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1 Secured Transactions Assignment 37 Statutory Liens Agricultural Liens and Oil and Gas interests Against Secured Creditors.

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Presentation on theme: "1 Secured Transactions Assignment 37 Statutory Liens Agricultural Liens and Oil and Gas interests Against Secured Creditors."— Presentation transcript:

1 1 Secured Transactions Assignment 37 Statutory Liens Agricultural Liens and Oil and Gas interests Against Secured Creditors

2 2 Debtor Tax lien PMSI Secured party Seller Buyer Statutory lien Judgment lien Bankruptcy trustee Execution lien Personal Property Competitors

3 3 Debtor Tax lien Purchase money mortgage Mortgage Seller BFP for value Mechanic’s lien Judgment lien Bankruptcy trustee Fixture filings Real Estate Competitors

4 4 Collateral Obligation Lien

5 5 Security interests Statutory liens Judicial liens Article 9 SI Agricultural Judgment Mortgages Mechanic’s Execution Other SI Tax Attachment Landlord’s Garnishment Charging Equitable Retaining Hospital Warehouse Collateral Obligation Lien

6 6 Statutory Lien Issues 1.Does a lien exist? Read the statute. 2.How must the lienor perfect? Read the statute Does §9-310(a) require a financing statement (Ag lien?) 3.What is the lien’s priority? Read the statute Default rule for non-possessory lien: first in time Default rule for possessory lien: ranks first, §9-333(b)

7 7 Possessory Statutory Liens §9-333 (b) A possessory lien on goods has priority over a security interest... unless.. created by a statute that expressly provides otherwise

8 8 Possessory Statutory Liens §9-333 (b) A possessory lien on goods has priority over a security interest... unless.. created by a statute that expressly provides otherwise (a) “[P]ossessory lien” means an interest, other than a security interest or an agricultural lien: (1) which secures payment... for services or materials furnished with respect to goods by a person in the ordinary course of the person’s business; (2) which is created by statute or rule of law in favor of the person; (3) whose effectiveness depends on... possession of the goods

9 9 Filing requirements for statutory liens Some lien statutes impose filing requirements (most do not)

10 10 Filing requirements for statutory liens Some lien statutes impose filing requirements (most do not) Maine garage keeper’s lien

11 11 Filing requirements for statutory liens Some lien statutes impose filing requirements (most do not) Maine garage keeper’s lien Mechanic’s liens

12 12 Filing requirements for statutory liens Some lien statutes impose filing requirements (most do not) Maine garage keeper’s lien Mechanic’s liens, §9-310 imposes a filing requirement for “agricultural liens” (new in 2001).

13 13 Agricultural Liens Hypo: Owner rents farmland to tenant who grows corn. Does landlord have a lien under Oregon statute, p. 609? Probably yes. §9-102(a)(44). Corn is “chattels” Is this landlord’s lien an agricultural lien? §9-102(a)(5). Agricultural lien means an interest in farm products... (A) which secures payment... for... rent... on real property leased to a debtor in connection with its farming operation (B) which is created by statute in favor of a person that... leased real property to a debtor in connection with the debtor’s farming operation; and (C) whose effectiveness does not depend on...possession

14 14 Agricultural Liens Hypo: Owner rents farmland to tenant who grows corn. Does landlord have a lien under Oregon statute, p. 609? Probably yes. §9-102(a)(44). Corn is “chattels” Is this landlord’s lien an agricultural lien? Yes, landlord must file §9-102(a)(5). Agricultural lien means an interest in farm products... (A) which secures payment... for... rent... on real property leased to a debtor in connection with its farming operation (B) which is created by statute in favor of a person that... leased real property to a debtor in connection with the debtor’s farming operation; and (C) whose effectiveness does not depend on...possession

15 15 Agricultural Liens General Choice of Law Rules – Location of the debtor not collateral.

16 16 Agricultural Liens General Choice of Law Rules – Location of the debtor not collateral. Agricultural Liens – Location of the collateral. “While farm products are located in a jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or nonperfection, and the priority of an agricultural lien on the farm products.” This means filings against the same collateral could be in two different states, one for the agricultural lien one for the security interest.

