MODULE 26 SECURED TRANSACTIONS 223

(3) Financing statements can be refiled for each new five-year period
5. Perfection by secured party's control of collateral
a. This is the only way to perfect in cases of certificated securities, money, tangible chattel paper
EXAMPLE: P wishes to borrow money from a bank using several shares of stock that she owns. In addition to
completing the three steps needed for attachment, the bank must possess the shares in order to perfect. Filing is
not effective in this case.

(l) Electronic chattel paper must be perfected by filing or by control but not possession
(a) Secured party can have control of electronic chattel paper when there is only one au-
thoritative copy

(2) Nonnegotiable instruments can be perfected either by filing or control

b. Possession by third parties is effective if all parties know of this
c. Perfection is accomplished by control rather than actual possession for investment property,
de-
posit accounts, letter-of-credit rights
d. Secured party must use reasonable care to preserve collateral and rp.ay charge reasonable
expenses
to do so
6. Automatic perfection
a. Under the following conditions, perfection is accomplished by completing attachment with no
fur-
ther steps

(1) Purchase money security interest in consumer goods

(a) Purchase money security interest (PMSI) occurs in two important cases
-1] Seller retains security interest in same item sold on credit to secure payment
a] Seller of software has the important PMSI
2] Another party such as bank provides loan for and retains security interest in same item
purchased by debtor

(b) "In consumer goods" means that goods are bought primarily for personal, family, or
household purposes
EXAMPLE: B buys a refrigerator for his home from Friendly Appliance Dealer on credit. Friendly has
B sign a written security agreement. Because all three elements needed for attachment took place, this is
automatic perfection. This is true because the refrigerator is a purchase money security interest in
consumer goods.

EXAMPLE: Same as previous example except that Second Intercity Bank provides the loan having B
sign a security agreement. This is also a purchase money security interest in consumer goods.
Perfection takes place when all three elements of attachment occur.

, EXAMPLE: In the two examples above, if B had purchased the refrigerator for use in a restaurant, the
collateral would be equipment. Therefore, automatic perfection would not occur. However, the
secured
party couldfile afinancing statement to perfect the security interest in both cases.

(c) Perfection by attachment does not occur for motor vehicles, trailers, or both-perfected by
a lien on certificate of title filed with state

(d) Automatic perfection is not effective against bona fide purchaser for value who buys
goods from consumer for consumer use

1] Is effective, however, if secured party had filed

EXAMPLE: B purchases a washer and dryer from Dear Appliances for use in his home giving Dear
a security interest, then sells the washer and dryer to C for a fair price for C's household use. C is
unaware of the security, interest that Dear has in the washer and dryer. Dear's perfection on

attachment is not effective against C. .

EXAMPLE: Same example as above except that Dear had filed a financing statement. Dear wins
 because filing is effective even against a subsequent bona fide purchaser such as C even if he buys
for consumer use.

EXAMPLE: In the two examples above, if C had purchased the items from B for other than
consumer use, C is not free of Dear's security interest. This is so because the rule only applies to
bonafide purchasers for consumer use. The extra step offiling would not be needed.

2] Is effective if subsequent purchaser knows of security interest before buying