Financing Statements Under Revised UCC Article 9
Revised Article 9, effective in Wisconsin as of July 1, is a major
revision of the law governing the creation and perfection of security
interests in personal property. Some of the significant changes to the
financing of transactions secured by personal property affect filing and
searching for financial statements, including the place of filing, the
debtor's name, and the open-drawer filing system.
by Emory Ireland
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Emory Ireland, Stanford 1969, is a partner in Foley & Lardner,
and chairs the firm's practice group for financial institutions and
finance. He has chaired the State Bar's Standard Forms of Legal Opinions
Committee and the Subcommittee on Revised UCC Article 9. He is a member
of both the Wisconsin and Illinois bars.
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Revised Article 9 of the Uniform Commercial Code has been signed into
law in Wisconsin as 2001 Wisconsin Act 10, effective July 1, 2001. It
also has been enacted in all 49 other states and the District of
Columbia, which will help avoid conflict of law issues between states;
however, Connecticut has delayed the effective date to Oct. 1, 2001, and
Florida, Alabama, and Mississippi have delayed the effective date to
Jan. 1, 2002. Revised Article 9 is a major revision of the law governing
the creation and perfection of security interests in personal property,
and will require significant changes in some of the most basic aspects
of financing transactions secured by personal property.
This article discusses some of the basic rules for filing and
searching for financing statements under revised Article 9, with an
emphasis on the place of filing, the name of the debtor, and the
open-drawer filing system.
Place of Filing
If the debtor is an individual, the financing statement should be
filed in the jurisdiction of the debtor's principal residence.1
If the debtor is a "registered organization," the filing must be made
in the state of organization, even if the organization goes into bad
standing or is dissolved.2 The term "registered
organization" is defined as: "an organization organized solely under the
law of a single state or the United States and as to which the state or
the United States must maintain a public record showing the organization
to have been organized."3 Thus, the term "registered
organization" generally includes corporations, limited liability
companies, and limited partnerships. There are special rules for
national banks, other creatures of federal law, and branches and
agencies of foreign banks.4 Note that Delaware has a
nonuniform variation.
For example, if the debtor is a Delaware corporation, the financing
statements will be filed in Delaware. This should eliminate the need for
multiple filings in large, multi-state transactions. Of course, the
secured party must keep track of changes in the state of organization.
If the state of organization changes, the secured party will have one
year to discover the change and refile as to a new debtor, but only four
months as to the original debtor.5 Secured parties will
want to obtain certified copies of the articles of incorporation or
other formation documents both to confirm the appropriate state for
filing and to confirm the correct name to include on the financing
statement.
What if the debtor is a trust, general partnership, or other
organization that is not a "registered organization"? If the debtor has
only one place of business, financing statements are filed in the state
where the place of business is located.6 If the debtor
has more than one place of business, the financing statements are filed
where the chief executive office is located.7
In the case of trusts, it apparently is necessary to apply the
location rules to the "owner" of the trust assets as determined by state
law. If (as seems likely) the trust is the "owner" of the trust assets,
the question is where the trust itself is located. If the trustee is the
"owner" of the trust assets, the question is where the trustee is
located.
What about foreign debtors? If the debtor is located in a
jurisdiction that does not provide a system for filing or recording
security interests, the financing statements should be filed in the
District of Columbia.8
Name of Debtor
General. The debtor's correct name is the key to the
new media-neutral filing regime. The goal is to permit electronic
filings and electronic searches. A financing statement that fails to
provide the debtor's correct name is treated as being seriously
misleading, unless it would show up in a search under the debtor's
correct name using the filing office's standard search logic.9 Trade names are not required, and are not sufficient.10 A financing statement can provide the name of multiple
debtors and multiple secured parties.11 It is not
necessary to indicate that a secured party is acting in a representative
capacity.12
The debtor's name generally must be exact, but the search logic
established by the Wisconsin Department of Financial Institutions does
permit some leeway. For example: no distinction is made between upper
and lower case letters; spaces are disregarded; punctuation marks and
accents are disregarded until further notice on the department's Web
site (www.wdfi.org); the word "the" at the beginning of the name is
disregarded; and words such as "inc." or "corporation" are disregarded
if they appear at the end of the name.13 These words
are not disregarded and must be exactly correct if they appear at the
beginning or in the middle of a name. For example, the word
"corporation" would be disregarded in the name "XYZ of Wisconsin
Corporation," but not in the name "XYZ Corporation of Wisconsin."14
If the debtor's name changes, the financing statements remain
effective for collateral the debtor acquired before or within four
months after the name change.15 Therefore, lien
searches must cover prior names. The financing statement is not
effective as to collateral acquired more than four months after a
debtor's name change.16 So, the secured party must
monitor name changes. The secured party also must be alert to transfers
of collateral to a new debtor.17
Individuals. It may be particularly difficult to
determine the correct name of an individual. Some secured parties may go
to the extent of requiring a copy of a birth certificate or other
official evidence of the individual's name.
