CROP FINANCING
KENNETH
AMD ARTICLE
LONGINO
GREER,
JR.
9
The adoption of the Uniform Commercial
Code
(U.C.C.)
by virtually every state has been extremely helpful
to the
farmer, especially concerning hits ability to finance the
grnw.ing of h i s crops.
Pre-Code lawi
t
regulating farm crop
financing; , while presumably formulated with the farmers'
best interests in mind, were often major obstacles to obtaining needed capital for crop preparation.
Without an
adequate source*of funding, the pre-Code fsrmer often
not raise his income-producing crops.
could
And without more
f{t.vorab.Te Daws regarding security interest perfection and
priority, pre-Code lenders were often hesitant to make
farm crop loans.
CHOP FINANCING UNDER PRE-CODE LAWS
Prior to its acceptance of the U.C.C., each state had
formulated its own crop financing laws, fr'ariy states did
not allow a lender to take a mortgage on crops not yet in
2
existence.
The intent of such laws was to place the farmer
in a favorable position over the lender by limiting that in
which a lender could take a security interest.
The nctual
results were often mor« detrimental to the farmer then beneficial.
Lenders wanted as m u c h protection as was possible-
B y limiting the amount of security a lender could obtain,
tJ'.ei e pre-Code laws caused the lender to constrict his farm
loan activity.
The net effect was that the farmer,
instead
of being accorded additional protection, was left with fewer
sources from which to draw.
"ot proper fjubjeclt for chattel m o r t i c e financing.
Some
method of rc;i3 ertato f i.n.-ncing. was required lr»!:l,occl.
As was iH'tad earlier, pro-Code crop financing laws
wore intended to protect the farmer against powerful
unscrupulous lenders.
end
Formers were not considered businei:-
men in the real oenro. of I: ho word.
Many stntes felt their
farmers could not, without legislative help and guidance,
cope with major business financing problems.
As is readily
apparent today, hovever, farming is indeed big business,
and Jt clcmniidp Iftrge quimt.i. i. j or. of c u p j U O »
emergence of the corporate farmer
With the
analogies to the uned-
ucated "hick" former of the past ave unreal irstic.
For the reasons above stated, the formulation of the
U.C.C. and its almost nationwide acceptance by the slates
hnve brought forth a very wise and welcome change with
regard to crop financing.
Note should be made that Article
9 of the U.C.C. is not necessarily a perfect set of security financing lawi:.
When necessary, current problem
arc:, f. will be discussed.
Article 9 does, however, present
an orderly and uniform means for determining the rights of
the lender and the debtor-farmer witn regard to their
interests in a financed crop.
CREATION OF SECURITY' INTERESTS IN FARM CROPS UNDER THE U.C.C.
Of initial importance to the lender in any financing
situation is the obtaining of a security interest in the
-3-
Hem
beji't; financed.
The reaoon is obvioutj.
The lender
wants assurance "that he will be repaid or will nt .leash
have a means from which to recoup the money loaned,
should
the borrower default.
Definitions
Before explanation of how a security interest
crops is created, brief mention should be made
in farm
regarding
certain definitional aspects of the U.C.C. and its Article
9.
Collateral is defined as "property subject to a security
1o
interest...."
Collateral for jairposes of Article 9 is di-
vided into two categories: tangibles and
intangibles. 1 ^
All tangible collateral is divided into four types of goods,
thore types being: consumer goods, equipment, farm
nnd inventory
products,
These goods classifications are mutually
exclusive of e?<ch other, and each receives separate
ment u n d e r Article 9»
As a consequence, extreme
treat-
impor-
tance is attached to the proper classification of goods
for which security interests are being sought.
For e x -
ample, farm products and inventory are two different Article
9 "goods" classifications.
tion for one type of goods
Proper security interest
crea-
(io., inventory) may be wholly
insufficient for the creation of a security interest
in
the other (ie., farm products).
In order for goods *fco be considered farm products, two
requirements must be met.
The collateral must "be 1 ) "crops
or livestock or supplies used
or produced in fanning oper-
Bern-diet. v. lU'i.jicr^posi'd another 'obstacles >)• the
pal)
of the pre-Code fanner seeking crop financing capita] .• In
the Benedict^case, the .Supreme Coui't expressed the view thnt
a lender could lose a perfected security interest j.n orop:;
if hi: allowed the fj-rmtsr to deal too freely with them.
permitted use, sale", or dir.posdtion by the farmer
the lender's security interest.
