This appeal arises from the bankruptcy proceeding of Joseph Kanner Hat Co., Inc. (the company) in the District Court for Connecticut.

A proof of claim filed by City Trust Co. (the bank) alleged that on March 9, 1967, the company had obtained a loan from the bank of $25,000, evidenced by a note endorsed by Ruth and Morton Kanner, which was renewed in June, September and December, 1967; that "on March 9, 1967, the Joseph Kanner Hat Co., Inc., in consideration for the sum of $25,000.00 absolutely assigned, transferred and sold any and all right, title and interest it had, or may have, in and to all the moneys due it from the Norwalk Redevelopment Agency by virtue of a certain claim for reimbursement of compensable moving expenses";1 that, although the amount due from the Agency was originally $25,000, it had been reduced, as the result of a payment by the Agency directly to a mover, to $16,500, which the Agency had turned over to the trustee in bankruptcy;2 that the amount owing by the company to the bank had been reduced by $6,258.48, the remaining balance in a bankbook of Ruth Kanner which had been pledged to secure a personal loan;3 and that, in the bank's opinion, the assignment4 constituted a transfer of "an absolute right to collect the sum due to the assignor-bankrupt from the Norwalk Redevelopment Agency." The trustee answered, alleging sufficiently if inartfully, among other things, that the claim against the Agency was a transaction creating a security interest as defined in Connecticut General Statutes Sec. 42a-9-102(1)(a), Connecticut's version of the Uniform Commercial Code; that the security interest had not been perfected by the filing of a financial statement as required by Sec. 42a-9-302(1); and that the trustee's interest in the fund thus was prior to the bank's by virtue of Sec. 42a-9-301 and Sec. 70, sub. c of the Bankruptcy Act, see 4A Collier, Bankruptcy p 70.51, at 617 (14th ed. 1971).

After a hearing, Referee Trevethan held that the assignment of the claim against the Agency for relocation expenses was an outright sale, not involving the creation of a security interest, and therefore was exempt from any requirement of perfection.5 He rejected other defenses of the trustee, unnecessary to discuss here, and then directed payment of the $15,576 fund to the bank. The district court, by memorandum order, denied a petition to review.

Although both parties seem to have assumed that the appeal involves "findings of fact" which, under General Order 47 and F.R.Civ.P. 52(a), made applicable to proceedings in bankruptcy by General Order 37, may not be set aside unless clearly erroneous,6 see Preliminary Draft of Proposed Bankruptcy Rules and Official Forms Under Chapters I to VII of the Bankruptcy Act, Rules 752, 810 (March 1971), we are not at all convinced that this is so. The referee was required to determine not merely what acts the parties performed, as to which indeed there was little dispute, but what the legal consequences were. In a case somewhat akin to this, although arising in a different context, the Fifth Circuit has decided that a finding that a bank held municipal bonds in the course of sale to dealers as an owner rather than a secured lender was not protected by the "unless clearly erroneous rule," American Nat'l Bank of Austin v. United States, 421 F.2d 442, 451 (5 Cir.), cert. denied, 400 U.S. 819, 91 S. Ct. 36, 27 L. Ed. 2d 46 (1970). As the same court had earlier said:

Obeisance to the clearly erroneous rule must yield when the facts are undisputed and we are called upon to reason and interpret.

United States v. Winthrop, 417 F.2d 905, 910 (5 Cir. 1969). In a bankruptcy case, In re Hygrade Envelope Corp., 366 F.2d 584, 587-589 (2 Cir. 1966), although recognizing some division of opinion among the circuits, we held that the "unless clearly erroneous" rule did not protect a concurrent "finding" by a referee and a district judge that a creditor did not have reasonable cause to believe in a debtor's insolvency. We there stated that, when the issue is a trial judge's "application of a legal standard to facts undisputed or reasonably found, reversal is not limited to results that are 'clearly erroneous'; it is enough that the appellate court should be convinced, as we are here, that the result does not jibe with the applicable rule of law." 366 F.2d at 588 (footnote omitted).7 We adhere to that view, without intimating that our decision in this case would be different if the "unless clearly erroneous" rule applied.

The definition section in the U.C.C. as adopted in Connecticut, Sec. 42a-1-201(37), says simply that

"Security interest" means an interest in personal property or fixtures which secures payment or performance of an obligation.

