Caterpillar Fin. Servs. v. Peoples Nat'l Bank, No. 12-2854 (7th Cir. 2013)Annotate this Case
In 2006 a coal-mining company borrowed $7 million from Caterpillar secured by mining equipment. The company was also indebted to Peabody, for an earlier loan, and at Peabody’s request, transferred title to the same equipment, subject to Caterpillar’s security interest, to a Peabody affiliate. In 2008, Peoples Bank lent the mining company $1.8 million secured by the same equipment and filed a financing statement. Wanting priority, the bank negotiated a subordination agreement with Peabody. After the mining company defaulted, the bank obtained possession of the assets and told Caterpillar it would try to sell them for $2.5 million. Caterpillar did not object, but claimed that its security interest was senior. The bank sold the equipment for $2.5 million but retained $1.4 million and sent a check for $1.1 million to Caterpillar. Caterpillar neither cashed nor returned the check. The district court awarded Caterpillar $2.4 million plus prejudgment interest. The Seventh Circuit affirmed. The bank’s claim of priority derives from its dealings with Peabody. The bank did not obtain a copy of a security agreement for Peabody’s loan; a security interest is not enforceable unless the debtor has authenticated a security agreement that provides a description of the collateral.