SECURED TRANSACTIONS
Fall Semester 2015
PROBLEM SET 13
Priority: Secured Party vs. Statutory Lien
Secured Party vs. Agricultural Lien
Carefully read the following:
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§§ 13.01 and 13.02 of UNDERSTANDING SECURED TRANSACTIONS
§§ 9-317, 9-322, 9-333
§§ 58-201 and 58-241 through 58-244 of the Kansas Statutes (reproduced at end of
discussion questions; you should assume that these statutes are applicable to the discussion
problems in this Problem Set).
1.
Today, your day begins with a voice message from Sara Jones at First Bank:
Two years ago, we financed the purchase of a Mercedes by one of our long-time customers,
Lisa Stepford. We advanced her $50,000 to complete the purchase of the vehicle from the
Dealer, and she signed a note agreeing to repay us $50,000 in installments over 6 years. We
had our lien noted on the title certificate for the Mercedes, and the certificate is being held
in our files here at the Bank.
We got a letter yesterday from a local mechanic, Steve Glaser, indicating that he is claiming
a possessory lien on the Mercedes. Lisa took the Mercedes in for repairs, which cost about
$6,000, and never showed up to pick up the car or pay the bill. [In fact, she’s disappeared,
and the police are investigating it as a possible homicide.]
Glaser’s letter indicates that he’s going to have the car sold. The car won’t sell for enough
to repay both our loan and the $6,000 repair bill. Do I need to worry about the sale? Can
we prevent the sale? If not, would the buyer get clear title or take the car subject to our
security interest? If the car is sold, would we have first claim against the proceeds, or would
Glaser’s bill get paid first?
What’s your answer? What additional information, if any, would you need to advise Sara Jones
fully regarding the respective rights of First Bank and Glaser?
2.
Section 58-201 of the Kansas statutes would appear to permit a car mechanic to claim a
statutory lien and at the same time return possession of the collateral to the debtor, so long as the
mechanic records a notice in the local county land records indicating the existence of the lien. If you
were operating a garage, would you be inclined to use this statute, or would you instead enforce your
lien against the car without ever releasing possession back to the debtor? Does it matter?
3.
After lunch, you hear from Bubba Charles at Putnam County Bank:
We have a security interest in all of the present and after-acquired equipment and farm
products of Jethro Bodine, a local farmer. We filed a financing statement covering
equipment and farm products three years ago, when we first loaned Jethro money. Turns out
that Jethro went to Russell Feed & Supply and purchased $100,000 worth of seeds and
fertilizer for his soybean crop on account. He planted the crop, which is about to come in
and will probably be worth about $700,000 worth of soybeans. He owes us more than that,
and he’s in default, so we’ve been in discussions with Jethro about arrangements for the
harvesting and sale of the soybeans.
We got a call today from Russell Feed & Supply, claiming that it has first priority as to
Jethro’s soybean crop because it was grown from their seeds, for which Jethro never paid.
Russell wants to know the arrangements for the harvest and sale of the crop and wants a
confirmation that Russell will receive the first $100,000 of sale proceeds. When I asked
them to send me a copy of their security agreement, they responded “We don’t have one; we
don’t need it.”
That sounds wrong to me, but before I embarrass myself in further conversation with the
folks at Russell, I thought I should check with you. If they don’t have a security interest in
the crop, how could they possibly have a claim against the sale proceeds that would be
entitled to higher priority than our security interest?
What’s your response to Bubba? What additional information, if any, do you need to know?
Selected Kansas Statutes
§ 58-201. Liens for materials and services; filing statements with register of deeds, contents
Whenever any person, at or with the owner's request or consent shall perform work, make
repairs or improvements or replace, add or install equipment on any goods, personal property,
chattels, horses, mules, wagons, buggies, automobiles, trucks, trailers, locomotives, railroad rolling
stock, barges, aircraft, equipment of all kinds, including but not limited to construction equipment,
vehicles of all kinds, and farm implements of whatsoever kind, a first and prior lien on such personal
property is hereby created in favor of such person performing such work, making such repairs or
improvements or replacing, adding or installing such equipment and such lien shall amount to the
full amount and reasonable value of the services performed and shall include the reasonable value
of all material used in the performance of such services and the reasonable value of all equipment
replaced, added or installed.
