What’s in a (UCC) name? The consequences of not using the right debtor name on a UCC-1

Debtor’s name must be correct

Article 9 provides the rules for what has to be set forth on a financing statement in order for it to perfect the security interest. Because the financing statement is only intended to provide notice of the secured party’s legal claim, only basic information is required, such as the names of the debtor and secured party and a description of the collateral. The details of the secured transaction itself are set forth in the security agreement or other contract where the debtor authorizes the lender to file the UCC-1.

Although only basic information is required on a UCC-1, the rules for how that information must be set forth have to be followed strictly. This is particularly true when it comes to providing the debtor’s name. The filing office indexes UCC filings by debtor name.  A searcher will therefore search by debtor name. A search using the correct name will reveal the UCC filings made by other secured parties claiming liens on the debtor’s property. But what if a lender files a financing statement and the debtor is named incorrectly? If the search does not reveal that lender’s financing statement, it will be considered “seriously misleading”, the lender becomes an “unsecured creditor” and will lose priority over secured creditors.

What is the correct debtor name?

The correct name depends upon the identity of the debtor.  Under Article 9, if the debtor is a “registered organization” such as a corporation or LLC, the name is the name as it appears on its current “public organic record”. That means its formation document – such as articles of incorporation for a corporation debtor or articles of organization for an LLC debtor. And it must be the exact name as it appears on that public organic record.

For an individual debtor, the UCC gives the states two choices (known as Alternative A and Alternative B). In most states, if the individual has a non-expired driver’s license, it must be the name as it appears on the individual’s driver’s license. That’s Alternative A. Alternative B provides more options.  In these states it can be the name on the driver’s license or the debtor’s actual individual name or the debtor’s surname and first personal name.

Debtor name must be an exact match to the name on the formation document or driver’s license

The name set forth on the UCC-1 must be an exact match to the name set forth in the registered organization’s formation document or individual’s driver’s license (if that’s the alternative the state uses). And exact means exact. A discrepancy between the name on the UCC-1 and the name on the formation document or driver’s license, no matter how small, can render the UCC-1 seriously misleading.

And when we say it must be an exact match, we mean it must be an exact match. Some recent court decisions that found UCC-1s seriously misleading confirm that fact.

• In one case, the lender’s filing listed the debtor’s middle name as “Mark”.  However, the debtor’s middle name that appeared on his driver’s license was “Markt”. A search using the correct name, with the “t”, did not reveal the lender’s filing, and the lender lost its priority.

(Middle names seem to be particularly troublesome as courts have also recently ruled financing statements seriously misleading where the middle name was left out and where a period was added after the middle initial.)

• In another case, a creditor filed a UCC-1 against a corporation debtor and listed the debtor’s name by including “Inc .” in the name.  (With a space between the “Inc” and the period). However, the articles of incorporation set forth the name with “Inc.” with no space between the “Inc” and the period.  A search using the exact name did not locate the filing with the space. The creditor’s UCC-1 was considered seriously misleading and the creditor lost priority.
• In another case, a lender’s lien was found ineffective where the debtor’s name as it appeared on its formation document included the word “Boulevard” but the lender used “Blvd.” in its UCC filings.

How do you find out the correct name?

Now that you know how important getting the name exactly right is, how do you make sure you have the correct name? The surest way is to get a copy of the appropriate document where the correct name is set forth. Ask an individual debtor to provide you with their driver’s license. Obtain a copy of the current formation document from the debtor or, perhaps better yet, order a copy from the state (or have your corporate service company order it for you). Don’t use an assumed name or use a name the state may list on its online database, or the name listed on a certificate of good standing. Use only the name on the current formation document.

What if the debtor changes its name?

A debtor, particularly a corporation or LLC debtor, may change its name after a financing statement is filed. If that happens, the secured party should file an amendment - using a form called a UCC-3 - to change the debtor’s name. Otherwise, they run the risk that a search conducted using the current, changed name may not find their financing statement. 

If an amendment is filed within four months of the name change, the secured interest remains perfected for all the collateral, including property acquired after the name change. If an amendment is not filed within four months, and the name change makes the filing seriously misleading, the secured party would remain perfected only for collateral acquired before the name change and within four months after the name change.

How can you be sure you used the right name?

One good way to ensure your financing statement used the correct name is to conduct a “search to reflect”.  A search to reflect is a search with the filing office shortly after a UCC filing was posted to the state’s UCC index. If a search using the correct debtor name does not uncover the lender’s UCC-1 it may be considered seriously misleading. The lender can then double check what name they put on their UCC-1 and if the name was wrong they can file an amendment to correct the error. Even if a search to reflect uncovers the lender’s UCC-1 it is a good opportunity to make sure all of the information is correct, and also to see if any other UCC filings have been made on the debtor since the lender’s filing.

What are some best practices

Here are some best practices to make sure the lender has perfected its security interest in the collateral listed on its financing statement.

• Obtain a copy of the debtor’s formation document or driver’s license to find out the debtor’s name.  Do not use the name from any document other than the one the filing state’s UCC law says to use.
• Make sure the name you put on the UCC-1 exactly matches the name on the formation document or driver’s license. Don’t use abbreviations, periods, spaces, punctuation, etc. that are not on the document.  Check and double check you got it right.
• Conduct a search to reflect after filing your UCC-1 to make sure a search using the correct debtor name finds your UCC-1. 
• Require the debtor to let you know if it changes its name (for example by putting that in the security agreement or other contract where the debtor authorizes the UCC filing), or periodically check the public records to see if the debtor has changed its name.  If the debtor’s name has changed, file a UCC-3 amendment form to change the debtor’s name.

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