Banking Law Bulletin

What’s in a date (A LOT)!

For many years, Bank attorneys have preached to commercial loan officers the absolute necessity of accurately stating the name of the debtor on a UCC financing statement given the risk that, the slightest of errors, would result in the Bank losing its perfected secured status and, as a result, its collateral to a competing secured creditor or a bankruptcy trustee.

This advice grew out of a series of cases in which courts found that even a seemingly minor or inconsequential deviation from the debtor’s “true name” was, nonetheless, fatal to the lender’s perfected “secured” status.

In re Kindernecht, decided in 2004, is a good example of this line of cases. In that instance, Deere Credit filed a financing statement in the name of “Terry J. Kindernecht” when the debtor’s full name was “Terrence Joseph Kindernecht”.

Based on these facts, the Court found that the financing statement was not legally sufficient in that it did not state the debtor’s “exact full legal name”. The Court said “Terry J.” was a nickname while “Terrence Joseph” was his exact and correct full name. Thus, Deere Credit’s financing statement was legally insufficient and ineffective to perfect its security interest in the intended collateral. The end result was that the trustee in bankruptcy got the goods while John Deere was left holding the bag.

The “name game” has now largely played out due to legislative enactments which make clear that the name of the debtor will pass scrutiny, for an entity, if its name is as set out on its organizational documents, i.e. the articles of incorporation, etc. and, for an individual, if the debtor’s name matches his/her name on his/her driver’s license or other state issued ID.

But do other land mines still exist? For example, how important is it for a Bank to have the exact date of its promissory note correctly stated in its security agreement securing that note? Crucial (or perhaps fatal) according to a recent Seventh Circuit Court of Appeals decision.

In re David L. Duckworth, decided November 21, 2014, the Seventh Circuit Court of Appeals considered the following issue: Is a security agreement valid and effective to create a lien on collateral (crops) when the date of the note it purports to secure is two days prior to the actual date of that note?

In other words, does a mistaken date in the security agreement defeat the Bank’s security interest? The Seventh Circuit answered this last question - “Yes, the security agreement is no good because it incorrectly states the date of the note secured thereby, even though that difference is only two (2) days. Moreover, you can’t save that security agreement by evidence outside of the document itself even though all agree that an error was made.”

The facts in Duckworth are that the security agreement stated on its face that it secured a promissory note dated December 13. In fact, the promissory note that the Bank sought to secure was signed and dated December 15, not the 13th. So, in ruling against the Bank, the Court found that the security agreement secured only a December 13 promissory note – a note that never existed!

But wait, in an effort to fix this, and to tie the security agreement to the December 15 promissory note, the Bank introduced parole evidence, that is evidence outside the four corners of the security agreement to show that the December 13 date was a mistake.

In that regard, both the Bank loan officer’s and Duckworth’s testimony was that the Bank had made a mistake in the date in preparing the security agreement. Since all (including the debtor) agreed on the error, shouldn’t that enable the Bank to reform the security agreement so as to correct the mistake and preserve its lien?

The Court answered this query: “Yes” and “No”. Yes, the Court said, this outside evidence would allow the Bank to reform the security agreement so as to preserve its lien as against the borrower, but no, not, in this case, vis-à-vis the bankruptcy trustee.

In so deciding, the Seventh Circuit said parole evidence could not be used to “reform” the document vis-à-vis a bankruptcy trustee. But why not? The Court found that a bankruptcy trustee differed from a debtor. Essentially, for the Bank’s lien to be valid against a bankruptcy trustee, the Court noted, the Bank must give public notice of its security interest and here, where there was a mistake in the date of the note secured, no such notice was given.

The Court held, then, that the defect in the document evidenced by the wrong date allowed the bankruptcy trustee to avoid the security interest. So, the Bank’s asserted security interest is not valid against the bankruptcy trustee, who assumes the role of a lien creditor.

In sum, the Court found parole (outside) evidence impermissible in a lien priority dispute between a Bank and a bankruptcy trustee. The security agreement, the Court said, must stand on its own and because the note referred to therein did not exist, the security agreement secured nothing! The bankruptcy trustee wins, the Bank loses and the proceeds of the collateral go to the bankruptcy trustee.

So, lesson learned. A complete and accurate identification of the debt secured, particularly the date of the promissory note evidencing the same is just as important as correctly stating the debtor’s name.

An error in either will create a major problem for the Bank if (or when) the borrower goes into the tank or a competing secured/lien creditor appears. And you, perhaps, thought dates only mattered for birthdays and anniversaries.


The foregoing is not intended to be legal advice, but rather, to provide accurate information regarding banking law and regulatory matters. For more information regarding any of the foregoing items, please contact any member of our banking practice group: William G. Keller, Jr. (, James A. Rapp (, William M. McCleery, Jr. (, Michael A. Bickhaus (, Christopher W. Pratt ( or Natalie L. Oswald (, at (217) 223-3030 or visit us on the web at We invite and welcome all questions and comments.

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