment, the consignee possesses the full ownership interest of the consignor in the goods, such as that as the security interest of the consignee’s creditor
Future advances
A security agreement may provide that collateral secures future advances, whether or not the advances are mandatory, so long as the security agreement explicitly includes a future advances clause
After acquired property
after acquired property clauses may be included in security agreements and are generally enforceable allowing the after acquired property to be secured in favor of the secured party.(does not apply to consumer goods unless the debtor acquires rights in them within 10 days after the secured party gives value)
default
The parties may specifically define what constitutes a default. If left undefined, non-payment generally constitutes a default.
Acceleration
The parties may provide for the acceleration of payments upon the happening of a specified event
Covenants
The parties may covenant certain things to each other regarding the collateral
Use or disposition of collateral by a debtor
A security agreement will NOT be invalid because the debtor possess a right to use or dispose if the property serving as collateral
Collateral in secured party’s possession
A secured party must use reasonable care in the custody and preservation of collateral in the secured party’s possession
Accessions
An accession is collateral that does NOT lose its identity when physically united with other goods.
Commingled Goods
A commingled good is collateral that loses its identity when physically united with other goods. If collateral becomes commingled with other goods, a security interest attaches to the product that results