Secured Transactions: Creating a Security Interest

Secured Transactions: Creating a Security Interest

  • Submitted By: slinares929
  • Date Submitted: 04/23/2010 12:11 PM
  • Category: Business
  • Words: 1815
  • Page: 8
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International Secured Transactions
Mid-term Hypo
Stefanie Linares

Creating a Security Interest

The first step in creating a security interest is otherwise known as “attachment”. Article 9 of the Uniform Commercial Code (UCC) provides three requirements for attaching a security interest to specific personal property: 1) the parties have an adequate security agreement, 2) the secured party gives value, and 3) the debtor has rights or the power to transfer rights, in the collateral. § 9-203(b). The security interest becomes enforceable between two parties once these requirements have been met.
In this case, a security interest will attach for all collateral, excluding the apartment lease and possibly the unsigned Venezuelan purchase order. In exchange for the loans, Bill and John offered the following collateral: inventory and equipment (including built-in racking) in Rhode Island; all accounts receivable of from its customers (including the unsigned Venezuela purchase order); all inventory and equipment in Jamaica; and the New York luxury apartment lease.
Loans Are Us may have difficulty attaching a security interest to the Venezuelan purchase order. For attachment to occur, the debtor must have rights – or the power to transfer rights – in the collateral in which a security interest is granted. Laws outside Article 9 determine these rights or powers of a debtor. According to § 9-407, the anti-assignment clause would be ineffective from preventing perfection of the transfer of the right to payment. The only instance in which the anti-assignment clause would apply is if the debtor is located in a country with a statute that enforces anti-assignment clauses. The terms of the purchase order require that all claims be litigated in Jamaica under Jamaican laws. The facts do not indicate whether a statute in Jamaica enforces anti-assignment clauses. If there is a statute, attachment will not occur because the debtor does not possess the...

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