Any
invalidated
Even the use of a portion
of the farmer's crop for other farm needs (io., to feed the
farmer's cattle) could be enough to terminate a lender's
security interest.
6
7
The result of the Benedict 'ca^e was to
require the farmer to suck pennjosion before soiling, using,
c v otherwise disposing of a crop and to require the farmer
to make a n accounting to the lender at the time of diso
position.
Because of this possibility that a lender iroght
lose his security interest, the farmer was often not allowed
to use his crop?}, in one form or another, to satisfy other
fa.rm needs.
Other farm problems concerning the financing of crops
during the pre-Code era also existed.
In many state:--, fi-
nancing methods depended upon how the particular crop was
classified, that is, whether it was a natural-growing
q
or an industrial-growing crop.
Crops found to be
growing crops^^ere considered personalty.
crop
industrial-
These crops were
proper subjects for a chattel mortgage.
Natural-growing
IT
*
crops,.however, were not considered personal property.
They were considered part of the realty end, hence, were
-a-
ations or ... products of crops or
unmanufactured
livestock in their
stotes",1')and 2) they muot be "in the pos-
session of a debtor engaged in raising, fattening, grazing
or other form operations. " ^
A definitional problem which exists in Article 9 with
regard to crops is the construction of the phrase, "-products
of crops".
17
Farm products include products of crops in
1
their unmanufactured
states.
ft
""
Once subjected to a manu-
facturing process, a crop product no longer remains a form
product.
It may well become inventory.
Because Article 9
treats the financing of farm products and inventory differently, determination of whether a crop product i3 still
in its unmanufactured
state is important.
Thi3 determina-
tion of unmanufactured status presents the problem.
The
U.C.C. has never explained nor defined when a croo leaves
its unmanufactured state.
Determination, rather, J)*>n bce-n
1 q
made on a case-by-case basis. 3
The U.C.C. has been critized for its handling of the
20
"products of crops" concept.
Opponents of the Article 9
fnrm product-inventory distinction (a subject which will
"be discussed in greater detail later) complain that an
unjust sitiiation. sometimes occurs when a lender finances
a crop at a stage somewhere between the field ?1
and the store,
where the degree of manufacture is uncertain.
The lender's
acquisition and perfection of a'socurlty interest under the
mirtnlcen belief that the crop has become inventory may
-5-
result
in no security interest at all when the crop in in
fnot still considered
r< fnrr'i product.
Cre-.tion of the Security
Interest
Assuming the crops intended as security for a lonn
come within the definition of farm products, four requirements must be met to create an enforceable security
inter<-rt.
First, there must be en agreement between the financier and
the debtor-farmer that the crops will stnnd as security
for
22
the loan.
Second, this security agreement must be reduced
2^
to writing. -'Third, value must be given by the lender to
the debtor-farmer.?^Fourth,
the debtor-farmer must have
present rights in the
25 crops before the security
interest
cp.u attach to them. ^The first, third, and fourth requirements present no m a j o r problems today.
ere relatively explicit.
These requirements
The second mentioned
security
interest creation requirement, however, has presented
l e m s for lenders not accustomed to form crop
prob-
finoncing.
With respect to the second requirement that the security agreement must be
in writing, Section 9-203 ^ T e x a s
Code Annotated 89. 2'03] 2 §1 so requires a- written description
— — — — — — —
pj
of the collateral.
When the security interest
is intended
to cover crops, however, the security agreement
• pRmust
contain
,r
a description of the land concerned."
also
Both the
crop and the realty upon which the crop iB growing must be
reasonably identified.
Section 9 - 1 1 0 [9.II0J
does not
require specific identification, but because some question
-6-
concerning whtil -constitutes "reasonable
identification'11'
•existS j suggestion'ioro'o'dethat .'the crop- clftsc-H ptlon be as
complete as possible and that the- realty description bo its
• "to
legal description
(metes and bounds)- whenever possible."''
The fourth requirement that the debtor-farmer must
have rights in the crop before a security interest can attach
deserves mention.
Prior to the 1972 amendments to tho IT.C.C.,
i
Section 9-204» which contained express reference to the
debtor's rights in crops, presented serious problems for
the lender.
