No. 85-567 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1986 

FIRST NATIONAL BANK OF GLASGOW, 

Plaintiff and Respondent, 

FIRST SECURITY BANK OF MONTANA, 

N.A., 

Defendant and Appellant. 

APPEAL FROM: District Court of the Seventeenth Judicial District, 

In and for the County of Valley, 

The Honorable Leonard Langen, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Gallather, Archambeault & Knierim; Matthew Knierim, 

Glasgow, Montana 

For Respondent: 

Moulton, Bellingham, Longo & Mather; Sidney R. Thomas, 

Billings, Montana 

Submitted on Briefs: March 6, 1986 

Decided: June 17, 1386 

Filed: JU~I J. l ]$@(-j 

&u *#L 8 

Clerk 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

First Security Bank appeals from an order of the 

District Court, Seventeenth Judicial District, Valley County 

granting summary judgment to First National Bank (FNB). We 

affirm. 

The issue in this case is which bank has a prior 

perfected security interest in certain livestock and their 

progeny. First Security Bank began lending money to James J. 

Murnion, as rancher, in 1976 on an unsecured basis. In 

October, 1977, First Security had Murnion execute a security 

agreement which took a security interest in: 

350 Cows, 3 to 7 years 

160 Heifers, 2 years 

20 Bulls 

400 Calves 

140 Cattle Branded: RS (b) 

70 

together with the young and produce thereof and all 

other livestock and poultry now owned or hereafter 

at any time acquired by Borrower or in which 

Borrower obtains rights; all of which are or will 

be located at 

20 miles East of Jordan 

on premises owned by: 

James J. Murnion 

A financing statement was filed in Garfield County describing 

all livestock branded with the lazy TJ brand and stating they 

were located 20 miles east of Jordan. Each year Murnion 

executed new security agreements in favor of First Security 

Bank. 

In April, 1980, Murnion contacted First Security Bank 

and asked if the Bank would loan additional funds so that 

Murnion and his partner could purchase about 513 heifers. 

First Security would not finance the purchase but agreed to 

loan $40,000 as a downpayment. Murnion went to First 
National Bank. FNB agreed to loan Murnion $152,000 for the 

purchase of 513 heifers with the Rafter B brand. On April 

30, 1980, Murnion executed a security agreement giving FNB a 

security interest in "513 yearling heifers branded: Rafter B 

L.R. together with the young, products, and produce thereof 

and all similar property whenever acquired, located or to be 

located at McCone County on premises belonging to Jack 

Rosenwald." FNB mistakenly filed its financing statement in 

McCone County where the cattle would be pastured. 

In July, 1980, Murnion told the president of First 

Security Bank of the loan by FNB. Murnion disclosed the 

amount of the loan, that FNB was the lender, and that the 

money was used to purchase the Rafter B heifers. He also 

told the bank president that he would be selling the heifers 

by November, 1980, and that part of the sale proceeds would 

go to FNB. 

In 1982, First Security began to have concerns about 

Murnion's financial condition and informed him that the loan 

would be due in full at the maturity date. First Security 

also had Murnion execute a new security agreement and 

financing statement granting First Security a security 

interest in all Murnion's livestock, including the Rafter B 

cattle. The new security agreement deleted reference to the 

lazy TJ brand and described the collateral as located at 

Garfield, Custer, and Valley Counties. 

On March 24, 1982, in accordance with his usual 

practice, Murnion attempted to deliver a check to FNB from 

the proceeds of the sale of the Rafter B-branded cattle. 

First Security objected to this and called the purchasers to 

tell him that First Security was claiming an interest in all 

of the cattle, not just the lazy TJ cattle. First Security's 
loan comment sheets of that date indicate that Murnion told 

them that this would "put him in a bad light with First 

National Bank." 

Subsequent cattle sales were lost because First Security 

told potential purchasers that they would be sued for 

conversion if any of the proceeds were paid to FNB. When 

representatives of FNB discovered the situation, they offered 

to allow the funds to be placed in a trust account for later 

resolution in order to avoid the prospect of a lost sale. 

This was done in subsequent sales with the intention of 

allowing the sales to proceed without the priority dispute 

being litigated each time. Three sales occurred, two 

involving Rafter B-branded cattle, prior to Murnion's filing 

of a bankruptcy petition. Further sales of the Rafter 

B-branded cattle and their progeny occurred following the 

bankruptcy petition. The funds from the later sales are 

being held in a trust account pending the resolution of this 

case. 

