Creation of a Secured Interest

Question 1

Security Agreement

Answer 1

Unless the collateral is in the possession or control of the secured party, a written security agreement is required. A security interest must: be evidenced by a record and show an intent to create a security interest; be authenticated by the debtor (usually signed, though any symbol showing authentication works); contain a description of the collateral that reasonably identifies the collateral (if it is a fixture, it must also describe the real estate)

Question 2

Attachment

Answer 2

Requires: a security agreement, the secured party must have given value (past consideration is enough), the debtor must have rights in the collateral

Question 3

Scope of security interest

Answer 3

may include future advances, after acquired property, and proceeds

Question 4

after acquired property

Answer 4

Generally, without an explicit after-acquired property clause, the secured party’s security interest only reaches the collateral that the debtor had rights in at the time the debtor signed the security agreement. However, there is an exception if there is not an explicit term if the collateral is of a type that is rapidly depleted and replenished (inventory or accounts), as courts assumed parties meant to include such after acquired property or else the collateral would cease to exist.

Question 5

Proceeds

Answer 5

whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds. If collateral is insured and money is received from insurance company due to loss or damages, that is proceeds.

Question 6

Are proceeds collateral?

Answer 6

Unless otherwise agreed, a security interest in collateral automatically gives the secured party a right to the identifiable proceeds of that collateral. Proceeds are identifiable if the creditors proves they can be traced back to the creditor’s original collateral

Question 7

Lowest intermediate balance test

Answer 7

when determining if commingled cash is collateral, look at the balance of the commingled bank account starting at the time the proceeds are deposited and ending at the time you are applying the test. The lowest balance during that time is the secured party’s identifiable proceeds.

Question 8

supporting obligation in collateral

Answer 8

attachment of a security interest in collateral serves as attachment of a security interest in a supporting obligation for the collateral