CREDITOR1S RIGHTS
OF THE
FARMER- RANCHER
PATRICK So DUFFY
I.
INTRODUCTION
After a judgment has been rendered against a Texas
fanner-rancher, the attorney for th.e judgment creditor is immedi ately faced with the difficult chore of enforcing that judgment, while the attorney for the farmer-rancher has the pleasant
task of reminding everyone that certain property is exempt from
execution under Texas law.
The first section of this paper will
attempt to examine some of the procedural and substantive law
of Te xas with respect to the enforcement of judgments rendered
against the farmer-rancher.
Also contained in this paper, is a discussion of special
statutory liens that often become relevant in the business operations of the Texas farmer-rancher.
Some of the statutory liens
discussed will be liens arising in favor of the
fa~~er-rancher,
while others will be liens in favor of his creditor.
II.
ENFORCING THE JUDGMENT
A.
Exempt Property
A problem facing any creditor who has obtained a
judgffi~n~
agains t a Texas farmer-rancher is to determine what property, if
any, is subject to execution under Texas law.
The
inexperie~cec
creditor in Texas probably has the mistaken belief that he can
easi ly satisfy the judgment against the farmer-rancher who may
be possessed with considerable land, farming equipment, and livestock.
Of course, such a creditor will become educated and learn
that the farmer-rancher living in a rural area is entitled to a
homestead exemption protecting not only his home, but also 200
acres of land.
I
Homestead exemption laws will be thoroughly and
completely discussed in a later paper.
In addition to the homestead exemption,
a judgment
credi tor will find that the per-sonal property of the fanner-rancher
has ample protection under Texas law.
Art. 3836 exempts certain
listed personal property, up to $30,000 in value, from the satisfaction of liabilities.
All implements of farming and ranching
that are reasonably necessary for the family are exempt. 2
Other
exemptions under art. 3836 are "livestock and fowl not to exceed
the following in number and forage on hand reasonably necessary
for their consumption: five cows and their calves
one
b~eeding
age bull, twenty hogs, twenty sheep, twenty goats, fifty chickens,
thirty turkeys, thirty ducks, thir~y geese, and thirty guineas.»3
B. The Judgment Lien
After a judgment has been entered in favor of a creditor
and the creditor has not received voluntary payment from the debtor, then the creditor's attorney should request the clerk of the
court rendering the judgment to prepare an abstract of judgment. 4
The creditor's attorney then has the prepared abstract of judgment rec6rded in the county or counties where he suspects the
nondebtor has or will obtain/exempt real estate. 5 From the date of
the recording of the abstract of judgment, a lien attaches upon
nonall/exempt real estate owned by the debtor in the county where
nonsuch record is made, and upon all/exempt real estate which the
debtor may thereafter acquire. 6
The lien obtained will continue
'
d ate
f or ten years f rom tne
0
f
recor d'lng. 7
However, by taking
the necessary steps, the creditor can keep his lien "alive"
for
as long as he desires.
In a typical situation, the creditor obtains a judgment
against an insolvent debtor.
The debtor fails to pay the judg-
ment and the creditor has an abstract cf judgment recorded and
nonexecution issued on the same day. As expected, no/exempt real
estate exists and the sheriff returns the writ of execution nulla
bona.
Still, the creditor wants to keep his claim alive because
nonthe debtor may some day acquire/exempt property that is subject
to the judgment lien or execution.
To keep this claim alive, the
creditor's attorney must (a) prevent the judgment from becoming
dormant,
(b) preserve the priority of the lien from the date of
the recording of the original abstract of judgment.
First, the
creditor's attorney prevents a judgment from becoming dormant by
issuing a new writ of execution at any time within ten years after
the issuance of the preceding execution.
the
p~iority
8
Secon d, he preserves
of the lien by recording a new abstract of judgment
at any time within ten years after the recording of the prececi n g
,
aDstract
0
f
' d
JU
gment. 9
As stated, the recording of an abstract of judgment affixes
a lien solely upon the real estate owned by the judgment debtor
in the county of record.
