## Facts

- William Griggs agreed to sell all of his stock in a closely held company to Tony Webber (the debtor) for $750,000, consisting of $50,000 in cash and a $700,000 promissory note.
- The promissory note and stock-purchase agreement provided that the stock secured payment of the note.
- Griggs indorsed the stock certificate for transfer and delivered the certificate to the company’s attorney, Ben B. Turner, to hold until Webber paid the note in full.
- Turner acknowledged in writing that he was holding the stock certificate pursuant to the stock-purchase agreement and the parties’ instructions.
- Webber made some payments on the note but later stopped making payments.
- Griggs died and left his estate, including his rights under the note and stock-purchase agreement, to his wife, Joan Griggs.
- Webber filed bankruptcy, and Joan Griggs filed a proof of claim for the unpaid balance, asserting secured status based on the stock collateral.
- Webber objected to the claim, arguing the security interest was unperfected because Joan did not possess the certificate and no financing statement was filed, and he also asserted defenses and counterclaims tied to the stock-sale transaction (including fiduciary-duty and misrepresentation theories).

## Issues

1. Whether a security interest in certificated corporate stock was perfected when the indorsed stock certificate was held by the corporation’s attorney under written instructions connected to the secured transaction, even though the secured party did not physically possess the certificate and did not file a financing statement.
2. Whether the debtor’s objections and asserted defenses/counterclaims (including fiduciary-duty and fraud/misrepresentation theories) required disallowance or reduction of the creditor’s claim.

## Decision

- The court overruled Webber’s objection and allowed Joan Griggs’s claim based on the promissory note.
- The court held the security interest in the certificated stock was perfected through delivery/possession accomplished by the attorney’s custody of the indorsed certificate under the parties’ agreement.
- The court rejected the debtor’s efforts to defeat or offset the claim based on his asserted fiduciary-duty and fraud/misrepresentation theories.

## Legal Principles

- Under the Texas UCC, a security interest in a certificated security may be perfected by delivery of the certificate to the secured party or to another person on the secured party’s behalf (including a third-party holder who acknowledges holding the certificate pursuant to the parties’ instructions).
- For certificated securities, perfection may be achieved through delivery/possession (and related Article 8 control concepts), and perfection does not necessarily require filing a financing statement when the statutory requirements for delivery/possession are met.
- In bankruptcy, a properly perfected prepetition security interest is generally enforceable against the debtor’s estate, and the related proof of claim is treated as secured to the extent of the collateral’s value.
- Under Texas law, fiduciary duties arise from certain recognized relationships or from an informal confidential relationship that exists apart from, and not solely because of, the transaction at issue; arm’s-length parties generally do not create such duties merely by dealing with each other.
- Fraud and misrepresentation defenses require proof of the required elements, including reliance that is justified under the circumstances.

## Conclusion

In *In re Webber*, the bankruptcy court held that the seller’s successor, Joan Griggs, held a perfected security interest in the debtor’s certificated stock collateral because the indorsed stock certificate had been delivered to and held by the company’s attorney pursuant to the parties’ written arrangement; the court therefore overruled the debtor’s objection and refused to disallow or reduce the claim based on the debtor’s asserted fiduciary-duty and fraud/misrepresentation defenses.


In re Webber, 350 B.R. 344 (2006)