I. INTRODUCTION
Legislation enacted in 1987 created a mechanism by which suppliers of certain agricultural inputs may obtain an agricultural production input lien that will have priority over any security interest of a lender. This may come as a surprise to many due to the infrequent utilization of this procedure by suppliers of agricultural inputs. Lack of familiarity with the proper steps to take when confronted with a “Nebraska Agricultural Input Notification Statement” can prove to be hazardous to the health of a lender’s prior perfected security interest.
The statutory provisions (§§ 52-1401 to 52-1411) establishing an Agricultural Production Input Lien require the supplier of agricultural production inputs to notify a lender of its potential lien by providing a “Nebraska Agricultural Input Notification Statement” to the lender in an envelope marked “Important Legal Notice” sent by certified or other verifiable mailing method. A copy of the Nebraska Agricultural Input Notification Statement can be found at https://sos.nebraska.gov/sites/sos.nebraska.gov/files/doc/api_form.pdf.
For purposes of the agricultural production input lien law, the term “agricultural production input” means any agricultural chemical, feed, seed, petroleum product, electricity or labor used for preparing the land for planting, cultivating, growing, producing, harvesting, drying or storing crops or crop products or for feeding, producing or delivering livestock [§ 52-1401(10)]. The term “letter of commitment” means a binding, irrevocable and unconditional agreement by a lender to honor drafts or other demands for payment upon the presentment by the supplier of invoices signed by the purchaser or containing some other proof of delivery [§ 52-1401(9)].
II. LENDER RESPONSE TO NOTIFICATION STATEMENT
Following receipt of a “Nebraska Agricultural Input Notification Statement”, a lender must respond to the supplier within 15 calendar days with either: (1) a letter of commitment for part or all of the amount listed in the notification statement and, if the letter of commitment is for only part of the amount, then a copy of the partial commitment should be sent to the person to whom the agricultural production input was furnished or is to be furnished (it is recommended that a copy of any communication, whether it be a full commitment or not, be given to both the supplier and the purchaser of the product or user of service); or (2) a written refusal to issue a letter of commitment. A copy of the refusal must be sent to the person to whom the agricultural production input was furnished or was to be furnished (§ 52-1403). It is suggested that the lender’s response be provided by certified or other verifiable mailing method for purposes of documentation in the event litigation transpires.
If the lender responds with a letter of commitment, the supplier may not obtain a superior lien for the amount stated in the letter of commitment. If the lender responds with a written refusal to issue a letter of commitment, the rights of the lender and the supplier are not affected by the provisions of the Agricultural Production Input Lien Act, and any prior perfected lien of the lender under the Uniform Commercial Code shall retain its established priority (§ 52-1404).
CAUTION: A lender’s failure to respond to the supplier within 15 calendar days after receiving the Nebraska Agricultural Input Notification Statement allows a supplier to proceed to perfect an agricultural production input lien that will have priority over any security interest of the lender.
III. PRIORITIES
If the agricultural production input lien is for feed supplied for livestock, the lien applies for the unpaid retail cost of such feed; however, the lien so acquired may not exceed the amount, if any, by which 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. For all other agricultural production input liens, the priority extends to specified crops or their proceeds for the lesser of: (a) the amount stated in the lien-notification statement; or (b) the unpaid retail cost of the agricultural production input identified in the lien-notification statement (§ 52-1405).
IV. LOAN ATTACHMENT AND ENFORCEMENT
An ag production input lien attaches to: (a) existing crops where a furnished ag chemical was applied or, if crops are not planted, the next production crop where a furnished agricultural chemical was applied within 16 months following the last date on which the agricultural chemical was applied; (b) the crops produced from furnished seed; (c) the crops produced, harvested, or processed using a furnished petroleum product or electricity; and (d) all livestock consuming the feed, such lien continuing in livestock products and proceeds (§ 52-1406).
An agricultural production input lien attaches when the input is furnished by the supplier to the purchaser and is perfected by filing of a UCC, Article 9, Financing Statement, containing the information required in section 52-1402(2) and filed within three months after the last date that the agricultural production input was furnished. Perfection of this lien occurs as of the date of filing. Enforcement of the agricultural production input lien is obtained in the same manner as other liens under the UCC. (§ 52-1407).
