What is necessary for a secured party to enforce their rights against third parties?

In order for a secured party to enforce their rights against third parties, perfection of the security interest is essential. Perfection is achieved through either filing a financing statement, taking possession of the collateral, or exercising control over the collateral, depending on the type of collateral involved.

Once a security interest is perfected, it provides legal notice to third parties of the secured party's rights and establishes priority over other claims to the same collateral. This means that if the debtor defaults or becomes insolvent, the secured party can enforce their rights effectively against third parties, ensuring they have a superior claim to the collateral compared to unsecured creditors.

A signed contract alone, without perfection, does not confer enforceability against third parties because there is no formal notification or priority established. The mere existence of collateral does not sufficiently protect the secured party's interest, especially in a competitive or insolvency situation. Additionally, verbal confirmation, while it may establish an agreement between the parties, does not provide the necessary public notice or legal protections required to enforce rights against third parties. Therefore, perfection of the security interest is the necessary step to ensure that the secured party's rights are enforceable in the eyes of others.