Also known as: possessory security interest · possessory lien · pledge
Written by attorneys · grounded in primary & secondary sources — see below
A security interest perfected by the secured party's possession of the collateral rather than by filing.
Select any source to read its text and confirm it supports the definition.
Pablo Perez pledged a valuable painting to Pacific Bank to secure a loan. The bank took physical possession of the painting. The arrangement qualified as a possessory security interest whose validity turned on voluntary delivery of the collateral.
Premier Manufacturing pledged factory equipment to Pioneer Energy as security for a line of credit. The lender took possession of the equipment. The transaction created a valid possessory security interest under the corporation's statutory powers.
Patrick Phan pledged inventory located in State B to Progressive Healthcare. The secured party took possession of the goods in State B. Perfection and priority of the possessory security interest were governed by the law of State B where the collateral remained.
Pioneer Energy pledged a leasehold interest in land to Pacific Bank. The bank obtained possession of the relevant documents and the property itself. The corporation's statutory authority permitted creation of the possessory security interest.
Paige Porter pledged her vehicle to a repair shop that retained possession for unpaid work. A prior secured party claimed a security interest in the same vehicle. The repair shop's possessory lien took priority over the earlier security interest.
Pavel Petrov pledged shares in a subsidiary corporation to secure a personal loan from Premier Manufacturing. The lender took delivery of the share certificates. The transaction created a possessory security interest within the pledgor corporation's authority.
The local law of the jurisdiction where the collateral is located governs perfection, the effect of perfection or nonperfection, and priority of a possessory security interest.
A possessory lien on goods has priority over a security interest in the goods unless the lien is created by a statute that expressly provides otherwise.
A pledge requires the secured party to take possession of the collateral to perfect the interest, whereas most other security interests are perfected by filing a financing statement.
…not argued or necessarily presented by the record. I am not prepared to give any opinion on negotiable instruments taken as a pledge, even if the question were before us.