Why All the Fuss: Recent Litigation Over Security Agreements

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This article looks at three recent cases from Illinois bankruptcy courts in which the effectiveness and enforceability of security agreements have been challenged.

In the Duckworth case, a chapter 7 trustee and another interested party challenged the sufficiency of an agreement which did not identify the date or amount of the secured debt, as well as a dragnet clause.

In Westermeyer, a trustee contended that a vehicle title application was insufficient to serve as a security agreement under the requirements of the Uniform Commercial Code.

In Miller, the debtors challenged the perfection of a security interest on the grounds that the use of a non-legal name in a financing statement rendered it insufficient.

The courts in each of these cases found in favor of the lienholders with regard to the validity of their agreements. But as some cases remain on appeal and future legal challenges may recur, parties potentially affected by this trend may want to review their security agreements.

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