1. The University of Chicago
9/17/2018
Class 18 Secured Transactions, Fall, Changes: Names - Entity Structure
Randal C. Picker
James Parker Hall Distinguished Service Professor of Law
The Law School
The University of Chicago
Copyright © Randal C. Picker. All Rights Reserved.

2. 9-507: Effect of certain events on effectiveness of financing statement
(b) Information becoming seriously misleading.
Except as otherwise provided in subsection (c) and Section 9-508, a financing statement is not rendered ineffective if, after the financing statement is filed, the information provided in the financing statement becomes seriously misleading under Section

3. 9-507(c) (c) Change in debtor’s name.
If the name that a filed financing statement provides for a debtor becomes insufficient as the name of the debtor under Section 9-503(a) so that the financing statement becomes seriously misleading under Section 9-506:
September 17, 2018

4. 9-507(c)
(1) the financing statement is effective to perfect a security interest in collateral acquired by the debtor before, or within four months after, the filed financing statement becomes seriously misleading; and
September 17, 2018

5. 9-507(c)
(2) the financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the filed financing statement becomes seriously misleading, unless an amendment to the financing statement which renders the financing statement not seriously misleading is filed within four months after the filed financing statement becomes seriously misleading.

6. Reading 9-507(c)
For a Name Change that is Seriously Misleading under 9-506
Secured creditor continues to be perfected for all pre-change collateral and for that acquired within four months after the name change
Not perfected for collateral acquired after the name change unless new FS filed within 4 months with appropriate name
September 17, 2018

7. Recall 9-506(c) (c) Financing statement not seriously misleading.
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.

8. M&T Trust Co.
Core Facts
Original Name of Debtor (from 1994): Patriot Electric, Inc.
2007 secured deal with M&T
Nov name change by Debtor: Patriot Electric and Mechanical, Inc.
September 17, 2018

9. M&T Trust Co. Core Facts M&T files continuation statements in 2011
Patriot files under Chapter 11 on March 22, 2013
September 17, 2018

10. September 17, 2018

11. M&T Continuation Statement
September 17, 2018
M&T Continuation Statement

12. M&T Continuation Statement
September 17, 2018
M&T Continuation Statement

13. M&T Trust Co.
Question
Given the name change, is M&T unperfected to any extent such that its security interest can be avoided under the hypothetical lien creditor power of BC 544?
September 17, 2018

14. Certified Questions Question 1
Is a financing statement that does not contain the debtor’s correct name and is not discoverable by searching for the debtor’s correct name within the filing office records by utilizing the Search Logic promulgated by SDAT, but is otherwise discoverable if a searcher of the filing office
September 17, 2018

15. Certified Questions Question 1
records submits the correct beginning of the debtor’s name utilizing the Search Logic, seriously misleading within the meaning of 9-502(a)(1), 9-503(a)(1) and of the Annotated Code of Maryland, Commercial Law Article?
September 17, 2018

16. Certified Questions Question 2
How should the Search Logic instruction that requires a searcher to enter “as much or as little of the [debtor’s] name [as the searcher] is certain of” be construed in the case of Section 544(a)’s hypothetical lien creditor who is statutorily mandated to be “without knowledge”?
September 17, 2018

17. September 17, 2018
Maryland SDAT

18. September 17, 2018
Maryland SDAT

19. “If the search name is an entity (corporation, trust, government agency, etc.): Enter as much or as little of the name that you are certain of, but what you enter must be the beginning of the name as it appears in this file. A partial name cannot be used unless it is the beginning of the name. Use only the standard 26 English letters and 10 Arabic numerals.”
September 17, 2018
Maryland SDAT

20. “Case and punctuation are irrelevant
“Case and punctuation are irrelevant. For example, MIDATLANTIC is the same as Mid-Atlantic, mid-atlantic and Mid!Atlantic. There are four special cases however:”
September 17, 2018
Maryland SDAT

21. Case 1: The word “The”
“The” will not be found at the beginning of a name. (Example: To find THE SMITH GROUP, enter smithgroup) If “THE” appears elsewhere in the name, either leave it out (to find STAN THE MAN GROUP, enter “stanmangroup”) or enter spaces before and after THE “stan the mangroup”) (To find BALTIMORE THERAPY GROUP, P.A., enter “baltimorether”)
September 17, 2018
Maryland SDAT

