Scope of security interest

Question 1

After-acquired property: general rule: w/o an explicit clause in security agreement, secured party’s interest reaches…

Answer 1

collateral that the debtor had rights in AT THE TIME THE DEBTOR SIGNED THE SECURITY AGREEMENT

Question 2

After-acquired property: exception general rule: courts will IMPLY a clause when…

Answer 2

collateral is of the type that is RAPIDLY DEPLETED AND REPLENISHED (e.g. inventory and accounts)

the courts assume that the parties must have meant to cover after-acquired property, or the security interest will reach nothing

Question 3

After-acquired property: exception general rule: A security interest does NOT attach under an after-acquired property clause to… (2)

Answer 3

consumer goods UNLESS the debtor acquires rights in them within 10 days after the secured party gives value

commercial tort claims

Question 4

After-acquired property: exception general rule: security interest will attached AUTOMATICALLY to…

Answer 4

PROCEEDS from disposition of collateral

and to accounts and new items of inventory collateral

Question 5

Property secured generally includes…

Answer 5

proceeds

Question 6

What are “proceeds”?

Answer 6

WHATEVER is received upon sale, exchange, collection, or other disposition of collateral or proceeds

Question 7

If collateral is insured and money is received from the insurance co on account of loss or damage to the collateral, the money is…

Answer 7

a proceed of the collateral (up to the value of the collateral)

UNLESS it is payable to someone OTHER than the debtor OR the secured party claiming it

Question 8

Any claims arising out of the loss of, defects in, or damage to collateral are…

Answer 8

proceeds of the collateral (up to the value of the collateral)

Question 9

Unless otherwise agreed, a security interest AUTOMATICALLY gives the secured party a right to…

Answer 9

IDENTIFIABLE proceeds

(identifiable: creditor can prove those proceeds came from its collateral)

if not identifiable, can’t have security interest in it

Question 10

Identifiable proceeds: problem with cash

Answer 10

cash proceeds are frequently commingled with cash non-proceeds such that it becomes impossible to determine which part of the cash is proceeds

Question 11

Identifiable proceeds: problem with cash- TEST for determining which part of commingled mass of cash is identifiable (such that the secured party has an interest in it)

Answer 11

lowest intermediate balance test:

look at balance in commingled bank acct start at time proceeds deposited and ending at time applying test

the LOWEST BALANCE during that time pd is the secured party’s identifiable proceeds (but it cannot EXCEED the value of the cash proceeds originally deposited)

Question 12

Attachment of a sec int in coll ALSO is an attachment of a sec int in a SUPPORTING OBLIGATION for that collateral… what’s this?

Answer 12

promise to pay debt of another