Perfection Flashcards
What does perfection address?
The rights** as **between** the **secured party** and **third parties
Not necessary to create a valid, enforceable security interest between the debtor and the secured party
How may a secure party perfect its security interest?
Automatic perfection
Possession** of collateral **by secured party
Control by secured party
Filing a financing statement
Notation of lien on certificate of title (special case for motor vehicles)
In what situations is a security interest perfected automatically?
Purchase money security interest in consumer goods
Assignment of certain accounts or payment intangibles
- must not be in conjunction with other assignment
- must not constitute a significant part of the outstanding accounts or payment intangibles
- “causal and isolated test”–those transfers to which no one would think of filing a financing statement
- “percentage test”–consider what percentage of the total accounts of the assignor was assigned and whether that percentage constitutes a significant part of the whole
Sale of payment intangible or promissory note
- for the benefit of banks in loan participation or mortgage warehousing
Security interest created by the assignment of health-care-insurance receivable to the provider of health care goods or services
Investment property puchased through an intermediary
Supporting obligations
- perfection of a security interest in collateral also perfects a security interest in a supporting obligation for the collateral
Temporary automatic perfection
- security interest in certficated securities, negotiable documents, or instruments
- automatically perfected without filing or taking of possession for a period of 20 days from the time it attaches, so long as security interest arises for new value given under an authenticated security agreement
In what situations is a security interest perfected by possession of collateral by a secured party?
Works with most types of collateral. EXCEPT:
- accounts,
- certificate of title goods,
- deposit accounts,
- nonnegotiable documents,
- electronic chattel paper, and
- general intangibles
Perfected from the moment of possession without relation back to time of attachment
Continues as long as possession is retained
Exception:
- a secured party may make available to the debtor
- on a temporary basis
- an instrument, negotiable document, certificated security, or goods not covered by a negotiable document and will
- and will remain perfected for 20 days, after which time the secured party will be become unperfected
- unless it again takes possession or files a financing statement
NOTE: not very practical
In what situations may a secured party perfect a security interest by control?
Investment property
- control established when the secured party has taken whatever steps that are necessary to be able to have the investment property sold without further action action from the owner
- Certificated securities–1) take possession of the certificate; or 2) if not in bearer form, must be indorsed
- Uncertificated securities–have the owner notify the issuer to either: 1) re-register the stock in the name of the secured party; or 2) agree to follow the secured party’s instructions without further consent by the owner
- Securities accounts–having the account owner contact the broker/ mutual fund company and instructing them that the secured party has the owner’s rights in the account or that the intermediary should comply with the secured party’s orders w/o futher consent of the owner
Nonconsumer deposit account
- the bank in which a nonconsumer deposit account is maintained automatically has control over the deposit account; otherwise
- the secured party may 1) put the deposit account in the secured party’s name (BEST); or 2) agree in an authenticated record with the debtor and the bank in which the deposit account is maintained that the bank will follow the secured party’s orders without further consent by the debtor
Electronic chattel paper
- single, authoritative copy of the record; and
- authoritative copy identifies the secured party as the assignee of the record; and
- authoritative copy is communicated and maintained by the secured party or its designated custodian
When is notation of lien on certificate of title required?
This is the only way to perfect a security interest in a motor vehicle
Must note the lien on the certificate of title, unless:
- debtor is holding the motor vehicle as inventory for sale–financing statement
When is a financing statement appropriate to perfect title?
All kinds of collateral, except:
- deposit accounts; and
- money
NOTE: if the deposit accounts or money are claimed as proceeds** of other collateral, a **filing as to the original collateral perfects a security interest in the deposit accounts or money
What are the requirements of a valid financing statement?
Debtors name:
- individual (preferred in order): 1) name on the debtor’s driver’s license if not expired and issued by the state in which debtor is located; 2) individual name of the debtor of debtor’s surname and first personal name
- corporation/ other registered organization (preferred in order): name stated in the document filed or issued by the state to form the registered organization
- partnership: partnership name; names of partners if no partnership name
- NOTE: no trade names
- financing statement is effective as long as not seriously misleading–if the financing statement would be discovered in a filing office search under the debtor’s correct name, not seriously misleading
- secured party is not responsible for filing errors committed by the filing officer
- if debtor changes its name so that a financing statement becomes seriously misleading, statement is effective to perfect a security interest acquired by the debtor before or within 4 months after the change
Description of collateral
- generic descriptions ok
- supergeneric descriptions ok
NOTE: financing statements operate on the principle of notice filing–simply enough information to put people on notice that they need to investigate
Secured party’s name
- error in this name is not seriously misleading
- error may give rise to estoppel
(Real property related financing statements)
- when realty interest are involved, then financing statement must 1) reasonably identify the realty; and 2) indicate that it is to be filed in the real property records
Debtor must authorize the filing
- no signature required
- automatically authorized if authenticates a security agreement covering the same collateral
NOTE: Authenticated security agreement may itself be filed
Where should the financing statement be filed?
With the clerk of the superior court of any county of the state
If realty interests** are involved (crops, minerals, timber, fixture filing), filing must be made in the **real estate records in the county in which the subject land is located
Multiple state transactions:
- file where the debtor is located–1) state where organized; 2) state where business located; 3) state where chief executive office lies
If a party moves after financing statement is filed**, the secured party **remains perfected for 4 months after the move to the new state
- if the secured party does not file in the new state within 4 months, it becomes unperfected and is deemed never to have been perfected as against a purchaser of the collateral for value
Agricultral lien on fram products**–in the state **where the farm products are found
How long is a financing statement effective for?
5 years from date of filing
- extended by filing a continuation statement
Termination:
- consumer goods–secured party must file a termination statement with each filing officer with whom a financing statement was filed wtihin one month (20 days if receives authenticated demand from debtor)
- nonconsumer goods–secured party must either send a termination statement to debtor or file one in the appropriate file office within 90 days (20 days if receives authenitcated demand from debtor)
How are proceeds perfected?
If a secured party has a perfected security interest in collateral,
- automatically has a perfected security interest in whatever proceeds the debtor receives in exchange for that collateral
- good for 20 days
Secured party must then take new action to perfect** its interest **unless:
- proceeds are identifiable cash proceeds; or
- same office rule–1) the security interest was perfected by filing a financing statement; 2) a security interest in the type of collateral constituting proceeds would be filed in the same place as the original financing statement; 3) proceeds were not purchased with cash proceeds of the collateral
