Creation or Attachment of a Security Interest

Question 1

Rights against the debtor are established through:

Rights against third parties are established by:

Answer 1

1. attachment;

2. perfection.

Question 2

What are the requisites for attachment?

Answer 2

A security interest is not enforceable unless it has attached. The following three requirements must coexist:

1. Parties must agree to create the security interest as evidenced by: (a) the creditor taking possession of the collateral; (b) the debtor’s authentication of a security agreement, or (c) the creditor taking control of certain types of collateral; and
2. Value must be given by the secured party; and
3. The debtor must have rights in the collateral.

Question 3

Are having rights in the collateral the same as having title to the collateral?

Answer 3

No. Under Art. 9, title to goods matters only for consignments. For attachment, a limited right to collateral is sufficient.

Question 4

What is the rule and the exception for the description of the collateral?

Answer 4

Collateral can be described broadly by category or type (e.g. equipment) or specifically (e.g. by serial number). However, a supergeneric description of collateral such as “all the debtors assets” is not a sufficient description.
Exception: Consumer goods, consumer securities accounts, and commercial tort claims cannot be described by type alone; a more specific description is needed.

Question 5

What are the types of collateral that a creditor can obtain control over?

Answer 5

A creditor can obtain control over the following types of collateral: nonconsumer deposit accounts, electronic chattel paper and investment property.

Question 6

How would a creditor take control over nonconsumer deposit accounts?

Answer 6

the bank in which the account is maintained automatically has control over the account. If the secured party is not such a bank, it may obtain control by either:

1. putting the deposit account in their name;
2. or agreeing in an authenticated record with the debtor and the bank that the bank will comply with the secured parties orders.

Question 7

How does a creditor take control over an electronic chattel paper?

Answer 7

A party has control over electronic chattel paper when a system put in place to show the transfer of interests in chattel paper reliably establishes the secured party as the assignee.

Question 8

How does a creditor take control over investment property?

Answer 8

1. Certified Securites: by taking possession of the stock or bond certificate if in bearer form.
2. Securities Accounts: A secured party obtains control over a securities account if the owner of the account instructs the securites intermediary that: (a) party has the same rights as the owner; or (b) the intermediary may comply with the parties orders without the owners consent.

Question 9

What is the most important thing to remember about attachment:

Answer 9

1. All three requirements for attachment must be present, they can occur in any order but there is no attachment until all three occur;
2. there must be an authenticated security agreement or the creditor must take possession or control of the collateral.

Question 10

What is perfection of a security interest in general?

Answer 10

To acquire maximum priority in the collateral over must such third parties, the secured party must perfect. There are five methods:

1. filing;
2. taking possession;
3. control;
4. automatic perfection; and
5. temporary perfection.

Question 11

Can perfection happen before attachment?

Answer 11

No. If a creditor has filed a financing statement but has not yet given value to the debtor, perfection cannot happen until attachment is complete.

Question 12

What is perfection by filing?

Answer 12

A secured party may obtain perfection by filing a financing statement.

Question 13

What is a financing statement?

Answer 13

Must contain:

1. The debtor’s name and mailing address;
2. The secured parties name and mailing address;
3. An indication of the collateral covered by the financing statement; and
4. If it covers real property-related collateral, a description of the related real property, the name of the record owner, and an indication that it is to be filed in the real property records.

Question 14

What is perfection by taking possession (pledge)?

Answer 14

Taking possession of the collateral can perfect the interest exception for general intangibles and deposit accounts.
Once the creditor takes actuall possession, the security interst is perfected from the moment of possession and continues as long as possession is retained.

Question 15

What is perfection by control?

Answer 15

Security interests in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfected by control of the property.

Question 16

What is automatic perfection of collateral?

Answer 16

Creates a PMSI in consumer goods as soon as it attaches to the collateral. Neither filing nor possession by the creditor is necessary. PMSI occurs when the security interest was retained to secure at least part of the purchase price.

Question 17

What is temporary perfection?

Answer 17

20 day period where perfection is presumed from the debtors receipt of the proceeds, instrument, negotiable documents and certificated securities.