Katie Holmes knew she had to escape from her marriage to Tom Cruise — but she had signed an iron-clad pre-nup and would be leaving with $0.  Due to his controlling tendencies, she was unable to work during their marriage and had no money and no assets. Desperate to get out at all costs, she filed for divorce and found herself broke.  Her daughter Suri demanded that her mother continue to fund her extravagant wardrobe purchases so she could remain on the US Weekly's Best-Dressed Child list.  Determined to make Suri happy, Katie approached Nicole Kidman for a loan. Nicole said, "I can relate all too well, Katie.  I will lend you $100,000 if you will pay it back within the year.  I'm sure you'll be able to sell your story and make millions." 

Grateful for the loan, Katie said she would offer her wedding ring as collateral, and handed Nicole her wedding ring, a three-carat emerald cut with perfect clarity on a platinum band.  Nicole took the ring, handed Katie a check for $100,000, and the two shook hands.

Have Katie and Nicole created a valid security interest in the ring?

1. No, because Katie never authenticated a security agreement.

2. Yes, all of the requisites for attachment have occurred under section 9-203(b).

3. No, because Nicole had already agreed to make the loan and thus had already extended value before Katie offered the ring as collateral.  

4. Yes, because the ring is consumer goods and thus Nicole's security interest attaches automatically