What’s in a Name? Changes to Article 9 of the California Uniform Commercial Code

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As you are probably aware, the latest revisions to Article 9 of the California Commercial Code became effective on July 1, 2014. Rather than providing an exhaustive list of all of the revisions to Article 9 of the California Commercial Code which would be quite long and tedious, I thought it may be best to briefly highlight some of the more significant changes to the California Commercial Code that you may be more likely to face in your job or practice. As you will note, many of these changes relate to how to properly state the name of the debtor on a UCC-1 financing statement which is of critical importance since UCC-1 financing statements are indexed by the debtor’s name and any error in correctly stating the debtor’s name can result in the financing statement being ineffective.

Section 9102(a)(68) – Definition Of “Public Organic Record.”

The definition of a “Public Organic Record” found in California Commercial Code Section 9102(a)(68) is brand new.  This definition is quite broad and includes the filed organizational documents of a corporate or partnership debtor or a debtor that is a limited liability company. The importance of this new definition of a “Public Organic Record” is that it provides the correct source of the name of a debtor that is a registered organization under California Commercial Code Section 9503(a)(1) and expands the scope of entities subject to the new requirements for registered organizations. Also note the new definition of the term “Registered Organization” found in California Commercial Code Section 9102(a)(71) which incorporates the new definition of “Public Organic Record” and defines a Registered Organization as “an organization formed or organized under the laws of a single state or the United States by the filing of a public organic record with, the issuance of a public organic record by, or the enactment of legislation by the state or the United States” (emphasis added).

Section 9503(a)(2) – Debtor’s Name (Decedent’s Estate).

In general, Section 9503(a)(2) does not change existing law regarding how to determine the debtor’s name in the case when the debtor is a decedent’s estate. However, California Commercial Code Section 9503(a)(2) now requires that the UCC-1 financing statement indicate that the collateral is being held by a personal representative in a separate part of the financing statement other than the debtor’s name field.

Section 9503(a)(3) – Debtor’s Name (Trust).

California Commercial Code Section 9503(a)(3) now changes the focus in determining the correct name of the debtor when the debtor is a trust to whether or not the trust is a registered organization as defined in Section 9102(a)(71), such as a business trust. The name of a trust that is a registered trust is governed by California Commercial Code Section 9503(a)(1). If the collateral is held by a trust that is not a registered trust, the requirements for stating the name of the trust must remain the same as previous law. However, California Commercial Code Section 9503(a)(3)(B) now states what additional information must be included on a separate part of the financing statement and not on the name field.

Section 9503(a)(5) – Debtor’s Name (Individual).

The revisions to Uniform Commercial Code Section 9503(a)(5) regarding how to state the correct name of an individual debtor on the UCC-1 financing statement may be the most controversial changes made to the Uniform Commercial Code. However, the changes made to the section of the Uniform Commercial Code have not been uniform in all fifty states. In several jurisdictions other than California, different alternatives for determining the correct name of an individual debtor for purposes of completing a UCC financing statement were included in this subsection, such as using the individual debtor’s name found on his or her driver’s license. California’s revision to Section 9503(a)(5) is quite short – if the debtor is an individual, the financing statement must provide the individual name of the debtor or the surname and the first name of the debtor. Unlike the approach taken by several other states, California Commercial Code Section 9503(a)(5) does not expressly permit a secured creditor to rely on the name of the debtor as found in his or her driver’s license in ascertaining the correct name of debtor. Unfortunately, the comments to this Code section provide little guidance in terms of ascertaining the correct name of the individual debtor to be used for the financing statement. However, it remains good practice to file multiple financing statements using all possible names for a debtor, especially an individual debtor, including any nicknames that the individual debtor may use.

California Commercial Code Sections 9503(b) and 9503(c) continue to state the general rule that a financing statement that does not provide the trade name(s) of the debtor is not necessarily ineffective although a financing statement that provides only the debtor’s trade name does not sufficiently provide the name of the debtor.

Section 9507(c) – Continuing Effectiveness of a Filed Financing Statement

California Commercial Code Section 9506 has not been revised and continues to provide that a financing statement that fails to include the correct name of the debtor in accordance with California Commercial Code Section 9503(a) is “seriously misleading” and not effective, unless the search of the records of the filing office using the debtor’s correct name would disclose the financing statement that fails to include the correct name of the debtor. California Commercial Code Section 9507(c) now provides that if the name of the debtor found in a filed financing statement “becomes insufficient” and no longer states the correct name of the debtor under California Commercial Code Section 9503(a) so that it becomes seriously misleading under Commercial Code Section 9506(a), the financing statement is effective to perfect a security interest in collateral acquired by the debtor before or within four months after the filed financing statement becomes seriously misleading. However, a financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the filed financing statement becomes seriously misleading, unless an appropriate amendment correcting the name of the debtor is filed within four months after the filing of the financing statement.

Section 9316 – Effective Change in Governing Law.

California Commercial Code Section 9316 has been revised to create a four-month grace period for a secured creditor to perfect its security interest in a new jurisdiction for situations where the debtor relocates to a different jurisdiction. The purpose of this change was to protect secured parties whose lien would immediately become unperfected in after acquired property under previous law if the debtor relocated.

New Form UCC-1 Statements

Please take note that effective July 1, 2014, the office of the California Secretary of State has issued a new form UCC-1 financing statement, which can be found here. Please make sure that you no longer use the previous form UCC-1 financing statement.

Topics:  Article 9, Debtors, Financial Statements, Registration, UCC

Published In: General Business Updates, Finance & Banking Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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