Perfection Flashcards
what does perfection refer to
• refers to the notice requirement and defines the relationship between secured creditor AND OTHER CREDITORS
general rule of perfection
- general rule: an attached SI in CL will be senior to conflicting claims (but see exceptions)
- perfection: generally must:
(1) be attached, AND
(2) meet one of “the applicable requirements”: file a financing statement (the default), OR take possession of the CL (i.e. pledge), OR meet an Alternative Method of Perfection
financing statement and elements
relationship to SA & filing timing
o financing statement (UCC-1 statement): a public-facing document used to perfect the SI once attached (i.e. put other creditors on notice of your SI)
Elements:
• (1) name of debtor
• (2) authorization of the debtor
»> either through an expressly signed record as part of the secured loan paperwork, OR, more simply, by D’s authenticating the SA (in other words, by simply agreeing to be bound to a SA, D is AUTOMATICALLY deemed to have authorized the filing of any FS that covers the CL described in the SA – note that D is also authorizing the amendment of SA by the SP to include proceeds of that CL)
»> **any signed writing will work – does not necessarily have to sign the financing statement
• (3) name and address of SP, AND
• (4) indication of the CL
»> **refer to “sufficiency of CL description,” above and the caveat that “supergeneric descriptions” are allowed for the FS
»> **remember if you have CL listed on your FS but not the SA, it has not attached and thus cannot be perfected – you are unsecured as to that piece of CL
»> in essence, the SA needs to be more specific than the FS because the former is a contract and the later is a form of notice
»> **there is no need to specify after-acquired CL or future advances in the FS (so the SA can say “equipment now and hereinafter acquired” and the FS need only say “equipment” to be sufficient)
rule: a FS may be filed before a SA is made or a SI otherwise attaches (9-502(d)) – it doesn’t matter which is done first (the FS filing or the SA execution), but the perfection does not happen until they are both completed
how long does a FS last
rule: a filed financing statement lasts FIVE YEARS from date of filing
»> **so important because it will be deemed to have never been perfected against purchasers of the collateral for value (i.e. other secured creditors)
continuation statement: a FS may be continued up to six months prior to filing lapse by filing a continuation statement at which point the effectiveness of initial financing statement continues for additional five years
»> **you only have this 6-month window – can’t file earlier or later
lapsed filing is ineffective and must be refiled – it will only be effective as of the date of refiling – i.e. you lose the previous five years
who can file a FS
only person authorized by the debtor in an authenticated record (typically the SA) can file the initial financing statement [9-509(a)(1)]
a person who signs a security agreement ipso facto authorizes the filing of a financing statement [9-509(b)]
“Secured Party of Record” – financing statement can identify a representative of the secured party, who becomes the secured party of record, capable of filing financing statements and any additional related actions (amendments, continuation, termination statements)
when is filing effective
filing occurs when the financing statement and required fee are presented to the filing office
filing office may reject a financing statement for reasons in 9-515(b)
> > > if filing office rejects filing for reason other than (b), then it is effective except against purchaser who gives value in reasonable reliance on the absence of the record
requirements for name of debtor on financing statement
main point: getting the true, registered name of D is critical
if registered organization, the name of the debtor is that which appears on the organic record on file in the registered organization’s jurisdiction (e.g., name in article of incorporation)
if individual, alternatively (1) name on state-issued drivers license, or if no license, (2) the debtor’s surname and first personal name as he is known in the community
trade name (i.e. a d/b/a or AKA) alone is INSUFFICIENT for debtor’s name; probably okay for secured party’s name
errors and omissions rules for financing statements
a financing statement that otherwise complies with Article 9’s requirements, is effective notwithstanding errors or omissions, UNLESS the financing statement is “seriously misleading”
a financing statement that does not comply with requirements of 9-503(a) [name of debtor] is seriously misleading
> > > spelling errors will void the FS (but see exception below)
> > > search logic exception: if search of files, using office’s standard search logic, by the debtor’s correct name discloses names other than the correct name, those names are not seriously misleading
