Creation of Security Interest (Attachment)

Question 1

Significance of Attachment

Answer 1

• establishes secured party’s rights against the debtor
• security interest is not enforceable unless it has attached

Question 2

Requirements for Attachment

Answer 2

1) parties must agree to create the security interest -> need security agreement (3 ways of evidencing)
2) value must be given by the secured party AND
3) debtor must have rights in the collateral

• these three requirements must coexist

Question 3

Evidence That the Parties Intend to Create Security Interest

Answer 3

• creditor taking possession of the collateral OR
• an authenticated security agreement OR
• the creditor taking control of nonconsumer deposit accounts, electronic chattel paper, + investment property

Question 4

Authenticated Security Agreement - Requirements

Answer 4

• evidenced by a record
• agreement must be authenticated
• description of collateral

Question 5

Authenticated Security Agreement - Record

Answer 5

• needs to be evidenced by a record (written or electronically stored info)
• must show an intent to create a security interest

Question 6

Authentication of Security Agreement

Answer 6

• agreement must be authenticated by the debtor
  -> usually means signed by debtor
• any symbol that is made w/ present intent to authenticate the record will work
  -> includes an electronic symbol, an X or a smiley face

Question 7

Description of Collateral

Answer 7

• description must reasonably identify the collateral
• collateral can be broadly described by category or type (ex: all of the debtor’s equipment) or specifically (ex: by serial # or by saying “the debtor’s TV”)
  -> consumer goods, consumer securities accounts + commercial tort claims cannot be described by type alone (more specific description is needed)

Question 8

Supergeneric Descriptions

Answer 8

• NOT sufficient in security agreements
• ex: “all of debtor’s assets” OR “all of debtor’s personal property”

Question 9

Value Must Be Given

Answer 9

• secured party needs to give value to create the security interest
• any consideration sufficient to support a simple K is value
• even past consideration will suffice as value, as long as the security interest is intended as security for past consideration

Question 10

Duties of Secured Party in Possession or Control

Answer 10

• secured party in possession must use reasonable care in storing + preserving the collateral
  -> but is entitled to reimbursement for reasonable expenses in caring for the collateral
• risk of loss is on the debtor

Question 11

Rights of Secured Party in Possession or Control

Answer 11

• may hold any increase in value of, or profits from, the collateral (except money) as additional security, but $ so received must be given to the debtor or applied against the secured obligation
• secured party in possession or control may also pledge the collateral