Mainsource Bank v. Leaf Capital Funding, LLC (In re Nay)
2017 Bankr. LEXIS 472, 563 B.R. 535 (2017)
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Rule of Law:
Under Indiana's version of the Uniform Commercial Code, a financing statement for an individual debtor must provide the exact name shown on the debtor's unexpired driver's license. An error, even a minor one, renders the financing statement seriously misleading and ineffective unless a search of the records under the debtor's correct name, using the filing office's standard search logic, would still disclose the erroneous statement.
Facts:
- MainSource Bank extended a loan to Ronald Markt Nay and his wife, secured by personal property including equipment.
- On February 4, 2014, MainSource properly perfected its security interest by filing a UCC financing statement with the Indiana Secretary of State using the debtor's correct name, 'Ronald Markt Nay'.
- In December 2015, LEAF Capital Funding, LLC made two loans to Ronald Markt Nay to finance the purchase of two pieces of dump wagon equipment.
- LEAF filed two separate UCC financing statements in December 2015 to perfect its security interests in the specific pieces of equipment it financed.
- On both of its financing statements, LEAF identified the debtor as 'Ronald Mark Nay,' omitting the letter 't' from his middle name.
- The debtor's legal name, as listed on his unexpired Indiana driver's license at the time of the filings, was 'Ronald Markt Nay'.
Procedural Posture:
- Ronald Markt Nay and Sherry L. Nay commenced a Chapter 11 bankruptcy case in the U.S. Bankruptcy Court for the Southern District of Indiana on May 13, 2016.
- On September 21, 2016, MainSource Bank initiated an adversary proceeding against LEAF Capital Funding, LLC within the bankruptcy case.
- MainSource's complaint sought a declaratory judgment to establish the priority of its lien and objected to LEAF's proof of claim.
- MainSource Bank filed a Motion for Judgment on the Pleadings, asking the bankruptcy court to rule as a matter of law that its security interest had priority over LEAF's.
- The case is before the U.S. Bankruptcy Court for a decision on MainSource's motion.
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Issue:
Does the inadvertent omission of a single letter from a debtor's middle name on a UCC financing statement render the statement seriously misleading and therefore ineffective under Indiana law, when the statute requires the debtor's name to match their driver's license exactly?
Opinions:
Majority - Lorch
Yes. The inadvertent omission of a single letter from the debtor's middle name renders the UCC financing statement seriously misleading and therefore ineffective. Indiana's statute, IC § 26-1-9.1-503(a), provides that a financing statement for an individual with a driver's license is sufficient only if it provides the name exactly as indicated on the license. Since LEAF's financing statements listed the debtor's name as 'Ronald Mark Nay' instead of the correct 'Ronald Markt Nay,' they failed to meet this strict requirement and are, by default, seriously misleading under IC § 26-1-9.1-506(b). The financing statements are not saved by the safe harbor provision of § 26-1-9.1-506(c) because a search of the filing office's records using the debtor's correct name ('Ronald Markt Nay') and the office's standard search logic would not disclose LEAF's erroneously filed statements. The burden is on the filer to ensure the name is correct, not on the searcher to find variations.
Analysis:
This case illustrates the judiciary's strict adherence to the bright-line rule established by the 2010 amendments to UCC Article 9 regarding debtor names. The decision underscores that the responsibility for accuracy lies entirely with the secured party, and even minor typographical errors can be fatal to perfection. By refusing to place a burden on searchers to look for name variations, the court reinforces the goal of creating a simple, efficient, and predictable public notice system. This ruling serves as a stark warning to creditors that they must exercise extreme diligence in verifying a debtor's name against the specified source document—in this case, a driver's license—to ensure their security interests are enforceable.
