Creation of an Article 9 Security Interest: Attachment

Question 1

What are the 3 elements that must be fulfilled to create an Article 9 Security Attachment?

Answer 1

1. Security agreement
2. Value has been given
3. Debtor has rights in the collateral
   * Note: Once all 3 elements have been met, no matter the order, a security attachment is created

Question 2

What is the general rule for a security agreement?

Answer 2

Unless the collateral is in the possession or control of the secured party pursuant to an agreement, a written (or electronically stored) security agreement is required. Most often, the debtor wants possession of the collateral, so a writing is necessary. 99% of the time the agreement is in writing

Question 3

What are the requirements for an oral agreement to have a security agreement?

Answer 3

If the collateral is in the possession of the secured party pursuant to an oral security agreement (e.g., I’ll loan you $50 but we agree that I will keep your watch until you pay me back; if you don’t pay me back, we agree that I can sell your watch), this meets the “security agreement” requirement.

Question 4

What are the general requirements for the “written” element to be satisfied for a security agreement? 3 elements

Answer 4

1. The agreement must be evidenced by a record (written or electronically stored information) and must show an intent to create a security interest (No magic language needed, just intent to communicate the idea)
2. The agreement must be “authenticated” by the debtor. This usually means “signed” by the debtor. Any symbol, including an electronic symbol, that is made with the present intent to authenticate the record will work (e.g., an “X,” a smiley face)
3. The agreement must contain a description of the collateral (and if the security interest covers timber to be cut, a description of the land concerned)
   * Note: The Code says that the security agreement must “reasonably identify” the collateral. - Also super generic language can undermine the security agreement

Question 5

What are the general requirements for the “value has been given” element to be satisfied for a security agreement?

Answer 5

The value definition is very liberal. Any consideration sufficient to support a simple consideration. Even past consideration is enough. The debtor always gives value because the debtor, at a minimum, promises to pay. So
the question is whether the secured party gave value (Usually the debtor promises to repay and a promise to pay is consideration, so ask if the creditor has given something of value )

Question 6

How is the element of “the debtor must have rights in the collateral” to be satisfied?

Answer 6

The debtor must have rights in the collateral because the debtor cannot grant a contingent property interest in property that it does not own (The instant that all of the elements are met, no matter the order, than there is attachment, now you are a secured creditor)