AAI asked our corporate Attorney Steve Schoenebaum to review Iowa’s lien law for the benefit of all members to be aware of in the normal course of their business. AAI does not give legal advice and as stated below, encourages members to contact an attorney for advice and assistance.
IT SHOULD BE NOTED THAT THE FOLLOWING IS ONLY A BRIEF SUMMATION OF THE UNIFORM COMMERCIAL CODE SECURITY INTEREST ATTACHMENT AND PERFECTION PROCEDURE AND THE AGRICULTURAL SUPPLY LIEN STATUTE. THE FOLLOWING IS NOT A SUBSTITUTE FOR INDIVIDUAL LEGAL ADVICE WITH RESPECT TO ANY GIVEN SECURITY INTEREST, LIEN, OR TRANSACTION. A PERSON WISHING TO TAKE ADVANTAGE OF THESE STATUTES SHOULD CONSULT AN ATTORNEY, EXPERIENCED IN THIS AREA, FOR ADVICE AND ASSISTANCE.
The following summarizes the means by which an Iowa agricultural supply dealer (“dealer”) can obtain and perfect a security interest in crops or livestock of an agricultural producer customer (“farmer”).
UCC Security Interest. The most common method for any supplier to protect its interest in collateral is to obtain and perfect a security interest under the Uniform Commercial Code (UCC). In order for a dealer to obtain an enforceable security interest in collateral, such as a farmer’s livestock or crops, the security interest must first attach to the collateral. A security interest attaches when the dealer satisfies three specific requirements:
(1) value must be given;
(2) the debtor must have rights in the collateral or the right to convey the collateral to a secured party; and
(3) the dealer must obtain a security agreement that contains a description of the collateral and is signed by the farmer.
In general, the first two requirements will be satisfied where a dealer conveys supplies to a farmer with respect to livestock or crops in which the farmer has rights. The third requirement, a security agreement, is essentially a contract between the dealer and the farmer. The security agreement must contain:
(1)a sufficient description of the collateral. With respect to crops, the description of the collateral must include a description of the real estate where the crops are produced or located. A description such as “all crops for the 2008 season” would not be sufficient in a security agreement unless it also describes the location of the real estate on which the crops are to be grown. With respect to livestock, the security agreement does not have to describe the physical location of the livestock.
(2)The dealer must perfect its security interest by filing a financing statement covering the collateral with the Iowa Secretary of State. The filing of the financing statement with the Secretary of State puts other potential creditors on notice of the dealer’s security interest in the collateral. The financing statement must include the debtor’s name, the name and mailing address, of the secured creditor (the dealer), an indication of the collateral covered, and whether the debtor is an individual or an organization. The indication of collateral in the financing statement does not have to be as detailed as the description of collateral in the security agreement. If the debtor is an organization, the financing statement must also state the type of organization (i.e. corporation, LLC, LLP), the state in which the debtor is organized, and the debtor’s organizational identification number.
A dealer who properly perfects a security interest in a farmer’s crops or livestock will have priority over any subsequent security interests in those crops or livestock. However, if another creditor, such as the farmer’s financial institution, already has a perfected security interest in the crops or livestock, that creditor’s security interest will be superior to that of the dealer. Therefore, a dealer should also consider obtaining an agricultural supply lien, in addition to the UCC security interest lien, to possibly obtain an equal position to that of the farmer’s financial institution.
Agricultural Supply Lien. If a dealer sells supplies to a farmer and the farmer’s financial institution has a pre-existing interest in the farmer’s crops or livestock, the dealer’s security interest will generally have lower priority than the security interest of the financial institution. Chapter 570A of the Iowa Code provides a mechanism that allows a dealer to obtain an agricultural supply lien covering a farmer’s crops or livestock. If the dealer follows the procedures of Chapter 570A, the agricultural supply lien may have equal priority to the financial institution’s interest.
