United States Bankruptcy Court for the Southern District of New York Holds That a UCC-3 Filing Without Authorization is No Filing At All
By Paul Hastings Professional
On March 1, 2013, Judge Robert E. Gerber of the United States Bankruptcy Court for the Southern District of New York held in Official Committee of Unsecured Creditors of Motors Liquidation Company v. JPMorgan Chase Bank, N.A. (In re Motors Liquidation Company) that (a) for an agent to effectively terminate a UCC-1 initial financing statement on behalf of a secured lender principal, the termination must be authorized by the principal and (b) the court must consider factors under non-UCC agency law to determine whether authorization has been granted, including whether the agent reasonably believed that the principal intended for the agent to terminate the UCC-1 initial financing statement. This standard, which is based on the 2001 amendments to Article 9 of the Uniform Commercial Code, is a departure from earlier cases decided before (or without regard to) the 2001 amendments, which held that all UCC-3 termination statements are effective, even when filed by mistake. Under Motors Liquidation Company, when a UCC-3 termination statement is filed by an agent, the statement’s effectiveness depends upon a factual inquiry into whether the filing was authorized by the principal, which may not be discernible from the UCC-3 itself. In order to confirm that a previously filed UCC-3 termination statement is effective, potential lenders would need to investigate the authorization of the previously filed UCC-3.