#17 + #18 - Art 9 Financing Statements Flashcards
Art 9 Financing Statements - Debtor Name Context
Filing the financing statement is the key to perfection, but only if that financing statement has the correct info.
If the debtor’s name is incorrect, and whatever the error is makes it seriously misleading, then the financing statement is not effective to perfect the sec interest. And to have prio, must attach and perfect.
Why is the debtor’s name so important? Because getting it correct is the initial method by which creditors (or anyone) can determine if a debtor granted a sec int in their property. For a filing system to be useful, people have to be able to find things.
What is the Debtor’s Name? 9-503
Individual: debtor’s “exact full name” under 9-503(a)(4)
- Alternative A: driver’s license name is “exact full name”
- Alternative B: driver’s license name OR correct legal first name and surname on birth cert is “exact full name”
The correct one to use depends on what the state has adopted. Most chose Alt A. Check 9-503(a)(4) for each state to see which one.
Corporate Entity: any organization registered with the state, bringing it into existence - 9-503(a)(1)
- Use the name on registration certificate
Partnership and “un-register-able” organization:
- Name by which generally known in community. If it doesn’t have a name and it’s a partnership, then file against each one of the partners as individuals using Alt A or Alt B depending on state. - 9-503(a)(5) or (6) (depending on Alt A or B)
Trade Name: do not use! see 9-503(c)
Search Logic
Rule: If the entity filing the financing statement lists the correct name - and only the correct name - the financing statement will be effective. If the name is not totally correct but the filing would still be found under the search logic, the 506(c) safe harbor says it’s not seriously misleading and is effective for perfection.
9-506 offers a safe harbor for debtor name errors that are not seriously misleading. Using the search logic of a state addresses the issue as whether the name change is seriously misleading.
“ending noise” includes examples such as “inc.” or “an iowa corporation” and the search logic is not affected by it.
E.g., Correct Name = Heartland Corporation & the F/S states “Heartland Corporation, an Iowa Corporation”
“As Of” Dates and Basket Time
There is lag because of basket time between the moment the financing statement is filed and the moment the financing statement is indexed. Filing offices must process financing statements from various sources and there is a lag time of minutes, days, or weeks depending. That’s “basket time”.
A search has an “as of” date. When you order a search, it’s “as of” the particular date to account for the fact that some filings are still being processed. You should not disperse money as a creditor to your debtor until you know your sec int will have prio. You want to wait until you can see your financing statement (that you filed along with your search) and all those that came before to confirm you have first prio.
3 Items Required for Financing Statement to be EFFECTIVE under 9-502(a)
1) Debtor’s name
2) Creditor’s name
3) Description of collateral (follows rules for financing statements that differ from those used in security agreement collateral descriptions)
3 Items Required for Financing Statement to be ACCEPTED under 9-516(b)
Filing does not occur if a filing office refuses to accept a filing that does not have the following info, or in other words, 3 other items needed on financing statement for the office to file it:
1) Name and Address of debtor
2) Name and Address of secured party
3) indication if debtor is individual or organization
Other Relevant Provisions
9-502(d) = financing statement may be filed before sec agr or before sec int attaches
9-503 = name of debtor and secured party
9-506 = error of name of debtor or secured party
9-507, 9-508 = changes of name, identity, use (Assignment 23)
9-509 = who can file financing statement; when debtor authenticates security agreement, it authorizes filing by creditor
9-510 = financing statement must be filed by authorized party
9-512, 9-513, 9-515 = amendment to, lapse of, and termination of financing statement
9-517 = indexing error does not affect financing statement effectiveness
9-518 = filing “information statement” to accompany inaccurate or wrongly filed financing statement
9-519 = filing office maintenance of records
9-520(a) = when filing office SHALL refuse to accept financing statement and MAY refuse to accept financing statement
9-520(c) = effect of filed financing statement with incorrect 9-516(b)(5) information (debtor address / individual or organization)
9-338 = financing statement effective against lien holders, but not purchasers for value
When is Perfection Achieved?
Assuming everything is correct in the financing statement and it is effective and has been accepted, then you have accomplished perfection (assuming you have also completed attachment under 9-203).
HOWEVER, if you show up to file your financing statement and everything is correct but the filing office does not accept it, that’s considered EFFECTIVE and considered filed regardless of whether it’s been accepted (and thus it can be effective without even being searchable). However, this creates caveats:
1) Not effective against a purchaser who gives value with reliance under 9-516. 9-338 perfection is called “lien perfected” as distinguished from being fully perfected. This means it’s effective against lienholders (those who are lien-perfected because they are statutory lienholders or judgment lien creditors) rather than holders of Art 9 liens.
What Happens if the 3 Effectiveness Requirements are Not Correct
3 Effectiveness Reqs are:
1) Debtor’s name
2) Secured party’s name
3) Indication of collateral covered
Defects render the financing statement INEFFECTIVE even if filed. 9-502(a)
Secured party’s name must not be seriously misleading. 9-506
Indication of collateral: must not be seriously misleading. 9-506
- Can indicate “all assets” or “all personal property” under 9-504. It’s a notice system. The burden is on the searching party to find which collateral is actually covered.
- Must “reasonably identify” collateral. 9-108
The totality of information included must not be seriously misleading. 9-506
What Happens if the 3 (listed as 4-6) “Accepted” Requirements are not Correct
4) Secured party’s mailing address
5) Debtor’s mailing address
6) Indication of whether debtor is individual or organization
If 4) secured party’s address is incorrect, the consequence varies:
1) if accepted, it’s fully effective
2) if rejected, it’s ineffective and not considered filed
If 5) debtor’s mailing address or 6) debtor individual/org info is incorrect, the consequence varies:
1) if accepted, it is effective but NOT against a purchaser or someone who gives value (not lienholders) with reliance
2) if rejected, it’s ineffective and not considered filed
Authorization to File Financing Statements
Creditors generally file financing statements.
9-509(a) = creditor must obtain authorization from the debtor to file a financing statement prior to filing the statement
9-509(b) = when the debtor authenticates the security agreement, the debtor authorizes the filing of a financing statement covering the collateral described in the security agreement
9-510(a) = if the person filing a financing statement is not authorized to do so, financing statement is ineffective
9-518 = allows victim of a fake financing statement to file an “information statement” that will show up on searches
Sufficiency of Collateral Indication in Financing Statement
For the financing statement to sufficiently indicate collateral, 9-504 says it has to:
1) describe the collateral pursuant to 9-108 (must “reasonably identify” collateral) OR
2) be against “all assets” or “all personal property”. Remember, this is not sufficient for security agreement. 9-108(c)
Summary of What is Included in Financing Statement
(1) name of debtor;
(2) name of secured party (or representative)
(3) indication of collateral covered
(4) mailing address of secured creditor
(5) mailing address of debtor
(6) indication as to whether the debtor is an individual or some kind of organization.
9-502(a)(1)-(3): NECESSARY TO MAKE THE F/S EFFECTIVE (I.E., SUFFICIENT)
9-516(b)(4)-(6): NECESSARY FOR THE F/S TO BE ACCEPTED BY FILING OFFICE
What does it mean to be “lien perfected?”
Lien perfection occurs when an effective and should-be-accepted F/S is wrongly rejected by the filing office; it does not give public notice as a result.
The result is perfection against lien creditors. Limited effectiveness filings are effective against lien creditors, bankruptcy trustees, and other who are lien-perfected but NOT against purchasers who give value and act in reasonable reliance on the incorrect information.
F/S and After-Acquired Property
F/S do not need to include AA clauses as it reaches AA property if it is the type of property described in the F/S.
