In re Fort Dodge Roofing Co.

Fort Dodge Roofing Co. (debtor) purchased building materials from Stetson Building Products Corp. (Stetson) (creditor) using an open account. As of May 7, 1982, Fort Dodge Roofing owed Stetson over $170,000 for materials. Consequently, Stetson refused to provide additional materials to Fort Dodge Roofing unless Fort Dodge Roofing arranged to pay the outstanding balance. Accordingly, on the same date, Fort Dodge Roofing agreed to transfer to Stetson seven accounts receivable totaling $52,000, including an account receivable owed by Malta High School comprising approximately 6.2 percent of Fort Dodge Roofing’s debt. On its face, the instrument used to transfer the accounts appeared to be an absolute assignment of the accounts. However, Stetson did not credit any amounts to Fort Dodge Roofing’s outstanding balance and maintained that Fort Dodge Roofing owed the entire $170,000 balance. Stetson was not involved in the commercial-lending business and had accepted an assignment of accounts receivable only once before, approximately two years before this assignment. Thereafter, Fort Dodge Roofing filed for bankruptcy. The bankruptcy trustee sought to avoid Stetson’s interest in the account owed by Malta High School. The bankruptcy trustee argued that Stetson held merely a security interest in the account, which Stetson had not perfected by filing a financing statement. Stetson argued that even if Fort Dodge Roofing had not absolutely assigned the account to Stetson, Stetson was not required to file a financing statement pursuant to Uniform Commercial Code (UCC) § 9-302(1)(e).