22. Do not enter the word “AND” unless it is the beginning of the name.
Case 2: The word “AND”
Do not enter the word “AND” unless it is the beginning of the name.
(Example: To find “AND DAVE SAID, INC” enter “anddaves”) (To find “THE BALTIMORE AND OHIO RAILROAD” enter “baltimoreohio”) (Entry of “baltimoreand” will find “BALTIMORE ANDULUSIA SHIPPING” but not “BALTIMORE AND OHIO RAILROAD”)
September 17, 2018
Maryland SDAT

23. Case 3: Entity Tails
Do not enter an entity tail (the statutory terms required in the names of certain entities like Co., LLC, Corporation, P.C., etc) if it ends the name.
(Example: To find “The Smith Corp.”, enter “smith”. To find “The Smith Corporation Maryland, Inc.” you can enter as much as “smithcorporationmaryland”. If you add “i” or more at the end however it will not be found)
September 17, 2018
Maryland SDAT

24. Case 4: One, two or three character searches
If you enter only one, two or three characters the system will perform an exact name search rather than a wild card search.
(Example 1: Entry of ab will find “THE A&B CORPORATION” but not “ABC INC” or “ABLE” or “A.B.L.E”. Example 2: Entry of abc will find “ABC Inc” but not “ABC Company, Inc.” or “ABC Stores” or “A.B.C.D.”. )
September 17, 2018
Maryland SDAT

25. Search Results Tip:
Carefully review search results. The order of presentation of the results may not be what you expect because punctuation does not make a difference. For an example of this, search “transamer” in the UCC records and study the order in which the results are presented.
September 17, 2018
Maryland SDAT

26. Maryland Instructions and 9-506(c)
Clear Conflict
Maryland has the uniform version of 9-506(c)
That section focuses on a search in the debtor’s correct name
Maryland seems to instruct searchers not to do that
September 17, 2018

27. Maryland Instructions and 9-506(c)
Different Than Search Logic
Search logic takes the debtor’s correct name and slices and dices it pursuant to particular rules
Maryland could implement the case, punctuation, “and” and entity tail rules through the search logic and do so consistent with the statute
September 17, 2018

28. September 17, 2018
Search in Old Name

29. September 17, 2018
Search in Old Name

30. September 17, 2018
Search in New Name

31. September 17, 2018
Search in New Name

32. September 17, 2018
Search in Old Name

33. Search in Four Letter Stem: “part”
September 17, 2018

34. Search in Four Letter Stem: “part”
September 17, 2018

35. Search in Four Letter Stem: “part”
September 17, 2018

36. 6‑15: Incorporation of Sole Proprietorships
9/17/2018
6‑15: Incorporation of Sole Proprietorships
Joe’s Place
Joe’s Place, Inc.
2/28: Incorporation
2/1
SA: All Assets & AAP
FS: Joe
3/1: $
SA: AA & AAP
FS: JPI
Finco
Bank
3/1 Who has priority?
September 17, 2018

37. 6‑15: Answer Pre-Change Assets SI survives transfer under 9-315(a)(1)
9/17/2018
6‑15: Answer
Pre-Change Assets
SI survives transfer under 9-315(a)(1)
FS remains effective under 9-507(a)
Bank wins under 9-322(a)(1)
September 17, 2018

38. 6‑15: Answer Post-Change Assets
9/17/2018
6‑15: Answer
Post-Change Assets
Absent special rule, Bank has no SA with JPI, thus no way to get SI in JPI assets, except through proceeds rules
Revised Article 9 creates new special rules
September 17, 2018

39. Debtor Definitions 9-102(a)(56)
9/17/2018
Debtor Definitions
9-102(a)(56)
“New debtor” means a person that becomes bound as debtor under Section 9‑203(d) by a security agreement previously entered into by another person.
September 17, 2018

40. Debtor Definitions 9-102(a)(60)
9/17/2018
Debtor Definitions
9-102(a)(60)
“Original debtor” means a person that, as debtor, entered into a security agreement to which a new debtor has become bound under Section 9‑203(d).
September 17, 2018

