Perfection Flashcards
*5 methods of perfection
1) filing a financing statement
2) taking possession of the collateral
3) control
4) automatic perfection
5) temporary perfection
*Time of perfection
There can be no perfection until attachment, so can either attach and then perfect or do the step of perfection, attach, and then perfection will occur when you attach
*Perfection by Financing Statement: Requirements of a Financing Statement
File with the Secretary of State
Must contain:
1) the debtor’s name (minor errors will not invalidate a FS, but seriously misleading errors will e.g. when the error does not bring up the debtor’s name in a search) and mailing address
2) addresses of debtor and creditor
3) debtor’s authorization in an authenticated record; and
4) reasonable description of the collateral
*Period for which filing is effective
valid for 5 years
a continuation statement may be filed within 6 months before the lapse of the filed statement and that will be good for another 5 years
*Perfection by taking possession (Pledge)
Only can do this for tangible items
time of perfection: when possession is taken by the secured party and perfection will continue as long as possession is retained
If bailee in possession, the perfection begins from the moment the bailee authenticates a record acknowledging that it is holding the collateral for the secured party’s benefit
*Automatic permanent perfection- PMSI
consumer goods: permanently perfected
non-consumer goods (e.g. inventory, equipment, etc.): the instrument is temporarily perfected for 20 days, then needs to be filed before the end of 20 days to remain perfected
*Automatic temporary perfection- proceeds
automatically perfected for 20 days from the debtor’s receipt of the proceeds, unless:
Same office: Original security interest perfected by filing and a financing statement covering the proceeds would be filed in the same place as the original collateral.
Identifiable Cash Proceeds: (e.g. David granted Octopus National Bank a security interest in all of his equipment. ONB properly perfected by filing. David sold some equipment for $1,000 cash. ONB remains perfected in the cash proceeds as long as the cash remains identifiable and not commingled)
*Automatic temporary perfection- New Value for Instruments, Negotiable Documents, and Certified Securities
Creditor is automatically perfected for 20 days (a grace period to perfect using normal methods) from time of attachment if the creditor gave new value.
e.g. On May 1, Debbie grants Octopus National Bank a security interest in a promissory note she owns and bank lends her $1,000. ONB is automatically perfected for 20 days. ONB must file or take possession within 20 days or its security interest will become unperfected.
*Debtor or collateral changes states
General rule: If debtor moves, perfection continues for 4 months
Perfection by Possession = Perfection continues as long as perfected under new state’s law
*Possession by Control: Investment Property, Bank Accounts, Electronic Documents, and Electronic Chattel Paper
Control basically means the creditor has the right to sell or cash in the collateral without further action from the debtor.
If a deposit account, secured party has control if the secured party is the bank in which the deposit account is maintained.
*Automatic Permanent Perfection- Notation on Title
cars, boats, manufactured housing perfect automatically with notation on title
*Re-continuing outdated perfected interest: End of the five year mark
A perfect security interest only lasts five years! If you don’t re-file a continuing interest in the perfected collateral, by the 364th day of the last year, your perfected interest dies and you have to start over as if you are filing for the first time right now.
Perfected secured parties must be diligent and re-file before the 5-year mark.
They may re-file the perfected interest any time after the 4-and-6-month mark.
*Re-continuing outdated perfected interest: debtor moves out of state.
When a debtor moves out of state, a secured creditor remains perfected in all of the debtors current
collateral and all collateral acquired for the four months after the name change.
A secured creditor will not be secured in collateral acquired after four months unless the secured creditor files a new financing statement, identifying the newly named debtor, within the four months after the name change.
*Re-continuing outdated perfected interest: collateral is moved out of state.
Maybe the debtor sold it to someone else or just gifted it to someone else.
4 months to file a new financing statement
*Re-continuing outdated perfected interest: debtor changes his name.
When a debtor changes its name, a secured creditor remains perfected in all of the debtors current
collateral and all collateral acquired for the four months after the name change.
A secured creditor will not be secured in collateral acquired after four months unless the secured creditor files a new financing statement, identifying the newly named debtor, within the four months after the name change.
