Search Results for: collateral description

UCC Filings, Key Words and Common Terms

Posted on October 8, 2018 by - UCC Financing Statements

A Review of Key Words and Common Terms Related to UCC Filings

In the spirit of “back-to-school,” today’s post is a UCC Article 9 vocabulary lesson. Break out your pencils and notebooks, let’s get started!

What is a Financing Statement?

Under Article 9 of the Uniform Commercial Code (UCC), a Financing Statement is a statement identifying a security interest in specific collateral. The Financing Statement is filed to provide notice to other creditors of a security interest.

Security Agreements, Collateral, Ship Date & Assignment

  • Security Agreement: An authenticated agreement that creates or provides a security interest. Agreement must include the date, debtor’s legal name, address, authentication, granting clause, collateral description and default terms.
  • Collateral: Assets or property used to secure a loan or other credit. Collateral becomes subject to seizure on default.
  • Equipment Ship Date: To achieve priority status with respect to a Purchase Money Security Interest in collateral deemed “equipment”. A Financing Statement must be filed before, or within 20 days after, the debtor receives delivery of the collateral. The security interest will take priority over the rights of a buyer, lessee, or lien creditor.
  • Assignment: An initial UCC-1 Financing Statement may reflect an assignment of all the secured party’s power to the Financing Statement by providing the name and mailing address of the assignee as the name and address of the secured party. A secured party may also assign of record all or part of its power to an already recorded filing by filing an Assignment Statement which provides the name and mailing address of the assignee (9-514).

UCC Forms

  • UCC-1 Initial Financing Statement: Original recorded document that identifies the initial filing number, date, time, debtor, secured party and collateral description.
  • UCC-3:
    • Continuation: A continuation statement continues the effectiveness of a filing for a period of 5 years. It may be filed only within the six months immediately before lapse.
    • Change Statement: A statement that makes a change to the original UCC-1 Financing Statement through either an amendment, continuation, assignment or termination.
    • Termination: The filing of a termination statement ceases the effectiveness of the original UCC-1 Financing Statement to which it identifies (9-513).
  • UCC-11: An informational search to determine whether there are other secured parties, whether specific collateral is already secured by a UCC and to determine a creditor’s priority

What are the Types of Security Interests?

Agricultural Lien: Agricultural lien means an interest, other than a security interest, in farm products: (A) which secures payment or performance of an obligation for; (B) which is created by statute in favor of a person; (C) whose effectiveness does not depend on the person’s possession of the personal property.

Bailment: A “true” consignment is a Bailment (for the purpose of the sale). *To meet the requirements of Article 9 – record the UCC-1 Financing Statement (bailor/bailee) and send notification letters to the prior secured creditors.

Blanket: A security interest in all assets of the debtor. *Record the UCC-1 Financing Statement – search & notification letters are not required.

Consignment – 9-102(20): “Consignment” means a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale. If a transaction is a “sale or return” it is NOT a consignment because the buyer becomes the owner of the goods and the seller may obtain an enforceable security interest in the goods. *To meet the requirements of Article 9, a consignment is treated the same as a Purchase Money Security Interest in Inventory – record the UCC-1 Financing Statement (consignor/consignee) and send notification letters to the prior secured creditors.

Fixture Filing/Real Estate Filing – 9-102(40): “Fixture Filing” means the filing of a financing statement covering goods that are or are to become fixtures. (9-102(41)) “Fixtures” means goods that have become so related to particular real property that an interest in them arises under real property law. * To meet requirements of Article 9 – Record the UCC-1 Financing Statement with a legal description of the property in the COUNTY where mortgages are recorded (9-501(a)(1)(B)).

Lease: A true lease is automatically perfected under Article 2A. A filing is not needed. However, occasionally doubts arise concerning whether a transaction creates a relationship to which Article 9 or its filing provisions apply. For example, questions may arise whether a “lease” of equipment in fact creates a security interest. *In this case a UCC-1 Financing Statement will be recorded listing the equipment – in case the “lease” is construed to be a security interest.

Notification Filing: UCC-1 Financing Statement that is recorded to “notify” secured creditors of a business transaction regarding certain collateral. This does not create a security interest that secures an obligation. *Record the UCC-1 Financing Statement – search and notification letters are usually sent to alert prior secured creditors.

Promissory Note: A signed document containing an unconditional promise to pay specified funds to another party by a specified date.

