Attachment of SI

Question 1

In general how does attachment of SI work?

Answer 1

In general -> a SI that is enforceable against the debtor with respect to the collateral is said to have “attached” to the collateral when:

-> value given by the secured party (e.g. the loan)

-> the debtor has rights in the collateral

AND

-> the debtor has authenticated a security agreement that describes the collateral, OR the secured party has possession or control of the collateral

Question 2

What is the value given by the secured party?

Answer 2

Can be
-> consideration sufficient to form a contract (money to form K),
-> extending credit if there was already a prior agreement,
-> accepting delivery under a preexisting contract,
OR
-> in satisfaction of a preexisting claim.

-> future advances - may also be secured by collateral

-> new value - when new value is required to perfect a security interest or have priority, it can consists of: money; money’s worth in property, services, or new credit, OR release by a transferee (person receiving property) of an interest in property previously transferred to the transferee

Question 3

Is there ever a time when consignment can prevent a debtor from using the consigned property as collateral for a security interest?

Answer 3

Generally -> the SI attaches only to the rights that the debtor has in the collateral

Consignments -> if the consignor retains title to the consigned goods, the consignee (person giving property to consignor) does not have rights in them so can’t use them as collateral

Question 4

Does a security agreement need to satisfy the statute of frauds?

Answer 4

The secured party must satisfy the Art. 9 statute of frauds, unless the secured party possess or controls the collateral.

Question 5

What requirements must a security agreement meet in order to satisfy attachment?

Answer 5

The security agreement must
-> be in a records (can be in writing or via an electronic database)
-> contain a description of the collateral
AND
-> be authenticated by the debtor

Question 6

What is the level of specificity you need to find in the description portion of a security agreement?

Answer 6

The description can list specific items or can identify the Art. 9 class of collateral (“all debtor’s equipment”)

UNLESS
the collateral is consumer goods or a commercial tort claim (then you need more specificity);

A super-generic description (“all debtor’s assets”) is NOT SUFFICIENT

Question 7

Who can reuse a prior existing security agreement as a new security agreement?

Answer 7

An original authenticated security agreement can serve as a new debtor’s authenticated security agreement (i.e., the new debtor need not execute another agreement) by operation of law or by contract

So a new debtor can reuse an already authenticated security agreements from a prior debtor.

Question 8

Can the possession or control of collateral satisfy the SoF?

Answer 8

Yes, it can satisfy the SoF; the secured party’s possession or control must be pursuant to the security agreement

Question 9

Can the SI apply to after-acquired collateral? If so, what is needed in the security agreement to make this work?

Answer 9

General rule
-> the SI may cover collateral owned when the security is granted and also collateral that the debtor acquires after the SI is given
-> the clause needs to be in the agreement between parties

Question 10

When does an after-acquired clause not work for a particular class of goods? Is there a way to make it apply to that particular class?

Answer 10

An after-acquired clause is not effective for consumer goods,

UNLESS the debtor acquires them within 10 days after the secured party gives value, or a commercial tort claim.

Question 11

Do proceeds work as an SI and when does attachment happen?

Answer 11

The SI attaches AUTOMATICALLY to identifiable proceeds (i.e., whatever is acquired upon disposition of the collateral)

E.g. There is a SI in a car, you sell the car, any proceeds from the car are now the new SI.

Question 12

What are the duties of the secured party when in possession or control of the collateral?

Answer 12

Duties arising from the secured party’s possession or control of collateral:
-> duty of care
-> duty to keep collateral identifiable
-> duty to relinquish possession or control of collateral

Question 13

What are the rights of the secured party when in possession or control of the collateral?

Answer 13

Rights arising from the secured party’s possession or control of collateral
-> right to charge for reasonable expenses
-> right to use or operate collateral
-> right to hold proceeds

Question 14

When the secured party has possession or control of the collateral good, who bears the risk of loss or damage with regards to the collateral?

Answer 14

Risk of loss or damage is on the debtor STILL

Question 15

What must transpire in order for there to be a valid assignment of account rights between the secured party and the account debtor?

Answer 15

Assignment of account rights
-> if the debtor assigns his right to receive payment from the account debtor (person obligated to make payment to the debtor) to the secured party, the secured party may notify the account debtor to pay the secured party;
-> UPON receipt of notification, the account debtor may discharge her obligation only by paying the assignee (aka the secured party in this case)

Question 16

What are the rights of the debtor in the secured transaction?

Answer 16

Rights to:
-> Gather accounting and other information from the secured party
-> Receive notification from the secured party, of satisfaction of the account debtor’s obligation to the secured party (when account debtors are no longer required to make payment to the secured party)

Question 17

What is a purchase-money security interest?

Answer 17

PMIS in goods exists when
-> a secured party gave value to the debtor and the debtor used the value to incur an obligation that enabled the debtor to acquire goods (e.g. take a loan for a car, and use the money to buy ONLY the car)
OR
-> a secured party sold goods to the debtor, and the debtor incurred an obligation to pay the secured party all or part of the purchase price (e.g. go to the store and buy goods on credit to the store)

PMSI in software exists
-> only when the debtor acquired his interest in software in an integrated transaction in which the debtor ALSO acquired an interest in goods (e.g., a computer),
AND
-> the debtor acquired that interest in the software for the principal purpose of using the software in the goods

Question 18

What are accessories?

Answer 18

Goods that are physically untied with other goods such that the identity of the original goods is not lost when attached into another good.

Question 19

How does a security interest in an accessory work?

Answer 19

SI created in collateral that becomes an accession
-> Not lost due to the collateral becoming an accession; also, an SI can be created in collateral that is an accession

E.g. You take out a loan for a car stereo, the secured party has an interest in the accessory (being the car stereo), and when the car stereo is placed into the car then all they still have is a SI in the car stereo and not the whole car.

Question 20

What are commingled goods?

Answer 20

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

Question 21

Can you grant a SI in commingled goods?

Answer 21

No SI in specific goods that have been commingled because their identity is lost once commingled
-> BUT a SI may attach to the product or mass that results when the goods are commingled (there is a transfer of the SI between the original collateral and the new commingled collateral)

Question 22

How can you distinguish a commingled good and an accession?

Answer 22

Note: if you can still locate the good, it’s likely an accessory.