When such a lien is established against
a farmer, the question might very well arise as to whether unharvested crops are a part of the real estate to which a judgment
lien will attach.
This author has found no Tex as cases directly
answering this question.
However, a Texas civil appeals court
decided a closely related issue.
That court held that a mortgage
lien on farm land did not attach to a cotton crop that had been
assigned to another.
The opinion of that court contained the
following: lO
"The doctrine well settled by repeated decisions in
this state is that crops produced by annual cultivation, either growing or matured, are distinct in their
nature from the land on which they are cultivated, and
that, while ownership of land, under mortgage or trust
deed, may be in one person, title to the crops may
be in another; and these are harvested or severed in
ownership, prior to the sale of the land under foreclosure, title thereto will not pass by such sale."
The above rule indicates that
not viewed as part of the real estate.
could harvest crops grown on land
u~der
Texas law crops are
Therefore, the farmer
subj~ct
to a judgment lien and
sell those crops free from the claims of the lien holder.
In
addition, another civil appeals court stated in dictum that crops,
being no part of the realty, are liable to voluntary transfer as
chattels, and maY' be seized and sold under execution.
ll
Again,
this court indicated that crops are personalty and not subject to
the judgment lien that attaches solely to realty.
Assuming
~hat
crops are not subject to a judgment lien, the creditor should
have execution issued and have the sheriff levy upon the crops
as soon as they are severed from the land.
c.
Sale of Rural Property
If the farmer-rancher has rural land that is subject to a
sheriff's sale, then the farmer-rancher has the right to present
to the sheriff, at anytime before sale, a plat of land in lots of
not less than 50 acres. 12
The farmer-rancher has the right to
~4-
de sig n ate the order In which the lots will be sold until the debt
,
,
.c'
d 13 .
lS
satlS.Lle.
D.
Execution Liens
In Texas, a judgment lien covers only realty.
In other
words, the filing of an abstract of judgment in Tex as does not
cause a lien to attach to personalty, such as cattle or farm equipment. However, an execution lien in Texas has a dual purpose and
will attach on either real estate or personalty.14
The execution
lien arises the instant the sheriff levies upon the property.
A method by which the sheriff levies upon property depends
upon the nature of the property being levied upon.
Levy on real
estate may be accomplished by the sheriff merely endorsing the
levy on the writ of execution, there being no need for him to go
upon the real estate. IS
Levy on livestock is generally accomplished
by the sheriff taking physical possession.
However, a levy on
livestock running , at large on the range which cannot be penned
without great e xpense, may be" made by noting the description of
the
~attle
on the writ.
This paper levy must be made in the
presence of more than one witn e ss and written notice must be
given to the owner. 16
Te x as cases have held that a 4,000 acre
pasture enclosed by a fence is not open range,17 but that a
300,000 acre pasture enclosed by a fence is an open range,18
thereby permitting levy without the necessity of taking p h ysical
possession.
II.
STATUTORY LIENS
A.
Laborer's Lien
By statute, an employee who labors, or performs any ser-
vice in a mill of any character, has a statutory right to a laborer's lien.
The laborer's lien gives the employee a first lien on
things created by his labor and that which may be used or useful
by him in performing his labor or service.
The lien given to a
farm hand-employee is expressly made subordinate to the landlord's
lien. 19
In order to fix a laborer's lien, duplicate accounts of
the services, with the amounts due, must be made and one of them
must be presented to the debtor within thirty days after accrual
of the indebtedness.
The other copy must be recorded, within the
same time, by the county clerk of the court in which the servic€
is rendered. 20
The statute providing the laborer's . lien ~s as
follows: 21
IIWhenever * * * any employee, laborer, farm hand,
* * * may labor or perform any services * * * by
virtue of any contract or agreement, written or
verbal * * * in order to secure the payment of the
amount due by such contract or agreeme~t * * *
the employees shall have a first lien upon all
products, machinery * * * or things of value of
whatsoever character that may be created in whole
or in part by the laborer or that may be used by
such person or necessarily connected with the performance of such labor or service, which may be owned
by * * * the employer, * * * provided that the
lien given to a farm hand shall be subordinate to
the landlord's lien.
