Attachment

(General Requirements for Attachment) (The Security Agreement) (Description of the Collateral Generally) Example of Sufficient Particularity

A security agreement granted a creditor a security interest in all of the debtor's equipment. This was a sufficient description of the collateral. It referred to a subset of the debtor's property by the term equipment, which is the term the UCC would use to describe that type of collateral.

(General Requirements for Attachment) (The Security Agreement) (Description of the Collateral Generally) Supergeneric Description Not Sufficient

A supergeneric description is not sufficient. For instance, describing the collateral as "all the debtor's assets," "all the debtor's personal property," or something similarly all-encompassing is a supergeneric description that will not pass muster.

(General Requirements for Attachment) (Rights in the Collateral) Determining Whether the Debtor Has Rights in the Collateral

Article 9 does not govern whether a debtor has rights in the collateral, nor does it govern how and whether a debtor might transfer those rights. Instead, Article 2 (sale of goods), Article 2A (lease of goods), and the common law of contracts and property govern this determination. In general, one cannot give what one does not have. This means that a debtor may not use, as collateral for its transaction, property wholly belonging to another person without that person's permission.

Attachment

Attachment means that an enforceable security interest has come to exist in the debtor's personal property, or that the creditor holding the security interest is a secured creditor with rights in the debtor's personal property.

General Requirements for Attachment

For a security interest to attach: the creditor must provide some value to the debtor; the debtor must have rights in the collateral or the power to transfer rights in the collateral to a third party; and in most cases, the debtor must authenticate a written agreement that grants the creditor rights in specific collateral and reasonably describes the collateral.

(General Requirements for Attachment) (The Security Agreement) (Description of the Collateral Generally) (Greater Specificity Required for Particular Transactions) Commercial Tort Claims

For commercial tort claims, it is not enough merely to refer to that type of collateral by the term the UCC would use to describe it, although the agreement should do that. The agreement should also reference either the specific lawsuit (if one has been filed) or the specific events giving rise to the claims, e.g. "all tort claims arising out of the January 2017 building fire."

(General Requirements for Attachment) Value to the Debtor

For purposes of attachment, a creditor gives value by giving any consideration that could support formation of a simple contract. Most often, creditors give value by extending credit, lending money, or obligating themselves to do so in the future, regardless of whether the credit is ever drawn upon or whether the arrangement contemplates a charge-back.

(General Requirements for Attachment) (The Security Agreement) (Description of the Collateral Generally) Sufficient Particularity, one

Generally, the collateral description is sufficiently particular if the agreement refers to a subgroup of the debtor's property by the term the UCC would use to describe that class of collateral, e.g., "all equipment". A description by category, specific listing, or computational or allocational formula or procedure will also suffice.

(General Requirements for Attachment) (The Security Agreement) (Description of the Collateral Generally) (Greater Specificity Required for Particular Transactions) Consumer Goods in a Consumer Transaction

Ideally, if the collateral is consumer goods in a consumer transaction, the security agreement should identify the particular goods constituting the collateral—for instance, by serial number.

(General Requirements for Attachment) (The Security Agreement) (Description of the Collateral Generally) (Greater Specificity Required for Particular Transactions) Securities or Commodity Accounts in a Consumer Transactions

Ideally, if the collateral is securities or commodities accounts in a consumer transaction, the description should list the specific accounts made subject to the security interest.

(General Requirements for Attachment) (Exceptions to the Requirement to Describe the Collateral) Secured Party's Control over Particular Types of Collateral

If (1) the collateral is electronic chattel paper, investment property, a deposit account, or a letter-of-credit right, and (2) the secured party has control of the collateral, there does not need to be a written description of the collateral. In practice, there will generally be paperwork showing the secured creditor's right to control these types of collateral.

(General Requirements for Attachment) (The Security Agreement) (Description of the Collateral Generally) Greater Specificity Required for Particular Transactions

If the collateral consists of (1) commercial tort claims or, (2) in a consumer transaction, consumer goods, a securities entitlement or account, or commodities account, then it is not enough to describe the collateral by type alone. Greater specificity is needed. In general, for these types of collateral, the description is specific enough if it obviates any reasonable risk that the debtor will inadvertently encumber collateral not meant to be included in the transaction.

(General Requirements for Attachment) (Exceptions to the Requirement to Describe the Collateral) Secured Party's Possession of Collateral Not Constituting a Certificated Security

If the collateral is not a certificated security and is in the possession of the secured party, there is no description requirement. This is because the possession indicates precisely what the collateral is, effectively replacing the descriptive words in the security agreement.

(General Requirements for Attachment) The Security Agreement

In most cases, the debtor must authenticate a written agreement that (1) grants the creditor rights in specific collateral and (2) reasonably describes the collateral. This written agreement is generally referred to as a security agreement, technically defined as any agreement creating or providing for a security interest.

(General Requirements for Attachment) (The Security Agreement) (Description of the Collateral Generally) Sufficient Particularity, two

Other methods are acceptable if the collateral is objectively identifiable. Of course, the security agreement may describe a narrower subset of collateral, e.g., "all blue tractors", supply a unique identifying number, or reference the specific type of property to be offered, e.g., "all tractors". The security agreement need not itemize each discrete article subject to the security interest.

(General Requirements for Attachment) Exceptions to the Requirement to Describe the Collateral

There are two primary exceptions to the general rule that the parties must authenticate an agreement sufficiently describing the collateral: Secured Party's Possession of Collateral Not Constituting a Certificated Security, and Secured Party's Control over Particular Types of Collateral.

(General Requirements for Attachment) (The Security Agreement) Authenticating the Security Agreement

To authenticate a security agreement, the parties must either (1) sign it or (2) attach or associate some electronic symbol, sound, or process with it and do so with present intent to adopt or accept it.

(General Requirements for Attachment) Rights in the Collateral

To create a security interest, the debtor must have either (1) rights, or some enforceable interest, in the collateral or (2) the power to transfer some enforceable interest in the collateral to a third party. This requirement is generally satisfied if the debtor owns the collateral, but this is not required. With a few exceptions, the debtor need not hold title to the collateral. For instance, if a debtor has only a valuable lease on equipment, or even the true owner's permission to create a security interest in the collateral, that is enough.

(General Requirements for Attachment) (The Security Agreement) Description of the Collateral Generally

To create an enforceable security interest, the security agreement must reasonably describe the collateral with sufficient particularity.