Security Interest (SI)

Question 1

How is a Security Interest created?

Answer 1

An SI is created by:

+ a security agreement or possession of the collateral by the Secured Party; AND

+ attachment.

Question 2

Requirements for a security agreement

Answer 2

Security agreement must:

+ be in writing;

+ be authenticated (i.e., signed) by Debtor;

+ contain a granting clause; AND

+ contain a description of the collateral (description is sufficient if it “reasonably identifies what is described:_

Question 3

Possession

Answer 3

Secured party must possess the collateral with the intent to secure a debt.

If SP has possession, the security agreement can be oral.

Question 4

When is a Purchase-Money Security Interest (PMSI) created?

Answer 4

Secured party has PMSI if the obligation is incurred:

+ as all or part of the price of the collateral (e.g., a direct-financing seller); OR

+ for value given to enable the debtor to acquire or use the collateral, if the value is in fact so used (e.g., a bank loans Debtor money to purchase the collateral)