2.  Process by which a security interest is created and becomes enforceable against the debtor so the creditor can repossess the collateral if the debtor defaults (e.g., does not pay).

3.  1. Creditor gave Value  2. Contract – The Security Agreement  3. Debtor has Rights in the Collateral Elements may occur in any order but no attachment until all three satisfied.

4.  Creditor must “deserve” the right to repossess, for example:  CR loans money to DR.  CR gives DR goods on credit.

5.  The contract between the debtor and creditor in which the debtor gives the creditor a security interest in the collateral.  Methods of proving the security agreement (Statute of Frauds):

6.  1. Oral  Only if collateral is in the creditor’s possession.  “Pledge”  Creditor has duty to take reasonable care of the collateral.

7.  2. Authenticated Record  a. Evidence of Record ▪ Written, or ▪ Electronic ▪ Signed physically or electronically. ▪ Problem 282, p. 804

8.  2. Authenticated Record  b. Description of collateral – reasonable identification ▪ Exact (serial number) test rejected. ▪ Description by type allowed except for consumer goods and commercial tort claims. ▪ Super generic descriptions not allowed.

9.  2. Authenticated Record  Normally, security agreements are long, detailed contracts.  Especially important are actions constituting default.  Follow this link to read an assortment of real security agreements: http://agreements.realdealdocs.com/Security-Agreement/texas/. http://agreements.realdealdocs.com/Security-Agreement/texas/

10.  3. Control  Method for deposit accounts, electronic chattel paper, and investment property.  Creditor has the right to sell or cash in the collateral without further action from the debtor.  Analogous to possession for these intangibles.

11.  Ownership  Identification to the contract  Permission  Problem 295, p. 820

12.  Using new property acquisitions as collateral for old loan  Very common with inventory – the floating lien.  Consumer good limitation – property acquired within 10 days of creditor giving value.  Commercial tort claim limitation – ineffective

13.  Collateral will serve as collateral for future loans.  A “line of credit” arrangement.