V. CASE LAW INTERPRETATION
There do not appear to be any reported cases in Nebraska interpreting the Agricultural Production Input Lien law. A Minnesota Court of Appeals decision addressed questions of interest to ag lenders whose borrowers obtain financing from ag suppliers. While the decision is not precedent setting in Nebraska, similarities between Nebraska and Minnesota ag supplier lien laws may provide guidance on how a Nebraska court could rule under similar circumstances.
In Tracy State Bank v. Tracy-Garvin Cooperative, 573 NW2nd 393 (Minn.-App. 1998), the bank loaned its customer $295,000 for his farrowing operation from December 1994 through March, 1996. The bank took security interests that were perfected by the filing of financing statements. During October 1995, a local coop filed an agricultural production input lien statement which listed the bank customer as the debtor and the bank as his secured creditor. The statement listed the lien amount as $65,000 and transaction dates as July 15, 1995 to November 15, 1995. The bank did not respond to the lien statement. During the period listed on the lien statement, the cooperative had supplied Campbell with $73,748.13 of feed. Campbell had made payments on the coop debt totaling $44,682.25. After the liquidation of the entire farrow operation, there were $54,037.90 in proceeds and bank debt of more than $150,000. These facts were not contested and both the bank and the cooperative claimed the proceeds. The questions presented to the court were: 1) did the ag supplier’s lien have priority over the earlier perfected bank lien; and, 2) if so, what amount of proceeds were subject to the coop’s lien? Although the bank argued that its earlier perfected lien had priority over the ag supplier’s lien, the court turned aside the argument in the face of Minn. Stat. section 514.952, subd. 5 which provides, in part:
“If a lender does not respond…to the supplier within ten calendar days after receiving the lien-notification statement, a perfected agricultural production input lien corresponding to the lien-notification statement has priority over any security interest of the lender in the same crops or livestock or their proceeds for the lesser of:
NOTE: These statutory provisions are very similar to those contained in Neb.Rev.Stat. Section 52-1405). Accordingly, the court held that the coop’s lien was superior to the bank’s lien for the simple reason that the bank did not respond to the lien notification statement. The coop argued that the statute also permitted it to establish a “revolving” credit account and to obtain priority up to the amount stated -- an argument rejected by the court. In the absence of an ambiguity, the court held that it was not free to disregard the letter of the law to come up with a construction that was in accord with its “spirit”. The letter of the law provided that the amount of the ag lien priority was the lesser of the amount stated in the lien statement or the unpaid retail cost of the product. This did not accommodate a revolving credit debt. Under the statute, the amount of the lien priority is reduced permanently by payments of the debtor. The court noted that an ag production supplier can protect itself from the result of the case by filing supplemental lien-notification statements.
While ag lien notification statements may not be regularly utilized by ag suppliers in Nebraska, this case highlights the need for lenders to protect themselves from ag-production liens by responding timely to all agricultural lien notification statements which they receive.
VII. CONCLUSION
It is vitally important that a lender responds appropriately following the receipt of a Nebraska Agricultural Input Notification Statement. Failure to do so results in the loss of its priority lien status. A sample response to the Nebraska Agricultural Input Notification Statement follows this article. While there is nothing other than the customer relationship which would obligate a lender to issue a letter of commitment in response to receipt of a Nebraska Agricultural Input Notification Statement, some response is appropriate to protect its lien status. If a partial or full letter of commitment is issued, it is paramount that the lender obtain some type of authorization from the customer, e.g., a note or other evidence of a binding obligation on the part of the customer of some other tangible indemnifying agreement to ensure that the lender retains recourse against its customer if the lender is required to pay out on the letter of commitment.
Response to Nebraska Agricultural Input Notification Statement (Sample)
In response to the Agricultural Production Input Lien Notification Statement of
_____ 1. We herewith issue our Letter of Commitment (as defined by Neb.Rev.Stat. Section 52-1401(9)) for payment of product described in the Lien Notification Statement referenced above, in an amount not to exceed $________ upon presentation of invoices signed by the purchaser or other proof of delivery to us within ______ days of the date of this Response. This Response is not a letter of credit and we do not assume any obligations, duties or responsibilities other than as set forth herein.
_____ 2. We decline to issue a Letter of Commitment.
Dated this _______ day of _____________________, 20____.
Lender: ________________________________
By: ____________________________________
Title: ___________________________________
Copy to: (Supplier) ____________________________ Date _________
(Borrower) ____________________________ Date _________