41. 9/17/2018
9-203(d)
(d) [When person becomes bound by another person’s security agreement.]
A person becomes bound as debtor by a security agreement entered into by another person if, by operation of law other than this article or by contract:
(1) the security agreement becomes effective to create a security interest in the person’s property; or
September 17, 2018

42. 9/17/2018
9-203(d)
(2) the person becomes generally obligated for the obligations of the other person, including the obligation secured under the security agreement, and acquires or succeeds to all or substantially all of the assets of the other person.
September 17, 2018

43. 9-203(e) (e) [Effect of new debtor becoming bound.]
9/17/2018
9-203(e)
(e) [Effect of new debtor becoming bound.]
If a new debtor becomes bound as debtor by a security agreement entered into by another person:
(1) the agreement satisfies subsection (b)(3) with respect to existing or after-acquired property of the new debtor to the extent the property is described in the agreement; and
September 17, 2018

44. 9/17/2018
9-203(e)
(2) another agreement is not necessary to make a security interest in the property enforceable.
September 17, 2018

45. What Does This Mean? Attachment of the SI Is this SI Perfected?
9/17/2018
What Does This Mean?
Attachment of the SI
In 6-15, if 9-203(d) is satisfied, Bank will have a SI in the new assets acquired by JPI as original collateral
This is independent of any proceeds interest that Bank might claim
Is this SI Perfected?
This is and 9-507

46. 9-508 (a) [Financing statement naming original debtor.]
9/17/2018
9-508
(a) [Financing statement naming original debtor.]
Except as otherwise provided in this section, a filed financing statement naming an original debtor is effective to perfect a security interest in collateral in which a new debtor has or acquires rights to the extent that the financing statement would have been effective had the original debtor acquired rights in the collateral.

47. 9-508 (b) [Financing statement becoming seriously misleading.]
9/17/2018
9-508
(b) [Financing statement becoming seriously misleading.]
If the difference between the name of the original debtor and that of the new debtor causes a filed financing statement that is effective under subsection (a) to be seriously misleading under Section 9‑506:
September 17, 2018

48. 9/17/2018
9-508
(1) the financing statement is effective to perfect a security interest in collateral acquired by the new debtor before, and within four months after, the new debtor becomes bound under Section 9‑203(d); and
September 17, 2018

49. 9/17/2018
9-508
(2) the financing statement is not effective to perfect a security interest in collateral acquired by the new debtor more than four months after the new debtor becomes bound under Section 9‑203(d) unless an initial financing statement providing the name of the new debtor is filed before the expiration of that time.
September 17, 2018

50. 9-508 (c) [When section not applicable.]
9/17/2018
9-508
(c) [When section not applicable.]
This section does not apply to collateral as to which a filed financing statement remains effective against the new debtor under Section 9‑507(a).
September 17, 2018

51. What Does this Mean? Perfection of the SI
9/17/2018
What Does this Mean?
Perfection of the SI
In 6-15, again assuming that 9-203(d) applies, Bank’s SI in after-acquired property acquired by JPI is perfected as to property acquired within 4 months of the change
And thereafter if new debtor’s name does not make filed old debtor’s name seriously misleading
September 17, 2018

52. What Does this Mean? What is the priority of this SI?
9/17/2018
What Does this Mean?
What is the priority of this SI?
This is addressed by
September 17, 2018

53. 9-326 (a) [Subordination of security interest created by new debtor.]
9/17/2018
9-326
(a) [Subordination of security interest created by new debtor.]
Subject to subsection (b), a security interest that is created by a new debtor in collateral in which the new debtor has or acquires rights and is perfected solely by a filed financing statement that would be ineffective to perfect the security interest
September 17, 2018

54. 9/17/2018
9-326
but for the application of Section 9-316(i)(1) or is subordinate to a security interest in the same collateral which is perfected other than by such a filed financing statement.
September 17, 2018

55. 9/17/2018
9-326
(b) [Priority under other provisions; multiple original debtors.]
The other provisions of this Part determine the priority among conflicting security interests in the same collateral perfected by filed financing statements described in subsection (a). However, if the security agreements to which a new debtor became bound as debtor were not entered into by
September 17, 2018

56. 9/17/2018
9-326
the same original debtor, the conflicting security interests rank according to priority in time of the new debtor’s having become bound.
September 17, 2018

