Ch 3: Perfection of Security Interest

Question 1

What is necessary for a secured party to have superior rights in collateral against third parties?

Answer 1

Perfection of a security interest

Perfection has no relevance to the secured party’s rights against the debtor.

Question 2

What are the four methods of perfection under Article 9?

Answer 2

• Filing of a financing statement
• Possession of the collateral
• Control over the collateral
• Automatic perfection (either temporary or permanent)

Question 3

What is the primary objective of filing a financing statement?

Answer 3

To give interested parties notice of the existence of the security interest.

Question 4

What collateral can be perfected only by possession?

Answer 4

Money

A deposit account or letter-of-credit rights that are not supporting obligations may be perfected only by control.

Question 5

What information must a financing statement contain?

Answer 5

• The debtor’s name
• The name of the secured party or a representative of the secured party
• The collateral covered by the financing statement

Question 6

What additional information is required for collateral related to real property?

Answer 6

• An indication that it covers real property
• An indication that it will be filed in the real-property records
• A description of the real property
• The name of a record owner if the debtor does not have an interest of record

Question 7

What is ‘notice filing’?

Answer 7

Limited-information method of recording a security interest for public access.

Question 8

Can a security agreement serve as a financing statement?

Answer 8

Yes, if it contains the necessary information.

Question 9

What is the ‘only-if’ rule regarding individual debtor names on financing statements?

Answer 9

The financing statement must reflect the name on the debtor’s current driver’s license or identification card.

Question 10

Is identification of the debtor solely by trade name sufficient?

Answer 10

No, it is insufficient.

Question 11

What must the name of a registered organization be for the financing statement?

Answer 11

The name shown on public organic records.

Question 12

What happens if a debtor changes its name?

Answer 12

The secured party has four months to file an amendment reflecting the new name.

Question 13

Is an error in the secured party’s name on a financing statement usually seriously misleading?

Answer 13

No, it usually is not seriously misleading.

Question 14

What must the description of the collateral in a financing statement indicate?

Answer 14

It must sufficiently indicate the collateral.

Question 15

What effect does a financing statement have on after-acquired property?

Answer 15

It may cover after-acquired property if it falls within the collateral described.

Question 16

Is a debtor’s signature required on the financing statement?

Answer 16

No, but the debtor must authorize the filing.

Question 17

Who can file a financing statement?

Answer 17

Any person may file it.

Question 18

Where must a financing statement generally be filed?

Answer 18

With the secretary of state of the state of the debtor’s location.

Question 19

For what duration is a financing statement generally effective?

Answer 19

Five years after the date of filing.

Question 20

When is a financing statement effective upon filing?

Answer 20

Upon its delivery to the filing office and tender of the filing fee if it contains the basic required information.

Question 21

What happens if the filing office unjustifiably refuses to accept a financing statement?

Answer 21

The financing statement is treated as having been filed.

Question 22

What is a continuation statement?

Answer 22

It extends the effect of the financing statement for another five-year period.

Question 23

What must happen if a continuation statement is not filed?

Answer 23

The financing statement ceases to be effective.

Question 24

What terminates the effectiveness of a financing statement?

Answer 24

Filing of a termination statement.

Question 25

What is the time frame for filing a termination statement for consumer goods?

Answer 25

Within the earlier of one month after no obligation is secured or 20 days after an authenticated demand from a debtor.

Question 26

What is a secured party's ability to perfect a security interest in most collateral?

Answer 26

A secured party may perfect a security interest in most collateral by taking possession of the collateral. This security interest remains perfected only while the secured party retains possession.

Question 27

Which types of collateral can be perfected by possession?

Answer 27

* Goods * Instruments * Negotiable documents * Money * Tangible chattel paper

Question 28

How can a security interest in money be perfected?

Answer 28

A security interest in money may be perfected only by possession, unless the money is received as proceeds of a perfected security interest.

Question 29

What is the requirement for perfecting a security interest by control?

Answer 29

A secured party may perfect a security interest in specific collateral by taking control of the collateral. The security interest remains perfected only while the secured party retains control.

Question 30

Which types of collateral can be perfected by control?

Answer 30

* Investment property * Deposit accounts * Letter-of-credit rights * Electronic chattel paper * Electronic documents

Question 31

How can a secured party gain control over a deposit account?

Answer 31

A secured party has control of a deposit account if: * The secured party is the bank with which the deposit account is maintained * The bank, secured party, and debtor agreed in writing to follow the instructions of the secured party * The secured party becomes the bank’s customer regarding the deposit account

Question 32

Under what circumstances is a security interest automatically perfected upon attachment?

Answer 32

Under some circumstances, a security interest is automatically perfected upon attachment. This perfection may extend indefinitely or may be subject to a time limitation, in which case it is referred to as 'temporary perfection.'

Question 33

What is an example of indefinite period of perfection?

Answer 33

A PMSI in consumer goods is generally automatically perfected upon attachment.