Once the correct name is established, how should it be entered into
the financing statement? The administrative rules promulgated by the
Wisconsin Department of Financial Institutions provide some guidance.
For example, titles and prefixes such as "Doctor," "Reverend," "Mr.,"
and "Ms." should not be entered.18 Similarly, titles
or indications of status such as "M.D." and "Esquire" are not part of an
individual's name and should not be provided.19 But
suffixes that indicate which individual is being named, such as "Sr.,"
"Jr.," "I," "II," and "III" are appropriate.20 Middle
names or initials should be included, because it is not clear that a
financing statement with just the first and last names would be found by
a search request that included a middle name or initial.21 In any event, the financing statement must clearly
identify the last name.22 If the debtor has only one
name (for example, "Cher"), that name should go in the box for the last
name.23
Registered Organizations. In the case of a
registered organization (for example, a corporation, limited liability
company, or limited partnership), the financing statement must include
the organization's exact legal name as shown "on the public record of
the debtor's jurisdiction of organization which shows the debtor to have
been organized."24 As above, secured parties will want
to obtain copies of the articles of incorporation or other formation
documents to confirm the correct name.
Trusts. If the debtor is a trust, the financing
statement must disclose the name of the trust, not the name of the
trustee.25 This provision apparently was intended to
avoid confusion in situations where banks and trust companies were
trustees of many trusts. The financing statement should provide the name
specified for the trust in its organization documents, or, if no name is
specified, provide "the name of the settlor and additional information
sufficient to distinguish the debtor from other trusts having one or
more of the same settlors."26 It also should indicate,
in the debtor's name or otherwise, that the debtor is a trust or is a
trustee acting with respect to the property held in trust.27 If an existing filing has been made in the name of the
trustee instead of the name of the trust, it may be necessary to change
the debtor's name when refiling. Delaware has adopted a nonuniform
provision that eliminates the need for this name change in some
situations.28 Note also that filing now is required to
perfect a security interest in a beneficial interest in a trust.29
General Partnerships. If the debtor is a general
partnership, the financing statement should use the partnership's exact
legal name that is specified in the partnership agreement.30 If no specific name is clearly identified, the secured
party should consider requiring an amendment to the partnership
agreement to clearly designate a specific name. Otherwise, it is
necessary to use the names of all partners in the partnership, which can
be burdensome.31
Name of Secured Party. In a syndicated financing
transaction, it is permissible to give only the lead bank's name and
address. There is no need to list the other banks or indicate that the
lead bank is acting in an agency capacity.32
Open-drawer Filing System
Financing Statements. One dramatic change made by
revised Article 9 is that the debtor's signature is no longer required
on a financing statement.33 Nevertheless, a financing
statement is effective only if it is authorized by the debtor.34 If a debtor signs a security agreement, the debtor
authorizes the filing of an initial financing statement covering the
collateral described in the security agreement.35 The
description of collateral as "all personal property" is effective in a
financing statement, but not effective in a security agreement.36 Accordingly, in order to file an "authorized"
financing statement that describes the collateral as "all personal
property," the secured party must either describe the collateral as "all
personal property" in the security agreement, even though that otherwise
is ineffective (and raises an opinion issue), or obtain, in the security
agreement or elsewhere, the debtor's authorization to use "all personal
property" as a description of collateral. The "open-drawer" system means
that a financing statement revealed by a lien search may be ineffective
because it was not authorized by the debtor. Amendments to financing
statements also do not require signatures. Nevertheless, in order for
the amendments to be effective, they must be authorized by the secured
party of record unless the amendments added a debtor or added
collateral.37
Termination statements also do not require a signature, but are not
effective unless they are authorized by the secured party. Nevertheless,
the debtor can authorize the filing of a termination statement if the
secured party is required to file one and has failed to do so, and the
termination statement indicates that the debtor authorized it to be
filed.38 Termination (or amendment) by one secured
party may not affect the financing statement as to the other secured
parties.39 This means that a financing statement may
be effective even though a termination statement has been filed, if the
termination statement was not properly authorized. This will make lien
searches difficult by requiring inquiry into whether termination
statements were properly authorized by the secured party(ies) of
record.
