If the Name Is Bubba Youd Better Spell It Right

Journal Issue

Jun 2006

Column Name

Lien on Me

Citation

ABI Journal, Vol. XXV, No. 5, p. 24, February 2006

Topic Tags

Practice and Procedure

Uniform Commercial Code/Article 9

Journal HTML Content

Even as the fifth anniversary of the effective
date of Revised Article 9 in most states approaches, a number of
issues remain open to argument. Several recent cases have addressed
two issues—a debtor's legal name and when Revised Article 9
applies to a pre-Revised Article 9 transaction. One issue, an
individual's legal name, was recently the subject of a definitive
ruling by the Kansas Supreme Court. The Name Is the Game
Over the years, the appellate courts have dealt with an endless
variety of name issues involving UCC filings. Revised Article 9
attempted to deal with name issues in 9-506 and 9-307(c), among other
sections. The effort, along with the many articles published in
connection with the enactment of Revised Article 9, seems to have
succeeded in taming the often uncertain rules of decisional law under
old Article 9. In perhaps the most comprehensive discussion to date
involving name problems, the Kansas Supreme Court adopted clear rules
for identifying individual debtors in UCC filings.1
(Hereafter, Pankratz)2 The facts of the case are
deceptively simple. Rodger (note the "d"—it's
important) House purchased a piece of farm equipment and granted the
seller, Pankratz Equipment, a purchase-money security interest in
1998. He signed a financing statement and security agreement, both of
which correctly spelled his name "Rodger." Pankratz assigned
the note and security agreement to John Deere and Co. In filling out
the financing statement, John Deere listed the debtor's name as
"Roger House" (despite the clear signature reading
"Rodger" and the correct name on the security agreement) and
filed it with the Kansas Secretary of State. In 1999, House borrowed
from Citizens National Bank and granted it a blanket security interest
in all his farm equipment. The bank filed a financing statement
correctly spelling the debtor's name as "Rodger." Note that
all the operative events took place before the effective date of
Revised Article 9 in Kansas. More about that later. House eventually
filed for bankruptcy; both creditors obtained relief from the stay and
liquidated the equipment and escrowed the proceeds. John Deere
reassigned the note to Pankratz, which then sued the bank claiming that
its prior-in-time filing gave its security interest priority. The
state district court granted summary judgment to Pankratz on the
theory that the missing "d" in Rodger was a minor error and
not seriously misleading under the Uniform Commercial Code. The bank
appealed to the Kansas Court of Appeals, which reversed.3

The Kansas Supreme Court granted a petition for review. Summary of
Ruling The Supreme Court, in a unanimous decision, affirmed. In
the syllabus drafted by the court, it set out several principles:
• The "standard search logic" referred to in K.S.A.
2003 Supp. 84-9-506(c) adopted by regulation by the Kansas Secretary
of State is the official and only search that determines whether a
name is seriously misleading under K.S.A. 2003 Supp.
84-9-506.4 • A filed financing statement
substantially satisfying the requirements of K.S.A. 2003 Supp.
84-9-506 is effective, even if it has minor errors or omissions,
unless the errors or omissions make the financing statement seriously
misleading. • K.S.A. 2003 Supp. 84-9-503, as well as a
reading of the UCC as a whole, leads to the conclusion that an
individual debtor's legal name must be used in the financing statement
to make it sufficient under K.S.A. 2003 Supp. 84-9-502(a)(1). 
• The requirement that a financing statement provide the debtor's
name is particularly important, and the actual individual or
organizational name of the debtor on a financing statement is
required. • K.S.A. 2003 Supp. 84-9-506(a) is in line with
the policy of Article 9 of the Uniform Commercial Code to simplify
formal requisites and filing requirements. It is designed to
discourage the fanatical and impossibly refined reading of statutory
requirements in which courts occasionally have indulged themselves.
 • Subsection (b) contains the general rule: A financing
statement that fails sufficiently to provide the debtor's name in
accordance with §9-503(a) is seriously misleading as a matter of
law. Subsection (c) provides an exception where a search in the
debtor's correct name discloses the flawed filing. • The
intent of the filing requirements of Revised Article 9 of the Uniform
Commercial Code is to shift the burden of filing correctly onto the
filers and to allow searchers to rely on one search under the correct
legal name of the debtor. While the Supreme Court did not define
"legal name," it made clear that a misspelling of Rodger as
Roger is not the debtor's name. It could have stopped there, but it
did not. It went on to state that the Tenth Circuit BAP got it right
in holding that a filing listing the debtor's nickname "Terry"
was insufficient where the debtor's name was
"Terrence".5 The trick is going to be determining
when a name is the debtor's legal name. To Claim Priority, the
First-to-File Creditor Has to Get the Name Right The ruling
places the burden squarely on the creditor to get it right. However,
if, as debtor's counsel, you are giving an enforceability opinion, you
may have to ascertain the legal name of the debtor. Registered
entities such as corporations, limited partnerships or other limited
liability companies must use the exact name as listed on the records
of the state office in which it is registered.6 With
individuals, the creditor's problem is more difficult since the case
clearly only holds that a misspelling is not the legal name, no matter
how close. By adopting the Tenth Circuit BAP ruling in

