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How does one perfect a security interest by control of the collateral?
Article 9 allows for perfection of a security interest in certain types of collateral by control. These types of assets include deposit accounts, investment properties, letter-of-credit rights, and electronic chattel paper. Control is related to possession and is generally established by a control agreement granting the secured party control over the account or naming the party as owning the account. The authority that the secured party has over the collateral equates to possession.
- Relevant Law: 9-104 thru 107. These types of assets include deposit accounts, investment properties, letter-of-credit rights, or electronic chattel paper. 9-314. Control of a deposit account is held by the financial institution ( 9-104(a)(1)), by a control agreement naming the secured party to control over the account ( 9-104(a)(2)), or as a named party owning the account ( 9-104(a)(3)).
Discussion: Why do you think it is important to allow perfection of a security interest in certain types of collateral by exercising control over the collateral (in the absence of possession)?
Practice Question: First Bank is a local consumer bank. Gladys is a customer of the bank and has both checking and savings accounts. She needs money, so she goes to the bank and takes out a loan. The bank requires that Gladys sign an agreement granting the bank control over the savings account, which will serve as collateral for the loan. Does the bank have a perfected security interest?