That decision, however, did not completely seal the lender’s fate. The issue still remained whether the lender had “authorized” the filing of the termination statement by GM’s legal counsel within the meaning of UCC §§ 9-509 and 9-510. In a per curiam opinion issued on January 21, 2015, the Second Circuit concluded that the lender had sufficiently “authorized” the mistaken UCC-3 filing. As a result, the lender lost its security for the $1.5 billion loan, thereby rendering the secured obligation unsecured. See Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A., 2015 WL 252318 (2d Cir. Jan. 21, 2015).

The term “authorize,” which is not defined in the UCC, derives meaning from general agency principles. Applying agency law, the bankruptcy court previously concluded that GM and its counsel — which prepared and filed the mistaken UCC-3 — had neither actual nor apparent authority to file the mistaken statement. No one on either side — principal or agent — believed such authority existed, and no document or statement ever purported to convey such authority. The bankruptcy court reasoned that such an unknowing and mistaken approval could not give rise to proper authority. However, the Second Circuit disagreed and noted that the lender and its counsel manifested assent to the UCC-3 termination. As a result, “Nothing more is needed.” Because the lender authorized the filing, the UCC-3 termination statement was effective.

Both the bankruptcy court and Second Circuit relied on the same standard of “actual authority” set forth in the Restatement (Third) of Agency. According to the Restatement, “[a]ctual authority... is created by a principal’s manifestation to an agent that, as reasonably understood by the agent, expresses the principal’s assent that the agent take action on the principal’s behalf.” Restatement (Third) of Agency § 3.01. The two courts, however, disagreed as to how the standard should be applied. The Second Circuit’s decision concluded that a secured party’s subjective intent is irrelevant when considering whether such secured party has authorized the filing of a particular UCC-3 statement. The simple act of uttering “it’s fine,” “good to go,” or other similar forms of assent is sufficient. Thus, the only requirement for authorization is that the agent reasonably believe that the principal has given the green light to the agent to file the UCC-3 statement (even if it mistakenly identifies the wrong collateral).

Absent from the Second Circuit’s analysis is any discussion of the UCC’s over-arching rule of construction that the law of mistake, among other principles of law and equity, applies to all articles of the UCC, unless specifically displaced by another provision thereof. See UCC § 1-103(b). An argument could be made in cases outside of the Second Circuit that the authorized filing provision of UCC § 9-509(d)(1) does not displace the law of mistake as a possible defense to a termination statement filed in error. As such, if this issue were to arise in other circuits, the affected party should consider arguing that the law of mistake may serve as a defense to a mistakenly filed UCC-3 statement, particularly if there has been no detrimental reliance by a third-party buyer or lender who gave value, and especially if the mistake is mutual rather than unilateral.

In any event, the Second Circuit’s decision should serve as a reminder for secured lenders to closely and routinely scrutinize documents for clerical mistakes and other oversights. As a matter of best practices, it is critical to match the filing numbers from the original UCC-1 financing statements to the UCC-3 termination statements. As witnessed here, a seemingly small oversight can become immensely costly.