What’s in a Name?
Revised Article Nine and Individual Debtors: The Legalities and Practicalities
by Wendy Hall, Bass, Berry & Sims,
Gary A. Norton, Whitfield & Eddy
and Sacha Ross, Berman & Norton Breman, A P.A.
To date, all of the states have adopted the Revised Article 9 to the Uniform Commercial Code (“Revised Article 9”). The revisions to Article 9 were an effort to, among other things, simplify the rules for practitioners and to eliminate some of the ambiguities surrounding former Article 9. Revised Article 9, to its credit, eliminated many ambiguities. For example, Revised Article 9 clarifies the ambiguity that surrounded the name of a registered organization on a financing statement. Revised Article 9 makes it clear that to perfect a security interest in collateral of a registered organization, a secured creditor must place the corporation’s registered name on its financing statement (i.e., the exact name used by the entity on the secretary of state’s web site). Accordingly, a secured creditor is given a definitive, universal checkpoint for ensuring compliance with Revised Article 9. While the process for perfection of collateral owned by a registered entity is clear, Revised Article 9, unfortunately, is not as clear as to perfection of collateral owned by individual debtors.
For individual debtors, §9-503 requires that a secured creditor use the individual name of a debtor; however individual name is not defined. This raises the issue of how a secured creditor, potential lender or trustee ensures that the name given by an individual debtor is the correct individual name. Is the individual name the name that the debtor signs on the debt instrument, or the name as it appears on the debtor’s driver’s license? Or must a secured creditor require a birth certificate, social security card or passport? What if the individual marries before or after she uses her birth certificate as proof of name? Revised Article 9 does not provide answers to the foregoing questions.
Section 9-506(a) provides that a financing statement is effective unless minor errors and omissions render it seriously misleading; §9-506(b) provides that except as provided in §9-506(c), a financing statement that does not comply with §9-503 is seriously misleading; and §9-506(c) of Revised Article 9 states that if a search of the records under the debtor’s correct name, using the standard search logic, would disclose a financing statement that fails to otherwise comply with §9-503 (i.e., the requirement to use the debtor’s individual name), then the financing statement is not seriously misleading.
While §9-506(c) purports to provide a safe harbor for creditors, creditors perfecting liens against individual debtors must rely on this safe harbor at their own risks, as the requirements (i.e. “correct name” and “standard search logic”) of the safe harbor are not clearly or easily followed. Beyond the ambiguity associated with the term “correct name,” the reality is that there is no standard search logic and the vast differences in the search engines used by the various states seriously hinder a creditor’s attempt to avail itself of the safe harbor provision of Revised Article 9.
Disclaimer
While the information presented in this article, including the spreadsheet that indicates the type of search system used for each state, is the result of extensive effort and believed by the authors to be accurate, you are cautioned that neither ABI nor the authors intends any warranty nor that reliance be placed upon these materials in advising your clients without conducting independent research.
Planning for Annual Spring Meeting
For our April program, the UCC Committee will be joining the Finance and Banking Committee for a presentation entitled “Banking in the 21st Century: Current Issues Affecting Lending, Borrowing and Banking.” We presently intend to cover several issues in the presentation, including:
- The new ‘Check 21’ Legislation
- ‘Equal and ratable’ lien sharing clauses
- Liens on commercial tort claims (particularly in the context of DIP Financing Orders)
Minutes of Uniform Commercial Code Committee Meeting
The Uniform Commercial Code Committee met on December 4, 2004, in conjunction with the Winter Leadership Conference at the Camelback Inn in Scottsdale, Ariz. The meeting was chaired by Mark V. Bossi. Approximately 40 members attended the meeting.
The principal program featured Gary A. Norton of Whitfield & Eddy PLC in Des Moines, Iowa; Wendy M. Hall of Bass, Berry & Sims PLC in Nashville, Tenn. and Sacha Ross of Berman & Norton Breman PA in Tampa, Florida. They presented a program on “Current Issues Under Revised UCC Article 9 Impacting Bankruptcy and Update on Revisions to ‘Other’ UCC Articles.” The program elicited an energetic discussion among those attending on various issues concerning Revised Article 9, particularly issues relating to UCC-1 filings against individual debtors and the various problems posed thereby.
In other business, the committee discussed the schedule for writing articles for the Lien on Me Column that appears in the ABI Journal and the distribution of the committee’s e-mail newsletter. Anyone interested in either of these projects should contact Mark Bossi or Brent Cohen, the committee co-chairs.
The committee is in the process of planning the agenda for its meeting in Washington, D.C. in April.