Professor Khan has recieved some comments on his thesis.
Comment:
I think you make a useful distinction between the legal predicates for the creation and attachment of a valid security interest, on one hand, and the immediate right of a secured party to exercise remedies that interfere with the debtors right to possess and use tangible collateral. Certainly when we express a legal opinion to the effect that a security agreement is enforceable, were referring to the first concept, not the second.
Nevertheless, I am not entirely comfortable with your terminology, or with the sharp dichotomy you posit between pre-default and post-default rights of a secured party. As to terminology, I note that the subtitle of the first subpart of Part 6 of Revised Article 9 is Default and Enforcement of Security Interest. I would be inclined to refer to the (rightful) actions of a secured party after default as an exercise of remedies by a secured party rather than an exercise of a security interest.
Second, your discussion on U-Tube appears to assume that the collateral consists of tangible personalty, and states that the secured party many not interfere with the collateral before a default has occurred. With respect to accounts and other intangible collateral, however, Section 9-607 permits a secured party to collect a debtors receivables, and remove funds from certain deposit accounts, prior to default if the security agreement so provides. Pledged collateral in the possession of a secured party presents another exception to the dichotomy you describe. Under Section 9-207, the secured party may use or operate collateral at the debtors expense before default to the extent permitted by the security agreement, or, even without such permission, to preserve the collateral or its value or to the extent authorized by a court.
As a consequence, Im not sure its accurate to describe a security interest as a contingent property right that springs into existence upon default. Rather, once a security interest has been created and has attached to particular collateral, there is continuum of rights as between the debtor and the secured party. The location on the continuum may vary depending on the nature of the collateral and the terms of the security agreement. For most purposes the debtors rights predominate before default and the secured partys rights predominate thereafter, but its not quite an on-off situation.
Chuck Calvin
Faegre & Benson LLP
