Service Area: UCC Services

Debtor Name Errors in UCC Filings

Posted on November 12, 2014 by - UCC Financing Statements

The Impact of Debtor Name Errors in UCC Financing Statements

Perfection of a security interest involves drafting and executing a sound security agreement, properly filing a UCC Financing Statement and ensuring the filing complies with Article 9 of the Uniform Commercial Code.  When preparing a UCC filing, minor deviations in the name of the debtor can prevent a security interest from being perfected.  Creditors may assume it is enough to simply conduct an online search to determine the correct spelling of a debtor’s legal name. However Article 9-503 (a) states that for a registered entity one must obtain the organic public record.  Minor discrepancies coupled with strict state search logic can add up to a costly mistake.

Unperfected Security Interest

Let’s take a look at a few cases where the creditor failed to perfect their security interest, because searches conducted using the jurisdiction’s search logic did not reveal their UCC filing.

Jurisdiction: Nebraska
Case: 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
Verdict: The Court of Appeals for the Eighth Circuit affirmed the bankruptcy court’s ruling that the bank’s financing statement was “insufficient due to the addition of d/b/a” as part of the debtor’s name.

The bank listed the debtor’s name on the UCC filing with both the debtor’s public record and the d/b/a names.  The debtor’s name was EDM Corporation and its d/b/a was EDM Equipment.  The bank used a non-standard-form financing statement and listed the debtor as “EDM Corporation d/b/a EDM Equipment.”  Subsequently, two separate lenders failed to turn up the financing statement when conducting UCC searches.  The court noted that the standard-form financing statement expressly indicated not to include a d/b/a or other extraneous information in the field for the debtor’s name.  The court emphasized the importance of putting in the exact public record name of the debtor – no more and no less.

Jurisdiction:  Idaho
Case: Wing Foods, Inc., Debtor. Bankruptcy Estate of Wing Foods, Inc., by and through its Chapter 7 Trustee, Gary L. Rainsdon Plaintiff, vs. CCF Leasing Company and B S & R Equipment Company, Defendants.
Verdict:  The court determined the UCC Financing Statement was “fatally flawed” and as a result, the debtor was permitted to avoid the creditor’s security interest.

The creditor, CCF Leasing Company, leased equipment to Wing Foods, Inc. The creditor took steps to perfect a security interest by filing the UCC; unfortunately, the financing statement listed the debtor’s name as “Wing Fine Food.” The court found that the difference in the name was seriously misleading because a UCC search, using the jurisdiction’s search logic, would not have revealed the financing statement.  Because the filing was seriously misleading, the court ruled that Wing Foods, Inc. was able to avoid CCF Leasing Company’s security interest in its Chapter 7 bankruptcy.

Jurisdiction: Texas
Case: In re JIM ROSS TIRES, INC.; dba HTC Tire Pro; dba HTC Tires & Automotive Centers, Debtor(s).
Verdict: The court found the listing of the debtor’s name “seriously misleading” because the search logic used for UCC searches in the state would not have revealed the financing statement.

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.”

Jurisdiction: Georgia
Case: Receivables Purchasing Co., Inc. v. R&R Directional Drilling, L.L.C.
Verdict: The appeals court affirmed the trial court, which determined the creditor did not have a security interest, because the financing statement was seriously misleading.

The creditor in this case simply added a space in the name of the debtor listing it as “Net work Solutions, Inc.” The creditor requested the Georgia Superior Court Clerks Cooperative Authority (GSCCCA) perform a search: “The GSCCCA did a certified search under the correct name Network Solutions, Inc. The Search did not reveal (debtor’s) financing statement, which…was filed incorrectly under Net work Solutions, Inc.”

Avoid this UCC Filing Mistake

While some creditors attempt to search online for a debtor’s business name, minor alterations to the name or the inclusion of a d/b/a could be fatal to the filing.  We recommend you obtain the debtor’s corporate legal name from the Articles of Incorporation filed with the state and monitoring the entity’s name for any subsequent changes. In addition to confirming your debtor’s corporate legal name, it is important understand the search logic used in the state because including a space where one does not belong or changing “and” to “&” in the debtor’s name may be enough to render a UCC filing ineffective.