57. 9/17/2018
6-15: Answer
Priority
In 6-15, Bank loses to Finco as to after-acquired property acquired by JPI
Bank will be perfected as to that property solely under 9-508
9-326(a) subordinates Bank’s SI
September 17, 2018

58. 6-15: Answer Bottom Line on 6-15
9/17/2018
6-15: Answer
Bottom Line on 6-15
Bank will win as to pre-change property
Bank will lose to Finco as to post-change property, even if 9-203(d) does apply, which we have not yet determined
September 17, 2018

59. 6-15: Answer Bottom Line on 6-15
9/17/2018
6-15: Answer
Bottom Line on 6-15
What happens if Bank files a new FS in new debtor’s name within four month window called for by 9-508(b)(2)?
9-326(b) seems to say Bank loses to Finco in this situation (and see example 4 in the comments)
But compare Bank of the West and Kupperman
September 17, 2018

60. Summit Staffing Polk County, Inc.
9/17/2018
Summit Staffing Polk County, Inc.
Randy Vincent
Summit Staffing of Polk County, Inc.
3/14/02: Incorporation
8/22/01: SA: AR
9/4/01: FS: AR
Summit Staffing as 2nd debtor
Associated
10/16/02: What is SP’s position?
September 17, 2018

61. Searching Florida What names should we search on?
9/17/2018
Searching Florida
What names should we search on?
Summit Staffing of Polk County, Inc.?
Summit Staffing?
Randy Vincent? Randy A. Vincent?
Vincent, Randy? Vincent, Randy A.?
Randolf Vincent?
September 17, 2018

62. Florida UCC Search Here
September 17, 2018

63. 11/12/08 Search: “Summit Staffing of Polk County, Inc.”
9/17/2018
Run on 11/12/2008
11/12/08 Search: “Summit Staffing of Polk County, Inc.”
September 17, 2018

64. 11/12/08 Search: “Summit Staffing”
9/17/2018
11/12/08 Search: “Summit Staffing”
September 17, 2018

65. 11/12/08 Search on Lapsed Statements: “Summit Staffing”
9/17/2018
11/12/08 Search on Lapsed Statements: “Summit Staffing”
September 17, 2018

66. 9/17/2018
September 17, 2018
Vincent FS

67. 9/17/2018
[More]
September 17, 2018

68. 9/17/2018
September 17, 2018
Vincent FS

69. 9/17/2018
September 17, 2018
Vincent FS

70. Applying 9-203(d) Says the Court
9/17/2018
Applying 9-203(d)
Says the Court
In this case, after entering the security agreement with Associated Receivables, the business changed its business structure from a sole proprietorship (Randy Vincent d/b/a Summit Staffing) to a corporation (Summit Staffing of Polk County, Inc.).
September 17, 2018

71. Applying 9-203(d) Says the Court Is this what 9-203(d) says?
9/17/2018
Applying 9-203(d)
Says the Court
The new corporation became generally obligated for the obligations of the sole proprietorship, including the obligation secured under the security agreement, and acquired or succeeded to all or substantially all of the assets of the sole proprietorship.
Is this what 9-203(d) says?

72. 9/17/2018
When Does 9-203(d) Kick In?
9-203(d): By operation of law other than this article or by contract:
(1) the security agreement becomes effective to create a security interest in the person’s property; or
September 17, 2018

73. 9/17/2018
When Does 9-203(d) Kick In?
(2) the person becomes generally obligated for the obligations of the other person, including the obligation secured under the security agreement, and acquires or succeeds to all or substantially all of the assets of the other person.
September 17, 2018

74. Duty to Search v. Duty to Look through Search Results
9/17/2018
Duty to Search v. Duty to Look through Search Results
Says the Court
“A searcher is not required to conduct multiple searches; however, a searcher must reasonably examine the results of the proper search using the debtor’s correct name to determine if any financing statements relating to the debtor are disclosed by that search.”
September 17, 2018

75. Duty to Search v. Duty to Look through Search Results
9/17/2018
Duty to Search v. Duty to Look through Search Results
Says the Court
“If a reasonably diligent searcher would find the erroneous financing statement among the results of a proper search, then notice of the financing statement has been provided. Such a financing statement meets the requirements of 9‑506(c) and is not seriously misleading.”
September 17, 2018

