United States: Mistakes And Regrets: UCC Filing Error Terminates Security Interest

Last Updated: February 2 2015
Article by Rick Antonoff and Regina Stango Kelbon

Action Item: When a secured loan is being paid off, lenders routinely authorize the borrower's counsel to prepare and file UCC termination statements releasing the lender's security interest in the borrower's property. Lenders and their counsel must carefully review the documents before authorizing the borrower to file them to ensure they match up only with the security interests related to the loan being paid and that are intended to be released. If the termination documents include security interests related to other obligations and that are not intended to be released, the lender can lose its security interest and become an unsecured creditor with respect to those other obligations.

On January 21, 2015, the United States Court of Appeals for the Second Circuit issued an opinion holding that a mistakenly filed Uniform Commercial Code ("UCC") termination statement was effective to terminate JPMorgan Chase's security interest on a $1.5 billion loan on the bases that (a) under Delaware law, an authorized filing of a UCC termination statement is effective to terminate the security interest regardless of the parties' intent, and (b) in this case, the secured party authorized the borrower's counsel to file the termination statement.


JPMorgan Chase ("JPMC") was agent on two secured loans to General Motors Co. ("GM")—a $300 million synthetic lease and a $1.5 billion term loan. In 2008, in connection with GM paying off the synthetic lease and GM releasing its security interest in the collateral securing the synthetic lease, GM's counsel prepared a closing checklist, draft escrow agreement, and UCC termination statements, all of which also erroneously identified JPMC's security interest in collateral securing the term loan. GM's counsel forwarded draft copies of the closing documents to JPMC and its counsel for review. No one noticed that the documents mistakenly included the term loan security interest. JPMC's counsel sent GM's counsel a response saying "nice job" and making a minor change to how JPMC's name appears in the documents.

In June 2009, GM filed for bankruptcy under chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the Southern District of New York. Upon learning of the mistakenly filed UCC termination statement, the Official Unsecured Creditors Committee (the "Committee") appointed in GM's chapter 11 case commenced an adversary proceeding in the bankruptcy court for a judgment that JPMC's security interest under the term loan was terminated and, therefore, that JPMC was an unsecured creditor.

Court Rulings

On cross-motions for summary judgment, the bankruptcy court ruled that filing the UCC termination statement releasing security interests in the term loan was unauthorized and therefore not effective to release JPMC's security interest. The Committee appealed directly to the Second Circuit.

On the issue of whether a filing of a UCC termination statement is effective regardless of the parties' intent, the applicable UCC law was Delaware. In June 2014, the Second Circuit certified that question to the Delaware Supreme Court. In October 2014, the Delaware Supreme Court issued its answer, holding that:

[F]or a termination statement to become effective ... it is enough that the secured party authorizes the filing to be made ... The Delaware UCC contains no requirement that a secured party that authorizes a filing subjectively intends or otherwise understands the effect of the plain terms of its own filing.

With the Delaware Supreme Court's ruling in hand, the Second Circuit then had to determine whether JPMC authorized the borrower and its law firm to file the erroneous termination statement.

Based largely on the fact that JPMC and its counsel had opportunities to review the draft documents before they were filed, the Second Circuit concluded, as a matter of law, that JPMC authorized GM's counsel to file the termination statement releasing the security interest in the term loan collateral. The security interest was therefore terminated and the claims of JPMC (and its syndicate lenders) under the term loan are unsecured claims in GM's bankruptcy case.

The Second Circuit remanded the case to the bankruptcy court with instructions to enter partial summary judgment against JPMC. JPMC may file a petition for review with the United States Supreme Court. In view of the fact that both issues in the case—(1) the effect of filing an erroneous termination statement, and (2) GM's counsel's authority to file it—are matters of state law, it is unlikely that the Supreme Court would agree to review the case.

As noted above, when conducting a payoff of a secured loan and releasing collateral, it is critical to make sure that the documents are in order. It is fine to allow the borrower's counsel to prepare the termination documents, but it is not prudent to rely on the borrower's counsel to assure that they only release security interests that are intended to be released and do not include security interests related to other obligations not being paid off.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions