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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
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