Perfection Flashcards
What is perfection?
The process that stakes the secured party’s claim, so that the secured party might have priority over a later party
What are the six methods of perfection?
- Filing
- Possession
- Control
- Alternative perfection systems
- Perfection under a state’s certificate of title law
- Automatic perfection
Mnemonic: Famous People Can’t Avoid Attention
What is perfection by filing?
Filing a financing statement in the central filing office of the appropriate state
What types of collateral can be perfected by filing?
All types except deposit accounts, money, letters of credit, and collateral subject to other perfection methods (e.g. state certificate of title laws)
What is the purpose of a financing statement?
Puts others on notice that there may be a security interest
Where is a financing statement filed? (general)
The central filing office, often the secretary of state’s office in the state where the debtor is located
For determining where to file a financing statement, where is a corporation located?
Its state of incorporation
For determining where to file a financing statement, where is a business that’s not a registered organization located?
The state in which it operates its business
If multiple states, then the state where the CEO is located
For determining where to file a financing statement, where is an individual located?
The state of their principal residence
For collateral related to real property, where is the financing statement filed?
The county where the property is located
What information is required in a financing statement for perfection?
- Name of the debtor
- Name of the secured party
- Description of the collateral
What information is required in a financing statement but not essential for perfection?
- Address of the debtor
- Address of the secured party
- Whether the debtor is an individual or an organization
What happens if a financing statement is missing required but nonessential information?
A filing office will refuse to accept the statement
However, if a filing office accepts the statement, it is effective to perfect a security interest
What additional information is required in a financing statement for collateral related to real property?
- That the security agreement covers this type of collateral
- That it is to be filed in the local real property records
- Description of the related real property
- Name of the record owner of the real property, if the debtor does not have an interest in the real property
Does recording the mortgage in local real property records satisfy the financing statement requirements for real-property-related collateral?
Yes, if it contains the required information.
Note: It does not need to include that it will be filed in the local real property records
A debtor must _________ a financing statement in an authenticated record.
authorize
Does a debtor have to sign a financing statement?
No
If a debtor authenticates a security agreement, what does that authorize?
The secured party to file a financing statement
What can failure to obtain authorization before filing a financing statement result in?
The secured party being liable for actual and statutory damages
A financing statement must contain the debtor’s _____ name.
legal
If the debtor is a registered organization, what name must be used on the financing statement?
The name on the articles of incorporation or last public organic record filed with the state
Note: No trade names (i.e. no d/b/a)
If a debtor is an individual, what name must be used on the financing statement?
Majority rule: The name on their non-expired driver’s license or state ID (or their legal name if no ID)
Minority rule: The name on their driver’s license or state ID is a safe harbor, but other legal names may be sufficient
How does the description of collateral for a financing statement compare to that in a security agreement?
The description in a financing statement can be super generic
Does a financing statement need to mention proceeds?
No
Does a financing statement need to mention after-acquired property or future advances?
No
What must happen first: attachment or perfection?
Attachment
If the collateral is described in a security agreement but NOT the financing statement, has the security interest attached? Has it perfected?
Attached, but not perfected
If the collateral is NOT described in a security agreement but is described in the financing statement, has the security interest attached? Has it perfected?
Not attached or perfected
If the collateral is described in both the security agreement and financing statement, has the security interest attached? Has it perfected?
Yes, attached and perfected
What is the general rule regarding minor errors in a financing statement?
They do not affect perfection unless they make the financing statement seriously misleading
For financing statements, are errors in the debtor’s name seriously misleading?
Almost always
For financing statements, when is an error in a debtor’s name not seriously misleading?
If the search for the correct name of the debtor would uncover the financing statement with the error
If a financing statement lacks the required information, what should the filing office do?
Refuse the statement
If a creditor fails to tender the fee or submits a financing statement in an improper manner, what should the filing office do?
Refuse the statement
If a filing office refuses a financing statement and was not justified in doing so, what happens?
The financing statement is treated as having been filed
Exception: If a purchaser or secured party reasonably relied on the absence of the record in the files, then it is ineffective
What happens if a filing office indexes the financing statement incorrectly?
No effect on perfection
How many years after the date of filing do financing statements lapse?
5 years, unless continued
How do you continue a financing statement?
By filing a continuation statement within 6 months before the financing statement lapses
What happens to the secured party if a financing statement lapses?
The secured party loses perfection
What might happen if a secured party files a new financing statement to re-perfect?
It might lose its place in a priority contest
When an obligation is paid back, what voids the financing statement?
