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Legally Speaking

 

Issue: June, 2008
Author: Alan Schroeder

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Unraveling Parties’ Rights Regarding Agricultural Liens under Revised Article 9 of Wyoming Law – A Gordian Knot?

In 2001, Wyoming adopted revised Article 9 (RAN) of the Uniform Commercial Code (UCC), tying together some of the requirements for agricultural liens and security interests. Proponents argue that RAN ensures knowledge of agricultural liens and unifies priority rules governing agricultural liens and security interests. But RAN’s conflicting rules may sabotage both ends. Indeed its agricultural lien provisions may trip the unwary and test Wyoming’s attorneys, courts, and legislature as they address the Gordian knot RAN creates.

This article is based upon a longer extension bulletin currently under review. It summarizes RAN’s agricultural lien provisions. It is not intended to be a substitute for specific legal advice.


Agricultural Liens and RAN

Wyoming Agricultural Liens Covered by RAN
RAN describes an agricultural lien as “an interest, other than a security interest, in farm products” satisfying five (5) requirements. (WYO. STAT. ANN. § 34.1-9-102(a)(v) (2005).) First, the lien “secures payment or performance” for goods or services furnished or rent owed in connection with a debtor’s farming operation. Producer’s liens do not qualify since the debtor processing plant is not a farming operation. Second, it must be statutory. Common law liens are not covered. Third, it must be on farm products. Contractor’s liens on real property do not qualify. Fourth, covered creditors must supply goods or services in the ordinary course of business or rent land to debtor’s farming operation. Fifth, the lien must not “depend” on the collateral’s possession.

Title 29 of the Wyoming statutes establishes a tangle of agriculturally-related creditor liens. Only four satisfy RAN’s requirements (see table 1): 1) harvesters’ liens; 2) artisan liens for services and feed given agricultural producers; 3) feeding, herding, or care liens; and 4) breeders’ liens. Wyoming has no statutory agricultural landlord lien or specific statutory liens protecting veterinarians, feed processors, pesticide applicators, etc. These creditors can obtain security interests under RAN and may also qualify for caregiver or artisan liens under Wyo. Stat. Ann. §§ 29-7-101(a)(i), (ii) (2005).


Attachment, Effectiveness, and Perfection
RAN follows earlier rules for establishing security interests in collateral against debtors (attachment) and others (perfection). (WYO. STAT. ANN. §§ 34.1-9-203(a), 302. (2005).)

RAN does not address attachment for agricultural liens. Instead it refers to agricultural liens becoming “effective.” (WYO. STAT. ANN. § 34.1-9-308(b) (2005).) Neither RAN nor its commentary explains when this occurs. Commentators argue agricultural liens become effective by satisfying the applicable lien statute’s requirements. Montana’s Supreme Court recently affirm this conclusion. (Stockman Bank of Montana v. Mon-Kota, Inc., 2008 MT 74, *P27, ___ P.3d. ___ (Mont. 2008).)

But Wyoming’s statutes do not explain when agricultural liens become effective. The breeder’s statutes state suppliers “have” liens when services are provided. The harvester, artisan, and feeder statutes say suppliers are “entitled” to liens, suggesting that additional acts are required. Wyoming’s Supreme Court has not answered this question for agricultural liens. It has in dicta indicated “to establish an effective lien under [contractor and materialmen lien] statutes…the lienholder is required to follow the appropriate procedures in imposing and perfecting its lien.” (Petra Energy, Inc v. Department of Revenue, State of Wyoming, 6 P.3d 1267, ___ (Wyo. 2000).)

Nonpossessory security interests in farm products are typically perfected by filing effective financing statements in the appropriate state office in the state where debtors are located. (WYO. STAT. ANN. § 34.1-9-301(a)(i) (2005.).) In contrast, covered agricultural liens are perfected by filing effective financing statements in the state where the farm products are located. (WYO. STAT. ANN. § 34.1-9-302 (2005).) Thus security interests against a Torrington producer who raised and stored covered crops in Nebraska, are perfected in Wyoming; any agricultural liens in Nebraska.

RAN automatically extends perfection to proceeds from the sale of collateral subject to perfected security interests. (WYO. STAT. ANN. § 34.1-9-315 (2005).) No similar protections are afforded perfected agricultural liens. (See Stockman, op cit., *P43-*P45.)


