Debtor Name Changes under U.C.C. Article 9

Debtor Name Changes under U.C.C. Article 9

Dealing with debtor name changes can be a tricky problem for secured parties. Only three pieces of information are required on a financing statement--the debtor's name, the name of the secured party or its representative, and an indication of the collateral. Sometimes debtors run amok, drastically changing their names and not telling the secured party and breach their obligation to inform the secured creditor in advance of changes in its name.

Professor Livingston writes: Article 9 (Secured Transactions) of the Uniform Commercial Code is built around an abhorrence of secret liens. Thus, secured parties are required to give notice to the world of their security interests to attain perfected status. Perfection is necessary to achieve priority over most other claimants and to ensure survival of the security interest in the event of the debtor's bankruptcy. Most commonly, secured parties file financing statements in the appropriate public office to perfect their interests. U.C.C. § 9-310 (a) (2009). Only three pieces of information are required on a financing statement: the debtor's name, the name of the secured party or its representative, and an indication of the collateral. U.C.C. § 9-502 (a). The debtor's name is the single most important piece of information on the financing statement because searchers will almost always search for financing statements using the debtor's name.

Because accuracy of the debtor's name is of paramount importance, Article 9 has a rather unforgiving standard for measuring the sufficiency of a debtor's name. If the debtor's name is not exactly correct on the financing statement, the financing statement will be sufficient only if "if a search of the records of the filing office under the debtor's correct name, using the filing office's standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with [Article 9]." U.C.C. § 9-506 (c). In other words, if a searcher inputting the debtor's correct name in a single search attempt in the official database finds the financing statement with the incorrect name, then that financing statement is legally sufficient. Otherwise, it is not. U.C.C. § 9-506 (b).

Even if the original filing secured creditor gets the debtor's name completely accurate on its financing statement, a change in the debtor's name can render the financing statement seriously misleading and almost impossible to find by later searchers. In dealing with debtor name changes, Article 9 attempts to balance filers' interests in not having to monitor the debtor too closely and searchers' interests in having an accurate database to search. Thus, the Code drafters created a four-month rule with respect to seriously misleading changes in the debtor's name. A recent bankruptcy decision interpreted the four-month rule where the debtor breached its contractual obligation to inform the secured creditor in advance of changes in its name. Gugino v. Wells Fargo Bank Northwest, N.A. (In re Lifestyle Home Furnishings, LLC), 2010 Bankr. LEXIS 111 (Bankr. D. Idaho Jan. 14, 2010).

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