Which statement best describes how perfection can be achieved for certain types of collateral?

Which statement best describes how perfection can be achieved for certain types of collateral?

• A. Perfection is achieved only by filing.
• B. Perfection can be achieved by possession or control for certain types of collateral.
• C. Perfection requires a court order.
• D. Perfection is not possible for consumer goods.

Answer: (B)

Perfection is the process that gives third parties notice of a secured party’s interest and helps establish priority against other creditors. While filing a financing statement is a common method, some kinds of collateral can be perfected simply by possession or by control. Possession perfects tangible collateral when the creditor has physical custody of the item. Control is used for certain types of collateral where a single party can manage and enforce rights without possession, such as investment property or deposit accounts (and some electronic records). Therefore, for those types of collateral, no filing may be needed to perfect. This makes the statement accurate: perfection can be achieved by possession or control for certain collateral. The other options aren’t correct because filing isn’t the only route, court orders aren’t generally required for perfection, and consumer goods can be perfected (often automatically for a purchase-money security interest in consumer goods), so perfection is possible there too.

Perfection is the process that gives third parties notice of a secured party’s interest and helps establish priority against other creditors. While filing a financing statement is a common method, some kinds of collateral can be perfected simply by possession or by control. Possession perfects tangible collateral when the creditor has physical custody of the item. Control is used for certain types of collateral where a single party can manage and enforce rights without possession, such as investment property or deposit accounts (and some electronic records). Therefore, for those types of collateral, no filing may be needed to perfect. This makes the statement accurate: perfection can be achieved by possession or control for certain collateral. The other options aren’t correct because filing isn’t the only route, court orders aren’t generally required for perfection, and consumer goods can be perfected (often automatically for a purchase-money security interest in consumer goods), so perfection is possible there too.