UCC Update – Don’t Space Out on UCC-1s

by Hodgson Russ LLP
Contact

Hodgson Russ LLP

It is impossible to understate the importance of using the correct name (and we mean the exact, correct name!) of the debtor on a UCC Financing Statement, and the dire consequences of getting that name wrong.  A recent case from Wisconsin reminds us why.

United States SEC v. ISC, Inc.

In United States SEC v. ISC, Inc. (No. 15-cv-45-jdp. United States District Court, W.D. Wisconsin), creditor Double Bubble, Ltd. filed a UCC financing statement with the debtor’s name written as “ISC, Inc ̲ .”  There was a mistaken space between “Inc” and “.” As the court noted, “[t]he extra space was surely inadvertent, but it prevented the Double Bubble financing statement from showing up on a search of the accurate legal name of ISC, Inc.”  The result?  Double Bubble was determined to be an unsecured creditor. 

“Seriously Misleading” and Safe Harbor

The court, quoting the Wisconsin enactment of UCC 9-506(a), stated that a financing statement is effective “even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.”  To test whether the financing statement was seriously misleading, the court, applying the test set forth in UCC 9-506(c), looked at whether a search of the records of the filing office under the debtor’s correct name and using the filing office’s standard search logic would disclose the financing statement.   Unfortunately for Double Bubble, the search logic employed by Wisconsin Department of Financial Institutions prevents a search using the debtor’s correct name (“ISC, Inc.”) from finding Double Bubble’s UCC financing statement with the extra space before the period.  It did not matter that a different search, a search simply for “ISC” with no punctuation or corporate designation, would have found Double Bubble’s UCC financing statement.

What is the correct name? 

This case is a stark reminder that using the correct debtor’s name is critical.  But what exactly is the correct name?  For a registered organization (i.e., corporation, LLC, partnership or statutory trust), UCC section 9-503(a)) prescribes that the correct name for a debtor on a UCC financing statement is the name given to the debtor in its certificate of incorporation (or like publicly filed organizational certificate, as amended).  Do not rely on a good standing certificate, the secretary of state’s website or on internal documents, like by-laws or an operating or partnership agreement, to determine the debtor’s name.  This case also reminds us that there is no uniformity in the search logic among the states, and the search logic employed by some jurisdictions is incredibly unforgiving.  The only way to be safe in all states is to get the certificate of incorporation (or comparable document) and make sure that the financing statement matches exactly – including capitalization, punctuation, and as the Double Bubble case shows us, spacing. 

How to check yourself? 

We can’t help but think that a post-filing UCC search might have saved Double Bubble’s bacon.  Though not foolproof, a post-filing search is the best way to confirm that the filed financing statement was indexed correctly and can be found by the search logic.  If a search of the records under the debtor’s correct name does not disclose the filed financing statement any error in the debtor’s name in the financing statement or any indexing error should be immediately corrected.

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.

© Hodgson Russ LLP | Attorney Advertising

Written by:

Hodgson Russ LLP
Contact
more
less

Hodgson Russ LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.