Trade Names on Article 9 Financing Statements

Trade Names on Article 9 Financing Statements

 
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In insisting on near-perfection on a financing statement, a recent bankruptcy court came to the somewhat surprising conclusion that a financing statement containing both the debtor’s correct legal name and a putative trade name was invalid. The bankruptcy court noted that the reasonably diligent searcher standard under old Article 9 has been replaced by the single search standard of U.C.C. § 9-506 (c).
 
Professor Livingston writes: Creditors who wish to take and perfect a security interest in their debtors' personal property or fixtures under Article 9 of the Uniform Commercial Code must be mindful of the need to file a proper financing statement in the appropriate public record. Without proper perfection of their security interests, secured creditors will often lose priority over competing claimants to the debtor's property and will see their security interests stripped away by the trustee in the event of the debtor's bankruptcy. The key to perfection is getting the debtor's name right on the financing statement, and that task can sometimes prove more difficult than would first appear. In some cases, the urge to put additional names by which the debtor may be known on the financing statement should be resisted.

Article 9 requires only three pieces of information on a financing statement: the debtor's name, the secured party's name (or the name of its representative), and an indication of collateral. U.C.C. § 9-502 (a) (2001). Financing statements are indexed according to the debtor's name, and searching parties ordinarily search under the debtor's name. Consequently, the debtor's name is the gateway to the filing system and the single most significant bit of information on the financing statement. In insisting on near-perfection on a financing statement, a recent bankruptcy court came to the somewhat surprising conclusion that a financing statement containing both the debtor's correct legal name and a putative trade name was invalid. Hastings State Bank v. EDM Corp. (In the Matter of EDM Corp.), 2009 Bankr. LEXIS 202 (Bankr. D. Neb. 2009).

Revised Article 9, which went into effect in most jurisdictions on July 1, 2001, adheres to the substantial compliance standard for measuring financing statement adequacy that existed in under former Article 9. Under this standard, financing statements "substantially satisfying" Article 9 requirements are still effective even if they contain "minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading." U.C.C. § 9-506 (a). The revised statute still permits small mistakes by the secured party, provided that the financing statement gives adequate notice to third parties.
 
 
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