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It is enough that the secured lender review and knowingly approve for filing a UCC-3 purporting to extinguish the perfected security interest. Del. Code Ann. tit. 6, § 9-513(d). Under the Delaware Uniform Commercial Code, parties in commerce are entitled to rely upon a filing authorized by a secured lender and assume that the secured lender intends the plain consequences of its filing.
The dispute pending before the court turned on the effect of a UCC termination statement filed with the Delaware Secretary of State on behalf of General Motors Corporation. The termination statement, by its plain terms, purported to extinguished a security interest on the assets of General Motors held by a syndicate of lenders, including defendant JPMorgan Chase Bank, N.A. But neither defendant nor General Motors subjectively intended to terminate the term loan security interest when the latter filed the termination statement. After General Motors filed for reorganization under Chapter 11 of the Bankruptcy Code, defendant informed the unofficial committee of unsecured creditors that a termination statement relating to the term loan had been inadvertently filed. The Committee commenced a proceeding against defendant in the Bankruptcy Court seeking a determination that the filing of the termination statement was effective to terminate the term loan security interest and thus render defendant an unsecured creditor on par with the other General Motors unsecured creditors. Defendant contested that argument, asserting that it had not authorized the termination statement releasing the term loan security interest, and that the statement was erroneously filed because no one working on the synthetic lease transaction recognized that the unrelated term loan security interest had been included on the statement. On cross-motions for summary judgment, the Bankruptcy Court found for defendant on various grounds, including that defendant had not empowered its counsel to act as its agent in releasing the term loan security interest in the sense that it had only authorized the said counsel to file an accurate termination statement that released security interests properly related to the synthetic lease transaction. Because neither defendant nor General Motors intended the legal consequences of the termination statement, the Bankruptcy Court found that the termination statement filing was not authorized and therefore was not effective to terminate the term loan security interest. The Creditors Committee appealed to the Second Circuit, arguing that the counsel was authorized as defendant’s agent to file the said termination statement.
Could reviewing a termination statement and knowingly approving it for filing resulted in the Del. Code Ann. tit. 6, § 9-513 effect such that the financing statement to which the termination statement related ceased to be effective?
The court ruled that the unambiguous provisions of Delaware's UCC dictate that the answer is that it was enough that the secured lender review and knowingly approve for filing a termination statement purporting to extinguish the perfected security interest. Under the Delaware Uniform Commercial Code (UCC), parties were entitled to rely upon a filing authorized by a secured party and assume that the secured party intended the plain consequences of its filing. The court held that for a termination statement to become effective under Del. Code Ann. tit. 6, § 9-509 and thus to have the effect specified in § 9-513, it was enough that the secured party authorized the filing to be made, which was all that Del. Code Ann. tit. 6, § 9-510 required. The court also explained that the Uniform Commercial Code did not require that a secured party that authorized a filing subjectively intended or otherwise understood the effect of the plain terms of its own filing.