If such property shall come into the lien claimant's possession for the purpose of having the
work, repairs or improvements made or the equipment replaced, added or installed thereon, such lien
shall be valid as long as the lien claimant retains possession of the property, and the claimant of the
lien may retain the same after parting with the possession of the property by filing within 90 days
in the office of the register of deeds, under oath, a statement of the items of the account and a
description of the property on which the lien is claimed, with the name of the owner thereof, in the
county where the work was performed and in the county of the residence of the owner, if such is
known to the claimant.
If the lien claimant was never in possession of the property, the lien claimant may retain the
lien by filing, within 90 days after the date upon which work was last performed, material was last
furnished in performing such work or making such repairs or improvements or equipment was last
replaced, added or installed in the office of the register of deeds, under oath, a statement of the items
of the account and a description of the property on which the lien is claimed, with the name of the
owner thereof and the date upon which work was last performed, material was last furnished in
performing such work or making such repairs or improvements or equipment was last replaced,
added or installed, in the county where the work was performed and in the county of the residence
of the owner, if such is known to the claimant.
As used in this section, "equipment" includes tires and other standard equipment on vehicles.
§ 58-241. Definitions
As used in this act unless the context clearly requires otherwise:
(a) "Agricultural chemical" means fertilizers, lime or agricultural chemicals that are applied
to crops or to land that is used for raising crops, including fertilizer material, plant amendment, plant
food, soil amendment, pesticide and plant regulator.
(b) "Agricultural production input" means crop production inputs and livestock production
inputs.
(c) "Crop production input" means agricultural chemicals, seeds, petroleum products, custom
application of agricultural chemicals and seeds and labor furnished in planting, cultivating, growing,
producing, harvesting, drying and storing crops or crop products.
(d) "Feed" means commercial feeds, feed ingredients, mineral feeds, drugs, animal health
products, supplements, customer-formula feeds or other products, including grain, that are used for
feeding livestock.
(e) "Lender" means a person in the business of lending money identified in the liennotification statement.
(f) "Letter of commitment" means a binding, irrevocable and unconditional agreement by
a lender to honor drafts or other demands for payment upon the supplier presenting invoices signed
by the purchaser or other proof of delivery.
(g) "Lien" means a lien for the unpaid retail cost of agricultural production input.
(h) "Livestock production input" means feed and labor furnished in raising livestock ....
(i) "Person" means an individual or an organization as defined in K.S.A. 84- 1-201(b)(25),
and amendments thereto.
(j) "Petroleum product" means motor fuels and special fuels that are used in the production
and drying of crops and production of livestock, including motor-vehicle fuels, special fuels and
liquefied petroleum gas ... and other petroleum products such as alcohol fuels, propane, lubes and
oils.
(k) "Proceeds" means proceeds as defined in K.S.A. 84-9-306, and amendments thereto,
except that if rights or duties are contingent upon express language in a financing statement, the
requisite language may exist in a lien-notification statement under K.S.A. 58-242, and amendments
thereto, and includes farm products, inventory, warehouse receipts and documents of title as defined
in the uniform commercial code.
(l) "Seed" means agricultural seeds that are used to produce crops.
(m) "Supplier" means a person who furnishes agricultural production inputs.
§ 58-242. Agricultural production input lien; notification of lender by supplier; form of liennotification statement; letter of commitment by lender; priorities
(a) A supplier may notify a lender of a lien by delivering a lien-notification statement to the
lender in an envelope marked “IMPORTANT-LEGAL NOTICE,” addressed to the lender. Delivery
of the statement shall be by certified mail or another method evidencing date of receipt.
(b) The lien-notification statement must be in a form approved by the secretary of state, be
signed by the purchaser, and state the following: (1) The name and business address of the lender;
(2) the name and address of the supplier claiming the lien; (3) the date or anticipated date or dates
of furnishing agricultural production input, a description of the input, and the retail cost, or
anticipated retail costs of the agricultural production input; (4) the name and residential address of
the person to whom the agricultural production input was or is to be furnished; (5) for crop
production input, the name and residential address of the owner of the crops and a description of the
real estate where the crops to which the lien attaches are growing or are to be grown and for
livestock production input, a description of the livestock and the location where the livestock will
be or are being raised or fed; and (6) a statement that the products and proceeds of the crops or
livestock are covered by the lien.