A termination statement
What kinds of collateral can be perfected by possession?
- Money
- Goods
- Instruments
- Negotiable documents
- Tangible chattel paper
What is the only way to perfect a security interest in money?
Possession
For perfection by possession, when is the security interest perfected?
As soon as the secured party has possession
For perfection by possession, how long does the security interest remain perfected?
As long as the secured party retains possession
For perfection by possession, what happens when the secured party no longer has possession?
Gives the collateral back to the debtor
What kinds of collateral can by perfected by control?
- Deposit accounts
- Investment property
- Electronic documents
- Electronic chattel paper
- Letter of credit rights
What is the only way to perfect a security interest in deposit accounts and letter of credit rights?
Control
For perfection, how can control be obtained over a deposit account?
- The secured party is the bank that has the deposit account
- Deposit account control agreement: the secured party, the bank, and the debtor agree in an authenticated record that the secured party (lender) has control
- The secured party becomes the bank’s customer for the deposit account
When another statute (not Article 9) governs how a security interest is perfected, which one must be followed?
The other statute
What does a certificate of title statute apply to?
Cars, motorcycles, and other vehicles that have title
Under a certificate of title statute, how does perfection work?
By noting a security interest on the certificate of title
Under a certificate of title statute, when can a car be perfected by other means?
When the car is inventory
What kind of PMSI automatically perfects after attachment?
A PMSI in consumer goods
NOT inventory, equipment, or farm products
What are some examples of collateral that automatically perfect?
- PMSI in consumer goods
- Casual or isolated assignments of accounts that don’t transfer a significant part of the outstanding accounts receivable
- Sales of payment intangibles or promissory notes
If a debtor’s name change causes a filed financing statement to become seriously misleading, what does the secured party need to do?
Within 4 months, discover the change and file an amendment to the financing statement
If a secured party fails to amend a financing statement after a debtor’s name change, what happens to collateral acquired before the name change or before the 4-month window expires?
Remains perfected by the original financing statement
If a secured party fails to amend a financing statement after a debtor’s name change, what happens to collateral acquired after the 4-month window expires?
Not covered by the financing statement
If a debtor moves out of the state, what happens to a perfected security interest?
Remains perfected for 4 months after the debtor moves, unless the financing statement lapses earlier
If a debtor moves out of the state, what does the secured party need to do for continuous perfection?
Refile in the new state within 4 months
If a debtor moves out of state, what happens to collateral purchased during the 4-month window?
Covered by the original financing statement
If the collateral is moved out of state, when is refiling necessary?
When the collateral is transferred to a new debtor
Note: no refiling is necessary if the debtor still owns the collateral
If collateral is moved out of state and transferred to a new debtor who lives out of state, what must the secured party do?
File a financing statement listing the new debtor within one year
If collateral is moved out of state and transferred to a new debtor, what happens if the secured party fails to file a financing statement within a year?
- The security interest ceases to be perfected in the collateral
- Perfection is lost prospectively
- Against another secured party or purchaser for value, the security interest is deemed never to have been perfected
If a security interest is perfected by possession, when might temporary automatic perfection apply?
- The collateral is an instrument, negotiable document, certificated security, or goods stored with a bailee
- The secured party gives the collateral back to the debtor for limited purposes:
- To sell it
- To exchange it
- To enforce the debtor’s rights in the collateral
How long does temporary automatic perfection apply?
20 days
What must a secured party do to remain continuously perfected after temporary automatic perfection?
File a financing statement or repossess the collateral within 20 days
What is the general rule for perfection of proceeds?
Automatically perfected for 20 days, and may be perfected after in some circumstances
For a perfected security interest in proceeds to have priority dating from the time of perfection in the original collateral, what must be true of the secured party?
Has remained continuously perfected
After the initial 20 days of perfection for proceeds, what are the circumstances in which perfection will NOT lapse?
- The original financing statement is broad enough to encompass proceeds
- The secured party amends the financing statement
- Cash proceeds rule
- Same office rule
For perfection of proceeds, what is the cash proceeds rule?
If collateral is sold, licensed, leased, or otherwise disposed of and generates cash proceeds, perfection continues indefinitely in cash proceeds so long as they are identifiable
For perfection of proceeds, what is the same office rule?
A security interest in proceeds will be perfected when:
- The financing statement covers the original collateral;
- The proceeds are collateral in which the security interest may be perfected by filing in the same office as the original financing statement; and
- The proceeds are not acquired with cash proceeds
