If NC adopts the new Uniform Commercial Code Article 9 revisions, will the Department of the Secretary of State and its employees face new tort liability exposure?
Plain-English summary
The Uniform Commercial Code's Article 9 governs how secured lenders perfect security interests in personal property. A core piece of the system is the filing office (in NC, the Department of the Secretary of State), where lenders file "financing statements" giving public notice of their secured claims. Borrowers, their lawyers, and other lenders rely on the filing office to record those statements accurately and to deliver search results that show what has been filed.
In 1999-2000, the national Uniform Law Commission completed a major revision of Article 9 ("Revised Article 9"), and NC's General Statutes Commission was drafting NC's adopting legislation. The proposal made two changes that worried the Secretary of State's office. First, it deleted the existing "no liability" language in § 25-4-407(2) that had protected the filing office from being sued over errors in search certificates. Second, it added a new excusable-delay provision (proposed § 9-524) listing a narrow set of acceptable excuses (interruption of communication or computer facilities, war, emergency, equipment failure, "other circumstances beyond the control of the filing office," and the filing office had to exercise reasonable diligence).
Franklin Templeton (at the Department of the Secretary of State) asked the AG whether these changes would meaningfully expand the state's liability exposure, and if so, how to fix it. Senior Deputy AG Reginald L. Watkins and Special Deputy AG Lorinzo L. Joyner answered.
Yes, liability exposure would grow. The AG concluded the combined effect of the two changes was substantial. Deleting the "no liability" language stripped a clear defense. The new excusable-delay provision was so narrowly drafted that it implied liability for any delay not within the listed excuses, applying the canonical interpretive principle from Alford v. Shaw: "the statutory inclusion of certain things implies the exclusion of others." Together, the changes would expose the filing office to liability for errors and untimely responses.
How NC tort liability would apply. The AG walked through the doctrine. NC is generally immune from suit absent consent or waiver. The Tort Claims Act (§ 143-291 et seq.) provides a limited waiver: negligence claims against state agencies go to the Industrial Commission with statutory caps on damages. Meyer v. Walls is the leading citation. But the Tort Claims Act does not apply to suits against individual officers, agents, or employees. Plaintiffs sue them in the General Court of Justice for common law negligence, with no statutory cap.
Officer-vs.-employee distinction. Meyer v. Walls draws a key distinction. Public officers (those who exercise discretionary judgment in their work) cannot be personally liable for mere negligence; liability requires corruption, malice, or actions outside their lawful authority. Public employees (those whose duties are ministerial, i.e., absolute, certain, and imperative, with no discretion) can be personally liable for negligence. Filing office staff doing ministerial recording and search work would likely fall on the employee side, exposed to common-law negligence suits in the General Court of Justice.
Two solutions.
Option A: Keep the "no liability" language. The simplest path is to carry forward § 25-4-407(2)'s existing "no liability" protection and to delete proposed § 9-524's excusable-delay provision. This preserves the status quo.
Option B: Add a separate immunity provision modeled on former § 104G-8(a). § 104G-8(a) protected members, officers, and employees of the Low-Level Radioactive Waste Management Authority from personal liability for acts within the scope of their authority. The provision was repealed effective July 1, 2000 (the radioactive waste authority itself was being wound down), but its text remained a useful model. Under existing case law, similar language would likely give Authority members and employees limited immunity from negligence suits. The AG flagged that the immunity probably would not extend to willful, wanton, reckless, or intentional acts, per Paschal v. Myers, 129 N.C. App. 23, 497 S.E.2d 311 (1998).
The AG didn't pick a path. The advice was: pick one or the other, but don't ship Revised Article 9 with the protections gutted and no replacement immunity.
Currency note
This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. NC ultimately adopted Revised Article 9 effective July 1, 2001 (S.L. 2000-169). The specific liability and excusable-delay provisions enacted may differ from the version reviewed in this opinion. The Tort Claims Act and Meyer v. Walls doctrine on public officer vs. employee liability remain the doctrinal backbone, though there have been many decisions refining the distinction since 2000.
Background and statutory framework
UCC Article 9 revision. The Uniform Law Commission completed Revised Article 9 in 1999, with a recommended effective date of July 1, 2001. The revision was a major modernization of secured transactions law, dealing with electronic filings, the proper place for filing financing statements, debtor-name rules, and many other issues. NC adopted Revised Article 9 by S.L. 2000-169 effective July 1, 2001.
