October 17, 2024

Ag Input Liens

Vol. XXXVI, No. 11

Over the years, a number of bills have been introduced in the Nebraska Legislature which, if enacted, would subordinate prior perfected security interests to the interests of various statutory lien holders. These proposals would grant priority status to parties other than secured lenders, including fuel dealer liens, ag input liens, cattle buyer liens, and agricultural machinery and equipment liens.
 
With the current state of the agricultural economy in Nebraska, we anticipate further discussion of providing statutory lienholders a priority over prior perfected security interest holders. This may be during the upcoming Legislative Session. Likewise, your customers may be contacting you to have these conversations as well. These issues always seem to surface in troubled times as traditional secured lenders are required to tighten their lending standards and non-traditional lenders, such as ag fertilizer and chemical dealers and other agricultural input providers venture more aggressively into the operational lending arena. We have also historically encountered instances where cooperatives have sought a limited waiver and voluntary subordination in order to deduct certain charges and fees incurred prior to remitting the balance of grain sale proceeds by or on behalf of bank customers. In those cases, it is important to review, and modify if necessary, the terms of the cooperative’s limited waiver agreements.
 
Generally speaking, Article 9 of the Uniform Commercial Code does not apply to statutory liens, except as provided in UCC § 9-310 regarding the priority of such liens.  UCC § 9-310 provides that a person who “in the ordinary course of his business furnishes services or materials with respect to goods subject to a security interest” who obtains a statutory lien takes priority over a prior perfected security interest “unless the lien is statutory and the statute expressly provides otherwise.” 
 
The NBA believes that it is important to maintain the consistency and credibility of the UCC rules that have been established not necessarily to protect one party versus another, but rather to provide certainty in establishing priorities between competing lienholders. Many of the traditional statutory liens constitute what we would commonly refer to as “hidden” liens. In addition, these statutory liens are non-consensual. If a party fails to pay for the feed and care of livestock or the application of fertilizer and chemicals provided by the ag input dealer, the traditional secured lender which has extended financing and taken a security interest after reviewing a record which is free and clear of liens, would be significantly harmed if a non-consensual statutory lien could subsequently be filed and jump in line first with a priority over the prior perfected security interest of the traditional secured lender. 
 
In 1987, the Nebraska Legislature enacted legislation to create an Agricultural Production Input Lien. Under this statutory format, the prior perfected security interest holder has a period of 15 days within which to either issue the letter of commitment for a portion or all of the bill, or decline to issue such a letter of commitment.  In the event the prior perfected security interest fails to respond to the agricultural production input lien notification statement within 15 days, the holder of the statutory lien is granted a priority position over the prior perfected security interest holder.
 
The statutory provisions (Neb. Rev. Stat. §§ 52-1401 to 52-1411) establishing the Agricultural Production Input Lien require the supplier of agricultural production inputs to notify a lender of its potential lien by providing a “Nebraska Agricultural Input Notification Statement” to the lender in an envelope marked “Important Legal Notice” sent by certified or other verifiable mailing method.  A copy of the Nebraska Agricultural Input Notification Statement can be found at: https://sos.nebraska.gov/sites/default/files/doc/business-services/UCC/API.pdf
 
For purposes of the agricultural production input lien law, the term “agricultural production input” means any agricultural chemical, feed, seed, petroleum product, electricity or labor used for preparing the land for planting, cultivating, growing, producing, harvesting, drying or storing crops or crop products or for feeding, producing or delivering livestock.  The term “letter of commitment” means a binding, irrevocable and unconditional agreement by a lender to honor drafts or other demands for payment upon the presentment by the supplier of invoices signed by the purchaser or containing some other proof of delivery.
 
Following receipt of a “Nebraska Agricultural Input Notification Statement”, a lender must respond to the supplier within 15 calendar days with either: (1) a letter of commitment for part or all of the amount listed in the notification statement and, if the letter of commitment is for only part of the amount, then a copy of the partial commitment should be sent to the person to whom the agricultural production input was furnished or is to be furnished (it is recommended that a copy of any communication, whether it be a full commitment or not, be given to both the supplier and the purchaser of the product or user of service); or (2) a written refusal to issue a letter of commitment.  A copy of the refusal must be sent to the person to whom the agricultural production input was furnished or was to be furnished (§ 52-1403).  It is suggested that the lender’s response be provided by certified or other verifiable mailing method for purposes of documentation in the event litigation transpires.
 
If the lender responds with a letter of commitment, the supplier may not obtain a superior lien for the amount stated in the letter of commitment.  If the lender responds with a written refusal to issue a letter of commitment, the rights of the lender and the supplier are not affected by the provisions of the Agricultural Production Input Lien Act, and any prior perfected lien of the lender under the Uniform Commercial Code shall retain its established priority (§ 52-1404).
 
If a lender fails to respond to the supplier within 15 calendar days after receiving the Nebraska Agricultural Input Notification Statement, then the supplier may proceed to perfect an agricultural production input lien that will have priority over any security interest of the lender. Thus, it is important that a lender responds promptly and appropriately following the receipt of a Nebraska Agricultural Input Notification Statement. While there is nothing other than the customer relationship which would obligate a lender to issue a letter of commitment in response to receipt of a Nebraska Agricultural Input Notification Statement, some response is appropriate to protect its lien status.  If a partial or full letter of commitment is issued, it is paramount that the lender obtains some type of authorization from the customer, e.g., a note or other evidence of a binding obligation on the part of the customer of some other tangible indemnifying agreement to ensure that the lender retains recourse against its customer if the lender is required to pay out on the letter of commitment.

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