Bank's Security Interest Ineffective Againt Timber Companies
The Arkansas Supreme Court affirmed judgment for two timber companies in Fordyce Bank & Trust Co. v. Bean Timberland, Inc., Case No. 06-734 (3/1/07).
Fordyce Bank provided several loans to Bean Timberland to purchase timber. Bean Timberland gave Fordyce Bank a security interest in the timber as well as proceeds, and the bank made the appropriate filings with the Secretary of State. However, Bean sold Timber to Potlatch Corp. and Idaho Timber Corp. without remitting the funds to Fordyce Bank.
Fordyce Bank brought suit against all 3 parties. At the bench trial, Potlatch and Idaho presented extensive evidence that they purchased the timber in the usual manner for the industry. The court agreed and held they were buyers in the ordinary course of business and took the timber free of Fordyce Bank's security interest. See § 4-9-320(a). On appeal, Fordyce Bank argued that the cut wood was not inventory and not subject to the buyer in the ordinary course exception.
The court disagreed, finding that cut timber is inventory by process of elimination. The parties agreed that timber, once cut, becomes a good. See Comment to A.C.A. § 4-9-501. The court concluded that, because cut timber does not fit into any of the other categories of goods in A.C.A. § 4-9-102, then cut timber must be inventory. The court affirmed the judgment and held the buyer in the ordinary course rule applies to cut timber.
