The debtor entered into a loan with the creditor, secured by a promissory note and security agreement. The creditor filed a UCC-1 financing statement (the financing statement) to perfect its interest. The financing statement listed the debtor as “East Texas Machine & Manufacturing, LLC.” After the debtor filed for Chapter 11 bankruptcy, the creditor filed a proof of claim with respect to the promissory note and security agreement. The debtor moved for summary judgment on the grounds that the creditor had failed to perfect its security interest, making it “‘unenforceable,’ and therefore avoidable pursuant to 11 U.S.C. §544(a).” The debtor attributed the invalidity to the name on the financing statement not being the same as the name on file with the Texas Secretary of State in the debtor’s certificate of formation: “East Texas Machining & Manufacturing, LLC.” Additionally, the debtor asserted that the financing statement did not appear when searching the online database because of the inconsistent name. The creditor responded to the debtor’s motion, claiming that the debtor could not avoid its obligation because the error in the UCC-1 statement was not “seriously misleading.” Based on these arguments, the court thus considered whether the creditor’s security interest was avoidable.
In E. Tex. Machining & Mfg., LLC v. STV Engine 001, LLC (In re E. Tex. Machining & Mfg., LLC), No. 23-60629, 2026 WL 248614, 2026 Bankr. LEXIS 220 (E.D. Tex. Jan. 29, 2026) (opinion not yet released for publication), the court granted the motion for partial summary judgment. The court looked to state law to decide this issue, which governs substantive rulings on security interests in bankruptcy. See Ford Motor Credit Co., LLC v. Dale (In re Dale), 582 F.3d 568 (5th Cir. 2009). Under Texas law, financing statements regarding registered organizations must match the “most recent public organic record stating or changing its name.” See Tex. Bus. & Com. Code §9.503(a)(1). Further, errors in a financing statement render the statement ineffective if the errors make the statement “seriously misleading.” See Tex. Bus. & Com. Code §9.506. Under Section 9.506, the court concluded that noncompliance with Section 9.503(a)(1) would render the financing statement seriously misleading unless a public records search with the debtor’s correct name reveals the creditor’s financing statement. The debtor’s evidence showed that a search of the Secretary of State’s records using the debtor’s name as recorded in its most recent filing (its certificate of formation) did not lead to the creditor’s financing statement. The court accordingly ruled the statement seriously misleading and the creditor’s claim unsecured and avoidable. Because the court found no genuine dispute of material fact, it granted the debtor’s motion for summary judgment.
By Taylor O’Brien [email protected]
Edited By Noah Coggan [email protected]
Edited By Landon Womack [email protected]