Summary of a Recent
Judicial
Development in
Secured Transactions
Substantial Compliance with Agricultural Supplier's Lien Requirements
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In Stockman Bank of Montana v. AGSCO, Inc., 727 N.W.2d 742 (N.D. 2007), the North Dakota Supreme Court held that a creditor had substantially complied with prefiling notice requirements and thus had a valid agricultural supplier's lien.
Background
Hardy Farm obtained operating loans from Stockman Bank, using its crops and crop proceeds as collateral. Id. at 744. Betaseed was an agricultural seed retailer that sold seeds on credit to Hardy Farm and filed an agricultural lien against the crop proceeds. Id. After Hardy Farms sold its crops for that year, Stockman Bank brought an action to determine the parties' rights to the proceeds. Id. The trial court held that Betaseed's claimed agricultural supplier's lien was invalid because it had not strictly complied with the filing and notice requirements of North Dakota law, and Betaseed appealed. Id.
Arguments
Stockman Bank claimed that it had a superior interest in the crop proceeds because Betaseed did not have a perfected security interest in the crop proceeds and had not otherwise filed a valid agricultural supplier's lien under N.D.C.C. § 35-31-02. Id.
Betaseed argued that it had complied with the requirements of N.D.C.C. § 35-31-02 for a valid agricultural supplier's lien. Id.
Analysis and Holdings
The issue before the court was whether Betaseed substantially complied with the requirements for an agricultural supplier's lien, specifically the "prefiling notice" requirement. Id. at 747. The court held that "there has been substantial compliance with the prefiling notice requirement when, although there may not be notice in a billing statement, the producer has actual knowledge that a lien for the applicable crop year may be filed," which applied in this case. Id. at 749. The court stated that "[a]lthough Stockman Bank suggests there may be a factual dispute about when Hardy Farm was aware that a lien may be filed, Stockman Bank's references to the record do not raise a disputed issue of fact about Hardy Farm's knowledge," and the court concluded that "as a matter of law, Hardy Farm had actual knowledge that a lien may be filed if it did not pay Betaseed for the seed used for the 2002 crop." Id. The court therefore reversed the lower court's ruling and concluded that Betaseed had a valid agricultural supplier's lien. Id.
The case was decided on February 28, 2007.