relevant if
If fight is between the creditor and a third party claiming the same collateral
Perfection is the process by which the creditor protects the security interest from most other claimants to the same collateral.
A. ELEMENTS OF PERFECTION
- Attachment
2. Act of Perfection
A. ELEMENTS OF PERFECTION
1. Attachment
a. Creditor Gives V alue
b. Contract — Security Agreement
c. Debtor Has Rights in the Collateral
- Act of Perfection
Appropriate act of perfection depends on type of _collateral__. May be just one method or several.
a. Possession of Collateral by Creditor
b. Filing of Financing Statement by Creditor
c. Automatic Permanent— attachment alone is sufficient
d. Automatic Temporary — attachment alone sufficient for short period of time
e. Control
f. Notation of Security Interest on Certificate of Title
B. PERFECTION BY POSSESSION
- Almost All Collateral May be Perfected by Possession
- Exceptions
The following types of collateral may not be perfected by possession: (too intangible)
accounts
deposit accounts
nonnegotiable documents electronic documents
electronic chattel paper
general intangibles - Loss of Possession
a. General Rule
If the creditor no longer has possession of the collateral, perfection is lost
b. Twenty Day Exception for Instruments, Negotiable Documents, and Certificated Securities
(Discussed later with temporary automatic perfection.)
C. FILING OF FINANCING STATEMENT — THE UCC-1
requirements, exceptions
- Almost All Collateral May be Perfected by Filing
- ***Exceptions: deposit account, money
- Requirements of Financing Statement
a. names of Debtor and Creditor
b. address of Debtor and Creditor
Exception: If financing statement is accepted by filing office.
c. Debtor’s Authorization in an authenticated record
The authorization cannot be oral.
***Authorization of the financing statement is automatic if the debtor authenticated (signed) the underlying security agreement.
Debtor may authorize financing statement after filing
d. Description of the Collateral
The description may be in broader terms than the security agreement such as “all assets.”
After-acquired property covered by the security agreement that fits within the description is automatically included.
e. Description of the land if the Collateral is Timber, Minerals, Fixtures, or Crops
C. FILING OF FINANCING STATEMENT — THE UCC-1
- Errors in Financing Statement
- Designation of Debtor
- Errors in Financing Statement — minor errors that are not seriously misleading are excused
- Designation of Debtor
Very important as the financing statement is filed under the debtor’s name.
a. Individual = Individual’s Name (as on driver’s license is sufficient)
b. Registered Organization (corporation, partnership) = name under which entity is organized
c. Trade Name = not sufficient, unless extremely similar to the debtor’s name
A trade name will work only if the name is so similar to the debtor’s name that the financing statement would be discovered in a search of the Secretary of State’s records in response to a request using the debtor’s name.
C. FILING OF FINANCING STATEMENT — THE UCC-1
6. Change in the Debtor’s Name
- Change in the Debtor’s Name
a. Collateral Debtor Has at the Time of the Name Change — Perfection Continues
b. Collateral Debtor Obtains Within Four Months of Name Change — Perfection continues
c. Collateral Debtor Obtains After Four Months of Name Change — Perfection ends Unless Refiled Under New Name Within the Four-Month Period
C. FILING OF FINANCING STATEMENT — THE UCC-1
- Place of Filing
- Duration
- Continuation Statement
- Place of Filing
a. General Rule = secretary of state’s Office in Austin
b. Fixtures, Minerals, and Timber to Be Cut = County Where Mortgage on Real Estate Would Be Filed - Duration
A financing statement is effective for 5 yrs from the date of filing.
Important exception: A recorded real property mortgage covering fixtures continues until the mortgage is released or satisfied. - Continuation Statement
To extend the effectiveness of a filing, the creditor should file a continuation statement within 6 months prior to the expiration date and before the 5 years expires.
C. FILING OF FINANCING STATEMENT — THE UCC-1
10. Termination Statement
- Termination Statement
a. Consumer Goods = required
The creditor must file a termination statement in a timely manner, that is, the earlier of:
(1) Within 20 days after the debtor’s written demand; or
(2) Within 1 month after there is no outstanding secured obligation or commitment to make advances, even without a demand from the debtor.
b. Non-consumer Goods = only upon the debtor’s request
Creditor must provide the debtor with a termination statement within 20 days of written demand. The debtor has the responsibility of filing the termination statement and must incur the cost.
