{"id":1508,"date":"2019-01-25T17:05:14","date_gmt":"2019-01-25T17:05:14","guid":{"rendered":"https:\/\/albanknews.com\/?p=1508"},"modified":"2019-01-25T17:16:09","modified_gmt":"2019-01-25T17:16:09","slug":"getting-the-debtors-name-right-on-the-ucc-1-is-important","status":"publish","type":"post","link":"https:\/\/albanknews.com\/?p=1508","title":{"rendered":"Getting the Debtor\u2019s Name Right on the UCC-1 is Important"},"content":{"rendered":"\n

by Laurence Vinson, Bradley<\/em><\/p>\n\n\n\n

Alabama banks and other secured parties sometimes have difficulty completing the UCC-1 financing statement form in the manner provided by Article 9, \u201cSecured Transactions,\u201d of the Alabama Uniform Commercial Code with respect to debtors that are registered organizations, according to an unscientific survey by the author of a sample of UCC-1s filed in the Office of the Secretary of State of Alabama. If an error in completing a UCC-1 causes the UCC-1 to be ineffective, the secured creditor will not have a perfected security interest in collateral that would have been perfected by filing an effective UCC-1. Common potential problem areas include incorrect debtors\u2019 names, incorrect secured parties\u2019 names, and misspellings.<\/p>\n\n\n\n

To be sufficient a financing statement must (1) provide the name of the debtor, (2) provide the name of the secured party, and (3) indicate the collateral covered by the financing statement.  If the financing statement is related to real property, such as a fixture filing, additional information also is required.<\/p>\n\n\n\n

Name of the Debtor<\/strong>
\nIf the debtor is a registered organization such as a corporation, limited liability company, or limited partnership, a financing statement sufficiently provides the name of the debtor only if the financing statement provides the name of the debtor indicated in the record which shows the debtor to have been organized and which is filed as a public record in the state in which the debtor was organized. In Alabama, in most cases the applicable public record is the certificate of formation filed in the office of the judge of probate of the county where the registered organization was formed, including any filed amendments to the certificate of formation.  A copy of the certificate of formation is forwarded by the judge of probate to the Secretary of State of Alabama. The names of registered organizations formed in Alabama and the names of debtors on UCC-1 financing statements filed in the Secretary of State\u2019s office are searchable on the website of the Secretary of State of Alabama. These online databases are not the official record, however. In the case of a discrepancy between the name of a registered organization on file in the Secretary of State\u2019s online databases and the name shown on the organization\u2019s certificate of formation, the name shown on the certificate of formation will control.<\/p>\n\n\n\n

Banks and other secured parties often include the debtor\u2019s jurisdiction of organization after the debtor\u2019s name in the space for the \u201cDebtor\u2019s Name\u201d on the UCC-1. For example, if the debtor\u2019s name as shown in its certificate of formation is \u201cAcme, Inc.,\u201d the debtor\u2019s name may be shown on the UCC-1 as \u201cAcme, Inc., an Alabama corporation,\u201d Thus, the name provided as the \u201cOrganization\u2019s Name\u201d on the UCC-1 includes the debtor\u2019s name, and it also contains information in addition to the debtor\u2019s name shown on the debtor\u2019s certificate of formation. This practice leads to the question whether the name shown on the UCC-1 provides \u201cthe name of the debtor\u201d as required for the financing statement to be sufficient.<\/p>\n\n\n\n

A financing statement which substantially satisfies the requirements of Article 9 is effective even if it has minor errors or omissions, unless the errors or omissions make the financing statement \u201cseriously misleading.\u201d As a general rule, a financing statement that fails sufficiently to provide the name shown on the certificate of formation of a debtor that is a registered organization is seriously misleading. However, if a search of the records of the filing office under the debtor\u2019s correct name, using the filing office\u2019s standard search logic, would disclose a financing statement that fails to provide the name of the debtor shown on the debtor\u2019s certificate of formation, the name provided does not make the financing statement seriously misleading.  Fortunately, it appears that if a search is made under the name \u201cAcme, Inc.,\u201d for example, the search logic used in the UCC database of the Alabama Secretary of State \u2013 at least as applied to an unofficial search on the Secretary of State\u2019s website \u2013 will disclose a financing statement that provides the debtor\u2019s name as \u201cAcme, Inc., an Alabama corporation.\u201d  <\/p>\n\n\n\n

If another creditor or a trustee in bankruptcy of the debtor were to ask a court to determine that the secured party\u2019s financing statement is ineffective because it provides information in the \u201cOrganization\u2019s Name\u201d box in addition to the name of the debtor shown in its certificate of formation, it would be incumbent upon the secured party to offer in evidence a search report issued by the Secretary of State in response to a request submitted solely in the correct name of the debtor which report discloses the financing statement filed by the secured party with the additional information in the box for the debtor\u2019s name (e.g., the report shows the financing statement filed naming the debtor as \u201cAcme, Inc., an Alabama corporation\u201d).  The best practice in order to avoid this risk and potential expense is for the secured party to provide as the name of the debtor on the UCC-1 only the debtor\u2019s name exactly as indicated on the debtor\u2019s certificate of formation, without adding any additional information.<\/p>\n\n\n\n