The bankruptcy judge determined that he did not have 

jurisdiction over this matter, and remanded this cause to the 

District Court of the Seventeenth Judicial District. The 

Honorable Leonard H. Langen, in a thorough opinion and order, 

granted summary judgment in favor of FNB. We agree that this 

case as presented is a proper subject for summary judgment 

since no genuine issues of material fact remain. 

We turn to the issue of which bank has a prior perfected 

security interest in the cattle. When First Security Bank 

took a security interest in Murnion's cattle in 1977, the 

security agreement attempted to be at once general and 

specific. The specific cattle which secured the loan were 

typed on the agreement as: 
350 Cows, 3 to 7 years 

160 Heifers, 2 years 

20 Bulls 

400 Calves Cattle Branded: RS (-1 

140 

70 

However in boilerplate language the agreement also referred 

to "all other livestock and poultry now owned or hereafter at 

any time acquired . . . all of which are or will be located 

20 miles east of Jordan." 

In interpreting this security agreement we begin with 

the standard set out in 5 30-9-110, MCA, which states: 

For the purposes of this chapter any description of 

personal property or real estate is sufficient 

whether or not it is specific if it reasonably 

identifies what is described. 

We also note that the purpose for the requirement of a 

written description of collateral in the security agreement 

is different than that in the financing statement. The 

purpose of the description of collateral in the financing 

statement is to put third parties on inquiry notice of the 

existence of a security interest. The purpose of the 

description of collateral in the security agreement is to act 

as a statute of frauds. It allows discovery by creditors of 

the debtors affairs, and names the collateral securing the 

loan so as to prevent later disputes over what secured the 

loan. White and Summers, Uniform Commercial Code pp. 787-88 

(1972). As such, the description of the collateral in the 

security agreement must reasonably lead the impartial 

observer to the collateral in question. - Id. 

While the language of this security agreement is not a 

model of clarity in drafting, we hold that the security 

agreement creates a general lien on all livestock located on 

the Murnion ranches 20 miles east of Jordan. The agreement 

refers to specific cattle which were branded with the lazy TJ 
brand and takes a security interest in their produce and 

young. The next line is an after-acquired property clause 

which refers to "all livestock now owned or hereafter 

acquired." It is substantially similar to this description 

which has been held sufficient to create a general lien on 

all cattle: 

all livestock . . . now owned or hereafter acquired 

by Debtor, together with all increases, 

replacements, substitutions, and additions thereto, 

including but not limited to the following: 

U.S. v. S.E. Mississippi Livestock Farmers Ass'n (5th Cir. 

1980), 619 F.2d 435; U.S. v. Mid-States Sales Co. (D.c. ~eb. 

While the above language would have made the security 

agreement in question clearer, it is nonetheless sufficient 

to create a general lien on all cattle owned by Murnion. 

However, the security agreement states that all the 

livestock covered by the agreement "are or will be located at 

20 miles east of Jordan on premises owned by: James J. 

Murnion." We note that it is not necessary to set out the 

location of livestock in a security agreement or financing 

statement. Section 30-9-203, MCA; § 30-9-402(1), MCA. 

FNB argues that since the location was included, we 

should follow Matter of California Pump and Manufacturing Co. 

(9th Cir. 1978), 588 F.2d 717 and 8 Anderson, UCC (3rd ed. 

1985), 9-110:9 p. 606 in holding that a statement of 

location in a security agreement acts to limits the 

description of the collateral to the property located within 

the geographic area described. 

First Security argues the location should not be a 

limiting factor, but should be taken as a promise by the 

debtor to keep the collateral at that location, and as an aid 
in describing the collateral relying on In re Lee (E.D. Tenn. 

1981), 32 U.C.C. Rep. 580. Even if this were so, we fail to 

see how a security interest covering cattle located 20 miles 

east of Jordan on premises owned. by James J. Murnion can aid 

in describing cattle located in McCone County on premises 

owned by Jack Rosenwald. We think this is a case where, had 

First Security foreseen this circumstance they would have 

drafted their security agreement to cover these cattle, but 

they did not, and it does not. 

We hold First Security's security agreement is limited 

to cattle located 20 miles east of Jordan on premises 

belonging to James J. Murnion. 

