## Facts

- Jo Anne Brock agreed with Duane Cripps and Karen Cripps (debtors) to purchase certain accounts receivable generated by the debtors’ business.
- The parties treated the transaction as an outright sale of receivables, not a commercial-financing arrangement and not a loan secured by the accounts.
- The debtor executed a bill of sale transferring the identified accounts receivable to Brock.
- After the purchase, Brock took physical possession of the invoices (or copies) and began collecting payments from the account debtors.
- Brock never filed a UCC-1 financing statement covering the purchased accounts receivable.
- The debtors later filed a Chapter 7 bankruptcy case.
- The Chapter 7 trustee, while administering the estate, received funds traceable to the accounts receivable that Brock claimed to have purchased.
- Brock filed an application asking the court to require the trustee to disclaim the receivable proceeds in her favor, arguing she was a bona fide purchaser.
- The trustee opposed, arguing that UCC Article 9 applied to the sale of accounts, that Brock’s interest was unperfected because she did not file, and that the trustee had priority as a hypothetical lien creditor under 11 U.S.C. § 544(a).
- Brock relied primarily on authority suggesting Article 9 does not apply to an “absolute assignment” used to satisfy a past-due obligation; she also argued that the transfer was not avoidable as a preference or fraudulent conveyance.

## Issues

1. Does UCC Article 9 apply to an outright sale of accounts receivable (not intended as security), so that the buyer is treated as holding a “security interest” subject to Article 9 perfection rules?
2. If Article 9 applies and the buyer did not file a financing statement, does the Chapter 7 trustee’s status as a hypothetical lien creditor under 11 U.S.C. § 544(a) give the trustee priority in the accounts and their proceeds?
3. Does the buyer’s characterization of the transaction as an “absolute” sale/assignment or her possession of invoices allow her to defeat Article 9’s filing-based perfection and priority rules?

## Decision

- The court denied Brock’s application for disclaimer and allowed the trustee to retain the funds.
- The court held that, under Oklahoma’s UCC § 9-102(1)(b), Article 9 applies to “any sale of accounts,” whether or not the transaction is intended as security, unless an exclusion applies.
- Consistent with the official comment to § 9-102, the buyer of accounts is treated as a secured party and the buyer’s interest is treated as a security interest for Article 9 purposes.
- Because Brock made no UCC-1 filing, her interest was unperfected.
- As of the petition date, the trustee’s hypothetical lien creditor status under 11 U.S.C. § 544(a) was superior to Brock’s unperfected interest.
- The court declined to reach Brock’s arguments about preference (§ 547) and fraudulent transfer (§ 548) because the priority dispute was resolved on Article 9 and § 544(a) grounds.

## Legal Principles

- UCC § 9-102(1)(b) brings within Article 9 “any sale of accounts or chattel paper,” not only transactions intended to secure repayment of an obligation.
- Under the official comment to UCC § 9-102, when Article 9 covers a sale of accounts, the buyer is treated as a secured party and the buyer’s interest is treated as a security interest.
- Unless a statutory exclusion applies (e.g., under UCC §§ 9-103 or 9-104), a purchaser of accounts receivable must comply with Article 9’s perfection system, generally by filing a financing statement.
- Under Article 9 priority rules, a lien creditor has priority over an unperfected security interest in accounts and proceeds.
- Under 11 U.S.C. § 544(a), a Chapter 7 trustee has, as of the petition date, the rights of a hypothetical judicial lien creditor and may defeat unperfected security interests.

## Conclusion

In *In re Cripps*, the bankruptcy court held that an outright purchase of accounts receivable falls within UCC Article 9’s scope as a “sale of accounts,” making the buyer’s interest subject to Article 9 perfection requirements. Because Brock did not file a financing statement, her interest was unperfected, and the Chapter 7 trustee—armed with hypothetical lien creditor status under 11 U.S.C. § 544(a)—had priority to the accounts receivable proceeds and could keep the funds.


In re Cripps, 31 B.R. 541 (1983)