Feed supplier liens have priority over bank liens

John Lande Iowa Banking Law Dickinson Law Des Moines Iowa, Iowa bankruptcy law

Posted on 06/01/2016 at 12:00 AM by John Lande

Last Friday the Iowa Supreme Court brought greater clarity to lien law for credit extended to farmers.

The dispute in Oyens Feed & Supply Co. v. Primebank began after a farmer who operated a farrow-to-finish hog facility declared bankruptcy. The farmer’s primary lender asserted priority liens over all of the farmer’s assets, including his livestock. The farmer’s feed supplier asserted that it had a priority lien up to the value of the feed that the farmer purchased to maintain his livestock.

These parties have already been to the Iowa Supreme Court. The parties’ first trip to the Iowa Supreme Court, covered by this blog in 2012, resolved whether the feed supplier’s lien was superior to the bank’s lien. The Iowa Supreme Court concluded that the feed supplier lien had priority to the extent of the value added to the livestock by the feed supplier’s feed. After issuing its decision the Iowa Supreme Court sent the case back to bankruptcy so the parties could apportion the farmer’s remaining cash between the bank and feed supplier.

The parties, however, were unable to agree how to divide approximately $340,000. The bank asserted that the feed supplier had failed to perfect its lien. The bank claimed that in order for a feed supplier to obtain a priority lien, Iowa Code § 570A.4(2) requires feed suppliers to file a financing statement within 31 days after the farmer purchased feed. The feed supplier had only filed two financing statements. The feed supplier asserted that these two financing statements were sufficient to cover the entire value of the feed sold to the farmer over the course of at least a year.

The Iowa Supreme Court disagreed, ruling that under Iowa law a feed supplier lien only has priority over a bank’s lien for feed sold within 31 days of each financing statement that the feed supplier files. As a result, since the feed supplier only filed two financing statements the feed supplier only had priority over the bank for feed sold to the farmer in the 31 days preceding the filing of each of the financing statements.

The second issue the Iowa Supreme Court decided dealt with the amount of the feed supplier’s lien. Iowa law only gives the feed supplier a lien to the extent of value added by the feed. However, in this case the farmer’s farrow-to-finish operation meant that hogs were born on the farm and raised until they could be sold.

The bank argued that the feed supplier’s lien should not cover the entire value of the hogs. According to the bank there are certain fixed costs that are involved in the “acquisition” of each new hog. For example, the farm had to have buildings for the hogs to live in, so the cost of the buildings, per hog, should be deducted from the value of the feed supplier’s lien.

The Iowa Supreme Court rejected the bank’s argument. The Iowa Supreme Court ruled that in a farrow-to-finish operation the feed supplier lien can be up to the entire value of the hog.

The Iowa Supreme Court’s decision means that in a farrow-to-finish operation feed suppliers have the ability to obtain a lien for the entire value of the livestock on the farm if the feed supplier timely files financing statements. This means that banks that lend money to livestock operations need to ask questions about the nature of the operation and regularly check to see if there are any outstanding feed supplier liens.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

 

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