## Facts

- West Loop Savings Association loaned money to Bobby Lynn Newman.
- As collateral, Newman assigned to West Loop his right to receive payments under an annuity contract issued by Manufacturers Life Insurance Company (MLIC).
- West Loop took possession of an annuity certificate but did not file a U.C.C. Article 9 financing statement.
- The annuity contract required that an assignment was not binding on MLIC until MLIC received a copy, and it allowed Newman to change beneficiaries through MLIC’s procedures.
- Newman filed bankruptcy, and the trustee sought to avoid West Loop’s security interest as unperfected under 11 U.S.C. § 544(a).
- The bankruptcy court and district court held the annuity was a “general intangible,” requiring filing to perfect; they ruled for the trustee.

## Issues

1. Whether the annuity contract/certificate was an Article 9 “instrument” that could be perfected by possession, or a “general intangible” requiring perfection by filing.
2. If the interest was unperfected, whether the bankruptcy trustee could avoid it under 11 U.S.C. § 544(a).

## Decision

- The Fifth Circuit affirmed.
- The court held the annuity contract and certificate were a general intangible rather than an “instrument.”
- Because West Loop did not file a financing statement, its security interest was unperfected.
- The trustee, as a hypothetical lien creditor under § 544(a), had priority and could avoid West Loop’s interest.

## Legal Principles

- Under former U.C.C. Article 9, an “instrument” is a writing that (1) evidences a right to payment of money and (2) is the type of writing that, in ordinary business practice, is transferred by delivery with any necessary endorsement or assignment.
- Rights to payment that are not ordinarily transferred by delivery of a writing fall within “general intangibles.”
- A security interest in an instrument may be perfected by possession; a security interest in a general intangible must be perfected by filing a financing statement.
- Under 11 U.S.C. § 544(a), a bankruptcy trustee may avoid an unperfected security interest because the trustee has the status of a hypothetical lien creditor as of the petition date.

## Conclusion

The court classified the annuity payment rights as a general intangible because entitlement to payment did not follow mere possession of the certificate and assignments required insurer notice and recognition; without filing, the lender’s interest was unperfected and avoidable by the trustee under § 544(a).


Knostman v. West Loop Sav. Ass'n (In re Newman), 993 F.2d 90 (5th Cir. 1993)