UCC Debtor Names: What You Don’t Know Will Hurt You!

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Annie: Hello, everyone, and welcome to today's webinar, "UCC Debtor Names: What You Don't Know Will Hurt You". My name is Annie Triboletti and I will be your moderator. Joining us today is Paul Hodnefield, the Associate General Counsel for CSC. And with that, let's welcome Paul.

Paul: Thank you, Annie. In my role at CSC as Associate General Counsel, it's my job to be the subject matter resource for all things related to the UCC search and filing process. And to do that, I participate in the industry in a number of ways.

I participate with the filing officers and their organization, IACA and contribute to their annual conference each year. I monitor case law regularly. I monitor legislation on a daily basis. I co-chair a taskforce for the ABA on filing office operations and search logic, and do a lot of troubleshooting with the filing offices.

So needless to say, I get a lot of information from a lot of different sources, and without a doubt, the favorite part of my job is when I can come out and share that with everyone. So that's what I'm going to do today.

Specifically, what I'm going to cover today are UCC debtor names. This is perhaps the most important part of the filing process. Aside from getting the right filing office, getting the debtor name right is critical.

In fact, providing the correct debtor name on a financing statement is a critically important part of the filing process. UCC Article 9 has very exacting requirements for debtor names and it has harsh consequences for a filer that doesn't get it right. In fact, there is no such thing as a minor error in a debtor name. Any error, no matter how seemingly tiny, can result in a serious loss for the secured party.

Determining the correct debtor name is not always easy. And that's due to a variety of reasons. For one, the rules are not intuitive. The debtor name rules are for purposes of the financing statement only, not necessarily for any other uses.

Moreover, the rules under Article 9 are often different than those that are applied to debtor names under other laws, such as real property law with mortgages and similar instruments or statutory liens.

Finally, determining the correct debtor name requires some investment and due diligence. There are no safe shortcuts and there is little margin for error in this process.

With that in mind, my goal today is to provide some clarity regarding what Article 9 really requires for debtor names. I'll begin with a review of the basic concepts or essential concepts regarding debtor names, explain the rules for debtor name sufficiency and the significance of the filing office's standard search logic. Then I'll move on to the specific rules that apply based on the type of debtor or, in some cases, the status of the collateral.

Along the way, I'll identify common errors for the different types of debtor names and suggest best practices. At the end, I'll take questions with any time that remains.

There is one set of issues that I won't be doing much more than touch on today, and that has to do with post-filling changes to the debtor or debtor name such as a debtor name change or a merger/acquisition, that type of thing that could affect the debtor name. Those issues are complex and really require a whole webinar of their own. So I will just simply touch on them but won't go into detail.

So, with that, we'll go ahead and get started with some essentials regarding debtor names.

Some things that it's important to understand about debtor names, first and foremost, is that, remember, correct debtor names are critical. And under Article 9, because they are so critical, any error in the debtor name can render the financing statement seriously misleading.

And I mean any error. An extra space, a missing space, a missing comma, these have the potential to render a financing statement seriously misleading, and if it's seriously misleading, it's simply not effective.

It's seriously misleading as a matter of law. It's not something that there's a jury will decide whether it's a reasonable error or something like that. It's something that a judge will decide. It either is the debtor name or it isn't.

The reason why the debtor names are so important has to do with the purpose of that debtor name on the financing statement to begin with. There are a number of reasons why people think there might be a . . . that they think might apply to why the debtor name is on the financing statement. For example, to identify the debtor, communicate information about the debtor or the transaction, indicate the debtor's capacity. These are all good guesses, but none of them is correct.

The sole reason for the debtor name on a financing statement is to allow retrieval of the record using clear and consistent search rules. That is the only purpose of the debtor name. And for that reason, the debtor name rules are very specific because they're there to allow retrieval of the record, and variances in the debtor name can make it so the debtor name will prevent the finding of the financing statement.

Another essential concept to understand is that the burden is on the secured party to get it right. The secured party is solely responsible to determine the correct name of the debtor. It's not up to the searcher to figure out what names they have to search under. The searcher, under Article 9, only has to search under the correct name of the debtor and not under trade names and nicknames and variations of names and things like that. Very important for the secured party to get it right.

