Secured Transactions - Attachment and Perfection

Question 1

What is attachment?

Answer 1

Process to makes the security interest enforceable.

Question 2

What are the three requirements for attachment?

Answer 2

VCR

(1) VALUE must be given by creditor.
(2) a CONTRACT must evidence the secured transaction unless the secured party has taken possession of the collateral. [a SECURITY AGREEMENT or Record]
(3) RIGHTS in the collateral. Debtor must have rights in the collateral.

Question 3

What must be in a security agreement or record?

Answer 3

(1) Authenticated by Debtor [signed or electronically marked] AND
(2) Reasonably identify the Collateral

Question 4

What are “after-acquired collateral clauses and are they enforceable?

Answer 4

After-acquired collateral clauses take a security interest in later acquired assets (i.e. inventory). They are a floating lien.

After acquired collateral clauses are enforceable.

Question 5

What is a perfection of security interest?

Answer 5

A publicity device that a secured party does to put the world on record or constructive notice that the secured party’s existence.

Question 6

How do you attain perfection?

Answer 6

(1) By the secured party’s taking possession of the collateral OR
(2) Automatic perfection of for Purchase Money Security Interests (PMSIs) in consumer goods. OR [Rationale: encourage lending to consumers]
* PMSIs security interest that enables the debtor to purchase the goods
(3) Secured Party files notice of the security interest in the public records [most common]

Question 7

What is filed to put the world on notice of a security interest?

Answer 7

Rarely - A security

Typically - A UCC-1 Financing Statement - simple document that provides interested parties with sufficient information to make follow up inquires.

Question 8

What are the requisite contents of a financing statement?

Answer 8

Simple & Sparse - Need only contain

(1) Debtor’s name and address
(2) Creditor’s name and address
(3) Description of Collateral [“super-generic” descriptions are OK (i.e. all of the Debtor’s assets)]

Question 9

Where is the financing statement filed (General Rule and one exception)?

Answer 9

Centrally filed with Security of State where debtor is located

If debtor is an individual - state of principal residence

Debtor is a registered organization - located in which the state under whose laws it is recognized.

Exception If the collateral is timber, minerals, or fixture, file locally, in the country where realty is located.