Summary of a Recent
Judicial
Development in
Finance & Credit
Estate, as the Major Beneficiary of Farm Credit Loan, is Responsible for Remaining Debt
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In Combs v. Stewart, 374 Ark. 409, 2008 Ark. LEXIS 523 (Ark. 2008), the Arkansas Supreme Court held that a decedent's estate was required to repay the remainder of a debt owed to Farm Credit Services (FCS) because it was the estate and not the joint-debtor spouse that had received the majority of the benefit from the loan.
Background
Spouses jointly obtained a FCS loan to operate, make improvements to and buy equipment for their poultry houses. Id. at *4. Pursuant to the couple's postnuptial agreement, the poultry farm became the sole property of the husband's estate upon his death. Id. In settling the probate of the husband's estate, the circuit court awarded the farm equipment that had been purchased using part of the FCS loan to the surviving spouse, but held that the estate was responsible for the remaining debt owed to the FCS because the farm had benefited from the loan, and the estate appealed. Id.
Arguments
The estate argued that the circuit court's decision that the estate be responsible for the remaining debt owed to the FCS was erroneous because it destroyed a joint debt and because certain property used as collateral on the debt had been awarded to the surviving spouse. Id. at *3.
The spouse argued that the circuit court's ruling was correct because the primary assets acquired with the FCS loan were currently owned by the estate and benefited the estate. Id.
Analysis and Holdings
The Arkansas Supreme Court affirmed the lower court's ruling that although a portion of the loan was used to purchase farm equipment which was awarded to the spouse, the loan was mainly used for the construction of the chicken houses, and because the estate would receive the major benefit of the loan, it was required to pay the remaining portion of the debt. Id. at *7-8.
The case was decided on October 9, 2008.