What a Difference a Name Makes: Omission of “Inc.” Left Security Interest Unperfected

What a Difference a Name Makes: Omission of “Inc.” Left Security Interest Unperfected

The proper spelling of a debtor’s name on UCC Financing Statement is currently one of the most fervently litigated UCC issues. The UCC Article 9 registry system is designed to permit creditors to make a security agreement public by filing a UCC Financing Statement. UCCs are indexed by the name of the debtor to facilitate the ability of creditors to search and identify pre-existing security interests.

Even Minor Spelling Differences Matter

Even minor spelling differences in a debtor’s name can result in a creditor’s security interest being unperfected.  The case of Tyringham Holdings, Inc. vs Suna Bros Inc., heard in the United States Bankruptcy Court for the Eastern District of Virginia, demonstrates the impact of something as simple as omitting “Inc.” from the debtor’s name in a UCC filing.

Tyringham Holdings, Inc. (Tyringham) entered into a consignment agreement to hold items of jewelry for Suna Bros. Inc. (Suna). Suna filed a UCC to perfect a security interest in the jewelry in the amount of $310,925.

The financing statement filed by Suna listed the debtor’s name as “Tyringham Holdings.”  The debtor’s actual name, per the corporate certificate was “Tyringham Holdings, Inc.”  Evidence submitted in the case revealed that a UCC search, certified by the State Corporation Commission for Virginia, did not yield the UCC Financing Statement under the name “Tyringham Holdings.”

The court noted the name of a corporate debtor that is listed on a UCC must match the name of the corporation on the public record of the jurisdiction where it was organized. However, the court also conceded that minor errors and omissions in the name do not necessarily mean that a security interest is unperfected.

Substantial compliance with the requirements of a UCC Financing Statement can be sufficient, provided that the name of the debtor in the UCC is not “seriously misleading.”  The court cited similar cases in other jurisdictions that found a debtor’s name is seriously misleading if the standard search logic in the UCC filing office fails to reveal the Financing Statement when conducting a search using the name.

What about Standard Search Logic?

Suna contended that several searches, by private search companies, using the name “Tyringham Holdings” did produce the UCC filing. However, the court rejected this argument because the relevant search is the one conducted using the UCC filing office’s standard search logic.

Suna also contended that the State Corporation Commission’s search logic was faulty because it did not filter out “Inc.” as a “noise word.”  A noise word includes terms like “an,” “the” and other words that are filtered out when searches are conducted.

The court rejected this argument because the filing office’s standard logic did not consider “Inc.” a noise word. Rather, the standard search logic used by the State Corporation Commission specified that “incorporated” be abbreviated to “Inc.”

Ultimately, the court found that the name was seriously misleading which entitled the debtor to sell the collateral unencumbered by a security interest. Although the court acknowledged that application of the filing office’s standard search logic could result in a minor error preventing perfection of a security interest, the court also reasoned that creditors do not face a significant burden by being forced to use the correct name on UCC filings.

Best Practice

Always always ALWAYS review the public organic record for your debtor. Not only will you confirm the company’s corporate legal name, you will also confirm whether or not the company is in good standing with the state.

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