17 17 Agricultural Liens Bank Lender With blanket lien Farmer Located in Texas All Assets Loan Farm and Crops located in Oklahoma Landlord Located in Texas Agricultural Lien Buyer of Crops located in Kansas

18 18 Agricultural Liens Bank Lender With blanket lien Farmer Located in Texas All Assets Loan and Crops located in Oklahoma Article 9 Security Interests governed by Texas law but agricultural liens by Oklahoma law. Note different states have different variations of BIOCOB rules and Proceeds for farm products. Landlord Located in Texas Agricultural Lien Buyer of Crops located in Kansas

19 Food Security Act BIOCOB, a commission merchant, and a selling agent take farm products free of a security interest created by the seller, unless: (i) SP or the seller gives a complying notice of the security interest within one year prior to the sale; or 19

20 Food Security Act (ii) SP has filed a financing statement in a central filing system each state may create and either the buyer, merchant or agent has received a list of such filings, reflecting the secured party’s filing (such list to be distributed periodically to registered buyers, merchants and agents by the central filing agency), or the buyer, merchant or agent has failed to register with the central filing agency to receive such lists; or 20

21 Food Security Act (iii) SP has filed a financing statement in the central filing system and the buyer, merchant or agent (not being registered to receive the lists described above) has been notified thereof in writing by the central filing agency in response to a specific inquiry made by the buyer, merchant or agent. Oklahoma adopted such a system in through and provides for filings in SOS of EFS which differ from Financing Statements and do not replace them. 21

22 22 Perishable Agricultural Commodities Act

23 23 Perishable Agricultural Commodities Act DealersSara Inventory Lender Security Interest Speakers PMSI Problem 32.6

24 24 Perishable Agricultural Commodities Act “The seller of these commodities retains a trust claim over these commodities, DealersSara Inventory Lender Security Interest Speakers PMSI Problem 32.6

25 25 Perishable Agricultural Commodities Act “The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, DealersSara Inventory Lender Security Interest Speakers PMSI Problem 32.6

26 26 Perishable Agricultural Commodities Act “The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities DealersSara Inventory Lender Security Interest Speakers PMSI Problem 32.6

27 27 Perishable Agricultural Commodities Act “The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” DealersSara Inventory Lender Security Interest Speakers PMSI Problem 32.6

28 28 Perishable Agricultural Commodities Act “The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” The “statutory trust” grants to sellers and suppliers a priority in payment over even secured lenders. DealersSara Inventory Lender Security Interest Speakers PMSI Problem 32.6

29 29 Perishable Agricultural Commodities Act “The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” The “statutory trust” grants to sellers and suppliers a priority in payment over even secured lenders. DealersFarmer Inventory Lender Security Interest Fruits & vegetables PACA: Farmer has priority over inventory lender Debt

30 30 Perishable Agricultural Commodities Act “The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” The “statutory trust” grants to sellers and suppliers a priority in payment over even secured lenders. DealersFarmer Inventory Lender Security Interest Fruits & vegetables PACA: Farmer has priority over inventory lender Dealer 2 Inventory Lender 2 Security Interest Fruits & vegetables CashDebt

31 31 Perishable Agricultural Commodities Act “The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” The “statutory trust” grants to sellers and suppliers a priority in payment over even secured lenders. DealersFarmer Inventory Lender Security Interest Fruits & vegetables PACA: Farmer has priority over inventory lender Dealer 2 Inventory Lender 2 Security Interest Fruits & vegetables CashDebt Does Farmer have priority over Inventory Lender 2?

32 32 Perishable Agricultural Commodities Act “The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” The “statutory trust” grants to sellers and suppliers a priority in payment over even secured lenders. DealersFarmer Inventory Lender Security Interest Fruits & vegetables PACA: Farmer has priority over inventory lender Dealer 2 Inventory Lender 2 Security Interest Fruits & vegetables CashDebt Does Farmer have priority over Inventory Lender 2?

33 33 Perishable Agricultural Commodities Act “The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” The “statutory trust” grants to sellers and suppliers a priority in payment over even secured lenders. DealersFarmer Inventory Lender Security Interest Cattle Same result under the Packers and Stockyards Act (PSA) Debt

34 Other Agricultural Finance Issues Are Crops proceeds of seeds? 34

35 Other Agricultural Finance Issues Are Crops proceeds of seeds? Some say yes some say no. 35

36 Other Agricultural Finance Issues Are Crops proceeds of seeds? Some say yes some say no. Agricultural lien statutes vary in the treatment of proceeds, some include proceeds of the farm products some do not. 36

37 Other Agricultural Finance Issues Are Crops proceeds of seeds? Some say yes some say no. Agricultural lien statutes vary in the treatment of proceeds, some include proceeds of the farm products some do not. Statutes also vary the treatment of BIOCOBS allowing them to take free of Agricultural liens or not. 37

38 38 Problem 37.1.b, page 621 Norman Farms Tomatoes American Produce Bad check

39 39 Problem 37.1.b, page 621 Norman Farms Tomatoes American Produce Star Markets Bad check Tomatoes Cash

