## Facts

- Fort Dodge Roofing Co. (debtor) bought building materials from Stetson Building Products Corp. (Stetson) on an open-account basis.
- By May 7, 1982, Fort Dodge Roofing owed Stetson more than $170,000 for materials, and Stetson refused to supply additional materials unless payment arrangements were made.
- On or about May 7, 1982, Fort Dodge Roofing transferred seven accounts receivable to Stetson with a total face amount of about $52,000, including an account owed by Malta High School in DeKalb, Illinois (about 6.2% of the amount Fort Dodge Roofing owed Stetson).
- The written instrument appeared, on its face, to be an absolute assignment of the accounts.
- Despite the assignment, Stetson did not credit Fort Dodge Roofing’s open-account balance for any part of the assigned receivables and continued to assert that Fort Dodge Roofing owed the full open-account amount.
- Stetson was not in the commercial lending or factoring business and had accepted an assignment of accounts receivable only once before, roughly two years earlier.
- At the time of the transfer, Fort Dodge Roofing had substantial receivables and contract rights beyond the seven assigned accounts (including total accounts receivable of approximately $842,762.18 and additional contract rights/work in progress).
- Stetson notified Malta High School of the assignment and stayed in contact with both Malta and Fort Dodge Roofing regarding Malta’s complaints about the roofing work.
- Fort Dodge Roofing later filed bankruptcy. When Malta was ready to pay, it was uncertain whether payment should go to Stetson (as assignee) or to the bankruptcy estate.
- The bankruptcy trustee filed a motion to determine ownership of the Malta High School receivable, contending Stetson held only an unperfected Article 9 security interest because Stetson had not filed a financing statement.
- Stetson argued the transfer was an outright transfer excluded from Article 9, or, alternatively, that no filing was required under UCC § 9-302(1)(e) (Iowa Code § 554.9302(1)(e)).

## Issues

1. Whether the May 7, 1982 transfer of accounts receivable to Stetson was an absolute transfer excluded from Article 9 under UCC § 9-104(f) (Iowa Code § 554.9104(f)), or instead a transfer for security governed by Article 9.
2. If Article 9 applied, whether Stetson was perfected without filing under UCC § 9-302(1)(e) (Iowa Code § 554.9302(1)(e)).
3. Whether the bankruptcy trustee had superior rights to the Malta High School account receivable because Stetson’s interest was unperfected.

## Decision

- The court concluded the assignment was not an absolute transfer of the accounts; it was a transaction intended to give Stetson a security interest in specific receivables to secure Fort Dodge Roofing’s obligation to Stetson.
- Because the transaction was for security, the Article 9 exclusion for certain transfers (Iowa Code § 554.9104(f)) did not apply.
- The court held Stetson did not qualify for the no-filing exception in Iowa Code § 554.9302(1)(e), so filing was required to perfect.
- Because Stetson did not file a financing statement, its security interest was unperfected as against the trustee, and the trustee prevailed as to the Malta High School receivable.

## Legal Principles

- The characterization of an “assignment” of accounts depends on the transaction’s substance and the parties’ conduct, not the document’s label.
- When a creditor takes accounts receivable in connection with an existing debt and does not treat the transfer as payment (for example, by crediting the debtor’s balance), the transfer is likely a security arrangement governed by UCC Article 9.
- The Article 9 exclusion for certain transfers of accounts does not apply when the transfer is made to secure an obligation rather than as an outright transfer of ownership.
- A security interest in accounts is generally perfected by filing a financing statement; the UCC § 9-302(1)(e) no-filing exception is limited and does not excuse filing for a security transaction that does not fit the statutory conditions.
- In bankruptcy, an unperfected security interest is subordinate to the trustee’s rights as a hypothetical lien creditor under the trustee’s avoidance powers.

## Conclusion

In re Fort Dodge Roofing Co. treated a facially absolute assignment of selected receivables to a trade creditor as collateral for an antecedent open-account debt. Because the transfer was for security, Article 9 applied, the claimed no-filing exception did not, and Stetson’s failure to file left it unperfected; the trustee therefore had superior rights to the Malta High School account receivable.


In re Fort Dodge Roofing Co., 50 B.R. 666 (1985)