Consequences of Proposed Amendments to Article 9 of UCC

Re: N.C. Gen. Stat. § 25-9-407; Consequences of Proposed Amendments to Article 9 of the Uniform Commercial Code

Dear Mr. Templeton:

You have indicated that certain changes to the Uniform Commercial Code (UCC) are being contemplated by the General Statutes Commission. Because the Department of the Secretary of State is the central filing office for certain UCC Article 9 financing statements, you seek our advice on whether and to what extent the proposals relating to Article 9 would affect the liability of the Department of the Secretary of State or its officers and employees. If this Office concludes that the proposed changes would substantially impact your Department’s liability for damages, you have requested that we then consider whether and how the proposed statutory language might be amended. A copy of the proposed changes applicable to Article 9 and the filing and researching of UCC financing statements was included in your request for an opinion.

A review of the material you provided reveals that the filing officer currently incurs no liability when he issues a certificate showing what financing statements and other filings have been made against a particular debtor. N.C. Gen. Stat. § 25-4407(2). Article 9 also contains no provision relating to delayed responses by the filing office.

The proposal pending consideration by the General Statutes Commission amends Article 9 in two respects. First, the “no liability” language of § 25-4-407(2) has been deleted. Secondly, the revised language requires that responses to requests related to filing and research be made within a time certain. Proposed Section 9-524 further provides that delays which deviate from the statutory time periods may be excused if (1) the delay is caused by interruption of communication or computer facilities, war, emergency conditions, failure of equipment, or other circumstances beyond the control of the filing office; and (2) the filing office exercises reasonable diligence under the circumstances.

Your concern that the combined effect of these two changes to Article 9 could result in liability on the part of the State is, in our view, well-founded. Deletion of the language which expressly provides that the filing office shall not be liable eliminates the protection previously available. Moreover, addition of a very narrowly drafted “excusable delay” provision implies that the filing office will be liable for delays not falling within the limited circumstances specified. It is generally held that the statutory inclusion of certain things implies the exclusion of others. Alford v. Shaw, 327 N.C. 526, 535, 398 S.E.2d 445 (1990). Clearly, the proposed revisions result in the filing office no longer having an unequivocal defense against liability and expose the Department of the Secretary of State to increased risk of liability for errors or delays in carrying out the functions required by Article 9.

The elimination of the “no liability” language would likely subject the Office of the Secretary of State to liability for negligence on the same basis as other state agencies. As you know, the State cannot be sued except with its consent or upon its waiver of immunity. The Tort Claims Act provides a limited waiver of immunity for negligence claims against all agencies of the State. Meyer v. Walls, 347 N.C. 97, 104, 489 S.E.2d 880 (1997).

A negligence action against a state agency must be brought before the Industrial Commission. Liability in such cases is legislatively capped. See N.C. Gen. Stat. § 143291 et seq. The Tort Claims Act does not, however, confer jurisdiction in the Industrial Commission over claims against officers, agents or employees of a state agency. Plaintiff must maintain his suit against a negligent agent or employee in the General Court of Justice for common law negligence. Meyer v. Walls, 347 N.C. at 108. There is no ceiling on the amount of damages a prevailing plaintiff may recover in these suits. However, public officers, unlike public agents or employees, cannot be held personally liable for damages caused by mere negligence in the performance of their governmental or discretionary duties. Id. at 112. For liability to be imposed against a public official, it must be alleged and proved that his act, or failure to act, was corrupt or malicious, or that he acted outside of and beyond the scope of his duties. Id. Public officers exercise a certain amount of discretion; in contrast, employees perform ministerial duties. Discretionary acts are those requiring personal deliberation, decision and judgment; duties are ministerial when they are absolute, certain, and imperative, involving merely the execution of a specific duty arising from fixed and designated facts. Id. at 113.

Having concluded that the two proposed changes to Article 9 of the UCC discussed herein would likely affect the Department’s liability, we now consider whether and how the proposed statutory language might be amended to address that concern. The most simple approach would be to carry forth the “no liability” language currently found in N.C. Gen. Stat. § 25-4-407(2) and to delete the Proposed Section 9-524 which defines excusable delay.

Another alternative would be to include a separate provision in the proposed legislation to address the liability and defense of officers or employees. As you are probably aware, the General Assembly provided the staff and members of the Low-Level Radioactive Waste Management Authority special statutory protections against liability. Although repealed effective July 1, 2000, the language of the Act might serve as a useful guide.¹ When construed in accordance with existing case law, N.C. Gen. Stat. § 104G-8(a) appears to provide Authority members and employees limited immunity from suits for negligence. Note however that the immunity would likely not extend to willful, wanton, reckless or intentional acts. See Paschal v. Myers, 129 N.C. App. 23, 30, 497 S.E.2d 311 (1998). You may wish to consider this language as a model to address the concerns raised by the proposed revisions to Article 9 of the UCC.

We hope this is responsive to your concerns. If you have additional questions, please do not hesitate to contact us.

Signed by:

Reginald L. Watkins Senior Deputy Attorney General

Lorinzo L. Joyner Special Deputy Attorney General

¹ See N.C. Gen. Stat. § 104G-8(a) which provides in pertinent part that “[n]o member, officer, or employee of the Authority, while acting within the scope of their authority, shall be subject to any personal liability or accountability by reason of any act or omission in connection with the exercise of any power or performance of any duty, whether express or implied, pursuant to this Chapter.”