Milt borrowed $200 from Femi. He agreed verbally that Femi could take possession of his books and keep them until he had repaid the loan in full. The next day, after Femi had the books in her possession, Orin offered to purchase the books from Milt for $150. Milt accepted the offer and took Orin's money to retrieve the books from Femi. Femi, however, refused to give up possession of the books until she was paid in full. Both Milt and Orin now claim that Femi has no rights to the books because she does not have a signed security agreement and has not filed a financing statement. In this case, which of the following statements is true according to the Uniform Commercial Code?
A) Femi's security interest in the collection will be protected only if she files a financing statement.
B) Femi's security interest is not attached in the absence of a written security agreement even though she maintained possession of the books.
C) Femi's possession of the collection satisfies the perfection requirement because it puts a third party like Orin on notice of Femi's interest in the property.
D) Femi's failure to file a public notice rejects the perfection of the agreement even though she is in possession of the collateral.

Question

Quizplus · Accepted Answer

If a debtor does not have possession of collateral he claims to own, then a potential creditor or debtor is on notice that someone else may claim an interest in it. Thus, change of possession of collateral from the debtor to the creditor/secured party, or his agent, perfects the security interest. In this scenario, Femi's possession of the collection satisfies the perfection requirement because it puts a third party like Orin on notice of Femi's interest in the property.

Milt Borrowed $200 from Femi