## Facts

- A bank filed a 1974 UCC financing statement covering the debtor’s existing and after-acquired inventory and the proceeds of that inventory.
- The bank filed a continuation statement in 1979 maintaining the 1974 filing.
- In January 1981, the debtor executed a note containing a security agreement granting the bank a security interest in all existing and future accounts receivable and their proceeds.
- The bank did not file a new financing statement describing accounts or accounts receivable.
- The debtor filed bankruptcy in September 1981 while still owing on the 1981 note.
- After the filing, the trustee collected funds on two accounts receivable arising from customers’ purchases of finished products after showroom and sales services.
- The bank demanded turnover of the collected funds, asserting its 1974 filing perfected a security interest because the receivables were proceeds of inventory.
- The trustee sued under 11 U.S.C. § 544, arguing the bank’s lien in the collected receivables (and cash) was unperfected as to a hypothetical judicial lien creditor.

## Issues

1. Whether a financing statement describing collateral as inventory and proceeds, without describing accounts, perfects a security interest in accounts receivable generated by sales of finished goods and related services.
2. Whether cash collected on those receivables constitutes remote proceeds requiring separate perfection beyond the bank’s inventory-and-proceeds filing.
3. Whether the trustee, as a hypothetical judicial lien creditor under 11 U.S.C. § 544(a), may avoid the bank’s claimed interest in the collected receivables and funds.

## Decision

- The court held the bank did not have a perfected security interest in the collected accounts receivable or the cash collected on them.
- The 1974 inventory-and-proceeds filing did not perfect an interest in accounts receivable as such, and it did not preserve perfected status in downstream collections.
- Under 11 U.S.C. § 544(a), the trustee’s hypothetical lien had priority over the bank’s unperfected interest.
- The trustee could avoid the bank’s claimed lien and retain the collected funds for the estate.

## Legal Principles

- Under Article 9, “accounts” and “proceeds” are distinct collateral categories; a financing statement covering inventory and proceeds does not necessarily give notice of a claim to accounts receivable.
- If a creditor takes a security interest in accounts receivable, perfection generally requires a financing statement that adequately describes accounts (or a legally sufficient equivalent).
- Article 9’s automatic perfection for proceeds is limited; reliance on an inventory-and-proceeds filing may not preserve perfection in remote proceeds such as proceeds of accounts and subsequent cash collections.
- A bankruptcy trustee exercising § 544(a) powers prevails over an unperfected security interest as of the petition date.

## Conclusion

The court ruled that the bank’s inventory-and-proceeds financing statement did not perfect a security interest in the debtor’s accounts receivable or the trustee’s cash collections on those accounts, so the trustee, acting under § 544(a), could avoid the bank’s unperfected interest and keep the funds for the bankruptcy estate.


In re Springfield Casket Co., 21 B.R. 223 (Bankr. S.D. Ohio 1982)