THE COMMERCIAL FEEDYARD, THE PACKER, THE BANK & THE U.C.C.
CHARLES EDWARD KING
THE COMMERCIAL FEEDYARD, THE PACKER, THE BANK & THE U.C.C.
I. Introduction
The commercial cattle feeding industry of Texas is a
major souroe of fed oattle produced for slaughter by this
state.
The Cattle on Peed report of the United States De-
partment of Agrioulture as of January 1, 1975» shows that
Texas marketed 3,899,000 head of fed cattle in 197^.
Of this
total, only 85,000 came from lots under 1,000 head in capacity or approximately 2,2%,
Feedlotes having a capacity of
16,000 head or more sent the packing plants 3,002,000 head
or approximately 77% of the fed cattle marketed in the state.
The feedlots of the later size will in the majority be commercial feedyards rather than individually owned lots v'hare the
owner of the lot will also own the majority of the cattle'
within the pens.
The above is representative of a multi-
million dollar business.
Assuming that these animals were
marketed for an average prioe of $350 per head, this would
amount to $2,36^,650,000 in sales of fed cattle by ^exas
Cattlemen.
The purpose of this article is to discuss article 9 of
the Uniform Commercial Code and some of the problems and pitfalls that it creates for this gigantic industry.
Although
this writing is principally concerned with the financing and
sales of beef cattle, the principles discussed are equally
applicable to range cattle, dairy cattle, hogs, sheep, poul-1-
try and other agricultural animals.
In particular, this paper will deal with the ambiguity
of the definition of farm products as it pertains to cattle
in the commercial feedyard.
Special emphasis is placed on
the problems that inherently arise under article 9 as to the
marketing process of livestock caused by the continuation of
a lender's security interest in the processed goods.
The con£
flict among the lenders, the feddjards and the packers will
be considered throughout the paper.
The following will also
consider the possibilities of an intervening seourity interest
in the livestock that could cause complications for the lender* s perfeoted security interest in the collateral.
The later
part of this paper will deal with the possibilities of the
feedyard obtaining a lien against the cattle of its customers
in order to assure payment of the cost of feeding.
This paper does not formulate any answers or provide
hard and fast rules of law as they would apply to sedxired
transactions1 in farm products.
Instead, it points out oon-
fliots among the courts in the interpretations of article 9
provisions and suggest theories that are unsettled by court
decision or interpretive writings by legal soholars.
Therefore,
your suggestions and critisms will be appreciated.
There has been a great deal cxft discussion as to whether
cattle are per se farm products within this code's definition
in seotion 9-109(3)• *
This question arises particularly in
the case of cattle in a oommerical feedyard whioh are owned by
investors, lis*., people not engage^i^njfarming operations as
their principle source of income, but rather lawyers, doctors,
or retail bussinessmen.
Another definitional problem is when
one ia engaged in raising, fattening or grazing livestock but
does not hold the livestock for this purpose, rather they are
held for resale in a cattle trading business or to customers! of
a commercial feedyard.
Therefore are these cattle "inventory" in that they are
"held by a person who holds them fior s&le"?2
The Code defines farm products in section 9-109(3) as
follows»
Goods are
• • •
(c) "farm products" if they are crops or
livestook or supplies used or produced in
farming operations or if they are products
of crops or livestock in their unmanufactured states...,, and if thev are in the
possession of a debtor engaged in raising,
fattening, grazing or other farming operations* If geods are farm products they are
neither equipment nor inventory.3
The problems created by the definition in section 9-109(3) is
what criteria should be used to characterize goods as farm products.
Is the farm product definition dependent on possession,
occupation of the debtor, use of f
goods, the fact that the
collateral is "livestock", or a combination of these factors?
The Code"s definition requires that livestock be in the
possession of one engaged in farming, ife» raisings fattening,
grazing or other farming pperations.
Therefore, the definition
of farm products appears to be dependent upon the occupation
of the debtor^ rather than on the identity of the collateral.5
The Code does not define "farming operations" or "farmer".
-3-
Thua, the question arises as to what extent a debtor must be
engaged in farming operations in order for hi3 livestock to
be classified as "farm products."
It appears to be unanswered
as to whether under section 9-109(3)» a debtor suet be substantially engaged in agricultural product £ en? earning a substantial amount of his income from agricultural and devoting
a majority of time and efforts toward a farming venture in
order to be engaged in farming operations!
Therefore, the
ultimate question is whether mere investments in agricultural
commodities is sufficient to engage a debtor in raising,, fatten
ing, grazing or other farming operations.
It is clcar that the
cattle owned by the feedyard owner are farm products in that
they are held by one engaged in "fattening" livestock.^
How-
ever, it is arguable whether the cattle in a Texas commercial
feedyard in Lubbock, owned by a Houston doctor, are farm products.
Although the livestock are in the constructive posses-
sion of the Houston debtor, the <2 cot or is not one engaged in
farming operations.
He is engag^c in the practioe of medicine
and his cattle are held by him for investment and sale, arid
therefore inventory within the moaning of s3cMi0:1
The oourts would probably rule that the doctor"i cattle are
farm products.
To do so, tSjagntaasi
to include livestock held by one not engaged in farming '-. rations as his principle livelihood.
The occupational criterion
of section 9-109(3) would therefore require reduced ©aphasia.
An alternative method of determining the character of
goods is the purpose for which the goods are used by the d^bto:
If farm products come into the possession of a marketing
agency for sale or distribution or of a manufacturer or
processor as raw materials to be held for sale, they are
inventory,®
It is clear that cattle in the possession of a
packing plant or carcasses of cattle in the possession of
a meat wholesaler are inventory. The character of livestock for
sale by a trader o£ feedyard to purchaser in the ordinary
course of business, however, is uncertain as to whether they are
farm products in the hands of the trader or feedlot.
In First National Bank v. Maxfield. the rancher-debtor
purchased oattle for two purposes.
First, cattle wore pur-
chased for placement by the debtor on his ranch to be used in
ranching operations.
Second, cattle were purchased to be used
in the debtor's cattle trading business.
The security agree-
ment granted a security interest in livestook acquired for the
debtor's
farming operation, i.e., a security interest in farm
products..In a conversion action by the bank against the purchases of cattle from the debtor's trading business, the court
held that these cattle were inventory and not subject to the
bank's security interest in farm product,-10
The court stated
that the Code relies on the principle use of the collateral as
determinative of the character of the goods and thus, cattle
held for immediate sale, as opposed to raising, fattening or
grazing, were;inventory.11
Because the cattle were not covered
by the security: agreement' ift-'-farm, products, rthere' was' no li-ability
on the part of the purchaser for conversion.12
Therefore, the "
Maxfield court characterized the cattle based upon the principle
! -5-
use rather than on the oooupation of the debtor or the generics
of the goods.
A different conclusion was reached in Swfrft &
town National B a n k . x
n
Swift & Co. the debtor owned a
Jamesfeed*
yard and would purchase cattle for Swift & Co. to be placed in
the feedyard for fattening.
Swift & Co. would repay the debtor
for his purohases after the cattle were in the feedlot..
bank financed the debtor to enable him to purchase the cattle
for Swift & Co. and the bank would be
i*
when Swift & Co. reimbursed him.
repaid by the debt6r
The bank treated the cattle
as inventory
iJL and filed in the appropriate place for this type
of goods.
The court held that the cattle were farm products
and therefore the bank*s security interest was unperfccted in
that financing statements cowering farm products were to be
filed in a different office than i n v e n t o r y , T h e court emphasized the occupation of the debtor, l^e,. the fattening of
cattle, and rejected the argument that the purpose for which
the cattle were held was for immediate resale and therefore inventory,1^
Thus,. Swift & Co. is a direct opposite of Maxfield
upon analogous facts.
