1st Source Bank v. Wilson Bank & Trust, 735 F.3d 500

1st Source Bank entered secured transactions with K & K Trucking and J.E.A. Leasing for tractors and trailers, with financing statements describing collateral as specific equipment and ‘all proceeds thereof’ but omitting accounts or accounts receivable.
Subsequently Wilson Bank & Trust, Pinnacle Bank, and TransCapital & Leasing filed their own financing statements stating security interests in ‘all accounts receivable now outstanding or hereafter arising.’
Debtors defaulted in 2009; Defendants possessed the accounts receivable with first-priority security interests; 1st Source claimed a first-priority interest in the accounts based on its financing statements’ “proceeds” language.
The district court held 1st Source’s financing statements did not put defendants on notice that 1st Source claimed an interest in accounts receivable, and Tennessee law does not treat proceeds as including accounts receivable.
Chapter 9 defines proceeds broadly, but the court held the definition does not subsume the separately defined category of accounts; revenues from use of collateral are not proceeds; 1st Source’s security interests in accounts were unperfected and subordinate to defendants’ perfected interests.
The court affirmed the district court’s judgment, concluding 1st Source failed to perfect its security interests in the accounts receivable.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether ‘proceeds’ includes accounts receivable	1st Source contends proceeds include accounts receivable	Defendants argue proceeds do not cover accounts receivable	No; proceeds do not include accounts receivable
Whether financing statements were sufficient to put third parties on notice of a security in accounts receivable	1st Source’s broad ‘proceeds’ language suffices for notice	Statements omitted accounts receivable, failing notice	No; statements insufficient to notify third parties of an accounts receivable claim
Whether the district court’s discussion of goods (tractors/trailers) affects the outcome	PMSI of goods could impact perfection	Goods discussion is irrelevant to this case	Irrelevant to the outcome

Northwest Acceptance Corp. v. Lynnwood Equip., Inc., 841 F.2d 918 (9th Cir. 1988) (adequacy of collateral description determines perfection; misdescription can mislead third parties)
Lehigh Press, Inc. v. Nat'l Bank of Georgia, 193 Ga. App. 888, 389 S.E.2d 376 (Ga. Ct. App. 1989) (failure to identify accounts as collateral prevents notice)
CLC Equip. Co. v. Brewer, 139 F.3d 543 (5th Cir. 1998) (definition of proceeds not to swallow specific collateral terms)