Kinderknecht, the court implied that a nickname
filing—even one derived from the legal name—is insufficient.
But there is no bright-line definition of legal name for an
individual. Problems abound: It is impossible to even list the
variations of names that people adopt or are given at birth. Marriage
often results in one—or lately both—of the parties
changing their name without much in the way of formalities. And of
course, Hollywood abounds with various stage names, including a certain
debtor recently before the Supreme Court. The creditor may require
proof of the debtor's name. The question as yet unanswered is this:
What can the creditor accept as "proof" of the debtor's
name? In In re Asheboro Precision Plastics Inc., (Miller v. Van
Dorn Demag Corp.), 2005 WL 1287743 (Bankr. M.D.N.C. 2005) (cited
by the court in Pankratz), the bankruptcy court held that a
creditor's reliance on the president's representation that a trade
name was the actual name of the corporation was not sufficient to save
a filing against the trade name. It allowed the trustee to avoid Van
Dorn's security interest, even though it appeared that the debtor's
president had misled it about the corporate name. Van Dorn actually
knew the correct name, but filed in the trade name anyway. In passing,
the North Carolina bankruptcy court cited In re Kinderknecht,
supra, with approval for its statement that Revised Article 9
was intended to "foreclose fact-intensive tests, such as those
that existed under the former Article 9 of the UCC, inquiring into
whether a person conducting a search would discover a filing under any
given name."7 In In re FV Steel and Wire Co.,
310 B.R. 390, (Bankr. E.D. Wis. 2004), the court held that another
trade name filing was insufficient under Revised Article 9 even though
the trade name and the legal name of the debtor were similar. Keystone
Steel and Wire Co. was the trade name of Keystone Consolidated
Industries Inc. Under former Article 9, one line of authority would
have required a generic search for the name "Keystone,"
which might have disclosed the trade name filing under the old search
methods (which generally involved a physical inspection of the actual
paper filings!).8 Although Thriftway is
"unpublished," it contains a comprehensive discussion of the
search problem involving similar names and case law under old Article
9. It and cases like it were prime factors in the revisions to former
Article 9 relating to entity names. Unfortunately, individuals do
not come with registered names, and names change for a variety of
reasons, some of them legal.9 A birth certificate, social
security card or court order changing the debtor's name is probably
the best evidence. But even drivers' licenses and tax returns
occasionally have nicknames and need verification. Where one spouse
adopts the last name of the other upon marriage, the marriage license
may be necessary. By analogy to Asheboro Precision Plastics,

supra, just because an individual has used a nickname
"Bubba" or "Junior" since he was three years old
does not make that his legal name. Suffixes such as "SR" or
"JR" or "III" are ignored by the search logic and
should not affect validity. Pankratz unequivocally puts the
burden on the creditor to get the individual name right and does not
seem to leave open any excuses for error. The Revised Article 9 is a
bit clearer as to registered entities, but it remains essential that
the name be listed in the UCC filing exactly as it is registered with
the state office charged with registering organizations in the state
of incorporation.10 The search logic used by any
particular state filing office is a matter of state law (and, to some
extent, a legacy of prior computerized databases), so you cannot
automatically assume that a filing that is effective in one state will
be effective in another state because of differences in search logic.
While Revised Article 9 attempted to specify a single correct filing
location, multiple filings may remain a simple insurance against a
change in registration or place of business. Does Revised
Article 9 Apply? Pankratz dodged the issue of whether old
Article 9 rules apply to priority issues arising after the effective
date, since the appellee raised the issue for the first time on appeal
after review was granted by the Kansas Supreme Court. In In re
Nittolo Land Development Association, 333 B.R. 237, 58 UCC Rep.
Serv. 2d 313 (Bankr. S.D.N.Y. 2005), the court held that Revised Article
9 controlled even though the secured transaction antedated the
effective date of Revised Article 9, citing 9-702. The court
then reserved for future decision the effectiveness of a financing
statement listing the debtor as "Nittolo Land Development
Associates Inc.," whereas the corporation's registered name was
"Nittolo Land Development Association Inc." Since the
parties apparently did not address the effect of Revised Article 9 on
the error, the court did not reach the issue for decision. It might be
noted that the model search logic that has been adopted in many states
with modifications would not find the filing against
"Associates" in a search of the legal name, since it is not
an exact match. Finally, in In re FV Steel and Wire Company,
supra, the court applied Revised Article 9 logic to an old Article
9 transaction and concluded that a filing against a trade name was
ineffective to perfect a security interest. In a transaction concluded
shortly before the effective date of Revised Article 9, the secured
creditor PSC filed a financing statement against the name "Keystone
Steel & Wire Co.," whereas the debtor's legal name was
"Keystone Consolidated Industries Inc." PSC was aware of the
legal name, but for unexplained reasons, filed in the trade name. PSC
argued that under old Article 9, a search for "Keystone"
standing alone would have disclosed the filing (along with several
hundred other filings that began with that word). The court did not
discuss the version of the search logic used by the filing office, but
under the model logic, a search for "Keystone" standing
alone would not have produced the same results. Even though the case was
ostensibly decided under old Article 9 rules, the court looked to
Revised Article 9 and the many articles on the name issue published
around the time of the effective date. Conclusion While

