Safe Harbors or Treacherous Waters, Debtor Name
Issues, and the Changes Ahead
By Edward W. Noyer
The enactment of
revised Article 9 of the Uniform Commercial Code resulted in filers
everywhere breathing a sigh of relief. The days of conducting
multiple searches and attempting to guess what debtor name
variations could have been used to meet the “reasonably similar”
standard was frustrating. Worse yet was the plethora of
non-standard filing rules that existed, or numerous filing offices
that required searching. The revisions to the commercial code was
to reign in the storm of UCC filing rules that had come into
existence. The revised code was intended to:
rules to determine a debtor’s names
Create a litmus
test for debtor names
penalty for not getting the name right
uniform rule for where to file
Reduce the cost
of research required
It has been nine
years since the revisions to the Uniform Commercial Code went into
effect. Given litigation, and issues surrounding debtor names and
debtor names changes are in the works. To discuss the changes that
are coming, we have to look at why changes are necessary, how these
changes will affect you and finally what can you do now to prevent
additional work at a later date. As all the states moved to the
revised code, questions and issues began to be asked such as:
What is the
definition of “public record”?
How do you
determine the name of an individual?
How do you
determine the name of a trust?
What is the
debtor name of a business trust? (Organizational or Individual)
What do you do
when a name exists for a trust?
Lawsuits began, in
the chaos created; the Uniform Commercial Code was once again
becoming non-uniform. Something needed to be done, but what should
be done was not so clear. Some states began to look at amendments
to answer these questions. This set the wheels of change into
motion and put the idea of uniformity at risk.
In 2007 it was
recommended to the National Conference of Commissioners on Uniform
State Laws (NCCUSL) that the permanent editorial board (PEB) should
consider amending the commercial code. Texas, however, had already
taken up the issue of individual debtor names and was in the process
of taking action. Texas passed legislation that created a Safe
Harbor for any filer that relied on a driver’s license or state
issued identification card to determine the name of an individual.
Unfortunately the legislation remained silent on the issue of
organizational debtors and trusts.
By 2008, Tennessee
was also creating an amendment to §9-503 to define Individual debtor
names. In 2008 an amendment went into effect whereby one of five
pieces of identification would be acceptable to determine an
individual’s name for a financing statement. The five approved
1) Drivers license
The law created
safe harbors for any filer relying on any one of these documents
used to determine a debtor’s name that was an individual. The
Tennessee amendment resulted in a system where there was not one
type of document that could be relied upon but rather five debtor
names to possibly search, because no system was put into place as to
what to do when conflicting names were provided on the documents.
By this time the Texas amendment had been in effect for about a year
and Virginia was getting close to enacting an amendment.
States often look
to one another to solve legal issues and the problem of individual
debtor names was no different. Desiring to not create a different
system for determining a debtors name another amendment was passed
by Tennessee to reduce the documents acceptable for safe harbor to
two, the drivers license or state issued identification card.
Virginia enacted similar legislation that took effect on July 1,
2009, that also defined that only the drivers license or state
issued identification card would provide the legal name of the
debtor and create a safe harbor for filers.
By 2010 we had 3
states that have amended §9-503 to defining legal name for debtors
who are individuals. In 47 other states (and the District of
Columbia) the standard remains as the version originally enacted.
Thereby leaving the issue unanswered. So what is the legal name of
a debtor that is an individual?
Editorial Board (PEB) of the Uniform Commercial Code actually began
working on this issue in 2008 along with other housekeeping items in
Revised Article 9. The revisions being recommended for debtor names
cover much more than debtor name amendments that have been enacted
thus far. In the changes being proposed, debtor names will be
thoroughly defined in an attempt to create little question as to
what documentation should be relied upon. In addition unlike the
state legislation passed in Texas, Tennessee and Virginia, the PEB
version addresses the issue of debtor names when the debtor is an
Organization or Trust.
implemented now can not only better position your filings for future
name rules, but will also prevent challenges under §9-503 and the
effectiveness should a debtors name issue arise in court. The
changes by debtor type are outlined below:
Since 2001 many filers have forgone official documents to determine
a debtor name opting instead for a name from internet searches on a
state’s website. Under the proposed recommendations for §9-503 The
debtor name provisions remain mostly intact, however the drafters
are inserting a definition into §9-102 to codify that “the name as
it appears in the public record is defined as ‘a record filed with
or issued by the state or the United States of America in the
organic public record of the debtors jurisdiction of organization,
or any amendment, restatement or additional records if the records
are available for public inspection.’ As a result of this
definition, the name provided should only be derived from the
documents used to form, organize or otherwise amend the name of the
organization. As a result those filers that obtain debtor names
specifically from these documents will be in a better position under
If a business trust exists, the debtor name requirements would mimic
those of the organizational names requirements. Only the organic
document that exists in an official state registry should be relied
upon to obtain the debtor’s name, including any amendments,
restatements or any additional documents available, and indicates
that the organization is a trust.
