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The Seriously Misleading Test And Financing Statements – Glass & Goldberg | Financing, Property & Bankruptcy Law
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The Seriously Misleading Test And Financing Statements

Lenders use UCC Financing Statements to effectively give other parties notice of their security interest in collateral. While a financing statement neither creates a lien or any additional rights against the secured party, it provides notice to the “world” that the filing party has rights in the collateral.

Not only must lenders as secured parties file their financing statements expediently, they must file financing statements that are accurate. If a financing statement is incomplete, inaccurate, or untimely filed, it may remove a lender from a position of relative priority and allow secondary parties to claim a position of higher priority.

California law states that a financing statement substantially satisfies California legal requirements even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading. Also, the actual notice of or discovery of the financing statement and purported security interest does not give validity to a financing statement that is “seriously misleading.” If seriously misleading but discoverable by search logic other than that of the filing office or using filing office search logic to search a database other than the filing office, the financing statement is nevertheless ineffective.

A financing statement that fails sufficiently to provide the name of the debtor in accordance with California law is seriously misleading. If the debtor is a registered organization or the collateral is held in a trust that is a registered organization, the financing statement must provide the name that is stated to be the registered organization’s name on the public organic record most recently filed with or issued or enacted by the registered organization’s jurisdiction of organization which purports to state, amend, or restate the registered organization’s name.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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