## Facts

- Bank of Beaver City loaned money to Lucky Moon Land and Livestock, Inc. (Lucky Moon) and, on August 9, 2004, perfected a security interest in Lucky Moon’s livestock, including after-acquired livestock.
- In late 2009, Barretts’ Livestock, Inc. (Barretts) sold and delivered 903 head of cattle to Lucky Moon under a course of dealing in which Barretts delivered cattle and allowed time for payment.
- Lucky Moon made two payments toward the purchase price, but then issued four checks totaling $176,234 toward the remaining balance; the Bank dishonored the checks for insufficient funds.
- Barretts did not file a financing statement and did not perfect a security interest in the cattle it delivered.
- Both the Bank and Barretts claimed rights in the cattle. The cattle were sold at auction, and the proceeds were held in escrow while the parties litigated priority.
- The Bank sued for a declaration that its perfected security interest had priority in the cattle and sale proceeds.
- Barretts argued it should prevail because the Bank allegedly did not act in good faith toward Barretts: Barretts claimed the Bank had long covered Lucky Moon’s overdrafts despite knowing Lucky Moon was in financial trouble, and Barretts said it would not have delivered the cattle if it had known the Bank would not honor the later checks.
- The trial court granted summary judgment to the Bank, holding the Bank’s perfected security interest was superior to Barretts’ unperfected claim. The Court of Civil Appeals affirmed, and the Oklahoma Supreme Court granted certiorari to address whether UCC good-faith requirements extended to third parties such as unpaid sellers.

## Issues

1. Does the good-faith requirement in 12A O.S. § 2-403 extend to third parties such as an unpaid seller and require a secured lender to notify the seller of the debtor’s financial condition?
2. Can alleged lack of good faith toward an unpaid seller prevent a lender’s Article 9 security interest in after-acquired collateral from attaching or defeat its priority?
3. Under Article 9 priority rules, does the Bank’s perfected security interest in Lucky Moon’s livestock (including after-acquired livestock) have priority over Barretts’ unperfected interest in the same cattle and the escrowed proceeds?

## Decision

- Certiorari previously granted; Court of Civil Appeals opinion vacated; trial court affirmed.
- The court held that 12A O.S. § 2-403’s good-faith requirement does not extend to third-party unpaid sellers and does not impose on the secured lender a duty to disclose the debtor’s financial condition.
- The court held the Bank’s perfected security interest in Lucky Moon’s livestock, including after-acquired livestock, had priority over Barretts’ unperfected claim to the cattle and the sale proceeds.

## Legal Principles

- Under 12A O.S. § 1-9-322(a)(2), a perfected security interest has priority over a conflicting unperfected security interest; this includes perfected security interests covering after-acquired property.
- A secured lender’s knowledge that a debtor has unpaid sellers, without more, does not defeat the lender’s status or priority under Article 9.
- UCC § 2-403 addresses a transferee’s ability to receive good title from a party with voidable title, but it does not create a general notice or disclosure duty requiring a lender to warn an unpaid seller about a debtor’s finances.
- Absent an express or implied agreement creating such a duty, a lender’s decision to cover some overdrafts and later dishonor checks does not, by itself, subordinate the lender’s perfected security interest to an unpaid seller that did not perfect.

## Conclusion

The Oklahoma Supreme Court affirmed summary judgment for the Bank, holding that Article 9’s priority rules controlled: the Bank’s properly perfected floating lien in Lucky Moon’s livestock, including after-acquired cattle, was superior to Barretts’ unperfected claim, and UCC § 2-403’s good-faith language did not require the Bank to warn or inform Barretts about Lucky Moon’s financial condition.


Bank of Beaver City v. Barretts' Livestock, 295 P.3d 1088 (2012)