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Hyper Technical Error In Debtor’s Name Dooms Creditor’s UCC Financing Statement/Lien

Lesson.  If the debtor is an individual, use the spelling of the name as listed on his or her Indiana driver’s license when filing the UCC financing statement.    

Case citeIn re: Nay, 563 B.R. 535 (S.D. Ind. 2017) (pdf).

Legal issue.  Whether a creditor’s inadvertent omission of the letter “t” from the debtor’s middle name invalidated its UCC financing statement.

Vital facts.  In 2014, Plaintiff Mainsource held a blanket security interest in Debtor’s personal property.  In 2015, Leaf loaned money to Debtor to purchase two Dump Wagons (equipment) and filed UCC financing statements with the Indiana Secretary of State to perfect liens on the Wagons.  The UCCs identified the Debtor’s name as “Ronald Mark Nay.”  The Debtor’s name listed on his most recent Indiana driver’s license, however, was “Ronald Markt Nay.”    

Procedural history.   Nay arises out of an adversary proceeding, Mainsource Bank v. Leaf Capital, a lien priority dispute.  The U.S. Bankruptcy Court for the Southern District of Indiana ruled on a motion for judgment on the pleadings filed by Plaintiff Mainsource seeking to invalidate Leaf’s competing security interest.    

Key rules

Ind. Code 26-1-9.1-503(a), a lengthy statutory provision, outlines when a financing statement “sufficiently provides the name of the debtor.”

Ind. Code 26-1-9.1-506 deals with the effect of errors or omissions in financing statements.  The key concept is whether the mistake was “seriously misleading.” 

Much of the Nay opinion involved an analysis of Ind. Code 26-1-9.1-506(c), which is a safe harbor provision that allows creditors to overcome “seriously misleading” mistakes if the subject financing statement “was otherwise discoverable by searching under the Debtor’s correct name using the standard search logic promulgated by the Indiana Secretary of State.”      

Holding.  Judge Basil H. Lorch III granted the pending motion and found that Plaintiff Mainsource was entitled to judgment as a matter of law.  Leaf’s security interest was unperfected.  Mainsource held the first priority security interest in the Dump Wagons.

Policy/rationale

The difference between “Mark” and “Markt”, especially in a middle name, would not seem to be a “seriously misleading” error.  However, under Section 503(a), if the debtor has a driver’s license, a financing statement must provide “the name of the individual which is indicated on the driver’s license.”  By definition, therefore, Leaf’s misspelling was seriously misleading.

The Court addressed whether the financing statement was nevertheless discoverable using “standard search logic.”  Maybe it was.  But, in the end, and even after noting that the result seemed “harsh,” the Court still felt compelled to strictly adhere to the operative statutory language requiring the name of the Debtor to be the name set out on his Indiana driver’s license.    

Related posts.     

What Is A “Purchase Money Security Interest”?

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I often represent parties in commercial loan enforcement cases and lien priority disputes.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. You also can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted to your left.

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