Covey v. State Bank of Toulon

Duckworth borrowed $1,100,000 from the State Bank of Toulon. The security agreement said that Duckworth granted the Bank a security interest in crops and farm equipment. The promissory note referred to the security agreement. The security agreement said that it secured a note “dated December 13, 2008.” There was no promissory note dated December 13. Both the December 15 promissory note and the security agreement were prepared by the Bank’s loan officer. Duckworth filed a petition for Chapter 7 bankruptcy. The Bank filed adversary proceedings. The bankruptcy court held that the mistaken date in the security interest did not defeat the security interest and that the security agreement of December 13 secured the note of December 15. The bankruptcy court ruled in favor of the Bank. District courts affirmed. The Seventh Circuit reversed. The Bank was not entitled to use parol evidence against the bankruptcy trustee to correct the mistaken description of the debt to be secured, so the security agreement did not give the lender a security interest in the specified collateral that could be enforced against the trustee. View "Covey v. State Bank of Toulon" on Justia Law