Summary of a Recent
Judicial Development in
Secured Transactions

Superpriority Status of Agricultural Liens

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Stockman Bank of Montana v. Mon-Kota, Inc., 180 P.3d 1125 (Mont. 2008), the Montana Supreme Court held that an agricultural lienholder must comply with UCC financing statement filing requirements to perfect its interest, but once perfected the agricultural lien has superpriority status over all other competing security interests.

Background

Hardy Farm obtained operating loans from Stockman Bank, using its crops and crop proceeds as collateral. Id. at 1129. AGSCO was an agricultural chemical retailer, and its corporate affiliate, Capital Harvest, provided financing for purchase of chemicals. Id. AGSCO sold Hardy Farm roughly $500,000 in agricultural chemicals and services using a line of credit approved by Capital Harvest, and Capital Harvest filed an agricultural lien on the chemicals. Id. After Hardy Farms sold its crops for that year, Stockman Bank brought an action to determine the parties' rights to the proceeds. Id. at 1130. The trial court held that Capital Harvest's agricultural lien was valid and had "superpriority," and Stockman Bank appealed. Id.

Arguments

Stockman Bank argued that Capital Harvest's agricultural lien was not valid because it failed to comply with the "advanced notice of intent to file" requirement of MCA § 71-3-902. Id. at 1131. The Bank also argued that Capital Harvest was required to file a UCC financing statement to perfect its agricultural lien, which it failed to do. Id. at 1132.

Capital Harvest argued that the advanced notice requirement had been expressly repealed, as it conflicted with the legislative history of the statute. Id. at 1131.

Analysis and Holdings

The court examined the legislative history of MCA § 71-3-902 and concluded that Capital Harvest's action of filing the lien and mailing notice on the same day did not constitute a violation of the statute. Id. at 1132. The court explained that the legislature had deleted the "advanced notice" requirement of the statute in favor of notice without a specific time requirement, so the court refused to create one itself. Id. Regarding the Bank's second argument that a UCC filing was required to perfect Capital Harvest's agricultural lien, the court acknowledged that agricultural liens were granted a "superpriority status" by Montana statutes, and UCC Revised Article 9 allows an agricultural lien to be granted priority by local law over a competing Article 9 security interest. Id. at 1134-35. However, the UCC provision recognizes the priority only of a "perfected agricultural lien," meaning one that complies with MCA § 30-9A-308(2) lien requirements. Id. at 1135. The court held that in order to have a "superpriority" agricultural lien, the creditor must file the appropriate UCC financing statements in the proper venue like all other liens, but in doing so the creditor is insulated from the "first in time" requirement of other perfected security interests. Id. at 1136-37. The court found that Capital Harvest had satisfied the filing requirements and properly perfected its agricultural lien, and affirmed the holding of the trial court. Id. at 1137.

The case was decided on March 4, 2008.