Conflicting Security Interests and Agricultural Liens
RAN extends the UCC’s first-in-time-first-in right priority rules to conflicts between security interests and agricultural liens. (WYO. STAT. ANN. § 34.1-9-322 (2005.) However, it makes harvester liens inferior to perfected security interests if “the debtor has an interest of record in or is in possession of the real property.” (WYO. STAT. ANN. § 34.1-9-334(k), (j) (2005).)

Priority rules for perfected security interests and agricultural liens differ for production money security interests in crops (PMSIC) and purchase money security interests in livestock (PMSIL). Production money obligations arise when “…new value [is] given to enable the debtor to produce crops…” (WYO. STAT. ANN. § 1-9-102(a)(lxvi)(2005).) Purchase money obligations represent “…all or part of the price of the collateral or…value given to enable the debtor to acquire rights in or the use of the collateral…” (WYO. STAT. ANN. §34.1-9-103(a)(ii) (2005).) PMSIC and PMSIL, satisfying specific requirements, are superior to earlier perfected security interests. (WYO. STAT. ANN. §§ 34.1-9-324(d), 34.1-9-324A (2005).) In contrast, with one minor exception (WYO. STAT. ANN. § 34.1-9-324(e) (2005)(PMSIL)), the first-in-time priority rules remain unaffected for perfected agricultural liens. What rules govern interests qualifying as both agricultural liens and PMSICs or PMSILs? For PMSIC, Wyo. Stat. Ann. § 34.1-9-324A(e) (2005) indicates “…the rules…applicable to agricultural liens govern priority.”

Agricultural Liens and Buyers
Under RAN “[a] security interest or agricultural lien continues in collateral notwithstanding sale…or other disposition thereof unless the secured party authorized the disposition free of the security interest or agricultural lien…” (WYO. STAT. ANN. § 34.1-9-315(a)(i) (2005); but see WYO. STAT. ANN. § 34.1-9-320 (2005) (continuation of security interests in farm products; no mention of agricultural liens).)

The federal Food Securities Act (FSA) of 1985 eliminates continuation of security interests in agricultural commodities following sale. Creditors can continue these interests by directly notifying potential buyers or following their state’s central filing rules (see WYO. STAT. ANN. § 34-21-1101 through 1107 (2005).) Neither the FSA nor Wyoming’s central filing law mentions agricultural liens perfected under RAN.


Opting-Out Provisions for Agricultural Liens under RAN
Wyo. Stat. Ann. § 34.1-9-322 (g) (2005) states: “A perfected agricultural lien on collateral has priority over a conflicting security interest in or agricultural lien on the same collateral if the statute creating the agricultural lien so provides.” To apply, lienholders must first have a perfected lien. Second, they must show that the relevant statute “provides” their lien to be prior to “conflicting security interest[s]… or agricultural lien[s]…”

While RAN defines “perfection” (see above), it gives no insight to the meaning of “provides.” Only Wyoming’s artisan and feeding lien statutes refer to security interests (see table 1). No cases specifically interpret this provision; Montana’s Supreme Court in Stockman presumed the challenged liens “superpriority” without explanation.


Conclusion: A Gordian Knot?
There is no evidence that inclusion of agricultural liens in RAN has raised major issues for agricultural lienholders. Whether this is because lienholders have easily transitioned into RAN or simply failed to satisfy its requirements is unknown. What is clear is that this inclusion can trip the unwary.

Wyoming’s legislature can approach RAN’s knotty issues regarding agricultural liens in three ways. First, it can choose to do nothing. Second, like Alexander it may cut RAN’s ties between agricultural liens and security interests. Both Arkansas and Illinois have unlinked severed landlord liens from RAN’s coverage. Third, it can study RAN’s impacts and address the difficulties identified here. Otherwise Wyoming courts and attorneys will be required to unravel them strand by strand.

Dr. Alan Schroeder received his BS in Agricultural Economics from North Dakota State University in 1971, his Law degree from the University of Wisconsin-Madison in 1976, and his Ph.D. in Agricultural Economics from the University of Wisconsin-Madison in 1982. He taught at both the University of Wisconsin-Madison and Northern State University in South Dakota before joining the Department of Agricultural & Applied Economics and Cooperative Extension at the University of Wyoming in 1986. He currently teaches agricultural law, natural resources law and policy, and negotiations to undergraduates in the College of Agriculture at the University of Wyoming. He has also taught the agricultural law course at the College of Law at the University of Wyoming. He is the Agricultural & Natural Resources Law Specialist for Wyoming Cooperative Extension.

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