By Paul Hodnefield, Associate General Counsel, Corporation Service Company

Article 9 is generally unforgiving when a financing statement contains even minor errors or omissions in the debtor name.  If the provided debtor name departs in any way from the requirements specified in UCC Section 9-503(a), the error can render a financing statement seriously misleading.  UCC filers must be very careful to provide the correct debtor name.  With some types of debtors, the correct name to provide on the financing statement is easy to determine.  However, that is not always the case when the debtor is engaged in a medical profession.

The name of a medical professional is frequently so closely associated with the person’s professional title that the two appear to be inseparable.  Consequently, professional titles, such as “M.D.,” “D.D.S.,” or “D.V.M.,” frequently make their way into the debtor name field on a financing statement.  In many cases, a financing statement that provides a professional title in the debtor name will be seriously misleading and ineffective.  This article explains when the title of a medical professional should be included in the debtor name and, more importantly, when it should not.    

Article 9 and Medical Professional Name Sufficiency

A financing statement that fails to sufficiently provide the debtor name required by Section 9-503(a) is seriously misleading under Section 9-506(b).  Section 9-506(c) provides an exception when a search of the correct debtor name, using the filing office’s standard search logic, if any, would disclose the record.  In that case, the name provided does not make the financing statement seriously misleading. 

If a debtor name does not comply with Section 9-503(a) because a professional title was either added or omitted from the correct name, the sufficiency of the financing statement is left at the mercy of the filing office’s standard search logic.  However, standard search logic generally will be of little help when errors involve professional titles. 

The standard search logic used by most state-level filing offices will disregard noise words that appear at the end of the debtor name.  A “noise word” is a word, phrase, or abbreviation that designates the existence or type of entity.  The noise word list created for use with the standard search logic contained in the Model Administrative Rules for Article 9 includes several endings that identify professional organizations, such as “PROFESSIONAL CORPORATION,” “P.L.L.C.,” and “P.A.” 

Unfortunately for the unwary UCC filer, standard search logic does not disregard personal professional titles, such as “M.D.” or “D.D.S.”  Moreover, standard search logic only disregards noise words that appear at the end of an organization debtor name.  Many debtor names provided with professional titles are those of individuals.  The standard search logic will not disregard any part of an individual name, even professional titles.
     
Several recent cases have reinforced that if the financing statement provides anything more or less than the exact name of the debtor, it will make the record seriously misleading under Section 9-506(b).  Adding a professional title to a debtor name will often make the financing statement seriously misleading, but not in all cases.  Some types of debtor names must include professional titles.  It depends on whether the financing statement is required to provide the name of an individual or that of an organization.

Individual or Organization Name?

The only time a professional title should be included as part of the financing statement debtor name is if Section 9-503(a) requires an organization name.  Thus, the initial step in determining the correct name of a medical professional debtor is to establish whether Section 9-503(a) requires an individual or organization name. 

It may not always be initially clear to UCC filers whether the debtor is an individual or an organization.  Medical professionals may practice as a sole proprietorship, a registered organization, or some other type of entity, such as a partnership.  Section 9-503(a) has different sufficiency requirements for each type of debtor name.  The UCC filer must determine what type of name is required and whether that type of name must include a professional title. 

Individual Debtor Names and Professional Titles

A person’s name does not change just because he or she has earned the honor of using a professional title.  Professional titles are simply not part of an individual debtor’s name and must never be provided in the individual name fields on a financing statement.  If added to an individual name field, the string of text provided as the debtor name will not equal the correct name of the debtor.  The search logic used by most filing offices will not find the financing statement on a search of the correct name under Section 9-506(c).  Consequently, adding a professional title to an individual name will almost certainly make the financing statement seriously misleading. 

UCC filers occasionally make the mistake of providing the name of a medical professional who practices as a sole proprietor as an organization debtor name.  For example, the organization name field on the financing statement may provide “JOHN W. DOE, D.D.S.”  However, if the debtor is a sole proprietor, the financing statement will only be sufficient if it provides the individual name of the proprietor.  If the previous example was a sole proprietor, the name must be provided in the individual name fields and should omit the “D.D.S.” title.

Registered Organization Names and Professional Titles

Many states allow the creation of professional entities, such as corporations, limited partnerships, associations, and limited liability companies.  These entities are often identified by words or initials, such as “PROFESSIONAL ASSOCIATION,” “PLLC,” or “P.C.,” at the end of the name.  Generally, these types of professional entities fall within the definition of “registered organization.”  Under Section 9-503(a)(1), the name of a registered organization is sufficient only if the financing statement provides the name of the debtor indicated on the public record that shows the debtor to have been organized.  Like other types of registered organizations, the source of the name of a professional entity for UCC filing purposes is the name stated in the formation documents. 

The name stated in the articles for many professional entities will include the name and title of a medical professional.  For example, the articles of incorporation for a professional corporation might state that the name of the entity is “JANE DOE, D.D.S., P.C.” In that case, the professional title is part of the debtor name and must be provided on the financing statement.  The UCC filer must remember that when the debtor name ends with a “noise word,” it is normally an organization name that must be provided on the financing statement, exactly as set forth in the formation documents.        

Partnership or Other Entity Names

UCC Section 9-503(a)(4) provides little guidance to help a filer determine the correct name of a debtor that is not a registered organization.  In such a case, the financing statement is sufficient only if it provides the organizational name of the debtor.  Thus, a filer must conduct thorough due diligence and use his or her best judgment regarding the correct name. 

Some medical practices are general partnerships or entities other than a registered organization.  These organizations may include professional titles as part of the name, especially when the general partners include titles in the name.  For example, if a partnership is known as “JOHN DOE, M.D. & JANE ROE, M.D. MEDICAL CLINIC,” that is likely the name to provide on the financing statement.  However, filers must be prepared to provide other possibly correct name variations as additional debtors.   

In some cases, a partnership or other non-registered organization may not have a name.  If the organization has no name, the financing statement must provide the names of the persons comprising the debtor under Section 9-503(a)(4)(B).  If those persons are medical professionals, the correct names must be determined using the same process described above for each type of name.

Conclusion

UCC filers must be careful to conduct proper due diligence when preparing a financing statement if the debtor is engaged in a medical practice.  Either adding or omitting a professional title in the debtor name on a financing statement can have serious consequences for the secured party.  The rules are different, depending on whether the debtor name is that of an individual or that of an organization.  UCC filers should also note that these principles apply equally to titles associated with other professions, such as “Ph.D.” or “Esq.” 

Paul Hodnefield is Associate General Counsel for Corporation Service Company.  You can contact him with questions or comments about this article at (800) 927-9801, extension 2375, or phodnefi@cscinfo.com.