76. Planned Furniture Promotions
9/17/2018
Planned Furniture Promotions
Ben/Laura Youngblood
Benjamin S. Youngblood, Inc.
2/25/99: Incorporation
2/4/99: Inv, AR, EQ, All assets of Old Salem Furniture
2/22/99: FS: B&L Y
7/9/01: Modification done with B&L
Citizens Bank
10/16/02: What is Bank’s position?
September 17, 2018

77. What Kind of Case is This?
9/17/2018
What Kind of Case is This?
Name Change or Incorporation?
What turns on that?
Says the Court
“A search of the filing records under the name ‘Benjamin S. Youngblood, Inc.’ would almost assuredly turn up a financing statement filed under the name Benjamin Scott Youngblood.”
September 17, 2018

78. What Kind of Case is This?
9/17/2018
What Kind of Case is This?
“It is therefore reasonable to conclude that a diligent creditor searching the filing records under the name Benjamin S. Youngblood, Inc. would be put on notice to inquire into the interests of a debtor listed as Benjamin Scott Youngblood. As a result, the name change cannot be considered seriously misleading.”
September 17, 2018

79. What Kind of Case is This?
9/17/2018
What Kind of Case is This?
“Accordingly, the Bank’s security interest remained perfected at all times and the IRS’s motion for summary judgment must be denied.”
September 17, 2018

80. Understanding 9-325 Buyer Debtor Finco Bank
9/17/2018
Understanding 9-325
Buyer
Debtor
3/1: Transfer of EQ with SI surviving
1/1: $, SA: EQ, FS: EQ
2/1: $, SA: EQ, FS: EQ
3/15: Who has priority in EQ at Buyer?
Bank
Finco
September 17, 2018

81. 9-325: Priority of security interests in transferred collateral.
(a) Subordination of security interest in transferred collateral.
Except as otherwise provided in subsection (b), a security interest created by a debtor is subordinate to a security interest in the same collateral created by another person if:
September 17, 2018

82. 9-325: Priority of security interests in transferred collateral.
(1) the debtor acquired the collateral subject to the security interest created by the other person;
(2) the security interest created by the other person was perfected when the debtor acquired the collateral; and
(3) there is no period thereafter when the security interest is unperfected.
September 17, 2018

83. Answer
Bank has priority over Finco under 9-325
September 17, 2018

84. Understanding 9-325 Buyer Debtor Finco Bank
9/17/2018
Understanding 9-325
Buyer
Debtor
3/1: Transfer of EQ with SI surviving
2/1: $, SA: EQ, FS: EQ
1/1: $, SA: EQ, FS: EQ
3/15: Who has priority in EQ at Buyer?
Bank
Finco
September 17, 2018

85. Answer Bank has priority over Finco under 9-325 Surprising?
This is a deviation from financing-statement based temporal priority
Reflects a different type of temporal priority as pre-transfer, Bank was first and continues that
September 17, 2018

86. 2/1: $, SA, FS: All Assets & AAP
9/17/2018
6‑16: Changes
ParentCo
SubCo1
SubCo2
3/1: $, SA, FS: AA & AAP
2/1: $, SA, FS: All Assets & AAP
Finco
Bank
4/1 Who has priority?
September 17, 2018

87. Answer
No SI conflict between Bank and Finco
September 17, 2018

88. 2/1: $, SA, FS: All Assets & AAP
9/17/2018
6‑16: Changes
ParentCo
SubCo1
SubCo2
3/1: $, SA, FS: AA & AAP
2/1: $, SA, FS: All Assets & AAP
3/15: Division transfer
Finco
Bank
4/1 Who has priority?
September 17, 2018

89. Answer New Conflict Emerges between Bank and Finco
Consult (and maybe 9-326)
September 17, 2018

90. Answer Answer Applies to collateral transferred in 3/15 transaction
Based on FSs alone, Bank would appear to win
9-325(a) calls off that rule to preserve the priority position that existed prior to the transfer
This is the so-called “double debtor” problem (see comment 2)
September 17, 2018

