Also known as: right in collateral · rights in the collateral
Written by attorneys · grounded in primary & secondary sources — see below
A debtor's interest in property or power to transfer that interest to a secured party. This element is required for a security interest to attach and become enforceable against the debtor and third parties.
Renata Russo signed a security agreement granting Redwood Bank a security interest in a specific tractor. Russo had never purchased or leased the tractor and held no ownership or possessory interest in it. Because Russo lacked rights in the collateral, the security interest never attached despite the signed agreement and value given.
Ryan Roberts defaulted on a loan secured by his delivery van. Redwood Bank conducted a commercially reasonable sale of the van to Raven Logistics. The sale transferred to Raven Logistics all of Roberts's rights in the van and discharged the bank's security interest.
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Roland Rhodes granted Radiant Technologies a security interest in his accounts receivable. The security agreement prohibited Rhodes from assigning the accounts. Rhodes nevertheless assigned one account to a third party. The prohibition did not prevent the assignment from taking effect.
The debtor must possess an interest in the collateral or the power to transfer that interest to the secured party. Ownership, a leasehold, or a contractual right to the property typically suffices. Without this element, a signed security agreement and value given are insufficient for attachment.
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Yes. A secured party's disposition of collateral after default transfers to the transferee for value all of the debtor's rights in the collateral. The disposition also discharges the security interest under which the disposition is made.
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No. An agreement between the debtor and secured party that prohibits a transfer of the debtor's rights in collateral or makes the transfer a default does not prevent the transfer from taking effect.
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A debtor can acquire rights in after-acquired collateral after the security agreement is signed. Attachment occurs once the debtor obtains those rights, provided value has been given and the security agreement adequately describes the collateral.
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