What this is: The Uniform Commercial Code (UCC) drafters amended the debtor name section of Article 9 and added the ‘driver's license rule’ over a decade ago.
What this means: This rule was intended to provide secured parties with clear guidelines on how debtor names must be written on financing statements in the US. Read along to find out the consequences of two secured parties who did not do their due diligence and follow the rule.
It has been over a decade since the Uniform Commercial Code (UCC) drafters amended the debtor name section of Article 9 to add what is known as “the driver’s license rule". Specifically, under alternative A of section 9:503(a)4, which is the rule in most states, “when a debtor is an individual to whom the State has issued a driver’s license that has not yet expired,” the debtor’s name on the UCC financing statement is sufficient “if the financing statement provides the name of the individual which is indicated on the driver’s license.” Yet, as two recent cases show, there are secured parties that are still not following the driver’s license rule and, as a result, are losing their priority.
The courts in In re Preston, 612 B.R. 770 (2019 Bankr. LEXIS 3864) and In re Bryant, 630 B.R. 671 (2021 Bankr. LEXIS 1528) both held that the secured parties’ financing statements were seriously misleading and ineffective because they did not state the individual debtors’ names as they appear on their driver’s licenses, and a search under the debtors’ names as they appear on their driver’s licenses did not uncover those financing statements. Let’s take a closer look at what went wrong for the secured parties in these cases.
Not Sure Which is the Middle Name? File Against All Variations!
In Preston, the debtor’s name on his driver’s license is “Preston D Dennis”. The secured party filed two UCC-1 financing statements with the Kansas Secretary of State. Both financing statements indicate the debtor’s last name as “Preston” and his first name as “D.Dennis”, with no middle name. A search of the Kansas Secretary of State’s records under the debtor’s name as it appears on his driver’s license and using the state’s standard search logic (a requirement for uncovering all legally sufficient financing statements), did not uncover either of the secured party’s financing statements. Therefore, both financing statements were found seriously misleading and the security interests were unperfected.
"It is not difficult or burdensome for a lender to review the name on a borrower's driver's license"
The Preston court said it best, “it is not difficult or burdensome for a lender to review the name on a borrower’s driver’s license and correctly complete the UCC-1 using that name.” Now, that is generally true, but Preston has a bit of a twist, or at least that’s what the secured party argued. The secured party said there was nothing on the debtor’s driver’s license to indicate which order the name is in, that is, which was the first, last and middle name. But the court, unpersuaded, reminds us: “if there is a question about the name stated on the license, or an ambiguity, the [Article 9] commentary suggests filing under more than one name.”
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Inconsistent Search Logic from State to State for Middle Names vs. Initials
Failure to get the individual debtor’s name right surfaced again in I In Re Bryant, 630 B.R. 671 (2021 Bankr. LEXIS 1528). This time, the debtor’s name on his driver’s license is “Darren Eugene Bryant”. Yet, the secured party filed its UCC1 financing statements at the Georgia SCCCA with the debtor names “Darren E Bryant” and “Darren E. Bryant”. A search of the Georgia SCCA’s records under the debtor’s name as it appears on his driver’s license and using the state’s standard search logic did not uncover the secured party’s financing statements. And, the Bryant court, like the Preston court, found the financing statements to be seriously misleading and the security interests to be unperfected.
Now, it may be surprising that a search under the full middle name did not uncover filings with just the middle initial. In some, but not all other states, searching “Darren Eugene Bryant” with the standard search logic might uncover “Darren E. Bryant” and “Darren E Bryant”. But that is not the case with Georgia’s standard search logic. This underscores that you cannot assume there is uniform search logic among all of the states or count on search logic to save you when you did not get the debtor name right on your financing statement.
Important Lesson for Secured Parties and Their Counsel
As these two cases demonstrate, secured parties with individuals as debtors must remember to follow the Article 9 rules when naming the debtor on a UCC financing statement. This means, for states that adopted alternative A, indicating the individual debtor’s name on a UCC filing exactly how it appears on an unexpired driver’s license issued in that state. Failure to do so can result in a seriously misleading financing statement and an unperfected security interest. So, if there is any ambiguity, such as which name on the driver’s license is the middle name, consider filing under multiple debtor names.
Do I need to include all the debtor or secured party information on the debtor or secured party name or address changes?
Most states treat debtor or secured party name or address changes as “new parties” for the purpose of indexing the filing in their records. Therefore, all the debtor or SP information needs to be filled out or the filing may be rejected. For example, if you are filing a debtor address change, you also need to include the name of the debtor. Some filers enter only the information that is changing — probably because the UCC3 form directions seem to indicate that approach.
Do UCC3s filed in all states require the debtor name?
There are several states that require the debtor’s name on a UCC3 regardless of the type of amendment. We recommend that you put the debtor’s name in Box 10 (Optional Filer Reference Data) except in GA and RI, which prefer that the name be listed in Box 6.
Note that Florida and Montana also require the secured party’s name on UCC3 filings. Refer to our help piece on “Non-Uniform UCC3 Requirements Under Article 9” for these and other state specific UCC3 requirements.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.