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STATE OF MINNESOTA

OFFICE OF THE SECRETARY OF STATE

In the Matter of the ProposedRules regarding UniformCommercial Code Filings

Introduction

STATEMENT OF NEEDAND REASONABLENESS

The Office of the Secretary of State accepts andmaintains filings made according to the Uniform CommercialCode, Minnesota statutes Chapter 336. specifically, Article9 of the Uniform Commercial Code (UCC) establishes aprocedure for placing information about lending transactionsin a public depository and sets rights to the collateralamong competing interests according to the date and time ofthe filing of the information. The computerized filingsystem is used to store information from each of the filingsmade according to Article 9. The system is statewide and isused by every county recorder and the Office of theSecretary of State. The system serves as an index of all ofthe UCC filings done statewide and allows any citizen toobtain information about UCC filings from any county in thestate. Improved access to information is one of the primaryreasons for the adoption of the computerized filing system.As required by Minnesota statutes section 14.23, thisStatement of Need and Reasonableness justifies the need forand reasonableness of the proposed rules.

statuto~y Authority

The statutory authority for the adoption of these rulesis Minnesota statutes sections 336.9-411(d), 336.9-403(5)and 14.06.

section by section Justification

General

There is a need to have rules which govern theoperation of the central computerized filing system. As 88filing offices use the system to store information andretrieve it on request, there is a need to have uniformmethods for entering and retrievi~g data and for operation

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of the system. Users of the system should have UCC·documents handled in a consistent manner no matter where inthe state they file or request to have informationretrieved. The goal of these rules is to promote thatuniformity and to give users of the UCC central databaseinformation on how filings and information requests will beprocessed by all filing officers across the state.

8270.0050 Definitions

As the UCC computerized system is a statewide database,there are terms which will have specific meaning when usedin the system. This part provides needed definitions forthese terms so that all users of the system have the samebasis for understanding the rules.

In subpart 2, a definition for "amendment" is needed t.omake it clear to all users the purpose of the filing. Oncea UCC record is created, there may be changes in theinformation which need to be made part of the pUblic record.The amendment is used for making these changes and it isreasonable to have a definition so that all users understandthe function of this filing.

Subpart 3 defines "assignment," another filing whichmay occur once a UCC record is created. A definition isneeded so that all users of the UCC central databaseunderstand the function of this filing.

SUbpart 4 defines a record series which is maintainedby the Office of the Secretary of State on businesses whichhave registered in Minnesota. A definition of "businessrecords" is needed as many parties use the business recordsto determine the correct name of the business debtor. Thesebusiness records are accessible via computer in all filingoffices and are so it is reasonable to define this phrase soall users of the UCC central database understand which .records are covered a

A definition of "certification date" is found insUbpart 5. The definition is needed because thecertification date notifies the recipient of a searchcertificate of the status of each filing office's data entryof ucc information.

"continuation" is defined in subpart 6 as the filingused to extend the life of a UCC financing statement for anadditional five year period. The definition is needed sothat all users of the UCC central database understand thefunction of this filing.

SUbpart 7 defines "county recorder" as the countyofficial with whom UCC filings are made. This definition isneeded as Minnesota has more than' one place where UCC

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filings may be made and users of the Dec central databaseneed to know the identity of these locations.

A Dec document is also known as a "filing" and so thisdefinition has been included as subpart 8. This definitionis needed as users of the Dec central database have severalwords which are used interchangeably to describe a Deedocument and it is reasonable that a definition be given sothat all are aware of the usage of the word in these rules.

A "filing office" is the place where a Dec document maybe put into the public record. It may be either the officeof a county recorder or the Office of the Secretary ofState. This definition in sUbpart 9 is needed so that allusers of the Dec central database understand which officesar.e included in the term "filing office."

The "filing officer" is the person in the filing officewho has responsibility for accepting and processing Decdocuments. The definition of this phrase in sUbpart 10 isneeded so that it is clear to all users of the Dee centraldatabase who may accept Dec documents.

A "financing statement" is another name for a filing orDee document. The definition in sUbpart 11 is needed due tothe large number of interchangeable terms which are used todescribe the same documents. The definition is reasonableso that all users of the Dee central database are clearabout what Dec transactions are covered by the term"financing statement."

