Published Articles by David Balovich
Installment 2 of 4.
This is the second article in a series of four in reply to an email
received from John Kellogg asking about the proposed revisions to Article
9 of the Uniform Commercial Code.
The second change to section 9.4 of Article 9 has to do with the
responsibility of the users. Users or classified as either filers
or searchers. Filers are those filing financing statements
(UCC-1's) and searchers are those looking for financing
statement recordings (UCC-11 in most states).
Under Section 9.4 filers have been afforded, what is considered by some,
an unfair advantage through what is known as "Good Faith
Filings." In many states a filing with an improper
debtor name or filed in the incorrect jurisdiction is
considered to be valid as long as the person who was filed on
(debtor) has knowledge of the contents of the financing statement.
The searcher is not afforded equal treatment. Therefore a searcher who is
searching under the correct name of the debtor or in the correct
jurisdiction and does not find any record of filings may not be
protected at a later date if it is revealed that there
were indeed secured creditors who went UN-notified (in the
case of purchase money security agreements) or whose
claims were not prioritized in Bankruptcy (through searches conducted
by the trustee).
Under the proposed Section 9.5, in order for the debtor name to be
sufficient the financing statement must contain the true legal
name of the debtor. A corporation, for example, must have
its' name on the financing statement as it appears on its'
articles of incorporation. It is assumed that in lieu of a
birth certificate individuals names on a financing statement
would match the name on their drivers license (although there has
not been a final determination made at this time on what criteria will be
used when dealing with individuals).
This would eliminate the need for searchers to perform alternative name
searches and for filing offices to maintain multiple data bases
for tracking financing statements, i.e., similar
Under this proposal, filers will be held more accountable for their
filings and receive less help from the courts while searchers
will not be required to do as much due diligence as
they have in the past.
In the next installment we will discuss the two remaining issues.
I wish you well.
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