As you can see from the bills we pointed to in yesterday’s post, many of which we’ve described in previous blog postings, individual states are free to examine the Model Act proposed by NCCUSL and adopt all, none or part of the proposed revisions as they see fit. This is resulting in non-uniformity across jurisdictions—certainly nothing new to the Uniform Commercial Code.
Nonetheless, the goal of the “Uniform Commercial Code” is uniformity amongst the states, and it’s easy to see why. There are several provisions in the proposed RRA9 amendments where non-uniformity creates a greater risk for lenders. We briefly describe these areas below, referencing the relevant code section, should you desire to read the actual text using the links in our previous post.
Uniform Effective Date of July 1, 2013
Ideally, each state will adopt RRA9 with the proposed effective date of July 1, 2013. A uniform effective date reduces the risk that lenders will have to deal with a multitude of forms, debtor name requirements, organizational information such as organizational ID numbers, etc. In addition, the RRA9 amendments include some substantial revision of Section 9-316, as it relates to the continued perfection of a security interest when a debtor’s location changes or a transfer of collateral is made. As a result, if a jurisdiction chooses an earlier or later effective date, it will be much more difficult for lenders to monitor and maintain their UCC filing records.
As of the date of this post, the following states are likely to adopt the proposed effective date of July 1, 2013: CT, IN, MN, NE, ND, NV, OK, WA. At this time, we are unable to report on Massachusetts’s intentions, as it has not published text for the House Bill 25.
9-521: Uniform Form of Written Financing Statement and Amendment
Section 9-521 was designed to provide a uniform form for both the UCC-1 financing statement and UCC-3 Amendment. These forms are often referred to as the “national forms”.
The drafters of RRA9 also intended for uniform forms to be part of the amendments. However, there are still some issues that need to be resolved regarding the UCC forms. As a result, at this point in time some of the legislation to enact RRA9 contains “placeholder” text, rather than depictions of the actual forms. Also, some states may propose legislation omitting any references to 9-521 or the UCC forms.
These issues will need to be resolved before the effective date of any legislation—although with a uniform effective date of July 1, 2013, there is plenty of time for all form issues to be resolved, and for appropriate amending legislation to occur as needed. Of course, CT Corporation will always keep you informed of any changes to UCC forms or related information.
States proposing amendments with placeholder text or forms:
NE, OK, IN, WA (has forms and instructions in statute)
States proposing amendments with no reference to 9-521 or forms:
CT, MN, ND, NV
9-503: Name of Debtor and Secured Party
Section 9-503 addresses the sufficiency of a debtor’s name, and sets forth the standards for “getting the debtor name right”. Current Article 9 does not provide much direction regarding individual debtor names. RRA9 offers two alternatives, commonly referred to as the “Only If” option (Alternative A) or the “Safe Harbor Option” (Alternative B).
Simply put, Alternative A provides that if an individual debtor has a “driver’s license”, the financing statement must use the name indicated on the license. If an individual debtor does not have a driver’s license, the financing statement must use the surname and first personal name of the individual.
Alternative B provides that if an individual debtor has a driver’s license, the financing statement is sufficient if it uses that name. However, unlike Alternative A, it also allows for other individual names to be used, such as the surname or first personal name.
In a practical sense, the difference between Alternative A and Alternative B has a significant impact upon a party searching the UCC records. If a jurisdiction adopts Alternative A, a searcher is assured that searching the name indicated on the most recent, valid driver’s license is sufficient. Under Alternative B, a variety of debtor names are generally sufficient, and a searcher will need to conduct a more expansive search to ensure that all possible name variations are uncovered. It will be imperative for a searcher to understand the individual name standards in each jurisdiction, as well as the effects of a particular state’s search logic upon the name standards, in order to conduct a compliant UCC search against an individual debtor.
States choosing Alternative A (Only If) standard for individual debtor names:
MN, ND, NE, OK
States choosing Alternative B:
CT, NV, WA
Non-Uniform Treatment of Individual Debtor Names:
Indiana chose a non-uniform provision regarding individual debtor names--basically Alternative B with the driver’s license language removed. And, as a reminder, Massachusetts has not yet published the text of its bill, so it remains unknown which alternative it will ultimately choose.
Please feel free to contact us if you have any questions or comments about the new Article 9 Amendments.
