This case demonstrates that care must be taken to accurately fill out all portions of financing statements to avoid costly mistakes.

In East Texas Machining & Manufacturing, LLC v. STV Engine 011, LLC, et al., Adv. Case No. 24-06043 (Jan. 29, 2026), the United States Bankruptcy Court for the Eastern District of Texas considered a motion for partial summary judgment filed by plaintiff-debtor East Texas Machining & Manufacturing LLC (ETMM) against STV Engine 001 LLC, Axle Box Innovations LLC and Texas Tactical Machining & Manufacturing LLC in an adversary proceeding within ETMM’s Chapter 11 bankruptcy case (In Re East Texas Machining & Manufacturing, LLC, Case No. 23-60629 (Dec. 14, 2023)). The court granted ETMM’s motion based on a one-letter mistake in STV’s UCC-1 financing statement and found that STV’s $500,000 security interest was unperfected and therefore invalid and avoidable.

Background

The dispute stemmed from a prepetition $500,000 loan that STV made to ETMM, which the parties intended to be secured by a security interest in all of ETMM’s personal property, inventory and equipment. The loan was evidenced by a promissory note and security agreement. To perfect its security interest in the subject property, STV filed a UCC-1 financing statement with the Texas Secretary of State on May 13, 2020. However, STV listed the debtor’s name on the statement as “East Texas Machine & Manufacturing, LLC” instead of using the debtor’s correct legal name, “East Texas Machining & Manufacturing, LLC,” as shown on ETMM’s certificate of formation. On December 14, 2023, ETMM filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. STV filed a proof of claim in the case a month later and included a copy of the financing statement. ETMM thereafter filed an adversary proceeding against STV to avoid the security interest.

The Parties’ Arguments and the Bankruptcy Court’s Ruling

In the adversary proceeding, ETMM argued that STV’s security interest was “unperfected, invalid, and unenforceable” and therefore avoidable under 11 U.S.C. § 544(a). ETMM argued that under Texas law, which governed the determination of the substance of STV’s security interest in the bankruptcy case, the fact that STV listed “Machine” instead of “Machining” in its financing statement rendered the statement “seriously misleading”—the standard for avoiding the purported security interest. STV argued that given the relatively insubstantial difference between the two words, its financing statement was not “seriously misleading” and was therefore not avoidable pursuant to 11 U.S.C. § 544(a).

The court agreed with ETMM, finding that under Texas law, a financing statement for a registered organization must exactly match the name on the organization’s most recent public record stating or changing its name. See Tex. Bus. & Com. Code § 9.503(a)(1). Critical to the court’s analysis was that a search of the records of the Office of the Secretary of State using ETMM’s correct name did not disclose the existence of STV’s financing statement. Texas Business and Commerce Code § 9.506(a) provides that a financing statement “is effective, even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.” The court determined that the error in ETMM’s name was “seriously misleading” under Texas Business and Commerce Code §§ 9.506(b)–(c) because a third party conducting a search using ETMM’s correct name would not uncover the purported security interest.  

As a result, the court concluded that STV’s $500,000 security interest was unperfected and avoidable, converting STV’s claim to unsecured status.

Conclusion

The East Texas Machining & Manufacturing, LLC decision emphasizes that diligence from the outset is crucial to avoid any negative impact in the future. In this case, the preventable replacement of three letters with just one letter—“Machine” versus “Machining”—negated a party’s $500,000 security interest in the debtor’s assets.

This case demonstrates that care must be taken to accurately fill out all portions of financing statements to avoid costly mistakes. One step that creditors can take to protect their interests is to pull a certificate of legal existence and use the exact name and other information listed on the certificate when filling out an UCC-1 financing statement. This diligence will go a long way toward protecting a secured creditor and to ensure that the deal struck by the parties is able to be enforced, even in the event of a debtor’s bankruptcy filing.

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