Perfection

Question 1

Perfection. Timing?

Answer 1

By perfecting a security interest, the holder of the security interest puts the world on notice that the security interest exists.

Timing: SI cannot be perfected until attachment has occurred. If steps for perfection taken before attachment, perfection occurs upon attachment.

When done properly, a perfected security interest will be superior to most (but not all) interests others might have in the collateral.

Question 2

SI cannot be perfected until….

Answer 2

Until the SI attaches to the Collateral.

SI cannot be perfected until attachment has occurred. If steps for perfection taken before attachment, perfection occurs upon attachment.

If a creditor has filed a financing statement but has not yet given value to the debtor, perfection is not complete until attachment is complete (that is, when the value is given). Thus, attachment and perfection can occur simultaneously.

Question 3

How to perfect?

Answer 3

Need:
I. Attachment, and…
II. One of the methods of perfection:
(1) filing a financing statement (in proper place) describing the collateral;

(2) taking possession of the collateral;

(3) taking control of the collateral;

(4) automatic perfection (PMSI in consumer goods); and

(*) temporary perfection (SI in proceeds received from sale of C).

Focus on filing and automatic perfection.

Question 4

Perfection Method 1: Filing a Financing Statement.

Reqs?
Allowed for?

Answer 4

A secured party may obtain perfection by filing (either in writing or electronically) a financing statement describing the collateral with the secretary of state where the debtor is located;

Once a financing statement is properly filed, the security interest is perfected.

Requirements
1. Financing statement identifies the debtor and the SP and
2. Financing statement describes the collateral. And
3. 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.
- 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.

FIling method Allowed for all kinds of collateral EXCEPT:
deposit accounts and

money.

Question 5

Perfection by Filing is effective for what types of Collateral?

Answer 5

Effective for all classes of collateral except deposit accounts and money.

Question 6

Financing Statement.

Name? Errors?

Answer 6

The FS Must contain:
1. The debtor’s name and mailing address,
2. The secured party’s name and mailing address, and
3. A description of the collateral covered by the financing statement

FS are Indexed under debtor’s name:
* If debtor is an individual with an unexpired DL issues by state where FS is filed, debtor’s name on the financing statement must match the license.
* If no license, FS may include the debtor’s individual name or personal name and surname. (name known in the community)
* If debtor is registered organization (for example, a corporation or limited partnership, name must match its most recent public organized record.
* Use of the debtor’s trade name is NEVER sufficient.

Errors:
Errors in Debtor’s name:

Minor errors - wont invalidate

Minor if filing would be discovered in a filing office search of the debtor’s correct name, using standard search logic of the filing office.

Seriously mislearding errors - will invalidate.

Errors by filing office:

does not impact effectiveness.

Erros in address/missing address

If accepted by filing office, it’s effective.

Debtor name change:
If after name change, the FS becomes seriosuyl misleading, the FS is effective only against collateral acquired by the debtor before the name became insufficient and within 4 months after.

Erros in SP’s name don’t matter.

Question 7

Financing Statement description of Collateral.

Special filing for?

Answer 7

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).

FS MAY contain a SUPERGENERIC description of the collateral, such as “all assets.” (Unlike the requirements for an authenticated security agreement).

For real property, also need description of real property, name of record owner, and indication that itll be filed in RP records.

Question 8

Place of filing FS -

Answer 8

Filing must be done “centrally” in the office of the secretary of state.
The law of the state where the debtor is located generally governs perfection of the security interest, so file FS in that state.

EXCEPTION: if collateral is timber to be cut or minerals, or fixture filing… then filing is in the state where the collateral/property is located… county where a mortgage on real estate is filed (“locally”).

Location of debtor:
individual = state of their principal residence.

registered organization (corporation, LLC, or LP) = state under whose laws it is organized (that is, where its articles of incorporation are filed).

unregistered organization (general partnership), it is located at its place of business if it only has one place of business or at its chief executive office if it has more than one place of business.

Question 9

Fixture

What does it require?

Answer 9

Fixture: A fixture is a good that has become so related to a particular real property that an interest in the good arises under real property law. Perfection in a fixture requires a fixture filing.

Question 10

Fixture filing requirements

Answer 10

Names of debtor and SP,
Indication that it covers fixtures,
Description of the real property.
Must state it should be filed in the filing office’s real property records,
Name of the real property’s record owner if not debtor.

Question 11

which state law governs Perfection?

Answer 11

The law of the state where the debtor is located generally governs perfection of the security interest, so file FS in that state.

Location of debtor:
individual = state of their principal residence.

registered organization (corporation, LLC, or LP) = state under whose laws it is organized (that is, where its articles of incorporation are filed).

unregistered organization (general partnership), it is located at its place of business if it only has one place of business or at its chief executive office if it has more than one place of business.

Exceptions:
* Possessory security interests, and
* security interests in fixtures and timber to be cut…
are governed by the law of the state in which the collateral is located.

If certificate of title property (cars and other vehicles), state issuing the most recent cert of title.

Deposit account: state of bank Chief exec office.

