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October 22, 2019

At Odds with the First Circuit, the Seventh Circuit Adopts a Questionable Standard for Determining the Sufficiency of Financing Statements

By Shane G. Ramsey

In In re I80 Equip., LLC, 938 F.3d 866, 874 (7th Cir. 2019), the Seventh Circuit held that a financing statement under the Uniform Commercial Code sufficiently describes collateral by referring to an unattached security agreement. In other words, no description of the collateral need be contained within the four corners of the financing statement.


The facts necessary of the appeal are straightforward. The debtor, I80 Equipment, LLC, was a business in Illinois that purchased and refurbished trucks for resale. I80 Equipment obtained a commercial loan from First Midwest Bank. To ensure repayment, the parties executed an agreement which granted First Midwest a security interest in substantially all of I80 Equipment’s assets. These were described in 26 listed categories of collateral, such as accounts, cash, equipment, instruments, goods, inventory, and all proceeds of any assets. To perfect its interest in I80 Equipment’s assets, First Midwest timely filed a financing statement with the Illinois Secretary of State. The financing statement purported to cover “[a]ll Collateral described in First Amended and Restated Security Agreement dated March 9, 2015 between Debtor and Secured Party.”

Two years later, I80 Equipment defaulted on the loan and filed a voluntary bankruptcy petition under Chapter 7. The court appointed a trustee to manage the bankruptcy assets.

First Midwest sued the trustee, seeking to recover $7.6 million on the loan. It also filed a declaration that its security interest in I80 Equipment’s assets was properly perfected and senior to the interests of all other claimants, including the trustee. The trustee countered that First Midwest’s security interest was not properly perfected because its financing statement did not independently describe the underlying collateral, but instead incorporated the list of assets by reference to the parties’ security agreement.

The trustee also asserted a counterclaim to avoid First Midwest’s lien pursuant to § 544(a) of the Bankruptcy Code. Both parties moved for judgment on the pleadings.

The bankruptcy court agreed with the trustee and ruled that “[a] financing statement that fails to contain any description of collateral fails to give the particularized kind of notice” required by Article 9 of the UCC. With First Midwest’s consent, the trustee sold the estate’s assets for approximately $1.9 million and holds the net proceeds pending resolution of this dispute. The parties jointly certified under 28 U.S.C. § 158(d)(2)(A) that an immediate appeal of the bankruptcy court’s decision to this court would materially advance the progress of the case, and this court granted the parties’ petition.

On appeal to the Seventh Circuit, neither the validity of the loan nor the legitimacy of First Midwest’s security interest were in question. The trustee maintained only that First Midwest’s lien was avoidable because the financing statement failed to properly indicate the secured collateral.


The Seventh Circuit framed the question before it as follows: “We must decide whether the statutory language of Article 9 requires that the four corners of the financing statement include a specific description of the secured collateral (either by type, category, quantity, etc.), or if incorporating such a description by reference to a security agreement sufficiently “indicates” the collateral.”

The Seventh Circuit reversed the bankruptcy court based on the “plain and ordinary meaning” of Illinois’s version of the UCC.

The court began by laying out the UCC’s requirements regarding the sufficiency of a financing statement. In pertinent part, Section 9-502 requires the financing statement to “indicate the collateral covered by the financing statement.”

Next, Section 9-504 lists six ways in which a financing statement can “sufficiently indicate” the collateral. The sixth, catchall provision allows “any other method, if the identity of the collateral is objectively determinable.”

The court said that the current version of the Illinois UCC no longer requires “the financing statement [to] ‘contain’ a description of the collateral; after revision [in 2001] the statement must only ‘indicate’ the collateral.”

According to the court, the “plain reading of the text” leads to the conclusion that a financing statement may “indicate” the collateral by “pointing or directing attention to a description of that collateral in the parties’ security agreement.”

To buttress this conclusion that incorporation by reference is sufficient, the Seventh Circuit cited its own authority for the proposition that Article 9 of the UCC is neither a “minefield” for lenders nor a “windfall” for trustees.

In essence, the court held that a financing statement is sufficient if it “puts third parties on notice that a creditor may have an existing security interest.”


The Seventh Circuit did not cite or discuss contrary decisions from other states, notably the First Circuit’s decision in 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). There, the First Circuit said that a financing statement is insufficient if it describes collateral by reference to a document not found in the filing office.

This split in the circuits will eventually need to be resolved by the Supreme Court.