Section 42a-9-102(2) adds that Article 9, with its requirement of perfection of a security interest to prevent subordination to the rights of a trustee in bankruptcy, "applies to security created by contract" including, among other things, "assignment." It is true, as Professor Gilmore has written, that the definition in Sec. 1-201(37) of the U.C.C. "is essentially a declaration of faith." 1 Security Interests in Personal Property Sec. 11.1, at 334 (1965). But, as he also points out, this course was feasible for the draftsmen because of the long-standing rule "that the courts will determine the true nature of a security transaction, and will not be prevented from exercising their function of judicial review by the form of words the parties may have chosen." Id. Sec. 2.6, at 47; see id. Sec. 11.1, at 335. Long before adoption of the U. C.C. it had become settled that, when A gives B a bill of sale of personal property and later claims this was a loan secured by mortgage, the courts would listen to him; "the parol evidence rule has opened like a leaky sieve to allow A to vary, contradict and explain" a bill of sale. Id. Sec. 2.6, at 48. With the advent of recording statutes, this principle was applied for the benefit not simply of purported sellers but also of their creditors. Id. at 49-50.

Here the evidence that the assignment of the relocation claim was taken as security for the $25,000 loan was overwhelming, and the parol evidence rule clearly did not bar its receipt. See, e. g., Allen v. Home Nat. Bank, 120 Conn. 306, 180 A. 498 (1935) (assignment of an insurance policy absolute in form may be shown to have been intended as security); 4 Corbin, Contracts Sec. 881, at 543 (1951); 3 Williston, Contracts Sec. 431, at 175-76 (3d ed. 1960). The assignment was delivered simultaneously with the loan of $25,000 evidenced by a promissory note carrying two endorsements. A bank officer testified that any payment received under the assignment would be applied to reduce the amount of the loan; that, on the other hand, if payments had been made by the maker or endorsers on account of the loan, any excess over the amount of the loan received on account of the assignment would have been returned to the company; that the bank treated the assignment as a method of payment of the loan; and that the assignment was a source of payment of the loan if the parties to the note did not pay it. While the bank and the Kanners may have believed that the relocation payment would suffice to take care of the loan, that did not alter the fundamental nature of the transaction. The acts of the bank confirm that the intention was just what its officer stated. Recognizing that $25,000 was the maximum amount reimbursable by HUD for moving expenses, see 24 C.F.R. Sec. 3.109 (1967), it required the note to be personally endorsed by the Kanners, and, when less than the full $25,000 was received, the bank attempted to realize on the note by attaching property of the endorsers and by applying the $6,258.48 in Ruth Kanner's account. If the account had contained four thousand dollars more, the bank by its own admission would not be claiming the totality of the fund here at issue,8 compare Allen v. Home Nat. Bank, supra, 120 Conn. 306, 180 A. 498 (assignee for security may collect only up to the amount of the secured debt); 4 Corbin, Contracts, supra, Sec. 881, at 541-42 ("[a]s long as the debt has not been paid in full, the assignee for security may collect the assigned claim and apply the proceeds in satisfaction of the debt secured; the balance, if any, belongs to the assignor"). Finally, despite the "absolute" assignment of the entire claim, the bank did not protest when the Agency paid part of the $25,000 to the mover and kept part for itself, see fn. 2. If this was not an assignment for security, we do not know what would be. Compare Bacon v. Kienzel, 21 A. 37, 39 (N.J. Ch. 1891), where an assignment of insurance policies was held to be for security, because there was no evidence that the assignor's debt was in any way reduced on account of the assignment; and In re Boughner, 8 U.C.C.Rep.Serv. 144, 149 (W.D.Mich.1970), where a referee in bankruptcy found an assignment to be for security when the amount to be realized on the assigned claims was uncertain, the assignee required additional security, and there was no indication that the assignee was surrendering his right to full payment of the debt.

Since the assignment represented a security interest that was not perfected by the filing of a financial statement as required by Connecticut General Statutes Sec. 42a-9-302(1), the trustee was right in asserting that, pursuant to Sec. 42a-9-301 and Sec. 70, sub. c of the Bankruptcy Act, his interest in the fund was entitled to priority over the claim of the bank.

Accordingly the order denying the petition to review is reversed, and the district court is instructed to remand the case to the referee for entry of an order denying the bank's petition for the fund and declaring this to be a part of the bankrupt estate.