The debtor-.farmer could not acquire rights in
his crops "until they
were
growing c r o p s . A l s o , ' K n o
planted or otherwise
became
security interest attached under
an after-acquired property clause to crops which
became
such more than one year after the security interest
executed
was
. . . . " ^ T h e s e two subsections of pre-1972 Section
9-204, when read together, created a very unfavorable
position for the lender.
He cquld not create a security
interest in crops he intended to finance until they were
planted.
Even if he took a security intereot in the seed
and had an after-acquired property clause attached to the
security agreement to cover the crop when it was planted,
his security interest would fail if the farmer planted
the crop more than a year after the loan occurred.
By way of clarification, the lender was not alwayn
left without a security interest upon the expiration of
aft unplanted year.
Prior to 1972, Article 9 exempted cer-
-7-
•t;v.in ..r>'tfcft»i.ty .interests- from, the 1-yewr .requirement.
Security
in to rec.tr.. in crops "given in conjunction with a lease or-n
land purchase or improvement transaction evidenced
iy a
contract, mortgngo, or deed of truot" were exempt from 1,1m
rather stringent 1-year limitation.^ 2 A3 a result of this
exemption, lenders attempted to circumvent Article 9's 1-year
requirement' by drafting the security transactions as if they
were : real ekt&te related or by requiring their debtor-farmers
to execute annually new security agreements covering the crops
that were not planted within the 1-year p e r i o d . ^
Section 9-204i as it is presently omende'd, selves the
1-year problem which faced crop financiers in m^rty states
prior to 1972.
The section new provides that with reference
to farm products and upon agreement of the parties, "all
obligations covered by the security agreement are to be
secured by, after-acquired collateral."-^The l-ye-'T period
for the planting of the crops is no longer of importance.
Consequently, the lender can now finance crops by
takira
security interest in the seed and by attaching an sfteracquired property, clause to the security agreement.
Assuming
the other security interest creation requirements have been
met, the lender will obtain a security interest in the crops
when they are planted, regardlesB of whether the planting
IS' done within or without the 1-year period.
-8-
PERFECTION 0? SECURITY INTERESTS IN FARM CROPf. l^'Dl-H TI1K H.n.C.
Generally," a SQC'arity.%lritere:st will, not be valid against
third parties until the security interest has been perfected. '
Like the requirements for the creation of a security interest,
tho method of nerfe'cting a security interest i3 governed by
tho type of goods used as security.
Having already briefly
discussed the problems sometimes encountered with the corrcct
•goods classification of certain types of collateral, further reiteration is unnecessary..
(Note should be made that
crops nnd their products will he considered farm products
for purposes of the discussion on security interest perfection. )
Section 9-303(1) [9.303(a)} states that " a
security
interest iB perfected when it has attached and when all of
the applicable steps roquired for perfection hove been taken."
Section 9-302(1) ^.302(a)J
requires a financing statement
"be filed before a security interest will become perfected
in crops.
While a purchase money security interest in
consumer goods requires no filing to perfect, a purchase
rroney security interest in farm products must be filed before
it is perfected.
The requisites of a financing statement sufficient to
perfect a security interest are found - in Section 9-402
(9.402);
A financing statement is sufficient if it:
-9-
given the names or the debtor and the rec-ured
party,
is signed by the debtor,
gives an
address of the secured party from which
informa-
tion concerning the security interest iriny be
obtainod, fy"] gives a mailing address of tho
debtor nnd |j?J contains a statement
indicating
the types, or describing the items, of collateral.^ J
In addition to these requirements, a sixth requirement must
»
be met to perfect a security interest in present oti future
crops.
The financing statement must also contain u descrip-
tion of the real estate upon which the crops are growing or
•17
are to be grown.
J
In the earlier discussion regarding the
creation of a security interest in crops, explanation was
given that both crop and realty descriptions be as explicit
os possible.
For valid perfection of a security
crops, this same male applies.
interest in
The descriptions cf both the
crop and the underlying realty should be as precise as possible.
Once the Section 9-402 [j9.402^| financing
statement
requirements have been met, the only other step necessary
for perfection of the security interest is the filing of
the financing statement.
Filing must be made nt the correct
place, however, before the security interest is deemed
fected.
per-
In its second- alternative to Section 9-401(l)(a),
dual filing is required by the U.C.C. for perfection of a
security interest in crops.
