Creation Flashcards
What do you need to create a security interest?
Attachment
What are the three elements of attachment?
(1) Value must be given
(2) Debtor must have rights in the collateral
(3) Must be a voluntary lien
Ways value can be given
(1) creditor can give value for a pre-existing obligation
(2) extension of a line of credit
(3) can be given if debtor and obligor are different people
What does it mean that “the debtor must have rights in the collateral”?
(1) Debtor merely needs an interest
(2) Also includes the power to transfer rights in collateral
(3) When debtor takes delivery of goods
(4) naked possession is not enough to show rights in collateral
(5) no corporate viel piercing
What does “voluntary lien” mean?
(1) the debtor agrees to attachment of the security interest and the debtor has authenticated the security interest that has the description of the collateral
Voluntary Lien: Authentication
The security agreement must be authenticated by the debtor through some kind of record evidencing that it is fromt he party to be charged (think signed, an email line from debtor, a letterhead, a voicemail)
Voluntary Lien: Adequate Description
The security agreement must provide sufficient description fo the collateral. The description must reasonably identify the collateral by specific listing, type of collateral, or any other method.
How to create a PMSI?
(1) Attachment
(2) Enable purchase of the collateral AND
(3) Perfection
(4) Notice to other creditors (for livestock and inventory)
What does it mean to “enable purchase of the collateral”?
Loan transaction is closely allied in time to the purchase transaction
( more than 10 days is likely too long)
Who quickly must a PMSI be perfected?
Within 20 days of debtor taking possession
–Must perfect prior to debtor taking possession for inventory and livestock
Does a PMSI survive when a PMSI creditor and commercial debtor refinance?
Yes
Does a PMSI survive when a PMSI creditor and commercial debtor refinance AND creditor gives new value?
Look to Dual Status Rule
Dual Status Rule
Allows the security to be divided into a portion which encompasses purchase money debt and a different portion that represents non-purchase money debt…non PM debt is not a PMSI
Does a PMSI survive when new creditor extinguishes old debt?
No, not unless a new PMSI is created
Does a PMSI survive when a former creditor assigns the PMSI to a new creditor?
Yes, but only if PMSI was valid and existed at the time of assignment
