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Punctual Leadership Blog

06 May
Uncategorized

HOLY COW! AGRICULTURAL LIENS VS UCC SECURED LIVESTOCK

by Punctual Abstract

If you’ve ever asked yourself the question “Is it possible to secure a loan with livestock?” then you’re in the right place.

The relevant place to look is under “Farm products” in Article 9 of the UCC, which governs security interests and financing for everything from unprocessed livestock to raw peas and carrots.

The statutory framework that guides security interests for agricultural financing is distinct and therefore quite confusing. In order to maintain priority position, lenders and other secured parties must understand the difference between a UCC security interest in farm products and agricultural liens.

Agricultural Liens vs. UCC Secured Livestock

The goal of both agricultural liens and UCC security interests in farm products is to create an obligation for payment, but the context is different and they accomplish this goal in different ways.

A security interest in farm products is created under the UCC; it emerges as a result of an agreement between parties, typically banks/commercial lenders and farmers.

Agricultural liens, like PACA liens, are generally used by suppliers. Like other types of liens, they are triggered by state statute, with or without the consent of the debtor. They do not require possession of the farm products themselves.

UCC Security Interests in Farm Products

Banks and other secured parties generally perfect their security interests in farm products with a UCC-1 filing. The collateral description in these financing statements may describe the farm products: specifically, by type, or with a generic catch-all phrase like “all assets.”

Unique Livestock Rules: Purchase Money Security Interest

Now, if the loan is to provide purchase money for livestock—a Purchase Money Security Interest (PMSI)— the secured party is required to file its financing statement before the debtor receives possession of the livestock, similar to PMSI in inventory. The one difference is a PMSI notice for livestock has a much shorter effective period: 6 months compared to five years for inventory PMSI.

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