lesson 15 Flashcards
4 ways to perfect security interest
- perfection by filing
- perfection by possession
- perfection of consumer goods
- perfection of movable collateral and fixtures
most common way to perfect security interest
perfection by filing
perfection by filing
file with local authority where collateral is found (usually clerk’s office of the court of record)
in virginia, file with the
clerk’s office of the circuit court
a filing is valid for _____, but may be
5 years, renewed indefinitely before 5 year period ends
a filing must include
- name, address, Tax ID, other relevant contact info of debtor
- name, address, etc of secured party
- clear and complete description of the collateral
- titles or parties designation? special collateral? fixtures?
filing is the only method to
perfect a security interest in accounts or general intangibles
ABC corporation in NY manufactures vinyl siding, XYZ construction in VA will buy some. Before ABC delivers the siding and XYZ pays the down payment, what should they do?
- execute a security agreement making sure that it attaches to the vinyl siding collateral (this gives ABC superior rights of collateral over XYZ)
- perfect the security interest with a financing statement and file it with the clerk’s office in Virginia (this gives ABC superior rights of collateral over everyone else)
Same ABC and XYZ. After the security agreement is signed, but before ABC can file, XYZ borrows money from New Horizon and offers the warehouse of siding as collateral. New Horizon executes a security agreement and files financing, then XYZ goes bankrupt and defaults on the loans to ABC and NH. Who gets the collateral?
Even though ABC loaned the money first and had a security agreement, NH perfected by filing and takes the collateral
perfection by possession or control
a creditor may perfect his security interest by simply possessing the collateral
possession allows the creditor to make sure that
the collateral is protected and not subject to damage or loss
possession allows for
immediate repossession if debtor defaults
main drawback of perfection by possession
possession by the creditor is not practical in many situations b/c the debtor is ordinarily borrowing the money to buy and use collateral
a creditor that perfects a security interest by possessing the collateral has
a duty to use reasonable care to keep it safe from harm
perfection of consumer goods
consumer goods are primarily used for personal, family, or household purposes
purchase money security interest (PMSI)
created when a merchant sells consumer goods (the collateral) on credit to a debtor OR a lender loans money to a consumer to purchase consumer goods
when a PMSI is created:
once the security interest is established it is automatically perfected
Susan purchases a TV from Best Buy, they sell it for $100 down and $100/month, Susan signs a security agreement but it is never filed in clerk’s office. Susan then borrows $500 from her brother and tells him the TV is collateral, she then dies. Who gets the electronics?
Best Buy b/c the agreement involved consumer goods and the loan was to purchase those goods, creating a PMSI and automatically perfecting
highest form of perfection there is
perfection by possession
when in doubt if you have a PMSI,
file
perfection of movable goods
general rule is that the perfected security interest in the first state is valid against the collateral in the new state for a period of 4 months after the debtor moves to another state, or for a period of 1 year after the collateral is moved to another state
movable goods
what happens when security interest is perfected in one state and the collateral is moved to another state?
in most states, to perfect a security interest in a motor vehicle:
the security interest or lien must be noted directly on the title
fixtures
personal property that is somehow attached or affixed to real estate. the law on perfecting security interests on fixtures is complex and you should consult an attorney
