Secured Transactions Assignment 37

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Secured TransactionsAssignment 37

Statutory Liens Agricultural Liens and Oil and Gas interests Against

Secured Creditors

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Debtor

Tax lien

PMSI

Securedparty

Seller

BuyerStatutory

lien

Judgmentlien

BankruptcytrusteeExecution

lien

Personal Property Competitors

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Debtor

Tax lien

Purchasemoney

mortgage

Mortgage

Seller

BFP forvalue

Mechanic’slien

Judgmentlien

BankruptcytrusteeFixture

filings

Real Estate Competitors

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CollateralObligation Lien

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Security interests Statutory liens Judicial liens

Article 9 SI Agricultural Judgment

Mortgages Mechanic’s Execution

Other SI Tax Attachment

Landlord’s Garnishment

Charging Equitable

Retaining

Hospital

Warehouse

CollateralObligation Lien

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Statutory Lien Issues

1. Does a lien exist? Read the statute.

2. How must the lienor perfect?

Read the statute

Does §9-310(a) require a financing statement (Ag lien?)

3. What is the lien’s priority?

Read the statute

Default rule for non-possessory lien: first in time

Default rule for possessory lien: ranks first, §9-333(b)

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Possessory Statutory Liens§9-333 (b) A possessory lien on goods has priority over a

security interest . . . unless . . created by a statute that expressly provides otherwise

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Possessory Statutory Liens§9-333 (b) A possessory lien on goods has priority over a

security interest . . . unless . . created by a statute that expressly provides otherwise

(a) “[P]ossessory lien” means an interest, other than a security interest or an agricultural lien:

(1) which secures payment . . . for services or materials furnished with respect to goods by a person in the ordinary course of the person’s business;

(2) which is created by statute or rule of law in favor of the person;

(3) whose effectiveness depends on . . . possession of the goods

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Filing requirements for statutory liensSome lien statutes impose filing requirements (most do not)

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Maine garage keeper’s lien

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Mechanic’s liens

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Mechanic’s liens,

§9-310 imposes a filing requirement for “agricultural liens” (new in 2001).

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Agricultural LiensHypo: Owner rents farmland to tenant who grows corn. Does

landlord have a lien under Oregon statute, p. 609?

Probably yes. §9-102(a)(44). Corn is “chattels”

Is this landlord’s lien an agricultural lien?

§9-102(a)(5). Agricultural lien means an interest in farm products . . .

(A) which secures payment . . . for . . . rent . . . on real property leased to a debtor in connection with its farming operation

(B) which is created by statute in favor of a person that . . . leased real property to a debtor in connection with the debtor’s farming operation; and

(C) whose effectiveness does not depend on . . .possession

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Agricultural LiensHypo: Owner rents farmland to tenant who grows corn. Does

landlord have a lien under Oregon statute, p. 609?

Probably yes. §9-102(a)(44). Corn is “chattels”

Is this landlord’s lien an agricultural lien? Yes, landlord must file

§9-102(a)(5). Agricultural lien means an interest in farm products . . .

(A) which secures payment . . . for . . . rent . . . on real property leased to a debtor in connection with its farming operation

(B) which is created by statute in favor of a person that . . . leased real property to a debtor in connection with the debtor’s farming operation; and

(C) whose effectiveness does not depend on . . .possession

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Agricultural LiensGeneral Choice of Law Rules 9-301 – Location of the debtor not

collateral.

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Agricultural LiensGeneral Choice of Law Rules 9-301 – Location of the debtor not

collateral.

Agricultural Liens – Location of the collateral.

“While farm products are located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of an agricultural lien on the farm products.” 9-302

This means filings against the same collateral could be in two different states, one for the agricultural lien one for the security interest.

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Agricultural Liens

Bank LenderWith blanket lien

FarmerLocated in Texas

All Assets

Loan

Farm and Crops located in Oklahoma

Landlord Located in Texas

Agricultural Lien

Buyer of Crops located in Kansas

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Agricultural Liens

Bank LenderWith blanket lien

FarmerLocated in Texas

All Assets

Loan

and Crops located in OklahomaArticle 9 Security Interests governed by Texas law but agricultural liens by Oklahoma law. Note different states have different variations of BIOCOB rules and Proceeds for farm products.

Landlord Located in Texas

Agricultural Lien

Buyer of Crops located in Kansas

Food Security ActBIOCOB, a commission merchant, and a selling agent take farm products free of a security interest created by the seller, unless:

(i) SP or the seller gives a complying notice of the security interest within one year prior to the sale; or

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Food Security Act(ii) SP has filed a financing statement in a central

filing system each state may create and either the buyer, merchant or agent has received a list of such filings, reflecting the secured party’s filing (such list to be distributed periodically to registered buyers, merchants and agents by the central filing agency), or the buyer, merchant or agent has failed to register with the central filing agency to receive such lists; or

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Food Security Act(iii) SP has filed a financing statement in the central

filing system and the buyer, merchant or agent (not being registered to receive the lists described above) has been notified thereof in writing by the central filing agency in response to a specific inquiry made by the buyer, merchant or agent.

Oklahoma adopted such a system in 9-307.1 through 9-307.8 and provides for filings in SOS of EFS which differ from Financing Statements and do not replace them.

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Perishable Agricultural Commodities Act

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Perishable Agricultural Commodities Act

DealersSara

Inventory LenderSecurityInterestSpeakers

PMSI

Problem 32.6

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Perishable Agricultural Commodities Act“The seller of these commodities retains a trust claim over

these commodities,

DealersSara


PMSI

Problem 32.6

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these commodities, all inventories of food or other products derived from these commodities,

DealersSara


PMSI

Problem 32.6

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these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities

DealersSara


PMSI

Problem 32.6

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these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.”

