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Iowa’s lien laws impact farmers, raise questions

What are some of the legal issues farmers deal with when borrowing money from creditors, purchasing inputs and understanding ag financing arrangements? We often answer questions on this topic, as agricultural finance is very important in today’s farm industry.

Iowa has several “statutory liens” protecting the rights of farmers and those who do business with them, including the Ag Supply Dealer’s Lien. For a supplier of ag inputs to perfect this lien, they must send a certified request to the bank where the farmer has a line of credit. The request is sent to determine if the farmer has sufficient net worth to pay and file a financing statement with the Iowa secretary of state within 31 days of the purchase of inputs.

As Iowa Code §570A states, sellers of feed may enjoy “super-priority” for inputs sold if they go through the proper process, meaning their lien may take precedence over the bank’s prior lien. This is not true for suppliers of other inputs, including crop inputs such as fertilizer and chemicals, as those suppliers enjoy equal priority with the bank if they properly perfect. However, litigation continues in this area.

This spring, a federal court heard a case involving Iowa hog farmers. An ag supplier supplied feed for the hog operation and sent a certified request for the farmers’ financial information to the local bank before selling the feed. The bank never responded. Despite that, the supplier sold nearly $93,000 worth of feed to the farmers.

The supplier filed a financing statement and listed the hogs as collateral. The farmers failed to make payments to the ag supplier and to the bank and declared bankruptcy. The bank sued the supplier, asking the court to determine who had priority in getting paid. The court held that the ag supplier enjoyed “super-priority” over the bank on the amounts they properly perfected.

However, the perfected lien did not cover additional supplies sold to the debtor after the filing of the lien. The supplier should have filed another financing statement to cover those supplies. For more information on the Ag Supply Dealer’s Lien, see our in-depth article at www.calt.iastate.edu/agsupplylien.html.

Case on homestead rights

Homestead rights in the event of financial distress are another area of concern. Homestead property is generally protected under the law.

In an Iowa case, a farm corporation entered into hedge-to-arrive contracts with a local input supplier/grain merchandiser. The owners of the corporation (a husband and wife) secured a line of credit from the supplier to finance their farming operations. After they signed the line of credit, they purchased a new homestead property.

Later that year, the corporation sold all of its corn on the open market and could not honor the HTA contracts. The supplier sued the corporation for breach of contract and sued the couple for failing to guarantee the debt of the corporation. The trial court found in favor of the supplier and put a levy upon the real estate the couple owned, including the homestead.

The appellate court determined that the HTAs were contracts between the corporation and the supplier, not the couple and the supplier. The couple did not personally guarantee the HTA contracts until they signed a line of credit with the supplier, and that didn’t occur until after they had acquired the homestead. So, the homestead was protected under Iowa law.  

Estate planning gone awry

The final case I’ll share with you today could be titled “Estate planning gone awry: How to keep the family happy.” Family squabbling seems to be on the rise with respect to estate planning. When working with your attorney on your estate plan, ask for some tips for avoiding family feuding and miscommunication.

In one case, two brothers became embroiled in a bitter lawsuit over their mother’s estate and the sale of a tract of real estate. The issue was whether one of the brothers unduly influenced his mother to disinherit the other brother — the plaintiff in this case.  

The mother spoke to her attorney about disinheriting the plaintiff and executed documents to that effect. The remaining brother was to be the sole beneficiary. When the mother died, the plaintiff learned of his disinheritance and promptly sued his brother for unduly persuading his mother to change her estate plan.

To prove a claim of undue influence, in Iowa, one must prove four elements: 1) that the testator was susceptible to undue influence, 2) that there was an opportunity to exercise that undue influence, 3) that the party had a disposition to unduly influence, and 4) that there was damage done to another due to the undue influence.

The appellate court held that the mother was not susceptible to influence here. The mother was able to take care of the daily tasks of living on her own. She discussed her options with her attorney and was properly advised about the ramifications of her actions.

The mother was described as “strong-willed, forceful and intense” about her decisions, and the evidence strongly showed that she was in possession of her mental faculties at the time the documents were drafted. There was no evidence presented at trial to prove that either brother took advantage of the opportunity to influence his strong-willed mother.

Herbold-Swalwell is staff attorney for Iowa State University’s Center for Ag Law and Taxation.

Ag legislation updates online

The Center for Ag Law and Taxation’s website, www.calt.
iastate.edu
,
has updates on important farm tax law developments. The site also has information about new Iowa legislation that became law this year that is of interest to farmers and others involved in agriculture.


This article published in the August, 2011 edition of WALLACES FARMER.

All rights reserved. Copyright Farm Progress Cos. 2011.