In light of the Msyf jsld and Sty if t & Co.
decision, it would be advisable for allcnding institution to
file a financing statement in the correct efficect for botk^
farm products and inventory when financing the purchases of cattle
held for immediate sale.
The courts1 interpretations of the
term "farm equipment" within section S&^bl may b© helpful in
determining the approach they will $ake in chataeterising
goods as farm products. Section 9-^01, alternative 2,requires
that financing statements evidencing security interest in farm
equipment be filed in the county of the debtor's residence,
rather than the Secretary of State's office, the place of filing
for all other types of equipment.1®
In the Texas case of Citizens National Bank v. Sperrv Hand
the court dealt with the termination of whether the e>quipment involved was farm equipment,
operator of a retail business.
The debtor was the owner-
He purchased a 'naybine which he
used in his commercial hay cutting and baling operations.
The
seller of the machine, Sperry Rand, filed its financing statement
on the basis that the machine was farm equipment.
The bank, who
took a security interest in the same machine, filed its financing
ataL'tai»feht'>;*i*h the Secretary of State's office, treating the m
machine as 'equipment".
The bank argued that in classifying
goods for purposes of article 9» the court should look to two
factors, first, the capacity of the debtor (retail businessman)
and second, the use made of the property (commercial hay cutting
in connection with a retail store).20
The court noted that the
bank's argument was persuasive and suggested a method of classification that would be valid under other cases, but it would
not be applicable under these facts. 21
The court held that the
haybine was designed and sold only for the purpose of mowing,
conditioning and windrcwing hay and that it was bought for and
used for that purpose.22
ment. 2 3
Therefore, the machine was farm equip-
The Sperry Rand court thus rejected a classification
of farm equipment based on the occupation of the debtor, but
relied on the purpose to which the equipment nould bo used.
This argument may well be applied by the courts in 'cK. ".ec.ce if
our Houston dootor.
That is, the doctor is purchasing the cattle
for the purpose of fattening and raising, an-'important element
of the farm product definition, and not principally for the
purpose of holding the livestock for sale as does the cattle
trader or dealer.
The Ninth Circuit in Sequoia Machinery,, Inc., v» Jarmt 2 ^
came to the same conclusion as the Sperry Rand court.
In
Japretl; the oourt reasoned that the drafters of the code
oarefully avoided defining of "equipment"used in farming operations" in terms of occupational status or contraciuai arrangements of the debtor-user.25
i n many cases it would to difficult
to determine whether the debtor was a farmer or not.2^
More-
over the collateral in Jarrett. combines, could onlyte used in
farming operations.2? The court stated, "We decline to resort
to a construction that would raise more problems than it would
solve? 28
policy would likewise bo applicable to the cattle
being fattened in a commercial feedyard.
By emphasising the o
purpose for which the cattle are being held, i-e.. fattening,
rahter than the occupation of the debtor, we would have a rr.ore
uniform characterization of farm products.
The classification dfi goods as farm products or inventory
is of particular significance in the perfection of a lender'3
security interest. Seotions 9-303 and 9-302 will require, in -cs
instances, the filing of a financial statement in order to per-
feet one's security interest in agricultural commodities.
The
only applicable exception to filing is the possessory security
interest provided for in seotion 9-305. Section 9-^OKl) of the
Texas code requires that financing statements pertaining to livestock be filed in the county clerk's office of the county where
the debtor resides.29
if the debtor is a non-resident of Texas,
the financing statement is then filed in the county where the
livestock are located.30
Section 9-401(a)(3) requires that in-
ventory finanoing statements be filed with the Secretary of
State's office, wi&hout regard to the debtor's
residence.31
Thus, when perfection is dependent upon filing, the characterization of agricultural commodities as farm products or inventory
is very important, especially as to the priorities of conflicting
security interest under sections 9-312,32 9_3qi33
j m
an!j
9-103.3^
Articles 9-306 & 9-307-Converslon ..Liability
The classification of agricultural commodities as farm
products or inventory is of further significance under sections
9-306 and 9-307 of the code.
Section 9-306(2) provides»
Except where this Article otherwise provides,
a security interest continues in collateral
notwithstanding sale, exchange or other disposition thereof unless the dispodition was
authorized by the secured party in the security agreement or otherwise, andalso continues
in any identifiable proceeds including collections by the debtor.35
Section 9-307(1) provides 1
A buyer in the ordinary course of business ...
other than a person buying farm products from a
person engaged in farming pperations takes free
of a seourity interest created by his seller even
though the security interest is perfects^,and even
though the buyer knows of its existence.-30
-9-
Section 9-306(2) thus provides a general rule that a purchaser
of goods takes such goods subject to an existing security interest
and the rights of the seoured party.
Section 9-307(1) is an
exception to 9-306(2) in that the sale of inventory to a buyer
in the ordinary course of business v/111 t a k© free of any security
interest created by his seller.
But, section 9-307(1) excludes
from its protection the bujrer of farm products and therefore
places the buyer of farm products back within th© general rule
of section 9-306(2),
In order to purchase free of the lender's
security interest in farm products, the seller must have had
the sale"authorized by the secured party in
security agree-
ment or otherwise."37 Without the debtor's authority to sell
the livestock, the purchaser takes the goods subject to conversion liability and the repossession rights of th£
..^.id
party.38
Furthermore, the security interest in farm products continues
as the goods pass from one purchaser to another, and finally
to the table of the consumer«39
p o r example, a cattle owner-
debtor sells his livestock to the packing plant,.
The packing
plant finances its inventory and creates a security interest
in that inventory.
Thus, the slaughtered cattle hanging in
the packer's cooler are subject to two security interests, one
created by the cattle-owner in farm products and an6th&z»r* created
by the packer in his inventory.
When these cattle are sold by
the packer to a wholesaler or retail market, the carcasses
will pass free of the inventory security interest bece&se the
effect of section°9-30?(l) .
They will not, however,, pass
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free of the farm products security interest to the b*jyer because
the security interest was not created by his seller as required
by section 9 - 3 0 ? a n d the general rule of section 9-306(2)
continues to apply.
The 9-3°6(2) rule also allows the secured party to pursue
any identifiable proceeds of the sale, exchange or other disposition of the farm products.^-
This allows the secured lender
an additional party, i.e.. the recipient of proceeds generated
by the collateral, from which he may regain hie losses resulting
from a defaulting debtor.
The case of Production Credit Association.. v 8 Long Creek Meat
Co.^s a good example of this chain of liability. In this case
Production Credit Association (PCA) financed the cattle of Deer
Creek GattifteFeeders, retaining a security interest in the cattle.
These cattle were sold to the Long Creek Meat Company where they
were processed.
Long Creek Meat Company financed the purchases
of the inventory through the First State Bank.
The vv^ocessed
carcasses were then sold to a wholesaler of meats and the wholesaler would in turn issue checks payable to the First State Bank,
who applied the proceeds to liquidate the loans mads to the Meat
Co. for the purchases of inventory.
Upon default of the cattle
feeders, PCA brought suit against the First State Bank fer^aecounting and conversion of the proceeds.
The court held that PCA's
security interest continued in the proceeds as provided by the
code.^3
The wholesaler's checks which were received by the bank
were proceeds subject to PCA's security interest even though the
paymeftt was to the bank rather than to the seller or debtor
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Therefore, the bank was.held liable for conversion of PCA'e security
interest in the farm products,
jtfhe liability for conversion extends not only to the purchaser of farm products but also to those who sell the products
only and never have an ownership interest in the goods.
