3JM Company Inc.

Published Articles by David Balovich

Published in: Creditworthy News
Date: 2/24/00

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 name files.

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.

This site is copyrighted (C) by 3JM Company Inc., Lake Dallas, Tx
Website by Creditworthy Co.