Document Type

Article

Publication Date

1-2024

Abstract

Since the widespread adoption of the Uniform Commercial Code (UCC) in the 1960s, the UCC's name-based filing system has been a constant embarrassment to its drafters. System overhauls in 1998 and 2010 failed to fix it.

In Florida, the problem came to a head in 1944 Beach Boulevard, LLC v. Live Oak Banking. Based on a widely shared misunderstanding of how Florida's unorthodox, privatized UCC filing system worked, the Florida Supreme Court held that the system had no search logic, so the UCC § 9-506(c) safe harbor from debtor name errors did not apply. Instead, a "zero-tolerance" test applied, with the consequence that any error in a debtor's name on a financing statement "no matter how minor" renders the financing statement ineffective and the secured party unperfected.

This Article presents the first formal empirical study estimating an error rate for UCC filings anywhere in the United States. The study found that under the Florida Supreme Court's zero-tolerance test, 32% of UCC filings in Florida against registered organizations—over 230,000 filings—are ineffective by reason of name errors alone. Even if Florida had adopted the traditional search logic used in other states and qualified for the safe harbor, 5% of the filings—about 11,650 filings—would still have been ineffective for name errors alone.

This Article argues that, with respect to filings against registered organizations, the states should replace the UCC’s name-based filing system with a point-and-click filing system. In a point-and-click system, UCC filings against registered organizations would be made, stored, and searched in the state’s entity records. Such a system is already operational in the United Kingdom. Instead of filers and searchers trying to reproduce the elusive “public organic record” names of registered organizations in the correct boxes on filing and search requests, filers and searchers would need only to navigate to the debtor’s entity record on the state’s website. There, lenders could click on their debtors’ correct names to file financing statements, and searchers could see all UCC filings against their debtors in one place. All information a filer or searcher would need to determine whether it was filing or searching against the correct entity would be visible to it on the same page. That would include addresses, public organic records, and annual reports. Point-and-click would eliminate debtor name errors in filing and searching, eliminate the need for debtor name amendments and debtor name monitoring, greatly simplify the processes of filing and searching, and dramatically reduce wrong-entity and wrong-state filing errors. It would increase the accuracy of the UCC filing system while cutting its costs to filers, searchers, and the state to a fraction of their current levels.

Download

Share

COinS