Banking & Finance Law Report

Tag Archives: ucc

Seriously Misleading UCC Searches

Determining whether a security interest is properly perfected by using a state’s online lien search may be leading you astray.

Perfecting a security interest in collateral establishes the priority of the secured party’s claim to such collateral, providing the perfected secured party with an interest in such collateral superior to the rights held by most subsequently perfected security creditors or judicial lien creditors.  For most types of collateral owned by an entity, a security interest may be perfected by filing a financing statement describing the security interest with the secretary of state’s office in the state where such entity is formed.  A financing statement is a form of public notice intended to inform others dealing with such borrower (referred to as a “debtor”) that the debtor has granted a security interest in its assets.

The Uniform Commercial Code (“UCC”) dictates that a financing statement covering property owned by an entity debtor (as opposed to an individual) must identify the debtor by its exact legal name.  Nonetheless, to alleviate the otherwise disastrous consequences of harmless errors or omissions in a financing statement, the law provides that financing statements are effective (even with errors) so long as they are not “seriously misleading.”…

Perfecting Security Interests in Assets of Ohio Gas and Pipeline Companies

With the recent boom in Ohio’s oil and gas industry, secured creditors in Ohio should be sensitive to special statutory requirements for perfecting security interests granted in assets of gas and pipeline companies.

Although security interests in personal property and fixtures are most frequently perfected by filing financing statements under the UCC, there are several types of security interests which require perfection through other channels.  In Ohio, pursuant to Section 1701.66 of the Revised Code, security interests in property of “public utilities” are among the interests that must be perfected by other means. “Public utility” is defined by the Ohio Revised Code Sections 4905.02 and 4905.03 to include, among others and with certain exceptions, (i) gas companies and natural gas companies, when engaged in the business of supplying artificial or natural gas, as applicable, for lighting, power, or heating purposes to consumers within Ohio and (ii) pipe-line companies, “when engaged in the business of transporting natural gas, oil or coal or its derivatives through pipes or tubing, either wholly or partly within [Ohio], but not when engaged in the business of the transport associated with gathering lines, raw natural gas liquids, or finished product natural gas liquids.” (Emphasis added).  Additional …

Update – UCC Search Logic: Can Secured Creditors Be Too Careful?

Last year (October 23, 2009) we posted on the topic of UCC search logic in light of the bankruptcy case of In re EDM Corporation 2009 Westlaw 367773 (Bankr.D.Neb.). In the bankruptcy court, the first-filing lender lost its priority because it had filed a UCC-1 financing statement with the debtor name listed as “EDM Corporation d/b/a EDM Equipment,” which was not located by the two later-filing lenders when doing a search on “EDM Corporation,” which was the debtor’s true legal name. The bankruptcy court held that the financing statement was “seriously misleading” and rearranged the priority accordingly.

Under Revised 9-506(a), errors or omissions in a filed financing statement are of no consequence unless they render the financing statement “seriously misleading.” Revised 9-506(c) provides that if a search in the filing office using the filing office’s standard search logic would disclose the financing statement, then it is not “seriously misleading,” even if it fails to provide the precise name of the debtor as required under Revised 9-503(a).

This case was recently taken up on appeal to 8th Circuit Bankruptcy Appellate Panel (In re EDM Corporation, 2010 WL 1929772 (8th Cir. BAP May 14, 2010)). The appellate panel noted that …