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Question 1

The consumer purchased a car from a dealer, and a financer loaned him money for the purchase. The financer took a security interest in the car. The security agreement included a standard after-acquired property clause claiming an interest in the consumer’s property “whether now owned or hereafter acquired.” After owning the car for a few years, the consumer spent $5 000 to buy a new engine and new transmission for the car. Six months later, the consumer defaulted on his original car loan, and the financer now seeks to repossess the car. Can the financer rely on the after-acquired property clause in order to repossess not only the car in its original condition but also the newly added components, namely the engine and new transmission?

Answer 1

Yes. Since the engine and transmission likely qualify as accessions under Article 9, the courts will likely enforce the after-acquired property clause and recognize the security interest in the new engine and transmission.

Discussion

After-acquired property clauses are often included in the consumer credit contracts, but they are not always enforceable against the consumers under article 9. In general, the clause will only be enforced if the consumer purchased the new property within ten days after receiving the loan. There is one exception, however, for the consumer goods that qualify as accessions. For accessions, the courts will often enforce the clause and recognize a security interest in the newly added item.

The term “accession” originally comes from the common law doctrine of accession. The traditional rule applies when two separate goods become so integrally attached to each other that they become part of one new whole. In that case, the title to the resulting product goes to the owner of the larger or the principal good. Accordingly, the courts have found that the owner of a piece of clothing acquired title to gold embroidery later added to the clothing. The embroidery could not be removed without damaging the piece of clothing or incurring substantial expense. The courts thus concluded that the gold thread acceded to—in effect, became a part of—the clothing.

Article 9 has incorporated the term “accession” for secured transactions. However, it appears to have expanded its meaning. Today, accessions include any goods that are installed in or affixed to a larger principal good. Specifically, the UCC defines the term to include any good “physically united with other goods in such a manner that the identity of the original goods is not lost.” For example, an icemaker is physically united with a refrigerator, and thus, the court has recognized that it would qualify as an accession under the Code. Similarly, the consumer’s new engine and transmission have been physically united with the car, and thus will likely qualify as accessions. Accordingly, the after-acquired property clause will likely be enforced.

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