The procedures of the Alabama Secretary of State describe some aspects of the search logic used to search for UCC-1s filed in that office:  <\/p>\n\n\n\n

(3) Rules applied to search requests. Search results are produced by the application of standardized search logic to the name presented to the filing officer. Human judgment does not play a role in determining the results of the search. The following rules apply to searches. <\/p>\n\n\n\n

(a) \tThere is no limit to the number of matches that may be returned in response to the search criteria. <\/p>\n\n\n\n

(b) \tNo distinction is made between upper and lower case letters. <\/p>\n\n\n\n

(c) \tPunctuation marks and accents are disregarded. <\/p>\n\n\n\n

(d) \tWords and abbreviations at the end of a name that indicate the existence or nature of an organization [e.g., \u201cInc.,\u201d \u201cCorp.,\u201d \u201cLLC\u201d] as set forth in the \u201cEnding Noise Words\u201d list as promulgated and adopted by the International Association of Corporation Administrators are disregarded. <\/p>\n\n\n\n

(e) \tThe word \u201cthe\u201d at the beginning or end of the search criteria is disregarded. <\/p>\n\n\n\n

(f) \tAll spaces are disregarded.<\/p>\n\n\n\n

The search logic used for UCC-1 searches by the Secretary of State of Delaware is very similar to that used by the Secretary of State of Alabama. This is good news for banks and other secured parties in Alabama, because many borrowers which are registered organizations are organized under Delaware law. The only correct place to file most financing statements which name a registered organization as the debtor is in the UCC filing office in the state where the debtor was organized.  <\/p>\n\n\n\n

The standard search logic used by the filing offices in some other states is not as forgiving as the search logic used by the Alabama Secretary of State appears to be.  For example:<\/p>\n\n\n\n

A bankruptcy court in Virginia held that a financing statement was insufficient where the abbreviation \u201cInc.\u201d was omitted from the name of the debtor on the filed UCC-1. <\/p>\n\n\n\n

A bankruptcy appellate panel, in a case where the debtor\u2019s correct name was \u201cEDM Corporation,\u201d held that a financing statement that provided the name of the debtor as \u201cEDM Corporation d\/b\/a EDM Equipment\u201d was ineffective under the search logic used in Nebraska.  The secured party in that case argued that its financing statement sufficiently provided the debtor\u2019s name because the words \u201cEDM Corporation\u201d were included in the name provided.  The appellate panel disagreed, saying that the financing statement did not provide the name of the debtor and that it was seriously misleading.<\/p>\n\n\n\n

A bankruptcy court in Texas, in a case where the debtor\u2019s correct name was \u201cJim Ross Tires Inc.,\u201d held that a financing statement that provided the debtor\u2019s name as \u201cJim Ross Tires, Inc. dba HTC Tires & Automotive Centers\u201d was ineffective.  The court said the addition of the dba name conflicts with the purposes of the indexing system and the administrative procedures for indexing and searching UCC records filed with the Texas Secretary of State.  <\/p>\n\n\n\n

A federal court in Wisconsin, in considering a financing statement where the secured party accidentally included a space between \u201cInc\u201d and the period following those letters, thereby providing the debtor\u2019s name as \u201cISC, Inc .\u201d (rather than \u201cISC, Inc.\u201d), held that the financing statement did not sufficiently provide the name of the debtor and was seriously misleading. Apparently, the search logic in that state treats a space the same as a letter of the alphabet. As a result, incorrectly adding the space before the period created a \u201cmisspelling\u201d of the debtor\u2019s name that would cause the search logic not to disclose the financing statement filed by the secured party. <\/sup><\/p>\n\n\n\n

A bankruptcy court in Texas, in a case where the debtor\u2019s correct name was \u201cBFN Operations LLC\u201d, held that financing statements filed in Michigan and Tennessee that provided the debtor\u2019s name as \u201cBFN Operations, LLC abn Zelenka Farms\u201d were ineffective because the standard search logic used in those states would not have disclosed the financing statements in a search made using the debtor\u2019s correct name. <\/p>\n\n\n\n

Name of the Secured Party 
\n<\/strong>A number of Alabama banks put their bank\u2019s name in the \u201cSecured Party\u2019s Name\u201d box on the UCC-1, followed by additional information such as \u201can Alabama Banking Corporation\u201d or \u201can Alabama State Bank.\u201d As noted above, to be effective a financing statement must \u201cprovide the name of the secured party.\u201d While Article 9 goes into considerable detail in describing when a financing statement sufficiently provides the name of the debtor and when an error in the debtor\u2019s name shown on the financing statement is not \u201cseriously misleading\u201d, no similar rules are provided with regard to the sufficiency of a secured party\u2019s name or the effect of an error in the name of the secured party provided on the financing statement.  <\/p>\n\n\n\n