Subpart 12 defines "information request" to includerequests for both Dec and tax lien information from the Deecentral database. The definition is needed so that allusers of the Dec central database understand that the termencompasses both Dec and tax lien documents.

ULapsed filing" is defined in sUbpart 13 so that allusers of the Dec central database know what happens to a Decdocument which is not continued or terminated. Thedefinition is needed to ensure that all users of the Deccentral database are clear about what the disposition of aDec document when its life is over.

"Original financing statement" is defined in subpart14. The definition is needed so that the' difference betweenan "original financing statement" and any subsequent"financing statement" is clear to all users of the Deecentral database.

A "partial assignment" is defined in sUbpart 15 as thetype of Dec document which is used when some of thecollateral is transferred from one secured party to another.The definition is needed so that 'all users of the Dec

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central database understand the results of filing a partialassignment.

Subpart 16 defines a "partial release" as a securedparty giving up rights to specified collateral. Thedefinition is needed so that all users of the uee centraldatabase understand the difference between the partialrelease and the other types of Ueedocuments.

A "record" is another one of several interchangeablewords which is used to describe uee documents. Thisdefinition in subpart 17 is needed to distinguish betweenthose terms which only describe uee transactions and thosewhich, like this one', describe both uee and tax lienfilings.

"Search" and "information request" are usedinterchangeably and so have been defined to mean the samething. The definition of "search" is found in subpart 18and is needed' so that all users of the uee central databaseunderstand that it is a synonym for "information request."

SUbpart 19 defines "secretary of state" as theMinnesota secretary of state. This definition is needed sothat it is clear that it is the Minnesota secretary of statewho is governed by these rules.

"Social security number" is the next term which isdefined. SUbpart 20 refers to an individual's assignedsocial security number. The definition is needed as thereare many numbers assigned to individuals for differentprograms and certainty is needed for users of the ueecentral database to know which number they must collect tomeet statutory requirements.

The "taxing authority" is defined in sUbpart 21 to makeit clear that the agencies which may be making tax lienfilings are the state Department of Revenue and the federalInternal Revenue Service. The definition is needed so thatall users of the uec central database are clear as to whatgovernment agencies 'will place information regarding taxliens into the'central database or other filing systemmaintained by the filing officers.

Subpart 22 defines "taxpayer identification number" asthe identification number for business debtors. Thisdefinition is needed as there are many numbers assigned tobusinesses for different programs and the users of the ueecentral database need to know which number they must collectto meet statutory requirements.

"Tax lien" is defined in sUbpart 23 a'nd is needed sothat all users of the uee central database know whatdocuments are accepted and maint~ined by filing officers.

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"Termination" is a word whose definition is needed sothat all users of the uee central database so that it isclear that the use made of this particular filing is to endthe life of a financing statement. The definition is foundin subpart 24.

Subpart 25 defines a "Uee-1" as the name of a formapproved for use by the secretary of state. The definitionis needed as this is another of the interchangeable termsused to describe uee documents. All users of the ueecentral database need to know that this is the usage to begiven to this term.

"uee-3" is another descriptor for a form approved bythe secretary of state. The definition is found in sUbpart26 and is needed as this is another of the interchangeableterms used to describe uee documents. All users of the ueecentral database need to know that this is the usage to begiven to this term.

A "uee-11" is another descriptor for a form approved bythe secretary of state. The definition is found in subpart27 and is needed as this is another of the interchangeableterms used to describe an information request or search ofuec documents. All users of the uee central database needto know that this is the usage to be qiven to this term.

SUbpart 28 describes the "Uee-12," another formapproved by the secretary of state. The definition isneeded as this is another of the interchangeable terms usedto describe an information request o~ search of tax liens.All users of the uee central database need to know that thisis the usage to be given to this term.

Subpart 29 defines "uee document" so that all users ofthe uee central database understand that this phrase coversall types of uee filings made with a filing officer. Thedefinition is needed as there are so many interchangeableterms which are used to describe the same documents andtransactions.

SUbpart 30 defines "uee" as the Uniform eommercial eodeand also designates the place in the Minnesota statuteswhere the statutory language governing uee documents can befound. The definition is needed so that all users of theuee central database are using the same statutory referenceswhen dealing with 'Minnesota uee documents.

