What is perfection by possession and when is it used?

• A. Holding the collateral physically; used when possible for tangible collateral to perfect the security interest.
• B. Perfection by possession is not a concept.
• C. It applies to intangible assets by contract alone.
• D. It requires registration with a central registry only.

Answer: (B)

Perfection by possession is a real method for making a security interest effective against third parties by the lender taking physical hold of the collateral. It’s most practical for tangible assets that can be kept in the lender’s hands—money and negotiable instruments are classic examples—so the lender literally possesses the asset to establish priority over other creditors without filing a financing statement. This approach isn’t suited for most intangible assets (like accounts or general intangibles), which typically require filing or other control-based perfection. It also does not rely on a central registry; instead, the secured party’s actual possession of the asset is what perfects the interest.