And this is also important because filing offices don't exercise judgment or discretion about how to index a debtor name. Under the rules used by nearly all filing offices, the filing office will transcribe the data into the searchable index exactly as it appears on the financing statement. They won't make any changes. They won't tinker with the name at all. Whatever is in the name field is what goes into the index.

And that means that whatever is in that name field becomes the debtor name. The full string of text in the name field is the debtor name whether the filer intended for that to be the case or not.

A corollary to that is that if the debtor name isn't in the name field, it's not provided because the filing offices do not index names unless they're in the name field. That's how they know it's a debtor name. And failure to put it in a name field can have serious consequences for a secured party.

I cite a case here where the attorney that filed a financing statement put two debtor names on an attached schedule rather than in the debtor name fields of addendum forms. And because they were not in name fields, they were not indexed by the filing office, as they shouldn't have been. And when the debtor filed for bankruptcy, those two debtor names were found not to have been provided and therefore the secured party was not perfected in the security interest and the assets of those two debtors.

So very important to remember. It's got to be in the name field and whatever goes in the name field is the debtor name.

Another important thing to understand has to do with how debtor names are processed in the index. Individual and organizational debtor names are generally stored separately in different fields of the index.

Organization names are stored in one single field for the organization name.

Individual debtor names are stored in four separate database fields, one for each component of the name. Three of those are searchable. One is not, the suffix. Suffix is a non-searchable field. That's where you put things like junior, senior, things like that. But the first name, middle name, and last name of an individual are all searchable.

Now, this is important to know because the search logic approaches these differently. Different search logic is applied to individual and organizational debtor names.

Organization names use a multistep search logic that normalizes the name but it never looks at the individual name fields. And the same is true with the individual name fields. The search logic applied there doesn't even look at the organization name field. So providing it in the wrong name field is just the same as not providing it.

There are some exceptions out there. Florida, for example, and many offices that are based on land record systems, such as Washington, D.C., may use a single field for both debtor and organization names. But they're the minority. At the state level, for the most part, they all use different database fields for the different types of debtor names.

So next, I want to move on and talk about what is required for sufficiency, first in general and then I'll move on and talk about specific types of debtors.

The general rules for sufficiency are found in section 9-503(a). This has the rules based on the type of debtor or, in some cases, the status of the collateral.

Now, if a filer fails to provide the correct debtor name . . . and by correct debtor name, I mean the exactly correct debtor name. There is no substantial compliance. It has to be strict compliance. If the filer fails to provide the correct debtor name in strict compliance of Article 9, then under section 9-506(b) the financing statement is seriously misleading.

Again, there are no minor errors in the debtor name. And a seriously misleading financing statement will not be effective.

There is one exception to this, and that is in section 9-506(c). And what this says is that if a search of the correct debtor name using the jurisdiction standard search logic would disclose the record, then the insufficient name on the record does not render it seriously misleading.

And this makes sense because if you search the correct name and the financing statement comes up, it's not hidden and there's no harm in making it effective because the searcher has notice of it.

But still, the savings clause there is not something that anyone ought to rely on, and I'll explain why in a minute.

So really, what we have for the sufficiency of the debtor name is one of two things. Either the name complies with section 9-503(a), and that means an exact match of the source document for the debtor's correct name. It's got to be exact. Strict compliance is necessary. It's all up to the filer to get it right.

And if the filer gets it right, then they've got a perfected security interest. If not, then it's seriously misleading unless a search under 9-506(c) discloses the record. So either strict compliance with the debtor name rules or a 9-506(c) search will disclose the record.

Now, as I said, the 9-506(c) search must use the jurisdiction standard search logic. It also has to be in the filing office records, not a third party. The financing statement will be not seriously misleading if it discloses the record.

However, there are limits to the standard search logic. For example, what happens if the search logic changes and no longer finds a record with an insufficient name? Well, that's one of the risks of relying on the standard search logic for perfection.

So search logic is so critical in here and it's important to understand how it works.

