Summary of a Recent
Judicial Development in
Bankruptcy

Mortgages Do Not Create Security Interest
in Growing Crops

Joshua T. Crain
National AgLaw Center Graduate Assistant

Summary of Decision

In In re Ellis, 310 B.R. 762 (Bankr. W.D. Okla. 2004), the United States Bankruptcy Court for the Western District of Oklahoma held that a bank could not except a debt from discharge under 11 U.S.C. § 523(a)(6) because the bank did not adequately describe the land on which debtors' crops were growing.

Background

Debtors Don and Janice Ellis had several loans with Southwest State (Bank). See id. The bank filed exceptions to the debtors' discharge from bankruptcy and the debtors filed motions for summary judgment. See id. The parties agreed that the applicable law was repealed Article 9 of the Oklahoma Uniform Commercial Code, rather than revised Article 9. See id. The bank claimed an exception to the debtors' discharge from bankruptcy on the grounds that the debtors willfully and maliciously injured the bank and/or the bank's collateral (the crops) as set forth in Bankruptcy Code § 523(a)(6). See id.

Arguments

The debtors argued that the bank did not have a security interest in their crops and crop proceeds because the bank did not provide an adequate description of the land in the security agreement. See id. The bank argued that even though there was no description of the land in the security agreement, the bank held three mortgages executed by the debtors that did contain descriptions of the land and that the mortgages extended to appurtenances to the land. See id. The bank argued that the crops were appurtenances to the land. See id.

Analysis and Holdings

The court explained that the absence of a description of the land in the security agreements was fatal to the bank's claimed security interest in the debtors' crops and crop proceeds. See id. The court explained that it is the Uniform Commercial Code, not real estate law, that governs the creation of security interests in crops. See id. The court further explained that not only was the Uniform Commercial Code the applicable law, but Article 9 was the exclusive applicable law. See id. The court explained that § 9-203(1)(a) of Article 9 required a description of the land. See id. It therefore held that because the provisions of the applicable law were not satisfied - namely an adequate description of the land - the bank did not have a security interest in the debtors' crops and crop proceeds. See id.

The case was decided on January 8, 2004; this summary was posted Mar. 24, 2005.