Fowler Bros. has applied to Gibralter Bank for a $50,000 loan for its business expansion. If Fowler Bros. plans to use its account at Gibralter Bank as collateral, discuss what the bank needs to do for a security interest to attach
Attachment is a vital step in a secured transaction. For an enforceable security interest to be created, or to attach, three steps must occur: the parties must make a security agreement and either the debtor has to authenticate a security agreement describing the collateral or the secured party has to obtain possession or control of the collateral, the secured party must give value to obtain the security agreement, and the debtor must have rights in the collateral. Ordinarily the agreement is in writing and signed by the debtor or electronically recorded and authenticated by the debtor. In this case, however, it will be sufficient if the parties have an oral agreement since the bank, the secured party, has control of the deposit account being used for collateral. The second element, value, is the money the bank loans. The third element is that the debtor has rights in the collateral. Fowler Bros. has a legal right to its deposit account in Gibralter Bank.
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