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After-Acquired Property As Collateral In A Secured Transaction – Glass & Goldberg | Financing, Property & Bankruptcy Law
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After-Acquired Property As Collateral In A Secured Transaction

California law states that, with exception, a security agreement may create or provide for a security interest in after-acquired collateral. However, a security interest does not attach under a term constituting an after-acquired property clause to either consumer goods in most circumstances or commercial tort claims. Of course, one may argue that such provisions may make it difficult to finance growth through future borrowing.

A security agreement may also provide that the collateral subject of the security interest secures future advances or other value, whether or not the advances or value are given pursuant to commitment. It may also provide that accounts, chattel paper, payment intangibles, or promissory notes are sold in connection with future advances.

Property in which the debtor had no rights at the time of the original loan transaction, but in which it subsequently acquires rights, is considered after-acquired property. For a security interest to attach to after-acquired property, the security agreement must contain an express statement creating a security interest in after-acquired property.

Of course, much debate has occurred regarding the language necessary to include after-acquired property in a secured transaction. There is really no better way to effectively express the intent that a security interest includes after-acquired property than to include a “simple” clause explicitly providing such. A statement that secured property is “now owned or hereafter acquired” in the security agreement’s description of collateral is sufficient. Note that financing statements do not require a similar statement for perfection of a security interest in after-acquired property.

While some property such as inventory and accounts receivable by their nature revolve and, thus, after-acquired property clauses may seem unnecessary, it always wise to expressly rather than impliedly “create” a contract term, especially regarding the security of an asset.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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