This statute has been construed narrowly by the courts.
For example, in Sparks v. Crescent Lumber Co., an employee who
contracted for the hire of himself and his team of mules attempted
to assert a laborer's lien.
The court there defined laborer to
mean one who labors with his hands and said that where the contract does not provide a means of separating the value of his
labor from the hire of his team, then no statutory lien can arise. 22
Likewise, a contractor who contracts to perform farm work, but
who hires others and aoes nOt personally perform the work, is
23
not entitled to a laborer's lien.
Also, one serving as a manager of a farm, both performing labor and directing the planting,
irrigation, and cultivating, was not a laborer or a farm hand
entitled to a lien o~ the crop produced. 24
In addition to the narrow construction given the
sta~ute
by the courts, the effectiveness of the laborer's lien is reduced
since it is inferior to a prior recorded mortgage. 25
B.
Stock Breeder's Lien
A statutory lien that may arise in favor of the farmer-
rancher is the stock breeder's lien.
Due to the words of art
found in the relevant statute, a complete quotation.of the statute
seems appropriate and is as follows: 26
"The owner of any stallion, jock, bull or boar
who keeps the same for the purpose of standing
him for a profit, shall have a preference lien
upon the progeny of such animal to secure the
payment for the services of such animal. No
recording is necessary and the lien remains in
force for ten months from the date of birth of
the progeny.1I
c.
Livery Stable Lien
Owners of livery stables have a statutory lien upon
animals placed with them for feeding and care.
More significant
to today's farmer-rancher, this livery stable lien also benefits
and applies to owners of pastures who have a lien on all animals
placed with them for pasturage. 27
As a general rule, the livery stable lien is inferior to
a prior recorded mortgag~.28
Of course, the mortgagee can con-
sent to a third party caring and feeding for the mortgaged cattle.
By the mortagee's consent to such an arrangement, the livery
stable lien will become superior.
Accordingly, where the mort-
gagee knows or has reason to know that a third ?arty is employed
as a caretaker, then the mortgagee's consent to such employment
will be implied if he does not object. 29
Therefore, upon the
implied consent of the mortgagee, the caretaker will have an
equitable livery stable lien superior to the rights of the
earlier mortgagee.
D.
Possessory Liens
Whenever an article, implement, utensil or vehicle is
.""
repaired with·the:labor and/or material of any workman, such workman has the right to retain possession of the item repaired until
all reasonable compensation is paid. 3D
The farmer who has his
tractor repaired can be forced to pay the repair bill before the
return of his tractor.
Also affected by the possessory lien is
the farmer's banker who has a first lien against the tractor.
As
we will see, the banker's first lien becomes a second lien when
faced with the mechanic's possessory lien.
Unlike the livery
stable lien or the laborer's lien, the possessory lien of the
-8-
repairman will prevail over a prior recorded mortga ge.
tinction is due to the Texas Business and
Co~merce
This dis-
Code which
e x press 1 y provl. d es: 31
"When a person in the ordinary course of his
busin e ss fur n ishes se r vices or materials with
respect to goods subject to a security interest,
a lien upon the goods in the p o ssession of
such person given by statute or rule of law for
such materials or services, takes priority over
a perfected security interest unless the lien
is statutory and the statute expressly provides
otherwise."
Under the above code provision, the possessory lien will
prev ail over a prior perfected
securit~
interest even though the
s e cured p a rty gave no approval for the repair, and even though
the repairman actually knew of the outstanding security interest. 32
The policy behind the code seems clear.
The first lien holder
should not be allowed the benefit of the repairs at the expense
of the repairman.
The repairman is at least entitled to the reason-
able _value of his-, services.
The holder of a possessory lien may sell the propeyty
in his possession to satisfy the debt owed if he waits for a
period of sixty days after the charges have accrued. 33
However,
notice to the owner in accordance with art. 5504 must be given
in order to have a valid sale.
