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Perfection of a Security Interest by Possession

19. 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 agent’s authenticated acknowledgement that the collateral is held on behalf of the secured party.

•    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.

•    Discussion: 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?

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