CHAPTER 11.02. Creation

• Jurisdiction: United States

11.02. Creation

Two important conceptual aspects of security interests under the Delaware U.C.C. are creation and perfection.²³ Creation generally means the making of an enforceable security interest between the debtor and the secured party. Perfection makes the security interest enforceable against third parties.

Creation of the security interest is usually effected by a security agreement. The typical security agreement will contain express language granting a security interest in favor of a secured party in certain property of a debtor. Sections 9-108(a) and 9-203(b)(3)(A) of the Delaware U.C.C. require that a security instrument contain a description of the collateral that reasonably identifies what is secured. A description in a security agreement reasonably identifies the collateral if the collateral is identified by a specific listing, category, or type of collateral defined in the U.C.C.²⁴ For example, "all inventory," "all equipment," or "all general intangibles" are acceptable descriptions in the security agreement because these descriptions are types of collateral defined in the U.C.C. The Delaware U.C.C. gives guidelines for reasonable identification of collateral.²⁵ A generic description of collateral as "all the debtor's assets" or "all the debtor's personal property" does not reasonably identify the collateral, although those phrases may be sufficient to describe the collateral in a financing statement.²⁶ Although the secured party can generally use blanket collateral types to describe the secured interest, a description by type is insufficient for a consumer transaction, consumer goods, a security entitlement, a securities account, or a commodity account.²⁷

Generally, attachment requires that value be given and that the debtor has rights in the collateral or the power to transfer the collateral.²⁸ Attachment also requires (i) an authenticated security agreement containing a description of the collateral, (ii) possession of tangible personal property or certificated securities pursuant to an agreement, or (iii) control of deposit accounts or investment property pursuant to the debtor's security agreement.²⁹

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Notes:

^[23] 6 Del. C. §§ 9-102(a)(74) and 9-203(a).

^[24] 6 Del. C. § 9-108.

^[25] 6 Del. C. § 9-108(b).

^[26] 6 Del. C. §§ 9-108(c) and 9-504(2).

^[27] 6 Del. C. § 9-108(e).

^[28] 6 Del. C. § 9-203(b). Some authorities view creation and attachment as indistinguishable. TriBar, U.C.C. Security Interest Opinions, 49...