Providing the correct debtor name on a financing statement is a critical part of the process of perfecting security interests under Article 9 of the Uniform Commercial Code (“UCC”). This article will review fundamental debtor name concepts and special debtor name concerns, and identify a number of traps for the unwary attorney.
The purpose of filing financing statements is to provide notice of the claimed security interests. The ability of a UCC financing statement to serve its notice function depends on whether an interested party can locate the record. This is where the debtor name becomes particularly important.
Filing office search systems are designed to retrieve UCC records by debtor name. These systems generally report only exact matches to the name searched after the filing office has applied its standard search logic. With the way these systems are designed to operate, any error, omission, or variation in the debtor name, no matter how small, can prevent a search of the correct debtor name from locating the record.
The UCC recognizes the importance of accurate debtor names in this process by providing specific rules for different types of debtors in UCC Section 9-503(a). The code also provides harsh consequences for the secured party when a financing statement does not comply with the debtor name rules. With one exception, a financing statement that fails to sufficiently provide the debtor name in accordance with Section 9-503(a) will render the financing statement seriously misleading and not effective under Section 9-506(b).
The exception occurs when a search of the filing office records on the correct name of the debtor, using the jurisdiction’s standard search logic, if any, would disclose the record. In such cases, the insufficient debtor name does not render the financing statement seriously misleading. Unfortunately, the search logic test provides little protection. The search logic used by most jurisdictions will only disregard minor variations in punctuation, ending noise words, a leading “the”, and spacing. Even these general search logic steps differ somewhat from state to state.
Debtor Names for Organizations and Series of Entities
With so much riding on correct debtor names, one might expect that those who file UCC records would strictly comply with the Section 9-503(a) name rules. Many filers do so, but such compliance can be a challenge. To arrive at the correct debtor name, the filer must often disregard distractions that could lead them astray. If the debtor is a registered organization, for example, the financing statement must provide the name stated to be the name of the organization in the public organic record. “Public organic record” is a defined term in Article 9 and generally refers to the formation documents that state the name of the entity. However, other public records, including tax returns, certificates of good standing, and other official sources, often contain multiple variations of an entity’s name. Unless the filer understands what constitutes the public organic record and resists the temptation offered by other potential name sources, there is a substantial risk of error.
Another challenge for filers is what name to provide on the financing statement for an increasingly popular type of debtor: the series of an entity. In recent years several states have enacted legislation that permits limited liability companies and other entities to create series. A series has no existence apart from the entity under which it was formed. However, a series can have its own members, assets, and liabilities. A series can also contract, sue or be sued, and have a liability shield from the obligations of other series or the parent company.
There continues to be uncertainty regarding what name to provide for the debtor when the security interest is granted by the series of an entity. Much depends on the particular state law under which the series was formed. Filers must take care to determine what debtor name could be correct for a series debtor and list that name or any potentially correct names as separate debtors on the financing statement.
Names for Individual Debtors
Since the 2010 Amendments to UCC Article 9 were enacted across the country, determining the correct name of an individual debtor has been easier. Generally, the financing statement must provide the name indicated on the debtor’s driver’s license or, if permitted by applicable state law, the non-driver’s identification card. Nevertheless, there are still plenty of traps for the unwary, such as how to extract an unusual name from the driver’s license or what to do if the debtor lacks the designated identification documents.
The foregoing discussion represents the greatest concerns for attorneys who file UCC records, but there are other types of debtors as well. The debtor name requirements when the collateral is held in a trust or administered by a decedent’s personal representative, for example, are not always intuitive, leading to a number of common errors. Likewise, filers often struggle when the debtor doesn’t have a name, such as with an unnamed, as might be the case with an unnamed general partnership or similar entity.
In summary, strict compliance with the UCC Article 9 debtor name rules is always important. Those who file UCC records should provide the name required by UCC Section 9-503(a) exactly as it appears on the designated source document, including matching the spelling, spacing, and punctuation. If there is any doubt as to what Section 9-503(a) requires for the correct name, the filer should provide one or more name variations to ensure that whatever a court later decides was correct is contained on the financing statement.
This article is based on a CLE program that took place during the ABA Business Law Section’s 2022 Hybrid Annual Meeting. To learn more about this topic, view the program as on-demand CLE, free for members.