Filing office function. The Secretary of State's office maintains the central UCC filing index. Lenders file financing statements; searchers request certificates showing what has been filed against a particular debtor. The accuracy and timeliness of search certificates are commercially critical: a missed filing on a search certificate can cost a subsequent lender millions.
Existing § 25-4-407(2). Provided that the filing officer was not liable for errors in certificates. This was a long-standing protection that let the office operate without the threat of routine litigation.
Proposed § 9-524. The Uniform Act's version listed a narrow set of excusable delays. The AG read the list as exclusive under the Alford v. Shaw canon, exposing the office to liability for any delay outside the listed excuses.
The Tort Claims Act framework.
- § 143-291 et seq. waives state immunity for negligence claims against state agencies.
- Claims against state agencies go to the Industrial Commission.
- Statutory damages cap (varied over time).
- Does not extend to officers, agents, or employees in their individual capacity.
- Meyer v. Walls is the leading citation on the scope.
Officer vs. employee distinction. From Meyer v. Walls:
- Officers exercise discretionary judgment.
- Officers cannot be personally liable for mere negligence; liability requires corruption, malice, or acting outside the scope of duties.
- Employees perform ministerial duties (absolute, certain, imperative).
- Employees can be personally liable for negligence in common-law suits.
- Filing office clerks doing recording and search work are likely employees, not officers.
Former § 104G-8(a) as a model. Protected members, officers, and employees of the Low-Level Radioactive Waste Management Authority from personal liability for acts within their authority. Paschal v. Myers established the doctrinal limit: similar immunity would not extend to willful, wanton, reckless, or intentional acts.
Canon of inclusion-implies-exclusion. Alford v. Shaw, 327 N.C. 526, 398 S.E.2d 445 (1990): "the statutory inclusion of certain things implies the exclusion of others." A narrowly-drafted exception list, like the proposed § 9-524 excusable-delay provision, will be read to imply liability for delays not on the list.
Common questions
Q: Did NC eventually adopt Revised Article 9?
A: Yes, by S.L. 2000-169, effective July 1, 2001. Whether the final NC adoption preserved or modified the liability provisions discussed in this opinion depends on the enacted text and is outside the scope of the AG's analysis.
Q: Why did the General Statutes Commission want to remove the 'no liability' language?
A: The Uniform Act drafters at the national level were responding to concerns from commercial parties who wanted recourse when filing offices made errors. The Uniform Act's approach was to make filing offices accountable for accurate and timely service, with a narrow list of excusable delays. The AG's analysis flagged the unintended downstream impact on state liability.
Q: Could the Secretary of State's office be sued for a single missed filing?
A: Under the proposed Revised Article 9 without protections, yes. A subsequent lender that relied on a search certificate that missed a financing statement could sue the office for the resulting loss. Under the existing § 25-4-407(2), the office had a clear defense.
Q: What's the difference between an officer and an employee for liability purposes?
A: Officers exercise discretionary judgment; employees perform ministerial duties. An employee performing routine filing or search functions has no discretion; missing a step is straightforward negligence. An officer making a judgment call (e.g., a department head deciding how to allocate resources) has discretion; mere negligence wouldn't expose them personally.
Q: Why did the AG mention the Low-Level Radioactive Waste Management Authority statute?
A: § 104G-8(a) was a model of effective statutory immunity language: protected members, officers, and employees within the scope of their authority. Even though the underlying agency was being wound down, the immunity-language template was a useful drafting reference.
Q: Would the AG's recommendations protect against willful misconduct?
A: No, and the AG was explicit about that. Paschal v. Myers limits statutory immunity to negligence; willful, wanton, reckless, or intentional acts remain actionable. That's the right policy line: routine errors get protection; deliberate wrongdoing does not.
Citations from the opinion
- N.C. Gen. Stat. §§ 25-4-407(2), 25-9-407
- Proposed N.C. Gen. Stat. § 9-524
- N.C. Gen. Stat. § 143-291 et seq. (Tort Claims Act)
- N.C. Gen. Stat. § 104G-8(a) (repealed eff. July 1, 2000)
- Alford v. Shaw, 327 N.C. 526, 398 S.E.2d 445 (1990)
- Meyer v. Walls, 347 N.C. 97, 489 S.E.2d 880 (1997)
- Paschal v. Myers, 129 N.C. App. 23, 497 S.E.2d 311 (1998)
Source
Original opinion text
Reproduced from the NCDOJ landing page. The linked landing page is authoritative.
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. § 25-4-407(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. § 143-291 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. 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."