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If It Walks Like a Duck…In Re Duckworth: Another Warning to Lenders to Take Care in Drafting Security Documents

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December 23, 2014
Client Alert

A lender loans a borrower a substantial sum of money, memorialized by a promissory note, secured by certain goods owned by the borrower under a security agreement. The note expressly references the security agreement. Sounds like a fairly straightforward transaction—except that the security agreement misidentifies the date of the Note. The mistake goes unnoticed. Now the borrower has filed a Chapter 7 bankruptcy petition. Can the lender use evidence outside the four corners of the security agreement to prove that is has a valid security interest as against the bankruptcy trustee?

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