perfecting security interests

Question 1

perfection of security interests

Answer 1

• a single piece of the debtor’s property can be collateral for several creditors who ALL have their own security interest (perfection is relevant to the priority of interests)
• need to perfect to give creditor superior priority over other potential security interests to which collateral may be attached

Question 2

significance of perfection

Answer 2

perfected SI has maximum priority over collateral as compared to other unperfected SIs in that collateral

Question 3

what is a prerequisite for perfection

Answer 3

attachment

Question 4

3 main ways a SI can be perfected

Answer 4

1. holder of security interest files financing statement (the statement must identify debtor; identify secured party/creditor; adequate description of the collateral; need to get authorization from debtor for the filing)
   *signed security agreement will satisfy the authorization from debtor requirement
2. taking possession – secured party can perfect a SI in many types of collateral by just taking possession
3. automatic perfection and PMSIs - in some transactions, once collateral is attached, perfection occurs automatically

Question 5

certain perfection rules for certain types of collateral

Answer 5

• cars: SIs in cars are perfected by notation on the car’s certification of title
• security interests in things attached to land (fixtures) must be perfected with filing statements that describe the land
• security interests in business deposit accounts can be perfected by control

Question 6

purchase money security interest

Answer 6

• in some transactions, once collateral is attached, perfection occurs automatically

Question 7

PMSI in consumer goods

Answer 7

• PSMI arises where a creditor sells goods on credit to debtor or advances funds to debtor to buy goods – reserving a SI in the goods themselves
• example: A sells B a TV on credit; once attachment occurs, A has a PMSI in the TV that is automatically perfected

Question 8

PMSI in inventory or equipment

Answer 8

• can be perfected by filing or possesion

Question 9

temporary perfection of proceeds

Answer 9

• arises where debtor sells property used as collateral; art 9 gives creditors an automatic security interest in identifiable proceeds from sale of collateral
• if a secured party has a perfected security interest in collateral, the secured party automatically has a perfected security interest in any proceeds of the collateral for 20 days after receipt of the proceeds

example:

TV store takes a loan and puts up TV inventory as collateral
store can continue selling TVs from its inventory and creditor has automatically perfected SI in the proceeds received by store from the sales for 20 days

Question 10

continuing perfection beyond 20 days

Answer 10

• security interest in proceeds will continue to be perfected beyond the 20 days if:

1. Same office rule
2. proceeds are identifiable cash proceeds
3. security interest in proceeds is perfected within 20 day period