Perfection

Question 1

Purpose of Perfection

Answer 1

1. Perfection preserves priority, which is the right to be paid in full in preference to others.

Question 2

Requirements for Perfection

1. General Rule
2. Attachment

Answer 2

Requirements for Perfection

1. General Rule - perfection is achieved if:
   
   1. the security interest has attached and
   2. all of the other perfection requirements are complete. (usually some type of notice)
2. Attachment -
   
   1. debtor has rights in the collateral
   2. creditor extends value
   3. debtor executes a secruity agreement describing the collateral

Question 3

Methods of Perfection

1. Methods Under UCC
2. Considerations

Answer 3

Methods of Perfection

1. Methods Under UCC
   
   1. Filing/recording (most property) See UCC 9-310
   2. Possession (tangible property) See UCC 9-313
      
      1. only way to perfect security interest in money.
   3. Control (“possession” of intangibles) See UCC 9-314
      
      1. only way to perfect security interest in deposity accounts or letter-of-credit rights)
   4. Automatic perfection. See UCC 9-310 - perfection on attachment allowed for:
      
      1. PMSI in consumer goods;
      2. sale of payment intantible or promissory note
      3. assignment of accounts or payment intangibles; or
      4. proceeds of collateral
   5. State/Federal Law Preemption (e.g., certificate of title system)
2. Considerations
   
   1. UCC is default only, may be other methods designated by state law
   2. may be multiple methods of perfecting in same collateral.

Question 4

What Is Included and Not Included in Article 9 Filing System?

Answer 4

1. Inclusion in Article 9 Filing System –
   
   1. Personal Property and Fixtures
      
      1. Exceptions - possession, control, automatic perfection
2. Exclusions from Article 9 Filing Systems
   
   1. Statutory Preemption - place to file is (a) secretary of state’s office or (b) place where mortgatges are filed for fixtures
      
      1. e.g., cert of title for cars usually filed with DMV
   2. Federal Preemption - place to file is office of associated federal department.
      
      1. Applies to copyrights, aircraft and railroad filings.
      2. Doesn’t include security interests on patents, trademarks.
   3. Local Law Preemption – UCC 9-501(a) – if local law of this state governs perfection of a security interest… the office in which to file a financing statement is:
      
      1. The office designated for the filing of a mortgage … if the financing statement is filed as fixture filing.
      2. The office of the secretary of state in all other cases.

Question 5

Date of Effective Filing

Answer 5

1. Indexing Within Two Business Days After Receipt - UCC 9-519(h) - The filing office shall [index the recording] at the time and in the manner prescribed by filing-office rule, but not later than two business days after the filing office receives the record in question.
2. As of” Dates for Index Search Responses - UCC 9-523(c) - The filing office shall communicate … to any person that requests it: (1) whether there is on file on a date and time specified by the filing office, but not a date earlier than three business days before the filing office receives the request, any financing statement that … designates a particular debtor ….
3. Effect - based on above rules, a creditor will only be assured of no competing UCC filings if it submits its search 5 business days after its own UCC filing. (2 business days to index upon receipt + 3 business days under 9-523(c)))

Question 6

Correct Names for Financing Statements

1. General Rule
2. Safe Harbor

Answer 6

1. General Rule - UCC §9-506(a) - a financing statement substantially complying with the requirements of [part 5 of Article 9] is effective, even if it includes minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading
2. Safe Harbor - a name is not seriously misleading if a search of the debtor’s correct name using the office’s standard search logic would disclose the financing statement (regardless of mistakes in the name).

Question 7

Correct Names for Financing Statements

1. Corporations, LLCs and Partnerships
2. Trusts
3. Natural Persons
4. Trade Names

Answer 7

Correct Names for Financing Statements

1. Corporations, LLCs and Partnerships
   
   1. Registered - name on doc of incorp filed with SS
   2. Unregistered Partnership - name of all partners
2. Trusts
   
   1. Registered - registered name
   2. Unregistered -
      
      1. With Name - name of trust w/indication that collateral held by trust
      2. No Name - name of settlor and trustee and indicationg collateral held by trust
3. Natural Persons
   
   1. Alive Individuals
      
      1. name on debtor’s driver’s license; or
      2. surname and first name or individual name
   2. Dead Individuals - name of decedent and name of personal rep administering collateral
4. Trade Names - insufficient to identify debtor on financing statement
   
   1. can’t use
5. Trade Names

Question 8

Sufficiency of Financing Statement

1. General Rule

Answer 8

Sufficiency of Financing Statement

1. UCC 9-502(a) – a financing statement is sufficient only if it: (1) provides the name of the debtor; (2) provides the name of the secured party or a representative of the secured party; and (3) indicates the collateral covered by the financing statement.
   
