Do You Know Your Debtor’s Name? Minor Mistakes in UCC-1 Financing Statements Might Be Seriously Misleading

Zero tolerance continues to be the name of the game in drafting Uniform Commercial Code (UCC) financing statements. While in some states, minor mistakes in UCC financing statements may be forgiven, in at least Florida, no safe harbor exists for a mistake in a debtor’s name. Secured lenders are reminded to confirm that a borrower’s name on any UCC financing statements exactly matches the name on the borrower’s organizational documents, to ensure protection in a default.

Recently, in 1944 Beach Boulevard, LLC v. Live Oak Banking Co. (In re NRP Lease Holdings, LLC), the U.S. Court of Appeals for the Eleventh Circuit and the Florida Supreme Court showed no sympathy for a lender’s UCC financing statement error. In NRP Lease Holdings, Live Oak Bank filed UCC-1 financing statements in Florida that identified its borrower as 1944 Beach Blvd., LLC instead of by the debtor’s true legal name, 1944 Beach Boulevard, LLC. Like most states that have adopted the Uniform Commercial Code, Florida’s statutory scheme allows financing statements to be effective despite minor errors or omissions unless those errors or omissions make the statement “seriously misleading,” Fla. Stat. § 679.5061. Pursuant to the UCC, failure to use a debtor’s correct name is seriously misleading, unless a name search using a filing office’s “standard search logic” discloses the financing statement in question — which is a so-called safe harbor. Id. In that case, the incorrect name “does not make the financing statement seriously misleading.” Id.

Although in NRP Lease Holdings, both the bankruptcy court and the district court had decided this safe harbor applied to 1944 Beach Blvd., LLC, the Florida Supreme Court precluded the possibility of a safe harbor, by deciding that the Florida search function did not qualify as “standard search logic.” This is because, according to the court, the search function at issue returned all the names in the state index starting with the name closest to the search instead of returning a set number of unambiguous hits. According to the Florida Supreme Court and the Eleventh Circuit, this lack of standard search logic at the filing office results in zero tolerance for errors in a debtor’s name on UCC-1 financing statements.

In NRP Lease Holdings, a seemingly small error in the debtor’s name meant that the lender failed to perfect its blanket lien on the debtor’s assets. This outcome should motivate drafters of UCC-1 financing statements to take care to be correct and precise. Precision is key.