Purchase Money Security Interest in Equipment (aka PMSI): Securing collateral that is defined as equipment (9-102(33)) – “Equipment” means goods other than inventory, farm products, or consumer goods. The “equipment” is used in the course of the debtor’s business – it is not stocked. *To achieve priority in equipment the UCC-1 Financing Statement must be recorded within 20 days of debtor receipt.

Purchase Money Security Interest in Inventory (aka PMSI): Securing collateral that is defined as inventory (9-102(48)) – “Inventory” means goods, other than farm products, which: (A) are leased by a person as lessor; (B) are held by a person for sale or lease or to be furnished under a contract of service; (C) are furnished by a person under a contract of service; or (D) consist of raw materials, work in process, or materials used or consumed in a business. *To achieve priority in the inventory the UCC-1 Financing Statement must be recorded and notification letters (authenticated) sent before shipping.

Tooling: A supplier has possession of tooling or other equipment that is owned by the buyer. UCC-1 Financing Statement is recorded to “notify” secured creditors of a business transaction regarding certain collateral. This does not create a security interest that secures an obligation. *Record the UCC-1 Financing Statement – search and notification letters are usually sent to alert prior secured creditors.

Warehousing: UCC-1 Financing Statement that is recorded to “notify” secured creditors of a business transaction regarding certain collateral. This does not create a security interest that secures an obligation. *Record the UCC-1 Financing Statement – search and notification letters are usually sent to alert prior secured creditors.

Pop Quiz

Just kidding! No pop quizzes today. However, if you have questions, please don’t hesitate to contact us!

Security Interests in Liquor Licenses OK in Pennsylvania

Posted on May 21, 2018 by - UCC Financing Statements

Security Interests (UCC Filings) in Liquor Licenses OK in Pennsylvania

Yes, creditors can take a secured interest in a debtor’s liquor license in Pennsylvania, according to one recent Bankruptcy Court decision.

The Case

In 2014, M&T Bank (M&T) loaned B&M Hospitality (B&M) $85,000. In consideration of the loan, M&T executed a Security Agreement and filed a UCC-1, identifying the collateral as B&M’s liquor license.

In 2017, B&M filed for bankruptcy protection under Chapter 7 and, subsequently, a Bankruptcy Trustee (Trustee) was assigned to the case.

In bankruptcy proceedings, the essential role of the Trustee is to take charge of the debtor’s estate. Some responsibilities include managing the liquidation of the debtor’s assets and ensuring proper distribution of the proceeds to the various creditors.

In this case, the Trustee filed a motion to liquidate B&M’s assets and the Trustee stated there were no liens on the liquor license. As you can imagine, M&T piped up and provided proof of its security interest in B&M’s liquor license.

Eventually, the Trustee and M&T agreed the liquor license would be sold for $175,000. However, until the court confirmed whether M&T’s security interest was valid, the Trustee would escrow the amount owed to M&T ($55,166.54) from the proceeds of the sale.

Arguments Before the Court: Can a Security Interest in a Liquor License Exist?

The two primary questions brought before the court were whether Pennsylvania law permitted the granting of a security interest in a liquor license and whether M&T properly perfected its security interest.

First, can a liquor license be collateral for a security interest?

The Trustee believed no security interest exists, because prior to the 1987 amendments, the Pennsylvania Liquor Code provided “…that liquor licenses constitute a privilege and not property.”

Unfortunately for the Trustee’s argument, in 1987 there was an amendment to the Pennsylvania Liquor Code, which defined a liquor license as “property between third parties and the licensee.” This amendment has not changed, and the Liquor Code still identifies a liquor license as property.

“The plain language of the 1987 amendment characterizes a liquor license as property between a licensee and a third party and as a privilege between a licensee and the Board. 47 P.S. § 4-468(d)… based solely upon the text of the 1987 amendment, the Court concludes that, as between a licensee and a third party, a liquor license constitutes property under Pennsylvania law.”

And, as we know, UCCs are all about perfecting a security interest in personal property!

Second, is a security interest valid if the collateral description on the Financing Statement is different than the collateral description on the Security Agreement?

Next the Trustee argued that M&T failed to properly perfect its security interest, because M&T didn’t specifically call out the liquor license in the collateral description on the UCC Financing Statement. Although, M&T did call out the liquor license in its Security Agreement.