E.
Landlord's Lien
The landlord's lien provided by art. 5222 arises in
favor of one who rents land or buildings and released when the
tenant p a ys the rent. 34
Property subject to the lien includes
property o wned by the tenant that is located on the premises,
property furnished to the tenant by the landlord, and crops raised
on the rented premises. 35
The personal property owned by the
tenant may be exempt from the lien under Texas exemption law
discussed earlier. 36
with respect to all
However, art. 5223 expressly provides that
c~ops
and
pro~erty
furnished by the landlord,
the landlord's lien is superior to all laws e x ernpting such property from forced sale.
The landlord's lien is inapplicable in a number of instances.
By express provision, the landlord's lien will not
attach to the goods of a merchant, trader or mechanic sold and
delivered in good faith in the regular course of business by the
tenant. 37
Also, the landlord's lien does not apply in any case
where the tenant furnishes everything except the land, and where
the landlord charges a rental of more than 1/3 of the value of
grain and more than 1/4
land. 38
~f
the value of cotton raised on the
Nor will the ~andlord's lien apply where the landlord
furnishes everything except the labor, and the landlord charges
rental of more than 1/2 of the value of the grain and more than
1/2 the value of cotton. 39
In asserting his statutory lien, the landlord may request a distress warrant for the seizure of the tenant's property
subject to the landlord's iien. 40
The purpose of a seizure under
a distress warrant is to restrain the property until a proper
proceeding for foreclosure of the landlord's lien can be had. 4l
~lO-
III.
COTTON TRANSACTIONS
In 1969, Art. 5571 provided that if any lien existed
on cotton stored in a warehouse, then the warehouseman mustnote the lien upon any negotiable receipt issued. 42
of
Art. 5571, warehouseman
generally did not follow the
statute and most warehouse forms did not even provide
space for noting such liens.
In spite
a blank
Under the 1969 terms of Art. 5571,
it could have been argued that the warehouseman
had an absolute
duty to inquire as to existing liens, and that a failure to do
so would render him liable.
On the other hand, it could have
been argued that the warehouseman
only had a duty to provide
43
a blank on the warehouse receipt and make the owner sign it.
No Texas cases construed Art. 5571 as it existed in 1969.
However,
a controversy finally arose requiring the Federal Courts to take
notice of Art. 5571.
In U.S. v . . Hext,44 a farmer obtained a loan from the Farmers
Horne
AQ~inistration,
of Argiculture.
an agency of the United States Department
In order to provide security for the loan,
the farmer granted a chattle mortgage on his forthcoming cotton
crop.
In addition to being a cotton grower, the farmer was also
in the cotton ginning business as the sole owner of the ginning
company.
The FHA was aware that the farmer would gin and market
his harvested cotton crop through his own ginning company.
The
farmer took his cotton crop to his gin, and after processing, the
ginning company transported the cotton to a warehouse.
The
warehouseman issued a negotiable warehouse receipt on each bale
received.
Not knowing of The FHA lien, the warehouseman failed
to indicate the lien on the receipt.
A selling agent employed
by the gin contacted buyers for the cotton.
The buyer paid the
gin for the cotton and presented the receipt and shipping instructions to the warehouseman.
shipping instructions.
the loan.
The warehouseman compiled with the
Subsequently, the farmer defaulted on
with both the farmer and his gin insolvent, the FHA
brought suit
against the selling agent and the warehouseman
alleging conversion of the cotton.
The selling agent had no actual
notice of the
FP~
lien,
never had possession of the cotton, and never had authority to
accept offers to buy the cotton.
with the conversion suit.
He was understandably upset
To protect himself, the selling agent
sought indemnity against the warehouseman for violation of Art.
5571.
At trial, the court found that the warehouseman greatly
assisted in the conversion of the cotton in failing to provide
even a blank space on the negotiable receipt for noting liens.
