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Also known as:perfecting a security interest · perfected security interest · perfection · UCC Article 9 perfection
Written by attorneys · grounded in primary & secondary sources — see below
The additional step beyond attachment that makes a security interest effective against third parties such as lien creditors and buyers. Perfection typically occurs through filing a financing statement or taking possession of the collateral. Without perfection the secured party remains vulnerable to competing claims even though the interest has attached to the collateral.
Sources & Authorities
How it applies
Common Examples
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Mortgage Note Transferred as Collateral
Progressive Healthcare transfers a promissory note secured by a mortgage on real property to Patriot Insurance to secure a separate loan. Patriot Insurance receives the note and mortgage documents but does not file a financing statement under Article 9. When Progressive Healthcare later defaults on its loan to Patriot Insurance, the absence of perfection leaves Patriot Insurance unable to enforce the mortgage against other creditors of Progressive Healthcare.
Unperfected Interest in Equipment Sale
Patricia Patel grants Precision Tools a security interest in manufacturing equipment to secure payment for tools delivered on credit. Precision Tools signs a security agreement but never files a financing statement. When Patricia Patel sells the equipment to a third-party buyer who pays value and takes delivery without knowledge of the interest, the buyer acquires the equipment free of Precision Tools' unperfected claim.
Select any source to read its text and confirm it supports the definition.
Uniform Acts
Restatements
Casebooks
Study Supplements
Competing Claims After Default
Paula Pierce borrows from Prism Analytics and grants a security interest in office computers. Prism Analytics files a financing statement the next day. Two weeks later Paula Pierce grants a second security interest in the same computers to Patrick Phan who never files. Upon default Prism Analytics holds the superior claim because its perfected interest takes priority over Patrick Phan's unperfected interest under the first-to-file-or-perfect rule.
Common questions
Frequently Asked
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What is the difference between attachment and perfection of a security interest?+
Attachment creates the security interest and allows enforcement against the debtor. Perfection provides protection against third parties such as lien creditors and buyers. A security interest must attach before it can be perfected.
Supporting sources
How does failure to perfect affect priority against other creditors?+
An unperfected security interest is subordinate to a later perfected security interest under the first-to-file-or-perfect rule. It is also vulnerable to buyers who give value and take delivery without actual knowledge before perfection occurs.
Supporting sources
When must a secured party file a financing statement to achieve perfection?+
Filing is required for most types of collateral to perfect a nonpossessory security interest. The financing statement must contain the debtor's correct name and a description of the collateral sufficient to be found in a standard search.
Supporting sources
Does a buyer take free of an unperfected security interest?+
A buyer of goods takes free of an unperfected security interest if the buyer gives value, receives delivery, and lacks actual knowledge of the interest before it is perfected. Rumors or constructive notice do not defeat this protection.
…expectation test is that it has not lived up to the consumer's expectations and this is so even if the design of the product is perfection itself. The standard may retain some vitality when applied to commercial transactions but its individualized concept of injury is entirely foreign to tort doctrine underlying this area of…