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Boring Blog - Part 2

Jimmy Gill - Confectionary Stand BImage via Wikipedia

If you read my previous blog, you may recall that the boring stuff saves money. The last blog addressed Iowa law regarding security interests in goods sold.

Iowa’s UCC provides that it may be necessary to place the public on notice of a security interest to protect that interest. This blog focuses on filings at Iowa Secretary of State to protect or "perfect" security interests. 

Bill’s Bakery Supplies has a security interest in equipment sold to Smith’s Confectionary Inc. Bill will want to protect his security interest and place others on notice of his interest. (This is called perfection[1].)

Article 9 of the Iowa UCC codifies the steps necessary for Bill to perfect his security interest. If the security interest is in goods, Iowa Code section 554.9501 designates that a financing statement is to be filed with the Iowa Secretary of State. A form that has all the required information is available from the Iowa Secretary of State’s website.

 A financing statement must provide:

(1) the name of the debtor;

(2) the names of the secured party or a representative; and

(3) the collateral covered by the financing statement.

Financing statements are filed under the debtor’s name. For registered organizations (LLC, corporation, limited partnership, etc.) the exact name of the organization as it appears in a state’s record must be used on the financing statement. If the debtor is an individual, the full legal name must be used. For example, If Bill’s Bakery Supplies mistakenly placed Joe Smith’s name on the financing statement instead of Smith’s Confectionary Inc., Iowa Code section 554.9506(b) states the financing statement would be seriously misleading.

"Seriously misleading" financing statements are not sufficient to place the public on notice of the security interest or to protect the secured party. Even simple errors such as spelling a corporation’s name incorrectly or using a symbol instead of a word (“&” instead of “and”) may render a financing statement seriously misleading.

The necessity of these nuances becomes clear when viewed through the eyes of a third party who attempts to determine if there is a security interest in certain property. If Smith's Confectionary Inc. later attempted to use the ovens purchased as collateral for a bank loan, the bank would check the public records to ensure there are no security interests attached to the ovens. Without proper filing under a specific name, the bank would have  difficulty verifying information.

Avoid problems by:

  • Knowing with whom you are dealing. As a matter of dealing, get government issued verification of names.
  • Checking public records. Many Iowa organizations must file with the Iowa Secretary of State.
  • Remembering that handshakes seal deals, but contracts prevent problems. Putting it “in writing” is a greater show of trust than a handshake.
  • Filing immediately. In my next post (and last in the series of boring blogs), I will address how to determine the priority of competing security interests.

If you read through to the end, I commend you. Business leaders who read the boring stuff avoid pesky problems . . . and have less need for me (a litigator).

- Christine Branstad 



[1] Lodge complaints about legalese elsewhere. I use NO legalese in my writing.

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