For,ex-
ample the owners of livestock autions have been continually held
liable for the conversion of the secured party's interest.
The
general rule aB to auctioneers is that when he sells cattle for
his principal who has no title thereto or holds the goodB subject
to a mortgage or other lien or who for other reasons has no right to
dispose of the property, the seller-agent is personally liable
to the true owner or secured party for conversion^-5
This liability
arises regardless of whether the agent has knowledge of the principal's lack of authority to sell.
In discussion with professors and attorneys pertaining to
the conversion liability of purchases of O.rrsj products, we have
constantly been concerned with the liability .f the packer when
he purchases fat cattle.
However, our concerr.
rro also include
the commercial feedyard selling cattle for its customers.
I
can aee no difference between the feedyards liability as an agentseller of cattle and the auctioneer's liability as an agentseller for conversion,
Consequefttlyyit would be advisable for
the commercial feedyard to notify the owner of cattle which are
ready for market of the intended sale and requires the owner to
obtain authority from his lender to sale the livestock. Once
the secured party gives its consent for the sale of the collateral,
then the disposal of the cattle will be in compliance with
aevjt.
-12-
section 9-306(2) and.possible liability for conversion of the
eeoured party's interest will be avoided. Concent to sal© will
further allow the purohaser in the ordinary ooura© of bu8ln«ea
to take the goods free and clear of any outstanding lien,
Should the owner-debtor represent to the feedyard that the
cattle are not subject to a security agreements it would still
be an advisable precaution for the feedyard to check the records of t>
county in tfhich the livestock are located if the debtor is a
non-resident.**?
This precautionary search would notify the seller-
feedyard of any properly filed financing statements and protect
the feedyard titom any misrepresentations that may be made by the
debtor.
However, this should be the limit of the search required
by the feedyard, in that an improperly filed financing statement
on the part of the lender is not notice to a seller or purchaser
of the collateral.^8
IV. Waiver,Miand> Imy;lla^^Jjongfrnt
In the absence of a secured party's express authorisation
to sell farm products subject to its security interest, such
authority may be found to exist because of the past conduct and
actions of the secured party.
A consistent practice of the lender
not requiring its consent prior to sale of the goods- has been
held by the eourts to create a waiver or implied consent on the
part of the secured party, thereby avoiding the harsh consequences
of sections 9-30? (1) and 9-306(2).
Section 9-306(2) provides that the security interest in the
collateral continues unles? "the disposition was authorized by
he
the secured party in the security agreement or otherwise. '
It has been stated by the courts that section 9-306(2) codifies
the oommon law rule that the secured party could by his actions
and conduct waive or impliedly consent to the sale of the encumbered property, notwithstanding an express
provision that
sale must first be preceded by c o n s e n t . H o w e v e r * the decisions
of the various jurisdictions of the United St&tte;have disagreed
whether the Uniform Commercial Code in its entirety has or has
not modified this pre-oode doctrine.
The primary decision concluding that the code has not modified the common law doctrine of waiver or implied consent, is
the Hew Mexico Supreme Court's decision in Clovis.National Bank
v. Thomas-
i n Thomas the bank had loaned to the debtor money
to purchase cattle for his farming operation,
The debtor had
made many previous sales of the cattle covered by the security
agreement without the consent of the bank, without objection
of the bank and without obtaining written consent of the bank
as was required by the security agreement executed between the
parties* The bank brought an action against the roller-auctioneer of the cattle for conversion of the security interest in
the collateral.
It was established that it wr„g the custom and
practice of the bank to permit a debtor, who has erivsn cattle
as collateral, to retain possession and sell the collateral
without first obtaining the written consent of the bank.
Furthermore, at no time during the dealings with the debtor
had the bank required that the debtor obtain written consent
prior to the sale of the collateral.^
The Thomas court held that the bank did not expressly
consent to the sale of the cattle, but by its conduct and
course of dealing with the debtor and others had impliedly
-14-
consented to the dispoaition of the collateral.^
The bank's
consent to sell the collateral may therefore be established by
implication from the course of taec&red party's conduct as well
as express words and such consent to sell operates as a waiver
tie
of the lien or security interest in the goods t JJ
The application of Course of dealing-*^ and trade usage-' ^
to the terms of a security agreement is provided by the code
in sections 1-205 (l)-(3).
The course of dealing between the
parties and trade usage in the vocation or trade in which they
are engaged or of which they are aware "give particular meaning
to and supplement or qualify terms of an a g r e e m e n t T h e us©
of course of dealing and trade usage is qualified, however, in
section 1-205(4).
This section provides that the express terras
of the agreement and applicable course of dealing and trade
usage shall "be construed whenever reasonable as consistent with
each otheri but when such construction is unreasonable express
fQ
terms control both course of dealing and t>rag9 of trade.
The Thomas court did not consider the applicability of section
1-205(4)•
It is significant that the New Mexico legislature promptly
amended sections 1-205(3), (4) and 9-306(2) of the Nev? Mexico
code after the Thomas decision.
Section 1-205(^Fwaa^s&oftdfed to
providei
. . • except that
products shall be
ured p&rty -by any
parties or by any
no seourity interest in farm
considered waived by the seccourse of destjLing between the
trade usage
A like provision was also added to sections 1-205(4) and 9306(2) of the New Mexico ccde^1 thereby legislatively cvar-
-15-
ruling of tho New Meico Supreme Court's holding in Thtwras.
In Blubaugh v. Ponca City Production Credit Association0*
the Oklahoma court disagreed with Thomas on analogous facts.
In p^ubaugfr the lender had habitually allowed the debtor to
sell his cattle, subjeot to the secured party's security interest,
without the required written consent provided by tho security
agreement.
The court held that although consent may M v e been implied from the prior acts and conduct of the lender, the express terms of the security agreement were to control over
course of dealing and trade usage.^
The court disagreed with
the Thomas holding that the Uniform Commercial Code did not
64
modify the oommon law doctrine of waiver and implied consent.
The Blubaugfr court reasoned that section 1-205(4) required that
the express terms of the agreement, i.e.. the requirement of
written consent, controls over any prior course of dealing and
trade usage between the lender and the d e b t o r T h e
expressed
terms could not be reasonably construed as being consistent with
the claimed course of dealing and trade usage and therefore,
the express terms must control^ Course of dealing and trade
usage should only be used in determining the meaning of the
agreement and should yield to the express terms of the parties'
oontraot.^?
The decisions of the courts among various jurisdictions
have varied as to the application of the doctrines of waiver
and implied consent.
Therefore, at least in the interpretation
of section 9-306(b) and its phrase "or otherwise" has caused
-16-
an ununiforraity in the Uniform Commercial Code.
Jurisdictions
that have followed the holding of the New Mexico court in
'£h«?Mfl
0»lifomU 6 find Washington.6? in In re QnflgfiUr
Martin Meat Co., the federal district court, applying California
law, invoiced the doctrine of implied consent. The debtor had sold
cattle, subject to the lenders security interest for two or
three years without first obtaining the written consent of the
seoured party. The security agre^ . ".it expressly provided that
sales were subject to prior written ^rproval.
