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Questions and Answers
Which of the following types of collateral may be perfected by possession?
Which of the following types of collateral may be perfected by possession?
- Deposit accounts
- Letter-of-credit rights
- Goods, instruments, negotiable documents, money, and tangible chattel paper (correct)
- Investment property
What is required for a security interest in money to be perfected?
What is required for a security interest in money to be perfected?
- Control of the collateral
- Filing a financing statement
- Possession, unless the money is received as proceeds of a perfected security interest (correct)
- Automatic perfection
How can a certified security be perfected?
How can a certified security be perfected?
- By taking delivery of the security (correct)
- By filing a financing statement
- By automatic perfection
- By gaining control of the collateral
Which of the following methods can a secured party use to perfect a security interest in a deposit account?
Which of the following methods can a secured party use to perfect a security interest in a deposit account?
What is required for perfection by control of the collateral?
What is required for perfection by control of the collateral?
A security interest in a motor vehicle held as inventory for sale by a car dealership can be perfected by
A security interest in a motor vehicle held as inventory for sale by a car dealership can be perfected by
Which of the following types of collateral can be perfected by control?
Which of the following types of collateral can be perfected by control?
Under what circumstances can a security interest in a deposit account be automatically perfected?
Under what circumstances can a security interest in a deposit account be automatically perfected?
A security interest in a civil aircraft is subject to
A security interest in a civil aircraft is subject to
How is a security interest in letter-of-credit rights perfected if such rights are a supporting obligation for other collateral?
How is a security interest in letter-of-credit rights perfected if such rights are a supporting obligation for other collateral?
What type of security interest is automatically perfected in consumer goods?
What type of security interest is automatically perfected in consumer goods?
In what situations can a security interest in letter-of-credit rights be perfected only by control?
In what situations can a security interest in letter-of-credit rights be perfected only by control?
A security interest is perfected upon
A security interest is perfected upon
What is required for a secured party to have control of a deposit account?
What is required for a secured party to have control of a deposit account?
What is the relationship between gaining control for purposes of attachment and perfection?
What is the relationship between gaining control for purposes of attachment and perfection?
If a security interest is perfected by one method and later perfected by another method without a lapse in perfection, it is
If a security interest is perfected by one method and later perfected by another method without a lapse in perfection, it is
What is an example of a situation where automatic permanent perfection occurs?
What is an example of a situation where automatic permanent perfection occurs?
The date of perfection is the date on which the security interest
The date of perfection is the date on which the security interest
Which of the following is an example of temporary perfection?
Which of the following is an example of temporary perfection?
What is required for a secured party to perfect a security interest in a deposit account through an agreement?
What is required for a secured party to perfect a security interest in a deposit account through an agreement?
Article 9 prioritizes the claims of conflicting interests in collateral and
Article 9 prioritizes the claims of conflicting interests in collateral and
A holder of a priority can
A holder of a priority can
What happens to a security interest that is entitled to automatic perfection?
What happens to a security interest that is entitled to automatic perfection?
The determination of priority involves
The determination of priority involves
What is the primary purpose of perfecting a security interest?
What is the primary purpose of perfecting a security interest?
What happens to a security interest in collateral that becomes commingled goods if it is perfected before the collateral becomes commingled?
What happens to a security interest in collateral that becomes commingled goods if it is perfected before the collateral becomes commingled?
How does a security interest rank in priority if more than one security interest is perfected in a commingled product or mass?
How does a security interest rank in priority if more than one security interest is perfected in a commingled product or mass?
What are the four ways by which a secured party can perfect a security interest under Article 9?
What are the four ways by which a secured party can perfect a security interest under Article 9?
What is the status of a security interest that is perfected upon attachment of that interest and compliance with one of the methods of perfection?
What is the status of a security interest that is perfected upon attachment of that interest and compliance with one of the methods of perfection?
What is the result if more than one security interest attaches to a product or mass and none of them are perfected?
What is the result if more than one security interest attaches to a product or mass and none of them are perfected?
What is the effect of perfecting a security interest in collateral that becomes commingled goods?
What is the effect of perfecting a security interest in collateral that becomes commingled goods?
