Contributed by Tim Hall, Managing Attorney, CT Corporation
Welcome back to our series on unauthorized UCC filings! In this post we outline some points of basic understanding that form a foundation to the issue at hand.
Prior to starting the discussion regarding the concept of “authority to file”, we thought it would be helpful to:
- Emphasize some key terms and definitions found in Article 9 of the UCC
- Discuss the role of the UCC filing office, and the filing office’s statutory obligations when indexing UCC filings
First and foremost, it is important to remember that the Article 9 filing system is a “notice filing” system. This means the information contained in the UCC index at the filing office, and the information contained on the financing statements and other UCC documents filed on the public record, are not designed to provide all of the information and details needed to fully understand the underlying secured transaction. Conducting a UCC search is the starting point for the inquiry, not the end. The Official Comment to Section 9-502 states it clearly:
9-502 Official Comment 2: What is required to be filed is not…the security agreement itself, but only a simple record providing a limited amount of information. The notice itself indicates merely that a person may have a security interest in the collateral indicated. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs. Section 9-210 provides a statutory procedure under which the secured party, at the debtor’s request, may be required to make disclosure. However, in many cases, information may be forthcoming without the need to resort to the formalities of that section.
So, the article by its nature recognizes that some legwork may be necessary to fully understand the secured interest.
Another critical piece of foundational knowledge is the UCC Article 9’s definitions of “financing statement” and “record”:
- 9-102(a)(39): “financing statement” means a record or records composed of an initial financing statement and any filed record relating to the filed financing statement.
- 9-102(a)(69): “record” means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.
In a practical sense, this means that a UCC filing can be made via a paper filing, electronic filing or any other “perceivable” format and it will be considered a “record”. A “financing statement” means any record composed of the UCC-1 initial financing statement, as well as any filed record relating to the initial financing statement, such as a UCC-3 amendment filing, termination statement, continuation, an addendum or other attachment to the UCC-1 or UCC-3, etc. If it relates to the initial financing statement record, it is part of the “financing statement”.
Now let’s move on to understanding filing office duties.
Often, reviewing the results of a UCC search can be frustrating, confusing, expensive and time-consuming. Many searchers are annoyed when UCC search results list UCC records that appear to be terminated or lapsed. Before blaming the filing office for this mess, it’s important to remember that the filing office is really just doing exactly what the law requires it to do! The Model Administrative Rules clearly express the desired role of the UCC filing offices.
Model Administrative Rule 200 – The duties and responsibilities of the filing officer with respect to the administration of the Uniform Commercial Code are ministerial. In accepting for filing or refusing to file a financing statement pursuant to this chapter, the filing officer does not:
A. determine the legal sufficiency or insufficiency of a document;
B. determine that a security interest in collateral exists or does not exist;
C. determine that information in the document is correct or incorrect, in whole or in part; or
D. create a presumption that information in the document is correct or incorrect, in whole or in part.
To further ensure that the filing office acts in a strictly ministerial role, there are many provisions in the Article 9 statute that expressly limit the duties and discretion of the filing office. For example, Section 9-520 limits the ability of the filing office to reject a document, by specifically limiting the reasons for rejection to those found in 9-516. Section 9-519(c) provides that a filing office is required to index a record by debtor name and file number only, and does not require that a filing office provide any information regarding the secured party name, type of filing (e.g. UCC-1 or UCC-3), etc. on a UCC search report. Section 9-519(g) requires a filing office to keep the financing statement record on the index until one year after expiration, notwithstanding any termination filings or other filings made in relation to the record.
The Official Comments to Section 9-520 probably express it best:
9-520 Official Comment: The rule….increases the amount of information available to those who search the public record. The rule also contemplates that searchers—not the filing office—will determine the significance and effectiveness of filed records.
Now you understand the burden placed on searchers to perform their own due diligence when faced with a potentially unauthorized filing. This need not be overwhelming, however. In the third part of our series we’ll discuss the concepts of authorization and legal effectiveness, which will help you understand your search results. And of course, you can always rely on a UCC service provider such as CT Lien Solutions, who is experienced in making sense of the complexities of the public record.
Tim Hall has been with CT Corporation for more than 14 years. He spent his first three years as a Team Leader for a UCC Service team, and has been with the Government Relations Team for the past 11 years. He is a graduate of The Ohio State University and the Northern Illinois University College of Law, and is a frequent speaker on Article 9 of the UCC.
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