In a fairly controversial decision from January 2012, the United States Bankruptcy Court for the Central District of Illinois held that a financing statement must contain the “legal” name of an individual as it appears on the individual’s birth certificate. Miller v. State Bank of Arthur (In re Miller), Adv. P. No. 11-9055 (Bankr. C.D. Ill. Jan. 6, 2012). On appeal, the United States District Court for the Central District of Illinois reversed and held that the Uniform Commercial Code requires only that a “correct” name appear on the financing statement. State Bank of Arthur v. Miller (In re Miller), 2012 WL 3589426 (C.D. Ill. Aug. 17, 2012).

In Miller, the debtors, a husband and wife, executed and delivered commercial security agreements in connection with various loans obtained from their secured lender. The loan documents were signed by “Bennie A. Miller,” the secured lender filed a financing statement in 1999 identifying the debtor as “Bennie A. Miller,” and the debtor signed the financing statement as “Bennie A. Miller.” The secured lender thereafter timely filed continuation statements.

After the debtors filed for Chapter 13 bankruptcy, they sought to avoid the secured lender’s security interest through the strong arm powers granted to trustees and debtors in possession under the Bankruptcy Code. The debtors contended that the name of the debtor as it appeared on the financing statement, “Bennie A. Miller,” was incorrect.

At trial the debtor testified that he had gone by the name “Bennie Miller” for much of his adult life, and that he is generally known by that name in the community. The debtor further testified that the name “Bennie A. Miller” is listed on his driver’s license, his Social Security card, the deed to the debtors’ home, his federal income tax returns, the signature card that he provided to the secured lender, the loan documents, a credit card account, and the bill of sale from the purchase of his business. However, the debtor also testified that the name “Ben Miller” is the name listed on his birth certificate, a letter from another creditor, two proofs of claim and another credit card account.

The bankruptcy court held that because the name “Ben Miller” was listed on the debtor’s birth certificate and the legal name must appear on a financing statement, the secured lender had failed to perfect its interest in one half of the debtors’ property. The bankruptcy court found that when a search was performed using the filing office’s standard search logic for the legal name “Ben Miller,” the financing statement filed by the secured lender using the name “Bennie A. Miller” was not disclosed.

On appeal the district court reversed. The court first held that neither the predecessor to the current version of the UCC as adopted by the State of Illinois or the current version itself require that a financing statement contain the debtor’s legal name. Moreover, the court noted that none of the case law cited by the debtors supporting the proposition that the legal name be included on the financing statement. According to the district court, had the drafters of the UCC meant to require a “legal” name, they would have included such wording in the provision and likely would have defined it.

The court next held that because Article 9 only requires use of a name that is not seriously misleading, identification of the debtor as “Bennie A. Miller” was sufficient for the financing statement to be effective. The court recognized that prior to July 1, 2010, an individual in Illinois could effectively change his legal name without any formal legal proceedings. Because the debtor assumed the name “Bennie A. Miller” prior to this date, the debtor had lawfully assumed the name used on the financing statement at the time the notes and security agreements were signed.

Moreover, the court observed that non-UCC law in Illinois defines “legal name” as the full name given at birth, recorded at marriage, or deemed correct for use in reporting income by the Social Security administration or the name otherwise established through legal action that appears on official documents presented to the Secretary of State. The court stated that, assuming the “legal” name is required, the secured lender nonetheless properly perfected its interest because “Bennie A. Miller” is the name listed on an official document presented to the Secretary of State – his driver’s license. The court also recognized that when a search was performed under the name “Bennie A. Miller,” five of the six secured creditors that filed financing statements appeared in the database maintained by the Secretary of State.

Finally, the court noted that as a matter of public policy and common sense, a driver’s license and Social Security card is more reliable than a birth certificate. The court explained that a driver’s license is more likely to reflect the current and accurate name of a debtor, is more readily accessible, and is less burdensome on the lending community.

In sum, the district court reversed the bankruptcy court and held that the name used by the secured lender did not result in a sufficiently misleading financing statement because:

  1. the law does not require use of a ‘legal” name, only a “correct” name, on a financing statement;
  2. a birth certificate is not more reliable or a more valid source of an individual’s name than his driver’s license or Social Security card; and
  3. the majority of creditors identified the debtor as “Bennie A. Miller.”

In light of the decision in Miller at both the bankruptcy and district court levels, lenders should carefully review records of an individual debtor to determine if any discrepancies exist between their Social Security card, birth certificate and driver’s license, among other things. In the event that such a discrepancy exists, lenders should consider filing separate financing statements identifying each name used by the debtor in his or her records. While the district court in Miller reversed the bankruptcy court, it is by no means certain that an Illinois state court or a court in another jurisdiction would arrive at the same conclusion.

Lenders may also wish to perform a search of the Secretary of State’s records in advance to compare their UCC filing with those of other secured parties. However, notwithstanding the policy considerations in Miller, this fact alone will not be determinative, and courts will continue to review the search logic employed by the Secretary of State.