If you’ve been following our blog over the past year, you’ve read a lot about the new amendments to the Article 9 that states are currently adopting. A recent court decision involving what constitutes a legal individual debtor name seems to illustrate why so many states are opting to provide more clarity by revising the language of Section 9-503 of the Uniform Commercial Code (UCC).
Contributed by Tim Hall, Director of Government Relations, CT Corporation
In Re Ben Miller and Debbie Ann Miller, Bankruptcy Case No. 10-92570, USBC – Central Dist. of Illinois (decided January 6, 2012)
Facts: State Bank of Arthur (SP) began a banking relationship with Bennie A. Miller and Debbie A. Miller (debtors) in 1995. When they opened personal bank accounts, the signature card was filled out and signed by the Millers as “Bennie A. Miller” and “Debbie A. Miller”. The relationship continued for many years, and various promissory notes and security agreements were signed by Mr. Miller using the name “Bennie A. Miller”. In January 1999, SP filed a blanket UCC financing statement identifying the debtors as “Bennie A. Miller” and “Debbie A. Miller”. In addition, the financing statement listed the Miller’s business trade name “d/b/a Power Plus”. The financing statement was timely continued in 2003 and 2008. In December 2010, the debtors filed for bankruptcy.
On June 17, 2011, the debtors filed an adversary proceeding to avoid the lien of the bank to the extent the financing statements incorrectly identified the legal name of Mr. Miller as “Bennie A. Miller”. There is no dispute the financing statement correctly identifies Mrs. Miller as “Debbie A. Miller”.
During trial, the following testimony and evidence was presented:
- Mr. Miller testified that he has gone by the name of “Bennie Miller” for much of his life, and that is how he is generally known in the community.
- Mr. Miller’s unexpired driver’s license and his Social Security card both list his name as “Bennie A. Miller”
- Mr. Miller’s name is listed as “Bennie A. Miller” on the deed to the Miller’s residence, his Federal Income Tax returns, his credit card accounts and the bill of sale from the purchase of their business.
However, Mr. Miller’s Indiana birth certificate lists his name as “Ben Miller”. The parties agree that a UCC lien search conducted against the debtor name “Ben Miller”, using the Illinois Secretary of State’s standard search logic, does not disclose the bank’s financing statement listing the debtor name “Bennie A. Miller”.
Issue: It is the plaintiff’s position that, as a result of failing to use the debtor’s legal name of “Ben Miller”, the UCC-1 financing statement and continuations filed by the SP are insufficient to perfect the SP’s security interest in non-titled collateral owned by the debtors. There is no dispute that a UCC lien search for the debtor name “Debbie Miller” does disclose the SP’s financing statement, and the SP is therefore secured as to at least half of the assets in question.
Decision: Under the undisputed facts of this case, the Court finds that Mr. Miller’s legal name as indicated on his birth certificate is in fact “Ben Miller”. The evidence does not support the SP’s position that Mr. Miller has legally changed his name to “Bennie Miller”.
While the court recognizes that various states have amended the Uniform Commercial Code to address the situation presented here, those amendments have not been adopted in Illinois. Under the current status of the Illinois Uniform Commercial Code, this court must find that the SP’s use of the name “Bennie A. Miller” on its financing statement was “seriously misleading”.
How 2013 amendments to the UCC Article 9 would protect lenders in future similar scenarios
As you may be aware from previous blog posts, some states have recently adopted, and other states are now or will soon be considering, an amendment to Section 9-503 of the UCC that would provide more specific guidelines for secured parties. States have the option of choosing between “Alternative A” or “Alternative B” (or may choose to make no changes to this section of the state’s code).
“Alternative A,” or the “Only If” option, is stricter for filers, but more clear cut: if the debtor has a valid driver’s license in the state of filing, the secured party must file on the name contained on that license. This also makes the job of searches in these states much easier. If Illinois had this law in place at the time of the above decision, the SP’s filing would have been deemed to be under the correct and legal name. Use of the name “Bennie A. Miller” would not have been seriously misleading because the filing would have been uncovered by an appropriate search according to the jurisdictional law and search conventions.
“Alternative B” or the “Safe Harbor” approach is more lenient for the secured party, in that it may file on the name contained on the driver’s license, but it also allows for other individual names to be used, such as the surname and first personal name. Because a variety of names will be sufficient under this law, a searcher must conduct a more expansive search to ensure that all name variations are covered, but the filer is protected for a greater array of names. If Illinois had this law in place at the time of the above decision, it still would have been protected for using the name “Bennie A. Miller” as this would have been one of the names protected by law.
Although a name affidavit might provide some legal clarity as to the parties attached in the transaction, it may not assist with the perfection of a financing statement under the filing rules of UCC RA9. The purpose of the Name Affidavit is to avoid any ambiguity with the names so that the borrower may not later claim that he/she is not the person named in the document and is not bound by the loan or liability – this does a good job at protecting the lender against the borrower. It may also help with signature issues in the event there is a claim of fraud. Here, the UCC RA9 rules would control perfection and assist with priorities against competing secured parties. The statute is clear that as a “public notice” system, perfection is obtained by filing under the correct legal name (according to the UCC RA9 statute) in the correct jurisdiction, provided it supplies an “indication of the collateral.” With that said, the name listed on the UCC would still have to be the “correct legal name” under Illinois UCC RA9 law and a name affidavit wouldn’t provide additional protection under UCC RA9.
Posted by: Bill Moore - CT UCC Business Consultant | August 29, 2012 at 12:41 PM
If a name affidavit had been prepared and filed with the original loan documents, could this have alleviated the problem?
Posted by: Cheryl Stroben | August 28, 2012 at 12:12 PM