The first job for any secured party seeking to have an enforceable and perfectible security interest is to achieve attachment by: 1) having the secured party give value to the debtor; 2) the debtor having rights in the collateral and; usually, 3) the debtor's authentication of a security agreement describing the collateral. In a recent bankruptcy case, the court pondered what can possibly go wrong when step three is missed.
For U.C.C. Article 9 secured parties, perfection of their security interests, which is normally accomplished by filing a financing statement in the appropriate public record, is essential to ensuring survival of their security interests in bankruptcy and priority over other claimants. See 11 U.S.C. § 544 (a) (granting the trustee in bankruptcy the power to avoid unperfected security interests) [an annotated version of this statute is available to lexis.com subscribers] ; U.C.C. §§ 9-201, 9-317, 9-322 (Official Text 2013) (granting senior perfected secured parties priority over other claimants). But without attachment, there is no perfection: Under Article 9, perfection is defined as attachment plus an act of perfection (such as filing a financing statement). U.C.C. § 9-308 (a). Thus, the first job for any secured party seeking to have an enforceable and perfectable security interest is to achieve attachment. Attachment involves three elements: 1) the secured party must give value to the debtor; 2) the debtor must have rights in the collateral or the power to give rights in the collateral to the secured party; and a third condition must be satisfied—usually, the debtor's authentication of a security agreement describing the collateral. U.C.C. § 9-203 (a), (b). The first two elements are rarely controversial. It is almost always apparent that the creditor has given value to the debtor by extending credit or advancing a loan. In addition, in most cases, the debtor will clearly have sufficient rights in the proffered collateral to support a security interest. Crafting a valid security agreement would also seem to be a straightforward step for would-be secured creditors. But even decades after this third requirement became part of Article 9, creditors stumble on occasion in trying to satisfy it. In a recent bankruptcy case, the court took a hard look at the parties' security agreement and ultimately decided that it was valid under Article 9. Thrun v. Blackhawk Community Credit Union (In re Thrun), 495 B.R. 861 (Bankr. W.D. Wis. 2013) [an enhanced version of this opinion is available to lexis.com subscribers]. In Thrun, the debtor entered into a lending plan with a credit union (Blackhawk). Under the plan, the debtor could take out loans and agreed to give Blackhawk a security interest in "all goods, property, or other items purchased under this Plan . . . either now or in the future." 495 B.R. at 862. In May 2012, the debtor received an advance under the plan to purchase a 2008 Saturn Vue automobile. Blackhawk issued an "Advance Receipt" under the plan stating that the advance was governed by the lending plan's terms and that the debtor was giving a security interest in the "collateral described on page 2." 495 B.R. at 862. The second page of the receipt then described the Saturn Vue by year, make, model, and VIN number.
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