Perfection

Question 1

Perfection of the Security Interest

Answer 1

Perfection deals primarily with rights as between the secured party and third parties. Perfection is not necessary to create a valid, enforceable security interest as between the debtor and the secured party.

Question 2

Methods of Perfection (5 ways)

Answer 2

1) Automatic perfection
2) Possession of collateral by secured party
3) Perfection by control
4) Notation of lien on certificate of title
5) Filing a financing statement

Question 3

Automatic Perfection

Answer 3

Automatic perfection occurs most commonly in a purchase money security interest in consumer goods.

Question 4

Possession of Collateral by Secured Party

Answer 4

A secured party may perfect a security interest in most types of collateral simply by taking possession of the collateral.

Impossible for: general intangibles, accounts, and deposit accounts

Question 5

Perfection by Control

Answer 5

Security interests in investment property and electronic chattel paper may be perfected by control. Security interests in nonconsumer deposit accounts can ONLY be perfected by control.

Question 6

Perfection by Control for Nonconsumer Deposit Accounts

Answer 6

1) The bank in which a nonconsumer deposit account is maintained automatically has control over the deposit account.
2) If the secured party is not such a bank, it can obtain control over the deposit account either by a) putting the deposit account in the secured party’s name, or b) agreeing in an authenticated record with the debtor and the bank in which the deposit account is maintained that the bank will follow the secured party’s orders without further consent by the debtor

Question 7

Notation of lien on certificate of title

Answer 7

The ONLY way to perfect a security interest in an automobile is for the secured party to note its lien on the certificate of title
Exception: if the debtor is holding the automobile as inventory ( debtor is a car dealer), then a secured party must perfect by filing a financing statement against inventory. Noting its lien on the certificate of title will not work.

Question 8

Filing a Financing Statement (Form U.C.C. 1)

Answer 8

Most common form of perfection. Premised on the concept of “notice filing.” The notice must indicate merely that a person may have a security interest in the collateral indicated.

Question 9

Contents of Financing Statement

Answer 9

1) Debtor’s name (individual, corporation, partnership)
2) Description of collateral
3) Secured party’s name
4) Real property related financing statements (timber, fixtures, minerals - must be described in FS)
5) No signature required, though debtor must authorizes (could be a signed security agreement) the filing
6) Authenticated security agreement itself may be filed. If it is filed, it must contain all of the elements discussed above.

Question 10

Debtor’s name change

Answer 10

If the Debtor so changes its name that a filed financing statement becomes seriously misleading, the financing statement is effective to perfect a security interest in collateral acquired by the debtor before or within 4 months after the change. It is not effective to perfect a security interest in collateral acquired by the debtor more than 4 months after the change, unless an amended financing statement is filed within the 4 months that renders the financing statement not seriously misleading.

Question 11

Description of Collateral

Answer 11

Just needs to “reasonably identify” the collateral. Less stringent than description in security agreement because in FS can use the language “all assets” or “all personal property.”

Question 12

Where to file a financing statement

Answer 12

General rule: Except as otherwise specifically provided in a state’s Article 9, the financing statement is ordinarily filed with the Secretary of State.

For real estate related collateral (mortgage, timber, fixture filings), file in the county where real estate is located.

Question 13

Multiple State Transactions

Answer 13

General rule: you file in the state where the debtor is located. If the debtor is an individual, she is located at her principal residence.

If the debtor is a registered organization, the debtor is located in the state where the registered organization is organized.

If the debtor is an unregistered organization (general partnership, limited liability), the debtor is located at its place of business, if only one. If more than one place of business, the debtor is located at its chief executive office

Question 14

Debtor Moves

Answer 14

The secured party will become unperfected 4 months after the debtor’s move unless it files a financing statement in the new jdx before that 4 month period is up.

Question 15

Collateral Moves

Answer 15

The secured party will become unperfected one year after the collateral moves unless it files a financing statement in the new jdx before that one year period is up.

Question 16

A financing statement is effective for ______

Answer 16

five years from the date of filing. It can be extended by filing a continuation statement. To be effective, the continuation statement must be filed in the last 6 months of the five-year life of the FS.

Question 17

Terminating the financing statement

Answer 17

When there is no outstanding obligation of the debtor and no commitment on the part of the secured party to make further advances, the secured party, upon receiving an authenticated demand by the debtor, must within 20 days provide the debtor with a termination statement to the effect that the secured party no longer claims a security interest under the financing statement.

If FS covers consumer goods, then within one month after there is no outstanding obligation, or within 20 days of receiving an authenticated demand from the debtor, a termination statement must be filed by the secured party The secured party is liable to the debtor for $500 and for any loss caused to the debtor for failure to comply with the above.

Question 18

Perfection as to Proceeds

Answer 18

If a secured party has a perfected security interest in collateral, a secured party automatically has a perfected security interest in whatever proceeds the debtor receives in exchange for that collateral for 20 days. To remain perfected in those proceeds beyond 20 days, the secured party must take new action to perfect its interest UNLESS:

1) the proceeds are identifiable cash proceeds; or
2) the security interest in the original collateral was perfected by filing a financing statement, a security interest in the type of collateral constituting proceeds would be filed in the same place as the financing statement for the original collateral, and the proceeds were not purchased with cash proceeds of the collateral.

Question 19

Change in Use of Collateral

Answer 19

If the debtor changes its use of the collateral (equipment to inventory), the filed financing statement (with the description of equipment) remains effective to perfect the security interest