# Possession, Control, and Automatic Perfection

Welcome to this podcast on Possession, Control, and Automatic Perfection brought to you by CALI. I am Professor Jennifer S. Martin. The topic of this podcast is how a secured creditor that does not file a financing statement goes about perfecting its security interest in order to prevail against others who might claim the same collateral. This topic primarily requires a careful reading of UCC § 9-309 through § 9-314 and a basic understanding of how a secured party attaches its security interest in the first place. We might imagine that the creation of the security interest attaches a sort of invisible string between the debtor’s obligation to pay the creditor and the collateral. But issues can arise with respect to who else might claim the collateral. What happens if another creditor wants to take a security interest in the same collateral? How does the secured creditor notify others of its security interest? Sometimes, the debtor will give a security interest in the same collateral to more than one creditor. You can see that this creates a potential contest between the secured creditors over rights to the collateral in the event of default. We refer to these battles over collateral as involving a question of which creditor has priority to the collateral. In general, the basic rules operate such that the first secured creditor to file or perfect will have priority with respect to the collateral. This means that it is not enough to simply be a secured creditor, a creditor will want to be a perfected secured creditor. While creditors will often file a financing statement to perfect their security interest, § 9-310 makes it clear that filing is not necessary to perfect a security interest in cases where perfection can occur by possession, control, automatic perfection, or by some other method pursuant to another statute entirely, such as certificate of title laws. This means that a later creditor will have to do more than simply search the records of the filed financing statements in order to protect itself from earlier claims. We will look at a number of these alternatives, but let’s look at possession first. Basically, while filing a financing statement gives notice to other claimants, possession of some types of collateral actually substitutes for the filing requirement because possession of the collateral itself provides notice. Section 9-313 provides that a secured creditor can perfect a security interest in negotiable documents, goods, instruments, money, or tangible chattel paper by taking possession of the collateral. For instance, if First Bank loans me $1000 and takes a security interest in a painting that I own titled Summer Landscape, First Bank could perfect its security interest by taking possession of Summer Landscape. It is important to note, though, that if the goods are covered by a certificate of title law, mere possession of the goods will not perfect a security interest in them. So, if the collateral was not Summer Landscape, but instead was my car, which is subject to the certificate of title laws of the State of Florida, First Bank could not perfect simply by taking possession of the car. It should be noted that sometimes a third-party might have possession of the collateral. In such cases, the secured party can perfect if the person in possession authenticates a record acknowledging that it holds possession of the collateral for the secured party’s benefit; or the person takes possession after having authenticated a record acknowledging that it will hold possession of the collateral for the secured party’s benefit. For instance, if Summer Landscape was on display at Southern Museum, the Museum could sign a statement acknowledging that it holds possession of Summer Landscape for the benefit of First Bank.

Discussions in Secured Transactions – Possession, Control and Automatic Perfection Page 1 of 3

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