Two Recent Court Decisions Demonstrate the Necessity of Promoting Safeguards Throughout the Lien Lifecycle
Two recent court cases have made it clear that a business’ name is a valuable differentiator: One case involving the difference between the word “and” and the symbol “&” and another with a subtle variation on a name cost two banks hundreds of thousands of dollars, making a strong argument that all financial institutions should verify debtor names on financial statements to support their asset and security claims.
A judgment by a Nebraska court determined that the seemingly minor difference between using the word “and” and symbol “&” was significantly misleading and led to voiding the security interest of the American Exchange Bank. When the bank referred to Alvo Grain and Feed, Inc. as “Alvo Grain & Feed, Inc.” on a Uniform Commercial Code (UCC) lien, the trustee for the company claimed the lender’s lien was invalid because it failed to use the company’s legal name. The court ruled that the UCC filing was annulled after concluding that the Nebraska Secretary of State database did not contain a listing for “Alvo Grain & Feed, Inc."
In a similar case, CCF Leasing Co. of Idaho filed a UCC financing statement after leasing equipment to Wing Foods, Inc. CCF mistakenly listed the debtor’s name as “Wing Fine Food.” After Wing Foods filed for bankruptcy, it claimed that misrepresentation on the UCC meant it could avoid the leasing company’s security interest. The Idaho courts agreed, and CCF lost its lien position.
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