## Facts

- A bank made multiple loans to a timber dealer to finance purchases of standing timber from landowners.
- The dealer granted the bank a security interest in the purchased timber and in proceeds from timber sales.
- The bank perfected its security interest by filing UCC financing statements with the Arkansas Secretary of State.
- The dealer sold timber to lumber mills (including two mills at issue) but did not remit sale proceeds to the bank.
- The mills bought timber through common “gatewood” transactions: logs were delivered to the mill, measured, and paid for upon delivery; mills generally did not conduct UCC lien searches for each load.
- After the dealer entered bankruptcy, the bank sued the mills alleging they acted negligently and without good faith by purchasing timber without checking UCC records.

## Issues

1. Whether the mills qualified as buyers in the ordinary course of business under Ark. Code Ann. § 4-9-320(a), thereby taking the timber free of the bank’s perfected security interest created by the dealer.
2. Whether the mills owed a duty of inquiry, including a duty to conduct UCC lien searches, such that failure to search could support claims for lack of good faith, negligence, or fraud.

## Decision

- The Arkansas Supreme Court affirmed the circuit court’s judgment for the mills.
- The mills were buyers in the ordinary course of business under Ark. Code Ann. § 4-9-320(a) and therefore took the timber free of the bank’s perfected security interest created by the dealer.
- The mills had no duty to conduct UCC lien searches as a condition of ordinary-course protection.
- The directed verdict dismissing the bank’s negligence and fraud claims against the mills was proper because the bank failed to present proof sufficient to establish those claims.

## Legal Principles

- Under Ark. Code Ann. § 4-9-320(a), a buyer in the ordinary course of business takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.
- Ordinary-course status depends on purchase in good faith, without knowledge that the sale violates another’s rights, and in the usual manner from a seller who deals in goods of that kind.
- A buyer’s ability to discover a perfected security interest through UCC records does not, by itself, establish knowledge that the sale violates the secured party’s rights.
- Article 9 does not impose a general duty on ordinary-course buyers to perform lien searches; the secured creditor bears the principal burden of monitoring its debtor and collateral.

## Conclusion

The court held that lumber mills purchasing timber through customary gatewood transactions were buyers in the ordinary course and therefore acquired the timber free of the bank’s perfected security interest; the mills’ failure to conduct UCC lien searches did not defeat ordinary-course status or support negligence, bad-faith, or fraud claims.


Fordyce Bank & Tr. Co. v. Bean Timberland, Inc., 369 Ark. 90, 251 S.W.3d 267 (Ark. 2007)