Introduction to Security Interests

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  • Topic: Debt, Security interest, Uniform Commercial Code
  • Pages : 3 (588 words )
  • Download(s) : 163
  • Published : February 13, 2013
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Of all of the possible questions available in the text I found this one on page 519 of the text to be relatively interesting because I wanted to know how agreements with collateral were drawn up. I was interested to know what all was involved and what was required for such a contract to be enforceable. My questions revolved around these areas. What is a security interest? What are the requirements or qualifications? What makes a security interest enforceable? Why are these requirements necessary?

A security interest is the interest in collateral, personal property or fixtures, that secures payment or performance of an obligation. Security interests are created as a means of collateral against any value given by a secured party to the debtor. (Miller & Jentz, 2011) The process which makes a security interest enforceable is called Perfection. Perfection is a legal process in which secured parties protect themselves from the claims of third parties seeking remedies from the same collateral.

There are three requirements to creating an enforceable security interest.

1. A written or authenticated security agreement which clearly describes the collateral pertaining to the security interest which has been signed by the debtor. This is drafted when the security interest is not in possession of the secured party. Often there will be an authentication symbol when processing through electronic media.(Miller & Jentz, 2011) This symbol verifies the person signing intends to accept the record.

2. The secured party to give something of value to the debtor. This normally happens in the form of a direct loan or commitment to sell goods on credit. The creditor must provide something of value to the debtor for there to be a security interest.

3. Rights to the collateral itself. The debtor must have rights in the collateral. The debtor must have current ownership of the items in question or have future ownership interest or right to...
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