Texas follows this alternative
rule and requires that a financing statement covering crops
and other farm products be filed
-10-
in the office of. the County Clerk of the cdunty
of the debtor's residence or if the debtor Is
not o resident of this state then in the office
of the County Clerk where the goods are kept,
and in addition when the collateral
in crops
growing or to be grown in the office of the
County Clerk in the county where the land is
located.^®
Note should be make that the debtor may not always be
considered a resident of the county where his farm
even if he is a resident' of Texas.
is located,
With the increasing
number of corporate farmer®, the concept of the single farmer
residing on the same land he farms is no longer completely
accurate.
Prior to 1972, the absence of any U.C.C.. language
designating where the residence of a corporate
debtor-farmer
was for filing purposes caused deferral of this determination to state law.
Some states considered the county of a
corporation's principal place of business as the place cf
its r e s i d e n c e . ^ I n other states, corporate residence was
uncertain.40
In 1972, the U.C.C. remedied the problem of corporate
residence.by amending Section 9-401 £9.40l].. When dual
filing is required and where one of the required
filing
counties is the county of a debtor corporation's
residence,
corporate residence will be considered its place of business.
If more than one place of business exists, a corporation's
place of residence is in the county where its chief execujp :
tive office is maintained.
SECURITY INTER EOT PRIORITIES IN PART.' CHOPS H f m ^ ' M
II.C.C,
Of primary importance io the crop financier in the
o b t a i n i n g of security interest priority.
While
and perfection of a security interest gives the
creation
financier
security rights in the collateral, he m a y not be able to
benefit from these rights u n l e s s he h a s obtained
priority
over all third party claims in the secured crops,
once
priority has b e e n achieved, however, it is equally
impor-
tant that priority
is m a i n t a i n e d .
The Crop F i n a n c i e r v. Other Perfected
Security
Interests
Often in a f a r m l a n d — p u r c h a s e situation, the farmer
n e g o t i a t e s a m o r t g a g e loan to obtain the necessary
money.
purchase
If the f a r m e r intends to plant crops on this same
land and wants to b o r r o w m o n e y with this plan in mind,
majoi' conflict m a y develop concerning security
priority i n the crops.
a
interest
If the original land f i n a n c i e r has
created and1 perfected ap interest in the realty alone, he
h a s no security in any crops that are presently growing or
that will be subsequently g r o w n . ^ H i s
security
interest
attaches to the realty, b u t not to the crops because
crops are considered personalty.
pafrt of the real estate.
They are not
the
considered
In a situation where a p r i o r real
property mortgage h a s b e e n m a d e and w h e r e the real
financier has perfected a security-interest
property
in the realty
alone, a subsequent crop f i n a n c i e r can obtain security
terest priority in the
crops.
-12-
in-
A real property financier, however, con achic r e a first
priority security interest in crops.
He must
specifically
designate all presently growing and subsequently grown
crops no part of the collateral in which ho intenrln to take
a security interest.
Once this security interest is per-
fected, subsequent crop financiers tako security interests
which are subordinated to the realty lender.
Even before
the 1972 amendments to the U.C.C., real property financiers
could avail themselves of this method to obtain security
interest p r i o r i t y A s
a matter of fact, real property
financiers, who obtained security interest priority, were
in a better position then than were similarly situated nonrealty financiers who had obtained a security interest in
a farmer's crops.
Non-realty financiers (ie., crop finan-
ciers) were subject to the 1-year rule previously discussed,
(the 3-yesr rule in Texas).
Real property financiers, who
took a security interest in all growing and
grown crops, were not subject to this rule.
subsequently
Not only did
the realty lender have security interest priority in crops
grown within 1 year (3 years) Of the creation 6f the seOiirity
interest, but he also had priority in any crops grown after
the 1-year (3-year), period had terminated.
While the race to obtain security interest priority
is indeed important, no lesser degree of importance should
*
ho attached to the fact that priorities,,once gained, are
susceptable" to becoming mibordina-ked to other perfected
-13-
thc
security interests.
Section 9-3-1-2(2) Q). 312(b)]
rec-ison for concern.
Section 9 — ^l^C^) £9. 31 P ( b p r o v i d e s
that
a
perfected security interest in crops for
new value given to enable the debtor to prodxice
the crops during the production
season and given
not more thnn three months before the crops become growing crops by planting or otherwise
takes
priority over an earlier perfected security interest to the extent that such earlier
interest
secures obligations due more than six months
before the crops become growing crops by planting
or otherwise, even though the person giving new
value had knowledge of the earlier security
The meaning of Section 9-312( 2) [9.312(b)]
interest.
is clear.
