Secured Transactions - Attachment

Article 9

Article 9 of the Uniform Commercial Code governs any transaction that creates a security interest

The analysis under Article 9

The analysis therefore turns on (i) whether the creditor’s security interest attached, (ii) whether it was properly perfected, and (iii) which claimant, if any, enjoys priority in the collateral upon default.

Mnemonic for attachment

Violet Roses Smell Amazing - Value; Rights; Security Agreement

Attachment

A security interest attaches (becomes enforceable against the debtor) only when three conditions are met: (i) the debtor has rights in the collateral; (ii) value has been given by the secured party; and (iii) the debtor has authenticated a security agreement that provides a description of the collateral.

Value Carry-Over

Value can "carry-over” from pre-existing debts

MEE - Trick for Value

The value does not need to flow directly to the debtor

Authentication of a Security Agreement

Authenticate means to sign with present intent - always verify that the debtor signed the agreement (or gave an electronic signature, logo, symbol, etc)

Security Agreements MEE Trick 1

No oral security agreements, but emails are ok

Security Agreements MEE Trick 2

Withholding present intent, authentication fails and security interest never attaches

Security Agreement

An authenticated security agreement can be a standalone document or included in another contract, so long as it includes a present intent to grant it and a collateral description

Security Agreement - Collateral Description

A description of collateral is sufficient if it reasonably identifies what is described

Always Ask on MEE When Given Docs

Has the debtor authenticated a record that grants the security interest? Financing agreements will not satisfy attachment process

After-acquired collateral

A security agreement can cover property the debtor doesn’t own yet, if the agreement says so.

Proceeds Rule

Once a security interest attaches to collateral, it automatically attaches to any identifiable proceeds that the debtor receives when the original collateral is sold, exchanged, lost, or damaged.

Oral Agreement Exception

No paper attachment requires that a debtor give the secured party physical custody (possession) or the secured party can direct or move the asset (control).

Hidden Security Agreement

Fact patterns may use language like lease, rent, title, payment plan, etc without ever saying security interest. If a lessee is obligated for the full term and will own the goods (or can buy them for $1 or some nominal sum) at lease-end, treat it as a security interest. If seller retains title or the buyer will return the goods if not paid, treat it as a conditional sale security interest. A non-cancelable term plus a $1 or nominal buyout = disguised security interest