"Work day" is defined in SUbpart 31 to make it clearwhen the obligations of a filing officer are to becompleted. The definition is needed so that all users ofthe uee central database understand whenUee documents may

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be filed with filing officers and when information requestswill be processed.

All of these definitions are reasonable because theybring clarity and certainty to words and phrases which arecommonly used when working with the Dec central database.

8270.0100 and .0105 Place of filing

These parts describes where Dec documents are to befiled. There is a need to ensure that all users of the Deccentral database understand that nothing in these ruleschanges the place of filing designated in the statute. Therules are reasonable as they put all users on notice thatthe statutory rules governing the proper place of filinghave not changed~

8270.0110 Real estate filings

Some Uniform Commercial Code filings are made in thereal estate records maintained by the county recorders.This rule puts all users of the Dec central database onnotice that nothing in the rules affects the statutorilymandated directions for filing these types of documents.The rule is reasonable so that all know how real estaterelated filings will be handled.

8270.0115 MUltiple filings

Some secured parties need to file a Dec document inmore than one filing office. This rule gives those securedparties the options available to make filings in multipleoffices. The rule is reasonable as it gives secured partiestwo choices for making filings in mUltiple filing offices.It is needed so that all users of the UCC central databaseand the filing officer~ use the same standards fordetermining how a filing may be made in mUltiple filingoffices.

8270.0200 Central database

with the advent of the computerized filing system,filing officers across the state have now compiledinformation kept by each of them into the central computerdatabase. By creating this central database, information isnow available statewide which increases access to the dataand reduces costs for users. SUbpart 1 of this ruleexplicitly creates the central database and is needed tomake it clear that all DCC documents filed in Minnesota arerequired to be entered into the central database.

It is the responsibility of the Office of the Secretaryof State to operate the central database through programmingand to maintain it. It is necessary to designate a

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responsible party to perform these functions as the centraldatabase must be kept current and must operate to meet thestatutorily mandated requirements stated by the legislature.

All of these provisions are reasonable as the creationand operation of the central database are key elements tothe operation of the statewide uee system.

8270.0205 Unauthorized entry

SUbparts 1 through 5 of this part all address issues ofsecurity for the computerized system. Security is needed toprotect the integrity of the information stored in the ueecentral database. Maintaining the information in a usefulmanner and controlling the level of access by all users arealso part of the security system. Each subpart addresses aparticular area of the security system and is a requiredpart of the complete system. The subparts are reasonable asthey make up the pa~t~ of a unified whole which is used toprotect the integrity of the information stored in the ueecentral database.

8270.0210 Data entry

The entry of data from uee documents into the centraldatabase is the sUbject of this rule. All filing officersdo data entry and these subparts are·needed to ensure _uniformity in data entry across the state. In addition, therule requires that the filing officer receive a writtendocument which supports the data entry which is done. ThesesUbparts are reasonable as they create uniform methods fordata entry while allowing each filing officer to accuratelyrepresent in the Dee central database what is portrayed onthe Dec document which has been received.

8270.0215 Entry deadline

Timeliness of the uee information maintained in thecentral database is also of importance to the users of Deeinformation. This rule is needed to create a data entrygoal for the entry of newly received information into thecentral database. As the product of an information requestmay be used to determine priority among competing interests'or -as the basis for a decision whether or not to grant aloan, information about a filing office's data entrycompliance is needed by the users of the information.Therefore, the rule is needed to tell users the timelinessof the data entry by the filing officers which permitsinterpretation of the information they do receive.

8270.0220 eertification date

As a filing officer enters data into the Dee centraldatabase, the date the uee document was filed must be

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provided. As each day's Dee documents have been entered,the filing officer needs to change the certification date sothat the search certificates produced from the Dee centraldatabase accurately reflect the timeliness of the data entrywhich has been done. ,The rule is needed so that thecertificates produced in response to information requestsare as up-to-date and timely as possible. The rule isreasonable in that it allows the filing officer to changethe certification date when data entry for a work day hasbeen completed. Thus, if the filing officer receives alarge amount of mail and it takes longer than one work dayto enter all of the information, the filing officer maycontinue to work on the data entry while still informing theusers of the system that not all data entry for the date hasbeen completed.

