What constitutes a "security agreement"?

What constitutes a "security agreement"?

• A. A contract creating a security interest that may be oral
• B. A contractual document requiring notarization
• C. A written agreement creating a security interest in collateral
• D. A verbal agreement between the secured party and the debtor

Answer: (C)

A security agreement is fundamentally a written document that establishes a security interest in collateral. This definition aligns with the requirements set forth under the Uniform Commercial Code (UCC), specifically UCC Article 9, which governs secured transactions. To create a valid security interest, the agreement must typically be in writing, particularly when dealing with tangible assets or certain types of collateral subject to statutory requirements. The written aspect of a security agreement is crucial because it provides evidence of the parties' intent to create a security interest, detailing the rights and obligations of both the secured party (the lender) and the debtor (the borrower) in relation to the collateral. This clarity not only facilitates the enforcement of rights in the event of default but also helps to establish priority over other creditors should bankruptcy or liquidation occur. While there are some exceptions where a security interest might arise without a formal written agreement—such as through possession or certain oral contracts in specific contexts—the general rule under UCC requires a writing to perfect the interest in many situations. Therefore, option C correctly captures the essential nature of a security agreement as a written document that specifies a security interest in collateral.

A security agreement is fundamentally a written document that establishes a security interest in collateral. This definition aligns with the requirements set forth under the Uniform Commercial Code (UCC), specifically UCC Article 9, which governs secured transactions. To create a valid security interest, the agreement must typically be in writing, particularly when dealing with tangible assets or certain types of collateral subject to statutory requirements.

The written aspect of a security agreement is crucial because it provides evidence of the parties' intent to create a security interest, detailing the rights and obligations of both the secured party (the lender) and the debtor (the borrower) in relation to the collateral. This clarity not only facilitates the enforcement of rights in the event of default but also helps to establish priority over other creditors should bankruptcy or liquidation occur.

While there are some exceptions where a security interest might arise without a formal written agreement—such as through possession or certain oral contracts in specific contexts—the general rule under UCC requires a writing to perfect the interest in many situations. Therefore, option C correctly captures the essential nature of a security agreement as a written document that specifies a security interest in collateral.