Crafting a Perfect Security Agreement for Your UCC Filing

Posted on September 24, 2014 by - UCC Financing Statements

The Art of Drafting an Impeccable Security Agreement for Your UCC Filing

Today we take a field trip to the Museum of Art and examine “Starry Night” by Vincent van Gogh. At first glance, “Starry Night” may look like a child swirled a paint brush around, hastily drew a few houses with a black magic marker, and added a church steeple, with some lazy-cartoon-like mountains in the background. But, as we know, a child did not create this piece of art; an artist created this piece – someone who honed his craft to absolute perfection. Every swirl in this painting is deliberate, precise in size and tone – all of its contents make it a single masterpiece.

OK, but what does “Starry Night” have to do with a Security Agreement and the UCC filing process? Often, Security Agreements and artistic masterpieces are incomplete. And while an incomplete piece of art may be on display, with no one judging it as “incomplete,” a security agreement does not have the same privilege.

Perfection, Precision, Masterpiece

Drafting a solid Security Agreement (perhaps not as aesthetically pleasing as “Starry Night”) is also an art form. Designed to mitigate risk and to grant creditors security in the event of debtor default, meticulous details combine to create a perfected security interest, i.e. the UCC-1 Financing Statement.

The most common errors in Security Agreements are often as simple as omitted details. Perhaps it’s a misspelled debtor name, the absence of a granting clause or a vague collateral description. So, what makes a solid Security Agreement?

Correctly Identify the Debtor.

There are oodles of cases demonstrating the devastating consequences of incorrectly spelling the debtor’s name in a Security Agreement or UCC Financing Statement.

Include the Debtor’s Address.

Not only should the debtor’s address be included, but it’s also imperative the address be correct.

Date the Agreement.

Confirm the document is dated – this is a great rule of thumb when your debtor signs any document for you.

Ensure the Signors are Authorized.

It is unfortunate to discover the individual who signed the document does not have the authority to sign, or all partners/members do not sign.

Include the Granting Clause.

A Security Agreement is nothing when the granting clause is missing, after all, it actually grants the security interest.

Clearly Identify Collateral.

This is a touchy subject. Often, collateral descriptions are too vague or too specific. Creating the right balance to ensure you have effectively covered the collateral is tricky.

Reference Governing Law.

Don’t forget to include reference to the governing law.

NCS Can Help

Properly perfecting a security interest through Article 9 of the Uniform Commercial Code is an art form. Make sure all of the required information is included and accurate. If in doubt, seek assistance from a professional.

Customer Defaults? Your UCC Filing Can Help You Recover

Posted on September 3, 2014 by - UCC Financing Statements

How Do I Recover?

Congratulations, you filed a UCC to position yourself as a secured creditor! Unfortunately, your customer has defaulted on payments. You have attempted to work with your customer regarding their past due account, but they are still unable to meet the commitment – now what?

Any time your customer has defaulted on payments, we recommended you take immediate action to recover the funds; the longer an account remains unpaid, the harder it becomes to collect. A great, and relatively inexpensive, first step is to send a Demand Letter. A demand letter is a demand served upon your debtor, advising legal action may be taken if payment is not received within a specified time frame.

In the event the demand letter does not prompt payment, you may need to proceed with further legal action. Your next course of action is dictated by the type of UCC you filed.

Did you file a PMSI UCC?

If your customer has defaulted on payment(s) and you have filed a Purchase-Money-Security-Interest (PMSI) UCC, you need to determine whether or not you would like your equipment/inventory (aka goods) back.

  • If you do not want your goods back, you can place your claim with an attorney to file suit. By filing suit, you may receive Judgment, which allows you to garnish accounts and/or attach to assets.
  • If you do want your goods back, and your customer has the goods, you have the right to repossess without disturbing the peace.

If you are unable to peacefully repossess the inventory/equipment, you could take legal action by filing a temporary restraining order or by filing suit against your debtor.

Did you file a Blanket UCC?

If your customer has defaulted on payment(s) and you have filed a Blanket UCC, you could place the outstanding debt with a collection agency or file suit against your debtor.

Has your customer filed bankruptcy?

Keep in mind, the bankruptcy court freezes all debtor assets.

  • If your customer filed Chapter 7: File your secured proof of claim, regardless of whether you filed a PMSI or Blanket UCC.
  • If your customer filed Chapter 11:
    • PMSI UCC:  If you would like your goods back and your goods are at your customer’s location, contact the Trustee to repossess. If the Trustee is uncooperative, you may need to take additional legal action.
    • Blanket Filing: File a secured proof of claim and monitor for distribution.

Of course, as in any situation, it is in your best interest to seek legal advice and it is important to remember, a UCC filing is a remedy and not a cause of action in suit.