A little bit of background on search logic. Most jurisdictions, about two-thirds of them, use the model standard search logic that was developed by IACA, the filing officers organization. It was originally developed actually as part of the drafting process for the current Article 9.

It started back in the 1990s, and the idea here was that by changing from the old debtor name standard to a new precise debtor name standard, the model standard search logic should compensate somewhat for minor errors so that the financing statement with such minor errors would not be seriously misleading.

Now, standard search logic, by the way, is not just any search logic. It's not any search logic that a filing office uses. In fact, it's typically the filing office's search logic that's used for certified searches.

In some cases, filing offices make the model standard search logic available online, but beware, many filing offices have nonstandard search logic. So, if you're doing the search using model standard search logic, make sure you know you're using the right logic.

Now, the way model standard search logic compensates for minor errors is through a normalization process. And what it does through that process is it disregards minor deviations in spacing, punctuation, ending noise words, which are words, phrases, and abbreviations that designate the entity type, and it will disregard "the" if it appears at the beginning of the name.

And as I said, it does this through a normalization process. It's actually a multistep process, which is set forth in the model administrative rules maintained by IACA and, again, adopted by the vast majority of states.

Now, I'll demonstrate how this works. Here, we have a normalization example. We have the name on the financing statement listed as the ABC Group Inc. Now, the way normalization works is it will take the name on the financing statement and then first it'll make it case-neutral. Then it will strip out the punctuation. It will remove ending noise words starting at the far right-hand side of the name and working its way back to the left until it runs out of the ending noise words.

Once it reaches something that isn't on the noise word list, it stops and moves on to the next step, which is removing "the" from the beginning of the name if it appears there. And finally, it removes the spaces. And what you're left with is a string of normalized text that's derived from the name on the financing statement.

Now, when somebody does a search, the search is conducted in the same manner. The search string is normalized and it's compared to the normalized text in the database and only exact matches are produced as part of the search results.

Now, remember, everything that goes in the name field gets entered into the searchable index and that means it all gets part of the normalization process. And extra text in a name, for example, can prevent the normalization from working right and prevent a record from being disclosed on the 9-506(c) search.

So let's look at how this works in an actual example. We have the name on the public organic record for a registered organization as Pitt Pipeline Company, Inc. This is the name that's required by Article 9. But a secured party filed a financing statement on this debtor and rather than provide it exactly, they made a little bit of a boo-boo and omitted the P from "company." So it's Pitt Pipeline Comany Inc.

Well, that spelling error will render the financing statement seriously misleading because it's not the name of the debtor, unless a search using the jurisdiction standard search logic would disclose the record.

In this case, if we run through the normalization process, first of all, we have the name that's provided. Then it's made case-neutral. Punctuation is removed. The ending noise words are removed. And here, we run into a problem because in stripping out the ending noise words, the search string is going to have "Inc." and "company" removed. But with the name on the financing statement, when that's normalized, just "Inc." is removed because "Comany" is not an ending noise word.

Next, it'll delete the spaces, and finally you wind up with the two normalized names, which do not match. Therefore, the financing statement will not be disclosed on the search of the correct debtor name and it will be seriously misleading and not effective.

Now, as I mentioned, there are limits to standard search logic. For example, the states have interpreted the noise word step of the process differently. Some remove just the ending noise words, but most remove all ending noise words until they reach a word that isn't an ending noise word. The noise word lists vary from state to state.

What consists of punctuation varies somewhat from jurisdiction to jurisdiction and how they handle things like the ampersand. Some jurisdictions treat it as the equivalent of "and." Some treat it as a separate word. They treat it as "and" with a different spelling but don't equate it to "and." And others delete it as punctuation.

Foreign characters and symbols tend to be problematic for filing offices and how they program their search logic.

And even spacing can be a challenge because in some cases there might be jurisdictions that don't deal with multiple spaces or omission of spaces. We'll see some examples of that as we go along.

So the bottom line, never ever rely on the model standard search logic or any standard search logic to prevent a financing statement from being seriously misleading due to an error in the debtor name. If you come across a financing statement with an error in the debtor name, fix it at the earliest opportunity.

