Scope of the Security Interest

Question 1

Future Advances

Answer 1

• security agreement may provide that the collateral will serve as security not only for the present ob, but also for advances the creditor makes to the debtor in the future

Question 2

After-Acquired Property

Answer 2

• need an EXPLICIT after-acquired property clause in the security agreement for the secured party to be able to reach after-acquired property (otherwise, only rights in the property debtor had at time of security agreement)
• if there is an explicit after-acquired property clause, the security interest attaches to the property as soon as the debtor acquire an interest in the collateral

Question 3

Exceptions to the After-Acquired Property Clause

Answer 3

• even w/o after-acquired property clause, a security interest will attach automatically to collateral of a type that’s rapidly depleted + replenished, such as accounts + inventory
• also automatically attaches to identifiable proceeds of collateral (even w/o after-acquired property clause)

Question 4

After-Acquired Property Goods - Consumer Goods

Answer 4

• an after-acquired property clause doesn’t apply to consumer goods unless debtor acquires rights in the goods w/in 10 days after the creditor gives value

Question 5

After-Acquired Property Goods - Commercial Tort Claims

Answer 5

• after-acquired property clause doesn’t apply to commercial tort claims

Question 6

Proceeds

Answer 6

• security interest in collateral automatically attaches to identifiable proceeds of the collateral
• includes whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds
• include second generation proceeds
• include second generation proceeds
• insurance payable by reason of loss or damage to the collateral is a proceed, unless payable to someone other than the debtor or secured party
• claims arising out of the loss of, defects in, or damage to collateral are proceeds

Question 7

Proceeds - Identifiable

Answer 7

• need to be “identifiable” -> need to be able to trace the proceeds back to the original collateral

Question 8

Commingled Cash Proceeds

Answer 8

• happens when you add proceeds into a bank account with some other kind of funds
• to trace proceeds that are identifiable, need to use the lowest intermediate balance rule

Question 9

Lowest Intermediate Balance Rule

Answer 9

• look at the bank account starting at the time the proceeds are deposited + ending at the time you are applying the rule -> lowest balance during that time period is the secured party’s identifiable proceeds
  -> amount cannot exceed the value of the cash proceeds originally deposited

Question 10

Supporting Obligations

Answer 10

• attachment of a security interest in accounts, chattel paper, documents, general intangibles, instruments + investment property automatically extends to a supporting obligation for that collateral