Attachment of Security Interest

Question 1

A Security Interest Attaches When:

Answer 1

For the security interest to be enforceable against the debtor, three conditions must coexist:

1. Value has been given by the secured party;
2. The debtor has rights in the collateral; and
3. The debtor has authenticated a security agreement that describes the collateral, or the secured party has possession or control of the collateral under a security agreement.

When these conditions coexist, the security interest attaches, unless there is an agreement to postpone the time of attachment

Question 2

Value Given

Answer 2

The secured party, or a person acting on behalf of the secured party, must give value (e.g., consideration sufficient to support a contract) for the security interest (see I.F. Value, supra)

Question 3

Proceeds

Answer 3

The term “proceeds” means:

i) Whatever is acquired upon sale, lease, license, exchange, or other disposition of collateral;

ii) Whatever is collected on, or distributed on account of, collateral;

iii) Rights arising out of collateral;

iv) To the extent of the value of collateral, claims arising out of the loss, nonconformity or interference with the use of, defects or infringement of rights in, or damage to, the collateral; and

v) To the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to, the collateral

Question 4

Account Debtor

Answer 4

An account debtor is a person obligated on an account, chattel paper, or general intangible, but not a person obligated on a negotiable instrument.

Question 5

Accessions

Answer 5

Accessions are goods that are physically united with other goods in such a manner that the identity of the original goods is not lost (e.g., memory installed in a computer, tires installed on a car).