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Another UCC Filing Bites the Dust in Wisconsin – This Time For An Extra Space in Debtor’s Name – Really!

I will keep this post short.  Shockingly, but correctly under the circumstances, a court in Wisconsin declared a filed UCC financing statement invalid because the secured creditor left too much space between certain parts of the debtor’s name.  Really!  The name was spelled right but it just contained too much space between certain parts of the debtor’s name.  The Court held that the secured creditor had incorrectly stated the name of the debtor on the UCC financing statement as ISC, Inc . (note the additional space between Inc and the period following Inc).  The name on the filing should have been ISC, Inc. with a period immediately following the Inc, without a space, as the debtor’s correct legal name.  Unbelievably, this small and surely unintended additional space between Inc and the period following Inc was too much for the Court based on Wisconsin’s UCC laws.  United States SEC v. ISC, Inc., 2017 WL 3736796, dated August 30, 2017, United States District Court for the Western District of Wisconsin. 

Under Wisconsin UCC Statutes, a financing statement typically is effective even if it has a minor error, unless the error makes the financing statement “seriously misleading.”  A financing statement that fails to provide the name of the debtor in accordance with the requirements of Wisconsin UCC Statutes is legally deemed to be “seriously misleading”.  Therefore, the secured creditor normally loses if the debtor’s name is incorrectly stated. 

Fortunately, Wisconsin’s UCC law also creates a “safe harbor” that may save a UCC financing statement containing an incorrect debtor name if a searcher of the UCC filing records using the debtor’s correct name can find the incorrect filing using DFI’s official search logic.  Under DFI’s official search logic, the extra space following the word “Inc” and before the period after the “c” prevented the financing statement with this additional space in the debtor’s name from coming up in a search when using the debtor’s correct legal name, which is ISC, Inc., without a space between the “c” and the period.  In other words, the search using the DFI’s official search logic and the debtor’s correct legal name (without the space) did not find the filing using the debtor’s incorrect legal name (with the space).  So, the “safe harbor” did not save this particular UCC financing statement with an incorrect debtor name. 

Again, as we have learned in other cases, the simplest of mistakes regarding a debtor’s name on a UCC filing can be costly to a creditor.  In this case, the creditor will now participate in the distributions by the receiver in the case as an unsecured creditor because of the invalid UCC filing.  A UCC financing statement prepared for filing with DFI should be carefully reviewed to determine not only that the name of the debtor is correctly spelled, but also that it does not have an inadvertent space within one of the names (in this case an additional space in “Inc.”).  An inadvertent space proved costly to the secured creditor. 

It may be appropriate for DFI to determine whether its official search logic could be modified to disregard inadvertent and inconsequential spaces and other punctuation for purposes of locating filed UCC financing statements.  Apparently, some states have chosen to disregard spaces for purposes of their official search logic.  This decision by the Court is another reminder that the effectiveness of a UCC financing statement where the debtor’s name is incorrect for any reason will depend on the official search logic used by DFI to find the financing statement with the incorrect debtor’s name.  The best practice, of course, is to not make “any” mistake in the debtor’s name.  

DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

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