The Importance of Using Local Search Logic in UCC Searches
Conducting searches of Uniform Commercial Code (the “UCC”) filings is commonplace for many businesses and lenders. However, the results of a UCC search heavily rely on how the search is crafted. The UCC provides a safe harbor for searches conducted using local search logic. The importance of this provision was highlighted in a recent court case.
In Northside Elevator Corp. v. Ossmann, the Court of Appeals of Wisconsin considered whether a creditor’s failure to update a debtor’s name on a UCC financing statement made that statement seriously misleading and thus ineffective to perfect the creditor’s security interest. Under the UCC, a financing statement for an individual debtor is sufficient if the financing statement provides the debtor’s name as it appears on his driver’s license. When the financing statement at issue here was originally made, the debtor’s driver’s license provided his first name, middle initial, and last name. Several years later, the debtor obtained a new license that spelled out his middle name. Since the creditor did not refile its financing statement within four months of the name change, the financing statement would have been deemed seriously misleading, and thus ineffective, if not for a UCC safe harbor provision.
A UCC financing statement is not seriously misleading due to failure to sufficiently provide the debtor’s name if the financing statement would be disclosed by a search of the filing office’s records under the debtor’s correct name using that office’s standard search logic, if any. Stated differently, a person conducting a UCC search who does not use local search logic cannot complain that a financing statement is seriously misleading if the statement would have been disclosed had the searcher availed himself of the search logic. Here, the relevant filing office’s standard search logic treated initials as the equivalent of all names that begin with such initials when searching first and middle names. The UCC financing statement at issue was not seriously misleading by virtue of the difference in the debtor’s middle name, and the creditor’s security interest did not become unperfected.
Indiana and Wisconsin have the same UCC provisions and search logic for initials. Therefore, creditors conducting a UCC search in Indiana for an individual debtor should use the search logic provided by Indiana Secretary of State’s Office Administrative Rule 503 to be confident all relevant filings have been found. The author thanks law clerk Jozie M. Barton for her assistance with this article.