It seems that the correct name of a secured party, followed by additional information such as \u201can Alabama Banking Corporation\u201d, should not cause the name of the secured party shown on the UCC-1 to be insufficient because it is not seriously misleading and also \u2013 and primarily \u2013 because searches for UCC-1s are not performed in the name of the secured party. Still, the best practice is to provide only the secured party\u2019s correct legal name, without any additional information, in the space for the name of the secured party on the UCC-1.<\/p>\n\n\n\n

Misspellings and Similar Errors
\n<\/strong>Spelling counts. If the debtor\u2019s name as shown on the UCC-1 is misspelled or contains similar errors, the UCC-1 very likely will be ineffective. UCC lien searches are performed by word searches in the correct name of the debtor, and a misspelling of the name of the debtor on the UCC-1 almost certainly will cause the debtor\u2019s name to be \u201cseriously misleading\u201d because the UCC-1 will not be disclosed in a search using the correct spelling of the name of the debtor. For example, debtors\u2019 names that begin with the word \u201cAlabama\u201d are fairly common in Alabama. A search of the online UCC records of the Alabama Secretary of State using the misspellings \u201cAlabma,\u201d or \u201cAlbama\u201d turns up UCC-1s that have been filed with that misspelling shown as part of the debtor\u2019s name. Those UCC-1s likely will be deemed to be ineffective if the error was made by the secured party and not as a data entry error by the filing office, because a search of the debtor\u2019s correct name using the standard logic of the filing office likely will not turn up those financing statements. <\/p>\n\n\n\n

For example, a bankruptcy court in Florida held that a financing statement that provided the debtor\u2019s name as \u201cJohn Bean Farms, Inc.\u201d was seriously misleading where the debtor\u2019s correct name was \u201cJohn\u2019s Bean Farm of Homestead, Inc.\u201d And, in the first of the two Texas bankruptcy court cases described above, a UCC-1 filed by another creditor named the debtor as \u201cJim Ross Tire Inc.\u201d instead of \u201cJim Ross Tires Inc.\u201d (the \u201cs\u201d in \u201cTires\u201d was omitted). The court found that the UCC-1 was not effective because a search under the debtor\u2019s correct name using the standard search logic of the filing office would not disclose the UCC-1 on which the \u201cs\u201d in \u201cTires\u201d had been omitted.<\/p>\n\n\n\n

Conclusion<\/strong>
\nThe importance of providing the debtor\u2019s name on the UCC-1 exactly as it is shown on the debtor\u2019s certificate of formation cannot be overstated. If the debtor\u2019s name provided on the UCC-1 is not the name indicated on the debtor\u2019s certificate of formation, and if a search of the UCC records under the debtor\u2019s correct name made using the standard search logic of the filing office would not disclose the UCC-1, the UCC-1 is \u201cseriously misleading\u201d and will be as ineffective as it would if it had never been filed.<\/p>\n\n\n\n

Larry Vinson<\/em> regularly counsels financial institutions of all sizes on new CFPB regulations, bank regulatory and product questions, and all aspects of state and federal consumer credit compliance. On questions relating to the Uniform Commercial Code, he is a resource for the firm’s clients and for other lawyers both inside and outside the firm. He served as Chair of the Alabama Law Institute advisory committees on Revised UCC Article 9, “Secured Transactions,” Revised UCC Article 3 and Article 4, and Revised UCC Article 1 and Article 7.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

by Laurence Vinson, Bradley Alabama banks and other secured parties sometimes have difficulty completing the UCC-1 financing statement form in the manner provided by Article 9, \u201cSecured Transactions,\u201d of the Alabama Uniform Commercial Code with respect to debtors that are registered organizations, according to an unscientific survey by the author of a sample of UCC-1s filed in the Office of the Secretary of State of Alabama. If an error in completing a UCC-1 causes the UCC-1 to be ineffective, the secured creditor will not have a perfected security interest in collateral that would have been perfected by filing an effective […]<\/p>\n","protected":false},"author":1,"featured_media":860,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[32,19,23],"tags":[],"class_list":["post-1508","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-board-briefs","category-breaking","category-publications","has_thumb"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/albanknews.com\/wp-content\/uploads\/2016\/09\/BB-web-header.jpg?fit=1109%2C858&ssl=1","jetpack_shortlink":"https:\/\/wp.me\/p4Y3P2-ok","jetpack_sharing_enabled":true,"jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/posts\/1508","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/albanknews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1508"}],"version-history":[{"count":5,"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/posts\/1508\/revisions"}],"predecessor-version":[{"id":1519,"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/posts\/1508\/revisions\/1519"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/media\/860"}],"wp:attachment":[{"href":"https:\/\/albanknews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1508"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/albanknews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1508"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/albanknews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1508"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}