Death By Typo: Seventh Circuit Confirms That Security Agreements Must Be Error-Free

The most common, or at least the most preventable, way for a security interest to perish involuntarily is a drafting error made by the author of the security instrument. The Seventh Circuit recently confirmed a security agreement's demise by this method in State Bank of Toulon v. Covey (In re Duckworth), Nos. 14-1561 and 14-1650 (7th Cir. Nov. 21, 2014).

Duckworth, a bankruptcy debtor later charged with money laundering and bankruptcy fraud, borrowed $1.1 million from the State Bank of Toulon in 2008. The loan was evidenced by a promissory note dated December 15, 2008, and the parties intended to secure it with certain crops and farm equipment. However, the Agricultural Security Agreement the bank prepared didn't provide the intended security. The agreement stated that it secured a note "in the principal amount of $_________ dated December 13, 2008." Not only was the amount left blank, but the referenced note, dated two days before the actual note, did not exist.