Articles of Incorporation: Not Just for Name Verification

Posted on July 15, 2014 by - UCC Financing Statements

Articles of Incorporation: Not Just for Name Verification

Do you know that if your customer changes their name you must amend your UCC filing or your security is jeopardized? Did you know Articles of Incorporation are required to verify an entity’s legal name and to verify jurisdiction?

Per Section 9-507(c) of the UCC, the secured party has four months to amend a UCC filing when the debtor’s name changes. If the secured party does not amend the UCC filing, the filing is not effective to perfect a security interest in collateral acquired by the debtor before or within four months after the change.

Best Practice

Make sure your Security Agreement requires your debtor advise you of any changes to their name, address or organizational structure. It is your responsibility, as the secured party, to ensure the UCC filing is updated and contains the correct information.

You can also utilize resources like our Corporate Monitoring, which will alert you when the State Corporation Division reports a change in your customer’s corporate profile along with decision making information to keep the UCC Financing Statement in compliance with Article 9-507(c).

Articles of Incorporation are not only required under UCC Article 9 to verify the entity legal name, but must also be used to verify jurisdiction.

In this example, the state of Texas is reporting the entity as a Foreign Limited Partnership organized in Delaware. However, if you review the Articles, you will discover the LP is actually organized in California. If the documentation had not been reviewed, the UCC would have been filed in the wrong jurisdiction, consequently there would be no security interest.

Secured Transaction Takeaway: Always review all documents carefully!

Impact of Accurate Debtor Names on UCC Security

Posted on June 30, 2014 by - UCC Financing Statements

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.

Last update February 2025.

Collateral Description in UCC Filings: a Case from Tennessee

Posted on June 17, 2014 by - UCC Financing Statements

Collateral Description in UCC Filings: a Case from Tennessee

A recent case decided by the Sixth Circuit Court of Appeals, 1st Source Bank v. Wilson Bank and Trust et al., 2013 WL 5942056 (No. 13-5088), provides an example of the importance of properly describing collateral in a UCC filing to perfect a security interest. In the case, the key issue was whether or not the language describing specific heavy machinery and “all proceeds thereof” was sufficient to include the debtor’s accounts and accounts receivable.

What Was Included in the Collateral Description?

In 2004, 1st Source Bank arranged for the lease or sale of certain equipment to K & K Trucking and J.E.A. Leasing (Debtors), which was subject to a security interest that was described in the UCC filing according to the above language.

The terms “accounts” and “accounts receivable” were not included in the description of the collateral. Subsequent to the 1st Source Bank UCC filing, the Debtors entered into financing contracts with a number of other banks.

These other banks, in turn, filed UCCs which specifically included “all accounts receivable now outstanding or hereafter arising” as part of the collateral description.

When the debtor defaulted on the financing arrangements, these banks took control of the collateral, including the accounts receivable.  1st Source Bank objected based on its claimed priority security interest.

What Did the Court Say?

The issue before the court was whether the language referring to “all proceeds thereof” was sufficient to put future creditors on notice that 1st Source Bank held a security interest in “accounts” and/or “accounts receivable.”

Generally, the legal standard for description of collateral in a UCC filing is that it “reasonably identify what is described.”  Courts have interpreted this as meaning that it must be sufficient to create a reason to inquire further about the existence of a security interest in the collateral.

The court addressed the argument that “all proceeds thereof” in the UCC was sufficient to encompass “accounts” and “accounts receivable.” The court noted that Chapter 9 of the Tennessee Uniform Commercial Code (UCC) defines “accounts” separately.

The court determined that the term “proceeds” must refer to something different or the use of the term “accounts” would become superfluous.  The court also relied on the commentary to Article 9 that indicated the term “proceeds” was not to be construed particularly broadly, so it did not make sense to have it include all monies generated by the equipment.

Consequently, 1st Source Bank’s security interest was not perfected with respect to accounts and accounts receivable, providing the other banks a priority status even though their filings were recorded after 1st Source Bank.

Getting It “Just Right” Can Be a Challenge

Because the collateral that underlies a security interest is the key protection afforded to creditors in the case of debtor default or bankruptcy, collateral must be properly described in UCC filings.  The description must be sufficient, to provide notice to prospective creditors of the property encumbered by a prior security interest.

On the other hand, the description should not be so specific and narrow that key forms of collateral are not encompassed within the description in the UCC Financing Statement.  A creditor with a senior security interest can forfeit a priority position when the UCC collateral description is defective.

