Opinion ID: 2754360
Heading Depth: 2
Heading Rank: 3

Heading: The Bank’s Statutory Argument

Text: Seeking to steer clear of the parol evidence problem, the bank also contends that it has a security interest enforceable against the trustee because the transaction satisfies the statutory requirements for enforcing a security interest. The bank relies on Illinois’ enactment of UCC § 9‐203(b), which provides in relevant part, and subject to exceptions that do not apply here: [A] security interest is enforceable against a debtor and third parties . . . only if: (1) value has been given; (2) the debtor has rights in the collateral … ; and Nos. 14-1561 and 14-1650 17 (3) … the debtor has authenticated a securi- ty agreement that provides a description of the collateral … . 810 Ill. Comp. Stat. 5/9‐203(b). (Paragraph (b)(3) offers three alternative ways to satisfy its requirements by giving the secured party possession or control of the collateral, but they do not apply here.) The bank asserts that its security interest is enforceable against the trustee because the bank gave value, borrower Duckworth had rights in the crops and farm equipment, and the parties authenticated a security agreement that described the collateral. The trustee responds that another provision in the UCC, section 9‐201, provides that the terms of a security agreement must be enforced as written: “Except as otherwise provided in the Uniform Commercial Code, a security agreement is effective according to its terms between the parties, against purchasers of the collateral, and against creditors.” 810 Ill. Comp. Stat. 5/9‐201(a). The trustee argues that the UCC thus points us to the terms of the agreement, and the bank must lose because those terms fail to secure the debt the bank relies upon. The trustee has the better reading of the UCC. Section 9‐ 203 cannot cure the security agreement’s failure to identify correctly Duckworth’s debt to the bank, at least against a later lender or the trustee. We have previously read these two sections of the UCC together, concluding that section 9‐203’s requirements for enforcing a security interest are an exception to section 9‐201’s general rule that a security agreement is effective according to its terms: “An agreement that violates section 9‐203 may not be effective according to its terms.” In re Vic Supply Co., 227 F.3d at 932; see also UCC § 9‐ 18 Nos. 14-1561 and 14-1650 201, official comment 2 (“It follows that subsection (a) does not provide that every term or provision contained in a record that contains a security agreement or that is so labeled is effective.”). Section 9‐203 sets out minimum requirements that must be satisfied to enforce a security interest. It does not provide a mechanism for rescuing a lender from its mistakes in drafting a security agreement. A security interest that satisfies section 9‐203’s requirements may be enforced, but only according to the terms of the security agreement. The bank’s argument to the contrary is puzzling. It urges that its interest must be “enforceable” under section 9‐203. But enforceable how, if not according to the agreement’s terms? Section 9‐203 provides no gap‐filling terms for when a security agreement fails. We see no reason to invent them merely because the bank made a mistake in preparing its security agreement.