Now I'm going to move on and talk about the requirements by debtor [inaudible 00:20:31]. In some cases, the status of the collateral.

Now, the most common type of debtor that is filed against in the commercial transaction is a registered organization. A registered organization is a defined term in Article 9. It's an entity formed by the filing or issuance of a public organic record or the enactment of legislation.

Now, under Article 9, a registered organization name is sufficient only if the financing statement provides the name stated to be the name of the organization on the public organic record most recently filed with or issued by or enacted by a jurisdiction.

So the public organic record is a critical piece of this because that's the statutory source of the debtor name. This also is a defined term under Article 9, and it means the record initially filed with or issued by a state or the U.S. to form an entity.

And the "issued by" doesn't mean, in some cases, a certificate issued by a Secretary of State after filing articles of incorporation. It would mean a charter issued by the state where the applicable law says the entity doesn't come into existence until the issuance of the charter. And under most state laws, the entity comes into existence upon the filing of the articles.

It also includes legislation that creates an entity such as a public corporation. Fannie Mae and Freddie Mac, for example, are entities that are formed by legislation.

A record of the business trust can be a registered organization if the record of the business trust is required to be filed by state law. That is a public organic record.

And also, public organic record includes records that are later filed to amend or restate the name.

So some examples of a public organic record? Well, that includes the articles filed to form a corporation or LLC, or if an amendment has been filed to change the name, the amendment. It includes the actual statute that creates an entity if it specifies the name in there. And it can be a declaration of a trust for a business trust that is a registered organization.

There are some things that are not a public organic record and are not a sufficient source of the debtor name. One is the certificate of good standing, and the other is the state online business entity database.

The database is not the source because the database doesn't necessarily provide the correct name of the debtor. There can be errors in the data. There are indexing practices that go way back that sometimes provide a different name in a different format than it would appear on the public organic record.

And the certificate of good standing, those are generated out of the entity database, and if the entity database isn't a source, then neither is the certificate of good standing.

Now, in many cases, they do provide the correct name but not all. And whether somebody wants to take a shortcut and use that is entirely a risk decision, but it has to be made with open eyes because there is risk associated with going to the database or certificate rather than going to the public organic record.

So let me illustrate how this would work. Here, we have articles of incorporation. They were filed in February of 2009 and formed Ben Realty Group Inc. So Ben Realty Group Inc. is the name of the registered organization, and when a secured party files financing statement on it, that's the name that should be used.

And here, we have a secured party that did exactly that. They provided it exactly as it appears on the articles with the exception of upper and lower case, which generally isn't going to be a problem although I do recommend using the name exactly as it appears, even upper and lower case.

Now, a few years later in 2017, articles of amendment were filed to change the name of Ben Realty Group from the name originally on the original public organic record. So, in 2017, the articles of amendment changed the name to BRG Group Inc.

Well, guess what? Because these articles purported to change the name of the debtor, this now becomes the public organic record, and any financing statement filed after the date of this amendment must [provide 00:25:19] the name of BRG Group on the financing statement.

And just to point it out, any financing statement filed before this amendment under the Ben Realty Group name would have to be amended to reflect the new name. Otherwise, the secured party is going to become unperfected in after acquired collateral, meaning that it's acquired more than four months after the name change. So make sure to use the correct public record to get the correct name.

So best practice when it comes to a registered organization is always provide the debtor name exactly as the public organic record even if it looks a little funny.

Here, we have articles of incorporation, so the public organic record, for Fisherman's Corner LLC, and for some reason, they put LLC in quotation marks, which I've never seen before or since. But the secured party that filed on this, they got it right. They put LLC in the name of the debtor on the financing statement. That's the proper way to do it. It should be exactly as it appears on the public organic record.

Now, remember, I mentioned never to rely on the standard search logic to get the debtor name or to prevent an insufficient debtor name from making a financing statement seriously misleading. Here's an example of why that's so important.

The name on the public organic record for a particular debtor here. It was filed with Wisconsin Department of Financial Institutions to form ISC, Inc. So that's the name of the debtor.

