If you are loaning money in Pennsylvania on a secured basis you must use the name of your individual debtor as stated on his/her driver’s license for your financing statement. 13 Pa.C.S.A. § 9503(a)(4). Secured lenders should not use a debtor’s nickname or look to a birth certificate or passport to figure out the “correct name” of their debtor. Although there has yet to be a court in Pennsylvania to affirm the plain language of the law, a secured lender in Indiana recently learned a hard lesson when it failed to file a financing statement under the name of the debtor on his driver’s license.
Ronald Markt Nay or Ronald Mark Nay?
In In re Nay, Bankr. Case No. 16-90762-NHL-11, Adv. No. 16-59032 (S.D. Ind. 1/23/17), the United States Bankruptcy Court for the Southern District of Indiana was faced with two banks fighting over lien priority against a piece of equipment owned by “Ronald Markt Nay.” The debtor’s middle name as stated on his driver’s license was not Mark, rather, it was Markt (with a t). Most people would presume that Mr. Nay’s middle name was really Mark and the “t” added to his middle name on his driver’ s license was a clerical error. However, such a presumption would have been incorrect because the name of the debtor on his/her driver’s license controls.
Blanket Lien vs. Purchase Money Security Interest
The secured financing that underlies the Nay case was simple and happens throughout the United States on a daily basis. The first bank was Mr. Nay’s lead lender and it had a blanket lien against all of Mr. Nay’s current and future assets. The second bank later loaned Mr. Nay money on a secured basis so that he could purchase a piece of equipment and the second bank would obtain a purchase money security interest (“PMSI”) in the equipment. Typically, the second bank’s PMSI lien would be higher in priority than the first bank’ s blanket lien if the second bank’s financing statement was filed within 20 days after Mr. Nay received delivery of the equipment and his “correct name” was used in the financing statement. 13 Pa.C.S.A. § 9103 & 9324(a). The second bank timely filed its financing statement but listed the debtor as “Ronald Mark Nay” instead of “Ronald Markt Nay” as stated on his driver’s license (which was his real name).
Name of Driver’s License Controls
The Bankruptcy Court examined section 9503 of Article 9 which requires secured creditors to use the name of the debtor as stated on the debtor’ s driver’s license to properly perfect a security interest against an individual debtor. The Bankruptcy Court held that the second bank did not properly perfect its financing statement because it failed to use the “correct name” of the individual debtor (i.e., “Ronald Markt Nay”).
The Bankruptcy Court also tried to save the second bank’s financing statement by looking at the “safe harbor” provision in section 9506 of Article 9, but to no avail. A search of the correct name “Ronald Markt Nay” under Indiana’s search logic did not find the second bank’s financing statement and therefore the second bank was now in second lien position instead of first against the equipment in question.
We recommend that secured lenders obtain a copy of the debtor’s driver’s license for their records and make sure that the name on the financing statement matches the name of the debtor on his/her driver’s license.