The court held:
"Short of executing a written a^end^ent to the Security Agreement
,.,, it is difficult to imagine how the bank could have more
clearly waived compliance with the {provision^ of the Security
Agreement requiring prior written consent of the Brink of any v
sale.70
Although courts have placed si^-nif ic&ncs on the
legislative change after the Th~
— decision, the Cr^ell-
Martin Court stated that these c^-.-^s v/ero net persuasive in
that the amendments were mero legislative dccviiions s.3 to what
tks rniie bftitidiiiSssconduct should be in New Mo::ico.71 The
Washington CoUrt of Appeals in Central v/ssMnrton
on
Credit Association v. Baker?2 also held that ncxv;i\.'_~anding
the requirement of written consent prior to sell of the farm p
products, the course of dealing and trade usage were persuasive
and sufficient factors togive rise to a waiver of the banks right
to require express consent of the sale of the collateral.73
«
Jurisdictions that have disagreed with the Thenar, holding
are Nebraska?1*, Illinois75, and 0regon76,
and
Oklahoma,77
Garden Cltv Production Cragjjfc Association v. Lar-van.?^.^
-17-
ir.
Nebraska court considered the issue of whether course of dealing
and trade usage could result in a waiver vecause of PCA's previous
practice of failing to object and require compliance with the
express terms of the Seourity Agreement.??«>The court reasoned
that the buyer was bound by the provisions of the Uniform
Commercial Code and must take the risk of a failing
to make
the appropriate investigation required by Articles'.80 Further,
the coupling of the requirement of written consent with the reservation of a security interest in the proceeds of any sale
(a provision that is no longer needed because of sections 9-203(3)
and 9-306(2)) strengthens the protection of the security holder,
rather than opening the door to an expanded permissiveness to
the borrower or purchaser bound by the filing and notice provisions
of the code.®1
Therefore, the past dealings between PCA and the
debtor and PCA's acceptance of payments without objection would
not constitute a waiver by the secnred party and purrbaserdefendant would not take free of the security interest in the
farm products.§2
•t
The Oregon court in Baker Production Credit Aygegiation v.
Long Creek Meat ?Co,.dealt with a conditional consent to sell.
In Long Creek the secured party consented to the sale of the o
cattle conditionally, that is, the cattle could be 3old on the
condition that payment was received by the lender when the cattle
Oh,
left the feedlot for delivery to the packer or shortly thereafter.u
The ceurt held that if PCA's consent to sell the collateral had
been unconditional, thenclearly the buyer would take free of
the security interest in the c a t t l e . c o n d i t i o n ? -18-
"dds
an important factor, for is such conditions are imposed, then
a sale by the debtor in violation of the conditions is an unauthorized sale and the security interest, by virtue of section
9-306(2) continues in the collateral in to the hands of the
86
buyer.
it i a the duty of the purchased-to '.protect1 himself 'by
ascertaining whether a security interest exist and requiring that
he be furnished proof of the secured aprty's permission to dispose of the collateral.®"''
The Illinois case of Vermillion County Production Credit
88
Association v. Izzard
held that the inclusion in the security
agreement of clauses covering after-acquired property and
the proceeds of all collateral sold was not the equivalent of
a waiver by the secured party of his right to consent to the sale
of the collateral.89
The inclusion of such clauses in the sec-
urity agreement means only that should a sale* exchange or
other disposition occur, the proceeds or the products resulting
therefrom would also be covered by the agreement.^
The purpose
of the clauses is to protect the secured party and net to grant
permission or consent
91 to the borrower for the sale or disposal
of the collateral.^
Although the Izzard court expressed discontent with the
Thomas holding, it is significant that course of dealing and
trade usage was not in issue in the case.
Moreover, the
Illinois code at the time of the decision imposed criminal
penalties and delared that it was unlawful.'for a debtor who
under the terms of a security agreement had no sight to sell or
dispose of the collateral; to fail to pay the secured party
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the necessary of the proceeds.92
Therefore, the court held that
the code'8 penal sanctions preclude an interpretation that
course of dealing and trade usage oould create estoppel
or
constitute waiver,93"
When the seourity agreement in farm products require consent
by the secured party course of dealing and trade usage becomes
much more significant in determining the existence of waiver or
implied consent on the part of the lender?^ Also, in the event
that the security agreement requires a written consent and oral
consent is given in lieu thereof, this form of approval may be
held to be sufficient to allow the goods to pass free of the
security interest.95 Although an oral consent is express, it w
be the equivilent of a waiver of the secured party's right to
require written consent and a waiver of the lender's right to
pursue the collateral in the hands of third parties to satisfy
the loan obligations of a defaulting debtor.
The decisions discussed afe$tre are representative of the £
problems and controversies that have arisen due to the harsh
effect of sections 9-307(1).
Therefore, an Inevitable question
is whether these provisions should continue, along with others,
to distinguish between farm products and inventory.
V. Poliov for the Change, of the Seperate Treatment of Farm Products
—
—
1 11
m
II
• —• ••
•
I • ui'
•
"TT-....I.I ,1 'f^' •
- ._!• • •
The treatment of farm products separately by the code andn
in particular
9-307,and
amazes,
confuses
and commodities.
perplexes
i . by section
the
expectations
of the buyers
sellers
of these
the liability that may arise due to the effect of sections 9-306
t;t
and 9-307 creates an onerous duty on the part of buyers in the
-20-
ordinary course of business of oattle and other farm products.
Many modern packing plants purchase over 1000 head of cattle
per day.
These cattle will arrive at the plant from various
locations, counties and states.
The commercial feedyard will
select cattle from several different pens, belonging to several
different feeders, in order to assefcl&e a commercial unit conforming to the packer*s order. Therefore, one truck load of
cattle arriving at the packing plant may contein the cattle of
several different borrowers and consequently the collateral of
several different lenders,
Thus, the packer is faced with an
impossible burden of tracing these cattle, searching the records
for security interest and determining whether the secured party
has consented to the sale.
fephafespa better solution to the dilemma of the buyer of
commercially fed?, cattle is for the feedyard to ascertain that
the consent to sell the commodities is given.
Although this
would create additional duties on the feedlot management (an
additional burden because such is not the present practice), they
are in a better position to know the debtor and his financing
arrangements.
Moreover, as discussed afcove, this action will
proteot the feedyard from conversion liability as the selleragent of the feeder.
The feedyard should also consider obtaining
the consent to sale from the lending institution at the time the
livestock arrive at the feedlot.
If a continuous consent would
)6e given by the lender, then the feedyard would be able to sell
the oattle at any time during the feeding program, a desirable
element in a market that has fluctuating prices and demands.
-21-
this permission may be difficult to obtain in advance, however,
because of the changing financial positions of debtors and the
dangers of a rapidly declining market.
The lender may therefore
wish to continue his options provided by the code up to the moment
of sale.
Another solution to these problems, and porhap3 the best
for all conoeraed, would be a reddrafting of the code to eli—
minate the distinction between farm products and inventory.
It
was proposed that the 1972 re-drafting of Article 9 eliminate
the seperate treatment of farm products.
However, there t?ere
two main reasons for the failure of this proposal*
First, it
was believed that some states would remain with the status quo,
creating non-uniformity of the ccde and thereby defeating its
96
purpose.'
Second, a chief proponent of the continued separate
treatment of farm products under Article 9 was tho federal
government because of its extensive financing of far;: products
through the Farmers Home
Administration.97
Therefore a change
in the code could have well resulted in the enactment of federal
legislation contrary and superior to the code
provisionsl98
Judge Newton,dissenting in Lannan. believed that it was ah
unwarranted discrimination against the purchaser of farm products
to hold thom liable for opnversipn and npt thoao whp purchase
inventory.99
The farm products distinction tends to restrict
the movement of such goods in commerce rather than aid their sale
and distribution.100
Article 9's treatment of the farmer overlooks the fact that
farming of today is a business operation that is functionally
-22-
and economically indistinguishable from other forms of business
and industry.
This 'is especially true in the cattle feeding
industry of Texas.
