Promoting Integrity in the UCC Article 9 Recording System

On January 1, 2011, Larry files a UCC-1 financing statement against David indicating David's equipment as collateral. At this point, David doesn't even know Larry, has not given him a security interest, and has not authorized this filing. On February 1, 2012, David meets and borrows money from Larry and signs a security agreement listing equipment as collateral (which, under UCC 9-509, automatically authorizes the filing of a financing statement against equipment). What is the relevant date for determining Larry's priority? The language of Article 9 itself strongly implies that February 1, 2012 is the relevant date. UCC 9-509 makes clear that financing statements are not valid unless authorized by the debtor - a pretty minimal burden to cloud the debtor's title. But a little-discussed 2010 amendment to the official comments of Article 9 says otherwise: to the drafters, if the filing is later authorized, Larry gets the benefit of the 1/1/2011 filing date for purposes of the "first-to-file-or-perfect" rule and other priority rules or competitions. 

The most relevant portion of the new paragraph (an addition to comment 4 to 9-322) reads as follows:

"When a financing statement that is ineffective when filed becomes effective thereafter, the policy underlying the notice-filing system determines the 'time of filing' for purposes of subsection (a)(1). For example, the unauthorized filing of an otherwise sufficient initial financing statement becomes authorized, and the financing statement becomes effective, upon the debtor's post-filing authorization or ratification of the filing. See Section 9-509, Comment 3. Because the notice value of the financing statement is independent of the timing of authorization or ratification, the time of the unauthorized filing is the 'time of filing' for purposes of subsection (a)(1). The same policy applies to the other priority rules in this part."   

Recent comments on a commercial law listserve suggest that the drafters viewed this comment as an expression of current law. Whether or not that is the case, this issue deserves more sunlight and discussion. Authorization as the relevant date is, of course, messier than the bright line of the unauthorized filing. But any such benefits must be weighed against the negligent or even fraudulent behavior encouraged by this interpretation. This kind of official comment practically invites parties to file unauthorized financing statements against potential debtors because of the priority advantages associated with early filings. Article 9 gives a debtor damage remedies and the right to request termination of an unauthorized statement, but exercising these rights takes time and resources. Why shift the burden this way? Promoting a notice filing system doesn't seem to be enough of a justification.      

My sense (which could be wrong) is that many people who might be similarly concerned are unaware of this amendment to comment 4 of 9-322. But it isn't too late to generate more discussion about it. According to the Uniform Law Commission website, the majority of states have not yet enacted the 2010 amendments to Article 9.