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Friday, December 7, 2012

Agricultural commodity dealer liens

You can’t drive down the freeway this time of year without passing a tractor-trailer hauling hay or straw.  Eastern Idaho is a large producer of hay and straw, which is often trucked to dairies in western Idaho and elsewhere. 

When hay or straw is shipped, the buyer and the seller typically have entered into a contract for the purchase and sale of the product. But what happens when the seller delivers the hay or straw to the purchaser and the buyer fails to pay?

Idaho law states that an agricultural commodity producer or dealer who sells or delivers agricultural products (such as hay, grain, beans, straw, etc.) has a lien on those products and the proceeds from the subsequent sale of those products. Idaho Code § 45-1802.

The lien attaches to the agricultural product and any proceeds when the agricultural product is delivered to the purchaser, or on the date that a final payment is due and unpaid, whichever occurs last.  Idaho Code § 45-1803.

The lien on the agricultural product remains in effect for a period of 180 days.  If at that point a producer or dealer still hasn’t been paid, the producer or dealer must file a written notice of lien with the Idaho Secretary of State in order to preserve the lien for an additional year.

Meanwhile, if the contract still has not been paid, the producer or dealer should hire an attorney and file a legal action to foreclose on the lien or the proceeds from the sale of the agricultural product.  The law allows the producer or dealer to collect attorney fees in addition to the money owed.  Idaho Code § 45-1809.

Another interesting question is whether the lien only attaches to the product sold (e.g. the hay) or whether it also attaches to the livestock that eat the product.  The Idaho Supreme Court will consider this issue after a dairy near Twin Falls defaulted on its obligation to pay for the hay and wheat it fed its dairy cows. A bank, which had a lien on the cows, took possession of them when the dairy also defaulted on its bank loan. The bank then sold the cows at auction.

The Idaho Supreme Court will determine whether the agricultural commodity lien takes precedence over the bank’s lien on the cows. The Court’s decision about the priority of the liens will determine whether the agricultural producers or the bank receives the proceeds from the sale of the cattle.

Regardless of how the Idaho Supreme Court rules, however, it is important that agricultural product producers and dealers understand their rights under state law to ensure they get paid for these valuable products.

- Lance J. Schuster is a lawyer at Beard St. Clair Gaffney.  He and his wife raise kids and cattle on their small farm near Idaho Falls.  He can be reached at 523-5171 or lance @beardstclair.com.

Staff at 4:06 PM
Agribusiness
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