Investment property

If certificated security, state where its located.

If uncertificated security, state where issuer was organized.

Securities account, state where intermediary’s CEOffice is located

Ag liens: stare where farm is.

Question 12

Perfection Method 2: Possession (pledge).

Bailee?

Answer 12

Security interests in most types of collateral can be perfected simply by taking possession of the collateral.

Timing: Perfecred from moment of possession.

The SP is only perfection as long as item is possessed, unless 20 day rule applies.

If C is in hands of bailee, it can be considered in possession of Secured Party from the moment the bailee authenti- cates a record acknowledging that it is holding the collateral for the secured party’s benefit.

Question 13

Perfection by POSSESSION is effective for what types of Collateral?

Answer 13

Perfection can be by possession for:
goods,

tangible negotiable documents,

instruments,

money, or

tangible chattel

Effective for all classes of collateral except:
general intangibles,

accounts (deposit accounts),

nonconsumer deposit accounts,

nonnegotiable documents, and

electronic chattel paper,

These cannot be pledged (cannot be perfected by possession):
general intangibles,

deposit accounts,

nonnegotiable documents,

electronic chattel paper,

certificate of title goods, and

accounts

Question 14

Governing law for SI’s perfected by POSSESSION?

What if C is moved to another state?

Answer 14

Recall: Possessory security interests are governed by the law of the state in which the collateral is located.

If the collateral is moved from one state to another, the security interest will remain perfected without any further action as long as the security interest is also perfected by possession under the laws of the new state.

Question 15

Perfection Method 3: Control

Answer 15

Only Security interests in these may be perfected by “control”:
* * investment property,

nonconsumer deposit accounts (can only be perfected by control, unless proceeds), and

** electronic chattel paper.**

Methods for:
investment property,
* SP has control when the SP has taken whatever steps are necessary to be able to have the investment property sold without further action from the owner.

nonconsumer deposit accounts:
* Bank where account is maintained has automatic control.
* Other SP’s can get control by either:
* putting account in SP’s name, or
* agreeing in authenticated record with debtor and bank that bank will comply with SP’s orders regarding the account without requiring debtor’s consent.

electronic chattel paper:Control when a system put in place to show the transfer of interests in chattel paper reliably estab- lishes the secured party as the assignee.

Question 16

What type of C can ONLY be perfected by Control?

Answer 16

Security interests in nonconsumer deposit accounts can only be perfected by control (unless proceeds).

Question 17

Perfection Method (4): automatic perfection;

Answer 17

5. Purchase money security interests in consumer goods are automatically perfected. They are the only automatic perfections.

Effective only as to PMSIs in consumer goods.

PMSI in consumer goods is perfected as soon as it attaches.

EXCEPT for motor vehicles (require notation on the car’s certificate of title), and PMSI in fixtures (require a fixture filing)

Question 18

Perfection Method (5): temporary perfection .

Answer 18

Summary:
(SI in proceeds received from sale of C) - Effective for 20 days (and possibly longer) for proceeds;

20 days when a secured party gives new value under a security agreement where collateral is a negotiable document, instrument, or certificated security;

20 days where a secured party makes available a negotiable document, instrument, certificated security, or goods in possession of a bailee on a temporary basis (e.g., for debtor to present for payment or to sell);

four months where debtor moves from one state to another if debtor’s location governs perfection.

Question 19

special perfection rules for certain types of collateral:

Motor Vehicles

Land/fixtures

Answer 19

1. Security interests in motor vehicles can only be perfected by a notation on the vehicle’s title. Except for SIs created by dealers in vehicles held in inventory for sale/lease - they can be perfected by filing FS.
2. Security interests in things attached to land (e.g., timber or fixtures) usually must be perfected with filing statements that describe the land and are filed in the county where the land is located.
   PMSI in fixtures will have priority over an encumbrancer of the real estate only if the PMSI holder files a fixture filing

Question 20

If Perfection governed by debtor’s location….

If debtor moves?

Answer 20

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.

Question 21

If Perfection governed by debtor’s location….

If Collateral is transferred to a new owner in a different state?

Answer 21

If collateral is transferred to a new owner who is located in a different state…
the security interest will become unperfected one year after the collateral moves unless the secured creditor files a financing statement in the new jurisdiction before that one-year period is up.

Question 22

Certificate of Title Property (cars), what law governs? what if they’re moved to new state?

Answer 22

Governing law: If certificate of title property (cars and other vehicles), state issuing the most recent cert of title.

If a vehicle is moved from one state to another and is covered by a certificate of title issued by the new state, a security interest in the vehicle that was properly perfected in the original state lasts as long as it would have if the vehicle had not been covered by the new certificate of title.

EXCEPTion: Only perfected as against Purchaser for value of the vehicle until
The time when the security interest would have become unperfected in the original state if the vehicle had not been covered by the new certificate of title (same rule as the gener- al rule), or

4 months after the vehicle is covered by the new certificate of title

EXception: If Clean certificate of title issued in new state that does not note the SP’s interest in the vehicle, then: BFP without knowledge and receives delivery has priority; and new SP who perfects an SI in the car without knowledge after the clean cert is issued.

