A Debtor by Any Other Name May Unperfect the Security Interest: Debtor Names and the 2010 Amendments to Article 9 of the Uniform Commercial Code
Many commercial loans are secured by personal property, which is governed by Article 9 of the Uniform Commercial Code. UCC Article 9 was substantially revised in 1998 and eventually adopted in all 50 states in 2001. More than a decade later, UCC Article 9 was revised again to respond to filing issues and to address other matters that had arisen in practice following a decade of experience with the 1998 version. The latest revisions became effective July 1, 2013 in at least 26 states, including Maryland, the District of Columbia and Virginia. Most of UCC Article 9 remains intact under the 2010 Amendments. One of the most important amendments addresses how to sufficiently list a debtor’s name on a financing statement.
Which Public Record May Be Used When a Debtor is an Entity?
Prior to the 2010 Amendments, Section 9-503(a)(1) of the old UCC Article 9 provided that a debtor’s entity name is sufficient, “only if the financing statement provides the name of the debtor indicated on the public record of the debtor's jurisdiction of organization which shows the debtor to have been organized.” Because uncertainty arose about what constitutes a “public record,” the 2010 Amendments clarify which public record may be used. Now, the name of the entity listed on the financing statement must match the name of the entity that appears on a “public organic record” most recently filed with or issued by the state to form or change the name of the entity. A public organic record is a record available to the public, such as articles of incorporation, a certificate of organization or articles of amendment. It is important to note that a certificate of good standing is not a “public organic record” and should not be relied upon to identify the correct name of a registered organization on the financing statement.
How an Individual Must Be Named on a Financing Statement
With respect to individual debtors, name uncertainty has been a problem. Individuals may be known by multiple names. Birth certificates, state-issued identifications, driver’s licenses, passports, or a commonly known nickname may indicate different names for the same person. The 1998 version of UCC Article 9 provided no guidance on the correct name of an individual debtor to include in the financing statement. Yet the same Article provides that a financing statement that does not provide a correctly named debtor is deemed “seriously misleading.” The 2010 Amendments clarify how individual debtors must be named on a financing statement and offer two alternatives for each state to adopt:
- Alternative A (The “Only If” Rule) provides that, a financings statement is sufficient “only if” the debtor’s name on the financing statement matches the debtor’s name on an unexpired driver’s license or state identification card issued by the state where the financing statement is filed. If the state has issued more than one driver's license or identification card to an individual, the financing statement should list the name of the debtor on the driver’s license or identification car that that was issued most recently. The statute provides that if the debtor does not have an unexpired driver's license, or identification card, then the financing statement must provide either the "individual legal name" of the debtor or the surname and first personal name of the debtor. It does not specify "individual legal name," as this may vary from state to state.
- Alternative B (the "Safe Harbor" Rule) provides that the individual debtor’s driver’s license name, the debtor’s actual name or the debtor’s surname and first personal name may be used on the financing statement. If a state has issued to an individual more than one driver's license or identification card, the financing statement should list the name of the debtor on the driver’s license or identification car that that was issued most recently by the state.
Maryland, the District of Columbia and Virginia all have adopted the Alternative A approach to identifying an individual debtor on a financing statement.
Because of these amendments, commercial lenders should require a recent certified copy of each debtor’s public organic record (and not merely the original document of formation) in order to be sure that they obtain the debtor’s name as it appears on the most recent public filing. Additionally, commercial lenders filing financing statements in jurisdictions adopting Alternative A need to be vigilant as to when an individual debtor’s driver’s license expires or when the name on a debtor’s driver’s license changes (for example, as a result of a change in marital status), as either of those events could cause the filing to become “seriously misleading” with respect to the debtor’s name and result in the security interest becoming unperfected.
Michael Smith is a lending attorney at Lerch, Early & Brewer in Bethesda, Maryland whose practice is focused on the structuring, negotiation, documentation, due diligence and closing of commercial lending transactions. For more information about correctly naming debtors on financing statements, contact him at (301) 657-0166 or firstname.lastname@example.org.