The.Cou~t
found that the warehouseman was jointly and severally
liable with the farmer for the loss to FHA.
Additionally; the
selling agent was found to have been essential to the conversion,
and that he would be liable to the FHA.
However, the selling agent
was granted indemnity against the warehouseman due to the warehouseman's violation of Art. 5571.
In response to the trial court'sdecision holding the warehouseman liable under Art. 5571 and before any appellate review,
the Texas Legislature added the following provision to the original
statute: 45
-12-
"No person, firm, or corporation which consequently
buys, sells, or deals in any way with negotiable
warehouse receipts issued by any public warehouseman
to evidence cotton stored in a public warehouse
or which subsequently buys, sells, or deals in any
way with such cotton, shall be liable for conversion
of said cotton because of the existence of any lien
or encumbrance on said cotton in the absence of
actual knowledge of such lien or encumbrance at the
time of the claimed conversion."
In U.S. v. Hext, the appellate court recognized the added
provision to Art. 5571 and stated that it was contrary both to
the law of conversion and to the principle governing security
interest and
doclli~ents
of title under the
uee.
The appellate
court went on the hold tr.at the rights and liabilities of the
parties to suits arising from FHA loan transactions must be
determined by federal law.
With Texas law thrown out the window,
the appellate had to determine where to find the applicable
federal law.
Art. 9 of the
vec
was accepted as the ·best source
of general commerical law to govern federal loan transactions
involving security interests.
Before looking to the
uee
to determine the 'outcome of the
case, the appellate court made an observation of the typical cotton
transaction.
The opinion contained the following: 46
"***the custom and practice in the cotton trade in
Texas is for the individual cotton farmer to sell
his cotton to a gin.
The gin in turn gins the
cotton, arranges for the storage pending sale,
markets the cotton by placing samples with a .
selling agent, and sells the cotton to buyers
who .make offers to the gin after examining samples.
Warehousemen, selling agent and buyers all deal with
the gin and not with the individual farmer, and
indeed frequently do not even know the identity of
the individual farmer who originally raised the
cotton.
In the usual transaction the gin that deals
with a farmer who has mortgaged his cotton to the
FHA protects itself and satisfies the loan by issuing
its checks in payment for the cotton jointly to
the farmer and the FHA."
Of course, the appellate court was acutely aware that the
transaction before the court was not the usual transaction.
Instead, here the farmer owned and operated a gin, and this
fact was well known by the FHA.
The appellate deciJed that
Section 9-307(1) applied to the case.
Section 9-307(1) pro-
vides:
" 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."
Under Section 9-307(1), the buyer purchasing cotton from
a gin would not ordinarilly take free of a security interest
created by a farmer who had sold the cotton to the gin.
This
is so because Section 9-307(1) requires that in order for the
buyer to take free of a security interest, the security interest
in question must have been" created by his seller." Thus, where
-,
the gin is the seller, and the farmer is the creator of the security interest, the normal result would be that the buyer takes
subject to the security interest.
reached in this case.
But the normal result was not
Recognizing that the farmer was the sole
owner of the gin which had sold the cotton to the buyer, the
appellate accepted the fiction that the gin created the security
interest.
Crucial to the acceptance of this fiction was the
court~s
finding that the FHA knew the farmer had the capability to transfer
his cotton crop into inventory and sell it in the ordinary course
of his gin business.
Therefore, the buyers took free of the
security interest and could not be sued for the conversion.
Restatement(Second)of Torts, the warehouseman and the selling
-14-
Under
agent had innocently transferred the cotton to a buyer entitled to possession, and therefore could not be held liable
for conversion.
The trial court was reversed and the FHA
had no claim against the warehouseman or the selling agent.
Moral of the story:
if the farmer own cotton gin, lien holder
will find a corn cob in ear.
-1ft-
CITATIONS
l.
TEX.CONST. art. XVI, §51
2.
TEX. REV.CIV. STAT.ANN. art 3836
3.
Id.
4.
TEX. REV. CIV . STAT. JI_NN . art 5447
5.
