By Paul Hodnefield, Esq.
When the 2010 Amendments to UCC Article 9 take effect on July 1, 2013, the name indicated on an individual’s driver’s license will be sufficient as the name of the debtor for purposes of the financing statement. In practice, many secured parties already rely on the driver’s license as the source of an individual debtor name. Unfortunately, though, the driver’s license name may not be sufficient until the new law takes effect. That was the situation in the recent case of In re: Green, 2012 Bankr. LEXIS 5347 (Bankr. D.N.M. Nov. 14, 2012).
In the Green case, Ronnie J. Green (the “Debtor”), granted a security interest in a partnership interest to The Behles Law Firm, P.C. (“Behles”). Behles filed financing statements with the New Mexico Secretary of State to perfect its security interest in Green’s assets.
The Debtor often went by the name “Ron Green,” which was also the name indicated on his New Mexico driver’s license. Not surprisingly, the financing statements Behles filed provided the name of the debtor as “Ron Green.”
A few years later, the Debtor filed a chapter 11 bankruptcy petition. The case subsequently converted to chapter 7 and the court appointed a chapter 7 trustee.
The trustee filed an adversary proceeding seeking to avoid Behles’ security interest. The trustee claimed that the financing statements filed by Behles failed to sufficiently provide the name of the debtor. Therefore, the debtor name rendered the financing statement seriously misleading and left Behles unperfected.
The court granted summary judgment to the trustee. The court reasoned that there was no dispute that “Ronnie Jackson Green” was the Debtor’s legal name. The financing statement provided the debtor name as “Ron Green.” Thus, the financing statement failed to sufficiently provide the debtor name.
Moreover, the court found that a search of the New Mexico Secretary of State’s UCC index, using the filing office’s standard search logic and the Debtor’s legal name, failed to disclose Behles’ financing statements. Because the records failed to sufficiently provide the name of the debtor and a search conducted in compliance with UCC § 9-506(c) failed to reveal the records, the court concluded that the financing statements were seriously misleading.
The court was unpersuaded by case law from other states (including the Miller case decided earlier this year1), which held that something other than the debtor’s legal name is sufficient for purposes of the financing statement. Instead, the court relied on cases holding what it called the “majority view,” which requires creditors to provide the individual debtor’s legal name, at least until state law changes to adopt a “driver’s license” rule or something similar.
The important thing to take away from this case is that the driver’s license may not be a sufficient source of an individual debtor name until the 2010 Amendments to UCC Article 9 take effect. In most states that will occur on July 1, 2013. Until that time, the best practice for UCC filers is to determine an individual’s legal name through due diligence and file that as the debtor name on the financing statement.
To ensure compliance with the new law and avoid potential transition costs, the secured party should also compare the debtor’s legal name to the name listed on the individual’s driver’s license. If the driver’s license name is different in any way, the secured party should provide it as an additional debtor name on the financing statement.
Paul Hodnefield is Associate General Counsel for Corporation Service Company and a frequent speaker/writer on UCC search and filing issues. Please feel free to contact him with questions or comments at firstname.lastname@example.org, or 800-927-9801, ext. 2375.
1In the Miller case, the court concluded that Article 9 does not require a debtor’s ’legal name‘ on the financing statement, only a name that is not seriously misleading. For more information on the Miller case, see the September 2012 Expert’s Corner article titled Court Holds “Legal Name” of Individual Debtor Not Required on UCC-1.