In re Springfield Casket Co.

In 1974, Security National Bank & Trust Co. (the bank) (creditor) filed a financing statement related to a prior transaction, which covered all of Springfield Casket Co., Inc.’s (Springfield) (debtor) then-owned and after-acquired inventory, including the proceeds of that inventory. The bank filed a continuation statement in 1979. In January 1981, Springfield obtained a loan from the bank, which was represented by a note. The note contained a security agreement in which Springfield gave the bank a security interest in all its existing and future accounts receivable, including their proceeds. The bank did not file another financing statement. In September 1981, Springfield filed for bankruptcy before it finished paying off the note. Thereafter, the bankruptcy trustee collected two of Springfield’s accounts receivable (the collected accounts receivable) related to two customers’ purchases of finished products after application of a showroom and sales service. The bank sought payment of the collected accounts receivable. However, the bankruptcy trustee sought to avoid the bank’s interest pursuant to 11 U.S.C. § 544. The bank argued that its financing statement covered the collected accounts receivable because the financing statement covered proceeds of the inventory. The bankruptcy trustee argued that the financing statement did not cover the collected accounts receivable because the Uniform Commercial Code (UCC) defined “accounts” and “proceeds” separately. The bankruptcy trustee also argued the collected accounts receivable did not constitute proceeds of the inventory, because the accounts related to finished products after showroom and sales service and because the money collected constituted proceeds of the proceeds.