Academic journal article Texas Law Review

Good Technology and Bad Law: How Computerization Threatens Notice Filing under Revised Article 9*

Academic journal article Texas Law Review

Good Technology and Bad Law: How Computerization Threatens Notice Filing under Revised Article 9*

Article excerpt

If you look very, very closely, you will find typographical errors in this Note. Despite the rigors of law review proofreading, somewhere there is a hyphen that should be a dash or an incorrect word abbreviation. In general business practice, one would expect there to be many such mistakes. Usually, trivial spelling errors have few legal implications. Under the revised Article 9, minor errors in the debtor's name can render a financing statement ineffective and leave the filing party's security interest unperfected.

Article 9 of the Uniform Commercial Code was substantially overhauled in 2000. The revision represents a major effort to address new technologies and evolving commercial realities and to clarify troublesome provisions under the previous statute. As courts, practitioners, and legislatures work to decipher the new rules, emerging case law suggests that some revisions, which were intended to establish clear and equitable standards, have instead created a new set of problems and complexities.

This Note focuses on revisions to two specific sections of Article 9: the debtor name requirements found in § 9-503 and the safe harbor for minor errors provided in § 9-506. These revisions, combined with the expanded use of computerized search technology, have created an environment where technology can be utilized to hinder secured transactions rather than to facilitate them. Ultimately, despite clear and well-considered objectives, Article 9's drafters have created a rule not about providing notice to later secured parties but about inflexible uniformity and unnecessary transaction costs.

This Note provides a window into this unsatisfactory outcome and suggests solutions for escaping it. Part I introduces Article 9 notice filing, the debtor name requirement, state filing systems, and the issues that prompted revision. Part II provides a brief examination of the statutory and judicial history of the debtor name requirement. Parts III and IV respectively discuss the goals of and obstacles to Article 9's revision and the parameters of the new standard. Part V examines the effects and implications of the new standard, and Part VI suggests possible alternatives to that standard.

I. An Introduction to Article 9's Notice Filing System

Integral to Article 9 is the concept of notice filing, which allows a creditor-usually by filing a brief financing statement with the local secretary of state's office-to record a security interest in a debtor's property.1 Each secretary of state indexes these financing statements by debtor name,2 creating a searchable electronic database in which a debtor's secured loan status may be retrieved merely by entering that name. If the filing creditor makes errors in the debtor's name, later creditors who search the database may not discover the earlier notice. Ideally, the statute would address the legal effect of errors in spelling, as well as usage of nicknames, trade names, and aliases. The extent to which errors are tolerated reflects a balance between the filing creditor's obligation to enter the correct name and the burden on later searchers to look diligently for prior filings. The recent revisions to Article 9 substantially altered the debtor name requirements, and in doing so they shifted the standard for determining whether a given financing statement perfects the filer's interest in the debtor's property.

Debtor name requirements under the former Article 9 presented two major problems, both of which spawned extensive litigation. First, the phrase "debtor name" was not defined in the statute. Primarily due to vagueness in the language of the Code itself, § 9-402 admitted the possibility of effectively filing under a name other than the debtor's legal name, such as a trade name, commonly used name, or an alias.3 Second, although the financing statement could contain minor errors, the Code barred the use of information that was "seriously misleading."4 Unfortunately, the U. …

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