SEARCH LOGIC AND DEBTOR NAMES ON FINANCING STATEMENTS
What’s in a name? Well, according to the Florida Supreme Court, when it comes to using a debtor’s correct name on a financing statement, it can mean everything. In 1944 Beach Boulevard, LLC v. Live Oak Banking Company, 346 So.3d 587 (Fla. 2022), the case arose from a debtor who claimed that the bank did not have a valid security interest in the debtor’s assets. The bank in this case had attempted to perfect the bank’s security interest in the debtor’s assets by filing two financing statements. The financing statements listed the debtor as “1944 Beach Blvd., LLC” instead of the debtor’s correct legal name “1944 Beach Boulevard, LLC,” as shown on the debtor’s incorporatation documents. The debtor claimed that because of the bank’s mistake in the debtor’s name listed on the financing statement, the bank’s financing statements did not perfect its security interest.
Under the Uniform Commercial Code (“UCC”), an error in a debtor’s name on a financing statement is not fatal to the effectiveness of the security interest, so long as the error does not make the filed UCC financing statement “seriously misleading.” This safe harbor applies when the financing statement with the incorrect name is found during a Secretary of State records search using the Secretary of State office’s “standard search logic.” In other words, if a searcher runs a search with the Secretary of State’s office using the correct legal name, and the financing statement with the incorrect legal name shows up as part of the search results, then the financing statement with the incorrect legal name is not considered “seriously misleading” and, therefore, is a valid financing statement.
In this case, the Florida Supreme Court made a determination that the Secretary of State’s office did not use a “standard search logic” and therefore, no safe harbor protection was available to banks filing a financing statement with an incorrect name. The Court pointed out that the Uniform Commercial Code does not define what “standard search logic” means. However, the Court concluded that, because a search in the Florida Secretary of State’s database did not produce an unambiguous identification of hits, the Secretary of State’s office did not use “standard search logic.” The Court went on to conclude that since the State’s filing office did not use a standard search logic, then the safe harbor could not be applied. Without a safe harbor, the error in the name in this case left the financing statement seriously misleading and, therefore, ineffective to perfect its security interest.
The lesson for lenders in this case is not to rely on the search logic in a particular filing office to save your financing statement when it contains name errors. Check and double check debtor names on financing statements to make sure that they comply with UCC requirements.