Posted April 5, 2010
By Eldon McAfee, IPPA legal counsel
On March 29, a Sioux County District Court judge ruled in the case of Doon Elevator v. American State Bank that the elevator’s lien for feed sold to a pork producer had priority over the producer’s bank’s lien. The court ordered the bank to pay the elevator for feed bills from the sale of the producer’s hogs. This decision may be appealed, but for now represents the first decision in what will likely be several court decisions on Iowa’s feed supplier lien law.
Since 1984, Iowa law has provided a lien to businesses that sell ag supplies such as fertilizer, pesticides, seed, feed or petroleum products used for an ag purpose. This lien must be filed with the Iowa secretary of state within 31 days after the farmer purchases the ag supply. That much of the law is clear. The questionable part – that which the court ruled on in this case – is the section that provides the supplier is to send a certified letter to the farmer’s lender. The lender must then respond whether the farmer has sufficient finances to assure payment of the ag supply. This section states that a supplier who sells an ag supply and files an ag supply lien will lose to the lender’s lien if the lender either did not receive the certified letter or received the letter and responded that the farmer did not have sufficient finances to cover the price of the ag supply. If the lender responded that the farmer had sufficient finances, the ag supplier and the lender have equal priority under their liens.
However, the law also states that for feed, the ag supplier will have priority (not just equal priority) in livestock sales proceeds for the difference between the livestock’s purchase price and the greater of the value of the livestock when the feed was sold or the livestock’s sales price. This section of the law dealing with feed does not - as the judge in this case found critically important – specifically refer to the section of the law requiring a certified letter be sent to the lender. Because of this omission, the argument is that for a lien for feed, unlike a lien for other ag supplies, the supplier is not required to send a certified letter to the lender.
In the SiouxCounty case, the elevator and the bank were at odds over proceeds from the sale of hogs when the farmer was unable to pay a $61,686.21 feed bill. The elevator had properly filed its lien but did not send a certified letter to the bank.
The judge first noted that the law was “ambiguous” as to whether the elevator was required to send a certified letter to the bank in order for the elevator’s lien to trump the bank’s. On one hand, the law states the elevator was required to send a certified letter to the bank. On the other hand, the law does not expressly state that the elevator had to send the letter to the bank to have a priority feed lien. In the judge’s words: “Reasonable minds could differ or be uncertain as to the meaning of the statute.”
To reconcile these conflicting sections of the law, the judge first noted that the intent of the law was to assist farmer/livestock producers in obtaining financing and avoiding the collapse of their operations when their pre-existing bank debt stopped them from getting much-needed credit for essential ag supplies.
With that intent in mind and following a detailed legal analysis, the judge concluded that the Legislature intended to give feed suppliers more protection than sellers of seed, chemicals and petroleum because (1) feed sellers were given priority over banks instead of equal priority for seed, chemicals and petroleum and (2) the feed lien did not specifically reference the certified letter requirement as did the lien for seed, chemicals and petroleum.
In ruling that the elevator’s feed lien prevailed over the bank’s lien, the judge stated that “it doesn’t make sense” that if the certified letter sections of the law were intended to apply to all of the ag supply liens, why did the Legislature expressly reference the certified letter requirement for seed, chemicals and petroleum liens but not do the same thing for feed liens. If the certified letter requirements “had the breadth as argued by the bank”, the judge concluded, it would not have been necessary to specifically reference those requirements for liens for seed, chemicals and petroleum.
This case is one of at least a half-dozen pending cases in district courts in Iowa on the feed lien issue. As previously noted in this article, this decision may be appealed to the Iowa Supreme Court. Also, this or any other district court decision is not controlling in any other case. That is, judges in other cases may or may not rule as the judge did in this case. Until this or any other case is appealed, or unless the law is changed by the Legislature, there will likely continue to be uncertainty as to the status of feed liens in Iowa.
IPPA will continue to watch these cases and report judge’s decisions as they are issued.
For a complete summary of the court's decision, see Doon vs.American
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