8270.0225 Filing a financing statement

This part of the rule provides information about whatmust be present on an original financing statement'for it tobe accepted for filing. Subpart 1 lists the basic elementsthat a filing officer will review to determine if anoriginal financing statement may be accepted for filing.This provision is needed because the users of the Deecentral database need to know what a filing officer willreview in determining whether to accept an originalfinancing statement for filing. The provision is reasonableas it follows the statutory requirements for an acceptablefiling namely a legible debtor name, a unique identificationnumber for the debtor and the correct filing fee.

SUbparts 2 and 3 provide specific directions for thepresentation of the debtor's name. The provisions areneeded as the debtor's name is what is used to organtze theinformation in the Dee central database. Particularly inthose cases where it is difficult to tell which name is anindividual debtor's last name and which is the debtor'sfirst name, properly listing the debtor's name may determinewhether the debtor hasbe'en'properly indexed. It is alsocritical that the names of business debtors be presented asregistered so that they too are indexed in the proper place.The provisions are reasonable in that they tell partiesfiling original financing, statements how to present adebtor's name so that it can be properly indexed.

8270.0230 Modifying a financing statement

Once an original financing statement has been filed,the information on it may be modified and the life of thefinancing statement may be extended or terminated. Ingeneral, rules governing the minimum requirements for thesetypes of filings are needed so that all users of the Deecentral database and all filing officers treat similartransactions in the same way. The provisions are reasonable

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in that they list the minimum requirements for each type oftransaction and also detail any special results of a type oftransaction.

continuing the life of an original financing statementis detailed in subpart 2. The subpart is needed so that anysecured party who wishes to extend the life of a financingstatement knows what minimal information is required to filea continuation. The subpart is reasonable because it onlycontains the minimum information yet puts the secured partyon notice of what the filing officer will review whendetermining whether to accept the continuation.

SUbpart 3 sets out the requirements for an assignm~nt

of a secured party's interest to another secured party. Therule is needed as it sets out the minimum requirements foran assignment and is reasonable as it follows the statutoryrequirements. .

A partial assignment's requirements are detailed insubpart 4. The rule is needed as a partial assignment hasthe very specific result of creating a second secured partywhich must be shown on every subsequent financing statementthat is filed. A partial assignment must also list thecollateral which is being assigned by the first securedparty to the second secured party and so the rule is. neededto set forth this filing requirement. The rule isreasonable as the specific requirements for andramifications of the partial assignment are detailed for allusers of the UCC central database and all filing officers.

Subpart 5 describes the elements of an amendment.Again, the rule is needed and reasonable so that all usersof the UCC central database and all filing officers knowwhat the requirements are for filing an amendment.

A partial release occurs when a secured party gives upits interest in some of the collateral listed on theoriginal financing statement. . Of particular importance forthis filing is the description of the collateral which isbeing released. Therefore, the elements of subpart 6 areneeded and reasonable so that secured parties have theinformation they need to properly file a partial release.

The final type of modification that can be made is thetermination of a financing statement. Of particularimportance in this filing is the signature of every securedparty of record as the financing statement will be removedfrom the UCC'central database as the result of this filing.The sUbpart is needed because it sets forth the requirementsfor a termination and is reasonable because all users of theUCC central database are made aware of those requirements.

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8270.0235 Procedures manual

consistency in the data entry of information into andthe retrieval of that information from the uee centraldatabase is important so that there can be no question aboutthe meaning of information entered or retrieved by anyfiling officer. The standards for data entry and search arecontained in a procedures manual and the rule is needed toincorporate that manual into the text of the rules. Thistreatment of data entry and search procedures is reasonableas they are quite specific in nature and apply primarily tothe filing officers.

8270.0240 Information retrieval

Retrieving information from the uee central database isjust as critical a function as entering data into thesystem. These two subparts provide information to partieswho are requesting information about what they might expectwhen requesting uee and tax lien information. The rule isneeded as there are 88 filing officers who are asked toretrieve information from the uee, central database and auser needs to know that a request for information will betreated consistently throughout the state. The rule isreasonable as it provides the standards all filing officersuse when responding ~o requests for information.

