Perfection of Security Interest - Pt 2

Question 1

Perfection by Filing - General Concept

Answer 1

• secured party can obtain perfection by filing (either in writing or electronically) a financing statement
• security interest may be perfected by filing as to all kinds of collateral except deposit accounts and money

Question 2

Financing Statement - Requirements

Answer 2

Must contain:
- debtor’s name + mailing address
- secured party’s name + mailing address AND
- description of the collateral covered by the financing statement

Question 3

Financing Statement - Debtor’s Name

Answer 3

• statements are indexed under debtor’s name
• name usually needs to match driver’s license (if debtor = indiv w/ an unexpired driver’s license issued by the state where the financing statement is to be filed)
• if debtor DOESN’T have license, statement may include debtor’s individual name (Art 9 doesn’t define) or personal name and surname
• use of debtor’s trade name is insufficient

Question 4

Financing Statement - Debtor’s Name: Registered Org

Answer 4

• if debtor = registered org (ex: corp or limited partnership), debtor’s name must match its most recent public organic record (i.e. the publicly available record that forms or organizes the org)

Question 5

Financing Statement - Effect of Error in Debtor’s Name

Answer 5

• minor errors won’t invalidate filing statement
• seriously misleading errors WILL invalidate filing statement
  -> NOT seriously misleading if would be discovered in a filing office search under the debtor’s correct name, using the filing office’s standard search logic

Question 6

Financing Statement - Debtor’s Name + Errors by Filing Office

Answer 6

• failure of filing office to correctly index a financing statement does not impact its effectiveness

Question 7

Financing Statement - Debtor Name Change

Answer 7

• if debtor’s name as indicated on filed financing statement becomes insufficient + thus seriously misleading (ex: b/c of name change) financing statement effective only against collateral acquired by debtor BEFORE name became insufficient AND 4 months after
  -> for collateral acquired after 4 month period, secured party must refile using debtor’s correct name

Question 8

Financing Statement - Description of Collateral

Answer 8

• description sufficient if it reasonably identifies the collateral
  -> can be broadly by category or type, OR specifically
• unlike reqs for an authenticated security agreement, a financing statement may contain a supergeneric description of the collateral (ex: “all assets”)

Question 9

Financing Statement - After-Acquired Property

Answer 9

-financing statement need not mention after-acquired property to perfect a security interest in such property if the description in the financing statement is broad enough to cover the after-acquired property

Question 10

Financing Statement - Secured Party’s Name

Answer 10

• b/c searches not conducted under secured party’s name, error in secured party’s name won’t make financing statement seriously misleading

Question 11

Financing Statements - Real Property

Answer 11

• in addition to normal reqs, financing statements that cover real property-related collateral (minerals, timber to be cut + fixtures) must also contain:
  1) a description of the real property
  2) name of the record owner (if not the debtor) AND
  3) an indication that it’s to be filed in the real property records

Question 12

Financing Statement - Authorization

Answer 12

• for financing statement to be effective, debtor must authorize the filing in any signed writing either before or after it’s filed
• in addition, debtor automatically authorizes the financing statement if the debtor authenticates the financing statement or authenticates a security agreement covering the same collateral as the financing statement

Question 13

Filing - Authenticated Security Agreement

Answer 13

• the authenticated security agreement itself may be filed as the financing statement if the parties so desire
• if filed, must contain all of the elements described as required for financing statements

Question 14

Financing Statement - Effect of Missing Address

Answer 14

• if statement that doesn’t contain debtor’s and/or secured party’s mailing address is accepted by the filing office, the financing statement is effective despite the lack of the address(es)

Question 15

Place of Filing - General Rule

Answer 15

• generally, filing must be done “centrally” in the office of the secretary of state

Question 16

Place of Filing - Exception

Answer 16

• if collateral is timber to be cut or minerals, or if collateral is or is to become a fixture filing + the filing is a fixture filing, filing is in the county where a mortgage on real estate is filed (locally)
• in the case of a fixture filing, it’s safest to file both in the real estate records and at the place that would be proper if the goods were not fixtures

Question 17

Which State’s Law Governs Perfection - Significance

Answer 17

• q of which state’s law governs the perfection of a security interest is especially important when a security interest is perfected by filing, b/c filing must occur in the proper state

Question 18

General Rule for Which State’s Law Governs

Answer 18

• law of state where debtor is located generally governs perfection of the security interest
  -> secured party must generally file the financing statement of that state

Question 19

Location of Debtor for Purpose of Determining Which Law Governs

Answer 19

• if debtor = indiv, they’re located in state of their principal residence
• if debtor = registered org, debtor is located in state under whose laws it’s organized (i.e. where articles of inc are filed)
• if debtor = unregistered org, it’s located at its place of business if it only has one place of business or at its chief executive office if it has more than one place of business

Question 20

Exceptions to General Rule Re Which Law Governs

Answer 20

• possessor security interests + security interests in fixtures + timber to be cut
• goods covered by certificate of title
• deposit accounts
• investment property
• agricultural liens

Question 21

Which Law Governs - Possessor Security Interests + Security Interests in Fixtures + Timber to Be Cut

Answer 21

• perfection governed by law of the state in which the collateral is located

Question 22

Which Law Governs - Goods Covered by Certificate of Title

Answer 22

• if goods are covered by a certificate of title, law of the state issuing the most recent certificate of title governs perfection

Question 23

Which Law Governs - Deposit Accounts

Answer 23

• if collateral is a deposit account, unless the debtor’s agreements w/ the bank provides otherwise, the law of the state in which the bank has its chief executive office governs perfection

