Perfection of the Security Interest Flashcards
(18 cards)
Perfection
provides notice to third parties that the perfecting secured creditor has (or claims) an enforceable security interest in the debtor’s personal property. Perfection is the process by which the creditor’s security interest becomes effective against most of the rest of the world.
5 ways to Perfect
Possession, Automatic, Filing, Notation on Certificate of Title, and Control
Perfection by Possession (Pledge)
A secured party may perfect a security interest in most collateral (physical) by taking possession of the collateral; world at large is alerted to that creditor’s possible interest in the property, and no other notice is therefore required; This security interest remains perfected only while the secured party retains possession
What Collateral Can Be Perfected by Possession?
Goods, instruments, negotiable documents, money, and tangible chattel paper are the only types of collateral that may be perfected
Generally, the secured party possess collateral if…
she exercises exclusive dominion over the collateral itself or the premises where the collateral is located, provided that the dominion is visible and extensive enough to put third parties on reasonable notice that the secured party has (or claims) an interest in the collateral
Automatic Perfection - Purchase Money Security Interest in Consumer Goods
consumer goods automatically perfected upon attachment; does not need financial statement or have possession to have a perfected PMSI in consumer goods.
A PMSI in other types of goods (inventory, equipment) or in automobiles is not automatically perfected
Arises if the underlying obligation is…
incurred (1) as some or all of the purchase price of collateral constituting goods or software or (2) to supply value to enable the debtor to acquire tights in (usually, to purchase) that collateral, if the debtor in fact uses the value for that purpose.
Automatic Perfection - Certain Accounts and Other Intangibles
A security interest in the sale of a payment intangible or promissory note is perfected on attachment
Secured creditors also enjoy automatic perfection if the transaction is an assignment of accounts or payment intangibles.
The assignment itself must not convey to the assignee a significant percentage or portion of the overall outstanding accounts or payment intangibles belonging to the assignor.
2 tests to determine what counts as significant part of the assignor’s outstanding accounts or payment intangibles
Percentage Test and Casual and Isolated Test
Percentage Test
Looks at what percentage of the assignor’s total outstanding accounts or payment intangibles were assigned in the specific transaction. (27 sig, 16 insig)
Casual and Isolated Test
Automatic perfection applies to unusual transactions falling outside the parties’ customary business dealings. Thus, a financing statement should be filed if either the assignor or the assignee regularly assigns or accepts assignment of accounts or payment intangibles in the usual course of business
Perfection by Filing
The basic supposition of §9-310 is that except for the transactions listed therein, the filing of a “financing statement” is the exclusive method of perfection of the creditor’s security interest.
Financing Statement
see other cards for what that entails
The Mechanics of Filing
The UCC mandates central filing (typically in the office of the Secretary of State) for almost all financing statements, with local county filing only for matters having to do with realty: minerals to be extracted from the earth, timber, or fixtures; see §9-501
Financing Statement’s Effectiveness
Once a financing statement is properly completed and filed, it is effective to perfect the security interest for 5 years. Once 5 years pass, the financing statement will lapse and perfection will cease unless the secured party timely files a continuation statement.
Continuation Statement
The continuation statement may be filed only within six months before the expiration of the 5-year period. Upon timely filing of a continuation statement, the effectiveness of the initial financing statement continues for a period of five years commencing on the day on which the financing statement would have become ineffective in the absence of the filing.
If a secured party misses the six month window to file a continuation statement, the original financing statement lapses. This means that the financing statement ceases to be effective. The underlying security interest is no longer perfected. There is no way to remedy this lapse other than to file a new financing statement. The priority date will be that of the new financing statement, not that of the original one.
Perfection by Notation on Certificate of Title
Every state requires notation on the certificate of title to perfect a security interest in cars
Certain types of collateral, notably vehicles, are subject to the state’s certificate-of-title system. Generally, the only way to perfect a security interest in collateral subject to a certificate of title system is to ensure that a notation is made, or a lien is placed, on the title document for each piece of collateral. Filing a financial statement or taking control will not suffice.
Perfection by Control
If the collateral is quasi-tangible or intangible, a secured party may perfect a security interest by taking control of the collateral. Control is the only legitimate method to perfect a security interest in deposit accounts or letter-of-credit rights. Article 9 does not define control generally, but it does explain how a secured party may establish control over particular types of collateral.
Section 9-314(a) provides that a “security interest in investment property, deposit accounts, letter-of-credit rights, or electronic chattel paper may be perfected by control of the collateral under Section 9-104, 9-105, 9-106, or 9-107.”
