On December 20, 2019, the US Bankruptcy Court for the District of Kansas, in In re Preston, held that security interests in personal property were unperfected due to the UCC-1 financing statements (UCC-1s) incorrectly stating a debtor's name (Bankr. D. Kan. Dec. 20, 2019).

Debtor's full legal name is Dewey Dennis Preston; however, debtor has historically gone by D. Dennis Preston (with a period and a space) to avoid confusion with his father who has a similar name. Until June 7, 2019, the name displayed on debtor's driver's license was Preston D Dennis (with no period and with a space).

Debtor entered into two retail installment sale and security agreements with CNH Industrial Capital of America, LLC (CNH) for the purchase of a combine and a combine header on June 26, 2015 and January 5, 2016, respectively. CNH filed UCC-1s to perfect its security interests on the combine and combine header on June 29, 2015 and January 8, 2016, respectively. Both UCC-1s listed debtor's name as Preston D.Dennis, with Preston in the box for surname and D.Dennis (with a period and no space) in the box for first personal name.

Debtor filed for bankruptcy under Chapter 12 on October 3, 2018, leaving the two retail installment sale and security agreements with CNH at issue.

Debtor contended that CNH's security interests were unperfected because:

CNH states that its security interests are perfected because:

The Court first dismissed the argument that debtor had admitted CNH was secured because this defense was based on the parties' joint stipulation of facts, and that statement was made before examination of CNH's UCC-1s.

The Court then examined the issue of whether the UCC-1s were effective to perfect CNH's security interests. Under the Kansas UCC, a UCC-1 is only sufficient if it:

(K.S.A. 2018 Supp. 84-9-502(a).)

Furthermore, if debtor has a Kansas driver's license or identification card, the name of the debtor on the UCC-1 must be the name indicated on the debtor's driver's license or identification card. (K.S.A. 2018 Supp. 84-9-503(a)(4)). In this case, the UCC-1s filed used "D.Dennis" as the debtor's first name and the driver's license used "D" as the debtor's first name and "Dennis" as the debtor's middle name. Accordingly, CNH's UCC-1s were seriously misleading under Section 9-506(b) of the UCC and ineffective to perfect the security interests.

The Court also examined the safe harbor exception under Section 9-506(c) of the UCC, which provides that UCC-1s are not seriously misleading if they can be found by conducting an official UCC search using the debtor's correct name. The Court agreed with cases that reasoned that the language and intent of the UCC shifted responsibility of getting the name on the UCC-1 to the filing party so that the searching party should not need to undertake multiple searches using variations of the debtor's name. Neither a search for Dewey Dennis Preston nor one for D Dennis Preston located either UCC-1. CNH could therefore not rely on the exception.

The Court concluded that CNH's security interests were not perfected. Debtor's objection to CNH's proof of claim was sustained and the Court held that CNH's claim was properly treated as unsecured.

Secured parties should continue to be careful when preparing UCC-1 financing statements. It is important that a debtor's name is correctly determined by the secured party and provided on the UCC-1. If there is any doubt, multiple filings should be made using the additional debtor name field on the UCC-1.