We have a blanket financing statement on all equipment “now owned and after acquired” by the debtor, who recently died. Another lender later filed a financing statement listing a specific piece of equipment, but we are unsure whether this lender has a purchase money security interest (PMSI) in the piece of equipment and would have priority over our lien. Must a financing statement indicate if the lender has a PMSI? Also, this lender has not amended its financing statement to reflect the debtor’s name as it appears on his driver’s license. Could this affect the lender’s position? An auction sale has been scheduled, and we are trying to determine our position.

Aug 13, 2020

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We are not aware of any statutory requirement for a financing statement to indicate that a lender has a PMSI in the collateral identified in the statement. You may wish to contact the other lender to inquire as to the nature of their interest in the piece of equipment.

You are correct that a lender with a perfected PMSI in specific equipment may take priority over a lender with a blanket financing statement covering the debtor’s “now owned and after acquired” equipment that does not have a PMSI in the equipment. The Uniform Commercial Code (UCC) gives a lender priority over earlier perfected security interests when it has a perfected PMSI in “goods,” which include a farm tractor — assuming that the debtor did not use the tractor for personal purposes, in which case no financing statement filing would be required to perfect the lien. In order to perfect a PMSI in goods, a lender must finance the purchase of the goods and file a financing statement before or within twenty days after the debtor receives possession of the goods.

The UCC also states that a financing statement sufficiently provides the name of a debtor with an unexpired driver’s license “only if the financing statement provides the name of the individual which is indicated on the driver’s license.” A financing statement that fails to comply with this name requirement will be considered “seriously misleading” — and ineffective — unless a search of the debtor’s correct name using the filing office’s standard search logic would disclose the financing statement with the incorrect name.

If you were able to discover the other lender’s financing statement by searching with the debtor’s correct name, there is a possibility that the financing statement would not be considered seriously misleading. As a result, it might not be rendered ineffective due to providing an incorrect name for the debtor.

For resources related to our guidance, please see:

Illinois UCC, 810 ILCS 5/9-324(a) (“General rule: purchase-money priority. Except as otherwise provided in subsection (g), a perfected purchase-money security interest in goods other than inventory or livestock has priority over a conflicting security interest in the same goods, and, except as otherwise provided in Section 9-327, a perfected security interest in its identifiable proceeds also has priority, if the purchase-money security interest is perfected when the debtor receives possession of the collateral or within 20 days thereafter.”)

Illinois UCC, 810 ILCS 5/9-102(a)(44) (“‘Goods’ means all things that are movable when a security interest attaches. . . .”)

Illinois UCC, 810 ILCS 5/9-309(1) (“Security interest perfected upon attachment. The following security interests are perfected when they attach: (1) a purchase-money security interest in consumer goods, except as otherwise provided in Section 9-311(b) with respect to consumer goods that are subject to a statute or treaty described in Section 9-311(a); . . .”)

Illinois UCC, 810 ILCS 5/9-102(a)(44) (“‘Consumer goods’ means goods that are used or bought for use primarily for personal, family, or household purposes.”)

Illinois UCC, 810 ILCS 5/9-503(a)(4) (“A financing statement sufficiently provides the name of the debtor: . . . subject to subsection (g) [for individuals with multiple driver’s licenses], if the debtor is an individual to whom this State has issued a driver’s license that has not expired, only if the financing statement provides the name of the individual which is indicated on the driver’s license . . .”)

Illinois UCC, 810 ILCS 5/9-506, (“Effect of errors or omissions.

(a) Minor errors and omissions. A financing statement substantially satisfying the requirements of this Part is effective, even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.

(b) Financing statement seriously misleading. Except as otherwise provided in subsection (c), a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9-503(a) is seriously misleading.

(c) Financing statement not seriously misleading. If a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with Section 9-503(a), the name provided does not make the financing statement seriously misleading.”)