C. FILING OF FINANCING STATEMENT — THE UCC-1
11. Fraudulent Filing
- Fraudulent Filing
A person may not file a financing statement the person knows is forged, contains a material false statement, or is groundless.
Minimum penalty = $5k plus court costs and reasonable attorney’s fees.
D. AUTOMATIC PERMANENT PERFECTION
- Purchase Money Security Interest in Consumer Goods
- Assignment of Insignificant Amount of Debtor’s accounts
- Sale of Promissory Notes
E. AUTOMATIC TEMPORARY PERFECTION
- Proceeds
Proceeds are automatically perfected for 20 days from the debtor’s receipt of the proceeds. - New Value for Instruments, Negotiable Documents, and Certified Securities (promissory note)
Creditor is automatically perfected for 20 days (a grace period to perfect using normal methods) from time of attachment if the creditor gave new value. - Delivery of Instrument, Negotiable Document, or Certified Security to Debtor for 20 Days For Certain Purposes
Examples of these purposes include for sale, exchange, or presentation of the collateral.
Whenever customers bought cars on credit from Honest John’s Used Cars, they signed promissory notes for the amounts owed. Honest John pledged these notes to Octopus National Bank as collateral for a loan. Whenever the notes matured and needed to be presented to the customers for payment, Bank would return the notes to Honest John for this purpose. Even though Bank has given up possession, Bank has “temporary perfection” for a period of 20 days after giving up
F. CONTROL
- investment property, Nonconsumer Deposit Accounts(only way to perfect), Electronic Documents, and Electronic Chattel Paper
- Defined
Control basically means the creditor has the right to sell or cash in the collateral without further action from the debtor.
Examples: signed in bare form, can sell without permission
***If a deposit account, secured party has control if the secured party is the bank in which the deposit account is maintained.
G. NOTATION ON CERTIFICATE OF TITLE
- Items Covered
a. Motor Vehicles
b. Boats
c. Manufactured Housing - Perfection if Collateral Consumer Goods or Equipment = physically note of security interest on certificate of title
example: debtor use his own car - Perfection if Collateral Inventory = file or take possession
Example: If the debtor is a car/boat dealer
H. SPECIAL RULES FOR PROCEEDS
- General Rule
Perfection continues for 20 days automatically. - When Perfection Continues Beyond 20 Days
a. Same Office
Original security interest perfected by filing and a financing statement covering the proceeds would be filed in the same place as the original collateral.
Example: David granted Octopus National Bank a security interest in all of its inventory. ONB properly perfected by filing. David then traded in some of his inventory for equipment. ONB remains perfected in the equipment (the proceeds) because both inventory and equipment are perfected by filing in the secretary of state office

b. Identifiable Cash Proceeds auto perfected
c. Proceeds Perfected Within the 20-Day Period
The perfection could occur without further action on the creditor’s part or the creditor might need to take action to perfect. (goods-cash-goods)
Example: David granted Octopus National Bank a security interest in all of its equipment. ONB properly perfected by filing. David sold Machine A for $1,000 cash. David then used the cash the next day to purchase Machine B. ONB is perfected in Machine B because Machine B, as equipment, is covered by the original security agreement and ONB’s original filing thereunder.
I. MULTI-STATE TRANSACTIONS
- Issue = What State’s Version of the U.C.C. is used to determine whether a creditor is perfected?
- General Rule = Law of the state where the debtor is located
a. Individual = principle residence
b. Registered Organization = Law of state where organized
c. Unregistered Organization = Place of business, but if more than one place of business, chief executive office - Exceptions where creditor must follow law of the collateral’s location
a. Security Interests perfected by possession
b. fixtures
c. timber
d. Agricultural Liens = Law of state where farm products covered by the lien is located - Other exceptions
a. Certificate of Title Items = Law of state which issued most recent certificate of title
b. Deposit Accounts = Law of state in which bank has its chief executive office - Debtor or Collateral Changes States
a. General Rule = If debtor moves, perfection continues for 4 months
b. Perfection by Possession = Perfection continues as long as perfected under new state’s law
c. Certificate of Title Items = Perfection continues for as long as it would have under the original certificate of title