Let’s look at the collateral descriptions on the UCC and the Security Agreement:

UCC Financing Statement

“all assets of the debtor, whether now existing or hereafter acquired or arising, wherever located”

Executed Security Agreement

“general intangibles limited to that certain restaurant liquor license number R-1140 issued by the Pennsylvania Liquor Control Board” and “all proceeds of collateral of every kind and nature in whatever form, including, without limitation, both cash and noncash proceeds resulting or arising from the sale or other disposition by the Borrower of the collateral.”

Does the collateral description, in either document, meet the three keys? The judge reviewed the case against these three requirements:

(1) value has been given,

(2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party, and

(3) the debtor has authenticated a security agreement which provides a description of the collateral

Has value been given? Yes!

Does the debtor have rights to the collateral? According to PA law, yes!

Does the Security Agreement identify the collateral? Indeed, it does!

The Court Says: Drink Up!

M&T took the proper steps and perfected its security interest, and the court determined M&T should be paid with the proceeds of the sale of the debtor’s assets.

“Ultimately, Pennsylvania law clearly allows third parties to create security interests in Liquor Licenses. M&T followed all the requirements to create and perfect a lien on the Liquor License and is entitled to proceeds from its sale in the amount of its secured claim.”

Conveying Security Interest via UCCs

Posted on October 16, 2017 by - UCC Financing Statements

UCC Filings Part 2 | Conveying a Security Interest under Article 9

If you missed part 1 of our series, check out the Introduction & Scope of Article 9.  In part 2 of our series on secured transactions, we’ll cover conveying a security interest under Article 9.

Conveying a Security Interest

UCC filings are a form of consensual security. This means your debtor must consent or agree to the filing of the UCC.

“Securing receivables via a UCC filing requires the debtor to sign a security agreement – which makes it consensual – the debtor is agreeing to the filing. This security agreement grants the creditor a security interest in the goods/services (as noted in the collateral description within the agreement) in the event the debtor defaults or files for bankruptcy protection. A properly perfected UCC filing benefits creditors that provide equipment, inventory and consigned goods.”

Attachment

A security interest attaches or forms once the creditor has established a security interest in the collateral. To create the security interest, the following requirements must be met:

  1. Secured Party and the debtor execute a Security Agreement,
  2. Secured Party gives value for the security interest, and
  3. Debtor has rights to the collateral

Security Agreement

Under Article 9-102, a Security Agreement is an authenticated agreement that creates or provides a security interest. The agreement must include the date, debtor’s legal name and address, authentication, granting clause, collateral description and default terms.

There are additional clauses which are commonly incorporated in a Security Agreement.

  • After-Acquired Property Clause: provides for a floating lien which will attach to specified property the debtor may acquire in the future.
  • Future Advance Clause: extends to future liabilities of the debtor to the Secured Party.
  • Acceleration Clause: may provide that the full amount of the debt will mature upon default.
  • Add-On Clause: failure to make payment on the goods purchased permits both current and prior contract items to be repossessed.

Rights & Duties of The Secured Party

The debtor and the Secured Party have an obligation to preserve the pledged collateral, when the collateral is in the possession of the Secured Party

9-207. RIGHTS AND DUTIES OF SECURED PARTY HAVING POSSESSION OR CONTROL OF COLLATERAL.

(a) [Duty of care when Secured Party in possession.]

Except as otherwise provided in subsection (d), a Secured Party shall use reasonable care in the custody and preservation of collateral in the Secured Party’s possession. In the case of chattel paper or an instrument, reasonable care includes taking necessary steps to preserve rights against prior parties unless otherwise agreed.

The debtor is responsible for the cost of reasonable expenses incurred for the preservation, use or custody of the collateral, as well as the costs of accidental loss or damage when the costs exceed the insurance coverage.

Except for money (which should be used to reduce the amount of the secured obligation or sent directly to the debtor), the Secured Party may keep any increase in collateral, must ensure the collateral remains identifiable and may use or operate the collateral if necessary to preserve the collateral.

Should the Secured Party fail to meet the imposed obligations, the Secured Party is liable for the loss.

API: Integration & Automation

Posted on September 14, 2023 by -

Simple System Integrations

You’re busy! Let us help you save time and money with our automated API solutions (application programming interface). With our proprietary technology and process expertise, you will

  • Save on labor costs
  • Increase efficiencies
  • Reduce missed deadlines
  • Eliminate data entry errors
  • Automate steps through an API integration
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Transmitting Data is a Breeze

Work with one of our Software Engineers to customize an API to streamline and simplify the transmittal process, saving you hours of manual work. Through our premier technology, we can connect your system to our system via flat file or the cloud.

