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Banking & Finance Law Report

Amendment to Agricultural Lien Law Reinforces Decision in Ohio Dept. of Agriculture v. Central Erie Supply & Elevator Association

Posted in Agricultural Lending, Bank Lending, Commercial Lending, Commercial Loans and Leases, Finance, Lien Perfection, UCC Questions

A recent change to Ohio’s agricultural lien law clarifies the interplay between security interests governed by Article 9 of the UCC and those governed by Ohio’s agricultural lien statutes, and confirms the ruling of the Sixth Appellate Court of Erie County in Ohio Dept. of Agriculture v. Central Erie Supply & Elevator Association, 2013-Ohio-3061.

Central Erie Supply & Elevator Association (Central Erie) operated a grain elevator that it used to receive grain and other commodities from farmers (known as “claimants” under the statutory scheme) and sell the commodities to third parties. This made Central Erie an “agricultural commodity handler” under Ohio Revised Code Chapter 926. Pursuant to ORC § 926.021(C), the claimants who provided commodities to Central Erie retained a statutory lien on the commodities until they were paid.

Central Erie also had received financing from, and granted security interests in its assets to, appellant Citizens Banking Company (Citizens), which had perfected its security interests in Central Erie’s assets pursuant to Article 9 of the UCC as applicable in Ohio.

Central Erie’s operations failed, vesting the director of the Ohio Department of Agriculture (ODA) with exclusive statutory authority under ORC § 926.021(D) to enforce lien claims and allocate proceeds of the disposition of Central Erie’s assets. The ODA filed a complaint against Central Erie and Citizens seeking to enjoin the disposition of commodities subject to statutory liens in favor of the claimants and to bar Citizens from physically seizing the commodities or proceeds therefrom. The ODA also obtained summary judgment granting it a priority-secured claim in favor of the claimants under Chapter 926.

Citizens appealed this grant of summary judgment, asserting that the trial court erred in concluding that the ODA’s lien under ORC § 926.01 had priority over Citizen’s lien under UCC Article 9. The appellate court affirmed the trial court’s ruling, citing ORC § 926.33, which provides that, in the event of a conflict between the provisions of Chapter 926 and Article 9 of the UCC, the provisions of Chapter 926 take precedence.

In a dissenting opinion, Judge Yarbrough denied that any conflict between the provisions of ORC Chapter 926 and Article 9 of the UCC actually existed. Judge Yarbrough wrote that the provisions of ORC § 926.021 were limited to the determination of priority of liens held by claimants, and did not address the relative priorities of liens held by claimants vs. liens perfected under Article 9 of the UCC. His dissent concluded that ORC § 926.021(D) “simply cannot stand for the proposition that claimants have a security interest that is superior to those held by other, non-claimant, secured parties,” because the provision provided no guidance as to the relative priorities amongst claimants and other secured parties.

The Ohio General Assembly clarified the interplay of Chapter 926 and Article 9 by passing Senate Bill 66 on June 26, 2013, adding language to ORC §926.021 stating that “[t]he lien established under this section shall have priority over all competing lien claims asserted against the agricultural commodity assets.” This change became effective Oct. 11, 2013, reaffirming the Central Erie court’s decision that security interests held by claimants under ORC § 926 will indeed have priority over competing security interests perfected by non-claimant secured parties under UCC Article 9.

Secured lenders lending to agricultural commodity handlers in Ohio should familiarize themselves with these special agricultural lien provisions and seek guidance from experienced legal counsel with respect to their security interests in agricultural commodities.