Does “d/b/a” Really Make a Difference in UCC Filings?
One of the most common — and most preventable — mistakes creditors make when creating a security interest via a UCC filing, is inaccurately or incorrectly identifying their customer on the Financing Statement.
Errors in identifying your customer may include the wrong legal name, spelling and spacing errors or omissions. Seemingly trivial deviations in the name of the debtor can prevent a security interest from being perfected.
When these errors occur, the filing may be deemed “seriously misleading.” What constitutes “seriously misleading”? According to UCC Article 9-506(b), a Financing Statement is seriously misleading if a search for the debtor’s legal name does not reveal the filing.
Correctly Identify Debtor
You may assume it is enough to simply conduct an online search to determine the correct spelling of your customer’s legal name. However, UCC Article 9-503 (a) states that the registered entity’s name will be the name as it is found in the organic public record.
§ 9-503. NAME OF DEBTOR AND SECURED PARTY.
(a) [Sufficiency of debtor’s name.]
A financing statement sufficiently provides the name of the debtor:
(1) except as otherwise provided in paragraph (3), if the debtor is a registered organization, or the collateral is held in a trust that is a registered organization, only if the financing statement provides the name that is stated to be the registered organization’s name on the public organic record of most recently filed with or issued or enacted by the registered organization’s jurisdiction of organization which purports to state, amend, or restate the registered organization’s name
Here’s an Example
Let’s say your customer is commonly known as, “Z & Y, Inc. d/b/a ABC Company.” However, when you review the organic public record you see your customer’s name is “Z & Y, Inc.” The name you should list on the Financing Statement is “Z & Y, Inc.” (no d/b/a), just as it appears on the organic public record.
To that end, the answer to the question “Does d/b/a really make a difference in UCC filings?” is “Yes, it certainly does.”
Real Life: “Insufficient due to the addition of d/b/a”
In Nebraska, the case of EDM Corporation, doing business as EDM Equipment, doing business as NOVI, LLC, Debtor Hastings State Bank, Plaintiff-Appellant v. Thomas D. Stalnaker, Chapter 7 Trustee of EDM Corporation, went before the Court of Appeals in 2010 (pre-2010 Amendments).
The court affirmed the bankruptcy court’s ruling that the creditor’s Financing Statement was “insufficient due to the addition of d/b/a” as part of the debtor’s name. When the creditor identified its debtor on the UCC filing they listed both the debtor’s public record name and the debtor’s d/b/a name. Ultimately, when subsequent UCC searches were done, the creditor’s Financing Statement was not revealed, because the name on corporate record was simply “EDM Corporation.”
“…it is clear from the language of the statute itself that § 9-503 requires that, as to registered organizations, the debtor’s name (as listed in the name field on the form) must be “the name of the debtor indicated on the public record of the debtor’s jurisdiction of organization.” Viewed with § 9-503(b)(1), which provides that “[a] financing statement that provides the name of the debtor in accordance with subsection (a) is not rendered ineffective by the absence of… a trade name or other name of the debtor,” and § 9-503(c), which provides that “[a] financing statement that provides only the debtor’s trade name does not sufficiently provide the name of the debtor,” we interpret the comment to mean that trade or other names may be added as other or additional names on a financing statement, but not in place of, or as part of, the debtor’s organizational name.”
(Today, one could argue it is possible that the creditor would maintain their security interest, if the public organic record identified the debtor as “EDM Corporation d/b/a EDM Equipment”.)
A similar case in Texas also determined the d/b/a was too much: JIM ROSS TIRES, INC.; dba HTC Tire Pro; dba HTC Tires & Automotive Centers, Debtor(s). On the UCC Financing Statement, the creditor listed the debtor by including both the debtor’s legal name and d/b/a – “Jim Ross Tires Inc. DBA HTC Tires and Automotive.”
The creditor argued their security interest was perfected, because their filing could be located using a “non-standard wild card search.” Unfortunately for the creditor, the court did not agree with their argument.
“Accordingly, the Court finds that the Financing Statements are ineffective to grant security interests in Debtor’s collateral. Although this result is harsh, the Court must examine the result in the context of claims between competing creditors.”
Since the hearing of these two cases, standard search logic and wild card searches have been streamlined, minimizing human error. Although there have been improvements, it is vital to your security interest that the Financing Statement lists your customer’s name as it appears in the public organic record.