## Facts

- A surety issued bonds on which Edward F. Lowry and others were indemnitors; the surety paid claims and sought indemnity.
- In a settlement, the indemnitors executed a cognovit note (and later renewal notes) listing multiple collateral items, including Lowry’s identified shares of Pico, Inc. stock.
- In a related memorandum agreement, the indemnitors promised not to impair the listed security and to cooperate in executing instruments needed to perfect it.
- The Pico stock certificates were never delivered to the surety, and no further written instrument was executed to complete or perfect the pledge in the surety’s favor.
- Lowry later executed a fee note to his law firm, Kusworm & Myers Co., L.P.A. (KMC), and pledged 19 Pico shares as security.
- The pledged shares were transferred on Pico’s books to KMC, perfecting KMC’s security interest under Ohio UCC Article 9.
- Jacob A. Myers, Lowry’s attorney and KMC’s principal, had represented Lowry in the earlier surety transactions and had actual knowledge that the same stock had been promised as collateral to the surety but not perfected.
- The surety brought a diversity action seeking specific performance and recognition of an equitable interest in the Pico stock against Lowry and KMC.

## Issues

1. Whether a written agreement identifying specific stock as security, coupled with a promise to cooperate in perfection, created an equitable lien enforceable by specific performance despite lack of Article 9 perfection steps.
2. Whether Ohio UCC Article 9 priority rules bar imposition of an equitable lien that would subordinate a later perfected security interest obtained with notice.
3. Whether the UCC good-faith obligation permits a court to deny Article 9 priority to a later secured party whose conduct fails the Code’s good-faith standard.

## Decision

- The court entered judgment for the surety and granted equitable relief.
- It recognized an equitable lien in favor of the surety on Lowry’s Pico stock arising from the parties’ written collateral arrangements.
- It ordered specific performance to effectuate the agreed security and treated the equitable lien as superior to KMC’s later perfected interest under the case’s circumstances.
- It rejected a purely mechanical application of Article 9 priority rules where the later secured party had actual notice and did not meet the UCC’s good-faith standard.

## Legal Principles

- Under Ohio law, a clear agreement that identified property will stand as security for a debt can create an equitable lien even if legal formalities to perfect a security interest are not completed.
- A party taking an interest in the same property with actual knowledge of a prior agreement to pledge that property may be bound in equity and may be subordinated to the earlier equitable claim.
- The UCC imposes an obligation of good faith in performance and enforcement of duties within Article 9; lack of good faith can affect otherwise applicable priority outcomes.
- Article 9 priority provisions do not categorically displace equitable remedies in situations involving notice and conduct inconsistent with good-faith requirements.

## Conclusion

The court held that the surety’s written collateral arrangements created an equitable lien in the Pico stock and ordered specific performance, giving the surety priority over a later perfected security interest where the later secured party, acting with notice and without good faith, attempted to defeat the earlier agreed security.


Gen. Ins. Co. of Am. v. Lowry, 412 F. Supp. 12 (S.D. Ohio 1976)