A
purchase money security interest in crops will tnke priority
over an earlier perfected
security interest if the later
purchase money security interest is given for new value no
earlier than 3 months before the planting of the crop and
if it attaches to the crops no earlier than 6 months after
the debtor-farmer'b prior secured debt is due.
Note should
be made that this 6-month default period is measured
the time the crops become growing crops.
from
Consequently,
before a purchase money security interest in'crops can
achieve priority over an earlier perfected security interest
(regardless of whether the earlier security interest was
taken by a realty financier
or by an earlier crop lender),
the debt behind the earlier security interest must be 6
months in default at the time the crops become growing
crops, "by planting or oth rwise". ^If, on the other hand,
the earlier secured debt h a ^ b e c o m e due and owing within
-14-
6 months before the crops start flowing, or if the
subsequent
purchase money security interest seeking priority is croaked
more than 3 months before the crops become growing, the
earlier perfected
security interest retains its priority
over the later purchase money security
interest.
One variation of the "3 month-6 month"
mention.
rule
A situation-may exist where a farmer
deserves
getrrcrop
financing from two or more different sources.
In light of
Section 9 - 3 1 2 ( 2 ) [p.312^b)^j more than one of these
may be given priority- over an earlier perfected
interest.
Should all of these purchase money
interests succeed in priority over the earlier
lenders
security
security
security
interest, the question of priority between these new security interests must be resolved.
[9.312(e)J
apply.
provides the answer.
Section 9 - 3 1 2 ( 5 )
General priority
rules
The first of these subsequent lenders to perfect
h i s security interest takes priority over the other
situated
similarly
lenders.
The Crop Financier v. Subsequent
Purchasers
While the U.C.C. has provided an orderly and uniform
method for treating the various security aspects of crop
financing, its treatment of buyers of crops, which are
encumbered b y security interests, has b e e n severly
criti—
c i z e d . ^ T h e b a s i s for the criticism is the different
Article
9 treatment given buyers of fanm products as compared with
buyersi of inventory.
Some critics feel that Article 9
-15-
'treatment of third party purchasers should be the same for
both goods classifications.^Regardlesd
of the complaint
that inventory and farm products should be treated
equally
when a third party purchaser is involved, however, the U.C.C.
has not been so amended.
As adopted, the Texas version of
the U.C.C. also acknowledges the different treatment of
Aft
these two types?of goods.
Section 9-307(1) £9.307(a)] provides that
a
buyer in the ordinary course of business
...
other than a person buying farm products from a
person engaged in farming operations takes free
of a security interest created by his seller
even though the security interest is perfected
and even though the buyer knows of its existence.
Section 9-307(1) £9.307(a)! allows a buyer, who in the
ordinary course of his business purchases inventory, to
take free of any pre-existing security interest in the
goods purchased, regardless of whether the buyer has notice
of the prior security interest.
A different result is
reached, however, when-the goods purchased are farm products.
A buyer of farm'products (crops) from a farmer takes
subject to any-prior security interests, regardless of
whether the purchaser is buying i n the ordinary course of
his business and regardless of whether he has no knowledge
of earlier perfected security
interests.
As has just been explained^,. Article 9 is quite- explicit
in its treatment of subsequent purchasers of farm products.
A new priority problem arises, however, when the sale
-16-
bccomes one step removed from the farmer.
By means of a n
example, consider a buyer who in tho ordinary course of liis
business purchases from a farmer crops which nre encumbercd
by a perfected
security interest.
Section 9-307(1)
307(n)"]
states that the secured party retains his priority in the
crops purchased.
crops?
But what about a subsea_uent buyer cf these
Does he take free of the original security
or does he also buy subject to it?
interest
At first glance, it
would appear the second purchaser would take free of any
prior security interest in the crops.
The goods would have
been transformed from farm products into inventory in the
hands of the original purchaser.
Also, the original pur-
chaser-turned-seller would not be considered
purposes of Section 9-307(1) £9." 307(a)].
be considered a merchant",
a farmer for
Rather, he would
a logical conclusion,
therefore,
would be that Section 9 - 3 0 7 ( 1 ) £9.307(a)] would allow the
subsequent buyer to purchase the crops free and clear of
any outstanding security
interest.