91. Next Question
What about newly-acquired assets after the transfer of the division?
9-325 applies only to transferred collateral
Consult (again) 9-326
If it applies, Finco will be junior to Bank as to post-transfer assets under 9-326(a) (but see Bank of the West)
September 17, 2018

92. 2/1: $, SA, FS: All Assets & AAP
9/17/2018
Mergers I
ParentCo
SubCo1
SubCo2
3/15: Merger of 2 into 1
3/1: $, SA, FS: AA & AAP
2/1: $, SA, FS: All Assets & AAP
Finco
Bank
4/1 Who has priority?
September 17, 2018

93. Answer As to the pre-merger assets now held by the surviving entity
Each secured party holds serve (maintains the pre-merger priority) as to those assets under 9-325
September 17, 2018

94. Answer As to the post merger assets acquired by the surviving entity
Assume 9-203(d) applies (and it should)
That means that SubCo1 becomes bound by operation of law to the 3/1 Finco SA
Finco will be perfected under but will want to file within 4 months if seriously misleading
September 17, 2018

95. Answer
Finco will be junior to the post-merger new assets under 9-326
To Sum
Each SP maintains priority to pre-merger assets
SP of surviving entity is superior to new post-merger assets under given vanishing entity SP perfection flows from 9-508
September 17, 2018

96. 2/1: $, SA, FS: All Assets & AAP
9/17/2018
Mergers II
ParentCo
SubCo1
SubCo2
3/15: Merger of 1 into 2
3/1: $, SA, FS: AA & AAP
2/1: $, SA, FS: All Assets & AAP
Finco
Bank
4/1 Who has priority?
September 17, 2018

97. Answer
With different survivor, priority to new post-merger assets flips
Finco will have priority as to those assets as now Bank will be claiming perfection via 9-508
September 17, 2018

98. Who has priority to post July 1st AR of beverage operations?
9/17/2018
Bank of the West
BCI
BWTC
Allied
Bank of the
West
4/5/82
SA: INV, AR, PR
FS: Calif SS
7/1/84
Transfer of
Beverage
Business
Allied
BIBCO
1/13/84: Restructuring
6/11/84: Name Change
1/5/84
Factoring Deal
SA: INV, AR, PR
FS: Calif SS
CCFS
Who has priority to post July 1st AR of beverage operations?
September 17, 2018

99. Answer Under Revised Article 9?
9/17/2018
Answer Under Revised Article 9?
Critical question is whether 9-203(d) applies
If yes:
Allied/Bibco becomes bound under CCFS agreement
9-508(b) gives 4 month perfection
9-326(a) subordinates CCFS position if Bank of the West is perfected and remains perfected.
September 17, 2018

100. Answer Under Revised Article 9?
9/17/2018
Answer Under Revised Article 9?
If no:
Bank of the West wins, even if unperfected
As to 9-203(d)
Do note Comment 7
“In many cases, paragraph (2) will exclude successors to the assets and liabilities of a division of a debtor.”
September 17, 2018

101. Answer Under Revised Article 9?
9/17/2018
Answer Under Revised Article 9?
Same issues posed by case still exist
Only question is whether express limited embrace of new debtor situations will limit the willingness of courts to go outside the statute
September 17, 2018

102. Merrill Lynch v. Kupperman
9/17/2018
Merrill Lynch v. Kupperman
PGB
PITTRA
2003: Incorporation and Asset Transfer
2002: $, SA, FS: All Assets (and binding on “successors and assigns”)
2004: $, SA, FS: All Assets
2006: Who has priority?
Merrill
Chase
September 17, 2018

103. What Should We Make of Footnote 2?
Text
“Even assuming that this claim was properly raised, New Jersey law does not compel a contrary conclusion. Under 9-326(a), a perfected security interest that is effective solely under is subordinate to a perfected security interest that is effective by means other than solely under ”
September 17, 2018

104. What Should We Make of Footnote 2?
Text
“However, Comment 2 of explains that ‘a filed financing statement that is effective solely under Section 9-508’ does not ‘encompass a financing statement filed against the original debtor which remains effective against collateral transferred by the original debtor to the new debtor.’”
September 17, 2018

105. What Should We Make of Footnote 2?
Text
“As described above, applies to the assets transferred from PITTRA to PGB. Thus, Merrill has priority of interest.”
Does that seem right?
September 17, 2018