PERFECTION Flashcards
Perfection
To acquire maximum priority in the collateral over most third parties, the security interest must be perfected. Perfection sets the creditors rights in the collateral and provides notice to third parties of said interest. There are five methods of perfection: (1) filing, (2) taking possession of Collateral; (3) control; (4) Automatic perfection; and (5) temporary perfection.
Method of perfection: Filing
(ALL KINDS EXCEPT DEPOSIT ACCOUNTS AND $) A secured party may obtain perfection by filing a financing statement and must contain (1) name and address of D’or;
(2) name and address of Secured Party;
(3) description of collateral,
and (4) Debtor authorization (authorize in an authenticated record – AKA the financing statement or the SA – before or after it’s filed);
(5) if it covers real property-related collateral, a description of the land, name of the record owner and indication that it is to be filed in the real property records. UCC-1 Form filed in SOS or ROD.
- Debtor’s name
Indexed by debtor’s name – Minor errors in the debtor’s name will not invalidate, but seriously misleading errors which could not be discovered using the debtor’s correct name with the filing office’s standard search logic will. If D changes name, SP has 4 months after name change that filing would be effective, otherwise must refile. If address is missing for either D or SP and the SOS accepts, still effective.
- Description of Collateral
Supergeneric descriptions, such as “all assets” are acceptable in financing statements. Financing statements do not have to mention after acquired property so long as the SA includes this.
- Place of Filing.
Filed with SOS where D’or is located
a. Person – principal residence
b. Organization – where organized, PPOB, Chief executive office
c. Fixtures – county where the property is located.
- Duration
5 years, but may be renewed by continuation statement filed in the last 6 months before lapse.
- Termination
D sends authenticated demand to secured party, SP has 20 days to provide debtor with termination statement. If it convers consumers goods, must file within 30 days or earlier if they receive an authenticated demand by D.
AUTOMATIC
PMSI IN CONSUMER GOODS only
1. PMSI. A PMSI has priority over other security interests in the same goods if requirements are met and is perfected as soon as it attaches. Can arise in two ways: (1) the creditor sells the goods to the D’or on credit, retaining a SI in the goods for the purchase price; OR (2) the creditor advances the D’or the funds used to buy the goods, and the creditor takes a security interest in the goods.
- Filing. Filing is not necessary in consumer goods because it is automatically perfected, however:
a. a PMSI in inventory or equipment must be filed to be valid.
b. SI in cars can be perfected only by notating on the certificate of title.
c. A PMSI in fixtures will have priority over an encumbrancer of the real estate ONLY IF the PMSI holder files.
TEMPORARY
PROCEEDS – unperfected after 20 days UNLESS:
1. Identifiable Cash proceeds
2. Security interest in the proceeds is perfected within 20-day period; or
3. Same office rule. The original collateral perfected by filing a financing statement, a security interest in the type of collateral constituting the proceeds would be filed in same place as the FS for the original collateral and the proceeds were not purchased with cash proceeds of the collateral.
4. A SI in proceeds from original collateral is continuously perfected for 20 days from the debtor’s receipt of proceeds. The SI will become unperfected after 20 says UNLESS…
POSSESSION
MONEY & MOST TYPES OF COLLATERAL – Perfected from moment of possession and continues so long as possession is retained. Possession can also satisfy requirements for attachment. Interests in general intangibles, nonconsumer deposit accounts, nonnegotiable docs, electronic chattel paper, cert of title goods, and account cannot be perfected by possession.
CONTROL.
DEPOSIT ACCOUNTS, CHATTEL PAPER, INVESTMENT PROPERTY – SP is bank where account is maintained, putting deposit account in creditors name, or agreeing with the bank and debtor that bank will follow creditors order without further consent by debtor. SP must use reasonable care in storing and preserving the collateral but is entitled to reasonable expenses in caring for the collateral. A security interest perfected by control has priority over a SI perfected by any other method.
Notice on Lien Certificate of title
AUTOMOBILE – Must be done by government authority (DMV). However, if debtor is holding as inventory, then filling a financing statement is sufficient.