There were two financing statements filed on this debtor. Here's the debtor name from one of the financing statements. Here's the debtor name from the other. They both look good, I suppose, at first glance anyway. But if you look carefully at the second financing statement, the filer made a boo-boo and put an extra space in the name.

Now, a filer might catch that later and go, "Oh, my goodness. We put an extra space in the name." Well, not to worry, because after all, the filing offices disregard spaces in the name, right?

Well, in this case, this was filed with the Wisconsin Department of Financial Institutions, and in Wisconsin, they do follow the model standard search logic but they did not adopt the step that disregards spaces. And as a result, this name was found seriously misleading and not effective because with the extra space in the name, it is not the name of the debtor set forth on the public organic record. So it will be seriously misleading unless a search of the correct debtor name would find it.

But the Wisconsin standard search logic does not disregard spaces, so a search of the correct name without the space did not find this financing statement with the space. And the result was that the court found the financing statement to be seriously misleading and not effective.

So don't rely on assumptions of how the search logic works. Fix the error in the name as soon as it's discovered.

Here are some other examples. Jim Ross Tires Inc. d/b/a HTC Tire & Automotive Centers. The correct name of this debtor is Jim Ross Tires Inc., and when the debtor declared bankruptcy, the secured party argued that once you get the correct name on there, Jim Ross Tires Inc., that anything after that should just be disregarded.

But the court correctly explained that, "No, if it's in the name field, then that means it has to be indexed under the administrative rules for the . . ." In this case, the Texas Secretary of State.

And the result is that the extra characters in the name will inevitably prevent a search on the correct debtor name from finding the record. So as a result of that extra text being added to the name, the court determined that that string of text does not equal to correct string of text that represents the correct name of the debtor, and it prevented the financing statement from showing up on a 9-506(c) search. So seriously misleading and not effective.

Here, we have KWM Electronics Corporation. Well, on the public organic record, there are periods after each of the initials, but they were omitted. Well, this was a problem because this was filed and the Utah search logic did not disregard punctuation. As a result, without the punctuation, it was not the name of the [inaudible 00:30:11] and the search logic could not find it because the punctuation was not disregarded.

So, when it comes to registered organization debtor names, some tips to bear in mind. Always conduct thorough due diligence on the debtor names. Make sure you look at the public organic record and put that name into the financing statement exactly as it appears. Spelling, spacing, punctuation, word order, no abbreviations, even upper and lower case should be identical to the source document.

And remember, never add anything to a debtor name that shouldn't be there. That means including titles, statements of capacity, or any other explanation, because all that will do is make it so it's not the correct name of the debtor and prevent it from showing up on a search.

Next, we have the situation where the collateral is being administered by a decedent's personal representative, which, until 2013, we used to call a decedent's estate. The collateral is in a decedent's estate.

Well, in this case, the debtor name is sufficient only if the financing statement provides the name of the decedent and, in a separate part of the financing statement, indicates that the collateral is being administered by a decedent's personal representative. So really, there are two elements here, the name of the decedent and an indication.

So a couple of pointers here. First of all, the name of the decedent is an individual name and it should be provided in the individual name fields, although it is tempting because it's considered an estate to provide it in the organization name field.

The other thing is that the indication is not part of the debtor name. It must be provided in a separate part of the financing statement. If it's put in the name field, it will render the financing statement seriously misleading every time.

So here are some examples. We have the estate of Paul C Primus. It was placed in the organization name field. In addition, it's indicating it's an estate. Both of those are errors. It should be Primus in the last name, Paul in the first name, C in the middle name, and check the box to indicate it's being administered by decedent's personal representative.

Here, again, we have the name being placed in the organization name box. It also includes the name of the executor and an indication of the capacity of the executor. The name of the executor is not sufficient. A search of Nelson Douglas E is never going to find this. And so it's not the name of the debtor. It's considered seriously misleading and not effective.

Now, here, somebody has put the individual name in, but they added a statement of capacity, which is going to render the financing statement seriously misleading in virtually every case.

So, when it comes to estate-related debtor names, bear in mind the name of the decedent is an individual name and should be provided just as if they were a living person.