This possible need for inquiry may create administrative problems and
delays in connection with subsequent financing transactions as a new
lender tries to verify that a termination statement filed by a prior
lender was in fact properly authorized by that prior lender. Perhaps
these difficulties could be minimized if secured parties made a practice
of providing to their debtors, whenever a properly authorized
termination statement was filed, a letter addressed "to whom it may
concern" stating that the particular termination statement was in fact
properly authorized. Such a letter would be helpful to the debtor
because it would facilitate subsequent financing transactions. It also
would be helpful to the terminating lender because it would reduce the
administrative burden of future inquiries from new lenders wanting to
confirm that the termination statement was authorized.
Financing Statements Filed Before the Effective
Date
A financing statement filed before July 1, 2001, will be effective
under revised Article 9 as long as it satisfies the requirements of
revised Article 9, and is filed in the jurisdiction appropriate under
revised Article 9.40 If the financing statement is
filed in the correct location under the prior version of Article 9, but
the wrong location under revised Article 9, the financing statement
remains effective until the earlier of the time it would have ceased to
be effective under the prior version of Article 9 (usually five years,
unless properly continued), or June 30, 2006.41 This
means that until June 30, 2006, lien searchers must search both the
filing office appropriate under revised Article 9 and the filing office
appropriate under the prior version of Article 9. Financing statements
filed against transmitting utilities will not expire even on June 30,
2006, unless revised Article 9 would require filing in a different
jurisdiction.42
Continuation of Financing Statements Filed Before the
Effective Date
Financing statements filed before the effective date can be continued
only by filings made in the appropriate state and filing office under
revised Article 9.
A continuation statement effectively continues a financing statement
filed before the effective date if it is timely filed and if revised
Article 9 prescribes the same jurisdiction and the same filing office.43 The continuation statement is effective only if the
financing statement and continuation statement taken together satisfy
the requirements for an initial financing statement under revised
Article 9 with respect to, for example, the sufficiency of the debtor's
name, the secured party's name, and the indication of collateral.44
Otherwise, the filing of a continuation statement after the effective
date will not continue the effectiveness of a financing statement filed
before the effective date.45 Whenever revised Article
9 requires filing in a new jurisdiction or filing office, secured
parties will want to file new initial financing statements to continue
their pre-effective-date filings in order to retain their
pre-effective-date priority. Simply filing a new initial financing
statement in the new jurisdiction is not enough.46 If
the new financing statement does not identify or continue the prior
filings, the priority of the new financing statement will date only from
its date of filing or, if later, the effective date of revised Article
9. The new initial financing statement must:
- satisfy the requirements of revised Article 9;
- identify the pre-effective-date financing statement by indicating
the office where it was filed, the dates of filing, and the file numbers
of the financing statement and the most recent continuation statement;
and
- indicate that the pre-effective-date financing statement remains
effective.47
The new initial financing statement is not a continuation statement,
and may be filed at any time during the effectiveness of the
pre-effective-date financing statement, and not only within the six
months immediately prior to lapse. Accordingly, it could have been filed
before the effective date. The new initial financing statement will have
its own lapse date, which will bear no relation to the lapse date of the
pre-effective-date financing statement that it continues. A single new
initial financing statement may continue the effectiveness of more than
one pre-effective-date financing statement.48 As
discussed above, the filing of a new initial financing statement
identifying prior filings may be crucial to retaining priority over
other secured parties.
Authorization by the secured party of record is sufficient if the
filing is necessary to continue the effectiveness of a financing
statement filed before the effective date or to perfect or continue the
perfection of a security interest.49
Impact of Delayed Effective Date in Other States
As discussed above, some states have adopted revised Article 9 with
effective dates other than July 1, 2001. This raises complex conflict of
law issues for secured parties perfecting security interests prior to
Jan. 1, 2002, when revised Article 9 will become effective in all 50
states. These issues are beyond the scope of this article, but are
addressed in detail by a report by the Permanent Editorial Board of the
Uniform Commercial Code.50
Conclusion
Revised Article 9 makes major changes in some of the most basic
aspects of financing transactions secured by personal property. Its
adoption raises many complex legal and practical issues. Resolution of
those issues will require care and attention from all attorneys involved
in secured financing transactions.