Only the name as it appears on the Drivers License or State Issued
Identification Card should be used to determine a debtor’s legal
name. Issues continue to plague individual debtor names as the name
of a person is much more fluid than those of organizations. Filers
must be extremely cautious when dealing with individual debtors and
Multiple Forms of Identification:
The proposed amendment has language that states if a person has both
a drivers license and state issued identification card only the name
that appears on the “last document issued” (most current) should be
used. As a result you may consider implementing a policy where
debtors are asked for both drivers licenses and identification
Middle Names or Middle Initials:
About 11 states do not include middle names or initials on a
drivers’ license or state issued identification card. The proposed
amendment is silent on the issue at this time. Since this is an
area of concern, you may consider implementing policies whereby
debtor names are documented on the filing in multiple ways so that
they are indexed not only as to the name appearing on the
identification or drivers license, but also include a middle initial
or middle name.
e.g. SMITH, James
James A (note no period)
The same would also
be true if you were adding additional name information such as III,
Jr., Sr., etc.
In the proposed amendment, trusts are broken down in several areas
to assist in obtaining the proper name to list on the trust
document. You may consider developing policies to address each type
of trust mentioned below:
The proposed amendment states the name of this type of trust shall
be 1) The name of the Decedent and 2) The box marked indicating the
Debtor is an Estate. Indexing rules for determining the debtor name
when the name is an individual should be reviewed in the section of
this article that addresses individual names.
Or A Trustee Acting In Respect To Property Held In Trust For The
Beneficial Owner Of A Trust That Is Not A Registered Organization:
The name of
the debtor should be documented as the name specified in the trust
documents. If no name is specified in the trust documents, the name
of the Settlor(s) and additional information to distinguish the
debtor on the record from other trusts having one or more of the
same settlers must be used. In addition the filing must indicate it
is a trust or trustee acting in respect to property held in trust.
Using the same guidelines for Individual or Organization names
should be utilized to document the debtor’s name.
proposed amendment does not specify how, or where information to
“distinguish the debtor on the record” should be documented on the
Acting In Respect To Property Held In Trust For The Beneficial Owner
Of A Trust That Is A Registered Organization: The debtor name must be provided as indicated on the
records of the jurisdiction in which the trust is registered [This
is the same as a registered Organization Name as stated in the
organic documents and all changes thereto (amendments, restatements,
or other documents) and indicates the filing is a trust acting with
respect to property held in trust.]
All Other Cases:
If the debtor has a name, only if it provides the name of the
debtor, or if the debtor does not have a name, only if it provides
the names of the partners, members, associates or other persons
comprising the debtor. Regardless if the debtor is an individual or
organization the name should be set forth under the guidelines
provided above for organizational or individual names.
Finally, you should
never rely on names located on legal online systems or state
internet sites. Even now, before the proposed changes are put into
effect doing so places your filing in peril for a couple of
reasons. Unlike the Uniform Commercial Code there is no requirement
that a debtor name must be keyed as listed on a corporate document.
Many states have a history of abbreviating names due to system
limitations. As a result the name on an online search will not be
the name as listed on the organic document. When these changes go
into effect only names that match the organic document will be
effective unless they are found using the standard search logic of
the states’. The reason for not wanting to rely on the states system
is two-fold. First a debtors name should be entered exactly
as it appears on the document from which you obtained the name.
There is a substantial amount of case law that shows spacing,
periods, and abbreviations have rendered filings ineffective.
Therefore if you’re entering a name exactly as listed in the organic
document you do not need to be concerned about standard search logic
as your name is guaranteed to be located.
is currently accepting public comment on a proposed change to their
search logic rules. If the Massachusetts change is implemented
there will be no noise words and only the name searched would return
results in the official search. Using the exact name of the debtor
as listed in the organic document would prevent such a name
challenge from ever occurring.
The good news is
that Massachusetts is one of few states that require notice to
filers to change search logic rules. Such a change has the most
severe consequences for any filer that relied on the §9-506 “escape
hatch” provision that the name would not be seriously misleading
because it could be located in the state’s search logic. The reason
that every filer should be concerned is that most other states can
change search logic without providing any notice. Therefore relying
on §9-506 is playing with fire! As a result, following
recommendations such as the ones contained in this document would
prevent unwelcome debtor name surprises and protect your filings
from becoming ineffective under §9-506.
Using only drivers
licenses or state issued identification cards as the debtor’s legal
name could protect you from cases like the In Re: Kinderknect
decision (Clarke v. Deere and Co., 308 B.R. 71(10th Cir. B.A.P.
2004). Although the court did not specifically name a
document to be relied upon to determine an individual’s name they
did find that “the Legal Name not a nickname was required.”
Obviously the trend the states have adopted thus far, and the PEB is
looking to adopt is the use of drivers licenses to determine the
name of the debtor when they are an individual.
states have created “Safe Harbors” for individual debtor names, the
waters still appear to be treacherous with such issues as middle
names, initials and suffixes not being addressed. Always getting the
name from the correct location and filing with the exact legal name
greatly increases the effectiveness of your filing, while making it
more difficult for a challenge under §9-506.
[Nothing contained in this presentation should be considered
the rendering of legal advice for any specific cases, and attendees
are responsible for obtaining such advice from their own qualified
legal counsel. This presentation is for informational purposes
Noyer is a published author with articles appearing in national
publications as well as trade magazines. He has been a guest
speaker at the Beverly Hills Bar Association, and Numerous top 100
law firms. Several of his presentations have been given MCLE credit
by the California Bar association. He is currently the Director of
Product Marketing for CLAS Information Services. CLAS is a firm
that provides legal information services to attorneys, lenders,
corporations and accountants. They specialize in matters related to
corporation filings, banking documentation, Lender UCC Filing and
due diligence documentation. He can be reached 916-564-7800 or via
[Contact the author for permission to republish or reuse this article.]