Once set up, we’ll work with you to transmit as much or as little data as you’d like. Easy breezy!

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API for Notices, Mechanic’s Liens, and Lien Waivers

Serving preliminary notices, filing mechanic’s liens, managing lien waivers?

To secure your mechanic’s lien rights, you need to identify these four key pieces of information:

notice and lien

Project Type

Is the project private, public, or federal
notice and lien

Your Customer

Customer name & address
notice and lien

State

The state in which the project is located
notice and lien

Dates

When you furnished to the project

API for UCC Filings

Filing UCCs? To secure your personal property and fixtures, you need to identify these four key pieces of information:

UCC

Filing Type

Is is a blanket or PMSI (equipment or inventory) filing
UCC

Your Customer

Customer name & address
UCC

State

The state in which your customer is incorporated
UCC

Collateral

A description of the collateral

One Click Away

“Filing UCCs is a critical part of our credit granting process. We wanted to streamline the process as much as possible, so we spoke with our financing software company as well as with NCS Credit, and together they were able to create an electronic solution for us.

It’s as simple as clicking a button.

An actual button was incorporated into our accounting software and when I click that button, the data necessary for the UCC filing plus an image of our security agreement, are sent directly to NCS Credit for review and filing.

That’s it! We save time & secure our receivables – it’s a win-win!”

– Ken Kodama, Finance Manager, MC Machinery Systems, Inc.

Let’s Discuss Integration & Automation

Our Team is Your Team

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    Brand Kirsch, Lead Software Developer
    NCS Credit

    “We customized a dual API solution for a client, a ‘Project Feed’ and an ‘Invoice Feed.’ These two data feeds provide an awesome experience for the client: new projects created in the client’s system automatically appear in our Online Services, complete with mailing addresses, contract & claim amounts, and furnishing dates. Existing projects are updated automatically so Online Services is consistent with the latest information in their system. Everything is monitored by our system, which the client uses to prioritize their Notice & Bond Claim processes.”

  • Adrian Segedy, Director of Sales
    NCS Credit

    “We strive to minimize our client’s workload, and our customized hybrid solutions allow us to do that. Between our technology and expertise, we can design a program to fit your needs. We provide clients a convenient way to proactively protect their payment rights and easily manage projects throughout the lifecycle.”

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Blanket Filing or PMSI Filing

Posted on March 9, 2023 by - UCC Financing Statements

Should You Use a Blanket Filing or a PMSI Filing?

There are primarily two types of secured transactions under Article 9 of the Uniform Commercial Code: Blanket Filing and Purchase Money Security Interest (PMSI) Filing. There are other applicable business transactions for a UCC filing, such as consignment, bailment, tooling, warehousing arrangement and installments/promissory notes. Today we are going to focus on Blanket & PMSI filings.

What is a Blanket Filing?

A Blanket filing is a security interest in all assets of your customer on a non-priority basis, eliminating potential conflict with your customer’s primary lender. The priority or payout in a bankruptcy is determined by the filing date (first in time, first in right). The UCC filing elevates the status of your accounts receivable to that of a secured creditor.

Blanket filings are applicable when providing financing, selling services, or in situations when your customer “consumes” or otherwise does not stock your goods.

What is a Purchase Money Security Interest?

A PMSI filing provides the same benefits as the blanket filing with the addition of the priority of repossession of specific identifiable goods, primarily inventory or equipment that your company would provide.

Purchase Money Security Interest in Equipment

Securing collateral that is defined as equipment 9-102(33) – “Equipment” means goods other than inventory, farm products, or consumer goods. The “equipment” is used in the course of the debtor’s business – it is not stocked.

Who would file a PMSI in Equipment? Creditors who supply items like medical exam tables, copy machines and walk-in coolers; equipment your debtor would keep/not re-sell. 

Purchase Money Security Interest in Inventory

Securing collateral that is defined as inventory 9-102(48) – “Inventory” means goods, other than farm products, which: (A) are leased by a person as lessor; (B) are held by a person for sale or lease or to be furnished under a contract of service; (C) are furnished by a person under a contract of service; or (D) consist of raw materials, work in process, or materials used or consumed in a business.

