“UCC filings mean what they say, even if a secured party believes otherwise”
Chicago Daily Law Bulletin 11/13/14 Faye B. Feinstein, Christopher Combest
Following is an excerpt:
Article 9 of the Uniform Commercial Code, the United States Bankruptcy Code and contract law collided recently in the bankruptcy case of General Motors Corp., and the damage may cost GM’s lender as much as $1.5 billion — all from the accidental termination of a UCC-1 financing statement that neither GM nor its lender ever intended to release.
Answering a certified question from the 2nd U.S. Circuit Court of Appeals, the Delaware Supreme Court held that a secured party who “reviews and knowingly approves for filing” a UCC-3 termination statement is bound by the legal effect of that filing, even if that effect was unintentional and terminated the wrong security interest. Official Committee of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank N.A., No. 325 2014, 2014 WL 5305937 (Del. Oct. 17, 2014).
No one denies the mistake. Before its bankruptcy, GM paid off a syndicated secured loan for which JPMorgan Chase was administrative agent. GM’s lawyers prepared UCC-3 termination statements to extinguish the two Delaware UCC-1 financing statements filed to perfect Chase’s security interests regarding that loan. There should have been just two such UCC-3s — but GM’s lawyers prepared three, all of which were sent to Chase’s attorneys for review prior to filing.