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The 2013 UCC Revised Article 9 Amendments Are Almost Here – Have no Fear! Part Five: Naming an Individual as a Debtor, Options A and B Explored

UCC, Revised Article 9

The 2013 amendments to Revised Article 9 of the Uniform Commercial Code (RA9) are set to go into effect in only a few short months. FCS has started a blog series to break down the major points of the 2010 amendments and help eliminate some of the anxiety UCC filers may be feeling about the changes.

Last week, we discussed what many consider the most welcome and most broadly applicable change included in the proposed amendments:  changes to UCC Section 9-503 (a)(4)(A) which establishes new rules and clear-cut instructions for naming individual debtors on UCC Financing Statements.

To recap, as RA9 is written today, it offers little guidance on how to determine the exact name for an individual debtor, stating only that a UCC Financing Statement sufficiently provides that name of an individual debtor if it lists the “name of the debtor.” The drafters of the proposed amendments seek to remedy the situation by offering states two choices relating to the naming of individual debtors.

Alternative A, the “only if” option, essentially forces secured parties to identify individual debtors using the name as it appears on their driver’s license or state-issued identification card. Alterative B, the “safe harbor” option, provides greater flexibility, offering equal protection for secured parties who list a debtor’s name as it appears on a driver’s license as for those who list a “personal name” or “surname and first personal name.”

Please refer to our blog post here  for more detailed information.

State legislatures must choose from the two alternatives and adopt the option that they believe will best meet the needs of UCC filers under their jurisdiction. So, how do they make their choice? What are some of the arguments for and against each alternative?

On the surface, Alternative A may seem like an easy choice. It would appear to give UCC filers a concrete answer as to what constitutes the legal name for an individual debtor and even gives a specific, tangible source for obtaining it – simple, clear and effective, right? But wait, what happens if a person legally changes their name, gets married, or gets divorced? There is no requirement that a person change their name on their driver’s license when these events occur. And even if they did change their name on their driver’s license, there is no way for secured parties to monitor DMV data to keep their UCC’s up-to-date. What if there is a typographical error on their driver’s license? These questions and many more are not resolved within the text of Alterative A. Somewhat surprisingly, the “only if” approach still leaves secured parties with a surprising amount of ambiguity when naming their individual debtors.

Alternative B would likely be attractive to secured parties as they carry out the task of filing UCC Financing Statements since it offers them wide latitude when naming their individual debtors.  Greater flexibility in naming individual debtors is great for secured parties during the filing phase of a deal, but what about when they are performing their pre-funding due diligence to discover any existing claims? The “safe harbor” option does nothing to help secured parties determine what name to search. Just as it is today, under Alternative B, searchers will need to perform their UCC Searches with the intention of discovering and revealing all potential name variations for ultimate accuracy.

Readers, we want to hear from you! What are your thoughts? How will this amendment change the way you manage, monitor and/or file your UCC’s?

Check back next week for a more detailed discussion of the 2010 amendments to Revised Article 9!

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