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ComplianceFinanceMarch 27, 2018

When even the right name is wrong on a financing statement

In 2013, the 2010 Amendments to Article 9 took effect.  Among other provisions, the amendments provide that a driver’s license (or state-issued I.D.) is the correct source for determining an individual debtor’s name for a financing statement. With the idea of there being an exception for everything in mind, a recent court case was faced with the question of what to do if the driver’s license has two names on it.

The case in question is In re Pierce, 2018 Bankr. LEXIS 287 (Bankr. S.D. Ga. Feb. 1, 2018). In 2015 Farm Bureau Bank (the “Bank”) made a secured loan to Kenneth Pierce (the “Debtor") to finance the purchase of farm equipment for the Debtor’s farm. To perfect its security interest, the Bank filed a financing statement. The Bank’s financing statement provided the name of “Kenneth Pierce.” The debtor’s driver's license, like many such documents issued in the United States, included both the printed name of the licensee and the licensee’s signature. The printed name on the license is “Kenneth Ray Pierce.” However, the signature was simply “Kenneth Pierce.”

The Debtor later filed for bankruptcy. The Bank filed a proof of claim for the outstanding balance on its loan.  The Debtor, in turn, filed an objection to the Bank’s proof of claim. The Debtor argued that the Bank’s financing statement failed to sufficiently provide the name of the debtor and, as a result, the Bank’s security interest was unperfected and its claim unsecured.

The court began its analysis by reviewing the Article 9 debtor name rules. The 2010 Amendments provided that the filing office has the option of choosing one of two debtor name standards: the-so called “Alternative A or Alternative B” standard.  Alternative A states that if the debtor is an individual, the financing statement is sufficient only if it provides the name of the individual which is indicated on the driver’s license. Alternative B provides a safe harbor provision that could allow multiple name variations of an individual to be sufficient for purposes of the financing statement. Like most states, Georgia opted for the Alternative A standard.

In this case, the name on the financing statement did not match the name printed on the driver’s license. The Debtor therefore argued that the financing statement did not provide the correct name of the debtor. The Bank pointed out that there were two names indicated on the driver’s license, the printed name and the Debtor’s signed name. The Bank asserted either name was sufficient for purposes of Article 9 as enacted in Georgia.
The court then turned to the issue of whether the phrase “indicated on the driver’s license” referred only to the printed name or whether it also included the name as set forth in the Debtor’s signature. The court determined that the name typed on a legal document trumps the signature.

The court reasoned that by electing to adopt “Alternative A Only If” rule, the Georgia legislature was expressing its intent for more certainty. Allowing two equally sufficient ways of identifying the debtor, both the printed name and the signed name, would thwart the legislature’s intent.

The court ruled that the Bank failed to carry its burden and sustained the Debtor’s objection to the Bank’s proof of claim. 

The lesson learned here is that if the debtor is an individual, then the printed name on the driver’s license, not the signature, is the correct name of the debtor for purposes of a financing statement. It is another in a long line of nuanced situations that can arise when UCCs are involved but it won’t be the last. For questions about this case or any other situation you may be facing, call us at 1-800-833-5778, option 3, to speak with a lien expert.

Amanda Rasizzi of Lien Solutions
Director of Marketing
Amanda Rasizzi is Director of Marketing for Wolters Kluwer Lien Solutions. She oversees all marketing activities for the company. Rasizzi and her team communicate the company’s array of lien management, risk management, and life-of-loan solutions to prospects and clients, support the selling efforts of the Lien Solutions organization, and position the organization as an industry market leader.