Page Title

Text Box: When Filing a Financing Statement, Make Sure Debtor’s Name is Correct Over the years, we have written many articles that highlight the importance of using the correct debtor’s name when filing a financing statement. A recent case reminds us that a secured party will not have a perfected security interest against a debtor if the financing statement does not contain the debtor’s correct name. In this particular case, K.W.M. Electronics Corporation entered into a leasing agreement with Coastline Financial, Inc. Subsequently, KWM granted Burton M. Sack a security interest in certain collateral, and Sack filed a financing statement listing K.W.M Electronics Corporation as “K W M Electronics Corporation.” Coastline later initiated an action against KWM after KWM failed to pay rent. Coastline sought a writ of attachment and ultimately obtained a default judgment against KWM. Coastline’s lessor’s lien attached to the same goods identified as collateral in Sack’s financing statement. After obtaining a default judgment against KWM, Coastline seized the goods that were the subject of the security interest. Host America Corporation then initiated legal action against Coastline claiming it was the owner of the seized goods. Host America argued that its recent acquisition of the security interest held by Sack had priority over the lien held by Coastline. The issue in the case centered on whether the security interest that Host America acquired from Sack had priority over Coastline’s lessor’s lien. Host America argued that because Sack’s financing statement was filed before Coastline attempted to foreclose on its lessor’s lien, Sack’s security interest had priority. The Court examined the Sack financing statement and noted that it did not provide KWM’s correct name because it was missing the periods between KWM’s initials. The question arose as to whether the failure to list KWM’s correct name rendered the statement seriously misleading and thus ineffective for purposes of perfecting Sack’s security interest in the goods. The relevant Uniform Commercial Code provided that a financing statement was sufficient only if it provided the name of the debtor indicated on the public record of the debtor’s jurisdiction of organization unless a search of the filing office records under the debtor’s correct name using the filing office’s standard search logic would disclose the erroneous financing statement. If the erroneous financing statement would not be discovered in a search, the financing statement would be considered seriously misleading. In this case, a search using the filing office’s standard search logic would not have revealed Sack’s security interest. Accordingly, the Court concluded that Sack’s financing statement was seriously misleading and thus Host America did not have a perfected security interest in the collateral at the time Coastline began foreclosing on its lessor’s lien. Host America argued that even if the Sack financing statement was seriously misleading, it filed a sufficient financing statement prior to the time Coastline perfected its lessor’s lien. The Court examined case law to determine that a lessor’s lien is perfected and has priority over subsequently perfected security interests when the lessor has completed the steps required by statute. The Court concluded that Coastline did everything possible to perfect its lien to obtain a lessor’s lien and did, in fact, perfect its lien prior to Host America correcting the debtor’s name in the financing statement. Accordingly, Coastline’s lessor’s lien had priority over Host American’s lien. Thus, we present this case as yet another reminder that the debtor’s name must be absolutely correct in a financing statement in order for a secured party to have a perfected security interest. It also serves as a reminder to obtain landlord waivers where personal property collateral is pledged. This case is cited as Host America Corporation v. Coastline Financial, Inc. 2006 WL 1579614 (2006) or 60 UCC Rep. Serv. 2d 120 (2006).