Pankratz provides broad guidance in that it rules out
misspellings of individual names (and in dictim, suggests that
nicknames are insufficient), it does not provide a bright-line rule on
exactly how a creditor determines an individual debtor's legal
name for filing purposes under the UCC. Creditors are left to sort the
problem out on a case-by-case basis.
<blockquote><blockquote> </blockquote></blockquote><hr><h3>Footnotes</h3>
1 Pankratz Implement Co. v. Citizens National Bank, 130 P.3d 57
(March 17, 2006). In the interest of full disclosure, the authors
represented the Citizens National Bank in Pankratz. 2
The opinion is available free online at www.kscourts.org/kscases/
supct/2006/20060317/91721.htm. The court affirmed the appeals court
decision reported at 33 Kan.App.2d 279, 55 UCC Rep.Serv.2d 245 (2005).
3 Pankratz Implement Co. v. Citizens Nat'l. Bank, 33
Kan.App.2d 279, 102 P.3d 1165 (2004). 4 The Kansas Secretary of
State has adopted a slightly modified version of the model search
logic promulgated by IACA. See K.A.R. 7-17-21 and 7-17-22.

5 In re Kinderknecht, 308 B.R. 71 (10th Cir. BAP 2004).
6 Some states assign an organizational ID number to registered
entities, and that number should be included in UCC 1 financing
statement filings in both the state of incorporation and in other
states where the debtor has assets. See 9-521 and the
instructions for filing out the official form. While failure to
include the ID number may not be fatal, it presents an opportunity for
litigation that is easily avoided by including the number at the outset.
7 308 B.R. at 74, quoted at 2005 WL 1287743, p. 11.
8 See, e.g., In re Thriftway Auto Supply Inc.,
(Citizens National Bank & Trust Co. v. Star Automotive
Warehouse Inc.), 39 F.3d 1193 (Table), 1994 WL 637047, 25 UCC
Rep.Serv.2d 982 (10th Cir. 1994). 9 The musician formerly and
presently known as "Prince" presumably has a legal name but
for a time demanded that he be referred to in print by a cryptic
symbol. Just how that would have been indexed is a puzzle, since it
had no known pronunciation. Under Revised Article 9, the symbol may be
treated as a trade name and Prince's legal name required to perfect.

10 Even using the name as registered with the state may not be
sufficient in the situation where the competing creditor is the IRS.
In In re Spearing Tool Inc. (United States v. Crestmark
Bank), 412 F.3d 653, 56 UCC Rep.Serv.2d 807, Bankr. L. Rep. P
80,317, 2005 Fed.App. 0271P, 95 A.F.T.R.2d 2005-2890 (petition for
cert. filed 2005) (6th Cir. 2005), the bank had filed against the
registered name and conducted regular searches under the name. It
missed a competing IRS filing recorded against the name the debtor
listed on its tax return. The Sixth Circuit held that the IRS regs
trumped the UCC filing rules and that the IRS filing took priority,
even though it did not comply with the UCC name requirements.

Journal Authors

Jeffrey Scott Pohl

John K. Pearson

Journal Date

Thursday, June 1, 2006 - 12:00

Bankruptcy Rule

2006

none