Importance of Monitoring Debtor Name Changes on UCC Filings

Posted on May 28, 2014 by - UCC Financing Statements

How Can Creditors Protect UCC Filings from Name Changes?

If a name change by a debtor makes a filed financial statement “seriously misleading,” UCC Section 9-507(c) states the financing statement will only be effective for collateral acquired prior to the name change or within four months following the change.

This rule applies even if the creditor has not received actual or constructive notice of the name change from the debtor.

A creditor can prevent a UCC from becoming unperfected on collateral acquired beyond this four month window by filing an amendment to the financing statement with the new business name of the debtor.

The Case

Gugino v. Wells Fargo Bank Northwest (In re Lifestyle Home Furnishings, LLC), demonstrates the consequences of failing to monitor a debtor’s name change.  In Gugino v. Wells Fargo Bank Northwest, Wells Fargo Bank Northwest (“Wells Fargo”) provided a secured loan to Factory Direct LLC (“Factory”) and to perfect its security interest, Wells Fargo filed a UCC-1 Financing Statement.

On May 7, 2007, approximately three and a half years after the filing of the UCC to perfect Wells Fargo’s security interest, Factory changed its name to “Lifestyle Home Furnishings, LLC.”  Factory did not provide notice of any kind to Wells Fargo and because Wells Fargo was unaware of the name change, it failed to amend its financing statement.

Thirteen months after the name change, Factory filed for Chapter 7 bankruptcy protection. The trustee (Gugino) challenged Wells Fargo’s security interest in an adversary proceeding.  The trustee contended that the security interest was unperfected for collateral acquired more than four months after the name change, because the name in the UCC filing was “seriously misleading”.

The court granted the trustee’s motion for summary judgment allowing the trustee to avoid Wells Fargo’s security interest.

The information included in a UCC Financing Statement may change, even after a security interest has been properly perfected, and depending on the nature of the information that changes, a creditor may need to take action to further protect its security interest.

Best Practice

Creditors need to exercise diligence in monitoring debtors for changes of their name and address, not only to maintain a security interest, but because it is imperative to consistently evaluate your risks when extending credit.

The Importance of Filing a UCC with Secured Possessions

Posted on May 13, 2014 by - UCC Financing Statements

File a UCC, Even if It is Temporarily Secured by Possession

You Schwinn Some, You Lose Some!

A security interest may be perfected by taking possession of the property that constitutes the collateral; however, this type of security interest is only intended to be short-term.

A case involving Schwinn Cycling and Fitness, Inc.*, is a great example of why you should file a UCC even if your security interest is temporarily secured by possession.

Expeditors International of Washington, Inc. (“Expeditors”), the creditor in this case, shipped goods for Schwinn Cycling and Fitness, Inc. (“Schwinn”), the debtor.

The agreement between the parties indicated that Expeditors had a security interest in all of Schwinn’s property in creditor’s possession, custody and control.

A Few Important Facts

  • Within 20 days prior to Schwinn’s bankruptcy filing, Expeditors had some of Schwinn’s property in its possession & the property was then provided to Schwinn during this same 20 day window.
  • Expeditors did not file a UCC Financing Statement within the 20 days of transferring the collateral to Schwinn.

The Contention

Expeditors contended it had a security interest perfected by possession prior to Schwinn’s bankruptcy petition, so the security interest remained perfected during the pendency of the bankruptcy.

The bankruptcy trustee contended the security interest became unperfected because Expeditors did not file a UCC Financing Statement, making the security interest avoidable in bankruptcy.

The court agreed that under the version of the Uniform Commercial Code in Colorado, where the case arose, Expeditors continued to have a temporarily perfected security interest in the collateral, for twenty days after transferring the collateral back to Schwinn.

However, the court also agreed that after the twenty day window the security interest became unperfected because no financing statement was filed.

Expeditors argued the temporary perfection of its security interest extended indefinitely, because Schwinn filed for bankruptcy during the twenty day window, so the automatic stay froze priority upon initiation of insolvency proceedings.

However, the court indicated that this type of short-term perfection was not intended to continue throughout the duration of a bankruptcy proceeding, which could last for years.

The court distinguished prior cases that involved a bankruptcy filing during the twenty day window. In those cases a UCC had been filed, therefore subsequent creditors could not claim to have been misled by “secret security interest”.

The Best Practice

Generally, a UCC Financing Statement that meets the requirements should always be filed.  The most effective way to protect a security interest is to have UCC professionals prepare a financing statement and comply with other perfection procedures.