What is the relevance of automatic perfection in relation to security interests?
What is the relevance of automatic perfection in relation to security interests?
What is the duration of temporary perfection for a security interest in proceeds if the security interest in the original collateral is perfected?
What is the duration of temporary perfection for a security interest in proceeds if the security interest in the original collateral is perfected?
What is required to continue the perfection of a security interest in proceeds beyond the 20-day period?
What is required to continue the perfection of a security interest in proceeds beyond the 20-day period?
What type of proceeds are considered identifiable and can continue to be perfected indefinitely?
What type of proceeds are considered identifiable and can continue to be perfected indefinitely?
What is not a requirement for a security interest in proceeds to be temporarily perfected?
What is not a requirement for a security interest in proceeds to be temporarily perfected?
What happens to the perfection of a security interest in proceeds if the security interest in the original collateral ceases to be perfected?
What happens to the perfection of a security interest in proceeds if the security interest in the original collateral ceases to be perfected?
What is the purpose of a financing statement?
What is the purpose of a financing statement?
What is the definition of cash proceeds according to the UCC?
What is the definition of cash proceeds according to the UCC?
What is the significance of the 20-day period in relation to temporary perfection?
What is the significance of the 20-day period in relation to temporary perfection?
Which of the following types of collateral can be perfected by control?
Which of the following types of collateral can be perfected by control?
A security interest in letter-of-credit rights can be perfected by possession.
A security interest in letter-of-credit rights can be perfected by possession.
What is the status of a security interest that is perfected upon attachment of that interest and compliance with one of the methods of perfection?
What is the status of a security interest that is perfected upon attachment of that interest and compliance with one of the methods of perfection?
A security interest in proceeds is temporarily perfected for a period of ______________ days.
A security interest in proceeds is temporarily perfected for a period of ______________ days.
Match the following types of collateral with their corresponding method of perfection:
Match the following types of collateral with their corresponding method of perfection:
A financing statement is required for perfecting a security interest in collateral.
A financing statement is required for perfecting a security interest in collateral.
What is the purpose of perfecting a security interest?
What is the purpose of perfecting a security interest?
What happens to a security interest in collateral that becomes commingled goods if it is perfected before the collateral becomes commingled?
What happens to a security interest in collateral that becomes commingled goods if it is perfected before the collateral becomes commingled?
When a security interest is perfected by one method and later perfected by another method without a lapse in perfection, it is
When a security interest is perfected by one method and later perfected by another method without a lapse in perfection, it is
A security interest that is entitled to automatic perfection will remain perfected even if the security interest in the original collateral ceases to be perfected.
A security interest that is entitled to automatic perfection will remain perfected even if the security interest in the original collateral ceases to be perfected.
What is the purpose of a financing statement?
What is the purpose of a financing statement?
The date of perfection is the date on which the security interest ______________________ became perfected.
The date of perfection is the date on which the security interest ______________________ became perfected.
Match the following types of collateral with the method of perfection:
Match the following types of collateral with the method of perfection:
A security interest in proceeds is temporarily perfected for 20 days after the proceeds are received.
A security interest in proceeds is temporarily perfected for 20 days after the proceeds are received.
What happens to a security interest in collateral that becomes commingled goods if it is perfected before the collateral becomes commingled?
What happens to a security interest in collateral that becomes commingled goods if it is perfected before the collateral becomes commingled?
A holder of a priority can agree to ______________________ his interest to another's interest.
A holder of a priority can agree to ______________________ his interest to another's interest.
What is the primary purpose of perfecting a security interest?
What is the primary purpose of perfecting a security interest?
A security interest in collateral that becomes commingled goods is automatically perfected.
A security interest in collateral that becomes commingled goods is automatically perfected.
What is the status of a security interest that is perfected upon attachment of that interest and compliance with one of the methods of perfection?
What is the status of a security interest that is perfected upon attachment of that interest and compliance with one of the methods of perfection?
Under Article 9, there are ____________________ ways by which a secured party can perfect a security interest.
Under Article 9, there are ____________________ ways by which a secured party can perfect a security interest.
