Business workshop: Changes to the Commercial Code

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Pennsylvania recently became the 27th state to adopt specific changes to Article 9 of the Uniform Commercial Code.

Article 9 governs transactions in which a debtor uses personal property -- anything other than real estate -- as collateral.

The article sets forth the rules regarding all aspects of secured loan transactions, including formation, documentation and foreclosure.

The American Law Institute and the Uniform Law Commission developed and approved the amendments to Article 9 in 2010, and the Pennsylvania Legislature enacted them as law earlier this year.

The amendments went into effect July 1.

The changes to Article 9 are modest.

The most important one involves clarification of the requirement that the name of an individual debtor on a financing statement be correct. If the debtor's name is wrong, the financing statement is ineffective and the secured party will lose its interest in the collateral to other secured creditors, buyers or the trustee in a bankruptcy.

The old Article 9 required that a financing statement contain the debtor's "individual name."

But what is an individual name?

An individual's driver's license, passport and birth certificate may all show different names.

Moreover, an individual may be known by her nickname or middle name.

Under the revised rule, a financing statement correctly states an individual debtor's name only if it contains the debtor's name as shown on the Pennsylvania driver's license or, if he or she does not have a driver's license, the identification card issued by the Pennsylvania Department of Transportation.

If a debtor has neither form of identification, the financing statement will be valid if it indicates the debtor's individual name or surname and first personal name.

While it seems like a small change, this clarification eliminates ambiguity and will protect many creditors from losing their interest in the collateral securing their loan.

-- Robert E. Dauer Jr.
Meyer, Unkovic & Scott
red@muslaw.com

businessnews

Business workshop is a weekly feature from local experts offering tidbits on matters affecting business. To contribute, contact Business Editor Brian Hyslop at bhyslop@post-gazette.com.


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