Perfection of the Security Interest

Question 1

Methods of Perfection

Answer 1

1. Filing
2. Taking possession
3. Control
4. Automatic Perfection

Question 2

Automatic Perfection

Answer 2

Where the security interest is perfected simply by the attachment of the security interest, without any other steps.

Examples:

1. PMSI in consumer goods, excluding motor vehicles.
2. Small scale assignments of accounts or payment intangibles - “casual and isolated test, percentage test. (nobody would file something like this)
3. Sales of payment intangibles or promissory notes
4. Security interest created by the assignment of a health-care-insurance receivable to the provider of the health care goods or services
5. Certain security interest in Investment property
6. Supporting obligations
7. Temporary automatic perfection

Question 3

Temporary Automatic Perfection

Answer 3

A security interest in: 
1. certificated securities, 
2. negotiable documents, or 
3. instruments 
is automatically perfected without filing or the taking of possession for a period of 20 days from the time it attaches, so long as the security interest arises for new value given under an authenticated security agreeme

Question 4

Perfection by Possession of Secured Party

Answer 4

1. SP may perfect a SI in most types of collateral by taking possession.
2. SI is perfected from the moment of possession without relation back to the time of attachment.
3. Perfection continues only so long as possession is retained

***Exception: A AP may may collateral available to party on a temporary basis for sale, exchange, or presentation, but will only remain perfected for 20 days. After that SP will become unperfected unless it agains takes possession or files a financing statement.

Question 5

Nonconsumer deposit accounts (perfection by control)

Answer 5

1. The bank in which a nonconsumer deposit account is maintained automatically has control over the deposit account
2. If the secured party is not such a bank, it can obtain control by either:
   i. Putting the deposit account in the secured party’s name, or
   ii. Agreeing in an authenticated record with the debtor and the bank in which the deposit is maintained that the bank will follow the secured party’s orders without further consent by the debtor

Question 6

Electronic Chattel Paper (Perfection by Control)

Answer 6

Secured party has control if:

1. A single, authoritative copy of the record or record exist, and
2. this copy identifies the secured party as the assignee of the record, and
3. the autoritative copy is communicated and maintained by the secured party or its designated custodian

Question 7

Perfecting security interest in motor vehicle

Answer 7

Only way to is by noting the lien on the certificate of title unless the debtor is holding the motor vehicle as inventory for sale or lease

Question 8

Effect of Filing a Financial Statement

Answer 8

A security interest may be perfected by filing as to all kinds of collateral except deposit account and money (unless proceeds of collateral - automatic perfection)

Question 9

Contents of Financing Statement

Answer 9

1. Debtor’s Name
2. Description of Collateral
3. Secured party’s name
4. If filing real property interest then the financing statement must reasonably identify the realty, and must indicate that it is to be filed in the real property records
5. No signature required, though debtor must authorize. Debtor automatically authorizes the F.S. if he authenticates a security agreement covering the same collateral
6. Authenticated security agreement itself may be filed. Though must contain all elements above that are applicable.

Question 10

Where to file financing statement

Answer 10

Clerk of the superior court of any county of the state.
Exception: If collateral is growing crops, minerals to be extracted, or timber to be cut, or which goods are to become fixtures - filing must be made in the real estate records in the county in which the subject land is located.

Question 11

Where to file in multiple state transaction?

Answer 11

-As for between states, file where the debtor’s collateral is or
-If registered corp: Where the company is incorporated
Unregistered: where the HQ/Executive office is.

Question 12

Perfection as to proceeds

Answer 12

A security interest in proceeds from the original collateral is continuously perfected for 20 days from the debtor’s receipt of the proceeds. After that, must file new financing statement unless:

1. The proceeds are identifiable as cash proceeds, or
2. Same Office Rule Applies

Question 13

Same Office Rule (Under Perfection as to Proceeds)

Answer 13

1. The security interest in the original collateral was perfected by filing a financing statement,
2. The proceeds of that collateral would be filed in the same place as the original, and
3. The proceeds were not purchased with cash proceeds of the collateral
   * See illustration outline p. 18

Question 14

Perfection by Control

Answer 14

Method of perfection allowable for:

• investment property
• nonconsumer deposit accounts
• electronic chattel paper

Question 15

Control of Nonconsumer Deposit Accounts

Answer 15

1. Bank in which a the account is maintained automatically has control over the deposit account
2. If SP is not a bank it can obtain control by
   a. Putting account in SP’s name, or
   b. Agreeing in an authenticated record the debtor
   and the bank will follow the SP orders without
   consent of debtor

Question 16

Process for Debtor’s Name Change after Perfection

Answer 16

• If D’s name change after a filed financial statement becomes seriously misleading, the SI remans perfected for 4 months.
• SP must file an amended FS w/in 4 months to remain perfected