Match the following methods of perfection with their descriptions:
Match the following methods of perfection with their descriptions:
What happens to a security interest that is entitled to automatic perfection?
What happens to a security interest that is entitled to automatic perfection?
A security interest in proceeds is temporarily perfected for a period of ____________________ days.
A security interest in proceeds is temporarily perfected for a period of ____________________ days.
A financing statement is only required for perfection by control of the collateral.
A financing statement is only required for perfection by control of the collateral.
What is the duration of temporary perfection for a security interest in proceeds if the security interest in the original collateral is perfected?
What is the duration of temporary perfection for a security interest in proceeds if the security interest in the original collateral is perfected?
A security interest in proceeds can continue to be perfected beyond the 20-day period if the original financing statement is broad enough to encompass the proceeds.
A security interest in proceeds can continue to be perfected beyond the 20-day period if the original financing statement is broad enough to encompass the proceeds.
What are cash proceeds according to the UCC?
What are cash proceeds according to the UCC?
A security interest in proceeds can be ______________________ if the security interest in the original collateral is perfected and the proceeds are identifiable cash proceeds.
A security interest in proceeds can be ______________________ if the security interest in the original collateral is perfected and the proceeds are identifiable cash proceeds.
Match the following circumstances with the type of perfection that applies:
Match the following circumstances with the type of perfection that applies:
What is required to continue the perfection of a security interest in proceeds beyond the 20-day period?
What is required to continue the perfection of a security interest in proceeds beyond the 20-day period?
A security interest in proceeds ceases to be perfected if the security interest in the original collateral ceases to be perfected.
A security interest in proceeds ceases to be perfected if the security interest in the original collateral ceases to be perfected.
The purpose of a financing statement is to ______________________ a security interest in collateral.
The purpose of a financing statement is to ______________________ a security interest in collateral.
What is a requirement for a security interest in a deposit account to be perfected?
What is a requirement for a security interest in a deposit account to be perfected?
A security interest in a payment intangible or promissory note is automatically perfected upon attachment.
A security interest in a payment intangible or promissory note is automatically perfected upon attachment.
What type of security interest is automatically perfected in consumer goods?
What type of security interest is automatically perfected in consumer goods?
A security interest in proceeds is temporarily perfected for a period of ______________ days after the security interest attaches to the original collateral.
A security interest in proceeds is temporarily perfected for a period of ______________ days after the security interest attaches to the original collateral.
What is the primary purpose of perfecting a security interest?
What is the primary purpose of perfecting a security interest?
A security interest in collateral that becomes commingled goods will lose its perfection.
A security interest in collateral that becomes commingled goods will lose its perfection.
Match the type of collateral with the method of automatic perfection:
Match the type of collateral with the method of automatic perfection:
What is the purpose of a financing statement?
What is the purpose of a financing statement?
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Study Notes
Perfection of Security Interests
- Perfection of a security interest is necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties.
- Perfection has no relevance to the secured party's rights against the debtor.
- A security interest is perfected upon attachment of that interest and compliance with one of the methods of perfection.