8270.0245 Index

The uee central database is the index of all ueedocuments filed with the filing officers around the state.It also serves as the index for any tax liens which may havebeen entered into the central database by a filing officer.The rule is needed to indicate that the computer replacesthe paper index maintained by many filing officers to complywith Minnesota statutes section '336.9-403(4). The rule isreasonable as the organizing and retrieving of informationis one of the functions that a computer does best and so itmakes sense 'to use ,this f.unctionality of the uee centraldatabase. '

8270.0255 Removal and destruction of uee documents

Removal of uee documents from the records of the filingofficer are a necessary part of the maintenance of the ueecentral database. The three subparts in this rule areneeded to give all filing officers some direction as to whenremoval and destruction of inactive uee documents isappropriate. The sUbparts are reasonable in that they alloweach filing officer to develop their own schedules for theretention of uee documents within the parameters set by therule.

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8270.0260 Business records

The Office of the Secretary of State maintains otherrecords in its computer and these business records areavailable to the 87 county recorders through thetelecommunications network. The subparts of this rule areneeded to make it clear that the county recorders only havethe ability to view the information on businesses and thatthey have no authority or ability to interpret theinformation that they may retrieve using thetelecommunications network. These sUbparts are reasonablein that while they allow the county recorders access to thebusiness information while notifying all users of the UCCcentral database that the records themselves are controlledby the Office of the Secretary of State.

8270.0265 Identification of parties

This rule helps parties requesting information from theUCC central database to restrict the request to a specificdebtor by using an identification number. This is needed toallow a party to request information about a particulardebtor and is particularly helpful when the debtor has acommon name or one which has alternate spellings. If itbecomes possible to search the database by secured party, asimilar system may be adopted by the secretary of state toaid'in these types of searches. This is reasonable as itallows parties to be specific in identifying 'the debtor inwhich they are interested without obtaining unwantedinformation about other debtors with similar names.

8270.0270 Conversion of records

Tr~nsferring existing UCC documents and tax liens froma previous filing system may be done th~ough data entry bythe filing officer or other types of transfer. The rule isneeded to allow fo~ the conversion of these records in amanner which takes into"account the previous storage methodused by a particular filing officer and advances intechnology. The rule i p reasonable in that it provides ameans for getting existing information into the UCC centraldatabase.

Small Business Considerations. Small businesses whouse the Uniform commercial Code computerized filing systemmay be impacted by these rules. Small businesses, as allmembers of the public, are encouraged to participate in thisrulemaking proceeding.

The Uniform Commercial Code provides a method' forestablishing priority among competing interests in the samecollateral. Altering the rules to reduce filingrequirements for small businesses cannot be done withoutaffecting all who use the Uniform. Commercial Code system and

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thus affecting the priority rights in the collateral. TheOffice of the Secretary of State has considered all of theissues stated in Minnesota statutes section 14.115,subdivision 2 and can find no way to change the rules toaddress these issues that does not adversely affect therights of all those competing for the same collateral.

Expenditure of public Money by Local Public Bodies.The adoption of these rules will not require the expenditureof pUblic monies by local bodies. Therefore, Minnesotastatutes section 14.11, sUbdivision 1 is not applicable.

Conclusion

Based on the foregoing, the proposed rules on theUniform Commercial Code filing system are needed to addressthe issues raised by a central database regarding filing andinformation retrieval. The proposed rules are reasonable asthey address the specific needs of the customers now and inthe future by providing information about filingrequirements for Uniform Commercial Code documents anddirections on how to retrieve information from the UCCcentral database through the filing officers.

Dated: August ~, 1993an Anderson Growecretary of State

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Secretary of State

Deputy Secretary of State August 25, 1993

Maryanne V. HrubyExecutive DirectorLegislative Commission to Review Administrative RulesRoom 85, state Office Buildingst. Paul, Minnesota 55155-1201

Dear Ms. Hruby:

Enclosed for filing please find a copy of the statement ofNeed and Reasonableness in support of proposed rulesaffecting the Uniform Commercial Code forms filing system.This filing is made pursuant to Minnesota statutes section14.131. The rules will be published in the state Registeron August 30, 1993.

Should you need further information, please do not hesitateto contact me.

Sincerely, ~~ 0Jo~erson Growe

secr tary of State

JAGX ae

Encl\ ure

,. .slatlve Comm\s\on toThe ~eg\ JI. .vnlnistratiVe Rules

Re'4\e'H ",Y1"

~UG 27 1993

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