Who would file a PMSI in Inventory? Creditors who supply goods to a debtor for the purpose of the goods being resold; Panasonic sells car stereos to Best Buy who in turn sells them to their customers.

Timely Filing

Much like other credit remedies, there are “deadlines” for filing a timely Financing Statement.

  • Blanket Filing – The filing should be recorded prior to lending or shipping.
  • PMSI in Equipment – To achieve priority in equipment the UCC-1 Financing Statement must be recorded within 20 days of when the debtor receives possession of the collateral.
  • PMSI in Inventory – To achieve priority in the inventory the UCC-1 Financing Statement must be recorded and authenticated notification letters must be sent before the debtor receives possession of the collateral.

Did You Know?

A creditor can file a PMSI and Blanket Filing on the same collateral. Unsure which filing your company should be doing? Contact us today!

Editor’s Note: This content was originally published in February 2015. It has since been updated and revised for 2023.

2.3 Who We Serve-Food Distributors

Posted on August 2, 2022 by -

barista making coffee

The Restaurant Failure Risk is Real

If you are supplying goods, equipment or services to food, beverage and restaurant industries, you MUST take steps to secure your receivables. These industries are historically the riskiest industries for creditors. In fact, the National Restaurant Association estimates that one in three restaurants won’t survive their first year.

As a creditor supplying goods, equipment or services to the foodservice industry, how can you reduce your credit risk? UCCs.

UCC filings through NCS Credit help provide an opportunity to collateralize or “secure” your goods and/or accounts receivable by leveraging the personal property assets of the customer. Properly perfected security interests via UCCs will help mitigate risk and ensure filings maintain compliance.

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Here is more…

Problem #1

Restaurants Have a High Rate of Failure

The foodservice industry carries an inordinate amount of credit risk. Restaurants in particular have an estimated 30% failure rate. Monitoring services and a recovery program that will protect you in the event that your customer defaults or files for bankruptcy are essential. Our UCC Services Group helps mitigate the risk by establishing a secured position.

Problem #2

Restaurants are Frequently Sold

When a customer sells their restaurant, often there is language within the sale of the business that relieves the buyer of any responsibility from the previous business owner’s debt. Ultimately, erasing debt linked to the business becomes a condition of the sale of the business. UCC filings act as a lien on the business, so before the title passes from one party to another, the lien should be acknowledged and either settled or renegotiated.

Education Center

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Supplying to the Foodservice or Hospitality Industries? Protect Your Company with UCC Filings.
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UCC Filings Reduce Risk for Creditors in Foodservice, Beverage, and Hospitality Industries
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Expected Bankruptcy Spike in Food, Beverage, & Restaurant Industries
See More Resources
Blog

No Lien Rights for Rental Equipment Companies in Pennsylvania

Review this recent Pennsylvania legal decision and how UCC filings are poised to be the payment leverage rental equipment companies need.
Read More

We’ve Helped Others Just Like You

If you extend credit, regardless of industry, our services will reduce your credit risk. But, you don’t have to take our word for it. Learn how some of our clients have implemented UCC filings or a mechanic’s lien process to reduce their risk and improve their cash flow.

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NCS at a Glance

97%
Reduced Risk
97% of clients have reduced their risk when extending trade credit and 53% have increased their sales as a secured creditor.
10
Years Experience
Our account representatives have an average of 10 years experience in providing clients with customized solutions.
73%
Client Loyalty
73% of clients who did business with NCS Credit in 2005 continue to do business with NCS Credit today and 87% of clients view us as their strategic partner.

How we’ve helped others

Read Case Studies
  • ucc testimonial graphic
    Dottie Herbert, Director of Credit
    Sysco Boston
    • UCC

    We had a situation with a large volume customer with no personal guaranty who closed their doors unexpectedly…leaving us with a past due balance of $189,000…Without us being a secured creditor with a UCC filing in place, I truly believe that we would have only received cents on the dollar under the unsecured general creditors. Sysco Boston has been paid due to the utilization of the UCC and the services of NCS. NCS makes this process easy.

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    Gladys Greene, Area Credit Manager
    US Foods
    • UCC

    I just wanted to pass along a success story from using the UCC filing process with NCS. We avoided losing $85,927 because we used a UCC to secure our receivables. Our customer was selling their restaurant and the sale was initially turned down because of the UCC filing. The customer had a history of returned checks. When they discovered the lien, they asked us to terminate it so they can proceed with the sale. We explained we could not do that without being paid. This resulted in us collecting the full amount of $85,927 that otherwise would have taken us probably a year to collect! The UCC process is certainly a great tool that gives us the leverage we would have never had.

