Perfection

Question 1

Generally

Answer 1

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

Requires that interest has (1) attached, and (2) when an additional step is taking. Step two is not required if something is automatically perfected.

Additional steps can be:

• By filing
• By possession
• By control

Question 2

Automatic Perfection

Answer 2

In some transactions, the Code provides that the security interest is perfected simply by attachment of the interest. This occurs in the following:

(1) PSMI in consumer goods
(2) Small scale assignments of accounts of payment intangibles
(3) Sales of payment intangibles or promissory notes
(4) Beneficial interest in a decedent’s estate
(5) Investment property

Question 3

By Filing - Financing Statement

Answer 3

This is premised on the concept of “notice filing.” It does not require a copy of the security agreement to be filed. Rather, it contemplates that once a third party discovers the interest, it will conduct further inquiry.

Question 4

Automatic Perfection - PMSI

Answer 4

PMSI in consumer goods (only) is perfected as soon as it attaches.

Question 5

By Possession (Pledge)

Answer 5

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

Cannot apply to items that can’t be physically possessed.

Timing depends on actual possession or possession in the hands of the bailee.

Question 6

Temporary Perfection - Proceeds

Answer 6

Security interest in PROCEEDS from original collateral is continuously perfected for 20 days from the debtor’s receipt of goods.

Continuation of perfection in proceeds can extend beyond 20 days if:

• (1) security interest was perfected by filing financing statement
• (2) the proceeds are identifiable cash proceeds, or
• (3) security interest in proceeds is perfected within 20 day period

Question 7

Filing Statement Requirements

Answer 7

Must include: (1) the name and mailing address of DEBTOR; (2) name and address of SECURED PARTY; (3) indication of collateral; and (4) if real property related collateral, it must also indicate that it is to be filed in the real property records, provide a description of the real property, and the record owner of the property.

Financing statements are indexed by DEBTOR name. Minor errors in name don’t invalidate but seriously misleading will. Code provides two alternatives for how to include name:

• (1) Only if approach (must match unexpired drivers license from that state, and only if don’t have can use individual name)
• (2) Safe harbor approach (can be either name or driver’s license name)