SCOPE OF SECURITY INTEREST

Question 1

Future advance clause

Answer 1

A SA may provide that the collateral will serve as security not only for the present obligation, but also for advances the creditor makes to the debtor in the future. No new SA needed, but must be reserved in original SA.

Question 2

After-acquired Property clause

Answer 2

A SA may create a CI in property to be acquired in the future. The SI will attach to the property once debtor acquires interest in the collateral.
i. Exceptions.
1. Consumer Goods & CTT. Does not attach to commercial tort claims or consumer goods UNLESS goods acquired within 10 days of the creditor giving value.
2. Inventory. Implied when goods are of the type that are rapidly depleted and replenished (accts & inventory) – No AAPC required.
3. Proceeds. Automatically attaches to identifiable proceeds of collateral, whether or not the SA reserves interest in proceeds. No AAPC required.