   1. Limitations on Effectiveness - Sufficiency in this context means that the filing that meets these requirements may have legal effect against some but not all third party creditors (See UCC 9-338 and 9-516(d) below)

Question 9

Indication of Collateral in Financing Statement

1. General Rule

Answer 9

1. General Rule - – adequacy of financing description must reasonably identify the collateral. See UCC §§9-108, 9-504.
   
   1. reasonable if objectively determinable (e.g., by type or category)
   2. can use much broader language than in security agreement (e.g., “all assets” is sufficient for inquiry notice)

Question 10

Effect of Certain Missing Info

Answer 10

1. UCC 9-516(b) – the filing clerk can reject the financing statement for the omission of any of the following from the financing statement:
   
   1. No name or mailing address of debtor
   2. No name or maling address of creditor
   3. No indication if debtor is an individual or organization

Question 11

Effect of Wrongfully Rejected and Wrongful Acceptanced Filings

Answer 11

1. Wrongful Rejection - UCC 9-516(d) – A record that is communicated to the filing office with tender of the filing fee, but which the filing office refuses to accept for a reason other than one set forth in subsection (b), is effective as a filed record.
   
   1. BFP Exception – not effective as against a purchaser of the collateral which gives value in reasonable reliance upon the absence of the record from the files.
      
      1. No BFP exception for bankruptcy trustees and lien creditors. neither gave value in reliance on absence of record in filing system.
2. Wrongly Accepted Filings - If a filing officer mistakenly accepts a filing that does not qualify for filing but contains the information necessary to be effective, the filing is nevertheless effective. UCC §9-520(c) and Comment 3.

Question 12

Exceptions to the Article 9 Filing for Perfection

Answer 12

1. Possession
2. Control
3. Automatic Perfection

Question 13

Perfection Through Possession

1. General Rule
2. Permissive for Which Types of Collateral?
3. Not Permitted for Which Types?
4. Sole Method of Perfection?

Answer 13

1. General Rule - UCC 9-310(b)(6) - The filing of a financing statement is not necessary to perfect a security interest … in collateral in the secured party’s possession under Section 9–313….
2. Permissive Under UCC:
   
   1. tangible negotiable documents,
   2. goods,
   3. money, and
   4. instruments and chattel paper
      
      1. Note - possession in instruments in chattel paper and instruments beats filing
3. Possession is Not Effective to Perfect in
   
   1. accounts
   2. general intangibles
4. Sole Method of Perfection in
   
   1. money
   2. promissory notes

Question 14

Perfection Through Control

1. Permissive for Which Types of Collateral?
2. Required for which Types?
   
   1. Methods of Taking Control

Answer 14

1. Permissive for
   
   1. electronic chattel paper,
   2. investment property, and
2. Required for deposit accounts and letter of credit rights.
   
   1. Methods of Taking Control in Deposit Accounts
      
      1. Secured Party is Bank in Which Account Is Maintained.
      2. Parties Instruct Bank - the debtor, the secured party, and the bank can authenticate a record instructing the bank to comply with the secured party’s instructions with regard to the account.
      3. Secured Party as Customer - the secured party can become the bank’s “customer” by putting the account in the name of the secured party.

Question 15

Automatic Perfection

1. Automatic For Which Types?
2. Rules for PMSI in Consumer Goods
   
   1. Definition of PMSI
   2. Definition of Consumer Goods
   3. General Rule

Answer 15

1. Automatic Perfection Applies to
   
   1. Assignment of Payment Intangibles or Accounts
   2. Proceeds of collateral
   3. Purchase Money Security Interest
   4. sale of a payment intangible or promissory note
2. Rules for PMSI in Consumer Goods
   
   1. Purchase-Money Security Interest (PMSI) - a security interest is purchase-money to the extent that it secures
      
      1. payment of purchase price; or
      2. loan used for payment of purchase price
   2. Definition of Consumer Goods - goods that are used or bought for use primarily for personal, family, or household purposes.
      
      1. focuses on intended use.
   3. General Rule - PMSI in consumer goods are automatically perfected (don’t need to file)
      
      1. regular consumer goods must be perfected by filing (but get priority over other secured creditors if filed within 20 days of receipt by debtor)