Perfection of Security Interest

Question 1

What does a certificate of title statute affect?

Answer 1

• Motorcycles, cars, and vehicles with title.

- Perfected by noting security interest in title.

Question 2

What is the affect of a change of debtor’s name?

Answer 2

If seriously misleading, secured party has a 4 month window to discover the change and file and amendment. If fails to do so, anything after the 4 month period is not covered by financing statement. Everything during the 4 month period is still perfected.

Question 3

What happens when debtor moves out of state?

Answer 3

Remain perfected for 4 months, must refile in new state.

Question 4

What happens when collateral moves out of state?

Answer 4

• If debtor still owns it, no refiling needed.
• If transferred to new debtor- then secured party has one year to refile. If fails to do so, ceases to per perfected. Perfection is not lost prospectively.

Question 5

What happens when secured party perfect by possession gives collateral back?

Answer 5

Not perfected.

Exception: Temporary automatic possession: if perfection by possession with collateral stored by bailee, can give back to debtor to sell, exchange, or enforce debtor’s rights.

Question 6

What are the rules for perfection of proceeds?

Answer 6

• Temporary automatic perfection for 20 days. After 20, will lapse unless secured party amends.
• Cash proceeds rule: perfection continues indefinitely as long as identifiable.
• Same Office Rule: Perfected when financing statement covers original collateral, proceeds are collateral in which the security interest may be perfect by filing in the same office, and proceeds not acquired with cash.

Question 7

What must a financing statement contain?

Answer 7

• Name of the debtor
• Name of the secured party.
• Description of collateral.

Question 8

Where does a finical statement get filed?

Answer 8

In the central filing office in the state where the debtor is located.

Note: A corporation is located in the state of incorporation. If not registered, where it operates its business.

Question 9

What is required but non-essential information?

Answer 9

Still affective if accepted.

• Address for both debtor and secured party
• Indication of whether the debtor is an individual or organization.

Question 10

Who must authorize a financing statement?

Answer 10

Debtor, but does not have to sign.

Question 11

What collateral can be perfected by possession?

Answer 11

Tangibles

• Money
• Goods
• Instruments
• Negotiable instruments
• Tangible chattel paper.

Question 12

What collateral can be perfected by control?

Answer 12

Intangibles

• Deposit Accounts*
• Investment Property
• Electronic Chattel Paper
• Letter of credit rights*

Note: Exclusive method of control for deposit accounts and letter of credit rights.

For deposit accounts, control can occur when; (1) secured party is bank that has deposit account; (2) all parties agree in authenticated writing; (3) secured party becomes bank’s customer.

Question 13

What are the 6 methods of perfection?

Answer 13

1. Filing a financing statement
2. Possession of collateral
3. Control of collateral
4. Automatic Perfection
5. Perfection under state’s certificate of title law
6. Alternative perfection system.

Question 14

What is automatic perfection?

Answer 14

• Automatically perfects when security interest attaches.
• PMSI in consumer goods.

Exception: if certificate of title statute governs, no automatic perfection.

Question 15

What is the duration of a financing statement?

Answer 15

5 years.

Continuation statement must be filed within 6 months of lapse.

Note: If lapses, may file new statement but loses priority.

Question 16

What are the additional requirements on a filing statement for real property related collateral?

Answer 16

• Financing statement must indicate that a security covers this type of collateral.
• Describe the property.
• Note that it is to be filed in the real property records
• Name the record owner.

Question 17

What are the issues for a debtor’s name in a financing statement?

Answer 17

Must contain legal name. For individual debtor’s;

Majority rule: driver’s license.
Minority Rule: Driver’s license is safe harbor, others ok

Question 18

What are the issues for describing collateral in a financing statement?

Answer 18

Super generic = Ok.

Question 19

What is the effect of errors in the financing statement or filing office problems?

Answer 19

Errors: ok unless seriously misleading. ExceptionL not seriously misleading if search would reveal statement with error.

Filing Problems: If office refuses and was not justified to do so, treated as filed. Exception: ineffective against party who gave value in reasonable reliance upon assurance of record. (note: incorrect index is also ok.)