Today's feedyards are large, oomplox, com-
puterized production and marketing facilities.
They require free-
dom in their marketing prooess in order to produce beef as economically and inexpensively as possible.
They do not need to be
shouldered with burdens of record searches and conversion liabilities
It is difficult to see the difference between a manufacturer
of automobiles and the manufacturer of beef.
The only differencoo-
is that the cattle are alive and the automobile is not.
If one
oould produce beef without the cow from a machine, then the same
commodity would be treated as inventory held for sale, rather
than farm products.
Moreover, a farmer is no more dishonest than
the retailer, wholesaler, or manufacturer.
The lender's security
interest continues into the proceeds of fara products the same .as
i
,
any other classification of goodei. It escapee this writer why
the finanoers of farm products should have two or morwr parties
from whom they may satisfy the debts of their borrowers and the
financers of other types of goods do not.
VI. Multiatate Sales of Livestock
A cautionary note to parties with security interest in
farm products is that their security interest and right to
pursue the collateral in the hands of a third party is in
jeopardy should the rgoods cross stite lines in the marketing
process.
In United States v. SquireB101the debtor had purchased
the cattle in state X.
The lender perfected its security interest
-23-
in the collateral by filing in the appropriate place in state
X,
The collateral was subsequently moved to state Y and aold
within four months of the removal to state Y.
At no time during
the four month period did the secured party go to state Y and
perfect its security interest there as required "by section
9-103. 102
The Squires court held that undor the old section 9-103(3)
a secured party who fail? to fil^
erfact his security interest
in the state into which the collateral is removed within the requisite four month period, becomes junior in interest to a buyer
during such period.103
Thereafter, if the secured party has not
done so, his interest, although originally perfected in the state
into which the collateral was removed, is subject to defeat by
a purchaser of the collateral.10^
The Squires court reasoned
that there should be no difference between a buyer without knowledge of the secured party's interest and a holder of a conflicting perfected
security interest which arise,:, in
jurisdiction
into which the goods are removed. 105
The holding of the Squires court is the result Jbi-t would
follow under the 1972 revision of Article 9.
Further, soction
9-103(1) reflects the policy and equity of the S**ulrcr holding.
Section 9-103(1) provides»
(1) Documents, instruments and ordinary
goods
» * •
(d) When collateral is brought into and :c?t!:
kept in this state while subject to a security
interest perfected under the law of the
jurisdiction from which the collateral was
removed, the security interest remains per2
fected, but if action la required by
Part 3 of this Article to perfect the
security interest,
(i) if the action is not taken beforethe expiration of the four months
after the collateral is brought into
this state, whichever period first
expires, the security interest becomes unperfected at the end of that
period and is thereafter deemed to
have been unperfected as against a
person who became a purchaser after
the removals 106
Therefore, not only should the lending institutions be
aware of the sale of the collateral, but also of the intended
place of sale.
Once the collateral crosses the state line, it
should be pursued into the other jurisdiction with prompt filing
in order for the secured party to obtain satisfaction, after
default of the debtor, from a third patty purchaser as well as
priority over an intervening security interest,
VII.
The Feedyard'b Purchase Money Security,.Satejpest
Lending institutions financing cattle placed in commercial
feedyards may execute security agreements with the dc'ctor upon
each purchase of a pen of cattle, or the p a u t - i e s • provide In the agreement that the lender's security interest will
also extend to after-acquired livestock as permitted by
sec-
tion 9 - 2 0 4 . T h e lender's security interest Is, however,
vunerable to a purchase money security interest taken by the
feedyard.
This security interest might arise when the feed-
yard purchases the cattle for the feeder.
For example, many
times a feeder will desire to purchase additional cattle in order to increase or replace the investment t M t he has.
The
feedyard will then purchase the cattle for the feeder and bill
hira for the cost.
It is at this time that the feedyard could
-25-
execute between it and feeder & security agreoaont to secure
the cost of livestock.
The purchase money security interest is defined in soction
9-10? as a seourity interest that iB taken or retained by the
seller of the collateral to seoure all or part of the purchase
pricei or taken by a person making advances or incurring an
obligation who gives value to enable the borrower to aoquire
rights in or use of the collateral if such value is in fact so
used,10®ThiS security agreement may be taken in advance of the
receipt of the collateral for section 9-303(1) provides that a
security interest is perfected at the time it has attached,
section 9-203(1), 109 all applicable steps required for perfection
havetoetontaken.3,10 To perfect, the purchase money security interest must be filed 1 1 1 unless the collateral is in the posses112
sion of the secured party, *
In order for the purchase money seddred party to obtain
priority over the lending institution's prior security interest
in after-racquired property, haemust comply with the requirements
of section 9-312(4), 11 3 This section provides that in order for
a purchase money security interest in goods other than inventory
to have priority over a conflicting security interest in the same
collateral or its proceeds, the purchase money security Interest
must
perfeeted
at the time the debtor receives possession
of the collateral or within 10 days thereafter.111*
it is to be
noted that this sectioh does not require any notice to be given
holders of conflicting security interest.
Therefore, there is
an advantage in this case for the goods to be characterized as
-26-
farm products rather than inventory.
Section 9~312(c) requires
that prior notice be given to the
holders of conflicting security
*
interest in i n v e n t o r y , A l s o , the purchase money security interest in inventory permits only a security interest continuing
in the identifiable cash proceeds,H6
However, the purchase
money security interest in farm products would continue in all
proceeds derived from the sale of the products as defined in 3
section 9-306(1).117
This potential purchase money security interest of the
feedyard's in the cattle could cause problems because of the
lending institution's margin requirements.
For example, many
lenders require a 30$ margin in the purchase price of the cattle,
e.g.. the bank will loan 70$ of the cost of the cattle and the
debtor will provide the additional 30$ from his own capital.
Should the debtor not pay the feedyard for the entire cost of
the livestock, but only'pay 70% of the cost, using the borrowed
funds, the bank would remain a junior lienholder until the feedlot's interest was satisfied or subordinated;.'.by agreement as
provided in section 9-316.
As a practical matter, the feedyard's purchase money security
interest would not be effective for three reasons.
First, the
lending institution will not likely advance 100^ of the cosx, of
the cattle, not would it'desire to be a junior lienholder as to
70% of the cost of the goodsl
Second, most security agreements
contain a warranty given by the debtor that a prior security
interest had not been created in the collateral.
In the event
that the debtor breaches this warranty, the lender has the right
under the agreement to declare default on the part of the debtor
and foreclose on his lien.
A foreclosure by the lender could
-27-
thereof have become part of a product or mass,
the security interest continues in the pro duct or mass if
(a) the goods are so manufactured, processed, assembled or commingled that their
identity is. lost in the product or massi
(2) When under subsection (a) more than one
security interest attaches to the product or
mass, they rank equally according to the ratio
that the cost of the goods to which each interest originally attached bears
to the cost
of the total product or mass. 120
Although this is possibly an uneasy fit to the animal-feed
situation, it would seem a valid argument that fat cattle are
the products that result from a commingling of animal and foed,
for once the feed is fed to the animal, it would become so
commingled in the product or mas-j (excluding that which exits
as manure) that its identity is lost.
Therefore* the lender and
the feedyard would share pro rata in the proc&odi' of the animal. 121
For example, if the cattle cost $300 per head and ohe feeding
cost is $100 per head, then the purchase money lender would receive three-fourths of the proceeds and the feedyard would receive
one-fourth.
Assuming a declining market and the cattle sell for
$300, then the lender will receive $225 per head arid the feedyard
$75 per head.
