The Rise of State-Specific Attempts to Decipher the Sufficiency-of-a-Debtor-Name Standard under Revised Article 9 and the End of Uniformity in Secured Transactions

Abstract

On July 1, 2001, Revised Article 9 of the Uniform Commercial Code (“UCC”) became effective in most United States jurisdictions. With nationwide adoption after only three years, Revised Article 9 successfully improved the certainty, objectivity and uniformity of secured transactions in many respects. In one critical area, however, uncertainty and confusion continues to exist. Specifically, Section 9-503(a) fails to provide any meaningful guidance on how to comply with the requirement that a financing statement contain a sufficient debtor name. Because of the substantial ambiguity surrounding the standard for determining sufficiency of individual names and, to a lesser extend, registered organization names, the UCC filing and search system fails to provide adequate commercial certainty to parties engaging in secured transactions. UCC filers must use their best judgment in identifying and providing a sufficient debtor name for purposes of filing a financing statement, giving notice of a security interest and perfecting that security interest. Likewise, those searching for recorded financing statements have little assurance that a search using a particular debtor name will reveal all pre-existing security interests. Because of the uncertainty, filers and searchers often resort to filing multiple financing statements and conducting numerous searches to mitigate the risks. Even so, courts are all too often called upon to resolve disputes between competing secured parties that have both filed financing statements covering the same collateral. Unfortunately, the utter lack of a definitive standard for sufficiency of a debtor name also handicaps the ability of courts to consistently interpret and apply Section 9-503(a).

Despite years of frustration with the deficiencies in the sufficiency of a debtor name standard, state legislators have only recently sought to address the problem. Following Texas’s lead, several states, including Tennessee, Nebraska and Virginia, have enacted non-uniform amendments with the aim of offering greater certainty for filers attempting to provide a sufficient debtor name. While these attempts at improving commercial certainty are admirable, the prevalence of state-specific legislation to address the failures of Section 9-503(a) portends the doom of uniformity in secured transactions across jurisdictions. Therefore, this article (1) argues that a uniform amendment is both long over due and necessary to ensure certainty and uniformity in secured transactions, and (2) advances a framework for such an amendment that adopts a statutorily mandated “exclusive source” for determining a sufficient debtor name for both individuals and registered organizations. With a clear-cut standard in place, filers and searchers can both rely with certainty on what debtor name should be used in connection with filing and searching financing statements, which increases the effectiveness of the UCC notice filing system and the ability of courts to appropriately and consistently allocate the risk of noncompliance between filers and searchers.

Keywords: UCC, Uniform Commercial Code, Article 9, financing statement, perfection, debtor name