Do the Business and Commerce Code's fraudulent-filing penalties apply to transactions excluded from UCC chapter 9?

Plain-English summary

Texas added a "fraudulent filing" law in the 1990s to fight a wave of bogus liens and judgment filings that people were using to harass public officials and ordinary citizens. That law, section 9.412 of the Business and Commerce Code, made it a crime to knowingly present a forged, materially false, or groundless financing statement for filing, and gave injured property owners a civil remedy. Section 9.412 sat inside chapter 9 of the Code, the chapter governing secured transactions.

Chapter 9 has its own list of carve-outs. Section 9.104, titled "Transactions Excluded From Chapter," says the chapter "does not apply" to thirteen described kinds of transactions. State Senator Chris Harris, who chaired the Senate Committee on Administration, asked the Attorney General a narrow question: does the section 9.412 fraudulent-filing provision still reach transactions that section 9.104 excludes from chapter 9?

The Attorney General answered no, and the reasoning was short. Chapter 9 does not apply to any transaction listed in section 9.104. Section 9.412 is part of chapter 9. So section 9.412 does not apply to the excluded transactions either. The opinion noted that the 1999 recodification would move these provisions (section 9.104 into section 9.109, and section 9.412 into section 9.5185) effective July 1, 2001, but it analyzed the version of chapter 9 then in force.

Currency note

This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later Attorney General 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. The opinion itself flagged that chapter 9 was being recodified effective July 1, 2001, which renumbered the sections it discussed.

What the opinion meant for those who asked

Senator Chris Harris (what the opinion held): The opinion gave a clean yes-or-no answer to the question he posed. The fraudulent-filing provisions of section 9.412 did not apply to any of the thirteen transaction types that section 9.104 excluded from chapter 9, because section 9.412 lived inside chapter 9 and chapter 9 did not reach those transactions.

Banks and financial institutions (what the opinion held for them): The opinion recorded that several banking trade associations had worried the fraudulent-filing language could be turned against valid, consensual liens. By holding that section 9.412 did not reach the section 9.104 carve-outs, the opinion confirmed that the provision's coverage stopped at chapter 9's own boundaries.

County and district clerks (what the opinion held for them): The opinion described section 9.412 as a response to spurious filings lodged with the secretary of state and county and district clerks. It held that the provision's criminal and civil reach did not extend to transactions chapter 9 itself excluded.

Common questions

What is a "fraudulent filing" under section 9.412?
The opinion quoted the statute: a person may not intentionally or knowingly present, or cause to be presented, a financing statement for filing when the person knows it is forged, contains a material false statement, or is groundless. The statute carried criminal penalties and a civil remedy for an injured property owner.

Why did Texas pass this law?
The opinion explained it was first enacted in 1995 in response to spurious court filings by people challenging the State's sovereignty, and was amended in 1997 after individuals and organizations filed fraudulent judgment liens and lien-like documents against the State, public officers, and private individuals.

Did the fraudulent-filing rule cover the transactions section 9.104 excludes?
No. The opinion held that section 9.104 makes all of chapter 9 inapplicable to the thirteen listed transactions, and because section 9.412 is part of chapter 9, it does not apply to them either.

Did the 1999 recodification change this answer?
The opinion did not decide that. It noted that effective July 1, 2001, section 9.104's content would move to section 9.109 and section 9.412's content to section 9.5185, but it expressly analyzed the version of chapter 9 in force at the time.

Background and statutory framework

The fraudulent-filing provision, Tex. Bus. & Com. Code Ann. § 9.412(a) (Vernon Supp. 2000), barred knowingly presenting a forged, materially false, or groundless financing statement for filing and was paired with criminal penalties and civil relief. It was first enacted by the Act of May 24, 1995, 74th Leg., R.S., ch. 547, § 1, 1995 Tex. Gen. Laws 3316, and amended in 1997. Section 9.104, styled "Transactions Excluded From Chapter," stated that chapter 9 "does not apply" to thirteen kinds of transactions. The opinion noted that the Act of May 17, 1999, 76th Leg., R.S., ch. 414, 1999 Tex. Gen. Laws 2639, recodified chapter 9 effective July 1, 2001, moving the section 9.104 content into section 9.109 (including § 9.109(d)) and the section 9.412 content into section 9.5185. The opinion resolved the question by syllogism rather than by parsing the excluded categories: chapter 9 does not apply to a section 9.104 transaction, section 9.412 is part of chapter 9, so section 9.412 does not apply to that transaction.