There is a safe harbor for the decedent name, that being if there is a court order appointing a personal representative of the decedent, it is the name of the decedent in that order, and it should be provided in the individual name fields if you're concerned about whether it should be provided in the organization name field because it is an estate, an organization. You can always take the belt and suspenders approach and put it in both, but it definitely needs to be in the individual name field.

You also need to indicate that the collateral is being administered by decedent's personal representative, and that requires putting a checkbox in Item 5. Put it there. Don't put it in the name field. It has to be in that separate part of the financing statement.

The most confusing type of debtors is when the collateral is held in a trust that is not a registered organization. When the collateral is held in a trust that is not a registered organization, the financing statement is sufficient only if the financing statement provides the name specified in the organic record of the trust. Or if no name is specified, the name of the settlor, or if it's a testamentary trust, the testator.

And in a separate part of the financing statement an indication that the collateral is held in a trust, and if the name of the settlor or testator is provided, then any separate part of the financing statement, not the name field, provides additional information to distinguish the trust from other trusts with the same settlor or testator.

A word of caution here. The only permitted names are the name of the trust or the name of the settlor or testator. Those are the two. But in reality, the debtor is the trustee. The trustee is the one who holds the property. Well, that may be, but the name of the trustee is not sufficient as the name of the debtor, even though the trustee is the one that probably granted the security interest.

The trustee name may be used for other purposes, but not for purposes of the financing statement. This is one of those situations where a name other than the actual name of the debtor is used to allow retrieval of the record.

Now, any additional information and the trust indication must never be added to the debtor name. Use the checkbox on the form or its electronic equivalent.

One of the reasons why the name of the trustee is not used and why the rules are so strict for trusts is because there are so many different ways that trust names can be provided.

With this particular trust, there are so many different variations of that name out there. Are any of them correct? I don't know. We'd have to look at the organic record to know for sure. But that's why it ties back to the organic record, which by the way is not a public record. So when searching for trusts, it's necessary to cast a broader net. But to get the name right, it's necessary to look at that public organic record.

There are some things we know are not correct. Here, we have the Clarence Greifinger Declaration of Trust Agreement dated April 22, '96. Problem is this is saying that the trust agreement is the debtor. No. A declaration of trust agreement cannot be the debtor. It's got to be the name of the trust or the name of the settlor or testator.

Here, they provided the name of the trustee. Again, that's not sufficient as the name of the debtor. And in addition to that, they put an individual name in the organization name field.

Here's an example of where they did put the trustee name in the individual name field, but again, they put trustee. The name of the trustee is not sufficient even if it was adding the statement of capacity. The capacity is not part of a debtor name.

Here, we have another example. They've provided the name of the trust in the organization name field. And maybe the name of the trust is the Trust of Aron Neuman, but by adding information about the agreement, this is the descriptive agreement. It belongs in a separate part of the financing statement. By adding it to the name, that's just going to make the financing statement seriously misleading unless the organic record of the trust says, "This is the name." I have never come across that, though.

And here, they provided the name of the settlor, but they included capacity and descriptive information and as a result, even if somebody searched Joe Tecce Inc., it wouldn't be sufficient. They wouldn't find it. So it's not the name of the debtor and it won't turn up on a 9-506(c) search.

So, when providing a trust-related debtor name, unless it's a registered organization, it's always necessary to start with the trust's organic record to determine the correct name or whether it even has a name. If it doesn't have a name specified, then it must use the name of the settlor or testator.

There is a safe harbor for the name of the settlor and testator. It's the name indicated in the trust's organic record.

Be sure to provide the name correctly. I strongly recommend making sure that the name go in the field that corresponds to the type of name. In other words, if it's an individual name of the settlor, put it in the individual name fields. If it's an organization name, put it in the organization name field if it's the name of the trust. Or I should say if the settlor was an organization.

But there are some who argue, very respected commentators, that the name has to go in the field that corresponds to the nature of the debtor, not the nature of the name. So, if there's a conflict there, a safe practice would be to consider taking the belt and suspenders approach and providing the name both in the field that corresponds to the nature of the name and also provide the name in the field that corresponds to the nature of the debtor.

