Denis bought a diamond ring on credit from Pavel as an engagement present for his fiancée. He signed a purchase money security agreement giving Pavel a security interest in the ring until it was paid for. Pavel did not file a financing statement covering its security interest. Denis filed for bankruptcy. The bankruptcy trustee claimed that the diamond ring was part of the bankruptcy estate because Pavel did not perfect his security interest. Pavel claimed that it had a perfected security interest in the ring. Did Pavel have to file a financing statement to perfect its security interest in the diamond ring?
What will be an ideal response?
No. Pavel had a perfected security interest in the ring. The ring was "consumer goods" even though it was bought to be a gift as it was a purchase for "personal, family, or household use." As the diamond was a consumer good, Pavel obtained a perfected security interest in the ring when it attached its interest to the ring. This happened when Denis signed the security agreement and Pavel extended credit to Denis.
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