(c) Within five business days after receiving a lien-notification statement, the lender must,
by certified mail, furnish the supplier with either: (1) A letter of commitment to advance part or all
of the retail cost stated in the lien-notification statement; or (2) a written refusal to furnish such a
letter of commitment.
(d) If the lender furnishes a letter of commitment to advance part or all of the retail cost
stated in the lien-notification statement, or a written refusal to furnish such a letter of commitment,
the lien of the supplier shall not have priority over a previously perfected security interest of the
lender.
(e) If the lender does not send the supplier a letter of commitment or a written refusal to
furnish a letter of commitment within five business days after receiving the lien-notification
statement, the lien for the unpaid retail cost of the agricultural production input stated in the liennotification statement shall have priority over a perfected security interest of the lender in collateral
subject to the lien and proceeds thereof.
(f) Subject to the limitation of subsection (d) liens established under this act have priority
over any and all other liens .... on the crops or livestock for which input is furnished.
(g) An agricultural production lien statement shall be used only in the manner described in
this section and shall not otherwise be used as a substitute for a financing statement filed under part
4 of article 9 of the uniform commercial code.
§ 58-243. Same; effect of lien; priority; what lien attaches to; when lien attaches
(a) A supplier who furnishes crop production inputs has a lien for the unpaid retail cost of
the crop production inputs. Subject to the limitations of subsection (d) of K.S.A. 58-242, the lien
shall have priority over a security interest of a lender only if perfected and if the supplier notifies
the lender of the supplier's lien pursuant to K.S.A. 58-242. The lien attaches to: (1) The existing
crops upon the land where the furnished agricultural chemical was applied or if crops are not
planted, to the next production crop within 16 months following the last date on which the
agricultural chemical was applied; (2) the crops produced from the furnished seed; or (3) the crops
produced, harvested or processed using the furnished petroleum product. If the crops are grown on
leased land and the lease provides for payment in crops, the lien does not attach to the lessor's share
of the crops. The lien continues in crop products and proceeds, except that the lien does not
continue after a cash sale.
(b) A supplier who furnishes livestock production inputs has a lien for the unpaid retail cost
of the livestock production input. Subject to the limitations of subsection (d) of K.S.A. 58-242, the
lien shall have priority over a security interest of a lender only if perfected and if the supplier
notifies the lender of such supplier's lien pursuant to K.S.A. 58-242. The lien attaches to all livestock
consuming the feed and continues in livestock products and proceeds, except that the lien does not
continue after a cash sale. A perfected lien that attaches to livestock may not exceed the amount, if
any, that the sales price of the livestock exceeds the greater of the fair market value of the livestock
at the time the lien attaches or the acquisition price of the livestock.
(c) A lien attaches when the agricultural production inputs are furnished by the supplier to
the purchaser.
§ 58-244. Same; when perfected; priority of lien not perfected; duties of filing offices; fees
(a) To be perfected, the lien must have attached and the supplier entitled to the lien must
have filed a lien-notification statement in the form provided for in K.S.A. 58-242, and amendments
thereto, accompanied by the form prescribed by K.S.A. 84-9-521(a), and amendments thereto, which
must indicate in box 10 of the form that the lien is filed in accordance with this section, with the
appropriate filing office under K.S.A. 84-9-501 and amendments thereto within 60 days after the last
date that agricultural production input was furnished. A lien-notification statement filed pursuant
to this section shall include the date which notice was mailed to the lender and a statement signed
by the supplier indicating that the lender did not respond to the lien-notification statement.
(b) Subject to the provisions of subsection (d) of K.S.A. 58-242, and amendments thereto,
a lien that is not perfected shall be entitled to the same priority as an unperfected security interest
as determined by part 3 of article 9 of the uniform commercial code and amendments thereto.
(c) The filing officer shall file, index, amend, maintain, remove and destroy the liennotification statement in the same manner as a financing statement filed under part 5 of article 9 of
the uniform commercial code and amendments thereto. The filing officer shall charge the same filing
and information retrieval fees and credit the amounts in the same manner as financing statements
filed under part 5 of article 9 of the uniform commercial code and amendments thereto.
