Avoid the “Seriously Misleading” Standard

In our last two articles, we discussed some facets of perfecting security interests under UCC Article 9.  One part of a financing statement that cannot be neglected is the debtor’s name.  While it may seem like an obvious area of caution, a debtor’s name must be listed with specificity and attention to detail.  A minor misspelling can lead to significant losses for a supplier or lender who attempts to take a security interest.

UCC Article 9-506 provides that “[a] financing statement substantially satisfying the requirements of this part is effective, even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.”

The question then is what constitutes ‘seriously misleading.’  One test for determining whether errors or omissions make a financing statement seriously misleading is found in UCC Article 9-506(c):

If a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9-503(a), the name provided does not make the financing statement seriously misleading.

The comments to Section 9-506(c) clarify this test in the negative:  a financing statement has no effectiveness if it is found to be seriously misleading under Section 9-506.  This is true even if the existence of the financing statement was discoverable by (i) using a search logic other than that of the filing office to search the official records, or (ii) using the filing office’s standard search logic to search a data base other than that of the filing office.

In other words, actual notice of or discovery of the financing statement and purported security interest may not in and of itself give validity to a financing statement that is seriously misleading.

For more information about legal matters related to your business, the attorneys at the Scolieri Law Group, P.C. can help.  Located in western Pennsylvania, our attorneys are experienced in Pennsylvania business law and can take care of the details for you every step of the way.  Contact us today at (412) 765-0546 or via email at info@scolierilaw.com.