  • ucc testimonial graphic
    Michael Wisner, Region Credit Manager
    US Foods
    • UCC

    We were notified that a customer was selling a location which at the time had an AR in the mid-six figures, all of which was past due…The sale took place and our Credit Manager was contacted by the attorney who had the check in hand for the full amount. Had we not had the UCC filing in place we would not have received this payment and very likely, only cents on the dollar.

    This success paid for the cost of filing previous UCC’s and future UCC filings for years to come. This was definitely a win when looking at the cost benefit/ROI for securing our receivables with the UCC process and utilizing the services of NCS.

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Our broad network helps us help you

Each industry is unique, with its own set of risks and challenges. Our expertise is vast, our resources are bountiful, and our experience has provided us the opportunity to develop and refine tailored and successful solutions, for credit professionals just like you. Whether you need to improve your cash flow and work capital, reduce bad debt write-offs, or simply need to free up your credit department’s time, our team is prepared to ensure you are in the best possible position to get paid.

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Compliance with UCC 9-503(a) when Filing UCC in Georgia

Posted on August 23, 2021 by - UCC Financing Statements

Filing a UCC in Georgia? Make Sure You Correctly Identify the Debtor because Georgia Takes “Seriously Misleading” Seriously.

Compliance with UCC 9-503(a) must be one of the easiest and most challenging aspects of perfecting security interests. A contradiction, right? Under Article 9, a debtor should be identified on the UCC as its name appears on the public organic record (organization) or unexpired driver’s license (individual) – it’s that easy. And yet, following the Article 9 requirement has proven time and again to be quite a challenge for creditors when filing UCCs. And most courts, like the U.S. Bankruptcy Court in Georgia, are no nonsense when it comes to properly perfecting a security interest.

What is Compliance with UCC 9-503(a)?

In compliance with UCC 9-503(a), when the debtor is a registered organization, creditors should rely on the information found on the public organic record.

If the debtor is an individual, creditors must first look to the state’s legislation.  With the 2010 Amendments, each state had to decide whether they would implement “Alternative A” or “Alternative B.”

  • Alternative A: if the debtor holds an unexpired driver’s license, the Financing Statement must list the debtor’s name as it appears on the unexpired driver’s license. (If the debtor does not have a driver’s license, the Financing Statement should list the “individual name” of the debtor or the debtor’s surname and first personal name.)
  • Alternative B: the debtor’s driver’s license name, the debtor’s actual name or the debtor’s surname and first personal name may be used on the Financing Statement.

Summary of IN RE Bryant, Bankr. Court, MD Georgia 2021

The debtor, Darren Eugene Bryant (Bryant), filed for bankruptcy protection. The creditor, Regions Bank (Regions), filed a Proof of Claim for $2,515,673.21, which included both funds secured by a UCC filing and unsecured funds. The bankruptcy trustee argued Regions’ UCC was seriously misleading (thus unperfected) because Regions failed to correctly identify Bryant on the UCC.

  • Bryant’s unexpired driver’s license identified him as: Darren Eugene Bryant
  • Regions’ UCC Financing Statement identified Bryant as: Darren E Bryant or Darren E. Bryant

You see where this is going, right? This is from the court opinion:

“The financing statement must include the name of the debtor, the name of the secured party or a representative of the secured party, describe the collateral covered by the financing statement, and state the maturity date of the security obligation or state that the obligation is not subject to a maturity date. The name on the financing statement sufficiently identifies a debtor ‘if the debtor is an individual to whom this state has issued a driver’s license that has not expired, only if the financing statement provides the name of the individual which is indicated on the driver’s license[.]’”

Yep, Regions failed to comply with UCC 9-503(a).

“The Trustee argues that the Debtor’s name as listed on [Regions’] financing statements does not comply with O.C.G.A § 11-9-503(a)(4). This Court agrees. The statute requires that, for the financing statement to be effective, the name must ‘provide the name of the individual which is indicated on the driver’s license.’”

