Driver’s Licenses and Perfection of Security Interests in Texas

A recent bankruptcy case in Georgia over an objection to a claim and related security interest is the basis for this month’s blog. Before your eyes glaze over because of the mention of the word bankruptcy, this month’s topic is important in the day-to-day world when a creditor files and records a financing statement and believes it has a perfected security interest.

The bankruptcy court in Georgia was faced with the issue of whether to sustain or reject the Chapter 12 debtor’s objection to the bank’s secured claim because the name used on the financing statement was the signed name of the debtor “Kenneth Pierce” on his driver’s license as opposed to the typed name of the debtor “Kenneth R. Pierce” on his driver’s license.  As a result, the debtor argued that the claim was an unsecured claim as opposed to a secured claim. In re Pierce, 2018 Bankr. LEXIS 287 (S.D. Ga. Feb. 1, 2018).

The court sustained the debtor’s objection based on Georgia’s UCC statute that states that the debtor’s name is sufficient on the financing statement “if the debtor is an individual to whom the state has issued a driver’s license that has not expired, only if the financing statement provides the name of the individual which is indicated on the driver’s license.” In re Pierce, 2018 Bankr. LEXIS 287 *10. However, the inquiry must go further because the financing statement substantially satisfies the requirements, even if there are minor omissions and errors, unless the errors or omissions make the financing statement “seriously misleading.” In re Pierce, 2018 Bankr. LEXIS 287, *10, citing, O.C.G.A. Section 11-9-506(a).

Although acknowledging that this was a case of first impression, the Georgia court noted that a seemingly-minor error in other cases has rendered the financing statement seriously misleading in other cases. It gave examples of cases where the secured party listed the debtor as “Net Work Solutions, Inc.” instead of “Network Solutions, Inc.” In re Pierce, 2018 Bankr. LEXIS 287 *11, citing, Receivables Purchasing Co., Inc. v. R & R Directional Drilling, LLC., 263 Ga. App. 649, 651-52, 588 S.E.2d 831 (2003); Bus. Corp. v. Choi, 280 Ga. App. 618, 619, 634 S.E.2d 400 (2006) (“Gu, Sang Woo” instead of “Sang Woo Gu”); see also In re Nay, 563 B.R. 535 (Bankr. S.D. Ind. 2017) (holding that filing under “Ronald Mark May” verus driver’s license name of Ronald Markt Nay was a fatal error”). The court also looked at other jurisdictions and the use of signed names, including nicknames, and came to the same conclusion that the signed name versus the typed name made the financing statement seriously misleading. In re Pierce, 2018 Bankr. LEXIS 287, *13-14. As a result, the bank’s claim was held to be unsecured.

While this was a Georgia case, a Texas courts would probably reach the same result. Texas UCC Section 9.503 (a)(4) has essentially the identical statutory language as its Georgia counterpart. Also, Texas courts, both state and bankruptcy, have taken a strict approach to the names on financing statements to determine if perfection occurred and the financing statements were not seriously misleading. The cases of Continental Credit Corp. v. Wolfe City Nat’l Bank, 823 S.W.2d 687 (Tex. App. – Dallas 1991, no writ) (holding that use of trade name was seriously misleading) and In re Jim Ross Tires, Inc., 379 B.R. 670 (Bankr. S.D. Tx. 2007) (holding that failure to include a letter “s” to include a plural in the debtor’s business name and listing debtor by business name and an expired assumed name were fatal to creditors’ claims) are the best pace to start if this issue arises in Texas. Both cases provide a lengthy discussion and analysis of the issue.

The opinions in this blog are solely the author’s and any comments, replies or suggestions should be sent to Happy Easter!