o i.e. if D’s company name is “ABC LLC,” but the FS lists D’s name as “ABC Co.” – if a search of “ABC LLC” still pulls up the financing statement misfiled under “ABC Co.,” then the name on the FS is not seriously misleading
> > > **failure of filing office to correctly index does not affect the effectiveness of the statement (putting risk of filing office error on the searcher)
rules for post filing changes (debtor name change and termination statements)
• debtor’s name change: in the event that the name of the debtor on the financing statement changes such that the financing statement is now “seriously misleading”:
o the financing statement is STILL effective to perfect interests in collateral acquired by the debtor before, or within FOUR MONTHS after the statement becomes seriously misleading; and
»> really just an issue when you want to perfect after-acquired property
o the statement is NOT effective to perfect any collateral after four months of being deemed seriously misleading, UNLESS appropriate amendment of the statement within four months of becoming misleading
• termination statement: debtor has paid off the debt and wants the FS removed from the public record
o within 20 days after secured party receives authenticated demand, the secured party must cause a termination statement to be filed, if:
»> no obligation secured by the collateral, AND
»> there is not commitment to further advances, OR
»> debtor never authorized the filing of the initial financing statement
o if a requested termination statement is not forthcoming, debtor may file a termination statement
o once termination statement is filed, the original financing statement is no longer valid
rules for where to file
The general rule is:
> > > file with the SOS in the state where state law applies
> > > For Perfection, look to the state where the debtor is located
For transactions involving goods, the effect of perfection and non-perfection and the priority of a non-possessory security interest in the collateral’ is governed by state where goods are
rules governing ‘location of debtor’ (where does debtor conduct its affairs?)
• Debtor is located at:
»> If an individual, at individual’s principle residence
»> If an organization with only one place of business, it’s where the place of business is located
»> If an organization with more than one place of business, at its chief executive’s office [9-307(b)]
If debtor is a registered organization under state law, then that state law is location of debtor
“Registered organization” is defined to include most corporations, limited partnerships, LLC’s and statutory trusts [9-102(a)(71)
A person who ceases to exist, have a residence or have a place of business will be considered to be located at where it was previously located [9-307(d)]
what to do if debtor or CL changes location
similar to debtor name change:
o Expiration of FOUR MONTHS after a change of the debtor’s location to another jurisdiction
o Expiration of ONE YEAR after the transfer of collateral to a person who becomes the debtor and is located in another jurisdiction (merger)
rule for continuous perfection
o many objects allow multiple methods of perfection
o a SI is perfected continuously if it is originally perfected by one method under this chapter and is later perfected by another method under this chapter without an intermediate period when it was unperfected
rules for alternative perfection method of notation on certificate of title
governing rule: to perfect a security interest in property subject to a state certificate of title statute (ex – cars, boats), you MUST comply with the method listed in the state certificate of title statute – generally, the appropriate method of perfection under certificate of title statute is lien notation on title
> > > **a financing statement is insufficient unless it is a SI in cars/trucks that the debtor holds as inventory for lease or sale (like a car dealer - b/c unreasonable to have to put creditor’s name on title of each car in your lot)
> > > goods become subject to a certificate of title when a valid application for certificate of title and applicable fee are delivered to the appropriate state authority
> > > choice of law: the jurisdiction under which the certificate of title is issued governs perfection, effect of perfection or non-perfection, and priority of security interests in such property
items that can be perfected by possession
general rule: 9-313 permits possession of certain collateral to serve as valid method of perfection:
- GOODS (except cars/trucks which need to be perfected via title) (also note PMSI in consumer goods perfects automatically),
- tangible negotiable documents,
- instruments,
• money, and
»> ONLY WAY to perfect SI in money is via possession
• tangible chattel paper
***basically anything that a party can physically possess
time period for perfection by possession
time period: starts when SP takes possession and ends when SP loses possession
• **so if you have possession on 1/1 but then lose it for a week on 2/1, your perfection will only date back to 2/7 – i.e. causes a priority issue because perfection “starts over”
