Creation of an enforceable security: attachment

Question 1

Attachment defined

Answer 1

1. Attachment means that security interest is enforceable (AKA, to ask, “is the security interest enforceable? Is to ask ”has it attached?”

Question 2

2. The 3 requirements for attachment: remember VCR

Answer 2

a. VALUE: must be given by creditor
i. For example, bank lends 50k to debtor. Bank has extended value.

b. A CONTRACT, called the security agreement AKA record, must evidence the secured transaction unless the secured party has taken possession of the collateral until debt is repaid
i. Note: if the creditor is in possision of the collateral, there is no need for the record.
ii. If debtor is in possession we need a writing (k, security agreement or record) Requirements for record:
1. Be authenticated by debtor: signed or e-marked
and
2. reasonably identify the collateral
a. generic descriptions of collateral are not allowed
b. for example cannot be ALL of debtor’s asset—we do not allow sweeping generalizations in k

c. RIGHTS in the collateral: debtor must have rights in the collateral
i. It has to be something debtor actually owns/ has right in

Question 3

3. Note that “after-acquired collateral clauses” are enforceable

Answer 3

a. For example, collateral in inventory “hereafter acquired”
b. This is an after-acquired collateral clause
c. AKA a floating lien.
d. Can render an agreement over-collateralized

e. This is enforceable except for consumer goods– considered predatory

Question 4

4. Rights and duties of secured party in possession or control –

Answer 4

secured party in possession must use reasonable care in storing and preserving collateral. Is entitled to reimbursement for reasonable expenses in caring for the collateral.

a. Risk of loss of property is on the debtor to the extent of any insurance deficiency
b. Secured party in control may hold any increase in value of or profits from the collateral (except money) as additional security, but money so received must be given to debtor or applied against the secured obligation.
c. Secured party may also pledge the collateral.

Question 5

Roadmap as of attachment

Answer 5

1. Has security interest attached

2. Did lender perfect (put world on notice)