Summary of a Recent
Judicial Development in
Secured Transactions

Agricultural Lienholders Must File a Financing Statement to Perfect the Lien

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Dean v. Hall, No. 3:02CV728, 2003 WL 21650145 (E.D. Va. Feb. 25, 2003), the United States District Court for the Eastern District of Virginia held that a creditor who filed a financing statement perfecting its security interest in the crops of a tenant farmer had priority over a landlord's unperfected agricultural lien.

Background

Plaintiff leased two parcels of land to the Halls pursuant to an oral agreement for $6,000 per year for two years beginning in 2001. Id. at *1. The Halls borrowed money from Colonial Farm Credit (CFC) and the Farm Service Agency (FSA) to finance their farming operation. Id. They farmed the leased land for two years but failed to make the $12,000 rent payment. Id. During the second year, CFC filed a financing statement listing all crops grown by the Halls as collateral. Id. Plaintiff subsequently filed a distress warrant seeking the seizure and sale of all crops in satisfaction of the delinquent rent, and named the Halls, and CFC and the FSA in their capacity as creditors, as defendants. Id. The FSA had the case removed to the District Court as it involved foreclosure on property in which the government had a lien. Id. The Halls failed to respond and had a default judgment rendered against them, and Plaintiff, CFC, and the FSA each filed motions for summary judgment on the issue of creditor priorities to determine who was entitled to the proceeds of the sale of the crops. Id.

Arguments

Plaintiff argued that by virtue of her lease with the tenants, she possessed a lien over any crops grown on her land pursuant to Virginia Code § 55-231, which does not require the filing of any documents to perfect the lien because the landlord's statutory lien is created and becomes enforceable from the inception of the tenancy. Id. at *2.

The FSA and CFC argued that Virginia's version of Revised Article 9 of the Uniform Commercial Code was the controlling law, and so the type of lien established by Plaintiff's status as a landlord was essentially an agricultural lien that had not been perfected, therefore CFC's perfected security interest trumped a landlord's lien. Id.

Analysis and Holdings

The issue for determination was whether Plaintiff's lien was a landlord's lien or an agricultural lien to which UCC Article 9 would apply. Id. Under the Virginia statute, an "agricultural lien" is defined as, among other things, an interest in farm products which secures payment of rent on real property leased in connection with a farming operation, so the court agreed with the FSA and CFC that Plaintiff held a valid agricultural lien and was governed by Virginia's version of UCC Article 9. Id. Under Virginia's Revised Article 9, an agricultural lienholder must file a UCC financing statement to perfect the lien, which Plaintiff failed to do. Id. Therefore the court held that CFC was the superior creditor. Id. at *4.

The case was decided on February 25, 2003.