ST-Perfection Flashcards
Perfection
(Requirements)
A security interested is perfected if (1) it has attached and (2) one of five additional steps is taken:
- Automatic Perfection;
- Possession of collateral by secured party;
- Perfection by control;
- Notation of a lien of lien on certificate of title;
- Filing of a financing statement.
Automatic Perfection
A purchase money security interest in consumer goods automatically perfects upon attachment.
Perfection by Possession of Collateral by Secured Creditor
A secured creditor can perfect a security interest by taking possession of the collateral. The interest is perfected as long as the secured creditar retains possession of the collateral.
⇒ Note that perfection by possession of collateral does not work for collateral that can’t be taken possession of, such as accounts, deposit acounts, general intangibles, and electronic chattle papers.
⇒ Note also that a security interest in money can only be perfected by possession.
Perfection by Control
Relevant for investment property, electronic chattel papers, and nonconsumer deposit accounts.
⇒ IMPORTANT: Nonconsumer deposit accounts can only be perfected by control.
Three methods of perfection by control that apply to nonconsumer deposit accounts.
Three methods:
- Bank that maintains the nonconsumer bank acount has automatic control over the deposit account;
[if not a bank, control via:]
2. Secured creditor puts its name on the nonconsumer deposit account;
- The secured creditor enters into a control agreement whereby the bank at which the nonconsumer depository account is maintained will follow the secured creditor’s orders without further consent from the debtor.
There’s two other ways to perfect by control (investment property + electronic chattel paper) but toss them
Perfection by Notation of Lien on Certificate of Title
To perfect a security interest on collateral covered by a certificate of title statute, such as a car, the secured creditor must have the relevant government agency note the secured creditor’s lien on the certificate of title.
⇒ Note that this doesn’t apply to debtors that hold cars or trucks as inventory. (In other words, car dealerships.) They must file a financing statement.
Perfection by Filing a Financing Statement
A secured creditor may file a financing statement to indicate that it may have a security interest in the collateral indicated. The financing statement is often called a UCC-1.
⇒ This is the most important and the most common method.
Contents/Requirements of a Financing Statement
Key contents of a filing statement include:
- Debtor’s name;
- Description of collateral;
- Secured party’s name + address;
Rules related to debtor’s name on financing statements:
- What name should be used?
- What happens if there is an error in the name?
- What happens if the filing office makes a mistake?
- What happens if the debtor changes their name?
- For an individual, the name that appears on their unexpired driver’s license; for a business, use it’s legal name rather than its trade name.
- If the error is seriously misleading, then the financing statement isn’t effective. An error is seriously misleading if the search logic of the filing office’s database would not retrieve the record.
- The secured creditor isn’t responsible for the filing office’s errors.
- If the debtor changes their name such that the financing statement becomes seriously misleading, then the financing statement perfects security interests in collateral acquired by the debtor within four months after the name change. To perfect security interests in property acquried more than four months after the name change, the secured creditor must file an amended financing statement.
Rules relating to the description of collateral on a financing statement:
- General rule?
- What about after-acquired property?
- The general rule is that the description of collateral must reasonably identify the collateral. It may do so through normal vocabulary, use of Article 9 categories, and supergeneric discrtions, unlike in the security agreement.
- If the description in the financing statement is broad enough to encompass after-acquired property, then it need not mention after-acquired property speficically.
- But unlike the security agreement, financing statement may contain supergeneric description of the collateral (“all assets”)
o In security agreement = invalid
o In financing statement = valid
After-Acquired Property
* Financing statement need not mention the after-acquired property to perfect a security interest
* worry about the acquired-property clause in the security agreement—not the financing statement
What is required for a debtor to authorize the filing of a financing statement?
A debtor may authorize the filing of a financing statement:
- Through any signed writing;
- By authenticating the security agreement that covers the same collateral as the financing statement.
Where do you file a financing statement:
- General rule;
- Real property and related;
- Multiple state transactions.
- General Rule: File the financial statement with the Secretary of State.
- Real Property Related: File in the office where a mortgage or would be recorded. (This is usually the county.)
-
Multiple State Transactions: If the debtor is an . . .
- Individual → file in the state where the debtor has her principal residence.
- Registered Organization → file in the state in which the organization is organized. (Where it filed to organize.)
- Unregistered Organization (GP, LP) → file in the state where the debtor maintains its chief executive office.
What if a debtor moves?
If a debtor moves, the secured interest will become unperfected after 4 months, unless the secured creditor files a financing statement in the new jurisdiction.
What if collateral is transferred to a new owner in a different state?
If collateral is transferred to a new owner, then the security interest will become unperfected 1 year after the transfer unless the secured creditor files a financing statement in the new jurisdiction.
How long is a financing statement effective?
A financing statement is effective for** 5** years. A secured creditor may file a continuation statement during the last **6 months **of the financing statement’s life, which will extend the statement’s effect another 5 years.
