Page 3 - John Hundley 2008

Sharp Thinking

No. 4 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. February 2008

A. Rose by any other name is not A. Rose

Hypertechnical Approach of Courts Under Revised Article 9 Imperils Creditors

By Mandy Combs, Mcombs@lotsharp.com, 618-242-0246

Strict decisions being handed down by courts interpreting revised Article 9 of the
Uniform Commercial Code (810 ILCS 5/9-101 et seq.) have sent fear running through
creditors – or at least through those who have become aware of the hypertechnical
approach which is being applied.

The revisions to Article 9, which have been adopted by a majority of the states
with minor modifications, place the burden of knowing and using the debtor’s correct
name on the filer of a financing statement. Moreover, in carrying out that burden,
courts are imposing on the filer stringent requirements for correctness unusual under
modern law. Combs

Illinois adopted revised Article 9 in July 2001. P.A. 91-893 § 5. Under it, a financing statement sufficiently
provides the name of the debtor (1) if a registered organization “only if the financing statement provides the
name of the debtor indicated on the public record of the debtor's jurisdiction of organization which shows the
debtor to have been organized”, (2) in other cases where “the debtor has a name, only if it provides the
individual or organizational name of the debtor” and (3) in most cases where the debtor does not have a name,
only if it provides the names of the partners, members, associates, or other persons comprising the debtor. §
9-503(a). A financing statement that provides only the debtor's trade name does not sufficiently
provide the name of the debtor. § 9-503(c).
The statute suggests a statement with minor errors is sufficient if the errors do not make it “seriously
misleading”. § 9-506(a). However, it then states that a statement is seriously misleading if it fails to provide
the debtor’s correct name, with only one exception: If a search of the Secretary of State’s records under
the correct name, using that office's “standard search logic”, would disclose the statement, the error in
the name will not make the statement seriously misleading. §§ 9-506(b)-(c). This puts a premium on
computer system search logic, which is not always the same as humans’ logic.

Thus, in In re Phillips, 2007 WL 2122405 (Bankr. C.D. Ill. 2007), a court in Central Illinois denied a creditor
summary judgment on the priority of its lien because there was a question of fact as to whether a search using
the name “Phillips Farms, Inc.” would disclose the statement filed under “Phillip Farm, Inc.” A host of similar
rulings have occurred elsewhere:
th
► In re Kinderknecht, 308 B.R. 71 (10 Cir. BAP 2004), finding that use of the nickname “Terry” instead of
the legal name “Terrance” was seriously misleading. The court found support in a provision of the official
forms saying the preparer should include the “Debtor's Exact Full Legal Name.” Illinoisans should note that our
Secretary of State says that “all UCC records must contain the full legal name of the debtor and indicate
whether the debtor is an individual or an organization.” 14 ILL. ADM. CODE § 180.12.

► Pankratz Implement Co. v. Citizens Nat’l Bank, 281 Kan. 209, 130 P.3d 57 (2006), finding that listing

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
Thinking shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein
constitute educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal
advice on your particular situation, contact a Sharp lawyer at the phone number or one of the addresses provided on page 2 of this newsletter.