Secured Transactions

Question 1

Attachment

Answer 1

Attachment is essentially how a security interest is created. A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.

Question 2

When is Attachment valid?

Answer 2

(1) secured party extends value to the debtor,
(2) debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party, AND
(3) UCC condition is met:
Satisfied by authentication of security agreement OR when secured party takes possession or “control” of the collateral from the debtor.

Question 3

Authentication of a Security Agreement

Answer 3

Authentication requires the debtor to authenticate the security agreement by providing the secured party with a reasonable description of the collateral in writing. Signature, thumbprint, initials, mechanical reproductions, etc. are all adequate proof of authentication of the security agreement so long as the debtor possessed the intent to authenticate the writing.

Question 4

What is the consequence of attachment?

Answer 4

Once the security interest attaches, it is enforceable.

Question 5

Perfection

Answer 5

Perfection enhances rights to the collateral.
3 Ways to Perfect:
(1) Filing - filing a financing statement or security agreement by authorized party with State
(2) Taking Possession - Taking possession of negotiable documents, goods, instruments, or money
(3) Automatic Perfection - Auto perfection upon attachment of [purchase-money security interest in consumer goods] AND [assignment of accounts that does not transfer a significant part of the assignor’s outstanding accounts.]

Question 6

Perfected v. Unperfected Priority

Answer 6

Generally a perfected security interest has priority over a conflicting unperfected security interest in the same collateral.

Question 7

Multiple Perfected Creditors Priority

Answer 7

Between multiple perfected creditors, the first to file obtains priority.

If collateral not subject to state filing or cannot be filed: First to perfect obtains priority.

**Generally, knowledge of prior unperfected interest will not prevent a potential secured party from filing first to obtain priority.

Question 8

Exceptions to the Priority Rules

Answer 8

(1) Ordinary course of business
(2) Consumer Goods
(3) Purchase-Money Security Interest (PMSI)