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In re Rolain - 823 F.2d 198

Rule:

Minn. Stat. § 336.9-305 provides that a security interest in letters of credit and advice of credit goods, instruments, other than certificated securities, money, negotiable documents, or chattel paper may be perfected by the secured party's taking possession of the collateral. If such collateral other than goods covered by a negotiable document is held by a bailee, the secured party is deemed to have possession from the time the bailee receives notification of the secured party's interest.

Facts:

The creditor and debtor agreed that the debtor's attorney would hold a note that was pledged as a collateral to secure a loan, under a written agency agreement, because the creditor wanted to perfect its security interest in the note. The debtor subsequently filed for bankruptcy and the bankruptcy trustee contended that the creditor had no perfected security interest in a negotiable instrument entrusted by the creditor to an attorney agent. The creditor filed a motion for partial summary judgment, and the trustee filed a cross-motion for summary judgment. The bankruptcy court granted the creditor's motion, denied the trustee's cross-motion, and the district court affirmed. The creditor appealed. 

Issue:

Could the debtor's attorney serve as bailee or agent for purposes of perfecting the creditor's security interest in the note given as collateral under Minn. Stat. § 336.9-305?

Answer:

Yes.

Conclusion:

The court affirmed and held that the attorney was a third party who asserted no interest in the collateral. Because the note was delivered to him under a written agency agreement, the debtor would not have had unfettered use of it and could not have repledged it. Additionally, the court held that the attorney could have acted as a valid agent under Minn. Stat. § 336.9-305. The attorney signed an agency agreement with the debtor's consent, acted as a fiduciary to the creditor, was bound to respect the agency, and had done so.

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