Security Agreement

Question 1

Secured Trans - Security Agreement (SA) - Gral /concept, effect

Answer 1

• Agreement between debtor and creditor by which a secured interest in collateral is created.
• Debtor agrees creditor may claim described collateral

Question 2

Secured Trans - Security Agreement (SA) - Requirements/ SOF, description, proceeds

Answer 2

• Written with debtor signature (or on authenticated record identified by debtor) /No need for creditor signature
• Collateral description = reasonably detailed (at least specify use by debtor)
• Will usually include proceeds, unless otherwise indicated
• Varied possible clauses

Question 3

Secured Trans - SA - “After Acquired Property Clause” (aka “all future collateral”) - Gral / method, includes, priorityo of interest in relation w/subsequent PSMI

Answer 3

• Not automatic, has to be express
• Includes as collateral all future assets debtor may acquire or manufacture after SA
• Interest is junior to subsequent PSMI in new collateral provided by creditor

Question 4

Secured Trans - SA - “After Acquired Property Clause” (aka “all future collateral”) - Rule for consumer goods

Answer 4

• Clause limited to goods received within 10 days after secured party gives the value (i.e. makes the loan)

Question 5

Secured Trans - SA - “After Acquired Property Clause” (aka “all future collateral”) - Rule for commercial torts

Answer 5

• Excluded

Question 6

Secured Trans - SA - “Future Advances Clause” / concept, attachment

Answer 6

• Allows for f_urther cash advances_ secured by collateral on previous SA
• SI automatic (similar to proceeds) -i.e. new bank loan uses same collateral

Question 7

Secured Trans - SA - Floating Lien Provision / when, “cover aggs” on SA

Answer 7

• used when collateral has a fast/common “turn-over”, making impractical to execute new SA everytime the collateral is replaced
• i.e. cars from car dealership lot
• When SA also cover assets agregations (i.e. retail inventory), SA might also be subject to after acquired clause

Question 8

Secured Trans - SA - “Set-off” / “Recoupment Rights” / when, priority

Answer 8

• Provision established that any other right of the creditor can be set-off against property of the debtor subject to the SA
• Depository bank (for securities) priority to offset prevails over any other creditor’s claim

Question 9

Secured Trans - SA - Other duties/clauses (3) / costs, limit to waiver, account request

Answer 9

• Debtor duty to pay taxes/repair/necessary insurance for collateral
• Good faith by creditor cant be waived by SA (diligence, reasonableness, due care)
• if debtor requires creditor has 14 days to present account of unpaid obligations and/or collateralized assets.

Question 10

Secured Trans - SA - Default and remedy

Answer 10

• Default broadly define : can include failure to pay invoice or tax, bankruptcy, entry of judgment
• Remedy: Replevin right allows to enter debtor property and take the collateral and liquidate it - to “RECOVER POSSESSION”

Question 11

Secured Trans - SA - Prohibition for debtor to Assign SA / gral rule and exceptions (2)

Answer 11

• Grally enforceable
• Not enforceable when:
  1) collateral value exceeds creditor’s debt
  2) Transfer is deemed as default to SA

Question 12

Secured Trans - SA - Agreement not to assert defenses - Gral Rule

Answer 12

Buyer of goods can assert all the defenses against seller’s lawsuit seeking enforcement of SA (i.e. fraud in the inducement, failure of consideration, etc)

AND can waiver them against an assignee of the SI even when defense might still be good against seller

Question 13

Secured Trans - SA - Agreement not to assert defenses - Requirements to enforce waiver for commercial contracts and for consumer credit contracts

Answer 13

• To enforce waiver, assignee needs:
  1) For commercial contract: assignee must take for value + good faith + without notice of defense
  2) For consumer credit contract: assignee must take with all defenses buyer has against seller (FTC rules)