Important New Law on Securing Collateral
Mike Markham and Angelina Lim
Article 9 of the Uniform Commercial Code, the primary law governing contractual liens against personal property, has been amended in Florida and the changes are effective July 13, 2013. A non-comprehensive summary of material changes is set forth below:
Name of Individual Debtor in Financing Statement
One of the new amendments to Article 9 provides greater guidance to using the proper name of an individual debtor. You have one year’s grace period to correct any error. Fla. Stat. § 679.703. The new change requires that an individual debtor’s name as it appears on the latest or most recent driver’s license or the non-driver identification card issued by Florida be used for the financing statement. Fla. Stat. § 679.5031. If the debtor does not have a driver’s license or a non-driver identification card, then the debtor’s surname or first personal name may be used on the financing statement. If you are a creditor with a security interest against an individual’s personal property, you should check the UCC-1 financing statement and determine if you need to amend the statement. In the future, the secured party should get a copy of the debtor’s driver’s license when filing a UCC financing statement.
Name of the Business Debtor
Under the new law, “registered organization” means an organization formed or organized by the filing of a “public organic record” or by legislation (e.g., corporations, limited liability companies, partnerships including business trusts).1 In turn, the public organic record refers to a record that is available for public inspection and is a record initially filed or issued by a State or the U.S. to form or organize an organization.2 Thus, the correct name of the business debtor would be as stated in the record initially filed to form or organize the organization. If there is a conflict with the State’s electronic database, the name in the charter document would control. Fla. Stat. § 679.5031. In Florida, if the debtor is a business trust, that would mean the name stated in the Declaration of Trust filed with the Department of State.
Revised forms of financing statements should be used for filings on and after the effective date. The forms are generally simpler and remove the need to identify the type of registered organization and the organization’s identification number. Note that it is unnecessary to re-file existing filings which otherwise satisfy perfection requirements just to use the new forms.
Debtor’s Change in Location
In the event a debtor relocates, the amendments to Article 9 temporarily give the secured party perfection in collateral acquired by the Debtor for four months post-relocation. In the past, the law only gave the secured party four months in the collateral owned by the debtor at the time of the change. Fla. Stat. §679.3161(8). The similar change was made with respect to a new debtor that is a successor by merger. Temporary perfection is provided for the successor debtor in collateral owned by the successor pre-merger or collateral acquired by the successor post-merger within the four months after the merger. Fla. Stat. §679.3161(9).
Wrongfully Filed Record/Information Statement
Former law authorized a debtor to file a “correction statement” – a claim that a financing statement was unauthorized. The new law changes the name of this filing to “information statement.” Fla. Stat. § 679.518(1). Under this new law, a secured party is given the right to also file an information statement if it believes that an amendment to its financing statement was unauthorized. Fla. Stat. § 679.518(3). However, the Comments make it clear that a secured party is not obligated to file an information statement even when it knows of the unauthorized filing, i.e. an unauthorized termination statement. More importantly, the Comments indicate that the searcher bears the burden of determining whether a filing was authorized. Accordingly, a new secured party cannot rely on a termination statement, but must instead independently determine that the prior financing statement was rightfully terminated.
Control of Electronic Chattel Paper
“Electronic chattel paper” is defined in Fla. Stat. § 679.1021(1)(ee) as chattel paper that is stored in electronic medium (electrical, digital, magnetic, optical, or electromagnetic) instead of being stored in tangible, paper form. Fla. Stat. §679.1051 establishes control and effectively leaves to the marketplace the development of systems and procedures, through technologies and business practices, for dealing with electronic chattel paper in a commercial context. Other states, in enacting revised Article 9, have instead specifically referenced the general standard for control as set forth in Section 16 of the Uniform Electronic Transactions Act.
1 Fla. Stat § 679.1021(1)(rrr) “Registered organization” means an organization formed or organized solely under the law of a single state or the United States by the filing of a public organic record with, the issuance of a public organic record by, or the enactment of legislation by. The term includes a business trust that is formed or organized under the law of a single state if a statute of the state governing business trusts requires that the business trust’s organic record be filed with the state.
2 Fla. Stat § 679.1021(1)(ooo) “Public organic record” means a record that is available to the public for inspection and that is:
1. A record consisting of the record initially filed with or issued by a state or the United States to form or organize an organization and any record filed with or issued by the state or the United States that amends or restates the initial record;
2. An organic record of a business trust consisting of the record initially filed with a state and any record filed with the state that amends or restates the initial record, if a statute of the state governing business trusts requires that the record be filed with the state; or
3. A record consisting of legislation enacted by the Legislature of a state or the Congress of the United States that forms or organizes an organization, any record amending the legislation, and any record filed with or issued by the state or the United States that amends or restates the name of the organization.