This question arises under UCC Article 9 and the requirement that a debtor named on a financing statement must be listed with particular specificity and attention to detail. If a debtor’s name is misspelled or otherwise incorrectly listed, even a relatively minor difference can result in significant losses for a lender.
When a dispute arises over the sufficiency of an individual debtor’s name on a financing statement, courts apply the ‘seriously misleading’ standard to determine whether the financing statement complies with UCC Article 9-506, which provides that “[a] financing statement substantially satisfying the requirements of this part is effective, even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.”
One test for determining whether errors or omissions render a financing statement seriously misleading is found in UCC Article 9-506(c):
If a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9-503(a), the name provided does not make the financing statement seriously misleading.
The comments to Section 9-506(c) further clarifies that a financing statement has no effectiveness if it is found to be “seriously misleading” under Section 9-506 even if the existence of the financing statement was discoverable by (i) using a search logic other than that of the filing office to search the official records, or (ii) using the filing office’s standard search logic to search a data base other than that of the filing office.
In other words, actual notice of or discovery of the financing statement and purported security interest does not give validity to a financing statement that is “seriously misleading.”
If you are a lender or other secured party with concerns about financing statements or priority of liens, contact Glass & Goldberg. The attorneys at Glass & Goldberg are committed to helping you minimize risk and manage uncertainty, and can help structure your policies and procedures to meet your goals.
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