UCC Article 9 amendment series - #3

We hope you’re finding our UCC Article 9 amendment series to be informative. There are a couple posts left in the series, but should you have a question about anything we do not address, please leave it as a comment, or email it to CT Lien Solutions!

Contributed by Tim Hall, Managing Attorney, CT Corporation

Changes to Debtor Name Provisions

Section 9-503 provides direction for determining when a financing statement sufficiently provides the name of a debtor. Of course, this section is tied to other sections of the code that provide that a “seriously misleading” debtor name generally makes a financing statement legally ineffective. Therefore, it is imperative that a secured party filing a financing statement follow the code’s direction in determining the correct debtor name.

Since 2001, the method for determining the correct name for a registered organization has been fairly simple, as the code pointed to the organizational documents found in the jurisdiction of organization (e.g., the Article of Incorporation) as the single source document for determining the correct debtor name. However, the current code does not contain such guidance with regard to determining the correct individual debtor name. As a result, secured parties often struggled (particularly when conducting UCC searches) to identify the correct name (or combination of names) for a particular debtor.

After much discussion, and balancing many competing interests, the drafters determined that proposed amendments will contain two alternative provisions. Therefore, it will be up to each state legislature to choose the alternative that best meets the needs of its constituents. The two alternatives, commonly referred to as the “Only If” option and the “Safe Harbor” option, are briefly discussed below. We strongly encourage you to read the proposed text, and particularly the in-depth discussions within the official comments, to gain a better understanding of these proposals.

Alternative A: The “Only if” option: This option provides that if the debtor is an individual to which the state has issued a driver license (or other identification issued by the same agency) that has not expired, the financing statement sufficiently names the debtor if it contains the name indicated on the driver’s license. If the debtor does not have a driver’s license, the financing statement may identify the debtor by the individual name or personal name and surname. The UCC forms will also be amended to accommodate the language used in the statute.

Alternative B: The “Safe Harbor” option: The second option provides that if the debtor is an individual, the financing statement sufficiently names the debtor by providing: 1) the individual name of the debtor, 2) the surname and first personal name of the debtor or 3) the name provided on an unexpired driver license (or other identification issued by the same agency).

Under either alternative, a secured party will be able to rely upon the name indicated on an individual’s driver license when filing a financing statement against the individual. However, it is important to note that Alternative B will not provide as much predictability to a party searching the UCC records due to the broader range of potential individual names.

Debtor Name Changes

While appearing to be a subtle change in text, it is important to note that section 9-507 will also be amended. Section 9-507 relates to changes to the debtor name, and generally allows for a four-month grace period during which a secured party can amend a filed financing statement. Currently, the text of this section refers to situations in which a debtor affirmatively changes its name (generally requiring action on the part of the debtor to change its name, such as the merging of a corporation or the marriage of an individual debtor). The proposed changes will change the language of this section to provide that the appropriate actions are required if the name on a filed financing statement becomes insufficient as the name of the debtor.

On the agenda for tomorrow…organizational information on a financing statement; correction statements; and national UCC forms (UCC-1 and UCC-3).

Tim Hall has been with CT Corporation for more than 13 years. He spent his first three years as a Team Leader for a UCC Service team, and has been with the Government Relations Team for the past ten years. He is a graduate of The Ohio State University and the Northern Illinois University College of Law, and is a frequent speaker on Article 9 of the UCC.

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