40 40 Problem 37.1.b, page 621 Norman Farms Tomatoes American Produce Star Markets Retail customers Bad check Tomatoes Cash

41 41 Problem 37.1.b, page 621 Norman Farms Tomatoes American Produce Star Markets Haunt’s Cannery Retail customers Bad check Tomatoes Cash

42 42 Problem 37.1.b, page 621 Norman Farms Tomatoes American Produce Star Markets Haunt’s Cannery Retail customers Publix Bad check Tomatoes Account Cash

43 43 Problem 37.1.b, page 621 Norman did not retain a security interest in the tomatoes Norman Farms Tomatoes American Produce Star Markets Haunt’s Cannery Retail customers Publix Bad check Tomatoes Account Cash

44 44 Problem 37.1.b, page 621 Norman did not retain a security interest in the tomatoes PACA: “The seller... retains a trust claim over these commod- ities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” Norman Farms Tomatoes American Produce Star Markets Haunt’s Cannery Retail customers Publix Bad check Tomatoes Account Cash

45 45 Problem 37.1.b, page 621 Norman did not retain a security interest in the tomatoes PACA: “The seller... retains a trust claim over these commod- ities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” The trust reaches sales to “dealers” (“any person engaged in the business of buying or selling in wholesale quantities...“) Norman Farms Tomatoes American Produce Star Markets Haunt’s Cannery Retail customers Publix Bad check Tomatoes Account Cash

46 46 Problem 37.1.b, page 621 Norman did not retain a security interest in the tomatoes PACA: “The seller... retains a trust claim over these commod- ities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” The trust reaches sales to “dealers” (“any person engaged in the business of buying or selling in wholesale quantities...“) Against what sources can Norman proceed? Norman Farms Tomatoes American Produce Star Markets Haunt’s Cannery Retail customers Publix Bad check Tomatoes Account Cash

47 47 Problem 37.1.b, page 621 Norman did not retain a security interest in the tomatoes PACA: “The seller... retains a trust claim over these commod- ities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” The trust reaches sales to “dealers” (“any person engaged in the business of buying or selling in wholesale quantities...“) Against what sources can Norman proceed? What is Norman’s priority against Haunt’s accounts lender? Norman Farms Tomatoes American Produce Star Markets Haunt’s Cannery Retail customers Publix Bad check Tomatoes Account Cash

48 48 Problem 37.1.b, page 621 Norman did not retain a security interest in the tomatoes PACA: “The seller... retains a trust claim over these commod- ities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” The trust reaches sales to “dealers” (“any person engaged in the business of buying or selling in wholesale quantities...“) Against what sources can Norman proceed? What is Norman’s priority against Haunt’s accounts lender? Norman is prior. Norman Farms Tomatoes American Produce Star Markets Haunt’s Cannery Retail customers Publix Bad check Tomatoes Account Cash

49 Mineral Interests 49 Before extraction Oklahoma treats mineral rights as a real property interest. Once oil and gas are extracted they are goods, personal property.

50 Mineral Interests 50 Before extraction Oklahoma treats mineral rights as a real property interest. State law where property located governs Once oil and gas are extracted they are goods, personal property. For article 9, state law where debtor located governs.

51 51 Oil and Gas Mineral Owner Oil First Purchaser Second Purchaser Account Oil Account

52 52 Oil and Gas Mineral Owner Oil First Purchaser Second Purchaser Secured Lender Account Oil All Assets SI Account Loan Real estate law governs mineral rights until extracted. But once oil becomes personal property unless mineral owner has an Article 9 security interest in the oil and its proceeds, other Article 9 SPs have priority.

53 How does mineral owner get a SI before extraction? “As-extracted collateral” means: (A) oil, gas, or other minerals that are subject to a security interest that: (i) is created by a debtor having an interest in the minerals before extraction; and (ii) attaches to the minerals as extracted; or (B) accounts arising out of the sale at the wellhead or minehead of oil, gas, or other minerals in which the debtor had an interest before extraction. 53

54 Where to file for as extracted collateral (4) The local law of the jurisdiction in which the wellhead or minehead is located governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in as-extracted collateral File in “(1) the office designated for the filing or recording of a record of a mortgage on the related real property”

55 OK Oil and Gas Owners Lien Act Adopted in response to SemGroup case Designed to protect mineral owners by giving them a non-UCC lien over proceeds of oil and gas sold to first purchasers. Claimed to be a real estate lien and not subject to UCC debtor location rules. Variety of exceptions. 55


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