Perfection

Question 1

What is perfection of a security interest?

Answer 1

Perfection is something the Secured Party does to put the public on record or constructive notice of his existence.
Goal: help protect the SP from competing creditors.

“Perfection = publicity”

Question 2

What’s the general rule for priority of creditors w/r/t perfection?

Answer 2

“Creditor who PROPERLY perfects FIRST is supreme”

Question 3

What are the three ways to attain perfection of a security interest?

Answer 3

1. Secured Party takes possession of the collateral
   (i. e., Creditor taking possession = perfection)
2. Purchase Money Security Interests (PMSIs) in CONSUMER GOODS
   (i. e., automatic perfection upon attachment for PMSIs in consumer goods)
3. SP files notice of his security interest in the public record ((MOST COMMON))

Question 4

What is a PMSI?

What is an example?

Answer 4

(Purchase Money Security Interest)
A security interest or claim on property that enables a lender who provides financing for the acquisition of goods or equipment to obtain priority over other secured creditors. PMSI allows lenders to repossess goods that have been purchased with funds borrowed from them.

(e.g., Debtor wants a new TV but doesn’t have the cash. Best Buy extends Debtor $2k for the TV, taking a security interest in the TV. That is a PMSI. Perfection is automatic upon attachment (VCR))

Question 5

How does Art. 9 treat PMSIs?

Answer 5

PMSIs are Art. 9 “favorites.”

PMSIs are afforded special status because they help drive consumer spending and economic growth

Question 6

What does a Secured Party file to put the public on notice? (Way #3 of attaining perfection)

Answer 6

SP files a document called a FINANCING STATEMENT (UCC-1).

Art. 9 encourages e-filing, but it is “media neutral”

(N.B. SP could file the entire security agreement, but this is rare)

Question 7

What must be in a financing statement? (3 things)

Answer 7

1. Debtor’s name and address
2. Creditor’s name and address
3. Description of collateral (N.B. Very generic descriptions are okay!)

(i.e., Financing stmt must only provide enough information for interested parties to make follow-up inquiries.)

Question 8

Where must a financing statement be filed?

Answer 8

Filing must be done with State Sec. of State, in the state where the Debtor is located

(If Debtor is individual, state of residence)

(If Debtor is registered organization, state in which it is organized)

(BUT SEE one exception!)

Question 9

What is the exception to the general rule that a financing statement must be filed with the Sec. of State in the state where Debtor is “located”?

Answer 9

IF the collateral is:
1. Timber,
2. Minerals, OR
3. Fixtures,
Then the financing stmt should be filed in the COUNTY where Blackacre is located