This result would be much more equitable than the
lender being able to liquidate his entire interest and leaving
the feedyard to carry the entire loss.
Should this theory be viable, the financer of the cattle
should assure itself that (1) no competing security interest in
the feed exist, (2) see that the feed bill is immediately paid
off with cash, or (3) obtain a subordination agreement under
section 9-316. 122
-29-
result in a premature sale of the collateral, l^e.« the cattle
may "be sold "before they have regained shipment weight losses or
at a time when the market is down.
Third, the feedyard is in
the 'business of feeding cattle, not lending money.
Should the
bank refuse to finance these cattle, the feedyard is left holding
the"bag?
VII.
The Feed Bill
A major problem of the commercial cattle feeding industjry
is how to insure that the cost of feeding is paid.
This is
particularly true during times of declining markets and heavy
losses.
The lender's security interest' may be satisfied while
the feedyard's advancements to the debtor will remain unpaid.
This situation has been of major significance in past years
when losses, bacause of a depressed markdS, have exceeded the
amount of cost of feed purchased by the debtor from the feedyard.
The debtor is unable to pay the amount owing the feedyard, and
the sale proceeds are applied entirely by tho lenders to liquidate
their interest in the goods.
A. Commingled Goods
A possible solution to the industj*yfts predictament may be
section 9-315's commingled goods concept,
Seotion 9-315 pro-
vides a priority rule when different goods financed by two or
more secured parties are commingled or processed.} 1 ®
This
seotion is little discussed, but it may bemusef&l to the feedyard
in securing payment of the cost of feeding the
cattle.119
9-315 provides!
(a) If a security interest in goods was perfected and subsequently the goods or a part
t*
/
-30-
Section
B. Statutory Agister's Lien
The Texas agister's lien provides in relevent parti
Proprietors of livery or public stables shall
have a special lien on all animals placed within them for feed, care and attention, . . . for
the amount of the charges against the earn©} and
this article shall apply to and include ownex-s
or lessees of pasture, who shall h&sitQ a similar lien2on all anim&ls placed with them for pasturage, J
The question arises as to whether the lien will apply to the
commercial feedyard situation.
There would be two arguments.
First, the statute expressly covers only the owners of livery
stables and pastures and does not grant a lien to the feedlot,
The statute has been in existence for years and the leg-
islature has not seen fit to re-write the statute so as to include the commercial feedyard,
On the other tend, it wowId be
arguable that the statute does apply to the commercial feedyard due to the general purpose of the statute.
Its apparent
purpose is to provide a lien for the one who furnishes f&ci124
lities, feeding and care for livestock that are placed with him.
Assuming that the agister's lien would be applied jso the
feedlot situation, it is subject to a number of limitations.
First, even though the statute does not expressly require retained possession of the livestock by the statutory lienholder, case interpretation of the statute requires possession
by the lienor as an essential element of a valid agister's
lien. 12 ^
Moreover, it is necessary for the owners of the
facil126
ities to be in possession of such,for the lien to arise.
Where the owner has leased the pasture, for example, to the
cattleman and religuishedipossessipn of the pasture, the own*»r
is not in possession of the livestock and will not be able to
-30-
obtain an agister's lien.12?
A second limit on the possible use of the agister's lien
is that it may be statutorily subordinated to previously created
security interests in the livestock.
Article 5506 provides«
Nothing in this title shall be construed or
considered as in anv manner impairing: or affecting the right of parties to create liens by"
special contract or agreement, not shall it
in any manner affect or impair other liens
arising at commori law or in equity* or by any
statute of this State, or any other lien not
treated of under this title. 1 2 8
Prior to the enactment of the Uniform Commercial Code by
Texas, the Texas courts had interpreted article $$Q6 as rsaintaining the priority of existing m o r t g a g e s • T h e Texas Court
of Civil Appeals in Skaggs v» Currey^Uld that a chats 1 mortgage
that is duly recorded is superior to the rights of agister lienholders, in the absence of any agree-ment by the mortgagee that
the statutory lien shall have preference.!31 Services rendered
prior to the filing of the chattel mortgage are superior in rank
as to a subsequently recorded lien, but all services rendered
thereafter will be inferior to the mortgage l i e n , 1 3 2
Artiole 9 in section 9-310 provides the rule that a lien
securing claims arising from work intended to enhance or preserve property subject to a security interest takes priority over
an earlier perfected lien. 13 3
Section 9-310 is limited however,
in its scope and allows for the affect of article ?506 in that
-31-
a statutory lien is prior "unless the lien is statutory and the
statute expressly provides otherwise.
Therefore, even though the Texas Agister's lien may be
applied to create a lien in favor of the commercial feedyard,
the lien must not be within the restrictions of article 5506
and section 9-310.
As discussed above, it has been ruled that article 5506
maintains the priority of existing mortgages over the lien
created by article 5502,
The questions remains as to whether
article 5506 is a statutory provision that complies with the
requirements of section 9-310, i.e.„ does it "expressly provide
otherwisew?i35 • The language of article 5506 that liens within
its title will not be "construed or considered as in any manner
impairing or affecting the right of parties to create liens by
special contract or agreement"136 ^ould appear to be express,
and within the meaning of section 9-310.
However, the recent Texas case of Nelms v. Gulf Coast State
Bartfc^^cast
douY)t u p o n
^he expressness of article 5506.
Al-
though the Nelms deoision was involved with a mechanic's lien
under article 5503* 138 a lien within the purview of article
5506, the court held that a perfected security interest in an
automobile would be subordinated to the mechanic's lien pursuant
-32-
to section 9-310 of the code.
The court heldt
Section 9-310 clearly establishes the priority
of possessory liens of mechanics and materialmen
over perfected security interests unless the
statute 'expressly provides otherwise,* We
find no existing statute, including Article
5506 * . . which, in cur opinion, 'expressly
provides otherwise.' J-39
The Kelms decision will be a surprise for many.
If the holding
applies to all ti£ the possessory liens within the purview of *
article 5506 and the agister's lien will be interpreted to apply
to the commercial feedyard situation, this, would open the door
for the feedyards to retain possession of the cattle and then
sell them in order to satisfy the feedyard*s claim against the
animals for feed and services.
Assuming agister's lien will not applys this if! but another
short coming of the Texas code and statutes because in money loss
situations, the feedyard will not be able to collect for its services and sales of feed while the lending institutions will likely
recover a significant portion, if not all, of the loaned money.
This is so because the feedyard is fattening the lender's security
interest in the collateral.
The increase in weight of the animals
will likely protect against a declining market and cover the initial purchase price of the collateral.
Therefore,if the cost
of gain exceeds the market price at the time the cattle are marketed, the feedyard will likely suffer some, if not all of the loss
in the event a feeder has not retained a sufficient margin in
the collateral.
The policy behind giving the statutory lienor priority is
that he gives added value to the goods through materials and
140
services.
Therefore, he shouldJ^ve a prior claim for his
added value over the secured party or otherwise the secured party
benefits from the lienor's work by now being secured by more
valuable goods, without a corresponding increase in liability,1^1
This polleyi argument is espeoially applioable in the oase of the
commercial feedyard.
As to the cure of the commercial feedyards problem, it would
require amending both the oode and the Texas agister's lien or
enacting a new lien expressly for the feeders of cattle.
How-
ever, this would be a difficult ta&k, for it would be difficult
to enact legislation, as a practical matter, that will protect
the feedyard in full, leaving the lending institutions holding
the "bag".