Methods of Perfection
- Filing of a financing statement
- Possession of the collateral
- Control over the collateral
- Automatic perfection (either temporary or permanent)
Perfection by Filing
- Does not require the secured party to be in possession of the collateral
- Goods, instruments, negotiable documents, money, and tangible chattel paper are the only types of collateral that may be perfected by possession
Perfection by Possession
- A security interest in money may be perfected only by possession, unless the money is received as proceeds of a perfected security interest
- A certified security may be perfected by the secured party taking delivery of the security
Perfection by Control
- May only be achieved with respect to a security interest in investment property, deposit accounts, letter-of-credit rights, electronic chattel paper, or electronic documents
- Gaining control for purposes of attachment also suffices for purposes of perfection
Letter-of-Credit Rights
- A security interest in letter-of-credit rights, if such rights are a supporting obligation for other collateral, is perfected by the perfection of the security interest in the other collateral
- Otherwise, perfection of a security interest in letter-of-credit rights may be perfected only by control
Deposit Account
- A security interest in a deposit account can be perfected only by control
- 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 with respect to the deposit account
Automatic Perfection
- Under some circumstances, a security interest is automatically perfected upon attachment
- Such perfection may extend indefinitely or may be subject to a time limitation, in which case it is referred to as "temporary perfection"
Indefinite Period of Perfection
- A PMSI in consumer goods is automatically perfected upon attachment
- Automatic permanent perfection also occurs in other situations, including:
- The casual or isolated assignment of accounts or payment intangibles that does not transfer a significant part of the assignor's outstanding accounts or payment intangibles
- Sale of a payment intangible or promissory note
Temporary Perfection
- 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
- If the original financing statement is broad enough to encompass the proceeds or the secured party takes the necessary steps to amend the financing statement to cover the proceeds within the 20-day period, the security interest in the proceeds continues to be perfected
- If the proceeds are identifiable cash proceeds and the security interest in the original collateral is perfected, the perfected security interest in the proceeds continues indefinitely, even though the security interest in the original collateral subsequently ceases to be perfected
Priorities
- Article 9 sets out rules governing the priorities of conflicting interests in collateral
- Unlike in bankruptcy, which provides a pro rata share to all creditors, Article 9 prioritizes the claims and pays them in order
- The holder of a priority can agree to subordinate his interest to another's interest
- The determination of priority involves two steps:
- Identify the status of each claimant
- Apply the appropriate priority rule
Perfection of Security Interests
- Perfection of a security interest is necessary for the secured party to have rights in the collateral that are superior to any rights claimed by third parties.
- Perfection has no relevance to the secured party's rights against the debtor.
- A security interest is perfected upon attachment of that interest and compliance with one of the methods of perfection.
Methods of Perfection
- Filing of a financing statement
- Possession of the collateral
- Control over the collateral
- Automatic perfection (either temporary or permanent)
Perfection by Filing
- Does not require the secured party to be in possession of the collateral
- Goods, instruments, negotiable documents, money, and tangible chattel paper are the only types of collateral that may be perfected by possession
Perfection by Possession
- A security interest in money may be perfected only by possession, unless the money is received as proceeds of a perfected security interest
- A certified security may be perfected by the secured party taking delivery of the security
Perfection by Control
- May only be achieved with respect to a security interest in investment property, deposit accounts, letter-of-credit rights, electronic chattel paper, or electronic documents
- Gaining control for purposes of attachment also suffices for purposes of perfection
Letter-of-Credit Rights
- A security interest in letter-of-credit rights, if such rights are a supporting obligation for other collateral, is perfected by the perfection of the security interest in the other collateral
- Otherwise, perfection of a security interest in letter-of-credit rights may be perfected only by control
Deposit Account
- A security interest in a deposit account can be perfected only by control
- 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 with respect to the deposit account
Automatic Perfection
- Under some circumstances, a security interest is automatically perfected upon attachment
- Such perfection may extend indefinitely or may be subject to a time limitation, in which case it is referred to as "temporary perfection"
Indefinite Period of Perfection
- A PMSI in consumer goods is automatically perfected upon attachment
- Automatic permanent perfection also occurs in other situations, including:
- The casual or isolated assignment of accounts or payment intangibles that does not transfer a significant part of the assignor's outstanding accounts or payment intangibles
- Sale of a payment intangible or promissory note
Temporary Perfection
- 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
- If the original financing statement is broad enough to encompass the proceeds or the secured party takes the necessary steps to amend the financing statement to cover the proceeds within the 20-day period, the security interest in the proceeds continues to be perfected
- If the proceeds are identifiable cash proceeds and the security interest in the original collateral is perfected, the perfected security interest in the proceeds continues indefinitely, even though the security interest in the original collateral subsequently ceases to be perfected
Priorities
- Article 9 sets out rules governing the priorities of conflicting interests in collateral
- Unlike in bankruptcy, which provides a pro rata share to all creditors, Article 9 prioritizes the claims and pays them in order
- The holder of a priority can agree to subordinate his interest to another's interest
- The determination of priority involves two steps:
- Identify the status of each claimant
- Apply the appropriate priority rule
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