Question 34

What is temporary perfection?

Answer 34

Temporary perfection occurs when a security interest is automatically perfected for a limited time, such as 20 days after attachment under certain conditions.

Question 35

What happens to a perfected security interest if a debtor moves to another state?

Answer 35

If a debtor moves to another state, a perfected security interest remains perfected for four months after the debtor’s change in location.

Question 36

What is the effect of a lapse of perfection?

Answer 36

If a security interest is not perfected in the second state before the expiration of the applicable temporary perfection period, then the security interest generally ceases to be perfected prospectively.

Question 37

How long is a security interest in proceeds temporarily perfected?

Answer 37

If the security interest in the original collateral is perfected, then a security interest in proceeds is temporarily perfected for 20 days from the time it attaches.

Question 38

What defines cash proceeds in the context of security interests?

Answer 38

Cash proceeds include more than just money; they also include checks and deposit accounts.

Question 39

What is the requirement for notation on vehicles under special statutes?

Answer 39

When property is subject to a special statute, the security interest in a vehicle must be noted on the certificate of title or a registry maintained by a state agency to perfect the security interest.

Question 40

What is the timing of perfection for a security interest?

Answer 40

A security interest is perfected upon attachment of that interest and compliance with one of the methods of perfection.

Question 41

Can a security interest be perfected by multiple methods?

Answer 41

Yes, a security interest that is perfected by one method and later perfected by another method without a lapse in perfection is continuously perfected despite the change in method.

Question 42

What does perfection of a security interest provide?

Answer 42

Greater rights than third parties in the collateral ## Footnote It does not affect the secured party’s rights against the debtor.

Question 43

What are the four methods of perfection for a security interest?

Answer 43

* Filing a financing statement * Possessing the collateral * Controlling the collateral * Automatic perfection ## Footnote PMSIs in consumer goods exemplify automatic perfection.

Question 44

What are the three requirements for attachment of a security interest?

Answer 44

* Value given by secured party * Debtor has rights in the collateral * Debtor authenticated a security agreement or secured party has possession/control

Question 45

What must a financing statement contain?

Answer 45

* The debtor’s name * The secured party’s name * A description of the collateral

Question 46

Who can file a financing statement?

Answer 46

Any person ## Footnote The signature of the filer is not required.

Question 47

What is the consequence of an error in the debtor's name on the financing statement?

Answer 47

The statement is not effective unless it is not seriously misleading ## Footnote A standard search must disclose the statement under the debtor’s correct name.

Question 48

What is the time frame for amending a financing statement after a debtor’s name changes?

Answer 48

Four months

Question 49

What is a super-generic description of collateral?

Answer 49

A description like 'all debtor’s assets' that sufficiently indicates the collateral

Question 50

What is required for a debtor to authorize a financing statement?

Answer 50

The debtor must authorize it in an authenticated record

Question 51

Where must a financing statement related to real property be filed?

Answer 51

In the office for recording a mortgage on the related real property

Question 52

Where must other collateral be filed?

Answer 52

With the secretary of state of the state of the debtor’s location

Question 53

When is a financing statement effective?

Answer 53

Upon delivery to the filing office and tender of the filing fee

Question 54

What happens if a filing office refuses to accept a financing statement?

Answer 54

* Justified refusal: treated as not filed * Unjustified refusal: treated as filed

Question 55

How long is a financing statement generally effective?

Answer 55

Five years

Question 56

What extends the perfection of a financing statement for an additional five years?

Answer 56

A continuation statement filed within six months before the financing statement lapses

Question 57

What is the effect of not filing a continuation statement?

Answer 57

The security interest is treated as never having been perfected against a purchaser for value

Question 58

What is required to terminate a financing statement?

Answer 58

Filing a termination statement after the obligation is satisfied

Question 59

How can a secured party perfect a security interest in tangible collateral?

Answer 59

By taking possession of the collateral

Question 60

What is required for a secured party to control specific intangible collateral?

Answer 60

The secured party must take control of the collateral

Question 61

What is an example of automatic perfection?

Answer 61

A PMSI in consumer goods is automatically perfected upon attachment

Question 62

What is the temporary perfection period for new value given under an authenticated security agreement?

Answer 62

20 days from attachment

Question 63

What happens if the debtor moves to another state after perfection?

Answer 63

There is a four-month grace period to refile in the new state

Question 64

What is the grace period for a perfected security interest when collateral is transferred to a debtor in another state?

Answer 64

One year

Question 65

What occurs with a security interest in proceeds if the original collateral is perfected?

Answer 65

It is temporarily perfected for 20 days from attachment

Question 66

What must occur for a financing statement to cover proceeds indefinitely?

Answer 66

* The secured party amends the financing statement to cover proceeds within 20 days * The original financing statement is broad enough to cover proceeds

Question 67

What must be noted for vehicles under a certificate-of-title statute?

Answer 67

A security interest must be noted on the certificate of title