Endnotes
1 UCC Rev. §§
9-301(1), -307(b)(1) (1999); Wis. Stat. §§ 409.301(1),
.307(2)(a)
(as created by 2001 Wis. Act 10).
2 Rev. § 9-307(e), (g);
Wis. Stat. § 409.307(5),
(7).
3 Rev. § 9-102(a)(70);
Wis. Stat. § 409.102(1)(rg).
4 Rev. § 9-307(f); Wis.
Stat. § 409.307(6).
5 Rev. § 9-316(a); Wis.
Stat. § 409.316(1)(b),
(c).
6 Rev. § 9-307(b)(1);
Wis. Stat. § 409.307(2)(b).
7 Rev. § 9-307(b)(2);
Wis. Stat. § 409.307(2)(c).
8 Rev. § 9-307(c); Wis.
Stat. § 409.307(3).
9 Rev. § 9-506(b), (c);
Wis. Stat. § 409.506(2),
(3).
10 Rev. § 9-503(b),
(c); Wis. Stat. § 409.503(2),
(3).
11 Rev. § 9-503(e);
Wis. Stat. § 409.503(5).
12 Rev. § 9-503(d);
Wis. Stat. § 409.503(4).
13 DFI-CCS § 5.04.
14 Id.
15 Rev. § 9-507(c)(1);
Wis. Stat. § 409.507(3)(a).
16 Rev. § 9-507(c)(2);
Wis. Stat. § 409.507(3)(b).
17 Rev. §§
9-507(a), -508; Wis. Stat. §§ 409.507(1),
.508.
18 Wis. Admin. Emergency
Rule, DFI-CCS § 3.03(2) (2001).
19 DFI-CCS §
3.03(3).
20 Id.
21 DFI-CCS §
5.04(7).
22 Rev. §
9-516(b)(3)(C); Wis. Stat. § 409.516(2)(c)(3).
23 DFI-CCS §
3.03(1).
24 Rev. § 9-503(a)(1);
Wis. Stat. § 409.503(1)(a).
25 Rev. § 9-503(a)(3);
Wis. Stat. § 409.503(1)(c)(1).
26 Rev. §
9-503(a)(3)(A); Wis. Stat. § 409.503(1)(c)(1).
27 Rev. §
9-503(a)(3)(B); Wis. Stat. § 409.503(1)(c)(2).
28 Del. Code Ann. tit. 6,
§ 9-703 (2000).
29 Rev. § 9-309, cmt.
7.
30 Rev. §
9-503(a)(4)(A); Wis. Stat. § 409.503(1)(d)(1).
31 Rev. §
9-503(a)(4)(B); Wis. Stat. § 409.503(1)(d)(2).
32 Rev. § 9-503; Wis.
Stat. § 409.503(4).
33 Rev. § 9-502; Wis.
Stat. § 409.502.
34 Rev. §§
9-509(a), -510; Wis. Stat. §§ 409.509(1),
.510.
35 Rev. § 9-509(b);
Wis. Stat. § 409.509(2).
36 Rev. §§
9-108(c), -504; Wis. Stat. §§ 409.108(3),
.504.
37 Rev. § 9-509(d);
Wis. Stat. § 409.509(4).
38 Rev. § 9-509(d);
Wis. Stat. § 409.509(4).
39 Rev. § 9-510(b);
Wis. Stat. § 409.510(2).
40 Rev. § 9-705(b);
Wis. Stat. § 409-705(2).
41 Rev. § 9-705(c);
Wis. Stat. § 409-705(3).
42 Rev. § 9-705(e);
Wis. Stat. § 409-705(5).
43 Rev. § 9-705(d),
cmt. 5; Wis. Stat. § 409-705(4).
44 Rev. § 9-705(f),
cmt. 6; Wis. Stat. § 409.705(6).
45 Rev. § 9-705(d);
Wis. Stat. § 409.705(4).
46 Rev. § 9-706(a);
Wis. Stat. § 409.706(1).
47 Rev. § 9-706(c);
Wis. Stat. § 409-706(3).
48 Rev. § 9-706, cmt.
2; Wis. Stat. § 409.706.
49 Rev. § 9-707; Wis.
Stat. § 409.708.
50 Permanent Editorial
Board Report, June 13, 2001: Article 9 Perfection Choice of Law Analysis
Where Revised Article 9 is Not in Effect in All States by July 1,
2001.
Wisconsin Lawyer
