## Facts

- Valley Bank issued an irrevocable standby letter of credit for Omega Environmental, Inc. in exchange for Omega’s promissory note.
- The promissory note was secured by a Valley Bank certificate of deposit (CD).
- The beneficiary drew on the letter of credit for the full amount, and Valley Bank honored the draw.
- Omega later filed for bankruptcy protection.
- Valley Bank sought relief from the automatic stay to enforce its rights against the CD as collateral.
- Omega objected, arguing Valley Bank had not perfected any security interest in the CD.
- The parties agreed Virginia law governed perfection under former Article 9, which generally perfects a security interest in an “instrument” by possession.
- Valley Bank had possession of the CD at all relevant times; the dispute turned on whether the CD qualified as an “instrument” despite legends such as “non-negotiable” and “non-transferable.”

## Issues

1. Whether, under Virginia’s UCC, the CD was an “instrument” such that Valley Bank’s continuous possession perfected its security interest.
2. Whether the “non-negotiable” and “non-transferable” language on the CD prevented classification as an “instrument.”
3. Whether a perfected security interest in the CD entitled Valley Bank to relief from the bankruptcy automatic stay to proceed against the collateral.

## Decision

- The Ninth Circuit affirmed the district court and bankruptcy court.
- The court held the CD qualified as an “instrument” under Virginia’s UCC definition.
- The court held perfection was achieved by Valley Bank’s continuous possession of the CD.
- The court concluded Valley Bank was entitled to relief from the automatic stay to enforce its rights in the CD.

## Legal Principles

- Under Virginia’s former Article 9, a security interest in an “instrument” is perfected by possession.  
- A CD may qualify as an “instrument” if it is a writing evidencing a right to payment and is of a type ordinarily transferred in business by delivery with any necessary endorsement or assignment.
- Labels on the certificate (e.g., “non-negotiable” or “non-transferable”) are not dispositive of UCC collateral classification; courts look to the type of writing and ordinary commercial practice.
- Appellate review defers to bankruptcy court factual findings regarding commercial practice unless clearly erroneous.

## Conclusion

Because the CD was treated in ordinary commercial practice as transferable by delivery with appropriate assignment, it qualified as an “instrument” under Virginia’s UCC; Valley Bank’s possession therefore perfected its security interest, justifying relief from the automatic stay to proceed against the CD.


Omega Environmental, Inc. v. Valley Bank, N.A., 219 F.3d 984 (9th Cir. 2000)