Lesson 12: Methods of Perfection

Welcome to Lesson 12: Methods of Perfection as part of the large topic of Perfection of Security Interests. In this lesson, we will explore the various methods for perfecting a security interest, which is crucial for establishing priority among creditors.

1. Filing a Financing Statement

One of the primary methods of perfection is filing a financing statement with the appropriate government office. This method is covered in depth in Lesson 13: Filing a Financing Statement.

A financing statement typically includes:

  • Debtor's name and address
  • Secured party's name and address
  • Description of the collateral

Financing Statement

Debtor: John Doe

Secured Party: ABC Bank

Collateral: Inventory

2. Possession of Collateral

Perfection by possession is another method, which involves the secured party physically holding the collateral until the debt is satisfied. This method is often used for tangible collateral such as goods, instruments, and chattel paper.

3. Control

For certain types of collateral such as deposit accounts and investment property, perfection can be achieved by control. Control is a method where the secured party has the right to direct the disposition of the collateral without further consent from the debtor.

4. Automatic Perfection

Some security interests are perfected automatically upon attachment without the need for filing or taking possession. A common example is a Purchase Money Security Interest (PMSI) in consumer goods.

Visualizing the Methods of Perfection

graph TD A["Methods of Perfection"] B["Filing a Financing Statement"] C["Possession of Collateral"] D["Control"] E["Automatic Perfection"] A --> B A --> C A --> D A --> E

Mathematical Representation of Priority

Priority of security interests can be represented mathematically as follows:


P_{secured\ parties} \gt P_{unsecured\ parties}
\end{code>

Important Resources

Additional Reading

For further reading on methods of perfection and their applications, see:

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