A recent opinion was issued this month by the Seventh Circuit Court of Appeals reversing a district bankruptcy court’s ruling on the sufficiency of financing statements under the Illinois Uniform Commercial Code (“UCC”). The case, First Midwest Bank v. Reinbold [1] created a split of opinions in the Seventh and First circuits in regard to the interpretation of Section 9-504, which lists six ways in which a financing statement can “sufficiently indicate the collateral.” Judge Brennan of the Seventh Circuit stated that a plain language reading of the sixth provision which is: “any other method, if the identity of the collateral is objectively determinable” reads that a financing statement may indicate the collateral by pointing or directing attention to a description of that collateral in the parties’ security agreement under the current version of the Illinois UCC. With this, the Seventh Circuit ruled that a timely filed financing statement which describes the collateral as “all collateral described in the security agreement” as adequate to fulfill the standard of sufficient description of collateral in financing statements as required by Section 9-502.
The First Circuit had a contradictory ruling [2] in January of 2019 which stated a financing statement is insufficient if it describes collateral by reference to a document not found in the filing office. This is the common practice as to avoid confusion when a search is done to figure out what collateral already has a secured lien against it.
Considering UCC Section 1-103(a)(3) states that provisions should be liberally construed and applied to create uniformity among the various jurisdictions, I would recommend continuing to attach your security agreement to the filing of your financing statement to sufficiently describe your collateral as I don’t see this Seventh Circuit ruling prevailing as good case law for long.
Perfecting your security interests can be very complicated. If you need assistance in drafting or reviewing loan and security agreements, contact the experienced litigation attorneys at Goosmann Law in our Sioux City, Sioux Falls, and Omaha offices.
[1]First Midwest Bank v. Reinbold (In re 180 Equipment LLC), 18-3291 (7th Cir. Sept. 11, 2019).
[2] Altair Global Credit Opportunities Fund (A) LLC v. Financial Oversight and Management Board for Puerto Rico (In re Financial Oversight and Management Board for Puerto Rico), 914 F.3d 694, 711-712 (1st Cir. Jan. 30, 2019).
