ST: Perfection of SI Flashcards
Perfection
Deals primarily with rights as between the SP and Third parties. Perfection is NOT necessary to create a valid, enforceable SI as between the debtor and SP.
Methods of Perfection
- Automatic Perfection–eg PMSI in CONSUMER GOODS.
- Possession of collateral by Secured Party
- Perfection by Control– e.g. SI in investment property and electronic chattel paper. SI in NONCONSUMER deposit accounts can ONLY be perfected by control.
- Notation of Lien on Certificate of Title– The ONLY way to perfect a SI in an automobile is to note lien on CoT. Exception: d is holding automobile as inventory –then SP files FS.
- Filing a FS
Investment Property
Basically, a SP has control of an item of IP when the SP has taken whatever steps are necessary to be able to have the IP sold without further action from the owner.
Nonconsumer Deposit Accounts
- The bank in which a non consumer deposit account is maintained AUTOMATICALLY has control over the deposit account.
- IF the SP is not such a bank, it can obtain control over the deposit account by either: 1) putting the deposit account in the SP’s name, OR 2) agreeing in an authenticated record with the D and the bank in which the account is maintained that the bank will follow the SP’s order without further consent by D. (Control by agreement).
Filing a Financing Statement (FS)
- Debtor’s name
- Description of Collateral
- SP’s name
- Real property related FSs
- D must authorize the filing
- Authenticated SA itself may be filed: if it is filed, it must contain all of the elements above.
Notice Filing
FS is premised on the concept of notice filing–the notice must indicate merely that a person may have a SI in the collateral indicated.
Debtor’s name
FS are indexed by D’s name. If the d is an individual use individuals name. If corporation use corp name. If partnership use partnership name
What name should be used on the FS if the D is Mike Sabbath operating under the trade name The Sabbath Commeth?
For individual names, the rule in the majority is: IF the D has an UNEXPIRED DL issued by the state where the FS is to be filed, the FS should include the name as indicated on DL. If the D does not have such a license then the FS may include the D’s individual name, or personal name and surname.
TRADE NAME DOES NOT SUFFICE
Suppose a secured loan is made to Michael Sabbath. The FS mistakenly shows the name as Michael Sadbath. is the FS effective?
Yes, as long as the error is not seriously misleading. To determine if name error is seriously misleading, check whether a search under the d’s correct name using the filing office’s standard search logic, would retrieve the erroneous FS. If it does not return the erroneous FS then the error is seriously misleading.
Suppose that the filing officer mistakenly files the FS so that the index shows the SP as the debtor.. Is the filing effective?
YES. SC not responsible or filing office errors.
What happens if the Debtor changes his/her name?
If the D changes its name that a filed financing statement becomes seriously misleading, the FS is effective to perfect a SI in collateral acquired by D before or within 4 months after the change. It is NOT effective to perfect a SI in collateral acquired by D more than 4 months after change.
Where to file the FS?
GR: Except as otherwise specifically provided in a state’s Art. 9, the FS is ordinarily filed with the SoS.
- Filing must be made in office where a mortgage on the real estate would be filed or recorded where the collateral is timber to be cut or as-extracted collateral, or where the FS is filed as a fixture filing and the collateral is goods which are or are to become fixtures.
- these are usually filed in the real estate records of the county where RP is located.
What about multiple state transactions? You client takes a SI in D’s equipment which is located in North Carolina. D is a Delaware corporation with its Chief Exec. Office in Ohio. In which state should you file a FS?
GR: file in the state where the D is located. If the d is an individual, is located at her principal residence.
If the D is a registered organization, the D is located in the state where the registered organization is organized.
If D unregistered org. the d is located at its place of business, if only one. if more than one place of business, the D is located at its chief exec office.
What if a FS is properly filed in Delaware where the D is located, the D then moves to NC. Is it necessary to file a FS in NC?
The SP will become unperfected 4 months after the D’s move unless it files a FS in the new jurisdiction before that 4 month period is up.
What if a financing statement is properly filed in Delaware where the D is located? The collateral is then transferred o a new D who is located in NC. Is it necessary to file a financing statement in NC?
The secured party will become unperfected 1 year after the collateral moves unless it files a FS in the new jurisdiction before that 1 year period is up.