Question 24

Which Law Governs - Investment Property

Answer 24

• if collateral = certificated security, law of state where the certificated security is located governs perfection
• if UNcertificated security, unless debtor agreement provides otherwise, law of state where the securities intermediary’s chief exec office is located governs perfection

EXCEPTION - if security interest in investment property is perfected by filing, or if it’s automatically perfected by a securities intermediary, law of the state where the debtor is located governs perfection

Question 25

Which Law Governs - Agricultural Liens

Answer 25

• perfection of an agricultural lien is governed by the law of the state in which the farm product covered by the lien is located

Question 26

Movement of Debtor or Collateral - Collateral in Which Perfection is Governed by Debtor’s Location

Answer 26

• if perfection governed by law of state in which debtor located, + debtor moves from one state to another, security interest generally will become unperfected 4 months after debtor’s move unless secured party files a financing statement in the new jur before that 4-month period is up
• if transferred to new owner in a different state, security interest will becme unperfected one yr after the collateral moves unless secured creditor files a financing statement in the new jur before that one-yr period is up

Question 27

Movement of Debtor or Collateral - Collateral in Which Security Interest is Perfected by Possession

Answer 27

• if perfected security interest in collateral = possessory security interest (governed by law of the state in which the collateral is located) + collateral is moved from one state to another, dsecurity interest will remain perfected w/o any further action as long as the security interest is also perfected by possession under laws of the new state

Question 28

Movement of Debtor or Collateral - Certificate of Title Property (Automobiles + Other Vehicles

Answer 28

• if vehicle is moved from one state to another + covered by a certificate of title by the new state, a security interest in the vehicle that was properly perfected in the original state lasts as long as it would’ve if the vehicle hadn’t been covered by the new certificate of title

Question 29

Movement of Debtor or Collateral - Certificate of Title Property: Exception Re Purchasers for Value

Answer 29

• if vehicle subject to perfected security interest in one state is moved to a new state + covered by certificate of title issued by the new state, security interest in the original state is perfected as against a purchaser for value of the vehicle only until the earlier of:
  -> time when security interest would’ve become unperfected in the og state if the vehicle hadn’t been covered by the new cert of title OR
  -> 4 months after vehicle covered by new certificate of title

Question 30

Movement of Debtor or Collateral - Certificate of Title Property: Exception Re Clean Certificate of Title Issued in New State

Answer 30

• if cert of title issued in new state doesn’t note secured party’s interest in the vehicle, the following parties have priority over the secured party:
  -> buyer of the vehicle who isn’t in the business of selling vehicles who purchases for value + receives delivery of the vehicle w/o knowledge of the security interest AND
  -> secured party who perfects security interest in the vehicle w/o knowledge of other security interest after the clean certificate of title is issued in the new state

Question 31

Movement of Debtor or Collateral - Deposit Accounts, Uncertificated Securities, and Securities Accounts

Answer 31

• if bank, issuer, or securities intermediary moves to a new state, perfection of an interest in the deposit account, uncertificated security, or securities account continues until earlier of:
  -> time when security interest would’ve become unperfected in og state if bank, issuer, or securities intermediary hadn’t moved to new state OR
  -> 4 months after bank, issuer, or securities intermediary moves to the new state

Question 32

Continuation Statements

Answer 32

• initial financing statement is valid for 5 yr - continuation statement may be filed, good for an additional 5 yrs
  -> can only be filed w/in 6 months before lapse of filed statement
• authorization of debtor is NOT required for continuation statement (secured party can authorize)

Question 33

Termination Statements

Answer 33

• secured party isn’t obligated to terminate a financing statement
• if there’s no outstanding ob of the debtor + no commencement on the part of the secured party to make further advances, or if the debtor didn’t authorize the filing of the initial filing statement, the secured party must, on demand of the debtor, w/in 20 days, file a termination statement or provide one to the debtor

Question 34

Termination Statements - Timing for Consumer Goods

Answer 34

• in case of consumer goods, secured party must file the termination statement w/in 1 month after there’s no ob or commitment, or if debtor demands it, w/in 20 days of the demand

Question 35

Perfection for Proceeds

Answer 35

• if secured party has perfected security interest in collateral, secured party automatically has a perfected security interest in any proceeds of the collateral for 20 days after receipt of the proceeds

Question 36

Perfection for Proceeds - Instances in Which Perfection Goes Beyond 20 Days

Answer 36

Security interest in proceeds will continue to be perfected beyond 20 days if:
- proceeds are identifiable cash proceeds
- security interest in collateral was perfected by filing a financing statement, security interest in the type of collateral constituting the proceeds would be filed in the same place as the financing statement for the original collateral, and the proceeds weren’t purchased with cash proceeds of the collateral (“same office” rule) OR
- security interest in the proceeds is perfected w/in the 20-day period

Question 37

Temporary Perfection for Instruments, Negotiable Docs, + Certificated Securities - New Value

Answer 37

• where new value is given under an authenticated security agreement for instruments, negotiable docs or certificated securities, perfection valid for 20 days after attachment
  -> neither filing nor possession is necessary

Question 38

Temporary Perfection for Instruments, Negotiable Docs, + Certificated Securities - Delivery of Collateral to Debtor for Disposition

Answer 38

• where creditor who has perfected their security interest by possession delivers instruments, negotiable docs, certificated securities or goods in possession of bailee to debtor for disposition, perfection is valid for 20 days, after which creditor must reperfect (by filing or taking possession) or lose their perfection

Question 39

Change in Use of Collateral

Answer 39

• if debtor changes its use of the collateral (ex: from equipment to inventory), filed financing statement (with the description of “equipment”) remains effective to perfect the security interest
• secured creditor has no duty to monitor the collateral or to amend the financing statement, even if creditor knows that the description is seriously misleading