Therefore, perhaps the most plausible solution to
this problem is the application of the commingling principle of
section 9-315 ty2 Either the holding that 9-315 applies to the
feed-cattle situation or the enactment of legislation that would
result in the pro rata sharing of the proceeds of the collateral
would be a reasonable compromise line for both the feedyard and
the lender*
m -
ff°noiuBion
In view of the gigantic size of the cattle feeding industry of Texas, it is suggested that the legislature review
the provisions of article 9 of the Texas Business 3ode.
This
review should be with the intent and purpose of facilitating the
livestock marketing process and the preservation of the commercial
feedyard industry.
"j
Moreover, the heavy burden on the purchasers of
,
'
these commodities should be strongly considered so that the goods
j
may move freely within the wholesale and retail marketing system.
-34-
FOOTNOTES
1.
Uniform Commeroial Code (9-109(3); Tex. Bus. & Comm.
Code Ann. art. 9.109(c.)(Supp. 1974).
2.
Uniform Commeroial Code 09—109(^); Tex. Bus. & Comrn.
Code Ann. art. 9.109(d)(Supp. 1974).
3. Uniform Commeroial Code 09-109(3); Tex. Bus. & Comm.
Code Ann. art. 9.109(c)(Supp. 1974).
4.
Coates, Farm Secured Transactions Und_er the UCC. 23
Bus. Law. 195,196 (1967); Comment, "Farm Products" Under the
UCC-Is 8peolal Classification Desirable?. 47 Texas L. Rev.
309, 310 (1969).
5.
Coates. Farm Secured Transactions Bnisr the UCC. 23
Bus. Law. 195,196 (1967).
6.
In re Cadwell-Martin Meat Co., 10 UCC Hep. Serv. 710,
715 (E.D. Cal. 1970). •
7.
Uniform Commercial Code 09-109(4/5 Tex. Bus. & Comm.
Code Ann. art. 9.109(d)(Supp. 1974).
8.
Uniform Commercial Code 09-109, Comment 4.
9.
485 F.2d 71 (10th Cir. 1973).
10.
Id. at 73, 74.
11.
Id. at 74.
12.
Id.
13.
426 F.2d 1099 (8th Cir. 1970).
14.
I*. at 1102.
15.
Id.
16.
Id.
-1-
17.
Uniform Commercial Code 5 9-401 (l) (a) (Alternative 2)i
Tex. Bus. Coram. Code Ann. art. 9.401 (a) (1) (Supp. 1974).
18.
Uniform Commercial Code J 9-410 (1) (c)(Alternative 2)j
Tex. Bus. & Coram. Code Ann. art. 9.410 (a)(3)(Supp. 19?4).
19.
456 S.W.2d 273 (Tex. Civ. App.—Waco 1970,uV.t*4Uw).
20.
M . at 275
21.
II.
22.
14.
23. Id,.
24.
410 F.2d 1116 (9th Oir. 1969).
25.
Id. at 1118
26.
14.
27.
II.
28.
14.
29.
Tex. Bus. & Comm. Oode Ann. art. 9.401 (a)(1) (Supp.
1974).
30.
14.
31.
14. at art. 9.401(a)(3).
32.
Uniform Commercial Code I 9-312? Tex„ Bus. & Comm. Code
Ann. art. 9.312 (Suppl974) (Priorties asaong conflicting socrrity
interests in the same collateral).
33.
Uniform Commercial Code J 9-301? Tex. Bux. & Comm. Code
Ann. art. 9.301(Supp. 1974) (Priorties over unperfected security
interest)•
34.
Uniform Commercial Code i 9-103? Tex. Bus. & Comm. Code
Ann. art. 9.103 (Supp. 1974)(Multiple State transactions).
35.
Uniform Commercial Code i 9-306(2)? Tex. Bus. & Comm.
Ann. art. 9.306(b)(Supp. 1974).
36.
Uniform Commercial Code! 9-307 (1)» Tex. Bus. & Comm.
Code Ann. art. 9.307(a)(Supp. 1974).
37.
Uniform Commercial Code J 9-306(2)» Tex. Bus. & Coram.
K
Code Ann. art. 9.306 (b) (Supp. 1974).
38.
See Baker Production Credit Association v. Long Creek
Meat Co., 513 P.2d 1129, 1132 (Ore. 1973).
39.
See Ici« I Garden City Production Credit Ass'n v. Lannon,
186 Neb. 668,
, 186 N.W.2d 99, 103 (1971) I Haw£land, The
Proposed.Amendments to Article'^ of the U.C.C.-Part It Financing
the Farmer. 76 Com. L.J. 4l6, 418 (1971).
40.
Hawkland, The Proposed AgendgKmts to Article 9 of the
U.C.C.-Part li Financing the Farm sr. ?6 Cc.s I J. 416, 418 (1971).
41.
Uniform Commercial Code | 9-306(2); Tsx„ Bus. & Comm.
Ann. art. 9.306(b)(Supp. 1974).
42.
513 P.2d 1129, 1132 (0u. 1973).
43.
Uniform Commercial CodaS9-306(2) & 9-203(3),
44.
513 P.2d at 1133.
45.
Hills Bank & Trust Co. v. Arnold Cattle Colt 316 N.E.2d
669,61? (Ct. App. 111. 1974): Clovis Nat'I Banl: v. Thomas, 77
N.Mex. 554,
, 425 P.2d 726, 729-30 (1967).
46.
See authorities cited note 45 supra.
47.
It is a general principle of the notic._• systme that
filing is constructive notice of a security interest in the
collateral and such notice is sufficient to give rise to conversion liability.
48.
See Swift & Co. v. Jamestown Nat'l Bank, 426 F.2d
1099, 1102 (8th Cir. 1970).
49.
Uniform Commercial Code l9-306(2)j T<,jl. BUS, & Comm.
Code Ann. art. 9.306(b)(Supp. 1974).
50.
See e.g.. Clovis Nat'l Bank v. Thomas, 77 N. Mex. 554,
425 P.2d 726 (1967).
51. -* M .
52.
14. at
53.
M.
34.
Id. at
55.
56.
, 425 P.2d at 729.
425 P.2d at 730.
M.
Uniform Commercial Code 5l-205(l)i Tex. Bus. & Comm.
Code Ann. art. 1.205(a)(Supp. 1974).
57.
Uniform Commercial Code J 1-205 (2)i Tex. Bus. & Comm.
Qode Ann. art. 1.205(b).(Supp. 1974).
58.
Uniform Commercial Code I 1-205(3)1 Tex. Bus. & Comm.
Code Ann. art. 1.205 (c) (Supp. 1974).
59.
Uniform Commercial Code i 1-205(4)1 Tex. Bus. & Comm.
Code Ann. art. 1.205 (d) (Supp. 1974).
60.
N. Mex. Stat, Ann. i I 1-205(5)
61.
N. Mex. Stat. Ann. it 1-205(4) c- 9-306(2)
62.
9 U.C.C. Rep. Ser. 786 (Okla. Ct. App. 4.971).
63.
14. at 788,790.
64.
Id,, at 790
65.
Id. at 792.
66.
14.
67.
Id.
68.
In re Cadwell-Martin Meat Co., 10 UCC Rep Serv. 710 (E.P.
Qal. 1970).
69.
Central Washington Production Credit Ass'n v. Baker,
521 P.2d 226 (Wash. Ct. App, 1974).
70.
In re Cadwell-Martin Meat Co., 16 UCC Rep. Serv. 710,
716 (E.D. Cal. 1970).
71.
li. at 717.
72.
521 P.2d 226 (Wash. Ct. App. 1974).
73.
at 227.
74.
Garden City Production Credit Aaa'n v. Lannon, 166 Neb.
668, 186 N.W.2d99 (1971).
75.
