Summary of a Recent
Judicial
Development in
Secured Transactions
Cut and Baled Hay Is "Farm Product," Not a "Growing Crop"
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In Farmland Service Cooperative v. Southern Hills Ranch, Inc., 665 N.W.2d 641 (Neb. 2003), the Supreme Court of Nebraska held that once hay and alfalfa were cut and baled, they became farm products rather than growing crops, and therefore a creditor's security agreement was not required to include a description of the property where the crops were located in order to become perfected.
Background
Farmland Service Cooperative (Farmland) brought this action against Southern Hills Ranch (Southern Hills) for conversion of 1,800 bales of alfalfa and prairie hay in which Farmland claimed a perfected security interest. Id. at 642. Southern Hills claimed a security interest in the crops pursuant to its lease agreement, while Farmland asserted that it had a perfected security interest in the debtor's farm products, including the hay. Id. at 642-43. The district court granted summary judgment in favor of Farmland, finding that after the hay was cut and baled, it had become a farm product in which Farmland had a perfected security interest, and Southern Hills appealed. Id. at 643.
Arguments
Southern Hills argued that the hay was a growing crop to which its security interest attached, and alternatively it argued that if the hay was a farm product, Farmland's security interest was not perfected because it had not included a property description in its security agreement. Id. at 644.
Analysis and Holdings
The court affirmed and held that "[w]hen the crop was harvested and baled, it became a farm product," so Farmland's security agreement was not required to have a description of the property on which the crops had been grown to be perfected. Id. at 648. The court added that because Southern Hills' lien was "a landlord's lien based on contract," it had to comply with U.C.C. filing requirements in order to perfect its security interest, but it had not done so. Id. Therefore, the court affirmed summary judgment for Farmland. Id.
The case was decided on July 18, 2003.