though in both cases the error was not
specifically “authorized”), then for the few
extra dollars, it seems almost inconceivable not to use a third party to make the
filing. Weighing $100 against $1,400,000,000
should not take much time or effort.
However, when you are using the third
party to file your initial financing statement and amendments, remember that
national service companies, as a rule, limit
their financial exposure for their negligence to the amount paid for the filing
service. First American, alone among the
major service providers, has increased its liability exposure from the price of the filing,
say $29, to $10,000. But even that amount
is insufficient to compensate for potential
exposure. The answer is UCC insurance.
Even if filing of a “correction” statement had
any retroactive effect, under the current
version of §9-518, only the debtor can file a
correction statement. A proposed revision
would not on its face apply to an amendment
filed in error by a person authorized to file
the amendment. Further, both the current
and the proposed §9-518 state that filing a
correction statement or, under the proposed
revision, “a claim under this Section,” “does
not effect the effectiveness of an initial
financing statement or other filed record.”
735 F.2d 362 (1984).
UCC insurance, now offered by all the
major land title companies, is the only
cost-effective way to manage the risks of
determining a lender’s security interest in
personal property. Given the generally low
cost of UCC insurance and the catastrophic
result if a lender is not perfected or lacks
the expected degree of priority, there is
no truly cost-effective alternative to UCC
insurance. If, for whatever reason, a client
is not perfected and in first position, the
lawyer who did not advise his or her client
of the availability of UCC insurance may
have little defense to the resulting malpractice action. “I knew UCC insurance was
available but forgot to discuss it with you”
is not a great defense. TSL
The following arguments are from the opening brief in support of First American Title
Insurance Company’s motion to dismiss a
third-party complaint against it for filing a
termination statement in error in the case of
Meridian Automotive Systems-Composites
Operations, Inc., et al. in the United States
District Court for the District of Delaware.
The Disclosure Statement in the proceeding
was approved on October 25, 2006. The confirmation hearing on the debtor’s reorganization plan was on November 29, 2006. Because
no objections were filed with the court by
November 22, 2006 (and none were expected,
because the plan was consensual), the court
approved the debtor’s plan on November 22,
2006, and subsequently issued its confirmation order. There was no appeal. The order
discharged all claims against First American
and gave first-lien lenders a lien avoidance
release. The issue of the erroneous filing
became moot, because all the parties agreed
to the plan.
5 See UCC §9-510(a) (“A filed record is effective
only to the extent that it was filed by a person that may file it under §9-509.”)
See Official Comment 5 to UCC §9-509 (“Law
other than this Article … generally determines
whether a person has requisite authority to
file a record under this section.”)
1 UCC terms used in this article, unless
otherwise defined, shall have the meaning
ascribed to such terms, through definition or
usage, in the UCC.
7 See, e.g., Restatement ( Third) of Agency,
§§ 2.01 and 2.02; Green v. Hellman, 412 N. E.2d
1301, 1305-06 (N. Y. 1980); Billops v. Magness
Construction Co., 391 A.2d 196, 197 (Del. 1978);
Lydon v. Eagle Food Centers, Inc., 696 N. E.2d
1211, 1215 (Ill. App.Ct. 1998).
Section 9-521(b) provides the national accepted form of amendment that is used for both
a termination of the financing statement
record or for the continuation, assignment
of amendment of the financing statement record, including the deletion or addition of collateral and the restatement of the collateral
description. Checkbox #2 is for termination
and checkbox #8 is for amendments. Box 8 is
used for collateral changes or restatement.
The proximity of the termination box to the
continuation, assignment, and amendment
boxes may be a contributing factor to the
type of serious error discussed in this article.
There has been much discussion about revising the form.
8 See id.
9 See comment b to Restatement (Third) of
Agency, § 2.01; Green, 412 N. E.2d at 1305-06; Lydon, 696 N. E.2d at 1215; Guyer v. Haveg Corp.,
205 A.2d 176, 179-80 (Del.Super.Ct.1964).
10 See Petrovich v. Share Health Plan of Illinois,
Inc., 719 N.E.2d 756, 770 (Ill. 1999); Green, 412
N.E.2d at 1305; Guyer, 205 A.2d at 179-80.
11 See Restatement ( Third) of Agency, § 2.01
12 Apparent authority holds the principal ac-
countable for the result of third-party beliefs
about the actor’s authority as an agent when
the belief is reasonable and is traced to a
manifestation of the principal. Apparent
authority trumps restrictions the principal
may have privately imposed on the agents
regarding reliance by third parties. Any set of
circumstances can support apparent author-
ity where the third party reasonably believes
that the agent has authority so long as that
belief is traceable to manifestations of the
agent by the principal. Comment c to § 2.03,
Restatement ( Third), at 114.
James D. Prendergast is senior vice president
and general counsel of the UCC division of
First American Title Insurance Company. He is
co-chair of the ABA Joint Task Force on Filing
Office Operations and Search Logic, an official
observer to the ALI/ULC review committee on
Article 9, a Fellow of the American College of
Commercial Finance Lawyers, and an adjunct
professor at the Pepperdine University School
of Law. Thanks to Brad Gibson, associate
general counsel of the UCC Division of First
American, for his assistance with this article.