What is in A Name Redux – Recent Case Law Interpreting the Requirement for Correctly Stating the Name of an Individual Debtor under Revised UCC Section 9503

by Ervin Cohen & Jessup LLP
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In perhaps one of the first decisions applying the recent amendment to Uniform Commercial Code  Section 9-503 regarding the correct name for an individual to be used on a UCC-1 financing statement, an Indiana Bankruptcy Court decided, in the case of In re Nay, 563 B.R. 535 (S.D. Indiana 2017),  that the secured lender must use the exact name of the individual as found on the individual’s driver’s license, even if the error in the spelling of the debtor’s name was “minor” and not “seriously misleading.”

The Nay case involved a dispute between two secured creditors, Leaf Capital Funding, LLC (“Leaf”) and MainSource Bank (“MainSource”) as to the priority of each of the secured parties’ security interests in certain equipment owned by the debtor.  The name of the debtor as found in his driver’s license was Ronald Markt Nay.  Although  MainSource correctly included the name of the debtor as found in his driver’s license, Leaf’s financing statement identified the debtor as Ronald Mark Nay.  The Nay Court held that Leaf’s financing statement was not enforceable due to the discrepancy in the spelling of the debtor’s middle name as found in his driver’s license, as compared with the spelling of the debtor’s name as found in Leaf’s financing statement.

Leaf did not contest that the spelling of the debtor’s middle name as found in its financing statement was different than that found in the debtor’s driver’s license.  Instead, applying UCC Section 9-506, Leaf argued that its financing statement was valid even if it had “minor errors” because it was not “seriously misleading.”  Although Leaf’s position was correct that UCC Section 9-506 provides that “minor errors or omissions” do not invalidate a financing statement unless it is “seriously misleading”, the Nay court rejected Leaf’s contention.  Instead, the Nay Court strictly applied Section 9-503 of the UCC which provides that if the debtor is an individual that has been issued an unexpired driver’s license, the financing statement is valid “only if” it provides the name of the debtor as set forth in the debtor’s driver’s license.

Despite being a harsh result, I believe that the Nay Court correctly applied Section 9-503 of the UCC.  Please also be advised that because Section 9-503 of the California Commercial Code also has the “only if” language relied upon by the Nay Court to reach its result, the reasoning of the Nay case may be directly on point should this issue arise  with respect to a financing statement filed under California law.

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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