Minnesota Bankruptcy Case: Creditor Loses Lien Where Adding D/B/A to a Debtor’s Name Rendered Name Seriously Misleading
The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.
Minnesota Bankruptcy Case:
Hastings State Bank v. Stalnaker, (In re EDM Corporation), 431 B.R. 459 (B.A.P. 8th Cir. (Neb.) 5/14/10) (Federman, J.).
Creditor Loses Lien Where Adding D/B/A to a Debtor’s Name Rendered Name Seriously Misleading
The Eighth Circuit BAP affirms the bankruptcy court’s determination that Bank A lost its priority to Banks B and C by including a “d/b/a” along with the debtor’s legal name on its UCC form, thereby misstating the debtor’s name and rendering the financing statement seriously misleading. Debtor EDM Corporation did business as EDM Equipment, and Bank A’s non-standard-form financing statement listed “EDM Corporation d/b/a EDM Equipment” in the debtor name field. Two subsequent lenders conducted UCC searches and did not find Bank A’s financing statement.
Under the UCC, a financing statement must list the debtor’s exact name, and if it does not, the court must determine whether the financing statement is seriously misleading. A financing statement is seriously misleading if a search using standard search logic fails to reveal it. Because Bank B’s and C’s searches did not reveal Bank A’s financing statement, the bankruptcy court ruled that Bank A’s financing statement was seriously misleading. On appeal, Bank A argued that since it did include the debtor’s correct name on its financing statement, the court should never have gotten to the question of whether the filing was seriously misleading.
The BAP determines that Bank A did not use the debtor’s exact name. The purpose of the filing requirement is to let other creditors know of the lien. The first step in this process is for other creditors to find the financing statement in the first place, which requires searching under the debtor’s name. Complete accuracy is essential and is the filing creditor’s responsibility. The BAP notes that the official UCC-1 form makes clear that d/b/a/’s and other extraneous information should not be included in the debtor name box, and the court concludes that the debtor’s name is its exact public record name – nothing more and nothing less. Because the debtor’s name was incorrect, the bankruptcy court properly applied the rules regarding whether a financing statement is seriously misleading, and properly concluded that Bank A’s was.
Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.