In re Copeland

531 F.2d 1195 (1976)

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In re Copeland

United States Court of Appeals for the Third Circuit
531 F.2d 1195 (1976)

Facts

In 1967, Lammot duPont Copeland, Jr. (debtor) personally guaranteed payment on a loan made by Pension Benefit Fund, Inc. (Pension Benefit) (creditor). Copeland pledged roughly 18,000 shares of Christiana Securities Co. stock as collateral, and Wilmington Trust Company held the pledged stock in escrow. In September 1970, following a default on the loan, Pension Benefit notified Copeland and Wilmington Trust that Pension Benefit intended to demand the surrender of the pledged stock. Copeland never responded to Pension Benefit. Instead, Copeland filed for Chapter 11 bankruptcy relief and applied to stay enforcement of Pension Benefit’s lien on the stock. Copeland subsequently withdrew that request, and Wilmington Trust turned over the stock. However, because the stock’s value on the transfer date was less than the remaining loan balance, Pension Benefit filed a proof of claim in the bankruptcy proceeding to recover the deficiency. Nearly 18 months later, Copeland objected to Pension Benefit’s proof of claim and sought an evaluation to determine the stock’s then-current value. Copeland also sought an order requiring Pension Benefit to surrender the stock and any earned dividends. Copeland claimed that Pension Benefit’s security interest in the stock was unperfected at the time Copeland filed for bankruptcy and, thus, that Copeland had superior rights in the stock. Specifically, Copeland argued under Uniform Commercial Code (UCC) §§ 9-304 and 9-305 that a security interest in corporate securities could be perfected only by the secured party or the secured party’s bailee taking possession of the securities. Copeland argued that Wilmington Trust’s possession of the stock was insufficient to perfect Pension Benefit’s security interest because Wilmington Trust was an agent of both Pension Benefit and Copeland. The court found that Pension Benefit’s security interest had been perfected under § 9-305 because Wilmington Trust, as escrow agent, was a bailee with notice of Pension Benefit’s security interest. The court ordered valuation of the stock but declined to require Pension Benefit to surrender the stock and dividends. Both parties appealed.

Rule of Law

Issue

Holding and Reasoning (Seitz, C.J.)

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