15 CREATION OF SECURITY INTERESTS - Formalities for Attachment

Question 1

What is the significance of attachment where a secured creditor has a security interest attached to the collateral but has not perfected?

Answer 1

The secured creditor has:

• Rights in the collateral enforceable against the debtor, but NOT against 3Ps;
• Right to self-help repossessions as long as they don’t breach the peace.

Question 2

What happens when a secured creditor has a security interest attached to the collateral but has not perfected
and a competing creditor is also enforcing their rights against the debtor?

Answer 2

The secured creditor who has attached but not perfected loses (does not have priority over) to:

• Bankruptcy trustee (assuming can’t perfect);
• Competing A9 secured creditor who files a financing statement before our secured creditor
• Unsecured creditors who get the sheriff to levy before perfection (generally)

Question 3

What are the two (broad) requirements for perfection?

Answer 3

1) Attachment; &

2) Public Notice

Question 4

How does the secured creditor give public notice?

Answer 4

Generally, public notice is accomplished by filing a financing statement in the state’s Art. 9 office.

Question 5

What are the two views on the situation where the collateral description is missing from a signed security agreement?

Answer 5

• View One: Completion of the collateral description after the signing is ineffective
• View Two: Post-signing completion of collateral description is effective—attachment and perfection occurs at that point

Question 6

What about if collateral description is missing then debtor files for bankruptcy?

Answer 6

At that point the collateral description cannot be filled in because it would be an act to perfect, which is in violation of the automatic stay.

Question 7

What are the three requirements for Attachment under §9-203(b).

Answer 7

Value Given;
Rights in Collateral; &
S.I. Formalities:

1. ) Value is given by the creditor to [or oh behalf of] the debtor;
2. ) Debtor [or other] has rights in the collateral; AND
3. ) The debtor grants a Security Interest which meets all the formalities/requirements.

Question 8

What are the formalities/requirements for the debtor to grant the secured creditor an enforceable security interest?

Answer 8

There is a security agreement meeting the following requirements:

1. ) Signed or authenticated by the debtor;
2. ) Contains a description of the collateral; and
3. ) Granting language.

OR ALTERNATIVELY:
• Composite Document Rule: Multiple documents related to the transaction can satisfy this element by collectively meeting the requirements of a security agreement.

Question 9

What generally will and won’t work when determining whether the Composite Document Rule is met?

Answer 9

When granting language within the composite documents commit the parties:

Financing statements DO NOT work for granting language—don’t commit the parties to anything.

Signed promissory note, and signed financing statement—CAN work, promissory note suggests a granting

Question 10

To create an enforceable security interest, what type of property must the collateral be?

Answer 10

Personal property or fixtures.

Question 11

What is a sufficient collateral description?

Answer 11

Collateral description is sufficient if it “reasonably identifies what is described.”

Question 12

What date, or when, does the interest in after acquired property clause in an otherwise enforceable security agreement apply to?

Answer 12

Date signed.

“After” is intended to mean any time after the debtor executes, or otherwise authenticates, the security agreement.

Question 13

When are oral security agreements enforceable?

Answer 13

When the creditor takes possession of the collateral 9-203(b)(3)(B).

(or when SC takes delivery of a certificated security under clause C)