But, But, But… No, Buts, The Instructions Are Clear

In rendering its decision, the court points to the standard filing form provided by GSCCCA, stating “The UCC-1 form specifically notes that any part of Debtor’s name should not be abbreviated. While [Regions] attempted to argue that the abbreviation of the Debtor’s name still matched the Debtor’s driver’s license, [Regions] abbreviated the Debtor’s name from the name on the driver’s license despite the explicit instructions to the contrary. Therefore, the name on the financing statement does not match the Debtor’s name on the Debtor’s driver’s license, [Regions] financing statement does not comply with O.C.G.A § 11-9-503(a)(4).”

Here’s the Debtor’s Name section of the Financing Statement:

Debtor Section of UCC

Here’s the instructions for the form (highlight added):

Instructions for Debtor Section of UCC

Would It Appear in the Search?

You’re familiar with the phrase “grasping at straws,” yes? Well, in true straw-grasping-fashion, Regions tried one more argument. Regions argued if a search was done without the middle name and/or middle initial, its UCC filing would have appeared. But, the court disagreed, because in theory the searcher would be searching by the name as it appears on the driver’s license.

“A third party searching for a lien on potentially encumbered property relies on the system created by the Georgia Superior Court Clerks’ Cooperative Authority, the ‘GSCCCA,’ to produce results. Whether using the exact search or the stem search, the Georgia UCC Search logic description states, “[w]hen searching for an individual, [the Debtor’s] last name and first name are required, [the Debtor’s] middle name is optional.’ Georgia Superior Court Clerks’ Cooperative Authority, UCC NAME SEARCH LOGIC. Therefore, a proper search done by the guidelines set by the GSCCCA could include a debtor’s middle name. Liens that would not be disclosed by a search that includes a debtor’s middle name would not be perfected. In this case, a third-party searcher optionally could include the Debtor’s middle name, Eugene, when searching for encumbered property, which would not disclose [Regions’] lien. Because a search for “Darren Eugene Bryant”, a correct search according to the guidelines set by the GSCCCA for liens on the Debtor’s property, would not have disclosed [Regions’] lien, [Regions’] financing statement would qualify as seriously misleading under § 11-9-506(c).”

It’s an expensive lesson to learn. Always, always, always identify the individual debtor by the name that appears on their unexpired driver’s license.

Filing a UCC on an Individual? List the Name as It Appears on the Unexpired Driver’s License

Posted on September 9, 2019 by - UCC Financing Statements

If You Are Filing a UCC on an Individual, You Should List the Individual’s Name as It Appears on Their Unexpired Driver’s License

Until a Court Case Drops and Mucks It All Up

I can’t begin to tell you the number of times I have said or written some variation of “… when filing a UCC, always list the individual’s name as it appears on the unexpired driver’s license …” I’m certain if you run a query via the NCS blog for “9-503(a)” you will find oodles of information. I’ve said it oodles of times, because it’s true; it’s right there in UCC Article 9! It’s true, until a court case drops and mucks it all up.

UCC 9-503(a)… I Feel Like a Broken Record

Correctly identify and list the debtor’s name on the Financing Statement in compliance with UCC 9-503(a). Whether it is a registered entity or an individual, Article 9 lays it out:

  • Registered Entity: list the name on the Financing Statement as it appears in the public organic record
  • Individual: Alternative A or Alternative B
    • Alternative A: if the debtor holds an unexpired driver’s license, the Financing Statement must list the debtor’s name as it appears on the unexpired driver’s license.
    • Alternative B: the debtor’s driver’s license name, the debtor’s actual name or the debtor’s surname and first personal name may be used on the Financing Statement.

It’s straightforward. If it is an individual, review their driver’s license and list their name on the Financing Statement exactly as it appears on the unexpired driver’s license. Should I repeat one more time? List the debtor’s name exactly as it appears on the unexpired driver’s license. I do sound like a broken record… do folks still play records?

The Court Case That Mucked It Up

I’ll do my best to break this down –

  • The Jurisdiction: Wisconsin
  • The Debtor: Jeffrey Ossmann
  • The Arguing Secured Parties with an Interest in Same Collateral: Northside Elevator, Inc. and Bremer Bank

2014

Jeffrey Ossmann (Ossmann), a farmer, obtained two loans from Bremer Bank (Bank). In turn, Ossmann and Bank executed a security agreement and Bank filed a UCC. On the Financing Statement, Bank identified Ossmann as “Jeffrey A. Ossmann” which was the name on Ossmann’s unexpired license.

2016

In 2016, Ossmann was issued a new license. The name on the new license was “Jeffrey Alan Ossmann“.

