Also known as: perfect · perfects · perfected · perfecting · perfections · perfecting a security interest
Written by attorneys · grounded in primary & secondary sources — see below
A process by which a secured party renders its security interest effective against third parties. The process requires that the interest has attached and that an additional step such as filing a financing statement or taking possession of the collateral has been completed.
After Patricia Patel loaned funds to Parker Phillips secured by equipment, the security interest attached upon signing the agreement. Patricia then filed a financing statement in the proper office. The filing perfected her interest against later creditors who might otherwise claim the equipment.
Preston Pratt borrowed from Penelope Price using jewelry as collateral. The security interest attached when the agreement was signed and value given. Penelope took possession of the jewelry, which perfected her interest against third parties without any filing.
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Pacific Bank originated a loan to Paragon Construction secured by a deposit account. The security interest attached upon execution of the control agreement. Pacific obtained control of the account, which perfected its interest and gave priority over other claimants.
Phoenix Technologies sold appliances to an individual buyer on credit. The purchase-money security interest attached when the buyer signed the agreement and took possession. The interest was automatically perfected upon attachment, protecting Phoenix against most third parties without filing.
Peter Park granted a security interest in inventory to a lender that filed a financing statement the next day. A second lender later attempted to claim the same inventory. The first lender's earlier perfection date gave it priority in the collateral.
Pavel Petrov granted a security interest in equipment to a lender that filed a financing statement before the bankruptcy petition. The trustee sought to avoid the interest as unperfected. The prior filing perfected the interest and prevented avoidance.
Perfection requires that the security interest has attached and that the secured party has completed one of the permitted methods such as filing a financing statement or taking possession of the collateral. Filing provides public notice to other creditors. Without perfection the interest remains vulnerable to later lien creditors and a bankruptcy trustee.
No. Attachment gives the secured party rights against the debtor but does not protect against other creditors or a bankruptcy trustee. Perfection supplies the additional notice required to gain priority over those third parties.
A purchase-money security interest in consumer goods is automatically perfected upon attachment without any further step. The rule eliminates the need for filing in routine retail transactions while still giving the secured party priority over most third parties.
The first secured party to perfect generally obtains priority over later perfected interests in the same collateral. The filing date or possession date determines the order when multiple parties claim the same asset.
…Origins of the American Revolution 27 (1967). Locke described men as existing in a state of nature, possessed of the “perfect freedom to order their actions and dispose of their possessions and persons as they think fit, within the bounds of the law of nature, without asking leave, or depending upon the will of…