Attachment of Security Interest

Question 1

Attachment

(three conditions)

Answer 1

(i) Value has been given by the secured party;
(ii) The debtor has rights in the collateral; and
(iii) The debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral pursuant to a security agreement.

Question 2

Debtor’s Rights in Collateral

Answer 2

For the security interest to attach to the collateral, the debtor generally must have rights in the collateral. The basic rule is that a security interest attaches only to the rights that the debtor has.

Question 3

Security Agreement

Answer 3

For a security interest to attach to collateral, there must be a security agreement. This means that the security agreement must be established by the debtor’s authentication of the agreement, or the secured party’s possession or control of the collateral.

Question 4

Authenticated Record

Answer 4

(i) Be in a record;
(ii) Contain a description of the collateral; and
(iii) Be authenticated by the debtor.

Question 5

After-Acquired Collateral

Answer 5

No new security agreement is necessary if the original security agreement provides that it applies to after acquired collateral.

There is a rebuttal presumption when the agreement is silent.

Question 6

Proceeds

Answer 6

A security interest in collateral automatically attaches to identifiable proceeds.

Question 7

Duty of care

Answer 7

The secured party in possession of collateral has the duty of reasonable care with respect to custody and preservation of the collateral.

Question 8

Duty to keep collateral identifiable

Answer 8

The secured party in possession of collateral must keep the collateral identifiable but may commingle fungible collateral.

Question 9

Duty to relinquish collateral

Answer 9

The secured party has a duty to relinquish collateral upon satisfaction of the secured obligation.

Question 10

PMSI in Goods

Answer 10

(i) A secured party gave value to the debtor and the debtor incurred an obligation to enable the debtor to acquire rights in or use of the goods, and the value given was so used; or

(ii) A secured party sold goods to the debtor, and the debtor incurs an obligation to pay the secured party all or part of the purchase price.

Question 11

Accessions

Answer 11

Accessions are goods that are physically united with other goods in such a manner that the identity of the goods is not lost.

Question 12

Commingled Goods

Answer 12

Goods that are physically united with other goods in such a manner that their identity is lost in a product or mass.