A closer reading of Section 9-307(1) [?.307(a)] , however, reveals this reasoning is erroneous.
(9.307(a)J
Section 9-307(1)
allows a buyer in the ordinary course of busi-
ness to purchase inventory free of any security
created by his seller'.
interest
In the sale of farm products
situa-
tion, the farmer, not his purchaser-turned-seller, was the
creator of the security interest in the goods
(crops).
Consequently, Section 9 - 3 0 7 ( 1 ) ([9.307(a)] does not
-17-
apply.
Section 9-306(2) £9.306(b)~| governs instead.
This section
states that unless otherwise provided in Article 9, "a
security interest continues in collateral
notwithstanding
sale, exchange, or other disposition thereof" unless the
secured party agrees to subordinate his security
interest.
Because Section 9-307(1) [9.307(a)] is inapplicable to the
• i
situation where a purchaser of farm products sells those
same goods to another buyer, Section 9-306(2) £9.306(b)J '
allows the original secured party to retain his security
interest priority.
Although buyers of farm products (crops) from a
farmer usually take those goods subject to any outstanding
perfected security interests, exceptions to this general
rui e do exist.
The secured party can consent to a subor-
dination of his security interest priority.
Consent of
an express nature, either in the original security agreement or otherwise, presents no problem.
Implied consent
and waiver, however, do present areas of concern.
While
the theories of implied consent and waiver do make sense
when applied to security interests, the U.C.C. has given
no guidelines to help determine whether certain acts or
omissions by the secured party are sufficient to constitute
waiver or consent. Rather, these determinations have been
4-9
made by the courts on a case-by-case basis. ^
-18-
CONCLUSION
Article 9 of the U.C.C. has been instrumental
v
establishing n. uniform
in
system of rules governing the various
cocurity interest aspects of crop finoncing.
Many pre-
Code inconsistencies and outdated stote laws have been
cured and restructured
of rules.
into a more workable and fairer set
Some problem areas still exist, especially with
regard to the inventory-farm products dicotemy.
For the
most part, however, the adoption of the U.C.C. and
its
Article 9 by virtually all of the states has been met with
approval and appreciation.
The lender can now maintain the
security interest priority he desires, and as a result, the
farmer can get his crops more easily financed.
-19-
FOOTNOTES
I. Mo to, Agricultural Financing Under the U.C.C., 12 Ari z.
V. Kov. 391
(1970).
?. Id. rvt 391 nn.3
3. 268 U.S. 353
4.
8c.
4.
(1925).
Id^
5.. I d ^ at 364.
6. Contea, UCC B r i e f No. 6: Financing the Farmer, 13 Pr?ic.
Law. 59, 61 (No.5,
7. 268 U.S. 353
1967).
(1925).
8. 13 Frac. Law., supra note
6.
9. Note, Secured Interests in Growing and
Future-Growing
Crops Under the Uniform Commercial Code, 49 Iowa L. Rev.
1269-70
(1964).
10. Industrial-growing crops were crops that were
planted
yearly and were grown primarily by manual labor.
and cotton are examples of industrial-growing
II. Natural-growing cropn were crops which had
roots.
Trees and shrubs"
growing
crops.
Hereinafter,
crops.
perennial
are examples of natural-
12. Uniform Commercial Code §9-105(c); Tex. Codo
§9.l05(3).
Corn
Ann.
all citations to the U.C.C.
are to the particular section n u m b e r of the TT.C.C.
(1972 Official Text), followed by the Texas Code
Annotated .section n u m b e r In brackets.
13- 12 Ariz. L. Rev., supra note 1 at
14. 9-109
[9.109].
15. 9 - 1 0 9 ( 3 ) [9.109(3)].
16.
Id^
17. Id.
-20-
392.
18 ,. T d.
19. Hawkland, The Proposed Amendments to Articlc 9 of the
U.C.C.—Part
421
1: Financing the Former, 76 Com. L.J. 416
(1971).
20. Id.
21.'Id.
22. 9-203(1)(a) [ 9 . 2 0 3 ( a ) ( l $ .
23. 9-203(l)(a)'[9.203(a)(1)].
24. 9-203(l)(b) [9.203(a)(2)].
25. 9-203(1)(c)
[9.203(a)(3)].
