The Cooperative Finance Association, Inc. v. B & J Cattle Co.

MRC-Sheaf Corporation (MRC) was a company that ran a farming operation that had previously raised cattle, but no longer did. MRC signed a promissory note and entered into a security agreement with Cooperative Finance Association, Inc. (Cooperative Finance) (plaintiff). Cooperative Finance perfected the security agreement by filing a financial statement. The security agreement contained an after-acquired clause, which provided Cooperative Finance with an interest in all livestock owned by MRC whether currently owned or later acquired. When MRC defaulted on its obligation, Cooperative Finance filed an action in replevin. The trial court designated a receiver, identified items as collateral, and ordered the collateral to be preserved temporarily. After this occurred, MRC bought 203 Holstein heifers from B & J Cattle Co. and Brett Bybee, its agent (collectively, B & J) (defendants). When MRC purchased the cattle, the company no longer had facilities to raise cattle and was no longer conducting a farming operation. MRC agreed that the cows would be delivered to a third party’s lot and immediately sold for cash to MRC’s named buyer, and the proceeds from the sale would be wired to B & J immediately. However, MRC did not complete the sale or wire any money to B & J, and when MRC sent two checks covering the cost of the cattle, MRC stopped payment on the checks. B & J insisted that the third party keep the cattle in its possession on B & J’s behalf. In the meantime, Cooperative Finance learned about the 203 heifers and included the heifers in an amended complaint. Cooperative Finance listed B & J as a defendant, and the two parties agreed that the heifers could be sold and the proceeds placed in a bank account pending the outcome of the litigation. Both parties moved for summary judgment, and a trial court ruled in favor of Cooperative Finance. The court found that the cattle in MRC’s possession was inventory. The court also found that although B & J had a right to reclaim the cattle, Cooperative Finance’s perfected security interest in after-acquired livestock gave it priority over B & J. B & J appealed, arguing that the trial court improperly categorized the cattle as inventory instead of as farm products. B & J also argued that in making its classification, the court used inadmissible hearsay in considering deposition testimony from B & J’s agent regarding the terms of the sale between MRC and B & J.