amendments were in the exact form the
debtor proposed, without any checkmark in
box no. 2 of the forms. The escrows for the
sale of debtor’s interests in Westgate and
Greenery closed, and the two UCC- 3 amendments were recorded on January 28, 2009.
Unfortunately, the amendments both referenced CNB’s original UCC- 1 initial financing
statement and included an “X” in box no.
2. In addition, both UCC- 3 amendments
included a checkmark under item 8 of the
amendment form, titled “Collateral Change.”
and in the option box to “describe collateral
deleted.” The description was of the debtor’s
interest in Westgate and Greenery and was
identical to that set forth in CNB’s letters of
instructions dated January 8, 2009.
CNB contended that someone without
authority checked the termination boxes
in the UCC- 3 amendments after CNB transmitted them to First American. CNB argued
that, because of this lack of authorization,
its security interest was not terminated
except for Westgate and Greenery. The
committee, of course, disagreed.
In any event, after CNB discovered what
had been filed, it filed two more UCC- 3
amendments on February 6, 2009, which
stated that CNB had not authorized the
termination of its security interests in any
assets of the debtor other than Westgate
and Greenery. 18 But on May 5, 2009, the
debtor filed its Chapter 11 petition. Thereafter, the court approved a stipulation
between the debtor and CNB that required
the debtor to remit to CNB 87.5% of the
proceeds of various assets when sold. Then
on March 12, 2009, the debtor asked the
court for permission to sell its AFE Interest.
The court granted the motion.
After the sale, CNB asked for its 87.5% of
the sales proceeds. The creditors’ committee filed an objection, contending that the
recorded UCC- 3 amendments terminated
CNB’s security interests in the debtor’s
property, including the AFE Interest. CNB,
of course, disagreed.
The committee argued, based on §9-
513(d), that filing the UCC- 3 amendments
with the termination boxes checked
terminated CNB’s security interest. It
also argued with reference to §§9-510(a)
and 9-509(d) that, as a matter of general
agency law, CNB was bound by the acts of
its agents, which were within the scope of
their authority. The committee contended
that First American was CNB’s agent for
purposes of the AFE Interest sale, and that
accordingly, even if First American checked
the boxes in error, CNB was bound by that
mistake and had therefore authorized First
American to terminate its security interest
in “all” of the debtor’s personal property.
that First American was not CNB’s
agent, except for
the Westgate and
and was not acting within its very
when it recorded
the UCC- 3 amendments in a form
other than that
what CNB had