The agricultural supply lien is available to a dealer for the retail cost of furnishing agricultural chemicals, fertilizer, seed, feed, and petroleum products used for an agricultural purpose. With respect to supplies used in the production of crops, the lien applies to all crops produced on the land to which the farmer applied the agricultural supplies. With respect to livestock, the lien applies to all livestock which consumed the feed.
The steps with respect to this agricultural supply lien are:
(1) The dealer must: submit a certified request to the farmer’s financial institution. The certified request must state the amount of the purchase price and the terms of the sale. It must also include a confidentiality waiver signed by the farmer and a $15 fee. The dealer must submit the certified request by certified mail, by registered certified mail, or by personally delivering it to the financial institution.
(2) Once the financial institution receives a certified request from a dealer, the financial institution must provide a memorandum to the dealer within four business days. The memorandum must state whether the farmer has sufficient net worth or a sufficient line of credit to assure payment of the purchase price to the dealer. If the financial institution states in the memorandum that the farmer has a sufficient net worth or line of credit to assure payment of the purchase price, the memorandum will constitute an irrevocable and unconditional letter of credit for the benefit of the dealer for a period of 30 days from the date on which the final payment is due. If the financial institution does not state in the memorandum that the farmer has sufficient net worth or a sufficient line of credit, the financial institution must provide the dealer with all relevant financial history that the financial institution holds about the farmer. Both the financial institution and the dealer must maintain the confidentiality of that information.
(3) Once the dealer receives the memorandum from a farmer’s financial institution and completes the sale of agricultural supplies to the farmer, the dealer must file a financing statement with the Iowa Secretary of State within 31 days after the date of purchase.
Unless the financial institution did not receive the certified request, including the farmer’s waiver, and/or the financial institution did not provide to the dealer the farmer’s complete and relevant financial history held by the financial institution, the dealer may have a lien of equal priority to that held by the financial institution.
If, however, the dealer provides the financial institution with a certified request and the financial institution responds that the farmer lacks sufficient net worth or a sufficient line of credit and provides a copy of the farmer’s financial history, then the financial institution’s interest will be superior to the dealer’s agricultural supply lien, if the dealer actually extends credit to the farmer even though the financial institution has responded that the farmer lacks sufficient net worth or a sufficient line of credit. In addition, if the financial institution fails to receive the certified request or a confidentiality waiver signed by the farmer, the bank’s interest will be superior to the dealer’s lien.
There are several limitations on the agricultural supply lien that must be noted. For example, the lien does not have priority over a conflicting and properly perfected landlord’s lien or harvester’s lien. A lien in livestock feed has priority over an earlier-perfected lien, but only to the extent of the difference between the acquisition price of the livestock and the greater of the fair market value of the livestock at the time the lien attaches or the sale price of the livestock
One of the most practical benefits of this lien may be that the financial institution may decide to cooperate in getting the dealer paid for its products and services, if the financial institution believes that the dealer will utilize this statute if such cooperation is not given. Such intention can be communicated orally and/or by submitting the certified request to the financial institution.
It is possible to combine in one form all of the required information and other provisions for both of the above liens so that the agricultural dealer will only need the farmer to sign once.
IT SHOULD BE NOTED THAT THE FOREGOING IS ONLY A BRIEF SUMMATION OF THE UNIFORM COMMERCIAL CODE SECURITY INTEREST ATTACHMENT AND PERFECTION PROCEDURE AND THE AGRICULTURAL SUPPLY LIEN STATUTE. THE FOREGOING IS NOT A SUBSTITUTE FOR INDIVIDUAL LEGAL ADVICE WITH RESPECT TO ANY GIVEN SECURITY INTEREST, LIEN, OR TRANSACTION. A PERSON WISHING TO TAKE ADVANTAGE OF THESE STATUTES SHOULD CONSULT AN ATTORNEY, EXPERIENCED IN THIS AREA, FOR ADVICE AND ASSISTANCE.