By Paul Hodnefield, Esq.

It is sometimes not enough for a secured party to determine the correct name of a debtor for purposes of filing a UCC financing statement. The correct name must also be correctly provided or it could render the financing statement seriously misleading. Unfortunately, when it comes to individual debtor names, it isn’t always easy to determine which parts of the name go in each financing statement name field. The secured party must map the components of the name to the correct field on the financing statement or it may find that its security interest is unperfected. That situation can and does occur, as was demonstrated in the recent case of In re Preston, 2019 Bankr. LEXIS 3864 (Bankr. D. Kan. Dec. 20, 2019).

This case involved an individual farmer named Dewey Dennis Preston (the “Debtor”), whose principal residence was in Kansas. In 2015, the Debtor purchased a combine and combine heads on credit financed by CNH Industrial Capital America (the Lender). To secure the loan, the Debtor granted the Lender a purchase-money security interest in the equipment.  

The Lender filed two financing statements to perfect it security interests. The first described the collateral as the combine and head and was filed on June 29, 2015. The second financing statement was filed on January 8, 2016 and described just a combine head as the collateral.

The Debtor was generally known as “D. Dennis Preston” and that was reflected on his driver’s license, which listed the name as “PRESTON D DENNIS” (last name first, which is not an unusual format for driver’s licenses). When the Lender filed its financing statements, however, both provided “PRESTON” in the Surname field and “D.DENNIS” in the First Personal Name field. The “ADDITIONAL NAME(S)/INITIAL(S)” (fka ”MIDDLE NAME”) field was left blank.

In 2018, the Debtor filed for Chapter 12 bankruptcy protection. The Debtor’s proposed plan treated the Lender’s claim against the combine and header as unsecured. The Lender objected to the plan, claiming to have a perfected security interest in that equipment. The court, therefore, had to determine the status of the Lender’s security interest.

Under UCC § 9-503(a)(4), if the debtor is an individual to whom this state has issued a driver’s license or identification card that has not expired, the financing statement is sufficient only if it provides the name of the individual which is indicated on the driver’s license or identification card. A financing statement that fails to sufficiently provide the name of the individual debtor required by § 9-503(a)(4) is seriously misleading and not effective under § 9-506(b).

There is one exception to the strict debtor name rules. Under § 9-506(c), 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 § 9-503(a)(4), the name provided does not make the financing statement seriously misleading.

The Debtor argued that the Lender’s financing statements failed to sufficiently provide the name of the debtor as required by UCC § 9-503(a)(4). Moreover, a search conducted in accordance with UCC § 9-506(c) failed to disclose the record.  As a result, the financing statements were seriously misleading and the Lender’s security interests unperfected. Therefore, the Debtor’s plan should treat the Lender’s claim as unsecured.

In response to the Debtor’s argument, the Lender asserted that the name on the financing statement did correctly reflect the name indicated on the driver’s license. The license did not identify which components of the name represented the “first,” “personal,” or “middle” portions of the name and there was nothing to indicate that periods and spaces change what constitutes the name.

The court, however, was not persuaded by the Lender’s argument. The Debtor’s driver’s license stated the name as “Preston D Dennis” without a period and with a space between D and Dennis. The Lender’s financing statement included the extra period and no space between the initial and Dennis. The court went further and stated that “To reflect the name on Debtor’s driver’s license, as required by [§ 9-503(a)(4)], the financing statements should have stated Preston as Debtor’s surname, D as his first name, and Dennis as his middle name.”

According to the court, by providing “D.DENNIS” as the First Personal Name the Lender’s financing statement failed to sufficiently provide the name of the Debtor. The parties stipulated that a search conducted in accordance with § 9-506(c) failed to disclose the record. Therefore, the court held that the financing statement was seriously misleading and the Lender’s security interest unperfected.

The important takeaway from this case is that the secured party is not only responsible for determining what constitutes the correct name of an individual debtor, but also for correctly extracting the name from the source document. Each component of the name must be provided in the corresponding name field on the financing statement. If the secured party has any doubt how to map the data to the correct field, it should not hesitate to provide one or more variations of the driver’s license name as additional debtors. By doing so, the financing statement will have a much better chance of providing whatever form of the name that a court might later determine was correct.

Paul Hodnefield is associate general counsel for CSC® and is a frequent speaker and writer on UCC due diligence issues. Please feel free to contact him with questions or comments at paul.hodnefield@cscglobal.com or 800-927-9801, ext. 61730.

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Court Finds UCC Debtor Name Incorrectly Extracted from Driver’s License