TEX.REV.CIV.STAT.ANN. art 5448
6.
TEX.REV.CIV.STAT.ANN. art 5449
7.
Id.
8.
TEX.REV.CIV.STAT.ANN. art 3773
9.
TEX.REV.CIV.STAT.ANN. art 5449
10. Roth v. Conner, 25 S.W.2d 246 (Tex.Civ.App.--Da11as
1930, no writ)
11. Gulf Stream Realty Co. v. Monte Alto Citrus Ass'n,
253 S.W.2d 933 (Tex.Civ.App.--San Antonio 1952,
writ ref'd)
12.
TEX.REV.CIV.STAT.ANN. art 3807
13.
Id.
14.
Horton v. Ga~rison,20 S.W. 733 (Tex.Civ.App.--1892,
no writ)
15.
TEX.~EV.CIV.STAT.ANN.
16.
TEX.REV.CIV.STAT.ANN. art. 3794
17.
Williams v. De Baca, 113 S.W.2d 566 (Tex.Civ.App.-Texarkana 1938, no writ)
18.
Gunter v. Cobb, 82 Tex. 598, 17 S.W. 848 (1891)
19.
TEX.REV.CIV.STAT.ANN. art 5483
20.
Id.
21.
TEX.REV.CIV.STAT.ANN. art 5483
22.
Sparks v. Crescent Lumber Co., 89 S.W. 423
(Tex.Civ.App.--1905, writ ref'd)
art. 3793
CITATIONS--(Cont.)
23.
Dunn v. Hankins, 127 S.W.2d 983 (Tex.Civ.App.-San Antonio 1939, no writ)
24.
Beakley v. Lind, 32 S.W.2d 671 (Tex.Civ.App.-San Antonio 1930, no writ)
25.
West Brook v. Clinton Grocery Co., 9 S.W.2d 1044
(Tex.Civ.App.--Waco 1928, no writ)
26.
TEX.REV.CIV.STAT.ANN. art. 5501
27.
TEX.REV.CIV.STAT.ANN. art. 5502
28.
Williams v. De Baca, 113 S.W.2d 566 (Tex.Civ.App.-Texarkana 1938, no writ)
29.
Houston Nat. Exch. Bank of Houston v. DeBlanc, 247 S.W.
- 897 (Tex.Civ.App.--Beaumont 1923, no writ)
30.
TEX.REV.CIV.STAT.ANN. art 5503
31.
TEX.BUS.& COMM.CODE ANN. §9.310 (1968)
32.
Nelms v. Gulf Coast State Bank, 514 S.W.2d 421
(Tex. Civ.App.--Houston [1st Dist] 1974)
Aff'd 525 S.W.2d 866 (1975)
33.
TEX.REV.CIV.$TAT.ANN. art. 5504
34.
Granville v. Ranch, 335 S.W.2d 799
(Tex.Civ.App.--Austin 1960, no writ)
35.
New Berry v. Spinhirne, 35 S.W.2d 1084
(Tex.Civ.App.--Amarill0 1931, writ dism'd)
36.
Hamberlin v. Aston, 267 S.W. 684 (Tex.Comm'n App.
1924, jdgmt adoPt~d)
37.
TEX. REV. CIV. STAT . ANN . art 522·4
38.
TEX.REV.CIV.STAT.ANN. art 5222
39.
Id.
40.
TEX.REV.CIV.STAT.ANN. art 5227
41.
Keep 'Em Eating Co. v. Hulings, 165 S.W.2d 211
(Tex.Civ.App.--Austin 1942, no writ)
CITATIONS--(Cont.)
42.
TEX.REV.CIV.STAT.ANN. art. 5571.
43.
u.s.
44.
Id.
45.
TEX.REV.CIV.STAT.ANN. art,5571 (Supp. 1975).
46.
u.s.
v. Hext, 298 F. Supp. 226 (S.D.Tex. 1969),
rev'd on other grounds 444 F.2d 804 (5thCir. 1971).
v. Hext, supra at 811-12.