Tales of WHOA! On the docket: court rules that correct legal name is required on a financing statement

RMA Journal, The, Sept, 2004 by Michael L. Weissman

Under the version of Article 9 of the UCC that prevailed prior to 2001, courts would occasionally stray from the requirement that a financing statement must contain the correct legal name of the debtor. From time to time, a filing in a debtor's trade name would be decreed adequate, especially if the debtor was generally known by that name. All that changed with the effective date of Revised Article 9. Under Revised Article 9, a debtor's trade name is not sufficient. To bolster the concept that correct legal names must be used for individuals, the Bankruptcy Appellate Panel of the United States Court of Appeals for the Tenth Circuit rendered its decision in In re Terrance Joseph Kinderknecht, 2004--Bankr. LEXIS 477 (10th Cir. BAP, April 16, 2004).

Terrance Joseph Kinderknecht was informally known as Terry. He purchased two farm implements from Deere and Company and financed the purchases through Deere Credit Services, Inc. Deere Credit filed financing statements in the proper jurisdictions but listed the debtor's name as "Terry J. Kinderknecht.'" Some time later, the debtor filed a Chapter 7 petition for relief'.

The Chapter 7 trustee in bankruptcy initiated litigation designed to invalidate Deere Credit's purportedly perfected security interest. The basis for the trustee's attack on Deere Credit's security interest was that its financing statement, filed in the debtor's nickname, was seriously misleading and therefore ineffective.

The Bankruptcy Appellate Panel sustained the position of the trustee, stating, "For a financing statement to be sufficient ... the secured creditor must list an individual debtor by his or her legal name, not a nickname." The rationale of the court, which is self-evident, is that UCC searches are conducted in the name of the debtor, thus making the debtor's name especially important. The court also pointed out that establishing the requirement of a debtor's correct legal name provides clear and definitive parameters for UCC searches regarding a debtor, as well as simplifying the drafting of financing statements.

And as further support for its position, the court noted that the Official Form for the UCC Financing Statement especially calls for the debtor's exact full legal name.

What's the point? Any lingering doubts about whether anything other than a debtor's full legal name can be used in a financing statement have been erased by the decision referred to above. Nicknames are out; exact names are required.

A number of adverse comments have been made about this decision. One commentator, noting that the decision was controlled by Kansas law, stated that if the case had arisen in New York, the result would have been different. This is because New York recognizes the right of a person to adopt a legal name by usage. That same rule applies in California, says another commentator, where a person can change his or her name without court involvement. Still another commentator has said, "The ... case makes no sense to me. How is a lender to know what the 'real' name of an individual is? Does every lender now have to require a birth certificate?"

Perhaps we have not heard the end of this matter after all.

Contact the author by e-mail at Michael.Weissman@hklaw.com

[c] 2004 by RMA. Weissman is EVP and General Counsel of the Bridgeview Bank Group and counsel to the Chicago law firm of Holland & Knight, LLP. He has prosecuted civil and bankruptcy, matters on behalf of many financial institutions.