Perfection of a Security Interest by Possession - Explained
What is Perfection by Possession?
Written by Jason Gordon
Updated at April 6th, 2023
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How does one perfect a security interest by possession of the collateral?
Article 9 allows a secured party to perfect a security interest in goods, instruments, negotiable documents or tangible chattel paper by securing possession of the collateral. Securing possession can mean personal possession or possession by an agent. If an agent secures possession on behalf of the secured party, perfection may require the agents authenticated acknowledgement that the collateral is held on behalf of the secured party.
- Relevant Law: 9-313
Note: The debtor or an agent of the debtor cannot also serve as an agent of the secured party for purposes of perfecting a security interest.
Next Article: Perfection of a Security Interest by Control Back to: SECURED TRANSACTIONS
Discussion Question
Do you think the law should allow perfection of a security interest in certain types of collateral by simply taking possession of the collateral? Why or why not? Do you think this meets the objectives of requiring perfection of a security interest?
Practice Question
Tom agrees to purchase Amy's lawnmower. He agrees to pay for the mower by making equal payments over the next 6 months. They sign a security agreement granting Amy a security interest. Tom agrees to allow Amy to remain in possession of the lawnmower until the purchase price is paid. Is Amy's security interest perfected?
Related Topics
- Secured Transactions Law (Intro)
- What is a Security Interest?
- Collateral
- Pledge as Collateral
- Collateralize
- Cross Collateralization
- After-Acquired Collateral
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Unsecured Loan Definition
- Unencumbered Asset
- What is a Secured Creditor?
- Unsecured Creditor
- What are the benefits of security interests for creditors?
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Uniform Commercial Code - Article 9
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- What is a mortgage?
- How does a security interest protect the mortgage holder?
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- What is a Deed of Trust or Security Deed?
- What is a Land Sale Contract?
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- UCC-1 Statement
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- How does one continue perfection of a PMSI in non-consumer goods?
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- How is a security interest created in Assignment of Accounts Receivable and Contract Rights?
- How does one perfect a security interest by Possession of the collateral?
- How does on perfect a security interest by Control of collateral?
- How does one perfect a security interest by Filing a Financing Statement?
- What authorization is required to file a financing statement?
- Where is the appropriate office to file a financing statement?
- Defeasance
- Continuation Statement
- What is Priority of a security interest?
- What role does perfection play in establishing the Priority of a secured party?
- What are the common conflicts arising as to priority of a security interest?
- What is the priority of parties secured by common law and statutory liens?
- Lien - Definition
- Blanket Lien Definition
- Unperfected Lien
- Possessory Lien
- Non-Possessory Lien
- Tax Lien
- Mechanics Lien Definition
- Construction Lien
- Cloud on Title
- What is the priority of a buyer of collateral that is subject to a security interest?
- What is required to be a buyer in the ordinary course of business?
- How does 9-320(b) protect consumers who purchase goods from other consumers?
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- Subordination Agreement
- Who has Priority in Proceeds from the sale of collateral?
- What is a secured party's priority in future advances to a debtor?
- What is the priority of a PMSI in goods (other than inventory and livestock)?
- What is the priority of a PMSI in inventory?
- What is the priority of conflicting PMSIs?
- What is the priority of security interests in fixtures?
- What is the scope of fixture priority rules?