Perfection of security interests

Question 1

Perfection

Answer 1

1. Perfection is best understood as a publicity device. It is something that the secured party does to put the world on record or constructive notice of the secured party’s existence. Proper perfection helps to protect the secured party from competing creditors.

Question 2

2. How to attain perfection

Answer 2

a. By the secured party’s taking possession of the collateral

b. Automatic perfection for purchase money security interests PMSIs) in consumer goods:
i. Perfected upon attachment, as soon as creditor renders it enforceable–> perfects the interest
ii. What is a purchase money security interest (PMSI)?
1. It is a security interest that enables the debtor to purchase the goods
a. For example: ethan allen gives $6k n value to let debtor acquire a new bedroom set. EA takes as collateral a security in the bedroom set. It has PMSI. Upon attachment, perfection is automatic.

c. Perfection through filing: Most common route to perfection on bar:
i. What is filed to put the world on notice?
1. The security agreement could be filed, but rarely is. Has too much information that parties do not want world to know.Instead the document usually filed is called a financing statement—AKA UCC-1. It is a very simple document whose purpose is to gie interested parties sufficient information to make follow-up inquiries. Art 9 aims to encourage electronic filing, and is “media neutral.”
ii. What are the requisite contents of a financing statement?
1. Simple requirements
2. Financing statement/ UCC-1 need only contain
a. Debtor’s name and address – DO NOT MAKE A MISTAKE With DEBTORS NAME. must be meticulously right, because they are filed alphabetically by debtor’s name. If there’s a mistake the form is “seriously misleading”
b. Creditor’s name and address
c. Description of collateral
3. In the financing statement, super-generic descriptions of the collateral (such as “all of debtor’s assets”) ARE ALLOWED because purpose is just to give potential competing creditors with enough baseline data to make follow-up inquiries.
iii. Where is financing statement filed?
1. Centrally, with sec’y of state, in the state where debtor is located
2. If debtor is an individual, she is located in state of principal residence
3. If debtor is registered corporation, i.e. a corporation or LLC or LP, its located under state whose laws it is organized
4. Exception to central filing: if the collateral is timbre, minerals, agricultural lien, or fixtures, file locally in the county where the realty is located
5. Exception: Deposit accounts: covered by law of state in which bank has chief executive office, unless agreement states otherwise

Which law governs?

a. If security interest is perfected by filing, law of state where debtor is located governs (i.e. default rule)
b. If security interest is not perfected
i. if collateral is a certificated security, law of state where security is located governs.
ii. If collateral is uncertificated security, law of state where issuer was organized governs, unless agreement says otherwise.
iii. If collateral is securities account (like mutual fund), law of state where securities intermediary’s chief executive office is located governs

What happens if debtor moves?

7. If debtor moves states, security interest remains perfected without further actions until four months after the debtor moves or perfection lapses. 4 mo period applies even for collateral debtor acquires within four months after moving.
8. If collateral is transferred to someone in another state, security interest is perfected until 1 year after sale of collateral or until perfection in first state lapses, whichever comes first.

Question 3

Accession

Answer 3

a. goods that are physically united with other goods in such a manner that the identity of the original goods is not lost.
b. They do not get included in the things onto which they get physically united with.

i. If the accession becomes part of a whole that is subject to a security interest perfecte in compliance with the requirements of a certificate-of-title statute→ then the security interest in the WHOLE has priority OVER THE ACCESSION ..
1. Policy: to let a secured party rely on a certificate of title without having to check the UCC files to determine whether any compponents of the collateral may be encumbered.

Question 4

Perfection statutes

Answer 4

d. if a statute specifies how to perfect, cannot perfect by filing a financing statement, must follow statute