Opinion ID: 559937
Heading Depth: 1
Heading Rank: 2

Heading: Are All the Installment Contracts Instruments?

Text: 8 Section 9-105(1)(g) of the U.C.C., Mo.Rev.Stat. Sec. 400.9-105(1)(g), defines an instrument as, inter alia, 1 any writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in ordinary course of business transferred by delivery with any necessary endorsement or assignment. 9 The bankruptcy court held that the installment contracts were not instruments for two reasons. First, [a]n instrument evidences an unconditional right to receive money, that is, possession of the writing alone entitles the holder to receive money, while an installment contract requires a seller to earn money through performance. 94 B.R. at 600. Second, real estate contracts are not transferred in the ordinary course of business by delivery ... because the transferee is not in a position to perform the obligations under this bilateral contract, to wit, construct buildings, execute general warranty deeds, etc. Id. at 601. The bankruptcy court accordingly found that the contracts were contract rights under Mo.Rev.Stat. Sec. 400.9-106, which may be perfected only by the filing of a financing statement. 94 B.R. at 601-02. The district court agreed, on the basis that land sale contracts are generally not instruments under Article 9 of the U.C.C. See slip op. at 11-12. 10 As a rule, courts generally agree that the seller's interest under a land sale contract is a general intangible subject to Article Nine [of the U.C.C.]. Security interests in general intangibles may be perfected by filing a financing statement, but not by possession of the 'contract.'  2 J. White & R. Summers, Uniform Commercial Code Sec. 23-7, at 274 (3d ed. 1988) (White & Summers). See also In re Simpson, 56 B.R. 586, 588 (D.N.M.1986) (rejecting view that bank's interest in real estate contracts is an instrument under Article 9) (Simpson ); In re Matter of D.J. Maltese, Inc., 42 B.R. 589, 592 (E.D.Mich.1984) (contract for the sale of real estate is a general intangible, which court defined as property other than goods, accounts, chattel paper, documents, instruments and money) (citation omitted) (emphasis added), cited in In re I.A. Durbin, Inc., 46 B.R. 595, 599 (S.D.Fla.1985). Thus, it would appear that the installment contracts assigned to the banks were not instruments and that the banks therefore have not perfected their security interests merely by obtaining possession of such contracts. 2 11 The banks cite numerous cases in support of their contention that land sale contracts are instruments as defined in Sec. 9-105. However, most of the cases cited by the banks do not involve bilateral contracts, and none of them involve land sale contracts. 3 See Smith v. Mark Twain Nat'l Bank, 805 F.2d 278, 285 (8th Cir.1986) (repurchase agreement and certificate of deposit held to be instruments where they constituted an unconditional promise by Bank to repay Debtor, and were, in substance and legal effect, promissory notes); In re Staff Mortgage & Inv. Corp., 625 F.2d 281, 284 (9th Cir.1980) (promissory notes secured by deeds of trust held to be instruments); Matter of Staff Mortgage & Inv. Corp., 550 F.2d 1228 (9th Cir.1977) (same); In re Coral Petroleum, Inc., 50 B.R. 830, 837-39 (S.D.Tex.1985) (promissory note); International Harvester Co. v. Peoples Bank & Trust Co., 402 So.2d 856, 865 (Miss.1981) (contract to build trucks); Citizens Nat'l Bank v. Bornstein, 374 So.2d 6, 9-10 (Fla.1979) (certificate of deposit); Walton v. Piqua State Bank, 204 Kan. 741, 466 P.2d 316 (1970) (passbook may be pledged by delivery). 12 Accordingly, we endorse the general rule and hold that land sale installment contracts are not instruments under the U.C.C., 4 and affirm that part of the district court's opinion holding that the banks have not perfected their security interest in such contracts. 13