Citations

Statutory provisions:

• Tex. Bus. & Com. Code Ann. § 9.412(a) (Vernon Supp. 2000)
• Tex. Bus. & Com. Code Ann. §§ 9.104, 9.109(d), 9.5185
• Act of May 17, 1999, 76th Leg., R.S., ch. 414, 1999 Tex. Gen. Laws 2639
• Act of May 24, 1995, 74th Leg., R.S., ch. 547, § 1, 1995 Tex. Gen. Laws 3316

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0213
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2000/jc0213.pdf

Original opinion text

Best-effort transcription from the official scanned PDF. Minor character-level errors from the source OCR have been corrected; the linked PDF is authoritative.

OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS

JOHN CORNYN

April 20, 2000

The Honorable Chris Harris
Chair, Senate Committee on Administration
Texas State Senate
P.O. Box 12068
Austin, Texas 78711

Opinion No. JC-0213

Re: Whether the "fraudulent filing" provisions of the Business and Commerce Code apply to those transactions excepted under section 9.104 thereof (RQ-0154-JC)

Dear Senator Harris:

You have requested our opinion as to whether the "fraudulent filing" provisions of section 9.412 of the Business and Commerce Code apply to those transactions excepted under section 9.104. For reasons that appear below, we conclude that they do not apply.

Your letter refers to sections 9.104 and 9.412, which are found in the present version of chapter 9 of the Business and Commerce Code and are effective until July 1, 2001, as well as to sections 9.109(d) and 9.5185, which are part of an amended and renumbered chapter 9 that will take effect on July 1, 2001. On July 1, 2001, the provisions in section 9.104 will be found in section 9.109, and the provisions in section 9.412 will be found in section 9.5185. See Act of May 17, 1999, 76th Leg., R.S., ch. 414, §§ 1.01, 3.10, 1999 Tex. Gen. Laws 2639, 2650, 2656, 2711, 2750. In this opinion, we refer to the present version of chapter 9.

Section 9.412 of the Business and Commerce Code provides, in relevant part:

(a) A person may not intentionally or knowingly present for filing or cause to be presented for filing a financing statement if the person knows that the financing statement:

(1) is forged;

(2) contains a material false statement; or

(3) is groundless.

TEX. BUS. & COM. CODE ANN. § 9.412(a) (Vernon Supp. 2000). There follows a statement of criminal penalties for violation of subsection (a) and a provision for civil relief of a property owner injured thereby. See id. § 9.412(b), (d).

Section 9.412 was first enacted in 1995 [1] in response to a wave of spurious court filings by individuals who were attempting to challenge the sovereignty of the government of the State of Texas. See Tex. Att'y Gen. LO-98-016 (county clerk required to provide notice if fraudulent filing is suspected); see also Tex. Att'y Gen. DM-389 (1996). The bill analysis for the 1997 amendment to section 9.412 declares:

[Individuals and organizations] have filed fraudulent judgment liens issued by so-called "common law courts" and fraudulent documents purporting to create liens or claims on personal and real property with the secretary of state and many county and district court clerks throughout the state. Many of the filings have been against the State of Texas and public officers and employees, as well as private individuals. These filings have clogged the channels of commerce and have amounted to harassment and intimidation of both public officials and ordinary citizens. This bill provides both civil and criminal remedies for those against whom such fraudulent filings have been made.

SENATE COMM. ON JURISPRUDENCE, BILL ANALYSIS, Tex. H.B. 1185, 75th Leg., R.S., (1997). Representatives of a number of financial trade associations have expressed concern that section 9.412 "could inadvertently create an opportunity for individuals to remove valid liens or claim damages for consensual or valid transactions. Absent a clear and careful reading of the definition [of fraudulent filing], this section can be used to destroy commerce in the state of Texas by disrupting normal debtor/creditor relationships." Letter from Karen M. Neeley, Independent Bankers Ass'n of Texas, John Heasley, Texas Bankers Ass'n, J. Eric T. Sandberg, Texas Savings & Community Bankers Ass'n, to Elizabeth Robinson, Chair, Opinion Committee, Office of the Texas Attorney General, at 2 (Jan. 5, 2000) (on file with Opinion Committee).

Section 9.104 of the Business and Commerce Code, styled "Transactions Excluded From Chapter," provides that "[t]his chapter does not apply" to thirteen kinds of transactions described in the section. You ask whether section 9.412 applies to these thirteen transactions. The answer is clear. No part of chapter 9 is applicable to a transaction listed in section 9.104. Section 9.412 is a part of chapter 9. As a result, section 9.412 is not applicable to a transaction listed in section 9.104.

We conclude that the "fraudulent filing" provisions of section 9.412 of the Business and Commerce Code do not apply to any transaction listed in section 9.104 thereof.

[1] See Act of May 24, 1995, 74th Leg., R.S., ch. 547, § 1, 1995 Tex. Gen. Laws 3316.

SUMMARY

The "fraudulent filing" provisions of section 9.412 of the Business and Commerce Code do not apply to any transaction listed in section 9.104 thereof.

JOHN CORNYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

Rick Gilpin
Assistant Attorney General - Opinion Committee