The Governor recently approved SB 2609 revising Mississippi UCC articles 2, 4 and 9. The bill adopts the 2010 amendments to the uniform version of Article 9 and makes a number of technical amendments intended to clarify and address ambiguities in existing Article 9 and to override the effects of bad case law which has created problems in some states. Several of the changes, however, will be important to lenders filing UCC financing statements on collateral owned by an individual or a trust or estate. The new law becomes effective July 1, 2013, and will impact how lenders should conduct UCC searches and prepare financing statements and continuation statements on individual debtors and trusts and estates after the effective date.
Under existing UCC Article 9, a financing statement on collateral owned by an individual, as opposed to an entity, is deemed to sufficiently identify the debtor if the financing statement simply provides the individual name of the debtor. As you can imagine, courts in different states have interpreted this provision in different ways. In some states, filings under nicknames, or filings omitting a middle name or suffix have been found to be seriously misleading and ineffective. This has created some uncertainty about the proper name in which to search and to file a financing statement on an individual.
Drafters of the 2010 amendments to the uniform law recognized the need to clarify Article 9 and offered up a couple of alternatives. Most states, including Mississippi, Arkansas, Tennessee and Louisiana, have adopted alternative A, sometimes known as the “only if” alternative, which provides that a financing statement adequately identifies an individual debtor only if the name of the debtor is shown in the exact same way in which it appears on either an unexpired driver’s license or an unexpired non-driver’s license identification card issued by the state in which the debtor resides. If the individual does not have a driver’s license or a state-issued identification card, the financing statement is sufficient only if it provides the individual name of the debtor or the surname and first personal name of the debtor.
This means that after the effective date, in order for the lender to be properly perfected on an individual debtor and be assured of priority, the lender will need to conduct a UCC search and file a financing statement reflecting the name of the debtor in the exact same manner as it appears on the debtor’s driver’s license or a state-issued non- driver’s license identification card. This alternative will provide much greater certainty with respect to UCC filings of individual debtors going forward.
The amendments also create new rules for filing where the debtor is a trust or a personal representative of a deceased individual, such as an executor or administrator of an estate in Mississippi. Under existing UCC Article 9, most entities like corporations, limited liability companies and limited partnerships are considered to be registered organizations (basically, defined as an entity that must file organizational documents with a state or the federal government in order to be created). When the debtor is a registered organization, a financing statement must reflect the name of the debtor exactly as it is shown on the filed organizational documents. For example, the name of a debtor that is a corporation must be shown in the exact same way as the name appears on the articles of incorporation filed with the Secretary of State.
Under the amendments to Article 9, if the debtor is a trust that is also a registered organization, then a financing statement is sufficient if it shows the name of the debtor in the same manner as the name appears on the publicly filed organizational documents for that trust. Some states have laws allowing certain trusts to be formed for commercial or business purposes, such as a Delaware business trust. When a trust of that sort is required by state statute to file its organizational documents with the state in order to conduct business, it would be a registered organization for purposes of UCC Article 9. Most trusts, however, would not fall in that category.
Most common law and other trusts are created under a written trust agreement or under the will of a deceased individual. There has been confusion under existing Article 9 about filings where the debtor is a trust or estate of an individual. Should the filing be in the name of the trust or trustee? For an estate, should it be in the name of the deceased or the executor or administrator? In an attempt to simplify and clarify the law, the amendments to Article 9 say the lender should look first to the document creating the trust (the organic record of the trust in Article 9 parlance) to determine the name of the debtor for UCC filing purposes. In the case of collateral held in a trust, where the trust agreement or the will creating the trust specifies a name for the trust (for example, “The John Doe Family Trust”), then that name must be used as the name of the debtor in the financing statement. If no name for the trust is provided by the trust agreement or will, then the name of the settlor or grantor of the trust, or the deceased testator in the case of a trust created under a will, must be used.
In addition, the amendments clarify the existing Article 9 requirement that a financing statement covering collateral held in trust include additional information with respect to that collateral to distinguish it from the trustee’s own property or property held in other trusts by the same trustee. The amendments emphasize that the additional information should appear in the body of the financing statement but not in the portion of the financing statement designated for the debtor’s name. In the case of the named trust, the financing statement must indicate somewhere in the body that the collateral is held in a trust. In the case of an unnamed trust where the name of the grantor or testator will be used, the financing statement must provide additional information in the body of the statement sufficient to distinguish the particular trust involved from trusts having the same grantor or the same testator and indicate that the collateral is held in a trust. The new national UCC financing statement form provided in the 2010 uniform amendments includes a checkbox that can be used for that purpose.
After the effective date, then, where collateral is held in a trust that is not a registered organization and the trust is given a name in the trust organic document (the trust agreement or will), then a UCC filing should be in the name given to the trust in the trust document regardless of whether legal title to the collateral is technically considered to be held by the trust or by the trustee of the trust. Where the trust document does not assign a particular name to the trust, then the name of the grantor of the trust or, in the case of a trust created under a will, the name of the deceased individual – the testator – must be used.
In cases where the collateral is held in the estate of a deceased individual and is being administered by the executor or administrator of the estate of the deceased, a financing statement should use the name of the deceased person as the debtor and, in a separate part of the financing statement, indicate that the collateral is being administered in an estate by the personal representative.
The changes become effective July 1, 2013. The statutes includes transition provisions which make it clear that any existing filings that satisfied the law in effect prior to July 1, 2013 generally remain effective until the earlier of the time they would lapse under existing law or June 30, 2018. This means that an existing filing which identifies the debtor in the manner required by applicable law prior to the new amendments continues to be effective, and there is no need for a lender to have to search its existing records and change existing filings. However, when those existing filings come up for continuation, if the existing filing does not comply with the new law, it will need to be amended at that time. In that event the lender will need to file an amendment along with the continuation statement to revise the debtor’s name or any other portions of the financing statement that do not comply with the new requirements. If an existing financing statement is properly amended during the transition period, then perfection and priority should relate back to the time of the original filing. For new filings after the effective date, it will be important to conduct any UCC searches and prepare any new filings following the new law.