In re Duckworth
United States Court of Appeals for the Seventh Circuit
776 F.3d 453 (2014)
David Duckworth (defendant, in bankruptcy) borrowed $1.1 million from State Bank of Toulon (the Bank) (plaintiff) through two documents: a promissory note dated December 15, 2008, and a security agreement dated December 13, 2008, that mistakenly referenced a promissory note dated December 13, 2008 — a note that never actually existed. After Duckworth filed for bankruptcy, the Bank sought to enforce the security agreement; the bankruptcy trustee, seeking to maximize recovery for unsecured creditors, argued the mismatched date made the security agreement ineffective. The bankruptcy court and district court both ruled the Bank could enforce the agreement, and the trustee appealed.
Whether a bankruptcy trustee, standing in the position of a subsequent lien creditor, may rely on an unambiguous security agreement's reference to a nonexistent promissory note to defeat the secured creditor's interest, or whether the creditor may instead use parol evidence to correct the mistake against the trustee.