United States: Costly Mistake: UCC-3 Termination Statements Effective Regardless Of Intent

"Experience is simply the name we give our mistakes" ~Oscar Wilde

Mistakes happen.  But a national financial institution discovered recently that a relatively simple mistake cost about $1.5 billion.  On January 21, 2015, the U.S. Court of Appeals for the Second Circuit ruled that JPMorgan Chase Bank, N.A., as agent, and other members of a syndicated term loan did not hold a perfected security interest in General Motors' collateral because a UCC-3 filed in error terminated the interest, despite the lack of intent to terminate the security interest.  As a result, Chase and other term loan lenders became unsecured creditors, joined the class of other unsecured creditors in the Chapter 11 bankruptcy cases of GM and its subsidiaries, and will share in a pro rata distribution of any assets remaining in the bankruptcy estate.  The Second Circuit denied Chase's petition for reconsideration of the ruling on April 13, 2015.


Prior to the bankruptcy cases, GM entered into two financing transactions with Chase and other lenders.  First, GM was a party to a $300 million synthetic lease facility involving Chase as the administrative agent and identified as the secured party of record.  Second, in 2006 GM obtained a syndicated term loan totaling $1.5 billion where Chase was also the agent.  In 2008, GM repaid the synthetic lease, and GM's legal counsel prepared UCC-3 termination statements to terminate the security interests held by Chase granted under the synthetic lease.  Counsel identified three UCC-1s filed against GM, each with a unique filing number.  However, only two of the UCC-1s were part of the synthetic lease; the third UCC-1 secured the term loan.  Representatives of GM, Chase, and their respective counsel reviewed the prepared UCC-3 termination statements and authorized the filing of the three termination statements.  No one identified the mistake until after GM filed its bankruptcy case.

A committee representing the interests of GM's unsecured creditors filed an adversary proceeding against Chase to claw back amounts paid to the term loan syndicated lenders during the bankruptcy case as a result of its secured status. The committee further sought a declaration that the mistaken termination statement was enforceable, rendering the term lenders unsecured.

The case eventually made its way to the Second Circuit.  As state law determines the property interest of the parties, the Second Circuit sent a single question to the Delaware Supreme Court – is intent to terminate a security interest necessary to render a termination statement effective?  Chase clearly did not intend to release its perfected security interests in the term loan. The Delaware Supreme Court answered in the negative and stated that the termination statement is effective as long as the secured party approves of the filing.  Here, Chase and its counsel reviewed and approved the filing of the termination statements.  Subjective intent – the fact that Chase believed the UCC-3s applied only to the synthetic lease – does not matter.  Thus, the Second Circuit held that the UCC-3 filing on the term loan was effective because Chase approved GM's filing of the UCC-3s.  Chase had multiple opportunities to discover the error in its review but did not.  Chase reviewed the closing checklist with the filing numbers, the termination statements themselves, and an escrow agreement that contained instructions for filing the UCC-3s.  No doubt existed that Chase and its counsel had authorized the filing of the mistaken UCC-3.

The Second Circuit supported its decision by noting that intent was not required under the Uniform Commercial Code ("UCC").  Under Section 9-509(d), the UCC permits a filing of a termination statement without a signature as long as the secured party authorized it.  Further, Section 9-510(a) states that the filed record is effective only to the extent that the person who filed it had the authority to do so.  Since the facts were clear that Chase authorized the filing, the Court held that Chase's intent to retain a security interest in the term loan was not relevant.


The impact of Chase's error was amplified by the fact that Chase was unable to file a corrective statement due to the automatic stay in GM's bankruptcy case that prevents creditors from perfecting unperfected security interests in a prepetition claim.  Absent a bankruptcy filing, lenders should be able to correct the mistake by a new filing, subject to a risk of intervening lien filings.

This case serves as a harsh reminder to lenders to ensure that sufficient operational controls are put in place to prevent the authorization of mistaken termination statements.  Lenders should take care to establish multiple levels of review before approval is given.  The reviews should focus on the UCC filing numbers and the collateral description to confirm that the correct security interest is being terminated.  Lenders should also restrict the authority to file termination statements only to the security interest to be terminated.  These extra precautions may prevent a future costly mistake.

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