Vermillion County Production Credit Ace'n v. Izzard,
1 1 1 1 1 1 . App.2d 190, 249 N,E.2d 352 (1969).
76.
Baker Production Credit Asa'n v. Long Crock Moat Co.,
513 P.2d 1129 (Ore. 1973).
77.
Blubaugh v. Ponce. City Production Credit Ass'n, 9 UCC
t
Rep. Serv. 786 (Okla. Ct. App. 1971). For a discussion of
Blubaugh see notes 62-67 s--.r»ra and accGapanying text.
78. 186 Neb . 668, 186 N.W.2d 99 (1971).
80.
14. at
, 186 N.V7.2d at 102.
81.
I&. at
, 186 N.W.2d at 102-03.
82.
I&.
513 P. 2d 1129 (Ore.
•
Id. at
CN
00
, 186 N.W.2d' at 101-02
79.
Id. at 1133
00
Id. at 1134.
•
84.
86,
Id.
87.
14.
.
88.
ill 111. App, 2d 190, 249 N.B.2d 352 (1969).
89.
14. at;
. 249 N.E.2d at 35**.
90.
91.
14*
92.
14. at
93.
14.
94.
Lisbon Bank & Trust Co.
, 249 N.E.2d at 355.
Murray, 12 UCC Rep. Serv.
356 (Iowa Sup. 1973).
95.
Uhited States v. Central Livestock Ass'n, 349 F. Supp.
1033 (D.N.D..1972).
96.
Hawkland, The Proposed Amendments to Article 9 of the
U.C.C—Part 1>
Financing the Farmer. 76 Com. L.J. 416, 420
(1971).
97.
14.
98. .14;
99.
Garden City Production Credit Ass'n v. Lannan, 186
Neb. 668, _
, 186 N.W.2d 99,104 (1971).
100.
14.
101.
378 F. Supp. 798 (S.D. Iowa 1974).
102.
Uniform Commercial Code | 9-103(1962 official texx).
103.
378 F. Supp. at 804.
' •
*
*
104.
378 F. Supp. at 804.
105.
14.
106.
Uniform Commercial Code | 9-103(1)(d)(i)t Tex. Bus. 4
Comm. Code Ann. art, 9-103(a)(4)(i)(Supp. 1974).
Note that section 9-301(1)(c) of the code will not
protect a buyer within the four month period because it requires the purchaser of farm pro-
duots to purchase while the security Interest la unperfected.
The purchaser In the ordinary course of busineas of farm products must also purchase without notic-.
The mechanics of
section 9-103 cause the perfected security interest in state
X to remained perfected for four months after the (rood3 have
been removed to state Y, therefore creating constuctlve notioe and the required perfection.to avoid the effect of section 9-301(l)(c).
107.
Uniform Commercial Code <} 9-204(1); Te:;. Bus. & Commm.
Code Ann. art. 9.204(a)(Supp. 1974).
108.
Uniform Commercial Code 5 9-10? (a) :
v
Tox. Bus.
& Comm. Code'Ann. art. 9.10? (1) „ '2)(Supp„ 19?^)109.
Uniform Commercial Code . 9-2 03 (1); Tea:. Bus. &
Comm. Code Ann. art. 9.203 (a;(£upp<, i9'74)„
110.
Uniform Commercial Code $ 9-303(1); Tt;^o Bus.
Comm. Code Ann. art. 9.303(a)(Supp. 1974).
111.
Uniform Commercial Code 03 9-302 & 9-303; Tex. Bus.
& Comm Code Ann. arts. 9.302 & 9.303 (Supp. 1974).
112.
Uniform Commercial Code H
9-302(1)(a) & 9-305; Tez.
Bus. & Comm. Code Ann. arts. 9.302(a)(1) & 9.305. (Supp,, 1974).
A possessory security interest under section 9-305
might not be allowed In the case of the feedlot-customer relationship.
It could be argued that the feedlot is the agent
of the customer and that his possession of the collateral would
not give the necessary notice that is contemplated by the code.
113.
Uniform Commercial Code ? 9-~*2(4); Ter. Bus. &
Comm. Code Ann. art. 9.312(d)(Supp. 19?4).
114,
Authorities cited, note 113 supra.
115.
Uniform Commercial Code { 9-312(3)(b); Tex. Bus. &
Comm, Code Ann, art, 9,312(c)(1)(Supp, 1974),
116,
Uniform Commercial Code 09—312(3)? Tex. Bus &, Comm.
Code Ann. art. 9.312(c)(Supp. 1974),
117,
Uniform Commercial Code 0 9-306(1); Tex. Bus. &
Comm, Code Ann, art. 9.306(a)(Supp. 1974).
118,
Uniform Commercial Code § 9-315(2); Tex, Bus, &
Comm. Code Ann. art. 9.315(b) (Supp., 1974).
119.
See Clark, S o m Prcvlc. .
Agrloult-.iral Lending under
The UCC. 39 C&loA,„LwHev. 352, 362-63 (1967;*
120.
Uniform Commercial Code 0 9—315} Tei„ Bus. & Comm.
Code Ann. art. 9.31^5 (Supp. 1974).
121.
Uniform Commercial Code 0 9-315(2); Tez. Eua* & Comm.
Code Ann. art. 9.315(b)(Supp. 1974).
122,
See authority cited note 119 supra.
123.
Tex. Rev, Civ, Stat. Ann. art. 5502 (1958),
124,
See Wallace v. First Nat'l Bank, 246 S.W, 73? (Tex.
Civ. App.—El Paso 1923 v©
).
in Wallace., the bank
was allowed to assert an agister's lien against cattle that It
had repossessed from the debtor.
These cattle were
by
the bank while In its possession and the feed bill was paid
under the authority of art. 5502.
125.
Id. at 7 3 8 .
Hinde8 v. Lock, 259 S.W. 156 (Tex. Comm*n Ap?„—1924,
holding adopted); Ralney v. Williams, 273 S.W.2d 890 (Tex. Civ.
App.--Austin 1954,
tore*•
).
126.
Hlndes v. Lock, 259 S.W. 156 (Tex. Corrca'n App.—
1924, holding adopted).
Ui r
127.
Id.
128.
Tex. Rev. Civ. Stat. Ann. art. 5506 (1953)
129.
Note, 21 Baylor L,,,Je?. 5 1 2 , 515 (1969).
130.
151 S.W.2d 954 (Tex. Civ. App.—Galveston 1941, ko
).
131.
Id. at 955.
132.
Id.
133.
Uniform Commercial Code 0 9-310; Tex.-Bus. & Comm.
Code Ann. art. 9.310 (Supp. 1974).
134.
Id. (Emphasis added).
135.
Uniform Commercial Code \i 9-310; Tex. Bus. £ Comm.
Code Ann. art. 9.310 (Supp. 1974).
136.
Tex. Rev. Cxv. Stat. Ann. art. 550c (_,_,
137.
516 S.W.2d 421 (Tex. Civ. App.—Houston C--'- DistO
1974, no writ).
138.
Id.: Tex,.Rev. Civ. Stat. Ann. art. 5503 (1958/.
139.
5-6 S.W.2d at 424.
140.
Note, Priorities b e t w e e n f r r . ^ . i e M^r.e S s e u * ' " " T r . t f - r e r r . 3
and Statutory ^lens In Iowa. 23 Drake :..
141.
. 169, 170 (1S73).
Id.; 2 G. Gllmore. Security I n t e r e s t s , P e r s o n a \
Property, 633.3 (1965).
142.
Uniform Commercial Code 09-315(2); Tex. Bus. & Comm.
Code Ann. art. 9.315(b)(Supp. 1974).