FNB, on the other hand, took a security interest in 513 

heifers branded Rafter B located at McCone County on premises 

belonging to Jack Rosenwald. It had a purchase money 

security interest in the cattle under $ 30-9-107, MCA. In 

order to perfect the purchase money security interest FNB 

should have filed the financing statement in accordance with 

5 30-9-401. The official comments to $ 30-9-109, MCA, state 

that cattle are farm products, thus the financing statement 

should have been filed in Garfield County, the county of the 

debtor' s residence, pursuant to 5 30-9-401 (1) (a) . However, 

FNB mistakenly filed in McCone County where the cattle were 

to be pastured. Thus FNB does not have a perfected security 

interest in the Rafter B cattle. However, FNB contends it 

should take precedence over First Security because of the 

good faith filing exception in $ 30-9-401(2), MCA, which 

states: 

A filing which is made in good faith in an improper 

place or not in all of the places required by this 

section is nevertheless effective with regard to 

any collateral as to which the filing complied with 

the requirements of this chapter and is also 
effective with regard to collateral covered by the 

financing statement against any person who has 

knowledge of the contents of such financing 

statement. 

Good faith is defined as honesty in fact by § 30-1-201 (19), 

which is incorporated in Article 9 by S 30-9-105 (4) . There 

was testimony adduced at the depositions that it was "common 

banking practice" to file a financing statement in the county 

where the collateral was located. While we note that this 

will soon be moot under the 1985 code which adopted central 

filing effective July 1, 1986, we hold this filing in the 

wrong county by the purchase money lender did constitute a 

good faith attempt to comply with the code requirements. A 

good faith filing is effective against any person who has 

knowledge of the contents of such financing statement. 

"Knowledge" is defined as actual knowledge in S 30-1-201(25). 

There is no requirement that a party actually see the 

financing statement in order to have actual knowledge of its 

contents. However, the party must know the names of the 

parties, their addresses, and a description of the 

collateral. Section 30-9-402(l), MCA; 8 Anderson UCC S 

9-401:47 p. 419; 47 U of Colo L.Rev. 467 (1976). In this 

case, Conrad Tvedt, president of First Security Bank, states 

in an affidavit that Murnion approached him about loaning 

funds to finance the purchase of the Rafter B cattle. Tvedt 

stated First Security would only loan $40,000. Murnion 

indicated that other parties, Glasgow Livestock and 

Fjeldheim, would help in the transaction. Tvedt stated that 

he knew Fjeldheim was financed at FNB which is located about 

one-half block away from First Security in Glasgow. In the 

financial statement Murnion told Tvedt tha.t FNB had loaned 

him the money to purchase the calves, and the amount of the 
loan. In the financial statement Murnion filled out for 

First Security on July 3, 1980, he listed under the category 

"Loans to Purchase Machinery & Equipment" a loan from FNB of 

Glasgow for $152,000 due 11-1-80. Also noted is the heifers 

Rafter B brand. The loan comment file states: 

He purchased 508 yearling heifers through the 

Glasgow Livestock Sales Yard that were financed by 

the First National Bank and is making a reduction 

there including interest of $60,000, leaving a 

balance owing of $152,000 due November 1, 1980, 

which are branded seperately [sic] and which he 

will market. 

Here, First Security knew not only of the names and addresses 

of the parties, and the collateral in question, but also the 

exact amount of the loan. On appeal, First Security argues 

that Murnion did not tell them if or how the loan was 

secured. Yet the 1982 agricultural financing statement of 

Murnion lists the loan from FNB as secured. 

This situation is clearly distinguishable from the 

situation in Taylor Rental Corp. v. First Citizens Bank (D.C. 

Mont. 1982), 539 F.Supp. 228, in which a computerized journal 

entry made by an accounting service in a confidential report 

provided by a parent company to a franchiser showed a bank 

loan by an unidentified bank. Judge Rattin held in that case 

that the journal entry was not knowledge of the security 

interest held by a specific bank. But that situation is 

wholly different than the one at hand where one bank 

president had full knowledge of the security interest of the 

other bank. 

Last, First Security argues that even if FNB has a 

purchase money security interest in the Rafter B heifers, the 

purchase money security interest does not extend to the 

progeny of the heifers. The security interest of FNB clearly 
does extend to the progeny of the heifers because the 

security agreement lists as collateral: 

513 yearling heifers branded: Rafter B LR 

together with young, products, and produce thereof 

and all similar property whenever acquired, located 

or to be located at McCone County on premises belonging 

to Jack Rosenwald: 

We affirm that FNB does not have a perfected purchase 

money security interest in the Rafter B heifers and their 

young but that its security interest in the cattle and their 

young is valid against First Security because First Security 

had actual knowledge of FNB's security interest. 

We Concur: