Summary of a Recent
Judicial
Development in
Secured Transactions
Perfection and Priority of Security Interests in Farm Products
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In In re Damrow Cattle Co., Inc., 300 B.R. 479 (Bankr. D. Neb. 2003), the United States Bankruptcy Court for the District of Nebraska held that a creditor's interest in certain farm products owned by the debtor was not perfected or sufficient to defeat another creditor's perfected lien.
Background
Skane Inc. brought this adversary proceeding to determine the validity and priority of its claim. Skane claimed to be the owner of certain cattle and several tons of corn delivered to the Debtor's feedlot. Id. at 481. The shareholders of Skane, the Ericksons, sold the corn to Skane and delivered the corn on behalf of Skane to the feedlot, and their lender United Nebraska Bank (UNB) also claimed a lien on the corn. Id. The Debtor's lender, First National Bank of Omaha (FNBO) also claimed a security interest in all of the cattle and corn in possession of the Debtor. Id.
Analysis and Holdings
Concerning the cattle, the court found that, pursuant to a promissory note executed by the Debtor in favor of FNBO, FNBO had a valid security interest in "all farm products" of the Debtor, including livestock and feed. Id. at 482. Furthermore, FNBO had filed financing statements to perfect its interest with respect to the cattle. Id. The court also found that Skane had not registered with Nebraska's central filing system for security interests in farm products pursuant to Neb. Rev. Stat. § 52-1301. Id. at 483.
Regarding the corn, the court found that Erickson did not require that Skane's corn be kept separate from other producers' corn, and that FNBO had filed a valid financing statement covering the Debtor's corn. Id. at 485. The court concluded that there was no evidence that FNBO had released its lien, nor had it waived its security interest by either implication or estoppel. Id. at 487. Moreover, the court noted that Skane did nothing to protect itself from the application of the Nebraska effective financing statement requirements, nor did it do anything to protect itself from the perfected security interest held by FNBO. Id. at 488. Therefore the court held that FNBO's interest in the farm products was superior to the interest of either Skane or United Nebraska Bank, and granted judgment for FNBO. Id. at 489.
The case was decided on October 7, 2003.