Time Out! Under ordinary circumstances, what should Bank do right now (if it was 2016 and within four months of the name change)? Yes, Bank should file an amendment and list the debtor’s name as “Jeffrey Alan Ossmann.” Good! Back to the timeline.

2017

Northside Elevator, Inc. (Northside) had been selling seed and fertilizer to Ossmann. When Ossmann was unable to pay the balance, an agreement was executed and Northside filed a UCC. On the Financing Statement, Northside identified Ossmann as “Jeffrey Alan Ossmann” which was the name on Ossmann’s unexpired license.

2018

Northside claimed its security interest took priority over Bank’s because Bank’s Financing Statement did not correctly list Ossmann’s name as it appeared on Ossmann’s unexpired license. (“Jeffrey Alan Ossmann” for those still with me.)

The Blah-Blahs

As with many court proceedings there is a great deal of information, but only small bits are of interest to me; this is what I call the blah-blahs. The case goes on to review the various bits of Ossmann failing to pay, descriptions of the collateral, the legalities of Northside appealing the Circuit Court’s ruling in favor of the bank, and the relevant bits of Article 9: correctly identifying the debtor, what is seriously misleading, standard search logic and what constitutes minor errors/omissions.

Standard Search Logic, Not So Standard?

Northside claims that Bank’s security interest is unperfected, because a search on “Jeffrey Alan Ossmann” (Ossmann’s license name when Northside filed its UCC) did not reveal Bank’s UCC filing.

“Northside asserts that the name ‘Jeffrey A. Ossmann’ on Bremer Bank’s financing statement renders the statement seriously misleading, under WIS. STAT. § 409.506(3), because a search of DFI records using the name ‘Jeffrey Alan Ossmann’ did not reveal Bremer Bank’s financing statement.”

Clearly, the tricky business with the search is due to the variance of middle name vs. middle initial. To offer clarity, the court explained the search logic.

“(1) NAME SEARCHED. A search request shall set forth the full correct name of a debtor or the name variant desired to be searched and specify whether the debtor is an individual or an organization. The full name of an individual shall consist of a first name, a middle name or initial, and a last name, although a search request may be submitted with no middle name or initial and, if only a single name is presented, it shall be treated as a last name… A search request shall be processed using the name in the exact form it is submitted.”

OK, this makes sense. Northside did a search by the debtor’s full correct name: Jeffrey Alan Ossmann. Bank’s filing did not appear in the search result, which would make Bank’s Financing Statement seriously misleading / unperfected. So, what’s the problem? According to the court, Northside didn’t use a logical search.

“Section DFI-CCS 5.04(1)(e) provides: ‘For first and middle names of individuals, initials shall be treated as the logical equivalent of all names that begin with the initials, and no middle name or initial shall be equated with all middle names and initials.'”

Huh?

Essentially, a search for “Jeffrey A Ossmann” should display all Jeffrey Ossmanns with either a middle name beginning with “A” or the middle initial “A.” In theory, a search for “Jeffrey A Ossmann” would display results for Jeffrey Armstrong Ossmann, Jeffrey Awesome Ossmann, Jeffrey A. Ossmann, etc. So, the court is saying, if Northside had simply searched by “Jeffrey A Ossmann” it would have seen Bank’s existing UCC filing.

In fact, the court stated the following –

“A searcher who fails to take advantage of the DFI’s search logic cannot later complain that a financing statement is seriously misleading if that statement would have been disclosed if the searcher had availed himself or herself of the search logic.”

** Screeching Record Noise Plays Here **

“We conclude that, because a search of the name ‘Jeffrey Alan Ossmann,’ using the DFI’s search logic, and any permissible name variations permitted by that logic, would have disclosed Bremer Bank’s financing statement, that statement is not seriously misleading.”

Wait, What? Why? What?

I’m going to say it: I don’t agree with the court in this case. I understand the court’s reasoning, in that I understand the usefulness of a vague search (“Jeffrey A Ossmann”). But I don’t understand how Northside can comply with Article 9 and then get burned for doing so. Northside identified the individual by the unexpired license and searched the records by the same name. Northside complied with Article 9.

There’s a Lesson Here

Despite my frustration with the court in this case, there is a useful lesson here. When searching, take the extra minute to search a logical variation of the name. What’s considered logical? Well, that’s for another post, but in this case if there is a middle name, try a quick search using just the middle initial and not the full middle name.