Selected Missouri Statutes
§ 430.020. Liens for storage, materials and labor on vehicles or aircraft—nonpossessory liens
on aircraft for labor and material, procedure—failure to file with aircraft registry, purchaser
prevails. Every person who shall keep or store any vehicle, part or equipment thereof, shall, for the
amount due therefor, have a lien; and every person who furnishes labor or material on any vehicle
or aircraft, or part or equipment thereof, who shall obtain a written memorandum of the work or
material furnished, or to be furnished, signed by the owner of the vehicle or aircraft, or part or
equipment thereof, shall have a lien for the amount of such work or material as is ordered or stated
in such written memorandum. Such liens shall be on the vehicle or aircraft, or part or equipment
thereof, as shall be kept or stored, or be placed in the possession of the person furnishing the labor
or material; provided, however, the person furnishing the labor or material may retain the lien after
surrendering possession of the aircraft or part or equipment thereof by filing a statement in the office
of the county recorder of the county where the owner of the aircraft or part or equipment thereof
resides, if known to the claimant, and in the office of the county recorder of the county where the
labor or material was furnished. Such statement shall be filed within thirty days after surrendering
possession of the aircraft or part or equipment thereof and shall state the claimant's name and
address, the items on account, the name of the owner and a description of the property, and shall not
bind a bona fide purchaser unless said lien has also been filed with the Federal Aviation
Administration Aircraft Registry.
§ 430.080. Lien on chattels for labor and materials. Every person expending labor, services, skill
or material upon any chattel at the request of its owner, authorized agent of the owner, or lawful
possessor thereof, in the amount of twenty-five dollars or less, shall have a lien upon such chattel
beginning upon the date of commencement of such expenditure of labor, services, skill, or materials
for the contract price for all such expenditure of labor, services, skill, or material, until the
possession of such chattel is voluntarily relinquished to such owner or authorized agent, or to one
entitled to the possession thereof.
§ 430.082. Motor vehicles, trailers, vessels, outboard motors, aircraft liens for labor, material
or storage, when—nonpossessory lien on aircraft, procedure—lien title obtained, when,
procedure—sale of chattel, when—distribution of proceeds.
1. Every person expending labor, services, skill or material upon any motor vehicle or trailer, as
defined in chapter 301, vessel, as defined in chapter 306, outboard motor or aircraft at a written
request of its owner, authorized agent of the owner, or person in lawful possession thereof, or who
provides storage for a motor vehicle, trailer, outboard motor or vessel, at the written request of its
owner, authorized agent of the owner, or person in lawful possession thereof, or at the written
request of a peace officer in lieu of the owner or owner's agent, where such owner or agent is not
available to request storage thereof, shall, where the maximum amount to be charged for labor,
services, skill or material has been stated as part of the written request or the daily charge for storage
has been stated as part of the written request, have a lien upon the chattel beginning upon the date
of commencement of the expenditure of labor, services, skill, materials or storage for the actual
value of all the expenditure of labor, services, skill, materials or storage until the possession of that
chattel is voluntarily relinquished to the owner, authorized agent, or one entitled to possession
thereof. The person furnishing labor, services, skill or material may retain the lien after surrendering
possession of the aircraft or part or equipment thereof by filing a statement in the office of the
county recorder of the county where the owner of the aircraft or part or equipment thereof resides,
if known to the claimant, and in the office of the county recorder of the county where the claimant
performed the services. Such statement shall be filed within thirty days after surrendering possession
of the aircraft or part or equipment thereof and shall state the claimant's name and address, the items
on account, the name of the owner and a description of the property, and shall not bind a bona fide
purchaser unless the lien has also been filed with the Federal Aviation Administration Aircraft
Registry.
2. If the chattel is not redeemed within forty-five days of the completion of the requested labor,
services, skill or material, the lienholder may apply to the director of revenue for a certificate of
ownership or certificate of title.
3. If the charges are for storage or the service of towing the motor vehicle, trailer, outboard motor
or vessel, and the chattel has not been redeemed within forty-five days after the charges for storage
commenced, the lienholder shall notify by certified mail, postage prepaid, the owner and any
lienholders of record other than the person making the notification, at the person's last known
address that application for a lien title will be made unless the owner or lienholder within thirty days
makes satisfactory arrangements with the person holding the chattel for payment of storage or
service towing charges, if any, or makes satisfactory arrangements with the lienholder for paying
such charges or for continued storage of the chattel if desired. Thirty days after the notification has
been mailed and the chattel is unredeemed, or the notice has been returned marked "not forwardable"
or "addressee unknown", and no satisfactory arrangement has been made with the lienholder for
payment or continued storage, the lienholder may apply to the director of revenue for a certificate
of ownership or certificate of title as provided in this section.
