## Facts

- A secured creditor obtained a default judgment exceeding $1.4 million against a debtor.
- The secured creditor attempted to garnish 45 longhorn cows and one bull in the possession of a third party who contested the garnishment.
- The trial court issued a writ of garnishment and joined additional claimants asserting interests in the cattle.
- The parties stipulated to sell the cattle and deposit the proceeds into the court registry pending a priority hearing.
- The secured creditor claimed priority in the proceeds under a perfected security interest that included an after-acquired property clause.
- Another claimant asserted an interest based on an oral agreement with the debtor to buy the cattle.
- Evidence showed the debtor acquired and used the longhorn cattle mainly for recreational cattle drives and sometimes leased them for similar activities.

## Issues

1. Whether the cattle were properly classified under Article 9 as “equipment” rather than “inventory.”
2. Whether the secured creditor waived its security interest or otherwise authorized the debtor to sell the cattle free of the perfected security interest.

## Decision

- The court of appeals affirmed the judgment awarding the sale proceeds (subject to specified costs) to the secured creditor.
- It upheld the trial court’s finding that the cattle were “equipment,” not “inventory,” based on the debtor’s principal use.
- It upheld the finding that the secured creditor did not expressly or impliedly authorize a disposition of the cattle free of its lien and did not waive its security interest.

## Legal Principles

- Under Article 9, classification of goods (including “equipment” and “inventory”) turns on the debtor’s principal use of the goods, and the categories are mutually exclusive.
- Goods are “inventory” when held for sale or lease in a context consistent with dealing in goods of that kind; goods used as longer-term business assets may be “equipment.”
- A debtor’s transfer of collateral does not defeat a perfected security interest absent proof of secured-party authorization (express or implied); conflicting evidence supporting the trial court’s findings will not justify reversal on appeal.

## Conclusion

The court affirmed priority for the perfected secured creditor because the cattle were used mainly for recreational cattle drives and leasing, supporting classification as equipment, and because the record supported findings that the secured creditor neither waived its lien nor authorized a sale free of its security interest.


Morgan Cnty. Feeders, Inc. v. McCormick, 836 P.2d 1051 (Colo. App. 1992)