Iowa bankers beware: Iowa Supreme Court rules feed supplier's lien has priority status

John Lande Iowa Banking Law Iowa Commercial Litigation Dickinson Law Firm Des Moines, Iowa

Posted on 01/06/2012 at 10:17 AM by John Lande

In Oyens Feed & Supply Co. v. Primebank, the Iowa Supreme Court dealt a blow to financial institutions' ability to secure first priority for livestock under Article 9. The case arose as a result of the competing security interests of the financial institution Primebank and the feed supplier Oyens Feed. Primebank had extended credit to a farm, securing that credit with an interest in the farm’s livestock. Oyens Feed extended credit for the farm to purchase feed for the farm’s livestock. Pursuant to Iowa Code § 570A.3, Oyens Feed’s credit was secured by the livestock that consumed the feed—the same livestock securing Primebank’s credit extension. The Iowa Supreme Court began its analysis by looking at the history of security interests in livestock. It noted that Chapter 570A was enacted during the depths of the farm crisis of the 1980s. The goal of that section was to ensure that farmers, even in difficult times, could always secure funds to purchase necessary farm inputs. Pursuant to § 570A.2, a farm dealer could then ensure it had a first priority security interest in the livestock by filing a certified request with any other lien holders. The legislature then amended Chapter 570A in 2003 for the purpose of maintaining the priority status of agricultural liens over other security interests and liens. In other words, Oyens Feed’s security interest in the livestock would continue to trump Primebank’s interest in livestock to the extent that the livestock’s value was enhanced by Oyens Feed’s feed. The dispute in this case arose over whether Oyens Feed’s security interest still took precedence over Primebank’s when Oyens Feed failed to file a certified request pursuant to § 570A.2. After analysis of the legislative history of Chapter 570A, the Court concluded that the overriding purpose of that chapter is to ensure that farmers are able to weather difficult times by guaranteeing access to credit for livestock feed. The Court explained that there is a specific rule—imposed by § 570A.5(3)—that livestock feed suppliers be granted special priority. Thus, a feed supplier’s lien will have first priority over all other liens, even prior perfected lien. The decision has limitations that are worth noting. First, the Court made it clear that this special priority status only applies to feed supplied for livestock consumption, not crop inputs. Second, the Court did not address what actions a supplier must take in order to perfect its lien. Nevertheless, financial institutions should pay close attention to a farmer’s operation where that farmer secures credit with livestock. An institution’s perfected security interest will have priority only up to the acquisition price of the livestock. A feed supplier will have priority over any value added as a result of the livestock’s feed consumption. If an institution wants to maintain its priority, it should consider extending credit on behalf of a farmer for the purchase of the feed. This ensures that a feed supplier will not gain a superior interest in the value added to the livestock.

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