Arkansas Business Litigation Lawyer & Attorney : Allen Law Firm : Serving Little Rock, Fort Smith, North Little Rock

The long dispute over Lee and Wilma Clark's failed farming venture finally came to a close in Searcy Farm Supply, LLC v. Merchants & Planters Bank, No. 06-892 (5/3/07).

In 2001, the Clarks obtained loans from Merchants & Planters Bank, which perfected its security interests in the Clarks' crops. In 2002, the Clarks purchased corn seed and materials from Searcy Farm Supply, which obtained a purchase money security interest. The Clarks defaulted on all their obligations, and this action was initiated in August 2002.

Searcy Farm Supply argued that, pursuant to A.C.A. § 4-9-324, the crops were proceeds from the seeds and materials. Under this theory, the PMSI extended to the crops, giving Searcy Farm Supply priority over Merchants & Planters.  The trial court disagreed and granted judgment to Merchants & Planters. The supreme court affirmed, readily dismissing this argument for lack of persuasive authority:

Appellants fail to cite any case law or statutory authority that defines crops as the identifiable proceeds of seeds, and without such authority, we decline to do so.

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The Arkansas Court of Appeals held that defective service was waived in Trelfa v. Simmons First Bank of Jonesboro, No. 06-762 (4/4/07).

The Trelfas purchased a residence by giving State Street Bank a first mortgage. They later took out a loan from Simmons First Bank and gave Simmons a second mortgage. The Trelfas defaulted, and Simmons commenced foreclosure proceedings.

Simmons filed the complaint in December 2002 but did not serve the Trelfas. In January 2003, Simmons filed an amended complaint. This time the bank served the Trelfas, but it used the summonses from the original complaint rather than issuing new summonses. The Trelfas never answered or filed a pleading, but they agreed to an order appointing a receiver, which was entered in February 2003. The property was sold at a foreclosure sale and the trial court entered judgment for Simmons, although the Trelfas claimed they never waived the defective service.

The Court of Appeals affirmed, holding that the Trelfas waived the defective service by not objecting in their first responsive pleading. The court also agreed that entry of the order appointing receiver within 120 days of the amended complaint satisfied Ark. R. Civ. P. 4(i).

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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.

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