DealersSara


PMSI

Problem 32.6

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The “statutory trust” grants to sellers and suppliers a priority in payment over even secured lenders.

DealersSara


PMSI

Problem 32.6

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DealersFarmer

Inventory LenderSecurityInterest

Fruits &vegetables

PACA: Farmer has priority over inventory lender

Debt

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DealersFarmer


Fruits &vegetables


Dealer 2

Inventory Lender 2

SecurityInterest

Fruits &vegetables

CashDebt

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DealersFarmer


Fruits &vegetables


Dealer 2

Inventory Lender 2

SecurityInterest

Fruits &vegetables

CashDebt

Does Farmer have priority over Inventory Lender 2?

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DealersFarmer


Fruits &vegetables


Dealer 2

Inventory Lender 2

SecurityInterest

Fruits &vegetables

CashDebt

Does Farmer have priority over Inventory Lender 2?

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DealersFarmer

Inventory LenderSecurityInterestCattle

Same result under the Packers and Stockyards Act (PSA)

Debt

Other Agricultural Finance Issues

• Are Crops proceeds of seeds?

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• Are Crops proceeds of seeds? Some say yes some say no.

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• Agricultural lien statutes vary in the treatment of proceeds, some include proceeds of the farm products some do not.

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• Agricultural lien statutes vary in the treatment of proceeds, some include proceeds of the farm products some do not.

• Statutes also vary the treatment of BIOCOBS allowing them to take free of Agricultural liens or not.

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Problem 37.1.b, page 621

NormanFarms

TomatoesAmericanProduce

Bad check

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NormanFarms


StarMarkets

Bad check

Tomatoes

Cash

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NormanFarms


StarMarkets

Retailcustomers

Bad check

Tomatoes Tomatoes

CashCash

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NormanFarms


StarMarkets

Haunt’sCannery

Retailcustomers

Bad check

Tomatoes

Tomatoes

Tomatoes

CashCash

Cash

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NormanFarms


StarMarkets

Haunt’sCannery

Retailcustomers

PublixBad check

Tomatoes

TomatoesTomatoes

Tomatoes

Account

CashCash

Cash

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Norman did not retain a security interest in the tomatoes

NormanFarms


StarMarkets

Haunt’sCannery

Retailcustomers

PublixBad check

Tomatoes

TomatoesTomatoes

Tomatoes

Account

CashCash

Cash

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PACA: “The seller . . . retains a trust claim over these commod-ities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.”

NormanFarms


StarMarkets

Haunt’sCannery

Retailcustomers

PublixBad check

Tomatoes

TomatoesTomatoes

Tomatoes

Account

CashCash

Cash

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The trust reaches sales to “dealers” (“any person engaged in the business of buying or selling in wholesale quantities . . .“)

NormanFarms


StarMarkets

Haunt’sCannery

Retailcustomers

PublixBad check

Tomatoes

TomatoesTomatoes

Tomatoes

Account

CashCash

Cash

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Against what sources can Norman proceed?

NormanFarms


StarMarkets

Haunt’sCannery

Retailcustomers

PublixBad check

Tomatoes

TomatoesTomatoes

Tomatoes

Account

CashCash

Cash

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Against what sources can Norman proceed? What is Norman’s priority against Haunt’s accounts lender?

NormanFarms


StarMarkets

Haunt’sCannery

Retailcustomers

PublixBad check

Tomatoes

TomatoesTomatoes

Tomatoes

Account

CashCash

Cash

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Against what sources can Norman proceed? What is Norman’s priority against Haunt’s accounts lender? Norman is prior.

NormanFarms


StarMarkets

Haunt’sCannery

Retailcustomers

PublixBad check

Tomatoes

TomatoesTomatoes

Tomatoes

Account

CashCash

Cash

Mineral Interests

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Before extraction Oklahoma treats mineral rights as a real property interest. Once oil and gas are extracted they are goods, personal property.

Mineral Interests

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Before extraction Oklahoma treats mineral rights as a real property interest. State law where property located governsOnce oil and gas are extracted they are goods, personal property. For article 9, state law where debtor located governs.

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Oil and Gas

Mineral Owner

OilFirst

Purchaser

SecondPurchaser

Account

Oil

Account

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Oil and Gas

MineralOwner

OilFirst

Purchaser

SecondPurchaser

SecuredLender

Account

Oil

All AssetsSI

AccountLoan

Real estate law governs mineral rights until extracted. But once oil becomes personal property unless mineral owner has an Article 9 security interest in the oil and its proceeds, other Article 9 SPs have priority.

How does mineral owner get a SI before extraction?

“As-extracted collateral” means:

(A) oil, gas, or other minerals that are subject to a security interest that:

(i) is created by a debtor having an interest in the minerals before extraction; and

(ii) attaches to the minerals as extracted; or

(B) accounts arising out of the sale at the wellhead or minehead of oil, gas, or other minerals in which the debtor had an interest before extraction.

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Where to file for as extracted collateral

(4) The local law of the jurisdiction in which the wellhead or minehead is located governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in as-extracted collateral. 9-301.

File in “(1) the office designated for the filing or recording of a record of a mortgage on the related real property” 9-501.

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OK Oil and Gas Owners Lien Act

• Adopted in response to SemGroup case

• Designed to protect mineral owners by giving them a non-UCC lien over proceeds of oil and gas sold to first purchasers.

• Claimed to be a real estate lien and not subject to UCC debtor location rules.

• Variety of exceptions.

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Documents

Secured Transactions Assignment 37