Question 23

Movement of: Deposit Accounts, Uncertificated Securities, and
Securities Accounts

Answer 23

If the bank, issuer, or securities intermediary moves to a new state, perfection of an interest in the deposit account, uncertificated security, or securities account continues until the earlier of:
• The time when the security interest would have become unper- fected in the original state if the bank, issuer, or securities inter- mediary had not moved to the new state, or
• 4 months after the bank, issuer, or securities intermediary moves to the new state

Question 24

If the debtor changes its use of the collateral… effect on FS?

Answer 24

If the debtor changes its use of the collateral (for example, from equipment to inventory), the filed financing statement (with the description of “equipment”) remains effective to perfect the security interest. Even if creditor knows its seriously misleading, it’s fine - no duty to amend.

Question 25

How long are Financing Statements valid for?

Answer 25

5 years, BUT A continuation statement may be filed, good for an additional 5 years. CS can only be filed within 6 months before the lapse of the filed statement.

Question 26

Continuation Statement

Answer 26

A continuation statement may be filed, good for an additional 5 years. The continuation state- ment can only be filed within 6 months before the lapse of the filed statement.

The authorization of the debtor is not required for a continuation statement; the secured party may authorize it.

Question 27

Termination Statement

Answer 27

Generally, SP does NOT have to terminate an FS.

BUT, if:
there is no outstanding obligation of the debtor and no commitment on the part of the SP to make further advances, or
if the debtor didn’t authorize the filing of the initial financing statement…

Then, the secured party MUST… on demand of the debtor, within 20 days, file a termination statement or provide one to the debtor.

Question 28

Termination Statement for consumer goods

Answer 28

In the case of consumer goods, the secured party must file the termination statement:
* within 1 month after there is no obligation or commitment, or
* if the debtor demands it, within 20 days of the demand.

Question 29

Proceeds

Answer 29

Whatever is received upon the sale, lease, license, exchange, or other disposition of collateral.

In general, a security interest in proceeds remains automatically perfected for 20 days if the Si in the collateral was perfected.

Question 30

Perfection for Proceeds

Answer 30

This is the “temporary perfection”.
R: If SP has a perfected security interest in collateral, the SP automatically has a perfected security interest in any proceeds of the collateral for 20 days after receipt of the proceeds.

AFTER 20 days, the SI will only continue to be perfected if… if (any of 3 things in diff card). (“CONTINUATION” for Proceeds)

Question 31

CONTINUATION for Proceeds: SI in proceeds will continue to be perfected if…

Answer 31

SI in proceeds will continue to be perfected beyond the 20 days if:

1. the security interest in the proceeds is perfected within the 20- day period
   (This can be done by SP amending its FS - amending the description to cover the proceeds);
2. The proceeds are identifiable cash proceeds (“cash proceeds” rule);

or,
3. The proceeds are of the same type as the original collateral. Also check if the financing statement’s description was already broad enough to encompass the proceeds, bc then its perfected already.

4. or Same Office Rule:
   The security interest in the original collateral was perfected by filing a financing statement, and…

a FS for the proceeds would be filed in the same office as the financing statement for the original collateral, and

the proceeds were not acquired with cash proceeds of the collateral

[meaning if debtor sold C for $, then used the $ to buy something else]

Question 32

Same Office Rule
(look for swap)

Answer 32

1) Security interest in original collateral was perfected by filing financing stmt, and
2) perfection of proceeds would be done by filing same place as original place, and
3) proceeds NOT purchased/ acquired with cash proceeds of collateral.

Question 33

Temporary Perfection - where does it apply?

Answer 33

Effective for 20 days (and possibly longer) for proceeds;

Perfection is valid for 20 days when a secured party gives new value under a security agreement where collateral is a negotiable document (right to receive goods), instrument (right to receive $), or certificated security;

20 days where a secured party makes available a negotiable document, instrument, certificated security, or goods in possession of a bailee on a temporary basis (e.g., for debtor to present for payment or to sell);

Four months where debtor moves from one state to another if debtor’s location governs perfection.

Question 34

Temporary Perfection for Instruments, Negotiable Documents, and Certificated Securities

Answer 34

Where new value is given under an authenticated security agreement for instruments, negotiable documents, or certificated securities, perfection is valid for 20 days after attachment; neither filing nor possession is necessary.

Question 35

Delivery of Collateral to Debtor for Disposition

Answer 35

Where the creditor who has perfected their security interest by possession delivers instruments, negotiable documents, certificated securities, or goods in the possession of a bailee to the debtor
for disposition (for example, where the creditor gives the debtor a promissory note, which is serving as collateral, so that the debtor can present the note to its maker for payment), perfection is valid for 20 days, after which the creditor must reperfect (by filing or taking possession) or lose their perfection.

Question 36

What types of C can be perfected by CONTROL?

Answer 36

Nonconsumer DEPOSIT accounts,
Investment Property,
Electronic Chattel Paper.