Creation of Security Interests (Attachment)

Question 1

What are the requisites for attachment?

Answer 1

1. Parties agree to create a security agreement, which can be done by (a) creditor taking possession of collateral, (b) an authenticated security agreement, or (c) creditor taking control of nonconsumer deposit accounts, electronic chattel paper, and investment property.
2. Value must be given by the secured party, and
3. The debtor must have rights (such as ownership) in the collateral.

Question 2

What makes a security agreement valid

Answer 2

1. Evidenced by a record (writing) showing an intent to create a security interest.
2. Authenticated (signed by debtor - any symbol will do), and
3. Description of Collateral: Must be able to reasonably identify the collateral. This can be done by (a) generic description such as “all of debtor’s equipment,” or (b) specifically, by giving serial number or other identification of the item.

Note: Consumer goods, consumer securities accounts, and commercial tort claims must have a specific description. Generic descriptions will not do.

Question 3

True or False: “All fo debtors assets” is a sufficient description of the collateral for purpose of a security agreement.

Answer 3

False.

Question 4

What is sufficient for the value given in consideration of the security agreement?

Answer 4

Any consideration sufficient for a simple contract is sufficient for a security agreement. However, security agreement differ from contracts in that past consideration will also suffice as value, as long as the security interest is intended as security for that past consideration.

Note: Promise to pay back debt is sufficient.

Question 5

What rights must a debtor have in the collateral?

Answer 5

Generally, possession is enough. Title is not necessary to have rights (except for consignments).

Question 6

What rights and duties do secured parties in possession or control of collateral have?

Answer 6

Secured parties in possession must use reasonable care in storing and preserving the collateral, but is entitled to reimbursement for reasonable expenses in caring for the collateral. However, risk of loss is passed to debtor to the extent of an insurance deficiency.

Additionally, secured parties in possession or control may retain any increase in value of, or profit from (except for money), the collateral. If the economic benefit received is money, secured party must pass it on to the debtor or apply it to secured obligation (debt).