4. The application shall be accompanied by:
(1) The original or a conformed or photostatic copy of the written request of the owner or
the owner's agent or of a peace officer with the maximum amount to be charged stated
therein;
(2) An affidavit from the lienholder that written notice was provided to all owners and
lienholders of the applicants' intent to apply for a certificate of ownership and the owner has
defaulted on payment of labor, services, skill or material and that payment is forty-five days
past due, or that owner has defaulted on payment or has failed to make satisfactory
arrangements for continued storage of the chattel for thirty days since notification of intent
to make application for a certificate of ownership or certificate of title. The affidavit shall
be accompanied by a copy of the thirty-day notice given by certified mail to any owner and
person holding a valid security interest and a copy of the certified mail receipt indicating that
the owner and lienholder of record was sent a notice as required in this section;
(3) A statement of the actual value of the expenditure of labor, services, skill or material, or
the amount of storage due on the date of application for a certificate of ownership or
certificate of title, and the amount which is unpaid; and
(4) A fee of ten dollars.
5. If the director is satisfied with the genuineness of the application, proof of lienholder notification
in the form of a certified mail receipt, and supporting documents, and if no lienholder or the owner
has redeemed the chattel or no satisfactory arrangement has been made concerning payment or
continuation of storage, and if no owner or lienholder has informed the director that the owner or
lienholder demands a hearing as provided in this section, the director shall issue, in the same manner
as a repossessed title is issued, a certificate of ownership or certificate of title to the applicant which
shall clearly be captioned "Lien Title."
6. Upon receipt of a lien title, the holder shall within ten days begin proceedings to sell the chattel
as prescribed in section 430.100.
7. The provisions of section 430.110 shall apply to the disposition of proceeds, and the lienholder
shall also be entitled to any actual and necessary expenses incurred in obtaining the lien title,
including, but not limited to, court costs and reasonable attorney's fees.
430.100. Sale—Notice—Liens Combined.
1. Such sale shall be held only after giving not less than twenty days' notice, first, by mailing a copy
of notice, by registered mail, if the address is known, addressed to the owner for whom such
expenditure of labor, material, skill or services are performed, in which case a return receipt shall
be evidence of due notice; second by not less than two publications in some newspaper of general
circulation where the property was received and is to be sold, the last publication to be not less than
twenty days prior to the date of sale; third, if no newspaper be published within the county, then by
posting, not less than twenty days prior to the date of sale, five handbills in different places within
the township, one of which shall be posted where the property was received and is to be sold.
2. The form of notice shall be substantially as follows:
NOTICE
Notice is hereby given that on (insert date), a sale will be held at (insert place), to sell the
following articles to enforce a lien existing under the laws of the State of Missouri against
such articles for labor, services, skill or material expended upon such articles at the request
of the following designated persons, unless such articles are redeemed prior to the date of
said sale:
Description of Article
Name of Owner
Amount of lien ........................... .......................
Name of Lienor
3. A separate notice need not be published for each lien to be enforced, but several may be combined
in one publication.
430.110. Sale of articles—disposition of proceeds—excess to general revenue subject to
reclamation by owner
1. If the chattel or chattels are not redeemed prior to the date of sale provided in the notice required
by section 430.100, the lienor may sell such articles on the day and at the place specified in such
notice. The proceeds shall be distributed in the following order:
(1) To the satisfaction of the seller's lien and the necessary expenses of advertising as
provided in section 430.100;
(2) To the satisfaction of any prior lien on the chattel created by any financing statement on
the same, duly perfected in accordance with the laws of this state;
(3) The excess, if any, shall thereupon be deposited with the county treasurer, or city
treasurer in the city of St. Louis, together with a sworn statement containing the name of the
owner, description of the article, amount of lien, the amount paid to any prior lienholders,
sale price, name of purchaser, cost and manner of advertising....