In the latest example of a party mistakenly identified on a UCC-1 financing statement, the court determined that a statement was “seriously misleading” and ineffective to perfect the creditor’s security interest because a creditor used the borrower’s nickname “Mike” rather than his full name “Michael.” See Genoa National Bank v. Southwest Implement, Inc. (In re Borden), 2006 WL 3095640 (Bankr. D. Neb. Nov. 2, 2006).

In Genoa National Bank, the bank had filed a UCC financing statement in 2002 to reflect a lien on all of the personal property of Michael Borden and his wife (the “Debtors”), including all machinery and equipment then owned and thereafter acquired. The financing statement was recorded under the name “Michael R. Borden.”

In 2004, Mr. Borden purchased a combine and drill from Southwest Implement, which filed UCC financing statements with the Nebraska Secretary of State under the name of “Mike Borden.”

Michael & ‘Mike’

Mr. Borden’s legal name is Michael Ray Borden, and he is identified by that name or by “Michael R. Borden” on many legal documents such as a birth certificate, driver’s license, etc. He did sign his name on some forms as “Mike Borden.”

The bank argued that using “Mike Borden” on the financing statements rendered them seriously misleading under the Nebraska UCC and therefore Southwest Implement’s security interest was unperfected. In support of its position, the bank noted that the financing statements naming “Mike Borden” do not appear among the results when the UCC records are searched for “Michael Borden.”

Southwest argued in response that the financing statements were not misleading because Mr. Borden was commonly known, including among Genoa Bank personnel, as “Mike.”

New UCC Rule

Upon review, the Bankruptcy Court for the District of Nebraska noted that a financing statement is effective even if it contains minor errors or omissions, unless the errors or omissions render the financing statement “seriously misleading.” The test of whether an error in a debtor’s name is a fatal defect is whether a search for the UCC statement in the records of the state’s filing office under the debtor’s correct name—using the filing office’s “standard search logic”—would disclose the financing statement.

“This differs from the earlier test of whether a reasonably diligent searcher would be able to locate the financing statement,” the court noted. “Revised Article 9 rejects the duty of a searcher to search using any names other than the name of the debtor indicated on the public record ....”

“It is not much of a burden on a party taking a security interest from an individual known as ‘Mike’ or ‘Bill’ to ask if the individual’s ‘correct name’ is ‘Michael’ or ‘William,’” the court concluded.

In its decision, the court mentioned a list of documents in which the Debtor had listed his full name. These included a birth certificate, driver’s license, real estate deeds, bank accounts, tax returns, and a bankruptcy petition.