Be sure never to add descriptive or explanatory information to the name. Put that in a separate part of the financing statement and use the checkbox to make the indication that it's held in a trust. Don't put the indication in the debtor name.

Now, when it comes to individual debtor names, there are different rules in different states. The vast majority of states state that a financing statement is sufficient only if it provides the name indicated on the debtor's driver's license that is unexpired and issued by this state.

And as I'm making this presentation, I want to make clear that driver's license includes a state-issued ID card if it's provided for under the applicable state law. We do at CSC have a webpage, CSC Transaction Watch, where we do have a chart that shows what states include the ID as part of this provision.

But it must provide the name on their driver's license if the driver's license is unexpired and issued by the state of filing. There is a second-tier safe harbor that applies if the debtor does not have an unexpired driver's license or one that was issued by a different state.

There is a minority rule in about six states that say the driver's license is merely a safe harbor and that just the first and last name of an individual will be sufficient as well. But again, it's a small minority of the states.

And there are still some jurisdictions out there that don't have any rules. The U.S. Virgin Islands and Pacific Territories did not adopt the 2013 amendments to Article 9, and as a result, it's really left to the best judgment of the filer to determine what the correct individual name is.

Now, it's not as easy as just taking the name from the driver's license and putting it on the financing statement. There are a couple of steps involved first.

The first step is to look and see that the driver's license was issued by the state where the record will be filed. So, if we're filing in Pennsylvania here, then great. Then we can proceed to the next step, which is make sure it's unexpired. So check the expiration date.

Here, if we're filing in Pennsylvania, we have a Pennsylvania driver's license and an unexpired driver's license. So now we can look at the name and extract the name from the driver's license to the financing statement, bearing in mind that the components of the name on the financing statement may or may not be presented in the same order that they would appear . . . or on the driver's license may not be in the same order that they would appear on the financing statement.

So they have to be extracted correctly and put into the correct field on the financing statement.

There are some challenges. There are special characters that sometimes can appear in a driver's license. Like here we have the enye character, Peña. That is not something found on a standard keyboard. But it is on the driver's license, so technically, the name will be sufficient only if it provides that on the financing statement. So the financing statement must provide that name exactly as it appeared on the driver's license.

Now, some states will reject if there's a special character in there. Others will just index this as an A and that's fine. But some will index it with that character.

Now, one thing to bear in mind is that if the . . . How are people going to search this? Well, probably they're going to search it by an N, not with the diacritical mark. So it is probably a good idea and also a good idea to avoid rejection by those states that reject special characters to also provide the name as it's likely to be searched to make it easier to find in the record. Just use the N in this case.

There is some individual name case law out there. The most recent cases are from at least a couple of years ago now. In re: Markt was an interesting case. Here, there was an extra character in the middle name on the driver's license and the secured party failed to include that in the financing statement.

And the court determined because it appeared on the driver's license, it was the name of the debtor. Therefore, the financing statement [inaudible 00:44:51] name of the debtor and the omitted character prevented it from showing up on a 9-506(c) search.

So, remember, the correct name to do that 9-506(c) search is the name on the driver's license. And if it doesn't find the record without a character, it's going to be seriously misleading and not effective. I'll show you the example of that in a moment.

Another more recent case was In re: Pierce, and what happened here is the name on the driver's license was both printed and then also there was a signature on there. The name on the financing statement was the signed name. The secured party put the name as it had been signed. And it was different than the name that was printed on the driver's license.

The secured party creatively argued that both names were sufficient. The courts said no. The courts said the name indicated on the driver's license refers only to the typed name. Because it didn't match the typed name, the name on the financing statement was not the name of the debtor and it didn't show up on a 9-506(c) search, so it was seriously misleading and not effective.

Now, here's an example of that Markt situation. The name on the driver's license was Markt with a T. I don't know if that was a typo on the driver's license or what it was. But because of that, the name of just Mark was not sufficient as the name of the debtor. By omitting the T, it prevented the search from finding the record.

