Perfection of the Security Interest Flashcards
What is perfection?
Perfection deals primarily with rights as between the secured party and third parties. Perfection is not necessary to create a valid, enforceable security interest as between the debtor and the secured party. (This merely states to the other creditors of the world that you have a security agreement, that has now been perfected with the Debtor)
What are the methods of perfection? 5
- Automatic Perfection
- Possession of Collateral by a 3rd Party
- Perfection by “Control”
- Notion of Lien of Certificate of Title
- Filing a Financing Statement
How can a security interest be perfected automatically?
A PMSI in consumer goods; e.g. D borrows money from S Loan Company to buy a new dining room set for her home (the money from S Loan Company is used to buy the dining room set). S obtains a security interest in the dining room set. The security interest is automatically perfected.
- PMSI, and;
- In consumer goods
When is a security interest perfected in possession of collateral of a third party?
The security interest is perfected from the moment of possession without relation back to the time of attachment. Perfection continues only so long as possession is retained: HOWEVER the exception to this rule is that it is impossible with items you cannot take physical possession of - i.e. General intangibles, accounts, deposit accounts
When is a security interest perfected by “control”
- Investment property: Basically, a secured party has control of an item of investment property when the secured party has taken whatever steps are necessary to be able to have the investment property sold without further action from the owner
- Nonconsumer deposit accounts (spike on the bar): 2 Types
i. The bank in which a nonconsumer deposit account is
maintained automatically has control over the deposit account.
ii. If the secured party is not such a bank, it can obtain control over the deposit account be either: (1) putting the deposit account in the secured party’s name (i.e. Add wells fargo name as co owner to Chase business bank account), or; (2) agreeing in an authenticated record with the debtor and the bank in which the deposit account is maintained that the bank will follow the secured party’s orders without further consent by the debtor (Control agreement - K between debtor, creditor and bank, you say that if you default creditor has access to account) - Electronic Chattel Paper: A party has control over electronic chattel paper when a system showing the transfer of interests in chattel paper reliably establishes the secured party as the assignee
When is a security interest perfected through a notation of lien on a certificate of title?
Example type: The only way to perfect a security interest in an automobile is for the secured party to note its lien on the certificate of title, HOWEVER there is an exception - If the debtor is holding the automobile as inventory (i.e., if the debtor is a dealer), then a secured party may perfect by filing a financing statement against inventory. There is no need in this situation for the secured party to note its lien on the certificate of title (if this does come up on the bar, I need to be able to elaborate the reasoning behind it, would not want to file thousands of liens on titles individually)
When is a security interest perfected through filing a financing statement? (i.e. UCC 1
The financing statement is premised on the concept of “notice filing.” The notice must indicate merely that a person may have a security interest in the collateral indicated. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs
To be complete what must a financing statement contain? 6 elements
- The debtors name
- Description of the Collateral
- The secured party’s name
- Real Property Related to the Financing Statement
- Debtor must Authorize the Filing (this does not mean that a signature is required, just that it must be authorized)
- Authenticated security agreement itself may be filed: If it is filed, it must contain all of the elements discussed above
Where should a financing statement be filed?
Except as otherwise specifically provided in a state’s Article 9, the financing statement is ordinarily filed with the Secretary of State, HOWEVER real estate related (i.e. timber, resource extraction or fixtures) financing statements should be filed with the county recorders office where the real property is located
On a financing statement what is a debtors name?
If the debtor is an individual, the individual’s name should be given. If the debtor is a corporation, the corporate name should be given. If the debtor is a partnership, the partnership name should be given.
- Individuals - The name on the unexpired DL (not defined by Art. 9, CL is a mess here)
- Business - Put the name of the business as incorporated and not the trade name (i.e. Burger King is a trade name, will not suffice)
Suppose a secured loan is made to Michael Sabbath. The financing statement mistakenly shows the name as Michael Sadbath. Is the financing statement effective?
YES - As long as the financing statement is not seriously misleading (what do the results from a reasonable search produce)
What if the debtor changes his/her name from what it is on the financing statement? (e.g. gets married)
If the debtor so changes its name that a filed financing statement becomes seriously misleading the financing statement is effective to perfect a security interest in collateral acquired by the debtor before or within 4 months after the change. It is not effective to perfect a security interest in collateral acquired by the debtor more than 4 months after the change (unless an amended financing statement is filed within the 4 months that renders the financing statement not seriously misleading)
Will a security interest in Hilda’s hats be perfected by a properly filed financing statement that describes the collateral as “inventory?” Description of the collateral in a financing statement
Yes - Art. 9 categories work, normal vocab works (here there is flexibility as before) she could have described the collateral as hats
Will a security interest in Hilda’s hats be perfected by a properly filed financing statement that describes the collateral as “all assets” or “all personal property?”
Valid in the financing statement; invalid in security attachment
Will errors in the secured party’s name effect the perfection?
Because searches are not conducted under the secured party’s name, an error in the name of the secured party will not be seriously misleading (though, in an appropriate case, this type of error may give rise to an estoppel in favor of a particular holder of a conflicting claim to the collateral