## Facts

- Franklin National Bank loaned money to Northgate Industries in 1971 and took a security interest in Northgate’s accounts receivable and proceeds, drafted to cover present and after-acquired collateral and secure existing and future indebtedness.
- The Bank filed a 1971 financing statement describing the collateral as “assignment accounts receivable” and “proceeds.”
- Thorp Commercial Corporation extended secured financing to Northgate in 1972, took a security interest in then-existing and after-acquired accounts receivable, and filed a financing statement describing that collateral.
- Both lenders made additional advances under continuing lending arrangements, and Northgate later defaulted owing money to both creditors.
- Thorp received funds from Northgate that the Bank claimed were proceeds of accounts receivable subject to the Bank’s prior perfected security interest.
- Thorp sued the Bank and others on fraud and federal securities theories; the Bank counterclaimed against Thorp for conversion based on its asserted priority in the proceeds.

## Issues

1. Whether the Bank’s 1971 financing statement describing collateral as “assignment accounts receivable” and “proceeds” reasonably identified the collateral so as to perfect a security interest in after-acquired accounts receivable and their proceeds.
2. Whether, if the Bank’s filing perfected a floating lien in accounts receivable, the Bank had priority over Thorp under Article 9’s first-to-file-or-perfect rule, requiring reinstatement of the Bank’s conversion counterclaim.

## Decision

- The Eighth Circuit reversed the district court.
- The court held the Bank’s 1971 financing statement sufficiently described the collateral to perfect a security interest in all of Northgate’s accounts receivable, including after-acquired accounts, and their proceeds.
- Because the Bank filed first, it had priority over Thorp in the accounts receivable and proceeds within the described category.
- The court reversed the dismissal of the Bank’s conversion counterclaim and remanded for further proceedings.

## Legal Principles

- A financing statement under U.C.C. Article 9 is a notice filing; it need only reasonably identify the collateral to alert third parties and prompt further inquiry.
- Minor imperfections in a financing statement do not defeat perfection unless they are seriously misleading.
- The security agreement defines the scope of the parties’ collateral arrangement (including after-acquired property), while the financing statement need not restate those details so long as it gives adequate notice of the collateral type.
- A financing statement describing accounts receivable as a category can perfect a floating lien in present and after-acquired accounts receivable when it would alert a reasonable searcher to investigate the secured party’s claim.
- Priority between competing perfected security interests in the same collateral type is generally governed by the first-to-file-or-perfect rule.

## Conclusion

The court held that the Bank’s earlier filing covering “assignment accounts receivable” and “proceeds” gave sufficient notice to perfect a continuing security interest in all accounts receivable and proceeds, including after-acquired accounts, so the Bank’s security interest had priority over Thorp’s later filing and the conversion counterclaim could proceed on remand.


Thorp Commercial Corp. v. Northgate Indus., Inc., 654 F.2d 1245 (8th Cir. 1981)