So, when it comes to errors like that, if Markt doesn't look correct, there's absolutely nothing wrong with also putting the name as you think it might be if it was really correct. That way, if the debtor ever fixes the driver's license, assuming that T was an error, the correct name will be on there. And it's also on there in a way that it'll show up under either the correct or the likely way it would be searched incorrectly.

So, when it comes to individual debtor names best practice, you start by confirming that the driver's license is issued by the state where the record will be filed and verify that it has not expired. If the debtor doesn't have one, use the safe harbor options.

Step 2, correctly map the name to the UCC form. If it isn't clear how to extract the name, don't be afraid to provide one or more name variations as additional debtors so whatever a court later decides was correct actually makes it onto the financing statement.

And finally, preserve evidence. Keep a copy of the driver's license so that if you ever have to prove what the name was at the time of filing, you've got that driver's license copy. Because driver's licenses are not public record, not every DMV maintains an audit trail that you can show when it was changed.

Also, be aware that any error in an individual name can render a financing statement seriously misleading because the search logic doesn't disregard the same things that it does in an organization name search. So, with an individual name, even more precision is generally required.

For any other type of organization, Article 9 just says provide the organizational name of the debtor. So, really, it's left to the filer's best judgment as to what the secured party's name is.

And one example of that was the Webb case that I have cited here where there were individuals that were . . . they were partners who were conducting a joint venture. It wasn't a partnership or anything. It was just a joint venture.

And there, because the joint venture had a name, they were required to provide the name of that organization or the joint venture, not the names of the partners who made up the joint venture.

So best practices. Conduct thorough due diligence into the organization's name, review all the relevant source documents for the name, and then file whatever name or names could be correct as additional debtors.

If the debtor doesn't have a name, then Article 9 requires the name of all the partners, associates, individuals, and organizations that comprise the debtor each as if they were a debtor in their own right. So, if a registered organization is one of the persons comprising the debtor, it would have to be the name on the public organic record.

And don't assume that if the debtor doesn't have a name that there must be one out there for it and create one. If it doesn't have a name, it doesn't have a name. At the very least, it might be a good idea if it doesn't appear the debtor has a name to provide what the name might be and then also provide the names of the persons that comprise the debtor.

Getting to the end here, I want to point out that there can be errors. Even when the name is correctly determined, it can be provided incorrectly. I mentioned earlier that individual organization names have different fields and providing the individual name in the organization name field is just as bad as not providing it.

There was a case recently called Voboril where that occurred. It involved the sale of a business, but the financing statement was filed on the individual, but they put it in the organization name field. And the court determined that in the organization name field it's not provided as the individual name of the debtor as required by Article 9.

Remember, names have to go in the name fields. You can't put them on an attached schedule or exhibit and expect them to be indexed. Here, we have Exhibit A with a long list of debtor names that the secured party has verified as correct at a great investment of time and expense. Yet, because they are not in the name field, the only debtor name here that makes it into the database is the string of text that's in the name field. Get the debtor names in the name fields.

And bear in mind that if the debtor name doesn't easily fit within the space provided on a single line of the financing statement, there is a very good chance it is not correct. I have yet to see a properly provided debtor name that didn't easily fit.

Here, they provided the name of the trustee and a long history of the names. And unfortunately, in this state, they only take 180 characters and that means the name got cut off in mid-word at one point. And to make matters worse, the only unique identifier here was at the very end. So this certainly, under any measure, would be seriously misleading and not effective. So always pay attention to long debtor names.

All right. Just to wrap up as a summary, remember to always provide the debtor name on the financing statement exactly as indicated on the source document that's specified in the statute 9-503(a). And I mean exactly. Spelled identically, spaced, no extra spaces, no omitted spaces. Punctuation should be identical. Ending noise words must be identical.

If "the" appears at the beginning of the name, put "the" in the name and don't put it in there if it doesn't appear. And I'd go so far as to even recommend that upper and lower case be identical to the name in the statutory source document.

Next, I want to point out don't add any extra information. Nothing about capacity, descriptions, name history. Just the name of the debtor. Nothing more and nothing less.

By following these best practices, nearly all debtor name risks can be managed.