Perfecting Security Interests Flashcards
Generally, what is perfection of security interests?
A single piece of debtor’s property may be attached as collateral to multiple, different SI’s — perfection determines priority of the interests.
Once an SI is attached, is it enforceable?
Yes.
Once a SI is attached to a Debtor’s collateral and where that collateral has multiple SI’s attached to it by other creditors, is perfection required?
Yes, it must be perfected in order to give its holder (creditor) priority over other potential SIs to which collateral may be attached.
Why is perfecting a SI so important?
A perfected SI has maximum priority over collateral as compared to other unperfected SIs in that collateral.
Perfecting a SI creates a record of creditor’s security agreement that other potential creditors can see.
Is attachment a prerequisite to perfection?
Yes, if a collateral does not attach to a SI, it cannot be perfected.
What are the 3 methods of perfection? (Simple)
(1) Filing
(3) Automatic Perfection PMSI
(2) Taking Possession
F.A.T.
What are the 3 ways to Perfect an SI? (detailed)
Filing a Financing Statement: Usually filed with state office. The statement must: identify debtor where name must exactly match. (If debtor is business, then name must match Art of Incorp.). Authorization for filing must be obtained by debtor and a security agreement itself satisfies this requirement.
Auto perfection & PMSI: in some transactions like a PMSI once collateral is attached perfection occurs automatically.
Taking possession: secured party may perfect a SI in many types of collateral simply by taking possession. (Goods, tangibles).
Remember P.I.G. - F.A.T.
Are SIs in vehicles perfected by noting vehicles certificate of title?
Yes, SIs in vehicles are perfected by notation on the certificate of title.
Name the 3 instances in which an SI is perfected automatically.
PMSI in consumer goods: arises where a creditor sells goods to debtor and/or advances funds to debtor to buy goods, reversing a SI in the goods themselves. I.e., A sells B a TV on credit. Once SI is created and attached when B receives the TV, A has a PMSI in goods.
Small assignment of accounts: intangibles assigned.
Sale of payment intangibles or promissory notes: auto perfect.
Does PMSI apply to inventory or equipment?
No, PMSI only applies to consumer goods.
Do PMSIs apply to vehicles?
No, notation in the vehicle title is required for perfection.
When do consumer goods need a Fixture filing and what is the purpose of a fixture filing?
Consumer goods that becomes fixtures require a fixture filing to obtain priority over an interest in the real property to which fixture is affixed to.
Are SIs in proceeds from original collateral automatically perfected?
Yes,
but only for the first 20 days from the debtors receipt of the proceeds and can be un-perfected on 21st day.
This arises when debtor sells property used as collateral. Art 9 gives creditor an automatic SI in proceeds from the sale of collateral.
If a TV store takes a loan and puts up TV inventory as collateral and the store sells it’s TV inventory, does creditor have an automatic perfection on the proceeds earned from selling TVs?
Yes, but only for 20 days.
How can an SI continue perfection over proceeds after the 20 day mark?
(1) SI in original collateral was perfected by filing
(2) proceeds are identifiable cash
(3) SI in proceeds is perfected by creditor within the 20 day period.
