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Revised Article 9: Recent Issues

by Sam Ott

Revised Article 9 (RA9) of the Uniform Commercial Code (UCC) has been effect in 46 States for almost five months. It became effective in Connecticut on October 1 and will become effective in Alabama, Mississippi and Florida on January 1, 2002. As can be expected due complete revision of the prior statutes and the major changes in the procedures that must be followed in order to perfect a security interest in personal property, many questions have arisen and many remain unanswered.

The following are examples of questions that have been asked since the Effective Date of July 1, 2001.

  • How do I conduct an online search of UCC filings and why does each state seem to be different?

  • If I make a loan to John Doe d/b/a as Honest John's Auto Repair, do I identify the Debtor on the UCC-1 as John Doe or Honest John's Auto Repair or both?

  • If someone wrongfully terminates a properly filed financing statement, what must the secured party do to reinstate the original filing?

  • If the Debtor is a trust, is the name of the Trust or the Trustee listed as the Debtor on the UCC filings?

Even though the desire of the drafters of the Revision was for the States to adopt the text without changes, some non-standard provisions were approved. Therefore, it is important that a secured party check the applicable State statutes when addressing any questions regarding RA 9. In addition, some issues will undoubtedly require the disposition by a Court and as of the writing of this article, I am not aware of any court decisions that have been rendered based on the provisions of the Revision.

The following scenarios are answered pursuant to the provisions of Official Text of RA 9 as adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL).

How do I conduct an online search of UCC filings and why does each state see, to be different?

The central filing offices of at least 45 States allow electronic searches of either their corporate filing records or databases. RA 9 does not require each State to adopt the identical procedures and search logic so each State has its own format. Most of the searches are free and some of the are capable of retrieving images of the filed documents. However, many of the sites are limited to providing minimal information such as the names and addresses of the debtor and secured party along with the file number and date. A list of the central filing offices and links to their sites is found in the Central Filing Office Web Sites section of the BOL RA9 Resource Center.

If I make a loan to John Doe d/b/a as Honest John's Auto Repair, do I identify the Debtor on the UCC-1 as John Doe or Honest John's Auto Repair or both?

The text of RA9 provides that a financing state sufficiently provides the name of the debtor:
A) if the debtor is a registered organization, if the name provided is that listed on the public record where the debtor was organized and
B) if the debtor has a name, only if it provides the individuals or organizational name of the debtor.

In this situation if John Doe is a registered organization, the name listed on the organizational documents filed of public record should be used. If John Doe is a non-registered organization or an individual, the name "John Doe" should be used.

RA9 further provides that the debtor's trade name alone is insufficient and does not sufficiently provide the name of the debtor. It is therefore clear that the "trade name" d/b/a - Honest John's Auto Repair - should never be use alone unless that is the registered name of the debtor and not really a true d/b/a. This can be determined by checking with the appropriate State office in the State where the debtor was organized. In most instances this is the office of the Secretary of State.

But what if a secured party files a financing statement listing the debtor as John Doe d/b/a as Honest John's Auto Repair? Is the listed name of the debtor sufficient under RA9? Remember most likely the filing office will accept the filing if the appropriate fee is paid. The filing office is not responsible for the accuracy of the debtor's name, that burden rests with the party filing the document. RA9 and the comments do not specifically preclude the listing both of the names of the debtor and a d/b/a, as long the correct name of the debtor is listed. The problem arises with the search logic adopted by the filing offices. RA9 also provides that financing statement that fails to provide the name or the debtor is not seriously misleading if a search under the name of the debtor would reveal the filing. At least one central filing office has indicated that its search logic would not pick up the filing if a d/b/a name was added to a filing in addition to the actual name of the debtor. If would appear if a secured party filed a financing statement which listed, John Doe d/b/a as Honest John's Auto Repair, as the debtor, the filing would meet the requirement of RA9 because the debtor's name (John Doe) was listed. On the other hand if such a filing would not be revealed in a search of the records under the name of the debtor, "John Doe", it could also be argued that the filing which included the d/b/a was seriously misleading. It appears that this matter like many some of the other questions discussed in the article will not be resolved until a court rules on the matter. In the mean time, I suggest that a secured party first attempt to determine the true name of the debtor. If this is not possible, then consider two filings, one under the apparent name (John Doe) and the second under (Honest John's Auto Repair). For the reason mentioned above, the name and d/b/a should not both be used unless the filing office search logic would reveal the name and d/b/a filing if a search was conducted under either the name or d/b/a alone.

If someone wrongfully terminates a properly filed financing statement, what must the secured party do to reinstate the original filing?

The secured party need not do anything. RA9 makes it clear that any unauthorized filing including an unauthorized termination statement is ineffective and the secured party remains perfected. The filing offices under RA9 maintain what is known as an "open drawer" filing policy. The filing office will accept almost anything for filing and it is now up the parties who are searching the record to determine the legal implications of the filed documents.

If the Debtor is a trust, is the name of the Trust or the Trustee listed as the Debtor on the UCC filings?

This issue has generated comments from many experts and, unfortunately, they differ in their approach and answer to the apparently simple question. One line of thought takes the position that it is an easy question to answer. RA9 provides that perfection by filing is governed by the jurisdiction of the debtor's location. A debtor is defined as a person who has an interest in the collateral; therefore, the debtor for the purposes of RA9 is whoever has an interest in the collateral. The problem is that RA9 does not determine "who" is the debtor, in this situation. Trust law will determine whether the trustee or the trust has an interest in the collateral. If trust law is not clear, then a secured party should file in both the trustee's location and the location of the trust. Under this approach, if trust law is clear on whose has an interest in the collateral, then there would only be one filing. If trust law is unclear, then the secured party would make two filings, one where the trust is located and the other where the trustee is located. This does not seem to be an easy answer to the question but it is definitely more attractive than the following opposing view.

I call the second approach the "file everywhere" solution. It suggests that the secured party should file in the following locations in the state where:
A) the trust was formed,
B) the settlor was located at the time the trust was formed and
C) the trustee is located.

In addition the following filings are also recommended under all names and former names of:

  1. the trust and
  2. the settlor and trustee.

As you can see this approach would require a multitude of filings depending on the circumstances regarding a particular trust, settlor and trustee.

The trust law of the state in question must be taken into consideration when the secured party is making its analysis as to the prudent way to proceed. I strongly suggest that local trust counsel be consulted regarding these issues as the proper response may vary from state to state. In the final determination, absent a definitive court decision on the issue, the secured party may want to make multiple filings.

The intent of this article was to identify a few of the many outstanding issues that have arisen after the adoption of RA9. Even though the provisions were adopted for the most part uniformly by the State legislatures, some non-uniform sections will be found in most States. A secured party must be familiar with the provisions of the law in the applicable jurisdictions and, if questions remain, should consult legal counsel.

First published on 11/26/01

Copyright, 2001, BankersOnline. All rights reserved.

First published on 11/26/2001

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