Perfection Flashcards
Methods of Perfection
There are five methods of perfection: (1) filing; (2) taking possession of the collateral; (3) control; (4) automatic perfection; and (5) temporary perfection.
AUTOMATIC PERFECTION—PMSI IN CONSUMER
GOODS
In certain situations, a security interest is automatically perfected upon attachment. The most common such situation is a PMSI in consumer goods. A PMSI in consumer goods is perfected as soon as
it attaches
PERFECTION BY TAKING POSSESSION (PLEDGE)
Security interests in most types of collateral can be perfected simply by taking possession of the collateral. Where the secured party takes actual possession of the collateral, the security interest is perfected from the moment of possession and continues as long as possession is retained.
PERFECTION BY CONTROL
Security interests in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfected by “control.” Note that security interests in nonconsumer deposit accounts can only be perfected by control (unless they’re perfected as proceeds of collateral;
Control of Nonconsumer Deposit Accounts
The bank in which a nonconsumer deposit account is maintained automatically has control over the deposit account. If the secured party is not such a bank, it may obtain control over a nonconsumer deposit account by either:
* Putting the deposit account in the secured party’s name, or
* Agreeing in an authenticated record with the debtor and the bank in which the deposit account is maintained that the bank will comply with the secured party’s orders regarding the deposit account without requiring the debtor’s consent
Control of Investment Property
Basically, a secured party has control of an item of investment property when the secured party has taken whatever steps are necessary to be able to have the investment property sold without further action from the owner.
Control of Electronic Chattel Paper
A party has control over electronic chattel paper when a system put in place to show the transfer of interests in chattel paper reliably establishes the secured party as the assignee.
PERFECTION FOR MOTOR VEHICLES
Under the state’s certificate of title law, security interests in motor vehicles required to be titled can only be perfected by notation on the certificate of title issued by the state. Perfecting by another method won’t work.
PERFECTION BY FILING
A secured party may obtain perfection by filing (either in writing or electronically) a financing statement. The financing statement must contain:
* The debtor’s name and mailing address,
* The secured party’s name and mailing address, and
* A description of the collateral covered by the financing statement
Debtor’s Name
Financing statements are indexed under the debtor’s name. In most states, if the debtor is an individual with an unexpired driver’s license issued by the state where the financing statement is to be filed, the debtor’s name on the financing statement must match the license. If the debtor doesn’t have such a license, then the financing statement may include the debtor’s individual name
If the debtor is a registered organization (for example, a corporation or limited partnership), the debtor’s name must match its most recent public organic record
Effect of Error in Debtor’s Name
Minor errors in the debtor’s name won’t invalidate a financing statement, but seriously misleading errors will. A financing statement is not seriously misleading if it would be discovered in a filing office search under the debtor’s correct name, using the filing office’s standard search logic
Debtor Name Change
If the debtor’s name as indicated on a filed financing statement becomes insufficient and thus seriously misleading (for example, because the debtor changed their name), the financing statement is effective only against collateral acquired by the debtor before the name became insufficient and within 4 months after.
For collateral acquired after the 4-month period, the secured party must refile using the debtor’s correct name.
Description of Collateral
As with an authenticated security agreement, the description of collateral in a financing statement is sufficient if it reasonably identifies the collateral, which can be broadly by category or type (for
example, “equipment”) or specifically (for example, by serial number). However, unlike the requirements for an authenticated security agreement, a financing statement may contain a supergeneric description of the collateral, such as “all assets.”
Debtor Must “Authorize” Filing of Financing Statement
For a financing statement to be effective, the debtor must authorize the filing in any signed writing either before or after it is filed. In addition, the debtor automatically authorizes the financing statement
if the debtor authenticates the financing statement or authenticates a security agreement covering the same collateral as the financing statement
Relocation of Debtor
If the perfection of a security interest is governed by the law of the state in which the debtor is located, and the debtor moves from one state to another, the security interest generally will become unperfected
4 months after the debtor’s move unless the secured party files a financing statement in the new jurisdiction before that 4-month
period is up.
