Perfection Flashcards
OVERVIEW
Requirements for perfection
The security interest must attach, PLUS one of these four things:
- Filing
- Possession
- Automatic Perfection
- Control
OVERVIEW
Which state’s law applies to perfection?
While a debtor is located in a jurisdiction, the local law of that jurisdiction governs perfection.
FILING
What is the default way of perfection?
Filing is the default way to perfect a security interest.
FILING
Primary place to file a financing statement
The primary place to file a financing statement is the office of the Secretary of State, except when the security interest is in land, as-extracted collateral (oil and gas to be sold immediately), timber to be cut, and fixture. (With those exceptions, you would file in the office where mortgages and deeds are filed).
FILING
How to determine which state an individual debtor is located
Individual debtors are located at their principal residence—i.e., where they live. “Individual” debtors are human beings. They are not part of any organization, but rather are on their own (either as a consumer debtor, or as a business that is a sole proprietorship).
FILING
How to determine which state a non-registered organization is located
Organizations (Non-Registered) are located at the place of business (or chief executive one if there’s more than one). “Organizations” are collections of two or more people or entities. A partnership is probably the simplest kind.
FILING
How to determine which state a registered organization is located
Organizations (Registered) are located in their state of registration. Registered organizations are organizations whose formation requires registration in their State of creation. The 9–102(a) definitions clarify that “registering” means filing a “public organic record” with a State in order to be formed or organized under that State’s laws. In other words, you can’t just form a registered organization on a handshake. The most common type of registered organization is a corporation, which is created by filing a record called articles of incorporation with the state (along with a filing fee). An LLC would be another common example.
FINANCING STATEMENT
Authorization to file a financing statement
- A financing statement can only be filed naming a debtor if the debtor in fact authorized the financing statement. There are a couple of ways that such authorization can be obtained.
- First, the debtor can expressly authorize the filing in a signed (authenticated) record. This is the most straightforward way, and secured parties will commonly have debtor sign such an authorization as part of the paperwork involved in the closing of any secured loan transaction.
- The second primary way that a debtor is deemed to authorize the filing of a financing statement is by authenticating a security agreement. In other words, by simply agreeing to be bound to a security agreement, a debtor is automatically deemed to have authorized the filing of any financing statement that covers the collateral described in the security agreement.
FINANCING STATEMENTS
3 requirements within the contents of a financing statement
A financing statement is sufficient only if it:
- provides the name of the debtor;
- provides the name of the secured party; and
- indicates the collateral covered by the financing statement
FINANCING STATEMENTS
What is required for the “name of the debtor” financing statement requirement for corporate debtors?
Corporate debtors (and other registered organizations like LLCs) should use the “real” corporate name—i.e., the one on the articles of incorporation (the UCC calls this the “public organic record”)
FINANCING STATEMENTS
What is required for the “name of the debtor” financing statement requirement for partnership debtors?
Partnerships (or other typical entities that are not registered) should use the “real” partnership name, if there is one (as recited in a partnership agreement); otherwise, the financing statement should just list the names of the individual partners.
FINANCING STATEMENTS Majority view (Alternative A) for what is required for the “name of the debtor” financing statement requirement for individual debtors
Alternative A, which the vast majority of states have adopted, requires mandatory use of the name on an individual’s driver’s license, if one is issued. Otherwise, the UCC essentially just says to use the debtor’s “individual name.” If there’s no driver’s license, things can get tricky (what if the name is different on the birth certificate vs. tax returns vs. other legal documents?).
FINANCING STATEMENTS Minority view (Alternative B) for what is required for the “name of the debtor” financing statement requirement for individual debtors
Alternative B allows use of the driver’s license name, but does not require it if a different name may be applicable (such as the name on the debtor’s birth certificate)
FINANCING STATEMENTS
What is required for the “name of the secured party” financing statement requirement?
The full, formal name of the secured party, usually a retailer or lender, must be provided.
FINANCING STATEMENTS
What is a sufficient indication of the collateral for purposes of a financing statement?
An indication of the collateral in a financing statement is sufficient if it
(1) “reasonably identifies” the collateral (i.e., specifically name the collateral or use “UCC Categories”) OR
(2) if it is an indication that the financing statement covers all assets or all personal property of the debtor.
FINANCING STATEMENTS
Supergeneric descriptions and financing statements
- Unlike security agreements, supergeneric descriptions ARE allowed in financing statements.
- The reasoning behind this:
- – The security agreement is about the contract between the Debtor and the Secured Party, and it’s important to ensure that the contract is precise and accurate, to identify the parties’ rights and obligations.
- – But, the financing statement, remember, is just for notice purposes.
- – So, the UCC says that simply putting “all assets” in the financing statement is generally sufficient for filing and perfection purposes because it gives notice to subsequent creditors that a security interest exists.
- – Subsequent creditors can then investigate further to determine the scope of that security interest.
FINANCING STATEMENTS
The relationship between after-acquired collateral or future advances with financing statements
There is NO need to include any after-acquired collateral or future advance clauses in a financing statement because the statement is for purposes of NOTICE.
FINANCING STATEMENTS
Effect of errors or omissions in a financing statement
A financing statement substantially satisfying the requirements of this subchapter is effective, even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.
FINANCING STATEMENTS
Special error rules for a debtor’s name
A financing statement that fails sufficiently to provide the name of the debtor is seriously misleading.
EXCEPTION: If a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor, the name provided does not make the financing statement seriously misleading
POST-FILING EVENTS
For what period of time is an initial financing statement valid?
Initial financing statements are generally valid for five years.
POST-FILING EVENTS
Effect of lapse on perfection
Once the financing statement lapses, the security interest is not perfected anymore (unless the secured party did something else to get perfected).
POST-FILING EVENTS
When must a continuation statement be filed to extend a financing statement for five more years?
A continuation must be filed only within six months before the end of the five years of the initial filing statement.
POST-FILING EVENTS
What is the impact of a debtor changing her name after the financing statement is filed?
The financing statement becomes seriously misleading (because the debtor’s name is wrong) if it is not amended within four months. The date the debtor changes her name triggers this four-month timer. Within these four months, the financing statement MUST be amended, otherwise the perfected security interest lapses. This four-month period is somewhat of a grace period—it is only invalidated at the END of the time period, so it remains a perfected interest up until the end of the four months.
POST-FILING EVENTS
What is the impact of a debtor moving to a different state after the financing statement is filed?
The secured party must file in the new state within four months of the date the debtor moved or the perfected security interest lapses.