26. Hereinafter, when a U.C.C. section is noted in the text,
the Texas Code Annotated counterpart section will follow
in brackets.
27. 9-203(l)(a) [9.203(a)(1)].
28. Td.
29. 12 Ariz. L. Rev., supra note 1 at 394.
30. 9-204(2)(a) [9.204(b) (1)3.
31. Uniform Commercial Code §9-204(4)(a)(1962 Official Text),
i'rior to -Ly /4, Texas required an after-acquired
property
clause to attach within 3 years of the security interest
execution.
9.204(d)(1)(pre-1974).-
32. 9-204(4)(a)(1962 Official Text). Texas allowed the same
exceptions to its 3-year rule.
9.204(d)(1)(pre-1974)..
33. 76 Com. L.J.,' Bupra note 19 at 422.
34. 9-204(1) [9.204(a)].
35. 9-301(1) [9.301(a)].
36. 9-204(1) [9.204(a)]..
37. 9-402(1) [9.402(a)J .
38. Tex. Code Ann. §9.401(a)(1) (1974).
-21-
39.-Clark, Dome Problems In Agricultural Lending Under the
TJ.C.C. , 39 U. of Colo. L. ftov. 352, 360 &• n.37 (1967)..
40. Id^ nt 360.
41. 9-401(6) [9.101(e)] .
42. 9 - 4 0 1 ( 6 )
[p.401(e)].
43. 1-201(37) fl.201(37)] defines security interest as "an
interest in personalty 03? fixtures which secures payment
or performance of an obligation."
Consequently, a realty
lender must specifically include in h i s security agreement any, personal
property he intends to create a security
interest in.
44. Uniform Commercial Code §9-204(4)(a)(1962 Official
Text);
Tex. Code Ann. §9.204(d) (1) (frre-1974 ) .
45. 9 - 3 1 2 ( 2 ) [ 9 . 3 1 2 ( b ) ] /
46. Comment,1 Farm Products Under the U . C . C . — I s a Special
Classification Desirable?, 47 Texas L. Rev. 309,315
(1969).
47. I<K
48. Tex. Code Ann.
§9.307(a)(1967).
49. See,eg., Clovis Nat'l B a n k v1. Thomas, 77 U.K. 554, 425
P.2d 726 (1967) (security interest waived); Vermillion
County Prod. Credit Ass'n v . Izzard, 111 111. App. 2d
190, 249 N.E.2d 352 (1969)''(security interest not waived).
-22-
QUESTIONS
P e t e r Rabbit is desirous of obtaining a loan to use in the
•growing and raising of carrots.
He goes to Fred Fox, a
local lender, to see if he will finance the crop.
Fox
agrees and loans Rabbit $5,000 on January 1, 1974.
A
written security agreement is executed on that day.
then goes and b u y s the seed.
Rabbit
On his way home, Rabbit
is
injured in an automobile accident and is laid up for some
time.
Consequently, Rabbit does not plant a carrot
in 1974.
crop
In February, 1975, however, Rabbit has recouperated
and on February 15, 1975, he plants his crop.
U n d e r the U.C.C. prior to 1972, does Fox have a security
interest in the carrot crop?
Under present U.C.C.
In Texas both before and after 1974?
Would
law?
it make any
difference if the crops were intended as security for a
loan taken out b y Rabbit to purchase
farmland?
. Aw Pshaw, an Indian oil b a r r o n turned Texas farmer, bought
a large farm near Meditation, Texas on January 1, 1974.
He
borrowed the purchase money from Black Gold State Bank,
w h i c h took a mortgage on the land.
The security
agreement
also included all/presently growing and subsequently
crops.
Proper'filing was made'on.that day.
grown
On January 1,
1975, Pshaw borrowed $2,000 from Larry Lender and on
January 18, 1975 Psh&w borrowed $500 from Frank Finance.
Financing statements for b o t h these loans were
filed on the days the loans were made.
correctly
On February 15,
1975, Pshaw planted a crop. (Lender's loan and Finance's
loan were for the purpose of financing the crop).
On the
planting date, Pshaw' is 6-J- months in default on his note to
the b a n k .
As of February 15, 1975, the planting date-, who has priority?
What if the crop was planted on April 15, 1975 and Pshaw v/as
still in default to the Bank?
What if Pshaw had been only
4months in default to the Bank when the crop was planted?