The Delaware Supreme Court has found that a mistake in a UCC-3 termination statement does not invalidate the document under the state's Uniform Commercial Code. The decision, on a certified question from the United States Court of Appeals for the Second Circuit, and after oral arguments broadcast by CVN, affects a nearly $1.5 billion loan by J.P. Morgan to the former General Motors. In re Motors Liquidation Co.
The Delaware high court's decision stems from a bankruptcy dispute involving the Motors Liquidation Co., known as General Motors before its bankruptcy. Prior to the bankruptcy, J.P. Morgan filed a UCC-3 termination statement through a representative, believing it was releasing its security interest in one loan to GM, but mistakenly listing a much larger, $1.5 billion loan. The mistake was not discovered until after GM filed for bankruptcy. Plaintiff, the creditors committee for Motor Liquidation Co., contended that the UCC-3 statement terminated J.P. Morgan’s security interest in the loan listed, while JP Morgan argued that the mistake rendered the termination statement invalid. The federal appellate court found no direct precedent and certified the question of whether the review and knowing approval of a UCC-3 statement's filing effectively extinguished the financing statement for whatever loan was listed on the document.
In concluding that the party filing the termination statement must be held accountable for any mistake in the document, Chief Justice Leo Strine wrote "It is fair for sophisticated transacting parties to bear the burden of ensuring that a termination statement is accurate when filed." He noted that "(a) secured party is the master of its own termination statement; it works no unfairness to expect the secured party to review a termination statement carefully and only file the statement once it is sure that the statement is correct."
The Delaware Supreme Court's answer now sends the dispute back the the federal appellate court, which had reserved for itself the question of whether JP Morgan's representative was empowered under agency principles to terminate the loan.