In a ruling of much consequence to secured lenders everywhere, the Delaware Supreme Court held in Motors Liquidations v. JPMorgan Chase Bank that filing an incorrect UCC-3 termination statement can be a costly mistake.

THE UCC-3 TERMINATION STATEMENT

Whenever a UCC-3 termination statement is being filed, all parties need to carefully review such termination statement to make sure the termination statement is releasing the secured interests that the parties intend to be released.  Failing to diligently review termination statements can lead to the inadvertent release of a security interest that a secured party may not intend to release.

A recent decision out of the United States Court of Appeals for the Second Circuit serves as a powerful reminder of why lawyers are taught to take care in even the most ministerial of tasks. In Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A.

An opinion from the Second Circuit Court of Appeals in In re Motors Liquidation Company, relying on the Delaware Supreme Court’s answer to a certified question highlight the need to focus on the details w

JPMorgan Chase & Co received a painful reminder recently that mistakes can be very costly after their appeal to the Second Circuit was remanded; the clerical mix-up could cost the company $1.5 billion.

Section 9-509(d)(1) of the Uniform Commercial Code (UCC) provides that a UCC-3 termination statement is effective only if “the secured party of record authorizes the filing.”

The Delaware Supreme Court ruled last fall that a UCC termination statement inadvertently releasing collateral on a $1.5 billion term loan was valid. The creditor could not later claim it did not intend to include the collateral in its release of other collateral with regard to a different credit facility.   Official Committee of Unsecured Creditors v. JPMorgan Chase Bank, NA (Del. 2014).

A lender cannot rely on its subjective intent in claiming that an otherwise properly filed UCC termination is ineffective, according to a recent decision by the United States Court of Appeals for the Second Circuit. Put another way, if a lender authorizes a termination statement, the termination is valid upon filing such UCC-3 even if the authorization was mistakenly given. While this result is not surprising, it does put lenders (and their counsel) on notice to be diligent in reviewing and authorizing the filing of UCC termination statements.

A “UCC-3 Termination Statement” is commonly used in secured transactions by a secured party to put the world on notice that the perfected security interest referenced in the UCC-3 filing is terminated. On October 17, 2014, the Supreme Court of the State of Delaware, in Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A.

According to a recent decision from the Delaware Supreme Court, a secured party bears the burden of any mistakes in its security documents.  Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A., No. 325, 2014 Del. LEXIS 491 (Del. Oct. 17, 2014) (“Del.

ARTICLE 9 AND THE LIFE OF A UCC FINANCING STATEMENT