Perfection

Question 1

what’s the deal with perfection

Answer 1

A single piece of the debtor’s property may serve as collateral for multiple creditors who all have their own security interest; perfection is relevant to priority of the interests
- I.e., once a SI is attached it is enforceable, but it must be perfected in order to give its holder (creditor) priority over other potential SIs attached to the collateral

Question 2

what are the different methods of perfection

Answer 2

Filing
Taking possession
Automatic perfection (PMSI)
Control

Question 3

what’s involved with perfecting by filing a financing statement

Answer 3

Requirements — financing statement must:
- Identify debtor — name generally must be accurate, but will be effective if not seriously misleading
- Identify secured party/creditor
- Contain an adequate description of collateral (does not have to be as specific as in the security agreement, can be supergeneric)

Note: Authorization for filing must be obtained from debtor (usually security agreement itself satisfies this requirement)

Question 4

what’s involved with perfecting by taking possession

Answer 4

i.e., “pledged collateral”
secured party may perfect a SI in many types of collateral simply by taking possession
- E.g., goods (pawnshop), negotiable documents, instruments
- Certain intangible collateral cannot be perfected by possession (e.g., accounts, certificate of title goods, electronic chattel paper, general intangibles)

Question 5

how is a security interest in a motor vehicle perfected

Answer 5

SIs in vehicles can be perfected only by notation on the vehicle’s certificate of title

Question 6

what is a PMSI

Answer 6

PMSI = purchase money security interest (i.e., the secured party gave the debtor the money or credit that enabled the debtor to buy the collateral)
- can be seller-financed or financer-financed

Question 7

what’s involved in perfection via PMSI

Answer 7

PMSI arises where a creditor sells goods to debtor and/or advances funds to debtor to buy goods, reserving a SI in the goods themselves
- E.g., A sells B a TV on credit; once the SI is created and attached (i.e., when B receives the goods), A has a PMSI in goods that is automatically perfected

Consumer goods only — automatic perfection only occurs for PMSIs in consumer goods; a PMSI in inventory or equipment must be filed to be perfected

Question 8

what does temporary perfection of proceeds entail

Answer 8

SIs in proceeds from original collateral is perfected automatically for 20 days from the debtor’s receipt of the proceeds, but may become unperfected on the 21st day
- Arises where debtor sells property used as collateral; Art. 9 gives creditor an automatic SI in proceeds from the sale of collateral
- E.g., TV store takes a loan and puts up TV inventory as collateral; store can continue selling TVs but creditor has an automatically perfected SI in store’s TV proceeds for 20 days

Question 9

how to continue perfection in proceeds beyond the initial 20 days

Answer 9

the automatically perfected security interest in proceeds becomes unperfected on the 21st day after the security interest attaches to the proceeds unless:
- a filed financing statement covers the original collateral;
- the proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement has been filed; and
- the proceeds are not acquired with cash proceeds (On the MEE these conditions almost always are satisfied)