1. In reaching its decision, the federal appeals court noted the rule that the seller’s interest in a land sale contract is a general intangible. If this is so, how is perfection to be achieved?

2. Given your answer to the above question, have the creditors perfected or are their interests to be treated the same as any other unsecured creditor and, therefore, subject to the stay?

Holiday Intervals sold “time share” deeds for the Holiday Shores resort it was developing at the Lake of the Ozarks, Missouri. These deeds entitled buyers to spend one week per year at one of Holiday’s units. Many of the buyers agreed to pay the purchase price through installment contracts. Some of these installment contracts contained a separate promissory note section that repeated the buyer’s installment obligations in the form of a promissory note, while other contracts contained no promissory note section. Holiday obtained financing for construction of the units by assigning its copies of the installment contracts and promissory notes to the banks. The banks did not seek to perfect their security interests in these installment contracts and promissory notes. Instead they assumed that they had perfected their security interests by possession of the buyers’ installment contracts and promissory notes.

After Holiday ran into financial difficulties, Holiday Owners (one of Holiday’s creditors) and various other creditors filed an involuntary bankruptcy petition against Holiday. Holiday Owners took over operation of the resort afterwards.

When a bankruptcy petition is filed, claims against the debtor’s estate are automatically stayed. In order to obtain the installment contract proceeds, the banks separately moved for relief from this automatic stay.

The banks sought relief on the ground that they held perfected security interests through possession of the installment contracts. In the alternative, the creditors claimed that even if they had not perfected their security interests as to all installment contracts, they had at least done so to those installment contracts containing promissory notes. The bankruptcy court rejected both arguments and denied the banks’ motion for relief from the automatic stay. The banks then appealed to the Federal District Court.

The district court affirmed the bankruptcy court’s decision in part and reversed in part, holding that the banks had perfected their security interests in those installment contracts which contained promissory notes, but not in the other installment contracts which did not. All parties then appealed to the Federal Court of Appeals.