Perfection (Article 9 UCC)

Next up in the lifeline of a secured transaction is perfection. Attachment gives the secured party rights against the debtor. Perfection will give a creditor rights superior to other creditors (as well as rights superior to other third parties other than creditors).

There are five ways to perfect a security interest: filing a financing statement; taking possession of the collateral; taking control of the collateral; automatic perfection; and temporary perfection.

A few of those ways should look familiar: taking possession of the collateral or taking control of the collateral was an element of attachment for some creditors. That means that if the other elements of attachment are satisfied, it may well be true that taking possession or control of the collateral will both attach a security interest, and perfect a security interest, all at the same time.

There’s actually quite a lot of nuance that goes into each of those ways to perfect a security interest. Will get into that in later posts. But the easiest one is automatic perfection. For purposes of the bar exam it would be enough to remember that perfection is automatic for a PMSI in consumer goods. A PMSI in consumer goods is perfected the moment it attaches.